Shoals Technologies (SHLS) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - First quarter net revenue declined 14% to $90.8 million compared to the same period in 2023, driven by project pushouts and fewer production days [52] - Gross profit decreased to $36.5 million, with a gross profit margin of 40.2%, down from 45.9% in the prior year due to higher labor costs and lower fixed cost absorption [53] - Net income was $4.8 million, down from $17.0 million in the prior year, while adjusted EBITDA was $20.5 million compared to $38.1 million in the prior year [56] - Cash flow from operations was $12.9 million, with capital expenditures of $2.5 million, and the company ended the quarter with a net debt to adjusted EBITDA ratio of one times, improved from two times a year ago [57] Business Line Data and Key Metrics Changes - Backlog and awarded orders totaled $615.2 million, with $75 million in new orders added during the quarter, representing a 17% year-over-year increase [60] - The company experienced reduced revenue in the near-to-mid-term due to solar project delays, impacting domestic utility scale solar projects [20][21] - The Community, Commercial, and Industrial (CC&I) market is expected to grow faster than utility scale solar, with an addressable market of 1.5 to 2 gigawatts for community solar projects and approximately 2 gigawatts for CC&I projects [24] Market Data and Key Metrics Changes - Solar power accounted for 4% of power production in the U.S. in 2023, expected to rise to 6% in 2024 and 7% in 2025 [13] - The average price paid by commercial and industrial customers for electricity increased by 20% from 2022 to 2023, benefiting solar as it can reduce costs and provide certainty [17][18] - The company noted that over 1.5 of all solar projects in development have been delayed six months or more due to various factors [19] Company Strategy and Development Direction - The company is focusing on the CC&I market and international growth, particularly in regions like Africa, Latin America, and the MENA region, which collectively have an estimated addressable market of 63 gigawatts by 2025 [26][28] - The company aims to leverage its products to build faster with less labor and at lower costs, enhancing its competitive position in the market [35] - The management has refined its corporate strategy and enhanced its operating model to drive better results for shareholders [44] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about long-term fundamentals for solar growth, driven by accelerating load growth and persistently higher power prices [34] - The company expects project delays to reverse over time, with most delayed projects anticipated to be completed in 2025 [63] - Management highlighted the importance of flexibility and responsiveness to customer needs, which has led to changes in the sales structure and operations [66] Other Important Information - The company is pursuing legal action against Prysmian for wire insulation issues, with a potential exposure range remaining unchanged at $59.7 million to $184.9 million [54][41] - The company completed the ITC trial related to intellectual property litigation and expects a ruling in July, with further reviews in November and January 2025 [42] Q&A Session Summary Question: Visibility into second half ramp and potential AD/CVD case impact - Management confirmed visibility into projects and has accounted for potential delays in guidance, with no significant disruption anticipated from panel tariffs [72][73] Question: Market share and order trends - Management noted that 37% of projects have been delayed by at least one month, with $50 million worth of projects pushed to 2025, but emphasized that these projects are not lost [75] Question: Bookings and backlog dynamics - Management clarified that while total backlog increased, some projects were canceled or pushed back, impacting the perception of bookings for the quarter [91] Question: Competitive environment in eMobility - Management stated that there have been no significant changes in the competitive landscape, and they continue to believe in their superior technology and IP [116] Question: Sales organization adequacy for international and CC&I markets - Management indicated that they have made investments in the sales organization to better capture opportunities in international markets and the CC&I space [118]