Shoals Technologies Group, Inc.

Hello everyone. Thank you for joining us and welcome to the Scholz Technologies Group's first quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Matt Trochtenberg, VP of Finance and Investor Relations. Matt, please go ahead.

Thank you, Christine, and thank you, everyone, for joining us today. Hosting the call with me is our CEO, Brandon Moss, and our CFO, Dominic Bardos. On this call, management will be making projections or other forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties and should not be considered guarantees of performance. Actual results could differ materially. Those risks and uncertainties are listed for investors in our most recent SEC filings. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's first quarter press release for definitional information and reconciliations of historical non-GAAP measures to the nearest comparable GAAP financial measures. Please note that the slides you see here are available for download from the investor relations section of our website at investors.scholes.com. With that, let me turn the call over to Brandon. Thank you, Matt.

And thanks to everyone joining us on the call. First quarter revenue was above our guidance at $141 million of 75% over the prior year period. Our commercial team continued their strong performance by adding approximately $151 million of new orders in the period. This resulted in another company record backlog and awarded orders or BLAO of $758 million, an increase of almost 18% year over year. As of quarter end, approximately $628 million of our BLAO has shipment dates in the upcoming four quarters for Q1 of 2027. Quarter adjusted gross profit percentage came in slightly below our expected range at 29.6%. This was driven by product mix, tariffs, increased freight costs, and some temporary labor inefficiencies as we train additional employees to meet the strong demand on new business lines in our factory. We believe that this is the low point of gross margin and that it will improve as we make our way through the year. SG&A, including all legal expense, was $31 million, representing 22% of revenue, a 500 basis point decline as compared to 27% last year, and highlighting the operating leverage inherent in our business model. First quarter adjusted EBITDA of approximately $21 million came in at the high end of our guided range and grew 56% year over year. We've also seen some positive movement on our IP infringement case against Voltage. Last week, the International Trade Commission declined to review any contested issues in the ALJ's initial ruling. The Commission is still expected to issue its final determination in early June, but it's encouraging news for our shareholders and US manufacturers in general. We are pleased with how the market is evolving and our competitive position of strength, and as a result, are increasing both our revenue and adjusted EBITDA guidance for the year. Dominic will step through the updated guidance later in the call. Briefly turning to our various business lines, the first quarter was another strong period of growth within our core utility-scale solar market. Our port volume in the quarter exceeded a billion dollars of unique projects, adding to our strong pipelines. I'm also encouraged by the progress we are making in key international markets like Australia, as evidenced by our increased quote activity and customer engagement. International BLAO now totals almost $100 million, driving continued growth and diversification in 2027 and beyond. Our community, commercial, and industrial, or CC&I business, which remains a small piece of our overall mix, continues to perform well. Our OEM business continues to provide a stable and visible revenue stream, growing at 33% on a year-over-year basis. And finally, we added approximately $9 million to BESS VLAO in the quarter, which ended the period at $75 million. You may recall that we announced a recent partnership with On Energy in the last quarter. On Energy is rapidly assuming market leadership in AI data center power infrastructure with its first-of-a-kind medium voltage AI UPS. That architecture is being deployed in what will be the largest battery project in an AI data center in the U.S. Shoals is very proud to be a partner in this project. In Q1, we celebrated the first of these units produced in our new facility, recognizing more than a million dollars in revenue and paving the way for a healthy ramp through Q2. We're excited about increasing production and gaining visibility as we continue to build this business. Overall, the quarter played out as expected, but the year appears to be stronger than we anticipated on our February call. New orders in Q1 for 2026 delivery were very strong and we have not seen significant project delays thus far. We are executing well, finishing the movement to our new facility, and expanding capacity and capabilities. The underlying demand drivers remain intact, and our competitive position has strengthened. Our business is in a great place today. Dom, I'll hand it to you for a deeper dive into our financial performance and guidance.

Thanks, Brandon, and greetings to everyone on the call. Revenue increased by approximately 75% year-over-year to $140.6 million. The increase was largely driven by strong demand from both new and existing customers within our core U.S. utility-scale solar market. Gross profit was $41.0 million compared to $28.1 million in the prior year period, an increase of 46%. Our GAAP gross profit percentage was 29.2%, and adjusted gross profit percentage was 29.6%, slightly below our expectations and impacted by product mix, higher freight costs, tariffs, and temporary labor inefficiencies as we start new lines and train new employees to meet the very strong demand we see ahead. Product mix, freight, and tariffs accounted for approximately 200 basis points of margin compression versus our anticipated outcome. As Brandon stated, we believe this quarter is the low point for gross profit percentage, and that it will improve as we make our way through the year. As a reminder, our product mix plays an integral role in the gross profit percentage, and that may vary from quarter to quarter. The same mix that is driving higher revenue growth and contribution dollars negatively impacts the margin percentage, but delivers higher profit dollars. Ultimately, we are focused on driving incremental profit dollars to the P&L as that strategy will create shareholder value. Selling general and administrative expenses or SG&A was $31.0 million or $9.3 million higher than the prior year period driven by an additional $6.2 million of ongoing legal expenses. This breaks down to $4.1 million related to our ITC litigation $1.2 million related to our case against Prismian, and a little under $1 million related to the shareholder class action suit. As you may have seen last week, we have announced a proposed settlement to the shareholder class action suit. The vast majority of the settlement is covered by insurance. Income from operations, or operating profit, was $7.7 million, or 5.5% of revenue, growing at 79% year-over-year. This compared to $4.3 million during the prior year period. Net loss was $297,000 compared to a net loss of $282,000 during the prior year period. The net loss was driven by the class action settlement net impact of approximately $5 million. Adjusted net income was $12.1 million, an increase of 112% as compared to $5.7 million in the prior year period. Adjusted EBITDA was $21.1 million compared to $13.5 million in the prior year period, representing 56% growth year over year. Adjusted EBITDA margin was 15% compared to 16.8% a year ago, driven primarily by the impact of product mix. Adjusted diluted earnings per share of $0.07 was $0.04 higher than the prior year period. Operationally, we consumed $41.4 million of cash in the first quarter, driven by the higher inventory balances needed to satisfy the strong demand signals we are seeing in our markets. We have taken inventory positions to protect our customer delivery timelines for the next two quarters, and we intend to reduce inventory levels throughout the back half of the year. As such, we do not currently anticipate interruptions to project delivery schedules due to the conflict in the Middle East or projected trade policies. We ended the quarter with cash and equivalents of $1.9 million and net debt to adjusted EBITDA of 1.6 times. Our net debt was $179.9 million, an increase of the prior quarter driven by an increase in inventory in both our new best business and our core utility scale solar market. As we enter this period of exceptional demand, our intention is to moderately expand the capacity on our revolving credit facility Over time, as collections normalized with production, we will resume deployment of excess cash towards reducing the outstanding balance and maintain leverage below two times adjusted EBITDA. Backlog and awarded orders ended the first quarter at a record $758.0 million, a sequential increase of $10.4 million. Backlog constitutes $390.3 million of the total BLAO, providing us with confidence that the growth projections we have for the upcoming periods can be achieved. The strength of our book of business supports our decision to increase both our full-year revenue and adjusted EBITDA expectations. As of March 31, $627.6 million of our backlog and awarded orders have planned delivery dates in the coming four quarters through Q1 of 2027, with the remaining $130.4 million beyond that. Turning to guidance, for the quarter ending June 30, 2026, the company expects revenue to be in the range of $150 to $170 million, representing 44% year-over-year growth at the midpoint. and adjusted EBITDA to be in the range of $28 to $33 million, representing 25% year-over-year growth at the midpoint. For the full year 2026, we now expect revenue to be between $600 and $640 million, representing year-over-year growth of 30% at the midpoint, and adjusted EBITDA to be in the range of $118 to $132 million, representing year-over-year growth of 26% at the midpoint. In addition, for the full year, we still expect cash flow from operations in the range of $65 to $85 million, capital expenditures in the range of $20 to $30 million, and interest expense in the range of $8 to $12 million. With that, I'll turn it back over to Brandon for closing remarks.

Thank you, Dominic. The U.S. market appears to be extremely resilient and our capacity expansion could not have come at a better time in our history. We are preparing Shoals to be ready and agile in our production capabilities in a growing demand environment. We are in an exceptional position today from both a commercial and operational perspective. The strategic plan that we constructed and the process improvements we've implemented have begun to yield tangible results. We want to thank our shareholders and our customers for their continued trust in our employees, for their hard work and dedication. Operator, we are now ready to take questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes to the line of Philip Shen with Roth Capital Partners. Philip, your line is now open.

Hey, guys. Thanks for taking my questions. Congrats on the strong results. I wanted to talk through the tax equity pause that we've written a fair amount about. I was wondering if you guys are seeing that flow through any of your business or any of your conversations today. And then maybe talk through with the healthy bookings from this quarter, do you expect that booking strength and greater than one book to build to sustain in the quarters ahead?

Thanks. Phil, good morning and thanks for the question. Related to the tax equity piece, well aware of what's going on in the market with some of the larger banks financing projects. I would say that we have not seen that trickle down into our order book. I think there is available financing for projects that still exist in the marketplace. And we are not seeing an impact to that as evidenced by, you know, a really strong quote log again in Q1 of over a billion dollars. And that's been really consistent with the quoting strength we've seen for the last few quarters, honestly. As it relates to future book-to-bill and booking strength, it is always our goal to have a positive book-to-bill. We see a lot of strength in the marketplace. The market is accelerating and not slowing. We have fortunately strung together

a number of quarters now with with positive book to bill and that's always our intention to do so great thanks brandon and um coming back to margins for a bit here uh q1 was a little bit lower um i i know you guys talked about that being the low point in the year um was wondering if you could share what uh like q2 and q3 might be heading toward uh with your guidance raise um you know the EBITDA margin for Q1 was 15%, but full year is 20%, suggesting you really have to drive that much higher later in the quarters or later this year. And while maintaining the EBITDA guide, you also kept cash flow from operations unchanged. So I was wondering if you might be able to address some of the situation there. Thanks.

Yeah, thanks, Phil. Multi-part question there. I'll tackle the front end, maybe turn it to Dominic. As it relates to gross margin, again, we commented we had about a 200 basis point impact in the quarter versus our expectations. The biggest driver of that for us is always product mix. And then obviously we had, as we're moving our facility from from our former three sites into our new factory, we've got some disruption related to that move, a little bit more so than is anticipated. We moved about 250 pieces of equipment or slightly more over a 60-day period in the quarter, and obviously that led to some level of disruption. Dom, maybe pass it to you to expand upon that.

Yeah, so I think, Phil, one of the things you asked was also a little bit of the pacing of what we might see from margins. And we do expect that the first half, because we're still moving into the facility, so Q2 will still have lower margins. We just don't believe it's the low point that we saw in Q1 as we've been communicating. And then there will be a ramp in the back half as we move into the we're going to be completely moved into the facility. And we will also have the ability to start realizing some of the efficiencies of being in one beautiful new facility. So the pacing will still be a little bit lower on the margins in Q2 and then improving. But everything should be sequential improvement quarter over quarter. And with regards to the cash flows from operations. Our working capital, we took very specific inventory positions to make sure that we can meet the demand that we see in the coming quarters. But we will have the ability to reduce that. So I would characterize that as a timing issue. We do see very strong business. We see very positive cash flows this year. And our ability to drive that cash is heightened this year because we're not doing some of those large things like the warranty remediation, which is largely in our rearview mirror at this point. So I would characterize that as a timing issue. We're very confident in the year and very excited at the book of business that we have in front of us.

Thanks, Phil. Great. Thank you. Thank you both. Christine, next question, please.

Our next question comes from the line of Julian Demelon Smith with Jefferies. Julian Demelon, your line is now open.

Thank you, operator. Very kind. And good morning, team. Thank you guys for the time. I appreciate it. Look, maybe just to kick things off, I would love to hear a little bit more about the battery best adoption trends as well as any other end market adoption here. Again, I know the street's very fixated here on your quarterly best trend. Obviously, stronger start to the year here overall, but I'm curious on how you would suggest cadence and adoptions going given what we're seeing in that end market.

Julian, good morning. Appreciate the question. We are very excited about our best business. As we indicated in the prepared remarks, we started our best line at Q1 and recognized about a million dollars of revenue. Those specific units, again, are going to the data center market, which we're very, very bullish about. And we will be on you know, the largest battery paired AI data center site in the country, which is very exciting for us here at Shoals. What is also exciting for us in the first quarter is we added $9 million to our book of business related to best, maybe to peel that back a little bit. As you may recall, we've got three specific end market use cases for our recombiner products, one being data centers, two being grid firming and three being, you know, your, your common solar and storage paired, uh, applications on our, our traditional solar sites, uh, about two thirds or more of our bookings, uh, in the quarter came from grid firming and solar plus storage applications, which is exciting for us is we are seeing, um, you know, penetration across all three markets. Um, As we've talked about in the past, we see the data center AI space as being probably the strongest and largest driver of the product line, but it's also great for us to show strength in the other markets as well.

Got it. And then not to needle too much on this margin backdrop, but you lowered the margin guide here slightly here. What's driving that here? Can you comment on the logistics side of things, Tara Fangle? I know you commented a little bit here, but I just want to Make sure I'm hearing that right, especially given the ramp that my peer here was talking about a second ago. Can you just comment about what you're seeing on that margin guide? I think people are very fixated here on the cadence of the year and ensuring that you see that overall recovery materialized.

Yeah, there's a few things that I want to point out, Julian. And first is that we're still moving into the facility and we did have some disruptions and inefficiencies in Q1. They were a little bit worse than we anticipated with the disruption of all the movement. But we're completing that move in Q2. And also with the unrest in the Middle East or the conflict, we are seeing pressure on oil prices and the derivative products from oil. Freight charges are certainly higher and some of our cost of goods are certainly going to have the potential to be impacted. And some of the pricing has already been set. Some of those things, you know, it is kind of like when things change in a rapid fashion, once we've already agreed to a price. we might have some times when we can't quite recover the full cost of goods increases. So we want to just be cautious and give a prudent guide with margins. We do see improvement every quarter, as we mentioned, sequentially. And we're very optimistic that the product mix will be favorable for us for the balance of the year.

Okay. All right. I'll leave it there. Thank you guys very much.

Thank you, Julian. Appreciate it. Christine, next question.

Our next question comes from the line of Praneet Satish with Wells Fargo. Praneet, your line is now open.

Thanks. Maybe not to belabor the margin question too much, but I guess you mentioned 200 basis points in Q1 from product mix, tariff, and freight. And then you also had this impact from moving equipment to the new facility. Maybe if you could just kind of... isolate how much of the margin was weighed down because of that transition to the new facility? And then also on product mix, is that of the 200 basis points, how much is product mix and kind of what's the outlook there? Because I assume the tariff and freight, those will kind of persist potentially for a few more quarters, but just kind of trying to isolate the variable pieces.

Yeah, so that's a pretty packed question there. So let me break it down a little bit. So of the 200 basis points that we saw, we kind of buckled it, bucketed it into about a third, a third, a third of some of the major drivers. We definitely had some tariff impact that was still a carryover. But the IEPA reduction is certainly going to help us. The 232 tariff environment, we've now actually encompassed that into our pricing. So that shouldn't be as big of a drag going forward. We do still have some inventory that has capitalized tariffs in it. We do still have to burn through that in the second quarter. Once again, that informed our second quarter margin guide. With regards to the freight, we did have some air freight and the cost of fuel for freight has gone up. So we had some surcharges there. But fundamentally, these things are largely transitory or the point where we can now factor all that into the pricing. As I mentioned with Julian's question, sometimes when things change rapidly, we may already have guaranteed pricing or contract pricing and we can't quite go back and recover all of that. So the margin issue aside, we're very pleased to be raising our EBITDA guide for the year. We're going to continue to get the leverage on our OPEX and we're very excited about our book of business.

Gotcha. That's very helpful. And then maybe just switching gears, your other kind of product and development here, the data center BLA product, has anything changed there in terms of timing for UL certification? And I know we're not going to see sales this year, probably next year, but I guess when should we anticipate potentially seeing some bookings? Do you think it's possible we could see something towards the end of this year? Just trying to get an update on that. Thank you.

Yeah, Praneeth, great question. We did a market launch of that product at Data Center World a few weeks ago, which we are very excited about. We have filed our patent portfolio for that particular product, which is also very exciting for us. There's a lot of interest in the product right now. As you mentioned, we do not expect to recognize revenue in calendar year 26, uh, our goal this year is to, to, to have proof of concept, uh, operating live in a facility. And we are working towards that. Um, so bookings in, in 26, potentially, uh, we're, we're talking to, uh, a variety of developers about including that product and their portfolio of projects, uh, but nothing on the books as of yet. Um, I would probably say in 26 bookings would be minimal for that product line as we begin to ramp it in 2027. But exciting product and really strong market feedback thus far. Thanks, Puneet. Yep. Christine?

Our next question comes from the line of Colin Rush with Oppenheimer & Co. Colin, your line is now open.

Thanks so much. Could you give us an update on, on sales traction outside of the U S on both, uh, you know, solar and BESF. And then if there's anything, um, you know, in particular that you guys see, you can optimize from an office perspective, we'll have to get a little bit more detail on that side.

Yeah. Thanks Colin. Good morning. Um, we are excited about our prospects internationally, our backlog and awarded orders. Um, continues to rise. We reached a hundred million dollars, um, uh, now, now to date after actually deploying three projects last year. So we are continuing to, um, to generate bookings to offset, not only shipments, but grow that order book, which is, which is exciting for us. Our prospects in Australia, um, seem, uh, like a fantastic opportunity for us. A pipeline is very strong and, um, And that's where some of the additions to the order book have come from. So, you know, that has been a key priority for us to diversify end markets, not only product. And we're pleased with the progress thus far. Your other question was around operating expenses, I believe. Kyle, specifically, what are you looking for them?

Yes, so you know folks able to optimize using some Ai for you know just cleaner more efficient objects and just wondering if there's some of that that you're you're going to be able to start flowing to the organization over the next year or two.

Yeah, it's a great question. So we absolutely are engaged with some trials of artificial intelligence and what we're trying to do to improve some of our system and operations. Our focus initially is actually with manufacturing and commercial as our process flow. We have some opportunities there that we're working with. We are in discussions with our board all the time about how the next where we can improve our processes, which are largely manual as a small company is growing. So we are looking to that. I would I would suggest that our SG&A is relatively lean. We don't have a tremendous number of salaried headcount. As you see in our filings, it's less than 200 people that are salaried in this business. So I'm not looking to AI to truly rip out SG&A expense as much as I am to enable growth going forward. We see significant growth going forward for this company. We want to make sure that we're positioned to scale. And that's truly where we're going to focus our AI efforts, at least initially.

Perfect. Thanks, guys. Thanks, Colin. Christine?

Our next question comes from the line of Mark Strauss with JP Morgan. Mark, your line is now open.

Yes, good morning. Thank you very much for taking the questions. I think on the last call you talked about there were some, I believe they were best projects that you weren't sure if they were going to hit in late 4Q or maybe early 2027. Has that timing now firmed up and is that part of the guidance rates here or should we think about that as a potential catalyst for further upside if that does firm up as we go along here?

Uh, Mark, uh, appreciate the call. Yeah, we, uh, we do have project visibility in 26 and 27 that is incorporated in our current backlog and awarded orders. Um, you know, as mentioned earlier, the significant driver for our growth in that business is going to be around the data center AI landscape. And, uh, obviously we've got visibility to a quote funnel, um, and are confident in our ability to add to our order book in that particular use case. So we are very excited about the future of battery energy storage products here at Shoals. We have built a manufacturing line to handle and provide a significant amount of capacity for us. So more growth to come in that space for us in the future.

And Mark, I may just add that, you know, as David died last quarter, we did talk about, you know, there are some projects in Q4 that still have to be firmed up. But what I would characterize our raise on the revenue side is really due to book and turn business in the core solar markets. We've seen some incredible strength of demand, and that's truly what's driving that. And I just want to position that one because it's a fantastic market for us. We do still have some potential for projects to hit in Q4 from the best side, but that wasn't the preliminary driver of the raise.

Okay. Very helpful. Thank you. And then You've had several questions already about kind of the margins trajectory this year. Dom, I just want to give you the opportunity to kind of talk about beyond this year. Are you still viewing 2026 as the trough here?

Yeah, well, certainly it is because of all the move disruptions and starting a best line from scratch and training all the new employees. I mean, those are some transitory headwinds that will get done in this year. You know, we think we're a very attractive business driving gross margins in the 30s like we are. It's a fantastic business. We're going to continue to get OPEX leverage. We'll see EBITDA margin expansion and much higher cash flow contributions next year. So I'm very excited about next year. While we're not fully guiding to that, we do believe this is a trough year on the gross margin side, but we're really looking forward to expanded operating profit margins and EBITDA margins in 2027 and beyond.

Thanks, Mark.

Thank you. Our next question comes from the line of Sean Milligan with Needham Company. Sean, your line is now open.

Good morning. Thank you for taking the questions. To start off, I was curious, Brandon, if you could provide some more context around like your best quoting pipeline in terms of sizing of projects, specifically on the AI data center side. I guess you've been in the market now for a few quarters there. And I was curious if there's any change to what you're seeing in terms of the size of projects you're quoting.

Yeah, thanks, Sean. I think we've communicated in the past that I guess first, bookings for this particular product line will be a bit lumpy because of the size of the projects, right? I don't think our assumptions have changed at all. Where we look to use our 4,000-app recombiner product line and data center AI applications, you know, that market is probably about, you know, 50 to 60 million dollars per gigawatt. We've got great visibility to pipeline and also future projects. And again, you know, very bullish about our prospects to penetrate that market and very excited about our partnership with with on energy, who we believe has taken market leadership and pairing battery storage with these large scale projects. AI centers. So couldn't be more excited about the prospects of that business.

Okay. And just to follow up on revenue contribution in the quarter, with CNI International, you kind of gave the best number, but I'm curious, like how much revenue is now coming from kind of outside the core BLA business?

Yeah, so we have the OEM business was second to our domestic utility scale solar projects in the quarter. Bess, we were very pleased to have started the line early. As you recall from last year, we were guiding that we didn't expect to have revenue in Q1 at all because of our timeline. So we're very pleased to have gotten that line stood up and operational as quickly as we did. But largely the Q1 revenue stream was utility scale solar that's domestic, followed by our OEM business, which had 33 percent growth, I believe, year over year. So other than that, we did not have a lot of international revenue. And the CC&I still remains a relatively small portion. But we do have CC&I sales every quarter.

Tom, maybe to add to that, just the focus on our domestic solar markets, just to reiterate, we believe we are operating in an unbelievably strong market environment. And I think our market leadership position as a preferred solution continues to be proven by our record backlog and awarded order growth. A lot of our growth, I know there's a tremendous amount of focus on battery energy storage, but as we've communicated in the past, our goal is to diversify both products and markets. And we're, we're doing that. What is very exciting for us, um, in 2026 is about a fifth of our revenue will come from new products. Uh, best is obviously included in that number, but many of the new products, uh, uh, are, are in our traditional solar space. So we've put a big focus on accelerating innovation here in Shoals. And, um, And that is playing out with increased bookings and obviously revenue recognition for for 2026. So, again, a lot of focus on best. Always a lot of questions about best. I want to reiterate the strength of our domestic utility scale solar business. Thanks, Sean.

Just a reminder, if you'd like to ask a question, please press star one to raise your hand. Our next question comes from the line of Vikram Bagri with Citi. Vikram, your line is now open.

Good morning, everyone. I have a sort of like a two-part question. I think last quarter you mentioned spooling had a meaningful impact on margins. I was wondering if you can share what the impact of spooling was on this quarter's margin and what percentage of customers have requested spooling? And related to that, you know, obviously, tariffs, logistics, and commodity prices have changed a lot since last quarter. Our understanding was that tariffs baked into the previous guidance were conservative. I was wondering if you can also identify where you see some puts and takes in this ever-changing environment in terms of tariffs, logistics, and commodity prices as if the current environment is fully baked in, or do you see some level of sort of like downside or upside from, uh, from, from the three factors?

Thank you. Good morning. Uh, great, great question. We, we have talked about, uh, spooling in the, in the past, um, pro probably more generally just packaging in general. Um, there are different packaging requirements, uh, for some of our newer customers and also. product mix related to those, uh, specific to our long tail BLA product, uh, that is adding, um, significant, uh, revenue potential for us in the future and is being recognized still in 2026. Um, it adds, you know, a half a cent to eight tenths of a cent, a watt to our projects, which, which is exciting for us to be able to, uh, to expand our wallet share. So we do have some packaging costs that are baked into the guidance for the year. I'll let maybe Dominic expand on that. But before I do, just a comment on your question about tariffs. obviously the tariff landscape has changed dramatically the last, I don't know, 18 months now. And, uh, for us to try to predict what that's going to look like in the future, uh, you know, we would be fools to try to do so. Um, having said that the change with IEPA and section two 32, uh, we view as a net neutral to positive change for us. Um, and that is, um, that is being baked into our thoughts about margin and guidance for the rest of the year. Don, maybe I'll turn it to you for specifics around packaging and margin.

Yeah, as Brandon mentioned, Vic, it's largely when I talk about product mix, that's where it's coming from. Not all of our products require spooling, but the longer run products do. And things like the long tail BLA, it's incorporated in the margin. And so when I talk about product mix, And a large percentage of customers now prefer the long tail solution to centralize their load break disconnects by the inverters. That is something that increases our share of wallet, but it carries a lower margin percentage. The spooling cost, the packaging, the handling of all that is incorporated into that. But that's why the product mix is so important to the margin percentage. It is driving increased flow through dollars, which is fantastic. We're going to keep doing that business. We're responding to the changing environment of our customers, what they're looking for. And we now have a full suite of products to really meet those needs. Things like our super jumper, which may have been originally developed for international markets, are really showing some popularity here in the United States as well. Well, once again, you have much longer runs. So we've factored all that in. It's part of our product mix. And that's why I always caution folks when we talk about a percentage of margin. We need to kind of consider where the mix is going as well.

Thanks, Vic. Got it. Understood. Christine, I think we have one last question from Brian.

Yes, we do. Brian Lee with Goldman and Sachs. This will be our last question. Brian, your line is now open.

Hey, guys. Good morning. Thanks for squeezing me in here. Sorry, I dialed in a little bit late, so not sure if you covered some of these things. Maybe just on the guidance, you know, kudos on the strong execution here to start the year and for the revenue and margin uplift, but just that EBITDA guides up a bit less than revenue guide at the midpoint for 2026 in the new outlook. Is that conservatism or are you seeing more makeshift issues or incremental tariffs than originally expected? Just curious. Maybe this is nitpicking, but the EBITDA uptick in the guidance is a little bit more tempered than the revenue outlook. So any comment there would be appreciated.

Sure, Brian. Yeah, we've covered a little bit of this, but I'll repeat a few of the things that are driving that. First and foremost, product mix is certainly driving that. We are seeing popularity of some of the new products, which do have a lower margin percentage and flow through. So while revenue is going to be increased, the margin percentage is not going to be quite as high. We are seeing a little bit of disruption in our move into the new facility here. It's a little bit more than we anticipated and allowed for as folks are moving, as we're moved over, I don't remember, Brandon, 200 machines?

200, please. On 50 plus machines in 60 days.

Yeah. And we're still moving into the facility this quarter. So a little bit of disruption there. And we are expecting to see with our mix anticipation for the rest of the year, some uptick in gross margin as well. But there were some reasons why we did that. We also have two trials set for later this summer in August with legal expenses. I have learned to be a little bit cautious on the estimations. We want to make sure we represent the shareholders properly in our cases. And if that means experts and additional legal expense, we're going to cover that. And one of those cases is not adjusted out. It's our IP case is part of our earnings. So we just want to make sure that we give a good cautious number that allows us to meet our expectations for it.

Yep, fair enough. Makes sense. And then I'm sure you covered a little bit of this and maybe you covered all of it. Just with respect to tariffs, can you level set us as to what tariffs you are specifically subject to starting the year off with? you know, 232 copper, steel, aluminum, et cetera. And then does the April 3rd ruling on kind of the changing thresholds impact you? And again, maybe level set us as to are you importing copper from foreign sources and what percent of the bomb and is that impacting your margin outlook for this year or are you contemplating any mitigation efforts this year or into next year, just trying to get a level set on the copper exposure here, if you could speak to that a bit.

Sure, Brian, I'll jump in on that one. There's a few questions in there, so let me unpack it. Yeah, for the first couple months of the year, we still had IEPA, and those, of course, were stopped, collected at the end of February, around the 24th or so of February. And so that right now is going to be a favorable tariff environment. With regards to 232, yes, there was a couple of things. We do have a very wide book of suppliers, approved vendors, and some of which are international in nature and are subject to 232 import tariffs, both on the aluminum and copper side. We do work with customers on some things. If they have a preference, we can certainly go for certain demand. Domestic suppliers, if they have a preference for international, we can do that as well. So we are subject to 232s. Now, as the rules changed, and the tariff rate went down, it's also now on the full purchase price. But net, it should be slightly favorable for us in terms of how these tariffs are calculated. So it is a very dynamic situation. We certainly appreciate your question. It makes it very difficult to truly know how to operate that. And Brandon, is there anything else you want to add on the tariff?

Just maybe something to point out. As it relates to the tariff landscape, those tariffs impact even our domestic supply base, right? Like us, most suppliers have a very diversified and international supply base themselves. And so those tariffs may be getting, maybe impacting our raw material inputs, even on domestic supply sources. So obviously, as you guys know, it's been a challenging, you know, again, 18 months or so with the tariff landscape, I think we're navigating it quite well. And I think what is probably most important is with the repeal of the IEPA tariffs and now the change to Section 232, we do see that as a net neutral to positive impact for Shoals in the back half of the year. Obviously, caveating that with unless something else changes. So I think we're navigating it well, Brian, and I appreciate the question. Thanks, Brian.

Christine, I think that that's going to be the last question that we take today.

Absolutely. We have reached the end of the Q&A session. I will now turn the call back to Matt for closing remarks.

Yeah. Thank you, Christine. So I want to note to our audience that we have a very active IR calendar through June. Those events are listed on our investor section of our website. So if you're attending conferences, you want to meet with us, please let us know. We're happy to. If we can help further, just reach out to investors at shoals.com with any questions. Thanks for joining us today, everybody. Have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.