Shoals Technologies Group, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; the provided text does not give standalone Q4 financial results.
Business context
Shoals supplies electrical balance-of-system products and integrated systems for solar, battery storage and EV-charging projects, primarily in the U.S. Its combine-as-you-go solar system is a key offering; management says 14 of the top 15 U.S. solar EPCs used it as of year-end. EV products entered scaled production during 2022, and products launched that year were UL-certified by December 31. Shoals Parent generated 77.8% of revenue from system solutions; substantially all revenue came from U.S. customers.
Financial and operating results
| Metric | FY2022 | FY2021 | Change / context |
|---|---|---|---|
| Revenue | $326.9 million | $213.2 million | +53% |
| Gross profit / margin | $131.3 million / 40.2% | $82.6 million / 38.8% | Margin +1.4 percentage points |
| Operating income | $66.3 million | $36.2 million | +83% |
| Net income | $143.0 million | $3.9 million | Includes $110.9 million gain from terminating the tax receivable agreement (TRA) |
| Net income attributable to Shoals Technologies Group, Inc. | $127.6 million | $2.3 million | Also materially affected by the TRA gain |
| Adjusted EBITDA (non-GAAP) | $93.0 million | $62.9 million | +48% |
| Adjusted net income / adjusted diluted EPS (non-GAAP) | $62.4 million / $0.37 | $35.9 million / $0.22 | Compare with GAAP results; adjustments exclude specified items |
| Cash from operating activities | $39.5 million | $(4.1) million | Improved; working capital absorbed cash |
| Cash and cash equivalents | $8.8 million | $5.0 million | At year-end |
| Debt outstanding | $243.3 million | $252.4 million | $195.3 million term loans and $48.0 million revolver |
Revenue growth was attributed mainly to higher solar EBOS demand, greater sales volume and uptake of combine-as-you-go systems. Gross margin improved with a richer mix of higher-margin combine-as-you-go systems and fixed-cost leverage. G&A expense rose 48% to $55.9 million, reflecting higher headcount and wages, equity compensation and professional fees. Net interest expense increased 27% to $18.5 million amid higher borrowings and rates. FY2021 included a $16.0 million debt-repayment loss; FY2022 did not.
Year-end current assets were $153.5 million and current liabilities $52.6 million. The company also reported $102.0 million available under its $150.0 million revolving facility and said operating cash flow and revolver availability should cover near- and long-term needs. FY2022 investing cash outflow was $3.7 million and financing cash outflow was $36.6 million, including the $58.0 million TRA termination payment. Inventory increased to $72.9 million from $38.4 million, partly to buffer supply constraints. The company reported $291.6 million of deferred tax assets with no valuation allowance.
Material changes and unusual items
- Backlog and awarded orders totaled $428.6 million at year-end, up 43% year over year but down 9% from September 30, 2022. Of this, $168.9 million was signed backlog, while $259.7 million represented awarded orders awaiting signed contracts.
- In December 2022, Shoals completed a follow-on offering. Company-issued shares generated $42.9 million net proceeds; together with cash on hand, funds supported the $58.0 million cash payment to terminate the TRA. Termination produced a $110.9 million accounting gain, a major contributor to reported GAAP net income.
- At December 31, 2022, Shoals owned 81.44% of Shoals Parent; continuing equity owners held 18.56%. Non-controlling interests received $15.4 million of FY2022 net income.
- Auditor BDO issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded controls were effective.
Outlook, risks and contingencies
The filing provides no quantified revenue or earnings guidance. Management expects inflation-related energy, freight and operating costs, elevated interest rates and supply-chain constraints to persist into 2023. Shoals increased raw-material inventories and expects to continue carrying elevated inventory as a mitigation measure. Management stated these trends had not materially adversely affected financial results to date.
Key risks include solar-market cyclicality and project financing sensitivity to interest rates and incentives; input-cost inflation and supply/vendor concentration; tariffs and trade restrictions; product defects and warranty or liability claims; customer and project concentration; and reliance on the Tennessee manufacturing facilities. EV-market growth depends partly on EV adoption and continued government support. Backlog and awarded orders may be delayed, canceled or fail to convert to revenue or expected margins. Debt is variable-rate; the filing estimates a 100-basis-point rate increase would add approximately $2.4 million to annual interest expense. The company was covenant-compliant at year-end. No current litigation was identified as likely to have a material adverse effect; surety-bond maximum potential payments were $8.7 million.
CEO Jason Whitaker was expected to leave for health reasons effective March 15, 2023; President Jeffery Tolnar was appointed interim principal executive officer while the board searched for a permanent successor. The company does not expect to pay cash dividends in the foreseeable future.
Important facts for investors to verify
- How much of the $428.6 million in backlog and awarded orders converts to signed contracts, revenue and margin, and on what schedule.
- Underlying earnings and cash generation excluding the $110.9 million TRA gain; review the company’s non-GAAP reconciliations and adjustments.
- Whether gross-margin improvement persists as product mix, input costs, freight and labor costs change.
- Debt balances, variable interest rates, covenant headroom and the ability to fund working capital while maintaining elevated inventory.
- CEO succession progress and execution of EV-product commercialization, alongside demand and policy developments in solar and EV markets.