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Item 7. Management’s Discussion and Analysis

2026-02-24 compared with 2025-02-25 · 161 added, 141 removed, 286 unchanged (51% 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.

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 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.

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

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

Shoals Technologies Group is a leading design-engineering and manufacturer of advanced electrical infrastructure solutions for mission‑critical applications across solar photovoltaic (PV), battery energy storage solutions (BESS), and data center power systems.

Our solutions also support original equipment manufacturers (“OEMs”).

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

Since electrical infrastructure is the backbone of a solar or BESS project, our products play a mission-critical role in the quality, safety, reliability, and efficiency of energy projects, which the industry prioritizes over price when selecting EBOS solutions.

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

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

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, 2024, we have worked with 13 of the top 15 solar EPCs, per Wood Mackenzie data from 2022-2024.

Traditionally, and for the year ended December 31, 2025, we primarily sold our EBOS solutions and OEM components to customers in the United States, while also fulfilling orders for international utility-scale solar projects.

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

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

However, given the mission-critical nature of EBOS (as further described below), the decision to use our products typically involves input from both the EPC and the owner/developer of the energy infrastructure energy project.

We have a focus in two end-markets:

(1) clean, grid connected energy and (2) data center + mission-critical electrical infrastructure.

This market diversification seeks to capitalize on the growing global demand for energy and the need to accelerate electrification.

We derived 78.7% of our revenue from the sale of system solutions for the year ended December 31, 2025.

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

As of December 31, 2025, we had $747.6 million of backlog and awarded orders.

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The remaining $144.1 million have planned delivery dates beyond 2026.

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

Additionally, we believe more than 12% of

our December 31, 2025 backlog and awarded orders relate to international projects.

As of December 31, 2025, backlog and awarded orders increased by 17.8% relative to December 31, 2024 and increased by 3.7% relative to September 30, 2025.

Elimination of Up-C Structure and Entity Simplification

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.

In the first quarter of 2023, we simplified our corporate structure by, among other things, eliminating the umbrella-partnership C corporation structure (“Up-C structure”) that was in place since its January 29, 2021 initial public offering (“IPO”).

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

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

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

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

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

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Trends and Uncertainties

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 early 2025, which may be further impacted by any global trade wars as described below.

Trade Regulation and Import Tariffs

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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.

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

Beginning in March 2025, the current U.S.

presidential administration (the “Administration”) unveiled broad actions related to tariffs with global trading partners.

Subsequently, the Administration has imposed a series of significant tariffs, including a 10% tariff on most imports from other trading partners, as well as additional reciprocal tariffs on specific countries.

Administration activity related to changes in tariff percentages and qualifying products, including active negotiations with trading partners and internal trade policy development, is ongoing.

Future changes in tariff policy, scope, or duration remain highly uncertain and may occur with little advance notice.

The Administration’s imposition of tariffs has led to retaliatory tariffs and tariff countermeasures, and the Administration and U.S.

trading partners have threatened further restrictions on trade.

As a result, the global trade environment has experienced extreme uncertainty and volatility and is rapidly evolving.

In recent years, we have expanded our domestic capabilities, supply chain resiliency, and manufacturing capacity, which helps offset some of the volatility we face due to trade policies and regulations.

However, these actions may not fully mitigate the effects of current or future tariff policies.

In 2025, the impacts of tariffs have caused a deterioration on our gross margins through our direct payment of tariffs and secondary tariff costs passed to us rising prices from suppliers.

The future implementation, scope, and modification of tariffs is still uncertain.

Any significant new tariffs or the threat thereof, which may last for an indefinite period of time, may make it more difficult for us to source raw materials

and could result in increased prices for certain of our raw materials including steel, copper and aluminum.

Retaliatory tariffs imposed by trading partners could impact the export of our manufactured projects and cause our customers to seek alternatives.

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, or the threat thereof, 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.

On February 20, 2026, the U.S.

Supreme Court invalidated the Administration's tariff measures after concluding that the International Emergency Economic Powers Act did not authorize their imposition.

It is uncertain how future repercussions of the ruling and other changes in trade policy would impact our operations, supply chain, and cash flow.

Beyond the most recent tariffs, over the past few years, escalating trade tensions between the United States and China and other jurisdictions led to increased tariffs and trade restrictions, including tariffs applicable to some of our products.

We have been assessing and monitoring the potential impact of tariffs on our supply chain and proactively seeking to mitigate the impact such may have on our operations, including working on alternative sourcing strategies and preparing our trade partners to absorb potential increases in their costs due to tariffs.

However, we cannot be certain that we would not experience negative effects in the future, particularly given the Administration’s positions concerning trade and tariffs and the fluctuating nature of such actions to date.

We also 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 period ended December 31, 2025, we continued to monitor and optimize our inventory levels in preparation for upcoming production demands.

Federal, state, local and foreign government bodies provide incentives to owners, end users, distributors and manufacturers of solar energy systems to promote the development of solar electricity.

The range and duration of these incentives varies widely by geographic market.

The 2022 Inflation Reduction Act (“IRA”) in the U.S.

made significant changes to the U.S.

tax code to incentivize the development and use of solar-generated electricity to meet the country’s growing demand for power.

The IRA offered tax incentives to companies who provide goods connected to the development and use of solar energy.

The IRA allowed U.S.

taxpayers making capital investments in solar projects to claim certain Investment Tax Credits (“TC”) for the installation of these solar projects.

The IRA also generally allowed U.S.

taxpayers to elect to receive a production tax credit (“PTC”) in lieu of the TC for qualified solar facilities if the construction began before January 1, 2025, among other requirements.

In 2025, H.R.

1, the One Big Beautiful Bill Act, was enacted into law.

1 significantly modifies certain energy tax provisions aforementioned in the IRA.

Changes to the IRA made by H.R.

1 include an accelerated phaseout or termination of the PTC and TC for solar projects placed in service after 2027.

There are also rules related to foreign entities of concern that make any solar projects owned or controlled by a prohibited foreign entity ineligible for certain tax credits.

The removal of the incentives that drive demand for solar energy production could reduce the financial attractiveness of solar projects, leading to decreased demand for our products.

Additionally, the uncertainty surrounding the future of these incentives could cause delays in project financing and execution, further impacting our sales volume and growth rate.

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;

The domestic utility scale solar market has experienced volatility that has had an impact on our business.

Industry trends are impacted by a variety of factors, including:

permitting issues;

labor availability;

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.

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.

anti-dumping and countervailing duties;

interconnection complications;

and uncertainty regarding changes in public policy and the U.S.

trade environment.

Amidst the volatility, the U.S.

solar industry has shown demonstrated levels of growth in 2025, with recorded expansion in new solar module manufacturing capacity according to the Solar Energy Industries Association.

As a result, we believe the industry is poised for continued growth across both our core and new markets, driven by the continued and increasing need for energy around the world.

We will continue to navigate the uncertainties in our industry, including those relating to project delays, as well as strategic pricing actions, volume discounts, and impacts to customer mix in our key markets.

Other Macroeconomic Pressures

Global inflationary pressures persisted during 2025;

however, the impact of inflation remains uncertain in the future.

Interest rates have remained generally higher when compared to historical rates, causing the interest rates associated with our Senior Secured Credit Agreement to be generally higher;

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

Should interest rates rise, when combined with the implications of higher government deficits and debt, evolving monetary policy, political instability, and volatility and uncertainty in global trade, the Company’s costs for accessing capital are uncertain and may rise during our forecasted period.

Our ability to obtain the 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, remained challenging during 2025, complicated by volatility in government policies and regulation concerning trade and ongoing political conflict.

While the Company does not directly source a significant amount of raw materials from Europe, 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 as challenges and conflicts remain in 2026.

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 solutions and components for homerun and plug-and-play architectures, battery storage, and OEM offerings.

We generate revenue from the sale of EBOS solutions and components for solar, BESS, 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.

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

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

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

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

The price and volume of our system solutions and components is driven by the demand for our solar system solutions and components, 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.

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

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

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

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

Our revenue is affected by changes in the price, volume and mix of 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 energy infrastructure system solutions and components, volume based discounts and rebate incentives, changes in product mix, 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 projects to support energy infrastructure constructed each year and our ability to increase our share of demand in the geographies where we currently compete and plan to compete in the future, as well as our ability to continue to develop and

commercialize new and innovative products that address the changing technology and performance requirements of our customers.

Cost of Revenue and Gross Profit

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

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

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

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

Gross profit may vary from

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

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General and Administrative Expenses

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

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

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

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Interest income is related to interest on bank deposits.

Payable Pursuant to the Tax Receivable Agreement Adjustment

Tax Receivable Agreement (“TRA”) adjustment consists of changes to our tax rate since the initial recording of the liability related to the TRA.

Gain on Termination of Tax Receivable Agreement

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

Gain on sale of assets

Gain on sale of assets represents consideration received in excess of the net book value of assets sold.

Foreign currency (loss) gain, net

Foreign currency gains and losses arise from the remeasurement of transactions in a currency other than the function currency of the Company based on exchange rate fluctuations.

Income Tax Expense

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Interest income 305 518 (213) 41 %

Gain on sale of assets 1,835 — 1,835 100 %

Foreign currency (loss) gain, net (13) — (13) 100 %

Income before income taxes 48,518 37,863 10,655 28 %

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Net income $ 33,574 $ 24,127 $ 9,447 39 %

net income attributable to non-controlling interests — 2,687 (2,687) (100) %

Net income attributable to Shoals Technologies Group, Inc.

$ 24,127 $ 39,974 $ (15,847) (40) %

Comparison of the years ended December 31, 2025 and 2024

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.

Revenue increased by $76.1 million, or 19%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024, driven by increased sales volumes from higher demand of products to meet utility scale solar project demands.

Cost of Revenue and Gross Profit

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.

Cost of revenue increased by $51.6 million, or 20%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024, driven by the increase in revenue.

Gross profit as a percentage of revenue was 35.0% for the year ended December 31, 2025 as compared to 35.6% for the year ended December 31, 2024.

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.

This change in gross margin was due to a reduced amount of wire insulation shrinkback expenses in the current year compared to the prior year, offset by increased material costs, tariffs, non-recurring operational charges, competitive dynamics, volume discounts, and product mix in our key markets, and a reduction in leverage on fixed costs.

Operating Expenses

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General and administrative expenses increased $19.3 million, or 23%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024.

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.

General and administrative expenses increased primarily due to higher legal and professional costs of $15.7 million.

These include expenses related to intellectual property litigation that rose from $6.0 million in 2024 to $9.1 million in 2025, wire‑insulation shrinkback litigation increased from $7.2 million to $18.3 million, and stockholder litigation increased from $0.9 million to $2.5 million.

Payroll and employee‑related expenses also grew by $1.3 million.

Depreciation and Amortization

Depreciation and amortization expense within operating expenses increased by less than $0.1 million or 0.1%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024.

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.

The stability in the balance was due to consistent amortization of intangible assets.

Interest Expense

Interest expense decreased by $3.8 million or 28%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024.

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.

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

Due to the prepayments in 2024 and amendment, the Company wrote off a liability of $2.5 million of unamortized deferred interest, along with an asset of $2.3 million of unamortized deferred financing costs.

This is offset by a higher weighted average outstanding balance in 2025 as compared to 2024 yielding higher quarterly interest payments.

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.

Interest income decreased from the prior year by $0.2 million.

This is due to a lower weighted average balance held in our interest bearing accounts for cash and cash equivalents as compared to the prior year.

Gain on sale of assets

Gain on sale of assets increased $1.8 million from the previous period due to the sale of owned land and building assets to consolidate operations into new facilities and the disposal of other manufacturing equipment.

Income Tax Expense

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Our effective income tax rate for the year ended December 31, 2025 and 2024 was 30.8% and 36.3%, respectively.

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.

The effective income tax rate decreased compared to the prior year, due to a reduced impact from valuation allowance adjustments.

In the prior year, the Company established state-specific valuation allowances, which increased income tax expense.

In the current year, the valuation allowance impact was substantially lower, resulting in a decreased effective income tax rate.

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/(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 EBITDA as net income plus/(minus) (i) interest expense, (ii) interest income (iii) income tax expense, (iv) depreciation expense, (v) amortization of intangibles, (vi) equity-based compensation, (vii) gain/loss on sale of assets, (viii) wire insulation shrinkback expenses, (ix) wire insulation shrinkback litigation expenses, and (x) plant optimization 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 / 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.

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) equity-based compensation, (vi) gain/loss on sale of assets, (vii) wire insulation shrinkback expenses, (viii) wire insulation shrinkback litigation expenses, and (ix) plant optimization 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 to Adjusted EBITDA, and net income 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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Amortization of intangibles 7,611 7,619 7,917

Payable pursuant to the TRA adjustment (c)

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

Equity-based compensation 9,902 14,230 20,862

Acquisition-related expenses — — 42

Gain on sale of assets (1,835) — —

Wire insulation shrinkback expenses (a)

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18,342 7,292 1,260

Plant optimization expenses (c) 1,063 — —

Adjusted EBITDA $ 99,523 $ 99,084 $ 173,391

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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 (e)

— (653) (3,726)

Tax effected net income 33,574 24,127 42,008

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Amortization / write-off of deferred financing costs 622 3,093 2,165

Payable pursuant to the TRA adjustment (c)

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

Equity-based compensation 9,902 14,230 20,862

Acquisition-related expenses — — 42

Gain on sale of asset (1,835) — —

Wire insulation shrinkback expenses (a)

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18,342 7,292 1,260

Plant optimization expenses (c) 1,063 — —

Tax impact of adjustments (f)

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Adjusted Net Income $ 60,567 $ 58,534 $ 111,313

(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.

(a) For the year ended December 31, 2025 represents no 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, nor any inventory write-downs of wire in connection with wire insulation shrinkback.

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.

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

(c) For the year ended December 31, 2025, represents $1.1 million of expenses incurred in connection with actions taken to consolidate our operations into a newly constructed facility, including items such as professional fees, relocation, facility set-up and other costs.

We believe excluding expenses from these events provides investors with a better view of the operating performance of our business and allows for comparability through periods.

(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.

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We generated cash from operating activities of $17.1 million during the year ended December 31, 2025, as compared to cash provided by operating activities of $80.4 million and $92.0 million, respectively, during the years ended December 31, 2024 and 2023.

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.

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

As of December 31, 2025, our cash and cash equivalents were $7.3 million, a decrease from $23.5 million as of December 31, 2024.

As of December 31, 2025 we had

outstanding borrowings of $136.8 million, a decrease from $141.8 million as of December 31, 2024.

As of December 31, 2025 we also had $60.5 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.

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In 2025, we had capital expenditures of $33.0 million.

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

In 2026, we expect capital expenditures between $20.0 million to $30.0 million, subject to other strategic uses of capital and the evolution of operating cash flows and the working capital position throughout the year.

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

In 2025, we also used approximately $41.0 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.

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For the year ended December 31, 2025, cash provided by operating activities was $17.1 million, due to operating results that included $33.6 million of net income, which included $43.3 million of non-cash expense.

Other cash inflows included $43.3 million of accounts payable, $18.3 million of deferred revenue, $4.8 million of accrued expenses, and $1.8 million of other assets.

These inflows were offset by outflows of $51.9 million

in accounts receivable and unbilled receivables, $41.0 million in warranty liability payments, and $35.1 million in inventory,

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 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.

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.

Investing Activities

For the year ended December 31, 2025, net cash used in investing activities was $28.0 million, which was attributable to the purchase and sale 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, 2025, net cash used in financing activities was $5.3 million, due to $0.4 million for taxes paid on settled equity awards, and $60.0 million in proceeds on the Revolving Credit Facility, offset by $65.0 million in payments made to the same facility.

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.

A discussion and analysis covering historical cash flows for the year ended December 31, 2023 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, 2023.

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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 have elected to adopt certain practical expedients and exemptions as allowed under the revenue recognition guidance such as (i) recording sales commissions as incurred because the amortization period is less than one year, (ii) excluding any collected sales tax amounts from the calculation of revenue, and (iii) accounting for shipping and handling activities that are incurred after the customer has obtained control of the product as fulfillment costs rather than a separate service provided to the customer for which consideration would need to be allocated.

Payable Pursuant to the Tax Receivable Agreement

As discussed in Note 17 - 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.

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

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

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

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

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

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

Ultimately, we determined that, despite the involvement of the 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.

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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In making such determination, we consider all available evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and results of operations.

We routinely evaluate the realizability of our deferred tax assets by assessing the likelihood that our deferred tax assets will be recovered based on all available positive and negative evidence.

We routinely evaluate the realizability of our deferred tax assets by assessing the likelihood that our deferred tax assets will be recovered based on all available positive and

negative evidence.

Estimating future taxable income is inherently uncertain and requires judgment.

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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 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.

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

Based upon the Company’s 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 loss was both probable and reasonably estimable.

For the year ended December 31, 2023, the Company disclosed an initial range of potential loss from $59.7 million to $184.9 million.

During the year ended December 31, 2024, the Company determined it was appropriate to adjust the range of estimates previously provided based on additional information obtained.

The low-end of the estimated range increased to $73.0 million and the high-end decreased to $160.0 million.

In accordance with ASC 450, Contingencies , the Company believes the potential estimated loss for this matter is $73.0 million, which represents the best estimate of the potential loss as of December 31, 2025, of which $69.7 million has been incurred to date.

As of December 31, 2025 and December 31, 2024, our recorded warranty liability related to this matter was $3.3 million and $39.9 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.

It is reasonably possible that our liability could exceed the amount recorded, including due to additional reports of wire insulation shrinkback at previously affected and reported solar projects or at projects not previously reported or otherwise identified.

Any excess amounts remain uncertain.

The Company recorded total warranty expense related to this matter of zero, $13.3 million, and $59.2 million respectively, during the years ended December 31, 2025, 2024 and 2023.

The estimated loss, as revised, continues to be based on several assumptions, including estimated failure rates, future notification of impacted harnesses, the potential magnitude of engineering, procurement and construction firm’s labor cost to identify and perform the repair and replacement of impacted harnesses, materials replacement cost, planned remediation method, and inspection costs.

While our wire insulation shrinkback warranty liability represents our best estimate of expected losses, the Company will monitor future

activity to best estimate potential losses.

The Company has increased, and may further increase, its estimated warranty liability from its current estimate based on available information, including future remediation efforts and the scope of future replacements, if any.

Such increase 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, 2025.

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.

A 10% increase in harness installation costs and materials replacement cost would have resulted in an increase of the high end of the range of potential loss of $12.1 million and $2.7 million, respectively.

As of December 31, 2025, a 20% increase in projects that would require standard remediation work would have resulted in an increase in our recorded liability of $1.1 million.

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

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