Excuse me, everyone. Welcome to the Solar Edge Conference Call for the Second Quarter ending June 30, 2018. This call is being webcast live on the company's website at www.solaredge.com in the Investors section on the Event Calendar page. This call is the sole property and copyright of the Solar Ridge with all rights reserved in any recording, reproduction, or transmission of this call without the express written consent of SolarEdge is prohibited. Call by visiting the Event Calendar page of the SolarEdge Investor website.
I would now like to turn the call over to Erica Mannion at Sapphire Investor Relations. Investor Relations for SolarEdge.
Second quarter ended June 30, 2018, as well as the company's outlook for the third quarter of 2018. With me today are Guy Sella, Founder, Chairman and CEO and Ronan Fire, Chief Financial Officer. Guy will begin with a brief review of the results of the second quarter ended June 30, 2018, Ronin will review the financial results for the second quarter provide the company's outlook for the third quarter of 2018. We will open the call for questions following. Please note that this call will include forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations.
We encourage you to review the Safe Harbor statements contained in our press release and the slides published today for a more complete description. All material contained in the webcast is a sole property and copyright of SolarEdge Technologies, with all rights reserved. Please note, this presentation describes certain non GAAP measures including non GAAP net income and non GAAP net diluted earnings per share, which are not measures prepared in accordance with U. S. GAAP.
The non GAAP measures are presented in this presentation as we believe that they provide investors with a means of evaluating and understanding of the company's management evaluates the company's operating performance. These non GAAP measures should not be considered in isolation from, as substitutes for or superior to financial measures prepared in accordance with U. S. GAAP. And listeners who do not have a copy of the quarter in June 30, 2018 press release or the presentation may obtain a copy by visiting the Investors section of the company's website.
Now I will turn the call over to CEO, Guy Sella.
Thank you, Erica. Good afternoon, and thank you all for joining us on our conference call. I'm happy to report that we concluded our 2nd quarter with strong results. We are reporting record revenues for the quarter of $227,100,000, gross margin of 36.1 percent GAAP net income of $34,600,000 and a non GAAP net income of $40,600,000. We also reported cash flow from operations of $43.9 Our revenues once again reached a record high this quarter, and we continue to execute on our business plan.
Revenues increased from last quarter by 8% and by 67% from the same quarter last year. Despite a flat market in the United States. Our growth was driven by both the mention of our commercial and residential business in the United States and continuously strengthening demand for our products in Europe. The growth of our commercial business, of course, by nature, reduces the blended ASP per watt but this is within our expectations and our plans. In the second quarter, we shipped 980 5 Megawatt of AC nameplate inverters, approximately 460 megawatts of which will shift to the North America.
Overall, we shipped 2,700,000 power optimizers and 114,000 inverters, yet another record. I want to take this opportunity to highlight some aspects of our business and to address some additional noteworthy metrics. For the 3rd consecutive quarter, we saw growth in our commercial sales compromising today 5% of our overall megawatt shipment. Among the dose project is a 27 megawatt large ground mounted in translation in India currently under commissioning. We continue to increase our investment in R&D and related tenditures in order to drive down product cost and more important to introduce new products.
We believe that one of our differentiators is technology technological innovation, which leads the PV market in new developments that have changed the way that far is harvested from the sun. The success of the entire PV industry has been and continues to be driven by innovative technology that makes TV Energy more affordable and ubiquitous. Such innovation requires significant investment and years of dedication and hardware from skilled R And D Engineers. To that end, in the past 2 months, We filed a lawsuit for patent infringement against Howie Technologies Corp, Ltd, the Chinese entity, Howie Technology, Dusseldorf GMVH, the German entity and WalterCraft Solar GMVH, the German distributor for Howie. The lawsuit was filed in the Regional Court of Meinhein in Germany, one of the most prominent German patent courts, Easured Orthoarizide used the 3 patented technologies and intended to protect our significant investment in our innovative DC optimized inverter technology and our innovative power optimizer technology.
The lawsuit was filed initially on one patent And then, as we announced earlier this week, was extended to an additional 2 patents and 6 monetary damages in injunction and the recall of the infringing how we inverters and power optimizer from the German market. The lawsuit is intended to prevent Howie and distributors from selling any multilevel inverters and power up optimizer that infringe upon SolarEdge PB inverter technology that is protected in the efforts patents in Germany. As we have said for many years now, it is our position that the illegal use of proprietary technology can stifle the solar industry and inhibit investment in furthering technology. While this is not our preferred course of action, we believe that this is sure evil that is required to ensure the integrity of the entire PV industry, secure a level of playing field and protect SolarEdge intellectual property. On a very different front, on July 1, we announced the closing of the asset purchase agreement with Gamatronic, a company that developed manufactured and sold UPS Universal Power Supply Systems, also known as UPS.
The acquisition for approximately $11,200,000 gives SolarEdge an entry into adjustment business with intellectual property brand recognition and product line that we believe will support our plan to extend our technology technological offering in power electronics to additional area of business. The integration of Gomatronics include approximately 100 employees many of whom have extensive R and D experience and will contribute to our innovations Comatronics UPS business served as a basis for a new division of SolarEdge. I would like to share a few words about grid services and virtual farmland. This quarter, we announced innovations that support the newly growing shirts energy economy. With the increasing proliferation of PV And Storage around the world, The energy production industry is transitioning from a centralized system to a distributed network in which energy is produced closer to the location it is stored and consumed.
This provides PV and Storage Systems owners with a new revenue stream opportunity by selling their self produced and stored energy. However, the new complex network distributed generation requires sophisticated management platforms to provide real time aggregated control of the demand and supply of energy. Our agreed services now offer us negative control and data reporting enabling the polling of PV and storage in the cloud for creation of virtual power plants. This solution will provide utilities with tools to leverage distributed energy generation system to more efficient meet demand. At the same time, energy retailers will enjoy protection from price peaks and PV system owners can increase their revenue from joining this new energy economy.
Also worth not smoking is our continuing investment in manufacturing capacity. Together with our growth come to challenge of one time delivery of quality product. We continue to focus on improving and automating our manufacturing line so as to enable flexibility of manufacturing locations to accommodate our global sales. Given the current environment in the United States. It would be Remi's to end my remarks without addressing the proposed maturities on specified import products originating from China, which preassembly are expected to include inverters and optimizers.
These tourists and the possibility of additional tourists in the future have created unnecessary and uncertainty in the industry concerning whether they will cause material increase in the price of solar system in the United States. As you know, we have 3rd party manufacturing capabilities in both Romania and Hungary, which include automated assembly lines for our power optimized Should these stories be enforced, we are confident in our ability to expand our power optimizer manufacturing capacity in this location within two quarters in order to meet the full demand in the United States for power optimizer. Similarly, We anticipated, if needed, meeting the vast majority of the inverter's demand for the U. S, will take between 2 to 4th quarters, such that overall, in the long term, we do not expect that the tariffs will negatively impact the pricing of our products for the United States. So while there may be temporary slight increase in cost of products coming into the United States due to imposed tariffs, We are working proactively to minimize the effect on any factories of importations from China into the U.
S. When it comes to SolarEdge product and SolarEdge customers. We continue to be confident that our continuously increased cash position, which now exceeds $437,000,000 put us in a strong position to continue to develop new products and expand our business, both geographically and into other areas. I would like to conclude with brief look at our bottom line numbers. Our non GAAP net income was 40,600,000 and we generated cash from operation amounting to $43,900,000.
Positions us well to continue to develop innovative technology and bring value to extending markets with new products And with this, I hand the speaker over to Ronen who will review our financial results.
Thank you, Guy, and good afternoon, everyone. Before starting the review of our financial results for the second quarter of 2018, I would like to remind listeners that while the overview will be on a GAAP basis, in certain cases, I will be discussing non GAAP numbers and measures which exclude the impact of the newly adopted revenue recognition standard, stock based compensation one time asset disposal one time transition tax and deferred tax as well as non GAAP earnings per share. Full reconciliation of the pro form a to GAAP results discussed in this call is available on our website and in the press release issued today. Let's start with the financial results for the second quarter of 2018. Total revenues were $227,100,000, an 8% increase compared to $209,900,000 last quarter, and 67% increase compared to $136,100,000 for the same quarter last year.
Our record revenues this quarter were mostly driven by strong growth in Europe and stable revenues in the United States and rest of the world. This quarter, revenues from the United States were $118,500,000 and represented 52.2 percent of our overall quarterly revenues. Sales in Europe were $82,300,000, a record revenue and 36.3 percent of our quarterly revenue. Revenues generated from sales outside of the United States and Europe were $26,300,000, representing 11.6 percent of our total revenue. From customer concentration perspective, Our top 10 customers represented 61.7 percent of our quarterly revenues, an increase from the last quarter, while only one customer accounted for more than 10% of the revenues and the overall sales distribution across the big ten customers was more distributed compared to the last quarters.
On per watt basis, blended ASP decreased this quarter due to multiple reasons including a combination of a weaker euro against the U. S. Dollar with higher proportion of sales in Europe that are denominated in euro. Additional reason is the increase proportion of commercial product Gross margin for the quarter was 36.1% compared to 37.9% in the prior quarter and 34.6% in the same quarter last year. As we mentioned in the past quarters, the company has stabilized its gross margins level at approximately 37%, which was the average margin in the past 6 months.
Fluctuations of 1% up or down are expected as the company cannot match the timing of all elements affecting margins such as AFP trends, regional mix, time of consummation of cost reduction activities, currency exchanges, freight costs, etcetera. This quarter's margin is partially a result of an ASP decrease of our commercial products aimed at growing our market share in this segment, combined with cost reductions associated with our increased capacity products, for which manufacturing has been ramping up in the last few months, but is not yet full capacity. A tailwind of the euro currency devaluation against the U. S. Dollar combined with higher sales in Europe resulted in lower U.
S. Dollar revenues while manufacturing costs of these products sold in Europe remain the same as they are U. S. Dollar denominated. Lastly, we continued to airship products this quarter, although to a lesser extent than in the last quarters.
We expect to maintain an average 37% margin moving forward. Moving to operating expenses. R and D expenses were 19 point same quarter last year. As in is consistent with our decision to invest Sales and marketing expenses for the quarter were $16,000,000, a decrease of 2% compared to the previous quarter and a 33% increase compared to the same quarter last year. While we continue to grow our sales and marketing forces, The weaker euro this quarter offset a slight increase in headcount in those departments.
G and A expenses were $5,800,000 for the quarter, an increase of 23% from the prior quarter and 77% increase year over year. This increase is mainly affected by higher consultancy costs related to legal proceedings initiated by the company and other expenses associated with expanding our infrastructure to support and increasing the finance and legal expenses, both in headcount and external consulting. In total, operating expenses for the first quarter were $41,300,000 or 18.2 percent of revenues compared to 38 point $8,000,000 or 18.5 percent of revenues in the prior quarter and $28,000,000 or 20.5 percent of revenues for the same quarter last year. Operating income for the quarter remained stable at a level of $40,700,000 compared to $40,800,000 in the previous quarter and $19,100,000 for the same period last year. Financial expenses for the quarter were financial income of $600,000 in the previous quarter and to finance income of $3,600,000 for the same period last year.
This financial expense is a direct result of the euro devaluation against the U. S. Dollar that was offset by interest earned on our investments. It is important to note that this exchange rate loss is mostly related to the company euro denominated assets, mainly accounts receivables. For actual conversions of euro to U.
S. Dollars, the company partially hedges these amounts or uses natural hedges of revenues against euro expenses. This quarter, we had tax expense of $3,600,000 compared to a tax expense of $5,700,000 GAAP net income for the 2nd quarter was $34,600,000 compared to a GAAP net income of $35,700,000 for the previous quarter and of $22,500,000 for the same quarter last year. Our non GAAP net income was $40,600,000 compared to a non GAAP net income of $42,600,000 in the previous quarter and $25,800,000 for the same quarter last year. GAAP net diluted earnings per share was $0.72 for this quarter compared to $0.75 in the previous quarter and $0.50 for the same quarter last year.
Non GAAP net diluted EPS was $0.82 compared to $0.87 in the previous quarter and $0.55 in the same quarter last year. Turning now to the balance sheet. As of June 30, 2018, Cash, cash equivalents, restricted cash and investments were $437,600,000 compared to $400,800,000 at March 31, 2018. During the second quarter of 2018, we generated $43,900,000 of cash from operations, which is our normal operating cash generation run rate after one time record last quarter. AR net decreased this quarter reaching $118,100,000 compared to $127,500,000 last quarter.
DSO this quarter decreased to 58 days, down from 64 days last quarter. As of June 30, 2018, our inventory level net of reserves was at $102,000,000 compared to $98,400,000 in the prior quarter. As our manufacturing levels adjust to our higher revenue with less disturbance from component shortages, which we carefully manage, our finished good levels are increasing, allowing us to reduce air shipment expenses. Before guiding on the next quarter's forecast, I would like to mention that on July 1, we closed the asset purchase transaction of Gametronic and employed its employees. The financial results of this transaction will be reflected in the next quarter's financial results and are expected to have insignificant effect on revenues and bottom line.
Moving on to guidance for the third quarter of 2018. We expect revenues to be within the range of $230,000,000 to $240,000,000 and gross margins to be within the range of 36% to 38%. I will now turn the call over to the operator to open it up for questions. Operator, please
you.
We'll take our first question from Mark Strouse with JP Morgan.
Good evening. Thank you very much for taking our questions. So I'll apologize for a very open ended question to start. But, Guy, just curious if you can give a bit more color on the competitive environment, specifically those markets where Huawei has entered with a product. And as far as the U.
S. Goes, are you seeing any change in customer buying behavior ahead of anticipated launch from them?
So, so far, we show products coming into Australia, Germany, not yet, I think, in the U. S. I think in the U. S, currently there are alphas, but not yet sales of systems. In Australia, in Germany, the amount sold are negligible, today.
And, and while Australia, I think they sell practically from about January and we still see a negligible amount of Huawei in the field. The adoption is not fast and maybe even the product but I'm not sure about that. I'm sure about the adoption. We don't see any even single account that we lost any share to Huawei, while if you will follow GTM from Q1, and I would expect that you will see the same trend in Q2, We are marked, we are, gaining market share in residential in the U. S, as we are gaining market in commercial.
So, so far, we don't do not see any loss of market share if at all the opposite. But we are sure that the competition, the practical competition will come. And like any competition, it will be path in a way, and it will improve the industry, our product, and at the end, the value proposition for the customer. So we feel very comfortable with overall position and we're with our ability keep, grow under the current circumstances with the availability in some areas of the flower products. Okay.
And then just two quick questions regarding the patent case. So you filed a case in Germany. Can you just kind of talk about the general expectations for timing of resolution for that market?
Since it's under core procedures, we of course cannot give any specific data. So unfortunately, I cannot answer this question with any type of data. As we said, we filed one issue and then another one, one related optimizers, the other related to the HD inverter technology, and we feel very confident with the strength of the case but it's under the process and we cannot give any more details unfortunately.
Okay. That's understandable. Just one real quick follow-up. Is it fair to assume that the patents in Germany fairly similar to the patents that you have in the United States? So if Huawei were to come to the U.
S. With the exact same product in Germany that we may potentially see the case in the U. S. As well?
Without giving any details, and I would expect that you would fact that we are working on few levels of protections against, any type of infringement also in the U. S. The total portfolio of patents we have in the U. S. Is dramatically stronger than the portfolio we have in Germany.
Okay, very helpful. Thanks very much.
Thank you.
Thank you. We'll take our next question from Colin Rusch with Oppenheimer.
Thanks so much. Can you talk a little bit about component shortages? How you're managing that? Obviously, it looks like you're working a little bit with your balance sheet mitigate that and how that might impact growth in the fourth quarter and into early next year?
So it's a, there is a component shortage. And as I said, I think twice already. We are putting a lot of R and D resources in order to overcome many hiccups on a weekly basis. So just to understand the phenomena from, increase of few technologies data storage, EV in general, and more electronics in any type of vehicles, There is a huge shortage or on the other hand, book to bill is very high for classical analog components such as high quality transistors, ceramic capacitors, but many more other components. And we faced this since the beginning of 2017.
And I would expect that it will, be with in the coming few years. We managed to develop a system that so far didn't block any of any of our production and we can produce and we are producing at the capacity needed. If to compare to a year and a half ago, our finished good inventories dramatically smaller. And therefore, in the last three quarters, we had to ship via a quite big portion of our product As Ronen mentioned, we do see ease in this regard and we shipped airship this quarter less than what we shipped last quarter in the quarter before. And I would expect that in couple of quarters, we will go back to a completely reasonable dollar wise amount of air shipment.
We are building in almost all critical components, bigger and bigger safety stock, not with all of them, of course, We're developing, new sources. That's, of course, to be honest, comes on the pace of the cost reduction because it's more or less the same amount of, people that we could put either on furthering our cost reduction or balancing between cost reduction and creating more sources for components that are injuries score that we already know that we, that will have limitations with them. All in all, I think that we manage, and we have all the tools to keep the gross margin that we, told you before 37 plus -1 percent and use the availability of products plus the fact that we can still reduce prices in order to increase market share.
Okay, great. And then in terms of the strategy around monetizing the grid services and grid management functionality, obviously that could be direct to the to the utilities, your grid operators or with your other customers, what are you seeing so far in terms of early indications on on who's going to be using that functionality and your ability to monetize and how should we think about that in terms of market share sticking to those customers and any sort of recurring revenue that would come from that?
So I suggest to look at it at, from two angles. One one angle and it will take long time is stable long term monthly payment from every inverter. The amount payment we can get today from inverter and it's very small 2 or 3 or 4 cases, 2, if I remember properly in the U. S. And 2 in Australia, is very interesting.
It put the total revenue of inverter over 12 years to be very, very significant, saying that it's it's negligible volume today. And as I said, about storage, batteries 3, 4 years ago, and it started, it's very, very hard to predict how fast the tenant grow. The main reason is that in order to make this very broad, you need the collaboration of the utilities, And in most cases, also the installers, because they are the ones that really have the deal with the customer and can share the dollars coming from the utility between us as the technology providers, then the installers since they did sell something more and the homeowner that need to have some upside as well. Those models as other models that have many players in them, it takes longer to develop to efficient, to efficient level. And Therefore, I think that it will become very interesting revenue income because it come only from software, no more hardware, very little expenses in the back office, But still, it's not something that we would consider to influence dramatically or even to a level that would be interesting for you into 2019.
Thank you. We'll now take our next question from Philip Shen with Roth Capital Partners.
Hi, everyone. Thanks for the questions. First one is on the 301, let's say they talk they actually go through the 25% tariff instead of 10% Guy, I know you had some comments in your prepared remarks. Just want to make sure I understood. I think you said it might take two quarters to expand capacity in Romania and Hungary to be able to address the U.
S. And then conversely, that would suggest your Chinese facilities would be shipping internationally. Can you confirm kind of your overall plan and And then beyond that, what kind of margin impact could we see as a result of the inversion, if any, at all?
And you're referring, to the fact that we'll produce the product in Europe instead of China, correct? Yes. Okay. So let's put proportion. If it remained at 10%, Then, the effect at our product gross margin, you can recalculate it from the gross margin will be about 5% either reduction in gross margin or 10% increase in product in the market, which from the total, from the total residential installation is negligible.
If Andre, if it worked under 25%, that become more complex. Today, the situation is that we are managing to produce products in Europe at the same price and maybe a bit cheaper than product in China due to the fact that we are more automated in Europe than what we are automated in China. So once we will, move the majority or oil production to Europe, I would expect that, we wouldn't need to change anything And we'll see the same gross margin and maybe a bit better due to the fact that with the growth and the amount of people we are adding, we will have every quarter more and more people to maintain cost reduction. So, overall, once we'll produce, all or vast majority in Europe, I don't think we'll see any effect on any of the profitability parameters.
Great. And just want to confirm, I understood that right. As it relates to China, is the idea to ultimately shut down China or keep it at a kind of skeleton type volume?
No, the idea is to today, we originally, we opened the factories in Europe under the concept of serving Europe from Europe, the U. S. From U. S. And the rest of the world plus backup from China.
Under the current situation, we will use the European capacity to ship to the U. S, while we will ship to Europe from you from China. So we need all the capacity in China for rest of world plus we need to we just basically a swap, instead of producing in Europe for Europe, we'll produce for Europe and China and for the U. S. And Europe.
Great. Okay. Much clear. Thank you. As it relates, just a quick housekeeping question on the lawsuit, can you comment on what kind of increase in OpEx we might see as a result of the lawsuits in Q3 and Q4?
At the current couple 3 quarters, I would expect that it will be below $1,000,000 a quarter, all in all in all in goal, I would expect, I don't know, $600,000,000 to $1,000,000 until end of the year and maybe the beginning of next year. Depends on move from both sides. It of course will increase, but I don't know when and to what extent.
Great. And then finally, can you comment on the utility scale product launch? Are you still thinking about launching by year end of this year? And then more commercial commercial sales, 6 months to 12 months thereafter because of the long sales and development timeframes there?
So it depends. It a little bit depends on the exactly what you defined as what. But as you said, as you saw, We're already commissioning a 23 Megawatt Field in India. We're in the process of larger projects we will have in phases, but we'll have a more suitable products. Some of them, as we mentioned, coming already, the end of this year, some of them coming by mid next year, And I think that the, there will be coming, 2 very big steps sometime by the end of 2019, beginning of 2020 So it will be over more or less 4 steps.
Each one will increase our competitiveness and will open bigger and bigger opportunities.
We'll now take our next question from Joseph Osha with JMP Securities.
Good afternoon. I wanted to follow-up a little bit on the previous question on the utility, let's call it the utility scale launcher. Are we talking about the $40,000,000 to $3,000,000. Are you describing it?
Here.
Just go ahead on the question. It's hard to hear.
Okay, sorry. Yes, I are we talking about the 40 kilowatt 3 phase product that you all showed as when you talk about a utility scale launch? Is that the product that we're talking about?
No, that what I will so today you have the synergy, which combines 3 inverters together with one communication board reduced dramatically the installation time and the cost of AC installation. What I was that's already in the market and shipped, I was referring to 4 next steps that we didn't yet present Each one will increase. We'll decrease the labor involved and we'll, decrease price and, the total benefit we are bringing to utility scale installations. None of them
will be Okay.
So that's
not the synergy product. So for Synergy, you've rolled out 33 KW and 40 KW times 3, right? So the last I saw you were up to 120 KW. And that you're talking about now is something else.
Correct. That's Natural evolution of the current set of products I'm referring to 4 sets of new products.
Okay. And then just to follow-up on that. And I know I keep on asking, but I'm going to ask again, what any senses to when we might see HD wave show up in some of the 3 phase products.
In 3 phase? That's what we refer to mid next year. We still on the plan for mid next year to be actually sold. Alpha is probably earlier.
I'm sorry. What's probably earlier?
Alphas of the product probably earlier, I hope will be in shipment by mid next year. This is unique topology, lots of innovation and the chances of delay of such big step in innovation is, of course, very, still very, We feel a good chance that we will, that the schedule will slip, but currently, we feel comfortable with mid next year.
Okay. Thank you very much.
Thank you. We'll take our next question from Jeff Osborne with Cowen And Company.
Hey, good afternoon guys. I wanted to explore three quick questions. The ASP decline, if I heard you running, you talked about you proactively lowered pricing on the commercial side to gain share. A to hear you right. And B, was there any movement on pricing, deliberately on the residential side as well to gain share or was that just a commercial effort?
So basically there are 4 elements 1, we, in order to take market churn, and I guess you saw the wonderful results. It's already 43% 43.5% of our total shipment in megawatt. In order to increase market share, and I'm quite confident we'll see very nice results in many geographies. We reduced prices by the beginning of the year. We had work to reduce it from without moving from the 37 plus -1 percent that we served with you when we went public, we believe that for this part or this time of the evolution of the company, this is the right amount of gross margin to aim 2.
The second element was a currency that didn't work in our favor this quarter. The third element is, of course, derive from the first one, it's the mix. The, average selling price of commercial, as you know, is dramatically lower than the average selling price of residential. The more you have commercial, of course, it pushes the total gross margin down. And, the last element is that not all the cost reduction that have been done in the agreement, of pricing in Q2 were matured enough to get into the accounting policy.
Therefore, we'll see their benefit coming in the coming quarters.
I'm not following you on the last one, if you're aggressive on pricing at the end of 2Q. It depends.
I will explain it. It depends when you close the price list with your manufacturers and then how you roll it into the accounting. So if it not close on the right timing, you will get it from the beginning or from the period you agreed upon, but you'll be able to put it in the accounting only late 1st. So that situation regarding Q2.
Got it. And then It's very technical. Okay. Two other quick ones here. The tax rate was a little lower than we were modeling.
Can you just remind us on what the anticipated tax rate would be in the second half of this year and for fiscal 'nineteen?
Yes, sure. In general, tax rate should be 14% moving forward, because, you know, whatever we're saving 1.4. Yeah. Whenever we're whatever we are saving in Israel, we're paying as guilty taxes in the United States. You will see from time to time fluctuations from this rate mostly related to some of the tax assets or benefits that, that are created, you know, that are mostly related to the various jurisdictions, but usually, you should see 14% moving on from now.
Just running, was the tax rate this quarter had some one time items then? Was it lower than you anticipated
or
was this in line?
Yes, these quarter Yes, yes. This quarter, we've basically, once we have filed the, or prepared the actual tax returns, some of the assessments that we took at the end of Q4 were now actually realized and therefore, there were a little bit of changes in the, what we call, tax assets, but not in the actual payment that was done right now. In general, it's 14% though.
Got it. And then the last one is, so you highlighted the potential OpEx impact from the lawsuit, which is understandable. I know you highlighted Gamotronic is negligible to the top and bottom line, but can you just give us a rough ballpark of what the 100 people that are coming over with the acquisition? How we should think about modeling those people from an OpEx perspective in particular?
In general, it is about $2,000,000. It's approximately $2,000,000 on OpEx.
Anyway or full year?
In general, quarterly, quarterly, quarterly,
certainly, yes.
In general, the division itself is already profitable in a very, very low number. So the overall sales while you reduce the cost of the group is contributing. We'll contribute very, very
little at
day 1, and we believe that it will be able to dramatically increase the profitability of the group within maximum of four quarters.
We'll take our next question from Edwin Mock with Needham And Company.
Hey guys, thanks for taking my question. Sorry about the background noise. So first question I have is, if I missed it, I apologize. The you talk about how much of the sales come from commercial this quarter? And how do you think that will trend, let's say, for the second half of the year and to what's in 2019
So for Q2, it was the contribution was 43.5 percent in megawatt. As we said before, it's hard to predict quarter by quarter because the difference between when you get designed in when actually you sell the product to, in many cases, to the distributor, but in general, we're expecting increasing the total megawatt and also in the percentage to a level of about 50%. As you remember, probably that's what I said like a couple of years ago, we believe that it will become around 50% sometime next year. And in few years, we'll be able to balance something in the area of 40, 40, 20 or 40, 30, 20 between resi, commercial and utility. Is there a limitation
of how how big of a type of project or commercial project you can go after right now in case based on your products that you have And when we talk to Metro, all the time, it will say that your product cannot be cost competitive because of the architecture. Can you kind of talk a little bit about the advantage of your product?
With what we have today, in many cases, if you run PVC, and put dollar and dollar and dollar, it will make sense to do any size of, of a big field. Saying that it's always complex to convince in the beginning, that in cases with no shade, just a PID problem and mismatch of panels and growing resets with time and dirt that PIVIS's present, which is 3rd party tool, we didn't do anything, presents so much benefit. Most customers will, it will take time to convince. And we're in the first stages. So if you would put it in Excel, you will see that even with what we have today, we could penetrate in theory to a bigger percentage of the utility fields with no limitation on size because not metered the size of the utilities field, the connection or transformer points are in the size of 1, 2, 3, 4, 5 Megawatt.
It's not bigger than that. So for example, in the 25, 27, sorry, megawatts field we are doing in India, there are 11 connection points. So in theory, you can do 11, you can do many more. So I think we are very or we can be competitive if the customer is willing to run a very thorough Excel with with a view of, 20 years ahead. And it's marketing, it sells, it's time.
And what's more important or this is the SolarEdge Way, we convince customers mainly by, by bringing a better and better fit of product. And that's what I referred before that in the coming year and a half, We'll have 4 steps of products that specifically were designed for utility, and I'm sure will increase our market sure they're not overnight, but with lots of hard work, I think, will become an influenced player also in the utility field.
And just to be clear, the, kind of, you talked about the HD wave version of the 3 phase inverter. Is it is it, as much of a cost saving as you would expect on the single phase product or is it less because your account seems like your existing commercial inverter, you already kind of done a lot of work in terms of driving costs now. Just is there a way to kind of think about the difference of that cost saving on on 3 phase versus single phase?
I think the ratio for the inverter is the same. Or in the same proportion and maybe even better, even better in the inverter portion. In the optimizer portion, of course, this alone is, will be divided by more or less half, because with the current optimizers, and we're working on the optimizer that will be the perfect fit for this product to gain more or less the same benefit on the specific commercial optimizer as well.
Thank you. We'll take our next question from Carter Driscoll with B. Riley FBR.
Guy, you talked in the past about the 12 ASP per watt is lower on the commercial side that it's more profitable than resi. Is that still the case?
Sorry. One more time. I said that the ASP is of course naturally different completely. The profitability is The profitability in average is quite similar. I don't know the numbers exactly, and it depends on, the situation in deals is bigger than in residential because we still, in many cases, compete and need to penetrate markets like India, etcetera.
So, the variance on the ASP within the segment is higher than the variance in residential, but more or less the percentage of profitability are similar. There is no dramatic difference in profitability.
Okay. Is the shift, the slight shift at least in terms of your top 10 customers as a percent of sales due to the mix shift between C and I and resi? Or is there something else at play geographically that caused it to go up? I think it had been on a fairly steady downtrend.
Sorry, I'm not sure what in downturn?
You're talking about your customer concentration within your top 10 actually ticked up this quarter. It had been in a pretty steady town ground wondering. Was that anything to do with your commercial share gain or was it more geographic in nature or was it versus the
national players?
It's come from the nature of 2 main reasons. Once the big PPOs in the U. S. And, are, or in general, the suite together, losing market share to the detail. Where in the other geographies, we are gaining more and more logos.
And since there are no big players in in Australia, in Europe, none of them is big. So practically, we gain more logos on the midsize and therefore, the overall slowly reduce the amount of the 10 biggest customers.
Maybe just last one for me. Can you talk about some of your non solar initiatives. I mean, you talked about the virtual power plant, but maybe EV charging, any update there or storage, any incrementally in different geographies we're seeing attach rates increase and or vis a vis competitive positioning improving?
So, the vision is, of course, to supply everything beyond the meter to resi and later to commercial. Today, we're supplying batteries We're still limited with volume due to the fact that the majority, vast majority is going with the LG battery, which is having today, overall limitation and production because what they have, they need to split between stationary storage for solar, UPS and automotive. We're working, of course, on other solution for that. EV inside inverters is already shipped. And again, a very nice acceptance.
And I would expect that, again, with time, but much faster than other improvements, we'll see a very fast adoption rate it's very simple, especially in the U. S. Once you go EV in the inverter, you save all the installation cost of EV in the future. The installation cost of EV in the future is anything from $500 to 6.7 depends on your house, load board, the links between the EV location and the load board etcetera. So, for the customer to take inverter, which is already, EV ready, is a difference of, around $300.
So they save already $300 just by having this opportunity. And since we and most customers believe that in the 3, 4, 5 years most of those customers will be have at least one electrical vehicle. It just makes all the sense and different than what I said about that ways in the past and, and, and grid services, I think that here, the adoption will be fast.
Appreciate it. Thanks guys.
Thank you. This concludes our question and answer session today. I'll go ahead and turn the call back to Guy Sella. For closing remarks.
Execution of our business strategy with record revenues and consistently stable profitability. We're well positioned to continue to spend our business with new product offering and in new territories. We look forward to continuing this momentum Thank you for joining us on today's call. All the best.
Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect.