Q4 2024 SolarEdge Technologies Inc Earnings Call
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Thank you for watching!
Welcome to the SolarEdge conference call for the fourth quarter and year ended December 31, 2024.
This call is being webcast live on the company's website at www.SolarEdge.com and the Investors section on the events calendar page.
This call is a sole property and copyright of SolarEdge. With all rights reserved, any recording, reproduction, or transmission of this call without the express written consent of SolarEdge is prohibited.
Speaker Change: You may listen to a webcast replay of this call by visiting the event calendar page of the SolarEdge Investor website. I would now like to turn the call over to JB Lowe, Head of Investor Relations for SolarEdge.
Please begin.
JB Lowe: Good morning. Thank you for joining us to discuss SolarEdge's operating results for the fourth quarter ended December 31st, 2024, as well as the company's outlook for the first quarter of 2025.
Speaker Change: With me today are Shuki Neer, Chief Executive Officer, and Ariel Porat, Chief Financial Officer.
Speaker Change: Schuchy will begin with a brief review of the results for the fourth quarter and to December 31st 2024. Ariel will review the financial results for the fourth quarter followed by the company's outlook for the first quarter of 2025.
We will then open the call for questions.
Speaker Change: 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.
Speaker Change: We encourage you to review the safe harbor statements contained in our earnings press release, the slide presentation posted on our website ahead of this call today, and our filings with the SEC for a more complete description of such risks and uncertainties.
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Speaker Change: Please note, during this earnings call, we may refer to 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.
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Speaker Change: The NOMGAP measures are being presented because we believe that they provide investors with a means of evaluating and understanding how the company's management evaluates the company's operating performance.
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Speaker Change: Reconciliation of these measures can be found in our earnings press release, slide presentation, and SEC filings.
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Speaker Change: 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.
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Speaker Change: Listeners who do not have a copy of the quarter-ended December 31st 2024 press release or the supplemental material may obtain a copy by visiting the investor relations section of the company's website.
I will now turn the call over to Shuki.
Shuki Neer: Thank you, JB. Good morning, everyone, and thank you for joining today. SolarEdge is a global leader in renewable energy solutions, recognized for its innovation, engineering excellence, and strong customer relationships.
Shuki Neer: While we face challenges, the long-term potential in solar storage and energy management has never been stronger.
Shuki Neer: That's why I feel both honored and excited to step into this leadership role at such a pivotal time.
Shuki Neer: Since joining SolarEdge several months ago, I've spent my time diving into the business, listening to customers, and connecting with our global team.
Shuki Neer: These experiences and my learnings have helped me form a clear understanding of where we are and what we need to do differently moving forward.
Thank you.
Shuki Neer: Everything I have seen and heard tells me we have significant strength to build on.
All of us. Thank you. Thank you.
Demand for electricity is growing relentlessly.
Solar is among the most cost-effective sources of energy.
Shuki Neer: And SolarEdge is well positioned to lead this market due to the unique combination of our innovative technology, brilliant people, loyal distributors, over 70,000 installer partners, and the millions of homes and businesses that benefit from SolarEdge systems on a daily basis.
Shuki Neer: Our financial results in recent quarters have been disappointing to our shareholders and employees and it is clear we need to significantly change the way we operate to win back customers, extend our technological leadership, and return to growth.
To drive this turnaround, I have identified four key priorities.
Shuki Neer: strengthening our financials, regaining market share, accelerating innovation, and ramping up U.S. manufacturing.
Shuki Neer: These initiatives will not only help us navigate the current environment but also position us for sustained long-term growth.
Shuki Neer: In Q4, we generated approximately $26 million in free cash flow, above our forecast and ahead of schedule.
Shuki Neer: We expect to generate positive free cash flow in Q1 2025 and remain free cash flow positive for the year.
Shuki Neer: This progress will be driven by disciplined cash management, inventory reductions, and fast transition to U.S. domestic content.
Shuki Neer: Positive cash flow is an essential first step, but our turnaround includes a relentless focus on operational efficiency to drive our return to profitability.
Shuki Neer: In early 2025, we made a very difficult decision to make additional headcount and expense reduction. We will continue to implement cost-saving measures by focusing on core projects, markets, and product lines.
Shuki Neer: We are evaluating the outlook for our e-mobility and solar geek tracker businesses. Our second priority is regaining market share.
Shuki Neer: As you may recall, back in November 2024, we launched a campaign to partner with our channel customers in Europe and international markets.
Shuki Neer: The objective is to bring more attractive offerings to installers, help our distribution partners reduce their inventory levels, attract new customers, and grow shares.
Shuki Neer: More recently, we have simplified our go-to-market structure to enhance agility, flatten the organization to get closer to our customers, and strengthen our partnership with distributors and installers.
Shuki Neer: Our sales team is now laser-focused on reinforcing our core value proposition.
Shuki Neer: We are a technology company developing industry-leading hardware and software solutions that enable generation of more energy and increase the ROI of our customers.
Shuki Neer: Our solutions include advanced safety and cybersecurity capabilities, which have become increasingly important in recent quarters.
Shuki Neer: Our value extends beyond just product. We have been heavily investing in delivering an excellent customer experience. We believe that our service and support organization stands out for its excellence in the industry with less than two-minute average waiting times at our worldwide call centers.
Shuki Neer: Our third key priority for 2025 is accelerating innovation across both residential and commercial markets.
ensuring we remain at the forefront of smart energy solutions.
Shuki Neer: In residential, we continue to prioritize energy management software, which we see as a key driver for future growth.
Shuki Neer: We believe we are the hardware vendor with one of the most sophisticated energy management software capabilities.
Shuki Neer: In Europe, we recently introduced the SolarEdge One Controller. This new product integrates third-party devices such as EV chargers and heat pumps into the SolarEdge home ecosystem, optimizing energy usage and maximizing savings.
Moving to our next generation residential portfolio called Nexus.
Shuki Neer: which includes our most powerful residential inverter to date, a modular battery, and a meter-core solution.
Shuki Neer: We have just begun the alpha phase and are on track to deliver initial volumes of NEXIS products during the fourth quarter of 2025.
Shuki Neer: We believe that the NEXIS solution will allow us to be more competitive in the marketplace.
Shuki Neer: It generates more energy, shortens installation and commissioning time, addresses additional market segments, and reduces our cost structure.
Thank you.
Moving to C&I.
Shuki Neer: We are getting excellent traction with our commercial battery products. We have already sold this product in Germany, the Netherlands, Italy, the UK, France, Spain, the Czech Republic, Poland, Hungary, Taiwan, and South Africa.
Shuki Neer: We see commercial storage as a strategic growth area for us. And here again, customers are choosing our storage product in particular because of the energy management solution we offer around it.
Thanks for watching!
Shuki Neer: Our fourth focus area for 2025 is ramping up our U.S. manufacturing.
Shuki Neer: We are now manufacturing inverters, optimizers, and batteries in the U.S., and have already created nearly 2,000 jobs at our facilities.
Shuki Neer: Our Austin facility has ramped up to a run rate capacity of over 70,000 inverters per quarter and our Florida facility is on track to reach a run rate capacity of 2 million optimizers per quarter in Q1 2025.
Shuki Neer: We have started reaping the benefits from this build-out by offering our customers a reliable supply of domestic content inverters, optimizers, and batteries.
Shuki Neer: This allowed the signing of safe harbor agreements with two residential customers in late December, supporting them in their goal to lock in attractive project economics.
Shuki Neer: We have also started to ramp up our domestic content commercial inverter manufacturing with initial volumes expected at the end of the first quarter.
Shuki Neer: We recently signed a supply agreement with Summit Regenergy, one of the largest developers of CNI solar in the U.S.
Shuki Neer: This agreement demonstrates the competitive advantage that our domestic content products will deliver, particularly in large-scale rooftop solar.
Ariel Porat: Before handing over to Ariel to discuss the financials, I'll provide a high-level update on the region.
Thanks for watching!
Our sell-through for Q4 was approximately $400 million.
Ariel Porat: In North America our sell-through was down 17% quarter over quarter. Our channel inventories here remained largely normalized.
Ariel Porat: While there is additional uncertainty in the U.S. market due to potential policy changes, the long-term underlying fundamentals of the solar market are healthy.
Ariel Porat: In Europe, our sell-through was roughly flat quarter over quarter. The European market remains challenged due to continued macro headwinds, and we expect the vast majority of our distribution partners to reach normalized inventory levels by the end of Q2 2025.
Ariel Porat: To summarize, we have to focus on what we can control. We have to get back to our roots of passion for innovation. We have to implement best-in-class execution across everything we do, and we have to make fast and sometimes tough decisions to right-size the company.
Ariel Porat: By doing so, we will accelerate our turnaround and position SolarEdge to reach its exciting full potential as a leader in solar, storage, and smart energy management in the years to come.
Ariel Porat: I look forward to sharing our progress with you in the quarters ahead, and with that, I will turn it over to Ariel.
Thank you.
Thank you very much, Tuki, and good morning, everyone.
Ariel Porat: As Juki discussed, strengthening our financials, and specifically working towards positive free cash flow generation, is our top priority.
Ariel Porat: In November, we sold the first tranche of 45X Advanced Manufacturing Production Credits.
Ariel Porat: This first tranche was backed by inverters that were eligible for a $0.065 per watt credit.
Ariel Porat: In December, we sold a second tranche of 45x credits that were backed by both inverter and optimizers, making them eligible for the full $0.11 per watt credits.
Ariel Porat: The liquidity provided by the sale of these credits has enhanced our cash position and has further strengthened our balance sheet.
Ariel Porat: The sale of 45X credits is now a normal course of our business, and we will not report it separately in the future.
Ariel Porat: In terms of our expenses, we continued refocusing our business and further reducing costs.
Ariel Porat: In November, we announced the closure of our Energy Storage Division in Korea.
Ariel Porat: In January, we made the difficult decision to further reduce headcount by approximately 400 employees worldwide.
Ariel Porat: We intend to take further steps to rationalize our cost structure.
By focusing on core projects,
concentrating our global footprint on profitable markets
and exiting non-strategic markets and product lines.
Thanks for watching!
Ariel Porat: Our target with these cost reduction measures is to lower our non-GAF OPEX to a range of 85 to 90 million dollars per quarter by the end of 2025.
Ariel Porat: Before reviewing the results of the fourth quarter, I would like to address two items that impacted our financials in Q4.
Ariel Porat: First, we impaired and wrote off various assets during the quarter.
starting with inventory.
Ariel Porat: This quarter, we wrote down $115 million of inventory, of which approximately $87 million net is related to our solar business.
Ariel Porat: This is excess inventory on our balance sheet that we no longer expect to sell, given our expectation that the recovery in the European markets will take longer than anticipated.
Ariel Porat: The remaining $28 million, which was excluded from Nongap, is related to both inventory and non-cancellable, non-returnable items that are related to our energy storage division in Korea.
Ariel Porat: In addition, we wrote down and impaired $23 million of long-lived assets and other assets.
All excluded from non-GAP.
Ariel Porat: The majority of this amount relates to impairment of PP&E and other assets of our Korea Storage Division.
Thank you.
Ariel Porat: The second topic I would like to point out is that during the preparation of the audited financial statements and subsequent to filing the Form 10-Q for the third quarter of 2024.
Ariel Porat: The company considered an amended agreement with a customer, which was signed on December 21st, 2024.
Ariel Porat: In connection with such amendment, the company determined it was appropriate to revise previously reported revenues and loans receivables with this customer in the amount of $25.5 million for the three and nine months ended September 30, 2024.
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Ariel Porat: The impact on the company's consolidated financial information as of September 30th, 2024 was a reallocation of the $25.5 million of cash received in Q3 from the customer to a reduction of the loan and accordingly a reduction of revenues.
Ariel Porat: The revision for the various line items appear in the earnings release, presentations, and supplemental tables.
And now, I will go into the quarterly results.
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Total revenues for the fourth quarter were $196.2 million.
Revenues from our solar segment were 189 million dollars.
Ariel Porat: Solar revenues from the U.S. this quarter amounted to $114 million, representing 60% of our solar revenues.
Ariel Porat: Solar revenues from Europe amounted to 44.8 million dollars, representing 24% of our solar revenues.
Ariel Porat: International market solar revenues amounted to $30.3 million, representing 16% of our total solar revenues.
Ariel Porat: On a megawatt basis, we shipped 384 megawatts to the United States,
231 megawatts to Europe
and 280 megawatts to the international markets.
for approximately 895 megawatts of total shipments.
Ariel Porat: 63% of total megawatt shipments this quarter were commercial and utility products, and the remaining 37% were residential.
Ariel Porat: In Q4, we shipped 130 MWh of batteries with a majority shipped to Europe.
Ariel Porat: Higher pricing in the U.S. and a higher mix of shipments to the U.S. market more than offset our price reductions and promotions in Europe and international markets.
Ariel Porat: Our blended ASP per kilowatt hour on all PV attached batteries was $262.00 in Q4.
down from $317 in Q3.
Ariel Porat: This decrease is largely due to price reductions and promotions, as well as a higher mix of non-US shipments.
Ariel Porat: Revenues this quarter from our non-solar business amounted to $6.9 million.
Ariel Porat: As we have announced the closure of our energy storage business in Korea, going forward we will not report segments in our financial reporting.
Thank you for watching!
Speaker Change: Consolidated gas gross margin for the quarter was a negative 57.2 percent.
Ariel Porat: compared to negative 309.1 percent in the previous quarter, largely impacted by the impairment charges and write-downs taken in both Q3 and Q4.
Ariel Porat: Non-GAAP consolidated gross margin this quarter was negative 39.5% compared to the negative 305% in Q3.
Ariel Porat: This was largely impacted by the impairment charges and write-outs taken in both Q3 and Q4.
Ariel Porat: excluding the net impairments and write-downs of approximately 87 million dollars
Ariel Porat: Non-GAAP gross margins in Q4 would have been 4.8%, which was above our guidance range.
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Solar segment gross margin this quarter was negative 38.8 percent.
compared to the negative 285.4% in Q3.
Ariel Porat: This was largely impacted by the impairment charges and write-downs taken in both Q3 and Q4.
Ariel Porat: Excluding the net impairments and ride downs of approximately $87 million, solar segment gross margins in Q4 would have been 7.3%, which was above our guidance range.
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Ariel Porat: On a non-GAAP basis, operating expenses for the fourth quarter were $106.8 million compared to $116.3 million in the previous quarter.
Ariel Porat: Gap operating loss in Q4 was $263.7 million compared to an operating loss of $1.11 billion in Q3.
Ariel Porat: Non-GAAP operating loss for Q4 was $184.1 million compared to a non-GAAP operating loss of $833.6 million in Q3.
Ariel Porat: Gas net loss was $287.4 million in Q4 compared to a gas net loss of $1.23 billion in Q3.
Ariel Porat: Our non-GAF net loss was $202.5 million in Q4 compared to a non-GAF net loss of $899.8 million in Q3.
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Ariel Porat: Net loss per share was $5.00 in Q4 compared to $21.58 in Q3
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Ariel Porat: Non-gap net loss per share was $3.52 in Q4 compared to $15.78 in Q3.
Turning now to the battle suit.
End of December 31st, 2024.
Ariel Porat: Cash, cash equivalents, restricted cash, VAM deposits, restricted VAM deposits and investments were approximately $767 million.
Net of debt, this amount was approximately 82 million dollars.
Ariel Porat: This quarter, cash provided by operating activities was approximately $38 million.
Net of approximately 12 million dollars in CapEx
Ariel Porat: Free cash flow generated in the quarter was approximately $26 million.
Ariel Porat: ARNet decreased this quarter to $160.4 million compared to $239.4 million last quarter.
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Ariel Porat: Our inventory level, net of reserves, was $645.9 million compared to $798.4 million in the previous quarter.
Ariel Porat: This figure is, of course, inclusive of the $115 million in impairments we took in inventory in Q4.
Ariel Porat: During the quarter, we consumed roughly $90 million of finished goods.
Ariel Porat: Turning now to our guidance for the first quarter of 2025.
Ariel Porat: We are guiding revenues to be within the range of $195 million to $215 million.
Ariel Porat: We expect non-GAF gross margin to be within the range of 6 to 10 percent.
Ariel Porat: We expect our non-GET operating expenses to be within the range of $98 million to $103 million.
Shuki Neer: As Shuki mentioned, we expect to generate positive free cash flow in the first quarter.
Shuki Neer: I will now turn the call over to the operator to open it up for questions.
Thank you.
Shuki Neer: And at this time, if you would like to ask a question, please press the star and 1 on your telephone keypad.
Shuki Neer: You may remove yourself from the queue at any time by pressing Star 2.
Shuki Neer: In the interest of time, we do ask that you limit yourself to one question and one follow-up question. Once again, that is star and one to ask a question. And we will take our first question from Brian Lee with Goldman Sachs. Please go ahead.
Brian Lee: Hey guys, good morning. Thanks for taking the questions. Kudos on the cash flow performance here. I guess the first question I had was on that topic. Free cash flow positive in Q1. You guys are ahead of schedule it looks like. I think in the past you were talking about positive free cash flow in the first half of this year. What level of free cash flow compared to Q4 should we be expecting in Q1? Should it be in that $20, $30 million positive range again?
Brian Lee: Ronen Faier, Ariel Porat, John Lowe, Ronen Faier, Ronen Faier, Ronen Faier, Ronen Faier,
Speaker Change: Hi Brian, thank you very much for the question. Yeah, as you know, we're not guiding for the second half or for the full year, but we did want to say that we will be free cash flow positive.
Brian Lee: In terms of Q1, there are many, many moving parts, so we did not disclose how much will be the free cash flow, but we are certain it will be positive.
Brian Lee: If we talk about our CONVERT, we still have the same strategy that we had until now.
Brian Lee: If you remember, I'm sure you know that our convert has a zero-coupon bond.
Brian Lee: This is why currently our plan is to continue to wait and pay it out from the balance sheet because we know we have enough cash to do so. This is of course coupled with the fact that we have gone back to free cash flow generation even sooner than expected.
Brian Lee: Having said this, obviously we're always assessing different options that are available in the market and we'll take the right decision at the right point in time. Thank you.
Thank you.
And thank you, Brian.
Brian Lee: So, as it pertains to your first question, like you said, there is a gap between our revenue and the underlying POS.
Brian Lee: And the main reason for that is obviously the channel inventory levels that are in Europe. As we mentioned, our expectation is that most of the channel inventory in Europe is going to be cleared by the end of the second quarter.
Brian Lee: So we could expect that the sell-in and the sell-out are going to converge around that time.
Brian Lee: And obviously, as you know, it changes from month to month and from distributor to distributor. But at a high level speaking, that's going to be the direction.
Brian Lee: As for the safe harbor, as we mentioned before, we are not disclosing specific details about the safe harbor.
Thank you for watching!
Speaker Change: Thank you and we will take our next question from Christine Cho with Barclays. Please go ahead.
Speaker Change: You know, is there anything else that could be in there that we should be aware about?
Speaker Change: Hi Christine, thank you so much for the question. Yeah some of this some of this was actually the safe harbor but some of it was actually other topics where we have agreements with our customers to put some restricted cash so this is definitely not the full amount.
Speaker Change: Okay, and then, so we saw two 45x monetizations during the quarter. Can you just talk about how we should think about the cadence of future 45x monetizations in 2025? Is it like one a quarter, once every two quarters?
Yeah, so...
Speaker Change: First of all, I think I'm very excited about the fact that we have proven to ourselves that we can do this, also already for the second time. We sold twice this in the fourth quarter. The first time was only by our inverters for a 6.5.
Speaker Change: cents per watt and the second time was actually backed up by inverters and optimizers together making us eligible for 11 cents per watt.
Speaker Change: We believe that we can actually sell this in the following quarter, which means we can accumulate the IRA tax credits and sell them in the following quarter.
Speaker Change: But of course, as usual, this depends on demand and how the market will develop.
Speaker Change: Thank you. And we will take our next question from Colin Rush with Oppenheimer. Please go ahead.
Colin Rush: Thanks so much. Given your comments around this restatement, I just want to get a better sense of how many customers may go through similar renegotiations here and what sort of risks there may be to any of your receivables that you still have outstanding.
Thank you.
Colin Rush: This is not part of our normal course of business, so I wouldn't say I don't believe this could be affected again in the next time.
Colin Rush: Okay, thanks for that. And then just in terms of the new products and the development activity that you're working on, when can we start seeing some of the newer products, revised designs, start coming to market and how should we think about the initial target markets for those products?
Colin Rush: Yes, thank you for that question, Colin. I'll take it. So, as we said, we're very excited about the new product line that we're about to release towards the end of the year. It's a combination of our largest residential inverter that we've ever made, together with a battery. And the inverters are both for the three-phase and the single-phase, or both.
Colin Rush: The first markets in which we are going to introduce them are going to be the U.S. and Germany, being the biggest and the largest opportunity market. And we are very excited about the opportunity that these products will bring to us as they open new segments.
Colin Rush: and are going to allow us to increase our market share,
Colin Rush: It's a cost-reduced type of product that will hopefully allow us to expand our margins as well.
Speaker Change: Thank you. And we will take our next question from Mark Shrall to J.P. Morgan. Please go ahead.
Speaker Change: Great, excuse me, thanks for taking our questions. On the the last call we talked about some pricing actions that you were doing, excuse me.
Speaker Change: primarily in Europe. Can you just give us an update there, you know, as you expect the the channel inventory to clear by the end of 2Q, like you're saying, can you talk about kind of the
Speaker Change: The cadence of your pricing, are you expecting that to kind of normalize throughout that same timeframe or any reason that it might be kind of accelerating the pace of those one way or the other?
and I have a follow-up. Thank you.
Speaker Change: Thank you for your question. I appreciate it. So, yes, as we said before, we started the promotions with our distribution partners back in November. And as we said, we expect to see the initial results coming in the second quarter. As you know, it takes time between the distributor to the installer.
Speaker Change: until we see the impact on market share and actual installations, and so we haven't seen a major impact yet. The market in Europe, as you know, is not that great at this time of the year.
Speaker Change: We expect that the value we bring to our distributors and our customers with this price promotion is going to help us gain share over there. We've actually energized our sales team.
Speaker Change: and together with the other improvements that we've made to the customer service.
Speaker Change: and the open and close communication with these customers, we believe that we are going to see some positive results.
Thank you for watching!
Speaker Change: And then on the 45X side, I understand what you said about the...
Speaker Change: The transfer is becoming part of normal course now, so you're not going to break out that cash flow anymore. When the tax credits are generated though, are you still going to provide information in your 10-Q as far as kind of the actual generation each quarter just based on the unit volume? Thank you.
Speaker Change: Yes, thank you. Of course, we will continue to give this information, but as you mentioned, rightfully, this is part of our normalized business now and we won't report it separately, but yes, on the 10-Q, yes.
Thank you for watching!
Speaker Change: Thank you. And we will take our next question from Andrew Prococo with Morgan Stanley. Please go ahead.
Thank you. Thank you.
Andrew Prococo: Thanks so much. Good morning, guys. Thanks for taking the question here. I just wanted to come back to the write-down for a second on the inventory side of the second one we've seen in two quarters. I'm just trying to get a better understanding of what drove that, and is there a potential risk that we continue to see that next quarter as we roll ahead?
Thank you. Thank you. Thank you.
Yeah, thanks Andrew. As I mentioned in the prepared remarks...
Andrew Prococo: The main reason for this was basically that we saw that Europe is weaker than we thought.
Andrew Prococo: We obviously consistently evaluate every quarter all the items on our balance sheet, specifically of course, or especially at the end of the year.
Andrew Prococo: This is why we have decided now, after also reviewing everything, after having discussed with the markets, we believe that Europe is actually a bit weaker.
To the best of our ability, this is currently...
Andrew Prococo: The best judgment that we have now, and this is why we took these actions.
in the U.S.
Yeah, thank you for this question.
Andrew Prococo: As you know, we don't provide guidance for the second quarter or for the year.
Andrew Prococo: But, that said, we are focused on turning around the business, and as we shared with you, financial stability is our top priority. And we've already achieved a positive free cash flow ahead of schedule, and we expect that free cash flow to remain through the year.
Andrew Prococo: and because we are going to continue optimizing our cost structure and bring innovative solutions to the market together with the clearing of the inventory in Europe we believe that towards the back half.
We believe that it gives us a good...
Andrew Prococo: a good view into what I believe will be a stronger momentum as we go forward through the year.
Speaker Change: Thank you. And we will take our next question from Philip Shen with Roth Capital Partners. Please go ahead.
Philip Shen: Thanks for taking my questions. The first one is a follow-up on...
The 25 million
Re-categorization of Revenue and Loans
Phil: Hi, Phil. Thank you so much. I'm sure you can understand that we have disclosed publicly everything that we can disclose, and we cannot disclose further details on this topic.
Thank you for watching!
Speaker Change: Okay. All right. Thanks, Ariel. As a follow-up on pricing, you guys talked about...
Speaker Change: The price actions that you recently took, given the fact that the market is weaker than expected in Europe, do you anticipate more price action ahead, and can you talk about
Speaker Change: The competitive dynamics in Europe, you know, are they becoming more intense less intense?
Speaker Change: You know, we wrote recently that some of your Chinese competitors might be offering Powerwall-like offerings where the inverter and the storage box are combined. And so I was wondering, you know, I know you have a new...
Speaker Change: products coming out by year-end of this year but between now and then you may have to compete with some of these
Speaker Change: other offers so was wondering you know how do you how are you competing at these new offerings from others and just what the competitive dynamics are
Thanks.
Speaker Change: Thank you for your questions. I'll try to answer all of them and if by coincidence I don't answer all the parts of your question, please remind me of that. So with regard to the pricing action that we took, as we mentioned, we feel that it was the right move to make. It is done together with our distribution partners and we are...
Speaker Change: As we said, we are going to see initial results for that in the second quarter, so until then we are not entertaining.
Speaker Change: Anything significant in terms of additional price move. When we get the results, we'll evaluate where we are and we'll take the necessary action. As I mentioned earlier, one of our four initiatives is to gain market share.
Speaker Change: Pricing is not the only lever to gain market share. We are working closely with our customers in order to bring them more value, whether it's value in terms of new products, better service.
Speaker Change: and other things that they find valuable, such as better installability of the equipment.
When you refer to other competitors in Europe,
Speaker Change: I'd like to remind you that the SolarEdge solution is a premium solution. We provide not only the inverter and the optimizers and the battery, but actually a suite of software solutions that help people manage their energy better, both in residential and the CNI segments.
And especially in Europe, energy management is becoming something that...
brings a ton of value.
Speaker Change: to the customers because of dynamic tariffs, sometimes negative tariffs, and the ability to actually smartly manage.
Speaker Change: The production and consumption of energy is something that can generate a lot of value to our customers.
Speaker Change: The second thing that is working in our favor is obviously something that you're very familiar with is the MLPE solution, the optimizers that we bring, and basically we generate more power.
Speaker Change: compared to other string inverters in a given set of modules.
cybersecurity resilience that we bring to the picture.
Speaker Change: Thank you. And we will take our next question from Mahi Mandeloy with Mizzou House. Please go ahead.
Thank you. Thank you.
Speaker Change: Hi, this is David Benjamin on from my heat Can you give a little bit of? More color around your current strategy around batteries for the remainder of the year until we get to the new products I know you had some higher priced Inputs that were dragging on margins. Are you going to continue to offer those products?
and I have a follow-up.
Thank you for your questions.
Speaker Change: Yes, we have both in Europe and in the U.S. We offer batteries to our customers, and we intend to continue doing so until the new products are arriving. And the current environment in the U.S.
is such that with the recent change of 48E,
which considers the battery and the solar system
and separate for domestic content purposes.
actually positioned us very well.
Speaker Change: vis-a-vis our competition, and we are seeing actually some, some, we believe that there is some uptick that we can expect for our battery solution, for our storage solution. And overall, the batteries are very, very good. As you know, the SolarEdge
The customer basically benefits from much.
Speaker Change: less conversions, which by definition means better usage or better efficiency of the energy.
So...
Speaker Change: That is going to be the case until the end of the year and in that case we're going to introduce our next generation
Speaker Change: And these batteries are actually over there, the solution, as I said.
It's going to be a modular.
solution.
Speaker Change: So our customers can choose to sell or to buy one battery model or two or three. And that modularity, first of all, allows them to have an entry-level deal and then to upsell.
Speaker Change: And secondly, it's much, much easier to carry them. The serviceability is going to be better. So it's a product that is actually going to make our customers' lives much better and much easier.
Thanks for watching!
Thank you.
Speaker Change: Thanks for that. And then just a follow-up on that, can you talk a little bit about attach rates for the commercial segment and the resi in Europe and the U.S.?
Weep. Weep.
At the moment...
You asked about commercial attach rate of storage?
Yeah.
Speaker Change: Okay, so at the moment, industry-wide, the attach rate of storage to commercial is quite low and we are excited about the opportunity in that area and we believe that the attach rate is going to actually grow.
Speaker Change: But at this stage, as I said, it's a pretty low attachment.
Speaker Change: Our product offering actually, this is why we said it in the prepared remarks, the product that we offer is actually positively received in different markets because they do anticipate that touch rate to go up.
Speaker Change: Thank you. And we will take our next question from Kristen Drenos with RBC Capital Markets. Please go ahead.
Good morning and thanks for taking the question.
Speaker Change: I wanted to go back to the next-gen product launches and specifically just kind of hone in a bit more around any kind of operational impacts that that launch might have, I guess, specifically tied to the cost structure. And should we be thinking that this next-gen launch
Speaker Change: Improves the the manufacturing cost structure, and then can you I guess specifically comment on anything that might happen with the margin profile there?
Ariel, if you have something to add, you can.
Speaker Change: So, as I mentioned, we are excited about the new product solution that we are going to introduce. We believe, and at this stage all indications are that the cost structure is going to actually improve.
Speaker Change: And we try to design these products for manufacturability and we expect to ramp them up.
in our U.S. manufacturing facility. As I mentioned,
Speaker Change: A major part of our turnaround story is the ramp-up of our U.S. manufacturing.
Speaker Change: We've already created more than or almost 2,000 jobs in the U.S. in our Florida and Texas facilities and we expect to be able to ramp up the manufacturing of the new products in the U.S. which
provide for some additional benefits, as you know.
Thank you. Bye.
Shuki Neer: Thank you. And maybe from a gross margin perspective, of course. As Sukhi mentioned before, from a priorities perspective, our number one priority is financial stability. And also here, of course, we strive to improve our gross margins.
Shuki Neer: When we develop and design the new products, of course, we also make sure that the gross margins are better. We use different components, different capability, different software installability.
Shuki Neer: and this will actually allow us to improve our growth margin or reduce the cost position compared to our current generation of products.
Thank you for watching!
Speaker Change: Thank you. And we will take our next question from Julian DeMoulin-Smith with Jeffries. Please go ahead.
Julian DeMoulin-Smith: Hey, good morning, team. Thank you guys very much. I appreciate it. Nicely done. Pleasure to meet. Just with respect to the cost structure here, can you speak a little bit to what sort of an ongoing run rate would be? I just want to come back to the conversation from earlier. You identify ongoing cost cuts, but also some of the impacts here from the announcements in the last handful of weeks and months. How do you think about 1Q guide here being representative of that, or what do you think a good run rate? I appreciate you guys aren't providing like a full year or ongoing guidance here,
Julian DeMoulin-Smith: were there. And then separately and related, you talked by mid-year about having inventories.
Julian DeMoulin-Smith: seemingly normalized with respect to your solar products. You disclosed about a 600 million ish total inventory today. Can you break that down a little bit? Like what what else is in that number as you think about getting the mid-year and having a little bit more sell-in versus sell-through normalized a little bit?
Julian DeMoulin-Smith: Yeah, thank you. So again, I think as you rightly said, we don't die for the year. We do believe that Q1 still has a relatively low revenue. This is seasonality.
Julian DeMoulin-Smith: When we look at the year, I think we spoke about this before, we believe that we will go by seasonality. We do have the safe harbor, and in the second half of the year, we will have the inventory clearing. Of course, with a lower revenue, this will help us increase our growth margin.
Julian DeMoulin-Smith: In addition to that, we're also working on reducing our cost structure everywhere.
We are now at the closure of Qualcomm.
Julian DeMoulin-Smith: and other initiatives that we also launched with Reduction Forces and others. We gave a new operating expense target for the end of the year.
Julian DeMoulin-Smith: And with that, basically, we will be able to improve our cost positions.
Julian DeMoulin-Smith: We also have some fixed portions that we're working on in the cost structure and I'm very happy and excited that already we were able to reduce it a bit.
Julian DeMoulin-Smith: We're looking at different levers, I would say, to pull here in order to reduce dose. Some of them, for example, are the underutilization that we had in our COCOM facility.
that we are now closing.
Julian DeMoulin-Smith: So, putting all these together, I would say that Q1 does not represent the full year, and we believe that we can even increase our gross margin and improve our cost position going further.
In terms of the inventory...
give or take approximately 600 million dollars of inventory now.
Julian DeMoulin-Smith: and we'll consume our inventory and we'll go back to normalized levels of inventory also on our balance sheet by the end of the year.
Thanks for watching!
Julian DeMoulin-Smith: Thank you. And we will take our next question from Moses Sutton with BNP Paribas. Please go ahead.
Moses Sutton: Thanks for squeezing me in. So just continuing on the growth margins, where are incremental growth margins on U.S. residential inverters? So is it 25 to 30 percent? Basically I'm referring to if you exclude the distortions from fixed cogs.
Speaker Change: that have held back the margins at these lower revenue levels. Where would you say the range of unit margins are for an inverter, an incremental one-fold?
Speaker Change: Thank you so much. We don't disclose this. This is part of our cost structure that we don't break down into different components.
Speaker Change: Thank you and we will take our next question from Dylan Asano with Wolfe Research. Please go ahead.
Thank you. Bye-bye. Bye-bye.
Speaker Change: Yeah, as we mentioned, we're not disclosing this. We, after discussing with our customers, we decided that we're not disclosing this.
Thank you for watching!
Speaker Change: And we just, if you look at Q1, and again for the year, we expect normal cadence of seasonal shipments. As I said before, if we look at the U.S.
Speaker Change: Specifically for the first half of the year, of course, Safe Harbor will...
Speaker Change: We'll have a certain impact, but also in the second half, once the inventory channels in Europe are clear, we expect a very positive impact there. So I would say seasonality impact for the full year and throughout the quarters.
Speaker Change: Thank you. And we will take our next question from Kashi Harrison with Piper Sandler. Please go ahead.
Thank you for taking the question.
Kashi Harrison: Just two quick ones for me and I'll spit them out there right now. On the restricted cash disclosure of $135 million, can you just provide more context on the driver there? And then as you just think about the European market more broadly, you mentioned that it's, you know, it's weaker than you expected. Do you expect the European end market to grow in 2025, remain flat, decline? Just maybe some thoughts on how you're thinking about Europe just
as a market in 2035. Thank you.
In terms of the restricted cash, as you asked,
Kashi Harrison: Yes, part of it is actually some of the safe harbor, but also some of it we set aside as part of some commercial agreements that we have with some of our customers and some of our vendors. So I can't break it down, but it's definitely not all the safe harbor.
Thanks for watching!
Kashi Harrison: Yes, and as for the European market, our expectation at the moment, similar I believe to others in the industry, but unfortunately the market is going to slightly decline this year.
Kashi Harrison: Even though the market is going to decline, our expectation is that we are going to gain share. We would like to gain share in the market as we talked about in my prepared remarks.
Speaker Change: Thank you. And we will take our next question from Amit Thakkar with BMO Capital Markets. Please go ahead.
Amit Thakkar: Thanks for squeezing me in. Just two quick ones for me. I appreciate that the plan is to still, I guess, retire the debt with the liquidity on hand. I was just wondering, you know, in the second half of the year, as you...
Amit Thakkar: of Normalized Inventory Levels and around $400 million of underlying demand. How much liquidity do you expect to need to have on the balance sheet to support the level of working capital that would be associated with that level of demand?
Thank you. Bye-bye.
Amit Thakkar: Alright, thank you. Yeah, we still believe that a good rule of thumb to look at these things for our company is looking at next quarter's cost of goods sold for this to run the business.
Thank you for watching!
Speaker Change: Thank you. And we will take our next question from Jeff Osborne with TD Cohen. Please go ahead.
Jeff Osborne: Thank you. Couple quick ones on my side. I was wondering if for the fourth quarter if you could rank order the drivers of free cash flow. I think you mentioned $19 million of free.
Jeff Osborne: of Finished Goods Reduction. But could you disclose what the 45X payments were?
Jeff Osborne: In Q4, it doesn't sound like you're going to disclose the prepay, but maybe of those three items, if you could rank order them and disclose 45X for the fourth quarter. And then as it relates to the fourth quarter and looking out to Q1, did you disclose, maybe I missed it, but how many optimizers and inverters you made?
Jeff Osborne: in the U.S. that would be subject to 45x payments so that we could sort of bracket or dimensionalize how much cash could be coming in from Q1 from that line item alone. That would be helpful.
Jeff Osborne: Hi, Jeff. Yeah, sorry, we decided that, again, as I said in the beginning, that...
Jeff Osborne: From a 45X perspective, this is part of our normal business now, and we will not disclose this anymore going forward. We believe that we can generate a lot also going forward, even more so than we have generated
in the previous quarters and also in 4Q.
Jeff Osborne: Simply because we can we are ramping up our facility and once we're ramped up it's
Jeff Osborne: We can generate much more. And as I said before, obviously,
Jeff Osborne: It depends on demand and how the market progresses on this.
Jeff Osborne: We have decided not to disclose this. Also, regarding your second question, sorry, we decided not to disclose this as well.
Speaker Change: Thank you and we will take our next question from John Wyndham with UBS please go ahead
Thanks for taking my questions.
Speaker Change: In the fourth quarter looks like you had a good tailwind from working capital with receivables down and deferred revenue up pretty substantially Interesting your thoughts on how much more runway there is on working capital efficiency
Speaker Change: Yeah, thank you. I'm sure, first of all, I'm sure that we have much more to do on this as well. We're working on improving this all the time. Part of the things that we're doing is also working with...
Speaker Change: with our suppliers to see how we can also improve our inventory management. We have started using automations in our US facility to help us also improve the efficiency in this.
Speaker Change: and be more accurate on how much we need to produce. I think this will definitely bring and improve our networking capital.
Speaker Change: And as usual, we're very focused on improving our operational efficiency.
Speaker Change: going forward and focusing on improving our cash position so we are looking very very much and closely both on our AR and on our AP as well.
Speaker Change: and we'll report to you how we've progressed in the future.
Speaker Change: Thank you, and we will take our next question from Dimple Gosai with Bank of America. Please go ahead.
Hi there. Thank you for taking my question.
Speaker Change: I guess I wanted to talk a little bit more about the Gross Margin Guide.
Speaker Change: Can you kind of talk to us a little bit about how you're thinking about that? Is that mostly because you've written down all of the inventory? Is there a higher mix of U.S. shipments? You know, the fixed COGS component. Just trying to kind of understand or get a better sense of how you kind of have guided that or put the thinking behind it.
Hi, Dimple. Yeah, thank you so much.
Speaker Change: First of all, I think the main reason why we're improving is for two main reasons.
Speaker Change: One, as you mentioned, we reduced the fixed COGS portion. To name a few things, one thing is the underutilization that we had in CELA-2. Definitely, once we decided to close down...
Speaker Change: Our storage division in Korea, this will go down. A second topic is, of course,
Speaker Change: I'm very happy that, as I said, in the last few quarters we have done a lot of progress on improving the quality, thus reducing the warranty.
Speaker Change: which is also a fixed part in our costs, so this is also had a really good impact will have a really good impact also in the future.
Speaker Change: And I think the third bullet point that you touched on, which is also correct, is higher IRA.
Speaker Change: Benefits. It's higher IRA also as you can see in the fourth quarter and I believe or we believe also going forward in the next two quarters the US market will be will have a predominant ratio or from the entire revenue.
Speaker Change: So it's both components together. The U.S. is bigger, from our perspective, currently. And also the fact that we get IRA credits. Baking all of this together, these are the main levers that we see for the gross margin.
Speaker Change: Thank you and we will take our next question from Joseph Osha with Guggenheim Partners. Please go ahead.
Joseph Osha: Thanks. Returning to this question about cash generation in the second half of the year, obviously you are
Joseph Osha: going to be putting some working capital to work as you re-ramp the business.
Speaker Change: Would you be able to generate cash flow from operations without 45x or is getting deposit-free cash flow dependent on on generating those, monetizing those credits?
Speaker Change: Yeah, thanks Joe. I mean, of course, monetizing the 45x credits is part of our ongoing business and is part of our building blocks now.
Speaker Change: But of course, once we have more demand, our working capital should improve. But as I said, this implies the fact that we have much more demand and better outlook.
Speaker Change: As I said before, I believe that once the situation in Europe
that pertains to Europe.
Speaker Change: to invest more cash into it because the inventory already exists. And as for the additional working capital that we need for the U.S., we will fund it and then sell the credits as you rightfully mentioned, and it will more than fund itself.
Thank you for watching!
Speaker Change: Thank you. And we will take our last question from Austin Moeller with Kanna Kord. Please go ahead.
Speaker Change: Hi. Have the price reductions had a positive impact in the European market relative to competing Chinese products?
Thank you. Bye.
Speaker Change: Thank you for your question. As we said, we believe that we will see the impact of the price promotions and the campaigns that we launched back in November only in the second quarter.
Speaker Change: We believe that it will make an impact, but we haven't seen and we haven't reported anything yet.
Speaker Change: Thank you. And it appears that we have reached our allotted time for questions. I will now turn the program back to Shuki Neer for any additional or closing remarks.
Shuki Neer: Yeah, thank you everyone for joining us today. We appreciate that and just to summarize what we said We have to focus on what we can control and we have to get back to our roots of passion for innovation
Speaker Change: And we have to implement best-in-class execution across everything we do. And when we do that, we will turn the business around and bring SolarEdge back to where it deserves to be.
Shuki Neer: So, we will keep you updated as we make progress and appreciate your time.
Thank you very much for joining the call.
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