Shoals Technologies Group Inc
02/24/2026 | Press release | Distributed by Public on 02/24/2026 06:53
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with our consolidated financial statements and the related notes and other financial information included in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. For this purpose, any statements contained in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "estimate" or "continue" or comparable terminology are intended to identify forward-looking statements. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under the sections of this Form 10-K captioned "Forward-Looking Statements" and "Risk Factors". Management's discussion and analysis relating to the fiscal year ended December 31, 2024 and the applicable year-to-year comparisons to the fiscal year ended December 31, 2023 are not included in this Annual Report on Form 10-K but can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
This MD&A contains the presentation of Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share, which are not presented in accordance with generally accepted accounting principles in the U.S. ("GAAP"). Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share are being presented because management believes they provide investors and readers of this Form 10-K with additional insight into our operational performance relative to earlier periods and relative to our competitors. We do not intend Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA,
Adjusted Net Income, and Adjusted Diluted Earnings per Share to be substitutes for any GAAP financial information. Readers of this Form 10-K should use Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share only in conjunction with Gross Profit, Net Income, and Net Income Attributable to Shoals Technologies Group, Inc., the most closely comparable GAAP financial measures, as applicable. Reconciliations of Adjusted Gross Profit, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share to the respective most closely comparable GAAP measure, as well as a calculation of Adjusted Gross Profit Percentage and Adjusted Diluted Weighted Average Shares Outstanding, are provided below, in "-Non-GAAP Financial Measures."
Overview
Shoals Technologies Group is a leading design-engineering and manufacturer of advanced electrical infrastructure solutions for mission-critical applications across solar photovoltaic (PV), battery energy storage solutions (BESS), and data center power systems. Our solutions also support original equipment manufacturers ("OEMs"). EBOS encompasses all of the components that are necessary to carry the electric current produced by solar panels or stored by a BESS solution to an inverter and ultimately to the power grid. Since electrical infrastructure is the backbone of a solar or BESS project, our products play a mission-critical role in the quality, safety, reliability, and efficiency of energy projects, which the industry prioritizes over price when selecting EBOS solutions.
We design, manufacture and sell a variety of products used by the solar and battery storage industries, including Solar BLA Solutions; Homeruns, Interconnection and Extension Solutions; Combiners and Re-Combiners; Load Break Disconnects and Transition Solutions; Wireless Performance Monitoring; and BESS. We refer to complete EBOS solutions that use products manufactured by us, typically in connection with the design and specification of an entire EBOS system, as "system solutions". When we sell a system solution, we work with our customers to design, specify and engineer their system solution to provide a complete customized EBOS solution consisting of individualized products that maximizes reliability and energy production while minimizing cost. We also provide technical support during installation and the transition to operations and maintenance. We refer to individual, often custom and proprietary, products we sell as "components". We believe our system solutions are unique in our industry because they integrate design and engineering support, proprietary components and innovative installation methods into a single offering that would otherwise be challenging for a customer to obtain from a single provider or at all.
Traditionally, and for the year ended December 31, 2025, we primarily sold our EBOS solutions and OEM components to customers in the United States, while also fulfilling orders for international utility-scale solar projects. Specifically, we primarily sold to engineering, procurement and construction firms ("EPCs") for use in large solar and BESS projects designed to generate electricity and feed it directly into the electric grid, typically with a generation capacity of 1 megawatt or greater. These EPCs work with owners and developers of solar assets to build energy infrastructure projects. However, given the mission-critical nature of EBOS (as further described below), the decision to use our products typically involves input from both the EPC and the owner/developer of the energy infrastructure energy project.
We have a focus in two end-markets: (1) clean, grid connected energy and (2) data center + mission-critical electrical infrastructure. This market diversification seeks to capitalize on the growing global demand for energy and the need to accelerate electrification.
We derived 78.7% of our revenue from the sale of system solutions for the year ended December 31, 2025. As of December 31, 2025, we had $747.6 million of backlog and awarded orders. Backlog of $326.2 million represents signed purchase orders or contractual minimum purchase commitments with take-or-pay provisions and awarded orders of $421.4 million are orders we are in the process of documenting a contract for but for which a contract has not yet been signed. As of December 31, 2025, we believe approximately $326.2 million of backlog and $277.3 million of awarded orders have delivery dates in 2026. The remaining $144.1 million have planned delivery dates beyond 2026. Additionally, we believe more than 12% of
our December 31, 2025 backlog and awarded orders relate to international projects. As of December 31, 2025, backlog and awarded orders increased by 17.8% relative to December 31, 2024 and increased by 3.7% relative to September 30, 2025.
Elimination of Up-C Structure and Entity Simplification
In the first quarter of 2023, we simplified our corporate structure by, among other things, eliminating the umbrella-partnership C corporation structure ("Up-C structure") that was in place since its January 29, 2021 initial public offering ("IPO"). Following a secondary offering of shares of Class A common stock by certain selling stockholders in March 2023, all the holders of limited liability interests of Shoals Parent LLC ("LLC Interests"), our former operating subsidiary, exchanged all the LLC Interests and corresponding shares of Class B common stock of the Company beneficially owned by them into shares of Class A common stock of the Company. As a result, upon effectiveness of such exchanges, all of the LLC Interests in Shoals Parent LLC were held by the Company, no other holders owned LLC Interests and no Class B common stock was or is outstanding.
Following the elimination of the Up-C structure, effective December 31, 2023, the Company consummated an internal reorganization transaction whereby certain of the Company's wholly-owned subsidiaries merged with and into other subsidiaries. As part of this reorganization, Shoals Parent LLC merged with and into Shoals Intermediate Parent, with Shoals Intermediate Parent as the surviving corporation.
Trends and Uncertainties
Trade Regulation and Import Tariffs
Our business activities are subject to numerous laws and regulations in the jurisdictions in which we operate. Particularly, our exports and imports are subject to complex trade and customs laws, tax requirements and tariffs set by governments through mutual agreements or unilateral actions. Changes in tax policies or trade regulations, the disallowance of tax deductions on imported merchandise, or the imposition of new tariffs on imported products, including reciprocal tariffs, could have an adverse effect on our business and results of operations.
Beginning in March 2025, the current U.S. presidential administration (the "Administration") unveiled broad actions related to tariffs with global trading partners. Subsequently, the Administration has imposed a series of significant tariffs, including a 10% tariff on most imports from other trading partners, as well as additional reciprocal tariffs on specific countries. Administration activity related to changes in tariff percentages and qualifying products, including active negotiations with trading partners and internal trade policy development, is ongoing. Future changes in tariff policy, scope, or duration remain highly uncertain and may occur with little advance notice. The Administration's imposition of tariffs has led to retaliatory tariffs and tariff countermeasures, and the Administration and U.S. trading partners have threatened further restrictions on trade.
As a result, the global trade environment has experienced extreme uncertainty and volatility and is rapidly evolving. In recent years, we have expanded our domestic capabilities, supply chain resiliency, and manufacturing capacity, which helps offset some of the volatility we face due to trade policies and regulations. However, these actions may not fully mitigate the effects of current or future tariff policies.
In 2025, the impacts of tariffs have caused a deterioration on our gross margins through our direct payment of tariffs and secondary tariff costs passed to us rising prices from suppliers. The future implementation, scope, and modification of tariffs is still uncertain. Any significant new tariffs or the threat thereof, which may last for an indefinite period of time, may make it more difficult for us to source raw materials
and could result in increased prices for certain of our raw materials including steel, copper and aluminum. Retaliatory tariffs imposed by trading partners could impact the export of our manufactured projects and cause our customers to seek alternatives. The implementation of these proposed tariffs, any future increases in existing tariff rates, additional tariffs on other goods, or further retaliatory actions from other governments, or the threat thereof, may result in higher costs for us, and there can be no assurance we will be able to pass on any of the increases in raw material costs directly resulting from the tariffs to our customers. Such actions may also result in more difficulty or the inability to obtain needed materials.
On February 20, 2026, the U.S. Supreme Court invalidated the Administration's tariff measures after concluding that the International Emergency Economic Powers Act did not authorize their imposition. It is uncertain how future repercussions of the ruling and other changes in trade policy would impact our operations, supply chain, and cash flow.
Beyond the most recent tariffs, over the past few years, escalating trade tensions between the United States and China and other jurisdictions led to increased tariffs and trade restrictions, including tariffs applicable to some of our products. We have been assessing and monitoring the potential impact of tariffs on our supply chain and proactively seeking to mitigate the impact such may have on our operations, including working on alternative sourcing strategies and preparing our trade partners to absorb potential increases in their costs due to tariffs. However, we cannot be certain that we would not experience negative effects in the future, particularly given the Administration's positions concerning trade and tariffs and the fluctuating nature of such actions to date.
We also continue to monitor the condition of our supply chain and evaluate our procurement strategy to reduce any negative impact on our business, financial condition, and results of operations. During the period ended December 31, 2025, we continued to monitor and optimize our inventory levels in preparation for upcoming production demands.
Federal, state, local and foreign government bodies provide incentives to owners, end users, distributors and manufacturers of solar energy systems to promote the development of solar electricity. The range and duration of these incentives varies widely by geographic market.
The 2022 Inflation Reduction Act ("IRA") in the U.S. made significant changes to the U.S. tax code to incentivize the development and use of solar-generated electricity to meet the country's growing demand for power. The IRA offered tax incentives to companies who provide goods connected to the development and use of solar energy. The IRA allowed U.S. taxpayers making capital investments in solar projects to claim certain Investment Tax Credits ("TC") for the installation of these solar projects. The IRA also generally allowed U.S. taxpayers to elect to receive a production tax credit ("PTC") in lieu of the TC for qualified solar facilities if the construction began before January 1, 2025, among other requirements.
In 2025, H.R. 1, the One Big Beautiful Bill Act, was enacted into law. H.R. 1 significantly modifies certain energy tax provisions aforementioned in the IRA. Changes to the IRA made by H.R. 1 include an accelerated phaseout or termination of the PTC and TC for solar projects placed in service after 2027. There are also rules related to foreign entities of concern that make any solar projects owned or controlled by a prohibited foreign entity ineligible for certain tax credits. The removal of the incentives that drive demand for solar energy production could reduce the financial attractiveness of solar projects, leading to decreased demand for our products. Additionally, the uncertainty surrounding the future of these incentives could cause delays in project financing and execution, further impacting our sales volume and growth rate.
The Solar Market
The domestic utility scale solar market has experienced volatility that has had an impact on our business. Industry trends are impacted by a variety of factors, including: permitting issues; supply chain
disruptions; labor availability; project financing; anti-dumping and countervailing duties; interconnection complications; and uncertainty regarding changes in public policy and the U.S. trade environment. Amidst the volatility, the U.S. solar industry has shown demonstrated levels of growth in 2025, with recorded expansion in new solar module manufacturing capacity according to the Solar Energy Industries Association. As a result, we believe the industry is poised for continued growth across both our core and new markets, driven by the continued and increasing need for energy around the world.
We will continue to navigate the uncertainties in our industry, including those relating to project delays, as well as strategic pricing actions, volume discounts, and impacts to customer mix in our key markets.
Other Macroeconomic Pressures
Global inflationary pressures persisted during 2025; however, the impact of inflation remains uncertain in the future. Interest rates have remained generally higher when compared to historical rates, causing the interest rates associated with our Senior Secured Credit Agreement to be generally higher; however, interest rates did decline from their historically high levels during the course of 2024. Should interest rates rise, when combined with the implications of higher government deficits and debt, evolving monetary policy, political instability, and volatility and uncertainty in global trade, the Company's costs for accessing capital are uncertain and may rise during our forecasted period.
Our ability to obtain the raw materials required to manufacture our components and system solutions from domestic and international suppliers, as well as our ability to secure inbound logistics to and from our facilities, remained challenging during 2025, complicated by volatility in government policies and regulation concerning trade and ongoing political conflict. While the Company does not directly source a significant amount of raw materials from Europe, the Russia-Ukraine war has reduced the availability of certain materials that can be sourced in Europe and, as a result, increased global logistics costs for the procurement of some inputs and materials used in our products. We expect these trends to persist as challenges and conflicts remain in 2026.
Key Components of Our Results of Operations
The following discussion describes certain line items in our consolidated statements of operations.
Revenue
We generate revenue from the sale of EBOS solutions and components for solar, BESS, and OEM offerings. Our customers include EPCs, utilities, solar developers, independent power producers, and solar module manufacturers. We derive the majority of our revenue from selling system solutions. When we sell a system solution, we enter into a contract with our customers covering the price, specifications, delivery dates and warranty for the products being purchased, among other things. Our contractual delivery period for system solutions can vary from one to three months whereas manufacturing typically requires a shorter time frame. Contracts for system solutions can range in value from several hundred thousand to several million dollars.
Our revenue is affected by changes in the price, volume and mix of system solutions and components purchased by our customers. The price and volume of our system solutions and components is driven by the demand for our energy infrastructure system solutions and components, volume based discounts and rebate incentives, changes in product mix, geographic mix of our customers, strength of competitors' product offerings, and availability of government incentives to the end-users of our products.
Our revenue growth is dependent on continued growth in the amount of projects to support energy infrastructure constructed each year and our ability to increase our share of demand in the geographies where we currently compete and plan to compete in the future, as well as our ability to continue to develop and
commercialize new and innovative products that address the changing technology and performance requirements of our customers.
Cost of Revenue and Gross Profit
Cost of revenue consists primarily of system solutions and components costs, including purchased raw materials, as well as costs related to importing and tariffs, shipping, customer support, product warranty, personnel and depreciation of manufacturing and testing equipment. Personnel costs in cost of revenue include both direct labor costs as well as costs attributable to any individuals whose activities relate to the transformation of raw materials or component parts into finished goods or the transportation of materials to the customer. Our product costs are affected by the underlying cost of raw materials, including copper and aluminum; component costs, including fuses, resin, enclosures, and cable; technological innovation; economies of scale resulting in lower component costs; and improvements in production processes and automation. We do not currently hedge against changes in the price of raw materials. Some of these costs, primarily indirect personnel and depreciation of manufacturing and testing equipment, are not directly affected by sales volume. Gross profit may vary from year to year and is primarily affected by our sales volume, product prices, product costs, product mix, customer mix, geographical mix, shipping method and warranty expense.
Operating Expenses
Operating expenses consist of general and administrative expenses as well as depreciation and amortization expense. Personnel-related costs are the most significant component of our operating expenses and include salaries, equity-based compensation, benefits, payroll taxes and commissions. The number of full-time employees in our general and administrative departments increased from 185 to 199 from December 31, 2024 to December 31, 2025, and we expect to hire new employees in the future to support our growth. The timing of these additional hires could materially affect our operating expenses in any particular period, both in absolute dollars and as a percentage of revenue.
General and Administrative Expenses
General and administrative expenses consist primarily of legal and professional fees, salaries, equity-based compensation expense, employee benefits and payroll taxes related to our executives, and our sales, finance, human resources, information technology, engineering and legal organizations, travel expenses, facilities costs, marketing expenses, insurance, bad debt expense and fees for professional services. Professional services consist of audit, tax, accounting, legal, internal controls, information technology, investor relations and other costs. We expect to increase our sales and marketing personnel as we expand into new geographic markets. Substantially all of our sales are currently in the U.S. We currently have a sales presence in the U.S., Asia-Pacific, Europe, Latin America, and Africa. We intend to grow our sales presence and marketing efforts in current geographic markets and expand to additional countries in the future.
Depreciation
Depreciation in our operating expenses consists of costs associated with property, plant and equipment ("PP&E") not used in manufacturing our products. We expect that as we increase both our revenue and the number of our general and administrative personnel, we will invest in additional PP&E to support our growth resulting in additional depreciation expense.
Amortization
Amortization of intangibles consists of amortization of customer relationships, developed technology, trade names, backlog and noncompete agreements over their expected period of use.
Non-operating Expenses
Interest Expense
Interest expense consists of interest and other charges paid in connection with our Senior Secured Credit Agreement.
Interest income
Interest income is related to interest on bank deposits.
Gain on sale of assets
Gain on sale of assets represents consideration received in excess of the net book value of assets sold.
Foreign currency (loss) gain, net
Foreign currency gains and losses arise from the remeasurement of transactions in a currency other than the function currency of the Company based on exchange rate fluctuations.
Income Tax Expense
Shoals Technologies Group, Inc. is subject to U.S. federal and state income tax in multiple jurisdictions. Prior to the July 1, 2023 contribution described in Note 16 - Income Taxes in our consolidated financial statements included in this Annual Report on Form 10-K, Shoals Parent LLC was a pass-through entity for federal income tax purposes but incurred income tax in certain state jurisdictions. On July 1, 2023, the Company contributed 100% of its LLC Interests in Shoals Parent LLC to its wholly-owned subsidiary, Shoals Intermediate Parent, and following the contribution, Shoals Parent LLC became a disregarded single member limited liability company, eliminating the Up-C structure.
Results of Operations
Set forth below is a comparison of the results of operations and changes in financial condition for the years ended December 31, 2025 and 2024.
The following table summarizes our results of operations (dollars in thousands):
| Year Ended December 31, |
2025 vs 2024
|
||||||||||||||||||||||
| 2025 | 2024 | $ variance | % variance | ||||||||||||||||||||
| Revenue | $ | 475,331 | $ | 399,208 | $ | 76,123 | 19 | % | |||||||||||||||
| Cost of revenue | 308,823 | 257,191 | 51,632 | 20 | % | ||||||||||||||||||
| Gross profit | 166,508 | 142,017 | 24,491 | 17 | % | ||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| General and administrative expenses | 101,524 | 82,254 | 19,270 | 23 | % | ||||||||||||||||||
| Depreciation and amortization | 8,599 | 8,591 | 8 | - | % | ||||||||||||||||||
| Total operating expenses | 110,123 | 90,845 | 19,278 | 21 | % | ||||||||||||||||||
| Income from operations | 56,385 | 51,172 | 5,213 | 10 | % | ||||||||||||||||||
| Interest expense | (9,994) | (13,827) | (3,833) | (28) | % | ||||||||||||||||||
| Interest income | 305 | 518 | (213) | 41 | % | ||||||||||||||||||
| Gain on sale of assets | 1,835 | - | 1,835 | 100 | % | ||||||||||||||||||
| Foreign currency (loss) gain, net | (13) | - | (13) | 100 | % | ||||||||||||||||||
| Income before income taxes | 48,518 | 37,863 | 10,655 | 28 | % | ||||||||||||||||||
| Income tax expense | (14,944) | (13,736) | 1,208 | 9 | % | ||||||||||||||||||
| Net income | $ | 33,574 | $ | 24,127 | $ | 9,447 | 39 | % | |||||||||||||||
Comparison of the years ended December 31, 2025 and 2024
Revenue
Revenue increased by $76.1 million, or 19%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024, driven by increased sales volumes from higher demand of products to meet utility scale solar project demands.
Cost of Revenue and Gross Profit
Cost of revenue increased by $51.6 million, or 20%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024, driven by the increase in revenue. Gross profit as a percentage of revenue was 35.0% for the year ended December 31, 2025 as compared to 35.6% for the year ended December 31, 2024. This change in gross margin was due to a reduced amount of wire insulation shrinkback expenses in the current year compared to the prior year, offset by increased material costs, tariffs, non-recurring operational charges, competitive dynamics, volume discounts, and product mix in our key markets, and a reduction in leverage on fixed costs.
Operating Expenses
General and Administrative
General and administrative expenses increased $19.3 million, or 23%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024. General and administrative expenses increased primarily due to higher legal and professional costs of $15.7 million. These include expenses related to intellectual property litigation that rose from $6.0 million in 2024 to $9.1 million in 2025, wire-insulation shrinkback litigation increased from $7.2 million to $18.3 million, and stockholder litigation increased from $0.9 million to $2.5 million. Payroll and employee-related expenses also grew by $1.3 million.
Depreciation and Amortization
Depreciation and amortization expense within operating expenses increased by less than $0.1 million or 0.1%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024. The stability in the balance was due to consistent amortization of intangible assets.
Interest Expense
Interest expense decreased by $3.8 million or 28%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024. This decrease is explained by prior year activity related to our voluntary prepayments on the Term Loan Facility and amendment of the Senior Secured Credit Agreement. Due to the prepayments in 2024 and amendment, the Company wrote off a liability of $2.5 million of unamortized deferred interest, along with an asset of $2.3 million of unamortized deferred financing costs. This is offset by a higher weighted average outstanding balance in 2025 as compared to 2024 yielding higher quarterly interest payments.
Interest Income
Interest income decreased from the prior year by $0.2 million. This is due to a lower weighted average balance held in our interest bearing accounts for cash and cash equivalents as compared to the prior year.
Gain on sale of assets
Gain on sale of assets increased $1.8 million from the previous period due to the sale of owned land and building assets to consolidate operations into new facilities and the disposal of other manufacturing equipment.
Income Tax Expense
Income tax expense was $14.9 million for the year ended December 31, 2025 as compared to income tax expense of $13.7 million for the year ended December 31, 2024. Our effective income tax rate for the year ended December 31, 2025 and 2024 was 30.8% and 36.3%, respectively. The effective income tax rate decreased compared to the prior year, due to a reduced impact from valuation allowance adjustments. In the prior year, the Company established state-specific valuation allowances, which increased income tax expense. In the current year, the valuation allowance impact was substantially lower, resulting in a decreased effective income tax rate.
Non-GAAP Financial Measures
Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share ("EPS")
We define Adjusted Gross Profit as gross profit plus wire insulation shrinkback expenses. We define Adjusted Gross Profit Percentage as Adjusted Gross Profit divided by revenue. We define Adjusted EBITDA as net income plus/(minus) (i) interest expense, (ii) interest income (iii) income tax expense, (iv) depreciation expense, (v) amortization of intangibles, (vi) equity-based compensation, (vii) gain/loss on sale of assets, (viii) wire insulation shrinkback expenses, (ix) wire insulation shrinkback litigation expenses, and (x) plant optimization expenses. We define Adjusted Net Income as net income attributable to Shoals Technologies Group, Inc. plus (i) net income impact from assumed exchange of Class B common stock to Class A common stock as of the beginning of the earliest period presented, (ii) adjustment to the provision for income tax, (iii) amortization of intangibles, (iv) amortization / write-off of deferred financing costs, (v) equity-based compensation, (vi) gain/loss on sale of assets, (vii) wire insulation shrinkback expenses, (viii) wire insulation shrinkback litigation expenses, and (ix) plant optimization expenses, all net of applicable income taxes. We define Adjusted Diluted EPS as Adjusted Net Income divided by the diluted weighted average shares of Class A common stock outstanding for the applicable period, which assumes the exchange of all outstanding Class B common stock for Class A common stock as of the beginning of the earliest period presented.
Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS are intended as supplemental measures of performance that are neither required by, nor presented in accordance with, GAAP. We present Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS because we believe they assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS: (i) as factors in evaluating management's performance when determining incentive compensation, as applicable; (ii) to evaluate the effectiveness of our business strategies; and (iii) because our credit agreement uses measures similar to Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS to measure our compliance with certain covenants.
Among other limitations, Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and may be calculated by other companies in our industry differently than we do or not at all, which may limit their usefulness as comparative measures.
Because of these limitations, Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP. You should review the reconciliation of gross profit to Adjusted Gross Profit and Adjusted Gross Profit Percentage, net income to
Adjusted EBITDA, and net income attributable to Shoals Technologies Group, Inc. to Adjusted Net Income and Adjusted Diluted EPS below and not rely on any single financial measure to evaluate our business.
Reconciliation of Gross Profit to Adjusted Gross Profit and Adjusted Gross Profit Percentage (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Revenue | $ | 475,331 | $ | 399,208 | $ | 488,939 | |||||||||||
| Cost of revenue | 308,823 | 257,191 | 320,635 | ||||||||||||||
| Gross profit | $ | 166,508 | $ | 142,017 | $ | 168,304 | |||||||||||
| Gross profit percentage | 35.0% | 35.6% | 34.4% | ||||||||||||||
|
Wire insulation shrinkback expenses (a)
|
$ | - | $ | 13,764 | $ | 61,705 | |||||||||||
| Adjusted gross profit | $ | 166,508 | $ | 155,781 | $ | 230,009 | |||||||||||
| Adjusted gross profit percentage | 35.0% | 39.0% | 47.0% | ||||||||||||||
Reconciliation of Net Income to Adjusted EBITDA (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Net income | $ | 33,574 | $ | 24,127 | $ | 42,661 | |||||||||||
| Interest expense | 9,994 | 13,827 | 24,100 | ||||||||||||||
| Interest income | (305) | (518) | - | ||||||||||||||
| Income tax expense | 14,944 | 13,736 | 12,274 | ||||||||||||||
| Depreciation expense | 6,233 | 5,007 | 2,612 | ||||||||||||||
| Amortization of intangibles | 7,611 | 7,619 | 7,917 | ||||||||||||||
| Equity-based compensation | 9,902 | 14,230 | 20,862 | ||||||||||||||
| Gain on sale of assets | (1,835) | - | - | ||||||||||||||
|
Wire insulation shrinkback expenses (a)
|
- | 13,764 | 61,705 | ||||||||||||||
|
Wire insulation shrinkback litigation expenses (b)
|
18,342 | 7,292 | 1,260 | ||||||||||||||
| Plant optimization expenses (c) | 1,063 | - | - | ||||||||||||||
| Adjusted EBITDA | $ | 99,523 | $ | 99,084 | $ | 173,391 | |||||||||||
Reconciliation of Net Income Attributable to Shoals Technologies Group, Inc. to Adjusted Net Income (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Net income attributable to Shoals Technologies Group, Inc. | $ | 33,574 | $ | 24,127 | $ | 39,974 | |||||||||||
|
Net income impact from assumed exchange of Class B common stock to Class A common stock (d)
|
- | - | 2,687 | ||||||||||||||
|
Adjustment to the provision for income tax (e)
|
- | - | (653) | ||||||||||||||
| Tax effected net income | 33,574 | 24,127 | 42,008 | ||||||||||||||
| Amortization of intangibles | 7,611 | 7,619 | 7,917 | ||||||||||||||
| Amortization / write-off of deferred financing costs | 622 | 3,093 | 2,165 | ||||||||||||||
| Equity-based compensation | 9,902 | 14,230 | 20,862 | ||||||||||||||
| Gain on sale of asset | (1,835) | - | - | ||||||||||||||
|
Wire insulation shrinkback expenses (a)
|
- | 13,764 | 61,705 | ||||||||||||||
|
Wire insulation shrinkback litigation expenses (b)
|
18,342 | 7,292 | 1,260 | ||||||||||||||
| Plant optimization expenses (c) | 1,063 | - | - | ||||||||||||||
|
Tax impact of adjustments (f)
|
(8,712) | (11,591) | (24,604) | ||||||||||||||
| Adjusted Net Income | $ | 60,567 | $ | 58,534 | $ | 111,313 | |||||||||||
(a)For the year ended December 31, 2025 represents no wire insulation shrinkback warranty expenses related to the identification, repair and replacement of a subset of wire harnesses presenting unacceptable levels of wire insulation shrinkback, nor any inventory write-downs of wire in connection with wire insulation shrinkback. For the year ended December 31, 2024 represents (i) $13.3 million of wire insulation shrinkback warranty expenses related to the identification, repair and replacement of a subset of wire harnesses presenting unacceptable levels of wire insulation shrinkback, and (ii) $0.5 million of inventory write-downs of wire in connection with wire insulation shrinkback. We consider expenses incurred in connection with the identification, repair and replacement of the impacted wire harnesses as well as the write-down of related inventory distinct from normal, ongoing service identification, repair and replacement expenses that would be reflected under ongoing warranty expenses within the operation of our business and normal write-downs of inventory, which we do not exclude from our non-GAAP measures. In the future, we also intend to exclude from our non-GAAP measures the benefit of liability releases, if any. We believe excluding expenses from these discrete liability events provides investors with a better view of the operating performance of our business and allows for comparability through periods. See Note 8 - Warranty Liability, in our consolidated financial statements included in this Annual Report on Form 10-K for more information.
(b) For the year ended December 31, 2025, represents $18.3 million of expenses incurred in connection with the lawsuit initiated by the Company against the supplier of the defective wire. For the year ended December 31, 2024, represents $7.3 million of expenses incurred in connection with the lawsuit initiated by the Company against the supplier of the defective wire. We consider this litigation distinct from ordinary course legal matters given the expected magnitude of the expenses, the nature of the allegations in the Company's complaint, the amount of damages sought, and the impact of the matter underlying the litigation on the Company's financial results. In the future, we also intend to exclude from our non-GAAP measures the benefit of recovery, if any. We believe excluding expenses from these discrete litigation events provides investors with a better view of the operating performance of our business and allows for comparability through periods. See Note 15 - Commitments and Contingencies, in our consolidated financial statements included in this Annual Report on Form 10-K for more information.
(c) For the year ended December 31, 2025, represents $1.1 million of expenses incurred in connection with actions taken to consolidate our operations into a newly constructed facility, including items such as professional fees, relocation, facility set-up and other costs. We believe excluding expenses from these events provides investors with a better view of the operating performance of our business and allows for comparability through periods.
(d) Reflects net income to Class A common stock from assumed exchange of corresponding shares of our Class B common stock held by our founder and management.
(e) Shoals Technologies Group, Inc. is subject to U.S. Federal income taxes, in addition to state and local taxes. The adjustment to the provision for income tax reflects the effective tax rates below, assuming Shoals Technologies Group, Inc. owned 100% of the units in Shoals Parent LLC prior to March 10, 2023.
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Statutory U.S. Federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| Permanent adjustments | 1.1 | % | 1.3 | % | 1.9 | % | |||||||||||
| State and local taxes (net of federal benefit) | 2.3 | % | 2.9 | % | 3.3 | % | |||||||||||
| Effective income tax rate for Adjusted Net Income | 24.4 | % | 25.2 | % | 26.2 | % | |||||||||||
(f) Represents the estimated tax impact of all Adjusted Net Income add-backs, excluding those which represent permanent differences between book versus tax.
Reconciliation of Diluted Weighted Average Shares Outstanding to Adjusted Diluted Weighted Average Shares Outstanding (in thousands, except per share amounts):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Diluted weighted average shares of Class A common stock outstanding, excluding Class B common stock | 168,378 | 168,725 | 164,504 | ||||||||||||||
| Assumed exchange of Class B common stock to Class A common stock | - | - | 5,698 | ||||||||||||||
| Adjusted diluted weighted average shares outstanding | 168,378 | 168,725 | 170,202 | ||||||||||||||
| Adjusted Net Income | $ | 60,567 | $ | 58,534 | $ | 111,313 | |||||||||||
| Adjusted Diluted EPS | $ | 0.36 | $ | 0.35 | $ | 0.65 | |||||||||||
Liquidity and Capital Resources
We finance our operations primarily with operating cash flows and borrowings from our Revolving Credit Facility. Our ability to generate positive cash flow from operations is dependent on our gross profits as well as our ability to quickly turn our working capital. Based on our past performance and current expectations, we believe that operating cash flows and availability under our Revolving Credit Facility will be sufficient to meet our near and long-term future cash needs.
We generated cash from operating activities of $17.1 million during the year ended December 31, 2025, as compared to cash provided by operating activities of $80.4 million and $92.0 million, respectively, during the years ended December 31, 2024 and 2023. As of December 31, 2025, our cash and cash equivalents were $7.3 million, a decrease from $23.5 million as of December 31, 2024. As of December 31, 2025 we had
outstanding borrowings of $136.8 million, a decrease from $141.8 million as of December 31, 2024. As of December 31, 2025 we also had $60.5 million available for additional borrowings under our $200.0 million Revolving Credit Facility.
On December 27, 2023 and January 19, 2024, we used proceeds from the Revolving Credit Facility and cash on hand to make $50.0 million and $100.0 million, respectively, voluntary prepayments of outstanding borrowings under the Term Loan Facility. Following the amendment to the Senior Secured Credit Agreement on March 19, 2024, which, among other things, increased the amount available for borrowing under the Revolving Credit Facility from $150.0 million to $200.0 million, we made a $43.8 million voluntary prepayment of all the outstanding term loans under the Senior Secured Credit Agreement, thereby terminating the Term Loan Facility.
On June 11, 2024, the Company announced a share repurchase program (the "Repurchase Program") authorizing the repurchase of up to $150.0 million of the Company's Class A common stock, with an estimated completion date of December 31, 2025. Under the Repurchase Program, the Company is authorized to repurchase shares of Class A common stock through open market purchases, privately-negotiated transactions, accelerated share repurchases or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act.
In connection with the Repurchase Program, on June 11, 2024, the Company entered into an accelerated stock repurchase ("ASR") with Jefferies LLC to repurchase $25.0 million of the Company's Class A common stock. Under the terms of the ASR, the Company paid $25.0 million to Jefferies LLC on June 12, 2024, and received a total of 3,908,387 shares of the Company's Class A common stock upon final settlement. Final settlement was based on a repurchase price of $6.40 per share, which was based on the average of the daily volume weighted average price per share of the Company's Class A common stock during the term of the ASR, less a discount.
Our capital expenditures primarily relate to purchases of property, plant, and equipment to support manufacturing operations and growth initiatives. In 2025, we had capital expenditures of $33.0 million. In 2026, we expect capital expenditures between $20.0 million to $30.0 million, subject to other strategic uses of capital and the evolution of operating cash flows and the working capital position throughout the year. We believe our cash flow from operations will generally be sufficient to fund these expenditures.
In 2025, we also used approximately $41.0 million of cash to pay for expenses related to the identification, repair and replacement of the wire harnesses impacted in connection with the wire insulation shrinkback matter. We expect to continue spending significant amounts of cash in connection thereof. For more information, see Note 8 - Warranty Liability in our consolidated financial statements included in this Annual Report on Form 10-K for more information.
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Net cash provided by operating activities | $ | 17,067 | $ | 80,388 | $ | 91,955 | |||||||||||
| Net cash used in investing activities | (27,955) | (8,393) | (10,847) | ||||||||||||||
| Net cash used in financing activities | (5,303) | (71,191) | (67,167) | ||||||||||||||
| Net increase (decrease) in cash, cash equivalents | $ | (16,191) | $ | 804 | $ | 13,941 | |||||||||||
Operating Activities
For the year ended December 31, 2025, cash provided by operating activities was $17.1 million, due to operating results that included $33.6 million of net income, which included $43.3 million of non-cash expense. Other cash inflows included $43.3 million of accounts payable, $18.3 million of deferred revenue, $4.8 million of accrued expenses, and $1.8 million of other assets. These inflows were offset by outflows of $51.9 million
in accounts receivable and unbilled receivables, $41.0 million in warranty liability payments, and $35.1 million in inventory,
For the year ended December 31, 2024, cash provided by operating activities was $80.4 million, due to operating results that included $24.1 million of net income, which included $61.9 million of non-cash expense. Other cash inflows included $48.2 million of accounts receivable and unbilled receivables. These inflows were offset by $9.8 million in cash outflows related to other assets, $5.8 million for the purchase of inventory, $5.6 million of accounts payable and accrued expenses and other, along with cash outflows of $29.1 million and $3.5 million of warranty liability and deferred revenue, respectively.
Investing Activities
For the year ended December 31, 2025, net cash used in investing activities was $28.0 million, which was attributable to the purchase and sale of property and equipment.
For the year ended December 31, 2024, net cash used in investing activities was $8.4 million, which was attributable to the purchase of property and equipment.
Financing Activities
For the year ended December 31, 2025, net cash used in financing activities was $5.3 million, due to $0.4 million for taxes paid on settled equity awards, and $60.0 million in proceeds on the Revolving Credit Facility, offset by $65.0 million in payments made to the same facility.
For the year ended December 31, 2024, net cash used in financing activities was $71.2 million, due to $2.6 million used to pay deferred financing costs, $25.3 million used for the repurchase of Class A common stock, $143.8 million in payments on the Term Loan, and $148.8 million in proceeds on the Revolving Credit Facility, offset by $47.0 million in payments made to the same facility.
A discussion and analysis covering historical cash flows for the year ended December 31, 2023 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Debt Obligations
For a discussion of our debt obligations see Note 9 - Long-Term Debt in our consolidated financial statements included in this Annual Report on Form 10-K.
Surety Bonds
For a discussion of our surety bond obligations see Note 15 - Commitments and Contingencies in our consolidated financial statements included in this Annual Report on Form 10-K.
Product Warranty
For a discussion of our product warranties see Note 8 - Warranty Liability in our consolidated financial statements included in this Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as
these policies relate to the more significant areas involving management's judgments and estimates. Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.
Revenue Recognition
We primarily recognize revenue over time as a result of the continuous transfer of control of our product to the customer using the output method based on units manufactured. This continuous transfer of control to the customer is supported by clauses in the contracts that provide right to payment of the transaction price associated with work performed to date on products that do not have an alternative use. We believe that recognizing revenue using the output method based on units manufactured best depicts the extent of transfer of control to the customer. If revenue were recognized at a point in time rather than over time, then for the year ended December 31, 2025, net income would be $0.4 million higher, and EPS - basic and diluted would increase by $0.01.
In certain instances the promised goods do have an alternative use. In these instances, we recognize revenue when the customer obtains control of the product. Contracts of this nature typically include customer acceptance clauses, which results in revenue recognition occurring upon customer acceptance.
Depending on the size of project, the manufacturing process generally takes from less than one week to four months to complete production. The accounting for each contract involves a judgmental process of estimating total sales, costs, and profit for each performance obligation. Cost of revenue is recognized based on the unit of production. The amount reported as revenue is determined by adding a proportionate amount of the estimated profit to the amount reported as cost of revenue.
We have elected to adopt certain practical expedients and exemptions as allowed under the revenue recognition guidance such as (i) recording sales commissions as incurred because the amortization period is less than one year, (ii) excluding any collected sales tax amounts from the calculation of revenue, and (iii) accounting for shipping and handling activities that are incurred after the customer has obtained control of the product as fulfillment costs rather than a separate service provided to the customer for which consideration would need to be allocated.
Equity-Based Compensation
2021 Long-term Incentive Plan
The Company recognizes equity-based compensation expense based on the equity award's grant date fair value. The determination of the fair value of equity awards issued to employees of the Company is based upon the closing market price of the Company's common stock on the day prior to the grant date. Equity-based compensation expense related to performance stock units is recognized if it is probable that the performance conditions will be satisfied. The Company accounts for forfeitures as they occur. The grant date fair value of each unit is amortized on a straight-line basis over the requisite service period, including those units with graded vesting. However, the amount of equity-based compensation at any date is at least equal to the portion of the grant date fair value of the award that is vested.
Income Taxes
We record valuation allowances against our deferred tax assets when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In making such determination, we consider all available evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and results of operations. We routinely evaluate the realizability of our deferred tax assets by assessing the likelihood that our deferred tax assets will be recovered based on all available positive and
negative evidence. Estimating future taxable income is inherently uncertain and requires judgment. In projecting future taxable income, we consider our historical results and incorporate certain assumptions, including revenue growth and operating margins, among others. As of December 31, 2025, we had $438.0 million of deferred tax assets, net of a $3.0 million valuation allowance related to land, other non-amortizable intangibles, and state tax attributes for net operating loss carryforwards and goodwill amortization. Other than these valuation allowances, we expect to realize future tax benefits related to the utilization of these assets. If we determine in the future that we will not be able to fully utilize all or part of these deferred tax assets, we would increase our valuation allowance through earnings in the period the determination was made, which would have an adverse effect on our results of operations and earnings in future periods.
Product Warranty
General Warranty
The Company offers an assurance type warranty for its products against manufacturer defects and does not contain a service element. For these assurance type warranties, a provision for estimated future costs related to warranty expense is recorded when they are probable and reasonably estimable. This provision is based on historical information on the nature, frequency and average cost of claims for each product line. When little or no experience exists for an immature product line, the estimate is based on comparable product lines. Specific reserves are established once an issue is identified with the amounts for such reserves based on the estimated cost of correction. These estimates are re-evaluated on an ongoing basis using best-available information and revisions to estimates are made as necessary. These estimates are inherently uncertain given our relatively short history of sales, and actual results that differ from our assumptions and judgments could have a material adverse effect on our business, financial condition and results of operations.
Wire Insulation Shrinkback Warranty
The Company was notified by certain customers that a subset of wire harnesses used in its EBOS solutions has presented unacceptable levels of contraction of wire insulation ("wire insulation shrinkback"). Based upon the Company's assessment, the Company currently believes the wire insulation shrinkback is related to defective wire manufactured by Prysmian Cables and Systems USA, LLC ("Prysmian"). Based on the Company's continued analysis of information available as of the date of this Annual Report, the Company determined that a potential loss was both probable and reasonably estimable. For the year ended December 31, 2023, the Company disclosed an initial range of potential loss from $59.7 million to $184.9 million. During the year ended December 31, 2024, the Company determined it was appropriate to adjust the range of estimates previously provided based on additional information obtained. The low-end of the estimated range increased to $73.0 million and the high-end decreased to $160.0 million.
In accordance with ASC 450, Contingencies, the Company believes the potential estimated loss for this matter is $73.0 million, which represents the best estimate of the potential loss as of December 31, 2025, of which $69.7 million has been incurred to date. As of December 31, 2025 and December 31, 2024, our recorded warranty liability related to this matter was $3.3 million and $39.9 million, respectively. It is reasonably possible that our liability could exceed the amount recorded, including due to additional reports of wire insulation shrinkback at previously affected and reported solar projects or at projects not previously reported or otherwise identified. Any excess amounts remain uncertain.
The Company recorded total warranty expense related to this matter of zero, $13.3 million, and $59.2 million respectively, during the years ended December 31, 2025, 2024 and 2023.
The estimated loss, as revised, continues to be based on several assumptions, including estimated failure rates, future notification of impacted harnesses, the potential magnitude of engineering, procurement and construction firm's labor cost to identify and perform the repair and replacement of impacted harnesses, materials replacement cost, planned remediation method, and inspection costs. While our wire insulation shrinkback warranty liability represents our best estimate of expected losses, the Company will monitor future
activity to best estimate potential losses. The Company has increased, and may further increase, its estimated warranty liability from its current estimate based on available information, including future remediation efforts and the scope of future replacements, if any. Such increase may be material. The Company does not maintain insurance for product warranty issues and has commenced a lawsuit against Prysmian, as discussed in more detail under Wire Insulation Shrinkback Litigation section of Note 15 - Commitments and Contingencies. Because the lawsuit against Prysmian is ongoing, potential recovery from Prysmian is not considered probable as defined in ASC 450, Contingencies, and has not been considered in our estimate of the warranty liability as of December 31, 2025.
As of December 31, 2025, a 20% increase in projects that would require standard remediation work would have resulted in an increase in our recorded liability of $1.1 million. Additionally, changes to the planned remediation method could also have a material impact on the warranty liability.
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