Shoals Technologies Group, Inc. (SHLS) September 2026 Conference Transcript

Hi.

Good afternoon, everyone. My name is Christine Shaw. I'm the Clean Tech Analyst here at Barclays. Next up, we have Shoals, a provider of electrical balance of systems and power distribution solutions for solar energy, battery energy storage systems, and data centers. Here with me to discuss the company is Brandon Moss, Chief Executive Officer. Thank you for joining me.

Thank you, Christine. Good afternoon, everybody. Sure.

So you evolved from a solar e-bus company to one that's now doing best solutions, and I think one of your more recent things is working inside the data center with your product called AirLink. Can we start off with how the market looks like for all three of these solar bests inside the data center and how it's evolved over the last 12 months?

Sure. Yeah, maybe just to start out with our strategy, you know, we set the course now a couple years back that we were going to continue to grow our core market, obviously, excuse me, solar, but also diversifying the new end markets. And we're starting to see that materialize with our best business and now soon to be here, Link, as you mentioned. So, you know, really working through those markets one by one, the solar market today is certainly as good as I've seen it since I've been at Shoals, which is a little over three years, but probably as good as the market's ever been. As everybody knows, there's an underlying demand for power that is extremely significant, and I think the thesis of a cliff, so to speak, happening after the tax credits rolled off is maybe subsiding a bit, and we are believers in the market and that the market will be stronger for longer. So, you know, where Wood Mack and BNF has projected things, you know, through the end of the decade and a bit beyond, I think it's probably a high 30s, low 40s market from a domestic perspective, which is a fantastic market for shoals and our peers to operate in, quite frankly. So we're very bullish on the solar market. As it relates to battery energy storage, one of our new vectors for growth, it's a really exciting market. I think about the product that we're providing specifically to data centers. We're probably in the first quarter of the maturation of that product segment. and as AI data center architecture continues to change and evolve, we will have more and more opportunity to satisfy those particular markets. As it relates specifically to our Airlink product inside of the data center, it's fantastic for us to be able to provide power to the rack versus just power to the physical structure of the data center. And that market size is very significant. Christine, you've done a bunch of good work on looking into this product, so you understand the market landscape. We think about that market of being about a $2 billion market opportunity for us now and then growing to about $4 billion later in the decade. And our product is primarily a substitute for a traditional bus way to deliver power. again to RAC. So exciting opportunity for us to continue to grow in that space.

Can you talk about sort of the competitive landscape and the profitability profile among the three? I know that, you know, gross margins and sort of how they'll continue to evolve over time has been a hot topic.

Sure, yeah. Each market is different for us, but maybe before I go there, talk a little bit about what is unique and what makes those market opportunities the same. Shoals really at its core, our core competency is the ability to build at scale a very high mix, so custom solutions at scale. So when you think across whether it be solar, whether it be BEST, whether it be data center, that value proposition really holds true, and how that translates to the customer is quality product, reliability, being able to deliver it fast the way that they want it, and our products will stand the test of time and the infrastructure that it's going into. Each of the markets, obviously, and the margin profiles are a bit unique. and the solar landscape, you know, we've got a IP portfolio protecting our big lead assembly product, our solution, which is very strong and intact, as we've seen here in recent weeks through the judgment, you know, and our IP litigation. So with that IP and the solution that we provide, we are able to drive a price point in the marketplace that is deserving of the value that that product delivers. There is unbelievable demand for eBoss products now, as we talked about, with the robustness of the market. And I would say that pricing and margin behaviors in this market are behaving rationally with that type of demand. As I think about our battery energy storage product, you know, similar scenario, highly engineered custom solution for our customers. When you think about our margin stack, battery energy storage is at the higher side of our margin stack as we're getting, you know, essentially paid for that value in the engineering that we're delivering to the customer. is it relates specifically to our Aerolink product. We've not priced that product in the market yet, but there's a tremendous amount of value there and speed to power, safety, and also the scalability of the power that we can deliver to the RAC server. So I would expect that product to be sort of at the higher end of our margin stack when it comes to market.

And from a competitive landscape, the Aerolink, you just said that, you know, that competes against the more traditional busway systems. Have you gone out there in the market? Have you seen if anyone's trying to do something a little more out of the box like you? And then on the best side, you know, you historically have talked about, you know, some of the smaller players that are, you know, some of your competitors on the e-ball side who are too small, and then, you know, the big guys who, you know, can't be bothered to customize solutions. Is that still the competitive landscape?

I believe so. I mean, I think as it relates first to AirLink, I'm not aware of anybody bringing a product to market that has the capability to deliver the power that we can in a custom configurable modular solution that can be installed as quickly as our product will be able to be installed. So it's quite an exciting product for us, and we look forward to that product probably coming to market and starting to manufacture that product after the first of the year. As it relates to battery energy storage, I would say that same thing applies. Christine, that there are smaller players in the marketplace that can serve smaller jobs that are willing to do the front-end engineering legwork to do the customization that's required for these data centers. But a lot of those companies are unable to build at the scale that we can build at with the production line that we've set up. So we offer really the best of both worlds in the market. We are custom but can build also at a pretty extreme level of scale. If you think about a one gigawatt data center that's paired with a gig of battery, we're going to be delivering 500 to 700 units to that site over time. And so, you know, for us to keep up with the delivery schedule required by the customer, we've got to be able to build these products pretty rapidly. And what we've set up in our facility enables to do that with almost an assembly line sort of production.

I'm going to have a follow-up on that. But on the solar side, before I go to the bad stuff, you recently saw a win on the case against voltage. How do you expect this to impact market share? Have you already seen customers come back, or do you think more than anything it just signals to potential competitors existing and new that you take IP very seriously and will fight against anyone who remotely infringes.

Well, I appreciate you bringing this up. It's been, you know, since I've started with Shoals, we have been involved in this patent litigation. So it's exciting for the company and great for our shareholders that we've effectively brought this to close. We were not only successful in the ITC and having the product that our competitor was importing banned, but now also more recently, in the last couple weeks in our case and district court in North Carolina winning a $96 million judgment and willful infringement from our competitors. It was a great win for our company and our shareholders. As it relates to how it impacts the market and showing the market that will protect our IP, I think it's a bit of both. I'm a firm believer in Don't file a patent application if you're not willing to defend your IP, and Scholes will always defend our intellectual property as long as I'm with the company. So, you know, I think it's a signal to the market, obviously, that we've got important IP and we're willing to protect it. As it relates to the competitive landscape, we've been experiencing that probably over the last year, year and a half, maybe, as these proceedings have been going on. We certainly have brought in new customers into our mix, expanded wallet share with other customers that perhaps were customers of our competitors. So we have seen some of that happen over time, and I would expect we'll continue to do so.

Hypothetically, just because I don't really know what happens in this case, You know, let's say this competitor exits the market and the install base it has in the U.S., like, if there's any issues and, you know, the customers need replacements or servicing, like, what happens there? Is that a potential opportunity for you or not?

It would be an opportunity for us, you know, if they had componentry and we could support the customer, I think, you know, we can certainly look at that. It will obviously be a challenge for that competitor to support any product that was found infringing, obviously. So, yeah, certainly an opportunity for us.

And then moving over to storage, you know, the storage revenue hit about $20 million in the last quarter. The backlog has continued to grow. You have this partnership with OnEnergy, but so far I think the bookings have been roughly in the $60 million range. OnEnergy has partnered with Crusoe to deploy up to 5 gigawatts. How should we think about what this impact is for you, potentially?

Yeah, a reminder on this product category specifically, it's early days for us, right? We were really beginning to produce this product in the second quarter. I mean, we made a couple of units in the first quarter of the year, so scaled production in the second quarter. The way to think about this arrangement with On Energy is I think over the long term, it's a great opportunity for us. They will be a great partner to us, but we're, again, in early days on this, I would expect bookings to continue to be a little bit bumpy. And then we obviously produce product according to the customer's delivery schedule. I think changes will happen over time. And, again, the market will expand as this architecture becomes more prevalent in the data center space. So I can see it as a growing market. 27, I think, will be better than 26. And as we attract new customers, which we are doing, we announced TeraFlo, our MOU with them last quarter. I think, you know, you'll see our booking stabilize and our revenue stabilize, obviously, as the business matures. But we're excited to have OnEnergy as a partner. We're excited to have TeraFlo as a partner. And obviously, the goal is to bring on more opportunities like that.

Okay. And then AirLink, you know, this is a potential growth platform beyond traditional utility solar where you've played. Can you just, for those in the audience who are not as familiar with the product, can you just talk about what customer problem you're solving? And I guess you already kind of quantified the opportunity as $2 to $4 billion.

Yeah, maybe just talk a little bit about what the product is. If you think about our BLA product today, it's a trunk bus solution that is collecting power from modules. So we have leads that come off our trunk bus solution, which ultimately connect to the modules. That power is collected and runs down the trunk bus line, which is then, you know, eventually delivered to the inverter. air link is really a similar product on the cable standpoint it is very like what we do with bla just a different type of cable but we're using that trunk bus solution and the and the leads that come off it to deliver rack rack power so again it's a very similar to the bla just sort of sort of flip the way uh the electrons flow on the product um what this product does specifically for the customer. There's really three big concerns about rack power. One is speed to power. How fast can you get the product, in many cases traditional busway? How fast can you install that product, which I think we've got a very unique solution the way that this product installs because it's the cable versus traditional busway that has to be, you know, fabricated together on site. We've got a pretty unique system in which the cable is affixed to the structure that is very unique and quick. So speed to power, we have a pretty distinct advantage. The other thing that data center owners are concerned about is scalability. Obviously, as chipsets continue to improve, the power consumption is much, much higher. Our product, compared to traditional methods, the power density, our ability to deliver rack power, is far, far greater than what is on the market today. So as architecture transitions to 800 volt and even higher than that, We're getting some requests if we can handle 1,500 volts, which is what a solar field is today. We are well positioned with our particular product. The last thing is really safety. Traditional busway does have some exposed conductor in it as the voltages become higher and higher on these sites. There is always a safety concern around that. There is also, you know, concerns about how that product is installed where the joints create potentially hot spots. Our product obviously does not have that because it is an insulated aluminum trunk bus. So some pretty distinct features that offer immense value to the potential customer.

You started off answering this last question by talking about sort of like the similarities with your solar e-box solution. Do we think that there are supply chain synergies, and is this product going to easily be manufactured in your existing facility?

Yeah, that's a great question. The production equipment that we would use to manufacture the trunk bus cable is effectively what we use to manufacture BLA today. There is some ancillary equipment that goes along with that product that will be a little bit different for Scholes, but it's very similar to we've got one of our value streams in our plant is the enclosure line where we make load break disconnects and combiner boxes. So it's not completely foreign to what we do in our plants today. It's very, very similar to our processes.

You know, because it's early stages, sort of like what are the milestones that we should look out for in order for us to get a better sense that Aerolink is actually a commercially viable product?

Yeah, I mean, I think there's really three things to be thinking about. One is our internal testing. So we're in the process now, and when I say internal, it also involves third-party testing. So we are running the product through the paces. Literally right now we're working on short-circuit testing. How does our product stand up to those tests? And the baseline information that we get back from those tests will be used in our certifications and filings with UL and anything that we have to do with National Electric Code. So that's probably number one. Number two is our ability to win a couple beta sites. So potentially before the UL certifications, it is possible for us to get that product on a site working under power that's obviously outside of the four walls of Shoals. So that's the second thing. Thirdly is the actual certification. So once we get the UL stamp and we've got clearance from, you know, the National Electric Code Standards Board, we are good to go to commercialize that product in a meaningful way. So those are really the three gating items that I would be thinking about to make this product viable.

Do you have rough ballparks for timing?

Probably first quarter, I'm guessing. I mean, it's a new-to-world product, right? So it's not, you know, it's not an extension of a UL file. It's a new UL file, a new product category. Those typically take longer than, you know, traditional products. So I think first quarter is probably a good estimate.

For the first?

For us to have a UL file.

Oh, okay, UL file. And then just moving over to the financial side, you know, Growth margins has been scrutinized for you guys. They've been pressured by the transition to the new manufacturing facility, the associated inefficiencies that have come with the move. I guess sort of like can you give us an update on the progress that you've made since the last earnings call and how we should expect it to progress through year end?

Yeah, and maybe even before the earnings call. I mean, the margins have been impacted, obviously. There's been some external forces like the tariff landscape. Our product mix is always the largest driver of our gross margin, gross profit percentage. So those things are meaningful. You know, as it relates to the move into our new facility, for perspective, our move really occurred in the second quarter in a meaningful way. In the month of April, we moved about probably 50% of our total floor space in the month of April. And then second quarter, obviously, fantastic revenue month for us, still record revenues for the company. So we are making progress each and every day on productivity in the plant. You know, how much product can we get through the equipment? We're making some progress on the efficiencies in our facility, and that will begin to have some impact on our margin profile. As we've talked about before, you can think of our gross profit percentages improving sequentially sort of quarter to quarter through the balance of the year and on.

You mentioned that, like, corporate gross margins are highly driven by sort of a mix of product. you know historically before you even got you know because best only started to make start to generate revenue a quarter or two ago and so so if we sort of look at what you were historically when you were just a solar e-boss company you know your gross margins were like low 40s right so i guess if we're just to do an apples to apples comparison so like let's take out the eBoss and what AirLink could be, how should we comp, like, what the long-term gross margins of the eBoss business is now, like, once everything is normalized?

Yeah, it's a great question. I think, you know, comparably, to call it 2023 when I started and where margins were, limited customer mix, highly skewed to BLA, less OEM business, obviously, that business has grown substantially for us, which carries a lower gross margin profile, versus today where we've got a pretty wide customer mix. We are not only selling BLA solutions, we're selling solutions that our customers are asking for that fits their particular site. Our OEM business is, since I joined the company, is probably three and a half X the size, so it has certainly outpaced the traditional eBoss growth. And we've brought to market some new products. So our gross profit percentage, and I'm not trying to dodge your question, is always going to be highly contingent upon the product mix that we have. We are very mindful of what those percentages are, but we are even more mindful of the gross profit dollars that we're dropping to the bottom line. And we're beginning to see that because we've had some outside growth as compared to the market. So you think about last year, high teens growth. This year, from a revenue standpoint, probably somewhere in the 30% range, the market's certainly not growing like that. We are outgrowing the market. So, again, we'll be mindful of gross profit percentages, always trying to increase those. But our goal is to, you know, to drive gross profit and obviously even the dollars.

Okay. You know, one of the things that came out at the end of August was a follow-up to the FCC ban on inverters. You know, he banned certain power equipment. you know, that impacts the grid, you know, that contributes to the grid. The language is very vague, so I'm curious as to, you know, whether or not you think your equipment falls into those categories and, you know, how you think that that could impact sort of market dynamics, competitive dynamics, who you compete against, if you're not.

Well, it's difficult to say how the language will finally be written after following this executive order. You know, I think that our product, whether it be eBoss or whether it be our best product, is domestically produced. It probably helps us on a net basis. We'll just have to see, you know, the specifics of the executive order and how long that takes, you know, for us to get that information. It could be weeks, it could be months.

Okay. And then last question for me, you know, if you had a crystal ball, you know, I started off this virus chat saying you started off as a solar e-boss company. So you started off as a solar e-boss company. You've diversified into storage inside the data center. So I guess at a high level, how do you think about the product roadmap beyond that? Like what do you think you look like at the end of the decade?

Yeah, I go back to sort of where I was started with our core competency. Again, I don't think of Scholes ever probably as an electrical widget manufacturer. Where we have the opportunity to add value and do custom solutions, we will play. and, again, leveraging our core competency of being able to manufacture at scale with a very high mix. So we want to leverage that core competency and look into other end markets like we're doing today with data centers related to BESS and then also with the Airlink product. So, you know, the long-term goal is to make us a more durable, sustainable business, and I think you've got to have multiple markets in which you play, whether those be product end markets or geographic markets, to do that. So you'll continue to see us diversify over time. I do want to be clear that that doesn't mean we're going to take our eye off the ball in the core solar space. We can continue to grow and grow profitably in that market, and we're very excited to do so. We're just looking to bring more balance to the business.

Okay. Well, I thought we're at time. So, Brandon, thank you so much for your time today, and thank you everyone in the audience for coming.

Thanks, Christine. Thanks, everybody.