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Item 7. Management’s Discussion and Analysis

2025-02-25 compared with 2024-02-28 · 168 added, 133 removed, 259 unchanged (54% of the section changed)

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

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

other financial information included in this Annual Report on Form 10-K.

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

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

We do not intend Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA,

Adjusted Net Income, and Adjusted Diluted Earnings per Share to be substitutes for any GAAP financial information.

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

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

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

We are a leading provider of EBOS solutions and components for solar, battery storage and EV charging applications, selling to customers primarily in the United States as well as internationally.

We are a leading provider of electrical balance of system (“EBOS”) solutions and components, including battery energy storage solutions (“BESS”) and Original Equipment Manufacturer (“OEM”) components, for the global energy transition market.

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

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

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

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

We design, manufacture and sell a variety of products used by the solar and battery storage industries, including Solar BLA Solutions;

Homeruns, Interconnection and Extension Solutions;

Combiners and Re-Combiners;

Load Break Disconnects and Transition Solutions;

Wireless Performance Monitoring;

We refer to complete EBOS solutions that use products manufactured by us, typically in connection with the design and specification of an entire EBOS system, as “system solutions”.

When we sell a system solution, we work with our customers to design, specify and engineer their system solution to provide a complete customized EBOS solution consisting of individualized products that maximizes reliability and energy production while minimizing cost.

We also provide technical support during installation and the transition to operations and maintenance.

We refer to individual, often custom and proprietary, products we sell as “components”.

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

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

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

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

Given the custom

nature of both our system solutions and individual components and the long development cycle for solar energy projects, we typically have 12 months or more of lead time to quote, engineer, produce and ship orders we receive, and we do not stock large amounts of finished goods.

Traditionally, and for the year ended December 31, 2024, we primarily sold our EBOS solutions and components and OEM components to customers in the United States.

Specifically, we primarily sold to engineering, procurement and construction firms (“EPCs”) for use in large solar projects designed to generate electricity and feed it directly into the electric grid, typically with a generation capacity of 1 megawatt (“MW”) or greater (“utility-scale solar”).

These EPCs work with owners and developers of solar assets to build solar energy projects.

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

In the third quarter of 2024, we announced our strategic shift to expand our reach and capitalize on international, BESS, data centers, and Commercial, Community, and Industrial (“CC&I”) markets, while also maintaining our focus on domestic utility-scale solar and OEM markets.

This shift is aimed at capitalizing on the growing global demand for renewable energy solutions and diversifying our market presence.

By entering new geographic regions, markets, and applications we aim to enhance our competitive position and drive long-term growth.

Throughout fiscal year 2024, we have maintained focus on our growth strategy and continued strengthening our leadership position in the industry.

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

We believe that as of December 31, 2024, we have worked with 13 of the top 15 solar EPCs, per Wood Mackenzie data from 2022-2024.

We derived 76.7% of our revenue from the sale of system solutions for the year ended December 31, 2024.

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Additionally, we believe more than 13% of our December 31, 2024 backlog and awarded orders relate to international projects.

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

As of December 31, 2024, backlog and awarded orders increased by 0.5% relative to December 31, 2023 and increased by 6.5% relative to September 30, 2024.

Elimination of Up-C Structure and Entity Simplification

In 2023, following a secondary offering of shares of Class A common stock by certain selling shareholders, all the holders of LLC Interests 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.

In 2023, following a secondary offering of shares of Class A common stock by certain selling stockholders, all the holders of LLC Interests exchanged all the LLC Interests and corresponding shares of Class B common stock of the Company beneficially owned by them into shares of Class A common stock of the Company.

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

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Trends and Uncertainties

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

These increases are expected to persist into 2024.

As a result of inflation, during 2023 and 2022, the Federal Reserve increased interest rates.

Such increased interest rates have resulted in higher interest rates associated with our Senior Secured Credit Agreement.

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

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

In 2022 and to a lesser extent during 2023, as a consequence of macroeconomic events, our ability to obtain raw materials required to manufacture our components and system solutions from domestic and international suppliers, as well as our ability to secure inbound logistics to and from our facilities, were impacted, with additional delays linked to international border crossings and the associated approvals and documentation.

Global inflationary pressures persisted during 2024 and are expected to persist to a lesser extent during the first quarter of 2025;

however, the impact of inflation remains uncertain for the rest of 2025.

experienced generally higher interest rates than we have historically, which led to general higher interest rates associated with our Senior Secured Credit Agreement in the year ended December 31, 2024;

however, interest rates did decline from their historically high levels during the course of 2024.

The eventual implications of higher government deficits and debt, tighter monetary policy, and continued high interest rates may drive a higher cost of capital during our forecasted period.

Our ability to obtain raw materials required to manufacture our components and system solutions from domestic and international suppliers, as well as our ability to secure inbound logistics to and from our facilities, were still impacted in 2024.

The Company does not directly source a significant amount of raw materials from Europe.

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

We expect these trends to persist into 2024.

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

and China in response to various political issues and heightened uncertainty regarding China-Taiwan relations could significantly adversely impact the availability of parts and components to us, and, correspondingly, our ability to produce our components at targeted levels, although we did not experience such negative effects during 2023.

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

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

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

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

We expect these trends to persist in 2024.

We expect these trends to persist into early 2025, which may be further impacted by any global trade wars as described below.

Trade Regulation and Import Tariffs

Our business activities are subject to numerous laws and regulations in the jurisdictions in which we operate.

Particularly, our exports and imports are subject to complex trade and customs laws, tax requirements and tariffs set by governments through mutual agreements or unilateral actions.

Changes in tax policies or trade regulations, the disallowance of tax deductions on imported merchandise, or the imposition of new tariffs on imported products, could have an adverse effect on our business and results of operations.

President Trump has indicated that his administration is likely to impose significant tariffs on imported goods, including a 60% tariff on Chinese imports, a 25% tariff on goods from Canada and Mexico and up to 10% or 20% on all other U.S.

While the implementation and scope of these proposed tariffs is still uncertain, any significant new tariffs, which may last for an indefinite period of time, may result in increased prices for certain of our raw materials including steel, copper and aluminum.

The implementation of these proposed tariffs, any future increases in existing tariff rates, additional tariffs on other goods, or further retaliatory actions from other governments may result in higher costs for us, and there can be no assurance we will be able to pass on any of the increases in raw material costs directly resulting from the tariffs to our customers.

Such actions may also result in more difficulty or the inability to obtain needed materials.

In addition, the threat of increased tariffs alone has caused market uncertainty.

Any such further tariffs or trade disputes could negatively impact our ability to secure necessary source materials and would further complicate trade and the availability of goods necessary to our operations.

Over the past few years, escalating trade tensions between the United States and China led to increased tariffs and trade restrictions, including tariffs applicable to some of our products.

Although we did not materially experience such negative effects during fiscal year 2024, we cannot be certain that we would not experience negative effects in 2025, particularly given President Trump’s rhetoric concerning trade and tariffs.

We continue to monitor the condition of our supply chain and evaluate our procurement strategy to reduce any negative impact on our business, financial condition, and results of operations.

During the year ended December 31, 2024 we continued to monitor and optimize our inventory levels.

The Solar Market

During 2023 and continuing in 2024, the domestic utility scale solar market experienced project delays that have pushed projects beyond 2024.

Additionally, in 2023, the domestic utility scale solar market started experiencing slowing growth, which is expected to persist in the near term.

These trends are the result of the

costs of permitting issues;

project financing;

lingering uncertainty about the application of the Inflation Reduction Act of 2022 to solar projects;

uncertainty regarding changes in the U.S.

trade environment, including the imposition of trade restrictions, import tariffs, anti-dumping and countervailing duties;

supply chain constraints;

and interconnection complications.

We expect these trends to persist beyond 2025 and reverse over time.

These project slowdowns and delays have impacted our results, lowering demand and sales volume.

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

As of December 31, 2023, other than increased interest expense, we did not experience material adverse effects on our financial results from the events and trends discussed above.

Recent Developments

On February 21, 2024, we announced our intention to expand and consolidate our existing manufacturing and distribution operations into a new, more than 600,000 square foot facility in Portland, Tennessee over the next five years.

On February 7, 2024, we entered into a lease agreement for the new facility.

Separately, in February 2024, we announced the closing of our Poway, California facility as a result of a strategic assessment aimed at enhancing overall production and performance and at allowing for greater efficiency throughout our operations.

The closure is expected to be completed in May 2024.

Our company continues to navigate the uncertainties relating to project delays.

Additionally, we are experiencing competitive dynamics, volume discounts, and impacts to customer mix in our key markets, which so far have immaterially impacted our results of operations.

Key Components of Our Results of Operations

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

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

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

We generate revenue from the sale of EBOS solutions and components for homerun and plug-and-play architectures, battery storage, and OEM offerings.

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

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

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

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

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

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

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

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

Gross profit may vary from

year to year and is primarily affected by our sales volume, product prices, product costs, product mix, customer mix, geographical mix, shipping method and warranty expense.

Operating Expenses

Operating expenses consist of general and administrative expenses as well as depreciation and amortization expense.

Personnel-related costs are the most significant component of our operating expenses

and include salaries, equity-based compensation, benefits, payroll taxes and commissions.

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

The number of full-time employees in our general and administrative departments increased from 149 to 185 from December 31, 2023 to December 31, 2024, and we expect to hire new employees in the future to support our growth.

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

Interest income

Interest income is related to interest on bank deposits.

Payable Pursuant to the Tax Receivable Agreement Adjustment

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Gain on Termination of Tax Receivable Agreement

Gain on termination of TRA is related to the early termination and settlement of the TRA, as discussed in Note 18 - Payable Pursuant to the Tax Receivable Agreement of the consolidated financial statements.

Gain on termination of TRA is related to the early termination and settlement of the TRA, as discussed in Note 17 - Payable Pursuant to the Tax Receivable Agreement in our consolidated financial statements included in this Annual Report on Form 10-K.

The TRA was terminated in December 2022.

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federal and state income tax in multiple jurisdictions.

Prior to the July 1, 2023 contribution described in Note 17 - Income Taxes, Shoals Parent LLC was a pass-through entity for federal income tax purposes but incurred income tax in certain state jurisdictions.

Prior to the July 1, 2023 contribution described in Note 16 - Income Taxes in our consolidated financial statements included in this Annual Report on Form 10-K, Shoals Parent LLC was a pass-through entity for federal income tax purposes but incurred income tax in certain state jurisdictions.

On July 1, 2023, the Company contributed 100% of its LLC Interests in Shoals Parent LLC to its wholly-owned subsidiary, Shoals Intermediate Parent, and following the contribution, Shoals Parent LLC became a disregarded single member limited liability company, eliminating the Up-C structure.

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Income from operations 51,172 79,035 (27,863) (35) %

Interest expense, net (24,100) (18,538) 5,562 30 %

Payable pursuant to the tax receivable agreement adjustment — (6,675) (6,675) (100) %

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

Interest expense (13,827) (24,100) (10,273) (43) %

Interest income 518 — 518 100 %

Income before income taxes 37,863 54,935 (17,072) (31) %

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Comparison of the years ended December 31, 2024 and 2023

Revenue increased by $162.0 million, or 50%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022, driven by higher sales volumes as a result of increased demand for solar EBOS generally and our combine-as-you-go system solutions specifically.

Our total number of customers, along with the number of combine-as-you-go system solutions projects, increased during the year ended December 31, 2023 as compared to the year ended December 31, 2022.

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

Revenue decreased by $89.7 million, or 18%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023, driven by lower sales volumes resulting from lower demand as a result of solar project delays that have pushed projects out from 2024, and competitive dynamics, volume discounts, and customer mix in our key markets.

Cost of Revenue and Gross Profit

Cost of revenue increased by $125.0 million, or 64%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022, driven by $61.7 million of wire insulation shrinkback expense recorded during the year ended December 31, 2023.

The remaining increase is driven by the increase in revenue.

Gross profit as a percentage of revenue was 34.4% and 40.2%, respectively, during the years ended December 31, 2023 and 2022.

The decrease in gross profit as a percentage of revenue was driven by the increase in wire insulation shrinkback expense and was offset by a higher portion of overall revenue coming from our combine-as-you-go system solutions, which carry higher margins than our other products, slightly lower raw materials input costs, increased leverage on fixed costs, and efficiencies gained in operations.

Cost of revenue decreased by $63.4 million, or 20%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023, driven by the decrease in revenue.

Gross profit as a percentage of revenue was 35.6% for the year ended December 31, 2024 as compared to 34.4% for the year ended December 31, 2023.

This increase in gross profit as a percentage of revenue was due to a reduced amount of wire insulation shrinkback expenses in the current year as compared to the prior year, offset by

increases in material and labor costs, non-recurring operational charges, competitive dynamics, volume discounts, and customer mix in our key markets, and a reduction in leverage on fixed costs.

Operating Expenses

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General and administrative expenses increased $1.5 million, or 2%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023.

The increase in general and administrative expenses was the result of an increase in wages, benefits and related taxes of $9.9 million due to increased employee headcount to support our growth, as well as an increase in equity-based compensation of $4.1 million related to termination of our former CEO for disability and an increase in employee headcount, and an increase in professional fees of $7.3 million, related to a $3.3 million increase in legal fees incurred in connection with the ongoing patent infringement litigation, a $1.3 million increase in legal fees related to wire insulation shrinkback litigation, and $2.7 million of other miscellaneous professional services.

The increase in general and administrative expenses was the result of an increase in legal and professional expenses of $5.9 million associated with wire insulation shrinkback litigation, $4.2 million in operating salaries due to an increase in general and administrative headcount, $1.0 million associated with shareholder and intellectual property litigation, as well as an increase of $0.8 million in sales and marketing expenses.

This increase was offset by decreases of $5.9 million associated with stock compensation in 2024 as compared to 2023, of which $4.4 million was due to the termination of employment of our former Chief Executive Officer for disability in March 2023, which, under the terms of his employment agreement, resulted in acceleration of equity based compensation expense, causing expense to be higher in 2023.

The increase was also offset by a decrease in $4.4 million in bonus expense caused by a decrease in estimated payouts under our annual incentive plan in comparison to the prior year.

Depreciation and Amortization

Depreciation and amortization expense decreased by $0.5 million, or 6%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022, due to definite lived intangible assets that became fully amortized during 2022 and 2023.

Depreciation and amortization expense within operating expenses increased by less than $0.1 million or 0.5%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023.

The increase was due to purchases of PPE during the year, commencing depreciation, slightly offset by definite lived intangible assets that became fully amortized during 2023 and had no amortization expense incurred in 2024.

Interest Expense

Interest expense, net increased by $5.6 million or 30%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022, due to increased borrowing rates.

During 2022 and 2023, the Federal Reserve increased interest rates resulting in higher interest rates associated with our Senior Secured Credit Agreement.

The increase in interest expense was offset by a decrease in the weighted average outstanding balance of the Revolving Credit Facility and Term Loan Facility during the year ended December 31, 2023 compared to the year ended December 31, 2022 .

Payable Pursuant to the Tax Receivable Agreement Adjustment

Payable pursuant to the TRA adjustment decreased $6.7 million or 100% for the year ended December 31, 2023 as compared to the year ended December 31, 2022, due to termination and settlement of the TRA on December 6, 2022.

Gain on Termination of Tax Receivable Agreement

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

There was no gain on termination of TRA for the year ended December 31, 2023.

Interest expense decreased by $10.3 million or 43%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023.

This decrease is explained by activity related to our voluntary prepayments on the Term Loan Facility and amendment of the Senior Secured Credit Agreement.

Due to the prepayments and amendment, the Company wrote off a liability of $2.5 million of deferred interest, along with an asset of $2.3 million of deferred financing costs.

The weighted average outstanding balance for 2024 was also lower in comparison to 2023 and interest rates associated with the Company’s credit agreement were lower in the current year when compared to the prior year.

Interest Income

Interest income increased from the prior year by $0.5 million.

This is due to the addition of interest bearing accounts for our cash and cash equivalents.

Income Tax Expense

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Our effective income tax rate for the year ended December 31, 2024 and 2023 was 36.3% and 22.3%, respectively.

The increase in the effective income tax rate was due to a reduction in permanent differences as a result of net income attributable to non-controlling interests, as well as the gain on termination of TRA recorded during 2022, and an increase in the valuation allowance during 2023 compared to a decrease in the valuation allowance during 2022.

These increases were offset by a decrease related to the elimination of the Up-C structure on July 1, 2023, as discussed in more detail in 17 - Income Taxes.

The effective income tax rate increase was due to a tax shortfall on stock-based compensation, return to provision adjustments, change in valuation allowance, and the elimination of the Up-C structure on July 1, 2023 which decreased the tax rate in the prior year, as discussed in more detail in Note 16 - Income Taxes in our consolidated financial statements included in this Annual Report on Form 10-K.

Non-GAAP Financial Measures

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We define Adjusted Gross Profit Percentage as Adjusted Gross Profit divided by revenue.

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

We define Adjusted EBITDA as net income plus/(minus) (i) interest expense, (ii) interest income (iii) income tax expense, (iv) depreciation expense, (v) amortization of intangibles, (vi) payable pursuant to the TRA adjustment, (vii) gain on termination of the TRA, (viii) equity-based compensation, (ix) acquisition-related expenses, (x) wire insulation shrinkback expenses, and (xi) wire insulation shrinkback litigation expenses.

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

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

plus (i) net income impact from assumed exchange of Class B common stock to Class A common stock as of the beginning of the earliest period presented, (ii) adjustment to the provision for income tax, (iii) amortization of intangibles, (iv) amortization / write-off of deferred financing costs, (v) payable pursuant to the TRA adjustment, (vi) gain on termination of the TRA, (vii) equity-based compensation, (viii) acquisition-related expenses, (ix) wire insulation shrinkback expenses, and (x) wire insulation shrinkback litigation expenses, all net of applicable income taxes.

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

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Because of these limitations, Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP.

You should review the reconciliation of gross profit to Adjusted Gross Profit and Adjusted Gross Profit Percentage, net income (loss) to Adjusted EBITDA, and net income (loss) attributable to Shoals Technologies Group, Inc.

You should review the reconciliation of gross profit to Adjusted Gross Profit and Adjusted Gross Profit Percentage, net income to Adjusted EBITDA, and net income attributable to Shoals Technologies Group, Inc.

to Adjusted Net Income and Adjusted Diluted EPS below and not rely on any single financial measure to evaluate our business.

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Net income $ 24,127 $ 42,661 $ 143,013

Interest expense, net 24,100 18,538 14,549

Interest expense 13,827 24,100 18,538

Interest income (518) — —

Income tax expense 13,736 12,274 8,987

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Amortization of intangibles 7,619 7,917 8,651

Payable pursuant to the TRA adjustment (b)

— 6,675 1,663

Payable pursuant to the TRA adjustment (c)

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

Loss on debt repayment — — 15,990

Equity-based compensation 14,230 20,862 16,108

Acquisition-related expenses — — 42

COVID-19 expenses (c)

Non-recurring and other expenses (d)

Wire insulation shrinkback expenses (a)

Wire insulation shrinkback litigation expenses (e)

13,764 61,705 —

Wire insulation shrinkback litigation expenses (b)

7,292 1,260 —

Adjusted EBITDA $ 99,084 $ 173,391 $ 92,989

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$ 24,127 $ 39,974 $ 127,611

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

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

— 2,687 15,402

Adjustment to the provision for income tax (g)

Adjustment to the provision for income tax (e)

— (653) (3,726)

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Amortization of intangibles 7,619 7,917 8,651

Amortization of deferred financing costs 2,165 1,365 1,230

Payable pursuant to the TRA adjustment (b)

— 6,675 1,663

Amortization / write-off of deferred financing costs 3,093 2,165 1,365

Payable pursuant to the TRA adjustment (c)

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

Loss on debt repayment — — 15,990

Equity-based compensation 14,230 20,862 16,108

Acquisition-related expenses — — 42

COVID-19 expenses (c)

Non-recurring and other expenses (d)

Wire insulation shrinkback expenses (a)

Wire insulation shrinkback litigation expenses (e)

Tax impact of adjustments (h)

13,764 61,705 —

Wire insulation shrinkback litigation expenses (b)

7,292 1,260 —

Tax impact of adjustments (f)

(11,591) (24,604) 1,158

Adjusted Net Income $ 58,534 $ 111,313 $ 62,403

(a) For the year ended December 31, 2023 represents, (i) $59.1 million wire insulation shrinkback warranty expenses related to the identification, repair and replacement of a subset of wire harnesses presenting unacceptable levels of wire insulation shrinkback, and (ii) $2.6 million of inventory write-downs of the defective red wire.

(a) For the year ended December 31, 2024 represents (i) $13.3 million of wire insulation shrinkback warranty expenses related to the identification, repair and replacement of a subset of wire harnesses presenting unacceptable levels of wire insulation shrinkback, and (ii) $0.5 million of inventory write-downs of wire in connection with wire insulation shrinkback.

For the year ended December 31, 2023 represents, (i) $59.1 million wire insulation shrinkback warranty expenses related to the identification, repair and replacement of a subset of wire harnesses presenting unacceptable levels of wire insulation shrinkback, and (ii) $2.6 million of inventory write-downs of wire in connection with wire insulation shrinkback.

We consider expenses incurred in connection with the identification, repair and replacement of the impacted wire harnesses as well as the write-down of related inventory distinct from normal, ongoing service identification, repair and replacement expenses that would be reflected under ongoing warranty expenses within the operation of our business and normal write-downs of inventory, which we do not exclude from our non-GAAP measures.

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See Note 8 - Warranty Liability, in our consolidated financial statements included in this Annual Report on Form 10-K for more information.

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

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

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

(e) For the year ended December 31, 2023 represents $1.3 million of expenses incurred in connection with the lawsuit initiated by the Company against the supplier of the defective red wire.

We consider this litigation distinct from ordinary course legal matters given the expected magnitude of the expenses, the nature of the allegations in the Company’s complaint, the amount of damages sought, and the impact of

the matter underlying the litigation on the Company’s financial results.

(b) For the year ended December 31, 2024, represents $7.3 million of expenses incurred in connection with the lawsuit initiated by the Company against the supplier of the defective wire.

For the year ended December 31, 2023, represents $1.3 million of expenses incurred in connection with the lawsuit initiated by the Company against the supplier of the defective wire.

In the future, we also intend to exclude from our non-GAAP measures the benefit of recovery, if any.

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See Note 15 - Commitments and Contingencies, in our consolidated financial statements included in this Annual Report on Form 10-K for more information.

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

(g) Shoals Technologies Group, Inc.

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

(e) Shoals Technologies Group, Inc.

is subject to U.S.

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Effective income tax rate for Adjusted Net Income 25.2 % 26.2 % 24.2 %

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

Reconciliation of Diluted Weighted Average Shares Outstanding to Adjusted Diluted Weighted Average Shares Outstanding (in thousands, except per share):

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

Reconciliation of Diluted Weighted Average Shares Outstanding to Adjusted Diluted Weighted Average Shares Outstanding (in thousands, except per share amounts):

Year Ended December 31,

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Liquidity and Capital Resources

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

Our ability to generate positive cash flow from operations is dependent on the strength of our gross profits as well as our ability to quickly turn our working capital.

We finance our operations primarily with operating cash flows and borrowings from our Revolving Credit Facility.

Our ability to generate positive cash flow from operations is dependent on our gross profits as well as our ability to quickly turn our working capital.

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

We generated cash from operating activities of $92.0 million during the year ended December 31, 2023, as compared to cash provided by (used in) operating activities of $39.5 million and $(4.1) million, respectively, during the years ended December 31, 2022 and 2021.

As of December 31, 2023, our cash and cash

equivalents were $22.7 million, an increase from $8.8 million as of December 31, 2022.

We generated cash from operating activities of $80.4 million during the year ended December 31, 2024, as compared to cash provided by operating activities of $92.0 million and $39.5 million, respectively, during the years ended December 31, 2023 and 2022.

As of December 31, 2024, our cash and cash equivalents were $23.5 million, an increase from $22.7 million as of December 31, 2023.

As of December 31, 2024 we had outstanding borrowings of $141.8 million, a decrease from $183.8 million as of December 31, 2023.

As of December 31, 2023 we also had $109.7 million available for additional borrowings under our $150.0 million Revolving Credit Facility.

December 31, 2024 we also had $58.2 million available for additional borrowings under our $200.0 million Revolving Credit Facility.

On December 27, 2023 and January 19, 2024, we used proceeds from the Revolving Credit Facility and cash on hand to make $50.0 million and $100.0 million, respectively, voluntary prepayments of outstanding borrowings under the Term Loan Facility.

Following the January prepayment, we had outstanding borrowings of $168.8 million and $24.7 million available for additional borrowings under our Revolving Credit Facility.

Following the amendment to the Senior Secured Credit Agreement on March 19, 2024, which, among other things, increased the amount available for borrowing under the Revolving Credit Facility from $150.0 million to $200.0 million, we made a $43.8 million voluntary prepayment of all the outstanding term loans under the Senior Secured Credit Agreement, thereby terminating the Term Loan Facility.

On June 11, 2024, the Company announced a share repurchase program (the “Repurchase Program”) authorizing the repurchase of up to $150.0 million of the Company’s Class A common stock, with an estimated completion date of December 31, 2025.

Under the Repurchase Program, the Company is authorized to repurchase shares of Class A common stock through open market purchases, privately-negotiated transactions, accelerated share repurchases or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act.

In connection with the Repurchase Program, on June 11, 2024, the Company entered into an accelerated stock repurchase (“ASR”) with Jefferies LLC to repurchase $25.0 million of the Company’s Class A common stock.

Under the terms of the ASR, the Company paid $25.0 million to Jefferies LLC on June 12, 2024, and received a total of 3,908,387 shares of the Company’s Class A common stock upon final settlement.

Final settlement was based on a repurchase price of $6.40 per share, which was based on the average of the daily volume weighted average price per share of the Company’s Class A common stock during the term of the ASR, less a discount.

Our capital expenditures primarily relate to purchases of property, plant, and equipment to support manufacturing operations and growth initiatives.

In 2024, we had capital expenditures of $8.4 million.

We believe our cash flow from operations will generally be sufficient to fund these expenditures.

In 2025, we expect capital expenditures between $25.0 million to $35.0 million, subject to other strategic uses of capital and the evolution of operating cash flows and the working capital position throughout the year.

In 2024, we also used approximately $28.6 million of cash to pay for expenses related to the identification, repair and replacement of the wire harnesses impacted in connection with the wire insulation shrinkback matter.

We expect to continue spending significant amounts of cash in connection thereof.

For more information, see Note 9 - Warranty Liability in our consolidated financial statements.

For more information, see Note 8 - Warranty Liability in our consolidated financial statements included in this Annual Report on Form 10-K for more information.

Year Ended December 31,

2024 2023 2022

Net cash provided by (used in) operating activities $ 91,955 $ 39,455 $ (4,083)

Net cash provided by operating activities $ 80,388 $ 91,955 $ 39,455

Net cash used in investing activities (8,393) (10,847) (3,657)

Net cash provided by (used in) financing activities (67,167) (36,589) 20,602

Net increase (decrease) in cash, cash equivalents and restricted cash $ 13,941 $ (791) $ (516)

Net cash used in financing activities (71,191) (67,167) (36,589)

Net increase (decrease) in cash, cash equivalents $ 804 $ 13,941 $ (791)

Operating Activities

For the year ended December 31, 2024, cash provided by operating activities was $80.4 million, due to operating results that included $24.1 million of net income, which included $61.9 million of non-cash expense.

Other cash inflows included $48.2 million of accounts receivable and unbilled receivables.

These inflows were offset by $9.8 million in cash outflows related to other assets, $5.8 million for the purchase of inventory, $5.6

million of accounts payable and accrued expenses and other, along with cash outflows of $29.1 million and $3.5 million of warranty liability and deferred revenue, respectively.

For the year ended December 31, 2023, cash provided by operating activities was $92.0 million, due to operating results that included $42.7 million of net income, which included $109.8 million of non-cash expense, along with an increase of $9.6 million in accounts payable and accrued expenses and other, and a decrease of $15.0 million in inventory.

These cash inflows were partially offset by an increase of $80.3 million in accounts receivable and unbilled receivables, which is primarily driven by an increase in revenues, $5.2 million cash outflow related to warranty liability and a decrease of $1.0 million in deferred revenue.

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

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

These cash inflows were partially offset by an increase of $80.3 million in accounts receivable and unbilled receivables, which was driven by an increase in revenues, $5.2 million cash outflow related to warranty liability and a decrease of $1.0 million in deferred revenue.

Investing Activities

For the year ended December 31, 2023, net cash used in investing activities was $10.8 million, of which $10.6 million was attributable to the purchase of property and equipment.

For the year ended December 31, 2024, net cash used in investing activities was $8.4 million, which was attributable to the purchase of property and equipment.

For the year ended December 31, 2023, net cash used in investing activities was $10.8 million, of which $10.6 million was attributable to the purchase of property and equipment.

Financing Activities

For the year ended December 31, 2024, net cash used in financing activities was $71.2 million, due to $2.6 million used to pay deferred financing costs, $25.3 million used for the repurchase of Class A common stock, $143.8 million in payments on the Term Loan, and $148.8 million in proceeds on the Revolving Credit Facility, offset by $47.0 million in payments made to the same facility.

For the year ended December 31, 2023, net cash used in financing activities was $67.2 million, due to $51.5 million in payments on the Term Loan, $8.0 million in net payments on the Revolving Credit Facility, $2.6 million in distributions to our non-controlling interest holders and $3.9 million in taxes related to net share settled equity awards.

For the year ended December 31, 2022, net cash used in financing activities was $36.6 million, primarily due to $58.0 million paid to terminate the TRA, as discussed in Note 18 of the consolidated financial statements, plus related fees of $1.9 million, $2.0 million in payments on the Term Loan, $7.1 million in net payments on the Revolving Credit Facility, $7.8 million in distributions to our non-controlling interest holders, $1.5 million of offering costs, and $1.3 million in taxes related to net share settled equity awards.

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

A discussion and analysis covering historical cash flows for the year ended December 31, 2022 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

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To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

We believe that the

accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

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

If revenue were recognized at a point in time rather than over time, then for the year ended December 31, 2023, net income would be $17.1 million lower, and EPS - basic and diluted would decrease by $0.10.

If revenue were recognized at a point in time rather than over time, then for the year ended December 31, 2024, net income would be $9.7 million higher, and EPS - basic and diluted would increase by $0.05.

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

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Payable Pursuant to the Tax Receivable Agreement

As discussed in Note 18 to the consolidated financial statements, we were party to a TRA, dated January 29, 2021, under which we were contractually committed to pay the TRA Owners 85% of the amount of the tax benefits, if any, that we were deemed to realize, as a result of certain transactions.

As discussed in Note 17 - Payable Pursuant to the Tax Receivable Agreement in our consolidated financial statements included in this Annual Report on Form 10-K, we were party to a TRA, dated January 29, 2021, under which we were contractually committed to pay the TRA Owners 85% of the amount of the tax benefits, if any, that we were deemed to realize, as a result of certain transactions.

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

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

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

We analyzed the relevant accounting guidance and considered the nature of the TRA termination and the involved parties in order to determine if the

transaction should be recorded as a gain in the Consolidated Statement of Operations or as a stockholder contribution.

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

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

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

Equity-Based Compensation

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The Company accounts for forfeitures as they occur.

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

graded vesting.

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

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

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

As of December 31, 2023, we had $468.2 million of deferred tax assets, net of a $1.0 million valuation allowance related to land and other non-amortizable intangibles.

Other than the valuation allowance related to land and other non-amortizable intangibles, we expect to realize future tax benefits related to the utilization of these assets.

As of December 31, 2024, we had $454.2 million of deferred tax assets, net of a $3.1 million valuation allowance related to land, other non-amortizable intangibles, and state tax attributes for net operating loss carryforwards and goodwill amortization.

Other than these valuation allowances, we expect to realize future tax benefits related to the utilization of these assets.

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

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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 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.

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 has 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, the Company recorded a warranty liability of $54.9 million related to this matter.

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

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.

These assumptions are highly subjective and require significant management judgment.

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

As additional information has become available or becomes available, the Company has increased and may continue to increase or decrease its estimated warranty liability and related expense from its current estimate, and such increase or decrease may be material.

The Company has been notified by certain customers that a subset of wire harnesses used in its EBOS solutions is presenting unacceptable levels of contraction of wire insulation (“wire insulation shrinkback”).

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

Based on the Company’s continued analysis of information available as of the date of this Annual Report, the Company determined that a potential range of loss was both probable and reasonably estimable.

The estimate of potential losses remains unchanged from the estimate provided as of September 30, 2024.

During the three months ended September 30, 2024, the Company determined that it was appropriate to adjust the range from the estimates provided in prior quarters, and based on additional information obtained, the Company increased the low-end of the estimated range from $59.7 million to $73.0 million, and decreased the high-end of the estimated range from $184.9 million to $160.0 million.

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 $73.0 million, which resulted in an increase in the warranty liability and warranty expense of $13.3 million during the year ended December 31, 2024.

The high-end of the range of potential loss is $160.0 million, which is $87.0 million higher than the low-end of the range of potential loss.

As of December 31, 2024 and December 31, 2023, our recorded warranty liability related to this matter was $39.9 million and $54.9 million, respectively.

The Company recorded total warranty expense related to this matter of $13.3 million, $59.2 million, and $0.5 million, respectively, during years ended December 31, 2024, 2023 and 2022.

The estimated range, as revised, continues to be based on several assumptions, including the potential magnitude of engineering, procurement and construction firm’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.

While our wire insulation shrinkback warranty liability represents our best estimate of the range of expected losses at any given time, the Company remains active in the ongoing identification, repair and replacement process and has increased, and may further increase or decrease, its estimated warranty liability from its current estimate based on available information, including with respect to experience relating to weather delays, site access, the scope of replacement, vegetation management or other factors.

Such increase or decrease may be material.

The Company does not maintain insurance for product warranty issues and has commenced a lawsuit against Prysmian, as discussed in more detail under Wire Insulation Shrinkback Litigation section of Note 15 - Commitments and Contingencies.

Because the lawsuit against Prysmian is ongoing, potential recovery from Prysmian is not considered probable as defined in ASC 450, Contingencies, and has not been considered in our estimate of the warranty liability as of December 31, 2024.

As of December 31, 2024, a 10% increase in harness installation costs, failure rate, materials replacement cost, and inspection costs would have resulted in an increase of the low end of the range of potential losses of $3.6 million, $0.5 million, $1.4 million, and $0.1 million, respectively.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis