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Summary of Significant Accounting Policies | 6 Months Ended
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Jun. 30, 2023
Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Basis of Accounting and Presentation The condensed consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Reclassifications Certain prior period amounts have been reclassified to conform to the current period presentation. Non-Controlling Interests The non-controlling interests on the condensed consolidated statements of operations represent a portion of earnings or loss attributable to the economic interests in the Company’s subsidiary, Shoals Parent, formerly held by the Continuing Equity Owners (as defined in Note 11 - Stockholders’ Equity). Non-controlling interests on the condensed consolidated balance sheets represent the portion of net assets of the Company attributable to the Continuing Equity Owners, based on the portion of the LLC Interests owned by such unit holders. As of June 30, 2023, the Company, along with a wholly-owned subsidiary, Shoals Intermediate, owned 100% of Shoals Parent. Unaudited Interim Financial Information The accompanying condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022, the condensed consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for the periods ended June 30, 2023 and 2022 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2023 and the results of its operations and its cash flows for the three and six months ended June 30, 2023 and 2022. The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2023 and 2022 are also unaudited. The results for the three and six months ended June 30, 2023 and 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2023, any other interim periods, or any future year or period. The balance sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date. Certain disclosures have been condensed or omitted from the interim condensed consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Use of Estimates The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include revenue recognition, allowance for credit losses, useful lives of property, plant and equipment and other intangible assets, impairment of long-lived assets, allowance for obsolete or slow moving inventory, valuation allowance on deferred tax assets, equity-based compensation expense and warranty liability. Trends and Uncertainties In 2022, significant levels of inflation increased energy prices, freight premiums, and other operating costs, which levels remained elevated during the first two quarters of 2023. As a result of inflation, during 2022 and the first two quarters of 2023, the Federal Reserve increased interest rates. Such increased interest rates have resulted in higher interest rates associated with our Senior Secured Credit Agreement, as defined in Note 8 - Long-Term Debt. The Federal Reserve may continue raising interest rates, and any such additional increases will have a corresponding increase in the interest rates charged under our Senior Secured Credit Agreement. The eventual implications of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital during our forecast period. In 2022 and to a lesser extent during the first two quarters of 2023, as a consequence of macroeconomic events, our ability to obtain raw materials required to manufacture our components and system solutions from domestic and international suppliers, as well as our ability to secure inbound logistics to and from our facilities, were impacted, with additional delays linked to international border crossings and the associated approvals and documentation. The Company does not directly source a significant amount of raw materials from Europe. However, the ongoing conflict in Ukraine has reduced the availability of certain materials that can be sourced in Europe and, as a result, increased global logistics costs for the procurement of some inputs and materials used in our products. We expect these trends to persist throughout the year. In addition, changes over the last few years in the international relations and tariff regimes between the U.S. and China in response to various political issues and heightened uncertainty regarding China-Taiwan relations could significantly adversely impact the availability of parts and components to us, and, correspondingly, our ability to produce our components at targeted levels, although we did not experience such negative effects during the first two quarters of 2023. We are continuously monitoring the situation of our supply chain and evaluating our procurement strategy and supply chain to reduce any negative impact on our business, financial condition, and results of operations. In response to supply chain constraints, in 2022 we increased certain raw materials inventory, partly to limit the potential impact of supply chain issues of raw materials in the near term. During the first two quarters of 2023, we continued to monitor and optimize our inventory levels. In March 2023, various financial institutions sustained liquidity problems. Even though the FDIC and other government agencies intervened, there is uncertainty in the markets regarding the stability of the banking system and especially of regional banks. If the banks and financial institutions at which we or our customers hold our cash enter receivership or become insolvent, our liquidity and financial results may be threatened. As of June 30, 2023, other than increased interest expense, we did not experience material adverse effects on our financial results from the events and trends discussed above. Restricted Cash Restricted cash is included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the condensed consolidated statements of cash flows. Restricted cash is restricted as to withdrawal or use. Prior to the termination of the Tax Receivable Agreement (“TRA”), tax distributions paid by Shoals Parent to the Company were restricted under the limited liability company agreement (“LLC Agreement”) for future payments under the TRA and totaled $13.7 million as of June 30, 2022. There was no restricted cash as of June 30, 2023.
| June 30, 2023 |  | June 30, 2022
Cash and cash equivalents | $ | 5,860 |  |  | $ | 10,094 |
Restricted cash included in other current asset | — |  |  | 3,583 |
Restricted cash included in other assets | — |  |  | 10,125 |
Total cash, cash equivalents and restricted cash | $ | 5,860 |  |  | $ | 23,802 |
Customer Concentrations The Company had the following revenue concentrations representing approximately 10% or more of revenue for the six months ended June 30, 2023 and 2022 and related accounts receivable concentrations as of June 30, 2023 and December 31, 2022:
| 2023 |  | 2022
| Revenue % |  | Accounts Receivable % |  | Revenue % |  | Accounts Receivable %
Customer A | 25.7 | % |  | 26.6 | % |  | 12.3 | % |  | 8.4 | %
Customer B | 9.3 | % |  | 16.7 | % |  | 10.0 | % |  | 9.0 | %
Recent Accounting Pronouncements Adopted In October 2021, the FASB issued Accounting Standard Update (“ASU”) No. 2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU requires that contract assets and contract liabilities acquired in a business combination be recognized and measured in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within that fiscal year. The adoption of this standard on January 1, 2023 did not have an impact on the Company’s condensed consolidated financial statements. Not Yet Adopted Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.

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