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What changed in Shoals Technologies Group, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Shoals Technologies Group, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+355 added−296 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-28)

Top changes in Shoals Technologies Group, Inc.'s 2023 10-K

355 paragraphs added · 296 removed · 236 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeForward-looking statements include information concerning our possible or assumed future results of operations, business strategies, technology developments, financing and investment plans, dividend policy, competitive position, industry and regulatory environment, potential growth opportunities and the effects of competition.
Biggest changeForward-looking statements include information concerning our possible or assumed future results of operations; business strategies; technology developments; financing and investment plans; warranty, litigation and liability accruals and estimates of loss or gains; litigation strategy and expected benefits or results from the current intellectual property and wire insulation shrinkback litigation; competitive position; industry and regulatory environment; potential growth opportunities, including international growth, production and capacity at our plants; and the effects of competition.
Together, we believe these techniques substantially reduce the risk that our cable develops a fault over its lifetime. While highly specialized and flexible, our manufacturing equipment is not costly, and we do not require significant capital expenditures to maintain or increase our manufacturing capacity. Our principal manufacturing facilities are located in Tennessee, Alabama, and California.
Together, we believe these techniques substantially reduce the risk that our cable develops a fault over its lifetime. While highly specialized and flexible, our manufacturing equipment is not costly, and we believe we do not require significant capital expenditures to maintain or increase our manufacturing capacity. Our principal manufacturing facilities are located in Tennessee, Alabama, and California.
Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. You should read this report with the understanding that our actual future results may be materially different from what we expect. Important factors that could cause actual results to differ materiality from of expectations are included in Item 1A “Risk Factors”.
Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. You should read this report with the understanding that our actual future results may be materially different from what we expect. Important factors that could cause actual results to differ materially from expectations are included in Item 1A “Risk Factors”.
Using push connectors allows a large portion of the EBOS installation to be completed by laborers rather than requiring licensed electricians. Our homerun EBOS system solutions typically include our interconnect harness, combiners and jumpers. The majority of solar energy projects in operation today use conventional homerun architecture.
Using push connectors allows a large portion of the EBOS installation to be completed by general laborers rather than requiring licensed electricians. Our homerun EBOS system solutions typically include our interconnect harness, combiners and jumpers. The majority of solar energy projects in operation today use conventional homerun architecture.
The unique expertise required to design EBOS systems and components as well as customers’ reluctance to try unproven products has confined the number of firms that produce such EBOS products to a relatively small number. Our principal competitors include SolarBOS Inc., Bentek Corporation, Voltage, LLC and Hikam America, Inc.
The unique expertise required to design EBOS systems and components as well as customers’ reluctance to try unproven products has confined the number of firms that produce such EBOS products to a relatively small number. Our principal competitors include TerraSmart, LLC (formerly SolarBOS, Inc.), Bentek Corporation, Voltage, LLC and Hikam America, Inc.
We believe fewer potential failure points contributes to higher reliability and lower maintenance costs for solar energy projects that use our combine-as-you-go system when compared to a conventional homerun system. 3 Table of Contents • Enabling more energy generation. We believe the design of our interconnect harness and BLA reduces electrical resistance significantly when compared to a conventional homerun system.
We believe fewer potential failure points contributes to higher reliability and lower maintenance costs for solar energy projects that use our combine-as-you-go system when compared to a conventional homerun system. • Enabling more energy generation. We believe the design of our interconnect harness and BLA reduces electrical resistance significantly when compared to a conventional homerun system.
The custom nature of our system solutions and the long development cycle for solar energy projects typically gives us 12 months or more of lead time to quote, engineer, produce and ship each order we receive, and we do not stock large amounts of finished goods.
The custom nature of our system solutions and the long development cycle for solar energy projects typically gives us 12 1 Table of Contents months or more of lead time to quote, engineer, produce and ship each order we receive, and we do not stock large amounts of finished goods.
Overview Shoals is a leading provider of electrical balance of system (“EBOS”) solutions and components for solar, battery storage and electric vehicle (“EV”) charging applications, selling to customers primarily in the 1 Table of Contents United States (“U.S.”) as well as internationally.
Overview Shoals is a leading provider of electrical balance of system (“EBOS”) solutions and components for solar, battery storage and electric vehicle (“EV”) charging applications, selling to customers primarily in the United States (“U.S.”) as well as internationally.
Each wire must be cut and have a precise amount of insulation removed; the bare end must be inserted the correct depth into a terminal; and special tools must be used to deform metal sleeves 2 Table of Contents and torque lock nuts to ensure an environmental seal.
Each wire must be cut and have a precise amount of insulation removed; the bare end must be inserted the correct depth into a terminal; and special tools must be used to deform metal sleeves and torque lock nuts to ensure an environmental seal.
Our Alabama facility is ISO 9001:2015 certified. Research and Development 6 Table of Contents We continually devote resources to research and development (“R&D”), with the objective of developing innovative new products that reduce the cost and improve the reliability and safety of renewable energy.
Our Alabama facility is ISO 9001:2015 certified. Research and Development We continually devote resources to research and development (“R&D”), with the objective of developing innovative new products that reduce the cost and improve the reliability and safety of renewable energy.
As of December 31, 2022, we had 26 U.S. trademark registrations, 5 pending U.S. trademark applications, 19 issued U.S. patents, 16 issued non-U.S. patents, 28 patent application pending for examination in the U.S. and 154 domain name registrations. Many of our patents relate to more efficient electrical wiring and power transmission from solar panels to power inverters at solar installations.
As of December 31, 2023, we had 26 U.S. trademark registrations, 5 pending U.S. trademark applications, 19 issued U.S. patents, 16 issued non-U.S. patents, 33 patent application pending for examination in the U.S. and 154 domain name registrations. Many of our patents relate to more efficient electrical wiring and power transmission from solar panels to power inverters at solar installations.
Our project management team supports the process after a sale is completed with providing the customer submittals for approval, real-time shipping information, and assist with any additional items that may be needed to complete the installation and commissioning.
Our project management team supports the process after a sale is completed by providing the customer submittals for approval, real-time shipping information, and any additional items that may be needed to complete the installation and commissioning.
We employ a stringent engineering phase gate review process that ensures all R&D programs are meeting their stated objectives from inception to deployment. We have a strong R&D team with significant experience in solar energy as well as expertise in electrical engineering, systems/control engineering and power electronics.
We employ a stringent 6 Table of Contents engineering phase gate review process that ensures all R&D programs are meeting their stated objectives from inception to deployment. We have a strong R&D team with significant experience in solar energy as well as expertise in electrical engineering, systems/control engineering and power electronics.
This solution eliminates the need for homeruns from each dispenser and is above ground rated which allows wire to be run above ground rather than in underground conduit. The fourth 4 Table of Contents offering is a raceway system that protects the above ground EV BLAs in walk over and drive over applications.
This solution eliminates the need for homeruns from each dispenser and is above ground rated which allows wire to be run above ground rather than in underground conduit. The fourth offering is a raceway system that protects the above ground EV BLAs in walk over and drive over applications.
We sell components and system solutions both on a project-to-project basis or through master supply agreements that support a portfolio of projects. Our sales process is a highly consultative approach that involves working with developers, engineers, EPC’s, subcontractors, and operations and maintenance firms.
We sell components and system solutions both on a project-to-project basis or through master supply agreements that support a portfolio of projects. Our sales process is a highly consultative approach that involves working with developers, engineers, EPC’s, subcontractors, and O&M firms.
Above ground installation is less costly and far faster than burying wire in conduits. Future maintenance is also significantly easier and less costly because our BLA is easily accessible if repairs are required. • Being installable by general labor rather than requiring electricians.
Above ground installation is less costly and far faster than burying 2 Table of Contents wire in conduits. Future maintenance is also significantly easier and less costly because our BLA is easily accessible if repairs are required. • Being installable by general labor rather than requiring electricians.
Our combine-as-you-go EBOS system solutions typically include our interconnect harness, BLA and disconnects and, in some projects, transition enclosures and splice boxes. eMobility solutions: In the fourth quarter of 2021, we introduced four new product families for the EV charging market and began taking orders and shipping some component products in the first quarter of 2022.
Our combine-as-you-go EBOS system solutions typically include our interconnect harness, BLA and disconnects and, in some projects, transition enclosures and splice boxes. eMobility solutions: During 2021, we introduced four new product families for the EV charging market and began taking orders and shipping some component products in 2022.
Order flow and deliveries of our EV system solution continued through the fourth quarter of 2022 with scaled production underway. The first new offering within the eMobility product family is the power center which combines equipment needed to protect the charging equipment and transform voltage levels from the electric utility to those needed on the respective site.
Order flow and deliveries of our EV system solution continued through 2023 with scaled production underway. The first offering within the eMobility product family is the power center which combines equipment needed to protect the charging equipment and transform voltage levels from the electric utility to those needed on the respective site.
We believe that diversity is the range of our human differences, including but not limited to race, ethnicity, gender, gender identity, sexual orientation, age, economic status, physical and mental ability, religious or ethical values system, national origin, and political beliefs. We strive to create a workplace where everyone is welcomed, valued, treated fairly, and respected.
We believe that diversity is the range of our human differences, including but not limited to race, ethnicity, gender, gender identity, sexual orientation, age, economic status, physical and mental ability, religious or ethical values system, national origin, and political beliefs. Our goal is to cultivate a workplace where everyone feels welcomed, valued, treated equitably and respected.
Our U.S. issued patents are scheduled to expire between 2031 and 2037. As of December 31, 2022, our issued U.S. patents had an average remaining life of approximately 12.0 years.
Our U.S. issued patents are scheduled to expire between 2031 and 2037. As of December 31, 2023, our issued U.S. patents had an average remaining life of approximately 11.0 years.
As of December 31, 2022, of the 10 members of our executive management team, which includes the Chief Executive Officer and direct reports, Chief Revenue Officer, Chief Product Officer, Chief Technology Officer, and Senior VP of Business Development, one self-identifies as ethnically diverse and two as female.
As of December 31, 2023, of the 10 members of our executive management team, which includes the Chief Executive Officer and direct reports, Chief Revenue Officer, Chief Product Officer, and Senior VP of Business Development, two self-identify as ethnically diverse and one as female.
As a result, we believe customers prioritize reliability and safety over price when selecting EBOS solutions. EBOS components that we produce include cable assemblies, inline fuses, combiners, disconnects, recombiners, wireless monitoring systems, junction boxes, transition enclosures and splice boxes.
As a result, we generally believe customers prioritize reliability and safety over price when selecting EBOS solutions. EBOS components that we produce include cable assemblies, inline fuses, combiners, disconnects, recombiners, wireless monitoring systems, junction boxes, transition enclosures, splice boxes and battery energy storage systems (“BESS”) cabinets.
Our Customers We sell our products principally to EPCs that build solar energy projects. The decision to use our products typically involves input from both the EPC and the owner of the solar energy project given the mission critical nature and high consequence of failure of EBOS. EPCs typically construct multiple projects for several different owners.
The decision to use our products typically involves input from both the EPC and the owner of the solar energy project given the mission critical nature and high consequence of failure of EBOS. EPCs typically construct multiple projects for several different owners.
As of December 31, 2022, of the seven independent members of our board of directors one self-identifies as ethnically diverse and two as female. Employee Training and Development 8 Table of Contents We recognize the benefits that training can have on building and growing our workforce. We encourage our employees to participate in continuing education and to pursue professional certifications.
As of December 31, 2023, of the eight members of our board of directors, one self-identifies as ethnically diverse and two as female. Employee Training and Development We recognize the benefits that training can have on building and growing our workforce. We encourage our employees to participate in continuing education and to pursue professional certifications.
As of December 31, 2022, backlog and awarded orders increased by 43% relative to December 31, 2021 and decreased by 9% relative to September 30, 2022. Our Proprietary EBOS System Historically, most solar energy projects used a wiring architecture known as “homerun”.
As of December 31, 2023, backlog and awarded orders increased by 47% relative to December 31, 2022 and decreased by 0.3% relative to September 30, 2023. Our Proprietary EBOS System Historically, most solar energy projects used a wiring architecture known as “homerun”.
Sales and Marketing Strategy Our sales and marketing strategy is to build product awareness and foster long-term relationships with all key stakeholders that are involved in the lifecycle of a PV, battery energy store system, or eMobility project.
Sales and Marketing Strategy Our sales and marketing strategy is to build product awareness and foster long-term relationships with all key stakeholders that are involved in the lifecycle of a PV, BESS, eMobility, or O&M project.
Backlog of $168.9 million represents signed purchase orders or contractual minimum purchase commitments with take-or-pay provisions and awarded orders of $259.7 million are orders we are in the process of documenting a contract but for which a contract has not yet been signed.
Backlog of $205.8 million represents signed purchase orders or contractual minimum purchase commitments with take-or-pay provisions and awarded orders of $425.5 million are orders we are in the process of documenting a contract but for which a contract has not yet been signed.
We also provide technical support during installation and the transition to operations and maintenance. We design, manufacture and sell system solutions for the two types of wiring architectures used by the U.S. solar industry: homerun and combine-as-you-go. Homerun EBOS: We have developed a proprietary EBOS solution for homerun architectures that we refer to as an “interconnect harness”.
We design, manufacture and sell system solutions for the two types of wiring architectures used by the U.S. solar industry: homerun and combine-as-you-go. 3 Table of Contents Homerun EBOS: We have developed a proprietary EBOS solution for homerun architectures that we refer to as an “interconnect harness”.
Unless the context otherwise requires, references to “we,” “us,” “our,” “Shoals,” the “Corporation,” the “Company” and other similar references refer to Shoals Technologies Group, Inc. and, unless otherwise stated, all of its subsidiaries, including Shoals Parent LLC (“Shoals Parent”).
Item 1. Business Shoals Technologies Group, Inc. is a Delaware corporation. Unless the context otherwise requires, references to “we,” “us,” “our,” “Shoals,” the “Corporation,” the “Company” and other similar references refer to Shoals Technologies Group, Inc. and, unless otherwise stated, all of its consolidated subsidiaries.
Components We design, manufacture and sell a variety of individual EBOS and other components used by the solar, battery storage, or EV charging applications and industries, including: Combiners: Enclosures that interconnect wire runs from multiple solar panel strings together so that their current can be fed into a single large cable.
Components We design, manufacture and sell a variety of individual EBOS and other components used by the solar, battery storage, or EV charging applications and industries, including: Combiners: Enclosures that interconnect wire runs from multiple solar panel strings together so that their current can be fed into a single large cable. 4 Table of Contents Plug-n-play branch connectors and inline fuses: Plug-n-play connectors for small commercial and rooftop solar applications in inline fuse, fuse-T, dual inline fuse, T-shaped, X-shaped, Y-shaped and U-shaped configurations.
From an international standpoint, we have sales personnel located in Spain and Australia. Our team in Spain services Europe, Latin-America, and Africa regions while our personnel in Australia supports Asia-Pacific. These sales representatives are supported with our engineering team in the United States to ensure that we are in compliance with local codes and regulations.
Our team in Spain services Europe, Latin-America, and Africa regions while our personnel in Australia supports Asia-Pacific. These sales representatives are supported with our engineering team in the United States to ensure that we are in compliance with local codes and regulations. Our Customers 5 Table of Contents We sell our products principally to EPCs that build solar energy projects.
For the same period, we derived substantially all of our revenue from customers in the U.S. As of December 31, 2022, we had $428.6 million of backlog and awarded orders.
We derived approximately 81.5% of our revenue from the sale of system solutions for year ended December 31, 2023. For the same period, we derived substantially all of our revenue from customers in the U.S. As of December 31, 2023, we had $631.3 million of backlog and awarded orders.
Compensation and Benefits We strive to provide a comprehensive suite of rewards and benefits. Our benefits program is designed to provide coverage for our employees’ overall health and wellbeing. Our program includes medical and dental coverage, life, and disability insurance. We also offer retirement saving plans through our 401(k) plan, which is available to all full-time employees.
Compensation and Benefits 8 Table of Contents We strive to provide a comprehensive suite of rewards and benefits. Our benefits program is designed to provide coverage for our employees’ overall health and wellbeing. Our program includes medical and dental coverage, life, and disability insurance.
For the year ended December 31, 2022, our largest customer and five largest customers constituted approximately 8.4% and 35.8% of total revenue, respectively. None of our customers had revenue exceeding 10% of total revenue for the year ended December 31, 2022. Competition Our EBOS system solutions and components are highly specialized products that are specific to the solar industry.
For the year ended December 31, 2023, our largest customer contributed approximately 36.3% of our total revenue and was the only customer contributing 10% or greater of total revenue. Competition Our EBOS system solutions and components are highly specialized products that are specific to the solar industry.
Recombiners: Enclosures that interconnect feeders from several combiner boxes into a smaller number of cables that run to the inverter. Wireless monitoring: Specialized devices that monitor current, voltage, temperature, tracker rotation and other performance characteristics. Junction boxes: Electromechanical interface that provides connection points to collect power from a solar panel.
AC disconnects: Specialized switches that allow the inverter to be isolated from the grid to enable repairs or in cases of emergency. Recombiners: Enclosures that interconnect feeders from several combiner boxes into a smaller number of cables that run to the inverter. Wireless monitoring: Specialized devices that monitor current, voltage, temperature, tracker rotation and other performance characteristics.
Based on our Equal Employment Opportunity data from mid-October 2022, our full-time employee population, which was composed of 477 individuals, had the following diversity metrics: • 45% of our full-time employee population self-identified as ethnically diverse; • 39% of our full-time employee population self-identified as female; and • Women made up 28% of our manager population, which consisted of 40 individuals with management responsibility.
As of December 31, 2023, our full-time employee population, which was composed of 1,248 individuals, had the following diversity metrics: • 62% of our full-time employee population self-identified as ethnically diverse; • 45% of our full-time employee population self-identified as female; and • Women made up 36% of our manager population, which consisted of 55 individuals with management responsibility.
Our customer care team engages once a site is fully commissioned for any further technical support that may be required for the life of the project.
Our customer care team engages once a site is fully commissioned for any further technical support that may be required for the life of the project. We believe that our consultative top-down and bottoms-up approach fosters brand loyalty with all stakeholders and results in retention of our customers.
Diversity and Inclusion We are committed to diversity and inclusion because we believe it leads to better outcomes for our business and enables us to better meet the needs of our customers.
Diversity and Inclusion We are steadfast in our commitment to diversity, equity and inclusion, recognizing its pivotal role in driving positive outcomes for our business and enables us to better meet the needs of our customers.
In 2021, we expanded the benefit with the inclusion of a company matching contribution. Health and Safety The safety and wellbeing of our employees is at the forefront of everything we do. We strive to have a zero accident culture and our safety management system is built upon the principle.
We also offer retirement saving plans through our 401(k) plan, which is available to all full-time employees. Health and Safety The safety and wellbeing of our employees is at the forefront of everything we do. We strive to have a zero accident culture and our safety management system is built upon that principle.
Our Human Capital 7 Table of Contents As of December 31, 2022, we had approximately 835 full-time and temporary employees. The vast majority of our employees are located in the United States. We have a team-oriented culture and encourage candor from our employees, which we believe helps us to succeed and drive operational excellence.
Our Human Capital As of December 31, 2023, we had approximately 1,309 full-time and temporary employees. The vast majority of our employees are located in the United States. We foster a collaborative, team-oriented culture that values open communication and candor among all our employees. We consider these elements crucial to our pursuit of operational excellence and lead to success.
Wire management: A system to secure photovoltaic (“PV”) wiring for safety and aesthetic purposes. EV power cabinets : enclosures that provide power conversion and protection for EV power systems. We derived approximately 22.2% of our revenue for the year ended December 31, 2022, from the sale of components.
Junction boxes: Electromechanical interface that provides connection points to collect power from a solar panel. Wire management: A system to secure photovoltaic (“PV”) wiring for safety and aesthetic purposes. EV power cabinets : enclosures that provide power conversion and protection for EV power systems.
We believe that our consultative top-down and bottoms-up approach fosters brand loyalty with all stakeholders and results in retention of our customers. 5 Table of Contents We have three manufacturing facilities located in Tennessee, one in Alabama, and one in California. We have national sales leaders in the United States that are supported with engineering staff in Tennessee and California.
We have three manufacturing facilities located in Tennessee, one in Alabama, and one in California. We have national sales leaders in the United States that are supported with engineering staff in Tennessee and California. From an international standpoint, we have sales personnel located in Spain and Australia.
The raceway system coupled with the EV BLA deploys much more rapidly and cost effectively than traditional methods of deployment. We derived approximately 77.8% of our revenue for the year ended December 31, 2022 from the sale of system solutions.
We derived approximately 81.5% of our revenue for the year ended December 31, 2023 from the sale of system solutions.
Throughout fiscal year 2022, we have maintained focus on our growth strategy, including converting customers to our combine-as-you-go system and developing products for the rapidly growing EV charging infrastructure market. We believe that as of December 31, 2022, 14 of the top 15 solar EPCs as reported by Solar Power World Magazine use our combine-as-you-go system on their projects.
Throughout fiscal year 2023, we have maintained focus on our growth strategy and continued strengthening our leadership position in the industry. We believe that as of December 31, 2023, we have worked with 13 of the top 15 solar EPCs, per Wood Mackenzie data from 2019-2023, and 11 of those EPCs used our combine-as-you-go system on their projects.
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Item 1. Business Shoals Technologies Group, Inc. is a Delaware corporation with Class A common stock that trades on the Nasdaq Global Market under the symbol “SHLS”.
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As more fully described below, during 2023, the Company simplified its corporate structure by, among other things, eliminating the umbrella-partnership C corporation structure (“Up-C structure”) that was in place since its initial public offering (“IPO”).
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Unless the context otherwise requires, references to “Founder” refer to Dean Solon, our founder, and references to “Continuing Equity Owners” refer collectively to direct or indirect holders of LLC Interests (as defined below) and/or our Class B common stock, including our Founder and certain current and former executive officers, employees and their respective permitted transferees who may, exchange at each of their respective options, in whole or in part from time to time, their LLC Interests (along with an equal number of shares of Class B common stock (and such shares shall be immediately cancelled)) for cash or newly issued shares of our Class A common stock.
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The Company completed its IPO on January 29, 2021, and since then, its Class A common stock trades on the Nasdaq Global Market under the symbol “SHLS.” Elimination of Up-C Structure and Entity Simplification In the first quarter of 2023, following a secondary offering of shares of Class A common stock by certain selling shareholders, all the holders of limited liability interests of Shoals Parent LLC (“LLC Interests”), our former operating subsidiary, exchanged all the LLC Interests and corresponding shares of Class B common stock of the Company beneficially owned by them into shares of Class A common stock of the Company.
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Initial Public Offering and Organizational Transactions On January 29, 2021, the Company completed an initial public offering (“IPO”) of 11,550,000 shares of Class A common stock at a public offering price of $25.00 per share, including shares issued pursuant to the underwriters’ over-allotment option.
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As a result, upon effectiveness of such exchanges, all of the LLC Interests in Shoals Parent LLC were held by the Company, no other holders owned LLC Interests and no Class B common stock was or is outstanding. On July 1, 2023, the Company contributed 100% of its LLC Interests to Shoals Intermediate Parent, Inc.
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The Company received $278.8 million in proceeds, net of underwriting discounts and commissions of $9.9 million, which was used to purchase 6,315,790 newly-issued membership interests (“LLC Interests”) from Shoals Parent and 5,234,210 LLC Interests from the Founder and Class B unit holder in Shoals Parent at a price per interest equal to the IPO price of $25.00 per share.
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(“Shoals Intermediate Parent”), a wholly-owned subsidiary of the Company. Following the contribution, Shoals Parent LLC became a disregarded single member limited liability company, eliminating the Company’s Up-C structure. Following the elimination of the Up-C structure, effective December 31, 2023, the Company consummated an internal reorganization transaction whereby certain of the Company’s wholly-owned subsidiaries merged with and into other subsidiaries.
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Organizational Transactions In connection with the IPO, the Company and Shoals Parent completed a series of transactions (the “Organizational Transactions”) including the following: • the limited liability company agreement (the “LLC Agreement”) of Shoals Parent was amended and restated to, among other things, (i) provide for a new single class of LLC Interests in Shoals Parent, (ii) exchange all of the then existing membership interests of the holders of Shoals Parent membership interests for LLC Interests and (iii) appoint the Company as the sole managing member of Shoals Parent; • the Company’s certificate of incorporation was amended and restated to, among other things, (i) provide for Class A common stock with voting and economic rights (ii) provide for Class B common stock with voting rights but no economic rights and (iii) issue 78,300,817 shares of Class B common stock to the former Class B and Class C members of Shoals Parent (the “Continuing Equity Owners”) on a one-to-one basis with the number of LLC Interests they own; and • the acquisition, by merger, of Shoals Investment CTB or the former Class A member of Shoals Parent (the “Class A Shoals Equity Owners”), for which the Company issued 81,977,751 shares Class A common stock as merger consideration (the “Merger”).
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As part of this reorganization, Shoals Parent LLC merged with and into Shoals Intermediate Parent, with Shoals Intermediate Parent as the surviving corporation.
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Shoals Technologies Group, Inc. Ownership in Shoals Parent As of December 31, 2022, the Company owned 81.44% of Shoals Parent. The Continuing Equity Owners own the remaining 18.56% of Shoals Parent.
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As of December 31, 2023, we believe approximately $205.8 million of backlog and $250.0 million of awarded orders have delivery dates in 2024. The remaining $175.5 million have planned delivery dates beyond 2024. Additionally, we believe more than 13% of our December 31, 2023 backlog and awarded orders relate to international projects.
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As of the date of this report, we are in the process of transitioning an additional 14 EPCs and developers to our system. Additionally, in the fourth quarter of 2021, we introduced four new product families for the EV charging market and began taking orders and shipping some component products in the first quarter of 2022.
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We also provide technical support during installation and the transition to operations and maintenance.
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Order flow and deliveries of our EV system solution continued through the fourth quarter of 2022 with scaled production underway. All products launched in 2022 are certified to UL standards as of December 31, 2022. We derived approximately 77.8% of our revenue from the sale of system solutions for year ended December 31, 2022.
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The raceway system coupled with the EV BLA deploys much more rapidly and cost effectively than traditional methods of deployment. Solar operations and maintenance (“O&M”) offerings: During the third quarter of 2023, we introduced our first solar O&M product offering called Snapshot IV.
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Plug-n-play branch connectors and inline fuses: Plug-n-play connectors for small commercial and rooftop solar applications in inline fuse, fuse-T, dual inline fuse, T-shaped, X-shaped, Y-shaped and U-shaped configurations. AC disconnects: Specialized switches that allow the inverter to be isolated from the grid to enable repairs or in cases of emergency.
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This solution monitors the specific voltage and current of individual solar panels and compares the results against manufacturer’s claimed/projected performance. This information will provide O&M teams and owners with a more advanced level of detail than other competing alternatives, with respect to the panel’s performance.
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We seek to promote within our organization as well as hire top talent from outside the company to expand our capabilities. We aim to hire individuals who share our passion, commitment, and entrepreneurial spirit.
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BESS cabinets: enclosures which contain batteries for utility scale BESS or EV charging sites which require BESS. We derived approximately 18.5% of our revenue for the year ended December 31, 2023, from the sale of components.
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We also encourage our employees to operate by a common set of values, which includes: • making quality foremost in all we do, make, and sell; • maintaining integrity in how we act, make decisions, and hold ourselves accountable; • being responsive to change, to each other, and to our partners, customers, and users; • being respectful in how we treat all people; • seeking innovation in the way we approach challenges and build products; and • being sustainable in our approach to producing our products and our operations.
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We actively seek individuals who share our passion, dedication and entrepreneurial mind set to contribute to a dynamic work environment.
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We also encourage our employees to operate by a common set of principles, which includes: 7 Table of Contents • Responsibility – We integrate quality and safety into everything; • Integrity – We do the right thing, in the right way, for the right reason; • Agility – We are quick and flexible at our core; • Innovation – We lead from the front by simplifying the complex; • Dedication – We hold ourselves accountable and we never quit; and • Commitment – We care for people and the planet by investing locally and globally.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeYou should read this summary together with the more detailed description of each risk factor contained below. • if demand for solar energy projects does not continue to grow or grows at a slower rate than we anticipate, we may not be able to achieve our anticipated level of growth and our business will suffer; • our industry has historically been cyclical and experienced periodic downturns; • current macroeconomic events, including heightened inflation, rise in interest rates and potential recession could impact our business and financial results; • the interruption of the flow of components and materials from international vendors has disrupted our supply chain, including as a result of the imposition of additional duties, tariffs and other charges on imports and exports; • if we fail to retain our key personnel and attract additional qualified personnel, including a chief executive officer successor, or we or our suppliers face disputes with labor unions, we may not be able to achieve our anticipated level of growth and our business could suffer; • Our products are primarily manufactured and shipped from our production facilities in Tennessee, and any damage or disruption at these facilities may harm our business. • if we fail to, or incur significant costs in order to, obtain, maintain, protect, defend or enforce our intellectual property and other proprietary rights, our business and results of operations could be materially harmed; • acquisitions, joint ventures and/or investments and the failure to integrate acquired businesses, could disrupt our business and/or dilute or adversely affect the price of our common stock; • we may experience delays, disruptions or quality control problems in our manufacturing operations in part due to vendor concentration; • our future growth in the EV charging market is highly dependent on the demand for, and consumers’ willingness to adopt, EVs; • a significant drop in the price of electricity sold may harm our business, financial condition, results of operations and prospects; • a further increase in interest rates, or a reduction in the availability of tax incentives or project debt capital in the global financial markets could make it difficult for end customers to finance the cost of a solar energy system and could reduce the demand for our products; • defects or performance problems in our products could result in loss of customers, reputational damage and decreased revenue, and we may face warranty, indemnity and product liability claims arising from defective products; • our results of operations may fluctuate from quarter to quarter, which could make our future performance difficult to predict and could cause our results of operations for a particular period to fall below expectations, resulting in a decline in the price of our Class A common stock; • compromises, interruptions or shutdowns of our information technology systems, including those managed by third parties, whether intentional or inadvertent, could lead to delays in our business operations and, if significant or extreme, affect our results of operations; 11 Table of Contents • our indebtedness could adversely affect our financial flexibility and our competitive position; • our indebtedness may restrict our current and future operations, which could adversely affect our ability to respond to changes in our business and to manage our operations; • developments in alternative technologies may have a material adverse effect on demand for our offerings; • existing electric utility industry, renewable energy and solar energy policies and regulations, and any subsequent changes, may present technical, regulatory and economic barriers to the purchase and use of solar energy systems that may significantly reduce demand for our products or harm our ability to compete; • changes in the U.S. trade environment, including the imposition of import tariffs and antidumping and countervailing duties, could adversely affect the amount or timing of our revenue, results of operations or cash flows; • we are a holding company and our principal asset is our interest in Shoals Parent and, accordingly, we are dependent upon Shoals Parent and its consolidated subsidiaries for our results of operations, cash flows and distributions; • future sales of our Class A common stock, or the perception that such sales may occur, could depress our Class A common stock price; • provisions in our certificate of incorporation and our bylaws may have the effect of delaying or preventing a change of control or changes in our management; • our certificate of incorporation also provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees; and • if we fail to maintain effective internal controls over financial reporting, we may be unable to accurately or timely report our financial condition or results of operations, which may adversely affect our business.
Biggest changeInternational Trade Commission and two District Courts; • if we fail to, or incur significant costs in order to, obtain, maintain, protect, defend or enforce our intellectual property and other proprietary rights, including those that are subject to the patent infringement complaints we filed with the ITC and two District Courts, our business and results of operations could be materially harmed; • acquisitions, joint ventures and/or investments and the failure to integrate acquired businesses, could disrupt our business and/or dilute or adversely affect the price of our common stock; • our future growth in the EV charging market is highly dependent on the demand for, and consumers’ willingness to adopt, EVs, as well as on the actions of federal, foreign, state and local governments; 11 Table of Contents • a loss of one or more of our significant customers, their inability to perform under their contracts, or their default in payment could harm our business and negatively impact revenue, results of operations, and cash flow; • a significant drop in the price of electricity sold may harm our business, financial condition, results of operations and prospects; • a further increase in interest rates or a reduction in the availability of tax incentives or project debt capital in the global financial markets could make it difficult for end customers to finance the cost of a solar energy system and could reduce the demand for our products; • failure to effectively utilize information technology systems or implement new technologies and the unauthorized disclosure of personal or sensitive data or confidential information, whether through a breach of our computer system or otherwise, could severely disrupt our business or reduce our sales or profitability; • compromises, interruptions or shutdowns of our information technology systems, including those managed by third parties, whether intentional or inadvertent, could lead to delays in our business operations and, if significant or extreme, affect our results of operations; • our expansion outside the U.S. could subject us to additional business, financial, regulatory and competitive risks; • our indebtedness could adversely affect our financial flexibility and our competitive position; • amounts included in our backlog and awarded orders may not result in actual revenue or translate into profits; • existing electric utility industry, renewable energy and solar energy policies and regulations, and any subsequent changes, may present technical, regulatory and economic barriers to the purchase and use of solar energy systems that may significantly reduce demand for our products or harm our ability to compete; • changes in the U.S. trade environment, including the imposition of trade restrictions, import tariffs, anti-dumping and countervailing duties could adversely affect the amount or timing of our revenue, results of operations or cash flows; • changes in tax laws or regulations that are applied adversely to us or our customers could materially adversely affect our business, financial condition, results of operations and prospects; • future sales, or the perception of future sales, by us in the public market could cause the market price for our Class A common stock to decline; • provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management; • our certificate of incorporation also provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees; • we do not intend to pay any cash distributions or dividends on our Class A common stock in the foreseeable future; • we face risks related to actual or threatened health epidemics or pandemics, such as the COVID-19 pandemic; and • if we fail to maintain effective internal controls over financial reporting, we may be unable to accurately or timely report our financial condition or results of operations, which may adversely affect our business 12 Table of Contents Risks Related to Our Business and Our Industry If demand for solar energy projects does not continue to grow or grows at a slower rate than we anticipate, we may not be able to achieve our anticipated level of growth and our business will suffer.
These differences may include differing regulatory requirements, including tax laws, trade laws, labor regulations, tariffs, export quotas, customs duties or other trade restrictions, limited or unfavorable intellectual property protection, international political or economic conditions, restrictions on the repatriation of earnings, longer sales cycles, warranty expectations, product return policies and cost, performance and compatibility requirements.
These differences include differing regulatory requirements, including tax laws, trade laws, labor regulations, tariffs, export quotas, customs duties or other trade restrictions, limited or unfavorable intellectual property protection, international political or economic conditions, restrictions on the repatriation of earnings, longer sales cycles, warranty expectations, product return policies and cost, performance and compatibility requirements.
In addition, although none of our employees are currently represented by a labor union and our relations with our employees have been good to date, the increased frequency of union activity coupled with the constricted labor market may contribute to efforts by our employees to belong to a union, which may result in higher employee costs, operational restrictions and increased risk of disruption to operations.
Although none of our employees are currently represented by a labor union and our relations with our employees have been good to date, the increased frequency of union activity coupled with the constricted labor market may contribute to efforts by our employees to belong to a union, which may result in higher employee costs, operational restrictions and increased risk of disruption to operations.
A failure by us or our subsidiaries to comply with the covenants or to maintain the required financial ratios contained in the Senior Secured Credit Agreement could result in an event of default under such indebtedness, which could adversely affect our ability to respond to changes in our business and manage our operations.
A failure by us to comply with the covenants or to maintain the required financial ratios contained in the Senior Secured Credit Agreement could result in an event of default under such indebtedness, which could adversely affect our ability to respond to changes in our business and manage our operations.
In 2022, we experienced challenges in our global supply chain, including shortages in raw materials and related price increases. Our ability to obtain raw materials from domestic and international suppliers required to manufacture our components was impacted, along with our ability to secure timely inbound logistics to our facilities.
In 2023 and 2022, we experienced challenges in our global supply chain, including shortages in raw materials and related price increases. Our ability to obtain raw materials from domestic and international suppliers required to manufacture our components was impacted, along with our ability to secure timely inbound logistics to our facilities.
The solar industry is an evolving industry that has experienced substantial changes in recent years, and we cannot be certain that consumers and businesses will adopt solar energy as an alternative energy source at levels sufficient to grow our business.
The solar industry is an evolving industry that has experienced substantial changes in recent years, and we cannot be certain that consumers and businesses will continue to adopt solar energy as an alternative energy source at levels sufficient to grow our business.
If our competitors introduce new technologies that are successful in offering a price competitive and technological attractive EBOS system solutions and components, it may become more difficult for us to maintain market share.
If our competitors introduce new technologies that are successful in offering price competitive and technological attractive EBOS system solutions and components, it may become more difficult for us to maintain market share.
Other events that could also cause disruptions to our supply chain include: • the imposition of additional trade law provisions or regulations; • the imposition of additional duties, tariffs and other charges on imports and exports, including as a result of trade relationships between China and the U.S. and the ongoing conflict between Russia and Ukraine; • quotas imposed by bilateral trade agreements; • foreign currency fluctuations; • natural disasters; • public health issues and epidemic diseases, their effects (including any disruptions they may cause) or the perception of their effects, such as the novel coronavirus (“COVID-19”) pandemic; • theft; • restrictions on the transfer of funds; • the financial instability or bankruptcy of vendors; and • significant labor disputes, such as dock strikes.
Other events that could also cause disruptions to our supply chain include: • the imposition of additional trade law provisions or regulations; • the imposition of additional duties, tariffs and other charges on imports and exports, including as a result of trade relationships between China and the U.S. and the Russia-Ukraine war; • quotas imposed by bilateral trade agreements; • foreign currency fluctuations; • natural disasters; • public health issues and epidemic diseases, their effects (including any disruptions they may cause) or the perception of their effects, such as the novel coronavirus (“COVID-19”) pandemic; • theft; • restrictions on the transfer of funds; • the financial instability or bankruptcy of vendors; and • significant labor disputes, such as dock strikes.
For example, it could: • increase our vulnerability to adverse changes in general economic, industry and competitive conditions; • require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • restrict us from exploiting business opportunities; 22 Table of Contents • make it more difficult to satisfy our financial obligations, including payments on our indebtedness; • place us at a disadvantage compared to our competitors that have less debt; and • limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes.
For example, it could: • increase our vulnerability to adverse changes in general economic, industry and competitive conditions; • require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • restrict us from exploiting business opportunities; • make it more difficult to satisfy our financial obligations, including payments on our indebtedness; • place us at a disadvantage compared to our competitors that have less debt; and • limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes.
Item 1A. Risk Factors Summary Risk Factors The following is a summary of the material risks and uncertainties that could materially adversely affect our business, financial condition and results of operations.
Item 1A. Risk Factors Summary Risk Factors The following is a summary of the risks and uncertainties that could materially adversely affect our business, financial condition and results of operations.
Some aspects of our business involves the collection, receipt, use, storage, processing and transmission of personal information (of our customers’ and end users of our customers’ solar energy systems, including names, addresses, e-mail addresses, credit information, energy production statistics), consumer preferences as well as confidential information and personal data about our employees, our suppliers and us, some of which is entrusted to third-party service providers and vendors.
Some aspects of our business involve the collection, receipt, use, storage, processing and transmission of personal information (of our customers’ and end users of our customers’ solar energy systems, including names, addresses, e-mail addresses, credit information, energy production statistics), consumer preferences as well as confidential information and personal data about our employees, our suppliers and us, some of which is entrusted to third-party service providers and vendors.
Some of the factors outside of our control that may impact the viability and demand for solar energy projects include: • cost competitiveness, reliability and performance of solar energy systems compared to conventional and non-solar renewable energy sources and products and cost competitiveness, reliability and performance of our products compared to our competitors; 12 Table of Contents • availability and scale and scope of government subsidies and incentives to support the development and deployment of solar energy solutions; • prices of traditional carbon-based energy sources; • levels of investment by end users of solar energy projects, which tend to decrease when economic growth slows; and • the emergence, continuance or success of, or increased government support for, other alternative energy generation technologies and products.
Some of the factors outside of our control that may impact the viability and demand for solar energy projects include: • cost competitiveness, reliability and performance of solar energy systems compared to conventional and non-solar renewable energy sources and products, and cost competitiveness, reliability and performance of our products compared to our competitors; • availability, scale and scope of government subsidies and incentives to support the development and deployment of solar energy solutions; • prices of traditional carbon-based energy sources; • levels of investment by end users of solar energy projects, which tend to decrease when economic growth slows; and • the emergence, continuance or success of, or increased government support for, other alternative energy generation technologies and products.
The Senior Secured Credit Agreement contains, and the agreements evidencing or governing any other future indebtedness may contain, financial restrictions on us and our restricted subsidiaries, including restrictions on our or our restricted subsidiaries’ ability to, among other things: • place liens on our or our restricted subsidiaries’ assets; • make investments other than permitted investments; • incur additional indebtedness; • prepay or redeem certain indebtedness; • merge, consolidate or dissolve; • sell assets; • engage in transactions with affiliates; • change the nature of our business; • change our or our subsidiaries’ fiscal year or organizational documents; and • make restricted payments (including certain equity issuances).
The Senior Secured Credit Agreement contains, and the agreements evidencing or governing any other future indebtedness may contain, financial restrictions on us and our restricted subsidiaries, including restrictions on our or our restricted subsidiaries’ ability to, among other things: • place liens on our or our restricted subsidiaries’ assets; • make investments other than permitted investments; • incur additional indebtedness; 26 Table of Contents • prepay or redeem certain indebtedness; • merge, consolidate or dissolve; • sell assets; • engage in transactions with affiliates; • change the nature of our business; • change our or our subsidiaries’ fiscal year or organizational documents; and • make restricted payments (including certain equity issuances).
Despite the security measures we have in place, our facilities and systems, and those of third parties with which we do business, may be 21 Table of Contents vulnerable to security breaches, cyberattacks, acts of vandalism and theft, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events, and there is no guarantee that inadvertent or unauthorized use or disclosure will not occur or that third parties will not gain unauthorized access to this type of confidential information and personal data.
Despite the security measures we have in place, our facilities and systems, and those of third parties with which we do business, may be vulnerable to security breaches, cyberattacks, acts of vandalism and theft, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events, and there is no guarantee that inadvertent or unauthorized use or disclosure will not occur or that third parties will not gain unauthorized access to this type of confidential information and personal data.
On June 6, 2022, President Biden issued Proclamation 10414 that declared an emergency with respect to U.S. electricity generation capacity and stated that immediate action was needed to ensure access to a sufficient supply of solar cells and modules to assist in meeting the U.S.’ electricity generation needs temporarily waiving for 24 months the collection of antidumping and countervailing duties for certain cells and modules subject to USDOC’s investigation.
However, on June 6, 2022, President Biden issued Proclamation 10414 that declared an emergency with respect to U.S. electricity generation capacity and stated that immediate action was needed to ensure access to a sufficient supply of solar cells and modules to assist in meeting the U.S.’ electricity generation needs temporarily waiving for 24 months (through June 2024) the collection of antidumping and countervailing duties for certain cells and modules subject to USDOC’s investigation.
As a result, our share price may experience significant volatility and may not necessarily reflect the value of our expected performance. Future sales, or the perception of future sales, by us or our existing stockholders in the public market could cause the market price for our Class A common stock to decline.
As a result, our share price may experience significant volatility and may not necessarily reflect the value of our expected performance. Future sales, or the perception of future sales, by us in the public market could cause the market price for our Class A common stock to decline.
Although the solar industry has been experiencing significant changes over the past years, there is no assurance that the solar industry will not suffer significant downturns in the future, which will adversely affect demand for our solar products and our results of operations.
The solar industry has been experiencing significant changes over the past years and there is no assurance that it will not suffer significant downturns in the future, which will adversely affect demand for our solar products and our results of operations.
Any widespread outbreak of contagious diseases, and other adverse public health developments, could cause disruption to, among other things, our ground operations at project sites, our manufacturing facilities and our suppliers and vendors and have a material and adverse effect on our business operations.
Any widespread outbreak of contagious disease, and other adverse public health developments, could cause disruption to, among other things, our ground operations at project sites, our manufacturing facilities and our suppliers and vendors and have a material and adverse effect on our business operations.
Our certificate of incorporation and bylaws contain provisions that could depress the trading price of our Class A common stock by discouraging, delaying or preventing a change of control of our Company or changes in our management that the stockholders of our Company may believe advantageous.
Our certificate of incorporation and bylaws contain provisions that could depress the trading price of our Class A common stock by discouraging, delaying or preventing a change of control of our Company or changes in our management that the stockholders of our Company may believe to be advantageous.
As a result, increases in interest rates, including the increases effected by the Federal Reserve in the U.S. in 2022, which are expected to continue into 2023, or a reduction in the supply of project debt as a result of a potential recession or otherwise, or a reduction in tax incentives could reduce the number of solar projects that receive financing or otherwise make it difficult for our customers or their customers to secure the financing necessary to construct a solar energy project on favorable terms, or at all, and thus lower demand for our products, which could limit our growth and reduce our net sales.
As a result, increases in interest rates, including the increases effected by the Federal Reserve in the U.S. in 2023 and 2022, or a reduction in the supply of project debt as a result of a potential recession or otherwise, or a reduction in tax incentives could reduce the number of solar projects that receive financing or otherwise make it difficult for our customers or their customers to secure the financing necessary to construct a solar energy project on favorable terms, or at all, and thus lower demand for our products, which could limit our growth and reduce our net sales.
If the price of solar systems in the U.S. increases, the use of solar systems could become less economically feasible and could reduce our gross margins or reduce the demand of solar systems manufactured and sold, which in turn may decrease demand for our products.
If the price of solar systems in the U.S. increases, the use of solar systems could become less economically feasible and could reduce our gross profits or reduce the demand of solar systems manufactured and sold, which in turn may decrease demand for our products.
While most U.S. states have adopted some form of net metering, these programs have recently come under regulatory scrutiny in some jurisdictions due to allegations that net metering policies inequitably shift costs onto non-solar ratepayers. As a result, net metering policies in the future may be modified or even 24 Table of Contents eliminated.
While most U.S. states have adopted some form of net metering, these programs have recently come under regulatory scrutiny in some jurisdictions due to allegations that net metering policies inequitably shift costs onto non-solar ratepayers. As a result, net metering policies in the future may be modified or even eliminated.
Many of these factors will be outside of our control and any one of them could result in increased costs, decrease in expected revenues and diversion of management’s time and attention, which could materially impact the combined company. The full benefits of a particular, or any, acquisition may not be realized within the anticipated time frame or at all.
Many of these factors will be outside of our control and any one of them could result in increased costs, decrease in expected revenues and diversion of management’s time and attention, which could materially impact the combined company. The full benefits of an acquisition may not be realized within the anticipated time frame or at all.
Any failure by us to adopt new or enhanced technologies or processes, or to react to changes in existing technologies, could result in product obsolescence, the loss of competitiveness of our products, decreased revenue and a loss of market share to competitors. 23 Table of Contents Amounts included in our backlog and awarded orders may not result in actual revenue or translate into profits.
Any failure by us to adopt new or enhanced technologies or processes, or to react to changes in existing technologies, could result in product obsolescence, the loss of competitiveness of our products, decreased revenue and a loss of market share to competitors. Amounts included in our backlog and awarded orders may not result in actual revenue or translate into profits.
In countries where we have not applied for patent protection or trademark or other intellectual property registration or where effective patent, trademark, trade secret, and other intellectual property laws and judicial systems may not be available to the same extent as in the U.S., we may be at greater risk that our proprietary rights will be circumvented, misappropriated, infringed, or otherwise violated.
In countries where we have not applied for patent protection or trademark or other intellectual property registration or where effective patent, trademark, trade secret, and other intellectual property laws and judicial 20 Table of Contents systems may not be available to the same extent as in the U.S., we may be at greater risk that our proprietary rights will be circumvented, misappropriated, infringed, or otherwise violated.
We have property and business disruption insurance in place for all of our facilities; however, such insurance coverage may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all.
We have property and business disruption insurance in place for all of our facilities; however, such 16 Table of Contents insurance coverage may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all.
In particular, the number of shares of our Class A common stock issued in connection with an investment or acquisition, or to raise additional equity capital, could constitute a material portion of our then-outstanding shares of our Class A common stock.
In particular, the number of shares of our Class A common stock issued 30 Table of Contents in connection with an investment or acquisition, or to raise additional equity capital, could constitute a material portion of our then-outstanding shares of our Class A common stock.
The market for EBOS system solutions and components, including cable assemblies, inline fuses, combiners, disconnects, recombiners, wireless monitoring systems, junction boxes, transition enclosures and splice boxes, is competitive. Our principal competitors include SolarBOS Inc., Bentek Corporation, Voltage, LLC and Hikam America, Inc.
The market for EBOS system solutions and components, including cable assemblies, inline fuses, combiners, disconnects, recombiners, wireless monitoring systems, junction boxes, transition enclosures, splice boxes and BESS cabinets is competitive. Our principal competitors include TerraSmart, LLC (formerly SolarBOS, Inc.), Bentek Corporation, Voltage, LLC and Hikam America, Inc.
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance 29 Table of Contents that we would prevent or detect a misstatement of our financial statements or fraud.
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our financial statements or fraud.
Certain of the equipment used to manufacture our products could be difficult or costly to replace or repair if damaged.
Certain of the equipment used to manufacture our products could be difficult, time consuming, or costly to replace or repair if damaged.
Any such impairment or other failure to obtain sufficient intellectual property protection could impede our ability to market our products, negatively affect our competitive position and harm our business and operating results, including by forcing us to, among other things, rebrand or redesign our affected 15 Table of Contents products.
Any such impairment or other failure to obtain sufficient intellectual property protection could impede our ability to market our products, negatively affect our competitive position and harm our business and operating results, including by forcing us to, among other things, rebrand or redesign our affected products.
As a result, we bear the risk of warranty claims long after we have sold products and recognized revenue. While we have accrued reserves for warranty claims, our estimated warranty costs for previously sold products may change to the extent future products are not compatible with earlier generation products under warranty.
As a result, we bear the risk of warranty claims long after we have sold products and recognized revenue. While we accrue reserves for warranty claims, our estimated warranty expense for previously sold products may change to the extent future products are not compatible with earlier generation products under warranty.
Increases in interest rates could lower an investor’s return on investment on a solar energy project, increase equity requirements or make alternative investments more attractive relative to solar energy projects and, in each case, could cause these end users to seek alternative investments.
Increases in interest rates could lower an investor’s return on investment on a solar energy project, 23 Table of Contents increase equity requirements or make alternative investments more attractive relative to solar energy projects and, in each case, could cause these end users to seek alternative investments.
These incentives may expire on a particular date, end when the allocated funding is exhausted, or be reduced or terminated as a matter of regulatory or legislative policy.
These incentives may expire on a particular date, end when the allocated funding is exhausted, or be reduced or terminated as a matter of regulatory or legislative policy by different administrations.
Achieving anticipated benefits and synergies from acquisitions is uncertain and depends, among other things, on our inability to integrate or benefit from acquired technologies or services in a profitable manner; 16 Table of Contents diversion of capital and other resources, including management’s attention; unanticipated costs or liabilities related to the acquisition; failure to leverage the increased scale of the combined businesses quickly and effectively; the potential impact of the acquisition on our relationships with employees, vendors, suppliers and customers; the impairment of relationships with, or the loss of, the acquired entity’s employees, vendors, suppliers or customers; adverse changes in general economic conditions in regions in which we operate; potential litigation associated with the acquisition; difficulties in the assimilation of employees and culture; difficulties in managing the expanded operations of a larger and more complex company; and challenges in attracting and retaining key personnel.
Achieving anticipated benefits and synergies from acquisitions is uncertain and subject to various risks, including our ability to integrate or benefit from acquired technologies or services in a profitable manner; diversion of capital and other resources, including management’s attention; unanticipated costs or liabilities related to the acquisition; failure to leverage the increased scale of the combined businesses quickly and effectively; the potential impact of the acquisition on our relationships with employees, vendors, suppliers and customers; the impairment of relationships with, or the loss of, the acquired entity’s employees, vendors, suppliers or customers; adverse changes in general economic conditions in regions in which we operate; potential litigation associated with the acquisition; difficulties in the assimilation of employees and culture; difficulties in managing the expanded operations of a larger and more complex company; and challenges in 21 Table of Contents attracting and retaining key personnel.
Our future success partly depends on continued demand for solar PV systems in the end markets we serve. The solar industry has historically been cyclical and has experienced periodic downturns, which may affect the demand for the products that we manufacture.
Our industry has historically been cyclical and experienced periodic downturns. 18 Table of Contents Our future success partly depends on continued demand for solar PV systems in the end markets we serve. The solar industry has historically been cyclical and has experienced periodic downturns, which may affect the demand for the products that we manufacture.
Accordingly, loss of a significant customer, a significant reduction in pricing or order volume from a significant customer, their inability to perform under their contracts, or their default in payment could adversely reduce net sales and operating results in any reporting period.
Accordingly, loss of our largest customer or other significant customers, a significant reduction in pricing or order volume from our largest customer or other significant customers, their inability to perform under their contracts, or their default in payment could adversely reduce net sales and operating results in any reporting period.
In addition, as the regulatory environment relating to companies’ obligation to protect such sensitive data becomes increasingly rigorous, with new and constantly changing requirements, compliance with those requirements could result in additional costs, and a material failure on our part to comply could subject us to fines or other regulatory sanctions and potentially to lawsuits.
In addition, as the regulatory environment relating to companies’ obligations to protect such sensitive data and disclose certain incidents or breaches becomes increasingly rigorous, with new and constantly changing requirements, compliance with those requirements could result in additional costs, and a material failure on our part to comply could subject us to fines or other regulatory sanctions and potentially to lawsuits.
In some areas, requirements have been satisfied and utilities must only prevent reductions in qualifying energy purchases and sales, while in other jurisdictions’ RPS/CES policies continue to require substantial increases, up to 100 percent renewable electric generation, with final compliance dates typically 20 or more years out.
RPS/CES policies vary widely by jurisdiction. In some areas, requirements have been satisfied and utilities must only prevent reductions in qualifying energy purchases and sales, while in other jurisdictions, RPS/CES policies continue to require substantial increases, up to 100 percent renewable electric generation, with final compliance dates typically 20 or more years out.
Both domestic and international markets experienced significant inflationary pressures in fiscal year 2022 and inflation rates in the U.S., as well as in other countries in which we operate, are currently expected to continue at elevated levels for the near-term. In 2022, significant levels of inflation increased energy prices, freight premiums, and other operating costs, including wages.
Both domestic and international markets experienced significant inflation in fiscal year 2023 and 2022 and inflation rates in the U.S., as well as in other countries in which we operate, are currently expected to continue at elevated levels for the near-term. In 2023 and 2022, significant levels of inflation resulted in increased energy prices, freight premiums, and other operating costs.
Issues with our workforce, including illness or absenteeism, or difficulties in recruiting skilled workers in the area, as well as a natural disaster, fire, power interruption or other calamity at any one of our facilities or any combination thereof would significantly disrupt our ability to deliver our products and operate our business.
Issues with our workforce, including illness or absenteeism, or difficulties in recruiting skilled workers in the area, as well as a natural disaster, including tornados such as the ones recently experienced in the state, fire, power interruption or other calamity at any one of our facilities or any combination thereof would significantly disrupt our ability to deliver our products and operate our business.
These effects could reduce demand for PURPA-eligible solar energy systems and could harm our business, prospects, financial condition and results of operations.
These 28 Table of Contents effects could reduce demand for PURPA-eligible solar energy systems and could harm our business, prospects, financial condition and results of operations.
Our strategy is to introduce new products and grow our revenue outside of the U.S. by developing region-specific products; entering into joint-venture or licensing arrangements with companies in certain markets; expanding our relationships with value-added resellers of our products in some countries; and utilizing locally sourced components in our products in jurisdictions where locally sourced components are a regulatory or customer requirement.
Our strategy is to introduce new products and grow our revenue outside of the U.S., including in Asia-Pacific, Europe, Latin-America, and Africa, by developing region-specific products; entering into joint-venture or licensing arrangements with companies in certain markets; expanding our relationships with value-added resellers of our products in some countries; and utilizing locally sourced components in our products in jurisdictions where locally sourced components are a regulatory or customer requirement.
In addition, expanding into new geographic markets will increase our exposure to presently existing risks, such as fluctuations in the value of foreign currencies and difficulties and increased expenses in complying with U.S. and foreign laws, regulations and trade standards, including the Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”).
In addition, expanding into new geographic markets increases our exposure to presently existing risks, such as fluctuations in the value of foreign currencies and difficulties and increased expenses in complying with U.S. and foreign laws, regulations 25 Table of Contents and trade standards, including the Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”).
We may in the future need to initiate infringement claims or litigation in order to try to protect or enforce our intellectual property rights.
We have, and may in the future need to initiate infringement claims or litigation in order to protect or enforce our intellectual property rights.
We rely on a combination of patent, trademark, copyright, trade secret and unfair competition laws, as well as confidentiality and license agreements and other contractual provisions, to establish and protect our intellectual property and other proprietary rights.
Our success depends to a significant degree on our ability to protect our intellectual property and other proprietary rights. We rely on a combination of patent, trademark, copyright, trade secret and unfair competition laws, as well as confidentiality and license agreements and other contractual provisions, to establish and protect our intellectual property and other proprietary rights.
The price of our stock may change in response to fluctuations in our results of operations in future periods and also may change in response to other factors, including macroeconomic factors as well as factors specific to companies in our industry, many of which are beyond our control.
The price of our stock may change in response to fluctuations in our results of operations in future periods, the wire insulation shrinkback matter, and other factors specific to our company, and also may change in response to other factors, including macroeconomic factors as well as factors specific to companies in our industry, many of which are beyond our control.
As a result, our future success depends on continued demand for solar energy solutions and the ability of solar equipment vendors to meet this demand.
Our solutions are utilized in solar energy projects. As a result, our future success depends on continued demand for solar energy solutions and the ability of solar equipment vendors to meet this demand.
Any actual or perceived errors, defects or poor performance in our products could result in the replacement or recall of our products, shipment delays, rejection of our products, damage to our reputation, lost revenue, diversion of our engineering personnel from our product development efforts and increases in customer service and support costs, all of which could have a material adverse effect on our business, financial condition and results of operations.
Any actual or perceived errors, defects or poor performance in our products, including those related to the wire insulation shrinkback matter, have resulted and could result in the future in the replacement or recall of our products, shipment delays, rejection of our products, damage to our reputation, lost revenue, diversion of our engineering personnel from our product development efforts and increases in customer service and support costs, all of which could have a material adverse effect on our business, financial condition and results of operations.
Global supply chain issues, heightened inflation, volatility in the capital markets, interest rate and currency rate fluctuations, a potential recession and geopolitical instability, including the conflict between Russia and Ukraine and growing tensions between China and the U.S., have significantly increased economic and demand uncertainty that may result in unfavorable macroeconomic conditions that could negatively affect demand for our products and exacerbate some of the other risks that affect our business, financial condition and results of operations.
Global supply chain issues, high inflation, volatility in the capital markets, interest rate and currency rate fluctuations, a potential recession and geopolitical instability, including growing tensions between China and the U.S., the Russia-Ukraine war and the Israel-Hamas War, have significantly increased economic and demand uncertainty that has resulted in unfavorable macroeconomic conditions that could negatively affect demand for our products and exacerbate some of the other risks that affect our business, financial condition and results of operations.
Furthermore, in July 2018, the U.S. adopted a 10% tariff on a long list of products imported from China under Section 301 of the Trade Act of 1974, including inverters and power optimizers, which became effective on September 24, 2018. In June 2019, the U.S.
Furthermore, in July 2018, the U.S. adopted a 10% tariff on a long list of products imported from China under Section 301 of the Trade Act of 1974, including inverters and power optimizers, which became effective on September 24, 2018. In June 2019, the U.S. Trade Representative increased the rate of such tariffs from 10% to 25%.
Furthermore, defective components may give rise to warranty, indemnity or product liability claims against us that exceed any revenue or profit we receive from the affected products. Our limited warranties cover defects in materials and workmanship of our products under normal use and service conditions.
Furthermore, defective components may give rise to warranty, indemnity or product liability claims against us, such as those related to the wire insulation shrinkback matter, that may exceed any revenue or profit we receive from the affected products. Our limited warranties cover defects in materials and workmanship of our products under normal use and service conditions.
We purchase some of our raw materials outside of the U.S. through arrangements with various vendors. Political, social or economic instability in these regions, or in other regions where our raw materials are made, could cause disruptions in trade. Actions in various countries have created uncertainty with respect to tariff impacts on the costs of some of our raw materials.
Political, social or economic instability in these regions, or in other regions where our raw materials are made, could cause disruptions in trade. Actions in various countries have created uncertainty with respect to tariff impacts on the costs of some of our raw materials.
The successful assertion of a product liability claim against us could result in potentially significant monetary damages, penalties or fines; subject us to adverse publicity; damage our reputation and competitive position; and adversely affect sales of our products.
The successful assertion of a product liability claim against us, including those related to the defective wire harnesses mentioned above, could result in potentially significant monetary damages, penalties or fines; subject us to adverse publicity; damage our reputation and competitive position; and adversely affect sales of our products.
We could incur significant costs and liabilities if we are sued and if damages are awarded against us. Further, any product liability claim we face could be expensive to defend and could divert management’s attention.
We could incur significant costs and liabilities if we are sued and if damages are awarded against us. Further, any product liability claim we face, including those related to the wires mentioned above, could be expensive to defend and could divert management’s attention.
If our manufacturing facilities and our suppliers or vendors are so affected, our supply chain, manufacturing and product shipments could be delayed, which could adversely affect our business, operations and customer relationships. In addition, the COVID-19 pandemic adversely affected the economies and financial markets of many countries, and the same may occur with other epidemics or pandemics.
If our manufacturing facilities and our suppliers or vendors are so affected, our supply chain, manufacturing and product shipments could be delayed, which could adversely affect our business, operations and customer relationships. In addition, health epidemics and pandemics have affected, and may in the future adversely affect, the economies and financial markets of many countries.
Currently, 31 U.S. states, the District of Columbia, and two U.S. territories have implemented some form of RPS/CES policy, which mandates that a certain portion of electricity delivered by regulated utilities to customers come from a set of eligible renewable or clean energy resources by a certain compliance date.
Currently, over half of the U.S. states, the District of Columbia, and Puerto Rico have implemented some form of RPS/CES policy, which mandates that a certain portion of electricity delivered by regulated utilities to customers come from a set of eligible renewable or clean energy resources by a certain compliance date. Additionally, several states have set voluntary renewable energy goals.
A loss of one or more of our significant customers, their inability to perform under their contracts, or their default in payment could harm our business and negatively impact revenue, results of operations, and cash flow.
A loss of one or more of our significant customers, their inability to perform under their contracts, or their default in payment could harm our business and negatively impact revenue, results of operations, and cash flow. A small number of customers have historically accounted for a material portion of our revenue.
If demand for solar energy and solar energy projects does not continue to develop, demand for our products will decrease, which would have an adverse impact on our ability to increase our revenue and grow our business. Our industry has historically been cyclical and experienced periodic downturns.
If demand for solar energy and solar energy projects does not continue to develop, demand for our products will decrease, which would have an adverse impact on our ability to increase our revenue and grow our business.
These increases are expected to persist in 2023.
These increases are expected to persist in 2024.
Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternate forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the DGCL, our certificate of incorporation or our bylaws; any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or our bylaws; any action asserting a claim against us that is governed by the internal affairs doctrine; or any action asserting an “internal corporate claim” as defined in Section 115 of the DGCL.
Our certificate of incorporation also provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees. 31 Table of Contents Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternate forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the DGCL, our certificate of incorporation or our bylaws; any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or our bylaws; any action asserting a claim against us that is governed by the internal affairs doctrine; or any action asserting an “internal corporate claim” as defined in Section 115 of the DGCL.
These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. In addition, we have, and in the future, we may also issue securities in connection with investments, acquisitions or capital raising activities.
As of December 31, 2022, we had $428.6 million of backlog and awarded orders, backlog of $168.9 million represents signed purchase orders or contractual minimum purchase commitments with take-or-pay provisions and awarded orders of $259.7 million are orders we are in the process of documenting a contract but for which a contract has not yet been signed.
As of December 31, 2023, we had $631.3 million of backlog and awarded orders. Backlog of $205.8 million represents signed purchase orders or contractual minimum purchase commitments with take-or-pay provisions and awarded orders of $425.5 million are orders we are in the process of documenting a contract but for which a contract has not yet been signed.
EBOS components, including cable assemblies, inline fuses, combiners, disconnects, recombiners, wireless monitoring systems, junction boxes, transition enclosures, splice boxes, conventional homerun EBOS system solutions and combine-as-you-go EBOS system solutions, are mission-critical products and systems that have a high consequence of failure, including lost revenue, equipment damage, fire damage, and even serious injury or death because of the high voltages involved and potential for fire.
EBOS components, including cable assemblies, inline fuses, combiners, disconnects, recombiners, wireless monitoring systems, junction boxes, transition enclosures, splice boxes, BESS cabinets, conventional homerun EBOS system solutions, the wires related to the wire insulation shrinkback matter and combine-as-you-go EBOS system solutions, whether manufactured by us or third party suppliers, are products and systems that have a high consequence of failure, including equipment damage, fire damage, and even serious injury or death because of the high voltages involved and potential for fire.
Further, the Company’s trade accounts receivable are from companies within the solar industry, and as such, the Company is exposed to normal industry credit risks. As of December 31, 2022, our largest customer and five largest customers constituted 3.4% and 24.1% of trade accounts receivable, respectively.
For the year ended December 31, 2023, our largest customer and five largest customers constituted approximately 36.3% and 56.9% of total revenue, respectively. Further, the Company’s trade accounts receivable are from companies within the solar industry, and as such, the Company is exposed to normal industry credit risks.
Failure to manage the risks and challenges associated with our potential expansion into new geographic markets could adversely affect our revenue and our ability to achieve or sustain profitability. Item 1B. Unresolved Staff Comments None.
Failure to manage the risks and challenges associated with our potential expansion into new geographic markets could adversely affect our revenue and our ability to achieve or sustain profitability. Our indebtedness could adversely affect our financial flexibility and our competitive position.
Changes in corporate tax rates, tax incentives for renewable energy projects, the realization of net deferred tax assets relating to our U.S. operations, the taxation of foreign earnings, and the deductibility of expenses under future tax reform legislation could have a material impact on the value of our deferred tax assets, could result in significant one-time charges in the current or future taxable years, and could increase our future U.S. tax expense, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. 26 Table of Contents Risks Related to Our Organizational Structure We are a holding company and our principal asset is our interest in Shoals Parent and, accordingly, we are dependent upon Shoals Parent and its consolidated subsidiaries for our results of operations, cash flows and distributions.
Changes in corporate tax rates, tax incentives for renewable energy projects, the realization of net deferred tax assets relating to our U.S. operations, the taxation of foreign earnings, and the deductibility of expenses under future tax reform legislation could have a material impact on the value of our deferred tax assets, could result in significant one-time charges in the current or future taxable years, and could increase our future U.S. tax expense, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Our management is responsible for establishing and maintaining effective internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Any other reduction in rebates, tax credits or other financial incentives for EVs or EV charging stations could materially reduce the demand for EVs, EV charging stations and, thus, our EV charging products and, as a result, may adversely impact our business and expansion potential.
Reduction in rebates, tax credits or other financial incentives for EVs or EV charging stations could materially reduce the demand for EVs, EV charging stations and, thus, our EV charging products and, as a result, may adversely impact our business and expansion potential. Further, federal, state and local laws may impose barriers to electric vehicle adoption, including additional costs.
If we fail to retain our key personnel and attract additional qualified personnel, including a chief executive officer successor, or we or our suppliers face disputes with labor unions, we may not be able to achieve our anticipated level of growth and our business could suffer.
If we or our suppliers face disputes with labor unions, we may not be able to achieve our anticipated level of growth and our business could suffer.
While to date, we have been able to manage the challenges associated with these shortages without significant disruption to our business, no assurance can be given that these efforts will continue to be successful.
While to date, we have been able to manage the challenges associated with these shortages without significant disruption to our business, no assurance can be given that these efforts will continue to be successful. If economic conditions worsen or a recession occurs, our business, financial results and liquidity could be materially adversely impacted.
If we have to reduce our prices by more than we anticipated, or if we are unable to offset any future reductions in our average selling prices by increasing our sales volume, reducing our costs and expenses or introducing new products, our revenue and gross profit will suffer. 18 Table of Contents In addition, competitors may be able to develop new products more quickly than us, may partner with other competitors to provide combined technologies and competing solutions and may be able to develop products that are more reliable or that provide more functionality than ours.
If we have to reduce our prices by more than we anticipated, or if we are unable to offset any future reductions in our average 17 Table of Contents selling prices by increasing our sales volume, reducing our costs and expenses or introducing new products, our revenue and gross profit will suffer.
Trade 25 Table of Contents Representative increased the rate of such tariffs from 10% to 25%. These tariffs could impact the solar energy projects in which our products are used, which could lead to decreased demand for our products.
These tariffs could impact the solar energy projects in which our products are used, which could lead to decreased demand for our products.
A significant financial reporting failure or material weakness in internal control over financial reporting could cause a loss of investor confidence and decline in the market price of our common stock. Our planned expansion could subject us to additional business, financial, regulatory and competitive risks.
A significant financial reporting failure or material weakness in internal control over financial reporting could cause a loss of investor confidence and decline in the market price of our common stock. Item 1B. Unresolved Staff Comments None.
More recently, on October 7, 2022, the Biden Administration adopted export controls related to technology that could harm U.S. national security. Tariffs and the possibility of additional tariffs in the future, including as a result of the petition pending with the USDOC regarding circumvention of antidumping and countervailing duties, have created uncertainty in the industry.
Further export controls related to technology could impact the business, notably if the U.S. Government expands the restrictions to more common technology. Tariffs and the possibility of additional tariffs in the future, including as a result of the petition pending with the USDOC regarding circumvention of antidumping and countervailing duties, have created uncertainty in the industry.
We have been and expect to continue to be the target of fraudulent calls, emails and other forms of activities and have experienced security breaches; however, to date, they have not had a material impact on our business, results of operations or financial condition.
Any perceived or actual unauthorized access to, or use or disclosure of, such information could harm our reputation, substantially impair our ability to attract and retain customers and have an adverse impact on our business, financial condition and results of operations. 24 Table of Contents We have been and expect to continue to be the target of fraudulent calls, emails and other forms of activities and have experienced security breaches; however, to date, they have not had a material impact on our business, results of operations or financial condition.
A further increase in interest rates or a reduction in the availability of tax incentives or project debt capital in the global financial markets could make it difficult for end customers to finance the cost of a solar energy system and could reduce the demand for our products. 19 Table of Contents Even though certain government subsidies and economic incentives are currently in place to encourage the adoption of solar energy and have resulted in increased demand for solar energy projects, many end users still depend on financing to fund the initial capital expenditure required to construct a solar energy project.
Even though certain government subsidies and economic incentives are currently in place to encourage the adoption of solar energy and have resulted in increased demand for solar energy projects, many end users still depend on financing to fund the initial capital expenditure required to construct a solar energy project.
In addition, the U.S. currently imposes antidumping and countervailing duties on certain imported crystalline silicon PV cells and modules from China and Taiwan. Such antidumping and countervailing duties can change over time pursuant to annual reviews conducted by the U.S. Department of Commerce (“USDOC”), and an increase in duty rates could have an adverse impact on our operating results.
We are continuing to monitor developments in this area. In addition, the U.S. currently imposes antidumping and countervailing duties on certain imported crystalline silicon PV cells and modules from China and Taiwan. Such antidumping and countervailing duties can change over time pursuant to annual reviews conducted by the U.S.
If we fail to, or incur significant costs in order to, obtain, maintain, protect, defend or enforce our intellectual property and other proprietary rights, our business and results of operations could be materially harmed. Our success depends to a significant degree on our ability to protect our intellectual property and other proprietary rights.
If we fail to, or incur significant costs in order to, obtain, maintain, protect, defend or enforce our intellectual property and other proprietary rights, including those that are subject to the patent infringement complaints we filed with the ITC and two District Courts, our business and results of operations could be materially harmed.
These detainments have not significantly impacted any of our customers’ projects to date; however, continued or future detainments could affect the industry and impact solar energy projects more broadly, which in turn could affect our business. We are monitoring developments in this area.
As a result, some suppliers of solar modules have seen shipments detained by U.S. Customs and Border Patrol pursuant to the UFLPA. These detainments have not significantly impacted any of our customers’ projects to date; however, continued or future detainments could affect the industry and impact solar energy projects more broadly, which in turn could affect our business.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeProperties The table below describes the material facilities owned or leased by Shoals Technologies Group, Inc. as of December 31, 2022: 30 Table of Contents Location Status Square Feet Uses 1400 Shoals Way, Portland, TN Owned 103,200 Office, manufacturing, warehousing and shipping 1035 Fred White Blvd., Portland, TN Owned 75,360 Office, manufacturing, warehousing and shipping 109 Kirby Drive, Portland, TN Leased 219,767 Office, manufacturing, warehousing and shipping 215 Industrial Drive, Muscle Shoals, AL Owned 16,910 Office, manufacturing, warehousing and shipping 13370 Kirkham Way, Poway, CA Leased 21,761 Office, manufacturing, warehousing and shipping 13651 Danielson Street, Poway, CA Leased 15,411 Office, manufacturing, warehousing and shipping We believe that our existing properties are in good condition and are sufficient and suitable for the conduct of our business for the foreseeable future.
Biggest changeProperties The table below describes the material facilities owned or leased by Shoals Technologies Group, Inc. as of February 2024: 34 Table of Contents Location Status Approximate Square Feet Uses 1400 Shoals Way, Portland, TN Owned 103,200 Office, manufacturing, warehousing and shipping 1035 Fred White Blvd., Portland, TN Owned 75,360 Office, warehousing and shipping 109 Kirby Drive, Portland, TN Leased 219,767 Office, manufacturing, warehousing and shipping 215 Industrial Drive, Muscle Shoals, AL Owned 16,910 Office, manufacturing, warehousing and shipping 1500 Shoals Way, Portland, TN Leased 638,330 Office, manufacturing, warehousing and shipping In February 2024, we announced the closing of our Poway, California facility as a result of a strategic assessment aimed at enhancing overall production and performance and at allowing for greater efficiency throughout our operations.
Removed
To the extent our needs change as our business grows, we expect that additional space and facilities will be available.
Added
The closure is expected to be completed in May of 2024. We believe that our existing properties are in good condition and are sufficient and suitable for the conduct of our business for the foreseeable future.
Added
Nevertheless, on February 21, 2024, we announced our intention to expand and consolidate our existing Tennessee-based manufacturing and distribution operations into a new, more than 600,000 square foot facility in Portland, Tennessee over the next five years, and on February 7, 2024, we entered into a lease agreement for the new facility.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeCurrently, there are no claims or proceedings against us that we believe will have a material adverse effect on our business, financial condition, results of operations or cash flows.
Biggest changeExcept as described under Litigation in Note 16 - Commitments and Contingencies, there are no claims or proceedings against us that we believe will have a material adverse effect on our business, financial condition, results of operations or cash flows.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs of February 21, 2023, there were four registered account holders of our Class B common stock. Dividend Policy We currently intend to retain all available funds and any future earnings for use in the operation of our business, and therefore we do not currently expect to pay any cash dividends.
Biggest changeAs of February 21, 2024, there were no shares of Class B common stock outstanding, and therefore, no registered account holders thereof. Dividend Policy 35 Table of Contents We currently intend to retain all available funds and any future earnings for use in the operation of our business, and therefore we do not currently expect to pay any cash dividends.
Any future determination to declare cash distributions or dividends will be made at the discretion of our board of directors, subject to applicable laws and provisions of our debt instruments and organizational documents, after taking into account 31 Table of Contents our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant.
Any future determination to declare cash distributions or dividends will be made at the discretion of our board of directors, subject to applicable laws and provisions of our debt instruments and organizational documents, after taking into account our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant.
Holders of Record As of February 21, 2023, there were five registered account holders of our Class A common stock. The number of record holders does not include persons who held shares of our Class A common stock in nominee or “street name” accounts through brokers.
Holders of Record As of February 21, 2024, there were two registered account holders of our Class A common stock. The number of record holders does not include persons who held shares of our Class A common stock in nominee or “street name” accounts through brokers.
Removed
Recent Sales of Unregistered Equity Securities There were no unregistered sales of equity during the quarter ended December 31, 2022.
Added
Recent Sales of Unregistered Equity Securities There were no unregistered sales of equity securities during the year ended December 31, 2023 that have not been previously reported in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K. Use of Proceeds from Registered Securities Not applicable.
Removed
During the quarter ended December 31, 2022, pursuant to the terms of the Exchange Agreement entered into in connection with our IPO, certain Continuing Equity Owners exchanged 22,396,301 LLC Units together with an equal number of shares of Class B common stock for 22,396,301 newly-issued shares of Class A common stock.
Added
Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. Item 6. Reserved
Removed
These shares of Class A common stock were issued in reliance on an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933. Use of Proceeds from Registered Securities Not applicable. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. Item 6. Reserved

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeYou should review the reconciliation of net income to Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS below and not rely on any single financial measure to evaluate our business. 39 Table of Contents Reconciliation of Net Income to Adjusted EBITDA (in thousands): Year Ended December 31, 2022 2021 2020 Net income $ 143,013 $ 3,944 $ 33,766 Interest expense, net 18,538 14,549 3,510 Income tax expense 8,987 86 — Depreciation expense 1,858 1,701 1,420 Amortization of intangibles 8,651 8,352 7,985 Payable pursuant to the TRA adjustment (a) 6,675 1,663 — Gain on termination of TRA (110,883) — — Loss on debt repayment — 15,990 — Equity-based compensation 16,108 11,286 8,251 Acquisition-related expenses 42 2,349 — COVID-19 expenses (b) — 339 2,890 Non-recurring and other expenses (c) — 2,598 3,077 Adjusted EBITDA $ 92,989 $ 62,857 $ 60,899 (a) Represents an adjustment to eliminate the adjustment of the payable pursuant to the TRA.
Biggest changeYou should review the reconciliation of gross profit to Adjusted Gross Profit and Adjusted Gross Profit Percentage, net income (loss) to Adjusted EBITDA, and net income (loss) attributable to Shoals Technologies Group, Inc. to Adjusted Net Income and Adjusted Diluted EPS below and not rely on any single financial measure to evaluate our business. 43 Table of Contents Reconciliation of Gross Profit to Adjusted Gross Profit and Adjusted Gross Profit Percentage (in thousands): Year Ended December 31, 2023 2022 2021 Revenue $ 488,939 $ 326,940 $ 213,212 Cost of revenue 320,635 195,629 130,567 Gross profit $ 168,304 $ 131,311 $ 82,645 Gross profit percentage 34.4% 40.2% 38.8% Wire insulation shrinkback expenses (a) $ 61,705 $ — $ — Adjusted gross profit $ 230,009 $ 131,311 $ 82,645 Adjusted gross profit percentage 47.0% 40.2% 38.8% Reconciliation of Net Income to Adjusted EBITDA (in thousands): Year Ended December 31, 2023 2022 2021 Net income $ 42,661 $ 143,013 $ 3,944 Interest expense, net 24,100 18,538 14,549 Income tax expense 12,274 8,987 86 Depreciation expense 2,612 1,858 1,701 Amortization of intangibles 7,917 8,651 8,352 Payable pursuant to the TRA adjustment (b) — 6,675 1,663 Gain on termination of TRA — (110,883) — Loss on debt repayment — — 15,990 Equity-based compensation 20,862 16,108 11,286 Acquisition-related expenses — 42 2,349 COVID-19 expenses (c) — — 339 Non-recurring and other expenses (d) — — 2,598 Wire insulation shrinkback expenses (a) 61,705 — — Wire insulation shrinkback litigation expenses (e) 1,260 — — Adjusted EBITDA $ 173,391 $ 92,989 $ 62,857 44 Table of Contents Reconciliation of Net Income Attributable to Shoals Technologies Group, Inc. to Adjusted Net Income (in thousands): Year Ended December 31, 2023 2022 2021 Net income attributable to Shoals Technologies Group, Inc. $ 39,974 $ 127,611 $ 2,348 Net income impact from assumed exchange of Class B common stock to Class A common stock (f) 2,687 15,402 1,596 Adjustment to the provision for income tax (g) (653) (3,726) (456) Tax effected net income 42,008 139,287 3,488 Amortization of intangibles 7,917 8,651 8,352 Amortization of deferred financing costs 2,165 1,365 1,230 Payable pursuant to the TRA adjustment (b) — 6,675 1,663 Gain on termination of TRA — (110,883) — Loss on debt repayment — — 15,990 Equity-based compensation 20,862 16,108 11,286 Acquisition-related expenses — 42 2,349 COVID-19 expenses (c) — — 339 Non-recurring and other expenses (d) — — 2,598 Wire insulation shrinkback expenses (a) 61,705 — — Wire insulation shrinkback litigation expenses (e) 1,260 — — Tax impact of adjustments (h) (24,604) 1,158 (11,381) Adjusted Net Income $ 111,313 $ 62,403 $ 35,914 (a) For the year ended December 31, 2023 represents, (i) $59.1 million wire insulation shrinkback warranty expenses related to the identification, repair and replacement of a subset of wire harnesses presenting unacceptable levels of wire insulation shrinkback, and (ii) $2.6 million of inventory write-downs of the defective red wire.
We have elected to adopt certain practical expedients and exemptions as allowed under the new revenue recognition guidance such as (i) recording sales commissions as incurred because the amortization period is less than one year, (ii) excluding any collected sales tax amounts from the calculation of revenue, and (iii) accounting for shipping and handling activities that are incurred after the customer has obtained control of the product as fulfillment costs rather than a separate service provided to the customer for which consideration would need to be allocated.
We have elected to adopt certain practical expedients and exemptions as allowed under the revenue recognition guidance such as (i) recording sales commissions as incurred because the amortization period is less than one year, (ii) excluding any collected sales tax amounts from the calculation of revenue, and (iii) accounting for shipping and handling activities that are incurred after the customer has obtained control of the product as fulfillment costs rather than a separate service provided to the customer for which consideration would need to be allocated.
Operating Activities For the year ended December 31, 2022, cash provided by operating activities was $39.5 million, primarily due to operating results that included $143.0 million of net income, which included $65.6 million of non-cash income, an increase of $21.4 million in deferred revenue, and an increase of $10.7 million in accrued expenses and other.
For the year ended December 31, 2022, cash provided by operating activities was $39.5 million, due to operating results that included $143.0 million of net income, which included $65.6 million of non-cash income, an increase of $21.4 million in deferred revenue, and an increase of $10.7 million in accrued expenses and other.
Some of these costs, primarily indirect personnel and depreciation of manufacturing and testing equipment, are not directly affected by sales volume. Gross profit may vary from year to year and is primarily affected by our sales volume, product prices, product costs, product mix, customer mix, geographical mix, shipping method and warranty costs.
Some of these costs, primarily indirect personnel and depreciation of manufacturing and testing equipment, are not directly affected by sales volume. Gross profit may vary from year to year and is primarily affected by our sales volume, product prices, product costs, product mix, customer mix, geographical mix, shipping method and warranty expense.
Non-operating Expenses Interest Expense Interest expense consists of interest and other charges paid in connection with our Senior Secured Credit Agreement. Payable Pursuant to the Tax Receivable Agreement Adjustment TRA adjustment consists of changes to our tax rate since the initial recording of the liability related to our TRA.
Non-operating Expenses Interest Expense Interest expense consists of interest and other charges paid in connection with our Senior Secured Credit Agreement. Payable Pursuant to the Tax Receivable Agreement Adjustment Tax Receivable Agreement (“TRA”) adjustment consists of changes to our tax rate since the initial recording of the liability related to the TRA.
Equity-based compensation expense related to performance stock units is recognized if it is probable that the performance conditions will be satisfied. The Company accounts for forfeitures as they occur. The grant date fair value of each unit is amortized on a straight-line basis over the requisite service period, including those units with 44 Table of Contents graded vesting.
Equity-based compensation expense related to performance stock units is recognized if it is probable that the performance conditions will be satisfied. The Company accounts for forfeitures as they occur. The grant date fair value of each unit is amortized on a straight-line basis over the requisite service period, including those units with 49 Table of Contents graded vesting.
Management’s discussion and analysis relating to the fiscal year ended December 31, 2021 and the applicable year-to-year comparisons to the fiscal year ended December 31, 2020 are not included in this Annual Report on Form 10-K but can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Management’s discussion and analysis relating to the fiscal year ended December 31, 2022 and the applicable year-to-year comparisons to the fiscal year ended December 31, 2021 are not included in this Annual Report on Form 10-K but can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Payable Pursuant to the Tax Receivable Agreement As discussed in Note 17 to the consolidated financial statements, we were party to a TRA , dated January 29, 2021, under which we were contractually committed to pay the TRA Owners 85% of the amount of the tax benefits, if any, that we were deemed to realize, as a result of certain transactions.
Payable Pursuant to the Tax Receivable Agreement As discussed in Note 18 to the consolidated financial statements, we were party to a TRA, dated January 29, 2021, under which we were contractually committed to pay the TRA Owners 85% of the amount of the tax benefits, if any, that we were deemed to realize, as a result of certain transactions.
(d) Represents costs incurred as a direct impact from the COVID-19 pandemic, disinfecting and reconfiguration of facilities, medical professionals to conduct daily screenings of employees and direct legal costs associated with the pandemic. (e) Represents certain costs associated with non-recurring professional services, our prior private equity owners’ expenses and other costs.
(c) Represents costs incurred as a direct impact from the COVID-19 pandemic, disinfecting and reconfiguration of facilities, medical professionals to conduct daily screenings of employees and direct legal costs associated with the pandemic. (d) Represents certain costs associated with non-recurring professional services, our prior private equity owners’ expenses and other costs.
Ultimately, we determined that, despite the involvement of the Founder, the transaction was performed at arm's length, both parties received the same payment based upon ownership percentage, and therefore, the gain should be recorded in the Consolidated Statement of Operations as of the TRA Amendment date.
Ultimately, we determined that, despite the involvement of the Company’s founder, the transaction was performed at arm's length, both parties received the same payment based upon ownership percentage, and therefore, the gain should be recorded in the Consolidated Statement of Operations as of the effective date of the TRA Amendment.
Gain on Termination of Tax Receivable Agreement Gain on termination of TRA for the year ended December 31, 2022 totaled $110.9 million, which is equal to the difference between the carrying value of the payable pursuant to the TRA recorded as of the TRA amendment date, net of related fees.
Gain on Termination of Tax Receivable Agreement Gain on termination of TRA for the year ended December 31, 2022 totaled $110.9 million, which is equal to the difference between the carrying value of the payable pursuant to the TRA recorded as of the date of amendment to the TRA, which permitted its termination, net of related fees.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information included in this Annual Report on Form 10-K.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our consolidated financial statements and the related notes and other financial information included in this Annual Report on Form 10-K.
If we determine in the future that we will not be able to fully utilize all or part of these deferred tax assets, we would record a valuation allowance through earnings in the period the determination was made, which would have an adverse effect on our results of operations and earnings in future periods.
If we determine in the future that we will not be able to fully utilize all or part of these deferred tax assets, we would increase our valuation allowance through earnings in the period the determination was made, which would have an adverse effect on our results of operations and earnings in future periods.
The eventual implications of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital during our forecast period.
The eventual implications of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital during our forecasted period.
We present Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS because we believe they assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.
We present Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS because we believe they assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.
Professional services consist of audit, tax, accounting, legal, internal controls, information technology, investor relations and other costs. We expect to increase our sales and marketing personnel as we expand into new geographic markets. Substantially all of our sales are currently in the U.S. We currently have a sales presence in the U.S., Australia, Europe and Latin America.
Professional services consist of audit, tax, accounting, legal, internal controls, information technology, investor relations and other costs. We expect to increase our sales and marketing personnel as we expand into new geographic markets. Substantially all of our sales are currently in the U.S. We currently have a sales presence in the U.S., Asia-Pacific, Europe, Latin America, and Africa.
Our ability to generate positive cash flow from operations is dependent on the strength of our gross margins as well as our ability to quickly turn our working capital.
Our ability to generate positive cash flow from operations is dependent on the strength of our gross profits as well as our ability to quickly turn our working capital.
In addition, we use Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS: (i) as factors in evaluating management’s performance when determining incentive compensation; (ii) to evaluate the effectiveness of our business strategies; and (iii) because our credit agreement uses measures similar to Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS to measure our compliance with certain covenants.
In addition, we use Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS: (i) as factors in evaluating management’s performance when determining incentive compensation, as applicable; (ii) to evaluate the effectiveness of our business strategies; and (iii) because our credit agreement uses measures similar to Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS to measure our compliance with certain covenants.
Operating Expenses Operating expenses consist of general and administrative costs as well as depreciation and amortization expense. Personnel-related costs are the most significant component of our operating expenses and include salaries, equity-based compensation, benefits, payroll taxes and commissions.
Operating Expenses Operating expenses consist of general and administrative expenses as well as depreciation and amortization expense. Personnel-related costs are the most significant component of our operating expenses 39 Table of Contents and include salaries, equity-based compensation, benefits, payroll taxes and commissions.
Because of these limitations, Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP.
Because of these limitations, Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP.
We intend to expand our sales presence and marketing efforts to additional countries in the future. Depreciation Depreciation in our operating expenses consists of costs associated with property, plant and equipment (“PP&E”) not used in manufacturing our products.
We intend to grow our sales presence and marketing efforts in current geographic markets and expand to additional countries in the future. Depreciation Depreciation in our operating expenses consists of costs associated with property, plant and equipment (“PP&E”) not used in manufacturing our products.
Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS are intended as supplemental measures of performance that are neither required by, nor presented in accordance with, GAAP.
Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS are intended as supplemental measures of performance that are neither required by, nor presented in accordance with, GAAP.
Financing Activities For the year ended December 31, 2022, net cash used in financing activities was $36.6 million, primarily due to $58.0 million paid to terminate the TRA, as discussed in Note 17 of the consolidated financial statements, plus related fees of $1.9 million, $2.0 million in payments on the Term Loan, $7.1 million in net payments on the Revolving Credit Facility, $7.8 million in distributions to our non-controlling interest holders, $1.5 million of offering costs, and $1.3 million in taxes related to net share settled equity awards.
Financing Activities For the year ended December 31, 2023, net cash used in financing activities was $67.2 million, due to $51.5 million in payments on the Term Loan, $8.0 million in net payments on the Revolving Credit Facility, $2.6 million in distributions to our non-controlling interest holders and $3.9 million in taxes related to net share settled equity awards. 47 Table of Contents For the year ended December 31, 2022, net cash used in financing activities was $36.6 million, primarily due to $58.0 million paid to terminate the TRA, as discussed in Note 18 of the consolidated financial statements, plus related fees of $1.9 million, $2.0 million in payments on the Term Loan, $7.1 million in net payments on the Revolving Credit Facility, $7.8 million in distributions to our non-controlling interest holders, $1.5 million of offering costs, and $1.3 million in taxes related to net share settled equity awards.
Readers of this Form 10-K should use Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share only in conjunction with Net Income and Net Income Attributable to Shoals Technologies Group, Inc., the most closely comparable GAAP financial measure, as applicable.
Readers of this Form 10-K should use Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share only in conjunction with Gross Profit, Net Income, and Net Income Attributable to Shoals Technologies Group, Inc., the most closely comparable GAAP financial measures, as applicable.
We define Adjusted Net Income as net income (loss) attributable to Shoals Technologies Group, Inc. plus (i) net income impact from assumed exchange of Class B common stock to Class A common stock as of the beginning of the earliest period presented, (ii) amortization of intangibles, (iii) amortization of deferred financing costs, (iv) payable pursuant to the TRA adjustment, (v) gain on termination of TRA, (vi) loss on debt repayment, (vii) equity-based compensation, (viii) acquisition-related expenses, (ix) COVID-19 expenses and (x) non-recurring and other expenses, all net of applicable income taxes.
We define Adjusted Net Income as net income attributable to Shoals Technologies Group, Inc. plus (i) net income impact from assumed exchange of Class B common stock to Class A common stock as of the beginning of the earliest period presented, (ii) adjustment to the provision for income tax, (iii) amortization of intangibles, (iv) amortization of deferred financing costs, (v) payable pursuant to the TRA adjustment, (vi) gain on termination of TRA, (vii) loss on debt repayment, (viii) equity-based compensation, (ix) acquisition-related expenses, (x) COVID-19 expenses, (xi) non-recurring and other expenses, (xii) wire insulation shrinkback expenses, and (xiii) wire insulation shrinkback litigation expenses, all net of applicable income taxes.
The number of full-time employees in our general and administrative departments increased from 99 to 115 from December 31, 2021 to December 31, 2022, and we expect to hire new employees in the future to support our growth.
The number of full-time employees in our general and administrative departments increased from 115 to 149 from December 31, 2022 to December 31, 2023, and we expect to hire new employees in the future to support our growth.
In these instances we recognize revenue when the customer obtains control of the product. Contracts of this nature typically include customer acceptance clauses, which results in revenue recognition occurring upon customer acceptance. The manufacturing process generally takes less than one week to complete production.
In these instances we recognize revenue when the customer obtains control of the product. Contracts of this nature typically include customer acceptance clauses, which results in revenue recognition occurring upon customer acceptance. Depending on the size of project, the manufacturing process generally takes from less than one week to four months to complete production.
Among other limitations, Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; in the case of Adjusted EBITDA, does not reflect income tax expense or benefit for periods prior to the reorganization; and may be calculated by other companies in our industry differently than we do or not at all, which may limit their usefulness as comparative measures.
Among other limitations, Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and may be calculated by other companies in our industry differently than we do or not at all, which may limit their usefulness as comparative measures.
The Company does not directly source raw materials from Europe. However, the ongoing conflict in Ukraine has reduced the availability of certain material that can be sourced in Europe and, as a result, increased global logistics costs for the procurement of some inputs and materials used in our products. We expect these trends to persist into 2023.
The Company does not directly source a significant amount of raw materials from Europe. However, the Russia-Ukraine war has reduced the availability of certain materials that can be sourced in Europe and, as a result, increased global logistics costs for the procurement of some inputs and materials used in our products. We expect these trends to persist into 2024.
Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share are being presented because they provide the Company, investors and readers of this Form 10-K with additional insight into our operational performance relative to earlier periods and relative to our competitors.
Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share are being presented because management believes they provide investors and readers of this Form 10-K with additional insight into our operational performance relative to earlier periods and relative to our competitors.
We do not intend Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share to be substitutes for any GAAP financial 32 Table of Contents information.
We do not intend Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, 36 Table of Contents Adjusted Net Income, and Adjusted Diluted Earnings per Share to be substitutes for any GAAP financial information.
In 2022, in part as a consequence of the COVID-19 pandemic and other macroeconomic events, our ability to obtain raw materials from domestic and international suppliers required to manufacture our components and system solutions, as well as our ability to secure inbound logistics to and from our facilities, were impacted, with additional delays linked to international border crossings and the associated approvals and documentation.
In 2022 and to a lesser extent during 2023, as a consequence of macroeconomic events, our ability to obtain raw materials required to manufacture our components and system solutions from domestic and international suppliers, as well as our ability to secure inbound logistics to and from our facilities, were impacted, with additional delays linked to international border crossings and the associated approvals and documentation.
In addition, changes over the last few years in the international relations and tariff regimes between the U.S. and China in response to various political issues and heightened uncertainty regarding China-Taiwan relations could significantly adversely impact the availability of parts and components to us, and, correspondingly, our ability to produce our components at targeted levels.
In addition, changes over the last few years in the international relations and tariff regimes between the U.S. and China in response to various political issues and heightened uncertainty regarding China-Taiwan relations could significantly adversely impact the availability of parts and components to us, and, correspondingly, our ability to produce our components at targeted levels, although we did not experience such negative effects during 2023.
Backlog of $168.9 million represents signed purchase orders or contractual minimum purchase commitments with take-or-pay provisions and awarded orders of $259.7 million are orders we are in the process of documenting a contract but for which a contract has not yet been signed.
Backlog of $205.8 million represents signed purchase orders or contractual minimum purchase commitments with take-or-pay provisions and awarded orders of $425.5 million are orders we are in the process of documenting a contract for but for which a contract has not yet been signed.
Interest Expense Interest expense, net increased by $4.0 million or 27%, for the year ended December 31, 2022 as compared to the year ended December 31, 2021, due to increased borrowings and borrowing rates. During 2022, the Federal Reserve increased interest rates resulting in higher interest rates associated with our Senior Secured Credit Agreement.
Interest Expense Interest expense, net increased by $5.6 million or 30%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022, due to increased borrowing rates. During 2022 and 2023, the Federal Reserve increased interest rates resulting in higher interest rates associated with our Senior Secured Credit Agreement.
The Company exercised its TRA Termination Right, and the TRA was terminated on December 6, 2022. As of the TRA Amendment date, we concluded it was probable that the expected payments related to the payable pursuant to the TRA had changed. As a result of this change, the Company remeasured the payable pursuant to the TRA to $58.0 million.
The Company exercised its TRA Termination Right, and the TRA was terminated on December 6, 2022. As of the effective date of the TRA Amendment, we concluded it was probable that the expected payments related to the payable pursuant to the TRA had changed.
We analyzed the relevant accounting guidance and considered the nature of the TRA termination and the involved parties in order to determine if the transaction should be recorded as a gain in the Consolidated Statement of Operations or as a stockholder contribution.
As a result of this change, the Company remeasured the payable pursuant to the TRA to $58.0 million. We analyzed the relevant accounting guidance and considered the nature of the TRA termination and the involved parties in order to determine if the transaction should be recorded as a gain in the Consolidated Statement of Operations or as a stockholder contribution.
Non-GAAP Financial Measures Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share (“EPS”) We define Adjusted EBITDA as net income (loss) plus (i) interest expense, net, (ii) income tax expense, (iii) depreciation expense, (iv) amortization of intangibles, (v) payable pursuant to the TRA adjustment, (vi) gain on termination of TRA, (vii) loss on debt repayment, (viii) equity-based compensation, (ix) acquisition-related 38 Table of Contents expenses, (x) COVID-19 expenses and (xi) non-recurring and other expenses.
We define Adjusted EBITDA as net income plus (i) interest expense, net, (ii) income tax expense, (iii) depreciation expense, (iv) amortization of intangibles, (v) payable pursuant to the TRA adjustment, (vi) gain on termination of TRA, (vii) loss on debt repayment, (viii) equity-based compensation, (ix) acquisition-related expenses, (x) COVID-19 expenses, (xi) non-recurring and other expenses, (xii), wire insulation shrinkback expenses, and (xiii) wire insulation shrinkback litigation expenses.
If revenue were recognized at a point in time rather than over time, then for the year ended December 31, 2022, net income would have been $0.8 million lower, and EPS - basic and diluted would remain unchanged. 43 Table of Contents In certain instances the promised goods do have an alternative use.
If revenue were recognized at a point in time rather than over time, then for the year ended December 31, 2023, net income would be $17.1 million lower, and EPS - basic and diluted would decrease by $0.10. 48 Table of Contents In certain instances the promised goods do have an alternative use.
We expect to invest in additional resources to support our growth which will increase our operating expenses. 35 Table of Contents General and Administrative Expenses General and administrative expenses consist primarily of salaries, equity-based compensation expense, employee benefits and payroll taxes related to our executives, and our sales, finance, human resources, information technology, engineering and legal organizations, travel expenses, facilities costs, marketing expenses, insurance, bad debt expense and fees for professional services.
General and Administrative Expenses General and administrative expenses consist primarily of salaries, equity-based compensation expense, employee benefits and payroll taxes related to our executives, and our sales, finance, human resources, information technology, engineering and legal organizations, travel expenses, facilities costs, marketing expenses, insurance, bad debt expense and fees for professional services.
Gain on Termination of Tax Receivable Agreement Gain on termination of TRA is related to the early termination and settlement of the TRA, as discussed in Note 17 of the consolidated financial statements.
Gain on Termination of Tax Receivable Agreement Gain on termination of TRA is related to the early termination and settlement of the TRA, as discussed in Note 18 - Payable Pursuant to the Tax Receivable Agreement of the consolidated financial statements. The TRA was terminated in December 2022.
These cash outflows are partially offset by $42.9 million received in connection with the issuance of Class A common stock sold in follow-on offering, net of underwriting discounts and commissions. Debt Obligations For a discussion of our debt obligations see Note 9 - Long-Term Debt in our consolidated financial statements.
These cash outflows are partially offset by $42.9 million received in connection with the issuance of Class A common stock sold in follow-on offering, net of underwriting discounts and commissions.
The adjustment to the provision for income tax reflects the effective tax rates below, assuming Shoals Technologies Group, Inc. owns 100% of the units in Shoals Parent LLC. Year Ended December 31, 2022 2021 2020 Statutory U.S.
Federal income taxes, in addition to state and local taxes. The adjustment to the provision for income tax reflects the effective tax rates below, assuming Shoals Technologies Group, Inc. owned 100% of the units in Shoals Parent LLC prior to March 10, 2023. Year Ended December 31, 2023 2022 2021 Statutory U.S.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains the presentation of Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share, which are not presented in accordance with generally accepted accounting principles in the U.S. (“GAAP”).
This MD&A contains the presentation of Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share, which are not presented in accordance with generally accepted accounting principles in the U.S. (“GAAP”).
As a result of inflation, during 2022, the Federal Reserve increased interest rates resulting in higher interest rates associated with our Senior Secured Credit Agreement. The Federal Reserve may continue raising interest rates, and any such additional increases will have a corresponding increase in the interest rates charged under our Senior Secured Credit Agreement.
The Federal Reserve may continue raising interest rates as long as high inflation persists, and any such additional increases will have a corresponding increase in the interest rates charged under our Senior Secured Credit Agreement.
These cash inflows were partially offset by an increase in inventory of $36.9 million as a result of increasing our raw materials inventory to support growth and reduce the likelihood of supply chain issues from our raw materials suppliers, an increase of $22.4 million in accounts receivable and unbilled receivables, which is primarily driven by an increase in revenues, and a decrease of $11.0 million in accounts payable. 42 Table of Contents Investing Activities For the year ended December 31, 2022, net cash used in investing activities was $3.7 million, of which $3.2 million was attributable to the purchase of property and equipment.
These cash inflows were partially offset by an increase in inventory of $36.9 million as a result of increasing our raw materials inventory to support growth and reduce the likelihood of supply chain issues from our raw materials suppliers, an increase of $22.4 million in accounts receivable and unbilled receivables, which is primarily driven by an increase in revenues, and a decrease of $11.0 million in accounts payable.
As of December 31, 2022, backlog and awarded orders increased by 43% relative to December 31, 2021 and decreased by 9% relative to September 30, 2022.
As of December 31, 2023, backlog and awarded orders increased by 47% relative to December 31, 2022 and decreased by 0.3% relative to September 30, 2023.
Estimating future taxable income is inherently uncertain and requires judgment. In projecting future taxable income, we consider our historical results and incorporate certain assumptions, including revenue growth and operating margins, among others. As of December 31, 2022, we had $291.6 million of deferred tax assets, and no valuation allowance.
Estimating future taxable income is inherently uncertain and requires judgment. In projecting future taxable income, we consider our historical results and incorporate certain assumptions, including revenue growth and operating margins, among others. As of December 31, 2023, we had $468.2 million of deferred tax assets, net of a $1.0 million valuation allowance related to land and other non-amortizable intangibles.
For the same period, we derived substantially all of our revenue from customers in the U.S. As of December 31, 2022, we had $428.6 million of backlog and awarded orders.
We derived 81.5% of our revenue from the sale of system solutions for the year ended December 31, 2023. For the same period, we derived substantially all of our revenue from customers in the U.S. As of December 31, 2023, we had $631.3 million of backlog and awarded orders.
Our total number of customers increased in 2022 as compared to 2021. We believe expanding customer recognition of the benefits of our combine-as-you-go system is continuing to result in increased demand for our products.
Our total number of customers, along with the number of combine-as-you-go system solutions projects, increased during the year ended December 31, 2023 as compared to the year ended December 31, 2022. We believe expanding customer recognition of the benefits of our combine-as-you-go system solutions resulted in increased demand for our products.
To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Contracts for solar system solutions can range in value from several hundred thousand to several million dollars. Our revenue is affected by changes in the price, volume and mix of solar system solutions and components purchased by our customers.
Our revenue is affected by changes in the price, volume and mix of solar system solutions and components purchased by our customers.
We are continuously monitoring the situation of our supply chain and evaluating our procurement strategy and supply chain to reduce any negative impact on our business, financial condition, and results of operations.
We are continuously monitoring the condition of our supply chain and evaluating our procurement strategy to reduce any negative impact on our business, financial condition, and results of operations. In response to supply chain constraints, in 2022 we increased certain raw materials inventory, partly to limit the potential impact of supply chain issues of raw materials in the near term.
EBOS components that we produce include cable assemblies, inline fuses, combiners, disconnects, recombiners, wireless monitoring systems, junction boxes, transition enclosures and splice boxes. We derive the majority of our revenue from selling “system solutions” which are complete EBOS systems that include several of our products, many of which are customized for the customer’s project.
We derive the majority of our revenue from selling “system solutions” which are complete EBOS systems that include several of our products, many of which are customized for the customer’s project.
We expect to realize future tax benefits related to the utilization of these assets.
Other than the valuation allowance related to land and other non-amortizable intangibles, we expect to realize future tax benefits related to the utilization of these assets.
Critical Accounting Policies and Estimates We prepare our consolidated financial statements in accordance with GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures.
The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.
Based on our past performance and current expectations, we believe that operating cash flows and availability under our Revolving Credit Facility will be sufficient to meet our near and long-term future cash needs. We (used) generated cash from operating activities of $39.5 million, $(4.1) million and $54.1 million in the years ended December 31, 2022, 2021 and 2020, respectively.
Based on our past performance and current expectations, we believe that operating cash flows and availability under our Revolving Credit Facility will be sufficient to meet our near and long-term future cash needs.
Reconciliations of Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share, to the respective most closely comparable GAAP measure, as well as a calculation of Adjusted Diluted Weighted Average Shares Outstanding, are provided in “—Non-GAAP Financial Measures”.
Reconciliations of Adjusted Gross Profit, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share to the respective most closely comparable GAAP measure, as well as a calculation of Adjusted Gross Profit Percentage and Adjusted Diluted Weighted Average Shares Outstanding, are provided below, in “—Non-GAAP Financial Measures.” Overview We are a leading provider of EBOS solutions and components for solar, battery storage and EV charging applications, selling to customers primarily in the United States as well as internationally.
Income Tax Expense Income tax expense was $9.0 million for the year ended December 31, 2022 as compared to an income tax expense of $0.1 million for the year ended December 31, 2021. Our effective income tax rate for the year ended December 31, 2022 and 2021 was 5.9% and 2.1%, respectively.
Our effective income tax rate for the year ended December 31, 2023 and 2022 was 22.3% and 5.9%, respectively.
The following table summarizes our results of operations (dollars in thousands): Year Ended December 31, 2022 vs 2021 2022 2021 $ variance % variance Revenue $ 326,940 $ 213,212 $ 113,728 53 % Cost of revenue 195,629 130,567 65,062 50 % Gross profit 131,311 82,645 48,666 59 % Operating expenses General and administrative expenses 55,908 37,893 18,015 48 % Depreciation and amortization 9,073 8,520 553 6 % Total operating expenses 64,981 46,413 18,568 40 % Income from operations 66,330 36,232 30,098 83 % Interest expense, net (18,538) (14,549) (3,989) 27 % Payable pursuant to the tax receivable agreement adjustment (6,675) (1,663) (5,012) 301 % Gain on termination of tax receivable agreement 110,883 — 110,883 100 % Loss on debt repayment — (15,990) 15,990 (100) % Income before income taxes 152,000 4,030 147,970 3,672 % Income tax expense (8,987) (86) (8,901) 10,350 % Net income 143,013 3,944 139,069 3,526 % Less: net income attributable to non-controlling interests 15,402 1,596 13,806 865 % Net income attributable to Shoals Technologies Group, Inc. $ 127,611 $ 2,348 $ 125,263 5,335 % Comparison of the years ended December 31, 2022 and 2021 Revenue Revenue increased by $113.7 million, or 53%, for the year ended December 31, 2022 as compared to the year ended December 31, 2021, driven by higher sales volumes as a result of increased demand for solar EBOS generally and our combine-as-you-go system solutions specifically.
The following table summarizes our results of operations (dollars in thousands): Year Ended December 31, 2023 vs 2022 2023 2022 $ variance % variance Revenue $ 488,939 $ 326,940 $ 161,999 50 % Cost of revenue 320,635 195,629 125,006 64 % Gross profit 168,304 131,311 36,993 28 % Operating expenses General and administrative expenses 80,719 55,908 24,811 44 % Depreciation and amortization 8,550 9,073 (523) (6) % Total operating expenses 89,269 64,981 24,288 37 % Income from operations 79,035 66,330 12,705 19 % Interest expense, net (24,100) (18,538) 5,562 30 % Payable pursuant to the tax receivable agreement adjustment — (6,675) (6,675) (100) % Gain on termination of tax receivable agreement — 110,883 110,883 (100) % Income before income taxes 54,935 152,000 (97,065) (64) % Income tax expense (12,274) (8,987) 3,287 37 % Net income 42,661 143,013 (100,352) (70) % Less: net income attributable to non-controlling interests 2,687 15,402 (12,715) (83) % Net income attributable to Shoals Technologies Group, Inc. $ 39,974 $ 127,611 $ (87,637) (69) % Comparison of the years ended December 31, 2023 and 2022 Revenue Revenue increased by $162.0 million, or 50%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022, driven by higher sales volumes as a result of increased demand for solar EBOS generally and our combine-as-you-go system solutions specifically.
Cost of Revenue and Gross Profit Cost of revenue increased by $65.1 million, or 50%, for the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily driven by an increase in revenue.
Cost of Revenue and Gross Profit Cost of revenue increased by $125.0 million, or 64%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022, driven by $61.7 million of wire insulation shrinkback expense recorded during the year ended December 31, 2023. The remaining increase is driven by the increase in revenue.
Federal income tax rate 21.0 % 21.0 % 21.0 % State and local taxes (net of federal benefit) 3.0 % 6.4 % 0.7 % Permanent adjustments 0.2 % 1.2 % — % Effective income tax rate for Adjusted Net Income 24.2 % 28.6 % 21.7 % (c) Represents an adjustment to eliminate the adjustment of the payable pursuant to the TRA.
Federal income tax rate 21.0 % 21.0 % 21.0 % Permanent adjustments 1.9 % 0.2 % 1.2 % State and local taxes (net of federal benefit) 3.3 % 3.0 % 6.4 % Effective income tax rate for Adjusted Net Income 26.2 % 24.2 % 28.6 % (h) Represents the estimated tax impact of all Adjusted Net Income add-backs, excluding those which represent permanent differences between book versus tax.
Ownership in Shoals Parent As of December 31, 2022, the Company owned 81.44% of Shoals Parent. The Continuing Equity Owners owned the remaining 18.56% of Shoals Parent. Trends and Uncertainties In 2022, significant levels of inflation increased energy prices, freight premiums, and other operating costs, including wages. These increases are expected to persist into 2023.
As part of this reorganization, Shoals Parent LLC merged with and into Shoals Intermediate Parent, with Shoals Intermediate Parent as the surviving corporation. Trends and Uncertainties During 2023 and 2022, significant levels of inflation resulted in increased energy prices, freight premiums, and other operating costs. These increases are expected to persist into 2024.
The increase in general and administrative expenses was primarily the result of an increase in wages and related taxes of $7.7 million due to increased employee headcount to support our growth and public company compliance, an increase in equity-based compensation of $4.0 million, a $2.9 million increase in professional fees, mainly related to accounting, legal, and recruiting services, an increase of $0.9 million related to travel and trade shows, and a $0.7 million increase in research and development expenses.
The increase in general and administrative expenses was the result of an increase in wages, benefits and related taxes of $9.9 million due to increased employee headcount to support our growth, as well as an increase in equity-based compensation of $4.1 million related to termination of our former CEO for disability and an increase in employee headcount, and an increase in professional fees of $7.3 million, related to a $3.3 million increase in legal fees incurred in connection with the ongoing patent infringement litigation, a $1.3 million increase in legal fees related to wire insulation shrinkback litigation, and $2.7 million of other miscellaneous professional services.
Depreciation and Amortization Depreciation and amortization expense increased by $0.6 million, or 6%, for the year ended December 31, 2022 as compared to the year ended December 31, 2021, due to the addition of intangibles acquired in the ConnectPV acquisition.
Depreciation and Amortization Depreciation and amortization expense decreased by $0.5 million, or 6%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022, due to definite lived intangible assets that became fully amortized during 2022 and 2023.
(f) Represents the estimated tax impact of all Adjusted Net Income add-backs, excluding those which represent permanent differences between book versus tax. 41 Table of Contents Reconciliation of Diluted Weighted Average Shares Outstanding to Adjusted Diluted Weighted Average Shares Outstanding (in thousands, except per share): Year Ended December 31, 2022 2021 2020 Diluted weighted average shares of Class A common stock outstanding, excluding Class B common stock 114,803 99,507 N/A (b) Assumed exchange of Class B common stock to Class A common stock 52,828 67,429 N/A (b) Adjusted diluted weighted average shares outstanding 167,631 166,936 N/A (b) Adjusted Net Income (a) $ 62,403 $ 35,914 N/A (b) Adjusted Diluted EPS $ 0.37 $ 0.22 N/A (b) (a) Represents Adjusted Net Income for the full period presented.
Reconciliation of Diluted Weighted Average Shares Outstanding to Adjusted Diluted Weighted Average Shares Outstanding (in thousands, except per share): Year Ended December 31, 2023 2022 2021 Diluted weighted average shares of Class A common stock outstanding, excluding Class B common stock 164,504 114,803 99,507 Assumed exchange of Class B common stock to Class A common stock 5,698 52,828 67,429 Adjusted diluted weighted average shares outstanding 170,202 167,631 166,936 Adjusted Net Income $ 111,313 $ 62,403 $ 35,914 Adjusted Diluted EPS $ 0.65 $ 0.37 $ 0.22 Liquidity and Capital Resources We finance our operations primarily with operating cash flows and current and long-term borrowings.
When we sell a solar system solution, we enter into a contract with our customers covering the price, specifications, delivery dates and warranty for the products being purchased, among other things. Our contractual delivery period for solar system solutions can vary from one to three months whereas manufacturing typically requires a shorter time frame.
Our customers include EPCs, utilities, solar developers, independent power producers, solar module manufacturers and charge point operators. We derive the majority of our revenue from selling solar system solutions. When we sell a solar system solution, we enter into a contract with our customers covering the price, specifications, delivery dates and warranty for the products being purchased, among other things.
There was no gain on termination of TRA for the year ended December 31, 2021. Loss on Debt Repayment There was no loss on debt repayment for the year ended December 31, 2022.
There was no gain on termination of TRA for the year ended December 31, 2023. Income Tax Expense Income tax expense was $12.3 million for the year ended December 31, 2023 as compared to income tax expense of $9.0 million for the year ended December 31, 2022.
EBOS components are mission-critical products that have a high consequence of failure, including lost revenue, equipment damage, fire damage, and even serious injury or death. As a result, we believe customers prioritize reliability and safety over price when selecting EBOS solutions.
EBOS encompasses all of the components that are necessary to carry the electric current produced by solar panels to an inverter and ultimately to the power grid. EBOS components are mission-critical products that have a high consequence of failure, including lost revenue, equipment damage, fire damage, and even serious injury or death.
Payable Pursuant to the Tax Receivable Agreement Adjustment Payable pursuant to the TRA adjustment increased $5.0 million or 301% for the year ended December 31, 2022 as compared to the year ended December 31, 2021, due to changes in our state tax rate in the current period, as compared to the prior year and a larger deferred tax asset.
Payable Pursuant to the Tax Receivable Agreement Adjustment Payable pursuant to the TRA adjustment decreased $6.7 million or 100% for the year ended December 31, 2023 as compared to the year ended December 31, 2022, due to termination and settlement of the TRA on December 6, 2022.
As of December 31, 2022, our cash and cash equivalents were $8.8 million and we had outstanding borrowings of $243.3 million. We also had $102.0 million available for additional borrowings under our $150.0 million Revolving Credit Facility.
As of December 31, 2023, our cash and cash 46 Table of Contents equivalents were $22.7 million, an increase from $8.8 million as of December 31, 2022. As of December 31, 2023 we had outstanding borrowings of $183.8 million, a decrease from $243.3 million as of December 31, 2022.
Throughout fiscal year 2022, we have maintained focus on our growth strategy, including converting customers to our combine-as-you-go system and developing products for the rapidly growing EV charging infrastructure market. We believe that as of December 31, 2022, 14 of the top 15 solar EPCs as reported by Solar Power World Magazine use our combine-as-you-go system on their projects.
Throughout fiscal year 2023, we have maintained focus on our growth strategy and continued strengthening our leadership position in the industry. We believe that as of December 31, 2023, we have worked with 13 of the top 15 solar EPCs, per Wood Mackenzie data from 2019-2023, and 11 of those EPCs used our combine-as-you-go system on their projects.
Revenue We generate revenue from the sale of EBOS systems and components for homerun and combine-as-you-go architectures, battery storage and EV charging infrastructure. Our customers include EPCs, utilities, solar developers, independent power producers, solar module manufacturers and charge point operators. We derive the majority of our revenue from selling solar system solutions.
Key Components of Our Results of Operations The following discussion describes certain line items in our consolidated statements of operations. Revenue We generate revenue from the sale of EBOS systems and components for homerun and combine-as-you-go architectures, battery storage, EV charging infrastructure, and O&M offerings.
Income Tax Expense Shoals Technologies Group, Inc. is subject to U.S. federal and state income tax in multiple jurisdictions with respect to our allocable share of any net taxable income of Shoals Parent.
Income Tax Expense Shoals Technologies Group, Inc. is subject to U.S. federal and state income tax in multiple jurisdictions. Prior to the July 1, 2023 contribution described in Note 17 - Income Taxes, Shoals Parent LLC was a pass-through entity for federal income tax purposes but incurred income tax in certain state jurisdictions.
Gross profit as a percentage of revenue increased from 38.8% in 2021 to 40.2% in 2022 due to a higher proportion of revenue generated from our combine-as-you-go system solutions, which carry higher margins than our other products, and increased leverage on fixed costs as a result of higher sales volumes.
The decrease in gross profit as a percentage of revenue was driven by the increase in wire insulation shrinkback expense and was offset by a higher portion of overall revenue coming from our combine-as-you-go system solutions, which carry higher margins than our other products, slightly lower raw materials input costs, increased leverage on fixed costs, and efficiencies gained in operations. 41 Table of Contents Operating Expenses General and Administrative General and administrative expenses increased $24.8 million, or 44%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022.
Shoals Parent is a pass-through entity for federal income tax purposes but incurs income tax in certain state jurisdictions. 36 Table of Contents Results of Operations Set forth below is a comparison of the results of operations and changes in financial condition for the years ended December 31, 2022 and 2021.
On July 1, 2023, the Company contributed 100% of its LLC Interests in Shoals Parent LLC to its wholly-owned subsidiary, Shoals Intermediate Parent, and following the contribution, Shoals Parent LLC became a disregarded single member limited liability company, eliminating the Up-C structure. 40 Table of Contents Results of Operations Set forth below is a comparison of the results of operations and changes in financial condition for the years ended December 31, 2023 and 2022.
Liquidity and Capital Resources Year Ended December 31, 2022 2021 2020 Net cash provided by (used in) operating activities $ 39,455 $ (4,083) $ 54,082 Net cash used in investing activities (3,657) (17,035) (3,236) Net cash provided by (used in) financing activities (36,589) 20,602 (47,855) Net increase (decrease) in cash, cash equivalents and restricted cash $ (791) $ (516) $ 2,991 We finance our operations primarily with operating cash flows and short and long-term borrowings.
Year Ended December 31, 2023 2022 2021 Net cash provided by (used in) operating activities $ 91,955 $ 39,455 $ (4,083) Net cash used in investing activities (10,847) (3,657) (17,035) Net cash provided by (used in) financing activities (67,167) (36,589) 20,602 Net increase (decrease) in cash, cash equivalents and restricted cash $ 13,941 $ (791) $ (516) Operating Activities For the year ended December 31, 2023, cash provided by operating activities was $92.0 million, due to operating results that included $42.7 million of net income, which included $109.8 million of non-cash expense, along with an increase of $9.6 million in accounts payable and accrued expenses and other, and a decrease of $15.0 million in inventory.
We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management.
Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
Any additional increases in interest rates by the Federal Reserve would have a corresponding increase in the interest rates charged under our Senior Secured Credit Agreement.
As a result of inflation, during 2023 and 2022, the Federal Reserve increased interest rates. Such increased interest rates have resulted in higher interest rates associated with our Senior Secured Credit Agreement.
Removed
Overview We are a leading provider of EBOS solutions and components for solar, battery storage and electrical vehicle (“EV”) charging applications, selling to customers across the United States and internationally. EBOS encompasses all of the components that are necessary to carry the electric current produced by solar panels to an inverter and ultimately to the power grid.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeOur EPC customers typically construct multiple projects for several different owners. For the year ended December 31, 2022, our largest customer and five largest customers constituted approximately 8.4% and 35.8% of total revenue, respectively. The loss of any one of our top five customers could have a material adverse effect on our financial conditions and results of operations.
Biggest changeOur EPC customers typically construct multiple projects for several different owners. One customer contributed approximately 36.3% of our total revenue for the year ended December 31, 2023 and 37.5% of accounts receivable as of December 31, 2023.
Significant price increases for these raw materials could reduce our operating margins if we are unable to recover such increases from our customers, in the form of increased prices, which could harm our business, financial condition and results of operations. Interest Rate Risk As of December 31, 2022, our long-term debt totaled $243.3 million.
Significant price increases for these raw materials could reduce our operating margins if we are unable to recover such increases from our customers, in the form of increased prices, which could harm our business, financial condition and results of operations. Interest Rate Risk As of December 31, 2023, our long-term debt totaled $183.8 million.
We have interest rate exposure with respect to the $243.3 million balance as it is all variable interest rate debt. A 100 basis point increase in interest rates would impact our expected annual interest expense for the next 12 months by approximately $2.4 million. 45 Table of Contents
We have interest rate exposure with respect to the entire balance as it is all variable interest rate debt. A 100 basis point increase/decrease in interest rates would impact our expected annual interest expense for the next 12 months by approximately $1.8 million. 51 Table of Contents
We continually evaluate our reserves for potential credit losses and establish reserves for such losses. Commodity Price Risk We are subject to risk from fluctuating market prices of certain commodity raw materials, including copper, that are used in our products.
The loss of this large customer or any significant customer could have a material adverse effect on our financial conditions and results of operations. Commodity Price Risk We are subject to risk from fluctuating market prices of certain commodity raw materials, including copper, that are used in our products.
Removed
Further, our trade accounts receivable are from companies within the solar industry and, as such, we are exposed to normal industry credit risks. As of December 31, 2022, our largest customer and five largest customers constituted 3.4% and 24.1% of trade accounts receivable, respectively. We do not require collateral on our customers’ trade receivables.
Added
Our five largest customers contributed approximately 56.9% of our total revenue for the year ended December 31, 2023 and 65.5% of accounts receivable as of December 31, 2023. The majority of our contracts require customer deposits ranging from 10 to 20% of the contract value. We continually evaluate our reserves for potential credit losses and establish reserves for such losses.

Other SHLS 10-K year-over-year comparisons