Shoals Technologies Group Inc (SHLS) Reports Record Revenue Growth Amidst Legal Challenges

Third Quarter 2023 Earnings Summary

  • Record quarterly revenue of $134.2 million, a 48% increase year-over-year.
  • Gross margin impacted by wire insulation shrinkback expenses, resulting in a net loss of $(9.8) million.
  • Adjusted EBITDA up 81% year-over-year to $48.0 million, with a raised outlook for the full year.
  • Backlog and awarded orders grew 34% year-over-year to $633.3 million.
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On November 7, 2023, Shoals Technologies Group Inc (SHLS, Financial), a leader in electrical balance of system (EBOS) solutions, announced its financial results for the third quarter ended September 30, 2023. Despite facing challenges, the company achieved a record quarterly revenue of $134.2 million, marking a significant 48% increase compared to the same period last year. This growth was primarily driven by increased domestic demand for solar EBOS.

Financial Performance Overview

The company's gross profit for the quarter was $14.2 million, a decrease from $36.0 million in the prior-year period. The gross profit margin saw a substantial decline to 10.5% from 39.7% year-over-year, largely due to $50.2 million in wire insulation shrinkback expenses. These expenses represent the lower end of the potential loss range and are based on the company's ongoing analysis. Despite this setback, Shoals Technologies Group Inc managed to offset some of the impact with lower raw material costs, increased leverage on fixed costs, and operational efficiencies.

General and administrative expenses increased to $22.6 million from $13.9 million in the same quarter of the previous year, reflecting higher non-cash stock-based compensation, legal fees, and payroll expenses to support growth. The company reported a net loss of $(9.8) million, compared to a net income of $12.8 million in the prior-year period. Adjusted EBITDA, however, showed a strong increase of 81% to $48.0 million, and adjusted net income grew by 101% to $33.4 million.

Operational Highlights and Legal Proceedings

Shoals Technologies Group Inc's backlog and awarded orders increased by 34% year-over-year to $633.3 million, with international orders now representing more than 10% of this figure. The company also completed the ramp-up of its third Tennessee facility, adding significant capacity to meet demand through 2025.

During the quarter, Shoals filed a lawsuit against its wire supplier, Prysmian Cables and Systems USA, LLC, seeking damages for the wire insulation shrinkback issue. The outcome of this litigation and its impact on the company's financial results remain uncertain.

Financial Statements and Adjusted Measures

The balance sheet shows total assets of $840.1 million as of September 30, 2023, with current assets at $214.2 million. The company's total liabilities stood at $315.5 million, with stockholders' equity at $524.6 million.

Shoals Technologies Group Inc's non-GAAP measures, such as adjusted gross profit and adjusted EBITDA, exclude certain expenses to provide a clearer view of the company's operating performance. These measures are reconciled to their most closely comparable GAAP measures within the release.

Outlook for Full Year 2023

Based on current business conditions and trends, Shoals Technologies Group Inc has narrowed its revenue outlook and raised its expectations for adjusted EBITDA and adjusted net income for the full year ending December 31, 2023. The company anticipates revenue to be in the range of $485 million to $495 million, with adjusted EBITDA between $165 million and $175 million, and adjusted net income in the range of $110 million to $120 million.

For more detailed information on Shoals Technologies Group Inc's financial results and outlook, investors and interested parties can access the webcast and conference call hosted by the company's management.

Shoals Technologies Group Inc continues to navigate through its challenges with a strong performance in revenue growth and backlog orders, while addressing the wire insulation shrinkback issue and its legal ramifications. The company's raised outlook for adjusted EBITDA and adjusted net income signals confidence in its operational capabilities and market position.

Explore the complete 8-K earnings release (here) from Shoals Technologies Group Inc for further details.