Israeli solar energy company SolarEdge Technologies Inc. (Nasdaq: SEDG) is entering the uninterruptible power supply (UPS) market. The company, which develops and manufactures systems for optimizing and monitoring solar energy, reported that it has acquired the assets and activity of Israeli company Gamatronic Electronic industries Ltd. (TASE: GAMT) for NIS 41 million, subject to adjustments relating to the company's inventory on the date on which the deal is completed.
SolarEdge's share price leaped 6% to a record $59.10 in late Wall Street trading yesterday following the publication of the company's first quarter financial statements, boosting its market cap to $2.8 billion.
"This acquisition is a first step towards expanding SolarEdge's activity to new markets outside the solar field," SolarEdge founder and CEO Guy Sella said. "The UPS market has been assessed in the billions of dollars and is likely to evolve significantly in the coming years. We believe that the SolarEdge's technological innovation, operating excellence, and business leadership, combined with Gamatronic's technology and experience in this market, will enable us to become a leading player in the market.
The price of Gamatronic's share, which will probably still be listed on the TASE after the deal is completed, responded to the report by soaring 50%, boosting the company's market cap to NIS 60 million. Before today's increase, the share had lost over 60% of its value over the past three years, reflecting its investors' disappointment with the company's results.
SolarEdge is acquiring all of Gamatronic's assets in the framework of the deal, including the company's intellectual property and brand name, except for its customers' balances (NIS 25 million as of the end of 2017), dormant shares (worth NIS 12 million), money that is not part of business activity, and the company building in Har Hahotzvim in Jerusalem.
100 of Gamatronic's 130 employees will be employed by SolarEdge. SolarEdge is also getting an option to acquire Gamatronic's subsidiary in the UK for an estimated NIS 2 million.
After the deal is completed (expected by the end of June this year), subject to various conditions, Gamatronic will receive 50% of the pre-tax profit generated by the sold activity in the first year after the deal is completed and 33% of the pre-tax profit in the second year.
Bought FIMI's holdings
Gamatronic specializes in developing, manufacturing, and marketing electronic capacity products. Its products include UPS systems for supplying electricity continuously for computer and data communications systems, power systems providing direct current (DC) for communications equipment, current converters and chargers, and systems combining communications, hardware, and software used for command, control, and monitoring of UPS systems, power systems, and general energy controls systems.
Gamatronic, founded in 1970, now sells its products in the US, China, Europe, South Africa, and Latin America. FIMI was previously an investor in the company, but following a dispute between the fund and Gamatronic controlling shareholder Joseph Goren, Gamatronic itself acquired FIMI's holdings (7% of the shares plus options) in October 2010 for NIS 15 million.
As part of the current deal, Goren, who holds 59% of Gamatronic's share capital and serves as company president, and his daughter, Gamatronic director and VP sales and marketing Sharon Goren Bar-Zvi, will continue in their jobs for a year after the deal is completed, together with director and special projects manager Eli Steinhorn. At the same time, SolarEdge can dismiss them "at its sole discretion."
As part of the agreement, SolarEdge also undertook to rent three floors in Gamatronic's building on Har Hahotzvim with 4,800 square meters of space at NIS 50 per meter (NIS 240,000 per month) for two years, starting on the date on which the deal is completed. SolarEdge has the right to terminate the lease on six months' notice.
Gamatronic has been hit hard by a number of factors in recent year, especially intensifying competition and the strengthening of the shekel against the dollar and the pound. The company's revenue totaled NIS 65.8 million in 2017, 13% less than in 2016, its operating loss was NIS 4.5 million, compared with a NIS 9.3 million operating loss in 2016, and its net loss was NIS 6.3 million, 44% smaller than its loss in 2016.
Gamatronic said in its financial statements that the drop in revenue "is a result of growing global competition, sustained large-scale strengthening of the shekel against foreign currencies, and the difficulty in exporting from Israel."
In an attempt to counteract the trend and improve its results, "The company has established offices (subsidiaries) in the UK and China in order to overcome this difficulty and increase sales in markets that the company's management believes have major potential"
Good reports for SolarEdge
SolarEdge held its IPO on Nasdaq in March 2015. Its share price then more than doubled to a peak of $100 followed by a fall to low of $14 resulting from disappointment with the company's results and concern about competition that could damage its business, mainly in the US.
At the same time, the company has proven its ability to grow rapidly over the past year, and its share price has responded accordingly.
SolarEdge outperformed the analysts' forecasts in the first quarter in both revenue and profit, with a non-GAAP profit per share of $0.87 on $210 million in revenue. Revenue was 84% more than in the corresponding quarter last year. SolarEdge's GAAP net profit totaled $35.7 million, compared with $14.2 million in the first quarter of 2017, and its non-GAAP net profit hit $42.6 million, up 159%, compared with the first quarter last year and 3.4% in the preceding quarter.
SolarEdge generated $64 million in cash from current activity in the first quarter and finished the first quarter with over $400 million in cash.
The company's guidance for the second quarter is for revenue to reach $220-230 million, 62-69% more than in the corresponding quarter last year. SolarEdge expects its gross profit margin to remain in the 36-38% range in the second quarter.
Commenting on SolarEdge's results, Sella said, "We are glad to report a strong quarter with record revenue and profit, despite the usual seasonal slowdown and the persistent shortage of components in the industry. Our continual technological innovation and the excellence of our operations, together with the launching of new products and our financial strength, put us in a good position for continued growth and taking a leading role in the industry."
Published by Globes [online], Israel business news - www.globes-online.com - on May 10, 2018
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