SHLS Q1 Earnings Call: Revenue Beat Expectations Amid Margin Pressure, Outlook Supported by Backlog

Solar energy systems company Shoals (NASDAQ: SHLS) announced better-than-expected revenue in Q1 CY2025, but sales fell by 11.5% year on year to $80.36 million. Guidance for next quarter’s revenue was better than expected at $105 million at the midpoint, 0.9% above analysts’ estimates. Its non-GAAP profit of $0.03 per share was in line with analysts’ consensus estimates.

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StockStory’s Take

Shoals began 2025 with first quarter revenue that surpassed Wall Street expectations, as management pointed to strong new bookings and a growing backlog as key drivers. CEO Brandon Moss highlighted that order momentum was boosted by new product launches and commercial execution, while acknowledging softer gross margins due to product mix and strategic pricing in response to competitive dynamics. Moss noted, “The strategies we’ve been executing commercially are taking hold,” referencing a more diverse customer base and traction with recently introduced offerings.

For the remainder of the year, management reaffirmed its full-year guidance, attributing confidence to the robust backlog and customer project schedules moving forward as planned. CFO Dominic Bardos commented on ongoing sector uncertainty, stating, “We are seeing very positive momentum here in 2025,” but maintained a cautious stance given potential project delays and regulatory risks. The company expects a stronger revenue contribution in the second half of the year, supported by a pipeline that extends into 2026.

Key Insights from Management’s Remarks

Shoals’ management focused on commercial wins, product diversification, and operational improvements as the primary influences on the quarter’s results, while also addressing the impact of industry-wide uncertainties.

• Backlog and Orders Growth: Shoals reported a significant increase in new bookings, supporting a higher backlog and awarded orders (BLAO), with $645.1 million at quarter end. Management attributed this to strong customer engagement and the success of new products.
• Margin Pressure from Pricing: Gross margins were lower, as Shoals used strategic pricing to win back customers and enter new segments, which reduced fixed cost leverage and profitability in the short term. Management expects these impacts to moderate as productivity initiatives take effect.
• New Product Traction: Over 15% of BLAO included projects using products launched in the last year, indicating that innovation is driving business with both new and returning customers, particularly in previously untapped markets.
• Manufacturing and Supply Chain Investments: The company continues to invest in domestic manufacturing and automation, aiming to reduce exposure to tariffs and improve operational efficiency. The upcoming consolidation of production at a new Tennessee facility is expected to further enhance productivity.
• Diversifying End Markets: Shoals is expanding into international, commercial, and battery energy storage markets, supported by new partnerships and projects, such as the memorandum of understanding with UGT Renewables for up to 12 gigawatts of international solar capacity.

Drivers of Future Performance

Management’s outlook for 2025 is anchored in a growing backlog, new product adoption, and expanded market reach, but tempered by continued caution regarding regulatory and project delay risks.

• Order Conversion and Project Execution: The ability to convert awarded orders into revenue on schedule will be critical, as a large portion of the backlog is set for delivery within the next four quarters.
• Margin Recovery Initiatives: Shoals is focusing on operational improvements, such as automation and supply chain consolidation, to restore gross margins to structural targets and improve profitability as volumes recover.
• Market Diversification: Expansion into battery storage, international, and commercial sectors is expected to broaden revenue streams, though management acknowledged that some new segments may initially carry different margin profiles.

Top Analyst Questions

• Michael Fairbanks (JPMorgan): Asked about competitive dynamics in light of tariffs; management emphasized customer focus on product quality and engineering over tariff concerns, noting their domestic supply chain as a relative advantage.
• Brian Lee (Goldman Sachs): Queried the path back to 40%+ gross margins; CFO Dominic Bardos pointed to a mix of higher volumes, new product adoption, and internal efficiency gains as levers for margin improvement.
• Colin Rusch (Oppenheimer): Sought details on international product adaptation and supply chain cost savings; CEO Brandon Moss explained that new international projects leverage existing U.S.-designed products and that operational consolidation should yield efficiency benefits.
• Philip Shen (ROTH Capital Partners): Inquired about the potential impact of tariffs on battery storage projects; Moss stated that, so far, project timelines remain intact, and Shoals’ small market share allows for growth despite macro headwinds.
• Maheep Mandloi (Mizuho): Asked for specifics on the hyperscaler contract and litigation costs; Moss described the direct sales channel and product similarities, while Bardos outlined ongoing legal expenditures related to wire insulation litigation.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be monitoring (1) the pace of backlog conversion into revenue as project schedules progress, (2) the impact of operational improvements and plant consolidation on gross margins, and (3) early signs of success in new markets such as battery energy storage and international solar. Progress in litigation and management of remediation costs could also influence financial flexibility.

Shoals currently trades at a forward P/E ratio of 11.4×. Should you load up, cash out, or stay put? See for yourself in our free research report.

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