Shoals Technologies Group, Inc.(SHLS)Q2 2026 法說會逐字稿

Good morning, and welcome to the Shoals Technologies Group Second Quarter 2026 Earnings Conference Call. Today's call is being recorded, and we have allocated 1 hour for prepared remarks and Q&A. At this time, I would like to turn the conference over to Matt Tractenberg, Vice President of Finance and Investor Relations for Shoals Technologies Group. Thank you. You may begin.

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

Thank you, Matt, and thanks to everyone joining us on the call. Second quarter revenue was within our guided range at $163 million, up 47% over the prior year period. Our commercial team continued their strong performance by adding approximately $207 million of new orders in the period, resulting in a solid book-to-bill of 1.3. This drove another company record backlog and awarded orders, or BLAO, of $801 million, an increase of 19% year-over-year. As of quarter end, approximately $700 million of our BLAO has shipment dates in the upcoming 4 quarters through Q2 of 2027. Second quarter adjusted gross profit percentage was also within our expected range at 30.6%. We expect to continue making progress in margin improvement driven by positive mix and productivity gains and supported by the strong underlying demand environment. SG&A, including all legal expense, was $28 million, representing 17% of revenue, a 400 basis point decline as compared to 21% last year. Second quarter adjusted EBITDA of $31.6 million came in within our guided range and grew approximately 28% year-over-year. As you've seen, we also prevailed in our 2025 ITC case against Voltage. This was a critical outcome for our shareholders and U.S. innovation in general. We look forward to resolving the matter of damages in our upcoming district court case. We are very optimistic in how we see the market evolving and our competitive position of strength. We continue to expand production at a measured pace to ensure we deliver products with the speed and quality customers expect from us. Factory consolidations are never an easy task, but we've made steady progress and continue to identify opportunities for improvement. While I'm encouraged by the consistent weekly and monthly improvement as we deploy new lean manufacturing processes, we still have work to do. The operational improvements we will realize from this strategic initiative will drive value for all stakeholders in future periods. Briefly turning to our various business lines. The second quarter was another strong period of growth within our core utility-scale solar market. Once again, our quote volume in the quarter exceeded $1 billion of unique projects, adding to our strong pipeline. I'm also encouraged by the progress we're making in key international markets like Australia as evidenced by our increased quote activity and customer engagement. International BLAO now stands at $102 million, driving continued growth and diversification in 2027 and beyond. Our community, commercial and industrial business, or CCI business, which remains a small piece of our overall mix, continues to perform well. Our OEM business is providing a stable and visible revenue stream, growing at 51% on a year-over-year basis. And finally, we produced approximately $20 million of BESS revenue in the quarter and secured approximately $10 million of additional orders. BESS BLAO now stands at $65 million. As previously stated, BESS orders will be episodic and are dependent on how customers manage construction schedules. I'm also excited to announce a partnership with TerraFlow, a leading grid-scale developer of long-duration energy storage infrastructure. Under the agreement, Shoals will support TerraFlow's growing energy storage portfolio with our Power Hub Recombiner solution for utility scale and data center applications. The MOU is intended to support TerraFlow's future deployment plan of up to 5 gigawatts annually. Overall, the quarter played out as anticipated, and the year is tracking to our expectations. We are executing well to finish the move into our new facility and are expanding capacity and capabilities at a measured pace. Underlying demand remains intact, and our competitive position has strengthened. We're very excited about what we see ahead of us. Dom, I'll hand it over to you for a deeper dive into our financial performance and guidance.

Thanks, Brandon, and greetings to everyone on the call. Revenue increased by approximately 47% year-over-year to $163.4 million. The increase was largely driven by strong demand from both new and existing customers within our core U.S. utility scale solar market and our BESS business segment contributing meaningfully in the period. Gross profit was $49.5 million compared to $41.2 million in the prior year period, an increase of 20%. Our GAAP gross profit percentage was 30.3% and adjusted gross profit percentage was 30.6% within our expectations. As Brandon stated, we believe we will continue to expand gross profit percentage as we realize the benefit of our new factory and positive product mix, all supported by a robust demand environment. Ultimately, we are focused on driving incremental profit dollars to the P&L, a strategy which will create value for all stakeholders. Selling, general and administrative expenses, or SG&A, was $28.5 million or $5.4 million higher than the prior year period. This was driven by an additional $4.4 million in payroll and employee expenses due to increased headcount and achievement of variable compensation targets relative to the prior year. Legal expenses declined slightly versus the prior year as our ITC and class action litigation matters came to a close. Our district court case to determine damages against Voltage is expected to be completed in the third quarter. Income from operations, or operating profit, was $18.7 million or 11.5% of revenue, growing at 17.0% year-over-year. This compared to $16.0 million during the prior year period. GAAP net income was $12.1 million compared to $13.9 million during the prior year period. Please recall that we recognized a $3.1 million gain on the sale of a manufacturing facility in the prior year period. Adjusted net income was $19.7 million, an increase of 15% as compared to $17.1 million in the prior year period. Adjusted EBITDA was $31.6 million compared to $24.7 million in the prior year period, representing 27.9% growth year-over-year. Adjusted diluted earnings per share of $0.12 was $0.02 higher than the prior year period. Operationally, we generated $6.8 million of cash in the second quarter, driven by an increase in both deferred revenue and accrued liabilities. We ended the quarter with cash and equivalents of $15.7 million and net debt to adjusted EBITDA of 1.6x. Our net debt was $181.1 million, an increase over the prior quarter. Since we last spoke, we also temporarily expanded the capacity of our revolving credit facility by $50 million, providing us the flexibility we need to grow our business. Backlog and awarded orders ended the second quarter at a record $801.4 million, a sequential increase of $43.4 million. Our record backlog constitutes $425.1 million of the total BLAO, providing us with the confidence that the growth projections we have for the upcoming periods can be achieved. Congratulations to the commercial team on another strong bookings quarter. As of June 30, $699.7 million of our backlog and awarded orders have planned delivery dates in the coming 4 quarters through Q2 of 2027, with the remaining $101.7 million beyond that. Turning to guidance. For the quarter ending September 30, 2026, the company expects revenue to be in the range of $150 million to $170 million, representing 18% year-over-year growth at the midpoint and adjusted EBITDA to be in the range of $32 million to $37 million, representing 8% year-over-year growth at the midpoint. For the full year 2026, we are reaffirming our prior guidance and continue to expect revenue to be between $600 million and $640 million, representing year-over-year growth of 30% at the midpoint and adjusted EBITDA to be in the range of $118 million to $132 million, representing year-over-year growth of 26% at the midpoint. In addition, for the full year, we still expect cash flow from operations in the range of $65 million to $85 million, capital expenditures in the range of $20 million to $30 million and interest expense in the range of $8 million to $12 million. With that, I'll turn it back over to Brandon for closing remarks.

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

At this time, we will open the line for questions. Please follow the instructions on your screen to ask a question. Your first question comes from the line of Philip Shen with ROTH Capital Partners.

First one is on the TerraFlow MOU signed and announced yesterday. I was wondering if you could give us some more color on the 5 gigawatts of annual storage deployments. What's the expected timeline for first meaningful volume? And how does this partnership complement or differ from the ON.energy relationship?

Phil, thanks for the question. We are very excited about the TerraFlow MOU. We are in the process right now of starting our engineering cycle with those guys to help develop an engineered solution for deployment. I would probably model that revenue will begin in 2027. We will not see an impact in 2026. I think you had a question also related to ON.energy. These guys obviously are trying to build a solution that can be deployed in renewable sites and data centers. They come at the solution with a different approach using vanadium and effectively can create both short- and long-cycle duration battery solutions with very similar goals of reducing frequency and energy spikes, all the necessary things that are needed to manage the energy flow in a data center today. So couldn't be more excited about the partnership with those guys. And it's a meaningful step for us to continue to diversify our customer base, which is very important, obviously.

Great. Shifting over to your recent bookings and additions to backlog. I was wondering if you might be able to comment on, especially given the ITC case and that positive outcome for you and what could be coming with the district court case. Can you talk about pricing and margins of your newer orders versus what's been delivered? Meaning should we see a little bit of expansion in the margin? Or is it steady? Or is it a little more compressed than the bookings given some of the new business that you're taking on and the product mix shift that you guys have seen recently?

Yes. Thanks, Phil. Probably won't get real specific on this. The demand environment, obviously, is very strong as evidenced by our record backlog and awarded orders and $1 billion of discrete project quotes. So I would say, in general, the pricing behavior is responding to that accordingly. Just as a reminder, we've got a long sales cycle. So things that are happening today won't transpire for another 12 months, give or take. So we're pleased with the pricing environment. It's incorporated in our guidance. As we've communicated, we expect margins to improve throughout the year. And again, that is factored into our guide.

Your next question comes from the line of Julien Dumoulin-Smith with Jefferies LLC.

I just want to follow up on the guidance here real quickly. Can you talk a little bit about the factors that would give you sort of momentum to raise here? I mean, obviously, reaffirming, but looking at a number of the factors here trending year-to-date. How would you think about the puts and takes here, both reaffirming today, but prospectively, what could put you in a better position?

Yes, certainly. Good to hear from you, Julien. Just maybe a reminder and you probably recall, we raised our full year guidance on the Q1 call. So again, as you mentioned, we have affirmed our guidance for the full year today. Our goal is to give guidance that's reasonable and achievable. We have got 30% growth factored into the midpoint of our guidance on the top line and 26% from an EBITDA standpoint. And I think strong guidance for Q3 as well, up about 18% on the top line. Look, we're excited about the market backdrop. Again, as I mentioned on Phil's question, $1 billion in discrete projects. We have got a very strong book of business, and we look forward to executing on that through the back part of the year. Maybe touching on just our best bookings, great production growth in Q2, where we produced $20 million. We added $10 million in the quarter, could still potentially book some business there for the remainder of the year. And maybe most importantly, as we've talked about our bookings related to BESS, and it would be sort of chunky in the early stages of our business. We did book a handful of projects after quarter close that we're excited about. So our focus is execution through the back end of the year, producing as much product as we can at this new mega facility and making it as efficient as possible. And if we do that, that will give us more confidence in how the full year plays out.

Got it. And maybe if I can ask more specifically within the numbers here, should we expect any IEPA refunds in third quarter? And was there anything in 2Q like some of the peers have been seeing just in terms of the tariff aspect here? And then separately, how should we think about margin inflection? I know my colleague previously was kind of asking a similar line of question, but how much of the margin is impacted by, say, product mix versus new facilities and other factors here? You got a number of different pieces moving into this.

Yes. Julien, it's Dominic. With regards to IEPA, we did receive some refunds in the second quarter. Not 100% of that hit the income statement because we still had some inventory that was subject to the IEPA. So that will play out here in the third quarter. So that was a favorable assist. In our quarter, you'll see that we had some other items that kind of offset that, but it was largely within our expected range. In terms of margin pacing, the mix is always very important to us. The first half of the year had some more long-tail BLAO as an example, compared to the back half of the year. So favorable mix of products will help us here as we normalize the product mix in the back half. And as Brandon mentioned, the efficiencies in the new factory are important. Anytime you move three facilities into one, it's a complex move. We're getting to learn the space and work on our efficiencies of production. We have the opportunity to get more leverage within our operations here, more fixed cost leverage as we push more product through. We're very excited about that ability to keep expanding the margin through the back half, as we've said before.

Your next question comes from the line of Christine Cho with Barclays.

If I could just follow up on that margin question. The EBITDA guide for 3Q would imply a step-up in gross margin. But then assuming the midpoint of your guide, it would indicate 4Q top line is down from 3Q. So how should we think about—should we think gross margins would be negatively impacted by that just due to less fixed cost absorption? Or should we still assume it's sequentially up due to product mix?

Christine, thanks for the question. Yes, there is an implied slight reduction in Q4. Q4 always has fewer production days for us and the orders and timing of best deliveries will have an impact. So the product mix might be a little different in Q4 than Q3. But at the pace that we're going, and if we're able to secure some more short-term orders, some of the BESS orders can be more short term in nature. We'll be in a position to have that improvement. On the EBITDA side, keep in mind that our district court case is in the third quarter. That's going to happen very shortly in North Carolina. That will have a bit of a drag on the EBITDA side because that expense is fully recognized. We don't add back our Voltage IP protection sorts of things. So that will go away in Q4, which would help us on the EBITDA side. So yes, you're right, there's a little bit less production probably modeled right now in Q4, but we'll do what we can to maximize our efficiencies and push product right through.

Okay. And then the leverage has been steadily rising over the last year and a half to two years, and part of it is you haven't generated free cash flow. So how long do you think that will continue? Can you remind us from a cash perspective, how much litigation expenses you're still expecting for the remainder of the year? And can you also update us on where things stand in trying to get damages awarded with respect to the wire and the district court cases and how we should think about the range of outcomes?

A number of things from a cash flow perspective. In the first half of the year, we invested heavily in inventory. We have a very strong book of business with record purchase orders and record backlog. So we acquired materials largely in advance and invested in inventory. The investments we made in inventory will provide positive cash flows in the back half as we burn that down to a more targeted level. We did take strong positions in our core wire and cabling products. In terms of what we expect, our guidance is still to turn a significant amount of cash in the back half of the year, which would be freed up to pay down on the revolver. We did expand the revolver in the period, but net debt stayed about flat. As we continue to improve EBITDA, clearly the leverage ratio will improve. At 1.6x, that's a reasonable leverage ratio, and we expect that will improve here in the back half.

Your next question comes from the line of Chris Dendrinos with RBC Capital Markets.

I wanted to ask about cable and wire management products. There was an acquisition by one of your peers. I know you have a wire management business as well, but we don't hear a whole lot about it. How do you think about that business? Is there opportunity there? Is there IP in that business? How do you think about it?

Chris, thanks for the question. We're aware of what's going on in the market around wire management. Shoals continues to partner with multiple tracker solutions and multiple wire management solutions. We think of ourselves as agnostic in that case. Whatever the customer is using, whether it be tracker or wire management, we work with them to design our solution to best fit their project. I know the company very well and am happy for them in their ability to transact in that business. As far as our wire management business, it's a very small piece of what we offer and not as much of a focus for us in terms of growth vectors. Our focus as we move into the data center space is on battery energy storage and our AirLink products.

Got it. And then maybe just as a follow-up, how should we think about the margin profile of the international business compared with the U.S.?

It depends on the particular market. Whether we are producing the product here and exporting for an international project can make a significant difference. A large portion of our international BLAO—roughly two-thirds—may be export projects and will look and feel similar to a traditional U.S.-based BLAO project. Where we have more organic opportunities in markets like Australia, pricing may not be as strong as those export markets. So it varies project to project based on product mix and geography.

Your next question comes from the line of Praneeth Satish with Wells Fargo.

Switching to AirLink. It seems like a highly differentiated product. Based on your early conversations with customers, how has reception been? Do you think there's going to be an educational period as customers become familiar with the product? And while I know it's still early, how should we think about AirLink ASPs relative to traditional busway solutions—in line with, above, or below?

Praneeth, great question. We are excited about AirLink. Customer reception has been very significant. There will be an educational period. This product is a disruptor to the market and how power is delivered to the rack. There will be a learning curve for engineers, installers, and even local inspectors who qualify these products from a National Electric Code standpoint. That said, it's achievable given the excitement around the product. Our goal is to have a product installed live from a test perspective in 2026, and we are on track to do that. We've filed IP and have internal testing and third-party lab testing underway to validate the product. A lot will transpire in the back part of this year. As far as ASPs, we're not 100% set on that yet. This product will deliver substantial value to the ultimate owner and the installer, so I would expect a price premium over other available options in the marketplace.

Got it. That's helpful. Longer term, if we think about the portfolio of different products, is it correct directionally to rank these from lowest to highest margin as OEM, long-tail BLAO, battery combiner, solar BLAO, and then AirLink at the top? If AirLink becomes a larger share of revenue, say in 2028, could we expect an uplift in consolidated gross margins, all else equal?

Praneeth, that's probably a pretty good list. I might flip the BESS and solar products if forced to rank, but you're directionally correct. The new products we're introducing, whether AirLink or BESS products, are highly engineered and we expect them to command accretive margins relative to our total business. Our goal is to generate positive mix profiles with the new products we introduce. In some cases you'll see that effect more than others, but that's always our intention.

Your next question comes from the line of Brian Lee with Goldman Sachs & Co.

Kudos on the execution. On that front, can you talk about the state of the book-and-turn business with BLAO at record levels and the sequential growth? Given the demand environment, I might have expected a more upbeat outlook for the rest of the year in terms of the top line. Any puts and takes around the state of the book-and-turn business? Is this a production or lead time issue? It seems like it should translate this year, though 2027 is shaping up strong.

Brian, I want to remind everyone that we raised our annual guide last quarter. We saw a healthy book-and-turn business for the year. Our book-and-turn business has been strong. We are managing capacity within our new facility. Keep in mind we've moved everything over in the first half of the year and now have a chance to maximize efficiency. If we can pull projects in sooner, there's interest. Our booking cycle has lengthened a bit. We have some backlog into Q1 for the year, some of which might be international but some domestic as well. In the past, we might have said backlog converts within a six-month window; that's lengthening a little. But we're pleased with the demand environment. The underlying fundamentals are strong and there's a preference for Shoals products in the marketplace. We will do what we can to maximize efficiency of this brand-new facility.

All right. That's helpful color. Second question: ON.energy recently announced a 5-gigawatt deal with Crusoe. What's your participation in that? Are you an exclusive supplier? Is it just on the Recombiner solution? Are you already seeing an impact on backlog, awarded orders, or revenue? Or is that all 2027 and beyond? Any quantification and timing expectations?

We're excited about our partnership with ON.energy. The revenue generation in Q2 of about $20 million was for that particular customer. Those products are landing and being installed on the largest battery-paired AI data center site in the country. That's an important validation for Shoals. Regarding the ON.energy Crusoe announcement, I can't discuss specific projects. We have visibility into their pipeline and as their business grows, I expect Shoals will be a significant part of their solution as they design these systems. As I mentioned earlier, after the quarter closed, we booked a handful of projects, and you could probably guess a few of those involve that customer. We can't disclose specific projects or our customer's customer.

Your next question comes from the line of Colin Rusch with Oppenheimer & Co.

Now that you've got a more robust portfolio of products, particularly with AirLink, can you talk about cross-selling opportunities you're starting to see and how your customer focus may shift over the next year or so?

Colin, great question. With AirLink, there is a direct connection to other electrical apparatus we make. That's an opportunity for organic growth and potential M&A activity as things transpire. We're also seeing possible use cases for our BLAO product in broader electrical infrastructure and battery storage and other opportunities within the data center itself. We have great relationships with larger EPCs, and many EPCs working in renewables are also working on data center builds, so there's synergy from both product and channel standpoints. That's exciting for Shoals right now.

From an operational perspective, you seem set up for improving incremental operating margins. What are you targeting in terms of incremental operating margins going forward and how should we think about OpEx trending into 2027?

Colin, we aren't ready to guide 2027 yet, but our intention is to keep moving margins up sequentially, all else equal on mix. We believe we have cost leverage and fixed cost absorption coming into play. We have one redundant facility that will exit us midyear 2027 as well. We also have favorable mix and new products coming online that should generate accretive margins. The longer-term outlook for margin expansion from where we are today remains healthy. As we've guided earlier in the year, gross margin will sequentially improve as we learn the new facility. We're operating in a 14-acre facility, and it takes time to get productivity right. We will see continued improvement, and a higher mix of traditional BLAO versus long-tail BLAO in the back half will be favorable. We're focused on moving margins into the low- to mid-30s bandwidth.

Your next question comes from the line of Maheep Mandloi with Mizuho.

Most have been answered, but maybe a high-level question on tariffs. Are you hearing customers talk about Section 232 tariffs or other policy changes, and are they worried about demand impacts?

Maheep, we're monitoring the landscape closely, whether it's Section 232 or the latest news on inverters. I don't see that having a near-term impact for us and, at most, potentially some speed bumps longer term, but it doesn't change the underlying demand environment. We continue to believe this market will be stronger for longer, as evidenced by our quote volume and book of business. We have set ourselves up to protect and grow our core business, which is evidenced by our backlog and our new product introductions like long-tail BLAO, SuperJumper, and Super Harness products. We have a more diverse customer portfolio than ever, and we're diversifying into the data center space, realizing wins in battery energy storage, and are excited about AirLink. The investments we've made in our Portland, Tennessee mega facility came at the right time to handle growth in core and diverse markets, so we are in a very good spot.

Great. Well, Lauren, that's going to be all the time we have for questions today. I do want to note that we have a very active investor relations calendar through September. Those events are listed on the Investors section of our website. If you're attending any conferences and would like to meet with us, please let us know. For further help, please reach out to investors@shoals.com with any questions. Thanks for joining us today. Have a great day, everyone.

Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.