What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2024-02-28 compared with 2023-02-28 · 475 added, 393 removed, 816 unchanged (52% of the section changed)

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Attestation Report of the Registered Public Accounting Firm

BDO USA, LLP, the independent registered public accounting firm that audited our financial statements included elsewhere in this Form 10-K, has issued an attestation report on our internal control over financial reporting.

BDO USA, P.C, the independent registered public accounting firm that audited our financial statements included elsewhere in this Form 10-K, has issued an attestation report on our internal control over financial reporting.

That report appears in "Item 8.

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Other Information

Not applicable.

Director Appointment

On February 27, 2024, the Board appointed Brandon Moss, the Company’s Chief Executive Officer, as a member of the Board based on Mr.

Moss’s skills, qualifications and contributions to the Company and the Board since he began serving as Chief Executive Officer.

Moss will serve as a Class III director until the Company’s Annual Meeting of Stockholders to be held in 2024, and until such time as his successor is duly elected and qualified, or until his earlier death, resignation or removal.

In connection with Mr.

Moss’s appointment the Board increased the number of directors on the Board from seven to eight.

The Company is not aware of any related party transactions or relationships between Mr.

Moss and the Company that would require disclosure under Item 404(a) of Regulation S-K.

Moss was not appointed as a director based on any arrangement or understanding between Mr.

Moss and any other persons.

CAO Appointment

On February 27, 2024, the Company appointed Inez Lund as its Chief Accounting Officer, effective March 1, 2024.

In this position, Ms.

Lund will assume the role of the Company’s principal accounting officer from Dominic Bardos, who will continue to serve as the Company’s Chief Financial Officer.

Lund, age 58, has most recently served as the Company’s Controller since December 2021, and initially joined the Company in May 2021 as Tax Director.

Before joining the Company, Ms.

Lund was Senior Manager, Global Compliance and Reporting at Ernst & Young LLP between December 2019 and May 2021.

From September 2014 to December 2019, Ms.

Lund held several positions with American International Group, Inc., including Associate Director of Tax and Manager, AIG Global Investments Tax Group.

Lund earned a Master’s degree in Professional Accountancy and a Bachelor’s degree in Accounting from University of Nebraska, Lincoln.

In connection with Ms.

Lund’s appointment as Chief Accounting Officer of the Company, the Board has approved the following compensation for Ms.

Lund, effective as of March 1, 2024:

(i) an annual base salary of $300,000;

(ii) an annual bonus with a target opportunity equal to 50% of base salary;

and (iii) an equity award with respect to fiscal year 2024, with a target value equal to $205,000.

The foregoing equity award will be granted in the form approved by the Compensation Committee of the Board under, and subject to, the terms and conditions of the Shoals Technologies Group, Inc.

2021 Long-Term Incentive Plan, and will vest in accordance with the applicable award agreements.

Lund will also be entitled to participate in the Shoals Technologies Group, Inc.

Executive Severance Plan.

Lund does not have any family relationships with any director, executive officer or person nominated or chosen by the Company to become a director or executive officer of the Company.

The Company is not aware of any related transactions or relationships between Ms.

Lund and the Company that would require disclosure under Item 404(a) of Regulation S-K.

There are no arrangements or understandings between Ms.

Lund and any other person pursuant to which Ms.

Lund was selected as an officer of the Company.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

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S-8 1/29/2021 10.1

EXHIBIT INDEX

Incorporated by Reference

Number Description of Document Form Filing Date Exhibit No.

10.8† Form of RSU Grant Notice and Award Agreement (Employees)

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S-8 1/29/2021 10.3

10.10† Form of RSU Grant Notice and Award Agreement

10-Q 5/8/2023 10.3

10.11† Form of PSU Grant Notice and Award Agreement

10-Q 5/8/2023 10.4

10.12†* Form of RSU Grant Notice and Award Agreement (Tier A)

10.13†* Form of PSU Grant Notice and Award Agreement (Tier A)

10.14† Form of Director and Officer Indemnification Agreement

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8-K 1/29/2021 10.2

Employment Agreement, effective as of December 18, 2020, by and between Dean Solon and Shoals Technologies Group, LLC

S-1/A 1/25/2021 10.8

EXHIBIT INDEX

Incorporated by Reference

Number Description of Document Form Filing Date Exhibit No.

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

S-1/A 1/25/2021 10.9

Employment Agreement, effective as of December 18, 2020, by and between Philip Garton and Shoals Technologies Group, LLC

S-1/A 1/25/2021 10.10

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

S-1/A 1/25/2021 10.11

10.18† Separation Agreement, dated February 24, 2023, by and between Jason Whitaker and Shoals Technologies Group, Inc.

8-K 2/27/2023 10.1

10.19† Shoals Technologies Group, Inc.

Executive Severance Plan

8-K 2/27/2023 10.2

10.20† Offer Letter, dated as of June 11, 2023, by and between Brandon Moss and Shoals Technologies Group, Inc.

8-K 6/14/2023 10.1

10.21 Amendment No.

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8-K 5/5/2022 10.1

Engagement Letter, dated as of April 7, 2022, between Shoals Technologies Group, Inc.

and Ham, Langston & Brezina, L.L.P.

8-K 4/8/2022 10.1

10.24*† Offer Letter, dated December 12, 2022, by and between Jeffery Tolnar and Shoals Technologies Group, Inc.

21.1* Subsidiaries of the Registrant

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

EXHIBIT INDEX

Incorporated by Reference

Number Description of Document Form Filing Date Exhibit No.

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

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

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32.1** Certification of the Chief Executive Officer and Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002

101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH* XBRL Taxonomy Extension Schema Document

101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF* XBRL Taxonomy Extension Definition Linkbase Document

101.LAB* XBRL Taxonomy Extension Label Linkbase Document

101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document

EXHIBIT INDEX

Incorporated by Reference

Number Description of Document Form Filing Date Exhibit No.

97.1* Shoals Technologies Group, Inc.

Clawback and Recoupment Policy

101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH* Inline XBRL Taxonomy Extension Schema Document

101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document

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

* Filed herewith

** Furnished herewith

† Indicates a management contract or compensatory plan.

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Shoals Technologies Group, Inc.

/s/ Jason Whitaker

Jason Whitaker

Chief Executive Officer

/s/ Brandon Moss

Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity and on the dates indicated.

Signature Title Date

/s/ Jason Whitaker Chief Executive Officer and Member of the Board of Directors (Principal Executive Officer) February 28, 2023

Jason Whitaker

/s/ Brandon Moss Chief Executive Officer (Principal Executive Officer) and Director February 28, 2024

/s/ Dominic Bardos Chief Financial Officer February 28, 2024

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Shoals Technologies Group, Inc.

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

Reports of Independent Registered Public Accounting Firm ( BDO USA, P.C.

Austin, Texas ;

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

and Subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in members’/stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

(the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, changes in members’ / stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

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Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

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

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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

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The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication

of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Termination of the Tax Receivable Agreement

As described in Note 17 to the consolidated financial statements, the Company entered into an amendment to the Tax Receivable Agreement (“TRA”, collectively the “TRA Amendment”) on November 29, 2022, pursuant to which the parties thereto agreed to grant the Company a right to terminate the TRA in exchange for a termination consideration of $58.0 million, payable in cash (the “TRA Termination”).

The Company reassessed the liability related to the payable pursuant to the TRA at the TRA Amendment date and concluded it was probable that the expected payments related to the payable pursuant to the TRA had changed.

As a result of this change, the Company remeasured the payable pursuant to the TRA to $58.0 million on the TRA Amendment date, resulting in a gain on the termination of the TRA of $110.9 million.

As part of the evaluation to determine if the gain should be recognized as income in the consolidated statement of operations or a stockholder contribution the Company concluded the termination of the TRA was negotiated in an arm’s length transaction with the majority owner of the TRA, a third party, and both the third party and the related party received the same value based upon ownership percentage, and therefore, the gain should be recorded in the consolidated statement of operations.

We identified the accounting for the TRA Termination as a critical audit matter.

The principal considerations for our determination were the significant judgment required in the evaluation of the contract terms pursuant to the TRA to determine the appropriate accounting treatment.

Auditing these elements involved especially complex auditor judgment due to the nature and extent of audit effort required to address these matters, including the need to involve personnel with specialized skill and knowledge.

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Warranty Liability related to Wire Insulation Shrinkback

As described in Note 9 to the consolidated financial statements, the Company has been notified by certain customers that a subset of wire harnesses used in its electrical balance of systems (“EBOS”) solutions is

presenting unacceptable levels of pull back of wire insulation at connection points (“wire insulation shrinkback”).

Based upon the Company’s ongoing assessment, the Company currently believes the wire insulation shrinkback is related to defective red wire from a specific manufacturer.

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

We identified the warranty liability related to the wire insulation shrinkback as a critical audit matter because of certain significant assumptions used by management to estimate the warranty liability, specifically, the magnitude of engineering, procurement, and construction firms’ (“EPC’s”) labor costs, estimated failure rates, and planned remediation methods.

Auditing these assumptions involved especially complex and subjective auditor judgment due to the nature and extent of audit effort required to address this matter.

The primary procedures we performed to address this critical audit matter included:

• Inspecting related TRA agreements and amendments, and minutes of the Board of Directors, and vouching the TRA termination payment to the underlying bank statement.

• Utilizing personnel with specialized knowledge and experience in technical accounting to assist in (i) evaluating management’s interpretation of relevant terms and conditions of the agreements, and (ii) evaluating management’s application of authoritative accounting guidance.

/s/ BDO USA, LLP

• Evaluating the time period associated with the defective red wire and verifying the sites included in management’s estimate are within the affected time period.

• Verifying a sample of sites included in management’s estimate to confirm the accuracy of the number of harnesses and affected wire.

• Vouching the EPC’s labor rates to external quotes.

Recalculating the estimated labor costs using labor rates and the number of impacted harnesses and evaluating the impact on the liability calculation.

• For a sample of sites, agreeing the failure rates to external inspection reports and testing the impact of those on the liability calculation.

• Evaluating management’s designation of planned remediation methods across the population of affected sites.

/s/ BDO USA, P.C.

We have served as the Company's auditor since 2017.

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Opinion on Internal Control over Financial Reporting

We have audited Shoals Technologies Group, Inc.

and Subsidiaries (the “Company’s”) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

We have audited Shoals Technologies Group, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.

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A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and

directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BDO USA, LLP

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that

controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BDO USA, P.C.

Austin, Texas

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Total Assets $ 843,993 $ 594,895

Liabilities and Stockholders’ Equity (Deficit)

Liabilities and Stockholders’ Equity

Current Liabilities

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Accrued expenses and other 22,907 17,322

Warranty liability—current portion 31,099 560

Deferred revenue 22,228 23,259

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Long-term debt, less current portion 139,445 189,063

Payable pursuant to the tax receivable agreement — 156,374

Warranty liability, less current portion 23,815 —

Other long-term liabilities 3,107 4,221

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Commitments and Contingencies (Note 16)

Stockholders’ Equity (Deficit)

Stockholders’ Equity

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

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

31,419,913 and 54,794,479 shares issued and outstanding as of December 31, 2022 and 2021, respectively

none and 31,419,913 shares issued and outstanding as of December 31, 2023 and 2022, respectively

Additional paid-in capital 470,542 256,894

Accumulated earnings (deficit) 34,478 ( 93,133 )

Accumulated earnings 74,452 34,478

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

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Non-controlling interests — 9,615

Total stockholders’ equity (deficit) 300,989 ( 7,498 )

Total Liabilities and Stockholders’ Equity (Deficit) $ 594,895 $ 426,414

Total stockholders' equity 544,996 300,989

Total Liabilities and Stockholders’ Equity $ 843,993 $ 594,895

See accompanying notes to consolidated financial statements.

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$ 39,974 $ 127,611 $ 2,348

December 31, 2022 Period from January 27, 2021 to December 31, 2021

Year Ended December 31, 2023 Year Ended December 31, 2022 Period from January 27, 2021 to December 31, 2021

Earnings (Loss) per share of Class A common stock:

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Common Stock Class B

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

Common Stock Additional Paid-in Capital Accumulated Earnings (Deficit) Non-Controlling Interests Total Stockholders' Equity (Deficit)

Shares Amount Shares Amount

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

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

Equity-based compensation 8,251 — — — — — — — 8,251

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

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

Balance at December 31, 2020 $ ( 184,123 ) — $ — — $ — $ — $ — $ — $ ( 184,123 )

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

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Issuance of Class A common stock sold in follow-on offering, net of underwriting discounts and commissions — 10,402,086 — — — 281,064 — — 281,064

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

Purchase of LLC Interests and Class B common stock — — — ( 10,402,086 ) — ( 281,064 ) — — ( 281,064 )

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

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

Deferred tax adjustment related to ConnectPV LLC conversion — — — — — ( 238 ) — — ( 238 )

— — — — — ( 238 ) — — ( 238 )

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

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

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

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

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

Shoals Technologies Group, Inc.

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Common Stock Class B

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

Common Stock Additional Paid-in Capital Accumulated Earnings (Deficit) Non-Controlling Interests Total Stockholders' Equity (Deficit)

Shares Amount Shares Amount

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

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

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

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

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

Reallocation of non-controlling interests — — — — — ( 7,240 ) — 7,240 —

— — — — — ( 7,240 ) — 7,240 —

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

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

Net income — — — — — — 127,611 15,402 143,013

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Reallocation of non-controlling interests — — — — — ( 6,604 ) — 6,604 —

December 31, 2022 $ — 137,904,663 $ 1 31,419,913 $ 1 $ 256,894 $ 34,478 $ 9,615 $ 300,989

Balance at December 31, 2022 — 137,904,663 1 31,419,913 1 256,894 34,478 9,615 300,989

Net income — — — — — — 39,974 2,687 42,661

Equity-based compensation — — — — — 20,862 — — 20,862

Activity under equity-based compensation plan — — — — — ( 4,567 ) — 687 ( 3,880 )

Distributions to non-controlling interests — — — — — — — ( 2,628 ) ( 2,628 )

Vesting of restricted / performance stock units — 792,713 — — — — — — —

Exchange of Class B to Class A common stock, net — 31,419,913 1 ( 31,419,913 ) ( 1 ) 186,745 — — 186,745

Reallocation of non-controlling interests — — — — — 10,361 — ( 10,361 ) —

Elimination of the umbrella-partnership C corporation structure — — — — — 247 — — 247

Balance at December 31, 2023 $ — 170,117,289 $ 2 — $ — $ 470,542 $ 74,452 $ — $ 544,996

See accompanying notes to consolidated financial statements.

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Provision for obsolete or slow-moving inventory 5,041 2,073 ( 1,418 )

Provision for warranty expense 59,556 560 60

Deferred taxes 11,334 8,406 ( 1,476 )

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Accrued expenses and other 4,471 10,110 ( 6,239 )

Warranty liability ( 5,202 ) — —

Deferred revenue ( 1,031 ) 21,418 1,668

Net Cash Provided by (Used in) Operating Activities 91,955 39,455 ( 4,083 )

Cash Flows Used In Investing Activities

Cash Flows from Investing Activities

Purchases of property, plant and equipment ( 10,578 ) ( 3,154 ) ( 4,126 )

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Deferred financing costs — — ( 94 )

Proceeds from term loan facility — — 350,000

Payments on term loan facility ( 51,500 ) ( 2,000 ) ( 152,750 )

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Proceeds from issuance of Class A common stock in follow-on offering, net of underwriting discounts and commissions — 42,943 281,064

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

Shoals Technologies Group, Inc.

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2023 2022 2021

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

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

Deferred offering costs ( 1,159 ) ( 1,463 ) ( 9,704 )

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

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

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

Early termination payment of tax receivable agreement — ( 58,000 ) —

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Shoals Technologies Group, Inc.

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

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

The Company is headquartered in Portland, Tennessee and is a manufacturer of electrical balance of systems (“EBOS”) solutions and components for solar, battery storage and electric vehicle charging applications, selling to customers across the United States and internationally.

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

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

Shoals Parent acquired Shoals on May 25, 2017.

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

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

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

Initial Public Offering

Shoals Parent LLC was a Delaware limited liability company.

Initial Public Offering and Organizational Transactions

On January 29, 2021, the Company completed an IPO of 11,550,000 shares of Class A common stock at a public offering price of $ 25.00 per share, including shares issued pursuant to the underwriters’ over-allotment option.

The Company received $ 278.8 million in proceeds, net of underwriting discounts and commissions of $ 9.9 million, which was used to purchase 6,315,790 newly-issued membership interests (“LLC Interests”) from Shoals Parent and 5,234,210 LLC Interests from the founder and Class B unit holder in Shoals Parent at a price per interest equal to the IPO price of $ 25.00 per share.

Organizational Transactions

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

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

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

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

Follow-On Offerings

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

On July 16, 2021, the Company completed a follow-on offering consisting of 4,989,692 shares of Class A common stock offered by selling stockholders and 10,402,086 shares of Class A common stock offered by the Company.

The Company received $ 278.8 million in proceeds, net of underwriting discounts and commissions of $ 9.9 million, which was used to purchase 6,315,790 newly-issued membership interests (“LLC Interests”) from Shoals Parent LLC and 5,234,210 LLC Interests from Dean Solon, our founder (the “Founder”), and Class B unit holder in Shoals Parent LLC at a price per interest equal to the IPO price of $ 25.00 per share.

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

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

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

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

Follow-On and Secondary Offerings

On July 16, 2021, the Company completed a secondary offering consisting of 4,989,692 shares of Class A common stock offered by the selling stockholders and 10,402,086 shares of Class A common stock offered by the Company.

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

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

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

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

See Note 18 - Payable Pursuant to the Tax Receivable Agreement.

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

On March 10, 2023, the selling stockholders, which consisted of certain entities controlled by the Founder, completed a secondary offering consisting of 24,501,650 shares of Class A common stock.

Following the closing of the secondary offering, the founder no longer owned any shares of our Class B common stock or LLC Interests.

The Company did not receive any proceeds from the sale of shares of our Class A common stock by the selling stockholders in this offering.

Termination of Tax Receivable Agreement

On November 29, 2022, the Company entered into an amendment to the TRA (the “TRA Amendment”), dated as of January 29, 2021, pursuant to which the parties thereto agreed to grant the Company a right to terminate the TRA until December 31, 2022 (the “TRA Termination Right”) in exchange for a termination consideration of $ 58.0 million, payable in cash.

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

Entity Simplification

In March 2023, following the secondary offerings described above, all Continuing Equity Owners, exchanged all the LLC Interests and corresponding shares of Class B common stock of the Company beneficially owned by them into shares of Class A common stock of the Company.

As a result, upon effectiveness of such exchanges, and prior to the July 1, 2023 contribution described below, all of the LLC Interests in Shoals Parent LLC were held by the Company, no other holders own LLC Interests and no Class B common stock is outstanding.

On July 1, 2023, the Company contributed 100 % of its LLC Interests of Shoals Parent LLC to its wholly-owned subsidiary Shoals Intermediate Parent.

Following the contribution, Shoals Parent LLC became a disregarded single member limited liability company, eliminating the umbrella-partnership C corporation structure (“Up-C structure”).

Effective July 1, 2023, the Company owned 100 % of Shoals Parent LLC together with its wholly-owned subsidiary, Shoals Intermediate Parent.

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

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

As of December 31, 2023, Shoals Technologies Group, Inc.

owns directly or indirectly four subsidiaries:

Shoals Intermediate Parent, Shoals Technologies Group, LLC, Shoals International, LLC and Shoals Energy Spain, S.L.

Summary of Significant Accounting Policies

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Non-Controlling Interests

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

Non-controlling interests on the consolidated balance sheet represents the portion of net assets of the Company attributable to the Continuing Equity Owners, based on the portion of the LLC Interests owned by such unit holders.

As of December 31, 2022, the non-controlling interests were 18.56 %.

Use of Estimates

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

Actual results could differ from those estimates.

Significant estimates include revenue recognition, allowance for credit losses, useful lives of property, plant and equipment and other intangible assets, impairment of long-lived assets, allowance for obsolete or slow moving inventory, payable pursuant to the TRA, valuation allowance on deferred tax assets and equity-based compensation expense.

Impact of Macroeconomic Events

In 2022, macroeconomic events, including the ongoing COVID-19 pandemic, impacted our business in the following ways:

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

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

• Our ability to secure inbound logistics to our facilities, with additional delays linked to international border crossings.

Significant levels of inflation have increased energy prices, freight premiums, and other operating costs.

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

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

The eventual implications of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital during 2023.

The Company does not directly source raw materials from Europe.

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

We do not know the ultimate severity or duration of the conflict in Ukraine, but we are continuously monitoring the situation and evaluating our procurement strategy and supply chain as to reduce any negative impact on our business, financial condition, and results of operations.

As 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.

To date we have not had any material adverse effects on our financial results from these events.

The non-controlling interests on the consolidated statements of operations represented a portion of earnings or loss attributable to the economic interests in the Company’s former subsidiary, Shoals Parent LLC, formerly held by the Continuing Equity Owners.

Non-controlling interests on the consolidated balance sheets represented the portion of net assets of the Company attributable to the Continuing Equity Owners, based on the portion of the LLC Interests owned by such unit holders.

As of July 1, 2023, the Company, along with wholly-owned subsidiary Shoals Intermediate Parent, owned 100 % of Shoals Parent LLC.

Effective December 31, 2023, Shoals Parent LLC merged with and into Shoals Intermediate Parent with Shoals Intermediate Parent as the surviving corporation.

See “Entity Simplification” in Note 1.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.

Actual results could differ materially from those estimates.

Cash and Cash Equivalents

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Restricted Cash

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

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

Restricted cash is restricted as to withdrawal or use.

Prior to the termination of the TRA, tax distributions paid by Shoals Parent to the Company were restricted under the LLC Agreement for future payments under the TRA and totaled $ 4.6 million as of December 31, 2021.

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

Prior to the termination of the TRA, tax distributions paid by Shoals Parent LLC to the Company were restricted under the LLC Agreement for future payments under the TRA and totaled $ 4.6 million as of December 31, 2021.

There was no restricted cash as of December 31, 2022 or December 31, 2023.

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

As of December 31,

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Cash and cash equivalents $ 22,707 $ 8,766 $ 5,006

Restricted cash included in other current asset — — —

Restricted cash included in other current assets — — —

Restricted cash included in other assets — — 4,551

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Accounts receivable is comprised of amounts billed to customers, net of an allowance for credit losses.

Interest is not charged on receivables.

The allowance for credit losses is estimated by management and is based on historical experience, current conditions and reasonable forecasts.

Periodically, management reviews the accounts receivable balances of its customers and adjusts the allowance based on current circumstances

Periodically, management reviews the accounts receivable balances of its

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

and charges off uncollectible receivables when all attempts to collect have failed, although collection efforts may continue.

customers and adjusts the allowance based on current circumstances and charges off uncollectible receivables when all attempts to collect have failed, although collection efforts may continue.

Unbilled Receivables

Unbilled receivables arise when the Company recognizes revenue for amounts which cannot yet be billed under terms of the contract with the customer.

Inventories consist of raw materials.

Inventories consist of raw materials, work in process, and finished goods.

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

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Property, Plant, and Equipment

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

Property, plant, and equipment acquired in acquisitions are recorded at fair value at the date of acquisition;

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

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The qualitative assessment evaluates factors including macroeconomic conditions, industry-specific and company-specific considerations, legal and regulatory environments, and historical performance.

If the Company determines that is more likely than not that the fair value of a reporting unit is less than its carrying value, a quantitative assessment is performed.

If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, a quantitative assessment is performed.

Otherwise, no further assessment is required.

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

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

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

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Deferred Offering Costs

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

Deferred Financing Costs

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

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

Depending on the size of project, the manufacturing process generally takes from less than one week to four months to complete production.

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

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As of December 31, 2023, $ 22.3 million of the Company’s bank balances were in excess of FDIC insurance limits.

The Company had the following revenue concentrations representing 10% or more of revenue for any period in the years ended December 31, 2022, 2021 and 2020 and related accounts receivable concentrations as of December 31, 2022 and 2021:

The Company had the following revenue concentrations representing approximately 10% or more of revenue for the years ended December 31, 2023, 2022 and 2021 and related accounts receivable concentrations as of December 31, 2023 and 2022:

2023 2022 2021

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Notes to Consolidated Financial Statements

long-term debt approximates fair value, as it is based on current market rates at which the Company could borrow funds with similar terms.

long-term debt approximates fair value and is considered level 2, as it is based on current market rates at which the Company could borrow funds with similar terms.

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

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Pre-IPO Income Taxes

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

rather, Shoals Parent’s taxable income was passed through to its members and subject to federal income tax at the member level.

Shoals Parent is the sole member of the following subsidiary LLCs, which are treated as disregarded entities for federal income tax purposes:

Intermediate, Holdings, and Shoals.

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

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

however, Shoals Technologies Group, LLC and Shoals Technologies, LLC pay various state and franchise taxes.

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

rather, Shoals Parent LLC’s taxable income was passed through to its members and subject to federal income tax at the member level.

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

however, Shoals Technologies Group, LLC and Shoals Technologies, LLC paid various state and franchise taxes.

Post-IPO Income Taxes

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federal and state income tax purposes.

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

Shoals Parent’s net taxable income and related tax credits, if any, are passed through to its members and included in the member’s tax returns.

Prior to July 1, 2023, the Company’s sole material asset was Shoals Parent LLC, which was a limited liability company that was taxed as a partnership for US federal and certain state and local income tax purposes.

Shoals Parent LLC’s net taxable income and related tax credits, if any, were passed through to its members and included in the member’s tax returns.

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

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

The Company recognizes penalties and interest related to uncertain tax positions within the income tax expense

The Company recognizes penalties and interest related to uncertain tax positions within the income tax expense financial statement caption in the accompanying consolidated statements of operations.

The Company did not have any material interest and penalties during the years ended December 31, 2023, 2022 and 2021.

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

financial statement caption in the accompanying consolidated statements of operations.

The Company did not have any material interest and penalties during the years ended December 31, 2022, 2021 and 2020.

The Company files U.S.

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When little or no experience exists for an immature product line, the estimate is based on comparable product lines.

Specific reserves are established once an issue is identified with the amounts for such reserves based on the estimated cost of correction.

Specific liabilities are established once an issue is identified with the amounts for such liabilities based on the estimated cost of correction.

These estimates are re-evaluated on an ongoing basis using best-available information and revisions to estimates are made as necessary.

As of December 31, 2022 and 2021 our estimated accrued warranty reserve was $ 0.6 million and $ 0.1 million, respectively.

As of December 31, 2023 and 2022 our estimated warranty liability was $ 54.9 million and $ 0.6 million, respectively.

Acquisition Accounting

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

Earnings per Share (“EPS”)

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

Earnings (Loss) per Share (“EPS”)

Basic EPS is computed by dividing net income (loss) available to common stockholders by the weighted average shares outstanding during the period.

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

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

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

Segment Reporting

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

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

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

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

allocate resources and in assessing performance.

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

Advertising Expenses

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New Accounting Standards

On January 1, 2022, the Company adopted Accounting Standards Update (“ASU”) No.

2016-02 (Topic 842) “Leases” which supersedes the lease recognition requirements in Accounting Standards Codification (“ASC”) Topic 840, “Leases” .

Under ASU No.

2016-02, lessees are required to recognize assets and liabilities on the consolidated balance sheets for most leases and provide enhanced disclosures.

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

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

The Company adopted the new standard using the modified retrospective method by recording a right-of-use asset of $ 1.2 million, short-term portion of lease liabilities of $ 0.4 million and long-term portion of lease liabilities of $ 0.8 million as of the effective date.

Prior periods will not be restated and will continue to be reported under Topic 840 guidance in effect during those periods.

The Company applied the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following:

(i) whether any expired or existing contracts contain leases;

(ii) the lease classification for any expired or existing leases;

and (iii) initial direct costs for any existing leases.

The adoption did not have a material impact on its consolidated statements of operations or its consolidated statements of cash flows.

See Note 14 - Leases for further information and disclosures related to the adoption of this standard.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments - Credit Losses , which was subsequently amended by ASU No.

2018-19 and ASU No.

2019-10, and which requires the measurement of expected credit losses for financial instruments carried at amortized cost held at the reporting date based on historical experience, current conditions and reasonable forecasts.

The updated guidance also amends the current other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value.

In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists.

The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

The standard was adopted on December 31, 2022 as the Company lost its status as an Emerging Growth Company effective December 31, 2022 and therefore was required to adopt the standard for the year ending December 31, 2022.

As the Company’s credit losses are typically minimal, the adoption of this standard did not have a significant impact on the consolidated financial statements.

Not Yet Adopted

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers .

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This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within that fiscal year.

Early adoption of the amendments is permitted, including adoption in an interim period.

An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application.

We are currently evaluating the impact of the new standard on our financial statements and related disclosures.

Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.

The adoption of this standard on January 1, 2023 did not have an impact on the Company’s consolidated financial statements.

Not Yet Adopted

In October 2023, the FASB issued ASU 2023-06 Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.

This ASU amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification.

For SEC registrants, the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited.

The Company will monitor the removal of various requirements from the current regulations in order to determine when to adopt the related amendments, but does not anticipate the adoption of the new guidance will have a material impact on the Company’s consolidated financial statements.

The Company will continue to evaluate the impact of this guidance on its consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which modifies the disclosure and presentation requirements of reportable segments.

The amendments in the update require the disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit and loss.

The amendments also require disclosure of all other segment items by reportable segment and a description of its composition.

Additionally, the amendments require disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.

This update is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company is currently evaluating the impact that this guidance will have on the presentation of its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and disclosures regarding cash taxes paid both in the U.S.

and foreign jurisdictions.

The update will be effective for annual periods beginning after December 15, 2024.

The Company is currently evaluating the impact that this guidance will have on the presentation of its consolidated financial statements.

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial statements.

Acquisition of ConnectPV

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

On August 26, 2021, the Company acquired 100 % of the common stock of ConnectPV, Inc (“ConnectPV”).

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

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

The cash portion of the purchase price was funded by borrowing under our Revolving Credit Facility (as defined below).

The cash portion of the purchase price was funded by borrowing under our Revolving Credit Facility (as defined in Note 10 - Long-Term Debt).

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

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

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Purchase Price Allocation

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

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Pro Forma Financial Information (Unaudited)

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

Year Ended December 31,

Revenue $ 229,709

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Accounts receivable, net consists of the following (in thousands):

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Accounts receivable $ 107,877 $ 51,061

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Raw materials $ 57,608 $ 73,970

Work in process 1,111 1,023

Finished goods 654 785

Allowance for obsolete or slow-moving inventory ( 6,569 ) ( 2,924 )

Inventory, net $ 52,804 $ 72,854

The following table presents the change in the allowance for obsolete or slow-moving inventory balances (in thousands):

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Allowance balance, beginning of year $ ( 2,924 ) $ ( 897 )

Provision ( 5,041 ) ( 2,073 )

Write offs 1,396 46

Allowance balance, end of year $ ( 6,569 ) $ ( 2,924 )

Property, Plant and Equipment

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Depreciation expense for the years ended December 31, 2023, 2022 and 2021 was $ 2.6 million, $ 1.9 million and $ 1.7 million, respectively.

During the years ended December 31, 2022, 2021 and 2020, $ 1.5 million, $ 1.5 million and $ 1.1 million, respectively, of depreciation expense was allocated to cost of revenue.

During the years ended December 31, 2022, 2021 and 2020, $ 0.4 million, $ 0.2 million and $ 0.3 million, respectively, of depreciation expense was allocated to operating expenses.

During the years ended December 31, 2023, 2022 and 2021, $ 2.0 million, $ 1.5 million and $ 1.5 million, respectively, of depreciation expense was allocated to cost of revenue and $ 0.6 million, $ 0.4 million and $ 0.2 million, respectively, of depreciation expense was allocated to operating expenses.

Goodwill and Other Intangible Assets

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Goodwill relates to the acquisition of Shoals and ConnectPV.

As of December 31, 2022 and 2021, goodwill totaled $ 69.9 million and $ 69.4 million, respectively.

As of December 31, 2023 and 2022, goodwill totaled $ 69.9 million.

Changes in the carrying amount of goodwill during the years ended December 31, 2023 and 2022 are shown below (in thousands):

Balance at December 31, 2021 $ 69,436

Acquisition of ConnectPV 19,260

Balance at December 31, 2021 69,436

Adjustments related to finalization of working capital in the acquisition of ConnectPV 505

Balance at December 31, 2022 69,941

Adjustments —

Balance at December 31, 2023 $ 69,941

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Other Intangible Assets

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Developed technology 13

34,600 34,600

Trade names 13

11,900 11,900

Backlog 1 600 600

Noncompete agreements 5

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Estimated future annual amortization expense for other intangible assets, net are as follows (in thousands):

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

For the Year Ended December 31, Amortization Expense

Thereafter 10,743

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Accrued Expenses and Other

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Total accrued expenses and other $ 22,907 $ 17,322

Warranty Liability

General Warranty

The Company offers an assurance type warranty for its products against manufacturer defects which does not contain a service element.

For these assurance type warranties, a provision for estimated future costs related to warranty expense is recorded when they are probable and reasonably estimable.

As of December 31, 2023 and December 31, 2022 our estimated general warranty liability was approximately zero and $ 0.1 million, respectively.

The Company recorded total warranty expense related to general warranty matters of $ 0.4 million, $ 0.1 million, and zero for the years ended December 31, 2023, 2022 and 2021, respectively.

Wire Insulation Shrinkback Warranty

The Company has been notified by certain customers that a subset of wire harnesses used in its EBOS solutions is presenting unacceptable levels of pull back of wire insulation at connection points (“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 have recorded.

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

The estimated range is based on several assumptions, including the potential magnitude of EPC’s labor cost to identify and perform the repair and replacement of impacted harnesses, estimated failure rates, materials replacement cost, planned remediation method, inspection costs, and other various 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 Wire Insulation Shrinkback Litigation section of Note 16 - Commitments and Contingencies.

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.

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

The Company recorded total warranty expense related to this matter of $ 59.2 million, $ 0.5 million, and zero for the years ended December 31, 2023, 2022 and 2021, respectively.

Warranty liability, which includes both general warranty and wire insulation shrinkback warranty, consists of the following (in thousands):

Year Ended December 31,

2023 2022 2021

Warranty liability, beginning of period $ 560 $ 60 $ —

Warranty expense 59,556 500 60

Payments ( 5,202 ) — —

Warranty liability, end of period 54,914 560 60

current portion 31,099 560 60

Warranty liability, net current portion $ 23,815 $ — $ —

Long-Term Debt

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Senior Secured Credit Agreement

On November 25, 2020 Shoals Holdings LLC, a former subsidiary of the Company, entered into a senior secured credit agreement (as amended, the “Senior Secured Credit Agreement”), consisting of (i) a $ 350.0 million senior secured six-year term loan facility (the “Term Loan Facility”), (ii) a $ 30.0 million senior secured delayed draw term loan facility, which matures concurrently with the six-year Term Loan Facility (the “Delayed Draw Term Loan Facility”) and (iii) an uncommitted super senior first out revolving credit facility (the “Revolving Credit Facility”).

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

On November 25, 2020 Shoals Holdings, entered into a senior secured credit agreement (as amended, the “Senior Secured Credit Agreement”), consisting of (i) a $ 350.0 million senior secured six-year term loan facility (the “Term Loan Facility”), (ii) a $ 30.0 million senior secured delayed draw term loan facility, which matures concurrently with the six -year Term Loan Facility (the “Delayed Draw Term Loan Facility”) and (iii) an uncommitted super senior first out revolving credit facility (the “Revolving Credit Facility”).

In December 2020, Shoals Holdings entered into two amendments to the Senior Secured Credit Agreement in order to obtain a $ 100.0 million increase (the “Revolver Upsize”) to the Revolving Credit Facility and modify the terms of the interest rate and prepayment premium.

In December 2020, Shoals Holdings LLC entered into two amendments to the Senior Secured Credit Agreement in order to obtain a $ 100.0 million increase (the “Revolver Upsize”) to the Revolving Credit Facility and modify the terms of the interest rate and prepayment premium.

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

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The repayment of a portion of the borrowings under the Term Loan Facility resulted in a $ 16.0 million loss on debt repayment as the result of the $ 11.3 million prepayment premium and $ 4.7 million write-off of a portion of the deferred financing costs.

On May 2, 2022, Shoals Holdings entered into an amendment to the Senior Secured Credit Agreement in order to increase the amount available for borrowing under the Revolving Credit Facility from $ 100.0 million to $ 150.0 million.

The amendment also set forth Secured Overnight Financing Rate (“SOFR”) as the benchmark rate to succeed London Interbank Offered Rate and amended the financial covenant such that, commencing with September 30, 2022, Shoals Holdings shall not permit its Consolidated First Lien Secured Leverage Ratio (as defined in the Senior Secured Credit Agreement) to exceed 6.50 :1.00.

On May 2, 2022, Shoals Holdings LLC entered into an amendment to the Senior Secured Credit Agreement in order to increase the amount available for borrowing under the Revolving Credit Facility from $ 100.0 million to $ 150.0 million.

The amendment also set forth Secured Overnight Financing Rate (“SOFR”) as the benchmark rate and amended the financial covenant such that, commencing with September 30, 2022, its Consolidated First Lien Secured Leverage Ratio (as defined in the Senior Secured Credit Agreement) shall not exceed 6.50 :1.00.

On December 27, 2023, the Company used proceeds from the Revolving Credit Facility to make a $ 50.0 million voluntary prepayment of outstanding borrowings under the Term Loan Facility.

As of December 31, 2023, the outstanding balance of the Term Loan Facility was $ 143.8 million.

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As of December 31, 2023, the Revolving Credit Facility balance was $ 40.0 million and the Company had $ 109.7 million of availability under the Revolving Credit Facility.

Following the internal reorganization described under “Entity Simplification” in Note 1, on February 7, 2024, Shoals Intermediate Parent became the borrower under the Senior Secured Credit Agreement.

Interest Rate

The interest rates applicable to the loans under the Term Loan Facility are based on a rate of interest determined by reference to either:

(i) a base rate plus an applicable margin equal to (a) on and after December 30, 2020 until the later of either (1) February 28, 2021 or (2) December 31, 2022 so long as Holdings has prepaid the loans under the Term Loan Facility on or prior to February 28, 2021 in an amount that results in the aggregate outstanding principal amount of loans under the Term Loan Facility being equal to or less than the sum of (A) $ 200.0 million minus (B) any mandatory prepayments of the principal amount of loans under the Term Loan Facility or amortization payments made prior to February 28, 2021, 2.25 % and (b) thereafter, either (1) if Holdings has consummated an IPO the net cash proceeds of which have been used to repay the principal amount of the loans under the Term Loan Facility in an amount no less than $ 70.0 million, 4.75 % or (2) otherwise, 5.00 %;

or (ii) a SOFR rate plus an applicable margin equal to (a) on and after December 30, 2020 until the later of either (1) February 28, 2021 or (2) December 31, 2022 so long as Holdings has prepaid the loans under the Term Loan Facility on or prior to February 28, 2021 in an amount that results in the aggregate outstanding principal amount of loans under the Term Loan Facility being equal to or less than the sum of (A) $ 200.0 million minus (B) any mandatory prepayments of the principal amount of loans under the Term Loan Facility or amortization payments made prior to February 28, 2021, 3.25 % and (b) thereafter, either (1) if Holdings has consummated an IPO the net cash proceeds of which have been used to repay the principal

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

amount of the loans under the Term Loan Facility in an amount no less than $ 70.0 million, 5.75 % or (2) otherwise, 6.00 %.

(i) a base rate plus an applicable margin equal to 4.75 %, or (ii) a SOFR rate plus an applicable margin equal to, 5.75 %.

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

As of December 31, 2022, interest rates on the Term Loan Facility was SOFR plus 3.25 %, or 7.51 %, and the Revolving Credit Facility was SOFR plus 3.25 %, ranging from 7.00 % to 7.92 %.

As of December 31, 2023, interest rates on the Term Loan Facility was SOFR plus 5.75 %, or 11.28 %, and the Revolving Credit Facility was SOFR plus 3.25 %, or 8.76 %.

Guarantees and Security

The obligations under the Senior Secured Credit Agreement are guaranteed by Shoals Intermediate Holdings and its wholly owned domestic subsidiaries other than certain immaterial subsidiaries and other excluded subsidiaries.

The obligations under the Senior Secured Credit Agreement are secured by a first priority security interest in substantially all of Holdings’ and the other guarantors’ existing and future property and assets, including accounts receivable, inventory, equipment, general intangibles, intellectual property, investment property, other personal property, material owned real property, cash and proceeds of the foregoing.

Prepayments and Amortization

Loans under the Revolving Credit Facility may be voluntarily prepaid, at Shoals Holdings’ option, in whole, or in part, in each case without premium or penalty.

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

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

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

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

Additionally, after February 28, 2021 but prior to the second anniversary of the Senior Secured Credit Agreement Closing Date, up to $ 175.0 million of the outstanding principal amount of the Term Loan Facility may be voluntarily prepaid upon the consummation of an IPO with proceeds from such IPO, subject to a

The obligations under the Senior Secured Credit Agreement are guaranteed by Shoals Intermediate Parent’s wholly owned domestic subsidiaries other than certain immaterial subsidiaries and other excluded subsidiaries.

The obligations under the Senior Secured Credit Agreement are secured by a first priority security interest in substantially all of Shoals Intermediate Parent’s and the guarantors’ existing and future property and assets, including accounts receivable, inventory, equipment, general intangibles, intellectual property, investment property, other personal property, material owned real property, cash and proceeds of the foregoing.

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

prepayment premium in an amount equal to 1.00 % in lieu of any applicable call protection premiums set forth in the second preceding paragraph.

Prepayments and Amortization

Loans under the Revolving Credit Facility and Term Loan Facility may be voluntarily prepaid, at Shoals Intermediate Parent’s option, in whole, or in part, in each case without premium or penalty.

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

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

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

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

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The Revolving Credit Facility also includes a Consolidated Leverage Ratio financial covenant that is tested on the last day of each fiscal quarter.

To remain in compliance with the financial covenant, Shoals Intermediate Holdings shall not permit the Consolidated Leverage Ratio, as of the last day of any quarter, to be greater than 6.50 to 1.00.

To remain in compliance with the financial covenant, Shoals Intermediate Parent shall not permit the Consolidated Leverage Ratio, as of the last day of any quarter, to be greater than 6.50 to 1.00.

As of December 31, 2023, the Company was in compliance with all the required covenants.

Earnings per Share (“EPS”)

Earnings (Loss) per Share ("EPS")

Basic EPS of Class A common stock is computed by dividing net income (loss) attributable to the Company by the weighted average number of shares of Class A common stock outstanding during the period.

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

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

from the period subsequent to January 26, 2021 is included in the net income (loss) attributable to the stockholders of Class A common stock for the periods ended December 31, 2022.

Basic and diluted EPS of Class A common stock have been computed as follows (in thousands, except per share amounts):

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Year Ended December 31, 2022 Period from January 27, 2021 to December 31, 2021

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

from the period subsequent to January 26, 2021 is included in the net income (loss) attributable to the stockholders of Class A common stock for the period ended December 31, 2021.

Basic and diluted EPS of Class A common stock have been computed as follows (in thousands, except per share amounts):

Year Ended December 31, 2023 Year Ended December 31, 2022 Period from January 27, 2021 to December 31, 2021

Net income (loss) attributable to Shoals Technologies Group, Inc.

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Earnings (Loss) per share of Class A common stock - diluted $ 0.24 $ 0.85 $ ( 0.00 )

For the period from January 27, 2021 to December 31, 2021, the reallocation of net income attributable to non-controlling interest from the assumed exchange of Class B common stock has been excluded along with the dilutive effect of Class B common stock to the weighted average shares of Class A common stock outstanding – dilutive, as they were antidilutive.

For the period from January 27, 2021 to December 31, 2021 and the year ended December 31, 2023, the reallocation of net income attributable to non-controlling interest from the assumed exchange of Class B common stock has been excluded along with the dilutive effect of Class B common stock to the weighted average shares of Class A common stock outstanding – dilutive, as they were antidilutive.

Equity-Based Compensation

2021 Long-Term Incentive Plan

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

2021 Long-Term incentive Plan (the “2021 Incentive Plan”) became effective.

The Shoals Technologies Group, Inc.

2021 Long-Term Incentive Plan (the “2021 Incentive Plan”) became effective on January 26, 2021.

The 2021 Incentive Plan authorized 8,768,124 new shares, subject to adjustment pursuant to the 2021 Incentive Plan.

Restricted Stock Units

During the period from January 26, 2021 to December 31, 2021, the Company granted 1,701,306 restricted stock units (“RSUs”) to certain employees, officers and directors of the Company.

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

There were a limited number of awards with immediate vesting.

During the year ended December 31, 2022, the Company granted 727,001 restricted stock units (“RSUs”) to certain employees, officers and directors of the Company.

The RSUs have grant date fair values ranging from $ 10.42 to $ 25.82 per unit and generally vest ratably over 3 years, except for some officer and employee grants for bonuses which immediately vested.

Activity under the 2021 Incentive Plan for RSUs was as follows:

During the years ended December 31, 2023 and 2022, and for the period from January 27, 2021 to December 31, 2021, the Company granted 413,873 , 727,001 , and 1,701,306 restricted stock units (“RSUs”), respectively, to certain employees, officers and directors of the Company.

The RSUs had grant date fair values

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

ranging from $ 14.45 to $ 28.26 , $ 10.42 to $ 25.82 , and $ 21.50 to $ 34.60 , respectively, during the years ended December 31, 2023 and 2022 and for the period from January 27, 2021 to December 31, 2021.

The RSUs generally vest ratably over either 3 or 4 years, except for some officer and employee grants for bonuses which immediately vested or vest over 1 year.

There were a limited number of awards with immediate vesting.

Activity under the 2021 Incentive Plan for RSUs was as follows:

Stock Units Weighted Average Price

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Granted 1,701,306 $ 27.61

Forfeited ( 23,738 ) $ 29.46

Vested ( 44,724 ) $ 28.60

Forfeited ( 23,738 ) $ 29.46

Outstanding, December 31, 2021 1,632,844 $ 27.55

Granted 727,001 $ 13.78

Vested ( 559,336 ) $ 26.05

Forfeited ( 63,534 ) $ 25.56

Outstanding, December 31, 2022 1,736,975 $ 22.34

Granted 413,873 $ 24.78

Vested ( 887,996 ) $ 21.39

Forfeited ( 91,386 ) $ 23.05

Outstanding, December 31, 2023 1,171,466 $ 23.87

Performance Stock Units

During the year ended December 31, 2022, the Company granted an aggregate of 256,305 Performance Stock Units (“PSUs”) to certain executives.

The PSUs cliff vest after 3.0 years upon meeting certain revenue and gross margin targets and contain certain modifiers which could increase or decrease the ultimate number of Class A common stock issued to the executives.

The PSUs were valued using the market value of the Class A common stock on the grant date ranging from $ 10.42 to $ 20.58 per PSUs.

Based on results achieved in 2022 and the forecasted amounts over the remainder of the performance period, the Company expects the units to vest and the modifier to be achieved related to the revenue target.

During the years ended December 31, 2023 and 2022, the Company granted an aggregate of 205,585 and 256,305 Performance Stock Units (“PSUs”), respectively, to certain executives.

The PSUs cliff vest after 3 years upon meeting certain revenue and gross profit targets and contain certain modifiers which could increase or decrease the ultimate number of Class A common stock issued to the executives.

The PSUs were valued using the market value of the Class A common stock on the grant date ranging from $ 26.55 to $ 28.26 and $ 10.42 to $ 20.58 , respectively, during the years ended December 31, 2023 and 2022.

Activity under the 2021 Incentive Plan for PSUs was as follows:

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Outstanding, December 31, 2022 256,305 $ 11.89

During the years ended December 31, 2022 and 2021, the Company recognized $ 16.1 million and $ 11.3 million, respectively, in equity-based compensation.

As of December 31, 2022, the Company had $ 31.9 million of unrecognized compensation costs which is expected to be recognized over a period of 2.1 years.

Pre-IPO Class C Units

The Company accounted for equity grants to employees (Class C units) as equity-based compensation.

The Class C units contained vesting provisions as defined in the agreement.

Vested units did not forfeit upon termination and represented a residual interest in the Company.

Equity-based compensation cost was measured at the grant date fair value and was recognized on a straight-line basis over the requisite service period, including those units with graded vesting with a corresponding credit to members’ equity (deficit).

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

Granted 205,585 $ 27.75

Vested ( 67,101 ) $ 11.86

Forfeited ( 101,323 ) $ 13.08

Outstanding, December 31, 2023 293,466 $ 22.59

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

In May 2020, the Company issued 11,150,000 Class C units to certain employees of the Company of which approximately 77 % were vested on the grant date.

The fair value of such units was determined by management with the assistance of a third party valuation firm by considering a number of factors, including comparison companies, operating and financial performance, the lack of liquidity of the units, and general and industry specific economic outlook, amongst other factors.

The grant date fair value of the Class C units granted during 2020 was $ 0.74 per unit.

In November 2020, the Company modified and accelerated the remaining vesting on the unvested Class C units.

On January 26, 2021 as part of the Corporate Conversion the 11,150,000 Class C Units were converted into 9,986,025 LLC Interest in Shoals Parent.

For the year ended December 31, 2020 the Company recognized $ 8.3 million in equity-based compensation.

At December 31, 2020, the Company had no remaining unrecognized compensation costs related to Class C units.

There were no forfeitures during the year ended December 31, 2020.

Stockholders’ Equity (Deficit)

During the years ended December 31, 2023, 2022 and 2021, the Company recognized $ 20.9 million, $ 16.1 million, and $ 11.3 million, respectively, in equity-based compensation.

As of December 31, 2023, the Company had $ 20.8 million of unrecognized compensation costs which is expected to be recognized over a weighted average period of 1.5 years.

Stockholders’ Equity

Amendment and Restatement of Certificate of Incorporation

As discussed in Note 1, on January 26, 2021, the Company’s certificate of incorporation was amended and restated to, among other things, provide for the (i) authorization of 1,000,000,000 shares of Class A common stock with a par value of $ 0.00001 per share;

As discussed in Note 1 - Organization and Business, on January 26, 2021, the Company’s certificate of incorporation was amended and restated to, among other things, provide for the (i) authorization of 1,000,000,000 shares of Class A common stock with a par value of $ 0.00001 per share;

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

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

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

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

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

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

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

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

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

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

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

Shares of Class B common stock were transferable only together with an equal number of LLC Interests.

Shares of Class B common stock were canceled on a one -for-one basis if the Company, at the election of a Continuing Equity Owner, redeemed or exchanged LLC Interests.

As of December 31, 2023, there were no shares of Class B common stock nor LLC Interests outstanding, and no shares of Class B common stock are expected to be issued in the future.

Initial Public Offering

As discussed in Note 1, on January 29, 2021, the Company closed an IPO of 11,550,000 shares of the Class A common stock at a public offering price of $ 25.00 per share.

The Company received $ 278.8 million in proceeds, net of underwriting discounts and commissions, which was used to purchase 6,315,790 LLC Interests from Shoals Parent and 5,234,210 LLC Interests from the founder and Class B unit holder in Shoals Parent at a price per interest equal to the IPO price of the Class A common stock of $ 25.00 per share.

Shoals Parent Recapitalization

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

As discussed in Note 1 - Organization and Business, on January 29, 2021, the Company closed an IPO of 11,550,000 shares of the Class A common stock at a public offering price of $ 25.00 per share.

The Company received $ 278.8 million in proceeds, net of underwriting discounts and commissions, which was used to purchase 6,315,790 LLC Interests from Shoals Parent LLC and 5,234,210 LLC Interests from the founder and Class B unit holder in Shoals Parent LLC at a price per interest equal to the IPO price of the Class A common stock of $ 25.00 per share.

Shoals Parent LLC Recapitalization

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

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

The amendment also required Shoals Parent LLC to maintain, at all times, (i) a one -to-one ratio between the number of shares of Class A common stock issued by the Company and the number of LLC Interests owned by the Company and (ii) a one -to-one ratio between the number of shares of Class B common

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

interests in Shoals Parent, or the LLC Interests;

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

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

stock owned by the Continuing Equity Owners and the number of LLC Interests owned by the Continuing Equity Owners.

At the close of the IPO and through the second quarter of 2023, the Company had a majority economic interest in, was the sole managing member of, had the sole voting power in, and controlled the management of Shoals Parent LLC.

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

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

Effective December 31, 2023, Shoals Parent LLC merged with and into Shoals Intermediate Parent with Shoals Intermediate Parent as the surviving corporation.

See “Entity Simplification” in Note 1.

Acquisition of Former Shoals Equity Owners

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

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

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

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Non-Controlling Interests

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

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

Year Ended December 31, 2022 Period from January 27, 2021 to December 31, 2021

Net income attributable to non-controlling interest $ 15,402 $ 1,596

As of the first quarter of 2023, the Company owned 100 % of Shoals Parent LLC.

The following table summarizes the effects of the changes in ownership in Shoals Parent LLC on equity for the years ended December 31, 2023, 2022, and 2021:

Year Ended December 31, 2023 Year Ended December 31, 2022 Period from January 27, 2021 to December 31, 2021

Net income attributable to non-controlling interests $ 2,687 $ 15,402 $ 1,596

Transfers to non-controlling interests:

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Increase as a result of activity under equity-based compensation plan 687 5,422 3,618

Decrease from tax distributions to non-controlling interest ( 7,762 ) ( 4,837 )

Reallocation of non-controlling interest 6,604 7,240

Change from net income attributable to/from non-controlling interest and transfers to non-controlling interest $ 19,666 $ ( 10,051 )

Decrease from tax distributions to non-controlling interests ( 2,628 ) ( 7,762 ) ( 4,837 )

Reallocation of non-controlling interests ( 10,361 ) 6,604 7,240

Change from net income attributable to non-controlling interests and transfers to non-controlling interests $ ( 9,615 ) $ 19,666 $ ( 10,051 )

Issuance of Additional LLC Interests

Under the LLC Agreement, the Company is required to cause Shoals Parent to issue additional LLC Interests to the Company when the Company issues additional shares of Class A common stock.

Other than as it relates to the issuance of Class A common stock in connection with an equity incentive program, the Company must contribute to Shoals Parent net proceeds and property, if any, received by the Company with respect to the issuance of such additional shares of Class A common stock.

The Company must cause Shoals Parent to issue a number of LLC Interests equal to the number of shares of Class A common stock issued such

Under the LLC Agreement, the Company was required to cause Shoals Parent LLC to issue additional LLC Interests to the Company when the Company issued additional shares of Class A common stock.

Other than as it relates to the issuance of Class A common stock in connection with an equity incentive program, the Company contributed to Shoals Parent LLC net proceeds and property, if any, received by the Company with

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

that, at all times, the number of LLC Interests held by the Company equals the number of outstanding shares of Class A common stock.

During the years ended December 31, 2022 and 2021, the Company caused Shoals Parent to issue to the Company a total of 480,116 and 40,665 LLC Interests, respectively, for the vesting of awards granted under the Shoals Technologies Group, Inc.

2021 Long-Term Incentive Plan.

respect to the issuance of such additional shares of Class A common stock.

The Company caused Shoals Parent LLC to issue a number of LLC Interests equal to the number of shares of Class A common stock issued such that, at all times, the number of LLC Interests held by the Company was equal to the number of outstanding shares of Class A common stock.

During the years ended December 31, 2023, 2022 and 2021, the Company caused Shoals Parent LLC to issue to the Company a total of 601,518 , 480,116 and 40,665 LLC Interests, respectively, for the vesting of awards granted under the 2021 Long-Term Incentive Plan.

On July 1, 2023, the Company contributed 100 % of its LLC Interests in Shoals Parent LLC to its wholly-owned subsidiary, Shoals Intermediate.

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

Effective December 31, 2023, Shoals Parent LLC merged with and into Shoals Intermediate Parent with Shoals Intermediate Parent as the surviving corporation.

See “Entity Simplification” in Note 1.

Distributions for Taxes

As a limited liability company (treated as a partnership for income tax purposes), Shoals Parent does not incur significant federal, state or local income taxes, as these taxes are primarily the obligations of its members.

As authorized by the LLC Agreement, Shoals Parent is required to distribute cash, to the extent that Shoals Parent has cash available, on a pro rata basis, to its members to the extent necessary to cover the members’ tax liabilities, if any, with respect to each member’s share of Shoals Parent taxable earnings.

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

During the years ended December 31, 2022 and 2021, tax distributions to non-controlling LLC Interests holders was $ 7.8 million and $ 4.8 million, respectively.

As a limited liability company (treated as a partnership for income tax purposes), Shoals Parent LLC did not incur significant federal, state or local income taxes, as these taxes were primarily the obligations of its members.

As authorized by the LLC Agreement, Shoals Parent LLC was required to distribute cash, to the extent that Shoals Parent LLC had cash available, on a pro rata basis, to its members to the extent necessary to cover the members’ tax liabilities, if any, with respect to each member’s share of Shoals Parent LLC taxable earnings.

Shoals Parent LLC made such tax distributions to its members quarterly, based on the single highest marginal tax rate applicable to its members applied to projected year-to-date taxable income.

During the years ended December 31, 2023, 2022 and 2021, tax distributions to non-controlling LLC Interests holders were $ 2.6 million, $ 7.8 million and $ 4.8 million, respectively.

Other Distributions

Pursuant to the LLC Agreement, the Company has the right to determine when distributions will be made to LLC members and the amount of any such distributions.

If the Company authorizes a distribution, such distribution will be made to the members of the LLC (including the Company) pro rata in accordance with the percentages of their respective LLC units.

Pursuant to the LLC Agreement, the Company had the right to determine when distributions would be made to LLC members and the amount of any such distributions.

If the Company authorized a distribution, such distribution was made to the members of the LLC (including the Company) pro rata in accordance with the percentages of their respective LLC units.

Effective January 1, 2022, the Company adopted ASC 842 Leases using the modified retrospective approach.

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Adoption of this standard resulted in recording of net operating lease ROU assets and corresponding operating lease liabilities of $ 1.2 million and $ 1.2 million, respectively.

The standard did not materially affect the consolidated statements of income and had no impact on the consolidated statements of cash flows.

The standard did not materially affect the consolidated statements of operations and had no impact on the consolidated statements of cash flows.

The following table summarizes the balances as it relates to leases at the end of the period (in thousands):

(*) December 31, 2022

ROU asset Other assets $ 4,060

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Location on the Consolidated Balance Sheets 2023 2022

Right-of-use asset Other assets $ 2,871 $ 4,060

Lease liability, current portion Accrued expenses and other $ 1,140 $ 1,162

Lease liability, long-term portion Other long-term liabilities 3,256

Lease liability, net current portion Other long-term liabilities 2,116 3,256

Total lease liability $ 3,256 $ 4,418

(*) Location on the consolidated balance sheet

The Company determines if an arrangement is a lease at its inception.

Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

the lease term.

Operating lease right-of-use (“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

Operating lease ROU assets also include any initial direct costs and prepayments less lease incentives.

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Lease expense for these leases is recognized on a straight-line basis over the lease term.

Operating lease arrangements are comprised primarily of real estate and equipment agreements for which the right-of-use assets are included in other assets and the corresponding lease liabilities, depending on their maturity, are included in accrued expenses and other or other long-term liabilities in the consolidated balance sheets.

Operating lease arrangements are comprised primarily of real estate and equipment agreements for which the ROU assets are included in other assets and the corresponding lease liabilities, depending on their maturity, are included in accrued expenses and other or other long-term liabilities in the consolidated balance sheets.

The Company also elected to apply the practical expedient to consider non-lease components as a part of the lease.

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The details of the Company’s operating leases are as follows (in thousands):

December 31, 2022

Year Ended December 31,

Operating lease expense $ 1,189 $ 1,126

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Total lease liabilities $ 3,256

The Company’s weighted average remaining lease-term and weighted average discount rate are as follows:

December 31, 2022

Weighted average remaining lease-term 3.9 years

Weighted average discount rate 4.5 %

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

The Company’s weighted average remaining lease-term and weighted average discount rate are as follows:

Year Ended December 31,

Weighted average remaining lease-term 3.0 years 3.9 years

Weighted average discount rate 4.5 % 4.5 %

Supplemental cash flow and other information related to operating leases are as follows (in thousands):

December 31, 2022

Year Ended December 31,

Operating cash flows from operating leases $ 1,566 $ 1,295

Non-cash investing activities:

Lease liabilities arising from obtaining right-of-use assets as of January 1, 2022 $ 1,239

Lease liabilities arising from obtaining right-of-use assets during the year ended December 31, 2022 $ 3,990

The following table represents future minimum lease obligations under non-cancelable operating leases accounted for in accordance with ASC 840, as of December 31, 2021 (in thousands):

For the Year Ended December 31, Operating Leases

Total $ 1,252

Lease liabilities arising from obtaining right-of-use assets $ — $ 5,229

Commitments and Contingencies

The Company is from time to time subject to legal proceedings and claims, which arise in the normal course of its business.

In the opinion of management and legal counsel, the amount of losses that may be sustained, if any, would not have a material effect on the financial position, results of operations or cash flows of the Company.

In the opinion of management and legal counsel, except as disclosed below, the amount of losses or gains that may be sustained, if any, would not have a material effect on the financial position, results of operations or cash flows of the Company.

The Company records legal costs associated with loss contingencies as incurred.

Intellectual Property Litigation

On May 4, 2023, the Company filed a patent infringement complaint with the U.S.

International Trade Commission (“ITC”) against Hikam America, Inc., a corporation based in Chula Vista, California, and its related foreign entities (together, “Hikam”), and Voltage LLC, a limited liability company based in Chapel Hill, North Carolina, and a related foreign entity (together, “Voltage”).

The complaint primarily requests that the ITC (i) investigate unlawful imports of certain photovoltaic connectors and components that the Company alleges infringe on two valid and enforceable patents owned by the Company related to improved connectors for solar panel arrays and (ii) issue a limited exclusion order and a cease and desist order against the Hikam respondents and the Voltage respondents to bar them from 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.

On July 19, 2023, the Company filed an amended complaint with the ITC, adding allegations that Voltage also infringes a third, recently-issued patent owned by the Company.

Also on May 4, 2023, the Company filed complaints against Hikam in the U.S.

District Court for the Southern District of California, and against Voltage in the U.S.

District Court for the Middle District of North Carolina on the same subject matter.

On June 28, 2023, the Company filed an amended complaint in the District Court action against Voltage alleging that they also infringe on a third, recently-issued patent owned by the Company.

These complaints seek injunctive relief and damages for reasonable royalty and lost profits.

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, the Company filed an unopposed motion on February

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

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.

The Company intends to vigorously pursue these actions.

However, at this stage, the Company is unable to predict the outcome or impact on its business and financial results.

The Company is accounting for this matter as a gain contingency, and will record any such gain in future periods if and when the contingency is resolved, in accordance with ASC 450 Contingencies.

Wire Insulation Shrinkback Litigation

On October 31, 2023, the Company filed a complaint in the U.S.

District Court for the Middle District of Tennessee, Nashville Division, against Prysmian.

The complaint alleges damages caused by defective red wire Prysmian sold the Company between 2020 through approximately 2022.

The defective red wire has presented unacceptable levels of wire insulation shrinkback.

The complaint includes, among other causes of action, product liability, breach of contract, breach of warranty, indemnity, and negligence claims.

The Company seeks compensatory and punitive damages, recovery of all costs and expenses incurred by the Company in connection with the identification, repair and replacement of the defective wire, and other legal and equitable relief.

The Company intends to vigorously pursue this action, and as the Company continues to assess this matter, it may, from time to time, amend, update or supplement the complaint to, among other things, increase the damages sought for various purposes, including in accordance with increases to the Company’s estimated warranty liability and related expenses related to this matter.

At this stage, the Company is unable to predict the outcome of this litigation or the impact on its business and financial results.

The Company is accounting for this matter as a gain contingency, and will record any such gain in future periods if and when the contingency is resolved, in accordance with ASC 450 Contingencies.

The Company provides surety bonds to various parties as required for certain transactions initiated during the ordinary course of business to guarantee the Company’s performance in accordance with contractual or legal obligations.

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No such discretionary contributions have been made since inception of the plan.

For the years ended December 31, 2022 and 2021, the Company made matching contributions totaling $ 0.3 million and $ 0.2 million, respectively.

For the years ended December 31, 2023, 2022 and 2021, the Company made matching contributions totaling $ 0.5 million, $ 0.3 million and $ 0.2 million, respectively.

The components of income before income taxes are as follows (in thousands):

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

In August 2022, the U.S.

President signed into law the Inflation Reduction Act of 2022 (the “IRA”), which revised U.S.

tax law by, among other things, including a new corporate alternative minimum tax (the “CAMT”) of 15% on certain large corporations, imposing a 1% excise tax on stock buybacks, and providing incentives to address climate change, including the introduction of advanced manufacturing production tax credits.

The provisions of the IRA are generally effective for tax years beginning after 2022.

Given the complexities of the IRA, which is pending technical guidance and regulations from the Internal Revenue Service and U.S.

Treasury Department, we will continue to monitor these developments and evaluate the potential future impact to our results of operations.

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

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

Shoals Parent’s net taxable income and related tax credits, if any, are passed through to its members and included in the member’s tax returns.

Shoals Parent is subject to and reports an entity level tax in various states.

The income tax burden on the earnings taxed to the noncontrolling interest holders is not reported by the Company in its consolidated financial statements under U.S.

As a result, the Company’s effective tax rate differs materially from the statutory rate.

Our effective income tax rate for the years ended December 31, 2022 and 2021, was 6 % and 2 % respectively.

The components of income before income taxes are as follows (in thousands):

Year Ended December 31,

2023 2022 2021

Domestic $ 54,935 $ 152,000 $ 4,030

Foreign — — —

Income before income taxes $ 54,935 $ 152,000 $ 4,030

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Year Ended December 31,

2023 2022 2021

Current income taxes:

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State 915 554 631

Foreign — — —

Total current income taxes 915 554 631

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State 1,188 ( 5,233 ) ( 1,873 )

Foreign — — —

Total deferred income taxes 11,334 8,406 ( 1,476 )

1 unchanged sentence

Income tax expense $ 12,274 $ 8,987 $ 86

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

The differences between income taxes expected at the U.S.

1 unchanged sentence

Year Ended December 31,

2023 2022 2021

federal income taxes at statutory rate $ 11,537 $ 31,920 $ 846

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Permanent tax adjustments 101 ( 6 ) 356

Equity-based compensation 447 685 ( 14 )

Non-deductible officers' compensation 968 397 —

Pre-IPO income — — ( 562 )

Non-controlling interest ( 3,289 ) ( 342 )

Non-controlling interests ( 564 ) ( 3,289 ) ( 342 )

Termination of TRA — ( 15,905 ) 349

Termination of Up-C structure ( 2,347 ) — —

Remeasurement of deferred taxes — ( 6,775 ) ( 1,939 )

Research and development credit — ( 77 )

Uncertain tax positions 27 789

Change in valuation allowance 988 ( 1,983 ) 1,983

1 unchanged sentence

Income tax expense $ 12,274 $ 8,987 $ 86

The income tax burden on the earnings taxed to the noncontrolling interests holders is not reported by the Company in its consolidated financial statements under U.S.

As a result, the Company’s effective tax rate differs materially from the statutory rate.

The primary factors impacting the effective tax rate are the allocation of income taxes to the noncontrolling interest, remeasurement of deferred tax attributes due to tax rate changes, state taxes and changes in our valuation allowance.

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

The components of the deferred tax assets and liabilities are as follows (in thousands):

Year Ended December 31,

Deferred tax assets:

Investment in Shoals Parent $ — $ 284,729

Tax receivable agreement — 13,014

Inventory, net 1,677 —

Property, plant & equipment, net 709 —

Goodwill 450,830 —

Accrued expenses and other 2,310 —

Warranty liability 12,824 —

Net operating loss 5,380 4,626

Equity-based compensation 2,869 2,030

Other 4,090 249

Total deferred income taxes 291,634 178,941

Valuation allowance — ( 1,983 )

Total deferred tax assets 480,689 291,634

Less valuation allowance ( 988 ) —

Total deferred tax assets, net 479,701 291,634

Deferred tax liabilities:

Other intangible assets, net ( 10,636 ) —

Other ( 870 ) —

Total deferred tax liabilities ( 11,506 ) —

Net deferred tax asset $ 468,195 $ 291,634

The Company has recorded deferred tax assets of $ 286.8 million, included above in Investment in Shoals Parent, associated with basis differences in the net assets of Shoals Parent and pursuant to making an election under Section 754 of the Internal Revenue Code of 1986, as amended.

Prior to termination of the TRA, the aggregate payable pursuant to the TRA represented 85 % of the tax benefits that the Company expected to receive in connection with the Section 754 election.

During the year ended December 31, 2023, the Company acquired the remaining non-controlling interest in Shoals Parent LLC and contributed 100 % of its interest to its wholly-owned subsidiary Shoals Intermediate Parent, thereby eliminating the Company’s Up-C structure.

As a result of the contribution, Shoals Parent LLC ceased to be treated as a partnership for U.S.

federal income tax purposes and became a single-member disregarded entity.

Accordingly, the Company converted its outside basis differences in its investment in Shoals Parent LLC and remeasured its deferred taxes using the inside basis differences of Shoals Parent LLC’s assets and liabilities.

The conversion from outside to inside basis differences resulted in a net deferred tax benefit of approximately $ 5.1 million, which has been recorded in the accompanying consolidated statement of operations.

As of December 31, 2023, the Company has $ 23.7 million and $ 7.3 million federal and state net operating loss carryforwards, respectively.

If not utilized, $ 20.2 million of the federal net operating loss can be

If not utilized, $ 23.7 million of the federal net operating loss can be carried forward indefinitely.

If not utilized, $ 1.7 million of the state net operating loss can be carried forward indefinitely and $ 5.6 million will expire between 2036-2043.

At December 31, 2023, the Company determined that a valuation allowance related to land and other non-amortizable intangibles in the amount of $ 1.0 million was required, as it is not more-likely than not that these deferred tax assets would be realized.

In August 2022, the U.S.

President signed into law the Inflation Reduction Act of 2022 (the “IRA”), which revised U.S.

The provisions of the IRA are generally effective for tax years beginning after 2022.

Given the complexities of the IRA, including recently issued guidance from the Internal Revenue Service and regulations from the U.S.

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

carried forward indefinitely.

If not utilized, $ 0.4 million of the state net operating loss can be carried forward indefinitely and $ 6.0 million will expire between 2036-2042.

Quarterly, the Company considers whether it is more-likely-than-not that the deferred tax assets will be realized based on available positive and negative evidence.

As of December 31, 2022, we determined, based upon weighing all positive and negative evidence, that a valuation allowance related to state taxes was no longer required.

Accordingly, we reversed the valuation allowance related to state taxes.

As of December 31, 2021, the valuation allowance of $ 2.0 million related to state taxes.

Uncertain Tax Positions

The Company accounts for uncertainty in income taxes using a recognition and measurement threshold for tax positions taken or expected to be taken in a tax return, which are subject to examination by federal and state taxing authorities.

The tax benefit from an uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination by taxing authorities based on the technical merits of the position.

The amount of the tax benefit recognized is the largest amount of the benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

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

As of December 31, 2022 and 2021, the Company has recorded $ 1.0 million and $ 0.9 million, respectively, of gross unrecognized tax benefits inclusive of interest and penalties, all of which, if recognized, would favorably impact the effective tax rate.

The Company recognizes penalties and interest related to uncertain tax positions within the provision (benefit) for income taxes line in the accompanying consolidated statements of operations.

The following table presents a reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties as follows (in thousands):

Year Ended December 31,

Beginning Balance $ 604 $ —

Gross increases - tax positions in prior period — 604

Gross decreases - tax positions in prior period — —

Gross increases - tax positions in current period — —

Settlement — —

Lapse of statute of limitations — —

Ending balance $ 604 $ 604

Treasury Department, we will continue to monitor these developments and evaluate the potential future impact to our results of operations.

As of December 31, 2023 and 2022, the Company has recorded $ 1.0 million of gross unrecognized tax benefits inclusive of interest and penalties, all of which, if recognized, would favorably impact the effective tax rate.

We do not expect a significant change in our uncertain tax benefits in the next twelve months.

The Company files U.S.

federal and certain state income tax returns.

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

federal and state taxing authorities for years beginning after 2018.

The Company recognizes penalties and interest related to uncertain tax positions within the provision (benefit) for income taxes line in the accompanying consolidated statements of operations.

We are generally subject to tax examinations by U.S.

federal and state tax authorities for years beginning after 2019 and 2018, respectively.

Payable Pursuant to the Tax Receivable Agreement

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

connection with the Organizational Transactions (including Blocker’s share of existing tax basis) and increases to such allocable share of existing tax basis, (ii) certain increases in the tax basis of assets of Shoals Parent and its subsidiaries resulting from purchases or exchanges of LLC Interests, and (iii) certain other tax benefits related to the Company entering into the TRA, including those attributable to payments made under the TRA.

These contractual payment obligations were obligations of the Company and not of Shoals Parent.

The Company had a TRA with the Founder, a “related party,” and a former equity owner of Shoals Investment CTB (the “TRA Owners”) that provided for the payment by the Company to the TRA Owners (or their permitted assignees) of 85 % of the amount of the benefits, if any, that the Company actually realized or was deemed to realize as a result of (i) the Company’s allocable share of existing tax basis acquired in connection with the Organizational Transactions (including Blocker’s share of existing tax basis) and increases to such allocable share of existing tax basis, (ii) certain increases in the tax basis of assets of Shoals Parent LLC and its subsidiaries resulting from purchases or exchanges of LLC Interests, and (iii) certain other tax benefits related to the Company entering into the TRA, including those attributable to payments made under the TRA.

These contractual payment obligations were obligations of the Company and not of Shoals Parent LLC.

The Company’s payable pursuant to the TRA was determined on an undiscounted basis in accordance with ASC 450, Contingencies , since the contractual payment obligations were deemed to be probable and reasonably estimable.

For purposes of the TRA, the benefit deemed realized by the Company was computed by comparing the actual income tax liability of the Company (calculated with certain assumptions) to the amount of such taxes that the Company would have been required to pay had there been no increase to the tax basis of the assets of Shoals Parent as a result of the purchases or exchanges, and had the Company not entered into the TRA.

For purposes of the TRA, the benefit deemed realized by the Company was computed by comparing the actual income tax liability of the Company (calculated with certain assumptions) to the amount of such taxes that the Company would have been required to pay had there been no increase to the tax basis of the assets of Shoals Parent LLC as a result of the purchases or exchanges, and had the Company not entered into the TRA.

When estimating the expected tax rate to use in order to determine the tax benefit expected to be recognized from the Company’s increased tax basis as a result of exchanges of LLC Interests by the TRA Owners, the Company continuously monitored changes in its overall tax posture, including changes resulting from new legislation and changes as a result of new jurisdictions in which the Company was subject to tax.

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

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

The following table reflects the changes to the Company’s payable pursuant to the TRA (in thousands):

Year Ended December 31,

2023 2022 2021

Beginning balance $ — $ 156,374 $ —

7 unchanged sentences

Revenue Recognition

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

Disaggregation of revenue

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Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), retainage (contract assets), and deferred revenue (contract liabilities) on the consolidated balance sheet, recorded on a contract-by-contract basis at the end of each reporting period.

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables, retainage, and deferred revenue on the consolidated balance sheets, recorded on a contract-by-contract basis at the end of each reporting period.

The Company’s contract balances consist of the following (in thousands):

(*) 2022 2021

Location on the Consolidated Balance Sheets 2023 2022

Billed accounts receivable Accounts receivable, net $ 102,232 $ 48,571

1 unchanged sentence

Unbilled receivables Unbilled receivables $ 40,136 $ 16,713

Deferred revenue Accrued expenses and other $ 23,259 $ 1,841

(*) Location on the consolidated balance sheet

Deferred revenue Deferred revenue $ 22,228 $ 23,259

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

The majority of the Company’s contract amounts are billed as work progresses in accordance with agreed-upon contractual terms, which generally coincide with the shipment of one or more phases of the project.

8 unchanged sentences

As of December 31, 2021, retainage was $ 4.8 million.

Shoals Technologies Group, Inc.

Notes to Consolidated Financial Statements

The Company also receives deferred revenue in the form of customer deposits.

3 unchanged sentences

During the year ended December 31, 2022, $ 1.8 million, or 100 % of deferred revenue recorded as of December 31, 2021, was recognized in revenue.

Related Party Transaction

Our Founder is a party to the TRA and received approximately 45 % of the TRA Termination Consideration.

Related Party Transactions

Our Founder was a party to the TRA and received approximately 45 % of the TRA Termination Consideration.

See Note 18 - Payable Pursuant to the Tax Receivable Agreement.

As part of the LLC Agreement we are required to pay tax distributions to the non-controlling interest holders, some of which are considered related parties.

As part of the LLC Agreement we were required to pay tax distributions to the non-controlling interest holders, some of which were considered related parties at the time of distribution.

See Note 14 - Non-Controlling Interests.

Subsequent Events

On February 24, 2023, we entered into a separation agreement with our Chief Executive Officer, memorializing the terms and conditions of his termination for disability for health reasons, effective as of March 15, 2023.

As a result of the separation, pursuant to his grant agreements, subject to our Chief Executive Officer’s continued employment in good standing with the Company through March 15, 2023 and certain other conditions, all unvested RSUs will accelerate and immediately vest, and a prorated portion of unvested PSUs will accelerate and immediately vest based on target performance, determined by the number of days of employment with the Company during the three-year performance period that started on January 1, 2022.

In connection with the acceleration of the RSUs and PSUs, we estimate that equity-based compensation expense related to the separation will total $ 4.0 million, which will be recognized during the three months ended March 31, 2023.

Prepayment of Term Loan Facility

On January 19, 2024, the Company used proceeds from the Revolving Credit Facility to make a $ 100.0 million voluntary prepayment of outstanding borrowings under the Term Loan Facility.

Execution of Operating Lease Agreement

O n February 7, 2024 the Company entered into a lease agreement.

The commencement date of the lease is February 7, 2024 and the rent commencement date is the earlier of (i) the date upon which a certificate of occupancy is issued to the tenant, or (ii) August 1, 2024.

Under the terms of the lease agreement, the lease term is 140 months from the rent commencement date, with the right to extend the lease term for up to 3 periods of 5 years each.

Annualized rent during the first 12 months following the rent commencement date is $ 4.9 million, with annual escalators throughout the remaining lease term.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures