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ST

SOLAREDGE TECHNOLOGIES, INC. (SEDG)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $196.2M, down 17% QoQ, with GAAP gross margin of -57.2% and non-GAAP gross margin of -39.5% as the company took $138M in write-downs and impairments; GAAP EPS was -$5.00 and non-GAAP EPS was -$3.52 .
  • Management emphasized a turnaround centered on cash generation: Q4 free cash flow was +$25.5M and they expect FCF to be positive in Q1 2025 and for full-year 2025, aided by §45X monetization and “safe harbor” agreements; Q1 2025 guidance: revenue $195–$215M, non-GAAP GM 6–10%, non-GAAP OpEx $98–$103M .
  • The core solar segment posted $189.0M revenue in Q4; shipments were 895 MW of inverters and 130 MWh of batteries; US mix and domestic content ramp are improving commercial positioning and cash flow (ASP/watt $0.208, battery ASP/kWh $262) .
  • Strategic resets in Q4: closure of the Korea Energy Storage division (cost-out, focus on PV-attached storage) and appointment of CEO Shuki Nir (turnaround mandate) .
  • Stock narrative catalysts: return to positive FCF, Q1 gross margin uplift guide to 6–10%, domestic content/safe harbor/§45X support for cash, and a clear timeline to normalize European channel inventory by end of Q2 2025 .

What Went Well and What Went Wrong

What Went Well

  • Positive free cash flow: “approximately $26 million in free cash flow” in Q4; management expects FCF positive in Q1 2025 and the full year 2025 .
  • Domestic content momentum: Two §45X sales in Q4 (eligibility ramped from $0.065/W to $0.11/W) and safe harbor agreements with major US residential partners; US manufacturing ramp to >70k inverters/quarter in Austin and 2M optimizers/quarter in Florida in Q1’25 .
  • Underlying margins excluding write-downs: “Excluding…~$87M” of net impairments, Q4 non-GAAP GM would have been 4.8% (above guidance), and solar segment would have been 7.3% .

What Went Wrong

  • Deep impairments and gross margin pressure: Q4 GAAP GM -57.2% and non-GAAP GM -39.5% largely due to $115M inventory write-downs ($87M net in solar) and $23M long-lived asset impairments; non-GAAP loss per share -$3.52 .
  • European demand and channel remain weak: management revised down European outlook and now targets normalized distribution inventory by end of Q2 2025; Q4 sell-through ~$400M but reported revenue about half due to channel inventory dynamics .
  • Segment exit and restructuring: Closure of Energy Storage division in Korea (workforce reduction, asset impairments) underscores focus on core PV-attached storage but reflects execution challenges and fixed-cost drag being addressed via cost actions .

Financial Results

Headline P&L vs prior quarters (revised where applicable)

MetricQ2 2024Q3 2024 (revised)Q4 2024
Revenue ($USD Millions)$265.4 $235.4 $196.2
GAAP Gross Margin (%)-4.1% -309.1% -57.2%
Non-GAAP Gross Margin (%)0.2% -305.0% -39.5%
GAAP EPS ($)-$2.31 -$21.58 -$5.00
Non-GAAP EPS ($)-$1.79 -$15.78 -$3.52
GAAP Operating Loss ($M)-$160.2 -$1,110.7 -$263.7
Non-GAAP Operating Loss ($M)-$114.3 -$833.6 -$184.1

Notes: Q3 2024 was revised downward by $25.5M of revenue and higher loss; revised quarterly revenue $235.4M and GAAP EPS -$21.58 .

Segment/Revenue Mix and Margins (Q4 2024)

MetricQ4 2024
Solar Segment Revenue ($M)$189.0
Non-solar Revenue ($M)$6.9
Solar Segment Gross Margin (%)-38.8%

KPIs

KPIQ2 2024Q3 2024Q4 2024
Inverter Shipments (MW AC)873 850 895
Battery Shipments (MWh)128 189 130
ASP per Watt (ex-battery)——$0.208
Battery ASP ($/kWh, PV-attached)—$317 $262
Sell-through (approx., $M)——~$400
Q4 Solar Revenue by Region——US: $114M (60%); Europe: $44.8M (24%); International: $30.3M (16%)

Cash Flow and Balance Sheet Highlights (Q4)

  • Cash from operations: +$37.8M; Free cash flow: +$25.5M .
  • Cash, cash equivalents, restricted cash and marketable securities net of debt: ~$81.8M at 12/31/24 .
  • Inventory (net) $645.9M; AR (net) $160.4M .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance / ActualChange
RevenueQ4 2024$180–$200M (guided on 11/6/24) $196.2M actual In-line (within range)
Non-GAAP Gross MarginQ4 2024-4% to 0% incl. ~1000 bps IRA -39.5% actual; Ex-impairments: 4.8% (mgmt calc) Headline miss; ex-impairments above guide
Non-GAAP OpExQ4 2024$103–$108M $106.8M actual In-line
Solar Segment RevenueQ4 2024$170–$190M $189.0M actual High end of range
Solar Segment GMQ4 20240%–3% incl. ~1050 bps IRA -38.8% actual; Ex-impairments: 7.3% (mgmt calc) Headline miss; ex-impairments above guide
RevenueQ1 2025N/A$195–$215M New
Non-GAAP Gross MarginQ1 2025N/A6%–10% New
Non-GAAP OpExQ1 2025N/A$98–$103M New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Inventory/channel normalization (Europe)Undershipping; inventories to clear in 1H25 Impairments, Europe still challenged Expect normalized European channel inventory by end of Q2 2025; sell-through ~$400M vs reported revenue ~half Improving visibility; still pressured
Pricing/promotions (Europe)—Began discussing actions Promotions launched in Nov; aim to regain share; initial results expected Q2’25 Stabilizing; awaiting impact
Domestic content/§45XIRA benefit cited in margins —Two §45X sales (to $0.11/W), safe harbor agreements signed; ongoing cadence expected Positive, scaling
Cost actions/OpExOpEx control underway Large impairments; restructuring trends Korea storage closure; ~400 headcount reduction; OpEx target $85–$90M/quarter by end 2025 Improving structurally
Product roadmap——Next-gen residential (Nexus/NexSSS) alpha; initial volumes targeted Q4’25 (US, Germany) to lower COGS/improve GM Positive medium-term
Regional trends——US sell-through -17% QoQ; Europe flat QoQ; mix favoring US pricing Mixed
Regulatory/policyIRA credits, safe harbor context —48E change benefits US battery positioning; safe harbor prepayments/deferred revenue partly reflected Supportive in US

Management Commentary

  • Strategic focus: “We are just getting started on our turnaround story. The return to positive free cash flow generation in Q4 is a solid first step, and we expect to be free cash flow positive in Q1 2025 and for the full year 2025.” – CEO Shuki Nir .
  • European inventory path: “Most of the channel inventory in Europe is going to be cleared by the end of the second quarter [2025]… sell-in and sell-out are going to converge around that time.” – CEO .
  • Margin ex-impairments: “Excluding the net impairments and write-downs of approximately $87 million, non-GAAP gross margins in Q4 would have been 4.8%… solar segment… 7.3%.” – CFO .
  • §45X monetization cadence: “First tranche… $0.065/W; second… $0.11/W… we can accumulate the IRA tax credits and sell them in the following quarter.” – CFO .
  • US manufacturing ramp: “Austin… run-rate capacity of over 70,000 inverters per quarter… Florida… 2 million optimizers per quarter in Q1 ’25.” – CEO .
  • Cost structure/OpEx: Target non-GAAP OpEx to $85–$90M per quarter by end of 2025; exit non-strategic lines; closure of Korea storage division .

Q&A Highlights

  • Free cash flow: No quarterly target disclosed, but confident in positive FCF in Q1 and 2025; convert strategy remains paydown from balance sheet given zero-coupon feature .
  • Sell-through vs sell-in: Gap driven by Europe channel inventory; convergence targeted by end Q2 2025 .
  • Safe harbor and cash flow: Part of increase in deferred revenue/prepayments relates to safe harbor; restricted cash includes safe harbor and other commercial arrangements .
  • Impairments cadence: Additional inventory write-downs in Q4 reflect weaker-than-expected Europe; they continuously reassess; action taken based on best judgment .
  • New products and margins: Next-gen residential suite targeted Q4’25 initial volumes (US/Germany) with improved manufacturability and gross margin profile .

Estimates Context

  • Street consensus (S&P Global) was not retrievable at the time of this analysis due to data limits; therefore, we cannot quantify beats/misses vs consensus for revenue or EPS in Q4 2024 or for Q1 2025 outlook. We anchor comparisons to company guidance and actuals disclosed in primary documents.
  • Q4 revenue of $196.2M landed within the company’s prior revenue guide ($180–$200M), but headline reported non-GAAP gross margin (-39.5%) missed the -4% to 0% guide due to Q4 impairments; management’s ex-impairment view indicates underlying GM would have been above guidance at ~4.8% .

Key Takeaways for Investors

  • Cash inflection is tangible: Q4 free cash flow positive and management is confident in positive FCF in Q1 and FY25, supported by safe harbor prepayments and §45X monetization .
  • Near-term GM uplift: Q1 non-GAAP gross margin guided to 6–10% as domestic content scaling, IRA credits, warranty improvements, and reduced fixed COGS (Korea storage exit) kick in .
  • Channel reset timeline: Europe inventory normalization by end of Q2 2025 should align sell-in with sell-through and reduce volatility; watch Q2 results for confirmation .
  • Mix and pricing: US mix and pricing helped ASP/W rise QoQ; promotions in Europe aim to regain share with expected impact from Q2 2025 onward .
  • Strategic focus and cost-out: Korea storage closure and headcount reductions concentrate resources on core PV-attached storage and energy management; OpEx targeted down to $85–$90M/quarter exiting 2025 .
  • Medium-term product catalyst: Next-gen residential platform (Nexus/NexSSS) slated for initial volumes in Q4 2025, designed to improve cost structure and margins in key markets (US, Germany) .
  • Risk skew: European macro and competitive dynamics remain the key overhang; further impairments unlikely by design but depend on demand trajectory; monitor US policy/IRA execution and safe harbor cadence .