Investing in SolarEdge (NASDAQ: SEDG)

SolarEdge looks to Raise $125 Million in IPO

Written by Brian Hicks
Posted February 19, 2015 at 2:12PM

solaredgeFrom a huge crop of Israeli cleantech companies, solar power optimization and management startup SolarEdge has filed for a $125 million initial public offering on the NASDAQ exchange.

SolarEdge has been talking about IPO since 2011, but opted instead to work with venture capital through three separate funding rounds. By the time it completed its Series D, SolarEdge had raised a total of $37 million from more than ten venture capital groups.

The company's CFO recently told Bloomberg that it was difficult to grow such a large company with only private money. An IPO was a given, it was just a question of when it would happen.

Yesterday, the Securities and Exchange Commission published SolarEdge's S-1 filing that revealed the nuts and bolts of this offering.

What SolarEdge offers

A major problem for solar panels is how easily their output can be lessened. When even a portion of a solar panel loses its direct sunlight, the energy output is compromised. SolarEdge claimed to maximize efficiency of panels to mitigate the effects of things like partial solar shading.

By correcting inefficiencies in DC to AC conversion, SolarEdge claimed to be able to boost energy output by as much as 30 percent.

The value of the company is in its patented power inversion technique. It's an upgrade to the dominant method of harvesting solar power. In short, the system uses a distributed architecture of power optimizers. The SolarEdge system hooks up each photovoltaic (PV) module in the array with its own low-cost optimizer. The whole network of optimizers is monitored and managed by a cloud-based interface.

In the company's SEC filing, it describes itself in the following way:

“Our system enables each PV module to operate at its own maximum power point ("MPP"), rather than a system-wide average, enabling dynamic response to real-world conditions, such as atmospheric conditions, PV module aging, soiling and shading and offering improved energy yield relative to traditional inverter systems...Our architecture allows for complex rooftop system designs and enhanced safety and reliability.”

SolarEdge is a B2B company. It sells this solution to solar providers of various sizes in 45 different countries so far. It works with big installers like SolarCity (NASDAQ: SCTY) Vivint Solar (NASDAQ: VSLR) and SunRun and claims to have shipped more than 4.5 million power optimization units and 201,000 inverters since its founding in 2006. Approximately 95,000 installations are hooked up to its cloud monitoring platform.

In 2013, the company's revenue was $79 million. In 2014, revenue grew to $133.2 million. The comany's revenue for the first six months of fiscal 2015 have been double that of the previous year. After a history of losses and negative cash flow from operating expenses, the company is posting a net gain for the first six months of this fiscal year. The first six months of fiscal 2014 resulted in a $13.1 million net loss. So far this year, it's tracked a $5.9 million gain.

But that's an extremely limited run. The company's ability to generate a profit seems to be the biggest question, and it's marked as the number one risk factor in the SEC prospectus. Sure, they market their ability to optimize solar panels for output, but can they optimize their operating costs so they can turn a consistent profit?

SolarEdge will trade under the symbol (NASDAQ: SEDG), and it will not yield cash dividends at any point in the forseeable future.