SOLAREDGE TECHNOLOGIES, INC. Forward-Looking Statements
Statements contained in this Form 10-Q or statements incorporated by reference
from documents we have filed with the
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on forward looking statements. Also, forward-looking statements represent our management's beliefs and assumptions only as of the date of this filing. Important factors that could cause actual results to differ materially from our expectations include:
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the duration, scope and effects of the ongoing COVID-19 pandemic, government and other third party responses to it and the related macroeconomic effects, including to our business and the business of our suppliers and customers;
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future demand for solar energy solutions;
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changes to net metering policies or the reduction, elimination or expiration of government subsidies and economic incentives for ongrid solar energy applications;
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changes in the
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federal, state and local regulations governing the electric utility industry with respect to solar energy;
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the retail price of electricity derived from the utility grid or alternative energy sources;
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interest rates and supply of capital in the global financial markets in general and in the solar market specifically;
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competition, including introductions of power optimizer, inverter and solar photovoltaic ("PV") system monitoring products by our competitors;
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developments in alternative technologies or improvements in distributed solar energy generation;
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historic cyclicality of the solar industry and periodic downturns;
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defects or performance problems in our products;
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our ability to forecast demand for our products accurately and to match production with demand;
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our dependence on ocean transportation to deliver our products in a cost effective manner;
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our dependence upon a small number of outside contract manufacturers and suppliers;
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capacity constraints, delivery schedules, manufacturing yields and costs of our contract manufacturers and availability of components;
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delays, disruptions and quality control problems in manufacturing;
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shortages, delays, price changes or cessation of operations or production affecting our suppliers of key components;
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business practices and regulatory compliance of our raw material suppliers;
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performance of distributors and large installers in selling our products;
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our customers' financial stability, creditworthiness and debt leverage ratio;
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our ability to retain key personnel and attract additional qualified personnel;
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our ability to effectively design, launch, market and sell new generations of our products and services;
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our ability to maintain our brand and to protect and defend our intellectual property;
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our ability to retain, and events affecting, our major customers;
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our ability to manage effectively the growth of our organization and expansion into new markets;
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our ability to integrate acquired businesses;
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fluctuations in global currency exchange rates;
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unrest, terrorism or armed conflict in
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general economic conditions in our domestic and international markets;
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our ability to service our debt; and
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the other factors set forth under "Item 1A. Risk Factors" in "Part II-OTHER INFORMATION" section of this report.
Except as required by law, we assume no obligation to update these forward looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward looking statements, even if new information becomes available in the future.
Overview
We are a leading provider of an optimized inverter solution that has changed the
way power is harvested and managed in a solar photovoltaic system, known as PV
system. Our direct current or DC optimized inverter system maximizes power
generation at the individual PV module level while lowering the cost of energy
produced by the solar PV system, for improved return on investment, or RoI.
Additional benefits of the DC optimized inverter system include comprehensive
and advanced safety features, improved design flexibility, and improved
operating and maintenance, or O&M with module-level and remote monitoring. The
typical
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Since introducing the optimized inverter solution in 2010,
As part of our non-organic growth, we have completed three acquisitions during 2018 and 2019, each of which address our growth in the area of smart energy technology and power optimization.
During 2019, we completed the acquisition of approximately 99.9% of SolarEdge
Automation Machines SPA ("Automation Machines Division") and
In
We are a leader in the global module-level power electronics ("MLPE") market. As
of
Our revenues for the three months ended
Our revenues for the nine months ended
COVID-19 Impact
We are continuously and closely monitoring the evolving impact of COVID-19 on
our operations and business. Our first priority continues to be to protect and
support our employees through this period while maintaining company operations
and support of our customers with as few disruptions as possible. Given that we
have employees in many countries world-wide, we follow the guidance issued by
applicable local authorities and health officials in each region in which we do
business including in our headquarters located in
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As disclosed last quarter, the actions taken around the world to slow the spread
of COVID-19 have impacted the installation rate of PV systems which we are
closely tracking through our monitoring portal globally and per country. While
the COVID-19 pandemic did not have a material adverse impact on our financial
results for the first quarter of fiscal 2020, we saw and reported on a decline
in installations in certain regions such as
As anticipated, our third quarter revenues of
Our management and board are continuously examining our plans for 2020 and
reacting to the current economic downturn, high unemployment rates in many
countries and negative impact on businesses generally. As we reported in our
Form 10Q for the quarter ended
Key Operating Metrics
In managing our business and assessing financial performance, we supplement the information provided by the financial statements with other operating metrics. These operating metrics are utilized by our management to evaluate our business, measure our performance, identify trends affecting our business and formulate projections. We use metrics relating to shipments (inverters shipped, power optimizers shipped and megawatts shipped) to evaluate our sales performance and to track market acceptance of our products. We use metrics relating to monitoring (systems monitored) to evaluate market acceptance of our products and usage of our solution.
We provide the "megawatts shipped" metric, which is calculated based on nameplate capacity shipped, to show adoption of our system on a nameplate capacity basis. Nameplate capacity shipped is the maximum rated power output capacity of an inverter and corresponds to our financial results in that higher total capacities shipped are generally associated with higher total revenues. However, revenues increase with each additional unit, not necessarily each additional MW of capacity, sold. Accordingly, we also provide the "inverters shipped" and "power optimizers shipped" operating metrics.
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Inverters shipped 152,531 187,887 496,229 478,676
Power optimizers shipped 3,271,787 4,587,380 11,848,084 11,347,001
Megawatts shipped (1) 1,451 1,498 4,743 3,977
(1) Calculated based on the aggregate nameplate capacity of inverters shipped
during the applicable period. Nameplate capacity is the maximum rated power
output capacity of an inverter as specified by the manufacturer.
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Results of Operations
The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this report.
The following table sets forth selected consolidated statements of income data for each of the periods indicated.
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(in thousands) (in thousands)
Revenues $ 338,095 $ 410,556 $ 1,101,164 $ 1,007,437
Cost of revenues 230,032 271,247 750,130 671,348
Gross profit 108,063 139,309 351,034 336,089
Operating expenses:
Research and
development 40,817 30,747 115,610 86,451
Sales and marketing 21,924 22,026 67,113 64,325
General and
administrative 14,928 12,214 45,077 37,590
Other operating
expenses (income) - 8,305 (4,900 ) 8,305
Total operating
expenses 77,669 73,292 222,900 196,671
Operating income 30,394 66,017 128,134 139,418
Financial expenses
(income), net (15,765 ) 17,023 (10,725 ) 22,401
Income before taxes
on income 46,159 48,994 138,859 117,017
Taxes on income 2,408 7,270 16,192 24,405
Net income $ 43,751 $ 41,724 $ 122,667 $ 92,612
Net loss (gain)
attributable to
non-controlling
interests - (97 ) - 1,159
Net income
attributable to
SolarEdge
Technologies, Inc. $ 43,751 $ 41,627 $ 122,667 $ 93,771
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Comparison of the Three Months Ended
Revenues
Three Months Ended
Three Months Ended September 30,
September 30, 2019 to 2020
2020 2019 Change
(in thousands)
Revenues $ 338,095 $ 410,556 $ (72,461 ) (17.6 )%
Revenues decreased by
In our solar business, we expect that in the fourth quarter of 2020, revenues
from
The number of power optimizers recognized as revenues decreased by approximately
1.3 million units, or 28.3%, from approximately 4.6 million units in the three
months ended
Cost of Revenues and Gross Profit
Three Months Ended
Three Months Ended September 30,
September 30, 2019 to 2020
2020 2019 Change
(in thousands)
Cost of revenues
Cost of revenues decreased by
•
a decrease in the volume of products sold;
•
decreased shipment and logistics costs of
•
a decrease in warranty expenses and warranty accruals of
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These decreases were partially offset by an increase of
•
•
In our solar business we anticipate that our cost of revenues per unit will decrease in the last quarter of 2020 due to realization of cost reduction activities conducted in the previous quarters.
Gross profit as a percentage of revenue decreased from 33.9% in the three months
ended
•
a decrease in the volume of products sold;
•
increased rate of actual support costs related to our warranty obligations due to an increase in our install base from past sales which effects the calculation of such costs as a percentage of our revenues since our install base grew in 2020 while revenues decreased compared to the same quarter of 2019, resulting in a higher rate of warranty expenses to revenues.
•
an increase in other production costs and inventory valuation accruals as well as other expenses related to reduced manufacturing volumes due to COVID-19; and
•
lower gross profit from our e-Mobility and Automation Machines divisions, coupled with ramp up manufacturing expenses in our e-Mobility division.
These factors were partially offset by:
•
decreased shipment and logistics costs mainly attributed to lower custom tariff
charges on Chinese made products imported into the
In addition, a decrease in air shipments costs resulted from higher inventory levels; and
•
decreased warranty accruals due to various cost reductions on the different elements of our warranty expenses which include the cost of the products, shipment and other related expenses and a change in the product mix sold in the third quarter of 2020 compared to the same period in the previous year.
We expect that gross margin as a percent of revenues will remain similar in the fourth quarter of 2020 to that of the third quarter of 2020.
In light of the uncertain impact of COVID-19 on the rate of growth of our acquired businesses, accounting estimates and assumptions related to goodwill, intangible and other assets may change over time in response to uncertain circumstances related to this evolving situation. Such changes could result in future impairments of goodwill, intangible and other assets.
Research and Development
Three Months Ended
Three Months Ended September 30,
September 30, 2019 to 2020
2020 2019 Change
(in thousands)
Research and development $ 40,817 $ 30,747 $ 10,070 32.8 %
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Research and development costs increased by
•
an increase in personnel-related costs of
•
increased expenses related to consultants and subcontractors in an amount of
We expect that our research and development expenses in the fourth quarter will remain relatively stable compared to the third quarter primarily due to cost reduction activities initiated in response to COVID-19 and the continued halt in travel and travel related expenses.
Sales and Marketing
Three Months Ended
Three Months Ended September 30,
September 30, 2019 to 2020
2020 2019 Change
(in thousands)
Sales and marketing $ 21,924 $ 22,026 $ (102 ) (0.5 )%
Sales and marketing expenses decreased by
We expect sales and marketing expenses to slightly increase in the fourth quarter of 2020 primarily due to an increase in our sales and marketing headcount. This increase is expected to be partially offset by our cost reduction activities initiated in response to COVID-19 and the reduction of expenses related to the continued halt in travel and travel related expenses.
General and Administrative
Three Months Ended
Three Months Ended September 30,
September 30, 2019 to 2020
2020 2019 Change
(in thousands)
General and administrative $ 14,928 $ 12,214 $ 2,714 22.2 %
General and administrative expenses increased by
•
increased expenses related to consultants and subcontractors in an amount of
•
increased personnel-related costs of
While we did provide payment extensions to certain customers, substantially all of these payments have now been made and we did not experience significant customer defaults on payments or incur substantial losses related to customer bankruptcies. We continue to be cautious in providing credit to our customers. In the fourth quarter of 2020, we may still incur customer defaults on payments and other bad debts as a result of the impact of the economic downturn caused by COVID-19 on our customers. If this occurs, these write-offs would be reflected in our general and administrative expenses in future fiscal quarters.
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Other operating expenses
Three Months Ended
Three Months Ended September 30,
September 30, 2019 to 2020
2020 2019 Change
(In thousands)
Other operating expenses $ - $ 8,305 $ (8,305 ) N/A
Other operating expenses decreased by
Financial expenses (income), net
Three Months Ended
Three Months Ended September 30,
September 30, 2019 to 2020
2020 2019 Change
(in thousands)
Financial expenses (income), net
Financial income was
Taxes on Income
Three Months Ended
Three Months Ended September 30,
September 30, 2019 to 2020
2020 2019 Change
(in thousands)
Taxes on income $ 2,408 $ 7,270 $ (4,862 ) (66.9 )%
Taxes on income decreased by
•
a decrease of
•
a decrease in previous years taxes of
This decrease was partially offset by a decrease of
Given the ongoing impact of the economic downturn caused by COVID-19, we expect our tax expenses related to taxes on income to remain stable.
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Net Income
Three Months Ended
Three Months Ended September 30,
September 30, 2019 to 2020
2020 2019 Change
(in thousands)
Net income $ 43,751 $ 41,724 $ 2,027 4.9 %
As a result of the factors discussed above, net income increased by
Comparison of the Nine Months Ended
Revenues
Nine Months Ended
Nine Months Ended September 30,
September 30, 2019 to 2020
2020 2019 Change
(in thousands)
Revenues $ 1,101,164 $ 1,007,437 $ 93,727 9.3 %
Revenues increased by
Cost of Revenues and Gross Profit
Nine Months Ended
Nine Months Ended September 30,
September 30, 2019 to 2020
2020 2019 Change
(in thousands)
Cost of revenues $ 750,130 $ 671,348 $ 78,782 11.7 %
Gross profit $ 351,034 $ 336,089 $ 14,945 4.4 %
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Cost of revenues increased by
•
an increase in the volume of products sold;
•
increased customs tariffs, shipment and logistics costs of
•
an increase in other production costs of
•
an increase in personnel-related costs of
This increase was partially offset by a decrease in warranty expenses and
warranty accruals of
Gross profit as a percentage of revenue decreased from 33.4% in the nine months
ended
•
an increase in other production costs;
•
increased shipment and logistics costs resulted from our growth and new customs
tariff rules in the
•
the arithmetic effect from the increase in selling prices in the
•
increased actual support costs related to our warranty obligations; and
•
lower gross profit from our e-Mobility and Automation Machines Divisions, coupled with ramp up manufacturing expenses in our e-Mobility division.
These were partially offset by:
•
increased profit on units sold due to cost reductions in the manufacturing process of these products; and
•
decreased warranty accruals due to various cost reductions on the different elements of our warranty expenses which include the cost of the products, shipment and other related expenses.
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Research and Development
Nine Months Ended
Nine Months Ended September 30,
September 30, 2019 to 2020
2020 2019 Change
(in thousands)
Research and development
Research and development increased by
•
an increase in personnel-related costs of
•
increased expenses related to consultants and sub-contractors in an amount of
•
increased expenses related to other overhead costs in an amount of
Sales and Marketing
Nine Months Ended
Nine Months Ended September 30,
September 30, 2019 to 2020
2020 2019 Change
(in thousands)
Sales and marketing $ 67,113 $ 64,325 $ 2,788 4.3 %
Sales and marketing expenses increased by
•
increased personnel-related costs of
•
increased expenses related to other overhead costs and other expenses in an
amount of
These factors were partially offset by:
•
decreased expenses related to marketing activities in an amount of
•
decreased expenses related to travel in an amount of
General and Administrative
Nine Months Ended
Nine Months Ended September 30,
September 30, 2019 to 2020
2020 2019 Change
(in thousands)
General and administrative $ 45,077 $ 37,590 $ 7,487 19.9 %
General and administrative expenses increased by
•
increased expenses related to an accrual for doubtful debts in an amount of
•
increased personnel-related costs of
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Other operating (income) expenses
Nine Months Ended
Nine Months Ended September 30,
September 30, 2019 to 2020
2020 2019 Change
(In thousands)
Other operating (income) expenses
Other operating income was
•
a payment of
•
a decrease in expenses in the amount of
Financial Expenses (Income), net
Nine Months Ended
Nine Months Ended September 30,
September 30, 2019 to 2020
2020 2019 Change
(In thousands)
Financial expenses (income), net
Financial income was
Taxes on Income
Nine Months Ended
Nine Months Ended September 30,
September 30, 2019 to 2020
2020 2019 Change
(In thousands)
Tax on Income $ 16,192 $ 24,405 $ (8,213 ) (33.7 )%
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Taxes on income decreased by
•
a decrease of
•
a decrease in previous years taxes of
•
an increase of
Net Income
Nine Months Ended
Nine Months Ended September 30,
September 30, 2019 to 2020
2020 2019 Change
(In thousands)
Net income $ 122,667 $ 92,612 $ 30,055 32.5 %
As a result of the factors discussed above, net income increased by
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Liquidity and Capital Resources
The following table shows our cash flow from operating activities, investing activities and financing activities for the stated periods:
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(In thousands)
Net cash provided
by operating
activities $ 28,374 $ 68,700 $ 195,429 $ 175,934
Net cash provided
by (used in)
investing
activities $ (26,177 ) $ (6,176 ) $ 699 $ (58,397 )
Net cash provided
by (used in)
financing
activities $ 628,317 $ (922 ) $ 637.313 $ (68,307 )
Increase in cash
and cash
equivalents $ 630,514 $ 61,602 $ 833,441 $ 49,230 As of
To the extent that revenues decrease over the coming quarters due to the
economic downturn caused by COVID-19, we expect that our cash balances would
also decrease. This will be compounded by our continued investment in research
and development activities including the establishment of a lithium-ion factory
in
On
Operating Activities
For the nine months ended
For the nine months ended
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As a result of the disruption caused by COVID-19, we continue to anticipate a lower volume of orders in the next quarters relative to pre-COVID-19 orders, and in light of purchase obligations and manufacturing commitments incurred by us prior to the outbreak of COVID-19, our inventory levels may further increase in the next quarters resulting in consumption of cash for operating activities.
Investing Activities
During the nine months ended
During the nine months ended
Financing Activities
For the nine months ended
For the nine months ended
Convertible Senior Note
On
Debt Obligations
During the nine months ended
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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