Earnings call transcript Q1 2023

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Operator

Welcome to the SolarEdge Conference Call for the First Quarter ended March 31, 2023. This call is being webcast live on the company's website at www.solaredge.com in the Investors section on the Event/Calendar page.

This call is the sole property and copyright of SolarEdge with all rights reserved, and 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 Erica Mannion at Sapphire Investor Relations, Investor Relations for SolarEdge.

Erica Mannion

afternoon. Good second joining ended SolarEdge's well March company's for for the results as to outlook quarter XXXX. first XX, the us you operating discuss for the Thank of quarter XXXX as

by the me first ended Chief Officer. company's review March of Ronen Faier, the of XX, are and a for quarter results review begin Financial Lando, Executive XXXX. Zvi Chief XXXX. With the Officer; financial today for the the Ronen second the with followed will results for brief Zvi outlook first will quarter quarter

will questions. We then open for the call

All Please include actual release Safe contained in description. SolarEdge which is are sole and risks results net share, published involve the income presentation of property diluted this prepared more you current note in earnings copyright cause this including materially note, non-GAAP describes Harbor and and all Please statements complete slides differ encourage that per webcast material the U.S. management's non-GAAP from accordance not call GAAP. forward-looking statements in contained net with reserved. today review press to could measures, in our for non-GAAP expectations. will certain with uncertainties a the that We Technologies the measures that to rights

U.S. are superior non-GAAP with in These in substitute for and how performance. a the understanding not measures as measures to GAAP. we evaluates with evaluating of company's from financial prepared believe should presented operating isolation presentation non-GAAP in this as be investors company's The means that or they accordance or the provide measures the considered management

March material Investors of press a copy by may XX, the XXXX supplemental the or who Listeners release, not do a of website. visiting the copy company's obtain the section quarter have ended

call Zvi. to the will I turn Now over

Zvi Lando

revenues with while $XXX business Thank We our were conference thank million. Revenues our the our quarter quarter of today. from joining Good a our results. first afternoon, you solar was concluded highlights million, call record on revenues Erica. with approximately million. and record $XXX for from us all $XX Starting business of you, at non-solar

shipped and XXX,XXX power we inverters. quarter X.X This optimizers million

This last megawatts XXX residential increase shipped quarter. we hour batteries, a from slight quarter also of

revenue record grew mostly in Rest by of Europe solar and XX% business year-over-year, by driven quarter-over-quarter X% revenues Our World. by and

this share saw many information We strong of and record from about very which region, and and Germany, a more Switzerland, the quarter revenue from as non-Europe Netherlands revenues was Africa a the in France, little including define countries World. South our Austria, quarter, Considering non-U.S., want geographic to revenues landscape this record I Rest Italy. Australia we

Israel, XX% opportunities Brazil Australia, Revenue often geographic came overlooked and is from Thailand, our these include XX Asia-Pacific, of growth up and countries and market the South What size extent think and regions and the regions. across presence quarter revenue America. this Africa. South Noteworthy quarter-over-quarter the in these countries of were from Korea, in I Africa Taiwan, is

demand for Africa, has and increase which level local recent unprecedented already where our incentive for have electronics in a Japan product, the we to solar systems power in example, created significant were PV with special outage in authorities are Metropolitan or we frequency South certification. for For module of including duration, battery, Tokyo due residential seeing regulation a a power

and in and growth stability opportunities. us is evident have infrastructure global with our quarter, to we As said past presence business many and access provides this our in the

markets be residential Moving segments. and The the to strong back us continue this very for regions to quarter. European core

as As phase as well new residential in we shipments our ramped three inverters, battery. three of particular, phase inverter residential the backup

this product. backlog coming to to significant deliver and capacity increasing demand still backup of momentum this We expect on in for as are the quarters the inverters continue the we strong

down In in general battery residential of driven related and U.S., segment weakness revenues lower the interest sales. quarter-over-quarter, rates the were effect the to by

originations quarter quarter the [ph] the last down year in fourth noted has than same we the residential As were even higher. data in of quarter, to in the improved time level years, prior first seasonally slightly more last and but residential significantly

expectations in expect the advantages which our and product we residential growth, of market to offering [ph] uncertainties cater as few in the U.S I well While for in moment this that a dynamics market. NEM further short-term, share X.X as regulation, discuss the the we believe well will continue our in the long-term and to the TPO under position

record record achieved. shipped in is we discussing XX% coupled C&I recent inverters, ramp we In growth ESG corporate the result a and and a around production X.X that of gigawatts first representing of XXX% commercial. have been multiple quarter-over-quarter the applications, have quarters quarter, to initiatives the demand the in with Moving This we year-over-year. strong

C&I capability and Systems. commercial position market the applications our market, us solution position outpacing strong In efficiency this previously services. the system of is global still energy quarter, of and advantages and announced top demand growth the for offering, customers On strategy them we among safety demand management of well of the closed with includes part of acquisition Momentum of our balance market our inherent is of providing context, this in our such Hark this capacity. and product cost the our

and to are charging, management EV companies building energy products meters, start factory HVAC, granular integrates assets. then and solar SaaS what It allow seeing. get transparency storage, smart systems, of machinery, on a acting with other level they Hark's

C&I providing customers with systems our acquisition that will and as solar-only offering energy advanced monitoring by augment needs. closed, capabilities to connectivity and from installation other Now EV charging, capabilities to move has the use storage, we additional for Hark's software our customers

their exporting return this our in product of of benefit topic to produces exported NEM during for rate the significant to April, instances specific system the pays the utility NEM in solar in the of is X.X energy the X.X, to times of want other I as impact power and system. the effective to is from than most became the grid, the The now it in to to which and day the main address tower regulation. an owner's reduction high offering the economic the exceptionally such, regulation system's when suitability advantage of California use

batteries well import time to the installed solar base markets, or managing countries, of use export us such large predominantly of experience in to plus optimization. as gain enabled algorithms self-consumption Our in specific use European cases maximize as and develop has

are the best providers sizing by on be combination, many of the over Our solar size, ratio patterns, consumption battery under NEM affected achieved X.X times local and with AC factors policy. panels analysis Among factors. the DC inverter, and battery investment that can shows exact utility different payback plus a is return to capacity but power, system these power,

use specific X met be X cases, In to years. can within payback

More battery solar way. electricity can their to alone when To optimal an and while cash, electricity by by a importantly, battery homeowners bill for economics be managed in monthly offset from XX%. plus solution, the in system when solar to plus XX% sized can be monthly achieve bill best paying using up using needs the approximately reduced battery

to in power. as is take battery To afternoon The rate, X.X of duration advantage have the September, full $X the For and can during some hours and the sun under the high there to the high utilities after home maximum capacity for SolarEdge and discharge its hour of in XX rate X contributing needs NEM right battery this as savings. X this is capacity per continuous power. in California hour full with kilowatts during power of the of kilowatts no export kilowatt solar down hour month X the example, is

the as maximum from sizing all generating with make X% conversions an system since system coupled peak store of is in cycle every capacity approximately during We energy and of with coupled energy battery batteries power addition, an is AC as compared use AC panel, summer charge also inverter inverter DC only coupled battery. the lost our estimate generated is DC the directly the stored to that three energy In the can months. the to in AC connected excess battery. AC in battery, to battery much of above through the battery DC AC panels the the X% to of there X% one the conversion not more over

commission not we require do mode, are conclusion, call this option optimal desired. we feel batteries to self-consumption add coupled more the in when and the software market. we require hardware choose In simple that Homeowners battery, good panel in only effective offering an adoption what and NEM they one X.X of our solution mode, to look forward our requirements way, addresses plus inverter upgrade. DC rate and saver as install main in can and cost Finally, backup to with the self-consumption connection a start DC to

give on Before and it like our operational I handing Ronan, update would to to brief stability over growth. a

challenges issues actions routes, we lead availability, components last return X of to with the point supply the is The we build reduce normal have more shipping able constraints. and have times. the manufacturing a Over years, dealt with around are have operation. can and product most where normal combined taken chain improvement inventory, mode us our that to In to we market general a in allowed areas, logistic use at and meet capacity demand we

stability still in within and inverters to for next expect are quarters. products, we ramping other three particular commercial For use, of phase reach couple the residential and

in sites manufacturing U.S U.S increase the quarter benefit track manufacturing the are the have the in to capacity adding from this on third year. IRA includes to plan operational products we credits where Our and of of manufactured

to over results. it hand who our I this, will financial review With Ronen,

Ronen Faier

of financial GAAP good website the call intangible on Segment stock-based items. the the This include operating available and issued afternoon, discussed tangible purchasing segment, review and expenses, certain and Full other profit is do less compensation this on profit gross pro Zvi, and you, Thank reconciliation that to release forma today. assets, includes comprised for goodwill GAAP in expenses discussion. amortization and everyone. impairments press not of of of our is a results non-GAAP assets,

record XX% segment, last X% for year. first compared quarter quarter $XXX record for million to batteries solar $XXX increase quarter and were compared XX% Revenues the million the $XXX.X Total $XXX.X residential million million $XXX.X sales which to a from quarter a last our same a of compared increase to year. a compared the last X% increase quarter a includes for the revenues $XXX.X million, a increase last million, same were and to

the quarter million, and last the XX.X% from of from Solar revenues. a United XX% this year, representing last quarter quarter, decrease States same X% were $XXX.X solar the decrease revenues a from our

Solar $XXX.X from XX% of million, quarter same XXX% the increase last our representing the revenues year, Europe last a quarter, from a XX.X% and from increase revenues. were record solar

with Germany each, above XXX%, in particular, in In achieved million Europe XXX% XX% well XX%, revenues France we Austria with record with and $XXX Switzerland quarter-over-quarter represented and saw with Two meaningful countries. several we in growth. countries growth

Revenue this three solar the batteries from coupled still battery last by the slightly the phase from we for are and needed World supply, grew a revenues. a Europe, million, is solar -- $XX.X limited inverter of representing renting fact a from quarter revenues Rest which the of system. are that increase record a X.X% last total quarter compared increase year, to XX% XX% last in

record Rest of the XXX to we and record and quarterly of gigawatts were this megawatts megawatts in On a products higher surpassing the States, remaining record Europe were World shipments. mix. to a quarter the revenue of a result X.X a world, shipments XX% XX% United commercial record rest a the the gigawatts inverter shipped residential, basis, of the European X.X and of the total inverters megawatts to of XXX megawatt

solution. majority increase by the demand and our continued strong XXX.X to be slight the a residential first of shipped adoption hour quarter. the In and our Europe, -- shipped three batteries for phase our megawatt to vast driven quarter, from The last XXX demand of batteries, we the

this was ASP partially Euro. last revenue stronger $X.XX, our quarter. X% ASP offset basis, per a prices $X.XXX not from unit a did This increased a On overall commercial result per of watt this decrease quarter, a by mix, excluding is change quarter. predominantly watt decrease our battery in product

$XX.X was of quarter, $XXX, $XXX in slightly decrease euro quarter, this million, result a a mostly $XX.X Our quarter business. seasonality a per the customer mix non-solar our kilowatt battery up from stronger the Revenues from ASP last storage and changes. were in the million last business hour from result in of

last year. XX.X% Consolidated in prior the XX.X% margin was quarter, the GAAP to the quarter in XX.X% quarter for and gross same compared

quarter, compared Our non-GAAP the and year. in for XX.X% XX quarter, to year. -- gross XX.X% XX% margin to the quarter in prior this XX.X% same quarter Solar same XX.X% sorry, prior and XX.X% the the quarter last was was in in Gross compared segment last margin the

our we exceeded targets the inverter margin note that in margins have as quarter, and Before exceeded diving financial March XX%. into the Day to optimizer presented like solar our XXXX. in this our In would gross I division, details, Analyst have

and residential exceeded margin XX% and inverter exceeded our battery XX%. Our products optimizer margins

higher We product, we improve activities our and mostly margin our trends growth efficiency that by driven customer will expect continue and to future And cost within reduction supply be mix. gross chain. geographic marketing through

gross our margin between are stabilized costs, a by component obligations. manufacturing, the portion also our resulted improved characterized Offsetting which charges commercial and made quarter, lower and primarily from margins results to lower improvement dollar, rates driven was in a gross margin were by gross our our the in contract that sales manufacturers. shipping further warranty improvements higher of of adjustment This result euro an and availability our and exchange logistic U.S

margin Goods accounted for slightly that was Korea. Gross for associated from we United of the U.S Sella quarter. decrease to in to with ramp minus the excluding a stabilization in this compared the into our previous tariffs X.X% shipped s our process quarter, our China quarter, batteries States expect non-solar next XX% shipments subject of the costs minus level to result XX.X% in X segment

a last $XXX or or revenue for compared million million, the operating of expenses to $XXX.X XX.X% quarter million, quarter, quarter of in and of revenue, same On first prior XX.X% $XX.X non-GAAP XX.X% the or basis, revenue the year. were for

to our as grow revenues than see during expenses. XXXX leverage the to expanding operating our continue continue to faster expect We operational

operating our quarter year. However, in second of of we quarter to flat of a process will result the of merit see percentage second expenses takes that employee XXXX, revenue, each in relatively annual the place

the segment as million previous last expenses same $XXX.X $XXX.X XX% a quarter. the for solar a record Solar period million quarter year. $XX.X last to operating Our percentage in income Non-GAAP was compared revenue of for XX.X% quarter to and compared operating million the were

quarter. a This $XXX.X $XX.X compared quarter of million the an to generated last operating segment an non-solar in loss generated of segment loss previous The $XX.X the compared profit million, operating profits record Solar quarter. operating operating of million to an million, of $XXX.X

non-GAAP quarter cash was financial $XX.X the of of million, previous the for income appreciation Euro financial denominated Non-GAAP and a a income customer our quarter, million $XX result compared to the some in rates, exchange euro U.S the gradually decrease to balances. balances at our higher sheet of from balance to cash our At frequency. the a dollar euro prevailing will we exposure by converting of

the million for previous of last Our was million non-GAAP the tax quarter million expense $XX.X $XX.X first million, $XXX.X compared to and income previous in in same period last a record the net was a $XX.X compared year. net million, $XX.X in the GAAP quarter income and quarter the to GAAP $XX.X same year. quarter for million

Our a year. the a million income non-GAAP to last in was net the $XXX.X in same million of $XXX.X income record previous compared and $XX.X million non-GAAP quarter quarter net

the a diluted last quarter to share the for per earnings $X.XX $X.XX to a quarter was the previous year. in diluted and was previous first same record quarter same compared $X.XX share $X.XX net net GAAP year. $X.XX last quarter, per in record compared the Non-GAAP quarter in the $X.XX earnings for

now balance Turning to the sheet.

net of $XXX.X increased were $XXX.X cash, amount receivable is billion. million Accounts bank restricted to quarter, As investments our million, revenue. of this bank $X.X Net cash a $X reflection compared XXXX billion. March deposits equivalents, deposits, debt quarter to this increased of XX, and last

manufacturing. our million this million level It's our quarter. of compared inventory note As important that quarter the level in to to include March levels net a was of inventory reserve at $XXX.X of XX, $XXX.X result prior inventory finished goods various streamlined the of of finished This to allow delivery levels as a will regions in logistic our customer goods expenses. and improve shipping us further time reduce higher products and

guidance for We're XXXX. $XXX range our to to within quarter $X.XX to Turning guiding the be billion. of second of the million revenues

to XX% the within to expect gross range margins We be non-GAAP of XX%.

We million. $XXX to from XX% to million Solar within $XXX $XXX from to the to is of to operating XX%. the be margins expect million. profit within range $XXX Gross the be Revenues segment our Solar expected segment range million of the the of expected are within range non-GAAP be to

over now questions. the call to up to will open for turn I operator the it

Operator

to We'll with Lee Instructions] first Sachs. move [Operator Brian Goldman

open. Your line is

Brian Lee

guys, Hey, questions. Thanks afternoon. the good for taking

the kudos Just model. First margin on the for of one, had Ronen here. outlook acknowledged, gross you've is as two, execution ahead long-term Clearly, XQ the

thinking at the So year what would the this of maybe then for forward. to or targets the be make kind long-term And about, just this adjusting and should a follow-up. level what here some I had wondering levers of new you the then consider if are be going point, rest

Ronen Faier

Okay.

So all, first thank of you, Brian.

we're we've guided before. our numbers not currently compared adjusting So to what

margins the pricing many the the differences at Although euro indeed, it presented to of especially margins much that the margin was gross first misguided. logistic are the that And In course, the and quarter bit of above senses, next the we've some drivers we and did improved of some related quarter. for increases to was related better, favorably. prices beginning is gross affect a of little fact impacting the very the this costs,

mix shipped. little some bit time, gross do same over batteries the to higher of especially our And amount and expect of with the the that quarters, next these we to margins. offerings product that characterized sales few see we are lower will At be with know of changes a

hand, activities margins we with after still dealt cost organization. grow R&D opportunities long changes, one component reduction within have our to we gross on but we a So continue time, to doing are

for this warehouses, our changes our still will now costs see to will higher general, quarters, we that we'll we at that we we do then change we and trends a the we that help the shipment few whether certainly are and But the since inventories at And for in There some rate, see least the what least anything. decide right market are in improve one. remain a at is guiding expect places of looking adoption higher are certainly the product. level, -- future to need have what

Brian Lee

start makes region. here. tougher like well also Okay, Europe more I concerns around some And then pricing a in sense. and in executing again, slowdown chatter. year Fair more that just to then There's feel been enough. And getting kudos potential on maybe around there. the

in the how more versus there U.S., there, have through then and has that through ordering maybe then And Ronen, also has maybe Europe the commercial like ready, the you're also seems had Thanks, way visibility guys. what you visibility happens but pricing a maybe, walk from competition second It us us region you and could more what you're that's walk So seeing if much half? the historically for front. doing on on that. pricing, visibility,

Ronen Faier

pattern and in change Brian. in any least return see And of to market now in change Yes, investment the until in dynamic, on both Europe. extent, good the In regards still now and is significantly at quite don't demand right past in the the than have market Power be we reduced to continues consumers a the for strong. businesses. don't we they're see in prices to a the certain higher the market but dynamic

more in many market test competing on solution, basis on yes, capabilities dynamics the similar to and side, market we advantages increased other availability and product the the the availability On has of become where more value as competitive have a our of and And in basis and the more service of competitive the presence. are regard. of premium that -- and companies

solutions. premium are lived obtain our comfortable products years, we've that dynamic and more XX for with than for a it's with pricing our and quite to ability So

Operator

We'll with take Rusch next Colin question Oppenheimer. our from

open. Your line is

Colin Rusch

both guys. incremental about and components rather products? on we battery product some much the R&D Thanks talk and programs, the might staff cost qualifying see of a you Can little start solar just than and the the cost underlying evolution returning bit so structure the when for to improvements

Zvi Lando

are at on maintain to R&D peak R&D XX% there's been alternative the components of to with significantly. of So, don't that have definitely, quantify declined first and give want the a can't would but been Typically, adding for dealing and we implement during the to a until globally. and on as there's in resources manufacturing organization a it new quantities qualification. cycles put units products, but about that been because out is few we've reduction last the number change of to year, that ratios, quarters if R&D products on, long shift. times top And all, right of I don't exact keep and in the parallel I finding development to now suggested redirect able reduction in order regard. more definitely then changes focus exactly, cost issue for remember we resources initial just cost I

put of translates type probably to resources question? answer line, that of range it. the quarters, to we That’s on in usually, R&D reduction Does in three two after that actual the the So the effort production actually cost it.

Colin Rusch

Thank of in in how on, then your like a models of much. you supply movement pass some and how a trending what so been much forward that's able about of your little in quarters for several bit -- pricing, you battery prices these lot And customers. Sure. chain and looking raw talk some materials. the Can looks contracts Yes. there's input production, those the around in obviously, and of next the to you've here and terms of at been

Zvi Lando

Sure.

on supplies, One is streams both at is is the one player the various So, used cost the is when close, And cell there adjustment in the technical the Samsung the following we actually the cases, dynamic price the the raw based comprising where raw the we it. to basically therefore, came an with other materials in with comes manufacturers. of with by battery that it second where all various a as the agreement materials ability quarter, have the very are it's changes price major of in there by index every cells. battery the the sales the or that two have process is of a the for battery, up case. of way, battery -- end battery the that we very and of the

On these you mechanical here getting amounts And of are, general, bigger all the volumes economies the of power a scale elements of little those. related in and to there see when top and bit parts -- of a bigger are the of buying course, are the the manufacturing. more buying the

The other to is that then course, are, manufacturers. be anymore, actually into fact and ramping tied that have to manufacturers elements again of the need we account but actual take we to the will of sell will once seller the products manufacturing, we the to cost our costs the our materials not own manufacturers related battery to material

before. the we are these not now, here related following used right price moving indexes see general we are making are batteries that yet down, And [technical that to what level generally the the to difficulty] we indices in again, at that agreements materials have see although

now. will is this our to that believe we take of here. we right we able And a that we dynamic be given scale see So advantages economies grow, as more

Colin Rusch

Thanks [Indiscernible] guys.

Zvi Lando

you. Thank

Operator

Philip Shen MKM. ROTH with

open. is Your line

Ronen Faier

the Good taking morning. my questions. Congrats on results. Thanks for strong

our on And really your effective First guiding true. about spite that European to How about suggest customers margins about price you're checks at the in Can pricing in But inverter expecting not and strong U.S. still in the talk see been -- the reduction U.S And you do expect pricing also, hub a in on seeing Is it you hitting if were May true? price Are distributor less trend? in all? inverters. you you think of they're touch a availability you a lowered X were looking bunch Europe. They're if home question follow-up inverters. -- of here and more recently, is well for with percent the the the XX-ish have and by this, maybe U.S of or as pricing well. can I on as of as we more confident availability talking talk just in curious that with Zvi

questions So thanks here. the for Thanks. additional on pricing

Zvi Lando

of phase to of easier starting the so leads we and Yes, these market the to the that repricing in offering the order needs from later U.S., single on. US, the usage encourage how batteries energy in what of attachment did the

So and will price normal is effect, increase, prior. The the sure -- hamper the it some than line. and or we improve lower for a it's the on than not in expensive it -- it's inverter overall like effect more models, it think is actually bottom the of was

In terms I is the its -- of in in dynamic mentioned, competitive as or in know, back of Europe, you mode a as a environment, Europe. this

the the with solutions energy alternatives. of components and certainly differentiating importance I software before that elements between and discussed technologies Some becoming factor of and management critical very is a

based this So application. it Europe. at continues the at to point, of why be don't that's plan reductions least in driven among broad of type price And reasons we have a for type any

Philip Shen

can then, like And channel talk Okay, it in great. that of inventory, through the in clarity. U.S.. look you the what us terms for might Thanks

been channel. point? Our Just might expect destocking you're some in what a check you Europe, through U.S. at Whereas there. it talk in might suggest still it seeing with tight it Do us -- the master little might be bit have like heavy seems be

Zvi Lando

And compared is So here a say I bit lower, bit to we actually that weeks I I levels okay, hand. of of see comes the days inventory when -- comes are, we Phil, hand there But you see a of weeks would are a fact higher. little right. to Europe, what the inventory. U.S., do on is on your We some channels in low think than sales the of that that to higher where little days notion inventory inventory call Europe, the levels it in of when because of inventory relatively hand are say that or see into it would

is C&I higher in that water across the important into of see the only this place related of coming to that looking more actually our the out by of that see way, a levels channel, is that that record level when from we three phase in in mention, for inventories and the is at the this products that dynamic we that to said But that This we're inverter is relatively something lower that the distribution U.S channels. that, our single actually we think, we at inventory are more inventory. we board example, not to is related see see almost phase are inventory sell the wherever we because I it's but regard high, not Europe, relatively looking

only much it's a being again, of sell we right sold a So now, in little Not is levels, is normal relatively quicker. that a bit least impact. actually at double again, very the kind U.S lower. don't the that see And high-level, out something a but it's here this you have

Operator

will we with And next Mark to Strouse JPMorgan. move

open. is line Your

Mark Strouse

Yes, general this last a Thanks C&I We later wanted about taking opportunities from that estate that talk though of the for your market, I'm the might the the your manifest to visibility I our is to rest about you perspective high-level a have pipeline or real year. starting we're in curious, hearing good XXXX some backlog on impact given business. just about call, commercial amount kind this the talked on weakness afternoon. that at of questions. of that funnel for the macro the of just

Zvi Lando

strong very this is of it bit, able some meet there I as markets No, are increase the and but remarks, still down behind might accelerating. here of to And that in slowing are remaining markets capacity the for other globally, we is that true being for in and little there are C&I terms backlog the to be a the year. mentioned

we're facilities, globally their the same et motivations. of C&I that is that you seeing the So growth of several on is our year-over-year the US expected I've seen, I in the power look installing overall, sites, warehouses, market the than several we're in a in reports engaged for cetera, at expectation are multinational and combination this higher purposes. knowledge be in higher ESG And -- also as when phenomenon companies of to residential. the you the prices systems And countries regarding for that portfolios the mentioned, for ESG of reasons manufacturing

that see is we C&I as our strong. backlog and the So is, is market very robust, as far

Mark Strouse

is there ramp of can color that comments the up tooling, wanted be? far provide quarters? Thanks. color Fair it as that come building the output what far us next where any then as XQ, that then to to clear. Are far initial like look are as of as few kind you manufacturing over XQ. in in as for there is [indiscernible] the to process, U.S you give and able back very that in kind might whatever And as quantifying expectation what you to about And more might

Ronen Faier

Sure.

-- and to of first possible. as to we our the U.S U.S manufacturing soon approach as market be able starting with before, in to all, contract is as divided first to be very fast to in So manufacturing order manufacturer mentioned a capture

course manufacturers, of already seen are the our we engaged trained we products. since So contract a to make with that we're on already have how

ramp start to training new from that's basically up, that tell the of X factory bigger Sella have we to the employees it. we are process supposed equipment of something is and getting This to the how consider products, make you can them learn that and how line. can starting we I to QX, have to build, in our already we was that to a manufacturing that in benefits people that build around done, One Sella is how to factory to having when bring by X

built. QX, And X still, be going relatively X small the will In amounts. within manufacturer contract to we're we believe quarters, see to that capacity

because this manufacturing the is make factory time, this. time same At quality also want at the working to is we the right the sure take and us. reasons are also of to our want level, make process that do we One we the on by sure own be we that right of operated for been built the that to will

a to year start We're will year. this I related to negotiations mentioned, already something us, little location since more end least advanced is And as having take require coming believe, this QX from products here, a place. of bit will it it at out innovation in the of the that

United that it's United the in be coming going to manufactured to second the the all to of we year. States. In believe So half have be in States, intend I products to general, next

enough excess once ramp that to it's sure from U.S. the will So these here capabilities, our we factories than that any have market make comes from the demand to pool that the will capacity or related rather capacity are have more two think I cover our access -- we we up.

Mark Strouse

Very helpful. Thank you.

Operator

we'll And Blum Michael Wells next with move to Fargo.

Your line is open.

Michael Blum

expect you taking Thanks. could looks And Good for like shipments back not talk about if off. minute. batteries where It go wondered afternoon. to I are trending rates and I constrained should just of wanted And to to quite a the World. the still U.S. three until both supply Thanks. catches with be attach are Rest battery further demand. shipments we somewhat phase up in

Zvi Lando

Yes.

are it, So -- the slowly. growing put attach growing U.S., rate the let's in very

his gradually shift before, the and how for we people quarters. to is availability in constraint attach it and begin actually, regards rates we for understand is the are this as as mentioned reasons the to expect the expect In to the X.X Europe, in increase that comments inverters. the to that to NEM Ronen I strong comments of next it. referenced sell the demand very our And to seeing We during batteries

the So we're possible as don't further to in battery. ramp what have because as much do people an trying inverter, shipment to with without

continue So as increase the as capacity the of we on that volumes we our would well. inverters, increase believe batteries to

overall our the our -- that we about generally increasing batteries ratio on will So and expecting, the -- of want that the be the comments we are model speaking, of also quarters. shipments impact the refer in in coming and overall to the to margin and in

Michael Blum

those color go residential? Thanks. your seeing C&I? back comments Are wanted you world helpful. to the then growth And of I for around outside for prepared rest just Thanks any Europe. be And remarks provide strong primarily of also you markets Are would demand about Great. to countries there opportunities that. can really

Zvi Lando

they like they're C&I, markets. Thailand, C% cases. in those size of markets, Brazil. Taiwan South in Asian each Israel I but are for most as I these more mentioned, in the of of like many the to portion these market I are good reasonable if but residential market say, markets megawatts, to a now much sizable not almost that the of residential as many in don't strongest residential remember towards countries as But residential. tilted markets these for the and tilted heavily as the well And in markets, scale and the all market are and than like are and gigawatts markets particular, the actually hundred the Among right places the C&I of of to overall. Australia, C&I markets So in Africa is terms evolving

Michael Blum

Thank you.

Operator

And we'll move Deutsche next with to Corinne Bank. Blanchard

line Your open. is

Corinne Blanchard

Right. for taking Thank you my question.

to expect quarter? XQ European The to we the there? on and sense first same versus XQ market cadence first question trying same get the on expectation and growth in in back Can I a want go the the

Zvi Lando

growth market the So rate in fits without expect getting each into specifically we and how what into guidance. that

based. As lot I based. the phase it European the And a C&I see applications commercial. and residential commented, of of both the continued is of three in all of market, market, residential And all market European we three phase both cases, not for but strength of in is it, obviously, most

we dependent It's are So our I our a is deliver robust the the we the to scale backlog growth mentioned, to on of that we European couple But year. the to of which see of market are end us strong, a matching more between less now, of ramp the there, on at until demand. supply continue another and right sitting take will now demand. and we manufacturing, intend on quarters dependent full

Corinne Blanchard

Okay. And residential megawatt the commercial follow-up a more similar my is versus then hour ship. question from

you I or flat residential slowdown we so the is there? believe for the driven you think expect mostly Do in it You had quarter-over-quarter expect -- about And a we number? Should further should decrease believe X% Or I decrease by one. U.S. the like do had you how going forward?

Zvi Lando

So again, situation and inverters. supply of for the intent more the is U.S. Europe. continue in increase residential and I three and a minute to our our phase is separate capacity Europe, dependent between In on

significant market some a or many was this as is the the way, related. markets the time in In for we financial the think dynamic change there learn this it to to to the in takes is under in how environment U.S., and more mentioned how likely by the So like regulation environment. the outlook install I growth. And to that sell and where happens, under in market it adjust remarks, atmosphere,

the So market and for interest it's them for X.X rate. and true California, true the in it of rest the

the our flat? increase? going bottom And in we dynamics the will that. that we think have it feel Or mentioned, terms this remain long is to the it around adjust? positive, I going from the on how ITC and it to and But indication and both I everything to level for specific begin view it adoption or are solar technology. point from as midterm, position is is of good don't So and of take and to a market

Corinne Blanchard

you. appreciate All right. I it. Thank

Operator

next And America. from Smith - Julien move Bank to we'll Dumoulin of

Your line is open.

Morgan Reid

through from like walk Morgan and gross shift on cost This quarter-over-quarter? things increases, improvement What's Can benefits, is pieces FX mix, price to Julien. the for Hi. coming that. you the declines margin Reed moving get in to

try to curious to understand that. Just what's driving

Ronen Faier

that is say of the parts would again, numbers the without we into So main say, basically, would areas. themselves going growing. I to personal two moving I amount because divided

manufacturing mix that changes The first are the currency is usually product of we area and that the selling mostly between this to the related difference price we're product the is changes. to

comes margin the the cases, before, almost fact $X.XX were the of euro per to X.X%, of at because these United in to euro that about In a when par mentioned helped as X.X%. changes euro came on of And definitely margins back currency is level it the are the this we same characterized that you euro see stronger with course, higher think -- there. substantially gross products numbers, of it the therefore, time, commercial And mix and I At within in lower helping see quarter. did that our we with States. our

not phenomenas that relatively difference. were size the in X and reducing sense, dramatically margin in similar contributing or the So

Zvi Lando

are that we that saw chain. supply are quarter of not manufacturing other Most the costs, came the improvement to of or related this all are elements to cost-related that and pricing from these

shipment costs used be went levels the we to manufacturing had yet were that down definition, before. more streamlined to they elevated not that So by the

to grow quarter. So in evident it's think of that little bit the there. next there's for still And our room a a I margin

a year. that's where this our we were manufacturers also have fact advantage our, we manufacturing, team, get we used of would And they did whole contract all occupied. say, most having charges because working streamlined some fact because the the exist from that to And this the came very saw that quarter of ships the not I the of at of that

in As we before, mentioned are costs. the model various from to close already our ourselves where getting see we

the of be related And that most the from now we on, to product. will of mix the changes expect

batteries still increase we definitely, though, possibly it the this help are seems margin, operating margins, costs. more of And that to even how again, that project us again, favorable. to a would always on of least is other do shipping because know very currency be some it. stable course, the mystery some see now, right profit that create. is or gross something they and We tailwinds operational manufacturing much But because we not At changes. talking either So the reduce about can an leverage

take we margin. getting driving closer will I most to it would to all that that model. to I our it, forces now, where the the comes call of And aspects, think want be driver be on I mix gross right think the we products that in of the a are So thing when the, will

Morgan Reid

margin you That's of operating stronger XX% know year how exit. gross than margin curious maybe guidance we improvement end to Thank I we the I the you. here. faring kind of I'm just sort midyear the as had guess maybe of in given the had given really you operating helpful. to And alluded throughout it earlier, XX% of expected year. the previously, like that's of sort margin this towards the

gross given operating and line strength curious margin are the the if pulled just operating margin of So here? still your in to at all, leverage changing expectations

Zvi Lando

Sure.

of by be consolidated we exit year So that the we XX.X% the be we'll target the and it margins of expected on the getting margins XX% And did year. We've XX%. say our XX% consolidated we end a profit operating In QX that to on sense, profit the here, gross a margins the between continue to solar, at to end XX% see said definitely, level, the already see to levels leverage. operating operating on of are that we're will at to we before mentioned level. to

relates we confident got the again, to this We’ve will And one-time delivered. we the exit again. court very our margins year very guided before it are to as close And number We be financial that operating feel to modeling. with

Morgan Reid

Thank you. I will line. talk about top

Zvi Lando

Thank you.

Operator

Sandler. [Operator We'll with Kashy Harrison to Piper Instructions] move next

open. Your line is

Kashy Harrison

afternoon and thanks ladies Hello, taking gentlemen, good afternoon. Good and for the questions.

QX the So performance operating while QX and very seeing of result in of robust as significant was your cash quarter. operating this we're amount use of big working QX income a was in guide, capital another

to even context a you maybe have how income from some follow-up. working on thinking of basis? structurally, And just at maybe so just then throughout about a and conversion can high-level you the that a cash And that some And then maybe conversion think about on capital I how year? multiyear operating you're provide

Zvi Lando

sure. Okay,

significantly. comes have our our not it which terms change. means changed major to -- DSO did again, bit, when decreased usually, a customer that When to outstanding of this customers. it quarter, dramatically the first days are capital from impacting course, sales to collections of elements is, working comes So we Actually, little see we any vendor payments, not all, the three that our

the little mostly rate Zvi pay and This this single in inventories $XXX this buy and battery Samsung, battery the cells the are the agreement coming on of the are is QX a slower, States, by actually to all releasing going thing up that until sales about million, second. the the our from related fact based this mentioned is U.S. of give that end bit sold while batteries to that these given a market them almost with related that is and to I And our change aspects attachment that batteries, formula we United are to you grew for the will from cash growth. being actually needed to related before significantly simply quarter that phase to

inventory. we're again, about as ourselves difference we this least cells. at And battery have therefore, is buying already our see since What is will a reverse cells battery battery we expect And all of of out $XXX where million QX, will and we clearing in this in we result, them to where bought phenomena. cells, start we've year we this find less during that these

our, fact profit into see usually are is We we of the of collect. all, means result turning period. the our on we we of see approximately that than annual course, is we're same to simply which, XX% do cash growing, paying And of at first a that basis an quicker that this expect within operating

of secondly general, on we an our this inclined result that, annual more of the XX% profit quarter. fact the that are in that And of believe is see basis. towards do end that operational cash the we the is And will turn sales about into

I think that this is something didn't happen that in QX.

color -- we number general, in especially a to reverse QX the should bit going there. second is in see have added half actually, that of XX%. we're the situation the QX, other XX% we But that of -- So QX actually in and a where where Thanks to than year conversion. for more generate little --

to do possibility X more achieve to X on to X Just your be? isn't sort would X be do update And on any simply When make Sella Is end of a When if for update I battery Sella expect second where Sella level? the output if to demand then residential was my start you'd wondering us you up just like desired expect bit there a to cells detailed it the could question, maybe give selling detailed battery? process. selling targeted Sella a you you great. of

Ronen Faier

Gladly. Sure.

of process of a within I up a But first a all, the you're that beginning. utilization. there's when ramp education stage not battery or a for the at apologize is ramping process little maybe factory, bit and So manufacturing called

the and elements to production the a flow of section floor goods that like in adjust on basically temperature within level various within using. processes vacuum you're materials manufacturing of like chambers of You the air the process itself, even concentration the

basically are used and are QX. there. is time, This the bit and the that's we this that to were at supposed was exactly second or in more a process. over making QX a be speed QX factory this themselves. Not consuming the start actually This to not is yet of time the the that process That yield we ramping manufacturing material capacity within year. is we we test, because simply year. we And can materials of the of that this grow And therefore, and we means manufacturing lot of stations half stabilizing of little in all where QX, are it a the increasing within happen end sometimes to at expect QX by time, the what is movement components and

yield, the end because this to to Sella manufacturing the capacity or hour of by be either year it -- simply that expect is the gigawatts X In year, supposed it's fact you general, X.X level X.X the to -- need X get the to be And to this beginning at beginning of we gigawatts. around of next expect because ramp. of we of

. usages So going what be to are the

the growing First actually there business we nicely to of that is us that all, itself. a is division need remember very of for storage

to solar that containers We various in make sell are their to pack. we in outside both these are and battery sell ESS their are places reserve to battery necessarily own selling we storage tied battery that we applications that And the on and see today Asia. customers or division spinning products they're sales other later using that not Australia, going to sales, storage also are you sell within in

demand the on least actually, and And and manufactured we for supply on from all, products. date already products. that or existed, a to first seat demand these that there So limitation these of Sella is -- at had for until is already is fulfilled not X our

utilize So to we this for take activities. kind Sella if see, your we our grow. we X of sales expect we question, something RSS, is that don't to we these can believe yes, that enough And to

to stages developing as The have storage second end Sella on basically And batches of X of residential products. this here, in we're system based our coming expect own the product now towards we this manufacturing first is advanced we mentioned have to and year. activity

the all Sella all in will production believe capability. we we that consume all, not XXXX, the of So throughout cell X majority, if

Operator

we'll with from our take And Mandloi Maheep Suisse. Credit next question

Your line is open.

Dave Benjamin

Dave Benjamin on is This for Maheep. Hi.

follow-up I you of your you foresee U.S. products you of better in the the plans U.S. on manufacturing thoughts for your Just, can manufactured guess, responses, earlier being mentioned a that on X But detail that on all U.S.? any

Zvi Lando

and that to a we and to once understand point, potentially reason this cell much the of United moving are at And how on if and in the But assembly also assemble the and getting on manufactured regulations on optimizers inverters battery will question. we make in now, inverters U.S. the waiting regulations and terms of right manufacturing States, commercial. Obviously, decide doing in complex So around We're and we understand we're once the residential in is long-term more in starting focusing optimizers. on for some focused with U.S. clarifications batteries the understand decisions we'll U.S. to -- we

Operator

question next Osha with from our Joseph take Guggenheim Partners. will we And

Your is open. line

Joseph Osha

guys. Two Hi there. Thanks, questions.

But First, out that should quickly the I margin operating this grow think end towards longer-term appreciate target to year. OpEx likely we top to relative How thinking financial the model, of line? how the about the in years? is about sort of the

Zvi Lando

not tricky. for try I'm give very I answer -- it's good because what little moves it's I'll you ratio sure this to So it a that have a because bit

at can XX% And rate that it's year-over-year. do to last we it by growing in -- said all, next growth. the of we've Analyst XX%. we We it grow year, actually believe mentioned as Day dramatically XX% of years, the the exceeded before, we've on First revenue few

demand to And cope components that and grow able chances get think we're sure that as and that is there to this and capacity even as the demand we it. needed than year sure the faster there, make the need we I think with we -- make what long to see, are maybe to the that

So growth. potentially, it's high

very about than second of to to expenses hard can X,XXX employees them first working it's actually two-thirds The These of employees. comes expenses have today already you And hiring where for costs. ramp pace the our we grow employee it part salaries employees, are of the are XX%, at the And operating how quickly is more to when expenses. you.

where today, R&D, actually, In this -- already in R&D need because skilled simply attracted talent. that lot of a you we've is do very in particular of we people the fact and the heart

going actually you're into but So bit shallow. a a tool, it's getting more

we So here, I that tell would would grow you as much to we can. as like

that I do can think year-over-year. we more not or grow XX% we believe at

we're we When let's average, sales XX% would used it say, about G&A, comes looking and growth sales marketing growing expenses. say of usually we and see it's XX% like the at to to G&A here marketing and revenue to to and that when in

that, of So level. is by the definition, course, widening

impact to XX% yes, we So need operating the that part. again, this the margin believe see to this other on these the are of be going margins. also of gross moving remember need the But what's is We we parts. that, we can, because time, to then beyond over go batteries

feel we operational the So that lever. confident increase we can

what's I adjust And need the to we we'll we moving. again that gave see overall operating if target. and to have think when you margin

Joseph Osha

Yes. optimizers und like residential inverters all tapdancing U.S.? so in until optimizers, but let That's of I U.S. very this, long to not I you take and we've of helpful. just it commercial bound then is And going guess my have how feel being your and directly, inverters been follow-up, the me kind and made ask batteries,

Zvi Lando

we're that U.S. by the 'XX. of try beginning produced targeting in capacity 'XX, have the Generally, end to all of of Yes. and

Joseph Osha

know good day. [indiscernible]. guys yes, clarity. a you I’m Have thank you. sorry, Thanks. I great. Appreciate Okay, the -- maybe But

Zvi Lando

you. Thank

Operator

to next Capital. we'll Thakkar And move BMO with Ameet

open. is line Your

Ameet Thakkar

me California? one just I of of for of quick was revenues X.X guys wondering, one your for came Thanks in. the But real you transition. kind talked Hi. sense during rough do guys kind much how from me. a you the NEM a have quarter, about squeezing for lot

Zvi Lando

not No, really.

look globally the between and commercial. revenue the of within residential California, distribution U.S. and at and historical generally segments in when our speaking, Now then we of our

of front California first now. the installed information our itself related been that in California even a QX, type of our in water part how or right us ongoing So by of is or have we has product rate never But huge business. to the during quarter, specifically much of don't California in

Ronen Faier

Hi. Thanks. I will take the rest offline.

Ameet Thakkar

And to we'll Fleishman Steve next move with Wolfe Research.

Your open. is line

Steve Fleishman

you. Thank Yes.

did happen You one curious of mentioned 'XX, of the in the in how kind kind the QX of trends TPO, shift expecting in that see much happening that actually them I'm and versus U.S. to of rest to the it 'XX? was you

Zvi Lando

the advantages market IRA, that made to and this announcements historically, the related segment and the What have relationships not indication a been that I in in we've TPOs. see is a it's quarter. the seen recently has of definitely in and that an further. first some expectation to we based been and on read And those clear It's you what strong something build generally discussed strengthen market, say more can go that continue to

Steve Fleishman

any seeing Okay. how talk then T&I of maybe -- relative trends relative more you just something particular -- overall that's that trends to you're could growth, the economics growing just to just residential? on just that in And solar. it is of C&I to in quickly -- just -- And

Zvi Lando

to market questions actually, related C&I about Thank the of you. in Yes, just previous Europe. some the

some other up discussing the -- while questions, with we I other data. were So the pulled

from that distribution in interesting almost. our the 'XX be to point-of-sale channels the XX% will from the quarter our of fourth by third Europe an quarter point by fourth data XX%. And quarter quarter So grew from the to data first

selling to how Again, in market growth the market So Europe. is related we C&I and point we are EPCs to installers the Europe. -- these our the much of are type distributors seeing of are accelerating a factors C&I this in are in for data the

and is dynamic So the positive strong over there.

shipments but C&I for in we C&I, market the is megawatt that Also, and U.S. quarter-over-quarter growth year-over-year compared the assessment in the in expectation again, the grow significantly is residential. U.S. to didn't general market a stronger in the in

typically And consider look we and we broad in as for of and to relates push. the everything but discussed that of it accelerated seeing as momentum at terms when the growth a geographies of are world, rest So that adoptions C&I. U.S., of we corporates, Europe we three well

passed being a we car that that regulation just European solar on France installations countries. legislation is other adopted mandate parks. by And

also the in C&I range countries legislations So in market. encouraging see of you government different a growth

we going fast that's these rate. that has collect when momentum all to grow relatively conclude So this market good together, and where a at indicators of they're we

Steve Fleishman

Got it. Thank you.

Operator

there are no now it appear back would CEO, to Zvi turn And it does that like I this Lando. time. questions further at to

Zvi Lando

Thank you.

and this we which across summary, strong our markets advantages diverse in with the our results are of pleased position applications. demonstrates quarter, So

joining And today, on a to for so and good I want our us thank have you evening. call

Operator

today's conclude does participation. you program. for Thank This your

You may disconnect time, evening. wonderful any a at and have

SolarEdge (SEDG) 2 May 232023 Q1 Earnings call transcript