8-K
Shoals Technologies Group, Inc. (SHLS)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 8, 2023
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| Shoals Technologies Group, Inc. |
|---|
| (Exact name of registrant as specified in its charter) |
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| Delaware | 001-39942 | 85-3774438 | |
|---|---|---|---|
| (State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | |
| 1400 Shoals Way | Portland | Tennessee | 37148 |
| (Address of principal executive offices) | (Zip Code) | ||
| (615) | 451-1400 | ||
| (Registrant’s telephone number, including area code) |
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Class A Common Stock, $0.00001 Par Value | SHLS | Nasdaq Global Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
Item 2.02 Results of Operations and Financial Condition.
On May 8, 2023, Shoals Technologies Group, Inc. (the “Company”) issued a press release announcing its financial results for the three months ended March 31, 2023. In the press release, the Company also announced that it would be holding a conference call on May 8, 2023 to discuss its financial results for the the three months ended March 31, 2023. The full text of the press release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference. The transcript of the conference call is attached hereto as Exhibit 99.2 to this Form 8-K.
The information set forth in this Item 2.02, including Exhibit 99.1 and 99.2, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
| Exhibit No. | Description |
|---|---|
| 99.1 | Press Release issued by Shoals Technologies Group, Inc. dated May 8, 2023 |
| 99.2 | Earnings release transcript dated May 8, 2023 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Shoals Technologies Group, Inc. | ||
|---|---|---|
| By: | /s/ Dominic Bardos | |
| Name: | Dominic Bardos | |
| Title: | Chief Financial Officer |
Date: May 8, 2023
Document
Exhibit 99.1
Shoals Technologies Group, Inc. Reports Financial Results for First Quarter 2023
–Revenue of $105.1 million, up 55% Compared to the Prior Year Period and a Quarterly Record –
–System Solutions Revenue of $91.3 million, Nearly Double the Prior Year Period and Representing 87% of First Quarter Revenue –
–Gross Margin of 45.9%, Expanding 720 bps Over the Prior Year Period –
–Backlog and Awarded Orders of $527.5 million, up 75% Compared to the Prior Year Period –
–Raising 2023 Outlook –
PORTLAND, TN. – May 8, 2023 (GLOBE NEWSWIRE) – Shoals Technologies Group, Inc. (“Shoals” or the “Company”) (Nasdaq: SHLS), a leading provider of electrical balance of system (“EBOS”) solutions for solar, battery storage, and electric vehicle charging infrastructure, today announced results for its first quarter ended March 31, 2023.
“Shoals had an exceptional first quarter, delivering record revenue and earnings. We grew revenue 55% year-over-year, with System Solutions revenue increasing 95% compared to the year-ago period, which contributed to significantly higher gross margin,” said Jeff Tolnar, President and Interim Chief Executive Officer of Shoals.
“Backlog and awarded orders increased 75% year-over-year to a record $527.5 million, reflecting continued robust demand for our products. Demand for our combine-as-you-go solution was particularly strong, with six new customers converting to our system during the quarter, bringing the total number of Big Lead Assembly (BLA) customers to 42,” continued Mr. Tolnar.
“Solar market conditions remain favorable, both for the industry as a whole and for Shoals specifically. We believe we are just starting to realize the full power of the Shoals platform and we could not be more excited about the future,” concluded Mr. Tolnar.
First Quarter 2023 Financial Results
Revenue grew 55%, to $105.1 million, compared to $68.0 million for the prior-year period, driven by higher sales volumes as a result of increased demand for solar EBOS generally and the Company’s combine-as-you-go System Solutions specifically. System Solutions revenue
increased 95% compared to the prior-year period, and represented 87% of revenue versus 69% in the prior-year period.
Gross profit increased 84% to $48.3 million, compared to $26.3 million in the prior-year period. Gross profit as a percentage of revenue grew more than 720 bps to 45.9% compared to 38.7% in the prior-year period, driven primarily by a higher portion of overall revenue coming from the Company’s combine-as-you-go System Solutions, which carry higher margins than the Company’s other products, slightly lower raw materials input costs, increased leverage on fixed costs, and efficiencies gained in operations.
General and administrative expenses were $20.0 million, compared to $13.9 million during the same period in the prior year. This increase was primarily the result of higher non-cash stock-based compensation and planned increases in payroll expense due to higher headcount supporting growth.
Income from operations was $26.1 million, compared to $10.0 million during the same period in the prior year.
Net income increased 265% to $17.0 million compared to $4.6 million during the same period in the prior year. Net income attributable to Shoals grew 441% to $14.3 million compared to $2.6 million during the same period in the prior year. Basic and diluted net income per share was $0.10 compared to basic and diluted net income per share of $0.02 in the prior-year period.
Adjusted EBITDA* increased 119% to $36.1 million compared to $16.5 million for the prior-year period.
Adjusted net income* grew 163% to $23.8 million compared to $9.0 million during the same period in the prior year. Adjusted diluted earnings per share was $0.14 compared to $0.05 in the prior-year period.
* A reconciliation of the Company’s non-GAAP measures to the most closely comparable U.S. generally accepted accounting principles (“GAAP”) measures are found within this release.
Backlog and Awarded Orders
The Company’s backlog and awarded orders as of March 31, 2023 were $527.5 million, representing a 75% increase versus the same time last year and a 23% sequential increase from December 31, 2022. The increase in backlog and awarded orders reflects continued robust demand for the Company’s solar products, including the recently introduced BLA+.
Backlog represents signed purchase orders or contractual minimum purchase commitments with take-or-pay provisions and awarded orders are orders we are in the process of documenting a contract but for which a contract has not yet been signed.
Full Year 2023 Outlook
Based on current business conditions, business trends and other factors, for the year ending December 31, 2023, the Company is raising its outlook as follows:
•Revenue to be in the range of $480 million to $510 million
•Adjusted EBITDA to be in the range of $145 million to $160 million
•Adjusted net income to be in the range of $92 million to $102 million
Based on current business conditions, business trends and other factors, for the year ending December 31, 2023, the Company continues to expect:
•Interest expense to be in the range of $22 to $26 million
•Capital expenditures to be in the range of $8 to $12 million
A reconciliation of Adjusted EBITDA and Adjusted net income guidance, which are forward-looking measures that are non-GAAP measures, to the most closely comparable GAAP measures is not provided because we are unable to provide such reconciliation without unreasonable effort. The inability to provide a quantitative reconciliation is due to the uncertainty and inherent difficulty in predicting the occurrence, the financial impact and the periods in which the components of the applicable GAAP measures and non-GAAP adjustments may be recognized. The GAAP measures may include the impact of such items as non-cash share-based compensation, amortization of intangible assets and the tax effect of such items, in addition to other items we have historically excluded from Adjusted EBITDA and Adjusted net income. We expect to continue to exclude these items in future disclosures of these non-GAAP measures and may also exclude other similar items that may arise in the future.
Webcast and Conference Call Information
Company management will host a webcast and conference call on May 8, 2023 at 5:00 p.m. Eastern Time, to discuss the Company’s financial results.
Interested investors and other parties can listen to a webcast of the live conference call by logging onto the Investor Relations section of the Company’s website at https://investors.shoals.com.
The conference call can be accessed live over the phone by dialing 1-855-327-6837 (domestic) or +1-631-891-4304 (international). A telephonic replay will be available approximately two hours after the call by dialing 1-844-512-2921 or for international callers, +1-412-317-6671. The conference ID for the live call and pin number for the replay is 10020955. The telephonic replay will be available until 11:59 p.m. Eastern Time on May 22, 2023.
About Shoals Technologies Group, Inc.
Shoals Technologies Group, Inc. is a leading provider of electrical balance of systems (EBOS) solutions for solar, storage, and electric vehicle charging infrastructure. Since its founding in 1996, the Company has introduced innovative technologies and systems solutions that allow its
customers to substantially increase installation efficiency and safety while improving system performance and reliability. Shoals Technologies Group, Inc. is a recognized leader in the renewable energy industry whose solutions are deployed on over 20 GW of solar systems globally. For additional information, please visit: https://www.shoals.com.
Investor Relations Contact
Shoals Technologies Group, Inc.
Email: investors@shoals.com
Phone: 615-323-9836
Forward-Looking Statements
This report 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, business strategies, technology developments, financing and investment plans, dividend policy, competitive position, industry and regulatory environment, potential growth opportunities and the effects of competition. 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.
Some of the key factors that could cause actual results to differ from our expectations include, among others, lower than anticipated growth in demand for solar energy projects and EV charging infrastructure; macroeconomic events, including heightened inflation, rises in interest rates and a potential recession; defects or performance problems in our products or their parts, including those manufactured by third parties, and related warranty claims; supply chain challenges, including as a result of additional duties and charges on imports and exports; our failure to, or incurrence of significant costs in order to, obtain, maintain, protect, defend or enforce our intellectual property and other proprietary rights; governmental policies and regulations, and any subsequent changes, which may present technical, regulatory and economic barriers; changes in the United States trade environment; failure to integrate acquired businesses, and delays, disruptions or quality control problems in our manufacturing operations in part due to vendor concentration.
Other risks and uncertainties are described in the section entitled "Item 1A. Risk Factors" of our periodic reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2022 and our Quarterly Report on Form 10-Q. 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.
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.
Non-GAAP Financial Measures
Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share (“EPS”)
We define Adjusted EBITDA as net income (loss) plus (i) interest expense, net, (ii) income tax expense, (iii) depreciation expense, (iv) amortization of intangibles and (v) equity-based compensation. We define Adjusted Net Income as net income attributable to Shoals Technologies Group, Inc. plus (i) net income impact from assumed exchange of Class B common stock to Class A common stock as of the beginning of the earliest period presented, (ii) amortization of intangibles, (iii) amortization of deferred financing costs and (iv) equity-based compensation, 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, which assumes the exchange of all outstanding Class B common stock for Class A common stock as of the beginning of the earliest period presented.
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 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 EBITDA, Adjusted Net Income and Adjusted Diluted EPS: (i) as factors in evaluating management’s performance when determining incentive compensation; (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 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 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 net income and net income attributable to Shoals Technologies Group, Inc. to Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS below and not rely on any single financial measure to evaluate our business.
Shoals Technologies Group, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except shares and par value)
| March 31,<br>2023 | December 31, 2022 | |||
|---|---|---|---|---|
| Assets | ||||
| Current Assets | ||||
| Cash and cash equivalents | $ | 6,460 | $ | 8,766 |
| Accounts receivable, net | 75,415 | 50,575 | ||
| Unbilled receivables | 19,661 | 16,713 | ||
| Inventory, net | 73,729 | 72,854 | ||
| Other current assets | 8,094 | 4,632 | ||
| Total Current Assets | 183,359 | 153,540 | ||
| Property, plant and equipment, net | 18,388 | 16,870 | ||
| Goodwill | 69,941 | 69,941 | ||
| Other intangible assets, net | 54,563 | 56,585 | ||
| Deferred tax assets | 476,283 | 291,634 | ||
| Other assets | 6,067 | 6,325 | ||
| Total Assets | $ | 808,601 | $ | 594,895 |
| Liabilities and Stockholders’ Equity | ||||
| Current Liabilities | ||||
| Accounts payable | $ | 21,936 | $ | 9,481 |
| Accrued expenses and other | 17,382 | 17,882 | ||
| Deferred revenue | 23,450 | 23,259 | ||
| Long-term debt—current portion | 2,000 | 2,000 | ||
| Total Current Liabilities | 64,768 | 52,622 | ||
| Revolving line of credit | 45,000 | 48,000 | ||
| Long-term debt, less current portion | 188,836 | 189,063 | ||
| Other long-term liabilities | 3,917 | 4,221 | ||
| Total Liabilities | 302,521 | 293,906 | ||
| Commitments and Contingencies | ||||
| Stockholders’ Equity | ||||
| Preferred stock, $0.00001 par value - 5,000,000 shares authorized; none issued and outstanding as of March 31, 2023 and December 31, 2022 | — | — | ||
| Class A common stock, $0.00001 par value - 1,000,000,000 shares authorized; 169,820,407 and 137,904,663 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively | 2 | 1 | ||
| Class B common stock, $0.00001 par value - 195,000,000 shares authorized; none and 31,419,913 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively | — | 1 | ||
| Additional paid-in capital | 457,304 | 256,894 | ||
| Accumulated earnings | 48,774 | 34,478 | ||
| Total stockholders’ equity attributable to Shoals Technologies Group, Inc. | 506,080 | 291,374 | ||
| Non-controlling interests | — | 9,615 | ||
| Total stockholders' equity | 506,080 | 300,989 | ||
| Total Liabilities and Stockholders’ Equity | $ | 808,601 | $ | 594,895 |
Shoals Technologies Group, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share amounts)
| Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Revenue | $ | 105,086 | $ | 67,976 |
| Cost of revenue | 56,829 | 41,684 | ||
| Gross profit | 48,257 | 26,292 | ||
| Operating expenses | ||||
| General and administrative expenses | 19,992 | 13,919 | ||
| Depreciation and amortization | 2,165 | 2,366 | ||
| Total operating expenses | 22,157 | 16,285 | ||
| Income from operations | 26,100 | 10,007 | ||
| Interest expense, net | (5,996) | (3,836) | ||
| Income before income taxes | 20,104 | 6,171 | ||
| Income tax expense | (3,121) | (1,522) | ||
| Net income | 16,983 | 4,649 | ||
| Less: net income attributable to non-controlling interests | 2,687 | 2,009 | ||
| Net income attributable to Shoals Technologies Group, Inc. | $ | 14,296 | $ | 2,640 |
| Three Months Ended March 31, | ||||
| 2023 | 2022 | |||
| Earnings per share of Class A common stock: | ||||
| Basic | $ | 0.10 | $ | 0.02 |
| Diluted | $ | 0.10 | $ | 0.02 |
| Weighted average shares of Class A common stock outstanding: | ||||
| Basic | 146,409 | 112,211 | ||
| Diluted | 147,107 | 112,240 |
Shoals Technologies Group, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
| Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Cash Flows from Operating Activities | ||||
| Net income | $ | 16,983 | $ | 4,649 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||
| Depreciation and amortization | 2,507 | 2,694 | ||
| Amortization/write off of deferred financing costs | 350 | 276 | ||
| Equity-based compensation | 7,523 | 3,831 | ||
| Provision for credit losses | 308 | — | ||
| Provision for obsolete or slow-moving inventory | 2,322 | — | ||
| Deferred taxes | 2,999 | 1,419 | ||
| Changes in assets and liabilities: | ||||
| Accounts receivable | (25,148) | (25,388) | ||
| Unbilled receivables | (2,948) | (2,616) | ||
| Inventory | (3,197) | (11,111) | ||
| Other assets | (3,281) | (3,421) | ||
| Accounts payable | 12,521 | (2,106) | ||
| Accrued expenses and other | (1,217) | 1,124 | ||
| Deferred revenue | 191 | 4,790 | ||
| Net Cash Provided by (Used in) Operating Activities | 9,913 | (25,859) | ||
| Cash Flows from Investing Activities | ||||
| Purchases of property, plant and equipment | (2,003) | (882) | ||
| Net Cash Used in Investing Activities | (2,003) | (882) | ||
| Cash Flows from Financing Activities | ||||
| Distributions to non-controlling interests | (2,628) | (2,938) | ||
| Employee withholding taxes related to net settled equity awards | (3,532) | (1,297) | ||
| Payments on term loan facility | (500) | (500) | ||
| Proceeds from revolving credit facility | 5,000 | 35,000 | ||
| Repayments of revolving credit facility | (8,000) | — | ||
| Other | (556) | — | ||
| Net Cash Provided By (Used in) Financing Activities | (10,216) | 30,265 | ||
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | (2,306) | 3,524 | ||
| Cash, Cash Equivalents and Restricted Cash—Beginning of Period | 8,766 | 9,557 | ||
| Cash, Cash Equivalents and Restricted Cash—End of Period | $ | 6,460 | $ | 13,081 |
Shoals Technologies Group, Inc.
Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share (“EPS”) (Unaudited)
Reconciliation of Net Income to Adjusted EBITDA (in thousands):
| Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Net income | $ | 16,983 | $ | 4,649 |
| Interest expense, net | 5,996 | 3,836 | ||
| Income tax expense | 3,121 | 1,522 | ||
| Depreciation expense | 484 | 424 | ||
| Amortization of intangibles | 2,022 | 2,270 | ||
| Equity-based compensation | 7,523 | 3,831 | ||
| Adjusted EBITDA | $ | 36,129 | $ | 16,532 |
Reconciliation of Net Income Attributable to Shoals Technologies Group, Inc. to Adjusted Net Income (in thousands):
| Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Net income attributable to Shoals Technologies Group, Inc. | $ | 14,296 | $ | 2,640 |
| Net income impact from assumed exchange of Class B common stock to Class A common stock (a) | 2,687 | 2,009 | ||
| Adjustment to the provision for income tax (b) | (653) | (475) | ||
| Tax effected net income | 16,330 | 4,174 | ||
| Amortization of intangibles | 2,022 | 2,270 | ||
| Amortization of deferred financing costs | 350 | 276 | ||
| Equity-based compensation | 7,523 | 3,831 | ||
| Tax impact of adjustments (c) | (2,404) | (1,508) | ||
| Adjusted Net Income | $ | 23,821 | $ | 9,043 |
(a) Reflects net income to Class A common stock from assumed exchange of corresponding shares of our Class B common stock held by the Founder and management.
(b) Shoals Technologies Group, Inc. is subject to U.S. Federal income taxes, in addition to state and local taxes with respect to its allocable share of any net taxable income of Shoals Parent LLC. The adjustment to the provision for income tax reflects the effective tax rates below, assuming Shoals Technologies Group, Inc. owns 100% of the units in Shoals Parent LLC.
| Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Statutory U.S. Federal income tax rate | 21.0 | % | 21.0 | % |
| Permanent adjustments | 0.3 | % | 0.1 | % |
| State and local taxes (net of federal benefit) | 3.0 | % | 2.5 | % |
| Effective income tax rate for Adjusted Net Income | 24.3 | % | 23.6 | % |
(c) Represents the estimated tax impact of all Adjusted Net Income add-backs, excluding those which represent permanent differences between book versus tax.
Shoals Technologies Group, Inc.
Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share (“EPS”) (Unaudited)
Reconciliation of Diluted Weighted Average Shares Outstanding to Adjusted Diluted Weighted Average Shares Outstanding (in thousands, except per share):
| Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Diluted weighted average shares of Class A common stock outstanding, excluding Class B common stock | 147,107 | 112,240 | ||
| Assumed exchange of Class B common stock to Class A common stock | 23,110 | 54,794 | ||
| Adjusted diluted weighted average shares outstanding | 170,217 | 167,034 | ||
| Adjusted Net Income | $ | 23,821 | $ | 9,043 |
| Adjusted Diluted EPS | $ | 0.14 | $ | 0.05 |
11
Document
Exhibit 99.2
Shoals Technologies Group, Inc.
1Q23 Earnings Conference Call Script
May 8, 2023
| Operator |
|---|
Good afternoon, and welcome to Shoals Technologies Group First Quarter 2023 Earnings Conference Call. Today's call is being recorded, and we have allocated one hour for prepared remarks and Q&A. At this time, I would like to turn the conference over to Mehgan Peetz, Chief Legal Officer for Shoals Technologies Group. Thank you. You may begin.
| Mehgan Peetz, Chief Legal Officer, Shoals Technologies Group, Inc. |
|---|
Thank you, operator and thank you everyone for joining us today. Hosting the call with me are Interim CEO and President Jeff Tolnar and CFO Dominic Bardos.
On this call, management will be making projections or other forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. As you listen and consider these comments, you should understand that these statements, including the guidance regarding full year 2023, are not guarantees of performance or results. Actual results could differ materially from our forward-looking statements if any of our assumptions are incorrect or because of other factors. These factors include, among other things, the risk factors described in our filings with the Securities and Exchange Commission, as well as economic and market circumstances, decreased demand for our products, policy and regulatory changes, industry conditions, current macroeconomic events, supply chain disruptions and availability and price of our components and materials.
Although we may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized. We caution that any forward-looking statement included in this discussion is made as of the date of this discussion and do not undertake any duty to update any forward-looking statements.
Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's first quarter press
Exhibit 99.2
Shoals Technologies Group, Inc.
1Q23 Earnings Conference Call Script
May 8, 2023
release for definitional information and reconciliations of historical non-GAAP measures to the comparable financial measures.
With that, let me turn the call over to Jeff.
| Jeff Tolnar, Interim CEO and President, Shoals Technologies Group, Inc. |
|---|
Thank you very much, Mehgan, and good afternoon, everyone.
Shoals had a fantastic first quarter and I would like to express my gratitude to our employees, partners, and especially our customers for their support and contributions to our success.
I’ll start with some key highlights from our first quarter results, followed by an update on new product introductions, other growth initiatives and an overview of our pending patent infringement complaint filed last Thursday. I’ll then review current solar market conditions and wrap up with a brief update on the CEO search before turning it over to Dominic, who will provide an overview of our financial results for the first quarter and updated outlook for 2023.
Shoals set new records for revenue, gross profit, adjusted EBITDA and adjusted net income in the first quarter. Compared to the prior-year period, first quarter revenue grew 55%, driven by increased demand for solar EBOS generally and our combine-as-you-go System Solutions specifically. We also achieved new highs for monthly and weekly production, demonstrating our ability to continue scaling for growth.
First quarter gross margin grew more than 720 basis points to 45.9% and adjusted EBITDA margin expanded more than 1,000 basis points to 34.4%. The margin growth we achieved in the first quarter was driven by a higher mix of System Solutions revenue, greater leverage on fixed costs, and enhanced operating efficiency resulting from the operational initiatives we discussed last quarter.
Demand for Shoals products remains very strong and we ended the quarter with record backlog and awarded orders of $527.5 million, an increase of 75% year-over-year. In fact, during the quarter we also saw an acceleration in quoting activity, with both quotes submitted and quoted values hitting new records. Solar-related quotes increased 56% year-over-year and 57% quarter-over-quarter.
Exhibit 99.2
Shoals Technologies Group, Inc.
1Q23 Earnings Conference Call Script
May 8, 2023
System Solutions revenue nearly doubled, growing 95% compared to a year ago, reflecting strong growth in U.S. utility scale solar demand and continued share gains by our products. During the quarter, we converted six additional EPCs and developers to our combine-as-you-go system, bringing the total number of BLA customers to 42, with an additional 15 in transition.
New product introductions planned for 2023 remain on track. In first quarter, we began quoting our BLA+ solution—formerly known as BLA 2.0—and expect to record first revenues in the second quarter. In fact, we recently started building backlog of BLA+ after winning a 120 MW contract to supply our best-in-class BLA+ System Solution to a utility-scale solar project in Western Australia.
Our IV curve benchmark offering is progressing as indicated after fourth quarter earnings, with commercial launch planned late in the second quarter and first revenues expected before year-end. Our high capacity plug-n-play harnesses and high capacity connectors are tracking, with UL certification and full market launch to occur in the second half of 2023.
We further advanced our international expansion efforts in the first quarter, with global quoting activity growing for our entire solutions offerings, including recently released wire management and BLA+. The contract to supply our BLA+ solution to the project in Australia is a significant international win, and we anticipate many more similar projects to come.
Turning to our EV business, order flow and deliveries of our EV System Solution continued in the first quarter with scaled production underway. We recently announced a strategic partnership with Brookfield Renewables to introduce an innovative “Charging-as-a-Service” (or CaaS) solution, which eliminates large up-front payments associated with traditional installation of EV charging infrastructure and enables streamlined deployment of charging networks for fleets, retail, multi-unit dwellings, and other large commercial properties. The CaaS offering will lower the entry barrier to the EV charging space by making infrastructure deployments less costly and more efficient, and ultimately accelerate development of EV charging and clean energy infrastructure across the U.S.
Now I’ll take a moment to briefly discuss the patent infringement complaints recently filed by Shoals with the U.S. International Trade Commission, or ITC,
Exhibit 99.2
Shoals Technologies Group, Inc.
1Q23 Earnings Conference Call Script
May 8, 2023
against two of our foreign-based competitors. We asked the ITC to investigate the alleged infringement and bar importation of the alleged infringing products into the United States. Over the last 27 years, Shoals has invested millions of dollars developing our innovative EBOS solutions that significantly increase installation efficiency and safety, while improving system performance and reliability for the utility scale solar, storage and EV charging markets. Our strong patent portfolio limits competitors’ ability to develop products that can replicate these benefits. While we welcome healthy competition, we will take vigorous action to stop infringement of our patents, which are an important part of our competitive moat.
As a U.S.-based company with design and manufacturing in Tennessee, Alabama, and California, we hope the ITC will protect our IP and support domestic manufacturing and job creation by banning the import of what we believe are infringing products from entering the U.S. market.
Moving to current solar market conditions. Overall solar market conditions remain favorable for the industry as a whole and for Shoals specifically. Project visibility continues to be very strong. Solar remains the lowest cost of energy and the fastest to deploy, which supports our long-term growth outlook. In addition, while there is always potential for projects to move quarter to quarter, we are not seeing any noticeable impact due to UFLPA.
Finally, I want to provide a brief update on the CEO search. Over the last several months, the Board, working closely with Spencer Stuart, undertook a comprehensive CEO search, and is in the final stages of the vetting process.
I'll now turn it over to Dominic who will discuss first quarter 2023 financial results.
| Dominic Bardos, CFO, Shoals Technologies Group, Inc. |
|---|
Thanks, Jeff, and good afternoon to everyone on the call.
First quarter revenue grew 55% versus the prior-year period to $105.1 million. Similar to prior quarters, our higher sales volume was primarily driven by strong demand for our combine-as-you-go EBOS System Solutions, which comprised 87% of our revenue versus 69% in the prior year period.
Exhibit 99.2
Shoals Technologies Group, Inc.
1Q23 Earnings Conference Call Script
May 8, 2023
Gross profit increased 84% to $48.3 million, compared to $26.3 million in the prior-year period. Gross profit as a percentage of net revenue grew more than 720 bps to 45.9% compared to 38.7% in the prior-year period. The increase was driven primarily by a higher proportion of revenue from the Company’s combine-as-you-go System Solutions, which carry a higher margin than our other products, as well as increased leverage on fixed costs and efficiencies gained in operations, which Jeff mentioned earlier.
First quarter general and administrative expenses were $20 million, compared to $13.9 million during the same period in the prior year. The year-over-year increase in general and administrative expenses was primarily the result of higher non-cash stock-based compensation and increases in payroll expense due to higher headcount supporting growth and new product initiatives. I would like to call out that approximately $2.4 million of the year-over-year increase in G&A expense was related to stock-based compensation for our prior CEO’s transition.
Net income was $17.0 million in the first quarter compared to $4.6 million in the prior-year period.
Adjusted EBITDA increased 119% to $36.1 million compared to $16.5 million in the prior-year period. Adjusted EBITDA margin increased over 1,000 basis points year-over-year to 34.4%, reflecting the impact of higher gross margins and leverage on G&A expense.
Adjusted net income grew 163% to $23.8 million in the first quarter compared to $9.0 million in the prior-year period.
During the quarter we generated cash from operations of $9.9 million. We expect our cash generation to continue improving this year, driven by higher levels of profitability and moderating investments in working capital.
As of March 31, 2023, we had $527.5 million dollars in backlog and awarded orders, an increase of 75% year-over-year and 23% sequentially. The growth in backlog and awarded orders reflects continued robust demand for our solar products, including the recently introduced BLA+.
Turning now to our full year outlook. Based on current market conditions and input from our customers, we are raising our outlook as follows. We now expect
Exhibit 99.2
Shoals Technologies Group, Inc.
1Q23 Earnings Conference Call Script
May 8, 2023
2023 revenue to be in the range of $480 million to $510 million, up 47% to 56% year-over-year. We expect adjusted EBITDA to be in the range of $145 million to $160 million, and adjusted net income to be in the range of $92 million to $102 million. Our revised outlook is supported by strong visibility on the back of our exceptional first quarter results and record backlog and awarded orders.
We continue to expect full year 2023 interest expense to be in the range of $22 million to $26 million.
Finally, we continue to expect capital expenditures for the full year in the range of $8 million to $12 million.
Now back to Jeff for closing remarks.
| Jeff Tolnar, Interim CEO and President, Shoals Technologies Group, Inc. |
|---|
Thanks, Dominic. I would like to close by again thanking all our customers for their confidence in Shoals, our employees for enabling us to effectively serve our customers, and our shareholders for their continuous support.
Momentum is incredibly strong following phenomenal results in 2022 and the first quarter of 2023. With continued robust demand for solar, successful new product and sales initiatives and increasing operational efficiencies, I am incredibly optimistic about what we can achieve in the coming quarters and could not be more excited about the opportunity ahead.
And with that, thank you everyone, I appreciate your time today. We will now open the line for questions.
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