Shoals' Q3 2025 Earnings Call: Contradictions Emerge on Tariffs, BESS Revenue, and Data Center Timelines

Date of Call: November 04, 2025

Financials Results

• Revenue: $135.8M for Q3, up 32.9% YOY and up 22.5% sequentially
• EPS: $0.12 adjusted diluted EPS, up ~50% YOY
• Gross Margin: 37.0%, compared to 24.8% in the prior year period
• Operating Margin: 13.7%, compared to 4.4% in the prior year period

Guidance:

• Revenue for Q4 (ending Dec 31, 2025) expected to be $140–$150M (≈36% YoY at midpoint)
• Q4 adjusted EBITDA expected to be $35–$40M
• Full year 2025 revenue expected $467–$477M; adjusted EBITDA $105–$110M
• FY2025 cash flow from operations $15–$25M; CapEx $30–$40M; interest expense $8–$12M

Business Commentary:

* Revenue Growth and Market Demand: - Shoals Technologies Group reported record revenue of $135.8 million for Q3, up 22.5% sequentially and 32.9% year-on-year. - The growth was driven by strong demand for its utility-scale solar products and expansion into strategic growth areas like international markets, CC&I, and OEM.

• Backlog and Customer Engagement:
• The company achieved a record backlog and awarded orders (BLAO) of $720.9 million, up 21% year-on-year.

• This was mainly due to the customer project calendars remaining tight and the commercial team's success in securing new orders.

• BESS Market Expansion:

• Shoals signed two MSAs for battery energy storage solutions, adding $18 million to the backlog and awarded orders.

• The expansion into the BESS market is driven by opportunities in grid firming and data centers, leveraging Shoals' expertise in engineering and manufacturing.

• International Market Growth:

• The company recognized more than $6 million in revenue from international projects in Q3 and expects to complete three ongoing projects by the end of the year.
• The growth in international markets is attributed to expanding pipelines and strategic hires, specifically in the Australia market.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted 'record revenue of $135.8 million' (up 32.9% YOY), record backlog & awarded orders (BLAO) of $720.9M, raised full-year revenue range, and said adjusted EBITDA and gross profit were within expectations while noting progress on diversification and BESS opportunities.

Q&A:

• Question from Christine Cho (Barclays): On the data center opportunity — will this materialize via system integrators, how will bookings appear (steady ~$18M/quarter vs lumpy), and can you provide more color on the MSAs (size, counterparty, how orders flow into backlog)?
  Response: Channel will vary (system integrators, EPCs, hyperscalers); bookings are likely lumpy (not repeatable $18M/quarter); $18M BESS in BLAO with much of it moved to backlog and revenue expected to begin in early Q2 2026; MSA counterparties and specifics are largely confidential.

• Question from Julian Demulin Smith (Jefferies): How are you tracking versus the longer‑term metrics from the Sept 2024 Analyst Day and what does beyond‑2025 look like relative to those targets?
  Response: Company is outperforming Analyst Day targets—revenue and backlog are ahead (BLAO ~ $720M), diversification pillars (CC&I, OEM, international, BESS) are meeting or exceeding expectations; management is encouraged but not issuing 2026 guidance yet.

• Question from Philip Shen (Roth Capital Partners): Can you give more color on the tariffs (e.g., Section 232 aluminum on electric cabling), whether these can be passed to customers, and timing for realizing the 100–200 bps material-cost savings you previously expected?
  Response: Section 232 and country‑specific tariffs offset planned material-cost savings (undoing ~100–200 bps of expected improvement); Shoals can pass tariffs to customers when supported by documentation, but timing for margin recovery is uncertain and too early to guide for 2026.

• Question from Brian Lee (Goldman Sachs): Updated TAM for BESS including data centers, how much is data‑center tied, revenue per 100MW example, and margin implications?
  Response: Initial solar-plus-storage TAM (~$360M) has expanded to include data center and grid‑firming; data‑center ASPs vary widely by architecture (~$25k to $100k+ per unit), so revenue/margins are highly architecture-dependent and driven by custom engineering.

• Question from John Wyndham (UBS): How is the international business progressing — which products are being sold, how do margins compare, and long‑term growth outlook?
  Response: International constitutes roughly 10–13% of BLAO; shipped three projects (Latin America, Australia) with some locally-built products (slightly lower margins) and EXIM-funded export projects manufactured in the U.S. (margins similar to domestic); pipeline, especially Australia, is strong.

• Question from Dimple Gosai (Bank of America): As inverter OEMs and EBoS players push into BESS, what differentiates Shoals’ architecture and GTM and who are you engaging with on chemistry choices?
  Response: Shoals differentiates via engineering-to-order capability and DC‑coupled solutions at scale, collaborates with inverter/system integrators (partners not competitors), and is agnostic to battery chemistry.

• Question from Praneeth Satish (Wells Fargo): For data center BESS, what sizing are you seeing (50–100MW vs larger), how does competition vary by size, and can BESS displace diesel generators?
  Response: Quotes range from small C&I through 50–100MW to much larger hyperscaler opportunities; competitive dynamics vary by size but Shoals’ strength is scalable engineered-to-order solutions; BESS can in some cases displace or reduce diesel backup depending on architecture.

Contradiction Point 1

Tariffs and Their Impact on Margins

It involves the impact of tariffs on gross margins and the company's response to these impacts, which are critical factors affecting financial performance and investor expectations.

How are tariffs impacting margins, and when will they recover? - Philip Shen (Roth Capital Partners)

2025Q3: Section 232 aluminum tariffs and country-specific tariffs impacted us. We pass on tariffs to customers if documentation is provided. - Dominic Bardos(CFO)

What are you observing regarding order activity and clients' willingness to proceed with BESS, given the current executive order and tax environment? - Julien Patrick Dumoulin-Smith (Jefferies)

2025Q2: Foreign exchange and tariffs are a $120 million headwind for 2025. We have excellent conversations with the administration and Congress. - Dominic Bardos(CFO)

Contradiction Point 2

BESS Revenue Ramp-up

It involves the timeline and expectations for revenue recognition from the Battery Energy Storage System (BESS) segment, which is a key growth area for the company.

Can you discuss the sales cycle and revenue mix for BESS in 2026? - Brian Lee (Goldman Sachs)

2025Q3: BESS revenue will ramp up as the year progresses, with recognition in Q2 2026. We expect longer sales cycles for larger projects. - Dominic Bardos(CFO)

How is order activity and client willingness to proceed in BESS affected by the current EO and tax environment? - Julien Patrick Dumoulin-Smith (Jefferies)

2025Q2: We anticipate BESS revenue to be a very small portion of our 2025 revenue, but it will ramp up significantly in 2026. - Brandon Moss(CEO)

Contradiction Point 3

Gross Margin Impact of Tariffs

This contradiction involves the impact of tariffs on gross margins, which is a critical financial metric affecting investor perceptions and expectations.

Can you discuss the impact of tariffs on margins and the expected recovery timeline? - Philip Shen(Roth Capital Partners)

2025Q3: Section 232 aluminum tariffs and country-specific tariffs impacted us. We pass on tariffs to customers if documentation is provided. The planned 100 to 200 basis point savings from cost out initiatives were not realized due to tariffs. - Dominic Bardos(CFO)

How is Shoals progressing toward its 40%+ gross margin target? - Brian Lee(Goldman Sachs)

2025Q1: Gross margins have been stable within expectations. Product mix and tariffs affect margins. Certain products like Longtail BLA have lower margins. Tariffs impacted expected savings; we had forecast a 100 to 200 basis point improvement, but that was not achieved. - Dominic Bardos(CFO)

Contradiction Point 4

BESS Market Opportunity Expansion

This contradiction highlights the evolving perception of the BESS market opportunity, which could have implications for growth strategy and investor expectations.

Can you provide an updated TAM for BESS and any margin implications? - Brian Lee(Goldman Sachs)

2025Q3: We initially targeted $360 million in solar-plus-storage. Data centers and grid firming are additional market opportunities. Our product is highly configurable, with ASPs varying from $25K to $100K. The market is changing rapidly, and we are excited about the potential. - Brandon Moss(CEO)

Can you provide details on the two major wins in the BESS product line? - Brian Lee(Goldman Sachs)

2025Q1: BESS market opportunity is large; Shoals is exploring traditional solar EPCs, industrial markets, and OEM partnerships. Wins across these channels are significant, with new products instrumental in success. The market for EPCs that build solar plus storage projects is especially strong. - Brandon Moss(CEO)

Contradiction Point 5

Data Center Opportunity and Timing

It involves the timing and expected revenue recognition from the data center opportunity, which is crucial for investor expectations and financial planning.

Can you discuss Shoals' strategy for engaging system integrators in the data center market? How will these opportunities impact future bookings? - Christine Cho (Barclays)

2025Q3: We are excited about the data center opportunity and are engaging with system integrators directly or indirectly. Bookings may be lumpy due to the nature of the market and the scale of projects. Revenue should be stable as customers take deliveries. The backlog and awarded orders were signed in Q3, with revenue expected to materialize in the beginning of Q2 2026. - Brandon Moss(CEO)

How are new revenues affecting profit margins? - Brian Lee (Goldman Sachs)

2024Q4: This is an opportunity for Shoals to leverage our expertise to provide customers with the most cost-effective and efficient solutions for data storage and utilize our production line for both solar and storage systems. - Brandon Moss(CEO)