Shoals Books Record Backlog as Growth Cools, Margins Stay Pinched
Shoals Technologies Group posted second-quarter revenue of $163.4 million, up 47.4% from a year earlier but a slower pace of growth than the prior two quarters.
Shoals Technologies Group (SHLS) reported second-quarter revenue of $163.4 million, up 47.4% from a year earlier. The growth rate has now decelerated for two straight quarters, down from 74.9% in the first quarter and 32.9% in the third quarter of 2024, even as absolute revenue kept climbing sequentially from $135.8 million to $140.6 million to $163.4 million over that span.
The deceleration in top-line growth arrived alongside a third consecutive quarter of gross-margin compression. Gross margin fell to 30.3% from 37.2% in the year-earlier quarter, an improvement from the first quarter's 29.2% but still well below the 37.0% posted in the third quarter of 2024. Shoals attributed the pressure to operational inefficiencies tied to the ramp of its new manufacturing facility, product mix, and costs to address product-quality and rework issues, compounding on tariff- and lease-amortization-driven compression flagged in the first quarter. The company has now completed the move into the new facility and is "steadily making progress towards improving productivity," a shift from earlier quarters that described the plant as still ramping and a source of margin drag.
Income from operations rose to $18.7 million from $16.0 million a year earlier, but net income fell to $12.1 million from $13.9 million as interest expense grew and the year-earlier quarter had benefited from a $3.1 million gain on an asset sale that did not recur. That followed a first-quarter net loss of $0.3 million despite positive operating income of $7.7 million, a result driven by a $5.3 million litigation settlement expense tied to securities litigation that cleared through the second quarter, leaving only $0.5 million of ongoing shareholder-litigation defense costs.
General and administrative expenses climbed sharply in both recent quarters, though the driver shifted. First-quarter G&A rose 43% year over year to $31.0 million on $6.2 million of higher legal expenses tied to wire-insulation shrinkback, intellectual-property and shareholder litigation, plus $1.6 million of higher compensation. Second-quarter G&A rose 23% to $28.5 million, this time led by $4.4 million of higher cash and share-based incentive compensation tied to headcount growth rather than legal costs. Adjusted EBITDA, whose definition Shoals revised beginning in the first quarter to exclude shareholder-litigation costs with prior periods recast for comparability, grew 28% year over year to $31.6 million, a slower pace than the first quarter's 56% growth and a margin of 19.3%, up from 15.0% in the first quarter but below the 23.6% posted a year ago.
One bright spot ran counter to the slowing revenue growth: backlog and awarded orders reached a record $801.4 million, up 5.7% sequentially from $758.0 million and up 19.4% year over year, an acceleration from the 17.5% pace reported in the first quarter. The buildup came at a cash cost. Operating cash flow swung to a use of $34.6 million for the first half of 2025, versus a $1.7 million source a year earlier, driven by a $97.1 million inventory build compared with $1.5 million in the prior-year period, alongside rising deferred revenue of $55.2 million versus $37.0 million at the end of 2024. Shoals funded the gap by drawing an additional $60 million on its revolving line of credit, lifting the balance to $196.75 million from $136.75 million at the end of 2024, while cash and equivalents also rose to $15.7 million from $7.3 million.
For the full year, Shoals reiterated guidance of $600 million to $640 million in revenue and $118 million to $132 million in Adjusted EBITDA, holding steady after raising the outlook in the first-quarter release. For the third quarter, the company guided to revenue of $150 million to $170 million and Adjusted EBITDA of $32 million to $37 million, implying flat-to-down sequential revenue against the second quarter's $163.4 million but a step-up in Adjusted EBITDA from the $31.6 million just reported.