IPO Report: SolarEdge Technologies (SEDG)

Francis Gaskins |

Solar_Edge.jpgSolarEdge Technologies (SEDG) is a leading provider of intelligent inverter solutions that are changing the way power is harvested and managed in solar PV systems.

SEDG is one of three new IPOs scheduled for this week. The full IPO calendar is available at IPO premium.

SEDG scheduled a $119 million IPO on Nasdaq. The market capitalization is $476 million at a price range midpoint of $12. The IPO is planned for Thursday, March 26, 2015. The company is based in Hod Hasharon 45240, Israel.

The manager and joint Managers are Goldman; Deutsche. The co managers are Needham; Canaccord Genuity; Roth. SEC filings

SolarEdge Technologies Overview

SEDG'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 (SEDG)

$476

1.7

40.3

4.0

5.2

25%

SolarEdge Technologies Conclusion

Neutral plus

Rev +141%. SolarCity (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

SolarEdge Technologies Business

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

SEDG'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.

A Global Module Level Power Electronics ("MLPE") Leader

SEDG 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, SEDG 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.

SolarEdge Technologies Market

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. ("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 (MLPE)

Within the global solar market, shipments of module level power electronics ("MLPE"), 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.

SolarEdge Technologies Customers & 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.

SEDG'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 PV module manufacturers that offer PV modules with SEDG  power optimizers physically embedded into their modules.

In fiscal 2014, SEDG 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.

SolarEdge Technologies Customer Concentration

With the exception of SolarCity (SCTY) 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.

SolarEdge Technologies Expansion Plan

In fiscal 2014, SEDG 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

SolarEdge Technologies 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

SolarEdge Technologies Intellectual Property

As of February 28, 2015, SEDG had 30 issued U.S. patents, 9 issued non-U.S. patents, 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. Issued patents are scheduled to expire between 2027 and 2032

SolarEdge Technologies Competition

Currently, SEDG's DC optimized inverter system competes with products from traditional inverter manufacturers, such as SMA Solar Technology AG, ABB Ltd. (previously Power-One Inc.) and KACO new energy GmbH, and microinverter manufacturers, such as Enphase Energy, Inc., 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 we sell our products.

SolarEdge Technologies 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%

SolarEdge Technologies Dividends

No dividends planned.

SolarEdge Technologies Use of Proceeds

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


 

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