Mark Strouse: Okay. I’ll take the rest offline. Thank you.
Zvi Lando: Thank you.
Operator: Thank you. Our next question comes from Colin Rusch with Oppenheimer.
Colin Rusch: Thanks so much guys. With the change in volumes and looking at your component sourcing, can you talk a little bit about any adjustments that we should be thinking about in terms of actual component costs and volume breaks going the other way on you guys as you take volumes down and how that might reverse as you get through the balance of this year and into next year?
Ronen Faier: So, first of all, Colin, I’ll start by the fact that given the inventory levels that we see right now. A lot of the costs will not change this year because if you take the inventory levels and expected revenues, you’ll see that we’re pretty much covered for this year. And of course, we will continue to manufacture in the US to enjoy IRA and maintain other areas. So I don’t expect a short-term situation here. When it comes to the components themselves, first of all, we have some strategic components and strategic component manufacturers with whom we have agreements. With all of them we discussed the terms of the agreement and how to move forward. I think that most of the discussion is more on timing of consumption of volumes rather than pricing right now because we thought also when component prices spiked during COVID.
Usually, this will be more related to overall, I would say, global trends rather than the volumes that we’re consuming yes or no. So I do not expect to see a lot of changes there. There is always, by the way, a little bit of a change to the cost per unit of manufacturing because the more units you manufacture usually, that goes down, but at least when it comes to the level that we see, what we try to do is to reduce manufacturing locations instead of maintaining many locations and reduce the volumes in each one of them. So this is something that is relatively also going to be staying flat. So no major changes are expected in the very near future.
Colin Rusch: Excellent. And then with your sales team, given suppressed levels of sales. Obviously, you, guys, have had a really effective sales team historically. Can you talk about any sort of retention metrics that you’re having to engage in? Or are you giving folks a little bit bigger geographies to work with? How is that team changing shape and incentivized going forward?
Zvi Lando: Yeah. So — I also — in one of the previous questions, our global sales force was less impacted by the reduction in force because we wanted to keep the strong sales force that we have and the strong links to the customers that we have. And I think that, that by itself buys some level of royalty and motivation. Our sales force to a large extent, has been with us for a long time and is very experienced in the industry and very experienced with the company to understand that cycles take place and have optimism about the continuation of the cycle to the other side of it. And together with that, we are making sure that they are properly incentivized for the work that is maybe a bit more difficult now than in a bullish market. But I think we’re happy with the level of engagement and motivation and optimism that we see across the sales force in the various geographies.
Operator: Thank you. Our next question comes from Christine Cho with Barclays. Q – Christine Cho Hi, thank you for squeezing me in. My first question, how do you determine how to undership every quarter? I think you mentioned that you’re going to continue to undership through year-end, just less in the subsequent quarters. But why not just front load that and not undership? And then with the forecast that you discussed in your trajectory and revenue improvement, how do you factor in potential market share losses or gains and any pricing decreases that you might look to do as we move through the year?
Zvi Lando: Yeah. So the first part of the question is actually, it’s more the customers determine that, and we determine that. And Ronen mentioned, because of the breadth of our product, even though we talk about a lot of inventory in the channel, there are various products that are still either in high demand or in some way short, and a lot of the revenue is driven from those. So we’re not trying to push on to the customers’ product that they have and don’t need. We’re responding to their needs, either in anticipation of something that’s going to happen in the market or as their inventories decline for specific product lines. In our modeling and plans, we obviously have a lot of focus on share and believe that we’re taking actions that will enable us to gain share. We did not factor anything dramatic in that regard into our assumptions when looking at the projected sell-through numbers that we gave.
Operator: Our next question comes from Julien Dumoulin-Smith with Bank of America.
Cameron Lochridge: Hey, this is Cameron Lochridge on for Julien. Can you, guys, hear me okay?
Zvi Lando: Yes, we do.
Cameron Lochridge: Awesome. So I just wanted to come back actually to the last question on pricing, kind of how you see that evolving, particularly in Europe with the inventory challenges that’s taking place over there? Either from a competitive standpoint, how are you seeing competitors behave? And how does the pricing strategy evolve for you, guys, kind of as the year progresses in Europe?
Ronen Faier: So I’ll start from what we see and then what it means for us. First of all, we do see an intense intensifying, I would say, pricing environment in Europe right now. The fact is that, as mentioned, everyone is trying to push their volumes to try to grab some share. And we do see that across the board, at least when it comes to Chinese string inverters prices are going down, sometimes a little bit more than we used to see in the past. Now the channels are starting to clear inventories, then prices can play a little bit of a part. When it comes to us, we will need to adjust prices along this year. And as we’ve mentioned, we expect to see prices going down across the board in, I would say, mid- to high single digit this year.
Not all of it is going to be in the same continent or not on the same product, but in general. But the other side that still plays a very important part is actually the fact that what is the offering that is provided. Because today, the offering that we provide is considered to be a premium product comes from the software capabilities from the abilities to respond to dynamic charges. The fact that we can make a lot of changes to our software over the air, over time and change the product capabilities in relation to what we see in the market, our DC capital batteries. And therefore, we have certain benefits that allows us to continue to maintain our premium position. So we’re not completely immune to price reductions that will happen in the market.
At the same time, at least what we see right now is not something that necessitates a very big change in our pricing strategy.
Operator: Thank you. Our next question comes from Corinne Blanchard with Deutsche Bank.
Corinne Blanchard: Hey, good afternoon. Thank you for talking my question. Most of it have been already talked about, but maybe if you can try to talk a little bit more about the competition, especially in the US. We definitely have heard over the last six months increased competition coming from Tesla. There are some of your peer as well that have some contracts expiring, so that could give us with some advantage. So maybe if you can talk a little bit about the dynamic here in terms of competition in the US.
Zvi Lando: Yes, it’s a competitive environment and always has been, we don’t sense a big shift in the competitive environment in the US, at least not right now. We know that new products are coming in. And I’m sure there are good products coming. There are a good string inverters available already in the market. Today, the North American market had for many years now, understanding and tendency towards module-level electronics and all of the benefits of that and in terms of energy harvest, safety, et cetera. So we expect that, that will still be the main philosophy in the North American market. And so far, we don’t see a strong shift in another direction. But that said, in Europe, there is a good offering of string inverters. And when elaborated before on the competitive environment, environment over there. So more competition is coming in, and it’s becoming more challenging, but we’re very comfortable with the quality of our offering and its differentiation.
Operator: Thank you. Our next question comes from Joseph Osha with Guggenheim Partners.
Joseph Osha: Hi there guys. Two questions. First, you’ve talked a lot about what you expect to happen in the US relative to Europe as year progress. So as you think about the $600 million and $650 million run rate, I’m wondering how we should think about that breaking down Europe versus the US and also perhaps commercial versus residential? Thank you.
Zvi Lando: Joe, can you please repeat the question?
Joseph Osha: Let’s — as we think about Q4 and the $600 million to $650 million you’ve talked about, how much of that do you think might be in Europe versus the US today? And how do you think that breakdown might look in terms of residential versus commercial market?
Zvi Lando: Yeah. I think. We — resi versus commercial, as we said, we anticipate commercial to grow at a higher rate than residential. So we’ve typically been on a megawatt basis in recent quarters, roughly 50-50 between the two. We expect that looking at the trajectory into 2024 that the ratio on a megawatt basis, which is very different, of course, than the revenue basis will lean a bit more towards commercial. In terms of the ratio of US to Europe, so as I mentioned, we expect mild growth in the two segments in Europe on residential and commercial. And we expect stronger growth in North American commercial and some level of stagnation in North America residential. So overall, I think relative to Q4, we do expect Europe to be a bigger portion of our sell-through and eventually revenue going into ’24.
And closer to how it was in the majority of ’23, where Europe was a much higher portion than North America. So Q4 was a bit different. We think that going into continuation of the year, the ratio of Europe will increase relative to the ratio of the US and the ratio of commercial will increase slightly compared to residential.
Joseph Osha: Thank you. Our next question comes from Tristan Richardson with Scotiabank.
Tristan Richardson: Hey, good evening guys. Appreciate all the commentary. A lot has been asked and answered. But maybe just curious, dialing into Europe a little bit. Can you talk about maybe where the Netherlands has been for you historically as a component of Europe? And then where you see that going in the $600 million to $650 million, particularly as we are sort of in limbo in terms of what happens long term from a policy perspective.
Zvi Lando: Yes. The Netherlands is — I think, it’s well known that it was a very strong market for us historically. Actually, just as a reference point, I think we have an installed base of more than 800,000 — more than 800,000 residential homes in the Netherlands that have a storage system on them. And we believe that someday and maybe that day after the — after the ruling of last week is a bit further out there than we thought originally, many of these 800,000 homes will have a SolarEdge battery added to the SolarEdge solar system that already exists. So the Netherlands is a very significant stronghold for us and has been a good market for us and kind of on par to Germany, in terms of the size of business for us, although very different in scale and size of the market.
We mentioned — I mentioned in the prepared remarks, the — compared to the baseline that existed in 2022, during the surge in demand, the Netherlands for us, increased installation rates by about 50% in the early part of 2023 and then declined from there, 50% to be about, I think, 20% or 30% below the 2022 run rate — is the installation run rate in the Netherlands right now. And it’s — as I said, earlier, we believe that the ruling which was not to overturn net metering right now, is overall part, but it doesn’t really give very strong long-term clarity to the market. So I think people will go from saying, “I don’t want solar” or “you maybe don’t need solar because I’m not going to get metering” to saying, “okay, I’ll have net metering for the near future.” It maybe makes sense to put solar, but it’s hard to say if this really is going to drive a surge in the market.
We think it’s going to improve but maybe not lead to the levels of 2022 and definitely not to the level of 2023. So it’s still a strong and good market, and we also see already an uptick in battery adoption, but it is lower than what it used to be in 2022 for us and definitely at the peak of 2023.
Operator: Thank you. Our next question comes from Ameet Thakkar with BMO Capital Markets.
