Bragar Eagel & Squire, PC investigates

NEW YORK, July 27, 2024 (GLOBE NEWSWIRE) — Bragar Eagel & Squire, PC, a nationally recognized shareholder rights law firm, is investigating on behalf of long-term shareholders potential claims against Shoals Technologies Group, Inc. (NASDAQ: SHLS) following a class action lawsuit filed against Shoals on March 22, 2024, which is effective from May 17, 2022 to November 7, 2023. Our investigation concerns whether Shoals’ board of directors breached its fiduciary duty to the company.

According to the complaint filed, throughout the Class Period, defendants touted the company’s “focus on quality and reliability” with respect to its EBOS components, which generated the majority of Shoals’ revenue during the Class Period. These components were covered by a product warranty that Shoals provided to its customers. Shoals emphasized that its products “meet (the company’s) stringent quality requirements.” Because the company’s warranty supported compliance with the products’ “stringent quality requirements,” Shoals assured investors throughout the Class Period that its reported “cost of sales” included costs related to product warranty liability.

In Shoals’ Quarterly Report on Form 10-Q for the first quarter of 2023, filed with the SEC on May 8, 2023 (the “1Q23 10-Q”), investors were first informed of a potential issue affecting “a subset of wire harnesses used in (Shoals’) EBOS solutions () that exhibit excessive pullback of the cable insulation at the connection points,” which Shoals referred to as “shrinkback.” Shoals also attempted to allay investor concerns by announcing that it had “largely discontinued use of the related cable.”

Then, on August 1, 2023, Shoals filed its Quarterly Report on Form 10-Q for the second quarter of 2023 (“2Q23 10-Q”) with the SEC and held a conference call with analysts to discuss the results for the quarter. The 2Q23 10-Q disclosed that Shoals had recorded a warranty liability of $9.3 million related to the shrinkage issue. During the related conference call with analysts, Oppenheimer analyst Colin Rusch asked the defendants to “talk a little bit about the cable issues… how extensive they were in terms of the number of customers and the number of shipments and over what period of time they spanned?” In response, Chief Financial Officer (“CFO”) Dominic Bardos stated, “We communicated pretty much everything we could.” CFO Bardos also confirmed that “the charge we booked in the quarter, we believe, is sufficient to take the remedial action required and that is why we booked it.”

The filed complaint further alleges that, in reality, and not disclosed to investors, Shoals learned of customers experiencing wire insulation delamination no later than March 2022. For example, in March 2022, Shoals learned of exposed copper tubing as a result of shrinkage in EBOS wire harnesses at a customer’s solar field in Arizona. In fact, throughout 2022, Shoals learned of numerous customers experiencing similar copper tubing exposures or shrinkage. As investors belatedly discovered, Shoals had installed defective wire harnesses in at least 300 solar fields. These wire harnesses represented approximately 30% of the total volume of wire harnesses manufactured by Shoals between 2020 and 2022. As a result, Defendants’ positive statements about the Company’s financial outlook, business, operations and prospects during the Class Period were materially false and/or misleading.

On November 7, 2023, Shoals surprised the market by announcing that the company had to charge an additional $50.2 million in warranty costs due to the wire shrinkage issue. Shoals also said that fixing the wire shrinkage issue is expected to cost between $59.7 million and $184.9 million.

On this news, Shoals’ stock price fell more than 20%, from a closing price of $16.23 per share on November 7, 2023, to a closing price of $12.95 per share on November 9, 2023, wiping out approximately $550 million in market capitalization.

Securities analysts were shocked by the revelation and linked Shoals’ sharp decline in share price to the guarantee fee. For example, analysts at Barclays stated in a November 10, 2023 report that “the $60-185 million cap range was a surprise to investors and contributed to the stock’s underperformance.” Similarly, analysts at Truist noted that third-quarter results “were heavily impacted by a guarantee fee of approximately $50 million, which drove third-quarter unadjusted gross margins well below our/the SEC’s estimates.”

If you are a long-time Shoals shareholder, have information, would like to learn more about these claims, or have any questions about this announcement or your rights or interests with respect to these matters, please contact Brandon Walker or Marion Passmore by email at [email protected], by phone at (212) 355-4648, or by completing this contact form. There is no cost or obligation to you.

About Bragar Eagel & Squire, PC:

Bragar Eagel & Squire, PC is a nationally recognized law firm with offices in New York and California. The firm represents individual and institutional investors in commercial, securities, derivatives and other complex litigation in state and federal courts across the country. For more information about the firm, visit www.bespc.com. Attorney advertising. Past results do not guarantee similar results.

Contact information:

Bragar Eagle & Squire, PC
Brandon Walker, Esq.
Marion Passmore, Esq.
(212) 355-4648
[email protected]
www.bespc.com