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Item 1A. Risk Factors

2024-02-28 compared with 2023-02-28 · 254 added, 183 removed, 300 unchanged (59% of the section changed)

Summary Risk Factors

The following is a summary of the material risks and uncertainties that could materially adversely affect our business, financial condition and results of operations.

The following is a summary of the risks and uncertainties that could materially adversely affect our business, financial condition and results of operations.

You should read this summary together with the more detailed description of each risk factor contained below.

• if demand for solar energy projects does not continue to grow or grows at a slower rate than we anticipate, we may not be able to achieve our anticipated level of growth and our business will suffer;

• our industry has historically been cyclical and experienced periodic downturns;

• current macroeconomic events, including heightened inflation, rise in interest rates and potential recession could impact our business and financial results;

• the interruption of the flow of components and materials from international vendors has disrupted our supply chain, including as a result of the imposition of additional duties, tariffs and other charges on imports and exports;

• if we fail to retain our key personnel and attract additional qualified personnel, including a chief executive officer successor, or we or our suppliers face disputes with labor unions, we may not be able to achieve our anticipated level of growth and our business could suffer;

• if we fail to accurately estimate the potential losses related to the wire insulation shrinkback matter, or fail to recover the costs and expenses incurred by us from the supplier, our profit margins, financial results, business and prospects could be materially adversely impacted;

• defects or performance problems in our products or their parts, including those related to the wire insulation shrinkback matter, could result in loss of customers, reputational damage and decreased revenue, and may have a material adverse effect on our business, financial condition and results of operations;

• we may experience delays, disruptions, quality control or reputational problems in our manufacturing operations in part due to our vendor concentration;

• if we or our suppliers face disputes with labor unions, we may not be able to achieve our anticipated level of growth and our business could suffer;

• if we fail to retain our key personnel and attract additional qualified personnel, or successfully integrate our new Chief Executive Officer, our business strategy and prospects could suffer;

• our products are primarily manufactured and shipped from our production facilities in Tennessee, and any damage or disruption at these facilities may harm our business;

• if we fail to, or incur significant costs in order to, obtain, maintain, protect, defend or enforce our intellectual property and other proprietary rights, our business and results of operations could be materially harmed;

• the market for our products is competitive, and we may face increased competition as new and existing competitors introduce EBOS system solutions and components, which could negatively affect our results of operations and market share;

• current macroeconomic events, including high inflation, high interest rates, a potential recession and geopolitical instability could impact our business and financial results;

• our industry has historically been cyclical and experienced periodic downturns;

• the interruption of the flow of raw materials from international vendors has disrupted our supply chain, including as a result of the imposition of additional duties, tariffs and other charges on imports and exports;

• we are subject to risks associated with the patent infringement complaints that we filed with the U.S.

International Trade Commission and two District Courts;

• if we fail to, or incur significant costs in order to, obtain, maintain, protect, defend or enforce our intellectual property and other proprietary rights, including those that are subject to the patent infringement complaints we filed with the ITC and two District Courts, our business and results of operations could be materially harmed;

• acquisitions, joint ventures and/or investments and the failure to integrate acquired businesses, could disrupt our business and/or dilute or adversely affect the price of our common stock;

• we may experience delays, disruptions or quality control problems in our manufacturing operations in part due to vendor concentration;

• our future growth in the EV charging market is highly dependent on the demand for, and consumers’ willingness to adopt, EVs;

• our future growth in the EV charging market is highly dependent on the demand for, and consumers’ willingness to adopt, EVs, as well as on the actions of federal, foreign, state and local governments;

• a loss of one or more of our significant customers, their inability to perform under their contracts, or their default in payment could harm our business and negatively impact revenue, results of operations, and cash flow;

• a significant drop in the price of electricity sold may harm our business, financial condition, results of operations and prospects;

• a further increase in interest rates or a reduction in the availability of tax incentives or project debt capital in the global financial markets could make it difficult for end customers to finance the cost of a solar energy system and could reduce the demand for our products;

• defects or performance problems in our products could result in loss of customers, reputational damage and decreased revenue, and we may face warranty, indemnity and product liability claims arising from defective products;

• our results of operations may fluctuate from quarter to quarter, which could make our future performance difficult to predict and could cause our results of operations for a particular period to fall below expectations, resulting in a decline in the price of our Class A common stock;

• failure to effectively utilize information technology systems or implement new technologies and the unauthorized disclosure of personal or sensitive data or confidential information, whether through a breach of our computer system or otherwise, could severely disrupt our business or reduce our sales or profitability;

• compromises, interruptions or shutdowns of our information technology systems, including those managed by third parties, whether intentional or inadvertent, could lead to delays in our business operations and, if significant or extreme, affect our results of operations;

• our expansion outside the U.S.

could subject us to additional business, financial, regulatory and competitive risks;

• our indebtedness could adversely affect our financial flexibility and our competitive position;

• our indebtedness may restrict our current and future operations, which could adversely affect our ability to respond to changes in our business and to manage our operations;

• developments in alternative technologies may have a material adverse effect on demand for our offerings;

• amounts included in our backlog and awarded orders may not result in actual revenue or translate into profits;

• existing electric utility industry, renewable energy and solar energy policies and regulations, and any subsequent changes, may present technical, regulatory and economic barriers to the purchase and use of solar energy systems that may significantly reduce demand for our products or harm our ability to compete;

• changes in the U.S.

trade environment, including the imposition of import tariffs and antidumping and countervailing duties, could adversely affect the amount or timing of our revenue, results of operations or cash flows;

• we are a holding company and our principal asset is our interest in Shoals Parent and, accordingly, we are dependent upon Shoals Parent and its consolidated subsidiaries for our results of operations, cash flows and distributions;

• future sales of our Class A common stock, or the perception that such sales may occur, could depress our Class A common stock price;

• provisions in our certificate of incorporation and our bylaws may have the effect of delaying or preventing a change of control or changes in our management;

trade environment, including the imposition of trade restrictions, import tariffs, anti-dumping and countervailing duties could adversely affect the amount or timing of our revenue, results of operations or cash flows;

• changes in tax laws or regulations that are applied adversely to us or our customers could materially adversely affect our business, financial condition, results of operations and prospects;

• future sales, or the perception of future sales, by us in the public market could cause the market price for our Class A common stock to decline;

• provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management;

• our certificate of incorporation also provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees;

• we do not intend to pay any cash distributions or dividends on our Class A common stock in the foreseeable future;

• we face risks related to actual or threatened health epidemics or pandemics, such as the COVID-19 pandemic;

• if we fail to maintain effective internal controls over financial reporting, we may be unable to accurately or timely report our financial condition or results of operations, which may adversely affect our business

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As a result, our future success depends on continued demand for solar energy solutions and the ability of solar equipment vendors to meet this demand.

The solar industry is an evolving industry that has experienced substantial changes in recent years, and we cannot be certain that consumers and businesses will adopt solar energy as an alternative energy source at levels sufficient to grow our business.

In addition, our significant growth and expansion, combined with the rapidly evolving and competitive nature of our industry, makes it difficult to predict our future prospects.

The solar industry is an evolving industry that has experienced substantial changes in recent years, and we cannot be certain that consumers and businesses will continue to adopt solar energy as an alternative energy source at levels sufficient to grow our business.

In 2023, the domestic utility scale solar market experienced slowing growth as a result of the costs of project financing, lingering uncertainty about the application of the Inflation Reduction Act of 2022 to solar projects, supply chain constraints and interconnection complications.

We expect these trends to persist in 2024.

In addition, even though we expect our growth rate to decline from the extremely high levels of the last few years, we believe that our domestic utility scale business will continue growing at an attractive rate.

Our significant growth and expansion, combined with the rapidly evolving and competitive nature of our industry, makes it difficult to predict our future prospects.

We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries, including unpredictable and volatile revenue and increased expenses as we continue to grow our business.

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• cost competitiveness, reliability and performance of solar energy systems compared to conventional and non-solar renewable energy sources and products, and cost competitiveness, reliability and performance of our products compared to our competitors;

• availability and scale and scope of government subsidies and incentives to support the development and deployment of solar energy solutions;

• availability, scale and scope of government subsidies and incentives to support the development and deployment of solar energy solutions;

• prices of traditional carbon-based energy sources;

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If demand for solar energy and solar energy projects does not continue to develop, demand for our products will decrease, which would have an adverse impact on our ability to increase our revenue and grow our business.

Our industry has historically been cyclical and experienced periodic downturns.

Our future success partly depends on continued demand for solar PV systems in the end markets we serve.

The solar industry has historically been cyclical and has experienced periodic downturns, which may affect the demand for the products that we manufacture.

The solar industry has undergone challenging business conditions, mainly as a result of overproduction, and reductions in applicable governmental subsidies, contributing to demand decreases.

Although the solar industry has been experiencing significant changes over the past years, there is no assurance that the solar industry will not suffer significant downturns in the future, which will adversely affect demand for our solar products and our results of operations.

Current macroeconomic events, including heightened inflation, rise in interest rates, a potential recession and geopolitical instability could impact our business and financial results.

Global supply chain issues, heightened inflation, volatility in the capital markets, interest rate and currency rate fluctuations, a potential recession and geopolitical instability, including the conflict between Russia and Ukraine and growing tensions between China and the U.S., have significantly increased economic and demand uncertainty that may result in unfavorable macroeconomic conditions that could negatively affect demand for our products and exacerbate some of the other risks that affect our business, financial condition and results of operations.

Both domestic and international markets experienced significant inflationary pressures in fiscal year 2022 and inflation rates in the U.S., as well as in other countries in which we operate, are currently expected to continue at elevated levels for the near-term.

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

If we fail to accurately estimate the potential losses related to the wire insulation shrinkback matter, or fail to recover the costs and expenses incurred by us from the supplier, our profit margins, financial results, business and prospects could be materially adversely impacted.

As previously disclosed, the Company was notified by certain customers that a subset of wire harnesses used in its EBOS solutions is presenting unacceptable levels of wire insulation shrinkback.

Based upon the Company’s ongoing assessment, the Company currently believes the wire insulation shrinkback is related to defective red wire manufactured by Prysmian Cables and Systems USA, LLC (“Prysmian”).

As of December 31, 2023, based on the Company’s continued analysis, which included better visibility into the scope of affected sites and potential solutions, including identification, repair and replacement of harnesses, the Company determined that a potential range of loss was both probable and reasonably estimable and updated its estimate of potential losses from previously provided estimates.

Based on the Company’s continued analysis of information available as of the date of this Annual Report, the estimate of potential losses remains

unchanged from the estimate provided as of September 30, 2023.

As no amount within the current range of loss appears to be a better estimate than any other amount, the Company recorded a warranty liability and related expense representing the low end of the range of potential loss of $59.7 million.

The high-end of the range of potential loss is $184.9 million, which is $125.2 million higher than the amount we recorded.

As of December 31, 2023, we recorded a warranty liability of $54.9 million related to this matter.

The estimated range is based on several assumptions, and as additional information becomes available, the Company may increase or decrease its estimated warranty liability from its current estimate, and such increase or decrease may be material.

The Company does not maintain insurance for product warranty and has commenced a lawsuit against Prysmian, as discussed in more detail under Litigation in Note 16 - Commitments and Contingencies in our consolidated financial statements included in this Annual Report on Form 10-K.

Because the lawsuit against Prysmian is ongoing, potential recovery from Prysmian is not considered probable as defined in ASC 450, and has not been considered in our estimate of the warranty liability as of December 31, 2023.

Our warranty liability for this matter is based on a number of assumptions, including the potential magnitude of EPC’s labor cost to perform the repair and replacement of impacted harnesses, estimated failure rates, materials replacement cost, planned remediation method, and other various assumptions.

We do not have a long history of making assumptions relating to warranties.

As a result, these assumptions could prove to be materially different from our current estimate, causing us to incur substantial unanticipated expense to identify, repair or replace the defective wire or to compensate customers.

Additionally, changes to the planned remediation method could also have a material impact on the warranty liability.

As additional information becomes available, the Company may increase or decrease its estimated warranty liability from its current estimate, and such increase or decrease may be material.

Our failure to accurately estimate this liability could result in unexpected volatility to our common stock and have a material adverse effect on, our financial condition.

In addition, results of the litigation we have commenced against Prysmian are inherently uncertain and we cannot guarantee the outcome of that litigation.

Litigation can be expensive and time consuming and will divert the efforts of our management and other personnel, which could harm our business, whether or not such litigation results in a determination favorable to us.

If we fail to recover the costs and expenses incurred by us in connection with the identification, repair and replacement of the defective Prysmian wire, our financial results, business and prospects could be materially adversely impacted.

Our actual loss in this matter is uncertain and may have a material adverse effect on our business, financial condition and results of operations.

Similar to our other products, the defective wires associated with the wire insulation shrinkback matter expose us to potential product liability claims.

See “Risk Factors - Defects or performance problems in our products or their parts, including those related to the wire insulation shrinkback matter, could result in loss of customers, reputational damage and decreased revenue, and may have a material adverse effect on our business, financial condition and results of operations.”

Defects or performance problems in our products or their parts, including those related to the wire insulation shrinkback matter, could result in loss of customers, reputational damage and decreased revenue, and may have a material adverse effect on our business, financial condition and results of operations.

EBOS components, including cable assemblies, inline fuses, combiners, disconnects, recombiners, wireless monitoring systems, junction boxes, transition enclosures, splice boxes, BESS cabinets, conventional homerun EBOS system solutions, the wires related to the wire insulation shrinkback matter and combine-as-you-go EBOS system solutions, whether manufactured by us or third party suppliers, are products and systems that have a high consequence of failure, including equipment damage, fire damage, and even serious injury or death because of the high voltages involved and potential for fire.

Further, a fault in the wiring of an EBOS system, whether as a result of product malfunctions, defects or improper installation, may cause electrical failures in solar energy projects.

Faults typically occur when natural thermal expansion and contraction occurs

at a point where two wires have been joined, loosening the insulation, and allowing moisture into the joint.

Faults can result in lost production for customers, damage to the equipment, fire and injury or death depending on their severity and whether people are onsite.

Although we conduct quality assessments on our products and these products have stringent quality requirements, they may contain undetected errors or defects, especially when first introduced or when new generations are released.

Errors, defects, product failures, destructions or poor performance can arise due to design flaws, defects in raw materials or components or manufacturing difficulties, which can affect both the quality and the yield of the product.

Any actual or perceived errors, defects or poor performance in our products, including those related to the wire insulation shrinkback matter, have resulted and could result in the future in the replacement or recall of our products, shipment delays, rejection of our products, damage to our reputation, lost revenue, diversion of our engineering personnel from our product development efforts and increases in customer service and support costs, all of which could have a material adverse effect on our business, financial condition and results of operations.

Furthermore, defective components may give rise to warranty, indemnity or product liability claims against us, such as those related to the wire insulation shrinkback matter, that may exceed any revenue or profit we receive from the affected products.

Our limited warranties cover defects in materials and workmanship of our products under normal use and service conditions.

As a result, we bear the risk of warranty claims long after we have sold products and recognized revenue.

While we accrue reserves for warranty claims, our estimated warranty expense for previously sold products may change to the extent future products are not compatible with earlier generation products under warranty.

Our warranty accruals are based on our assumptions and we do not have a long history of making such assumptions.

As a result, these assumptions could prove to be materially different from the actual performance of our systems, causing us to incur substantial unanticipated expense to repair or replace defective products in the future or to compensate customers for defective products.

Our failure to accurately predict future claims could result in unexpected volatility and have a material adverse effect on, our financial condition.

If one of our products, including those that contain the defective red wires mentioned above, causes injury to someone or causes property damage, including as a result of product malfunctions, defects or improper installation, we could also be exposed to product liability claims.

We could incur significant costs and liabilities if we are sued and if damages are awarded against us.

Further, any product liability claim we face, including those related to the wires mentioned above, could be expensive to defend and could divert management’s attention.

The successful assertion of a product liability claim against us, including those related to the defective wire harnesses mentioned above, could result in potentially significant monetary damages, penalties or fines;

subject us to adverse publicity;

damage our reputation and competitive position;

and adversely affect sales of our products.

In addition, product liability claims, injuries, defects or other problems experienced by other companies in the solar industry could lead to unfavorable market conditions for the industry as a whole and may have an adverse effect on our ability to attract new customers, thus harming our growth and financial performance.

We may experience delays, disruptions, quality control or reputational problems in our manufacturing operations in part due to our vendor concentration.

Our product development, manufacturing and testing processes are complex and require significant technological and production process expertise, and we depend on a limited number of vendors and suppliers.

Any vendor delay or disruption could cause a delay or disruption in our ability to meet customer requirements which may result in a loss of customers.

Such processes involve a number of precise steps from design to production.

Any change in our processes could cause one or more production errors, requiring a temporary suspension or delay in our production line until the errors can be researched, identified and properly addressed and rectified.

This may occur particularly as we introduce new products, modify our engineering and production techniques, and/or expand our capacity.

In addition, our failure to maintain appropriate quality assurance

processes could result in increased product failures, loss of customers, increased warranty reserve, increased production and logistics costs and delays.

Any of these developments could have a material adverse effect on our business, financial condition, and results of operations.

In addition, we do not control our vendors or suppliers or their business practices.

Accordingly, we cannot guarantee that they follow ethical business practices, the divergence of a supplier’s labor or other practices from those generally accepted as ethical in the U.S.

or other markets in which we do business could also attract negative publicity for us and harm our business.

If we or our suppliers face disputes with labor unions, we may not be able to achieve our anticipated level of growth and our business could suffer.

Although none of our employees are currently represented by a labor union and our relations with our employees have been good to date, the increased frequency of union activity coupled with the constricted labor market may contribute to efforts by our employees to belong to a union, which may result in higher employee costs, operational restrictions and increased risk of disruption to operations.

We may also directly and indirectly depend upon other companies with unionized work forces, such as suppliers and trucking and freight companies, and work stoppages or strikes organized by such unions could have a material adverse impact on our business, prospects, financial condition, results of operations, and cash flows.

If we fail to retain our key personnel and attract additional qualified personnel, or successfully integrate our new Chief Executive Officer, our business strategy and prospects could suffer.

Our future success and ability to implement our business strategy depends, in part, on our ability to attract and retain key personnel, and on the continued contributions of members of our senior management team and key technical personnel, each of whom would be difficult to replace.

All of our employees, including our senior management, are free to terminate their employment relationships with us at any time.

Competition for highly skilled individuals with technical expertise is extremely intense, and we face challenges in identifying, hiring and retaining qualified personnel in many areas of our business.

Since we became a public company, there have been changes in our executive management team resulting from the hiring or departure of executives.

In addition, integrating new employees into our team could prove disruptive to our operations, require substantial resources and management attention and ultimately prove unsuccessful.

As previously announced, our board of directors appointed Brandon Moss as our Chief Executive Officer effective July 17, 2023.

Even though Mr.

Moss has had a long and successful career managing and scaling businesses for long-term growth, failure to continue to execute a smooth integration could affect the execution of our business strategy.

An inability to attract and retain senior management, our inability to effectively provide for the succession of senior management, and our inability to attract and retain other key or qualified personnel could limit or delay our strategic efforts, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our products are primarily manufactured and shipped from our production facilities in Tennessee, and any damage or disruption at these facilities may harm our business.

A significant portion of our operations is located in our Tennessee manufacturing facilities.

Issues with our workforce, including illness or absenteeism, or difficulties in recruiting skilled workers in the area, as well as a natural disaster, including tornados such as the ones recently experienced in the state, fire, power interruption or other calamity at any one of our facilities or any combination thereof would significantly disrupt our ability to deliver our products and operate our business.

Certain of the equipment used to manufacture our products could be difficult, time consuming, or costly to replace or repair if damaged.

Any such disruption or unanticipated event may cause significant interruptions or delays in our business and the reduction or loss of inventory may render us unable to fulfill customer orders in a timely manner, or at all, and may result in lawsuits.

We have property and business disruption insurance in place for all of our facilities;

however, such

insurance coverage may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all.

In addition, in 2023, we completed the ramp up of a third facility in Tennessee, increasing our total current production capacity, with the possibility of further increasing our footprint in the future.

We believe the increased capacity will enable us to serve growing demand well in the near term, further enhance production efficiency, and maintain profit margins;

however, there is no guarantee that we will be able to achieve the benefits from our expanded capacity, and in that case, we may lose the investments made to achieve our expansion.

We may face difficulties with respect to the planned consolidation and relocation of our Tennessee-based manufacturing and distribution operations, and may not realize the benefits thereof.

On February 21, 2024, we announced our intention to invest approximately $80.0 million over the next five years to expand and consolidate our existing Tennessee-based manufacturing and distribution operations to a new, larger facility in Portland, Tennessee.

As part of the expansion, we expect to relocate our Tennessee-based manufacturing operations to a more than 600,000 square foot facility.

Construction and development of the new facility is complicated and may present significant challenges, including delays, cost overruns or other complications.

In addition, there can be no assurance that we will be able to establish our planned consolidated facility within the planned timeline, or at all.

The expense and time required to bring this facility online and to assure that our products manufactured at such facilities comply with our quality standards could be greater than currently anticipated.

Any of the foregoing could have a material adverse effect on our business, prospects, results of operations and financial condition and could cause our results of operations to differ materially from our projections.

Unsatisfactory safety performance may subject us to penalties, negatively impact customer relationships, result in higher operating costs, and negatively impact employee morale and turnover.

We place great emphasis on workplace safety in our entire organization through various safety initiatives and training.

We have manufacturing facilities that are susceptible to numerous industrial safety risks that can lead to personal injury, loss of life, and damage to property and equipment.

While we take precaution to avoid incidents, we have experienced accidents in the past and may again in the future, which can negatively affect our safety record.

A poor safety record can harm our reputation with existing and potential customers, jeopardize our relationship with employees, increase our insurance and operating costs and could adversely impact our business and results of operations.

The market for our products is competitive, and we may face increased competition as new and existing competitors introduce EBOS system solutions and components, which could negatively affect our results of operations and market share.

The market for EBOS system solutions and components, including cable assemblies, inline fuses, combiners, disconnects, recombiners, wireless monitoring systems, junction boxes, transition enclosures, splice boxes and BESS cabinets is competitive.

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.

Competition may intensify as new and existing competitors enter the market.

If our competitors introduce new technologies that are successful in offering price competitive and technological attractive EBOS system solutions and components, it may become more difficult for us to maintain market share.

Several of our existing and potential competitors may have or obtain the financial resources to offer competitive products at aggressive or below-market pricing levels, which could cause us to lose sales or market share or require us to lower prices for our products in order to compete effectively.

If we have to reduce our prices by more than we anticipated, or if we are unable to offset any future reductions in our average

selling prices by increasing our sales volume, reducing our costs and expenses or introducing new products, our revenue and gross profit will suffer.

In addition, competitors may be able to develop new products more quickly than us, may partner with other competitors to provide combined technologies and competing solutions and may be able to develop products that are more reliable or that provide more functionality than ours.

A slow product innovation lifecycle and/or challenges to identify and invest in the appropriate research, development and automation initiatives may result in loss of competitive differentiation and our inability to diversify revenue streams in the future.

Current macroeconomic events, including high inflation, high interest rates, a potential recession and geopolitical instability could impact our business and financial results.

Global supply chain issues, high inflation, volatility in the capital markets, interest rate and currency rate fluctuations, a potential recession and geopolitical instability, including growing tensions between China and the U.S., the Russia-Ukraine war and the Israel-Hamas War, have significantly increased economic and demand uncertainty that has resulted in unfavorable macroeconomic conditions that could negatively affect demand for our products and exacerbate some of the other risks that affect our business, financial condition and results of operations.

Both domestic and international markets experienced significant inflation in fiscal year 2023 and 2022 and inflation rates in the U.S., as well as in other countries in which we operate, are currently expected to continue at elevated levels for the near-term.

In 2023 and 2022, significant levels of inflation resulted in increased energy prices, freight premiums, and other operating costs.

These increases are expected to persist in 2024.

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and other central banks in various countries have raised, and may again raise, interest rates in response to concerns about inflation, which, coupled with reduced government spending and volatility in financial markets, may have the effect of further increasing economic uncertainty and heightening these risks.

These higher interest rates resulted, and may continue to result in the future, in higher interest rates associated with our Senior Secured Credit Agreement (as defined in Note 9 – Long-Term Debt).

These higher interest rates resulted, and may continue to result in the future, in higher interest rates associated with our senior secured credit agreement entered into on November 25, 2020 (as amended, the “Senior Secured Credit Agreement”).

For the year ended December 31, 2023, interest expense, net increased by $5.6 million or 30% compared to the year ended December 31, 2022, due to increased interest rates associated with our Senior Secured Credit Agreement.

Interest rate increases or other government actions taken to reduce inflation could also result in a recession or recessionary environment in many parts of the world.

In 2022, we experienced challenges in our global supply chain, including shortages in raw materials and related price increases.

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 in the future.

In 2023 and 2022, we experienced challenges in our global supply chain, including shortages in raw materials and related price increases.

Our ability to obtain raw materials from domestic and international suppliers required to manufacture our components was impacted, along with our ability to secure timely inbound logistics to our facilities.

We do not directly source a significant amount of raw materials from Europe.

However, the ongoing conflict in Ukraine has reduced the availability of certain materials 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 throughout the year.

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.

During 2023, we continued to monitor and optimize our inventory levels.

While to date, we have been able to manage the challenges associated with these shortages without significant disruption to our business, no assurance can be given that these efforts will continue to be successful.

If economic conditions worsen or a recession occurs, our business, financial results and liquidity could be materially adversely impacted.

Our industry has historically been cyclical and experienced periodic downturns.

Our future success partly depends on continued demand for solar PV systems in the end markets we serve.

The solar industry has historically been cyclical and has experienced periodic downturns, which may affect the demand for the products that we manufacture.

The solar industry has undergone challenging business conditions, mainly as a result of overproduction, and reductions in applicable governmental subsidies, contributing to demand decreases.

The solar industry has been experiencing significant changes over the past years and there is no assurance that it will not suffer significant downturns in the future, which will adversely affect demand for our solar products and our results of operations.

The interruption of the flow of raw materials from international vendors has disrupted our supply chain, including as a result of the imposition of additional duties, tariffs and other charges on imports and exports.

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• the imposition of additional duties, tariffs and other charges on imports and exports, including as a result of trade relationships between China and the U.S.

and the ongoing conflict between Russia and Ukraine;

and the Russia-Ukraine war;

• quotas imposed by bilateral trade agreements;

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Trade restrictions, including new or increased tariffs or quotas, border taxes, embargoes, safeguards and customs restrictions against certain raw materials, as well as labor strikes and work stoppages or boycotts, could increase the cost or reduce or delay the supply of raw materials available to us and adversely affect our business, financial condition or results of operations.

If we fail to retain our key personnel and attract additional qualified personnel, including a chief executive officer successor, or we or our suppliers face disputes with labor unions, we may not be able to achieve our anticipated level of growth and our business could suffer.

All of our employees, including our senior management, are free to terminate their employment relationships with us at any time.

Since we became a public company, there have been changes in our executive management team resulting from the hiring or departure of executives.

As previously announced, our Chief Executive Officer and Board member, Jason Whitaker, will separate from the Company for health reasons, effective March 15, 2023.

The Board has appointed Mr.

Jeffery Tolnar, our President, to serve as interim principal executive officer upon Mr.

Whitaker’s departure and while the Board continues to search for a permanent successor.

The succession and transitional nature of the

current arrangement can impact our business strategy, our relations with investors, suppliers and customers and affect employee morale.

Integrating new employees into our team could prove disruptive to our operations, require substantial resources and management attention and ultimately prove unsuccessful.

In addition, although none of our employees are currently represented by a labor union and our relations with our employees have been good to date, the increased frequency of union activity coupled with the constricted labor market may contribute to efforts by our employees to belong to a union, which may result in higher employee costs, operational restrictions and increased risk of disruption to operations.

Our products are primarily manufactured and shipped from our production facilities in Tennessee, and any damage or disruption at these facilities may harm our business.

A significant portion of our operations is located in our Tennessee manufacturing facilities.

Issues with our workforce, including illness or absenteeism, or difficulties in recruiting skilled workers in the area, as well as a natural disaster, fire, power interruption or other calamity at any one of our facilities or any combination thereof would significantly disrupt our ability to deliver our products and operate our business.

Certain of the equipment used to manufacture our products could be difficult or costly to replace or repair if damaged.

We have property and business disruption insurance in place for all of our facilities;

however, such insurance coverage may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all.

If we fail to, or incur significant costs in order to, obtain, maintain, protect, defend or enforce our intellectual property and other proprietary rights, our business and results of operations could be materially harmed.

We are subject to risks associated with the patent infringement complaints that we filed with the U.S.

International Trade Commission (“ITC”) and two District Courts.

As disclosed under Litigation in Note 16 - Commitments and Contingencies in our consolidated financial statements included in this Annual Report on Form 10-K, on May 4, 2023, we filed patent infringement complaints with the ITC and with the U.S.

District Courts against each of Hikam America, Inc., a corporation based in Chula Vista, California, and a related foreign entity (together, “Hikam”), and Voltage LLC, a limited liability company based in Chapel Hill, North Carolina, and its related foreign entities (together, “Voltage”), seeking to ban the importing, marketing, distributing, selling, offering for sale, licensing, advertising,

transferring, or otherwise using the infringing photovoltaic connectors and components in and into the United States in a manner that we allege infringes on the Company’s enforceable patents.

On June 28, 2023 and July 19, 2023, we filed an amended complaint with the ITC and the U.S.

District Court for the Middle District of North Carolina, respectively, against Voltage alleging that they also infringe on a third, recently issued patent owned by the Company.

The District Court actions have been stayed pending the final disposition of the ITC investigation.

The Administrative Law Judge issued a Claim Construction Ruling on February 21, 2024.

As a result of the Claim Construction Ruling, in order to streamline the case and focus our limited time during the evidentiary hearing, and as recommended by the ITC's Investigative Attorney to preserve public resources, we filed an unopposed motion on February 26, 2024, and such motion was granted on February 28, 2024, to remove one of the three asserted patents covering duplicative subject matter against Voltage.

An evidentiary hearing in the ITC investigation has been scheduled for March 18 through 22, 2024.

The ITC has set a target date for completion of the investigation of November 12, 2024.

We intend to vigorously pursue these actions, however, at this stage, we are unable to predict the outcome or impact on our business.

If we are unsuccessful with respect to the patent infringement complaints against Hikam and Voltage, our patents or other intellectual property could be at risk of being invalidated or interpreted narrowly, and the alleged infringing products may continue to be imported and sold in the United States.

In such case, we could lose potential revenue to Hikam and/or Voltage as well as other parties who would be able to sell similar products.

If we fail to, or incur significant costs in order to, obtain, maintain, protect, defend or enforce our intellectual property and other proprietary rights, including those that are subject to the patent infringement complaints we filed with the ITC and two District Courts, our business and results of operations could be materially harmed.

Our success depends to a significant degree on our ability to protect our intellectual property and other proprietary rights.

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patents issued to us, there can be no assurance that any of our patents, patent applications, or other intellectual property rights will not be, in whole or in part, opposed, contested, challenged, invalidated, circumvented, designed around, or rendered unenforceable.

Any such impairment or other failure to obtain sufficient intellectual property protection could impede our ability to market our products, negatively affect our competitive position and harm our business and operating results, including by forcing us to, among other things, rebrand or redesign our affected

Moreover, our patents and patent applications may only cover particular aspects of our products, and competitors and other third parties may be able to circumvent or design around our patents, or develop and obtain patent protection for more effective technologies, designs or methods.

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If these developments occur, they could have an adverse effect on our sales or market position.

In countries where we have not applied for patent protection or trademark or other intellectual property registration or where effective patent, trademark, trade secret, and other intellectual property laws and judicial systems may not be available to the same extent as in the U.S., we may be at greater risk that our proprietary rights will be circumvented, misappropriated, infringed, or otherwise violated.

systems may not be available to the same extent as in the U.S., we may be at greater risk that our proprietary rights will be circumvented, misappropriated, infringed, or otherwise violated.

We rely heavily on trade secrets and nondisclosure agreements to protect our unpatented know-how, technology, and other proprietary information, and to maintain our competitive position, which we seek to protect, in part, by entering into nondisclosure and confidentiality agreements with parties who have access to them, such as our employees, consultants, and other third parties.

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If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively.

We may in the future need to initiate infringement claims or litigation in order to try to protect or enforce our intellectual property rights.

We have, and may in the future need to initiate infringement claims or litigation in order to protect or enforce our intellectual property rights.

Litigation, whether we are a plaintiff or a defendant, can be expensive and time consuming and may divert the efforts of our management and other personnel, which could harm our business, whether or not such litigation results in a determination favorable to us.

Enforcing our intellectual property rights in all countries throughout the world may be prohibitively expensive, and we may choose to forgo such activities in some jurisdictions.

Litigation also puts our patents or other intellectual property at risk of being invalidated or interpreted narrowly and our patent applications or applications for other intellectual property registrations at risk of not issuing.

Litigation, including the complaints discussed above, also puts our patents or other intellectual property at risk of being invalidated or interpreted narrowly and our patent applications or applications for other intellectual property registrations at risk of not issuing.

In such case, we could lose potential revenue to the defendants as well as other parties who may sell similar products.

Additionally, any enforcement of our patents or other intellectual property may provoke third parties to assert counterclaims against us.

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The identification of suitable acquisition or joint venture candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions or joint ventures.

Achieving anticipated benefits and synergies from acquisitions is uncertain and depends, among other things, on our inability to integrate or benefit from acquired technologies or services in a profitable manner;

Achieving anticipated benefits and synergies from acquisitions is uncertain and subject to various risks, including our ability to integrate or benefit from acquired technologies or services in a profitable manner;

diversion of capital and other resources, including management’s attention;

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difficulties in managing the expanded operations of a larger and more complex company;

and challenges in attracting and retaining key personnel.

and challenges in

attracting and retaining key personnel.

Many of these factors will be outside of our control and any one of them could result in increased costs, decrease in expected revenues and diversion of management’s time and attention, which could materially impact the combined company.

The full benefits of a particular, or any, acquisition may not be realized within the anticipated time frame or at all.

The full benefits of an acquisition may not be realized within the anticipated time frame or at all.

All of these factors could decrease or delay the expected accretive effect of acquisitions and negatively impact our company.

We may experience delays, disruptions or quality control or reputational problems in our manufacturing operations in part due to our vendor concentration.

Any vendor delay or disruption could cause a delay or disruption in our ability to meet customer requirements which may result in a loss of customers.

Such processes involve a number of precise steps from design to production.

This may occur particularly as we introduce new products, modify our engineering and production techniques, and/or expand our capacity.

In addition, our failure to maintain appropriate quality assurance processes could result in increased product failures, loss of customers, increased warranty reserve, increased production and logistics costs and delays.

Any of these developments could have a material adverse effect on our business, financial condition, and results of operations.

In addition, we do not control our vendors or suppliers or their business practices.

Accordingly, we cannot guarantee that they follow ethical business practices, the divergence of a supplier’s labor or other practices from those generally accepted as ethical in the U.S.

or other markets in which we do business could also attract negative publicity for us and harm our business.

We face risks related to actual or threatened health epidemics or pandemics, such as the COVID-19 pandemic, which could significantly disrupt our manufacturing and operations.

Our business could be adversely impacted by the effects of a widespread outbreak of contagious disease, such as the recent outbreak of respiratory illness caused by the COVID-19 pandemic.

Any widespread outbreak of contagious diseases, and other adverse public health developments, could cause disruption to, among other things, our ground operations at project sites, our manufacturing facilities and our suppliers and vendors and have a material and adverse effect on our business operations.

While we only experienced a short term work stoppage at the onset of the COVID-19 pandemic, our manufacturing facilities and our suppliers and vendors could be disrupted by worker absenteeism, worker attrition, quarantines, office and factory closures, disruptions to ports and other shipping infrastructure, or other travel or health-related restrictions related to future epidemics or pandemics.

If our manufacturing facilities and our suppliers or vendors are so affected, our supply chain, manufacturing and product shipments could be delayed, which could adversely affect our business, operations and customer relationships.

In addition, the COVID-19 pandemic adversely affected the economies and financial markets of many countries, and the same may occur with other epidemics or pandemics.

Epidemics or pandemics may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those relating to our level of indebtedness, our need to generate sufficient cash flows to service our indebtedness and our ability to comply with the covenants contained in the agreements that govern our indebtedness.

Our future growth in the EV charging market is highly dependent on the demand for, and consumers’ willingness to adopt, EVs, as well as on the actions of federal, foreign, state and local governments.

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The Infrastructure Investment and Jobs Act signed into law on November 15, 2021 provided additional funding for EVs and EV charging infrastructure through the creation of new programs and grants and the expansion of existing programs, including $7.5 billion for EV charging along highway corridors.

To further these EV charging infrastructure programs, in June 2022, the Biden Administration proposed new minimum standards and requirements to create a framework for states to build federally funded charging station projects.

The Biden Administration has taken regular steps since 2021 to further these EV charging infrastructure programs.

In June 2022, the Biden Administration proposed new minimum standards and requirements to create a framework for states to build federally funded charging station projects and in December 2023, the Department of Transportation announced plans to issue a request for information to solicit feedback on updating its standards to allow for new technology and continued innovation.

On January 11, 2024, the Biden Administration announced $623 million in new grants to continue building out the EV charging network as part of its Charging and Fueling Infrastructure Discretionary Grant Program.

In addition, the Inflation Reduction Act of 2022 signed into law on August 16, 2022 includes numerous incentives and tax credits aimed at reducing the effects of climate change, such as the extension of EV charging infrastructure tax credits and tax credits for EVs under the Internal Revenue Code of 1986, as amended, through 2032.

These incentives may expire on a particular date, end when the allocated funding is exhausted, or be reduced or terminated as a matter of regulatory or legislative policy.

Any other reduction in rebates, tax credits or other financial incentives for EVs or EV charging stations could materially reduce the demand for EVs, EV charging stations and, thus, our EV charging products and, as a result, may adversely impact our business and expansion potential.

Further, federal, state and local laws may impose additional barriers to electric vehicle adoption, including additional costs.

On January 19, 2024, the Biden Administration announced new definitions under the Department of Treasury and Department of Energy regulations that confirms the Inflation Reduction Act’s 30C EV charging tax credit that provides credits for installing EV charging infrastructure.

These incentives may expire on a particular date, end when the allocated funding is exhausted, or be reduced or terminated as a matter of regulatory or legislative policy by different administrations.

Reduction in rebates, tax credits or other financial incentives for EVs or EV charging stations could materially reduce the demand for EVs, EV charging stations and, thus, our EV charging products and, as a result, may adversely impact our business and expansion potential.

Further, federal, state and local laws may impose barriers to electric vehicle adoption, including additional costs.

For example, many states have enacted laws imposing additional registration fees for certain hybrid and EVs to support transportation infrastructure.

Any of the foregoing could materially and adversely affect the growth of the EV markets and our business, prospects, financial condition, results of operations, and cash flows.

Our principal competitors include 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.

Competition may intensify as new and existing competitors enter the market.

If our competitors introduce new technologies that are successful in offering a price competitive and technological attractive EBOS system solutions and components, it may become more difficult for us to maintain market share.

If we have to reduce our prices by more than we anticipated, or if we are unable to offset any future reductions in our average selling prices by increasing our sales volume, reducing our costs and expenses or introducing new products, our revenue and gross profit will suffer.

A loss of one or more of our significant customers, their inability to perform under their contracts, or their default in payment could harm our business and negatively impact revenue, results of operations, and cash flow.

Even though we have been able to diversify our customer base, a small number of customers have historically accounted for a material portion of our revenue.

A small number of customers have historically accounted for a material portion of our revenue.

For the year ended December 31, 2023, our largest customer and five largest customers constituted approximately 36.3% and 56.9% of total revenue, respectively.

Further, the Company’s trade accounts receivable are from companies within the solar industry, and as such, the Company is exposed to normal industry credit risks.

As of December 31, 2022, our largest customer and five largest customers constituted 3.4% and 24.1% of trade accounts receivable, respectively.

Accordingly, loss of a significant customer, a significant reduction in pricing or order volume from a significant customer, their inability to perform under their contracts, or their default in payment could adversely reduce net sales and operating results in any reporting period.

December 31, 2023, our largest customer and five largest customers constituted 37.5% and 65.5% of trade accounts receivable, respectively.

Accordingly, loss of our largest customer or other significant customers, a significant reduction in pricing or order volume from our largest customer or other significant customers, their inability to perform under their contracts, or their default in payment could adversely reduce net sales and operating results in any reporting period.

A significant drop in the price of electricity sold may harm our business, financial condition, results of operations and prospects.

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As a result, increases in interest rates, including the increases effected by the Federal Reserve in the U.S.

in 2022, which are expected to continue into 2023, or a reduction in the supply of project debt as a result of a potential recession or otherwise, or a reduction in tax incentives could reduce the number of solar projects that receive financing or otherwise make it difficult for our customers or their customers to secure the financing necessary to construct a solar energy project on favorable terms, or at all, and thus lower demand for our products, which could limit our growth and reduce our net sales.

in 2023 and 2022, or a reduction in the supply of project debt as a result of a potential recession or otherwise, or a reduction in tax incentives could reduce the number of solar projects that receive financing or otherwise make it difficult for our customers or their customers to secure the financing necessary to construct a solar energy project on favorable terms, or at all, and thus lower demand for our products, which could limit our growth and reduce our net sales.

In addition, we believe that a significant percentage of end-users construct solar energy projects as an investment, funding a significant portion of the initial capital expenditure with financing from third parties.

Increases in interest rates could lower an investor’s return on investment on a solar energy project, increase equity requirements or make alternative investments more attractive relative to solar energy projects and, in each case, could cause these end users to seek alternative investments.

Defects or performance problems in our products could result in loss of customers, reputational damage and decreased revenue, and we may face warranty, indemnity and product liability claims arising from defective products.

EBOS components, including cable assemblies, inline fuses, combiners, disconnects, recombiners, wireless monitoring systems, junction boxes, transition enclosures, splice boxes, conventional homerun EBOS system solutions and combine-as-you-go EBOS system solutions, are mission-critical products and systems that have a high consequence of failure, including lost revenue, equipment damage, fire damage, and even serious injury or death because of the high voltages involved and potential for fire.

Further, a fault in the wiring of an EBOS system, whether as a result of product malfunctions, defects or improper installation, may cause electrical failures in solar energy projects.

Faults typically occur when natural thermal expansion and contraction occurs at a point where two wires have been joined, loosening the insulation, and allowing moisture into the joint.

Faults can result in lost production, damage to the equipment, fire and injury or death depending on their severity and whether people are onsite.

Although our products meet our stringent quality requirements, they may contain undetected errors or defects, especially when first introduced or when new generations are released.

Any actual or perceived errors, defects or poor performance in our products could result in the replacement or recall of our products, shipment delays, rejection of our products, damage to our reputation, lost revenue, diversion of our engineering personnel from our product development efforts and increases in customer service and support costs, all of which could have a material adverse effect on our business, financial condition and results of operations.

Furthermore, defective components may give rise to warranty, indemnity or product liability claims against us that exceed any revenue or profit we receive from the affected products.

Our limited warranties cover defects in materials and workmanship of our products under normal use and service conditions.

As a result, we bear the risk of warranty claims long after we have sold products and recognized revenue.

While we have accrued reserves for warranty claims, our estimated warranty costs for previously sold products may change to the extent future products are not compatible with earlier generation products under warranty.

Our warranty accruals are based on our assumptions and we do not have a long history of making such assumptions.

Our failure to accurately predict future claims could result in unexpected volatility and have a material adverse effect on, our financial condition.

If one of our products causes injury to someone or causes property damage, including as a result of product malfunctions, defects or improper installation, then we could be exposed to product liability claims.

We could incur significant costs and liabilities if we are sued and if damages are awarded against us.

Further, any product liability claim we face could be expensive to defend and could divert management’s attention.

The successful assertion of a product liability claim against us could result in potentially significant monetary damages, penalties or fines;

subject us to adverse publicity;

damage our reputation and competitive position;

and adversely affect sales of our products.

Increases in interest rates could lower an investor’s return on investment on a solar energy project,

increase equity requirements or make alternative investments more attractive relative to solar energy projects and, in each case, could cause these end users to seek alternative investments.

Our results of operations may fluctuate from quarter to quarter, which could make our future performance difficult to predict and could cause our results of operations for a particular period to fall below expectations, resulting in a decline in the price of our Class A common stock.

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The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusions, including by computer hackers, nation-state affiliated actors, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased as well.

Some aspects of our business involves the collection, receipt, use, storage, processing and transmission of personal information (of our customers’ and end users of our customers’ solar energy systems, including names, addresses, e-mail addresses, credit information, energy production statistics), consumer preferences as well as confidential information and personal data about our employees, our suppliers and us, some of which is entrusted to third-party service providers and vendors.

Despite the security measures we have in place, our facilities and systems, and those of third parties with which we do business, may be

vulnerable to security breaches, cyberattacks, acts of vandalism and theft, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events, and there is no guarantee that inadvertent or unauthorized use or disclosure will not occur or that third parties will not gain unauthorized access to this type of confidential information and personal data.

Some aspects of our business involve the collection, receipt, use, storage, processing and transmission of personal information (of our customers’ and end users of our customers’ solar energy systems, including names, addresses, e-mail addresses, credit information, energy production statistics), consumer preferences as well as confidential information and personal data about our employees, our suppliers and us, some of which is entrusted to third-party service providers and vendors.

Despite the security measures we have in place, our facilities and systems, and those of third parties with which we do business, may be vulnerable to security breaches, cyberattacks, acts of vandalism and theft, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events, and there is no guarantee that inadvertent or unauthorized use or disclosure will not occur or that third parties will not gain unauthorized access to this type of confidential information and personal data.

Any perceived or actual unauthorized access to, or use or disclosure of, such information could harm our reputation, substantially impair our ability to attract and retain customers and have an adverse impact on our business, financial condition and results of operations.

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however, to date, they have not had a material impact on our business, results of operations or financial condition.

In addition, as the regulatory environment relating to companies’ obligation to protect such sensitive data becomes increasingly rigorous, with new and constantly changing requirements, compliance with those requirements could result in additional costs, and a material failure on our part to comply could subject us to fines or other regulatory sanctions and potentially to lawsuits.

In addition, as the regulatory environment relating to companies’ obligations to protect such sensitive data and disclose certain incidents or breaches becomes increasingly rigorous, with new and constantly changing requirements, compliance with those requirements could result in additional costs, and a material failure on our part to comply could subject us to fines or other regulatory sanctions and potentially to lawsuits.

Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

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The failure of our information technology systems and the third-party systems we rely on to perform as designed, or our failure to implement and operate them effectively, could disrupt our business or subject us to liability and thereby have a material adverse effect on our business, financial condition, results of operations and prospects.

Our expansion outside the U.S.

could subject us to additional business, financial, regulatory and competitive risks.

Our strategy is to introduce new products and grow our revenue outside of the U.S., including in Asia-Pacific, Europe, Latin-America, and Africa, by developing region-specific products;

entering into joint-venture or licensing arrangements with companies in certain markets;

expanding our relationships with value-added resellers of our products in some countries;

and utilizing locally sourced components in our products in jurisdictions where locally sourced components are a regulatory or customer requirement.

Our products and services to be offered outside of the U.S.

may differ from our current products and services in several ways, such as the consumption and utilization of local raw materials, components and logistics, the reengineering of select components to reduce costs, and region-specific customer training, site commissioning, warranty remediation and other technical services.

These markets have different characteristics from the markets in which we currently sell products, and our success will depend on our ability to adapt properly to these differences.

These differences include differing regulatory requirements, including tax laws, trade laws, labor regulations, tariffs, export quotas, customs duties or other trade restrictions, limited or unfavorable intellectual property protection, international political or economic conditions, restrictions on the repatriation of earnings, longer sales cycles, warranty expectations, product return policies and cost, performance and compatibility requirements.

In addition, expanding into new geographic markets increases our exposure to presently existing risks, such as fluctuations in the value of foreign currencies and difficulties and increased expenses in complying with U.S.

and foreign laws, regulations

and trade standards, including the Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”).

The FCPA generally prohibits companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business.

Other countries in which we operate and may operate in the future may also have anti-bribery laws.

Our policies mandate compliance with these anti-bribery laws.

However, we currently operate in and intend to further expand into, many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices.

It is possible that our employees, subcontractors, agents and partners may take actions in violation of our policies and anti-bribery laws.

Any such violation, even if prohibited by our policies, could subject us to criminal or civil penalties or other sanctions, which could have a material adverse effect on our business, financial condition, cash flows and reputation.

Failure to manage the risks and challenges associated with our potential expansion into new geographic markets could adversely affect our revenue and our ability to achieve or sustain profitability.

Our indebtedness could adversely affect our financial flexibility and our competitive position.

As of December 31, 2022, we had $195.3 million of term loans and $48.0 million of revolving credit loans outstanding under the Senior Secured Credit Agreement (as defined below).

As of December 31, 2023, we had $143.8 million of term loans and $40.0 million revolving credit loans outstanding under the Senior Secured Credit Agreement.

Our level of indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness.

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In addition, we are required to maintain compliance with various financial ratios in the Senior Secured Credit Agreement.

A failure by us or our subsidiaries to comply with the covenants or to maintain the required financial ratios contained in the Senior Secured Credit Agreement could result in an event of default under such indebtedness, which could adversely affect our ability to respond to changes in our business and manage our operations.

A failure by us to comply with the covenants or to maintain the required financial ratios contained in the Senior Secured Credit Agreement could result in an event of default under such indebtedness, which could adversely affect our ability to respond to changes in our business and manage our operations.

Additionally, a default by us under the Senior Secured Credit Agreement or an agreement governing any other future indebtedness may trigger cross-defaults under any other future agreements governing our indebtedness.

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Amounts included in our backlog and awarded orders may not result in actual revenue or translate into profits.

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, 2023, we had $631.3 million of backlog and awarded orders.

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.

We cannot guarantee that our backlog or awarded orders will result in actual revenue in the originally anticipated period or at all.

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Chief among policies intended to promote renewable electricity generally, or solar electricity in particular, are renewable portfolio standards (RPS) and clean energy standards (“CES”).

Currently, 31 U.S.

states, the District of Columbia, and two U.S.

territories have implemented some form of RPS/CES policy, which mandates that a certain portion of electricity delivered by regulated utilities to customers come from a set of eligible renewable or clean energy resources by a certain compliance date.

Additionally, three states and one territory have set voluntary renewable energy goals.

Currently, over half of the U.S.

states, the District of Columbia, and Puerto Rico have implemented some form of RPS/CES policy, which mandates that a certain portion of electricity delivered by regulated utilities to customers come from a set of eligible renewable or clean energy resources by a certain compliance date.

Additionally, several states have set voluntary renewable energy goals.

RPS/CES policies vary widely by jurisdiction.

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states have adopted some form of net metering, these programs have recently come under regulatory scrutiny in some jurisdictions due to allegations that net metering policies inequitably shift costs onto non-solar ratepayers.

As a result, net metering policies in the future may be modified or even

As a result, net metering policies in the future may be modified or even eliminated.

The absence of favorable net metering policies or of net metering entirely, or the imposition of new charges that only or disproportionately affect end-users that use net metering would significantly limit demand for our products and could have a material adverse effect on our business, financial condition, results of operations and future growth.

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In general, FERC’s PURPA reforms have the potential to reduce prices for the output from certain new renewable generation projects while also narrowing the scope of PURPA eligibility for new projects.

These effects could reduce demand for PURPA-eligible solar energy systems and could harm our business, prospects, financial condition and results of operations.

effects could reduce demand for PURPA-eligible solar energy systems and could harm our business, prospects, financial condition and results of operations.

Changes in other current laws or regulations applicable to us or the imposition of new laws, regulations or policies in the U.S.

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In June 2019, the U.S.

Representative increased the rate of such tariffs from 10% to 25%.

Trade Representative increased the rate of such tariffs from 10% to 25%.

These tariffs could impact the solar energy projects in which our products are used, which could lead to decreased demand for our products.

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and China entered into an initial trade deal that preserves the bulk of the tariffs placed in 2018 and maintains a threat of additional tariffs should China breach the terms of the deal.

In December 2021, President Biden signed the Uyghur Forced Labor Prevention Act (“UFLPA”) into law, which seeks to block the import of products made with forced labor in certain areas of China.

In December 2021, President Biden signed the Uyghur Forced Labor Prevention Act (“UFLPA”) into law, which became effective on June 21, 2022.

The UFLPA seeks to block the import of products made with forced labor in certain areas of China and has identified a list of suppliers from which products are subject to a presumption of import denial.

As a result, some suppliers of solar modules have seen shipments detained by U.S.

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however, continued or future detainments could affect the industry and impact solar energy projects more broadly, which in turn could affect our business.

We are monitoring developments in this area.

We are continuing to monitor developments in this area.

In addition, the U.S.

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Department of Commerce (“USDOC”), and an increase in duty rates could have an adverse impact on our operating results.

In February 2022, a petitioner requested that the USDOC investigate alleged circumvention of antidumping and countervailing duties on Chinese imports by crystalline silicon PV cells and module imports assembled and completed in Cambodia, Malaysia, Thailand, and Vietnam.

On March 28, 2022, the USDOC announced that it would investigate the circumvention alleged in the petition.

On June 6, 2022, President Biden issued Proclamation 10414 that declared an emergency with respect to U.S.

electricity generation capacity and stated that immediate action was needed to ensure access to a sufficient supply of solar cells and modules to assist in meeting the U.S.’ electricity generation needs temporarily waiving for 24 months the collection of antidumping and countervailing duties for certain cells and modules subject to USDOC’s investigation.

As the timing and progress of many of our customers’ projects depend upon the supply of PV cells and modules, our operating results could be adversely impacted if the USDOC investigation is not resolved quickly and/or the USDOC makes negative circumvention determinations.

More recently, on October 7, 2022, the Biden Administration adopted export controls related to technology that could harm U.S.

On August 23, 2023, as a result of an investigation, the USDOC determined that imports of certain crystalline silicone PV that have been completed in Cambodia, Malaysia, Thailand, or Vietnam, using parts or components produced in the People’s Republic of China are circumventing the antidumping and countervailing orders on solar cells

and modules from China.

However, on June 6, 2022, President Biden issued Proclamation 10414 that declared an emergency with respect to U.S.

electricity generation capacity and stated that immediate action was needed to ensure access to a sufficient supply of solar cells and modules to assist in meeting the U.S.’ electricity generation needs temporarily waiving for 24 months (through June 2024) the collection of antidumping and countervailing duties for certain cells and modules subject to USDOC’s investigation.

As the timing and progress of many of our customers’ projects depend upon the supply of PV cells and modules, our operating results could be adversely impacted by the USDOC’s determination, especially once the temporary waiver expires.

In addition, on October 7, 2022, the Biden Administration adopted export controls related to technology that could harm U.S.

national security.

Further export controls related to technology could impact the business, notably if the U.S.

Government expands the restrictions to more common technology.

Tariffs and the possibility of additional tariffs in the future, including as a result of the petition pending with the USDOC regarding circumvention of antidumping and countervailing duties, have created uncertainty in the industry.

If the price of solar systems in the U.S.

increases, the use of solar systems could become less economically feasible and could reduce our gross margins or reduce the demand of solar systems manufactured and sold, which in turn may decrease demand for our products.

increases, the use of solar systems could become less economically feasible and could reduce our gross profits or reduce the demand of solar systems manufactured and sold, which in turn may decrease demand for our products.

Additionally, existing or future tariffs or other trade restrictions may negatively affect key customers, suppliers, and manufacturing partners.

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tax expense, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

Risks Related to Our Organizational Structure

We are a holding company and our principal asset is our interest in Shoals Parent and, accordingly, we are dependent upon Shoals Parent and its consolidated subsidiaries for our results of operations, cash flows and distributions.

We are a holding company and have no material assets other than our ownership of the LLC Interests.

As such, we have no independent means of generating revenue or cash flow, and our ability to pay our taxes and operating expenses, or declare and pay dividends in the future, if any, depend upon the results of operations and cash flows of Shoals Parent and its consolidated subsidiaries and distributions we receive from Shoals Parent.

There can be no assurance that our subsidiaries will generate sufficient cash flow to distribute funds to us or that applicable state law and contractual restrictions will permit such distributions.

In certain circumstances, under its limited liability company agreement, Shoals Parent will be required to make tax distributions to the Company and the Continuing Equity Owners, and the distributions that Shoals Parent will be required to make may be substantial.

Funds used by Shoals Parent to satisfy its tax distribution obligations to the Continuing Equity Owners will not be available for reinvestment in our business.

Moreover, the tax distributions that Shoals Parent will be required to make may be substantial and will likely exceed (as a percentage of Shoals Parent’s net income) the overall effective tax rate applicable to a similarly situated corporate taxpayer.

As a result of potential differences in the amount of net taxable income allocable to us and to the Continuing Equity Owners, as well as the use of an assumed tax rate in calculating Shoals Parent’s tax distribution obligations to the Continuing Equity Owners, we may receive distributions significantly in excess of our tax liabilities.

To the extent, as currently expected, we will not distribute such cash balances as dividends on shares of our Class A common stock and instead, for example, hold such cash balances or lend them to Shoals Parent, the Continuing Equity Owners would benefit from any value attributable to such accumulated cash balances as a result of their ownership of Class A common stock following an exchange of their LLC Interest for such Class A common stock.

Risks Related to Our Class A Common Stock

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The market price of our Class A common stock has and could be subject to significant fluctuations.

The price of our stock may change in response to fluctuations in our results of operations in future periods and also may change in response to other factors, including macroeconomic factors as well as factors specific to companies in our industry, many of which are beyond our control.

The price of our stock may change in response to fluctuations in our results of operations in future periods, the wire insulation shrinkback matter, and other factors specific to our company, and also may change in response to other factors, including macroeconomic factors as well as factors specific to companies in our industry, many of which are beyond our control.

As a result, our share price may experience significant volatility and may not necessarily reflect the value of our expected performance.

Future sales, or the perception of future sales, by us or our existing stockholders in the public market could cause the market price for our Class A common stock to decline.

Future sales, or the perception of future sales, by us in the public market could cause the market price for our Class A common stock to decline.

The sale of shares of our Class A common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our Class A common stock.

These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

Our certificate of incorporation authorizes us to issue up to 1,000,000,000 of our authorized shares of Class A common stock, of which 137,904,663 shares are outstanding and 31,419,913 are available upon the exchange of outstanding LLC Interests as of December 31, 2022.

The exchange of LLC Interests into shares of Class A common stock and the subsequent sale of such shares, could impact the trading price of our Class A common stock.

In addition, we have, and in the future, we may also issue securities in connection with investments, acquisitions or capital raising activities.

In particular, the number of shares of our Class A common stock issued in connection with an investment or acquisition, or to raise additional equity capital, could constitute a material portion of our then-outstanding shares of our Class A common stock.

In particular, the number of shares of our Class A common stock issued

in connection with an investment or acquisition, or to raise additional equity capital, could constitute a material portion of our then-outstanding shares of our Class A common stock.

Any such issuance of additional securities in the future may result in additional dilution to you or may adversely impact the price of our Class A common stock.

Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management.

Our certificate of incorporation and bylaws contain provisions that could depress the trading price of our Class A common stock by discouraging, delaying or preventing a change of control of our Company or changes in our management that the stockholders of our Company may believe advantageous.

These provisions include:

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federal district courts will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act but that the forum selection provision will not apply to claims brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our certificate of incorporation also provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternate forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the exclusive forum for any derivative action or proceeding brought on our behalf;

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General Risk Factors

We face risks related to actual or threatened health epidemics or pandemics, such as the COVID-19 pandemic.

Our business could be adversely impacted by the effects of a widespread outbreak of contagious disease, such as the outbreak of respiratory illness caused by the COVID-19 pandemic.

Any widespread outbreak of contagious disease, and other adverse public health developments, could cause disruption to, among other things, our ground operations at project sites, our manufacturing facilities and our suppliers and vendors and have a material and adverse effect on our business operations.

In addition, health epidemics and pandemics have affected, and may in the future adversely affect, the economies and financial markets of many countries.

Any of these consequences could materially adversely affect our business, results of operations and prospects.

If we fail to maintain effective internal controls over financial reporting, we may be unable to accurately or timely report our financial condition or results of operations, which may adversely affect our business.

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Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance

that we would prevent or detect a misstatement of our financial statements or fraud.

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our financial statements or fraud.

Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud.

A significant financial reporting failure or material weakness in internal control over financial reporting could cause a loss of investor confidence and decline in the market price of our common stock.

Our planned expansion could subject us to additional business, financial, regulatory and competitive risks.

Our strategy is to introduce new products and grow our revenue outside of the U.S.

by developing region-specific products;

entering into joint-venture or licensing arrangements with companies in certain markets;

expanding our relationships with value-added resellers of our products in some countries;

and utilizing locally sourced components in our products in jurisdictions where locally sourced components are a regulatory or customer requirement.

Our products and services to be offered outside of the U.S.

These markets have different characteristics from the markets in which we currently sell products, and our success will depend on our ability to adapt properly to these differences.

These differences may include differing regulatory requirements, including tax laws, trade laws, labor regulations, tariffs, export quotas, customs duties or other trade restrictions, limited or unfavorable intellectual property protection, international political or economic conditions, restrictions on the repatriation of earnings, longer sales cycles, warranty expectations, product return policies and cost, performance and compatibility requirements.

In addition, expanding into new geographic markets will increase our exposure to presently existing risks, such as fluctuations in the value of foreign currencies and difficulties and increased expenses in complying with U.S.

and foreign laws, regulations and trade standards, including the Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”).

The FCPA generally prohibits companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business.

Other countries in which we operate and may operate in the future may also have anti-bribery laws.

Our policies mandate compliance with these anti-bribery laws.

It is possible that our employees, subcontractors, agents and partners may take actions in violation of our policies and anti-bribery laws.

Failure to manage the risks and challenges associated with our potential expansion into new geographic markets could adversely affect our revenue and our ability to achieve or sustain profitability.

Unresolved Staff Comments

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 1A. Risk Factors