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Shoals Technologies sinks after planned stock offering to end tax agreement

Shoals Technologies (NASDAQ:SHLS) -17.1% in Thursday's trading after it disclosed plans for a 20M-share public offering, consisting of 2M shares sold by the company and 18M shares by entities affiliated with founder Dean Solon, and the upcoming departure of CEO Jason Whitaker for health reasons.

In connection with the offering, Shoals (SHLS) "intends to exercise its TRA Termination Right and use the net proceeds from the offering to fund a portion of the TRA Termination Consideration, with the remainder to be paid with cash on hand."

Despite the short-term pain for the stock price, UBS analyst Jon Windham supports the termination of the "confusing" Tax Receivable Agreement, saying it was an obstacle to many investors owning the stock and that "the removal of the TRA simplifies the SHLS story and will be a long-term positive to SHLS valuation."

Windham said the TRA "was a financial structure which contractually committed SHLS to make cash payments to the TRA owners (the founder and former shareholders) based on SHLS' realized tax savings resulting from prior company transactions."

Shoals Technologies (SHLS) is "one of the most attractive growth stories in solar and EV charging, [but] inventory buildup indicates that too much cash is tied up, and gross margins could compress in the future," Overlooked Opportunities write in an analysis posted recently on Seeking Alpha.