Shoals Technologies Group, Inc. Q4 FY2024 earnings call

• 2024 Q4: Delivered revenue of $107 million at high end of expected range, bookings $145 million, BLAO $635 million with book to bill of 1.4. Adjusted gross profit percentage 37.6% in Q4. - 2024 overall: External forces caused project delays, but introduced over a dozen new products, made progress in new market segments like CC&I and BESS, won international projects, expanded management team, increased quote volume, diversified customer list, and started factory consolidation. - New product innovation: Introduced new best combiners and recombiners, long-tail BLA, mini BLA, 2KV solutions, etc. - ITC litigation: Filed new case with ITC on Jan 9, ITC did not uphold ALJ's initial determination on Jan 15, and appealed the 153 case in federal court.

In the fourth quarter, revenue was $107 million, at the high end of the expected range. Bookings were $145 million, resulting in total backlog and awarded orders (BLAO) of $635 million with a book to bill of 1.4. As of December 31, 2024, approximately $440 million of that BLAO has shipment dates in the upcoming 4 quarters. Full year 2024 revenue totaled $399 million, an 18.4% decline from 2023. Adjusted gross profit percentage for the full year was 39%, and for the fourth quarter was 37.6%. Adjusted EBITDA in the fourth quarter was $26.4 million or 24.7% of revenue. In 2024, over $8 million of new international projects were won in the fourth quarter, ending the year with approximately $86 million of international backlog and awarded orders.

• Q1 2025: Revenue expected in the range of $70 million to $80 million, adjusted EBITDA in the range of $10 million to $15 million. - Full year 2025: Revenue expected in the range of $410 million to $450 million, adjusted EBITDA in the range of $100 million to $115 million. Cash flow from operations in the range of $30 million to $45 million, capital expenditures in the range of $25 million to $35 million, interest expense in the range of $8 million to $12 million. First half of 2025 will be lighter, second half heavier, with roughly 40% of revenue in first half and 60% in second half. - Project delays in 2025 expected to be less than 2024 but more than historical norms. Book and turn business expected to account for similar portion of full year number as 2024.

• External factors: Rapidly shifting political stage, labor and equipment availability, regulatory and permitting delays. - ITC case uncertainty: Uncertainty regarding the outcome of the ITC cases, including the appeal of the 153 case. - Tariff impact: Potential impact of tariffs on the competitive landscape and financial performance. - Project delay uncertainty: Uncertainty regarding the timing and extent of project delays. - Litigation risk: Uncertainty related to the wire insulation shrinkback litigation and potential recovery or changes in reserves.

Q: Maybe just to start on the pricing dynamics that you alluded to the competition, can you just give us more context around where you're seeing the most pricing pressure and maybe how much you're having to lower price to remain competitive? Is this purely a Voltage issue? Or is this more widespread across the peer group?

A: Brandon Moss: The pricing environment has ebbs and flows. We are opening our aperture to entice new customers, may offer pricing to do that, and there's a mix component with some new or reengaged customers not being full solutions customers. Dominic Bardos: Covered similar points, mentioning mix of customers and portfolio diversification.

Q: Maybe just my follow-up would be, I think, Brandon, you alluded to the fact that you're having more in-depth conversations with some of your customers to ensure greater visibility into the delivery schedule for some of these projects. Can you maybe just add more context around exactly what you're doing to gain that greater visibility? And I think you also mentioned you're assuming slightly less project pushouts in 2025 relative to 2024. What gives you the confidence that things will improve this year?

A: Brandon Moss: Talking with customers, feeling good about market dynamics in 2025. Using CRM tool to populate data and track project components. Dominic Bardos: Project delays in 2025 expected to be less than 2024 but more than historical norms, and book and turn business expected to offset potential delays.

Q: Can you talk about the overall bidding activity since the ITC reversal in January? And I think you said on the last call that following the favorable ruling you received in late August, early September, that there were some new EPCs that had signed up for your product. Can you talk about what you're seeing there? Are those new customers reversing course now? Or is kind of the pricing environment, is that part of keeping them in your network?

A: Brandon Moss: Order book has been strong, with 1.4 book-to-bill in Q4, order book is diverse and strong, making good progress on tackling new markets.

Q: You guys talked a bit about pricing just now. Wanted to check-in on the margins. I know you haven't provided guidance officially for Q1 or the year. Brandon, you did just mention that 40% is a long-term target. So I was wondering if you could kind of bracket what the near-term targets might be for '25 and what the cadence of margins might be? Should we expect a bit of a dip in Q1 with the lower volume and then should that ramp through the year? Or do we see margins maybe staying stable through the year?

A: Dominic Bardos: Q1 revenue lower, margins more pressured, margins expected to improve throughout the year as going towards back half, but moving facilities may cause inefficiencies, working to mitigate.

Q: Second question here, a bit of a follow-up on bidding activity but it's more tied to the Voltage Section 337 case reversal. That was a big surprise for everybody. Wanted to understand what has the activity been like post-reversal? Have you had to move a little more in pricing? Or what have you been able to do to kind of offset some of the adverse impacts from that?

A: Brandon Moss: Continuing to compete on quality and service, customer engagement better than ever, honing in on quality, and progressing on IP protection front with new ITC case and appeal of 153 case.

Q: I guess first one on the guidance. I know you're giving us the cadence, first half, second half skew. I might have missed this but can you talk to some of the specific drivers? Is it a big customer? Is it just lumpier projects for the 2 half versus 1 half skew? Because I would have thought, I guess, coming into this year given what you're outlining as $130 million of pushouts from last year that it would have been sprinkled into the early part of the year. So it might have actually dampened the normal seasonality coming into this year. And then I guess I also look at the skew to awarded orders versus backlog, it's higher than normal heading into this year. So is this a customer issue, a project issue? Is this maybe lack of visibility based on the backlog/awarded orders mix? Just trying to understand the second half, first half skew a bit better.

A: Dominic Bardos: Unusual seasonality in 2025, projects more skewed towards middle to back half of year, not limited to one customer, projects held up a bit during election cycle.

Q: Given the detailed conversations you've had with your customers, can you talk a little bit about the labor dynamics and specifically the skilled labor dynamics that your EPC customers are talking about right now in light of some of the changes in immigration policy?

A: Brandon Moss: Labor a big challenge, EPC customers getting more strategic in project planning to solve labor issue, hearing more preplanning. Dominic Bardos: Customers' dance cards full, projects scheduled and fully booked for 2025.

Q: So with '24 in the books, just kind of looking back at the numbers, it's now clear that your biggest customer was the main driver of the revenue pullback. And so was that all entirely project delay driven? Was that customer reallocating focus to other sectors? Was there something in the type of projects that were focused on? I'm just curious on what drives that view that since it's obviously such a big revenue contributor that that will be different in '25 than it was in '24? And I have a follow-up.

A: Dominic Bardos: None of customers immune to project delays, not always customers' decision, mix impacted, ebbs and flows, confident in book of business. Brandon Moss: Excited about project pipeline in 2025.

Q: So, it looks like your -- about 69% of your backlog and awarded orders will convert to revenue over the next 12 months. So that's a bit lower than the 76% ratio that you achieved in Q3. So I'm just trying to understand what's driving that. Is that, I guess, due to further elongation of project cycles? Or is it more of the international bookings that have a longer revenue conversion cycle? And then when we think about bookings in 2025, do you expect that metric to improve from the 69% you're currently at or remain the same?

A: Dominic Bardos: Projects elongating, international bookings with longer conversion cycles, expect book of business to be similar, with unpredictability of project delays.

Q: So, it looks like your -- about 69% of your backlog and awarded orders will convert to revenue over the next 12 months. So that's a bit lower than the 76% ratio that you achieved in Q3. So I'm just trying to understand what's driving that. Is that, I guess, due to further elongation of project cycles? Or is it more of the international bookings that have a longer revenue conversion cycle? And then when we think about bookings in 2025, do you expect that metric to improve from the 69% you're currently at or remain the same?

A: Brandon Moss: 2kV product still early in process, pilot site underway but early.

Q: This is Deshante [ph] for Julien. Can you guys hear? So just wanted to touch on 2 things actually. One, the midpoint of the revenue guide kind of implied that 8% year-over-year growth. And I know that you guys don't necessarily talk about 2026 yet but how do we think about that 12% to 18% CAGR outlook that you guys have shared in your Investor Day?

A: Dominic Bardos: Midpoint guide at 8% is good, on track for revenue growth outlined in Investor Day, new product offerings to take time to ramp.

Q: And then my second question was just on the international piece. I know you guys talked about Australia and Chile. Are there other markets that you guys are exploring? And then specifically, how does the margin cadence play out in the international markets just keeping in mind that 30% EBITDA margin that you have talked about in terms of outlook?

A: Brandon Moss: Focus markets include Australia, Latin America, Southern European countries, KSA; margin profile depends on location, product, and manufacturing.

Q: I wanted to talk a little bit on the tariffs which you initially brought up. Do you anticipate this will likely change the competitive landscape in part? And also, in terms of the ITC, right, I know you are appealing the process. Do you assign -- like what probability do you assign to a favorable outcome here? And do you have a time line around that by chance?

A: Brandon Moss: Tariffs can help directly, benefit domestic manufacturer; ITC case time line is 12 to 18 months for new case and appeal, not assigning probability.