Conference Transcript - SEDG 2026-05-14

Speaker 2

Good morning, everyone. We're live now for our second phase. You are in the meeting now. It's Solar Age. I have Shuki, the CEO. Hey, good morning, Shuki.

Yehoshua (Shuki) Nir, CEO

Hey, good morning. How are you doing?

Speaker 2

Good. I think we can probably start as more people with John. We have about 20 minutes, so let's go fast, actually. Maybe let's just start. I mean, you had the one curiosity last week, so it's still very fresh, I think, in one mind here. Maybe let's start with the European market view. We just had the, you know, financial chart was in phase, touch base on that. I think you guys have very similar observation of the market in the last two months, but can you talk about that inflation problem that you have seen on the market and how do you view that trend to further materialize? Maybe especially, you know, if the Middle East impact maybe fades away a little bit, do you expect a sudden reverse side of that enthusiasm in Yaroa, but do you expect that you remain?

Yehoshua (Shuki) Nir, CEO

Yes, thank you for the question. So as we said in our earnings call, March, we've seen an increase in inductivity, which was stronger than expected seasonality, and the very same trend continued into April. And from what we could feel and what we hear from the channel In the last week since our earnings call, it continues the same, continues to be the same. And, you know, definitely the geopolitical situation and the high energy prices are raising a short-term concern that does impact residential as well as CNI customers. And you can see an increase in demand. But our assumption is that this will continue. You know, people are concerned about the lasting effect of something like that happening. independence, you know, energy independence, if you will, at the personal level or at the business level is something that is very, very important. And electricity prices are on the rise because the fundamental demand is growing. So it is, you know, here we saw an accelerated increase, but our view is that going into the future, electricity prices are on the rise and therefore the demand for solar will continue growing can you talk about maybe um resi versus cni i mean you mentioned you've seen it in both but do you see like an acceleration that is faster in in um in residential maybe because of the fear or or um maybe like similar so what we're seeing is is and again keep in mind that it's been only two months and yeah i would say that a lot of the electricity the the rising the rising prices in electricity are not yet reflected in the market, so it will take a little bit more time for them to flow through the system. We're seeing it in both Resi and CNI. I would say that in CNI, what we're seeing that is actually growing even faster is the attack rate for batteries. We introduced our next-gen storage solution for CNI, and we're seeing strong demand for that, and not only for our solution, but actually for the entire market. So that's something that is very evident on the CNI side. On the residential side, maybe because the attach rates had been high even to begin with, you know, then the impact is not as strong as we were seeing on CNI on the storage side. But on the PV plus storage, definitely an increase in both. Which country are you seeing or are you expecting the most benefits? benefit yeah i mean obviously you know you have netherland um and then some of that retrofit laws i think france um is very strong in germany as well so so for us we call it dark it's deutschland austrian and switzerland yeah not only right and then so so we refer to it as one region it that has a lot of commonalities over there we definitely see a strong increase in demand for both Resi and CNI. We have a large install base. We have plenty of opportunity in DAX. We are launching Nexus in DAX first. And our entire Q2 supply is already booked, was already booked, you know, two or three weeks ago. So we are very happy with what we are seeing over there. In the Benelux, you know, the Netherlands and Belgium, what we are seeing is with the expected expiration of feed-in tariff towards the end of the year, We see a very strong activity around upsell to the install base. Our install base in the Netherlands is almost 800,000 homeowners, but by far the largest install base in the country. And, you know, we've engaged in different activities in order to come to these homeowners and offer them the ability to upsell to a battery and in some cases to improve their system. Italy is very strong on the CNI store website, actually. We're seeing that as something that is growing for us. And to be honest, one of the things we've decided about six months ago that we're going to be very focused. So we are not going in all 20 or 30 or 40 countries that you can find in Europe, but actually on the top markets where we have the opportunity to make a major impact while growing there. So the countries that I mentioned are the main focus. We also have the UK, Poland, and France as well. But we are trying to be in a limited number of countries to have controlled expense level, but at the same time to maximize the impact that we're getting from the market that is actually working up now.

Speaker 2

And then, so you mentioned like launching Nexus, right? I know you guys are very excited about the project. So maybe let's chat a little bit on that one. Is that just, you know, say, yes, CNI first? Are you going to launch it as well? Just give us something like that and the timing as well that you expect to start seeing the benefit of it.

Yehoshua (Shuki) Nir, CEO

Yes, I try to be aware of time. I can give you five minutes just on Nexus. Because I can think about Nexus for 20 minutes and I'm so excited. But, you know, Nexus is a platform. It's a solution that was built from the ground up for today's market. So it's not a PV only. It's a PV plus storage plus the intelligence that is required in order to optimize the energy between grid, battery, you know, the main loads in the house. And it's a Resi solution. It's a global solution. We were launching it first in Germany. Then we're going to roll it out to the U.S. and to the rest of the world. We expect that by Q1 2027, 90% of our Resi sales are going to be next. Next, it says many advantages to the homeowners, many advantages to the DPOs, to the installers. We've talked about them, but it has fundamental financial benefits for SolarEdge. The first one is it's a better cost structure than our previous generation. Secondly, it is going to be manufactured in the U.S. with the Aira benefit that is associated with that. And thirdly, because it's a new product, we've been able to actually sign many safe harbor deals with the TPOs that are based on a product that is just being launched. And therefore, it's going to be modern, applicable, and very efficient for the market, not only today, but actually four or five years from now when they're going to be installed. So there is excitement from everybody, mainly from the installers, actually. I'm actually positively surprised by the very warm welcome we got from the installers for this product.

Speaker 2

Great. Maybe I wanted to go back on geography. I mean, obviously, you know, it's Europe and the U.S. for your main market, I would say, but you have some other international markets as well. Can you just talk about what's your strategy? I mean, you have your manufacturing footprint in the U.S., which obviously makes sense with the 45X, and then just for anyone maybe a little bit newer to the such story here, any product in the U.S. can be dispatched, you know, even to Europe and you still benefit for that 45X. But, you know, there's a lot of moving pieces on geopolitics, as everyone knows here. Does it make you rethink maybe your strategy? I know as well, you know, when Europe is not doing well, I think you get the question from investor, don't you want to exit Europe, you know? So maybe just tell us how do you view things here?

Yehoshua (Shuki) Nir, CEO

Yes. So SolarEdge historically operated in many, many countries around the world. Towards the end of last year, we had made a strategic decision that I was alluded to earlier. We had stopped selling in many countries that were not having a good ROI for us. SolarEdge is selling in 20 countries globally. So it would be the U.S., right, and then call it 10 to 12 countries in Europe and another seven in Asia. Asia-Pacific, and that's it. And that allows us actually to have not only the ability to gain market share in each of the countries that we operate in, but actually to apply the single SKU concept that we initiated. The single SKU concept is very good for us because the supply chain is now streamlined. We're making one product for single phase, one inverter for triple phase, and one battery And it's very good for the distribution partners as well and for the homeowners. So for all of these reasons, we are having one global strategy. Now, so that's on one hand. On the other hand, you want to be local because we have local teams. In the U.S., the competition landscape, the competitive landscape is different than in Europe and Asia. So we have to adjust to the different types of competition. But as is evident from the last two months, while the resi market in the U.S. is not necessarily that strong, the CNI market in the U.S. is good. Our position over there is structurally much, much better. But Europe and Asia, for that matter, are kind of compensating for the short-term softness in the U.S. So we feel that we have a good balance between U.S. and international. There are benefits for all the markets that we are working in, and we have to be a serious player in each of the markets that we operate in in order to maximize the benefit for our customers and, by definition, to generate the returns that we are expecting.

Speaker 2

No, that makes sense. To rebound on your comment, I mean, the CNI market in the U.S. has been pretty good, actually. It was pretty strong, German. Is there like a scenario where you would maybe want to, maybe not exit, but let's say slow down your U.S. RISI exposure and just slowly focus on CNI here in the U.S.?

Yehoshua (Shuki) Nir, CEO

No, our strength in the CNI is something that we've invested in quite a lot. We have, from a product perspective, there are many good reasons why our CNI solution is very, very good. For the U.S. specifically, we have structural benefits, both because of FIOC compliance and the domestic content compliance. There are three main leaders in rooftop CNI. The other two leaders do not comply with FIOC and domestic content. And because of that, the large CNI customers are choosing SolarEdge. And we are seeing it both in terms of bookings, in terms of safe harbor transactions, and in market share. Our market share is as high as it has been. And that being said, the opportunity for us in Resi is still very high. We have more than 30% market share in the Resi solar. We are going to gain share on the storage side of the house. Our relationships with the TPOs, when that softness is going to be removed, is going to pay dividends for us. And we are definitely excited about that opportunity as well.

Speaker 2

That makes sense. um maybe i mean then maybe quickly still on the us ready like on the tpo right i mean we have had that transition right from the 25d i know you have very limited um exposure here but any any view on the market trend and you know how is that shaping for tpo here yes i i think like like you said the 25 the elimination of 25d was something that everybody expected it happened at the end of last year, and that half of that segment of the market was expected and did decline indeed.

Yehoshua (Shuki) Nir, CEO

What people, and we as well, didn't expect is the slowing tax equity investments. And that's a result of the PFE and other things that you and your audience are very familiar with. That actually put some strain on the entire ecosystem, whether it's the TPOs or the installers. and we've seen some unfortunate bankruptcy and difficulties and challenges that were a result of that. We hope, and if we hear from other players in the market who are more familiar with the investor side, that this situation is going to be resolved in the second. Either by Treasury having a better definition or by investors finding ways to comply with the not that clear kind of definition of PFE. And when that happens, SolarEdge is well positioned to capture the market share that we deserve because our engagement with the TPOs is there. And we are confident that the product benefits and the engagement benefits that we're bringing with them is going to serve us in the long term. And one of the ways that we ensure that for the longer term is the safe harbor deals that we have signed and that we continue to sign with TPOs as well as with CNI customers. But with the TPOs, we are signing these transactions in the vast, vast majority of them with a physical work test that allows them to pull the product only when they need it and not just to sit on inventory for the next three or four years.

Speaker 2

Makes sense. Maybe, sorry, you mentioned something and I wanted to rebound on that and I lost my thought. But let's go on the safe harbor. I think, you know, can you talk about how much you have already secured?

Yehoshua (Shuki) Nir, CEO

And then, Ithana, do you have an expectation in terms of like revenue recognition cadence as we go through the year? yeah so so as we as we've said the vast vast majority of the safe harbor deals that we are signing us our physical work test so and and the revenue that we reported in q1 and the guidance that we have in q2 do not include any significant pull forward and and that's important to note because it's it's the natural cadence of our business that that we are selling to our channels And the physical work test, the way that it works is that we are signing with our customers agreements today. These are binding agreements. They have the price, the quantity, and liquidated damages in case they don't want to take the product. So they do take it seriously. It's not something that they are just signing because they don't care. And the benefit that that brings is because we have good visibility into future revenue and future market share. We can plan our manufacturing footprint accordingly, and they are able to pull it at the time that they need it. So we will recognize revenue only when the customers are pulling the product for their planned installation. And obviously, at that point in time, we'll recognize the revenue. So it's not that we are expecting spikes in revenue in the next four years. We're expecting the safe harbor deals to actually translate into a normal cadence of revenue that we are actually very, very optimistic about.

Speaker 2

I mean, maybe also another point, like your price strategy, your pricing strategy, some of your peers have cut some of their price to, you know, I think more like I'm trying to remain competitive, especially on market that they're trying to enter. So maybe a little less relevant for you, but how do you view just like the pricing profile over the next, you know, I would say maybe 12 months for you guys?

Yehoshua (Shuki) Nir, CEO

Yeah, so first I'll comment on what we're doing now. Then 12 months is into the future. But at this stage, we have not made any significant pricing change. We don't see a need for that. As we mentioned, our entire supply, initial supply of Nexus is sold out. We are having demand for even more. So we believe that when you bring value to the customers, they are willing to pay a premium for. And our goal is actually to be able to not to give up on pricing, but actually to add value to the customers. And by doing that, to gain additional market share. I'd like to remind you that if and when we need to do something like that, we have the room to do it. because Nexus has a built-in lower cost structure and we're going to make it all in the US. So from that perspective, at this stage, we feel that we can continue to, or we can gain market share with Nexus without the need to compromise on price. That's good to hear.

Speaker 2

I know we're coming up on time. Maybe what would you say to investors? You know, I think investors are pressing on gross margin profile and, you know, break-even, like operating income being on break-even. Any message you want to share here with them?

Yehoshua (Shuki) Nir, CEO

Yes. So what we've been doing in the last year and a half is slowly but surely putting the foundations for our turnaround and then for our profitable growth. We've stabilized the company. And now at this stage, we have six quarters, if I'm not mistaken, of consecutive year-over-year revenue growth, gross margin expansion. And we intend to continue doing that with the midpoint of our Q2 guidance. If you look at the midpoint of the Q2 guidance, we're approaching break-even point. Our intention is actually to go beyond that point and become profitable like any other company. And we see very good reasons, or we see good reasons for us to continue growing, you know, with the introduction of Nexus, gaining additional market share, the introduction of the second generation of our storage for CNI. And there are very, very good reasons why we are optimistic about what we are doing. And we invite investors to join the ride.

Speaker 2

Great. I think that's a good message. I know we're right on time. I think you guys have many more meetings with investors. And then I believe you guys will be as well in Munich, right, in about a month at the Intesara. So maybe, you know, if anyone is going there, they can meet with you as well and see the products. So that would be good.

Yehoshua (Shuki) Nir, CEO

Thank you very much.

Speaker 2

Thank you, Shuki. Have a good day. Have a good day, everyone.

Yehoshua (Shuki) Nir, CEO

Bye-bye, everybody.