Q2 2025 SolarEdge Technologies Inc Earnings Call
Or transmission of this call. Without the expressed, written consent of solar, Edge is prohibited
You may listen to a webcast replay of this call by visiting the event calendar page of the solar Edge investor website. I would now like to turn the call over to JB low head of investor relations for solar Edge. Please go ahead.
Good morning, and thank you for joining us to discuss solar edges. Operating results for the second quarter, and the June 30th 2025, as well as the company's outlook. For the third quarter of 2025,
With me today are Shuki near chief executive officer and a soft alperovich Chief Financial Officer.
Shuki will begin with a brief review of the results of the second quarter and its June 30th 2025.
ASAP will review the financial results for the second quarter followed by the company's outlook, for the third quarter of 2025.
We will then open the call for questions.
Please note that this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from Management's, current expectations.
We encourage you to review the Safe Harbor statements contained in our earnings, press release and our filings with the SEC for a more complete description of such risks and uncertainties.
please note during this earnings call, we may refer to certain non-gaap measures,
which are not measures prepared in accordance with us, gaap.
The non-gaap 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.
Reconciliation of these measures can be found in our earnings press release and SEC filings.
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 30, 2025, press release.
May obtain a copy by visiting the investor relations section of the company's website.
And with that, I'll turn the call over to Shuki.
Thank you, JB.
Good morning everyone and thank you for joining us.
I'm pleased to share with you today. The progress we've made across all 4 pillars of our turnaround Journey,
but first, let me review the recent changes to Regulatory and Parish policies that removed some uncertainties hanging over the industry.
The recently enacted 1 big beautiful, bill act, redefined solar and storage markets in several key ways. And I'd like to share with you how we intend to maximize the opportunities and navigate the challenges in this environment.
First.
The most, and most importantly, for solaridge, the bill validates, our multi-year strategy of on-shoring manufacturing to the US, by preserving the 45x advanced manufacturing credit for the next 7 years.
With the improved visibility this law provides. We intend to manufacture in the US and to ship us-made solar Edge Products, both domestically and across the globe for years to come.
Second us customers have a built-in incentive to prefer products that are made in the US.
Especially if they comply with the requirements and meet domestic content thresholds.
This aligns with our us manufacturing and supply chain strategy, which we believe positions as well to support such customers.
Third, the extension of storage tax credits will support the trend of increasing, battery adoption.
This expands our time and requires just the kind of sophisticated Energy Management, algorithms that we have refined for you by using the vast amount of data source from our large installed base.
Lastly, in the residential space.
Demand is expected to decline in 2026 with the elimination of the 25d credits.
A decline that is expected to be partially offset by a shift to pose as the 48 credits continues through 2027.
We believe, we are well, positioned to benefit from this shift given our strong position and product fit with TPO.
Let's talk about ties.
Prevailing tariffs and domestic content levels.
When added together, the gross margin headwind in the second half is expected to decline to approximately 2% from the previous expectation of 4 to 6%.
Additionally, we now expect 3 cash flow to be positive for the full year of 2025.
We still believe that we will fully offset. The Tariff headwind in 2026 net of pricing adjustments.
Switching to the progress across our key priorities.
Q2 results and Q3 Outlook both show that we are firmly moving in the right direction, on All 4 priorities,
And I'm proud of how our team has executed despite the challenging global environment.
First on financial strength.
In Q2, we delivered quarter of a quarter and year-over-year, Topline growth and margin expansion for the second straight quarter.
The midpoint of our Q3 guidance follows the same trajectory.
At the same time, we have kept our expenses in check and have focused on our Core Business.
A second priority is recapturing market share.
In us resi, we have seen a continued shift to the TPO model which we expect will significantly accelerate in 2026.
In recent years, we have built an infrastructure that supports our CPO Partners, so we believe we are well, prepared to capitalize on this market dynamics.
We believe we have met and plan to continue to make efforts to meet requirements for both domestic content and FIO, which allowed them to maximize $48E credits and others.
And we believe that our products are very well suited to support the scale, performance, and integration needs of the unique TPO business model.
In the US, cni segments, we believe that the growing importance of domestic content and increasing the costs restrictions. Offer us a compelling opportunity to gain share.
For example.
We signed a multi-year frame agreement with the leading U.S. retailer that will see SolarEdge products integrated across its locations nationwide.
These new agreements underscore the value. We bring to Enterprises and build on the recent momentum. We have had with these customer sets
Turning to Europe.
Last week I met with our regional leadership team in Europe and visited with key customers.
The positive momentum that we discussed on our last earnings call and experienced. At the inter solar has continued.
Our pricing and promotion campaigns have shown signs of success and are improved. Go to market, strategy is strengthening our Partnerships with installers and distributors.
As a result, the majority of our distribution Partners. Reached normalized inventory levels at the end of Q2 2025 as we had anticipated.
An importantly, we have seen initial market, share gains in Europe in the second quarter.
That said our sharing Europe is still below what solar Edge commanded in the past and is well below where I think we can and should be.
But with our energized team, our Leading Edge and expanding software, and Service Solutions, and our next Generation platform coming soon. I believe we have a very good opportunity to grow our business in Europe, even further in the quarters ahead.
Turning to our third priority accelerating innovation.
Our next is platform remains on track for initial volume by the end of the year.
We already have several operative units in our facilities and next month at our plat, we will have a hands-on experience for installers to demonstrate how flexible and easy Nexus is to install. Connecting inverters and batteries with a simple click.
On Commercial storage. We had a record sales quarter and we expect growth to continue.
While still in the early days, we expect commercial storage to follow the same trend of accelerating adoption that we witnessed in the residential storage space.
Moreover.
We believe that our commercial storage offerings combined with our software capabilities position as well as cni customers increasingly transition to solutions that combine PV storage and energy management software.
Speaking of software, we have seen increased traction with a wevo EV charging software solution.
In the US, wevo was selected by PG, any to manage, its nearly 4,000 EV charges.
Vivo software is also enabling the largest public charging station in New York State located in Queens and backed by a con add program.
Additionally.
As we announced this week, we've entered into a strategic partnership with the schaeffler group.
1 of the world's leading manufacturers for the automotive industry.
Under the partnership, wevo will manage the thousands of charge points that Scheffler intends to deploy at its facilities around the world.
Scheffler has been a SolarEdge, PV customer for years.
And this agreement highlights the additional software and service capabilities that we can add to our value stack for Enterprise customers.
Our 4 key priority is ramping up our us Manufacturing.
In Q2 we continue to build out and optimize our us manufacturing footprint which now includes residential inverters in Texas optimizers and Commercial inverters in Florida and batteries in Utah.
We are also planning to ramp up production towards the end of the year in order to support exports of competitive products to our European and international customers.
To summarize.
We believe we are in a much better position today than we were a quarter ago.
A layer of uncertainty has been removed from our business.
And we have continued making good progress on all four pillars of our turnaround journey.
While we are encouraged by the progress this quarter, we know there is still plenty of work ahead.
We see significant room to improve execution and even more opportunity to grow and build a healthier, more profitable business for the long term.
With that. I will turn it over to Asa.
Thank you Shuki and good morning everyone.
Starting with a quarterly results.
Total revenues for the second quarter were $289 million.
181 million.
Revenues from the US this quarter amounted to 185 million representing 66% of a non-gaap revenues.
Revenues, from Europe amounted to 65 million representing 23% of our non-gaap revenues.
Non-gaap gross margin. This quarter was up to 13.1% compared to 7.8% in q1.
The higher gross margin is largely due to higher Revenue, which drove increased utilization over operational cost structure.
Higher us production, volume and favorable, Regional mix with higher us Revenue.
This was part of set by incremental tariffs, which impacted our gross margin by 1%.
Compared to an expectation of 2 percentage points.
Adjusting for the lower than expected tariff impact. Our gross margins came in slightly above the high end of our guidance range.
During the second quarter, we continue to take action to streamline our operations and exit non-core activities.
As a result, we recorded a 1-time, 18 million expense on the disposition of our tracker business.
We also recorded the 1 time expense of 37 million related to a write down of a seller to facility, which we're looking to divest to reflect fair market value.
These charges were partly offset by a 1-time 10 million gain on the sale of our non-standard production facility in Korea.
Going forward, we will continue to seek avenues to right-size our business, with an emphasis on expense reduction and a focus on our core activities.
Non-gaap operating expenses for the second quarter or 85 million compared to 89 million in the previous quarter.
Similar to q1 in the second quarter. We were able to collect certain aged our balances which resulted in a reversal of an AC for bad debt.
Excluding this and other non-recurring items that the total approximately dollars. Net. Our non-gaap operating expenses would have been approximately 89 million.
non-gaap operating loss for Q2 was 48.3 Million compared to a non-gaap operating loss of 72.4 million in q1,
Our non-GAAP net loss was $47.7 million in Q2, compared to an old GAAP net loss of $66.1 million in Q1.
Non-gaap net loss per share was 81 cents in Q2 compared to 1.14 in q1.
The lower operating and net loss are at largely due to higher Revenue, higher gross margin and lower operating expenses.
turning now, to our balance sheet,
as of June 30th, 2025, our cash Investments portfolio was approximately 812 million
Our cash position, net of show 10, was up approximately $19 million to approximately $470 million.
We cash flow in the quarter was the use of approximately 9 million largely due to the timing of certain working capital items.
For the first half of the year, we generated 10.8 million in free cash flow.
As Shuki mentioned, considering the recent development in anticipated tariffs, in the progress that we have made on our turnaround, we now expect to be free cash flow positive for the full year. 2025
A net increase this quarter to $217 million compared to $133 million last quarter, mostly due to higher revenue with continuous improvement over this quarter with effective collection management.
Our inventory was down by 108 million to 529 million.
Due to Mark, the fifth consecutive quarter of inventory reduction.
This is despite our continued ramp up of us production to support anticipated growth in the introduction of new products.
as you may know, we have approximately 343 million in convertible notes that come due next month,
As we have said previously, we intend to pay off these notes with cash on hand upon maturity.
For the foreseeable future.
As Shuki mentioned by the end of the second quarter, the majority of our distribution Partners had normalized, their inventory levels.
As a result, we will no longer be providing quarterly sales figures.
Is focused on providing full system solutions to combining inverters. Optimizers EV charges storage system and energy management software.
This aligns with evolving market, demand and customer preferences in coincides, with the streamlining of our product portfolio.
Therefore we will no longer be providing a breakdown of megawatt shipments by region or by end markets. As a management focus is on Regional Revenue.
turning now to our guidance for the third quarter of 2025
We are expecting revenues to be within the range of 315 to 355 million.
We expect non-gaap growth margin to be within the range of 15 to 19% including approximately 2 percentage points of new tariff impact.
We expect a non-gaap operating expenses to be within the range of 85 to 90 million.
I will now turn the call over to the operator to open it up for questions.
Operator.
Certainly. And at this time, if you would like
Please press the star and 1 on your telephone keypad. You may remove yourself from the Queue at any time by pressing star 2 and the interest of time we ask that you please limit your questions to 1 question and 1 follow-up. Once again, that is star and Wanda ask a question and we will take our first question from Mark Strauss with JP Morgan. Please go ahead.
Yes, uh good afternoon. Thank you very much for taking our questions. Um, wanted to to ask about uh kind of sustainability of the uh, the revenue that you're seeing here, uh, in 2 q and 3 Q. Was there any benefit that you saw from Safe Harbor, uh, or in the 3 Cube guide or you assuming any kind of pull forward from maybe some of your, your 25d customers. I know, I know that's a smaller portion for you guys. Just curious. If you're, uh, seeing any kind of 1-time orders that you might potentially normalize for, thank you and have a follow-up. Thank you.
Yeah, sure. Thank you, Mark, for your question. First of all, I’ll start by saying that our Q3 guidance does not include a significant pull forward.
Of demand relative to $25 Z to Safe Harbor.
um, so so we are pleased with the progress that we are making as as a as I said in in my prepared remarks both in Q2
And in the midpoint of the guidance of for Q3, we are showing here over here and quarter of a quarter Revenue growth.
And there are a result of uh building our business back to to where it should be.
Okay, that's great to hear. Thank you. Um, then also on gross margin, uh, good to see the the progress that you're making there. Um, just curious, you know, to the extent that you're willing to talk Beyond 3Q, uh, kind of how to think about the, the Cadence of of margins, you know? As, as your Revenue continues to to normalize, thank you.
Hi Mark. Good morning, thank you for the question.
I think we said last time that on margin, the biggest driver is more Revenue. Uh, of course, uh, the more Revenue better utilization of our fixed cost infrastructure that we've built in a structure, uh, on top of this, uh, the expansion of our production Footprints, as we sell and produce and sell more. And uh, as we noted, we are going to start
Uh, towards the end of this year, to sell the products overseas, and enjoy the 45x credits also for, uh, out of the, uh, U.S.
Uh, sales and other positive factors on the new products that are coming up towards the end of the year. Uh, we expect better marginality; they are coming with a better cost structure.
Um, and of course, uh, I think we have a continuous effort that we related to or fixed costs.
Uh, improvement and reducing by streamlining production. We talked about, uh, automation and enhanced inventory and logistic management, and so forth.
1 thing to remember, of course, quantity related to that, there is an impact of mix, uh, of all of this between uh, different geographies, different products and market segments, which may vary. And we cannot predict that uh, by I think all of these levers, I talked to will provide better marginality again with the revenue increase as you can see in our uh, Q3 uh guidance.
Thank you, and we will take our next question from Philip Shen with Roth Capital Partners. Please go ahead.
Hi. Thanks for taking my questions. Uh, first 1 is on, um, Safe Harbor again. Uh, you know, some of our checks suggest your cni business especially in the US is doing really well 1. Uh, distributor said it was booming. Um, and so uh, I know there's no Safe Harbor in the guide, uh, but was wondering, um, how much could be in the guide? Uh, how much more Safe Harbor? Do you think you could have? You've already done? 1 cni Safe? Harbor. Is there more, uh, to come either for cni or resi for that matter? Thanks.
Uh thank you for your good morning. As you know and as as we stated in the past we we are not going to get into any details as it pertains to the safe harbor deals.
And both in resi, or in cni.
And I I concur with with what you implied and I believe it's our customers that are looking at us as the best partner if and when they consider such deals and if and when they consider such deals, we will definitely be happy to support them. And we believe that our solution both from a product perspective, as well as from many years of of working together, and supporting this type of customers is going to um, it's going to be beneficial for them.
More generally on the cni segment is now with the, with the advantage of of domestic content and with the expected fuel requirements that are are coming in. We believe that we are going to have a, a significant opportunity in this segment, again, sharing this segment and between our product offering the fiio requirements, and the domestic content editors. I believe that these customers are going to find out their solution very attractive
and I've heard, uh,
Uh, you guys might go into allocation mode soon for cni, so that's that's very interesting. Um,
yeah, shifting over to, uh,
Uh 2026 in margins. You know. I know you guys don't got officially but was wondering if you might be able to uh share what the 2026 margin puts and takes might be like, is it safe to use maybe a 15 to 19% range from the Q3 guide and the and remove the Tariff impact. So, if you remove the Tariff, in fact, it could even be higher, just some color on, that would be fantastic. Thanks.
so specifically, on the Tariff, uh, we related to that in the script and noted that we expect uh
For the next 2 quarters within the year about 2% incremental, tariff impact, which is below prior estimation of 46%.
We also said that next year, we are looking to neutralize this entirely with the Diversified production basis.
And some potential price increase.
Uh, in terms of the trajectory of next year overall. Um, so again, I think, uh, we talked about the main margin levers, of course, the higher Revenue,
Again, with the better utilization of fixed costs, the new products, these new products will enable us actually to present some new revenue streams.
Um and the ramping up of the US production is very important to us uh as you know the US uh from a production basis is the most economically attractive for us. Given the IRA benefits and credits.
And as we start selling USM made products globally, uh, to the EU and the international markets. Again, that's another level we will. Uh, we we will enjoy from
Brian Lee with Goldman Sachs. Please go ahead.
Hey, guys. How's it going? Thanks for taking the questions. Um, I guess. Uh, first question just on,
On the guidance for for Revenue. I know Europe. Looked pretty strong in 2q and now now that you got the dto, uh, complete in that region. Um presumably it's it's going to be uh just as strong in 3 keys. So can can you give us a sense? I know you don't want to break out you know cni resi and and all the different um,
Uh, detailed factors, but just, uh, in terms of the revenue growth guidance for 3 Q, just, uh, how much more growth are you expecting in Europe? Um, is, is the US market, uh, expected to be stronger? Um, from a sequential growth perspective, just maybe someone that puts and takes, uh, giving both of those markets, uh, look pretty strong. In 2q, wondering if you're expecting exactly the same Trends, or or any kind of, um, Divergence in into 3Q, based on the guidance and how to follow up,
With the US market. And then I'll get to to Europe.
And the US I think as we've said as the Shuki just indicated, we we believe that we are in a strong position.
Uh, 1 is the expected shift towards the TPO that we discussed.
Again the new product introduction. They're coming with the growing focus on the full ecosystem. I would say solution.
With incorporating more software and more elements.
CNI opportunities that we see are significant as well, especially with Enterprise customers.
And now to the US Territory. So we did a note that channels are largely clear
Uh, we expect that to see a catch up of Revenue to the underlying demand.
At the same time, I think it is important to know that you Market remains fairly weak and, uh, potentially it's going to can can go even uh, uh, weaker or next year. Of course, our focus is to continue and gain a market share.
So it be, it will be, I would say an interplay between the week, uh, potentially a week European market, you know, new products, market share expansion efforts, that were focusing, every day.
And, uh, overlaying all of this, I mean, uh, even on a global basis, is it the fact that the battery attached rates and demand continued to rise? So we certainly expect to see this uh, momentum continues for Q3 and and Beyond.
Okay, fair enough. That's helpful. And then um I guess on the on the gross margin going back to that question. Um uh from from Phil, you know, if you look at the 3Q guide, I think that you're implying, you know, an over 40% drop through on gross margin. Uh, is is that maybe the right way to think about leverage on the gross margin line going forward? I mean every um,
You know, hundred million dollars of incremental revenue from here, seems like you could add, uh, another 5 to 700 basis points of of gross margin. If we do the math that way, um, and then curious up to what level, um, you know, this underutilization, uh, recapture could could drive additional margin leverage. I guess, what, where are you in terms of utilization? Where, uh, where is the Headroom and, and kind of what does that imply for for gross margin? Um, Step UPS from here, as as you get more volume in. Thanks guys.
Sure.
um, so I think you alluded to the fixed cost infrastructure that we have built in in the cogs which as you know, we are trying to reduce in terms of automation product Simplicity uh
more singular scale and so forth. I think, uh, we told you before that uh the estimate or the rough number for such fixed cost uh embedded in our cogs is around the 90 to 95 million.
Um and of course, we're working to reduce it as I said and just in terms of simple math, just uh divide that by growing Revenue, uh you'll get the incremental impact associated with the budget utilization of the fixed cost infrastructure.
Thank you. And our next question comes from Colin Rusch with Oppenheimer. Please go ahead.
Thanks so much guys. You know, can you talk about some of the the key initiatives from uh R&D perspective that you're working on it? It seems to me that there are some Innovations in and around both uh you know.
Virtual power plants, as well as, uh, you know, just optimization of the performance of the, the inverters here. That we could be looking at. Just want to see where you can actually get some real leverage out of those hard to efforts.
Yeah, thank you, Colin for a great question. So, as the market evolves, it moved from, from being a TV, only type of a market in which solar Edge operated into Market in which batteries and storage play a significant role. So you have to and and the grid is actually with the electrification and the growth in demand for electricity. The grid is actually uh, finds it harder and harder to manage all the loads. So between these 3, the energy management, uh, optimization and knowing when to produce uh, Power and Export it to the grid when to store it in the battery using time of use algorithms and, and, and expecting, uh, what will happen from a weather perspective and so forth. Uh, these are all areas that we are, we are looking at that are talented. Team is, is innovating around. And we believe that what we we have to deliver to the market.
And when you do all of that then it opens to Virtual power plants like you mentioned on grid services and other areas that that we can uh potentially look into in the future. Some of them already exists today the the nent but uh definitely an area that we can we can look into in the future as well.
And and then um, you know, from a from a cost perspective, I mean, are there other areas that you can drive costs out of the system you know in in the organization or are you you know fully fully stripped down as a company here. Um you know or can we see some some incremental cost savings either uh anywhere in the Opex side of things.
We have this is a continuous uh, Focus for us and I don't think we ever get with situations that we cannot stress down. This is something that we are driving, uh, management. Always look at the ways to have a improved efficiency
I think we did relate to the upcoming and existing system that the construction structure it has embedded, uh, is more attractive. So we expect a better marginality on that.
um but I can say that we're constantly looking on Avenues to reduce costs and that's something we are uh very focused on
thank you.
And our next question comes from Dimple gasai with Bank of America. Please go ahead.
Hi, good morning thank you for taking my question. Um, could you please give us more color on what drove the strong battery performance this quarter? And uh, do you anticipate the TPO Market shifts more towards a storage ledge Market, you know, with ITC in place and then I have a follow-up, please.
Yeah, thank you. So, the storage the entire Market? Um, I would say, in all residential regions, we are seeing an increase attach rate between solar and, and, and, and, and storage. The value is clear. Whether you even even in areas that the, the, the tourists are not Dynamic, there is a value of storing. What is produced in during the day, in order to use it overnight in more advanced markets in which there are more sophisticated schemes than the batteries playing as an even more important role. Be it, flexibility or time of use and other models.
And so this is the main driver and we are supporting the demand that is coming and we are actually helping growing the pie by by providing the Energy Management Solutions that I I was talking about.
As for the cpos, I believe that the the operate in the very same market and the requirements coming from the customers are are similar and and my expectation at least is that I I believe that the attach rate is going to grow for them as well and as they increase their attached rates, we we we will provide them with the solutions that are actually maximizing the benefit from that.
Uh, thank you, and then more on a more technical note um, free. Cash flow was pretty solid this quarter. Can you help quantify how much of that was, you know, driven by working capital tailwind and how we should think about the sustainability of those drivers going forward. Um, and then separately, what was the Cash impact from 45x in the quarter? Could you maybe talk a bit about the monetization Cadence we can expect going forward on that?
Uh, so, um, considering the 45 weeks, motivation is an ongoing standard part of our business. As though we have ramped up the production layout in the U.S., we are not disclosing that.
Um, in terms of the cash flow, we did provide an indication some guidance for uh the year as a whole. As you remember for H1 q1 and Q2 together, we generate a positive free cash flow of approximately 11 million.
And we did guide to free cash flow for the entire year, which is also due to the lower incremental tariff compared to our previous guidance of breaking even. So the incremental positive on that is 1 of the reasons that the resulted in that
And uh, as, as you, well know, I mean, the timing of different, uh, cash flow items and working capital items change, we are working, uh, to plan, and, and control as much as possible. But things may shift,
uh, so that as much I can say about, uh,
About the future free cash flow.
Thank you.
And our next question.
Current Blanchard with Deutsche Bank, please go ahead.
Maybe in Europe as well. I think 1 of your peer had mentioned in an increase here so just trying to put some context. Thank you.
So I assume that you're referring to the channel inventory.
and as, as we said for Europe, most of our Distributors have already resumed, normal levels of inventory, there are some that are not but most of them are
And and we are very pleased with that. In the US, we haven't seen anything that is out of the normal. In terms of our Channel inventory, um,
so so I don't know what exactly you refer to, but in our business, we haven't seen any build up of inventory in the channel in the
No, that's it for. That's what I was referring to and then maybe just like a very high level question, or general question what's your view on on the US market or like us time as we go into 26 and potentially 27?
Yeah. So, so that's the question that many people are asking today. The the way that we look at it is, is is uh, that with the elimination of 25 Z at the end of the year, most probably, uh, the segments that you supported by 25d is going to decline significantly, you call it 50%, 60% year-over-year.
And at the same time, the TPO segment is going to benefit from that or the because 48e continues until the end of 27.
And by how much the TPO segment is going to grow, um, in principle, it can take the entire piece of the pie that, uh, that, uh, people that used to take, uh, Cash and Loan for 25 D and all of them. Maybe all of them can switch to TPO, maybe only part of it because of, uh, consumer preference or because of capital constraints or any other thing. So, your guess is, as good as mine in terms of what percentage will will go there.
So I think that when you combine most of both of them, we will see the market declines by by something like 20%, maybe maybe a bit more.
and but as it pertains to solar range,
our position within the TPO segment is is is very strong.
And we believe that that uh the use that we spend in order to build the infrastructure to specifically support this type of customer.
As well as the domestic content and the compliance with, with field requirements, that that we have. So we think that our products are are the best out there to support the scale, the performance and the integration needs of of the TPO business model and because of that, if the PPL segment is actually going to grow, we we believe that we, we are in a good position to leverage on that.
How to benefit from that?
Thank you. And our next question comes from Kristen Dino, who was with RBC Capital Markets. Please go ahead.
Hi. Yeah, good morning. And congrats on the strong quarter. Um, I wanted to focus on on the European business here and um, you know, you mentioned it, it it's mostly normalized. Um, but the market share that you all have is still kind of below where you where you ultimately want to be. So maybe looking ahead. I think you mentioned Nexus as 1 opportunity but but what other levers do you have in Europe and and how are you thinking about the strategy? Maybe from a pricing perspective, going forward. Thanks
Yeah. So, thank you, Chris, and yes. So, so, as I mentioned, yeah, we we we, we, we we visited Europe last week. And, and first of all, we are pleased with the progress that we have made. We we, we do see data that supports that we've started gaining sharing in the second quarter. And as I mentioned, I believe that we have room to grow here in terms of of market share in in in Europe in Europe in general in in in every specific country in particular and and it it will be a result of many different components that we, we detailed in. In part call we have to continue working very, very closely with our distribution partners with the installers, we have to win the trust of the installers. They need to uh to want to install solar Edge and
So, that's 1 element. The second element is with Nexus.
The channel in Europe Channel, meaning the Distributors, the installers and the customers.
um, they are all very happy to see solar Edge back and, you know, the composition of the current market is is
Um, they would have liked to see a stronger solar Edge solar Edge that has higher market share in the in the in each of the countries. And and we see their support as also an important element to help us get to where we want to go.
Got it, and then maybe just as a follow up on, on Nexus. And you, you just mentioned, um,
You know, maybe you had some some products or segments that weren't a great great fit, but, but that improves with Nexus, can you expand on that a little bit and sort of what, what specifically um is is kind of the opportunity there. Thanks.
Yeah. So for example, in, in in Germany, um, many of the, the system, many of the homeowners that are interested in in large systems, maybe 20 kilowatts
And the the next is the 3-phase Nexus is actually going to support uh up to 20 kilowatt and our current solution is less than that. So the installers were really uh, loyal to solar. RA are installing 2 inverters instead of 1, but in order to seriously address this segment in the market and and it's a growing segment.
We are going to offer, not only the, the 3 phase inverter but actually a stackable battery that can go all the way up to 1, 9. 6.
Which is, you know, it's a, it's a very, very respectful respected solution for large houses in in Germany. And we believe that once we introduce that with the quality reliability and and and the solar Edge brand
We believe that we'll see an uptick in share.
Thank you, and we will take our next question from Christine Cho with Barkley's. Please go ahead.
Turning. Um, thank you for taking my question. Um, apologies if you've already answered this, but, you know, you mentioned that Europe has reached normalize inventory Levels by the end of 2q and appreciate that, you're not going to be provided providing sales through anymore. But, um, the revenue guide for next quarter is below. The 375 million sell through that you gave last quarter. So it was just help, uh, wondering if you could help us bridge. The gap. Can you give us a sense of how much the market is down or, or our customers, keeping less inventory, just sort of any other puts and takes that we should consider.
Thank you Chris. Hey, Christine. It's it's a very you you put the numbers together and and that that's very nice. And as we said, most of the Distributors have reached, the normalized inventory levels, but there are 2 things that we have to keep in mind. 1 is some of them have not yet. And this is, I would say, part of the gap between what you would call the, the sales through and and and the revenue that we see in the third quarter. And the second piece is even when the channels are normalized, it goes up and down by quarter by seasonality, by the way, by the preference of the distributors in anticipation of a new product or an old product. So there are many different factors that are are are playing a role here. But these are the 2 main reasons for for what? What you refer to as as the gap.
Ah, okay. Uh and you have some products rolling out for you. Is that right?
I'm sorry again.
Uh, you have some products rolling out at the end of the year, so that that that's kind of what you're alluding to, okay? Um, yeah, the next question. Yeah.
Um and then um, the follow-up, um, you know, in Europe, the uh historically the revenues and costs I think were pretty much in the same currency. So margin was kind of hedged internally and regionally. Um, as you guys come down on your European inventory, on the books and you start, shipping us products to Europe and other parts of the world.
That internal hedge is no longer. So should we expect that? You guys are going to use. Hedges to lock this in especially with FX rates moving around quite a bit, these days,
Actually we, we are hedging our major currencies, which are the Euro and us or shekel currently, it's mostly versus the expense.
Make sure that we have the goods, and methodology for hedging.
Thank you.
Um, thank you. Um you guys have talked about the need to grow into your manufacturing base and this is where fixed cost. I'm wondering if you can give us
Some sense based on where you are now. As as to how much revenue you could support with your uh, your existing manufacturing base. Thank you and I have a follow-up.
Comment production layout is built to support. Uh significant, uh, increase uh, in Revenue. Uh, we plan that and uh, we are executing upon the plans. We cannot give you.
Uh, more than some gen gen General color, but certainly we can increase uh, revenue and the build up.
Uh, uh, to support us and the production, uh, volume, uh, with existing, uh, infrastructure. Uh, we're working as you know, uh, with the major contract manufacturer
Uh, but we expect that the current facilities and the infrastructure that we've built in with the automation that we're implementing, uh, more, uh, more and more, uh, will support us through, uh, multiple quarters. Uh, before we need, uh, to ramp up. Uh,
The layout again potentially.
Okay, thank you. And then my follow-up. Looking at your, uh, your talking about new products that you will bring your features probably also lower cost and I'm curious in the European residential markets. Do you think that you are where you need to be from a pricing standpoint? Or could we see you? Take additional actions on the pricing front as you seek to retake market share, thank you.
Yeah. Hi Joe. So I'm surprised as, as you know, price is only 1 factor in in the go-to market strategy. The the there is the product, there is the the partnership that you have with the channel. There is consumer pool. There are so many different things. And, as of last week, when, when we visited with key, customers pricing doesn't seem to be, uh, the blocking parameter in terms of of uh, if we want to continue growing and as I said, we we we started gaining share. We feel confident that that we can uh, continue doing that. And at this stage it doesn't seem. It doesn't seem as if we we need to make a significant price move at the same time, you know, we're responding to pricing and and if if they need the Rises, we will have to do that.
Thank you.
And our next question comes from mahip, mandalo with meizuo, please go ahead.
Hey uh thanks for the questions and I think we must run to but maybe just 1 on the battery side. Could you talk about the battery cell sourcing strategy for this year? And next uh what changes and you're making there and on the margin side? If you could just talk about uh we uh not uh go back to Target margin for the battery yet, or we have to wait for the new products to get there.
Yeah, thank you mahit. So I'll start with the battery sourcing and and and then you'll have to repeat the, the gross margin question because we didn't hear it well here, um, for, for the battery, for the battery sourcing. Um,
Similar to many other components in our supply chain. We, we, we, we first and foremost are looking for quality and reliability of our products to make sure that, um, the products we deliver are actually providing the value that we intend them for them to to provide for the long term. Then we are looking into the, um, optimizing the supply chain between different requirements that we have. And we we we talked at length about tariffs and about fio and about other requirements that uh are making a difference uh for our customers and for ourselves. So we
Will continuously look into the best possible way to source.
Battery cells or any other components in our supply chain.
Could you please repeat the gross margin question.
Yeah, just trying to understand, like, on the margins, on the batteries, uh, I know historically over lower because of, uh, Samsung batteries, but just curious. Uh, you back to the Target levels for battery gross margins or, uh, is that something you expected uh, next year?
Margin and, uh, we're working, uh, to further improve the battery cost structure. Other than that, uh, we cannot elaborate at this stage.
Thank you. And our next question comes from, Moses Sutton with BMP parabas. Please go ahead.
Hey, thanks for squeezing me in at great to see, gross margin improving further. Um, how much is elevated? Warranty still impacting margins? So I could put differently how many more like hundreds of basis points? Can you get back just as these issues debate? I noticed there's still some negative flows for warranty in the cash flow from operating section. So you're trying to figure out how that can benefit you longer term.
What what we can say is that the quality of a product, uh, is improving. We see that, uh, continuously and we expect to continue seeing that. And again, with an axis, which provides a simplified product structure, uh, and a more singular SKU structure that going to even further improve.
Um, beyond that we don't provide a specific guidelines or guidance towards the warranty impact.
Uh, but overall again, uh, the serviceability of the product, the solubility of the product.
and the quality of the product is improving, so naturally, uh, that should have a
An ongoing positive trend going forward, but that's the the warranty impact.
Thank you.
Thank you. And once again, if you would like to ask a question, please press the star and 1 on your telephone keypad now.
And we will take our next question from Philip Chen with Roth Capital Partners, please go ahead.
Hey guys, thanks for taking my call up. Um, you know, you guys were just talking about the inventory being mostly cleared in Europe. Um, and you talked about price actions, you know, on, uh, you know, perhaps at um, uh, Case by case basis. Uh, but just was wondering, you know, we, we heard that you guys may have cut pricing in Europe last week effective, August 1st by 10% and so was wondering um, can you affirm that at all? Uh, and um, and if so, you know, was it across the board or perhaps just for um, certain countries or just some customers? Thanks.
Thank you Phil, for bringing it up. So, so just to make sure that we are clear about this thing. We, we did not uh, take any pricing action in Europe last week or for that matter recently. And what I was referring to and maybe what you heard about is at the end of the day, um, the way that the market flows is we are selling to Distributors, they are selling to installers. Maybe there was some local promotion that people might interpret that as as a price move maybe there was some other things that we that that we or the channel initiated. But overall, um,
We we, we haven't.
Implemented. Any price move in Europe recently.
Yeah, appreciate the detail. Thank you.
Thank you, and it appears that there are no further questions at this time. I will now turn the call back to management.
So thank you everyone for, for attending this call. As, as we said earlier, we are very pleased with the progress, but we have our work cut out for us and we are going to continue working. Very, very hard. In order to continue making progress in our turnaround story. Thank you very much.
Thank you. This does conclude today's presentation, thank you for your participation. You may disconnect at any time.