What changed in this filing

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Item 1. Financial Statements

2021-08-04 compared with 2021-05-04 · 373 added, 237 removed, 652 unchanged (48% of the section changed)

3 unchanged sentences

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF MARCH 31, 2021

AS OF JUNE 30, 2021

Condensed Consolidated Balance Sheets

1 unchanged sentence

Condensed Consolidated Statements of Comprehensive Income

Condensed Consolidated Statements of Changes in Stockholders’

Condensed Consolidated Statements of Stockholders’

Condensed Consolidated Statements of Cash Flows

Notes to the Condensed Consolidated Financial Statements

Notes to Condensed Consolidated Financial Statements

SOLAREDGE TECHNOLOGIES, INC.

46 unchanged sentences

Common stock of $ 0.0001 par value - Authorized:

125,000,000 shares as of March 31, 2021 and December 31, 2020;

125,000,000 shares as of June 30, 2021 and December 31, 2020;

issued and outstanding:

51,966,175 and 51,560,936 shares as of March 31, 2021 and December 31, 2020, respectively

52,263,976 and 51,560,936 shares as of June 30, 2021 and December 31, 2020, respectively

Additional paid-in capital

10 unchanged sentences

Three months ended

Six months ended

Cost of revenues

6 unchanged sentences

Operating income

Financial expenses, net

Financial income (expenses), net

Income before income taxes

11 unchanged sentences

Three months ended

Six months ended

Other comprehensive income (loss), net of tax:

3 unchanged sentences

Foreign currency translation adjustments, net

Total other comprehensive loss

Total other comprehensive income (loss)

Comprehensive income

8 unchanged sentences

Other comprehensive

income (loss)

Retained earnings

Total stockholders’

Balance as of January 1, 2020  

stockholder’s equity

Balance as of January 1, 2021

Cumulative effect of adopting ASU 2020-06

Issuance of Common Stock upon exercise of employee and non-employees stock-based awards

Equity based compensation expenses to employees and nonemployees

Equity based compensation expenses to employees and non-employees

Other comprehensive income (loss) adjustments

Balance as of March 31, 2021

Issuance of Common Stock upon exercise of employee and non-employees stock-based awards

Equity based compensation expenses to employees and non-employees

Other comprehensive loss adjustments

Balance as of March 31, 2020  

Balance as of June 30, 2021

* Represents an amount less than $1.

6 unchanged sentences

Additional paid in Capital

Other comprehensive

Income (loss)

Accumulated Other comprehensive loss

Retained earnings

Total stockholders’

Balance as of January 1, 2021  

Cumulative effect of adopting ASU 2020-06

Total stockholder’s equity

Balance as of January 1, 2020

Issuance of Common Stock upon exercise of employee and non-employees stock-based awards

Equity based compensation expenses to employees and nonemployees

Equity based compensation expenses to employees and non-employees

Other comprehensive loss adjustments

Balance as of March 31, 2021  

Balance as of March 31, 2020

Issuance of Common Stock upon exercise of employee and non-employees stock-based awards

Equity based compensation expenses to employees and non-employees

Other comprehensive loss adjustments

Balance as of June 30, 2020

* Represents an amount less than $1.

5 unchanged sentences

dollars in thousands (except share and per share data)

Three months ended

Six months ended

Cash flows provided by operating activities:

3 unchanged sentences

Amortization of debt discount and debt issuance costs

Amortization of premium and accretion of discount on available-for-sale marketable securities, net  

Stock-based compensation expenses

14 unchanged sentences

Investment in available-for-sale marketable securities

Proceed from maturities of available-for-sale marketable securities

Proceeds from sales and maturities of available-for-sale marketable securities

Purchase of property, plant and equipment

Withdrawal from (investment in) bank deposits, net

Withdrawal from bank deposits, net

Other investing activities

Net cash used in investing activities

Net cash provided by (used in) investing activities

F - 8

3 unchanged sentences

dollars in thousands (except share and per share data)

Three months ended

Six months ended

Cash flows from financing activities:

1 unchanged sentence

Proceeds from bank loans

Proceeds from exercise of stock-based awards net of tax withholding

Proceeds from exercise of stock-based awards and payment of withholding taxes

Other financing activities

16 unchanged sentences

The Company has expanded its activity to other areas of smart energy technology organically and through acquisitions.

The Company now offers variety of energy solutions, which include lithium-ion cells, batteries and energy storage systems (“Energy Storage”), full powertrain kits for electric vehicles, or EVs (“e-Mobility”), uninterrupted power supply solutions (“UPS”), as well as automated machines for industrial use (“Automation Machines”).

The Company now offers a variety of energy solutions, which include lithium-ion cells, batteries and energy storage systems (“Energy Storage”), full powertrain kits for electric vehicles, or EVs (“e-Mobility”), uninterrupted power supply solutions or UPS (“Critical Power”), as well as automated machines for industrial use (“Automation Machines”).

Recently issued and adopted pronouncements:

7 unchanged sentences

Interest expense recognized in future periods will be reduced as a result of accounting for the convertible debt instrument as a single liability measured at its amortized cost.

The impact of adoption of this standard on the Company’s earnings per share was immaterial.

In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), which clarifies the interaction between the accounting for equity securities in Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815.

23 unchanged sentences

Reliance on these vendors makes the Company vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields, and costs.

As of March 31, 2021, and December 31, 2020, two contract manufacturers collectively accounted for 37.9 % and 48.5 % of the Company’s total trade payables, net, respectively.

As of June 30, 2021, and December 31, 2020, two contract manufacturers collectively accounted for 35.7 % and 48.5 % of the Company’s total trade payables, net, respectively.

During 2020, the Company started production in its manufacturing facility in the North of Israel, “Sella 1”.

The Company expects manufacturing capacity to continue to increase until the second quarter of 2021 when Sella 1 is expected to reach full manufacturing capacity.

During the second quarter of 2021, Sella 1 reached full manufacturing capacity.

Certain prior period amounts have been reclassified to conform to the current period presentation.

9 unchanged sentences

NOTE 3:- MARKETABLE SECURITIES

The following is a summary of available-for-sale marketable debt securities as of March 31, 2021:

Gross unrealized

The following is a summary of available-for-sale marketable debt securities as of June 30, 2021:

Amortized cost

Gross unrealized gains

Gross unrealized losses

Available-for-sale –

7 unchanged sentences

The following is a summary of available-for-sale marketable debt securities as of December 31, 2020:

Gross unrealized

Amortized cost

Gross unrealized gains

Gross unrealized losses

Available-for-sale –

6 unchanged sentences

Governmental bonds

As of March 31, 2021, the Company didn’t record an allowance for credit losses for its available-for-sale marketable debt securities.

As of June 30, 2021, the Company didn’t record an allowance for credit losses for its available-for-sale marketable debt securities.

F - 12

3 unchanged sentences

dollars in thousands (except share and per share data)

NOTE 4:- INVESTMENT IN PRIVETLY-HELD COMPANIES

NOTE 4:- INVESTMENT IN PRIVATELY-HELD COMPANIES

On January 31, 2021, the Company completed an investment of $ 11,643 in the preferred stock of AutoGrid Systems, Inc ("AutoGrid"), a privately held company without readily determinable fair values.

On February 1, 2021, the Company signed on a preferred stock purchase agreement for an additional investment of $ 5,000 in AutoGrid's preferred stock ("second investment").

As of March 31, 2021, the final closing of the second investment had not yet occurred.

On February 1, 2021, the Company signed on a preferred stock purchase agreement for an additional investment of $ 5,000 in AutoGrid's preferred stock (the "second investment").

On April 28, the Company completed the second investment.

1 unchanged sentence

The Company adjusts the carrying value of its non-marketable equity securities to fair value upon observable transactions for identical or similar investments of the same issuer or upon impairment.

All gains and losses on non-marketable equity securities, realized and unrealized, are recognized in financial expenses, net.

The Company accounted for the AutoGrid investment as an equity investment that do not have readily determinable fair values.

As such, the Company’s non-marketable equity securities had a carrying value of $ 11,643 as of March 31, 2021.

All gains and losses on non-marketable equity securities, realized and unrealized, are recognized in financial income (expenses), net.

The Company accounted for the AutoGrid investment as an equity investment that does not have readily determinable fair values.

As such, the Company’s non-marketable equity securities had a carrying value of $ 16,643 as of June 30, 2021.

The maximum loss the Company can incur for its investments is their carrying value.

Investment in privately-held companies are included within other long-term assets on the consolidated balance sheets.

Investments in privately-held companies are included within other long-term assets on the consolidated balance sheets.

The Company periodically evaluates the carrying value of the investments in privately-held companies when events and circumstances indicate that the carrying amount of the investment may not be recovered.

1 unchanged sentence

The Company may determine the fair value by reviewing equity valuation reports, current financial results, long-term plans of the privately-held companies, the amount of cash that the privately-held companies have on-hand, the ability to obtain additional financing and overall market conditions in which the privately-held companies operate or based on the price observed from the most recent completed financing.

No impairment or other adjustments related to observable price changes in orderly transactions for identical or similar investments were identified for the three months ended March 31, 2021.

No impairment or other adjustments related to observable price changes in orderly transactions for identical or similar investments were identified for the three and six months ended June 30, 2021.

F - 13

7 unchanged sentences

Foreign currency derivative contracts are classified within the Level 2 value hierarchy, as the valuation inputs are based on quoted prices and market observable data of similar instruments.

The following table sets forth the Company’s assets that were measured at fair value as of March 31, 2021 and December 31, 2020 by level within the fair value hierarchy:

Fair value measurements

The following table sets forth the Company’s assets that were measured at fair value as of June 30, 2021 and December 31, 2020 by level within the fair value hierarchy:

Fair value measurements as of

Measured at fair value on a recurring basis:

2 unchanged sentences

Derivative instruments asset:

Options and forward contracts designated as hedging instruments  

Options and forward contracts not designated as hedging instruments  

6 unchanged sentences

Derivative instruments liability:

Options and forward contracts designated as hedging instruments  

Options and forward contracts not designated as hedging instruments  

8 unchanged sentences

The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship.

To protect against the increase in value of forecasted foreign currency cash flows resulting from salary denominated in the Israeli currency, the New Israeli Shekels (“NIS”), during the three months March 31, 2021, the Company instituted a foreign currency cash flow hedging program.

To protect against the increase in value of forecasted foreign currency cash flows resulting from salary denominated in the Israeli currency, the New Israeli Shekels (“NIS”), during the six months June 30, 2021, the Company instituted a foreign currency cash flow hedging program.

The Company hedges portions of the anticipated payroll denominated in NIS for a period of one to nine months with hedging contracts.

2 unchanged sentences

These hedging contracts are designated as cash flow hedges, as defined by ASC 815 and are all effective hedges.

As of March 31, 2021, the Company entered into forward contracts to sell U.S.

As of June 30, 2021, the Company entered into forward contracts to sell U.S.

dollars for NIS in the amount of $ 20,836 .

1 unchanged sentence

These derivative instruments are not designated as cash flow hedges, as defined by ASC 815, and therefore all gains and losses, resulting from fair value remeasurement, were recorded immediately in the statement of income, as financial expenses, net.

As of March 31, 2021, the Company entered into forward contracts and put and call options to sell Australian dollars (“AUD”) for U.S.

As of June 30, 2021, the Company entered into forward contracts and put and call options to sell Australian dollars (“AUD”) for U.S.

dollars in the amount of AUD 12 million and AUD 18 million, respectively.

As of March 31, 2021, the Company entered into forward contracts and put and call options to sell Euro (“EUR”) for U.S.

As of June 30, 2021, the Company entered into forward contracts and put and call options to sell Euro (“EUR”) for U.S.

dollars in the amount of EUR 69 million and EUR 51 million, respectively.

As of March 31, 2021, the Company entered into forward contracts to sell U.S.

dollars for South Korean Won in the amount of $ 28,000 .

The fair value of derivative assets as of March 31, 2021 and December 31, 2020, was $ 449 and $ 3,786 , which was recorded in prepaid expenses and other current assets in the consolidated balance sheets, respectively.

The fair value of derivative liabilities as of March 31, 2021 and December 31, 2020, was $ 146 and $ 5,819 , which was recorded in accrued expenses and other current liabilities in the consolidated balance sheets, respectively.

For the three months ended March 31, 2021, the Company recorded a gain in the amount of $ 3,536 in financial expense, net, related to the derivative instruments not designated as cash flow hedges.

The Company had no gains or losses related to derivative instruments during the three months ended March 31, 2020.

For the three months ended March 31, 2021 and 2020, the Company recorded unrealized gain (loss) in the amount of $( 128 ) and $ 538 , net of tax effect, respectively, in “accumulated other comprehensive loss”

The fair value of derivative assets as of June 30, 2021 and December 31, 2020, was $ 2,700 and $ 3,786 , respectively, which was recorded in prepaid expenses and other current assets in the consolidated balance sheets.

The fair value of derivative liabilities as of June 30, 2021 and December 31, 2020, was $ 523 and $ 5,819 , respectively, which was recorded in accrued expenses and other current liabilities in the consolidated balance sheets.

For the three months ended June 30, 2021 and 2020, the Company recorded a gain in the amount of $ 820 and $ 491 , respectively, in financial expense, net, related to the derivative instruments not designated as cash flow hedges.

For the three months ended June 30, 2021 and 2020, the Company recorded an unrealized gain in the amount of $ 841 and $ 343 , net of tax effect, respectively, in “accumulated other comprehensive loss”

related to the derivative assets designated as hedging instruments.

For the six months ended June 30, 2021 and 2020, the Company recorded a gain in the amount of $ 4,355 and $ 491 , respectively, in financial expense, net, related to the derivative instruments not designated as cash flow hedges.

F - 15

3 unchanged sentences

dollars in thousands (except share and per share data)

NOTE 6:- DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Cont.)

For the six months ended June 30, 2021 and 2020, the Company recorded unrealized gain (loss) in the amount of $ 713 and $ 881 , net of tax effect, respectively, in “accumulated other comprehensive loss”

related to the derivative assets designated as hedging instruments.

The following table provides details about reclassifications out of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2021 and 2020:

Details about Accumulated

Other Comprehensive Loss

Amount Reclassified from

Accumulated Other

Comprehensive Loss

Affected Line Item in the

Statements of Income

Unrealized gains on cash flow hedges, net

Cost of revenues

Research and development

Sales and marketing

General and administrative

Total, before income taxes

Income tax expense

Total, net of income taxes

NOTE 7:- CONVERTIBLE SENIOR NOTES

10 unchanged sentences

The initial conversion rate for the Notes was 3.5997 shares of common stock per $ 1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $ 277.80 per share of common stock, subject to adjustment upon the occurrence of certain specified events as set forth in the Indenture.

F - 16

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

dollars in thousands (except share and per share data)

NOTE 7:- CONVERTIBLE SENIOR NOTES (Cont.)

Upon conversion, the Company may choose to pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock.

1 unchanged sentence

If certain fundamental changes referred to as make-whole fundamental changes occur, the conversion rate for the Notes may be increased.

The Convertible Senior Notes consisted of the following as of March 31, 2021 and December 31, 2020:

March 31, 2021

The Convertible Senior Notes consisted of the following as of June 30, 2021 and December 31, 2020:

June 30, 2021

December 31, 2020

7 unchanged sentences

Equity component, net

F - 16

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

dollars in thousands (except share and per share data)

NOTE 7:- CONVERTIBLE SENIOR NOTES (Cont.)

As of March 31, 2021, the debt issuance costs of the Notes will be amortized over the remaining term of approximately 4.5 years.

As of June 30, 2021, the debt issuance costs of the Notes will be amortized over the remaining term of approximately 4.2 years.

Prior to January 1, 2021, the Company separated the Notes into liability and equity components.

3 unchanged sentences

Adoption of the new standard resulted in an increase of retained earnings in an amount of $ 2,884 , a decrease of an additional paid-in capital in an amount of $ 36,336 , an increase of convertible senior notes, net, in an amount of $ 45,282 and a decrease of deferred tax liabilities, net, in an amount of $ 11,830 .

The impact of adoption of this standard on the Company’s earnings per share was immaterial.

The annual effective interest rate of the Notes following the adoption of ASU 2020-06 is 0.47 %.

Interest expense related to the amortization of debt issuance costs was $ 724 for the three months ended March 31, 2021.

As of March 31, 2021, the estimated fair value of the Notes, which the Company has classified as Level 2 financial instruments, is $ 812,294 .

Interest expense related to the amortization of debt issuance costs was $ 726 and $ 1,450 for the three and six months ended June 30, 2021, respectively.

As of June 30, 2021, the estimated fair value of the Notes, which the Company has classified as Level 2 financial instruments, is $ 801,631 .

The estimated fair value was determined based on the quoted bid price of the Notes in an over-the-counter market on the last trading day of the reporting period.

As of March 31, 2021, the if-converted value of the Notes exceeded the principal amount by $ 179,794 .

As of June 30, 2021, the if-converted value of the Notes exceeded the principal amount by $ 169,131 .

F - 17

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

dollars in thousands (except share and per share data)

NOTE 8:- WARRANTY OBLIGATIONS

Changes in the Company’s product warranty obligations for the three months ended March 31, 2021 and 2020, were as follows:

As of March 31,

Changes in the Company’s product warranty obligations for the six months ended June 30, 2021 and 2020, were as follows:

As of June 30,

Balance, at the beginning of the period

4 unchanged sentences

Long term portion

F - 17

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

dollars in thousands (except share and per share data)

NOTE 9:- COMMITMENTS AND CONTINGENT LIABILITIES

As of March 31, 2021, contingent liabilities exist regarding guarantees in the amounts of $ 18,373 , $ 2,712 and $ 476 in respect of bank loans, office rent lease agreements and other transactions, respectively.

As of June 30, 2021, contingent liabilities exist regarding guarantees in the amounts of $ 18,373 , $ 4,799 and $ 1,311 in respect of bank loans, office rent lease agreements and other transactions, respectively.

Following the repayment of the bank loans, the related guarantees were closed at the beginning of July 2021.

Contractual purchase obligations:

3 unchanged sentences

In addition, the Company acquires raw materials or other goods and services, including product components, by issuing authorizations to its suppliers to purchase materials based on its projected demand and manufacturing needs.

As of March 31, 2021, the Company had non-cancelable purchase obligations totaling approximately $ 699,325 out of which the Company recorded a provision for loss in the amount of $ 5,009 .

As of March 31, 2021, the Company had contractual obligations for capital expenditures totaling approximately $ 84,811 .

These commitments reflect purchases of automated assembly lines and other machinery related to the Company’s manufacturing process as well as capital expenditures associated with the construction of Sella 2, the Company’s planned second lithium-ion cell and battery factory in Korea.

As of June 30, 2021, the Company had non-cancelable purchase obligations totaling approximately $ 874,877 out of which the Company recorded a provision for loss in the amount of $ 4,568 .

As of June 30, 2021, the Company had contractual obligations for capital expenditures totaling approximately $ 80,030 .

Legal claims:

3 unchanged sentences

These accruals are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter.

F - 18

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

dollars in thousands (except share and per share data)

NOTE 9:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

In September 2018, the Company’s German subsidiary, SolarEdge Technologies GmbH received a complaint filed by competitor SMA Solar Technology AG (“SMA”).

2 unchanged sentences

The Company challenged the validity of both patents.

With respect to one of the claims, in October 2020, the German Patent Court rendered the SMA patent invalid, this invalidity has been appealed by SMA.

With respect to one of the claims, in October 2020, the German Patent Court rendered the SMA patent invalid and this invalidity has been appealed by SMA.

With respect to the other claim, in November 2019, the first instance court stayed the infringement proceedings since it considered it to be highly likely that the second SMA patent would also be rendered invalid.

1 unchanged sentence

In May 2019, the Company’s two Chinese subsidiaries and its equipment manufacturer in China were served with three lawsuits by Huawei Technologies Co., Ltd., a Chinese entity (“Huawei”).

F - 18

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

dollars in thousands (except share and per share data)

NOTE 9:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

The lawsuits, filed in the Guangzhou intellectual property court, alleged infringement of three patents and asked for an injunction of manufacture, use, sale and offer for sale, and damage awards.

11 unchanged sentences

The Company believes it has meritorious defenses to the claims asserted and intends to vigorously defend against this lawsuit.

As of March 31, 2021, accrued amounts for legal claims of $ 9,265 , were recorded in accrued expenses and other current liabilities.

As of June 30, 2021, accrued amounts for legal claims of $ 9,267 , were recorded in accrued expenses and other current liabilities.

F - 19

8 unchanged sentences

and to participate in the distribution of the surplus assets of the Company in the event of liquidation of the Company.

Stock option plans:

Stock incentive plans:

The Company’s 2007 Global Incentive Plan (the “2007 Plan”) was adopted by the board of directors on August 30, 2007.

3 unchanged sentences

The 2015 Plan provides for the grant of options, RSUs and other share-based awards to directors, employees, officers and nonemployees of the Company and its subsidiaries.

As of March 31, 2021, a total of 15,406,316 shares of common stock were reserved for issuance pursuant to stock awards under the 2015 Plan (the “Share Reserve”).

The Share Reserve will automatically increase on January 1st of each year during the term of the 2015 Plan, commencing on January 1st of the year following the year in which the 2015 Plan became effective, in an amount equal to 5 % of the total number of shares of capital stock outstanding on December 31st of the preceding calendar year;

provided, however, that the Company’s board of directors may determine that there will not be a January 1st increase in the Share Reserve in a given year or that the increase will be less than 5% of the shares of capital stock outstanding on the preceding December 31st.

In the three months ended June 30, 2021, the Company granted under its 2015 Plan, performance-based restricted stock unit (“PRSU”) awards to certain employees which vest upon the achievement of certain performance conditions subject to the employees’

continued service relationship with the Company.

The probability of vesting is assessed at each reporting period and compensation cost is adjusted based on this probability assessment.

The Company recognizes such compensation expenses on an accelerated vesting method.

As of June 30, 2021, a total of 15,406,316 shares of common stock were reserved for issuance pursuant to stock awards under the 2015 Plan (the “Share Reserve”).

The aggregate maximum number of shares of common stock that may be issued on the exercise of incentive stock options is 10,000,000 .

As of March 31, 2021, an aggregate of 8,607,542 options are still available for future grant under the 2015 Plan.

As of June 30, 2021, an aggregate of 8,607,542 options are still available for future grant under the 2015 Plan.

F - 20

4 unchanged sentences

NOTE 10:- STOCK CAPITAL (Cont.)

A summary of the activity in the stock options granted to employees and members of the board of directors for the year ended March 31, 2021 and related information are as follows:

A summary of the activity in the stock options granted to employees and members of the board of directors for the six months ended June 30, 2021 and related information are as follows:

Outstanding as of December 31, 2020

Forfeited or expired

Outstanding as of March 31, 2021

Vested and expected to vest as of March 31, 2021

Exercisable as of March 31, 2021

Outstanding as of June 30, 2021

Vested and expected to vest as of June 30, 2021

Exercisable as of June 30, 2021

The aggregate intrinsic value in the tables above represents the total intrinsic value (the difference between the fair value of the Company’s common stock as of the last day of each period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on the last day of each period.

The total intrinsic value of options exercised during the three months ended March 31, 2021 was $ 41,217 .

The weighted average grant date fair values of options granted to employees and executive directors during the three months ended March 31, 2021 was $ 168.71 .

A summary of the activity in the RSUs granted to employees and directors for the year ended March 31, 2021, is as follows:

The total intrinsic value of options exercised during the six months ended June 30, 2021 was $ 46,157 .

The weighted average grant date fair values of options granted to employees and executive directors during the six months ended June 30, 2021 was $ 168.36 .

A summary of the activity in the RSUs and PRSUs granted to employees and directors for the six months ended June 30, 2021, is as follows:

Weighted average

Unvested as of January 1, 2021

Unvested as of March 31, 2021

Unvested as of June 30, 2021

The number of PRSUs granted to employees was 24,078 with a weighted average grant date fair value of 283.39 .

F - 21

6 unchanged sentences

The Company adopted an ESPP effective upon the consummation of the IPO.

As of March 31, 2021, a total of 3,175,094 shares were reserved for issuance under this plan.

As of June 30, 2021, a total of 3,175,094 shares were reserved for issuance under this plan.

The number of shares of common stock reserved for issuance under the ESPP will increase automatically on January 1st of each year, for ten years, by the lesser of 1 % of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year or 487,643 shares.

3 unchanged sentences

The price of an ordinary share purchased under the ESPP is equal to 85 % of the lower of the fair market value of the ordinary share on the subscription date of each offering period or on the purchase date.

As of March 31, 2021, 612,229 shares of common stock had been purchased under the ESPP.

As of March 31, 2021, 2,562,865 shares of common stock were available for future issuance under the ESPP.

As of June 30, 2021, 635,193 shares of common stock had been purchased under the ESPP.

As of June 30, 2021, 2,539,901 shares of common stock were available for future issuance under the ESPP.

In accordance with ASC No.

1 unchanged sentence

Stock-based compensation expenses for employees and non-employees:

The Company recognized stock-based compensation expenses related to stock options and RSUs granted to employees and nonemployees and ESPP in the condensed consolidated statement of income for the three months ended March 31, 2021 and 2020, as follows:

Three months ended March 31,

The Company recognized stock-based compensation expenses related to stock options, RSUs and PRSUs granted to employees and nonemployees and ESPP in the condensed consolidated statement of income for the three and six months ended June 30, 2021 and 2020, as follows:

Three months ended

Six months ended

Cost of revenues

3 unchanged sentences

Total stock-based compensation expenses

As of March 31, 2021, there were total unrecognized compensation expenses in the amount of $ 224,436 related to non-vested equity-based compensation arrangements granted under the Company’s Plans.

These expenses are expected to be recognized during the period from April 1, 2021 through November 30, 2025.

As of June 30, 2021, there were total unrecognized compensation expenses in the amount of $ 229,255 related to non-vested equity-based compensation arrangements granted under the Company’s Plans.

These expenses are expected to be recognized during the period from July 1, 2021 through May 31, 2026.

F - 22

5 unchanged sentences

Basic net EPS is computed by dividing the net earnings by the weighted-average number of shares of common stock outstanding during the period.

Diluted net EPS is computed by giving effect to all potential shares of common stock, to the extent dilutive, including stock options, RSUs, PSUs, shares to be purchased under the Company’s ESPP, and the Notes due 2025, all in accordance with ASC No.

260, "Earnings Per Share."

10,757 shares were excluded from the calculation of diluted net earnings per share due to their anti-dilutive effect for the three months ended March 31, 2021.

No shares were excluded from the calculation of diluted net EPS due to their anti-dilutive effect for the three months ended March 31, 2020.

Diluted net EPS is computed by giving effect to all potential shares of common stock, to the extent dilutive, including stock options, RSUs, PRSUs, shares to be purchased under the Company’s ESPP, and the Notes due 2025, all in accordance with ASC No.

260, “Earnings Per Share.”

The following table presents the computation of basic and diluted EPS:

Three months ended March 31,

Three months ended

Six months ended

Shares used in computing net earnings per share of common stock, basic

11 unchanged sentences

dollars in thousands (except share and per share data)

NOTE 11:- EARNINGS PER SHARE (Cont.)

No shares were excluded from the calculation of diluted net EPS due to their anti-dilutive effect for the three and six months ended June 30, 2021 and 2020.

The vesting of PRSUs is contingent upon the achievement of certain performance conditions.

The performance awards are not included in the diluted EPS calculation until the performance conditions have been met.

As of June 30, 2021, the performance conditions associated with these PRSUs were not eligible to be met and consequently none of these PRSUs were considered as issuable for the three and six months ended June 30, 2021.

NOTE 12:- OTHER OPERATING EXPENSES (INCOME)

Three months ended

A settlement of pre-acquisition legal claim against Kokam (1)

Six months ended

Kokam purchase escrow (1) (2)  

Write-off of property, plant and equipment

Total other operating expenses (income)

At the time of the acquisition of Kokam, Kokam had an outstanding claim against it for damages.

The claim was settled for an amount of $4,900, which was recognized as an expense in the year ended December 31, 2019.

In March 2020, the Company was indemnified for the full amount by a major selling shareholder of Kokam, which was recognized as an income in the three months ended March 31, 2020.

In the three and six months ended June 30, 2021, the Company received a payment of $859 out of the Kokam acquisition escrow (“the escrow”), with regards to a working capital adjustment.

In the six months ended June 30, 2020, the Company was indemnified for an amount of $4,900 out of the escrow, with regards to a legal claim of Kokam that was settled in arbitration.

NOTE 13:- INCOME TAXES

The effective tax rate for the three months ended March 31, 2021 and 2020 were 20.9 %, and 17.4 % respectively.

The effective tax rate for the three months ended June 30, 2021 and 2020 were 16.2 % and 11.7 %, respectively and for the six months ended June 30, 2021 and 2020 were 18.2 % and 14.9 %, respectively.

The increase in the effective tax rate in the current year is primarily due to presence of a full valuation allowance in various jurisdictions and different allocation of income among the Company’s US, Israel, and foreign subsidiaries.

The Company’s effective tax rate was lower than the U.S.

federal statutory rate for the three months ended March 31, 2021, due to earnings taxed at lower rates in foreign jurisdictions and tax benefits relating to stock-based compensation, which were primarily offset by full valuation allowance in various jurisdictions and GILTI tax.

As of March 31, 2021, and December 31, 2020, unrecognized tax benefits were $ 10,630 and $ 10,564 , respectively.

federal statutory rate for the three and six months ended June 30, 2021, due to earnings taxed at lower rates in foreign jurisdictions and tax benefits relating to stock-based compensation, which were partially offset by full valuation allowance in various jurisdictions and Global intangible low-taxed income (“GILTI”) tax.

As of June 30, 2021, and December 31, 2020, unrecognized tax benefits were $ 10,714 and $ 10,564 , respectively.

If recognized, such benefits would favorably affect the Company’s effective tax rate.

The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes.

The total amount of penalties and interest were $ 152 and $ 127 as of March 31, 2021 and December 31, 2020, respectively.

The total amount of penalties and interest were $ 177 and $ 127 as of June 30, 2021 and December 31, 2020, respectively.

It is reasonably possible that the Company’s gross unrecognized tax benefits will decrease by up to $ 8,937 in the next 12 months, primarily due to the lapse of the statute of limitations.

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NOTE 14:- SEGMENT INFORMATION

Segment Information:

The Company operates in five different operating segments:

Solar, Critical Power, Energy Storage, e-Mobility and Automation Machines.

Solar, Energy Storage, e-Mobility, Critical Power and Automation Machines.

The Company's Chief Executive Officer, who is the chief operating decision maker (“CODM”) , makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis, accompanied by disaggregated information about revenues and contributed profit by the operating segments.

The Company does not allocate to its operating segments revenue recognized due to advance payments received for performance obligations that extend for a period greater than one year (“financing component”), related to Accounting Standard Codification 606, “Revenue from Contracts with Customers”

Segment profit is comprised of gross profit for the segment less operating expenses that do not include amortization, stock based compensation expenses and certain other items.

The Company manages its assets on a group basis, not by segments, as many of its assets are shared or commingled.

The Company manages its assets on a group basis, not by segments, as many of its assets are shared or co-mingled.

The Company’s CODM does not regularly review asset information by segments and, therefore, the Company does not report asset information by segment.

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The “All other”

category includes the design, development, manufacturing and sales of UPS products, energy storage products, e-Mobility products and automated machines.

The following table presents information on reportable segments profit (loss) for the period presented:

Three months ended March 31,

category includes the design, development, manufacturing and sales of energy storage products, e-Mobility products, UPS products and automated machines.

The following table presents information on reportable segments profit (loss) for the periods presented:

Three months ended

June 30, 2021

Six months ended

June 30, 2021

Cost of revenues

Gross profit (loss)

Research and development

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NOTE 14:- SEGMENT INFORMATION (Cont.)

The following table presents information on reportable segments reconciliation to consolidated operating income for the periods presented:

Three months ended

June 30, 2020

Six months ended

June 30, 2020

Cost of revenues

Research and development

Sales and marketing

General and administrative

Segments profit (loss)

The following table presents information on reportable segments reconciliation to consolidated revenues for the periods presented:

Three months ended

Six months ended

Solar segment revenues

1 unchanged sentence

Revenues from financing component

Intersegment revenues

Consolidated revenues

1 unchanged sentence

Three months ended

Six months ended

Solar segment profit

4 unchanged sentences

Amortization related to business combinations

Legal settlement (see Note 12)

Cost of products adjustments

Legal settlement

Other unallocated expenses, net

Intersegment profit

Consolidated operating income

NOTE 15:- SUBSEQUENT EVENT

On August 2, the Company entered into an agreement with Samsung SDI pursuant to which Samsung SDI will provide the Company with 1 gigawatt of lithium-ion cells during 2022.

F - 26

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interest rates and supply of capital in the global financial markets in general and in the solar market specifically;

competition, including introductions of power optimizer, inverter and solar photovoltaic ("PV") system monitoring products by our competitors;

competition, including introductions of power optimizer, inverter and solar photovoltaic (“PV”) system monitoring products by our competitors;

developments in alternative technologies or improvements in distributed solar energy generation;

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Except as required by law, we assume no obligation to update these forward looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward looking statements, even if new information becomes available in the future.

We are a leading provider of an optimized inverter solution that has changed the way power is harvested and managed in a solar photovoltaic, known as PV system.

We are a leading provider of an optimized inverter solution that has changed the way power is harvested and managed in a solar photovoltaic, known as PV systems.

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

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SolarEdge now offers energy solutions which include not only residential, commercial and small utility scale PV systems but also product offerings in the areas of energy storage systems or ESS and backup, electric vehicle, or EV components and charging capabilities, home energy management, grid services and virtual power plants, lithium-ion batteries and uninterrupted power supply, known as UPS solutions.

As part of our non-organic growth, we have completed three acquisitions during 2018 and 2019, each of which address our growth in the area of smart energy technology and power optimization.

During the year ended December 31, 2018, we expanded our product offering by completing the acquisition of the assets of a business for the development, manufacturing and sale of uninterrupted power supply or UPSs (“Critical Power”) as well as the acquisition of Kokam Co., Ltd.

(“Kokam”), a provider of Lithium-ion cells, batteries and energy storage solutions.

In January 2019, we further expanded our product offering by completing the acquisition of approximately 99.9% of SolarEdge Automation Machines SPA (“SolarEdge Automation Machines”) and its wholly owned subsidiary SolarEdge eMobility SPA (“SolarEdge e-Mobility”) (formerly S.M.R.E Spa and I.E.T Spa, respectively).

SolarEdge Automation Machines manufactures automated machinery for industrial applications and SolarEdge e-Mobility develops, manufactures and sells end-to-end e-Mobility solutions for electric and hybrid vehicles used in motorcycles and light commercial vehicles.

These acquisitions allow us to offer a variety of products and solutions in addition to the SolarEdge solution, in adjacent markets.

In the third quarter of 2020 we began commercial shipments to the U.S from our manufacturing facility in the North of Israel, “Sella 1”.

In the third quarter of 2020 we began commercial shipments to the U.S.

from our manufacturing facility in the North of Israel, “Sella 1”.

The proximity of Sella 1 to our R&D team and labs, enables us to accelerate new product development cycles as well as define equipment and manufacturing processes of newly developed products which can then be adopted by our contract manufacturers world-wide.

During the second quarter of 2021, Sella 1 is expected to reach its full manufacturing capacity.

During the second quarter of 2021, Sella 1 reached full manufacturing capacity.

In 2020, we began construction of “Sella 2”, a 2GWh Li-Ion cell factory in Korea.

The new factory is being constructed to meet the growing global demand for Li-Ion cells and batteries, specifically in the energy storage system (ESS) and e-mobility markets.

Sella 2 is expected to begin operation in the first half of 2022.

The new factory is being constructed to meet the growing global demand for Li-Ion cells and batteries, specifically in the energy storage system (“ESS”) and e-mobility markets.

Sella 2 is expected to initiate ramp-up of manufacturing in the first half of 2022.

We are a leader in the global module-level power electronics (“MLPE”) market.

As of March 31, 2021, we have shipped approximately 69.1 million power optimizers and 2.9 million inverters.

As of June 30, 2021, we have shipped approximately 74.1 million power optimizers and 3.1 million inverters.

Over 2.15 million installations, many of which may include multiple inverters, are currently connected to, and monitored through, our cloud‑based monitoring platform.

As of March 31, 2021, we have shipped approximately 24.0 GW of our DC optimized inverter systems.

Our revenues for the three months ended March 31, 2021 and 2020 were $405.5 million and $431.2 million, respectively.

Gross margin was 34.5% and 32.5% for the three months ended March 31, 2021 and 2020, respectively.

Net income was $30.1 million and $42.2 million for the three months ended March 31, 2021 and 2020, respectively.

As of June 30, 2021, we have shipped approximately 25.7 GW of our DC optimized inverter systems.

Our revenues for the three months ended June 30, 2021 and 2020 were $480.1 million and $331.9 million, respectively.

Gross margin was 32.5% and 31.0% for the three months ended June 30, 2021 and 2020, respectively.

Net income was $45.1 million and $36.7 million for the three months ended June 30, 2021 and 2020, respectively.

Our revenues for the six months ended June 30, 2021 and 2020 were $885.5 million and $763.1 million, respectively.

Gross margin was 33.5% and 31.8% for the six months ended June 30, 2021 and 2020, respectively.

Net income was $75.2 million and $78.9 million for the six months ended June 30, 2021 and 2020, respectively.

COVID-19 Impact

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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 and our contract manufacturers facilities in China, Vietnam and Hungary have remained operational and at almost full capacity, with some interruptions on a case-by-case basis in compliance with local laws and in order to minimize the spread of the COVID-19 virus.

Our manufacturing facilities in Korea, Italy and Israel and our contract manufacturers’

facilities in China, Vietnam and Hungary have remained operational and at almost full capacity, with some interruptions on a case-by-case basis in compliance with local laws and in order to minimize the spread of the COVID-19 virus.

Specifically, in Vietnam, there have been and continue to be government enforced lockdowns that have led to the temporary shutdown of our manufacturing lines.

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

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

Continued travel restrictions however continue to have an impact on our operations.

As anticipated, our first quarter revenues of $405.5 million reflect continued recovery from the impacts of the global pandemic, with an increase of 13.2% from the $358.1 million of revenues in the fourth quarter of 2020.

This increase reflects an increase in demand in the United States which has not fully returned to pre-COVID installation rates.

While our operations and operating expenses have not been significantly impacted by COVID-19, in the second quarter of 2021 we experienced and continue to experience an increase in the cost of goods sold due to an increase in shipping rates that resulted from a reduction in ocean freight capacity, the accumulation of containers in the United States and Europe that were not returned to Asia and the reduction in the availability of air freight that increased the demand for ocean freight.

Our second quarter revenues of $480.1 million reflect a healthy recovery from the impacts of the global pandemic, with an increase of 18.4% from the $405.5 million of revenues in the first quarter of 2021.

This increase reflects a significant increase in demand for our products in all geographies in which we operate following the negative impacts on demand experienced in 2020 as a result of the COVID-19 pandemic.

Key Operating Metrics

1 unchanged sentence

These operating metrics are utilized by our management to evaluate our business, measure our performance, identify trends affecting our business and formulate projections.

We use metrics relating to shipments (inverters shipped, power optimizers shipped and megawatts shipped) to evaluate our sales performance and to track market acceptance of our products.

We use metrics relating to shipments (inverters, power optimizers and megawatts shipped) to evaluate our sales performance and to track market acceptance of our products.

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

1 unchanged sentence

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.

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

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

3 unchanged sentences

Three Months Ended

Six Months Ended

Inverters shipped

7 unchanged sentences

Three Months Ended

Six Months Ended

(In thousands)

Cost of revenues

6 unchanged sentences

Operating income

Financial expenses, net

Financial expenses (income), net

Income before taxes on income

Taxes on income

Comparison of the Three Months Ended March 31, 2021 and 2020

Three Months Ended

Comparison of the Three and Six Months Ended June 30, 2021 to the Three and Six Months Ended June 30, 2020

Three Months Ended

(in thousands)

Revenues decreased by $25.7 million, or 6.0%, for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, partially due to decreased sales of $84.3 million in the U.S.

which we attribute principally to the high level of safe harbor-related revenues in the amount of $51.4 million generated in the United States in the first quarter of 2020 which did not occur in 2021 due to the expected extension of the Solar Investment Tax Credits, as well as to the negative impact of COVID-19 on the economy in the United States which has not yet returned to pre-COVID installation rates and a change in our customer mix in the United States towards larger customers that enjoy preferable pricing.

The lower revenues from the United States were partially offset by an increase of $46.1 million and $12.5 million of revenues from Europe and the rest of world, respectively where the COVID effect on demand was smaller.

June 30, 2021 to 2020

Six Months Ended

June 30, 2021 to 2020

Revenues (Dollars in thousands)

Power optimizers (units)

Inverters (units)

Revenues increased by $148.2 million, or 44.7%, for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, primarily due to (i) an increase in the number of inverters and power optimizers sold, with significant growth in revenues in all geographies;

and (ii) an increase in the numbers of powertrain kits supplied by SolarEdge e-Mobility SPA (“SolarEdge e-Mobility”), in an aggregate amount of $20.4 million.

Revenues from outside of the U.S.

comprised 59.7% of our revenues for the three months ended March 31, 2021 compared to 42.6% for the three months ended March 31, 2020.

The number of power optimizers and inverters recognized as revenues:

Three Months Ended

Power optimizers

Our blended ASP per watt for solar products shipped decreased by $0.008, or 3.6%, in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

This reduction is primarily attributed to 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 shipments generated 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 and the Australian Dollar against the U.S.

comprised 63.4% of our revenues in the three months ended June 30, 2021, as compared to 62.0% in the three months ended June 30, 2020.

Our blended ASP per watt for solar products is calculated by dividing the solar revenues by the name plate capacity of inverters shipped.

Our blended ASP per watt increased by $0.056, or 26.0%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

A primary contributor to this increase was a relatively higher number of power optimizers shipped compared to the number of inverters shipped, which increased our total solar revenues but did not impact the watt amount used for calculating the ASP per watt.

The increase in blended ASP per watt is also attributed to an increase in the sale of residential products out of our total solar product mix, mainly in Europe and in the U.S, that are characterized with higher ASP per watt as well as the strengthening of the Euro and other currencies against the U.S.

This increase in blended ASP per watt was partially offset by a change in our customer mix in the U.S.

toward larger customers that enjoy preferential pricing due to volume commitments.

Revenues increased by $122.5 million, or 16.1%, for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to (i) an increase in the number of inverters and power optimizers sold, with significant growth in revenues coming from Europe, and the rest of the world;

and (ii) an increase in the numbers of powertrain kits supplied by SolarEdge e-Mobility in an aggregate amount of $30.8 million.

This increase was partially offset by a decrease in revenues which we attribute principally to the high level of safe harbor-related revenues in the amount of $51.4 million generated in the U.S.

in the first quarter of 2020 which did not occur in 2021 due to the expected extension of the Solar Investment Tax Credits.

Revenues from outside of the U.S.

comprised 61.7% of our revenues in the six months ended June 30, 2021, as compared to 51.0% in the six months ended June 30, 2020.

Our blended ASP per watt for solar products shipped increased by $0.022, or 9.9%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

This increase is primarily attributed to an increase in the proportion of residential products sold out of our solar product mix, mainly in Europe and in the U.S, that are characterized with higher ASP per watt as well as the strengthening of the Euro and other currencies against the U.S.

Cost of Revenues and Gross Profit

Three Months Ended

(in thousands)

June 30, 2021 to 2020

Six Months Ended

June 30, 2021 to 2020

Dollars in thousands

Cost of revenues

Cost of revenues decreased by $25.8 million, or 8.9%, in the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, primarily due to:

a decrease in the volume of products sold;

decreased shipment and logistics costs of $24.6 million mainly attributed to lower United States tariff charges due to a higher portion of our products for the United States manufactured outside of China as well as a decrease in revenues from the United States compared to the three months ended March 31, 2020.

In addition, we incurred less air shipment costs resulting from higher inventory levels;

These were partially offset by:

an increase in warranty expenses and warranty accruals of $3.6 million associated with different elements of our warranty expenses which include the cost of the products, shipment and other related expenses;

an increase of $5.2 million in inventory accrual 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.

Gross profit as a percentage of revenue increased from 32.5% in the three months ended March 31, 2020 to 34.5% in the three months ended March 31, 2021, primarily due to:

the absence of safe harbor related sales, that were characterized with a lower gross margin in the first quarter of 2020;

decreased shipment and logistics costs mainly attributed to a decrease in the portion of products made in China resulting in reduced custom tariffs, a decrease in revenues in the U.S.

and a decrease in air shipments costs resulting from higher inventory levels;

favorable exchange rates on our sales outside of the Unites States;

Cost of revenues increased by $95.0 million, or 41.5%, in the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, primarily due to:

an increase in the volume of products sold;

a significant increase in shipment costs in an aggregate amount of $10.4 million due to (i) an increase in shipment rates;

and (ii) an increase in volumes shipped;

an increase in personnel-related costs of $3.5 million mainly related to the expansion of our operations and support headcount in the solar business, which grew in parallel to our growing install base worldwide;

an increase in warranty expenses and warranty accruals of $15.2 million due to an increase in our install base and the costs associated with providing our warranty coverage.

These increases were partially offset by:

decreased customs duties of $8.9 million attributed to lower tariff charges due to the manufacture of a higher portion of our products for the U.S.

outside of China;

Gross profit as a percentage of revenue increased from 31.0% in the three months ended June 30, 2020 to 32.5% in the three months ended June 30, 2021, primarily due to:

an increased rate of shipments generated from the sale of residential products, mainly in Europe and in the U.S that are characterized with higher gross margin;

decreased customs duties in the United States attributed to lower tariff charges due to the manufacture of a higher portion of our products for the U.S.

outside of China;

favorable exchange rates on our sales outside of the U.S.;

continued cost reduction efforts.

These factors were partially offset by:

an increase in support costs related to our warranty obligations due to an increase in our install base which affects the calculation of such costs as a percentage of our revenues since our install base grew in 2021 while revenues decreased compared to the same quarter in 2020, resulting in a higher rate of warranty expenses to revenues;

an increase in inventory valuation accruals;

lower gross profit from our Critical Power, Automation Machines and Kokam businesses.

an increase in support costs and warranty obligations due to an increase in our install base and costs associated with providing our warranty coverage;

a change in our customer mix in the U.S.

toward larger customers that enjoy preferential pricing due to volume commitments;

a significant increase in shipping rates world-wide;

a negative impact on margins attributed to our non-solar businesses, that are characterized by a lower gross profit.

Cost of revenues increased by $69.2 million, or 13.3%, in the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, primarily due to:

an increase in the volume of products sold;

an increase in warranty expenses and warranty accruals of $18.9 million due to an increase in our install base and the costs associated with providing our warranty coverage;

an increase in shipping costs, in an aggregate amount of $4.3 million due to (i) an increase in shipment rates;

and (ii) an increase in volumes shipped;

an increase in personnel-related costs of $6.4 million related to the expansion of our operations and support headcount in the solar business which grew in parallel to our growing install base worldwide;

These factors were partially offset by:

decreased custom duties of $29.3 million attributed to lower tariff charges due to the manufacture of a higher portion of our products for the U.S.

outside of China;

Gross profit as a percentage of revenue increased from 31.8% in the six months ended June 30, 2020 to 33.5% in the six months ended June 30, 2021, primarily due to:

an increased rate of shipments generated from the sale of residential products, mainly in Europe and in the U.S that are characterized with higher gross margin;

decreased custom duties in the U.S.

mainly attributed to a decrease in the portion of products manufactured in China;

the absence of safe harbor related sales, that were characterized with a lower gross margin in the first quarter of 2020;

favorable exchange rates on our sales outside of the U.S.;

continued cost reduction efforts.

These were partially offset by:

an increase in support costs related to our warranty obligations due to an increase in our install base and and the costs associated with providing our warranty coverage;

a change in our customer mix in the U.S.

toward larger customers that enjoy preferable pricing;

a significant increase in shipping rates world-wide;

a negative impact on margin attributed to our non-solar businesses, that are characterized by a lower gross profit.

Research and Development

Three Months Ended

(in thousands)

June 30, 2021 to 2020

Six Months Ended

June 30, 2021 to 2020

Dollars in thousands

Research and development

Research and development costs increased by $10.3 million, or 28.0%, in the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, primarily due to:

an increase in personnel-related costs of $8.8 million resulting from an increase in our research and development headcount which returned to growth after the stabilization of the business environment and the roll back of the hiring freeze imposed at the beginning of the COVID pandemic, as well as salary expenses associated with employee equity-based compensation.

Research and development costs increased by $14.6 million, or 38.2%, in the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, primarily due to:

an increase in personnel-related costs of $13.7 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 the enhancement 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 $2.4 million.

These were partially offset by a payment of $2.5 million, received by SolarEdge e-Mobility from a customer in connection with research and development activities.

increased expenses related to other overhead costs in an amount of $1.1 million;

increase in depreciation expenses from property and equipment in an amount of $1.0 million.

These were partially offset by a reimbursement of costs charged to a customer, in an amount of $2.1 million, related to research and development activities performed by SolarEdge e-Mobility.

Research and development costs increased by $24.8 million, or 33.2%, in the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, primarily due to:

an increase in personnel-related costs of $22.5 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 continued investment in enhancements of existing products and research and development expenses associated with bringing new products to the market;

increased expenses related to consultants and sub-contractors in an amount of $2.4 million;

increased expenses related to other overhead costs in an amount of $1.9 million;

an increase in depreciation expenses of property and equipment in an amount of $1.9 million.

These increases were partially offset by a reimbursement of costs charged to a customer, in an amount of $4.6 million, related to the research and development activities performed by SolarEdge e-Mobility.

Sales and Marketing

Three Months Ended

(in thousands)

June 30, 2021 to 2020

Six Months Ended

June 30, 2021 to 2020

Dollars in thousands

Sales and Marketing

Sales and marketing expenses increased by $2.7 million, or 11.0 %, in the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, primarily due to increased personnel-related costs of $4.0 million as a result of an increase in salary expenses associated with employee equity-based compensation.

This increase was partially offset by a decrease in expenses related to travel in an amount of $1.0 million.

Sales and marketing expenses increased by $8.5 million, or 40.7%, in the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, primarily due to increased personnel-related costs of $7.3 million as a result of an increase in headcount supporting our growth in Israel, the U.S.

and Asia, as well as salary expenses associated with employee equity-based compensation.

Sales and marketing expenses increased by $11.2 million, or 24.7%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to increased personnel-related costs of $11.2 million as a result of an increase in headcount supporting our growth in Israel, the U.S., and Asia, as well as salary expenses associated with employee equity-based compensation.

General and Administrative

Three Months Ended

(in thousands)

June 30, 2021 to 2020

Six Months Ended

June 30, 2021 to 2020

Dollars in thousands

General and Administrative

General and administrative expenses increased by $3.7 million, or 22.6%, in the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, primarily due to:

increased personnel-related costs of $3.1 million resulting from an increase in headcount due to hiring of senior executives during 2020, the roll back of the hiring freeze that we implemented at the start of COVID-19 and the expansion of certain general and administrative functions in the non-solar businesses, as well as salary expenses associated with employee equity-based compensation;

increased provision of $3.6 million in connection with legal claims.

These were partially offset by a decrease in expenses related to accrual for doubtful debts in an amount of $1.9 million.

Other operating expenses

Three Months Ended

General and administrative expenses increased by $ 5.4 million, or 38.7%, in the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, primarily due to:

increased personnel-related costs of $5.9 million resulting from an increase in headcount due to hiring of senior executives;

the reinstatement of executive management salaries that were voluntarily reduced in early 2020 in order to mitigate the potential effects of COVID-19;

the expansion of certain general and administrative functions in the non-solar businesses in the second half of 2020, as well as salary expenses associated with employee equity-based compensation.

These expenses were partially offset by a decrease in expenses related to an accrual for doubtful debts in an amount of $1.9 million.

General and administrative expenses increased by $9.1 million, or 30.1%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 primarily due to:

increased personnel-related costs of $9.0 million resulting from an increase in headcount due to hiring of senior executives;

the reinstatement of executive management salaries that were voluntarily reduced in early 2020 in order to mitigate the potential effects of COVID-19;

the expansion of certain general and administrative functions in the non-solar businesses in the second half of 2020, as well as salary expenses associated with employee equity-based compensation;

an increased provision of $3.6 million in connection with legal claims.

These expenses were partially offset by a decrease in expenses related to an accrual for doubtful debts in an amount of $3.9 million.

Other operating expenses (income)

Three Months Ended

(In thousands)

Other operating expenses

Other operating expenses was $2.2 million in the three months ended March 31, 2021, compared to other operating income of $4.9 million in three months ended March 31, 2020, primarily due to:

June 30, 2021 to 2020

Six Months Ended

June 30, 2021 to 2020

Dollars in thousands

Other operating expenses (income)

Other operating income increased by $0.9 million, in the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to a payment received by us out of the Kokam escrow account with regards to a capital adjustment in connection with the acquisition of Kokam Co., Ltd.

(“Kokam”).

Other operating expenses were $1.3 million in the six months ended June 30, 2021, compared to other operating income of $4.9 million in six months ended June 30, 2020, primarily due to:

a decrease in income in the amount of $4.9 million incurred in the first quarter of 2020 related to an acquired legal claim as part of the Kokam acquisition which was settled in arbitration;

an increase of $2.2 million in expenses related to write-offs of tangible assets in our solar business, which we ceased to use during the first quarter of 2021.

Financial expenses, net

Three Months Ended

an increase of $2.1 million in expenses related to write-offs of tangible assets in our solar business, which we ceased using during the first quarter of 2021.

These were partially offset by an increase of $0.9 million in income related to a payment made to us from an escrow account with regards to a working capital adjustment in connection with the Kokam acquisition.

Financial expenses (income), net

Three Months Ended

(in thousands)

Financial expenses, net

Financial expenses were $6.1 million in the three months ended March 31, 2021 compared to $16.6 million in financial expenses in the three months ended March 31, 2020, primarily due to:

a decrease of $7.1 million in foreign exchange fluctuations, mainly between the Euro, the New Israeli Shekel and the South Korean Won against the U.S.

an increase of $3.5 million in finance income related to hedging transactions.

June 30, 2021 to 2020

Six Months Ended

June 30, 2021 to 2020

Dollars in thousands

Financial expenses (income), net

Financial expenses were $1.7 million in the three months ended June 30, 2021 compared to an income in the amount of $11.6 million in the three months ended June 30, 2020, primarily due to a decrease of $12.8 million in foreign exchange fluctuations income, mainly between the Euro, the New Israeli Shekel and the South Korean Won against the U.S.

Financial expenses increased by $2.8 million, or 55.6% in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to:

an increase of $5.6 million in foreign exchange fluctuations expenses, mainly between the Euro, the New Israeli Shekel and the South Korean Won against the U.S.

an increase of $1.4 million in expenses related to amortization of issuance costs on our convertible senior notes (“Notes”);

an increase of $0.7 million in accretion (amortization) of discount (premium) on marketable securities, net of interest income.

These expenses were partially offset by an increase of $3.9 million in finance income related to hedging transactions.

Taxes on Income

Three Months Ended

(in thousands)

June 30, 2021 to 2020

Six Months Ended

June 30, 2021 to 2020

Dollars in thousands

Taxes on Income

Taxes on income decreased by $1.0 million, or 10.8%, in the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, primarily due to a decrease of $2.3 million of current tax expenses mainly attributed to a decrease in taxable income and Global Intangible Low-Taxed Income or GILTI taxes, both due to higher deductible expenses in the three months ended March 31, 2021, as compared to the three months ended March 31, 2020.

This decrease was partially offset by a decrease of $1.4 million in deferred tax assets, net.

Three Months Ended

Taxes on income increased by $3.9 million, or 79.4%, in the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, primarily due to a decrease of $1.5 million in deferred tax assets (presented as tax expenses), net, an increase of $2.0 million of current tax expenses mainly attributed to an increase in taxable income in foreign subsidiaries that are profitable in the three months ended June 30, 2021, as compared to the three months ended June 30, 2020 and an increase of $0.4 million in prior year tax expenses.

Taxes on income increased by $ 2.9 million, or 21.0% in the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, primarily due to a decrease of $2.8 million in deferred tax assets (presented as tax expenses), net and an increase of $0.3 million in prior year tax expenses.

These were partially offset by a decrease of $0.2 million in current tax expenses, net, mainly related to a decrease in profit before tax;

Three Months Ended

(in thousands)

As a result of the factors discussed above, net income decreased by $12.2 million, or 28.8%, in the three months ended March 31, 2021, as compared to the three months ended March 31, 2020.

June 30, 2021 to 2020

Six Months Ended

June 30, 2021 to 2020

Dollars in thousands

As a result of the factors discussed above, net income increased by $8.4 million, or 23.0%, in the three months ended June 30, 2021, as compared to the three months ended June 30, 2020.

As a result of the factors discussed above, net income decreased by $3.7 million, or 4.7% in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

Liquidity and Capital Resources

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

Three Months Ended

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

Increase (decrease) in cash and cash equivalents

As of March 31, 2021, our cash and cash equivalents were $685.2 million.

As of June 30, 2021, our cash and cash equivalents were $524.1 million.

This amount does not include $603.0 million invested in available for sale marketable securities, $2.5 million invested in restricted bank deposits and $13.6 million invested in short-term bank deposits.

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

As of March 31, 2021, we have open commitments for capital expenditures in an amount of approximately $84.8 million.

As of June 30, 2021, we have open commitments for capital expenditures in an amount of approximately $80.0 million.

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

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Operating Activities

During the three months ended March 31, 2021, cash provided by operating activities was $24.1 million, derived mainly from a net income of $30.1 million that included $47.8 million of non-cash expenses, a decrease of $20.2 million in prepaid expenses and other accounts receivable, an increase of $6.6 million in accrued expenses and other accounts payable, $13.1 million in warranty obligations, $7.5 million in accruals for employees and $3.6 million in deferred revenues.

This was offset by an increase of $57.4 million in trade receivables, $8.4 million in inventories and a decrease of $39.0 million in trade payables.

During the three months, ended March 31, 2020, cash provided by operating activities was $107.7 million derived mainly from a net income of $42.2 million that included $16.4 million of non-cash expenses, a decrease of $59.4 million in trade receivables and $49.9 million in prepaid expenses and other accounts receivable, and an increase of $13.8 million in warranty obligations and $11.8 million in accruals for employees.

This was offset by a decrease of $31.7 million in deferred revenues and $17.6 million in trade payables, and an increase of $29.0 million in inventories and $7.5 million in accrued expenses.

During the six months ended June 30, 2021, cash provided by operating activities was $62.8 million, derived mainly from a net income of $75.2 million that included $82.2 million of non-cash expenses, an increase of $27.3 million in warranty obligations, $19.7 million in accrued expenses and other accounts payable, $9.7 million in accruals for employees, $4.5 million in deferred revenues and customer advances and a decrease of $13.2 million in inventories.

This was offset by an increase of $128.6 million in trade receivables, $20.3 million in prepaid expenses and other accounts receivable and a decrease of $20.1 million in trade payables.

For the six months, ended June 30, 2020, cash provided by operating activities was $167.1 million derived mainly from net income of $78.9 million that included $35.5 million of non-cash expenses, a decrease of $116.0 million in trade receivables and $37.1 million in prepaid expenses and other accounts receivable, an increase of $5.8 million in accrued expenses and other accounts payable, $20.2 million in warranty obligations, and $1.4 million in accruals for employees.

This was offset by a decrease of $31.8 million in deferred revenues and customer advances, $1.8 million in trade payables and an increase of $94.2 million in inventories.

Investing Activities

During the three months ended March 31, 2021, net cash used in investing activities was $153.6 million, of which $186.5 million which was invested in available-for-sale marketable securities and $24.5 million was related to capital investments in laboratory equipment, end of line testing equipment, automated assembly lines, manufacturing tools and leasehold improvements.

This was offset by $40.4 million from maturities of available-for-sale marketable securities, $16.5 million from the withdrawal from bank deposits and $0.5 million related to other investing activities.

During the three months ended March 31, 2020 net cash used in investing activities was $19.9 million, of which $31.9 million was invested in available-for-sale marketable securities, $27.0 million related to capital investments in laboratory equipment, end of line testing equipment, automated assembly lines, manufacturing tools and leasehold improvements and $3.3 million was invested in bank deposits.

This was offset by $42.3 million from maturities of available-for-sale marketable securities.

During the six months ended June 30, 2021, net cash used in investing activities was $336.0 million, of which $422.5 million was invested in available-for-sale marketable securities and $65.3 million was related to capital investments in laboratory equipment, end of line testing equipment, automated assembly lines, manufacturing tools and leasehold improvements.

Net cash used in investing activities was offset by $103.8 million from sales and maturities of available-for-sale marketable securities, $46.5 million from the withdrawal from bank deposits, net and $1.5 million related to other investing activities.

During the six months ended June 30, 2020 net cash provided by investing activities was $26.9 million, of which $89.7 million was proceeds from sales and maturities of available-for-sale marketable securities which we sold in order to maintain high cash balances to mitigate risks associated with COVID-19, $25.6 million was from the withdrawal from restricted bank deposits, net, and $2.1 million related to other investing activities.

This was offset by $36.8 million which was invested in available-for-sale marketable securities, and $53.7 million related to capital investments in laboratory equipment, end of line testing equipment, automated assembly lines, manufacturing tools and leasehold improvements.

Financing Activities

During the three months ended March 31, 2021, net cash used in financing activities was $2.1 million, of which $1.7 million attributed to cash received from the exercise of employee and non-employee stock-based awards net of withholding taxes effect and $0.4 million related to other financing activities.

During the three months ended March 31, 2020, net cash provided by financing activities was $3.3 million, of which, $15.2 million was used for repayment of loans we acquired as part of the Kokam Acquisition and $0.1 million used for payments related to finance lease.

This was offset by $15.3 million related to proceeds from new bank loans of Kokam and $3.3 million attributed to cash received from the exercise of employee and non-employee stock-based awards.

During the six months ended June 30, 2021, net cash used in financing activities was $21.2 million, of which $16.4 related to repayment of loans, $4.2 million was attributed to cash received from the exercise of employee and non-employee stock-based awards net of withholding taxes remitted to the tax authorities and $0.6 million related to other financing activities.

For the six months ended June 30, 2020, net cash provided by financing activities was $9.0 million, of which, $15.2 million was related to proceeds from new bank loans of Kokam and $9.1 million was attributed to cash received from the exercise of employee and non-employee stock-based awards.

This was offset by $15.2 million used for repayment of loans we acquired as part of the Kokam acquisition and $0.1 million related to other financing activities.

Convertible Senior Note

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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 a monthly interest rate of 1.54%.

As of March 31, 2021, the aggregate outstanding amount of the new bank loans was $16.1 million.

During the second quarter of 2021 we redeemed the new bank loans.

In addition, during 2020, we entered into a second 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 March 31, 2021, the aggregate outstanding amount of the second bank loan was $1.4 million.

As of June 30, 2021, the aggregate outstanding amount of the second bank loan was $1.4 million.

Off-Balance Sheet Arrangements

1 unchanged sentence

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-Q

Item 1. Financial Statements