Shoals Technologies Group, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021; comparisons are to the corresponding 2020 periods. Amounts are in U.S. dollars unless noted. The company supplies electrical balance-of-system solutions and components for solar projects. Its January 2021 IPO and related reorganization changed its ownership and tax structure, affecting period-to-period comparisons of income attributable to Shoals.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $59.7M | $43.4M | $105.3M | $84.2M |
| Gross profit / margin | $26.2M / 43.8% | $16.8M / 38.8% | $45.0M / 42.7% | $31.0M / 36.8% |
| Operating income | $14.1M | $5.4M | $24.0M | $15.0M |
| Consolidated net income | $9.2M | $5.2M | $0.8M | $14.5M |
| Net income attributable to Shoals Technologies Group, Inc. | $4.6M | $5.2M | $1.7M | $14.5M |
| Class A diluted EPS | $0.05 | Not clearly comparable | Not presented on a comparable six-month basis | Not applicable before reorganization |
| Operating cash flow | Not provided for the quarter | $(14.1)M | $18.9M |
Q2 revenue rose 38%; six-month revenue rose 25%. Management attributed growth to higher solar EBOS demand, increased customers, and adoption of its combine-as-you-go system solutions. Higher volumes, purchasing and material-planning efficiencies, product-design improvements, and a favorable system-solutions mix supported margin expansion.
For the six months, GAAP net income fell to $0.8M, primarily reflecting a $16.0M loss on repayment of $150.0M of term debt, including an $11.3M prepayment premium and $4.7M deferred financing-cost write-off, as well as higher interest expense. The company reported non-GAAP Adjusted EBITDA of $20.6M for Q2 and $34.7M for the six months, versus $15.4M and $27.5M, respectively, in 2020; these measures exclude specified expenses and should not be viewed as GAAP substitutes.
Balance sheet, debt, and liquidity
- At June 30, cash and cash equivalents were $13.2M; current assets were $91.5M and current liabilities $27.2M.
- Outstanding borrowings were reported as $247.3M; debt carrying value, net of deferred financing costs, was $241.4M. The revolving facility had $49.0M drawn and $51.0M available. Term-loan and revolver rates were 4.25% and 3.75%, respectively.
- Operating cash use of $14.1M reflected working-capital investment, including increases in receivables, inventory, and other current assets. Investing cash use was $1.7M, mainly for property and equipment; financing cash provided was $18.9M.
- Management said operating cash flow and revolver availability should meet near-term cash needs. The company was in compliance with debt covenants at quarter-end.
Material developments, outlook, and risks
- Backlog and awarded orders totaled $200.5M at June 30, up 63% year over year and 11% from March 31. The filing does not provide formal financial guidance.
- Management expected interest expense to increase in 2021 because of higher average borrowings. It was developing four EV-charging product families and expected to introduce its first offerings in Q4 2021.
- A July 2021 follow-on offering included 10.4M newly issued company shares and 5.0M shares sold by existing holders. The company used its proceeds to acquire a corresponding number of LLC interests; the related exchange was expected to generate a $71.8M deferred tax asset and a $61.1M tax receivable agreement liability. The filing text does not state the company’s offering proceeds amount.
- The company must pay eligible tax benefits to TRA owners at an 85% rate; the recorded TRA liability was $43.4M at June 30. Payments and realization of tax benefits depend in part on future taxable income.
- Customer concentration is notable: one customer represented 25.5% of six-month revenue and 41.3% of receivables at quarter-end. The company also cited COVID-19 and Delta-variant uncertainty, potential supply/manufacturing disruptions, and exposure to copper and aluminum prices, which it does not hedge.
- Surety bonds had a maximum potential payment obligation of $11.8M. Management said current litigation was not expected to have a material adverse effect; no material risk-factor changes were reported. Disclosure controls were deemed effective.
Important facts for investors to verify
- Whether backlog and awarded orders convert to signed contracts and revenue on expected schedules.
- Whether working-capital needs and operating cash flow improve as receivables and inventory grow.
- Debt repayment capacity, interest expense, revolver availability, and ongoing covenant compliance.
- Assumptions supporting deferred tax assets and the $43.4M TRA liability, including the impact of the July exchange.
- Customer concentration, input-cost exposure, and the timing and commercial prospects of EV-charging products.