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Item 1. Business

2024-02-28 compared with 2023-02-28 · 71 added, 61 removed, 209 unchanged (39% of the section changed)

Shoals Technologies Group, Inc.

is a Delaware corporation with Class A common stock that trades on the Nasdaq Global Market under the symbol “SHLS”.

is a Delaware corporation.

Unless the context otherwise requires, references to “we,” “us,” “our,” “Shoals,” the “Corporation,” the “Company” and other similar references refer to Shoals Technologies Group, Inc.

and, unless otherwise stated, all of its subsidiaries, including Shoals Parent LLC (“Shoals Parent”).

Unless the context otherwise requires, references to “Founder” refer to Dean Solon, our founder, and references to “Continuing Equity Owners” refer collectively to direct or indirect holders of LLC Interests (as defined below) and/or our Class B common stock, including our Founder and certain current and former executive officers, employees and their respective permitted transferees who may, exchange at each of their respective options, in whole or in part from time to time, their LLC Interests (along with an equal number of shares of Class B common stock (and such shares shall be immediately cancelled)) for cash or newly issued shares of our Class A common stock.

Initial Public Offering and Organizational Transactions

On January 29, 2021, the Company completed an initial public offering (“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 (“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 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;

• 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”).

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 own the remaining 18.56% of Shoals Parent.

Shoals is a leading provider of electrical balance of system (“EBOS”) solutions and components for solar, battery storage and electric vehicle (“EV”) charging applications, selling to customers primarily in the

United States (“U.S.”) as well as internationally.

and, unless otherwise stated, all of its consolidated subsidiaries.

As more fully described below, during 2023, the Company simplified its corporate structure by, among other things, eliminating the umbrella-partnership C corporation structure (“Up-C structure”) that was in place since its initial public offering (“IPO”).

The Company completed its IPO on January 29, 2021, and since then, its Class A common stock trades on the Nasdaq Global Market under the symbol “SHLS.”

Elimination of Up-C Structure and Entity Simplification

In the first quarter of 2023, following a secondary offering of shares of Class A common stock by certain selling shareholders, all the holders of limited liability interests of Shoals Parent LLC (“LLC Interests”), our former operating subsidiary, exchanged all the LLC Interests and corresponding shares of Class B common stock of the Company beneficially owned by them into shares of Class A common stock of the Company.

As a result, upon effectiveness of such exchanges, all of the LLC Interests in Shoals Parent LLC were held by the Company, no other holders owned LLC Interests and no Class B common stock was or is outstanding.

On July 1, 2023, the Company contributed 100% of its LLC Interests to Shoals Intermediate Parent, Inc.

(“Shoals Intermediate Parent”), a wholly-owned subsidiary of the Company.

Following the contribution, Shoals Parent LLC became a disregarded single member limited liability company, eliminating the Company’s Up-C structure.

Following the elimination of the Up-C structure, effective December 31, 2023, the Company consummated an internal reorganization transaction whereby certain of the Company’s wholly-owned subsidiaries merged with and into other subsidiaries.

As part of this reorganization, Shoals Parent LLC merged with and into Shoals Intermediate Parent, with Shoals Intermediate Parent as the surviving corporation.

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.

EBOS components are mission-critical products that have a high consequence of failure, including lost revenue, equipment damage, fire damage, and even serious injury or death.

As a result, we believe customers prioritize reliability and safety over price when selecting EBOS solutions.

EBOS components that we produce include cable assemblies, inline fuses, combiners, disconnects, recombiners, wireless monitoring systems, junction boxes, transition enclosures and splice boxes.

As a result, we generally believe customers prioritize reliability and safety over price when selecting EBOS solutions.

EBOS components that we produce include cable assemblies, inline fuses, combiners, disconnects, recombiners, wireless monitoring systems, junction boxes, transition enclosures, splice boxes and battery energy storage systems (“BESS”) cabinets.

We derive the majority of our revenue from selling “system solutions” which are complete EBOS systems that include several of our components, many of which are customized for the customer’s project.

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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.

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.

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

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.

Throughout fiscal year 2023, we have maintained focus on our growth strategy and continued strengthening our leadership position in the industry.

We believe that as of December 31, 2023, we have worked with 13 of the top 15 solar EPCs, per Wood Mackenzie data from 2019-2023, and 11 of those EPCs used our combine-as-you-go system on their projects.

We derived approximately 81.5% of our revenue from the sale of system solutions for year ended December 31, 2023.

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Backlog of $205.8 million represents signed purchase orders or contractual minimum purchase commitments with take-or-pay provisions and awarded orders of $425.5 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, 2023, we believe approximately $205.8 million of backlog and $250.0 million of awarded orders have delivery dates in 2024.

The remaining $175.5 million have planned delivery dates beyond 2024.

Additionally, we believe more than 13% of our December 31, 2023 backlog and awarded orders relate to international projects.

As of December 31, 2023, backlog and awarded orders increased by 47% relative to December 31, 2022 and decreased by 0.3% relative to September 30, 2023.

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the bare end must be inserted the correct depth into a terminal;

and special tools must be used to deform metal sleeves

and torque lock nuts to ensure an environmental seal.

and special tools must be used to deform metal sleeves and torque lock nuts to ensure an environmental seal.

The entire installation must be performed by licensed electricians with special training and any mistake in the process can result in a catastrophic system failure.

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Our BLA is hung from the mounting system used for the solar panels, enabling above ground installation.

Above ground installation is less costly and far faster than burying wire in conduits.

Above ground installation is less costly and far faster than burying

wire in conduits.

Future maintenance is also significantly easier and less costly because our BLA is easily accessible if repairs are required.

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Combining multiple strings together at each row reduces the number of wire runs that have to be made to combiner boxes as well as the number of connections that have to be made in each combiner box which reduces either the total number of combiner boxes or the size of combiner boxes required for the system.

Using push connectors allows a large portion of the EBOS installation to be completed by laborers rather than requiring licensed electricians.

Using push connectors allows a large portion of the EBOS installation to be completed by general laborers rather than requiring licensed electricians.

Our homerun EBOS system solutions typically include our interconnect harness, combiners and jumpers.

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eMobility solutions:

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 offering within the eMobility 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.

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

Order flow and deliveries of our EV system solution continued through 2023 with scaled production underway.

The first offering within the eMobility 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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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.

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

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.

Solar operations and maintenance (“O&M”) offerings:

During the third quarter of 2023, we introduced our first solar O&M product offering called Snapshot IV.

This solution monitors the specific voltage and current of individual solar panels and compares the results against manufacturer’s claimed/projected performance.

This information will provide O&M teams and owners with a more advanced level of detail than other competing alternatives, with respect to the panel’s performance.

We derived approximately 81.5% of our revenue for the year ended December 31, 2023 from the sale of system solutions.

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enclosures that provide power conversion and protection for EV power systems.

BESS cabinets:

enclosures which contain batteries for utility scale BESS or EV charging sites which require BESS.

We derived approximately 18.5% of our revenue for the year ended December 31, 2023, from the sale of components.

Sales and Marketing Strategy

Our sales and marketing strategy is to build product awareness and foster long-term relationships with all key stakeholders that are involved in the lifecycle of a PV, battery energy store system, or eMobility project.

Our sales and marketing strategy is to build product awareness and foster long-term relationships with all key stakeholders that are involved in the lifecycle of a PV, BESS, eMobility, or O&M project.

We educate these stakeholders on the value proposition of our solutions which lower installation costs, provide greater reliability, and lower maintenance costs through a variety of marketing strategies which include direct marketing campaigns, white papers, independent third-party studies, training seminars, and participating in industry conferences and events.

We sell components and system solutions both on a project-to-project basis or through master supply agreements that support a portfolio of projects.

Our sales process is a highly consultative approach that involves working with developers, engineers, EPC’s, subcontractors, and operations and maintenance firms.

Our sales process is a highly consultative approach that involves working with developers, engineers, EPC’s, subcontractors, and O&M firms.

We work collaboratively to understand the complexities and goals of each project with all stakeholders involved to ensure continuity throughout the decision-making process.

This involves us collaborating on site design, product selection, value engineering and optimization.

Our project management team supports the process after a sale is completed with providing the customer submittals for approval, real-time shipping information, and assist with any additional items that may be needed to complete the installation and commissioning.

Our project management team supports the process after a sale is completed by providing the customer submittals for approval, real-time shipping information, and any additional items that may be needed to complete the installation and commissioning.

Our customer care team engages once a site is fully commissioned for any further technical support that may be required for the life of the project.

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EPCs typically construct multiple projects for several different owners.

For the year ended December 31, 2022, our largest customer and five largest customers constituted approximately 8.4% and 35.8% of total revenue, respectively.

None of our customers had revenue exceeding 10% of total revenue for the year ended December 31, 2022.

For the year ended December 31, 2023, our largest customer contributed approximately 36.3% of our total revenue and was the only customer contributing 10% or greater of total revenue.

Our EBOS system solutions and components are highly specialized products that are specific to the solar industry.

The unique expertise required to design EBOS systems and components as well as customers’ reluctance to try unproven products has confined the number of firms that produce such EBOS products to a relatively small number.

Our principal competitors include SolarBOS Inc., Bentek Corporation, Voltage, LLC and Hikam America, Inc.

Our principal competitors include TerraSmart, LLC (formerly SolarBOS, Inc.), Bentek Corporation, Voltage, LLC and Hikam America, Inc.

We compete on the basis of product performance and features, installation cost, reliability and duration of product warranty, sales and distribution capabilities, and training and customer support, as well as the ability to provide system solutions rather than individual components.

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Together, we believe these techniques substantially reduce the risk that our cable develops a fault over its lifetime.

While highly specialized and flexible, our manufacturing equipment is not costly, and we do not require significant capital expenditures to maintain or increase our manufacturing capacity.

While highly specialized and flexible, our manufacturing equipment is not costly, and we believe we do not require significant capital expenditures to maintain or increase our manufacturing capacity.

Our principal manufacturing facilities are located in Tennessee, Alabama, and California.

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We measure the effectiveness of our R&D using a number of metrics, beginning with a market requirements definition, which includes a program budget, financial payback, resource requirements, and time required to launch the new product, system, or service into the market.

We employ a stringent engineering phase gate review process that ensures all R&D programs are meeting their stated objectives from inception to deployment.

We employ a stringent

engineering phase gate review process that ensures all R&D programs are meeting their stated objectives from inception to deployment.

We have a strong R&D team with significant experience in solar energy as well as expertise in electrical engineering, systems/control engineering and power electronics.

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The vast majority of our employees are located in the United States.

We have a team-oriented culture and encourage candor from our employees, which we believe helps us to succeed and drive operational excellence.

We seek to promote within our organization as well as hire top talent from outside the company to expand our capabilities.

We aim to hire individuals who share our passion, commitment, and entrepreneurial spirit.

We also encourage our employees to operate by a common set of values, which includes:

• making quality foremost in all we do, make, and sell;

• maintaining integrity in how we act, make decisions, and hold ourselves accountable;

• being responsive to change, to each other, and to our partners, customers, and users;

• being respectful in how we treat all people;

• seeking innovation in the way we approach challenges and build products;

• being sustainable in our approach to producing our products and our operations.

We foster a collaborative, team-oriented culture that values open communication and candor among all our employees.

We consider these elements crucial to our pursuit of operational excellence and lead to success.

We actively seek individuals who share our passion, dedication and entrepreneurial mind set to contribute to a dynamic work environment.

We also encourage our employees to operate by a common set of principles, which includes:

• Responsibility – We integrate quality and safety into everything;

• Integrity – We do the right thing, in the right way, for the right reason;

• Agility – We are quick and flexible at our core;

• Innovation – We lead from the front by simplifying the complex;

• Dedication – We hold ourselves accountable and we never quit;

• Commitment – We care for people and the planet by investing locally and globally.

We believe that operating with purpose, passion and creativity benefits our customers, stockholders, employees, and suppliers as well as the communities where we operate and the environment.

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Diversity and Inclusion

We are committed to diversity and inclusion because we believe it leads to better outcomes for our business and enables us to better meet the needs of our customers.

We are steadfast in our commitment to diversity, equity and inclusion, recognizing its pivotal role in driving positive outcomes for our business and enables us to better meet the needs of our customers.

We believe that diversity is the range of our human differences, including but not limited to race, ethnicity, gender, gender identity, sexual orientation, age, economic status, physical and mental ability, religious or ethical values system, national origin, and political beliefs.

We strive to create a workplace where everyone is welcomed, valued, treated fairly, and respected.

Our goal is to cultivate a workplace where everyone feels welcomed, valued, treated equitably and respected.

We continue to increase our outreach, recruitment, hiring, and retention of diverse groups at all levels of our workforce, including leadership roles.

We also focus on listening, learning, and responding to our employees’ concerns to help ensure that we can provide a diverse, equitable, and inclusive workplace today and into the future.

Based on our Equal Employment Opportunity data from mid-October 2022, our full-time employee population, which was composed of 477 individuals, had the following diversity metrics:

As of December 31, 2023, our full-time employee population, which was composed of 1,248 individuals, had the following diversity metrics:

• 62% of our full-time employee population self-identified as ethnically diverse;

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• Women made up 36% of our manager population, which consisted of 55 individuals with management responsibility.

As of December 31, 2022, of the 10 members of our executive management team, which includes the Chief Executive Officer and direct reports, Chief Revenue Officer, Chief Product Officer, Chief Technology Officer, and Senior VP of Business Development, one self-identifies as ethnically diverse and two as female.

As of December 31, 2022, of the seven independent members of our board of directors one self-identifies as ethnically diverse and two as female.

As of December 31, 2023, of the 10 members of our executive management team, which includes the Chief Executive Officer and direct reports, Chief Revenue Officer, Chief Product Officer, and Senior VP of Business Development, two self-identify as ethnically diverse and one as female.

As of December 31, 2023, of the eight members of our board of directors, one self-identifies as ethnically diverse and two as female.

Employee Training and Development

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We also offer retirement saving plans through our 401(k) plan, which is available to all full-time employees.

In 2021, we expanded the benefit with the inclusion of a company matching contribution.

Health and Safety

The safety and wellbeing of our employees is at the forefront of everything we do.

We strive to have a zero accident culture and our safety management system is built upon the principle.

We strive to have a zero accident culture and our safety management system is built upon that principle.

Our occupational health and safety program is designed to drive a proactive safety culture beginning with our management setting the tone for our safety culture and ensuring that everyone feels a sense of ownership for each other’s safety and well-being.

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This report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management.

Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, technology developments, financing and investment plans, dividend policy, competitive position, industry and regulatory environment, potential growth opportunities and the effects of competition.

Forward-looking statements include information concerning our possible or assumed future results of operations;

business strategies;

technology developments;

financing and investment plans;

warranty, litigation and liability accruals and estimates of loss or gains;

litigation strategy and expected benefits or results from the current intellectual property and wire insulation shrinkback litigation;

competitive position;

industry and regulatory environment;

potential growth opportunities, including international growth, production and capacity at our plants;

and the effects of competition.

Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” “would” or similar expressions and the negatives of those terms.

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You should read this report with the understanding that our actual future results may be materially different from what we expect.

Important factors that could cause actual results to differ materiality from of expectations are included in Item 1A “Risk Factors”.

Important factors that could cause actual results to differ materially from expectations are included in Item 1A “Risk Factors”.

Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

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 1. Business