Shoals Technologies Group, Inc. — Q2 2022 Form 10-Q
Business context and period. This unaudited quarterly report covers the three and six months ended June 30, 2022. Shoals manufactures electrical balance-of-system solutions and components for solar, battery storage and EV charging. Most revenue comes from solar system solutions; substantially all first-half revenue was from U.S. customers.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $73.5 million (+23%) | $59.7 million | $141.5 million (+34%) | $105.3 million |
| Gross profit / margin | $28.6 million / 38.9% | $26.2 million / 43.8% | $54.9 million / 38.8% | $45.0 million / 42.7% |
| Operating income | $13.0 million (-8%) | $14.1 million | $23.0 million (-4%) | $24.0 million |
| Net income attributable to Shoals Technologies Group | $4.4 million (-3%); diluted EPS $0.04 | $4.6 million; diluted EPS $0.05 | $7.0 million; diluted EPS $0.06 | $1.7 million; diluted EPS $(0.01) |
| Adjusted EBITDA (non-GAAP) | $19.8 million | $20.6 million | $36.3 million | $34.7 million |
| Operating cash flow | Not separately presented | Not separately presented | $(6.7) million | $(14.1) million |
Q2 gross margin fell as materials and logistics costs rose and product mix shifted away from higher-margin combine-as-you-go system solutions. General and administrative expense increased 32% in Q2, primarily from public-company costs, equity compensation and increased staffing. First-half GAAP net income improved substantially versus 2021, which included a $16.0 million debt-repayment loss; first-half adjusted net income and adjusted diluted EPS were lower year over year ($20.8 million and $0.12 versus $23.4 million and $0.14).
At June 30, cash and cash equivalents were $10.1 million; cash including restricted cash was $23.8 million. Current assets were $156.3 million and current liabilities $55.1 million. Total debt was approximately $281.4 million before deferred financing costs, including $85.1 million drawn on the revolver; $64.9 million remained available under the $150 million facility. First-half cash use reflected working-capital investment, including higher receivables and inventory. The company reported covenant compliance.
TRA obligations totaled $157.2 million, including $3.6 million current. The TRA generally requires payment to beneficiaries of 85% of specified realized or deemed tax benefits. The filing anticipates the next annual payment in February 2023.
Material changes and outlook
- Backlog and awarded orders totaled $327.2 million at June 30: $194.5 million in signed purchase orders or contractual minimum commitments and $132.7 million in awarded orders pending contract documentation. The filing reports growth of 63% versus the same date a year earlier, but its stated comparison for the 8% sequential increase refers to March 31, 2021; verify the intended comparison date.
- Management cited higher demand and customer adoption of combine-as-you-go systems as revenue drivers. It reported significant EV product order flow, scaled production to fulfill system-solution orders, and expected remaining UL certifications by year-end. No quantitative revenue or earnings guidance is provided in the supplied filing text.
- Floating-rate debt exposure increased: the company reported Q2 Federal Reserve rate increases raised facility rates by 1.5%; further rate increases would raise borrowing costs. At June 30, the term loan rate was 4.70%, and revolver rates ranged from 4.47% to 5.41%.
Risks, contingencies and unusual items
- Management identified supply-chain, component availability, logistics, labor and project timing risks, including effects associated with COVID-19; delays in other parts of customer systems had pushed some projects into later quarters.
- Tariffs and trade restrictions may affect project economics, customer demand, costs and supply. The U.S. Department of Commerce was investigating alleged circumvention of solar import duties involving modules assembled in Cambodia, Malaysia, Thailand and Vietnam.
- Solar demand is exposed to policy incentives, regulation, electricity prices, project financing costs and interest rates. The company also noted that its industry can be cyclical and that customer concentration exists.
- Surety bonds had a maximum potential payment obligation of $11.5 million. Management said existing litigation was not expected to have a material effect. The company reported effective disclosure controls as of June 30, 2022.
Important facts for investors to verify
- Whether backlog conversion, especially the $132.7 million of awards not yet under signed contract, supports expected deliveries and revenue.
- Whether margins recover as materials, logistics and product mix change, and how working-capital growth affects operating cash flow.
- Debt balances, variable interest rates, revolver availability, covenant headroom and the timing and cash impact of TRA payments.
- Customer concentration, supplier exposure, tariff-investigation developments, and progress on EV product certifications and commercialization.
- Definitions and reconciliations of non-GAAP measures; adjusted EBITDA and adjusted earnings are supplemental and are not substitutes for GAAP results or cash flow.