Q4 2019 Earnings Call
Welcome to the Solaredge conference call for the fourth quarter and for year ended December 31st 2019. This call is being webcast live on the company's website at Www Dot Solaredge Dot com and the Investor section on the event calendar page. This call is the sole property and the copyright filler edge with all its reserved in any recording.
Reproduction or transmission of this call without the express written consent solar edge is prohibited you mean listen trade webcast replay of this call by visiting the event calendar page the solar edge Investor website, I would now like to turn the conference ever to air coming in at Sapphire Investor Relations Investor Relations for solar edge Erika you may begin.
Good afternoon. Thank you for joining us to discuss Stoneridges operating results for the fourth quarter and full year ended December 31, 2019, as well as the company's outlooks for the first quarter of 2020 with me today or TV land don't see L. VP of global sales Inrone fire Chief Financial Officer.
It was again with a brief review the results for the fourth quarter in full year ended December 31, 2019, Ronan will review the financial results for the fourth quarter and full year, followed by the company's outlets for the first quarter of 2020, then we will open the call for questions. Please note that this call will include forward looking statements that unpublished nuts.
Certainty that could cause actual results could differ materially from management's current expectations. We encourage you to review the safe Harbor statements contained in our press release in the slides published today for a more complete description.
All material contained in the webcast you sold property in copyright of storage technologies with all rights reserved.
Please note. This presentation describes certain non-GAAP measures, including non-GAAP net income and non-GAAP diluted earnings per share, which are not measures prepared in accordance with U.S. GAAP.
Non-GAAP measures are presented in this presentation as we believed to be provide investors with the means evaluating and understanding how the company's management evaluate the company's operating performance.
Non-GAAP measures should not be considered in isolation from a substitute for superior to financial measures prepared in accordance with U.S. GAAP.
Listeners to do not have a copy of the quarter ended December 31, 2019 press release or the presentation may obtain a copy by visiting the industry's section of the company's website now I will turn the call over to seating.
[noise]. Thank you Erica good afternoon. Thank you also joining us on our conference call.
We're pleased to the board just real briefly to the corridor with record revenue of $418 million and figure, which record revenues of $1.43 billion. That's achieving all the second consecutive year, that's harder than 52 cents year over year gross.
We are reporting many other record and noteworthy financial results I will let bill and then go into them further than that in a few minutes.
As expected most of that was rose Orient originated from our solar business, while we continue to grow in investing all acquired businesses in line with a fan.
This quarter, we shipped over 1.6 Gigawatts of AC nameplate Inverters, approximately 788 megawatts of which were shipped in North America shipments to your consisted of 620 megawatts.
This quarter, we shipped 701 megawatts of commercial products compared to 543 megawatts in the previous quarter.
Overall this quarter, we shipped 4.5 million fell off the Mark Hughes and approximately 187000 visitors.
I know many of you are concerned about the affects not to go along a virus may have on our business.
Before addressing the disaster I'm happy to report that all of our and I wouldn't see hands employees of the factory in China are healthy and most of return to work.
We sure with all of you are well wishes for the full recovery of those more real anixter sympathy for those lives it's been disrupted by the strategy tragedy.
Regarding the delivery of formats, we do not expect any disruption to our revenue in Q1 or Q2.
As it used to be expected, we may experience some level of continued air shipments in order to meet the growing demand for our products.
[laughter] just a business background on how we have been able to manage the situation in anticipation of the increase in product demand in 2000, its warning and the usual manufacturing slowed Belgium slow down during the Chinese new year, we took several actions prior to the outbreak of the tone of the virus we built in.
During Q4, which would shift drug distribution centers ads is reflected in our financial reports. In addition, we secured with I wouldn't see him to continue running factoring during the Chinese new year after reduced rates.
As a result, when the Chinese new year vacation was extended each of its own a virus the manufacturing lines I wouldn't see I'm in China continued to operate in manufactured products.
These two measures combined with increasing capacity in our factories in Hungary and in Vietnam enabled us to continue to meet capacity needs as our customers. Despite the unfortunate circumstances that developed.
[noise] at least in Threeq.
We are witnessing gradual return to normal activity in our Chinese factory and in our supply chain.
Assuming this trend continues we do not currently foresee interruptions and you do either which is typically a stronger quarter.
Since the I'll make a bigger on a virus me I've been working closely with their work C N Jayson and managing the supply chain and manufacturing. We appreciate your support and close relationship in this challenging time.
Another noteworthy items, we're seeing strong momentum in commercial shipments with record megawatts shipped in Q4 unexpected 20% to 30% further growth in Q1.
In that context, we announced this quarter and agreement signed with independence alarm slowly developing for one gigawatts of product to be delivered over the next four years.
I never really for rooftop installations across Europe, the vast majority in Spain.
[noise] another area of recent growth isn't shipments of storage compatible inverters.
The fourth quarter, we saw an increase of almost 60% compared to the prior quarter.
And our Q1 backlog is more than doubled the volumes shipped in Q4.
We're seeing this accelerated growth in North America, Australia, and even more pronounced in Europe based on the three phase storage and Burger, which we began shipment though at the end of the third Gordon.
Also during the quarter, we received in Japan jet certification for every single say H D wave and girder to date only do other non Japanese inverters have completed Jed certification and as far as we are aware.
Only one the other non Japanese inverter company has been certified for the latest you empty island deregulation and after we have been certified recently.
This milestone would allow us to approach the residential and small commercial Japanese sold in market on top of the commercial markets in which we haven't been active for several years now.
In our new new new businesses, you're focusing on development and testing of new and improved offerings.
The last quarter, we conducted fly devaluation tests of our improved commercial you'd be our system.
The tests were successful with positive customer feedback well. This is still low volume from a business perspective relative to our solar business. We are encouraged by the customer response to our offering.
Similarly in our E mobility business during the first fourth quarter, we delivered on orders dozens of electrical power trains in batteries.
Commercial vehicles that are in testing by automotive Oems.
In our battery business Youre progressing in accordance with our plans to expand our manufacturing factoring well that recurrence factory is running its maximum capacity and fully sold out.
And with this I hand, it over to one then who will review our financial results.
Thank you PV and good afternoon, everyone [noise].
Before starting to review our financial results for the fourth quarter full year 2019, I would like to remind listeners that was the overview will be on a GAAP basis.
Moving pieces I will be discussing non-GAAP numbers and measures [laughter], which exclude stock based compensation onetime asked the disposal changes in deferred tax amortization and depreciation of acquired assets cost of product adjustments in other onetime expenses related to the acquisitions of summary coal coming to you.
Yes Division.
No its expenses related to the impact on financing expenses or the revenue recognition standard and the adoption of the newly enacted leasing accounting standard because really non-GAAP earnings per share.
I will conclude decent production by noting that the effect of the acquisitions closed in the reported years on the GAAP result is a meaningful as a result, more traditional accounting elements identified into purchase price allocation studies that we were recently before.
These reconsideration of pro forma two GAAP results discussed on this call is available on our website and in the press release issued today.
For the fourth quarter of 2019 total revenues were $418.2 million, a 2% increase compared to $410.6 million last quarter, and they 59% increase compared to 263.7 million for the same quarter last year.
Revenues from the sale of sooner products were $389 billion and were driven by very strong growth in the United States, What Europe in rest of the world demonstrated typical fourth quarter seasonal slowdown.
You are sort of revenues grew this quarter to $236.6 million and represented 60.8% or sooner revenues.
These U.S. revenues included a negligible amount safe Harbor revenues.
Sooner revenues from Europe were $118.9 million worth certainty, 46% following the traditional seasonal pattern of the solar industry rest of the world Solar revenues were 8.6% of our solar revenues.
This quarter, our top 10 solar customers represented 64.4% of our quarterly solar revenues and modest decrease from the last quarter and only one distributor accounted for more than 10% of revenues.
Blended ASP per watt decreased this quarter byproducts of approximately 8% compared to the last quarter, representing a higher proportion of commercial inverter is cheap the overall pricing environment of our products remain stable this quarter.
This quarter revenues from our non sort of products were $29.2 million, mostly attributed to sales of lithium ion batteries.
GAAP gross margins for the quarter was 34.3% compared to 33.9% into prior quarter and 30.2% in the same quarter last year.
Non-GAAP gross margins this quarter was 35.5 per cent compared to 35.1% into prior quarter and 30.9% into same quarter last year.
Non-GAAP gross margin for the silver activities was 37.8% compared to 35.4% in the last quarter.
The increase seem to solar business gross margin is the result increased product margin compared to previous quarter due to cost reduction activities product mix and lower accruals for future warranty obligations.
The lower crude warranty expenses. This quarter are result of our periodic update of the warranty accrual assumptions, including reduction in the cost of replacing refurbished products.
Logistic costs and other elements related to our customer services.
Given the significant side installed base to which we applied the warranty reserves. The <unk> effect was significant and excluding these one time income our non-GAAP sooner margin would have been approximately 34.5% primarily due to increased air shipments costs.
Well these warranty related cost reductions will continue to positively affect our next quarters, there magnitude would be lower [noise].
This quarter air shipments continued to put pressure on our gross margin and reflected approximately 180 basis points increase compared to the previous quarter.
Well with the extension of our manufacturing capacity, we were expecting a reduction in the air shipments. It's Steve you mentioned the impact of the Corona virus is such that we will continue to experience air shipments for at least the first quarter 2020.
Non-GAAP gross margin for Nonsolar activities was 4.9 per cent compared to 29.5% in the previous quarter.
Lower margins on sale of lithium ion products compared to the previous quarter, and your and inventory and cost adjustments in the acquired businesses combined with relatively high fixed cost you did these very low margins.
Moving to operating expenses.
Total operating expenses for the fourth quarter were $92.7 million at 22.2% of revenue compared to 73 point threemillion or 17.9% of revenue in the prior quarter and to 55.8 million worth 21.1% of revenue.
For the same quarter last year.
On a non-GAAP basis operating expenses for the fourth quarter were $63.1 billion or 15.1% of revenues compared to $54.8 million were 13.3% of revenues in the prior quarter and 45.1 million or 17.1.
Percentof revenue for the same quarter last year.
Our non-GAAP sooner operating expenses as a percentage of the sooner revenues were 13.98% compared to 12.3% last quarter.
These schools are GAAP operating expenses included non recurring expenses of $22.4 million.
These expenses included $12.2 million of accelerated expenses related to share payments in the SMB acquisition, a $4.9 billion settlement of Threeq was isn't claim related to quote come which we expect to collect from Mount held in escrow and $5.3 million.
<unk> as loss related to the sale of the software business previously owned by a summary.
Our GAAP operating income for the quarter was $50.5 million compared to 66 million daughters into previous quarter and $24 million for the same period last year.
Non-GAAP operating income for the quarter was $85.3 million compared to $89.2 million in the previous quarter and 36.4 million for the same period last year.
This quarter Nonsolar activities resulted in non-GAAP operating loss of $8 million compared to a net loss of zero point $3 million in the previous quarter, mostly as a result of the lower margins.
Financial income for the quarter was 11.1, we didn't daughters compared to financial expenses, well $17 million last quarter and the financial income 0.3% for the same period last year.
The increase is the result of a foreign currency gains, resulting from the strengthening of the euro compared to the U.S. dollar.
Tax expense was $9.2 million this quarter compared to 7.3 million in the prior quarter and $11.1 billion for the same period last year.
Our non-GAAP tax expense was $10.4 million compared to $10.2 million into previous quarter and 6.2 million for the same period last year.
GAAP net income for the fourth quarter was a record $52.8 million compared to a GAAP net income of 41.6 million for the previous quarter and $12.9 million for the same quarter last year.
Our non-GAAP net income was the record $87.4 million compared to a non-GAAP net income of 63.6 million dollar into previous quarter and 31.5 million for the same quarter last year.
GAAP net diluted earnings per share was one dollar and three cents for the fourth quarter compared to 81 cents in the previous quarter and 27 cents for the same quarter last year.
Non-GAAP and it's a diluted EPS was a record one dollar and 65 cents compared to $1.21 cents into previous quarter and 63 cents for the same quarter last year.
Our non sooner businesses generated 826 cents of non-GAAP.
Diluted earning per share loss attributed mostly to the lower margins and year end inventory adjustment.
Turning now to the balance sheet as of December 30, Onest 2019 cash cash equivalents, then people if its restricted bank deposits and investments were $467.5 million compared to 432.9 million on September 32019 do.
During the fourth quarter, we generated $83.1 billion.
Cash from operations.
Safe Harbor orders, which were paid prior to the end of the over the year were approximately $75 million most of the beach.
Was offset by advance payments, we made two vendors and contract manufacturers.
These safe Harbor orders will be delivered in Q1 in Q2 2020.
In addition, our balance sheet include net debt of $15.8 million related blohm taken by Coke them, an essay Murray prior to our acquisition.
Hey, arent net increase this quarter, reaching $298.4 million compared to $292.2 million last quarter.
Yeah. So this quarter in disorder business was 65 days a decrease from 75 days last quarter. The result of a more balanced delivery pattern during the quarter and it's tight control over customer lines of credit.
As of December 31st 2019, our inventory level myth of reserves was that $170.8 million compared to 134.3 million in the prior quarter.
Most of this increase is related to inventory in transit she at the end of the quarter and deliver it to our customers at the beginning of the year, which as Steve you mentioned help us to overcome the corona virus related manufacturing disruptions.
In addition be $39.7 billion of our inventory amount relates to non sooner inventory the majority of wage he's Roman <unk> materials held by Qualcomm.
Let's move now to summarize the food 2019.
Revenues for the year was one point $43 billion, a 52% increased from 937.2 million in calendar year 2018.
Revenues related to our solar business were one point $34 billion, a 46% increase compared to 2018.
Got worse margin was 33.6% compared to 34.1 in the prior year.
Non-GAAP gross margin was 34.9% compared to 34.6% into prior year.
GAAP operating expenses were 289.4 million daughters, representing 20.3% of revenues compared to $179.8 million in 2018, which represented 19.2% of revenues.
Non-GAAP operating expenses were $220.9 billion, representing 15.5% of revenues compared to 150.1 million in 2018, which represented 16% of revenue.
[noise] GAAP net income for 2019 was $146.6 million, a 14% increase compared to 128.8 million dollar into prior year and a GAAP net they looked at as of two.
Dollars and 90 cents compared to two dollar and 69 cents in prior year.
Non-GAAP net income for 2019 was $233.2 million, a 48% increase compared to 157.3 million in 2000, and <unk> in 18, and and non-GAAP net diluted earning per share of $4.44 compared to three.
Walter in 17 cents in prior year.
Non-GAAP net income for solar businesses was $254.1 million, 57% increase compared to nine to 162 million in 2018.
This year, we generated $259 million in cash from operations.
Moving now to the guidance for the first quarter of 2000 and twin peaks.
We expect revenues to be within the range of 425 million to $414 million.
Revenues from the sale of solar products are expected to be within the range of 405 million and $415 million.
We expect gross margins to be within the range, 30% to 34% gross margins from solar activities is expected to be within the range of 33% to 35%.
I will now turn the call over to the operator to open it up for questions basically.
Thank you ladies and gentlemen at this time of we'll open the floor for questions. If he would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure that your mute function is turned off to allow your signal to reach our equipment and again that star one to ask a question well pause for just a moment to allow everyone an opportunity to signal for class.
<unk>.
And our first question comes from Colin Rusch with Oppenheimer funds.
Thanks, guys could you speak a little bit to what's going on in the commercial market. Obviously the growth in that segment has been very strong you talk a little bit about where your went in and why as well as the prospects for some geographic expansion. Besides just Japan.
[noise] so momentum in the solar business and then in the commercial business has been improving in the last few quarters and it's very widespread.
Geographically or were.
Seeing good momentum in the U.S., but also in places like Brazil.
Australia.
In Asia Pacific and Asia Pacific in General It has not been related to two new products will actually expecting to release new products in that area [noise] only in the next quarters or what was based on our current.
Portfolio just broader adoption.
Our solution in a wider geographical spread of our sales force.
Okay, and then on the energy storage products, you know it down so you're talking about that been ready midyear can you give us the progress update in terms of where we're out in turn from a from a testing perspective, and when would you expect that product or to go out into bed shipments.
So we're we're roughly on schedule with the plan Oh, we presented at the at the Analyst day.
And but we don't expect to generate the significant revenue from this product before the second half of the year.
Okay I'll have some follow up questions offline. Thanks, guys.
Thank you.
And our next question comes from Mark Strouse with JP Morgan.
Yeah, Hi, good evening, thanks, very much for taking my questions.
Maybe I was just hoping you could Ah you can maybe touch on the competitive dynamics within a within resi in any market share data that you track do you think is worthwhile.
Yeah.
GTM, if we start with North America GTM latest numbers I think gave us some somewhat.
And just about 60% marketshare, we don't have the means to track that much more.
Accurately than what is reported.
[noise] excuse me, we looked at them at the installation company by installation company and measure or what does that were share their business and sometimes even more importantly, what is their business 'cause actually today marketshare trends.
Income more of a result of how these installation companies are.
Fairing, one compared to each other rather than if you are gaining one or a installed the versus the other we don't see any there are movements here or there, but we don't see any Ah Ah significant trends in one direction or the other into market in terms of the global.
Residential.
Market, we're seeing good momentum in Australia and in particular in Europe in Germany that comes back to what I mentioned before about the offering does they oh residential to be phase.
Storage compatible system, which we began to ship at the end of at the end of the third quarter and that is giving us access to the large residential market in Germany, which we had.
We did not have an ideal offering for.
In the past overall as you can you can hear from the description were spread across many segments and many geography, so there's not any one.
Geography or segment that has a huge impact by itself.
And work, we're managing and tracking beach wants to maximize our market you're in a in that specific segments are in that specific geography.
Okay very helpful and it's just more quick one Oh I got you are running you said immaterial safe Harbor revenue in Fourq you.
Is there any contribution to your once you guidance from Safe Harbor.
So in general.
As I mentioned at the end of my apart, we received approximately a $75 million as a prepayments for safe Harbor orders all of them are going to be shift within Q1 in Q2. The majority of those are coming from relatively large customers. The small customers usually do not place so.
Harbor and what do you expect for the next quarter is pretty much what we expected from them anyway. So in general they think that of course, what everything will be both said delivers in Q1 in Q2 in roughly similar numbers, we do not see a major change or difference compared to what a week.
Spectra seen a regular here.
Okay very helpful. Thank you.
Our next question comes from Philip Shen with Roth Capital Partners.
Hey, guys. Thanks for the questions first one is on the Q1 margin outlook.
It looks a little bit life, Oh relative to Q4 was wondering if you might be will provide a little bit more color.
Around that why might be down from 37%.
And perhaps was it due to the higher mix of save harboring or maybe higher mix of commercial volumes. Thanks.
So as I mentioned in this industry that'd be great.
Usually a during the fourth quarter well, we do our financials for the year, we update our assumptions for the warranty accrual and as and.
This year, given a lot of cost reductions that did where we were able to do both into cost of products that we delivered to customers or in a refurbished products that we sell as replacement units.
As well is that some changes that we need both into shipment cost and other cost that we had we so relatively nice a reduction into cost of every shipment of a product that we sell for replacements now today, we have such a big.
Full based that when you take this amount and you apply to the installed base you get to it fairly good reduction in the overall cost. These contributed a dramatically to these corridor, where if we wouldn't have de secretary article update that we do every two quarters our gross margin.
We will be approximately 34.5% and not a 37.8 as they were right here. So we basically enjoyed a onetime benefit which means that you know once you normalize the gross margins. The gross margins for Q4 were slightly lower again without this one time a adjustment.
This.
Quarter, the gross margins will be about a 1% lower then to margins that we sold in Q3. This is mainly as a result of the higher air shipments that we noted in the last quarter, we expected last quarter to incur additional air shipments of 250 basis points actually it was closer to a a 100 and.
80 basis points and when you take these send you combined it with a little bit of cost reduction. The end result, again neutralizing. These adjustments was about a 100 basis points lists for Q1, we basically expect the same the same trend. So it means that due to the corona virus disruption.
We are able to manufacture the product that we need but we may need more air shipments to keep them, which will continue to put that pressure on the gross margin, but the only known a they think that we see ease mostly related to the higher air shipments compared to any other aspect of our operational.
Factors.
Great. Thanks, Ren and then as it relates to the air shipments I just to be very clear and sorry, if I missed this but is it coming into your Q1 guidance. So of course or how much have you factored into the Q1 Guide and then also can you talk to us about give us a little bit more concrete of Irish knows.
You talked a bunch about it but for example, what kind of.
Utilization are you guys or throughput or I put out you guys operating out right now relative to where you would prefer to be.
No I'm one of your peers was talking about being closer to 50%.
So some color on that and how you plan on navigating through a would be great. Thanks.
Okay. So I'll start with the margin and then.
TV will answer both Corona with regard to the margin.
In the fourth quarter. The overall effect of the air shipments was slightly higher than a 500 basis points and do you just something that we baked a similar assumption into Q1 is with a there may be a little bit of savings there again very much related to the our manufacturing.
But in general DC, the assumption that we have we have baked into the assumptions that you see on the guidance, that's where the grew nicely.
People will answer.
So since since the beginning of Chinese new year, which was prior to the big impact of Corona.
As I mentioned, we were operating during Chinese new year at the rate of somewhere in the China factory.
Or 40% to 50% capacity and we held that steady oh through that period since and it's beginning to climb up in the last a in the last weekend, we anticipated to gradually increase.
To be caught at 80, 85%.
Of the plant capacity over the next or the next three or four weeks that that's as relates to the China.
So the China factory and obviously the other factories are working at a normal levels.
Great. Thanks for the detail on both topics and El Paso Huh.
And our next question comes from the heat men light with credit Suisse Securities.
Hi, Thanks for taking my question so.
Could you just probably talk about Oh your thoughts are on the a mix of residential <unk> commercial going forward, but oh for Q1 or for the rest of the your especially as.
You launched a two faced prototypes in Niger off and other regions on have access to the Japanese markets, though.
So so actually the the.
They then residential opportunity in Japan is is that its infancy. So we don't anticipate that to be a a major factor in the next few quarters in terms of the three phase I product for Europe, that's it's a residential product and they are and we we have.
Dissipate, though that to continue to grow and ER and contribute.
To the growth under the dental funds while in parallel.
As I said before we see a lots of opportunities to grow in commercial or both here in North America as well as in some of the emerging market that are more emerging markets like or like India, Brazil, Spain, and subs that are more commercial oriented right now so generally the mix of that.
We are typically ads is around 40, 60, some 40% commercial 60% presidential I don't think that there's going to differ dramatically you from bath ratio in the next few quarters. So we have Oh, we have plans and products to introduce that a that should allow us.
Growing role in both segments and I anticipate that the growth will be roughly the same in both segments of the ratio will remain the same.
Got it thanks, I'm, maybe on not just on your visibility no could just talk about like how much visibility do have going forward.
I don't know haven't guided Q2, but as we look for Ah Ah Ah shipments in Q2 do you still expect any.
I'm back from the current Novartis in Q2 based on various starting today.
[laughter], so actually visibility for me a backlog perspective for Q1 in Q2, we are very good.
Compared to two anything that we haven't had been the fast in terms of Oh, the visibility of demand and as as we said that were.
Current inventories and production rate and assuming again, assuming that the trend that began with the return of a im pleased to working into factories and the ramp up plans that were executing in our other factories hold a we should be able to deliver without interruption on err on the Q2 [noise].
Q1 of course in Q2 or orders as well, but that we already see them quite clearly.
Got it just sneak one last question for me and I'll jump back in the queue up from an S.P. point of view it looks like a the a residential this piece of it down Oh, just my preliminary milestones, 8% in the quarter.
Could probably talk about like what led to that or the cost reduction more on the commercial side done on the residential side.
So actually the 8% that we mentioned was across the board nothing to residential side and the main reason if rate these actually mix from from pricing environment. In Q4, we didn't see any major changes in pricing you don't pricing to the customers themselves and therefore any movements that was there in ASV was.
Mostly related to the mix of the product or a related to a mix among the other countries in general due to the fact that we have shipped dramatically higher amount of a commercial product. This is something that of course drags the ASP per watt down a and this was mainly the casing this quarter.
Got it thank you.
And our next question comes from Jeff Osborne with Cowen and company.
Hi, Good afternoon, guys. Just a couple questions maybe following up on Phillips questions around the margins I, just because there's a lot of discussion about sequential changes run and I just want to make clear or understand the cumulative magnitude of air shipping you know off of the 34% or so base of gross margins is about 500.
Basis points in that then there's.
Okay. So that gets you to 39, and then I assume there's an additional hit because of tariffs still or can you just talk about that it just seems like your normalized gross margins are closer to 40 and as Vietnam ramps Im just trying to understand what your company <unk> looks like.
So first of all let's start with the air shipments the effect that we had in Q4 was close to 500 basis points. Indeed, a and this is something that again, we expect to continue at least into Q1, given the fact that with although having enough products to shift due to our manufacturing enlighten Dick.
On a virus in some cases, we do need to air sheep everything because of the fact that you know the ramp up back from the Chinese or is a little bit slower.
So this is the first thing when it comes to the would be called arithmetic effect of the margins related to the a terrorist themselves I can say that it's roughly a 200 basis points over effect. When you take into account you know that price increases that we need.
On one hand, and the fact that today steel the vast majority of the products coming are coming from China.
And and we see these in our cost of goods tool.
Got it and just to that point can you can you touch on how your expansion in Vietnam, and Hungary is going in a percentage of your capacity just that would be tariff free any thoughts on huh.
So in general it continues to be as very much as blend with one would be indication of course is that you know as they are revenue grows that we also need to adjust all the time affords the amount that we need to manufacturing Vietnam in Hungary in general we don't break the.
Completely the products and where they come from but in general we expect to be by the end of the year with the majority of the products coming to the United States coming from a known Tarifa countries. They will be though some of the apart that these people coming from China, either due to the fact that.
Capacity in Vietnam is ramping but again the demand is ramping a relatively quicker and also due to the fact that in order to allow the rent being to be very smooth in some cases, we do look mirror all of the product production and all of the site and therefore, we may find ourselves that in some situations a product sold.
The U.S. of a specific model are not necessarily necessarily produced in Vietnam or in Hungary, and therefore are coming from China, but again. The idea is that do have the vast majority coming from Vietnam in Hungary.
Got it just two quick ones, if I could the 75 million of Safe Harbor. It sounded like you said that that would sort of be equally spread out between Q1 in Q2.
They did I hear that right and then be can you just articulated if there's any meaningful see an eye mix to that or is that a 100% residential. That's question. One and then question too is around the visibility can you just talk about what the lead times you have are and whether you're fully booked into Q1 and taking orders for Q2.
[laughter]. So so the delivery of the safe Harbor wouldn't be roughly a split between Q1 in Q2 the final.
Ratio will be some optimization also have a air shiffman costs and getting good when its needed and not spending money on air shipments to get it before that.
There is this he and I and the mix.
So it's not the only a strictly residential there is also see an I safe harbor into $75 million and who you the last part of the question.
Yeah, I was asking about nine times, and whether you're fully booked for the guy and what visibility how far and there's going to are you taking orders.
So so so Q1, obviously is a is fully booked.
And and Q2 is is it more than 50% booked at this point and.
And we were continuing to take orders for delivery in in Q2, but but it's more than 50% booked already.
Excellent that's all I had thank you.
And our next question comes from CIMB machine with Needham and company.
Hi, guys like she goes on for Jim Ricchiuti.
Oh, just a couple of questions for you on the first on pricing.
With respect to the mix issues that we saw this quarter just wanted to get a sense. So.
It was residential pricing stable in Q4, if we exclude any mix issues coming from commercial and then I guess similarly, I know over the last couple of years.
That pricing has been relatively stable versus I guess over the longer term you've seen a more traditional <unk>, 5% to 7% price erosion, how do you see pricing playing out over 2020.
So first of all for the first part of the question gets prices has been a stable and Q4 as they were in there in the previous quarter I think that only in all the I would call. It the competitive environment do not support the dramatic price reductions at this point of time when it comes to looking into the.
Future in general we do not see today, you get anything that these destructing dramatically the I would kind of competitive landscape as was the case in previous year, where prices indeed fail a from let's say anything between 5% to 10% then if you remember you know these worthy.
Our days, where steel most of the inverter companies were making relatively large amount of profits or some of them. We're looking to be acquired and therefore tried to capture market share I think that today, we have to a much more rationalized environment, where our there than us and maybe.
One other companies most have been verdict companies are not really making money and with the absence of say he did a competition or anyone that these really can sacrifice a major profitability prices are relatively stable from when a customer base. If you will see or you may see you know some changes based on volume Zohr growth.
But the only known today at least we do not see any competitive reason to go back to the 5% to 10% that we used to seeing the past.
Okay. That's helpful. And then just shifting back to the supply chain I. Appreciate everything that you guys are elaborating on a with respect to Corona virus.
But I just wanted to ask is there.
I.
I guess more of an impetus to accelerate your manufacturing facilities over in Vietnam in Hungary, given Corona virus or are you guys able to tackle everything with what you currently have set up in China and the the ramp that you would already laid out to us at the analyst day.
[laughter] zone I mentioned before the motivation for ramping got were non sign on production was there prior to to Corona in order to be able to Ah to supply all of the North American demand from non Paris.
Locations, so within that in that context, we've been working on ramping Vietnam ramping Hungary, and also building or sell one they the factory in a in Israel.
So we've been pushing on all cylinders to get that done for the tariff reasons.
You know <unk> Corona.
In the same place, but that's it that's that.
It's not a didn't make a huge difference because we've been pushing hard on this anyway.
And our next question comes from Dead Chore, Shimer with Canaccord Genuity incorporated.
Hi, Thanks, and congratulations on a good quarter I [noise].
Thank you I guess.
First just a higher level and sort of on the non solar side of the business and how do I guess conceptually think about the ramp as we look out.
Over the sort of the three legs solution that you're trying to to push.
So far we haven't seen a huge ramp in terms growth, it's largely been on the solar would you attribute that to the E V being 60% Tesla in North America in is you look at.
100, plus vehicles coming into the market over the next couple of years. How are you guys thinking about sort of that geographic.
Mix shift and a rate of growth on the Nonsolar side of the business and then I have one follow up.
I think we've been describing that the businesses that we bought were not anticipated to contribute a major revenue all profit in a in the next call it.
12 to 24 months its ceding does in markets that are our long term and synergetic two hour our markets and we're executing them on the plan.
To make that happen and what I've reported was a early indicators that Ah that's represent definitely were on path with the plan, but we've that we've laid out but but I don't see that are having any meaningful impact on our financial numbers a top line.
Or or or bottom line like I say in the next.
In the next 12 to 24 months.
Got it so [laughter] I guess you wouldn't see an acceleration is Ah Ah you see a greater number of non Tesla based Ah Ah E V is coming into the market to I would think that that would be a pretty significant opportunity.
For you in terms of the the rate of growth.
Particularly on the storage side.
No.
Since we are currently our offering is relevant for the light commercial vehicles segment, which is the growth segment and we are ceded with a few opportunities, but but then vis a industry or the time that it takes a these type of opportunities to evolve into meaningful volumes.
He is a is a long period of time. So that's the segment. That's we're operating in we see a tremendous potential. That's why we are in this Ah. This segment then and we are we're tracking to what we plan to do in terms of putting ourselves in that position to to ride this wave in the future, but Ah but.
In terms of something that becomes real volume and a significant numbers or it will take this way it's time to develop.
Got it and then Ronan just as a follow up since the IPO. I think you guys is it's been I mean dealing with a relatively high class problem in terms of the air shipments.
Just a I'm curious why you haven't been able to is it a function of competition that you're not able to fully pass pass the additional costs onto the customers or <unk>.
No I guess, what what are the dynamics associated with with with that number not having come down to zero I guess.
So I'll, maybe start badly but by the reason that a this this is happening because they think that it's very important you know these things at the second year consecutive year that were growing at 50% from $607 million to 937 and from 937 to one point 43 billion.
<unk> and you don't know company, it's it at that size, usually up plan for a 50% growth now you need to understand that you know in India hardware business and I think that you know it's a better than been then many defect is that every additional investment did you do in many.
Factoring a capacity even if it comes from the contract many factories, it's relatively large it's building to building gets having the floor is having the machinery and usually you do not plan for 50% and yet our these rules happened to us and we were doing everything in our ability and strength to first of all be able.
And then you fixture and de sees a major task and anyone in our operational organization with testifying when it comes though to the air shipments and can do we basically rolled into our customers. It's actually business decision that we've made a as human noted this is a high class problem, yes, maybe.
We could have rolled everything to our customers and get another 100% of margin or not but we still decided that we would like to be.
Be able and the fact that we are profitable to be able to come to our customers and say look we support you growth problems are our problems. We are dealing with it we will pay for eight the only thing to do you need to do is to order and seen advanced as possible allow us to plan properly the growth and allow us to plan properly the manufacturing and as long as you.
Do these we will bear the cost associated with allowing you to grow another element that we entity. The fact that we so across the history of stoneridge, many smaller customers growing with us simply because of these because they knew that you know once we commit to something we're able to deliver it and this was the case here. We believed that you know now.
We'd be capacity that we are building and again to Corona virus is developing a good example, I think if it were getting closer to solve this issue and we hope that you know our customers will appreciate the fact that when when we needed to suffer some costing bringing products to them. We were doing it on our account in a in most cases, we seek.
Summers appreciating to.
It's been quite the the story so I won't argue with a the success. Thank you [laughter]. Thank you Jay Thank you.
Our next question comes from Brian Lee with Goldman Sachs.
[laughter], Hey, guys. Thanks for taking the questions I just had to one was on the the megawatts I guess overall residential megawatts were down sequentially from Q3.
Megawatts for North America, though were up over 30% so seems like the a the commercial volumes accounted for a much larger part of the mix here a drug drove all the North America growth is that the right read and could you give us a sense of how much of residential megawatts in North America declined quarter over quarter in year over year.
[laughter] Brent will have to check these and come back you know for especially since we don't have decided data in front of us in general do I would just like to mentioned one thing and this is the fact that only minimal a lot of the shipments that you see in what we'll report. These most recent TV or not and this is.
30 related to what was installed sometimes you know we shipped in advance due to manufacturing reasons or sometimes because many factoring reasons or shipping issues, you see higher commercial maske mix in general So I wouldn't take one to one and reflect from what you've seen shipment to what you see in be installation.
With regard to their numbers I'll have to check and come back to kind of come back with it or later.
Okay, Yeah, we'll circle up with a follow up there second question is is.
Also on the model I guess with with the S piece I know there's been a few questions I'm here around how you get to the minus 8%.
That's reported here I mean, when we run the math you gave us the commercial megawatts you gave us the residential megawatts and if we flowed that through the model mix shift from Q3 to Q4, a lot more commercial drives about a 4% A.S.P. reduction on a blended basis. So theres another four.
Percentage points that seems to be implied by either commercial ASP, having come down by it would seem you know the math would suggest a low to mid teens or a residential A.S.P., having come down by you know close to 70% or mix of those too so.
I I know, there's different moving pieces here, but the mix itself only it explains about four percentage points of 8% reported so could you give us maybe a bit more color on what what might be happening in terms of the bridge for the other part of the ASV decline here. Thank you.
Sure. So I guess, let me start by saying that when you look at prices that we used to our customers prices remain stable. So all of the changes that you've seen the ace be are strictly a I wouldn't call. It a result of the fact that you simply see changes into mixes themselves. So we do not see anything that has happened.
I mean, he and I would call it real numbers or really prices are falling a and what do you sell through the customer now when it comes to that analyses. It's actually combination of several things first of all north or.
Commercial sales are born to saying with the same a speed because for example, if you take a 33 kilowatt inverter were 100, and a 20 kilowatt inverter the ace being a per watt can be dramatically different and now. The fact that you should you know commercial megawatt very much depends not only to.
Whether its commercial and residential but actually which kind of commercial product you sold that's number one the other thing that needs to be taken into account is that today into residential filled that you see you see today higher portion of elements that are not necessarily just related to the solar products.
As we discussed at the analyst day, the RP elements related to smart home and Smart energy products. These are usually products that are aided and they do not have delayed a little or no name nameplate capacity. So by definition selling more commercial is actually see in this case diluting the amount of diversity.
Dental sales that are characterized with these higher a speed due to the other elements. So I think that only known I'm not sure that they can give you exactly we'll keep the reason for every piece that these moving or at least we can but we cannot do it publicly because this is the business in for.
Ovation, but they continue to all of the changes that are coming are basically based on for first of all move toward the higher mix of a commercial into commercially so moving to higher capacity systems and in general. The fact that when you have little work lower residential in the mix the lower.
Or is there a portion of the RFP elements that are increasing to the ASV per watts did you see.
Okay. Thanks, guys appreciate the color.
At this time. This concludes today's question and answer session I would now I'll turn it back to TV Linda for closing remarks.
In summary, we concluded a very positive year on all fronts far exceeding the 1 billion dollar mark in revenues and about $230 million and non-GAAP net income all of this while investing.
Significant resources and laying the ground for future growth and expansion into adjacent markets. We're proud of our achievements in particularly in what was a challenging year for us given to professional and personal loans since guy Sella, our founder and longtime see you who is greatly missed I. Thank our teams are the contribution.
Thank you for joining us on the call today. Thank you.
Ladies and gentlemen. This concludes today's teleconference. Thank you for your participation you may now disconnect your phone lines have a great day.
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