SolarEdge Technologies, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Amounts are in U.S. dollars.
Business context and performance
SolarEdge designs and sells solar power optimizers, inverters, monitoring and storage solutions, and has expanded into energy storage, e-mobility, critical power and automation. Solar was the only reportable segment; the other businesses collectively generated a segment loss. Sella 1, the company’s Israeli manufacturing facility, reached full capacity in Q2 2021.
Q3 revenue was $526.4 million, up 55.7% year over year, driven mainly by higher inverter and optimizer sales across geographies and $17.2 million of e-mobility powertrain-kit revenue. Nine-month revenue was $1.412 billion, up 28.2%, including $48.0 million of powertrain-kit revenue. Non-U.S. markets represented 64.1% of Q3 revenue and 62.6% of nine-month revenue.
Financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $526.4m | $338.1m | $1,412.0m | $1,101.2m |
| Gross profit / margin | $172.6m / 32.8% | $108.1m / 32.0% | $468.8m / 33.2% | $351.0m / 31.9% |
| Operating income / margin | $66.4m / 12.6% | $30.4m / 9.0% | $166.1m / 11.8% | $128.1m / 11.6% |
| Net income / diluted EPS | $53.0m / $0.96 | $43.8m / $0.83 | $128.2m / $2.32 | $122.7m / $2.33 |
| Operating cash flow | $61.8m | $28.4m | $124.6m | $195.4m |
Q3 net income increased 21.2%; nine-month net income rose 4.5%, while diluted EPS was slightly lower than in 2020. Nine-month results included $13.6 million of net financial expense versus $10.7 million of net financial income a year earlier, principally reflecting unfavorable foreign-exchange movements, partly offset by hedging gains. Gross-margin improvement reflected product mix, lower U.S. customs duties and cost reductions, partly offset by higher warranty, component and freight costs and lower-margin non-solar businesses.
For the first nine months, cash used in investing was $398.0 million, largely reflecting purchases of marketable securities; financing used $19.4 million, compared with $637.3 million provided in 2020, when convertible notes were issued. Cash and cash equivalents were $526.6 million at September 30. Marketable securities were $618.8 million and short-term bank deposits $10.1 million. Current assets totaled $1.553 billion versus current liabilities of $405.5 million. Total liabilities were $1.415 billion and stockholders’ equity $1.242 billion.
Debt included $620.8 million net carrying value of 0% convertible senior notes, with $632.5 million principal due in 2025, and approximately $1.4 million of bank loans. The notes’ estimated fair value was $791.1 million. The company reported no off-balance-sheet arrangements.
Material changes, outlook and risks
- Management reported that a Vietnam contract manufacturer shut down for 12 weeks under COVID-related restrictions; ramp-up was underway and full capacity was expected by mid-November 2021. Capacity constraints and port congestion reduced finished-goods inventory and product availability. The company expected capacity to accommodate growing demand in the first half of 2022, assuming no further lockdowns.
- Management cited higher freight rates, logistics disruption and industry-wide component shortages, which raised costs, complicated delivery forecasts and diverted R&D resources to production workarounds. Q3 revenue nevertheless increased 9.7% from Q2 2021.
- The filing provides no formal revenue or earnings guidance. Sella 2, a planned 2 GWh Korean lithium-ion cell factory, was under construction, with test manufacturing runs expected in the first half of 2022.
- Nine-month capital expenditure commitments were approximately $126.2 million; non-cancelable purchase obligations were approximately $1.179 billion, with a $4.0 million provision for loss. Management stated that available cash and operating cash flow should fund anticipated needs for at least 12 months, including capital commitments.
- Warranty obligations rose to $247.1 million from $205.0 million at year-end 2020. Warranty additions and adjustments to cost of revenue were $109.4 million for the first nine months.
- Huawei patent cases in China included first-instance damages judgments, all under appeal and not effective or enforceable pending appeal; one case also involved a preliminary injunction affecting seven inverter models, prompting software changes. A German patent dispute with SMA and a former consultant’s claim were also disclosed. Accrued legal claims totaled $11.1 million.
- Two customers represented approximately 29.1% of trade receivables. Two contract manufacturers accounted for 23.2% of trade payables at quarter-end. E-mobility revenue depends on orders from a leading automaker facing component shortages, with possible order delays and inventory buildup.
- Foreign-exchange sensitivity is material: management estimated that a hypothetical 10% currency move over the nine-month period could change net income by $50.9 million for EUR/USD, $8.4 million for NIS/USD and $22.5 million for KRW/USD.
Important facts for investors to verify
- Whether Vietnam production and shipping availability recovered as expected, and how component and freight constraints affected subsequent deliveries and margins.
- Whether elevated purchase commitments, capital spending and warranty accruals translated into inventory, cash-flow or profitability pressure.
- Updates on the Huawei and SMA disputes, including appeal outcomes, injunction scope and potential financial exposure.
- Whether e-mobility customer production interruptions affected powertrain-kit orders, revenue and inventory.
- Subsequent foreign-exchange impacts, hedge effectiveness and the company’s liquidity relative to its operating and investment commitments.