SolarEdge stock price plunges after company lowers Q3 revenue guidance

SolarEdge Technologies Inc. shares fell approximately 16% in early trading Aug. 2 after the company reported a significant dip in expected revenues for the third quarter.

SolarEdge sells, designs and develops components such as direct-current inverters and power optimizers for commercial, residential and small utility-scale solar installations, along with accompanying battery storage and energy management systems. But while it posted record revenues of $991.3 million for the second quarter, the company issued guidance of $880 million to $920 million for the quarter ending Sept. 30.

US residential solar demand continues to decline as California customers adjust to compensation cuts for rooftop solar generation exported to the grid, while Europe's commercial and residential installations have been "somewhat more moderate than what was anticipated heading into 2023," CEO Zvi Lando told investors Aug. 1 during a second-quarter earnings conference call.

"The solar market is going through a transition, emerging from the recent period of component shortages, high energy prices and rapid growth to one now impacted by higher interest rates and excess inventory," Lando said. "On the supply side, the distribution channels in Europe are experiencing higher-than-optimal inventory levels, especially as it relates to solar modules."

US solar revenues were $195.6 million for the quarter, a 37% decrease compared with the prior-year period, and accounted for 21% of SolarEdge's revenues.

The anticipated revenue decrease for the third quarter is primarily due to declining battery revenues from Europe and, to a lesser extent, the US, according to CFO Ronen Faier.

"Our batteries shipments were a little bit faster than our ability to ramp up the inverters that come with them, mostly three-phase inverters, and as a result, there is a built inventory within the channels there that needs to be cleared in order to continue and grow," he said.

SolarEdge expects the "inventory adjustment period" in both Europe and the US residential market could last through 2023.

"We are seeing a positive indicator, I would say, of sell-through by our distributors that has increased in the US by 10% quarter-over-quarter, but ... the inventory levels are still such that this is not a sufficient enough increase to drain the inventories quickly," Lando said.

The CEO added that SolarEdge does not need to consider cutting product costs yet, but may do so in 2024 if needed.

The company will also begin taking advantage of the new 45X production tax credit included in the Inflation Reduction Act during the third quarter and will see a substantial financial impact starting in the fourth quarter, according to Lando.

In May, Lando said SolarEdge is focused on first manufacturing inverters and optimizers in the US, starting with residential and moving to commercial, before scaling up to other products.

SolarEdge posted non-GAAP net income of $157.4 million, or $2.62 per diluted share, in the fourth quarter of 2023, up from $56.7 million, or 95 cents per diluted share, a year earlier. The S&P Capital IQ consensus for the second quarter was $2.56.

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