Shoals Technologies Group, Inc. — Form 8-K Summary
Business context and reporting period
Filed July 12, 2021, under Items 2.02 and 7.01. The filing announced a proposed offering of 13,384,155 shares of Class A common stock and provided preliminary, unaudited estimates for the quarter ended June 30, 2021. Shoals supplies electrical balance-of-system products and system solutions for solar projects.
Key financial metrics
| Metric | Q2 2021 estimate | Q2 2020 actual |
|---|---|---|
| Revenue | $58.8 million–$60.3 million | $43.4 million |
| Gross profit | $25.5 million–$26.5 million | $16.8 million |
| Net income | $8.0 million–$10.0 million | $5.2 million |
| Adjusted Net Income | $14.2 million–$15.1 million | $13.1 million |
| Adjusted EBITDA | $19.9 million–$21.0 million | $15.4 million |
| Cash and cash equivalents at June 30 | Approximately $13.2 million | Not provided |
| Outstanding borrowings at June 30 | Approximately $247.3 million | Not provided |
Estimated borrowings included approximately $198.3 million under the term loan facility and $49.0 million under the revolving credit facility. The filing does not provide cash flow results or a clear completed-period liquidity analysis.
Material changes versus the prior comparable period
- Revenue was estimated to increase approximately 37% at the midpoint, driven by stronger demand for Solar EBOS products and combine-as-you-go system solutions.
- Gross profit was estimated to increase approximately 54% at the midpoint. Management noted that gross margin benefited from an unusually high proportion of systems-solutions revenue, which may not recur.
- Net income was estimated to increase approximately 72% at the midpoint, primarily because of higher revenue, partially offset by increased interest expense.
- Adjusted Net Income was estimated to increase approximately 12%, reflecting the tax impact of the Company’s reorganization.
- Adjusted EBITDA was estimated to increase approximately 33%, primarily due to higher net income.
- Backlog and awarded orders totaled $200.5 million at June 30, 2021, up 63% year over year and 11% from March 31, 2021. Most revenue expected from this backlog in the second half of 2021 was anticipated in the fourth quarter.
Guidance, outlook, risks, and unusual items
- The figures are preliminary estimates prepared before quarter-end closing procedures were complete and may differ from final results. BDO USA, LLP had not reviewed or provided assurance on them.
- Management reported first orders for wire management solutions in the second quarter of 2021 and targeted initial sales of base-model IV curve benchmarking systems in the fourth quarter of 2021.
- The Company targeted initial sales of high-capacity plug-and-play wire harnesses in the third quarter of 2022 and BLA 2.0 products in the fourth quarter of 2022.
- Management is pursuing additional conversions to higher-margin combine-as-you-go systems, but prospective customer relationships may not result in orders.
- Adjusted Net Income and Adjusted EBITDA exclude or adjust for items including amortization, deferred financing costs, Tax Receivable Agreement liability adjustments, equity compensation, COVID-19 expenses, non-recurring costs, interest, taxes, depreciation, and related tax impacts. These non-GAAP measures are not substitutes for GAAP results.
- Important risks include demand and customer-conversion uncertainty, concentration of expected second-half revenue in the fourth quarter, margin normalization, increased interest expense and leverage, financing and equity-offering execution, and general economic, market, legal, political, and business conditions.
Investor verification points
- Verify the final second-quarter 2021 revenue, gross profit, net income, margins, and cash flow in subsequent SEC filings.
- Confirm the final terms, pricing, share count, dilution, and use of proceeds of the 13,384,155-share offering.
- Assess liquidity, debt maturities, revolving-credit availability, interest costs, and compliance with credit-agreement covenants.
- Determine whether the unusually high systems-solutions mix and associated gross-margin benefit persisted.
- Evaluate conversion of the $200.5 million backlog and awarded orders into recognized revenue, particularly the expected fourth-quarter concentration.
- Review reconciliations of Adjusted Net Income and Adjusted EBITDA to GAAP results and the recurring nature of excluded costs.