Shoals Technologies (US:SHLS)2025-05-06 11:46PART I Financial Statements (Unaudited) Shoals Technologies Group reported a Q1 2025 net loss and decreased revenue year-over-year, with total assets at $788.4 million and liabilities at $229.5 million, impacted by warranty liabilities and legal proceedings Condensed Consolidated Balance Sheets As of March 31, 2025, total assets slightly decreased to $788.4 million, total liabilities decreased to $229.5 million, and stockholders' equity increased to $558.9 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $187,746 | $188,352 | | Cash and cash equivalents | $35,609 | $23,511 | | Accounts receivable, net | $67,704 | $78,181 | | Inventory, net | $61,173 | $55,977 | | Total Assets | $788,421 | $793,080 | | Total Current Liabilities | $80,283 | $80,912 | | Warranty liability—current portion | $25,956 | $29,602 | | Revolving line of credit | $141,750 | $141,750 | | Total Liabilities | $229,493 | $236,280 | | Total Stockholders' Equity | $558,928 | $556,800 | Condensed Consolidated Statements of Operations For Q1 2025, revenue decreased 11.5% to $80.4 million, resulting in a net loss of $0.3 million compared to a $4.8 million net income in Q1 2024 Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Revenue | $80,361 | $90,807 | | Gross Profit | $28,140 | $36,460 | | Income from Operations | $4,312 | $11,584 | | Net Income (Loss) | $(282) | $4,774 | | Basic EPS | $(0.00) | $0.03 | | Diluted EPS | $(0.00) | $0.03 | Condensed Consolidated Statements of Cash Flows Q1 2025 saw net cash from operating activities increase to $15.6 million, leading to a net increase in cash and equivalents of $12.1 million, ending at $35.6 million Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $15,558 | $12,860 | | Net Cash Used in Investing Activities | $(3,209) | $(2,483) | | Net Cash Used in Financing Activities | $(251) | $(17,848) | | Net Increase (Decrease) in Cash | $12,098 | $(7,471) | | Cash and Cash Equivalents—End of Period | $35,609 | $15,236 | Note 8: Warranty Liability The company is addressing a wire insulation shrinkback issue with an estimated loss range of $73.0 million to $160.0 million, resulting in a $30.4 million remaining warranty liability for this matter - The company has identified a wire insulation shrinkback issue from defective wire supplied by Prysmian, leading to a significant warranty provision50 - The estimated range of potential loss is between $73.0 million and $160.0 million. The company has recorded the low-end of the range, $73.0 million, as a warranty liability50 Warranty Liability Activity (in thousands) | Description | Q1 2025 | | :--- | :--- | | Beginning Balance (Jan 1, 2025) | $40,994 | | Warranty Expense | $256 | | Payments | $(9,837) | | Ending Balance (Mar 31, 2025) | $31,413 | Note 13: Commitments and Contingencies The company is engaged in multiple legal proceedings, including intellectual property disputes, a lawsuit against supplier Prysmian for defective wire, and securities litigation - The company is pursuing intellectual property litigation against competitors Hikam and Voltage, with one case currently on appeal and a new case filed in January 2025767879 - A lawsuit has been filed against supplier Prysmian to recover costs and damages related to the defective wire causing the insulation shrinkback issue81 - The company and its officers/directors are defendants in consolidated securities and derivative lawsuits alleging false and misleading statements regarding the wire insulation shrinkback matter848586 Note 15: Revenue Recognition Q1 2025 revenue was primarily from system solutions at $57.4 million and components at $23.0 million, with unbilled receivables significantly decreasing to $10.4 million Revenue by Product Type (in thousands) | Product Type | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | System solutions | $57,394 | $65,059 | | Components | $22,967 | $25,748 | | Total revenue | $80,361 | $90,807 | - Unbilled receivables decreased from $20.8 million at the end of 2024 to $10.4 million at the end of Q1 2025, indicating a shift in the timing of billings relative to revenue recognition97 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2025 revenue decline and gross margin contraction to pricing and mix, while strategically expanding into new markets and managing uncertainties like trade regulations and project delays Overview and Backlog Shoals, a leading EBOS provider, is expanding into international, BESS, data center, and CC&I markets, with total backlog and awarded orders reaching $645.1 million - The company is strategically expanding beyond its core domestic utility-scale solar market into international, BESS, data centers, and Commercial, Community, and Industrial (CC&I) markets112 Backlog and Awarded Orders as of March 31, 2025 | Category | Amount (USD) | | :--- | :--- | | Backlog (signed orders) | $202.2 million | | Awarded Orders (contract pending) | $442.9 million | | Total | $645.1 million | - Backlog and awarded orders increased by 5% year-over-year and 2% since December 31, 2024. Over 13% of the total is for international projects113 Trends and Uncertainties The company faces market uncertainties including evolving trade regulations, the future of the Inflation Reduction Act, persistent solar project delays, and global macroeconomic pressures - The company is exposed to risks from new and potential tariffs on imports from Canada, Mexico, and China, which could increase costs for raw materials like steel, copper, and aluminum115117 - Uncertainty around the future of the Inflation Reduction Act (IRA) poses a risk, as its repeal or alteration could decrease the financial attractiveness of solar projects and reduce demand for the company's products121 - The domestic utility-scale solar market continues to face project delays due to permitting, supply chain, and financing issues, though the situation is more normalized compared to late 2023 and 2024122 Results of Operations Q1 2025 revenue decreased 11.5% to $80.4 million, gross profit fell 22.8% to $28.1 million, and the company reported a net loss of $0.3 million Comparison of Operations (in thousands) | Line Item | Q1 2025 | Q1 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $80,361 | $90,807 | (11.5)% | | Gross profit | $28,140 | $36,460 | (22.8)% | | Income from operations | $4,312 | $11,584 | (62.8)% | | Net income (loss) | $(282) | $4,774 | (105.9)% | - The decrease in revenue was driven by strategic pricing actions, volume discounts, and customer and product mix141 - Gross profit percentage decreased from 40.2% to 35.0% due to pricing, mix, and reduced fixed cost absorption from lower revenues142 Non-GAAP Financial Measures Q1 2025 Adjusted EBITDA decreased to $12.8 million and Adjusted Net Income to $5.2 million, reflecting core operating performance after various adjustments Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands) | Description | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net income (loss) | $(282) | $4,774 | | Interest, Taxes, D&A, etc. | $8,978 | $14,061 | | Wire insulation shrinkback litigation expenses | $2,529 | $849 | | Adjusted EBITDA | $12,789 | $20,458 | Reconciliation of Net Income (Loss) to Adjusted Net Income (in thousands) | Description | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net income (loss) | $(282) | $4,774 | | Adjustments (Amortization, Equity Comp, etc.) | $7,242 | $10,394 | | Tax impact of adjustments | $(1,767) | $(2,547) | | Adjusted Net Income | $5,193 | $12,621 | | Adjusted Diluted EPS | $0.03 | $0.07 | Liquidity and Capital Resources The company's liquidity is supported by $15.6 million in Q1 2025 operating cash flow and a $200 million revolving credit facility, with $58.2 million available - The company generated $15.6 million in cash from operating activities in Q1 2025, compared to $12.9 million in Q1 2024156161 - In March 2024, the company paid off its Term Loan Facility and increased its Revolving Credit Facility to $200.0 million. As of March 31, 2025, $141.8 million was drawn, with $58.2 million available156157 - The company has a share repurchase program with $125 million remaining authorization as of March 31, 2025. No shares were repurchased in Q1 2025159 Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in the company's market risk exposure during Q1 2025, with further details available in the 2024 Form 10-K - There were no material changes in the company's market risk exposure during the first quarter of 2025175 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of March 31, 2025, the company's disclosure controls and procedures were effective at a reasonable assurance level177 - No material changes were made to the internal control over financial reporting during the quarter ended March 31, 2025178 PART II - OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, including intellectual property and product liability claims, with details provided in Note 13 of the financial statements - The company is subject to various legal proceedings. For detailed information, refer to Note 13 - Commitments and Contingencies180 Risk Factors Material risk factors affecting the business and financial results are discussed in the 2024 Form 10-K and this Form 10-Q - A discussion of material risk factors is available in the company's 2024 Form 10-K and this Form 10-Q181 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the reporting period - None182 Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in Q1 2025 - No directors or officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in Q1 2025185 Exhibits The report includes an exhibit index, featuring RSU and PSU grant agreements, and certifications by the CEO and CFO - The filing includes certifications from the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act187 - New forms for RSU and PSU grant agreements for 2025 were filed as exhibits187