What changed in this filing

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Item 9A. Controls and Procedures

2022-03-11 compared with 2021-03-16 · 625 added, 972 removed, 392 unchanged (80% of the section changed)

Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date.

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

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Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021.

Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2021, our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Report on Internal Control Over Financial Reporting

This Annual Report on Form 10-K does not include a report of management's assessment regarding internal control over financial reporting due to a transition period established by the SEC for newly public companies.

In addition, because we are an "emerging growth company" under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting for so long as we are an emerging growth company.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term as defined in Exchange Act Rule 13a-15(f).

Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

As of December 31, 2021, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013 Framework).

Based on this assessment, our management concluded that, as of December 31, 2021, our internal control over financial reporting was effective based on those criteria.

Changes in Internal Control Over Financial Reporting

There were no changes to our internal control over financial reporting that occurred during the year ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the fourth quarter of 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Other Information

Not applicable.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

Directors, Executive Officers and Corporate Governance

Our Executive Officers and Board of Directors

The following table sets forth certain information concerning the individuals who serve as our executive officers and directors.

Name Age Position(s) Held

Jason Whitaker 41 Chief Executive Officer and Director

Philip Garton 60 Chief Financial Officer

John White 55 Chief Operating Officer

Alan Neal 60 Chief Technology Officer

Mehgan Peetz 38 General Counsel

Frank Cannova 30 Director

Brad Forth 55 Director*, Chairman

Peter Jonna 35 Director

Jason Lee 45 Director

Dean Solon 56 Director

Peter Wilver 61 Director*

*Our board of directors has determined that this director is independent under the standards of Nasdaq.

Jason Whitaker has been our Chief Technology Officer from October 2009 to September 2017, President and Chief Technology Officer from September 2017 to December 2019, and President and Chief Executive Officer from January 2020 to date.

Prior to joining the Company, Mr.

Whitaker served as Co-Owner at Thunder Heart Performance Corp.

with varying roles in Operations and Engineering between 1994 and 2009.

Whitaker holds a Bachelor of Science degree in Mechanical Engineering from Tennessee

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Technological University.

Whitaker was nominated to serve on our board of directors because of his extensive senior leadership experience and comprehensive knowledge of our business and perspective of our day-to-day operations.

Philip Garton joined the Company as Chief Financial Officer in December 2017 with more than 25 years of experience in senior financial roles at numerous global organizations.

Prior to joining the Company, Dr.

Garton served as the Chief Financial Officer for several manufacturing and distribution companies, including JM Swank, LLC between 2016 and 2017 and Springs Window Fashions between 2009 and 2015.

Garton is a Certified Public Accountant and a Chartered Global Management Accountant.

Garton holds a Bachelor of Arts degree in Economics and a Bachelor of Business Administration degree in Accounting from Southern Methodist University, a Master of Business Administration degree in Finance from Southern Methodist University, a Master of Business Administration degree from Cornell University’s Samuel Curtis Johnson Graduate School of Management, and a Doctor of Business Administration degree from the University of Florida’s Warrington College of Business.

John White joined the Company as our Chief Operating Officer in 2018.

Prior to joining the Company, Mr.

White served as Director of Manufacturing/Business Development at Synapse Wireless from 2008 until 2018, as Vice President of Engineering and Manufacturing Operations at Modular Process Technology from 2000 until 2008, as Senior Manager of Network & Storage and Director of Manufacturing and Director of US Field Service Engineering at Intergraph from 1994 until 2000, as Principal Application Engineer at Conner Peripherals from 1993 until 1994, as Director of Engineering/Operations at Disc & Tape Services from 1991 until 1993, as Senior Quality Engineer at Wang Laboratories from 1988 until 1991, and as Electrical Engineer at Disc Technology from 1986 until 1988.

White holds a Bachelor of Science degree in Electrical Engineering with a concentration in Computer Science from the University of Lowell, and is also an inventor in 3 patents.

Alan Neal joined the Company as our Chief Technology Officer in November 2020.

Prior to joining the Company, Mr.

Neal served as Engineer at Motorola GEG from 1983 until 1988, as Lead Software Product Engineer at Allen-Bradley from 1988 until 1990, as Engineering Manager at Cincinnati Milacron from 1990 until 1998, as Director of Engineering at Square D Schneider Electric from 1998 until 2004, as Division VP Engineering at Ametek from 2004 until 2009, as VP Engineering & Technology at Thomas & Betts from 2009 until 2017, as VP Engineering at Leviton Manufacturing Company from 2017 until 2019, and most recently, as Managing Director at Pinpoint Manufacturing Company from 2019 until November 2020.

Neal holds a Bachelor of Science degree in Electrical and Electronics Engineering from The Ohio State University, a Master of Science in Electrical Engineering degree from Arizona State University and a Master of Business Administration degree from Duke University.

Mehgan Peetz joined the Company as our General Counsel in December 2020.

Prior to joining the Company, Ms.

Peetz served as the Deputy General Counsel & Assistant Corporate Secretary at SmileDirectClub from August 2019 until December 2020 and as Commercial Counsel at Current, powered by GE, and GE Lighting from September 2015 to June 2019 (known as GE Lighting and Current, powered by GE, between September 2015 and March 2016).

Prior to her service as in-house counsel, Ms.

Peetz was an associate at Kirkland & Ellis LLP from June 2008 to July 2014 and Ropes & Gray LLP from July 2014 to July 2015.

Peetz holds a Bachelor of Arts degree in Pre-Medical Studies and Psychology from the University of Notre Dame and a Doctor of Law degree from the University of Michigan Law School.

Frank Cannova is a Vice President at Oaktree, where he is responsible for sourcing, executing and overseeing investments in leading companies in the energy, utility and industrials sectors for the Power Opportunities investment strategy at Oaktree.

Cannova currently serves on the boards of Array

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Technologies and Renewable Energy Infrastructure Group.

Cannova previously served on the board of directors of Contract Land Staff.

Prior to joining Oaktree in 2015, Mr.

Cannova was an associate in the private equity group of Sun Capital Partners, responsible for evaluating investments across the consumer, business services and industrial sectors.

Cannova began his career as an investment banking analyst with Imperial Capital providing M&A and leveraged finance advisory services.

Cannova received a Bachelor of Science degree in chemical engineering from University of California, Los Angeles.

Cannova was nominated to serve on our board of directors because of his expertise in the areas of finance and energy.

Brad Forth has been a Senior Advisor to Oaktree’s GFI Energy Group since 2016.

Forth helps the team anticipate growth opportunities in the power, utility and energy sectors, and invest its capital in leading companies, helping management teams to accelerate the growth of their businesses.

Forth has spent his entire career in the energy industry.

Forth began his career as a design engineer at Power Measurement, Inc.

in 1988, where he was responsible for pioneering research in the field of digital power metering and energy management systems.

Forth remained at Power Measurement in various capacities for 18 years, the last nine as its Chief Executive Officer from 1999 to 2005.

Forth joined GFI Energy Group as a Partner until 2009.

Forth was a Managing Director at Oaktree from 2009 to 2016.

Forth was a former board member of Xantrex Technology, The Kirlin Group and OpTerra Energy Group, and a former board chair of GT Solar Incorporated, Turbine Generator Maintenance, Cannon Technologies, GoodCents and TenK Solar.

Forth is currently a board member of Array Technologies, a publicly held solar tracking and solutions company.

Forth received a Bachelor of Electrical Engineering degree from the University of Victoria in Canada.

Forth was winner of the 2002 Ernst and Young award for “Pacific Entrepreneur of the Year – Technology and Communications” and has been a member of Young Presidents’ Organization since 1998.

Forth was nominated to serve as the chairman of our board of directors because of his expertise in the energy industry.

Peter Jonna has worked in Oaktree’s GFI Energy Group since 2013, where he is responsible for sourcing, executing and overseeing investments in leading companies in the energy, utility and industrials sectors.

Jonna has been a Managing Director at Oaktree since January 2020.

Jonna’s prior positions include serving as a Senior Vice President from July 2017 to January 2020 and as a Vice President from July 2015 to July 2017.

Jonna presently serves on the boards of directors of:

Building Infrastructure Solutions Group, a privately held building services company;

Renewable Energy Infrastructure Group, a privately held renewable energy services company;

Montrose Environmental Group, Inc., a publicly held environmental services company;

Infrastructure & Energy Alternatives, Inc., a publicly held infrastructure construction company;

and Array Technologies, a publicly held solar tracking and solutions company.

Jonna previously served on the board of directors of Sterling Lumber Company.

Prior to joining Oaktree, Mr.

Jonna was an investment analyst in the Americas investment team of the UBS Infrastructure Asset Management strategy, investing directly in energy, power and transportation infrastructure assets.

Jonna began his career as a project development engineer in Skanska’s Large Projects Group which focused on developing and constructing public private partnerships and infrastructure development projects.

Jonna earned an M.S.

in civil engineering from Stanford University and a B.S.

in civil engineering from University of California, Los Angeles.

Jonna was nominated to serve on our board of directors because of his expertise in the energy, utility and industrials sectors.

Jason Lee is a Managing Director and Co-portfolio Manager at Oaktree where he is responsible for managing the Power Opportunities investment strategy, focused on private equity investments in leading companies serving the energy and utility sectors.

Lee is responsible for the overall management of the group and its investing activities, including setting investment strategy, sourcing and executing investment opportunities and board oversight of the group’s portfolio companies.

Lee has worked at Oaktree since 2009.

Lee currently serves on the boards of NAPEC and Array Technologies, a publicly held solar tracking and solutions company.

Prior to Oaktree, Mr.

Lee worked for a number of years as an executive in the

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perational management of several companies, some of which he co-founded, and has advised a number of companies and government organizations in the areas of entrepreneurial strategy, investments and finance.

Lee began his career at J.P.

Morgan’s technology, media and telecom investment banking practice.

Lee received his Bachelor of Science degree from the University of California, Berkeley and an M.B.A.

from the UCLA Anderson School of Management where he serves as a member of the finance faculty and teaches courses on corporate finance, entrepreneurship and private equity.

Lee was nominated to serve on our board of directors because of his expertise in the areas of finance and energy.

Dean Solon founded Shoals Technologies Group in 1996.

Solon was our Chief Executive Officer and president between November 1996 and December 2019.

Solon has continued to be an employee and director of the Company in a founder capacity since stepping down as Chief Executive Officer.

Solon was nominated to serve on our board of directors because of his extensive solar energy and balance of systems experience, extensive senior leadership experience and comprehensive knowledge of our business and perspective of our day-to-day operations.

Peter Wilver joined the Company as a director in January 2021.

Wilver was Executive Vice President and Chief Administrative Officer of Thermo Fisher Scientific Inc.

(“Thermo Fisher”), a leading provider of laboratory products and services, from August 2015 until his retirement in March 2017 and had previously spent 11 years as the Chief Financial Officer of Thermo Fisher (formerly Thermo Electron) from October 2004 until July 2015.

Before joining Thermo Electron in 2000, Mr.

Wilver held financial leadership roles at General Electric and Grimes Aerospace Company, and at Honeywell International, where he most recently served as Vice President and Chief Financial Officer of the electronic materials business.

Wilver currently serves on the Board of Directors of CIRCOR International, where he is a member of the Audit and Compensation Committees, and Evoqua Water Technologies, where he is Chair of the Audit Committee and a member of the Compensation Committee, and previously Tenet Healthcare, where he was a member of the Audit and Human Resources Committees.

Wilver is a certified public accountant.

Wilver’s qualifications to sit on the Board include his experience in strategic planning and business development as well as in leading the financial, accounting and investor relations functions of large, multi-national manufacturing companies.

Wilver holds a Bachelor of Science in Business Administration degree (summa cum laude) in Accounting from The Ohio State University.

Corporate Governance

Board of Directors

Our board of directors consists of seven individuals, including one chairman, and one vacancy.

Our board of directors has determined Brad Forth and Peter Wilver to be independent directors under the standards of Nasdaq.

Our certificate of incorporation provides that our board of directors will be divided into three classes of directors, with the classes to be as nearly equal in number as possible, and with the directors serving three-year terms.

Our board of directors is divided among the three classes as follows:

• Our class I director is Peter Wilver, while the other Class I seat is vacant.

The Class I term will expire at the first annual meeting of stockholders.

• Our class II directors are Frank Cannova, Jason Lee and Jason Whitaker, and their terms will expire at the second annual meeting of stockholders.

• Our class III directors are Brad Forth, Dean Solon and Peter Jonna, and their terms will expire at the third annual meeting of stockholders.

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Our certificate of incorporation provides that any newly created directorship on our board of directors that results from an increase in the number of directors and any vacancy occurring in our board of directors may only be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director (and not by the stockholders).

We also entered into a stockholders agreement with the Continuing Equity Owners and Oaktree which governs matters related to our corporate governance, rights to nominate and designate directors and additional matters.

Committees of the Board of Directors

Our board of directors has established audit, compensation, and nominating and corporate governance committees.

The composition, duties and responsibilities of these committees are set forth below.

Our board of directors may from time to time establish certain other committees to facilitate the management of the Company.

Audit Committee

The audit committee is responsible for, among other matters, (1) appointing, compensating, retaining, evaluating, terminating and overseeing our independent registered public accounting firm;

(2) discussing with our independent registered public accounting firm its independence from us;

(3) reviewing with our independent registered public accounting firm the matters required to be reviewed by applicable auditing requirements;

(4) approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm;

(5) overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC;

(6) reviewing and monitoring our internal controls, disclosure controls and procedures and compliance with legal and regulatory requirements;

and (7) establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls, auditing and federal securities law matters.

Our audit committee consists of Peter Wilver, Brad Forth and Jason Lee, with Peter Wilver serving as chairman.

Rule 10A-3 of the Exchange Act and Nasdaq rules require us to have one independent audit committee member upon the listing of our Class A common stock on Nasdaq, a majority of independent directors within 90 days of the date of listing and all independent audit committee members within one year of the date of listing.

We intend to comply with the independence requirements within the time periods specified.

Presently, Peter Wilver and Brad Forth are independent audit committee members and our board of directors has determined that Peter Wilver is an “audit committee financial expert” as defined by applicable SEC rules and has the requisite financial sophistication as defined under the applicable Nasdaq rules and regulations.

The audit committee’s written charter is available on our website.

Compensation Committee Interlocks and Insider Participation

The compensation committee is responsible for, among other matters, (1) reviewing officer and executive compensation goals, policies, plans and programs;

(2) reviewing and approving or recommending to our board of directors or the independent directors, as applicable, the compensation of our directors, Chief Executive Officer and other executive officers;

(3) reviewing and approving employment agreements and other similar arrangements between us and our officers and other key executives;

and (4) appointing and overseeing any compensation consultants.

Our compensation committee consists of Brad Forth, Peter Wilver and Peter Jonna, with Brad Forth serving as chairman.

The composition of our compensation committee meets the requirements for independence under current rules and regulations of the SEC and Nasdaq.

Each member of the compensation

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committee is also a nonemployee director, as defined pursuant to Rule 16b-3 promulgated under the Exchange Act.

The compensation committee’s written charter is available on our website.

Nominating, Governance and Compensation Committee

The nominating and corporate governance committee is responsible for, among other matters, (1) identifying individuals qualified to become members of our board of directors, consistent with criteria approved by our board of directors;

(2) overseeing the organization of our board of directors to discharge the board’s duties and responsibilities properly and efficiently;

(3) developing and recommending to our board of directors a set of corporate governance guidelines and principles;

and (4) reviewing and approving related person transactions.

Our nominating and corporate governance committee consists of Brad Forth, Peter Wilver and Peter Jonna, with Brad Forth serving as chairman.

The composition of our nominating and corporate governance committee meets the requirements for independence under current rules and regulations of the SEC and Nasdaq.

The nominating and corporate governance committee’s written charter is available on our website.

Code of Business Conduct and Ethics

We maintain a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions.

A copy of the code is available on our website.

Corporate Governance Guidelines

Our board of directors has adopted corporate governance guidelines in accordance with the corporate governance rules of the Nasdaq.

The information required to be disclosed by this item is incorporated by reference to the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report.

Executive Compensation

We are currently considered an “emerging growth company” within the meaning of the Securities Act for purposes of the SEC’s executive compensation disclosure rules.

Accordingly, we are required to provide a Summary Compensation Table and an Outstanding Equity Awards at Fiscal Year End Table, as well as limited narrative disclosures regarding executive compensation for our last two completed fiscal years.

Further, our reporting obligations extend only to the following “Named Executive Officers,” which are the individuals who served as principal executive officer and the next two most highly compensated executive officers at the end of the fiscal year ended December 31, 2020 (the “2020 Fiscal Year”) and at the end of the fiscal year ended December 31, 2019 (the “2019 Fiscal Year”).

Named Executive Officers for the 2020 Fiscal Year

Name Principal Position in 2020

Jason Whitaker Chief Executive Officer

Philip Garton Chief Financial Officer

Mehgan Peetz General Counsel

Named Executive Officers for the 2019 Fiscal Year

Name Principal Position in 2019

Dean Solon Chief Executive Officer

Jason Whitaker President

Philip Garton Chief Financial Officer

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Summary Compensation Table

The following table summarizes the compensation awarded to, earned by or paid to our Named Executive Officers for the 2019 Fiscal Year and 2020 Fiscal Year.

and Principal Position Year Salary

($) (2) Bonus

($) (3) Option Awards

($) (4) All Other Compensation

($) (5) Total

Dean Solon (1)

(Chief Executive Officer) 2019 $ 150,000 $ 45,000 $ — $ — $ 195,000

Jason Whitaker

(Chief Executive Officer) 2020 $ 100,000 $ 143,826 $ 1,850,000 $ 7,525 $ 2,101,351

(President) 2019 $ 105,769 $ 143,825 $ — $ 11,014 $ 260,608

Philip Garton

(Chief Financial Officer) 2020 $ 200,000 $ 53,076 $ 1,110,000 $ 22,771 $ 1,385,847

2019 $ 203,077 $ 51,000 $ — $ 30,310 $ 284,387

(General Counsel) 2020 $ 1,346 $ 200,000 $ — $ — $ 201,346

Solon ceased to be Chief Executive Officer as of December 31, 2019 and Mr.

Whitaker was appointed Chief Executive Officer as of January 1, 2020.

(2) Amounts in this column reflect (i) the base salary earned by each Named Executive Officer in the 2019 Fiscal Year and 2020 Fiscal Year and (ii) for Messrs.

Whitaker and Garton in the 2019 Fiscal Year, payments in the amount of $5,769 and $3,077, respectively, that were made in lieu of unused accrued paid vacation time.

(3) Amounts in this column reflect (i) with respect to the 2020 Fiscal Year, (a) discretionary bonuses paid to Messrs.

Whitaker and Garton and (b) a signing bonus paid to Ms.

Peetz and (ii) with respect to the 2019 Fiscal Year, discretionary bonuses paid to the Named Executive Officers.

These discretionary bonuses were not based on any specific pre-established performance measures.

(4) Amounts reported in the “Option Awards” column reflect the aggregate grant date fair value, computed in accordance with FASB ASC Topic 718, of Class C Common Units of Shoals Parent granted to Messrs.

Whitaker and Garton during the 2020 Fiscal Year that are held through Shoals Management Holdings LLC.

The Class C Common Units represent membership interests in Shoals Parent that are intended to constitute profits interests for federal income tax purposes.

Despite the fact that the Class C Common Units do not require the payment of an exercise price, they are most similar economically to stock options.

Accordingly, they are classified as “options” under the definition provided in Item 402(a)(6)(i) of Regulation S-K as an instrument with an “option-like feature.” Please see Note 11 “Equity-Based Compensation” in the Shoals Parent consolidated financial statements for additional details regarding these awards.

(5) Amounts in this column reflect (i) in the case of Mr.

Whitaker, the annual amount of his car lease payment paid by Shoals Technologies Group, LLC in the 2020 Fiscal Year and 2019 Fiscal Year and (ii) in the case of Mr.

Garton, commuting expenses between his residence and our headquarters in Portland, Tennessee in the 2020 Fiscal Year and 2019 Fiscal Year.

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Narrative Disclosure to the Summary Compensation Table

Employment Agreements

In December 2020, the Company’s subsidiary, Shoals Technologies Group, LLC (the “Employer”), entered into employment agreements with each of the Named Executive Officers that memorialize each Named Executive Officer’s base salary, target bonus opportunity, paid vacation, reimbursement of reasonable business expenses and eligibility to participate in the Employer’s benefit plans generally.

Whitaker’s and Garton’s and Ms.

Peetz’s annualized base salaries as of January 1, 2021 are $435,000, $300,000 and $350,000, respectively, and, beginning in 2021, their target annual bonuses are 50%, 50% and 35%, respectively, of their annualized base salaries.

The annual bonuses will be earned based on the achievement of performance targets established by the board of directors of Shoals Parent for each applicable calendar year.

A portion of the annual bonus may be, at the discretion of the board of directors of Shoals Parent or a committee thereof, paid in the form of vested equity in the Company under the LTIP.

Each Named Executive Officer will be eligible to receive awards under the LTIP on such terms and conditions as the board of directors of the Company or a committee thereof determines.

In addition, Ms.

Peetz was paid a one-time signing bonus of $200,000 and she received a one-time award of restricted stock units under the LTIP (the “Peetz RSUs”) with a grant date value of $1,500,000.

A portion of the Peetz RSUs with a grant date value of $400,000 vested immediately upon grant.

On each anniversary of the grant date, 25% of the remaining Peetz RSUs will vest subject to Ms.

Peetz’s continued employment through each applicable vesting date.

Each employment agreement includes a “best-net” cutback provision that provides that, in the event any payments or benefits provided under the agreement or any other arrangement with the Employer or its affiliates constitute “parachute payments” within the meaning of Section 280G of the Code, then such payments and/or benefits will either be (i) provided to the Named Executive Officer in full or (ii) reduced to the extent necessary to avoid the excise tax imposed by Section 4999 of the Code, whichever results in the Named Executive Officer receiving a greater amount on an after-tax basis.

Each employment agreement provides for certain severance benefits upon a resignation by the Named Executive Officer for “good reason” or upon a termination by the Employer without “cause.” Please see the section entitled “Additional Narrative Disclosure—Potential Payments Upon Termination” below for more details regarding the severance benefits each Named Executive Officer is eligible to receive.

Long Term Incentive Compensation

Whitaker and Garton have been granted long-term incentives in the form of Class C Common Units in Shoals Parent that are held through Shoals Management Holdings LLC.

The Class C Common Units are intended to be profits interests for federal income tax purposes and represent the right to receive distributions from Shoals Parent after the members of Shoals Parent have received a return of their contributed capital.

Whitaker and Garton hold LLC Interests through Shoals Management Holdings LLC.

Outstanding Equity Awards

The following table reflects information regarding outstanding equity-based awards held by Messrs.

Whitaker and Garton as of December 31, 2020.

Solon and Ms.

Peetz did not hold any equity awards as of December 31, 2020.

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Option Awards (1)

Name Number of Securities Underlying Unexercised Options(#) Exercisable Number of Securities Underlying Unexercised Options(#) Unexercisable Option

Exercise Price

($) (2) Option Expiration

Jason Whitaker 2,500,000 — N/A N/A

Philip Garton 1,500,000 — N/A N/A

(1) The equity awards disclosed in this table are Class C Common Units in Shoals Parent LLC that are held by Messrs.

Whitaker and Garton through Shoals Management Holdings LLC, which are intended to be profits interests for federal income tax purposes.

Despite the fact that the Class C Common Units do not require the payment of an exercise price or have an option expiration date, we believe they are economically similar to stock options and, as such, they are reported in this table as “Option” awards.

All of the outstanding Class C Common Units were fully vested upon November 2020 modification and are reflected as “Exercisable.”

(2) These equity awards are not traditional options, and therefore, there is no exercise price or option expiration date associated with them.

Additional Narrative Disclosure

Retirement Benefits

We have not maintained, and do not currently maintain, a defined benefit pension plan or nonqualified deferred compensation plan.

We currently make available a retirement plan intended to provide benefits under Section 401(k) of the Code, pursuant to which employees, including the Named Executive Officers, can make voluntary pre-tax contributions, if eligible.

We have historically not made any matching or other employer contributions to employees’ accounts under the plan.

All contributions under the plan are subject to certain annual dollar limitations, which are periodically adjusted for changes in the cost of living.

In 2021 we amended our retirement plan to a Traditional Safe Harbor Plan in which we make matching contributions intended to qualify under the Safe Harbor Rules of the Internal Revenue Service.

Potential Payments Upon Termination

The employment agreements for the Named Executive Officers provide that upon a termination of a Named Executive Officer’s employment by the Employer without “cause” or by the Named Executive Officer with “good reason,” each as defined therein, subject to the Named Executive Officer’s execution of a fully effective release of claims in favor of the Employer and continued compliance with applicable restrictive covenants, the Named Executive Officer is eligible to receive base salary continuation payments and payment or reimbursement of a portion of continuation coverage premiums under the Company’s group health plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 for 12 months (24 months for Mr.

In addition, Ms.

Peetz is entitled to immediate vesting of the number of Peetz RSUs equal to (A) the number of full calendar quarters that have elapsed since the last vesting date preceding the date of termination, divided by 16, multiplied by (B) the number of Peetz RSUs originally granted.

The employment agreements include a perpetual confidentiality and intellectual property assignment covenants.

In addition, the agreements prohibit the Named Executive Officers from, during the term of employment and for a period of 24

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months thereafter, (i) soliciting customers and employees of the Employer and its affiliates and (ii) competing against the Employer and its affiliates within certain geographical areas.

The employment agreements generally provide that “cause” means (i) the Named Executive Officer’s material breach of the employment agreement or any other agreement with the Employer or its affiliates, (ii) the Named Executive Officer’s breach of any policy or code of conduct established by the Employer or its affiliates, (iii) the Named Executive Officer’s violation of any law applicable to the workplace or the Employer or its affiliates (including any law regarding anti-discrimination, anti-harassment or anti-retaliation), (iv) the Named Executive Officer’s gross negligence, willful misconduct, breach of fiduciary duty, fraud, theft or embezzlement that has or could reasonably be expected to have an adverse effect on the Employer or its affiliates, (v) the commission by the Named Executive Officer of, or conviction or indictment of the Named Executive Officer for, or plea of nolo contendere by the Named Executive Officer to, any felony or any crime involving moral turpitude, or (vi) the Named Executive Officer’s willful failure or refusal to perform the Named Executive Officer’s duties or to follow any lawful directive from the Employer or the board of directors of Shoals Parent, subject to a 30-day cure right, if curable.

The employment agreements generally provide that “good reason” means, subject to certain notice and cure conditions, (i) a material diminution in the Named Executive Officer’s base salary or authority, duties and responsibilities or (ii) the relocation of the Named Executive Officer’s principal place of employment by more than 50 miles.

Long-Term Incentive Plan

In order to incentivize our employees, our board of directors adopted a new long-term incentive plan (the “LTIP”) for employees, consultants and directors.

Our Named Executive Officers are eligible to participate in the LTIP which provides for the grant of options, stock appreciation rights, restricted stock, restricted stock units, stock awards, dividend equivalents, other stock-based awards, cash awards, Shoals Parent awards and substitute awards intended to align the interests of service providers, including our Named Executive Officers, with those of our stockholders.

Subject to adjustment in the event of certain transactions or changes of capitalization in accordance with the LTIP, a number of shares of Class A common stock (including such number of Shoals Parent units that can be exchanged or converted into shares of Class A common stock) equal to 5% of the number shares of Class A common stock and Class B common stock outstanding at the closing of our IPO (on a fully diluted basis) were reserved for issuance pursuant to awards under the LTIP.

The total number of shares reserved for issuance under the LTIP will be increased on January 1 of each of the first 10 calendar years during the term of the LTIP, by the lesser of (i) a number of shares of Class A common stock equal to 5% of the total number of shares of Class A common stock and Class B common stock outstanding on each December 31 immediately prior to the date of increase or (ii) such number of shares of the Company’s Class A common stock determined by our board of directors or compensation committee.

Director Compensation

We did not have any nonemployee directors who received compensation for their service on our board of directors and committees of our board of directors during 2020.

After the completion of our IPO, our nonemployee directors became eligible to receive compensation for their service on our board of directors consisting of an annual cash retainer and grant of fully-vested stock pursuant to the LTIP.

The nonemployee directors who are employees of Oaktree have agreed or are otherwise obligated to transfer all or a portion of the compensation they receive for their service as directors to Oaktree.

Each nonemployee director receives an annual cash retainer of $50,000, paid in four equal quarterly installments and prorated for any partial year of service on our board of directors.

In addition, we expect that our nonemployee directors will receive an annual grant of fully vested stock with an aggregate grant date value

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of $150,000, plus the amounts set forth in the table below for their service on various committees, except that Brad Forth, the chairman of our board of directors, will receive an annual grant of fully vested stock with an aggregate grant date value of $450,000 without any additional amounts for his service on any committees.

In recognition of his efforts to help consummate the IPO and in establishing the board of directors and it committees, Mr.

Forth also received a grant of 375,000 restricted stock units that vest in equal installments over a period of four years, subject to the terms of the LTIP and the award agreement pursuant to which the restricted stock units were granted.

Peter Wilver received a one-time award of restricted stock units that vest after one year with an aggregate grant date value of $100,000 upon the consummation of the IPO for his efforts in establishing the board of directors and its committees.

Committee/Role Grant Date Value ($)

Audit Committee:

Chairperson $ 25,000

Committee Member $ 10,000

Compensation Committee:

Chairperson $ 15,000

Committee Member $ 7,000

Nominating and Corporate Governance Committee:

Chairperson $ 15,000

Committee Member $ 7,000

Our directors are reimbursed for travel, food, lodging and other expenses directly related to their activities as directors.

Our directors are also entitled to the protection provided by the indemnification provisions in our bylaws.

Our board of directors may revise the compensation arrangements for our directors from time to time.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Beneficial Ownership Information

The following table sets forth certain information regarding the beneficial ownership of our Class A common stock and Class B common stock as of March 1, 2021 with respect to:

• each person known by us to beneficially own 5% or more of the outstanding shares of our Class A common stock or our Class B common stock;

• each member of our board of directors and each named executive officer;

• the members of our board of directors and our named executive officers as a group.

We have determined beneficial ownership in accordance with the rules of the SEC.

Except as indicated by the footnotes below, we believe, based on the information furnished to us, that each person or entity named in the table below has sole voting and investment power with respect to all shares of common stock that he, she or it beneficially owns, subject to applicable community property laws.

Except as otherwise noted below, the address of each beneficial owner listed in the table below is c/o Shoals Technologies Group, Inc., 1400 Shoals Way, Portland, Tennessee 37148.

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Class A Common Stock Beneficially Owned Class B Common Stock Beneficially Owned Combined Voting Power(1)

Name of Beneficial Owner Shares % Shares % %

5% Stockholders:

Oaktree Power Opportunities Fund IV 4,977,751 5.3 % — — 3.0 %

Named Executive Officers and Directors:

Jason Whitaker(3) — — 2,150,950 2.9 % 1.3 %

Philip Garton(4) — — 1,290,570 1.8 % 0.8 %

Mehgan Peetz(5) 16,000 — % — — — %

Frank Cannova — — — — —

Brad Forth(6) — — 183,063 0.3 % 0.1 %

Peter Jonna — — — — —

Jason Lee — — — — —

Dean Solon(7) — — 63,080,582 86.3 % 37.9 %

Peter Wilver — — — — —

All executive officers and directors as a group (11 individuals) 16,000 — % 66,705,165 91.3 % 40.1 %

(1) Represents the percentage of voting power of our Class A common stock and Class B common stock voting as a single class.

Each share of Class A common stock entitles the registered holder to one vote per share, and each share of Class B common stock entitles the registered holder thereof to one vote per share on all matters presented to stockholders for a vote generally, including the election of directors.

The Class A common stock and Class B common stock will vote as a single class on all matters except as required by law or our amended and restated certificate of incorporation.

(2) Oaktree Power Opportunities Fund IV (Delaware) Holdings, L.P.

(the “Selling Stockholder”) is beneficially owned by Oaktree Power Opportunities Fund IV, L.P.

(the “Main Fund”) and Oaktree Power Opportunities Fund IV (Parallel), L.P.

(the “Parallel Fund” and, together with the Main Fund, the “Oaktree Funds”), and is controlled by its general partner, Oaktree Fund GP, LLC.

Oaktree Fund GP, LLC is in turn an affiliate of Oaktree Capital Management, L.P.

(“OCM”), which is the investment manager of each of the Oaktree Funds.

As a result, each of the Oaktree Funds and OCM may be deemed to have beneficial ownership of the shares owned by the Selling Stockholder.

OCM’s asset management business is indirectly controlled by Oaktree Capital Group, LLC, or “OCG,” and Atlas OCM Holdings LLC, or “Atlas OCM.” As of November 9, 2020, approximately 61.8% of OCM’s business is indirectly owned by Brookfield Asset Management, Inc.

(“Brookfield”) and the remaining approximately 38.2% is ultimately owned by current and former OCM executives and employees.

Brookfield’s ownership interest in OCM’s business is held through OCG, Atlas OCM and other holding entities.

Partners Limited is the sole owner of Class B limited voting shares of Brookfield.

The current and former OCM executives and employees hold their interests through a separate entity, Oaktree Capital Group Holdings, L.P.

The board of directors of OCG and of Atlas OCM is currently comprised of:

(i) five Oaktree senior executives, Howard S.

Marks, Bruce A.

Karsh, Jay S.

Wintrob, John B.

Frank, and Sheldon M.

(ii) three independent directors, Stephen J.

Richard Masson, and Marna C.

and (iii) two Brookfield senior executives, Justin B.

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Oaktree Funds, OCM, OCG, Atlas OCM and Brookfield and all such individuals expressly disclaim beneficial ownership of the shares held by the Selling Stockholder, except to the extent of their respective pecuniary interests therein.

The address for OCM and Messrs.

Marks, Karsh, Wintrob, Frank and Stone is c/o Oaktree Capital Management, L.P., 333 South Grand Avenue, 28th Floor, Los Angeles, California 90071.

For more information, see “Organizational Structure” and “Certain Relationships and Related Party Transactions — History of Shoals Technologies Group, Inc.

and Partnership with Oaktree and Dean Solon.”

(3) Consists of 2,150,950 shares of Class B common stock held by Shoals Management Holdings LLC.

Shoals Management Holdings LLC is controlled by its sole manager, Shoals Parent.

Whitaker is the Chief Executive Officer of Shoals Parent and serves on the board of directors of Shoals Parent.

Whitaker may be deemed to have beneficial ownership of the shares held directly by Shoals Management Holdings LLC.

(4) Consists of 1,290,570 shares of Class B common stock held by Shoals Management Holdings LLC.

Shoals Management Holdings LLC is controlled by its sole manager, Shoals Parent.

Garton is the Chief Financial Officer of Shoals Parent.

Garton may be deemed to have beneficial ownership of the shares held directly by Shoals Management Holdings LLC.

(5) Consists of 16,000 restricted stock units.

(6) Consists of 183,063 shares of Class B common stock held by Shoals Management Holdings LLC.

Shoals Management Holdings LLC is controlled by its sole manager, Shoals Parent.

Forth serves on the board of directors of Shoals Parent.

Forth may be deemed to have beneficial ownership of the shares held directly by Shoals Management Holdings LLC.

(7) Consists of (i) 630,806 shares of Class B common stock held by Dean Solon, (ii) 20,816,592 shares of Class B common stock held by Solon Holdco I, GP and (iii) 41,633,184 shares of Class B common stock held by Solon Holdco II, GP.

Each of Solon Holdco I, GP and Solon Holdco II, GP is controlled by its managing partner, Mr.

As a result, Mr.

Solon may be deemed to have beneficial ownership of the shares held directly by Solon Holdco I, GP and Solon Holdco II, GP.

Certain Relationships and Related Transactions, and Director Independence

The following is a summary of transactions to which we are a party in which the amount involved exceeded or exceeds $120,000 and in which any of our directors, executive officers, holders of more than 5% of any class of our voting securities or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than compensation arrangements with directors and executive officers, which are described under “Executive Compensation” and “Management—New Director Compensation Program.”

History of Shoals Technologies Group, Inc.

and Partnership with Oaktree and Dean Solon

Dean Solon founded the business of the Company in 1996.

On May 25, 2017, Oaktree purchased a majority of the ownership of Parent from Dean Solon.

Dean Solon continues to hold a significant majority of the minority shareholding of the Company.

Although Dean Solon is no longer involved in the day-to-day operations of the Company, he is a member of the board of directors of Parent, a member of the Company’s board of directors and participates with Oaktree in the overall leadership of the Company’s business.

Shoals Parent LLC Agreement

In connection with the IPO, Shoals Technologies Group, Inc.

and the Continuing Equity Owners entered into the third amended and restated limited liability company agreement of Shoals Parent, the form of which is

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filed as an exhibit to this 10-K.

Certain of our directors, executive officers, and beneficial owners of more than 5% of any class of our capital stock are Continuing Equity Owners and thus are parties to the Shoals Parent LLC Agreement.

As a result of the Organizational Transactions, including the entry into the Shoals Parent Agreement, we hold LLC Interests in Shoals Parent and are the sole manager of Shoals Parent.

Accordingly, we operate and control all of the business and affairs of Shoals Parent and, through Shoals Parent and its operating subsidiaries, conduct our business.

As the sole manager of Shoals Parent, Shoals Technologies Group, Inc.

has the right to determine when distributions will be made to the unit holders of Shoals Parent and the amount of any such distributions (subject to the requirements with respect to the tax distributions described below).

If Shoals Technologies Group, Inc.

authorizes a distribution, such distribution will be made to the holders of LLC Interests, including Shoals Technologies Group, Inc., pro rata in accordance with their respective ownership of Shoals Parent, provided that Shoals Technologies, Inc.

as sole manager will be entitled to non-pro rata distributions for certain fees and expenses.

Shoals Technologies Group, Inc.

is a holding company and its principal asset are a controlling equity interest in Shoals Parent.

As such, Shoals Technologies Group, Inc.

has no independent means of generating revenue.

Shoals Parent is treated as a partnership for U.S.

federal income tax purposes and, as such, will generally not be subject to U.S.

federal income tax.

Instead, taxable income will be allocated to holders of LLC Interests, including Shoals Technologies Group, Inc.

Accordingly, Shoals Technologies Group, Inc.

will incur income taxes on its allocable share of any net taxable income of Shoals Parent and also incur expenses related to its operations.

Pursuant to the Shoals Parent Agreement, Shoals Parent will make cash distributions to the owners of LLC Interests in an amount sufficient to fund their tax obligations in respect of the cumulative taxable income in excess of the cumulative taxable losses of Shoals Parent that is allocated to them, each as determined by applying certain assumptions, to the extent cash is available to fund such distributions and previous tax distributions from Shoals Parent have been insufficient.

In addition to tax expenses, Shoals Technologies Group, Inc.

will also incur expenses related to its operations, plus payments under the Tax Receivable Agreement, which may be significant.

Shoals Technologies Group, Inc.

intends to cause Shoals Parent to make distributions or, in the case of certain expenses, payments in an amount sufficient to allow Shoals Technologies Group, Inc.

to pay its taxes and operating expenses, including distributions to fund any ordinary course payments due under the Tax Receivable Agreement.

The Shoals Parent Agreement generally does not permit transfers of LLC Interests by Continuing Equity Owners, except for transfers to permitted transferees, transfers pursuant to the redemption right described below, transfers approved in writing by us, as sole manager, and other limited exceptions.

In the event of a permitted transfer, such Continuing Equity Owner will be required to simultaneously transfer shares of Class B common stock to such transferee equal to the number of LLC Interests that were transferred.

The Shoals Parent Agreement also provides that, as a general matter, an Continuing Equity Owner will not have the right to transfer LLC Interests if Shoals Technologies Group, Inc.

determines that such transfer would be prohibited by law or regulation, would violate other agreements with Shoals Technologies Group, Inc.

to which the Continuing Equity Owner may be subject, or would cause or increase the possibility for Shoals Parent to be treated as a “publicly traded partnership” taxable as a corporation for U.S.

federal income tax purposes.

As described in further detail below, the Continuing Equity Owners may from time to time (subject to the terms of the Shoals Parent Agreement) exercise a right to require redemption of LLC Interests in exchange for cash or, at our election, shares of our Class A common stock on a one-for-one basis.

We may alternatively acquire such LLC Interests for shares of our Class A common stock or cash in connection with any exercise of

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We intend to treat such acquisitions of LLC Interests as direct purchases of LLC Interests from the Continuing Equity Owners for U.S.

federal income and other applicable tax purposes.

Shoals Parent (and each of its subsidiaries classified as a partnership for U.S.

federal income tax purposes) intends to have in place an election under Section 754 of the Code effective for each taxable year in which an exchange of LLC Interests for Class A common stock or cash occurs.

As a result, an exchange of LLC Interests is expected to result in (1) an increase in our proportionate share of the existing tax basis of the assets of Shoals Parent and its flow-through subsidiaries and (2) an adjustment in the tax basis of the assets of Shoals Parent and its flow-through subsidiaries reflected in that proportionate share (“Basis Adjustments”).

Any increases in our share of tax basis as a result of the purchase of LLC Interests or LLC Interest exchanges will generally have the effect of reducing the amounts that we would otherwise be obligated to pay thereafter to various tax authorities.

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

The Shoals Parent Agreement provides a redemption right to the Continuing Equity Owners which entitles them to have their LLC Interests redeemed for, at our election (determined solely by a majority of our directors who are disinterested), newly-issued shares of our Class A common stock on a one-for-one basis or a cash payment equal to a volume weighted average market price of one share of Class A common stock for each LLC interest so redeemed, in each case in accordance with the terms of the Shoals Parent Agreement;

provided that, at our election (determined solely by a majority of our directors who are disinterested), we may effect a direct exchange by Shoals Technologies Group, Inc.

of such Class A common stock or such cash, as applicable, for such LLC Interests.

The Continuing Equity Owners may exercise such redemption right, subject to certain exceptions, for as long as their LLC Interests remain outstanding.

In connection with the exercise of the redemption or exchange of LLC Interests (1) the Continuing Equity Owners will be required to surrender a number of shares of our Class B common stock registered in the name of such redeeming or exchanging Continuing Equity Owner, and therefore, will be transferred to the Company and will be canceled for no consideration on a one-for-one basis with the number of LLC Interests so redeemed or exchanged and (2) all redeeming members will surrender LLC Interests to Shoals Parent for cancellation.

Each Continuing Equity Owner’s exchange and redemption rights are subject to certain customary limitations, including the expiration of any contractual lockup period relating to the shares of our Class A common stock that may be applicable to such Continuing Equity Owner and the absence of any liens or encumbrances on such LLC Interests redeemed.

Additionally, in the case we elect a cash settlement, such Continuing Equity Owner may rescind its redemption request within a specified period of time.

Moreover, in the case of a settlement in Class A common stock, such redemption may be conditioned on the closing of an underwritten distribution of the shares of Class A common stock that may be issued in connection with such proposed redemption.

In the case of a settlement in Class A common stock, such Continuing Equity Owner may also revoke or delay its redemption request if the following conditions exist:

(1) any registration statement pursuant to which the resale of the Class A common stock to be registered for such Continuing Equity Owner at or immediately following the consummation of the redemption shall have ceased to be effective pursuant to any action or inaction by the SEC or no such resale registration statement has yet become effective;

(2) we failed to cause any related prospectus to be supplemented by any required prospectus supplement necessary to effect such redemption;

(3) we exercised our right to defer, delay or suspend the filing or effectiveness of a registration statement and such deferral, delay or suspension shall affect the ability of such Continuing Equity Owner to have its Class A common stock registered at or immediately following the consummation of the redemption;

(4) such Continuing Equity Owner is in possession of any material non-public information concerning us, the receipt of which results in such Continuing Equity Owner being prohibited or restricted from selling Class A common stock at or immediately following the redemption without disclosure of such information (and we do not permit disclosure);

(5) any stop order relating to the registration statement pursuant to which

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the Class A common stock was to be registered by such Continuing Equity Owner at or immediately following the redemption shall have been issued by the SEC;

(6) there shall have occurred a material disruption in the securities markets generally or in the market or markets in which the Class A common stock is then traded;

(7) there shall be in effect an injunction, a restraining order or a decree of any nature of any governmental entity that restrains or prohibits the redemption;

(8) we shall have failed to comply in all material respects with our obligations under the Registration Rights Agreement, and such failure shall have affected the ability of such Continuing Equity Owner to consummate the resale of the Class A common stock to be received upon such redemption pursuant to an effective registration statement;

or (9) the redemption date would occur three business days or less prior to, or during, a black-out period.

The Shoals Parent Agreement requires that in the case of a redemption by a Continuing Equity Owner we contribute cash or shares of our Class A common stock, as applicable, to Shoals Parent in exchange for an amount of newly-issued LLC Interests that will be issued to us equal to the number of LLC Interests redeemed from the Continuing Equity Owner.

Shoals Parent will then distribute the cash or shares of our Class A common stock, as applicable, to such Continuing Equity Owner to complete the redemption.

In the event of a redemption request by a Continuing Equity Owner, we may, at our option, effect a direct exchange by Shoals Technologies Group, Inc.

of cash or our Class A common stock, as applicable, for such LLC Interests in lieu of such a redemption.

Whether by redemption or exchange, we are obligated to ensure that at all times the number of LLC Interests that we own equals the number of our outstanding shares of Class A common stock (subject to certain exceptions for treasury shares and shares underlying certain convertible or exchangeable securities).

We may impose additional restrictions on exchanges or redemptions that we determine to be necessary or advisable so that Shoals Parent is not treated as a “publicly traded partnership” for U.S.

federal income tax purposes.

As a holder exchanges LLC Interests and Class B common stock for shares of Class A common stock or a redemption transaction is effected, the number of LLC Interests held by Shoals Technologies Group, Inc.

is correspondingly increased as it acquires the exchanged LLC Interests or funds the redemption transaction, and a corresponding number of shares of Class B common stock are cancelled.

The Shoals Parent Agreement also requires that Shoals Parent take actions with respect to its LLC Interests, including issuances, reclassifications, distributions, divisions, or recapitalizations, such that (i) we at all times maintain a ratio of one LLC Interest owned by us, directly or indirectly, for each share of Class A common stock issued by us, and (ii) Shoals Parent at all times maintains (a) a one-to-one ratio between the number of shares of Class A common stock issued by us and the number of LLC Interests owned by us and (b) a one-to-one ratio between the number of shares of Class B common stock owned by the Continuing Equity Owners and the number of LLC Interests owned by the Continuing Equity Owners.

As such, in certain circumstances we, as sole manager, have the authority to take all actions such that, after giving effect to all issuances, transfers, deliveries, or repurchases, the number of outstanding LLC Interests we own equals, on a one-to-one basis, the number of outstanding shares of Class A common stock.

This summary does not purport to be complete and is qualified in its entirety by the provisions of the form of Shoals Parent Agreement, a copy of which has been filed as an exhibit to this 10-K.

Tax Receivable Agreement

We are parties to a tax receivable agreement with our Founder and Oaktree (the “ Tax Receivable Agreement ”).

The Tax Receivable Agreement provides for the payment by us to our Founder and Oaktree, collectively, of 85% of the amount of tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize, as a result of (i) Shoals Technologies Group, Inc.’s allocable share of existing tax basis acquired in connection with the Transactions (including Blocker’s share of existing tax basis) and increases to

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such allocable share of existing tax basis, (ii) certain increases in the tax basis of assets of Shoals Parent and its subsidiaries resulting from purchases or exchanges of LLC Interests and (iii) certain other tax benefits related to our entering into the Tax Receivable Agreement, including tax benefits attributable to payments that we make under the Tax Receivable Agreement (collectively, the “Tax Attributes”).

The payment obligations under the Tax Receivable Agreement are not conditioned upon any LLC Interest holder maintaining a continued ownership interest in us or Shoals Parent and the rights of our Founder and Oaktree under the Tax Receivable Agreement are assignable.

We expect to benefit from the remaining 15% of the tax benefits, if any, that we may actually realize.

For purposes of the Tax Receivable Agreement, the tax benefit deemed realized by us will generally be computed by comparing our actual cash income tax liability to the amount of such taxes that we would have been required to pay had there been no Tax Attributes;

provided that, for purposes of determining the tax benefit with respect to state and local income taxes, we will use simplifying assumptions.

The Tax Receivable Agreement will generally apply to each of our taxable years, beginning with the taxable year that the Tax Receivable Agreement is entered into.

There is no maximum term for the Tax Receivable Agreement and the Tax Receivable Agreement will continue until all such tax benefits have been utilized or expired unless we exercise our right to terminate the Tax Receivable Agreement for an agreed-upon amount equal to the estimated present value of the remaining payments to be made under the agreement (calculated with certain assumptions, including as to utilization of the Tax Attributes).

The actual Tax Attributes, as well as any amounts paid to our Founder and Oaktree under the Tax Receivable Agreement, will vary depending on a number of factors, including:

• the timing of any future exchanges —for instance, the increase in any tax deductions will vary depending on the fair value, which may fluctuate over time, of the depreciable or amortizable assets of Shoals Parent and its flow-through subsidiaries at the time of each exchange;

• the price of sh ares of our Class A common stock at the time of any future exchanges—the Basis Adjustments are directly related to the price of shares of our Class A common stock at the time of future exchanges;

• the extent to which such exchanges are taxable —if an exchange is not taxable for any reason, increased tax deductions as a result of the Section 754 election mentioned above will not be available to generate payments under the Tax Receivable Agreement;

• the amount and timing of our income —the Tax Receivable Agreement generally will require us to pay 85% of the tax benefits as and when those benefits are treated as realized by us under the terms of the Tax Receivable Agreement.

If we do not have taxable income in a particular taxable year, we generally will not be required (absent a change of control or other circumstances requiring an early termination payment) to make payments under the Tax Receivable Agreement for that taxable year because no tax benefits will have been actually realized.

Nevertheless, any tax benefits that do not result in realized tax benefits in a given taxable year will likely generate tax attributes that may be utilized to generate tax benefits in future (and possibly previous) taxable years.

The utilization of any such tax attributes will result in payments under the Tax Receivable Agreement;

• applicable tax rates —the tax rates in effect at the time a tax benefit is recognized.

The payment obligations under the Tax Receivable Agreement are obligations of Shoals Technologies Group, Inc.

and not of Shoals Parent.

Although the actual timing and amount of any payments that may be made under the Tax Receivable Agreement will vary, we expect that the aggregate payments that we will be required to make to our Founder and Oaktree will be substantial.

Any payments made by us under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise been

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available to us or to Shoals Parent, and to the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, the unpaid amounts will be deferred and will accrue interest until paid by us.

We anticipate funding ordinary course payments under the Tax Receivable Agreement from cash flow from operations of Shoals Parent and its subsidiaries, borrowings under the New Senior Secured Credit Agreement and/or available cash.

We expect that the aggregate payments that we may make under the Tax Receivable Agreement will be substantial.

Assuming no material changes in the relevant tax law, and that we earn sufficient taxable income to realize all tax benefits that are subject to the Tax Receivable Agreement, we expect that future payments under the Tax Receivable Agreement to range over the next 15 years from approximately $2.2 million to $3.5 million per year based upon the redemptions in the IPO and Merger.

Future payments in respect of subsequent exchanges or financing would be in addition to these amounts and are expected to be substantial.

The foregoing numbers are merely estimates—the actual payments could differ materially.

It is possible that future transactions or events could increase or decrease the actual tax benefits realized and the corresponding Tax Receivable Agreement payments.

There may be a material negative effect on our liquidity if, as a result of timing discrepancies or otherwise, the payments under the Tax Receivable Agreement exceed the actual benefits we realize in respect of the tax attributes subject to the Tax Receivable Agreement and/or distributions to Shoals Technologies Group, Inc.

by Shoals Parent are not sufficient to permit Shoals Technologies Group, Inc.

to make payments under the Tax Receivable Agreement after it has paid taxes.

The Tax Receivable Agreement generally provides that if (1) certain mergers, asset sales, other forms of business combination, or other changes of control were to occur;

(2) we materially breach any of our material obligations under the Tax Receivable Agreement;

or (3) we elect an early termination of the Tax Receivable Agreement, then the Tax Receivable Agreement will terminate, and our obligations, or our successor’s obligations, under the Tax Receivable Agreement will accelerate and become due and payable, based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the Tax Receivable Agreement and, to the extent applicable, that any LLC Interests that have not been exchanged are deemed exchanged for the fair market value of our Class A common stock at the time of termination.

As a result of a change of control, material breach, or our election to terminate the Tax Receivable Agreement early, (1) we could be required to make cash payments to our Founder and Oaktree that are greater than the specified percentage of the actual benefits we ultimately realize in respect of the tax benefits that are subject to the Tax Receivable Agreement and (2) we generally will be required to make an immediate cash payment equal to the present value of the anticipated future tax benefits that are the subject of the Tax Receivable Agreement, which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits.

In these situations, our obligations under the Tax Receivable Agreement could have a material adverse effect on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combination, or other changes of control.

There can be no assurance that we will be able to finance our obligations under the Tax Receivable Agreement.

Payments under the Tax Receivable Agreement will be based on the tax reporting positions that we determine.

Although we are not aware of any issue that would cause the IRS to challenge a tax basis increase, we will not be reimbursed for any cash payments previously made to our Founder and Oaktree pursuant to the Tax Receivable Agreement if any tax benefits initially claimed by us are subsequently disallowed, in whole or in part, by the IRS or other applicable taxing authority.

For example, if the IRS later asserts that we did not obtain a tax basis increase, among other potential challenges, then we would not be reimbursed for any cash payments previously made to our Founder and Oaktree pursuant to the Tax Receivable Agreement with respect to such tax benefits that we had initially claimed.

Instead, any excess cash payments made by us

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pursuant to the Tax Receivable Agreement will be netted against any future cash payments that we might otherwise be required to make under the terms of the Tax Receivable Agreement.

Nevertheless, any tax benefits initially claimed by us may not be disallowed for a number of years following the initial time of such payment or, even if challenged early, such excess cash payment may be greater than the amount of future cash payments that we might otherwise be required to make under the terms of the Tax Receivable Agreement.

Accordingly, there may not be sufficient future cash payments against which to net.

The applicable U.S.

federal income tax rules are complex, and there can be no assurance that the IRS or a court will not disagree with our tax reporting positions.

As a result, it is possible that we could make cash payments under the Tax Receivable Agreement that are substantially greater than our actual cash tax savings.

Under the Tax Receivable Agreement, we are required to provide Oaktree (or its successor) with a schedule setting forth the calculation of payments that are due under the Tax Receivable Agreement with respect to each taxable year in which a payment obligation arises within ninety (90) days after filing our U.S.

federal income tax return for such taxable year.

This calculation will be based upon the advice of our tax advisors.

Payments under the Tax Receivable Agreement will generally be made within five (5) days after this schedule becomes final pursuant to the procedures set forth in the Tax Receivable Agreement, although interest on such payments will begin to accrue at a rate of LIBOR plus 100 basis points per annum from the due date (without extensions) of such tax return.

Any late payments that may be made under the Tax Receivable Agreement will continue to accrue interest at a rate of LIBOR plus 500 basis points per annum until such payments are made, generally including any late payments that we may subsequently make because we did not have enough available cash to satisfy our payment obligations at the time at which they originally arose.

This summary does not purport to be complete and is qualified in its entirety by the provisions of the form of Tax Receivable Agreement, a copy of which has been filed as an exhibit to this 10-K.

Other Related Party Transactions

George Solon and Valerie Solon, brother and sister of our Founder, respectively, are each employed by Shoals Technologies Group, LLC, a Tennessee limited liability company and one of our subsidiaries.

George Solon serves as the facilities manager of Shoals Technologies Group, LLC and Shoals Technologies, LLC, one of our subsidiaries (“Shoals Technologies”), and received an annual base salary of $100,000 for the 2019 calendar year and $100,000 for the 2020 calendar year for services rendered and a grant of 7,863 restricted stock units that vest in equal installments over a period of four years, subject to the terms of the LTIP and the award agreement pursuant to which the restricted stock units are granted.

During the 2020 Fiscal Year, George Solon was granted Class C Common Units of Shoals Parent that are held through Shoals Management Holdings LLC with an aggregate grant date fair value of $1,100,000, computed in accordance with FASB ASC Topic 718.

Please see Note 11 “Equity-Based Compensation” in the Shoals Parent consolidated financial statements for additional details regarding this award.

Valerie Solon serves as the Chief Administrative Officer of Shoals Technologies Group, LLC and Shoals Technologies, LLC and received an annual base salary of $100,000 for the 2019 calendar year and $100,000 for the 2020 calendar year.

In addition, Valerie Solon received a bonus of $700,000 during the 2020 calendar year for services rendered and a grant of 467,154 restricted stock units that vest in equal installments over a period of four years, subject to the terms of the LTIP and the award agreement pursuant to which the restricted stock units are granted.

Stockholders Agreement

We are party to a stockholders agreement with the Continuing Equity Owners and Oaktree (the “ Stockholders Agreement ”).

The Stockholders’ Agreement governs matters related to our corporate governance, rights to nominate and designate directors and additional matters.

Table of Con tents

The Stockholders Agreement provides that for so long as Oaktree owns at least 20% of the outstanding equity securities of the Company that are not shares of our Class A common stock awarded under the LTIP or other incentive equity plan (the “Plan Shares”), Oaktree is entitled to nominate three directors for election to our board of directors;

for so long as Oaktree owns at least 15% but less than 20% of the outstanding equity securities of the Company that are not Plan Shares, Oaktree is entitled to nominate two directors for election to our board of directors;

and for so long as Oaktree owns at least 10% but less than 15% of the outstanding equity securities of the Company that are not Plan Shares, Oaktree is entitled to nominate one director for election to our board of directors.

The Stockholders Agreement also provides that for so long as the Founder owns at least 10% of the outstanding equity securities of the Company that are not Plan Shares, the Founder is entitled to nominate one director for election to our board of directors.

Pursuant to the Stockholders Agreement, the Company will use its best efforts to cause the election of the slate of nominees recommended by our board of directors which, subject to the fiduciary duties of the directors, will include the persons nominated by Oaktree and the Founder in accordance with the Stockholders Agreement.

Subject to the terms of the Stockholders Agreement, the Continuing Equity Owners and Oaktree agree to vote their shares in favor of the election of the director nominees designated by Oaktree and the Founder.

At the current ownership levels, as of March 12, 2021, Oaktree is not entitled to nominate any director and the Founder is entitled to nominate one director for election to our board of directors.

The Founder currently serves on our board of directors as the initial designee of the Founder.

The size of our board of directors is currently eight, consisting of seven individuals, including one as chairman, and one vacancy.

One board seat will remain vacant.

In the event that an Oaktree designee or the Founder designee ceases to serve as a director, Oaktree or the Founder, as applicable, will be entitled to designate another nominee to fill the resulting vacancy.

The Stockholders’ Agreement will terminate as it relates to each stockholder at such time as such stockholder ceases to own any equity securities of the Company, except for the rights that will survive cessation of ownership of equity securities, including the rights of Oaktree and the Founder under the Registration Rights Agreement.

For a description of the Registration Rights Agreement, see “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”

This summary does not purport to be complete and is qualified in its entirety by the provisions of our form of Stockholders Agreement, a copy of which has been filed as an exhibit to this 10-K.

Limitation of Liability and Indemnification of Officers and Directors

Our certificate of incorporation and bylaws indemnify our directors and officers to the full extent permitted by the DGCL and our certificate of incorporation also allows our board of directors to indemnify other employees.

This indemnification extends to the payment of judgments in actions against officers and directors and to reimbursement of amounts paid in settlement of such claims or actions and may apply to judgments in favor of the corporation or amounts paid in settlement to the corporation.

This indemnification also extends to the payment of attorneys’ fees and expenses of officers and directors in suits against them where the officer or director acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal action or proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful.

This right of indemnification is not exclusive of any right to which the officer or director may be entitled as a matter of law and shall extend and apply to the estates of deceased officers and directors.

Table of Con tents

We maintain a directors’ and officers’ insurance policy.

The policy insures directors and officers against unindemnified losses arising from certain wrongful acts in their capacities as directors and officers and reimburses us for those losses for which we have lawfully indemnified the directors and officers.

The policy contains various exclusions that are normal and customary for policies of this type.

We believe that the limitation of liability and indemnification provisions in our certificate of incorporation, bylaws and insurance policies are necessary to attract and retain qualified directors and officers.

However, these provisions may discourage derivative litigation against directors and officers, even though an action, if successful, might benefit us and other stockholders.

Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers as required or allowed by these limitation of liability and indemnification provisions.

We are party to customary indemnification agreements with each of our executive officers and directors that provide them, in general, with customary indemnification in connection with their service to us or on our behalf.

Review, Approval or Ratification of Transactions with Related Persons

The audit committee of our board of directors has primary responsibility for reviewing and approving transactions with related parties.

Our audit committee charter provides that the audit committee shall review and approve in advance any related party transactions.

We have a formal written policy providing that our executive officers, directors, nominees for election as directors, beneficial owners of more than 5% of any class of our voting stock, any member of the immediate family of any of the foregoing persons, and any firm, corporation or other entity in which any of the foregoing persons is employed, is a general partner or principal or in a similar position, or in which such person has a 5% or greater beneficial ownership interest, is not permitted to enter into a related party transaction with us without the consent of our audit committee, subject to the exceptions described below.

In approving or rejecting any such proposal, our audit committee is to consider the relevant facts and circumstances available and deemed relevant to our audit committee, including whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction.

Our audit committee is expected to determine that certain transactions will not require audit committee approval, including certain employment arrangements of executive officers, director compensation, transactions with another company at which a related party’s only relationship is as a non-executive employee or beneficial owner of less than 5% of that company’s shares, transactions where a related party’s interest arises solely from the ownership of our common stock and all holders of our common stock received the same benefit on a pro rata basis, and transactions available to all employees generally.

Principal Accountant Fees and Services

Audit and Other Fee Information

Set forth below is a summary of certain fees paid to BDO USA, LLP for services related to the fiscal year ended December 31, 2020.

Table of Con tents

(in thousands of dollars)

Audit fees $ 1,369

Audit related fees —

All other fees —

Total $ 1,518

Audit fees consist of the aggregate fees billed for professional services rendered for (a) the audit of our annual financial statements included in our Annual Report on Form 10-K, (b) the filing of our registration statements for equity securities offerings, (c) services that are normally provided in connection with statutory and regulatory filings or engagements for those years, and (d) accounting consultations.

Audit Related Fees

Tax fees consisted of services provided for income tax consulting and compliance.

All Other Fees

Audit committee policies & procedures

The Audit Committee of our Board of Directors approves in advance all services provided by our independent registered public accounting firm.

All engagements of our independent registered public accounting firm in years ended 2020 were pre-approved by the Audit Committee.

Exhibit and Financial Statement Schedules

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The exhibits listed in the Exhibit Index below are filed or incorporated by reference as part of this Annual Report.

Table of Con tents

EXHIBIT INDEX

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S-1/A 1/25/2021 10.8

Table of Con tents

EXHIBIT INDEX

Incorporated by Reference

Number Description of Document Form Filing Date Exhibit No.

10.11 Employment Agreement, effective as of December 18, 2020, by and between Jason Whitaker and Shoals Technologies Group, LLC

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S-1/A 1/25/2021 10.10

EXHIBIT INDEX

Incorporated by Reference

Number Description of Document Form Filing Date Exhibit No.

10.13 Employment Agreement, effective as of December 31, 2020, by and between Mehgan Peetz and Shoals Technologies Group, LLC

S-1/A 1/25/2021 10.11

10.14 Third Amendment to the Senior Secured Credit Agreement

10-Q 11/10/2021 10.1

21.1* List of Subsidiaries of the Registrant

23.1* Consent of BDO USA, LLP, as to Shoals Technologies Group, Inc.

23.2* Consent of BDO USA, LLP, as to Shoals Parent LLC

31.1* Certification of the Chief Executive Officer, as required by Section 302 of the Sarbanes- Oxley Act of 2002 (18 U.S.C.

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Section 1350)

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101.SCH* XBRL Taxonomy Extension Schema Document

101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF* XBRL Taxonomy Extension Definition Linkbase Document

101.LAB* XBRL Taxonomy Extension Label Linkbase Document

101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document

104 Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

* Filed herewith

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Form 10–K Summary

Table of Con tents

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on March 10, 2022.

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Signature Title Date

/s/ Jason Whitaker Chief Executive Officer March 16, 2021

/s/ Jason Whitaker Chief Executive Officer and Director March 10, 2022

Jason Whitaker (Principal Executive Officer)

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Philip Garton (Principal Financial and Accounting Officer)

/s/ Frank Cannova Director March 16, 2021

Frank Cannova

/s/ Brad Forth Chairman of the Board of Directors March 10, 2022

/s/ Peter Jonna Director March 16, 2021

/s/ Jason Lee Director March 16, 2021

/s/ Dean Solon Director March 16, 2021

/s/ Peter Jonna

Director March 10, 2022

/s/ Lori Sundberg Director March 10, 2022

Lori Sundberg

/s/ Toni Volpe Director March 10, 2022

/s/ Peter Wilver Director March 10, 2022

Table of Con tents

INDEX TO FINANCIAL STATEMENTS

Shoals Technologies Group, Inc.

Report of Independent Registered Public Accounting Firm F- 2

Consolidated Balance Sheets F- 2

Notes to Balance Sheets F- 4

Shoals Parent LLC

Report of Independent Registered Public Accounting Firm F- 8

Report of Independent Registered Public Accounting Firm ( BDO USA, LLP ;

Austin, Texas ;

PCAOB ID# 243 )

Consolidated Balance Sheets F- 3

Consolidated Statements of Operations F- 4

Consolidated Statements of Changes In Members’ Equity (Deficit) F- 12

Consolidated Statements of Changes in Members’ / Stockholders’ Equity (Deficit) F- 5

Consolidated Statements of Cash Flows F- 7

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Portland, Tennessee

Opinion on the Financial Statement

We have audited the accompanying balance sheets of Shoals Technologies Group, Inc.

(the “Corporation”) as of December 31, 2020 and November 4, 2020 and the related notes (collectively referred to as the “financial statement”).

In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Corporation at December 31, 2020 and November 4, 2020 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

This financial statement is the responsibility of the Corporation’s management.

Our responsibility is to express an opinion on the Corporation’s financial statement based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Corporation in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud.

The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement.

We believe that our audits provide a reasonable basis for our opinion.

/s/ BDO USA, LLP

We have served as the Corporation’s auditor since 2020.

Austin, Texas

March 16, 2021

Shoals Technologies Group, Inc.

Balance Sheets

(in thousands)

December 31, 2020 November 4, 2020

Current Assets

Cash $ 10 $ 10

Total Assets $ 10 $ 10

Commitments and Contingencies

Stockholder’s Equity:

Common stock, $0.01 par value, 1,000 shares authorized, issued and outstanding $ 10 $ 10

Total Stockholder’s Equity $ 10 $ 10

See accompanying notes to balance sheets.

Shoals Technologies Group, Inc.

Notes to Balance Sheets

Nature of Business

Shoals Technologies Group, Inc.

(the “Corporation”) was formed as a Delaware corporation on November 4, 2020 for the purpose of facilitating an initial public offering ("IPO") and other related transactions in order to carry on the business of Shoals Parent.

On January 29, 2021, the Corporation 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 Corporation 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 Interest”) from Shoals Parent, LLC (the “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 initial public offering price of $25.00 per share.

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

As a result, the Corporation will consolidate the financial results of Shoals Parent and report a non-controlling interest in the Corporation's consolidated financial statements.

See Note 4, Subsequent Events.

Summary of Significant Accounting Policies

Basis of Presentation

The balance sheets are presented in accordance with accounting principles generally accepted in the United States of America.

Separate statements of income, comprehensive income, changes in stockholder’s equity, and cash flows have not been presented because the Corporation has not engaged in any activities except in connection with its formation.

All cash, as of the balance sheet date, was cash on hand, held in deposit, and is carried at fair value, which approximates carrying value.

The Corporation is treated as a subchapter C corporation and, therefore, is subject to both federal and state income taxes.

Shoals Parent continues to be recognized as a limited liability company, a pass-through entity for income tax purposes.

Stockholder’s Equity

As of December 31, 2020, the Corporation was authorized to issue 1,000 shares of common stock, $0.01 par value.

As of December 31, 2020, the Corporation had issued 1,000 shares of common stock for $10, all of which were acquired by an affiliate.

Subsequent Events

Initial Public Offering

As noted above, on January 29, 2021, the Corporation closed an IPO of 11,550,000 shares of our Class A common stock at a public offering price of $25.00 per share.

The Corporation received $278.8 million in

Shoals Technologies Group, Inc.

Notes to Balance Sheets

proceeds, net of underwriting discounts and commissions, which was used to purchase 6,315,790 LLC Interest from Shoals Parent and 5,234,210 LLC Interest from the founder and Class B unit holder in Shoals Parent at a price per interest equal to the initial public offering price of our Class A common stock of $25.00.

Organizational Transactions

In connection with the IPO, the Corporation and Shoals Parent completed a series of transactions (the "Organizational Transactions") including the following:

• the limited liability company agreement of Shoals Parent was amended and restated to, among other things, (i) provide for a new single class of common membership interests or the LLC Interest in Shoals Parent, (ii) exchange all of the then existing membership interests of the holders of Shoals Parent membership interests for LLC Interest and (iii) appoint the Corporation as the sole managing member of Shoals Parent;

• the Corporation'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 Interest they own;

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

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

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

Shoals Parent Recapitalization

As noted above, in connection with the IPO, the limited liability company agreement of Shoals Parent was amended and restated to, among other things, (i) provide for a new single class of common membership interests in Shoals Parent, or the LLC Interest;

(ii) exchange all of the then existing membership interests of the Continuing Equity Owners for LLC Interest (iii) exchange all the then existing membership interest of the Class A Shoals Equity Owners for LLC Interest and (iv) appoint the Corporation as the sole managing member of Shoals Parent.

The Corporation has a majority economic interest in Shoals Parent, is the sole managing member, has the sole voting power in, and controls the management.

As a result, the Corporation will consolidate the financial results of Shoals Parent and report a non-controlling interest.

The amendment also requires that Shoals Parent, at all times, maintain (i) a one-to-one ratio between the number of shares of Class A common stock issued by the Corporation and the number of LLC Interest owned by the Corporation and (ii) a one-to-one ratio between the number of shares of Class B common stock owned by the Continuing Equity Owners and the number of LLC Interest owned by the Continuing Equity Owners.

Amendment and Restatement of Certificate of Incorporation

As noted above, on January 26, 2021, the Corporation's certificate of incorporation was amended and restated to, among other things, provide for the (i) authorization of 1,000,000,000 shares of Class A common stock with a par value of $0.0001 per share;

(ii) authorization of 195,000,000 shares of Class B common stock with a par value of $0.00001 per share;

(iii) authorization of 5,000,000 shares of preferred stock that may be issued from time to time by the Corporation's Board of Directors in one or more series;

and (iv) establishment of a classified board of directors, divided into three classes, each of whose members will serve for staggered terms.

Shoals Technologies Group, Inc.

Notes to Balance Sheets

Holders of Class A common stock and Class B common stock are entitled to one vote per share and, except as otherwise required, will vote together as a single class on all matters on which stockholders generally are entitled to vote.

Holders of Class B common stock are not entitled to receive dividends and will not be entitled to receive any distributions upon the liquidation, dissolution or winding up of the Corporation.

Shares of Class B common stock may only be issued to the extent necessary to maintain the one-to-one ratio between the number of LLC Interest held by the Continuing Equity Owners and the number of shares of Class B common stock held by the Continuing Equity Owners.

Shares of Class B common stock are transferable only together with an equal number of LLC Interest.

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

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

Acquisition of Former Shoals Equity Owners

As noted above, on January 26, 2021, the Corporation acquired, by merger, an entity that was a member of Shoals Parent, or the Class A Shoals Equity Owners, for which the Corporation issued 81,977,751 shares of Class A common stock as merger consideration.

The only assets held by the Class A Shoals Equity Owners were 81,977,751 LLC Interest.

Upon consummation of the Merger, the Corporation recognized the LLC Interest at carrying value, as the Merger is considered to be a transaction between entities under common control.

Tax Receivable Agreement

The Corporation expects to obtain an increase in our share of the tax basis of the assets of Shoals Parent when LLC Interest are redeemed or exchanged by the Continuing Equity Owners and other qualifying transactions.

This increase in tax basis may have the effect of reducing the amounts that the Corporation 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.

On January 26, 2021, the Corporation entered into a tax receivable agreement with the founder and majority Class B common stockholder and Class A Shoals Equity Owners (the "Tax Receivable Agreement") that provides for the payment by the Corporation to the founder and Class A Shoals Equity Owners of 85% of the amount of tax benefits, if any, that the Corporation actually realizes as a result of (i) increases in the tax basis of assets of Shoals Parent resulting from any redemptions or exchanges of LLC Interest or any prior sales of interests in Shoals Parent and (ii) certain other tax benefits related to our making payments under the Tax Receivable Agreement.

On January 26, 2021, the Corporation redeemed 5,234,210 LLC Interest from the founder.

This redemption triggered a tax basis increase subject to the provisions of the Tax Receivable Agreement.

In the first quarter of fiscal 2021, the Corporation will recognize a deferred tax asset in the amount of approximately $33.5 million, a corresponding liability of $28.5 million, representing 85% of the tax benefits and approximately $5.0 million of additional-paid-in capital.

Shoals Technologies Group, Inc.

Notes to Balance Sheets

On January 26, 2021, following the merger with Shoals Investment CTB, the Corporation 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 Tax Receivable Agreement.

In the first quarter of fiscal 2021, the Corporation will recognize a liability related to this distribution of approximately $14.3 million and a corresponding distribution to additional paid-in capital.

Equity-Based Compensation

On January 26, 2021, the Corporation granted 912,206 restricted stock units to our directors and certain employees under the Shoals Technologies Group, Inc.

2021 Incentive Award Plan.

The restricted stock units were granted with an exercise price of $25.00 per unit and generally vest annually over four years.

Report of Independent Registered Public Accounting Firm

Member and Board of Directors

Shoals Parent, LLC

Portland, Tennessee

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Shoals Parent, LLC and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in members’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of Shoals Technologies Group, Inc.

and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, changes in members’ / stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Method Related to Revenue

As discussed in Note 2 to the consolidated financial statements, effective January 1, 2019, the Company adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, the new revenue recognition standard.

Basis for Opinion

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March 10, 2022

Shoals Parent LLC

Shoals Technologies Group, Inc.

Consolidated Balance Sheets

(in thousands)

(in thousands, except shares and par value)

Current Assets

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Other intangible assets, net 65,236 71,988

Deferred tax assets 176,958 —

Other assets 5,762 4,236

Total Assets $ 426,414 $ 195,310

Liabilities and Members’ Equity (Deficit)

Liabilities and Stockholders' Deficit / Members’ Deficit

Current Liabilities

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Long-term debt, less current portion 189,913 335,332

Payable pursuant to the tax receivable agreement 156,374 —

Other long-term liabilities 931 —

Total Liabilities 433,912 379,433

Commitments and Contingencies (Note 13)

Stockholders’ Deficit / Members’ Deficit

Members’ deficit — ( 184,123 )

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

none issued and outstanding as of December 31, 2021

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

112,049,981 shares issued and outstanding as of December 31, 2021

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

54,794,479 shares issued and outstanding as of December 31, 2021

Additional paid-in capital 95,684 —

Accumulated deficit ( 93,133 ) —

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

/ members' equity (deficit) 2,553 ( 184,123 )

Total Liabilities and Members’ Equity (Deficit) $ 195,310 $ 187,607

Non-controlling interests ( 10,051 ) —

Total stockholders’ deficit / members’ deficit ( 7,498 ) ( 184,123 )

Total Liabilities and Stockholders’ Deficit / Members’ Deficit $ 426,414 $ 195,310

See accompanying notes to consolidated financial statements.

Shoals Parent LLC

Shoals Technologies Group, Inc.

Consolidated Statements of Operations

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Interest expense, net ( 14,549 ) ( 3,510 ) ( 1,787 )

Payable pursuant to the tax receivable agreement adjustment ( 1,663 ) — —

Loss on debt repayment ( 15,990 ) — —

Income before income taxes 4,030 33,766 25,143

Income tax expense ( 86 ) — —

Net income 3,944 33,766 25,143

Earnings per Unit

Basic and Diluted $ 0.21 $ 0.16 $ 0.05

Weighted Average Number of Units

Basic and Diluted 160,279 160,279 160,279

net income attributable to non-controlling interests 1,596 — —

Net income attributable to Shoals Technologies Group, Inc.

$ 2,348 $ 33,766 $ 25,143

Period from January 27, 2021 to December 31, 2021

Loss per share of Class A common stock:

Diluted $ 0.00

Weighted average shares of Class A common stock outstanding:

Diluted 99,269

See accompanying notes to consolidated financial statements.

Shoals Parent LLC

Consolidated Statements of Changes in Members’ Equity (Deficit)

(in thousands)

Balance at December 31, 2017

Member distributions (10,661)

Net income 8,647

Balance at December 31, 2018

Shoals Technologies Group, Inc.

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

(in thousands, except shares)

Members' Equity (Deficit) Class A

Common Stock Class B

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

Shares Amount Shares Amount

December 31, 2018 $ 138,282 — $ — — $ — $ — $ — $ — $ 138,282

Effect of adoption of ASC 606 470 — — — — — — — 470

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Net income 25,143 — — — — — — — 25,143

Balance at December 31, 2019

December 31, 2019 149,906 — — — — — — — 149,906

Member distributions ( 376,046 ) — — — — — — — ( 376,046 )

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Net income 33,766 — — — — — — — 33,766

Balance at December 31, 2020

December 31, 2020 ( 184,123 ) — — — — — — — ( 184,123 )

Net income prior to the Organizational Transactions 2,675 — — — — — — — 2,675

Effect of Organizational Transactions 181,448 81,977,751 1 78,300,817 1 — ( 92,806 ) ( 88,644 ) —

Issuance of Class A common stock sold in IPO, net of underwriting discounts and commissions and offering costs — 11,550,000 — ( 5,234,210 ) — 69,939 — 70,976 140,915

Activity subsequent to the Organizational Transactions:

Deferred tax adjustments related to Tax Receivable Agreements — — — — — 20,997 — — 20,997

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

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

Shoals Technologies Group, Inc.

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

(in thousands, except shares)

Members' Equity (Deficit) Class A

Common Stock Class B

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

Shares Amount Shares Amount

Purchase of LLC Interests and Class B common stock

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

Exchange of Class B to Class A common stock — 7,870,042 — ( 7,870,042 ) — — — — —

Deferred tax adjustment related to ConnectPV LLC conversion

— — — — — ( 238 ) — — ( 238 )

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

Net income — — — — — — ( 327 ) 1,596 1,269

Equity-based compensation — — — — — 9,481 — — 9,481

Activity under stock compensation plan — — — — — ( 3,755 ) — 3,618 ( 137 )

Distributions to non-controlling interest — — — — — — — ( 4,837 ) ( 4,837 )

Vesting of restricted share units — 40,665 — — — — — — —

Reallocation of non-controlling interest

— — — — — ( 7,240 ) — 7,240 —

December 31, 2021 $ — 112,049,981 $ 1 54,794,479 $ 1 $ 95,684 $ ( 93,133 ) $ ( 10,051 ) $ ( 7,498 )

See accompanying notes to consolidated financial statements.

Shoals Parent LLC

Shoals Technologies Group, Inc.

Consolidated Statements of Cash Flows

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Net income $ 3,944 $ 33,766 $ 25,143

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of deferred finance costs 351 38 38

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

Depreciation and amortization 10,053 9,405 9,163

Amortization/write off of deferred financing costs 5,969 351 38

Equity-based compensation 11,286 8,251 —

Provision for slow-moving inventory ( 1,418 ) 188 301

Changes in assets and liabilities:

Deferred taxes ( 1,476 ) — —

Payable pursuant to the TRA adjustment 1,663 — —

Gain on sale of assets 52 — —

Changes in assets and liabilities, net of business acquisition:

Accounts receivable 818 288 ( 473 )

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Inventory ( 17,188 ) ( 6,475 ) ( 694 )

Other current assets 643 137 (276)

Other assets 341 643 137

Accounts payable ( 3,877 ) 4,251 4,195

Accrued expenses ( 4,511 ) 4,703 ( 283 )

Net Cash Provided by Operating Activities 54,082 36,182 3,001

Net Cash Provided by (Used in) Operating Activities ( 4,083 ) 54,082 36,182

Cash Flows Used In Investing Activities

Purchases of property, plant and equipment ( 4,126 ) ( 3,236 ) ( 1,719 )

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

Net Cash Used in Investing Activities ( 17,035 ) ( 3,236 ) ( 1,719 )

Cash Flows from Financing Activities

Member distributions (376,046) (13,989) (10,661)

Member / non-controlling interest distributions ( 4,837 ) ( 376,046 ) ( 13,989 )

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

Deferred financing costs ( 94 ) ( 11,821 ) —

Proceeds from term loan facility — 350,000 —

Debt discount and financing costs (11,821) — —

Deferred offering costs (3,738) — —

Payments on term loan facility ( 152,750 ) — —

Proceeds from revolving credit facility 49,140 20,000 —

Proceeds from delayed draw term loan facility 20,000 — —

Payments on delayed draw term loan facility (20,000) — —

Repayments of revolving credit facility ( 14,000 ) — —

Proceeds from issuance of Class A common stock sold in an IPO 278,833 — —

Purchase of LLC Interests with proceeds from IPO ( 124,312 ) — —

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 assumed in acquisition ( 1,537 ) — —

Deferred offering costs ( 9,704 ) ( 3,738 ) —

Payments on senior debt - term loan — ( 26,250 ) ( 3,500 )

Payments on senior debt - revolving line of credit — (12,500) —

Proceeds from senior debt - revolving line of credit — — 2,500

Repayment of related party note payable — — (15,000)

Net Cash Used in Financing Activities (47,855) (27,489) (19,161)

Net Increase in Cash and Cash Equivalents 2,991 6,974 (17,565)

Cash and Cash Equivalents—Beginning of Year 7,082 108 17,673

Cash and Cash Equivalents—End of Year $ 10,073 $ 7,082 $ 108

Shoals Technologies Group, Inc.

Consolidated Statements of Cash Flows (continued)

(in thousands)

Year Ended December 31,

2021 2020 2019

Payments on senior debt - revolving line of credit — — ( 12,500 )

Proceeds from delayed draw term loan facility — 20,000 —

Payments on delayed draw term loan facility — ( 20,000 ) —

Net Cash Provided by (Used in) Financing Activities 20,602 ( 47,855 ) ( 27,489 )

Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash ( 516 ) 2,991 6,974

Cash, Cash Equivalents and Restricted Cash—Beginning of Period 10,073 7,082 108

Cash, Cash Equivalents and Restricted Cash—End of Period $ 9,557 $ 10,073 $ 7,082

Year Ended December 31,

2021 2020 2019

Supplemental Cash Flows Information:

Cash paid for interest $ 10,809 $ 3,033 $ 1,819

Cash paid for taxes $ 1,190 $ — $ —

Non-cash investing and financing activities:

Reclassification of deferred offering costs to additional paid-in capital $ 3,902 $ — $ —

Establishment of deferred tax assets $ 181,901 $ — $ —

Establishment of amounts payable pursuant to tax receivable agreement $ 154,711 $ — $ —

Capital contribution related to tax receivable agreement $ 27,011 $ — $ —

Reduction of deferred tax assets and additional paid-in-capital for negative basis on exchanges $ 6,014 $ — $ —

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

Deferred tax asset and additional paid-in capital from ConnectPV $ 238 $ — $ —

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

See accompanying notes to consolidated financial statements.

Shoals Parent LLC

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Organization and Business

Shoals Parent, LLC, (the “Company or Shoals Parent”) is a Delaware limited liability company formed on May 9, 2017.

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

The Company, 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”).

The Company acquired Shoals on May 25, 2017.

Shoals Technologies Group, Inc.

(the "Corporation") was formed as a Delaware corporation on December 4, 2020 for the purpose of facilitating an initial public offering (the “IPO”) and other related transactions in order to carry on the business of Shoals Parent.

On January 29, 2021, the Corporation 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 pursuant to the underwriters’ over-allotment option.

The Corporation 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 Interest”) from Shoals Parent and 5,234,210 LLC Interest from the founder of Shoals at a price per interest equal to the initial public offering price of $25.00, net of underwriting fees and discounts.

Subsequent to the IPO and related organizational transactions that occurred in connection with the IPO, the Corporation is the sole managing member of Shoals Parent, has the sole voting power in and controls the management of Shoals Parent.

As a result, the Corporation will consolidate the financial results of Shoals Parent and report a non-controlling interest in its consolidated financial statements.

See Note 14 - Subsequent Events.

Corporate Conversion

On January 26, 2021, prior to the IPO of Shoals Technologies Group, Inc., Shoals Parent converted all of its outstanding Class A units, Class B units and Class C units into 81,977,751, 68,314,792 and 9,986,025 LLC Interest, respectively.

The corporate conversion representing 160,278,568 LLC Interest has been adjusted retroactively for the purposes of calculating basic and diluted earnings per unit.

Summary of Accounting Policies

(the “Company”) was formed as a Delaware corporation on November 4, 2020 for the purpose of facilitating an initial public offering ("IPO") and other related organizational transactions to carry on the business of Shoals Parent LLC and its subsidiaries (“Shoals Parent”).

Shoals Parent is a Delaware limited liability company formed on May 9, 2017.

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”), 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 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 - Acquisition of ConnectPV.

Initial Public Offering

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 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.

Organizational Transactions

In connection with the IPO, the Company and Shoals Parent completed a series of transactions (the "Organizational Transactions") including the following:

• the limited liability company agreement (the “LLC Agreement”) of Shoals Parent was amended and restated to, among other things, (i) provide for a new single class of common membership interests or the LLC Interests in Shoals Parent, (ii) exchange all of the then existing membership interests of the holders of Shoals Parent membership interests for LLC Interests and (iii) appoint the Company as the sole managing member of Shoals Parent;

• 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 Consolidated Financial Statements

• 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").

Follow-On Offering

On July 16, 2021, the Company completed a follow-on offering consisting of 4,989,692 shares of Class A common stock offered by 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 from our founder and management.

Summary of Significant Accounting Policies

Basis of Accounting and Presentation

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S.

Principles of Consolidatio n

The consolidated financial statements include the accounts of Shoals Parent and its subsidiaries, which include Intermediate, Holdings and Shoals.

The consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries.

All intercompany balances and transactions have been eliminated in consolidation.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Non-controlling Interest

The non-controlling interest on the consolidated statement of operations represents the portion of earnings or loss attributable to the economic interest in the Company's subsidiary, Shoals Parent, held by the Continuing Equity Owners.

Non-controlling interest on the 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 December 31, 2021, the non-controlling interest was 32.84 %.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

Actual results

Shoals Parent LLC

Notes to Consolidated Financial Statements

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 and the reserve for excess and obsolete inventory.

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, reserve for excess and obsolete inventory, payable pursuant to the tax receivable agreement and valuation allowance on deferred tax assets.

Impact of COVID-19 Pandemic

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.

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

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, the Omicron variant of COVID-19,

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

which appears to be the most transmissible variant to date, has 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 year ended December 31, 2020, the Company incurred $2.9 million 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 $2.6 million is included in cost of revenue and $0.3 million 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.

The impact of the Omicron 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 Omicron 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.

Cash and Cash Equivalents

The Company considers cash and cash equivalents to include cash on hand, cash held in demand deposit accounts, and all highly liquid financial instruments purchased with a maturity of three months or less.

Restricted Cash

Restricted cash is included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.

Restricted cash is restricted as to withdrawal or use.

Tax distributions paid by Shoals Parent to the Company are restricted under the LLC Agreement for future payments under the tax receivable agreement and totaled $ 4.6 million as of December 31, 2021.

A reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheet is as follows (in thousands):

As of December 31,

Cash and cash equivalents $ 5,006 $ 10,073

Restricted cash included in other current asset — —

Restricted cash included in other assets 4,551 —

Total cash, cash equivalents, and restricted cash $ 9,557 $ 10,073

Accounts Receivable and Allowance for Doubtful Accounts

3 unchanged sentences

Periodically, management reviews the accounts receivable balances of its customers and adjusts the allowance based on current circumstances and charges off uncollectible receivables when all attempts to collect have failed although collection efforts may continue.

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Unbilled Receivables

4 unchanged sentences

Provisions are made to reduce excess or obsolete inventories to their estimated net realizable values.

Shoals Parent LLC

Notes to Consolidated Financial Statements

Property, Plant, and Equipment

Property, plant, and equipment acquired in the acquisition of Shoals are recorded at fair value at the date of acquisition net of accumulated depreciation;

Property, plant, and equipment acquired in the acquisition of Shoals and ConnectPV are recorded at fair value at the date of acquisition net of accumulated depreciation;

all other property, plant and equipment are recorded at cost, net of accumulated depreciation.

16 unchanged sentences

Otherwise, no further assessment is required.

The quantitative approach compares the estimate fair value of the reporting units to its carrying amount, including goodwill.

The quantitative approach

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

compares the estimate fair value of the reporting units to its carrying amount, including goodwill.

Impairment is indicated if the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, and an impairment charge is recognized for the differential.

The Company completes its annual goodwill impairment test as of October 1 each year.

For the years ended December 31, 2021, 2020 and 2019, the Company performed a qualitative assessment of its goodwill and determined no impairment.

2 unchanged sentences

The Company amortizes identifiable intangible assets consisting of customer relationships, developed technology, trade names and noncompete agreements because these assets have finite lives.

The Company’s

Shoals Parent LLC

Notes to Consolidated Financial Statements

intangible assets with finite lives are amortized on a straight‐line basis over the estimated useful lives.

The Company’s intangible assets with finite lives are amortized on a straight‐line basis over the estimated useful lives.

The basis of amortization approximates the pattern in which the assets are utilized over their estimated useful lives.

2 unchanged sentences

Deferred offering costs consist primarily of registration fees, filing fees, listing fees, specific legal and accounting costs and transfer agent fees, which are direct and incremental fees related to the IPO.

The deferred offering costs will be offset against the IPO proceeds, which will be recorded in the first quarter of 2021.

As of December 31, 2020, the Company had incurred $3.7 million in deferred offering costs, which are reported as Other assets - long-term on the consolidated balance sheets.

As of December 31, 2020, the Company had $ 3.9 million in deferred offering costs, which are reported as Other assets - long-term on the consolidated balance sheets.

The deferred offering costs as of December 31, 2020 were offset against IPO proceeds along with $ 9.7 million in offering costs incurred during the year ended December 31, 2021.

Deferred Financing Costs

Costs incurred to issue debt are capitalized and recorded net of the related debt and amortized using the effective interest method as a component of interest expense over the terms of the related debt agreement.

Revenue Recognition - 2019 and 2020

Revenue Recognition

The Company recognizes revenue primarily from the sale of EBOS systems and components.

6 unchanged sentences

The Company recognizes revenue over time as a result of the continuous transfer of control of its product to the customer using the output method based on units manufactured.

This continuous transfer of control to the customer is supported by clauses in the contracts that provide rights to payment of the transaction price associated with work performed to date on products that do not have an alternative use to the Company.

This continuous transfer of

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

control to the customer is supported by clauses in the contracts that provide rights to payment of the transaction price associated with work performed to date on products that do not have an alternative use to the Company.

The manufacturing process generally takes less than one week to complete production.

7 unchanged sentences

The Company typically bills retainage amounts as work is performed.

Retainage provisions are not considered a significant financing component because they

Shoals Parent LLC

Notes to Consolidated Financial Statements

are intended to protect the customer in the event that some or all of the obligations under the contract are not completed.

Retainage provisions are not considered a significant financing component because they are intended to protect the customer in the event that some or all of the obligations under the contract are not completed.

Outstanding retainage billings of $ 4.8 million and $ 2.8 million are included in Accounts receivable, net, as of December 31, 2021 and 2020, respectively.

The Company has elected to adopt certain practical expedients and exemptions as allowed under the new revenue recognition guidance such as (i) recording sales commissions as incurred because the amortization period is less than one year, (ii) excluding any collected sales tax amounts from the calculation of revenue, and (iii) accounting for shipping and handling activities that are incurred after the customer has obtained control of the product as fulfillment costs rather than a separate service provided to the customer for which consideration would need to be allocated (see Shipping and Handling).

Revenue Recognition - 2018

During the year ended December 31, 2018, the Company recognized revenue net of returns and allowances when persuasive evidence of an arrangement existed;

price was fixed and determinable;

title and risk passed to its customers, which typically occurs upon shipment of its products;

and collectability was reasonably assured.

Shipping and Handling

6 unchanged sentences

As of December 31, 2021, $ 8.5 million of the Company’s bank balances were in excess of FDIC insurance limits.

The Company had the following revenue and accounts receivable concentrations:

The Company had the following revenue concentrations representing 10% or more of revenue for the years ended December 31, 2021, 2020 and 2019 and related accounts receivable concentrations as of December 31, 2021 and 2020:

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

2021 2020 2019

6 unchanged sentences

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Company follows a fair value

Shoals Parent LLC

Notes to Consolidated Financial Statements

hierarchy which requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company follows a fair value hierarchy which requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Three levels of inputs may be used to measure fair value, as follows:

4 unchanged sentences

• Level 3 – Unobservable inputs that are supported by little or no market activity that are significant to the fair value of the assets or liabilities.

The fair values of the Company’s cash, accounts receivable, and accounts payable approximate their carrying values due to their short maturities.

The fair values of the Company’s cash and cash equivalents, accounts receivable, and accounts payable approximate their carrying values due to their short maturities.

The carrying value of the Company’s revolving line of credit and long-term debt approximates their fair values, as they are based on current market rates at which the Company could borrow funds with similar terms.

The Company follows the provisions of FASB ASC Topic 820-10 for nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.

The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820-10 for nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.

As it relates to the Company, this applies to certain nonfinancial assets and liabilities acquired in business combinations.

Pre-IPO Income Taxes

Shoals Parent is treated as a partnership and is not subject to federal income tax;

3 unchanged sentences

The activities of Shoals Parent and its subsidiary LLCs are reported on the federal income tax return of Shoals Parent.

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Shoals Parent and its subsidiary LLCs are generally not subject to state income tax;

however, Shoals Technologies Group, LLC pays Tennessee, California, and Texas franchise taxes and Shoals Technologies, LLC pays Alabama franchise tax.

Management has evaluated the Company’s tax positions and concluded that there are no uncertain tax positions that require adjustment to the consolidated financial statements at December 31, 2020 and 2019.

Tax-related interest and penalties are recorded in income tax expense in the consolidated statement of operations.

The Company did not have interest and penalties during the years ended December 31, 2020, 2019 and 2018.

Post-IPO Income Taxes

The Company is taxed as a corporation for U.S.

federal and state income tax purposes.

The Company’s sole material asset is Shoals Parent, which is a limited liability company that is taxed as a partnership for US federal and certain state and local income tax purposes.

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.

The Company accounts for income taxes using the asset and liability method.

Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

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.

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.

In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations.

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 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.

The effective tax rate and the tax basis of assets and liabilities reflect management’s estimates of the ultimate outcome of various tax uncertainties.

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.

The Company did not have any material interest and penalties during the year ended December 31, 2021.

The Company files U.S.

federal and certain state income tax returns.

The income tax returns of the Company are subject to examination by U.S.

federal and state taxing authorities for various time periods, depending on each jurisdictions’ rules, beginning generally after the income tax returns are filed.

Payable Pursuant to the Tax Receivable Agreement

As a result of exchanges of LLC Interests into Class A Common Stock and purchases by the Company of LLC Interests from holders of LLC Interests, the Company will become entitled to a proportionate share of the existing tax basis of the assets of Shoals Parent at the time of such exchanges or purchases.

In addition, such exchanges or purchases of LLC Interests are expected to result in increases in the tax basis of the assets of Shoals Parent that otherwise would not have been available.

These increases in tax basis may reduce the amount of tax that the Company would otherwise be required to pay in the future.

These increases in tax basis

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

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, and may increase depreciation and amortization to the Company.

In connection with the recapitalization the Company completed in connection with its IPO, the Company entered into a tax receivable agreement (the “TRA”) with the founder and former equity owner of Shoals Investment CTB (the “TRA Owners”) that provides for the payment by the Company to the TRA Owners (or any permitted assignees) of 85 % of the amount of the benefits, if any, that the Company actually realizes or is deemed to realize as a result of (i) the Company’s allocable share of existing tax basis acquired in connection with the Organizational Transactions (including Blocker’s share of existing tax basis) and increases to such allocable share of existing tax basis, (ii) certain increases in the tax basis of assets of Shoals Parent and its subsidiaries resulting from purchases or exchanges of LLC Interests and (iii) certain other tax benefits, including those attributable to payments made, under the TRA.

These contractual payment obligations are the Company's obligations and are not obligations of the LLC, and are accounted for in accordance with ASC 450, Contingencies , since the obligations were deemed to be probable and reasonably estimable.

For purposes of the TRA, the benefit deemed realized by the Company will be computed by comparing its actual income tax liability (calculated with certain assumptions) to the amount of such taxes that it 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 timing and/or amount of aggregate payments due under the TRA may vary based on a number of factors, including the amount and timing of the taxable income the Company generates in the future and the tax rate then applicable and amortizable basis.

The term of the TRA will continue until all such tax benefits have been utilized or expired, unless the Company exercises its right to terminate the TRA for an amount based on the agreed payments remaining to be made under the agreement.

In certain mergers, asset sales or other forms of business combinations or other changes of control, or if the Company materially breaches any of its material obligations under the TRA, the Company (or its successor) would owe to the TRA Owners (or any permitted assignees) 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 all LLC Interests and that the Company would have had sufficient taxable income to fully utilize the deductions arising from the increased tax basis and other tax benefits related to entering into the TRA.

Acquisition Accounting

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.

Equity-Based Compensation

The Company recognizes equity-based compensation expense based on the equity award’s grant date fair value.

The determination of the fair value of equity awards issued to employees of the Company is based upon the underlying unit price and a number of factors, including comparable companies, operating and financial performance, lack of liquidity of the units and general and industry specific economic outlook, amongst other factors.

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

other factors.

The Company accounts for forfeitures as they occur.

The grant date fair value of each unit is amortized on a straight-line basis over the requisite service period, including those units with graded vesting.

Shoals Parent LLC

Notes to Consolidated Financial Statements

the amount of equity-based compensation at any date is at least equal to the portion of the grant date fair value of the award that is vested.

Earnings per Unit

Basic earnings per unit (“EPU”), is computed by dividing net income available to unit holders by the weighted average units outstanding during the period.

Diluted EPU takes into account the potential dilution that could occur if securities or other contracts to issue units, such as stock options and unvested restricted stock units, were exercised and converted into units.

Diluted EPU is computed by dividing net income available to unit holders by the weighted average units outstanding during the period, increased by the number of additional units that would have been outstanding if the potential units had been issued and were dilutive.

However, the amount of equity-based compensation at any date is at least equal to the portion of the grant date fair value of the award that is vested.

Earnings per Share (“EPS”)

Basic EPS is computed by dividing net income available to common shareholders by the weighted average shares outstanding during the period.

Diluted EPS takes into account the potential dilution that could occur if securities or other contracts to issue shares, such as stock options and unvested restricted stock units, were exercised and converted into shares.

Diluted EPS is computed by dividing net income available to common shareholders by the weighted average shares outstanding during the period, increased by the number of additional shares that would have been outstanding if the potential shares had been issued and were dilutive.

Segment Reporting

ASC 280 (“Segment Reporting”) establishes standards for reporting information about operating segments.

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company manages its business on the basis of one operating and reportable segment and derives revenues from selling its product.

Advertising Expenses

Advertising expenses are expensed as incurred.

Advertising expenses for the years ended December 31, 2021, 2020 and 2019 were not material to our consolidated financial statements.

Research and Development Expenses

Research and development expenses are expensed as incurred.

Research and development expenses for the years ended December 31, 2021, 2020 and 2019 were not material to our consolidated financial statements.

New Accounting Standards

Adopted in 2019

In May 2014, the FASB issued ASU No.

2014-09, “Revenue from Contracts with Customers (Topic 606),” with the intent of significantly enhancing consistency and comparability of revenue recognition practices across entities and industries.

2014-09 supersedes the revenue recognition guidance in Topic 605, Revenue Recognition .

The new standard establishes a single, principle-based five-step model to be applied to all contracts with customers and introduces new and enhanced disclosure requirements.

It also requires the use of more estimates and judgments than the present standards in addition to additional disclosures.

The Company has reviewed its various customer arrangements in order to determine the impact the new accounting guidance for revenue recognition will have on its consolidated financial statements and related disclosures.

The Company adopted this on January 1, 2019, using a modified retrospective approach for those contracts not completed at the date of initial adoption.

The following table summarizes the cumulative effect of the changes made to the consolidated balance sheet for the adoption of ASC 606 (in thousands):

Line Item in Consolidated Balance Sheet Balance at December 31, 2018 Adoption of

ASC 606 Adjusted Balance at January 1,

Unbilled receivables $ — $ 1,971 $ 1,971

Inventory, net $ 9,942 $ (1,501) $ 8,441

Total Assets $ 185,533 $ 470 $ 186,003

Members’ Equity (Deficit) $ 138,282 $ 470 $ 138,752

Total Liabilities and Members’ Equity (Deficit) $ 185,533 $ 470 $ 186,003

The changes above primarily represent the increase in unbilled receivables and the decrease of inventory related to the acceleration of the recognition of revenue on sales from a point in time to an over time basis as control is passed to the customer.

Shoals Parent LLC

Notes to Consolidated Financial Statements

The application of ASC 606 increased the Company’s total revenue, total cost of goods sold, operating income and net income by $1.3 million, $1.0 million, $0.3 million and $0.3 million, respectively, during the year ended December 31, 2019.

In connection with the adoption of ASC 606, the Company established contract assets to represent unbilled receivables.

As result of the adoption of ASC 606, the Company had unbilled receivables of $2.5 million and inventory was reduced by $1.9 million as of December 31, 2019.

In connection with the adoption of ASC 606, the Company recorded a transition adjustment to increase members’ equity (deficit) by $0.5 million.

See above for the transition impact by line item.

The adoption of ASC 606 did not have any impact on net cash provided by operating activities.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement , which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement against or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements.

The Company adopted ASU 2018-13 as of January 1, 2020.

The Company’s disclosures related to its Level 3 financial statements did not materially change for the periods presented.

To be Adopted

Recently Adopted

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU No.

2019-12”), which is intended to simplify various aspects of the accounting for income taxes.

2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

The Company adopted ASU No.

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

In February 2016, the FASB issued ASU No.

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 consolidated 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.

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

For companies that are not emerging growth companies (“EGCs”), the ASU is effective for fiscal years beginning after December 15, 2018.

For companies that are not emerging

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

growth companies (“EGCs”), the ASU is effective for fiscal years beginning after December 15, 2018.

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

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

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 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.

6 unchanged sentences

For EGC’s, the standard is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2022.

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 consolidated financial statements and its limited history of bad debt expense relating to trade accounts receivable.

Shoals Parent LLC

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 pending finalization of the working capital calculation with the sellers.

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 $ 19.3 million was recorded.

The goodwill recognized was primarily attributable to the workforce and 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 Consolidated Financial Statements

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU No.

2019-12”), which is intended to simplify various aspects of the accounting for income taxes.

2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

This standard is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020.

Early adoption is permitted.

The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures but currently does not expect that the adoption of this standard will have a significant impact on its financial statements.

Preliminary Purchase Price Allocation

Cash and cash equivalents $ 849

Accounts receivable 5,313

Inventory 4,641

Other current assets 2,319

Total current assets 13,122

Property, plant and equipment 438

Goodwill 19,260

Other intangible assets 1,600

Total Assets 34,420

Accounts payable 9,228

Accrued expenses 3,397

Total liabilities 14,162

Net assets acquired $ 20,258

The Company expensed acquisition-related costs of $ 2.3 million which are included in general and administrative expenses in the consolidated statement of operations.

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

Pro Forma Financial Information (Unaudited)

The pro forma information below gives effect to the ConnectPV acquisition as if it had been completed on the first day of each period presented.

The pro forma results of operations are presented for informational purposes only.

As such, they are not necessarily indicative of the Company’s results had the acquisition been completed on the first day of each period presented, nor do they intend to represent the Company’s future results.

The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisition and does not reflect additional revenue opportunities following the acquisition.

The pro forma information includes adjustments to record the assets and liabilities associated with the acquisition at their respective fair values, which are preliminary at this time, based on available information and to give effect to the financing for the acquisition (in thousands):

Revenue $ 229,709 $ 200,892

Net income $ 3,305 $ 29,861

Since the acquisition date, August 26, 2021, the Company reported $ 10.0 million and $ 0.7 million in revenue and net income, respectively in the accompanying consolidated financial statements related to ConnectPV.

Accounts Receivable

Accounts receivable consists of the following (in thousands):

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Accounts receivable $ 32,015 $ 27,206

15 unchanged sentences

Property, plant and equipment, net $ 15,574 $ 12,763

Shoals Parent LLC

Notes to Consolidated Financial Statements

Depreciation expense for the years ended December 31, 2021, 2020 and 2019 was $ 1.7 million, $ 1.4 million and $ 1.2 million, respectively.

During the years ended December 31, 2020, 2019 and 2018, $1.1 million, $1.0 million and $0.8 million, respectively, of depreciation expense were allocated to cost of revenue.

During the years ended December 31, 2020, 2019 and 2018, $0.3 million, $0.2 million and $0.2 million, respectively, of depreciation expense were allocated to operating expenses.

During the years ended December 31, 2021, 2020 and 2019, $ 1.5 million, $ 1.1 million and $ 1.0 million, respectively, of depreciation expense was allocated to cost of revenue.

During the years ended December 31, 2021, 2020 and 2019, $ 0.2 million, $ 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.

During the years ended December 31, 2020, 2019 and 2018, there were no changes in the Company’s goodwill balance and no impairment charges related to goodwill.

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Goodwill relates to the acquisition of Shoals and ConnectPV.

As of December 31, 2021 and 2020, goodwill totaled $ 69.4 million and $ 50.2 million, respectively.

Changes in the carrying amount of goodwill during the years ended December 31, 2021 and 2020 are shown below (in thousands):

Balance at December 31, 2019 and 2020 $ 50,176

Acquisition of ConnectPV 19,260

Balance at December 31, 2021 $ 69,436

Other Intangible Assets

1 unchanged sentence

Estimated Useful Lives (Years)

Customer relationship 13

Customer relationships 2 - 13

$ 53,100 $ 52,600

Developed technology 13 34,600 34,600

34,600 34,600

Trade name 13

Trade names 2 - 13

11,900 11,400

Backlog 1 600 —

Noncompete agreements 5 2,000 2,000

1 unchanged sentence

Accumulated amortization:

Customer relationship 14,499 10,453

Customer relationships 18,629 14,499

Developed technology 12,199 9,537

Trade name 3,142 2,265

Trade names 4,103 3,142

Backlog 200 —

Noncompete agreements 1,833 1,434

1 unchanged sentence

Total amortizable intangibles, net $ 65,236 $ 71,988

Amortization expense related to intangible assets amounted to $8.0 million for each of the years ended December 31, 2020, 2019 and 2018.

Amortization expense related to intangible assets amounted to $ 8.4 million, $ 8.0 million and $ 8.0 million the years ended December 31, 2021, 2020 and 2019, respectively.

Estimated future annual amortization expense for the above amortizable intangible assets are as follows (in thousands):

Shoals Parent LLC

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

5 unchanged sentences

Revolving Credit Facility 55,140 20,000

Senior Debt—term loan — 26,250

deferred finance costs (11,168) (196)

deferred financing costs ( 5,337 ) ( 11,168 )

Total debt, net of deferred financing costs 247,053 358,832

1 unchanged sentence

Long-term debt, net current portion $ 245,053 $ 355,332

The aggregate amounts of principal maturities on the Company’s long-term debt is as follows:

The aggregate amounts of principal maturities on the Company’s long-term debt is as follows (in thousands):

For the Year Ended December 31,

Thereafter 352,500

Senior Secured Credit Agreement

On November 25, 2020 (the “Senior Secured Credit Agreement Closing Date”), Holdings, as borrower, and Intermediate, as 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”), which sets forth the terms and conditions for a 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

Shoals Parent LLC

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 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.

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

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 funded on the Senior Secured Credit Agreement Closing Date were used to (i) make certain distributions from Shoals Holdings to Shoals Intermediate Holdings and from there to certain of our direct or indirect equity holders in an aggregate amount not in excess of $350.0 million plus amounts funded from cash on the balance sheet, (ii) pay any transaction expenses related thereto, (iii) repay and terminate all outstanding commitments under the Senior Debt and (iv) finance working capital and general corporate purposes.

An additional $10.0 million draw under the Delayed Draw Term Loan Facility funded on December 14, 2020.

On December 22, 2020, Shoals Holdings entered into an amendment to the Senior Secured Credit Agreement in order to obtain a $100.0 million increase (the “Revolver Upsize”) to the Revolving Credit Facility.

At December 31, 2020, the Company had $80.0 million of availability under the Revolving Credit Facility.

The proceeds of the Revolver Upsize will be used to finance working capital and general corporate purposes, and any description of the Revolving Credit Facility set forth below shall be deemed to include the Revolver Upsize.

On December 23, 2020, we repaid and terminated all outstanding commitments under the Delayed Draw Term Loan Facility.

On December 30, 2020, Shoals Holdings entered into a second amendment to the Senior Secured Credit Agreement.

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.

As part of the first amendment , the Company repaid and terminated all outstanding commitments under the Delayed Draw Term Loan Facility.

As of December 31, 2021, the outstanding balance of the Term Loan Facility was $ 197.3 million.

The balance of the Term Loan Facility is presented in the accompanying consolidated balance sheets net of deferred financing fees of $ 5.3 million and $ 11.2 million at December 31, 2021 and 2020, respectively.

The deferred financing fees are being amortized using the effective interest method.

The effective interest rate at December 31, 2021 and 2020 was 6.42 % and 6.55 %, respectively.

T he Revolving Credit Facility was $ 55.1 million and the Company had $ 44.9 million of availability under the Revolving Credit Facility.

From December 31, 2021 through the date of this filing, the Company borrowed an additional $ 27.5 million under the Revolving Credit Facility.

On January 29, 2021, the Company used proceeds from the IPO to repay $ 150.0 million of outstanding borrowings under the Term Loan Facility.

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.

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.

Interest Rate

3 unchanged sentences

The interest rates applicable to the loans under the Revolving Credit Facility ( 3.75 % at December 31, 2021) are based on a rate of interest determined by reference to either (i) a base rate plus an applicable margin equal to 2.25 % or (ii) a eurocurrency rate plus an applicable margin equal to 3.25 %.

Shoals Parent LLC

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

5 unchanged sentences

Loans under the Term Loan Facility may be voluntarily prepaid, at Holdings’ option, in whole, or in part, in each case without premium or penalty other than (i) a prepayment premium in an amount equal to (a) if such prepayment occurs prior to the first anniversary of the Senior Secured Credit Agreement Closing Date, a make-whole premium, (b) if such prepayment occurs on or after the first anniversary but prior to the second anniversary of the Senior Secured Credit Agreement Closing Date, 2.00 % and (c) if such prepayment occurs on or after the second anniversary but prior to the third anniversary of the Senior Secured Credit Agreement Closing Date, 1.00 % and (ii) with respect to prepayments in connection with an IPO, a change of control or a transformative disposition subject to certain exceptions and conditions, a prepayment premium equal to (a) if such prepayment occurs prior to the first anniversary of the Senior Secured Credit Agreement Closing Date, 2.00 % and (b) if such prepayment occurs after the first anniversary of the Senior Secured Credit Agreement Closing Date but prior to the second anniversary of the Senior Secured Credit Agreement Closing Date, 1.00 %.

Notwithstanding anything to the contrary in the preceding paragraph, in the event that, on or after December 30, 2020 but prior to February 28, 2021, Shoals Holdings makes any prepayment (including with respect to any acceleration) of any loans under the Term Loan Facility, Holdings shall pay a premium on such prepayments made up to $150.0 million of the principal amount of such loans prepaid in an amount equal to 7.50% multiplied by the principal amount of such loans prepaid, which, if applicable, shall be in lieu of any applicable prepayment premium set forth in the preceding paragraph or in the paragraph below;

Notwithstanding anything to the contrary in the preceding paragraph, in the event that, on or after December 30, 2020 but prior to February 28, 2021, Shoals Holdings made any prepayment (including with respect to any acceleration) of any loans under the Term Loan Facility, Holdings would pay a premium on such prepayments made up to $ 150.0 million of the principal amount of such loans prepaid in an amount equal to 7.50 % multiplied by the principal amount of such loans prepaid, which, if applicable, would be in lieu of any applicable prepayment premium set forth in the preceding paragraph or in the paragraph below;

provided that no amortization payments or mandatory prepayments required under the Senior Secured Credit Agreement shall be subject to the prepayment premium set forth in this paragraph.

On January 29, 2021, the Company used proceeds from the IPO to repay $ 150.0 million of outstanding borrowings under the Term Loan Facility resulting in a prepayment premium of $ 11.3 million.

Additionally, after February 28, 2021 but prior to the second anniversary of the Senior Secured Credit Agreement Closing Date, up to $ 175.0 million of the outstanding principal amount of the Term Loan Facility may be voluntarily prepaid upon the consummation of an IPO with proceeds from such IPO, subject to a prepayment premium in an amount equal to 1.00 % in lieu of any applicable call protection premiums set forth in the second preceding paragraph.

The Senior Secured Credit Agreement requires mandatory prepayments, but not permanent reductions of commitments thereunder, for excess cash flow, asset sales, subject to a right of reinvestment, and refinancing facilities.

Shoals Parent LLC

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

7 unchanged sentences

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

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

The debt was collateralized by all of the assets of the guarantor and borrowers.

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.

The Senior Debt was collateralized by all of the assets of the guarantor and borrowers.

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.

The Base Rate charged is the highest rate of three defined methods as follows:

The base rate charged was the highest rate of three defined methods as follows:

1) Federal Funds Rate plus 0.5 %, 2) Fifth Third Bank N.A.

Rate or 3) LIBOR Rate plus 1 %.

The Base Rate ranges from 1% to 2.5% depending on the EBITDA Rate calculation as defined in the Senior Debt (the “EBITDA Rate calculation”) for the Federal Funds Rate.

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

Related Party Note Payable

On May 25, 2017, Solon Holdco I, GP provided financing to Shoals Holdings, LLC in the amount of $15 million to make a capital distribution to a member of the Company (“Related Party Note Payable”).

The loan had a maturity date of November 25, 2022.

There were no principal payments required until maturity.

The loan was collateralized by all of the assets of Shoals Holdings, LLC and its subsidiaries and was subordinate to any claims made under the Senior Debt.

This loan bore an annual interest rate of 8% to be paid on the last day of each quarter.

For the year ended December 31, 2018 interest incurred was $0.8 million.

This Note was paid off in full on August 20, 2018.

Shoals Parent LLC

The base rate ranged from 1 % to 2.5 % depending on the EBITDA Rate calculation as defined in the Senior Debt Agreement (the “EBITDA Rate Calculation”) for the Federal Funds Rate.

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

Basic EPS 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 EPS of Class A Common Stock is computed similarly to basic EPS except the weighted average shares outstanding are increased to include additional shares from the exchange 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.

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Members’ Equity (Deficit)

On May 9, 2017, Shoals Parent was formed as a Delaware limited liability company.

The LLC Agreement has since been twice amended and restated to provide for additional members and classes of member units.

At December 31, 2020, Shoals Parent operates under the Amended and Restated Limited Liability Company Agreement dated March 9, 2019 (the “Amended LLC Agreement”).

The Amended LLC Agreement provides for four classes of member units:

Class A Common Units (the “Class A”) 90,000,000 issued and outstanding, at December 31, 2020 and 2019

Class B Common Units (the “Class B”) 75,000,000 issued and outstanding, at December 31, 2020 and 2019

Class C Common Units (the “Class C”) 11,150,000 issued and outstanding, at December 31, 2020

Class D Common Units (the “Class D”) none issued and outstanding

Under the terms of the Amended LLC agreement, allocations of profits, losses and distributions are in the following priorities:

Profits and Losses.

Profits are allocated first to the Class A until each Class A unit receives its original capital investment plus any accrued common yield.

Profits are allocated second to Class C with each Class C Unit receiving profits based upon a payment rate as a percentage of total aggregate distributions to all outstanding classes of member units.

Profits are allocated third to Class B, until each Class B unit has received an equivalent per unit amount to each Class A unit.

Any additional profits are allocated ratably to Class A and Class B on a per unit basis, taking into consideration the payment due Class C based on the payment rate specified in the Amended LLC Agreement.

Distributions.

Distributions are allocated in accordance with the allocation of profits and losses for each period.

Voting Rights.

Class A and B Common units are voting while Class C are non-voting.

Special Distribution to Members

On November 25, 2020, the Company issued a special distribution of $355.8 million to members.

Corporate Conversion – see Note 1

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, EPS 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 period ended December 31, 2021.

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

Period from January 27, 2021 to December 31, 2021

Net loss attributable to Shoals Technologies Group, Inc.

- basic $ ( 327 )

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

Net loss attributable to Shoals Technologies Group, Inc.

- diluted $ ( 327 )

Weighted average shares of Class A common stock outstanding - basic 99,269

Effect of dilutive securities:

Restricted Stock Units —

Class B Common Stock —

Weighted average shares of Class A common stock outstanding - diluted 99,269

Loss per share of Class A common stock - basic $ 0.00

Loss per share of Class A common stock - diluted $ 0.00

For the year ended December 31, 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 restricted stock units and Class B common stock to the weighted average shares of Class A common stock outstanding – dilutive as it was antidilutive.

Equity-Based Compensation

2021 Long-term Incentive Plan

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.

Since January 26, 2021, the Company has granted 1,701,306 restricted stock units (“RSUs") to certain employees, officers and directors of the Company.

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.

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

The following table summarizes the RSUs activity for the year ended December 31, 2021:

RSUs Weighted Average Price

Outstanding at beginning of period — $ —

Granted 1,701,306 $ 27.61

Forfeited ( 23,738 ) $ 29.46

Vested ( 44,724 ) $ 28.60

Outstanding at end of period 1,632,844 $ 27.55

For the year ended December 31, 2021, the Company recognized $ 11.3 million in equity-based compensation.

As of December 31, 2021, the Company had $ 36.8 million of unrecognized compensation costs which is expected to be recognized over a period of 3.0 years.

Pre-IPO Class C Units

The Company accounted for equity grants to employees (Class C units) as equity-based compensation.

The Class C units contained vesting provisions as defined in the agreement.

Vested units did not forfeit upon termination and represented a residual interest in the Company.

Equity-based compensation cost was measured at the grant date fair value and was recognized on a straight-line basis over the requisite service period, including those units with graded vesting with a corresponding credit to members’ equity (deficit).

However, the amount of equity-based compensation at any date was at least equal to the portion of the grant date value of the award that was vested.

In May 2020, the Company issued 11,150,000 Class C units to certain employees of the Company of which approximately 77 % were vested on the grant date.

The fair value of such units was determined by management with the assistance of a third party valuation by considering a number of factors, including comparison companies, operating and financial performance, the lack of liquidity of the units, and general and industry specific economic outlook, amongst other factors.

The grant date fair value of the Class C units granted during 2020 was $ 0.74 per unit.

In November 2020, the Company modified and accelerated the remaining vesting on the unvested Class C units.

On January 26, 2021 as part of the Corporate Conversion the 11,150,000 Class C Units were converted into 9,986,025 LLC Interest in Shoals Parent.

For the year ended December 31, 2020 the Company recognized $ 8.3 million in equity-based compensation.

At December 31, 2020, the Company had no remaining unrecognized compensation costs related to Class C units.

There were no forfeitures during the year ended December 31, 2020.

Stockholders' Deficit

Amendment and Restatement of Certificate of Incorporation

As discussed in Note 1, on January 26, 2021, the Company's certificate of incorporation was amended and restated to, among other things, provide for the (i) authorization of 1,000,000,000 shares of Class A common stock with a par value of $ 0.00001 per share;

(ii) authorization of 195,000,000 shares of Class B common stock with a par value of $ 0.00001 per share;

(iii) authorization of 5,000,000 shares of preferred stock that may be issued from time to time by the Company's Board of Directors in one or more series;

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

establishment of a classified board of directors, divided into three classes, the members of which will serve for staggered terms.

Holders of Class B common stock are not entitled to receive dividends and will not be entitled to receive any distributions upon the liquidation, dissolution or winding up of the Company.

Shares of Class B common stock may only be issued to the extent necessary to maintain the one -to-one ratio between the number of LLC Interests held by the Continuing Equity Owners and the number of shares of Class B common stock held by the Continuing Equity Owners.

Shares of Class B common stock are transferable only together with an equal number of LLC Interests.

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

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

(ii) exchange all of the then existing membership interests of the Continuing Equity Owners for LLC Interests (iii) exchange all the then existing membership interest of the Class A Shoals Equity Owners for LLC Interests and (iv) appoint the Company as the sole managing member of Shoals Parent.

The Company has a majority economic interest in, is the sole managing member of, has the sole voting power in, and controls the management of Shoals Parent.

The amendment also requires that Shoals Parent, at all times, maintain (i) 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 and (ii) a one -to-one ratio between the number of shares of Class B common stock owned by the Continuing Equity Owners and the number of LLC Interests owned by the Continuing Equity Owners.

Acquisition of Former Shoals Equity Owners

On January 26, 2021, the Company acquired, by merger, an entity that was a member of Shoals Parent, or the Class A Shoals Equity Owners, for which the Company issued 81,977,751 shares of Class A common stock as merger consideration.

The only assets held by the Class A Shoals Equity Owners were 81,977,751 LLC Interests.

Upon consummation of the Merger, the Company recognized the LLC Interests at carrying value, as the Merger is considered to be a transaction between entities under common control.

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Non-Controlling Interests

On January 26, 2021, the Company used net proceeds from the IPO 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.

On July 16, 2021, the Company used new proceeds from the follow-on offering to purchase 10,402,056 LLC Interests from our founder and other LLC Interest holders of Shoals Parent.

On December 7, 2021, the Company exchanged 7,870,042 of Class A common stock for 7,870,042 LLC Interests and Class B common stock.

As of December 31, 2021, the Company owned 67.16 % of Shoals Parent.

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

Period from January 27, 2021 to December 31, 2021

Net income attributable to non-controlling interest $ 1,596

Transfers to non-controlling interests

Decrease as a result of the Organizational Transactions ( 88,644 )

Increase as a result of newly issued LLC Interests in IPO 70,976

Increase as a result of activity under stock compensation plan 3,618

Decrease from distributions to non-controlling interest ( 4,837 )

Increase from reallocation of non-controlling interest 7,240

Change from net income attributable to/from non-controlling interest and transfers to non-controlling interest $ ( 10,051 )

Issuance of Additional LLC Interests

Under the LLC Agreement, the Company is required to cause Shoals Parent to issue additional LLC Interests to the Company when the Company issues additional shares of Class A Common Stock.

Other than as it relates to the issuance of Class A Common Stock in connection with an equity incentive program, the Company must contribute to Shoals Parent net proceeds and property, if any, received by the Company with respect to the issuance of such additional shares of Class A Common Stock.

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 year ended December 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, 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.

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 Technologies Group, Inc.

Notes to Consolidated Financial Statements

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 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 year ended December 31, 2021, tax distributions to non-controlling LLC Interests holders was $ 4.8 million.

Other Distributions

Pursuant to the LLC Agreement, the Company has the right to determine when distributions will be made to LLC members and the amount of any such distributions.

If the Company authorizes a distribution, such distribution will be made to the members of the LLC (including the Company) pro rata in accordance with the percentages of their respective LLC units.

Commitments and Contingencies

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In the opinion of management and legal counsel, the amount of losses that may be sustained, if any, would not have a material effect on the financial position, results of operations or cash flows of the Company.

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

Shoals Parent LLC

Notes to Consolidated Financial Statements

As of December 31, 2021, the maximum potential payment obligation with regard to surety bonds was $ 21.8 million.

Employee Benefit Plan

The Company has a 401(k) retirement plan for substantially all of its employees based on certain eligibility requirements.

Effective January 1, 2021 the Company began making matching contributions to the plan and may also provide discretionary contributions to the plan at the discretion of management.

No such discretionary contributions have been made since inception of the plan.

For the year ended December 31, 2021, the Company made matching contributions totaling $ 0.2 million.

Future minimum lease payments under non-cancellable operating leases as of December 31, 2021 are as follows (in thousands):

For the Year Ended December 31, Total

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Rent expense for the year ended December 31, 2021 totaled $ 0.4 million.

Prior to 2021 rent expense was no t material to the consolidated financial statements.

Upon the completion of the IPO and Organizational Transactions, the Company is taxed as a subchapter C corporation for U.S.

federal and state income tax purposes.

The Company’s sole material asset is Shoals Parent, which is a limited liability company that is taxed as a partnership for US federal and certain state and local income tax purposes.

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.

The components of income before income taxes are as follows (in thousands):

December 31, 2021

Domestic $ 4,030

Income before income taxes $ 4,030

The components of income tax expense are as follows (in thousands):

December 31, 2021

Current income taxes:

Total current income taxes 631

Deferred income taxes:

State ( 1,873 )

Total deferred income taxes ( 1,476 )

Other tax expense 931

Income tax expense $ 86

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

The differences between income taxes expected at the U.S.

federal statutory income tax rate and the reported income tax expense are summarized as follows (in thousands):

December 31, 2021

federal income taxes at statutory rate $ 846

State and local income tax net of federal benefit ( 1,380 )

Permanent tax adjustments 342

Pre-IPO income ( 562 )

Non-controlling interest ( 342 )

Remeasurement of TRA 349

Remeasurement of deferred taxes ( 1,939 )

Research and development credit ( 77 )

Uncertain tax positions 789

Change in valuation allowance 1,983

Income tax expense $ 86

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 primary factors impacting the effective tax rate are the allocation of income taxes to the noncontrolling interest, remeasurement of deferreds due to tax rate changes, state taxes and changes in our valuation allowance.

The components of the deferred tax assets and liabilities are as follows (in thousands):

December 31, 2021

Investment in partnership $ 161,078

Tax receivable agreement 13,014

Net operating loss 3,772

Total deferred income taxes 178,941

Valuation allowance ( 1,983 )

Net deferred tax asset $ 176,958

As of December 31, 2021, the Company has $ 8.1 million and $ 32.2 million federal and state net operating loss carryforwards, respectively.

If not utilized, $ 8.1 million of the federal net operating loss can be carried forward indefinitely.

If not utilized, $ 0.8 million of the state net operating loss can be carried forward indefinitely and the remainder will expire between 2036-2041.

Quarterly, the Company considers whether it is more-likely-than-not that the deferred tax assets will be realized based available positive and negative evidence.

As of December 31, 2021, a valuation allowance of $ 2.0 million has been recorded to recognize only the portion of deferred tax asset that is more likely than not to be realized.

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Uncertain Tax Positions

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.

The effective tax rate and the tax basis of assets and liabilities reflect management’s estimates of the ultimate outcome of various tax uncertainties.

As of December 31, 2021, the Company has recorded $ 0.9 million of gross unrecognized tax benefits inclusive of interest and penalties, all of which, if recognized, would favorably impact the effective tax rate.

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.

The following table presents a reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties as follows (in thousands):

December 31, 2021

Beginning Balance $ —

Gross increases - tax positions in prior period 604

Gross decreases - tax positions in prior period —

Gross increases - tax positions in current period —

Lapse of statute of limitations —

Ending balance $ 604

We do not expect a significant change in our uncertain tax benefits in the next twelve months.

The Company files U.S.

federal and certain state income tax returns.

The income tax returns of the Company are generally subject to examination by U.S.

federal and state taxing authorities for years beginning after 2017.

Payable Pursuant to the Tax Receivable Agreement

The Company has a TRA with the TRA Owners that provides for the payment by the Company to the TRA Owners (or their permitted assignees) of 85 % of the amount of the benefits, if any, that the Company actually realizes or is deemed to realize as a result of (i) the Company’s allocable share of existing tax basis acquired in connection with the Organizational Transactions (including Blocker’s share of existing tax basis) and increases to such allocable share of existing tax basis, (ii) certain increases in the tax basis of assets of Shoals Parent and its subsidiaries resulting from purchases or exchanges of LLC Interests, and (iii) certain other tax benefits related to the Company entering into the TRA, including those attributable to payments made under the TRA.

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

The Company's payable pursuant to the TRA was determined on an undiscounted basis in accordance with ASC 450, Contingencies, since the contractual payment obligations were deemed to be probable and reasonably estimable.

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

For purposes of the TRA, the benefit deemed realized by the Company is 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 following table reflects the changes to the Company's payable pursuant to the tax receivable agreement (in thousands):

December 31, 2021

Beginning balance $ —

Additions to TRA:

IPO exchange of LLC Interests for Class A Common Stock from founder 27,759

Merger of Shoals investment CTB 14,418

Follow-on offering exchange of LLC Interests for Class A common stock 62,025

December exchange of LLC Interest for Class A common stock 50,509

Adjustment for change in estimated tax rate 1,663

Payments under TRA —

Less current portion under TRA —

Ending balance $ 156,374

The TRA further provides that, upon certain mergers, asset sales or other forms of business combinations or other changes of control, or if the Company materially breaches any of its material obligations under the TRA, 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 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.

When estimating the expected tax rate to use in order to determine the tax benefit expected to be recognized from the Company’s increased tax basis as a result of exchanges of LLC Interests by the TRA Owners, the Company continuously monitors changes in its overall tax posture, including changes resulting from new legislation and changes as a result of new jurisdictions in which the Company is subject to tax.

As of December 31, 2021, the Company recorded deferred tax assets of $ 184.0 million associated with basis differences in assets upon acquiring an interest in Shoals Parent and pursuant to making an election under Section 754 of the Internal Revenue Code of 1986 (the "Internal Revenue Code"), as amended.

These basis differences are included in the overall partnership basis differences disclosed in Note 14.

The aggregate payable pursuant to the tax receivable agreement represents 85 % of the tax benefits that the Company expects to receive in connection with the Section 754 election.

In accordance with the TRA, the next annual payment is anticipated on February 20, 2023, approximately 125 days after filing the federal tax return.

Revenue by Product

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Based on Topic 606 provisions, the Company disaggregates its revenue from contracts with customers between system solutions and components.

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Year Ended December 31,

2021 2020 2019

System solutions $ 155,818 $ 116,720 $ 74,207

1 unchanged sentence

Total revenue $ 213,212 $ 175,518 $ 144,496

Equity-Based Compensation

The Company accounts for equity grants to employees (Class C units) as equity-based compensation.

The Class C units contain vesting provisions as defined in the agreement.

Vested units do not forfeit upon termination and represent a residual interest in the Company.

Equity-based compensation cost is measured at the grant date fair value and is recognized on a straight-line basis over the requisite service period, including those units with graded vesting with a corresponding credit to members’ equity (deficit).

However, the amount of equity-based compensation at any date is at least equal to the portion of the grant date value of the award that is vested.

In May 2020, the Company issued 11,150,000 Class C units to certain employees of the Company of which approximately 77% were vested on the grant date.

The grant date fair value of the Class C units granted during 2020 was $0.74 per unit.

In November 2020, the Company modified and accelerated the remaining vesting on the unvested Class C units.

On January 26, 2021 as part of the Corporate Conversion the 11,150,000 Class C Units were converted into 9,986,025 LLC Interest in Shoals Parent.

For the year ended December 31, 2020 the Company recognized $8.3 million in equity-based compensation.

At December 31, 2020, the Company had no remaining unrecognized compensation costs related to Class C units.

There were no forfeitures during the year ended December 31, 2020.

Earnings per Unit

On January 28, 2021, our limited liability company agreement was amended and restated to, among other things, (i) provide for a new single class of common membership LLC Interest in Shoals Parent and (ii)

Shoals Parent LLC

Notes to Consolidated Financial Statements

exchange all of the existing membership interests of the Shoals Parent equity owners for LLC Interest.

See Note 14 - Subsequent Events.

For purposes of calculating earnings per unit, we have adjusted the number of outstanding membership units retroactively for all periods presented to give effect to the above-mentioned amendment and resulting recapitalization.

There were no potentially dilutive units outstanding during the periods presented.

The following table sets forth the computation of basic and diluted earnings per unit (in thousands, except per unit amounts):

Year Ended December 31,

2020 2019 2018

Net income $ 33,766 $ 25,143 $ 8,647

Basic and diluted

Weighted average units outstanding 160,279 160,279 160,279

Earnings per unit—basic and diluted $ 0.21 $ 0.16 $ 0.05

Related Party Transactions

2 unchanged sentences

During the period November 11, 2020 to December 31, 2020, the Company fulfilled the terms of the existing contracts with the customer which resulted in $ 0.3 million in revenue.

At December 31, 2020, the Company had outstanding accounts receivable totaling $3.0 million.

At December 31, 2020, the Company had outstanding accounts receivable totaling $ 3.0 million, which was collected in 2021.

For the year ended December 31, 2020, the Company recognized revenue with this customer of $ 16.6 million.

Special Distribution to Members – see Note 8

Related Party Note Payable - see Note 7

Subsequent Events

Amendment of Limited Liability Company Agreement

On January 26, 2021, our limited liability company agreement was amended and restated to, among other things, (i) provide for a new single class of common membership LLC Interest in Shoals Parent;

(ii) exchange all of the then existing membership interests of the original Shoals Parent members ("Original Shoals Equity Owners") for LLC Interest and (ii) appoint the Corporation as the sole managing member of Shoals Parent.

Subsequent to the amendment of our limited liability company agreement, 160,278,568 LLC Interest were outstanding.

Immediately following the IPO, the Corporation has a 56.14% ownership interest in Shoals Parent, is the sole managing member and has the sole voting power in and controls the management of Shoals Parent.

As a result, the Corporation will consolidate the financial results of Shoals Parent and report a non-controlling interest in its consolidated financial statements.

Shoals Parent LLC

Notes to Consolidated Financial Statements

by the Corporation and (ii) a one-to-one ratio between the number of shares of Class B common stock owned by the Continuing Equity Owners and the number of LLC Interest owned by the Continuing Equity Owners.

Capital Contribution

On January 29, 2021 the Corporation closed an initial public offering of 11,550,000 shares of its Class A common stock at a public offering price of $25.00 per share and received $278.8 million in proceeds, net of underwriting discounts and commissions.

On January 26, 2021, the Corporation made a capital contribution to Shoals Parent in the amount of $150.0 million in exchange for 6,315,790 LLC Interest.

Term Loan Facility

On January 26, 2021, we repaid $150.0 million outstanding under the Term Loan Facility using the proceeds we received from the capital contribution made by the Corporation.

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-K

Item 9A. Controls and Procedures