Solaredge Technologies, Inc. Q1 FY2025 Earnings Call

Hello, and welcome to the SolarEdge Conference Call for the First Quarter Ended March 31, 2025. This call is being webcast live on the company's website at www.solaredge.com in the Investors section on the Events Calendar page. This call is the sole property and copyright of SolarEdge with all rights reserved in any recording, reproduction or transmission of this call without the expressed written consent of SolarEdge is prohibited. 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 J.B. Lowe, Head of Investor Relations for SolarEdge. Please begin.

Good morning. Thank you for joining us to discuss SolarEdge’s operating results for the first quarter ended March 31, 2025, as well as the company’s outlook for the second quarter of 2025. With me today are Shuki Nir, Chief Executive Officer, and Asaf Alperovitz, Chief Financial Officer. Shuki will begin with a brief review of the results for the first quarter ended March 31, 2025. Asaf will review the financial results for the first quarter, followed by the Company’s outlook for the second 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, 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. 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 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, slide presentation, 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 US GAAP. Listeners who do not have a copy of the quarter ended March 31, 2025 press release or the supplemental material may obtain a copy by visiting the 'Investor Relations' section of the Company’s website. With that, I will turn the call over to Shuki.

Thank you, JB. Good morning everyone and thank you for joining us today. Before we begin, I want to welcome Asaf Alperovitz to the SolarEdge team. Asaf has extensive financial and operational experience, and I’m confident he will play a key role in executing our turnaround and achieving our full potential. Now to the business. I will start by discussing our progress on the four strategic priorities we set for this year. Then I’ll explain how we are addressing the impact of the recently imposed tariffs. Finally, I’ll share my views on the state of business across our key regions. Let’s begin with our priorities. Last quarter, I outlined four key priorities that will drive the SolarEdge turnaround and position us for sustained long-term growth: first, strengthening our financials; second, regaining market share; third, accelerating innovation; and fourth, ramping up our U.S. manufacturing. I believe our first quarter results and our outlook for the second quarter indicate significant progress across all four priorities. First, regarding financial strength. In Q1, we achieved quarter-over-quarter and year-over-year revenue growth, increased our gross margins, and reduced our operating expenses. We celebrated our second consecutive quarter of positive free cash flow, despite facing a more challenging global environment. We are continuing to focus on operational efficiency. Last month, we sold one of our battery manufacturing facilities in Korea and recently divested our tracker business, which will lower our operating expenses without significantly affecting our revenue. Our second priority is to recapture market share. This endeavor covers various regions, product lines, market segments, and customer types. Starting with the U.S., in 2024, Wood Mackenzie recognized SolarEdge as the leading inverter supplier in the U.S. for rooftop solar installations. We attribute this recognition to our customer focus, leading technology, strong service and support, and improved product quality. In the U.S. residential market, we’ve noticed a continued shift towards the TPO model, where our domestically produced inverters and optimizers qualify for the 10% domestic content adder. Demand for our residential batteries is also increasing due to changes in section 48E and our growing involvement in VPP programs, with over 35% of our battery-attached sites participating in one of 28 VPP programs through our TPO partners or directly. A similar trend towards domestic content in the C&I sector offers us a competitive edge and the ability to gain share in this expanding segment. Enterprise accounts are increasingly important in the C&I market. We are well-suited to meet the complex requirements of these customers who seek efficient, cost-effective energy generation and hold their vendors to the highest standards. We are seeing a healthy pipeline of opportunities in the enterprise space and have already signed several agreements. For instance, we recently entered a multi-year strategic partnership with a leading global logistics real estate firm, planning to integrate SolarEdge products across its global portfolio. In Europe, we cautiously optimistic about our market share position improving. Strong point of sale data and positive feedback from our channel partners suggest promising results from our pricing and promotion efforts. Notably, we have seen strong sell-through in Germany and the Netherlands. In the Netherlands, our upgrade campaign, which replaces PV-only inverters with a backup inverter and two batteries, shows positive momentum as the country approaches the elimination of net metering. Now, regarding our third priority, accelerating innovation. The Intersolar event starts tomorrow in Munich, and if you’re attending, please visit our booth to learn about our latest products. We are on track to launch our new Nexis platform by the fourth quarter of 2025. At Intersolar, we will showcase live production data from our three-phase inverter Alpha sites, along with our single-phase and scalable storage solutions. We’ve announced that our SolarEdge ONE Controller for Residential complies with Germany's regulation 14a, which applies to most new installations, creating significant opportunity in the German residential market. On the C&I side, we're launching new EV charging hardware and software that cut costs for businesses and integrates into the ONE for C&I energy optimization platform, now available to all SolarEdge customers. Our commitment to meaningful innovation sets us apart and we are proud to have been recognized by VDE Renewables for our technology’s efficiency and safety advantages. Their report confirms our advanced safety solutions prevent fire hazards and exceed global PV safety standards. Regarding cybersecurity, VDE highlighted that SolarEdge exemplifies robust cybersecurity mechanisms necessary to mitigate risks, aligning with international best practices and underscoring the growing need for security within the solar sector. Our fourth priority is to boost our U.S. manufacturing. In Q1, we advanced our plans to increase the production of U.S.-made products, creating nearly 2,000 jobs and achieving a capacity of 70,000 inverters per quarter, including our first domestic C&I products. Now, let’s discuss our strategy to manage the impact of the recently imposed tariffs. Our U.S. manufacturing presence positions us well in the current tariff landscape. We have already reshored manufacturing to the United States, allowing our operations team to concentrate on alternative sourcing and supply chain optimization. Until we fully optimize our sourcing, the new tariffs, including a 145% tariff on products from China and 10% on imports from other countries, will adversely affect our financials. In Q2, we anticipate a limited 2% gross margin reduction due to existing non-tariffed inventory in the U.S. In the latter half of the year, assuming the same tariff rates, we expect a gross margin impact of 4% to 6% after pricing adjustments. Our team is actively working to diversify our supply chain, and we have already implemented several measures that we believe will limit the gross margin impact to 2% in Q1 2026, with the aim of negating the entire impact later that year. The tariffs will also affect our cash flow. Last quarter, we projected positive free cash flow in 2025. With the new tariffs, we expect our cash flow to be approximately breakeven for the year. In terms of our regional performance, our Q1 sell-through totaled around $370 million. In North America, our sell-through declined by 18% quarter-over-quarter, largely due to seasonal effects, although channel inventories have largely normalized. While uncertainty in the U.S. market exists due to potential policy changes and tariffs, the fundamentals for solar and storage remain strong, with increasing power prices and rising battery attach rates. In Europe, sell-through increased by 6% quarter-over-quarter, and we expect most distribution partners to have normalized inventory levels by the end of Q2 2025. In summary, we are still early in our turnaround journey and have significant work ahead. The numbers reflect the progress we’ve made, but it’s the energy within the company, the pace of innovation, and the conversations we’re having with our customers that give me the most optimism. Now, I will hand it over to Asaf.

Thank you, Shuki, and good morning everyone. I am very excited to join SolarEdge at such a pivotal time for the company and to support the execution of our turnaround plan. A little bit about myself: I have an extensive accounting and operational background with over two decades of leadership experience with global companies that includes transforming organizations and leading financial strategy. Most pertinent to my new role here at SolarEdge, I have significant experience with global industrial manufacturing organizations, so I am well versed in logistics, supply chain, and operations, and I am excited to apply this experience to help drive operational and financial excellence here at SolarEdge. Turning now to the quarterly results: Total revenues for the first quarter were $219.5 million. Excluding revenues from our discontinued operations at the Kokam Energy Storage division of $7.4 million, our Non-GAAP revenues were $212.1 million. Revenues from the U.S. this quarter amounted to $132.1 million, representing 62% of our Non-GAAP revenues. Revenues from Europe amounted to $47.4 million, representing 22% of our Non-GAAP revenues. International market revenues amounted to $32.6 million, representing 16% of our Non-GAAP revenues. On a megawatt basis, we shipped 642 megawatts to the United States, 324 megawatts to Europe, and 242 megawatts to the international markets, for approximately 1.2 gigawatts of total shipments, which is the highest shipment level we’ve had since the third quarter of 2023. Fifty percent of total megawatt shipments this quarter were commercial & utility products, and 50% were residential. ASP per watt was $0.173, down 17% from Q4. Lower pricing in Europe and a lower optimizer to inverter ratio drove the quarter-over-quarter decrease. In Q1, we shipped 180 megawatt hours of batteries, with the majority shipped to Europe. Our blended ASP per kilowatt hour on all PV attached batteries was $267 in Q1, which was up from $262 in Q4. This increase is largely due to mix. Non-GAAP gross margin this quarter was up to 7.8% compared to negative 39.5% in Q4. Non-GAAP operating expenses for the first quarter were $89.1 million compared to $106.8 million in the previous quarter. In the first quarter, we were able to collect certain aged AR balances, which resulted in a reversal of an accrual for bad debt. Excluding this amount and other non-recurring items, our non-GAAP operating expenses would have been approximately $96 million. Non-GAAP operating loss for Q1 was $72.4 million compared to a non-GAAP operating loss of $184.1 million in Q4. Our non-GAAP net loss was $66.1 million in Q1, compared to a non-GAAP net loss of $202.5 million in Q4. Non-GAAP net loss per share was $1.14 in Q1, compared to $3.52 in Q4. Turning now to our balance sheet: As of March 31, 2025, our cash and investments portfolio was approximately $794 million. Our cash position, net of short-term debt, was approximately $455 million. Net of total debt, this amount was approximately $113 million. This quarter, cash provided by operating activities was approximately $34 million. Net of approximately $10 million in CapEx, and excluding $3.8 million of positive cash flow from discontinued operations at the Kokam Energy Storage Division, free cash flow generated in the quarter was approximately $20 million. This is the second straight quarter of positive free cash flow generation, which is a direct result of our focus on working capital management and control. As Shuki mentioned, considering the incremental impact of newly introduced higher tariffs, we would expect to be approximately free cash flow breakeven for the year. AR net decreased this quarter to $133 million compared to $160 million last quarter. We are working closely with our customers and continue to focus on DSO improvement through effective collection management. Our inventory level, net of reserves, was $637 million, compared to $646 million in the previous quarter. Q1 marked the fourth consecutive quarter of inventory reduction. This is despite our continued ramp of U.S. production to support anticipated growth and the introduction of new products. During the quarter, we consumed roughly $60 million of finished goods from existing inventory. Turning now to our guidance for the second quarter of 2025. We are guiding revenues to be within the range of $265 million to $285 million. We expect non-GAAP gross margin to be within the range of 8% to 12%, including approximately 2 percentage points of new tariff impact. We expect our non-GAAP operating expenses to be within the range of $90 million to $95 million dollars. I will now turn the call over to the operator to open it up for questions.

Thank you. Your first question comes from Christine Cho with Barclays. Please go ahead.

Good morning. Storage was quite strong this quarter. Can you just give us an idea of how much commercial storage is growing within this? And then given that some of your peers in the U.S. are going to be subject to very high Chinese tariffs and your price increases, can you talk about what your strategy is going to be given I don't think that you have some of the same issues? And then if you can also just talk through your new battery rollout, if timing is going to be impacted at all because I do believe that uses lithium cells.

Thank you for your question. So you started with the commercial battery. And as you know, we are not detailing specific numbers about specific products. But overall, as we indicated last quarter, we are pleased with the growth of that category for us, and we are seeing increased attach rates for commercial batteries in different countries in the world. As it pertains to the U.S., I assume that you are referring to commercial batteries or to batteries in general, and over there we are also seeing an increase in attach rates of batteries. The new battery that you are referring to, if I'm not mistaken, is the Nexis one, which is on the residential side. Over there we expect to start shipping towards the end of the year in the fourth quarter, and we believe that the solution we're going to introduce is going to benefit our customers immensely, both in terms of PV, as well as the combination of PV and storage, as we develop the battery together with the inverter to be an optimized system.

When you talk about your 4% to 6% impact on gross margins from the tariffs, can you give us an idea of how much of that is from China versus other regions?

So, the guidance or the estimate that we provided is based on the currently known tariffs of 145% for products coming from China and 10% for products that are coming from other markets. This is how we base the calculation. The impact on products and components coming from China is much higher than from other countries. At the same time, as we said, our supply chain team is working diligently to find alternative sources, as well as to optimize our supply chain based on whether it's coming from China or from other places to provide us with supply chain friendly sources while maintaining quality products.

Thank you. And your next question comes from the line of Colin Rusch with Oppenheimer. Please go ahead.

Thanks so much, guys. Can you talk a little bit about your pricing strategy as you get into the mid of the year as you think about some of the dynamics around continuing to flush some of the inventory that's still in the channel and continuing to work towards improved margins? Just want to get a sense of how aggressive you feel like you can be in raising prices and holding existing prices?

Yes. Thank you for your question. So talking about pricing in general, globally speaking, what we try to do and what we will continue doing is to price our products and our solutions based on the value that we bring to our customers and based on the competitive advantage we have in specific markets. For example, when VDE appreciates the energy that we generate or the increased energy that we generate, we will take that into account and price it accordingly. Other factors in the market will impact our pricing as well. Overall, we feel that our pricing promotion in Europe is actually doing well. The feedback we received from the channel partners is that these promotions and pricing actions that we took are having positive signs, and we will continue monitoring that and adjust as needed.

Thanks. And then the follow-up here is really around the inventory reduction. So you're kind of flat quarter-over-quarter on an inventory basis. What's the right level of inventory that you guys want to be able to carry, and how quickly can you get there?

Hi. So in terms of inventory, we are consuming existing balanced inventory mostly within the European continent. We are working exclusively with the operations team and we wanted to constantly reduce it quarter by quarter. I don't think we want to provide a specific guidance or target for that, but reducing the DIO consistently is one of our main priorities.

Thank you. And your next question comes from the line of Philip Shen with Roth Capital Partners. Please go ahead.

Thanks for taking my questions. First, on pricing. I believe back in November, you guys cut pricing for your distributors. There was a 24% discount, but then there was also a 15% recovery discount. I think that recovery period might be coming to an end. Do you have plans on expanding or extending that recovery period? And then can you elaborate more or just more in general about how you expect your EU ASPs to trend by quarter through the rest of the year? Thanks.

Thank you. You referred to the price promotion in Europe. Just to clarify, we launched a campaign in Europe back in November in which we are trying to regain share. Part of it is pricing, and part of it are other initiatives we are doing to engage more installers with the solar solution and show them the value of the product and our service. As for pricing, as we indicated, we expect the majority of our distributors to reach normalized inventory at the end of Q2. We believe that once they reach that level, we will no longer have to provide the incremental pricing adjustment. These things can move from day to day, from market to market. Our pricing strategy is to be competitive in the market with a price that reflects the value we deliver to our customers. Overall, when inventory is normalized, we believe we can reduce the level of support we provide to our distributors.

Great. Thank you, Shuki. Shifting to the distributors, with the massive drop in the value of modules and batteries, do you see a shift of power from the pan-European distributors to more local distributors? What are your thoughts on that dynamic? And how could that impact the way you sell to European markets? Thanks.

Actually, tomorrow I'm heading to Intersolar in Germany and we will meet with many of our customers, both distributors and installers. I will be able to ask them that question and get a better answer than what I can provide you now. We at SolarEdge look at all our customers and channel partners—large or small—as important ones. We're trying to address their needs and work together to deliver the best products to our installers. We are the ones that seek to work with SolarEdge and choose to install our solutions for the end customer.

Thank you. And your next question comes from the line of Mark Strouse with JPMorgan. Please go ahead. Your line is open.

Yes, good morning. Thanks for taking the questions. It's Drew on for Mark. First one, going to go back to pricing here, but maybe think about it in a different way. You talked about the gross margin impact net of pricing. Can you just talk about what you're seeing in the market for the market's ability to withstand higher pricing and what that will do to demand? And then also what you're seeing from your competition in the market and how your price increases will compare to others?

Thank you, Drew. It's an excellent question. I assume you are discussing the U.S. market. As we mentioned, the newly implemented tariffs have introduced uncertainty in the market, and we have maintained our U.S. manufacturing. Thus, adjustments we need to make to our costs and our supply chain will be primarily related to sourcing and optimizing supply chains. As for pricing, we've made our estimates based on customer value perception and the competitive landscape, but we haven't seen any specific numbers or figures from our competition that I can share.

Yes. In terms of the converts, hi, good morning. Our plans are unchanged compared to last time, which is to use the cash on our balance sheet to pay down the debt fully. As you've seen in the Q report, we have enough cash to pay it given our $794 million cash balance. We're always assessing different options that may be available, but at this point plans are unchanged.

Thank you. And your next question comes from the line of Corinne Blanchard with Deutsche Bank. Please go ahead.

Hey, good morning. Thanks for taking my question. First question would be on storage; how fast can you secure more ex-China supply? Could you guys rethink your strategy regarding Sella 2 because you had that facility and it could be a relatively easy way to get more battery and not be exposed to as much tariff? Secondly, can you provide a European demand market update, what you're seeing?

Okay, thank you. Starting with your question about batteries, we provided the estimated impact of the new imposed tariffs on our gross margin in total. We're not breaking it down into specifics on batteries or other components. Our supply chain team started looking into different ways to optimize our supply chain and sourcing to ensure we deliver quality products to our customers in the U.S. Regarding Sella 2, the technology there is NMC. At this stage, we don't plan to use that facility to make battery cells.

Sorry. Just on that one, could you change that line to LFP, or would it be too time-consuming and too capital expenditures heavy?

It will require a substantial capital expenditure investment anytime, which at this stage we are focusing on what we can control and on our core. It's important to direct our resources both in terms of people and capital to the core business to make that grow and profit.

Thank you. And your next question comes from the line of Julien Dumoulin-Smith with Jefferies. Please go ahead.

Hey, good morning. This is Hannah Velasquez on for Julien. Thanks for the update. One quick question and then a follow-up. How are you thinking about the 90-day tariff pause as it pertains to your longer-term margin impact? I know you talked about improving to two points by Q1 2026, and further thereafter, but does that assume the 90-day pause on ex-China tariffs gets extended?

Yes, good morning. Our numbers are based on the assumption that the incremental tariff on products coming from China is 145% and 10% on products from other places. We did not factor any changes or extended pauses into our calculation.

Okay, thank you. Super clear. Can you also talk about how you’re thinking about any potential changes to transferability as it pertains to 45X? I assume no current changes are reflected in your guidance, but just an update there in terms of how you’re thinking about it. Thank you.

Sure. Good morning. If we experience timing issues related to limitations on the transferability of the IRA 45X tax credits, we believe we will be able to get a refund through a direct pay mechanism. Considering these credits are backed by federal authorities, we believe we can fund Poplar Bridge financing for short-term amortization if required.

Thank you. And your next question comes from the line of Brian Lee with Goldman Sachs. Please go ahead.

Hey, guys. Good morning. Thanks for getting me onto the call. I was a little bit late joining, so I apologize if some of this was covered. But when we look at the implied ASP per watt, it was lower than expected, but I think megawatt volumes shipped in the quarter were much better than expected. Did you clear out volume through price in the quarter? Or was there a higher mix of commercial versus expected in the quarter? How should we think about price per watt embedded in the Q2 guidance and for rest of the year? Is this the kind of level of $0.17 a watt that’s implied, or is that going to go back up or down?

Hi, good morning, and thank you for your question. As it relates to Q1, the explanation relates to shipments versus actual revenue recognized. We had relatively more deferred revenues this quarter due to the timing of shipments versus revenue recognition. As for Q2, we don't provide this level of detail. So that's as much as I can say.

And then maybe just on the battery side. There’s been a lot of focus around that given the tariff situations. SolarEdge is unique because you have this Samsung NMC contract. Can you update us on the status of that? Will something go towards satisfying U.S. battery storage demand this year, so you're less impacted? What’s your strategy going forward regarding sourcing LFP versus NMC, what suppliers are you planning to work with, from what regions, and what time frame?

Thank you, Brian. As we said, we do not break down the impact between different components, products, and sources. The impact we provided is a combination of all of these things. The supply chain team is working diligently to find the best solutions and optimize our supply chain to find sources in terms of price and quality. We will not compromise on quality.

Thank you. And your next question comes from the line of Austin Moeller with Canaccord. Please go ahead.

Hi, good morning. I know you've talked about Europe already, but can you provide details on the clearing of the channel given where electricity rates are throughout Europe?

Yes. Thank you. We expect the majority of our distribution partners to reach normalized inventory levels by the end of Q2. This is due to the underlying demand for solar in the market, along with the actions and promotions we've implemented to gain share. Additionally, the growth in battery attach rates is also helping us in that regard.

Okay. And just a follow-up, are you seeing substantial demand pull forward in the U.S. relative to what you expected given the risk to the investment tax credit as of January 2026? Or do you think that's being somewhat muted by current interest rates?

Thank you for that. We don't see anything of that sort. The uncertainty in the market is there. Our customers—we engage with them, and if they have specific needs or transactions, we will look into that. But as indicated, we signed a multi-year agreement with a leading global real estate enterprise. Execution on this will take several years for installing SolarEdge products in all their facilities. While there's uncertainty short term, we believe the underlying demand continues, and the need for electricity is going to keep growing.

Good morning. Thanks for taking the question and congrats on all the progress during the quarter. So first question for me, what were the Safe Harbor revenues in 1Q? And as you look into 2Q, is the revenue growth coming from the U.S. or Europe? And I have a follow-up.

Hi, good morning. Regarding Q1 portion of Safe Harbor, as we already indicated in the past, we don't break this out. In terms of Q2 revenue growth, what we can say is that there is a lower Safe Harbor amount in Q2 compared to Q1.

And is that—so the 2Q revenue growth is that coming from the U.S. or is that coming from Europe?

I don't think we can elaborate beyond what I just said. Sorry.

Okay, great. Thank you.

Again, as I mentioned before, our plans are not changed compared to last time, which is to use the cash on our balance sheet to pay down the debt fully.

Thank you. This concludes the question-and-answer session. I will now turn the program back to Shuki for closing remarks.

Thank you. Thank you everyone for joining us this morning. We are pleased with the progress that we've made, and we are focused on what we can control in this environment, and I look forward to continue updating you on our progress with the turnaround story of SolarEdge. Thank you and have a great day.

Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.