SolarEdge Technologies NASDAQ: SEDG reported third-quarter results that met the midpoint of its revenue and gross-margin guidance, while outlining a lower fourth-quarter outlook amid soft residential solar demand in the United States and policy uncertainty in Germany.
Chief Executive Officer Shuki Nir said the company’s turnaround remains centered on profitable growth, market-share expansion, the rollout of its Nexis platform and development of solid-state transformer, or SST, technology for data centers. SolarEdge generated its fifth consecutive quarter of positive free cash flow, he said, but management is taking further cost-reduction actions and withdrawing emphasis from select lower-performing geographic markets.
Third-Quarter Financial Results
GAAP revenue for the quarter ended Sept. 30 was $326.1 million, down 5.8% sequentially and 4.1% from a year earlier. Non-GAAP revenue was $325.4 million, within the company’s prior guidance range of $310 million to $340 million.
- U.S. revenue totaled $145.9 million, or 44.7% of total revenue, down 5.8% from the previous quarter.
- European revenue was $141.7 million, or 43.5% of revenue, down 8.2% sequentially.
- Revenue from international markets was $38.5 million, or 11.8% of revenue, rising 4.3% sequentially.
GAAP gross margin rose to 33.2% from 27.5% in the second quarter and 21.2% a year earlier. Non-GAAP gross margin was 34.7%, compared with 28.6% in the prior quarter and 18.8% a year earlier. Chief Financial Officer Maoz Sigron said the quarter included an approximately $36 million benefit related to IEEPA tariff matters. Excluding that item, SolarEdge estimated non-GAAP gross margin at approximately 23.6%, near the midpoint of its previous 22% to 26% forecast.
The company reported a GAAP operating loss of $1.9 million, improving from a $16 million loss in the second quarter. Non-GAAP operating income was $23.9 million, compared with $10.2 million in the preceding quarter. GAAP net loss was $8.4 million, or $0.14 per diluted share, while non-GAAP net income was $21.1 million, or $0.29 per diluted share.
Adjusted EBITDA was $31.8 million, up from $18.3 million in the second quarter and compared with an adjusted EBITDA loss of $14.1 million a year earlier. Operating cash flow was $20.4 million and free cash flow was $7.8 million. Year-to-date free cash flow totaled $31.7 million.
SolarEdge ended the quarter with $555.1 million in cash and cash equivalents. Cash equivalents, restricted cash and marketable securities net of debt totaled $260.9 million. Inventory increased to $621.1 million from $599.8 million at the end of the second quarter.
Fourth-Quarter Outlook and Restructuring
SolarEdge forecast fourth-quarter revenue of $245 million to $275 million, below the expectations it provided at its Investor Day. Sigron said the midpoint reduction of $50 million versus the prior implied outlook reflects three factors: approximately $35 million from proactive channel-inventory management in the U.S. and Germany, about $10 million from de-emphasizing less-profitable markets, and roughly $5 million from euro foreign-exchange effects.
The company expects fourth-quarter non-GAAP gross margin of 17% to 21%, reflecting lower absorption of fixed costs and excluding any potential IEEPA refund. SolarEdge said approximately $4 million of IEEPA-related funds remain expected in the fourth quarter. Non-GAAP operating expenses are expected to range from $87 million to $91 million.
Nir said U.S. residential demand remains slow because of delayed clarification surrounding foreign entity of concern, or FEOC, matters and higher interest rates. In Germany, the company cited proposed changes to the country’s Renewable Energy Act, or EEG, including a possible reduction in feed-in tariff support that could pressure demand for new installations.
Management said it is reducing exposure to certain geographies with lower profitability profiles while reallocating resources toward core markets and SST development. The markets being de-emphasized represent approximately $40 million to $50 million of annual revenue, according to Sigron. The company expects net quarterly savings in the mid-single-digit millions, including approximately $3 million from cost of goods sold and $2 million from operating expenses. SolarEdge expects the revenue impact to begin in the fourth quarter, with the full cost benefit beginning in the first quarter of 2027.
For the first quarter of 2027, the company expects a sequential revenue decline of more than 10%, citing normal winter seasonality and continuing U.S. and German regulatory uncertainty. Beyond that period, SolarEdge said it expects a roughly flat year-over-year revenue profile for 2027 and an adjusted EBITDA break-even profile following its restructuring actions.
Nexis, Storage and Data Center Development
Nir said Nexis systems contributed more than $100 million in revenue during the third quarter. The company has been rolling out three-phase Nexis in Europe and said the product is seeing adoption in the 10-kilowatt to 30-kilowatt segment in Germany, with higher average system sizes and storage attach rates.
In the U.S., Nexis has been added to approved vendor lists for the leading third-party ownership and prepaid lease companies that work with SolarEdge, Nir said. The company began its Nexis rollout in California in July after its meter collar solution received approval from the state’s largest utility.
Storage was SolarEdge’s largest product category by revenue for the second consecutive quarter. The company said revenue from battery upsells to its installed base of more than 1 million homes in the Netherlands and Germany exceeded $30 million in the third quarter, up from more than $20 million in the second quarter.
SolarEdge also cited $1.7 billion in safe-harbor agreements across residential and commercial markets, which could reach $3.3 billion when required optimizers are included.
On the data-center opportunity, Nir said SolarEdge remains on track to have a working medium-voltage-to-800-volt DC system in its lab by the end of 2026, followed by customer pilot installations in 2027 and volume shipments in 2028. The company’s SST cell completed high-voltage insulation testing for 34.5-kilovolt-class equipment and has demonstrated efficiency above 99% in company demonstrations, according to Nir.
Management said it has increased investment in SST development because it views the technology as a substantial opportunity as data-center power architectures move toward 800-volt DC systems.
About SolarEdge Technologies (NASDAQ:SEDG)
SolarEdge Technologies, Inc NASDAQ: SEDG develops technologies for solar energy generation, storage and management. Its core products include power optimizers, solar inverters and monitoring systems designed to improve the performance, visibility and safety of photovoltaic installations.
The company also offers complementary smart-energy solutions, including battery storage, electric-vehicle charging equipment, energy-management software and related products for residential, commercial and industrial customers.
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