SEDG CC notes

Here is my first CC notes review!…
All material contained in the webcast is the sole property and copyright of SolarEdge Technologies, with all rights reserved

Which I have found may not be legally binder per a court ruling……
I will add some transformative comments.

I’m happy to report that we concluded our first fiscal quarter with strong results. We are reporting record revenues for the quarter of $150 million. Our gross margin was 29.1% and most important, we show a record GAAP net income of $14.4 million and a non-GAAP diluted earnings per share of $0.36. We continue to generate positive cash flow from operations…

We improved our gross margins and profitability, while remaining within our plan for 7.5% to 10% price reduction for the year, which we believe supports our goal to increase market share. These improved gross margins are a result of effective cost reductions, which will continue to be a focus for our R&D team…

As our business grows, we continue to diversify our customer base. Aggregate revenues from our top five customers continue to decline quarter-over-quarter. Over the last four quarters, the percentage of our revenues from our top five customers went down from 57.3% in the quarter ended on December 31, 2014 to 46.4% this past quarter. This quarter, we also received first orders from Energy Home, yet another leading installer in the United States

That is good news.

I want to take this opportunity to address some additional noteworthy metrics. In many of the markets in which we are active, residential and commercial alike, we are seeing continued growth. Our quarter-over-quarter growth was 16.9% and our overall year-over-year growth was 71.8%. In addition to our continued decrease in sales in the United States, we also continue to expand sales in Europe. In Germany, shipment increased by 59% in megawatts quarter-over-quarter and we also saw healthy growth in the UK, France and Italy

This is could be noteworthy as Germany cut their subsidies a while back as they became unaffordable. Of course if the increase is off a small base it could be meaningless.

In the UK, where the solar energy market has been on an upward growth trend, the government announced a very significant reduction in (inaudible) effective as of 2016. As such, we expect that the UK will continue as a large market for us for the remainder of calendar 2015, but we expect it will shrink thereafter.

A possible fate in the US as 12/31/16 approaches.

We see our market share in the commercial markets growing in both Europe and the United States…

Also new to our business this quarter are several multi-megawatt community solar projects in the US. Community solar arrays are centralized ground mounted solar facilities shared by individual community members who receive credits on their electricity bills for the power produced.

Might have legs after subsidies end?

This quarter, we introduced our new HD Wave inverter technology. As we previously announced, we have developed a noble pairing inversion topology that represents one of the most significant leaps in solar technology in the past 20 years. Our new HD Wave technology increased the inverter’s efficiency to 99%, reduced the size and weight of the expensive magnetics and heat dissipation component, typical in today’s inverters and is completely electrically capacitor free, a break-through for high-power single phase inverters

So even if the pie shrinks, their piece might getter bigger and allow the strong growth at the expense of others like Enphase.

As storage products become commercially available, our inverter provides a very attractive offering. Our fixed spring voltage technologies allow for seamless disintegration with high-voltage batteries. This enables the installer to easily add storage capability to an existing solar system, using a single inverter operating in either self-consumptions or back-up modes

That is “we are ready for Elon Musk’s Gig factory output”.

Next there is a big discussion of first quarter results, which we can understand are good based on the stock price move.

G&A expenses increased to $3.4 million this quarter, a 50.9% increase compared to the previous quarter and 194.9% increase year-over-year basis. This increase in G&A expenses is mostly a result of a one-time charge from an accrual for a doubtful account related to an overdue payment of the customer, as well as to final adjustments of our G&A expenses related to being a public Company. We do not expect our G&A expenses to continue to grow at this pace going forward.

Hopefully they don’t get into a habit of selling to bad customers or worse, loaning them money to buy their product like in the tech bubble days.

Our guidance for the second quarter of 2016 is as follows. We expect revenues to be within the range of $118 million to $121 million and we expect gross margins to be within the range of 28% to 30%

Next is the Q&A session.

Q: yours and a large customer of yours just in the past week. Can you comment on what you guys are seeing in the broader market trends for US resi specifically? Are things slowing, as some are suggesting? I would be curious what your direct large installer customers are saying, as well as what you’re hearing from the distribution channel.

A: It was a surprise for us that from what we see, we believe that the total market next year will grow over – the residential market I’m specifically talking about – will grow over the total market this year. That’s at least the indicators we are getting when we aggregate the information from all the customers we work with. So I’m not sure I can add to – more data besides what I’m sharing now.

Q: you guys have growing megawatts as a triple-digit year-on-year growth rate for a little while here. Fiscal Q2 for you looks like it’s going to be up around 80%, if my math’s right. So if the market is up another, let’s say, 50% in 2016, where would you expect you’d settle out relative to that?

A: I think that I would expect that we’re still taking market here in the US, so I think that we’ll overcome the growth of the market by probably 10% to 15% . I think that that should be something which I believe is doable when I look at our current market share and what I believe can achieve next year with the new product that we just launched.

So exceed if the market grows 50% in 2016, they grow 60-75%, which I think is lower than recently?

Q: And then lastly, again on ASPs, one of your peers being very aggressive here and vocal about it, for 2016 are there any indications you’re getting from customers with that in the backdrop? Is it another 7.5% to 10% ASP decline that you’re assuming for 2016? And what kind of indications give you comfort around that at this time?

A: That’s our assumption since the beginning of 2015 and we feel that that’s still the right assumption for 2016. Of course, it’s easier to predict the next coming two quarters than to predict the end of 2016, but I feel comfortable that these should be the numbers for next year.
Related answer: And I’m very confident that next year our cost reduction plans will overcome the ASP erosion and that we’ll execute the plan that we described since the road show of improving our gross margin more or less in the same pace as we did in the last couple of quarters. And we’ll reach above 30% pretty soon

So average selling prices continue to decline but they said earlier they intend to make up for it in efficiencies. And of course Volume! Volume! Volume!

Q: You mentioned a doubtful accounts accrual in the quarter. Can you quantify the size of that accrual and provide some color in general? What happened and do you see more ahead? And then what kind of G&A should we use as a kind of normalized level?

A: Basically this is related to one single customer, which is simply late on payments. And given the fact that this is not something that we usually see, we decided to be cautious here. It is not something that is widespread or that we saw, let’s say, from one single market or a phenomenon that we start seeing. It’s related to one single customer.
In essence, the number was approximately $600,000. And in general, we do believe that again, as we said before, and we keep executing on this, is that with the exception of these kind of one-time events, G&A expenses, such as all other operating expenses, should not grow faster than the growth of the revenues. So we do not expect this growth of G&A and we do not expect the reoccurrence of such expenses in the G&A. But of course, sometimes customers have problems to pay promptly and we want to be responsible in the way that we account for this.

Q: pricing pressure, China, etc…
A: We see very little in the market we’re active in. We see relatively little pressure from Chinese low-cost inverter players. In some markets, you already see that the portion of the Chinese inverters in a market like Netherlands, Australia, are going back down. People have lots of experience and so far a not very good experience with this type of low-cost inverters. And their market share is moving back to a smaller and smaller market share.
In the US, we do see that Huawei is getting stronger in commercial, but not yet can we see any influential market share in the residential space.

I still hate Huawei :wink:

Q: (about international sales:
A: (growing market all over Europe. Good signs in Japan. Starting in Auz)

Q: … Can you tell us when do you expect the (HD WAVE) inverter to ramp up to volume…

A: We believe that to fully ramp it up will take three quarters. So I would expect it by the end of Q3 80% to 90% of everything we’ll ship will be already the new HD technology inverter. We’re very mature with the production stages and I believe that the ramp up will be quite smooth.
The only thing that can in a way reduce these percentages, if we’ll see demand, which is dramatically above what we’re expecting. But if we estimate the demand properly, I think that we’ll be able to almost fully ramp up to – we’ll be able to ramp up to 80% or 90% in three quarters.
As for cost, you understand that we won’t share this in great details, but I can tell you that the potential is overcoming in a big way the 7.5% to 10% ASP reduction that we believe we’ll have to offer during 2016


Q: And then just kind of taking a step back, there’s some people say that the growth in the US residential market is strictly on account of the third party owned market. So what is the growth strategy kind of outside of that market? And what can you do to continue diversifying the business mix and create just a more kind of multi-pronged growth story?

A: Probably the first, what we believe seeing the market, and I think also seeing in data coming from analyst groups, you said the commercial – small, medium and large commercial is probably would be the most growing segment in the coming two, three years. And big portion of our R&D activities are into developing larger three phase inverters and we believe that we’ll be able to take bigger and bigger market share in the commercial. So this covers, and it’s overcoming the way the third party ownership fleets that you mentioned.
In addition to that, we are in the final process of getting approval to sell our three phase inverters in Japan. That will, I believe, will open up the commercial market in Japan. We are entering now into Poland, which is a new market in Europe, South Africa and all the storage potential. So I think that we are very much – we have great new opportunities and a potential to grow into new markets and new segments. And I think that this should much more than overcome any difficulty that might happen in the residential market in the US.
My personal opinion, by the way, is that in 2016 the resi market in the US will be very strong due to the fact that everybody that can will do it pulling from 2017, but that’s my personal opinion.

Yep, that is how it works, but that hurts 2017 and they will have strong earnings but maybe weak guidance. The market looks ahead 6 months. Buy Dec Puts in June? :wink: