Innovative, Patent Protected Technology, 49% Market Share, Multi-Billion-Dollar Market Growing at 46%
Initial Public Offering of 7,000,000 shares at $18 raises $126 million
Controls 49% of the solar market and 70% of the DC Optimizer market, with multi-billion-dollar market that’s growing at 46% CAGR
Solid quarter-over-quarter revenue growth (FY2014 revenues of $133 million, H1 2015 revenue of $140 million)
Stock closed Friday at $23.07.
SolarEdge Technologies, Inc. (NASDAQ: SEDG) is an Israeli solar technology company that develops, manufactures and distributes end-to-end solar photovoltaic (PV) solutions including PV inverters, PV monitoring equipment and power optimizers. The company sells its products to residential, commercial and large-scale customers in five continents. The company has 30 patents in the U.S., 9 non-U.S. patents and 136 patent-pending applications for its innovative solar technology, with patents not due to expire until 2027-2032. SolarEdge is an established brand with over 5 million optimizers and 200,000 inverters shipped. As of February 28, 2015, over 100,000 users monitored their solar installations through the company’s next-generation cloud-based system. For fiscal year 2014, SolarEdge had $133 million in revenue and in just the first half of fiscal year 2015 the company reported $140 million in revenue.
SolarEdge Controls 49% of Multi-Billion-Dollar, 46% CAGR Solar Market
SolarEdge operates in the global module-level power electronics (MLPE) industry, where analysts expect global shipments to grow at an annual compounded growth rate of 46%. MLPEs are a key part of the solar energy market and integral to the company’s growth strategy. As an established brand, SolarEdge has captured a majority of the solar energy market while its competition owns smaller parts of the remaining market. The company also controls approximately 70% of the DC optimizer segment.
Management expects the company to capture a majority of the anticipated $957 million MLPE market by supplying superior products at lower cost. SolarEdge is also a dominant player in the global PV inverter market which is estimated to grow to $7.8 billion by 2017 since only 1% of rooftops in the United States are equipped with solar panels.
Management plants to leverage core technology to enter adjacent markets such as cloud-based remote grid connectivity for home automation systems, smart cities and energy conservation.
Proven Results and Global Growth Offer Significant Upside
SolarEdge currently generates 48.5% of its revenue from the United States. With newly added third-party distribution centers worldwide to better serve global customers, SolarEdge has a global advantage over many of its competitors. The company recently switched from more expensive air shipments to cheaper ocean freight shipping to reduce logistics’ costs. As of February 28, 2015, SolarEdge had 200 direct customers and 8,300 indirect customers. Many of the company’s customers are large players in the solar industry such as SolarCity Corporation (SCTY), ViventSolar (VSLR), Alius Energy, Krannich Solar, Segen and Soligent. SolarEdge has a unique opportunity to expand in emerging markets in South America, Africa and Asia. The company is currently researching and developing products to meet specific country grid codes.
Successful IPO Raises $126 Million At High-End of Price Range
On March 26, 2015, SolarEdge held its initial public offering, with 7,000,000 common shares priced at $18 per share, the high end of the company’s initial price range of $16-$18 per share. Underwriters were granted an overallotment option to purchase up to an additional 1.05 million shares within the next 30 days which they likely will exercise given the first day 14.6% pop in shares.
The company raised $126 million which management plans to use for general corporate purposes including expansion and working capital. SolarEdge’s IPO is expected to close on March 31, 2015.
IPO Shares Up 17% in Just Two Days
On the first day of trading (3/26/15), SolarEdge shares opened at $20, rose as high as $21.73 and closed at $20.75. The next day (3/27/15), shares moved higher and closed at $21.05, up 17% over the $18 IPO price, giving SolarEdge a market capitalization of $802.03 million that is 3.8x annual sales and 52.2x cash flow.
SolarEdge plans to retain future earnings and will not pay dividends for the foreseeable future.
Portfolio Innovation, Industry-Leading R&D Keeps Company Ahead
SolarEdge currently sell its second-generation of inverters and third-generation of optimizers. Since 2010, the company has improved its solar solutions to offer more efficiency at a lower cost to consumers while increasing power ratings and offering a more flexible configuration that is also safer for operators.
The company currently offers two inverters, one-phase and three-phase, to meet the specific demands of residential or commercial consumers. SolarEdge is developing an ultra-high frequency inverter that is expected to offer even lower watt per dollar value. The company offers three different levels of its PV optimizer for residential customers and two levels of its PV optimizer for commercial customers. All optimizers have a weighted efficiency of 98.8% in extreme environmental conditions. In a comparison with its top competitor – Enphase Energy (ENPH) – SolarEdge optimizers generated energy at $0.085 per kilowatt while Enphase was at $0.105 per kilowatt, giving SolarEdge a clear and sizable performance advantage. SolarEdge is working on two additional optimizers that will further improve efficiency to almost perfection, regardless of weather conditions.
SolarEdge Opportunity: Status Quo Solar Technologies Are Inefficient
Before SolarEdge, the solar industry used one of two topologies – a traditional string inverter or a microinverter. A major issue with the traditional setup is that panels are installed in series which can lead to underperformance as each panel relies on the other. The traditional system also requires panels to be of the same type, length and angle, often leading to wasted rooftop space.
The microinverter system uses smaller inverters under each panel, which increases maintenance and upfront costs. Microinverters also have no long-term data to show how they hold up after years of being behind a solar panel. Much like the traditional string inverter topology, the microinverter system does not allow the monitoring of an individual panel’s performance or output.
SolarEdge Solution: Revolutionary Cloud-Connected DC Optimized Inverter Solution Better Meets Customer Needs, Increases Lifetime Value
SolarEdge’s DC Optimized Inverter Solution breaks the traditional system into two parts – the optimizer and the inverter – to optimize power generation at a lower cost by using intelligent panels that provide real-time tracking and performance updates of current voltage to automatically adjust for the optimal performance of each panel. SolarEdge’s intelligent panels can be placed at different angles and different heights to maximize roof space. The PV inverter is a simplified inverter using AC and DC power that is lightweight, easy and safe to install and maintain, and offers 97%+ efficiency. The inverters connect to the local utility company’s grid via Bluetooth and performance can be tracked via a mobile device for adjustments or maintenance, thereby reducing operator costs while enhancing operational and monitoring efficiencies.
SolarEdge’s DC Optimized Inverter Solution can use the same cables, connectors and methods as legacy systems, making switching to SolarEdge a low-cost option. In a 2013 study by the National Renewable Energy Laboratory (NREL), results showed SolarEdge’s solution generated more energy than traditional systems in light, medium and heavy shade scenarios, and outperformed microinverters in annual energy production.
SolarEdge products deliver superior customer value through higher lifetime value, enhanced safety, higher power yield, better flexibility and lower operation and maintenance costs through efficient monitoring.
SolarEdge Attains Additional Patents after Settling Lawsuit with Beacon Power
On January 8, 2015, SolarEdge was accused of patent infringement by energy storage company Beacon Power LLC for use of two of Beacon’s patents. To settle the lawsuit, SolarEdge agreed to purchase all rights related to the two patents while Beacon agreed to drop all charges, paving the way for continued growth without the stress of a lawsuit. This also reflects management’s decisiveness in acting in the company’s best long-term interests than engaging in expensive and potentially damaging litigation.
Cohesive Top-Tier Executive Team Focused on Solar Opportunity
Guy Sella, co-founder of the company, has served as Chairman and Chief Executive Officer since the company’s founding in 2006. Mr. Sella is responsible for all operations and strategy. He previously worked as a partner at venture capital firm Star Ventures, director of technology for the Israeli National Security Council and head of Israel’s natural lab electronics research department.
Ronen Faier joined the company as Chief Financial Officer in 2011, bringing several years of financial experience. Mr. Faier will handle finance, accounting, treasury and investor relations. He previously held CFO positions with Israeli mobile phone company modu and Israeli flash memory storage company M-Systems before joining SolarEdge.
Ilan Yoscovich serves as Chief Technology Officer and joined the company in 2008. Mr. Yoscovich will advise management on future technology strategy including research and development, product technology and performance, and cost structure. Prior to joining the company, he held the same title with wireless technology company Slyde Technologies.
Strong Revenue Momentum, Positive Net Profit
For the six months ended December 31, 2014, SolarEdge had revenues of $140.3 million (up 141%), gross profit of $29.8 million (up 325%), operating income of $6.6 million (up 158%) and net income of $5.9 million (up 145%), or $0.19 per share (pro forma).
Over the years, SolarEdge has grown revenues at high double-digit rates while slashing operating expense as a % of revenue from 35.6% in Q2 2014 to 15.8% in Q2 2015, and moving from a loss-making company to a profitable and cash flow positive operating model. This focus on simultaneous profitability bodes well for investors and is in contrast to companies that focus purely on revenue growth at the expense of profits.
As of December 31, 2014, SolarEdge had $131.9 million in cash and cash equivalents, $239.6 million in total assets, $4.7 million in total debt and $120 million in total stockholders’ equity. The IPO will provide a solid boost to cash reserves and seriously help the company capitalize on the tremendous multi-billion-dollar market opportunity ahead.
SolarEdge is a technology and patent-protected leader in its space, with path-breaking innovation that delivers advantages and operating efficiencies to every participant in the solar energy supply chain with economies of scale, cost reductions, reduced direct labor cost and cloud-based services. This is a ground-floor opportunity to get in on a growing global opportunity with a clear industry leader with a strong financial model, at a near-IPO price point where shares offer considerable near-term and long-term upside potential.