Q2 2024 Earnings Summary
- Shoals Technologies Group achieved a record backlog and awarded orders of $642.3 million, adding $126 million during the period, resulting in a strong book-to-bill ratio of 1.3, which demonstrates robust demand for their products and services.
- The company is expanding into previously unserved market segments and regaining wallet share from customers, with $130 million of the backlog and awarded orders from customers where wallet share had declined, indicating successful commercial execution and potential for increased revenue.
- Shoals is targeting the previously unserved 30% of the U.S. utility-scale solar market, representing an additional 30 gigawatts of opportunity over the next three years, aiming to significantly expand its market share and drive future growth.
- The company has lowered its revenue guidance for the second consecutive quarter due to ongoing project delays, with $50 million of project pushouts in Q1 and $40 million in Q2, indicating persistent challenges in converting backlog into revenues.
- Persistent delays in projects due to site permitting and interconnection issues are expected to continue into the foreseeable future, leading to operational inefficiencies and margin pressure. The CEO mentioned that they are "in for turbulent times here for the foreseeable future."
- Project delays are causing difficulties in maintaining operational efficiency, resulting in less efficient workforce utilization and loss of leverage on operations and SG&A expenses, negatively impacting EBITDA margins.
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Downward Revised Outlook
Q: What's causing your downward revised outlook?
A: The primary reason is that projects are being pushed out due to site permitting and interconnection challenges, leading to about $40 million worth of delays this quarter, on top of $50 million last quarter. These projects are not lost but are now expected to contribute to revenue in 2025. -
Project Delays into 2025
Q: Will the delayed projects be realized in 2025?
A: We see these delayed projects pushing into 2025, but we cannot definitively say that everything will materialize then, as challenges persist. We'll continue to monitor each project closely. -
Competitive Landscape
Q: Are competitive pressures affecting your outlook?
A: We feel better than ever about our commercial execution, with our backlog and awarded orders reaching a record $642 million and a strong book-to-bill ratio of 1.3. We've extended our agreement with Blattner by 12 gigawatts, indicating strong customer relationships. -
Gross Margin Expectations
Q: Are your gross margins impacted by pricing pressures?
A: There are no changes to our guided gross margin of 40% to 45%, and we still feel good about these numbers in the current environment. -
Price Reductions
Q: Have you lowered prices recently?
A: Our pricing has remained fairly consistent, with no significant changes in our strategy. We continue to win projects without compromising margins. -
Efforts to Improve Forecasting
Q: What are you doing to improve forecast accuracy?
A: We're closely monitoring projects and customer schedules on a weekly basis, collecting as much information as possible from EPCs, including permitting status and notices to proceed. Despite market volatility, we're striving to forecast as accurately as we can. -
Blattner Agreement Extension
Q: Does your backlog include the new Blattner agreement?
A: The new 12-gigawatt extension with Blattner is not yet included in our backlog and awarded orders, as these projects are for the future and haven't commenced design work. Regarding the original 10-gigawatt agreement, we're approximately at the halfway point. -
International Market Expansion
Q: How is your international business progressing?
A: Our international backlog now accounts for 12% of the total, with opportunities of 63 gigawatts identified. These projects have longer sales cycles and construction challenges, but we're excited about the growth potential. -
Regaining Customer Wallet Share
Q: How are you regaining lost customer wallet share?
A: By implementing a sales pod structure, we've improved cross-functional engagement with customers, leading to $130 million in backlog and awarded orders from customers where we previously saw wallet share decline. -
Share Repurchase Program
Q: What are your plans for share buybacks?
A: Our Board authorized up to $150 million for share repurchases. We've completed a $25 million accelerated share repurchase and believe there's better long-term value in investing in organic growth, international expansion, and potential M&A. -
Quoting Activity vs. Orders
Q: Why are quotes up but orders down year-over-year?
A: While quote volumes are at an all-time high, the elongation of project cycles is delaying the conversion of quotes to orders. Backlog and awarded orders are up 18% year-over-year, but project delays are affecting revenue timing. -
Peak Pain on Permitting and Interconnection
Q: When will permitting and interconnection delays improve?
A: It's difficult to predict when these challenges will ease; we expect turbulent times in the foreseeable future due to the backlog in permitting and interconnections. -
Impact of Southeast Asia AD/CVD
Q: Is the Southeast Asia AD/CVD affecting your outlook?
A: While the AD/CVD is a factor, it's not the main driver for project delays. The prevailing issues remain site permitting and interconnection challenges. -
Impact on EBITDA Margins
Q: Why are EBITDA margins declining in the second-half guidance?
A: The decline is primarily due to reduced operational leverage from lower volumes and inefficiencies in our labor force resulting from project delays. We're losing some leverage as we try to manage our workforce amid the volatility.