Shoals Technologies (SHLS) - 2021 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited condensed consolidated financial statements detail the company's financial position, operational results, and cash flows for the periods ended June 30, 2021 Condensed Consolidated Financial Statements Total assets grew to $273.7 million, with Q2 revenue increasing 37.6% YoY, though six-month net income fell due to a one-time loss on debt repayment Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $91,509 | $56,147 | | Property, plant and equipment, net | $13,622 | $12,763 | | Goodwill | $50,176 | $50,176 | | Total Assets | $273,716 | $195,310 | | Total Current Liabilities | $27,223 | $24,101 | | Long-term debt, less current portion | $188,859 | $335,332 | | Total Liabilities | $308,438 | $379,433 | | Total stockholders' deficit | ($34,722) | ($184,123) | | Total Liabilities and Stockholders' Deficit | $273,716 | $195,310 | Condensed Consolidated Statement of Operations Highlights (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $59,722 | $43,427 | $105,326 | $84,167 | | Gross Profit | $26,179 | $16,829 | $44,953 | $31,015 | | Income from Operations | $14,099 | $5,448 | $23,989 | $15,015 | | Loss on debt repayment | — | — | ($15,990) | — | | Net Income | $9,154 | $5,223 | $820 | $14,518 | Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net Cash Provided by (Used in) Operating Activities | ($14,114) | $18,928 | | Net Cash Used in Investing Activities | ($1,736) | ($1,345) | | Net Cash Provided by (Used in) Financing Activities | $18,948 | ($10,361) | | Net Increase in Cash and Cash Equivalents | $3,098 | $7,222 | Notes to Condensed Consolidated Financial Statements Notes detail the IPO's impact, the creation of a $43.4 million Tax Receivable Agreement liability, and revenue composition by product - On January 29, 2021, the company closed its IPO, receiving $278.8 million in net proceeds and becoming the sole managing member of Shoals Parent with a 56.14% economic interest[29][30] - The company entered into a Tax Receivable Agreement (TRA) with former owners, creating a liability of $43.4 million as of June 30, 2021[102][108] - In January 2021, the company used IPO proceeds to repay $150.0 million of its Term Loan Facility, resulting in a $16.0 million loss on debt repayment[63] - A follow-on offering in July 2021 is expected to increase the deferred tax asset by approximately $71.8 million and the corresponding TRA liability by $61.1 million in Q3 2021[111] Revenue by Product (in thousands) | Category | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | System solutions | $51,242 | $84,611 | | Solar components | $8,480 | $20,715 | | Total revenue | $59,722 | $105,326 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes a 38% Q2 revenue increase, improved gross margins, strategic EV initiatives, and non-GAAP financial reconciliations Overview The company is a leading provider of solar EBOS solutions with a growing backlog and strategic expansion into the EV charging market - The company is a leading provider of electrical balance of system (EBOS) solutions for solar energy projects in the United States, with the majority of revenue derived from selling complete "system solutions"[114][115] - Backlog and awarded orders reached $200.5 million as of June 30, 2021, representing a 63% increase from the same date last year[117] - The company is developing four new product families for the EV charging market, with the first offerings expected in Q4 2021[118] Results of Operations Q2 2021 revenue grew 38% and gross margin expanded to 43.8%, though six-month net income was impacted by a one-time debt repayment loss - Q2 2021 revenue increased by $16.3 million (38%) YoY, driven by higher demand for solar EBOS and combine-as-you-go system solutions[141] - Gross profit as a percentage of revenue for Q2 2021 increased to 43.8% from 38.8% in Q2 2020, due to purchasing efficiencies and a favorable product mix[142][143] - For the six months ended June 30, 2021, the company recorded a $16.0 million loss on debt repayment related to the prepayment of its Term Loan Facility[156] Comparison of Results of Operations (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | % Change | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $59,722 | $43,427 | 38% | $105,326 | $84,167 | 25% | | Gross Profit | $26,179 | $16,829 | 56% | $44,953 | $31,015 | 45% | | Income from Operations | $14,099 | $5,448 | 159% | $23,989 | $15,015 | 60% | | Net Income | $9,154 | $5,223 | 75% | $820 | $14,518 | (94)% | Non-GAAP Financial Measures Adjusted EBITDA for Q2 2021 increased to $20.6 million, with Adjusted Diluted EPS at $0.09, reflecting core operating performance Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income | $9,154 | $5,223 | $820 | $14,518 | | Adjusted EBITDA | $20,631 | $15,404 | $34,708 | $27,475 | Reconciliation to Adjusted Net Income and Adjusted Diluted EPS | Metric | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Adjusted Net Income | $14,667 | $23,438 | | Adjusted Diluted EPS | $0.09 | $0.14 | Liquidity and Capital Resources The company maintains liquidity with $13.2 million in cash and $51.0 million in available credit, despite negative operating cash flow in H1 2021 - As of June 30, 2021, the company had $13.2 million in cash and cash equivalents and $51.0 million available under its Revolving Credit Facility[169] - Net cash used in operating activities for the first six months of 2021 was $14.1 million, primarily due to a $6.2 million increase in inventory and a $19.0 million increase in receivables[170] - Net cash provided by financing activities for the first six months of 2021 was $18.9 million, reflecting net IPO proceeds offset by term loan payments[173] Summary of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | ($14,114) | $18,928 | | Net cash used in investing activities | ($1,736) | ($1,345) | | Net cash provided by (used in) financing activities | $18,948 | ($10,361) | Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risk disclosures remain materially unchanged from the 2020 Annual Report on Form 10-K - There have been no material changes to the company's market risk profile since the 2020 Form 10-K[189] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[190][191] - There were no changes to the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[192] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is not party to any legal proceedings expected to have a material adverse effect - The company is not currently party to any legal proceedings that it believes will have a material adverse effect on its business or financial condition[194] Item 1A. Risk Factors Risk factors remain materially unchanged from those disclosed in the 2020 Form 10-K - There have been no material changes to the company's risk factors since the filing of its 2020 Form 10-K[195] Other Part II Items The company reports no unregistered equity sales or senior security defaults and lists filed exhibits - The company reported no unregistered sales of equity securities, defaults upon senior securities, or other material information under Item 5 for the reporting period[196][198] - Mine safety disclosures are not applicable to the company[197]