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Item 7. Management’s Discussion and Analysis

2023-02-28 compared with 2022-03-11 · 149 added, 191 removed, 191 unchanged (64% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and the related notes and other financial information included in this Annual Report on Form 10-K.

In addition to historical financial information, the following discussion and analysis contain forward-looking statements that involve risks, uncertainties and assumptions.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information included in this Annual Report on Form 10-K.

In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.

For this purpose, any statements contained in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements.

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Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under the sections of this Form 10-K captioned “Forward-Looking Statements” and “Risk Factors”.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contain the presentation of Adjusted EBITDA and Adjusted Net Income, which are not presented in accordance with GAAP.

Adjusted EBITDA and Adjusted Net Income are being presented because they provide the Company and readers of this Form 10-K with additional insight into our operational performance relative to earlier periods and relative to our competitors.

We do not intend Adjusted EBITDA and Adjusted Net Income to be substitutes for any GAAP financial information.

Readers of this Form 10-K should use Adjusted EBITDA and Adjusted Net Income only in conjunction with Net Income, the most comparable GAAP financial measure.

Reconciliations of Adjusted EBITDA and Adjusted Net Income to Net Income, the most comparable GAAP measure to each, are provided in “—Non-GAAP Financial Measures.”

We are a leading provider of electrical balance of system or “EBOS” solutions for solar energy projects in the United States.

Management’s discussion and analysis relating to the fiscal year ended December 31, 2021 and the applicable year-to-year comparisons to the fiscal year ended December 31, 2020 are not included in this Annual Report on Form 10-K but can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains the presentation of Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share, which are not presented in accordance with generally accepted accounting principles in the U.S.

Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share are being presented because they provide the Company, investors and readers of this Form 10-K with additional insight into our operational performance relative to earlier periods and relative to our competitors.

We do not intend Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share to be substitutes for any GAAP financial

Readers of this Form 10-K should use Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share only in conjunction with Net Income and Net Income Attributable to Shoals Technologies Group, Inc., the most closely comparable GAAP financial measure, as applicable.

Reconciliations of Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share, to the respective most closely comparable GAAP measure, as well as a calculation of Adjusted Diluted Weighted Average Shares Outstanding, are provided in “—Non-GAAP Financial Measures”.

We are a leading provider of EBOS solutions and components for solar, battery storage and electrical vehicle (“EV”) charging applications, selling to customers across the United States and internationally.

EBOS encompasses all of the components that are necessary to carry the electric current produced by solar panels to an inverter and ultimately to the power grid.

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We believe our system solutions are unique in our industry because they integrate design and engineering support, proprietary components and innovative installation methods into a single offering that would otherwise be challenging for a customer to obtain from a single provider or at all.

We sell our products principally to engineering, procurement and construction firms ("EPCs”) that build solar energy projects.

We sell our solar products principally to EPCs that build solar energy projects.

However, given the mission-critical nature of EBOS, the decision to use our products typically involves input from both the EPC and the owner of the solar energy project.

The custom nature of our system solutions and the long development cycle for solar energy projects typically gives us 12 months or more of lead time to quote, engineer, produce and ship each order we receive, and we do not stock large amounts of finished goods.

We derived approximately 73% of our revenue from the sale of system solutions for the year ended December 31, 2021.

For the same period, we derived substantially all of our revenue from customers in the U.S.

We had $299.0 million of backlog and awarded orders, backlog of $119.3 million represents signed purchase orders or contractual minimum purchase commitments with take-or-pay provisions and awarded orders of $179.7 million are orders we are in the process of documenting a contract but for which a contract has not yet been signed, as of December 31, 2021, representing a 94% and 10% increase relative to the same date last year and September 30, 2021, respectively.

We have maintained focus on our growth strategy throughout the fourth quarter, including developments in converting customers to our combine-as-you-go system and developing products for the rapidly growing electric vehicle charging infrastructure market.

We believe that eight of the top 10 solar EPCs as reported by Solar Power World Magazine use our combine-as-you-go system on a majority of their projects and we are currently in the process of transitioning an additional 11 EPCs and developers to our system.

Additionally, we are currently launching four new product families for the EV charging market.

The first is the power center which combines equipment needed to protect the charging equipment and transform voltage

levels from the electric utility to those needed on the respective site.

Throughout fiscal year 2022, we have maintained focus on our growth strategy, including converting customers to our combine-as-you-go system and developing products for the rapidly growing EV charging infrastructure market.

We believe that as of December 31, 2022, 14 of the top 15 solar EPCs as reported by Solar Power World Magazine use our combine-as-you-go system on their projects.

As of the date of this report, we are in the process of transitioning an additional 14 EPCs and developers to our system.

Additionally, in the fourth quarter of 2021, we introduced four new product families for the EV charging market and began taking orders and shipping some component products in the first quarter of 2022.

Order flow and deliveries of our EV system solution continued through the fourth quarter of 2022 with scaled production underway.

The first new product family is the power center which combines equipment needed to protect the charging equipment and transform voltage levels from the electric utility to those needed on the respective site.

The power center provides an efficient, cost effective and aesthetically focused option versus traditional methods.

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The quick connect bases dramatically reduce the time required on site for a deployment and reduce the amount of labor required in the field.

The third offering uses our Big Lead Assembly (“BLA”) technology in the EV space to connect multiple chargers to a single power center.

The third offering uses our BLA technology in the EV space to connect multiple chargers to a single power center.

This solution eliminates the need for homeruns from each dispenser and is above ground rated which allows wire to be run above ground rather than in underground conduit.

The fourth offering is a raceway system that protects the above ground EV BLAs in walk over and drive over applications.

The raceway system coupled with the EV BLA deploys much more rapidly and cost effectively than traditional methods of deployment.

We introduced these first four offerings in the fourth quarter of 2021 and received our first orders for deployments.

Testing and certification of the offerings and overall solution are underway and progressing.

Initial Public Offering

On January 29, 2021, we 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.

We 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

See Note 1 to the consolidated financial statements, included in this Annual Report on Form 10-K for more information about the above-mentioned transactions as well as the other transactions completed in connection with the IPO.

As the Organization Transactions were considered transactions between entities under common control, the consolidated financial statements for the periods prior to the IPO and Organizational Transactions have been adjusted to combine the previously separate entities for presentation purposes.

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 the selling shareholders and 10,402,086 shares of Class A common stock offered by the Company.

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

no longer beneficially owned any shares of our common stock.

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

Acquisition of ConnectPV

On August 26, 2021, we acquired 100% of the stock of ConnectPV, for $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 acquisition was accounted for as a business combination and following the acquisition we immediately converted ConnectPV to a limited liability company and contributed the entity to Shoals Parent, LLC through a series of transactions.

Exchange of LLC Interests in Shoals Parent

On December 7, 2021, the Company issued 7,870,042 shares of Class A common stock to our founder, executive management and certain employees in exchange for 7,870,042 LLC Interests in Shoals Parent and an equal number of Class B common stock of the Company.

Shoals Technologies Group, Inc Ownership in Shoals Parent

The raceway system coupled with the EV BLA deploys much more

rapidly and cost effectively than traditional methods of deployment.

All products launched in 2022 are certified to UL standards as of December 31, 2022.

We derived approximately 77.8% of our revenue from the sale of system solutions for the year ended December 31, 2022.

For the same period, we derived substantially all of our revenue from customers in the U.S.

As of December 31, 2022, we had $428.6 million of backlog and awarded orders.

Backlog of $168.9 million represents signed purchase orders or contractual minimum purchase commitments with take-or-pay provisions and awarded orders of $259.7 million are orders we are in the process of documenting a contract but for which a contract has not yet been signed.

As of December 31, 2022, backlog and awarded orders increased by 43% relative to December 31, 2021 and decreased by 9% relative to September 30, 2022.

Follow On Offering and Termination of Tax Receivable Agreement

On December 6, 2022, the Company completed a follow-on offering consisting of 27,900,000 shares of Class A common stock offered by the selling stockholders and 2,000,000 shares of Class A common stock offered by the Company.

Following the closing of the follow-on offering, our Founder and certain of his affiliates beneficially own approximately 16.9% of the shares of our Class A common stock, including LLC Interests and shares of Class B common stock on an as converted basis.

The Company used the proceeds of the sale of Class A common stock together with cash on hand, to make a payment of $58.0 million to terminate the Tax Receivable Agreement (“TRA”), as discussed in Note 17 of the consolidated financial statements.

Shoals Technologies Group, Inc.

Ownership in Shoals Parent

As of December 31, 2022, the Company owned 81.44% of Shoals Parent.

The Continuing Equity Owners owned the remaining 18.56% of Shoals Parent.

Impact of COVID-19

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, variants of COVID-19, including Delta and Omicron, continue to emerge, the impact of which 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 COVID-19 variants along with 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.

In 2021, COVID-19 impacted our business in the following ways:

• Our ability to obtain raw material and required components from domestic and international suppliers required to manufacture our products;

• Our ability to efficiently operate our facilities and meet customer obligations due to modified employee work patterns resulting from social distancing guidelines, absence due to illness and cautionary quarantines and/or government ordered closures, or due to labor shortages;

• Our ability to secure inbound and outbound logistics to and from our facilities, with additional delays linked to international border crossings and the associated approvals and documentation and;

• Limitations on the ability of our customers to conduct their business, and resulting impacts to our customers' purchasing patterns, from social distancing guidelines, absence due to illness or government ordered closures.

Many countries around the world have continued to impose quarantines and restrictions on travel and mass gatherings to slow the spread of the virus.

Accordingly, our ability to continue to operate our business may also be limited.

Such events may result in a period of business, supply and manufacturing disruptions, and in reduced operations, any of which could materially affect our business, financial condition and results of operations.

A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital, which could in the future negatively affect our liquidity.

In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.

We continue to monitor the impacts of COVID-19 on the global economy and on our business operations.

Although we expect the vaccinations for COVID-19 will continue to improve conditions, the ultimate impact from COVID-19 on our business operations and financial results will depend on, among other things, the ultimate severity and scope of the pandemic, including the new variants of the virus, the pace at which governmental and private travel restrictions and public concerns about public gatherings will ease, the rate at

which historically large increases in unemployment rates will decrease, if at all, and whether, and the speed with which, the economy recovers.

We are not able to fully quantify the impact that these factors will have on our business, but developments related to COVID-19 may materially affect financial condition and results of operations in future periods.

Trends and Uncertainties

In 2022, significant levels of inflation increased energy prices, freight premiums, and other operating costs, including wages.

These increases are expected to persist into 2023.

As a result of inflation, during 2022, the Federal Reserve increased interest rates resulting in higher interest rates associated with our Senior Secured Credit Agreement.

The Federal Reserve may continue raising interest rates, and any such additional increases will have a corresponding increase in the interest rates charged under our Senior Secured Credit Agreement.

The eventual implications of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital during our forecast period.

In 2022, in part as a consequence of the COVID-19 pandemic and other macroeconomic events, our ability to obtain raw materials from domestic and international suppliers required to manufacture our components and system solutions, as well as our ability to secure inbound logistics to and from our facilities, were impacted, with additional delays linked to international border crossings and the associated approvals and documentation.

The Company does not directly source raw materials from Europe.

However, the ongoing conflict in Ukraine has reduced the availability of certain material that can be sourced in Europe and, as a result, increased global logistics costs for the procurement of some inputs and materials used in our products.

We expect these trends to persist into 2023.

In addition, changes over the last few years in the international relations and tariff regimes between the U.S.

and China in response to various political issues and heightened uncertainty regarding China-Taiwan relations could significantly adversely impact the availability of parts and components to us, and, correspondingly, our ability to produce our components at targeted levels.

We are continuously monitoring the situation of our supply chain and evaluating our procurement strategy and supply chain to reduce any negative impact on our business, financial condition, and results of operations.

In response to supply chain constraints, in 2022 we increased certain raw materials inventory, partly to limit the potential impact of supply chain issues of raw materials in the near term.

For 2023, we anticipate continuing to carry increased inventories to mitigate these issues.

To date we have not had any material adverse effects on our financial results from the events and trends discussed above.

Key Components of Our Results of Operations

The following discussion describes certain line items in our consolidated statements of operations.

We generate revenue from the sale of EBOS systems and components for homerun and combine-as-you-go architectures.

Our customers include EPCs, utilities, solar developers, independent power producers and solar module manufacturers.

We derive the majority of our revenue from selling system solutions.

When we sell a system solution, we enter into a contract with our customers covering the price, specifications, delivery dates and warranty for the products being purchased, among other things.

Our contractual delivery period for system solutions can vary from one to three months whereas manufacturing typically requires a shorter time frame.

Contracts for system solutions can range in value from several hundred thousand to several million dollars.

Our revenue is affected by changes in the price, volume and mix of products purchased by our customers.

The price and volume of our products is driven by the demand for our products, changes in product mix between homerun and combine-as-you-go EBOS, geographic mix of our customers, strength of competitors’ product offerings, and availability of government incentives to the end-users of our products.

We generate revenue from the sale of EBOS systems and components for homerun and combine-as-you-go architectures, battery storage and EV charging infrastructure.

Our customers include EPCs, utilities, solar developers, independent power producers, solar module manufacturers and charge point operators.

We derive the majority of our revenue from selling solar system solutions.

When we sell a solar system solution, we enter into a contract with our customers covering the price, specifications, delivery dates and warranty for the products being purchased, among other things.

Our contractual delivery period for solar system solutions can vary from one to three months whereas manufacturing typically requires a shorter time frame.

Contracts for solar system solutions can range in value from several hundred thousand to several million dollars.

Our revenue is affected by changes in the price, volume and mix of solar system solutions and components purchased by our customers.

The price and volume of our system solutions and components is driven by the demand for our solar system solutions and components, changes in product mix between homerun and combine-as-you-go EBOS, geographic mix of our customers, strength of competitors’ product offerings, and availability of government incentives to the end-users of our products.

Our revenue growth is dependent on continued growth in the amount of solar energy projects constructed each year and our ability to increase our share of demand in the geographies where we currently compete and plan to compete in the future as well as our ability to continue to develop and commercialize new and innovative products that address the changing technology and performance requirements of our customers.

Cost of Revenue and Gross Profit

Cost of revenue consists primarily of product costs, including purchased materials and components, as well as costs related to shipping, customer support, product warranty, personnel and depreciation of manufacturing and testing equipment.

Cost of revenue consists primarily of system solutions and components costs, including purchased raw materials, as well as costs related to shipping, customer support, product warranty, personnel and depreciation of manufacturing and testing equipment.

Personnel costs in cost of revenue include both direct labor costs as well as costs attributable to any individuals whose activities relate to the transformation of raw materials or component parts into finished goods or the transportation of materials to the customer.

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Some of these costs, primarily indirect personnel and depreciation of manufacturing and testing equipment, are not directly affected by sales volume.

Gross profit may vary from year to year and is primarily affected by our sales volume, product prices, product costs, product mix, customer mix, geographical mix, shipping method, warranty costs and seasonality.

Gross profit may vary from year to year and is primarily affected by our sales volume, product prices, product costs, product mix, customer mix, geographical mix, shipping method and warranty costs.

Operating Expenses

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Personnel-related costs are the most significant component of our operating expenses and include salaries, equity-based compensation, benefits, payroll taxes and commissions.

The number of full-time employees in our general and administrative departments increased from 52 to 99 from December 31,

2020 to December 31, 2021, and we expect to hire new employees in the future to support our growth.

The number of full-time employees in our general and administrative departments increased from 99 to 115 from December 31, 2021 to December 31, 2022, and we expect to hire new employees in the future to support our growth.

The timing of these additional hires could materially affect our operating expenses in any particular period, both in absolute dollars and as a percentage of revenue.

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General and Administrative Expenses

General and administrative expenses consist primarily of salaries, equity-based compensation expense, employee benefits and payroll taxes related to our executives, and our sales, finance, human resources, information technology, engineering and legal organizations, travel expenses, facilities costs, marketing expenses, bad debt expense and fees for professional services.

Professional services consist of audit, legal, tax, insurance, information technology and other costs.

General and administrative expenses consist primarily of salaries, equity-based compensation expense, employee benefits and payroll taxes related to our executives, and our sales, finance, human resources, information technology, engineering and legal organizations, travel expenses, facilities costs, marketing expenses, insurance, bad debt expense and fees for professional services.

Professional services consist of audit, tax, accounting, legal, internal controls, information technology, investor relations and other costs.

We expect to increase our sales and marketing personnel as we expand into new geographic markets.

Substantially all of our sales in 2021 were in the U.S.

We currently have a sales presence in the U.S., Australia and Spain.

Substantially all of our sales are currently in the U.S.

We currently have a sales presence in the U.S., Australia, Europe and Latin America.

We intend to expand our sales presence and marketing efforts to additional countries in the future.

We also expect that as a result of our recent IPO, we will incur additional audit, tax, accounting, legal and other costs related to compliance with applicable securities and other regulations, as well as additional insurance, investor relations and other costs associated with being a public company.

Depreciation in our operating expenses consists of costs associated with property, plant and equipment (“PP&E”) not used in manufacturing our products.

We expect that as we increase both our revenue and the number of our general and administrative personnel, we will invest in additional PP&E to support our growth resulting in additional depreciation expense.

Amortization of intangibles consists of customer relationships, developed technology, trade names, backlog and non-compete agreements over their expected period of use.

Amortization of intangibles consists of amortization of customer relationships, developed technology, trade names, backlog and noncompete agreements over their expected period of use.

Non-operating Expenses

Interest Expense

Interest expense consists of interest and other charges paid in connection with our current Senior Secured Credit Agreement and our former Senior Debt which included a revolving line of credit and term loan, which was fully repaid on October 8, 2020.

Interest expense consists of interest and other charges paid in connection with our Senior Secured Credit Agreement.

Payable Pursuant to the Tax Receivable Agreement Adjustment

Tax receivable agreement adjustment consists of changes to our effective tax rate since the initial recording of the liability related to our tax receivable agreement with our Founder and former Class A Shoals Equity Owners of Shoals Parent.

TRA adjustment consists of changes to our tax rate since the initial recording of the liability related to our TRA.

Gain on Termination of Tax Receivable Agreement

Gain on termination of TRA is related to the early termination and settlement of the TRA, as discussed in Note 17 of the consolidated financial statements.

Loss on Debt Repayment

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Results of Operations

Set forth below is a comparison of the results of operations and changes in financial condition for the years ended December 31, 2022 and 2021.

The following table summarizes our results of operations (dollars in thousands):

Year Ended December 31, 2021 vs 2020 2020 vs 2019

2021 2020 2019 $ variance % variance $ variance % variance

Year Ended December 31, 2022 vs 2021

2022 2021 $ variance % variance

Revenue $ 326,940 $ 213,212 $ 113,728 53 %

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Payable pursuant to the tax receivable agreement adjustment (6,675) (1,663) (5,012) 301 %

Gain on termination of tax receivable agreement 110,883 — 110,883 100 %

Loss on debt repayment — (15,990) 15,990 (100) %

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$ 127,611 $ 2,348 $ 125,263 5,335 %

Years Ended December 31, 2021 and 2020

Revenue increased by $37.7 million, o r 21%, for the year ended December 31, 2021 as compared to the year ended December 31, 2020, driven by higher sales volumes as a result of increased demand for solar EBOS generally and our combine-as-you-go system solutions specifically.

Our total number of customers increased by 30 in 2021 as compared to 2020.

We believe customer recognition of the benefits of our combine-as-you-go system is resulting in increased demand for our products.

Comparison of the years ended December 31, 2022 and 2021

Revenue increased by $113.7 million, or 53%, for the year ended December 31, 2022 as compared to the year ended December 31, 2021, driven by higher sales volumes as a result of increased demand for solar EBOS generally and our combine-as-you-go system solutions specifically.

Our total number of customers increased in 2022 as compared to 2021.

We believe expanding customer recognition of the benefits of our combine-as-you-go system is continuing to result in increased demand for our products.

Cost of Revenue and Gross Profit

Cost of revenue increased by $21.6 million, o r 20%, for the year ended December 31, 2021 as compared to the year ended December 31, 2020, primarily driven by an increase in production volumes.

Gross profit as a percentage of revenue increased to 38.8% in 2021 from 37.9% in 2020 in part due to purchasing

efficiencies from increased volumes and changes in product mix.

Changes in product mix also contributed to the increase in margins as sales of system solutions for combine-as-you-go EBOS, which have higher margins than our other products, increased as a percentage of our total revenue.

Cost of revenue increased by $65.1 million, or 50%, for the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily driven by an increase in revenue.

Gross profit as a percentage of revenue increased from 38.8% in 2021 to 40.2% in 2022 due to a higher proportion of revenue generated from our combine-as-you-go system solutions, which carry higher margins than our other products, and increased leverage on fixed costs as a result of higher sales volumes.

Operating Expenses

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General and administrative expenses increased $18.0 million, or 48%, for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

The increase in general and administrative expenses was primarily the result of an increase in wages and related taxes of $3.6 million due to increased head counts to support our growth and public company costs, an increase in professional fees of $3.3 million related to being a public company, an increase of $2.8 million related to insurance and more specifically our directors and officers policy following our IPO, an increase of $2.3 million of acquisition related expenses for the ConnectPV acquisition, an increase of $2.1 million related to stock-based compensation and an increase of $0.6 million related to sales and marketing.

The increase in general and administrative expenses was primarily the result of an increase in wages and related taxes of $7.7 million due to increased employee headcount to support our growth and public company compliance, an increase in equity-based compensation of $4.0 million, a $2.9 million increase in professional fees, mainly related to accounting, legal, and recruiting services, an increase of $0.9 million related to travel and trade shows, and a $0.7 million increase in research and development expenses.

Depreciation and Amortization

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Interest Expense

Interest expense, net increased by $11.0 million or 315%, for the year ended December 31, 2021 as compared to the year ended December 31, 2020, due to increased borrowings under our Senior Secured Credit Agreement that we entered into on November 25, 2020.

We expect interest expense to increase in 2022 as a result of our higher average borrowings under the Senior Secured Credit Agreement (see description under “Debt Obligations”).

Interest expense, net increased by $4.0 million or 27%, for the year ended December 31, 2022 as compared to the year ended December 31, 2021, due to increased borrowings and borrowing rates.

During 2022, the Federal Reserve increased interest rates resulting in higher interest rates associated with our Senior Secured Credit Agreement.

Any additional increases in interest rates by the Federal Reserve would have a corresponding increase in the interest rates charged under our Senior Secured Credit Agreement.

Payable Pursuant to the Tax Receivable Agreement Adjustment

Payable pursuant to the tax receivable agreement adjustment totaled $1.7 million for the year ended December 31, 2021.

The adjustment resulted from an estimated increase in the Company’s blended state income tax rate.

Payable pursuant to the TRA adjustment increased $5.0 million or 301% for the year ended December 31, 2022 as compared to the year ended December 31, 2021, due to changes in our state tax rate in the current period, as compared to the prior year and a larger deferred tax asset.

Gain on Termination of Tax Receivable Agreement

Gain on termination of TRA for the year ended December 31, 2022 totaled $110.9 million, which is equal to the difference between the carrying value of the payable pursuant to the TRA recorded as of the TRA amendment date, net of related fees.

There was no gain on termination of TRA for the year ended December 31, 2021.

Loss on Debt Repayment

Loss on debt repayment for the year ended December 31, 2021 consists of $11.3 million of prepayment premium and $4.7 million in write-off of a portion of the deferred financing costs related to a prepayment of $150.0 million of outstanding borrowings under the Term Loan Facility.

There was no loss on debt repayment for the year ended December 31, 2022.

Loss on debt repayment for the year ended December 31, 2021 totaled $16.0 million which consisted of $11.3 million of prepayment premium and $4.7 million in write-off of a portion of the deferred financing costs related to a prepayment of $150.0 million of outstanding borrowings under the Term Loan Facility.

Income Tax Expense

Income tax expense totaled $0.1 million for the year ended December 31, 2021.

The Company did not incur income tax expense prior to the Organizational Transactions, or during the year ended December 31, 2020.

Our effective income tax rate was 2.1% for the year ended December 31, 2021.

Years Ended December 31, 2020 and 2019

Revenue increased by $31.0 million, or 21%, for the year ended December 31, 2020 as compared to the year ended December 31, 2019, driven by higher sales volumes as a result of increased demand for solar

EBOS generally and our combine-as-you-go system solutions specifically.

Our total number of customers increased by 43 in 2020 as compared to 2019.

We believe customer recognition of the benefits of our combine-as-you-go system is resulting in increased demand for our products.

Cost of Revenue and Gross Profit

Cost of revenue increased by $8.7 million, or 9%, for the year ended December 31, 2020 as compared to the year ended December 31, 2019, primarily driven by an increase in production volumes.

Gross profit as a percentage of revenue increased from 30.6% in 2019 to 37.9% in 2020 in part due to purchasing efficiencies from increased volumes, improved material planning which reduced logistics costs, enhancements to product design that lowered manufacturing costs and other manufacturing efficiencies resulting from higher production volumes.

Our gross profit was negatively impacted in the year ended December 31, 2020 as a result of certain COVID-19 related costs totaling $2.6 million.

Operating Expenses

General and Administrative

General and administrative expenses increased $11.9 million, or 132%, for the year ended December 31, 2020 as compared to the year ended December 31, 2019.

The increase in general and administrative expenses was primarily the result of $8.3 million in equity-based compensation related to Class C units issued, an increase in professional fees of $1.5 million related to preparation for our IPO, wages and related taxes of $1.8 million related to increased head counts and year-end bonuses, insurance expense of $0.2 million, franchise and other related taxes of $0.2 million and certain COVID-19 related costs of $0.3 million, offset by a decrease in travel and trade shows of $0.7 million as a result of COVID-19.

Depreciation and Amortization

Depreciation and amortization expense increased by $0.1 million, or 1%, for the year ended December 31, 2020 as compared to the year ended December 31, 2019, due to the addition of machines and equipment to increase production.

Interest Expense

Interest expense, net increased by $1.7 million or 96%, for the year ended December 31, 2020 as compared to the year ended December 31, 2019, due to increased borrowings under our Senior Secured Credit Agreement that we entered into on November 25, 2020.

We expect interest expense to increase in 2022 as a result of our higher average borrowings under the Senior Secured Credit Facility (see description under “Debt Obligations”).

The $150 million prepayment we made on the Term Loan Facility in January 2021 resulted in us recording a $16.0 million loss on debt repayment in the first quarter of 2021 as a result of the write-off of financing costs and the prepayment premium.

Income tax expense was $9.0 million for the year ended December 31, 2022 as compared to an income tax expense of $0.1 million for the year ended December 31, 2021.

Our effective income tax rate for the year ended December 31, 2022 and 2021 was 5.9% and 2.1%, respectively.

The 2022 and 2021 rate was impacted by a change in our effective income tax rate resulting from changes in our state nexus footprint offset with deferred tax expense related to the termination of the TRA..

Non-GAAP Financial Measures

Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share (“EPS”)

We define Adjusted EBITDA as net income (loss) plus (i) interest expense, net, (ii) income tax expense, (iii) depreciation expense, (iv) amortization of intangibles, (v) payable pursuant to the tax receivable agreement adjustment, (vi) loss on debt repayment, (vii) equity-based compensation, (viii) acquisition-related expenses, (ix) COVID-19 expenses and (x) non-recurring and other expenses.

We define Adjusted Net Income as net income (loss) plus (i) amortization of intangibles, (ii) payable pursuant to the tax receivable agreement

adjustment, (iii) loss on debt repayment, (iv) amortization of deferred financing costs, (v) equity-based compensation, (vi) acquisition-related expenses, (vii) COVID-19 expenses and (viii) non-recurring and other expenses, all net of applicable income taxes.

We define Adjusted Diluted EPS as Adjusted Net Income divided by the diluted weighted average shares of Class A common shares outstanding for the applicable period, which assumes the pro forma exchange of all outstanding Class B common shares for Class A common shares.

We define Adjusted EBITDA as net income (loss) plus (i) interest expense, net, (ii) income tax expense, (iii) depreciation expense, (iv) amortization of intangibles, (v) payable pursuant to the TRA adjustment, (vi) gain on termination of TRA, (vii) loss on debt repayment, (viii) equity-based compensation, (ix) acquisition-related

expenses, (x) COVID-19 expenses and (xi) non-recurring and other expenses.

We define Adjusted Net Income as net income (loss) attributable to Shoals Technologies Group, Inc.

plus (i) net income impact from assumed exchange of Class B common stock to Class A common stock as of the beginning of the earliest period presented, (ii) amortization of intangibles, (iii) amortization of deferred financing costs, (iv) payable pursuant to the TRA adjustment, (v) gain on termination of TRA, (vi) loss on debt repayment, (vii) equity-based compensation, (viii) acquisition-related expenses, (ix) COVID-19 expenses and (x) non-recurring and other expenses, all net of applicable income taxes.

We define Adjusted Diluted EPS as Adjusted Net Income divided by the diluted weighted average shares of Class A common stock outstanding for the applicable period, which assumes the exchange of all outstanding Class B common stock for Class A common stock as of the beginning of the earliest period presented.

Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS are intended as supplemental measures of performance that are neither required by, nor presented in accordance with, GAAP.

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Payable pursuant to the TRA adjustment (a)

6,675 1,663 —

Gain on termination of TRA (110,883) — —

Loss on debt repayment — 15,990 —

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Adjusted EBITDA $ 92,989 $ 62,857 $ 60,899

(a) Represents an adjustment to eliminate the remeasurement of the payable pursuant to the TRA.

(b) Represents costs incurred as a direct impact from the COVID-19 pandemic, disinfecting and reconfiguration of facilities, medical professionals to conduct daily screenings of employees, premium pay during the pandemic to hourly workers in 2020 and direct legal costs associated with the pandemic.

(a) Represents an adjustment to eliminate the adjustment of the payable pursuant to the TRA.

(b) Represents costs incurred as a direct impact from the COVID-19 pandemic, disinfecting and reconfiguration of facilities, medical professionals to conduct daily screenings of employees and direct legal costs associated with the pandemic.

(c) Represents certain costs associated with non-recurring professional services, our prior private equity owners’ expenses and other costs.

Reconciliation of Net Income Attributable to Shoals Technologies Group, Inc.

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$ 127,611 $ 2,348 $ 33,766

Net income impact from pro forma conversion of Class B common stock to Class A common stock (a)

Net income impact from assumed exchange of Class B common stock to Class A common stock (a)

15,402 1,596 —

Adjustment to the provision for income tax (b)

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Payable pursuant to the TRA adjustment (c)

6,675 1,663 —

Gain on termination of TRA (110,883) — —

Loss on debt repayment — 15,990 —

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Adjusted Net Income $ 62,403 $ 35,914 $ 45,889

(a) Reflects net income to Class A common shares from pro forma exchange of corresponding shares of our Class B common shares held by our Founder and management.

(a) Reflects net income to Class A common stock from assumed exchange of corresponding shares of our Class B common stock held by our Founder and management.

(b) Shoals Technologies Group, Inc.

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State and local taxes (net of federal benefit) 3.0 % 6.4 % 0.7 %

Permanent items 1.2 % — % — %

Permanent adjustments 0.2 % 1.2 % — %

Effective income tax rate for Adjusted Net Income 24.2 % 28.6 % 21.7 %

(d) Represents costs incurred as a direct impact from the COVID-19 pandemic, disinfecting and reconfiguration of facilities, medical professionals to conduct daily screenings of employees, premium pay during the pandemic to hourly workers in 2020 and direct legal costs associated with the pandemic.

(e) Represents certain costs associated with non-recurring professional services, Oaktree’s expenses and other costs.

(d) Represents costs incurred as a direct impact from the COVID-19 pandemic, disinfecting and reconfiguration of facilities, medical professionals to conduct daily screenings of employees and direct legal costs associated with the pandemic.

(e) Represents certain costs associated with non-recurring professional services, our prior private equity owners’ expenses and other costs.

(f) Represents the estimated tax impact of all Adjusted Net Income add-backs, excluding those which represent permanent differences between book versus tax.

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2022 2021 2020

Diluted weighted average shares of Class A common shares outstanding, excluding Class B common shares 99,507 N/A (b)

Assumed pro forma conversion of Class B common shares to Class A common shares 67,429 N/A (b)

Diluted weighted average shares of Class A common stock outstanding, excluding Class B common stock 114,803 99,507 N/A (b)

Assumed exchange of Class B common stock to Class A common stock 52,828 67,429 N/A (b)

Adjusted diluted weighted average shares outstanding 167,631 166,936 N/A (b)

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Net cash provided by (used in) operating activities

$ 39,455 $ (4,083) $ 54,082

Net cash used in investing activities

(3,657) (17,035) (3,236)

Net cash provided by (used in) financing activities

(36,589) 20,602 (47,855)

Net increase (decrease) in cash, cash equivalents and restricted cash

$ (791) $ (516) $ 2,991

We finance our operations primarily with operating cash flows and short and long-term borrowings.

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Based on our past performance and current expectations, we believe that operating cash flows and availability under our Revolving Credit Facility will be sufficient to meet our near and long-term future cash needs.

The Company (used) generated cash from operating activities of $(4.1) million, $54.1 million and $36.2 million in the years ended December 31, 2021, 2020 and 2019, respectively.

We (used) generated cash from operating activities of $39.5 million, $(4.1) million and $54.1 million in the years ended December 31, 2022, 2021 and 2020, respectively.

As of December 31, 2022, our cash and cash equivalents were $8.8 million and we had outstanding borrowings of $243.3 million.

We also had $44.9 available for additional borrowings under our $100.0 Revolving Credit Facility.

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

We also had $102.0 million available for additional borrowings under our $150.0 million Revolving Credit Facility.

Operating Activities

For the year ended December 31, 2021, cash used in operating activities was $4.1 million, primarily due to an increase of $8.9 million in receivables which mainly relate to unbilled accounts receivables resulting from increased revenues during December 2021 as compared to December 2020 and the timing of our billings, $17.2 million in inventory as a result of increasing our raw materials inventory to support growth and reduce the likelihood of supply chain issues from our suppliers of raw materials, a decrease in accounts payable and accrued expenses of $8.4 million, offset with operating results that included $3.9 million of net income which was reduced by $26.1 million, net of non-cash expenses.

For the year ended December 31, 2020, cash provided by operating activities was $54.1 million, primarily due to operating results that included $33.8 million of net income.

An increase of $6.5 million in inventories, $1.0 million in receivables was offset by an increase in accounts payable and accrued expenses of $9.0 million.

For the year ended December 31, 2019, cash provided by operating activities was $36.2 million, primarily due to operating results that included $25.1 million of net income.

An increase of $0.7 million in inventories and $1.8 million in receivables was partially offset by an increase of $3.9 million of accounts payable and accrued expenses.

For the year ended December 31, 2022, cash provided by operating activities was $39.5 million, primarily due to operating results that included $143.0 million of net income, which included $65.6 million of non-cash income, an increase of $21.4 million in deferred revenue, and an increase of $10.7 million in accrued expenses and other.

These cash inflows were partially offset by an increase in inventory of $36.9 million as a result of increasing our raw materials inventory to support growth and reduce the likelihood of supply chain issues from our raw materials suppliers, an increase of $22.4 million in accounts receivable and unbilled receivables, which is primarily driven by an increase in revenues, and a decrease of $11.0 million in accounts payable.

Investing Activities

For the year ended December 31, 2021, net cash used in investing activities was $17.0 million, attributable to $4.1 million for the purchase of property and equipment and $12.9 million for the acquisition of ConnectPV.

For the year ended December 31, 2020, net cash used in investing activities was $3.2 million, attributable to the purchase of property and equipment.

For the year ended December 31, 2019, net cash used in investing activities was $1.7 million, attributable to the purchase of property and equipment.

For the year ended December 31, 2022, net cash used in investing activities was $3.7 million, of which $3.2 million was attributable to the purchase of property and equipment.

Financing Activities

For the year ended December 31, 2021, net cash used in financing activities was $20.6 million, including $144.8 million of net proceeds from the IPO and $35.1 million in net borrowings under the Revolving Credit Facility, offset by $152.8 million of payments on the Term Loan Facility and $4.8 million in tax distributions to minority shareholders as required under the Shoals Parent LLC agreement.

For the year ended December 31, 2020, net cash used in financing activities was $47.9 million, including $26.3 million of payments on senior debt, a $355.8 million special distribution to members and $20.2 million in tax distributions to members, partially offset by borrowings of $370.0 million under the Senior Secured Credit Agreement, net of $11.8 million in debt discount and financing costs.

For the year ended December 31, 2019, net cash used in financing activities was $27.5 million, of which $16.0 million was payments on senior debt and $14.0 million was tax distributions to members, which was partially offset by $2.5 million of borrowings of the revolving line of credit.

For the year ended December 31, 2022, net cash used in financing activities was $36.6 million, primarily due to $58.0 million paid to terminate the TRA, as discussed in Note 17 of the consolidated financial statements, plus related fees of $1.9 million, $2.0 million in payments on the Term Loan, $7.1 million in net payments on the Revolving Credit Facility, $7.8 million in distributions to our non-controlling interest holders, $1.5 million of offering costs, and $1.3 million in taxes related to net share settled equity awards.

These cash outflows are partially offset by $42.9 million received in connection with the issuance of Class A common stock sold in follow-on offering, net of underwriting discounts and commissions.

Debt Obligations

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As of December 31, 2022, the maximum potential payment obligation with regard to surety bonds was $8.7 million.

Critical Accounting Policies and Significant Management Estimates

We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the U.S.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with GAAP.

The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures.

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Revenue Recognition

We recognize revenue from the sale of EBOS systems and components.

We determine our revenue recognition through the following steps:

(i) identification of the contract or contracts with a customer, (ii) identification of the performance obligations within the contract, (iii) determination of the transaction price, (iv) allocation of the transaction price to the performance obligations within the contract, and (v) recognition of revenue as the performance obligation has been satisfied.

Our contracts with customers are predominately accounted for as one performance obligation, as the majority of the obligations under the contracts relate to single projects.

For each contract entered into, we determine the transaction price based on the consideration expected to be received.

The transaction price identified is allocated to each distinct performance obligation to deliver a good or service based on the relative standalone selling prices.

We believe that the prices negotiated with each individual customer are representative of the stand-alone selling price of the product.

We recognize revenue over time as a result of the continuous transfer of control of our 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 us.

The accounting for each contract involves a process of estimating total sales, costs, and profit for each performance obligation.

We primarily recognize revenue over time as a result of the continuous transfer of control of our 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 right to payment of the transaction price associated with work performed to date on products that do not have an alternative use.

We believe that recognizing revenue using the output method based on units manufactured best depicts the extent of transfer of control to the customer.

If revenue were recognized at a point in time rather than over time, then for the year ended December 31, 2022, net income would have been $0.8 million lower, and EPS - basic and diluted would remain unchanged.

In certain instances the promised goods do have an alternative use.

In these instances we recognize revenue when the customer obtains control of the product.

Contracts of this nature typically include customer acceptance clauses, which results in revenue recognition occurring upon customer acceptance.

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

The accounting for each contract involves a judgmental process of estimating total sales, costs, and profit for each performance obligation.

Cost of revenue is recognized based on the unit of production.

The amount reported as revenue is determined by adding a proportionate amount of the estimated profit to the amount reported as cost of revenue.

We believe that recognizing revenue using the output method based on units manufactured best depicts the extent of transfer of control to the customer.

Certain contracts contain retainage provisions.

Retainage represents a contract asset for the portion of the contract price earned by us for work performed but held for payment by the customer as a form of security until we reach specified milestones.

We typically bill retainage amounts as work is performed.

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

We had outstanding retainage billings of $4.8 million and $2.8 million as of December 31, 2021 and 2020, respectively.

We have 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.

Payable Pursuant to the Tax Receivable Agreement

As discussed in Note 17 to the consolidated financial statements, we were party to a TRA , dated January 29, 2021, under which we were contractually committed to pay the TRA Owners 85% of the amount of the tax benefits, if any, that we were deemed to realize, as a result of certain transactions.

Amounts payable under the TRA were contingent upon, among other things, (i) generation of future taxable income over the term of the TRA and (ii) future changes in tax laws.

On November 29, 2022, the Company entered into an amendment to the TRA (the “TRA Amendment”), pursuant to which the parties thereto agreed to grant the Company a right to terminate the TRA until December 31, 2022 (the “TRA Termination Right”) in exchange for a termination consideration of $58.0 million payable in cash (the “TRA Termination Consideration”).

The Company exercised its TRA Termination Right, and the TRA was terminated on December 6, 2022.

As of the TRA Amendment date, we concluded it was probable that the expected payments related to the payable pursuant to the TRA had changed.

As a result of this change, the Company remeasured the payable pursuant to the TRA to $58.0 million.

We analyzed the relevant accounting guidance and considered the nature of the TRA termination and the involved parties in order to determine if the transaction should be recorded as a gain in the Consolidated Statement of Operations or as a stockholder contribution.

Ultimately, we determined that, despite the involvement of the Founder, the transaction was performed at arm's length, both parties received the same payment based upon ownership percentage, and therefore, the gain should be recorded in the Consolidated Statement of Operations as of the TRA Amendment date.

If the transaction had been accounted for as a stockholder contribution rather than a gain in the Consolidated Statement of Operations, then for the year ended December 31, 2022 net income would have been $110.9 million lower, EPS - basic would have decreased by $0.96 and EPS - diluted would have decreased by $0.70.

Equity-Based Compensation

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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.

The determination of the fair value of equity awards issued to employees of the Company is based upon the closing market price of the Company's common stock on the day prior to the grant date.

Equity-based compensation expense related to performance stock units is recognized if it is probable that the performance conditions will be satisfied.

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.

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.

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.

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.

Inventory Valuation

Inventories consist of raw materials.

Inventories are stated at the lower of cost or net realizable value.

Cost is calculated using the weighted average cost method.

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

We record valuation allowances against our deferred tax assets when it is more likely than not that all or a portion of a deferred tax asset will not be realized.

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In projecting future taxable income, we consider our historical results and incorporate certain assumptions, including revenue growth and operating margins, among others.

As of December 31, 2021, we had $177.0 million of deferred tax assets, net of valuation allowances of $2.0 million.

As of December 31, 2022, we had $291.6 million of deferred tax assets, and no valuation allowance.

We expect to realize future tax benefits related to the utilization of these assets.

If we determine in the future that we will not be able to fully utilize all or part of these deferred tax assets, we would record a valuation allowance through earnings in the

period the determination was made, which would have an adverse effect on our results of operations and earnings in future periods.

Payable Pursuant to the Tax Receivable Agreement

As described in Note 15 to the consolidated financial statements, we are a party to the TRA under which we are contractually committed to pay the TRA Owners 85% of the amount of the benefits, if any, that we are deemed to realize, as a result of certain transactions.

Amounts payable under the TRA are contingent upon, among other things, (i) generation of future taxable income over the term of the TRA and (ii) future changes in tax laws.

If we do not generate sufficient taxable income in the aggregate over the term of the TRA to utilize the tax benefits, then we generally would not be required to make the related TRA payments.

Therefore, we will only recognize a liability for TRA payments if we determine it is probable that we will generate sufficient future taxable income over the term of the TRA to utilize the related tax benefits.

Estimating future taxable income is inherently uncertain and requires judgment.

In projecting future taxable income, we consider our historical results and incorporate certain assumptions, including revenue growth, and operating margins, among others.

As of December 31, 2021, we recognized $156.4 million of liabilities relating to our obligations under the TRA, after concluding that it was probable that we would have sufficient future taxable income to utilize the related tax benefits.

There were no transactions subject to the TRA for which we did not recognize the related liability, as we concluded that we would have sufficient future taxable income to utilize all of the related tax benefits generated by all transactions that occurred in connection with the IPO.

If we determine in the future that we will not be able to fully utilize all or part of the related tax benefits, we would de-recognize the portion of the liability related to the benefits not expected to be utilized.

Additionally, we estimate the amount of TRA payments expected to be paid within the next 12 months and classify this amount as current on our consolidated balance sheet.

This determination is based on our estimate of taxable income for the next fiscal year.

To the extent our estimate differs from actual results, we may be required to reclassify portions of our liabilities under the TRA between current and non-current.

If we determine in the future that we will not be able to fully utilize all or part of these deferred tax assets, we would record a valuation allowance through earnings in the period the determination was made, which would have an adverse effect on our results of operations and earnings in future periods.

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 7. Management’s Discussion and Analysis