Analysis: Leaner SolarEdge ready to capitalise on post-pandemic opportunities

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SolarEdge said it could recruit talent it may have otherwise struggled to land in a post-pandemic environment. Image: SolarEdge.

Having exerted more control over its operational expenditure, SolarEdge has hinted it will take advantage of a broader, more global sales base and deeper talent pool to strengthen its focus on R&D.

Earlier this week, SolarEdge reported Q2 2020 revenues of US$331.9 million, towards the top end of guidance previously issued. This was scored on the back of what it referred to as its “global strength”, with the firm’s outside of the US – in Europe and Australia in particular – boosting its prospects.

Zvi Lando, chief executive at SolarEdge, told analysts this week that the company had experienced some order cancellations and push-outs in the US early on in the quarter, with various jurisdictions in the US having been significantly affected by the COVID-19 pandemic. This stacked up with other anecdotal evidence, as well as guidance and outlooks from others in the space, that suggested the solar space had witnessed the harshest impacts of the pandemic early on in the second quarter.

But this has since decline, Lando said, with the company “not seeing any of that practically anymore”. When combined with what has been a gradual increase in order flow over the rest of the quarter – again stacking up with anecdotal evidence that the US solar sector is rebounding quicker than expected – Lando said there was a “clear indication of recovery” in a market which has historically been its best performer.

SolarEdge has too been helped by the fact that there has been no real change to the competitive landscape in the US, despite other inverter and storage manufacturers eyeing it up for grow. This may, however, change in the near future, with Roth Capital in particular warning that it sees the US landscape shifting away from “just a pure duopoly” to more competitive dynamics that are only set to increase in the months ahead.

But is outside of the US that SolarEdge pointed to during its results disclosure this week, with European markets and Australia. While North American sales dipped “significantly” to US$124 million in the second quarter, sales in Europe totalled US$144 million. While SolarEdge no longer expects too much movement in its geographical revenue split throughout the rest of the year, it specifically mentioned the strengthening of incentives for residential solar seen in countries such as Italy.

The pandemic, whilst having an obvious and material impact on the renewables industry, has sparked some nations into life with regards clean energy incentives. Many are including stronger incentives in fiscal recovery packages and SolarEdge said that, especially in markets where the manufacturer was strong to begin with, it stands primed to benefit further still.

And it will do so from a position of financial strength. SolarEdge’s cash, cash equivalents, deposits and marketable securities stood at nearly US$600 million, a sizeable increase on the US$467.5 million it held at the turn of the year.

In addition to this, SolarEdge is now leaner, having taking action to reduce its OpEx since the onset of the pandemic. Its headcount has been reduced, and marketing and tradeshow expenditure has been cut. Base salaries for executives have been reduced by 20% and it is also in the process of renegotiating various leases and services. Solar operating expenditure as a percentage of revenue did climb in Q2 2020, up from 13.5% to 16.2%, but given revenue contracted by some 23% sequentially, this is clearly a SolarEdge that has trimmed some fat moving into a potentially difficult spell.

One area that CFO Ronen Faier did hint the company may be able to capitalise on in the wake of the pandemic is talent. The chief executive commented that engineers were now more readily available as a result of the pandemic shakeout, making it easier to recruit the kind of talent that it may have faced stiffer competition for in the past. Areas of the firm such as R&D could yet receive a boost as the industry as a whole comes to grips with the post-pandemic world.

All eyes will now fall onto Q3, where SolarEdge’s outlook is dampened. Despite positive signs the jury remains out on the speed of recovery in SolarEdge’s key markets and even by Lando’s own admission, when it comes to deployment, it’s still discussions rather than installations are taking place.

The firm’s guidance for Q3 remains for revenue to fall in the range of US$325 – 350 million, representing a near-15% drop on last year’s Q3 performance.

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