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 September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenue$102,165 $134,209 $292,221 $358,503 Cost of revenue 76,789 120,059 190,388 245,579 Gross profit$25,376 $14,150 $101,833 $112,924 Gross profit percentage 24.8% 10.5% 34.8% 31.5% Wire insulation shrinkback expenses(a)$13,298 $50,211 $13,765 $61,705 Adjusted gross profit$38,674 $64,361 $115,598 $174,629 Adjusted gross profit percentage 37.9% 48.0% 39.6% 48.7% Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023Net income (loss)$(267) $(9,828) $16,309 $26,079Interest expense, net 3,088 5,899 10,513 18,400Income tax expense (benefit) 1,703 (6,642) 7,867 2,686Depreciation expense 1,254 674 3,643 1,723Amortization of intangibles 1,897 1,978 5,689 6,021Equity-based compensation 1,282 5,092 10,392 17,060Wire insulation shrinkback expenses(a) 13,298 50,211 13,765 61,705Wire insulation shrinkback litigation expenses(b) 2,278 598 4,499 598Adjusted EBITDA$24,533 $47,982 $72,677 $134,272 Reconciliation of Net Income (Loss) Attributable to Shoals Technologies Group, Inc.to Adjusted Net Income (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net income (loss) attributable to Shoals Technologies Group, Inc.$(267) $(9,828) $16,309 $23,392 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 (loss) (267) (9,828) 16,309 — 25,426 Amortization of intangibles 1,897 1,978 5,689 6,021 Amortization / write-off of deferred financing costs 156 341 2,937 1,032 Equity-based compensation 1,282 5,092 10,392 17,060 Wire insulation shrinkback expenses(a) 13,298 50,211 13,765 61,705 Wire insulation shrinkback litigation expenses(b) 2,278 598 4,499 598 Tax impact of adjustments (e) (4,709) (15,039) (9,209) (21,969)Adjusted Net Income$13,935 $33,353 $44,382 $89,873 (a) For the three and nine months ended September 30, 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, (ii) zero and $0.5 million, respectively, of inventory write-downs of wire in connection with 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; current macroeconomic events, including high inflation, high interest rates, a potential recession, uncertainty surrounding the impact of the election cycle and geopolitical instability could impact our business and financial results; a further increase in interest rates or a reduction in the availability of tax incentives or project debt capital in the global financial markets could make it difficult for end customers to finance the cost of a solar energy system and could reduce the demand for our products; existing electric utility industry, renewable energy and solar energy policies and regulations, and any subsequent changes, may present technical, regulatory and economic barriers to the purchase and use of solar energy systems that may significantly reduce demand for our products or harm our ability to compete; changes in the U.S.trade environment, including the imposition of trade restrictions, import tariffs, anti-dumping and countervailing duties could adversely affect the amount or timing of our revenue, results of operations or cash flows; 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, 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; 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.
We define Adjusted Net Income as net income (loss) 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) equity-based compensation, (vi) wire insulation shrinkback expenses, and (vii) wire insulation shrinkback litigation expenses, all net of applicable income taxes.
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