Shoals Technologies Group Inc - Ordinary Shares (SHLS) 6 Aug 24 2024 Q2 Earnings call transcript

Shoals Technologies Group, a leading provider of wire management solutions for the solar industry, held its second quarter 2024 earnings call, offering insights into the company's financial performance and strategic initiatives. Despite a challenging market environment, Shoals reported a positive outlook, focusing on key growth opportunities and strategic initiatives.

Financial Performance

The company's second quarter revenue declined 16.7% year-over-year to $99.2 million, but increased 9.3% sequentially. Gross margins of 40.3% declined by 210 basis points from the prior year period, driven by lower sales volumes and higher labor costs. However, adjusted EBITDA of $27.7 million showed a decline of $20.5 million from the previous year, reflecting lower revenue and adjusted gross margin. Despite these challenges, Shoals added $126 million of backlog and awarded orders, reaching a record high of $642.3 million.

Market Trends and Outlook

CEO Brandon Moss highlighted the broader market disruptions, with 56% of planned installations experiencing delays of 6 months or more, and 70% experiencing delays of any duration. This has resulted in approximately $40 million of additional revenue moving from the current year into 2025. Despite these challenges, Shoals remains optimistic about the long-term outlook, citing strong tailwinds for load growth, driven by the growth of AI, the U.S. manufacturing renaissance, and the electrification of transportation modes.

Strategic Initiatives

Shoals is expanding its international capabilities, launching new solutions for unobstructed rows, agri-solar, and North-South configurations, complementing its existing East-West offerings. The company's new prefabricated plug-and-play solutions eliminate the need for insulation piercing connectors, ensuring durability in extreme conditions and protecting long-term investments of developers. Shoals is targeting Latin America, Australia, Southern Europe, Africa, and the Middle East, with an estimated collective opportunity of 63 gigawatts in 2025.

Customer Highlights

Shoals reported strong customer engagement, with orders beginning to appear from the EPC they signed a new agreement with in the first quarter, and an expansion of their master supply agreement with Blattner, one of the largest EPCs in the market. The company is gaining wallet share with customers, particularly those who previously saw declines, and has seen significant traction with customers in the first half of 2024.

Challenges and Red Flags

Despite these positive developments, Shoals faces challenges, including project delays, which have resulted in a revised outlook for the remainder of the year. The company is working to process and expect written discovery and depositions to be completed by early next year in its intellectual property litigation against Prysmian. Shoals' potential exposure to wire insulation shrinkback remains at $59.7 million on the low end and $184.9 million at the high end.

Conclusion

Shoals Technologies Group's second quarter earnings call provided a comprehensive overview of the company's financial performance and strategic initiatives. Despite near-term challenges, Shoals remains confident in its long-term outlook, citing strong tailwinds for load growth and expanding its international capabilities. The company's focus on innovation, customer engagement, and market expansion positions it well for future growth.