Q1 2025 Shoals Technologies Group Inc Earnings Call

Thank you. Bye.

Speaker Change: Good morning and welcome to the show's technology group first quarter, 2025, Erlin's Conference School.

Speaker Change: Today's call is being recorded and we have allocated one hour for prepare remarks and Q&A. At this time, I'd like to turn the conference over to Matt Tractenberg, vice-president of finance and investor relations for Shoals Technology Group. Thank you, you may now begin.

Matt Tractenberg: Thank you, Charlie and thank you everyone for joining us today. Hosting the call with me is our CEO , Brandon Moss and our CFO , Dominic Bardos.

Matt Tractenberg: 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. [inaudible]

Matt Tractenberg: Those risks and uncertainties are listed for interested investors in our most recent SEC filings. Actual results could differ materially from our forward-looking statements.

Today's presentation also include references to non-GAAP financial measures.

Matt Tractenberg: You should refer to the information contained in the company's first quarter press release for definitional information and reconciliation of historical non-GAAP measures to the nearest comparable GAAP financial measures. [inaudible]

Matt Tractenberg: Please note that the slides you see here are available for download from the Investor Relations section of our website at investors.sholes.com. With that, let me turn the call over to Brandon.

Brandon Moss: Thank you, Matt, and good morning, everyone. I'll begin by sharing some thoughts on the most recent quarter. We'll discuss the current market and demand environment for US utility scale solar and overview progress on our strategic growth initiatives. [inaudible]

Brandon Moss: Dominic will dive deeper into the first quarter results and provide our outlook on the second quarter in full year 2025. We'll then close it out with questions from our analysts.

Dominic Bardos: The business performed well in the first quarter, delivering revenue of $80.4 million, slightly above the high end of our expected range.

Dominic Bardos: This resulted in a robust backlog and awarded orders for BLAO of $645.1 million in a book to bill of $1.13. Supporting the growth we see in the coming quarters.

Dominic Bardos: As of March 31st, 2025, approximately $500 million of that BLAO has shipment dates in the upcoming four quarters running through Q1 of 2026.

As a reminder, given the volume of project delays,

Dominic Bardos: We experienced in 2024. We continue to allow for potential project timeline changes from our customers this year. That said, while it's still early in the year and uncertainty is somewhat elevated, we have not seen any concerning behavior from our customers.

Dominic Bardos: As expected and discussed on the last call, adjusted gross profit percentage in the quarter was softer than normal at 35 percent, driven by product mix, strategic pricing initiatives, and reduced fixed cost leverage on lower volume.

Dominic Bardos: As previously discussed, we may occasionally leverage price to engage with customers who utilized alternative solutions in the past to secure long-term agreements, or as we enter new market segments or geographies. [inaudible]

Dominic Bardos: While the impact of those price actions are expected to lessen over time, these strategic actions are enabling us to win new projects and customers.

Dominic Bardos: We expect ongoing productivity initiatives that we are aggressively pursuing to begin to take hold, while we believe that 40 plus percent gross margins are appropriate and achievable in the long run for the remainder of 2025, we expect to deliver gross margin in the mid to high 30 percent range. We expect to deliver gross margin in the mid to high 30 percent range. We expect to deliver gross margin in the mid to high 30 percent range.

Dominic Bardos: And finally, we delivered first quarter adjusted EBIDA within our expected range at $12.8 million.

Dominic Bardos: As we are all aware, today's headlines are dominated by geopolitical uncertainty, and we understand that creates volatility for the investor community.

Dominic Bardos: At times like this, we find it helpful to focus on the underlying drivers of our business and what makes Shoals unique. Low growth is increasing, energy sources are limited and costly, and solar is best positioned to deliver the energy we need quickly in a cost-effective manner.

Dominic Bardos: Our value proposition of combining high quality products with exceptional engineering support and service is bringing customers back to the table.

Dominic Bardos: Newly launched innovative products are solving real business problems. Domestic manufacturing capabilities are resonating.

Dominic Bardos: Improve commercial and operational initiatives are driving tangible results. And the quality of our balance sheet and ability to generate attractive levels of free cash flow and a wide variety of market climates set shows apart from most others in the clean energy space. [inaudible]

Dominic Bardos: We are excited by the progress we made and the strength of the underlying markets we participate in, but we're also acutely aware of today's headlines, which are dominated by tariffs and domestic energy policy. We continue to evaluate how these shifts in policy may or may not impact our business and industry. [inaudible]

Dominic Bardos: That said, given what we know today, we believe Shoals has limited direct exposure to many of these risks in the near term. You may recall that we do not participate in 45X credits, and we have a robust supply chain with strong domestic partners. [inaudible] We are now at the year

Dominic Bardos: While no business is immune to market disruptions, we remain flexible and will work to identify opportunities to further protect our customers from the potential impact of tariffs.

Dominic Bardos: We are proud to be a U.S. manufacturer and have invested heavily to improve our domestic manufacturer and footprint.

Dominic Bardos: We're investing in technologies that will increase productivity through automation. Shoals is in a strong competitive position and we believe these improvements are resonating with new and existing EPCs and developers as they navigate at complex economic climate. [inaudible]

Dominic Bardos: We are encouraged by the progress we've made within our commercial organization and the strength we see this year within our core utility scale solar market.

External sources reported some softness and fourth-quartered 2024 construction.

Dominic Bardos: Likely driven by a number of factors including weather, labor availability, and geopolitical uncertainty. [inaudible]

Dominic Bardos: As we enter 2025, Project Construction and Trackler Installations resume to healthy pace.

Dominic Bardos: As you know, E-Boss tends to follow tracker installations by one to two quarters, which aligns with the cadence of our four-year guidance offered on our February call. Our customers, 2025 construction calendars are full and projects are moving forward as scheduled. Our customers, 2025 construction calendars are full and projects are full and projects are full and projects are full and projects are full and projects are full

Dominic Bardos: We're also driving a more diverse customer base across all product lines. As seen in our recent filings, we now recognize two additional customers responsible for 10% or more of our business.

Dominic Bardos: The strategies we've been executing commercially are taking hold. We are identifying and cultivating relationships with EPCs that previously did little to no business with Shoals and the progress is very encouraging to see. [inaudible]

Dominic Bardos: The investment that we made in our commercial and product management functions are paying dividends as evidenced in both the growth and quality of our order book. Today, more than 15% of our BLAO includes projects with at least one new product released in the last four quarters.

Dominic Bardos: These new products are instrumental in Shoals' winning business, particularly within the 30% of the market we haven't competed for in the past. And several of the customers buying these new products are new or have recently returned to Shoals. It's a very promising sign of what's to come. [inaudible]

Dominic Bardos: As we have previously discussed, there has been intense focus on how we have engaged with our customers over the last 12 months.

Dominic Bardos: In addition to revitalizing ourselves, product management, and marketing functions, we have also stood up a world-class customer care team.

Dominic Bardos: This engagement in pre-project planning, project start-up, training, golden row inspection, and post-project care, I believe is unmatched in the solar industry.

Dominic Bardos: I'm excited to pair that customer-facing team with the operational improvements we are currently making in both talent and physical assets.

Dominic Bardos: This includes the start-up of a state-of-the-art facility this year. Our ongoing investments in both the US supply chain and manufacturing base will continue to provide the highest quality products and service in our industry.

Dominic Bardos: Additional growth opportunities we laid out in our strategic plan, International CCNI, OEM and BES are progressing well.

Dominic Bardos: We are building on our recent international project wins in Australia and Chile and are proud to announce the signing of an MOU with UGT Renewables.

Dominic Bardos: This leading global developer, and their subsidiary, Sunabrica, are driving massive infrastructure projects within emerging global markets and selected shows to help deliver up to 12 gigawatts of international solar power in the coming years.

Dominic Bardos: That decision was made based on our quality and support, fast deployment speeds, and the ability to avoid skilled labor for installation. [inaudible]

Speaker Change: Many of these projects have been granted significant funding from the US XM bank, which often requires domestic content. It puts shows in an attractive competitive position, or excited to share more as major projects are announced.

Speaker Change: Our community, commercial and industrial business continues to gain momentum. Wood McKenzie has recently increased their estimate of growth within the commercial market, which aligns with what we are seeing for our engagement with new and prospective customers.

Speaker Change: There is an enormous opportunity to serve smaller EPCs and owners building projects behind the meter. Sales cycles are relatively short, quoting activity is very strong and our value proposition is resonating with customers.

Speaker Change: Our OEM business is performing well, our close partnership with First Solar enables visibility and consistency, valuable elements. [inaudible]

and today's business climate.

Speaker Change: You may have seen our joint press release during the court with First Solar expressing our belief that US manufacturing is a unique differentiator in the US utility scale solar market. Roadmaps are aligned and the growth you see at First Solar is fueling attractive growth at Shoals. You may have seen our joint press release during the court with First Solar,

Speaker Change: Cottery Energy Storage Solutions is an area of particular excitement at shows.

Speaker Change: While we have been selling products into this market for some time, the current strategy began to come together in 2024. According to Wood McKenzie, the best market is expected to grow at 15% Kager through 2029. We will serve this market via three distinct paths. We will serve this market. We will serve this market. We will serve this market.

First.

via traditional solar DCs. [inaudible]

Speaker Change: We have seen notable interest in our standardized approach to combiners and recombiners and our booking orders as we speak. Second, by partnering with providers of prefabricated storage solutions, I'm pleased to announce that we've secured a very exciting partnership with the large battery energy storage provider in the US.

Speaker Change: More to come on that, and third, by directly selling to developers and owners requiring energy storage solutions. During the quarter, we want a project to provide a custom solution to a well known hyperscalator, a very good first step.

Speaker Change: The Shoals Addressable Best Market is massive in size and growing in a very fast pace.

Speaker Change: Remember, that's has applications across all energy sources, not just solar. [inaudible]

Speaker Change: We are thoughtfully allocating resources to capture this opportunity and believe it can materially change the customer and product mix of the company over the coming five years.

Speaker Change: In summary, we are executing our strategic framework of market penetration and diversification as anticipated. Customers are looking for a U.S. source of high quality, innovative solutions that allow them to manage labor costs.

Speaker Change: Speed time of deployment and ensure their assets perform over a timeline that spans not years but decades.

Speaker Change: That balance between low material cost today versus total cost of ownership over the useful life of the project is why EPCs and developers are more engaged than ever.

Speaker Change: With that, I'll now turn it over to Dominic to discuss our first quarter financial results in more detail in our outlook for 2025. Dominic?

Dominic Bardos: Thanks, Brandon, and good morning to everyone on the call. Turning to our first quarter financial results, net revenue declined 11.5% year over year to 80.4 million dollars. The decline in net revenue was driven by product mix, strategic pricing actions, and customer mix.

Dominic Bardos: Gross profit decreased to $28.1 million compared to $36.5 million in the prior year period. This resulted in gap gross profit percentage of 35.0% compared to 40.2% in the prior year period. [inaudible]

Dominic Bardos: The decline in margin would do the product mix, strategic pricing actions, and a loss of fixed cost leverage on lower sales volume. [inaudible]

Dominic Bardos: General and administrative expenses were $21.7 million, which is $1.1 million lower than the prior year period. We remain focused on controlling operating expenses and believe we are allocating resources in a reasonable and thoughtful manner.

Dominic Bardos: Approximately $2.5 million of GNA expense was specifically related to the ongoing wire insulation

Dominic Bardos: Income from operations or operating profit was $4.3 million compared to $11.6 million during the prior year period.

Dominic Bardos: Operating profit margin was 5.4% compared to 12.8% a year ago, driven primarily by the decline in gross profit and reduced leverage on general and administrative expenses.

Dominic Bardos: Net loss was $0.3 million compared to net income of $4.8 million during the prior year period.

Dominic Bardos: Adjusted net income was $5.2 million compared to $12.6 million in the prior year period. [inaudible]

Dominic Bardos: Adjusted EVA DAW was $12.8 million compared to $20.5 million in the prior year period. It was $12.8 million compared to $12.8 million in the prior year period.

Dominic Bardos: Adjusted EBITDA margin was 15.9% compared to 22.5% a year ago, driven primarily by lower sales and the reduced gross profit percentage.

Dominic Bardos: During the first quarter, we spent $9.5 million on wire insulation shrinkback remediation and had a remaining warranty liability on our balance sheet of $30.4 million as of March 31st.

Dominic Bardos: The current portion of the remaining liability related to streetback is now $25 million.

Dominic Bardos: As a reminder, this represents the amount of cash we estimate we will consume during the next four quarters as we continue remediation efforts.

Dominic Bardos: This does not reflect any potential litigation recovery or increased reserves if our assumptions or knowledge of facts change.

Dominic Bardos: Our legal case against prismian is progressing. At this time, we expect written discovery and fact depositions to be completed in the third quarter.

Dominic Bardos: Cash flow from operations in the first quarter came in at $15.6 million, a solid performance driven by stronger collections activity and the timing of seminal flows.

Dominic Bardos: Free cash flow with $12.4 million, which reflects both the $9.5 million impact of remediation costs and $2.5 million of legal expenses related to the streetback issue in the period.

Dominic Bardos: Excluding the impact of these two items, Freed Cash Flow would have been $24.4 million in the quarter.

Capital expenditures were $3.2 million in the period. [inaudible]

Dominic Bardos: On the subject of capital investment, the build out of our new 1500 Shoals wave factory is progressing well.

Dominic Bardos: This state-of-the-art plant told me more than 635,000 square feet. We'll allow for the consolidation of multiple manufacturing and warehouse facilities in Tennessee. We'll allow for the consolidation of multiple manufacturing and warehouse facilities in Tennessee.

Dominic Bardos: It will enable an unprecedented level of efficiency and collaboration for us at Shoals.

Dominic Bardos: We currently expect to begin moving into the new facility at the end of the third quarter.

Dominic Bardos: Additionally, we've recently completed the construction of our own solar demonstration site, referred to as the Shoals Innovation Field.

Dominic Bardos: Located on our campus on Shoals Way, this real world research and development laboratory incorporates a variety of panels and trackers paired with different Shoals eBoss solutions. .

Dominic Bardos: It is providing our engineering, safety, commercial teams a hands-on environment to test our innovative new products, showcase our value proposition, demonstrate installation techniques, and educate our stakeholders about the key products in the Shoals portfolio.

Dominic Bardos: Our balance sheet remains high quality, and we enter the quarter with cash and equivalent of $35.6 million, and net debt to adjusted EBITDA of 1.2 times. [inaudible]

Dominic Bardos: Our net debt of $106.1 million is the lowest level for Shoals in four years as a public company.

Dominic Bardos: With regards to capital allocation, given a number of competing priorities for our cash, including shrinkback remediation and factory consolidation, we did not purchase any shares in the first quarter under our share repurchase program.

Dominic Bardos: We have $125 million currently remaining under the share repurchase authorization.

Dominic Bardos: We will continue to evaluate investment opportunities that we believe yield the highest return for shareholders.

Dominic Bardos: Backlog and awarded orders ended the first quarter at $645.1 million, a sequential increase of $10 million.

Dominic Bardos: Backlog constitutes $202.2 million of the total BLAO, providing us with confidence that the growth projections we have for the upcoming period can be achieved.

Dominic Bardos: As of March 31st, approximately $500 million of our backlog and awarded orders have planned delivery dates in the coming four quarters, with remaining $145 million beyond that.

Turning now to the outlook. [inaudible]

Dominic Bardos: While quarterly pacing within the year, normally follows a strong back half. We mentioned on the previous earnings call that we expect this to be slightly more pronounced in 2025, and that remains true today.

Dominic Bardos: The production calendar is large to the driven by when and where customers need us to deliver our solutions. And as you have likely seen from both industry data and peer reports, project calendars are very busy as we move into the warmer months.

Dominic Bardos: We expect between 40 and 45% of annual revenue in the first half of the year, and 55 to 60% in the second half.

based on what I just walked through. [inaudible]

Dominic Bardos: For the quarter-ending June 30, 2025, the company expects revenue to be in the range of $100 to $110 million and adjusted EBITDA to be in the range of $20 to $25 million.

Dominic Bardos: For the full year 2025, the company continues to expect revenue to be in the range of $410 to $450 million, and adjusted EBITDA to be in the range of $100 to $115 million.

Dominic Bardos: In addition for the full year, we continue to expect cash flow from operations to be in the range of 30 to 45 million dollars, capital expenditures to be in the range of 25 to 35 million dollars, and interest expense to be in the range of 8 to 12 million dollars.

Dominic Bardos: And finally, we want to candidly share what we are seeing in hearing from customers. [inaudible]

Dominic Bardos: Many of you have asked about potential changes to the regulatory framework, including the IRA, PTC and ITC.

and how they might impact industry growth. [inaudible]

Dominic Bardos: These items may drive elevated market volatility for the remainder of the year. While it clearly occupies the headlines, our customers are less distracted, and as a result, we do not see an increased rate of project delays relative to when our full year guidance was constructed.

Dominic Bardos: The range provided to you allowed room for heightened volatility and market destruction.

Dominic Bardos: Therefore, even if we assume sustained uncertainty within our markets in 2025, we believe our guidance is reasonable and achievable.

Brandon Moss: With that, I'll turn it back over to Brandon for closing remarks.

Brandon Moss: Thank you, Dominic. In this environment of heightened uncertainty our team is doing a great job on what we can control and influence.

Brandon Moss: Improving the resiliency of our supply chain, exceeding customer service requirements, hitting delivery timelines, providing exceptional quality, solving real business problems with new products.

Brandon Moss: The changes we are making and the team we have in place positions us exceptionally well. It is exciting to be a part of.

Brandon Moss: At the same time, we cannot ignore the market data we are seeing.

Strong growth across both the core and new markets. [inaudible]

Brandon Moss: Driven by the continued need for energy around the world, despite the volatile political environment, Wood McKenzie projects the U.S. will add between 41 and 50 gigawatts of average annual solar installations from 2025 through 2035. The U.S. will add to the U.S. will add to the U.S. will add between 2035.

Brandon Moss: This leads us to be incrementally more constructive on the market, both 2025 and beyond.

Brandon Moss: While noise around energy policy remains, the data supports our thesis that markets in which we play are moving past the challenges we experience in 2024. It's shaping up to be a good year.

Brandon Moss: We want to thank our shareholders and customers for their continued trust and our employees for their hard work and dedication. Operator, we are now ready to take questions.

Brandon Moss: Of course, thank you. If you'd like to ask your question, please press a star for a 1 on your telephone keypad. If you'd like to ask, but we'll throw you a bit through your question, please press a star for a vote 2. When prepare to ask your question, please ensure you're unmuted locally. Thank you very much.

Speaker Change: Please ask one question and one follow up before returning to the questions cube. Our first question comes from Mark Strouse of JP Morgan. Mark, your line is open. Please go ahead.

Thank you.

Speaker Change: Hey, good morning. This is Michael Fairbanks on from Mark. Maybe you guys could just start with talking about how the competitive landscape may have shifted given the uncertainty around tariffs. Thank you.

Brandon Moss: Good morning, this is Brandon, a great question. And look, there is, Ram,

Brandon Moss: Certainly no doubt we have seen an increase in our customer inquiries our commercial team is

is very active in the marketplace, and I think wow. [inaudible]

Brandon Moss: The tariff landscape is playing a part of that most of the conversations that we're having with customers.

Brandon Moss: Are still centered around our quality, our service, our capabilities really speaking specifically to engineering and helping customers solve business problems with our new products.

Brandon Moss: So we continue to be very, very excited about our commercial execution and I think it's going to lead to great things to come.

Speaker Change: Gary, and then maybe just to follow up, you guys mentioned the two big winds in the best product line. Could you maybe give some more color on those two projects? Yes, thanks.

Speaker Change: Yeah, we're very excited about best first and foremost because of the total market opportunity. Look for context.

Speaker Change: That market is essentially the same size or slightly larger even than our core.

Speaker Change: Domestic Utility Scale, Solar Market. So, we're at the early stages, as we talked about in the prepared remarks, we've really got three channels to market there.

Speaker Change: And it's not only just two wins. We're seeing wins across the board in those three channels. We are winning business with our core channel to market solar EPCs that are pairing solar and storage projects.

Speaker Change: We are winning in alternative channels. We we called out specifically, you know, more of the industrial market that's supported by data center and AI, which is, which is a fantastic growth opportunity. And then specifically. Thank you very much.

Partnering with through an OEM relationship. Yeah.

Speaker Change: through folks building skid-based solutions, and that opportunity that we referred to.

Speaker Change: has the potential to be sizable for Shoals in years to come and there's others in that pipeline. So, you know, aligned with our commercial execution on the solar side, the company is doing well and it's path to diversify. Thank you very much.

http://TheBusinessProfessor.com

Thank you, Charlie next question.

Speaker Change: Of course, our next question comes from Brian Lee of Goldman Sachs, Brian Ulan is open, please proceed.

Speaker Change: Hey guys, good morning. We're Kudos on the Solid Results, and thanks for taking the questions here.

Speaker Change: I guess we have to follow up to the first question here. If you could, you know, Brendan, maybe, it was a bit more of the lay of the land, maybe even quantified a little bit. How many of your peers? [inaudible]

Speaker Change: Blake Voltage, who you've obviously been in, so my pee can't hand combat with, you know, how much exposure do your peers have to China tariffs? You know, what percent market share in the US would you say they represent? And then, you know, what kind of customer conversations like given the state and state in terms of tariffs, it just seems like your US footprint and US supply change, it's giving you a huge like up whether it's in [inaudible]

Speaker Change: You know, the ability to capture share or price or both, so just any visibility around those trends, potentially becoming bigger talent here, as we move forward to the rest of this year.

Speaker Change: Yeah, Brian , great to hear from you. Thanks for the question. Look, I don't want to comment specifically on anyone competitor in the marketplace, but I want to.

Reiterate, you know. [inaudible]

Speaker Change: Our investment in U.S. manufacturing and supply chain started, you know, 12, 18 months ago. This is not a new phenomenon for Shoals.

Speaker Change: You know, you wake up each morning to a headline of so and so is building infrastructure in the United States as a result of these tariffs. And that is not the story of Choals. We've been doing this for the history of the company and are continuing to do it here with our investment 1,500 Cho of Way. Thank you.

Speaker Change: As far as our competitive advantage in the marketplace, look, it's good for us obviously. Anybody that is importing a finished product from outside of the country has.

Speaker Change: You know, absolute tariff exposure, whereas folks that are building here may have some tariff exposure because they could be using some some important. [inaudible]

Speaker Change: materials, and while we have largely a domestic supply chain, we too do have some important materials like others. There's some materials where there is no other domestic alternative when you think about some of the connectors that are specific to panel types. [inaudible]

Speaker Change: That being said, I like our position versus, versus any others. And again, look, I, I, I.

Speaker Change: They're not coming to us because they need a US alternative. They are coming to us because we've made some some really material changes in how we go to market and service the customer and that is being that is being recognized across across our entire customer landscape. Okay.

Thank you.

Thank you for watching. Bye.

Speaker Change: Okay, that's great. Appreciate the color. And maybe just a follow-up.

Speaker Change: You're still backing, it sounds like the view to be a 40 to 45% goes margin business structurally. Can you give us a bit of the bridge to what gets you back there, whether it's, you know, specific productivity measures, is it a customer right market makes it? [inaudible]

Speaker Change: Is it just more volume to bear? What takes you from the levels? [inaudible]

Speaker Change: You're in the high 30s to back to 40 plus, and is that something you achieve? And, you know, even the early part of 26, makes sense.

Speaker Change: Yeah, Brian , so thanks, Osha, Dominic. Yeah, great questions, and you answered a lot of it with your question self. There are a number of things right now with a lower revenue production level where product mix and customer mix is certainly having an impact on margins here in the short term. [inaudible]

Speaker Change: As we've talked, we do believe that this first quarter was going to be the low point for our year 2025 as we continue to migrate up.

Speaker Change: We do have visibility to what we're quoting in the future. Some of the projects that we're quoting is mentioned in our prepared remarks. We have about $500 million worth of quotes that do carry us through the first quarter, actually, of 2026. So we do have visibility to what we're quoting. [inaudible]

Speaker Change: We have great visibility into new products that are starting to take shape and hold, and there are creative margins to our base. So as we describe our margin.

Speaker Change: There's some things that we're doing from a commercial standpoint with our product.

Speaker Change: There are things that we're doing internally from the efficiency standpoint and that is something that we really want to focus on. There are some products that might be new that increase our share of wallet but they might be perhaps a lower percentage of gross margins.

Speaker Change: So I want to, it's not that I'm trying to de-emphasize Gross Martin. We put cash dollars in the bank. I'm focusing on operating profit. I'm focusing on shareholder returns. Now I want to make sure that we always tell the story. But if I can go after an additional segment of e-boss that we haven't participated in the past, we absolutely will do that if that can drive profitable dollars to the bottom line.

Thanks Brian , Charlie, next question.

Speaker Change: Of course, our next question comes from Colin Rusch of Oppenheimer. Colin, your line is open. Please go ahead.

Colin Rush: Thanks so much, guys. Can you talk a little bit about how the portfolio is evolving in other geographies? Obviously you moved into Europe with some new products.

Speaker Change: Yeah, and you're moving into Africa with this announcement. You know, I'm just curious, how different are the designs, how quickly can those, those things from the market and how much traction are you getting outside of, you know, some of your core traditional markets. [inaudible] I'm just curious, I'm just curious

Speaker Change: here in the States, if that's possible, but I guess it is. Um.

Speaker Change: So, a little bit longer lead times, the product by and large, speaking specifically through the MOU that we signed with UGT in Sun Africa, are very similar to what we're selling in the States. Their solutions-based products, and one of the reasons that...

Speaker Change: that we have partnered with them, not only because they're financed by many of the projects you're financed via XM Bank and required domestic content.

Speaker Change: are the fact that we have a easy-to-use solution for areas that have a lack of skilled labor.

Speaker Change: You know, we called out in the press release yesterday a project in Angola, that is roughly 600 megawatts.

Speaker Change: Colin, that design would look very similar to a design that we would have here in the U.S. and will be made here in Tennessee. Thank you.

Speaker Change: Thanks so much. You know, in given what we're seeing in terms of the investment in long cycle and dust reels, you know, can you talk a little bit about some of supply chain, you know, the non copper supply chain, and how, how much that's shifting around, and if there's an opportunity for you guys to start driving some positive things there. [inaudible]

Speaker Change: Yeah, look, we are unbelievably engaged with our suppliers right now, given the tariff and retirement.

Speaker Change: Thank you to them for being flexible during this turbulent time.

Speaker Change: Who up, work, work, come, we're trying to drive cost savings across the business, whether it's material cost savings or...

Speaker Change: Or via labor efficiency projects on our plant for that come through. [inaudible]

Lean Process, or Automation, so...

Speaker Change: You know, there's a lot of opportunity for Shoals as we move into this new facility from a raw material standpoint, being in one production facility and really being able to consolidate our inventory nodes. [inaudible]

Speaker Change: and also becoming more efficient because of the fact that we're under one roof.

Speaker Change: and adding some new automation. So, you know, we're excited, we've got a great operations team, as you know, we brought in Kirsten Moan on the new COO. She's been in the chair along with her team that she's building and is driving a real impact across. [inaudible]

Our organization, so great things to come.

Thanks, Colin. Early.

Speaker Change: Our next question comes from Philip Shen of Brock's Capital Partners. Philip, your line is open. Please go ahead.

Philip Shen: Thanks for taking my questions. What do you see in terms of bookings velocity for your business on projects looking for construction starts in the back half of next year and 2027 to what degree has the

The Terra environment impacted what you could be doing. [inaudible]

and the coming quarter. [inaudible]

Thanks.

Sure, thanks, Phil.

Phil: Look, too too early to call the ball on 26th and 27th, obviously. [inaudible]

Phil: What I can't say is, I think it's probably undisputed at this point that the underlying demand environment driven by data centers and AI is...

Phil: You know, going to be a force that continues to drive, you know, the solar industry. I know there's a lot of uncertainty out there right now with tariffs and what will or will not happen. [inaudible]

Phil: with ITC, PTC 45X, but even through that, we are seeing a strength in the market.

Phil: We saw a softer Q4 in 2024 in terms of starts.

Phil: And in tracker installation, the net trend is reverse going into 2025. We're seeing an updick. [inaudible]

Phil: Across the board, and you see that in our backlog and awarded orders, and they'd be more importantly our conversion from awarded order to backlog. We have roughly a $50 million increase, quarter to quarter there.

Phil: The great thing that we are hearing, talking to our EPC partners and developers.

Phil: They're confirming our feeling of strength in the marketplace. They're not seeing a slowdown, and I think you're seeing that picked up by other industry sources that provide data. Yeah, so...

Phil: Mark, 25 guide and contemplate some uncertainty as we said on the last call.

You know if that uncertainty doesn't doesn't happen

Phil: We will finish at the high side or above our guidance so we're excited about the market in general with what we see.

Phil: Joe Paolo, okay, thank you very much, Brandon.

Speaker Change: There's a big impact to battery cell packs based on our checks, and I think there's a flow down for the US.

Matthew Tractenberg: Delay Scale Solar Batteries, and so to what degree is that being factored into your best business plan for your product line there, but also for

Speaker Change: and the projects that are tied with this. [inaudible]

Speaker Change: for 25 and 26 projects and construction starts. How much impact? Thank you very much.

Could this care that's already in place? [inaudible]

Speaker Change: on your solar deliveries, because that solar project may be...

Tied to a best project that may not be getting...

self-study.

Thanks.

Speaker Change: Sure, yeah Phil, I'll answer the second question first maybe, just again to reiterate.

Speaker Change: talking to EPC customers and talking to developers. And, you know, this is our sales team talk to them and me talking to them personally.

Speaker Change: We are not seeing any change at the abnormal changes in project timelines.

Speaker Change: Bound to 25 and even into 26. I think those projects are locked and loaded. So I know there's a. [inaudible]

Speaker Change: There's some potential volatility with raw materials related to battery storage. We're not seeing an impact of that.

Currently, as it relates to our best business. [inaudible]

I guess two things I'd point out there, one. One.

Speaker Change: This is a new business for us. We have very little market share, so we can drive strong growth virtually in any market climate because we're starting from. [inaudible]

Speaker Change: from scratch essentially, so we do see some growth there. The other thing to point out is there are other battery technologies. [inaudible]

Speaker Change: that may not be as impacted by these tariffs than others. And I think those will see some success and grow in the near term.

Thanks, Bill. Totally next question, please.

Speaker Change: Of course, our next question comes from Maheep Mandloi of Mizzouha, Maheep, Pure Line is Open, please go ahead.

Thank you.

Maheep Mandaloy: Hey, thanks for taking a question. One thing I think on the call, I'm prepared for you as you talked about contract with hyper-scaler. Could you just talk more about that? I know it's like a more elongated plan for you, but it's curious what that product is related to and how to follow.

Speaker Change: Yeah, thanks for he, look, I'm not going to specifically disclose the customer obviously we can't do that, but

Maheep Mandaloy: You know, the products that we're supplying to the market, whether it's into the data center space or to a traditional solar and storage project are relatively similar. We are providing large. [inaudible]

Maheep Mandaloy: DC Combiners and re-combiners as part of the electrical balance of systems. You know, if you think about our traditional. [inaudible]

Maheep Mandaloy: Product Portfolio, these are, they're larger, they're much larger in size.

Maheep Mandaloy: The typical range ASP for a unit is probably between $40,000 and $80,000, so significantly different than what you've seen, maybe traditionally come from Shoals with a, with a combiner box Um,

If you take back to... [inaudible]

Maheep Mandaloy: To our investor day, and we're in our plant during the tour, you would have seen some of these products being built in our plant for while you were on that tour.

So, we're excited about the opportunity and... [inaudible]

Maheep Mandaloy: You know, I think we can take our core competency of being fast, being flexible, really building up. [inaudible]

Maheep Mandaloy: Variability at scale, which is a bit of an oxymoron. We're able to do that, and I think that's the core strength of Shoals. We believe we've got a right to win in the best base. [inaudible]

Speaker Change: Gary, thanks. And maybe just one housekeeping on the shrink back litigation cost. How do we should think about that in Q2 under something? Yeah, thanks.

Speaker Change: Sure, this is Dominic. Yeah, the litigation, as I mentioned in the remarks, we're actually moving forward with the fact-based depositions and discovery phases of it.

Speaker Change: The Deadlines for moving through all that would mean that in the fourth quarter we're actually probably going to have the...

Speaker Change: First, we'll sit down, ability to sit down with Prisbee and try to do some mediation, figure out if we can do it.

and Matthew Tractenberg.

Thanks very much, Charlie. I appreciate the car. Thank you.

Speaker Change: Our next question comes from Jordan Levy of Truth Securities. Jordan, your line is open, please go ahead.

Jordan Levy: Morning, guys, it's more of a Jordan, two questions for me. First, I just expand your international business. Are you seeing more of these large scale agreements like the one you did with the UGT in Africa? Yes, sir.

Jordan Levy: And how do you think about approaching supply chain, global international volume that has become a big piece of the pie?

I have a follow-up.

Speaker Change: Yeah, sure, great question. Yeah, I mean, we obviously were very excited about this, this MOU, it's a 12 gig a lot, you know, opportunity for Shoals in the, in the, you know, near to mid term. That is,

Speaker Change: That is really a path of market that is largely via export as many of the projects are financed by the USXM bank and require domestic content. So we feel like we are obviously in prime position to support those projects. [inaudible]

Speaker Change: Witson, Africa, and UGT. There may be some other...

Projects that are not built in the States.

Speaker Change: Satisfied both this relationship and potential projects and relationships in the future. We've discussed that in the past that, you know, in any strong international business.

Speaker Change: in specific regions on the ground to be successfully long-term and some more to come there. You know, that's continues to be our intention and you'll hear more is that strategy unfolds.

Do you have power? [inaudible]

Thanks, Daniel.

Speaker Change: Thanks, yeah, so we're going to the 12-figure contract. Can you talk broadly to the modern profile of this contract versus your current backlog? I think previously you mentioned international projects usually carry a lower margin compared to US. [inaudible]

Speaker Change: Is that statement still true given that now you have project raising, Australia, Chile and Africa? Thank you.

Speaker Change: Yeah, I won't, I won't commit specifically on that arrangement in the margin profiles, but again, I would remind [inaudible]

Speaker Change: In those projects, we'll look, look and feel similar to our typical US projects.

Great. Thanks. Yeah. So Thank you.

Speaker Change: Our next question comes from Praneeth Satish of Wells Fargo, Praneeth. Your line is open. Please go ahead.

Thank you.

Speaker Change: Thanks. Good morning. You know, just kind of given your comment here that customers 2025 construction calendars are full.

Speaker Change: Projects are moving forward as scheduled. Has your underlying assumption for project schedules and the cushion around delays change at all relative to the prior guidance range? I mean I see the assumption now is 78% of the backlog in awarded orders convert to revenue in the next 12 months and that is up from last quarter. [inaudible]

Speaker Change: So it does seem like the overall environment here is improving despite all the IRA uncertainty so I'm just trying to get a sense of the underlying assumption for project delays and I guess indirectly if the current conditions persist which seem positive then would you be tracking towards the high end of guidance. Thank you very much.

Thank you.

Dominic Bardos: Boyle Boy, thank you for that question. This is Dominic. Yes, so I remain very cautiously optimistic. As we said, both a prior earnings call and today. Thank you very much.

Dominic Bardos: We are seeing very positive momentum here in 2025, but I'm very excited about what we're seeing.

Dominic Bardos: Yes, we do have more uncertainty in the back half because as you see our back log, which is where we have the purchase orders is now climbed to $200 million, but we still have to convert some business in the back half of the year. Still have to get those purchase orders. [inaudible]

Dominic Bardos: But I do need to be prudent and say that there is some uncertainty out there. We haven't gotten all the purchase orders to complete the year yet. And so our guide for the full year still remains intact.

Praneeth, did you have a follow up?

Got it. That's helpful.

Dominic Bardos: Yeah, I do have a quick follow-up, just going back to the, to the hyper-scaler, Beth, Wind.

Dominic Bardos: I guess first, like, I think there's more opportunities with this hyperscalar, I guess you're going through OEM, it sounds like I'm not sure, but just any more opportunities in that pipeline. What does the margin profile look like versus your traditional e-boss offers? And then, you know, just kind of philosophically and at high level, are you seeing any more interest from data center customers to use solar and storage or wind and storage because predominantly they're using natural gas now? [inaudible]

So yeah, let me hit the first one. [inaudible]

Dominic Bardos: The channel to market for the specific, you know, data center, hyperscaler customer that we reference is a

Dominic Bardos: Direct channel to market, right? That is not through an OEM. So three distinct channels. One, essentially selling our EPC customers that we're working with every day. Two, is an OEM relationship with those folks that are building skid-based solutions. [inaudible]

Dominic Bardos: So think of a containerized solution or a containerized configuration that is pairing batteries with our products and our products are on board those solutions.

Dominic Bardos: In thirdly, is in two, the more industrial market of data center AI specifically, where

Dominic Bardos: Essentially, the same products are used to balance their electrical systems, whether they be driven by gas or...

Dominic Bardos: Jen Set Backups, the Balanced Got Electrical System, our products can be used in that environment, which is fantastic for us obviously.

Dominic Bardos: We plan to penetrate via all three channels to market and we are seeing activity across all three again. We're excited. We're excited.

Dominic Bardos: about this particular opportunity. So, and expect that business to continue to flourish. The second part of the question, I think, was around...

Dominic Bardos: You know, the margin profile or battery energy storage business, I mean, we think of that business as having the ability to generate a creative margin for the enterprise. [inaudible]

Dominic Bardos: Did I answer all the questions or was there one more? [inaudible]

Thank you.

Dominic Bardos: That's it. Yeah, that's that's good. Appreciate it. Thank you. Thank you. We have one last question. Thank you.

Speaker Change: That is correct. Our final question comes from Derek Soderberg of Council Fitzgerald. Derek, your line is open. Please go ahead.

Derek Soderberg: Yeah, hey guys, just one question for me around C&I, any visibility into what sort of driving demand?

Derek Soderberg: in the end, Markets for CNI. Is there a positive trend? Made in America? You know, companies securing their grids? Can you talk about what's driving some of that quoting activity in CNI? Any of some of those trends maybe driving that? Thanks.

Speaker Change: Yeah, thanks, a great question. Look, we're excited about our CNI business when you can look at it.

Speaker Change: You know, a business where quote activity is off, bookings are off, revenue is off, that's a pretty good signal what we have is working.

Speaker Change: I think people more and more are understanding our kidded solution in the field and what value that we can offer too.

Speaker Change: Smaller projects where labor is at a premium. Their supply chains are disaggregated and we offer a fantastic solution for them. We are excited as, you know, more potential behind the meter opportunities arise. [inaudible]

Speaker Change: that these EPCs may be the individuals that are doing those smaller behind-the-meter projects. So, you know, we're starting to execute commercially and operationally very well in that area and we are seeing business accelerators as a result of it.

Thank you.

Derek Soderberg: Thanks, sir, and Charlie, I think we have one last question. Jump in from Kashi. It's all the answer to that question.

Thank you.

Speaker Change: Of course, our next question comes from Kashe Harrison or Piper Sandler. Kashe, your line is open, please go ahead.

Speaker Change: Hey, thanks for sliding me in here and sorry, I, I joined late. So, you know, apologies again if you've already addressed this on the call, but just, just one quick one for me.

Speaker Change: Coming into 4Q earnings, I think you flagged, you had about 10-20% of revenues in book and ship, and then another key assumption you had was, you know, the level of delay this year would be...

Speaker Change: You know, not as bad as last year but not as good but not you know back to you know normal call it 2023. 2023.

Speaker Change: Just how are those two key assumptions shaping up relative to your expectations? Do you feel good? Do you feel a little good about book and ship? And then are you seeing better delays than expected? Are delays worse than expected? You know, relative to what was in the original guidance. Thank you.

Speaker Change: Sure, so yeah, as I said in the first, you know, first earnings call of the year, we definitely wanted to allow for some project delays. And projects do move all the time, that's a part of our business. So we do work with customers sometimes they have construction issues, sometimes they're moving things around. [inaudible]

Speaker Change: and the current book of business and the purchase orders that are coming through. [inaudible]

Speaker Change: You can tell that we're very cautiously optimistic about where the year has headed.

Speaker Change: We have not seen the level of activity of delays that we saw in 2024. We keep hearing from our customers when we directly ask them if their projects are sliding and the answer is no. [inaudible]

Speaker Change: So, we remain very cautiously optimistic that perhaps the allowance that we have for delays may be not come through.

Speaker Change: I'm excited, but I do want to hold our annual guide. I do think that's prudent in this environment. There are some moving pieces on the macro. We do have to understand what happens with tariffs and some projects.

Speaker Change: that we're looking at may have a dependency on imported panels, they may slide out of the back half of the year. So we are definitely cautiously optimistic if you're still my turn, but we do want to hold our guide for it.

Thank you.

Okay.

Well, that's great. That was the only question. [inaudible]

Speaker Change: Okay, great. Thank you. So we're going to make that our last question for today. I want to note.

Speaker Change: Then we have a very active IR calendar in May and June . We're out on the road quite a bit. We've announced that in the last couple weeks of the press release. It's on our website. So join us at one of those events. We'd love to see you. If we can help further, please reach out to us at investors at Shoals.com with any questions. Thanks for joining us today. Have a great day everyone. Thank you.

Speaker Change: Ladies and gentlemen, this concludes today's call. Thank you for joining, you may now disconnect your lines.