SolarEdge Technologies Inc.

 

SolarEdge developed an intelligent inverter system that is changing the way electricity is being collected and managed from Solar power systems.  It maximizes power generation at the module and lowers costs.  After a brief decline in solar markets in 2017, business started to recover and SolarEdge experienced exceptional growth.  The company has an outstanding balance sheet and it continues to invest in future products to stay ahead of its competition and to expand into markets they do not yet serve.  The recent announcement of tariffs on solar panel imports into the U.S. does not directly impact their products but it could result in short-term disruption to demand in the U.S. although the company has a solid business in the rest of the world (ROW).  The company’s products are manufactured by contract manufacturers (Flex, Jabil, and Celestica) and sold directly or indirectly to installers.

 

Ests:    1Q18   2Q18   FY18    FY19

Revs    204.8   208      847      955.5

EPS      .80       .79       3.12     3.37

 

P=55.65, Cash/sh=7.47 net of (0.92) Def Revs, additional $2.50/sh of additional NWC, TTM EPS=2.94, P/E= 19X, ex cash=16X

 

Mid Quarter Update

  • Exited position, in early June China announced significant reduction in solar installations.  See trading notes for further details.

1Q18   .87 vs .36, est .80 up from .49, tax rate 12.6% vs 3.3%

  • Revs +82% to 209.9m, GM 38.4% vs 34.0%, OM 22.7% vs 13.6%, OpInc +105%
  • CFO 64m vs 25.6m with 19.5m from non-cash WC
  • Shipped 800 MW of inverters vs 455 last year, 2.5m optimizers and 100k inverters
  • U.S. 57% of revs, EU 30%, ROW 13%, Commercial was 37% of MW
  • Top 10 customers 59.1%, 1 customer >10%
  • Component shortages continue, buffer inventory reduced air shipments q/q
  • 2Q Guidance: Revs 220-230m (+62-69%, est 208m), GM 36-38%, do not expect tax rate to substantially increase above 14% in the next few years.
  • Recently announced solution for grid services and virtual power plants, entering UPS market (Uninterruptible Power Supply) by acquiring Gamatronic Electronic Industries for $11.5m
  • Results continue to be outstanding, valuation still not representative of its growth (16X TTM EPS ex cash and earnings are more than doubling).

4Q17   .85 vs .32, est .of 65 up from .44, FY17 EPS 2.43 vs 1.72

  • Revs +70% to 189.3m, GM 37.9% vs 35.4%, OpEx 31.7m vs 20.9m, 28.7m in 3Q17, OM 21.1% vs 16.7%, OpInc +14.3%, U.S. +41% y/y, 63.6% of revs, record $, ROW +162%, growth in all geos.
  • Def Revs 34m vs 19.9m last year, Inv +20.6m q/q to meet rising sales but inventory is still only 70% of 4Q17 COGS (mgmt. wants higher to shorten lead times), still see component constraints for 2-3 qtrs, possibly into 2019 if growth is higher than anticipated.
  • Shipped 766 MW of inverters +85% y/y (60% of MW shipped to NA), >2m power optimizers and >95k inverters.  FY17 shipped 2.5 GW of inverters.  Top 10 customers 62.3%, 1 customer >10% of revs
  • In FY17, Top 3 customers were 29.9% of Revs, largest was Consolidated Electric Distributors, a large U.S. based distributor, at 14.8% of revs, no other >10% customers.
  • Guidance: 1Q18 Revs 200-210m (est 158.4m), GM 36-38%
  • Seeing Huawei power optimizers in Australia with limited functionality and relatively high prices, mgmt. feels their penetration into EU and NA could prove challenging given quality and security concerns. 
  • Continue to post strong growth, significantly outpacing analyst estimates and continues to be dirt cheap.  Interestingly 1Q guidance is for q/q growth when estimates are for a q/q decline.  Stock still looks ridiculously cheap, FY18 estimates are junk.

3Q17 .66 vs .46, est .56 up from .38, 3% TR

  • Rev +30% to 166.6m (est 159.2 up from 132), GM 35.2% vs 32.9%, OM 18% vs 16.6%, OpInc +40%, 1st time since 4Q13 that ROW revs > 50%, (ROW growing faster than US).  Non-US Revs 51% vs 33%
  • Shipped 676MW of inverters (318 in NA vs 274 in 2Q), >2m optimizers, >90,000 inverters, > than 20m optimizers since 2010 (1.5 years ago they hit 10m optimizers)
  • 2 customers >10% of sales, top 10=60%, no substantial change in competitive landscape.
  • Continue to see constrained supply on power components resulting in higher airfreight costs until 2Q18. 
  • Commercial sales (~33% of total) grew at a rate similar to residential. By end of 2018 think commercial can be 50%.  On Residential, have fully converted to HD Wave worldwide, will continue to drive cost reductions.
  • In process of launching a new residential solution for a segment they do not yet participate, new homes and housing projects (1-2.5kw inverters dominated by very cheap Chinese made inverters).  Recently announced offerings such as commercial large-scale inverter and PV Inverter Integrated Electrical Vehicle Charger are generating positive momentum and together should contribute to growth in 2018. 
  • Recently initiated legal proceedings against someone but declined further comment.  A simple Google search of "SolarEdge litigation" reveals that they sued Enphase for misleading advertising misrepresenting installation time comparisons.  
  • Tax rate in Israel is 0% until June 2018 when it goes to 12%.
  • 4Q Guidance: Revs 175-185 (+57-66%, est 149), GM 33-35%

2Q17   .55 vs .44, est .37

  • Revs +18% to 136.1m, GM 34.6% vs 31.4%, OM 17% vs 16.3%, OpInc +59%
  • Shipped 563 MW of inverters, 1.8m power optimizers and 75,000 inverters, new record
  • Results driven by modest growth in NA, significant growth in EU (Germany and Netherlands), seeing positive momentum in Japan, Australia, and India.
  • Seeing some constrained component supply, increasing shipping costs and lead times.
  • 1>10% customer, top 10 were 59.5% of revs.
  • See participating in utility scale projects in 201-2019
  • 3Q Guidance: Revs 155-165m (est 132), GM 33-35%

1Q17   .36 vs .51, est .32, ex stock comp

  • Revs -8.1% to 115.1m, GM 33.6% vs 32.5%, adj OM 13.6% vs 17.9%
  • Shipped 455MW of inverters vs 416MW last year, just under 1.5m power optimizers and 58,000 inverters
  • 2Q Guidance: Revs 120-130m, GM 32-34%
  • Rollout of HD-Wave inverters continues as planned, improving efficiency, reliability, and significantly lowering costs which are not yet fully apparent in the financials
  • Solid quarter on a cash flow perspective, CFO 25.7m vs 15.3m
  • US 64% of sales vs 67% in 4Q16, 1 10% customer, top10=64%, >25% commercial with goal to be 50% around the end of 2018
  • Managing the temporary softness in the US well, good to see higher MWs sold (lower ASPs), good quarter for cash flow, solid balance sheet and valuation seems very attractive on FY17 EPS estimates that are almost 30% lower than the prior 12 months.