Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share ("EPS”) Reconciliation of Net Income to Adjusted EBITDA (in thousands): Three Months Ended December 31, Year Ended December 31, 2024 2023 2024 2023 Net income$7,818 $16,582 $24,127 $42,661 Interest expense 3,314 5,700 13,827 24,100 Interest income (518) — (518) — Income tax expense 5,869 9,588 13,736 12,274 Depreciation expense 1,364 889 5,007 2,612 Amortization of intangibles 1,931 1,896 7,619 7,917 Payable pursuant to the TRA adjustment(c) — — — — Gain on termination of TRA — — — — Equity-based compensation 3,838 3,802 14,230 20,862 Acquisition-related expenses — — — — Wire insulation shrinkback expenses(a) — — 13,764 61,705 Wire insulation shrinkback litigation expenses(b) 2,793 662 7,292 1,260 Adjusted EBITDA$26,409 $39,119 $99,084 $173,391 Reconciliation of Net Income Attributable to Shoals Technologies Group, Inc.to Adjusted Net Income (in thousands): Three Months Ended December 31, Year Ended December 31, 2024 2023 2024 2023 Net income attributable to Shoals Technologies Group, Inc. 7,818 16,582 $24,127 $39,974 Net income impact from assumed exchange of Class B common stock to Class A common stock(d) — — — 2,687 Adjustment to the provision for income tax(e) — — — (653)Tax effected net income 7,818 16,582 24,127 42,008 Amortization of intangibles 1,931 1,896 7,619 7,917 Amortization / write-off of deferred financing costs 156 — 3,093 2,165 Payable pursuant to the TRA adjustment(c) — — — — Gain on termination of TRA — — — — Equity-based compensation 3,838 3,802 14,230 20,862 Acquisition-related expenses — — — — Wire insulation shrinkback expenses(a) — — 13,764 61,705 Wire insulation shrinkback litigation expenses(b) 2,793 662 7,292 1,260 Tax impact of adjustments(f) (2,441) (1,673) (11,591) (24,604)Adjusted Net Income$14,095 $21,269 $58,534 $111,313 (a) For the year ended December 31, 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, and (ii) $0.5 million 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 continues to decline, we may not be able to grow, and our financial results, business and prospects could be materially adversely impacted; 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; 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; 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 have modified, and in the future may modify, our business strategy to abandon lines of business or implement new lines of business, and modifying our business strategy could have an adverse effect on our business and financial results; Amounts included in our backlog and awarded orders may not result in actual revenue or translate into profits; Defects or performance problems in our products or their parts, whether due to manufacturing, installation, or use, including those related to the wire insulation shrinkback matter, have a high consequence of failure and can lead to equipment and systems failure, physical injury or death, and in the past have, and in the future could, result in loss of customers, reputational damage and decreased revenue, and materially adversely impact our business, financial condition and results of operations; We have experienced, and may experience in the future, delays, disruptions, quality control or reputational problems in our manufacturing operations in part due to our vendor concentration; 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; The market for our products is competitive, and we 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; Macroeconomic conditions, including high inflation, high interest rates, and geopolitical instability impacts our business and financial results; We are subject to risks associated with the patent infringement complaints that we filed with the U.S.
Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share ("EPS”) Reconciliation of Gross Profit to Adjusted Gross Profit and Adjusted Gross Profit Percentage (in thousands): Three Months Ended December 31, Year Ended December 31, 2024 2023 2024 2023 Revenue$106,987 $130,436 $399,208 $488,939 Cost of revenue 66,803 75,056 257,191 320,635 Gross profit$40,184 $55,380 $142,017 $168,304 Gross profit percentage 37.6% 42.5% 35.6% 34.4% Wire insulation shrinkback expenses(a)$— $— $13,764 $61,705 Adjusted gross profit$40,184 $55,380 $155,781 $230,009 Adjusted gross profit percentage 37.6% 42.5% 39.0% 47.0% Shoals Technologies Group, Inc.
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