SMA Solar Technology AG (S92) Earnings Call Transcript & Summary

After the presentation, I will be happy to answer your questions. So let me start with a summary of the key financials. As already stated in our H1 call in August, we see gradual improvements in the supply situation in our segments, Home Solutions and C&I Solutions. Our total revenues were only a bit below last year's level due to shifts in our large-scale project pipeline. Profitability was in line with the first 3 quarters of last year, but benefited from a positive one-time effect, which I would explain later in more detail. As you can see in the table below, right of this slide, while Q3 sales remain on Q2 level, but with Home Solutions and C&I Solutions, clearly above Q1 and Q2. This is mainly driven by improvements in the supply situation starting last quarter. Now let's please turn to the next slide, and I will provide you with insights regarding our sales performance. As explained, the slight sales decline year-on-year was due to further project shifts in our large-scale pipeline related to delays in projects in the customer side. Here, we are in close interaction with our customers, and are confident that these revenues will be realized soon. Looking at the regions, EMEA continues to be our largest region in terms of revenues, with EUR 455 million after 9 months, which represents 61% of SMA's global sales. In EMEA, all segments achieved double-digit growth compared to the first 9 months of this -- last year. Revenues in the Americas region declined in the first 9 months of 2022 mainly because of large project shifts in the U.S. due to uncertainties on the module supply situation after the Biden administration announced anti-dumping investigations early in the year. After the anti-dumping duties were suspended for a 2-year period in June, our large-scale project pipeline in the U.S. has gained strong traction, and will be realized in revenues over the next quarters. With EUR 192 million of revenues, the Americas region represents 25% of our year-to-date sales. Our large scale segment continues to make up the majority of our sales in this region, with nearly 80% of total revenues in this year. With EUR 102 million of revenues for the Asia Pacific region represented 14% of our sales in the first 9 months of this year. Now let me briefly walk you to the sales per segment on the right side of the slide. Our Home Solutions segment continues to be impacted by material shortages. However, revenues in the first 9 months increased by 8%, up to EUR 229 million compared to last year with EUR 240 million of sales, boosted by the launch of our new product, the STP Smart Energy. At the beginning of this year, order intake for this segment has been approximately 3x higher than our average sales in the first 3 quarters of this year, and process in a position to achieve strong growth, as the supply situation gradually improves. So far, EMEA has been the major contributor for revenues and incoming orders for Home Solutions this year. Our Commercial & Industrial Solutions segment also continues to be affected by material shortages, but the situation started to improve, which helped to achieve 9% revenue growth to an amount of EUR 191 million compared to the first 3 quarters of last year, was EUR 176 million. In addition, incoming orders remained very strong in Q3, which puts us in a position for strong sales growth over the next quarters also for the segment. Similar to Home Solutions, the EMEA region is by far the largest in terms of revenues and order intake for our C&I business this year. Finally, revenues in our Large Scale & Project Solutions segment declined compared to the first 3 quarters of last year due to projects shifted back mainly in the U.S., as already explained. The sales in this segment amounted to EUR 304 million and declined by 15% compared to the first 9 months of last year. I've mentioned, order intake in the U.S., which is the biggest market for our large-scale business, picked up significantly in Q3 and remains high in Q4 as we speak. Now let me explain to you how our profitability developed in the first 3 quarters of this year. In the first 9 months, SMA generated an EBITDA of EUR 50 million, which translates to an EBITDA margin of 7%. EBITDA was slightly below last year's level, mainly because of the lower level of sales and effects from the underutilization of our production capacities in H1. Profitability was positively affected by one-off effects, including EUR 30 million -- EUR 23 million of other income in our corporate segment from the sale of 2 office buildings in Q3, and EUR 5 million in Q1 in our Large Scale segment related to a significant compensation for a late customer cancellation as already explained in previous calls. Profitability also includes mid-single-digit million euro investments since Q2 into future business in the form of a reorganization to further implement our corporate strategy 2024. These costs are allocated to each of our segments. Our depreciation was slightly lower than last year's level, a result of the lower level of investments in fixed assets over the last years. Now let's have a look at the segments in detail. EBIT on the Home Solutions segment is on a similar strong level compared to last year, despite some headwinds from underutilization effects in H1. With an EBIT of EUR 35 million, the segment delivered a solid return on sales of 15% EBIT margin. Profitability in the Commercial & Industrial Solutions segment continued to fall short of breakeven as a result of lower-than-planned sales volumes and effects from the underutilization of production capacities. Our Large Scale Project Solutions segment also has a negative result for the first 9 months, mainly related to the decline level of sales and underutilization in H1 due to lower order intake. As explained, we expect a strong uptick in revenues for the next quarters. And with that significant improvements in the profitability of all segments, which will also bring C&I Solution and Large Scale out of the red. Our net working capital decreased in the third quarter. It remains above the level from end of last year in absolute and percentage terms. The increase since the end of 2021 is mainly due to the ongoing buildup of inventories to mitigate effects from the supply constraints as much as possible, mainly related to our strong project pipeline. We increased our inventories in Q3 compared to end of last year. Stocks are now EUR 49 million higher. In the first 3 quarters, our trade receivables slightly increased to a balance of EUR 150 million, which represents a slightly higher DSO ratio than we target, but this can be explained by the high quarter-over-quarter revenue growth. Trade payables of EUR 159 million at the end of Q3 increased by EUR 25 million since the end of last year, mainly driven by the increased purchase volume of inventory. Advanced payments from our customers, which are reflected in our balance sheet and our other liabilities, doubled from EUR 24 million at the end of last year to EUR 48 million per end of Q3 and are driven by the strong order intake of our large scale business, as mentioned earlier. Driven by the cash proceeds from the sale of properties in Q3 in the amount of EUR 38 million, net cash increased by EUR 48 million in Q3 and reached EUR 224 million after 9 months compared to EUR 222 million at the end of last year. Excluding this one-time positive cash flow effect, our net cash still increased in Q3, mainly from the improved level of net working capital. Let's now turn to our cash flow profile on the next slide. In the first 3 quarters, SMA generated a positive gross cash flow resulting from our business [ solutions ]. However, this was not yet sufficient to fully offset our investments in our R&D pipeline and fixed business. Cash flow from operating activities improved significantly from negative EUR 14 million in H1 to a positive EUR 10 million after 9 months, and reflects the positive development in Q3, driven by our net working capital optimization measures. We also generated a positive cash flow of EUR 38 million with the sale of properties, improving our free cash flow [ means ] SMA's management in [indiscernible]. To summarize in the next slide what we have seen so far. The demand for our products and solutions remains very high. In August, we even had the highest order intake ever in the history of SMA. This makes us very proud, and again underlines our market standing as well as the appreciation of our products and solutions in an increasingly competitive environment. Also, there were no significant customer order cancellations until now, confirming that our high order backlog is robust. Like the whole industry, we're still facing the shortage of electronic components, and this causes longer lead times for order fulfillment and sales achievement. But we are confident to be able to fulfill the high order backlog within the next quarters. First signs of improved delivery capabilities that were seen in Q3, resulting in an increase of sales in Home Solutions and C&I Solutions. The Large Scale segment is still below expectations due to project postponements in H1. Those orders are now coming in, and will be converted into revenues over the next quarters. Group profitability, which improved significantly compared to Q2, was driven by an enhanced supply situation and increased productivity and production. Liquidity also increased driven by the improved profitability from operations as well as the one-off proceeds on the sale of property. And finally, our equity ratio remains robust at a high level of over 38%. With this, I will conclude the detailed review of our 3 quarters 2022 financials. Let me now briefly provide you with some insights on the current developments. As said, we saw gradual improvements in our supply chain started in Q3, even though the shortage of semiconductors and electronic component is still an issue worldwide. On top, the countermeasures, which we implemented in H1 started to take effect. As a recap. We initiated several measures to increase our ability to deliver. We tightened the collaboration with key component suppliers further, and secured components of the spot market, and we launched new products and solutions to gain market share and drive profitability. And of course, we permanently keep a very close track of cutting operational expenditures to improve liquidity and profitability. Continuing high demand confirmed by our order intake on a record level and a robust order backlog, we are well prepared for next year. Regarding our new products, we have already received very positive feedback on our new product, the Sunny Boy Smart Energy at the Ares exhibition. This new hybrid inverter offers a turnkey solution for the U.S. market and the Home Solutions segment. Start-up delivery will be in the second half of next year. Another important topic for our positioning in the U.S. market is the Inflation Reduction Act. This initiative from the government is a game changer for the whole industry, and will unlock huge potential for SMA. At the moment, we explore the advantages that which approach is best for us. Sustainability is another topic where we also have developed strongly in the last 9 months. Why? Well, first, we're operating in an industry that is key for decarbonization. And second, we are doing business in a sustainable manner and pursue a holistic sustainability approach as part of our corporate strategy. This is also [ merged ] in our excellent ESG scores. SMA received the highest MSCI ESG rating, AAA in October. Only one other company out of 50 from electrical equipment sector within the MSCI universe holds a AAA rating. In August, we have already been awarded the gold medal for successful sustainability management by rating agency EcoVadis. This puts SMA among the top 5% of companies evaluated by EcoVadis worldwide. Both rankings or ratings confirm that we are on a very good path to fully implementing our sustainability strategy by [ 2024 ]. Let's have a look at the order backlog on the next slide. Our order backlog for products increased significantly to EUR 1.3 billion at the end of Q3. The product order backlog for our Home Solutions and C&I segments, 3 digits has even increased by triple digits in the first 3 quarters of this year. Given the revenues after 9 months and our strong order backlog for products. SMA's management is confident to achieve the upper end of the sales guidance for this year as communicated in our ad-hoc announcement from October 27. Furthermore, our strong order backlog for all 3 segments gives us confidence to achieve revenue growth next year in line with current top line consensus. But still, sales development, especially for our Homes Solution and C&I segments will be very much dependent on further development in the supply chain. As just mentioned, we refined our top line guidance to EUR 975 million and up to EUR 1.050 billion for 2022, which is the upper end of the original guidance. This is based on the positive development in the supply situation over the last month. In addition, we raised our EBITDA guidance to EUR 60 million, up to EUR 75 million, thanks to the improved supply situation and revenue development as well as the one-off effect in other income in Q3, as explained earlier. With regards to 2023, we currently do expect further gradual improvements of the supply constraints, which should enable us to convert the high order backlog -- current product order backlog and potential new orders in revenues next year, and detailed guidance will be provided in early 2023. And now I'm happy to take your questions.

[Operator Instructions] And first question comes from Sebastian Growe from BNPP Exane.

Two questions, obviously. I would start then on LSPS if I may. So you mentioned the project delays in the U.S. Would it be possible to single out by how much those delays really impacted the revenues and EBITDA in Q3? So I'm curious to hear what sort of the underlying or clean gross margin in the quarter was? And if you could help me there, that would be much appreciated. Related to that, can you just help us understand how we should think about the EBITDA trajectory? You said you are in close discussions with the customers. So should we then expect an above proportionate pickup in EBITDA? Or is it sort of the profit that you couldn't book then because of those delays, is this kind of lost? That would be just interesting to hear. And then on the free cash flow guidance then, I'm a bit [ segregated ], sorry . So you had a net cash position now of EUR 224 million, you guided to EUR 190 million, so implying a cash burn of more than EUR 13 million in the quarter 4. And I just cannot understand quite frankly in wake of the improving profitability, like the inventory flush out in the December quarter, where this very cash burn should come from? Yes. That is the 2 questions, and maybe you allow me now also one follow up.

Okay. Actually 4 questions maybe packed in 2, but let me try to answer that. So first of all, regarding the project postponements, which you're referring to, so -- maybe also that might be a little bit misleading. What we're talking about is, when we look on our Large Scale revenues in H2, or respectively also in the third quarter, so it is below our expectation because of lower-than-expected order intake in H1, mainly in the U.S., which is our biggest market. And this is also a kind of project push out. The project postponed because EPC at that time, they hesitated to place the purchase orders as modules were expensive and also other materials and components were expensive. And this has -- this potentially has unlocked the starting after this announcement with this -- well, the tariff has been [ postponed ]. So this is the one category of push back. The second one is what we have every month, and this is quite usual in the project business, that you have your project deliveries, and the construction side and the customer side is not finished, is not ready, then it's pushed into the next period. And this is what we see and what we have more or less every month. But this is quite normal. This is nothing where anybody should be concerned because we have the pre-payments already in our books. There is also the commitment and the contractual obligation that the finished goods are taken from the customer. So we have just to deliver. It's only a question of time, right, and [ short ]. But of course, we have to be careful that this effect is not too high. And when it comes to -- therefore, your concrete question, what the impact is -- was, respectively, is going to be for H2 in total, then I would estimate this is a mid 2-digit million euro amount of revenues.

And on the free cash flow guidance then?

Yes, for Q4, the cash [ flow ] what you indicated, this is -- well, I wouldn't say that's really a cash flow because what we, of course, have to do is -- now started in Q3 already, with that high order backlog, what we see, especially in large scale, we have to buy other components -- transformer and some other component. And therefore, this is where we have also planned a strong buildup of inventories to, of course, to deliver as much as possible on that strong order backlog in early 2023, especially for Large Scale. So this is, therefore, just a reaction of the strong order intake that we see in order to serve the customers and to turn that into revenues. So therefore, of course, it's an estimation. But yes, to that extent, EUR 30 million, of course, could be a number where we expect also that net working capital can increase, which also is not just explained by the uptake in inventories, but also due to the higher revenues we expect for Q4 also in the accounts receivables, yes.

So I think -- well, if it was EUR 30 million, then that would still suggest an underlying free cash flow was just 0, which looks a bit on a very, very soft side, I think, against what you have been alluding to in terms of the profitability improvement, but yes, I see the volatility in that one. And if you allow me that very follow-up -- and I think it links it quite nicely then to what you said around the necessary inventory buildup, not least to fulfill then the LSPS order backlog. And how fast can really that EUR 1.3 billion product order backlog convert into revenues? And I would also be curious to hear where do you stand in terms of production shifts? My understanding is you're running on 2 shifts only. So to just get a better understanding, how much sort of upside opportunity simply there is in terms of converting the backlog into sales?

Yes. So first of all, the question regarding this IRA backlog of EUR 1.3 billion. Of course, heavily depends on the situation in the supply chain. But that is very crucial. As I said, we see the improvements right now. We see that also for the next quarters. But we are still not there where we should, right? I mean it's -- there is still volatility in the market. There are still also some uncertainty if we talk about the supply of electronic components as well as on the logistics [ track ]. So therefore, my guess would be in the next quarters, respectively, in the next full year, so until the end of next year. This is the first one. And the second one, when you mentioned about production utilization. The effect also here that we have -- what we have noted was an improvement in Q3, and we see the trend also for the next quarter. Just to give you a flavor of that. If we talk about -- we are still running on 2 shifts in the production, and the production completely in Germany was utilized, let's say, in the first 3 quarters, roughly in the magnitude of 50%. And for Q4, we already expect an improvement up to a level of 80% roughly. So therefore, you see there is also still headroom to fully utilize our production, using also a third shift.

You said that it should be executed until the next year's and the order backlog. So provided that the order intake is not falling off the cliff in quarter 4, we would then talk around EUR 1.4 billion revenues on that metric, EUR 1.3 billion from the product, plus 100 or so on the service side. So that is in the greater scheme of things, the right understanding, correct?

That could be a right understanding.

And the next question comes from Constantin Hesse from Jefferies.

My questions have actually already been asked now. But look, I'm curious a little bit -- because you did -- you mentioned -- you did a comment on consensus next year. You said that you were relatively satisfied. And consensus currently sits at EUR 1.25 for next year were EUR 1.24. And from previous colleague now, the previous question, talking about EUR 1.4 billion, EUR 1.5 billion. So that was a little bit confusing in terms of the expectations. I mean I was rather thinking that 1.4 billion would be realistic given the order backlog. But then your comment on the EUR 1.24 on consensus kind of drove it down a little bit in terms of the expectation. So I'm just trying to really figure out -- you guys have a very large backlog now ongoing. You said that the chip supply had improved in Q3, fine. I mean revenue wasn't as good because of Large Scale, but clearly, Home and C&I is showing some improvement. If you can maybe share a little bit of light in terms of the conversations that you're having with your current suppliers? And should we actually start seeing bigger shipments coming in Q4? You mentioned utilization of 80% now which lies above the 70%, which SMA always referred to as is basically when it starts becoming interesting in terms of profitability. Any comments you can share, that would be great.

Yes, Constantin, let me start with the most interesting one, [ certainty ] -- the expectation for revenue for next year. So I can just repeat myself. I said exactly in the first introduction that we see us -- and we can confirm the consensus process for next -- But if it's EUR 1.5, it's EUR 1.23 -- of course, again, this is -- there is some uncertainty. So the potential would be there, yes, also based on our order backlog, and the potential would be there. But as we said, it's volatile and of course, something could happen when it comes to our supply situation. And therefore, we are very careful on that review. So therefore, I would like to stick that we see us in the magnitude of the consensus. But of course, potential and the possibility would be also for more. That's regarding the first -- and yes -- regarding the first question. And the second question, yes, it was about the situation regarding our supply chain. Well, as we said, I mean, we have increased the intensity in order to talk to our suppliers, and this was really done -- and focus in the last quarter. And in the result what we have already seen, and this is also what we expected, is that we will see higher volumes in terms of chips, in terms of IGBT modules, et cetera. Yes? So this is what started. This was -- there was also a commitment, we received the material in Q3, and we have even -- we have the commitment also for more quantities for Q4, and therefore, this is also the main premise for the change in our guidance. So therefore, yes, we do expect. But as I said, on the one hand, we see the improvements on IGBTs and ships, et cetera. But when it comes to other components, microcontrollers, fans, switches, et cetera, it's still volatile, and it even partially leads to line down what we can -- what we have to resolve and to [ manage ]. So therefore, as I said...

Would it be fair to say that the 80% utilization that you're achieving now in Q4 is kind of like putting it into like a new level? So from Q1 next year, you actually expect nothing below 80%, or only higher?

I would say it's similar. It was rather similar in Q1 or a level of [ Q3 ]. And then we expect the uptick then in the next quarters, next year.

The next question comes from Lasse Stueben from Berenberg.

But maybe a follow-up on just if we can talk about pricing a little bit. Are you seeing any change in the willingness of people to accept higher prices -- or maybe taking a step back. What are the price increases you're putting through at the moment? And how is that being taken on by the market in the different segments?

Yes. Well, first of all, I mean, also, what I explained in August is that we have increased the prices in Home and C&I, mainly a couple of times, beginning of the year, mid of the year, and then also in Q3 again. And then also in Q3, we increased the prices for the central inverters significantly. And as a consequence, what we see -- we don't see any negative impact on the orders from the customers. So of course, I wouldn't say it's well received, but it's understood because everything is becoming more and more expensive. Of course, also our material cost, labor cost. So therefore, it's accepted and somehow also anticipated. And therefore, we don't see any hiccups on the customer side regarding the price increases. Yes. And -- yes, full stop. Does that answer your question?

Yes, that's perfect.

And of course, in the future, if possible, we will see the opportunity to do that. And also, of course, we will continue in order to absorb and compensate also the increase in our material costs in order to secure profitability. That's a matter of fact as long as the market allows, but also in the competitive environment. Yes.

And the next question comes from Jean-Marc Mueller from JMS Invest AG.

First, a couple of technical ones. You alluded to the EUR 23.2 million, I believe, one-off gains in Q3 due to the divestment of the real estate asset. Where do I see the counter booking in the cash flow statement? I mean, typically, you have a book gain, which obviously is not cash. And then in the cash flow statement, I see the negative charge. Maybe if you can help me there?

So yes, first of all, the number is right. And looking when you're referring to the cash flow statement, you see that as a cash inflow from divestments in the first 3 quarters in Q3.

I understand that you sold it. I mean I understand that the cash in from the divestment, but the counter booking of the book gain should be a negative booking in the cash flow statement. Or is the number that you showed, the cash inflow from disposal of held for sale assets, the EUR 37.6 million, is this a net number?

That's correct.

Then my other technical question will be also cash flow related. You have a change in provision of minus EUR 24 million. And overall, your provision levels have come down quite a bit. Is this kind of a reversal of unused provision, which artificially boost now profitability, but obviously, it's not something which is really recurring? Or could you help me with that number, please?

So first of all, no, it's not a boost of our profitability. So what I can imagine to the changes in provisions to that extent, we're -- regarding our general individual warranty accruals. And this is, of course, what we are doing on a quarterly basis that we are reevaluating both the individual ones as well as the general warranty accruals. And therefore, we have that kind of movements also in our aircraft. The second thing what could be is our -- the accruals for our own business. So for the contract, what we have created so far by the end of last year, 2021, which was significantly -- I think, roughly an amount of EUR 40 million. And this is, of course, also something that we, over the quarters, have evaluated. And then, of course, there are effects. So...

But these are positive P&L effects. I mean these are all issues which also benefit the P&L, not -- which are not booked directly against the equity or so?

No, it's neutral. Because -- Okay, so I mean...

Typically, the release of provision, there's a positive P&L effect?

You're right. So the provisions were made last year when we talked about that, and the costs are now booked against the accruals. So we are looking...

And my next also a bit technical on the, I mean, [indiscernible] from R&D. Obviously, you have started to, let's say, more aggressively capitalize R&D costs. I think you're right in the tax that you capitalized EUR 27.7 million in the first 9 months, that compares to EUR 17.5 million in the first 9 months of last year. What is the reasoning behind this? I mean -- and how is this continuing going into next year? Will this be kind of a run rate number? Or do you think that this will increase even further?

Yes, that observation is right. And the reason for that is that we are, of course, driving and focusing on our [ 3 key ] projects. As I also indicated earlier, is -- we are planning to launch our new platform for Home Solutions, not only in the U.S. but of course, on a global level. The same is also that we have -- we had this year a launch in C&I a big project when it comes to a new platform for our central inverters, which will be launched then in 2024. And of course, only these 3 key projects, they are driving the capitalization of the costs. So first of all, yes, we have the cost. And therefore, also, we are booking more on the projects, which are in key phases of our R&D process. And when it comes to next year, we expect it to a level of around this year.

I mean annualized this year, same next year, basically?

Yes.

And that would also imply that once those projects become sales relevant, obviously, the depreciation charge will go up?

Yes.

So we should expect higher depreciation next year and probably also in '24 compared to this year?

Yes. Very likely.

And then a final question. I know you said 2 questions, I'm on my fourth one. But given the order backlog in the different divisions, I mean, obviously, Home Solution kind of is striking the increase of the order backlog. Looking into 2023, I mean, given the shift in the order backlog, should we expect Home Solutions or, I mean, ready in that sense to be the fastest growing segment of the business?

Well, I wouldn't see that -- so black or white. Because I mean, if you look on the order backlog, yes, Home Solutions is -- has the majority and large C&I, at least at that moment in time, relatively equal. I mean, Home Solutions will definitely continue also to grow with that regard. So in terms of revenues and also in terms of profitability. But we don't see the gap so high or so significantly towards the other 2 segments. So for the next year, we also expect honestly also that the other 2 segments, C&I and especially Large Scale, they were significantly improved. I just wanted to repeat that we see the pickup...

No, of course, we expect growth in all of them. I was just wondering whether there is a bit of a mix shift towards Home Solutions because the order backlog is so big there.

Yes. Okay.

And the next question comes from Guido Hoymann from Metzler.

And then 2 from my side. The first one is regarding the euro dollar. Obviously, these are very strong. So what – so do you agree that it helps both in your sales and also in your profitability? And can you give some quantification there, if possible, so the dollar effect? And the second question is do you actually have a margin target or margin ambition? This is not related necessarily to this year or next year, but rather, as I said, an idea where the margin should be, where it should go? I'm having the history reaching back to 2010 right in front of me, and then there we have seen everything between minus 7% and plus 28% EBITDA margin. So is there any sort of long-term ambition?

Yes. So first of all, regarding the FX impact. So does it help us? Well, yes and no. It helps, of course, on the sales side and also on contribution margin, or margins as such. That's a matter of fact. But we have also, of course, hedges that we are using and which offset this in our [indiscernible]. So therefore, it's been balanced. The effects year-to-date are -- well, from the net perspective, in the mid-single digit euro range regarding to that FX. The second question is something you need to think a little bit about because, if you ask about a long-term margin ambition, right -- This is the long-term margin. Well, first of all, as high as possible and as good as possible. Yes, but -- and of course, it varies by segment. So therefore, we are right now in the hot phase of our strategic planning and our mid-term planning honestly. So therefore, we have a quite good transparency on that. But I would be a little bit careful with the communication. If you remember, when I mentioned that EBIT wise, we have the ambition to reach 8% to 10% by the end of 2025. This is what I said in August. I think I will stick to that again, just to give you a very rough estimates of that. And of course, what we also aim for is that we want to drive the performance in all our 3 segments. So -- but we want to, of course, to avoid is that what we see right now, or in the past that we have 1 strong or 2 strong segments, and we want to balance that. And this is also our plan. This is also our ambition that we -- as soon as possible, have 3 strong segments, 3 profitable segments. And yes, depending on the segment, it depends if we are talking about a single-digit margin or 2-digit margin. But that's what I said at the beginning, it's still what I would stick to.

And the next question comes from Jeff Osborne from Cowen and Company.

A couple of questions on my side. I think years ago in 2010 to 2016, you had a factory in Colorado -- Springs, Colorado. I was just curious with the IRA Bill, is that something you would entertain in -- having a factory in America to get the manufacturing credit?

Yes. First of all, you are right. I remember that, that we had the production. But right now, of course -- I mean, that years ago, and this IRA, which has been announced is, of course, something which is really great. It provides a certain security for the whole industry. It is definitely a high potential, what we see. But for us, it's too early to say what our decision would be in terms of a local setup. So -- because we have, first of all -- and this is what we are doing right now to evaluate what do we need, so in order to fulfill the requirements really for the business in the U.S, and also to apply for that incentive schemes and to get the address for the [ ITC ], et cetera and what would be in terms of cost benefit ratio also the best local set. That is what we are currently doing. So we haven't decided that so far. It's too early from our side.

And can you just remind us on the U.S. side -- it sounds like bookings are accelerating quite nicely here in the third and fourth quarter. What are your lead times today, and remind us of what your historical market share was for U.S. utility market?

Well, the lead times -- first of all -- sorry, could you repeat that maybe one more time?

Yes, I was just curious -- if I'm a developer and I wanted your inverters and I placed an order today, is that typically for the third quarter of next year? Are people providing you half years of visibility? Or what's the expectation of placing orders today and when that would be delivered? That was the first part of the question. The second part of the question is, I was interested in what your perspective was on your market share of the U.S. utility scale market. I thought it was close to 40%. And given that high market share, I would assume many of your customers would want a make America product and then have the ITC for themselves, go to 40% as well?

Okay. So the first question regarding the lead times. Of course, that depends on the product, I mean, with Home Solutions and C&I Solutions products. We are still in a location when it comes to utility in the market -- in the U.S. market. That's unchanged as in the past. So the range is between 6 and 9 months, right, in terms of the lead time for project business with [ EPS ]. And yes, for H1 next year, that's slowly getting locked in. When it comes to the market share, your question is? I think we talked about 15% of last year, but these are old figures. So we do continue to have a solid market share in the U.S. This is what we see also as a continuation from last year, despite the fact that we have lost some business respectively. The orders have not -- we haven't received that because it's more a shift, right? It's a push out. So it's not really that we would judge that based on the order intake in H1. We are losing market share. This is not the case. So from our perspective, as I said, we continue to have that solid market share in the U.S. in Large Scale, and it's just a question of time. The orders -- as I said, we've seen that with the beginning of Q3. So they came in -- and this is also, as we speak, we observed that we have a great opportunity funnel with a very good price quality and also good terms and conditions in terms of payment terms et cetera, which is quite good.

Just 2 other ones on my side. Very quickly. I usually ask you every quarter, the trading and storage revenue, is it something you can share?

Yes, I can, as always. So give me a second. So the share regarding -- just a second. Okay. So you're asking for the share regarding trading goods, right?

Trading and for the storage, stationary storage? Yes.

Okay. So year-to-date or for the quarter only?

The quarter would be more helpful.

Okay. So for the third quarter this year, regarding trading goods, the share was 9%, and year-to-date is 12%. And the second one you asked was storage, right? So this was for Q3, it was 12%. And year-to-date, it's 11%.

And my last question. Is just -- it sounds like on all 3 divisions, [ shipping ] commercial and utility scale, you have new products being introduced next year. You've got lower shipping costs and you have higher utilization that Constantin was talking about. I'm trying to get a sense of, is Q4's EBITDA margin trajectory that you're guiding to? Is that a good expectation for next year? Because I would assume as utility scale becomes a much bigger portion of the revenue in the second half, your profitability would go down relative to the first half. So I'm just trying to get a sense of all the moving pieces between lower input costs, lower shipping, new products, but a mix shift in revenue? So for -- to think about the linearity of profitability, would you maybe be more profitable in the first half versus the second half as utility scale in America catches up after 1 year of dismal growth?

Well, so do you mean for '22 or '23?

Speaking for next year. Just -- there's a lot of pieces, right?

Yes. [ Okay ], just give a second. Well, I will repeat myself actually, where -- I told this before. I mean it's mainly related to the supply situation, right. And then also the sales uptake for 3 segments. Therefore, I would be a little bit careful regarding that.

It just seems like in the past, when you had strong quarters for utility steel market, your gross margins would be under pressure by 300 to 500 basis points versus quarters when you didn't have it. So that's why I asked the question. When you look at your high teens gross margin performance versus 20% or higher, it seems to be all related to mix, but maybe I'm mistaken.

Well, of course, the mix is driving here, is a key driver. But as I said, I mean, we are currently expecting a quarter-over-quarter uptick of sales in all 3 segments. And Large Scale prices, as I said also, I mean, they have been increased. And then we have a good price quality, a good price point. And also the development of U.S. dollar is favorable for us. So therefore, it's a combination. So therefore, I would say, we see the right signs also to continue with that improvement, and also to continue with a margin level of Q4. But that is something which is, as I said, heavily depending on volatility and the uncertainties in the market and in the supply chain.

The next question comes from Firmino Morgado from Man GLG.

I mean what I wanted to understand is, on the residential segment, what has been your market share evolution in the U.S.? And also more a general question. When I look at the new margin targets for the different segments, I mean, they're still well below your competitors. So I just wanted to understand why is that? And to what extent you have, I mean, a higher cost base that doesn't allow you to catch up with them?

Yes. I'm just thinking about -- you are specifically focusing on Home Solutions business in the U.S., right?

Yes. I mean -- but feel free to actually give your view for the other segments, not just in U.S. but also in Europe?

Yes. For residential, Home Solutions.

Or for the other segments also.

Yes. Okay, but let me start maybe with Home Solutions. So yes, it is a matter of fact that looking back, we did lose market share in Home Solutions over the last, I don't know, 5 to 10 years. So -- and this was something, of course, where we have right now a very lower and lower market share when it comes to Home Solutions, also when it comes to C&I. So only in Large Scale we are -- we have a significant market share, a dominant market share in Large Scale business. So -- and that is what we have observed and seen in the last years. But when -- I mentioned that right now, I mean, of course, the IRA helps. This is also, of course, an enabler for more potential. But we have already started also before the announcement of the IRA to start our -- or development of our new hybrid and solution platform for Home Solutions, with all the functions which we would need in the U.S. to get back the market share. So this is what I said. The feedback was great in the [ RE ] plus. The customer base is really asking for that. This is the observation, and therefore, we think that after we will start production and delivery in the U.S., we will get back the market share here and also increase that considerably. So that's regarding Home Solutions in Americas. When it comes to EMEA, this is for us a strong market. I mean it's our home market in Germany, also EMEA, as I said before. You see that when it comes to order intake in [ lost ] revenues. Germany and the other European markets, we are driving the growth of Home Solutions right now so far. And of course, knowing that we have also SolarEdge, [indiscernible], we have the Enphase here as players in Europe. And we think that we will lose a certain market share. But once we can improve our delivery ability that -- we are very confident that we will get back as soon as possible. When it comes to Large Scale -- or when it comes to APAC -- sorry, when it comes to APAC with regards to Home Solutions, so the market share was quite low and is still quite low. So this is also where we think that it is a level which has been stabilized on the current level over the last years, and this is also what we expect for the next years. Does that answer your question regarding Home Solutions and…

Yes. And the second part, I mean, in terms of your cost base, is this something structural about your cost base other than -- other -- I mean scale or anything else that can give you a cost advantage in U.S. but also in EMEA?

Cost advantages in EMEA or in the U.S? Well...

Advantage -- cost advantage.

Yes. Just a second. I mean, of course, what is the driver for our margin is definitely -- if we manage to scale that. So scale is absolutely key. There is scale volume. That is what -- also something what we have seen over the last quarters. So -- and the utilization, as I reported also for the H1 figures. Underutilization had a big impact on our profitability. So therefore, we need volume, We need order intake and -- in order to utilize our production facility here. So this is also what we expect in the next quarters and in the next year, and this is the main theme for us.

And what I was trying to understand is that in the U.S. in particular, because I mean, it seems to me that you're going to deeply market in the Home segment. To what extent your lack of scale can be a structural advantage?

So I don't know if I didn't get you right. I mean what kind of disadvantage you are referring to?

The [ cost ] of your lower scale in U.S. versus your competitors, it could be -- I mean, you would have a cost advantage or not? That's why I was trying to understand.

Well, not really, but I mean if you look -- look, I mean, we have, of course, competitors who have low cost or local productions, of course, and then they have also a different structure in terms of the costs. I mean we have a different setup in terms of our production. And we have -- just to manage one production facility -- and therefore, again, higher volume, higher utilization is something which is driving our profitability, of course, when it comes to that kind of cost. So logistics costs, they are increasing, but this is not that point. When it comes to, for instance, other infrastructure costs -- I mean we have a very lean sales organization. And therefore, so there are not really any cost disadvantages that we might have in the U.S. would come, if you refer to that. So therefore I don't see the point, right? And we have still very strong volumes in the EMEA region also for our [ stream ] business right now already. So therefore, this is the key for us, scalability based on volume. So if that didn't answer your question -- So of course, we can also range maybe a call afterwards or a short meeting if you wanted to, to understand your question and maybe to have a short deep dive on that comparison with our notes.

[Operator Instructions] And we have a follow-up question from Constantin Hesse from Jefferies.

So a couple more questions. I keep it -- very simply put. I think on the revenue side of things, I think you made it already pretty clear in terms of your expectations. But on the margin side -- So very simply put, Q4, Q1, Q2, Q3, Q4, as we go sequentially, you're expecting production to improve, utilization to improve. And as a result, you expect a gradual margin improvement from Q4 and then continue to improve in Q1, Q2 and so forth. Is that kind of a fair assumption?

That's a fair assumption.

So that is relatively clear. And then the other one is on market share. As you look at market share today in Europe and some of the key markets, I mean, clearly, you lost quite a bit of share this year. If I look at what SolarEdge and Enphase are doing in Europe -- and even the Chinese, they're growing quite significantly there. In Q3, you grew revenues in the Home segment by 40%. So do you see that you're starting to stabilize that loss? Or do you still expect to continue losing some share into the next year?

Yes. No, I would say the first one. I think that we think to stabilize that, at least if they meet ambition. That's the point. We don't think to lose more.

And then just quickly on the margin side again. In 2023, is it fair to say that none of the segments will be loss-making? All of them will be in the black?

I would kindly ask you to await the guidance then for next year. This is where I said we are still in our hot phase of our planning for next year also.

Just referring to the comments you made then before with regards to the new product launches. You do expect these new product launches to bring you back to the black hat?

Yes, of course. I mean this is our ambition, as I said, our ambition is to have 3 positive segments in terms of profitability as soon as possible.

And we have one more question from Anis Zgaya from ODDO BHF.

I have one question. So you affirmed your confidence to reach the high point of consensus at top line level. What about EBITDA level consensus -- is at [ EUR 123 million ], what do you think about it?

Just to make that clear, so you are asking about our expectations regarding consensus -- to reach the consensus in terms of EBITDA, right?

Yes.. I don't know if you had…

Yes. Well, let me just echo to what I said also before, when it comes to revenue on the one side, but also profitability, is that we feel comfortable with the consensus for next year. But I would kindly ask for your patience that we will provide more details there on our guidance for next year, then also early next year. But just to echo that, we feel comfortable to -- with the guidance -- with the consensus for next year. Is that okay?

I am not sure. Maybe we lost them. Then we go ahead. So there are no further questions at this time, and I hand back to Thomas Pixa for closing comments.

Yes. Thank you very much. So well, before I close today's call, I would like to thank you very much for your trust and commitment in the last 2 analyst and investor calls I recently made in my current role as Interim CFO. The presentation of the Q4 and full year financial results for this year as well as the presentation of the guidance for next year will then be taken over by SMA's new CFO, Barbara Gregor, who will start on the December 1st. At this point, I would also like to announce that we will host our Capital Markets Day again in Q1 next year in Kassel. As we are currently still planning, but the invitations will follow soon. Therefore, I would like to invite all of you to this event, and I'm looking forward to welcoming you here in Kassel and meeting you in person again. Okay. Take care of you, stay healthy and see you next year. Goodbye.