Executive Summary / Key Takeaways

• Shoals Technologies Group is demonstrating a robust turnaround, marked by record backlog and increased 2025 revenue guidance, signaling a strong return to growth in the energy transition market.
• Strategic diversification into international, CC&I, OEM, and BESS markets, particularly driven by AI and data center demand, is yielding significant new order momentum and expanding the company's addressable market.
• The company's differentiated EBOS solutions, including innovative BLA and upcoming 2KV technologies, coupled with domestic manufacturing and operational efficiencies from a new facility, are strengthening its competitive moat.
• Despite ongoing litigation and macroeconomic headwinds, Shoals' strong customer engagement and focus on labor-saving, high-quality products are driving market share gains and positioning it for sustained profitability.
• Investors should monitor the successful integration of new operational facilities, the resolution of legal matters, and the continued conversion of its substantial and diversified order book into revenue.

Setting the Stage: Shoals' Foundational Role in the Energy Transition

Shoals Technologies Group, Inc. (SHLS) stands as a critical enabler in the global energy transition, specializing in Electrical Balance of System (EBOS) solutions and components. Since its founding in 1996, Shoals has focused on delivering innovative technologies that are essential for connecting solar panels to the grid, emphasizing reliability and safety in mission-critical applications. The company's journey to its current public form in 2020 via an IPO marked a significant step, aligning its growth trajectory with broader market demands for renewable energy infrastructure.

The industry landscape is currently defined by an unprecedented surge in power demand, fueled by the explosive growth of AI, data centers, and the reshoring of industrial capacity. This demand, coupled with an aging electrical infrastructure, positions solar as the most cost-effective and rapidly deployable energy source. While lead times for traditional power generation like gas turbines extend beyond three years and nuclear projects stretch into the next decade, solar offers an immediate and scalable solution. However, this growth is not without its challenges, including significant grid interconnection bottlenecks, with over 2,600 gigawatts of generation and storage capacity actively seeking connection, an eightfold increase in the last decade.

Shoals' overarching strategy is built on four pillars: deepening penetration in the U.S. utility-scale solar market, expanding into international territories, accelerating new product development for adjacent markets like Commercial, Community, and Industrial (CC&I) and Original Equipment Manufacturer (OEM), and diversifying into high-growth applications such as Battery Energy Storage Solutions (BESS) and data center infrastructure. This strategic framework, articulated at its September 2024 Investor Day, is designed to leverage its core strengths and adapt to evolving market dynamics.

Operational Excellence and Technological Edge

Shoals' competitive advantage is deeply rooted in its differentiated technology and operational prowess. Its core Big Lead Assembly (BLA) solutions offer a plug-and-play architecture that significantly reduces the need for skilled labor, speeds deployment, and improves overall system quality and reliability. This technology is designed for decades of performance, a critical factor in high-consequence-of-failure environments. The company's commitment to innovation is evident in its new product pipeline.

The upcoming 2KV solutions, currently in pilot, are poised to be a game-changer, designed to increase voltage in solar projects to 2,000 volts. This advancement is expected to enhance efficiency, sustainability, and cost-effectiveness, similar to how previous voltage transitions dramatically reduced the cost per watt of energy production. While regulatory approval is required for broad commercialization, Shoals anticipates these solutions will begin being specified in sites by 2026. Other innovations like Long-tail BLA enable clustering of load break disconnects for lower Operations & Maintenance (O&M) costs, and Mini BLA facilitates unobstructed access in North-South configurations, ideal for maintenance in stack tracker setups.

Operationally, Shoals is consolidating its multiple manufacturing and warehouse facilities into a single, state-of-the-art 635,000 square foot factory in Portland, Tennessee, with the move commencing by the end of Q3 2025. This consolidation is expected to drive substantial productivity improvements through automation, lean manufacturing principles, and a centralized workforce. The company has also established a "Shoals Innovation Field," a real-world R&D laboratory for testing new products and showcasing its value proposition. These investments underscore Shoals' commitment to maintaining its domestic manufacturing advantage and driving efficiency, which directly translates into a stronger competitive moat and improved financial performance.

Financial Performance: A Turnaround in Motion

Shoals' recent financial performance reflects a business regaining momentum after a challenging 2024. For the second quarter ended June 30, 2025, the company reported revenue of $110.8 million, an 11.7% increase year-over-year and above the high end of its guidance. Gross profit reached $41.2 million, the highest since 2023, though the GAAP gross profit percentage was 37.2%, down from 40.3% in Q2 2024. This margin compression is attributed to strategic pricing actions, volume discounts to attract new customers, and a shift in product mix towards new offerings and components that initially carry lower margins.

Over the six months ended June 30, 2025, revenue stood at $191.2 million, a modest 0.6% increase from the prior year, while gross profit declined 9.3% to $69.3 million. Net income for the six-month period was $13.6 million, an 18.1% decrease year-over-year. Adjusted EBITDA for Q2 2025 was $24.5 million, or 22.1% of revenue. General and administrative expenses remain elevated, with approximately $2.5 million in Q2 2025 attributed to ongoing legal expenses related to the wire insulation shrinkback matter and intellectual property litigation.

Despite these pressures, management maintains a long-term target of 40%-plus gross margins, anticipating that increased sales volumes will drive operating leverage and that new products will mature into higher-margin offerings. The company's balance sheet remains solid, with cash and cash equivalents of $4.7 million as of June 30, 2025, and a net debt to adjusted EBITDA ratio of 1.4x. Operating cash flow for the first six months of 2025 was $1.7 million, a significant decrease from $50.7 million in the prior year, primarily due to increased working capital investment for growth and ongoing cash outlays for warranty remediation. Free cash flow was negative $26.0 million in Q2 2025, impacted by $11.2 million in remediation costs and elevated capital expenditures for the new facility.

Strategic Growth Pillars and Market Diversification

Shoals' strategic initiatives are clearly translating into a more diversified and robust order book. The company reported a record backlog and awarded orders (BLAO) of $671.3 million as of Q2 2025, with $540.3 million scheduled for shipment in the next four quarters. This represents a substantial increase from the $450 million in following four quarters BLAO at the start of 2025, and a book-to-bill ratio of 1.2 in Q2 2025 underscores strong demand.

International expansion is gaining significant traction, with a pipeline exceeding 20 gigawatts across Latin America, EMEA, and Asia-Pacific. The company's Memorandum of Understanding (MOU) with UGT Renewables and Sun Africa represents an opportunity for up to 12 gigawatts of global solar projects, many of which are financed by the U.S. EXIM Bank and require domestic content, playing directly into Shoals' U.S. manufacturing strength. International projects are expected to accelerate revenue contribution in 2026, building on recent wins in Australia and Chile.

The Commercial, Community, and Industrial (CC&I) business is also gaining momentum, with expected revenue exceeding $10 million in 2025. This segment benefits from shorter lead times and new distribution partnerships. The OEM business, bolstered by a strong partnership with a leading U.S. module manufacturer, is tracking ahead of expectations, supporting the broader reshoring of the domestic solar supply chain.

Battery Energy Storage Solutions (BESS) represents a particularly exciting growth vector. The BESS market is projected to grow at a 15% CAGR through 2029, more than doubling in size by 2027. Shoals is targeting this market through traditional EPCs, partnerships with prefabricated storage solution providers (including a recently secured large U.S. partner), and direct sales to developers, exemplified by a recent win with a hyperscaler. The demand from data centers and AI is a significant driver, with quoting activity for BESS products in this sector up 100x year-over-year. Shoals' DC recombiners are well-suited for these applications, and the company plans a more comprehensive offering of wiring solutions and critical components.

Competitive Landscape and Strategic Positioning

Shoals operates in a competitive environment, but its specialized focus and domestic manufacturing provide distinct advantages. Compared to solar tracker specialists like Array Technologies (ARRY) and Nextracker (NXT), Shoals offers a more comprehensive EBOS suite, emphasizing ease of deployment and labor savings that complement tracking systems. While ARRY and NXT excel in optimizing energy yield through advanced tracking, Shoals' plug-and-play solutions can lead to lower overall installed costs and greater project reliability. Against microinverter leader Enphase Energy (ENPH), Shoals provides broader system-level solutions, particularly for large-scale projects, whereas ENPH focuses on decentralized energy management. Shoals' EBOS expertise can deliver materially lower operating costs through efficient component integration. With panel manufacturer First Solar (FSLR), Shoals acts as a complementary provider, enabling flexible integration options for diverse solar setups.

Shoals' competitive advantages include its proprietary EBOS technology, which translates into higher installation efficiency and enhanced project reliability. Its strong network of partnerships with EPCs, including 14 of the top 15 U.S. solar EPCs, and a revitalized commercial strategy are driving market share gains. This is evident in its success with customers who previously had minimal engagement, with four top 10 EPCs contributing over $25 million in revenue in 2024, up from less than $1 million in 2023. The company's U.S. manufacturing footprint and largely domestic supply chain also offer a significant competitive edge, particularly amidst evolving tariff policies and the increasing demand for domestic content.

However, Shoals faces vulnerabilities, including ongoing litigation and potential supply chain dependencies for certain specialized components. The wire insulation shrinkback issue, with a remaining current warranty liability of $14.5 million, and the intellectual property disputes with Voltage, represent significant legal and financial burdens. While the company is vigorously defending its IP and pursuing recovery from Prysmian, these matters consume substantial resources. Barriers to entry in the EBOS industry, such as the need for specialized technological expertise and regulatory compliance, help protect Shoals' market position by limiting new entrants.

Outlook, Guidance, and Risk Assessment

Shoals has increased its full-year 2025 revenue outlook to a range of $450 million to $470 million, representing 13% to 18% year-over-year growth. This upward revision is driven by strong Q2 2025 performance, record backlog, and improving industry fundamentals, with management noting fewer project delays than anticipated. Adjusted EBITDA for the full year is expected to remain in the range of $100 million to $115 million. For Q3 2025, revenue is projected between $125 million and $135 million, with adjusted EBITDA of $30 million to $35 million. The implied Q4 2025 revenue guidance of $135 million to $145 million suggests robust year-over-year growth of 31% at the midpoint.

The company anticipates a heavier second half in 2025, with approximately 60% of annual revenue expected in the latter half, requiring higher working capital investment in the first half. Cash flow from operations for the full year 2025 is now projected between $15 million and $25 million, a downward revision reflecting the increased working capital needs for growth and ongoing warranty remediation costs. Capital expenditures are also elevated, ranging from $30 million to $40 million, primarily due to the new manufacturing facility build-out, with normalization expected in 2026.

Key risks include the ongoing wire insulation shrinkback litigation, with a potential loss range of $73 million to $160 million, and the intellectual property disputes, which could impact market share and incur significant legal costs. Macroeconomic conditions, including persistent inflation and high interest rates, continue to influence project financing and overall demand. Changes to the Inflation Reduction Act (IRA) and Foreign Entity of Concern (FEOC) rules could also introduce policy uncertainty, though management believes most projects through 2027 are relatively secure due to secured components. Labor availability remains a persistent industry challenge, potentially impacting project timelines.

Conclusion

Shoals Technologies Group is undergoing a significant transformation, strategically repositioning itself for sustained growth in the dynamic energy transition market. The company's record backlog, robust revenue guidance for 2025, and aggressive diversification into high-growth segments like BESS for data centers underscore its ability to capitalize on the surging demand for clean energy. Its foundational strengths in differentiated EBOS technology, domestic manufacturing, and a renewed focus on operational efficiency are solidifying its competitive moat against both direct and indirect rivals.

While challenges such as ongoing litigation and macroeconomic volatility persist, Shoals' proactive customer engagement and commitment to innovation are driving market share gains and enhancing its long-term value proposition. Investors should closely monitor the successful ramp-up of its new manufacturing facility, the resolution of its legal battles, and the continued execution of its BESS and international growth strategies. These factors will be critical in determining Shoals' trajectory as it leverages its technological leadership to power the future of solar and energy storage.