SolarEdge Technologies, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Financial statement amounts are in U.S. dollars; amounts below are in millions unless noted. The filing describes SolarEdge’s solar power optimizers, inverters, monitoring and storage offerings, plus acquired UPS, battery and electric-vehicle businesses.
Financial performance
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Revenue | $325.0 | $227.1 | $596.9 | $437.0 |
| Gross profit / margin | $110.7 / 34.1% | $81.9 / 36.1% | $196.8 / 33.0% | $161.5 / 37.0% |
| Operating income | $45.4 | $40.7 | $73.4 | $81.4 |
| Net income attributable to SolarEdge | $33.1 | $34.6 | $52.1 | $70.3 |
| Diluted EPS | $0.66 | $0.72 | $1.05 | $1.46 |
- Q2 revenue rose 43.1%; first-half revenue rose 36.6%. Management attributed growth primarily to higher inverter and optimizer sales, geographic expansion and acquired businesses. Acquisitions contributed $18.3 million of Q2 revenue.
- Q2 operating income increased, but net income declined 4.8%; first-half net income declined 27.6%. Higher operating expenses and taxes offset revenue growth.
- Cash from operations was $50.8 million in Q2 and $107.2 million in the first half, versus $43.9 million and $107.9 million, respectively, in 2018. The first-half result included a $56.6 million increase in trade receivables.
- At June 30, cash and cash equivalents were $176.6 million; marketable securities totaled $189.2 million. Management also reported $7.8 million in bank and restricted deposits and stated liquidity would meet anticipated needs for at least 12 months.
- Total assets were $1.22 billion and total stockholders’ equity was $680.0 million. Balance-sheet bank loans were about $22.0 million, including current maturities and accrued interest. MD&A reports $18.6 million of Kokam loans and $3.3 million of SMRE loans outstanding.
Changes, outlook and notable items
- Gross margin fell 2.0 percentage points in Q2 and 4.0 points for the first half. Management cited lower margins and underutilized facilities in acquired businesses, higher warranty and support costs, logistics and tariffs, and acquired-asset amortization.
- First-half inverter shipments increased 37.8% and optimizer shipments increased 27.2%. First-half average selling price per watt declined 7.11%, reflecting currency movements and a greater mix of lower-ASP commercial products; U.S. price increases partly mitigated tariffs on China-made goods.
- Operating expenses rose substantially, including R&D up 48.8%, sales and marketing up 31.5%, and general and administrative expense up 141.0% for the first half. Drivers included added personnel, equity compensation, acquired operations and legal costs.
- The company acquired a controlling interest in SMRE in January 2019 and held 99.4% at quarter-end; it also increased its Kokam holding to 94.2%. Purchase-price allocations remained preliminary. No specific forward revenue or earnings guidance is provided in the supplied filing text.
- First-half investing cash outflow was $52.2 million, including $38.4 million for the SMRE acquisition and $22.2 million in capital expenditures. Financing cash outflow was $67.4 million, largely from purchases of non-controlling interests in Kokam and SMRE.
- Commitments included approximately $310.9 million of non-cancellable purchase obligations (with $2.8 million already provided for losses) and $45.4 million of capital-expenditure obligations. Warranty obligations totaled $150.6 million.
- Risks include dependence on a small number of contract manufacturers and suppliers, customer and receivables concentration, tariffs, currency exposure, solar-market and policy changes, and acquisition integration. Two customers represented 29.0% of trade receivables; one customer generated 16.2% of Q2 revenue.
- Huawei patent lawsuits seek injunctions and approximately $4.3 million in damages; the company says it will defend them. A separate post-quarter lawsuit by former SMRE shareholders seeks approximately $3 million. The filing reports no material changes to the risk factors in the 2018 Form 10-K.
Important facts for investors to verify
- Whether sales growth and shipment volumes can sustain margins as acquired businesses scale and production capacity is utilized.
- Warranty costs, receivables growth and collection trends, including exposure to major customers.
- Integration progress and financial contribution from Kokam, Gamatronic and SMRE, and the final purchase-price allocations.
- Cash requirements against purchase and capital commitments, acquisition-related payments and debt maturities.
- Potential outcomes and financial effects of the Huawei and former-SMRE-shareholder litigation, and tariff and foreign-exchange exposure.