Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share ("EPS”) (Unaudited) Reconciliation of Gross Profit to Adjusted Gross Profit and Adjusted Gross Profit Percentage (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023Revenue$ 99,249 $ 119,208 $ 190,056 $ 224,294 Cost of revenue 59,252 68,691 113,599 125,520 Gross profit$ 39,997 $ 50,517 $ 76,457 $ 98,774 Gross profit percentage 40.3 % 42.4 % 40.2 % 44.0 % Wire insulation shrinkback expenses(a)$ 466 $ 9,488 $ 466 $ 11,494 Adjusted gross profit$ 40,463 $ 60,005 $ 76,923 $ 110,268 Adjusted gross profit percentage 40.8 % 50.3 % 40.5 % 49.2 % Reconciliation of Net Income to Adjusted EBITDA (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net income$ 11,802 $ 18,924 $ 16,576 $ 35,907 Interest expense, net 3,063 6,505 7,425 12,501 Income tax expense 3,716 6,207 6,164 9,328 Depreciation expense 1,283 565 2,389 1,049 Amortization of intangibles 1,896 2,021 3,792 4,043 Equity-based compensation 4,087 4,445 9,110 11,968 Wire insulation shrinkback expenses(a) 466 9,488 466 11,494 Wire insulation shrinkback litigation expenses(b) 1,372 — 2,221 — Adjusted EBITDA$ 27,685 $ 48,155 $ 48,143 $ 86,290 Reconciliation of Net Income Attributable to Shoals Technologies Group, Inc.to Adjusted Net Income (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net income attributable to Shoals Technologies Group, Inc.$ 11,802 $ 18,924 $ 16,576 $ 33,220 Net income impact from assumed exchange of Class B common stock to Class A common stock (c) — — — 2,687 Adjustment to the provision for income tax (d) — — — (653)Tax effected net income 11,802 18,924 16,576 35,254 Amortization of intangibles 1,896 2,021 3,792 4,043 Amortization / write-off of deferred financing costs 155 342 2,781 692 Equity-based compensation 4,087 4,445 9,110 11,968 Wire insulation shrinkback expenses(a) 466 9,488 466 11,494 Wire insulation shrinkback litigation expenses(b) 1,372 — 2,221 — Tax impact of adjustments (e) (1,970) (4,041) (4,501) (6,908)Adjusted Net Income$ 17,808 $ 31,179 $ 30,445 $ 56,543 (a)For the six months ended June 30, 2024, represents (i) $0.5 million of inventory write-downs of wire in connection with the identification, repair and replacement of a subset of wire harnesses presenting unacceptable levels of wire insulation shrinkback.
Some of the key factors that could cause actual results to differ from our expectations include, among others, if demand for solar energy projects does not continue to grow or grows at a slower rate than we anticipate, including as a result of industry project delays, we may not be able to achieve our anticipated level of growth and our business will suffer; if we fail to accurately estimate the potential losses related to the wire insulation shrinkback matter, or fail to recover the costs and expenses incurred by us from the supplier, our profit margins, financial results, business and prospects could be materially adversely impacted; defects or performance problems in our products or their parts, including those related to the wire insulation shrinkback matter, could result in loss of customers, reputational damage and decreased revenue, and may have a material adverse effect on our business, financial condition and results of operations; we may experience delays, disruptions, quality control or reputational problems in our manufacturing operations in part due to our vendor concentration; if we or our suppliers face disputes with labor unions, we may not be able to achieve our anticipated level of growth and our business could suffer; if we fail to retain our key personnel and attract additional qualified personnel, or successfully integrate our new Chief Executive Officer, our business strategy and prospects could suffer; our products are primarily manufactured and shipped from our production facilities in Tennessee, and any damage or disruption at these facilities may harm our business; we may face difficulties with respect to the planned consolidation and relocation of our Tennessee-based manufacturing and distribution operations, and may not realize the benefits thereof; unsatisfactory safety performance may subject us to penalties, negatively impact customer relationships, result in higher operating costs, and negatively impact employee morale and turnover; the market for our products is competitive, and we may face increased competition as new and existing competitors introduce EBOS system solutions and components, which could negatively affect our results of operations and market share; current macroeconomic events, including high inflation, high interest rates, a potential recession, uncertainty surrounding the election cycle and geopolitical instability could impact our business and financial results; our industry has historically been cyclical and experienced periodic downturns; the interruption of the flow of raw materials from international vendors has disrupted our supply chain, including as a result of the imposition of additional duties, tariffs and other charges on imports and exports; we are subject to risks associated with legal proceedings and claims, including the patent infringement complaints that we filed with the U.S.
Condensed Consolidated Statements of Operations (Unaudited)(in thousands, except per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Revenue$ 99,249 $ 119,208 $ 190,056 $ 224,294 Cost of revenue 59,252 68,691 113,599 125,520 Gross profit 39,997 50,517 76,457 98,774 Operating expenses General and administrative expenses 19,218 16,723 41,990 36,715 Depreciation and amortization 2,198 2,158 4,302 4,323 Total operating expenses 21,416 18,881 46,292 41,038 Income from operations 18,581 31,636 30,165 57,736 Interest expense, net (3,063) (6,505) (7,425) (12,501)Income before income taxes 15,518 25,131 22,740 45,235 Income tax expense (3,716) (6,207) (6,164) (9,328)Net income 11,802 18,924 16,576 35,907 Less: net income attributable to non-controlling interests — — — 2,687 Net income attributable to Shoals Technologies Group, Inc.$ 11,802 $ 18,924 $ 16,576 $ 33,220 Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Earnings per share of Class A common stock: Basic$ 0.07 $ 0.11 $ 0.10 $ 0.21 Diluted$ 0.07 $ 0.11 $ 0.10 $ 0.21 Weighted average shares of Class A common stock outstanding: Basic 169,991 169,887 170,136 158,213 Diluted 170,100 170,241 170,252 158,694 Shoals Technologies Group, Inc.
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