SolarEdge plans Q3 2025 revenue of $315M–$355M as margin headwinds ease and U.S. manufacturing ramps up

Earnings Call Insights: SolarEdge Technologies (SEDG) Q2 2025

Management View

• CEO Yehoshua Nir opened by highlighting progress on all four pillars of the company’s turnaround, noting that recent regulatory and tariff changes “removed some uncertainties hanging over the industry.” He emphasized that the One Big Beautiful Bill Act “validates our multiyear strategy of onshoring manufacturing to the U.S. by preserving the 45X advanced manufacturing credit for the next 7 years.” Nir also stated, “We intend to manufacture in the U.S. and to ship U.S.-made SolarEdge products both domestically and across the globe for years to come.”
• Nir reported a positive outlook for U.S. customers due to incentives favoring domestically produced products, and anticipated increased battery adoption from the extension of the storage tax credit. He acknowledged, “demand is expected to decline in 2026 with the elimination of the 25D credit, a decline that is expected to be partially offset by a shift to TPOs as the 48E credit continues through 2027.”
• Recent supply chain optimizations resulted in a projected gross margin headwind decline in the second half to approximately 2%, down from a previous expectation of 4% to 6%. Nir added, “we now expect free cash flow to be positive for the full year 2025.”
• The company announced a multiyear agreement with Solar Landscape and a multiyear frame agreement with a leading U.S. retailer to deploy SolarEdge products nationwide, as well as initial market share gains in Europe following pricing and promotion campaigns.
• On innovation, the Nexis platform remains on track for initial volumes by year-end, and commercial storage recorded a “record sales quarter.” Nir described new software traction, particularly with the Wevo EV charging solution, and announced a new strategic partnership with the Schaeffler Group.
• CFO Asaf Alperovitz stated, “Total revenues for the second quarter were $289 million. Excluding revenues from our discontinued operations at the Kokam Energy Storage division of $8 million, our non-GAAP revenues were $281 million.” He noted, “Non-GAAP gross margin this quarter was up to 13.1% compared to 7.8% in Q1,” and detailed one-time expenses and ongoing cost controls. Alperovitz added, “Free cash flow in the quarter was a use of approximately $9 million… For the first half of the year, we generated $10.8 million in free cash flow.”

Outlook

• The company guided third quarter 2025 revenues to be within $315 million to $355 million, with non-GAAP gross margin in the range of 15% to 19%, including about 2 percentage points of new tariff impact. Non-GAAP operating expenses are expected within $85 million to $90 million.
• Nir confirmed, “our Q3 guidance does not include a significant pull forward of demand relative to 25D or to safe harbor.”
• Alperovitz indicated, “we are going to start towards the end of this year to sell the products overseas and enjoy the 45X credits also for — on out of the U.S. sales.”

Financial Results

• Non-GAAP revenues for Q2 were $281 million. U.S. revenues made up $185 million, Europe $65 million, and international markets $31 million.
• Non-GAAP gross margin increased to 13.1% from 7.8% in Q1. Non-GAAP operating loss narrowed to $48.3 million from $72.4 million in Q1. Non-GAAP net loss was $47.7 million, or $0.81 per share, improving from a $1.14 loss per share in Q1.
• Cash and investments as of June 30, 2025, were approximately $812 million, with cash position net of short-term debt at $470 million. Inventory declined by $108 million to $529 million for the fifth consecutive quarter.
• The company intends to pay off $343 million in convertible notes with cash on hand upon maturity.

Q&A

• Mark Strouse, JPMorgan: Asked about sustainability of revenue and one-time impacts. Nir responded that Q3 guidance “does not include a significant pull forward of demand relative to 25D or to safe harbor… both in Q2 and in the midpoint of the guidance for Q3, we are showing year-over-year and quarter- over-quarter revenue growth.” Strouse also inquired about margin trajectory; Alperovitz emphasized revenue growth, cost structure improvements, and automation.
• Philip Shen, ROTH Capital: Queried safe harbor impact and C&I business. Nir declined to provide details but said, “I believe that our customers are looking at us as the best partner if and when they consider such deal.” On 2026 margin, Alperovitz reiterated plans to neutralize tariff impacts through production and price increases.
• Brian Lee, Goldman Sachs: Sought guidance on sequential growth by geography. Alperovitz described strong U.S. positioning and market share focus, but noted potential European market weakness. Lee also asked about gross margin leverage; Nir explained ongoing fixed cost structure reduction.
• Colin Rusch, Oppenheimer: Asked about R&D and cost savings. Nir and Alperovitz spoke to ongoing innovation in energy management and continuous cost reduction efforts.
• Dimple Gosai, BofA Securities: Questioned battery performance and TPO market shift. Nir cited increasing battery attach rates and strong TPO position. Gosai also asked about free cash flow drivers; Alperovitz cited ongoing 45X monetization and positive free cash flow guidance for 2025.
• Corinne Blanchard, Deutsche Bank: Requested inventory commentary. Nir stated that “most of our distributors have already resumed normal levels of inventory” in Europe and no abnormal inventory in the U.S. On U.S. TAM, Nir projected a decline in the 25D segment but strong positioning for TPO growth.
• Christopher Dendrinos, RBC: Focused on European strategy and Nexis platform. Nir highlighted renewed market share gains and extended offerings for larger systems in Germany.
• Christine Cho, Barclays: Sought clarity on inventory, revenue guidance, and FX risk; Nir and Alperovitz explained remaining factors for revenue gap and confirmed ongoing hedging strategies.
• Joseph Osha, Guggenheim: Asked about manufacturing capacity and European pricing. Alperovitz stated the current infrastructure supports significant revenue growth. Nir indicated no immediate need for European price moves.
• Maheep Mandloi, Mizuho: Inquired about battery sourcing and margins. Nir emphasized supply chain quality and flexibility; Alperovitz confirmed battery margins are lower and under ongoing improvement.
• Moses Sutton, BNP Paribas: Sought warranty impact details. Alperovitz reported quality improvements and expects positive margin trends.
• Philip Shen, ROTH Capital: Queried recent European pricing moves. Nir clarified, “We did not take any pricing action in Europe last week or for that matter recently.”

Sentiment Analysis

• Analysts expressed cautious optimism on demand sustainability, margin improvement, and geographic trends, with some skepticism and probing for details on safe harbor, inventory, and margin levers.
• Management tone was confident in prepared remarks, using phrases like “we are well positioned” and “we are confident that our liquidity position is sufficient.” During Q&A, management maintained a measured and sometimes guarded tone, avoiding specifics on safe harbor and battery sourcing.
• Compared to the previous quarter, management’s tone was more upbeat, reflecting improved visibility and progress on turnaround metrics. Analyst sentiment shifted from uncertainty to a more constructive, though still cautious, perspective as key risks appeared better managed.

Quarter-over-Quarter Comparison

• The Q2 call highlighted a reduction in gross margin headwind from tariffs (now 2% vs. prior expectation of 4%–6%) and a move to positive free cash flow guidance for the full year, compared to breakeven guidance last quarter.
• Revenue and margin expansion was sustained for a second quarter, with narrowed operating and net losses.
• Management’s confidence improved, emphasizing strategic wins in U.S. manufacturing and new partnerships, while reiterating market share gains in Europe and ongoing cost discipline.
• Analyst focus shifted from inventory normalization and Europe’s pricing promotions to sustainability of growth, safe harbor impact, and margin drivers.

Risks and Concerns

• Management identified the elimination of the 25D credit in 2026 as a risk to residential demand, though expects partial offset from TPO growth.
• Tariff exposure remains a challenge, but mitigation efforts are reducing the anticipated impact.
• Analysts questioned the sustainability of inventory normalization, the risk of further market declines in Europe, and the trajectory for margin improvement.
• Ongoing warranty costs, battery margin improvement, and FX risk as U.S.-made products are exported were discussed as areas of focus for further mitigation.

Final Takeaway

SolarEdge management conveyed a strengthened outlook with improved financial performance, clearer regulatory visibility, and momentum on its turnaround strategy. The company plans for higher Q3 revenue, expanding margins, and positive free cash flow for the year, while continuing to ramp U.S. manufacturing and pursue growth in both domestic and European markets. Management remains focused on innovation, operational efficiency, and leveraging new policy incentives as it works to solidify its market position and set the stage for further profitable growth.

Read the full Earnings Call Transcript