Shoals Q2 2026 earnings: Revenue rises as gross margin contracts

Shoals Technologies Group (Nasdaq: SHLS) reported Q2 2026 revenue of $163.4 million, up 47.4% from $110.8 million a year earlier, while diluted EPS declined to $0.07 from $0.08. Demand, market-share capture initiatives and higher project volumes lifted sales, but gross margin fell 6.9 percentage points as facility-transition inefficiencies, product mix, quality work and material issues raised costs. Backlog and awarded orders reached a record $801.4 million at June 30, 2026.

Core financial results

Revenue growth materially outpaced gross profit growth during the quarter. Operating income increased in absolute terms, but GAAP net income and diluted EPS declined, while adjusted EBITDA and adjusted net income rose.

The difference between GAAP and adjusted results reflects several company-defined exclusions, including equity compensation, litigation expenses and plant-optimization costs.

Adjusted EBITDA, adjusted net income and adjusted diluted EPS are non-GAAP measures. Beginning in Q1 2026, Shoals revised its adjusted EBITDA definition to exclude shareholder litigation costs and recast comparative periods on the same basis.

Business and order performance

Shoals attributed the 47.4% revenue increase to underlying product demand, market-share capture initiatives and a higher volume of projects. The company did not disclose revenue by business segment, geography or product category.

Backlog and awarded orders increased 19.4% year over year and 5.7% from March 31, reaching $801.4 million. Shoals said the growth reflected continued demand and expansion in emerging battery energy storage markets.

The order figure includes both signed purchase orders or contractual minimum commitments and awarded orders still being documented. Because some awarded orders do not yet have signed contracts, the full amount should not be treated as contracted future revenue.

Revenue growth did not fully translate into higher margins or GAAP earnings

Gross margin declined to 30.3% from 37.2%. Shoals cited inefficiencies from ramping and transitioning into its new manufacturing facility, quarterly product mix, product-quality rework and corrective actions, material-related inefficiencies and incremental lease-accounting amortization.

Excluding $0.5 million of plant-optimization expense, adjusted gross margin was 30.6%, only modestly above the reported margin and still well below 37.2% a year earlier. That indicates the margin decline extended beyond the separately identified plant-optimization charge.

Operating income rose, but at a slower rate than revenue. The operating margin was approximately 11.5%, compared with about 14.4% in Q2 2025. Adjusted EBITDA margin also declined to approximately 19.3% from 22.3%, despite the increase in adjusted EBITDA dollars.

GAAP net income fell partly because interest expense increased to $3.5 million from $2.2 million and the prior-year quarter included a $3.1 million gain on asset sales that did not recur. General and administrative expenses also rose to $28.5 million from $23.1 million, primarily due to a $4.4 million increase in cash and share-based incentive compensation associated with higher headcount.

Inventory build drove first-half cash outflow and higher borrowing

Cash-flow figures were provided for the six months ended June 30 rather than Q2 alone. First-half operating cash flow was negative $34.6 million, compared with positive $1.7 million a year earlier, with a $97.1 million inventory-related use of cash representing the largest working-capital movement. An $18.2 million increase in deferred revenue provided a partial offset.

Inventory rose to $184.7 million at June 30 from $89.9 million at December 31, 2025. The revolving credit balance increased by $60.0 million to $196.8 million, helping cash and equivalents rise to $15.7 million from $7.3 million despite the operating outflow and $14.7 million of first-half capital expenditures.

Shoals continues to target full-year operating cash flow of $65 million to $85 million. Based solely on the first-half result, reaching that range would require approximately $99.6 million to $119.6 million of operating cash inflow during the second half.

Guidance

Shoals introduced guidance for the quarter ending September 30, 2026, and reaffirmed all previously disclosed full-year ranges. The company did not raise or lower its 2026 outlook.

Shoals did not provide a reconciliation of forward-looking adjusted EBITDA to the closest GAAP measure, citing uncertainty in predicting the timing and financial impact of future adjustments.

Recent insider transactions

The supplied six-month summary classified 536,780 shares across 13 transactions as purchases or acquisitions and 64,449 shares across two transactions as sales, resulting in 472,331 net shares acquired. However, many of the latest entries were stock grants or awards with a reported value of zero, so the aggregate should not automatically be interpreted as open-market buying.

Risks investors should watch

• Facility execution: The transition into the new manufacturing facility has been completed, but ramp-up inefficiencies reduced Q2 gross margin. The pace of productivity improvement will affect how much revenue growth converts into profit.
• Quality and litigation costs: Rework, corrective actions and material inefficiencies raised production costs. Shoals also recorded $2.9 million of Q2 wire-insulation shrinkback litigation expenses, with any supplier recovery remaining uncertain.
• Working capital and borrowing: The inventory build contributed to negative first-half operating cash flow and coincided with higher revolving-credit borrowings. Meeting the full-year cash-flow target requires a substantial second-half reversal.
• Order conversion: Backlog and awarded orders are at a record level, but awarded orders may not yet be signed, and the company cautions that order balances may not become revenue or generate profits.

Summary

Shoals delivered substantial Q2 revenue growth and a larger order book, supported by demand, project volumes and battery-storage opportunities. The central offset was weaker profitability per dollar of revenue, reflecting facility-transition problems, product mix and quality-related costs, while inventory consumed cash and increased reliance on revolving credit. Progress on facility productivity, inventory conversion and second-half operating cash flow will be important for evaluating execution against the reaffirmed full-year outlook.