US law firm Bernstein Liebhard has filed a class action lawsuit against US balance of system manufacturer Shoals, on behalf of investors in the company, who argue they lost money due to Shoals’ inability to remediate “wire shrinkback” affecting a number of its products.
Wire shrinkback involves the insulation of a wire pulling back from a termination connector, and poses a risk to the successful operation of electrical infrastructure, such as inverters. Last November, Shoals announced that it had been made aware of the issue, and that it would have to pay US$50.2 million in warrant expenses as a result.
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The company also announced that it could cost US$59.7-US$184.9 million to remedy the issue at its projects, which triggered a significant fall in its share value.
Following Shoals’ announcement, the company’s stock price fell by US$1.63 per share, losing over 10% of its value, and the investors have alleged that the company failed to disclose the wire shrinkback phenomenon to them prior to this announcement. The investors also argue that the company had understated the potential costs of this issue to its revenue by “millions of dollars”.
While Shoals has not yet responded to this week’s lawsuit, the wire shrinkback issue has not significantly hampered the company’s financial results. The company announced its financial results for the third quarter of 2023 on the same day as it announced the wire shrinkback issue, and reported record quarterly revenue of US$134.2 million, up 48% year-on-year.
The following quarter’s results were similarly strong, with US$130.4 million in quarterly revenue, the second-highest revenue in a quarter in the company’s history, and a 38% increase over the revenue of Q4 2022. While the company’s gross margin was “significantly impacted” by the shrinkback news in Q3 2023, falling from 42.4% in the previous quarter to 10.5%, Shoals’ margin rebounded to a high of US$42.5% in the fourth quarter of the year.
The news follows Shoals’ investment in new US manufacturing capacity. Last month, the company committed US$80 million to build a new manufacturing plant in the state of Tennessee.