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What changed in Shoals Technologies Group, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Shoals Technologies Group, Inc.'s 2023 and 2024 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 2024 report.

+435 added−435 removedSource: 10-K (2025-02-25) vs 10-K (2024-02-28)

Top changes in Shoals Technologies Group, Inc.'s 2024 10-K

435 paragraphs added · 435 removed · 291 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

62 edited+35 added−31 removed21 unchanged
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.
Biggest changeForward-looking statements include information concerning our possible or assumed future results of operations; expectations regarding the utility-scale solar market; project delays; regulatory environment; the effects of competitive dynamics, volume discounts and customer mix in our key markets; pipeline and orders; business strategies, plans and expectations; sales and marketing goals; technology developments; financing and investment plans; warranty and liability accruals and estimates of loss or gains; estimates of potential loss related to the wire insulation shrinkback matter (as defined below); litigation strategy and expected benefits or results from the current intellectual property and wire insulation shrinkback litigation; potential growth opportunities, including opportunities associated with our entry into new markets; production and capacity at our plants; and potential repurchases under the Company’s Repurchase Program (as defined below).
The information found on our website is not a part of this Annual Report on Form 10-K or any other report we file with or furnish to the SEC. 9 Table of Contents FORWARD-LOOKING STATEMENTS This report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management.
The information found on our website is not a part of this Annual Report on Form 10-K or any other report we file with or furnish to the SEC. 10 Table of Contents FORWARD-LOOKING STATEMENTS This report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management.
Requiring fewer connections reduces the number of labor hours required to install the system as well as the number of potential failure points. • Having greater reliability and lower maintenance costs. Connection points are often the source of failure in EBOS systems and must be inspected regularly.
Requiring fewer connections reduces the number of labor hours required to install the system as well as the number of potential failure points. • Having greater reliability and lower maintenance costs. Connection points are often the source of failure in EBOS and must be inspected regularly.
However, the actual protection afforded by a patent varies on a country-to-country basis and depends upon many factors, including the type of patent, the scope of its coverage, the availability of legal remedies in a particular country, and the validity and enforceability of the patent.
The actual protection afforded by a patent varies on a country-to-country basis and depends upon many factors, including the type of patent, the scope of its coverage, the availability of legal remedies in a particular country, and the validity and enforceability of the patent.
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.
We also encourage our employees to operate by a common set of principles, which includes: • 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.
Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. 10 Table of Contents
Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. 11 Table of Contents
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 cost of failure of EBOS. EPCs typically construct multiple projects for several different owners.
Making repairs to buried wire can also be challenging and expensive, as well as run the risk of unintentionally damaging other buried wire that did not need to be repaired. Our BLA is hung from the mounting system used for the solar panels, enabling above ground installation.
Making repairs to buried wire can also be 2 Table of Contents challenging and expensive, as well as run the risk of unintentionally damaging other buried wire that did not need to be repaired. Our BLA is hung from the mounting system used for the solar panels, enabling above ground installation.
We believe that we have developed and commercialized most of the new EBOS products and installation methods adopted by the U.S. solar industry over the past five years, including plug-n-play wiring, interconnect harnesses and combine-as-you-go architecture for solar energy projects. Our development strategy is to identify features that bring value to our customers and differentiate us from our competitors.
We believe that we have developed and commercialized most of the new EBOS products and installation methods adopted by the U.S. solar industry over the past five years, including plug-and-play wiring and architecture, and interconnect harnesses for solar energy projects. Our development strategy is to identify features that bring value to our customers and differentiate us from our competitors.
Resistance welding produces significantly stronger bonds than competing techniques used by our competitors. Specifying complementary materials for the undermold and overmold significantly reduces the risk of moisture infiltrating the connection and enables us to provide superior ultraviolet (“UV”) protection, strain relief, impact resistance, and thermal stability over a wide range of environmental conditions.
We believe resistance welding produces significantly stronger bonds than competing techniques used by our competitors. Specifying complementary materials for the undermold and overmold significantly reduces the risk of moisture infiltrating the connection 5 Table of Contents and enables us to provide superior ultraviolet (“UV”) protection, strain relief, impact resistance, and thermal stability over a wide range of environmental conditions.
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.
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.
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.
Our project management team supports the process after a sale is completed by providing the customer submittals for 4 Table of Contents approval, real-time shipping information, and any additional items that may be needed to complete the installation and commissioning.
Seasonality We have experienced seasonal and quarterly fluctuations in the past as a result of seasonal fluctuations in our customers’ business. Our end users’ ability to install solar energy systems is affected by weather, as for example during the winter months in the northeastern U.S. Such installation delays can impact the timing of orders for our products.
Seasonality We have experienced seasonal and quarterly fluctuations in the past as a result of seasonal fluctuations in our customers’ business. Our end users’ ability to install solar energy systems is affected by weather, as installation and construction projects slow during the colder winter months in the U.S. Such installation delays can impact the timing of orders for our products.
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.
We believe fewer potential failure points contributes to higher reliability and lower maintenance costs for solar energy projects that use our plug-and-play 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.
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.
We employ a stringent engineering 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.
In addition, through our corporate website at www.shoals.com, Shoals provides a hyperlink to a third-party SEC filing website which posts these filings as soon as reasonably practicable, where they can be reviewed without charge.
Any document Shoals files may be inspected, without charge, at the SEC’s website at http://www.sec.gov. In addition, through our corporate website at www.shoals.com, Shoals provides a hyperlink to a third-party SEC filing website which posts these filings as soon as reasonably practicable, where they can be reviewed without charge.
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.
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 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.
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.
The BLA is our core combine-as-you-go product. The direct connection between the interconnect harness and the BLA and the integration of fuses into the interconnect harness dramatically reduce the number of wire runs required compared to a conventional homerun system and eliminate the need for combiner boxes.
The BLA is our core plug-and-play product. The direct connection between the interconnect harness and the BLA and the integration of fuses into the interconnect harness dramatically reduces the number of wire runs required compared to a conventional homerun system and eliminates the need for combiner boxes.
Our occupational health and safety program is designed to drive a proactive safety culture beginning with our management setting the tone for our safety culture and ensuring that everyone feels a sense of ownership for each other’s safety and well-being. We strive to have an interdependent safety culture where all employees feel responsible for each other’s safety.
Our occupational health and safety program is designed to drive a proactive safety culture beginning with our management setting the tone for our safety culture and ensuring that everyone feels a sense of ownership for each other’s safety and well-being.
We compete on the basis of product performance and features, installation cost, reliability and duration of product warranty, sales and distribution capabilities, and training and customer support, as well as the ability to provide system solutions rather than individual components. We believe we are significantly larger as measured by revenue than our next largest competitor.
We compete on the basis of product performance and features, installation cost, reliability and duration of product warranty, sales and distribution capabilities, and training and customer support, as well as the ability to provide system solutions rather than individual components.
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.
Given the custom nature of both our system solutions and individual components and the long development cycle for solar energy projects, we typically have 12 months or more of lead time to quote, engineer, produce and ship orders we receive, and we do not stock large amounts of finished goods.
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.
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.
Rather than making individual wire runs from each string to combiner boxes, combine-as-you-go architecture connects multiple strings within each row using specialized wire harnesses with integrated fuses that we refer to as “interconnect harnesses”. The interconnect harnesses are then connected to a proprietary above ground feeder cable that we refer to as the Big Lead Assembly (“BLA”).
Rather than making individual wire runs from each string to combiner boxes, plug-and-play architecture connects multiple strings within each row using specialized wire harnesses with integrated fuses that we refer to as “interconnect harnesses.” The copper interconnect harnesses are then connected to a proprietary above ground aluminum feeder cable that we refer to as the Big Lead Assembly (“BLA”), which feed directly into disconnect boxes, which are connected to the inverter.
We encourage our leaders to provide continuous guidance and feedback to our employees. We believe it is the responsibility of every person in leadership – be it a Team Lead, Supervisor, or Manager – to serve as a resource and support for each of our team members.
We believe it is the responsibility of every person in leadership – be it a Team Lead, Supervisor, or Manager – to serve as a resource and support for each of our team members. Compensation and Benefits We provide a comprehensive suite of rewards and benefits.
We believe that many elements of our manufacturing processes involve proprietary know-how, technology or data that are not covered by patents or patent applications, including technical processes, test equipment designs, algorithms and procedures.
These aspects of our business include proprietary know-how, technology or data that are not covered by patents or patent applications, including technical processes, test equipment designs, algorithms and procedures.
We believe our combine-as-you-go architecture using interconnect harnesses and BLA has several advantages when compared to conventional homerun EBOS, including: • Installing above ground. Wiring for conventional homerun systems is typically run through conduits that are buried in trenches. Trenching is costly and time consuming.
We believe our plug-and-play EBOS architecture using interconnect harnesses and BLA has several competitive advantages when compared to conventional homerun EBOS, including: • Installing above ground. Wiring for conventional homerun systems is typically run through conduits that are buried in trenches. Trenching is costly and time consuming, and certain geographies have environmental limits to these types of construction actions.
We work collaboratively to understand the complexities and goals of each project with all stakeholders involved to ensure continuity throughout the decision-making process. This involves us collaborating on site design, product selection, value engineering and optimization.
Our sales process is a highly consultative approach that involves working with developers, engineers, EPC’s, subcontractors, and OEM firms. We work collaboratively with all project stakeholders to understand the complexities and goals of each project to ensure continuity throughout the decision-making process. This involves us collaborating on site design, product selection, value engineering and optimization.
Lower resistance reduces energy loss to waste heat dissipation, which we believe results in greater energy generation from solar projects that use our combine-as-you-go system when compared to a conventional homerun system. Together, we believe these advantages result in lower installation costs and lower material costs for our combine-as-you-go systems when compared to conventional homerun systems.
Lower resistance reduces energy loss to waste heat dissipation, which we believe results in greater energy generation from solar projects that use our plug-and-play system when compared to a conventional homerun system.
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.
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.
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.
For the year ended December 31, 2024, our largest customer contributed approximately 26.4% of our total revenue and was one of two customers contributing 10% or greater of total revenue. Competition Our offerings are highly specialized and patented products that are specific to the solar industry.
This process enables the organization to implement proactive safety measures, including ergonomic improvements, behavioral and unsafe condition audits, near miss reporting and assessments, as leading indicators towards our journey to zero accidents.
The key to preventing injuries begins with establishing the risk profile in our facilities through effective risk assessment and incident reporting and analysis processes. This process enables the organization to implement proactive safety measures, including ergonomic improvements, behavioral and unsafe condition audits, and near miss reporting and assessments, as leading indicators towards our journey to zero accidents.
Generally, patents issued for applications filed in the U.S. are effective for 20 years from the earliest effective filing date of a non-provisional patent application. The duration of patents outside of the U.S. varies in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective filing date.
The duration of patents outside of the U.S. varies in accordance with provisions of applicable local law, but typically 6 Table of Contents is also 20 years from the earliest effective filing date.
(“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.
Following the elimination of the Up-C structure, the Company consummated an internal reorganization transaction, effective December 31, 2023, whereby certain of the Company’s wholly-owned subsidiaries merged with and into other subsidiaries.
Making the crimped connections between wires and interconnecting them in the combiner box is a complex, error prone process that requires special tools.
Because each string is individually connected to a combiner box, the same distances are covered with multiple wire runs. Making the crimped connections between wires and interconnecting them in the combiner box is a complex, error prone process that requires special tools.
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.
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. We have also invented a trunk-bus alternative to traditional homerun architecture which we refer to as “plug-and-play” EBOS.
We sell our solar products principally to engineering, procurement and construction firms (“EPCs”) that build solar energy projects. However, given the mission critical nature of EBOS, the decision to use our products typically involves input from both the EPC and the owner of the solar energy project.
However, given the mission critical nature of EBOS (as further described below), the decision to use our products typically involves input from both the EPC and the owner/developer of the solar energy 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.
Our customer care continues after a project’s completion, with our team providing technical and maintenance support 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. We have manufacturing facilities located in Tennessee and Alabama.
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.
Following a secondary offering of shares of Class A common stock by certain selling stockholders in March 2023, 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.
We rely primarily on patent, trademark, copyright and trade secret laws in the U.S., confidentiality agreements and procedures and other contractual arrangements to protect our technology.
We rely primarily on patent, trademark, copyright and trade secret laws in the U.S., confidentiality agreements and procedures and other contractual arrangements to protect our technology. As of December 31, 2024, we had 21 U.S. trademark registrations, 5 pending U.S. trademark applications, 36 issued U.S. patents, 32 issued non-U.S. patents, and 58 global patent applications pending examination.
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”).
Elimination of Up-C Structure and Entity Simplification In the first quarter of 2023, we simplified our corporate structure by, among other things, eliminating the umbrella-partnership C corporation structure (“Up-C structure”) that was in place since its January 29, 2021 initial public offering (“IPO”).
The term of individual patents extend for varying periods of time, depending upon the date of filing of the patent application, the date of patent issuance, and the legal term of patents in the countries in which they are obtained.
The term of individual patents in our portfolio vary, depending on, for example, the date of filing or date of patent issuance and the legal term of the patents in the jurisdictions in which they are obtained.
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.
Our sales and marketing strategy is to build product awareness and foster long-term relationships with key stakeholders that are involved in the lifecycle of a solar or BESS project. We educate these stakeholders on the value proposition of our solutions which lower installation costs, provide greater reliability, and decrease maintenance costs.
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.
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. We encourage our leaders to provide continuous guidance and feedback to our employees.
Conventional homerun systems use crimps and other specialized procedures to connect wires and install combiner boxes that must be performed by licensed electricians. Because our interconnect harness and BLA use simple push connectors and don’t require combiner boxes, licensed electricians are not needed to install the system. • Reducing the number of wire runs .
Because our interconnect harness and BLA use simple push connectors and do not require combiner boxes, licensed electricians (who are often expensive and in short-supply) are not needed to install the system. • Reducing the number of wire runs .
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.
These sales representatives are supported by our engineering teams in the United States to ensure that we comply with local codes and regulations. Our Customers We sell our products principally to EPCs that build solar energy projects on behalf of their customers, the land owners and developers.
Each wire run must be measured, laid out and fished through conduits that are buried in trenches across the project site. Because each string is individually connected to a combiner box, the same distances are covered with multiple wire runs.
Making each wire run from the strings to the combiner boxes is a costly and laborious process, requiring expensive copper wire and licensed electricians. Each wire run must be measured, laid out and fished through conduits that are buried in trenches across the project site.
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.
Together, we believe these techniques have shown to substantially reduce the risk that our cable develops a fault over its lifetime. Our principal manufacturing facilities are located in Tennessee and Alabama. Our Alabama facility is Internation Organization for Standardization (“ISO”) 9001:2015 certified.
Conventional homerun EBOS systems have two distinguishing characteristics: every string of solar panels in the project is connected to a combiner box with individual positive and negative “wire runs,” and connections between wires are made using a process called “crimping”.
Traditional EBOS Solution The Problem 1 Table of Contents Historically, most solar energy projects used a wiring architecture known as a “homerun.” Conventional homerun EBOS has two distinguishing characteristics: first, every string of solar panels in the project is connected to a combiner box with individual positive and negative “wire runs,” and second, connections between wires are made using a process called “crimping.” The combiner box functions as a central point to “combine” the individual wire runs into a single feeder cable and contains fuses to protect each circuit.
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.
The unique expertise required to design EBOS, BESS, data centers, and OEM solutions, including system solutions and individual component products, as well as customers’ reluctance to try unproven products, has confined the number of companies that produce such EBOS, BESS and OEM products to a relatively small number.
We educate these stakeholders on the value proposition of our solutions which lower installation costs, provide greater reliability, and lower maintenance costs through a variety of marketing strategies which include direct marketing campaigns, white papers, independent third-party studies, training seminars, and participating in industry conferences and events.
We use a variety of marketing strategies which include direct marketing campaigns, white papers, independent third-party studies, training seminars, and participating in industry conferences and events. We sell components and system solutions both on a project-to-project basis or through master supply agreements that support a portfolio of projects.
We continue to increase our outreach, recruitment, hiring, and retention of diverse groups at all levels of our workforce, including leadership roles. We also focus on listening, learning, and responding to our employees’ concerns to help ensure that we can provide a diverse, equitable, and inclusive workplace today and into the future.
We believe that these efforts enhance our capacity to attract and retain employees who will help our business innovate and succeed. We also focus on listening, learning, and 8 Table of Contents responding to our employees’ concerns to help ensure that we can provide a diverse, equitable, and inclusive workplace today and into the future.
Available Information Shoals files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments of such reports with the Securities and Exchange Commission (“SEC”). Any document Shoals files may be inspected, without charge, at the SEC’s website at http://www.sec.gov.
As part of this reorganization, Shoals Parent LLC merged with and into Shoals Intermediate Parent, with Shoals Intermediate Parent as the surviving corporation. 9 Table of Contents Available Information Shoals files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments of such reports with the Securities and Exchange Commission (“SEC”).
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.
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.
Products and Services System Solutions We refer to complete EBOS systems that use multiple components produced by us as “system solutions”. When we sell a system solution, we work with our customers to design, specify and customize their EBOS system to maximize reliability and energy production while minimizing cost.
When we sell a system solution, we work with our customers to design, specify and engineer their system solution to provide a complete customized EBOS solution consisting of individualized products that maximizes reliability and energy production while minimizing cost. We also provide technical support during installation and the transition to operations and maintenance.
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.
We have national sales leaders in the United States that are supported by our engineering staff in Tennessee. Internationally, 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.
The entire installation must be performed by licensed electricians with special training and any mistake in the process can result in a catastrophic system failure. We invented an alternative to homerun architecture which we refer to as “combine-as-you-go”.
The entire installation must be performed by licensed electricians with special training and any mistake in the process can result in a catastrophic system failure. Weather, moisture, dirt, and human error all contribute to the challenges of completing a high-quality, cleanly-connected system, that is required to remain in service for decades.
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.
Diversity and Inclusion We remain committed to the long-term strategic benefits of diversity and inclusion initiatives, recognizing their pivotal role in driving positive outcomes for our business, enabling us to better meet the needs of our customers, and creating long-term value for our stockholders. Our goal is to cultivate a workplace where everyone feels welcomed, valued, treated fairly and respected.
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.
Since EBOS components are mission-critical products that have a high consequence of failure, which may result in lost revenue, equipment damage, fire, and even serious injury or death, we generally believe customers prioritize reliability and safety over price when selecting EBOS solutions.
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.
Many of our patents relate to more efficient electrical wiring and power transmission from solar panels to power inverters at solar installations. Our current U.S. issued patents are scheduled to expire from 2031 to 2043. The majority of our issued U.S. patents are not set to expire until 2035 or later.
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”.
Our Proprietary Answers: The majority of solar energy projects in operation today use conventional homerun architecture. We design, manufacture and sell system solutions for homerun systems. We have developed a proprietary EBOS solution for homerun architectures that utilizes our interconnect harness.
We rely on trade secret protection and confidentiality agreements to safeguard our interests with respect to proprietary know-how that is not patentable and processes for which patents are difficult to enforce.
We also rely on trade secrets and seek to protect and maintain the confidentiality of proprietary know-how to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.
Removed
As part of this reorganization, Shoals Parent LLC merged with and into Shoals Intermediate Parent, with Shoals Intermediate Parent as the surviving corporation.
Added
Shares of our Class A common stock trade on the Nasdaq Global Market (“Nasdaq”) under the symbol, “SHLS”. Overview Shoals is a leading provider of electrical balance of system (“EBOS”) solutions and components, including battery energy storage solutions (“BESS”) and Original Equipment Manufacturer (“OEM”) components, for the global energy transition market.
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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.
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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. We refer to complete EBOS solutions that use products manufactured by us, typically in connection with the design and specification of an entire EBOS system, as “system solutions”.
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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.
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We refer to individual, often custom and proprietary, products we sell as “components”.
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We derive the majority of our revenue from selling “system solutions” which are complete EBOS systems that include several of our components, many of which are customized for the customer’s project.
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Traditionally, and for the year ended December 31, 2024, we primarily sold our EBOS solutions and components and OEM components to customers in the United States.
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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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Specifically, we primarily sold to engineering, procurement and construction firms (“EPCs”) for use in large solar projects designed to generate electricity and feed it directly into the electric grid, typically with a generation capacity of 1 megawatt (“MW”) or greater (“utility-scale solar”). These EPCs work with owners and developers of solar assets to build solar energy projects.
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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.
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As further described below, in the third quarter of 2024, we announced our strategic shift to expand our reach and capitalize on international, BESS, data centers, and Commercial, Community, and Industrial (“CC&I”) markets, while also maintaining our focus on domestic utility-scale solar and OEM markets.
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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.
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This shift is aimed at capitalizing on the growing global demand for renewable energy solutions and diversifying our market presence. By entering new geographic regions, markets, and applications, we aim to enhance our competitive position and drive long-term growth.
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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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Our patented design includes connection points which incorporate a double molding system, permanently sealing out any moisture or particulates that would otherwise compromise the system. Additionally, BLA delivers to our customers meaningful cost savings by leveraging aluminum, which is often 80% less expensive than copper.
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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”.
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Conventional homerun systems use crimps and other specialized procedures to connect wires and install combiner boxes that must be performed by licensed electricians.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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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.
Biggest changeInternational Trade Commission (“ITC”) and District Courts; • If we fail to, or incur significant costs in order to obtain, maintain, protect, defend or enforce our intellectual property portfolio and other proprietary rights, including the patents we are asserting in 12 Table of Contents ongoing patent infringement litigation, 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 negatively impact our results of operations; • 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 may harm our business, financial condition, results of operations and prospects; • The unauthorized access to our information technology systems or the 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; • Failure 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, restrict our current and future operations, and our competitive position; • Existing electric utility industry, federal state and municipal renewable energy and solar energy policies and regulations, including zoning and siting laws, and any subsequent changes, 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 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; • The market price of our Class A common stock may decline and may continue to be subject to significant volatility; • Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management; and • Our amended and restated 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.
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.
Furthermore, defective components may give rise to warranty claims (such as those related to the wire insulation shrinkback matter), or indemnity or product liability claims against us, 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.
Significant decreases in the price of electricity, whether in organized electric markets or with contract counterparties, may negatively impact the owners of the solar energy projects or make the purchase of solar energy systems less economically attractive and would likely lower sales of our products.
Significant decreases in the price of electricity, whether in organized electric markets or with contract counterparties, may negatively impact owners of solar energy projects or make the purchase of solar energy systems less economically attractive and would likely lower sales of our products.
We rely heavily on trade secrets and nondisclosure agreements to protect our unpatented know-how, technology, and other proprietary information, and to maintain our competitive position, which we seek to protect, in part, by entering into nondisclosure and confidentiality agreements with parties who have access to them, such as our employees, consultants, and other third parties.
We rely heavily on trade secrets and nondisclosure agreements to protect our proprietary know-how, technology, and other proprietary information, and to maintain our competitive position, which we seek to protect, in part, by entering into nondisclosure and confidentiality agreements with parties who have access to them, such as our employees, consultants, and other third parties.
The registered or unregistered trademarks or trade names that we own may be challenged, infringed, circumvented, declared generic, lapsed or determined to be infringing on or dilutive of other marks. We may not be able to protect our rights in these trademarks and trade names, which we need in order to build name recognition.
The registered or unregistered trademarks or trade names that we own may be challenged, infringed, circumvented, declared generic, lapsed or determined to be infringing on or dilutive of other marks. We may not be able to protect our rights in these trademarks and trade names, which we need to build name recognition.
The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusions, including by computer hackers, nation-state affiliated actors, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased as well.
The risk of a security breach or disruption, particularly through cyberattacks or cyber intrusions, including by computer hackers, nation-state affiliated actors, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased as well.
We generally seek or apply for patent protection as and if we deem appropriate, based on then-current facts and circumstances. We have applied for patents in the U.S., some of which have been issued.
We generally seek or apply for patent protection as and if we deem appropriate, based on then-current facts and circumstances. We have applied for patents in the U.S. and abroad, some of which have been issued.
We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries, including unpredictable and volatile revenue and increased expenses as we continue to grow our business.
We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries, including unpredictable and volatile revenue and increased expenses as we continue to attempt to grow our business.
The market for our products is competitive, and we may face increased competition as new and existing competitors introduce EBOS system solutions and components, which could negatively affect our results of operations and market share.
The market for our products is competitive, and we face increased competition as new and existing competitors introduce EBOS system solutions and components, which could negatively affect our results of operations and market share. The market for EBOS system solutions and components is competitive.
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.
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 or that of our customers, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
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.
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 attracting and retaining key personnel.
To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our certificate of incorporation provides that, unless we consent in writing to the selection of an alternate forum, the federal district court for the District of Delaware will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the federal securities laws.
To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternate forum, the federal district court for the District of Delaware will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the federal securities laws.
We are subject to risks associated with the patent infringement complaints that we filed with the U.S. International Trade Commission (“ITC”) and two District Courts.
We are subject to risks associated with the patent infringement complaints that we filed with the U.S. International Trade Commission (“ITC”) and District Courts.
The sale of shares of our Class A common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our Class A common stock.
Additionally, the sale of shares of our Class A common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our Class A common stock.
Alternatively, if a court finds the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially and adversely affect our business, financial condition, and results of operations.
Alternatively, if a court finds the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially and adversely affect our business, financial condition, and results of operations.
We rely extensively on various information technology systems, including data centers, hardware, software and applications to manage many aspects of our business, including to operate and provide our products and services, to process and record transactions, to enable effective communication systems, to track inventory flow, to manage logistics and to generate performance and financial reports.
We rely extensively on various information technology systems, including data centers, hardware, software and third-party applications to manage many aspects of our business, including to operate and provide our products and services, to process and record transactions, to enable effective communication systems, to track inventory flow, to manage logistics and to generate performance and financial reports.
The Company does not maintain insurance for product warranty and has commenced a lawsuit against Prysmian, as discussed in more detail under Litigation in Note 16 - Commitments and Contingencies in our consolidated financial statements included in this Annual Report on Form 10-K.
The Company does not maintain insurance for product warranty and has commenced a lawsuit against Prysmian, as discussed in more detail under Litigation in Note 15 - Commitments and Contingencies in our consolidated financial statements included in this Annual Report on Form 10-K.
Several of our existing and potential competitors may have or obtain the financial resources to offer competitive products at aggressive or below-market pricing levels, which could cause us to lose sales or market share or require us to lower prices for our products in order to compete effectively.
Several of our existing and potential competitors may have, or obtain, the financial resources to offer competitive products at aggressive or below-market pricing levels, which could cause us to lose sales or market share or require us to lower prices for our products to compete effectively.
A significant drop in the price of electricity sold may harm our business, financial condition, results of operations and prospects.
A significant drop in the price of electricity may harm our business, financial condition, results of operations and prospects.
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.
Our amended and restated certificate of incorporation and amended and restated 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.
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 addition, as the regulatory environment relating to companies’ obligations to protect sensitive data and disclose certain cybersecurity incidents 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.
On August 23, 2023, as a result of an investigation, the USDOC determined that imports of certain crystalline silicone PV that have been completed in Cambodia, Malaysia, Thailand, or Vietnam, using parts or components produced in the People’s Republic of China are circumventing the antidumping and countervailing orders on solar cells 29 Table of Contents and modules from China.
On August 23, 2023, as a result of an investigation, the USDOC determined that imports of certain crystalline silicone PV that have been completed in Cambodia, Malaysia, Thailand, or Vietnam, using parts or components produced in the People’s Republic of China are circumventing the antidumping and countervailing orders on solar cells and modules from China.
Any of the foregoing could have a material adverse effect on our business, prospects, results of operations and financial condition and could cause our results of operations to differ materially from our projections. Unsatisfactory safety performance may subject us to penalties, negatively impact customer relationships, result in higher operating costs, and negatively impact employee morale and turnover.
Any of the foregoing could have a material adverse effect on our business, prospects, results of operations and financial condition and could cause our results of operations to differ materially from our projections. Safety issues may subject us to penalties, negatively impact customer relationships, result in higher operating costs, and negatively impact employee morale and turnover.
In addition, third parties may file for registration of trademarks similar or identical to our trademarks, thereby impeding our ability to build brand identity and possibly leading to market confusion. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively.
In addition, third parties may file for registration of trademarks similar or identical to our 23 Table of Contents trademarks, thereby impeding our ability to build brand identity and possibly leading to market confusion. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively.
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”).
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 and trade standards, including the Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”).
In addition, we believe that a significant percentage of end-users construct solar energy projects as an investment, funding a significant portion of the initial capital expenditure with financing from third parties.
We believe that a significant percentage of end-users construct solar energy projects as an investment, funding a significant portion of the initial capital expenditure with financing from third parties.
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.
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 27 Table of Contents business and manage our operations.
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.
Some of the factors outside of our control that may impact the viability and demand for solar energy projects include: (i) 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; (ii) availability, scale and scope of government subsidies and incentives to support the development and deployment of solar energy solutions; (iii) prices of traditional carbon-based energy sources; (iv) levels of investment by end users of solar energy projects, which tend to decrease when economic growth slows; and (v) the emergence, continuance or success of, or increased government support for, other alternative energy generation technologies and products.
In addition, our failure to maintain appropriate quality assurance 15 Table of Contents processes could result in increased product failures, loss of customers, increased warranty reserve, increased production and logistics costs and delays. Any of these developments could have a material adverse effect on our business, financial condition, and results of operations.
In addition, our failure to maintain appropriate quality assurance processes could result in increased product failures, loss of customers, increased warranty reserve, increased production and logistics costs and delays. Any of these developments could have a material adverse effect on our business, financial condition, and results of operations.
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.
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.
Litigation, whether we are a plaintiff or a defendant, can be expensive and time consuming and may divert the efforts of our management and other personnel, which could harm our business, whether or not such litigation results in a determination favorable to us.
Litigation, whether we are a plaintiff or a defendant, is expensive and time consuming and may divert the efforts of our management and other personnel, which could harm our business, whether or not such litigation results in a determination favorable to us.
Our future success and ability to implement our business strategy depends, in part, on our ability to attract and retain key personnel, and on the continued contributions of members of our senior management team and key technical personnel, each of whom would be difficult to replace.
Our future success and ability to implement our business strategy depends, in part, on our ability to attract and retain key personnel, and on the continued contributions of members of our senior management team, key technical personnel and other qualified employees, each of whom would be difficult to replace.
Any change in our processes could cause one or more production errors, requiring a temporary suspension or delay in our production line until the errors can be researched, identified and properly addressed and rectified. This may occur particularly as we introduce new products, modify our engineering and production techniques, and/or expand our capacity.
Any change in our processes could cause one or more production errors, requiring a temporary suspension or delay in our production line until the errors can be researched, identified and properly 19 Table of Contents addressed and rectified. This may occur particularly as we introduce new products, modify our engineering and production techniques, and/or expand our capacity.
Moreover, our patents and patent applications may only cover particular aspects of our products, and competitors and other third parties may be able to circumvent or design around our patents, or develop and obtain patent protection for more effective technologies, designs or methods.
Moreover, our patents and patent applications may only cover particular aspects of our products, and competitors and other third parties may be able to circumvent or design around our patents, or develop and obtain patent protection for alternative technologies, designs or methods.
Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects. 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.
Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects. Failure 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.
The resulting reductions in demand for solar energy systems could harm our business, prospects, financial condition and results of operations. Chief among policies intended to promote renewable electricity generally, or solar electricity in particular, are renewable portfolio standards (RPS) and clean energy standards (“CES”).
Any resulting reductions in demand for solar energy systems could harm our business, prospects, financial condition and results of operations. Chief among policies intended to promote renewable electricity generally, or solar electricity in particular, are renewable portfolio standards (“RPS”) and clean energy standards (“CES”).
In addition, we are required to maintain compliance with various financial ratios in the Senior Secured Credit Agreement.
Furthermore, we are required to maintain compliance with various financial ratios in the Senior Secured Credit Agreement.
Additionally, a default by us under the Senior Secured Credit Agreement or an agreement governing any other future indebtedness may trigger cross-defaults under any other future agreements governing our indebtedness.
A default by us under the Senior Secured Credit Agreement or an agreement governing any other future indebtedness may trigger cross-defaults and acceleration under any other future agreements governing our indebtedness.
As no amount within the current range of loss appears to be a better estimate than any other amount, the Company recorded a warranty liability and related expense representing the low end of the range of potential loss of $59.7 million.
As no amount within the current range of loss appears to be a better estimate than any other amount, the Company recorded a warranty liability and related expense representing the low end of the range of potential loss of $73.0 million.
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.
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, restrict our current and future operations, and our competitive position.
Our customers may experience project delays or cancel orders as a result of external market factors and economic or other factors beyond our control. If our backlog and awarded orders fail to result in revenue at all or in a timely manner, we could experience a reduction in revenue, profitability and liquidity.
Our customers have experienced project delays and may cancel orders as a result of external market factors and political, economic, supply chain or other factors beyond our control. If our backlog and awarded orders fail to result in revenue at all or in a timely manner, we could experience a reduction in revenue, profitability and liquidity.
Escalating trade tensions, particularly between the U.S. and China, have led to increased tariffs and trade restrictions, including tariffs applicable to certain materials and components for our products or for products used in solar energy projects more broadly, such as module supply and availability.
Escalating trade tensions, particularly between the U.S. and China over the last several years, have led to increased tariffs and trade restrictions, including tariffs applicable to certain materials and components for our products or for products used in solar energy projects more broadly, such as transformers and module supply and availability.
Our failure to accurately predict future claims could result in unexpected volatility and have a material adverse effect on, our financial condition.
Our failure to accurately predict future claims could result in unexpected volatility to our Class A common stock and have a material adverse effect on our financial condition.
Errors, defects, product failures, destructions or poor performance can arise due to design flaws, defects in raw materials or components or manufacturing difficulties, which can affect both the quality and the yield of the product.
Errors, defects, product failures, destruction or poor performance can arise due to design flaws, defects in raw materials or components or manufacturing difficulties, installation or system failures, which can affect both the quality and the yield of the product.
A poor safety record can harm our reputation with existing and potential customers, jeopardize our relationship with employees, increase our insurance and operating costs and could adversely impact our business and results of operations.
A poor safety record can harm our reputation with existing and potential customers, jeopardize our relationship with employees in a competitive labor market, increase our insurance and operating costs and could adversely impact our business and results of operations.
An inability to attract and retain senior management, our inability to effectively provide for the succession of senior management, and our inability to attract and retain other key or qualified personnel could limit or delay our strategic efforts, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
An inability to attract and retain senior and middle management, an inability to effectively provide for the succession of senior management, or an inability to attract and retain other key or qualified personnel could limit or delay our ability to execute our business strategy, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
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.
High 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.
The estimated range is based on several assumptions, and as additional information becomes available, the Company may increase or decrease its estimated warranty liability from its current estimate, and such increase or decrease may be material.
The revised estimated range is based on several assumptions, and as additional information becomes available, the Company may increase 14 Table of Contents or decrease its estimated warranty liability from its current estimate, and such increase or decrease may be material.
We note that there is uncertainty as to whether a court would enforce the choice of forum provision with respect to claims under the federal securities laws, and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.
We note that there is uncertainty as to whether a court would enforce the choice of forum provision with respect to claims under the federal securities laws, and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Item 1B. Unresolved Staff Comments None.
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.
The successful assertion of a product liability claim against us, including those related to the wire installation shrinkback matter, 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 cannot guarantee that our backlog or awarded orders will result in actual revenue in the originally anticipated period or at all. In addition, the contracts included in our backlog or awarded orders may not generate margins equal to our historical operating results.
We cannot guarantee that our backlog or awarded orders will maintain its current growth levels, or that awarded orders will become backlog or that backlog will result in actual revenue in the originally anticipated period or at all. In addition, the contracts included in our backlog or awarded orders may not generate margins equal to our historical operating results.
If we are unsuccessful with respect to the patent infringement complaints against Hikam and Voltage, our patents or other intellectual property could be at risk of being invalidated or interpreted narrowly, and the alleged infringing products may continue to be imported and sold in the United States.
If we are unsuccessful with respect to the patent infringement complaints against Hikam and Voltage, our patents or other intellectual property could be at risk of being invalidated or interpreted such that the alleged infringing products may continue to be imported and sold in the U.S.
As disclosed under Litigation in Note 16 - Commitments and Contingencies in our consolidated financial statements included in this Annual Report on Form 10-K, on May 4, 2023, we filed patent infringement complaints with the ITC and with the U.S.
As disclosed under Litigation in Note 15 - Commitments and Contingencies in our consolidated financial statements included in this Annual Report on Form 10-K, in 2023, we filed patent infringement complaints at the ITC and in U.S.
These provisions include: • authorizing “blank check” preferred stock that our board of directors could issue to increase the number of outstanding shares to discourage a takeover attempt; • providing for a classified board of directors with staggered three-year terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors; • not providing for cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; • limiting the ability of stockholders to call a special stockholder meeting; • prohibiting stockholders from acting by written consent; • establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; • the removal of directors only for cause and only upon the affirmative vote of the holders of at least 66 2/3% in voting power of all the then-outstanding shares of common stock of the Company entitled to vote thereon; • providing that our board of directors is expressly authorized to amend, alter, rescind or repeal our bylaws; and • requiring the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then-outstanding shares of Class A common stock to amend provisions of our certificate of incorporation relating to the management of our business, our board of directors, stockholder action by written consent, calling special meetings of stockholders, competition and corporate opportunities, Section 203 of the Delaware General Corporation Law (the “DGCL”), forum selection and the liability of our directors, or to amend, alter, rescind or repeal our bylaws.
These provisions include: (i) authorizing “blank check” preferred stock that our board of directors could issue to increase the number of outstanding shares to discourage a takeover attempt; (ii) not providing for cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; (iii) limiting the ability of stockholders to call a special stockholder meeting; (iv) prohibiting stockholders from acting by written consent; (v) establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; (vi) the removal of directors only for cause and only upon the affirmative vote of the holders of at least 66 2/3% in voting power of all the then-outstanding shares of common stock of the Company entitled to vote thereon; (vii) providing that our board of directors is expressly authorized to amend, alter, rescind or repeal our amended and restated bylaws; and (vii) requiring the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then-outstanding shares of Class A common stock to amend provisions of our certificate of incorporation relating to the management of our business, our board of directors, stockholder action by written consent, calling special meetings of stockholders, competition and corporate opportunities, Section 203 of the Delaware General Corporation Law 30 Table of Contents (the “DGCL”), forum selection and the liability of our directors, or to amend, alter, rescind or repeal our amended and restated bylaws.
If any of our indebtedness is accelerated, there can be no assurance that our assets will be sufficient to repay this indebtedness in full, which could have a material adverse effect on our ability to continue to operate as a going concern. Developments in alternative technologies may have a material adverse effect on demand for our offerings.
If any of our indebtedness is accelerated, there can be no assurance that our assets will be sufficient to repay this indebtedness in full, which could have a material adverse effect on our ability to continue to operate as a going concern.
Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
Section 27 of the Securities Exchange Act of 1934, as amended (“Exchange Act”) creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
Because the lawsuit against Prysmian is ongoing, potential recovery from Prysmian is not considered probable as defined in ASC 450, and has not been considered in our estimate of the warranty liability as of December 31, 2023.
Because the lawsuit against Prysmian is ongoing, potential recovery from Prysmian is not considered probable as defined in Accounting Standards Codification (“ASC”) 450, and has not been considered in our estimate of the warranty liability as of December 31, 2024.
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.
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, increases in expenses due to the identification, repair and replacement of the faulty products, and increases in customer service and support costs, which, with respect to the wire insulation shrinkback matter, has had and may continue to have a material adverse effect on our business, financial condition and results of operations, and with respect to other matters, could have such an effect.
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.
In addition, 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.
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.
The unauthorized access to our information technology systems or the 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.
A slow product innovation lifecycle and/or challenges to identify and invest in the appropriate research, development and automation initiatives may result in loss of competitive differentiation and our inability to diversify revenue streams in the future. Current macroeconomic events, including high inflation, high interest rates, a potential recession and geopolitical instability could impact our business and financial results.
Further, a slow product innovation lifecycle and/or challenges to identify and invest in the appropriate research, development and automation initiatives may result in loss of competitive differentiation and our inability to diversify revenue streams in the future. 21 Table of Contents Macroeconomic conditions, including high inflation, high interest rates, and geopolitical instability impacts our business and financial results.
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.
If we have to reduce our prices or effect discounts by more than we anticipate or if we are unable to offset any future reductions in our selling prices by reducing our costs and expenses, increasing our sales volume, or introducing new products, our revenue and gross profit will continue to suffer.
In addition, the Senior Secured Credit Agreement contains, and the agreements evidencing or governing any other future indebtedness may contain, restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interests.
We may also be unable to generate sufficient cash to pay any amounts due. In addition, the Senior Secured Credit Agreement contains, and the agreements evidencing or governing any other future indebtedness may contain, restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests.
We cannot predict whether the countries in which our raw materials are sourced, or may be sourced in the future, will be subject to new or additional trade restrictions imposed by the U.S. or other foreign governments, including the likelihood, type or effect of any such restrictions.
We cannot predict with certainty whether the countries from which our raw materials are sourced, or may be sourced in the future, will be subject to new or additional trade restrictions imposed by the U.S. or other foreign governments.
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.
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.
Based on the Company’s continued analysis of information available as of the date of this Annual Report, the estimate of potential losses remains 13 Table of Contents unchanged from the estimate provided as of September 30, 2023.
Based on the Company’s continued analysis of information available as of the date of this Annual Report on Form 10-K, the estimate of potential losses remains unchanged from the estimate provided as of September 30, 2024.
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.
Our amended and restated 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 shall, 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 amended and restated certificate of incorporation or our bylaws; any action to interpret, apply, enforce or determine the validity of our amended and restated 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.
Additionally, any enforcement of our patents or other intellectual property may provoke third parties to assert counterclaims against us. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.
In such case, we could lose potential revenue to the defendants as well as other parties who may sell similar products. Additionally, any enforcement of our patents or other intellectual property may provoke third parties to assert counterclaims against us. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.
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.
The price of our stock changes in response to fluctuations in our results of operations, the wire insulation shrinkback matter, other factors specific to our Company, and in response to macroeconomic factors as well as factors specific to the solar energy industry and companies in our industry, many of which are beyond our 29 Table of Contents control.
If we fail to retain our key personnel and attract additional qualified personnel, or successfully integrate our new Chief Executive Officer, our business strategy and prospects could suffer.
If we fail to retain our key personnel and attract additional qualified personnel, our business strategy and prospects could suffer.
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, there is no guarantee that such incentives will remain in place and many end users still depend on financing to fund the initial capital expenditure required to construct a solar energy project.
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.
A reduction in the availability of project debt capital in the global financial markets and government actions taken to reduce inflation make it difficult for end customers to finance the cost of a solar energy system and reduce the demand for our products.
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.
For example, it could increase our vulnerability to adverse changes in general economic, industry and competitive conditions; reduce 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 our industry; restrict us from pursuing business opportunities; making it more difficult to satisfy financial obligations; place us at a disadvantage compared to our competitors that have less debt; and limit our ability to borrow additional funds.
The price of electricity could decrease as a result of: • construction of a significant number of new lower-cost power generation plants, including plants utilizing natural gas, renewable energy or other generation technologies; • relief of transmission constraints that enable distant lower-cost generation to transmit energy less expensively or in greater quantities; • reductions in the price of natural gas or other fuels; • utility rate adjustment and customer class cost reallocation; • decreased electricity demand, including from energy conservation technologies and public initiatives to reduce electricity consumption; • development of smart-grid technologies that lower the peak energy requirements; • development of new or lower-cost customer-sited energy storage technologies that have the ability to reduce a customer’s average cost of electricity by shifting load to off-peak times; and • development of new energy generation technologies that provide less expensive energy.
The price of electricity could decrease as a result of: (i) construction of a significant number of new lower-cost power generation plants, including plants utilizing natural gas, nuclear energy, renewable energy or other generation technologies; (ii) relief of transmission constraints that enable distant lower-cost generation to transmit energy less expensively or in greater quantities; (iii) reductions in the price of natural gas or other fuels; (iv) subsidies impacting electricity prices; (v) utility rate adjustment and customer class cost reallocation; (vi) decreased electricity demand, including from energy conservation technologies and public initiatives to reduce electricity consumption; (vii) developments in the solar components allowing for electricity at costs lower than those that can be achieved by us and our customers, which could result in reduced demand for our products; (viii) development of smart-grid technologies that lower the peak energy requirements; (ix) development of new or lower-cost customer-sited energy storage technologies that have the ability to reduce a customer’s average cost of electricity by shifting load to off-peak times; and (x) development of new energy generation technologies that provide less expensive energy.
Any vendor delay or disruption could cause a delay or disruption in our ability to meet customer requirements which may result in a loss of customers. Such processes involve a number of precise steps from design to production.
Any vendor delay or disruption could cause a delay or disruption in our ability to meet customer requirements which may result in a loss of customers.
Proposals to extend compliance deadlines, reduce renewable requirements or solar set-asides, or entirely repeal RPS/CES policies emerge periodically in various jurisdictions. While the recent trend has been for jurisdictions with RPS/CES policies to maintain or expand them, there can be no assurances that RPS/CES policies or other policies supporting renewable energy will continue.
Proposals to extend compliance deadlines, reduce renewable requirements or solar set-asides, or entirely repeal RPS/CES policies emerge periodically in various jurisdictions. There can be no assurance that state RPS/CES policies or other policies supporting renewable energy will continue.
Risks Related to Our Class A Common Stock We cannot assure you that the price of our Class A common stock will not decline or not be subject to significant volatility. The market price of our Class A common stock has and could be subject to significant fluctuations.
Risks Related to Our Class A Common Stock The market price of our Class A common stock may decline and may continue to be subject to significant volatility. The market price of our Class A common stock has, and could be, subject to significant fluctuations.
Although we are actively selecting systems and vendors and implementing procedures to enable us to maintain the integrity of our systems when we modify them, there are inherent risks associated with modifying or replacing systems, and with new or changed relationships, including accurately capturing and maintaining data, realizing the expected benefit of the change and managing the potential disruption of the operation of the systems as the changes are implemented.
There are inherent risks associated with modifying or replacing systems, and with new or changed relationships, including accurately capturing and maintaining data, realizing the expected benefit of the change and managing the potential disruption of the operation of the systems as the changes are implemented.
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.
Backlog of $154.8 million represents signed purchase orders or contractual minimum purchase commitments with take-or-pay provisions and awarded orders of $479.9 million are orders we are in the process of documenting a contract but for which a contract has not yet been signed. In 2024, backlog and awarded orders increased compared to 2023 and 2022.
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.
While most U.S. states have adopted some form of net metering for small solar projects, 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. A number of states have made changes to net metering programs that lessen the benefits associated with net metering.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur data privacy and security program is overseen by our IT Director who has presented to the Board on an annual basis. Our Audit Committee also receives briefings on significant cybersecurity incidents.
Biggest changeOur data privacy and security program is overseen by our Vice President of IT, who presents to the Board on an annual basis. Starting in 2024, our Board receives quarterly briefings on cybersecurity matters and the Company’s efforts to prevent, detect, mitigate, and remediate cybersecurity risks.
We implement risk-based controls to protect our information, the information of our customers and other third parties, our information systems, our business operations, and our products and related services. We have an information security risk program structured according to the National Institute of Standards and Technology Cybersecurity Framework, industry best practices, privacy legislation, and other standards and regulations.
We implemented risk-based controls to protect our information, the information of our customers and other third parties, our information systems, our business operations, and our products and related services. We have an information security risk program structured according to the National Institute of Standards and Technology Cybersecurity Framework, industry best practices, privacy legislation, and other standards and regulations.
Item 1C. Cybersecurity Risk Management and Strategy Our cybersecurity strategy focuses on striking a balance between data barriers and access, and promoting vigilance among our employees, contractors, and business partners. We monitor and implement procedures, policies, and activities designed to manage our data and to maintain a high level of privacy and security within our systems.
Item 1C. Cybersecurity Risk Management and Strategy 31 Table of Contents Our cybersecurity strategy focuses on striking a balance between data barriers and access, and promoting vigilance among our employees, contractors, and business partners. We monitor and implement procedures, policies, and activities designed to manage our data and to maintain a high level of privacy and security within our systems.
Our IT Director leads our dedicated Information Technology team (“IT team”), which executes on our data privacy and security programs and policies, and our Cyber Incident Response Team (“IRT”), which executes on our incident response procedures in the event of a data privacy or security event and conducts annual exercises simulating cybersecurity and data breach incidents.
Our Vice President of IT leads our dedicated Information Technology team (“IT team”), which executes on our data privacy and information security programs and policies, and our Cyber Incident Response Team (“IRT”), which executes on our incident response procedures in the event of a data privacy or security event and conducts annual exercises simulating cybersecurity and data breach incidents.
However, such insurance 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 2023, we did not experience any material information security breach or incident. However, future incidents could have a material impact on our business strategy, results of operations, or financial condition.
However, such insurance 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 2024, we did not experience any material cybersecurity incident. However, future incidents could have a material impact on our business strategy, results of operations, or financial condition.
We continue to evolve our oversight processes to 33 Table of Contents mature how we identify and manage cybersecurity risks associated with the services we procure from such third parties.
We continue to evolve our oversight processes to mature how we identify and manage cybersecurity risks associated with the services we procure from such third parties.
“Risk Factors—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” and “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.” Governance Our board of directors reviews our management of cybersecurity risks, and our Audit Committee has been delegated primary oversight over such risks and the steps our management has taken to monitor and control these exposures.
“Risk Factors—The unauthorized access to our information technology systems or the 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” and “Failure of our information technology systems, including 32 Table of Contents 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.” Governance Our board of directors reviews our management of cybersecurity risks, and our Audit Committee has been delegated primary oversight of such risks and the steps our management has taken and takes to monitor and control these exposures.
In 2023, we undertook an in-depth enterprise risk analysis and designed a program to address the most significant risks affecting our business. Our newly-developed enterprise risk program integrates cybersecurity. Our cybersecurity processes include technical security controls, policy enforcement mechanisms, monitoring systems, tools and related services from third-party providers, and management oversight to assess, identify and manage risks from cybersecurity threats.
In 2024, we continued the development of our enterprise risk program, which integrates cybersecurity. Our cybersecurity processes include technical security controls, policy enforcement mechanisms, monitoring systems, tools and related services from third-party providers, and management oversight to assess, identify and manage risks from cybersecurity threats.
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Our IT Director is Joe Rogers. He has 35 years of experience in information technology and cybersecurity, having been at the Company in his role as IT Director since 2022.
Added
Our Audit Committee also receives regular briefings on cybersecurity matters, including cybersecurity threats and receives details on any significant cybersecurity incidents.
Added
The IT team is led by Shoals’ Vice President of IT, Gerald Jowers, who joined in 2024 with 30 years of technology experience.

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 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.
Biggest changeProperties The table below describes the material facilities owned or leased by Shoals Technologies Group, Inc. as of February 2025: 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 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.
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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.
Removed
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 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.
Biggest changeExcept as described under Litigation in Note 15 - Commitments and Contingencies in our consolidated financial statements included in this Annual Report on Form 10-K, 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.
However, the results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, we may incur significant costs and experience a diversion of management resources as a result of litigation. Item 4. Mine Safety Disclosures Not applicable. PART II
However, the results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, we may incur significant costs and experience a diversion of management resources as a result of litigation. 33 Table of Contents Item 4. Mine Safety Disclosures Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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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.
Biggest changeAs of February 21, 2025, there were no shares of Class B common stock outstanding, and therefore, no registered account holders thereof. 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.
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.
Recent Sales of Unregistered Equity Securities There were no unregistered sales of equity securities during the year ended December 31, 2024 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.
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.
Holders of Record As of February 21, 2025, there were four 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.

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 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.
Biggest changeYou should review the reconciliation of gross profit to Adjusted Gross Profit and Adjusted Gross Profit Percentage, net income to Adjusted EBITDA, and net income 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. 42 Table of Contents Reconciliation of Gross Profit to Adjusted Gross Profit and Adjusted Gross Profit Percentage (in thousands): Year Ended December 31, 2024 2023 2022 Revenue $ 399,208 $ 488,939 $ 326,940 Cost of revenue 257,191 320,635 195,629 Gross profit $ 142,017 $ 168,304 $ 131,311 Gross profit percentage 35.6% 34.4% 40.2% Wire insulation shrinkback expenses (a) $ 13,764 $ 61,705 $ — Adjusted gross profit $ 155,781 $ 230,009 $ 131,311 Adjusted gross profit percentage 39.0% 47.0% 40.2% Reconciliation of Net Income to Adjusted EBITDA (in thousands): Year Ended December 31, 2024 2023 2022 Net income $ 24,127 $ 42,661 $ 143,013 Interest expense 13,827 24,100 18,538 Interest income (518) — — Income tax expense 13,736 12,274 8,987 Depreciation expense 5,007 2,612 1,858 Amortization of intangibles 7,619 7,917 8,651 Payable pursuant to the TRA adjustment (c) — — 6,675 Gain on termination of TRA — — (110,883) Equity-based compensation 14,230 20,862 16,108 Acquisition-related expenses — — 42 Wire insulation shrinkback expenses (a) 13,764 61,705 — Wire insulation shrinkback litigation expenses (b) 7,292 1,260 — Adjusted EBITDA $ 99,084 $ 173,391 $ 92,989 43 Table of Contents Reconciliation of Net Income Attributable to Shoals Technologies Group, Inc. to Adjusted Net Income (in thousands): Year Ended December 31, 2024 2023 2022 Net income attributable to Shoals Technologies Group, Inc. $ 24,127 $ 39,974 $ 127,611 Net income impact from assumed exchange of Class B common stock to Class A common stock (d) — 2,687 15,402 Adjustment to the provision for income tax (e) — (653) (3,726) Tax effected net income 24,127 42,008 139,287 Amortization of intangibles 7,619 7,917 8,651 Amortization / write-off of deferred financing costs 3,093 2,165 1,365 Payable pursuant to the TRA adjustment (c) — — 6,675 Gain on termination of TRA — — (110,883) Equity-based compensation 14,230 20,862 16,108 Acquisition-related expenses — — 42 Wire insulation shrinkback expenses (a) 13,764 61,705 — Wire insulation shrinkback litigation expenses (b) 7,292 1,260 — Tax impact of adjustments (f) (11,591) (24,604) 1,158 Adjusted Net Income $ 58,534 $ 111,313 $ 62,403 (a) For the year ended December 31, 2024 represents (i) $13.3 million of 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) $0.5 million of inventory write-downs of wire in connection with wire insulation shrinkback.
If the transaction had been accounted for as a stockholder contribution rather than a gain in the Consolidated Statement of Operations, then for the year ended December 31, 2022 net income would have been $110.9 million lower, EPS - basic would have decreased by $0.96 and EPS - diluted would have decreased by $0.70.
In fiscal year ended 2022, if the transaction had been accounted for as a stockholder contribution rather than a gain in the Consolidated Statement of Operations, then for the year ended December 31, 2022 net income would have been $110.9 million lower, EPS - basic would have decreased by $0.96 and EPS - diluted would have decreased by $0.70.
However, given the mission-critical nature of EBOS, the decision to use our products typically involves input from both the EPC and the owner of the solar energy project.
However, given the mission critical nature of EBOS, the decision to use our products typically involves input from both the EPC and the owner/developer of the solar energy project.
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.
Management’s discussion and analysis relating to the fiscal year ended December 31, 2023 and the applicable year-to-year comparisons to the fiscal year ended December 31, 2022 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, 2023.
A discussion and analysis covering historical cash flows for the year ended December 31, 2021 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.
A discussion and analysis covering historical cash flows for the year ended December 31, 2022 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.
Product Warranty For a discussion of our product warranties see Note 9 - Warranty Liability in our consolidated financial statements included in this Annual Report on Form 10-K. Critical Accounting Policies and Estimates We prepare our consolidated financial statements in accordance with GAAP.
Product Warranty For a discussion of our product warranties see Note 8 - Warranty Liability in our consolidated financial statements included in this Annual Report on Form 10-K. Critical Accounting Policies and Estimates We prepare our consolidated financial statements in accordance with GAAP.
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.
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 graded vesting.
(e) For the year ended December 31, 2023 represents $1.3 million of expenses incurred in connection with the lawsuit initiated by the Company against the supplier of the defective red wire.
For the year ended December 31, 2023, represents $1.3 million of expenses incurred in connection with the lawsuit initiated by the Company against the supplier of the defective wire.
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.
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 38 Table of Contents 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.
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.
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 34 Table of Contents other financial information included in this Annual Report on Form 10-K.
These cash inflows were partially offset by an increase of $80.3 million in accounts receivable and unbilled receivables, which is primarily driven by an increase in revenues, $5.2 million cash outflow related to warranty liability and a decrease of $1.0 million in deferred revenue.
These cash inflows were partially offset by an increase of $80.3 million in accounts receivable and unbilled receivables, which was driven by an increase in revenues, $5.2 million cash outflow related to warranty liability and a decrease of $1.0 million in deferred revenue.
We consider this litigation distinct from ordinary course legal matters given the expected magnitude of the expenses, the nature of the allegations in the Company’s complaint, the amount of damages sought, and the impact of 45 Table of Contents the matter underlying the litigation on the Company’s financial results.
We consider this litigation distinct from ordinary course legal matters given the expected magnitude of the expenses, the nature of the allegations in the Company’s complaint, the amount of damages sought, and the impact of the matter underlying the litigation on the Company’s financial results.
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.
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 and include salaries, equity-based compensation, benefits, payroll taxes and commissions.
Debt Obligations For a discussion of our debt obligations see Note 10 - Long-Term Debt in our consolidated financial statements included in this Annual Report on Form 10-K. Surety Bonds For a discussion of our surety bond obligations see Note 16 - Commitments and Contingencies in our consolidated financial statements included in this Annual Report on Form 10-K.
Debt Obligations For a discussion of our debt obligations see Note 9 - Long-Term Debt in our consolidated financial statements included in this Annual Report on Form 10-K. Surety Bonds For a discussion of our surety bond obligations see Note 15 - Commitments and Contingencies in our consolidated financial statements included in this Annual Report on Form 10-K.
Elimination of Up-C Structure and Entity Simplification In 2023, following a secondary offering of shares of Class A common stock by certain selling shareholders, all the holders of LLC Interests exchanged all the LLC Interests and corresponding shares of 37 Table of Contents Class B common stock of the Company beneficially owned by them into shares of Class A common stock of the Company.
Elimination of Up-C Structure and Entity Simplification In 2023, following a secondary offering of shares of Class A common stock by certain selling stockholders, all the holders of LLC Interests 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.
As of December 31, 2023, a 10% increase in harness installation costs, failure rate, materials replacement cost, and inspection costs would have resulted in an increase of the low end of the range of potential losses of $2.4 million, $1.2 million, $1.4 million, and $0.6 million, respectively.
As of December 31, 2024, a 10% increase in harness installation costs, failure rate, materials replacement cost, and inspection costs would have resulted in an increase of the low end of the range of potential losses of $3.6 million, $0.5 million, $1.4 million, and $0.1 million, respectively.
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 47 Table of Contents 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.
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.
The number of full-time employees in our general and administrative departments increased from 149 to 185 from December 31, 2023 to December 31, 2024, and we expect to hire new employees in the future to support our growth.
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.
Federal income tax rate 21.0 % 21.0 % 21.0 % Permanent adjustments 1.3 % 1.9 % 0.2 % State and local taxes (net of federal benefit) 2.9 % 3.3 % 3.0 % Effective income tax rate for Adjusted Net Income 25.2 % 26.2 % 24.2 % (f) Represents the estimated tax impact of all Adjusted Net Income add-backs, excluding those which represent permanent differences between book versus tax.
A 10% increase in harness installation costs and materials replacement cost would have resulted in an increase of the high end of the range of potential loss of $12.0 million and $5.8 million, respectively. Additionally, changes to the planned remediation method could also have a material impact on the warranty liability.
A 10% increase in harness installation costs and materials replacement cost would have resulted in an increase of the high end of the range of potential loss of $12.1 million and $2.7 million, respectively. Additionally, changes to the planned remediation method could also have a material impact on the warranty liability.
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.
We do not intend Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share to be substitutes for any GAAP financial information.
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.
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 / write-off of deferred financing costs, (v) payable pursuant to the TRA adjustment, (vi) gain on termination of the TRA, (vii) equity-based compensation, (viii) acquisition-related expenses, (ix) wire insulation shrinkback expenses, and (x) wire insulation shrinkback litigation expenses, all net of applicable income taxes.
We generated cash from operating activities of $92.0 million during the year ended December 31, 2023, as compared to cash provided by (used in) operating activities of $39.5 million and $(4.1) million, respectively, during the years ended December 31, 2022 and 2021.
We generated cash from operating activities of $80.4 million during the year ended December 31, 2024, as compared to cash provided by operating activities of $92.0 million and $39.5 million, respectively, during the years ended December 31, 2023 and 2022.
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.
The eventual implications of higher government deficits and debt, tighter monetary policy, and continued high interest rates may drive a higher cost of capital during our forecasted period.
However, even though we expect our growth rate to decline from the very high levels of the last few years, we believe that our domestic utility scale business will continue growing at an attractive rate.
However, even though we expect our growth rate to decline from the very high levels of the last few years, we believe that our domestic utility scale business will continue growing at an attractive rate. Our company continues to navigate the uncertainties relating to project delays.
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.
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, 2024 2023 2022 Statutory U.S.
Investing Activities For the year ended December 31, 2023, net cash used in investing activities was $10.8 million, of which $10.6 million was attributable to the purchase of property and equipment. 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.
Investing Activities For the year ended December 31, 2024, net cash used in investing activities was $8.4 million, which was attributable to the purchase of property and equipment. For the year ended December 31, 2023, net cash used in investing activities was $10.8 million, of which $10.6 million was attributable to the purchase of property and equipment.
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.
We define Adjusted EBITDA as net income plus/(minus) (i) interest expense, (ii) interest income (iii) income tax expense, (iv) depreciation expense, (v) amortization of intangibles, (vi) payable pursuant to the TRA adjustment, (vii) gain on termination of the TRA, (viii) equity-based compensation, (ix) acquisition-related expenses, (x) wire insulation shrinkback expenses, and (xi) wire insulation shrinkback litigation expenses.
The price and volume of our system solutions and components is driven by the demand for our solar system solutions and components, changes in product mix between homerun and combine-as-you-go EBOS, geographic mix of our customers, strength of competitors’ product offerings, and availability of government incentives to the end-users of our products.
The price and volume of our system solutions and components is driven by the demand for our solar system solutions and components, volume based discounts and rebate incentives, changes in product mix between homerun and plug-and-play EBOS, geographic mix of our customers, strength of competitors’ product offerings, and availability of government incentives to the end-users of our products.
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.
Payable Pursuant to the Tax Receivable Agreement As discussed in Note 17 - Payable Pursuant to the Tax Receivable Agreement in our consolidated financial statements included in this Annual Report on Form 10-K, 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.
We believe our system solutions are unique in our industry because they integrate design and engineering support, proprietary components and innovative installation methods into a single offering that would otherwise be challenging for a customer to obtain from a single provider or at all. We sell our solar products principally to EPCs that build solar energy projects.
We refer to individual, often custom and proprietary, products we sell as “components”. We believe our system solutions are unique in our industry because they integrate design and engineering support, proprietary components and innovative installation methods into a single offering that would otherwise be challenging for a customer to obtain from a single provider or at all.
Our effective income tax rate for the year ended December 31, 2023 and 2022 was 22.3% and 5.9%, respectively.
Our effective income tax rate for the year ended December 31, 2024 and 2023 was 36.3% and 22.3%, respectively.
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.
As of December 31, 2024, we believe approximately $154.8 million of backlog and $284.5 million of awarded orders have delivery dates in 2025. The remaining $195.4 million have planned delivery dates beyond 2025. Additionally, we believe more than 13% of our December 31, 2024 backlog and awarded orders relate to international projects.
As of December 31, 2023 we also had $109.7 million available for additional borrowings under our $150.0 million Revolving Credit Facility. On December 27, 2023 and January 19, 2024 we used proceeds from the Revolving Credit Facility and cash on hand to make $50.0 million and $100.0 million, respectively, voluntary prepayments of outstanding borrowings under the Term Loan Facility.
On December 27, 2023 and January 19, 2024, we used proceeds from the Revolving Credit Facility and cash on hand to make $50.0 million and $100.0 million, respectively, voluntary prepayments of outstanding borrowings under the Term Loan Facility.
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.
Reconciliation of Diluted Weighted Average Shares Outstanding to Adjusted Diluted Weighted Average Shares Outstanding (in thousands, except per share amounts): Year Ended December 31, 2024 2023 2022 Diluted weighted average shares of Class A common stock outstanding, excluding Class B common stock 168,725 164,504 114,803 Assumed exchange of Class B common stock to Class A common stock — 5,698 52,828 Adjusted diluted weighted average shares outstanding 168,725 170,202 167,631 Adjusted Net Income $ 58,534 $ 111,313 $ 62,403 Adjusted Diluted EPS $ 0.35 $ 0.65 $ 0.37 Liquidity and Capital Resources We finance our operations primarily with operating cash flows and borrowings from our Revolving Credit Facility.
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.
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 - Payable Pursuant to the Tax Receivable Agreement in our consolidated financial statements included in this Annual Report on Form 10-K. The TRA was terminated in December 2022.
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.
Given the custom 35 Table of Contents nature of both our system solutions and individual components and the long development cycle for solar energy projects, we typically have 12 months or more of lead time to quote, engineer, produce and ship orders we receive, and we do not stock large amounts of finished goods.
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.
As of December 31, 2024, we had $634.7 million of backlog and awarded orders. Backlog of $154.8 million represents signed purchase orders or contractual minimum purchase commitments with take-or-pay provisions and awarded orders of $479.9 million are orders we are in the process of documenting a contract for but for which a contract has not yet been signed.
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.
We analyzed the relevant accounting guidance and considered the nature of the TRA termination and the involved parties in order to determine if the 48 Table of Contents transaction should be recorded as a gain in the Consolidated Statement of Operations or as a stockholder contribution.
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.
If revenue were recognized at a point in time rather than over time, then for the year ended December 31, 2024, net income would be $9.7 million higher, and EPS - basic and diluted would increase by $0.05. In certain instances the promised goods do have an alternative use.
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.
As of December 31, 2024, our cash and cash equivalents were $23.5 million, an increase from $22.7 million as of December 31, 2023. As of December 31, 2024 we had outstanding borrowings of $141.8 million, a decrease from $183.8 million as of December 31, 2023.
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.
As of December 31, 2024, backlog and awarded orders increased by 0.5% relative to December 31, 2023 and increased by 6.5% relative to September 30, 2024.
See Note 9 - Warranty Liability, in our consolidated financial statements included in this Annual Report on Form 10-K for more information. (b) Represents an adjustment to eliminate the adjustment of the payable pursuant to the TRA.
See Note 15 - Commitments and Contingencies, in our consolidated financial statements included in this Annual Report on Form 10-K for more information. 44 Table of Contents (c) Represents an adjustment to eliminate the impact of the payable pursuant to the TRA.
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.
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.
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.
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 electrical balance of system (“EBOS”) solutions and components, including battery energy storage solutions (“BESS”) and Original Equipment Manufacturer (“OEM”) components, for the global energy transition market.
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.
Our ability to generate positive cash flow from operations is dependent on our gross profits as well as our ability to quickly turn our working capital. 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.
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.
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.
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.
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 early 2025, which may be further impacted by any global trade wars as described below.
As no amount within the current range of loss appears to be a better estimate than any other amount, the Company has recorded a warranty liability and related expense representing the low end of the range of potential loss of $59.7 million.
As no amount within the current range of loss appears to be a better estimate than any other amount, the Company recorded a warranty liability and related expense representing the low-end of the range of potential loss of $73.0 million, which resulted in an increase in the warranty liability and warranty expense of $13.3 million during the year ended December 31, 2024.
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.
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.
Our revenue is affected by changes in the price, volume and mix of solar system solutions and components purchased by our customers.
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.
The high-end of the range of potential loss is $184.9 million, which is $125.2 million higher than the amount we have recorded. As of December 31, 2023, the Company recorded a warranty liability of $54.9 million related to this matter.
The high-end of the range of potential loss is $160.0 million, which is $87.0 million higher than the low-end of the range of potential loss. As of December 31, 2024 and December 31, 2023, our recorded warranty liability related to this matter was $39.9 million and $54.9 million, respectively.
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.
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.
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.
The increase was due to purchases of PPE during the year, commencing depreciation, slightly offset by definite lived intangible assets that became fully amortized during 2023 and had no amortization expense incurred in 2024. Interest Expense Interest expense decreased by $10.3 million or 43%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023.
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.
Prior to the July 1, 2023 contribution described in Note 16 - Income Taxes in our consolidated financial statements included in this Annual Report on Form 10-K, Shoals Parent LLC was a pass-through entity for federal income tax purposes but incurred income tax in certain state jurisdictions.
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.
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.
Gross profit as a percentage of revenue was 34.4% and 40.2%, respectively, during the years ended December 31, 2023 and 2022.
Gross profit as a percentage of revenue was 35.6% for the year ended December 31, 2024 as compared to 34.4% for the year ended December 31, 2023.
See Note 16 - Commitments and Contingencies, in our consolidated financial statements included in this Annual Report on Form 10-K for more information. (f) Reflects net income to Class A common stock from assumed exchange of corresponding shares of our Class B common stock held by our founder and management. (g) Shoals Technologies Group, Inc. is subject to U.S.
(d) Reflects net income to Class A common stock from assumed exchange of corresponding shares of our Class B common stock held by our founder and management. (e) Shoals Technologies Group, Inc. is subject to U.S. Federal income taxes, in addition to state and local taxes.
These estimates are inherently uncertain given our relatively short history of sales, and actual results that differ from our assumptions and judgments could have a material adverse effect on our business, financial condition and results of operations.
These estimates are inherently uncertain given our relatively short history of sales, and actual results that differ from our assumptions and judgments could have a material adverse effect on our business, financial condition and results of operations. 49 Table of Contents Wire Insulation Shrinkback Warranty The Company has been notified by certain customers that a subset of wire harnesses used in its EBOS solutions is presenting unacceptable levels of contraction of wire insulation (“wire insulation shrinkback”).
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.
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 still impacted in 2024. The Company does not directly source a significant amount of raw materials from Europe.
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.
As of December 31, 2024, we had $454.2 million of deferred tax assets, net of a $3.1 million valuation allowance related to land, other non-amortizable intangibles, and state tax attributes for net operating loss carryforwards and goodwill amortization. Other than these valuation allowances, we expect to realize future tax benefits related to the utilization of these assets.
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.
Cost of Revenue and Gross Profit Cost of revenue decreased by $63.4 million, or 20%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023, driven by the decrease in revenue.
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.
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.
Following the January prepayment, we had outstanding borrowings of $168.8 million and $24.7 million available for additional borrowings under our Revolving Credit Facility. In 2023, we also used approximately $4.7 million of cash to pay for expenses related to the identification, repair and replacement of the wire harnesses impacted in connection with the wire insulation shrinkback matter.
In 2024, we also used approximately $28.6 million of cash to pay for expenses related to the identification, repair and replacement of the wire harnesses impacted in connection with the wire insulation shrinkback matter. We expect to continue spending significant amounts of cash in connection thereof.
Based on the Company’s continued analysis of information available as of the date of this Annual Report, the estimate of potential losses remains unchanged from the estimate provided as of September 30, 2023.
The estimate of potential losses remains unchanged from the estimate provided as of September 30, 2024.
The Company recorded total warranty expense related to this matter of $59.2 million and $0.5 million, respectively, during years ended December 31, 2023 and 2022. 50 Table of Contents The estimated range is based on several assumptions, including the potential magnitude of EPC’s labor cost to identify and perform the repair and replacement of impacted harnesses, estimated failure rates, materials replacement cost, planned remediation method, inspection costs, and other various assumptions.
The estimated range, as revised, continues to be based on several assumptions, including the potential magnitude of engineering, procurement and construction firm’s labor cost to identify and perform the repair and replacement of impacted harnesses, estimated failure rates, materials replacement cost, planned remediation method, inspection costs, and other various assumptions.
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.
We believe that as of December 31, 2024, we have worked with 13 of the top 15 solar EPCs, per Wood Mackenzie data from 2022-2024. We derived 76.7% of our revenue from the sale of system solutions for the year ended December 31, 2024. For the same period, we derived substantially all of our revenue from customers in the U.S.
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.
This is due to the addition of interest bearing accounts for our cash and cash equivalents. Income Tax Expense Income tax expense was $13.7 million for the year ended December 31, 2024 as compared to income tax expense of $12.3 million for the year ended December 31, 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.
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 Global inflationary pressures persisted during 2024 and are expected to persist to a lesser extent during the first quarter of 2025; however, the impact of inflation remains uncertain for the rest of 2025.
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.
The following table summarizes our results of operations (dollars in thousands): Year Ended December 31, 2024 vs 2023 2024 2023 $ variance % variance Revenue $ 399,208 $ 488,939 $ (89,731) (18) % Cost of revenue 257,191 320,635 (63,444) (20) % Gross profit 142,017 168,304 (26,287) (16) % Operating expenses General and administrative expenses 82,254 80,719 1,535 2 % Depreciation and amortization 8,591 8,550 41 — % Total operating expenses 90,845 89,269 1,576 2 % Income from operations 51,172 79,035 (27,863) (35) % Interest expense (13,827) (24,100) (10,273) (43) % Interest income 518 — 518 100 % Income before income taxes 37,863 54,935 (17,072) (31) % Income tax expense (13,736) (12,274) 1,462 12 % Net income 24,127 42,661 (18,534) (43) % Less: net income attributable to non-controlling interests — 2,687 (2,687) (100) % Net income attributable to Shoals Technologies Group, Inc. $ 24,127 $ 39,974 $ (15,847) (40) % Comparison of the years ended December 31, 2024 and 2023 Revenue Revenue decreased by $89.7 million, or 18%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023, driven by lower sales volumes resulting from lower demand as a result of solar project delays that have pushed projects out from 2024, and competitive dynamics, volume discounts, and customer mix in our key markets.
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.
We continue to monitor the condition of our supply chain and evaluate our procurement strategy to reduce any negative impact on our business, financial condition, and results of operations. During the year ended December 31, 2024 we continued to monitor and optimize our inventory levels.
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.
The increase in general and administrative expenses was the result of an increase in legal and professional expenses of $5.9 million associated with wire insulation shrinkback litigation, $4.2 million in operating salaries due to an increase in general and administrative headcount, $1.0 million associated with shareholder and intellectual property litigation, as well as an increase of $0.8 million in sales and marketing expenses.
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.
Year Ended December 31, 2024 2023 2022 Net cash provided by operating activities $ 80,388 $ 91,955 $ 39,455 Net cash used in investing activities (8,393) (10,847) (3,657) Net cash used in financing activities (71,191) (67,167) (36,589) Net increase (decrease) in cash, cash equivalents $ 804 $ 13,941 $ (791) Operating Activities For the year ended December 31, 2024, cash provided by operating activities was $80.4 million, due to operating results that included $24.1 million of net income, which included $61.9 million of non-cash expense.
During 2023, we continued to monitor and reduce our inventory levels. In 2023, the domestic utility scale solar market experienced slowing growth as a result of the costs of project financing, lingering uncertainty about the application of the Inflation Reduction Act of 2022 to solar projects, supply chain constraints and interconnection complications. We expect these trends to persist in 2024.
These trends are the result of the 37 Table of Contents costs of permitting issues; project financing; lingering uncertainty about the application of the Inflation Reduction Act of 2022 to solar projects; uncertainty regarding changes in the U.S. trade environment, including the imposition of trade restrictions, import tariffs, anti-dumping and countervailing duties; supply chain constraints; and interconnection complications.
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 system (“BESS”) cabinets.
As a result, we generally believe customers prioritize reliability and safety over price when selecting EBOS solutions. We design, manufacture and sell a variety of products used by the solar and battery storage industries, including Solar BLA Solutions; Homeruns, Interconnection and Extension Solutions; Combiners and Re-Combiners; Load Break Disconnects and Transition Solutions; Wireless Performance Monitoring; and BESS.
We expect to continue spending significant amounts of cash in connection thereof. For more information, see Note 9 - Warranty Liability in our consolidated financial statements.
For more information, see Note 8 - Warranty Liability in our consolidated financial statements included in this Annual Report on Form 10-K for more information.
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.
Depreciation and Amortization Depreciation and amortization expense within operating expenses increased by less than $0.1 million or 0.5%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023.
Removed
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.
Added
We refer to complete EBOS solutions that use products manufactured by us, typically in connection with the design and specification of an entire EBOS system, as “system solutions”.
Removed
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 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+1 added−1 removed1 unchanged
Biggest changeOur 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.
Biggest changeThe 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. The loss of this large customer or any significant customer could have a material adverse effect on our financial conditions and results of operations.
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 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 $1.4 million. 51 Table of Contents
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.
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, 2024, our long-term debt totaled $141.8 million.
Prices of these raw materials may be affected by supply restrictions, inflation or other market factors from time to time, and we do not enter into hedging arrangements to mitigate commodity risk.
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. Prices of these raw materials may be affected by supply restrictions, inflation or other market factors from time to time, and we do not enter into hedging arrangements to mitigate commodity risk.
Our market risk exposure is primarily a result of fluctuations in steel, aluminum and copper prices and customer concentrations. We do not hold or issue financial instruments for trading purposes. Concentrations of Major Customers Our customers include EPCs, utilities, solar developers, and solar module manufacturers, but we derive the majority of our revenue from the sale of products to EPCs.
We do not hold or issue financial instruments for trading purposes. 50 Table of Contents Concentrations of Major Customers Our customers include EPCs, utilities, solar developers, and solar module manufacturers, but we derive the majority of our revenue from the sale of products to EPCs. Our EPC customers typically construct multiple projects for several different owners.
Our 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.
One customer contributed approximately 26.4% of our total revenue for the year ended December 31, 2024 and 19.0% of accounts receivable as of December 31, 2024. Our five largest customers contributed approximately 54.3% of our total revenue for the year ended December 31, 2024 and 50.8% of accounts receivable as of December 31, 2024.
Removed
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.
Added
Our market risk exposure is primarily a result of fluctuations in steel, aluminum and copper prices and customer concentrations.

Other SHLS 10-K year-over-year comparisons