What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-11-10 compared with 2021-08-11 · 207 added, 113 removed, 408 unchanged (44% of the section changed)

3 unchanged sentences

(in thousands, except shares)

September 30,

2021 December 31, 2020

26 unchanged sentences

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

none issued and outstanding as of June 30, 2021

none issued and outstanding as of September 30, 2021

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

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

104,179,939 shares issued and outstanding as of September 30, 2021

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

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

62,664,521 shares issued and outstanding as of September 30, 2021

Additional paid-in capital 92,149 —

Accumulated deficit ( 91,296 ) —

Total stockholders’ deficit attributable to Shoals Technologies Group, Inc.

Total stockholders’ equity attributable to Shoals Technologies Group, Inc.

/ members' deficit 855 ( 184,123 )

6 unchanged sentences

(in thousands, except per share amounts)

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

10 unchanged sentences

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

Income (loss) before income taxes 8,815 5,223 ( 994 ) 14,518

Income before income taxes 3,967 15,001 2,973 29,519

Income tax benefit 1,309 — 3,123 —

Net income 5,276 15,001 6,096 29,519

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

net income attributable to non-controlling interests 2,790 — 1,911 —

Net income attributable to Shoals Technologies Group, Inc.

1 unchanged sentence

Three Months Ended

June 30, 2021 Period from January 27, 2021

to June 30, 2021

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

Earnings per share of Class A common stock:

8 unchanged sentences

(in thousands, except shares)

For the three and six months ended June 30, 2021

For the three and nine months ended September 30, 2021

Members' Deficit Class A

16 unchanged sentences

Reallocation of non-controlling interest — — — — — ( 288 ) — 288 —

— — — — — ( 288 ) — 288 —

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

2 unchanged sentences

(in thousands, except shares)

For the three and six months ended June 30, 2020

Members' Deficit Class A

Common Stock Class B

Common Stock Additional Paid-In Capital Accumulated Deficit Non-Controlling Interest Total Members'/Stockholders Deficit

Shares Amount Shares Amount

Net income — — — — — — 2,486 2,790 5,276

Equity-based compensation — — — — — 3,057 — — 3,057

Issuance of Class A common stock sold in follow-on offering, net of underwriting discounts

— 10,402,086 — — — 281,064 — — 281,064

Purchase of LLC Interests and Class B common stock

— — — ( 10,402,086 ) — ( 281,064 ) — — ( 281,064 )

Deferred tax adjustment related to purchase of LLC Interests in follow-on offering — — — — — 11,031 — — 11,031

Deferred tax adjustment related to ConnectPV LLC conversion

— — — — — ( 405 ) — — ( 405 )

Issuance of Class A common stock in connection with an acquisition 209,437 — — — 6,500 — — 6,500

Activity under stock compensation plan — 22,852 — — — ( 1,200 ) — 1,200 —

Distributions to Non-controlling interest — — — — — — — ( 1,864 ) ( 1,864 )

Reallocation of non-controlling interest

— — — — — ( 5,717 ) — 5,717 —

September 30, 2021 $ — 104,179,939 $ 1 62,664,521 $ 1 $ 92,149 $ ( 91,296 ) $ ( 11,982 ) $ ( 11,127 )

Shoals Technologies Group, Inc.

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

(in thousands, except shares)

For the three and nine months ended September 30, 2020

Members' Equity

8 unchanged sentences

Balance at June 30, 2020 170,914

Member distributions ( 11,142 )

Equity-based compensation 515

Net income 15,001

Balance at September 30, 2020 $ 175,288

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended

September 30,

Cash Flows from Operating Activities

4 unchanged sentences

Equity-based compensation 6,404 7,219

Provision for slow-moving inventory 435 488

Deferred taxes 640 —

1 unchanged sentence

Gain on sale of assets 61 —

Changes in assets and liabilities:

Changes in assets and liabilities, net of business acquisition:

Accounts receivable ( 12,271 ) ( 1,087 )

7 unchanged sentences

Purchases of property, plant and equipment ( 2,483 ) ( 2,786 )

Acquisition of a business, net of cash acquired ( 12,909 ) —

Net Cash Used in Investing Activities ( 15,392 ) ( 2,786 )

5 unchanged sentences

Proceeds from revolving credit facility 40,140 —

Repayments of revolving credit facility ( 5,000 ) —

Payments on senior debt - term loan — ( 21,810 )

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 —

Proceeds from issuance of Class A common stock in follow-on offering, net of underwriting discounts and commissions 281,064 —

Purchase of LLC Interests with proceeds from follow-on offering ( 281,064 ) —

Payment of debt acquired in acquisition ( 1,537 ) —

Deferred offering costs ( 9,619 ) —

1 unchanged sentence

Net Increase in Cash and Cash Equivalents 4,116 2,163

Shoals Technologies Group, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited) (continued)

(in thousands)

Nine Months Ended

September 30,

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

3 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended

September 30,

Supplemental Cash Flows Information:

5 unchanged sentences

Initial establishment of amounts payable under tax receivable agreement $ 41,692 $ —

Capital contribution related to tax receivable agreement $ 7,178 $ —

Initial capital contribution related to tax receivable agreement $ 7,178 $ —

Income tax receivable from merger due to former owner $ 3,842 $ —

Establishment of deferred tax assets from follow-on offering $ 73,541 $ —

Establishment of amounts payable under tax receivable agreement from follow-on offering $ 62,510 $ —

Capital contribution related to tax receivable agreement from follow-on offering $ 11,031 $ —

Deferred tax asset and additional paid-in capital from ConnectPV $ 405 $ —

Class A common stock issued in ConnectPV acquisition $ 6,500 $ —

See accompanying notes to condensed consolidated financial statements.

6 unchanged sentences

The Company is headquartered in Portland, Tennessee and is a manufacturer of electrical balance of systems (“EBOS”) solutions and components related to solar fields selling to customers across the United States and internationally.

Shoals Parent, through its wholly-owned subsidiaries, Shoals Intermediate Holdings LLC (“Intermediate”) and Shoals Holdings LLC (“Holdings”) owns four other subsidiaries through which it conducts substantially all operations:

Shoals Technologies, LLC, Shoals Technologies Group, LLC, Solon, LLC, and Shoals Structures, LLC (collectively “Shoals”).

Shoals Parent, through its wholly-owned subsidiaries, Shoals Intermediate Holdings LLC (“Intermediate”), Shoals Holdings LLC (“Holdings”) which owns five other subsidiaries through which it conducts substantially all operations:

Shoals Technologies, LLC, Shoals Technologies Group, LLC, Solon, LLC, Shoals Structures, LLC and Shoals Connect LLC (collectively “Shoals”).

Shoals Parent acquired Shoals on May 25, 2017.

On August 26, 2021, the Company acquired 100 % of the stock of ConnectPV, Inc.

(“ConnectPV”) with cash and the issuance of Class A common stock.

The acquisition was accounted for as a business combination and following the acquisition, the Company immediately converted ConnectPV to a limited liability company (Shoals Connect LLC) and contributed the entity to Shoals Parent, LLC through a series of transactions – see Note 3.

Initial Public Offering

1 unchanged sentence

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

2 unchanged sentences

• the Company's certificate of incorporation was amended and restated to, among other things, (i) provide for Class A common stock with voting and economic rights (ii) provide for Class B common stock with voting rights but no economic rights and (iii) issue 78,300,817 shares of Class B common stock to the former Class B and Class C members of Shoals Parent (the “Continuing Equity Owners”) on a one -to-one basis with the number of LLC Interests they own;

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

• 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").

1 unchanged sentence

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

Follow On Offering / Tax Receivable Agreement

On July 16, 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.

Following the closing of this offering, Oaktree Power Opportunities Fund IV (Delaware) Holdings, L.P.

no longer beneficially owns any shares of our common stock.

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 from our founder and management.

The Company obtained an increase in its share of the tax basis of the assets of Shoals Parent when LLC Interests and Class B common stock were 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 triggered a tax basis increase subject to the provisions of the Tax Receivable Agreement.

In the third quarter of fiscal year 2021, the Company recognized a deferred tax asset in the amount of $ 73.5 million, a corresponding increase in the tax receivable agreement liability of $ 62.5 million, representing 85 % of the tax benefits and $ 11.0 million of additional-paid-in capital.

Summary of Accounting Policies

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Basis of Accounting and Presentation

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

As of September 30, 2021, the non-controlling interest was 37.56 %.

Acquisition Accounting

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company accounts for its business acquisitions under the acquisition method of accounting in ASC 805.

The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives, and market multiples amongst other items.

Unaudited Interim Financial Information

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 accompanying condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, the statements of operations, changes in stockholders’ deficit / members’ deficit and cash flows for the periods ended September 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 September 30, 2021 and the results of its operations and its cash flows for the periods ended September 30, 2021 and 2020.

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

The results for the three and nine months ended September 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.

4 unchanged sentences

Actual results could differ from those estimates.

Significant estimates include revenue recognition, allowance for doubtful accounts, useful lives of property, plant and equipment and other intangible assets, impairment of long-lived assets, the reserve for excess and obsolete inventory, the tax receivable agreement, and valuation of deferred tax assets.

Significant estimates include revenue recognition, allowance for doubtful accounts, useful lives of property, plant and equipment, other intangible assets, impairment of long-lived assets, reserve for excess and obsolete inventory, the tax receivable agreement and valuation allowance on deferred tax assets.

Impact of COVID-19 Pandemic

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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.

In addition, the Delta variant of COVID-19, which appears to be the most transmissible variant to date, has begun to spread globally and other variants of COVID-19 continue to emerge.

To date, while the Company has maintained uninterrupted business operations with normal turnaround times for its delivery of solar EBOS solutions and components, the impact of delays for other parts of customer systems has pushed some projects to future quarters.

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 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.

For the three and nine months ended September 30, 2021, the Company

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

incurred $ 0.1 million and $ 0.3 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.

For the three and nine months ended September 30, 2020, the Company incurred $ 1.2 million and $ 2.0 million, respectively, in COVID-19 related costs (disinfecting and reconfiguration of facilities, medical professionals to conduct daily screening of employees, premium pay during the pandemic to hourly workers and direct legal costs associated with the pandemic), of which $ 1.1 million and $ 1.9 million, respectively, is included in cost of revenues and $ 0.1 million and $ 0.1 million, respectively, is included in general and administrative expenses in the accompanying condensed consolidated financial statements.

The impact of the Delta and other emerging variants 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 and other emerging variants 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, including, but not limited to, component shortages, disruptions in transportation or other supply chain related constraints.

Customer Concentrations

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:

The Company had the following revenue concentrations representing 10% or more of revenue for the nine months ended September 30, 2021 and 2020 and related accounts receivable concentrations as of September 30, 2021 and December 31, 2020:

Revenue % Accounts

3 unchanged sentences

Customer C 8.6 % 23.7 % 9.9 % 12.5 %

Customer D 6.5 % 8.7 % 12.3 % 12.5 %

Customer E 0.1 % 0.3 % 10.4 % 0.0 %

Recent Accounting Pronouncements

10 unchanged sentences

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.

1 unchanged sentence

For EGCs, the ASU is effective for fiscal years beginning after December 15, 2021.

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 plans to adopt

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 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.

8 unchanged sentences

The Company will continue to assess the possible impact of this standard, but currently does not expect the adoption of this standard will have a significant impact on its financial statements and its limited history of bad debt expense relating to trade accounts receivable.

Acquisition of ConnectPV

On August 26, 2021, the Company acquired 100 % of the common stock of ConnectPV.

The acquisition of ConnectPV was accounted for as a business combination using the acquisition method of accounting.

The aggregate purchase price was $ 13.8 million in cash (net of $ 0.8 million cash acquired) and 209,437 shares of Class A Common stock valued at $ 6.5 million.

The cash portion of the purchase price was funded by borrowing under our Revolving Credit Facility.

The purchase price paid has been preliminarily allocated to record the acquired assets and assumed liabilities based upon their estimated fair value.

When determining the fair values of the assets acquired and assumed liabilities, management made significant estimates, judgements and assumptions.

Management estimated that consideration paid exceeded the fair value of the net assets acquired.

Therefore, goodwill of $ 19.1 million was recorded.

The goodwill recognized was primarily attributable to synergies related to the Company’s EBOS solutions and components business that are expected to arise from the ConnectPV acquisition.

The following table is the preliminary balance sheet of ConnectPV as of the acquisition date, August 26, 2021, and includes the estimated fair value of the assets acquired and assumed liabilities.

The estimated fair value allocated to certain property, plant and equipment, identifiable intangible assets and goodwill was determined based on a combination of market, cost and income approaches with the assistance of a third-party valuation firm (in thousands):

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Preliminary Purchase Price Allocation

Cash and cash equivalents $ 848

Accounts receivable 5,313

Inventory 4,641

Other current assets 1,732

Total current assets 12,534

Property, plant and equipment 438

Goodwill 19,145

Other intangible assets 1,600

Total Assets 33,717

Accounts payable 9,228

Accrued expenses 2,695

Total liabilities 13,460

Net assets acquired $ 20,257

The Company expensed acquisition-related costs of $ 1.7 million which are included in general and administrative expenses in the condensed consolidated statement of operations.

The goodwill and acquisition costs are not deductible for tax purposes.

Accounts Receivable

Accounts receivable consists of the following (in thousands):

September 30,

2021 December 31, 2020

3 unchanged sentences

Inventory consists of the following (in thousands):

September 30,

2021 December 31, 2020

7 unchanged sentences

Estimated Useful Lives (Years)

September 30,

2021 December 31, 2020

6 unchanged sentences

Property, plant and equipment, net $ 14,358 $ 12,763

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.

Depreciation expense for the three months ended September 30, 2021 and 2020 was $ 0.5 million and $ 0.4 million, respectively.

During the three months ended September 30, 2021 and 2020, $ 0.4 million and $ 0.3 million, respectively, of depreciation expense was allocated to cost of revenue.

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

Depreciation expense for the nine months ended September 30, 2021 and 2020 was $ 1.3 million and $ 1.0 million, respectively.

During the nine months ended September 30, 2021 and 2020, $ 1.0 million and $ 0.8 million, respectively, of depreciation expense was allocated to cost of revenue.

During the nine months ended September 30, 2021 and 2020, $ 0.3 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 June 30, 2021 and December 31, 2020, goodwill totaled $ 50.2 million.

Goodwill relates to the acquisition of Shoals and ConnectPV.

As of September 30, 2021 and December 31, 2020, goodwill totaled $ 69.3 million and $ 50.2 million, respectively.

Other Intangible Assets

2 unchanged sentences

Notes to Condensed Consolidated Financial Statements (Unaudited)

Estimated Useful Lives (Years) June 30,

Estimated Useful Lives (Years) September 30,

2021 December 31, 2020

5 unchanged sentences

11,900 11,400

Backlog 1 600 —

Noncompete agreements 5

7 unchanged sentences

Total amortizable intangibles, net $ 67,508 $ 71,988

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.

Amortization expense related to intangible assets amounted to $ 2.1 million and $ 2.0 million for the three months ended September 30, 2021 and 2020 and $ 6.1 million and $ 6.0 million for the nine months ended September 30, 2021 and 2020, respectively.

Long-Term Debt

Long-term debt consists of the following (in thousands):

September 30,

2021 December 31, 2020

7 unchanged sentences

Senior Secured Credit Agreement

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

On November 25, 2020 Shoals Holdings, entered into a senior secured credit agreement (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

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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.

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 terminate all outstanding commitments under the prior senior debt 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 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.

In August 2021, Holdings entered into an amendment to the Senior Secured Credit Agreement to permit the temporary joinder of a parent co-borrower in order to facilitate the acquisition of Connect PV.

As of September 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 $ 39.9 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 June 30, 2021, the Company was in compliance with all the required covenants.

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

Senior Debt Agreement

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.

1 unchanged sentence

The amended agreement provided a term loan of $ 35 million and a revolving line of credit of $ 25 million.

On October 8, 2020, the Company paid the outstanding amount due on the term loan and settled all obligations with respect to the Senior Debt.

On October 8, 2020, the Company paid the outstanding amount due on the Senior Debt and settled all obligations with respect to the Senior Debt Agreement.

The Senior Debt provided for an interest rate to equal the base rate plus margin.

4 unchanged sentences

The base rate for the LIBOR Rate ranged from 2 % to 3.5 % depending on the EBITDA Rate Calculation.

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

Earnings per Share

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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.

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

Diluted earnings per share of Class A Common Stock is computed similarly to basic earnings 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.

All earnings prior to and up to January 26, 2021, the date of the IPO, were entirely allocable to non-controlling interest and, as a result, earnings (loss) per share information is not applicable for reporting periods prior to this date.

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 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.

All earnings prior to and up to January 26, 2021, the date of the IPO, were entirely allocable to non-controlling interest and, as a result, earnings per share information is not applicable for reporting periods prior to this date.

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

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

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

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

Net income attributable to Shoals Technologies Group, Inc.

- basic $ 2,486 $ 1,510

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.

Reallocation of net income attributable to non-controlling interests from the assumed conversion of Class B common stock — —

Net income attributable to Shoals Technologies Group, Inc.

- diluted $ 2,486 $ 1,510

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Weighted average shares of Class A common stock outstanding - diluted 102,251 96,527

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.

Earnings per share of Class A common stock - basic $ 0.02 $ 0.02

Earnings per share of Class A common stock - diluted $ 0.02 $ 0.02

For the three and nine months ended September 30, 2021 the reallocation of net income attributable to non-controlling interest from the assumed conversion of Class B common stock has been excluded along with the dilutive effect of the Class B common stock to the weighted average shares of Class A common stock outstanding – dilutive as it was antidilutive.

Equity-Based Compensation

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

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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 1,367,058 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

The RSUs have grant date fair values ranging from $ 21.50 to $ 34.60 per unit and generally vest ratably over either 4 years or 3 years, except for some of the director grants which immediately vested or vest over 1 year.

There were a limited number of awards with immediate vesting.

The following table summarizes the RSUs activity for the nine months ended September 30, 2021:

RSUs Weighted Average Price

Outstanding at beginning of period — $ —

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Outstanding at end of period 1,316,713 $ 26.49

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.

For the three and nine months ended September 30, 2021, the Company recognized $ 2.7 million and $ 6.9 million, respectively, in equity-based compensation.

As of September 30, 2021, the Company had $ 29.9 million of unrecognized compensation costs which is expected to be recognized over a period of 3.3 years.

Stockholders' Deficit

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Shares of Class B common stock will be canceled on a one -for-one basis if the Company, at the election of a Continuing Equity Owner, redeem or exchange LLC Interests.

The Company must, at all times, maintain a one -to-one ratio between the number of shares of Class A common stock issued by the Company and the number of LLC Interests owned by the Company (subject to certain exceptions for treasury shares and shares underlying certain convertible or exchangeable securities).

Initial Public Offering

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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.

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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 June 30, 2021, the Company owned 56.14 % of Shoals Parent.

As of September 30, 2021, the Company owned 62.44 % of Shoals Parent.

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

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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 )

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

Net income attributable to non-controlling interest $ 2,790 $ 1,911

Transfers to non-controlling interests

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Reallocation of non-controlling interest 5,717 6,005

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

Change from net income attributable to non-controlling interest and transfers to non-controlling interest $ 7,843 $ ( 11,982 )

Issuance of Additional LLC Interests

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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 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.

During the nine months ended September 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, 10,402,086 LLC Interests in connection with the issuance of Class A common stock in the follow-on offering, 209,437 LLC Interests in connection with the acquisition of ConnectPV and 40,665 LLC Interests for the vesting of awards granted under the Shoals Technologies Group, Inc.

2021 Long-Term Incentive Plan.

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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.

Shoals Parent makes such tax distributions to its members quarterly, based on the single highest marginal tax rate applicable to its members applied to projected year-to-date taxable income, with a final accounting once actual taxable income or loss has been determined.

During the nine months ended September 30, 2021, tax distributions to non-controlling LLC Interests holders was $ 4.8 million.

Commitments and Contingencies

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

As of September 30, 2021, the maximum potential payment obligation with regard to surety bonds was $ 12.6 million.

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

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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 $ 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’s income tax provision was a benefit of $ 1.3 million and $ 3.1 million for the three and nine months ended September 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 nine months ended September 30, 2021 includes $ 2.0 million and $ 3.7 million, respectively, of deferred income tax benefit resulting from an increase in the blended state income tax rate.

As of September 30, 2021, the Company had recorded a deferred tax asset related to the partnership basis differences in Shoals Parent of $ 121.5 million.

The Company also recorded an income tax receivable of $ 8.6 million of which the Company estimates $ 3.8 million is owed to the prior owner related to taxes paid prior to the IPO transaction.

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In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that the deferred tax assets will be realized.

Deferred tax assets and liabilities are calculated by applying existing tax laws and the rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

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

Deferred tax assets and liabilities are calculated by applying existing tax laws and the rates expected to apply to taxable income in the years in

Shoals Technologies Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

which those temporary differences are expected to be recovered or settled.

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

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.

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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 June 30, 2021, no uncertain tax positions have been recorded.

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

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

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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, 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

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.

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.

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.

During 2021, the TRA liability was increased by $ 3.7 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 $ 2.0 million and $ 3.7 million of other expense in the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2021, respectively.

On July 16, 2021, the Company acquired 10,402,086 LLC Interests from the founder and selling shareholders.

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

The Company recognized (i) a deferred tax asset in the amount of $ 73.5 million, (ii) a corresponding liability of $ 62.5 million, representing 85 % of the tax benefits to the TRA Owners and (iii) $ 11.0 million of additional paid-in capital.

As of September 30, 2021, the amount of Tax Receivable Agreement payments due under the Tax Receivable Agreement was $ 107.9 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 June 30, Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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Total revenue $ 59,840 $ 52,598 $ 165,166 $ 136,765

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