Q3 2021 Solaredge Technologies Inc Earnings Call
Welcome to the solar Etch conference call third quarter ended September 32021.
This call is being webcast live on the company's website at Www Dot solar etch dotcom and the investors section on the event calendar page.
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You may listen to a webcast replay of this call by visiting the event calendar page on the solar edge Investor website.
I would now like to turn the call over to Erica Mannion at Sapphire Investor Relations Investor Relations for silver Rich Ma'am. Please begin.
Good afternoon. Thank you for joining us to discuss solar edges operating results for the third quarter ended September 32021, as well as the company's outlook for the fourth quarter of 2021 with me today C. D Lando, Chief Executive Officer, and Rune and fire Chief Financial Officer, Cedric will begin with a brief review.
The results for the third quarter ended September 32021, running will review the financial results for the third quarter, followed by the company's outlook for the fourth quarter of 2021. We will then open the call for questions. Please note that this call will include forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from managements.
Current expectations, we encourage you to review the Safe Harbor statements contained in our press release and the slides published today for a more complete description.
All material 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 and non-GAAP net diluted earnings per share, which are not measures prepared in accordance with U S. GAAP.
The non-GAAP measures are presented in this presentation as we believe 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 September 32021 press release or the supplemental materials may obtain a copy by visiting the investors section of the company's website.
Now I will turn the call over to seed it.
Thank you Erika and good afternoon, and thank you all for joining us on our conference call.
We are happy to be announcing a record revenue quarter for $526 million.
We are seeing growing demand for our existing products across all segments and regions.
Strong interest in our pipeline of new products. In fact, we have already secured orders for delivery in Q4 and in Q1 of more than four gigawatts of AC nameplate Inverters converters compared to one nine gigawatts that we shipped in this quarter and we are still receiving additional orders for this theory.
Good.
In today's call I will address the temporary headwinds that we are facing on the operational side, which will clarify our next quarter guidance, which does not fully reflect the high demand for our products and our anticipated continued growth.
In the last earnings release, we updated our production and our factory in Vietnam has been partially suspended due to a government enforced COVID-19 related lockdown.
We explained that assuming the interruption would be shorts as we were expecting at the time, we would compensate for it by increasing capacity in our other factories and this is indeed, what we did.
However, the shutdown ended up being longer and more extensive than expected practically put into a halt our manufacturing capacity in Vietnam for 12 weeks.
Prior to this event the Vietnam factory was providing between 20 and 25% of our capacity.
And the vast majority of our non tariff shipments to the U S market.
So why are we increased capacity and the other sites to partially compensate for it. This shutdown created a gap in supply of products for for for the fourth quarter that will take some time to replenish and which will come at a higher cost due to the need for expedited treatment and due to tariffs from shipping more.
China made products to the U S.
We are therefore guiding moderate revenue growth for the fourth quarter at a reduced gross margin.
The production and the Vietnam factory resumed October 1st and is gradually ramping back to full capacity, which is expected in mid November.
Unrelated to these events in Vietnam, we have been working for some time to build redundancy and expands our manufacturing footprint with the new contract manufacturing site in Mexico.
We expect first product to ship from the facility in the first half of 2022.
And once ramped this site will significantly increase our capacity.
And give us further flexibility to manage growing demand from the U S market.
As indicated in our record revenue results in the third quarter, we experienced healthy demand for our products and ended the quarter with record backlog.
Well this is not a data point, we usually provide.
And do not plan to do in the future. It is reflective of the commitments of our customers and their strong demand for our products.
To that end.
Other than in some unique cases of extreme logistical costs, where we will share some of those costs with our customers.
Our order levels, we do not currently plan to increase prices on deliveries this year.
Our customers have trusted us with their early orders and we value their loyalty.
To sum up this topic, we are happy with the record third quarter results and are focused on quickly closing the capacity gap.
[noise] created from the temporary factory closures and Vietnam, while ensuring we are meeting the needs of our customers.
Okay.
I'd like to share now with some new product news, which is a big part of the demand increase we are seeing.
The first is our energy bank residential battery.
Production of the batteries is ramping at a good space and we have installations already in the U S, Italy, Germany, England, Belgium, and first deliveries in Australia.
This quarter, we manufactured and shipped approximately 20 megawatt hour of energy bank batteries, a bit below what we had anticipated.
In Q4, we expect to ship approximately 70 megawatt hour compensating for the delays from this quarter.
By the end of the first quarter of 2022.
We expect to reach production output of 300 energy bank batteries per day, or 180 megawatt hours per quarter.
In parallel to ramping battery shipments, we continue to see strong demand for our energy hub inverter, where shipments were up from 21000 units in the second quarter to 37000 units in the third quarter.
We also began shipments of the high powered version of the energy hub and further with up to 11.4 kilowatt to AC nameplate capacity and industry, leading 10.3 kilowatt continuous backup power per inverter.
Considering the current trends of increased electrification and need for resilience, we expect average system size and the required power consumption in case of backup to increase as well.
And as such increased adoption of this configuration due to its capacity and power 11th.
The availability of this inverter will also provide cost savings for our customers who until today in many cases have used multiple inverters to achieve these capacities in power levels.
As battery attach rates and the interest in resilience intensifies, we are seeing strong interest globally and the combined energy hub the energy Bank solution, which offers a D C. Coupled system that harvest more of the energy generated by the modules and feed it into the battery ease.
Even when the power generated by the solar system exceeds the nameplate capacity of the inverter.
And additional milestone on the product front is that we began installations in Japan of our J E. T certified HD wave inverter, which through a built in AC socket enables direct power consumption from solar in case of power outage.
This is a significant step for stoneridge towards opening the large residential market in Japan, where this capability is mandated by regulation.
Shifting to our offering of Optimizes.
In the third quarter, we began shipments in some regions of our sports generation optimizer that among other improvements enables high efficiency optimization of newer generation solar modules with higher electrical currents.
Additionally, this new optimizer is designed to incorporate the new safety mechanisms.
In some cases electrical arcs and safety events are caused by news connectors or damage caused the cabling from rodents or other various causes.
And the new Optimizer, we have incorporated a capability that actively measures the temperature at the connectors to detect excessive heat even before it turns into electrical arc.
This past quarter, we shipped more than 200000 of these F series generation four Optimizes and we will continue to ramp in the coming quarters.
On the commercial side, we continue to see increased activity.
Driven among other reasons by corporations looking to reduce their carbon footprint via solar installations on their facilities.
Many of these corporations choose the storage solution due to our safety and monitoring capabilities.
In many cases, we are leveraging success at one site for global proliferation to other sites of these international corporations.
On the smaller utility side.
This quarter, we installed our first ground Mount installation of that renewed 330 kilowatt converter.
This one megawatt installation has three inverters and thousands of optimizer.
These new 1.3 kilowatts Optimizes, our specially designed for this inverter from performance and cost point of view.
And to fit the solar modules typically used in ground Mount installations that are typically high power and in many cases bifacial.
The experience from this installation will assist us as we ramped production and sales of this offering in 2022.
Turning to our non solar business, where we had a record quarter in revenues driven from our non solar storage business.
This is despite the lower than planned shipments in the E mobility business due to instability in the automotive industry.
While our ability to deliver has ramped on schedule.
During the current trends in the automotive industry, we expect to end up delivering approximately $70 million.
Dollars from the mobility business for 2021.
I will now hand, it over to Jorge who will review our financial results.
Yes.
Thank you T V and good afternoon, everyone.
This financial review includes a GAAP and non-GAAP discussion.
A reconciliation of the pro forma to GAAP results discussed on this call is available on our website and the press release issued today.
Segment profit is comprised of gross profit of the segment less operating expenses that do not include amortization stock based compensation expenses and certain other items.
Total revenues for the third quarter were a record $526 $4 million, a 10% increase compared to $481 million last quarter, and 56% increase compared to a 3300 $38 $1 million for the same quarter last year.
Revenues from the solar segment were a record $476 $8 million and 11% increase compared to eight $431 $4 million last quarter, and 53% increase compared to $312 $5 million for the same quarter last year.
Overall this quarter, we shipped approximately $4 7 million par optimizer and approximately 231000 inverters.
U S solar revenues this quarter were $188 $6 million and represented 39, 5% of our solar revenues.
Solar revenues from Europe were a record $234 $5 million or 49, 2% of our solar revenues.
The revenues in Europe were driven by record results in Germany, and Italy, which grew over 50% quarter over quarter as well as record revenues in Poland and France.
Rest of the World Solar revenues were $53 $7 million or 11, 3% of our total solar revenues. The revenues in rest of the world were led by sales in Australia, Japan, and Israel and record quarter in Taiwan and Thailand.
Automaker what spaces, we shipped 592 megawatts to the United States 1029 megawatts to Europe, and 282 megawatts to the rest of the world.
9% of this amount was commercial products and the remaining 61% were residential.
ASP per watt, excluding battery revenues. This quarter was 25 five cents a five 2% decrease from $26 nine since last quarter, resulting from a lower portion of U S shipments and customer mix as well as higher proportion of Inverters in our overall mix.
This quarter, our top 10 solar customers represented 63, 8% of our solar revenues.
Q U S customers accounted for more than 10% of our solar revenues each.
This quarter revenues from our non solar business were a record $49 $5 million led by record sales of lithium ion batteries from our non solar storage business.
GAAP gross margins for the quarter was 32, 8% compared to 32, 5% in the prior quarter and 32% in the same quarter last year.
Non-GAAP gross margin this quarter was 34% compared to 33, 9% in the prior quarter and 33, 5% in the same quarter last year.
Gross margin for the solar segment was 36, 6% compared to 37, 4% in the prior quarter.
As he stated by the T V. The solar segment gross margin was negatively impacted by measures taken to compensate for our temporary shutdown of our manufacturing facility in Vietnam.
Which was compensated by more deliveries from our China factory reduced our non tariff shipments to a 53% of the products into the United States this quarter compared to 88% in the second quarter.
In total the additional logistic costs and tariffs together with some components and raw material price increases is it 110 basis points compared to our previous quarter.
Our accrual for future warranty claims also rose this quarter, partially because of the increase in product costs and partially due to the increase in our overall installed base.
We expect this phenomenon to continue in the fourth quarter.
Gross margins for our non solar segment was eight 7% compared to three 3% in the previous quarter due to healthy margins from the storage business and continuous improvement of margins in the E mobility business.
On a non-GAAP basis operating expenses for the third quarter were $83 $8 million or 15, 9% of revenues.
<unk> to $81 $5 million or 17% of revenues in the prior quarter and $63 $2 million or 18, 7% of revenues for the same quarter last year.
This growth year over year reflects continued investment in our expansion of our R&D and sales capabilities.
Our solar segment operating expenses as a percentage of solar revenues were 14, 6% compared to 15, 8% last quarter.
Non-GAAP operating income was for the quarter was a record $95 $2 million compared to 81 $3 million in the previous quarter and $50 million for the same period last year.
This quarter solar segment generated a record operating profit of $104 $9 million compared to an operating profit of $92 $9 million last quarter. This number represent 22% of our solar revenues and is above the midpoint of our 20% to 23% long term opera.
<unk> profit Morgan.
The non solar segment generated an operating loss of $9 $7 million, an improvement compared to an operating loss of $11 $6 million in the previous quarter.
Non-GAAP financial expenses for the quarter was $3 million compared to non-GAAP financial income of $1 7 million in the previous quarter.
Our non-GAAP tax expense was $10 $1 million compared to $10 $5 million in the previous quarter and $1 6 million for the same period last year.
GAAP net income for the third quarter was $53 million compared to a GAAP net income of $45 1 million in the previous quarter and $43 8 million in the same quarter last year. Our non-GAAP net income was $82 $1 million compared to a non-GAAP net income of $72 5 million in the <unk>.
Biggest quarter and $65 9 million in the same quarter last year.
GAAP net diluted earnings per share was 96 cents for the third quarter compared to <unk> 82 in the previous quarter and 83.
In the same quarter last year.
Non-GAAP net diluted EPS was $1 45.
Compared to $1 28 in the previous quarter and $1 21 in the same quarter last year.
Turning now to our balance sheet.
As of September 32021, cash cash equivalents bank deposits restricted bank deposits and investments were $1 $2 billion.
Net of debt cash cash equivalents bank deposits bank deposits and investments were $524 1 million.
During the third quarter of 2021, we generated 61 $8 million of cash flow from operations.
Accounts receivable net increased this quarter to $416 $2 million compared to $343 7 million last quarters.
Sales outstanding this quarter in the solar business was 90 days an increase from 76 days last quarter. A result of higher revenues generated in the later part of the quarter and an increase in sales to large customers that are enjoying more favorable credit terms in the overall mix.
As of September 32021, our inventory level net of reserve was at $304 $7 million compared to $321 $9 million in the prior quarter.
Most of this reduction is related to lower level of finished goods in the solar segment, while raw material level increased in the solar segment to support manufacturing amidst the global component shortages and slightly decrease in the non solar segment.
Turning to our guidance for the fourth quarter of 2021 <unk>.
As explained throughout this call due to the shutdown of our factory in Vietnam into third quarter and its gradually returned to normal operations and in light of the strong demand our fourth quarter guidance is for moderate growth at temporary reduced gross margin.
As such for the fourth quarter of 2021, we are guiding revenues to be within the range of $530 million to $560 million.
Revenues from the solar segment are expected to be within the range of $490 million and $515 million.
In the fourth quarter, we expect to ship approximately 70 megawatt hour of residential storage systems to the United States and Europe as we continue to ramp the manufacturing of this product.
We expect non-GAAP gross margin to be within the range of 30% to 32% gross margin for the solar segment is expected to be within the range of 31% to 34%.
Before opening the line for questions I would like to update that we're planning for an analyst day to be held towards the end of the first quarter of 2022, we will of course announced a specific date closer to this time operator, we can now take questions. Please.
Thank you.
At this time, we will open the floor for questions.
If you would like to ask a question you may do so by pressing star one on your telephone keypad.
If you are using a speaker phone. Please make sure that you're on mute function is turned off so that your signal may retry equipment.
Again that is star one to ask a question.
And we ask that you limit your question to your original one plus one follow up.
Our first question will come from Brian Lee with Goldman Sachs <unk> Company.
Okay.
Hey, guys How's it going thanks for taking the questions.
The first one I had was just around the backlog I appreciate you providing that additional metrics in context can you.
Rone anything you can you.
Give us some context in terms of how much the backlog at four gigawatts is up versus <unk>.
Quarter ago, and then in terms of sort of lead times youre quoting on that backlog mix just to get a sense of how far that stretches out.
And it sounds to me like you're saying that.
Because of the backlog and because of the supply chain and manufacturing issues Q1 should be.
Seasonally much better maybe better than the modest growth. We're seeing here just for Q4, but can you kind of.
Encompass all of that in the context of your backlog.
Trends youre seeing and how it.
Impacts into Q1, and then I had a follow up.
Yeah, Brian.
So starting from from the backlog as we mentioned where we're today with backlog.
Our orders for shipment in Q4, and Q1 combined of more than four gigawatt and in the third quarter, which was a record quarter. We shipped one nine gigawatts of of.
Of Inverters and we're using here inverters as the reference point that is not the matter of it doesn't include batteries and it's not including the Optimizes. Its just the the way to the way to compare so the record Q.
Q3 was $1 nine and today, we are with backlog for deliveries in the next two quarters of more than four.
More than four gigawatt.
To the second part of.
The question so.
Indeed.
Let me touch on touch on lead times and I mentioned this is as well. So as you know we have a very wide variety of products and offering and the lead times.
Very byproduct.
We are still taking.
We're taking few orders for delivery in Q4.
Unless it's some specific products, where we have access and availability and but we are still taking orders in Q1, so still for most of the products. The lead times are in the range of.
12 to 14 weeks.
On some commercial product, it's a bit longer than that and on the batteries, it's a bit longer than that as well. So if anything that ranges from call. It a 12 weeks to 16 to 18 weeks.
On batteries.
<unk>.
The outlook for Q1 is obviously a complex and there are many.
Many moving moving parts and unknowns.
But generally speaking with our plans for recovering production capacity in Vietnam.
As well as from the other factor is we do expect to see growth in particular on the topline from a margin perspective, Q1 will still be challenging in getting that equipment.
Quickly and on time to the customers when and where they need it. So we expect still some margin headwinds in Q1.
Alright, that's super helpful. And then maybe just a second question on that margin topic. So you did 36 and change gross margin in solar products. This quarter, you've got to 31% to 34% for Q4.
A couple of moving pieces, there, but can you sort of bridge the gap a little bit in terms of.
The non tariff versus not tariff mix, the shipping issues and sort of rone and I think mentioned it was temporary like how how temporary are some of those factors as you start to kind of get back to a more normal margin moving through 2022, maybe if you could.
Break down some of the pieces and maybe the potential timeframe for when they come back to a more normal state.
Sure Brian So so first of all in order to explain this let's understand the mechanism that these actually creating the margin headwinds.
In general when you're manufacturing capacity disappears by about 20% to 25% at Seabee mentioned, what they call. The first thing that we did was actually to divert a lot of our manufacturing to China and this is something that creates a first two issues. The first one is that.
You need to start now rotating some of the components that were shipped to Vietnam into China in order to make sure that you have the right components to the right place and of course, we remember that this is all happening while there are component challenges worldwide and therefore these by itself creates expenses related.
To simply mobilizing quickly large amount of components from one side to the other usually on expedited shipment.
The second part of this.
Diversion I would call is the fact that.
While you're expediting some of the shipments the cost of these expedited shipments also increased dramatically over the last.
Few months as we know.
From what we see all over the World and therefore, you get like a double effect that even to be able to compensate for the manufacturing cell itself you need to pay much more to bring components seen now we go into the manufacturing and the idea is that in a normal way of operation you would usually use your capacity.
Sheep as much as you can using ocean freight to accumulate product close to our customers in our warehouses in Europe, and the United States and then ship them locally all using regular ocean freight and.
In some cases of course ground transportation.
Once this capacity is gone you basically leave from the head to the from your hand to the mouth in a sense, meaning that whatever you are manufacturing in China in Israel and in Hungary, you were trying to push as quickly as possible to your customers because they count on you and they know that they need to get our products in order to install.
And the only way to do it is simply by sending expedited shipments and again expedited shipments more than quadrupled and sometimes even six times more expensive today than they were a few quarters ago, and then youll see a double effect of these expedited shipments and the last thing of course.
If the tariffs on Chinese product and as I said in my part of the transcript is that.
Non Terry shipments to the U S a wind down to 53% from 88% last quarter.
In Q3, the effect of all of this was relatively marginal because on one hand.
We still had inventories that were on more regular shipments coming that were manufactured in Q2, and it came to Europe and the United States into regular weight and we did absorb some of the cost of shipping the components from one location to the other and you'll see it in this 110 our base.
These points are increase that are also including a little bit of tariffs that were paid.
When we entered these Chinese product to the United States, but actually some of these costs are actually capitalized on our products that we brought in Q3 and we're going to sell in Q4.
And this is the 110%.
We look now into Q4, we're going to see that we will see approximately 300 to 350 basis points coming from the accumulation of the effects and that means that now we're not just shipping components that are maybe smaller and in lower volumes.
From an in an expedited way from one factory to the other we actually start shipping large product.
By air or by expedited shipments to their final destination and at this point, we do not have any more products coming to the U S from our Vietnam facilities from the last quarter or simply because these factory was practically down and those manufacturing that debt.
We're doing in Vietnam or has not yet coming to the U S and are allowing us to enjoy the non tariff region. So in general what we see that in Q4 were basically getting or absorbed most of the hit from the lack of manufacturing in Vietnam.
And of course, the expedited shipping.
It's created from these when it is going to clear in Q1 first of all we expect to Vietnam, sometimes in November as we say to go back to normal levels and therefore, some of the goods will still be sent in an expedited manner as to customer to meet Q4.
Demand, but some of it will be shipped to our Q4 and then some of it will be shipped to queue for Q1 in order to make sure that we have enough inventories to begin the quarter and at the same time also again do manufacturing in China that is not regulated will start to go in the less expedited manner and therefore in Q1, we will see.
We will still see some effect that our residual from Q4, but you'll start to see an improvement and towards Q2, where hopefully unless there are more coffee waves. We will see continued manufacturing in all of our factories that have excess capacity above this demand, we will be able to come back to this I would call.
Normal shipment methodology or a system of ocean freight so it's a little bit of a lengthy.
Explanation, but the idea is that lack of manufacturing in Q4 Q.
Q3 is becoming more expensive in clubs in Q4 the improvement in Q4 is contributing to improved margins in Q1 and in Q2, hopefully we're supposed to be back to the normal margins.
Alright, thank you.
Our next question comes from Mark Strouse with Jpmorgan Securities.
Yeah, Thanks, very much for taking our questions I wanted to go back to the new facility in Mexico.
What percentage of your U S shipments will come from Mexico versus Vietnam.
Steady state.
Once Vietnam is back up and running and then can you kind of compare and contrast.
The manufacturing costs between Mexico, and Vietnam, as well as the shipping cost into the U S.
So it might be due to repeat the second part regarding the first part to the the idea is to reach a point once we're fully ramped where almost all of the products that are intended for the U S market are coming.
From Mexico, and that's how we are designing the capacity at the same time, having the flexibility that we have non China manufacturing in multiple locations not only Vietnam also Israel and Hungary.
Now as to deal with fluctuations in the demand in case, we cannot supply everything from Mexico, but ideally.
We would want to Oh, we would want to deliver from Mexico all of the.
Volume required by our intended for the U S.
Okay. Thanks.
Second part.
Yeah, Yeah go ahead Ryan.
So for the second part.
I think that it's relatively early to understand exactly the cost compared to Vietnam, because again the situations today that that all shipments costs are very high so compared.
Compared to where we are today.
Mexico is going to be dramatically cheaper than Vietnam, I think that once we are starting to manufacture in Mexico and at the same time Ocean freight is going back to normal I would assume that the difference.
Is of course, better in manufacturing in Mexico, but not as dramatic but I think that there is another thing that needs to be taken into account and this is also related to inventory levels and the.
Capital.
Uses of capital because did like today from Vietnam to the United States is approximately six weeks where products are on a ship before theyre being distributed and once you are manufacturing in Mexico, We're talking about one week to 10 days, a smooth and that means that we can also make our inventory management and more efficient so.
And of course this is something that also save cost. So I think it's going to be cheaper, it's a little bit hard to evaluate that right now.
Okay. That's helpful. And then just my follow up can you just go back to the decision to not increase pricing this year.
You've increased prices in the past I'm thinking back to when the Chinese tariffs originally came on a few years ago.
You why not do it now do you see this as an opportunity to gain market share, perhaps or any other color would be helpful.
I think the main thing is we're not looking at this as a short term event. So there's it's a complex situation for everybody our customers.
Gave us orders early and budgeted their activity and installations in particular commercial projects with certain assumptions.
And we feel as we did throughout the constraints of the last year that our ability to get them their product.
When they need it and according to our commitments is is very important to our long term relationship with them and we see we see the fruits of that.
Already today, so we don't want to react with anything.
Drastic quickly that will impact the business of our.
<unk>, but but again not so much because we think it's going to have an immediate impact on market share one way or another but it's part of our long term relationship with our customers.
Alright. Thank you. Our next question comes from Stephen Byrd with Morgan Stanley.
Hi, Thanks for taking my questions.
I'd wanted to discuss storage you gave a discussion of the ramp up and moving next year into about 180 megawatt hours per per quarter wanted to just get your latest thinking in terms of the the outlook there for both sort of as you think about the sales and margin potential on storage, it's obviously, becoming a bigger part.
For your business and we're just interested in your latest thinking.
About the outlook for that going into 2022.
So in general as we mentioned before for.
First of all indeed batteries are going to be a bigger part of our revenues and we.
We believe that over time, it's going to be around 25% gross margins.
We will see on this product because we believe that some of the prices today reflect.
The fact that the demand is exceeding the supply dramatically and once volume will come back this will be reduced in a sense that there may be an opportunity for larger or margins or higher margins in the first few quarters.
But we do expect that they will go down a little bit and of course, the first batteries based on our Samsung sells and once we're moving to or sell it to sales are coming by the end of next year. Then then of course, we have another chance of expanding them, but in any case I would say that they would range.
Between 25% to 30% they would not exceed this number dramatically.
I missed the second part of the question.
No that's really a that's the you you answered that question that's exactly what I was focused on and.
And my follow up really is is broader.
Which is as we think about 2022 and even beyond 'twenty two component.
Sourcing challenges.
You've given discussions quite a bit over time on this but just stepping way back what is your sense for the timing for resolution of some of the shortages sort of for easing. Some of these issues around component sourcing challenges what what's your sense of the timeframe over which we're looking at kind of a normalization.
That's an excellent question.
When you know please let us know as well.
I would say.
First of all the situation has not yet has not improved yet so.
We are managing through this this complex environment and Theres, a lot of juggling going on and and R&D resources that are working on.
Quantifying alternative sources.
In order to make sure that were never short and what we really need in order to deliver and it is especially challenging when you're growing and you're growing into axises. You're also growing in the volume of the existing products and also trying to release high volumes of new products, because the kinds of practice in the in.
The components business is that.
They allocate for you.
Something that you received the prior year, maybe with a slight increase and they expect you to be happy with that and but if your business is actually growing dramatically as it is in our case.
It becomes it becomes more complex. So the situation is it's challenging but again, we're managing through it in terms of a sense as to when.
There is a dramatic improvement.
I don't know.
We have information that someone else doesn't doesn't have there are a couple of our suppliers that we really depend on that we do have some visibility in terms of new capacity that they are bringing online and when that will happen and how we secure access for ourselves into that capacity, but.
But that helps us on some very specific critical items, but the challenge is much much broader than that and.
And again I don't think that we have a better understanding than what than what is generally reported and Oh I'm in the news about this topic.
Alright, thank you.
Our next question comes from Natalie <unk> with credit Suisse.
Hey, Thanks for taking my question good evening.
One thing, which I kind of caught my eye was the in wood products, you talked about it in Japan, which works when because theres not available could you just talk more about it.
Is that something which you expect to launch in the U S as well.
Yeah. So.
<unk>.
Yeah.
Practice that in recent in the last year has become a regulatory mandate in Japan too.
Have a with every installation or with every inverter.
What they call the utility outlet there are small AC socket that you can pull tower from a if there is an outage without any local storage.
So we develop that technology for the sake of the Japanese market. The Japanese residential market is a very interesting market.
And on one hand.
You have to be patient when trying to take market share in Japan and at the same time some of the benefit that our system.
<unk> provides like like enhanced safety monitoring capability the ability to fit a complex roof. All of those are very relevant for the Japanese residential markets.
We are optimistic about the potential within <unk>.
Within the residential market and that's why we developed the technology and where product is engaged for Japan.
It could be product types for other markets, but I think if you look at the global market there are two.
Overriding trends that are impacting the topic of store.
<unk> does electrification.
And in the home, so whether it's through shifting to easy or or electrifying HVAC the capacity and power requirements of the home are increasing and at the same time, our grid instability is causing the need and drive towards resume.
So the real solution for what.
The North American markets, our European market.
In terms of.
Resilience is what we are seeing people are going to more batteries larger batteries larger inverters in larger systems.
And more attach rate.
Batteries, that's what we are aiming our offering in those markets and are optimizing for that capability.
That said, we could product is this technology that we have for other markets as well what kind of look and see if that is justified.
So thanks, and hopefully we can see more of the I didn't stay and.
Just a small kind of housekeeping follow up.
Indeed cash flows line item I see around $19 million of investment in it.
Private company just wanted to.
It's up to anything specific you want to disclose.
So it's.
It's basically.
Made the early this year.
An investment a minority investment into a company called auto grid.
And that's that's what's reflected there.
Great. Thank you.
Our next question comes from Phil Shen with Roth Capital Partners.
Hi, everyone. Thank you for taking my questions. It looks like Youre, making progress with the battery launch our checks suggest customers like the stack ability.
And other a number of other features of the product.
You shipped 20 megawatt hours in Q3.
Expect 70 megawatt hours of Q4.
The ramp up to the $1 80, a megawatt hour production run rates by end of Q1.
How many megawatt hours were recognized in revenue in Q3, and how many megawatt hours do you expect to recognize revenue for Q4. Thanks.
So in general we provide shipment and we do not go into the revenue recognition I can tell you that the amount was not extremely large of this amount in our book.
But we do not we do not break this number.
Okay. Thank you Ryan.
And then as it relates to market share in 2022.
In the U S on picking up that.
There are a number of customers are wanting to increase their mix to you guys. I was wondering if you could talk through.
How you see the U S resi market share dynamics, as we get through and go into the year. Thanks.
Yeah, Yeah yeah.
I think we'll repeat the answer that we usually don't repeat in that regard.
Assessing market share in the U S residential market is tough there are indicators.
Internal and external third party that kind of show a small swing in one direction, there's an equal number of indicators by other.
Signs that that show a swing in another direction. So looking at all of the data that we see in front of US I don't think there's a there's a major shift in one one direction or another.
I would say that if you look at something that they think is relatively clear is.
The growth of of the share of the top 10 installers in size of the overall market and we are typically associated to be stronger with the larger.
Installation companies. So that's a positive indicator from our <unk>.
Perspective, but but again, it's just one of a bunch of data.
Data points and indicators that I'm not sure.
So in conclusion can be drawn from.
Great. Thank you.
Our next question comes from Colin Rusch with Oppenheimer and company.
Thanks, So much to ask can you just give us an update on the ramp at HOKA.
We should be thinking about that supplementing some of the non solar business.
So in general again, I think that we need to look at ramping could come before silhouette and sell it to an after right now our factories are 120 to 150 megawatt hour it's fully booked.
And we're basically whatever we can manufacture we're shipping there and I think that in some of the cases, we're simply able to around the projects that we do in Australia to sell a little bit more pack business didn't sell business, which is providing higher revenues from diesel limited capacity and this is.
The record revenues that you see this quarter and last quarter.
Once we will go into sell it to then of course, the two gigawatt hour capacity that we have.
Can be expanded if something that will allow <unk> to grow.
Further and in the non solar storage business that we see in front of us either as providing batteries for U P. S for a special vehicles high power applications and E. S. S. Like spinning reserves I think that there are lot of opportunities there, but all of those will be I believe.
Mostly generated once you'll have to sell it too and even within this we need to start.
Reducing sales from this product.
You saw a factory sending to customers to be qualified and then youll see an accelerated growth coming after a I believe 2022 into 2020 to be in more but all in all.
We basically get the best possible out of their very small factory that we have right now.
Great. That's helpful. And then just in terms of mix as you guys look at those four gigawatts of.
Orders that you have can you just talk a little bit about the system size.
And your expectation around.
How the mix is going to shift from where we were maybe a year ago into this next couple of quarters are you picking up a lot of traction on the commercial side or on some of these larger systems at this point or are we still thinking about a lot of smaller systems.
So it's a good point and I think you are you are correct and in the backlog there.
Might tilt towards commercial and commercial intended for larger installations, we've been talking for the last few quarters after.
About the recovery in the C&I space from from.
The COVID-19 being slower initially and ramping up recently.
So that's that's seen in multiple places, including here in the U S with more commercial work more community solar projects and.
And others just in general the C&I market is.
<unk> is in a good momentum.
Momentum momentum right now and we are capitalizing on some of that so so there is a slight tilt in the backlog towards C&I and.
And with the 120 kilowatt converter that we released a quarter or two ago.
We're increasing.
We're improving our position with larger projects, which will of course towards second part or end of next year, we will start.
Manifesting itself also because of the release of the 330 kilowatt, but in the backlog today, that's not reflected but it is slightly tilted towards C&I.
Thank you.
Our next question comes from J, B Lowe with Citi.
Okay.
Hey, Judy Ronan Erika How're you doing.
Question was kind of a follow up until his question, but on Europe.
Enphase last week came out and put up.
At least from them a nice expansion internationally I'm just wondering how do you see the competitive dynamics.
Particularly as it pertains to them if they are coming into Europe.
Do you kind of see those competitive dynamics kind of playing out.
Versus here in the U S.
Yeah.
Of course I don't.
I won't get into the detail of anything specific for related to Enphase generally speaking and we spoke about this in SaaS.
The markets in.
Europe.
And in Australia.
Much more.
Hum.
A Chinese on one hand.
The premium on the other hand being being solar age so it's a different competitive environment than in than in the U S. Because.
Because there are so many there's a very broad offering of low cost and decent quality.
Chinese products.
And that's the dynamic of competition in these markets.
And it.
It's very different in that regard in that regards to the U S and we have developed some experience in specific offering for those markets that there's a that reflect that.
That's different.
Competitive environment, especially taking into account that there is no rapid shutdown requirements. In these in these markets. So you really are have to be either.
Cost competitive or be able to justify the <unk>.
Cost difference compared to the Chinese alternatives that are out there. So it's a very different landscape.
And and that requires a special special type of approach that we've adopted over the years.
Okay, Great and my other question was on the E mobility business.
Million in sales this year.
It's going to be backend loaded anyway, and then underground we had talked previously about kind of that business being $100 million to $120 million ish annually for the next few years.
See how it goes but do you think some of the delayed sales that you would expect them to come in at the back half of this year will be pushed into 'twenty, two and then and then hitting that run rate.
Can be a little bit more lumpier than that how do you guys kind of see that business over the next 18 months.
Yeah. So so first of all the first part actually most of that is already done. So so what we're saying for 2021. So it's not so much a backend loaded it it's on the contrary.
The dynamics of the stop and go that we've been experiencing recently is what we expect to see between now and the end of the year and that's why we're not assuming.
Uh huh.
Large number in Q4 like we might have assumed otherwise and the expectation is too.
The project will catch up.
Whether that's going to be in the early part of 2022 in terms of the wire.
And or later or in 2023 is really related maybe even to the earlier questions about recovery of the of the component shortages, because that's what's causing these stop and start motions in the automotive industry. So its kind of.
We're a secondary effect to the fact that.
But the.
The Oems are not producing the base vehicles that the rates that they would want to because of availability of components and then they don't consume our offerings at the rate that was originally planned. So the assumption is yes that is going to catch up when is it is hard to say.
Okay.
Alright, thank you.
Our next question comes from Eric Li with Bank of America Securities.
Hi, good afternoon. Thanks for taking the questions first off I wanted to talk about.
Storage could.
Could you just talk about your specific progress on the rollout I noticed there was a little bit of a delay in <unk>. If you could talk to what was driving that and what's giving you confidence in the ramp to 70 megawatt hours for <unk> and could you also talk about the ramp thereafter on capacity beyond the 180 megawatt hour out of <unk> I think you've talked.
Two $2 15 megawatt hours out of <unk>, if you could trust.
What are you kind of affirm dock or not.
Yeah. So I'll start with the first question. So the rollout is.
It's progressing well I think a point that was also an opportunity for us to clarify a bit it is.
There are already about 90000 installations of our Inverters with D C coupled.
Batteries, so in terms of our Knowhow and capability of the broad installer base to connect the D. C couple of battery to a solar edge invertor that knowhow is out there. So so we are supplementing with training them on how to do it with our battery that is a little bit easier to install because of the the wireless.
Various wireless connections, but but that part of the rollout is going.
Is going fine fine.
The slightly lower than planned output. This quarter was really around logistics a lot of the parts are manufactured in China then.
It's either pay more to get them delivered quickly or.
Or get them on regular ocean freight to the assembly factory and and deliver a little bit less and here. We are we we defer to the to getting a little bit more profitability out of.
Out of the deals in terms of our capacity definitely as you mentioned.
The intent is the 130.
She was maybe.
180, and the $1 80 to 300 batteries a day is the milestone for the end of Q1 and the intent is to ramp that further into Q2 and two.
Consumed the capacity of cells that we reported.
In the previous quarter and an even more once once we start getting our own sales out of <unk> and Coca.
Got it and as a quick follow up I think you mentioned C&I supply commitments walking in pricing earlier, but could you just talk to the potential ability to raise prices, even if only on the residential side I know your peers have communicated a second price increase already this year at the low to mid single digit range.
If you could just talk through your thoughts and strategy here. Thank you.
Okay. So as we explained and we are referring to pretty much the period between now and the end of the year and in particular, considering the challenges that we're facing on on margin because of the shutdown in Vietnam.
That event, we decided that it is it.
It is not the right thing for us in terms of long term thinking to transfer that crossed over to our customers.
In terms of longer terms, we're evaluating what to do it we might.
We have to look at it also regionally and also product wise.
And and assess them assess the long term implications. So what we're referring to is right now in in in Q4 related to the events in Vietnam, We decided not to increase pricing.
Hum and shift the cost over to the customers.
Thank you.
Our last question will come from Kashi Harrison from Piper Sandler.
Good evening, everyone and thanks for taking my questions.
So on the utility scale side of equation I was wondering if you just walk us through the investment thesis for a developer to use of power Optimizer solution just given limited shading at these sites and then what what regions do you think you might have strong demand for this utility scale product.
So we're as I mentioned also I think in the call were talking right that this product is aimed initially for the what we call the small utility and a community solar site.
<unk> installations and.
And as I also mentioned, we are optimizing the cost because because the value proposition needs to fit.
The additional <unk>.
Cost to the customer in there there are the classical or the long term value propositions that we offer in terms of monitoring and reduced O&M expenses and and.
And recovering lots of energy due to the mismatch in particular with the extensive use of bifacial modules that are that are out there. So that's a big part of the.
Qualification work that we're going into is ensuring that we know how to quantify it for our customers the benefits, including adding features and capabilities that will allow them to save some money on other elements of their.
They are operational.
There are operational aspects.
So that's indeed, the challenge and that's that's what we're preparing for this product and in that regard I think to encourage you to attend the analyst day, where we can get into that get into that in more detail looking at regions and customers and this is an experience that we've gone through also initially with residential and then with C&I as you start.
With the early adopters that for one reason or another.
Have a a view that that they they need this type of capability, sometimes it's large projects at an uneven land some.
Sometimes they might have.
Other constraints that make it an easier decision for them to adopt this type of technology and then over time they understand.
Broad benefits and then start adopting it for their normal installations and then other people started to opt in gates as well so.
I assume that will go through a similar path and we're actually at the beginning of that path already today in smaller and then larger utility, but all along to optimizing the value compared to the relative increased cost.
Great. Thank you at this time there are no further questions NICU sounds like like to turn the call back over Q E. L. C D landowner.
Thank you and thank you everybody for joining us on the call today. Thanks.
Thank you ladies and gentlemen. This concludes today's teleconference. Thank you for your participation and you may now disconnect.
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