On Tuesday, Shoals Technologies Gr (NASDAQ:SHLS) discussed second-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Shoals Technologies Gr reported second quarter revenue of $163 million, a 47% increase year over year, driven by strong demand in the U.S. utility-scale solar market and growth in the BESS segment.
The company recorded a book-to-bill ratio of 1.3 and a record backlog and awarded orders (BLAO) of $801 million, with $700 million expected to ship by the second quarter of 2027.
Adjusted gross profit margin was 30.6%, with expectations for continued margin improvement supported by a positive mix and productivity gains.
Adjusted EBITDA for the second quarter was $31.6 million, a 28% increase from the previous year, and the company maintained its full-year 2026 revenue guidance of $600 to $640 million.
Shoals Technologies Gr prevailed in a 2025 ITC case against Voltage and is optimistic about the district court case for damages.
The company is expanding its production capacity and operational capabilities, including a partnership with TerraFlow for energy storage solutions.
Shoals is seeing significant growth in international markets, notably in Australia, and anticipates diversification in its business lines, including the introduction of its Airlink product.
Despite increased net debt to $181.1 million, the company expects positive cash flow in the latter half of the year through reduced inventory levels and efficient operations.
Management expressed confidence in the demand environment and strategic initiatives, highlighting the company’s competitive position and growth prospects across core and new markets.
Full Transcript
IRC Matthew Tractenberg, Vice President, Finance & Investor Relations
Of performance or results. 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 second 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 [email protected]. With that, let me turn the call over to Brandon.
Brandon Moss, Chief Executive Officer
Thank you, Matt, and thanks to everyone joining us on the call. Second quarter revenue was within our guided range at $163 million, up 47% over the prior year period. Our commercial team continued their strong performance by adding approximately $207 million of new orders in the period, resulting in a solid book-to-bill of 1.3. This drove another company record backlog and awarded orders, or BLAO, of $801 million, an increase of 19% year over year.
As of quarter end, approximately $700 million of our BLAO has shipment dates in the upcoming four quarters through Q2 of 2027. Second quarter adjusted gross profit percentage was also within our expected range at 30.6%. We expect to continue making progress in margin improvement driven by positive mix and productivity gains and supported by the strong underlying demand environment. SG&A, including all legal expense, was $28 million, representing 17% of revenue, a 400 basis point decline as compared to 21% last year.
Second quarter adjusted EBITDA of $31.6 million came in within our guided range and grew approximately 28% year over year. As you’ve seen, we also prevailed in our 2025 ITC case against Voltage. This was a critical outcome for our shareholders and US innovation in general. We look forward to resolving the matter of damages in our upcoming district court case. We are very optimistic in how we see the market evolving. In our competitive position of strength, we continue to expand production at a measured pace to ensure we deliver products with the speed and quality customers expect from us.
Factory consolidations are never an easy task, but we’ve made steady progress and continue to identify opportunities for improvement. While I’m encouraged by the consistent weekly and monthly improvement as we deploy new lean manufacturing processes, we still have work to do. The operational improvements we will realize from this strategic initiative will drive value for all stakeholders in future periods. Briefly turning to our various business lines, the second quarter was another strong period of growth within our core utility-scale solar market.
Once again, our quote volume in the quarter exceeded a billion dollars of unique projects, adding to our strong pipeline. I’m also encouraged by the progress we’re making in key international markets like Australia, as evidenced by our increased quote activity and customer engagement. International BLAO now stands at $102 million, driving continued growth and diversification in 2027 and beyond. Our Community, Commercial and Industrial business, or CCNI business, which remains a small piece of our overall mix, continues to perform well.
Our OEM business is providing a stable and visible revenue stream, growing at 51% on a year-over-year basis. And finally, we produced approximately $20 million of BESS revenue in the quarter and secured approximately $10 million of additional orders. BESS BLAO now stands at $65 million. As previously stated, BESS orders will be episodic and are dependent on how customers manage construction schedules. I’m also excited to announce a partnership with TerraFlow, a leading grid-scale developer of long-duration energy storage infrastructure.
Under the agreement, Shoals Technologies Gr will support TerraFlow’s growing energy storage portfolio with our Power Hub Recombiner solution for utility-scale and data center applications. The MOU is intended to support TerraFlow’s future deployment plan of up to 5 GW annually. Overall, the quarter played out as anticipated and the year is tracking our expectations. We are executing well, have finished the move into our new facility and are expanding capacity and capabilities at a measured pace.
Underlying demand remains intact and our competitive position is strengthened. We’re very excited about what we see ahead of us. Dom, I’ll hand it over to you for a deeper dive into our financial performance and guidance.
Dominic Bardos, Chief Financial Officer
Thanks, Brandon, and greetings to everyone on the call. Revenue increased by approximately 47% year over year to $163.4 million. The increase was largely driven by strong demand from both new and existing customers within our core US utility-scale solar market and our BESS business segment contributing meaningfully in the period. Gross profit was $49.5 million compared to $41.2 million in the prior year period, an increase of 20%. Our GAAP gross profit percentage was 30.3% and adjusted gross profit percentage was 30.6%, within our expectations.
As Brandon stated, we believe we will continue to expand gross profit percentage as we realize the benefit of our new factory and positive product mix, all supported by a robust demand environment. Ultimately, we are focused on driving incremental profit dollars to the P&L, a strategy which will create value for all stakeholders. Selling, general and administrative expenses, or SG&A, was $28.5 million, or $5.4 million higher than the prior year period.
This was driven by an additional $4.4 million in payroll and employee expenses due to increased headcount and achievement of variable compensation targets relative to the prior year. Legal expenses declined slightly versus the prior year as our ITC and class action litigation matters came to a close. Our district court case to determine damages against Voltage is expected to be completed in the third quarter. Income from operations, or operating profit, was $18.7 million, or 11.5% of revenue, growing at 17.0% year over year.
This compared to $16.0 million during the prior year period. GAAP net income was $12.1 million compared to $13.9 million during the prior year period. Please recall that we recognized a $3.1 million gain on the sale of a manufacturing facility in the prior year period. Adjusted net income was $19.7 million, an increase of 15% as compared to $17.1 million in the prior year period. Adjusted EBITDA was $31.6 million compared to $24.7 million in the prior year period, representing 27.9% growth year over year.
Adjusted diluted earnings per share of $0.12 was $0.02 higher than the prior year period. Operationally, we generated $6.8 million of cash in the second quarter, driven by an increase in both deferred revenue and accrued liabilities. We ended the quarter with cash and equivalents of $15.7 million and net debt to adjusted EBITDA of 1.6 times. Our net debt was $181.1 million, an increase over the prior quarter. Since we last spoke, we also temporarily expanded the capacity of our revolving credit facility by $50 million, providing us the flexibility we need to grow our business.
Backlog and awarded orders ended the second quarter at a record $801.4 million, a sequential increase of $43.4 million. Our record backlog constitutes $425.1 million of the total BLAO, providing us with the confidence that the growth projections we have for the upcoming periods can be achieved. Congratulations to the commercial team on another strong bookings quarter. As of June 30, $699.7 million of our backlog and awarded orders have planned delivery dates in the coming four quarters through Q2 of 2027, with the remaining $101.7 million beyond that.
Turning to guidance, for the quarter ending September 30, 2026, the company expects revenue to be in the range of $150 to $170 million, representing 18% year over year growth at the midpoint, and adjusted EBITDA to be in the range of $32 to $37 million, representing 8% year over year growth at the midpoint. For the full year 2026, we are reaffirming our prior guidance and continue to 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.
Brandon Moss, Chief Executive Officer
Thank you, Dominic. The US market continues to be robust and we are focused on improving productivity each month. The need for energy from all sources has never been as strong as it is today and we believe Shoals Technologies Gr is increasingly well positioned to deliver sustainable growth. As our strategic and operational initiatives translate into measurable progress, we are strengthening our core markets and reinforcing our competitive position.
We have accelerated innovation to deliver more differentiated products and greater customer value. We’re expanding into attractive new markets that increase our total addressable opportunity. We are diversifying our market and customer exposure to create a more resilient business. We’ve invested in automation and technology to drive productivity and support margin expansion over time. And we are building the leadership depth needed to execute our transformation and deliver on our long-term objectives.
We want to thank our shareholders and customers for their continued trust and our employees for their hard work and dedication. Operator, we are now ready to take questions.
OPERATOR
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 from the line of Philip Shen with Roth Capital Partners.
Your line is open. Please go ahead.
Philip Shen, Analyst at Roth Capital Partners
Hey guys, thanks for taking my questions. First one is on the TerraFlow MOU signed and announced yesterday. Was wondering if you could give us some more color on the 5 gigawatts of annual storage deployments. What’s the expected timeline for first meaningful volume and how does this partnership complement or differ from the On Energy relationship? Thanks, Phil.
Brandon Moss, Chief Executive Officer
Good morning. Thanks for the question. We are very excited about the TerraFlow MOU. We are in the process right now of starting our engineering cycle with those guys to help develop an engineered solution for deployment. I would probably model that revenue will begin in 2027. We will not see an impact in 2026. I think you had a question also related to On Energy. You know, these guys obviously are trying to build a solution that can be deployed in renewable sites and data centers.
They come at the solution with a different approach using vanadium and effectively can create a both short- and long-cycle duration battery solution with very similar goals of reducing frequency energy spikes—all the necessary things that are needed to manage the energy flow in a data center today. So couldn’t be more excited about the partnership with those guys, and it’s a meaningful step for us to continue to diversify our customer base, which is very important, obviously.
Philip Shen, Analyst at Roth Capital Partners
Great, thanks for the color. Shifting over to your recent bookings, in addition to backlog, I was wondering if you might be able to comment on, especially given the IPC case and that positive outcome for you and what could be coming with the district court case. Can you talk about pricing and margins of your newer orders versus what’s been delivered? Meaning, should we see a little bit of expansion in the margin, or is it steady, or is the margin a little more compressed in the bookings given some of the new business that you’re taking on and the product mix shift that you guys have seen recently?
Brandon Moss, Chief Executive Officer
Yeah, thanks, Phil. Probably won’t get real specific on this. You know, the demand environment obviously is very strong, as evidenced by our record backlog and awarded orders and, you know, a billion dollars of discrete project quotes. So I would say in general the pricing behavior is responding to that accordingly. Just as a reminder, you know, we’ve got a long sales cycle, so things that are happening today won’t transpire for another, you know, 12 months, give or take.
So we’re pleased with the pricing environment. It’s incorporated in our guidance. As we’ve communicated, we expect margins to improve throughout the year, and again that is factored into our guide.
IRC Matthew Tractenberg, Vice President, Finance & Investor Relations
Thanks, Phil. Warren, next question please.
OPERATOR
Your next question comes from the line of Julian Dumoulin-Smith with Jefferies LLC. Your line is open. Please go ahead.
Julian Dumoulin-Smith, Analyst at Jefferies
Hey, guys. Thank you very much, appreciate the opportunity to chat here. I just want to follow up on the guidance here real quickly. Can you talk a little bit about the factors that would give you sort of momentum to raise here? I mean, obviously reaffirming, but looking at a number of the factors here trending year to date, how would you think about the puts and takes here—both reaffirming today, but prospectively, what could put you in a better position here?
Brandon Moss, Chief Executive Officer
Yeah, certainly good to hear from you, Julian. Just maybe a reminder—and you probably recall—we raised our full-year guidance on the Q1 call. So again, as you mentioned, we have affirmed our guidance for the full year today. Our goal is to give guidance that’s reasonable and achievable. We have got 30% growth factored into the midpoint of our guidance on the top line and 26% from an EBITDA standpoint. And I think strong guidance for Q3 as well, up about 18% on the top line.
Look, we’re excited about the market backdrop. Again, as I mentioned on Phil’s question, a billion dollars in discrete projects. We have got a very strong book of business and we look forward to executing on that through the back part of the year. Maybe touching on just our BESS bookings: great production growth in Q2 where we produced $20 million; we added $10 million in the quarter; could still potentially book some business there for the remainder of the year.
And maybe most importantly, as we’ve talked about our bookings related to BESS being sort of chunky in the early stages of our business, we did book a handful of projects after quarter close that we’re excited about. So our focus is execution through the back end of the year, producing as much product as we can at this new mega facility and making it as efficient as possible. And if we do that, that will give us more confidence in how the full year plays out.
Julian Dumoulin-Smith, Analyst at Jefferies
Got it. And maybe if I can ask more specifically within the numbers here, should we expect any IEPA refunds in third quarter? And was there anything in 2Q like some of the peers have been seeing just in terms of the tariff aspect here? And then separately, how should we think about margin inflection? I know my pal previously here was kind of asking a similar line of questioning here, but how much of the margin is impacted by, say, product mix versus new facilities and other factors here?
You got a number of different pieces moving into this.
Dominic Bardos, Chief Financial Officer
Yeah, hey Julian, it’s Dominic. Yeah, so with regards to IEPA, you know, we did receive some refunds in the second quarter. Not 100% of that hit the income statement because we still had some inventory that was subject to the IEPA, so that will play out here in the third quarter. So that was a favorable assist in our Q2. You’ll see that we had some other items that kind of offset that, but it was largely within our expected range. In terms of margin pacing, we’ve said that the mix is always very important to us.
The first half of the year had some more long-tail BLA, as an example, than compared to the back half of the year. So favorable mix of products will help us here as we kind of normalize the production of product mix in the back half. And as Brandon mentioned, the efficiencies of the new factory are important. You know, anytime you move three facilities into one, it’s a complex move and we’re getting to learn the space and work on our efficiencies of production.
And so we have the opportunity to get more leverage within our operations here—more fixed cost leverage as we push more product through. And we’re very excited about that ability to keep expanding the margin through the back half, as we’ve said before.
IRC Matthew Tractenberg, Vice President, Finance & Investor Relations
Thanks, Julian. Warren, next question.
Julian Dumoulin-Smith, Analyst at Jefferies
Thanks, guys.
OPERATOR
Your next question comes from the line of Christine Cho with Barclays. Your line is open. Please go ahead.
Christine Cho, Analyst at Barclays
Good morning. If I could just follow up on that margin question. You know, the EBITDA guide for 3Q would imply a step up in gross margin, but then assuming the midpoint of your guide, it would indicate 4Q top line is down from 3Q. So, how should we think about—should we think gross margins would be negatively impacted by that just due to less fixed cost absorption, or no, we should still assume it’s sequentially up due to product mix?
Dominic Bardos, Chief Financial Officer
Yes. So, Christine, thank you for the question. Yeah, the margin—there is an implied slight reduction in Q4. Q4 always has fewer production days for us, and the orders and timing of BESS deliveries will have an impact. So the product mix might be slightly a little bit different in Q4 than Q3. But at the pace that we’re going, and if we’re able to secure some more short-term orders—some of the BESS orders can be more short term in nature—we’ll be in a position to have that improvement.
On the EBITDA side, keep in mind that our trial for our district court case is in the third quarter. That’s going to happen very shortly in North Carolina, and so that will have a bit of a drag on the EBITDA side, because that expense is fully recognized. We don’t add back our litigation, you know, IP protection sorts of things. So that will go away in Q4. So that would help us back on the EBITDA side. So, yeah, you’re right. There’s a little bit less production probably modeled right now in Q4.
But we’ll do what we can to maximize our efficiencies and push product right through.
Christine Cho, Analyst at Barclays
Okay. And then, you know, the leverage has been sort of steadily rising over the last, let’s call it year and a half, two years, and part of it is you haven’t generated free cash flow. So just curious how long we think that this should creep. Can you remind us, from a cash perspective, litigation expenses—how much you’re still expecting for the remainder of the year? And then can you also update us on where things stand in trying to get damages awarded with respect to the wire and the district court cases, and how we should think about the range of outcomes?
Dominic Bardos, Chief Financial Officer
Yeah, so a number of things in there from a cash flow perspective. One, in the first half of the year, we invested heavily in inventory. We have a very strong book of business with record purchase orders, record backlog, and so we acquired materials largely in advance of some of the step up in cost as well. So the investments that we made in the inventory will provide positive cash flows here in the back half as we burn that back down to a more targeted measure.
We did take very strong positions in our core wire products and cabling products. In terms of what we expect, our guidance is still to turn a significant amount of cash in the back half of the year, which would be freed up to pay down on the revolver. You know, we did have a step up in the revolver in the period, but net debt stayed about flat. As we continue to improve EBITDA, clearly the leverage ratio will improve. So at 1.6 times, that’s a perfectly acceptable and fine leverage ratio, and we expect that that will improve here in the back half.
OPERATOR
Christine, Warren—your next question comes from the line of Chris Dendrinos with RBC Capital Markets. Your line is open. Please go ahead.
Chris Dendrinos, Analyst at RBC Capital Markets
Yeah, good morning and thanks for taking the question. I wanted to ask about cable wire management products. There was an acquisition by one of your peers, and I know you all have kind of a wire clips business as well, but we don’t hear a whole lot about it. So overall, how do you think about that clips business? Is there opportunity there? Is there IP in that business, and how do you think about it? Thank you.
Brandon Moss, Chief Executive Officer
Yeah, Chris, thanks for the question. Absolutely aware of what’s going on in the market around wire management. I guess maybe the first point I would make there is Shoals continues to partner with multiple tracker solutions, multiple wire management solutions. We think of ourselves as sort of agnostic in that case, and, you know, whatever the customer is using—whether it be tracker or wire management—we work with them to design our solution to best fit their project.
So know the companies very well—happy for them in their ability to transact in that business. As far as our wire management business, it’s a very small piece of what we offer. Probably not as much of a focus for us in terms of growth vectors as other areas, as we move our business into the data center space, with battery energy storage, and now our Airlink product.
Chris Dendrinos, Analyst at RBC Capital Markets
Got it, thank you. And then maybe just as a follow up here—and I know there’s been a focus—but on the margin profile, I think you’ve got international that’s ramping into next year. So how should we think about the margin profile of that international business compared with the U.S.? Thanks.
Brandon Moss, Chief Executive Officer
Yeah, the answer to that, Chris, is it depends. The particular market can have an impact on that, and then whether we are producing the product here fully and it’s a domestically shipped export project—that makes up a pretty significant piece of our backlog. Of the roughly $100 million, it’s probably two-thirds of it. Potentially those projects will look and feel very similar to a traditional U.S.-based BLA project. Where we’ve got more organic opportunities in market—like specifically Australia—pricing may not be as strong as those export markets.
So it just depends on the product mix and the geography, and will vary project to project.
IRC Matthew Tractenberg, Vice President, Finance & Investor Relations
Thanks, Chris. Warren, next question please.
OPERATOR
Your next question comes from the line of Praneeth Satish with Wells Fargo. Your line is open. Please go ahead.
Praneeth Satish, Analyst at Wells Fargo
Hi, good morning everyone. Switching to Airlink—it seems like a highly differentiated product. It doesn’t seem like there’s many competitors doing that exact product. Based on your early conversations with customers, how has reception been? Do you think there’s going to be an educational period as customers become familiar with the product? And then, while I know it’s still early, just generally when we think about Airlink ASPs, do you imagine them being in line with, above, or below traditional busway solutions?
Brandon Moss, Chief Executive Officer
Yeah, Praneeth, great, great question. We are excited about Airlink. The customer reception to that product has been very, very significant. Of course there’s going to be, there will be an educational period. This is a product that is, quite frankly, a disruptor to the market and how power is delivered to the rack. So there certainly will be a bit of a learning curve not only for the engineers that are designing this, the installers, but even local inspectors that are qualifying these products from a National Electrical Code standpoint.
So there will be a learning curve there, but it is something that is certainly achievable given the excitement around the product. Our goal again is to have a product installed and live from a test perspective in 2026, and we are on track to do that. We’ve got, you know, IP filed and then internal testing at third-party labs underway to validate this product. So a lot will transpire in the back part of this year for that particular product. As far as ASPs go, we’re obviously not 100% set on that.
This product will deliver substantial value to the ultimate owner and also the installer. So I would expect, you know, a price premium over other available options in the marketplace.
Praneeth Satish, Analyst at Wells Fargo
Got it. That’s helpful. And then just, just longer term, if we think about the portfolio of the different products that you have now, I guess, is it correct to directionally kind of rank these projects from a margin perspective? Lowest to highest is OEM, long tail, BLA recombiner, solar BLA and then Airlink at the top. And then so, you know, if Airlink does start to become a larger share of revenue, I guess really in 2028, could we expect an uplift in consolidated gross margins, all else being equal?
Brandon Moss, Chief Executive Officer
Yeah, I think Praneeth, that’s probably a pretty good list. I might flip the VEST products and the solar products if I was forced ranking those, but I think you’re directionally correct there. And obviously the new products that we’re introducing, whether it be Airlink or VEST products, products highly engineered, you know, we expect those products to command accretive margins in relation to our total business. So our goal is to always, you know, generate positive, positive mix profiles with the new products that we’re introducing.
Some cases you can do that, some cases you can’t as it relates to maybe a long tail BLA. But that’s always our intention.
OPERATOR
Your next question comes from the line of Brian Lee with Goldman Sachs and Company. Your line is open. Please go ahead.
Brian Lee, Analyst at Goldman Sachs
Hey guys, good morning. Kudos on the nice execution. I guess on that front I’d be curious, can you talk a little bit about the state of the book and turn business? You know, with the backlog at record levels and the sequential growth, I just, you know, and the demand environment being so good, I would have expected maybe you have a more upbeat outlook for the rest of the year in terms of the top line. So just maybe any kind of puts and takes around either the state of the book and turn business or is this a, you know, potential production or just lead time issue?
Just seems like it translates this year. I know 27 is shaping up pretty, pretty strong.
Dominic Bardos, Chief Financial Officer
Sure. Brian, hey, it’s Dominic. Here in terms of our book and turn business, you know, first of all, I just want to remind us all that we did raise our annual guide last quarter. We did see a good healthy book and turn business for the year. So I think our book and turn business has been strong. We do have, we’re managing the capacity within our new facility. Keep in mind that we’ve moved everything over here in the first half of the year and now we have a chance to really maximize that efficiency.
So there’s interest if we can pull projects in, there’s always that interest. In terms of our booking cycle, it has lengthened a little bit. We do have some backlog into Q1 now for the year and that some of that might be international, but there’s other domestic product that are going forward in Q1 as well. So in the past we might have said, you know, the backlog converges within a six-month window. That’s lengthening a little bit these days. But we’re very pleased with the demand environment.
The underlying fundamentals are very strong. There’s a preference for the Shoals Technologies Gr products in the marketplace and we will do what we can to maximize efficiency of this brand new facility.
Brian Lee, Analyst at Goldman Sachs
All right, thanks, that’s helpful color. And then a second question on the, I know it came up in an early question from Phil, but the ON Energy partnership, I guess they recently announced a 5 gigawatt deal with Crusoe. I’d be curious, what’s your participation in that? Are you an exclusive supplier? Is it just on the recombiner solution? And then are you already seeing an impact on backlog, awarded orders or even revenue? Or is that all 27 beyond?
Just maybe any quantification you can kind of provide and timing expectations. Thank you guys.
Brandon Moss, Chief Executive Officer
Yeah, thanks Brian. We’re obviously still continue to be very excited about our partnership with On Energy. Those products, largely the revenue generation in Q2, our $20 million, was for that particular customer. And maybe more importantly, those products are landing and being installed on the largest battery-paired AI data center site in the country. So very exciting step for Shoals Technologies Gr to validate our product on our solutions. As it relates specifically to the On Energy–Crusoe announcement, can’t talk specifically about projects, but obviously we have great visibility into their pipeline and as their business grows, I would expect, you know, that Shoals Technologies Gr will be a big part of that solution as they’re designing these systems. As I mentioned earlier, after the quarter closed we booked a handful of projects and you could probably guess that a few of those handful of projects may be that one particular customer. So unfortunately we can’t talk about specific projects or our customer’s customer.
OPERATOR
Thanks, Brian. Your next question comes from the line of Colin Rush with Oppenheimer and Company. Your line is open. Please go ahead.
Colin Rush, Analyst at Oppenheimer
Thanks so much, guys. You know, now that you’ve got a little bit more robust portfolio of products and in particular with Airlink, can you talk about the cross-selling opportunities that you’re starting to see and how your customer focus may shift here over the next year or so?
Brandon Moss, Chief Executive Officer
Colin, fantastic question. You know, as we show Airlink product, there is obviously direct connection of what we can do to that product with other electrical apparatus. That’s an opportunity for us for organic growth and potential M&A activity as things transpire. The other exciting thing that we’re seeing as we interact with data center owners is the possible use cases for our BLA product, whether that be in the broader electrical infrastructure and battery storage or even other opportunities within the data center itself.
So it’s exciting for us. You know, we’ve got great, you know, relationships with these larger EPCs. Those EPCs obviously that are working in renewables projects are also working in the data center buildout. So it’s great synergy from both a product standpoint and a channel standpoint for Shoals Technologies Gr right now, quite frankly. So great question,
Colin Rush, Analyst at Oppenheimer
Thanks so much. And then just from an operational perspective, you know, it looks like you guys are set up for some really significant improving incremental operating margins. And so I just want to get a sense of, you know, what you guys are targeting in terms of those incremental operating margins here on a go-forward basis and how we should think about OPEX trending as we get into 27.
Dominic Bardos, Chief Financial Officer
Sure. So Colin, I appreciate the questions. Yeah, we’re not quite ready to guide 27 yet. But our intention is to keep moving margins, all things being equal, from a mix standpoint, up sequentially. We believe that we have cost leverage, fixed cost absorption that will be coming into play. We have one redundant facility that will be exiting us midyear of 27 as well. And we do have some favorable mix and some good products coming online that will generate margins that are accretive to where we are today.
So I think the longer-term outlook for us remains healthy with regards to margin expansion from where we are today as we’ve guided earlier in the year. And I’m always cautious with regards to gross margin because I think it goes down a bit of a rabbit hole. But gross margin will sequentially improve. Our expectations are that gross margins will continue to sequentially improve as we learn this new facility. Keep in mind we’re now operating in a 14-acre facility and it’s taking us a little bit of time from the complexities of getting all the productivity right that we want to see.
So we will see continued improvement, just all things being equal going forward. And product mix as we have a higher mix of traditional BLA versus long tail BLA in the back half will be favorable for us as well. So we’re going to do everything we can to move those margins up. As we’ve said this year, the low to middle mid-30s is right where we need to be and we’re going to keep moving that margin into that bandwidth and we look forward to being able to share 2027 with you at a future date.
OPERATOR
Thanks, Colin. Next question, please. Your next question comes from the line of Mahip Mandaloy with Mizuho. Your line is open. Please go ahead.
Mahip Mandaloy, Analyst at Mizuho
Hey, thanks for the question. I think most of them have been answered but maybe just high level on the tariffs over here. Someone asked, like, are you hearing any customers talk about that or worried about that in terms of demand from either Section 232 tariffs or other policy changes over here? Thanks.
Brandon Moss, Chief Executive Officer
Yeah, absolutely. I mean we’re monitoring, you know, the landscape closely. Whether it’s Section 232, the latest news on investment, again, I don’t see that having near-term impact for us whatsoever and, you know, potentially some speed bumps along the way longer term, but I don’t think it changes at all the underlying demand environment. We continue to believe that this market is going to be, you know, stronger for longer as we’ve said over and over again and we’re seeing that come through in our quote volume and book of business.
So we’re very excited about the underlying demand environment. I think we have set ourselves up, you know, appropriately to continue to protect and grow our core business. Again, that’s evidenced by our backlog. And what’s really helped us there is our new product introductions and our core products. If you think about long tail BLA, if you think about our Super Jumper, Super Harness products, we have a more diverse customer portfolio than ever before, which is very exciting for us.
I think we’re, you know, along with the solar market, we are certainly on the right track in diversifying our business as it relates to the data center space specifically, and we are realizing wins in the battery energy storage space and very excited about our Airlink product. So I think the markets and the way that we’re executing commercially in those markets are set up for us to have continued success. And, you know, additionally, when you think about the investments we’ve made here in Portland, Tennessee with our mega facility, those came at absolutely the right time for us to be able to handle this growth, whether it be in our core markets or more diverse markets like battery energy storage. So exciting times ahead for Shoals Technologies Gr, whether it be market driven or our execution, but we’re in a very good spot.
OPERATOR
Thank you.
IRC Matthew Tractenberg, Vice President, Finance & Investor Relations
Great. Well, Warren, that’s going to be all the time we have for questions today. I do want to note that we have a very active IR calendar through September. Those events are listed on the investor section of our website. So if you’re attending any conferences and would like to meet with us, please do let us know if we can help you further. Please reach out to [email protected] with any questions. Thanks for joining us today. Have a great day, everyone.
OPERATOR
This concludes today’s call. Thank you for attending. You may now disconnect.
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