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During the IPO season Francis Gaskins, editor of IPOdesktop.com & director of research for Equities.com, regularly appears on CNBC TV, Bloomberg, thestreet.com & other financial cable channels. On the day of the Visa IPO he appeared on four cable TV financial shows including Bloomberg & CNBC. Over the past five years he has been quoted over 500 times by such financial media as the Wall Street Journal, Bloomberg, Reuters, Associated Press, USA Today among others. Those quotes are available at IPOdesktop.com. His varied personal interests include violin playing. For example, he is concertmaster of the Palisades Symphony. He also holds an MBA from Harvard Business School (finance) and an AB from Princeton University (economics).

IPO Preview: SolarEdge Technologies Inc


 

 

  • A leading provider of intelligent inverter solutions that are changing the way power is harvested and managed in solar PV systems.
  • Rev. +141%. SolarCity accounted for 19.1% of rev. in '14.
  • Market expected to grow 46%, compound annual growth rate.
  • Annualized (tax sheltered by losses) P/E of 40; annualized price-to-sales of 1.7. 21% gross profit, up from 12%, as top line rev. grows.
  • Net income 4% of rev., up from a 23% loss. Price-to-book of 4.

Based in Hod Hasharon 45240, Israel, SolarEdge Technologies Inc (NASDAQ:SEDG) has scheduled a $119 million IPO on Nasdaq with a market capitalization of $476 million, at a price range midpoint of $12, for Thursday, March 26, 2015.

The full IPO calendar is available at IPOpremium.

Conclusion
Neutral plus

  • Rev. +141%. SolarCity Corp (NASDAQ:SCTY) accounted for 19.1% of rev. in '14
  • Annualized (tax sheltered by losses) P/E of 40, annualized price-to-sales of 1.7
  • 21% gross profit, up from 12%, as top line rev. grows
  • Net income 4% of rev., up from a 23% loss
  • Price-to-book of 4
  • Market expected to grow 46%, compound annual growth rate

SEC Documents

Manager, Joint Managers: Goldman; Deutsche
Co-managers: Needham; Canaccord Genuity; Roth

End of lockup (180 days): September 22, 2015
End of 25-day quiet period: April 20, 2015

Summary
SEDG is a leading provider of intelligent inverter solutions that are changing the way power is harvested and managed in solar PV systems.

The company's DC optimized inverter solution maximizes power generation at the individual PV module level, while lowering the cost of energy produced by the solar PV system.

Valuation
Glossary

Valuation Ratios

Mrkt. Cap ($mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

Annualizing Dec. 6 mos.

       

SolarEdge Technologies

$476

1.7

40.3

4.0

5.2

25%

Business
SEDG is a leading provider of intelligent inverter solutions that are changing the way power is harvested and managed in solar PV systems.

The company's DC optimized inverter solution maximizes power generation at the individual PV module level, while lowering the cost of energy produced by the solar PV system.

SEDG systems allow for superior power harvesting and module management by deploying power optimizers at each PV module, while maintaining a competitive system cost by using a simplified DC-AC inverter.

SEDG systems are monitored through a cloud-based monitoring platform that enables lower system operating and maintenance ("O&M") costs.

The company is a leader in the global module-level power electronics ("MLPE") market, according to GTM Research, and as of February 28, 2015, SEDG has shipped approximately 5.1 million power optimizers and 222,000 inverters.

Approximately 100,000 installations, many of which may include multiple inverters, are currently connected to, and monitored through, SEDG's cloud-based monitoring platform.

As of February 28, 2015, the company has shipped approximately 1.3 GW of its DC optimized inverter systems. Products are sold in approximately 38 countries, and are installed in solar PV systems in 73 countries.

 

Market
The annual installed capacity of the global solar market is expected to grow from 34.6 GW in 2013 to 59.6 GW in 2017, representing a compound annual growth rate ("CAGR") of 14.6%.

Growth in PV inverter installations in key residential markets like the U.S. and China is expected to remain strong, with expected CAGRs of 19.0% and 11.3%, respectively, during the same period, according to IHS Inc. (NYSE:IHS).

According to IHS, the global inverter market accounted for approximately $6.9 billion in revenues in 2013, and is expected to grow at a CAGR of 3.1%, to reach approximately $7.8 billion in revenues in 2017.

Notwithstanding the foregoing, the solar industry has historically been cyclical and has experienced periodic downturns, including downward pricing pressure for PV modules, mainly as a result of overproduction.

 

Module-Level Power Electronics
Within the global solar market, shipments of module-level power electronics, such as SEDG's power optimizers, are expected to double from 2012 through 2014. In 2013, these technologies were used in 59% of the residential installations in the U.S., one of SEDG's largest markets.

Ongoing growth in the solar industry, combined with this accelerating transition within the industry to MLPE, is driving significant growth in the MLPE market that is significantly outpacing the overall industry growth.

According to GTM Research, a division of Greentech Media, Inc. ("GTM Research"), annual global shipments of MLPE are expected to grow from approximately 1 GW of annual installed capacity globally in 2013 to approximately 5 GW in 2017, representing a CAGR of 46.0%, and industry revenues are expected to grow from approximately $326 million to approximately $957 million over the same time period. DC optimizers are expected to account for 57% of the cumulative MLPE market (as measured by megawatt ("MW") capacity shipped) between 2013 and 2017, with market share expected to grow at a 47.6% CAGR over the same time period.

 

Customers and Sales strategy
SEDG primarily sells directly to large solar installers and engineering, procurement and construction firms ("EPCs"), and indirectly to thousands of smaller solar installers through large distributors and electrical equipment wholesalers.

The company's sales strategy focuses on top-tier customers in markets where electricity prices, irradiance (amount of sunlight), and government policies make solar PV installations economically viable.

SEDG also sells power optimizers to several manufacturers that offer PV modules with SEDG power optimizers physically embedded.

In fiscal 2014, the company sold products to approximately 200 direct customers in 38 countries, and as of February 28, 2015, approximately 8,300 indirect customers had registered with SEDG through a cloud-based monitoring platform.

 

Customer concentration
With the exception of SolarCity and Krannich, which accounted for 19.1% and 7.8% of revenues in fiscal 2014, respectively, no customer accounted for more than 3.5% of fiscal 2014 revenues (June fiscal).

For the six months ended December 31, 2014, SolarCity, Krannich and the next five largest customers accounted for 32.3%, 7.1% and 21.0% of revenues, respectively.

As a result of the rapid growth of U.S. solar PV installations, the U.S. has become the largest market for SEDG's products, accounting for 48.5% of revenues in fiscal 2014.

 

Expansion plan
In fiscal 2014, the company sold products to approximately 200 direct customers in 38 countries, including the U.S., Australia, Belgium, Canada, China, France, Germany, Israel, Italy, Japan, the Netherlands and the United Kingdom.

SEDG intends to introduce new products targeted at large commercial and utility-scale installations, and to expand into other international markets

 

Interest rate risk
Many end-users depend on financing to fund the initial capital expenditure required to develop, build or purchase a solar PV system.

As a result, an increase in interest rates, or a reduction in the supply of project debt financing or tax equity investments could reduce the number of solar projects that receive financing or otherwise make it difficult for SEDG's customers or their customers to secure the financing necessary to develop, build, purchase or install a solar PV system on favorable terms, or at all, and thus lower demand for SEDG products.

 

Intellectual property
As of February 28, 2015, SEDG had 30 issued U.S. patents, 9 issued non-U.S. patents and 70 patent applications pending for examination in the U.S., and 86 patent applications pending for examination in other countries, all of which are related to U.S. applications.

A majority of patents relate to DC power optimization and DC to AC conversion for alternative energy power systems, power system monitoring, control and management systems. The issued patents are scheduled to expire between 2027 and 2032.

 

Competition
Currently, SEDG's DC optimized inverter system competes with products from traditional inverter manufacturers, such as SMA Solar Technology AG (OTCPK:SMTGF), ABB Ltd. (ADR) (NYSE:ABB) (previously Power-One Inc.) and KACO new energy GmbH, and microinverter manufacturers, such as Enphase Energy Inc (NASDAQ:ENPH), as well as emerging technology companies offering alternative optimizer, microinverter or other MLPE products.

SMA Solar Technology AG and ABB Ltd. have recently introduced or announced plans to introduce microinverter products.

In addition, several new entrants to the MLPE market, including low-cost Asian manufacturers, have recently announced plans to ship, or have already shipped, products in markets in which the company sells its products.

5% shareholders pre-IPO

  • Affiliates of ORR Partners I, L.P. – 5.5%
  • Affiliates of Opus Capital Venture Partners V, L.P. – 14.6%
  • Genesis Partners III L.P. – 14.6%
  • Affiliates of Pacven Walden Ventures VI, L.P. – 14.6%
  • Affiliates of Vertex III (C.I.) Fund L.P. – 6%
  • Norwest Venture Partners XI, L.P. – 10.6%
  • Lightspeed Venture Partners VIII LP – 11.5%
  • NWC SolarEdge Holdings, LLC – 6.4%

Dividends
No dividends planned.

Use of proceeds
Use of the expected $120 million in IPO proceeds: for general corporate purposes, including working capital and expansion of the business into additional markets.

Disclaimer: This SEDG IPO report is based on a reading and analysis of SEDG's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

 

 

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