SolarEdge Technologies, Inc. (SEDG) on Q1 2021 Results - Earnings Call Transcript
Operator: Welcome to the SolarEdge Conference Call for the First Quarter Ended March 31, 2021. This call is being webcast live on the company's website at www.solaredge.com in the Investors section on the Event Calendar page. This call is sole property and copyright of SolarEdge with all rights reserved and any recording, reproduction, or transmission of this call without express written consent of SolarEdge is prohibited. You may listen to a webcast replay of this call by visiting the Event Calendar page of the SolarEdge Investor website. Erica Mannion: Good afternoon. Thank you for joining us to discuss SolarEdge's operating results for the first quarter ended March 31, 2021 as well as the company's outlook for the second quarter of 2021. With me today are Zvi Lando, Chief Executive Officer; and Ronen Faier, Chief Financial Officer. Zvi will begin with a brief review of the results for the first quarter ended March 31, 2021. Ronen will review the financial results for the first quarter, followed by the company's outlook for the second quarter of 2021. We will then open the call for questions. Please note that this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statements contained in our press release and the slides published today for a more complete description. All material in the webcast is the sole property and copyright of SolarEdge Technologies with all rights reserved. Please note this presentation describes certain non-GAAP measures, including non-GAAP net income and non-GAAP net diluted earnings per share, which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are presented in this presentation, as we believe that they provide investors with the means of evaluating and understanding how the company's management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from or as substitutes for, or superior to financial measures prepared in accordance with U.S. GAAP. Listeners who do not have a copy of the quarter ended March 31, 2021 press release or the supplemental material may obtain a copy by visiting the Investors section of the company's website. Now, I will turn the call to Zvi. Zvi Lando: Thank you, Erica. Good afternoon and thank you all for joining us on our conference call. Starting with highlights of our first quarter results; we concluded the quarter with revenues of approximately $405 million just above the top end of our guidance. Revenues from our Solar business were $376 million, while revenue from our non-Solar business was $29 million. This quarter we shipped 3.7 million power optimizers and 182,000 inverters. Our Solar business grew this quarter across all segments and geographies, including record quarterly revenues in Australia, Italy and France. In North America, we saw a 23% growth in revenues from Q4 to Q1, representing increased demand for both residential and commercial products. Ronen Faier: Thank you, Zvi and good afternoon everyone. These financial review includes a GAAP and non-GAAP discussion. Full reconciliation of the pro forma to GAAP results discussed on this call is available on our website and in the press release issued today. Total revenues for the first quarter were $405.5 million, a 13% increase compared to $358.1 million last quarter and a 6% decrease compared to $431.2 million for the same quarter last year. Revenues from the sale of solar products were $376.4 million, a 15% increase compared to $327.1 million last quarter. U.S. solar revenues this quarter were $162.5 million and represented 43.2% of our solar revenues. Solar revenues from Europe were $158.4 million or 42.1% of our revenue and the rest of the world solar revenues were $55.5 million or 14.7% of our total revenues driven mostly by a record revenues in Australia. Operator: We'll take our first question from Stephen Byrd of Morgan Stanley. Stephen Byrd: Maybe just first talking about the gross margin guidance; you described the cost impact of for example shipment costs, etc. And I was just curious. For the second quarter are the sort of cost for those sorts of, I think it was inventory related costs - is that fully reflected in 2Q or could you see further margin impacts in subsequent quarters that could be a bit larger than what you're seeing in 2Q guidance? Zvi Lando: So general, first of all, the margin is relatively, I would say, a mix of various items, other than of course the logistic cost, which are also related to mix of product and mix of geographies and currencies. So therefore, spotting one specific element is always a little bit more complicated and one of them may move and actually overcast the others such as exchange rate for example, but from a perspective related to the logistic costs, basically our prices are usually pre-negotiated in advance and we try to close them as much as possible in order to hedge prices against changes that are happening. And we were able actually to do it pretty well in the last few quarters. It's simply that - over time the cost went up and our prices elapsed and therefore we had to pay the higher prices. So right now I think that we have a pretty clear visibility for the ocean freight prices at least for the quarter where we guided. We do not see a lot of changes happening there. I think that for the quarters to come, we do not have yet numbers to see. We believe that the trend is going to be slightly downwards. But of course, as long as the traffic of both in and out from the United States into China and the other areas is somehow disturbed because of COVID and because of changes in the trade patterns, this may change. We do not expect major changes more than we saw this quarter however, in the next few quarters. Stephen Byrd: That's really helpful. And then maybe just one follow-up; it's great to see the progress on your energy storage business and you talked about the residential battery being on track for deliveries in the second quarter. Just in general, how are you feeling about the growth potential for that business? I mean it strikes us that there should be tremendous demand for that product. But just curious compared to your original expectations, how has that sort of process of development and how would you expect rollout? In other words, are you feeling more bullish because demand is very high? Are there sort of logistical issues that would go on the other side of the equation? How are you generally feeling about the growth of the of the storage business? Ronen Faier: I think you hit the nail on the head. Demand is probably not the issue. So the demand is very strong. It's coming from multiple geographies all over the world in general for storage and in particular for an integrated system as we provide. We will be ramping our production line. We'll make the introduction. At the end of the day, gradual because it is a new product and you want to be a bit cautious in how you roll it out to the field, how you train installers, how you get it installed and logistics are a challenge, but they're not much more of a challenge than they are in other areas. So the outlook is very positive in this area, but it's not going to be a very sharp hockey stick of tremendous growth from one quarter to the other, but we're very encouraged by the demand and by the way the product is shaping out and we're excited to bring it out to the market in the next couple of quarters. Operator: And we will take our next question from Philip Shen of Roth Capital Partners. Philip Shen: Thanks for taking my questions. Just as a follow-up on the storage question. I was wondering if you could talk about what you think meaningful demand could be in Q3. I think you mentioned that that would be the first quarter. And then perhaps put in context, for us, what kind of growth Kokam, the core business could see in 2021 versus 2020. And if you can talk about pricing for the battery system that would be fantastic as well? Thanks. Zvi Lando: So I'll try to take them one by one, Phil. So again, demand is very strong in terms of how much we will ship in Q3. We're not yet giving specific guidance as we iron out the plan and as we said multiple times, we believe it will be already meaningful quantities and revenue. But the exact numbers we'll guide next quarter. In terms of the pricing, we began to communicate the pricing to select customers in the market and we are obviously aiming it to be competitive and reflect the value of the product. So we won't be on any major edge in terms of significantly higher or lower than market prices for batteries today. And the last question, Phil, I don't recalled about the. Philip Shen: So what kind of growth could we see with the Kokam business year-over-year? Ronen Faier: So I think that here, Phil, the question is mostly related to the capacity they have. Today, the capacity they have in the older factory in Nonsan is pretty much taken and therefore we do expect to see a small growth year-over-year simply due to the fact that they are able to make improvements. But it's not going to be something that will move the needle in the overall SolarEdge numbers for this year. The biggest growth will come starting next year because once Sella 2 will start producing cells this will be first simple cells in the first quarter and go into full production within the year, then our expectation was around $300 million as we communicated in the past. However, we do see that this assumption that was based on relatively large ASP erosion in the cell industry is not really materializing and therefore the effect could be higher. But at least for us, the way that we're planning is about $300 million of incremental revenues in 2022. Philip Shen: Great. Thank you both. As my follow-up question here as it relates to litigation was wondering if you guys could provide an update on any of the risks and opportunities as it relates to what's going on, the lawsuits in China or in Germany. What is the risk that you guys may be prevented for manufacturing in China? And if so, do you have any contingency plans around that? Zvi Lando: So we discussed several times over the years that the litigation has been going on. These are typically very long processes and usually don't end in a dramatic fashion in one way or another so all of this is still ongoing, as you mentioned both in Europe and in China. Nonetheless, we obviously have set in motion contingency plans based on scenarios that might evolve. But so far also, as we indicated in our guidance for the quarter and our message for the subsequent quarter we are comfortable with our ability to deliver on the increased demand that we're seeing. Operator: And we will take our next question from Colin of Oppenheimer. Colin Rusch: Could you talk a little bit about what's going on with seasonality in Europe and sell-through in Europe both in the commercial and the residential market? And a comment on diversification of the geographic footprint where you guys are selling through. Zvi Lando: Yes. So Europe was an interesting winter and the fact that the first couple of months were pretty tough winter and installation rates were kind of slow and then sometime from mid-February and on things opened up and installation rate is gone up, sell through is gone up and most of our dialogues with our distributors across Europe, both for residential and commercial are about pull-ins and expedite these days as the market woke up very aggressively and inventory levels are relatively low compared to the - for the full from the installers. In terms of the general breakdown, if that's what you're referring to. So, we are stabilizing more on a 40%, 45%, U.S., 40% roughly Europe and 15% rest of world. The rest of world is growing quite quickly and that pattern might shift later on and we are investing a lot into places like Korea that I mentioned. Taiwan that is a good growing market. Thailand is a good growing an interesting market as well as the other places that we are present already like in a strong way like Australia and in Brazil and even in our home court in Israel. So the growth rate in these regions of the market are higher than that in the U.S. and Europe and we are making the investments in order to capitalize it, still nonetheless for the foreseeable future. That mix of roughly or going depending on the season between 40% to 50% each between Europe and the U.S. and the rest coming from the rest of the world is probably going to be the pattern for the 12 to 18 months continuously. Colin Rusch: That's super helpful. And then just as a follow up, could you give us a sense of how things are progressing on your effort to enter the utility-scale market and the evolution of that market as we start to see some evolution on the balance of system for the electrical elements of these systems just leaving up right there? Zvi Lando: So we're continuing incremental penetration into the ground mount market, if you will, which wouldn't be classified as utility in terms of that we're not talking about the installation sizes of hundreds of megawatts, but we are more and more installing systems based on the larger inverters that we are introducing and the lower cost optimizers into more and more projects at the size of 5 megawatt, 10 megawatt, 15 megawatt ground mount installations all over the world. The next step improvement or the next step penetration from our side will be as we discussed several times, toward the end of this year, beginning of next year with the introduction of a above 300-kilowatt inverter, which will take us a next step in terms of suitability for larger ground mount installations and will continue to evolve from there. Operator: And we will take our next question from Mark Strouse of JPMorgan. Mark Strouse: Just wanted to go back to the component inventory to Stephen's earlier point, are you able to quantify that at all or maybe put it in terms of if the supply chain inventory headwinds last for another two quarters or another two years, three years whatever, at what point does it become even more of a material headwind to SolarEdge? Zvi Lando: So, two, three years is a tough question. We are in continuous dialogue, obviously with the contract manufacturers and the supply base for components. And based on that dialogue in terms of the projections that we give them and the commitments that they give us we don't see major issues assuming everybody sticks to their plan, i.e., our growth is the growth that we are expecting. And we don't see major decommission. Now this is based on alignment that is done recently and not based on, as you know, live within the crisis and not commitments or alignment that was done prior to the crisis beginning. So what this translates to in our messages that we have a plan for the foreseeable future that is aligned with the supply base to the component level, not only the contract manufacturing to which we can deliver on the optimistic growth expectations that we see. To extrapolate that two years out and what could happen in the component industry, that's a bit beyond our capability at this point especially if you take into account these types of cycles usually don't last that length of time in terms of the ability of component manufacturers to add capacity within that - those type of time cycles. Mark Strouse: Yes, sure, makes sense. Okay and then just lastly for me - not looking for you to name any specific customers but as you look at your U.S. customers that are providers of leases or PPAs that have maybe safe harbored in the past. Can you talk about any change in their buying behavior since the ITC was extended a few months ago? Zvi Lando: Yes, as you said, I will - I can get into specific name based on a press release that we issued shortly after our previous earnings call about an agreement that we reached in Sunrun for delivering the Energy Hub to them and we're very happy in terms of how that renewed relationship is evolving. And part of that is obviously translating into our - went into our business now in our projections. I don't have full visibility to them and the other large installers in terms of how much Safe Harbor they still might have in their inventory and what type of product. Operator: And we will take our next question from Brian Lee of Goldman Sachs. Brian Lee: Thanks for taking the questions. I had two; one on gross margins, I know you had talked about Ronen a couple of moving pieces here that are kind of pressuring gross margins and the 2Q outlook. Can you help quantify a little bit just some of the logistical cost, what sort of basis point impact it's having because obviously you put up a very good gross margin in Q1 on the solar products. It seems like there is a headwind you're seeing on the logistical cost from quarter-to-quarter. And then mix helped you a lot in Q1. It sounds like mix is still pretty good in Q2 because you're expecting growth in the U.S. to continue to be robust. But can you kind of level set us again. You said in the past sort of what your margin delta is between different regions and then between resi and commercial. I know it converged a bit recently, but could you level set us again as to kind of what the margin delta you typically see across some of your end markets and geos? Ronen Faier: As we mentioned at the beginning, due to the fact that there are so many moving pieces to name and to give the effect of all of them it's relatively tough. I would say that in this quarter, first of all, as I've laid out, if you take the mid range of our guidance, we are supposed to be at around 37% on the mid range, which means about 200 basis points of reduction compared to this quarter. This actually encapsulates the vast majority of all of them because the ocean freight is usually, I would say, several, I would say not more than 100 basis points to 150 basis points in general usually but again these kind of expenses almost doubled over the last quarter. But this is something that, again that is changing based on the routes that you're shipping whether you ship more from Europe, whether you ship more from China and Vietnam and there are a lot of fluctuations there and you see a relatively large a number. The exchange rate differences of course are hard to predict. This quarter they were above the usual rate but at the end they worked a little bit against us. So again, I think that if you take a new bundle all of the changes in the shipping prices plus the effect of the mix, plus the effect of the exchange rate you get to these 2% and this is the neighborhood not dramatically over this one. Brian Lee: Okay, fair enough. That's helpful. And then just a second question on, there is a lot of questions around the battery storage and the ramp here that you're contemplating here over the next several quarters. I thought in the past you had talked about kind of the ability or at least the confidence around $100 million to maybe $150 million of battery storage revenue resi as you ramp in 2021, obviously, mostly in the second half given the timeline of the ramp. But are you no longer of the view that you can get to that kind of triple-digit millions of dollars of revenue this year and if that's the case. Hello? Ronen Faier: No, no, we still hold this view. Brian Lee: Okay. So you're a $100 million plus in the second half of this year on the new resi storage product. Just wanted to make sure that that's still your view. Ronen Faier: Yes, and again based on - all according to the ability to ramp and no disturbance on the supply chain. But in general, there is no change. And Zvi mentioned before, everything is on track and there are no changes to the plan. Operator: And we will take our next question from Maheep Mandloi of Credit Suisse. Maheep Mandloi: Could you maybe just talk about the split of commercial revenue on residential revenues in Q2? And how that should evolve in Q3, Q4? And I'm just trying to understand you guided commercial should recover in Q2 and Q3. So just trying to see if should expect higher commercial demand run rate in Q3 versus current levels going forward? Thanks. Zvi Lando: Yes. So Maheep, as I mentioned in the comments, our commercial volume in megawatts from Q4 to Q1 grew by about 35%. This was primarily growth in Europe and rest of the world. Our commercial shipments also in the U.S. grew quarter-over-quarter, but to a lesser effect than they grew quarter-over-quarter in the other two regions as we characterize them Europe and Australia. At the same time, we began to see also in the U.S. higher installation rates and sales by our distributors and reduction in inventory levels. So we do believe that the U.S. will begin to pick up as well following the pickup that we saw in Australia and rest of world, not necessarily at that growth rate. So we are and we referred to this a few times in the past, we expected barring the improvement from the economies related to the pandemic, we expected beginning a pickup in the second quarter and usually commercial installations are back-end heavy in the year. So it is a reasonable assumption that the commercial shipments will continue to improve globally and in particular in the U.S. as I mentioned. Maheep Mandloi: Thanks for that. And just on the freight cost and thanks for the color on the gross margin impact for that, but I just wanted to understand if the higher freight cost or freight challenges is impacting your, I believe, supply in any of the markets right now or the way to ask is, if demand is much higher than what you're seeing out there? Zvi Lando: Yes. Demand is strong and becoming stronger. Our logistics operations are complex and global. We manufacture at five sites in multiple locations around the world and we deliver to many, many countries and optimize continuously based on various elements and that's not a simple operation and I can give you an example in the Suez crisis of a month ago. We had more than 100 containers of product that were stuck in this congestion, some of which were on the actual boat that was blocking the canal and some were at both sides of the canal. Nonetheless, with all of that going on we - our delivery dates were intact and our customer deliveries were not delayed because the complexity also gives us many options and a lot of levers to play with. And we were able with some expedition and a lot of effort to still satisfy the demand and meet our obligations. So we, I think we're pretty good at this. And we - with all the challenges ahead we believe that we will be able to execute on the demand both from a component availability and the logistics constraints that are out there today. Operator: And we will take our next question from Eric Lee of Bank of America. Eric Lee: Maybe first on just in terms of the channel supply inventory levels versus target, can you talk quantitatively about how much the extent of the increase in resi solar demand was relative to the extent of the incremental supply you're able to secure post the and ASC drivers here in terms of keeping channel supply inventory consistent with yours? Ronen Faier: So in general, Eric, first of all, the level of inventory or the nominal level, I think is sometimes not the only number or I would call it factor that is interesting. It's more actually the inventory days that they're holding that means for how long they can basically supply based on the inventories that they have. Now, in general, I can tell you that first of all, as Zvi mentioned, from component and from logistics point of view, we did not face any trouble deliver our products and therefore we will not - we were able to supply whatever demand came. When the vendors are looking at the inventory, each of them make their decisions based on what they see and project. And in general, what you see is that toward the end of the first quarter, the absolute number or the absolute value of inventory is growing in the channels because everyone is getting ready for Q2 and Q3. And also, of course, the more you hear about component shortages in the market, the more you hear about complexities of companies to provide at time, you see those I would call it, distributors, trying to optimize the level of inventory that they are holding, which is something that cost the money in working capital with, I would call a desire to get as much stability by simply holding the inventory. So in essence, what we see right now is that when we talk to our distributors, we're very well aligned with them on the lead times. As Zvi mentioned even if there are logistical hurdles, we're able to meet the delivery times and we're able to communicate them well to the distributors and we led them to understand and decide what is the level that they have. This also means by the way that we don't see a drag of orders coming or pulling forward simply to make sure that we have or they have more inventories that - and something that can affect them later. So it's a kind of a, I would call it a circular process where the joint planning for us and them allows them to plan well the inventory. Our ability to deliver related to all the hurdles and the complexities on time is something that make them comfortable, which in turn allows them to be more precise in the way that they're planning the inventory and the inventory levels. Right now at least we see a normal behavior for this time of the year, and again we do not believe that there is any pull-ins or any deliveries that are done now simply in order to secure that they have inventories for the rest of the year. Eric Lee: And in terms of power question on storage as you heard the product since the markets in 2Q, can you talk about how you're planning to prepare pretty actively across any potential storage versus solar here presumably around a lot of expertise and training to install your storage solution given that the teams continue to pretty made by some of your peers out there. Thank you. Zvi Lando: So I'm not sure we understood all of the questions, but a big enhancement in the battery is the communication technology and ease of installation. So we invested a lot of attention in that in the design of the battery and in particular the way it integrates with our Energy Hub system. So that training is actually being initiated this week toward the installers but I believe that due to the design and the way it was designed and the simplicity that after some simple installation, most of the installers and we have many experienced installers, we'll be able to deal with this with relative ease. Operator: And we will take our next question from Jed Dorsheimer of - Jed, your line is live. Jed Dorsheimer: Thanks from Canaccord Genuity. So I guess first question, if we look at - if I look at the five times cost decline in solar in general over the past two decades, from a right law perspective, it seems like technology has kind of led the way. And that does leave the opening or it leaves labor at least from a balance of systems, and I'm just wondering how you're thinking about the reduction of labor cost as a function of either as you talk about three-phase sort of light commercial, if you will, in non-utility or resi side of things. Is that about lightening - reducing the weight of your inverters or how are you thinking about that value proposition at this point? Zvi Lando: Yes, it's an interesting question and worth spending more time than this type of short discussion. It is something that we are paying attention to at many levels and generally, over the years, it was considered a relative strength of ours. Our position with the large installation companies and some of that strength was coming from a lot of joint efforts to help their installation efficiency and our - the importance we were putting in it and the willingness to discuss these type of items and working together on how we help them in some cases in our small part. Obviously, the big issue is theirs in terms of increase the amount of installations that can be done per day or reduce the amount of time for installation. And there are things that have been done over the years in terms of integration of elements that prior used to be installed separately and incorporating them into the inverter and other elements of reducing time of commissioning and downloading software and things like that. So in all of those areas we are investing a lot of R&D and doing that in cooperation with some of the large customers that we work with both in residential and C&I. There are as you suggest also opportunities that are more related to the overall balance of system of installations and the direction that things are going more in C&I. We are investing again R&D and looking at these type of opportunities and it's an area that we have a team that is focused on. Again, it's not something to get into right now but we concur that this is an area of growing importance in terms of the growth of the industry and the adoption of these type of solutions around the world. Jed Dorsheimer: And then I guess maybe just a longer term, I mean, assuming you'll probably - getting through this tightness there'll be a decent amount of overcapacity in the marketplace that would - that you'd benefit from. But as you think about the procurement of components, how are you thinking through the competition that increasing around electrification because for the past decade or two, it's largely been competing against different solar technologies and today it's now a competition among EV system design or transmission and distribution of non-solar-based technologies. So as you think through the hierarchy from your system solution perspective and multiple facets to that how are you thinking about making sure that you have the capacity in a fabless design? Zvi Lando: So it's again, a bit of a high-level question. I'll answer with two elements. First is, we - from the beginning actually our optimizer were based on our ASIC and we've expanded that level of vertical integration at the component level to other elements of the system that are basically components that are designed for us and ordered by us. And obviously, yes we are dependent on - in some cases on the overall capacity scenario at the foundries or other locations. But it's not - we're not competing for - in some cases, not in all cases, obviously, for the same components and it's a trend that we - that we plan to continue and exercise also in some of our other businesses. So the broader topic of the question is, indeed, and I think it's a good sign for our industry is the entrance of big technology players that are seeing renewables and solar and PV in particular as growth opportunities and are significant opportunities that are here to stay. So we welcome that and I think it's good for all of us. I think we are pretty aware of our strengths and at the same time aware of our weaknesses. And now that we are in the e-Mobility space in some of the areas it also allows us to compare ourselves to other companies from other industries and realize that if you take the specific topics of power electronics and high efficiency, high reliability power electronics and the ability to mass produce high quality, high-efficient, power electronics, that's what we know how to do. That is the core of the strength of the company and we feel good about our capability and talent and compared to most companies that we came across and we came across some of the very well-known names around the world in this area. So that's our strength and it's a strength that we believe can provide us a lot of opportunities in the future and we are focusing on maintaining that strength and finding the way to capitalize on it. And I hope that helped answer the question that you were aiming for. Operator: And we will take our next question from Jim Ricchi of Needham and Company. Jim Ricchiuti: A question I have is relates to storage, given that you're reaffirming your storage revenue targets for this year. I'm wondering how we might think about this in terms of, does this skew the revenue mix more toward residential in the back half of the year and presumably and tell me if this is - if I'm not misinterpreting, but a higher mix in North America? And then I have also a follow-up on your installers. Zvi Lando: So not necessarily, especially since we began shipping the Energy Hub, there are many inverters out there that have not yet been coupled with a battery. So it does not mean that every battery that we will be shipping, will be going automatically with an inverter at that time and as a result, leading to that type of tilt - a more dramatic tilt toward residential. Many will but some will not. So I don't think that this will skew the balance between residential and commercial or between specific geographies as it relates to the solar installations. Yes, the majority of the batteries in the first phase will be coming to North America and will - so the initial surge in revenue generation will come from North America and then spread to Europe and Australia and the rest of the world. Operator: And we will take our next question from Kashy Harrison of Simmons Energy. Kashy Harrison: Good evening, everyone, and thank you for taking my questions. So my first one surround supply chain. Thanks for all the commentary there. You mentioned you have enough supply to meet your anticipated demand in the second half of the year. Just curious, does this contemplate any excess demand that may materialize if your major competitor doesn't have enough supply to meet their demand for the latter part of the year? Zvi Lando: We were projecting year-over-year growth based on different dynamics that we thought will come through 2021. We don't know - I don't think we know how to quantify specifically if and what type of opportunity will arise out of that dynamic. So we know that then expect growth and we know that we and believe that we can deliver on that growth. And if there will be such a component within that opportunity, we should be able to deliver on it, but I have no way to confirm or to quantify, something like that. Operator: And we will take our next question from Tristan Richardson of Truist Securities. Tristan Richardson: Just quick question on the new product launches, just on the storage side, I think in the past you've said that from a margin perspective 25% could be a general high level expectation. Just curious if that still holds. And maybe just the timeframe to get there in terms of what kind of scale you need to see first? Ronen Faier: So first of all, nice to talk for the first time, actually. So in general, the gross margins that we expected that was indeed in the range of 25% and I think that there are two factors that we need to take into account here. The first one is that when we made this assumption we believe that there is going to be a relatively sharp ASP erosion in the prices of batteries, which actually did not happen due to the relatively high demand that we see in the market. And therefore there is an expectation that at least in the short-term gross margin will be there. Now, it will not be there may be much higher, at the very beginning, due to the fact that you still need to ramp up their economies of scale, related to the way that you ramp up, but we definitely see a potential to be there. I think that it's next layer of potential is actually once we have our Sella 2 factory and this is something that will come in the later part of 2022 when batteries from Sella 2 will start arriving because at that point we will have our own factory with our own cost and with our own supply chain, meaning that we do not need to leave margin, maybe with the hands of a third party as well. So we feel that it's a - there is an achievable capabilities to get to a higher margin and of course, over the long term, once there is as satisfied demand we believe it will go back to this 25%. Operator: And we will be taking our last question from George O'Leary from TPH & Company. George O'Leary: Just kind of a big picture question from me related to e-Mobility. I realize there is the Fiat E-Ducato that you guys already have in the bag. But just qualitatively what is the pipeline for incremental auto OEMs that you guys see? And how has that been affected by kind of the recent events that we've seen in the auto space? Is the pipeline still growing or people kind of hit the pause button as they're dealing with their own supply chain issues. Just curious for any color you could share there. Zvi Lando: I think we mentioned the - our investments in play in this segment is long term and the growth is going to be gradual and long term. So we don't have in our pipeline for the - and we said this in the last earning call in the late next 12 or 18 months and equivalent in terms of scale and visibility like the Ducato. So we have a series of smaller shorter term opportunities and longer term bigger opportunities that we are working with and working on and we'll share them as they evolve and materialize. So one of the result is that - of that is we are not really dependent on these type of current events and constraints that are disrupting, excuse me, disrupting to some level the e-Mobility industry and we are more there to execute and ride on the long-term path of this segment, which is showing or where the potential is growing every day. So we don't have anything big other than the Ducato in the next years. So as a result of that these events are not going to impact us positively or negatively in the next year or two, year-and-a-half. Operator: Thank you. And I will now turn the conference back over to our speakers for closing remarks. Zvi Lando: So first of all, thank you everyone for joining. We are taking this call for the first time in the last year-and-a-half from our California office enabling us for the first time to travel out of Israel to here and in recent weeks, we've been able to visit our factories in Italy and Korea as well. So we are encouraged by the direction that that is going and wish everyone else in our industry and other industries health and success and to come back to normal as soon as possible, and thank you for joining. Operator: Thank you, ladies and gentlemen, for your participation in today’s teleconference. You may now disconnect.SEDG Ratings Summary
SEDG Quant Ranking
Related Analysis
Susquehanna Adjusts SolarEdge Technologies' Price Target
- Biju Perincheril of Susquehanna adjusts the price target for SolarEdge to $56, indicating a potential increase of about 13.2%, with a downgrade of its rating to neutral from positive.
- SolarEdge reports a significant first-quarter loss in 2024, with an adjusted loss per share of $1.90 and a GAAP loss of $2.75 per share.
- Revenue plummeted by 78% year over year to $204.4 million, reflecting ongoing struggles within the solar industry.
On Monday, May 13, 2024, Biju Perincheril of Susquehanna adjusted the price target for SolarEdge Technologies (NASDAQ:SEDG) to $56, suggesting a potential increase of about 13.2% from its current price of $49.47. This new target comes with a downgrade in rating to Neutral from Positive. SolarEdge Technologies, a key player in the solar energy sector, specializes in the development of inverter solutions for solar photovoltaic (PV) systems. The company's recent performance and market position are crucial for investors, especially in the context of the broader solar industry's dynamics.
The solar sector, where SolarEdge operates alongside competitors like Enphase Energy (ENPH), First Solar (FSLR), and Canadian Solar (CSIQ), is experiencing growth, particularly in the residential segment. However, SolarEdge's recent financial outcomes have raised concerns. The company reported a significant first-quarter loss in 2024, with an adjusted loss per share of $1.90, surpassing the Zacks Consensus Estimate of a $1.58 loss. This marks a considerable downturn from the previous year's earnings of $2.90 per share. On a GAAP basis, the loss was even steeper at $2.75 per share, compared to GAAP earnings of $2.35 per share in the same period last year.
Revenue figures further underscore the challenges SolarEdge is facing. The company's revenues plummeted by 78% year-over-year to $204.4 million, albeit slightly beating the Zacks Consensus Estimate by 4.9%. This decline is primarily due to a significant drop in revenues from its solar segment, which fell by 79% to $190.1 million from $908.5 million in the prior-year period. Such financial results reflect the ongoing struggles within the solar industry and have led to a reassessment of SolarEdge's outlook by analysts and investors alike.
The stock performance of SolarEdge also mirrors these financial challenges. The company's shares experienced a decrease, closing at $49.47, which is a decline of approximately 6.08%. This trading session saw the stock fluctuating between a low of $49.12 and a high of $53.67. Over the past year, SEDG's shares have seen a high of $313.55 and a low of $49.12, with a market capitalization of approximately $2.83 billion. This volatility in stock price, coupled with the recent downgrade by Susquehanna, suggests a cautious outlook for SolarEdge within the competitive landscape of the solar energy sector.
SolarEdge Plunges 17% Following Q4 Miss
SolarEdge Technologies (NASDAQ:SEDG) experienced a significant 17% drop in its share price during premarket trading Wednesday. This decline came in the wake of the company's fiscal Q4 results and FQ1 2024 guidance, both of which fell short of analyst expectations. Despite a narrower-than-expected loss of $0.92 per share, its $316.04 million revenue for the quarter missed the $324.2 million forecast.
The company also reported a drastic decrease in non-GAAP gross margin, plummeting from the previous year's 30.2% to 3.3%. Looking ahead, SolarEdge anticipates revenue in the range of $175 million to $215 million for the next quarter, significantly below the $373.44 million forecast, with its solar segment expected to contribute between $160 million and $200 million.
SolarEdge Shares Drop 6% on Job Cut Announcement
SolarEdge Technologies (NASDAQ:SEDG) revealed on Sunday plans to cut its workforce by approximately 16%, affecting around 900 global employees, as part of its cost reduction efforts. Following this announcement, the company's shares increased by 6% intra-day today.
This workforce reduction is in line with several other cost-cutting measures SolarEdge has recently undertaken. These include shutting down manufacturing operations in Mexico, scaling back production capacity in China, and discontinuing its light commercial vehicle e-mobility division.
In November, the company had to revise its revenue forecast for the fourth quarter of 2023 downwards, attributing this to lower demand for its solar inverters. SolarEdge had initially expected Q4/23 revenue to be around $325 million, a significant decrease of 55% from Q3 and a 64% drop from the same period the previous year. However, analysts are now projecting Q4 revenue to be about $371 million, with the company likely to report a loss of $1 per share.
SolarEdge Shares Drop 6% on Job Cut Announcement
SolarEdge Technologies (NASDAQ:SEDG) revealed on Sunday plans to cut its workforce by approximately 16%, affecting around 900 global employees, as part of its cost reduction efforts. Following this announcement, the company's shares increased by 6% intra-day today.
This workforce reduction is in line with several other cost-cutting measures SolarEdge has recently undertaken. These include shutting down manufacturing operations in Mexico, scaling back production capacity in China, and discontinuing its light commercial vehicle e-mobility division.
In November, the company had to revise its revenue forecast for the fourth quarter of 2023 downwards, attributing this to lower demand for its solar inverters. SolarEdge had initially expected Q4/23 revenue to be around $325 million, a significant decrease of 55% from Q3 and a 64% drop from the same period the previous year. However, analysts are now projecting Q4 revenue to be about $371 million, with the company likely to report a loss of $1 per share.
SolarEdge’s Rating Slashed at Barclays
Barclays analysts adjusted their rating for SolarEdge Technologies (NASDAQ:SEDG), downgrading it from Equalweight to Underweight, and reduced the price target from $74.00 to $50.00.
The analysts' comments are based on a comparative analysis with Enphase Energy (ENPH), indicating that SolarEdge is currently trading at a higher valuation than Enphase. After revising their figures, the analysts observe that SolarEdge is trading at a three-turn premium compared to Enphase based on the estimated 2025 earnings per share (EPS), and approximately two turns higher on the 2025 estimated enterprise value to EBITDA (EV/EBITDA) ratio.
Considering the anticipated stronger recovery for Enphase, along with its higher gross margins, the analysts argued that the valuation dynamics should be reversed, with Enphase meriting a higher trading premium than SolarEdge.
SolarEdge’s Rating Slashed at Barclays
Barclays analysts adjusted their rating for SolarEdge Technologies (NASDAQ:SEDG), downgrading it from Equalweight to Underweight, and reduced the price target from $74.00 to $50.00.
The analysts' comments are based on a comparative analysis with Enphase Energy (ENPH), indicating that SolarEdge is currently trading at a higher valuation than Enphase. After revising their figures, the analysts observe that SolarEdge is trading at a three-turn premium compared to Enphase based on the estimated 2025 earnings per share (EPS), and approximately two turns higher on the 2025 estimated enterprise value to EBITDA (EV/EBITDA) ratio.
Considering the anticipated stronger recovery for Enphase, along with its higher gross margins, the analysts argued that the valuation dynamics should be reversed, with Enphase meriting a higher trading premium than SolarEdge.
SolarEdge Technologies Hits With a Downgrade at Wells Fargo
Wells Fargo analysts downgraded SolarEdge Technologies (NASDAQ:SEDG) to Equal Weight from Overweight and slashed the price target to $82.00 from $190.00.
The analysts cited three key concerns prompting the shift to a neutral stance: Firstly, SolarEdge's quarterly demand guidance of $600-$700 million, based on Q3 averages, might be overly optimistic given that September's actual sales, the latest month for which data was available, were lower. This suggests a potential downside if demand remains at September's level.
Secondly, the unexpected drop in month-over-month sales in Europe during September, typically a growth period, raises doubts about the robustness of underlying European demand. Thirdly, SolarEdge's substantial fixed costs could enduringly affect gross margins if demand fails to bounce back.
