What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2021-02-19 compared with 2020-02-27 · 183 added, 306 removed, 319 unchanged (61% of the section changed)

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Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

Purchases of Equity Securities by the Issuer and Affiliated Purchases

As part of the SMRE Acquisition, we issued to a certain shareholder who also served as an executive in SMRE, Performance Stock Units or PSUs that were subject to certain performance goals and a vesting period.

In December 2019, in connection with a separation agreement between the parties, the Company and the certain shareholder signed on an amendment to the original agreement that resulted, among other things, in the exercising of a call option by the Company with respect to 183,395 shares out of the granted PSUs, for a price per share equal to €0.01.

We have never declared or paid any dividends on our common stock.

We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future.

Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws and organizational documents.

Performance Graph

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The selected consolidated statement of operations data for the years ended December 31, 2018, 2019 and 2020 and the selected consolidated balance sheet data as of December 31, 2018, December 31, 2019 and December 31, 2020, are derived from our audited consolidated financial statements included elsewhere in this Annual Report.

The selected consolidated statements of operations data for the fiscal years ended June 30, 2015 and 2016 and the six months ended December 31, 2016 and the selected consolidated balance sheet data as of June 30, 2015 and 2016 and December 31, 2016 are derived from our audited financial statements not included in this Annual Report.

The selected consolidated statements of operations data for the fiscal years ended December 31, 2017 and June 30, 2016 and the six months ended December 31, 2016 and the selected consolidated balance sheet data as of December 31, 2017 and 2016 are derived from our audited financial statements not included in this Annual Report.

Our historical results are not necessarily indicative of our results to be expected in any future period.

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appearing elsewhere in this Annual Report.

Twelve Months Ended

Six Months Ended December 31,

Years Ended December 31,

Twelve Months

(In thousands)

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General and administrative

Other operating expenses (income)

Total operating expenses

Operating income

Financial income (expenses)

Other expenses

Financial expenses (income), net

Income before taxes on income

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Weighted average number of shares used in computing net diluted earnings per share of common stock

As of June 30,

As of December 31,

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and “Risk Factors”.

Established in 2006, we developed a DC optimized inverter solution that changed the way power is harvested and managed in photovoltaic, known as PV systems.

Our direct current, or DC optimized inverter system maximizes power generation while lowering the cost of energy produced by the PV system, for improved return on investment, or RoI.

Additional benefits of the DC optimized inverter system include providing comprehensive and advanced safety features, improved design flexibility, and improved operating and maintenance, or O&M with module-level and remote monitoring.

The typical SolarEdge optimized inverter system consists of our inverters, power optimizers, a communication device which enables access to a cloud based monitoring platform and in many cases, additional smart energy management solutions.

Our solutions address a broad range of solar market segments, from residential solar installations to commercial and small utility‑scale solar installations.

Since we began commercial shipments in 2010, we have shipped approximately 16.2 gigawatts (“GW”) of our DC optimized inverter systems and our products have been installed in solar PV systems in 133 countries.

Since introducing the optimized inverter solution in 2010, SolarEdge has expanded its activity to other areas of smart energy technology, both through organic growth and through acquisitions.

By leveraging world-class engineering capabilities and with a relentless focus on innovation, SolarEdge now offers energy solutions which include not only residential, commercial and large scale PV systems but also product offerings in the areas of energy storage systems, or ESS, and backup, electric vehicle, or EV components and charging capabilities, home energy management, grid services and virtual power plants, lithium-ion batteries and uninterrupted power supply, known as UPS solutions.

We are a leader in the global module-level power electronics market according to IHS and as of December 31, 2019, we have shipped approximately 49.9 million power optimizers and 2.1 million inverters.

More than 1.38 million installations, many of which may include multiple inverters, are currently connected to, and monitored through, our cloud‑based monitoring platform.

As of December 31, 2019, we have shipped approximately 16.2 GW of our DC optimized inverter systems.

We primarily sell our products directly to large solar installers, EPCs, and indirectly to thousands of smaller solar installers through large distributors and electrical equipment wholesalers.

Our sales strategy focuses on top‑tier customers in markets where electricity prices, irradiance (amount of sunlight), and government policies make solar PV installations economically viable.

We also sell our power optimizers to several PV module manufacturers that offer PV modules with our power optimizer physically embedded into their modules.

For discussion related to changes in financial condition and the results of operations for the year December 31, 2018, refer to Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on February 27, 2020.

We develop, manufacture and sell products that address a broad range of energy market segments through our diversified product offering, including residential, commercial and large scale photovoltaic or PV, energy storage and backup solutions, electric vehicle or EV charging, home energy management, grid services and virtual power plants, as well as products in our non-solar businesses which address e-Mobility, automation machines, lithium-ion cells and battery packs, and UPS solutions.

Further information regarding our business is provided in “Part I, Item 1.

Business”

of this Annual Report.

In the year ended December 31, 2020, one customer accounted for 14.8% of our revenues and our top three customers (all distributors) together represented 29.5% of our revenues.

Today, we address a broad range of energy market segments through our diversified product offering, including residential, commercial and large scale PV, energy storage and backup solutions, e-Mobility, home energy management, grid services and virtual power plants, batteries and uninterrupted power supply (UPS) solutions.

Our revenues were $607.0 million, $937.2 million, and $1,425.7 million for fiscal 2017, fiscal 2018, and fiscal 2019 respectively.

Gross margins were 35.4%, 34.1%, and, 33.6% for fiscal 2017, fiscal 2018, and fiscal 2019 respectively.

Net profits were $84.2 million, $128.8 million, and $146.5 million fiscal 2017, fiscal 2018, and fiscal 2019 respectively.

We continue to focus on our long‑term growth and profitability.

We believe that our market opportunity is large and that the transition from traditional inverter architecture to DC optimized inverter architecture will continue as the architecture of choice for distributed solar installations globally.

We believe that we are well positioned to benefit from this market trend.

Additionally, we are expanding our offering with products such as storage inverters for increased self-consumption and backup, EV-charging inverters, smart meters, smart energy devices (sockets, water heater controllers, wireless relay), aimed to increase our average revenue per installation (ARPI).

We intend to continue to invest in sales and marketing to acquire new customers in our existing markets and in adjacent markets, grow internationally and drive additional revenue.

We aim to increase market share in the C&I segment and penetrate the utility segment through specialized product development.

We expect to continue to invest in research and development to enhance our product offerings and develop new, cost-effective solutions.

We believe that our strategy for continued growth in the solar market results in an efficient operating base with relatively low expenses that will enable profitability on lower revenues relative to our competitors.

We believe that our sales and marketing, research and development, and general and administrative costs will decrease as a percentage of revenue in the long‑term as we continue to grow due to economies of scale.

With this increased operating leverage, we expect our gross and operating margins to increase in the long-term.

With respect to our penetration of non-solar businesses in which we have invested, we expect that we will need to make significant research and development, sales and marketing investments before making those businesses profitable.

Our revenues were $1,425.7 million, and $1,459.3 million for fiscal 2019, and fiscal 2020 respectively.

Gross margins were 33.6% and 31.6% for fiscal 2019, and fiscal 2020, respectively.

Net profits were $146.5 million and $140.3 million for fiscal 2019 and fiscal 2020, respectively.

Performance Measures

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Nameplate capacity shipped is the maximum rated power output capacity of an inverter and corresponds to our financial results in that higher total capacities shipped are generally associated with higher total revenues.

However, revenues increase with each additional unit, not necessarily each additional MW of capacity, sold.

However, revenues increase with each additional unit sold, not necessarily each additional MW of capacity sold.

Accordingly, we also provide the “inverters shipped”

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operating metrics.

COVID-19 Impact & Response

We continue to monitor the evolving impact of COVID-19 on our operations and business.

Our first priority continues to be to protect and support our employees while maintaining company operations and support of our customers with as few disruptions as possible.

We follow the guidance issued by applicable local authorities and health officials in each region in which we do business, including in our headquarters located in Israel, and have been able to continue our operations remotely or from our offices.

We have maintained a flexible attendance policy that has allowed our employees to work remotely where possible in order to reduce the number of people who are in our offices while our labs and manufacturing facilities remain fully operational.

Our manufacturing facilities in Korea, Italy and Israel, as well as our contract manufacturers facilities in China, Vietnam and Hungary have remained operational and at almost full capacity, with brief interruptions on a case by case basis in compliance with local laws.

Our customer support centers are working at full capacity, primarily from home.

Our operations and operating expenses have not been significantly impacted by these adjustments.

Continued travel restrictions however have had an impact on our operations, including, by way of example delays in third party testing and certification of new products.

The actions taken around the world to slow the spread of COVID-19 have impacted the installation rate of PV systems which we are closely tracking through our monitoring portal globally and per country.

We saw and reported a decline in installations in certain regions such as the United States and Italy beginning with the COVID-19 outbreak in March 2020 that negatively impacted our revenues in the second, third and fourth quarters of 2020 when compared to the first quarter of 2020.

In certain cases we accommodated customers in certain regions who requested to cancel or delay the supply of their orders.

We have taken actions in order to mitigate the negative impacts of COVID-19 on our business operating results and financial condition.

In the second quarter of 2020, we adjusted our original pre-COVID-19 business plans to implement substantial reductions of new hiring, elimination of redundant positions, reduction, where possible, of our spending, management of operations including a review of all of our variable, research and development projects, as well as a voluntary reduction of the base salaries/compensation of our executives and board members.

The impact of these reductions is reflected in our 2020 year-end financial results.

Overall, despite our ability to mitigate some of the economic effects of the COVID-19 pandemic by reducing manufacturing levels and lowering expenses, our revenues, net profitability and the overall market grew less than we had anticipated.

As anticipated, our fourth quarter revenues of $358.1 million, an increase from revenues of $338.1 million in the third quarter of 2020, reflect continuous improvement in installation rates in the U.S and rest of world, which were slightly decreased in Europe due to typical seasonality experienced in Europe during the winter.

During the fourth quarter of 2020, many of our customers depleted existing accumulated inventory from previous quarters and we saw an increase in demand, resulting in higher quarterly revenues mainly from our U.S.

based customers.

Key Components of Our Results of Operations

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Our customer base mainly includes distributors, large solar installers, wholesalers, EPCs, and PV module manufacturers.

In addition, following our recent acquisitions, we also generate revenues from the sale of lithium-ion cells, batteries and energy storage solutions, UPS systems, machinery and EV powertrain solutions for electric vehicles.

In addition, we also generate revenues from the sale of lithium-ion cells, batteries and energy storage solutions, UPS systems, automation machines and EV powertrain solutions for electric vehicles.

Our revenues from the sale of solar-related products are affected by changes in the volume and average selling prices of our DC optimized inverter systems.

The volume and average selling price of our systems is driven by the supply and demand for our products, changes in the product mix between our residential and commercial products, the customer mix between large and small customers, the geographical mix of our sales, sales incentives, end‑user government incentives, seasonality, and competitive product offerings.

Revenues from the sale of Kokam’s products are affected by the type of product sold (cell, battery or system) and the type of the battery that is sold.

Revenues from the sale of UPS products and SMRE products are affected by the changes in the volumes, customers’

Revenues from the sale of energy storage system or ESS products are affected by the type of product sold (cell, battery or system) and the type of the battery that is sold.

Revenues from the sale of UPS products, SolarEdge Automation Machines and SolarEdge e-Mobility products are affected by the changes in the volumes, customers’

size and average selling prices of the products we sell.

Our revenue growth is dependent on our ability to expand our market share in each of the geographies in which we compete, expand our global footprint to new evolving markets, grow our production capabilities to meet demand, continue to develop and introduce new and innovative products that address the changing technology and performance requirements of our customers and expansion of the new businesses we acquired.

In the year ended December 31, 2020, 42.9% of our revenues were generated from Europe, 42.0% of our revenues were generated from the United States and 15.1% of our revenues are generated from ROW.

In the year ended December 31, 2019, 38.2% of our revenues were generated from Europe, 47.6% of our revenues are generated from the United States and 14.2% of our revenues were generated from ROW.

Cost of Revenues and Gross Profit

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Some of these costs, primarily personnel and depreciation of test and manufacturing equipment, are not directly affected by sales volume.

With respect to Li-Ion batteries, cost of revenues consists primarily of materials costs, labor costs associated with the manufacturing, variable utility, and operational costs related to the cell and battery factories, depreciation and other fixed costs.

Except for the manufacturing and assembly activities related to our newly acquired businesses, we outsource our manufacturing to third‑party manufacturers and negotiate product pricing on a quarterly basis.

Our third‑party manufacturers are responsible for funding the capital expenses incurred in connection with the manufacture of our products, except with regard to end-of-line testing equipment and the automated assembly lines for our power optimizers and the equipment for the manufacturing of sub-assemblies, as further described below (which resulted in capital expenditures of $13.6 million, $9.0 million and $23.2 million for the year ended December 31, 2017, the year ended December 31, 2018, and the year ended December 31, 2019 respectively).

We expect to continue this funding arrangement in the future, with respect to any expansions to such existing lines.

We also procure strategic and critical components from various approved vendors on behalf of our contract manufacturers.

In fiscal 2019, higher than anticipated demand for our solar products has exceeded the production capacities of these manufacturers and we were required to use air freight, rather than less expensive ocean freight, to deliver the majority of our products.

The expansion of current manufacturing sites by our contract manufacturers as well as our own manufacturing site, is anticipated to allow us to reduce these expenses in 2020 as well as to build sufficient inventory to continue our growth without the need to ship substantial amounts of products by air.

In 2017, 2018 and 2019 global shortages in power components used in our products and in other industries, such as electrical motor drives and uninterrupted power systems (UPS) caused disruptions to our ongoing manufacturing.

This phenomenon combined with increased demand for our products required us to use expensive air shipments in order to meet our delivery schedule, which negatively affected our gross profit.

We expect component shortages to continue to affect us in upcoming quarters, a combination of increased component safety stocks, qualification of additional suppliers, and increased capacity of our existing vendors coupled with continued expansion of the current manufacturing sites by our contract manufacturers, and the development and deployment of our proprietary automated assembly line (described below), will provide sufficient manufacturing capacity to meet our forecasted demands with lower shipment volumes of products by air freight.

We completed development and manufacturing our proprietary automated assembly lines for our power optimizers.

Additionally, we manufacture sub-assemblies such as cables, and magnetics and own significant amounts of equipment in connection with such manufacturing activities.

With respect to ESS, Automation Machines and e-Mobility products cost of revenues consists primarily of materials costs, labor costs associated with the manufacturing, variable utility, and operational costs related to the manufacturing factories, depreciation of testing and manufacturing equipment and other fixed costs.

Except for the manufacturing and assembly activities related to our acquired businesses and the manufacturing of solar products at Sella 1, we outsource our manufacturing to third‑party manufacturers and negotiate product pricing on a quarterly basis.

In fiscal 2020, the expansion of our manufacturing capabilities and increased inventory levels due to a decrease in demand as a result of COVID-19, enabled us to use ocean freight rather than previously used air freight to deliver the majority of our products.

In addition, a higher portion of our products manufactured in non-tariff countries imported into the U.S.

resulted in lower custom tariff charges.

We anticipate maintaining inventory levels in 2021 to support our growth, continuing to deliver our products through ocean freight and reducing U.S customs tariffs exposure on imported products.

We continue to develop our own manufacturing capabilities.

For example, we have developed our own proprietary automated assembly lines for our power optimizers, manufacture sub-assemblies such as cables and magnetics, and own large amounts of equipment in connection with such manufacturing activities.

We expect to continue to invest in additional automated assembly lines in the future.

We have designed and are responsible for funding all of the capital expenses associated with existing and future automated assembly lines.

We have designed and are responsible for funding all of the capital expenses associated with existing and planned automated assembly lines.

The current and expected capital expenses associated with these automated assembly lines will be funded out of our cash flows generation.

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Finished goods are either shipped to our customers directly from our contract manufacturers or shipped to third-party distribution centers and then, finally, shipped to our customers.

Cost of revenues also includes our operations and support department costs.

The operations department is responsible for production management such as planning, procurement, supply chain, production methodologies, and machinery planning, logistics management and manufacturing support to our contract manufacturers, as well as the quality assurance of our products.

In the third quarter of 2020 we began commercial shipments to the United States of optimizers and inverters from Sella 1, which is expected to reach full manufacturing capabilities in the second quarter of 2021.

Cost of revenues also includes our operations, production and support departments’

The operations and production departments are responsible for production management such as planning, procurement, supply chain, production methodologies, and machinery planning, logistics management and manufacturing support to our contract manufacturers, as well as the quality assurance of our products.

Our support department provides customer and technical support at various levels through our call centers around the world as well as second and third-level support services which are provided by support personnel located in our headquarters.

Our full‑time employee headcount in our operations, production and support departments has grown from 348 as of December 31, 2017 to 663 as of December 31, 2018 and to 1,031 as of December 31, 2019.

Part of the increase in our cost of revenues is derived from an increase in tariffs on Chinese made products sold in the U.S.

Our full‑time employee headcount in our operations, production and support departments has grown from 1,031 as of December 31, 2019 to 1,549 as of December 31, 2020.

Gross profit may vary from quarter to quarter and is primarily affected by our average selling prices, product costs, product mix, customer mix, geographical mix, shipping method, warranty costs, and seasonality.

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Personnel‑related costs are the most significant component of each of these expense categories and include salaries, benefits, payroll taxes, commissions and stock‑based compensation.

Our full‑time employee headcount in our research and development, sales and marketing, and general and administrative departments has grown from 660 as of December 31, 2017 to 1,074 to as of December 31, 2018 and to 1,400 as of December 31, 2019.

Our full‑time employee headcount in our research and development, sales and marketing, and general and administrative departments has grown from 1,400 as of December 31, 2019 to 1,625 as of December 31, 2020.

We expect to continue to hire significant numbers of new employees to support our growth.

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These expenses also include travel, fees of independent consultants, trade shows, marketing, costs associated with the operation of our sales offices, and other indirect costs.

The expected increase in sales and marketing expenses is due to an expected increase in the number of sales and marketing personnel and the expansion of our global sales and marketing footprint, enabling us to increase our penetration of new markets.

In the year ended December 31, 2019, 38.2% of our revenues were generated from Europe, 47.6% of our revenues are generated from the USA and 14.2% of our revenues are generated from ROW.

In the year ended December 31, 2018, 32% of our revenues were generated from Europe, 53.9% of our revenues are generated from the USA and 14.1% of our revenues were generated from ROW.

In the year ended December 31, 2017, 32.7% of our revenues were generated from Europe, 57.5% of our revenues were generated from the USA and 9.8% of our revenues were generated from ROW.

We currently have a sales presence in the U.S., Canada, France, Germany, Italy, the Netherlands, the United Kingdom, Israel, Turkey, Japan, Australia, China, Sweden, Poland, India, Belgium, Korea, Brazil and Taiwan.

We intend to continue to expand our sales presence to additional countries.

These expenses will be determined to the extent that marketing activities resume, contingent upon the recovery of certain activities which have been halted due to COVID-19 such as travel, trade shows and in person customer trainings.

We currently have a sales presence in many countries worldwide and intend to continue to expand our sales presence to additional regions.

General and administrative expenses

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Other expenses

Other expenses consist primarily of losses related to the sale of an SMRE subsidiary originally acquired as part of the SMRE Acquisition, stock‑based compensation related to the untimely death of Mr.

Guy Sella, our Founder, who had served as CEO and Chairman of the Board of Directors until shortly before his passing On August 25, 2019, modification of PSUs terms originally granted as part of the SMRE Acquisition and a legal claim acquired as part of the Kokam Acquisition which was settled in arbitration.

Other expenses consist primarily of losses related to the sale of a SolarEdge Automation Machines (formerly named SMRE) subsidiary originally acquired as part of that acquisition, stock‑based compensation related to the untimely death of Mr.

Guy Sella, our Founder, who had served as CEO and Chairman of the Board of Directors until shortly before his passing on August 25, 2019, modification of PSU terms originally granted as part of the acquisition of SolarEdge Automation Machines, a claim acquired as part of the Kokam acquisition which was later settled in arbitration in 2020 and costs related to the write-off of identifiable intangible assets in SolarEdge e-Mobility which we ceased to use

Non-Operating Expenses

Financial income (expenses)

Financial income (expenses) consists primarily of interest income, interest expense, gains or losses from foreign currency fluctuations and hedging transactions.

Financial expenses (income)

Financial expenses (income) consists primarily of interest income, interest expense, gains or losses from foreign currency fluctuations and hedging transactions.

Interest income consists of interest from our investment in available for sale marketable securities.

Interest expense consists of interest related to loans taken by Kokam and SMRE, advance payments received for performance obligations that extend for a period greater than one year, as part of the adoption of Accounting Standard Codification 606, “Revenue from Contracts with Customers”

(ASC 606) and interest related to the adoption of Accounting Standard Codification 842, “Leases”

Interest expense consists of interest related to loans taken by Kokam and SolarEdge Automation Machines, advance payments received for performance obligations that extend for a period greater than one year, related to Accounting Standard Codification 606, “Revenue from Contracts with Customers”

(ASC 606), interest related to Accounting Standard Codification 842, “Leases”

(ASC 842) and the accretion of the debt discount and amortization of debt issuance cost associated with our Notes due 2025.

Our functional currency is the U.S.

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Financial expenses, net is net of financial income which consists primarily of the effect of foreign exchange differences between the U.S.

Dollar and the New Israeli Shekel, the Euro, the Korean Won and other currencies, related to our monetary assets and liabilities, and the realization of gain from hedging transactions.

Dollar and the New Israeli Shekel, the Euro, the Korean Won and other currencies related to our monetary assets and liabilities, and the realization of gains or losses from hedging transactions.

Taxes on income

We are subject to income taxes in the countries where we operate.

In the year ended December 31, 2017, we recorded net income tax expenses of $19.8 million for federal and state tax in the U.S., which consists of $19.9 million current income tax expenses and $0.1 million deferred tax.

In the year ended December 31, 2019, we recorded net income tax expenses of $6.7 million for federal and state tax in the U.S., which consists of $10.1 million current income tax expenses and $3.4 million deferred tax benefit.

On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Act") was signed into law making significant changes to U.S.

In the year ended December 31, 2020, we recorded net income tax expenses of $4.6 million for federal and state tax in the United States, which consists of $1.8 million current income tax expenses and $2.8 million deferred tax expenses.

The decrease in tax liability was mainly due to lower taxable income for Federal tax and Global Intangible Low-Taxed Income or GILTI Tax.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes to U.S.

income tax law.

These changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years 2018 onwards, created new taxes on certain foreign-sourced earnings and certain related-party payments.

These changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years 2018 onwards, created new tax liability on certain foreign-sourced earnings and certain related-party payments.

Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in our consolidated financial statements as of December 31, 2017.

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Income not eligible for benefits under the Investments Law is taxed at the corporate tax rate.

Amendments of the Israeli Income Tax Ordinance (New Version), 1961 (the “Tax Ordinance”) decreased the corporate tax rate to 23% command 24% starting January 1, 2018.

Our Israeli subsidiary elected tax year 2012 as a "Year of Election"

The Israeli corporate tax rate is 23%.

Our Israeli subsidiary elected tax year 2012 as a “Year of Election”

for “Benefited Enterprise”

under the Israeli Investments Law, which provides certain benefits, including tax exemptions and reduced tax rates.

Income not eligible for Benefited Enterprise benefits is taxed at the then prevailing regular corporate tax rate.

Upon meeting the requirements under the Israeli Investments Law, income derived from productive activity under the Benefited Enterprise status, would subject to certain terms and limits, will be exempt from tax for two years from the year in which the Israeli subsidiary first generated taxable income.

Because SolarEdge Technologies Ltd.

utilized all of its losses carryforwards in the six months ended in December 31, 2016, and as it was granted an approval by the Israeli Tax Authorities (“ITA”) in this regard, the two-year tax exemption has ended on December 31, 2018.

Since the Israeli subsidiary utilized all of its carryforwards losses in the six months ended on December 31, 2016, and was granted an approval by the Israeli Tax Authorities (“ITA”) in this regard, the two-year tax exemption has ended on December 31, 2018.

The Investment Law was amended in 2005 and was further amended as of January 1, 2011 and in August 2013 (the “2011 Amendment”).

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Under the transitional provisions of the 2011 Amendment, companies may elect to irrevocably implement the 2011 Amendment while waiving benefits provided under the legislation prior to the 2011 Amendment or keep implementing the legislation prior to the 2011 Amendment.

In December 2016, Amendment 73 to the Investments Law (the “2017 Amendment") was published.

In December 2016, Amendment 73 to the Investments Law (the “2017 Amendment”) was published.

According to the 2017 Amendment, special tax tracks for technological enterprises have been introduced, which are subject to rules that were issued by the Israeli Ministry of Finance.

A Technological Preferred Enterprise, as defined in the 2017 Amendment, that is located in the central region of Israel, will be subject to tax at a rate of 12% on profits deriving from intellectual property (in Development Zone A - a tax rate of 7.5%).

Our Israeli subsidiary has established its own manufacturing facilities for inverters and optimizers in Israel, located in a Development Zone A.

On June 14, 2017, the Encouragement of Capital Investments Regulations (Preferred Technological Income and Capital Gain for Technological Enterprise), 2017 (the “Regulations”) were published.

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According to these provisions, a company that complies with the terms under the PTE regime may be entitled to certain tax benefits with respect to certain income generated during the company’s regular course of business and derived from the preferred intangible asset (as determined in the Investments Law), excluding certain portion of income as prescribed therein.

As of January 2019, SolarEdge Technologies Ltd.

elected to implement the 2011 and 2017 Amendments, starting as of tax year 2019.

Under the PTE regime with respect to our business activities in Israel we expect that SolarEdge Technologies Ltd.

will be entitled to an effective tax at a rate of 12.3%.

Our production facilities in Israel are not located in Development Zone A.

SolarEdge Technologies Ltd.

is in the final stages of developing its own manufacturing facilities in Israel, which will be located in a Development Zone A.

As of January 2019, our Israeli subsidiary elected to implement the 2011 and 2017 Amendments starting as of tax year 2019 and as a result, under the PTE regime with respect to our business activities in Israel, we expect that it will be entitled to an effective tax at a rate of approximately 12% in 2020.

The Law for the Encouragement of Industry (Taxes), 1969, (the “Industry Encouragement Law”), provides certain tax benefits for an ‘Industrial Company’

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Expenses incurred in scientific research that are not approved by the relevant Israeli government ministry will be deductible over a three-year period commencing from the tax year in which they are paid.

Our Israeli subsidiary did not obtain to date such approval.

To date, our Israeli subsidiary has not obtained such approval.

Results of Operations

The following tables set forth our consolidated statements of operations for the years ended December 31, 2017, 2018 and 2019.

The following tables set forth our consolidated statements of income for the years ended December 31, 2019 and 2020.

We have derived this data from our consolidated financial statements included elsewhere in this Annual Report.

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General and administrative

Other operating expenses

Other operating expenses (income)

Total operating expenses

Operating income

Financial expenses

Financial expenses (income), net

Income before taxes on income

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(In thousands)

Revenues increased by $488.4 million, or 52.1%, in 2019 as compared to 2018 primarily due to (i) an increase in the number of inverters and power optimizers sold, with significant growth in revenues coming from Europe, the U.S.

(ii) price increases on products sold in the U.S.

intended to offset the newly imposed tariffs on China made products;

and (iii) revenues from the new businesses we acquired, which includes sales of UPS units, batteries, storage systems, and products sold by SMRE, in an aggregate amount of $89.0 million in the year ended December 31, 2019, compared to $23.0 million in the year ended December 31, 2018.

Revenues increased by $33.6 million, or 2.4%, in the year ended December 31, 2020 as compared to the year ended December 31, 2019, primarily due to (i) an increase of $99.1 million in sales generated from Europe and the rest of world;(ii) an increased proportion of solar related products and services;

(iii) price increases on products sold in the United States intended to offset the increase in tariffs on China made products imposed in June 2019.

This increase was partially offset by $65.5 million less sales in the United States compared to 2019 which we attribute principally to the negative impact of the COVID-19 pandemic on the economy in the United States.

Revenues from outside of the U.S.

comprised 52.4% of our revenues in 2019 as compared to 46.1% in 2018.

The number of power optimizers sold increased by approximately 4.3 million units, or 38.2%, from approximately 11.4 million units in 2018 to approximately 15.7 million units in 2019.

The number of inverters sold increased by approximately 210,000 units, or 46.3%, from approximately 454,000 units in 2018 to approximately 664,000 units in 2019.

In addition, we increased prices in the U.S.

in 2019, in order to offset the impact of the increase in tariffs on goods made in China that became effective June 1, 2019.

This increase in selling prices was partially offset by the devaluation of the Euro and the Australian Dollar compared to the U.S.

Dollar, negatively impacting our U.S.

Dollar denominated average selling price (“ASP”).

Overall, and primarily due to the factors detailed above, our ASP per watt for units shipped increased by $0.005, or 2.3%, in 2019 compared to 2018.

comprised 58.0% of our revenues in the year ended December 31, 2020 as compared to 52.4% in the year ended December 31, 2019.

The number of power optimizers recognized as revenues decreased by approximately 0.2 million units, or 1.7%, from approximately 15.7 million units in 2019 to approximately 15.5 million units in 2020.

The number of inverters recognized as revenues decreased by approximately 1,000 units, or 0.2%, from approximately 664,000 units in 2019 to approximately 663,000 units in 2020.

Our blended ASP per watt for solar products shipped decreased by $0.018, or 7.5%, in 2020 as compared to 2019.

This reduction in both product units and blended ASP is primarily attributed to higher revenues from the sale of commercial products mainly in the U.S, that are characterized with lower ASP per watt, as well as a change in our customer mix in the United States toward larger customers that enjoy preferable pricing.

This ASP erosion was partially offset by an increased rate of revenues driven from the sale of residential products mainly in Europe that are characterized with higher ASP per watt, as well as the strengthening of the Euro against the U.S.

In our solar business, we expect that revenues in the first quarter of 2021, will increase in the United States.

This increase is expected to be slightly offset by decrease in revenues in Europe due to seasonality which is typically experienced in Europe during the first quarter of the year.

In addition, we expect an increase in overall revenues from the sale of full powertrain kits and batteries to an automotive manufacturer by SolarEdge e-Mobility which is part of our non-solar business.

Cost of Revenues and Gross Profit

2 unchanged sentences

Cost of revenues increased by $51.6 million, or 5.5%, in 2020 as compared to 2019, primarily due to:

an increase in the volume of products sold;

increased customs tariffs, shipment and logistics costs of $67.7 million attributed to the change in tariff rates on Chinese made products imported into the U.S.

from 10% to 25% as well as an increase in air shipments due to increased product demand which required us to increase manufacturing capacity and expedite shipments for timely delivery;

an increase in warranty expenses and warranty accruals of $24.3 million associated primarily with the rapid increase of products in our install base;

an increase in warranty expenses and warranty accruals of $8.6 million associated primarily with an increase of products in our install base;

this increase was partially offset by various cost reductions on the different elements of our warranty expenses which include the cost of the products, shipment and other related expenses;

inclusion of variable costs related to the assembly of UPS products, manufacturing of Kokam and SMRE products in an aggregate amount of $56.9 million in 2019, compared to $19.7 million for 2018 as Gamatronic and Kokam were partially represented in our results for the year ended December 31, 2018 and SMRE was acquired in January of 2019;

an increase in personnel-related costs of $20.4 million related to the expansion of our operations and support headcount which is growing in parallel to our growing install base worldwide and in connection with entering into the UPS, storage, machinery and integrated powertrain technology businesses;

an increase in amortization of intangible assets and cost of product adjustment of $8.3 million related to the Gamatronic Acquisition, the Kokam Acquisition and the SMRE Acquisition;

Gross profit as a percentage of revenue decreased from 34.1% in 2018 to 33.6% in 2019, primarily due to:

increased shipment and logistics costs resulted from our expedited growth and heavy reliance on air-shipments, new customs tariff rules in the U.S.

and an increase in air shipments;

the arithmetic effect from the increase in selling prices in the U.S.

intended to offset the increase in tariffs on Chinese made products and the same increase in cost of goods sold as a result of the increased tariffs;

lower gross profit from our UPS products, battery solutions and SMRE products and underutilization of Kokam’s manufacturing facilities;

increased actual support costs related to our warranty obligations;

amortization of intangible assets and cost of product adjustment related to the Gamatronic Acquisition, the Kokam Acquisition and the SMRE Acquisition;

These were partially offset by:

general economies of scale in our personnel-related costs and other costs associated with our support and operations departments.

increased profit on the units sold due to a combination of stable average selling prices and cost reductions in the manufacturing process of these products;

decreased warranty accruals due to various cost reductions on the different elements of our warranty expenses which include the cost of the products, shipment and other related expenses;

an increase in other production costs of $32.7 million, which is mainly attributed to changes in raw material inventory valuations related to manufacturing volumes, anticipated future use of such raw materials and inventory write-offs.

In addition, this amount includes $1.3 million related to ramp up costs associated with the commencement of production in our Sella 1 manufacturing facility and $2.9 million related to the ramp of manufacturing in SolarEdge e-Mobility;

an increase in personnel-related costs of $5.8 million related to the expansion of our production, operations and support headcount which grew in parallel to our growing install base worldwide and in connection with entering into the machinery and integrated powertrain markets.

These increases were partially offset by

a slight decrease in the volume of products sold;

a decrease in shipment and logistic costs of $12.0 million, mainly attributed to a decrease in air shipment costs resulted from higher inventory levels.

In our solar business we anticipate that our cost of revenues per unit will remain stable in the first quarter of 2021.

Gross profit as a percentage of revenue decreased from 33.6% in 2019 to 31.6% in 2020 as a result of the above detailed analysis.

We expect that gross margin as a percent of revenues will increase in the first quarter of 2021 compared to that of the fourth quarter of 2020.

In light of the uncertain impact of COVID-19 on the rate of growth of our acquired businesses, accounting estimates and assumptions related to goodwill, intangible and other assets may change over time in response to uncertain circumstances related to this evolving situation.

Such changes could result in future impairments of goodwill, intangible and other assets.

Operating Expenses:

2 unchanged sentences

Research and development

Research and development increased by $39.1 million, or 47.5%, in 2019 as compared to 2018, primarily due to:

increased personnel-related costs of $31.0 million resulting from an increase in our research and development headcount as well as salary expenses associated with employee equity-based compensation.

The increase in headcount reflects the inclusion of personnel costs from acquired businesses as well as our continued investment in enhancements of existing products and research and development expenses associated with bringing new products to the market;

Research and development costs increased by $41.8 million, or 34.4%, in 2020 compared to 2019, primarily due to:

an increase in personnel-related costs of $30.0 million resulting from an increase in our research and development headcount as well as salary expenses associated with employee equity-based compensation.

The increase in headcount reflects our continuing investment in enhancements of existing products as well as research and development expenses associated with bringing new products to the market;

increased expenses related to consultants and sub‑contractors in an amount of $8.5 million;

increased expenses related to material consumption costs in an amount of $1.6 million;

increased expenses related to other overhead costs and other expenses in an amount of $1.2 million;

increased expenses related to amortization and depreciation expenses $0.8 million;

Sales and Marketing

(In thousands)

We expect that our research and development expenses in the first quarter of 2021 will slightly increase compared to the fourth quarter of 2020, primarily due to the expected return to growth trajectory and our continued investment in our non-solar businesses.

Sales and Marketing

Sales and marketing expenses increased by $19.7 million, or 28.8%, in 2019 as compared to 2018, primarily due to:

increased personnel-related costs of $15.4 million as a result of the inclusion of personnel costs from acquired businesses and an increase in headcount supporting our growth in the U.S., Europe and Asia, as well as salary expenses associated with employee equity-based compensation;

increased expenses related to other overhead costs and travel expenses in an amount of $1.5 million;

increased expenses related to amortization and depreciation expenses in an amount of $1.4 million;

increased expenses related to marketing activity in an amount of $0.9 million;

increased expenses related to external consultants and sub-contractors, material consumption costs and other expenses in an amount of $0.5 million.

General and Administrative

(In thousands)

General and administrative

General and administrative expenses increased by $20.1 million, or 68.7%, in 2019 as compared to 2018, primarily due to:

increased personnel costs of $10.8 million related to (i) increased headcount resulting from the acquisitions of Gamatronic, Kokam and SMRE and the expansion of our legal, finance, human resources and information technology departments;

and (ii) increased expenses related to equity-based compensation and changes in management compensation;

increased expenses related to consultants and sub‑contractors in an amount of $5.9 million due to legal proceedings in which we are involved in and other legal expenses in relation to SMRE Acquisition costs;

increased expenses related to other overhead costs, other expenses and travel costs in an amount of $1.5 million;

increased expenses related to depreciation expenses and public company related expenses in an amount of $1.0 million;

increased expenses related to doubtful debt in an amount of $0.9 million;

Other operating expenses

(in thousands)

Other operating expenses

Other expenses increased by $30.7 million, in 2019 as compared to 2018, primarily due to:

For the year ended December 31, 2019, we recognized compensation expenses resulting from a modification in PSU terms originally granted as part of the SMRE Acquisition in an amount of $12.2 million.

This modification was part of a separation agreement with a former SMRE executive as further detailed in Item 5 –

“Purchases of Equity Securities by the Issuer and Affiliated Purchases”.

In addition, we recognized the following (i) $8.3 million expense related to payroll, bonus and employees equity-based compensation acceleration related to the untimely passing of Mr.

Guy Sella, our founder, Chairman and CEO, (ii) $5.3 million loss related to the sale of an SMRE subsidiary originally acquired as part of the SMRE acquisition and (iii) $4.9 million expenses related to an acquired legal claim under the Kokam Acquisition which was settled in arbitration.

Financial expenses, net

(In thousands)

Financial expenses, net

Financial expenses were $11.3 million in 2019 as compared to financial expenses of $2.3 million in 2018, primarily due to:

an increase of $3.0 million in foreign exchange fluctuations, mainly between the Euro, the New Israeli Shekel, the Australian Dollar and the South Korean Won against the U.S.

an increase of $2.6 million in foreign exchange fluctuations of lease agreements’

liabilities as part of the adoption of Accounting Standards Update No.

2016-02, (Topic 842) "Leases";

an increase of $1.7 million in interest expenses related to advance payments received for performance obligations that extend for a period greater than one year, as part of the adoption of ASC 606;

an increase of $0.8 million in other financial expenses and bank charges;

a decrease of $0.7 million in finance income related to hedging transactions;

an increase of $0.6 million in interest expenses related to bank loans which were acquired as part of the Kokam Acquisition and the SMRE Acquisition;

The increase in these expenses was partially offset by an increase of $0.4 million in interest income and accretion (amortization) of discount (premium) on marketable securities.

Taxes on Income

(In thousands)

Taxes on income

Tax on income increased by $24.6 million, or 270.7%, in 2019 as compared to 2018, primarily due to:

an increase of $26.2 million of current tax in 2019 as compared to 2018 related to the entitlement of SolarEdge Technologies Ltd.

to a preferred effective tax rate of 12.3% under the PTE, ;

an increase of $6.1 million in current tax expenses worldwide (with the exclusion of SolarEdge Technologies Ltd);

an increase of $1.1 million in deferred tax assets, net;

These taxes on income were offset by:

a decrease of $8.8 million in Global Intangible Low Taxed Income or GILTI and E&P taxes

(In thousands)

As a result of the factors discussed above, net income increased by $16.9 million, or 13.2%, in 2019 as compared to 2018.

Comparison of year ended December 31, 2017 and year ended December 31, 2018

(In thousands)

Cost of revenues

Operating expenses:

Research and development

Sales and marketing

General and administrative

Total operating expenses

Operating income

Financial income (expenses)

Income before taxes on income

Taxes on income

Net loss attributable to Non-controlling interests

Net income attributable to SolarEdge Technologies Inc.

(In thousands)

Revenues increased by $330.2 million, or 54.4%, in 2018 as compared to 2017, primarily due to an increase in the number of systems sold, with significant growth in revenues coming from the United States, Europe, Australia, Japan and Israel.

revenues comprised 46.1% of our revenues in 2018 as compared to 42.5% in 2017.

In addition, the Gamatronic Acquisition and the Kokam Acquisition increased our revenues over the last months of 2018, which included sales of UPS units, batteries and storage systems in the aggregate amount of $23.0 million.

The number of power optimizers sold increased by approximately 4.0 million units, or 54.1%, from approximately 7.4 million units in 2017 to approximately 11.4 million units in 2018.

The number of inverters sold increased by approximately 139,000 units, or 43.7%, from approximately 317,000 units in 2017 to approximately 456,000 units in 2018.

Overall, our blended ASP of solar products per watt decreased by $0.018, or 6.8%, in 2018 as compared to 2017, primarily due to:

a change in the mix of products, yielding a higher portion of sales of commercial products that are characterized with lower ASP per Watt in comparison to residential products;

we initiated price reductions of our commercial products in order to increase market share in this segment;

the introduction of new commercial products with higher capacity which carry a lower ASP per watt;

selective price decreases of our residential products

Cost of Revenues and Gross Profit

(In thousands)

Cost of revenues

Cost of revenues increased by $225.7 million, or 57.5%, in 2018 as compared to 2017, primarily due to:

an increase in the volume of products sold;

increased warranty expenses of $35.1 million associated with the rapid increase in our install base;

increased shipment and logistical costs of $16.1 million attributed, in part, to the growth in volumes shipped, an increase of customs tariff in the US and an increase in air shipments due to power component shortages;

increased fixed and variable costs related to the manufacturing of Kokam related products and the assembly of UPS products in the amount of $14.7 million;

increased personnel-related costs of $13.1 million related to the expansion of our operations and support headcount which is growing in parallel to our growing install base worldwide and as result of the acquisition of our UPS and battery divisions ;

Gross profit as a percentage of revenue decreased from 35.4% in 2017 to 34.1% in 2018, primarily due to:

increased warranty and support services expenses and accruals;

price reduction to customers at a rate higher than our cost reduction;

lower gross profit on UPS and battery products due to underutilization of production facilities, as well as certain transactions for the sale of batteries with low gross profit, which had been entered into prior to closing the Kokam Acquisition;

amortization of intangible assets and cost of product adjustment related to the UPS assets acquisition and Kokam Acquisition;

Sales and marketing expenses increased by $8.0 million, or 9.1%, in 2020 compared to 2019, primarily due to increased personnel-related costs of $11.8 million as a result of an increase in headcount supporting our growth in Israel and rest of world, as well as salary expenses associated with employee equity-based compensation.

These were partially offset by:

reductions in per-unit production costs that exceeded price erosion of our products;

increased efficiency in our supply chain;

general economies of scale in our personnel-related costs and other costs associated with our support and operations departments.

Operating Expenses:

Research and Development, Net

(In thousands)

Research and development

Research and development increased by $27.3 million, or 49.6%, in 2018 as compared to 2017, primarily due to:

an increase in personnel-related costs of $21.2 million as a result of an increased headcount of engineers, as well as hiring Gamatronic's employees and the consolidation of Kokam's employees.

The increase in headcount reflects our continuing investment in enhancements of existing products as well as development associated with bringing new products to market;

depreciation expenses related to lab equipment and amortization expenses related to intangible assets increased by $2.1 million;

materials consumption for development increased by $1.5 million, part of it related to Kokam activities;

expenses related to other directly related overhead costs that increased by $1.1 million;

expenses related to consultants and sub‑contractors that increased by $1.1 million;

Other expenses, including travel expenses increased by $0.3 million.

Sales and Marketing

(In thousands)

Sales and marketing

Sales and marketing expenses increased by $18.3 million, or 36.5%, in 2018 as compared to 2017, primarily due to:

an increase in personnel-related costs of $14.6 million as a result of (i) an increase in headcount supporting our growth in the U.S., Europe Asia and the rest of the world, (ii) salary expenses associated with employee equity compensation resulting from the impact of the increase in our stock price affecting the fair value of any share award, and (iii) hiring Gamatronic's employees and the consolidation of Kokam's employees;

expenses related to travel increased by $1.0 million;

expenses related to trade shows and marketing activities increased by $1.0 million;

expenses related to other overhead costs increased by $0.6 million;

depreciation expenses related to tangible assets and amortization expenses related to intangible assets increased by $0.6 million;

expenses related to consultants and sub‑contractors increased by $0.5 million.

a decrease in expenses related to marketing activities by $2.5 million due to the cancellation or postponement of marketing activities, exhibitions and shows, which changes were triggered by COVID-19;

decreased expenses related to travel in an amount of $3.2 million.

We expect sales and marketing expenses to slightly decrease in the first quarter of 2021 primarily due to lower salary expenses associated with employee equity-based compensation partially offset by an increase in our sales and marketing headcount.

General and Administrative

1 unchanged sentence

General and administrative

General and administrative expenses increased by $10.6 million, or 56.6%, in 2018 as compared to 2017, primarily due to:

an increase in personnel-related costs of $5.8 million related to (i) higher headcount in the legal, finance, human resources, and information technology department, functions required of a fast-growing public company, (ii) changes in management compensation and increased expenses related to equity-based compensation resulting from the impact of the increase in our stock price affecting the fair value of any share award and (iii) hiring Gamatronic's employees and the consolidation of Kokam's employees;

expenses related to external consultants and sub-contractors increased by $3.9 million due to legal proceedings initiated by us and other consulting expenses in relation to the Gamatronic Acquisition and the Kokam Acquisition;

expenses related to other overhead costs increased by $0.6 million;

expenses related to travel increased by $0.5 million;

increase of $0.4 million in 2018 due to the disposal of fixed assets;

depreciation expenses increased by $0.3 million.

This increase was offset by a decrease in costs related to the accrual of doubtful and bad debts of $0.9 million.

Financial Income (Expenses)

General and administrative expenses increased by $13.8 million, or 27.9%, in 2020 compared to 2019, primarily due to:

increased personnel-related costs of $8.2 million resulting from an increase in headcount due to hiring of senior executives and the expansion of G&A functions in the non-solar businesses, as well as salary expenses associated with employee equity-based compensation;

increased provision of $4.1 million in connection with legal claims.

We expect that in the first quarter of 2021, G&A expenses will continue to increase as a result of senior management expansion and the roll back of certain COVID-19 measures.

Other operating (income) expenses

(in thousands)

Financial Income (Expenses)

Financial income was $9.2 million in 2018 as compared to financial expenses of $2.3 million in 2017, primarily due to:

an increase of $13.3 million in foreign exchange fluctuations mostly between the Euro and the New Israeli Shekel against the U.S.

an increase of $2.4 million in interest expenses, mainly related to advance payments received for performance obligations that extend for a period greater than one year, as part of the adoption of Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606).

These increases in financial expenses were offset by:

an increase of $2.2 million in interest income and accretion (amortization) of discount (premium) on marketable securities;

a decrease of $2.0 million in costs related to hedging transactions in 2018, as compared to 2017.

Other operating (income) expenses

Other operating income was $3.4 million in 2020, compared to other operating expenses of $30.7 million in 2019, primarily due to:

a decrease in expenses in the amount of $8.3 million related to payroll, bonus and employees’

equity-based compensation acceleration incurred in 2019 due to the untimely death of Mr.

Guy Sella, our Founder, who had served as CEO and Chairman of the Board of Directors until shortly before his passing;

a decrease in expenses in the amount of $12.2 million related to compensation expenses incurred in 2019 resulting from a modification in PSU terms originally granted as part of the acquisition of SolarEdge Automation Machines .

This modification was part of a separation agreement with a former SolarEdge Automation Machines executive;

a decrease in expenses in the amount of $5.3 million related to the sale of a SolarEdge e-Mobility subsidiary originally acquired as part of the SolarEdge Automation Machines acquisition;

a decrease in expenses in the amount of $4.9 million incurred in the fourth quarter of 2019 related to an acquired legal claim as part of the Kokam acquisition of which was settled in arbitration for $4.9 million in the first quarter of 2020.

These were partially offset by $1.5 million expenses related to write-offs of identifiable intangible assets in SolarEdge e-Mobility, which we ceased to use during 2020.

Financial expenses (income), net

(In thousands)

Financial expenses (income), net

Financial income was $21.1 million in 2020 compared to financial expenses of $11.3 million in 2019, primarily due to an increase of $43.1 million in financial income resulted from foreign exchange fluctuations, mainly between each of the Euro, the New Israeli Shekel, the Australian Dollar and the South Korean Won against the U.S.

The increase in this income was partially offset by:

an increase of $4.0 million in costs related to hedging transactions in 2020;

a decrease of $3.7 million in interest income and accretion (amortization) of discount (premium) on marketable securities;

an increase of $3.2 million related to the accretion of the debt discount and amortization of debt issuance cost associated with our Notes due 2025.

Taxes on Income

1 unchanged sentence

Taxes on income

Tax on income decreased by $7.0 million, or 43.5 %, in 2018 as compared to 2017, primarily due to

a one-time transition tax net decrease of $1.3 million in 2018 as compared to an increase of $18.7 million in 2017 on the federal mandatory deemed repatriation of cumulative foreign earnings;

a decrease of $1.6 million in deferred tax assets (presented as tax income).

These taxes on income were offset by:

a tax provision of $12.0 million in the year ended December 31, 2018, with respect to Global Intangible Low Taxed Income inclusion;

an increase of $1.7 million in other current tax expenses in the US;

an increase of $0.9 million in current tax expenses in all jurisdictions.

Taxes on income decreased by $10.3 million, or 30.6%, in 2020 as compared to 2019, primarily due to:

a decrease of $10.6 million of current tax expenses mainly attributed to a decrease in taxable income and GILTI taxes, both due to higher deductible expenses in 2020 compared to 2019;

a decrease in previous years taxes of $2.3 million.

This decrease was partially offset by a decrease of $2.6 million in deferred tax assets, net.

(In thousands)

As a result of the factors discussed above, net income increased by $43.9 million, or 52.1%, in 2018 as compared to 2017.

As a result of the factors discussed above, net income decreased by $4.6 million, or 3.2%, in 2020 as compared to 2019.

Liquidity and Capital Resources

6 unchanged sentences

Increase (decrease) in cash, cash equivalents and restricted cash

As of December 31, 2019, our cash, cash equivalents and restricted cash were $223.9 million.

As of December 31, 2020, our cash and cash equivalents were $827.1 million.

This amount does not include $291.1 million invested in available for sale marketable securities, $2.6 million invested in restricted bank deposits and $60.1 million invested in short-term bank deposits.

Our principal uses of cash are funding our operations and other working capital requirements.

Our principal uses of cash are for funding our operations and other working capital requirements.

As of December 31, 2020, we have open commitments for capital expenditures in an amount of approximately $79.4 million.

These commitments reflect purchases of automated assembly lines and other machinery related to our manufacturing.

We believe that cash provided by operating activities as well as our cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months and to fund our capital expenditure commitments.

These commitments reflect purchases of automated assembly lines and other machinery related to our manufacturing operations.

We also have purchase obligations in the amount of $380.1 million related to raw materials and commitments for the future manufacturing of our products.

We believe that cash provided by operating activities as well as our cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months including the self-funding of our capital expenditure commitments.

We expect cash flow from operating activities to continue and increase in the next quarter due to increased revenues and profitability, this cash in addition to the cash balances already exist is sufficient to meet the Company’s entire operational and capital needs.

Operating Activities

During 2020, cash provided by operating activities was $222.7 million derived mainly from net income of $140.3 million that included $103.4 million of non-cash expenses, a decrease of $86.5 million in trade receivables, an increase of $11.6 million in accrued expenses and other accounts payable, $32.3 million in warranty obligations, $18.3 million accruals for employees, $3.3 million in trade payables and $1.4 million in operating lease liabilities.

This was offset by an increase of $149.7 million in inventories and $3.3 million in prepaid expenses and other accounts receivable and a decrease of $21.4 million in deferred revenues.

During 2019, cash provided by operating activities was $259.0 million derived mainly from net income of $145.0 million that included $87.3 million of non-cash expenses.

1 unchanged sentence

This was offset by an increase of $124.1 million in trade receivables, $22.5 million in inventories and $67.3 million in prepaid expenses and other accounts receivable.

During 2018, cash provided by operating activities was $189.1 million derived mainly from net income of $128.0 million that included $38.0 million of non-cash expenses.

An increase of $41.9 million warranty obligations, $37.0 million in deferred revenues, $31.5 million in trade payables and $4.6 million accruals for employees.

This was offset by an increase of $60.5 million in trade receivables, $20.2 million in inventories, $2.7 million in prepaid expenses and other accounts receivable and a decrease of $8.5 in accrued expenses and other accounts payable.

During 2017, cash provided by operating activities was $136.7 million derived mainly from net income of $84.2 million that included $21.3 million of non-cash expenses.

An increase of $63.0 million in trade payables and other accounts payable, $20.4 million warranty obligations, $14.1 million in deferred revenues and $9.4 million accruals for employees.

This was offset by an increase of $38.1 million in trade receivables, $21.9 million in prepaid expenses and other accounts receivable and $15.7 million in inventories.

Investing Activities

During 2019, net cash used in investing activities was $152.9 million, of which $160.1 million was invested in available-for-sale marketable securities, $38.4 million was utilized for the SMRE Acquisition, $72.6 million related to capital investments in laboratory equipment, end of line testing equipment, automated assembly lines, manufacturing tools and leasehold improvements, $26.1 million was invested in restricted bank deposits and $3.3 million were decreased in relation to the sale of an SMRE subsidiary originally acquired as part of the SMRE Acquisition.

During 2020 net cash used in investing activities was $236.6 million, of which $223.7 million was invested in available-for-sale marketable securities, $126.8 million was related to capital investments in laboratory equipment, end of line testing equipment, automated assembly lines, manufacturing tools and leasehold improvements and $54.7 million was invested in short term bank deposits.

This was offset by $141.8 million from maturities of available-for-sale marketable securities, $25.3 million from the withdrawal from restricted bank deposits and $1.5 million in proceeds related to other investing activities.

During 2019, net cash used in investing activities was $152.9 million, of which $160.1 million was invested in available-for-sale marketable securities, $38.4 million was utilized for the acquisition of SolarEdge Automation Machines, $72.6 million was related to capital investments in laboratory equipment, end of line testing equipment, automated assembly lines, manufacturing tools and leasehold improvements, $26.1 million was invested in restricted bank deposits and $3.3 million was decreased in relation to the sale of a SolarEdge Automation Machines subsidiary originally acquired as part of the acquisition of SolarEdge Automation Machines.

This was offset by $142.7 million from sales and maturities of available-for-sale marketable securities and $4.9 million decrease in short-term bank deposits.

During 2018, net cash used in investing activities was $156.6 million, of which $142.6 million was invested in available-for-sale marketable securities, $94.7 million was utilized for the acquisitions of the assets of Gamatronic and the Kokam Acquisition, $38.6 million related to capital investments in laboratory equipment, end of line testing equipment, automated assembly lines, manufacturing tools and leasehold improvements and $10.0 million was invested in bank deposits.

This was offset by $129.3 million from sales and maturities of available-for-sale marketable securities.

During 2017, net cash used in investing activities was $85.4 million, of which $143.7 million was invested in available-for-sale marketable securities, $21.4 million related to capital investments in laboratory equipment, end of line testing equipment, automated assembly lines, manufacturing tools and leasehold improvements and $0.6 million related to an increase in restricted cash.

This was offset by $80.3 million from the maturities of available-for-sale marketable securities.

Financing Activities

During 2019, net cash used in financing activities was $73.0 million, of which $71.5 million was related to the purchase of non-controlling interests, $9.2 million was used for repayment of loans we acquired as part of the Kokam Acquisition and the SMRE Acquisition and $1.4 million related to the purchase of land and building formerly leased under a financial lease.

This was offset by $9.1 million attributed to cash received from the exercise of employee and non-employee stock-base awards.

During 2018, net cash used in financing activities was $8.0 million, of which $14.2 million related to the purchase of non-controlling interests and $3.8 million was used for repayment of loans we acquired as part of Kokam's Acquisition.

During 2020, net cash provided by financing activities was $640.5 million, of which $632.5 million were proceeds from the issuance of the Notes, net of $14.6 million of issuance costs, $16.9 million related to proceeds from new bank loans and $21.5 million attributed to cash received from the exercise of employee and non-employee stock-based awards including withholding taxes effect.

This was offset by $15.8 million used for repayment of loans we acquired as part of the Kokam acquisition.

During 2019, net cash used in financing activities was $73.0 million, of which $71.5 million was related to the purchase of non-controlling interests, $9.2 million was used for repayment of loans we acquired as part of the acquisition of Kokam and the acquisition of SolarEdge Automation Machines and $1.4 million related to the purchase of land and building formerly leased under a financial lease.

This was offset by $9.1 million attributed to cash received from the exercise of employee and non-employee stock-base awards.

During 2017, net cash provided by financing activities was $7.2 million, all of which is attributed to cash received from the exercise of employee and non-employee stock-base awards.

Convertible Senior Note

On September 25, 2020, we issued $632.5 million aggregate principal amount of our Convertible Senior Notes or Notes in a transaction exempt from registration pursuant to Rule 144A and Regulation S under the Securities Act.

Net proceeds from the offering, after underwriters’

discount and commissions and offering expenses, was $617.9 million.

We intend to use the proceeds of the Notes for general corporate purposes.

See Note 11 to our annual financial statements for more information.

Debt Obligations

In October 2018, as part of the Kokam Acquisition, we acquired a number of bank loan obligations in an aggregate amount of $20.1 million (the “Kokam Loans”).

The Kokam Loans mature in various installments through May 2021 and their annual interest rates are variable.

As of December 31, 2019, the interest rates on the Kokam Loans ranged from 2.7% to 3.4% and the aggregate outstanding Kokam Loans were $15.7 million.

In January 2019, as part of the SMRE Acquisition, we acquired a number of bank loans in an aggregate amount of $7.2 million (the “SMRE Loans”).

The SMRE Loans mature in various installments through June 2026 and their annual interest rates are variable.

As of December 31, 2019, the interest rates on the SMRE Loans ranged from 2.6% to 3.5% and the aggregate outstanding SMRE Loans were $0.1 million.

During 2020, we redeemed all outstanding loans, including the bank loan obligations acquired as part of the acquisition of Kokam and entered into new bank loans in an aggregate amount of $15.2 million.

The new bank loans mature in two installments through June 30, 2021, with monthly interest rate of 1.54%.

As of December 31, 2020, the aggregate outstanding amount of the new bank loans was $16.8 million.

In addition, during 2020, we entered into a second new bank loan in an aggregate amount of $1.4 million.

The second bank loan matures in September 2030, with a monthly interest rate of 2.5%.

As of December 31, 2020, the aggregate outstanding amount of the second bank loan was $1.5 million.

We do not believe that inflation had a material effect on our business, financial condition, or results of operations in the last three years.

If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases.

Our inability or failure to do so could harm our business, financial condition, and results of operations.

Contractual Obligations

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Capital expenditures(3)

Represents future minimum lease commitments under non‑cancellable operating lease agreements through which we lease our operating facilities.

Represents non‑cancelable amounts associated with our manufacturing contracts.

Such purchase commitments are based on our forecasted manufacturing requirements and typically provide for fulfillment within agreed‑upon or commercially standard lead‑times for the particular part or product.

0.00% Convertible Senior Notes due 2025(4)

Represents future minimum lease commitments under non-cancellable operating lease agreements through which we lease our operating facilities.

Represents non-cancelable amounts associated with our manufacturing contracts.

Such purchase commitments are based on our forecasted manufacturing requirements and typically provide for fulfillment within agreed-upon or commercially standard lead-times for the particular part or product.

The timing and amounts of payments represent our best estimates and may change due to business needs and other factors.

Represents non‑cancelable amounts associated with purchases of automated assembly lines and other machinery related to our manufacturing.

Represents non-cancelable amounts associated with purchases of automated assembly lines and other machinery related to our manufacturing.

For additional information, see Note 12 to our consolidated financial statements included elsewhere in this annual report.

Off‑Balance Sheet Arrangements

We did not have any off‑balance sheet arrangements in the year ended December 31, 2017, the year ended December 31, 2018 or the year ended December 31, 2019.

We did not have any off-balance sheet arrangements in the year ended December 31, 2018, the year ended December 31, 2019 or the year ended December 31, 2020.

Critical Accounting Policies and Significant Management Estimates

We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the U.S.

(“GAAP”) The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures.

(“GAAP”).

The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures.

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

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Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

See Note 2 to our annual financial statements for more information.

Revenue Recognition

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The most significant impact of the standard on our financial statements relates to advance payments received for performance obligations that extend for a period greater than one year.

Applying the new standard, such performance obligations are those that include a financing component, specifically:

Applying the standard, such performance obligations are those that include a financing component, specifically:

(i) warranty extension services, (ii) cloud-based monitoring, and (iii) communication services.

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Other products are sold with standard limited warranties that typically range in duration from one to ten years, and in some cases for a longer period.

In certain cases, customers can purchase an extended warranty for UPS products and our battery storage products that exceed the standard warranty period.

In certain cases, customers can purchase an extended warranty for Critical Power products and our battery storage products that exceed the standard warranty period.

In addition, customers can purchase extended warranties for inverters that increase the warranty period to up to 25 years.

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Warranty obligations are classified as short-term and long-term warranty obligations based on the period in which the warranty is expected to be claimed.

The warranty provision (short and long-term) was $78.8 million as of December 31, 2017, $121.8 million as of December 31, 2018 and $172.6 million as of December 31, 2019.

The warranty provision (short and long-term) was $172.6 million and $205.0 million, in the year ended December 31, 2019 and 2020, respectively.

Inventory Valuation

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Inventory write‑downs are equal to the difference between the cost of inventories and their estimated fair market value.

Inventory write‑downs are recorded as cost of revenues in the accompanying statements of operations and were $1.4 million, $0.9 million and $4.5 million, in the year ended December 31, 2017, 2018 and 2019, respectively.

Inventory write‑downs are recorded as cost of revenues in the accompanying statements of income and were $4.5 million and $8.9 million, in the year ended December 31, 2019 and 2020, respectively.

Faulty products returned under our warranty policy are often refurbished and used as replacement units.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity