Good morning, and welcome to the Shoals Technologies Group Second Quarter 2025 Earnings Conference Call. Today's call is being recorded. We have allocated 1 hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Matt Tractenberg, Vice President of Finance and Investor Relations for Shoals Technologies Group. Thank you. You may now begin.

Thank you, Charlie, and thank you, everyone, for joining us today. Hosting the call with me is our CEO, Brandon Moss; and our CFO, Dominic Bardos. On this call, management will be making projections or other forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties and should not be considered guarantees of performance or results. Actual results could differ materially. Those risks and uncertainties are listed for interested investors in our most recent SEC filings. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's second quarter press release for definitional information and reconciliations of historical non-GAAP measures to the nearest comparable GAAP financial measures. Please note that the slides you see here are available for download from the Investor Relations section of our website at investors.shoals.com. With that, let me turn the call over to Brandon.

Thank you, Matt, and good morning, everyone. I'll begin by sharing some thoughts on the most recent quarter. We'll discuss the current demand environment for U.S. utility scale solar and I'll review progress on our strategic growth initiatives. Dominic will dive deeper into the second quarter results and provide our outlook on third quarter and full year 2025. We'll then close it out with questions from our analysts. Congratulations to the Shoals team for delivering revenue of $110.8 million, which was above the high end of our expected range provided last quarter and represents an 11.7% increase over the prior year period and a 37.9% sequential increase. Bookings were also very strong in the period as the momentum we've seen all year continued, driving approximately $137.1 million in new orders. This resulted in a company record backlog and awarded orders or BLAO of $671.3 million and a book-to-bill of 1.2, supporting the growth we see for the remainder of the year and into 2026. As of June 30, 2025, approximately $540.3 million of that BLAO has shipment dates in the upcoming 4 quarters running through Q2 of 2026. As a reminder, given recent uncertainty and volatility, we continue to allow for potential project time line changes from our customers this year and next. With that said, 2025 is shaping up to be a very strong year. Our value proposition and expanded product offering, combined with improving industry fundamentals and underlying demand growth are driving strong sales. While we all read the headlines regarding rapidly shifting clean energy policy, our customers continue to move projects forward and look for ways to further increase their project capacity. Shoal's value proposition, reducing the need for skilled labor, speeding deployment and improving quality, all from a trusted domestic manufacturing partner is resonating with both…

Thanks, Brandon, and greetings to everyone on the call. Turning to our second quarter financial results. Revenue increased by 11.7% year-over-year to $110.8 million. The increase in revenue was primarily driven by higher domestic project volume from new and returning customers. In addition, as Brandon mentioned earlier, our strategic growth channels of CC&I and OEM contributed to year-over-year revenue growth in the quarter. Gross profit increased to $41.2 million compared to $40.0 million in the prior year period. This resulted in GAAP gross profit percentage of 37.2% compared to 40.3% in the prior year period. The decline in margin was due to strategic pricing actions, customer mix and product mix. As we have communicated previously, the gross profit percentage in the quarter was in line with expectations of mid- to upper 30s. General and administrative expenses were $23.1 million, which is $3.8 million higher than the prior year period. Our legal expenses remain elevated while we handle ongoing litigation matters. Approximately $2.5 million of legal expense was specifically related to the ongoing wire insulation shrinkback litigation. Income from operations or operating profit was $16.0 million compared to $18.6 million during the prior year period. Operating profit margin was 14.4% compared to 18.7% a year ago, impacted by the reduced gross profit percentage we realized in the second quarter. Net income was $13.9 million compared to net income of $11.8 million during the prior year period. Net income was aided by a $3.1 million gain on the planned sale of one of our Portland facilities during the quarter as we prepare to consolidate operations. Adjusted net income was $16.9 million compared to $17.8 million in the prior year period. Adjusted EBITDA was $24.5 million compared to $27.7 million in the prior year period. And adjusted EBITDA margin was 22.1% compared to…

Thank you, Dominic. I want to remind our audience that although the news flow regarding changes within the regulatory landscape appear to be disruptive and distracting, the industry is no stranger to a rapidly shifting framework. Our customers and theirs are seasoned, sophisticated and proactive. They tell us that while they wait for improved clarity from their tax experts and guidance from the treasury department, they waste no time pushing forward. Power is in high demand from their end customers, utilities, hyperscalers, industrial expansion. It's not going to change the economics in the short run and in the long run, will require adjustments, not drastic cuts. As we've said this year, our customers are constructive. Fundamentals are solid and improving and we are in a competitive position of strength. I'm very encouraged about what we see and hear and excited about the positive changes taking hold at Shoals. We want to thank our shareholders and customers for their continued trust and our employees for their hard work and dedication. Operator, we're now ready to take questions.

[Operator Instructions] Our first question comes from Julien Dumoulin-Smith of Jefferies.

Actually, Brandon, let me kick it off just with your last comment there. I think that was probably asked. I mean, just in terms of engagement with clients here and your customers, what are you seeing just in terms of order activity and the willingness to move forward? And then specifically within that, you all have been very active on BESS of late. Obviously, you posted a separate deck here of late. Can you comment a little bit more specifically on the order activity you're seeing there and perhaps more like structural customer engagement as you guys align into that end market as well? But again, emphasis first on just given the backdrop of the EO and the tax backdrop, the willingness to sign contracts in the current environment?

Absolutely, Julien. Yes. We are -- as we've communicated really all year, pretty excited about the market backdrop. We have a very strong market despite all the noise with policy that is going on. We've got to remember that the energy demand is off the charts, right? Our customers, EPCs, our direct customers, their project calendars are loaded. Projects are moving forward. As we've seen market statistics, construction is up 20%. Our peers in the tracker space have had great installation numbers in the first half of the year that supports our back half number and on into 2026. It's too early to call the ball on '26, but we are optimistic given the market backdrop. As excited as we are about the market, we are more excited about our execution and our ability here at Shoals to return to growth. Our core business, obviously, domestic utility scale is growing and growing fast. That's evidenced by our record backlog and awarded orders of $671 million. What is really exciting is our following 4 quarters backlog and awarded orders of $540 million. For some perspective, we entered the year coming into '25 with a number of $450 million in following 4 quarters backlog and awarded orders. So we are really excited about how we're executing. Our order book is as strong and diverse as ever. There is no doubt in my mind we are winning in the marketplace. As it relates specifically to BESS, we're doing well across our 4 growth pillars. BESS is very exciting for us because we have such a significant market opportunity. These products are used not only in our core utility-scale solar applications, but we are seeing significant interest in data center AI applications for our combiner/recombiner products. Still early days on this. These projects have a long sales cycle, as you know. But we are really excited to see the engagement with our company and specifically the engagement with our engineering function to potentially provide future solutions. Look, everybody's got their own interesting stats and tidbits about the growth of data center and AI. Want to maybe point out something that was in the journal this week that I found interesting. Meta, Microsoft, Google and Amazon in the first half of the year basically have invested in data centers so much that it has the equivalent impact to GDP as consumer spending in the first half. So that amount of computing power, that level of investment is obviously going to need power. That not only propels our utility-scale solar business, but gives us a lot of opportunity in the battery energy storage space. So we're very excited about that.

Our next question comes from Philip Shen of ROTH Capital Partners.

First one is on 2026 -- I know you don't guide to 2026, but your backlog and awarded orders are pretty healthy at $540 million. Can you give some more color on how you might expect '26 to play out? And then separately, as it relates to the full year guide, you have an implied negative free cash flow guide. Wanted to see if you could provide some more context and color there as well.

As you noted, we are not going to guide to 2026 yet. I will, again, lean back on the backlog and awarded orders in the following 4 quarters of being $540 million. Again, strong book-to-bill again for us this quarter. As we have been all year, we're excited about the market. We're excited about how we're executing and our customer base. So you saw that in the increase to our revenue guidance for 2025, right? So we are in a position of strength. We feel very good about the market and how we're executing. Dom, maybe you want to take cash flow?

Yes. Just a quick bit on the cash flow, Phil. As you can imagine, as we're growing the business with significant growth and you see the numbers, the implied guide for Q4's revenue and also what's available for us as we go into '26 the first half, we have to make preparations from an inventory standpoint. We have to invest in the working capital necessary to drive that growth. As you know, we've also talked about the fact that warranty remediation will be completing for everything that we know about right now and that's going to consume additional cash in the back half while we finish that effort. So at this point in time, it's really driven by growth of the business, which we're excited about the return to growth, but it does take working capital investment to get there. And then we'll be able to reap those benefits for a long time and reinvest those dollars when we collect. So this year, 2025, operating cash flow had more challenges. But as I also stated, as we get towards the end of the year, we'll be seeing the reductions of CapEx for 2026 and also warranty remediation. So yes, we're just excited. It's really growth driven.

Our next question comes from Brian Lee of Goldman Sachs.

I had 2 here. First, on the revenue guidance update, it's a 7% increase in the midpoint of the range, all second half since Q2 came in just a bit above your guidance range. So just curious, what are the main drivers there? Are you seeing projects pull in? Is it more book and burn business, maybe projects even being pulled from other vendors coming to you post BBVA and Fiat? Just a bit of color around where the strength is coming from. And then secondly, on the guidance, when it comes to margins or EBITDA guidance, not implying any uptick despite the $30 million raise in revenue guidance for the year. So is that a reflection of weaker mix and gross margins or something on the OpEx line? Maybe give us some of the puts and takes around why EBITDA guidance range is staying intact despite the higher revenue numbers.

The strength of our business, as mentioned, pulling some orders in from other vendors. As I mentioned to Julien's question, we have a hugely diverse mix of customers now in a way that we have not had before. We are winning with new customers and we are winning with customers that maybe we hadn't done a lot of business with in the last couple of years. So that is -- it's that in the market strength that you're seeing that's driving the growth of the top side for us. As it relates to pull-in, we have not seen significant changes in our order pattern for pull-in due to OB3. As you know, we fall late in the construction cycle. Our products really from a safe harboring standpoint, don't give much of an ability for developers or EPCs to use our products as everything is design built specific to the solar field. So the top line growth is really our execution, our winning in the marketplace and market-driven. As it relates to the revenue guide versus EBITDA, Dom, do you want to maybe chime in there?

Yes. So a couple of things, Brian. One, as we talked about all year, our guide, we started the year with a $450 million backlog and awarded orders. But we did guide lower because we just didn't know of the nature of how many projects would delay. And what we're seeing is fewer are delaying than expected. Now there have been project pushouts and delays. There always are in the business and our book and turn business remained very strong and strong enough to offset it. Some of the margin that you're seeing is the fact that we have a diverse customer mix and we've used some promotional pricing to attract folks back into the Shoals family. In that process, not everybody is using our high-margin solutions. We still have some of the combiner box home run solutions and things like that. So gross margin is going to be lower than -- in the range that we've talked about, the up high 30s, mid- to high 30s. But that's really what's driving the margin all the way down to EBITDA. In terms of operating expense, we are still running a bit of an elevated legal expense for the back half. As we've talked about for several quarters now, our legal expenses continue to be -- I would characterize them as unusually high for a company of our size based on the issues that we're dealing with. And some of that will continue into the back half as we continue to push forward on the Voltage and Prysmian issues. So for the most part, it's not really OpEx-driven. It is really the promotional pricing and some of the things that we've done from a product and customer mix at the top.

Our next question comes from Colin Rusch of Oppenheimer.

We can see the opportunity with power demand growing, but just curious about how you're competing around power quality issues and your ability to deliver more power than other folks in a similar configuration from a power plant perspective and how you see that opportunity evolving for the company over the next couple of years?

Yes. Look, I think first and foremost, developers, EPCs are concerned with product quality to make sure that we have the ability to keep plants up and operating with our products and solutions. I think our BLA product line has proven over time to be that solution for electrical balance of systems. As we say around here, we don't measure our product quality in years. We measure our product quality in decades. Our products are built to stand the test of time and the elements that these power plants see. I think we've got the best solution in the industry versus other alternatives out there and there are some that are out there and being installed today, but ours is the best for durability. As it relates to the future, we do have our 2 KV line that we are working on, still driving that through UL. And we hope to see that begin getting spec in the sites in 2026. So we're very excited about continuing to push forward with higher generation capability for these sites. Charlie? Charlie? Give us just a minute, folks. We seem to be having some audio issues on the operating line.

Our next question comes from Jon Windham of UBS.

Can you just talk to a little bit -- you obviously raised the revenue guidance by about $30 million at the midpoint, but EBITDA remained the same. Can you just talk to what's driving that?

Yes, as mentioned, we've seen a strength in the business on the top line due to our execution in the marketplace, continue to grow our share with the development of new products and execution with current and new EPCs. Some of the attraction of new EPCs, we are leveraging promotional pricing that may be lower than historical norms to overcome the switching costs from one vendor to a particular vendor to Shoals. So that is impacting margins. Again, our margins grew quarter-over-quarter and we are operating in the mid- to high 30s range. It is important to mention as well, we've got a significant new product growth. If you look at our backlog and awarded orders today, we are approaching 10% of that backlog and awarded orders with new products. Some of those new products have a reduced gross margin versus our typical product line. One of those is a long-tail BLA product that is starting to become prevalent in the marketplace. While that provides wallet share expansion, it does impact our gross margin levels. So we're excited about the growth. And we are excited that we're operating at -- as we did in this quarter at the upper 30% range of gross margin. As Dominic mentioned in the previous question, we do have elevated legal spend right now that is not typical for a company our size. But what is important to note, as we move forward in the back half of the year and on into the future, our working -- our operating expense, our SG&A investment will not change materially. This business can support a much higher sales level than we are operating at today with our current investment in SG&A and we will see operating leverage in the future.

And the last thing, if I may add, Jon, is that we've got the back half of the year, we're still planning a significant relocation of all of our operations here in Portland into one facility. And we have yet to be able to realize some of the things that Brandon mentioned in the prepared remarks about the efficiencies of operations. So while margins are less than our long-term target this year, it's within our expectations as we've been communicating. So more to come. We look forward to the growth that we have and being able to share more about 2026 in the future, but those are some of the reasons why you see the guidance that we've provided today.

Our next question comes from Dimple Gosai of Bank of America.

I appreciate all the comments here. Just one question on the battery energy storage systems opportunity here. I know you've kind of spoken about an unnamed BSS OEM partnership opportunity. Can you share a little bit more about the opportunity exactly, especially as FEOC restrictions are expected to get a little stronger, what does that look like? Do they have a cell sourcing strategy and so forth?

Great question. As we read about FEOC restrictions, potential tariffs, obviously, there are a lot of questions about lithium-based battery energy storage solutions. While I won't comment about our specific engagement, I will say that there are a number of domestic battery energy storage suppliers that are bringing to market alternative technology to lithium to avoid tariffs and FEOC restrictions. So I understand the thesis that these restrictions may weigh down the battery energy storage market a bit. It's a new market for us. So ample upside for growth. And again, we're working with a lot of different partners on alternative solutions.

Yes. I think one of the things from a technology standpoint is we're looking for those that can best support some of the data center demands, which is long discharge times and slower. And some of the technologies that are out there as alternatives to those metals out of China are really pretty exciting. So more to come in that space.

Our next question comes from Dylan Nassano of Wolfe Research.

So I just wanted to follow up on the prior questions on the reaffirmed EBITDA guidance. I appreciate the color you've given on the promotional pricing to drive market share gains. I guess I'm just wondering if you can talk through kind of how sticky do you expect these kind of newer relationships to be? Can you speak to kind of your expectations around how long it might take to convert those into higher-margin orders in the future? And I guess just said another way, how are you thinking about the long-term ROI of these volume discounts? And what are you looking for as you kind of track how successful they are?

Good question. As I've talked about in previous calls, some of the EPCs that we are targeting and if you think back all the way to our Investor Day last year, that 30% of the market where we had not transacted a lot of business that we were going after. A lot of these particular customers use traditional methods of electrical balance of systems where they pull strings and run the combiner boxes, which are, in nature, lower-margin projects for EBOS providers, not just Shoals, but probably everybody. So our goal always is to move people up the value continuum and get them to use our top-end solutions, which is BLA and now we've got some new products out there that are very similar in labor savings and productivity enhancements for EPCs that provide better margins for us and provide better value for our customer, quite frankly, from an installed base. We're seeing that. We're seeing that start. We've got some customers that we have either recently won or have not transacted business with in years that are back in the fold with Shoals. And those -- some of those particular customers are now using our BLA trunk bus solution, which is fantastic to see. So that's the goal for us is to get these customers back in the fold and appreciating our value and quality and service, our engineering, our customer support and convince them to use our higher-value labor-saving products.

And Dylan, if I could add just a little bit more color on some of that. With some of the new products, we've talked about increasing our share of wallet in the solar field. And something like our long-tail BLA is a great example of that. It uses our patented BLA technology for a portion of an extended length trunk feeder cable. And basically, what that's doing is it's displacing some feeder cable that would just have been sourced out there in the solar field. Now that product itself is a lower-margin product. In terms of some of the new products that Brandon mentioned that we've developed specifically for some of these new customers, as our engineering team listens and we capture the voice of the customer, some of those, we're still learning how to produce as efficiently as possible. I'll be perfectly honest with you on that one. So as we look at the growth with our new product offering, as we have things like we're capturing additional share of wallet, we're very excited to see that growth and providing solutions for our customers. And as we mature in that space, you will see margins improve.

[Operator Instructions] Our next question comes from Maheep Mandloi of Mizuho.

On the international markets, could you provide some more color on the revenue contribution? I know you talked about this 20 gigawatt pipeline and more than 12% of the backlog, but how should we think about the revenue contribution for this year?

Yes, revenue contribution thus far in 2025 has been minimal. We are excited that we have won some projects this year in our focus markets. We announced one via press release, maybe a few weeks ago, I believe, a win in Chile. So we have been successful in LatAm and a couple of projects this year and also have won a project in Australia that we are excited about. As it relates to future backlog and awarded orders, I think roughly 13% of our BLAO is for international projects. So we expect to see the contribution of our international business to accelerate in 2026. A lot of that is driven by our export business in a previously announced press release for a partnership to drive that export business with Sun Africa UGTR. So it is a growing business for us. It's one of our 4 pillars of growth. And I would say at current date, it is tracking in line with our projections that we explained during our Investor Day last September.

Got it. Appreciate that.

Yes, sure, no, absolutely. Thank you for the question. I believe that that's the last question for today, everyone. So I want to note that we have a very active IR calendar in September. If you are attending RE+, please stop by. We'd be happy to offer you a booth tour and discuss new products driving our results. If we can help you further today, please reach out to investors@shoals.com with any questions, we're happy to help. Thanks, everyone, for joining us today. Have a great day. Thanks all.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your line.