Q3 2020 Solaredge Technologies Inc Earnings Call
Good day, everyone and welcome to the storage conference call for the third quarter ended September Thirtyth 2020. This call is being webcast live on the company's website at www dot storage dot com and the Investor section on the event calendar page. This college football incorporate solaredge with all rights reserved and any recording reproduction or transmission of this.
Call without the expressed written consent of storage.
But Ted you may listen to a webcast replay of this call by visiting the calendar page four edge Investor website, I would now like to turn the conference over to Mr., Michael finale at Sapphire Investor Relations Investor Relations for silver rich.
[music].
Good afternoon. Thank you for joining us to discuss so work is operating results for the third quarter ended September Thirtyth 2020, as well as the company's outlook for the fourth quarter of 2020.
With me today are CB, London, Chief Executive Officer, and Burns, our Chief Financial Officer.
We will begin with a brief review of the results for the third quarter ended September Thirtyth 2020.
Well, then well do the financial results for the third quarter, followed by the company's outlook for the fourth quarter of 2020.
We will then open the call for questions. Please.
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 weaker.
We encourage you to review the Safe Harbor statement contained <unk> press release, and the slides published today for a more complete description.
All material contained what Josh is the sole property and copyright of sorts technologies with all rights reserved.
No. That's 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 the U.S. GAAP.
The non-GAAP measures are presented in this presentation as we believe it will fund investors could mean for 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 a substitute for or superior to financial measures prepared in accordance with us GAAP.
Nerds, who do not have a copy of the quarter ended September Thirtyth 2020 press release or the supplemental material may obtain a copy by visiting the investors section of the company's website.
Now I'll turn the call over to see.
Thank you Mike.
Good afternoon, and thank you all for joining us on our call.
I'm happy to report that this was a second wave of the global some dynamic in Europe, North America and Israel.
Oh, yes, he is all regions.
Almost without interruption and we continue to focus on the health and well being the bellwether, maybe while managing the business in fact, the rapidly changing conditions in the diligence, including lagerfeld in trouble restriction.
Today, we announced third quarter revenues of $338.1 million, a slight increase quarter over quarter.
Revenues for the third quarter, notwithstanding the business well jockey wasn't a $12.5 million also slightly above previous quarter solar revenues.
This quarter, we saw record high solar revenues of $165.6 million in Europe. Okay.
From $144.3 million last quarter.
The strength in the Netherlands, and Germany, which are traditionally strong territories for us.
As well as growth in smaller markets, such as France, Poland, Switzerland.
All of which you've experienced record revenue this quarter.
We are confident in the continued strain, but don't you know when they get all cities and supported throughout Europe.
North America revenue did not increase quarter over quarter.
We saw significant quarter over quarter growth in both installation was sales group reported by our distributors.
In fact in September so two reported by our distributors.
50% in residential and more than 40% up in commercial megawatts so well.
When compared to August and up a little higher than the same month in 2000 and I did.
As a result current distributor inventory of our residential products.
The healthy level and that's yet [laughter] Lincoln lived the dental sales in North America in the sports sports.
The situation is the most people who is more complex and similar in Europe and North America.
Initially there was an expectation that promotion a little bit and then they have.
Purpose built these days.
And as such distributors.
<unk> increased inventories during the first months of depends on mix.
Your next rather be commercial installations, both in Europe, and the U.S. and even in Australia.
Covering slower than residential and the inventories in the channel are still high.
Oh for reasons outside of North America, and Europe, We see continued strong revenues from Australia for one in Japan.
On the manufacturing and operational side overall this quarter, we shipped 3.3 million power Optimizers and 152500 and voters.
This quarter, we began commercial shipments to the U.S. optimize isn't in burgers from similar more or.
Our new factory in Israel.
In addition to providing capacity of nonferrous products. This factory just an hour drive some of our R&D team and lab enables us to accelerate new product development cycles, especially during this period when we were limited in travel to other manufacturing sites.
Our intention is to define equipments been philosophies of new developed product until the one.
And talking to the various contract manufacturers around the world.
By way of example, this quarter, we produced and sold one the first prototype units [laughter].
<unk> 30 kilowatts inverter planned for introduction in late Twentys 21.
And in terms of do give us access to the midsized well known and small due to the p. segments.
We're still at one coupled with the continued ramp of contract manufacturing sites in Vietnam in Hungary.
[laughter], 60% the viewers product in Q4 will come from various regions.
You know we're currently marketed products, we continue to see strong demand for our storage compatible inverters with approximately 6500, Energyhub Inverters delivered this quarter and the U.S. and over 8000, the more sports compatible inverters shipped to Europe and Australia.
Our current global installed base of D.C., coupled residential storage system.
About 50000 systems installed all the third party batteries.
We believe that installers in homeowners appreciate the benefits of maturity.
I would probably want a fully integrated solution, that's going to kill the multi year scenarios. It back up sales consumption and got the neighbors grid services.
This of course leads to the timing of the availability of our own lives. It does feel better.
Well R&D activities continue as from the global pandemic and associated travel restrictions have instructed our certification and production target dates and we expect this will delay the release of our residential battery by several months.
With the current troubled the switches our R&D teams are limited and traveled to the right. Its actually starts in certification less.
Well, we are still aiming for relationship late this year.
As previously communicated it is more likely that this will happen only an early 2020, one we shouldn't need to ramp up and consequently badly related revenues. So what you do in Q3 of next year.
Additionally, on the product side as was announced this quarter by Schneider Electric we are.
Our collaborating with them on the development of a solution that will enable our energy huggenberger to seamlessly and easily integrate with Snyder's square the energy center distribution system.
The collaboration is it does it does do is market news.
Oh do hold a new homebuilders in Michigan, and California were sold was not required in all new homes instructions.
He always be I've talked about this collaboration revenue.
This will give us an opportunity to introduce it backwards branded products. So.
So the new home market, which we currently underserved.
We also released in our beginning shipments of what we see is 600 volt residential inverter for Australia.
This new product to be getting better access to approximately 25% of the Australian residential markets.
We expect that this will add to the positive momentum we have seen in recent quarters into the dental market in Australia.
In the commercial and industrial markets, we continue to ramp production of the new larger capacity commercial inverter, we released a couple of quarters ago.
In addition, we released a new series of Optimizers.
To accommodate higher power modules.
To 550 watts.
The recent here could accelerate a trend of increasing margin outlook is good for reducing the cost to go up as the module and is also favorable to our business.
It enables reduction of the cost to walk of optimization, making the core jobs to string inverters smaller in driving adoption.
This is in line with our strategy to have cost effective optimizers that are compatible with practically all types of modules available in volume in the markets.
As a result, we already see design wins in large rooftops in small scale ground Mount.
You'd be season in breast are interested in the monitoring in safety capabilities provided by our system, who hesitate it until now due to the costs.
Well the commercial market has been slow during <unk>.
I explained earlier this segment is expected to see significant growth as the markets recover and 2021.
In our grid services offerings, we continue to add utility customers to our virtual power plant platform on a quarterly basis in the United States Europe and Australia.
We also took and continue to diversify our product offerings, including a pilot of frequency triggered curtailments of commercial sites.
This is our first nonresidential grid services project.
You know were Nonsolar business, we continue to invest heavily in these businesses will start to become a digital pillars of growth for solar it's.
I will now go to revenue this quarter was $26 million up from $22 million in the prior quarter and we expect <unk> expenses to gradually increase.
Got it so just a music is milestone as we gear up to minus that's really deliver the first significant that's <unk> dollar trade solution to a known automotive OEM.
For the last six months tens of electrical vehicles that were by our food Bertrand units, that's been accumulating model and going through an extensive qualification process.
In the fourth quarter, we expect to deliver an additional 100 to 200 ballots ranges.
Oh mass production is scheduled to begin.
As a reminder, difficult, though it's green shoots includes about every inverters motor vehicle controlled units.
Well not significant uranium revenue the margin. This is the first needs to be meaningful step for us into the mobility market.
And George Materializing, the bigger snowbirds vision to become a global leader in smart sustainable energy solutions.
On that note I want to refer interested investors to our new sustainability report published this morning and available in the Investor section of our website.
And with this I hand, it over to Warner who will review our financial results.
Thank you TV and good afternoon, everyone.
Its always my review include a GAAP and non-GAAP discussion.
Reconciliation of the till for Lucky GAAP results discussed in the school is available on our website and in the press release issued today [noise].
For the third quarter total revenues were $338.1 million, a 2% increase compared to $331.9 million last quarter, and 18% decrease compared to $410.6 million for the same quarter last year.
Revenues from the sale of solar products were $312.5 million slightly higher than the $310.1 million last quarter.
You S. sooner revenue this quarter were $105.9 million and represented 33.9% of our solar revenues.
Sooner revenues from Europe reached a record high over $165.6 million were 53% of our revenues.
Well these generated some outside the United States and Europe, this quarter with $41 million, representing 13.1% of our sooner revenue this quarter.
On a megawatt basis. This quarter, we delivered 419 megawatts to the United States 708 megawatts to Europe, and 254 megawatts to the rest of the world.
Residential products represented 49% over a megawatt CIT and commercial products with 51%.
This quarter, our total 10 sooner customers represented 61% over sooner revenue and included more European customers been last quarter to.
Two distributors accounted for more than 10% of our quarterly revenue each.
Blended ASP per watt over a solar products increased this quarter by a profit approximately 1% compared to the last quarter. These.
This quarter revenues from our non sort our products were $25.6 million led by sales of lithium ion batteries by Coke and increased sales or emobility, what's amazing machines and products sold by our critical part of the vision.
God bless margins for the quarter was 32% compared to 31% in the prior quarter.
And 33.9% in the same quarter last year.
Non-GAAP gross margin this quarter was 33.5% compared to 32.4% in the prior quarter and 35.1% in the same quarter last year.
Non-GAAP gross margins for the solar business was 34.8% compared to 33.8% in the last quarter.
This increase is a result of your teams of exchange rates on sales in Europe, coupled with cost reduction activities and a reduction in the volume of Chinese made products that are subject to custom terrorists into United States.
In our overall product mix this quarter, approximately 43% of the products shipped into the United States came from military production.
Cost of goods sold in the solar business included cost related to the revenue production in our seller one factory this quarter and this will continue until the second quarter of 2021.
As we continue to increase production volumes, our normalized inventory levels enabled us to eliminate air shipments this quarter.
Non-GAAP gross margins from our non store activities was 16.9% compared to 13.5% in the previous quarter being.
The increase was the result of higher margins in lithium ion product sales offset by increased <unk> Dickey preproduction expenses.
As mentioned by exceeding our Emobility division is preparing for supply or partly in kids foot 100 to 200 electric vehicles in Q4.
The bar to him. He is a highly complicated system includes several components that are produced in part by contract manufacturers and assembled in our Italian manufacturing facilities.
During the last quarters, we have been building manufacturing capacity in each city that includes an increase in the number of employees and associated expenses that are charged to our cost of goods sold.
Even the current small number of units the complexity of manufacturing and the start up phase of these somebody's fixturing process Emobility sales are characterized with low gross margins.
Moving to operating expenses in total GAAP operating expenses for the third quarter was $77.7 million or 23% of revenue compared to $73 million or 22% of revenue in the prior quarter and $273.3 million or 17.
0.9% of revenue for the same quarter last year.
On a non-GAAP basis operating expenses for the third quarter were $63.2 million or 18.7% of revenue compared to 61.1 million or 18.4% of revenue in the prior quarter and 54.8 million was 13.3% of revenue.
For the same quarter last year.
As previously reported it to the end of the first quarter. The company took measures to reduce spending in response to the global pandemic.
The company continues to remain cautious on the Opex spending what allowing gross R&D activities, mostly in the nonsolar businesses intellinx recruitment into solar R&D organization.
The increasing gn expenses is mainly related to a provision resulting from an IP litigation judgment in China that is under appeal.
Our non-GAAP solar operating expenses as a percentage of solar revenues were 16.7% compared to 16.2% last quarter.
Our GAAP operating income for the quarter was $30.4 million compared to $30 million in the previous quarter and $66 million for the same period last year.
Non-GAAP operating income for the quarter was $50 million compared to $46.6 million in the previous quarter and 89.2 million in the same period last year.
This quarter non solar activity resulted in non-GAAP operating loss of $6.6 million compared to an operating loss of $8 million in the previous quarter. As a result of our increased in the investment in Emobility and critical power activity offset by higher profit there.
The deep in the battery business.
Financial income for the quarter was $15.9 million compared to financial income of $11.6 million in the previous quarter and the financial expense of $17 million for the same period last year.
This income is a result of foreign currency changes, resulting mostly from unrealized exchange rate fluctuations and the accounting treatment of intercompany balances and intercompany loans provided for the acquisitions in Korea in each city.
<unk> expense was $2.4 million this quarter compared to a tax expense of $4.9 million in the prior quarter and $7.3 million for the same period last year.
Our non-GAAP tax expense was $1.6 million compared to $8.1 million in the previous quarter and $10.2 million for the same quarter last year.
Mainly a result of the higher deductible expenses related to the exercise all their police stock options and restricted stock units by our employees in Q3 2020.
GAAP net income for the third quarter was $43.8 million compared to a GAAP net income of $36.7 million in the previous quarter and $41.6 million in the same quarter last year.
Our non-GAAP net income was $65.9 million compared to a non-GAAP net income of 52.1 million in the previous quarter and $63.6 million for the same quarter last year.
Got it that's limited earnings per share was 83 cents for the third quarter compared to 70 cents in the previous quarter and 81 cents for the same quarter last year.
Non-GAAP net diluted EPS was $1.21 cents compared to 97 cents in the previous quarter and the same $1.21 cents in the same quarter last year.
Our loan sort our businesses generated an 18 cents non-GAAP diluted earnings per share loss.
Turning now to the balance sheet as of September 32020, cash cash equivalents bank deposits the stupid than deposits and investments were $1.2 billion increased significantly as a result of our convertible loan rate at the end of this quarter.
Net sales did cash cash equivalents basketball's, it's the streets, the bank's deposits and investments were $553.8 million.
During the third quarter of 2020, we generated $28.4 million in cash flow from operations.
Accounts receivable increased nominally this quarter $283.1 million compared to $181.7 million last quarters.
Days sales outstanding this quarter in the solar business was 70 days a decrease from 73 days last quarter, we continue to see reliable payment patterns from our customers and our credit terms are back in general the Prefund Democratised.
As of September Thirtyth 2020, our inventory level net of reserves was it $297 million compared to $264.5 million in the prior quarter. This increased level of inventory is a result of both higher finished goods inventories of sort of price.
<unk>, which allows us to be flexible in the delivery schedule. So our customers increased raw material in the E mobility division in preparation for the planned Q4 deliveries.
Moving now to the guidance for the fourth quarter of 2020.
We expect revenues for the fourth quarter of 2020 to be within the range of 345 million to $365 million.
Revenue from the sale of solar products are expected to be within the range of 30 $320 million and $335 million.
We expect non-GAAP gross margins to be within the range of 32% to 34% non-GAAP gross margins for the sooner, but activity is expected to be within the range of 34% to 36%.
I will now turn the call over to the operator to open it up for questions operator. Please.
Thank you at this time.
Well, one we do ask that you please limit yourself.
One question with one follow up.
I want to for questions well hear first today from Mark Strouse with JP Morgan.
Yeah. Thank you very much for taking my questions.
Just wanted to dig in on your comments around yes, cnine uncertainty.
A can you kind of.
Oh kind of reconcile that with the comments I think you made about greater than 40% sell through from your distributors and Cnine well first of all is that just the U.S. number was that a global number and then kind of.
Hello help me think those two things out for us what you're what you're hearing from your distributors and you know kind of the commentary about that recovery being slower than a resident <unk>.
Okay. So it would be September was the first month of a significant increase in the sell through of our commercial.
I thought I was thrilled to see the dozen in North America, and it's a positive sign after several months here installation rates and still feel were fairly conservative.
Consistent with them and are not very high.
So it's a positive indicator at the same time for the reasons that I explained the inventories level. The inventory level is still high. So we believe that it will take a few more mountains.
So to adapt to lead a instill a significant.
You are a new sales will love from us to the distributors will resume so that's why we think the 2021.
We will see a growth in the market than growth of sales of the inventories decline, but the fourth quarter will still be quite low in terms of commercial sales.
Okay. Thanks, and then just kind of general news around.
Certain locked down to in certain countries internationally.
I'm just curious if that is starting to impact your business at all.
So this is in line with the same message. So we saw also during the first round of locked down in most of the world. That's residential continue almost without interruption and those we reporting throughout the first.
<unk> sales of the.
Pandemic Europe.
Installing in ER during the locked down the early Twentys once we sell at a higher rate than residential installation in 29 thin.
So as far as we can go and all of the signs that we're seeing now is that this will be a the behavior also doing this round of Oh Mcdonald's also in also in Europe, and also in Australia and other countries at the same time.
Residential is it's really silly then so it's continuing and no signs of slowdown commercial Oh, well. We believe that then we probably will continue to do as a slower pace than those events.
A commercial bank.
Since I do think as well in the U.S. as I mentioned before and also and also Europe. They said the bigger.
I would say constraints for us around the lager, though is the ability to move our people around and that has definitely impacted and will probably be a couple of more months at least until that begins to me.
Well go next to Colin Rusch with Oppenheimer.
[music].
That's about that's can you talk a little bit about what's going on from a mix perspective, that's driving the guide on gross margins you already seen that's what's enabling back last year or four.
<unk> <unk> <unk> so.
It's a combination I mean first of all you see that there is there are changes in the weeks of sales.
During the during the move from Q3 to Q4 on one hand, we do see a declining sales that are going to Europe. This is following the seasonal effects that we usually see in the fourth and the first quarter in Europe and other things I will see you mentioned, we see close to 50% increasing.
The residential sales in the United States.
Due to the higher sales through that you see from vendors.
He's actually what would be helping the gross margins in general a U.S. sales, especially basie are correct arrived with a higher gross margins and the fact that we're sitting more racy into the United States is helping the margins by the way the gap is not as big as it was in you know when we moved from Q.
He wants to Q2, because a bit by the euro was lower by about almost 10% and therefore, you know we lost a little bit more so now the difference is a little bit smaller. So the first thing that happens is this one the second issue is that we continue to.
You do at the same time cost reductions cost reductions are now I realize the PML, a little bit slow or even the higher inventory levels that we have but they still are materialize overtime. So I think that these two effects combined together are helping the growth in the solar girls.
Organs.
Have you I just so you know the guy that city the guidance for the Nonsolar or to the overall remains the same despite the growth in the solar and this is reflecting the increased volumes of sales that were those to be E. Mobility. These are sales that are correct to rise with lower gross margins and therefore they lose.
Sort of say the increase in gross margin of the solar business when it comes to the consolidated numbers.
That's super helpful guys. Thank you and then just on the powertrain business.
Shipping kids off can you give us a sense of how many customers you're working with them and who they are and how far along are all that process I see that that can be a slow market a charge sticky on but having a sense of how to correct that market at this point.
Yeah. We're we're the we're working with one significant size.
The murder in one significant size project that is a very close to the start of production or we're working with other customers, but at a much much earlier phase of the cycle.
Okay, I'll take that offline, but just.
Oh.
Oh boy.
Just.
Hey, Thanks for taking my questions.
Just on the commotion or suggestion make so could you talk about when it comes to view the growth of the 50% I think I've said for a.
Oh from Q2 to Q4 for residential does that imply.
U.S. residential shipments a flat year over year, how I know just wanted to see how should we think of what that mix going forward just to go back to that 60 40.
The strange we saw a sharp you for Q4 and next year.
Yeah Baby.
Sure.
The big difference between last year to this year in the fourth quarter say follow them.
So there is no more no safe harbor assumed shipments in our Q4 residential North America.
Revenue so it is.
It is significantly down from the same period of last year.
Partially because of safe harbor in parsley, it's still at the lower rate then in 2000 and I think.
Yes.
Got it.
Just high level on the battery project launched yet said <unk> did but few months yet.
But beyond that.
It's almost <unk> couple solution.
If you have any I'm, sorry did you see coupled or how would you think about just retrofit opportunities and most of the customer so far enough in the Oh opting for an AC couple of solution.
So as I mentioned we.
Approximately 50000 systems that are installed that or do you see coupled solution with a third party batteries typically LG Chem originally a tesla.
Battery is obviously the boom, we we believe in and this number of 50000 is quite significant revenue compared to any other storage residential storage system. A busy couple of has a lot of advantages that it allows for oversizing and Oh, the PV and.
The modules and harvesting all of that the energy during a period of a oh blackouts.
And extending the time that are that you are resilient to the absence of towers, so and its more efficient because it's a if it is just the number of people jumping back and forth in DC to AC. So so we believe in and as I said, many customers adopted the idea that the beaches coupled system is a is better and that we still have many.
It depends on top of these 50000 that are installed in an AC coupled.
Configuration.
Our battery will be primarily these examples is that the right way to do it but it's not that there's any technical reason why it won't be able to be a pick up.
<unk> capital partners from Philip Shen.
Hey, guys. Thanks for taking my questions.
You know in terms of the solar I look it was a much weaker than we were looking for.
For Q4, and I know you talked about strength in Europe and also in U.S. rising market I was wondering if you could talk through.
What did you expect.
Or the reasons for that potential weakness and then as you look into 2021.
I know you haven't given guidance and don't plan on it but can you talk through how you expect the solar revenue is possibly to a true.
<unk> to trend next.
Next year. Thanks.
So I think it is in.
In summary, and that's what we tried to say in the end. The common there are two factors that are that are I would say below expectations or or shifting the Q4 down one of the typical seasonality in Europe. So Europe has been excellent for us this year, it's been excellent sales into three <unk>.
We're still going to be pretty good in Q4, but it's going to be down from Q3 as it is ah practically every year or the second challenging element is a commercial so commercial revenue for us has been declining I'm looking for the last couple of quarters and it's now going to pick up in Q4 those are.
Are those or you know below expectations, if you will and be positive because on the residential North America, where we were expecting a significant growth.
From Q3 to Q4.
As inventory levels are down and installation rates are significantly up or than they were.
Earlier or earlier in the year and and are coming close to those of the same period of last year.
Great and then in terms of 21.
[laughter] sorry.
This is very early to say.
If you look at all of the question marks around that thing and then make a et cetera. We we believe that the sales strength. That's worked for us during the challenging times of 20. Its one thing in terms of our geographical spread and our product diversification looked at less than they are in a good fit.
He said for 2021 hour if the market is recovering.
Across the board.
Then meaning in geography isn't all segment, then we will be in a great situation because we are all for the most part.
From a market share position as far as weak as though if anything in a better position than <unk> in most.
Our country than most segments than we were a year ago and somebody said month coverage point of view, we're covering more segments with a larger inverters and they like.
Got to cover bigger parts of the commercial markets or you know some of the residential additional.
Offerings that we added like in Australia, I like the Schneider Corporation that gives us access to the new home market, which we previously were very weak or practically nonexistent in so putting those together where we were.
As to what is in our control. We feel we are very optimistic about 2021 in terms of our share position in the geography is going to be offering that we have.
And Ah and again in in early or at some point just want to be 21 also be a battery.
Revenue will start kicking in or the question Mark on the dynamics of the market and how all kinds of external factors will affect that that's that's out there, but our control and it's difficult for me to try and predict any better than what is publicly published.
Well hear next from Jim Ricchiuti with Needham and company.
[music].
Hi, Detrick commercial and she and I business is that more concentrated Andy you watch.
No absolutely hours see Allied business is very strong in Europe.
It's a very strong in Australia.
Man hours C.N.I. business in the U.S. is is smaller compared to those but it's still a significant a this isn't a significant opportunity.
So when you talk about she had some some positive signs.
In the month of September side business in the U.S. and what are you seeing in some of the other geography was which clearly are more important right now Lynch.
Oh, So I mentioned in the <unk>.
Hi, Mark he doesn't want to be in Australia and Europe.
Will be down compared to Ustwenty 9 billion, while the residential markets in both the Oh region will be up.
Compared to a peak 2019, <unk> I don't have the ratio on top of my head, but Oh.
But the markets are probably in the range of.
10% to 15% down maybe it and again I.
I don't remember the number or the.
The number exactly so that's so that's that's roughly the the Oh, let's see and in that regard.
Okay.
I get you one or.
You may have given some some color on Opex and I may have just missed it but I'm just wondering how we should be thinking about opex just show US yeah, what is particularly with with some of the R&D levels moving up a little higher how should we be thinking about that run in Chile for the current quarter.
So in general it shouldn't be a very close to in Q4 compared to what you think you'd be willing to look a little bit of enough to as you mentioned before.
Certainly the Nonsolar businesses. These are businesses that we are developing and we are in an investment mode. So that means that there is we are indeed, we are increasing sales and marketing activities and replace it with a more customers than newer markets.
When it comes to the solar business here there.
There's a little bit more mature and therefore no major. Additionally, we are needed in most cases you.
R&D, though we are a unique opportunity that you eat salad now or in the market <unk> somebody else that but so from other companies and we now have opportunity people that maybe prior to cool we were not able to do it. So in generally controls are in beacon role.
Sales and marketing within relatively similar and you didn't make the most of the changes that we are related to I would go to the external factors that are not within our control that may be a judgment that that you had to meet a that we need to do a cool or more extensive insurances, but not something that.
<unk> goal as a company.
Well hear next from Brian Lee Goldman Sachs.
Hey, guys. Thanks for taking my questions I guess first off on the.
Let's see high market in Europe can you give us a bit of quantification around sort of where inventory levels.
She kinda weeks basis, and where they are today and kind of how you see them trending going forward and then you know what the inventory situation are you seeing pricing getting a bit more.
Competitive in that space, just given that's always been an area, where you had more.
No more suppliers, you're competing against in general and then.
Hello.
[laughter] so.
Trying to put out the exact the exact data so what well do.
Good day to give a feel for a lot of inventory levels in Europe for residential products already be.
And then.
[laughter] raise.
For converse.
Commercial products the inventory levels are about one and a half from about one and a half corridors. So about 14 15.
Yeah. So so that's me and that's roughly the inventory levels or deny her assist residential versus residential in Europe.
The second part of the question just remind me Brian.
Just around how about pricing trends just given the inventory if you're seeing some of your peers being more conservative or aggressive on pricing.
Okay. So many deny in particular in Europe, the price or the difference between our.
Selling prices is practically the only I remember before for C.N. <unk> globally and in particular and in Europe are quite significantly higher than the standard string inverter pricing in Ah Ah in the region. So the big gap is so big that it does not.
The smoke.
Yes, racism price don't really impact.
Market there my concern to us it's just a b.
Execution of the project is being delayed and then those that chose to do their project with a with a remote be solution or with our solution as long as the project is delayed they're not pulling the product out of the distributors.
But those are not that we are replenishing and that's Ah Ah what we expect will gradually resuming project will get back to being constructed at a higher pace, but right now companies are moving slower on these type of investment decisions.
Okay Fair enough and then just a second question Roni unless you mentioned the margin.
Historically I think you had talked about a four to 500 basis point delta between U.S. threats, he and [noise].
Yes, Europe seems like for example, and so on.
Today It sounds like it's comprised can you give us a sense of where it is today and then just.
In that context, I thought the margin guidance for Q4, maybe would have been better given the 6%.
Oh, sorry quote unquote order growth for your best margin.
So that strategy so.
Maybe if you could just provide a little bit of color on all those moving pieces then.
March.
Looking a bit higher than the guidance for Q4. Thank you.
Sure. So it's a combination of several things first of all its I would say that it was close to 400 basis.
They just words before I would assume that today, it's closer to 200 basis points are due to be a euro strengthening against the U.S dollar.
But there are many moving parts that are coming, especially right now at least a point of time when we're talking about margins when it comes to the United States first of all products going into the United States of course from a areas with very far holding a higher costs and actually the noncash.
Various countries are still.
On a like to like basis more extensive than a big them to carry saw manufacturing that we have in China, and therefore, specifically on those products, we see today as the business ramps up.
A little bit of a lower margins than the usual you add to this the fact that some part of the sales that were going to do into the United States are coming now from our seller one factory needs will you keep it going into a ramp up phase that means that you do not have even.
Straits two sheets today. This is a a factory that will go up to three sheets towards the sick and a a quarter of 2020 and that means that again that the little bit more costs are now built into those specific products. So the reason for the I would soon.
Lower gross in the margin when we go into more sales in the United States is first of all the compression of the difference between the euro and the dollar a bit the sales in Europe and the <unk>.
Let's do the Euro and second is because of the cost elements that are added to today on the U.S. products more than we had them the disease course elements on that loan a U.S. products.
And I guess the questions I just I want at this time, we'll hear next from Joseph All shop with JMP Securities.
Oh, Hello, everybody to two questions first I'd like to return Emobility, you've heard about how that that business is margin dilutive for the near term I'm trying to understand what a success case looks like does this business event, we get to the point where it is at.
The the level that the rest of the business is bad and roughly what sort of scale or would you need other peoples ability to get to that level and then I do have a follow up.
Yes.
Oh, so first it's important but this is a long term.
Move, but certainly.
Obviously the potential of this market.
It's huge and as we explained also be another thing, we believe that the bode well within our slate.
As a company and technology and and manufacturing technology.
So potentially a the scaling in.
Bunch more significant than the scale of the PV industry, but but that is a that the years.
Are years away. So when we're looking at what the success now it is moving from a production of a penny.
Ah 200, which is a little bit we're beginning to do it this quarter and moving to the thousands of units in the next six to 12 to 12 months and and beyond and improving margin and profitability as we go along with what were selling today when a product.
Before we acquired the company that we acquired them as a result, our ability to optimize them cost reduces is limited in the way that the automotive industry.
Operator, so it is something that has a tremendous.
Potential that this is a it is a long profit so about a will materialize or should enjoy good profit right you're going to be well top line. We believe that this slippage. If you begin to see a benefit already and on the shorter scale than within six to 12 months.
Okay, I guess, that's clear apart when you heard for the first time this quarter and you did mention when you talked about the fourth quarter. The new mobility was big enough that it beginning to sort of see a blip into the overall calculation for the financial model of <unk> or you're you're talking about going from no.
Tens of units to hundreds of use and you asked about that so that this is going to become highly relevant say 12 months from now. So is there any way you can kind of help us put some.
Brackets around what this is going to mean for to what the financial model looks like understanding that it's still early days.
[music].
Yeah, I think it's still early.
He wants to give Daffy mall in a specific number a framework, where I think the positive for us in this regard to commit.
Morning.
In terms of where we solidified.
[noise] short to mid term contracts that allow us to give you the information that allows it to fit it into the model for the next Oh, its all itself just wanted more.
24 months that at this point, it's still in the and the range of a handful of million dollars of corridor.
Which doesn't really impact the the model of the company.
Well hear next from Jeff Osborne with Cowen and company.
Hey, good afternoon, most of them at most my questions have been asked but I just wanted to follow up on two things one energy right. You mentioned the 330 kilowatt utility scale inverter is I know targeted for late 21, I was thinking that that was coming out either later.
This year early next year, but I got to say.
Second on the timing.
Hi in terms of especially because he intends.
To do a ics longer alpha and beta testing, where this type of product, which is our first real endeavor into medium voltage sites installations and utility scale. So.
Whereas we as I mentioned, we began to produce prototype will be moving into outlet.
In the earlier part of the year, but but real volume shipments and a it will be only in the late part of 2015.
And is that just to be clear is that in time or in line with the timing that you were thinking a year ago or no.
Roughly yes HM.
And then maybe just one comment there Ryan had on the storage side can you just crystallize what exactly the certifications or delays that you're referencing as it relates to Cove. It is that the qualification of third party sales on the integration into new packs or is there. Some type of safety test. It was just unclear what what exactly you are referencing.
That's leading to the few months away.
No. So the battery the phone battery system level, a certification both in Europe and in the U.S., but.
But ah that's yeah batteries Ah in routes to the lab and and usually in this type of condition. We would want to have people. There. So that's any type of the buggy getting corrective action is aligned on the stuff that cycle is going to be longer under these circumstances, and then really production we've began to.
Using a initial units in the factory in Hungary, and again without our R&D people President is on the line.
It is becoming a it's all of these cycles are taking longer its all about the battery, that's not well or at the top level that's at the battery life.
Well hear next from Marshall.
Hi, <unk> energy advisors.
[noise] Yeah, you you somewhat of transmission was the last question, but the.
So the longer I would imagine at this point there longer term pattern.
Battery targets, such as the $300 million you're 2022.
Those are now pushed back at least a couple of quarters as well.
No actually you know the numbers that you gave the bandwidth even dollars targets that you probably do that through eight.
Based on sales coming from our do you go back to equal come in Korea. The battery that we are now testing and should do you as a.
Our third generation, but they.
Based on third party sales and therefore, they are billion. These one he's looking for the blind to the delay to a possible delay on the battery, it's never going to quote comes back to it.
Okay very helpful. Thank you and and you gave the commercial inventory levels.
It's working the 16 weeks, we've got in Europe or for the total company and could you give a similar number for the residential.
Tori levels.
So that was where you have been at the company level, it's it's quite quite similar to that range of.
Around a couple of quarters.
And residential also company level it varies a little bit between countries within the seven or eight weeks and that type of range.
And at this time I'd like to turn things back to see Lindo for any closing remarks.
[laughter].
Just to thank everyone for joining us on the call and I just wish each everybody to stay safe.
Thank you.
Yeah.
And that will conclude todays conference again, thank you all for joining us.
[noise].