Shoals Technologies Group, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Shoals provides electrical balance-of-system (EBOS) products and system solutions for solar projects. The quarter included the company’s January 2021 IPO and related reorganization; Shoals Technologies Group owned 56.14% of Shoals Parent at quarter-end, with the remaining 43.86% held by continuing equity owners.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $45.6 million | $40.7 million |
| Gross profit / margin | $18.8 million / 41% | $14.2 million / 35% |
| Operating income | $9.9 million | $9.6 million |
| Net income (loss), consolidated | $(8.3) million | $9.3 million |
| Adjusted EBITDA (non-GAAP) | $14.1 million | $12.1 million |
| Operating cash flow | $(17.8) million | $17.9 million |
Revenue increased 12%. System solutions revenue rose to $33.4 million from $22.8 million, while solar components revenue declined to $12.2 million from $17.9 million. Gross margin improved, which management attributed to higher production volumes, purchasing and manufacturing efficiencies, lower logistics costs, product design improvements, and a greater share of higher-margin system solutions.
General and administrative expense increased 166% to $6.8 million, reflecting IPO-related professional costs, equity compensation, higher headcount and wages, insurance, and taxes. Net results included $16.0 million of debt-repayment loss, comprising an $11.3 million prepayment premium and $4.7 million deferred-financing-cost write-off, as well as $3.7 million of net interest expense. Shoals reported a $1.5 million income-tax benefit.
The company reported $2.9 million of net loss attributable to Shoals Technologies Group, Inc. for the full quarter. For the post-IPO period used in its EPS calculation, the company reported attributable net loss of $5.5 million and basic and diluted loss per Class A share of $0.06. The filing explains that pre-IPO earnings were allocated entirely to non-controlling interests.
Cash, debt, and liquidity
- Cash and cash equivalents were $4.2 million at March 31, 2021, down from $10.1 million at December 31, 2020.
- Gross borrowings were approximately $238.1 million: $199.1 million under the term loan and $39.0 million under the revolver. Debt net of deferred financing costs was $232.0 million.
- The term-loan and revolver interest rates were 4.25% and 3.75%, respectively. The company had $61.0 million of revolver availability and reported compliance with its debt covenants.
- Operating cash use was primarily associated with the net loss and working-capital increases, including inventory, receivables, and other current assets. Investing cash use was $0.9 million, mainly for property and equipment.
- The IPO closed at $25 per share for 11.55 million shares. The company said it received $278.8 million net of underwriting discounts and commissions; proceeds were used for LLC-interest purchases and, through Shoals Parent, a $150.0 million term-loan prepayment.
Material developments, outlook, and risks
- Backlog and awarded orders were $180.6 million at quarter-end, up 42% year over year and 15% from December 31, 2020. Approximately 73% of quarterly revenue came from system solutions; substantially all revenue was from U.S. customers.
- Management reported uninterrupted operations and normal delivery turnaround during the pandemic. COVID-19-related costs were approximately $0.1 million. Future pandemic effects remained uncertain.
- Management was developing four product families for the electric-vehicle charging market and expected to introduce its first offerings in Q4 2021. It also described continued efforts to expand adoption of its combine-as-you-go system. The filing provides no numerical revenue or earnings guidance.
- Management expected operating cash flows and revolver availability to cover near-term cash needs, while noting expectations for higher interest expense and continued investment in personnel and public-company compliance.
- Customer concentration is notable: the four largest named customers accounted for 53.6% of Q1 2021 revenue; two each represented more than 25% of accounts receivable at quarter-end. The company also cited exposure to raw-material costs, including copper and aluminum, which it does not hedge.
- The company recorded a $41.7 million liability under its tax receivable agreement (TRA), which generally requires payment to certain owners of 85% of specified realized or deemed tax benefits. TRA payments depend in part on future taxable income; change-of-control or termination provisions can accelerate payments.
- Surety bonds had a maximum potential payment obligation of $11.8 million. Management said existing legal proceedings were not expected to have a material adverse effect; it reported no material changes to previously disclosed risk factors.
Key facts for investors to verify
- How backlog converts into revenue and cash, particularly given the quarter’s operating cash outflow and increases in receivables and inventory.
- Whether gross-margin gains and system-solution growth persist, and how customer and product concentration evolve.
- Debt-service capacity, revolver availability, covenant compliance, and the effect of interest costs after the $150.0 million prepayment.
- The assumptions supporting the $48.5 million deferred tax asset and $41.7 million TRA liability, including future taxable income and potential payment timing.
- Progress toward the planned Q4 2021 EV-charging product launches and the costs and commercial opportunity associated with expansion.
- Reconcile presentation differences when comparing periods: IPO-related organizational transactions changed ownership and income allocation, and the company’s non-GAAP Adjusted EBITDA and Adjusted Net Income are not substitutes for GAAP results.