What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2021-02-19 compared with 2017-02-06 · 376 added, 482 removed, 126 unchanged (87% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock, par value $0.0001 per share, began trading on the NASDAQ Global Select Market on March 26, 2015, where prices are quoted under the symbol “SEDG”.

Our common stock, par value $0.0001 per share, trades on the NASDAQ Global Select Market, where prices are quoted under the symbol “SEDG”.

Holders of Record

As of June 30, 2016, there were 57 holders of record of our common stock.

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 stockholders represented by these record holders.

Price Range of Our Common Stock

The following table set for the high and low sales prices for our common stock in fiscal year 2016, in each case as regularly on the NASDAQ Global Select Market:

Fiscal Year 2015

Third Quarter (March 26 – March 31)

Fourth Quarter (March 31 – June 30)

Fiscal Year 2016

First Quarter (July 1 – September 30)

Second Quarter (October 1 – December 31)

Third Quarter (January 1 – March 31)

Fourth Quarter (March 31 – June 30)

Dividend Policy

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

As of December 31, 2020, there were 18 holders of record of our common stock.

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.

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.

In addition, the terms of our debt instruments prohibit us from paying cash dividends on our common stock.

Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws and provisions of our debt instruments and organizational documents, after taking into account our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant.

Recent Sales of Unregistered Securities;

Use of Proceeds from Registered Securities

On March 25, 2015, our registration statement on Form S-1 (No.

333-202159) was declared effective for our initial public offering and on March 31, 2015, we consummated the initial public offering consisting of 8,050,000 shares of our common stock at a public offering price of $18.00 per share.

The offering terminated after the sale of all securities registered in the offering.

Goldman, Sachs & Co.

and Deustche Bank Securities Inc.

acted as joint book-running managers for the offering.

Needham & Company, Canaccord Genuity Inc.

and Roth Capital Partners acted as co-managers.

As a result of the offering, we received total net offering proceeds of $131.2 million, after deducting total expenses of $13.7 million, consisting of underwriting discounts and commissions of $10.1 million and offering related expenses of $3.6 million.

No payments for such expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities, or (iii) any of our affiliates.

We maintain our funds received in cash and cash equivalents and available-for-sale marketable securities.

Our principal use of proceeds from the initial public offering is for general corporate purposes, including working capital and expansion of our business into additional markets.

The funds have not been used to make payments directly or indirectly to (i) any of the Company’s officers or directors or their associates, (ii) any persons owning 10% or more of any class of the Company’s equity securities, (iii) any of the Company’s affiliates, or (iv) others.

Purchases of Equity Securities by the Issuer and Affiliated Purchases

There were no purchases of equity securities by the issuer and affiliated purchases during the fiscal year ended June 30, 2016.

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

The following graph compares the cumulative total shareholder return on our common stock from March 26, 2015 (using the price of which our shares of common stock were initially sold to the public) to June 30, 2016 to that of the total return of the Nasdaq Composite Index and the MAC Global Solar Energy Index.

The comparison assumes $100 was invested in our common stock on March 26, 2015 and in each of the forgoing indices on March 26, 2015 and assumes the reinvestment of dividends.

This graph is furnished and not “filed” with the Securities and Exchange Commission or “soliciting material” under the Securities Exchange Act of 1934 and shall not be incorporated by reference into any such filings, irrespective of any general incorporation contained in such filing.

SELECTE D FINANCIAL DATA

The following graph compares the cumulative total shareholder return on our common stock from March 26, 2015 (using the price of which our shares of common stock were initially sold to the public) to December 31, 2020 to that of the total return of the Nasdaq Composite Index (INDEXNASDAQ.IXIC) and the MAC Global Solar Energy Index (SUNIDX).

The comparison illustrates the relative change in stock price since our initial public offering on March 26, 2015.

This graph is furnished and not “filed”

with the Securities and Exchange Commission or “soliciting material”

under the Securities Exchange Act of 1934 and shall not be incorporated by reference into any such filings, irrespective of any general incorporation contained in such filing.

SELECTED FINANCIAL DATA

The selected consolidated statement of operations data for each of fiscal 2014, 2015 and 2016 and the selected consolidated balance sheet data as of June 30, 2015 and 2016 are derived from our audited consolidated financial statements included elsewhere in this annual report.

The selected consolidated statement of operations data for fiscal 2012 and 2013 and the selected consolidated balance sheet data as of June 30, 2012, 2013 and 2014 are derived from our audited financial statements not included in this annual report.

Change in Fiscal Year

In 2016, our Board of Directors approved a change to our fiscal year end from June 30 to December 31.

We made this change to align our fiscal year end with other companies within our industry.

We refer to the period beginning July 1, 2015 and ending June 30, 2016 as “fiscal 2016”.

We previously filed a Form 10-KT to cover the transition period for the six-month period of July 1, 2016 through December 31, 2016.

Following fiscal 2016, all of our fiscal reporting periods begin January 1 and end December 31.

Selected Financial Data

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 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.

These selected financial data should be read together with our consolidated financial statements and the related notes, as well as the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this annual report.

Fiscal Year Ended June 30,

appearing elsewhere in this Annual Report.

Twelve Months

(In thousands)

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Cost of revenues

Gross profit (loss)

Operating expenses:

2 unchanged sentences

General and administrative

Other operating expenses (income)

Total operating expenses

Operating income (loss)

Financial income (expenses)

Other expenses

Income (loss) before taxes on income

Operating income

Financial expenses (income), net

Income before taxes on income

Taxes on income (tax benefit)

Net income (loss)

Net basic earnings (loss) per share of common stock

Net diluted earnings (loss) per share of common stock

Weighted average number of shares used in computing net basic earnings (loss) per share of common stock

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

Fiscal Year Ended June 30,

Net loss attributable to non-controlling interests

Net income attributable to SolarEdge Technologies Inc.

Net basic earnings per share of common stock attributable to SolarEdge Technologies, Inc.

Net diluted earnings per share of common stock attributable to SolarEdge Technologies, Inc.

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

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

As of December 31,

(In thousands)

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Available-for-sale marketable securities

Total stockholders’ equity (deficiency)

Total stockholders’

Key Operating Metrics

We regularly review a number of metrics, including the key operating metrics set forth in the table below, to evaluate our business, measure our performance, identify trends affecting our business, formulate projections, and make strategic decisions.

Fiscal Year Ended June 30,

Years Ended December 31,

Inverters shipped

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Nameplate capacity is the maximum rated power output capacity of an inverter as specified by the manufacturer.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Performance Measures”

MANAGE MENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the sections of this Annual Report on Form 10-K captioned “Selected Consolidated Financial Data and Other Data” and “Business” and our consolidated financial statements and the related notes to those statements included elsewhere in this Form 10-K.

In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.

Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under the sections of this annual report captioned “Special Note Regarding Forward-Looking Statements” and “Risk Factors”.

We are a leading provider of intelligent inverter solutions that are changing the way power is harvested and managed in solar PV systems.

Our DC optimized inverter solution maximizes power generation at the individual PV module level while lowering the cost of energy produced by the solar PV system.

Our systems allow for superior power harvesting and module management by deploying power optimizers at each PV module while maintaining a competitive system cost by using a simplified DC-AC inverter.

Our systems are monitored through our cloud-based monitoring platform that enables lower system operating and maintenance (“O&M”) costs.

We believe that these benefits, along with our comprehensive and advanced safety features, are highly valued by our customers.

We are a leader in the global module level power electronics (“MLPE”) market according to GTM Research, and as of June 30, 2016, we have shipped approximately 12.5 million power optimizers and 513,000 inverters.

Approximately 265,000 installations, many of which may include multiple inverters, are currently connected to, and monitored through, our cloud-based monitoring platform.

As of June 30, 2016, we have shipped approximately 3.4 GW of our DC optimized inverter systems.

Our products have sold in approximately 55 countries, and are installed in solar PV systems in 96 countries.

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.

In fiscal 2016, we sold our products to approximately 220 direct customers in 45 countries and as of June 30, 2016, approximately 163,989 indirect customers had registered with us through our cloud-based monitoring platform.

In fiscal 2016, three customers accounted for revenues of above 10% each, together comprising an aggregate of 32.5% of our sales.

Of these customers, two are distributors.

We were founded in 2006 with the goal of addressing the lost power generation potential that is inherent in the use of traditional solar PV inverter technology, thereby increasing the return on investment in solar PV systems.

The following is a chronology of some of our key milestones:

In 2010, we commenced commercial shipments of our power optimizers and inverters to Europe after contracting with Flextronics (Israel) Ltd.

(with its affiliates, “Flextronics”) to initiate production in Israel.

In 2011, we commenced sales in the U.S.

and expanded our manufacturing capacity by contracting with Jabil Circuit, Inc.

to open a larger manufacturing site in Guangzhou, China.

In 2011, we introduced our second generation power optimizer, based on our second generation ASIC, with a power rating of up to 500 watts and a substantially reduced number of components.

In 2012, we shipped our millionth power optimizer and increased our sales personnel presence in the U.S.

In 2013, we opened an additional manufacturing site with Flextronics in Hungary to accommodate our accelerated growth, replacing the Flextronics manufacturing site in Israel.

In 2013, we introduced our third generation power optimizer, based on our third generation ASIC, with a power rating of up to 700 watts and improved heat dissipation capabilities for high reliability and lower cost.

In March 2015, we completed our initial public offering and started to trade on the NASDAQ Global Select Market under the ticker SEDG.

In September 2015, we released information about the development of our new HD-Wave inverter technology.

In January 2016, we announced the immediate international availability of our StorEdge™ solution

In February 2016, we shipped our ten millionth power optimizer.

In June 2016, we received the Intersolar Award in the Photovoltaics category for our HD-Wave technology inverter and began shipments of our HD-Wave inverter.

We have achieved substantial growth since we commenced commercial shipments in fiscal 2010.

Our revenues were $133.2 million, $325.1 million and 489.8 million for fiscal 2014, 2015 and 2016, respectively.

Gross margins were 16.5%, 25.2% and 31.0%, for fiscal 2014, 2015 and 2016, respectively.

Net loss was $ $21.4 million for fiscal 2014, and net profits were $21.1 million and $76.6 million for fiscal 2015 and 2016, respectively.

We continue to focus on our long-term growth.

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

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

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

We also plan to expand our product offerings to further penetrate the large commercial and utility segments.

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 results in a lean operating base with 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.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Performance Measures”.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

and “Business”

and our consolidated financial statements and the related notes to those statements included elsewhere in this Form 10-K.

In addition to historical financial information, the following discussion and analysis contains forward‑looking statements that involve risks, uncertainties, and assumptions.

Our actual results and timing of selected events may differ materially from those anticipated in these forward‑looking statements as a result of many factors, including those discussed under the sections of this Annual Report captioned “Special Note Regarding Forward‑Looking Statements”

and “Risk Factors”.

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.

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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We use metrics relating to monitoring (systems monitored and megawatts monitored) to evaluate market acceptance of our products and usage of our solution.

We provide the “megawatts shipped” metric, which is calculated based on nameplate capacity shipped, to show adoption of our system on a nameplate capacity basis.

We provide the “megawatts shipped”

metric, which is calculated based on nameplate capacity shipped, to show adoption of our system on a nameplate capacity basis.

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.

Accordingly, we also provide the “inverters shipped” and “power optimizers shipped” operating metrics.

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

Accordingly, we also provide the “inverters shipped”

and “power optimizers shipped”

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

The following discussion describes certain line items in our Consolidated Statements of Operations.

We generate revenues from the sale of DC optimized inverter systems for solar PV installations which include power optimizers, inverters and our cloud-based monitoring platform.

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

Our revenues 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.

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 and to continue to develop and introduce new and innovative products that address the changing technology and performance requirements of our customers.

We generate revenues from the sale of DC optimized inverter systems for solar PV installations which include power optimizers, inverters, EV chargers, smart energy devices, our cloud‑based monitoring platform as well as grid services.

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

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 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

Cost of revenues consists primarily of product costs, including purchases from our contract manufacturers and other suppliers as well as costs related to shipping, customer support, product warranty, personnel, depreciation of test and manufacturing equipment, hosting services for our cloud-based monitoring platform and other logistics services.

Cost of revenues consists primarily of product costs, including purchases from our contract manufacturers and other suppliers, as well as costs related to shipping, customer support, product warranty, personnel, depreciation of test and manufacturing equipment, hosting services for our cloud‑based monitoring platform, and other logistics services.

Our product costs are affected by technological innovations, such as advances in semiconductor integration and new product introductions, economies of scale resulting in lower component costs, and improvements in production processes and automation.

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

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, as further described below (which resulted in capital expenditures of $2.8 million and $5.2 million for fiscal 2015 and 2016, 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.

At times, higher than anticipated demand has exceeded the production capacities of these manufacturers.

In 2014 and early 2015, for example, such production shortfalls, as well as shortages in the supply of certain raw materials, required us 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 allowed us to reduce these expenses in fiscal 2015 as well as to build sufficient inventory to continue our growth without the need to ship substantial amounts of products by air.

In 2016 we managed to continuously increase the efficiency of our supply chain, reduce our reliance on air freight to a minimum and use ocean freight for the majority of our shipments.

We believe that 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 minimal shipment of products by air freight.

We completed development of our first proprietary automated assembly line for our power optimizers and have ordered an additional four lines for the automated manufacturing of our power optimizers.

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.

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

Key components of our logistics supply channel consist of third party distribution centers in the U.S and Europe.

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.

Key components of our logistics supply channel consist of third party distribution centers in the U.S., Europe, Australia, and Japan.

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 departments’ 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 and support departments has grown from 57 as of June 30, 2014 to 106 as of June 30, 2015 to 175 as of June 30, 2016.

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.

Operating Expenses

Operating expenses consist of research and development, sales and marketing and general and administrative expenses.

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 239 as of June 30, 2014 to 334 as of June 30, 2015 to 434 as of June 30, 2016.

Operating expenses consist of research and development, sales and marketing, general and administrative and other expenses.

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 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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We expect to continue to invest substantial resources to support our growth and anticipate that each of the following categories of operating expenses will increase in absolute dollar amounts for the foreseeable future.

Research and development expenses, net

Research and development expenses, net include personnel-related expenses such as salaries, benefits, stock-based compensation and payroll taxes.

Our research and development employees are engaged in the design and development of power electronics, semiconductors, software and power line communications and networking.

Our research and development expenses also include third-party design and consulting costs, materials for testing and evaluation, ASIC development and licensing costs, depreciation expense and other indirect costs.

Research and development expenses

Research and development expenses include personnel‑related expenses such as salaries, benefits, stock‑based compensation, and payroll taxes.

Our research and development employees are engaged in the design and development of power electronics, semiconductors, software, power line communications, networking and chemistry.

Our research and development expenses also include third‑party design and consulting costs, materials for testing and evaluation, ASIC development and licensing costs, depreciation expense, and other indirect costs.

We devote substantial resources to ongoing research and development programs that focus on enhancements to, and cost efficiencies in, our existing products and timely development of new products that utilize technological innovation, thereby maintaining our competitive position.

Research and development expenses are presented net of the amount of any grants we receive for research and development in the period in which we receive the grant.

We previously received grants and other funding from the Binational Industrial Research and Development Foundation and the OCS.

Certain of those grants require us to pay royalties on sales of certain of our products, which are recorded as cost of revenues.

Sales and marketing expenses

Sales and marketing expenses consist primarily of personnel-related expenses such as salaries, sales commissions, benefits, payroll taxes and stock-based compensation.

Sales and marketing expenses consist primarily of personnel‑related expenses such as salaries, sales commissions, benefits, payroll taxes, and stock‑based compensation.

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.

While most of our sales in fiscal 2012 were in Europe, sales in the U.S.

have grown steadily since fiscal 2012.

Revenues generated in the U.S.

represented 73.3% and 68.2% of our revenues in fiscal 2015 and 2016, respectively.

Sales in Europe, which represented most of our sales until fiscal 2013 also increased in absolute numbers in fiscal 2015 and 2016 and represented 20.1% and 22.7 % of our revenues in fiscal 2015 and 2016, respectively.

We currently have a sales presence in the U.S., Canada, France, Germany, Italy, the Netherlands, the United Kingdom, Israel, Turkey Japan, Australia and China.

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

General and administrative expenses consist primarily of salaries, employee benefits, payroll taxes and stock-based compensation related to our executives, finance, human resources, information technology and legal organizations, travel expenses, facilities costs fees for professional services and registration fees related to being a publicly traded company.

Professional services consist of audit, legal, remuneration to board members, tax, insurance, information technology and other costs.

General and administrative expenses consist primarily of salaries, employee benefits, and stock‑based compensation related to our executives, finance, human resources, information technology, and legal organizations, travel expenses, facilities costs, fees for professional services, and registration fees related to being a publicly-traded company.

Professional services consist of audit and legal costs, remuneration to board members, insurance, information technology, and other costs.

General and administrative expenses also include allowance for doubtful accounts in the event of uncollectable account receivables balances.

Other expenses

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) consist primarily of interest income, interest expense, gains or losses from foreign currency fluctuations and hedging transactions and gains or losses related to re-measurement of warrants granted in relation to long-term debt incurred by the Company in December 2012.

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 and other charges paid to SVB in connection with our revolving line of credit, and interest on our term loan from Kreos, which was fully repaid on January 26, 2015.

Gains or losses related to re-measurement of warrants granted in relation to long-term debt incurred by the Company in December 2012 are not expected to occur in the future as the warrants were fully exercised on June 18, 2015.

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.

With respect to our subsidiaries, other than our Israeli subsidiary, the functional currency is the applicable local currency.

With respect to certain of our subsidiaries, the functional currency is the applicable local currency.

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 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.

From incorporation through the end of fiscal 2014, we experienced operating losses and consequently accumulated a significant amount of operating loss carryforwards in several jurisdictions.

By the end of fiscal 2015, we fully utilized our unused operating loss carryforwards with respect to U.S.

federal tax obligations.

In fiscal 2015, we recorded an income tax expense of $1.7 million for federal and state taxes in the U.S.

In fiscal 2016, we recorded a net income tax expenses of $0.4 million for federal and state tax in the U.S, which consist $1.8 million current income tax expenses and $1.4 million deferred tax asset.

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.

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 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.

As we collected and prepared necessary data, and interpreted the additional guidance issued by the U.S.

Treasury Department, the IRS, and other standard-setting bodies, we made adjustments, over the course of 2018, to the provisional amounts including refinements to deferred taxes.

The accounting for the tax effects of the Tax Act was completed as of December 31, 2018.

The Tax Act required us to pay U.S.

income taxes on accumulated foreign subsidiary earnings not previously subject to U.S.

income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining earnings.

The Company has elected to pay its transition tax over an eight-year period as provided in the Tax Act.

SolarEdge Technologies Ltd., our Israeli subsidiary, is taxed under Israeli law.

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

The corporate tax rate in Israel was 26.5% in fiscal 2014 and 2015.

A recent amendment of the Israeli Income Tax Ordinance decreased the corporate tax rate to 25% commencing on January 1, 2016.

However, the effective tax rate payable by a company that derives income from a “Benefited Enterprise” or a “Preferred Enterprise”, as defined under the Investment Law, may be considerably less.

Capital gains derived by an Israeli company are subject to tax at the prevailing corporate tax rate.

Our subsidiaries are subject to taxes in each of the countries in which they operate.

All of our products are developed and manufactured by our subsidiary, SolarEdge Technologies Ltd., which sells our products to its customers as well as to other entities in the SolarEdge group, which then sell them to their customers.

All intercompany sales of products and services are paid for or reimbursed pursuant to transfer price policies established for each of the countries in which we operate, consistent with arm’s length profit levels.

Due to our history of losses from inception through the end of fiscal 2014, we have recorded a full valuation allowance on our deferred tax assets.

In fiscal 2015, the first fiscal year in which we were profitable, we used a portion of our carryforward losses from previous years in Israel and California.

In fiscal 2016, we continued being profitable, stopped recording valuation allowances and started recording deferred tax assets in the amount of $5.0 million in Israel, most of which is related to operating loss carryforward.

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

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.

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.

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”).

The 2011 Amendment canceled the availability of the benefits granted in accordance with the provisions of the Investments Law prior to 2011 and, instead, introduced new benefits for income generated by a “Preferred Company”

through its “Preferred Enterprise”

(both as defined in the 2011 Amendment).

Under the 2011 Amendment, income derived by Preferred Companies from Preferred Enterprise would be subject to a uniform rate of corporate tax for an unlimited period as opposed to the incentives prior to the 2011 Amendment that were limited to income from Approved or Benefited Enterprise during the respective benefits period.

According to the 2011 Amendment (considering the rates as amended in the 2017 Amendment as defined herein), the tax rate applicable to such income, referred to as “Preferred Income”, would be 7.5% in areas in Israel that are designated as Development Zone A and 16% elsewhere in Israel in the year 2017 and thereafter.

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.

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.

The Regulations describe, inter alia, the mechanism used to determine the calculation of the benefits under the PTE regime and determine certain requirements relating to documentation of intellectual property for the purpose of the PTE.

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, 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’

as such term is defined in the Industry Encouragement Law.

An Industrial Company is entitled to certain tax benefits including, inter alia:

(i) amortization over an eight-year period of the cost of purchased know-how and patents and rights to use a patent and know-how which are used for the development or advancement of the company;

and (ii) accelerated depreciation rates on equipment and buildings.

Eligibility for benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority.

We believe that our Israeli subsidiary currently qualifies as an Industrial Company;

however, there can be no assurance that it will continue to so qualify or that the benefits described above will be available to it in the future.

Furthermore, the ITA may determine that we do not qualify as an Industrial Company, which could entail a loss of the benefits that relate to that status.

Israeli tax law (Section 20A of the Tax Ordinance) allows, under certain conditions, a tax deduction for certain research and development expenses as prescribed in the Tax Ordinance for the year in which they are paid, subject to appropriate approval by the relevant Israeli government ministry, determined by the field of research.

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.

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

Results of Operations

The following tables set forth our consolidated statement of operations for fiscal 2014, 2015 and 2016.

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.

1 unchanged sentence

The results of historical periods are not necessarily indicative of the results of operations for any future period.

Fiscal Year Ended June 30,

Comparison of year ended December 31, 2020 and year ended December 31, 2019

Year ended December 31,

(In thousands)

1 unchanged sentence

Operating expenses:

Research and development, net

Research and development

Sales and marketing

General and administrative

Other operating expenses (income)

Total operating expenses

Operating income (loss)

Financial income (expenses)

Other expenses

Income (loss) before taxes on income

Taxes on income (tax benefit)

Net income (loss)

Comparison of fiscal year 2015 and 2016

Fiscal Year Ended

(In thousands)

Revenues increased by $164.8 million, or 50.7%, in fiscal 2016 as compared to fiscal 2015, primarily due to an increase in the number of systems sold worldwide with the U.S.

being the largest market.

The number of power optimizers sold increased by approximately 2.2 million units, or 62.1%, from approximately 3.5 million units in fiscal 2015 to approximately 5.7 million units in fiscal 2016.

The number of inverters sold increased by approximately 72,000 units, or 47.4%, from approximately 152,000 units in fiscal 2015 to approximately 224,000 units in fiscal 2016.

The increase in the number of units sold was mainly attributable to an increase in the number of systems sold in the U.S.

market and certain countries in Europe.

In general, our increase in revenues in fiscal 2016 was attributable to rapid expansion in the U.S.

Our blended average selling price per watt for units shipped decreased by $0.048, or 13.5%, in fiscal 2016 as compared to fiscal 2015, primarily due to increased sales of our commercial products which are characterized with lower average selling price per watt and a change in our customer mix, which included larger portion of sales to distribution channels and large customers to whom we provide volume discounts.

Cost of Revenues and Gross Profit

Fiscal Year Ended

(In thousands)

Cost of revenues

Cost of revenues increased by $94.6 million, or 38.9%, in fiscal 2016 as compared to fiscal 2015, primarily due to (i) an increase in the volume of products sold;

(ii) an increase in personnel-related costs resulting from an increase in our operations and support headcount;

(iii) increased warranty expenses -associated with the increase in our install base;

and (iv) an inventory write off of $1.0 million related to unrecognized revenues from a customer that filed for bankruptcy.

These increases were offset by reductions derived from increased efficiency in our supply chain including a decrease in shipping costs associated with the minimal use of air freight.

Gross profit as a percentage of revenue increased from 25.2% fiscal 2015 to 31.0% in fiscal 2016 primarily due to reductions in per unit production costs, cost increased efficiency in our supply chain including the use of more ocean freight shipments rather than air shipments, lower costs associated with warranty product replacements, and 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

Fiscal Year Ended

(In thousands)

Research and development, net

Research and development, net increased by $11.2 million, or 50.9%, in fiscal 2016 as compared to fiscal 2015, primarily due to an increase in personnel related costs of $8.0 million as a result of an increased headcount of engineers.

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

Expenses related to consultants and sub-contractors, other directly related overhead costs, depreciation related to lab equipment and materials consumption for development increased by, $0.7 million, $0.7 million, $0.6 million and $0.4 million, respectively, in fiscal 2016 as compared to fiscal 2015.

In addition, grants received from the OCS decreased by $0.8 million in fiscal 2016 as compared to fiscal 2015.

Sales and Marketing

Fiscal Year Ended

(In thousands)

Sales and marketing

Sales and marketing expenses increased by $9.9 million, or 39.5%, in fiscal 2016 as compared to fiscal 2015, primarily due to an increase in personnel related costs of $7.3 million as a result of an increase in headcount supporting our growth in the U.S.

In addition, expenses associated with our worldwide sales offices, travel and other directly related overhead costs, costs related to trade shows and marketing activities and the use of third party vendors, increased by $1.5 million, $0.9 million and $0.2 million, respectively, in fiscal 2016 as compared to fiscal 2015.

General and Administrative

Fiscal Year Ended

(In thousands)

General and administrative

General and administrative expenses increased by $5.6 million, or 85.7%, in fiscal 2016 as compared to fiscal 2015, primarily due to an increase in personnel-related costs of $3.3 million related to (i) higher headcount in the legal, finance, human resources, and information technology department functions required of a fast-growing public company and (ii) increased expenses related to equity-based compensation and changes in management compensation.

In addition, costs related to accounting, tax, legal and information systems consulting, costs related to being a public company, travel and other directly related overhead costs and costs related to the accrual of doubtful debts increased by $0.9 million, $0.9 million, $0.3 million, and $0.2 million, respectively, in the fiscal 2016 as compared to the fiscal 2015.

Financial Income (Expenses)

Fiscal Year Ended

(In thousands)

Financial Income (Expenses)

Financial income was $0.5 million in fiscal 2016 as compared to financial expenses of $5.1 million in fiscal 2015, primarily due to $6.7 expenses related to re-measurement of certain warrants granted to Kreos in relation to the Kreos Loan in fiscal 2015 , and expenses related to interest expenses on a term loan received from Kreos Capital IV (Expert Fund) Limited (“Kreos”) in December 2012 (the “Kreos Loan”) and the revolving line of credit from SVB (described below) as compared to no such expenses in the fiscal 2016 due to full repayment of the Kreos Loan and exercise of the warrants by Kreos.

Additionally, income of $1.9 million generated from hedging transactions and foreign exchange fluctuations between the Euro and the New Israeli Shekel against the U.S.

Dollar in fiscal 2015 as compared to $0.2 million in fiscal 2016 and $0.7 million interest income, net of accretion (amortization) of discount (premium) on marketable securities and time deposits were generated in fiscal 2016 compared to $0.1 million in fiscal 2015.

Other expenses

Fiscal Year Ended

(In thousands)

Other expenses

Other expenses of $104 recorded in fiscal 2015 are related to the disposal of furniture and other equipment related to the move to our new offices in Israel.

Taxes on Income (tax benefit)

Fiscal Year Ended

(In thousands)

Taxes on income (tax benefit)

Tax benefits were $4.4 million in fiscal 2016 compared to taxes on income of $2.0 million in fiscal 2015, primarily due to the recognizing of a $6.4 million deferred tax asset for the first time in fiscal 2016 and an increase of $0.1 million in current tax expenses for fiscal 2016 as compared to fiscal 2015.

Fiscal Year Ended

(In thousands)

Net income was $76.6 million in fiscal 2016 as compared to a net income of $21.1 million in fiscal 2015.

Comparison of fiscal 2014 and 2015

Fiscal Year Ended

Operating income

Financial expenses (income), net

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 $191.9 million, or 144.0%, in fiscal 2015 as compared to fiscal 2014, primarily due to an increase in the number of systems sold worldwide with the U.S.

being the largest market.

The number of power optimizers sold increased by approximately 2.2 million units, or 169.5%, from approximately 1.3 million units in fiscal 2014 to approximately 3.5 million units in fiscal 2015.

The number of inverters sold increased by approximately 91,000 units, or 148.8%, from approximately 61,000 units in fiscal 2014 to approximately 152,000 units in fiscal 2015.

The increase in the number of units sold was mainly attributable to an increase in the number of systems sold in the U.S.

market and certain countries in Europe.

In general, our increase in revenues in fiscal 2015 was attributable to rapid expansion in the U.S.

Our blended average selling price per watt for units shipped decreased by $0.017, or 4.5%, in fiscal 2015 as compared to fiscal 2014, primarily due to a change in our customer mix, which included larger portion of sales to large customers to whom we provide volume discounts.

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 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

Fiscal Year Ended

(In thousands)

Cost of revenues

Cost of revenues increased by $132.0 million, or 118.7%, in fiscal 2015 as compared to fiscal 2014, primarily due to an increase in the number of units sold, an increase in personnel related costs as a result of an increase in our operations and support headcount and an increase in spending on air shipments.

Gross profit as a percentage of revenue increased from 16.5% fiscal 2014 to 25.2% in fiscal 2015.

Product costs generally decreased at a rate consistent with our blended selling price.

In addition, costs associated with air shipments decreased, as a percentage of revenues, as did costs associated with our warranty expenses, warranty provisions, personnel related costs and other costs associated with our support and operations departments.

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

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;

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:

Research and Development, Net

Fiscal Year Ended

Research and Development

(In thousands)

Research and development, net

Research and development, net increased by $3.8 million, or 20.6%, in fiscal 2015 as compared to fiscal 2014, primarily due to an increase in personnel related costs of $2.3 million as a result of an increased headcount of engineers.

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

In addition, expenses related to materials consumption for development, consultants and sub-contractors and other directly related overhead costs increased by $0.9 million, $0.6 million and $0.5 million, respectively, in fiscal 2015 as compared to fiscal 2014.

These amounts were partially offset by $0.5 million received pursuant to a grant from the OCS during fiscal 2015 as compared to fiscal 2014.

Research and development

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;

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

Fiscal Year Ended

(In thousands)

Sales and marketing

Sales and marketing expenses increased by $7.2 million, or 40.4%, in fiscal 2015 as compared to fiscal 2014, primarily due to an increase in personnel related costs of $5.4 million as a result of an increase in headcount supporting our growth in the U.S.

In addition, expenses associated with our worldwide sales offices, travel and other directly related overhead costs and costs related to trade shows and marketing activities and the use of third party vendors, increased by $0.8 million, $0.7 million and $0.3 million, respectively, in fiscal 2015 as compared to fiscal 2014.

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:

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

Fiscal Year Ended

(In thousands)

General and administrative

General and administrative expenses increased by $2.2 million, or 52.2%, in fiscal 2015 as compared to fiscal 2014, primarily due to an increase in personnel related costs of $1.5 million as a result of an increase in headcount as part of our ongoing efforts to enhance the legal, finance, human resources, recruiting and information technology functions required of a growing company and increased expenses related to bonuses and equity-based compensation .

In addition, costs related to accounting, tax, legal and information systems consulting and costs related to being a public company increased by $0.4 million and 0.3 million, respectively, in the fiscal 2015 as compared to fiscal 2014.

Financial Expenses

Fiscal Year Ended

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 expenses

Financial expenses increased by $2.3 million in fiscal 2015 as compared to fiscal 2014, primarily due to increased expenses of $5.4 million related to the remeasurement of certain warrants, which were fully exercised on June 18, 2015 and $0.3 million related to an early prepayment fee related to long term debt.

These amounts were partially offset by gains associated with hedging transactions of the U.S.

Dollar against the Euro and New Israeli Shekel in the amount of $1.7 million in fiscal 2015, compared to a loss of $0.2 million in fiscal 2014, a decrease of $1.1 million in interest expenses due to the full repayment of our borrowings under our revolving line of credit and other long term debt as well as a decrease of $0.4 million in expenses from foreign exchange fluctuations and bank charges.

Other expenses

Fiscal Year Ended

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)

Other expenses

Other expenses of $104,000 recorded in fiscal 2015 are related to the disposal of furniture and other equipment related to the move to our new offices in Israel.

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

Fiscal Year Ended

(In thousands)

Taxes on income

Taxes on income increased by $1.7 million in fiscal 2015 as compared to fiscal 2014, primarily due to tax payments and tax accruals with respect to U.S.

federal taxes and taxes in certain U.S.

states in which we operate.

Net Income (loss)

Fiscal Year Ended

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)

Net income (loss)

As a result of the factors discussed above, the Company reached profitability in fiscal 2015.

Net income was $21.1 million in fiscal 2015 as compared to a net loss of $21.4 million in fiscal 2014.

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

The following table shows our cash flows from operating activities, investing activities, and financing activities for the stated periods:

Fiscal Year Ended June 30,

Fiscal Year ended December 31,

(In thousands)

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by financing activities

Increase (decrease) in cash and cash equivalents

As of June 30, 2016, our cash and cash equivalents were $74.0 million.

This amount does not include $111.6 million invested in available for sale marketable securities and $0.9 million of restricted cash (primarily held to secure letters of credit to vendors and bank guarantees securing office lease payments).

On March 31, 2015, we consummated our initial public offering in which we sold 8,050,000 shares of our common stock at a price of $18.00 per share, resulting in net proceeds of $131.2 million, after deducting underwriting discounts and commissions and $3.6 million in offering expenses.

As of June 30, 2016, we maintain the net proceeds received from our initial public offering as well as cash provided by operating activities in cash and cash equivalents and in available-for-sale marketable securities.

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

We believe that cash provided by operating activities as well as our cash and cash equivalents, including the net proceeds from our initial public offering will be sufficient to meet our anticipated cash needs for at least the next 12 months.

Net cash provided by (used in) financing activities

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

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 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 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 fiscal 2016, cash provided by operating activities was $52.4 million derived mainly from a net income of $76.6 million that included $13.5 million of non-cash expenses.

An increase of $19.3 million in warranty obligations, $8.6 million in deferred revenues and $3.3 million accruals for employees and a decrease of $10.5 million in prepaid expenses and other receivables was offset by an increase of $37.3 million in trade receivables, $7.4 million in inventories, $6.4 million in deferred tax assets and a decrease of $28.3 million in trade payables and other accounts payable.

For fiscal 2015, cash provided by operating activities was $12.1 million derived mainly from a net income in the amount of $21.1 million that included $9.7 million of non-cash expenses.

An increase of $46.3 million in trade payables and other accounts payable, $13.7 million in warranty obligations, $4.0 million in deferred revenues and $1.7 million in accruals for employees was offset by an increase of $48.5 million in inventories, $19.6 million in prepaid expenses and other receivables and $16.3 million in trade receivables.

For fiscal 2014, cash used in operating activities was $17.8 million mainly due to a net loss of $21.4 million that included $3.5 million of non-cash expenses.

Although revenue grew 68.6% during fiscal 2014, we incurred a deficit in working capital while extending payments to our vendors to match collections from our customers and inventory management.

Increases in fiscal 2014 compared to fiscal 2013 of $9.9 million in trade receivables, $7.4 million in prepaid expenses and other receivables and $10.7 million in inventories, were offset by an increase of $19.4 million in trade payables, $7.8 million increase in warranty obligations and another $1.3 million in accruals for employees and other accounts payable.

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.

An increase of $50.8 million in warranty obligations, $83.1 million in deferred revenues, $47.8 million in trade payables, $38.1 in accrued expenses and other accounts payable, $18.6 million accruals for employees and $2.2 million in operating lease liabilities.

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.

Investing Activities

During fiscal 2016, net cash used in investing activities was $125.8 million, of which $118.5 million was invested in available-for-sale marketable securities, $15.7 million related to capital investments in laboratory equipment, end of line testing equipment, automated assembly lines, manufacturing tools and leasehold improvements and $0.8 million related to intangible assets investment.

This was offset by $6.4 million from the maturities of available-for-sale marketable securities and a $2.8 million repayment of a security deposit held to secure payments under our previous office lease and the expiration of a letter of credit, which was issued by us to one of our contract manufacturers.

During fiscal 2015, net cash used in investing activities was $13.9 million, of which $11.8 million related to capital investments in laboratory equipment, end of line testing equipment, manufacturing tools and leasehold improvements, $2.0 million related to security deposits held to secure letters of credit to vendors and bank guarantees securing office lease payments, and $0.1 million related to an increase of long term deposits.

During fiscal 2014, net cash used in investing activities was $3.1 million, mostly attributed to capital investments in laboratory equipment, end of line testing equipment and manufacturing tools.

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.

Financing Activities

For fiscal 2016, net cash provided by financing activities was $2.8 million, of which $3.0 million related to cash received from the exercise of employee and non-employee stock options, offset by $0.2 million attributed to issuance costs related to initial public offering.

For fiscal 2015, net cash provided by financing activities was $137.0 million, of which $131.4 million was net proceeds from our initial public offering, $24.7 million was net proceeds from our Series E convertible preferred stock issuance, $23.0 million was from short-term borrowings under our revolving line of credit with SVB and $0.1 million was proceeds from exercise of employee stock options, offset by $36.3 million of repayment of the revolving line of credit with SVB and $5.9 million of repayment of a term loan.

For fiscal 2014, net cash provided by financing activities was $17.7 million, of which $10.7 million was net proceeds from our Series D-2 and Series D-3 convertible preferred stock issuances in fiscal 2014 and $9.4 million was from short-term borrowings under our $20 million revolving line of credit with SVB, offset by $2.4 million of repayment of the Kreos term loan.

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.

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

$20 million Revolving Line of Credit.

In June 2011, we entered into an agreement with SVB for a revolving line of credit, which permitted borrowings of up to $20 million subject to certain limitations based on our accounts receivable and inventories.

Interest was payable at a prime rate plus margin of 0.75% to 2.75%.

The average interest rate on our outstanding borrowings during fiscal 2014 was 4.9%.

In October, 2014, we had entirely repaid the revolving line of credit with SVB.

$40 Million Revolving Line of Credit

In February 2015, we amended and restated an agreement with SVB for a revolving line of credit, which permits aggregate borrowings of up to $40 million in an amount not to exceed 80% of the eligible accounts receivable and bears interest, payable monthly, at SVB’s prime rate plus a margin of 0.5% to 2.0%.

The revolving line of credit will terminate, and outstanding borrowings will be payable, on December 31, 2016.

As of June 30, 2016, we had no outstanding borrowings under our $40 million revolving line of credit with SVB.

In connection with the amended and restated revolving line of credit, we granted SVB security interests in substantially all of our assets, including a first-priority security interest in our trade receivables, cash and cash equivalents (the “SVB Priority Collateral”).

The agreement contains certain financial covenants requiring us to maintain EBITDA and liquidity at specified levels.

Specifically, we are required to maintain negative Adjusted EBITDA (defined in accordance with US GAAP as (a) net income, plus (b) the extent deducted in the calculation of net income, interest, taxes, depreciation and amortization, plus (c) to the extent deducted in the calculation of net income, non-cash stock-based compensation) of no greater than ($1,500,000) as of March 31, 2015, and positive Adjusted EBITDA of at least (i) $1,500,000 as of June 30, 2015, (ii) $3,500,000 as of September 30, 2015 and December 31, 2015, (iii) $1,500,000 as of March 31, 2016 and (iv) $3,500,000 for the fiscal year ended June 30, 2016 and for each calendar quarter thereafter.

In addition, we are required to maintain liquidity (defined as our unrestricted and unencumbered cash, plus availability under the revolving line of credit) of $6,750,000.

The amended and restated revolving line of credit also contains covenants that restrict our ability to borrow money, grant liens, pay dividends, dispose of assets or engage in business combinations.

As of June 30, 2016, the company met all covenants related to this revolving credit line.

On December 28, 2012, we entered into a term loan agreement with Kreos, providing for a term loan of up to $10 million, which was fully drawn on the closing date.

The borrowings under the term loan were primarily used to finance working capital needs.

On January 26, 2015, we repaid the entire outstanding balance of the Kreos term loan.

Interest on the term loan was payable monthly at a rate of 11.90% per year, compounded on a monthly basis.

Principal is paid in 33 equal monthly installments from September 1, 2013 through May 1, 2016, the last of which was prepaid in advance pursuant to the terms of the term loan.

Payments of principal and interest on the term loan were in Euros.

In connection with the term loan agreement, we granted Kreos 563,014 D-1 Warrants to purchase Series D-1 convertible preferred shares at an exercise price of $2.309.

The D-1 Warrants were exercised on June 18, 2015 and we issued to Kreos 154,768 shares of common stock.

We believe that cash provided by operating activities as well as our cash and cash equivalents, including the net proceeds from our initial public offering and available borrowings under our currently undrawn revolving credit line with SVB as further described above will be sufficient to meet our anticipated cash needs for at least the next 12 months.

In the future, we expect our operating and capital expenditures to increase as we expand our business and grow our revenue, which results in increased accounts receivable and inventory balances, and increased headcount.

Our ability to generate cash from operations is subject to substantial risks described under the caption “Risk Factors.” If any of these risks materialize, we may be unable to generate or sustain positive cash flow from operating activities or raise additional capital.

We would then be required to use existing cash and cash equivalents to support our working capital and other cash requirements.

If additional sources of liquidity are required to support our working capital requirements or operational expansion, we may seek to raise funds through debt financing or from other sources in the future, but we can provide no assurance that these transactions could be consummated on terms acceptable to us or at all.

Failure to raise sufficient capital when needed could have a material adverse effect on our business, results of operations and financial position.

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

The following table summarizes our outstanding contractual obligations as of June 30, 2016:

The following table summarizes our outstanding contractual obligations as of December 31, 2019:

Payment Due By Period

Less Than 1 Year

More Than 5 Years

(In thousands)

Operating leases(1)

Operating and finance leases(1)

Purchase commitments under agreements(2)

Capital expenditures(3)

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.

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

Off-Balance Sheet Arrangements

In fiscal 2014, 2015 and 2016 we did not have any off-balance sheet arrangements.

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, 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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To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.

We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

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

We generate revenues from the sale of DC optimized inverter systems for solar PV installations which include our power optimizers, inverters and cloud-based monitoring platform.

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

Our products are fully functional at the time of shipment to the customer and do not require production, modification or customization.

We recognize revenues when all of the following conditions are met:

(i) persuasive evidence of an arrangement exists;

(ii) delivery has occurred;

(iii) the price is fixed or determinable and (iv) collectability is reasonably assured.

Effective January 1, 2018, we adopted the Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606) using the modified retrospective method applied to those contracts which were not substantially completed as of January 1, 2018.

As a result of this adoption, we revised our accounting policy for revenue recognition as detailed below.

We generate revenues from the sale of DC optimized inverter systems for solar PV installations which include our power optimizers, inverters, and cloud‑based monitoring platform as well as other solar related products, UPS systems, Lithium-ion cells, batteries, energy storage solutions, EV powertrain solutions and machinery.

Our worldwide customer base includes large solar installers, distributors, EPCs, PV module manufacturers, utility companies and other customers.

Our products are fully functional at the time of shipment to the customer and do not require production, modification, or customization with the exception of some UPS and ESS systems that require installation and commissioning.

We recognize revenue under the core principle that transfer of control to the customers should be depicted in an amount reflecting the consideration we expect to receive in revenue.

In order to achieve that core principle, we apply the following five-step approach:

(1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.

Provisions for rebates, sales incentives, and discounts to customers are accounted for as reductions in revenue in the same period that the related sales are recorded.

We generally sell our products to our customers pursuant to a customer’s standard purchase order and our customary terms and conditions.

We do not offer rights to return our products other than for normal warranty conditions, and as such, revenue is recorded upon shipment of products to customers and transfer of title and risk of loss under standard commercial terms.

We evaluate the creditworthiness of our customers to determine that appropriate credit limits are established prior to the acceptance and shipment of an order.

Prior to May 2013, we provided our full web-based monitoring platform free of charge for a limited period of time after which the customer could elect whether to continue and receive a basic service for free or subscribe for a full line of services.

Revenues associated with our web-based monitoring platform were recognized ratably over the term of 18 to 36 months (the free of charge period) and revenues associated with the basic functionality were recognized ratably over 25 years.

Since May 2013, we have provided our full web-based monitoring platform free of charge and revenues associated with the service since that date are being recognized ratably over 25 years.

In the absence of vendor-specific objective evidence or third party comparable pricing for such service, management determines the revenue levels of this service based on the costs associated with providing the service plus appropriate margins that reflect management’s best estimate of the selling price.

Since May 2013, these revenues were minimal and we do not expect this to become a significant source of revenue in the near future.

We provide our full web‑based monitoring platform for our solar products free of charge and revenues associated with the service since that date are being recognized ratably over 25 years.

In the absence of third party comparable pricing for such service, management determines the revenue levels of this service based on the costs associated with providing the service plus appropriate margins that reflect management’s best estimate of the selling price.

These revenues are minimal and we do not expect this to become a significant source of revenue in the near future.

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

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

We recognize financing component expenses in our consolidated statement of income in relation to advance payments for performance obligations that extend for a period greater than one year.

These financing component expenses are reflected in our deferred revenues balance.

The cumulative adjustments have decreased the retained earnings by $3.9 million while increasing the deferred revenues by the same amount.

Product Warranty

We provide a standard limited product warranty against defects in materials and workmanship under normal use and service conditions.

We provide a standard limited product warranty for our solar products against defects in materials and workmanship under normal use and service conditions.

Our standard warranty period is 25 years for our power optimizers, 12 years for our inverters, and 10 years for our storage interface.

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

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 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.

Our products are designed to meet the warranty periods and our reliability procedures cover component selection, design, accelerated life cycle tests, and end-of-manufacturing line testing.

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We accrue for estimated warranty costs at the time of sale based on anticipated warranty claims and actual historical warranty claims experience.

Warranty provisions are computed on a per-unit sold basis, are based on our best estimate of such costs and are included in our cost of revenues.

Warranty provisions, computed on a per‑unit sold basis, are based on our best estimate of such costs and are included in our cost of revenues.

The warranty obligation is determined based on actual and predicted failure rates of the products, cost of replacement and service and delivery costs incurred to correct a product failure.

Our warranty obligation requires management to make assumptions regarding estimated failure rates and replacement costs.

In order to predict the failure rate of each of our products, we have established a reliability model based on the estimated mean time between failures (“MTBF”).

The MTBF represents the average elapsed time predicted for each product unit between failures during operation.

Applying the MTBF failure rate over our install base for each product type and generation allows us to predict the number of failed units over the warranty period and estimates the costs associated with the product warranty.

Predicted failure rates are updated periodically based on data returned from the field and new product versions, as are replacement costs which are updated to reflect changes in our actual production costs for our products, labor costs and actual logistics costs.

Since the MTBF model does not take into account additional non-systematic failures such as failures caused by workmanship or manufacturing or design-related issues, and since warranty claims are at times opened for cases in which the error has been triggered by an improper installation, we have developed a supplemental model to predict such cases and recognize the associated expenses ratably over the expected claim period.

This model, which is based on actual root cause analysis of returned products, identification of the causes of claims and time until each identified problem is revealed, allows us to better predict actual warranty expenses and is updated periodically based on our experience, taking into account the installed base of approximately 12.5 million power optimizers and approximately 513,000 inverters as of June 30, 2016.

labor costs, and actual logistics costs.

Since the MTBF model does not take into account additional non‑systematic failures such as failures caused by workmanship or manufacturing or design‑related issues, and since warranty claims are at times opened for cases in which the error has been triggered by an improper installation, we have developed a supplemental model to predict such cases and recognize the associated expenses ratably over the expected claim period.

This model, which is based on actual root cause analysis of returned products, identification of the causes of claims and time until each identified problem is revealed, allows us to better predict actual warranty expenses and is updated periodically based on our experience, taking into account the installed base of approximately 61.6 million power optimizers and approximately 2.6 million inverters as of December 31, 2020.

If actual warranty costs differ significantly from these estimates, adjustments may be required in the future, which could adversely affect our gross profit and results of operations.

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 $18.2 million, $31.9 million and $51.2 million in fiscal 2014, 2015 and 2016, respectively.

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

Our inventories comprise sellable finished goods, raw materials bought on behalf of our contract manufacturers and faulty units returned under our warranty policy.

Our inventories comprise sellable finished goods, raw materials bought for own manufacturing or on behalf of our contract manufacturers, and faulty units returned under our warranty policy.

Sellable finished goods and raw material inventories are valued at the lower of cost or market, based on the moving average cost method.

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We consider historic usage, expected demand, anticipated sales price, the effect of new product introductions, product obsolescence, product merchantability, and other factors when evaluating the value of inventories.

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, $1.1 million, $1.0 million and $2.5 million in fiscal 2014, 2015 and 2016, respectively.

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

As we do not yet have sufficient history of refurbish utilization rates, such products are written off upon receipt.

We do not believe that there is a reasonable likelihood that there will be a material change in the future estimates or assumptions that we use to record inventory at the lower of cost or market.

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 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.

Such products are written off upon receipt.

We do not believe that there is a reasonable likelihood that there will be a material change in future estimates or assumptions that we use to record inventory at the lower of cost or market.

However, if estimates regarding customer demand are inaccurate or changes in technology affect demand for certain products in an unforeseen manner, we may be exposed to losses that could be material.

Stock-Based Compensation Expense

We account for stock-based compensation granted to employees, non-employee directors and independent contractors in accordance with ASC 718, “Compensation — Stock Compensation” and ASC 505-50, “Equity-Based Payments to Non-Employees,” which require the measurement and recognition of compensation expense for all stock-based payment awards based on fair value.

The fair value of each option award is estimated on the grant date using the Black-Scholes-Merton option-pricing model.

The stock-based compensation expense, net of forfeitures, is recognized using a straight-line basis over the requisite service period of the award, which is generally four years.

Estimated forfeitures are based on actual historical pre-vesting forfeitures.

Key Assumptions

The Black-Scholes-Merton option-pricing model requires the input of highly subjective assumptions, including the fair value of the underlying common stock, the expected volatility of the price of our common stock, the expected term of the option, risk-free interest rates and the expected dividend yield of our common stock.

These estimates involve inherent uncertainties and the application of management’s judgment.

If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.

These assumptions are estimated as follows:

Fair value of our common stock.

Because our stock was not publicly traded prior to March 26, 2015, for periods prior to our initial public offering we have estimated the fair value of our common stock by using, among other factors, third party valuations at the time of grant of the option by considering a number of objective and subjective factors, including data from other comparable companies, issuance of convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of capital stock and general and industry specific economic outlook.

The fair value of the underlying common stock was determined by the management until such time as the Company’s common stock is listed on an established stock exchange or national market system.

Since the completion of our initial public offering, we have valued our common stock by reference to the trading price of our common stock in the public market.

Expected term.

The expected term represents the period that our stock-based awards are expected to be outstanding.

For stock option awards that were at the money when granted, we have based our expected term on the simplified method available under SAB 110, as we do not have sufficient historical experience for determining the expected term of the stock option awards granted.

For stock option awards that were in the money when granted 1 prior to the time that our common stock traded in the public market, we use an expected term that we believe is appropriate under these circumstances, which does not produce a materially different result than determining the expected term for our stock options that were granted with an exercise price at least equal to the then current fair market value of our common stock.

Risk-free rate.

The risk-free interest rate is based on the yields of U.S.

Treasury securities with maturities similar to the expected terms of the options for each option group.

Dividend yield.

We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.

Consequently, we used an expected dividend yield of zero.

If any of the assumptions used in the Black-Scholes-Merton model change significantly, future stock-based compensation awards for employees may differ materially compared with the awards granted previously.

The following table presents the assumptions used to estimate the fair value of options granted to employees during the periods presented:

Fiscal Year Ended June 30,

Expected term (in years)

6.02 – 6.27 years

5.50 – 6.27 years

5.50 – 6.11 years

Expected volatility

55.45% - 56.03

Risk-free rate

Dividend yield

During fiscal 2014, 2015 and 2016, we incurred a non-cash stock-based compensation expense of $1,082,000, $2,956,000 and $9,044,000, respectively.

We expect to continue to grant stock options in the future, and to the extent that we do, our actual share-based compensation expense for employees and consultants recognized will likely increase.

QUANT ITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk in the ordinary course of our business.

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates.

Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates, customer concentrations and interest rates.

We do not hold or issue financial instruments for trading purposes.

Foreign Currency Exchange Risk

Approximately 31.8% and 22.0% of our revenues for fiscal 2015 and fiscal 2016, respectively, were earned in non-U.S.

dollar denominated currencies, principally the Euro.

Our expenses are generally denominated in the currencies in which our operations are located, primarily the U.S.

dollar and New Israeli Shekel, and to a lesser extent the Euro and British pound sterling.

Our New Israeli Shekel-denominated expenses consist primarily of personnel and overhead costs.

Our consolidated results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates.

A hypothetical 10% change in foreign currency exchange rates between the Euro and the U.S.

dollar would increase or decrease our net income by $9.5 million for fiscal 2016.

A hypothetical 10% change in foreign currency exchange rates between the New Israeli Shekel and the U.S.

dollar would increase or decrease our net income by $3.2 million for fiscal 2016.

For purposes of our consolidated financial statements, local currency assets and liabilities are translated at the rate of exchange to the U.S.

dollar on the balance sheet date and local currency revenues and expenses are translated at the exchange rate as of the date of the transaction or at the average exchange rate to the U.S.

dollar during the reporting period.

To date, we have used derivative financial instruments, specifically foreign currency forward contracts, to manage exposure to foreign currency risks by hedging a portion of our account receivable balances denominated in Euros expected to be paid within six months.

Our foreign currency forward contracts are expected to mitigate exchange rate changes related to the hedged assets.

We do not use derivative financial instruments for speculative or trading purposes.

We had cash and cash equivalents of $9.8 million, $144.8 million, and $74.0 million at June 30, 2014, June 30, 2015 and June 30, 2016, respectively, which was held for working capital purposes.

In addition, we had available-for-sale marketable securities with an estimated fair value of $111.6 million on June 30, 2016 .

Since most of our investments and cash and cash equivalents are held in U.S.

dollar-denominated money market funds, we believe that our cash and cash equivalents do not have any material exposure to changes in exchange rates.

Interest Rate Risk

As of June 30, 2016, we had no outstanding borrowings.

Concentrations of Major Customers

Our trade accounts receivables potentially expose us to a concentration of credit risk with our major customers.

For fiscal 2016, three major customers accounted for 32.5% of total revenues, and as of June 30, 2016 these same customers accounted for approximately 35.4% of our consolidated trade receivables balance.

We currently do not foresee a credit risk associated with these receivables.

In fiscal 2015 and 2014, one major customer accounted for 24.6% and 19.1%, of our total revenues, respectively.

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.

Commodity Price Risk

We are subject to risk from fluctuating market prices of certain commodity raw materials, including copper, which are used in our products.

Prices of these raw materials may be affected by supply restrictions or other market factors from time to time, and we do not enter into hedging arrangements to mitigate commodity risk.

Significant price changes for these raw materials could reduce our operating margins if we are unable to recover such increases from our customers, and could harm our business, financial condition and results of operations.

FINANCIAL STATE MENTS AND SUPPLEMENTARY DATA.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of June 30, 2016 and 2015

Consolidated Statements of Operations and Comprehensive Income (loss) for the years ended June 30, 2016, 2015 and 2014

Statements of Changes in Stockholders’ Equity (deficiency) for the years ended June 30, 2016, 2015 and 2014

Consolidated Statements of Cash Flows for the years ended June 30, 2016, 2015 and 2014

Notes to Consolidated Financial Statements

Unaudited Quarterly Results of Operations

The following table sets forth our unaudited quarterly consolidated statement of operations data for each of the eight quarters ended June 30, 2016.

The data presented below has been prepared on the same basis as the audited consolidated financial statements included elsewhere in this this annual report and, in the opinion of management, reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data.

This information should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this this annual report.

The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.

Three Months Ended

(In thousands, unaudited)

Cost of revenues

Operating expense

Research and development, net

Sales and marketing

General and administrative

Total operating expenses

Operating income

Financial income (expenses)

Other expenses

Income before taxes on income

Taxes on income (tax benefit)

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Business Combination

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair value.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

Such valuations require our management to make significant estimates and assumptions, especially with respect to intangible assets.

Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired technology and other intangible assets, their useful lives and discount rates.

Our management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Intangible and other long-lived assets

We evaluate the recoverability of finite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable.

The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate.

If such review indicates that the carrying amount of intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value.

We have not recorded any impairment charges during the year ended December 31, 2020.

Acquired identifiable finite-lived intangible assets are amortized on a straight-line basis or accelerated method over the estimated useful lives of the assets.

We believe the basis of amortization approximates the pattern in which the assets are utilized, over their estimated useful lives.

We routinely review the remaining estimated useful lives of finite-lived intangible assets.

In case we reduce the estimated useful life assumption for any asset, the remaining unamortized balance is amortized or depreciated over the revised estimated useful life.

Goodwill reflects the excess of the consideration transferred, including the fair value of any contingent consideration and any non-controlling interest in the acquiree, over the assigned fair values of the identifiable net assets acquired.

Goodwill is not amortized, and is assigned to reporting units and tested for impairment at least on an annual basis, in the fourth quarter of the fiscal year.

The goodwill impairment test is performed according to the following principles:

(1) An initial qualitative assessment may be performed to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount.

(2) If the Company concludes it is more likely than not that the fair value of the reporting unit is less than its carrying mount, a quantitative fair value test is performed.

An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value is recognized.

We complete the required annual testing of goodwill for impairment for the reporting unit on October 1 of each year and accordingly, determines whether goodwill should be impaired.

As of December 31, 2020, no impairment of goodwill has been identified.

We account for income taxes in accordance with ASC 740, “Income Taxes.”

ASC 740, which prescribes the use of the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax basis of assets and liabilities, and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse.

We account for uncertain tax positions in accordance with ASC 740.

ASC 740-10 contains a two-step approach to recognizing and measuring uncertain tax positions.

The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes.

The second step is to measure the tax benefit as the largest amount that is more than 50% (cumulative probability) likely to be realized upon ultimate settlement.

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/A

Item 5. Market for Registrant’s Common Equity