IPO Lockup Expiration - SolarEdge Technologies

SolarEdge Technologies Inc. (NASDAQ: SEDG) - Sell or Short Recommendation - PT $26.25

September 22, 2015 ends the 180-day lockup period on SolarEdge Technologies .

With the conclusion of the lockup period, the company's pre-IPO shareholders will have an opportunity to sell their own shares totaling over 38 million units, which represents more than 5 times the IPO of 7 million shares. This potential for a sharp increase in the stock available in the secondary market could result in a dramatic decrease in the stock price.

We previewed SEDG's IPO lockup expiration event on our IPO Insights platform last week.

Business Summary: Company that Manufactures and Supplies DC Optimized Inverter Systems for Solar Photovoltaic Installations

Israel-based SolarEdge Technologies manufactures and sells a system that increases the efficiency of solar power generators by as much as 25 percent. These DC optimized inverter systems include inverters, power optimizers and cloud-based software for monitoring, which the company claims to increase the efficiency of residential, commercial and large-scale installations. Their products are in use in each industry segment, and the company markets its systems primarily through solar distributors, solar installers, wholesalers and photovoltaic module manufacturers around the globe. Since 2010, the company has shipped approximately 1.3 gigawatts of their DC optimized inverter system, and their products have been installed in a total of 73 countries.

Clients who use SolarEdge technology include SolarCity Corporation (NASDAQ:SCTY), SunRun (NASDAQ:RUN) and Vivint Solar Inc. (NYSE:VSLR) In addition, several solar distributors and electrical equipment wholesalers sell the SolarEdge optimizer, including AliusEnergy, Krannich Solar Group, Segen, and Soligent Distribution.

In spring, the company entered into an expanded supply arrangement with Vivint Solar for the SolarEdge optimized DC inverter. This represented a confirmation of the efficiency of SolarEdge technology. Previously, competitor Enphase Energy had been the sole supplier of microinverters to Vivint Solar, which as the second-largest installer of residential solar last year.

In fiscal 2015, SolarEdge's largest client was SolarCity, which is the largest residential solar installer, and SolarCity represented 24.6 percent of SolarEdge's revenue. The next five largest clients represented 29.9 percent of revenue in fiscal year 2015.

Fourth Quarter and Fiscal Year 2015 Financial Highlights

• Revenue increased by 13.9 percent to $98.4 million for Q4 2015 from Q3 2015, and an astounding 120.8 percent over Q4 2014.
• Achieved record revenue for fiscal 2015 at $325.1 million, an increase of 144 percent year-over-year.
• GAAP gross margin increased 28.7 percent for Q4 2015 and 25.2 percent for fiscal year 2015.
• GAAP net income was $9.3 million for Q4, and net income for fiscal year 2015 was $21.1 million.
• 284 Megawatts of inverters shipped during Q4 2015, and a total of 920 Megawatts shipped for fiscal year 2015.

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Overview of Management

CEO, Chairman and Founder Guy Sella has served in his position since the company's inception in 2006. His previous experience includes positions at Star Ventures, AeroScout, and Vidyo Inc. He has been a director on the Israeli National Security Council. He holds a B.S. in engineering from the Technion, Israel's Institute of Technology in Haifa.

Chief Technology Officer Ilan Yoscovich joined SolarEdge in 2008. Prior to joining SolarEdge, Mr. Yoscovich held senior positions at Slyde Technologies and Electronics Research Department (ERD), which is one of Israel's national labs. Mr. Yoscovich holds a B.S. in Electrical Engineering and an M.S. Electrical Engineering from Tel Aviv University.

Competition: Enphase Energy, SMA Solar Technology and ABB Ltd.

Because SolarEdge optimized DC inverters are innovative technology, they face competition primarily from conventional inverter manufacturers such as KACO, ABB Ltd., and SMA Solar Technology. In the residential marketplace, competition comes from manufacturers of micro-inverters such as Enphase Energy, ABB Ltd., and SMA Solar Technologies. In addition, several Asian manufacturers have made inroads into this solar energy industry segment including Omron, TMEIC and Tabuchi.

Early Market Performance: Strong Start

SolarEdge Technologies opened on its first day of trading at $20.05, 13 percent above its IPO price of $18. It closed on its first day of trading at $20.70 for an increase of 15 percent over its IPO price. The stock reached a high of $42.20 on June 19, a low of $22.44 on August 21 and currently trades at $27.56 (close, 9.14).

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(Nasdaq.com)

Conclusion: Sell Ahead of Lockup Expiration For Full Rewards

Our firm has found abnormal negative returns of -5.8% in a window of time, approximately two weeks, surrounding many firms' IPO lockup expirations.

These occur most often for tech firms, like SEDG, which have performed well, following their IPOs.

We suggest selling SEDG ahead of the event to take full advantage of the decline. With eight firms and sixteen individuals holding restricted shares, if even some of these decide to sell, an oversupply of shares available for public sale could significantly depress SEDG's share price.