Shoals Technologies Group, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This filing reports annual results; it does not provide a separate Q4 income statement or standalone Q4 financial metrics.
Business context
Shoals designs and sells electrical balance of system (EBOS) solutions and components for solar projects, principally in the U.S. It also began selling products for electric-vehicle charging infrastructure. System solutions accounted for approximately 73% of FY 2021 revenue. The company says its combine-as-you-go system can reduce installation labor and wiring relative to conventional systems.
Key financial metrics
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Revenue | $213.2 million | $175.5 million |
| Gross profit / margin | $82.6 million / 38.8% | $66.5 million / 37.9% |
| Operating income | $36.2 million | $37.3 million |
| Net income, consolidated | $3.9 million | $33.8 million |
| Net income attributable to Shoals Technologies Group, Inc. | $2.3 million | $33.8 million |
| Adjusted EBITDA, non-GAAP | $62.9 million | $60.9 million |
| Operating cash flow | $(4.1) million | $54.1 million |
| Cash and cash equivalents at year-end | $5.0 million | $10.1 million |
| Gross borrowings at year-end | $252.4 million | $370.0 million term loan and $20.0 million revolver |
FY 2021 gross margin improved as higher production volumes, purchasing efficiencies and a greater mix of higher-margin combine-as-you-go system solutions supported profitability. Operating income declined slightly as general and administrative expense rose 80%, including public-company costs, added personnel, stock compensation and ConnectPV acquisition expenses.
Net income fell sharply from FY 2020, chiefly reflecting $16.0 million of debt-repayment costs and higher interest expense. The company used $4.1 million of operating cash, with working capital outflows including increased inventory and unbilled receivables. Investing cash use was $17.0 million, including $12.9 million for ConnectPV net of acquired cash. Financing cash provided $20.6 million.
At year-end, the company reported $44.9 million available under its $100 million revolving facility; it borrowed an additional $27.5 million under the revolver between year-end and the filing date. The debt was variable-rate, and management estimated a 100-basis-point rate increase would add about $2.5 million to annual interest expense. Reported stockholders’ deficit was $7.5 million.
Material changes and developments
- Revenue increased 21% year over year, driven by higher sales volumes and demand for solar EBOS and combine-as-you-go solutions. System-solution revenue rose to $155.8 million from $116.7 million; component revenue was $57.4 million versus $58.8 million.
- Backlog and awarded orders totaled $299.0 million at December 31, 2021, up 94% year over year. This included $119.3 million of signed backlog, some with take-or-pay provisions, and $179.7 million of awarded orders awaiting signed contracts; awarded orders are not equivalent to contracted revenue.
- The January IPO generated $278.8 million of proceeds before related uses; the company used proceeds to buy LLC interests and repay $150 million of term debt, incurring a $16.0 million loss on repayment. A July follow-on offering included company shares, with proceeds used to purchase LLC interests from the founder and management.
- Shoals acquired ConnectPV in August for $13.8 million cash, net of acquired cash, and $6.5 million in stock. ConnectPV contributed $10.0 million of revenue and $0.7 million of net income after acquisition; preliminary purchase accounting recorded $19.3 million of goodwill.
Outlook, risks and contingencies
The filing gives no specific numerical revenue or earnings guidance. Management states that operating cash flow and revolver availability are expected to meet near- and long-term cash needs, while noting that interest expense is expected to rise in 2022 due to higher average borrowings. Four EV-charging product families were introduced in Q4 2021 and received initial orders; testing and certification were still underway.
Key risks include supply-chain and labor constraints, commodity-price exposure (the company does not hedge copper and other raw-material costs), customer concentration, solar-market cyclicality and policy dependence, competition, product quality and warranty exposure, and the uncertain adoption of EVs. The three largest customers represented about 40% of FY 2021 revenue; the largest alone represented 18%. COVID-19-related supplier, logistics and staffing disruptions continued to pose uncertainty.
The company had a $156.4 million recognized liability under its tax receivable agreement (TRA), requiring it to pay specified beneficiaries 85% of certain realized or deemed tax benefits. It reported $21.8 million of maximum potential surety-bond obligations. Management said there were no current legal proceedings expected to have a material adverse effect. The company reported effective disclosure controls and internal control over financial reporting; the auditor issued an unqualified opinion on the financial statements but did not audit internal-control effectiveness.
Most important facts for investors to verify
- Whether the $299.0 million of backlog and awarded orders converts to signed contracts, revenue and margins on schedule.
- Whether operating cash flow recovers as inventory and unbilled receivables are converted to cash, and whether subsequent revolver borrowing continues.
- Debt balances, variable rates, covenant headroom and scheduled 2026 maturities; confirm the effect of rising rates on interest expense.
- Whether growth and gross-margin gains persist after the unusual 2021 debt-repayment charge and higher public-company costs.
- ConnectPV integration and expected synergies, and progress in EV product certification and commercial deployments.
- Assumptions behind the $156.4 million TRA liability and the company’s ability to realize the associated tax benefits.
- Customer concentration and exposure to supply constraints, input-cost increases, product warranties and solar-policy changes.