Shoals Technologies Group, Inc. — 2023 Form 10-K
Business context and reporting period. Shoals supplies electrical balance-of-system (EBOS) products and integrated systems for solar, battery storage, and EV charging, primarily to U.S. customers. This annual filing covers the fiscal year ended December 31, 2023; the supplied filing text does not provide a separate Q4 income statement or quarterly financial metrics.
Financial performance and liquidity
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Revenue | $488.9 million | $326.9 million |
| Gross profit / margin | $168.3 million / 34.4% | $131.3 million / 40.2% |
| Income from operations | $79.0 million | $66.3 million |
| Net income | $42.7 million | $143.0 million |
| Net income attributable to Shoals / diluted EPS | $40.0 million / $0.24 | $127.6 million / $0.85 |
| Operating cash flow | $92.0 million | $39.5 million |
| Cash and cash equivalents at year-end | $22.7 million | $8.8 million |
| Borrowings at year-end, principal | $183.8 million | $243.3 million |
- Revenue increased 50%, mainly from higher solar EBOS volumes and demand for combine-as-you-go systems. System solutions contributed $398.4 million, or about 81.5% of revenue.
- Gross margin fell 5.8 percentage points, principally due to the wire-insulation shrinkback matter. Shoals reported non-GAAP adjusted gross profit of $230.0 million and adjusted gross margin of 47.0%, adding back $61.7 million of related expenses. Adjusted EBITDA was $173.4 million versus $93.0 million; these company-defined non-GAAP measures should be considered alongside GAAP results.
- Net income declined from 2022, which included a $110.9 million gain on termination of the tax receivable agreement (TRA). Higher interest expense, up $5.6 million to $24.1 million, also weighed on results.
- Operating cash flow improved, though accounts receivable and unbilled receivables rose substantially with revenue. Capital expenditures were $10.6 million; investing cash outflow was $10.8 million and financing cash outflow was $67.2 million.
- At year-end, current assets were $227.2 million and current liabilities $92.6 million. The $150 million revolving facility had $109.7 million available. After a $100 million term-loan prepayment in January 2024, borrowings were $168.8 million and revolving availability was $24.7 million.
Material changes and outlook
- Backlog and awarded orders totaled $631.3 million at year-end, up 47% year over year. This comprised $205.8 million of signed backlog and $425.5 million of awarded orders not yet under signed contract. Management expected $455.8 million to have 2024 delivery dates; these orders are not guaranteed revenue.
- Management expects utility-scale solar growth to continue at an attractive rate, but below the unusually high growth of recent years. Financing costs, uncertainty about Inflation Reduction Act application, supply constraints, and interconnection delays were expected to persist into 2024. Inflation-related operating costs were also expected to remain elevated.
- In February 2024, Shoals announced an approximately $80 million, five-year plan to expand and consolidate Tennessee manufacturing and distribution at a new Portland facility exceeding 600,000 square feet. It also announced closure of its Poway, California facility, expected to be completed by May 2024.
- The company completed its Up-C structure elimination and related entity simplification during 2023. It reported effective disclosure controls and internal control over financial reporting, with unqualified audit opinions on the financial statements and internal controls.
Risks, contingencies, and unusual items
- Wire insulation shrinkback: Shoals attributes a subset of affected harnesses to defective red wire supplied by Prysmian. It recorded $54.9 million of warranty liability at year-end and estimated potential losses of $59.7 million to $184.9 million, with no amount in the range considered a better estimate. The 2023 charge included $59.2 million of warranty expense and $2.6 million of inventory write-downs. Shoals has no product-warranty insurance; recovery from Prysmian is not considered probable and was excluded from the estimate. The company sued Prysmian, and the outcome and ultimate remediation costs remain uncertain.
- Customer concentration is significant: the largest customer represented 36.3% of 2023 revenue and 37.5% of year-end receivables; the five largest represented 56.9% of revenue and 65.5% of receivables.
- All reported debt was variable-rate. A 100-basis-point rate change would affect expected annual interest expense by approximately $1.8 million. The company reported covenant compliance at year-end.
- Other key exposures include solar project financing and policy changes, customer and project delays or cancellations, raw-material costs and supply constraints, manufacturing concentration, product performance, competition, and intellectual-property litigation. Patent complaints against Hikam and Voltage remained pending; the ITC investigation had a target completion date of November 12, 2024.
- Shoals reported $27.6 million of maximum potential surety-bond obligations. No material cybersecurity incident was reported for 2023.
Important facts for investors to verify
- How affected sites, failure rates, remediation methods, and labor and material costs develop—and whether the warranty estimate approaches the high end of its range.
- Actual cash spending on remediation and the timing or recoverability of amounts sought from Prysmian.
- Conversion of awarded orders into signed contracts, timely deliveries, revenue, and profitable margins.
- Customer concentration, receivable collections, and working-capital needs as sales grow.
- Debt balances, revolving-credit availability, interest costs, covenant headroom, and funding for the Tennessee facility investment.
- Whether solar-market growth, policy and financing conditions, and manufacturing consolidation support management’s outlook.