What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-08 compared with 2022-08-04 · 150 added, 128 removed, 177 unchanged (61% of the section changed)

10 unchanged sentences

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

• existing and future responses to and effects of Covid-19;

• future demand for renewable energy including solar energy solutions;

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• federal , state, and local regulations governing the electric utility industry with respect to solar energy;

• changes in tax laws, tax treaties, and regulations or the interpretation of them, including the Inflation Reduction Act;

• the retail price of electricity derived from the utility grid or alternative energy sources;

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• historic cyclicality of the solar industry and periodic downturns;

• defects or performance problems in our products;

• product quality or performance problems in our products;

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

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• shortages, delays, price changes, or cessation of operations or production affecting our suppliers of key components;

• existing and future responses to and effects of Covid-19;

• business practices and regulatory compliance of our raw material suppliers;

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• unrest, terrorism, or armed conflict in Israel;

• general economic conditions in our domestic and international markets;

• macroeconomic conditions in our domestic and international markets, as well as inflation concerns, rising interest rates and recessionary concerns;

• consolidation in the solar industry among our customers and distributors;

13 unchanged sentences

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 including our own SolarEdge home battery, electric vehicle, or EV components and charging capabilities, home energy management, grid services and virtual power plants or VPPs, 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 b ut also product offerings in the areas of energy storage systems or ESS and backup including our own SolarEdge home battery , electric vehicle or EV components and charging capabilities, home energy management, grid services and virtual power plants or VPPs, lithium-ion batteries and uninterrupted power supply, known as UPS solutions.

In June 2022, we decided to discontinue our stand-alone UPS related activities and that the developed technologies will be integrated in solar products as uninterrupted power supply becomes required or relevant.

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In May 2022, we announced the opening of “Sella 2”, a 2GWh Li-Ion cell factory in Korea.

The new factory is intended to help the Company 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 currently in testing phase, with ramp-up expected to initiate during the second half of 2022.

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

As of June 30, 2022, we have shipped approximately 94.9 million power optimizers, 4.0 million inverters and 45.8 thousand residential batteries.

The new factory is intended to help the Company meet the growing global demand for Li-Ion cells and batteries, specifically in the ESS and e-Mobility markets.

Sella 2 is currently in testing phase, with ramp-up expected to initiate during the fourth quarter of 2022 .

We are a leader in the global module-level power electronics or MLPE market.

As of September 30, 2022 , we have shipped approximately 101.0 million power optimizers, 4.2 million inverters an d 94.1 thousand residential batteries.

Over 2.9 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, 2022, we have shipped approximately 34.2 GW of our DC optimized inverter systems and approximately 411.0 MW of our residential batteries.

Our revenues for the three months ended June 30, 2022, and 2021 were $727.8 million and $480.1 million, respectively.

Gross margin for the three months ended June 30, 2022, and 2021 was 25.1% and 32.5%, respectively.

Net income for the three months ended June 30, 2022 and 2021 was $15.1 million and $45.1 million, respectively.

Our revenues for the six months ended June 30, 2022, and 2021 were $1,382.9 million and $885.5 million, respectively.

Gross margin for the six months ended June 30, 2022, and 2021 was 26.1% and 33.5%, respectively.

Net income for the six months ended June 30, 2022 and 2021 was $48.2 million and $75.2 million, respectively.

As of September 30, 2022 , we have shipped approximately 36.9 GW of our DC optimized inverter systems and approximately 731.7 MW of our residential batteries.

Our revenues for the three months ended September 30, 2022 , and 2021 were $836.7 million and $526.4 million , respectively.

Gross margin for the three months ended September 30, 2022 , and 2021 was 26.5% and 32.8% , respectively.

Net income for the three months ended September 30, 2022 and 2021 was $24.7 million and $53.0 million , respectively.

Our revenues for the nine months ended September 30, 2022 , and 2021 were $2,219.6 million and $1,412.0 million , respectively.

Gross margin for the nine months ended September 30, 2022 , and 2021 was 26.3% and 33.2% , respectively.

Net income for the nine months ended September 30, 2022 and 2021 was $73.0 million and $128.2 million , respectively.

Global Circumstances Influencing our Business and Operations

Covid-19 Impact & Response

Covid-19 continued to present challenges on our operations and business in 2021, primarily, operational challenges which we reported on continuously during 2021.

Due to the worldwide growing trend in availability and administration of vaccines against Covid-19, many restrictions resulted from the pandemic were gradually lifted by governments across the globe.

Covid-19 continued to present challenges on our operations and business in 2021, primarily, operational challenges which we reported on continuously in 2021.

Due to the worldwide growing trend in availability and administration of vaccines against Covid-19, many restrictions that were placed during the pandemic were gradually lifted by governments across the globe.

However, the future impact of the Covid-19 pandemic remains highly uncertain.

Resurgences of Covid-19 cases and the emergence of new variants may adversely impact our results of operations.

For example, the mandatory government shutdowns resulted from the increase in Covid-19 cases in Shanghai, that were recently eased, led to delays in our scheduled shipments from the Shanghai port.

For example, in the second quarter of 2022, the mandatory government shutdowns resulting from the increase in Covid-19 cases in Shanghai, that were eased in the beginning of the third quarter of 2022, led to delays in our scheduled shipments from the Shanghai port .

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

We follow the guidance issued by applicable local authorities and health officials in each region in which we do business, including in our headquarters located in Israel.

While we have not experienced any new disruptions resulting directly from Covid-19 in the second quarter of 2022, the pandemic and general global economic conditions continued to present challenges to our operations and business.

In the second quarter of 2022, we experienced and expect to continue to experience in the third quarter of 2022, continued 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.

While we have not experienced any new disruptions resulting directly from Covid-19 in the third quarter of 2022, the pandemic and general global economic conditions continue to present challenges to our operations and business.

In the third quarter of 2022, we experienced and expect to continue to experience in the fourth quarter of 2022, continued 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.

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While we do not have any meaningful business in Russia or Ukraine and we do not have physical assets in these countries, this conflict has, and is likely to continue to have, a multidimensional impact on the global economy, the energy landscape in general and the global supply chain.

On one hand, in the first half of 2022, rising global interest in becoming less dependent on gas and oil led to higher demand for our products.

On the other hand, the conflict further adversely affected the prices of raw materials arriving from Eastern Asia and resulted in an increase in gas and oil prices, leading to additional increases in shipping rates.

On one hand, in the first nine months of 2022 , rising global interest in becoming less dependent on gas and oil led to higher demand for our products.

On the other hand, the conflict further adversely affected the prices of raw materials arriving from Eastern Asia and resulted in an increase in gas and oil prices.

Furthermore, various shipment routes were adversely impacted by the conflict resulting in increased shipment lead times and shipping costs for our products.

While the impact of this conflict cannot be predicted at this time, the circumstances described above may have an adverse effect on our business and results of operations.

Our revenues for the second quarter 2022 of $727.8 million, represent continued growth from revenues of $655.1 million in the first quarter of 2022.

Our revenues for the third quarter 2022 of $836.7 million, represent continued growth from revenues of $727.8 million in the second quarter of 2022.

Inflation Reduction Act

In August 2022, the U.S.

government enacted the Inflation Reduction Act of 2022 (the “IRA”), which includes several incentives intended to promote clean energy, battery and energy storage, electrical vehicles, and other solar products and is expected to impact our business and operations.

As part of such incentives the IRA, will among other things, extend the investment tax credit (“ITC”) for residential solar installations through 2034 and for commercial installations through 2024 and is therefore expected to increase the demand for solar products.

The IRA is expected to further incentivize residential and commercial solar customers and developers due to the inclusion of a tax credit for qualifying energy projects of up to 30%.

Since these regulations are new and are still pending administrative guidance from the Internal Revenue Service and U.S.

Treasury Department we will be examining the benefits that may be available to us, such as the availability of tax credits for domestic manufacturers, in the coming months.

To the extent that tax benefits or credits may be available to competing technology and not to our technology, our business could be adversely disadvantaged.

Key Operating Metrics

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Three Months Ended

June 30, 2022

Six Months Ended

June 30, 2022

September 30, 2022

Nine Months Ended

September 30, 2022

Inverters shipped

1 unchanged sentence

Megawatts shipped 1

Residential batteries shipped

Megawatts shipped - residential batteries

1 Excluding residential batteries, based on the aggregate nameplate capacity of inverters shipped during the applicable period.

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(In thousands)

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Income before income taxes

Comparison of three and six months ended June 30, 2022, to the three and six months ended June 30, 2021

Three months ended June 30, 2022 to 2021

Six months ended June 30, 2022 to 2021

Comparison of three and nine months ended September 30, 2022 , to the three and nine months ended September 30, 2021

Three months ended September 30, 2022 to 2021

Nine months ended September 30, 2022 to 2021

(In thousands)

Revenues increased by $247.7 million, or 51.6%, in the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, 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 U.S;

Revenues increased by $310.3 million, or 59.0%, in the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, 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 U.S.;

and (ii) an increase of $161.4 million related to the number of residential batteries sold mainly in Europe and the U.S.

Revenues from outside of the U.S.

comprised 57.3% of our revenues in the three months ended June 30, 2022 as compared to 63.4% in the three months ended June 30, 2021.

The number of power optimizers recognized as revenues increased by approximately 0.3 million units, or 5.5%, from approximately 4.9 million units in the three months ended June 30, 2021 to approximately 5.2 million units in the three months ended June 30, 2022.

The number of inverters recognized as revenues increased by approximately 57.3 thousand units, or 32.3%, from approximately 177.3 thousand units in the three months ended June 30, 2021 to approximately 234.6 thousand units in the three months ended June 30, 2022.

The number of residential batteries recognized as revenues in the three months ended June 30, 2022 was approximately 18.9 thousand units.

Our blended Average Selling Price ("ASP") per watt for solar products excluding residential batteries is calculated by dividing the solar revenues, excluding revenues from the sale of residential batteries, by the name plate capacity of inverters shipped.

Our blended ASP per watt for solar products shipped excluding residential batteries decreased by $0.034, or 12.5%, in the three months ended June 30, 2022, as compared to the three months ended June 30, 2021.

The decrease in blended ASP per watt is mainly attributed to the increase in all geographies in the sale of commercial products out of our total solar product mix that are characterized with lower ASP per watt as well as the depreciation of the Euro and other currencies against the U.S.

Dollar which, coupled with our increased sales in Europe, accelerated this effect.

This decrease in blended ASP per watt was partially offset by price increases that went into effect gradually during the second half of 2021 and the first half of 2022.

Revenues increased by $497.3 million, or 56.2%, in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, 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 U.S;

(ii) an increase of $155.4 million related to the number of residential batteries sold mainly in Europe and the U.S ;

and (iii) an increase of $20.1 million related to the number of powertrain kits supplied by SolarEdge e-Mobility.

comprised 69.9% of our revenues in the three months ended September 30, 2022 as compared to 64.1% in the three months ended September 30, 2021.

The number of power optimizers recognized as revenues increased by approximately 1.4 million units, or 30.1%, from approximately 4.7 million units in the three months ended September 30, 2021 to approximately 6.1 million units in the three months ended September 30, 2022.

The number of inverters recognized as revenues increased by approximately 25.4 thousand units, or 11.0%, from approximately 231.7 thousand units in the three months ended September 30, 2021 to approximately 257.1 thousand units in the three months ended September 30, 2022.

In the three months ended September 30, 2022, we recognized approximately 363.0 megawatts of residential batteries as revenues compared to a negligible amount in the three months ended September 30, 2021.

Our blended Average Selling Price or ASP per watt for solar products excluding residential batteries is calculated by dividing solar revenues, excluding revenues from the sale of residential batteries, by the name plate capacity of inve rters shipped.

Our blended ASP per watt for solar products shipped excluding residential batteries decreased by $0.022 , or 8.8% , in the three months ended September 30, 2022 , as compared to the three months ended September 30, 2021.

The decrease in blended ASP per watt is mainly attributed to the depreciation of the Euro and other currencies against the U.S.

Dollar which, coupled with our increased sales in Europe, accelerated this effect as well as the increase in the sale of commercial products in Europe and the U.S.

out of our total solar product mix that are characterized with lower ASP per watt.

This decrease in blended ASP per watt was partially offset by price increases that went into effect gradually during 2022 as well as by a relatively higher number of other solar products 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.

Revenues increased by $807.6 million, or 57.2%, in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, 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 U.S;

and (ii) an increase of $316.8 million related to the number of residential batteries sold mainly in Europe and the U.S.

Revenues from outside of the U.S.

comprised 58.3% of our revenues in the six months ended June 30, 2022 as compared to 61.7% in the six months ended June 30, 2021.

The number of power optimizers recognized as revenues increased by approximately 2.2 million units, or 25.1%, from approximately 8.7 million units in the six months ended June 30, 2021 to approximately 10.9 million units in the six months ended June 30, 2022.

The number of inverters recognized as revenues increased by approximately 80.4 thousand units, or 22.3%, from approximately 360.2 thousand units in the six months ended June 30, 2021 to approximately 440.6 thousand units in the six months ended June 30, 2022.

The number of residential batteries recognized as revenues in the six months ended June 30, 2022, was approximately 28.6 thousand units.

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

Our blended ASP per watt for solar products shipped excluding residential batteries increased by $0.005, or 1.9%, in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

The increase in blended ASP per watt is mainly attributed to a relatively higher number of other solar products 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, 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, and price increases that went into effect gradually during the second half of 2021 and the first half of 2022.

This increase in blended ASP per watt was partially offset by the increase in the sale of commercial products out of our total solar product mix that are characterized with lower ASP per watt as well as the depreciation of the Euro and other currencies against the U.S.

Dollar which, coupled with our increased sales in Europe, accelerated this effect.

comprised 62.7% of our revenues in the nine months ended September 30, 2022 as compared to 62.6% in the nine months ended September 30, 2021.

The number of power optimizers recognized as revenues increased by approximately 3.6 million units, or 26.8%, from approximately 13.4 million units in the nine months ended September 30, 2021 to approximately 17.0 million units in the nine months ended September 30, 2022.

The number of inverters recognized as revenues increased by approximately 105.8 thousand units, or 17.9%, from approximately 591.9 thousand units in the nine months ended September 30, 2021 to approximately 697.7 thousand units in the nine months ended September 30, 2022.

In the nine months ended September 30, 2022, we recognized approximately 660.8 megawatts of residential batteries as revenues compared to a negligible amount in the nine months ended September 30, 2021.

Our ASP per watt for solar products excluding residential batteries is calculated by dividing the solar revenues by the name plate capacity of inve rters shipped.

Our blended ASP per watt for solar products shipped excluding residential batteries decreased by $0.005 , or 2.1% , in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 .

The decrease in blended ASP per watt is mainly attributed to the depreciation of the Euro and other currencies against the U.S.

Dollar which, coupled with our increased sales in Europe accelerated this effect as well as the increase in the sale of commercial products in Europe and the U.S., out of our total solar product mix that are characterized with lower ASP per watt.

This decrease in blended ASP per watt was partially offset by price increases that went into effect gradually during the second half of 2021 and continued in 2022 as well as a relatively higher number of other solar products 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.

Cost of Revenues and Gross Profit

Three months ended June 30, 2022 to 2021

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Nine months ended September 30, 2022 to 2021

(In thousands)

Cost of revenues

Cost of revenues increased by $221.3 million, or 68.3%, in the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, primarily due to:

Cost of revenues increased by $260.9 million , or 73.7% , in the three months ended September 30, 2022 , as compared to the three months ended September 30, 2021 , primarily due to:

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

1 unchanged sentence

and (ii) an increase in volumes shipped;

• an increase in other production costs of $17.8 million , which is mainly attributed to charges from our contract manufacturers due to manufacturing disruptions related to global supply constraints, increased logistics costs resulting from transportation disruptions and the mobilization of components between our different manufacturing sites and ramp up costs associated with our new contract manufacturing site in Mexico;

• an increase in warranty expenses and warranty accruals of $13.7 million associated primarily with an increase in the number of products in our install base as well as an increase in costs related to the different elements of our warranty expenses which include the cost of the products, shipment and other related expenses;

• an increase in custom duties of $4.2 million attributed to higher tariff charges due to an increase in volumes sold and the manufacture of a higher portion of our products for the U.S.

• an increase in other production costs of $22.1 million, which is mainly attributed to charges from our contract manufacturers due to manufacturing disruptions, related to the global supply constraints, increased logistics costs resulting from transportation disruptions and the mobilization of components among our different manufacturing sites and ramp up costs associated with the new contract manufacturing site in Mexico;

• an increase of $7.5 million in inventory accrual which is mainly attributed to changes in inventory valuations related to manufacturing volumes, anticipated future use of raw materials, and general inventory write-offs including those related to the discontinuation of our UPS related activities.

• an increase in personnel-related costs of $6.0 million related to the expansion of our production, operations, and support headcount which grew in parallel to our growing install base worldwide and an increase in the costs associated with the production of powertrain units manufactured by the SolarEdge e-Mobility division.

Gross profit as a percentage of revenue decreased from 32.5% in the three months ended June 30, 2021 to 25.1% in the three months ended June 30, 2022 as a result of the factors summarized above.

Cost of revenues increased by $432.0 million, or 73.3%, in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily due to:

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

• an increase in custom duties of $5.0 million attributed to higher tariff charges due to an increase in volumes sold;

• an increase in personnel-related costs of $4.8 million related to the expansion of our production, operations, and support headcount which grew in parallel to our growing install base worldwide.

Gross profit as a percentage of revenue decreased from 32.8% in the three months ended September 30, 2021 to 26.5% in the three months ended September 30, 2022 as a result of the factors summarized above.

Cost of revenues increased by $692.9 million , or 73.5% , in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 , primarily due to:

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

• a significant increase in shipment and logistic costs in an aggregate amount of $92.8 million due to (i) an increase in shipment rates;

1 unchanged sentence

• an increase in warranty expenses and warranty accruals of $54.9 million associated primarily with an increase in the number of products in our install base as well as an increase in costs related to the different elements of our warranty expenses which include the cost of the products, shipment and other related expenses;

• an increase in other production costs of $54.8 million , which is mainly attributed to charges from our contract manufacturers due to manufacturing disruptions related to global supply constraints, increased logistics costs resulting from transportation disruptions, mobilization of components between our different manufacturing sites as well as ramp up costs associated with our new contract manufacturing site in Mexico;

• an increase in custom duties of $19.2 million attributed to higher tariff charges due to an increase in volumes sold and the manufacture of a higher portion of our products for the U.S.

• an increase in other production costs of $37.0 million, which is mainly attributed to charges from our contract manufacturers due to manufacturing disruptions, related to the global supply constraints, increased logistics costs resulting from transportation disruptions and the mobilization of components between our different manufacturing sites as well as ramp up costs associated with our new contract manufacturing site in Mexico;

• an increase in personnel-related costs of $10.2 million related to the expansion of our production, operations, and support headcount which grew in parallel to our growing install base worldwide and an increase in the costs associated with the production of powertrain units manufactured by the SolarEdge e-Mobility division.

Gross profit as a percentage of revenue decreased from 33.5% in the six months ended June 30, 2021 to 26.1% in the six months ended June 30, 2022 as a result of the factors summarized above.

• an increase in personnel-related costs of $15.0 million related to the expansion of our production, operations, and support headcount which grew in parallel to our growing install base worldwide.

Gross profit as a percentage of revenue decreased from 33.2% in the nine months ended September 30, 2021 to 26.3% in the nine months ended September 30, 2022 as a result of the factors summarized above.

Operating Expenses:

Research and Development

Three months ended June 30, 2022 to 2021

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Nine months ended September 30, 2022 to 2021

(In thousands)

Research and development

Research and development costs increased by $22.2 million or 42.1%, in the three months ended June 30, 2022, compared to the three months ended June 30, 2021, primarily due to:

Research and development costs increased by $14.0 million or 25.1% , in the three months ended September 30, 2022 , compared to the three months ended September 30, 2021 , primarily due to:

• an increase in personnel-related costs of $9.8 million resulting from an increase in our research and development headcount as well as salary expenses associated with annual merit increases and employee equity-based compensation.

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

• a decrease in reimbursement of costs related to the research and development activities performed by SolarEdge e-Mobility in an amount of $1.8 million;

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

• an increase in depreciation expenses of property and equipment in an amount of $1.4 million .

These increases were partially offset by:

• a decrease in expenses related to consultants and sub-contractors in an amount of $1.0 million.

Research and development costs increased by $41.6 million or 41.7%, in the six months ended June 30, 2022, compared to the six months ended June 30, 2021, primarily due to:

• an increase in personnel-related costs of $33.2 million resulting from an increase in our research and development headcount as well as salary expenses associated with annual merit increase and employee equity-based compensation.

These increases were partially offset by a decrease in expenses related to consultants and sub-contractors in an amount of $1.0 million.

Research and development costs increased by $55.5 million or 35.8% , in the nine months ended September 30, 2022 , compared to the nine months ended September 30, 2021 , primarily due to:

• an increase in personnel-related costs of $43.0 million resulting from an increase in our research and development headcount as well as salary expenses associated with annual merit increases and employee equity-based compensation.

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

• a decrease in reimbursement of costs, in an amount of $4.4 million, related to the research and development activities performed by SolarEdge e-Mobility;

• an increase in depreciation expenses of property and equipment in an amount of $2.5 million;

• a decrease in reimbursement of costs, related to research and development activities performed by SolarEdge e-Mobility in an amount of $4.2 million ;

• an increase in expenses related to other overhead costs in an amount of $4.2 million ;

• an increase in depreciation expenses of property and equipment in an amount of $3.9 million ;

• an increase in expenses related to material consumption in the manufacturing of prototypes during our development process in an amount of $2.2 million .

These increases were partially offset by:

• a decrease in expenses related to consultants and sub-contractors in an amount of $3.3 million.

These increases were partially offset by a decrease in expenses related to consultants and sub-contractors in an amount of $4.3 million .

Sales and Marketing

Three months ended June 30, 2022 to 2021

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Three months ended September 30, 2022 to 2021

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(In thousands)

Sales and marketing

Sales and marketing expenses increased by $9.5 million, or 32.3%, in the three months ended June 30, 2022, compared to the three months ended June 30, 2021, primarily due to:

• an increase in personnel-related costs of $5.7 million as a result of an increase in headcount supporting our growth in all geographies, as well as salary expenses associated with annual merit increase and employee equity-based compensation;

• an increase in expenses related to marketing activities by $1.6 million due to the renewal of marketing activities, exhibitions and shows, which were cancelled or postponed in 2020 and first half of 2021 due to Covid-19 restrictions;

Sales and marketing expenses increased by $13.3 million , or 45.4% , in the three months ended September 30, 2022 , compared to the three months ended September 30, 2021 , primarily due to:

• an increase in personnel-related costs of $10.3 million as a result of an increase in headcount supporting our growth in all geographies, as well as salary expenses associated with annual merit increases and employee equity-based compensation;

• an increase in expenses related to marketing activities by $1.3 million due to the renewal of marketing activities, exhibitions and shows, which were cancelled or postponed in 2021 due to Covid-19 restrictions;

• an increase in expenses related to travel in an amount of $0.8 million .

Sales and marketing expenses increased by $17.9 million, or 31.8%, in the six months ended June 30, 2022, compared to the six months ended June 30, 2021, primarily due to:

Sales and marketing expenses increased by $31.3 million , or 36.5% , in the nine months ended September 30, 2022 , compared to the nine months ended September 30, 2021 , primarily due to:

• an increase in personnel-related costs of $21.8 million as a result of an increase in headcount supporting our growth in all geographies, as well as salary expenses associated with annual merit increases and employee equity-based compensation;

• an increase in expenses related to marketing activities by $2.8 million due to the renewal of marketing activities, exhibitions and shows, which were cancelled or postponed in 2020 and first half of 2021 due to Covid-19 restrictions;

• an increase in expenses related to marketing activities by $4.2 million due to the renewal of marketing activities, exhibitions and shows, which were cancelled or postponed in 2021 due to Covid-19 restrictions;

• an increase in expenses related to travel in an amount of $2.1 million .

General and Administrative

Three months ended June 30, 2022 to 2021

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(In thousands)

General and administrative

General and administrative expenses increased by $8.8 million, or 45.2%, in the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily due to:

General and administrative expenses increased by $6.8 million , or 32.4% , in the three months ended September 30, 2022 compared to the three months ended September 30, 2021 , primarily due to:

• an increase in personnel-related costs of $5.2 million resulting from an increase in our general and administrative headcount, as well as salary expenses associated with annual merit increases and employee equity-based compensation;

• an increase in expenses related to consultants and sub-contractors in an amount of $1.0 million ;

• an increase in expenses related to overhead costs in an amount of $0.6 million ;

• an increase in expenses related to doubtful debt in an amount of $0.5 million.

General and administrative expenses increased by $15.3 million, or 39.1%, in the six months ended months ended June 30, 2022, compared to the six months ended months ended June 30, 2021, primarily due to:

These increases were partially offset by a decrease of $1.7 million related to a provision for legal claims.

General and administrative expenses increased by $22.2 million , or 36.7% , in the nine months ended months ended September 30, 2022 , compared to the nine months ended months ended September 30, 2021 , primarily due to:

• an increase in personnel-related costs of $17.7 million resulting from an increase in our general and administrative headcount, as well as salary expenses associated with annual merit increases and employee equity-based compensation;

• an increase in expenses related to consultants and sub-contractors in an amount of $4.3 million ;

• an increase in expenses related to doubtful debt in an amount of $1.0 million;

• an increase in expenses related to overhead costs in an amount of $1.7 million ;

These increases were partially offset by:

• a decrease of $3.5 million related to a provision for legal claims.

• an increase in expenses related to doubtful debt in an amount of $1.5 million ;

These increases were partially offset by a decrease of $5.2 million related to a provision for legal claims.

Other operating expenses (income), net

Three months ended June 30, 2022 to 2021

Six months ended June 30, 2022 to 2021

Three months ended September 30, 2022 to 2021

Nine months ended September 30, 2022 to 2021

(In thousands)

Other operating expenses (income), net

Other operating expenses, net, were $4.7 million, in the three months ended June 30, 2022, compared to other operating income of $0.9 million in the three months ended June 30, 2021, primarily due to:

• an increase of $4.0 million in expenses related to write-offs of goodwill and intangible assets related to the discontinuation of our UPS related activities;

• an increase of $0.7 million in expenses related to write-offs of property, plant and equipment;

• a decrease 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.

Other operating expenses (income), net increased by $3.3 million, in the six months ended June 30, 2022, compared to the six months ended June 30, 2021, primarily due to:

Other operating income, was $2.7 million , in the three months ended September 30, 2022 , primarily due to:

• an increase of $1.6 million in income related to the discontinuation of our UPS related activities and the sale of assets related to these activities.

• a n increase of $1.1 million in income related to the sale of property, plant and equipment;

Other operating expenses, net, increased by $0.6 million , in the nine months ended September 30, 2022 , compared to the nine months ended September 30, 2021 , primarily due to:

• an increase of $4.0 million in expenses related to write-offs of goodwill and intangible assets related to the discontinuation of our UPS related activities;

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• a decrease of $1.6 million in expenses related to write-offs of property, plant and equipment;

• an increase of $1.6 million in income related to the discontinuation of our UPS related activities and the sale of assets related to these activities;

• an increase of $1.1 million in income related to the sale of property, plant and equipment.

Financial expense, net

Three months ended June 30, 2022 to 2021

Six months ended June 30, 2022 to 2021

Three months ended September 30, 2022 to 2021

Nine months ended September 30, 2022 to 2021

(In thousands)

Financial expense, net

Financial expenses, net increased by $12.6 million, or 721.1%, in the three months ended June 30, 2022, compared to the three months ended June 30, 2021, primarily due to an increase of $15.1 million in expenses related to foreign exchange fluctuations, mainly due to the strengthening of the U.S.

Dollar against the Euro, the New Israeli Shekel and the South Korean Won .

This increase was partially offset by an increase of $2.2 million in financial income related to hedging transactions.

Financial expenses, net increased by $11.9 million, or 152.0%, in the six months ended June 30, 2022, compared to the six months ended June 30, 2021, primarily due to an increase of $11.1 million in expenses related to foreign exchange fluctuations, mainly due to the strengthening of the U.S.

Dollar against the Euro, the New Israeli Shekel and the South Korean Won against the U.S.

Financial expenses, net increased by $27.3 million , or 474.2% , in the three months ended September 30, 2022 , compared to the three months ended September 30, 2021 , primarily due to:

• an increase of $28.3 million in expenses related to foreign exchange fluctuations, mainly due to th e strengthening of the U.S.

Dollar against the Euro, the British pound sterling (GBP) and the Australian dollar (AUD) .

• an increase of $2.1 million in expenses related to hedging transactions.

These increases were partially offset by an increase of $3.5 million in interest income and accretion (amortization) of discount (premium) on marketable securities.

Financial expenses, net increased by $39.2 million , or 288.4% , in the nine months ended September 30, 2022 , compared to the nine months ended September 30, 2021 , primarily due to:

• an increase of $39.4 million in expenses related to foreign exchange fluctuations, mainly due to the strengthening of the U.S.

Dollar against the Euro, the New Israeli Shekel, the GBP and the AUD.

• an increase of $2.6 million in expenses related to hedging transactions.

These increases were partially offset by an increase of $4.9 million in interest income and accretion (amortization) of discount (premium) on marketable securities.

Please refer to the section entitled "Foreign Currency Exchange Risk" under Item 3 of this report for additional information.

Three months ended June 30, 2022 to 2021

Six months ended June 30, 2022 to 2021

Three months ended September 30, 2022 to 2021

Nine months ended September 30, 2022 to 2021

(In thousands)

Income taxes decreased by $2.1 million, or 24.2%, in the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, primarily due to a decrease of $3.1 million in current tax expenses mainly attributed to a decrease in taxable income.

This decrease was partially offset by a decrease of $1.4 million in deferred tax income.

Income taxes increased by $2.2 million, or 13.4%, in the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, primarily due to a decrease of $2.3 million in deferred tax income.

Three months ended June 30, 2022 to 2021

Six months ended June 30, 2022 to 2021

Other income increased by 7,533 , or 100.0% , in the three and nine months ended September 30, 2022 , compared to the three and nine months ended September 30, 2021 due to the sale of our investment in a privately-held company.

Three months ended September 30, 2022 to 2021

Nine months ended September 30, 2022 to 2021

(In thousands)

As a result of the factors discussed above, net income decreased by $30.0 million, or 66.5% in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

As a result of the factors discussed above, net income decreased by $27.0 million, or 35.9% in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Income taxes increased by $26.6 million , or 348.7% , in the three months ended September 30, 2022 , as compared to the three months ended September 30, 2021 , primarily due to an increase of $25.6 million in current tax expenses mainly attributed to the change to Section 174 of the U.S Internal Revenue Code, which became effective on January 1, 2022.

The change eliminates the option to deduct research and development expenditures currently and requires taxpayers to amortize them over five years (if generated from a US entity) and fifteen years (if generated from non-U.S.

entities).This change to section 174 as well as lower tax benefits relating to stock-based compensation resulted in an increase in the Company’s taxable income and Global Intangible Low Taxed Income (“GILTI”) tax.

Income taxes increased by $28.8 million , or 118.5% , in the nine months ended September 30, 2022 , as compared to the nine months ended September 30, 2021 , primarily due to an increase of $25.9 million in current tax expenses mainly attributed to the change to Section 174 of the U.S Internal Revenue Code, which became effective on January 1, 2022.

This change to section 174 as well as lower tax benefits relating to stock-based compensation resulted in an increase in the Company’s taxable income and GILTI tax.

Three months ended September 30, 2022 to 2021

Nine months ended September 30, 2022 to 2021

(In thousands)

As a result of the factors discussed above, net income decreased by $28.3 million , or 53.4% in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 .

As a result of the factors discussed above, net income decreased by $55.3 million , or 43.1% in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 .

Liquidity and Capital Resources

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

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Increase (decrease) in cash and cash equivalents

As of June 30, 2022, our cash and cash equivalents were $745.5 million.

This amount does not include $859.8 million invested in available for sale marketable securities, $1.4 million invested in long-term restricted bank deposits and $0.3 million invested in short-term restricted bank deposits.

As of September 30, 2022 , our cash and cash equivalents were $678.3 million .

This amount does not include $891.4 million invested in available-for-sale marketable securities and $1.6 million invested in restricted bank deposits.

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

As of June 30, 2022, we have open commitments for capital expenditures in an amount of approximately $92.9 million.

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

As of September 30, 2022 , we have open commitments for capital expenditures in an amount of approximately $69.2 million .

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

We also have purchase obligations in the amount of $1,639.2 million related to raw materials and commitments for the future manufacturing of our products.

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

We believe our cash and cash equivalents, and available-for-sale marketable securities will be sufficient to meet our anticipated cash needs for at least the next 12 months as well as in the longer term, including the self-funding of our capital expenditure and operational commitments.

Operating Activities

Operating cash flows consists primarily of net income adjusted for certain non-cash items and changes in assets and liabilities.

Cash used in operating activities in the six months ended June 30, 2022, was $85.6 million as compared to $62.8 million cash provided by operating cash flows in the six months ended June 30, 2021, mainly due to extended shipping times to customers which extended the period of time between payment to our vendors and delivery to and collection from our customers, and a significant increase in inventory procurement in response to increased demand for our products, including increased purchasing of battery cells for our residential storage solution, and, increased safety stocks intended to mitigate supply chain disruptions, all of which resulted in unfavorable changes in working capital in the six months ended June 30, 2022, compared to the six months ended June 30, 2021, which was partially offset by higher net income adjusted for certain non-cash items.

The Company returned to cash generation from operating activities in the second quarter of 2022.

Cash used in operating activities in the nine months ended September 30, 2022, was $80.0 million as compared to $124.6 million cash provided by operating cash flows in the nine months ended September 30, 2021 , mainly due to extended shipping times to customers which extended the period of time between payment to our vendors and delivery to and collection from our customers, a significant increase in inventory procurement in response to increased demand for our products, including increased purchasing of battery cells for our residential storage solution, and, increased safety stocks intended to mitigate supply chain disruptions, all of which resulted in unfavorable changes in working capital in the nine months ended September 30, 2022 , compared to the nine months ended September 30, 2021 , which was partially offset by higher net income adjusted for certain non-cash items.

The Company returned to cash generation from operating activities in the second and third quarters of 2022.

Investing Activities

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 restricted bank deposits, and cash used for acquisitions.

Cash used for investing activities decreased by $10.1 million in the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, primarily driven by a $82.9 million decrease in purchases of available-for-sale debt investments, net.

This decrease was partially offset by a $46.6 million decrease in cash provided by withdrawal from bank deposits and restricted bank deposits as well as an increase of $26.2 million in capital expenditures, net.

Cash used for investing activities decreased by $17.4 million in the nine months ended September 30, 2022 , as compared to the nine months ended September 30, 2021 , primarily driven by a $53.7 million decrease in purchases of available-for-sale marketable securities, net, a $16.6 million decrease in an investment in a privately-held company and $24.2 million increase from sale of an investment in a privately-held company.

This decrease in cash used for investing activities was partially offset by a $50.0 million decrease in cash provided by withdrawal from bank deposits and restricted bank deposits as well as an increase of $31.0 million in capital expenditures, net.

Financing Activities

Financing cash flows consisted primarily of the issuance and repayment of short-term and long-term debt and proceeds from the sale of shares of common stock in a public offering and employee equity incentive plans.

Cash provided by financing activities in the six months ended June 30, 2022, was $648.4 million compared to $21.2 million cash used in financing activities in the six months ended June 30, 2021, primarily due to a $650.5 million increase in cash provided by the issuance of common stock, net through a secondary public offering, a decrease of $16.3 million in repayment of bank loans and an increase of $3.5 million in cash received from the exercise of stock-based awards net of withholding taxes remitted to the tax authorities.

Cash provided by financing activities in the nine months ended September 30, 2022 , was $647.1 million compared to $19.4 million cash used in financing activities in the nine months ended September 30, 2021 , primarily due to a $650.5 million increase in cash provided by the issuance of common stock, net through a secondary public offering, and a decrease of $16.1 million in repayment of bank loans.

Secondary public offering

4 unchanged sentences

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 2. Management’s Discussion and Analysis