What changed in this filing

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Item 1. Financial Statements

2021-08-11 compared with 2021-05-04 · 154 added, 107 removed, 367 unchanged (42% of the section changed)

31 unchanged sentences

Preferred stock, $ 0.00001 par value - 5,000,000 shares authorized;

none issued and outstanding as of March 31, 2021

none issued and outstanding as of June 30, 2021

Class A common stock, $ 0.00001 par value - 1,000,000,000 shares authorized;

93,539,692 shares issued and outstanding as of March 31, 2021

93,545,564 shares issued and outstanding as of June 30, 2021

Class B common stock, $ 0.00001 par value - 195,000,000 shares authorized;

73,066,607 shares issued and outstanding as of March 31, 2021

73,066,607 shares issued and outstanding as of June 30, 2021

Additional paid-in capital 78,883 —

9 unchanged sentences

(in thousands, except per share amounts)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Revenue $ 59,722 $ 43,427 $ 105,326 $ 84,167

7 unchanged sentences

Interest expense, net ( 3,620 ) ( 225 ) ( 7,329 ) ( 497 )

Tax receivable agreement liability adjustment ( 1,664 ) — ( 1,664 ) —

Loss on debt repayment — — ( 15,990 ) —

1 unchanged sentence

Income tax benefit 339 — 1,814 —

Net income (loss) ( 8,334 ) 9,295

net loss attributable to non-controlling interests ( 5,475 ) —

Net income (loss) attributable to Shoals Technologies Group, Inc.

Net income 9,154 5,223 820 14,518

net income (loss) attributable to non-controlling interests 4,596 — ( 879 ) —

Net income attributable to Shoals Technologies Group, Inc.

$ 4,558 $ 5,223 $ 1,699 $ 14,518

Period from January 27, 2021

to March 31, 2021

Three Months Ended

June 30, 2021 Period from January 27, 2021

to June 30, 2021

Earnings per share of Class A common stock:

2 unchanged sentences

Weighted average shares of Class A common stock outstanding:

Basic 93,544 93,542

Diluted 166,827 93,542

3 unchanged sentences

(in thousands, except shares)

For the three months ended March 31, 2021

Members' Equity Class A

For the three and six months ended June 30, 2021

Members' Deficit Class A

Common Stock Class B

10 unchanged sentences

March 31, 2021 — 93,539,692 1 73,066,607 1 78,073 ( 98,340 ) ( 22,593 ) ( 42,858 )

For the three months ended March 31, 2020

Net income — — — — — — 4,558 4,596 9,154

Equity-based compensation — — — — — 1,955 — — 1,955

Activity under stock compensation plan — 5,872 — — — ( 857 ) — 857 —

Distributions to Non-controlling interest — — — — — — — ( 2,973 ) ( 2,973 )

Reallocation of non-controlling interest

— — — — — ( 288 ) — 288 —

June 30, 2021 $ — 93,545,564 $ 1 73,066,607 $ 1 $ 78,883 $ ( 93,782 ) $ ( 19,825 ) $ ( 34,722 )

Shoals Technologies Group, Inc.

Condensed Consolidated Statements of Changes in Members’ / Stockholders’ Equity (Deficit) (Unaudited) ( continued)

(in thousands, except shares)

For the three and six months ended June 30, 2020

Members' Equity

4 unchanged sentences

Balance at March 31, 2020 158,987

Member distributions —

Equity-based compensation 6,704

Net income 5,223

Balance at June 30, 2020 $ 170,914

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash Flows from Operating Activities

Net income (loss) $ ( 8,334 ) $ 9,295

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Net income $ 820 $ 14,518

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization 4,808 4,656

2 unchanged sentences

Deferred taxes ( 524 ) —

Tax receivable agreement liability adjustment 1,664 —

Gain on sale of assets 61 —

3 unchanged sentences

Inventory ( 6,151 ) ( 3,356 )

Other current assets ( 3,465 ) ( 32 )

Other assets ( 4,631 ) 515

Accounts payable ( 410 ) ( 1,494 )

5 unchanged sentences

Cash Flows from Financing Activities

Member distributions — ( 214 )

Member / non-controlling interest distributions ( 2,973 ) ( 214 )

Employee withholding taxes related to net settled equity awards ( 137 ) —

Deferred financing costs ( 94 ) —

Payment on term loan facility ( 150,875 ) —

Payments on term loan facility ( 151,750 ) —

Proceeds from revolving credit facility 34,000 —

Repayments of revolving credit facility ( 5,000 ) —

Payments on senior debt - term loan — ( 1,747 )

Proceeds from senior debt - revolving line of credit — 24,000

Payments on senior debt - revolving line of credit — ( 8,400 )

Proceeds from issuance of Class A common stock sold in an IPO, net of underwriting discounts and commissions 154,521 —

Deferred offering costs ( 9,619 ) —

Net Cash Provided By Financing Activities 12,796 22,911

Net Increase (Decrease) in Cash and Cash Equivalents ( 5,846 ) 40,054

Net Cash Provided by (Used in) Financing Activities 18,948 ( 10,361 )

Net Increase in Cash and Cash Equivalents 3,098 7,222

Cash and Cash Equivalents—Beginning of Period 10,073 7,082

3 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental Cash Flows Information:

Cash paid for interest $ 5,634 $ 476

Cash paid for taxes $ 1,120 $ —

Non-cash financing activities:

17 unchanged sentences

On January 29, 2021, the Company closed an IPO of 11,550,000 shares of Class A common stock at a public offering price of $ 25.00 per share, including shares issued pursuant to the underwriters' over-allotment option.

The Company received $ 278.8 million in proceeds, net of underwriting discounts and commissions, which was used to purchase 6,315,790 newly-issued membership interests (the “LLC Interests”) from Shoals Parent and 5,234,210 LLC Interests from the founder and Class B unit holder in Shoals Parent at a price per interest equal to the IPO price of $ 25.00 per share.

Subsequent to the IPO and related organizational transactions that occurred in connection with the IPO, the Company is the sole managing member of, and has a 56.14 % economic interest in, Shoals Parent.

The Company received $ 278.8 million in proceeds, net of underwriting discounts and commissions of $ 9.9 million, which was used to purchase 6,315,790 newly-issued membership interests (the “LLC Interests”) from Shoals Parent and 5,234,210 LLC Interests from the founder and Class B unit holder in Shoals Parent at a price per interest equal to the IPO price of $ 25.00 per share.

Subsequent to the IPO and related organizational transactions that occurred in connection with the IPO, the Company is the sole managing member of, and had a 56.14 % economic interest in, Shoals Parent.

Organizational Transactions

3 unchanged sentences

• the acquisition, by merger, of Shoals Investment CTB or the former Class A member of Shoals Parent (the "Class A Shoals Equity Owners"), for which the Company issued 81,977,751 shares Class A common stock as merger consideration (the "Merger").

Following the completion of the Organizational Transactions, the Company owns 56.14 % of Shoals Parent.

The Continuing Equity Owners own the remaining 43.86 % of Shoals Parent.

Immediately following the completion of the IPO and Organizational Transactions, the Company owned 56.14 % of Shoals Parent.

The Continuing Equity Owners owned the remaining 43.86 % of Shoals Parent.

Summary of Accounting Policies

9 unchanged sentences

Non-controlling interest on the condensed consolidated balance sheet represents the portion of net assets of the Company attributable to the Continuing Equity Owners, based on the portion of the LLC Interests owned by such unit holders.

As of March 31, 2021, the non-controlling interest was 43.86 %.

As of June 30, 2021, the non-controlling interest was 43.86 %.

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020, the statements of operations, stockholders’ deficit / members’ deficit and cash flows for the three months ended March 31, 2021 and 2020 are unaudited.

The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2021 and the results of its operations and its cash flows for the three months ended March 31, 2021 and 2020.

The financial data and other information disclosed in these notes related to the three months ended March 31, 2021 and 2020 are also unaudited.

The results for the three months ended March 31, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period.

The accompanying condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020, the statements of operations, stockholders’ deficit / members’ deficit and cash flows for the periods ended June 30, 2021 and 2020 are unaudited.

The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2021 and the results of its operations and its cash flows for the periods ended June 30, 2021 and 2020.

The financial data and other information disclosed in these notes related to the periods ended June 30, 2021 and 2020 are also unaudited.

The results for the three and six months ended June 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period.

The balance sheet as of December 31, 2020 included herein was derived from the audited financial statements as of that date.

8 unchanged sentences

Notes to Condensed Consolidated Financial Statements (Unaudited)

In December 2019, a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease, or COVID-19, surfaced in Wuhan, China.

Since then, COVID-19 has spread to multiple countries, including the United States.

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic.

The global health crisis caused by the novel coronavirus COVID-19 pandemic and its resurgences has and may continue to negatively impact global economic activity, which, despite progress in vaccination efforts, remains uncertain and cannot be predicted with confidence.

In addition, a new Delta variant of COVID-19, which appears to be the most transmissible variant to date, has begun to spread globally.

To date, the Company has maintained uninterrupted business operations with normal turnaround times for its delivery of solar EBOS solutions and components.

The Company has implemented adjustments to its operations designed to keep employees safe and comply with federal, state and local guidelines, including those regarding social distancing.

For the three months ended March 31, 2021, the Company incurred $ 0.1 million in COVID-19 related costs (disinfecting and reconfiguration of facilities, medical professionals to conduct daily screening of employees and direct legal costs associated with the pandemic) which is included in general and administrative expenses in the accompanying condensed consolidated financial statements.

The extent to which COVID-19 may further impact the Company’s business, results of operations, financial condition and cash flows will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

In response to COVID-19, the United States government has passed legislation and taken other actions to provide financial relief to companies and other organizations affected by the pandemic.

For the three and six months ended June 30, 2021, the Company incurred $ 0.1 million and $ 0.2 million, respectively, in COVID-19 related costs (disinfecting and reconfiguration of facilities, medical professionals to conduct daily screening of employees and direct legal costs associated with the pandemic) which is included in general and administrative expenses in the accompanying condensed consolidated financial statements.

The impact of the Delta variant cannot be predicted at this time, and could depend on numerous factors, including vaccination rates among the population, the effectiveness of the COVID-19 vaccines against the Delta variant and the response by governmental bodies and regulators.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the impact of the COVID-19 pandemic on our business.

Customer Concentrations

The Company had the following accounts receivable concentrations as of March 31, 2021 and December 31, 2020 and revenue concentrations for the three months ended March 31, 2021 and 2020:

The Company had the following accounts receivable concentrations as of June 30, 2021 and December 31, 2020 and revenue concentrations for the six months ended June 30, 2021 and 2020:

Revenue % Accounts

4 unchanged sentences

Customer D 6.5 % 8.7 % 12.3 % 12.5 %

Customer E 0.1 % 0.3 % 10.4 % 0.0 %

Recent Accounting Pronouncements

5 unchanged sentences

The Company adopted ASU No.

2019-12 as of January 1, 2021.

2019-12 as of January 1, 2021 and it did not have a material impact on its consolidated financial statements and related disclosures.

Not Yet Adopted

1 unchanged sentence

2016-02 (Topic 842) “Leases” which supersedes the lease recognition requirements in ASC Topic 840, “Leases.” Under ASU No.

2016-02, lessees are required to recognize assets and liabilities on the balance sheets for most leases and provide enhanced disclosures.

2016-02, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures.

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Leases will continue to be classified as either finance or operating.

2 unchanged sentences

The Company plans to adopt the new standard using the modified retrospective method, under which the Company will apply Topic 842 to existing and new leases as of January 1, 2022, but prior periods will not be restated and will continue to be reported under Topic 840 guidance in effect during those periods.

The Company anticipates that the adoption

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

will not have a material impact on its statements of operations or its statements of cash flows but expects to recognize right-of-use assets and liabilities for lease obligations associated with its operating leases.

The Company anticipates that the adoption will not have a material impact on its statements of operations or its statements of cash flows but expects to recognize right-of-use assets and liabilities for lease obligations associated with its operating leases.

In June 2016, the FASB issued ASU No.

31 unchanged sentences

Property, plant and equipment, net $ 13,622 $ 12,763

Depreciation expense for the three months ended March 31, 2021 and 2020 was $ 0.4 million and $ 0.3 million, respectively.

During the three months ended March 31, 2021 and 2020, $ 0.3 million and $ 0.2 million, respectively, of depreciation expense was allocated to cost of revenue.

During the three months ended March 31, 2021 and 2020, $ 0.1 million and $ 0.1 million, respectively, of depreciation expense was allocated to operating expenses.

Depreciation expense for the three months ended June 30, 2021 and 2020 was $ 0.4 million and $ 0.3 million, respectively.

During the three months ended June 30, 2021 and 2020, $ 0.3 million and $ 0.2 million, respectively, of depreciation expense was allocated to cost of revenue.

During the three months ended June 30, 2021 and 2020, $ 0.1 million and $ 0.1 million, respectively, of depreciation expense was allocated to operating expenses.

Depreciation expense for the six months ended June 30, 2021 and 2020 was $ 0.8 million and $ 0.7 million, respectively.

During the six months ended June 30, 2021 and 2020, $ 0.7 million and $ 0.5 million, respectively, of depreciation expense was allocated to cost of revenue.

During the six months ended June 30, 2021 and 2020, $ 0.1 million and $ 0.2 million, respectively, of depreciation expense was allocated to operating expenses.

Goodwill and Other Intangible Assets

Goodwill relates to the acquisition of Shoals.

As of March 31, 2021 and December 31, 2020, goodwill totaled $ 50.2 million.

As of June 30, 2021 and December 31, 2020, goodwill totaled $ 50.2 million.

Other Intangible Assets

2 unchanged sentences

Notes to Condensed Consolidated Financial Statements (Unaudited)

Estimated Useful Lives (Years) March 31,

Estimated Useful Lives (Years) June 30,

2021 December 31, 2020

14 unchanged sentences

Total amortizable intangibles, net $ 67,996 $ 71,988

Amortization expense related to intangible assets amounted to $ 2.0 million and $ 2.0 million for the three months ended March 31, 2021 and 2020, respectively.

Amortization expense related to intangible assets amounted to $ 2.0 million and $ 2.0 million for the three months ended June 30, 2021 and 2020 and $ 4.0 million and $ 4.0 million for the six months ended June 30, 2021 and 2020, respectively.

Long-Term Debt

10 unchanged sentences

On November 25, 2020 Shoals Holdings, entered into that certain credit agreement with the lenders party thereto from time to time and Wilmington Trust, National Association, as administrative agent and collateral agent (the “Senior Secured Credit Agreement”), consisting of (i) a $ 350.0 million senior secured six-year term loan facility (the “Term Loan Facility”), (ii) a $ 30.0 million senior secured delayed draw term loan facility, which matures concurrently with the six-year Term Loan Facility (the “Delayed Draw Term Loan Facility”) and (iii) an uncommitted super senior first out revolving credit facility (the “Revolving Credit Facility”).

The proceeds of the Term Loan Facility and a $ 10.0 million draw under the Delayed Draw Term Loan Facility were used to (i) make certain distributions from Shoals Holdings to Shoals Intermediate Holdings and from there to certain of the Company’s direct or indirect equity holders, (ii) pay transaction expenses, (iii) repay and

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

terminate all outstanding commitments under the Senior Debt (as defined herein) and (iv) finance working capital and general corporate purposes.

there to certain of the Company’s direct or indirect equity holders, (ii) pay transaction expenses, (iii) repay and terminate all outstanding commitments under the Senior Debt (as defined herein) and (iv) finance working capital and general corporate purposes.

In December 2020, Shoals Holdings entered into two amendments to the Senior Secured Credit Agreement in order to obtain a $ 100.0 million increase (the “Revolver Upsize”) to the Revolving Credit Facility and modify the terms of the interest rate and prepayment premium.

2 unchanged sentences

The repayment of a portion of the borrowings under the Term Loan Facility resulted in a $ 16.0 million loss on debt repayment as the result of the $ 11.3 million prepayment premium and $ 4.7 million write-off of a portion of the deferred financing costs.

As of March 31, 2021, interest rates on the Term Loan facility and the Revolving credit facility were 4.25 % and 3.75 %, respectively and the Company had $ 61.0 million of availability under the Revolving Credit Facility.

As of June 30, 2021, interest rates on the Term Loan facility and the Revolving credit facility were 4.25 % and 3.75 %, respectively and the Company had $ 51.0 million of availability under the Revolving Credit Facility.

The Senior Secured Credit Agreement contains affirmative and negative covenants, including covenants that restrict the Company’s incurrence of indebtedness, incurrence of liens, dispositions, investments, acquisitions, restricted payments, and transactions with affiliates.

The Senior Secured Credit Agreement also includes customary events of default, including the occurrence of a change of control.

As of March 31, 2021, the Company was in compliance with all the required covenants.

As of June 30, 2021, the Company was in compliance with all the required covenants.

Intermediate and subsidiaries were party to a credit agreement (the “Senior Debt Agreement” and obligations thereunder, the “Senior Debt”) under which Holdings and its subsidiaries were borrowers and Intermediate was a guarantor.

8 unchanged sentences

The Base Rate for the LIBOR Rate ranged from 2 % to 3.5 % depending on the EBITDA Rate calculation.

Earnings per Share

Basic net loss per share of Class A Common Stock is computed by dividing net loss attributable to the Company's losses by the weighted average number of shares of Class A Common Stock outstanding during the period.

Diluted net loss per share of Class A Common Stock is computed similarly to basic net loss per share except the weighted average shares outstanding are increased to include additional shares from the

Earnings (loss) per Share

Basic earnings (loss) per share of Class A Common Stock is computed by dividing net loss attributable to the Company's losses by the weighted average number of shares of Class A Common Stock outstanding during the period.

Diluted net loss per share of Class A Common Stock is computed similarly to basic net loss

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

redemption of Class B Common Stock under the if-converted method and the assumed exercise of any common stock equivalents using the treasury stock method, if dilutive.

per share except the weighted average shares outstanding are increased to include additional shares from the redemption of Class B Common Stock under the if-converted method and the assumed exercise of any common stock equivalents using the treasury stock method, if dilutive.

The Company’s restricted stock units are considered common stock equivalents for this purpose.

1 unchanged sentence

Consequently, only the net loss allocable to Shoals Technologies Group, Inc.

from the period subsequent to January 26, 2021 is included in the net loss attributable to the stockholders of Class A Common Stock for the three months ended March 31, 2021.

Basic and diluted net loss per share of Class A Common Stock from January 27, 2021 to March 31, 2021 have been computed as follows (in thousands, except per share amounts):

Period from January 27, 2021 to March 31, 2021

Net Loss $ ( 11,009 )

net loss attributable to non-controlling interests ( 5,475 )

Net loss attributable to Shoals Technologies Group, Inc.

from the period subsequent to January 26, 2021 is included in the net loss attributable to the stockholders of Class A Common Stock for the periods ended June 30, 2021.

Basic and diluted net loss per share of Class A Common Stock from January 27, 2021 to June 30, 2021 have been computed as follows (in thousands, except per share amounts):

Three Months Ended June 30, 2021 Period from January 27, 2021 to June 30, 2021

Net income (loss) attributable to Shoals Technologies Group, Inc.

- basic $ 4,558 $ ( 976 )

Reallocation of net income (loss) attributable to non-controlling interests from the assumed conversion of class B common stock 4,596 —

Net income (loss) attributable to Shoals Technologies Group, Inc.

- diluted $ 9,154 $ ( 976 )

Weighted average shares of Class A common stock outstanding - basic 93,544 93,542

3 unchanged sentences

Weighted average shares of Class A common stock outstanding - diluted 166,827 93,542

Loss per share of Class A common stock - basic $ ( 0.06 )

Loss per share of Class A common stock - diluted $ ( 0.06 )

896,206 restricted stock units and 73,066,067 Class B common stock shares were excluded from the computation of diluted loss per share of Class A common stock because the effect would have been anti-dilutive as we recorded a net loss for the period.

Earnings (loss) per share of Class A common stock - basic $ 0.05 $ ( 0.01 )

Earnings (loss) per share of Class A common stock - diluted $ 0.05 $ ( 0.01 )

For the period from January 27, 2021 to June 30, 2021, 1,169,601 restricted stock units and 73,066,607 Class B common stock shares were excluded from the computation of diluted loss per share of Class A common stock because the effect would have been anti-dilutive as we recorded a net loss for the period.

Equity-Based Compensation

On January 26, 2021, the Company granted 912,206 restricted stock units to certain employees and the Company’s then directors under the Shoals Technologies Group, Inc.

2021 Incentive Award Plan.

The restricted stock units were granted at the IPO price of $ 25.00 per unit and generally vest annually over four years .

The following table summarizes the restricted stock unit activity for the three months ended March 31, 2021 (in thousands, except per share amounts):

On January 26, 2021, the Shoals Technologies Group, Inc.

2021 Long-Term incentive Plan (the “2021 Incentive Plan”) became effective.

The 2021 Incentive Plan authorized 8,768,124 new shares, subject to adjustment pursuant to the 2021 Incentive Plan.

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Since January 26, 2021, the Company has granted 1,196,770 restricted stock units (“RSUs") to certain employees, officers and directors of the Company.

The RSUs were granted at varying prices ranging from $ 25.00 to $ 29.57 per unit and generally vest ratably over 4 years, except for some of the director grants which vest over 1 year.

The following table summarizes the restricted stock unit activity for the six months ended June 30, 2021 (in thousands, except per share amounts):

Stock Units Weighted Average Price

1 unchanged sentence

Granted 1,196,770 $ 26.02

Exercised — $ —

Forfeited ( 5,297 ) $ 29.57

1 unchanged sentence

Outstanding at end of period 1,169,601 $ 25.98

For the three months ended March 31, 2021, the Company recognized $ 1.4 million in equity-based compensation.

As of March 31, 2021, the Company had $ 21.4 million of unrecognized compensation costs which is expected to be recognized over a period of 3.8 years.

For the three and six months ended June 30, 2021, the Company recognized $ 2.8 million and $ 4.2 million, respectively, in equity-based compensation.

As of June 30, 2021, the Company had $ 27.8 million of unrecognized compensation costs which is expected to be recognized over a period of 3.6 years.

Stockholders' Deficit

11 unchanged sentences

Initial Public Offering

As discussed in Note 1, on January 29, 2021, the Company closed an IPO of 11,550,000 shares of the Class A common stock at a public offering price of $ 25.00 per share.

The Company received $ 278.8 million in proceeds, net of underwriting discounts and commissions, which was used to purchase 6,315,790 LLC

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Interests from Shoals Parent and 5,234,210 LLC Interests from the founder and Class B unit holder in Shoals Parent at a price per interest equal to the IPO price of the Class A common stock of $ 25.00 .

As discussed in Note 1, on January 29, 2021, the Company closed an IPO of 11,550,000 shares of the Class A common stock at a public offering price of $ 25.00 per share.

The Company received $ 278.8 million in proceeds, net of underwriting discounts and commissions, which was used to purchase 6,315,790 LLC Interests from Shoals Parent and 5,234,210 LLC Interests from the founder and Class B unit holder in Shoals Parent at a price per interest equal to the IPO price of the Class A common stock of $ 25.00 .

Shoals Parent Recapitalization

10 unchanged sentences

In addition, the Company issued 81,977,751 Class A common stock for the same number of LLC Interests as Merger consideration.

Following the completion of the Organizational Transactions and as of March 31, 2021, the Company owns 56.14 % of Shoals Parent.

Following the completion of the Organizational Transactions and as of June 30, 2021, the Company owned 56.14 % of Shoals Parent.

The following table summarizes the effects of the changes in ownership in Shoals Parent on equity:

Period from January 27, 2021

to March 31, 2021

Net loss attributable to Shoals Technologies Group, Inc.

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Three Months Ended

June 30, 2021 Period from January 27, 2021 to June 30, 2021

Net income (loss) attributable to non-controlling interest $ 4,596 $ ( 879 )

Transfers to non-controlling interests

2 unchanged sentences

Decrease in accumulated deficit as a result of activity under stock compensation plan 857 1,407

Change from net loss attributable to Shoals Technologies Group, Inc.

and transfers to non-controlling interest $ ( 22,593 )

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Distributions to non-controlling interest ( 2,973 ) ( 2,973 )

Reallocation of non-controlling interest 288 288

Change from net income (loss) attributable to non-controlling interest and transfers to non-controlling interest $ 2,768 $ ( 19,825 )

Issuance of Additional LLC Interests

2 unchanged sentences

The Company must cause Shoals Parent to issue a number of LLC Interests equal to the number of shares of Class A Common Stock issued such that, at all times, the number of LLC Interests held by the Company equals the number of outstanding shares of Class A Common Stock.

During the quarter ended March 31, 2021, the Company caused Shoals Parent to issue to the Company a total of 6,315,790 LLC Interests in connection with the issuance of Class A common stock in the IPO and 11,941 LLC Interests for the vesting of awards granted under the Shoals Technologies Group, Inc.

During the six months ended June 30, 2021, the Company caused Shoals Parent to issue to the Company a total of 6,315,790 LLC Interests in connection with the issuance of Class A common stock in the IPO and 17,813 LLC Interests for the vesting of awards granted under the Shoals Technologies Group, Inc.

2021 Long-Term Incentive Plan.

Distributions for Taxes

As a limited liability company (treated as a partnership for income tax purposes), Shoals Parent does not incur significant federal, state or local income taxes, as these taxes are primarily the obligations of its members.

As authorized by the LLC Agreement, Shoals Parent is required to distribute cash, to the extent that Shoals Parent has cash available, on a pro rata basis, to its members to the extent necessary to cover the members’ tax liabilities, if any, with respect to each member’s share of Shoals Parent taxable earnings.

Shoals Parent makes such tax distributions to its members quarterly, based on an estimated tax rate and projected year-to-date taxable income, with a final accounting once actual taxable income or loss has been determined.

During the six months ended June 30, 2021, tax distributions to non-controlling LLC Interests holders was $ 3.0 million.

Commitments and Contingencies

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company is from time to time subject to legal proceedings and claims, which arise in the normal course of its business.

1 unchanged sentence

The Company provides surety bonds to various parties as required for certain transactions initiated during the ordinary course of business to guarantee the Company’s performance in accordance with contractual or legal obligations.

As of March 31, 2021, the maximum potential payment obligation with regard to surety bonds was $ 11.8 million.

As of June 30, 2021, the maximum potential payment obligation with regard to surety bonds was $ 11.8 million.

The Company is taxed as a subchapter C corporation and is subject to federal and state income taxes.

1 unchanged sentence

Shoals Parent’s net taxable income and related tax credits, if any, are passed through to its members and included in the member’s tax returns.

Shoals Parent is subject to and reports an entity level tax in Tennessee.

Shoals Parent is subject to and reports an entity level tax in Tennessee and Texas.

The income tax burden on the earnings taxed to the noncontrolling interest holders is not reported by the Company in its consolidated financial statements under U.S.

As a result, the Company’s effective tax rate differs materially from the statutory rate.

The Company’s income tax provision was a benefit of $ 1.5 million for the three months ended March 31, 2021 and the effective tax rate is primarily impacted by the allocation of income taxes to the noncontrolling interest, benefit of the foreign derived intangible income and changes in our valuation allowance.

As of March 31, 2021, the Company had recorded a deferred tax asset related to the partnership basis differences in Shoals Parent of $ 48.5 million net of a $ 6.2 million valuation allowance.

The Company also recorded an income tax receivable of $ 3.8 million of which the Company estimates $ 2.0 million is owed to prior owner related to taxes paid prior to the IPO transaction.

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company’s income tax provision was a benefit of $ 0.3 million and $ 1.8 million for the three and six months ended June 30, 2021, respectively, and the effective tax rate is primarily impacted by the allocation of income taxes to the noncontrolling interest, benefit of the foreign derived intangible income and changes in our valuation allowance.

The tax benefit for the three and six months ended June 30, 2021 includes $ 2.0 million of deferred income tax benefit resulting from an increase in the blended state income tax rate.

As of June 30, 2021, the Company had recorded a deferred tax asset related to the partnership basis differences in Shoals Parent of $ 49.6 million net of a $ 6.3 million valuation allowance.

The Company also recorded an income tax receivable of $ 5.4 million of which the Company estimates $ 3.1 million is owed to the prior owner related to taxes paid prior to the IPO transaction.

In calculating the provision for interim income taxes, in accordance with ASC Topic 740, an estimated annual effective tax rate is applied to year-to-date ordinary income.

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The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the year of the enacted rate change.

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company accounts for uncertainty in income taxes using a recognition and measurement threshold for tax positions taken or expected to be taken in a tax return, which are subject to examination by federal and state taxing authorities.

The tax benefit from an uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination by taxing authorities based on technical merits of the position.

The tax benefit from an uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination by taxing authorities based on the technical merits of the position.

The amount of the tax benefit recognized is the largest amount of the benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

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The Company recognizes penalties and interest related to uncertain tax positions within the provision (benefit) for income taxes line in the accompanying consolidated statements of operations.

As of the quarter ended March 31, 2021, no uncertain tax positions have been recorded.

As of the quarter ended June 30, 2021, no uncertain tax positions have been recorded.

The Company will continue to monitor this position each interim period.

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Tax Receivable Agreement

In connection with the Organization Transactions and the IPO, the Company entered into a tax receivable agreement (the “TRA”) with the founder and former Class A Shoals Equity Owners (the “TRA Owners”) of Shoals Parent.

In connection with the Organization Transactions and the IPO, the Company entered into a tax receivable agreement (the “TRA”) with the founder and former equity owners of Shoals Investment CTB (the “TRA Owners”).

The TRA provides for the payment from time to time by the Company to the TRA Owners of 85 % of the amount of the benefits, if any, that the Company has deemed to realize as a result of (i) increases in tax basis resulting from the purchase or exchange of LLC Interests and other qualifying transactions.

These payment obligations are obligations of the Company and not of Shoals Parent.

For purposes of the TRA, the benefit deemed realized by the Company will be computed by comparing the actual income tax liability of the Company (calculated with certain assumptions) to the amount of such taxes that the Company would have been required to pay had there been no increase to the tax basis of the assets of Shoals Parent as a result of the purchases or exchanges, and had the Company not entered into the TRA.

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Shoals Parent LLC Interests and that the Company would have sufficient taxable income to fully utilize the deductions arising from the increased tax basis and other tax benefits related to entering into the TRA.

For purposes of the TRA, the benefit deemed realized by the Company will generally be computed by comparing the actual income tax liability of the Company (calculated with certain assumptions) to the amount of such taxes that the Company would have been required to pay had there been no increase to the tax basis of the assets of Shoals Parent as a result of the purchases or exchanges, and had the Company not entered into the TRA.

The TRA further provides that, upon certain mergers, asset sales or other forms of business combinations or other changes of control, the Company (or its successor) would owe to the TRA Owners a lump-sum payment equal to the present value of all forecasted future payments that would have otherwise been made under the TRA that would be based on certain assumptions, including a deemed exchange of Shoals Parent LLC Interests and that the Company would have sufficient taxable income to fully utilize the deductions arising from the increased tax basis and other tax benefits related to entering into the TRA.

The Company also is entitled to terminate the TRA, which, if terminated, would obligate the Company to make early termination payments to the TRA Owners.

In addition, an existing owner may elect to unilaterally terminate the TRA with respect to such existing owner, which would obligate the Company to pay to such existing owner certain payments for tax benefits received through the taxable year of the election.

On January 26, 2021, the Company redeemed 5,234,210 LLC Interests from the founder.

This redemption triggered a tax basis increase subject to the provisions of the TRA.

On January 26, 2021, the Company acquired 5,234,210 LLC Interests from the founder.

This acquisition triggered a tax basis increase subject to the provisions of the TRA.

In the first quarter of fiscal year 2021, the Company recognized (i) a deferred tax asset in the amount of $ 32.1 million, (ii) a corresponding liability of $ 27.2 million, representing 85 % of the tax benefits to the TRA Owners and (iii) $ 4.9 million of additional paid-in capital.

On January 26, 2021, following the merger with Shoals Investment CTB, the Company distributed 85 % of the value in the tax basis from the original acquisition of Shoals Parent by Shoals investment CTB in 2017 to the holders of the TRA as a qualifying transaction.

In the first quarter of fiscal year 2021, the Company recognized (i) a deferred tax asset of $ 16.9 million, (ii) a corresponding liability of $ 14.4 million representing 85 % of the tax benefits to the TRA Owners and (iii) $ 2.5 million of additional paid-in capital.

On January 26, 2021, in connection with the merger with Shoals Investment CTB, the Company distributed 85 % of the value in the tax basis from the original acquisition of Shoals Parent by Shoals investment CTB in 2017 to the holders of the TRA.

In the first quarter of fiscal year 2021, the Company

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

recognized (i) a deferred tax asset of $ 16.9 million, (ii) a corresponding liability of $ 14.4 million representing 85 % of the tax benefits to the TRA Owners and (iii) $ 2.5 million of additional paid-in capital.

During the second quarter, the TRA liability was increased by $ 1.7 million resulting from an estimated increase in the Company’s blended state income tax rate.

As a result of the adjustment to the Tax Receivable Agreement liability, the Company recorded approximately $ 1.7 million of other expense in the Condensed Consolidated Statement of Operations for the six months ended June 30, 2021.

As of June 30, 2021, the amount of Tax Receivable Agreement payments due under the Tax Receivable Agreement was $ 43.4 million.

Revenue by Product

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The following table presents the Company’s revenue disaggregated by system solutions and solar components which are recorded over time as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

System solutions $ 51,242 $ 31,626 $ 84,611 $ 54,419

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Total revenue $ 59,722 $ 43,427 $ 105,326 $ 84,167

Subsequent Events

Follow On Offering / Tax Receivable Agreement

In July 2021, the Company completed a follow-on offering consisting of 4,989,692 shares of Class A common stock offered by the selling shareholders and 10,402,086 shares of Class A common stock offered by the Company.

The Company used the proceeds of the sale of Class A common stock to purchase an equal number of LLC Interests and Class B common stock corresponding to such number of LLC Interests from our founder and management.

The Company obtains an increase in its share of the tax basis of the assets of Shoals Parent when LLC Interests and Class B common stock corresponding to such number of LLC Interests are redeemed or exchanged.

This increase in tax basis may have the effect of reducing the amounts that the Company would otherwise pay in the future to various tax authorities.

The increase in tax basis may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.

The exchange of 10,402,086 LLC Interests and shares of Class B common stock corresponding to such number of LLC Interests triggered a tax basis increase subject to the provisions of the Tax Receivable Agreement.

In the third quarter of fiscal year 2021, the Company will recognize a deferred tax asset in the amount of approximately $ 71.8 million, a corresponding increase in the tax receivable agreement liability of $ 61.1 million, representing 85 % of the tax benefits and approximately $ 10.7 million of additional-paid-in capital.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements