SolarEdge Technologies, Inc. (SEDG) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents mixed signals. While the company has stable financials and strategic partnerships, concerns include declining U.S. residential demand and lack of clear revenue guidance for 2026. European market optimism is balanced by tariff impacts and unclear management responses. Given the market cap, the stock is likely to remain neutral.
Key Financial Performance
Revenue In Q3, revenue grew by 44% year-over-year. Non-GAAP revenues for the third quarter were $340 million, up 21% quarter-over-quarter. Revenues from the U.S. amounted to $203 million, up 10% quarter-over-quarter, representing 60% of total revenues. Revenues from Europe were $101 million, up 45% quarter-over-quarter and 21% year-over-year, representing 30% of total revenues. International markets revenue was $36 million, down 8% quarter-over-quarter, representing 10% of total revenues. The reasons for the changes include increased utilization of operational costs, higher sales of U.S.-made products, and normalized inventory levels in Europe.
Gross Margin Non-GAAP gross margin for Q3 was 18.8%, up from 13.1% in Q2. The improvement was due to higher revenue, increased utilization of operational costs, and higher sales of U.S.-made products. However, incremental tariffs impacted the gross margin by approximately 2%.
Operating Expenses Non-GAAP operating expenses for Q3 were $87.7 million, at the midpoint of guidance. This was despite headwinds from the strengthening of the Israeli shekel. The company has been focused on cost discipline and streamlining operations.
Operating Loss Non-GAAP operating loss for Q3 was $23.8 million, compared to $48.3 million in Q2, cutting the operating loss by more than half. The improvement was largely due to higher revenue and gross margin.
Net Loss Non-GAAP net loss for Q3 was $18.3 million, compared to $47.7 million in Q2, a reduction of over 60%. Non-GAAP net loss per share was $0.31 in Q3, compared to $0.81 in Q2. The reduction in net loss was due to higher revenue and gross margin.
Free Cash Flow Positive free cash flow for Q3 was approximately $23 million, driven by working capital items and CapEx discipline. For the first 9 months of the year, free cash flow was approximately $34 million. The company also generated proceeds from the sale of the Sella 2 facility, amounting to $26.1 million.
Cash and Investment Portfolio As of September 30, 2025, the cash and investment portfolio was approximately $547 million, net of the repayment of $342 million of 2025 convertible notes. The portfolio increased by approximately $77 million due to positive free cash flow and proceeds from the sale of the Sella 2 facility.
Inventory and Cash Conversion Cycle Inventory was flat at approximately $530 million. Days Inventory Outstanding (DIO) declined from 217 to 177. Accounts Receivable (AR) net increased to $286 million from $217 million, and Days Sales Outstanding (DSO) increased from 57 to 68 days. Days Payable Outstanding (DPO) increased from 59 to 77. Overall, the cash conversion cycle days declined from 215 to 168 days, reflecting improved working capital management.
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Operating Highlights
Single SKU software-defined platform: Implemented a platform that reduces complexity for residential and commercial applications globally. Allows manufacturing and shipping of one SKU of the inverter, which can be programmed to the desired kilowatt rating in the field. Simplifies forecasting, manufacturing, inventory management, logistics, service, and support. Adds flexibility for future system upgrades via software updates.
Next-generation Nexis platform: Continued development and field installation. Initial volumes of the new 3-phase inverter shipped to customers with simplified installation process. Rolled out ONE for C&I energy management system, enabling control and optimization of behind-the-meter devices and loads.
U.S. residential market: Regained #1 residential inverter market share position in Q2 2025, reflecting improved quality and service. Positioned to benefit from the structural shift towards the TPO model due to strong relationships and infrastructure with TPOs.
European market: Revenue reached $100 million in Q3, up 45% quarter-over-quarter and 21% year-over-year. Improved position expected with ramp-up of commercial storage sales, U.S.-made products, and Nexis platform rollout.
Operational excellence initiatives: Achieved lowest non-GAAP OpEx to revenue ratio in 2 years. Generated positive free cash flow in Q3 and maintained a cash and investment portfolio of $550 million. Improved inventory management and reduced cash conversion cycle days.
Cost discipline: Streamlined operations by selling Sella 2 manufacturing facility for $26.1 million and settling claims related to discontinued energy storage division, resulting in a $15 million gain.
Collaboration for solid-state transformer platform: Announced collaboration to advance solid-state transformer platform for data centers, aiming to expand core technology into the data center market for smarter, efficient energy systems in the AI era.
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Risk or Challenges
Market Conditions in Europe: The European market remains challenging, with distribution partners holding normalized levels of inventory. This could impact revenue growth and market share in the region.
Tariff Impacts: Incremental tariffs impacted gross margins by approximately 2% in Q3, and similar impacts are expected in Q4, posing a challenge to profitability.
Currency Exchange Rates: The strengthening of the Israeli shekel created headwinds for operating expenses, which could continue to affect financial performance.
Inventory Management: Despite improvements, inventory levels remain high at approximately $530 million, which could tie up capital and affect cash flow.
Transition to Single SKU Framework: The shift to a single SKU framework may introduce operational complexities and risks during the transition period, including potential delays or errors in implementation.
Economic Uncertainties: General economic uncertainties could impact demand for SolarEdge's products, particularly in international markets where revenues declined by 8% quarter-over-quarter.
Regulatory and Compliance Risks: The need to comply with non-FEOC and domestic content requirements for U.S. markets adds complexity and could limit flexibility in product offerings.
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Guidance & Outlook
Revenue Expectations: Revenues for Q4 2025 are expected to be within the range of $310 million to $340 million, reflecting a better-than-normal seasonal trend.
Gross Margin Projections: Non-GAAP gross margin for Q4 2025 is expected to be within the range of 19% to 23%, including approximately 2 percentage points of new tariff impact.
Operating Expenses: Non-GAAP operating expenses for Q4 2025 are expected to be within the range of $85 million to $90 million.
Free Cash Flow: The company expects to generate positive free cash flow in Q4 2025 and for the full year of 2025.
Market Trends and Strategic Positioning: The U.S. residential market is expected to shift towards the TPO model in 2026, which aligns with SolarEdge's strengths in technology and partnerships. The company also anticipates gaining additional market share in the U.S. C&I space due to its compliance with non-FEOC and domestic content requirements.
European Market Outlook: The company expects its position in Europe to improve as it ramps up sales of commercial storage, delivers U.S.-made products, and rolls out the next-generation Nexis platform in the coming quarters.
Innovation and Product Development: SolarEdge plans to continue enhancing its technology platform, including the rollout of the Nexis platform and the introduction of additional features for its ONE for C&I energy management system, which will generate recurring revenue streams.
U.S. Manufacturing Expansion: The company expects to begin shipping U.S.-manufactured residential and C&I products to additional markets in the coming weeks, enhancing competitiveness outside the U.S.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Can you provide guidance on revenue growth for 2026 and commit to positive free cash flow for that year?
A:The company does not provide guidance for 2026 revenue growth or free cash flow. Historically, Q1 is down around 10% versus Q4 due to seasonality. For 2023, the company was free cash flow positive through Q1 to Q3 with $34 million and expects to remain free cash flow positive in Q4.
Q:What is the timing of commercialization for the Infineon partnership, and are there any bookings yet?
A:The commercialization of the Infineon partnership is expected to start in the 2027-2028 timeframe. Discussions with ecosystem players have been positive, but no bookings have been confirmed yet.
Q:Will you provide updates on bookings and contracts related to the Infineon partnership before 2027?
A:The company will share more information as progress is made. Currently, the focus is on developing the new architecture, which is expected to be ready in two years.
Q:Why did gross margins improve in Q4 despite a sequential revenue decline?
A:Gross margin improvement was driven by factors such as ramping U.S. production, introduction of new higher-margin products, and the single SKU framework. Seasonality impacted Q4 revenue, and legacy European inventory is expected to have a lower impact going forward.
Q:What is the go-to-market plan for the Infineon partnership?
A:The company has not finalized its go-to-market plans but expects to approach customers directly or through distribution partners. No major investment is anticipated for this effort.
Q:How is market share trending in Europe, and what is the outlook?
A:The company believes it has turned the corner in Europe, with market share stabilizing between Q2 and Q3. Optimism is driven by normalized inventory levels, new product introductions, and competitive pricing. There is significant room for market share growth.
Q:What is the trajectory of tariff impacts, and how are they being mitigated?
A:The net tariff impact was 2% in Q3 and is expected to remain similar in Q4. The company is focused on diversifying supply sources and optimizing the supply chain. Pricing actions may also mitigate tariff impacts.
Q:What is the demand outlook for the U.S. residential market and C&I market?
A:The U.S. residential market is expected to decline by 20%-30% in 2026 due to the end of the 25D tax credit. The company has strong partnerships with TPOs and does not anticipate significant pull-forward of revenue. The C&I market shows growth potential, especially with non-FEOC and domestic content-compliant products.
Q:What is the potential market size for solid-state transformers in data centers?
A:The market is significant, with 100 gigawatts of data centers expected to come online in the next decade. The company is well-positioned to capture this opportunity due to its core competencies and existing components.
Q:What is the outlook for European demand in 2026?
A:The European market may see mixed trends, but the company is optimistic about gaining market share due to new product introductions and competitive pricing. Germany is expected to be a significant growth area.
Q:What is the status of stationary storage systems and retrofitting opportunities?
A:Stand-alone storage systems are not significant, but retrofitting existing PV systems with storage presents a large opportunity. The company is also exploring opportunities in the C&I market for storage.
Q:How is the company addressing evolving battery chemistries and duty cycles?
A:The company is monitoring new battery chemistries and will introduce them when they become cost-effective or functional. Current solutions use NMC and LFP chemistries. Data center storage solutions are still in early stages.
Q:What is the status of U.S. manufacturing and plans for expansion?
A:The company has ramped up U.S. manufacturing to support domestic and international markets. Current capacity includes 70,000 inverters and 2 million optimizers per quarter. The goal is to concentrate most manufacturing in the U.S. for operational efficiency.
Q:What is the near-term revenue outlook, and is safe harboring expected to impact Q1 2026?
A:Q1 2026 revenue is expected to be down 10% due to seasonality, with no significant safe harboring anticipated. The company has structured safe harbor transactions to avoid revenue pull-forward.
Q:What is the content split between SolarEdge and Infineon for solid-state transformers?
A:Infineon provides strategic components, but SolarEdge integrates these into a complete solution, including hardware, software, and redundancy management.
Q:Will the company provide a longer-term financial outlook?
A:The company plans to share a financial model and growth trajectory in the first half of 2026, including opportunities in C&I and other segments.
Q:What is the outlook for fixed costs and pricing?
A:Fixed costs are around $90 million and are expected to remain stable. Pricing in the U.S. is stable, while European pricing is competitive with no significant downward pressure.
Q:What is the demand outlook for the C&I market, and does the company have the capacity to meet it?
A:The company is well-positioned in the U.S. C&I market with non-FEOC and domestic content-compliant products. Manufacturing capacity is scalable to meet demand.
Q:Does U.S. manufacturing for export qualify for 45X tax credits, and how is capacity being managed?
A:Yes, U.S. manufacturing for export qualifies for 45X tax credits. The company works with scalable partners like Jabil and Flex to manage capacity efficiently.
Q:Review of Unclear Management Responses
A:Management avoided providing direct answers to questions about 2026 revenue growth and free cash flow, as well as specific details on the financial impact of the Infineon partnership before 2027. They also did not disclose detailed sourcing strategies to mitigate tariff impacts or provide specific market share recovery targets for Europe.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI era
Asaf
Australia CI
CI base
CI product
Calendar page
EU revenue
Events Calendar
Nexis platform
SKU
Shuki
TPO model
TPOs
center
energy system
field
future
generation Nexis
harbor
harboring
installation generation
inverter market
method
partner
quality
quarter priority
rating
share position
solution money
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technology platform
trajectory
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SEDG Transcript
SolarEdge Technologies, Inc. (SEDG) Q3 2025 Earnings Call Transcript
Unknown11-5
The earnings call presents mixed signals. While the company has stable financials and strategic partnerships, concerns include declining U.S. residential demand and lack of clear revenue guidance for 2026. European market optimism is balanced by tariff impacts and unclear management responses. Given the market cap, the stock is likely to remain neutral.
SolarEdge Technologies, Inc. (SEDG) Q2 2025 Earnings Call Transcript
Positive8-7
The earnings call reveals strong financial performance with revenue and margin growth, innovative product launches, and positive market share movement. The Q&A session highlights management's strategic initiatives, such as the Nexis platform, and efforts to optimize costs and efficiency. Despite some uncertainties, like weak European markets and inventory adjustments, the overall sentiment is positive, driven by strong battery performance, clear U.S. channels, and strategic R&D. The market cap suggests moderate volatility, leading to an expected stock price increase of 2% to 8% over the next two weeks.
SolarEdge Technologies, Inc. (SEDG) Q1 2025 Earnings Call Transcript
Positive5-6
The earnings call summary shows significant improvement in financial performance, with reduced losses and positive free cash flow. The company has strong liquidity and effective cost management. Despite some uncertainties in the Q&A section, the overall sentiment is positive due to improved margins, reduced operating expenses, and a solid cash position. The guidance for positive free cash flow in Q1 2025 and strategic initiatives like US manufacturing ramp-up also contribute to a positive outlook. Given the company's market cap, a positive stock price movement (2% to 8%) is expected over the next two weeks.
SolarEdge Technologies, Inc. (SEDG) 37th Annual Roth Conference (Transcript)
Neutral3-18
SEDG Report
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