Q2 2021 Solaredge Technologies Inc Earnings Call
Please standby were about to begin.
Welcome to the solar edge conference call from the second quarter ended June 30th 'twenty 'twenty 1.
Call is being webcast live on the company's website at Www Dot solar edge dotcom and the investors section on the event calendar page.
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I would now like to turn the call over to Erica Mannion of Sapphire Investor Relations Investor Relations for Silver edge. Please go ahead.
Good afternoon. Thank you for joining us to discuss so we're just operating results for the second quarter ended June 32001, 2021, as well as the Companys outlook from the third quarter of 2021 with me today are C V Lando, Chief Executive Officer, and Ron and fire Chief Financial Officer, Stephen will begin.
With a brief review of the results of the second quarter ended June 32021 Ronan.
Ronen will review the financial results from the second quarter, followed by the company's outlook for the third quarter of 2021.
And then open the call for questions. Please.
Please note that this call will include forward looking statements and 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 statement can change and our press release and the slides published today for a more complete description.
All of material content.
And change and 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 and non-GAAP net diluted earnings per share, which are not measures prepared in accordance with U S. GAAP.
The non-GAAP measures are presented and this presentation as we believe that they provide investors with the means of evaluating and understanding how the company's management evaluates the company's operating performance.
These non-GAAP measures should not be considered in isolation from as substitutes for or superior to financial measures prepared in accordance with U S. GAAP.
Listeners, who do not have a copy of the quarter ended June 32021 press release or the supplemental material may obtain a copy by visiting the investors section of the company's website.
Now I will turn the call over to C. J.
Yeah.
Thank you Erika and good afternoon, and thank you all for joining us on our conference call.
And my remarks today, I will discuss the trends and momentum and our different business segments.
Data on new product releases and particular, the introduction of our residential battery and at the and discuss how we are navigating the much talked about global supply and logistics challenges.
We are happy to report record revenue was in both of our solar and non solar segments for the second quarter of 2021.
Our total revenue this quarter were $480 million, consisting of a record $431 million from our solar business.
And a record $49 million of revenue from our non solar business.
Overall this quarter, we shipped 5 million power optimizer and approximately 180 thousands of Inverters.
The record solar revenue was reflect strong demand for our solar products across all segments and geographies and.
In particular, we saw this quarter record revenues and Europe led by record revenues, and the Netherlands, Italy, and Poland as well as record revenue and what we call rest of the world representing all regions outside of North America and Europe.
And the U S. This was the third consecutive quarter of growth and delivery of residential products and.
And the U S commercial revenue grew more than 80 per cent quarter over quarter.
In addition to the revenue growth, we are seeing consistent increase and sell through and installation rates of both of our residential and commercial products globally.
And if in recent quarters, we discussed healthy inventories and residential and relatively high inventory levels and commercial today and most channels inventory levels are below historical normal levels, both in residential and commercial.
On the product side, we continue to see very good acceptance of the energy hub backup ready and <unk> and the U S residential market and and this quarter, we began shipping the energy hub to Australia.
Later in the year, we expect to begin shipping of the European version of the energy hub as well.
I want to take a couple of minutes to elaborate on the capabilities of the owner of energy hub, which makes it so attractive to our customers.
As reflected in its name of the energy hub and Verder is designed to accommodate and the control multiple of the energy elements of the home.
For example, already today in addition to the battery, we ship of solar edge EV charger as well as in the electric water heater controller, all of which are controlled by the energy hub Inverters.
Homeowners and manage all of these functionalities, so where our recently released my Stoneridge App that has more than 2 million users to date.
The referring specifically to the storage capability, our energy hub and further is D. C. D C coupled with the battery in a way that the maximizes utilization of the energy coming from the solar system.
And the importance of the additional energy from of D. C. Coupled system is critical in particular doing backups scenarios.
As we explained in the past when the grid is down the D. C couple of system will harvest all of the energy generated by the modules and feed it into the battery even when the power generated by the solar system exceeded the nameplate capacity of the inverter.
As frequencies and durations of the outages are becoming more prevalent.
And the benefit of this architecture is accentuated and we see more and more homeowners and benefiting from the use of this feature.
And California alone and the past 3 months more than 6500 homes benefited from 45000 hours of backup of energy provided by their solar array system.
On that note as planned we initiated shipments of hours. So the Reg energy bank residential battery to the United States and Europe.
The D. C couple of the 10 kilowatt hour battery uses of Samsung SDI cells and has been designed based on our knowledge and experience for more than 30000 and solar edge installed systems with batteries.
The availability of our battery means that our installers and homeowners can enjoy the benefit of high efficiency easy installation and seamless integration with our energy hub invertor that optimizes self consumption and while connected to the grid and maximizing the power of doing the outage events.
We are gradually ramping production of the battery and plan to share between 25% to 30 megawatt hour of batteries in the third quarter.
In order to meet the strong demand, we have signed an agreement with Samsung and guess the eye for the supply of 1 gigawatt hour of cells to be provided in 2022.
We are excited about this cooperation with the leading high quality cell manufacturer.
From the second half of 2020, 2 we expect to be shipping batteries and based on sales of manufactured in our sell of 2 factory in Korea currently under construction.
Just to just as we have our own set of 1 manufacturing facility for Inverters, and Optimizes, which gives us speed and flexibility for initial volume of new products on.
The mentored by high volume from contract manufacturers.
We expect that set of tool will give us similar flexibility for cell and battery needs for our various businesses, while the cooperating with tier 1 partners and supplying the high volumes needed to meet demand.
Moving to trends and our C&I business.
As anticipated, we are seeing steady growth and sales and installations of our commercial products.
This coincides with the release of our new 120 kilowatts of synergy inverter that is targeting both rooftops and ground Mount installations.
We recently began shipping day 120 kilowatt synergy of inverter to the U S, which we believe will give a boost to our recent momentum of penetration to community solar ground Mount and the the installation segment, where in recent months, we have installed more than 15 megawatts and more than 40 projects.
Yes.
And other regions as well, we are seeing progress and penetrating the market of small scale utility projects. For example, we have of 35 megawatt project currently being installed and Japan, and a 77 megawatt project in Taiwan and expect it to begin delivery and the third quarter.
Moving to our non solar business, where we reported record revenues of $49 million. This quarter, primarily driven by the ramp of production of powertrain units and batteries for the Fiat the eat Newcastle and Europe.
We expect these volumes to continue on the increase in the coming quarters also contributing to the growth and non solar revenue. This quarter were initial deliveries by coke on of batteries for the first of 2 utility scale energy storage projects 1 in Australia.
Moving to the operational side.
Like other industries and our industry is also dealing with issues around component shortages and logistic costs and the impact of Covid.
As we discussed on last quarters call from a component supply point of view the multi source strategy. We put in place several years ago enable us enables us to meet the current and we believe future growth and demand at times. This comes at a higher cost due to expedited the logistics of.
The temporary challenges the COVID-19 the outbreak and Vietnam.
As of a couple of weeks ago production and our contract manufacturers factory in Vietnam is that a reduced level due to a government mandated lockdown.
We are mitigating the short term challenge by increasing output and our manufacturing facilities in China, Hungary and Israel.
This will require some expedited shipments and additional tariffs due to a higher portion of shipments coming from China to the United States.
All in all based on current visibility thanks to the flexibility that we have built into our operational strategy. We are confident and our ability to continue and meet the growing demand we are experiencing for our products.
And with this I hand, it over to Ron and who will review our financial results.
Thank you Phebe and good afternoon, everyone.
The financial review includes the GAAP and non-GAAP discussion full reconciliation of the pro forma to GAAP results discussed on this call is available on our website and the press release issued today.
Total revenue was for the second quarter were $481 million, and 18% increase compared to $405.5 million last quarter, and the 45 per cent increase compared to $331.9 million for the same quarter last year.
Revenues from the solar segment were $431.5 million, a 15% increase compared to $376.4 million last quarter.
The both of those revenue do not include residential battery shipments, which we initiated at the end of the quarter.
U S. Total revenues this quarter were $175.1 million and represented 46% of our solar of revenues.
So on our revenues from Europe were a record $207 million or 46, 5% of our revenues and the rest of the world Solar revenues were a record $55.7 million or 12, 9% of our total solar revenues.
1 of the megawatt basis, we shipped 518 megawatts to the United States.
745 megawatts to Europe, and 319 megawatts to the rest of the world.
43 per cent of these amounts were commercial product and the remaining 57% wherever it is essential.
This quarter, our top 10 solar customers represented 61, 4% of our solar revenue.
2 of U S customers accounted for more than 10% over of solar revenues.
And blended the SP increased by approximately 25 per cent compared to the last quarter since the ratio of optimizer to inverters was higher than usual due to temporary manufacturing and logistics optimization.
In general the pricing environment remains stable this quarter, while for the third quarter, we notified our customers of the modest price increase to support the increased freight expenses.
This quarter revenues from our non solar of segments were a record of $48.5 million.
This record revenues were led by the E mobility Division, where sales of powertrain systems to still and this continued to grow and by increased sales of qualcomm's lithium ion batteries and cells.
We expect the non solar segment revenues to continue and grow as the proportion of the total revenue in the upcoming quarters.
GAAP gross margin for the quarter was the 32.5 per cent compared to 34, 5% and the prior quarter and 31% in the same quarter last year.
Non-GAAP gross margin this quarter was 33, 9% compared to 36, 5% from the prior quarter and 32, 4% in the same quarter last year.
Gross margin for the solar segment with $37.4 per cent compared to 39, 7% in the prior quarter and above our long term solar gross margin target of 36% plus or -1%.
In comparison to the last quarter and solar segment gross margin was affected by approximately 150 basis points by higher logistic costs, resulting from increased freight costs.
This quarter, 88% of the products imported to the United States came from non tariff manufacturing sites.
Gross margin for our non solar segment was positive at 3.3% compared to -4.7% in the previous quarter due to increased production level of powertrains from our E mobility business combined with healthy margins from the storage business.
On the non-GAAP basis operating expenses for the second quarter were $81.5 million or 17% of revenue compared to $76.2 million or 18, 8% of revenues and the prior quarter and $61.1 million or $18.4 per cent of revenue for the same quarter last year.
This increase is mainly a result of increased headcount in our R&D and sales departments as well as salary increases that came into effect on April 1st.
Our non-GAAP solar operating expenses as a percentage of sooner of revenues were 15, 8% compared to 17% last quarter.
Non-GAAP operating income for the quarter was $81.3 million compared to $71.9 million in the previous quarter and $46.6 million for the same quarter last year.
This quarter the solar segment generated an operating profit of $92.9 million compared to an operating profit of $85.5 million last quarter. This number represents 21, 5% of our solar revenues and is in the midpoint of our 'twenty to 'twenty 3.
Per cent long term operating profit model.
The non solar segment generated an operating loss of $11.6 million and improvement compared to an operating loss of $13.6 million in the previous quarter.
Non-GAAP financial income for the quarter was $1.7 million compared to a non-GAAP financial expense of $6.3 million and the previous quarter due to the relatively stable foreign currency exchange rates.
Our non-GAAP tax expense was $10.5 million compared to $10.1 million in the previous quarter and $8.1 million for the same period last year.
GAAP net income for the second quarter was $45.1 million compared to a GAAP net income of $30.1 million in the previous quarter and $36.7 million in the same quarter last year.
Our non-GAAP net income was $72.5 million compared to a non-GAAP net income of $55.5 million in the previous quarter.
GAAP net diluted earnings per share was 82 cents for the second quarter compared to 55 cents in the previous quarter and 70 for the same quarter last year non-GAAP net diluted EPS was 1 point of 28.
Dollars compared to 98 in the previous quarter and 97 cents in the same quarter of last year.
Turning now to the balance sheet and.
As of June 32021, cash cash equivalents bank deposits restricted cash deposits and investments were $1.1 billion.
Net of debt cash cash equivalents bank deposits restricted bank deposits and investments were $509.3 million.
During the second quarter of 2021, we generated $38.7 million and cash from operation and continued to invest in the construction of our sale of 2 cell factory in Korea, as well as increased manufacturing capacity with our contract manufacturers.
The accounts receivable net increased this quarter to $343.7 million compared to $271.7 million last quarter.
Days sales outstanding this quarter in the solar business was 76 days and increased from 73 days last quarter. The result of higher revenue is generated at the later part of the quarter and and increasing sales to large customers that are enjoying more favorable credit terms and the overall mix and.
As of June 30, our inventory level net of reserves was at $321.9 million compared to $340 million and the prior quarter.
Most of this reduction is related to finished good levels in the solar segment, while raw materials decreased 2 of lower extent in the solar segment and slightly increased in the non solar segment, where we continue to ramp up production.
Moving now to our guidance for the third quarter of 2021, we.
We expect revenues for the third quarter of 2021 to be within the range of 520 million to $540 million.
The revenues of the solar segment are expected to be within the range of $460 million and $480 million and.
And the third quarter, we expect to ship 25 to 30 megawatt hour of residential storage systems to the United States and Europe as we continue to ramp of the manufacturing of this product.
We expect non-GAAP gross margin to be within the range of 32% to 34% gross margin of the solar segment is expected to be within the range of 35% to 37%.
I will now turn the call to the operator to open it up for questions operator. Please.
Thank you if you would like to ask a question please signal and pressing star 1 on your telephone keypad.
If you're using a speaker phone. Please make sure that your mute function is turned off to allow your signal to reach our equipment.
And in order to accommodate as many questions as possible. We do ask that you. Please limit yourself to 1 question before reentering the queue.
And once again that is star 1 if you would like to ask a question.
We will take our first question from Mark Strouse with Jpmorgan. Please go ahead.
Yeah. Thank you very much for taking our questions just the high level question I wanted to ask you about the competitive environment.
It sounds like from your commentary that the pricing is relatively stable.
But what are you seeing as far as market share.
And can you kind of.
Broadly speaking of not just with and smart inverters, but against your traditional string inverter based competitors as well.
And just focusing on the the solar side. If you can thank you.
Okay.
Yeah and Mark.
The the tracking on a quarterly basis, the market share and this industry is a miss.
And stuff when there were indications that are that we are losing market share. We are we were cautious with those type of indications and similarly, the when it seems as if we are gaining market share I don't think we can say with confidence that the that we have a hard evidence to.
And to support that the market is growing.
In most geographies under the current circumstances and when we look at the the markets. We believe that we're growing at the faster pace and many of our and many of the markets. Our focus in this regard is really about about our customers. The the installers that install of our equipment we believe.
And that if they have equipment to install and especially in this environment chances are that they're gaining share and their respective.
Regions of our locations and if theyre gaining share it translates to us are gaining share. So that's that's really the dynamic we're focusing on is to is to make sure that hour of loyal.
Installers have the products that they need.
The to serve the growing the growing demand and and we believe that it is contributing to positive momentum.
Okay, Great and then just a quick follow up.
And as far as the the <unk> gross margin outlook goes can you just tell us kind of what your assumptions are as far as transportation and logistics costs do you do you assume status quo or do you think things get worse better.
Kind of what's what's baked in there.
So what's actually baked is a combination of 2 elements. The first 1 is the freight expenses, which stabilized at a higher level and right now at least we do not see a lot of easing. This area. Although we do not see by the way increasing these costs, but when it comes to the close of themselves. It's also of <unk>.
And of whether we will need to expedite some of the shipments due to the fact that again customers will need more goods in order to install and we will decide to use air shipments instead of ocean freight and order to be there on time, so I think that it's not coming from the price, but actually from our decision about how much to expedite the second area, which will.
And I think that most of the if you take the midpoint now and you compare it to the gross margin level of day of second quarter, and which is of course, and obviously that the Q3 is lower.
A lot of it is also related from the fact that the the C. V mentioned when the Vietnam. The manufacturing facility is working at reduced capacity due to the government are enforced lockdowns. There we are expanding our manufacturing in China, We're lucky to have a manufacturing expense.
Areas, both in the Vietnam, and China, Hungary, and Israel, and therefore, we can maneuver between them, but when you are manufacturing more in China that means that you are paying more tariffs. The when you enter into the United States and a lot of of the decrease that you're seeing the expectation of gross margin for the next quarter is actually coming from there it's not necessarily <unk>.
From the shipment.
Thank you we'll take our next question from Stephen Byrd with Morgan Stanley.
Hey, good afternoon, and thanks, so much for taking my questions.
And you had mentioned I'm talking with customers about price increases.
And I'm just curious in terms of just your views on the the impacts there in terms of.
The customer willingness to pay that sort of contractually how of that is dealt with how do you see that in terms of the.
The impacts to true to your bottom line.
The impact is is not dramatic as are the the increases is and low single digit levels and and it varies depending on the geography.
As of the associated with the additional.
And logistic costs that are specific to that the geography. So in that regard that makes the conversation a very constructive and transparent we we shared with the customers the actual.
The increases and and we are not shifting all of the addition of expense to them, but we are somehow splitting it splitting that between us and and are the customers understand that as the.
Things returned to normal so will this additional.
Additional of expense. So we have a history of dealing with our customers and a transparent way and I think it gives us credibility when we come to them with this topic and the the dynamic has been quite a quite smooth so far.
That's really helpful. And then just shifting to storage and exciting developments in terms of your growth and storage you mentioned that the supply agreement.
Is it possible to give us a sense for you know the the volume of capacity total that you would have in 'twenty..2 I mean, we are quite bullish about the growth globally of energy storage and we see lots of lots of demand around.
Around the world and I'm, just curious sort of given everything you're seeing on the positive side in terms of supply agreements, but also on the negative in terms of just all of the supply chain constraints.
Can you speak out of high levels of sort of how you think about your overall capacity and <unk> to deliver product to customers.
So and this gets actually of the the capacity is going to be more dependent on the supply and the sales and the pace of their arrival rather than our own capabilities because <unk>.
On the battery that we've developed is our own batteries, we developed it from sales and we of course developed all of the mechanical and and the packing and and BMS and all of the other systems around it but that means that most of the work that we're doing is actually the assembly based on the sales as we mentioned on the call are first of all we will have the.
Agreement with Samsung and that will provide us with approximately 250, a megawatt per quarter and give or take because of course, there are always a little bit of the of shipment changes or something like this but in general it should be evening across the year and as much as we can get sales at the time that we can get sales we can basically.
And them into batteries and ship them to the field.
Thank you we'll take our next question.
I apologize and we'll take our next question from Philip Shen with Roth Capital Partners.
Hi, everyone and thank you for taking my questions just the fault there and then on the storage topic I think and the prior call you were targeting of 100 and 150 million of.
Of revenue in 2021 for storage and 300 million of 2020.2.
Are you able to reaffirm those targets I know you gave I think of 25 to 30 megawatt hour of target for Q3, but was wondering if you could help translate that to the prior targets.
Sure.
The answer the question follows the previous 1 of the answer actually follows the previous question as well are the answer as well because our ability to supply of basically dependent on the supply of sales from Samsung and this case and and our ability to turn them into sales.
And what do we see the series debt due to some of the logistic challenges we are getting sales a little bit late into the year and therefore, it's basically dependent on their arrival time and are processing timing order not only to manufacture of them, but also to ship them using ocean freight into the U S and in Europe, It's a little bit.
And more easier so here I'm.
I'm not sure if you will be able to meet all of this capacity. This year. However, whatever capacity, we are not going to utilize this year, we're going to basically turn into the next year. So if we're missing something and less in Q4, it will simply spillover into Q1 and since the demand at least right now seems to be higher than we can manufacture.
I believe that Oh, it's just the matter of splitting it between the quarters 1 thing to mention though of course. He is also the fact that when we talk about the next year is debt to this supply agreement, we will have our own the sale of 2 sales that are supposed to join at the second half of the year and again if the demand is there we will know.
How to turn those into revenues, which of course can get us to a higher number.
Thank you we'll take our next question from Colin Rusch from Oppenheimer.
Thanks, so much guys.
Given the ratio of the inverse.
And burgers to optimize or is that the era.
And can you talk a little bit about the growth in the commercial sector and the.
On the size of the systems that you guys are expecting and to drive a lot of the growth here on the second half.
Yes.
Indeed the.
And the the change and the ratio of is also because of the growth in commercial and growth and large projects and commercial and and the availability of of higher power inverter, all of which are translating to more optimize theirs.
Per.
And.
Which is part of the scalability of a D. C architecture like the 1 that we are the like.
I like the ones that we have and actually.
And in some cases, specifically to this quarter because people wanted the 120 kilowatt and the new inverter and we werent yet the type of volume.
And they still took the optimizer is early so that they begin installing them and the field because that takes a fair amount of time and and it's the task that is usually done first and then the Inverters can follow later so that also contributed to the skewed.
Skewed ratio of this quarter compared to <unk>.
2 previous ones, but overall as I discussed and the.
And the prepared remarks, we are the number of a large project that we are involved and is is growing nicely and in all geographies not the not only and.
And the U S and the Europe, where where we were traditionally strong and commercial.
And Australia of course, but also in the Asia Pacific and places like Taiwan, Thailand, beginning and Korea as well so the momentum is positive and and definitely and we are finding ourselves.
Ourselves and larger and larger ground Mount and installations around the world.
Thank you we'll take our next question from Brian Lee with Goldman Sachs.
Hey, guys. Thanks for taking the questions.
A couple of here.
Ronen on the on the 1 gigawatt itself from.
Samsung SDI and 2022, and I know, that's not completely linear but.
Can you give us the sense of how much of that capacity and you're expecting it to be dedicated to.
The rest of the battery storage product versus the other battery products and the portfolio and then.
The on the the mix question you just sort of follow up if we look at sort of the price per watt metrics. It seems like it's up a decent amount in <unk> versus <unk> I know that has some mix element attached to it but given some of the moving parts here with respect to mix and then on.
Also the modest price increase you guys have announced here.
And.
I guess I'll answer and we think about volume trends, you've seen sort of flattish volumes on a megawatt basis and that sort of revert back to a more normal sequential increase into the third quarter or are we getting and continue the seats or sort of more muted volume trends on that and megawatt basis.
And just given the mix issue and just would love.
And I understand all of them with better for modeling.
Okay. So the answer 1 by 1 and if I forget anything please feel free to remind me so with regards to the sales coming from our supply agreement actually all of them are going to go into our of residential batteries Ah that means that of course, if there is more demand and decent Mount.
We can utilize once the sale of 2 factory starts to work the cocoa and sales for this business and and if not there are other independent businesses with Coke and can do with those sales, but at least the Samsung sales are all.
Designed towards all of our residential battery and we hope that it will be consumed at these levels because it is a relatively large of capacity compared to what comes to day through the United States.
When it comes to the volumes actually and again I think that this quarter and the the ASP as we sit and and we noted was the little bit I would say artificial because you know when we're calculating the ASP per watt of course, it based on the nameplate capacity of the Inverters and when we sell more optimized or as the dollar has come on the revenue of about the capacity does not.
Go in and in General I think the.
The more commercial you will see you assume more of a ratio of optimizer is to investors and we do expect to see volumes growing and both of them, but since you can see that at least in the last 2 or 3 quarters, even though we are improving and commercial the ratio was lower than in the past.
And then the ratio of higher amount of optimizer is to investors should be maintained in the sense. The 1.
1 thing to do thing to say, though is the debt. The fact that as TJ mentioned and the previous answer since some of this is actually related to new Inverters that are now just produced.
We do have a little bit of shifting from let's say Q3 into Q2 with the amount of optimizer. So it's the kind of a temporary jumped and the number of optimizer as debt will go down in Q3, but in general the more commercial you see and the more improvement you'll see there you will see better ratio of or high ratio.
Oh of optimizer of swing voters, and lastly, again when coming to the price increases I think the day effect here is in general going to be minimal on almost on almost all of the segments due to the fact that the.
There are first of all the very modest as we said the low single digit percentages of increase and therefore, we do not expect to have major impact on ASP due to these increases.
Did I forget anything.
Okay.
Gotcha.
Great. Thank you.
Thank you we'll take our next question from the heat map dwelling from credit Suisse.
Okay.
Hey, thanks for taking our questions.
And if you could just talk about is if you could talk about the 1 gigawatt of battery cell of arrangement with Samsung.
What's the duration and is it kind of recurring in nature and would it.
Support the seller to factory production or would sell of 2 kind of replaced the Saar range men going forward for you guys.
So so.
We said the node and clarified it's 1 gigawatt hour of cells from Samsung to be supplied more or less linearly over 2020, 2 and all to be used and and.
And our residential.
The battery and a quick calculation will say for a 10 kilowatt hour battery.
1 gigawatt hour of cells that translates to a 100000 batteries.
This is in addition to the sales that will begin to come out of our factory and the second half of our of the year and as I explained as we do also and our and.
And <unk> business, we have our own factory that is of.
A very good mechanism to.
Accelerate.
Initial production of new technologies, and the and we use a lithium ion batteries and multiple segments and businesses. So we expect.
The sale of 2 will provide us both capacity of cells to meet additional demand on top of the contract that we signed.
And also the ability to introduce new products and and manufacturer of the initial volume of those of those new products. So these are 2 separate sources of cells that are going into similar of product in order to give us the flexibility to meet demand and develop.
The new products rapidly.
And.
Thank you we'll move on from our next question from J B Lowe with Citi.
And you have you run on and Erika How're you doing Mike.
My question was was just to follow up on some of the store day to you guys gave.
And you're gonna be selling your new product is that gonna be.
Are you going to be selling it exclusively with the solar edge and Burger or are you going to be selling it to.
Selling any of the houses that maybe you have a competitor and Burger already.
So it's a good thing for us and philosophical question that we think about but but and the in the foreseeable future the demand for new installation and the and add on to that the huge installed base of our own and systems that is out there.
Such that I think of our focus will be on on selling the batteries for new installations with our Inverters and.
And the adding batteries to our already installed a.
So all of the Reg system and less about the the ability to attach the battery to non solar and systems.
And we'll move on to our next question from Eric Li with Bank of America.
Hey, Thanks for taking the question just on storage with the 25 to 30 megawatt hour expectation for <unk> can you talk about the ramp expectations and the sequential improvements into 2022, given the 250 megawatt of our of availability.
From Samsung per quarter that you said it how do you think about the constraining factors for ramping volume Sir Thank you.
So in general.
As we mentioned I think that since the the part of the production that we do with mostly the is most of the day I would call. It the assembly of the battery cells and the battery the ramp up supposed to be a relatively simple as a it's not the very I would call it the complicated or cap.
Total in capital intensive investment that is needed by our contract manufacturers and therefore, the ramp is mostly I would say are determined by the supply of sales rather than our own ability to process them into batteries.
I don't think that it's going to be linear because by definition. The the quantity that we still have for this year coming a prior to the new agreement that will start in the beginning of 2022 are not even getting closer to the 250, a megawatt hour that we will be able to provide the.
The next year of per quarter, and therefore, I would assume that you should see I would say almost linear increased towards the end of the year from where we started so that means about 25 to 30, a megawatt Inc.
The increase and let's see on.
The fourth quarter, maybe a little bit more again depends on the amount of sales and then you will see an acceleration in Q1 that will get us up to 250 I do not expect that this will happen immediately in Q1. So I would say are kind of of linear growth of about 25 to 30 megawatt per quarter and Q3 and Q4 of ramp then and increased.
It is steeper in Q1, and then somewhere in Q2 middle of Q2 at least we should be.
In a sense stabilizing its 250, a megawatt hour per quarter.
Thank you, we'll hear next from cash you're hearing or seeing from Piper Sandler.
Thank you good evening and thanks for taking my questions.
So the the third quarter guidance implies non solar gross margin and 10%, which as you know the significant improvement relative to Q1 and Q2 can you talk about what's driving the improvement and non solar on gross margins and then as you think about ways to increase value for shareholders. Do you think it might make sense for solar and at some point of spin out the E mobility.
Business into a publicly traded equity seems like the public markets are more willing to reward standalone stocks ex.
Most of the Evs and then maybe what's implied in your stock price. Thank you.
Okay. So I'll start from the margin, which is the easiest question here.
At least and the margin the main the main issue here is a is rent.
Especially in the E mobility area the the.
And the fixed assets, where the fixed I would call. It means of manufacturing that we have are putting the way on the gross margin depends on the amount of vehicles and powertrain units that we are delivering and we started to really deliver substantially.
Substantial amounts in the Q1 day and of course, we grew in Q2, and we expect to see steady growth towards Q3, and Q4 and debt means that over this next.
And next quarters this will actually generate the situation where all of the fixed amounts will be spread over a much larger amount of units of course Uh huh.
Improving the margins. In addition to this we also believe the there is the growth that we see in the lithium ion business of Coke and that is already characterized with a healthy gross margin and the combination of 1 <unk>.
The the shrinkage of the negative effect of the immobility plus the increase in the battery that is coming with a very good margins of at least at this stage will help us to get to this I would call it positive and.
The higher single digits to low double digits of our gross margins on all of the non solar.
The splitting the business of.
Of of the immobility at least today, we're not looking at the short term I would call. It the optimizations just by by the way that the capital markets are working we truly believe that for the long term and this was the reason that we acquired the mobility division to begin with is that having a company and debt.
Is <unk>.
Basically specializes at the energy Smart energy management, and energy conversion and being able to have a 1 stop shop coming from the generation of electricity into the I would call. It a storage of electricity after the utilization not just by our E mobility business, but also by our critical power businesses that will grow.
This all provides much more value to the shareholders as was 1 company at least as we see of today.
Thank you and we'll take our next question from Jeff Osborne with Cowen and company. Please go ahead.
Hey, good afternoon, guys. So just 2 quick ones on the storage side can you talk about.
Whether you expect the initial customers to be more tier ones selling director of would you be selling through distribution is.
Part 1 of the question part 2 is can you talk about what efforts Youre doing are already underway around training and commissioning. Those are 2 factors that have stunted growth of of other new entrants of the space I'm just curious how you can overcome that.
And so the answer for the first question like many of the other questions is both so and and we also mentioned that we already are running in parallel of both in Europe and boat and the U S. So it's also direct to some tier 1 customers and also from distribution.
And and and.
The answer to the second we didn't want to elaborate at elaborate on it too much but we did we are employing a mechanism of both training and certifying.
Installers prior to enabling them to install a similar range battery and.
And they are system to monitor and control that so that the the installations are done.
The properly and with high quality and of course and in the first.
Wave of installations, we will make every effort to have our people participate to.
And to the extent possible to give not the only theoretical training, but also our hands on and the company the the installers during during their first.
Experienced with the battery.
This is this is on the basis of the of.
The system that we've been employing for training on on the the solar or the inverter equipment for for years, and it's just a bit more deep and a bit more restrictive in.
And the fact that we require to be certified prior to executing and installation.
Thank you we'll take our next question from Moses Sutton with Barclays.
And thanks for taking the questions.
Can you confirm on the storage product just to continue on that.
It's all fully Charlotte certified UL and anything else, it's entirely cleared of ship widely.
Yeah. So the battery has the required certification to be installed indoor and outdoor and Europe, and the and the U S.
And I think the listings are either up or will be up shortly I and I didn't check lately, but the certifications are in debt enabled those type of installation.
Thank you and once again that Starwood and if you'd like to ask a question. We'll hear next from Joseph Osha with Guggenheim Securities.
Oh, hi, there I'd like to ask the question not about storage you had.
Talked previously about how the automotive business might get.
$120 million and change and so this year and maybe double next year.
And I'm curious and particular as to whether that rough targets still stands for next year and then to return to some of the questions and margin are the.
The hope that maybe as we get out of next year that we might be kind of into the the low single digits gross margin I'm wondering if you can comment on on those expectations. Thank you.
So first of all with regards to the quantity we.
We mentioned the $100 million to $120 million for this year, we feel comfortable with this and of course since the we said of the year was mostly characterize this year with the growth that means that yes. Once we stabilize on the higher levels of course, we can increase the amount in the next year, we need to remember though that.
Of course. This is also an issue of the orders the Atlantis will have to the car itself because the fact that we can actually manufacture of it doesn't mean that debt. It has customers. We believe that the it has and they are a nice customers for this the vehicle, but I think that this will be the thing that will determine the most of what are going to be the revenues and at least right now.
We do not see a problem meeting the numbers and I forgot the second.
Part of the question.
Just looking at gross margin I think you guys have said that that debt.
Business is probably running at a negative gross margin right now, but wondering if you can comment on what the trajectory of that is and whether it might get Q2 sort of gross margin breakeven as we move next year.
So the answer is yes in this case of first of all of them.
And this is a project that in many senses, we inherited when we acquired the mobility Division.
And I would say that it was ceded.
Before we acquired the company and when we came to actually fulfill it we found that we need to.
Make this product more of automotive grade from quality reliability and safety and therefore ended the lot of cost and in a sense. When we came to this project the cost the the price was already locked the cost was the only thing that we needed to increase in order to make it a safe product and therefore, we're relatively.
I would say at low margins when we go to full capacity and this project it is a profitable.
Project. The once you go into mass production at the levels that are still and this and I and we are agreed upon because in general we do not believe that you know you should do business, where you're losing on every unit that you're shipping so in the sense the negative margin today as of kind of a learning curve that we have.
It is not going to be and extremely profitable project as the whole as long as we stay with this specific configuration, but at least once we go and get to the end of the year or starting of next year when we level at the.
Desired I would call it level by still and this this should be a positive single the low single digit project.
Thank you, we'll now take a follow up question from Moses Sutton with Barclays.
Just a quick follow up on 1 of Jeff's questions and how many initial or beta systems have actually been installed for the storage, perhaps and total or in terms of how many installers have at least installed 1.
No.
It's in the range of tens, but but we're not giving the specific number.
Thank you and that does conclude today's question and answer session and I would like to turn the conference back over to Mr. Orlando for any additional or closing remarks.
Thank you and thank you everyone for joining our call I just want to take this opportunity to thank our customers employees and suppliers for their support during this period and while I'm satisfied with our performance and results I'm, even more excited about the opportunities that are ahead of us. So thank you all again.
Good day.
Thank you and that does conclude today's conference. We do thank you all for your participation you may now.
Now disconnect.
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