Morning, Shuki.
Hey, good morning. How are you doing?
Good. I think we can probably start as more people will join. We have about 20 minutes, so let's go fast, actually. Maybe let's just start. I mean, if you had the one you released last week, it's still very fresh, I was thinking in one mind here. Maybe let's start with the European market view. We just had the, you know, kind of touch base with Intersolar, touch base on that.
I think you guys are very similar observation of the markets in the last two months. Can you talk about that inflation problem that you have seen on the market? How do you view that trend to further materialize? Maybe especially, you know, if the Middle East impact maybe fades away a little bit, do you expect a sudden reverse side of that enthusiasm in Europe, or do you expect that to remain?
Yeah. Thank you for the question. As we said, in our earnings call, March and March, we've seen an increase in activity which was stronger than expected seasonality. The very same trend continued into April. From what we could feel and what we hear from the channel in the last week since our earnings call, it continues the same. Continues to be the same.
And you know, definitely the geopolitical situation and the high energy prices are raising a short-term concern that does impact residential as well as C&I customers and you can see an increase in demand. Our assumption is that this will continue. You know, people they're concerned about the lasting effect of something like that happening. Independence, you know, energy independence, if you will, at a personal level or at the business level, is something that is very important.
Electricity prices are on the rise because the fundamental demand is growing. It is, you know, here we saw an accelerated increase, our view is that going into the future, electricity prices are on the rise and therefore the demand for solar will continue to grow.
Can you talk about maybe resi versus C&I? I mean, you mentioned you've seen it in both, but do you see like an acceleration that is faster in residential maybe because of the fear or maybe like similar?
What we are seeing is and again, keep in mind that it's been only two months.
Yeah.
I would say that a lot of the rising prices in electricity are not yet reflected in the market.
Yeah.
It will take a little bit more time for them to flow through the system. We are seeing it in both resi and C&I. I would say that in C&I, what we are seeing that is actually growing even faster is the attach rates for batteries.
You know, we introduced our next-gen storage solution for C&I. We are seeing strong demand for that. Not only for our solution, but actually for the entire market. That's something that is very evident on the C&I side. On the residential side, maybe because the attach rates has been high even to begin with, you know, the impact is not as strong as we were seeing on C&I on the storage side. On the PV plus storage, definitely an increase in both.
Which country are you seeing the or are you expecting the most, benefit here? I mean, I would say, you know, you have Netherlands, and then some of that trophy flow. I think France is very strong and Germany as well.
For us, we call it DACH. It's Deutschland, Austria, and Switzerland.
Yeah.
Not on the EU, right? We refer to it as one region. It has a lot of commonalities. Over there, we definitely see a strong increase in demand for both resi and C&I. We have a larger install base. We have plenty of opportunity in DACH. We are launching Nexis in DACH first. Our entire Q2 supply is already booked. Was already booked, you know, two, three weeks ago.
We are very happy with what we are seeing over there. In the Benelux, you know, the Netherlands and Belgium, what we are seeing is with the expected expiration of feed-in-tariffs towards the end of the year, we see a very strong activity around upsell. Install base in the Netherlands is almost 800,000 homeowners. By far the largest install base in the country. You know, we've engaged in different activities in order to come to these homeowners and offer them the ability to upsell to a battery and in some cases to improve their system.
Italy is very strong on the C&I storage side, actually. We are seeing that as something that is growing for us. To be honest, one of the things we've decided about six months ago that we are going to be very focused. We are not going on in all 20 or 30 or 40 countries that you can find in Europe, but actually on the top markets where we have the opportunity to make a major impact while growing there. The countries that I mentioned are the main focus. We also have the U.K., Poland and France as well.
We are trying to be in a limited number of countries to have controlled expense level, but at the same time to maximize the impact that we are getting from, you know, the market that is actually waking up now.
You mentioned, like, launching SolarEdge Nexis, right? I know you guys are very excited about the product. Maybe let's touch a little bit on that one. Is that You know, say, yes, C&I for value launch, you know, she says, well, just say give us like that in the time units where that you expect to start seeing the benefit of it.
Yes, I try to be....
I can give you five minutes just on Nexis.
Yeah, because I can speak about Nexis for 20 minutes, I'm so excited. You know, Nexis is a platform. It's a solution that was built from the ground up for today's market. It's not a PV only. It's a PV plus storage plus the intelligence that is required in order to optimize the energy between grid, battery, you know, the main loads in the house. It's a resi solution. It's a global solution. We're launching it first in Germany, then we're going to roll it out to the U.S. and to the rest of the world.
We expect that by Q1 2027, 90% of our resi sales are going to be Nexis. Nexis has many advantages to the homeowners, many advantages to the TPOs, to the installers. We've talked about them, but it has fundamental financial benefits for SolarEdge. The first one is it's a better cost structure than our previous generation.
Secondly, it is going to be manufactured in the U.S. with the IRA benefit that is associated with that. Thirdly, because it's a new product, we've been able to actually sign many safe harbor deals with the TPOs that are based on a product that is just being launched,
therefore it's going to be modern, applicable, and very efficient for the market, not only today, but actually four or five years from now when they are going to be installed. There is excitement from everybody, mainly from the installers, actually. I'm actually positively surprised by- the very warm welcome we got from the installers for this product.
Great. Sounds good. Maybe I wanted to go back kind of like on geography. I mean, obviously, you know, it's Europe and, and the U.S. for your mid-market, I would say, but you have some other international markets as well. Can you just talk about what's your strategy?
I mean, you have your manufacturing footprint in the U.S., which obviously makes sense with the Section 45X. Just for anyone maybe who's a bit newer to the SolarEdge story here, any product in the U.S. can be dispatched, you know, even to Europe, and you still benefit for that Section 45X. Now there's a lot of moving pieces on geopolitics, as everyone knows here. Does it make you rethink maybe your strategy?
I know as well, you know, when Europe is not doing well, I think you get the question from investor, "Don't you want to exit, Europe?" You know. Maybe just tell us how do you view things here?
SolarEdge historically operated in many, many countries around the world. Towards the end of last year, we had made a strategic decision that I was alluding to earlier. We have stopped selling in many countries that were not having a good ROI for us. SolarEdge is selling in 20 countries globally. It would be the U.S., right? Then call it 10 to 12 countries in Europe and another seven in Asia-Pacific, and that's it.
That allows us actually to have not only the ability to gain market share in each of the countries that we operate in, but actually to apply the single SKU concept that we initiated. The single SKU concept is very good for us because the supply chain is now streamlined.
We're making one product for single phase, one inverter for three phase, and one battery block. It is very good for the distribution partners as well and for the homeowners. For all of these reasons, we are having one global strategy. Now that's on one hand. On the other hand, you want to be local because we have local teams.
In the U.S., the competition landscape, the competitive landscape is different than in Europe and Asia. We have to adjust to the different types of competition. As is evidenced from the last two months, while the resi market in the U.S. is not necessarily that strong, the C&I market in the U.S. is good.
Our focus over there is structurally much better. Europe and Asia, for that matter, are kind of compensating for the short-term softness in the U.S. We feel that we have a good balance between U.S. and international. There are benefits for all the markets that we are working in. We have to be a serious player in each of the markets that we operate in in order to maximize the benefit for our customers and, by definition, to generate the returns that we are expecting.
No, that makes sense. To rebound on your comment, I mean, the C&I market in the U.S. has been pretty good, actually, with pretty strong demand. Is there, like, a scenario where you would maybe want to, maybe not exit, but let's say slow down your U.S. resi exposure and just really focus on C&I here in the U.S.?
No. Our strength in the C&I is something that we've invested in quite a lot. From a product perspective, there are many good reasons why our C&I solution is very, very good. For the U.S. specifically, we have structural benefits, both because of CEA compliance and the domestic content compliance. There are three main leaders in rooftop C&I. The other two leaders do not have, do not comply with CEA and domestic content.
Because of that, the large C&I customers are choosing SolarEdge, and we are seeing it both in terms of bookings, in terms of safe harbors and transactions, and in market share. Our market share is as high as it has been. That being said, the opportunity for us in resi is still very high.
We have more than 30% market share in the resi solar. We are going to gain share on the storage side of the house. Our relationships with the TPOs, when that softness is going to be removed, is going to pay dividends for us. We are definitely excited about that opportunity as well.
That makes sense. I mean, maybe quick is still on the U.S. Treasury from the TPO, right? I mean, we have had that transition, right, from the 25 D. I know you have very limited exposure here, but any view on the market trend and, you know, how is that shaping for TPO here?
Yes. I think, like you said, the elimination of 25D was something that everybody expected. It happened at the end of last year and that half of the that segment of the market was expected and did decline indeed.
What people, and we as well, didn't expect is the slowing, tax equity investments.
Yeah.
That's a result of the PTSE and other things that you and your audience are very familiar with. That actually puts some strain on the entire ecosystem, whether it's the TPOs or the installers, and we've seen some unfortunate bankruptcy and difficulties and challenges that were a result of that. We hope, if we hear from other players in the market who are more familiar with the TPO with the investor side, that this situation is going to resolve to be resolved.
Either by treasury having a better definition or by investors finding ways to comply with the not that clear kind of definition of PTSE. When that happens, SolarEdge is well positioned to capture the market share that we deserve because our engagement with the TPOs is there, and we are confident that the product benefit and the engagement benefit that we're bringing with them is going to serve us in the long term.
One of the ways that we ensure that for the longer term is the Safe harbor deals that we have signed and that we continue to sign with TPOs as well as with C&I customers. With the TPOs, we are signing these transactions in the vast majority of them with the physical work test. That allows them to pull the products only when they need it and not just to stick on inventory for the next three or four years.
Makes sense. Sorry, you mentioned something, and I wanted to double down on that, and it was my fault. Let's go on the safe harbor. I think, you know, can you talk about how much you have already secured? Is there, like, do you have an expectation in terms of, like, revenue recognition cadence as we go through the year?
Yeah. As we've said, the vast majority of the safe harbor deals that we are signing are physical work test. The revenue that we reported in Q1 and the guidance that we have in Q2 do not include any significant pull forward.
That's important to note because it's the natural cadence of our business that we are selling to our channels. The physical work test, the way that it works is that we are signing with our customers agreements today. These are binding agreements. They have the price, the quantity and liquidated damages in case they don't want to take the product. They do take it seriously. It's not something that they are just signing because they don't care. The benefits that brings is because we have good visibility into future revenue and future market share.
We can plan our manufacturing footprint accordingly, and they are able to pull it at the time that they need it. We will recognize revenue only when the customers are pulling the product for the planned installation. Obviously at that point in time, we'll recognize the revenue. It's not that we are expecting spikes in revenue in the next four years. We're expecting the safe harbor deals to actually translate into a normal cadence of revenue that we are actually very optimistic about.
All right. I mean, maybe also another point, like, your pricing strategy, some of your peers cut some of their price to, you know, I think more like, trying to remain competitive, especially on markets that they're trying to enter. Maybe a little less relevant for you, but how do you view just like the pricing profile over the next, you know, say, maybe 12 months for you guys?
Yeah. First I'll comment on what we are doing now.
12 months is into the future. At this stage, we have not made any significant pricing change. We don't see a need for that. As we mentioned, our entire supply, initial supply of Nexis is sold out. We are having demand for even more. We believe that when you bring value to the customers, they are willing to pay a premium for. Our goal is actually to be able to not to give up on pricing, but actually to add value to the customers, and by doing that, to gain additional market share.
I'd like to remind you that if and when we need to do something like that, we have the room to do it because Nexis has a built-in lower cost structure, and we are going to make it all in the U.S. From that perspective, at this stage, we feel that we can continue to or we can gain market share with SolarEdge Nexis without the need to compromise on price.
No, that's good to hear. I know we're coming up on time. maybe what would you say to investor? You know, I think investors are pricing on gross margin profile and, you know, breakover, breakeven, like, operating income being, breakeven. Any message you want to share here with them?
Yes. What we've been doing in the last year and a half is slowly but surely putting the foundations for our turnaround and then for our profitable growth. We've stabilized the company, at this stage we have six quarters, if I'm not mistaken, of consecutive year-over-year revenue growth, gross margin expansion, we intend to continue doing that with the midpoint of our Q2 guidance. If you look at the midpoint of the Q2 guidance, we're approaching breakeven point.
Our intention is actually to go beyond that point and become profitable like any other company. We see very good reasons or we see good reasons for us to continue growing, you know, with the introduction of SolarEdge Nexis, gaining additional market share, the introduction of the second generation of our storage for C&I. There are very good reasons why we are optimistic about what we are doing, and we invite investors to join the ride.
Right. I think that's a good message. I know we're right on time. I think you guys have many more meeting with investor. I believe you guys will be as well in Munich, right? In about a month at the Intersolar. Maybe, you know, if anyone is going there, they can meet with you as well and see the products. That would be good.
Thank you very much.
Thank you, Shuki . Have a good day. Have a good day, all.
You too. Bye-bye, everybody.