Q4 2020 Solaredge Technologies Inc Earnings Call
Good day, everyone welcome to the solar Etch conference call for the fourth quarter and full year ended December 31, 2020. This call is being webcast live on the company's website at Www Dot solar etch dot com in the investors section on the EBIT calendar page. This call is the sole property income rate of solar edge.
With all rights reserved and any recording reproduction or transmission of this call without the expressed written consent of silver rich is prohibited.
And to a webcast replay of this call by visiting the event calendar page of the solar edge Investor website, I would now like to turn the conference call over to the aircraft.
At Sapphire Investor Relations Investor Relations for Silver Rich. Please go ahead.
Good afternoon. Thank you for joining us to discuss the <unk> operating results for the fourth quarter and full year December 31, 2020, as well as the company's outlook for the first quarter of 2021 with which the C V Lando, Chief Executive Officer, and round and fire Chief Financial Officer.
There's no will begin with a brief review of the results for the fourth quarter and year ended December 31 2020.
Rounding will review the financial results for the fourth quarter and full year, followed by the company's outlook for the first quarter of 2021.
We will then open the call for questions.
Please note. This call will include forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations.
We encourage you to review the Safe Harbor statements contained in the press release and the slides published today for a more complete description.
One of material contained in the webcast is the sole property and copyright of solar edge technologies with all rights reserved.
Please note. This presentation describes certain non-GAAP measures, including non-GAAP net income of non-GAAP net diluted earnings per share, which are not measures prepared in accordance with U S. GAAP.
The non-GAAP measures of presented in this presentation as we believe they provide investors with the means of evaluating and understanding how the company's management team 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 and per.
Prepared in accordance with U S GAAP.
Well, it's the nurse, who do not have a copy of the quarter ended December 31, 2020 press release or the supplemental material may obtain the copy by visiting the investors section of the company's website now I will turn the call over to Susie.
Yeah.
Thank you Erica.
Good afternoon, and thank you all for joining the firm that were conference school.
We are pleased to report that we have concluded the quarter with revenues of $358 million and the year with record revenues of $1.46 billion.
Revenues for the fourth quarter in our solar business were approximately $327 million also above last quarter's of solar revenues.
Our solar revenues this quarter reflects strength in the U S residential market, which we had the anticipated in our earnings call last quarter.
The quarter over quarter growth in shipments from the residential segment in the U S.
Well in excess of 50 per cent.
We expect the strong growth in our revenues from U S residential products to continue in the first quarter of 'twenty 'twenty, one as well.
We have also experienced very healthy growth in our solar revenues from countries outside of the U S and Europe with record quarterly revenues in Australia, where we finished <unk> with over 30% of year over year of growth.
Oh of Europe's silver solar revenue was down from Q3 as the.
The typical seasonal behavior of the European market.
Over on an annual basis, we are closing the year with record solar revenue in Europe for $579 million.
Up from $522 million last year.
That's probably the Netherlands, Germany, Italy and Poland.
We are very happy with these results in particular in the challenged over the year.
This quarter.
We shipped over one point of 36 Gigawatts of the AC nameplate Inverters, approximately 457 megawatts of which were shipped to North America.
The Europe consisted of 500 of 94 megawatts.
From a segment of a point of view.
We shipped this quarter of 556 megawatts of commercial products.
And the 798 megawatts of residential products.
This group represents the strength in residential I discussed earlier and the noticeable reduction in commercial shipments in line with what we explained in our call last quarter regarding the slower recovery of commercial installations and the higher inventory of commercial product in the channel.
In the fourth quarter, we believe commercial installations worldwide were still impacted by the economic slowdown. However, we did see an increase of the installation rate of our commercial products and the reduction in inventory levels. This quarter, which we believe indicates that the recovery of the commercial segment is under.
The way.
Overall this quarter, we shipped $3 6 million power optimizer and approximately 166000 inverters.
As discussed in our last call the ramp of production in our sale of one manufacturing facility in Israel continues.
This together with our manufacturing in Vietnam, and Hungary will enable us to supply of approximately 85 per cent of our U S products without tariffs by the end of the first quarter of 'twenty 'twenty one.
On the product side I want to spend a bit more time on our residential offering and in particular, our complete storage system.
We continue to see good market acceptance and strong demand for our energy hub Singles' day storage and Burger.
In the fourth quarter, we shipped to the U S close to 15000 energy hub Inverters.
Up from approximately 6500 in Q3.
So far we released the energy hub and power levels between 3.8 to 7.6 kilowatts in.
In the coming months, we will release the high powered version.
Within Burger offerings of 10 and 11.4 kilowatt.
The high powered versions are especially important as average installation sizes increase with consumers being more aware and the interested in more power and more storage of energy for backup in the outage scenarios.
Our energy hub supports two day you'd be charge of integration multiple battery through increase the capacity.
And most of the inverter configurations to our backup interface for increased power.
In the coming months, we will add the generator of integration and high backup power models, allowing seven feet of water and 10 kilowatts of continuous power.
Critical for backup of a typical of the house load during power outages.
The product is designed to handle the consumption patterns that we have learned from our installed base of tens of thousands of battery connected the inverters.
We see the energy hub is the differentiated storage system optimized for energy harvest and the energy management in grid connected and backups scenarios.
The complete the system the energy hub is connected to a battery in the DC coupled configuration.
Aim to enabled harvest things of all of the energy from the module on the roof.
To clarify typically of system as the oversized such that the total power of the module on the roof or of the individual module is larger than the capacity of the inverter.
As such and in the AC couple of configuration, the utilization of the energy generated from the roof will be limited by the size of the inverter.
And our solar arrays of D. C couple of configuration all of the energy generated by the modules will be harvested in.
Either use the power of the required house consumption.
Or to charge the battery in parallel.
Extending backup time and increasing system utilization.
The energy had been birder can be coupled with the third party battery as we currently offer.
Our own battery.
In that regard we are on track with the schedule discussed last quarter.
Of the initial shipments of our own battery in Q2 and meaningful volume in Q3.
Okay.
In the commercial segment, we are beginning these day shipments of the new enlarged synergy of inverter with power rating of up to 120 kilowatts.
In parallel we began shipments of higher power of commercial Optimizes of up to 1100 watts for the two module configuration.
In order to match the trend of high power modules that are becoming available around the world.
The higher power modules.
The optimizes the Mb.
With the higher power inverter will reduce the cost per watt for our commercial installers and we expect will increase the adoption similar to what we have seen in 'twenty 'twenty one of our annual commercial the megawatt shipments were up more than 25 per cent compared to 2019.
In addition, we are seeing growing adoption of our designer software workflow solution, which enables installers to easily design complex rooftops and seamlessly export the designed for quick installation and monitoring setup after installation.
On average every month approximately 70000 designs are created on the platform by more than 12000 installer of accounts.
Moving to our non solar business.
As announced earlier today. So the words E mobility has been selected as the tier one supplier for the full powertrains and batteries for the Fiat E. Newcastle.
For those of you who are not familiar with it the vehicle does he have the catheter is recognized by many as the leading light commercial vehicle in Europe and it has been produced since 1981.
Recently FCA presented the electric version of the New Plateau, and we are proud that celebrates the mobility has been selected to supply the full powertrain and batteries for this vehicle in Europe.
Our solutions include Inverters DC to DC converters battery onboard Chargers vehicle controlled units and software for electrical vehicles.
As I have mentioned in past calls we have already delivered prototypes for close to 100 EBIT of two vehicles that are accumulating mileage throughout Europe today.
We believe the experience gained through this project, which has including the adapting some of our production line to automotive quality standards.
Serve us and our solar and the other businesses.
Well beyond the the already exciting news of being part of the E mobility industry.
The automotive industry plans at the vehicle here's before they hit the road.
This nomination reflect the long term investment and is in line with our growth plans beyond solar.
I've laid out in our earning calls and the form the basis for our acquisition.
Subject to market the acceptance in 'twenty and 'twenty, one we expect our E mobility business to deliver between 100 of $220 million of revenue.
And now where energy storage Division hook items revenue grew by 25 per cent this year and for the first time in many years co Pam it's profitable.
As a reminder, we completed the coke on the acquisition in October 2018.
And this year, we have ramped the existing lithium ion cells and battery packs activate the full capacity.
This quarter. We also welcome S W. John to our team as the general manager of Coca.
Mr. Jiang as an industry veteran with more than two decades of experience in leadership positions in Samsung electronics.
[laughter].
And we are excited to have him on board to lead our energy storage business out of Korea.
This quarter. We also began construction of our seller to factory in Korea.
This factory, which is part of Qualcomm represents another pillar of our growth strategy beyond solar.
And once completed the manufacturer two gigawatt hour of lithium iron sales per year.
The factory spreads over 56000 square meters just outside of solar will.
It will be of state of the art manufacturing facility and is expected to start production in the first half of 2022.
This capacity will enable us to supply the sell through our own battery storage solutions.
And for other applications.
We ended 2020 with record revenues of $1 $46 billion slightly above those of last year.
Like most when the pandemic hit we adjusted both our expenditure in forecast.
Into account the impact of the economic slowdown and given the circumstances. We are pleased to have completed the year with revenue slightly above those of last year.
No less important we were able to deliver these results, while continuing to invest and execute on our solar and non solar growth strategies.
With this I hand, it over to her in who will review our financial results.
Thank you Suzy and good afternoon, everyone.
The financial review includes the GAAP and non-GAAP discussion will.
Reconciliation of the pro forma to GAAP results discussed on this call is available on our website and in the press release issued today.
Total revenues for the fourth quarter were $358 $1 million, a 6% increase compared to $338 $1 million last quarter and of 14% decrease compared to $418 2 million for the same quarter last year.
Revenues from the sale of solar products were $327 $1 million of 5% increase compared to $312 5 million last quarter.
U S solar revenue this quarter were $132 $3 million and represented 44% of our solar revenues.
One of the revenues from Europe were $146 $7 million or 45 per cent of our revenues.
This quarter, our top 10 solar customers represented 64% of our solar revenues and included more European customers than last quarter.
Customers accounted for more than 10% of our solar revenue.
While the pricing levels remained stable this quarter blended ASP per watt for our solar products increased by approximately $12 five per cent compared to last quarter of direct results of the higher revenue from residential products offering and an increased portion of revenue derived from the United.
<unk>.
In line with what see the explained inventory levels held by our distributors in the United States were healthy on the residential side and still higher than desired on the commercial segment.
This is in line with our expectation and these levels will return to normal towards the second quarter of 2021.
This quarter revenues from our non solar products were $31 million led by sales of lithium ion batteries by Qualcomm and increased sales by E mobility.
GAAP gross margin for the quarter was <unk> 38 per cent compared to 32% in the prior quarter and 34, 3% in the same quarter last year.
Non-GAAP gross margin for the quarter with $32 five per cent compared to 33 five per cent in the prior quarter and 35, 5% in the same quarter last year.
Non-GAAP gross margin for the solar business was the 36, 2% compared to 34, 8% in the last quarter in line with our solar gross margin target of 36, plus or minus 1%.
This increase in the non-GAAP solar margin is the result of larger portion of U S revenues increased portion of residential products out of the total revenue improved the exchange rates on sales in Europe, and the cost reduction activities, including reduction in the portion of Chinese made products.
Our subject to custom tariffs in the United States in our overall product mix.
This quarter, approximately 60% of products shipped into the United States came from our non tariff production.
Hello, one production continued to ramp according to plan and the is expected to reach full production capacity at the end of the second quarter of 2021 until then the Ram has a negative impact on our gross margin.
Non-GAAP gross margin for our non solar activities was the minus $6 four per cent compared to positive 16, 9% in the previous quarter.
The decrease was mainly a result of an increase in E mobility pre production expenses related to the Eden capital projects.
The powertrain unit sold in these projects are highly complicated systems that includes several components that are produced in part by contract manufactures and assembled in our Italian manufacturing facilities.
Over the last quarter, we have been building manufacturing capacity in Italy that includes an increase in the number of employees and associated expenses that are charged into the cost of goods sold.
As a result of the relatively small number of units currently being produced the complexity of manufacturing and the fact that we have built the production capacity that can suffice the projected manufacturing levels. Starting in Q1 2021, our margins on these projects are currently negative.
Once we stabilize the manufacturing at the higher output level.
The margin will be at the single digit level based on current and piece of paper volumes.
Moving to our operating expenses.
In total GAAP operating expenses for the fourth quarter were $95 $9 million or 26, 8% of revenue compared to $77 $7 million or 23 per cent of revenue in the prior quarter end to $92 7 million or $22 two per cent for free.
Revenue for the same quarter last year of May.
Part of the increase this quarter is the result of stock based compensation.
On the non-GAAP basis operating expenses for the fourth quarter were $72 $9 million or 24% of revenues compared to $63 $2 million or 18, 7% of revenue in the prior quarter and $63 1 million or $15 one per.
<unk> of revenue for the same quarter last year.
Our non-GAAP solar operating expenses as percentage of solar revenues were 18, 9% compared to 16, 7% last quarter.
Our GAAP operating income for the quarter was $14 $4 million compared to $34 million in the previous quarter and $55 million for the same period last year non.
Non-GAAP operating income for the quarter was $43 5 million compared to $50 million in the previous quarter and $85 $3 million for the same period last year.
This quarter non-GAAP solar activities resulted in operating profit of $656 $5 million compared to an operating profit of $56 $7 million last quarter.
This number represents 17, 3% of our solar revenue and he is slightly lower than our 20% to 23% long term operating profit moving.
The non solar activities resulted in a non-GAAP operating loss of $13 million compared to an operating loss of $6 $6 million in the previous quarter, mainly from our E mobility Division.
Financial income for the quarter was $10 $4 million compared to the financial income of $15 $8 million in the previous quarter and financial income of $11 1 million for the same period last year.
The income is the result of foreign currency changes offset by increased finance expenses related to the accounting treatment of our convertible debt and leases.
Tax expense was $7 $2 million this quarter compared to a tax expense of $2 $4 million in the prior quarter and $9 2 million for the same period last year.
Our non-GAAP tax expense was $4 $6 million compared to $1 $6 million in the previous quarter and $10 $4 million for the same period last year.
Our tax rate is positive would be affected in the last quarters by higher deductible expenses for tax purposes, resulting from exercise of employee stock compensation.
GAAP net income for the fourth quarter was $17 $7 million compared to a GAAP net income of $43 8 million in the previous quarter and $52 $8 million for the same quarter last year.
Non-GAAP net income was $55 $7 million compared to a non-GAAP net income of $65 $9 million in the previous quarter and $87 4 million for the same quarter last year.
GAAP net diluted earnings per share was the 33 cents for the fourth quarter compared to 83 cents in the previous quarter and $1 three for the same quarter last year.
Non-GAAP net diluted earnings per share was <unk> 98 cents compared to $1 21 in the previous quarter and $1 65 in the same quarter last year.
Turning now to the balance sheet as of December 31, 2020, cash cash equivalents bank deposits restricted bank deposits and investments were $1 $2 billion net of debt cash cash equivalents bank deposits restricted bank deposits and investments were five.
<unk> hundred $32 million.
During the fourth quarter of 2020, we generated $27 million in cash from operation.
A R net increased nominally this quarter to $218 $7 million compared to $183 $1 million last quarter.
Yeah. So this quarter in the solar business was 75 days, an increase from 70 days last quarter.
As of December 31, 2020, our inventory level net of reserve was at $331 $7 million compared to $297 million in the prior quarter.
The substantial portion of this growth is attributed to an increase in raw material inventory in anticipation of the startup of production in our E mobility division and to a lesser extent an increase in our finished goods in the solar business.
Let's move now to summarize the full year of 2020.
Revenues for the year were $1 $46 billion, a two 4% increase from $143 billion in the calendar year 2019.
Revenues related to our silver of business, where 136 billion, a one 5% increase compared to 2019.
GAAP gross margin was 31 six per cent compared to 33, 6% in the prior year non.
Non-GAAP gross margin was 33 per cent compared to 34, 9% in the prior year.
GAAP net income for 2020 was the $143 million 84, 2% decrease compared to $146 $6 million in the prior year and GAAP diluted EPS of $2 66, compared to $2 90 in the prior year.
Non-GAAP net income for 2020 was $224 $4 million of three.
$3 five per cent decrease compared to $233 2 million in 2019, and the non-GAAP diluted earnings per share of $4 11 comp.
Compare to $4 44 in the prior year.
Non-GAAP net income for our solar business with $264 million, a 4% increase compared to $254 1 million in 2019.
This year, we generated $222 $7 million in cash from operation.
Moving now to the Guy to guidance for the first quarter of 2021.
We expect revenues in the first quarter to be within the range of $385 million to $405 million revenues.
The revenues from the sale of solar products are expected to be within the range of $360 million and $375 million.
We expect non-GAAP gross margin to be within the range of 34% to 36%.
Non-GAAP gross margin from solar activities is expected to be within the range of 36% to 38%.
I will now turn the call over to the operator to open it up for questions operator. Please.
Thank you at this time, if you do have a question that will be Starwood. We do ask that you. Please limit yourself to one question with one follow up again that will be start one for questions. We'll hear first today from Mark Strouse with Jpmorgan.
Yeah. Good evening, Thank you very much for taking our questions.
Good to see the the commercial channel inventory, reducing curious if you can just quantify that though.
On the last call you mentioned around 14 15 weeks.
It is kind of where more of where that stands maybe as of year end or as of today would be even better. Thank you.
Okay.
So so the number is the.
The slightly lower this quarter, but not dramatically and again it depends on the.
The difference between Europe, and the United States, where in Europe, we see of the weeks of inventory is decreasing while in the U S. There of decreasing two of lower extent I think that the more interesting part, though is the fact that we do start to see more installation of happening in the commercial.
Segment, and therefore, we now expect the dip this kind of inventory levels will start dropping a little bit quicker, but in general we see a small decrease.
Okay, great. Thanks, and then just a quick follow up.
Hearing from some others are in the administer youre talking about.
The component supply issues semiconductor supply issues.
Is it any impact for all of them on.
On your supply chain.
Is that reflected in guidance.
So in general the Mark Oh, it's something that we used to see in the past these kind of.
On the shortages.
And we actually force. So these are coming in in the last few months and got ready for this as you can see reflected in our inventory levels of our inventory is a little bit higher than the unusual first of all due to the EBIT loss of a project, but also given the fact that we are holding the relatively large amount of comp.
Ponant of critical components of raw materials that we hold in anticipation for these kind of shortages.
At least the disappoints of the time, we feel that we can manage through the shortages, we do not see any.
Impact on.
On the production and we're looking at it very closely at the same time, we continue to have a very close relationship and discussions with our suppliers because in many cases, we became a major portion of those suppliers.
Our capacity or sometimes a sales and therefore are both them and us have good interest in staying in the very close touch and making sure that we're well coordinated so at least the disappoints, we do not see of major effect.
Okay I'll hop back in queue. Thank you very much.
Yes.
Well hear next from Stephen Byrd with Morgan Stanley.
Hi, Thanks for taking my questions.
I wanted the first talk about the E mobility business and just you kind of nice success here curious in terms of the opportunity more broadly.
You've had the dialogue and work with a number of the Oems what is your sense of the the potential to replicate what you've done here.
To kind of extend your relationship with the additional Oems.
Do you kind of feel about the yeah.
The opportunity beyond what you just announced.
So obviously, it's a huge market with the lots of potential at the same time.
Processes take a very long time in this industry and we don't anticipate any quick wins.
We're happy with this project the experience that we gained in this project the helped us.
Improve the product to improve our production capability.
Gain of lots of experience from all of the mileage that was accumulated.
And we hope to get the future fruits out of this learning of investment, but we don't foresee any quick wins in the shortest a y on.
But it's a you know we're excited about this project and excited the for having a foot in the door of this of this huge opportunity.
That's helpful. If you could provide some prepared comments on sort of the the size of the opportunity here with the I would you mind, just speaking of a little bit further to that to the extent that.
The relationship continues to work well could you just speak a little bit more to sort of volumes and you talked about the margin situation now could you just talk a little bit longer term in terms of your aspirations there.
Okay.
Mentioned in the comments.
The large extent it depends on the acceptance of the.
Of the vehicles that we're we're optimistic.
We know it's the very popular.
Vehicle around here in Europe, and we see of frequency on the road here and in Israel as well.
The scale that we are you know what.
I presented that in our numbers is the scale of the of thousands over the next of the next few.
A few years.
But again it can go in either direction based on market the market acceptance.
Well move next to Colin Rusch with Oppenheimer.
Oh. Thanks, so much that can you tell us a little bit more of a you know the trend line on the Opex side, how can you touch on that on the non-GAAP basis, the trend over the next several quarters.
Yeah.
So first of all the better the coding and you mentioned the non-GAAP you need to understand that there is the big difference that you can see and it's growing between the GAAP and non-GAAP a lot of it is related to the stock based compensation given the fact that you know stock price hike, so much and therefore.
These expenses are representing a growth of a bigger portion, but in general I would start by saying that the way that the we'd like to see.
Our gross margin is in a way that allows us to be between 20% to 23% of operating profit on the non-GAAP basis. So that means that we are aiming at around 15%, 16% of our non-GAAP operating expenses coming for the solar business.
Now I think that we need to differentiate here between the solar and the non solar business in the solar business. The revenues are relatively high.
And as long as we're able to maintain growth rates are the numbers of the revenues and the impact is going to be so large that you should see an operation of liver, where when the numbers are growing operating expenses as a percentage of revenues will go down we continue to invest in R&D as much as we can today, it's hard to.
<unk> much more or as quick as we would like the RMB simply given the fact that we already have the base of many people. So therefore it to get many people in the short time is an issue on the sales and marketing and G&A. There are economies of scale and therefore, we should expect to see the operating leverage.
The continuing.
The issue and the Big question is usually around the newer businesses. Because these are businesses that are in a.
The call it the investment mode and naturally we would like to invest there in R&D or market development. So for example in the E mobility space, we definitely want to increase the our product selection and we want to go to newer generation in general there I would assume that you may see a situation.
Where are the growth in operating expenses is similar to the growth that you will see in the revenue, but when you tie everything together with the solar that is so much bigger than the others again, you should see that in the overall picture as the percentage of revenue.
Non-GAAP operating expenses should decline over time.
Okay. That's helpful and then in terms of the the rollout on the storage product qualification on that.
The could you just give some of it on the timing of when you expect to start shipping.
Net can volume so that's the.
The product and then you know can you tell us a lot of it about the incremental development expense to address the.
Okay.
Capability into that price.
So in terms of battery readiness, we are in the midst of the certification.
Certification processes right now.
And and that together with completing the building up the manufacturing line is what is leading us to the projection of the initial shipments within the second quarter and in meaningful volumes in the third quarter of that.
The schedule this week.
Communicated last quarter and so far we are we are on track with that.
In terms of there's no, especially of incremental R&D are related to generate of integration actually the hardware is compatible already it's a matter of of the.
The roadmap for the software version releases.
The.
The causes the fact that the feature will be fully.
Operational a couple of out of a few months from now.
Yeah.
And from Roth Capital Partners, we'll hear next from Philip Shen.
Hey, guys. Thanks for taking my questions lots of follow up on the storage question the.
In the past the new Guy.
I have talked about targeting seem to go up.
All of our run rate.
The <unk> business.
One of one.
So the Q4.
Dismal at all sorts of was there.
All of it.
More of like boom.
2020 of causal.
One of them.
I actually feel here I think that the there is a little bit of.
Maybe I missed this.
I'm not good enough explanation on Earth day in general the.
The two gigawatt factory that we're building will be will be and the construction will happened at the end of 2021 at that point, we will have the factory with all the equipment and capacity needed to manufacture two gigawatt hour of year, but from that point of time, we will need the few months to start <unk>.
Being up the activities in the facilities in the are in the new factory and this is something that takes a little bit more time, so while the capacity the.
Built capacity of two Gigawatts will be there at the end of 2021 only in the first half of 2022, we will be able to ramp up the production with all of the three shifts and all of the processes to get to this kind of a run rate.
Okay.
So as the fault there.
You guys talked of a.
Revenues from the mobility of the $100 of $20 million.
What do you think storage can contribute this year.
And perhaps the mix by quarter well first of all.
Thanks.
So in general here again. The main question is going to be of course, the timing, which currently looks on track but as.
As noted before we believe that the anything between the hundreds $150 million. This year is a number that we're aiming for.
Okay, great. Thanks for that of all of them.
Well hear next from Jed <unk> with Canaccord Genuity.
Hi, Thanks for taking my question and congrats on another solid quarter.
Quick question I guess, just on the HD wave and on the solar products, the Inverters specifically, where.
Where are you in the process in terms of the conversion from silicon to our wide band gap and then I have a follow up to that.
So in the current version of one of the any energy hub.
We are using the same using the standard silicon.
For these for these generations.
The for newer generations, we're looking at different alternatives obviously.
Got it I mean, I'm just looking at the analog device spec sheet here, the unless you guys and.
And about a 50 to 60 per cent reduction of comport component costs and so I'm. Just curious is is you see of potential supply demand rise in the commodity cycle here.
Seemed like reduction.
The reduction of the passives and in particular of copper.
It would seem like a great hedge in terms of that shift what's keeping you back from for making that transition.
Sure.
Honestly.
Well not get into too much detail, but those type of considerations are part of our thought process for our next generation.
Products, but it's not something that is.
Feasible to be implemented in the short cycle.
That's in line with the current.
Shortages.
And to try to overcome them with that type of.
With that type of change. So we're looking at these type of alternatives for our next generation products that are you know we're here of two years away.
And looking to find the best combination from cost and performance but to.
You get over the current.
The cycle of shortages that were actions of the O&M described a more traditional in terms of the building up.
The components inventory securing.
Supply and building up a healthy level of finished goods inventory.
Got it thanks guys.
True.
Goldman Sachs, we'll hear next from Brian Lee.
Hey, guys. Thanks for taking the questions.
I had two on margins I'm.
Just maybe first on the the solar margin it looks like he mentioned the mixing Rajiv North American strength, there helping margins in the near term. So I know in the past you've given us some high level color around geo trends and the cadence. So in terms of solar margin should we start to see a bit of normalization in Q2, maybe gross margin.
The only off moving through the year I'm, just trying to get a sense of.
If this is kind of the high watermark for first solar margins in Q1, given the the <unk>.
Robust outlook.
Outlook here or if you think there's actually upside.
Some of those levels of the nothing through the year.
So so.
As you mentioned the the margins are normalized the or getting back to the levels that we used to talk before about the 36% give or take 1% then and this is basically a result of several things.
The first one is the fact that we start to see the United States being a back a more meaningful portion of our revenues.
Of the solar revenues as we mentioned before actually at the end of Q2, what we saw is that when the pandemic started in the U S market was hit we're able to to grow substantially.
Essentially in Europe that in in a weighted on one hand did not impact the revenue maybe as much as it would hit unless we were so active in Europe, but at the same time, the higher competition the competition intensity in Europe.
The prescribed much lower our gross margins and at that time by the way we have.
Of note that there's about 500 basis point difference between the U S and Europe and disregard overtime two things happen. The first thing is that the euro book, a little bit stronger compared to the U S. Dollar of it. This is something that of course helped helps our margins in the sense that we feel manufacturing dollar and therefore, we collect more.
Dollars on every euro sales that we're doing and the second one is that once we're starting to sell in the United States, where the competition is the little bit lower on the residential due to the rapid shutdown regulations than we were able to charge a higher a higher revenues than to increase the margin and there is another issue that.
Happened in the fourth quarter and this is the fact that the in general commercial commercial solar of that you've characterized with lower gross margin compared with the residential was again lower compared to the previous quarter.
So this is the main change that happened looking forward as already described.
Scribing our guidance, we expect that the non-GAAP gross margins to be at the 36% to 38%. So the midpoint is already at the higher range of our long term target and we expect these to continue to happen. We continue to do cost reduction of all the time the pricing environment is relatively stable.
Both in the United States and in Europe, and we are continuing all the time to shift more and more production to a non Chinese.
Manufacturing of piece of the production of it comes through the United States and compared to 60% of shipments of our non Chinese product in Q4 about 85% of these products are that.
That will come to the U S. In Q1 will be already from non tariff. So this is something that definitely drive us to the higher range and the higher levels that we guided there is one phenomena of though that we need to mention.
Mentioned and this is actually for the later part of the year, while we assume that we will see the normalization in the.
Solar margins in Q1, and Q2 actually in Q3 once batteries are starting to get bigger volumes and starting to have more effect on our margins in here in the past we discussed approximately 25% expected margins on batteries, we expect that the overall.
The portion of batteries in the revenue mix will drive this a margin in the little bit down. So in general we are normalizing in the solar without the batteries once the batteries will come we will basically provide.
Provide guidance in a little bit about how to model and how to expect gross margins to be related to the volume of batteries of the overall revenues.
Okay I appreciate that color and maybe a good segue into the second question I had just on you.
And you mentioned batteries, but.
E mobility, if you do the $100 million of revenue this year.
Is that all back half weighted.
In terms of time timeframe and then all of the margins I know E mobility had some upfront costs here are there negative today, but.
What's the target for margins to go positive in E mobility timeframe wise and ultimately.
Are you at the 25% of 30% I think target you've talked about in the past do you get there in the back half of this year if the revenue range you're talking about is achieved.
So I'll.
I'll start the answering my own day, one and if I Miss anything please Brian let me know in general we expect volumes will initiate the this quarter.
And we believe that they will stabilize around the Q2 or beginning of Q2 of towards the end of the year. So I would assume that the majority of the revenues will come.
Between Q Q2 through Q4 and that means that the debt point in Q2, we already expect to see positive gross margin on this product. However, I think that we need to depreciate between the longer term margins that we expect when the mobility and the margins on these projects and the.
The two key Differentiators is the first of all of the fact that in E mobility. Unlike in solar it's very hard to do cost reduction once the product the product is defined nevertheless, even if it was launched or not because in the E mobility space. Once you have the.
To find the product and you basically validated the product with the.
The manufacturer you cannot change any component in that of course reduces dramatically your ability to either make changes in the product for a cost reduction or even to negotiate the we were there with your suppliers because they know that they are already designed into the products in the case of this the ibuka. The project, it's the product projects that we.
Inherited from the acquisition of SM Murray and the.
Therefore, there is not the most of it we can do in this specific product to reduce cost and we expect to see single digit margins.
Starting in Q2, and they will not be very high.
Once we will see two things happening first of all if indeed the market acceptance is going to be good for these products. Then we will see higher volumes and then we would be able to spread the fixed costs that we already have here over a larger amount of unit and this of course will increase the gross margin.
And second we will be able to maybe over time, when we will have more projects to go and reduce our cost of products that we are using them more of components. If you use them in other products as well because then we have more leverage with the suppliers, but in any case I do not expect it to happen.
In 2021 and not in the volumes that we're discussing right now.
The lastly, 30% is I do not believe the this is the number of that can be achieved in the near future in mobility. If you look today at the comparable companies in the E mobility space, you see best margins being at about 18% and these are very technological and very good companies. It will take us the time to get.
That level of expertise.
But at the same time, you usually see the the cost per unit is high enough that the overall contribution to profitability. Even if the margin is lower is very high because every one of these very expensive. So I hope that the answered all of the components if not let me know what they need.
Well, that's true I hate my point with credit Suisse.
Hey, Thanks for taking the questions. This is building upon the Brian's question there on E mobility.
Could you just talk about the nature of the disagreement.
The the Fiat group.
In terms of exclusivity.
Any trials of any pilots going on some of the other.
Electric products and no.
Just wanted to understand the operating margin for the business.
I presume the given it's more b to B nature of the Opex should be much lower.
The net sales compared to that for the solar industry.
Color on bottles of would be helpful. Thanks.
So many of them try to answer and again, if I missed the second question. Please clarify so.
Some of the dynamic in this in this industry is that you get the nomination letter for a project.
The little bit of size.
The intent for you to supply the components for that.
For that project, we don't necessarily know when commit that we are the sole supplier and we don't necessarily know but typically.
In our in the industry there it's it's the.
The supplier of definitely for a product of the complexity.
For a per project.
That's the first question. The second question of the as I said earlier.
Earlier, we.
We've been commenting about this opportunity and the fact that it is the coming.
Coming close in the last couple of quarters, and we're we're confident enough to to be more clear about it in this in this call. So so at this point we are not.
On the verge of any additional project definitely not the a project at the scale.
Within the next.
The next couple of of.
The quarter, so there won't be quick wins and quick ramps in multiple projects at least not in 2021 here.
Got it got it thanks.
Just wanted to understand the operating leverage in terms of business.
So.
I'm, sorry, I'm sorry.
Yeah.
Just wondering sort of the operating leverage so much of.
Oh, how much operating expenses do you expect just pushing the sales for this business given I presume, it's more of <unk> nature of them.
So.
As of.
We described a bit the content of what we are delivering and the theme is consistent with what we would discuss the practically in every other product that we're delivering and are there other segments as well.
Inverters the.
DC to AC inverters, the DC to DC converters battery of lithium ion et cetera. So there's definitely technology levers that is going across the company.
In serving these are these applications.
From a design through.
Liability testing and the end on the manufacturing.
And on the manufacturing line. So there is a significant.
Acknowledging leverage in the fair amount of operational leverage.
It is using our expertise and infrastructure.
For the for these new businesses, it's not the only mobility. It's also what we're doing in the area of the of our critical power in the U S is and the and of course of lithium ion and co com is the common thread the although the batteries that are being used today in our E mobility project or not.
The coming from program as the.
Well, Matt mentioned those were inherited.
Already in the design when we acquired as of March into.
Into the frozen design of the.
Of the solution for this first project.
Well hear next from all of a sudden with Barclays.
Hi, Thanks for taking my questions on the storage product launch once you get certified once that's complete how much of available capacity will you have in megawatt hours each day.
The Q4, Q and exiting the year.
Cool.
Yeah.
The the truth is that unfortunately, we won't have the capacity for the demand that we are seeing practically from all regions.
Theres very strong full force.
Or four hour battery also for the North America also in Europe, and also and also in Australia. We are comfortable that we will have the capacity to meet the numbers that were mentioned earlier too in the answer to fulfill on the potential of projected revenue.
In the in the second quarter, and and maybe some upside to go.
The go beyond that but.
But like I say I wish we had capacity for all of the demand that will probably come in a better way in 2022, when we have our own factory.
Okay. That's helpful and just maybe a bit of tusa at me, but how are you of gauging the demand per se.
Sure.
Have enough for it if it's based on the the.
Our inverter product because no one's here that we've had the product yet so I'm just wondering how you're sort of getting the sense of the AR and expectation on what the demand will be for the product once available.
So it's the combination of our you know we talked to many customers.
They ask about the battery they ask you about the specifications of the battery with which we share for them the preference to have.
A full system.
Coming from.
From the supplier in this case US is the is something that is.
His message the by by many customers and as I mentioned also in the prepared remarks. It is at the end of the day, we have the huge installed base of.
The storage system.
With the connected with all sorts of batteries.
Couple of basic upload.
The different sizes and different configurations. So we are.
Very familiar with the installers that are installing the systems and with the preferences and with the needs in terms of the.
Tumor needs in the different modes of of the outages and and maximizing self consumption and time of use application.
So so we are.
Anywhere between a comfortable of the confidence that the.
Battery and the system design are meeting the needs of our inverter installers and that they will.
One two to adopt our full solution once the battery is available.
Well hear now from Marshall Carver with Heikkinen Energy advisors.
Yes, and thank you for taking my collection of instead of a quick one.
You mentioned, having some you know the only sales this quarter.
The majority of would be you know.
<unk> and <unk>.
In your three.
385 to four of 5 million once the gardens.
How much do you think could come from the mobility, just trying to get a feel for what is the.
A million the.
10 million 20 million of I mean, it seems like.
And couple of years.
So at this point, we bucket in the non solar revenue into our into one number which is the 25 to 30.
The $30 million and we don't.
The list out in the individual components of the non solar business.
When when the revenue from our E mobility is sizable enough.
The two warranted, we will be breaking it out separately.
Okay and the.
On the.
$100 million plus the three year for me the mobility would be Inc.
For middle to the hundreds of 150.
Thanks Omar.
Yeah, basically the numbers that we have for the E mobility are incremental to the battery storage.
Remember that we have today there is no overlap.
Okay. Thank you.
Yes.
Yeah.
And at this time I would like to turn things back to management for any closing remarks.
Thank you.
In summary, we concluded the challenging gets positive year on all fronts. All of this while continue continuing to invest in laying the ground for future growth and expansion into adjacent markets. The <unk>.
Both of which we are already beginning to see.
We're looking forward to 2021, which we expect will be a year of growth new product releases and development of our solar and non solar businesses.
You for joining us on our call today and stay safe.
And that does conclude today's conference again, thank you all for joining us.
[music] net.