Shoals Technologies Group, Inc. Class A Common Stock 2026 Q2 Earnings Call

Thank you, Warren, and thank you everyone for joining us today. Hosting the call with me is our CEO, Brandon Moss, and our CFO, Dominic Bardos. On this call, management will be making projections or other forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties and should not be considered guarantees of performance or results. Actual results could differ materially. Those risks and uncertainties are listed for investors in our most recent SEC filings. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's second quarter press release for definitional information and reconciliations of historical non-GAAP measures to the nearest comparable GAAP financial measures. Please note that the slides you see here are available for download from the investor relations section of our website at investors.shoals.com.

With that, let me turn the call over to Brandon.

Thank you, Matt, and thanks to everyone joining us on the call. Second quarter revenue was within our guided range at $163 million, up 47% over the prior year period. Our commercial team continued their strong performance by adding approximately $207 million of new orders in the period, resulting in a solid book-to-bill of 1.3. This drove another company record backlog in awarded orders, or BLAO, of $801 million, an increase of 19% year-over-year. As of quarter end, approximately $700 million of our BLAO has shipment dates in the upcoming four quarters through Q2 of 2027. Second quarter adjusted gross profit percentage was also within our expected range at 30.6%. We expect to continue making progress in margin improvement driven by positive mix and productivity gains and supported by the strong underlying demand environment.

SG&A, including all legal expense, was $28 million, representing 17% of revenue, a 400 basis point decline as compared to 21% last year. Second quarter adjusted EBITDA of $31.6 million came in within our guided range and grew approximately 28% year-over-year. As you've seen, we also prevailed in our 2025 ITC case against Voltage. This was a critical outcome for our shareholders and U.S. innovation in general. We look forward to resolving the matter of damages in our upcoming district court case. We are very optimistic in how we see the market evolving and our competitive position of strength. We continue to expand production at a measured pace to ensure we deliver products with the speed and quality customers expect from us. Factory consolidations are never an easy task, but we've made steady progress and continue to identify opportunities for improvement.

While I'm encouraged by the consistent weekly and monthly improvement as we deploy new lean manufacturing processes, we still have work to do. The operational improvements we will realize from this strategic initiative will drive value for all stakeholders in future periods. Briefly turning to our various business lines. The second quarter was another strong period of growth within our core utility scale solar market. Once again, our quote volume in the quarter exceeded $1 billion of unique projects, adding to our strong pipeline. I'm also encouraged by the progress we're making in key international markets like Australia, as evidenced by our increased quote activity and customer engagement. International BLAO now stands at $102 million, driving continued growth and diversification in 2027 and beyond. Our community, commercial, and industrial business, or CC&I business, which remains a small piece of our overall mix, continues to perform well.

Our OEM business is providing a stable and visible revenue stream, growing at 51% on a year-over-year basis. Finally, we produced approximately $20 million of BESS revenue in the quarter and secured approximately $10 million of additional orders. BESS BLAO now stands at $65 million. As previously stated, BESS orders will be episodic and are dependent on how customers manage construction schedules. I'm also excited to announce a partnership with TerraFlow, a leading grid scale developer of long duration energy storage infrastructure. Under the agreement, Shoals will support TerraFlow's growing energy storage portfolio with our PowerHub Recombiner solution for utility scale and data center applications. The MOU is intended to support TerraFlow's future deployment plan of up to 5 gigawatts annually. Overall, the quarter played out as anticipated, and the year is tracking to our expectations.

We are executing well, have finished the move into our new facility, and are expanding capacity and capabilities at a measured pace. Underlying demand remains intact and our competitive position is strengthened. We're very excited about what we see ahead of us. Dom, I'll hand it over to you for a deeper dive into our financial performance and guidance.

Thanks, Brandon, and greetings to everyone on the call. Revenue increased by approximately 47% year-over-year to $163.4 million. The increase was largely driven by strong demand from both new and existing customers within our core U.S. utility scale solar market and our BESS business segment contributing meaningfully in the period. Gross profit was $49.5 million compared to $41.2 million in the prior year period, an increase of 20%. Our GAAP gross profit percentage was 30.3% and adjusted gross profit percentage was 30.6% within our expectations. As Brandon stated, we believe we will continue to expand gross profit percentage as we realize the benefit of our new factory and positive product mix, all supported by a robust demand environment. Ultimately, we are focused on driving incremental profit dollars through the P&L, a strategy which will create value for all stakeholders.

Selling, general, and administrative expenses, or SG&A, was $28.5 million or $5.4 million higher than the prior year period. This was driven by an additional $4.4 million in payroll and employee expenses due to increased headcount and achievement of variable compensation targets relative to the prior year. Legal expenses declined slightly versus the prior year as our ITC and class action litigation matters came to a close. Our district court case to determine damages against Voltage is expected to be completed in the third quarter. Income from operations or operating profit was $18.7 million or 11.5% of revenue, growing at 17.0% year-over-year. This compared to $16.0 million during the prior year period. GAAP net income was $12.1 million compared to $13.9 million during the prior year period. Please recall that we recognized a $3.1 million gain on the sale of our manufacturing facility in the prior year period.

Adjusted net income was $19.7 million, an increase of 15% as compared to $17.1 million in the prior year period. Adjusted EBITDA was $31.6 million compared to $24.7 million in the prior year period, representing 27.9% growth year-over-year. Adjusted diluted earnings per share of $0.12 was $0.02 higher than the prior year period. Operationally, we generated $6.8 million of cash in the second quarter, driven by an increase in both deferred revenue and accrued liabilities. We ended the quarter with cash and equivalents of $15.7 million and net debt to adjusted EBITDA of 1.6 times. Our net debt was $181.1 million, an increase over the prior quarter. Since we last spoke, we also temporarily expanded the capacity of our revolving credit facility by $50 million, providing us the flexibility we need to grow our business.

Backlog and awarded orders ended the second quarter at a record $801.4 million, a sequential increase of $43.4 million. Our record backlog constitutes $425.1 million of the total BLAO, providing us with the confidence that the growth projections we have for the upcoming periods can be achieved. Congratulations to the commercial team on another strong bookings quarter. As of June 30th, $699.7 million of our backlog and awarded orders have planned delivery dates in the coming four quarters through Q2 of 2027, with the remaining $101.7 million beyond that. Turning to guidance for the quarter ending September 30th, 2026, the company expects revenue to be in the range of $150 million-$170 million, representing 18% year-over-year growth at the midpoint and adjusted EBITDA to be in the range of $32 million-$37 million, representing 8% year-over-year growth at the midpoint.

For the full year 2026, we are reaffirming our prior guidance and continue to expect revenue to be between $600 and $640 million, representing year-over-year growth of 30% at the midpoint and adjusted EBITDA to be in the range of $118 to $132 million, representing year-over-year growth of 26% at the midpoint. In addition, for the full year, we still expect cash flow from operations in the range of $65 to $85 million, capital expenditures in the range of $20 to $30 million, and interest expense in the range of $8 to $12 million. With that, I'll turn it back over to Brandon for closing remarks.

Thank you, Dominic. The U.S. market continues to be robust, and we are focused on improving productivity each month. The need for energy from all sources has never been as strong as it is today, and we believe Shoals is increasingly well-positioned to deliver sustainable growth as our strategic and operational initiatives translate into measurable progress. We are strengthening our core markets and reinforcing our competitive position. We have accelerated innovation to deliver more differentiated products and greater customer value. We're expanding into attractive new markets that increase our total addressable opportunity. We are diversifying our market and customer exposure to create a more resilient business. We've invested in automation and technology to drive productivity and support margin expansion over time. We are building the leadership depth needed to execute our transformation and deliver on our long-term objectives.