Shoals Technologies Group, Inc.

Case Details

Class Period: May 17, 2022 - November 7, 2023
Date Filed: March 21, 2024
Case Number: 3:24-cv-00334
Jurisdiction: Middle District of Tennessee
icon-casetype Case Type: Securities Case
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Case Summary

On March 21, 2024, Saxena White filed a securities fraud class action against Shoals Technologies Group, Inc., and certain of its senior executives, for violations of the Securities Exchange Act of 1934. The complaint alleges that, during the Class Period, Shoals made materially false and misleading statements and failed to disclose material adverse facts about the Company’s business, operations, and prospects, thus artificially inflating the Company’s stock price and causing investors to suffer substantial losses when the truth eventually emerged.

Shoals, which is headquartered in Portland, Tennessee, purports to be a leading provider of electrical balance of systems (“EBOS”) products used in generating solar power, among other uses. Throughout the Class Period, Defendants touted the Company’s “focus on quality and reliability” with regard to its EBOS components, backed up by a warranty Shoals provided customers for its products. Shoals further highlighted that its products met “stringent quality requirements” and assured investors throughout the Class Period that its reported “Cost of Revenue” included costs related to product warranty liability. In reality, by no later than March 2022, Shoals learned of customers experiencing excessive pull back of wire insulation, or “shrinkback,” in wire harnesses used in the EBOS products.

The Class Action alleges that, during the Class Period, Defendants made materially false and misleading statements and failed to disclose material adverse facts about the Company’s business, operations, and prospects in violation of the Exchange Act and SEC Rule l0b-5. Specifically, Defendants failed to disclose that: (1) Shoals did not deliver EBOS products that met the highest levels of quality and reliability; (2) Shoals had received reports of exposed copper conduit in EBOS wire harnesses in a large number of solar fields and was aware that a significant portion of its wire harnesses had defects; (3) Shoals would have to incur between $60 million to $185 million in costs to remediate the wire shrinkback issue; and (4) Shoals had understated its cost of revenue by millions of dollars. As a result, Defendants’ positive statements about the Company’s financial guidance, business, operations, and prospects were materially false and misleading and/or lacked a reasonable basis at all relevant times.

The truth was revealed after the close of markets on November 7, 2023. That day, Shoals filed its Quarterly Report on Form 10-Q for the third quarter of 2023 with the SEC and held an accompanying earnings call in which Defendants revealed that the wire shrinkback issue was far more severe than previously disclosed. Specifically, the Company reported that the shrinkback issue affected 30% of Shoals’ harnesses installed between 2020 and 2022, booked a $50.2 million warranty expense for the quarter related to the shrinkback issue, and provided a range of potential loss related to the shrinkback issue of $59.7 million to $184.9 million. In reaction to these revelations, the price of Shoals’ stock dropped $3.28 per share, or more than 20%, over the next two trading days, 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.