Shoals Technologies Group, Inc 10-Q for FY2025 Q1
Shoals Technologies Group, Inc. (SHLS)
10-Q
2025-05-06
For: 2025-03-31
View Original
Added on
April 10, 2026
About this 10-Q
Shoals Technologies Group, Inc filed this 10-Q on May 6, 2025, covering the quarter ended March 31, 2025 (FY2025 Q1).
Headline figures
Quarter ended March 31, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $80.36M
- down 11.5% from $90.81M a year earlier
- Net loss
- $282K
- compared with net income of $4.77M a year earlier
- Diluted EPS
- $0.00
- compared with $0.03 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended March 31, 2025
or
For the transition period from _________ to _________
Commission File Number: 001-39942
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||||||||
| (Registrant’s telephone number, including area code) | |||||
| N/A | ||
| (Former name, former address and former fiscal year, if changed since last report) | ||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
i
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of April 30, 2025, the registrant had 167,174,809 shares of Class A common stock and no shares of Class B common stock outstanding. This number excludes 3,908,387 shares held by the registrant as Treasury Stock.
ii
TABLE OF CONTENTS
| ITEM | PAGE | |||||||
| PART I | ||||||||
| Item 1. | Financial Statements (Unaudited) | |||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |||||||
| Item 4. | Controls and Procedures | |||||||
| PART II | ||||||||
| Item 1. | Legal Proceedings | |||||||
| Item 1A. | Risk Factors | |||||||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |||||||
| Item 3. | Defaults Upon Senior Securities | |||||||
| Item 4. | Mine Safety Disclosures | |||||||
| Item 5. | Other Information | |||||||
| Item 6. | Exhibits | |||||||
| SIGNATURES | ||||||||
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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Form 10-Q”) of Shoals Technologies Group, Inc. (the “Company,” “we,” “us,” “our,” and “Shoals”) contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include information concerning our possible or assumed future results of operations; expectations regarding the utility-scale solar market; project delays; regulatory environment; the effects of strategic pricing actions, volume discounts and customer mix in our key markets; pipeline and orders; business strategies, plans and expectations, including sales and marketing goals; technology developments; financing and investment plans; warranty and liability accruals and estimates of loss or gains; estimates of potential loss related to the wire insulation shrinkback matter (as defined below); litigation strategy and expected benefits or results from the current intellectual property and wire insulation shrinkback litigation; potential growth opportunities, including opportunities associated with our entry into new markets; production and capacity at our plants; and potential repurchases under the Company’s Repurchase Program (as defined below). Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” “would” or similar expressions and the negatives of those terms.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. You should read this report with the understanding that our actual future results may be materially different from what we expect.
Important factors that could cause actual results to differ materially from expectations are included in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part I and Item 1A “Risk Factors” of Part II of this Form 10-Q, as well as Part I Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2024.
Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. Some of the key factors that could cause actual results to differ from our expectations include the following:
•If demand for solar energy projects diminishes, we may not be able to grow, and our financial results, business and prospects could be materially adversely impacted;
•If we fail to accurately estimate the potential losses related to the wire insulation shrinkback matter, or fail to recover the costs and expenses incurred by us from the supplier, our profit margins, financial results, business and prospects could be materially adversely impacted;
•The interruption of the flow of raw materials from international vendors has disrupted our supply chain, including as a result of the imposition of additional duties, tariffs and other charges on imports and exports;
•The imposition of trade restrictions, import tariffs, anti-dumping and countervailing duties could adversely affect the amount or timing of our revenue, results of operations or cash flows;
•We have modified, and in the future may modify, our business strategy to abandon lines of business or implement new lines of business. Modifying our business strategy could have an adverse effect on our business and financial results;
•Amounts included in our backlog and awarded orders may not result in actual revenue or translate into profits;
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•Defects or performance problems in our products or their parts, whether due to manufacturing, installation, or use, including those related to the wire insulation shrinkback matter, have a high consequence of failure and can lead to equipment and systems failure, physical injury or death, and in the past have, and in the future could, result in loss of customers, reputational damage and decreased revenue, and materially adversely impact our business, financial condition and results of operations;
•We have experienced, and may experience in the future, delays, disruptions, quality control or reputational problems in our manufacturing operations in part due to our vendor concentration;
•If we fail to retain our key personnel and attract additional qualified personnel, our business strategy and prospects could suffer;
•Our products are primarily manufactured and shipped from our production facilities in Tennessee, and any damage or disruption at these facilities may harm our business;
•We may face difficulties with respect to the planned consolidation and relocation of our Tennessee-based manufacturing and distribution operations, and may not realize the benefits thereof;
•Safety issues may subject us to penalties, negatively impact customer relationships, result in higher operating costs, and negatively impact employee morale and turnover;
•The market for our products is competitive, and we face increased competition as new and existing competitors introduce EBOS system solutions and components, which could negatively affect our results of operations and market share;
•Macroeconomic conditions, including high inflation, high interest rates, and geopolitical instability impacts our business and financial results;
•We are subject to risks associated with the patent infringement complaints that we filed with the U.S. International Trade Commission (“ITC”) and District Courts;
•If we fail to, or incur significant costs in order to obtain, maintain, protect, defend or enforce our intellectual property portfolio and other proprietary rights, including the patents we are asserting in ongoing patent infringement litigation, our business and results of operations could be materially harmed;
•Acquisitions, joint ventures and/or investments and the failure to integrate acquired businesses, could disrupt our business and negatively impact our results of operations;
•A loss of one or more of our significant customers, their inability to perform under their contracts, or their default in payment could harm our business and negatively impact revenue, results of operations, and cash flow;
•A significant drop in the price of electricity may harm our business, financial condition, results of operations and prospects;
•The unauthorized access to our information technology systems or the disclosure of personal or sensitive data or confidential information, whether through a breach of our computer system or otherwise, could severely disrupt our business or reduce our sales or profitability;
•Failure of our information technology systems, including those managed by third parties, whether intentional or inadvertent, could lead to delays in our business operations and, if significant or extreme, affect our results of operations;
•Our expansion outside the U.S. could subject us to additional business, financial, regulatory and competitive risks;
•Our indebtedness could adversely affect our financial flexibility, restrict our current and future operations, and our competitive position;
•Existing electric utility industry, federal state and municipal renewable energy and solar energy policies and regulations, including zoning and siting laws, and any subsequent changes, present technical, regulatory and economic barriers to the purchase and use of solar energy systems that may significantly reduce demand for our products or harm our ability to compete;
v
•Changes in tax laws or regulations that are applied adversely to us, or our customers could materially adversely affect our business, financial condition, results of operations and prospects;
•The market price of our Class A common stock may decline and may continue to be subject to significant volatility;
•Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management; and
•Our amended and restated certificate of incorporation also provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Shoals Technologies Group, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except shares and par value)
| March 31, 2025 | December 31, 2024 | ||||||||||
| Assets | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Unbilled receivables | |||||||||||
| Inventory, net | |||||||||||
| Other current assets | |||||||||||
| Total Current Assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Other intangible assets, net | |||||||||||
| Deferred tax assets | |||||||||||
| Other assets | |||||||||||
| Total Assets | $ | $ | |||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current Liabilities | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses and other | |||||||||||
| Warranty liability—current portion | |||||||||||
| Deferred revenue | |||||||||||
| Total Current Liabilities | |||||||||||
| Revolving line of credit | |||||||||||
| Warranty liability, less current portion | |||||||||||
| Other long-term liabilities | |||||||||||
| Total Liabilities | |||||||||||
| Commitments and Contingencies (Note 13) | |||||||||||
| Stockholders’ Equity | |||||||||||
Preferred stock, $ | |||||||||||
Class A common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
Treasury stock, at cost, | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Total stockholders' equity | |||||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements.
1
Shoals Technologies Group, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share amounts)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Revenue | $ | $ | |||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| General and administrative expenses | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||
| Interest expense | ( | ( | |||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax expense | ( | ( | |||||||||||||||||||||
| Net income (loss) | $ | ( | $ | ||||||||||||||||||||
| Earnings (loss) per share of Class A common stock: | |||||||||||||||||||||||
| Basic | $ | ( | $ | ||||||||||||||||||||
| Diluted | $ | ( | $ | ||||||||||||||||||||
| Weighted average shares of Class A common stock outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
2
Shoals Technologies Group, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(in thousands, except shares)
For the three months ended March 31, 2025
| Class A Common Stock | Additional Paid-in Capital | Treasury Stock | Retained Earnings | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Activity under equity-based compensation plan | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Vesting of restricted / performance stock units | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||
For the three months ended March 31, 2024
| Class A Common Stock | Additional Paid-in Capital | Treasury Stock | Retained Earnings | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Activity under equity-based compensation plan | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Vesting of restricted / performance stock units | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
3
Shoals Technologies Group, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
| Three Months Ended March 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net income (loss) | $ | ( | $ | ||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization/write off of deferred financing costs | |||||||||||
| Equity-based compensation | |||||||||||
| Provision for obsolete or slow-moving inventory | |||||||||||
| Provision for warranty expense | |||||||||||
| Deferred taxes | |||||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable | |||||||||||
| Unbilled receivables | |||||||||||
| Inventory | ( | ( | |||||||||
| Other assets | ( | ( | |||||||||
| Accounts payable | |||||||||||
| Accrued expenses and other | ( | ( | |||||||||
| Warranty liability | ( | ( | |||||||||
| Deferred revenue | ( | ( | |||||||||
| Net Cash Provided by Operating Activities | |||||||||||
| Cash Flows from Investing Activities | |||||||||||
| Purchases of property, plant and equipment | ( | ( | |||||||||
| Net Cash Used in Investing Activities | ( | ( | |||||||||
| Cash Flows from Financing Activities | |||||||||||
| Employee withholding taxes related to net settled equity awards | ( | ( | |||||||||
| Payments on term loan facility | ( | ||||||||||
| Proceeds from revolving credit facility | |||||||||||
| Repayments of revolving credit facility | ( | ( | |||||||||
| Deferred financing costs | ( | ||||||||||
| Net Cash Used in Financing Activities | ( | ( | |||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | ( | ||||||||||
| Cash and Cash Equivalents—Beginning of Period | |||||||||||
| Cash and Cash Equivalents—End of Period | $ | $ | |||||||||
| Three Months Ended March 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Supplemental Cash Flows Information: | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash paid (refunded) for taxes | $ | ( | $ | ||||||||
See accompanying notes to condensed consolidated financial statements.
4
Shoals Technologies Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Organization and Business
Shoals Technologies Group, Inc. (the “Company”) was formed as a Delaware corporation on November 4, 2020 for the purpose of facilitating an initial public offering and other related organizational transactions to carry on the business of Shoals Parent LLC and its subsidiaries (“Shoals Parent LLC”). Shoals Parent LLC was a Delaware limited liability company.
The Company is headquartered in Portland, Tennessee and is a leading provider of electrical balance of systems (“EBOS”) solutions and components, including battery energy storage solutions (“BESS”) and Original Equipment Manufacturer (“OEM”) components, for the global energy transition market.
As of March 31, 2025, the Company owns directly or indirectly five subsidiaries: Shoals Intermediate Parent Inc., Shoals Technologies Group, LLC, Shoals International, LLC, Shoals Energy Spain, S.L. and Shoals Energy Australia Pty Ltd.
2. Summary of Significant Accounting Policies
Basis of Accounting and Presentation
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
Unaudited Interim Financial Information
The accompanying condensed consolidated balance sheets as of March 31, 2025 and December 31, 2024, the condensed consolidated statements of operations, changes in stockholders’ equity and cash flows for the three months ended March 31, 2025 and 2024 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2025 and the results of its operations and its cash flows for the three months ended March 31, 2025 and 2024. The financial data and other information disclosed in these notes related to the three months ended March 31, 2025 and 2024 are also unaudited. The results for the three months ended March 31, 2025 are not necessarily indicative of results to be expected for the year ending December 31, 2025, any other interim periods, or any future year or period. The balance sheet as of December 31, 2024 included herein was derived from the audited financial statements as of that date. Certain disclosures have been condensed or omitted from the interim condensed consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
5
Shoals Technologies Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates. Significant estimates include revenue recognition, allowance for credit losses, useful lives of property, plant and equipment and other intangible assets, impairment of long-lived assets, allowance for obsolete or slow moving inventory, valuation allowance on deferred tax assets, equity-based compensation expense and warranty liability.
Customer Concentrations
The Company had the following revenue concentration representing approximately 10% or more of revenue for the three months ended March 31, 2025 and 2024 and related accounts receivable concentration as of March 31, 2025 and December 31, 2024:
| 2025 | 2024 | ||||||||||||||||||||||
| Revenue % | Accounts Receivable % | Revenue % | Accounts Receivable % | ||||||||||||||||||||
| Customer A | % | % | % | % | |||||||||||||||||||
| Customer B | % | % | % | % | |||||||||||||||||||
| Customer C | % | % | % | % | |||||||||||||||||||
Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company follows a fair value hierarchy which requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Three levels of inputs may be used to measure fair value, as follows:
•Level 1 – Quoted prices in active markets for identical assets or liabilities.
•Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3 – Unobservable inputs that are supported by little or no market activity that are significant to the fair value of the assets or liabilities.
The fair values of the Company’s cash and cash equivalents, accounts receivable, and accounts payable approximate their carrying values due to their short maturities. The carrying value of the Company’s revolving line of credit approximates fair value and is considered level 2, as it is based on current market rates at which the Company could borrow funds with similar terms.
Recent Accounting Pronouncements
Not Yet Adopted
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and disclosures regarding cash taxes paid both in the U.S. and foreign jurisdictions.
6
Shoals Technologies Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The update will be effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact that this guidance will have on the presentation of its consolidated financial statements.
In November 2024, FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, requiring public entities to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2024-03.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial statements.
3. Accounts Receivable
Accounts receivable, net consists of the following (in thousands):
| March 31, 2025 | December 31, 2024 | ||||||||||
| Accounts receivable | $ | $ | |||||||||
| Less: allowance for credit losses | ( | ( | |||||||||
| Accounts receivable, net | $ | $ | |||||||||
4. Inventory
Inventory, net consists of the following (in thousands):
| March 31, 2025 | December 31, 2024 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Allowance for obsolete or slow-moving inventory | ( | ( | |||||||||
| Inventory, net | $ | $ | |||||||||
7
Shoals Technologies Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
5. Property, Plant and Equipment
Property, plant, and equipment, net consists of the following (in thousands):
| Estimated Useful Lives (Years) | |||||||||||||||||
| March 31, 2025 | December 31, 2024 | ||||||||||||||||
| Land | N/A | $ | $ | ||||||||||||||
| Building and land improvements | |||||||||||||||||
| Machinery and equipment | |||||||||||||||||
| Furniture and fixtures | |||||||||||||||||
| Vehicles | |||||||||||||||||
| Less: accumulated depreciation | ( | ( | |||||||||||||||
| Property, plant and equipment, net | $ | $ | |||||||||||||||
Depreciation expense for the three months ended March 31, 2025 and 2024 was $1.4 million and $1.1 million, respectively. During the three months ended March 31, 2025 and 2024, $1.2 million and $0.9 million, respectively, of depreciation expense was allocated to cost of revenue and $0.2 million and $0.2 million, respectively, of depreciation expense was allocated to operating expenses.
6. Goodwill and Other Intangible Assets
Goodwill
There were no changes in the carrying amount of goodwill during the three months ended March 31, 2025. Goodwill totaled $69.9
8
Shoals Technologies Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Other Intangible Assets
Other intangible assets, net consists of the following (in thousands):
| Estimated Useful Lives (Years) | March 31, 2025 | December 31, 2024 | |||||||||||||||
| Amortizable: | |||||||||||||||||
| Costs: | |||||||||||||||||
| Customer relationships | $ | $ | |||||||||||||||
| Developed technology | |||||||||||||||||
| Trade names | |||||||||||||||||
| Backlog | |||||||||||||||||
| Noncompete agreements | |||||||||||||||||
| Total amortizable intangibles | |||||||||||||||||
| Accumulated amortization: | |||||||||||||||||
| Customer relationships | |||||||||||||||||
| Developed technology | |||||||||||||||||
| Trade names | |||||||||||||||||
| Backlog | |||||||||||||||||
| Noncompete agreements | |||||||||||||||||
| Total accumulated amortization | |||||||||||||||||
| Total other intangible assets, net | $ | $ | |||||||||||||||
Amortization expense related to intangible assets amounted to $1.9
7. Accrued Expenses and Other
Accrued expenses and other consists of the following (in thousands):
| March 31, 2025 | December 31, 2024 | ||||||||||
| Accrued compensation | $ | $ | |||||||||
| Accrued interest | |||||||||||
| Accrued rebates | |||||||||||
| Other accrued expenses | 5,558 | ||||||||||
| Total accrued expenses and other | $ | $ | |||||||||
8. Warranty Liability
General Warranty
The Company offers an assurance type warranty for its products against manufacturer defects which does not contain a service element. For these assurance type warranties, a provision for estimated future costs related to warranty expense is recorded when they are probable and reasonably estimable. As of March 31, 2025 and December 31, 2024 our estimated general warranty liability was approximately $1.0 million and $1.1 million, respectively. The Company recorded total warranty expense related to general warranty matters of $0.3 million and $0.6 million for the three months ended March 31, 2025 and 2024, respectively.
9
Shoals Technologies Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Wire Insulation Shrinkback Warranty
The Company has been notified by certain customers that a subset of wire harnesses used in its EBOS solutions is presenting unacceptable levels of contraction of wire insulation (“wire insulation shrinkback”). Based upon the Company’s ongoing assessment, the Company currently believes the wire insulation shrinkback is related to defective wire manufactured by Prysmian Cables and Systems USA, LLC (“Prysmian”). Based on the Company’s continued analysis of information available as of the date of this Quarterly Report, the Company determined that a potential range of loss was both probable and reasonably estimable. The Company has continued to refine assumptions based on additional information obtained throughout the remediation process, and as of March 31, 2025, the estimate of potential losses remains unchanged from the estimate provided as of December 31, 2024. As no amount within the current range of loss appears to be a better estimate than any other amount, the Company recorded a warranty liability and related expense representing the low-end of the range of potential loss of $73.0 160.0 million, which is $87.0 million higher than the amount recorded. As of March 31, 2025 and December 31, 2024, the remaining estimated warranty liability related to this matter was $30.4 million and $39.9 million, respectively.
The estimated range, continues to be based on several assumptions, including the potential magnitude of engineering, procurement and construction firm’s labor cost to identify and perform the repair and replacement of impacted harnesses, estimated failure rates, materials replacement cost, planned remediation method, inspection costs, and other various assumptions. While our wire insulation shrinkback warranty liability represents our best estimate of the range of expected losses at any given time, the Company remains active in the ongoing identification, repair and replacement process and has increased, and may further increase or decrease, its estimated warranty liability from its current estimate based on available information, including with respect to experience relating to weather delays, site access, the scope of replacement, vegetation management or other factors. Such increase or decrease may be material. The Company does not maintain insurance for product warranty issues and has commenced a lawsuit against Prysmian, as discussed in more detail under Wire Insulation Shrinkback Litigation section of Note 13 - Commitments and Contingencies. Because the lawsuit against Prysmian is ongoing, potential recovery from Prysmian is not considered probable as defined in ASC 450, and has not been considered in our estimate of the warranty liability as of March 31, 2025.
The Company did not
Warranty liability, which includes both general warranty and wire insulation shrinkback warranty, is estimated as follows (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Warranty liability, beginning of period | $ | $ | |||||||||||||||||||||
| Warranty expense | |||||||||||||||||||||||
| Payments | ( | ( | |||||||||||||||||||||
| Warranty liability, end of period | |||||||||||||||||||||||
| Less: current portion | |||||||||||||||||||||||
| Warranty liability, net of current portion | $ | $ | |||||||||||||||||||||
10
Shoals Technologies Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
9. Long-Term Debt
Long-term debt consists of the following (in thousands):
| March 31, 2025 | December 31, 2024 | ||||||||||
| Revolving Credit Facility | $ | $ | |||||||||
| Less: deferred financing costs | |||||||||||
| Total debt, net of deferred financing costs | |||||||||||
| Less: current portion | |||||||||||
| Long-term debt, net of current portion | $ | $ | |||||||||
Senior Secured Credit Agreement
The Company entered into a senior secured credit agreement (as amended, the “Senior Secured Credit Agreement”), which consisted of (i) a senior secured six-year term loan facility (the “Term Loan Facility”) and (ii) a revolving credit facility (the “Revolving Credit Facility”).
On January 19, 2024, the Company used proceeds from the Revolving Credit Facility to make a $100.0 million voluntary prepayment of outstanding borrowings under the Term Loan Facility.
On March 19, 2024, the Company entered into an amendment to the Senior Secured Credit Agreement. The amendment, among other things, (i) increased the amount available for borrowing under the Revolving Credit Facility from $150.0 million to $200.0 million, (ii) reduced the interest rate margin applicable to the Revolving Credit Facility by at least 0.25 %, with additional 0.25 % step-downs if the consolidated first lien secured leverage ratio does not exceed certain thresholds (which step-downs will step back up if such leverage ratio exceeds those thresholds), (iii) reduced the commitment fee applicable to the undrawn amount of the Revolving Credit Facility by at least 0.10 % with additional 0.05 % step-downs if the consolidated first lien secured leverage ratio does not exceed certain thresholds (which step-downs will step back up if such leverage ratio exceeds such thresholds), (iv) lowered the maximum consolidated leverage ratio permitted under the Senior Secured Credit Agreement to (a) 4.25 :1.00 from April 1, 2024 through March 31, 2025 and (b) thereafter, 4.00 :1.00 (with temporary increases to the maximum consolidated first lien secured leverage ratio in the event a material acquisition closes), (v) extended the maturity date applicable to the Revolving Credit Facility to March 19, 2029, the fifth anniversary of the amendment’s effective date, and (vi) amended certain covenants under the Senior Secured Credit Agreement in a manner customary for facilities of this type.
On March 19, 2024, the Company made a $43.8 million voluntary prepayment of all the outstanding term loans under the Term Loan Facility, thereby terminating all term loan commitments under the Term Loan Facility.
Beginning March 19, 2024 and until the delivery of the Company’s compliance certificate for the second quarter of 2024 pursuant to the Senior Secured Credit Agreement, the Revolving Credit Facility bore interest at a rate equal to, at the Company’s election, either adjusted term Secured Overnight Financing Rate (“SOFR”) or base rate (each, as defined in the Senior Secured Credit Agreement) plus (i) in the case of SOFR rate loans, 2.50 % per annum and (ii) in the case of base rate loans, 1.50 % per annum.
Following the delivery of the Company’s compliance certificate for the second quarter of 2024, pursuant to our Senior Secured Credit Agreement, the Revolving Credit Facility bears interest at a rate equal to, at the Company’s election, either adjusted term SOFR or base rate (each, as defined in the Senior Secured Credit Agreement) plus an applicable interest rate margin, based upon the consolidated first lien secured leverage
11
Shoals Technologies Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
ratio. The applicable interest rate margin varies from 2.25 % to 3.00 % per annum for term benchmark loans and 1.25 % to 2.00 % per annum for base rate loans.
As of March 31, 2025, the interest rate on the Revolving Credit Facility ranged from 6.89 % to 6.90 %, which represented SOFR plus 2.50 %. As of March 31, 2025, there were $141.8 million of outstanding borrowings, $0.0 million of outstanding letters of credit, and $58.2 million of availability under the Revolving Credit Facility.
The Senior Secured Credit Agreement contains affirmative and negative covenants that are customary for financings of this type, including covenants that restrict our incurrence of indebtedness, incurrence of liens, dispositions, investments, acquisitions, restricted payments, and transactions with affiliates. The Senior Secured Credit Agreement also includes customary events of default, including the occurrence of a change of control.
As discussed above, the Revolving Credit Facility also includes a consolidated leverage ratio financial covenant that is tested on the last day of each fiscal quarter. As of March 31, 2025, the Company was in compliance with all the required covenants.
10. Earnings (Loss) per Share ("EPS")
Basic EPS of Class A common stock is computed by dividing net income (loss) by the weighted average number of shares of Class A common stock outstanding during the period (which does not include treasury stock). Diluted EPS of Class A common stock is computed similarly to basic EPS except that the weighted average shares outstanding are increased to include additional shares from the assumed exercise of any common stock equivalents using the treasury stock method, if dilutive. The Company’s restricted/performance stock units are considered common stock equivalents for this purpose.
Basic and diluted EPS of Class A common stock have been computed as follows (in thousands, except per share amounts):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income (loss) - basic and diluted | $ | ( | $ | ||||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average shares of Class A common stock outstanding - basic | |||||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Restricted / performance stock units | |||||||||||||||||||||||
| Weighted average shares of Class A common stock outstanding - diluted | |||||||||||||||||||||||
| Earnings (loss) per share of Class A common stock - basic | $ | ( | $ | ||||||||||||||||||||
| Earnings (loss) per share of Class A common stock - diluted | $ | ( | $ | ||||||||||||||||||||
12
Shoals Technologies Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
11. Equity-Based Compensation
2021 Long-Term Incentive Plan
The Shoals Technologies Group, Inc. 2021 Long-Term Incentive Plan (the “2021 Incentive Plan”) became effective on January 26, 2021. The 2021 Incentive Plan authorized 8,768,124 new shares, subject to adjustment pursuant to the 2021 Incentive Plan.
Restricted Stock Units
During the three months ended March 31, 2025, the Company granted 1,480,042 restricted stock units (“RSUs") to certain employees, officers and directors of the Company. The RSUs granted during 2025 have grant date fair values ranging from $4.54 to $6.05 per unit and vest ratably over 3 years.
Activity under the 2021 Incentive Plan for RSUs was as follows:
| Three Months Ended March 31, 2025 | |||||||||||
| Restricted Stock Units | Weighted Average Price | ||||||||||
| Outstanding, December 31, 2024 | $ | ||||||||||
| Granted | $ | ||||||||||
| Vested | ( | $ | |||||||||
| Forfeited | ( | $ | |||||||||
| Outstanding, March 31, 2025 | $ | ||||||||||
Performance Stock Units
During the three months ended March 31, 2025, the Company granted an aggregate of 885,077 Performance Stock Units ("PSUs") to certain executives. The PSUs granted during 2025 cliff vest after 3 years upon meeting certain revenue and adjusted diluted EPS targets and contain a total shareholder return modifier which could increase or decrease the ultimate number of Class A common stock issued to the executives. The PSUs were valued using the market value of the Class A common stock on the grant date of $4.59 .
Activity under the 2021 Incentive Plan for PSUs was as follows:
| Three Months Ended March 31, 2025 | |||||||||||||||||||||||
| Performance Stock Units | Weighted Average Price | ||||||||||||||||||||||
| Outstanding, December 31, 2024 | $ | ||||||||||||||||||||||
| Granted | $ | ||||||||||||||||||||||
| Vested | ( | $ | |||||||||||||||||||||
| Forfeited | ( | $ | |||||||||||||||||||||
| Outstanding, March 31, 2025 | $ | ||||||||||||||||||||||
The Company recognized equity-based compensation of $2.7 million and $5.0 million, respectively, for the three months ended March 31, 2025 and 2024. As of March 31, 2025, the Company had $19.7 million of unrecognized compensation costs which is expected to be recognized over a weighted average period of 2.5 years.
13
Shoals Technologies Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
12. Stockholders’ Equity
Common Stock Economic and Voting Rights
Holders of Class A common stock are entitled to one no shares of Class B common stock outstanding, and no shares of Class B common stock are currently issuable.
Share Repurchase Program
On June 11, 2024, the Company announced a share repurchase program (the “Repurchase Program”) authorizing the repurchase of up to $150.0 million of the Company’s Class A common stock, with an estimated completion date of December 31, 2025. Under the Repurchase Program, the Company is authorized to repurchase shares of Class A common stock through open market purchases, privately-negotiated transactions, accelerated share repurchases or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Repurchase Program does not obligate the Company to repurchase shares of Class A common stock and the specific timing and amount of repurchases will vary based on available capital resources and other financial and operational performance metrics, market conditions, securities law limitations, and other factors. The shares repurchased pursuant to the Repurchase Program are held as treasury shares of the Company (“Treasury Stock”). In June 2024, the Company entered into an accelerated share repurchase agreement and repurchased $25.0 million of the Company’s Class A common stock.
The Company did not repurchase any shares of its common stock under the Repurchase Program during the three months ended March 31, 2025. As of March 31, 2025, the Company was authorized to repurchase up to $125.0 million of the Company's common stock under the Repurchase Program.
13. Commitments and Contingencies
Litigation
The Company is from time to time subject to legal proceedings and claims, which arise in the normal course of its business. In the opinion of management and legal counsel, except as disclosed below, the amount of losses or gains that may be sustained, if any, would not have a material effect on the financial position, results of operations or cash flows of the Company. The Company records legal costs associated with loss contingencies, including fees and costs associated with preservation of evidence in connection with the wire insulation shrinkback litigation, as incurred.
Intellectual Property Litigation
The 2023 IP Litigations. On May 4, 2023, the Company filed a patent infringement complaint with the U.S. International Trade Commission (“ITC”) against Hikam America, Inc., a corporation based in Chula Vista, California, and its related foreign entities (together, “Hikam”), and Voltage LLC, a limited liability company based in Chapel Hill, North Carolina, and a related foreign entity (together, “Voltage”). The complaint primarily requests that the ITC (i) investigate unlawful imports of certain photovoltaic connectors and components that the Company alleges infringe on two valid and enforceable patents owned by the Company related to improved connectors for solar panel arrays and (ii) issue a limited exclusion order and a cease and desist order against the Hikam respondents and the Voltage respondents to bar them from importing, marketing, distributing,
14
Shoals Technologies Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
selling, offering for sale, licensing, advertising, transferring, or otherwise using the infringing photovoltaic connectors and components in and into the United States. Also on May 4, 2023, the Company filed complaints against Hikam in the U.S. District Court for the Southern District of California, and against Voltage in the U.S. District Court for the Middle District of North Carolina on the same subject matter. The District Court actions seek injunctive relief and monetary damages. The District Court actions have been stayed pending the final disposition of the ITC investigation. On August 30, 2024, the Administrative Law Judge issued a Final Initial Determination finding that Voltage violated Section 337 of the Tariff Act of 1930, as amended, by importing infringing LYNX trunk bus products into the United States. However, on January 14, 2025, the ITC reversed the Administrative Law Judge‘s Final Initial Determination and issued a Notice of a Commission Final Determination Finding No Violation of Section 337. The Company appealed the ITC’s decision to the Federal Circuit on February 11, 2025.
The 2025 IP Litigations. On January 9, 2025, the Company filed a new patent infringement complaint at the ITC against Voltage. This complaint cites two new patents (the ‘375 and ‘376 Patents) that cover the Company’s BLA solutions. Also on January 9, 2025, the Company filed a complaint against Voltage in the U.S. District Court for the Middle District of North Carolina on the same subject matter. These complaints seek injunctive relief and, in district court, damages for reasonable royalty and lost profits. The Company intends to continue to vigorously pursue these actions. However, at this stage, the Company is unable to predict the outcome or impact on its business and financial results.
The Company is vigorously pursuing these 2023 IP Litigations and the 2025 IP Litigations. However, at this stage, the Company is unable to predict the outcome or impact on its business and financial results. The Company is accounting for these matters as a gain contingency, and will record any such gain in future periods if and when the contingency is resolved, in accordance with ASC 450, Contingencies.
Wire Insulation Shrinkback Litigation
On October 31, 2023, the Company filed a complaint against Prysmian in the U.S. District Court for the Middle District of Tennessee, Nashville Division. The Company filed an amended complaint on December 4, 2024. The amended complaint alleges that the Company suffered damages caused by defective wire Prysmian sold to the Company from approximately 2019 through approximately 2022. The amended complaint alleges that the wire at issue in the litigation has presented unacceptable levels of wire insulation shrinkback. The amended complaint includes, among other causes of action, product liability, breach of contract, breach of warranty, indemnity, and negligence claims. The Company seeks compensatory and punitive damages, recovery of all costs and expenses incurred by the Company in connection with the identification, repair and replacement of the Prysmian wire alleged to be defective, and other legal and equitable relief. The Company is vigorously pursuing its amended complaint, and as the Company continues to assess this matter, it may, from time to time, amend, update or supplement the amended complaint to, among other things, increase the damages sought for various purposes, including in accordance with increases to the Company’s estimated warranty liability and related expenses related to this matter. At this stage, the Company is unable to predict the outcome of this litigation or the impact on its business and financial results. The Company is accounting for this matter as a gain contingency, and will record any such gain in future periods if and when the contingency is resolved, in accordance with ASC 450, Contingencies.
Securities Litigation
On March 21, 2024, a purported stockholder filed a putative securities class action against the Company and certain of its current and former executive officers in the United States District Court for the
15
Shoals Technologies Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Middle District of Tennessee, Nashville Division, captioned Westchester Putnam Counties Heavy & Highway Laborers Local 60 Benefits Fund v. Shoals Technologies Group, Inc., et al. The complaint alleges violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, based on allegedly false and misleading statements and omissions relating to the wire insulation shrinkback matter. The complaint seeks unspecified monetary damages, recovery of fees and costs, and other relief that the court may find appropriate. On May 8, 2024 and May 15, 2024, respectively, similar class action complaints were filed in the same court against the Company and certain current and former officers, but these complaints also named as defendants the Company’s Board of Directors, and the selling stockholders and underwriters of the Company’s secondary public offering. While the allegations are largely similar to the first complaint, these new complaints also alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933. These cases were captioned Oklahoma Police Pension and Retirement System v. Shoals Technologies Group, Inc. and Kissimmee Utility Authority Employees Retirement Plan v. Shoals Technologies Group, Inc.
On May 24, 2024, all of these cases were consolidated into one action captioned In re Shoals Technologies Group, Inc. Securities Litigation. Plaintiff Erste Asset Management GmbH has been appointed Lead Plaintiff. On December 9, 2024, Lead Plaintiff and plaintiff Kissimmee Utility Authority Employees’ Retirement Plan filed a consolidated complaint, and on February 4, 2025, Plaintiffs filed an amended complaint. The Company filed a motion to dismiss the amended complaint on February 18, 2025. Plaintiffs filed an opposition to the motion to dismiss on April 21, 2025. Although the Company intends to continue to vigorously defend against these claims, there is no guarantee that the Company will prevail. Accordingly, the Company is unable to determine the ultimate outcome of this consolidated lawsuit or determine the amount or range of potential losses associated with the consolidated lawsuit.
Derivative Litigation
On May 16, 2024, a derivative shareholder action was filed against certain current and former officers and directors of the Company in the United States District Court for the Middle District of Tennessee, Nashville Division, captioned Corwin v. Forth, et al. The complaint asserts claims for breach of fiduciary duty relating to the wire insulation shrinkback matter. The complaint seeks unspecified monetary damages, restitution, the adoption of certain governance reforms, recovery of fees and costs, and other relief that the court may find appropriate. The Company is named as a nominal defendant only. On July 24, 2024, another derivative shareholder action was filed against certain current and former officers and directors of the Company in the same court, captioned Ouellet v. Whitaker et al. The complaint asserts, among others, claims for breach of fiduciary duty, gross mismanagement, abuse of control, waste of corporate assets, unjust enrichment, and violations of Section 14(a) of the Exchange Act, and insider trading, all of which relate to the wire insulation shrinkback matter. The complaint seeks unspecified monetary damages, restitution, the adoption of certain governance reforms, recovery of fees and costs, and other relief that the court may find appropriate. The Company is named as a nominal defendant only. On August 21, 2024, these derivative shareholder actions were consolidated into a single action captioned In re Shoals Technologies Group, Inc. Derivative Litigation.
On March 26, 2025, another derivative shareholder action was filed against certain current and former officers and directors of the Company in the same court as the consolidated action, captioned Norman v. Whitaker, et al. The complaint asserts, among others, claims for violations of Sections 14(a) and 20(a) of the Exchange Act, breach of fiduciary duty, insider trading, and unjust enrichment, all of which relate to the wire insulation shrinkback matter. The complaint seeks unspecified monetary damages, restitution, the adoption of certain governance reforms, recovery of fees and costs, and other relief that the court may find appropriate. The Company is named as a nominal defendant only. On April 11, 2025, the Norman action was consolidated with the action In re Shoals Technologies Group, Inc. Derivative Litigation.
16
Shoals Technologies Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Although the Company intends to continue to vigorously defend against these claims, there is no guarantee that the Company will prevail. Accordingly, the Company is unable to determine the ultimate outcome of the derivative litigation or determine the amount or range of potential losses associated with the lawsuit. This consolidated case is currently stayed pending the outcome of the motion to dismiss filed in the securities matters referenced above.
Guarantees and Surety Bonds
The Company has provided financial guarantees to support payment obligations of a vendor. The Company has not recorded any liabilities for these financial guarantees in its consolidated balance sheets, because the Company has calculated the estimated fair value of the guarantee and determined it to be immaterial based upon the current facts and circumstances that would trigger a payment obligation.
The Company provides surety bonds to various parties as required for certain transactions initiated during the ordinary course of business to guarantee the Company’s performance in accordance with contractual or legal obligations. As of March 31, 2025, the maximum potential payment obligation with regard to surety bonds was $5.8 million.
14. Income Taxes
In calculating the provision for interim income taxes, in accordance with ASC Topic 740, an estimated annual effective tax rate is applied to year-to-date ordinary income. The resulting provision is adjusted for the tax effect of discrete items required to be recorded during the period. At the end of each interim period, the Company adjusts its estimate of the effective tax rate expected to be applicable for the full fiscal year.
In the three months ended March 31, 2025, and March 31, 2024, our effective tax rate for continuing operations was 114.0 % and 33.9 %, respectively. The difference between the effective tax rate and the statutory tax rate is primarily attributable to nondeductible compensation under Section 162(m) and discrete adjustments for RSU and PSU shortfalls. The change in our effective tax rate for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024 was due to the increase of the discrete amounts for RSU and PSU shortfalls.
15. Revenue Recognition
Disaggregation of revenue
Based on ASC Topic 606 provisions, the Company disaggregates its revenue from contracts with customers based on product type. Revenue by product type is disaggregated between system solutions and components. System solutions are contracts under which the Company provides multiple products typically in connection with the design and specification of an entire EBOS system. Components represents sales of individual components.
17
Shoals Technologies Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents the Company’s revenue disaggregated by product type (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| System solutions | $ | $ | |||||||||||||||||||||
| Components | |||||||||||||||||||||||
| Total revenue | $ | $ | |||||||||||||||||||||
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables, retainage, and deferred revenue on the condensed consolidated balance sheets, recorded on a contract-by-contract basis at the end of each reporting period.
The Company’s contract balances consist of the following (in thousands):
| Location on the Condensed Consolidated Balance Sheets | March 31, 2025 | December 31, 2024 | ||||||||||||
| Billed accounts receivable | Accounts receivable, net | $ | $ | |||||||||||
| Retainage | Accounts receivable, net | $ | $ | |||||||||||
| Contract assets | Other assets | $ | $ | |||||||||||
| Unbilled receivables | Unbilled receivables | $ | $ | |||||||||||
| Deferred revenue | Deferred revenue | $ | $ | |||||||||||
| Accrued rebates | Accrued expenses and other | $ | $ | |||||||||||
The majority of the Company’s contract amounts are billed as work progresses in accordance with agreed-upon contractual terms, which generally coincide with the shipment of one or more phases of the project. Billing sometimes occurs subsequent to revenue recognition, resulting in unbilled receivables. The changes in unbilled receivables relate to fluctuations in the timing of billings for the Company’s revenue recognized over time. As of December 31, 2023, billed accounts receivable and unbilled receivables were $107.1 million and $40.1 million, respectively.
Certain contracts contain retainage provisions. Retainage represents a contract asset for the portion of the contract price earned by the Company for work performed but held for payment by the customer as a form of security until the Company obtains specified milestones. The Company typically bills retainage amounts as work is performed. Retainage provisions are not considered a significant financing component because they are intended to protect the customer in the event that some or all of the obligations under the contract are not completed. The changes in retainage relate to fluctuations in the timing of retainage billings and achievement of specified milestones. As of December 31, 2023, retainage was $4.9 million.
For certain contracts, we provide customers with incentives upon entering into multi-year agreements or volume specific commitments. Any up-front incentives to customers that are not made in exchange for distinct goods and services are capitalized as a contract asset within other assets, which are subsequently recognized as a reduction to revenue over the term of the customer arrangements.
The Company also receives deferred revenue in the form of customer deposits. The customer deposits are short term as the related performance obligations are typically fulfilled within 12 months. The changes in deferred revenue relate to fluctuations in the timing of customer deposits and completion of performance
18
Shoals Technologies Group, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
obligations. During the three months ended March 31, 2025, $10.3 million of deferred revenue recorded as of December 31, 2024 was recognized in revenue. As of December 31, 2023, deferred revenue was $22.2 million and during the three months ended March 31, 2024, $9.9 million, of deferred revenue recorded as of December 31, 2023, was recognized in revenue.
Accrued rebates are recorded based on sales volumes from agreed upon rebate terms. Rebates are typically paid within to four months .
19. Segment Reporting
The Company is organized and operates as one
The accounting policies of the consolidated segment are the same as those described in the summary of significant accounting policies. The CODM assesses performance of the Company and decides how to allocate resources based on income from operations and net income that is also reported on the consolidated income statement. The CODM is involved in determining and reviewing projected net income and income from operations as part of the annual operating plan process. Throughout the year, the CODM considers forecast to actual results and variances on a monthly and quarterly basis to allocate resources for the Company.
The following table presents selected financial information with respect to the Company’s single operating segment for the three months ended March 31, 2025 and 2024:
| Three months ended | |||||||||||
| March 31, 2025 | March 31, 2024 | ||||||||||
| Revenue | $ | $ | |||||||||
| Cost of revenue | |||||||||||
| Gross profit | |||||||||||
| Operating expenses | |||||||||||
| General and administrative expenses | |||||||||||
| Depreciation and amortization | |||||||||||
| Total operating expenses | |||||||||||
| Income from operations | |||||||||||
Non-operating income/(expense) (1) | ( | ( | |||||||||
| Income tax expense | ( | ( | |||||||||
| Net income (loss) | $ | ( | $ | ||||||||
All of the Company's long-lived tangible assets, as well as the Company's operating lease right-of-use assets recognized on the Condensed Consolidated Balance Sheets are located within the United States.
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our consolidated financial statements and the related notes and other financial information included in our Annual Report on Form 10-K for the year ended December 31, 2024 (“2024 Form 10-K”) and this Quarterly Report on Form 10-Q (“Form 10-Q”). In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate” or “continue” or comparable terminology are intended to identify forward-looking statements. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under the sections of our 2024 Form 10-K and this Form 10-Q captioned “Forward-Looking Statements” and “Risk Factors”.
This MD&A contains the presentation of Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share, which are not presented in accordance with generally accepted accounting principles in the U.S. (“GAAP”). Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share are being presented because management believes they provide investors and readers of this Form 10-Q with additional insight into our operational performance relative to earlier periods and relative to our competitors. We do not intend Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share to be substitutes for any GAAP financial information. Readers of this Form 10-Q should use Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share only in conjunction with Gross Profit, and Net Income (Loss), the most closely comparable GAAP financial measures, as applicable. Reconciliations of Adjusted Gross Profit, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share to the respective most closely comparable GAAP measure, as well as a calculation of Adjusted Gross Profit Percentage and Adjusted Diluted Weighted Average Shares Outstanding, are provided below, in “—Non-GAAP Financial Measures.”
Overview
We are a leading provider of electrical balance of system (“EBOS”) solutions and components, including battery energy storage solutions (“BESS”) and Original Equipment Manufacturer (“OEM”) components, for the global energy transition market. EBOS encompasses all of the components that are necessary to carry the electric current produced by solar panels to an inverter and ultimately to the power grid. EBOS components are mission-critical products that have a high consequence of failure, including lost revenue, equipment damage, fire damage, and even serious injury or death. As a result, we generally believe customers prioritize reliability and safety over price when selecting EBOS solutions.
We design, manufacture and sell a variety of products used by the solar and battery storage industries, including Solar BLA Solutions; Homeruns, Interconnection and Extension Solutions; Combiners and Re-Combiners; Load Break Disconnects and Transition Solutions; Wireless Performance Monitoring; and BESS. We refer to complete EBOS solutions that use products manufactured by us, typically in connection with the design and specification of an entire EBOS system, as “system solutions”. When we sell a system solution, we work with our customers to design, specify and engineer their system solution to provide a complete customized EBOS solution consisting of individualized products that maximizes reliability and energy production while minimizing cost. We also provide technical support during installation and the transition to operations and maintenance. We refer to individual, often custom and proprietary, products we sell as “components”. We believe our system solutions are unique in our industry because they integrate design and engineering support, proprietary components and innovative installation methods into a single offering that
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would otherwise be challenging for a customer to obtain from a single provider or at all. The custom nature of our system solutions and the long development cycle for solar energy projects typically gives us 12 months or more of lead time to quote, engineer, produce and ship each order we receive, and we do not stock large amounts of finished goods.
Traditionally, and for the three months ended March 31, 2025, we primarily sold our EBOS solutions and components and OEM components to customers in the United States. Specifically, we primarily sold to engineering, procurement and construction firms (“EPCs”) for use in large solar projects designed to generate electricity and feed it directly into the electric grid, typically with a generation capacity of 1 megawatt (“MW”) or greater (“utility-scale solar”). These EPCs work with owners and developers of solar assets to build solar energy projects. However, given the mission critical nature of EBOS, the decision to use our products typically involves input from both the EPC and the owner/developer of the solar energy project. We are proud of the breadth of EPCs we have worked with. We believe that as of March 31, 2025, we have worked with 13 of the top 15 U.S. solar EPCs, per Wood Mackenzie data from 2022-2024.
In the third quarter of 2024, we announced our strategic decision to expand our reach and capitalize on international, BESS, data centers, and Commercial, Community, and Industrial (“CC&I”) markets, while also maintaining our focus on domestic utility-scale solar and OEM markets. This decision is aimed at capitalizing on the growing global demand for renewable energy solutions and diversifying our market presence. By entering new geographic regions, markets, and applications we aim to enhance our competitive position and drive long-term growth.
We derived 71.4% of our revenue from the sale of system solutions for the three months ended March 31, 2025. For the same period, we derived substantially all of our revenue from customers in the U.S. As of March 31, 2025, we had $645.1 million of backlog and awarded orders, backlog of $202.2 million represents signed purchase orders or contractual minimum purchase commitments with take-or-pay provisions and awarded orders of $442.9 million are orders we are in the process of documenting a contract for but for which a contract has not yet been signed. As of March 31, 2025, we believe approximately $197.7 million of backlog and $301.7 million of awarded orders have delivery dates in the next twelve months. Additionally, more than 13% of our March 31, 2025 backlog and awarded orders related to international projects. As of March 31, 2025, backlog and awarded orders increased by 5% relative to the same date last year and increased by 2% relative to December 31, 2024.
Trends and Uncertainties
Trade Regulation and Import Tariffs
Our business activities are subject to numerous laws and regulations in the jurisdictions in which we operate. Particularly, our exports and imports are subject to complex trade and customs laws, tax requirements and tariffs set by governments through mutual agreements or unilateral actions. Changes in tax policies or trade regulations, the disallowance of tax deductions on imported merchandise, or the imposition of new tariffs on imported products, including reciprocal tariffs, could have an adverse effect on our business and results of operations.
On March 4, 2025, the current Presidential Administration (the “Administration”) imposed a 25% tariff on all goods imported from Canada and Mexico, with specific exemptions for certain products such as Canadian oil, natural gas, uranium, and other energy sources, which are subject to a lower 10% tariff. On April 2, 2025, the Administration imposed significant tariffs, including a 10% tariff on most imports from other trading partners, as well as additional reciprocal tariffs on specific countries. On April 9, 2025, the Administration imposed a 145% tariff on Chinese imports, effective immediately. Also on April 9, 2025, the Administration implemented a
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90-day pause on tariffs for all other trading partners, including Canada and Mexico, and capped the reciprocal tariffs at 10% for countries that did not retaliate against the United States. Future changes in tariff policies are possible. As a result, the global trade environment has experienced extreme uncertainty and volatility, and is rapidly evolving. In recent years, we have expanded our domestic capabilities, supply chain resiliency, and manufacturing capacity, which helps offset some of the volatility we face due to trade policies and regulations.
To date, these tariff actions have not materially impacted our business or results of operations. However, as the implementation and scope of these proposed tariffs is still uncertain, any significant new tariffs or the threat thereof, which may last for an indefinite period of time, may make it more difficult for us to source raw materials and could result in increased prices for certain of our raw materials including steel, copper and aluminum. Retaliatory tariffs imposed by trading partners could impact the export of our manufactured projects and cause our customers to seek alternatives. The implementation of these proposed tariffs, any future increases in existing tariff rates, additional tariffs on other goods, or further retaliatory actions from other governments, or the threat thereof, may result in higher costs for us, and there can be no assurance we will be able to pass on any of the increases in raw material costs directly resulting from the tariffs to our customers. Such actions may also result in more difficulty or the inability to obtain needed materials. In addition, the threat of increased tariffs alone has caused market uncertainty.
Beyond the most recent tariffs, over the past few years, escalating trade tensions between the United States and China and other jurisdictions led to increased tariffs and trade restrictions, including tariffs applicable to some of our products. We have been assessing and monitoring the potential impact of tariffs on our supply chain and proactively seeking to mitigate the impact such may have on our operations, including working on alternative sourcing strategies and preparing our trade partners to absorb potential increases in their costs due to tariffs. However, we cannot be certain that we would not experience negative effects in the remainder of 2025, particularly given the Administration’s positions concerning trade and tariffs and the fluctuating nature of such actions to date.
We also continue to monitor the condition of our supply chain and evaluate our procurement strategy to reduce any negative impact on our business, financial condition, and results of operations. During the period ended March 31, 2025, we continued to monitor and optimize our inventory levels.
Federal, state, local and foreign government bodies provide incentives to owners, end users, distributors and manufacturers of solar energy systems to promote the development of solar electricity. The range and duration of these incentives varies widely by geographic market.
The 2022 Inflation Reduction Act (“IRA”) in the U.S. made significant changes to the U.S. tax code to incentivize the development and use of solar-generated electricity to meet the country’s growing demand for power. The IRA offered tax incentives to companies who provide goods connected to the development and use of solar energy. The IRA allowed U.S. taxpayers making capital investments in solar projects to claim certain Investment Tax Credits (“TC”) for the installation of these solar projects. The IRA also generally allowed U.S. taxpayers to elect to receive a production tax credit (“PTC”) in lieu of the TC for qualified solar facilities if the construction began before January 1, 2025, among other requirements. While the IRA increased incentives for solar energy, some of those incentives have already begun to decrease and phase out. Additionally, given the change in U.S. presidential administrations, the future of the IRA and any federal solar incentives remains uncertain. If the IRA is repealed or significantly altered, it could have several adverse effects on our business. The removal of the incentives that drive demand for solar energy production could reduce the financial attractiveness of solar projects, leading to decreased demand for our products. Additionally, the uncertainty surrounding the future of these incentives could cause delays in project financing and execution, further impacting our sales volume and growth rate.
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The Solar Market
Beginning in late 2023 and continuing in 2024, the domestic utility scale solar market experienced project delays that pushed and delayed projects beyond 2024. While there are inherent delays and pushouts with solar and construction projects in normal operating environments, the pushouts and delays experienced in late 2023 and into 2024 were significantly greater than we have historically experienced, and they impacted our results during 2024, lowering demand and sales volume. These trends were the result of several factors, including: permitting issues; supply chain disruptions; labor availability; project financing; anti-dumping and countervailing duties; interconnection complications; and uncertainty regarding changes in the U.S. trade environment. While we are currently experiencing a more normalized business environment, we expect these challenges to persist to a lesser degree in the near term. We continue to expect a modest amount of project delays when compared to historical levels. As a result, we believe the industry is poised for growth across both our core and new markets, driven by the continued and increasing need for energy around the world.
We will continue to navigate the uncertainties in our industry, including those relating to project delays, as well as strategic pricing actions, volume discounts, and impacts to customer mix in our key markets, which so far have immaterially impacted our results of operations.
Other Macroeconomic Pressures
Global inflationary pressures persisted during the first quarter of 2025 and are expected to persist to a lesser extent during the remainder of 2025; however, the impact of inflation remains uncertain for the rest of 2025. Interest rates have remained generally higher when compared to historical rates, causing the interest rates associated with our Senior Secured Credit Agreement to be generally higher; however, interest rates did decline from their historically high levels during the course of 2024. Should interest rates rise, when combined with the implications of higher government deficits and debt, tighter monetary policy, political instability, and volatility and uncertainty in global trade, the Company’s costs for accessing capital are uncertain and may rise during our forecasted period.
Our ability to obtain the raw materials required to manufacture our components and system solutions from domestic and international suppliers, as well as our ability to secure inbound logistics to and from our facilities, remained challenging during the first quarter of 2025, complicated by volatility in government policies and regulation concerning trade and ongoing political conflict. While the Company does not directly source a significant amount of raw materials from Europe, the Russia-Ukraine war has reduced the availability of certain materials that can be sourced in Europe and, as a result, increased global logistics costs for the procurement of some inputs and materials used in our products. We expect these trends to persist as challenges and conflicts remain in 2025.
Key Components of Our Results of Operations
The following discussion describes certain line items in our condensed consolidated statements of operations.
Revenue
We generate revenue from the sale of EBOS solutions and components for homerun and plug-and-play architectures, battery storage, and OEM offerings. Our customers include EPCs, utilities, solar developers, independent power producers, and solar module manufacturers. We derive the majority of our revenue from selling solar system solutions. When we sell a solar system solution, we enter into a contract with our customers covering the price, specifications, delivery dates and warranty for the products being purchased,
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among other things. Our contractual delivery period for solar system solutions can vary from one to three months whereas manufacturing typically requires a shorter time frame. Contracts for solar system solutions can range in value from several hundred thousand to several million dollars.
Our revenue is affected by changes in the geography, price, volume and mix of EBOS system solutions and components purchased by our customers. The price and volume of our EBOS system solutions and components is driven by the demand for our solar system solutions and components, volume based discounts and rebate incentives, changes in product mix between homerun and plug-and-play EBOS, geographic mix of our customers, strength of competitors’ product offerings, and availability of government incentives to the end-users of our products.
Our revenue growth is dependent on continued growth in the number of solar energy projects constructed each year and our ability to increase our share of demand in the geographies where we currently compete and plan to compete in the future, as well as our ability to continue to develop and commercialize new and innovative products that address the changing technology and performance requirements of our customers.
Cost of Revenue and Gross Profit
Cost of revenue consists primarily of EBOS system solutions and components costs, including purchased raw materials, as well as costs related to shipping, customer support, product warranty, personnel and depreciation of manufacturing and testing equipment. Personnel costs in cost of revenue include both direct labor costs as well as costs attributable to any individuals whose activities relate to the transformation of raw materials or component parts into finished goods or the transportation of materials to the customer. Our product costs are affected by the underlying cost of raw materials, including copper and aluminum; component costs, including fuses, resin, enclosures, and cable; technological innovation; economies of scale resulting in lower component costs; and improvements in production processes and automation. We do not currently hedge against changes in the price of raw materials. Some of these costs, primarily indirect personnel and depreciation of manufacturing and testing equipment, are not directly affected by sales volume. Gross profit may vary from year to year and is primarily affected by our sales volume, product prices, product costs, product mix, customer mix, geographical mix, shipping method and warranty expense.
Operating Expenses
Operating expenses consist of general and administrative expenses as well as depreciation and amortization expense. Personnel-related costs are the most significant component of our operating expenses and include salaries, equity-based compensation, benefits, payroll taxes and commissions. The number of full-time employees in our general and administrative departments increased from 159 to 171 from March 31, 2024 to March 31, 2025, and we expect to hire new employees in the future to support our future growth. The timing of these additional hires could materially affect our operating expenses in any particular period, both in absolute dollars and as a percentage of revenue.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, equity-based compensation expense, employee benefits and payroll taxes related to our executives, and our sales, finance, human resources, information technology, engineering and legal organizations, travel expenses, facilities costs, marketing expenses, insurance, bad debt expense and fees for professional services. Professional services consist of audit, tax, accounting, legal, internal controls, information technology, investor relations and other costs. We expect to increase our sales and marketing personnel as we expand into new geographic markets. Substantially all of our sales are currently in the U.S. We currently have a sales presence in the U.S., Asia-Pacific, Europe, Latin America, and Africa. We intend to grow our sales presence and marketing efforts in current geographic markets and expand to additional countries in the future.
Depreciation
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Depreciation in our operating expenses consists of costs associated with property, plant and equipment (“PP&E”) not used in manufacturing our products. We expect that as we increase both our revenue and the number of our general and administrative personnel, we will invest in additional PP&E to support our growth resulting in additional depreciation expense.
Amortization
Amortization of intangibles consists of amortization of customer relationships, developed technology, trade names, backlog and noncompete agreements over their expected period of use.
Non-operating Expenses
Interest Expense
Interest expense consists of interest and other charges paid in connection with our Senior Secured Credit Agreement.
Interest income
Interest income is related to interest on bank deposits.
Income Tax Expense
Shoals Technologies Group, Inc. is subject to U.S. federal and state income tax in multiple jurisdictions.
Results of Operations
The following table summarizes our results of operations (dollars in thousands):
| Three Months Ended March 31, | Increase / (Decrease) | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 80,361 | $ | 90,807 | $ | (10,446) | (11.5) | % | |||||||||||||||||||||||||||||||||
| Cost of revenue | 52,221 | 54,347 | (2,126) | (3.9) | % | ||||||||||||||||||||||||||||||||||||
| Gross profit | 28,140 | 36,460 | (8,320) | (22.8) | % | ||||||||||||||||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | 21,693 | 22,772 | (1,079) | (4.7) | % | ||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 2,135 | 2,104 | 31 | 1.5 | % | ||||||||||||||||||||||||||||||||||||
| Total operating expenses | 23,828 | 24,876 | (1,048) | (4.2) | % | ||||||||||||||||||||||||||||||||||||
| Income from operations | 4,312 | 11,584 | (7,272) | (62.8) | % | ||||||||||||||||||||||||||||||||||||
| Interest expense | (2,415) | (4,475) | (2,060) | (46.0) | % | ||||||||||||||||||||||||||||||||||||
| Interest income | 118 | 113 | 5 | 4.4 | % | ||||||||||||||||||||||||||||||||||||
| Income before income taxes | 2,015 | 7,222 | (5,207) | (72.1) | % | ||||||||||||||||||||||||||||||||||||
| Income tax expense | (2,297) | (2,448) | (151) | (6.2) | % | ||||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | (282) | $ | 4,774 | $ | (5,056) | (105.9) | % | |||||||||||||||||||||||||||||||||
Comparison of the Three Months Ended March 31, 2025 and 2024
Revenue
Revenue decreased by $10.4 million, or 11.5%, for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, driven by strategic pricing actions, volume discounts, and customer and product mix.
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Cost of Revenue and Gross Profit
Cost of revenue decreased by $2.1 million, or 3.9%, for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024, driven by the decrease in revenue. Gross profit as a percentage of revenue was 35.0% during the three months ended March 31, 2025, and 40.2% during the three months ended March 31, 2024. The decrease in gross profit as a percentage of revenue was driven by strategic pricing actions, volume discounts, customer and product mix, and reduced fixed cost absorption due to lower revenues.
Operating Expenses
General and Administrative
General and administrative expenses decreased $1.1 million, or 4.7%, for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024. The decrease in general and administrative expenses was the result of a $3.3 million decrease in general legal expenses for intellectual property and shareholder litigation matters, offset by a $1.7 million increase in legal expenses related to wire insulation shrinkback litigation.
Depreciation and Amortization
Depreciation and amortization expenses increased by less than $0.1 million, or 1.5%, for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024. The increase was due to acquisitions of property, plant, and equipment in between the periods of comparison.
Interest Expense
Interest expense, decreased by $2.1 million, or 46.0%, for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024. This decrease was due to a decrease in the total weighted average outstanding balance of the Term Loan Facility and Revolving Credit Facility during the three months ended March 31, 2025 compared to the three months ended March 31, 2024, as well as a decrease in borrowing rates applicable to the Senior Secured Credit Agreement and decreases in the federal funds effective rate as compared to the prior period.
Income tax expense
Income tax expense totaled $2.3 million for the three months ended March 31, 2025, as compared to income tax expense of $2.4 million for the three months ended March 31, 2024. Our effective income tax rate for the three months ended March 31, 2025 and 2024 was 114.0% and 33.9%, respectively. The change in our effective income tax rate was due to various discrete items, particularly RSU and PSU shortfalls, during the three months ended March 31, 2025.
Non-GAAP Financial Measures
Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share (“EPS”)
We define Adjusted Gross Profit as gross profit plus wire insulation shrinkback expenses. We define Adjusted Gross Profit Percentage as Adjusted Gross Profit divided by revenue. We define Adjusted EBITDA as net income (loss) plus/(minus) (i) interest expense, (ii) interest income, (iii) income tax expense, (iv) depreciation expense, (v) amortization of intangibles, (vi) equity-based compensation, (vii) wire insulation shrinkback expenses, and (viii) wire insulation shrinkback litigation expenses. We define Adjusted Net Income as net income (loss) plus (i) amortization of intangibles, (ii) amortization / write-off of deferred financing costs,
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(iii) equity-based compensation, (iv) wire insulation shrinkback expenses, and (v) wire insulation shrinkback litigation expenses, all net of applicable income taxes. We define Adjusted Diluted EPS as Adjusted Net Income divided by the diluted weighted average shares of Class A common stock outstanding for the applicable period.
Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS are intended as supplemental measures of performance that are neither required by, nor presented in accordance with, GAAP. We present Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS because we believe they assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS: (i) as factors in evaluating management’s performance when determining incentive compensation, as applicable; (ii) to evaluate the effectiveness of our business strategies; and (iii) because our credit agreement uses measures similar to Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS to measure our compliance with certain covenants.
Among other limitations, Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and may be calculated by other companies in our industry differently than we do or not at all, which may limit their usefulness as comparative measures.
Because of these limitations, Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP. You should review the reconciliation of gross profit to Adjusted Gross Profit and Adjusted Gross Profit Percentage, net income (loss) to Adjusted EBITDA, and net income (loss) to Adjusted Net Income and Adjusted Diluted EPS below and not rely on any single financial measure to evaluate our business.
Reconciliation of Gross Profit to Adjusted Gross Profit and Adjusted Gross Profit Percentage (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Revenue | $ | 80,361 | $ | 90,807 | |||||||||||||||||||
| Cost of revenue | 52,221 | 54,347 | |||||||||||||||||||||
| Gross profit | $ | 28,140 | $ | 36,460 | |||||||||||||||||||
| Gross profit percentage | 35.0 | % | 40.2 | % | |||||||||||||||||||
Wire insulation shrinkback expenses (a) | $ | — | $ | — | |||||||||||||||||||
| Adjusted gross profit | $ | 28,140 | $ | 36,460 | |||||||||||||||||||
| Adjusted gross profit percentage | 35.0 | % | 40.2 | % | |||||||||||||||||||
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Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Net income (loss) | $ | (282) | $ | 4,774 | |||||||||||||||||||
| Interest expense | 2,415 | 4,475 | |||||||||||||||||||||
| Interest income | (118) | (113) | |||||||||||||||||||||
| Income tax expense | 2,297 | 2,448 | |||||||||||||||||||||
| Depreciation expense | 1,391 | 1,106 | |||||||||||||||||||||
| Amortization of intangibles | 1,896 | 1,896 | |||||||||||||||||||||
| Equity-based compensation | 2,661 | 5,023 | |||||||||||||||||||||
Wire insulation shrinkback expenses(a) | — | — | |||||||||||||||||||||
Wire insulation shrinkback litigation expenses (b) | 2,529 | 849 | |||||||||||||||||||||
| Adjusted EBITDA | $ | 12,789 | $ | 20,458 | |||||||||||||||||||
Reconciliation of Net Income (Loss) to Adjusted Net Income (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Net income (loss) | $ | (282) | $ | 4,774 | |||||||||||||||||||
| Amortization of intangibles | 1,896 | 1,896 | |||||||||||||||||||||
| Amortization / write-off of deferred financing costs | 156 | 2,626 | |||||||||||||||||||||
| Equity-based compensation | 2,661 | 5,023 | |||||||||||||||||||||
Wire insulation shrinkback expenses(a) | — | — | |||||||||||||||||||||
Wire insulation shrinkback litigation expenses (b) | 2,529 | 849 | |||||||||||||||||||||
Tax impact of adjustments (c) | (1,767) | (2,547) | |||||||||||||||||||||
| Adjusted Net Income | $ | 5,193 | $ | 12,621 | |||||||||||||||||||
(a) For the three months ended March 31, 2025 and 2024, there were no expenses related to warranty for wire insulation shrinkback relating to the identification, repair and replacement of a subset of wire harnesses presenting unacceptable levels of wire insulation shrinkback. We consider expenses incurred in connection with the identification, repair and replacement of the impacted wire harnesses distinct from normal, ongoing service identification, repair and replacement expenses that would be reflected under ongoing warranty expenses within the operation of our business, which we do not exclude from our non-GAAP measures. In the future, we also intend to exclude from our non-GAAP measures the benefit of liability releases, if any. We believe excluding expenses from these discrete liability events provides investors with a better view of the operating performance of our business and allows for comparability through periods. See Note 8 - Warranty Liability, in our condensed consolidated financial statements included in this Form 10-Q for more information.
(b) For the three months ended March 31, 2025 and 2024, represents $2.5 million and $0.8 million, respectively, of expenses incurred in connection with the lawsuit initiated by the Company against the supplier of the defective wire. We consider this litigation distinct from ordinary course legal matters given the expected magnitude of the expenses, the nature of the allegations in the Company’s complaint, the amount of damages sought, and the impact of the matter underlying the litigation on the Company’s financial results. In the future, we also intend to exclude from our non-GAAP measures the benefit of recovery, if any. We believe excluding expenses from these discrete litigation events provides investors with a better view of the operating performance of our business and allows for comparability through
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periods. See Note 13 - Commitments and Contingencies, in our condensed consolidated financial statements included in this Form 10-Q for more information.
(c) Shoals Technologies Group, Inc. is subject to U.S. Federal income taxes, in addition to state and local taxes. Represents the estimated tax impact of all Adjusted Net Income add-backs, excluding those which represent permanent differences between book versus tax. The adjustment to the provision for income tax reflects the effective tax rates below.
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Statutory U.S. Federal income tax rate | 21.0 | % | 21.0 | % | |||||||||||||||||||
| Permanent adjustments | 0.6 | % | 0.8 | % | |||||||||||||||||||
| State and local taxes (net of federal benefit) | 2.8 | % | 2.7 | % | |||||||||||||||||||
| Effective income tax rate for Adjusted Net Income | 24.4 | % | 24.5 | % | |||||||||||||||||||
Reconciliation of Diluted Weighted Average Shares Outstanding to Adjusted Diluted Weighted Average Shares Outstanding (in thousands, except per share amounts):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Adjusted diluted weighted average shares outstanding | 166,960 | 170,514 | |||||||||||||||||||||
| Adjusted Net Income | $ | 5,193 | $ | 12,621 | |||||||||||||||||||
| Adjusted Diluted EPS | $ | 0.03 | $ | 0.07 | |||||||||||||||||||
Liquidity and Capital Resources
We finance our operations primarily with operating cash flows and short and long-term borrowings. Our ability to generate positive cash flow from operations is dependent on the strength of our gross profits as well as our ability to quickly turn our working capital. Based on our past performance and current expectations, we believe that operating cash flows and availability under our Revolving Credit Facility will be sufficient to meet our near and long-term future cash needs.
We generated cash from operating activities of $15.6 million during the three months ended March 31, 2025, as compared to cash provided by operating activities of $12.9 million during the three months ended March 31, 2024. As of March 31, 2025, our cash and cash equivalents were $35.6 million, an increase from $23.5 million as of December 31, 2024. As of March 31, 2025 we had outstanding borrowings of $141.8 million, consistent with outstanding borrowings of $141.8 million as of December 31, 2024. As of March 31, 2025, we also had $58.2 million available for additional borrowings under our $200.0 million Revolving Credit Facility.
On December 27, 2023 and January 19, 2024, we used borrowings under the Revolving Credit Facility and cash on hand to make voluntary prepayments of outstanding borrowings under the Term Loan Facility of $50.0 million and $100.0 million, respectively. Following the amendment to the Senior Secured Credit Agreement on March 19, 2024, which, among other things, increased the amount available for borrowing under the Revolving Credit Facility from $150.0 million to $200.0 million, we made a $43.8 million voluntary prepayment of all the outstanding term loans under the Senior Secured Credit Agreement, thereby terminating the Term Loan Facility.
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On June 11, 2024, the Company announced the Repurchase Program authorizing the repurchase of up to $150.0 million of the Company’s Class A common stock, with an estimated completion date of December 31, 2025. Under the Repurchase Program, the Company is authorized to repurchase shares of Class A common stock through open market purchases, privately-negotiated transactions, accelerated share repurchases or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act.
The Company did not repurchase any shares of its common stock under the Repurchase Program during the three months ended March 31, 2025. As of March 31, 2025, the Company was authorized to repurchase up to $125 million of the Company's common stock under the Repurchase Program.
During the three months ended March 31, 2025, we also used approximately $9.5 million of cash to pay for expenses related to the identification, repair and replacement of the wire harnesses impacted in connection with the wire insulation shrinkback matter. We expect to continue spending significant amounts of cash in connection thereof. For more information, see Note 8 - Warranty Liability in our condensed consolidated financial statements.
| Three Months Ended March 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net cash provided by operating activities | $ | 15,558 | $ | 12,860 | |||||||
| Net cash used in investing activities | (3,209) | (2,483) | |||||||||
| Net cash used in financing activities | (251) | (17,848) | |||||||||
| Net increase (decrease) in cash and cash equivalents | $ | 12,098 | $ | (7,471) | |||||||
Operating Activities
For the three months ended March 31, 2025, cash provided by operating activities was $15.6 million, primarily due to operating results that included $(0.3) million of net loss, which included $8.9 million of non-cash expense, along with cash inflows in accounts receivable and unbilled receivables of $20.9 million and accounts payable and accrued expenses of $6.3 million. These cash inflows were offset by cash outflows of $9.8 million related to the warranty liability as well as an increase in inventory of $5.4 million, an increase in other assets of $1.5 million, and a decrease of $3.5 million in deferred revenue.
For the three months ended March 31, 2024, cash provided by operating activities was $12.9 million, primarily due to operating results that included $4.8 million of net income, which included $13.7 million of non-cash expense, along with a decrease in accounts receivable and unbilled receivables of $20.4 million. These cash inflows were offset by a decrease of $12.1 million in accounts payable and accrued expenses, an increase of $6.8 million in inventory, cash outflows of $3.7 million related to the warranty liability, and a decrease of $0.4 million in deferred revenue.
Investing Activities
For the three months ended March 31, 2025, net cash used in investing activities was $3.2 million, which was attributable to the purchase of property and equipment.
For the three months ended March 31, 2024, net cash used in investing activities was $2.5 million, all of which was attributable to the purchase of property and equipment.
Financing Activities
For the three months ended March 31, 2025, net cash used in financing activities was $0.3 million, due to $20.0 million in payments on the Revolving Credit Facility, offset by $20.0 million in borrowings, and $0.3 million in taxes related to net share settled equity awards.
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For the three months ended March 31, 2024, net cash used in financing activities was $17.8 million, primarily due to $143.8 million in voluntary prepayments on, and the payoff of, the Term Loan Facility, $2.0 million of deferred financing costs paid in connection with the amendment of the Senior Secured Credit Facility on March 19, 2024, and $0.8 million in taxes related to net share settled equity awards. These cash outflows were offset by $128.8 million in net borrowings on the Revolving Credit Facility.
Debt Obligations
For a discussion of our debt obligations see Note 9 - Long-Term Debt in our condensed consolidated financial statements included in this Form 10-Q.
Surety Bonds
For a discussion of our surety bond obligations see Note 13 - Commitments and Contingencies in our condensed consolidated financial statements included in this Form 10-Q.
Product Warranty
For a discussion of our product warranties see Note 8 - Warranty Liability in our condensed consolidated financial statements included in this Form 10-Q.
Critical Accounting Policies and Accounting Estimates
For a description of the application of our critical accounting policies or estimation procedures, see our 2024 Form 10-K. There were no material changes to the information previously disclosed, with the exception of the item discussed below.
Goodwill Considerations
We perform an annual assessment of our goodwill during the fourth quarter of each calendar year or more frequently if indicators of potential impairment exist, such as an adverse change in business climate, declines in market capitalization or a decline in the overall industry demand, that would indicate it is more likely than not that the fair value of our single reporting unit is less than the carrying value. If we determine that it is more likely than not that the fair value of our single reporting unit is less than the carrying value, we measure the amount of impairment as the amount the carrying value of our single reporting unit exceeds the fair value, up to the carrying value of goodwill, by using a quantitative approach.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units requires us to evaluate market indicators, such as stock price and market capitalization, and make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax rates, growth rates, and other market factors.
Although our market capitalization further declined in the first quarter of 2025, we do not believe that it is more likely than not that the fair value of our single reporting unit is less than the carrying value.
The estimated fair value of our single reporting unit is sensitive to the volatility in our stock price. If our market capitalization continues to decline or future performance falls below our current expectations, assumptions, or estimates, including assumptions related to current macroeconomic uncertainties, this may trigger a future material non-cash goodwill impairment charge, which could have a material adverse effect on our business, financial condition, and results of operations in the reporting period in which a charge would be necessary. We will continue to monitor developments, including updates to our forecasts and market capitalization. An update of our assessment and related estimates may be required in the future.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
During the three months ended March 31, 2024, there were no material changes in our market risk exposure. For a description of our analysis of quantitative and qualitative market risk, see Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our 2024 Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2025. Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2025, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting that occurred during the quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in litigation relating to claims that arise out of our operations and businesses and that cover a wide range of matters, including, among others, intellectual property matters, contract and employment claims, personal injury claims, product liability claims and warranty claims. Except as described under Litigation in Note 13 - Commitments and Contingencies, there are no claims or proceedings to which we are party that we believe would have a material adverse effect on our business, financial condition, results of operations or cash flows. However, the results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, we may incur significant costs and experience a diversion of management resources as a result of litigation.
Item 1A. Risk Factors
For a discussion of the material factors that affect our business, financial condition or results of operations, please see the risk factors disclosed in our 2024 Form 10-K and the other information set forth in this Form 10-Q. You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us may also materially adversely affect our business, financial condition and/or results of operations.
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Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(c) Insider Trading Arrangements
During the three months ended March 31, 2025, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted terminated
Item 6. Exhibits
| EXHIBIT INDEX | ||||||||||||||||||||||||||
| Incorporated by Reference | ||||||||||||||||||||||||||
| Number | Description of Document | Form | Filing Date | Exhibit No. | ||||||||||||||||||||||
| 3.1 | 8-K | 1/29/2021 | 3.1 | |||||||||||||||||||||||
| 3.2 | 10-Q | 8/6/2024 | 3.2 | |||||||||||||||||||||||
| 3.3 | 10-K | 2/25/2025 | 3.3 | |||||||||||||||||||||||
| 10.1+* | ||||||||||||||||||||||||||
| 10.2+* | ||||||||||||||||||||||||||
| 31.1* | ||||||||||||||||||||||||||
| 31.2* | ||||||||||||||||||||||||||
| 32.1** | ||||||||||||||||||||||||||
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| EXHIBIT INDEX | ||||||||||||||||||||||||||
| Incorporated by Reference | ||||||||||||||||||||||||||
| Number | Description of Document | Form | Filing Date | Exhibit No. | ||||||||||||||||||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||||||||||||||||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |||||||||||||||||||||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||||||||||||||||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||||||||||||||||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||||||||||||||||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||||||||||||||||||||
________
* Filed herewith.
** Furnished herewith.
† Indicates a management contract or compensatory plan.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Shoals Technologies Group, Inc. | |||||||||||||||||||||||
| Date: | May 6, 2025 | By: | /s/ Brandon Moss | ||||||||||||||||||||
| Name: | Brandon Moss | ||||||||||||||||||||||
| Title: | Chief Executive Officer | ||||||||||||||||||||||
| Date: | May 6, 2025 | By: | /s/ Inez Lund | ||||||||||||||||||||
| Name: | Inez Lund | ||||||||||||||||||||||
| Title: | Chief Accounting Officer | ||||||||||||||||||||||
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Exhibit 10.1
SHOALS TECHNOLOGIES GROUP, INC.
2021 LONG-TERM INCENTIVE PLAN
RESTRICTED STOCK UNIT GRANT NOTICE
Pursuant to the terms and conditions of the Shoals Technologies Group, Inc. 2021 Long-Term Incentive Plan, as amended from time to time (the “Plan”), Shoals Technologies Group, Inc., a Delaware corporation (the “Company”), hereby grants to the individual listed below (“you” or the “Participant”) the number of restricted stock units (the “RSUs”) set forth below. This award of RSUs (this “Award”) is subject to the terms and conditions set forth herein, in the Restricted Stock Unit Agreement attached hereto as Exhibit A (the “Agreement”) and in the Plan, each of which is incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings set forth in the Plan.
| Type of Award: | Restricted Stock Units | |||||||
| Participant: | [●] | |||||||
| Date of Grant: | [●] | |||||||
| Vesting Commencement Date: | [●] | |||||||
| Total Number of Restricted Stock Units: | [●] | |||||||
Vesting Schedule: | Subject to Sections 3 and 6 of the Agreement, the Plan and the other terms and conditions set forth herein, the RSUs shall vest according to the following schedule, subject to your continued employment or service with the Company or an Affiliate from the Date of Grant through each such vesting date (each, a “Vesting Date”): | |||||||
| Vesting Date | Percentage of RSUs That Vest | |||||||
| First Anniversary of the Vesting Commencement Date | 33.33% | |||||||
| Second Anniversary of the Vesting Commencement Date | 33.33% | |||||||
| Third Anniversary of the Vesting Commencement Date | 33.34% | |||||||
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By your signature below, you agree to be bound by the terms and conditions of the Plan, the Agreement and this Restricted Stock Unit Grant Notice (this “Grant Notice”). You acknowledge that you have reviewed the Agreement, the Plan and this Grant Notice in their entirety and fully understand all provisions of the Agreement, the Plan and this Grant Notice. You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Committee regarding any questions or determinations arising under the Agreement, the Plan or this Grant Notice. This Grant Notice may be executed in one or more counterparts (including portable document format (.pdf) and facsimile counterparts), each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.
Notwithstanding any provision in this Grant Notice or the Agreement to the contrary, if you fail to execute and deliver this Grant Notice to the Company within ninety (90) days following the Date of Grant set forth above, then this Award will terminate automatically without any further action by the Company, and this Grant Notice and the Agreement will be null and void. This Grant Notice can be executed by you and delivered to the Company, subject to the exclusive discretion of the Company, by either (i) executing this Grant Notice manually and delivering the executed original, postmarked within ninety (90) days following the Date of Grant, to 1400 Shoals Way, Portland, TN 37148, Attn: Total Reward, (ii) sending an electronic copy of the executed Grant Notice to human.resources@shoals.com, or (iii) through the online grant agreement procedure with the Company’s designated broker-dealer.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Company has caused this Grant Notice to be executed by an officer thereunto duly authorized, and the Participant has executed this Grant Notice, effective for all purposes as provided above.
SHOALS TECHNOLOGIES GROUP, INC.
By:
Name: Brandon Moss
Title: Chief Executive Officer
PARTICIPANT
_______________________________________
Name: [●]
Signature Page to
Restricted Stock Unit Grant Notice
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EXHIBIT A
RESTRICTED STOCK UNIT AGREEMENT
This Restricted Stock Unit Agreement (together with the Grant Notice to which this Agreement is attached, this “Agreement”) is made as of the Date of Grant set forth in the Grant Notice to which this Agreement is attached by and between Shoals Technologies Group, Inc., a Delaware corporation (the “Company”), and the individual whose name appears on the Grant Notice (the “Participant”). Capitalized terms used but not specifically defined herein shall have the meanings specified in the Grant Notice and if not defined therein, then in the Plan.
1. Award. In consideration of the Participant’s past and/or continued employment with, or service to, the Company or an Affiliate and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, effective as of the Date of Grant set forth in the Grant Notice (the “Date of Grant”), the Company hereby grants to the Participant the number of RSUs set forth in the Grant Notice on the terms and conditions set forth in the Grant Notice, this Agreement and the Plan, which is incorporated herein by reference as a part of this Agreement. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control. To the extent vested, each RSU represents the right to receive one Share, subject to the terms and conditions set forth in the Grant Notice, this Agreement and the Plan. Unless and until the RSUs have become vested in the manner set forth in the Grant Notice, the Participant will have no right to receive any Shares or other payments in respect of the RSUs. Prior to settlement of this Award, the RSUs and this Award represent an unsecured obligation of the Company, payable only from the general assets of the Company.
2. Vesting of RSUs. Except as otherwise set forth in Sections 3 or 6 hereof, the RSUs shall vest in accordance with the vesting schedule set forth in the Grant Notice. Unless and until the RSUs have vested in accordance with such vesting schedule, the Participant will have no right to receive any dividends or other distribution with respect to the RSUs.
3. Termination and Forfeiture of RSUs.
(a) Upon the Participant’s Termination of Service, any RSUs that remain unvested as of such date of Termination of Service (and all rights arising from such RSUs and from being a holder thereof) will automatically and immediately terminate as of such date without any further action by the Company and will be forfeited without further notice and at no cost to the Company.
(b) Notwithstanding the foregoing,
(i) subject to Section 3(b)(v) below, upon the Participant’s Termination of Service by the Company or an Affiliate without Cause, the portion of the RSUs which would have vested on the first Vesting Date to occur following such Termination of Service shall immediately vest as of the date of such Termination of Service and be settled pursuant to Section 5 hereof, and any and all then-unvested RSUs (and all rights arising from
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such RSUs and from being a holder thereof) will terminate automatically without any further action by the Company and will be forfeited without further notice and at no cost to the Company;
(ii) upon the Participant’s Termination of Service due to death or Disability, any RSUs that remain unvested as of such date of Termination of Service shall immediately vest as of such date and be settled pursuant to Section 5 hereof;
(iii) upon the Participant’s Termination of Service due to Retirement (as defined below), a prorated portion of the RSUs which would have vested on the first Vesting Date to occur following such Termination of Service (such Vesting Date, the “Applicable Vesting Date”) shall immediately vest as of the date of such Termination of Service and be settled pursuant to Section 5 hereof, with such portion determined by multiplying the number of RSUs which would have vested on the Applicable Vesting Date by a fraction, (A) the numerator of which equals the number of calendar days that the Participant was employed by the Company or an Affiliate during the period commencing as of the most recent Vesting Date to occur prior to such Termination of Service (or, if no Vesting Date has occurred prior to such Termination of Service, commencing as of the Vesting Commencement Date) and ending on the Applicable Vesting Date (the “Applicable Vesting Period”), and (B) the denominator of which equals the total number of calendar days in the Applicable Vesting Period, and any and all then-unvested RSUs (and all rights arising from such RSUs and from being a holder thereof) will terminate automatically without any further action by the Company and will be forfeited without further notice and at no cost to the Company. For purposes of this Agreement, “Retirement” shall mean a Termination of Service due to the Participant’s resignation so long as, at the time of such Termination of Service, (x) the Participant has attained age 62 and five (5) years of service with the Company or an Affiliate and (y) no event has occurred that would be grounds for the Participant’s Termination of Service by the Company or an Affiliate for Cause; or
(iv) upon the occurrence of a Change in Control,
(A) to the extent the RSUs are not continued, assumed or substituted by the surviving entity in connection with such Change in Control, any RSUs that remain unvested as of the date of consummation of such Change in Control shall immediately vest as of such date and be settled pursuant to Section 5 hereof; or
(B) to the extent the RSUs are continued, assumed or substituted by the surviving entity in connection with such Change in Control, in the event that the Participant incurs a Termination of Service (x) by the Company or an Affiliate without Cause or (y) by the Participant for Good Reason (as defined below), in each case, within the twenty-four (24) month period following the date of consummation of such Change in Control, subject to Section 3(b)(v) below, any RSUs that remain unvested as of such date of Termination of Service shall immediately vest as of such date and be settled pursuant to Section 5 hereof. For purposes of this Agreement, “Good Reason” shall mean, (A) in the case where there is an employment agreement, consulting agreement, change in control agreement or similar agreement
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in effect between the Company or an Affiliate and the Participant as of the Date of Grant that defines “Good Reason” (or words of like import), “Good Reason” as defined under such agreement, or (B) in the case where there is no employment agreement, consulting agreement, change in control agreement or similar agreement in effect between the Company or an Affiliate and the Participant as of the Date of Grant (or where there is such an agreement but it does not define “Good Reason” (or words of like import)), “Good Reason” shall mean (i) a material diminution in the Participant’s base salary or authority, duties and responsibilities with the Company or any of its Affiliates; provided, however, that if the Participant is serving as an officer or member of the board of directors (or similar governing body) of the Company or any of its Affiliates or any other entity in which the Company or any of its Affiliates holds an equity interest, in no event shall the removal of the Participant as an officer or board member, regardless of the reason for such removal, constitute Good Reason; or (ii) the relocation of the geographic location of the Participant’s principal place of employment by more than fifty (50) miles from the location of the Participant’s principal place of employment as of the Date of Grant. Notwithstanding the foregoing, any assertion by the Participant of a termination for Good Reason shall not be effective unless all of the following conditions are satisfied: (1) the condition described in (i) or (ii) of the foregoing sentence giving rise to the Participant’s termination of employment must have arisen without the Participant’s consent; (2) the Participant must provide written notice to the Board of the existence of such condition(s) within thirty (30) days after the initial occurrence of such condition(s); (3) the condition(s) specified in such notice must remain uncorrected for thirty (30) days following the Board’s receipt of such written notice; and (4) the date of the Participant’s termination of employment must occur within sixty (60) days after the initial occurrence of the condition(s) specified in such notice. Further and notwithstanding the foregoing, no suspension of the Participant or a reduction in the Participant’s authority, duties and responsibilities in conjunction with any leave required, or other action taken, by the Company as part of any investigation into alleged wrongdoing by the Participant shall give rise to Good Reason.
(v) The vesting of any RSUs upon (x) the Participant’s Termination of Service by the Company or an Affiliate without Cause pursuant to Section 3(b)(i) above or (y) the Participant’s Termination of Service by the Company or an Affiliate without Cause or by the Participant for Good Reason within the 24 month period following a Change in Control under Section 3(b)(iv) above shall be subject, in each case, to the Participant’s execution of a general release of claims in a form provided by the Company or its successor or affiliate, as applicable (the “Release”) and such Release becoming irrevocable in accordance with its terms within 28 days following the Participant’s Termination of Service.
4. Dividend Equivalents. In the event that the Company declares and pays a dividend in respect of its outstanding Shares and, on the record date for such dividend, the Participant holds RSUs granted pursuant to this Agreement that have not yet been settled pursuant to Section 5 hereof, the Company shall record the amount of such dividend in a bookkeeping account and pay to the Participant an amount in cash equal to the cash dividends the Participant would have received if the Participant was the holder of record, as of such record date, of a number of Shares equal to the number of RSUs held by the Participant that have not
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yet been settled pursuant to Section 5 as of such record date, with such payment to be made on the date on which such RSUs are settled in accordance with Section 5 (the “Dividend Equivalents”). For purposes of clarity, if the RSUs (or any portion thereof) are forfeited by the Participant pursuant to the terms of this Agreement, then the Participant shall also forfeit the Dividend Equivalents, if any, accrued with respect to such forfeited RSUs. No interest will accrue on the Dividend Equivalents between the declaration and payment of the applicable dividends and the settlement of the Dividend Equivalents.
5. Settlement of RSUs. As soon as administratively practicable following the vesting of any portion of the RSUs pursuant to Sections 2 or 3 hereof, but in no event later than the expiration of the short-term deferral period after which such RSUs cease to be subject to a substantial risk of forfeiture, the Company shall deliver to the Participant a number of Shares equal to the number of such vested RSUs. All Shares issued hereunder shall be delivered either by delivering one or more certificates for such Shares to the Participant or by entering such Shares in book-entry form, as determined by the Committee in its sole discretion. The value of Shares shall not bear any interest owing to the passage of time. Neither this Section 5 nor any action taken pursuant to or in accordance with this Agreement shall be construed to create a trust or a funded or secured obligation of any kind.
6. Restrictive Covenants. Notwithstanding any provision in this Agreement or the Plan to the contrary, in the event the Committee determines that Participant has failed to abide by any of the restrictive covenants set forth on Appendix I attached hereto or contained in any other agreement by and between the Company or any Affiliate and Participant (collectively, the “Restrictive Covenants”), which Restrictive Covenants are hereby incorporated by reference as if fully set forth herein, then all RSUs that have not been settled pursuant to Section 5 hereof as of the date of such determination (and all rights arising from such RSUs and from being a holder thereof) will terminate automatically without any further action by the Company and will be forfeited without further notice and at no cost to the Company.
7. Tax Withholding. To the extent that the receipt, vesting or settlement of this Award results in compensation income or wages to the Participant for federal, state, local and/or foreign tax purposes, the Participant shall make arrangements satisfactory to the Company regarding the payment of, any income tax, social insurance contribution or other applicable taxes that are required to be withheld in respect of this Award, which arrangements include the delivery of cash or cash equivalents, Shares (including previously owned Shares (which is not subject to any pledge or other security interest), net settlement, a broker-assisted sale, or other cashless withholding or reduction of the amount of shares otherwise issuable or delivered pursuant to this Award), other property, or any other legal consideration the Committee deems appropriate. If such tax obligations are satisfied through net settlement or the surrender of previously owned Shares, the maximum number of Shares that may be so withheld (or surrendered) shall be the number of Shares that have an aggregate fair market value on the date of withholding or surrender equal to the aggregate amount of such tax liabilities determined based on the greatest withholding rates for federal, state, local and/or foreign tax purposes, including payroll taxes, that may be utilized without creating adverse accounting treatment for
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the Company with respect to this Award, as determined by the Committee. Any fraction of a Share required to satisfy such tax obligations shall be disregarded and the amount due shall be paid instead in cash to the Participant. The Participant acknowledges that there may be adverse tax consequences upon the receipt, vesting or settlement of this Award or disposition of the underlying shares and that the Participant has been advised, and hereby is advised, to consult a tax advisor. The Participant represents that the Participant is in no manner relying on the Board, the Committee, the Company or an Affiliate or any of their respective managers, directors, officers, employees or authorized representatives (including attorneys, accountants, consultants, bankers, lenders, prospective lenders and financial representatives) for tax advice or an assessment of such tax consequences.
8. Employment Relationship. For purposes of this Agreement, Participant shall be considered to be employed by the Company or an Affiliate as long as Participant remains an employee of any of the Company, an Affiliate or a corporation or other entity (or a parent or subsidiary of such corporation or other entity) assuming or substituting a new award for this Award.
9. Non-Transferability. During the lifetime of the Participant, the RSUs may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution, unless and until the Shares underlying the RSUs have been issued, and all restrictions applicable to such shares have lapsed. Neither the RSUs nor any interest or right therein shall be liable for the debts, contracts or engagements of the Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means, whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.
10. Compliance with Applicable Law. Notwithstanding any provision of this Agreement to the contrary, the issuance of Shares hereunder will be subject to compliance with all applicable requirements of Applicable Law with respect to such securities and with the requirements of any stock exchange or market system upon which the Shares may then be listed. No Shares will be issued hereunder if such issuance would constitute a violation of any Applicable Law or regulation or the requirements of any stock exchange or market system upon which the Shares may then be listed. In addition, Shares will not be issued hereunder unless (a) a registration statement under the Securities Act is in effect at the time of such issuance with respect to the shares to be issued or (b) in the opinion of legal counsel to the Company, the shares to be issued are permitted to be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary for the lawful issuance and sale of any Shares hereunder will relieve the Company of any liability in respect of the failure to issue such shares as to which such requisite authority has not been obtained. As a condition to any issuance of
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Shares hereunder, the Company may require the Participant to satisfy any requirements that may be necessary or appropriate to evidence compliance with any Applicable Law or regulation and to make any representation or warranty with respect to such compliance as may be requested by the Company.
11. Rights as a Stockholder. The Participant shall have no rights as a stockholder of the Company with respect to any Shares that may become deliverable hereunder unless and until the Participant has become the holder of record of such Shares, and no adjustments shall be made for dividends in cash or other property, distributions or other rights in respect of any such Shares, except as otherwise specifically provided for in the Plan or this Agreement.
12. Execution of Receipts and Releases. Any issuance or transfer of Shares or other property to the Participant or the Participant’s legal representative, heir, legatee or distributee, in accordance with this Agreement shall be in full satisfaction of all claims of such Person hereunder. As a condition precedent to such payment or issuance, the Company may require the Participant or the Participant’s legal representative, heir, legatee or distributee to execute (and not revoke within any time provided to do so) a release and receipt therefor in such form as it shall determine appropriate; provided, however, that any review period under such release will not modify the date of settlement with respect to vested RSUs.
13. No Right to Continued Employment, Service or Awards. Nothing in the adoption of the Plan, nor the award of the RSUs thereunder pursuant to the Grant Notice and this Agreement, shall confer upon the Participant the right to continued employment by, or a continued service relationship with, the Company or any Affiliate, or any other entity, or affect in any way the right of the Company or any such Affiliate, or any other entity to terminate such employment or other service relationship at any time. Unless otherwise provided in a written employment agreement or by Applicable Law, Participant’s employment by the Company, or any such Affiliate, or any other entity shall be on an at-will basis, and the employment relationship may be terminated at any time by either Participant or the Company, or any such Affiliate, or other entity for any reason whatsoever, with or without cause or notice. Any question as to whether and when there has been a termination of such employment, and the cause of such termination, shall be determined by the Committee or its delegate, and such determination shall be final, conclusive and binding for all purposes. The grant of the RSUs is a one-time benefit that was made at the sole discretion of the Company and does not create any contractual or other right to receive a grant of restricted stock units or other Awards or any payment or benefits in the future, including any adjustment to wages, overtime, benefits or other compensation. Any future Awards will be granted at the sole discretion of the Company.
14. Notices. All notices and other communications under this Agreement shall be in writing and shall be delivered to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):
If to the Company, unless otherwise designated by the Company in a written notice to the Participant (or other holder):
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Shoals Technologies Group, Inc.
Attn: Chief Legal Officer
Attn: Chief Legal Officer
1400 Shoals Way
Portland, Tennessee 37148
If to the Participant, at the Participant’s last known address on file with the Company.
Any notice that is delivered personally or by overnight courier or telecopier in the manner provided herein shall be deemed to have been duly given to the Participant when it is mailed by the Company or, if such notice is not mailed to the Participant, upon receipt by the Participant. Any notice that is addressed and mailed in the manner herein provided shall be conclusively presumed to have been given to the party to whom it is addressed at the close of business, local time of the recipient, on the fourth day after the day it is so placed in the mail.
15. Consent to Electronic Delivery; Electronic Signature. In lieu of receiving documents in paper format, the Participant agrees, to the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including, but not limited to, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly reports and all other forms of communications) in connection with this and any other Award made or offered by the Company. Electronic delivery may be via a Company electronic mail system or by reference to a location on a Company intranet to which the Participant has access. The Participant hereby consents to any and all procedures the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents that the Company may be required to deliver, and agrees that his or her electronic signature is the same as, and shall have the same force and effect as, his or her manual signature.
16. Agreement to Furnish Information. The Participant agrees to furnish to the Company all information requested by the Company to enable it to comply with any reporting or other requirement imposed upon the Company by or under any applicable statute or regulation.
17. Entire Agreement; Amendment. This Agreement constitutes the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the RSUs granted hereby. Without limiting the scope of the preceding sentence, except as provided therein, all prior understandings and agreements, if any, among the parties hereto relating to the subject matter hereof are hereby null and void and of no further force and effect. The Committee may, in its sole discretion, amend this Agreement from time to time in any manner that is not inconsistent with the Plan; provided, however, that except as otherwise provided in the Plan or this Agreement, any such amendment that materially and adversely reduces the rights of the Participant shall be effective only if it is in writing and signed by both the Participant and an authorized officer of the Company.
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18. Severability and Waiver. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of such provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. Waiver by any party of any breach of this Agreement or failure to exercise any right hereunder shall not be deemed to be a waiver of any other breach or right. The failure of any party to take action by reason of such breach or to exercise any such right shall not deprive the party of the right to take action at any time while or after such breach or condition giving rise to such rights continues.
19. Clawback. The Participant’s rights with respect to this Award shall in all events be subject to (a) all rights that the Company may have under any Company clawback policy or any other agreement or arrangement with the Participant, and (b) all rights and obligations that the Company may have regarding the clawback of “incentive-based compensation” under Section 10D of the Exchange Act and any applicable rules and regulations promulgated thereunder from time to time by the U.S. Securities and Exchange Commission, the listing standards of any national securities exchange or association on which the Company’s securities are listed, or any other Applicable Law, including, without limitation, the Shoals Technologies Group, Inc. Clawback and Recoupment Policy.
20. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED THEREIN, EXCLUSIVE OF THE CONFLICT OF LAWS PROVISIONS OF DELAWARE LAW.
21. Successors and Assigns. The Company may assign any of its rights under this Agreement without the Participant’s consent. This Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein and in the Plan, this Agreement will be binding upon the Participant and the Participant's beneficiaries, executors, administrators and the Person(s) to whom the RSUs may be transferred by will or the laws of descent or distribution.
22. Headings; References; Interpretation. Headings are for convenience only and are not deemed to be part of this Agreement. The words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All references herein to Sections shall, unless the context requires a different construction, be deemed to be references to the Sections of this Agreement. The word “or” as used herein is not exclusive and is deemed to have the meaning “and/or.” All references to “including” shall be construed as meaning “including without limitation.” Unless the context requires otherwise, all references herein to a law, agreement, instrument or other document shall be deemed to refer to such law, agreement, instrument or other document as amended, supplemented, modified and restated from time to time to the extent permitted by the provisions thereof. All references to “dollars” or “$” in this Agreement refer to United States dollars. Whenever the context may require, any pronouns used
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herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against any party hereto, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by each of the parties hereto and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of the parties hereto.
23. Counterparts. The Grant Notice may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. Delivery of an executed counterpart of the Grant Notice by facsimile or portable document format (.pdf) attachment to electronic mail shall be effective as delivery of a manually executed counterpart of the Grant Notice.
24. Section 409A. Notwithstanding anything herein or in the Plan to the contrary, the RSUs granted pursuant to this Agreement are intended to be exempt from or compliant with the applicable requirements of Section 409A of the Code and shall be limited, construed and interpreted in accordance with such intent. A Participant shall not be considered to have experienced a “Termination of Service” unless the Participant has experienced a “separation from service” within the meaning of Section 409A of the Code. If the Participant is deemed to be a “specified employee” within the meaning of Section 409A of the Code at a time when the Participant becomes eligible for settlement of the RSUs upon the Participant’s “separation from service” within the meaning of Section 409A of the Code, then to the extent necessary to prevent any accelerated or additional tax under Section 409A of the Code, such settlement will be delayed until the earlier of: (a) the date that is six months following the Participant’s separation from service and (b) the Participant’s death. Notwithstanding the foregoing, the Company and its Affiliates make no representations that the RSUs provided under this Agreement are exempt from or compliant with Section 409A of the Code and in no event shall the Company or any Affiliate be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Participant on account of non-compliance with Section 409A of the Code. For purposes of Section 409A of the Code, each payment in any series of installments payments hereunder will be treated as a separate payment. Notwithstanding any other provision of this Agreement: (a) the Company may unilaterally accelerate payment hereunder in connection with a termination of this arrangement conducted in a manner intended to satisfy the requirements of Treas. Reg. § 1.409A-3(j)(4)(ix), (b) if settlement of this Award is conditioned on the effectiveness of a release of claims and the period the Participant is afforded to consider that release spans two calendar years, settlement will occur in the second calendar year, (c) to the extent provided in Prop. Treas. Reg. § 1.409A-1(b)(4)(ii), Treas. Reg. § 1.409A-2(b)(7)(ii) or any successor provision, the Company may delay settlement of this Award if it reasonably determines that such settlement would violate federal securities laws or any other applicable law, and (d) the settlement of this Award may otherwise be accelerated or deferred only in a manner intended to comply with the requirements of Section 409A of the Code.
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APPENDIX I
RESTRICTIVE COVENANTS
1. Confidentiality. In the course of Participant’s employment or service with the Company, Participant will be provided with, and will have access to, Confidential Information (as defined below). In consideration of Participant’s receipt and access to such Confidential Information, Participant shall comply with this Section 1.
(a) Both during Participant’s employment or service with any member of the Company Group (as defined below) and thereafter, except as expressly permitted by this Agreement, Participant shall not disclose any Confidential Information to any person or entity and shall not use any Confidential Information except for the benefit of the Company Group. Participant acknowledges and agrees that Participant would inevitably use and disclose Confidential Information in violation of this Section 1 if Participant were to violate any of the covenants set forth in Section 2 of this Appendix I. Participant shall follow all Company Group policies and protocols regarding the security of all documents and other materials containing Confidential Information (regardless of the medium on which Confidential Information is stored). Except to the extent required for the performance of Participant’s duties on behalf of the Company Group, Participant shall not remove from facilities of any member of the Company Group any information, property, equipment, drawings, notes, reports, manuals, invention records, computer software, customer information, or other data or materials that relate in any way to the Confidential Information, whether paper or electronic and whether produced by Participant or obtained by the Company Group. The covenants of this Section 1(a) shall apply to all Confidential Information, whether now known or later to become known to Participant during the period that Participant is employed by or affiliated with the Company or any other member of the Company Group. For purposes of this Appendix I, “Company Group” shall mean, collectively, the Company and its direct and indirect subsidiaries as may exist from time to time.
(b) Notwithstanding any provision of Section 1(a) of this Appendix I to the contrary, Participant may make the following disclosures and uses of Confidential Information:
(i) disclosures to other employees, officers or directors of a member of the Company Group who have a need to know the information in connection with the businesses of the Company Group;
(ii) disclosures to customers and suppliers when, in the reasonable and good faith belief of Participant, such disclosure is in connection with Participant’s performance of Participant’s duties under this Agreement and is in the best interests of the Company Group;
(iii) disclosures and uses that are approved in writing by the Board; or
(iv) disclosures to a person or entity that has (x) been retained by a member of the Company Group to provide services to one or more members of the Company Group and (y) agreed in writing to abide by the terms of a confidentiality agreement.
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(c) Upon the Participant’s Termination of Service, and at any other time upon request of the Company, Participant shall promptly and permanently surrender and deliver to the Company all documents (including electronically stored information) and all copies thereof and all other materials of any nature containing or pertaining to all Confidential Information and any other Company Group property (including any Company Group-issued computer, mobile device or other equipment) in Participant’s possession, custody or control and Participant shall not retain any such documents or other materials or property of the Company Group. Within ten (10) days of any such request, Participant shall certify to the Company in writing that all such documents, materials and property have been returned to the Company.
(d) “Confidential Information” means all confidential, competitively valuable, non-public or proprietary information that is conceived, made, developed or acquired by or disclosed to Participant (whether conveyed orally or in writing), individually or in conjunction with others, during the period that Participant is employed by or otherwise affiliated with the Company or any other member of the Company Group (whether during business hours or otherwise and whether on the Company’s premises or otherwise) including: (i) technical information of any member of the Company Group, its affiliates, its investors, customers, vendors, suppliers or other third parties, including computer programs, software, databases, data, ideas, know-how, formulae, compositions, processes, discoveries, machines, inventions (whether patentable or not), designs, developmental or experimental work, techniques, improvements, work in process, research or test results, original works of authorship, training programs and procedures, diagrams, charts, business and product development plans, and similar items; (ii) information relating to any member of the Company Group’s businesses or properties, products or services (including all such information relating to corporate opportunities, operations, future plans, methods of doing business, business plans, strategies for developing business and market share, research, financial and sales data, pricing terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or acquisition targets or their requirements, the identity of key contacts within customers’ organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names and marks) or pursuant to which any member of the Company Group owes a confidentiality obligation; and (iii) other valuable, confidential information and trade secrets of any member of the Company Group, its affiliates, its customers or other third parties. Moreover, all documents, videotapes, written presentations, brochures, drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, e-mail, voice mail, electronic databases, maps, drawings, architectural renditions, models and all other writings or materials of any type including or embodying any of such information, ideas, concepts, improvements, discoveries, inventions and other similar forms of expression are and shall be the sole and exclusive property of the Company or the other applicable member of the Company Group and be subject to the same restrictions on disclosure applicable to all Confidential Information pursuant to this Agreement. For purposes of this Agreement, Confidential Information shall not include any information that (A) is or becomes generally available to the public other than as a result of a disclosure or wrongful act of Participant or any of Participant’s agents; (B) was available to Participant on a non-confidential basis before its disclosure by a member of the Company Group; (C) becomes available to Participant on a non-confidential basis from a source other than a member of the Company Group; provided, however, that such source is not bound by a
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confidentiality agreement with, or other obligation with respect to confidentiality to, a member of the Company Group; or (D) is required to be disclosed by Applicable Law.
(e) Notwithstanding the foregoing, nothing in this Agreement shall prohibit or restrict Participant from lawfully: (i) initiating communications directly with, cooperating with, providing information to, causing information to be provided to, or otherwise assisting in an investigation by, any governmental authority regarding a possible violation of any law; (ii) responding to any inquiry or legal process directed to Participant from any such governmental authority; (iii) testifying, participating or otherwise assisting in any action or proceeding by any such governmental authority relating to a possible violation of law; or (iv) making any other disclosures that are protected under the whistleblower provisions of any Applicable Law. Additionally, pursuant to the federal Defend Trade Secrets Act of 2016, an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (A) is made (1) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney and (2) solely for the purpose of reporting or investigating a suspected violation of law; (B) is made to the individual’s attorney in relation to a lawsuit for retaliation against the individual for reporting a suspected violation of law; or (C) is made in a complaint or other document filed in a lawsuit or proceeding, if such filing is made under seal. Nothing in this Agreement requires Participant to obtain prior authorization before engaging in any conduct described in this paragraph, or to notify the Company that Participant has engaged in any such conduct.
2. Non-Competition; Non-Solicitation.
(a) The Company shall provide Participant access to Confidential Information for use only during the Participant’s employment or service with any member of the Company Group, and Participant acknowledges and agrees that the Company Group will be entrusting Participant, in Participant’s unique and special capacity, with developing the goodwill of the Company Group, and in consideration of the Company providing Participant with access to Confidential Information, clients and customers and as an express incentive for the Company to enter into this Agreement and employ Participant, Participant has voluntarily agreed to the covenants set forth in this Section 2. Participant agrees and acknowledges that the limitations and restrictions set forth herein, including geographical and temporal restrictions on certain competitive activities, are reasonable in all respects, do not interfere with public interests, will not cause Participant undue hardship, and are material and substantial parts of this Agreement intended and necessary to prevent unfair competition and to protect the Company Group’s Confidential Information, goodwill and legitimate business interests.
(b) During the Prohibited Period (as defined below), Participant shall not, without the prior written approval of the Board, directly or indirectly, for Participant or on behalf of or in conjunction with any other person or entity of any nature:
(i) engage in or participate in (or prepare to engage in or participate in) the Business within the Market Area (each as defined below), which prohibition shall prevent Participant from directly or indirectly: (A) owning, investing in, controlling, managing, operating, participating in, lending Participant’s name to, contributing to, providing assistance to
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or being an officer or director of, any person or entity engaged in or planning to engage in the Business in the Market Area, or (B) joining, becoming an employee or consultant of, or otherwise rendering services for or being affiliated with or engaged by, any person or entity engaged in, or planning to engage in, the Business in the Market Area in any capacity (with respect to this clause (B)) in which Participant’s customer or client relationships, duties or responsibilities are the same as or similar to the customer or client relationships, duties or responsibilities that Participant had on behalf of any member of the Company Group;
(ii) appropriate or interfere with or attempt to appropriate or interfere with any Business Opportunity (as defined below) of, or relating to, any member of the Company Group located in the Market Area;
(iii) solicit, canvass, approach, encourage, entice or induce any customer, vendor or supplier of any member of the Company Group with whom Participant had contact (including oversight responsibility) or learned Confidential Information about during Participant’s employment or service with any member of the Company Group to cease or lessen such customer’s, vendor’s or supplier’s business with any member of the Company Group or otherwise adversely affect such relationship, or attempt to do any of the foregoing; or
(iv) solicit, canvass, approach, encourage, entice or induce any employee or contractor of any member of the Company Group to terminate his, her or its employment or engagement with any member of the Company Group, or hire or retain any such employee or contractor.
Notwithstanding the foregoing, nothing herein shall not limit Participant’s ability to accept employment and perform work with any person or entity where (x) the services provided by Participant to such person or entity are not, and do not directly or indirectly benefit any division or business of such person or entity that is, in competition with the Business or any other material business in which a member of the Company Group has made a significant financial investment on or prior to the date of termination to be engaged in on or after such date and (y) Participant does not own more than 2% of the equity securities of such person or entity.
(c) Because of the difficulty of measuring economic losses to the Company Group as a result of a breach or threatened breach of the covenants set forth in Section 1 of this Appendix I and in this Section 2, and because of the immediate and irreparable damage that would be caused to the members of the Company Group for which they would have no other adequate remedy, the Company and each other member of the Company Group shall be entitled to enforce the foregoing covenants, in the event of a breach or threatened breach, by injunctions and restraining orders from any court of competent jurisdiction, without the necessity of showing any actual damages or that money damages would not afford an adequate remedy, and without the necessity of posting any bond or other security. The aforementioned equitable relief shall not be the Company’s or any other member of the Company Group’s exclusive remedy for a breach but instead shall be in addition to all other rights and remedies available to the Company and each other member of the Company Group at law and equity. Participant further agrees that Participant will not challenge the reasonableness or enforceability of any of the covenants set forth in this Section 2, and that Participant will reimburse the Company Group for all costs
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(including reasonable attorneys’ fees) incurred in connection with any action to enforce any of the provisions of this Section 2 if Participant challenges the reasonableness or enforceability of any of the provisions of this Section 2.
(d) The covenants in this Section 2, and each provision and portion hereof, are severable and separate, and the unenforceability of any specific covenant (or portion thereof) shall not affect the provisions of any other covenant (or portion thereof). Moreover, in the event any arbitrator or court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which such arbitrator or court deems reasonable, and this Agreement shall thereby be reformed.
(e) The following terms shall have the following meanings:
(i) “Business” shall mean the business and operations that are the same or similar to those performed by the Company and any other member of the Company Group for which Participant provides services or about which Participant obtains Confidential Information during the Participant’s employment or service with any member of the Company Group, which business and operations include, but are not limited to, the design, manufacture, distribution, or sale of electrical wire harnesses, combiner boxes and junction boxes.
(ii) “Business Opportunity” shall mean any actual or potential commercial, investment or other business opportunity of any member of the Company Group or relating to the Business about which Participant learned Confidential Information during Participant’s employment or service with any member of the Company Group.
(iii) “Market Area” shall mean (A) the United States and (B) the geographic area within a one hundred (100) mile radius of any location where, prior to the Participant’s Termination of Service, any member of the Company Group conducts the Business or has plans to conduct the Business.
(iv) “Prohibited Period” shall mean the period during which Participant is employed by, or providing services to, any member of the Company Group and continuing for a period of twelve (12) months following the date that Participant is no longer employed by, or providing services to, any member of the Company Group.
(f) Participant undertakes and agrees that following the date that Participant is no longer employed by, or providing services to, any member of the Company Group and prior to entering into any relationship with any other party to serve as an officer, director, employee, consultant, partner, advisor, joint-venturer or in any other capacity with any other person or entity, Participant shall disclose to such other party the terms of the restrictive covenants set forth herein and hereby consents to the Company making any related disclosures.
3. Ownership of Intellectual Property.
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(a) Participant agrees that the Company shall own, and Participant shall (and hereby does) assign, all right, title and interest relating to any and all inventions (whether or not patentable), discoveries, developments, improvements, innovations, works of authorship, mask works, designs, know-how, ideas, formulae, processes, techniques, data and information authored, created, contributed to, made or conceived or reduced to practice, in whole or in part, by Participant during the period in which Participant is or has been employed by or affiliated with the Company or any other member of the Company Group, whether or not registerable under U.S. law or the laws of other jurisdictions, that either (a) relate, at the time of conception, reduction to practice, creation, derivation or development, to any member of the Company Group’s businesses or actual or anticipated research or development, or (b) were developed on any amount of the Company’s or any other member of the Company Group’s time or with the use of any member of the Company Group’s equipment, supplies, facilities or Confidential Information (all of the foregoing collectively referred to herein as “Company Intellectual Property”), and Participant shall promptly disclose all Company Intellectual Property to the Company in writing. To support Participant’s disclosure obligation herein, Participant shall keep and maintain adequate and current written records of all Company Intellectual Property made by Participant (solely or jointly with others) during the period in which Participant is or has been employed by or affiliated with the Company or any other member of the Company Group in such form as may be specified from time to time by the Company. These records shall be available to, and remain the sole property of, the Company at all times. For the elimination of doubt, the foregoing ownership and assignment provisions apply without limitation to patent rights, copyrights, trade secret rights, mask work rights, trademark rights, and all other intellectual and industrial property rights of any sort throughout the world.
(b) All of Participant’s works of authorship and associated copyrights created during the period in which Participant is employed by or affiliated with the Company or any other member of the Company Group and in the scope of Participant’s employment or engagement shall be deemed to be “works made for hire” within the meaning of the Copyright Act. To the extent any right, title and interest in and to Company Intellectual Property cannot be assigned by Participant to the Company, Participant shall grant, and does hereby grant, to the Company Group an exclusive, perpetual, royalty-free, transferable, irrevocable, worldwide license (with rights to sublicense through multiple tiers of sublicensees) to make, have made, use, sell, offer for sale, import, export, reproduce, practice and otherwise commercialize such rights, title and interest.
(c) Participant recognizes that this Agreement will not be deemed to require assignment of any invention or intellectual property that Participant developed entirely on Participant’s own time without using the equipment, supplies, facilities, trade secrets, or Confidential Information of any member of the Company Group. In addition, this Agreement does not apply to any invention that qualifies fully for protection from assignment to the Company under any specifically applicable state law or regulation.
(d) To the extent allowed by law, this Section 3 applies to all rights that may be known as or referred to as “moral rights,” “artist’s rights,” “droit moral,” or the like, including without limitation those rights set forth in 17 U.S.C. §106A (collectively, “Moral Rights”). To
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the extent Participant retain any Moral Rights under Applicable Law, Participant hereby ratifies and consents to any action that may be taken with respect to such Moral Rights by or authorized by the Company or any member of the Company Group, and Participant hereby waives and agrees not to assert any Moral Rights with respect to such Moral Rights. Participant shall confirm any such ratifications, consents, waivers, and agreements from time to time as requested by the Company.
(e) Participant shall perform, during and after the period in which Participant is or has been employed by or affiliated with the Company or any other member of the Company Group, all acts deemed necessary or desirable by the Company to permit and assist each member of the Company Group, at the Company’s expense, in obtaining and enforcing the full benefits, enjoyment, rights and title throughout the world in the Company Intellectual Property and Confidential Information assigned, to be assigned, or licensed to the Company under this Agreement.. Such acts may include execution of documents and assistance or cooperation (i) in the filing, prosecution, registration, and memorialization of assignment of any applicable patents, copyrights, mask work, or other applications, (ii) in the enforcement of any applicable patents, copyrights, mask work, moral rights, trade secrets, or other proprietary rights, and (iii) in other legal proceedings related to the Company Intellectual Property or Confidential Information.
(f) In the event that the Company (or, as applicable, a member of the Company Group) is unable for any reason to secure Participant’s signature to any document required to file, prosecute, register, or memorialize the assignment of any patent, copyright, mask work or other applications or to enforce any patent, copyright, mask work, moral right, trade secret or other proprietary right under any Confidential Information or Company Intellectual Property, Participant hereby irrevocably designates and appoints the Company and each of the Company’s duly authorized officers and agents as Participant’s agents and attorneys-in-fact to act for and on Participant’s behalf and instead of Participant, (i) to execute, file, prosecute, register and memorialize the assignment of any such application, (ii) to execute and file any documentation required for such enforcement, and (iii) to do all other lawfully permitted acts to further the filing, prosecution, registration, memorialization of assignment, issuance, and enforcement of patents, copyrights, mask works, moral rights, trade secrets or other rights under the Confidential Information or Company Intellectual Property, all with the same legal force and effect as if executed by Participant. For the avoidance of doubt, the provisions of this Section 3(f)apply fully to all derivative works, improvements, renewals, extensions, continuations, divisionals, continuations in part, continuing patent applications, reissues, and reexaminations of all Company Intellectual Property.
(g) In the event that Participant enters into, on behalf of any member of the Company Group, any contracts or agreements relating to any Confidential Information or Company Intellectual Property, Participant shall assign such contracts or agreements to the Company (or the applicable member of the Company Group) promptly, and in any event, prior to Participant’s Termination of Service. If the Company (or the applicable member of the Company Group) is unable for any reason to secure Participant’s signature to any document required to assign said contracts or agreements, or if Participant does not assign said contracts or agreements to the Company (or the applicable member of the Company Group) prior to
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Participant’s Termination of Service, Participant hereby irrevocably designates and appoints the Company (or the applicable member of the Company Group) and each of the Company’s duly authorized officers and agents as Participant’s agents and attorneys-in-fact to act for and on Participant’s behalf and instead of Participant to execute said assignments and to do all other lawfully permitted acts to further the execution of said documents.
4. Non-Disparagement. Subject to Section 1(e) above, Participant agrees that Participant will not, and will cause Participant’ affiliates to not, make, publish, or communicate any disparaging or defamatory comments regarding any member of the Company Group or their current or former directors, officers, members, managers, partners, executives or direct or indirect owners (including equityholders).
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Exhibit 10.2
SHOALS TECHNOLOGIES GROUP, INC.
2021 LONG-TERM INCENTIVE PLAN
PERFORMANCE SHARE UNIT GRANT NOTICE
Pursuant to the terms and conditions of the Shoals Technologies Group, Inc. 2021 Long-Term Incentive Plan, as amended from time to time (the “Plan”), Shoals Technologies Group, Inc., a Delaware corporation (the “Company”), hereby grants to the individual listed below (“you” or the “Participant”) the number of performance-based restricted stock units (the “PSUs”) set forth below. This award of PSUs (this “Award”) is subject to the terms and conditions set forth herein, in the Performance Share Unit Agreement attached hereto as Exhibit A (the “Agreement”) and in the Plan, each of which is incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings set forth in the Plan.
| Type of Award: | Restricted Stock Units, granted pursuant to Article VIII of the Plan, which vest subject to performance-vesting conditions as set forth below. | ||||
| Participant: | [●] | ||||
| Date of Grant: | [●] | ||||
Target Number of Performance-Based Restricted Stock Units (“Target PSUs”): | [●] | ||||
| Performance Period: | January 1, 2025 – December 31, 2025 (the “2025 Performance Year”), January 1, 2026 – December 31, 2026 (the “2026 Performance Year”) and January 1, 2027 – December 31, 2027 (the “2027 Performance Year”) (each, a “Performance Year” and collectively, the “Full Performance Period”). The performance goals for each Performance Year will be communicated to the Participant in the applicable Performance Year, following approval of such performance goals by the Committee, and shall be deemed incorporated into Exhibit B attached hereto at the time of such communication. | ||||
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| Vesting Conditions: | Subject to Sections 3 and 6 of the Agreement, the Plan and the other terms and conditions set forth herein, the Target PSUs shall vest between 0%-200%, subject to the TSR Modifier described in Exhibit B attached hereto, and based on achievement of the performance-vesting conditions set forth on Exhibit B, subject to your continued employment or service with the Company or an Affiliate from the Date of Grant through the Certification Date (as defined in the Agreement). | ||||
By your signature below, you agree to be bound by the terms and conditions of the Plan, the Agreement and this Performance Share Unit Grant Notice (this “Grant Notice”). You acknowledge that you have reviewed the Agreement, the Plan and this Grant Notice in their entirety and fully understand all provisions of the Agreement, the Plan and this Grant Notice. You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Committee regarding any questions or determinations arising under the Agreement, the Plan or this Grant Notice. This Grant Notice may be executed in one or more counterparts (including portable document format (.pdf) and facsimile counterparts), each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.
Notwithstanding any provision in this Grant Notice or the Agreement to the contrary, if you fail to execute and deliver this Grant Notice to the Company within 90 days following the Date of Grant set forth above, then this Award will terminate automatically without any further action by the Company, and this Grant Notice and the Agreement will be null and void. This Grant Notice can be executed by you and delivered to the Company, subject to the exclusive discretion of the Company, by either (i) executing this Grant Notice manually and delivering the executed original, postmarked within 90 days following the Date of Grant, to 1400 Shoals Way, Portland, TN 37148, Attn: Total Reward, (ii) sending an electronic copy of the executed Grant Notice to human.resources@shoals.com, or (iii) through the online grant agreement procedure with the Company’s designated broker-dealer.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Company has caused this Grant Notice to be executed by an officer thereunto duly authorized, and the Participant has executed this Grant Notice, effective for all purposes as provided above.
SHOALS TECHNOLOGIES GROUP, INC.
By:
Name: Brandon Moss
Title: Chief Executive Officer
PARTICIPANT
_______________________________________
Name: [●]
Signature Page to
Performance Share Unit Grant Notice
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EXHIBIT A
PERFORMANCE SHARE UNIT AGREEMENT
This Performance Share Unit Agreement (together with the Grant Notice to which this Agreement is attached, this “Agreement”) is made as of the Date of Grant set forth in the Grant Notice to which this Agreement is attached by and between Shoals Technologies Group, Inc., a Delaware corporation (the “Company”), and the individual whose name appears on the Grant Notice (the “Participant”). Capitalized terms used but not specifically defined herein shall have the meanings specified in the Grant Notice and if not defined therein, then in the Plan.
1.Award. In consideration of the Participant’s past and/or continued employment with, or service to, the Company or an Affiliate and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, effective as of the Date of Grant set forth in the Grant Notice (the “Date of Grant”), the Company hereby grants to the Participant the number of PSUs set forth in the Grant Notice on the terms and conditions set forth in the Grant Notice, this Agreement and the Plan, which is incorporated herein by reference as a part of this Agreement. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control. To the extent vested, each PSU represents the right to receive one Share, subject to the terms and conditions set forth in the Grant Notice, this Agreement and the Plan. Unless and until the PSUs have become vested in the manner set forth in the Grant Notice, the Participant will have no right to receive any Shares or other payments in respect of the PSUs. Prior to settlement of this Award, the PSUs and this Award represent an unsecured obligation of the Company, payable only from the general assets of the Company.
2.Vesting of PSUs. Except as otherwise set forth in Sections 3 or 6 hereof, the PSUs shall vest in accordance with the vesting schedule set forth in the Grant Notice. Unless and until the PSUs have vested in accordance with such vesting schedule, the Participant will have no right to receive any dividends or other distribution with respect to the PSUs.
3.Termination and Forfeiture of PSUs.
(a)Upon the Participant’s Termination of Service, any PSUs that remain unvested as of such date of Termination of Service (and all rights arising from such PSUs and from being a holder thereof) will automatically and immediately terminate as of such date without any further action by the Company and will be forfeited without further notice and at no cost to the Company.
(b)Notwithstanding the foregoing,
(i)subject to Section 3(b)(v) below, upon the Participant’s Termination of Service by the Company or an Affiliate (x) without Cause or (y) due to the Participant’s Disability, in each case prior to the Certification Date, a prorated portion of the Target PSUs shall continue to be eligible to vest as of the Certification Date based on actual performance during the Full Performance Period and shall be settled, if applicable, pursuant to Section 5 hereof, with such portion determined by multiplying the number of Target PSUs that performance-vest pursuant to the achievement of the performance-vesting conditions set forth on Exhibit B attached hereto during the Full Performance Period by a fraction, (A) the numerator of which equals the number of calendar days that the Participant was employed by the Company or an Affiliate during the Full Performance Period and (B) the denominator of which equals the total number of calendar days in the Full Performance Period, and any and
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all then-unvested PSUs (and all rights arising from such PSUs and from being a holder thereof) will terminate automatically without any further action by the Company and will be forfeited without further notice and at no cost to the Company;
(ii)upon the Participant’s death during the Participant’s continued employment, which occurs:
(1)prior to the completion of the Full Performance Period, a prorated portion of the Target PSUs shall immediately vest as of the date of the Participant’s death and be settled pursuant to Section 5 hereof, with such portion determined by multiplying the number of Target PSUs by a fraction, (A) the numerator of which equals the number of calendar days that the Participant was employed by the Company or an Affiliate during the Full Performance Period and (B) the denominator of which equals the total number of calendar days in the Full Performance Period, and any and all then-unvested PSUs (and all rights arising from such PSUs and from being a holder thereof) will terminate automatically without any further action by the Company and will be forfeited without further notice and at no cost to the Company; or
(2)following the completion of the Full Performance Period but prior to the Certification Date, the number of PSUs that vest, if any, shall be determined in accordance with Exhibit B attached hereto as though the Participant had remained in continuous employment through the Certification Date;
(iii)upon the Participant’s Termination of Service due to Retirement (as defined below), a prorated portion of the Target PSUs shall continue to be eligible to vest as of the Certification Date based on actual performance for the Full Performance Period and be settled, if applicable, pursuant to Section 5 hereof, with such portion determined by multiplying the number of Target PSUs that performance-vest pursuant to the achievement of the performance-vesting conditions set forth on Exhibit B attached hereto during the Full Performance Period by a fraction, (A) the numerator of which equals the number of calendar days that the Participant was employed by the Company or an Affiliate during the Full Performance Period and (B) the denominator of which equals the total number of calendar days in the Full Performance Period, and any and all unvested PSUs that do not remain eligible to vest in accordance with the foregoing (and all rights arising from such PSUs and from being a holder thereof) will terminate automatically without any further action by the Company and will be forfeited without further notice and at no cost to the Company. For purposes of this Agreement, “Retirement” shall mean a Termination of Service due to the Participant’s resignation so long as, at the time of such Termination of Service, (x) the Participant has attained age 62 and five (5) years of service with the Company or an Affiliate and (y) no event has occurred that would be grounds for the Participant’s Termination of Service by the Company or an Affiliate for Cause; or
(iv)upon the occurrence of a Change in Control, to the extent the PSUs are continued, assumed or substituted by the surviving entity in connection with such Change in Control, in the event that the Participant incurs a Termination of Service (x) by the Company or an Affiliate without Cause or (y) by the Participant for Good Reason (as defined below), in each case, within the 24 month period following the date of consummation of such Change in Control, subject to Section 3(b)(v) below, a number of PSUs equal to the Target PSUs shall immediately vest as of the date of such Termination of Service and be settled pursuant to Section 5 hereof, and, for the avoidance of doubt, the Participant’s right to receive any additional PSUs under this Agreement will terminate automatically without any further action by the Company and will be forfeited without further notice and at no cost to the
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Company. For purposes of this Agreement, “Good Reason” shall mean, (A) in the case where there is an employment agreement, consulting agreement, change in control agreement or similar agreement in effect between the Company or an Affiliate and the Participant as of the Date of Grant that defines “Good Reason” (or words of like import), “Good Reason” as defined under such agreement, or (B) in the case where there is no employment agreement, consulting agreement, change in control agreement or similar agreement in effect between the Company or an Affiliate and the Participant as of the Date of Grant (or where there is such an agreement but it does not define “Good Reason” (or words of like import)), “Good Reason” shall mean (i) a material diminution in the Participant’s base salary or authority, duties and responsibilities with the Company or any of its Affiliates; provided, however, that if the Participant is serving as an officer or member of the board of directors (or similar governing body) of the Company or any of its Affiliates or any other entity in which the Company or any of its Affiliates holds an equity interest, in no event shall the removal of the Participant as an officer or board member, regardless of the reason for such removal, constitute Good Reason; or (ii) the relocation of the geographic location of the Participant’s principal place of employment by more than fifty (50) miles from the location of the Participant’s principal place of employment as of the Date of Grant. Notwithstanding the foregoing, any assertion by the Participant of a termination for Good Reason shall not be effective unless all of the following conditions are satisfied: (1) the condition described in (i) or (ii) of the foregoing sentence giving rise to the Participant’s termination of employment must have arisen without the Participant’s consent; (2) the Participant must provide written notice to the Board of the existence of such condition(s) within 30 days after the initial occurrence of such condition(s); (3) the condition(s) specified in such notice must remain uncorrected for thirty (30) days following the Board’s receipt of such written notice; and (4) the date of the Participant’s termination of employment must occur within 60 days after the initial occurrence of the condition(s) specified in such notice. Further and notwithstanding the foregoing, no suspension of the Participant or a reduction in the Participant’s authority, duties and responsibilities in conjunction with any leave required, or other action taken, by the Company as part of any investigation into alleged wrongdoing by the Participant shall give rise to Good Reason. For the avoidance of doubt, “Change in Control” shall have the meaning ascribed to such term in the Plan; however, no event shall be considered a Change in Control for purposes of payment of this Award unless such event is also a “change in ownership,” a “change in effective control,” or a “change in the ownership of a substantial portion of the assets” of the Company within the meaning of Section 409A of the Code.
(v)The vesting of any PSUs upon (x) the Participant’s Termination of Service by the Company or an Affiliate without Cause pursuant to Section 3(b)(i) above or (y) the Participant’s Termination of Service by the Company or an Affiliate without Cause or by the Participant for Good Reason within the 24 month period following a Change in Control under Section 3(b)(iv) above shall be subject, in each case, to the Participant’s execution of a general release of claims in a form provided by the Company or its successor or affiliate, as appliable (the “Release”) and such Release becoming irrevocable in accordance with its terms within 28 days following the Participant’s Termination of Service.
4.Dividend Equivalents. In the event that the Company declares and pays a dividend in respect of its outstanding Shares and, on the record date for such dividend, the Participant holds PSUs granted pursuant to this Agreement that have not yet been settled pursuant to Section 5 hereof, the Company shall record the amount of such dividend in a bookkeeping account and pay to the Participant an amount in cash equal to the cash dividends the Participant would have received if the Participant was the holder of record, as of such record date, of a number of Shares equal to the number of PSUs held by the Participant that have not yet been settled pursuant to Section 5 hereof as of such record date, with such payment to be made
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on the date on which such PSUs are settled in accordance with Section 5 (the “Dividend Equivalents”). For purposes of clarity, if the PSUs (or any portion thereof) are forfeited by the Participant pursuant to the terms of this Agreement, then the Participant shall also forfeit the Dividend Equivalents, if any, accrued with respect to such forfeited PSUs. No interest will accrue on the Dividend Equivalents between the declaration and payment of the applicable dividends and the settlement of the Dividend Equivalents.
5.Settlement of PSUs.
(a)In the event of the Participant’s death, any shares delivered with respect to vested PSUs pursuant to Section 3(b)(ii)(1) or Section 3(b)(ii)(2) shall be delivered as soon as administratively practicable following the Participant’s death and no later than 90 days following the Participant’s death.
(b)In the event of a Termination of Service by the Company or an Affiliate without Cause or by the Participant for Good Reason, in each case, within the 24 month period following the consummation date of a Change in Control, any shares delivered with respect to vested PSUs pursuant to Section 3(b)(iv) shall be delivered as soon as administratively practicable following the Participant’s Termination of Service and no later than 90 days following the Participant’s Termination of Service, subject to Section 24 below.
(c)In all other events, the Committee shall certify the level at which performance-vesting conditions have been fulfilled within 90 days following the end of the Full Performance Period (the actual date of such certification, the “Certification Date.”) As soon as administratively practicable following the Certification Date (but no later than the end of the year in which the Certification Date occurs), the Company shall deliver to the Participant a number of Shares equal to the number of vested PSUs.
(d)All Shares issued hereunder shall be delivered either by delivering one or more certificates for such Shares to the Participant or by entering such Shares in book-entry form, as determined by the Committee in its sole discretion. The value of Shares shall not bear any interest owing to the passage of time. Neither this Section 5 nor any action taken pursuant to or in accordance with this Agreement shall be construed to create a trust or a funded or secured obligation of any kind.
6.Restrictive Covenants. Notwithstanding any provision in this Agreement or the Plan to the contrary, in the event the Committee determines that Participant has failed to abide by any of the restrictive covenants set forth on Appendix I attached hereto or contained in any other agreement by and between the Company or any Affiliate and Participant (collectively, the “Restrictive Covenants”), which Restrictive Covenants are hereby incorporated by reference as if fully set forth herein, then all PSUs that have not been settled pursuant to Section 5 hereof as of the date of such determination (and all rights arising from such PSUs and from being a holder thereof) will terminate automatically without any further action by the Company and will be forfeited without further notice and at no cost to the Company.
7.Tax Withholding. To the extent that the receipt, vesting or settlement of this Award results in compensation income or wages to the Participant for federal, state, local and/or foreign tax purposes, the Participant shall make arrangements satisfactory to the Company regarding the payment of, any income tax, social insurance contribution or other applicable taxes that are required to be withheld in respect of this Award, which arrangements include the delivery of cash or cash equivalents, Shares (including previously owned Shares (which is not subject to any pledge or other security interest), net settlement, a broker-assisted sale, or other
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cashless withholding or reduction of the amount of shares otherwise issuable or delivered pursuant to this Award), other property, or any other legal consideration the Committee deems appropriate. If such tax obligations are satisfied through net settlement or the surrender of previously owned Shares, the maximum number of Shares that may be so withheld (or surrendered) shall be the number of Shares that have an aggregate fair market value on the date of withholding or surrender equal to the aggregate amount of such tax liabilities determined based on the greatest withholding rates for federal, state, local and/or foreign tax purposes, including payroll taxes, that may be utilized without creating adverse accounting treatment for the Company with respect to this Award, as determined by the Committee. Any fraction of a Share required to satisfy such tax obligations shall be disregarded and the amount due shall be paid instead in cash to the Participant. The Participant acknowledges that there may be adverse tax consequences upon the receipt, vesting or settlement of this Award or disposition of the underlying shares and that the Participant has been advised, and hereby is advised, to consult a tax advisor. The Participant represents that the Participant is in no manner relying on the Board, the Committee, the Company or an Affiliate or any of their respective managers, directors, officers, employees or authorized representatives (including attorneys, accountants, consultants, bankers, lenders, prospective lenders and financial representatives) for tax advice or an assessment of such tax consequences.
8.Employment Relationship. For purposes of this Agreement, Participant shall be considered to be employed by the Company or an Affiliate as long as Participant remains an employee of any of the Company, an Affiliate or a corporation or other entity (or a parent or subsidiary of such corporation or other entity) assuming or substituting a new award for this Award.
9.Non-Transferability. During the lifetime of the Participant, the PSUs may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution, unless and until the Shares underlying the PSUs have been issued, and all restrictions applicable to such shares have lapsed. Neither the PSUs nor any interest or right therein shall be liable for the debts, contracts or engagements of the Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means, whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.
10.Compliance with Applicable Law. Notwithstanding any provision of this Agreement to the contrary, the issuance of Shares hereunder will be subject to compliance with all applicable requirements of Applicable Law with respect to such securities and with the requirements of any stock exchange or market system upon which the Shares may then be listed. No Shares will be issued hereunder if such issuance would constitute a violation of any Applicable Law or regulation or the requirements of any stock exchange or market system upon which the Shares may then be listed. In addition, Shares will not be issued hereunder unless (a) a registration statement under the Securities Act is in effect at the time of such issuance with respect to the shares to be issued or (b) in the opinion of legal counsel to the Company, the shares to be issued are permitted to be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary for the lawful issuance and sale of any Shares hereunder will relieve the Company of any liability in respect of the failure to issue such shares as to which such requisite authority has not been obtained. As a condition to any issuance of
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Shares hereunder, the Company may require the Participant to satisfy any requirements that may be necessary or appropriate to evidence compliance with any Applicable Law or regulation and to make any representation or warranty with respect to such compliance as may be requested by the Company.
11.Rights as a Stockholder. The Participant shall have no rights as a stockholder of the Company with respect to any Shares that may become deliverable hereunder unless and until the Participant has become the holder of record of such Shares, and no adjustments shall be made for dividends in cash or other property, distributions or other rights in respect of any such Shares, except as otherwise specifically provided for in the Plan or this Agreement.
12.Execution of Receipts and Releases. Any issuance or transfer of Shares or other property to the Participant or the Participant’s legal representative, heir, legatee or distributee, in accordance with this Agreement shall be in full satisfaction of all claims of such Person hereunder. As a condition precedent to such payment or issuance, the Company may require the Participant or the Participant’s legal representative, heir, legatee or distributee to execute (and not revoke within any time provided to do so) a release and receipt therefor in such form as it shall determine appropriate; provided, however, that any review period under such release will not modify the date of settlement with respect to vested PSUs.
13.No Right to Continued Employment, Service or Awards. Nothing in the adoption of the Plan, nor the award of the PSUs thereunder pursuant to the Grant Notice and this Agreement, shall confer upon the Participant the right to continued employment by, or a continued service relationship with, the Company or any Affiliate, or any other entity, or affect in any way the right of the Company or any such Affiliate, or any other entity to terminate such employment or other service relationship at any time. Unless otherwise provided in a written employment agreement or by Applicable Law, Participant’s employment by the Company, or any such Affiliate, or any other entity shall be on an at-will basis, and the employment relationship may be terminated at any time by either Participant or the Company, or any such Affiliate, or other entity for any reason whatsoever, with or without cause or notice. Any question as to whether and when there has been a termination of such employment, and the cause of such termination, shall be determined by the Committee or its delegate, and such determination shall be final, conclusive and binding for all purposes. The grant of the PSUs is a one-time benefit that was made at the sole discretion of the Company and does not create any contractual or other right to receive a grant of restricted stock units or other Awards or any payment or benefits in the future, including any adjustment to wages, overtime, benefits or other compensation. Any future Awards will be granted at the sole discretion of the Company.
14.Notices. All notices and other communications under this Agreement shall be in writing and shall be delivered to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):
If to the Company, unless otherwise designated by the Company in a written notice to the Participant (or other holder):
Shoals Technologies Group, Inc.
Attn: Chief Legal Officer
Attn: Chief Legal Officer
1400 Shoals Way
Portland, Tennessee 37148
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If to the Participant, at the Participant’s last known address on file with the Company.
Any notice that is delivered personally or by overnight courier or telecopier in the manner provided herein shall be deemed to have been duly given to the Participant when it is mailed by the Company or, if such notice is not mailed to the Participant, upon receipt by the Participant. Any notice that is addressed and mailed in the manner herein provided shall be conclusively presumed to have been given to the party to whom it is addressed at the close of business, local time of the recipient, on the fourth day after the day it is so placed in the mail.
15.Consent to Electronic Delivery; Electronic Signature. In lieu of receiving documents in paper format, the Participant agrees, to the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including, but not limited to, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly reports and all other forms of communications) in connection with this and any other Award made or offered by the Company. Electronic delivery may be via a Company electronic mail system or by reference to a location on a Company intranet to which the Participant has access. The Participant hereby consents to any and all procedures the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents that the Company may be required to deliver, and agrees that his or her electronic signature is the same as, and shall have the same force and effect as, his or her manual signature.
16.Agreement to Furnish Information. The Participant agrees to furnish to the Company all information requested by the Company to enable it to comply with any reporting or other requirement imposed upon the Company by or under any applicable statute or regulation.
17.Entire Agreement; Amendment. This Agreement constitutes the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the PSUs granted hereby. Without limiting the scope of the preceding sentence, except as provided therein, all prior understandings and agreements, if any, among the parties hereto relating to the subject matter hereof are hereby null and void and of no further force and effect. The Committee may, in its sole discretion, amend this Agreement from time to time in any manner that is not inconsistent with the Plan; provided, however, that except as otherwise provided in the Plan or this Agreement, any such amendment that materially and adversely reduces the rights of the Participant shall be effective only if it is in writing and signed by both the Participant and an authorized officer of the Company.
18.Severability and Waiver. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of such provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. Waiver by any party of any breach of this Agreement or failure to exercise any right hereunder shall not be deemed to be a waiver of any other breach or right. The failure of any party to take action by reason of such breach or to exercise any such right shall not deprive the party of the right to take action at any time while or after such breach or condition giving rise to such rights continues.
19.Clawback. The Participant’s rights with respect to this Award shall in all events be subject to (a) all rights that the Company may have under any Company clawback policy or any other agreement or arrangement with the Participant, and (b) all rights and obligations that
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the Company may have regarding the clawback of “incentive-based compensation” under Section 10D of the Exchange Act and any applicable rules and regulations promulgated thereunder from time to time by the U.S. Securities and Exchange Commission, the listing standards of any national securities exchange or association on which the Company’s securities are listed, or any other Applicable Law, including, without limitation, the Shoals Technologies Group, Inc. Clawback and Recoupment Policy.
20.Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED THEREIN, EXCLUSIVE OF THE CONFLICT OF LAWS PROVISIONS OF DELAWARE LAW.
21.Successors and Assigns. The Company may assign any of its rights under this Agreement without the Participant’s consent. This Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein and in the Plan, this Agreement will be binding upon the Participant and the Participant's beneficiaries, executors, administrators and the Person(s) to whom the PSUs may be transferred by will or the laws of descent or distribution.
22.Headings; References; Interpretation. Headings are for convenience only and are not deemed to be part of this Agreement. The words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All references herein to Sections shall, unless the context requires a different construction, be deemed to be references to the Sections of this Agreement. The word “or” as used herein is not exclusive and is deemed to have the meaning “and/or.” All references to “including” shall be construed as meaning “including without limitation.” Unless the context requires otherwise, all references herein to a law, agreement, instrument or other document shall be deemed to refer to such law, agreement, instrument or other document as amended, supplemented, modified and restated from time to time to the extent permitted by the provisions thereof. All references to “dollars” or “$” in this Agreement refer to United States dollars. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against any party hereto, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by each of the parties hereto and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of the parties hereto.
23.Counterparts. The Grant Notice may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. Delivery of an executed counterpart of the Grant Notice by facsimile or portable document format (.pdf) attachment to electronic mail shall be effective as delivery of a manually executed counterpart of the Grant Notice.
24.Section 409A. Notwithstanding anything herein or in the Plan to the contrary, the PSUs granted pursuant to this Agreement are intended to be exempt from or compliant with the applicable requirements of Section 409A of the Code and shall be limited, construed and interpreted in accordance with such intent. A Participant shall not be considered to have experienced a “Termination of Service” unless the Participant has experienced a “separation from service” within the meaning of Section 409A of the Code. If the Participant is deemed to be a “specified employee” within the meaning of Section 409A of the Code at a time when the
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Participant becomes eligible for settlement of the PSUs upon the Participant’s “separation from service” within the meaning of Section 409A of the Code, then to the extent necessary to prevent any accelerated or additional tax under Section 409A of the Code, such settlement will be delayed until the earlier of: (a) the date that is six months following the Participant’s separation from service and (b) the Participant’s death. Notwithstanding the foregoing, the Company and its Affiliates make no representations that the PSUs provided under this Agreement are exempt from or compliant with Section 409A of the Code and in no event shall the Company or any Affiliate be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Participant on account of non-compliance with Section 409A of the Code. For purposes of Section 409A of the Code, each payment in any series of installments payments hereunder will be treated as a separate payment. Notwithstanding any other provision of this Agreement: (a) the Company may unilaterally accelerate payment hereunder in connection with a termination of this arrangement conducted in a manner intended to satisfy the requirements of Treas. Reg. § 1.409A-3(j)(4)(ix), (b) if settlement of this Award is conditioned on the effectiveness of a release of claims and the period the Participant is afforded to consider that release spans two calendar years, settlement will occur in the second calendar year, (c) to the extent provided in Prop. Treas. Reg. § 1.409A-1(b)(4)(ii), Treas. Reg. § 1.409A-2(b)(7)(ii) or any successor provision, the Company may delay settlement of this Award if it reasonably determines that such settlement would violate federal securities laws or any other applicable law, and (d) the settlement of this Award may otherwise be accelerated or deferred only in a manner intended to comply with the requirements of Section 409A of the Code.
25.
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APPENDIX I
RESTRICTIVE COVENANTS
1.Confidentiality. In the course of Participant’s employment or service with the Company, Participant will be provided with, and will have access to, Confidential Information (as defined below). In consideration of Participant’s receipt and access to such Confidential Information, Participant shall comply with this Section 1.
(a)Both during Participant’s employment or service with any member of the Company Group (as defined below) and thereafter, except as expressly permitted by this Agreement, Participant shall not disclose any Confidential Information to any person or entity and shall not use any Confidential Information except for the benefit of the Company Group. Participant acknowledges and agrees that Participant would inevitably use and disclose Confidential Information in violation of this Section 1 if Participant were to violate any of the covenants set forth in Section 2 of this Appendix I. Participant shall follow all Company Group policies and protocols regarding the security of all documents and other materials containing Confidential Information (regardless of the medium on which Confidential Information is stored). Except to the extent required for the performance of Participant’s duties on behalf of the Company Group, Participant shall not remove from facilities of any member of the Company Group any information, property, equipment, drawings, notes, reports, manuals, invention records, computer software, customer information, or other data or materials that relate in any way to the Confidential Information, whether paper or electronic and whether produced by Participant or obtained by the Company Group. The covenants of this Section 1(a) shall apply to all Confidential Information, whether now known or later to become known to Participant during the period that Participant is employed by or affiliated with the Company or any other member of the Company Group. For purposes of this Appendix I, “Company Group” shall mean, collectively, the Company and its direct and indirect subsidiaries as may exist from time to time.
(b)Notwithstanding any provision of Section 1(a) of this Appendix I to the contrary, Participant may make the following disclosures and uses of Confidential Information:
(i)disclosures to other employees, officers or directors of a member of the Company Group who have a need to know the information in connection with the businesses of the Company Group;
(ii)disclosures to customers and suppliers when, in the reasonable and good faith belief of Participant, such disclosure is in connection with Participant’s performance of Participant’s duties under this Agreement and is in the best interests of the Company Group;
(iii)disclosures and uses that are approved in writing by the Board; or
(iv)disclosures to a person or entity that has (x) been retained by a member of the Company Group to provide services to one or more members of the Company Group and (y) agreed in writing to abide by the terms of a confidentiality agreement.
(c)Upon the Participant’s Termination of Service, and at any other time upon request of the Company, Participant shall promptly and permanently surrender and deliver to the Company all documents (including electronically stored information) and all copies thereof and all other materials of any nature containing or pertaining to all Confidential Information and any other Company Group property (including any Company Group-issued computer, mobile device or other equipment) in Participant’s possession, custody or control and Participant shall not
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retain any such documents or other materials or property of the Company Group. Within 10 days of any such request, Participant shall certify to the Company in writing that all such documents, materials and property have been returned to the Company.
(d)“Confidential Information” means all confidential, competitively valuable, non-public or proprietary information that is conceived, made, developed or acquired by or disclosed to Participant (whether conveyed orally or in writing), individually or in conjunction with others, during the period that Participant is employed by or otherwise affiliated with the Company or any other member of the Company Group (whether during business hours or otherwise and whether on the Company’s premises or otherwise) including: (i) technical information of any member of the Company Group, its affiliates, its investors, customers, vendors, suppliers or other third parties, including computer programs, software, databases, data, ideas, know-how, formulae, compositions, processes, discoveries, machines, inventions (whether patentable or not), designs, developmental or experimental work, techniques, improvements, work in process, research or test results, original works of authorship, training programs and procedures, diagrams, charts, business and product development plans, and similar items; (ii) information relating to any member of the Company Group’s businesses or properties, products or services (including all such information relating to corporate opportunities, operations, future plans, methods of doing business, business plans, strategies for developing business and market share, research, financial and sales data, pricing terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or acquisition targets or their requirements, the identity of key contacts within customers’ organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names and marks) or pursuant to which any member of the Company Group owes a confidentiality obligation; and (iii) other valuable, confidential information and trade secrets of any member of the Company Group, its affiliates, its customers or other third parties. Moreover, all documents, videotapes, written presentations, brochures, drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, e-mail, voice mail, electronic databases, maps, drawings, architectural renditions, models and all other writings or materials of any type including or embodying any of such information, ideas, concepts, improvements, discoveries, inventions and other similar forms of expression are and shall be the sole and exclusive property of the Company or the other applicable member of the Company Group and be subject to the same restrictions on disclosure applicable to all Confidential Information pursuant to this Agreement. For purposes of this Agreement, Confidential Information shall not include any information that (A) is or becomes generally available to the public other than as a result of a disclosure or wrongful act of Participant or any of Participant’s agents; (B) was available to Participant on a non-confidential basis before its disclosure by a member of the Company Group; (C) becomes available to Participant on a non-confidential basis from a source other than a member of the Company Group; provided, however, that such source is not bound by a confidentiality agreement with, or other obligation with respect to confidentiality to, a member of the Company Group; or (D) is required to be disclosed by Applicable Law.
(e)Notwithstanding the foregoing, nothing in this Agreement shall prohibit or restrict Participant from lawfully: (i) initiating communications directly with, cooperating with, providing information to, causing information to be provided to, or otherwise assisting in an investigation by, any governmental authority regarding a possible violation of any law; (ii) responding to any inquiry or legal process directed to Participant from any such governmental authority; (iii) testifying, participating or otherwise assisting in any action or proceeding by any such governmental authority relating to a possible violation of law; or (iv) making any other disclosures that are protected under the whistleblower provisions of any Applicable Law. Additionally, pursuant to the federal Defend Trade Secrets Act of 2016, an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (A) is made (1) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney and (2) solely for the purpose of reporting or
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investigating a suspected violation of law; (B) is made to the individual’s attorney in relation to a lawsuit for retaliation against the individual for reporting a suspected violation of law; or (C) is made in a complaint or other document filed in a lawsuit or proceeding, if such filing is made under seal. Nothing in this Agreement requires Participant to obtain prior authorization before engaging in any conduct described in this paragraph, or to notify the Company that Participant has engaged in any such conduct.
2.Non-Competition; Non-Solicitation.
(a)The Company shall provide Participant access to Confidential Information for use only during the Participant’s employment or service with any member of the Company Group, and Participant acknowledges and agrees that the Company Group will be entrusting Participant, in Participant’s unique and special capacity, with developing the goodwill of the Company Group, and in consideration of the Company providing Participant with access to Confidential Information, clients and customers and as an express incentive for the Company to enter into this Agreement and employ Participant, Participant has voluntarily agreed to the covenants set forth in this Section 2. Participant agrees and acknowledges that the limitations and restrictions set forth herein, including geographical and temporal restrictions on certain competitive activities, are reasonable in all respects, do not interfere with public interests, will not cause Participant undue hardship, and are material and substantial parts of this Agreement intended and necessary to prevent unfair competition and to protect the Company Group’s Confidential Information, goodwill and legitimate business interests.
(b)During the Prohibited Period (as defined below), Participant shall not, without the prior written approval of the Board, directly or indirectly, for Participant or on behalf of or in conjunction with any other person or entity of any nature:
(i)engage in or participate in (or prepare to engage in or participate in) the Business within the Market Area (each as defined below), which prohibition shall prevent Participant from directly or indirectly: (A) owning, investing in, controlling, managing, operating, participating in, lending Participant’s name to, contributing to, providing assistance to or being an officer or director of, any person or entity engaged in or planning to engage in the Business in the Market Area, or (B) joining, becoming an employee or consultant of, or otherwise rendering services for or being affiliated with or engaged by, any person or entity engaged in, or planning to engage in, the Business in the Market Area in any capacity (with respect to this clause (B)) in which Participant’s customer or client relationships, duties or responsibilities are the same as or similar to the customer or client relationships, duties or responsibilities that Participant had on behalf of any member of the Company Group;
(ii)appropriate or interfere with or attempt to appropriate or interfere with any Business Opportunity (as defined below) of, or relating to, any member of the Company Group located in the Market Area;
(iii)solicit, canvass, approach, encourage, entice or induce any customer, vendor or supplier of any member of the Company Group with whom Participant had contact (including oversight responsibility) or learned Confidential Information about during Participant’s employment or service with any member of the Company Group to cease or lessen such customer’s, vendor’s or supplier’s business with any member of the Company Group or otherwise adversely affect such relationship, or attempt to do any of the foregoing; or
(iv)solicit, canvass, approach, encourage, entice or induce any employee or contractor of any member of the Company Group to terminate his, her or its
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employment or engagement with any member of the Company Group, or hire or retain any such employee or contractor.
Notwithstanding the foregoing, nothing herein shall not limit Participant’s ability to accept employment and perform work with any person or entity where (x) the services provided by Participant to such person or entity are not, and do not directly or indirectly benefit any division or business of such person or entity that is, in competition with the Business or any other material business in which a member of the Company Group has made a significant financial investment on or prior to the date of termination to be engaged in on or after such date and (y) Participant does not own more than 2% of the equity securities of such person or entity.
(c)Because of the difficulty of measuring economic losses to the Company Group as a result of a breach or threatened breach of the covenants set forth in Section 1 of this Appendix I and in this Section 2, and because of the immediate and irreparable damage that would be caused to the members of the Company Group for which they would have no other adequate remedy, the Company and each other member of the Company Group shall be entitled to enforce the foregoing covenants, in the event of a breach or threatened breach, by injunctions and restraining orders from any court of competent jurisdiction, without the necessity of showing any actual damages or that money damages would not afford an adequate remedy, and without the necessity of posting any bond or other security. The aforementioned equitable relief shall not be the Company’s or any other member of the Company Group’s exclusive remedy for a breach but instead shall be in addition to all other rights and remedies available to the Company and each other member of the Company Group at law and equity. Participant further agrees that Participant will not challenge the reasonableness or enforceability of any of the covenants set forth in this Section 2, and that Participant will reimburse the Company Group for all costs (including reasonable attorneys’ fees) incurred in connection with any action to enforce any of the provisions of this Section 2 if Participant challenges the reasonableness or enforceability of any of the provisions of this Section 2.
(d)The covenants in this Section 2, and each provision and portion hereof, are severable and separate, and the unenforceability of any specific covenant (or portion thereof) shall not affect the provisions of any other covenant (or portion thereof). Moreover, in the event any arbitrator or court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which such arbitrator or court deems reasonable, and this Agreement shall thereby be reformed.
(e)The following terms shall have the following meanings:
(i)“Business” shall mean the business and operations that are the same or similar to those performed by the Company and any other member of the Company Group for which Participant provides services or about which Participant obtains Confidential Information during the Participant’s employment or service with any member of the Company Group, which business and operations include, but are not limited to, the design, manufacture, distribution, or sale of electrical wire harnesses, combiner boxes and junction boxes.
(ii)“Business Opportunity” shall mean any actual or potential commercial, investment or other business opportunity of any member of the Company Group or relating to the Business about which Participant learned Confidential Information during Participant’s employment or service with any member of the Company Group.
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(iii)“Market Area” shall mean (A) the United States and (B) the geographic area within a one hundred (100) mile radius of any location where, prior to the Participant’s Termination of Service, any member of the Company Group conducts the Business or has plans to conduct the Business.
(iv)“Prohibited Period” shall mean the period during which Participant is employed by, or providing services to, any member of the Company Group and continuing for a period of 12 months following the date that Participant is no longer employed by, or providing services to, any member of the Company Group.
(f)Participant undertakes and agrees that following the date that Participant is no longer employed by, or providing services to, any member of the Company Group and prior to entering into any relationship with any other party to serve as an officer, director, employee, consultant, partner, advisor, joint-venturer or in any other capacity with any other person or entity, Participant shall disclose to such other party the terms of the restrictive covenants set forth herein and hereby consents to the Company making any related disclosures.
3.Ownership of Intellectual Property.
(a)Participant agrees that the Company shall own, and Participant shall (and hereby does) assign, all right, title and interest relating to any and all inventions (whether or not patentable), discoveries, developments, improvements, innovations, works of authorship, mask works, designs, know-how, ideas, formulae, processes, techniques, data and information authored, created, contributed to, made or conceived or reduced to practice, in whole or in part, by Participant during the period in which Participant is or has been employed by or affiliated with the Company or any other member of the Company Group, whether or not registerable under U.S. law or the laws of other jurisdictions, that either (a) relate, at the time of conception, reduction to practice, creation, derivation or development, to any member of the Company Group’s businesses or actual or anticipated research or development, or (b) were developed on any amount of the Company’s or any other member of the Company Group’s time or with the use of any member of the Company Group’s equipment, supplies, facilities or Confidential Information (all of the foregoing collectively referred to herein as “Company Intellectual Property”), and Participant shall promptly disclose all Company Intellectual Property to the Company in writing. To support Participant’s disclosure obligation herein, Participant shall keep and maintain adequate and current written records of all Company Intellectual Property made by Participant (solely or jointly with others) during the period in which Participant is or has been employed by or affiliated with the Company or any other member of the Company Group in such form as may be specified from time to time by the Company. These records shall be available to, and remain the sole property of, the Company at all times. For the elimination of doubt, the foregoing ownership and assignment provisions apply without limitation to patent rights, copyrights, trade secret rights, mask work rights, trademark rights, and all other intellectual and industrial property rights of any sort throughout the world.
(b)All of Participant’s works of authorship and associated copyrights created during the period in which Participant is employed by or affiliated with the Company or any other member of the Company Group and in the scope of Participant’s employment or engagement shall be deemed to be “works made for hire” within the meaning of the Copyright Act. To the extent any right, title and interest in and to Company Intellectual Property cannot be assigned by Participant to the Company, Participant shall grant, and does hereby grant, to the Company Group an exclusive, perpetual, royalty-free, transferable, irrevocable, worldwide license (with rights to sublicense through multiple tiers of sublicensees) to make, have made, use, sell, offer for sale, import, export, reproduce, practice and otherwise commercialize such rights, title and interest.
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(c)Participant recognizes that this Agreement will not be deemed to require assignment of any invention or intellectual property that Participant developed entirely on Participant’s own time without using the equipment, supplies, facilities, trade secrets, or Confidential Information of any member of the Company Group. In addition, this Agreement does not apply to any invention that qualifies fully for protection from assignment to the Company under any specifically applicable state law or regulation.
(d)To the extent allowed by law, this Section 3 applies to all rights that may be known as or referred to as “moral rights,” “artist’s rights,” “droit moral,” or the like, including without limitation those rights set forth in 17 U.S.C. §106A (collectively, “Moral Rights”). To the extent Participant retain any Moral Rights under Applicable Law, Participant hereby ratifies and consents to any action that may be taken with respect to such Moral Rights by or authorized by the Company or any member of the Company Group, and Participant hereby waives and agrees not to assert any Moral Rights with respect to such Moral Rights. Participant shall confirm any such ratifications, consents, waivers, and agreements from time to time as requested by the Company.
(e)Participant shall perform, during and after the period in which Participant is or has been employed by or affiliated with the Company or any other member of the Company Group, all acts deemed necessary or desirable by the Company to permit and assist each member of the Company Group, at the Company’s expense, in obtaining and enforcing the full benefits, enjoyment, rights and title throughout the world in the Company Intellectual Property and Confidential Information assigned, to be assigned, or licensed to the Company under this Agreement.. Such acts may include execution of documents and assistance or cooperation (i) in the filing, prosecution, registration, and memorialization of assignment of any applicable patents, copyrights, mask work, or other applications, (ii) in the enforcement of any applicable patents, copyrights, mask work, moral rights, trade secrets, or other proprietary rights, and (iii) in other legal proceedings related to the Company Intellectual Property or Confidential Information.
(f)In the event that the Company (or, as applicable, a member of the Company Group) is unable for any reason to secure Participant’s signature to any document required to file, prosecute, register, or memorialize the assignment of any patent, copyright, mask work or other applications or to enforce any patent, copyright, mask work, moral right, trade secret or other proprietary right under any Confidential Information or Company Intellectual Property, Participant hereby irrevocably designates and appoints the Company and each of the Company’s duly authorized officers and agents as Participant’s agents and attorneys-in-fact to act for and on Participant’s behalf and instead of Participant, (i) to execute, file, prosecute, register and memorialize the assignment of any such application, (ii) to execute and file any documentation required for such enforcement, and (iii) to do all other lawfully permitted acts to further the filing, prosecution, registration, memorialization of assignment, issuance, and enforcement of patents, copyrights, mask works, moral rights, trade secrets or other rights under the Confidential Information or Company Intellectual Property, all with the same legal force and effect as if executed by Participant. For the avoidance of doubt, the provisions of this Section 3(f) apply fully to all derivative works, improvements, renewals, extensions, continuations, divisionals, continuations in part, continuing patent applications, reissues, and reexaminations of all Company Intellectual Property.
(g)In the event that Participant enters into, on behalf of any member of the Company Group, any contracts or agreements relating to any Confidential Information or Company Intellectual Property, Participant shall assign such contracts or agreements to the Company (or the applicable member of the Company Group) promptly, and in any event, prior to Participant’s Termination of Service. If the Company (or the applicable member of the Company Group) is unable for any reason to secure Participant’s signature to any document required to assign said contracts or agreements, or if Participant does not assign said contracts or
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agreements to the Company (or the applicable member of the Company Group) prior to Participant’s Termination of Service, Participant hereby irrevocably designates and appoints the Company (or the applicable member of the Company Group) and each of the Company’s duly authorized officers and agents as Participant’s agents and attorneys-in-fact to act for and on Participant’s behalf and instead of Participant to execute said assignments and to do all other lawfully permitted acts to further the execution of said documents.
4.Non-Disparagement. Subject to Section 1(e) above, Participant agrees that Participant will not, and will cause Participant’ affiliates to not, make, publish, or communicate any disparaging or defamatory comments regarding any member of the Company Group or their current or former directors, officers, members, managers, partners, executives or direct or indirect owners (including equityholders).
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EXHIBIT 31.1
CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO
RULE 13a-14(a) AND 15d-14(a) UNDER THE EXCHANGE ACT
I, Brandon Moss, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Shoals Technologies Group, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| /s/ Brandon Moss | ||
| Brandon Moss | ||
| Chief Executive Officer | ||
Date: May 6, 2025
EXHIBIT 31.2
CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO
RULE 13a-14(a) AND 15d-14(a) UNDER THE EXCHANGE ACT
I, Dominic Bardos, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Shoals Technologies Group, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| /s/ Dominic Bardos | ||
| Dominic Bardos | ||
| Chief Financial Officer | ||
Date: May 6, 2025
EXHIBIT 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10‑Q of Shoals Technologies Group, Inc. (the “Company”) for the quarter ended March 31, 2025 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Brandon Moss, as Chief Executive Officer of the Company, and Dominic Bardos, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, that, to the best of his knowledge:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 6, 2025
| /s/ Brandon Moss | ||
| Brandon Moss | ||
| Chief Executive Officer (Principal Executive Officer) | ||
| /s/ Dominic Bardos | ||
| Dominic Bardos | ||
| Chief Financial Officer (Principal Financial Officer) | ||