SHLS 10-K & 10-Q changes, risk factors and insider trading

As previously disclosed, the Company was notified by certain customers that a subset of wire harnesses used in its EBOS solutions is presentingpresented unacceptable levels of contraction of wire insulation (“wire insulation shrinkback”). Based upon the Company’s ongoing assessment, the Company currently believes the wire insulation shrinkback is related to defective wire manufactured by Prysmian Cables and Systems USA, LLC (“Prysmian”). Based on the Company’s continued analysis of available information obtained throughout the remediation process, the Company determined that a potential range of loss was both probable and reasonably estimable and updatedhas continued to refine its estimateassumptions ofbased potentialon lossesadditional duringinformation obtained throughout the quarterremediation ended September 30, 2024 from previously provided estimates.process. Based on the Company’s continued analysis of information available as of the date of this Annual Report on Form 10-K, the estimate of potential losses remains unchanged from the estimate provided as of September 30, 2024. As no amount within the current range of loss appears to be a better estimate than any other amount, the Company recorded a warranty liability and related expense representing the low end of the range of potential loss ofis $73.0 million. The high-end of the range of potential loss is $160.0 million, which is $87.0 million higher than the amount recorded. The revised estimated rangeliability is based on several assumptions,assumptions. and asAs additional information becomes available, which may include additional reports of wire insulation shrinkback at previously affected and reported solar projects or at projects not previously reported or otherwise identified, the Company may increase or decrease its estimated warranty liability from its current estimate, and such increase or decrease may be material.

Our warranty liability for this matter is based on a several assumptions, including estimated failure rates, the potential magnitude of engineering, procurement and construction firms’ labor cost to identify and perform the repair and replacement of impacted harnesses, estimated failure rates, materials replacement cost, planned remediation method, and inspection costs, and other various assumptions.costs. We do not have a long history of making assumptions relating to warranties. As a result, these assumptions could prove to be materially different from our current estimate, causing us to incur substantial unanticipated expenses to identify, repair or replace the defective wire or to compensate customers. Additionally, changes to the planned remediation method and additional information about weather delays, site access, replacement scope, and vegetation management could also have a material impact on the warranty liability. As additional information becomes available, including with respect to experience relating to weather delays, site access, the scope of replacement, vegetation management or other factors, the Company may increase or decrease its estimated warranty liability from its current estimate, and such increase or decrease may be material. Our failure to accurately estimate this liability could result in unexpected volatility to our Class A common stock and have a material adverse effect on our financial condition.

The Company does not maintain insurance for product warranty and has commenced a lawsuit against Prysmian, as discussed in more detail under Litigation in Note 15 - Commitments and Contingencies in our consolidated financial statements included in this Annual Report on Form 10-K. Because the lawsuit against Prysmian is ongoing, potential recovery from Prysmian is not considered probable as defined in Accounting Standards Codification (“ASC”) 450, and has not been considered in our estimate of the warranty liability as of December 31, 2024.2025. In addition, the results of the litigation we have commenced against Prysmian are inherently uncertain and we cannot guarantee the outcome of that litigation. Litigation can be expensive and time consuming and will divert the efforts of our management and other personnel, which could harm our business, whether or not such litigation results in a determination favorable to us. If we fail to recover the costs and expenses incurred by us in connection with the identification, repair and replacement of the defective Prysmian wire, our financial results, business and prospects could be materially adversely impacted. Our actual loss in this matter is uncertain and may have a material adverse effect on our business, financial condition and results of operations.

TheWe impositionare ofsubject to risks from changes to trade restrictions, import tariffs, anti-dumping and countervailing dutiesduties. Such changes could adversely affect the amount or timing of our revenue, results of operations or cash flows.

From time to time, we review our business strategy and, have in the past modified it, and may in the future do so again. We previously abandoned efforts to penetrate the electric-vehicle market due to specific industry challenges and are currently developing solutions seeking to further penetrate the CC&I market, BESS market, data centers market, the OEM market and international markets. Abandoning lines of business has in the past led to, and in the future may lead to, increased costs, loss of customers, our reputation being negatively impacted, and our failure to fully recoup the investments made in those lines of business. Implementing new lines of business also poses challenges including with respect to our ability to build a well-recognized and respected brand in that specific industry, expanding our customer base, improving and maintaining operational efficiency for new lines of business, and anticipating and adapting to changing market conditions, including technological development and changes in competitive landscape. Shifts in business strategy can and have made it more difficult for us to collect data and accurately forecast our production and material needs, price our goods and services, and estimate orour margins. Failure to successfully manage the risks of modifying our business strategy could have a material adverse effect on our business, financial condition and results of operations.

EBOS components, including the wires related to the wire insulation shrinkback matter, whether manufactured by us or third party suppliers, are products and systems for which the consequences of failure are significant and can include, among other issues, equipment damage, fire damage, and even serious injury or death because of the high voltages involved and potential for fire. Further, a fault in the wiring of an EBOS system, whether as a result of product malfunctions, defects or improper installation, may cause electrical failures in solar energy projects. Faults typically occur when natural thermal expansion and contraction occurs at a point where two wires have been joined, loosening the insulation, and allowing moisture into the joint. Faults can result in lost production for customers, damage to the equipment, fire and injury or death depending on their severity and whether people are onsite.

Although we conduct quality assessments on our products and these products are manufactured according to stringent quality requirements, they may contain undetected errors or defects, especially when first introduced or when new generations are released. Errors, defects, product failures, destruction or poor performance can arise due to design flaws, defects in raw materials or components or manufacturing difficulties, installation or system failures, which can affect both the quality and the yield of the product. Any actualsuch or perceived errors, defects or poor performance in our products,issues, including those related to the wire insulation shrinkback matter, have resulted and could result in theshipment futuredelays, inrejection theof products, replacement or recall of our products, shipmentreputational delays, rejection of our products, damage to our reputation,harm, lost revenue, diversion of our engineering personnel from our product development efforts, increases in expenses due to the identification, repairrevenue and replacementincreased of the faulty products, and increases in customer service and support costs, which, with respect to the wire insulation shrinkback matter, has had and may continue to have a material adverse effect on our business, financial condition and results of operations, and with respect to other matters, could have such an effect.costs.

This MD&A contains the presentation of Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share, which are not presented in accordance with generally accepted accounting principles in the U.S. (“GAAP”). Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share are being presented because management believes they provide investors and readers of this Form 10-K with additional insight into our operational performance relative to earlier periods and relative to our competitors. We do not intend Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share to be substitutes for any GAAP financial information. Readers of this Form 10-K should use Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share only in conjunction with Gross Profit, Net Income, and Net Income Attributable to Shoals Technologies Group, Inc., the most closely comparable GAAP financial measures, as applicable. Reconciliations of Adjusted Gross Profit, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings per Share to the respective most closely comparable GAAP measure, as well as a calculation of Adjusted Gross Profit Percentage and Adjusted Diluted Weighted Average Shares Outstanding, are provided below, in “—Non-GAAP Financial Measures.”

WeShoals areTechnologies Group is a leading providerdesign-engineering and manufacturer of advanced electrical balance of system (“EBOS”)infrastructure solutions andfor components,mission‑critical includingapplications across solar photovoltaic (PV), battery energy storage solutions (“BESS”), and Originaldata Equipmentcenter Manufacturerpower systems. Our solutions also support original equipment manufacturers (“OEMOEMs”) components, for the global energy transition market.. EBOS encompasses all of the components that are necessary to carry the electric current produced by solar panels or stored by a BESS solution to an inverter and ultimately to the power grid. EBOSSince componentselectrical areinfrastructure is the backbone of a solar or BESS project, our products play a mission-critical productsrole thatin havethe aquality, highsafety, consequencereliability, and efficiency of failure,energy includingprojects, lostwhich revenue,the equipmentindustry damage, fire damage, and even serious injury or death. As a result, we generally believe customers prioritize reliability and safetyprioritizes over price when selecting EBOS solutions.

We design, manufacture and sell a variety of products used by the solar and battery storage industries, including Solar BLA Solutions; Homeruns, Interconnection and Extension Solutions; Combiners and Re-Combiners; Load Break Disconnects and Transition Solutions; Wireless Performance Monitoring; and BESS. We refer to complete EBOS solutions that use products manufactured by us, typically in connection with the design and specification of an entire EBOS system, as “system solutions”. When we sell a system solution, we work with our customers to design, specify and engineer their system solution to provide a complete customized EBOS solution consisting of individualized products that maximizes reliability and energy production while minimizing cost. We also provide technical support during installation and the transition to operations and maintenance. We refer to individual, often custom and proprietary, products we sell as “components”. We believe our system solutions are unique in our industry because they integrate design and engineering support, proprietary components and innovative installation methods into a single offering that would otherwise be challenging for a customer to obtain from a single provider or at all. Given the custom nature of both our system solutions and individual components and the long development cycle for solar energy projects, we typically have 12 months or more of lead time to quote, engineer, produce and ship orders we receive, and we do not stock large amounts of finished goods.

Traditionally, and for the year ended December 31, 2024,2025, we primarily sold our EBOS solutions and components and OEM components to customers in the United States.States, while also fulfilling orders for international utility-scale solar projects. Specifically, we primarily sold to engineering, procurement and construction firms (“EPCs”) for use in large solar and BESS projects designed to generate electricity and feed it directly into the electric grid, typically with a generation capacity of 1 megawatt (“MW”) or greater (“utility-scale solar”).greater. These EPCs work with owners and developers of solar assets to build solarenergy energyinfrastructure projects. However, given the mission criticalmission-critical nature of EBOS,EBOS (as further described below), the decision to use our products typically involves input from both the EPC and the owner/developer of the solarenergy infrastructure energy project. In the third quarter of 2024, we announced our strategic shift to expand our reach and capitalize on international, BESS, data centers, and Commercial, Community, and Industrial (“CC&I”) markets, while also maintaining our focus on domestic utility-scale solar and OEM markets. This shift is aimed at capitalizing on the growing global demand for renewable energy solutions and diversifying our market presence. By entering new geographic regions, markets, and applications we aim to enhance our competitive position and drive long-term growth.

We derived 76.7%78.7% of our revenue from the sale of system solutions for the year ended December 31, 2024. For the same period, we derived substantially all of our revenue from customers in the U.S.2025. As of December 31, 2024,2025, we had $634.7$747.6 million of backlog and awarded orders. Backlog of $154.8$326.2 million represents signed purchase orders or contractual minimum purchase commitments with take-or-pay provisions and awarded orders of $479.9$421.4 million are orders we are in the process of documenting a contract for but for which a contract has not yet been signed. As of December 31, 2024,2025, we believe approximately $154.8$326.2 million of backlog and $284.5$277.3 million of awarded orders have delivery dates in 2025.2026. The remaining $195.4$144.1 million have planned delivery dates beyond 2025.2026. Additionally, we believe more than 13%12% of our December 31, 20242025 backlog and awarded orders relate to international projects. As of December 31, 2024,2025, backlog and awarded orders increased by 0.5%17.8% relative to December 31, 20232024 and increased by 6.5%3.7% relative to September 30, 2024.2025.

In the first quarter of 2023, followingwe simplified our corporate structure by, among other things, eliminating the umbrella-partnership C corporation structure (“Up-C structure”) that was in place since its January 29, 2021 initial public offering (“IPO”). Following a secondary offering of shares of Class A common stock by certain selling stockholders,stockholders in March 2023, all the holders of limited liability interests of Shoals Parent LLC (“LLC Interests”), our former operating subsidiary, exchanged all the LLC Interests and corresponding shares of Class B common stock of the Company beneficially owned by them into shares of Class A common stock of the Company. As a result, upon effectiveness of such exchanges, all of the LLC Interests in Shoals Parent LLC were held by the Company, no other holders owned LLC Interests and no Class B common stock was or is outstanding.

Our business activities are subject to numerous laws and regulations in the jurisdictions in which we operate. Particularly, our exports and imports are subject to complex trade and customs laws, tax requirements and tariffs set by governments through mutual agreements or unilateral actions. Changes in tax policies or trade regulations, the disallowance of tax deductions on imported merchandise, or the imposition of new tariffs on imported products, including reciprocal tariffs, could have an adverse effect on our business and results of operations.

PresidentIn Trump2025, hasthe indicatedimpacts thatof histariffs administrationhave iscaused likelya deterioration on our gross margins through our direct payment of tariffs and secondary tariff costs passed to imposeus significantrising tariffs on imported goods, including a 60% tariff on Chinese imports, a 25% tariff on goodsprices from Canadasuppliers. The future implementation, scope, and Mexico and up to 10% or 20% on all other U.S. imports. While the implementation and scopemodification of these proposed tariffs is still uncertain,uncertain. anyAny significant new tariffs,tariffs or the threat thereof, which may last for an indefinite period of time, may make it more difficult for us to source raw materials and could result in increased prices for certain of our raw materials including steel, copper and aluminum. Retaliatory tariffs imposed by trading partners could impact the export of our manufactured projects and cause our customers to seek alternatives. The implementation of these proposed tariffs, any future increases in existing tariff rates, additional tariffs on other goods, or further retaliatory actions from other governmentsgovernments, or the threat thereof, may result in higher costs for us, and there can be no assurance we will be able to pass on any of the increases in raw material costs directly resulting from the tariffs to our customers. Such actions may also result in more difficulty or the inability to obtain needed materials. In addition, the threat of increased tariffs alone has caused market uncertainty.

Any such further tariffs or trade disputes could negatively impact our ability to secure necessary source materials and would further complicate trade andBeyond the availabilitymost ofrecent goodstariffs, necessary to our operations. Overover the past few years, escalating trade tensions between the United States and China and other jurisdictions led to increased tariffs and trade restrictions, including tariffs applicable to some of our products. AlthoughWe wehave didbeen notassessing materiallyand experiencemonitoring the potential impact of tariffs on our supply chain and proactively seeking to mitigate the impact such negativemay effectshave duringon fiscalour yearoperations, 2024,including working on alternative sourcing strategies and preparing our trade partners to absorb potential increases in their costs due to tariffs. However, we cannot be certain that we would not experience negative effects in 2025,the future, particularly given Presidentthe Trump’sAdministration’s rhetoricpositions concerning trade and tariffs.tariffs and the fluctuating nature of such actions to date.

We also continue to monitor the condition of our supply chain and evaluate our procurement strategy to reduce any negative impact on our business, financial condition, and results of operations. During the yearperiod ended December 31, 20242025, we continued to monitor and optimize our inventory levels.levels in preparation for upcoming production demands.

OurWe companywill continuescontinue to navigate the uncertainties in our industry, including those relating to project delays.delays, Additionally,as wewell areas experiencingstrategic competitivepricing dynamics,actions, volume discounts, and impacts to customer mix in our key markets, which so far have immaterially impacted our results of operations.markets.

We generate revenue from the sale of EBOS solutions and components for homerunsolar, and plug-and-play architectures, battery storage,BESS, and OEM offerings. Our customers include EPCs, utilities, solar developers, independent power producers, and solar module manufacturers. We derive the majority of our revenue from selling solar system solutions. When we sell a solar system solution, we enter into a contract with our customers covering the price, specifications, delivery dates and warranty for the products being purchased, among other things. Our contractual delivery period for solar system solutions can vary from one to three months whereas manufacturing typically requires a shorter time frame. Contracts for solar system solutions can range in value from several hundred thousand to several million dollars.

Our revenue is affected by changes in the price, volume and mix of solar system solutions and components purchased by our customers. The price and volume of our system solutions and components is driven by the demand for our solarenergy infrastructure system solutions and components, volume based discounts and rebate incentives, changes in product mix between homerun and plug-and-play EBOS,mix, geographic mix of our customers, strength of competitors’ product offerings, and availability of government incentives to the end-users of our products.

Our revenue growth is dependent on continued growth in the amount of solarprojects to support energy projectsinfrastructure constructed each year and our ability to increase our share of demand in the geographies where we currently compete and plan to compete in the future, as well as our ability to continue to develop and commercialize new and innovative products that address the changing technology and performance requirements of our customers.

Cost of revenue consists primarily of system solutions and components costs, including purchased raw materials, as well as costs related to importing and tariffs, shipping, customer support, product warranty, personnel and depreciation of manufacturing and testing equipment. Personnel costs in cost of revenue include both direct labor costs as well as costs attributable to any individuals whose activities relate to the transformation of raw materials or component parts into finished goods or the transportation of materials to the customer. Our product costs are affected by the underlying cost of raw materials, including copper and aluminum; component costs, including fuses, resin, enclosures, and cable; technological innovation; economies of scale resulting in lower component costs; and improvements in production processes and automation. We do not currently hedge against changes in the price of raw materials. Some of these costs, primarily indirect personnel and depreciation of manufacturing and testing equipment, are not directly affected by sales volume. Gross profit may vary from year to year and is primarily affected by our sales volume, product prices, product costs, product mix, customer mix, geographical mix, shipping method and warranty expense.

General and administrative expenses consist primarily of legal and professional fees, salaries, equity-based compensation expense, employee benefits and payroll taxes related to our executives, and our sales, finance, human resources, information technology, engineering and legal organizations, travel expenses, facilities costs, marketing expenses, insurance, bad debt expense and fees for professional services. Professional services consist of audit, tax, accounting, legal, internal controls, information technology, investor relations and other costs. We expect to increase our sales and marketing personnel as we expand into new geographic markets. Substantially all of our sales are currently in the U.S. We currently have a sales presence in the U.S., Asia-Pacific, Europe, Latin America, and Africa. We intend to grow our sales presence and marketing efforts in current geographic markets and expand to additional countries in the future.

Revenue decreasedincreased by $89.7$76.1 million, or 18%,19%, for the year ended December 31, 20242025 as compared to the year ended December 31, 2023,2024, driven by lowerincreased sales volumes resulting from lowerhigher demand asof aproducts resultto ofmeet utility scale solar project delays that have pushed projects out from 2024, and competitive dynamics, volume discounts, and customer mix in our key markets.demands.

Cost of revenue decreasedincreased by $63.4$51.6 million, or 20%, for the year ended December 31, 20242025 as compared to the year ended December 31, 2023,2024, driven by the decreaseincrease in revenue. Gross profit as a percentage of revenue was 35.0% for the year ended December 31, 2025 as compared to 35.6% for the year ended December 31, 2024 as compared to 34.4% for the year ended December 31, 2023.2024. This increasechange in gross profit as a percentage of revenuemargin was due to a reduced amount of wire insulation shrinkback expenses in the current year as compared to the prior year, offset by increases inincreased material andcosts, labor costs,tariffs, non-recurring operational charges, competitive dynamics, volume discounts, and customerproduct mix in our key markets, and a reduction in leverage on fixed costs.

Depreciation and amortization expense within operating expenses increased by less than $0.1 million or 0.5%,0.1%, for the year ended December 31, 20242025 as compared to the year ended December 31, 2023.2024. The increasestability in the balance was due to purchasesconsistent amortization of PPE during the year, commencing depreciation, slightly offset by definite lived intangible assets that became fully amortized during 2023 and had no amortization expense incurred in 2024.assets.

Interest expense decreased by $10.3$3.8 million or 43%,28%, for the year ended December 31, 20242025 as compared to the year ended December 31, 2023.2024. This decrease is explained by prior year activity related to our voluntary prepayments on the Term Loan Facility and amendment of the Senior Secured Credit Agreement. Due to the prepayments in 2024 and amendment, the Company wrote off a liability of $2.5 million of unamortized deferred interest, along with an asset of $2.3 million of unamortized deferred financing costs. TheThis is offset by a higher weighted average outstanding balance for 2024 was also lower in comparison2025 to 2023 and interest rates associated with the Company’s credit agreement were lower in the current year whenas compared to the2024 prioryielding year.higher quarterly interest payments.

Interest income increaseddecreased from the prior year by $0.5$0.2 million. This is due to thea additionlower ofweighted average balance held in our interest bearing accounts for our cash and cash equivalents.equivalents as compared to the prior year.

Income tax expense was $14.9 million for the year ended December 31, 2025 as compared to income tax expense of $13.7 million for the year ended December 31, 2024 as compared to income tax expense of $12.3 million for the year ended December 31, 2023.2024. Our effective income tax rate for the year ended December 31, 20242025 and 20232024 was 36.3%30.8% and 22.3%,36.3%, respectively. The effective income tax rate increasedecreased wascompared to the prior year, due to a taxreduced shortfallimpact on stock-based compensation, return to provision adjustments, change infrom valuation allowance,allowance andadjustments. the elimination of the Up-C structure on July 1, 2023 which decreased the tax rate inIn the prior year, asthe discussedCompany established state-specific valuation allowances, which increased income tax expense. In the current year, the valuation allowance impact was substantially lower, resulting in morea detaildecreased ineffective Noteincome 16tax - Income Taxes in our consolidated financial statements included in this Annual Report on Form 10-K.rate.

We define Adjusted Gross Profit as gross profit plus wire insulation shrinkback expenses. We define Adjusted Gross Profit Percentage as Adjusted Gross Profit divided by revenue. We define Adjusted EBITDA as net income plus/(minus) (i) interest expense, (ii) interest income (iii) income tax expense, (iv) depreciation expense, (v) amortization of intangibles, (vi) payableequity-based pursuant to the TRA adjustment,compensation, (vii) gain/loss on terminationsale of the TRA,assets, (viii) equity-based compensation, (ix) acquisition-related expenses, (x) wire insulation shrinkback expenses, and (xiix) wire insulation shrinkback litigation expenses, and (x) plant optimization expenses. We define Adjusted Net Income as net income attributable to Shoals Technologies Group, Inc. plus (i) net income impact from assumed exchange of Class B common stock to Class A common stock as of the beginning of the earliest period presented, (ii) adjustment to the provision for income tax, (iii) amortization of intangibles, (iv) amortization / write-off of deferred financing costs, (v) payableequity-based pursuant to the TRA adjustment,compensation, (vi) gain/loss on terminationsale of the TRA,assets, (vii) equity-based compensation, (viii) acquisition-related expenses, (ix) wire insulation shrinkback expenses, and (xviii) wire insulation shrinkback litigation expenses, and (ix) plant optimization expenses, all net of applicable income taxes. We define Adjusted Diluted EPS as Adjusted Net Income divided by the diluted weighted average shares of Class A common stock outstanding for the applicable period, which assumes the exchange of all outstanding Class B common stock for Class A common stock as of the beginning of the earliest period presented.

(a) For the year ended December 31, 2025 represents no wire insulation shrinkback warranty expenses related to the identification, repair and replacement of a subset of wire harnesses presenting unacceptable levels of wire insulation shrinkback, nor any inventory write-downs of wire in connection with wire insulation shrinkback. For the year ended December 31, 2024 represents (i) $13.3 million of wire insulation shrinkback warranty expenses related to the identification, repair and replacement of a subset of wire harnesses presenting unacceptable levels of wire insulation shrinkback, and (ii) $0.5 million of inventory write-downs of wire in connection with wire insulation shrinkback. For the year ended December 31, 2023 represents, (i) $59.1 million wire insulation shrinkback warranty expenses related to the identification, repair and replacement of a subset of wire harnesses presenting unacceptable levels of wire insulation shrinkback, and (ii) $2.6 million of inventory write-downs of wire in connection with wire insulation shrinkback. We consider expenses incurred in connection with the identification, repair and replacement of the impacted wire harnesses as well as the write-down of related inventory distinct from normal, ongoing service identification, repair and replacement expenses that would be reflected under ongoing warranty expenses within the operation of our business and normal write-downs of inventory, which we do not exclude from our non-GAAP measures. In the future, we also intend to exclude from our non-GAAP measures the benefit of liability releases, if any. We believe excluding expenses from these discrete liability events provides investors with a better view of the operating performance of our business and allows for comparability through periods. See Note 8 - Warranty Liability, in our consolidated financial statements included in this Annual Report on Form 10-K for more information.

We generated cash from operating activities of $80.4$17.1 million during the year ended December 31, 2024,2025, as compared to cash provided by operating activities of $92.0$80.4 million and $39.5$92.0 million, respectively, during the years ended December 31, 20232024 and 2022.2023. As of December 31, 2024,2025, our cash and cash equivalents were $23.5$7.3 million, ana increasedecrease from $22.7$23.5 million as of December 31, 2023.2024. As of December 31, 20242025 we had outstanding borrowings of $141.8$136.8 million, a decrease from $183.8$141.8 million as of December 31, 2023.2024. As of December 31, 20242025 we also had $58.2$60.5 million available for additional borrowings under our $200.0 million Revolving Credit Facility.

Our capital expenditures primarily relate to purchases of property, plant, and equipment to support manufacturing operations and growth initiatives. In 2024,2025, we had capital expenditures of $8.4$33.0 million. We believe our cash flow from operations will generally be sufficient to fund these expenditures. In 2025,2026, we expect capital expenditures between $25.0$20.0 million to $35.0$30.0 million, subject to other strategic uses of capital and the evolution of operating cash flows and the working capital position throughout the year. We believe our cash flow from operations will generally be sufficient to fund these expenditures.

For the year ended December 31, 2025, cash provided by operating activities was $17.1 million, due to operating results that included $33.6 million of net income, which included $43.3 million of non-cash expense. Other cash inflows included $43.3 million of accounts payable, $18.3 million of deferred revenue, $4.8 million of accrued expenses, and $1.8 million of other assets. These inflows were offset by outflows of $51.9 million in accounts receivable and unbilled receivables, $41.0 million in warranty liability payments, and $35.1 million in inventory, For the year ended December 31, 2024, cash provided by operating activities was $80.4 million, due to operating results that included $24.1 million of net income, which included $61.9 million of non-cash expense. Other cash inflows included $48.2 million of accounts receivable and unbilled receivables. These inflows were offset by $9.8 million in cash outflows related to other assets, $5.8 million for the purchase of inventory, $5.6 million of accounts payable and accrued expenses and other, along with cash outflows of $29.1 million and $3.5 million of warranty liability and deferred revenue, respectively.

Traditionally, and for the three and six months ended MarchJune 31,30, 2026, we primarily sold our EBOS solutions and OEM components to customers in the United States, while also fulfilling orders for international utility-scale solar projects. Specifically, we primarily sold to engineering, procurement and construction firms (“EPCs”) for use in large solar and BESS projects designed to generate electricity and feed it directly into the electric grid, typically with a generation capacity of 1 megawatt or greater. These EPCs work with owners and developers of solar assets to build energy infrastructure projects. However, given the mission-critical nature of EBOS, the decision to use our products typically involves input from both the EPC and the owner/developer of the energy infrastructure energy project.

We derived 78.8%74.0% of our revenue from the sale of system solutions for the threesix months ended MarchJune 31,30, 2026. For the same period, we derived substantially all of our revenue from customers in the U.S. As of MarchJune 31,30, 2026, we had $758.0$801.4 million of backlog and awarded orders. Backlog of $390.3$425.1 million represents signed purchase orders or contractual minimum purchase commitments with take-or-pay provisions and awarded orders of $367.7$376.3 million are orders we are in the process of documenting a contract for but for which a contract has not yet been signed. As of MarchJune 31,30, 2026, we believe approximately $375.5$418.9 million of backlog and $252.1$280.7 million of awarded orders have delivery dates in the next twelve months. Additionally, more than 13.1%12.7% of our MarchJune 31,30, 2026 backlog and awarded orders related to international projects. As of MarchJune 31,30, 2026, backlog and awarded orders increased by 17.5%19.4% relative to the same date last year and increased by 1.4%5.7% relative to DecemberMarch 31, 2025.2026.

Our business activities are subject to numerous laws and regulations in the jurisdictions in which we operate. Our exports and imports are subject to complex trade and customs laws, tax requirements, and tariffs established through governmental actionsactions, statutory authorities, or international agreements. Changes in tax policies or trade regulations, the disallowance of tax deductions on imported merchandise, or the imposition of new or increased tariffs on imported products, including reciprocal tariffs, or retaliatory actions by trading partners could have an adverse effect on our business and results of operations.

In recent years, the U.S. presidential administration (the “Administration”) implemented broad tariff measures affecting a wide range of imports. These actionsmeasures included atariffs 10%imposed under the International Emergency Economic Powers Act (the “IEEPA”), including reciprocal tariffs, and frequent changes in tariff onrates, mostproduct importscoverage, implementation dates, exclusions, and variousrelated reciprocal tariffs on certain trading partners.guidance. Tariff policy remained fluid, with frequent adjustments to tariff percentages and product coverage, as well as ongoing negotiations with global trading partners. These measures contributed to significant volatility and uncertainty in the global trade environment.environment and increased costs for many importers.

On March 4, 2026, the Court of International Trade issued an order requiring Customs and Border Protection (“CBP”) to process certain tariff‑refund claims in accordance with the Supreme Court’s ruling. CBP has been developing and implementing a phased refund process through its system, but litigation, appeals, and administrative implementation remain ongoing.

Because litigation remains ongoing and CBP’s refund process is still under development, significant uncertainty remains regarding the timing, scope, and ultimate recoverability of any potential refunds Tariff actions have negatively affected our gross margins due to both direct tariff payments and higher supplier prices reflecting secondary tariff costs. Although we have expanded our domestic capabilities, strengthened supply chain resiliency, and increased domestic manufacturing capacity, these measures may not fully offset the impact of the heightened tariff environment in which we are currently operating or future trade policy changes. Any significant new tariffs, retaliatory actions by trading partners, or rapid shifts in trade regulations could increase raw material costs—including steel, copper, aluminum, and aluminumother components used in our products—and may limit our ability to source key materials efficiently. Additionally, retaliatory tariffs could affect exports of our manufactured products and potentially lead customers to seek alternative suppliers.

We continue to monitor trade policy developments, litigation and administrative processes relating to tariffs, CBP guidance, and supply chain conditions and evaluate procurement strategies to reduce potential adverse effects on our business, financial condition, and results of operations. We also continue to optimize inventory levels in preparation for future production demands.demands and potential changes in supplier lead times, pricing and availability.

Federal, state, local, and foreign governmental bodies offer incentives to owners, end users, distributors, and manufacturers of solar energy systems to promote the development of solar electricity. The rangerange, eligibility requirements, availability, and duration of these incentives vary widely by geographic market.market and are subject to change.

The 2022 Inflation Reduction Act (the “IRA”) introduced significant long‑term tax incentives to promote solar energy deployment in the United States. Under the IRA, taxpayers investing in eligible solar projects may qualify for Investment Tax Credits (“ITC”) or elect to claim Production Tax Credits (“PTC”) for eligible facilities.

In 2025, H.R. 1, the One Big Beautiful Bill Act, modified several energy‑related tax provisions of the IRA. These changes include an accelerated phaseout or termination of the ITC and PTC for solar projects placed in service after 2027, as well as restrictions related to “foreign entities of concern,” which render certain projects owned or controlled by prohibited foreign entities ineligible for specific tax credits. The Department of the Treasury (the “Treasury”) and the Internal Revenue Service (the “IRS”) have issued guidance regarding certain prohibited foreign entity and material assistance requirements, and further guidance or rulemaking may affect how these restrictions are interpreted and applied.

The domestic utility‑scale solar market has previously experienced volatility driven by a combination of permitting delays, supply‑chain constraints, labor shortages, project‑financing challenges, interconnection bottlenecks, and uncertainty stemming from federal trade and tax policy changes. We believe long‑term demand fundamentals remain strong; however, new circumstances may emerge and could affect future project timing, pricing dynamics, and customer mix. These circumstances include changes in federal or state energy policy, delays in Treasury or IRS guidance, interpretations of tax credit eligibility requirements, lengthy lead times for electrical equipment, and uncertainty regarding the ability of developers to meet deadlines. We continue to monitor market conditions and manage these uncertainties through proactive commercial strategies, inventory planning, and close engagement with customers and suppliers.

The market for critical power infrastructure is expanding as electricity demand increases and energy systems grow more complex;complex, however,including as a result of data center expansion, artificial intelligence growth, electrification, grid modernization, and renewable energy deployment. However, this growth is accompanied by uncertainty arising from shifting policy frameworks, technological change, and varying levels of industry participation. These conditions may result in inconsistent coordination across stakeholders, policy fragmentation, and differing degrees of market readiness, each of which could influence project execution, capital allocation, and technology deployment. We will continue to assess how volatility in the industries in which we operate may affect our operations, capital expenditures, and cash flows.

Sourcing raw materials and securing inbound logistics continues to present challenges, reflecting persistent global supply chain disruptions, trade‑policy volatility, and geopolitical conflict. Tariff‑driven increases in import prices and secondary supplier cost increases have raised costs across multiple inputs, contributing to higher procurement and logistics costs. Ongoing geopolitical instability, including the conflict in the Middle East involving Iran, Israel, and the United States, may disrupt the availability of certain materials andmaterials, contribute to increased global freight and input costs.costs, and further complicate procurement planning. We expect these sourcing and logistics pressures to persist through 2026 as trade uncertainty and geopolitical tensions remain unresolved.

Cost of revenue consists primarily of system solutions and components costs, including purchased raw materials, as well as costs related to importing and tariffs, shipping, customer support, product warranty,warranty and rework, personnel and depreciation of manufacturing and testing equipment. Personnel costs in cost of revenue include both direct labor costs as well as costs attributable to any individuals whose activities relate to the transformation of raw materials or component parts into finished goods or the transportation of materials to the customer. Our product costs are affected by the underlying cost of raw materials, including copper and aluminum; component costs, including fuses, resin, enclosures, and cable; technological innovation; economies of scale resulting in lower component costs; and improvements in production processes and automation. We do not currently hedge against changes in the price of raw materials. Some of these costs, primarily indirect personnel and depreciation of manufacturing and testing equipment, are not directly affected by sales volume. Gross profit may vary from year to year and is primarily affected by our sales volume, product prices, product costs, product mix, customer mix, geographical mix, shipping method and warranty expense.

Operating expenses consist of general and administrative expenses as well as depreciation and amortization expense. Personnel-related costs are the most significant component of our operating expenses and include salaries, equity-based compensation, benefits, payroll taxes and commissions. The number of our full-time employees increased from 171177 to 199210 from MarchJune 31,30, 2025 to MarchJune 31,30, 2026, and we expect to hire new employees in the future to support our growth. The timing of these additional hires could materially affect our operating expenses in any particular period, both in absolute dollars and as a percentage of revenue.

General and administrative expenses consist primarily of legal and professional fees, salaries, equity-based compensation expense, employee benefits and payroll taxes related to our executives, and our sales, finance, human resources, information technology, engineering and legal organizations, travel expenses, facilities costs, marketing expenses, insurance, bad debt expense and fees for professional services. Professional services consist of audit, tax, accounting, legal, internal controls, information technology, investor relations and other costs. We expect to increase our sales and marketing personnel as we expand into new geographic markets. Substantially all of our sales are currently in the U.S. We currently have a sales presence in the U.S., Asia-Pacific, Europe, Latin America, and Africa. We intend to grow our sales presence and marketing efforts in currenttargeted geographic markets and could expand to additional countries in the future.

Comparison of the Three Months Ended MarchJune 31,30, 2026 and 2025

Revenue increased by $60.2$52.5 million, or 74.9%,47.4%, for the three months ended MarchJune 31,30, 2026 as compared to the three months ended MarchJune 31,30, 2025, driven by strong underlying demand of products, the impact of market share capture initiatives, and an increase in volume of projects in the current year.

Cost of revenue increased by $47.3$44.2 million, or 90.6%,63.5%, for the three months ended MarchJune 31,30, 2026, as compared to the three months ended MarchJune 31,30, 2025, driven by the increase in revenue. Gross profit as a percentage of revenue was 29.2%30.3% during the three months ended MarchJune 31,30, 2026, and 35.0%37.2% during the three months ended MarchJune 31,30, 2025. TheGross decreaseprofit inas margina ispercentage attributableof revenue declined year over year primarily due to $3.8operational millioninefficiencies inassociated additional tariffs paid in comparison towith the priorramp-up yearand quarter,transition an increase in $1.4 million in right-of-use asset amortization arising frominto the openingnew ofmanufacturing ourfacility consolidatedand operationsproduct facility,mix within the quarter, along with ancosts increaseincurred into materialaddress costs.product quality matters, including rework and corrective actions, as well as material-related inefficiencies and incremental lease accounting amortization.

General and administrative expenses increased $9.3$5.4 million, or 43.0%,23.4%, for the three months ended MarchJune 31,30, 2026, as compared to the three months ended MarchJune 31,30, 2025. The increase in general and administrative expenses was the result of a $6.2$4.4 million increase in legal expenses for ongoing matters related to wire insulation shrinkback, intellectual property, and shareholder litigation matters along with $1.6 million in increased cash and share-based incentive compensation expense due to increased headcount in comparison to the prior year period.

Depreciation and amortization expenses increased by $0.1$0.2 million, or 6.7%,9.3%, for the three months ended MarchJune 31,30, 2026, as compared to the three months ended MarchJune 31,30, 2025. Levels of intangibleIntangible assets and property, plant, and equipment associated with operating expenses remained consistentstable period over period.period, with only a modest increase driven by routine capital investments.

Interest expense, increased by $0.5$1.2 million, or 20.2%,55.4%, for the three months ended MarchJune 31,30, 2026, as compared to the three months ended MarchJune 31,30, 2025. This increase was due to an increase in the total weighted average outstanding balance of the Revolving Credit Facility during the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025.

Litigation settlement expense, net of recoveries increased by $5.3 million for the threesix months ended MarchJune 31,30, 2026, as compared to the threesix months ended MarchJune 31,30, 2025. This is due to the accrual for the expected settlement amount, net of insurance recoveries related to the Company’s Securities litigation. See Note 13 - Commitments and Contingencies, in our condensed consolidated financial statements included in this Form 10-Q for more information.

Income tax benefitexpense totaled $0.1$3.3 million for the threesix months ended MarchJune 31,30, 2026, as compared to income tax expense of $2.3$5.4 million for the threesix months ended MarchJune 31,30, 2025. Our effective income tax rate for the threesix months ended MarchJune 31,30, 2026 and 2025 was 23.1%21.6% and 114.0%,28.5%, respectively. The change in our effective income tax rate was due to changes in various discrete items, particularly RSU and PSU shortfalls and windfalls during the threesix months ended MarchJune 31,30, 2026.

We define Adjusted Gross Profit as gross profit plus plant optimization expenses. We define Adjusted Gross Profit Percentage as Adjusted Gross Profit divided by revenue. We define Adjusted EBITDA as net lossincome plus/(minus) (i) interest expense, (ii) interest income, (iii) income tax expense/(benefit), (iv) depreciation expense, (v) amortization of intangibles, (vi) equity-based compensation, (vii) gain (loss) on sale of asset (viii) wire insulation shrinkback litigation expenses, (ix) plant optimization expenses, (x) shareholder litigation expenses, and (xi) litigation settlement expense, net of insurance recoveries. We define Adjusted Net Income as net income plus (i) amortization of intangibles, (ii) amortization / write-off of deferred financing costs, (iii) equity-based compensation, (iv) gain (loss) on sale of asset (v) wire insulation shrinkback litigation expenses, (vi) plant optimization expenses, (vii) shareholder litigation expenses, and (viii) litigation settlement expenses, net of insurance recoveries, all net of applicable income taxes. We define Adjusted Diluted EPS as Adjusted Net Income divided by the diluted weighted average shares of Class A common stock outstanding for the applicable period.

Because of these limitations, Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP. You should review the reconciliation of gross profit to Adjusted Gross Profit and Adjusted Gross Profit Percentage, net income to Adjusted EBITDA, and net income to Adjusted Net Income and Adjusted Diluted EPS below and not rely on any single financial measure to evaluate our business.

(a) For the three and six months ended MarchJune 31,30, 20262026, represents $2.9 million and $6.6 million, respectively, of expenses incurred in connection with the lawsuit initiated by the Company against the supplier of the defective wire. For the three and six months ended June 30, 2025, represents $3.7$2.5 million and $2.5$5.1 million, respectively, of expenses incurred in connection with the lawsuit initiated by the Company against the supplier of the defective wire. We consider this litigation distinct from ordinary course legal matters given the expected magnitude of the expenses, the nature of the allegations in the Company’s complaint, the amount of damages sought, and the impact of the matter underlying the litigation on the Company’s financial results. In the future, we also intend to exclude from our non-GAAP measures the benefit of recovery, if any. We believe excluding expenses from these discrete litigation events provides investors with a better view of the operating performance of our business and allows for comparability through periods. See Note 13 - Commitments and Contingencies, in our condensed consolidated financial statements included in this Form 10-Q for more information.

(b) For the three and six months ended MarchJune 31,30, 2026 and 2025,2026, represents $0.6$0.5 million and zero$1.1 million of expenses incurred in connection with actions taken to consolidate our operations into a newly constructed facility, including items such as professional fees, relocation, facility set-up and other costs. We believe excluding expenses from these events provides investors with a better view of the operating performance of our business and allows for comparability through periods.

(c) For the three and six months ended MarchJune 31,30, 2026, represents $1.6$0.5 million and $2.1 million of expenses incurred in connection with the Company’s defense of certain derivative and class action litigation and for the three months and six months ended June 30, 2026, represents zero and $5.3 millionmillion, respectively, in settlement expenses associated with this litigation. For the three and six months ended MarchJune 31,30, 2025, represents $0.7$0.2 million and $0.9 million of expenses incurred in connection with the Company’s defense of certain derivative and class action litigation. We consider expenses incurred in connection with these legal matters distinct from normal matters and expenses within the operation of our business.

Cash used in operating activities was $41.4$34.6 million during the threesix months ended MarchJune 31,30, 2026, as compared to cash provided by operating activities of $15.6$1.7 million during the threesix months ended MarchJune 31,30, 2025. As of MarchJune 31,30, 2026, our cash and cash equivalents were $1.9$15.7 million, aan decreaseincrease from $7.3 million as of December 31, 2025. As of MarchJune 31,30, 2026 we had outstanding borrowings of $181.8$196.8 million, a $45.0$60.0 million increase from outstanding borrowings of $136.8 million as of December 31, 2025. As of MarchJune 31,30, 2026, we also had $15.4$51.4 million available for additional borrowings under our $200.0$250.0 million Revolving Credit Facility.

For the threesix months ended MarchJune 31,30, 2026, cash used in operating activities was $41.4$34.6 million, due to operating results that included $0.3$11.8 million of net loss,income, which included $10.3$30.2 million of non-cash expense, along with cash inflows in unbilleddeferred receivablesrevenue of $7.0$18.2 million, accountsaccrued payableexpenses and other of $15.2$10.0 million, and accruedlitigation expensesreceivable and settlement liabilities of $2.5$4.3 million. These cash inflows were offset by cashoutflows outflowsin inventory of $69.6$97.1 millionmillion, inaccounts inventory,receivable $6.7and millionunbilled in deferred revenue, $2.5 millionreceivables of $6.4 million, warranty liability,of $4.1 million, and $2.2 million in other assets.assets of $2.4 million.

For the threesix months ended MarchJune 31,30, 2025, cash provided by operating activities was $15.6$1.7 million, primarily due to operating results that included $0.3$13.6 million of net loss,income, which included $8.9$16.5 million of non-cash expense, along with cash inflows in accounts receivable and unbilled receivables of $20.9$11.0 million andmillion, accounts payable of $6.1 million, and accrued expenses of $6.3$3.9 million. These cash inflows were offset by cash outflows of $9.8$25.3 million related to theaccounts receivable, $21.5 million of warranty liabilityliability, asand well$2.4 asmillion anand increase$1.5 in inventory of $5.4 million, an increasemillion in other assets of $1.5 million,assets, and ainventory, decrease of $3.5 million in deferred revenue.respectively.

For the threesix months ended MarchJune 31,30, 2026, net cash used investing activities was $7.6$14.7 million, which was attributable to purchases of property and equipment.

For the threesix months ended MarchJune 31,30, 2025, net cash used in investing activities was $3.2$10.3 million, which was attributable to the purchasespurchase of $15.4 million in property and equipment, offset by the proceeds from the sale of property and equipment.equipment of $5.1 million.

For the threesix months ended MarchJune 31,30, 2026, net cash usedprovided inby financing activities was $43.7$57.7 million, due to $45.0$60.0 million in borrowings on the Revolving Credit Facility, and $1.3$2.3 million in taxes paid related to net share settled equity awards.

For the threesix months ended MarchJune 31,30, 2025, net cash used in financing activities was $0.3$10.2 million, due to $20.0$40.0 million in payments on the Revolving Credit Facility, offset by $20.0$30.0 million in borrowings, and $0.3 million in taxes paid related to net share settled equity awards.