Q2 2025 Shoals Technologies Group Inc Earnings Call
Good morning, and welcome to the show Technologies Group second quarter 2025 earnings conference. Call today's call is being recorded. We have allocated 1 hour, for Bear 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 or should Technologies Group. Thank you. You may now begin.
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 Barto on this call management will be making projections or other forward-looking statements based on current expectations and assumptions which are subject to risks and uncertainties and should not be considered guarantees of performance or results. Actual results could differ materially those risks and uncertainties are listed for interested investors in our most recent SEC filings.
Today's presentation also includes references to non-gaap financial measures, you should refer to the information contained in the company's second quarter press release for definitional information and reconciliations of historical non-gaap measures to the nearest comparable. Gaap Financial measures
Please note that the slides you see here are available for download from the investor relations section of our website at investors.
With that, let me turn the call over to Brandon.
Thank you, Matt, and good morning everyone. I'll be sharing some thoughts on the most recent quarter. We'll discuss the current demand environment for us utility scale, solar and I'll review progress on our strategic growth initiatives.
Dominic will dive deeper into the second quarter results and provide our outlook on third quarter and full year 2025. We'll then close it out with questions from our analysts.
To the Shaws team for delivering revenue of 110.8 million, which was above the high end of our expected range provided last quarter and represents an 11.7% increase over the prior year, period and a 37.9% sequential increase.
bookings were also very strong in the period as the momentum we've seen all year continued driving approximately 137.1 million in New Orleans,
This resulted in a company record backlog and awarded orders of $671.3 million and a booked bill of $1.2 billion, supporting the growth we see for the remainder of the year and into 2026. As of June 30th, 2025, approximately $540.3 million of that backlog has shipment dates in the upcoming four quarters running through Q2 of 2026.
As a reminder given recent uncertainty and volatility, we continue to allow for potential project. Timeline changes from our customers this year. And next
With that said, 2025 is shaping up to be a very strong year, our value proposition and expanded product offering combined with improving industry fundamentals. And the underlying demand growth are driving strong sales. While we all read the headlines regarding rapidly shifting, clean energy policy, our customers continue to move projects forward and look for ways to further increase their project capacity. Scholes value proposition reducing the need for skilled labor, speeding deployment, and improving quality. All from a trusted domestic manufacturing partner is resonating with both Legacy and new customers. For these reasons in combination with solid underlying industry. Fundamentals we have increased the range of anticipated revenue for the full year 2025 representing between 13 and 18% growth year-over-year.
Growth profit percentage remained in the expected range for the quarter, landing at 37.2%, driven largely by strategic pricing initiatives and product mix. Gross profit dollars were $41.2 million, the highest results in 2023.
As we've discussed, we occasionally identify projects as having strategic relevance, whether that be the EPC developer geography or to displace a competitor. This strategy has enabled us to engage with new customers and win projects that have led to increased sales. We continue to believe that the benefits of our high-quality solutions, industry-leading engineering, support, and exceptional customer service are winning customers over.
While we are still in the early days, it appears the strategy is working.
Additionally when we settle into our new facility, we will begin to see the impact of productivity initiatives. That we've communicated to you automation lean, manufacturing principles in a centralized and collaborative Workforce. We're eager to step on the gas and show you the benefit of those Investments.
We also delivered a second quarter, adjusted EBITDA, but at the high end of our expected range at $24.5 million, or 22.1% of revenue.
And finally, I'm very pleased to announce that the remediation worked to Replace defective Prisma and wire on known customer sites, is nearing completion. There will be some remaining work needed in the coming. Quarters due to some weather and logistical constraints. We encountered this quarter but we'll continue to service customers as we've committed.
Feedback has been overwhelmingly positive, ensuring our reputation for quality and service remains intact. And in some cases improved,
The relationships we've established with epcs and developers in the most valuable asset we have and delivering on our promise to make things. Right? No matter where the fault lies is critical.
Congratulations to the warranty remediation and customer support teams. And thank you to our customers for their continued trust in us.
There will be specific items that must be sourced from non-us vendors. In those cases. We will determine when and how to price those projects appropriately.
The policy debates in DC regarding energy sources, do not materially. Change the competitive position of solar.
Many projects through 2027 have components secured or can meet the requirements to commence Construction in the coming year.
In some cases, there may be PPA reading negotiations needed, but the developers we've spoken with have confidence. They can effectively navigate these changes and remain committed to the project pipelines through the coming years.
Some of you have asked if it has changed the velocity of our pipeline or how it may impact future periods. But it's too early to make that prediction today, especially as it pertains to eboss developers. Continue to wait for guidance, from treasury on some of the elements required to qualify for tax incentives. Clarity will be sought as we make our way through August, and will continue to work hard to help our epcs and developers adapt as needed.
In summary, this is a dynamic and rapidly shifting environment, but we are operating from a position of strength.
Our portfolio has never been more complete solving real business problems with Innovative new product Solutions. The commercial team is executing our strategy and driving share gains. Our new facility will enable visible and meaningful operational improvements. Our growth opportunities are beginning to contribute, meaningfully and our position. As a domestic manufacturer gives us a competitive Advantage. The second quarter was another solid period of growth within our core utility scale solar Market industry. Research estimates first, half 2025 construction, was up 20% year-over-year and encouraging first, half of 2025,
Site prep and tracker, installation activity appears to be gaining momentum, which supports the strong back, half of the year. We expect that schols.
I want to note that we have not experienced the elevated number of project delays that we saw in 2024. That's encouraging to see
project calendars remain tight with little excess capacity to move things around. Labor availability is a focus for the industry and will remain. So
While distracting and disruptive, we believe the recent changes to IRA provisions are unlikely to negatively impact most project timelines in the next several years. By our estimate, most projects have secured components through 2027, and as a result, the next 2 to 3 years appear relatively secure.
I want to remind you what is driving demand today? It's Ai and data centers. Its onshoring of industry. It's basic household consumption of an aging infrastructure. Those are not going to be solved in the coming 3 years and May in fact become more critical. The lead time for gas turbines is surpassing 3 years and timelines to bring nuclear online appears to be stretching into the next decade, solar Remains the best option. So, the market will ensure that the economics work, but demand is there and will help our customers meet that demand.
Schultz: Additional growth opportunities are laid out in our strategic plan, including international CCNI, OEM, and BEST, all of which are meeting or exceeding our expectations.
The opportunity said across International markets continues to expand.
Our pipeline exceeds, 20 gigawatts and includes projects in Latin America EMA and asia-pacific.
Our relationships with large Global developers tied to the US, export in court Bank are opening doors. We expect to deliver on multiple International projects this year with an acceleration in 2026.
Our community commercial and industrial (CCNI) business continues to gain momentum. To give you some context, we expect an excess of $10 million in revenue this year. June also saw the highest monthly booking since we began tracking this segment.
We've added new distribution Partners who are helping us reach further into the market. Remember these projects are smaller in size with shorter lead times the speed of order processing is key here. We continue to invest to build the capabilities. Customers require of us. Our OEM business is tracking ahead of expectations as our single customer continues to see strong demand of their panels. Our value proposition of providing a high-quality domestic junction box to additional customers is resonating. We have meaningful opportunities for 2026 and Beyond given the consistent onshoring of module production and the US.
Battery energy storage solutions has been a key area of investment and Innovation at scholes.
Inherent fluctuations of solar power supporting Peak demand and enabling energy Arbitrage.
These complex systems store energy using rechargeable batteries, offered by other providers, some of whom are domestic and whom we are working closely with today.
Also remember that Beth is universally applicable to any energy source solar wind, gas Hydro without best. It will be very difficult to meet the energy demands. We see ahead.
As discussed on the last earnings call. We have 3 Market opportunities for our DC. Recombine our products for best 1. In particular, is to serve data centers. A significant portion of our pipeline for these products, serve that growth from data centers and AI, the opportunity driven. By this demand is quickly, becoming a key area of focus data center power demand in the US search from 46, gigawatts and 2024 and is poised to more than double by 2030.
That will require a massive investment in both computing power and the energy needed to run those servers.
Our offering in this market, spans combiners and recombines today and a more comprehensive offering in the future.
Our goal is to offer a more complete architecture of Wiring Solutions combiners and other critical components on our roadmap.
Our quoting activity is up a 100 times year-over-year with positive early feedback from our key stakeholders about the direction. We're headed, we'll work to keep you updated on key commercial wins as we make our way through the year.
In summary, we are executing our strategic framework of Market, penetration and diversification as anticipated. Customers are looking for a US source of high-quality innovative solutions, that allow them to manage labor costs, speed time of deployment and ensure their assets. Perform over a lifetime that spans not years but decades the balance between low material cost today versus total cost of ownership over the useful life of a project. Is why epcs and developers are more engaged with schols than ever?
With that. I'll now turn it over to Dominic. Who will discuss our second quarter Financial results in more detail and our outlook for 2025 Dominic.
Thanks, Brandon and greetings to everyone on the call.
Turning to our second quarter Financial results Revenue increased by 11.7% year-over-year to 110.8 million.
The increase in Revenue was primarily driven by higher domestic project volume from new and returning customers.
In addition, as Brandon mentioned earlier, our strategic growth channels of ccni and OEM contributed to year-over-year revenue growth in the quarter.
Gross profit increased to 41.2 million compared to 40.0 million in the prior year period.
This resulted in GAAP gross profit percentage of 37.2%, compared to 40.3% in the prior year period.
The decline in margin was due to strategic pricing actions, customer mix and product mix. As we have communicated, previously, the gross profit percentage in the quarter was in line with expectations of mid to upper 30s.
General and administrative expenses were 23.1 million which is 3.8 million higher than the prior year period.
Our legal expenses, remain elevated, while we handle ongoing litigation matters.
Ultimately 2.5 million of legal expense was specifically related to the ongoing wire installation shrink back litigation.
Income from operations or operating profit was 16.0 Million compared to 18.6 million during the prior year period.
Operating profit margin was 14.4% compared to 18.7% a year ago impacted by the reduced gross profit, percentage. We realized in the second quarter.
Net income was $13.9 million compared to net income of $11.8 million during the prior year period.
Net income was aided by a 3.1 million gain on the planned sale of 1 of our Portland facilities during the quarter, as we prepare to consolidate operations.
Adjusted. Net income was 16.9. Million compared to 17.8 million in the prior year period.
Adjusted EBITDA was $24.5 million compared to $27.7 million in the prior year period.
And adjusted ebit margin was 22.1% compared to 27.9% a year ago, driven primarily by lower gross margins flow through.
June 30th.
The current portion of the remaining liability related to shrink back is now $14.5 million, which stands as our estimate for what is required to complete remediation for all sites with known issues.
On the legal front, our case against Prisma is progressing as expected. At this time, we continue to expect written Discovery and fact depositions to be completed in the third quarter.
Our second International Trade Commission, case against voltage is also progressing, as planned with a hearing scheduled for later this month,
We continue to believe in the validity of our intellectual property and that it is in our shareholders' best interests to pursue this legal action.
Barring any delays, We Believe an initial determination could be delivered by the end of the calendar year.
Operationally, we consumed 13.8 million in cash in the second quarter driven by the sequential build in accounts, receivable due to quarter over quarter growth and cash spent on warranty remediation.
The increases in accounts receivable and warranty remediation were partially offset by a reduction in inventory and an increase in accounts payable.
on a year-to-date basis, we have generated 1.7 million dollars in operating cash flow.
Free cash flow was negative 26.0 million in the second quarter reflecting both the 11.2 million impact of remediation costs and elevated. Capital expenditures related to our new facility.
These 2 items impacted free cash flow by a total of 23.4 million in the quarter.
The buildout of our new Consolidated facility in Portland, Tennessee is on schedule and we continue to expect to begin moving into the new facility at the end of the third quarter.
Our balance sheet remains high quality, and we ended the quarter with cash and equivalents of $4.7 million and net debt to adjusted EBITDA of 1.4 times. Our net debt was $127.1 million, an increase over the prior quarter due to the cash consumption I described earlier.
With all the necessary caveats, we would expect cash used in warranty remediation and capital expenditures (capex) to decrease by the end of the year.
Since free cash flow exceeded our expectations in the first half of 2025, we also paid $10 million down on our revolver during the quarter, which had an outstanding balance of $131.8 million at the end of the period.
With regard to capital allocation, given a number of competing priorities for our cash this year—including shrink factor mediation and factory consolidation—we did not purchase any shares in the second quarter under our share repurchase program.
we still have 125 million remaining under the Sherry purchase authorization.
Backlog and awarded orders at the end of the second quarter were $671.3 million, a sequential increase of $26.3 million.
Backlog constitutes 260.9 million of the total blao, providing us with confidence that the growth projections. We have for the upcoming periods can be achieved.
As of June 30th 540.3 million of our backlog. And awarded orders have plans delivery dates in the coming 4 quarters with the remaining 131.0 million beyond that.
Turning now to the Outlook.
Quarterly pacing within the year is expected to follow the strong back half. We've been communicating since February.
The production calendar is largely driven by when and where customers need us to deliver our solutions. As you have likely seen from both industry data and peer reports, project calendars are very busy as we move through the next few quarters.
therefore, for the quarter ending September 30th, 2025 the company expects Revenue to be in the range of 125 to 135 million representing 28% year-over-year growth at the midpoint
An adjusted EBA to be in the range of 30 to 35 million.
I'd like to point out that the implied fourth quarter Revenue, guidance of 135 to 145 million represents 31% year-over-year growth at the midpoint
For the full year 2025 the company. Now expects Revenue to be in the range of 450 to 470 million and adjusted IBA to remain in the range of 100 to 115 million.
In addition, for the full year, we expect cash flow from operations to be in the range of $15 million to $25 million, as a result of higher growth expectations in the coming quarters.
Capital expenditures now, to be in the range of 30 to 40 million
and interest expense to remain in the range of 8 to 12 million.
With that, I'll turn it back over to Brandon for closing remarks.
Although the news flow regarding changes within the regulatory landscape appears to be disruptive and distracting, the industry is no stranger to a rapidly shifting framework. Our customers and theirs are seasoned, sophisticated, and proactive.
They tell us that while they wait for improved clarity from their tax experts and guidance from the Treasury Department, they waste no time pushing forward.
The power is in high demand from their end, customers utilities hyperscalers, and industrial expansion.
It's not going to change the economics in the short run and in the long run will require adjustments. Not drastic Cuts. As we've said this year, our customers are constructive, fundamentals are solid and improving and we are in a competitive position of strength. I'm very encouraged about what we see in here and excited about the positive changes. Taking all the trolls.
We want to thank our shareholders and customers for the continued, trust and our employees for the hard work and dedication.
Operator. Or now ready to take questions?
Thank you, if you'd like to ask a question. Please press star. Followed by 1 on your telephone, keypads. If you'd like to make sure your question please. Press star, followed by 2. When preparing to ask you a question, please. Ensure you are muted locally as a reminder to our staff. All of my 1 on the telephone keep pads. Now,
Our first question comes from Julian Mulan Smith of Jefferies. Julian, you are open. Please go ahead.
Actually, let me, let me kick it off, just with your last comment there. I think there's probably apps. I mean, just in terms of of, of Engagement with clients here and your customers. What are you seeing? Just in terms of order activity and the willingness to move forward, and then specifically within that you all have been very active on best of Lane. Obviously, you posted a separate deck here of late, can you comment a little bit more specifically on the order activity? You're seeing there and, and perhaps more like structural customer engagement as you guys aligned into that and Market as well. But again, emphasis first on, just given the backdrop of the EO and the tax backdrop, the willingness to sign contracts, uh, in the current environment.
Absolutely, Julian. Good morning, and thanks for the question. Um,
Yeah, we are as we've communicated really all year pretty excited about the market backdrop. We have a very strong Market despite all all the noise with policy that is going on. Um, you know, we we've got to remember that the energy man demand is is off the charts, right? Um, our customers epc's, our direct customers their project calendars are loaded projects are moving forward.
Um, as we've seen, you know, Market statistics construction is up 20%.
Our peers in the tracker space. Um,
We have had great installation numbers in the first half of the year that support our back half numbers and on.
uh, in into 2026, it's too early to call to call the ball on 26.
Uh, but we are, we are optimistic. Given the market backdrop
Uh, as excited as we are about the market, we are more excited about our execution and our ability here at Shoals to return to growth.
Uh you know our Core Business obviously domestic utility scale uh is growing and growing fast.
Uh, that's evidenced by our our record backlog and awarded orders of 671 million. What is really exciting is uh our following 4 quarters, um, backlog and awarded orders of 5.40.
uh, for some perspective, we entered into the year uh, coming into 25,
With the number of 450 and following 4 quarters backlog uh and awarded orders.
So we are really excited about how we're executing our order book is.
Um, there's no doubt in my mind. We are winning in the marketplace.
As it relates specifically to best.
Uh, you know, we're doing well across our our, our 4 Groth pillars. Um, best is very exciting for us because we have such a significant Market opportunity. These products are are used not only uh in our core utility scale solar applications.
Uh, but we are seeing significant, significant interest in data center AI applications for our combiner recombineering.
Uh, still early days on this. These projects have a long sales cycle, as you know.
Uh, but we are really excited to see the engagement with our company and specifically, uh, the engagement with our, our engineering function, to potentially provide future Solutions. Um,
Look, everybody's got their own interesting stats and tidbits about the growth of data centers and AI.
Um, I want to maybe point out something that was in the journal this week that I found interesting. Meta, Microsoft, Google, and Amazon have invested in data centers during the first half of the year.
Uh, so much that it has the equivalent impact to GDP as consumer spending in the first half.
So that amount of computing power, that level of investment, is obviously going to need power.
That not only propels our utility-scale solar business but gives us.
A lot of opportunity in the battery energy storage space. So we're, we're very excited about that.
Thanks Julie.
Earley.
Thank you. Of course, our next question comes from Phillip Shen of Roth Capital Partners. Phillip, you now have the floor. Please proceed.
Hey guys, thanks for taking the questions. Uh, first ones on. Um,
Uh, 2026. I know you don't guide them.
26, but, uh, your backlog and ordered orders are, uh, pretty healthy at 540 million. Um, can you give some more color on how you might expect? Uh, 26 to play out and then separately. Um, as it relates to uh, the full year guide, um, you have an implied negative free cash flow guide. Want to see if you could uh, provide some more context and color there as well. Thanks,
Yeah, Phil uh, thanks for the question and good morning. Yeah. As as you noted, we we are not going to guide the 2026 yet. Um,
You know, I I will again, lean back on on the backlog and awarded orders and the following 4 quarters of being 540. Uh, again, strong book, The Bill, uh, again for us this quarter. Um,
As we have been all year, we're we're excited about.
The market we're excited about how we're executing in our, in our, in our customer base. Um, so, you know, you you saw that in the
In the increase to our Revenue guidance, for, for 2025, right? So we, we are in a position of strength.
We feel very good about the market and how we're executing. Um, Don maybe you want to take cash flow. Yeah. Just a quick bit on the cash flow Phil as you as you can imagine is we're growing the business with a significant growth and you see the numbers, the implied guide for Q4 with revenue and also what's available for us as we go into 26, in the first half, we have to make preparations. Um, from a inventory standpoint, we have to invest in the working capital necessary to drive that growth. Um, as you know, we've also talked about the fact that warranty remediation will be completing um, for everything that we know about, uh, right now and that's going to consume additional cash in the back half, uh, while we finish that effort. So at this point in time, you know, it's
Really driven by growth of the business which we're excited about the return to growth, but it does take working capital investment to get there. Um, and then we'll be able to uh, you know, reap those benefits for a long time and reinvest those dollars when we collect. So this year 2025 operating cash flow has more challenges. Uh, but as I also stated, um, as we get towards the end of the year, we'll be seeing the the reductions of capex for 2026 and also warranty remediation. So, um, yeah, we're just excited, it's really growth driven.
Thanks Bill.
To Charlie.
Thank you. Our next question comes from Brian Lee of Goldman, Sachs, Brian. Your line is open. Please go ahead.
Had had 2 here, uh, first on the, um, the, the revenue guidance update. It's, you know, 7% increase in the midpoint of the range all second half since you know Q2 came in just a bit above your guidance range. So just curious what are the main drivers. There are you seeing projects pull in, is it more book and burn business? Maybe projects even being pulled from other vendors coming to you, postal bbba and Fiat just a bit of color around whether it's drinks coming from and then secondly on the guidance. Um, when it comes to the margins or ebita guidance uh
Not implying any uptick despite the 30 million dollar raise in Revenue guidance for the year. So is that um a reflection of of weaker mix and and gross margins or um, something on the Opex line. Maybe give us some of the puts and takes around why. But, uh, guidance range is, is staying intact despite the higher, um, higher Revenue numbers. Thanks guys.
Yeah, Brian. Thanks. Uh thanks for the call or for the question. Um,
The strength of our business. Uh, you know, as mentioned, pulling pulling some orders in from from other vendors is as I mentioned, uh, to Julian's question, we have a hugely diverse mix of of customers. Now, in a way that we have not had before we are winning,
Uh with new customers and we are winning with customers that, you know, maybe we hadn't done a lot of business with in the last couple years.
So that is, um,
you know, it's that in the market strength that that you're seeing, that's driving, uh, you know, the growth of the, the top side for us
Is it relates to pull in? Um,
you know, we have not
we have not seen significant changes in our order pattern for for pulling in due to ob3. As you know, we fall late in the construction cycle.
uh, our products really from a safe harboring standpoint uh they'll they'll give
Uh, much of an ability for for developers, or epcs to to use our products is, is everything is designed built specifically to the solar field. So, the the Top Line growth is is really our execution, our winning in the marketplace and and, and Market driven, um, is it relates to uh, the the revenue guide versus versus Eva Dom? You want to maybe chime in there? Yeah, so a couple things Brian. Um, 1 is as we talked about all year, you know, our guide, we started the year with the 450 million dollar backlog and awarded orders. But we did guide lower um because we just didn't know the nature of how many projects would delay. Um and what we're seeing is fewer are delaying than expected now there have been project push outs and delays, there always are. And then in the business and our booking turn business remained, very strong and strong enough to offset it.
Some of the margin um uh that you seeing is the fact that we have a diverse customer mix and we've used some promotional pricing to attract folks back into the Schultz family. Uh, in that process, not everybody is using our high margin uh Solutions. We still have some of the uh combiner box uh home run Solutions um and and things like that. So gross margin is going to be um, lower than uh you know, in the range that we've talked about the up, you know, high 30s, uh, mid to high 30s. Um, but uh, that's really what's driving? Um, the margin all the way down to ibida in terms of operating expense, we are still running a bit of an elevated legal expense, uh, for the back half. Um, you know, as we've talked about for several quarters. Now, our legal expenses, uh, continue to be, uh, I would characterize them as unusually high, uh, for a company of our size based on the issues that we're dealing with. And some of that will continue into the back half as we continue to push forward on the, uh, voltage and Prisma, uh, issues. So, for the most part, um,
It's not really Opex driven. It is really the promotional pricing and some of the things that we've done from our product and customer mix at the Top Line.
Thanks, Brian Charlie.
Thank you. Our next question comes from Colin Rusch of Oppenheimer calling. Your line is open. Please go ahead.
Thanks so much guys, you know?
We can see the opportunity with, uh, with the power demand growing, but I'm just curious about how you're competing around power, quality issues in your ability to deliver more power than, uh, other folks in, um, in a similar configuration from a, from a, you know, PowerPoint perspective and how you see that opportunity evolving for the company over the next couple of years.
Yeah, so, uh, good. Good morning, Colin. Um,
look, I think, um,
Have um the ability to to keep plants up and operating with our products and solutions. Um I think our bla product line has uh has proven over time to be that solution for electrical balance of systems.
You know, as we say around here, we we don't measure our product Quality Inn. In years, we measure our product quality in decades, uh, our, our products are
Are built to stand, uh, the test of time and and, and the elements, uh, that these power plants. See, um, I think, you know, we've got the best solution in the industry versus uh, other Alternatives out there. And there, there are some that are that are out there and being installed today, but but ours.
Is the best for durability.
As it relates to the Future. Um, you know, we we do have our 2kv line that we are working on um still driving that through
Uh, ul and uh, we, we hope to see that begin.
Uh getting Speck in the sites in 2026. Um so we're very excited about
Uh, continuing to push forward with, uh, with higher generation capability for these sites.
Thanks, Colin Charlie.
Charlie.
It was just a minute folks. We seem to be having some audio issues on the operator down the line.
Our next question comes from John Windom of UBS John. Your line is open, please go ahead.
Perfect.
And thanks for taking the questions. Um, can you just talk through a little bit? You, you actually raised the revenue guidance by about 30 million at the midpoint, uh, but even if we made the same, can you talk to what's driving that? Thanks so much.
Thanks John for the question. Um, you know, um,
Yeah, as mentioned, we’ve seen a strength in the business on the top line due to our execution in the marketplace.
Uh, you know, continue to to grow uh our share with the development of new products uh and execution with current uh, and new epcs.
Um,
you know, some of the attractions of new epcs, we are leveraging, promotional pricing.
um, you know, that may be
lower than historical Norms to to overcome the switching costs from 1 vendor to uh particular vendor to shows. Um
So uh, that is impacting uh, margins again. Our margins grew uh, quarter over quarter. Uh and we are operating in about, you know, the the mid to high 30s range. Uh, it is important to mention as well.
we've got a, uh,
a significant new product growth. If you look at our backlog and awarded orders today, uh, we are approaching 10% of that backlog and awarded orders with new products.
some of those new products, uh,
have uh, ah, ah, reduced gross margin versus our
Our our typical product line 1 of 1 of those is a longtail bla product that is, uh, is starting to become prevalent in the marketplace.
Um, while uh, that that provides uh, wallet share expansion, it does impact, uh, our gross margin levels. Uh, so we're excited about the growth. Uh, and we are excited that we're we're operating at as we did in this quarter, at the, the upper, uh, 30% range of gross margin is, uh, is Dominic mentioned in the, uh, the previous question.
We do have, uh, elevated legal, spend right now that, um, that is not typical for a company, our size.
Uh but as what is important to note, as we move forward uh in the back half of the year and uh, on into the future.
Our current investment and sgna. And we will see operating leverage in the future.
The last thing, if I, if I may add John, is that we've got, um, the back half of the Year. We're still planning, uh, a significant relocation of all of our operations here in Portland into 1, facet to, uh, be able to realize some of the things that Brandon mentioned in the prepared remarks about the efficiencies of operations. So while margins are um, less than our long-term Target this year, it's within our expectations as we've been communicating. So, uh, more to come, we look forward to the growth that we have and and being able to share more about 2026 in the future. But those are some of the reasons why you see the guidance that you we've provided today.
Thanks, John Thorley.
Thank you. Our next question comes from Dimple. Gosai of Bank of America dimple. Your line is open. Please go ahead.
Open comments here.
Um, systems opportunity here, you know, I I know you've kind of spoken about an unnamed BSS, OEM partnership opportunity. Um, can you share a little bit more about the opportunity? Exactly. You know, especially as fiak restrictions are expected to get a little stronger. Um, you know, what does that look like do they have a sale sourcing strategy and so forth. Thank you.
Uh, good morning, Depo, good, you know, great, great question. Um, you know, as we we read, uh, about fio restrictions potential tariffs, obviously. Uh, there are a lot of questions about lithium-based, uh, battery, energy storage solutions.
uh, while I won't comment about our specific um, you know, engagement
I will say that, um,
you know, there are a number of domestic, uh, battery energy storage suppliers that are, that are bringing the market alternative technology to, to lithium, uh, to, you know, avoid tariffs and and, and bio restrictions. So, um, you know, I I I understand the thesis that that these restrictions May weigh down the battery energy storage.
Market a bit. It's a new market for us so Ample Ample upside for growth and and again we're working with uh, with a lot of different partners on alternative Solutions. Yeah. I think 1 of the things from a technology standpoint is we're looking for those that can best support. Uh, some of the data center demands, which is long, discharge times and slower. Um, and some of the technologies that are out there all as alternatives to those uh Metals out of China are really pretty exciting, so more to come in that space.
Thanks dimple.
Charlene, next question.
Our next question. Comes from Dillon nassano of wolf research Dylan. Your line is open. Please go ahead.
Hey, good morning everyone, thanks for sticking my question. Um so I just wanted to follow up on the prior questions on the reaffirmed IA guidance, I appreciate the caller, you've given on the promotional pricing Drive market, share gains, I guess I'm just wondering if you could talk through, kind of how sticky do you expect these kind of newer relationships to be? Can you speak to kind of your expectations around? How long it might take to convert those into higher margin orders in the future and I guess just set another way how you think about the long term Roi of these volume discounts uh and what are you looking for as you kind of track how successful they are? Thanks.
Yeah, Dylan, thank you for the question. Good question. And as as I've talked about in previous calls, um,
some of some of the epcs that we are targeting in in, if you, if you think back all the way to, uh, our investor Day last year, that 30% of the market where we had not,
Transacted a lot of business that we were going after a lot of these particular customers um use uh traditional methods.
Uh the electrical balance of system where they, you know, pull pull strings and and run to combine our boxes uh which are in nature.
Lower margin um you know lower margin projects or eboss providers, not just shows that that probably everybody. Um
so our goal always is to move people up the value Continuum and uh,
Get them to use uh our top end Solutions which is bla. And now we've got some new products out there that are that are very uh similar uh in labor savings and productivity enhancements for epcs, um that that provide better margins for us and provide better value for our customer quite frankly from an install base.
um,
We're seeing that. We're seeing that start, you know, we've got some customers that we have either recently won or
business with and and years that are back in the fold with scholes and those
Uh, some of those particular customers are now using our bla trunk bus solution, which is, uh, which is fantastic to see. So, um, that's that's the goal for us, is to to get these customers back in the fold and
And appreciating our value and quality, and service our engineering, our customer support, uh, and convince them to use our, our higher value, labor savings products.
And Dylan if I could add just a little bit more color on some of that um with some of the new products. Um we've talked about increasing our share of wallet in a solar field. Um and something like our longtail bla um is a great example of that. It uses our patented uh, bla technology for a portion of a, an extended length, trunk feeder cable. And basically, what that's doing is, it's displacing, some feeder cable that would just have been sourced, um, out there in the solar field. Now, that product itself is a lower margin product uh, in terms of some of the new products that Brandon mentioned that we've developed specifically, for some of these new customers as the our engineering team listens and we capture the voice of the customer, some of those were still learning how to produce efficiently as possible. I'll be perfectly honest with you on that 1. So as we look at the growth, um, with our new product offering, as we have, uh, things like we're capturing additional share of wallet, we're very excited to see that growth and and providing solutions for our customers. Uh, and as we uh,
Mature in that space. Uh, we you will see margins improve.
Thanks Dylan.
Great. Thank you.
Thank you as a final reminder, if you'd like to ask a question, today's call, please dial Star. Followed by 1 on your telephone keypads now.
Our next question comes from mahip. Mandalo of meizuo mahip. Your line is open. Please go ahead.
Hey morning and thanks for taking a quick questions. Uh on the international market. Could you provide some more color on the revenue contribution? I need to talk about this 20, gigawatt Pipeline, and more than 12% of the backlog. But actually think about the revenue contribution for this year.
Good morning me. Thanks for the question. Yeah, Revenue contribution thus far, uh, you know, in 2025 has been been minimal. We are excited. Uh,
That we have won some projects this year in our Focus markets. Uh, we announced 1 via press release maybe a few weeks ago, I believe a win in in Chile. So we have, uh, we have been successful, uh, in in latam and a couple projects this this year and also, uh, have have won a project, uh, in Australia that we are excited about
um,
Is it relates to, uh, you know, to Future backlog and awarded orders. I think roughly, uh, 13% of our, our Bao is, is, um, is for international projects.
so, we expect to see the contribution of our international business to accelerate in 2026,
A lot of that is driven by uh you know our our export business.
um,
In a in a previously announced, uh, press release.
Uh for a partnership uh to to drive that export business with with sun Africa, utr. Um so it is a uh it is a growing business for us.
It's 1 of our 4 pillars of growth and I would say uh, at current date. It is, it is tracking in line with our projections that we explained during our investor day last September,
Thanks mate.
Got it. Thank you.
Yeah, sure. No, absolutely. Thank you for the question. Uh, I believe that that's the last question for today, everyone. So I want to note that we have a very active IR, calendar in September. If you are attending Ari plus please stop by. We'd happy to. We'd be happy to offer you a boost tour uh and discuss new products, driving our results. If we can help you further today please reach out to investors at shos.com.
If any questions we're happy to help. Thanks everyone for joining us today. Have a great day. Thanks all.
This concludes today's call, thank you for joining me now. Disconnect your lines.