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Shoals (NASDAQ:SHLS) Surprises with Q1 CY2025 Results Exceeding Market Expectations
Shoals, a leading solar energy systems company listed on NASDAQ under the ticker SHLS, has announced its Q1 CY2025 results, which have exceeded market expectations in terms of revenue. Despite a year-on-year decline of 11.2% to $80.63 million, Shoals’ revenue has beaten analyst estimates by 8.6%. Additionally, the company’s non-GAAP profit of $0.03 per share is in line with analysts’ consensus estimates.
Revenue and Sales Growth
Shoals’ revenue growth over the last five years has been impressive, with a compounded annual growth rate (CAGR) of 20.9%. This surpasses the average industrials company’s sales growth, indicating that Shoals’ offerings are resonating well with customers. However, its recent performance shows a significant slowdown in demand, with an annualized revenue growth of 3.4% over the last two years being below its five-year trend.
Backlog and Order Book
Shoals’ backlog reached $645.1 million in the latest quarter, up 4.9% year-on-year. This indicates that the company has effectively balanced its new order intake and fulfillment processes. The robust backlog and awarded orders of $645 million, with approximately $500 million scheduled for the coming four quarters, demonstrate Shoals’ strong commercial success.
Operating Margin and Free Cash Flow Margin
Shoals has been a well-oiled machine over the last five years, boasting an average operating margin of 16.1%. However, its operating margin decreased by 9.6 percentage points over this period, raising questions about the company’s expense base. The decrease in operating profit margin to 5.3% year-on-year also indicates that Shoals was less efficient due to increased expenses such as marketing, R&D, and administrative overhead.
Earnings Per Share (EPS) and Long-Term Change
Shoals’ EPS grew at a weak 2.5% CAGR over the last five years, lower than its 20.9% annualized revenue growth. This indicates that the company became less profitable on a per-share basis as it expanded. Analyzing Shoals’ earnings can provide insight into its performance. The decline in operating margin was the most relevant factor behind its lower earnings, aside from the revenue impact.
Key Takeaways from Q1 Results
We were impressed by how significantly Shoals blew past analysts’ revenue and EBITDA expectations this quarter. We were also glad that its revenue guidance for next quarter and full-year EBITDA guidance trumped Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside.
Conclusion
Shoals has demonstrated strong commercial success, with a robust backlog and awarded orders. Despite the year-on-year decline in revenue, Shoals’ Q1 CY2025 results have exceeded market expectations. However, its operating margin and EPS growth raise concerns about the company’s expense base and profitability. We will continue to monitor Shoals’ performance and provide updates on our findings.