Shoals Technologies Group, Inc. — Q1 2022 Form 10-Q
Business and period: Shoals manufactures electrical balance-of-system (EBOS) products and systems for solar projects, primarily in the U.S. This unaudited report covers the three months ended March 31, 2022, compared with the three months ended March 31, 2021. Results are not necessarily indicative of full-year performance.
Key financial metrics
| Metric | Q1 2022 | Comparable period |
|---|---|---|
| Revenue | $68.0 million | $45.6 million |
| Gross profit / gross margin | $26.3 million / 38.7% | $18.8 million / 41.2% |
| Operating income | $10.0 million | $9.9 million |
| Net income (loss) | $4.6 million | $(8.3) million |
| Net income (loss) attributable to Shoals Technologies Group, Inc. | $2.6 million; $0.02 diluted EPS | $(2.9) million; $(0.06) diluted EPS |
| Adjusted EBITDA (non-GAAP) | $16.5 million | $14.1 million |
| Cash from operating activities | $(25.9) million | $(17.8) million |
| Cash from investing activities | $(0.9) million | $(0.9) million |
| Cash from financing activities | $30.3 million | $12.8 million |
At March 31, 2022, cash and cash equivalents were $2.5 million; cash, cash equivalents and restricted cash totaled $13.1 million. Gross borrowings were approximately $286.9 million ($196.8 million term loan and $90.1 million revolver); debt net of deferred financing costs was $281.8 million. The company reported $9.9 million of revolver availability under the then-$100 million facility. Total liabilities were $475.9 million, including a $156.4 million tax receivable agreement (TRA) payable; stockholders’ deficit was $1.4 million. Management reported covenant compliance.
Changes and operating performance
- Revenue grew 49%, attributed to higher solar EBOS demand, increased sales of combine-as-you-go system solutions, more customers, and the ConnectPV acquisition. System solutions contributed $46.8 million and components $21.1 million.
- Gross margin declined from 41.2% to 38.7%, primarily due to higher materials and logistics costs and product mix. Cost of revenue rose 55%, faster than revenue.
- Operating expenses increased 83%, including a 104% increase in general and administrative costs, reflecting added headcount, public-company costs, insurance, and equity compensation. Operating income was nearly flat year over year.
- GAAP net income improved in part because Q1 2021 included a $16.0 million loss on debt repayment. The 2021 comparison period also spans the post-IPO period for parent-company EPS reporting.
- Operating cash outflow increased, mainly from higher receivables and inventory. Receivables rose with revenue and billing timing; inventory was built to support growth and reduce supply-chain risk.
Outlook, risks, and unusual items
- No quantified revenue, earnings, or margin guidance is provided. Management said it believes operating cash flow and revolver availability will meet near- and long-term cash needs.
- Backlog and awarded orders totaled $302.3 million at quarter-end: $150.1 million of signed orders or take-or-pay commitments and $152.1 million of awarded orders not yet under signed contract. The total was up 1% from March 31, 2021 and 67% from December 31, 2021.
- Management described continued investment in the combine-as-you-go offering and four EV-charging product families. Initial orders had been received; testing and certification were underway. These plans and market opportunities are not guarantees of future results.
- Risks include supply-chain and logistics disruption, raw-material and component costs, COVID-19 effects, customer/project timing, solar-market and policy changes, and U.S. trade tariffs and duties. The filing highlights a U.S. investigation into alleged circumvention of solar-module duties that could delay customer projects or weaken demand.
- Four customers each represented at least 10% of Q1 revenue, together accounting for 49.1%; customer concentration may expose results to purchasing or project-timing changes. Surety bonds had a maximum potential payment obligation of $11.4 million. Management said pending litigation was not expected to have a material adverse effect.
- On May 2, 2022, after quarter-end, the revolver commitment was increased from $100 million to $150 million; the amendment also adopted SOFR as the successor benchmark to LIBOR and added a 6.50:1.00 first-lien leverage covenant beginning after the specified effective period.
Important facts for investors to verify
- Whether receivables convert to cash and inventory levels normalize, given the quarter’s $25.9 million operating cash outflow.
- Whether margin pressure from materials, logistics, and mix persists, and how growth in higher-margin system solutions develops.
- How much of the $152.1 million of unsigned awarded orders converts to signed contracts and revenue, and on what timeline.
- Liquidity and covenant headroom after the post-quarter revolver amendment; distinguish $2.5 million unrestricted cash from $13.1 million including restricted cash.
- The eventual effects of trade actions, supply constraints, customer concentration, and continuing investment in EV-charging products.