Executive Summary / Key Takeaways

• Shoals Technologies Group is undergoing a significant transformation, evolving from a U.S. utility-scale solar specialist into a diversified energy solutions provider, with strategic expansion into Battery Energy Storage Solutions (BESS), international markets, Commercial, Community, and Industrial (CC&I), and OEM segments.
• The company delivered strong third-quarter 2025 results, including record revenue of $135.8 million and a record backlog and awarded orders (BLAO) of $720.9 million, leading to an upward revision of its full-year 2025 revenue guidance to $467 million to $477 million.
• Shoals' proprietary Electrical Balance of System (EBOS) technology, including its Big Lead Assembly (BLA) and new BESS solutions, provides critical competitive advantages by reducing labor, speeding deployment, and enhancing system reliability, particularly in the rapidly expanding data center and AI-driven energy demand landscape.
• While facing ongoing litigation (wire insulation shrinkback, intellectual property) and macroeconomic headwinds, Shoals' robust balance sheet, operational improvements, and strategic market penetration position it for sustained profitable growth.
• The company's focus on domestic manufacturing and innovative product development, such as 2KV solutions, is instrumental in capturing market share and driving future margin expansion, despite near-term impacts from strategic pricing and product mix.

The Foundation of Power: Shoals' EBOS Leadership in a Transforming Energy Landscape

Shoals Technologies Group, Inc., founded in 1996 and headquartered in Portland, Tennessee, stands as a pivotal provider of electrical balance of systems (EBOS) solutions and components for the global energy transition market. The company's core business has historically centered on the U.S. utility-scale solar market, where its mission-critical products, ranging from Solar BLA Solutions to Combiners and Re-Combiners, are essential for carrying electric current from solar panels to the grid. These components are characterized by a high consequence of failure, compelling customers to prioritize reliability and safety over price. Shoals' integrated approach, combining design, engineering support, proprietary components, and innovative installation methods, offers a complete, customized EBOS solution that maximizes energy production and minimizes costs.

The energy landscape is undergoing a profound transformation, driven by an unprecedented surge in demand from artificial intelligence (AI) and data centers, coupled with industrialization, onshoring of manufacturing, and increasing household consumption. This escalating demand is projected to far exceed historical growth rates, with U.S. data center power demand alone expected to more than double from 46 gigawatts in 2024 to over 92 gigawatts by 2030. Solar energy, with its lowest levelized cost of energy (LCOE) and rapid deployment capabilities, is uniquely positioned to meet these rising energy needs. Shoals' foundational strength lies in its ability to deliver solutions that address critical industry challenges: reducing the need for skilled labor, accelerating deployment, and ensuring superior quality and long-term reliability. This value proposition resonates strongly with engineering, procurement, and construction (EPC) firms and developers who seek efficient, durable solutions in a market constrained by labor availability and complex project timelines.

Technological Edge: The Innovation Driving Shoals' Competitive Moat

At the heart of Shoals' offering is its proprietary EBOS technology, notably the Big Lead Assembly (BLA) system. BLA represents a plug-and-play cable and cabinet solution that significantly simplifies installation, reduces the reliance on skilled labor, and enhances the long-term reliability of solar installations. The tangible benefits are substantial: BLA systems improve energy yield and reduce the levelized cost of energy for solar projects. The company emphasizes that its product quality is measured in decades, not years, underscoring the durability of its solutions against environmental elements. This focus on longevity and performance is a critical differentiator in an industry where equipment failure can lead to significant revenue loss and operational disruption.

Shoals is not resting on its laurels; it is actively engaged in robust research and development, exemplified by its Shoals Innovation Field—a real-world R&D laboratory on its campus for testing new products. This commitment to innovation has led to the introduction of over a dozen new products in 2024, with more than 15% of the company's backlog and awarded orders (BLAO) now incorporating these new offerings. Key technological advancements include:

• New BESS Combiners and Re-Combiners: These UL-certified solutions offer simplicity, labor savings, and reduced installation times for battery energy storage systems.
• Long-tail BLA: This innovation allows for the clustering of load break disconnects, leading to lower operations and maintenance (O&M) costs. While these products may carry a slightly lower gross profit percentage than traditional BLA, they drive incremental revenue and expand Shoals' share of wallet.
• Mini BLA: Designed for North-South configurations, Mini BLA enables unobstructed access between rows, optimizing for stack tracker configurations over long distances and facilitating project maintenance.
• 2KV Solutions: These next-generation utility-scale solar architectures are poised to enhance the efficiency, cost-effectiveness, and scalability of solar projects, with pilot sites currently underway.

For investors, these technological differentiators are paramount. They form the bedrock of Shoals' competitive moat, allowing the company to command higher average selling prices (ASPs) for specialized BESS products, lower overall installation costs for customers, and improve its market positioning. The ability to build "engineered-to-order highly configurable solutions at scale" is a core competency that directly translates into a competitive advantage, particularly as the company expands into new, complex markets.

Strategic Diversification: Expanding Horizons Beyond Core Solar

Shoals' strategic framework for growth and diversification is actively reshaping its market presence. While maintaining its focus on the domestic utility-scale solar market, the company is aggressively expanding into international, BESS, data centers, and Commercial, Community, and Industrial (CC&I) markets.

The core U.S. utility-scale solar market remains resilient and a significant growth driver. Customer project calendars are tight, and the industry continues to see growth in 2025, supported by the increasing need for energy. Shoals' quote volume for projects in late 2026 and 2027 exceeded $900 million in the third quarter of 2025, signaling sustained long-term demand.

International expansion is gaining substantial momentum, with a pipeline exceeding 20 gigawatts across Latin America, EMEA, and Asia Pacific. In the third quarter of 2025, Shoals recognized over $6 million in revenue from three ongoing international projects in Latin America and Australia. Over 11.5% of the company's BLAO as of September 30, 2025, is tied to international projects. A key strategic move was the signing of an MOU with UGT Renewables and Sun Africa to deliver up to 12 gigawatts of international solar power, particularly in emerging markets. Many of these projects are funded by the U.S. EXIM Bank, which often mandates domestic content, providing a significant competitive advantage for Shoals' U.S.-manufactured products. While margins for organically developed international markets may be slightly lower, export business margins are expected to align closely with domestic utility-scale projects.

The Commercial, Community, and Industrial (CC&I) business is performing well, engaging with large electrical distributors and driving meaningful quote volume increases. This segment is expected to generate in excess of $10 million in revenue in 2025, demonstrating strong growth in a market characterized by smaller projects and shorter lead times. Similarly, the OEM business is tracking ahead of expectations, benefiting from strong demand for panels from its partner, the largest domestic module provider. This partnership is a strategic advantage, aligning with the broader trend of onshoring module production in the U.S. and contributing positively to Shoals' operating profit.

Perhaps the most exciting growth pillar is Battery Energy Storage Solutions (BESS). Shoals introduced a BESS solution for the solar-plus-storage market in 2024 and is now aggressively pursuing opportunities in grid firming and data centers. The company has already signed two Master Service Agreements (MSAs) for these emerging BESS markets and had approximately $18 million in BESS backlog and awarded orders as of September 30, 2025, with revenue expected to materialize in the second quarter of 2026. Quoting activity in this segment is up 100x year-over-year, reflecting the immense potential. The BESS market is projected to grow at a 15% CAGR through 2029, and with data center power demand poised to double by 2030, Shoals' offerings in DC combiners and recombiners are critical. The company is dedicating about 15% of its new manufacturing facility's floor space to BESS products, underscoring its commitment. This business is expected to generate accretive margins for the enterprise and could materially alter Shoals' customer and product mix over the next five years.

Financial Performance and Operational Resilience

Shoals' financial performance in the first nine months of 2025 demonstrates a return to growth and operational effectiveness, despite a challenging prior year. For the three months ended September 30, 2025, revenue increased by 32.9% year-over-year to $135.8 million. For the nine months ended September 30, 2025, total revenue reached $327.0 million, an 11.9% increase compared to the same period in 2024. This growth was primarily driven by increased product volume to meet utility-scale solar project demands. System solutions constituted 77.1% of revenue for the nine months ended September 30, 2025, reflecting the company's focus on integrated offerings.

Gross profit as a percentage of revenue saw a notable improvement, reaching 37.0% in Q3 2025, up from 24.8% in Q3 2024. This increase was largely attributable to the absence of a $13.3 million wire insulation shrinkback warranty expense recorded in the prior year. For the nine months ended September 30, 2025, gross profit margin was 36.6%, compared to 34.8% in the prior year. While strategic pricing actions to re-engage customers and a shift in product mix (e.g., lower-margin long-tail BLA) have impacted margins, the company maintains a long-term target of 40% or above. Tariffs, such as the Section 232 aluminum tariffs, have also impacted material costs, undoing an anticipated 100-200 basis point margin improvement from cost-out initiatives.

Operating expenses, particularly General and Administrative (G&A), increased by $10.7 million (57%) in Q3 2025 year-over-year. This was primarily due to a $5.7 million rise in legal expenses related to ongoing wire insulation shrinkback, intellectual property, and shareholder litigation, alongside a $3.5 million increase in incentive compensation. Despite these elevated costs, net income for Q3 2025 was $11.9 million, a significant improvement from a net loss of $0.3 million in Q3 2024. For the nine months ended September 30, 2025, net income was $25.5 million, up from $16.3 million in the prior year. Adjusted EBITDA for Q3 2025 grew by 30% year-over-year to $32.0 million.

Liquidity remains a strength for Shoals. As of September 30, 2025, cash and cash equivalents stood at $8.6 million. Operating cash flow for the nine months ended September 30, 2025, was $21.2 million, a decrease from $66.4 million in the prior year, primarily due to increased working capital investments to support growth and significant cash outlays for warranty remediation. The company utilized approximately $32.6 million in cash for wire insulation shrinkback remediation during this period. Despite these demands, Shoals maintains a healthy net debt to adjusted EBITDA ratio of 1.2x and has $71.5 million available under its $200 million Revolving Credit Facility. The company did not repurchase shares in Q3 2025, with $125 million remaining under its authorization.

Operationally, Shoals is enhancing its manufacturing capabilities by consolidating its Tennessee-based operations into a new, state-of-the-art 635,000-square-foot facility. The company received its certificate of occupancy in September 2025 and began the consolidation process, expected to be completed by mid-2026. This move is anticipated to drive significant efficiencies, collaboration, and increased capacity through automation.

Competitive Landscape and Strategic Positioning

Shoals operates in a competitive market, facing rivals that offer various solar and energy transition solutions. Key direct competitors include Enphase Energy , SolarEdge Technologies , ChargePoint , and First Solar .

Shoals' competitive advantage is rooted in its integrated EBOS offerings, which provide superior operational execution for large-scale projects. The company's focus on reducing skilled labor requirements and speeding deployment through its plug-and-play BLA technology differentiates it from competitors. For instance, while Enphase Energy (ENPH) excels in microinverter technology for distributed generation, Shoals offers a more comprehensive system-level EBOS solution for utility-scale projects, potentially providing greater integration and reliability in complex installations. Against SolarEdge Technologies (SEDG), known for its power optimizers and inverters, Shoals' tailored wiring and management solutions can lead to lower operating costs through streamlined installations. In the emerging EV charging space, Shoals' ability to bundle EBOS with EV charging solutions offers a unique differentiator compared to ChargePoint's (CHPT) standalone charging network focus, potentially enabling faster deployment for combined solar-EV projects. Furthermore, as an OEM partner to First Solar (FSLR), Shoals' EBOS solutions complement solar panel manufacturing by providing essential balance-of-system components, leading to efficient project assembly.

Shoals' domestic manufacturing footprint is a significant competitive moat, particularly in an environment of increasing trade tensions and tariffs. While some competitors may face tariff exposure from imported finished products, Shoals, with its largely domestic supply chain, is better positioned to weather such storms. The company's ability to build "engineered-to-order highly configurable solutions at scale" is a core competency that allows it to compete effectively across diverse market segments, from utility-scale solar to data centers.

However, Shoals faces vulnerabilities, including potential supply chain dependencies for certain specialized components where domestic alternatives are limited, and the need to scale rapidly in new markets. The ongoing intellectual property litigation, particularly the appeal of the ITC's reversal in the Voltage case and the filing of new patent infringement complaints, underscores the importance of defending its technological innovations against rivals.

Outlook and Key Risks

Shoals has provided an optimistic outlook for the remainder of 2025, reflecting strong Q3 results and an improving demand environment. For the fourth quarter of 2025, the company expects revenue to be in the range of $140 million to $150 million, with Adjusted EBITDA between $35 million and $40 million. For the full year 2025, Shoals has increased its revenue guidance to $467 million to $477 million, representing 17% to 20% year-over-year growth, exceeding its initial Investor Day projections. Adjusted EBITDA for the full year is projected to be between $105 million and $110 million.

Management's guidance is underpinned by several key assumptions: a belief that project delays in 2025 will be less severe than the $130 million in pushouts experienced in 2024, and that book-and-turn business will largely offset any remaining project delays. The company anticipates an unusual seasonal pattern in 2025, with a lighter first half (40-45% of annual revenue) and a heavier second half (55-60%), necessitating higher working capital investment in the first half. Capital expenditures are expected to be elevated in 2025, ranging from $30 million to $40 million, as the company completes its new manufacturing facility, with normalization expected in 2026. Cash flow from operations for the full year is projected at $15 million to $25 million, and interest expense at $8 million to $12 million.

Despite this positive outlook, several risks warrant investor attention:

• Wire Insulation Shrinkback Litigation: The company faces a significant warranty liability related to defective wire, with a remaining estimated liability of $7.2 million as of September 30, 2025, and a high-end potential loss of $160 million. Shoals has no insurance for this issue and is pursuing a lawsuit against Prysmian, with potential recovery not considered probable for accounting purposes.
• Intellectual Property Litigation: The ongoing patent infringement complaints against Voltage and Hikam, including an appealed ITC decision and new patent filings, introduce uncertainty regarding outcomes and potential impacts on business and financial results.
• Securities and Derivative Litigation: Consolidated class action and derivative lawsuits related to the wire insulation shrinkback matter pose a risk, with the ultimate outcome and potential losses currently indeterminable.
• Trade Regulation and Import Tariffs: Changes in trade policies, such as the Section 232 aluminum tariffs and potential country-specific tariffs, could increase raw material costs and impact profitability, as evidenced by the undoing of 100-200 basis points of expected margin improvement in 2025.
• Changes in Renewable Energy Policies: Modifications to the Inflation Reduction Act (IRA), such as the accelerated phaseout of Production Tax Credits (PTC) and Investment Tax Credits (ITC) for solar projects after 2027 under H.R. 1, could reduce demand for solar products in the long term, although most projects through 2027 are believed to have secured components.
• Macroeconomic Conditions: Persistent global inflationary pressures, high interest rates, and geopolitical instability continue to create uncertainty regarding the cost of capital and overall business environment.

Conclusion

Shoals Technologies Group is in the midst of a compelling transformation, strategically expanding its reach and diversifying its offerings to capitalize on the burgeoning global energy transition. The company's strong third-quarter 2025 performance, marked by record revenue and backlog, underscores its operational effectiveness and the successful execution of its growth initiatives. By leveraging its proprietary EBOS technology, which delivers tangible benefits in labor savings, deployment speed, and system reliability, Shoals is solidifying its competitive position in both its core U.S. utility-scale solar market and high-growth areas like Battery Energy Storage Solutions for data centers and grid firming.

While the company faces a complex landscape of litigation and macroeconomic uncertainties, its robust balance sheet, ongoing operational improvements through its new manufacturing facility, and proactive approach to market diversification demonstrate resilience. The strategic pivot towards new markets and innovative products, particularly in BESS, is expected to materially alter its customer and product mix, driving accretive margins and sustained profitable growth. Shoals is not merely adapting to the energy transition; it is actively shaping it, positioning itself as a critical enabler for the next generation of energy infrastructure.