What changed in this filing

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Item 1. Financial Statements

2021-11-03 compared with 2021-08-04 · 304 added, 258 removed, 767 unchanged (42% of the section changed)

3 unchanged sentences

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2021

AS OF SEPTEMBER 30, 2021

Condensed Consolidated Balance Sheets

8 unchanged sentences

dollars in thousands (except share and per share data)

CURRENT ASSETS:

September 30, 2021

  CURRENT ASSETS:

Cash and cash equivalents

6 unchanged sentences

Total current assets

LONG-TERM ASSETS:

Marketable securities

11 unchanged sentences

dollars in thousands (except share and per share data)

September 30,

LIABILITIES AND STOCKHOLDERS’

19 unchanged sentences

Common stock of $ 0.0001 par value - Authorized:

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

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

issued and outstanding:

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

52,519,490 and 51,560,936 shares as of September 30, 2021 and December 31, 2020, respectively

Additional paid-in capital

10 unchanged sentences

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

Cost of revenues

20 unchanged sentences

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

Other comprehensive income (loss), net of tax:

12 unchanged sentences

dollars in thousands (except share and per share data)

Additional paid in Capital

Other comprehensive

comprehensive

stockholders’

income (loss)

Retained earnings

stockholder’s equity

Balance as of January 1, 2021

8 unchanged sentences

Balance as of June 30, 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 September 30, 2021

* Represents an amount less than $1.

5 unchanged sentences

dollars in thousands (except share and per share data)

Additional paid in Capital

Accumulated Other comprehensive loss

Retained earnings

Total stockholder’s equity

comprehensive

stockholders’

Balance as of January 1, 2020

7 unchanged sentences

Balance as of June 30, 2020

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

Equity based compensation expenses to employees and non-employees

Equity component of convertible senior notes, net

Other comprehensive loss adjustments

Balance as of  September 30, 2020

* Represents an amount less than $1.

5 unchanged sentences

dollars in thousands (except share and per share data)

Six months ended

Nine months ended

September 30,

Cash flows provided by operating activities:

16 unchanged sentences

Deferred revenues and customers advances

Other liabilities

Other liabilities, net

Net cash provided by operating activities

3 unchanged sentences

Purchase of property, plant and equipment

Withdrawal from bank deposits, net

Withdrawal from (investment in) bank deposits, net

Investment in privately held company

Payment for asset acquisition, net of cash acquired

Withdrawal from restricted bank deposits

Other investing activities

5 unchanged sentences

dollars in thousands (except share and per share data)

Six months ended

Nine months ended

September 30,

Cash flows from financing activities:

Repayment of bank loans

Proceeds from bank loans

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

Proceeds from issuance of convertible senior notes, net

Proceeds from bank loans

Other financing activities

13 unchanged sentences

(the “Company”) and its subsidiaries design, develop, and sell an intelligent inverter solution designed to maximize power generation at the individual photovoltaic (“PV”) module level while lowering the cost of energy produced by the solar PV system and providing comprehensive and advanced safety features.

The Company’s products consist mainly of (i) power optimizers designed to maximize energy throughput from each and every module through constant tracking of Maximum Power Point individually per module, (ii) inverters which invert direct current (DC) from the PV module to alternating current (AC), (iii) a remote cloud-based monitoring platform, that collects and processes information from the power optimizers and inverters to enable customers and system owners, to monitor and manage the solar PV system (iv) a storage and backup solution that is used to increase energy independence and maximize self-consumption for homeowners by utilizing a battery that is sold separately by third party manufacturers, to store and supply power as needed, and (v) additional smart energy management solutions.

The Company’s products consist mainly of (i) power optimizers designed to maximize energy throughput from each and every module through constant tracking of Maximum Power Point individually per module, (ii) inverters which invert direct current (DC) from the PV module to alternating current (AC) including the Company’s future ready energy hub inverter which supports, among other things, connection to a DC- coupled battery for backup capabilities, (iii) a remote cloud-based monitoring platform, that collects and processes information from the power optimizers and inverters to enable customers and system owners, to monitor and manage the solar PV system (iv) a storage and backup solution that is used to increase energy independence and maximize self-consumption for homeowners by utilizing a battery, either the energy bank battery introduced by the Company or a battery that is sold separately by third party manufacturers, to store and supply power as needed, and (v) additional smart energy management solutions.

The Company and its subsidiaries sell products worldwide through large distributors, electrical equipment wholesalers, as well as directly to large solar installers and engineering, procurement and construction firms.

36 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 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”.

As of September 30, 2021, and December 31, 2020, two contract manufacturers collectively accounted for 23.2 % and 48.5 % of the Company’s total trade payables, net, respectively.

During 2020, the Company began commercial shipments from its manufacturing facility in the North of Israel, “Sella 1”.

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

1 unchanged sentence

NOTE 2:- INVENTORIES, NET

September 30,

Raw materials

7 unchanged sentences

NOTE 3:- MARKETABLE SECURITIES

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

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

Amortized cost

21 unchanged sentences

Governmental bonds

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

As of September 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 PRIVATELY-HELD COMPANIES

NOTE 4:- INVESTMENT IN PRIVATELY-HELD COMPANY

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.

5 unchanged sentences

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.

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

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

3 unchanged sentences

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 and six months ended June 30, 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 nine months ended September 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 June 30, 2021 and December 31, 2020 by level within the fair value hierarchy:

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

Fair value measurements as of

September 30,

Measured at fair value on a recurring basis:

21 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 six months June 30, 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 nine months ended September 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 June 30, 2021, the Company entered into forward contracts to sell U.S.

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

dollars for NIS in the amount of $ 36,481 .

In addition to the above-mentioned cash flow hedges transactions, the Company also entered into derivative instrument arrangements to hedge the Company’s exposure to currencies other than the U.S.

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

As of September 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 6 million and AUD 9 million, respectively.

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

As of September 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 56 million and EUR 24 million, respectively.

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”

The fair value of derivative assets as of September 30, 2021 and December 31, 2020, was $ 4,502 and $ 3,786 , respectively, which was recorded in prepaid expenses and other current assets in the consolidated balance sheets.

As of September 30, 2021, there were no derivative liabilities.

As of December 31, 2020, the fair value of derivative liabilities was $ 5,819 , which was recorded in accrued expenses and other current liabilities in the consolidated balance sheets.

For the three months ended September 30, 2021 and 2020, the Company recorded a gain and loss in the amount of $ 3,350 and $ 1,450 , respectively, in financial income (expense), net, related to the derivative instruments not designated as cash flow hedges.

For the three months ended September 30, 2021 and 2020, the Company recorded an unrealized gain in the amount of $ 1,006 and $ 85 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

4 unchanged sentences

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”

For the nine months ended September 30, 2021 and 2020, the Company recorded a gain and loss in the amount of $ 7,706 and $ 959 , respectively, in financial income (expense), net, related to the derivative instruments not designated as cash flow hedges.

For the nine months ended September 30, 2021 and 2020, the Company recorded unrealized gain in the amount of $ 1,719 and $ 966 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

NOTE 7:- OTHER COMPRENHENSIVE INCOME (LOSS)

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

Details about Accumulated Other Comprehensive Income (Loss) Components

Amount Reclassified from Accumulated Other

Comprehensive Income (Loss)

Affected Line Item in the

Statements of Income

Three months ended

Nine months ended

September 30,

Unrealized gains on cash flow hedges, net

6 unchanged sentences

Total, net of income taxes

Unrealized gains on available-for-sale marketable securitie

Financial income (expenses),

Income tax expense

Total, net of income taxes

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 8:- 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 June 30, 2021 and December 31, 2020:

June 30, 2021

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

September 30, 2021

December 31, 2020

7 unchanged sentences

Equity component, net

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

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:- CONVERTIBLE SENIOR NOTES (Cont.)

As of September 30, 2021, the debt issuance costs of the Notes will be amortized over the remaining term of approximately 4 years.

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

5 unchanged sentences

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 $ 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 following table presents the total amount of interest expenses recognized related to the Notes for the three and nine months ended September 30, 2021 and 2020:

Three months ended

September 30,

Nine months ended

September 30,

Amortization of debt discount

Amortization of debt issuance costs

Total interest expenses

As of September 30, 2021, the estimated fair value of the Notes, which the Company has classified as Level 2 financial instruments, is $ 791,106 .

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 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)

As of September 30, 2021, the if-converted value of the Notes exceeded the principal amount by $ 158,606 .

NOTE 9:- WARRANTY OBLIGATIONS

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,

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

As of September 30,

Balance, at the beginning of the period

4 unchanged sentences

Long term portion

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 10:- COMMITMENTS AND CONTINGENT LIABILITIES

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.

As of September 30, 2021, contingent liabilities exist regarding guarantees in the amounts of $ 5,167 and $ 2,782 in respect of office rent lease agreements and other transactions, respectively.

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 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 .

As of September 30, 2021, the Company had non-cancelable purchase obligations totaling approximately $ 1,178,921 out of which the Company recorded a provision for loss in the amount of $ 3,992 .

As of September 30, 2021, the Company had contractual obligations for capital expenditures totaling approximately $ 126,210 .

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 which is under construction.

4 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”).

6 unchanged sentences

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 - 19

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

dollars in thousands (except share and per share data)

NOTE 10:- 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.

8 unchanged sentences

The first instance court’s judgement is not effective or enforceable pending the appeal.

In October 2021, a first-instance judgment was issued ordering the three defendants to collectively pay damages in the amount of approximately CNY 10.5 million (approximately $ 1,623 ), including court fees, with respect to the third lawsuit.

The Company has filed an appeal with the Supreme People’s Court of China.

The first instance court’s judgement is not effective or enforceable pending the appeal.

The Company believes that it has meritorious defenses to the claims asserted by Huawei.

1 unchanged sentence

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

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

As of September 30, 2021, accrued amounts for legal claims of $ 11,132 , were recorded in accrued expenses and other current liabilities.

F - 20

16 unchanged sentences

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’

In the three and nine months ended September 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.

1 unchanged sentence

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”).

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

As of September 30, 2021, an aggregate of 8,617,974 options are still available for future grant under the 2015 Plan.

F - 21

4 unchanged sentences

NOTE 11:- STOCK CAPITAL (Cont.)

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:

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

Outstanding as of December 31, 2020

Forfeited or expired

Outstanding as of June 30, 2021

Vested and expected to vest as of June 30, 2021

Exercisable as of June 30, 2021

Outstanding as of September 30, 2021

Vested and expected to vest as of September 30, 2021

Exercisable as of September 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 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:

The total intrinsic value of options exercised during the nine months ended September 30, 2021 was $ 51,308 .

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

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

Weighted average

Unvested as of January 1, 2021

Unvested as of June 30, 2021

Unvested as of September 30, 2021

The number of PRSUs granted to employees was 132,673 with a weighted average grant date fair value of 294.04 .

7 unchanged sentences

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

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

As of September 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 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.

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

As of September 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, 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:

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 nine months ended September 30, 2021 and 2020, as follows:

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

Cost of revenues

3 unchanged sentences

Total stock-based compensation expenses

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.

As of September 30, 2021, there were total unrecognized compensation expenses in the amount of $ 257,967 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 October 1, 2021 through May 31, 2026.

F - 23

9 unchanged sentences

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

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

12 unchanged sentences

NOTE 12:- 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.

No shares were excluded from the calculation of diluted net EPS due to their anti-dilutive effect for the three and nine months ended September 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.

As of September 30, 2021, certain performance conditions associated with these PRSUs were met and consequently 14,773 PRSUs were considered as issuable for the calculation of the diluted EPS for the three and nine months ended September 30, 2021.

NOTE 13:- OTHER OPERATING EXPENSES (INCOME)

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

Kokam purchase escrow (1) (2)  

1 unchanged sentence

Total other operating expenses (income)

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.

In the nine months ended September 30, 2021, the Company received a payment of $859 out of the Kokam Co., Ltd.

(“Kokam”) acquisition escrow (“the escrow”), with regards to a working capital adjustment.

In the nine months ended September 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 14:- INCOME TAXES

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 effective tax rate for the three months ended September 30, 2021 and 2020 were 12.6 % and 5.2 %, respectively and for the nine months ended September 30, 2021 and 2020 were 15.9 % and 11.7 %, 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 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.

federal statutory rate for the three and nine months ended September 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 September 30, 2021, and December 31, 2020, unrecognized tax benefits were $ 10,708 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 $ 177 and $ 127 as of June 30, 2021 and December 31, 2020, respectively.

The total amount of penalties and interest were $ 205 and $ 127 as of September 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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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.

Segment profit is comprised of gross profit for the segment less operating expenses that do not include amortization of purchased intangible assets, 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 co-mingled.

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The other operating segments are insignificant individually and therefore their results are presented together under “All other”.

The Solar segment includes the design, development, manufacturing, and sales of an intelligent inverter solution designed to maximize power generation at the individual PV module level.

The solution consists mainly of the Company’s power optimizers, inverters and cloud-based monitoring platform.

The Solar segment includes the design, development, manufacturing, and sales of an intelligent inverter solution designed to maximize power generation at the individual PV module level and a residential storage solution, compatible with the Company’s energy hub inverter, intended to store and supply power for back-up and to maximize self-consumption.

The Solar segment solution consists mainly of the Company’s power optimizers, inverters, batteries and cloud-based monitoring platform.

The “All other”

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Three months ended

June 30, 2021

Six months ended

June 30, 2021

September 30, 2021

Nine months ended

September 30, 2021

Cost of revenues

11 unchanged sentences

Three months ended

June 30, 2020

Six months ended

June 30, 2020

September 30, 2020

Nine months ended

September 30, 2020

Cost of revenues

5 unchanged sentences

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

Solar segment revenues

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Three months ended

Six months ended

September 30,

Nine months ended

September 30,

Solar segment profit

5 unchanged sentences

Legal settlement

Other unallocated expenses, net

Other unallocated income (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 - 27

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Important factors that could cause actual results to differ materially from our expectations include:

the duration, scope and effects of the ongoing COVID-19 pandemic, government and other third party responses to it and the related macroeconomic effects, including to our business and the business of our suppliers and customers;

existing and future responses to and effects of COVID-19;

future demand for renewable energy including solar energy solutions;

changes to net metering policies or the reduction, elimination or expiration of government subsidies and economic incentives for on‑grid solar energy applications;

changes to net metering policies or the reduction, elimination or expiration of government subsidies and economic incentives for on-grid solar energy applications;

changes in the U.S.

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defects or performance problems in our products;

our ability to forecast demand for our products accurately and to match production with demand;

our ability to forecast demand for our products accurately and to match production and delivery with demand;

our dependence on ocean transportation to deliver our products in a cost-effective manner;

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in “Part II-OTHER INFORMATION”

section of this report.

section of this report, our annual report on Form 10-K/A for the year ended December 31, 2020 and subsequent reports on Form 10-Q and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business.

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.

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

Our future ready SolarEdge energy hub inverter which supports, among other things, connection to a DC-coupled battery for full or partial home backup, and optional connection to the SolarEdge smart EV charger.

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

1 unchanged sentence

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

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.

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 including our own SolarEdge energy bank battery, 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.

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

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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.

Sella 2 is expected to initiate test runs for manufacturing in the first half of 2022.

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

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 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.

As of September 30, 2021, we have shipped approximately 78.8 million power optimizers and 3.3 million inverters.

Over 2.3 million installations, many of which may include multiple inverters, are currently connected to, and monitored through, our cloud-based monitoring platform.

As of September 30, 2021, we have shipped approximately 27.6 GW of our DC optimized inverter systems.

Our revenues for the three months ended September 30, 2021 and 2020 were $526.4 million and $338.1 million, respectively.

Gross margin was 32.8% and 32.0% for the three months ended September 30, 2021 and 2020, respectively.

Net income was $53.0 million and $43.8 million for the three months ended September 30, 2021 and 2020, respectively.

Our revenues for the nine months ended September 30, 2021 and 2020 were $1,412.0 million and $1,101.2 million, respectively.

Gross margin was 33.2% and 31.9% for the nine months ended September 30, 2021 and 2020, respectively.

Net income was $128.2 million and $122.7 million for the nine months ended September 30, 2021 and 2020, respectively.

COVID-19 Impact

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Our first priority continues to be protecting and supporting 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 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.

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.

In the third quarter of 2021 our contract manufacturer in Vietnam was forced to temporarily close its facilities due to government mandated lockdowns.

The mandatory shut down lasted 12 weeks, longer than had been anticipated and ramp of the site is still underway, expected to reach full capacity in mid-November of 2021.

Our manufacturing facilities in Korea (for our energy storage business), Italy (for our e-Mobility components) and Israel and our contract manufacturers’

facilities in China, and Hungary have remained operational at almost full capacity this quarter.

While we increased manufacturing capacity in China, Israel and Hungary in order to compensate for the Vietnam factory Covid related lockdown, our aggregate overall manufacturing capacity was negatively impacted and together with shipping constraints caused by port congestions, has reduced our finished goods inventory and availability to supply for this quarter and next quarter.

To the extent that there are no further lockdowns, manufacturing capacity will revert to levels that accommodate the growing demand for our products within the first half of 2022.

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

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

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.

While our operations and operating expenses have not been significantly impacted by COVID-19, in the third 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 U.S and Europe that were not returned to Asia and the reduction in the availability of air freight that increased the demand for ocean freight.

In the third quarter we experienced and expect to continue to experience disruptions to our logistics supply chain caused by constraints in the global transportation system including limited availability of local ground transportation coupled with congestion in shipping ports and industry wide component shortages.

These factors have impacted our ability to accurately plan and forecast the delivery of our products to customers and have also increased the total shipping time and cost of ocean freight for components and finished goods.

Moreover, industry-wide component shortages require our R&D teams to focus their attention on manufacturing and production design work-arounds solutions which may impact our ability to meet our plans to roll out new innovative products and services.

Additionally, a customer of SolarEdge e-Mobility SPA (“SolarEdge e-Mobility”) that has experienced disruptions in its own manufacturing process due to global component shortages has delayed the delivery date of powertrain units that were expected to be supplied by SolarEdge e-Mobility in the third quarter of 2021.

Despite the logistics and manufacturing hurdles, our third quarter revenues of $526.4 million reflect healthy demand for our products, with an increase of 9.7% from $ 480.1 million of revenues in the second quarter of 2021.

This increase reflects a significant increase in demand for our products in all geographies in which we operate.

Key Operating Metrics

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Inverters shipped

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Three Months Ended

Six Months Ended

(In thousands)

September 30,

Nine Months Ended

September 30,

Dollars in thousands

Cost of revenues

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Taxes on income

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

Comparison of the Three and Nine Months Ended September 30, 2021 to the Three and Nine Months Ended September 30, 2020

Three Months Ended

June 30, 2021 to 2020

Six Months Ended

June 30, 2021 to 2020

September 30,

Nine Months Ended

September 30,

Revenues (Dollars in thousands)

1 unchanged sentence

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 increased by $188.3 million, or 55.7%, for the three months ended September 30, 2021 as compared to the three months ended September 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, in an aggregate amount of $17.2 million.

Revenues from outside of 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.

comprised 64.1% of our revenues in the three months ended September 30, 2021, as compared to 68.4% in the three months ended September 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.

Our blended ASP per watt increased by $0.04, or 18.5%, in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

The increase in blended ASP per watt is mainly attributed to an increase, in the sale of residential products out of our total solar product mix in the U.S, that are characterized with higher ASP per watt and an increase in the sale of products with enhanced capabilities such as the SolarEdge energy hub inverter that are characterized with higher ASP per watt.

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;

toward larger customers that enjoy preferential pricing due to volume commitments as well as the depreciation of the Euro and other currencies against the U.S.

Revenues increased by $310.8 million, or 28.2%, for the nine months ended September 30, 2021 as compared to the nine months ended September 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 $48.0 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.

This increase was partially offset by a decrease in revenues this quarter relative 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 was not evident in 2021, likely 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.

comprised 62.6% of our revenues in the nine months ended September 30, 2021, as compared to 56.4% in the nine months ended September 30, 2020.

Our blended ASP per watt for solar products shipped increased by $0.028, or 12.7%, in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

This increase is primarily attributed to an increase in all geographies in the proportion of residential products sold out of our solar product mix, 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

June 30, 2021 to 2020

Six Months Ended

June 30, 2021 to 2020

September 30,

Nine Months Ended

September 30,

Dollars in thousands

Cost of revenues

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;

Cost of revenues increased by $123.8 million, or 53.8%, in the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, primarily due to:

an increase in the volume of products sold and the increase in cost of components used in the manufacturing of our products;

an increase in warranty expenses and warranty accruals of $16.6 million due to an increase in our install base, an increase in the cost of our products caused by an increase in the price of materials and components as well as other costs associated with providing our warranty coverage;

a significant increase in shipment costs in an aggregate amount of $13.8 million due to (i) an increase in shipment rates;

and (ii) an increase in volumes shipped;

an increase in other production costs of $5.7 million, which is mainly attributed to charges from our contract manufacturers due to manufacturing disruptions related to Covid-19 lockdowns, increased logistics costs resulting from transportation disruptions and the need to mobilize components between our different manufacturing sites;

an increase in personnel-related costs of $4.5 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 and warranty obligations due to an increase in our install base and costs associated with providing our warranty coverage;

Gross profit as a percentage of revenue increased from 32.0% in the three months ended September 30, 2020 to 32.8% in the three months ended September 30, 2021, primarily due to:

an increased portion of sales of residential products in the U.S, that are characterized with higher gross margin out of our total product mix;

This was partially offset by:

an increase in warranty obligations due to an increase in our install base, an increase in the cost of our products caused by an increase in the price of materials and components as well as other 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;

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

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;

Cost of revenues increased by $193.0 million, or 25.7%, in the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, primarily due to:

an increase in the volume of products sold and the cost of components used in the manufacturing of our products;

an increase in warranty expenses and warranty accruals of $35.4 million due to an increase in our install base, an increase in the cost of our products caused by an increase in the price of materials and components as well as other costs associated with providing our warranty coverage;

an increase in shipping costs, in an aggregate amount of $18.1 million due to (i) an increase in shipment rates;

4 unchanged sentences

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;

Gross profit as a percentage of revenue increased from 31.9% in the nine months ended September 30, 2020 to 33.2% in the nine months ended September 30, 2021, primarily due to:

an increased portion of sales of residential products, that are characterized with higher gross margin out of our total product mix;

decreased custom duties in the U.S.

4 unchanged sentences

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;

an increase in support costs and warranty obligations due to an increase in our install base, an increase in the cost of our products caused by an increase in the price of materials and components as well as other costs associated with providing our warranty coverage;

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

4 unchanged sentences

Three Months Ended

June 30, 2021 to 2020

Six Months Ended

June 30, 2021 to 2020

September 30,

Nine Months Ended

September 30,

Dollars in thousands

Research and development

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:

Research and development costs increased by $14.8 million, or 36.4%, in the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, primarily due to:

an increase in personnel-related costs of $11.5 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 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 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:

increased expenses related to material consumption in the manufacturing of prototypes during our development process in an amount of $1.5 million;

Research and development costs increased by $39.7 million, or 34.3%, in the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, primarily due to:

an increase in personnel-related costs of $34.0 million resulting from an increase in our research and development headcount as well as salary expenses associated with employee equity-based compensation.

1 unchanged sentence

increased expenses related to consultants and sub-contractors in an amount of $2.8 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 $2.7 million.

increased expenses related to other overhead costs in an amount of $2.4 million;

increased expenses related to material consumption in the manufacturing of prototypes during our development process in an amount of $2.1 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.

1 unchanged sentence

Three Months Ended

June 30, 2021 to 2020

Six Months Ended

June 30, 2021 to 2020

September 30,

Nine Months Ended

September 30,

Dollars in thousands

Sales and Marketing

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.

Sales and marketing expenses increased by $7.5 million, or 34.0%, in the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, primarily due to increased personnel-related costs of $5.8 million as a result of an increase in headcount supporting our growth in Israel and the U.S., as well as salary expenses associated with employee equity-based compensation.

Sales and marketing expenses increased by $18.6 million, or 27.8%, in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to increased personnel-related costs of $17.0 million as a result of an increase in headcount supporting our growth in Israel and the U.S., as well as salary expenses associated with employee equity-based compensation.

General and Administrative

Three Months Ended

June 30, 2021 to 2020

Six Months Ended

June 30, 2021 to 2020

September 30,

Nine Months Ended

September 30,

Dollars in thousands

General and Administrative

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.

General and administrative expenses increased by $6.2 million, or 41.3%, in the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, primarily due to:

an increase in personnel-related costs of $4.4 million resulting from an increase in our general and administrative headcount, the reinstatement of executive management salaries that management voluntarily reduced in early 2020 to mitigate the potential effects of COVID-19, as well as salary expenses associated with employee equity-based compensation;

an increase of $1.0 million related to insurance and legal expenses.

General and administrative expenses increased by $15.2 million, or 33.8%, in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 primarily due to:

an increase in personnel-related costs of $13.5 million resulting from an increase in our general and administrative headcount, the reinstatement of executive management salaries that management voluntarily reduced in early 2020 to mitigate the potential effects of COVID-19, as well as salary expenses associated with employee equity-based compensation;

an increase of $5.2 million in expenses related to insurance and legal expenses.

These expenses were partially offset by a decrease in expenses related to an accrual for doubtful debts in an amount of $4.0 million.

1 unchanged sentence

Three Months Ended

June 30, 2021 to 2020

Six Months Ended

June 30, 2021 to 2020

September 30,

Nine Months Ended

September 30,

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

Other operating expenses were $1.4 million in the nine months ended September 30, 2021, compared to other operating income of $4.9 million in nine months ended September 30, 2020, primarily due to:

a decrease in income in the amount of $4.9 million incurred in the second quarter of 2020 related to an acquired legal claim as part of the Kokam acquisition which was settled in arbitration (and subsequently repaid to the Company in the quarter ended December 31, 2020);

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 second quarter of 2021.

These were partially offset by an increase of $0.8 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.

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Three Months Ended

June 30, 2021 to 2020

Six Months Ended

June 30, 2021 to 2020

September 30,

Nine Months Ended

September 30,

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.

Financial expenses were $5.8 million in the three months ended September 30, 2021 compared to an income in the amount of $15.8 million in the three months ended September 30, 2020, primarily due to an increase of $25.8 million in foreign exchange fluctuations expense, mainly between the Euro, the Australian dollar, the New Israeli Shekel and the South Korean Won against the U.S.

These expenses were partially offset by an increase of $4.8 million in finance income related to hedging transactions.

Financial expenses were $13.6 million in the nine months ended September 30, 2021 compared to an income in the amount of $10.7 million in the nine months ended September 30, 2020, primarily due to:

an increase of $31.4 million in foreign exchange fluctuation expenses, mainly between the Euro, the Australian dollar, the New Israeli Shekel and the South Korean Won against the U.S.

an increase of $2.1 million in expenses related to amortization of issuance costs on our convertible senior notes (“Notes”);

3 unchanged sentences

Three Months Ended

June 30, 2021 to 2020

Six Months Ended

June 30, 2021 to 2020

September 30,

Nine Months Ended

September 30,

Dollars in thousands

Taxes on Income

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;

Taxes on income increased by $5.2 million, or 216.2%, in the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, primarily due to an increase of $7.3 million of current tax expenses mainly attributed to an increase in taxable income in foreign subsidiaries that are profitable and a decrease of $1.2 million in prior year tax income.

These tax expenses, net, were partially offset by an increase of $3.3 million in deferred tax income.

Taxes on income increased by $8.1 million, or 50.0% in the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, primarily due to an increase of $7.1 million of current tax expenses mainly attributed to an increase in taxable income in foreign subsidiaries that are profitable and a decrease of $1.5 million in prior year tax income.

These tax expenses were partially offset by an increase of $0.5 million in deferred tax income.

Three Months Ended

June 30, 2021 to 2020

Six Months Ended

June 30, 2021 to 2020

September 30, 2021 to 2020

Nine Months Ended

September 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.

As a result of the factors discussed above, net income increased by $9.3 million, or 21.2%, in the three months ended September 30, 2021, as compared to the three months ended September 30, 2020.

As a result of the factors discussed above, net income increased by $5.5 million, or 4.5% in the nine months ended September 30, 2021 as compared to the nine months ended September 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 June 30,

Six Months Ended June 30,

(In thousands)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Dollars in thousands

Net cash provided by operating activities

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Increase (decrease) in cash and cash equivalents

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

As of September 30, 2021, our cash and cash equivalents were $526.6 million.

This amount does not include $618.8 million invested in available for sale marketable securities, $10.1 million invested in short-term bank deposits and $2.5 million invested in restricted bank deposits.

Our principal use of cash is funding our operations and other working capital requirements.

As of September 30, 2021, we have open commitments for capital expenditures in an amount of approximately $126.2 million.

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

2 unchanged sentences

Operating Activities

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.

Cash provided by operating activities consists of net income adjusted for certain non-cash items and changes in assets and liabilities.

Cash provided by operating activities decreased by $70.9 million for the first nine months of 2021 as compared to the first nine months of 2020, mainly due to unfavorable changes in working capital in the first nine months of 2021 compared to the prior year, partially offset by higher net income.

Investing Activities

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.

Investing cash flows consist primarily of capital expenditures, investment in, sales and maturities of available for sale marketable securities, investment and withdrawal of bank deposits and cash used for acquisitions.

Cash used for investing activities was $398.0 million in the first nine months of 2021 compared to 0.7 million cash provided in the first nine months of 2020, primarily driven by a $416.4 million increase in purchases of available-for-sale debt investments, net, partially offset by a $39.2 million decrease in bank and restricted bank deposits.

Financing Activities

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.

Financing cash flows consist primarily, issuance and repayment of short-term and long-term debt and proceeds from the sale of shares of common stock through employee equity incentive plans.

Cash used for financing activities in the first nine months of 2021 was $19.4 million compared to $637.3 million cash provided by financing activities in the first nine months of 2020, primarily due to a $618.3 million decrease in cash provided by issuance of the Notes, net, and a decrease of $21.5 million in cash received from the exercise of stock-based awards net of withholding taxes remitted to the tax authorities.

Convertible Senior Note

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

See Note 7 to our interim financial statements for more information.

See Note 8 to our interim consolidated financial statements for more information.

Debt Obligations

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

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

As of September 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