Shoals Technologies (SHLS) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Third quarter net revenue declined 23.9% year-over-year to $102.2 million but increased 2.9% sequentially [35] - Gross profit increased to$ 25.4 million compared to $14.2 million in the prior year, with a GAAP gross profit percentage of 24.8% compared to 10.5% in the prior year [36] - Adjusted EBITDA was$ 24.5 million, down from $48.0 million in the prior year, with an adjusted EBITDA margin of 24.0% compared to 35.8% a year ago [38] - Net loss was$ 0.3 million compared to a net loss of $9.8 million in the prior year [40] - Adjusted net income was$ 13.9 million compared to $33.4 million in the prior year [40] Business Line Data and Key Metrics Changes - The company quoted almost$ 2 billion worth of projects this year, reflecting a 50% year-over-year increase [72] - The backlog and awarded orders ended the third quarter at $596.6 million, a sequential decline of$ 46 million [51] - Approximately $455.2 million of backlog and awarded orders have planned delivery dates in the coming four quarters [51] Market Data and Key Metrics Changes - The company noted that 60% of utility-scale solar projects are delayed, which is 10 percentage points higher than the same time last year [16] - The active capacity seeking grid interconnection has increased eightfold in the last decade, with solar, battery storage, and wind accounting for 95% of this capacity [15] Company Strategy and Development Direction - The company is focused on the clean energy transition, emphasizing solar as the most efficient near-term solution for power needs [10] - The company is investing heavily in Battery Energy Storage Solutions, anticipating significant market growth [33] - The company aims to improve relationships with existing customers and establish new ones, targeting both traditional and incremental markets [22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the clean energy sector despite current macro headwinds, citing strong power needs driven by AI and other factors [11] - The company expects to return to growth in 2025, supported by a healthy backlog and awarded orders [59] - Management highlighted the importance of navigating regulatory environments and ensuring timely delivery of quality products [52] Other Important Information - The company is pursuing damages in a patent infringement case against Voltage, with a target date for completion of the ITC investigation scheduled for late December [18] - The company has a strong balance sheet, ending the quarter with net debt to adjusted EBITDA of 1.2 times [48] - The company has$ 125 million remaining under the share repurchase authorization [50] Q&A Session Summary Question: Clarification on ITC decision and review deadline - Management confirmed the deadline for review is imminent and remains excited about the initial determination, viewing it as a win for the company [61][62] Question: Bookings strength and run rate - Management indicated strong bookings activity at the start of Q4, with a healthy pipeline and record quoting activity [64] Question: Gross margins and operational challenges - Management acknowledged that gross margins were impacted by elevated labor costs and supply chain issues but remains confident in achieving long-term targets [66][67] Question: Backlog and delivery timelines - Management clarified that they work closely with customers to understand project timelines and do not use discretion in pacing backlog [85] Question: Pricing strategy and volume-driven discounts - Management discussed the impact of master supply agreements on pricing and volume-driven discounts, indicating a focus on partnerships with top customers [97]