Shoals Technologies Group (SHLS) Risk Analysis

Our future success and ability to implement our business strategy depends, in part, on our ability to attract and retain key personnel, and on the continued contributions of members of our senior management team, key technical personnel and other qualified employees, each of whom would be difficult to replace. All of our employees, including our senior management, are free to terminate their employment relationships with us at any time. Competition for highly skilled individuals with technical expertise is extremely intense, and we face challenges in identifying, hiring and retaining qualified personnel in many areas of our business. An inability to attract and retain senior and middle management, an inability to effectively provide for the succession of senior management, or an inability to attract and retain other key or qualified personnel could limit or delay our ability to execute our business strategy, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Significant decreases in the price of electricity, whether in organized electric markets or with contract counterparties, may negatively impact owners of solar energy projects or make the purchase of solar energy systems less economically attractive and would likely lower sales of our products. The price of electricity could decrease as a result of: (i) increased deployment of lower-cost electricity generation technologies or facilities, including renewable, conventional or alternative energy sources; (ii) reductions in fuel prices or other input costs used in electricity generation; (iii) changes in governmental policies, utility rate structures, subsidies or regulatory frameworks that reduce electricity prices; (iv) improvements in transmission, grid, energy-management or energy-storage technologies that increase access to or efficiency of lower-cost power; and (v) changes in electricity consumption patterns, load profiles or end-user demand that reduce overall electricity demand or shift usage to lower-cost alternatives. If the cost of electricity generated by solar energy installations incorporating our systems is high relative to the cost of electricity from other sources, then our business, financial condition and results of operations may be harmed.

The market for EBOS system solutions and components is competitive. Our principal competitors include Construction Innovation, Hikam America, Inc., Nextpower (via acquisition of Bentek), Premier PV, TerraSmart, LLC (formerly SolarBOS, Inc.), and Voltage, LLC. We compete on the basis of product performance and features, installation cost, reliability and duration of product warranty, sales and distribution capabilities, packaging and transportation, and training and customer support. Competition continues to intensify as new and existing competitors enter the market. If our competitors introduce new technologies that are successful in offering price competitive and technological attractive EBOS system solutions and components, it may become more difficult for us to maintain market share. Our existing and potential competitors may have greater financial, technological or operational resources, enabling them to offer products at aggressive pricing levels, develop new or enhanced technologies more quickly, or enter into strategic partnerships that strengthen their competitive position. Competitive pricing pressures, including discounting and volume-based pricing, have affected, and may continue to affect, our revenue and gross profit. In addition, if we are unable to respond effectively to technological changes, adopt alternative or enhanced solutions, or execute timely innovation and development initiatives, our products may become less competitive or obsolete, which could result in lost market share, reduced revenue and diminished margins.

Global markets have experienced significant volatility in recent years due to macroeconomic conditions such as elevated inflation, capital market volatility, supply chain disruptions and broader geopolitical instability. These conditions have increased economic uncertainty, negatively affected demand for our products, lengthened our sales cycles, and made access to capital more difficult and costly. Inflationary pressures have increased energy, freight and other operating costs, while high interest rates have increased borrowing costs for both us and our customers. In addition, a reduction in the availability of project debt capital or an increase in the cost of financing may make it more difficult for end customers to finance solar energy projects and could reduce demand for our products. While government subsidies and economic incentives currently support the adoption of solar energy, there is no assurance that such incentives will remain in place, be extended or be available on favorable terms. Many end users depend on financing and incentives to fund the capital expenditures required to construct solar energy projects, and changes in these programs could adversely affect project economics. Higher interest rates may also lower expected returns on solar energy investments, increase required equity contributions, or make alternative investments more attractive relative to solar energy projects, which could cause end users to delay, reduce or forego investment in solar projects. While we continue to monitor and evaluate strategies to mitigate the impact of macroeconomic conditions, there can be no assurance that worsening economic conditions will not materially and adversely affect our business, financial condition, results of operations or liquidity.

We continue to work on enhancing our geographic focus outside of the U.S., with a primary focus on Southern Europe, Australia and the Pacific Region. Our expansion outside of the U.S. involves developing region-specific products; entering into joint-venture or licensing arrangements with companies in certain markets; expanding our relationships with value-added resellers of our products in some countries; creating international subsidiaries to build credibility and market presence; and utilizing locally sourced components in our products in jurisdictions where it is required. In addition, we have begun executing on expansion opportunities in other international markets, including Latin America, through the supply of our products for solar energy projects, which may expose us to additional regulatory, commercial and operational risks associated with operating in new jurisdictions. Our products and services to be offered outside of the U.S. may differ from our current products and services in several ways, such as the consumption and utilization of local raw materials, components and logistics, the reengineering of select components to reduce costs, and region-specific customer training, site commissioning, warranty remediation and other technical services. These markets have different characteristics from the markets in which we currently sell products, and our success will depend on our ability to adapt properly to these differences. These differences include differing regulatory requirements, including tax laws, trade laws, labor regulations, tariffs, export quotas, customs duties or other trade restrictions, limited or unfavorable intellectual property protection, international political or economic conditions, restrictions on the repatriation of earnings, longer sales cycles, warranty expectations, product return policies and cost, performance and compatibility requirements. In addition, expanding into new geographic markets increases our exposure to presently existing risks, such as fluctuations in the value of foreign currencies and difficulties and increased expenses in complying with U.S. and foreign laws, regulations and trade standards, including the Foreign Corrupt Practices Act of 1977, as amended (the "FCPA"). The FCPA generally prohibits companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business. Other countries in which we operate and may operate in the future may also have anti-bribery laws. Our policies mandate compliance with these anti-bribery laws. However, we currently operate in and intend to further expand into, many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. It is possible that our employees, subcontractors, agents and partners may take actions in violation of our policies and anti-bribery laws. Any such violation, even if prohibited by our policies, could subject us to criminal or civil penalties or other sanctions, which could have a material adverse effect on our business, financial condition, cash flows and reputation. Failure to manage the risks and challenges associated with our potential expansion into new geographic markets could adversely affect our revenue and our ability to achieve or sustain profitability.

Changes or the threat of changes in import and export policies, including customs and trade restrictions, new or increased tariffs or quotas, sanctions, embargoes, or safeguards by the U.S. and/or other foreign governments could require changes in the manner in which we conduct business and adversely affect our financial condition, results of operations, reputation and our relationships with customers, suppliers and employees in the short- or long-term. Additionally, such policy changes or instability can impact our supply chain, including our ability to acquire raw materials and to timely manufacture our components and system solutions. Further, significant changes to trade policy may impact our ability to source our required raw materials from alternative vendors due to increased demand, which could reduce or delay the supply of raw materials available to us. Changes in trade policy, including retaliatory actions from governments, may result in higher costs, and we may not be able to pass such resulting increases in raw material costs to our customers. Additionally, if the price of solar systems in the U.S. increases, its use could become less economically feasible and could reduce our gross profits or reduce the demand of solar systems manufactured and sold, which in turn may decrease demand for our products. Such outcomes could adversely affect the amount or timing of our revenue, results of operations or cash flows, and continuing uncertainty could cause sales volatility, price fluctuations or supply shortages or cause our customers to advance or delay their purchase of our products. For example, on February 1, 2025, the U.S. government announced 10% tariffs on product imports from China. China imposed retaliatory 10% tariff measures on U.S. goods. Both the U.S. and China have suspended heightened tariff imposition until November 2026. If maintained, the newly announced tariffs and the potential escalation of trade disputes could pose a significant risk to our business and would affect our revenue and cost of goods sold. The extent and duration of the tariffs and the resulting impact on general economic conditions and on our business are uncertain and depend on various factors, such as negotiations between the U.S. and affected countries, the responses of other countries or regions, exemptions or exclusions that may be granted, availability and cost of alternative sources of supply, and demand for our products in affected markets. Further, actions we take to adapt to new tariffs or trade restrictions may negatively affect key customers, suppliers, and manufacturing partners and cause us to modify our operations, forgo potential business opportunities, or lose awarded business opportunities. Given the global complexity of trade policy, it is difficult to predict what further trade-related actions governments may take, which may include additional or increased tariffs and trade restrictions, and we may be unable to quickly and effectively react to such actions.

Our success depends in significant part on our ability to obtain, maintain, protect, enforce and defend our intellectual property and other proprietary rights. We rely on a combination of patent, trademark, copyright, trade secret and unfair competition laws, as well as confidentiality and other contractual arrangements, to protect our technology and competitive position. These protections may be limited in scope and may not prevent competitors from duplicating, designing around or otherwise exploiting our technology, or from independently developing competing products. We have applied for patents in the U.S. and abroad, some of which have been issued, but we cannot guarantee that pending patent or other intellectual property registration applications will be granted, that our intellectual property rights will be sufficiently broad, or that our issued patents, trademarks or trade names will not be opposed, contested, challenged, invalidated, circumvented, or rendered unenforceable. Any failure to obtain or maintain adequate intellectual property protection could impair our ability to commercialize our products, require product redesigns or rebranding, or adversely affect our competitive position. As disclosed under Litigation in Note 15 - Commitments and Contingencies to our consolidated financial statements included in this Annual Report on Form 10-K, we have filed patent infringement complaints with the U.S. International Trade Commission ("ITC") and in U.S. District Courts against certain competitors. These proceedings are costly and uncertain and place our asserted patents and other intellectual property at risk of being invalidated or interpreted in a manner that permits competing products to be imported and sold in the United States. If we are unsuccessful, we could lose revenue and face increased competition from the defendants or other third parties. In addition, enforcement actions may prompt counterclaims or other challenges to our intellectual property rights before courts or administrative bodies. We also rely on trade secrets, nondisclosure agreements and trademarks to protect proprietary information and brand recognition; however, these measures may not be effective in preventing misuse,misappropriation or infringement, particularly in jurisdictions with less developed intellectual property enforcement regimes. Any inability to protect, enforce or defend our intellectual property, or the incurrence of significant costs in doing so, could materially adversely affect our business, financial condition and results of operations.

We rely extensively on information technology systems, including data centers, hardware, software and third-party applications, to operate our business, manage logistics and inventory, process transactions, communicate internally and externally, and generate financial and operational reports. Certain aspects of our business also involve the collection, use, storage and transmission of personal, confidential and sensitive information relating to customers, end users, employees, suppliers and the Company. The integrity, confidentiality, security and availability of these systems, including those operated by third-party service providers, are critical to our operations. Our information technology systems and those of our third-party vendors are subject to risks from cybersecurity incidents, unauthorized access, system failures, human error, power outages, natural disasters and other disruptive events. The risk of cyberattacks and intrusions has increased as the number, sophistication and intensity of such incidents continue to grow, including those perpetrated by organized crime groups and nation-state actors, and as a result of increased capabilities of artificial intelligence. We have been, and expect to continue to be, the target of fraudulent communications and other cyber threats, and we have experienced immaterial cybersecurity incidents. Although we maintain cybersecurity safeguards and cyber liability insurance, these measures may not be sufficient to prevent or fully mitigate all incidents or losses, and insurance coverage may be unavailable or insufficient. Any actual or perceived failure of our information technology systems, including disruptions caused by system upgrades, integrations, or reliance on third-party service providers, or any unauthorized access to or disclosure of personal, confidential or sensitive data, could disrupt our operations, harm our reputation, reduce customer confidence, result in lost sales, and expose us to regulatory scrutiny, litigation or other liabilities. In addition, compliance with evolving data protection, cybersecurity and incident disclosure requirements may increase our costs, and any failure to comply could subject us to fines, penalties or other regulatory actions. Any of the foregoing could materially adversely affect our business, financial condition, results of operations and prospects.

Changes in corporate tax rates, tax incentives for renewable energy projects, the realization of net deferred tax assets relating to our U.S. operations, the taxation of foreign earnings, and the deductibility of expenses under future tax reform legislation could have a material impact on the value of our deferred tax assets, could result in significant one-time charges in the current or future taxable years, and could increase our future U.S. tax expense or that of our customers, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

Federal, state, local and foreign government regulations and policies concerning the broader electric utility industry, as well as internal policies and regulations promulgated by electric utilities and organized electric markets with respect to fees, practices, and rate design, heavily influence the market for electricity generation products and services. These regulations and policies often affect electricity pricing and the interconnection of generation facilities, and can be subject to frequent modifications by governments, regulatory bodies, utilities and market operators. For example, changes in fee structures, electricity pricing structures, and system permitting, interconnection and operating requirements can deter purchases of renewable energy products, including solar energy systems, by reducing anticipated revenue or increasing costs or regulatory burdens for would-be system purchasers. Any resulting reductions in demand for solar energy systems could harm our business, prospects, financial condition and results of operations. Renewable portfolio standards ("RPS") and clean energy standards ("CES") are key policies intended to promote solar and renewable electricity. Currently, over half of the U.S. states, the District of Columbia, and Puerto Rico have implemented some form of RPS/CES policy, which mandates that a certain portion of electricity delivered by regulated utilities to customers come from a set of eligible renewable or clean energy resources by a certain compliance date. Additionally, several states have set voluntary renewable energy goals. RPS/CES policies vary widely by jurisdiction. In some areas, requirements have been satisfied and utilities must only prevent reductions in qualifying energy purchases and sales, while in other jurisdictions, RPS/CES policies continue to require substantial increases, up to 100 percent renewable electric generation, with final compliance dates typically 20 or more years out. Proposals to extend compliance deadlines, reduce renewable requirements or solar set-asides, or entirely repeal RPS/CES policies emerge periodically in various jurisdictions. There can be no assurance that state RPS/CES policies or other policies supporting renewable energy will continue. Additionally, states, counties, and municipalities have the ability to slow or obstruct the development of new solar projects by using permitting, zoning and siting laws. Many states that support the renewable energy sector have tried to limit the ability of counties or municipalities to block solar development in this way. In some states, the public utility commissions or other State agencies have authority to preempt local zoning decisions that unreasonably interfere with solar development. Other states effectively allow municipalities and counties to exercise their standard land use powers. In the future, the approach taken in individual states may change and will be driven by the political climate in those states. There is no guarantee that states will continue to enact zoning and permitting laws that support the renewable energy sector. Net metering policies for on-site solar have also promoted solar electricity by allowing solar PV system owners to only pay for power usage net of production from the solar PV system. Under a net metering program, the customer typically pays for the net energy used or receives a credit against future bills if more energy is produced than consumed. While most U.S. states have adopted some form of net metering for small solar projects, these programs have recently come under regulatory scrutiny in some jurisdictions due to allegations that net metering policies inequitably shift costs onto non-solar ratepayers. A number of states have made changes to net metering programs that lessen the benefits associated with net metering. Net metering policies may in the future be modified or even eliminated in some states. The absence of favorable net metering policies or of net metering entirely, or the imposition of new charges that only or disproportionately affect end-users that use net metering would significantly limit demand for our products and could have a material adverse effect on our business, financial condition, results of operations and future growth. Additionally, as new solar projects are planned and built, as part of the interconnection process, the developers typically are required to pay for any required upgrades to the local distribution lines or to the electric transmission system. In particular areas, as the number of solar projects increases, the costs of these upgrades are likely to increase. This may have the effect of reducing the economic benefits of these projects and may lead to the cancellation of marginal projects. Certainly, federal and state regulatory policies may have an impact on how these interconnection costs are calculated and on the amount of time needed to complete the necessary interconnection studies. There may be risks that federal or state regulators will develop interconnection rules or procedures that are more burdensome than they are today for developers of solar projects. Changes in other current laws or regulations applicable to us or the imposition of new laws, regulations or policies in the U.S. or other jurisdictions in which we do business could have a material adverse effect on our business, financial condition and results of operations. Any changes to government, utility or electric market regulations or policies that favor electric utilities, non-solar generation, or other market participants, or that make construction or operation of new solar generation facilities more expensive or difficult, could reduce the competitiveness of solar energy systems and cause a significant reduction in demand for our products and services and adversely impact our growth.