Q2 2023 SolarEdge Technologies Inc Earnings Call
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Welcome to the solar edge conference call for the second quarter ended June 30th 2023. This call is being webcast live on the company's website at www Dot solar edge Dot com in the investors section on the events calendar page.
This call is the sole property and copyright of solar edge with all rights reserved and any recording reproduction or transmission of this call without the express written consent of solar edge is prohibited you.
You may listen to a webcast replay of this call by visiting the event calendar page of the solar etch Investor website.
I would now like to turn the call over to J P low head of Investor relations for solar edge.
Thank you David and good afternoon, everyone.
For joining us to discuss solar edges operating results for the second quarter ended June 30th 2023, as well as the Companys outlook for the third quarter of 2023.
With me today are Zeevi, Lando, Chief Executive Officer, and Ronan fire Chief Financial Officer.
<unk> will begin with a brief review of the results for the second quarter ended June 32023.
Ronen will then review the financial results for the second quarter, followed by the company's outlook for the third quarter of 2023.
We will then open the call for your 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 management's 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 alright, 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 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 30th 2023 press release or the supplemental material may obtain a copy by visiting the Investor Relations section of the company's website.
Now I will turn the call over to Zeevi.
Thank you Jamie good afternoon, and thank you all for joining us on our conference call today.
Starting with highlights of our second quarter results, we concluded the quarter with record revenues of approximately $991 million.
Revenues from our solar business were at a record $947 million, while revenues from our non solar businesses were $44 million.
This quarter, we shipped five and a half million power Optimizes and 335000 Inverters.
This quarter, we also shipped 269 megawatt hours of residential batteries at 22% increase from last quarter.
Our solar business revenue grew quarter over quarter by 4% and by 38% year over year, mostly driven by record revenues in Europe offset by a decrease in revenue in the United States and rest of world.
We saw record revenues in many countries this quarter, including Germany, the United Kingdom, and Switzerland, South Africa and Thailand.
Particularly particularly note worthy is the growth we have been discussing for several quarters in the commercial segment, which has seen megawatts shipped to go from one and a half gigawatt in the fourth quarter of 2022.
The 2.1 gigawatt in the first quarter of this year.
226, gigawatts of shipments this quarter.
The solar market is going through a transition emerging from the recent period of component shortages high energy prices and rapid growth.
Two one now impacted by higher interest rates and excess inventory.
Given this shift I would like to review the major trends, we are seeing in the various regions and how it affects our company.
In Europe installation rates continued to be high in both residential and commercial.
However, the strength in the market is somewhat more moderate than what was anticipated heading into 2023.
Largely due to a milder winter reduced concerns over energy resilience and lower electricity prices.
With that in mind, our growth in Europe in the second quarter was very strong.
Overall, our megawatt shipments to Europe grew by 52% quarter over quarter.
Including 57% in residential.
And 50% quarter over quarter growth in commercial.
Additionally, sell through by our distributors in the second quarter was up 49% year over year in residential and up a 115% year over year in commercial.
On the supply side, the distribution channels in Europe are experiencing higher than optimal inventory levels, especially as it relates to solar modules.
During the recent period of shortages and expectations for high growth distributors placed large orders for modules and inverters in order to ensure stability of supply to support to support the growing demand.
As growth in demand has tapered off distributors are taking a more cautious approach in order to better manage their cash flow.
In addition to taking actions to reduce inventory levels distributors are also reducing the number of suppliers in their portfolio, which had expanded during the period of shortages.
This is a dynamic seen before in the industry during a shift from a period of extreme shortage and accelerated growth through a period of more gradual growth and undistributed undisturbed into product availability.
We expect this inventory adjustment period could continue for the next two quarters, especially when also taking into account the typical fourth quarter seasonality effect in Europe .
We see this environment as an opportunity to grow market share based on our offering that is very suitable to the growing complexity of the European grid, where dynamic terrorists and negative rates are becoming more common.
To deal with this growing complexity, our customers require advanced energy management hardware and software of the starts we recently announced that interest owner and about which I will elaborate in a few moments.
Moving to the U S residential markets the combination of higher interest rates and the new net metering 3.0 regime in California has led to a decrease in demand compared to the second half of last year.
As a result inventories of our product in the various channels are higher than normal as they were built in anticipation of substantial market growth that did not materialize.
As a result, there were shipments to the U S residential markets were down 29% this quarter from the last quarter.
Sell through of our products by our distributors are ever actually rose by over 10% during the same period.
We expect the process of inventory normalization to last at least through the end of the year.
Looking into 2020 four there are two market trends that we view as positive for our business first the expected increase of third party ownership installations, driven by the shift to lease versus loan financing.
Sub segments, where our market share has traditionally been higher.
And second is the expected increase in storage installations in particular, the involving them 3.0 battery market, where our D. C. Coupled system can offer up to 10% more energy on an annual basis, when compared with a non DC optimized module ever electronics solution.
In the U S commercial market, we continue to see stable demand, which we expect to gradually grow as a result of lower module prices and as projects that were on hold begin to move forward.
This is expected that some developers who had halted project in anticipation of I R. A clarification related to the 10% ITC domestic manufacturing adder.
Move forward with the project execution after realizing that I or a clarity will likely take longer than anticipated.
And rest of World, we see a mixed picture, where some countries are experiencing headwinds due to a higher interest rate.
Others, such as such as South Africa, and Thailand are growing rapidly due to grid instability unfavorable regulatory environments.
Moving to products and I want to spend a few moments discussing the increased investments we are making across our digital solutions platform, which is focused on three main pillars.
First our energy management software known as Stoneridge, one, which we recently introduced that into solar in Munich.
Celebrated one helps home and business owners optimize their energy production and consumption and storage.
With the proliferation of time of Houston dynamic Derricks and growing attach rate their batteries. We believe this will become an increased area of differentiation for our PV plus storage solutions.
Second is our installer toolkit, which is a set of tools aimed at helping our customers design sell install and commission PV and storage systems in a fast and efficient manner.
At our <unk> plus in September in addition to demonstrating improvements to our already short installation and commissioning times.
It will be we will be launching our new installer proposal to them.
Sophisticated step by step software platform to help installers to be more effective when selling a PV plus battery system at the kitchen table.
And third did.
Digital infrastructure, which includes grid services and other advanced applications.
In the field of grid services, our total number of enrolling sites grew by 70% in the second quarter to over 13000 sites.
In the United States, 16% of our battery installations are now enrolled in grid services programs.
In the Netherlands, we launched through two electricity Aggregators, our first commercial grid services program aimed at grid balancing and already enrolled dozens of commercial sites into the program.
We have a high number of additional enrollment regrets and are looking at integrating with addition of aggregators in the coming months.
Another part of our digital offering.
Based on our acquisition earlier this year of heart system, which offers commercial customers significant monitoring and connectivity capabilities across increasingly complex energy systems.
While still not significant in absolute numbers and likely won't be significant for several quarters, our broad digital offering augments and solidifies our leadership in the residential and particularly in the commercial markets.
More importantly, as electrical grids become more constrained and penetration of distributed solar and other renewables increases.
Optimized interaction with the grid.
As well as the optimized energy management at the home and in the business will be critical to the positive functionality and economics of the solar installation.
We see this as an opportunity for differentiation for technology companies like solar age and a key reason why we don't believe that the inverter market will become commoditized.
More on the product side, we are seeing good progress with our tracker offering as we now have more than 30 megawatts of trackers, either installed or in the process of installation.
This new product, which is both lightweight and has a small footprint.
Provides access for us to new market opportunities and will initially enabled us to offer a full solution to the growing aggregate PV segment, which is lately receiving significant regulatory support.
And the electrical vehicle charging fronts, we continue to supply our AC EV Chargers, both the inverter integrated and Standalone versions and to date has shipped over 45000 units globally.
As we unveiled it into solar and next year, we plan to release, our bi directional D. C. EV charger that will be DC, coupled enabling greater charging efficiency through few fewer AC to DC conversion.
Moving to operations.
We are making strides towards building out our U S manufacturing footprint in the third quarter, we expect to ship several thousand inverters from our contract manufacturing partner site with this number growing to above 30000, inverters that we expect to ship from this site in the first quarter.
More broadly we mentioned earlier, the fact that the inventory levels are high for some products. However on certain products such as three phase inverters into European market.
Even though we increased output significantly in the second quarter, we are still delivering below demand and thus air shipments have been required.
Part of that relief in this area will be via the long term purchase agreement, we announced last week with Infineon.
That will help give us assurance and the availability of critical power semiconductor components in the years ahead.
And our non solar business that we're selling to battery factory continues to ramp and is on track to reach its full capacity by the end of this year.
Additionally, we have initiated manufacturing of the type of cells that will be used in our portfolio of next generation batteries, starting with the release of a new residential battery plans for the first half of next year.
In closing, while we discuss the inventory corrections taking place the actual television market is continuing to grow in many places around the World for example, Germany one of the largest solar market is expected to grow from seven and a half gigawatt installed in 2022 to 10 gigawatts installed in 2023.
With further growth anticipated in 2024.
I believe that our portfolio and positioning within diverse markets and applications will benefit us as markets continue to grow in some areas and we begin to recover in other in others I will now hand, it over to one in Oregon.
Thank you T V and good afternoon, everyone.
These financial review include 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 in the press release issued today.
Segment profit is comprised of gross profit for the segment less operating expenses do not include amortization of purchased intangible assets impairment of goodwill and intangible assets stock based compensation expenses and other certain items.
Total revenues for the second quarter were a record $991 $3 million, a 5% increase compared to $943 $9 million last quarter, and 36% increase compared to $727 $8 million for the same quarter last year.
Revenues from our solar segment, which include the sales of residential batteries and trackers were a record $947 $4 million, a 4% increase compared to $908 $5 million last quarter, and a 38% increase compared to 687.
$6 million for the same quarter last year.
Solar revenues from the United States This quarter were $195 $6 million at 23% decrease from the last quarter and a 37% decrease from the same quarter last year, representing 21% of our solar revenues.
Solar revenues from Europe were a record $688 $5 million and 19% increased from the last quarter and 112% increase from the same quarter last year, representing 73% of our solar revenues.
In Europe , we continue to see meaningful quarter over quarter revenue growth in general.
And noticeable records in Germany, with 64% growth, reaching close to $300 million of quarterly revenues, Sweden, with 106% growth, United Kingdom, with 50% quarter over quarter growth and Slovenia with 54% growth.
Revenues from batteries grew slightly this quarter in Europe limited by the fact that we are still constrained by three phase inverter supply, which is needed for a battery coupled systems.
We do identify some excess battery inventory in the European channels, which will lead to lower battery shipments in the second half of the year.
This inventory buildup will be alleviated as the ramp up in deliveries of our new three phase residential backup inverter catches up with our battery manufacturing and delivering pace.
We intend to use air shipments in the third and fourth quarters in order to resolve this imbalance and fulfill the demand for our products in this segment as a single inverter is typically installed with two to three batteries.
Rest of the World Solar revenues were $63 $3 million, a 17% decrease compared to the last quarter and a 19% increase from the last year and representing close to 7% of our solar revenues.
This quarter, we saw record revenues in South Africa and Thailand.
On a megawatt basis, we shipped 666 megawatts of Inverters to the United States a record three three gigawatt to Europe , and 397 megawatts through the rest of the world surpassing four three gigawatts of record quarterly inverter shipments.
60% of our megawatt shipped this quarter, where our commercial products and the remaining 40%, whereas essential are result of strong European adoptions of our products and higher European revenues in the total mix.
In the second quarter, we shipped 269 megawatt hour of our residential batteries and increased from 221 megawatt hour at last quarter. The vast majority of our batteries continued to be shipped to Europe .
ASP per watt this quarter, excluding battery revenues, whereas 18.8 cents a 14% decrease from 22 since last quarter. This ASP per watt decreased is predominantly a result of increased commercial inverters in the overall mix, partially offset by a straw.
Longer euro in general our prices did not change this quarter.
Our battery ASP per kilowatt hour was $479 slightly up from $475 last quarter, mostly a result of a stronger euro.
Revenues this quarter from our non solar segment were $43 $7 million, an increase from $35 $2 million last quarter, a result of higher storage division revenues.
Consolidated GAAP gross margins for the quarter was 32% a slight increase compared to 31, 8% in the prior quarter and 25, 1% in the same quarter last year.
non-GAAP gross margin this quarter with 32, 7% compared to 32, 6% in the prior quarter and 26, 7% in the same quarter last year.
Gross margin for the solar segment was 34, 7% compared to 35% in the prior quarter and 28, 1% in the same quarter last year.
What are the solar a margin change was mostly a result of product mix changes.
This quarter in our solar division, our inverter and optimize our gross margins were approximately 37% our residential inverter and optimize our product margin continue to exceed 40% and our battery margins were slightly below 25% due to a higher portion of single phase batteries with.
And the mix.
Good subject to tariff excluding batteries shipped into the United States from China accounted for 6% of our U S shipments this quarter the lowest on record as a result of the ramp up in our Mexico manufacturing facility, which is at the level that we expect to maintain in the next quarters.
Yeah.
Gross margin for our non solar segment was minus nine 6% compared to minus 31, 3% in the previous quarter or sell it to ramp up continues as planned and the increased revenues from our storage division are contributing to the margin improvement in this division.
This quarter. We also include for the first time results of our newly acquired Hart systems in our financial results, while still a very small portion of our revenues Hark software sales are characterized with very high gross margins.
On a non-GAAP basis operating expenses for the second quarter were $133 $3 million or 13, 4% of revenues compared to $123 6 million or 13, 1% of revenues in the prior quarter and $109 $6 million or 15%.
One of revenues for the same quarter last year.
Our operating expenses as a percentage of revenue increased as a result of our annual employee merit process that takes place in the second quarter.
Our solar segment operating expenses as a percentage of solar revenues were 12, 8% compared to 12, 3% last quarter, resulting from the same reason.
non-GAAP operating income for the quarter was a record $191 million compared to $183 $8 million in the previous quarter and $84 $7 million for the same period last year.
The solar segment generated a record operating income of $207 million this quarter slightly up from $206 7 million last quarter.
The non solar segment generated an operating loss of $16 $1 million compared to an operating loss of $22 $9 million in the previous quarter.
non-GAAP financial income for the quarter was $4 $4 million compared to a non-GAAP financial income of $24 million in the previous quarter.
The euro to U U S. Dollar rate is above 1.1 dollars per euro we continued to reduce our exposure to the euro by higher frequency of currency conversions to the U S dollars.
Our non-GAAP tax expense was $38 million this quarter compared to $33 2 million in the previous quarter and $7 million for the same period last year, and we expect to maintain approximately 20% tax rate on both GAAP and non-GAAP basis for the rest of the year.
GAAP net income for the second quarter was 190.
$5 million compared to GAAP net income of $138 $4 million in the previous quarter and $15 $1 million for the same quarter last year.
Our non-GAAP net income was $157 $4 million compared to a non-GAAP net income of $174 $5 million in the previous quarter and $56 $7 million in the same quarter last year.
GAAP net diluted earning per share was $2.03 for the second quarter compared to $2.35 in the previous quarter and 26 cents for the same period last year.
non-GAAP net diluted EPS was $2 62 compared.
Compared to $2 90 in the previous quarter and 95 cents in the same quarter last year.
Turning now to the balance sheet as of June 32023, cash cash equivalents bank deposits restricted cash and restricted bank deposits and.
And investments were $1 $5 billion net of debt. This amount is $853 $5 million. This quarter cash used in operation was $88 $7 million, mostly related to inventory buildup.
As we believe that we have seen the bottom of our cash use we expect substantial cash buildup in the next quarters starting in Q3.
Accounts receivable net increased this quarter to $1 billion 15, compared to $969 $5 million last quarter, representing a 126 days outstanding.
Selection of our increased revenues that were skewed towards the end of the quarter and in certain cases extension of credit terms to our customers mainly in the United States.
As of June 30, our inventory level net of reserve was $984 $2 million compared to $874 $2 million in the prior quarter.
As a result of the slowdown in the shipments to the United States slower growth rates in Europe , and a more streamlined manufacturing.
Our finished good inventory.
Increased substantially this quarter.
At the same time, we are slowly reducing art components safety stocks in battery sales as a component availability becomes less of an issue.
Yeah.
Turning to our guidance for the third quarter of 2023.
We are guiding revenues to be within the range of 880 million to $920 million.
We expect non-GAAP gross margin to be within the range of 28% to 31%, we expect non-GAAP operating income to be within the range of $115 million to $135 million.
Revenues from the solar segment are expected to be within the range of $850 million to $880 million.
Gross margins from the solar segment is expected to be within the range of 30% to 33%.
I will now turn the call to over to the operator to open it up for questions operator. Please.
At this time, if you'd like to ask a question. Please press the star and <unk> on your telephone keypad keep in mind, you may remove yourself from the question queue by pressing the pound key.
In the interest of time, we do ask that you limit yourself to one question and one follow up question.
And we will take our first question from Mark Strouse with Jpmorgan. Please go ahead.
Great. Thanks for taking my questions.
Let's start with the three key revenue guide when we look at E.
$80 million to $90 million debt quarter over quarter can you break down how much of that is driven by Europe U S rest of world It sounds like the inventory of humans.
It's fairly broad, but I'm just curious if we should think about that kind of.
If Europe has 70% of your revenue in U S. 20% is that similar kind of mix or the change quarter over quarter.
Hi, Marc Thank you very much for the question so.
Italy, when we look at the the our guidance for the next quarter, we need to look at a little bit the region by region, because we see a little bit of a different dynamics.
I would say that most of the reduction that we see is coming first of all from a less revenues of batteries, mostly in Europe as.
As we've mentioned in the prepared remarks, we find a solution. We found a situation that our batteries shipments were a little bit faster than our ability to ramp up the inverters that come with them, mostly three phase inverters and as a result.
There is a built inventory within the channels there that needs to be cleared in order to continue and grow and this will be a cleared mostly through the adoption or getting more inverters from us during the third into fourth quarter and this is why by the way. We're also increasing our air shipments. So the first first of all.
This decrease the second one comes actually from Optimizer is again in Europe . It's also happening in the United States, but a little bit more in Europe , because Europe is more characterized with a commercial systems.
Because of the fact that inverter shipments were a little bit slower to ramp compared to the other products again because of the three phase are products that are we needed to get more components. What we usually see is that installers, and especially commercial installers, who are installing do modules faster than they do.
The inverse or actually being installed in virtual only at the very last moment used to take a little bit more optimizer is in order to make sure that they can basically completed the installations of the modules in there either on the roof or in the overall installation and then once the inverter comes they simply install it in commissioning so.
The majority of the revenues came from Europe . The majority of the down is this quarter is also coming from Europe because of these two phenomena at.
At the same time, when we go to the United States as Cedric mentioned, we believe that we have basically.
<unk> seen a lower amount that we do not expect to go much lower in the next quarter because of the fact that Oh and one one hand, indeed, the inventories are high but still some of the products that are needed or are still missing there and we're going to ship them and when it comes to rest of the world again, it's a relatively shift.
Mixed a situation where again, we expect to see I would say something that will be relatively flattish. So the majority will come from Europe . The majority will come from batteries and Inverters that were first of all delivered and optimize or somebody that were first of all delivered and the rest will be relatively flattish.
Maybe slightly down.
Okay. That's extremely helpful. Thank you.
Your comments were interesting regarding the European distributors.
And then kind of managing the number of suppliers.
Just curious if you can give us.
Early high level update on what Youre, saying with the overall competitive environment.
Yes.
Yes, so mark the fifth.
I don't know that I described and it is indeed they are for those that have been active in Europe for years, it's something that we've seen through the cycles I can give you. An example that some of our distributors in Poland.
Carrying today.
10 brands of of Inverters.
Six or seven of them are new that they didn't have before that during the period of shortage. They just took a whatever they could get a hold on because that's what they install are needed and now as things stabilize they are they're paring down the number of brands do that theyre carrying into a more classical.
The combination of our call at the high end the base and they.
And they economic solution if a if you will and this is a dynamic that has repeated itself.
Both times in it and its more pronounced in the module side and if you've seen some of the reports and from our discussions in.
With distributors.
They they also emphasize it that the inventory levels are on modules are abnormally high and a lot of that inventory is by now.
On the module pricing in the market is significantly lower than the prices at which those modules were purchased so there a lot of distributors are in some form of financial.
Our challenge and with that they are resolving that by going to a on the overall offering to low levels of inventory that are maybe lower than they would normally carry.
And this type of a period.
Especially because the overall demand is still high but just in order to control their their financials. So the market is very active installations are up.
And and demand for equipment.
Strongest they there there's an adjustment on the channel side to limit their portfolio a drain the ER volumes that they've accumulated during the the closing months of the shortage period and get back to a more sustainable growth type of more of a module.
Model excuse me.
Yeah.
Okay I'll take the rest offline. Thank you very much.
Thank you.
We'll take our next question from Brian Lee with Goldman Sachs. Please go ahead. Your line is open.
Hey, guys. Thanks for taking the questions.
I had a couple here I guess first off maybe for you Ron in Ah I appreciate some of the color around the different dynamics in Europe rest of all U S that played into that the weaker maybe than expected Ricky guidance here.
It sounds like some of that persisting, though.
Beyond just this quarter. So can you give us sort of an early read into.
What you're expecting or do you think about the tightening of inventory rebalance battery shipments and weakness in U S as well as seasonality you'd called out like is there a path for <unk> to be flat up down just kind of give us the puts and takes around you know how how we should be exiting the year on the top line and then I might have missed this.
Did you give out specific battery shipment guidance as well.
So I'll start from the second no we didn't give a specific guidance for batteries, but they are going to be down a substantially next quarter compared to this one given the dynamics that we see especially in Europe more batteries into channels than our I would say normally the distributors would like to have been.
There are still missing the the inverters and batteries, it's definitely going to be a substantially lower next quarter now when it comes to the dynamics in the quarters. Then Unfortunately life is very complex in this area and I will try to give a little bit of the puts and takes there I'll start from Europe again being the center of our.
Our sales today.
In Europe today, what we see is that the.
Inventory levels on one hand, a relatively high but when you look at the AR days outstanding which is a result of the sale through from the channel. They are not high at all they're actually at the normal level.
And when we are looking at the point of sale data of how much is being sold from the channels, we see record levels over the last two quarters that to our understanding our continuing which means that in that case. The demand is there the demand is fairly strong not maybe as.
Strongest people believed from the very beginning of the year, but still very strong and therefore, you would say that the levels of inventory that distributors have and maybe a little bit of change in patterns in making orders a little bit of short term time from the time that they needed because there is enough supply in the market creates a situation where a bay.
Basically.
Some of them, even say that it'll be one or two quarters, but not more than diesel until the inventory levels. Our adjusted because you don't see a big gap the problem in Europe is that you go into the fourth quarter.
And going back to the normal days of solar usually the fourth quarter is seasonally low in Europe compared to the third quarter first of all because of the fact that this is start of the winter and nobody wants to enter the market with or the winter with too much inventory and second because of the holidays themselves there are less days to install.
During the quarter. So here, we see a mixed phenomena, where we believe that the market dynamics are very healthy and will require faster recovery of the inventory levels and faster increase in volumes and the impact of winter is not known and let's not forget that there is still a war in Europe , So I'm not sure what whereas.
Going to be the concerns about about electricity there in the United States I think that we see a different phenomenon in the U S. We do see that the inventory levels are a higher much higher than the.
Supply than the distributors would like to see we do see that as Steve you mentioned point of sale for our products at least improved in the last quarter, but it is still at a relatively lower level and therefore, we believe there that overall oh, it's going to be to be more than one or two quarters until this situation is being.
Changed so if I try to summarize everything I would say that we're cautiously optimistic optimistic to see Q4 being flat to up a rather the opposite but again it is a quarter with many different phenomena that are sometimes contradicting that are happening at the same time.
That's super helpful. I appreciate that and then maybe just to follow up on that.
You didn't mention batteries battery adjustment happening all in to the queue do you think it goes back up in <unk> and then I'll just squeeze in my last one on gross margins you have kind of surprised.
By how much gross margins or are being guided down.
Relative to the strong performance at the beginning part of the year here in the entire 300 basis points at the midpoint coming from the air freight and does that go away after three <unk>.
There are other impacts embedded in there just trying to understand you know the 35% solar gross margin going in you know basically 32 in three months and then what the what the sort of forward would be in terms of recapturing some of that what what the levers are there. Thank you.
Okay. So first of all I think that the question that was sneaked will be higher answer than the first one so.
From the first one in general we expect that batteries are in Q4 and again, we do not guide yet, but we expect them to be similar.
Similar and maybe slightly up compared to the third quarter and here. The reason is again, it's end of the year nobody would like to enter to exit the year with too much of an inventory. So we assume that this is more related to.
Less market dynamics in more of a inventory management dynamics, and especially by the way no understanding Bryan that this is a product that is relatively expensive and once you have the availability in the market and the distributors know that the suppliers do have availability and availability is relatively close to them. They know that they can get sometimes batteries within day.
They they tried to shift a little bit the load at the end of the year because of their financials and the way that they look to the to the vendors or to the manufacturers themselves I would say that.
At least from a if I would take not one or two quarters, but let's say you know like two or three quarters ahead.
The phenomenon is going to be overgrowth inventory, a pattern rather than declining or stabilizing one it just that again there is a little bit of play where our end of the year as it is is a determining factor on the margins.
Actually here, it's again, it's a little bit of a different situation. The first thing is that we are going to ship much more inverters that are three phase commercial inverters. During Q3 and Q4. This is the product that is mostly missing in Europe and this is the product that is usually carrying the.
Lowest gross margins of our inverters compared to compared to any other product, except except for batteries by the way and the second thing is that when you couple that because of the characteristics of the installations. When you usually do two modules per one optimizer actually when you look.
At the gross margin of the entire solution. The optimizer is also contributing to a better gross margin on the our entire solution than the inverter. The fact that now we're shipping not only more commercial inverters, but actually more inverters and optimizer within the overall mix. This has a bigger impact of these imbalances.
On the gross margin. This is something that we expect to see into Q3, maybe into Q4, because Q4, we already see very large amount of a commercial inverters that we're going to shipping. So I would say that actually major part of it will be more of the more of the inverter rather than the air shipments.
The air shipments of course is very expensive and there's also substantial and this is something that again, we expect to go away. During our Q4. So I would say that these are the two major factor than both of them are supposed to go away after Q4.
Okay. Thanks, so much I'll pass it on.
We will take our next question from Philip Shen with Roth Kam. Please go ahead. Your line is open.
And Philip Shen Your line is now open.
Meanwhile, our next move on to Colin Rusch with Oppenheimer <unk> Company. Please go ahead.
Thanks, So much guys can you talk a little bit about girl.
Our R&D spend and how youre thinking about the relationship with intending on anything that we should be attending tumor from a prepayment perspective, how that might streamline tongue R&D spend than anything else around that agreement.
Yeah Colin.
I think the R&D spending pattern is has not changed significantly where we're continuing to invest with mild.
Growth is we're expanding into new.
Areas of new products and continuing to develop next generation products for the existing markets that are that.
That we serve.
The cooperation with Infineon has two elements to it the first is assurance of supply to.
The components that we use in mass in our current product. So this is semiconductors and most significantly <unk>.
Are you the and every inverter that.
We do that is the first layer of the cooperation with them and that that does not impact R&D, obviously, it's more about that as an operational.
Our view of the second element is working together on next generation.
Power semiconductors, like Silicon carbide and gallium nitride.
And that is a long term cooperation that are that are is again, it's not it's not a big swing on R&D investment one way or another it's preparing.
The future of our of our power semiconductors value by working with our with with one of the leading companies in this area as well as other companies that we work with so it's a strategic.
Partnerships for US obviously, it's not something that has a direct impact on our R&D spend a bit more on our our roadmaps and assurance of supply.
Thanks, so much.
From a pricing perspective, I think you know we've gone through multiple rationalizations of the solar demand profile over the years.
And pricing numbers right.
What would you need to see to start taking some price option in the market at some point. So we will continue to take market share and how you think about.
And points of market share in terms of long term growth.
Yeah, I think exactly as you described there is a.
There is a business as usual mode for that for the market and for being a technology and and high end supplier.
Within within the market, where we focus on differentiation.
And constantly make sure that our pricing is.
Justice is by the value and differentiation relative to our to our competitors. If you look historically.
In the market there is a dynamic where on an annual basis. There is the cost improvement that suppliers make we invest a lot in cost reduction there as our volumes increase and that supports our our cost reduction and that in turn also enables hum some price reductions.
Reductions in and making sure again that the gap relative to our to our competitors is justified by our values. So the last couple of years have been very disruptive or very different in terms of the dynamics I do think that it's likely that that next year following.
Some of the dynamics that we described over here the market will be back in more of its normal type of a.
Situation, where where things are stable and then there is more activity on the area of cost reduction as well as more activity in the area of a reasonable a price reduction so I don't rule. It out that's happening sometime next year right now we're still not been that type of environment than we were.
We don't see the need to reduce prices in our prices have been stable.
Recently.
Thanks, so much.
Yeah.
And we'll go back to the line of Philip Shen with Roth <unk>. Please go ahead Sir.
Hey, guys, sorry about that thank you.
You talked about how pricing is stable.
Are you open to price reductions.
'twenty 'twenty four and.
Perhaps you can talk through it by geography and by end market and also can you talk through how many weeks of inventory.
Maybe in the channel by end market and also by geography.
Yes, so starting with the second part.
Yeah.
At high level, it's probably it in Europe . The inventory levels are still I would say below a quarter probably in the range of of two months for some for some products like the three phase inverters its less than a month for.
For some products like like single phase Inverters, its probably more more than two months and historically.
These are very reasonable.
Inventory levels for the European market are what's happening is what we described and I described before is a dynamic where they are sitting on very very large inventories.
Modules and trying to control financial then in a way maybe call it taking a risk or being on the edge in terms of the overall inventory levels that they're holding but I think that the inventory levels. In Europe are are in that range and considered a reasonable maybe on the high end of reasonable.
But but considering the very high sell through in installation rates, it's not a it's not the major bubble if you will.
The U S probably.
The inventory levels are higher they are closer to two quarter level.
And as Gordon described although we're seeing gradual.
<unk> and installation rates.
And sell through.
<unk> to work through that type of inventory will probably take a bit longer unless theres a significant more significant uptick in installation rate maybe as a 3.0 becomes more clear we are seeing much more activity in terms of understanding.
The value of our DC, coupled architecture for California and.
And I discussed what what we have.
The anticipation that we have the commercial will also begin to pick up but.
If there isn't a major pickup in installation rates in the U S. They it will take a bit longer to work through that inventory.
In regards to the first question on pricing going back to the answer to the previous.
Due to the previous question.
During 2024, I think that this topic will be irrelevant.
The topic is we have a better view on our cost management structure and the market is in a more stable.
Conditions, So I can't say that we rule it out at this point, it's just not something that is is in discussion.
For the coming few months.
Great. Thank you.
Shifting over to C&I for a bit I was wondering if you could update us on what the backlog is there and then.
In terms of your financial targets.
The implied lower EBIT margin for Q3, it's just operating deleverage I was just curious about that or do you think there's something more structural you know can you address whether or not the 2023 exit rate targets of 20% to 22% EBIT margins are still achievable.
So first of all when we look at the.
Operating margin levels.
We don't see anything structural in the way that our financials and our business is working at that point of time. So I would say that the majority of the less of leverage that we're going to see in Q3 and again in Q4, we're not yet guiding but but this will be exactly the same a phenomena is actually related to the level of revenues rather than.
Unrelated to the.
Level of anything that is happening on the margins or on the pricing level now and in general I can say that we're relatively restrictive on growing operating expenses in general you know, we've been and we've seen through our various stages of the solar market, we do not.
See this stage as was the case in Germany, let's say in Europe in 2013, when market disappeared again, we see it as more of a correction rather than a crisis, that's going around the overall overall I would call it situation related to financing and a little bit of availability that exists there.
So the.
Operating margin improvement model is exactly the same it will resume exactly to be the same operating leverage once revenues are up and I would say that the fourth quarter target will be achievable based on the our revenue forecast that we will provide that that point of time and if whether it will be this or not it's only a revenue issue.
Rather than anything else and then fill it I apologize, but I love the train of thoughts on your first part of the question.
No problem at all in C&I backlog.
Oh, Yeah, yeah, Yeah, that's great. Thanks, so on C&I backlog.
I want to talk about first of all our volumes and then on the backlog.
From a volume point of view from the very beginning of the year, we have already a deliberate the volume that is very close to the entire last year and the backlog that we have is a more than what we have already delivered.
For for this first half so win last quarter, we said that Oh, we had something which with the very simple math you could see about 11 gigawatt. This year. This is still a number that we see happening for this year and again based on our availability will have more products. It can even be bigger from backlog buildup on the.
Other hand, this is something that is changing because as long as the distributors knew and they are installers new debt. There's a lead time of sometimes 12 months for a product. They saw very good reasoning to put an order into place binding orders as soon as possible to make sure that they get product in some.
By the way did it simply because they knew that there was going to be a little bit of a location. So they wanted to ensure that replaces once we're moving into product availability in the field and also if you look at our inventory levels and finished goods inventory levels that are building by the way in a healthy way to reduce shipment costs are in the various <unk>.
Regions. There is no reason for any particular distributor to put now a backlog into a year from now so I can tell you that we have a solid backlog for Q3 of course Q4, and even Q1 from Q2, where we still take orders sometimes by the way, we see smaller backlog than I would.
This estimated over the next few quarters, we will see backlogs being short term in nature compared to where they were a year ago. This is not necessarily indicative of the actual volumes. It simply means that we will turn more orders into revenues in the same quarter, then maybe compared to the spoiled situation that we were.
Few quarters ago, where we know before we started already you know that everything that we can manufacture we can sell.
Great. Thanks, guys.
We'll take our next question from Andrew <unk> with Morgan Stanley . Please go ahead.
Great. Thanks, so much for time.
I just had another follow up question on the commercial segment.
The percentage of total.
Megawatt sales continues to drive go higher quarter over quarter.
It sounds like that's going to be a driver of lower margins in the third quarter.
Have you disclosed what the margin level on some of those commercial customers looked like on maybe on an average basis, just trying to think through if commercial continues to grind higher in <unk> and into 2020 for what we should think about for potential for gross margins. Thanks.
Sure. So I'll start by by first of all a little bit of the numbers. We used to say that usually commercial margins were a five to 700 basis points lower than our residential margins and this is by the way is still the case dependent on the size of the installation.
We're usually when we have a the bigger the installation is the lower the margin is on the product. So from that point of view I think that a it gives an answer.
We also by the way need to remember that not all three phase inverters that we're shipping our commercial because Europe , especially Germany, Austria, Switzerland or markets that are three phase in markets, where we sell a three phase inverters and again most of our shortages there in three phases, both in commercial and residential I would like to add one more thing in this is that yes of course.
The more our commercial you see the lower is the gross margins, but at the same time, usually because of the fact that these are installations that are bigger their contribution to the operating margin is a close to similar to what you see on residential simply because they draw with them much less operating expenses. So while you do.
See usually lower gross margin you can see almost similar operating profit when it comes to these products specifically.
Got it that's helpful context, and maybe just to follow up and apologies if I missed the answer to this but have you broken down what your expectation is in the third quarter.
On your solar revenue specifically between.
Europe , and the U S in terms of quarter over quarter trends.
So we usually don't don't break it out on a forward looking basis.
Yeah.
Okay. Thank you thank.
Thank you.
We will take our next question from Jordan Levy with Trust Securities. Please go ahead. Your line is open.
Okay.
Most of my questions are answered, but maybe I'll just ask sort of.
Chris.
Syed.
First on the <unk>.
Performance of the curve.
Sure.
Got it.
Maybe looking out into next year.
Some of the new initiatives.
Just.
Great.
Uh huh.
Yes, sorry, we didn't hear you that great, but if I understand correctly. The question is about the performance of our of our batteries. So.
Specifically.
Batteries are not yet challenged in terms of a lifetime in a cycle. So so it's hard to give a clear answer on those it will take a few more years from the the two parameters that I would consider a critical point at this time is the first is ease of installation and commissioning time and the second is our reliability and <unk>.
Earlier rates.
I think we are.
But we're far from perfect, but I think we're.
We're doing good and we're getting positive feedback from the market on a on both we've.
Introduced continuous improvements on installation times.
Commissioning software Wizard that guides the installers through the installation.
Process and are getting very good feedback from the market.
That topic and unreliability as well our failure rates have been a has been a low end performance has been has been robust. So we're pretty satisfying in that area and again that said on a lifetime in cycles. There is still a it.
It will take some time until that picture is clear.
Absolutely I appreciate you taking my question.
Thank you.
We'll take our next question from Korean Blanchard with Deutsche Bank. Please go ahead. Your line is open.
Hey, good afternoon, and thank you for taking my question.
Maybe as a follow up so you mentioned.
Allow me to quantify at all to clean the China U.
But I think you know at the beginning.
On the call you mentioned that the offshore projects.
Did increase by 10%.
So I just wanted to clarify and then we'd have a photo album on the battery side.
Yeah, I think again, it's a bit about magnitudes.
We are seeing a positive indicator I would say of of sell through by our distributors.
That is has increased.
In the U S by 10% quarter over quarter, but.
As I described I think the inventory levels are still such that.
But that this is not a sufficient enough increase to drain the inventories quickly so either it will take a bit longer for the inventories to decline unless.
This is an indicator that will.
We'll continue to improve and sell through in installation rates will go up much higher but at the current rate. It will take a at least a couple of quarters to get through the inventory.
Okay makes sense and then the follow up on the on the battery.
And maybe I missed it so I apologize if I did but.
Can you just give a quick update maybe on stay at Q1, and where you're trending and when do you see the pricing on batteries going over the next five months.
Yeah. So remember sell it too is or our current residential battery offerings are not yet using cells for them sell it to.
So <unk> is ramping and as we described in the prepared remarks will reach its full.
Full capacity by the end of the year.
<unk> is in.
In parallel selling cells and batteries for other application.
Meanwhile, they are also beginning to produce the type of cells that we intend to use in our next generation batteries that will be reduced a that will be introduced at the beginning to be introduced in the first half of next year. So gradually the capacity of sell it to them to move more into our to our own batteries and that will give us.
Flexibility also in terms of assurance of supply also in terms of pricing and also in terms of technology of making sure that that really the cells are are optimized for the application.
And the system of our one of our own batteries and <unk>.
Inverters. So so that's the picture regarding set or two regarding.
Battery pricing again, we're not seeing major trends we did.
We did reduce slightly.
Battery prices in our on our single phase.
Single-phase batteries.
But generally we don't see additional major.
<unk> on battery pricing.
In the coming couple of quarters.
Thank you.
And we'll take our next question from Julien Dumoulin Smith with Bank of America. Please go ahead.
Okay excellent. Thanks, Tim appreciate it just following up on a few different comments here actually first off if I can fortify backs just would love to get an update here on that front, what what percent of the overall production that you think are ramping in the 'twenty four or do you think could ultimately quality.
Quantify to what extent could you ultimately leverage even European volume.
To take advantage of 45 actually I just wanted to make sure. We return we double back to that is as we get some final clarity on that front first off and then I've got a follow up on the margin conversation.
So.
As I described we're starting off with inverter manufacturing.
That that will be already we will be delivering inverters that qualify for 45 X in the current quarter.
But they won't be significant from a financial point of view in the fourth quarter, we will be delivering a more than 30000.
Other than that there that's when it will begin to have an impact that we intend to continue with the ramp of course into 2024 and optimize our manufacturing too.
To to the mix.
And ramp initially of course to satisfy the U S.
U S demand after we reached that milestone.
And we'll we'll continue to add capacity for other purposes, assuming it can we can benefit from the same incentives for other regions, but that's still going to take time and and by that I think.
A lot of the regs.
The regulations will be more clear in terms of what is possible and what is not.
Got it so it sounds somewhat dynamic looking to scale up to 30000 units in <unk>, but the plan, especially as you think about the C&I compliant until an influx it it seems like.
But if I can actually jump back to the margin question and the conversations on that for real quickly just to clarify earlier, but you talked about this inventory issue op persisting on the residential side for some quarters here, but obviously the C&I looks much healthier how do you think about that that target margin going back to the earlier, 20% to 22% as you see or at least the view.
Seem to imply that 'twenty is going to see materially higher C&I contributions as a percent of the total Max but yeah, and I don't want to read too far into that.
So.
Yet to see 2024, because you know we're also surprised a little bit by the second half of 'twenty, three but I would say that the dynamics should be its photos will.
What we see right now, especially in Q.
Three and four is the fact that the U S market that is correcting right now, which is usually characterized with Ah hi, Rosie and higher margins by the way compared to other regions in slowing down very much which of course impact negatively the margin.
And at the same time Europe is growing.
On the commercial side is also growing and this is also something that takes us a little bit down because the portion of commercial compared to residential in our overall mix at least in Q3 Q4 is a higher than we anticipated or anticipate to see if you combine these two yes, the expectation should be that in too.
24, we believe that first of all Europe will come back to court of course, much quicker than the United States and we will also see of course again, there are an increasing residential plus.
The fact that the U S. A market that contributes to margin are very nicely is also going to go go up with it I don't know 234 quarters, but this is still within 24, yes, we do expect that 'twenty four margins should come back to a level that we've seen at least in the last quarters with that said again.
The the major ace is going to be here batteries, because we do see that battery prices continue to go down at least right now and as we've mentioned before our batteries a target gross margin should be around 25%. So even if today or in some quarters, it's higher than these I'm not sure that this will persist so I I would call.
Actually say that 24 should be of course first of all back in the model by the way, which we also believe that this might be the case, even this year as well for.
The next two quarters and secondly is that yes. There are some drivers that suggested 24 it can be on the upside part of it and rather than on the downside part of it.
Okay.
Fair enough I'll leave it there. Thank you guys and actually 45 ex any any expectations. There just to go back to that buyer.
So I'm not sure where the expectations are but you know at least from a as he said we believe that the $6.05 is something that we have already in our pocket. So everything that was manufactured this year will be at least the six and a half since we believe that we will retain it.
Leased 50% of these.
Our margins given the fact that the debt manufacturing in the U S is a little bit more expensive.
Yes.
And we'll take our next question from cache Harrison with Piper Sandler. Please go ahead. Your line is open.
Hi, good afternoon, Thanks for taking up my one question.
So maybe just at a higher at a higher level.
Just given the increasing availability of equipment supply.
Do you think that the distributors definition of a normal is going through structural decline or do you think just given some of these cash flow dynamics or do you think this is more of a of a temporary thing where if they thought you know to your point to two months was normal before by the time you get back to the 'twenty 'twenty four it that's that's.
What they define as normal or those out two months become a month or half a month, just just wanted to get some sense of how you think about distributor.
Our thought process in AR and cash flow dynamics et cetera.
So what I'm, saying is based on experience in the conversations that we had with distributors, our recently and but it could be different but.
Our judgment would be that at some point it goes back to the type of dynamics that we've seen in the past if you look today.
Following the period of shortages.
First of all also installers are holding inventory today, which is a phenomena that are usually.
Installers don't want to hold to hold inventory so.
And then on top of that.
And the picture of how much inventory installers are actually holding is not clear on top of that the distributors there.
They're carrying a 789 types of Inverters, a similar number of a module.
Suppliers for each one they're holding inventory many part numbers, it's really in their interest and their classical behavior or to bring it down and to have a a much.
A much smaller line card and much more control, so and then and so in that type of environment, where installers.
Don't hold inventory anymore distributors hold a limited portfolio of product, even though the suppliers and the equipment manufacturers will have availability. It's still I believe will go back to the classical model of holding in the range of a of a quarter worth of inventory within the dish.
Tribunal genre or give or take depending on the type of product and and.
And dynamics, but I think that that's likely going to be the steady state that.
The channels will return to us.
Following this this adjustment in the amount of time it takes.
Thank you.
And we'll take our next question from Joseph Osha with Guggenheim Partners. Please go ahead. Your line is open.
Well. Thank you very much we spent a bunch of time talking about the you know what the inventory drawdown might look like in particular in Europe , but you know as well.
Next year. It does seem that we have a few policy headwinds, particularly in southern Europe . So I'm just wondering.
I know, it's really if you can opine.
What you see the demand picture looking like early next year, we'd come out of this inventory correction. Thank you in Europe .
Yeah, Yeah. Thanks for the question actually.
Our just a few data points, our installation rates and take Italy. For example, right now are higher than they were a year ago. Despite the fact that some of the programs have have changed and are in some of the installations are less lucrative for the for the homeowners. So.
We're not seeing the policy changes having in the countries where they are.
What you would consider maybe negative policy changes, having an impact and I think it's an opportunity also to explain a little bit more.
What Europe is so you have the large markets like the German markets, where I mentioned that in 2022. It was seven five gigawatts.
And this year is expected to be somewhere between 10 to 12 gigawatts of installations and to continue to increase into 'twenty.
24.
And in parallel to that you have all kinds of different sized markets with different type of environment.
Just as an example in the prepared remarks, Dave and then mentioned Slovenia. We our revenue in Slovenia. In 2022 was 25 million euros in 2023, our revenue in a country like Slovenia is expected to be in the range of 70 to 80 million euros.
So these are small markets that are evolving there are not so small and there are.
And there are not many but there are multiple such.
Such market so all in all.
Again things can change, but looking at the European landscape at least for us in considering our position in many of these.
Large small and mid sized markets are is they were very optimistic still about the dynamics in the European market going into 2024.
Okay. Thank you.
We will take our next question from Vikram <unk> with Citi. Please go ahead. Your line is open.
Good evening everyone.
First off let's talk you mentioned a substantial cash build up our generation for the next few quarters can you talk about capital allocation and particularly about share repurchases. If that's that's in the budget.
So in general we do not we do not have plans for this right now we do experience right now because of the phenomenon that they replace that I explained a little bit later, a longer cash creation creation cycle.
And this is something that we will start to play out in Q3.
Simply given the fact that we are starting to reduce inventories and collection is going to be a little bit faster with that said, we still believe and this is why we also raised capital last year is that there are opportunities out there to present faster growth and to present a much more comprehensive growth. We do not believe that we have exhausted.
Are these opportunities were still reviewing then some of them are being due diligence are these days as well and at least at this point. We believe that there is much better creation of value to investors by acquiring companies building the business and building a portfolio rather than just returning it to the investors.
<unk> by the way, we feel that this would not be the case, we will shortly surely consider this but we don't have any religion against it but I believe that opportunities are going to be created a M. I believe in the near term to use this cash.
Thank you and my follow up is on the inventory again, the hundreds of question on the same topic I apologize. If this has been answered can you provide the magnitude or at least guidant soft rebalancing in third and fourth quarter. Ron you mentioned in your prepared remarks U S shipments were downgrading 2000 <unk>.
9%, but the sell through rose more than 10% so inventories in the U S. It seems like you're already down more than 30%.
And are still manageable your comments on Europe . It sounds like the inventory rebalancing required is not the magnitude is not that big so it seems like most of the rebalancing happens in third quarter. So the balancing and full quarter is more dependent on your projected demand and sort of bar note of caution.
And it might not happen.
Comment on the magnitude if you can characterize what the impact on revenue is in the guidance.
How much of the rebalancing happens in the fourth quarter and third quarter. Thanks.
Well I'm not sure that they can cover all of it because again, we see multiple segments multiple regions and multiple a phenomenon such as the you know again, a Q4 seasonality in Europe , which is usually a big drawback to compared to the fact that as you've mentioned and rightfully. So that we believe that the inventory corrections at least in in Europe .
Going to be a little bit quicker in general.
I would go again, one by one and say that in Europe , I think that yes. The correction within the distributors should be relatively a close a quick given the fact that the inventories levels as <unk> mentioned before are not so high and when it reflects the inventory days, while we still see very high.
Record the high point of sale data and the bigger question. There is going to be how will Q4 looked like and what is going to be from a cash perspective, the appetite of the.
Larger installers to continue and maintain sort of distributors continuing to maintain inventories.
The biggest question again, I would say that we're cautiously optimistic there.
But I I'm not sure that I have a good answer in the U S. Your analysis is almost correct other than the fact that we start from a relatively high level of inventories so even though.
You know we decreased the shipment when we look at the exiting point of the quarter. This is the time, where it's even mentioned that sometimes we've seen some distributors that close to two quarters of inventory. This is exiting the quarter and this is why we think that.
This is something that would take a little bit more time in general we believe that since Europe is very strong for us since the rest of the world by the way continues to be very strong. This will be the thing that will and this is by the way together today close to 80% of our business. This will be the area that will be moving quicker for.
This kind of a correction into a more normalized patterns of orders, where we think that the U S will leg I would say by a buy it I don't know maybe two or three quarters after Europe in D C.
And we will take our next question from Jonathan Kees with Daiwa. Please go ahead. Your line is open.
Oh, great. Thanks for squeezing me in I'll just ask one.
The interest of time here and I just wanted to double click on the <unk> you were saying one of the trends for 2024 third party ownership I mean, when do you see.
Price more color is that something notes.
There's obviously a huge undertaking now.
Do you see that being.
Yes, you're anticipating that to be quite material in 2024.
More of the first half second half.
You have a big.
Offset for the higher interest rates.
Just provide some more color about that that'd be great. Thanks.
Yeah. This is it's a trend that there's a lot of people in the market anticipated for the reasons that you mentioned there are some benefits in the eye or a 4% to third party ownership and.
As well as the impact of interest rates on our loans some of the large installers that we speak to are beginning to see this this.
Shift, although not in a dramatic manner, yet so I think it will take some time to build up and then.
Of course, you know that refers to the origination so thats at the time that the.
Consumer close they contract for that to move through to to purchases and installations are it takes a little bit longer. So we're not seeing anything rapid happening in this regard, but but there is a trend in that direction that is expected by by the people we don't have any spec.
So visibility in this though it's more what we read and hear in the market is expected to be a a meaningful shift from from loan to third party ownership to lease.
Yeah.
Alright, great. Thank you.
And there are no further questions on the line at this time, so I'll turn the program to solar etch CEO GP Lando for closing comments.
Thank you. So in summary, we're pleased with our results this quarter, which demonstrate the advantages of our position across diverse markets and applications. So thank you all for joining us today and have a good evening.
This does conclude today's program. Thank you for your participation and you may now disconnect.
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