SHLS - NASDAQ

Good morning, and welcome to the Shoals Technologies Group First Quarter 2025 Earnings Conference Call. Today's call is being recorded and 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. Those risks and uncertainties are listed for interested investors in our most recent SEC filings. Actual results could differ materially from our forward-looking statements. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's first 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 market and demand environment for U.S. utility-scale solar and will review progress on our strategic growth initiatives. Dominic will dive deeper into the first quarter results and provide our outlook on the second quarter and full year 2025. We'll then close it out with questions from our analysts. The business performed well in the first quarter, delivering revenue of $80.4 million, slightly above the high end of our expected range. Bookings were very strong in the period as momentum continues with approximately $91 million in new orders. This resulted in a robust backlog and awarded orders or BLAO of $645.1 million and a book-to-bill of 1.13 supporting the growth we see in the coming quarters. As of March 31, 2025, approximately $500 million of that BLAO has shipment dates in the upcoming four quarters running through Q1 of 2026. As a reminder, given the volume of project delays we experienced in 2024, we continue to allow for potential project timeline changes from our customers this year. That said, while it's still early in the year and uncertainty is somewhat elevated, we have not seen any concerning behavior from our customers. As expected, and discussed on the last call, adjusted gross profit percentage in the quarter was softer than normal at 35% driven by product mix, strategic pricing initiatives and reduced fixed cost leverage on lower volume. As previously discussed, we may occasionally leverage price to engage with customers who utilized alternative solutions in the past to secure long-term agreements or as we enter new market segments or geographies. While the impact of those price actions are expected to lessen over time, these strategic actions are enabling us to win new projects and customers. We expect ongoing productivity initiatives that we are aggressively pursuing to begin to take hold. While we believe that 40%-plus gross margins are appropriate and achievable in the long run for the remainder of 2025, we expect to deliver gross margin in the mid to high 30% range. And finally, we delivered first quarter adjusted EBITDA within our expected range at $12.8 million. As we are all aware, today's headlines are dominated by geopolitical uncertainty and we understand that creates volatility for the investor community. At times like this, we find it helpful to focus on the underlying drivers of our business and what makes Shoals unique. Load growth is increasing, energy sources are limited and costly and solar is best positioned to deliver the energy we need quickly in a cost effective manner. Our value proposition of combining high quality products with exceptional engineering support and service is bringing customers back to the table. Newly launched innovative products are solving real business problems, domestic manufacturing capabilities are resonating, improved commercial and operational initiatives are driving tangible results and the quality of our balance sheet and ability to generate attractive levels of free cash flow in a wide variety of market climates set Shoals apart from most others in the clean energy space. We are excited by the progress we made and the strength of the underlying markets we participate in, but we're also acutely aware of today's headlines, which are dominated by tariffs and domestic energy policy. We continue to evaluate how these shifts in policy may or may not impact our business and industry. That said, given what we know today, we believe Shoals has limited direct exposure to many of these risks in the near-term. You may recall that we do not participate in 45x credits and we have a robust supply chain with strong domestic partners. While no business is immune to market disruptions, we remain flexible and will work to identify opportunities to further protect our customers from the potential impact of tariffs. We are proud to be a U.S. manufacturer and have invested heavily to improve our domestic manufacturing footprint. We're investing in technologies that will increase productivity through automation. Shoals is in a strong competitive position and we believe these improvements are resonating with new and existing EPCs and developers as they navigate a complex economic climate. We are encouraged by the progress we've made within our commercial organization and the strength we see this year within our core utility scale solar market. External sources reported some softness in fourth quarter 2024 construction, likely driven by a number of factors including weather, labor availability and geopolitical uncertainty. As we enter 2025, project construction and tracker installations resumed a healthy pace. As you know, EBOS tends to follow tracker installations by one to two quarters, which aligns with the cadence of our full year guidance offered on our February call. Our customers 2025 construction calendars are full and projects are moving forward as scheduled. We're also driving a more diverse customer base across all product lines. As seen in our recent filings, we now recognize two additional customers responsible for 10% or more of our business. The strategies we've been executing commercially are taking hold. We are identifying and cultivating relationships with EPCs that previously did little to no business with Shoals and the progress is very encouraging to see. The investment that we made in our commercial and product management functions are paying dividends as evidenced in both the growth and quality of our order book. Today, more than 15% of our BLAO includes projects with at least one new product released in the last four quarters. These new products are instrumental in Shoals winning business, particularly within the 30% of the market we haven't competed for in the past and several of the customers buying these new products are new or have recently returned to Shoals, it's a very promising sign of what's to come. As we have previously discussed, there has been intense focus on how we have engaged with our customers over the last 12 months. In addition to revitalizing our sales, product management, and marketing functions, we have also stood up a world class customer care team. This engagement in pre-project planning, project startup training, golden row inspection and post project care I believe is unmatched in the solar industry. I'm excited to pair that customer-facing team with the operational improvements we are currently making in both talent and physical assets. This includes the startup of a state-of-the-art facility this year. Our ongoing investments in both the U.S. supply chain and manufacturing base will continue to provide the highest quality products and service in our industry. Shoals additional growth opportunities we laid out in our strategic plan international, CC&I, OEM and BESS are progressing well. We are building on our recent international project wins in Australia and Chile and are proud to announce the signing of an MOU with UGT Renewables. This leading global developer and their subsidiary Sun Africa are driving massive infrastructure projects within emerging global markets and selected Shoals to help deliver up to 12 gigawatts of international solar power in the coming years. That decision was made based on our quality and support, fast deployment speeds, and the ability to avoid skilled labor for installation. Many of these projects have been granted significant funding from the U.S. EXIM Bank, which often requires domestic content. It puts Shoals in an attractive competitive position. We're excited to share more as major projects are announced. Our community, commercial and industrial business continues to gain momentum. Wood Mackenzie has recently increased their estimate of growth within the commercial market, which aligns with what we are seeing through our engagement with new and prospective customers. There is an enormous opportunity to serve smaller EPCs and owners building projects behind the meter. Sales cycles are relatively short, quoting activity is very strong, and our value proposition is resonating with customers. Our OEM business is performing well. Our close partnership with First Solar enables visibility and consistency, valuable elements in today's business climate. You may have seen our joint press release during the quarter with First Solar expressing our belief that U.S. manufacturing is a unique differentiator in the U.S. utility-scale solar market. Roadmaps are aligned and the growth you see at First Solar is fueling attractive growth at Shoals. Battery energy storage solutions is an area of particular excitement at Shoals. While we have been selling products into this market for some time, the current strategy began to come together in 2024. According to Wood Mackenzie, the best market is expected to grow at 15% CAGR through 2029. We will serve this market via three distinct paths. First, via traditional solar EPCs. We have seen notable interest in our standardized approach to combiners and recombiners and are booking orders as we speak. Second, by partnering with providers of prefabricated storage solutions. I'm pleased to announce that we've secured a very exciting partnership with a large battery energy storage provider in the U.S., more to come on that. And third, by directly selling to developers and owners requiring energy storage solutions. During the quarter, we won a project to provide a custom solution to a well-known hyperscaler, a very good first step. The Shoals addressable best market is massive in size and growing at a very fast pace. Remember, BESS has applications across all energy sources, not just solar. We are thoughtfully allocating resources to capture this opportunity and believe it could materially change the customer and product mix of the company over the coming five years. In summary, we are executing our strategic framework of market penetration and diversification as anticipated. Customers are looking for a U.S. source of high quality; innovative solutions that allow them to manage labor costs, speed time of deployment and ensure their assets perform over a timeline that spans not years but decades. That balance between low material cost today versus total cost of ownership over the useful life of the project is why EPCs and developers are more engaged than ever. With that, I'll now turn it over to Dominic, who will discuss our first quarter financial results in more detail and our outlook for 2025. Dominic?

Thanks, Brandon, and good morning to everyone on the call. Turning to our first quarter financial results, net revenue declined 11.5% year-over-year to $80.4 million. The decline in net revenue was driven by product mix, strategic pricing actions and customer mix. Gross profit decreased to $28.1 million, compared to $36.5 million in the prior year period. This resulted in GAAP gross profit percentage of 35.0%, compared to 40.2% in the prior year period. The decline in margin was due to product mix strategic pricing actions and a loss of fixed cost leverage on lower sales volume. General and administrative expenses were $21.7 million, which is $1.1 million lower than the prior year period. We remain focused on controlling operating expenses and believe we are allocating resources in a reasonable and thoughtful manner. Approximately $2.5 million of G&A expense was specifically related to the ongoing wire insulation shrinkback litigation. Income from operations or operating profit was $4.3 million, compared to $11.6 million during the prior year period. Operating profit margin was 5.4%, compared to 12.8% a year ago, driven primarily by the decline in gross profit and reduced leverage on general and administrative expenses. Net loss was $0.3 million, compared to net income of $4.8 million during the prior year period. Adjusted net income was $5.2 million, compared to $12.6 million in the prior year period. Adjusted EBITDA was $12.8 million, compared to $20.5 million in the prior year period. Adjusted EBITDA margin was 15.9%, compared to 22.5% a year ago, driven primarily by lower sales and the reduced gross profit percentage. During the first quarter, we spent $9.5 million on wire insulation shrinkback remediation and had a remaining warranty liability on our balance sheet of $30.4 million as of March 31. The current portion of the remaining liability related to shrinkback is now $25 million. As a reminder, this represents the amount of cash we estimate we will consume during the next four quarters as we continue remediation efforts. This does not reflect any potential litigation recovery or increased reserves if our assumptions or knowledge of facts change. Our legal case against Prysmian is progressing. At this time, we expect written discovery and fact depositions to be completed in the third quarter. Cash flow from operations in the first quarter came in at $15.6 million, a solid performance driven by stronger collections activity and the timing of some outflows. Free cash flow was $12.4 million, which reflects both the $9.5 million impact of remediation costs and $2.5 million of legal expenses related to the shrinkback issue in the period. Excluding the impact of these two items, free cash flow would have been $24.4 million in the quarter. Capital expenditures were $3.2 million in the period. On the subject of capital investment, the build out of our new 1500 Shoals Way factory is progressing well. This state-of-the-art plant totaling more than 635,000 square feet will allow for the consolidation of multiple manufacturing and warehouse facilities in Tennessee. It will enable an unprecedented level of efficiency and collaboration for us at Shoals. We currently expect to begin moving into the new facility at the end of the third quarter. Additionally, we've recently completed the construction of our own solar demonstration site referred to as the Shoals Innovation Field, located on our campus on Shoals Way, this real world research and development laboratory incorporates a variety of panels and trackers paired with different Shoals EBOS solutions. It is providing our engineering, safety, commercial teams, a hands on environment to test our innovative new products, showcase our value proposition, demonstrate installation techniques and educate our stakeholders about the key products in the Shoals portfolio. Our balance sheet remains high quality and we ended the quarter with cash and equivalents of $35.6 million and net debt to adjusted EBITDA of 1.2x. Our net debt of $106.1 million is the lowest level for Shoals in four years as a public company. With regards to capital allocation, given a number of competing priorities for our cash including shrinkback remediation and factory consolidation, we did not purchase any shares in the first quarter under our share repurchase program. We have $125 million currently remaining under the share repurchase authorization. We will continue to evaluate investment opportunities that we believe yield the highest return for shareholders. Backlog and awarded orders ended the first quarter at $645.1 million, a sequential increase of $10 million. Backlog constitutes $202.2 million of the total BLAO, providing us with confidence that the growth projections we have for the upcoming period can be achieved. As of March 31, approximately $500 million of our backlog and awarded orders have planned delivery dates in the coming four quarters with the remaining $145 million beyond that. Turning now to the outlook. While quarterly pacing within the year normally follows a strong back half, we mentioned on the previous earnings call that we expect this to be slightly more pronounced in 2025 and that remains true today. The production calendar is largely driven by when and where customers need us to deliver our solutions. And as you have likely seen from both industry data and peer reports, project calendars are very busy as we move into the warmer months. We expect between 40% and 45% of annual revenue in the first half of the year and 55% to 60% in the second half. Based on what I just walked through, for the quarter ending June 30, 2025, the company expects revenue to be in the range of $100 million to $110 million and adjusted EBITDA to be in the range of $20 million to $25 million. For the full year 2025, the company continues to expect revenue to be in the range of $410 million to $450 million and adjusted EBITDA to be in the range of $100 million to $115 million. In addition, for the full year, we continue to expect cash flow from operations to be in the range of $30 million to $45 million, capital expenditures to be in the range of $25 million to $35 million, and interest expense to be in the range of $8 million to $12 million. And finally, we want to candidly share what we are seeing and hearing from customers. Many of you have asked about potential changes to the regulatory framework, including the IRA, PTC, and ITC, and how they might impact industry growth. These items may drive elevated market volatility for the remainder of the year. While it clearly occupies the headlines, our customers are less distracted and as a result, we do not see an increased rate of project delays relative to when our full year guidance was constructed. The range provided to you allowed room for heightened volatility and market disruptions. Therefore, even if we assume sustained uncertainty within our markets in 2025, we believe our guidance is reasonable and achievable. With that, I'll turn it back over to Brandon for closing remarks.

Thank you, Dominic. In this environment of heightened uncertainty, our team is doing a great job on what we can control and influence. Improving the resiliency of our supply chain, exceeding customer service requirements, hitting delivery timelines, providing exceptional quality, solving real business problems with new products. The changes we are making and the team we have in place positions us exceptionally well. It is exciting to be a part of. At the same time, we cannot ignore the market data we are seeing, strong growth across both the core and new markets, driven by the continued need for energy around the world. Despite the volatile political environment, Wood Mackenzie projects the U.S. will add between 41 and 50 gigawatts of average annual solar installations from 2025 through 2035. This leads us to be incrementally more constructive on the market both 2025 and beyond. While noise around energy policy remains, the data supports our thesis that markets in which we play are moving past the challenges we experienced in 2024. It's shaping up to be a good year. We want to thank our shareholders and customers for their continued trust and our employees for their hard work and dedication. Operator, we are now ready to take questions.

Of course. Thank you. [Operator Instructions]. Our first question comes from Mark Strouse of JPMorgan. Mark, your line is open. Please go ahead.

Hey, good morning. This is Michael Fairbanks on for Mark. Maybe if you guys could just start with talking about how the competitive landscape may have shifted given the uncertainty around tariffs. Thank you.

Good morning. This is Brandon. A great question. Look, there is certainly no doubt we have seen an increase in our customer inquiries. Our commercial team is very active in the marketplace and I think while the tariff landscape is playing a part of that, most of the conversations that we're having with customers are still centered around our quality, our service, our capabilities, really speaking specifically to engineering and helping customers solve business problems with our new products. So we continue to be very, very excited about our commercial execution and I think it's going to lead to great things to come.

Great. And then maybe just to follow-up, you guys mentioned the two big wins in the BESS product line. Could you maybe give some more color on those two projects?

Yes. We're very excited about BESS first and foremost because of the total market opportunity. Look for context, that market is essentially the same size or slightly larger even than our core domestic utility-scale solar market. So we're at the early stages as we talked about in the prepared remarks. We've really got three channels to market there. And it's not only just two wins; we're seeing wins across the Board in those three channels. We are winning business with called our core channel to market solar EPCs that are pairing solar and storage projects. We are winning in alternative channels. We called out specifically more of the industrial market that's supported by data center and AI, which is a fantastic growth opportunity. And then, specifically partnering with through an OEM relationship through folks building skid-based solutions. And that, that opportunity that, that we referred to has the potential to be sizable for Shoals in years to come and there's others in that pipeline. So aligned with our commercial execution on the solar side, the company is doing well in its path to diversify.

Thank you. Charlie, next question?

Of course. Our next question comes from Brian Lee of Goldman Sachs. Brian, your line is open. Please proceed.

Hey guys, good morning. Kudos on the solid results and thanks for taking the questions here. I guess maybe as a follow-up to the first question here, if you could, Brandon, maybe give us a bit more of the lay of the land, maybe even quantify it a little bit. Like how many of your peers like, like Voltage, who you've obviously been in some IP hand to hand combat with, how much exposure do your peers have to China tariffs, what percent market share in the U.S. would you say they represent? And then what are kind of the customer conversations like given the state of the state in terms of tariffs, it just seems like your U.S. footprint and U.S. supply chain should be giving you a huge leg up, whether it's in the ability to capture share or price or both. So just any visibility around those trends potentially becoming bigger tailwinds here as we move forward through the rest of this year.

Yes, Brian, great to hear from you and thanks for the question. Look, I don't want to comment specifically on any one competitor in the marketplace, but I want to reiterate our investment in U.S. manufacturing and supply chain started 12, 18 months ago. This is not a new phenomenon for Shoals. You wake up each morning to a headline of so and so is building infrastructure in the United States as a result of these tariffs. And that is not the story of Shoals. We've been doing this for the history of the company and are continuing to do it here with our investment at 1500 Shoals Way. As far as our competitive advantage in the marketplace, look, it's good for us obviously; anybody that is importing a finished product from outside of the country has absolute tariff exposure, whereas folks that are building here may have some tariff exposure because they could be using some imported materials. And while we have largely a domestic supply chain, we too do have some imported materials like others, there's some materials where there is no other domestic alternative, when you think about some of the connectors that are specific to panel types. That being said, I like our position versus any others. And again, look, I -- to reference the last question, again, I want to reiterate that the engagement that we're having with customers right now is not centered around tariffs. They're not coming to us because they need a U.S. alternative. They are coming to us because we've made some really material changes in how we go-to-market and service the customer and that is being recognized across our entire customer landscape.

Okay. That's great. Appreciate the color. And maybe just a follow-up on the model here. I know you guys said that the second half for the balance of the year, kind of mid to high-30s for gross margin, but you're still backing it sounds like the view to be a 40% to 45% gross margin business structurally. Can you give us a bit of the bridge to what gets you back there whether it's specific productivity measures, is it customer end market mix, is it just more volume demand? Like what takes you from the levels here in the high-30s to back to 40 plus? And is that something you achieve in even the early part of 2026? Thanks, guys.

Yes, Brian, so thanks. This is Dominic. Yes, great questions. And you answered a lot of it with your question itself. There are a number of things right now with a lower revenue production level where product mix and customer mix is certainly having an impact on margins here in the short-term. As we've talked, we do believe that this first quarter was going to be the low point for our year 2025. As we continue to migrate up, we do have visibility to what we're quoting in the future. Some of the projects that we're quoting as we mentioned in our prepared remarks, we have about $500 million worth of quotes that do carry us through the first quarter actually of 2026. So we do have visibility to where we're quoting. We have great visibility into new products that are starting to take shape and hold and their accretive margins to our base. So as we've described our margins, there are some things that we're doing from a commercial standpoint with our products, there are things that we're doing internally from an efficiency standpoint and that is something that we really want to focus on. There are some products that might be new that increase our share of wallet, but they might be perhaps a lower percentage of gross margin. So I want to -- it's not that I'm trying to deemphasize gross margin. We put cash dollars in the bank. I'm focusing on operating profit. I'm focusing on shareholder returns and I want to make sure that we always tell the story. But if I can go after an additional segment of EBOS that we haven't participated in the past, we absolutely will do that if that can drive profitable dollars to the bottom line.

Thanks, Brian. Charlie, next question.

Of course. Our next question comes from Colin Rusch of Oppenheimer. Colin, your line is open. Please go ahead.

Thanks so much, guys. Could you talk a little bit about how the portfolio is evolving in other geographies? Obviously, you moved into Europe with some new products and you're moving into Africa with this announcement. I'm just curious how different are the designs, how quickly can those things come to market and how much traction are you getting outside of some of your core traditional markets?

Yes, good morning. Great question. Those projects obviously being international, there is -- can be longer development lead timelines for those projects. Just they're more complex environments than here in the States, if that's possible. But I guess it is. So a little bit longer lead times. The product by and large, speaking specifically to the MOU that we signed with UGT and Sun Africa are very similar to what we're selling in the States. They're solutions-based products. And one of the reasons that, that we have partnered with them, not only because they're financed by many of the projects are financed via EXIM Bank and require domestic content are the fact that we have a easy to use solution for areas that have a lack of skilled labor. So we called out in the press release yesterday a project in Angola that is roughly 600 megawatts column that, that design would look very similar to a design that we would have here in the U.S. and will be made here in Tennessee.

Thanks so much. And given what we're seeing in terms of investment in long cycle industrials, can you talk a little bit about some of the supply chain, the non-copper supply chain and how much that's shifting around and if there's an opportunity for you guys to start driving some cost savings there?

Yes. Look, we are unbelievably engaged with our suppliers right now, given the tariff environment. And thank you to them for being flexible during this turbulent time. Look, we're calling -- we're trying to drive cost savings across the business, whether it's material cost savings or via labor efficiency projects on our plant floor that come through lean process or automation. So there's a lot of opportunity for Shoals as we move into this new facility from a raw material standpoint, being in one production facility and really being able to consolidate our inventory nodes and also becoming more efficient because of the fact that we're under one roof in adding some new automation. So we're excited. We've got a great operations team. As you know, we brought in Kirsten Moen, our new COO. She's been in the chair along with her team that she's building and is driving real impact across our organization. So great things to come.

Thanks, Colin. Charlie?

Our next question comes from Philip Shen of ROTH Capital Partners. Philip, your line is open. Please go ahead.

Thanks for taking my questions. What are you seeing in terms of bookings velocity for your business on projects looking for construction start in the back half of next year and 2027; to what degree has the tariff environment impacted what you could be doing in the coming quarters? Thanks.

Sure. Thanks, Phil. Look, too early to call the ball on 2026 and 2027 obviously. What I can say is, I think it's probably undisputed at this point that the underlying demand environment driven by data centers and AI is going to be a force that continues to drive the solar industry. I know there's a lot of uncertainty out there right now with tariffs and what will or will not happen with ITC, PTC, 45x, but even through that, we are seeing a strengthening market. We saw a softer Q4 in 2024 in terms of starts and in tracker installations, and that trend is reversed going into 2025. We're seeing an uptick across the Board and you see that in our backlog and awarded orders and maybe more importantly our conversion from awarded order to backlog. We had roughly $50 million increase quarter-to-quarter there. The great thing that we are hearing, talking to our EPC partners and developers, they're confirming our feeling of strength in the marketplace. They're not seeing a slowdown and I think you're seeing that picked up by other industry sources that provide data. So our 2025 guide contemplates some uncertainty. As we said on the last call, if that uncertainty doesn't happen, we will finish at the high side or above our guidance. So we're excited about the market in general with what we see.

You have follow-up, Phil?

Okay. Thank you very much, Brandon. Yes, quick follow-up here on the BESS outlook. You talked about your new products there and that is exciting and how it can serve a variety of end markets or situations beyond just solar. With the 145% China tariff, there's a big impact to battery cell packs based on our check. And I think there's a slowdown for U.S. utility-scale solar batteries. And so to what degree is that being factored into your BESS business plan for your product line there, but also for the projects that -- the solar projects that are tied with BESS for 2025 and 2026 projects and construction starts, how much impact could this tariff that's already in place have on your solar deliveries because that solar project may be tied to a BESS project that may not be getting cell supply. Thanks.

Sure. Yes, Phil, I'll answer the second question first maybe, just again to reiterate, talking to EPC customers and talking to developers and this is our sales team talking to them and me talking to them personally, we are not seeing any change, the abnormal changes in project timelines, balance of 2025 and even into 2026, I think those projects are locked and loaded. So I know there's some potential volatility with raw materials related to battery storage. We're not seeing an impact of that currently as it impacts -- as it relates to our BESS business, I guess two things I'd point out there. One, this is a new business for us. We have very little market share, so we can drive strong growth virtually in any market climate because we're starting from scratch essentially. So we do see some growth there. The other thing to point out is there are other battery technologies that may not be as impacted by these tariffs than others. And I think those will see some success and grow in the near-term.

Thanks, Phil. Charlie, next question, please.

Of course. Our next question comes from Maheep Mandloi of Mizuho. Maheep, your line is open. Please go ahead.

Hey, thanks for taking a question. One thing I think on the call, on prepared remarks you talked about contract with hyperscaler. Could you just talk more about that? I know it's like somewhat long-dated plan for you, but just curious what that product is related to and I had a follow-up. Thanks.

Yes. Thanks, Maheep. Look, I'm not going to specifically disclose the customer. Obviously, we can't do that. But the products that we're supplying to the market, whether it's into the data center space or to a traditional solar and storage project are relatively similar. We are providing large DC combiners and recombiners as part of the electrical balance of systems. If you think about our traditional product portfolio, these are -- they're larger, they're much larger in size, a higher ASP than typical range ASP for a unit is probably between $40,000 and $80,000. So significantly different than what you've seen maybe traditionally come from Shoals with a combiner box. If you think back to our Investor Day and we're in our plant during the tour, you would have seen some of these products being built in our plant or while you were on that tour. So we're excited about the opportunity and think we can take our core competency of being fast, being flexible, really building variability at scale, which is a bit of an oxymoron. We're able to do that and I think that's the core strength of Shoals. We believe we've got a right to win in the best space.

Great, thanks. And then maybe just one housekeeping on the shrinkback litigation cost. How do we -- should we think about that in Q2 and rest of the year? Thanks.

Sure. This is Dominic. Maheep, yes, the litigation, as I mentioned in the remarks, we're actually moving forward with the fact-based depositions and data discovery phases of it. The deadlines for moving through all that would mean that in the fourth quarter we're actually probably going to have the first real sit down ability to sit down with Prysmian try to do some mediation figure out if we can come to a resolution there. If that is unsuccessful, a trial date is in 2026. So that is going to be a longer process. We're still actively depositions I imagine are legal expenditures will continue until we get through this back pace at this point in time.

Thanks, Maheep. Charlie?

Got it. I appreciate the color.

Our next question comes from Jordan Levy of Truist Securities. Jordan, your line is open. Please go ahead.

Good morning, guys. It's Mo on for Jordan. Two questions for me. First, as you expand your international business, are you seeing more of these large scale agreements like the one you did with UGT, Sun Africa and how you think about approaching supply chain for your international volumes as that has become a bigger piece of the pie? I have a follow-up.

Yes, sure, great question. Yes, I mean we've obviously we're very excited about this MOU. It's a 12 gigawatt, opportunity for Shoals in the near to mid-term, that is really a path to market that is largely via export as many of the projects are financed by the U.S. EXIM Bank and require domestic content. So we feel like we are obviously in prime position to support those projects with Sun Africa in UGT. There may be some other projects that are not built in the States to satisfy both this relationship and potential projects and relationships in the future. We've discussed that in the past that in any strong international business, we've got to have both commercial resources and operational resources in specific regions on the ground to be successfully long-term and so more to come there. That continues to be our intention and you'll hear more as that strategy unfolds.

Mo, you have a follow-up?

Thanks. Thanks. Yes. So regarding the 12 gigawatt contract, can you maybe talk broadly to the margin profile of this contract versus your current backlog? I think previously you mentioned international projects usually carry lower margin compared to U.S. Is that statement still true given that now you have project wins in Australia, Chile and Africa? Thank you.

Yes, I won't commit specifically on that arrangement and the margin profiles, but again, I would remind projects that are funded by the EXIM Bank have to be domestically produced or have to require some level of domestic content and those projects will look and feel similar to our typical U.S. projects.

Thanks, Mo. Yes. Charlie?

Our next question comes from Praneeth Satish of Wells Fargo. Praneeth, your line is open. Please go ahead.

Thanks. Good morning. Just kind of given your comment here that customers 2025 construction calendars are full, projects are moving forward as scheduled, has your underlying assumption for project schedules and the cushion around delays changed at all relative to the prior guidance range? I mean, I see the assumption now is 78% of the backlog and awarded orders convert to revenue in the next 12 months and that is up from last quarter. So it does seem like the overall environment here is improving despite all the IRA uncertainty. So I'm just trying to get a sense of the underlying assumption for project delays and I guess, indirectly, if the current conditions persist, which seem positive, then would you be tracking towards the high end of guidance?

Boy Oh Boy. Thank you for that question. This is Dominic. Yes, so I remain very cautiously optimistic. As we said both prior earnings call and today, we are seeing very positive momentum here in 2025. And I'm very excited about what we're seeing. Yes, we do have more uncertainty in the back half because as you see, our backlog, which is where we have the purchase orders has now climbed to $200 million. But we still have to convert some business in the back half of the year; we still have to get those purchase orders. But to your point, if those things all come through the way we have visibility, then yes, the high end of the range and a very strong year for us in 2025 is in the cards. But I do need to be prudent and say that there is some uncertainty out there. We haven't gotten all the purchase orders to complete the year yet and so our guide for the full year still remains intact.

Praneeth, did you have a follow-up?

Got it. That helpful. Yes, I do have a quick follow-up. Just going back to the hyperscaler bet win, I guess, first, like do you think there's more opportunities with this hyperscaler? I guess, you're going through OEM, it sounds like I'm not sure. But just any more opportunities in that pipeline. What does the margin profile look like versus your traditional EBOS offerings? And then just kind of philosophically and at high level, are you seeing any more interest from data center customers to use solar and storage or wind and storage? Because predominantly they're using natural gas now.

So yes, let me hit the first one. The channel to market for the specific data center hyperscaler customer that, that we reference is a direct channel to market, right? That is not through an OEM. So three distinct channels. One essentially selling to our EPC customers that we're working with every day. Two is an OEM relationship with those folks that are building skid-based solutions. So think of a containerized solution or a containerized configuration that is pairing batteries with our products and our products are on Board those solutions. And thirdly is into the more industrial market data center AI specifically where essentially the same products are used to balance their electrical systems, whether they be driven by gas or genset backups to balance that electrical system. Our products can be used in that environment, which is fantastic for us obviously. So we plan to penetrate via all three channels to market and we are seeing activity across all three. Again, we're excited about this particular opportunity. So -- and expect that business to continue to flourish. The second part of the question I think was around the margin profile or battery energy storage business, I mean we think of that business as having the ability to generate accretive margins for the enterprise. Did I answer all the questions or was there one more?

Yes. No, that's good. Appreciate it. Thank you.

Thank you. I think we have one last question in queue.

That is correct. Our final question comes from Derek Soderberg of Cantor Fitzgerald. Derek, your line is open. Please go ahead.

Yes. Hey, guys, just one question from me around C&I, any visibility into what's sort of driving demand in the end markets for C&I? Is there a positive trend on made in America, companies securing their grids? Can you talk about what's driving some of that quoting activity in C&I? And any of some of those trends may be driving that. Thanks.

Yes, thanks. Great question. Look, we're excited about our C&I business. When you can look at a business where quote activity is up, bookings are up, revenue was up, that's a pretty good signal what we have is working. I think people more and more are understanding our hidden solution in the field and what value that, that, that we can offer to smaller projects where labor is at a premium, their supply chains are disaggregated, and we offer a fantastic solution for them. We are excited as more potential behind the meter opportunities arise that these EPCs may be the individuals that are doing those smaller behind the meter projects. So we're starting to execute commercially and operationally very well in that area and we are seeing business accelerate as a result of it.

Thanks, Derek. And Charlie, I think we…

Perfect. Thanks, guys.

Yes. We had one last question jump in from Kashy. So let's go ahead and take that.

Of course. Our next question comes from Kashy Harrison of Piper Sandler. Kashy, your line is open. Please go ahead.

Hey, thanks for sliding me in here and sorry, I joined late, so apologies again if you've already addressed this on the call, but just one quick one for me. Coming into 4Q earnings, I think you flagged, you had about 20 -- 10% to 20% of revenues in book and ship. And then another key assumption you had was the level of delay this year would be not as bad as last year, but not as good, but not back to normal call it 2023. Just how are those two key assumptions shaping up relative to your expectations? Do you feel good -- do you still feel good about book and ship? And then are you seeing better delays than expected? Are delays worse than expected relative to what was in the original guidance? Thank you.

Sure. So, yes, as I said in the first earnings call of the year, we definitely wanted to allow for some project delays. And projects do move all the time. That's a part of our business. So we do work with customers. Sometimes they have construction issues; sometimes they're moving things around. But as you see from the strength of our current book of business and the purchase orders that are coming through, you can tell that we're very cautiously optimistic about where the year is headed. We have not seen the level of activity of delays that we saw in 2024. We keep hearing from our customers when we directly ask them if their projects are sliding, and the answer is no. So we remain very cautiously optimistic that perhaps the allowance that we have for delays maybe not come through. So I'm excited, but I do want to hold our annual guide. I do think that's prudent in this environment. There are some moving pieces on the macro. We do have to understand what happens with tariffs. And some projects that we're looking at may have a dependency on imported panels. They may slide out of the back half of the year. So we are definitely cautiously optimistic. It's still my term, but we do want to hold our guide where it is.

Thank you. That was the only question.

Okay, great. Thank you. So we're going to make that our last question for today. I want to note that we have a very active IR calendar in May and June. We're out on the road quite a bit. We've announced that in the last couple weeks via press release. It's on our website. So join us at one of those events. We'd love to see you. If we can help further, please reach out to us at [email protected] with any questions. Thanks for joining us today. Have a great day, everyone.