8-K
Shoals Technologies Group, Inc. (SHLS)
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) August 15, 2022
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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 August 15, 2022, Shoals Technologies Group, Inc. (the “Company”) issued a press release announcing its financial results for the three months ended June 30, 2022. In the press release, the Company also announced that it would be holding a conference call on August 15, 2022 to discuss its financial results for the the three months ended June 30, 2022. 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 Augustexhibit991earningsrelease2.htm15,2022 |
| 99.2 | Earnings release transcript datedAugust15, 2022 |
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/ Jason Whitaker | |
| Name: | Jason Whitaker | |
| Title: | Chief Executive Officer |
Date: August 15, 2022
Document
Exhibit 99.1
Shoals Technologies Group, Inc. Reports Financial Results for Second Quarter 2022
–Revenue Grew 23% Year-Over-Year to Record $73.5 million in the Second Quarter –
–Record Gross Profit of $28.6 million –
–Backlog and Awarded Orders Up 63% Year-Over-Year to a Record $327.2 million –
–System Solutions Represented 77% of Revenue in the Second Quarter –
–Reaffirms 2022 Outlook –
PORTLAND, TN. – August 15, 2022 (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 second quarter ended June 30, 2022.
“Shoals navigated the significant challenges and uncertainty the industry faced during the second quarter to deliver record revenue and gross profit, while maintaining gross margin within our targeted range,” said Jason Whitaker, Chief Executive Officer of Shoals.
“We continue to see robust growth across our business, with backlog and awarded orders up 63% year-over-year and 8% sequentially. Demand for our combine-as-you-go solution continues to grow. During the quarter we converted four additional customers, bringing the total BLA customers to 29. Customer interest in our recently introduced products is strong, particularly within battery storage, wire management, and EV charging. Further, we remain on track to have our BLA 2.0 and high-capacity plug-and-play wire harnesses certified later this year. Finally, the two-year tariff exemption for solar panels announced by the White House was a turning point in customer sentiment, and we have seen order patterns normalize as a result,” concluded Mr. Whitaker.
Second Quarter 2022 Financial Results
Revenue grew 23%, to $73.5 million, compared to $59.7 million for the prior-year period, driven by increases of 97% in Components and 11% in System Solutions. The growth in Components revenue was driven by increases in shipments of battery storage products as well as shipments of solar products to a significant number of new customers. New customers typically purchase Components first, before transitioning to System Solutions. The growth in System Solutions revenue reflected strong demand for the Company’s combine-as-you-go system. System
Solutions represented 77% of revenue in the quarter versus 86% in the prior-year period and 69% in the prior quarter.
Gross profit increased 9% to $28.6 million, compared to $26.2 million in the prior-year period. Gross profit as a percentage of revenue was 38.9% compared to 43.8% in the prior-year period, due to a higher mix of Components sales in the quarter which carry lower margins than System Solutions as well as higher raw material and logistics costs.
General and administrative expenses were $13.3 million, compared to $10.0 million during the same period in the prior year. This change was primarily a result of higher non-cash stock-based compensation, planned increases in payroll expense due to higher headcount to support growth and new product initiatives, and public company costs.
Income from operations was $13.0 million, compared to $14.1 million during the same period in the prior year.
Net income was $7.3 million compared to $9.2 million during the same period in the prior year. The change was primarily due to higher general and administrative expenses, interest expense and taxes in the current period. Basic and diluted net income per share was $0.04 compared to basic and diluted net income per share of $0.05 in the prior-year period.
Adjusted EBITDA was $19.8 million compared to $20.6 million for the prior-year period.
Adjusted net income was $11.8 million compared to $14.7 million during the same period in the prior year. Adjusted diluted earnings per share was $0.07 compared to $0.09 in the prior-year period.
Backlog and Awarded Orders
The Company’s backlog and awarded orders on June 30, 2022 were $327.2 million, representing a 63% increase versus the same time last year and an 8% sequential increase from March 31, 2022. The increase in backlog and awarded orders reflects continued robust demand for the Company’s products.
Full Year 2022 Outlook
Based on current business conditions, business trends and other factors, for the year ending December 31, 2022, the Company continues to expect:
•Revenues to be in the range of $300 million to $325 million
•Adjusted EBITDA to be in the range of $77 million to $86 million
•Adjusted net income to be in the range of $45 million to $53 million
A reconciliation of the Company’s non-GAAP measures to the applicable GAAP measures are found within this release.
Webcast and Conference Call Information
Company management will host a webcast and conference call on August 15, 2022, 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 10019579. The replay will be available until 11:59 p.m. Eastern Time on August 29, 2022.
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. 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
(1) A reconciliation of projected adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share, which are forward-looking measures that are not prepared in accordance with GAAP, to the most directly comparable GAAP financial 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 per share. 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 (collectively, "non-GAAP adjustments").
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, (v) payable pursuant to the tax receivable agreement adjustment, (vi) loss on debt repayment, (vii) equity-based compensation, (viii) acquisition-related expenses, (ix) COVID-19 expenses and (x) non-recurring and other expenses. We define Adjusted Net Income as net income (loss) attributable to Shoals Technologies Group, Inc. plus (i) net income impact from pro forma conversion of Class B common stock to Class A common stock, (ii) amortization of intangibles, (iii) payable pursuant to the tax receivable agreement adjustment, (iv) loss on debt repayment, (v) amortization of deferred financing costs, (vi) equity-based compensation, (vii) acquisition-related expenses, (viii) COVID-19 expenses and (ix) non-recurring and other 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 shares outstanding for the applicable period, which assumes the pro forma exchange of all outstanding Class B common shares for Class A common shares.
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; in the case of Adjusted EBITDA, does not reflect income tax expense or benefit for periods prior to the reorganization; 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 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)
| June 30,<br>2022 | December 31, 2021 | |||
|---|---|---|---|---|
| Assets | ||||
| Current Assets | ||||
| Cash and cash equivalents | $ | 10,094 | $ | 5,006 |
| Accounts receivable, net | 57,827 | 31,499 | ||
| Unbilled receivables | 14,580 | 13,533 | ||
| Inventory, net | 64,961 | 38,368 | ||
| Other current assets | 8,827 | 5,042 | ||
| Total Current Assets | 156,289 | 93,448 | ||
| Property, plant and equipment, net | 16,830 | 15,574 | ||
| Goodwill | 69,941 | 69,436 | ||
| Other intangible assets, net | 60,727 | 65,236 | ||
| Deferred tax assets | 175,059 | 176,958 | ||
| Other assets | 17,771 | 5,762 | ||
| Total Assets | $ | 496,617 | $ | 426,414 |
| Liabilities and Stockholders' Equity (Deficit) | ||||
| Current Liabilities | ||||
| Accounts payable | $ | 24,258 | $ | 19,985 |
| Accrued expenses and other | 25,297 | 9,569 | ||
| Current portion of payable pursuant to the tax receivable agreement | 3,583 | — | ||
| Long-term debt—current portion | 2,000 | 2,000 | ||
| Total Current Liabilities | 55,138 | 31,554 | ||
| Revolving line of credit | 85,140 | 55,140 | ||
| Long-term debt, less current portion | 189,515 | 189,913 | ||
| Payable pursuant to the tax receivable agreement, less current portion | 153,591 | 156,374 | ||
| Other long-term liabilities | 4,793 | 931 | ||
| Total Liabilities | 488,177 | 433,912 | ||
| Stockholders’ Equity (Deficit) | ||||
| Preferred stock, $0.00001 par value - 5,000,000 shares authorized; none issued and outstanding as of June 30, 2022 and December 31, 2021 | — | — | ||
| Class A common stock, $0.00001 par value - 1,000,000,000 shares authorized; 112,667,006 and 112,049,981 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | 1 | 1 | ||
| Class B common stock, $0.00001 par value - 195,000,000 shares authorized; 54,534,591 and 54,794,479 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | 1 | 1 | ||
| Additional paid-in capital | 101,243 | 95,684 | ||
| Accumulated deficit | (86,091) | (93,133) | ||
| Total stockholders’ equity attributable to Shoals Technologies Group, Inc. | 15,154 | 2,553 | ||
| Non-controlling interests | (6,714) | (10,051) | ||
| Total stockholders' equity (deficit) | 8,440 | (7,498) | ||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | 496,617 | $ | 426,414 |
Shoals Technologies Group, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share amounts)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| Revenue | $ | 73,490 | $ | 59,722 | $ | 141,466 | $ | 105,326 |
| Cost of revenue | 44,897 | 33,543 | 86,581 | 60,373 | ||||
| Gross profit | 28,593 | 26,179 | 54,885 | 44,953 | ||||
| Operating Expenses | ||||||||
| General and administrative expenses | 13,265 | 10,018 | 27,184 | 16,834 | ||||
| Depreciation and amortization | 2,344 | 2,062 | 4,710 | 4,130 | ||||
| Total Operating Expenses | 15,609 | 12,080 | 31,894 | 20,964 | ||||
| Income from Operations | 12,984 | 14,099 | 22,991 | 23,989 | ||||
| Interest expense, net | (4,170) | (3,620) | (8,006) | (7,329) | ||||
| Payable pursuant to the tax receivable agreement adjustment | — | (1,664) | — | (1,664) | ||||
| Loss on debt repayment | — | — | — | (15,990) | ||||
| Income (loss) before income taxes | 8,814 | 8,815 | 14,985 | (994) | ||||
| Income tax benefit (expense) | (1,511) | 339 | (3,033) | 1,814 | ||||
| Net income | 7,303 | 9,154 | 11,952 | 820 | ||||
| Less: net income (loss) attributable to non-controlling interests | 2,901 | 4,596 | 4,910 | (879) | ||||
| Net income attributable to Shoals Technologies Group, Inc. | $ | 4,402 | $ | 4,558 | $ | 7,042 | $ | 1,699 |
| Three Months Ended June 30, | Six Months Ended<br>June 30, 2022 | Period from January 27, 2021<br>to June 30, 2021 | ||||||
| 2022 | 2021 | |||||||
| Earnings (loss) per share of Class A common stock: | ||||||||
| Basic | $ | 0.04 | $ | 0.05 | $ | 0.06 | $ | (0.01) |
| Diluted | $ | 0.04 | $ | 0.05 | $ | 0.06 | $ | (0.01) |
| Weighted average shares of Class A common stock outstanding: | ||||||||
| Basic | 112,489 | 93,544 | 112,350 | 93,542 | ||||
| Diluted | 112,616 | 166,827 | 112,428 | 93,542 |
Shoals Technologies Group, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
| Six Months Ended June 30, | ||||
|---|---|---|---|---|
| 2022 | 2021 | |||
| Cash Flows from Operating Activities | ||||
| Net income | $ | 11,952 | $ | 820 |
| Adjustments to reconcile net income to net cash used in operating activities: | ||||
| Depreciation and amortization | 5,402 | 4,808 | ||
| Amortization/write off of deferred financing costs | 684 | 5,415 | ||
| Equity-based compensation | 7,896 | 4,172 | ||
| Provision for obsolete or slow-moving inventory | 443 | — | ||
| Deferred taxes | 2,847 | (524) | ||
| Gain on sale of assets | — | 61 | ||
| Changes in assets and liabilities: | ||||
| Accounts receivable | (26,259) | (15,973) | ||
| Unbilled receivables | (1,047) | (3,003) | ||
| Inventory | (27,404) | (6,151) | ||
| Other assets | (2,059) | (4,631) | ||
| Accounts payable | 4,060 | (410) | ||
| Accrued expenses and other | 16,742 | (362) | ||
| Net Cash Used in Operating Activities | (6,743) | (14,114) | ||
| Cash Flows Used In Investing Activities | ||||
| Purchases of property, plant and equipment | (2,149) | (1,736) | ||
| Net Cash Used in Investing Activities | (2,149) | (1,736) | ||
| Cash Flows from Financing Activities | ||||
| Distributions to non-controlling interest | (4,566) | (2,973) | ||
| Employee withholding taxes related to net settled equity awards | (1,297) | (137) | ||
| Deferred financing costs | — | (94) | ||
| Payments on term loan facility | (1,000) | (151,750) | ||
| Proceeds from revolving credit facility | 38,000 | 34,000 | ||
| Proceeds from issuance of Class A common stock sold in an IPO, net of underwriting discounts and commissions | — | 278,833 | ||
| Purchase of LLC Interests with proceeds from IPO | — | (124,312) | ||
| Deferred offering costs | — | (9,619) | ||
| Net Cash Provided By Financing Activities | 23,137 | 18,948 | ||
| Net Increase in Cash, Cash Equivalents and Restricted Cash | 14,245 | 3,098 | ||
| Cash, Cash Equivalents and Restricted Cash—Beginning of Period | 9,557 | 10,073 | ||
| Cash, Cash Equivalents and Restricted Cash—End of Period | $ | 23,802 | $ | 13,171 |
Shoals Technologies Group, Inc.
Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share (“EPS”) (Unaudited)
(in thousands)
Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| Net income | $ | 7,303 | $ | 9,154 | $ | 11,952 | $ | 820 |
| Interest expense, net | 4,170 | 3,620 | 8,006 | 7,329 | ||||
| Income tax benefit (expense) | 1,511 | (339) | 3,033 | (1,814) | ||||
| Depreciation expense | 470 | 411 | 893 | 816 | ||||
| Amortization of intangibles | 2,238 | 1,996 | 4,509 | 3,992 | ||||
| Payable pursuant to the TRA adjustment (a) | — | 1,664 | — | 1,664 | ||||
| Loss on debt repayment | — | — | — | 15,990 | ||||
| Equity-based compensation | 4,063 | 2,780 | 7,896 | 4,172 | ||||
| Acquisition-related expenses | 12 | — | 12 | — | ||||
| COVID-19 expenses (b) | — | 106 | — | 161 | ||||
| Non-recurring and other expenses (c) | — | 1,239 | — | 1,578 | ||||
| Adjusted EBITDA | $ | 19,767 | $ | 20,631 | $ | 36,301 | $ | 34,708 |
(a) Represents an adjustment to eliminate the remeasurement of the payable pursuant to the TRA.
(b) Represents costs incurred as a direct impact from the COVID-19 pandemic, disinfecting and reconfiguration of facilities, medical professionals to conduct daily screenings of employees, premium pay during the pandemic to hourly workers in 2020 and direct legal costs associated with the pandemic.
(c) Represents certain costs associated with non-recurring professional services, Oaktree’s expenses and other costs.
Reconciliation of Net Income (Loss) Attributable to Shoals Technologies Group, Inc. to Adjusted Net Income (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| Net income attributable to Shoals Technologies Group, Inc. | $ | 4,402 | $ | 4,558 | $ | 7,042 | $ | 1,699 |
| Net income impact from pro forma conversion of Class B common stock to Class A common stock (a) | 2,901 | 4,596 | 4,910 | (879) | ||||
| Adjustment to the provision for income tax (b) | (686) | (942) | (1,159) | 192 | ||||
| Tax effected net income | 6,617 | 8,212 | 10,793 | 1,012 | ||||
| Amortization of intangibles | 2,238 | 1,996 | 4,509 | 3,992 | ||||
| Amortization of deferred financing costs | 408 | 305 | 684 | 675 | ||||
| Payable pursuant to the TRA adjustment (c) | — | 1,664 | — | 1,664 | ||||
| Loss on debt repayment | — | — | — | 15,990 | ||||
| Equity-based compensation | 4,063 | 2,780 | 7,896 | 4,172 |
Shoals Technologies Group, Inc.
Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share (“EPS”) (Unaudited)
(in thousands)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| Acquisition-related expenses | 12 | — | 12 | — | ||||
| COVID-19 expenses (d) | — | 106 | — | 161 | ||||
| Non-recurring and other expenses (e) | — | 1,239 | — | 1,578 | ||||
| Tax impact of adjustments (f) | (1,588) | (1,635) | (3,093) | (5,806) | ||||
| Adjusted Net Income | $ | 11,750 | $ | 14,667 | $ | 20,801 | $ | 23,438 |
(a) Reflects net income (loss) to Class A common shares from pro forma exchange of corresponding shares of our Class B common shares held by our 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 June 30, | Six Months Ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| Statutory U.S. Federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | 21.0 | % |
| Permanent adjustments | 0.1 | % | 2.0 | % | 0.1 | % | 2.0 | % |
| State and local taxes (net of federal benefit) | 2.5 | % | (2.5) | % | 2.5 | % | (1.1) | % |
| Effective income tax rate for Adjusted Net Income | 23.6 | % | 20.5 | % | 23.6 | % | 21.9 | % |
(c) Represents an adjustment to eliminate the remeasurement of the payable pursuant to the TRA.
(d) Represents costs incurred as a direct impact from the COVID-19 pandemic, disinfecting and reconfiguration of facilities, medical professionals to conduct daily screenings of employees, premium pay during the pandemic to hourly workers in 2020 and direct legal costs associated with the pandemic.
(e) Represents certain costs associated with non-recurring professional services, Oaktree’s expenses and other costs.
(f) Represents the estimated tax impact of all Adjusted Net Income add-backs, excluding those which represent permanent differences between book versus tax.
Reconciliation of Diluted Weighted Average Shares Outstanding to Adjusted Diluted Weighted Average Shares Outstanding (in thousands, except per share):
Shoals Technologies Group, Inc.
Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share (“EPS”) (Unaudited)
(in thousands)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| Diluted weighted average shares of Class A common shares outstanding, excluding Class B common shares | 112,616 | 93,760 | 112,428 | 93,650 | ||||
| Assumed pro forma conversion of Class B common shares to Class A common shares | 54,635 | 73,067 | 54,585 | 73,067 | ||||
| Adjusted diluted weighted average shares outstanding | 167,251 | 166,827 | 167,013 | 166,717 | ||||
| Adjusted Net Income (a) | $ | 11,750 | $ | 14,667 | $ | 20,801 | $ | 23,438 |
| Adjusted Diluted EPS | $ | 0.07 | $ | 0.09 | $ | 0.12 | $ | 0.14 |
(a) Represents Adjusted Net Income for the full period presented.
11
Document
Exhibit 99.2
Shoals Technologies Group, Inc.
2Q22 Earnings Conference Call Script
August 15, 2022
Operator
Good afternoon, and welcome to Shoals Technologies Group Second Quarter 2022 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, General Counsel for Shoals Technologies Group. Thank you. You may begin.
Mehgan Peetz, General Counsel, Shoals Technologies Group, Inc.
Thank you, operator and thank you everyone for joining us today. Hosting the call with me are CEO, Jason Whitaker, and interim CFO, Kevin Hubbard.
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 2022, 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, industry conditions, company performance and financial results, the COVID-19 pandemic, supply chain disruptions, availability and price of our components and materials, project cancellations, decreased demand for our products, and policy and regulatory changes.
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 second quarter press 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 Jason.
Jason Whitaker, CEO, Shoals Technologies Group, Inc.
Thank you very much, Mehgan, and good afternoon, everyone.
Shoals Technologies Group, Inc.
2Q22 Earnings Conference Call Script
August 15, 2022
I’ll start off by providing a snapshot of our second quarter performance, followed by an update on our growth initiatives, and then wrap up with our take on recent developments in the U.S. solar market. I’ll then turn it over to Kevin, who will provide an overview of our financial results.
We delivered record revenue and gross profit in the second quarter, which grew 23% and 9% year over year, respectively, despite the significant challenges and uncertainty facing the industry. To put some perspective on that statement, this quarter represents the sixth consecutive quarter where Shoals has delivered record year-over-year quarterly revenue and gross profit.
Gross margin in the quarter was 38.9%. Gross margin was lower this quarter than last year because the second quarter of 2021 benefited from an exceptionally high mix of BLA sales relative to Components, whereas this quarter was more in line with our historical mix. We also had higher raw material and logistics costs as a percentage of sales this quarter than in the prior year.
Adjusted EBITDA increased sequentially but declined slightly year over year, reflecting our continued investment in SG&A to support our growth initiatives. We are beginning to see a return on these investments and expect the year-over-year rate of growth in our SG&A to slow in Q4 of this year.
Demand for our products remains very strong and we ended the second quarter with record backlog and awarded orders of $327.2 million, an increase of 63% year-over-year and 8% sequentially. Backlog and awarded orders have grown even further in Q3 and are expected to continue expanding through the remainder of the year.
Components revenue increased 97% year-over-year, driven by increases in shipments of battery storage products as well as shipments of solar products to a significant number of new customers. New customers’ projects are typically designed as homerun systems, and they generally start their relationship with Shoals by buying components that will work with these type of systems. Once they see the performance, quality, reliability, installation savings and customer service that Shoals offers, they become open to trying our combine-as-you-go architecture and buy the BLA. Once customers make that transition, this usually marks the start of a long-term relationship.
System Solutions revenue grew 11% year-over-year, as a result of continued strong demand for BLA and market share gains. During the quarter we converted four additional EPCs and developers to our system solutions and had 29 exiting 2Q, representing a greater than sevenfold increase in the number of BLA customers since the time of our IPO last year.
Customer interest in our recently introduced products continues to grow, with wire management, battery storage, and EV charging products experiencing the greatest demand.
Shoals Technologies Group, Inc.
2Q22 Earnings Conference Call Script
August 15, 2022
We continue to ramp up production of our new wire management products to meet customer demand. To provide more context, backlog and awarded orders for wire management products increased more than threefold since the beginning of the year. While these products are relatively small contributors to revenue, they carry high gross margins and add to our profitability.
Sales of our energy storage products also contributed to revenue growth in the quarter and backlog in that part of our business continues to grow.
We are on track to complete the certification process for BLA 2.0 and high-capacity plug-n-play harnesses in the second half of the year. We expect these products to further accelerate our growth, as BLA 2.0 will have a higher average selling price per megawatt than our current product and the high-capacity plug-n-play harnesses will allow us to serve a new and fast-growing application.
We also continued making strides in our international expansion. More recently, subsequent to quarter end, we announced that we had successfully transitioned a customer to BLA in Honduras. This is an excellent proof point given Honduras is a low-cost labor market, and provides a powerful endorsement of the benefits that our system brings—even in areas where field labor is less expensive than in the U.S. or Europe, BLA can reduce labor cost, improve safety, increase reliability and reduce maintenance expenses.
In Europe, our products are fully qualified and our sales team remains focused on building pipeline and converting pipeline into backlog. We are also beginning to see further traction in international markets resulting from the Biden Administration’s support of Export-Import Bank financing.
Turning to our EV business, customer demand is exceeding our expectations, and we are seeing rapid order growth largely due to the team’s progress with commercial fleets and school bus operators. We recently completed UL certification for many of our products and expect the balance to be certified by the end of the year.
During the quarter we received orders for complete charging systems for commercial fleets that are transitioning to electric vehicles. Those orders represented our first sales of charging System Solutions and a key milestone in the commercialization of our EV product line. Prior to this quarter we had only sold Components.
We also received our first orders from school bus electrification customers who are attracted to the portability and ease of installation of our EV charging products. Demand from this segment is accelerating following the EPA’s $5 billion Clean School Bus Program announced in May.
Now, I’ll take a moment to talk about the recent positive developments in the solar market. The beginning of the quarter was marked by delays and uncertainty caused by the US Department
Shoals Technologies Group, Inc.
2Q22 Earnings Conference Call Script
August 15, 2022
of Commerce’s investigation of an AD/CVD claim on solar cells and panels supplied from certain Southeast Asian countries. A significant portion of the uncertainty was alleviated when the White House announced a two-year tariff exemption for solar panels. Our conversations with customers indicate that the tariff safe harbor created by President Biden’s executive action was an important turning point in customer sentiment, and we have seen projects that had been delayed or placed on hold pick back up.
While we cannot quantify the full impact of the recently passed Inflation Reduction Act yet, we see it as a tremendous positive for the market. The increase and extension of the ITC, coupled with new incentives for storage and EVs, should accelerate demand for our products – although how much and how fast is something we don’t know yet.
We have done a lot work since the beginning of 2021 to position Shoals to succeed in the challenging and uncertain landscape faced by the solar industry in the first half of this year and we think the strong performance of the company reflects that. Now that many of those headwinds are abating, we see the potential for upside to our market expectations.
The low capital intensity and flexibility of our manufacturing process allows us to adjust rapidly to changes in demand. We are well prepared to meet increases in demand, as the production ramp at our new facility is ahead of schedule. Despite the tight labor market, we expanded our manufacturing headcount, adding more than 100 hourly teammates in the second quarter who will be essential as we continue to scale our production.
Finally, I am excited to welcome Dominic Bardos as our new Chief Financial Officer.
Dominic brings over 30 years of global finance and accounting experience across multiple industries, including automotive, retail, and industrial services. Dominic is currently CFO of Holley, a publicly traded designer, marketer, and manufacturer of high-performance products for car and truck enthusiasts. Dominic will start in the beginning of the fourth quarter and we are excited to have him on board. Kevin has done a tremendous job leading the finance team. Prior to stepping in as our interim CFO, Kevin was a long-time consultant to our company and he will continue to support us in that capacity as Dominic transitions our organization.
I am also pleased to announce the addition of Jeanette Mills and Robert Julian to our Board of Directors. Jeanette and Robert are both seasoned executives with a proven track record of successful corporate governance and leadership across a range of functions and industries. Jeanette will be replacing Peter Jonna, who resigned from our board concurrently with Jeanette joining. I want to thank Peter for his service and valuable contributions to Shoals as a Director and welcome Jeanette and Robert to our Board. We are excited about the benefits that Jeanette and Robert’s significant experience can bring to our company.
I'll now turn it over to Kevin who will discuss our second quarter 2022 financial results. Kevin.
Shoals Technologies Group, Inc.
2Q22 Earnings Conference Call Script
August 15, 2022
Kevin Hubbard, Interim CFO, Shoals Technologies Group, Inc.
Thank you, Jason. For the second quarter, revenue grew 23% versus the prior-year period to $73.5 million, driven by increases of 11% in System Solutions and 97% in Components.
Similar to last quarter, the strength in Components revenue was driven by the combination of battery storage shipments as well as the onboarding of a significant number of new customers, which can initially lead to more of a Component level opportunity as we work towards converting them over to our System Solutions. Growth in System Solutions reflects strong demand for Shoals’ combine-as-you-go system. System Solutions represented 77% of revenue in the quarter versus 86% in the prior-year period and 69% in the prior quarter.
Gross profit increased 9% to $28.6 million, compared to $26.2 million in the prior-year period. Gross profit as a percentage of revenue was 38.9% compared to 43.8% in the prior-year period. As Jason mentioned, the decrease in gross margin year-over-year was partially a function of Q2 2021 having a particularly high proportion of BLA sales relative to Components, while Q2 2022 was more in line with our historical mix. We also had higher raw material and logistics costs as a percentage of sales this quarter than in the prior year.
Second quarter general and administrative expenses were $13.3 million, compared to $10.0 million during the same period in the prior year. This change was primarily a result of higher stock-based compensation, planned increased payroll due to higher headcount to support our growth and product initiatives, and new public company costs.
Adjusted EBITDA for the second quarter was $19.8 million compared to $20.6 million for the prior-year period. As we have discussed previously, we expect Adjusted EBITDA to grow at a slower rate this year reflecting the pull-forward of several investments to support our multi-year growth outlook and growth initiatives over the next several years. We remain confident that the substantial growth we are experiencing will support expansion in our adjusted EBITDA margin, as we get leverage on SG&A exiting this year.
Adjusted net income was $11.8 million in the second quarter compared to $14.7 million in the prior-year period.
Please see the adjusted EBITDA and adjusted net income reconciliation tables in our second quarter press release for a bridge to our GAAP results.
As of June 30, 2022, backlog and awarded were $327.2 million, representing a new record for the Company and an increase of 63% and 8% versus the same time last year and March 31, 2022, respectively. The increase in backlog and awarded orders reflects continued robust customer demand for Shoals’ products.
Shoals Technologies Group, Inc.
2Q22 Earnings Conference Call Script
August 15, 2022
Turning to our full year outlook. Based on current market conditions and input from our customers and team, we are reaffirming our previous guidance and expect 2022 revenue to be in the range of $300 million to $325 million, up 41% to 52% year-over-year. We expect adjusted EBITDA to be in the range of $77 million to $86 million, and adjusted net income to be in the range of $45 million to $53 million. Further we expect 2022 capital expenditures to be in the range of $7 million to $8 million.
In addition, at the mid-point of our outlook, we currently expect to generate 45 to 50% of our second half revenue, adjusted EBITDA and adjusted net income in the third quarter.
Now back to Jason for closing remarks.
Jason Whitaker, CEO, Shoals Technologies Group, Inc.
Thanks Kevin.
I would like to close by thanking all our customers for their commitment to Shoals, our employees for their contributions to our company’s success and our shareholders for their continued support.
The first half of 2022 is off to a strong start and we will not be facing many of the headwinds we confronted in the first and second quarters in the second half of the year. That, together with strong demand for solar and EV, the success of our new product and sales initiatives and the tremendous strength of our core BLA product gives us optimism for what we can achieve for shareholders in the coming quarters.
And with that, thank you everyone, and I appreciate your time today. We will now open the line for questions.
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