Solar energy systems company Shoals (NASDAQ:SHLS) reported Q1 CY2025 results topping the market’s revenue expectations, but sales fell by 11.2% year on year to $80.63 million. On top of that, next quarter’s revenue guidance ($105 million at the midpoint) was surprisingly good and 10.4% above what analysts were expecting. Its non-GAAP profit of $0.03 per share was in line with analysts’ consensus estimates.
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Shoals (SHLS) Q1 CY2025 Highlights:
- Revenue: $80.63 million vs analyst estimates of $74.23 million (11.2% year-on-year decline, 8.6% beat)
- Adjusted EPS: $0.03 vs analyst estimates of $0.04 (in line)
- Adjusted EBITDA: $12.79 million vs analyst estimates of $12.16 million (15.9% margin, 5.2% beat)
- The company reconfirmed its revenue guidance for the full year of $430 million at the midpoint
- EBITDA guidance for the full year is $107.5 million at the midpoint, above analyst estimates of $103.8 million
- Operating Margin: 5.3%, down from 12.8% in the same quarter last year
- Free Cash Flow Margin: 15.3%, up from 11.4% in the same quarter last year
- Backlog: $645.1 million at quarter end, up 4.9% year on year
- Market Capitalization: $628.5 million
“We began the year with a strong start, delivering revenue above our guided range. The investment that we have made in our commercial function is paying dividends as evidenced in both the growth and quality of our order book. I’m proud of the robust backlog and awarded orders of $645 million, with approximately $500 million scheduled for the coming four quarters. The strategic initiatives that are driving increased market penetration and diversification are progressing very well, with commercial success in international, CC&I, BESS, and OEM markets,” said Brandon Moss, CEO of Shoals.
Company Overview
Started in Huntsville, Alabama, Shoals (NASDAQ:SHLS) designs and manufactures products that make solar energy systems work more efficiently.
Sales Growth
A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, Shoals’s sales grew at an incredible 20.9% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Shoals’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 3.4% over the last two years was well below its five-year trend. 
We can better understand the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Shoals’s backlog reached $645.1 million in the latest quarter and averaged 2.7% year-on-year growth over the last two years. Because this number is in line with its revenue growth, we can see the company effectively balanced its new order intake and fulfillment processes. 
This quarter, Shoals’s revenue fell by 11.2% year on year to $80.63 million but beat Wall Street’s estimates by 8.6%. Company management is currently guiding for a 5.8% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 15.2% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and indicates its newer products and services will catalyze better top-line performance.
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Operating Margin
Shoals has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 16.1%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Looking at the trend in its profitability, Shoals’s operating margin decreased by 9.6 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.
This quarter, Shoals generated an operating profit margin of 5.3%, down 7.4 percentage points year on year. Since Shoals’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Shoals’s EPS grew at a weak 2.5% compounded annual growth rate over the last five years, lower than its 20.9% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Diving into the nuances of Shoals’s earnings can give us a better understanding of its performance. As we mentioned earlier, Shoals’s operating margin declined by 9.6 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For Shoals, its two-year annual EPS declines of 18.7% show it’s continued to underperform. These results were bad no matter how you slice the data.
In Q1, Shoals reported EPS at $0.03, down from $0.07 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Shoals to perform poorly. Analysts forecast its full-year EPS of $0.30 will hit $0.43.
Key Takeaways from Shoals’s Q1 Results
We were impressed by how significantly Shoals blew past analysts’ revenue and EBITDA expectations this quarter. We were also glad its revenue guidance for next quarter and its full-year EBITDA guidance trumped Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 5.8% to $3.99 immediately after reporting.
Shoals had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.