What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-22 compared with 2022-02-22 · 1720 added, 1180 removed, 154 unchanged (95% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Income for the year ended December 31, 2021, 2020 and 2019

Consolidated Statements of Comprehensive Income (loss) for the year ended December 31, 2021, 2020 and 2019

Statements of Changes in Stockholders’ Equity for the year ended December 31, 2021, 2020 and 2019

Consolidated Statements of Cash Flows for the year ended December 31, 2021, 2020 and 2019

Notes to Consolidated Financial Statements

Subsequent Events

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of SolarEdge Technologies Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of SolarEdge Technologies Inc.

and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S.

TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Statements

of Independent Registered Public Accounting Firm (PCAOB ID:

Balance Sheets as of December 31, 2022 and 2021

Statements of Income for the year ended December 31, 2022, 2021 and 2020

Statements of Comprehensive Income for the year ended December 31, 2022, 2021 and 2020

of Changes in Stockholders’ Equity for the year ended December 31, 2022, 2021 and 2020

Statements of Cash Flows for the year ended December 31, 2022, 2021 and 2020

to Consolidated Financial Statements

of Independent Registered Public Accounting Firm

the Shareholders and the Board of Directors of SolarEdge Technologies Inc.

on the Financial Statements

have audited the accompanying consolidated balance sheets of SolarEdge Technologies Inc.

and subsidiaries (the "Company")

as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows

for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated

financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial

position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years

in the period ended December 31, 2022, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 22, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Description of the Matter

As described in Notes 2u and 12 to the consolidated financial statements, as of December 31, 2021, the warranty obligation was $265,160 thousand.

Substantially all of the Company's warranty obligations are related to the solar business.

The calculation of such warranty obligations requires significant judgment due to the inherent complexity in estimating the amount and timing of future warranty costs.

The Company's products include a warranty of up to 12 years for inverters and up to 25 years for its power optimizers.

In order to predict the failure rate of each product, the Company established a reliability model based on the estimated mean time between failures ("MTBF") and an additional model to capture non-systematic failures.

Predicted failure rates are updated periodically based on new product versions and analysis of the root cause of actual failures, as are warranty related replacement costs.

Auditing the management’s valuation of warranty obligations was complex and subject to judgment calls due to the significant estimation required in determining its amount.

In particular, the warranty obligation is subject to significant assumptions such as product failure rates, the average cost of products

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the accounting for warranties, including management's assumptions and data underlying the warranty obligation valuation.

Our substantive audit procedures included, among others, look back analyses and testing the accuracy and completeness of the underlying data used in management's warranty obligation valuation assessment.

We assessed the accuracy of historical data used in estimating forecasted failure rates, repair replacement ratios and other warranty related costs and compared them to actual warranty claims.

In addition, we involved a specialist to assess the assumptions and the precision of the inputs underlying the MTBF model, including, evaluating the appropriateness of the MTBF model and its consistency with data obtained from external sources.

/s/ Kost Forer Gabbay & Kasierer

A Member of Ernst & Young Global

We have served as the Company's auditor since 2007.

Tel-Aviv, Israel

also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's

internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework

issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 22, 2023

expressed an unqualified opinion thereon.

financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s

financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent

with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities

and Exchange Commission and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,

and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts

and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates

made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable

basis for our opinion.

critical audit matter communicated below is a matter arising from the current period audit of the financial statements that

was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material

to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical

audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating

the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it

of the Matter

As described in Notes 2w

and 13 to the consolidated financial statements, as of December 31, 2022, the warranty obligation was $385,057 thousand.

Substantially

all of the Company's warranty obligations are related to the solar business.

The Company's products include a warranty of up to 12 years

for inverters and up to 25 years for its power optimizers.

In order to predict the failure rate of each product, the Company established

a reliability model based on the estimated mean time between failures ("MTBF") and an additional model to capture non-systematic failures.

Predicted failure rates are updated periodically based on new product versions and analysis of the root cause of actual failures, as are

warranty related replacement costs.

the management’s warranty obligations valuation of the solar business was complex and subject to judgment due to the significant

estimations required in calculating its amount.

In particular, the warranty obligations are subject to significant assumptions such as

product failure rates, the average cost of products replacements and other warranty related costs.

How We Addressed the

Matter in Our Audit

We obtained an understanding,

evaluated the design and tested the operating effectiveness of internal controls over the accounting for warranty obligations of solar

business, including controls over management's review of the significant assumptions and data underlying the warranty obligations valuation.

test the Company’s warranty obligations our substantive audit procedures included, among others, look back analysis and testing

the accuracy and completeness of the underlying data used in management's warranty obligations valuation assessment.

We assessed the accuracy

of historical data used in estimating forecasted failure rates, repair replacement ratios and other warranty related costs and compared

them to actual warranty claims.

Kost Forer Gabbay & Kasierer

Member of Ernst & Young Global

have served as the Company's auditor since 2007.

February 22, 2023

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of SolarEdge Technologies Inc.

Opinion on Internal Control Over Financial Reporting

We have audited SolarEdge Technologies Inc.

and subsidiaries’ internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria).

of Independent Registered Public Accounting Firm

the Shareholders and the Board of Directors of SolarEdge Technologies Inc.

on Internal Control Over Financial Reporting

have audited SolarEdge Technologies Inc.

and subsidiaries’ internal control over financial reporting as of

December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring

Organizations of the Treadway Commission (2013 framework), (the COSO criteria).

In our opinion, SolarEdge Technologies Inc.

and subsidiaries (the "Company") maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated February 22, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

and subsidiaries

(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based

on the COSO criteria.

also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)

(PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of income,

comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2022, and the related

notes and our report dated February 22, 2023 expressed an unqualified opinion thereon.

Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of

the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control

over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting

based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company

in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission

and the PCAOB.

conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,

testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other

procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Kost Forer Gabbay & Kasierer

A Member of Ernst & Young Global

Tel-Aviv, Israel

and Limitations of Internal Control Over Financial Reporting

company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability

of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the

maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in

accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance

with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection

of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, proj ections

of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in

conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Kost Forer Gabbay & Kasierer

Member of Ernst & Young Global

February 22, 2023

SOLAREDGE TECHNOLOGIES INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

TECHNOLOGIES INC.

BALANCE SHEETS

thousands, except per share data)

CURRENT ASSETS:

Cash and cash equivalents

Marketable securities

Trade receivables, net of allowances of $ 2,626 and $ 2,886 , respectively

Inventories, net

Prepaid expenses and other current assets

Total current assets

and cash equivalents

receivables, net of allowances of $ 3,202

and $ 2,626 ,

expenses and other current assets

current assets

LONG-TERM ASSETS:

Marketable securities

Deferred tax assets, net

Property, plant and equipment, net

Operating lease right-of-use assets, net

Intangible assets, net

Other long-term assets

Total long-term assets

The accompanying notes are an integral part of the consolidated financial statements.

SOLAREDGE TECHNOLOGIES INC.

CONSOLIDATED BALANCE SHEETS (Cont.)

(in thousands, except per share data)

LIABILITIES AND STOCKHOLDERS’ EQUITY

tax assets, net

plant and equipment, net

lease right-of-use assets, net

long-term assets

The accompanying notes

are an integral part of the consolidated financial statements.

TECHNOLOGIES INC.

BALANCE SHEETS (Cont.)

thousands, except per share data)

LIABILITIES AND STOCKHOLDERS’

CURRENT LIABILITIES:

Trade payables, net

Employees and payroll accruals

Warranty obligations

Deferred revenues and customers advances

Accrued expenses and other current liabilities

Total current liabilities

payables, net

and payroll accruals

revenues and customers advances

expenses and other current liabilities

current liabilities

LONG-TERM LIABILITIES:

Convertible senior notes, net

Warranty obligations

Deferred revenues

Finance lease liabilities

Operating lease liabilities

Other long-term liabilities

Total long-term liabilities

COMMITMENTS AND CONTINGENT LIABILITIES

senior notes, net

lease liabilities

long-term liabilities

COMMITMENTS AND CONTINGENT

STOCKHOLDERS’ EQUITY:

Common stock of $ 0.0001 par value - Authorized:

stock of $ 0.0001

par value - Authorized:

shares as of December 31, 2022 and December 31, 2021;

issued and outstanding:

52,815,395 and 51,560,936 shares as of December 31, 2021 and December 31, 2020, respectively

Additional paid-in capital

Accumulated other comprehensive income (loss)

Retained earnings

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of the consolidated financial statements.

SOLAREDGE TECHNOLOGIES INC.

56,133,404 and

52,815,395 shares

as of December 31, 2022 and December 31, 2021, respectively

paid-in capital

other comprehensive loss

stockholders’ equity

liabilities and stockholders’ equity

The accompanying notes

are an integral part of the consolidated financial statements.

TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

Year ended December 31,

Cost of revenues

thousands, except per share data)

ended December 31,

and development

and marketing

and administrative

impairment and other operating expenses (income), net

operating expenses

Research and development

Sales and marketing

General and administrative

Other operating expenses (income), net

Total operating expenses

Operating income

Financial income (expense), net

Income before income taxes

Net loss attributable to Non-controlling interests

Net income attributable to SolarEdge Technologies, Inc.

Net basic earnings per share of common stock

Net diluted earnings per share of common stock

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

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

The accompanying notes are an integral part of the consolidated financial statements.

SOLAREDGE TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)

Year ended December 31,

Other comprehensive income (loss), net of tax:

Net change related to available-for-sale securities

Net change related to cash flow hedges

Foreign currency translation adjustments on intra-entity transactions that are of a long-term investment nature

Foreign currency translation adjustments, net

Total other comprehensive income (loss)

Comprehensive income

Comprehensive loss attributable to Non-controlling interests

Comprehensive income attributable to SolarEdge Technologies, Inc.

The accompanying notes are an integral part of the consolidated financial statements.

SOLAREDGE TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except per share data)

SolarEdge Technologies, Inc.

Stockholders’ Equity

Additional paid in

Other comprehensive

income (expense), net

before income taxes

basic earnings per share of common stock

diluted earnings per share of common stock

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

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

accompanying notes are an integral part of the consolidated financial statements.

TECHNOLOGIES INC.

STATEMENTS OF COMPREHENSIVE INCOME

thousands, except per share data)

ended December 31,

Other comprehensive income

(loss), net of tax:

change related to available-for-sale securities

change related to cash flow hedges

currency translation adjustments on intra-entity transactions that are of a long-term investment nature

currency translation adjustments, net

Total other comprehensive

income (loss)

Retained earnings

Non-controlling

Total stockholders' equity

Balance as of December 31,2018

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

Issuance of Common stock under employees stock purchase plan

Equity based compensation expenses to employees and non-employees

Treasury Stock

Issuance of Common stock upon business combination

Non-controlling interests related to business

Change in non-controlling interests

Other comprehensive loss adjustments

Balance as of December 31, 2019

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

Issuance of Common stock under employee stock purchase plan

Equity based compensation expenses to employees and non-employees

Equity component of convertible senior notes, net

Other comprehensive loss adjustments

Balance as of December 31, 2020

* Represents an amount less than $1.

SOLAREDGE TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Cont.)

(in thousands, except per share data)

SolarEdge Technologies, Inc.

Comprehensive income

The accompanying notes

are an integral part of the consolidated financial statements.

TECHNOLOGIES INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

thousands, except per share data)

Technologies, Inc.

Stockholders’ Equity

Additional paid in

Other comprehensive

Income (loss)

Retained earnings

Non-controlling

Total stockholders' equity

Balance as of December 31, 2020

Cumulative effect of adopting ASU 2020-06

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

Issuance of Common stock under employee stock purchase plan

Equity based compensation expenses to employees and non-employees

Other comprehensive income adjustments

Balance as of December 31, 2021

comprehensive

as of December 31,2019

of common stock upon exercise of stock-based awards

of Common stock under employee stock purchase plan

based compensation

component of convertible senior notes, net

comprehensive gain adjustments

as of December 31,2020

effect of adopting ASU 2020-06

of common stock upon exercise of stock-based awards

of Common stock under employee stock purchase plan

based compensation

comprehensive loss adjustments

as of December 31,2021

of common stock upon exercise of stock-based awards

of Common stock under employee stock purchase plan

based compensation

of common stock in a secondary public offering, net of underwriters' discounts and commissions of $ 27,140

of offering costs

comprehensive loss adjustments

as of December 31,2022

Represents an amount less than $1.

The accompanying notes are an integral part of the consolidated financial statements.

SOLAREDGE TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except per share data)

Year ended December 31,

Cash flows provided by operating activities :

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation of property, plant and equipment

Amortization of intangible assets

Amortization of debt discount and debt issuance costs

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

Stock-based compensation expenses

Deferred income taxes, net

Exchange rate fluctuations and other items, net

Changes in assets and liabilities:

Inventories, net

Prepaid expenses and other assets

Trade receivables, net

Trade payables, net

Employees and payroll accruals

Warranty obligations

Deferred revenues and customers advances

Other liabilities, net

Net cash provided by operating activities

Cash flows from investing activities :

Investment in available-for-sale marketable securities

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

Investment in privately-held company

Purchase of property, plant and equipment

Withdrawal from (investment in) bank deposits, net

Withdrawal from (investment in) restricted bank deposits, net

Business combinations, net of cash acquired

Other investing activities

Net cash used in investing activities

SOLAREDGE TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.)

(in thousands, except per share data)

Year ended December 31,

Cash flows from financing activities :

Repayment of 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

Change in non-controlling interests

Other financing activities

Net cash provided by (used in) financing activities

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents at the beginning of the period

Effect of exchange rate differences on cash and cash equivalents

Cash and cash equivalents at the end of the period

Supplemental disclosure of non-cash activities :

Right-of-use asset recognized with corresponding lease liability

Issuance of common stock upon business combination

Supplemental disclosure of cash flow information :

Cash paid for income taxes

Cash paid for interest on bank loans

The accompanying notes are an integral part of the consolidated financial statements.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

SolarEdge Technologies, Inc.

(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) 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 residential storage and backup solution that is used to increase energy independence and maximize self-consumption for homeowners including a battery ,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.

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

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements are prepared according to United States generally accepted accounting principles (“U.S.

Principles of consolidation:

The consolidated financial statements include the accounts of the Company and its subsidiaries.

Intercompany transactions and balances including profit from intercompany sales not yet realized outside the Company have been eliminated upon consolidation.

Use of estimates:

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures in the accompanying notes.

The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances.

On an ongoing basis, the Company evaluates these assumptions, judgments and estimates.

Actual results may differ from these estimates.

Financial statements in U.S.

A major part of the Company’s operations is carried out in the United States, Israel and certain other countries.

The functional currency of these entities is the U.S.

accompanying notes are an integral part of the consolidated financial statements.

TECHNOLOGIES INC.

STATEMENTS OF CASH FLOWS

thousands, except per share data)

ended December 31,

flows from operating activities :

to reconcile net income to net cash provided by operating activities:

of property, plant and equipment

of intangible assets

of debt discount and debt issuance costs

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

of goodwill and intangible assets

compensation expenses

sale of privately held company

income taxes, net

rate fluctuations and other items, net

in assets and liabilities:

expenses and other assets

receivables, net

payables, net

and payroll accruals

revenues and customers advances

expenses and other liabilities, net

cash provided by operating activities

flows from investing activities :

Proceed from sales and maturities

of available-for-sale marketable securities

of property, plant and equipment

in available-for-sale marketable securities

in a privately-held company

Proceeds from sale of a privately-held

from (investment in) bank deposits, net

from (investment in) restricted bank Deposits, net

investing activities

cash used in investing activities

TECHNOLOGIES INC.

STATEMENTS OF CASH FLOWS (Cont.)

thousands, except per share data)

ended December 31,

flows from financing activities :

Proceeds from secondary public

offering, net of issuance costs

of bank loans

from exercise of stock-based award

Tax withholding in connection

with stock-based awards, net

from issuance of convertible senior notes, net

from bank loans

financing activities

Net cash provided by

(used in) financing activities

Increase (decrease) in

cash and cash equivalents

Cash and cash equivalents

at the beginning of the period

Effect of exchange rate

differences on cash and cash equivalents

Cash and cash equivalents

at the end of the period

disclosure of non-cash activities :

Right-of-use asset recognized

with corresponding lease liability

Purchase of property, plant

and equipment

disclosure of cash flow information :

Cash paid for income

The accompanying notes

are an integral part of the consolidated financial statements.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

thousands, except per share data)

Technologies, Inc.

(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) 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 residential storage and backup solution that is used to increase energy

independence and maximize self-consumption for homeowners including a battery ,and (v) additional smart energy management solutions.

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.

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

The Company now offers

a variety of energy solutions, which include lithium-ion cells, batteries and energy storage systems (“Energy Storage”), full

powertrain kits for electric vehicles, or EVs (“e-Mobility”), as well as automated machines for industrial use (“Automation

June 2022, the Company decided to discontinue its stand-alone uninterrupted power supply solutions or UPS (“Critical Power”).

The Company determined that the discontinuance of the Critical Power business does not represent a strategic shift that will have a major

effect on the Company's operations and financial results and therefore it did not meet the criteria for discontinued operations classification.

OF SIGNIFICANT ACCOUNTING POLICIES

consolidated financial statements are prepared according to United States generally accepted accounting principles (“U.S.

of consolidation:

consolidated financial statements include the accounts of the Company and its subsidiaries.

Intercompany transactions and balances including

profit from intercompany sales not yet realized outside the Company have been eliminated upon consolidation.

of estimates:

preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported

amounts of assets, liabilities, revenues, costs and expenses and related disclosures in the accompanying notes.

The duration, scope and

effects of the ongoing Covid-19 pandemic and the conflict in Ukraine, government and other third-party responses to it, and the related

macroeconomic effects, including to the Company’s business and the business of the Company’s suppliers and customers are uncertain,

rapidly changing and difficult to predict.

As a result, the Company’s accounting estimates and assumptions may change over time

in response to this evolving situation.

Such changes could result in future impairments of goodwill, intangibles, long-lived assets, inventories,

incremental credit losses on receivables and available-for-sale marketable debt securities, or an increase in the Company’s insurance

liabilities as of the time of a relevant measurement event.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

statements in U.S.

major part of the Company’s operations is carried out in the United States, Israel and certain other countries.

The functional currency

of these entities is the U.S.

Financing activities, including cash investments are primarily made in U.S.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

Accordingly, monetary accounts maintained in currencies other than the U.S.

monetary accounts maintained in currencies other than the U.S.

dollar are translated into U.S.

dollars in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) No.

dollars in accordance with Financial Accounting

Standards Board Accounting Standards Codification (“ASC”) No.

830 “Foreign Currency Matters”.

All transaction gains and losses of the re-measurement of monetary balance sheet items are reflected in the statements of income as financial income or expenses, as appropriate.

The financial statements of other Company’s subsidiaries whose functional currency is other than the U.S.

dollar have been translated into U.S dollars.

All transaction

gains and losses of the re-measurement of monetary balance sheet items are reflected in the statements of income as financial income or

expenses, as appropriate.

financial statements of other Company’s subsidiaries whose functional currency is other than the U.S.

dollar have been translated

into U.S dollars.

Assets and liabilities have been translated using the exchange rates in effect as of the balance sheet date.

Statements of income amounts have been translated using the average exchange rate for the relevant periods.

The resulting translation adjustments are reported as a component of stockholders’ equity in accumulated other comprehensive income (loss).

Gains and losses arising from intercompany foreign currency transactions that are of a long-term investment in nature are reported in the same manner as translation adjustments.

Cash and cash equivalents:

Cash equivalents are short-term, highly liquid investments that are readily convertible to cash, with original maturities of three months or less at the date acquired.

Short-term bank deposits:

Short-term bank deposits are deposits with an original maturity of more than three months and less than a year from the date of investment and which do not meet the definition of cash equivalents.

of income amounts have been translated using the date of the transaction or at the average exchange rate to for the relevant period.

resulting translation adjustments are reported as a component of stockholders’ equity in accumulated other comprehensive income

Gains and losses arising from intercompany foreign currency transactions that are of a long-term investment in nature are reported

in the same manner as translation adjustments.

and cash equivalents:

equivalents are short-term, highly liquid investments that are readily convertible to cash, with original maturities of three months or

less at the date acquired.

bank deposits:

bank deposits are deposits with an original maturity of more than three months and less than a year from the date of investment and which

do not meet the definition of cash equivalents.

The deposits are presented according to their term deposits.

Restricted bank deposits:

Short-term restricted bank deposits possess an original maturity of more than three months and less than a year from the date of investment.

Long-term restricted bank deposits possess an original maturity of more than one year from the date of investment.

Restricted bank deposits are primarily used as collateral for the Company's office leases and credit cards.

Marketable Securities:

Marketable securities consist of corporate and governmental bonds.

The Company determines the appropriate classification of marketable securities at the time of purchase and re-evaluates such designation at each balance sheet date.

bank deposits:

restricted bank deposits possess an original maturity of more than three months and less than a year from the date of investment.

restricted bank deposits possess an original maturity of more than one year from the date of investment.

Restricted bank deposits are

primarily used as collateral for the Company's office leases and credit cards.

securities consist of corporate and governmental bonds.

The Company determines the appropriate classification of marketable securities

at the time of purchase and re-evaluates such designation at each balance sheet date.

In accordance with FASB ASC No.

320 “Investments - Debt and Equity Securities”, the Company classifies marketable securities as available-for-sale.

Available-for-sale securities are stated at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), a separate component of stockholders’ equity, net of taxes.

Realized gains and losses on sales of marketable securities, as determined on a specific identification basis, are included in financial income (expenses), net.

The amortized cost of marketable securities is adjusted for amortization of premium and accretion of discount to maturity, both of which, together with interest, are included in financial income (expenses), net.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

The Company classifies its marketable securities as either short-term or long-term based on each instrument’s underlying contractual maturity date.

Marketable securities with maturities of 12 months or less are classified as short-term and marketable securities with maturities greater than 12 months are classified as long-term.

On each reporting period, the Company evaluates whether declines in fair value below carrying value are due to expected credit losses, as well as the ability and intent to hold the investment until a forecasted recovery occurs, in accordance with ASC 326.

Allowance for credit losses on AFS debt securities are recognized as a charge in financial income (expenses), net, on the consolidated statements of income, and any remaining unrealized losses, net of taxes, are included in accumulated other comprehensive income (loss) in stockholders' equity.

The Company has not recorded credit losses for the years ended December 31, 2021 and 2020.

There was no other-than-temporary-impairment charge for any unrealized losses in 2019.

The Company determines realized gains or losses on sale of marketable securities on a specific identification method and records such gains or losses in financial income (expenses), net on the consolidated statements of income.

Investment in privately-held companies:

The Company's equity investments are investments in equity securities of privately-held companies, that are not traded and therefore not supported with observable market prices.

The Company elected to account for its equity investments without readily determinable market values that either (i) do not meet the definition of in-substance common stock or (ii) do not provide the Company with control or significant influence using Accounting Standards Update (“ASU”) 2016-01.

Under ASU 2016-01, the Company adjusts the carrying value of its investments to fair value upon observable transactions for identical or similar investments of the same issuer.

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

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

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.

All gains and losses on investments in privately-held companies, realized and unrealized, are recognized in financial income (expenses), net.

Trade receivables:

Trade receivables are stated net of credit losses allowance.

320 “Investments

- Debt and Equity Securities”, the Company classifies marketable securities as available-for-sale.

Available-for-sale

("AFS") securities are stated at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss),

a separate component of stockholders’ equity, net of taxes.

Realized gains and losses on sales of marketable securities, as determined

on a specific identification basis, are included in financial income (expenses), net.

The amortized cost of marketable securities is adjusted

for amortization of premium and accretion of discount to maturity, both of which, together with interest, are included in financial income

(expenses), net.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

Company classifies its marketable securities as either short-term or long-term based on each instrument’s underlying contractual

maturity date.

Marketable securities with maturities of 12 months or less are classified as short-term and marketable securities with

maturities greater than 12 months are classified as long-term.

each reporting period, the Company evaluates whether declines in fair value below carrying value are due to expected credit losses, as

well as the ability and intent to hold the investment until a forecasted recovery occurs, in accordance with ASC 326.

Allowance for credit

losses on AFS debt securities are recognized as a charge in financial income (expenses), net, on the consolidated statements of income,

and any remaining unrealized losses, net of taxes, are included in accumulated other comprehensive income (loss) in stockholders' equity.

Company has not recorded credit losses for the years ended December 31, 2022, 2021 and 2020.

Company determines realized gains or losses on sale of marketable securities on a specific identification method and records such gains

or losses in financial income (expenses), net on the consolidated statements of income.

in privately-held companies:

Company's equity investments are investments in equity securities of privately-held companies, that are not traded and therefore not supported

with observable market prices.

The Company elected to account for its equity investments without readily determinable market values that

either (i) do not meet the definition of in-substance common stock or (ii) do not provide the Company with control or significant influence

using Accounting Standards Update (“ASU”) 2016-01.

Company adjusts the carrying value of its investments to fair value upon observable transactions for identical or similar investments

of the same issuer.

Company periodically evaluates the carrying value of the investments in privately-held companies when events and circumstances indicate

that the carrying amount of the investment may not be recovered.

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

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.

gains and losses on investments in privately-held companies, realized and unrealized, are recognized in other income.

receivables are stated net of credit losses allowance.

The Company is exposed to credit losses primarily through sales of products.

The allowance against gross trade receivables reflects the current expected credit loss inherent in the receivables portfolio determined based on the Company’s methodology.

The Company’s methodology is based on historical collection experience, customer creditworthiness, current and future economic condition and market condition.

Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default.

Trade receivables are written off after all reasonable means to collect the full amount have been exhausted.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of trade receivables to present the net amount expected to be collected:

December 31, 2021

Balance, at beginning of the period

Decrease in provision for expected credit losses

Amounts written off charged against the allowance and others

Balance, at end of the period

Inventories are stated at the lower of cost or net realizable value.

allowance against gross trade receivables reflects the current expected credit loss inherent in the receivables portfolio determined based

on the Company’s methodology.

The Company’s methodology is based on historical collection experience, customer creditworthiness,

current and future economic condition and market condition.

Additionally, specific allowance amounts are established to record the appropriate

provision for customers that have a higher probability of default.

Trade receivables are written off after all reasonable means to collect

the full amount have been exhausted.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of trade receivables

to present the net amount expected to be collected:

at beginning of the period

in provision for expected credit losses

written off charged against the allowance and others

at end of the period

Inventories are stated at the lower

of cost or net realizable value.

Cost includes depreciation, labor, material and overhead costs.

Inventory reserves are provided to cover risks arising from slow-moving items or technological obsolescence.

The Company periodically evaluates the quantities on hand relative to historical, current, and projected sales volume.

Based on this evaluation, an impairment charge is recorded when required to write-down inventory to its net realizable value.

Inventory reserves are provided to cover

risks arising from slow-moving items or technological obsolescence.

The Company periodically evaluates the quantities on hand relative

to historical, current and projected sales volume.

Based on this evaluation, an impairment charge is recorded when required to write-down

inventory to its net realizable value.

Cost of finished goods and raw materials is determined using the moving average cost method.

Property, plant and equipment:

Property, plant and equipment are stated at cost, net of accumulated depreciation and government grants.

Assets under construction represent the construction or development stage of property and equipment that have not yet been placed in service for the Company's intended use.

Depreciation is calculated by the straight-line method over the estimated useful life of the assets, at the following rates:

Buildings and plants

2.5 - 5.7 (mainly 5.4 )

Computers and peripheral equipment

14.3 - 33.3 (mainly 33.3 )

Office furniture and equipment

7 - 25 (mainly 7 )

Machinery and equipment

plant and equipment:

plant and equipment are stated at cost, net of accumulated depreciation and government grants.

Assets under construction represent the

construction or development stage of property and equipment that have not yet been placed in service for the Company's intended use.

is calculated by the straight-line method over the estimated useful life of the assets, at the following rates:

(mainly 2.5 )

Laboratory and testing equipment

and peripheral equipment

(mainly 33.3 )

Leasehold improvements

over the shorter of the lease term or useful economic life

The Company determines if an arrangement is a lease at inception.

Contracts containing a lease are further evaluated for classification as an operating or finance lease.

furniture and equipment

and equipment

and testing equipment

the shorter of the lease term or useful economic life

Government assistance

2020, SolarEdge Ltd, a wholly owned subsidiary of the Company, entered into an agreement with the Israeli Ministry of Economy and Industry

to partially subsidize the construction of Sella 1, a factory for production of inverters and optimizers, in the amount of approximately

2020, SolarEdge Korea (formerly Kokam), a wholly owned subsidiary of the Company, entered into an agreement with Chungcheongbuk-do province

of South Korea to partially subsidize the construction of Sella 2, a factory for production of lithium-ion cells and batteries, in the

amount of approximately $ 12,000 .

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

The assistance

is in the form of a cash subsidy, which the government will pay as a grant upon the satisfaction of predetermined construction completion

When the defined milestones are reached and the right to receive a subsidy amount becomes virtually certain, the amount of

the grant is recorded as a reduction of the related asset's value under “Property, plant and equipment, net”.

Company recorded reduction of property, plant and equipment in the amount of $ 7,359

for the years ended December 31, 2022 and 2021, respectively.

of December 31, 2022, the Company has a right to receive of $ 9,233

that has yet to be paid which was recorded under “Prepaid expenses and other current assets”.

Company determines if an arrangement is a lease at inception.

Contracts containing a lease are further evaluated for classification as

an operating or finance lease.

In determining the leases classification the Company assesses among other criteria:

(i) 75% or more of the remaining economic life of the underlying asset is a major part of the remaining economic life of that underlying asset;

and (ii) 90% or more of the fair value of the underlying asset comprises substantially all of the fair value of the underlying asset.

Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and long-term operating lease liabilities in the Company’s consolidated balance sheets.

Finance leases are included in property, plant and equipment, net, other current liabilities, and long-term finance lease liabilities in the Company’s consolidated balance sheets.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

For leases with terms greater than 12 months, the Company records the ROU asset and liability at commencement date based on the present value of lease payments according to their term.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

The Company uses incremental borrowing rates based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date.

(i) 75% or more of

the remaining economic life of the underlying asset is a major part of the remaining economic life of that underlying asset;

90% or more of the fair value of the underlying asset comprises substantially all of the fair value of the underlying asset.

leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and long-term operating lease

liabilities in the Company’s consolidated balance sheets.

Finance leases are included in property, plant and equipment, net, other

current liabilities, and long-term finance lease liabilities in the Company’s consolidated balance sheets.

ROU assets represent

the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments

arising from the lease.

For leases with terms greater than 12 months, the Company records the ROU asset and liability at commencement

date based on the present value of lease payments according to their term.

Company uses incremental borrowing rates based on the estimated rate of interest for collateralized borrowing over a similar term of the

lease payments at commencement date.

The ROU asset also includes any lease payments made and excludes lease incentives.

Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Lease expenses are recognized on a straight-line basis over the lease term or the useful life of the leased asset.

In addition, the carrying amount of the ROU and lease liabilities are remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

Business Combination:

The Company allocates the fair value of the purchase price to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair value.

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

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

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

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

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

Lease terms may

include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Lease expenses

are recognized on a straight-line basis over the lease term or the useful life of the leased asset.

addition, the carrying amount of the ROU and lease liabilities are remeasured if there is a modification, a change in the lease term,

a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

Company allocates the fair value of the purchase price to the tangible assets acquired, liabilities assumed and intangible assets acquired

based on their estimated fair value.

The excess of the fair value of the purchase price over the fair values of these identifiable assets

and liabilities is recorded as goodwill.

Such valuations require management to make significant estimates and assumptions, especially

with respect to intangible assets.

estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired technology and

discount rates.

Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently

uncertain and unpredictable and, as a result, actual results may differ from estimates.

During the measurement period, which does not

exceed one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the

corresponding offset to goodwill.

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

Intangible Assets:

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

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

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

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

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

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

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

of the assets.

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

The Company routinely reviews the remaining estimated useful lives of finite-lived intangible assets.

In case the Company reduces the estimated useful life for any asset, the remaining unamortized balance is amortized or depreciated over the revised estimated useful life (see Note 8).

For the years ended December 31, 2021, 2020 and 2019, no impairment losses have been identified.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

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

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

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

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

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

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

The Company has not recorded any impairment charges of goodwill during the years ended December 31, 2021, 2020 and 2019.

Impairment of long-lived assets:

The Company’s long-lived assets, other than goodwill and intangible assets, including right-of-use assets, are reviewed for impairment in accordance with ASC 360 “Property, Plants and Equipment”, whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset (or asset group) to the future undiscounted cash flows expected to be generated by the assets (or asset group).

If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds their fair value.

For the years ended December 31, 2021, 2020 and 2019, no impairment losses have been identified.

Severance pay:

The employees of the Company’s Israeli subsidiary are included under Section 14 of the Severance Pay Law, 1963, under which these employees are entitled only to monthly deposits made in their name with insurance companies, at a rate of 8.33% of their monthly salary.

These payments cause the Company to be released from any future obligation under the Israeli Severance Pay Law to make severance payments in respect of those employees;

In case the Company reduces the

estimated useful life for any asset, the remaining unamortized balance is amortized or depreciated over the revised estimated useful life

(see Note 8).

of long-lived assets:

The Company’s long-lived assets to

be held and used, including ROU assets and identifiable intangible assets that are subject to amortization, other than goodwill, are reviewed

for impairment in accordance with ASC 360 “Property, Plants and Equipment”, whenever events or changes in circumstances indicate

that the carrying amount of an asset (or asset group) may not be recoverable.

Recoverability of assets to be held and used is measured

by a comparison of the carrying amount of an asset (or asset group) to the future undiscounted cash flows expected to be generated by

the assets (or asset group).

If such evaluation indicates that the carrying amount of the asset (or asset group) is not recoverable, the

assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets

exceeds their fair value (see Note 8).

the years ended December 31, 2022, 2021 and 2020, the Company recorded impairment charges of $ 29,037 ,

and $ 1,471 ,

under Goodwill impairment and other operating expenses (income), net, respectively.

reflects the excess of the consideration transferred, including the fair value of any contingent consideration and any non-controlling

interest in the acquiree, over the assigned fair values of the identifiable net assets acquired.

Goodwill is not amortized, and is assigned

to reporting units and tested for impairment at least on an annual basis, in the fourth quarter of the fiscal year.

goodwill impairment test is performed according to the following principles:

An initial qualitative assessment may be performed to determine whether it

is more likely than not that the fair value of the reporting unit is less than its carrying amount.

If the Company concludes it is more likely than not that the fair value of the

reporting unit is less than its carrying amount, a quantitative impairment test is performed.

An impairment charge for the amount by which

the carrying amount exceeds the reporting unit’s fair value is recognized (see Note 9).

the year ended December 31, 2022, the Company recorded impairment charges of goodwill in the amount of $ 90,104 .

the years ended December 31, 2021 and 2020, the Company did not record any impairment charges.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

computing arrangements:

In 2021, due to the growing size and

complexity of the Company, the Company decided to implement a new global enterprise resource planning ("ERP") system, which will replace

the Company's existing operating and financial systems.

During the year ended December 31, 2022, the Company began implementing a cloud-based

The implementation is expected to occur in phases over the next several years.

The Company incurs costs to implement

cloud computing arrangements ("CCA") that are hosted by third party vendors.

Implementation costs associated with CCA are capitalized

when incurred during the application development phase until the software is ready for its intended use.

The costs are then amortized

on a straight-line basis over the contractual term of the cloud computing arrangement and are recognized as an operating expense within

the consolidated statements of income.

Capitalized amounts related to such arrangements are recorded within other long-term assets in

the consolidated balance sheets.

Cash payments for CCA implementation costs are classified as cash outflows from operating activities.

the year ended December 31, 2022, the Company has capitalized implementation costs related to its upcoming ERP conversion in the amount

and presented it under other long-term assets in the consolidated balance sheet.

employees of the Company’s Israeli subsidiary are included under Section 14 of the Severance Pay Law, 1963, under which these employees

are entitled only to monthly deposits made in their name with insurance companies, at a rate of 8.33% of their monthly salary.

These payments

cause the Company to be released from any future obligation under the Israeli Severance Pay Law to make severance payments in respect

of those employees;

therefore, related assets and liabilities are not presented in the consolidated balance sheets.

For the years ended December 31, 2021, 2020 and 2019, the Company recorded $ 14,231 , $ 10,598 and $ 7,285 in severance expenses related to its employees, respectively.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

Derivatives and Hedging:

The Company accounts for derivatives and hedging based on ASC 815 (“Derivatives and Hedging”).

ASC 815 requires the Company to recognize all derivatives on the balance sheet at fair value.

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 year ended December 31, 2021, the Company instituted a foreign currency cash flow hedging program whereby portions of the anticipated payroll denominated in NIS for a period of one to nine months with hedging contracts.

Accordingly, when the dollar strengthens against the NIS, the decline in present value of future foreign currency expenses is offset by losses in the fair value of the hedging contracts.

Conversely, when the dollar weakens, the increase in the present value of future foreign currency cash flows is offset by gains in the fair value of the hedging contracts.

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

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 a financial (expense) income, net.

Revenue recognition:

Revenues are recognized in accordance with ASC 606;

revenue from contracts with customers is recognized when control of the promised goods or services is transferred to the customers, in an amount that the Company expects in exchange for those goods or services.

The Company’s products consist mainly of (i) power optimizers, (ii) inverters, (iii) residential batteries, (iv) a related cloud-based monitoring platform, (v) communication services, (vi) UPS units, (vii) Lithium-ion cells and other storage solutions (viii) powertrain kits for EVs, and (ix) automated machinery for manufacturing lines.

The Company recognizes revenue under the core principle that transfer of control to the Company’s customers should be depicted in an amount reflecting the consideration the Company expects to receive in revenue.

In order to achieve that core principle, the Company applies the following five-step approach:

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

applicable, severance costs are recorded in each entity in accordance with local laws and regulations.

the years ended December 31, 2022, 2021 and 2020, the Company recorded $ 17,202 ,

and $ 10,598 in

severance expenses related to its employees, respectively.

Company accounts for derivatives and hedging based on ASC 815 (“Derivatives and Hedging”).

ASC 815 requires the Company to

recognize all derivatives on the balance sheet at fair value.

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.

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 year ended December 31, 2022, the Company instituted a foreign currency cash flow

hedging program whereby portions of the anticipated payroll denominated in NIS for a period of one to nine months with hedging contracts.

when the dollar strengthens against the NIS, the decline in present value of future foreign currency expenses is offset by losses in the

fair value of the hedging contracts.

Conversely, when the dollar weakens, the increase in the present value of future foreign currency

cash flows is offset by gains in the fair value of the hedging contracts.

These hedging contracts are designated as cash flow hedges,

as defined by ASC 815 and are all effective hedges.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

The Company al so 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 a financial income (expense), net..

Company classifies cash flows related to its hedging as operating activities in its consolidated statement of cash flows.

are recognized in accordance with ASC 606;

revenue from contracts with customers is recognized when control of the promised goods or services

is transferred to the customers, in an amount that the Company expects in exchange for those goods or services.

Company’s products and services consist mainly of (i) power optimizers, (ii) inverters, (iii) residential batteries, (iv) a related

cloud-based monitoring platform, (v) communication services, (vi) warranty extension services, (vii) Lithium-ion cells and other storage

solutions (viii) EV components, and (ix) automated machinery for manufacturing lines.

Company recognizes revenue under the core principle that transfer of control to the Company’s customers should be depicted in an

amount reflecting the consideration the Company expects to receive in revenue.

order to achieve that core principle, the Company applies the following five-step approach:

(1) identify the contract with a customer,

A contract is an agreement or purchase order between two or more parties that creates enforceable rights and obligations.

In evaluating the contract, the Company analyzes the customer’s intent and ability to pay the amount of promised consideration (credit risk) and considers the probability of collecting substantially all of the consideration.

The Company determines whether collectability is reasonably assured on a customer-by-customer basis pursuant to its credit review policy.

(2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the

performance obligations in the contract, and (5) recognize revenue when the performance obligation is satisfied.

the contract with a customer

contract is an agreement or purchase order between two or more parties that creates enforceable rights and obligations.

In evaluating

the contract, the Company analyzes the customer’s intent and ability to pay the amount of promised consideration (credit risk) and

considers the probability of collecting substantially all of the consideration.

Company determines whether collectability is reasonably assured on a customer-by-customer basis pursuant to its credit review policy.

The Company typically sells to customers with whom it has a long-term business relationship and a history of successful collection.

For a new customer, or when an existing customer substantially expands its commitments, the Company evaluates the customer’s financial position, the number of years the customer has been in business, the history of collection with the customer, and the customer’s ability to pay, and typically assigns a credit limit based on that review.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

(2) Identify the performance obligations in the contract

At a contract’s inception, the Company assesses the goods or services promised in a contract with a customer and identifies the performance obligations.

a new customer, or when an existing customer substantially expands its commitments, the Company evaluates the customer’s financial

position, the number of years the customer has been in business, the history of collection with the customer, and the customer’s

ability to pay, and typically assigns a credit limit based on that review.

the performance obligations in the contract

a contract’s inception, the Company assesses the goods or services promised in a contract with a customer and identifies the performance

The main performance obligations are the provisions of the following:

delivery of the Company’s products;

cloud based monitoring services;

providing of the Company’s products;

monitoring services;

extended warranty services and communication services.

(3) Determine the transaction price

The transaction price is the amount of consideration to which the Company is entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

Generally, the Company does not provide price protection, stock rotation, and/or right of return.

The Company determines the transaction price for all satisfied and unsatisfied performance obligations identified in the contract from contract inception to the beginning of the earliest period presented.

Rebates or discounts on goods or services are accounted for as variable consideration.

Depending on the shipping terms agreed with the customer,

the Company may perform shipping and handling activities after the customer obtains control of the goods and revenue is recognized.

Company has elected to account for shipping and handling costs as activities to fulfill the promise to transfer the goods.

of this accounting policy election, the Company does not consider shipping and handling activities after the customer obtains control

of the goods as promised services to its customers.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

(3) Determine

the transaction price

transaction price is the amount of consideration to which the Company is entitled in exchange for transferring promised goods or services

to a customer, excluding amounts collected on behalf of third parties.

Generally, the Company does not provide price protection, stock

rotation, and/or right of return.

The Company determines the transaction price for all satisfied and unsatisfied performance obligations

identified in the contract from contract inception to the beginning of the earliest period presented.

Rebates or discounts on goods or

services are accounted for as variable consideration.

The rebate or discount program is applied retrospectively for future purchases.

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

Accrual for rebates for direct customers is presented net of receivables.

Accrual for sale incentives related to non-direct customers is presented under accrued expenses and other current liabilities.

The Company accrued $ 152,717 and $ 65,131 for rebates and sales incentives as of December 31, 2021 and 2020, respectively.

When a contract provides a customer with payment terms of more than a year, the Company considers whether those terms create variability in the transaction price and whether a significant financing component exists.

As of December 31, 2021, the Company has not provided payment terms of more than a year.

The performance obligations that extend for a period greater than one year are those that include a financial component:

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

The Company recognizes financing component expenses in its consolidated statement of income in relation to advance payments for performance obligations that extend for a period greater than one year.

These financing component expenses are reflected in the Company’s deferred revenues balance.

(4) Allocate the transaction price to the performance obligations in the contract

The Company performs an allocation of the transaction price to each separate performance obligation, in proportion to their relative standalone selling prices.

(5) Recognize revenue when a performance obligation is satisfied

Revenue is recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer.

Control either transfers over time or at a point in time, which affects when revenue is recorded.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

Revenues from sales of products are recognized when control is transferred (based on the agreed International Commercial terms, or “INCOTERMS”).

Revenues related to warranty extension services, cloud-based monitoring, and communication services are recognized over time on a straight-line basis.

Deferred revenues consist of deferred cloud-based monitoring services, communication services, warranty extension services and advance payments received from customers for the Company’s products.

Deferred revenues are classified as short-term and long-term deferred revenues based on the period in which revenues are expected to be recognized (see Note 13).

Cost of revenues:

Cost of revenues includes the following:

product costs consisting of purchases from contract manufacturers and other suppliers, direct and indirect manufacturing costs, shipping and handling, support, warranty expenses and changes in warranty provision, provision for losses related to slow moving and dead inventory, personnel and logistics costs.

Shipping and handling costs, which amounted to $ 116,574 , $ 101,597 and $ 113,635 , for the years ended December 31, 2021, 2020 and 2019, respectively, are included in the cost of revenues in the consolidated statements of income.

Shipping and handling costs include custom tariff charges and all other costs associated with the distribution of finished goods from the Company’s point of sale directly to its customers.

Warranty obligations:

The Company provides a product warranty for its solar segment related products as follows:

a standard 10 -year limited warranty for its residential batteries, a standard 12 -year limited warranty for the majority of its inverters, that is extendable to 20 or 25 years for an additional cost and a 25 -year limited warranty for power optimizers.

In certain cases, the Company provides an extended warranty for inverters that increases the warranty period for up to 25 years.

The Company maintains reserves to cover the expected costs that could result from the standard warranty.

The warranty liability is in the form of product replacement and associated costs.

Warranty reserves are based on the Company’s best estimate of such costs and are included in cost of revenues.

The reserve for the related warranty expenses is based on various factors including assumptions about the frequency of warranty claims on product failures, derived from results of accelerated lab testing, field monitoring, analysis of the history of product field failures, and the Company’s reliability estimates.

The Company has established a reliability measurement system based on the units’ estimated mean time between failure, or MTBF, a metric that equates to a steady-state failure rate per year for each product generation.

The MTBF predicts the expected failure rate of each product within the Company's products installed base during the expected product warranted lifetime.

The Company performs accelerated life cycle testing, which simulates the service life of the product in a short period of time.

The accelerated life cycle tests incorporate test methodologies derived from standard tests used by solar module vendors to evaluate the period over which solar modules wear out.

Corresponding replacement costs are updated periodically to reflect changes in the Company’s actual and estimated production costs for its products, rate of usage of refurbished units as a replacement of faulty units, and other costs related to logistic and subcontractors’ services associated with the replacement products.

In addition, through the collection of actual field failure statistics, the Company has identified several additional failure causes that are not included in the MTBF model.

Such causes, which mostly consist of design errors, workmanship errors caused during the manufacturing process and, to a lesser extent, replacement of non-faulty units by installers, result in generating additional replacement costs to the replacement costs projected under the MTBF model.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

For other products, the Company accrues for warranty costs based on the Company’s best estimate of product and associated costs.

The Company’s other products are sold with a standard limited warranty that typically range in duration from one to ten years.

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

Convertible senior notes:

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

On issuance, the carrying amount of the equity components was recorded as a debt discount and subsequently amortized to interest expense.

Total initial issuance costs of $ 14,631 related to the Notes were allocated between the liability and equity components in the same proportion as the allocation of the total proceeds to the liability and equity components.

The Company initially allocated issuance costs of $ 13,501 and $ 1,130 to the liability and equity components, respectively.

The issuance costs attributable to the equity component were netted against the respective equity component in additional paid-in capital.

Issuance costs attributable to the liability component are being amortized to interest expense over the respective term of the Notes using the effective interest rate method.

Effective January 1, 2021, the Company early adopted ASU 2020-06 using the modified retrospective approach.

The Notes are accounted for as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives.

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

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

related sales are recorded.

for rebates for direct customers is presented net of receivables.

Accrual for sale incentives related to non-direct customers is presented

under accrued expenses and other current liabilities.

The Company accrued $ 176,706

and $ 152,717

for rebates and sales incentives as of December 31, 2022 and 2021, respectively.

a contract provides a customer with payment terms of more than a year, the Company considers whether those terms create variability in

the transaction price and whether a significant financing component exists.

of December 31, 2022, the Company has not provided payment terms of more than a year.

performance obligations that extend for a period greater than one year are those that include a financial component:

(i) warranty extension

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

The Company recognizes financing component expenses in its consolidated

statement of income in relation to advance payments for performance obligations that extend for a period greater than one year.

financing component expenses are reflected in the Company’s deferred revenues balance.

the transaction price to the performance obligations in the contract

Company performs an allocation of the transaction price to each separate performance obligation, in proportion to their relative standalone

selling prices.

(5) Recognize

revenue when a performance obligation is satisfied

is recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer.

either transfers over time or at a point in time, which affects when revenue is recorded.

Revenues from sales of products are

recognized based on the transfer of control, which includes but is not limited to, the agreed International Commercial terms, or “INCOTERMS”.

Revenues related to warranty extension services, cloud-based monitoring, and communication services are recognized over time on a straight-line

revenues consist of deferred cloud-based monitoring services, communication services, warranty extension services and advance payments

received from customers for the Company’s products.

Deferred revenues are classified as short-term and long-term deferred revenues

based on the period in which revenues are expected to be recognized (see Note 14).

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

of revenues includes the following:

product costs consisting of purchases from contract manufacturers and other suppliers, direct and

indirect manufacturing costs, shipping and handling, support, warranty expenses, provision for losses related to slow moving and dead

inventory, personnel and logistics costs.

and handling costs, which amounted to $ 257,753 ,

and $ 101,597 ,

for the years ended December 31, 2022, 2021 and 2020, respectively, are included in the cost of revenues in the consolidated statements

Shipping and handling costs include custom tariff charges and all other costs associated with the distribution of finished

goods from the Company’s point of sale directly to its customers.

Company provides a product warranty for its solar segment related products as follows:

a standard 10 -year

limited warranty for its residential batteries, a standard 12 -year

limited warranty for the majority of its inverters, that is extendable up to 25

years for an additional cost and a 25 -year

limited warranty for power optimi z ers.

Company maintains reserves to cover the expected costs that could result from the standard warranty.

The warranty liability is in the

form of product replacement and associated costs.

Warranty reserves are based on the Company’s best estimate of such costs and are

included in cost of revenues.

The reserve for the related warranty expenses is based on various factors including assumptions about the

frequency of warranty claims on product failures, derived from results of accelerated lab testing, field monitoring, analysis of the history

of product field failures, and the Company’s reliability estimates.

Company has established a reliability measurement system based on the units’ estimated mean time between failure, or MTBF, a metric

that equates to a steady-state failure rate per year for each product generation.

The MTBF predicts the expected failure rate of each

product within the Company's products installed base during the expected product warranted lifetime.

Company performs accelerated life cycle testing, which simulates the service life of the product in a short period of time.

accelerated life cycle tests incorporate test methodologies derived from standard tests used by solar module vendors to evaluate the period

over which solar modules wear out.

Corresponding replacement costs are updated periodically to reflect changes in the Company’s

actual and estimated production costs for its products, rate of usage of refurbished units as a replacement of faulty units, and other

costs related to logistic and subcontractors’ services associated with the replacement products.

addition, through the collection of actual field failure statistics, the Company has identified several additional failure causes that

are not included in the MTBF model.

Such causes, which mostly consist of design errors, workmanship errors caused during the manufacturing

process and, to a lesser extent, replacement of non-faulty units by installers, result in generating additional replacement costs to the

replacement costs projected under the MTBF model.

other products, the Company accrues for warranty costs based on the Company’s best estimate of product and associated costs.

Company’s other products are sold with a standard limited warranty that typically range in duration from one to ten years.

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

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

senior notes:

January 1, 2021, the Company early adopted ASU 2020-06 using the modified retrospective approach.

The Notes are accounted for as a single

liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives.

the new standard resulted in an increase of retained earnings in the amount of $ 2,884 ,

a decrease of an additional paid-in capital in the amount of $ 36,336 ,

an increase of convertible senior notes, net, in the amount of $ 45,282

and a decrease of deferred tax liabilities, net, in the amount of $ 11,830 .

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

The Company’s Convertible Senior Notes are included in the calculation of diluted Earnings Per Share (“EPS”) if the assumed conversion into common shares is dilutive, using the “if-converted” method.

This involves adding back the periodic non-cash interest expense net of tax associated with the Notes to the numerator and by adding the shares that would be issued in an assumed conversion (regardless of whether the conversion option is in or out of the money) to the denominator for the purposes of calculating diluted EPS, unless the Notes are antidilutive (See Note 20).

Research and development costs:

Research and development costs, are charged to the consolidated statement of income as incurred.

Concentrations of credit risks:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term bank deposits, restricted bank deposits, marketable securities, trade receivables and other accounts receivable.

Cash and cash equivalents, short-term bank deposits and restricted bank deposits are mainly invested in major banks in the U.S., Israel and Korea.

Management believes that the financial institutions that hold the Company’s investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

The Company's debt marketable securities include investments in highly-rated corporate debentures (located mainly in U.S., UK, France, South Korea, Netherlands and other countries) and governmental bonds.

The financial institutions that hold the Company's debt marketable securities are major financial institutions located in the United States.

The Company believes its debt marketable securities portfolio is a diverse portfolio of highly-rated securities and the Company's investment policy limits the amount the Company may invest in an issuer (see Note 2g.).

The trade receivables of the Company derive from sales to customers located primarily in the United States and Europe.

The Company performs ongoing credit evaluations of its customers for the purpose of determining the appropriate allowance for credit losses (see Note 2i.).

The Company generally does not require collaterals, however, in certain circumstances, the Company may require letters of credit, other collateral, or additional guarantees.

Company’s Convertible Senior Notes are included in the calculation of diluted Earnings Per Share (“EPS”) if the assumed

conversion into common shares is dilutive, using the “if-converted” method.

This involves adding back the periodic non-cash

interest expense net of tax associated with the Notes to the numerator and by adding the shares that would be issued in an assumed conversion

(regardless of whether the conversion option is in or out of the money) to the denominator for the purposes of calculating diluted EPS,

unless the Notes are antidilutive (see Note 21).

costs are expensed when incurred and are included in sales and marketing expenses in the consolidated statements of income.

incurred advertising expenses of $ 11,090 ,

for the years ended December 31, 2022, 2021, and 2020, respectively.

and development costs:

and development costs, are charged to the consolidated statement of income as incurred.

Concentrations

of credit risks:

instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term

bank deposits, restricted bank deposits, marketable securities, trade receivables, derivative instruments and other accounts receivable.

and cash equivalents, short-term bank deposits and restricted bank deposits are mainly invested in major banks in the U.S., Israel, Germany

Management believes that the financial institutions that hold the Company’s investments are financially sound and, accordingly,

minimal credit risk exists with respect to these investments.

Company's debt marketable securities include investments in highly-rated corporate debentures (located mainly in U.S., Canada, France,

UK, Cayman Islands and other countries) and governmental bonds .

The financial institutions that hold

the Company's debt marketable securities are major financial institutions located in the United States.

The Company believes its debt

marketable securities portfolio is a diverse portfolio of highly-rated securities and the Company's investment policy limits the amount

the Company may invest in an issuer (see Note 2g.).

trade receivables of the Company derive from sales to customers located primarily in the United States and Europe.

Company performs ongoing credit evaluations of its customers for the purpose of determining the appropriate allowance for credit losses

(see Note 2i.).

The Company generally does not require collaterals, however, in certain circumstances, the Company may require letters

of credit, other collateral, or additional guarantees.

From time to time, the Company may purchase trade credit insurance.

The Company had two major customers (customers with attributable revenues that represents more than 10% of total revenues) for the year ended December 31, 2021 and one major customer for the years ended December 31, 2020, and 2019 that accounted for approximately 30.9 %, 14.8 % and 20.4 % of the Company’s consolidated revenues, respectively.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

had one major customer (customers with attributable revenues that represents more than 10% of total revenues) for the year ended December

31, 2022, two major customers for the year ended December 31, 2021, and one major customer for the year ended December 31, 2020 that accounted

for approximately 18.5 %,

of the Company’s consolidated revenues, respectively.

All of the revenues from these customers were generated in the solar segment.

The Company had two major customers (customer with a balance that represents more than 10% of total trade receivables, net) as of December 31, 2021 and 2020 that accounted in the aggregate for approximately 39.3 % and 34.6 %, of the Company’s consolidated trade receivables, net, respectively.

Concentrations of supply risks:

The Company depends on two contract manufacturers and several limited or single source component suppliers.

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 December 31, 2021 and 2020, two contract manufacturers collectively accounted for 27.9 % 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”.

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

Fair value of financial instruments:

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

The carrying value of cash and cash equivalents, short-term bank deposits, restricted bank deposits, trade receivables, net, long term bank loans and current maturities, prepaid expenses and other current assets, trade payables, net, employee and payroll accruals and accrued expenses and other current liabilities approximate their fair values due to the short-term maturities of such instruments.

Assets measured at fair value on a recurring basis as of December 31, 2021 and 2020 are comprised of money market funds, derivative instruments and debt marketable securities (see Note 11).

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

The Company applies ASC 820 “Fair Value Measurements and Disclosures”, with respect to fair value measurements of all financial assets and liabilities.

Fair value is an exit price, representing the amount that would be received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants.

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

A three-tiered fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

Level 1- Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2- Include other inputs that are directly or indirectly observable in the marketplace.

Level 3- Unobservable inputs which are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Stock-based compensation:

The Company uses the closing trading price of its common stock on the day before the grant date as the fair value of awards of restricted stock units ("RSUs"), and performance stock units that are based on the Company's financial performance targets ("PSUs").

The compensation expense for RSUs is recognized using a straight-line attribution method over the requisite employee service period while compensation expense for PSUs is recognized using an accelerated amortization model.

The Company estimates the forfeitures at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

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

The Company selected the Black-Scholes-Merton option-pricing model as the most appropriate fair value method for its stock-option awards and Employee Stock Purchase Plan (“ESPP”).

The option-pricing model requires a number of assumptions, of which the most significant are the fair market value of the underlying common stock, expected stock price volatility, and the expected option term.

Expected volatility for stock-option awards and ESPP was calculated based upon the Company’s stock prices.

The expected term of options granted is based upon historical experience and represents the period between the options’ grant date and the expected exercise or expiration date.

Company had three major customers (customer with a balance that represents more than 10% of total trade receivables, net) as of December

31, 2022 and two major customers for the year ended December 31, 2021 that accounted in the aggregate for approximately 42.2 %

of the Company’s consolidated trade receivables, net, respectively.

Concentrations

of supply risks:

Company depends on two contract manufacturers and several limited or single source component suppliers, including, Samsung SDI, that provides

lithium-ion battery cells required for the Company's residential storage solution.

Reliance on these vendors makes the Company vulnerable

to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields, and costs.

of December 31, 2022 and 2021, two contract manufacturers collectively accounted for 34.3 %

of the Company’s total trade payables, net, respectively.

the second quarter of 2022, the Company announced the opening of “Sella 2”, a two gigawatt-hour (GWh) Li-Ion battery cell

manufacturing facility located in South Korea.

Sella 2 is in the ramp-up phase, that is expected to continue throughout 2023.

2 is the Company's second owned manufacturing facility following the establishment of Sella 1 in 2020.

Sella 1 is the Company's manufacturing

facility in the North of Israel that produces power optimizers and inverters for the Company's solar activities.

value of financial instruments:

following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

carrying value of cash and cash equivalents, short-term bank deposits, restricted bank deposits, trade receivables, net, long term bank

loans and current maturities, prepaid expenses and other current assets, trade payables, net, employee and payroll accruals and accrued

expenses and other current liabilities approximate their fair values due to the short-term maturities of such instruments.

measured at fair value on a recurring basis as of December 31, 2022 and 2021 are comprised of money market funds, derivative

instruments and marketable securities (see Note 12).

Company applies ASC 820 “Fair Value Measurements and Disclosures”, with respect to fair value measurements of all financial

assets and liabilities.

Fair value is an exit price, representing the amount that would be received for the sale of an asset or paid to

transfer a liability in an orderly transaction between market participants.

As such, fair value is a market-based measurement that should

be determined based on assumptions that market participants would use in pricing an asset or a liability.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

A three-tiered fair value hierarchy

is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets

or liabilities in active markets.

2 - Include other inputs that are directly or indirectly observable in the marketplace.

3 - Unobservable inputs which are supported by little or no market activity.

fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when

measuring fair value.

compensation:

Company uses the closing trading price of its common stock on the day before the grant date as the fair value of awards of restricted

stock units ("RSUs"), and performance stock units that are based on the Company's financial performance targets ("PSUs").

The compensation

expense for RSUs is recognized using a straight-line attribution method over the requisite employee service period while compensation

expense for PSUs is recognized using an accelerated amortization model.

The Company estimates the forfeitures at the time of grant and

revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Estimated forfeitures are based on actual

historical pre-vesting forfeitures.

Company granted under its 2015 Plan, PSU awards to certain employees and officers which vest upon the achievement of certain performance

or market conditions subject to their continued employment with the Company.

market condition for the PSUs is based on the Company’s total shareholder return ("TSR") compared to the TSR of companies listed

in the S&P 500 index over a one to three year performance period.

The Company uses a Monte-Carlo simulation to determine the grant

date fair value for these awards, which takes into consideration the market price of a share of the Company’s common stock on the

date of grant less the present value of dividends expected during the requisite service period, as well as the possible outcomes pertaining

to the TSR market condition.

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

Company selected the Black-Scholes-Merton option-pricing model as the most appropriate fair value method for its stock-option awards and

Employee Stock Purchase Plan (“ESPP”).

The option-pricing model requires a number of assumptions, of which the most significant

are the fair market value of the underlying common stock, expected stock price volatility, and the expected option term.

Expected volatility

for stock-option awards and ESPP was calculated based upon the Company’s stock prices.

The expected term of options granted is based

upon historical experience and represents the period between the options’ grant date and the expected exercise or expiration date.

The risk-free interest rate is based on the yield from U.S.

treasury bonds with an equivalent term.

The Company doesn't use dividend yield rate since the Company has not declared or paid any dividends on its common stock and does not expect to pay any dividends in the foreseeable future.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

The Company measures a modified stock based award at fair value and recognizes the compensation cost at the beginning of the modification date over the employee’s requisite service period of the modified award.

The fair value for options granted to employees and ESPP in the years ended December 31, 2021, 2020 and 2019, are estimated at the date of grant using the following assumptions:

The Company does not use dividend

yield rate since the Company has not declared or paid any dividends on its common stock and does not expect to pay any dividends in the

foreseeable future.

modification of the terms of a stock-based award is treated as an exchange of the original award for a new award with total compensation

cost equal to the grant-date fair value of the original award plus the incremental value of the modification to the award.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

The fair value for options granted to employees and ESPP in the years ended December 31, 2022, 2021 and 2020, is

estimated at the date of grant using the following assumptions:

Year ended December 31,

Employee Stock Options

Stock Options (1)

Risk-free interest

3 unchanged sentences

Risk-free interest

0.03 % - 0.10

0.09 % - 1.63

1.63 % - 2.35

Dividend yields

48.39 % - 76.05

55.95 % - 92.57

46.68 % - 55.95

Expected term

Earnings per share

Basic net EPS is computed by dividing the net earnings attributable to SolarEdge Technologies, Inc.

by the weighted-average number of shares of common stock outstanding during the period.

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

Risk-free interest

Dividend yields

Expected term

No new options were granted in 2022.

net EPS is computed by dividing the net earnings attributable to SolarEdge Technologies, Inc.

by the weighted-average number of shares

of common stock outstanding during the period.

net EPS is computed by giving effect to all potential shares of common stock, to the extent dilutive, including stock options, RSUs, PSUs,

shares to be purchased under the Company’s ESPP, and the Notes due 2025, all in accordance with ASC No.

260, "Earnings Per Share."

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

Income taxes:

The Company and its subsidiaries account for income taxes in accordance with ASC 740, “Income Taxes”.

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

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered.

Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent the Company believes they will not be realized.

The Company accounts for uncertain tax positions in accordance with ASC 740-10 two-step approach to recognizing and measuring uncertain tax positions.

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

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

New accounting pronouncements not yet effective:

In October 2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606).

This guidance is effective for fiscal years beginning after 15 December 2022 and interim periods within those fiscal years.

Early adoption is permitted.

The Company is currently evaluating the impact of the new guidance on its consolidated financial statements

In November 2021, the FASB issued ASU No.

2021-10, Government Assistance (Topic 832):

Disclosure by Business Entities about Government Assistance (ASU 2021-10), which improves the transparency of government assistance received by most business entities by requiring the disclosure of:

(1) the types of government assistance received;

(2) the accounting for such assistance;

and (3) the effect of the assistance on a business entity's financial statements.

Company and its subsidiaries account for income taxes in accordance with ASC 740, “Income Taxes”.

ASC 740 prescribes the use

of the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial

reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences

are expected to reverse.

income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax

bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered.

Deferred tax assets are

evaluated for future realization and reduced by a valuation allowance to the extent the Company believes they will not be realized.

Company considers all available evidence, including historical information, long range forecast of future taxable income and evaluation

of tax planning strategies.

Amounts recorded for valuation allowance can result from a complex series of judgments about future events

and can rely on estimates and assumptions.

has not been recorded for (a) taxes that would apply in the event of disposal of investments in subsidiaries, as it is generally the Company’s

intention to hold these investments, not to realize them;

and (b) taxes that would apply on the distribution of unremitted earnings from

foreign subsidiaries, as these are retained for reinvestment in the Group.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

Company accounts for uncertain tax positions in accordance with ASC 740-10 two-step approach to recognizing and measuring uncertain tax

The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of

available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be

sustained on audit, including resolution of any related appeals or litigation processes.

The second step is to measure the tax benefit

as the largest amount that is more than 50% (cumulative probability) likely to be realized upon ultimate settlement.

accounting pronouncements not yet effective:

time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting

bodies are adopted by the Company as of the specified effective date.

The Company believes that the impact of recently issued standards

that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

issued and adopted pronouncements:

October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2021-08, Accounting for Contract Assets and

Contract Liabilities from Contracts with Customers (Topic 805).

This ASU requires an acquirer in a business combination to recognize and

measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in

At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts.

effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years.

Adoption of the ASU

should be applied prospectively.

Early adoption is also permitted, including adoption in an interim period.

The Company elected to early

adopt ASU 2021-08 on January 1, 2022, and will apply this new guidance to all business combinations consummated subsequent to this date.

Currently, this ASU has no impact on the Company's consolidated financial statements.

November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No.

2021-10, Government

Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance.

Under ASU 2021-10, the accounting entities with

transactions with a government that are accounted for by analogy to a grant or contribution accounting model are required to annually

disclose certain information regarding the transaction including:

(i) nature and related accounting policy used;

(ii) line items on the

balance sheet and income statement affected by the transactions;

(iii) amounts applicable to each line item;

and (iv) significant terms

and conditions.

This guidance is effective for financial statements issued for annual periods beginning after December 15, 2021.

Early adoption is permitted.

The impact of this ASU on the Company’s consolidated financial statements is expected to be immaterial.

Recently issued and adopted pronouncements:

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

The guidance is effective for interim and annual periods beginning after December 15, 2020.

Effective January 1, 2021, the Company adopted this standard on a prospective basis.

The impact of adoption of this standard on the Company’s consolidated financial statements was immaterial.

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method.

ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted.

Effective January 1, 2021, the Company early adopted ASU 2020-06 using the modified retrospective approach.

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

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

The consolidated financial statements for the year ended December 31, 2021 are presented under the new standards, while comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy.

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

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

of this ASU has a minor impact on the disclosures to the annual consolidated financial statements.

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

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

MARKETABLE SECURITIES

The following is a summary of available-for-sale marketable securities at December 31, 2021:

Amortized cost

Gross unrealized gains

Gross unrealized losses

Available-for-sale – matures within one year:

following is a summary of available-for-sale marketable securities at December 31, 2022:

Available-for-sale –

matures within one year:

Corporate bonds

Governmental bonds

Available for-sale – matures after one year:

Available for-sale –

matures after one year:

Corporate bonds

Governmental bonds

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

Amortized cost

Gross unrealized gains

Gross unrealized losses

Available-for-sale – matures within one year:

following is a summary of available-for-sale marketable securities at December 31, 2021:

Available-for-sale –

matures within one year:

Corporate bonds

Governmental bonds

Available for-sale – matures after one year:

Available for-sale –

matures after one year:

Corporate bonds

Governmental bonds

Proceeds from maturity of available-for-sale marketable securities during the years ended December 31, 2021, 2020 and 2019, were $ 187,375 , $ 141,839 and $ 120,834 , respectively.

Proceeds from sales of available-for-sale marketable securities during the year ended December 31, 2021 were $ 14,813 , which led to realized losses of $ 16 .

The Company had no proceeds from sales of available-for sale, marketable securities during the year ended December 31, 2020, therefore no realized gains or losses from the sale of available-for-sale marketable securities were recognized.

Proceeds from sales of available-for-sale marketable securities during the year ended December 31, 2019 were $ 21,910 , which led to realized losses of $ 91 .

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

from maturity of available-for-sale marketable securities during the years ended December 31, 2022, 2021 and 2020, were $ 201,974 ,

and $ 141,839 ,

respectively.

from sales of available-for-sale marketable securities during the year ended December 31, 2022 were $ 29,236 ,

which led to realized losses of $ 434 .

from sales of available-for-sale marketable securities during the year ended December 31, 2021 were $ 14,813 ,

which led to realized losses of $ 16 .

Company had no proceeds from sales of available-for sale, marketable securities during the year ended December 31, 2020, therefore no

realized gains or losses from the sale of available-for-sale marketable securities were recognized.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

INVENTORIES, NET

As of December 31,

Raw materials

Work in process

Finished goods

The Company recorded inventory write-downs of $ 7,142 , $ 8,864 and $ 4,528 for the years ended December 31, 2021, 2020 and 2019, respectively.

of December 31,

Company recorded inventory write-downs of $ 10,170 ,

for the years ended December 31, 2022, 2021 and 2020, respectively.

PREPAID EXPENSES AND OTHER CURRENT ASSETS

As of December 31,

Vendor non-trade receivables (*)

of December 31,

Vendor non-trade

receivables (*)

Government authorities

Bank deposits

Prepaid expenses and other

Prepaid expenses

Vendor non-trade receivables derived from the sale of components to manufacturing vendors who manufacture products for the Company.

The Company purchases these components directly from other suppliers.

The Company does not reflect the sale of these components to the contract manufacturers in its revenues (see also Note 18b).

Company purchases these components directly from other suppliers.

The Company does not reflect the sale of these components to the contract

manufacturers in its revenues (see Note 19b).

PROPERTY, PLANT AND EQUIPMENT, NET

As of December 31,

of December 31,

Buildings and plants

Computers and peripheral equipment

Office furniture and equipment

Laboratory and testing equipment

Computers and peripheral

Office furniture

and equipment

Laboratory and

testing equipment

Machinery and equipment

Leasehold improvements

Assets under construction and payments on account

Gross property, plant and equipment

Less - accumulated depreciation

Total property, plant and equipment, net

Depreciation expenses for the years ended December 31, 2021, 2020 and 2019, were $ 29,359 , $ 22,355 and $ 17,261 , respectively.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

The following table summarizes the Company’s lease-related assets and liabilities recorded on the consolidated balance sheets:

Classification on the consolidated Balance Sheet

Operating lease assets, net of lease incentive obligation

Operating lease right-of use assets, net

Finance lease assets

Property, plant and equipment, net

Total lease assets

Operating leases short term

Accrued expenses and other current liabilities

Finance leases short term

Accrued expenses and other current liabilities

Operating leases long term

Operating lease liabilities

Finance leases long term

Finance lease liabilities

Total lease liabilities

The following table presents certain information related to the operating and finance leases:

Year ended December 31,

Finance leases:

Finance lease cost

Weighted average remaining lease term in years

Weighted average annual discount rate

Operating leases:

Operating lease cost

Weighted average remaining lease term in years

Weighted average annual discount rate

The following table presents supplemental cash flows information related to the lease costs for operating and finance leases:

Year ended December 31,

Cash paid for amounts included in measurement of lease liabilities:

Operating cash flows for operating leases

Operating cash flows for finance leases

Financing cash flows for finance leases

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

The following table reconciles the undiscounted cash flows for each of the first five years and the total of the remaining years of the operating and finance lease liabilities recorded on the consolidated balance sheets:

Operating Leases

Finance Leases

Total lease payments

Less amount of lease payments representing interest

Present value of future lease payments

Less current lease liabilities

Long-term lease liabilities

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

INTANGIBLE ASSETS AND GOODWILL, NET

Assets under construction

and payments on account

Gross property,

plant and equipment

Less - accumulated

Total property,

plant and equipment, net

expenses for the years ended December 31, 2022, 2021 and 2020, were $ 40,580 ,

respectively.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

following table summarizes the Company’s lease-related assets and liabilities recorded in the consolidated balance sheets:

Classification

on the consolidated Balance Sheet

lease assets, net of lease incentive obligation

lease right-of use assets, net

plant and equipment, net

leases short term

expenses and other current liabilities

leases short term

expenses and other current liabilities

leases long term

lease liabilities

leases long term

lease liabilities

following table presents certain information related to the operating and finance leases:

ended December 31,

average remaining lease term in years

average annual discount rate

average remaining lease term in years

average annual discount rate

following table presents supplemental cash flows information related to the lease costs for operating and finance leases:

ended December 31,

paid for amounts included in measurement of lease liabilities:

cash flows for operating leases

cash flows for finance leases

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

following table reconciles the undiscounted cash flows for each of the first five years and the total of the remaining years of the operating

and finance lease liabilities recorded in the consolidated balance sheets:

lease payments

amount of lease payments representing interest

value of future lease payments

current lease liabilities

lease liabilities

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

June 2022, the Company decided to discontinue its stand-alone uninterrupted power supply activities or UPS (“Critical Power”).

The Company recorded a loss in the amount of $ 1,226

pertaining to Critical Power's current technology and customer relationships.

October 2022, following the e-Mobility and Automation Machines reporting unit’s goodwill analysis, an impairment test for long-lived

assets was performed.

The test included comparing the sum of the estimated undiscounted future cash flow attributable to the identified

assets group and its carrying amounts, and recognizing an impairment for the amount to which the carrying amount exceeds the fair value

of the assets groups.

As a result, the Company recorded a current technology impairment of $ 26,917

related to e-Mobility's asset group and a $ 245

trade name impairment related to Automation Machines' asset group.

The impairments are recorded under Goodwill impairment and other operating

expenses (income), net in the consolidated statement of income.

intangible assets consisted of the following as of December 31, 2022, and 2021:

of December 31,

assets with finite lives:

relationships

intangible assets

Acquired intangible assets consisted of the following as of December 31, 2021, and 2020:

As of December 31,

Intangible assets with finite lives:

Current Technology

Customer relationships

Assembled workforce

Gross intangible assets

Less - accumulated amortization

Total intangible assets, net

Amortization expenses for the years ended December 31, 2021, 2020 and 2019, were $ 10,176 , $ 9,479 and $ 9,634 , respectively.

Expected future amortization expenses of intangible assets as of December 31, 2021 are as follows:

2027 and thereafter

The following summarizes the goodwill activity for the year ended December 31, 2021, and 2020:

Goodwill at December 31, 2019

Changes during the year:

Foreign currency adjustments

Goodwill at December 31, 2020

Changes during the year:

Foreign currency adjustments

Goodwill at December 31, 2021

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

- accumulated amortization

intangible assets, net

expenses for the years ended December 31, 2022 , 2021 and 2020 ,

were $ 9,096 ,

and $ 9,479 ,

respectively.

future amortization expenses of intangible assets as of December 31, 2022 are as follows:

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

is tested for impairment annually in the fourth quarter of each year and is examined between annual tests if an event occurs or circumstances

change that would indicate the carrying amount may be impaired.

June 2022, the Company decided to discontinue its stand-alone Critical Power activities .

The Company recorded a loss in the

amount of $ 2,782

pertaining to Critical Power's goodwill.

Company completed its annual goodwill impairment test in the fourth quarter of 2022 for all reporting units and determined the following:

assessment of the Company’s storage reporting unit was performed in order to determine w hether it is necessary to conduct

the quantitative goodwill impairment test .

Based on the results, the Company believes that it is more likely than not that the

fair value of said reporting unit is greater than its carrying value and therefore a quantitative goodwill impairment test was not performed,

and no goodwill impairment was recorded.

to impairment indicators of the e-Mobility reporting unit, which include, among other things, a shift in the Company's strategy that may

result in a decline of the projected growth forecasted at the time of acquisition, the Company performed a quantitative goodwill impairment

As a result, the Company recorded goodwill impairment in the amount of $ 80,534

which is presented under Goodwill impairment and other operating expenses (income), net in the consolidated statement of

addition, a quantitative test has also been performed for the Automation Machines reporting unit due to indicators of impairment

identified, which include, amo ng other things, managerial changes and a decline in the overall financial performance compared

with past projections.

As a result, the Company recorded goodwill impairment in the amount of $ 6,788 ,

which was recorded under Goodwill impairment and other operating expenses (income), net in the consolidated statement of

fair value of the reporting units was estimated using a discounted cash flow analysis.

When performing this analysis, the Company also

considered multiples of earnings from comparable public companies.

The decline in fair value primarily resulted from an increased discount

rate and reduced estimated future cash flows.

The following summarizes

the goodwill activity for the year ended December 31, 2022 , and 2021 :

at December 31, 2020

during the year:

currency adjustments

at December 31, 2021

during the year:

currency adjustments

impairment losses

at December 31, 2022

of December 31, 2022 there were $ 90,104

accumulated goodwill impairment losses.

As of December 31, 2021 and 2020 there were no accumulated goodwill impairment losses.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

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.

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

January 31, 2021, the Company completed an investment of $ 11,643

in the preferred stock of AutoGrid Systems, Inc.

("AutoGrid"), a privately held company.

February 1, 2021, the Company signed on a preferred stock purchase agreement for an additional investment of $ 5,000

in AutoGrid's preferred stock (the "second investment").

On April 28, 2021, the Company completed the second investment.

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 December 31, 2021.

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

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

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

dollars for NIS in the amount of $ 64,997 .

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

dollars in the amount of AUD 18 million.

As of December 31, 2021, the Company entered into forward contracts and put and call options to buy and sell Euro for U.S.

dollars in the amount of € 24.5 million and € 9 million, respectively.

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

dollars for South Korean Won in the amount of $ 40,000 .

The fair value of derivative assets as of December 31, 2021, and 2020 was $ 4,009 and $ 3,786 , which were recorded in prepaid expenses and other current assets in the Consolidated Balance Sheets, respectively.

The fair value of derivative liabilities as of December 31, 2021, and 2020 was $ 169 and $ 5,819 , which was recorded in accrued expenses and other current liabilities in the Consolidated Balance Sheets, respectively.

For the years ended December 31, 2021 and 2020 Company recorded a gain and a loss in the amount of $ 9,417 and $ 4,013 , respectively, in financial (expense) income, net, related to the derivative instruments not designated as cash flow hedges (see Note 23).

For the years ended December 31, 2021 and 2020, the Company recorded an unrealized gain in the amount of $ 3,289 and $ 966 net of tax effect, respectively, in “accumulated other comprehensive gain (loss)” related to the derivative assets designated as hedging instruments.

As of December 31, 2019 and for the year then ended, the Company had no derivative instruments.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

Company accounted for the AutoGrid investment as an equity investment without readily determinable fair values .

July 20, 2022, the Company completed the sale of its investment in AutoGrid for proceeds of $ 24,362 ,

thus recognizing a gain of $ 7,719

which was recorded in the statement of income under "Other income".

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

As of December 31,

2022 , the Company had no investments in privately-held companies.

As of December 31, 2021 , the carrying value of investments

in privately-held companies was $ 16,643 .

impairment or other adjustments related to observable price changes in orderly transactions for identical or similar investments were

identified up to the date of the sale.

INSTRUMENTS AND HEDGING ACTIVITIES

of December 31, 2022 , the Company entered into forward contracts and put and call options to sell

dollars (“USD”) for NIS in the amount of approximately NIS 194

million and NIS 18

million , respectively.

fair values of outstanding derivative instruments were as follows:

sheet location

December 31 ,

assets of options and forward contracts:

cash flow hedges

expenses and other current assets

Non-designated

expenses and other current assets

derivative assets

liabilities of options and forward contracts:

cash flow hedges

expenses and other current liabilities

Non-designated

expenses and other current liabilities

derivative liabilities

Gains (losses) on derivative

instruments recognized in the consolidated statements of income are summarized below:

ended December 31,

exchange contracts

Designated Hedging Instruments

income (expense), net

Note 20 for information regarding gains (losses) from designated hedging instruments reclassified from accumulated other comprehensive

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

(losses) on derivative instruments recognized in the consolidated statements of comprehensive income were as follows:

ended December 31

exchange contracts:

Hedging Instruments

As of December 31, 2022, the Company

estimates that all of the net derivative losses related to the Company's foreign exchange cash flow hedges included in accumulated other

comprehensive loss will be reclassified into earnings within the next 12 months.

FAIR VALUE MEASUREMENTS

In accordance with ASC 820, the Company measures its cash equivalents and marketable securities, at fair value using the market approach valuation technique.

Cash equivalents and marketable securities are classified within Level 1 and Level 2, respectively, because these assets are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.

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 December 31, 2021 and 2020 by level within the fair value hierarchy:

Fair Value Hierarchy

Fair value measurements as

of December 31,

Cash equivalents:

Money market mutual funds

Derivative instruments asset:

Forward contracts designated as hedging instruments

Options and forward contracts not designated as hedging instruments

Short-term marketable securities:

Corporate bonds

Governmental bonds

Long-term marketable securities:

Corporate bonds

Governmental bonds

Derivative instruments liability:

Options and forward contracts not designated as hedging instruments

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

WARRANTY OBLIGATIONS

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

Balance, at the beginning of the period

Additions and adjustments to cost of revenues

Usage and current warranty expenses

Balance, at end of the period

Less current portion

Long term portion

accordance with ASC 820, the Company measures its cash equivalents and marketable securities, at fair value using the market approach

valuation technique.

Cash and cash equivalents are classified within Level 1 because these assets are valued using quoted market prices.

Marketable securities and foreign currency derivative contracts are classified within level 2 due to these assets being valued by alternative

pricing sources and models utilizing market observable inputs.

following table sets forth the Company’s assets that were measured at fair value as of December 31, 2022 and 2021 by level within

the fair value hierarchy:

value measurements as of

Cash and cash equivalents:

market mutual funds

Derivative instruments

Short-term marketable

Long-term marketable

Derivative instruments

to assets and liabilities that are recorded at fair value on a recurring basis, impairment indicators may subject goodwill and long-lived

assets to nonrecurring fair value measurements.

The implied fair values of the e-Mobility and Automation Machines reporting units were

estimated using the discounted cash flow approach (see Notes 8 and 9).

The inputs to these models are considered Level 3.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

in the Company’s product warranty obligations for the years ended December

31, 2022 , 2021 and 2020 were as follows:

at the beginning of the period

and adjustments to cost of revenues

and current warranty expenses

at end of the period

current portion

DEFERRED REVENUES

Deferred revenues consist of deferred cloud-based monitoring services, communication services, warranty extension services and advance payments received from customers for the Company’s products.

Deferred revenues are classified as short-term and long-term deferred revenues based on the period in which revenues are expected to be recognized.

Significant changes in the balances of deferred revenues during the period are as follows:

Balance, at the beginning of the period

Revenue recognized

Increase in deferred revenues and customer advances

Balance, at the end of the period

Less current portion

Long term portion

The following table includes estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of December 31, 2021:

revenues consist of deferred cloud-based monitoring services, communication services, warranty extension services and advance payments

received from customers for the Company’s products.

Deferred revenues are classified as short-term and long-term deferred revenues

based on the period in which revenues are expected to be recognized.

changes in the balances of deferred revenues during the period are as follows :

at the beginning of the period

in deferred revenues and customer advances

at the end of the period

current portion

following table includes estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied

(or partially unsatisfied) as of December 31, 2022 :

Total deferred revenues

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

As of December 31,

Accrued expenses

Government authorities

Operating lease liabilities

Provision for legal claims

Loans and borrowings

of December 31,

lease liabilities

for sales incentives

for legal claims

accrued expenses and other current liabilities

CONVERTIBLE SENIOR NOTES

On September 25, 2020, the Company sold $ 632,500 aggregate principal amount of its 0.00 % convertible senior notes due 2025 (the “Notes”).

The Notes were sold pursuant to an indenture, dated September 25, 2020 (the “Indenture”), between the Company and U.S.

September 25, 2020, the Company sold $ 632,500

aggregate principal amount of its 0.00 %

convertible senior notes due 2025 (the “Notes”).

The Notes were sold pursuant to an indenture, dated September 25, 2020 (the

“Indenture”), between the Company and U.S.

Bank National Association, as trustee (the “Trustee”).

The Notes do not bear regular interest and mature on September 15, 2025 , unless earlier repurchased or converted in accordance with their terms.

The Notes are general senior unsecured obligations of the Company.

Holders may convert their Notes prior to the close of business on the business day immediately preceding June 15, 2025 in multiples of $ 1,000 principal amount, only under the following circumstances:

(1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2020 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

(2) during the five-business-day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each trading day of that five consecutive trading day period was less than 98% of the product of the last reported sale price of the common stock and the conversion rate on each such trading day;

not bear regular interest and mature on September

15, 2025 , unless earlier repurchased or converted in accordance with their terms.

The Notes are general senior unsecured

obligations of the Company.

may convert their Notes prior to the close of business on the business day immediately preceding June 15, 2025 in multiples of $ 1,000

principal amount, only under the following circumstances:

(1) during any calendar quarter commencing after the calendar quarter ending

on December 31, 2020 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading

days (whether or not consecutive) during the period of 30

consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than

or equal to 130% of the conversion price on each applicable trading day;

(2) during the five-business-day period after any five consecutive

trading day period in which the trading price per $1,000 principal amount of the Notes for each trading day of that five consecutive trading

day period was less than 98% of the product of the last reported sale price of the common stock and the conversion rate on each such trading

or (3) upon the occurrence of specified corporate events as described in the Indenture.

In addition, holders may convert their Notes, in multiples of $1,000 principal amount, at their option at any time beginning on or after June 15, 2025, and prior to the close of business on the second scheduled trading day immediately preceding the stated maturity date of the Notes, without regard to the foregoing circumstances.

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.

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.

In addition, upon the occurrence of a fundamental change (as defined in the Indenture), holders of the Notes may require the Company to repurchase all or a portion of their Notes, in multiples of $ 1,000 principal amount, at a repurchase price of 100% of the principal amount of the Notes, plus any accrued and unpaid special interest, if any, to, but excluding, the repurchase date.

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

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

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

As of December 31,

Unamortized debt discount

Unamortized issuance costs

Net carrying amount

Equity component:

Amount allocated to conversion option

Deferred taxes liability, net

Allocated issuance costs

Equity component, net

Effective January 1, 2021, the Company early adopted ASU 2020-06 using the modified retrospective approach (see Note 2v.)

As of December 31, 2021, the issuance costs of the Notes will be amortized over the remaining term of approximately 3.7 years.

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

The following table presents the total amount of interest expenses recognized related to the Notes for the years ended December 31, 2021 and 2020:

Year ended December 31,

Amortization of debt discount

Amortization of debt issuance costs

Total interest expenses

As of December 31, 2021, the estimated fair value of the Notes, which the Company has classified as Level 2 financial instruments, is $ 811,327 .

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 December 31, 2021, the if-converted value of the Notes exceeded the principal amount by $ 178,827 .

In addition, holders may convert their Notes,

in multiples of $1,000 principal amount, at their option at any time beginning on or after June 15, 2025, and prior to the close of business

on the second scheduled trading day immediately preceding the stated maturity date of the Notes, without regard to the foregoing circumstances.

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.

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.

addition, upon the occurrence of a fundamental change (as defined in the Indenture), holders of the Notes may require the Company to repurchase

all or a portion of their Notes, in multiples of $ 1,000

principal amount, at a repurchase price of 100% of the principal amount of the Notes, plus any accrued and unpaid special interest, if

any, to, but excluding, the repurchase date.

If certain fundamental changes referred to as make-whole fundamental changes occur, the conversion

rate for the Notes may be increased.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

Convertible Senior Notes consisted of the following as of December 31, 2022 and 2021:

of December 31,

issuance costs

carrying amount

January 1, 2021, the Company early adopted ASU 2020-06 using the modified retrospective approach and therefore the Company did not record

amortized debt discount costs related to the Notes in the years ended December 31, 2022 and 2021.

For the year ended December 31, 2020,

the Company recorded amortized debt discount costs related to the Notes in the amount of $ 2,480 .

the years ended December 31, 2022 , 2021 and 2020

the Company recorded amortized debt issuance costs related to the Notes in the amount of $ 2,916 ,

and $ 3,185 ,

respectively .

of December 31, 2022, the issuance costs of the Notes will be amortized over the remaining term of approximately 2.7

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

of December 31, 2022, the estimated fair value of the Notes, which the Company has classified as Level 2 financial instruments, is $ 831 .

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.

of December 31, 2022, the if-converted value of the Notes exceeded the principal amount by $ 12,452 .

OTHER LONG TERM LIABILITIES

As of December 31,

Tax liabilities

Accrued severance pay

Deferred tax liability

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

STOCK CAPITAL

Common stock rights:

Common stock confers upon its holders the right to receive notice of, and to participate in, all general meetings of the Company, where each share of common stock shall have one vote for all purposes;

to share equally, on a per share basis, in bonuses, profits, or distributions out of fund legally available therefor;

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

Equity Incentive Plans:

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

The 2007 Plan terminated upon the Company’s IPO on March 31, 2015 and no further awards may be granted thereunder.

All outstanding awards will continue to be governed by their existing terms and 379,358 available options for future grant were transferred to the Company’s 2015 Global Incentive Plan (the “2015 Plan”) and are reserved for future issuances under the 2015 plan.

of December 31,

severance pay

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

stock rights:

stock confers upon its holders the right to receive notice of, and to participate in, all general meetings of the Company, where each

share of common stock shall have one vote for all purposes, to share equally, on a per share basis, in bonuses, profits, or distributions

out of fund legally available therefor, and to participate in the distribution of the surplus assets of the Company in the event

of liquidation of the Company.

public offering:

March 17, 2022, the Company offered and sold 2,300,000

shares of the Company’s common stock, at a public offering price of $ 295.00

The shares of Common Stock were issued and sold in a registered offering pursuant to the underwriting agreement dated March

17, 2022, among the Company, Goldman Sachs & Co.

Morgan Securities LLC, and Morgan Stanley & Co.

LLC (the “Underwriting

All of the offered shares were issued at closing, including 300,000

shares of Common Stock that were issued and sold pursuant to the underwriters’ option to purchase additional shares under the Underwriting

Agreement, which was exercised in full on March 18, 2022.

net proceeds to the Company were $ 650,526

after deducting underwriters' discounts of $ 27,140

and commissions of $ 834 .

Incentive Plans:

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

2007 Plan terminated upon the Company’s IPO on March 31, 2015 and no further awards may be granted thereunder.

All outstanding awards

will continue to be governed by their existing terms and 379,358

available options for future grants were transferred to the Company’s 2015 Global Incentive Plan (the “2015 Plan”) and

are reserved for future issuances under the 2015 plan.

The 2015 Plan became effective upon the consummation of the IPO.

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

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

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

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

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 December 31, 2021, an aggregate of 8,617,974 options are still available for future grant under the 2015 Plan.

The Company has also granted non-plan awards, which have been authorized by the Company's board of directors and granted as PSUs.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

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

Number of options

Weighted average exercise price

Weighted average remaining contractual term in years

Aggregate intrinsic Value

Outstanding as of December 31, 2020

Forfeited or expired

Outstanding as of December 31, 2021

Vested and expected to vest as of December 31, 2021

Exercisable as of December 31, 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 years ended December 31, 2021, 2020 and 2019 was $ 65,668 , $ 251,564 , and $ 37,509 , respectively.

The weighted average grant date fair value of options granted to employees and directors during the years ended December 31, 2021, 2020, and 2019, was $ 168.71 , $ 62.11 and $ 19.83 , respectively.

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

Number of RSUs and PSUs

Weighted average grant date fair value

Unvested, at beginning of the period

Unvested, at end of the period

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

The weighted-average grant-date fair value of RSUs and PSUs granted during the years ended December 31, 2021, 2020 and 2019, was $ 278.03 , $ 71.46 and $ 41.45 , respectively.

Employee Stock Purchase Plan:

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

As of December 31, 2021, 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.

However, the Company’s board of directors may reduce the amount of the increase in any particular year at their discretion, including a reduction to zero.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

The ESPP is implemented through an offering every six months.

According to the ESPP, eligible employees may use up to 15 % of their salaries to purchase common stock up to an aggregate limit of $ 15 per participant for every six months plan.

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 December 31, 2021, 661,827 shares of common stock had been purchased under the ESPP.

As of December 31, 2021, 2,513,267 shares of common stock were available for future issuance under the ESPP.

In accordance with ASC No.

The 2015 Plan

provides for the grant of options, restricted stock units ("RSU"), performance stock units ("PSU"), and other share-based awards to directors,

employees, officers, and non-employees of the Company and its subsidiaries.

As of December 31,

2022, a total of 18,047,085

shares of common stock were reserved for issuance pursuant to stock awards under the 2015 Plan (the “Share Reserve”) ,

an aggregate of 9,410,816

shares are still available for future grants.

Share Reserve will automatically increase on January 1 st of each year during the term of the 2015 Plan, commencing on

January 1 st of the year following the year in which the 2015 Plan becomes effective, in an amount equal to 5 %

of the total number of shares of capital stock outstanding on December 31 st

of the preceding calendar year;

provided, however, that the Company’s board of directors may determine that there will not be a

January 1 st 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 31 st .

Company granted under its 2015 Plan, PSU awards to certain employees and officers which vest upon the achievement of certain performance

or market conditions subject to their continued employment with the Company.

2021, the Company has also committed to issuing additional shares, which are subject to resale registration rights and which carry certain

performance conditions (including business performance targets and a continued service relationship with the Company) and are treated

as PSUs for accounting purposes.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

market condition for the PSUs is based on the Company’s total shareholder return ("TSR") compared to the TSR of companies listed

in the S&P 500 index over a one to three year performance period.

The Company uses a Monte-Carlo simulation to determine the grant

date fair value for these awards, which takes into consideration the market price of a share of the Company’s common stock on the

date of grant less the present value of dividends expected during the requisite service period, as well as the possible outcomes pertaining

to the TSR market condition.

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

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 December 31, 2022, an aggregate of 8,617,974

options are still available for future grants under the 2015 Plan.

summary of the activity in stock options and related information is as follows:

as of December 31, 2021

as of December 31, 2022

and expected to vest as of December 31, 2022

as of December 31, 2022

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.

total intrinsic value of options exercised during the years ended December 31, 2022, 2021 and 2020 was $ 37,948 ,

and $ 251,564 ,

respectively.

were no options granted in 2022.

average grant date fair value of options granted to employees and directors during the years ended December 31, 2021 and 2020, was $ 168.71

and $ 62.11 ,

respectively.

summary of the activity in the RSUs and related information is as follows:

Unvested as of January 1, 2022

Unvested as of December 31, 2022

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

of the activity in the PSUs and related information is as follows:

Unvested as of January 1, 2022

Unvested as of December 31, 2022

Stock Purchase Plan:

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

As of December 31, 2022 , total

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

However, the Company’s board of directors may reduce the amount of the increase in any particular year at their discretion,

including a reduction to zero.

ESPP is implemented through an offering every six months.

According to the ESPP, eligible employees may use up to 15 %

of their salaries to purchase common stock up to an aggregate limit of $ 15

per participant for every six months plan.

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.

of December 31, 2022 , 738,876

shares of common stock had been purchased under the ESPP.

of December 31, 2022 , 2,923,861

shares of common stock were available for future issuance under the ESPP.

accordance with ASC No.

718, the ESPP is compensatory and, as such, results in recognition of compensation cost.

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

The Company recognized stock-based compensation expenses related to stock options, RSUs and PSUs granted to employees and non-employees and the ESPP in the consolidated statement of income for the years ended December 31, 2021, 2020 and 2019, as follows:

Year ended December 31,

Cost of revenues

Research and development

Selling and marketing

General and administrative

Other operating expenses

Total stock-based compensation expenses

As of December 31, 2021, there were total unrecognized compensation expenses in the amount of $ 309,177 related to non-vested equity-based compensation arrangements granted under the Company’s Plans and non-plan awards.

These expenses are expected to be recognized during the period from January 1, 2022 through May 31, 2026.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

COMMITMENTS AND CONTINGENT LIABILITIES

As of December 31, 2021, contingent liabilities exist regarding guarantees in the amounts of $ 4,938 and $ 2,250 in respect of office rent lease agreements and other transactions, respectively.

Contractual purchase obligations:

The Company has contractual obligations to purchase goods and raw materials.

These contractual purchase obligations relate to inventories and other purchase orders , which cannot be canceled without penalty.

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 December 31, 2021, the Company had non-cancelable purchase obligations totaling approximately $ 1,428,766 , out of which the Company recorded a provision for loss in the amount of $ 4,071 .

As of December 31, 2021, the Company had contractual obligations for capital expenditures totaling approximately $ 168,528 .

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.

Legal claims:

From time to time, the Company may be involved in various claims and legal proceedings.

The Company reviews the status of each matter and assesses its potential financial exposure.

If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss.

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.

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

The complaint, filed in the District Court Düsseldorf, Germany, alleges that SolarEdge's 12.5kW - 27.6kW inverters infringe two of the plaintiff’s patents.

SMA asserted a value in dispute of EUR 5.5 million (approximately $ 6,225 ) for both patents.

compensation expenses:

Company recognized stock-based compensation expenses related to all stock-based awards in the consolidated statement of income for the

years ended December 31, 2022, 2021 and 2020, as follows:

ended December 31,

and development

and marketing

and administrative

stock-based compensation expenses

the year ended December 31, 2022, the Company capitalized $ 380

stock-based compensation related to the ERP implementation within other long-term assets in the consolidated

balance sheets for the year ended December 31, 2022.

In 2021 and 2020 the Company did not capitalize any stock-based compensation

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

total tax benefit associated with share-based compensation for the year ended December 31, 2022, 2021 and 2020 was $ 7,747 ,

and $ 7,847 ,

respectively.

The tax benefit realized from share-based compensation for the year ended December 31, 2022, 2021 and 2020 was $ 10,171 ,

and $ 11,263 ,

respectively.

of December 31, 2022 , there were total unrecognized compensation expenses in the amount of $ 343,473

related to non-vested equity-based compensation arrangements granted.

These expenses are expected to be recognized

during the period from October 1, 2022 through November 30, 2026.

AND CONTINGENT LIABILITIES

of December 31, 2022, contingent liabilities exist regarding guarantees in the amounts of $ 5,655

in respect of office rent lease agreements and customs and other transactions, respectively.

purchase obligations:

Company has contractual obligations to purchase goods and raw materials.

These contractual purchase obligations relate to inventories

and other purchase orders, which cannot be canceled without penalty.

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.

of December 31, 2022, the Company had non-cancelable purchase obligations totaling approximately $ 1,590,229 ,

out of which the Company recorded a provision for loss in the amount of $ 7,002 .

of December 31, 2022, the Company had contractual obligations for capital expenditures totaling approximately $ 73,955 .

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 second lithium-ion cell and battery factory

time to time, the Company may be involved in various claims and legal proceedings.

The Company reviews the status of each matter and assesses

its potential financial exposure.

If the potential loss from any claim or legal proceeding is considered probable and the amount can be

reasonably estimated, the Company accrues a liability for the estimated loss.

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.

September 2018, the Company’s German subsidiary, SolarEdge Technologies GmbH received a complaint filed by competitor SMA Solar

Technology AG (“SMA”).

The complaint, filed in the District Court Düsseldorf, Germany, alleges that SolarEdge's 12.5kW

- 27.6kW inverters infringed on two of the plaintiff’s patents.

SMA asserted a value in dispute of EUR 5.5

million (approximately $ 5,866 )

for both patents.

The Company challenged the validity of both patents.

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

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

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

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”).

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.

A first-instance judgment was issued on August 7, 2020 ordering the three defendants to collectively pay damages in the amount of approximately Chinese Yuan (“CNY”) 10.5 million (approximately $ 1,647 ), including court fees.

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

The Company's appeal to the Supreme People's Court was denied in December of 2021, rendering a payment by us to Huawei in an amount of $ 1,647 .

The judgement is not enforceable until the end of February 2022.

In addition, in January 2021, Huawei filed a motion to increase its claimed monetary damages to CNY 50.5 million (approximately $ 7,923 ) with respect to the second lawsuit.

In February 2021, a preliminary injunction was rendered by the Guangzhou intellectual property court with respect to such second lawsuit and applying to seven inverter models.

In line with the court’s mandate, the Company took immediate action to make software changes to meet the court order.

In addition, in February 22, 2021 a first-instance judgment was issued ordering payment of damages in the amount of CNY 50.5 million (approximately $ 7,923 ), including court fees, with respect to the second patent.

The Company appealed this judgement with the Supreme People’s Court which case is still pending.

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

In October 2021, a first-instance judgment was issued ordering to pay damages in the amount of approximately CNY 10.5 million (approximately $ 1,647 ), including court fees, with respect to the third lawsuit.

The Company has filed an appeal with the Supreme People’s Court of China which also is still pending.

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.

In December 2019, the Company received a lawsuit filed by a former consultant of the Company and its Israeli subsidiary in the amount of NIS 25.5 million (approximately $ 8,199 ) claiming damages caused relating to a terminated consulting agreement and stock options therein.

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

As of December 31, 2021, accrued amounts for legal claims of $ 11,622 were recorded in accrued expenses and other current liabilities.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

With respect to one of the claims, in October 2020, the German

Patent Court rendered the SMA patent invalid, the invalidity was appealed by SMA and in January 2023, the German Supreme Court upheld

the finding of invalidity.

With respect to the other claim, in November 2019, the first instance court stayed the infringement proceedings

since it considered it to be highly likely that the second SMA patent would also be rendered invalid.

In August 2021, the German Patent

Court rendered SMA's second patent invalid, and this invalidity has been appealed by SMA and a hearing is pending.

The Company believes

that it has meritorious defenses to these claims and intends to vigorously defend against the remaining lawsuit.

July 28, 2022, the Company was served with complaints filed by Ampt LLC in the International Trade Commission (the “Commission”)

pursuant to Section 337 of the Tariff Act of 1930, as amended, in the District Court for the District of Delaware alleging patent infringement

against the Company and its subsidiary SolarEdge Technologies Ltd.

On October 24, 2022, the complaint filed in the District Court of Delaware

was administratively stayed until the Commission's action is resolved.

The Company believes that it has meritorious defenses to the complaints

and intend to vigorously defend against them.

November 3, 2022, the Company received notice that a class action lawsuit was filed in the U.S District Court or the Southern District

of New York against the Company, SolarEdge Technologies Ltd., the Company’s CEO and the Company’s CFO, by a purported stockholder

of the Company, alleging violations of the Federal Securities Act in connection with complaints filed against the Company by Ampt LLC,

detailed above.

On February 14, 2023, the lawsuit was voluntarily withdrawn by the plaintiffs and dismissed by the court.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes in accumulated balances of other comprehensive income (loss), net of taxes, for the year ended December 31, 2021:

Unrealized gains (losses) on available-for-sale marketable securities

Unrealized gains on cash flow hedges

Foreign currency translation adjustments on intra-entity transactions that are of a long-term investment in nature

Unrealized gains (losses) on cash flow hedges

Foreign currency translation adjustments on intra-entity transactions

that are of a long-term investment in nature

Unrealized gains (losses) on foreign currency translation

Beginning balance

Beginning balance as of January 1, 2020

Tax on revaluation

2 unchanged sentences

Tax on reclassification

Losses reclassified from accumulated other comprehensive income

Gains reclassified from accumulated other comprehensive income

Net current period other comprehensive income (loss)

Ending balance

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

The following table summarizes the changes in accumulated balances of other comprehensive loss (loss), net of taxes, for the year ended December 31, 2020:

Unrealized gains (losses) on available-for-sale marketable securities

Unrealized gains on cash flow hedges

Foreign currency translation adjustments on intra-entity transactions that are of a long-term investment in nature

Unrealized gains (losses) on foreign currency translation

Beginning balance

Ending balance as of December 31, 2020

Tax on revaluation

2 unchanged sentences

Tax on reclassification

Losses reclassified from accumulated other comprehensive income

Gains reclassified from accumulated other comprehensive income

Net current period other comprehensive income (loss)

Ending balance

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

The following table summarizes the changes in accumulated balances of other comprehensive income (loss), net of taxes, for the year ended December 31, 2019:

Unrealized gains (losses) on available-for-sale marketable securities

Unrealized gains on cash flow hedges

Foreign currency translation adjustments on intra-entity transactions that are of a long-term investment in nature

Unrealized gains (losses) on foreign currency translation

Beginning balance

Ending balance as of December 31, 2021

Tax on revaluation

Other comprehensive income (loss) before reclassifications

Other comprehensive loss before reclassifications

Reclassification

1 unchanged sentence

Losses reclassified from accumulated other comprehensive income

Net current period other comprehensive income (loss)

Ending balance

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

The following table provides details about reclassifications out of accumulated other comprehensive income (loss) for the years ended December 31, 2021, 2020 and 2019:

Details about Accumulated Other Comprehensive Income (Loss) Components

Amount Reclassified from Accumulated Other Comprehensive Income (Loss)

Affected Line Item in the Statement of Income

Unrealized gains on available-for-sale marketable securities

Financial income (expenses), net

Net current period other comprehensive loss

Ending balance as of December 31, 2022

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

following table provides details about reclassifications out of accumulated other comprehensive income (loss) for the years ended December 31,

2022, 2021 and 2020:

about Accumulated Other Comprehensive Income (Loss)

Amount Reclassified from

Accumulated Other Comprehensive Income (Loss)

Line Item in the Statement of Income

Unrealized gains (losses) on available-for-sale

marketable securities

income (expenses), net

net of income taxes

Unrealized gains (losses) on cash

and development

and marketing

and administrative

before income taxes

Total, net of income taxes

Unrealized gains on cash flow hedges, net

Cost of revenues

Research and development

Sales and marketing

General and administrative

Total, before income taxes

Total reclassifications for the period

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

reclassifications for the period

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

EARNINGS PER SHARE

The following table presents the computation of basic and diluted EPS attributable to SolarEdge Technologies Inc.:

Year ended December 31,

Net loss attributable to Non-controlling interests

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

Net income attributable to common stock, basic

Net loss attributable to Non-controlling interests

Undistributed earnings reallocated to non-vested stockholders

Notes due 2025

Net income attributable to common stock, diluted

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

Non-vested PSUs

Notes due 2025

Effect of stock-based awards

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

No shares were excluded from the calculation for the year ended December 31, 2021.

2,276,818 and 312,128 shares of common stock were excluded from the calculation of diluted net EPS due to their anti-dilutive effect for the years ended December 31, 2020 and 2019, respectively.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

OTHER OPERATING EXPENSES (INCOME), NET

Year ended December 31,

Kokam purchase escrow (1)(2)

Write-off of long-lived assets

Compensation package related to the passing of the former Founder, CEO and Chairman(3)

Termination of SolarEdge Automation Machines’s former executive(4)

Sale of SolarEdge Automation Machines’s subsidiary(5)

Total other operating expenses (income)

In the year ended December 31, 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 year ended December 31, 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.

On August 25, 2019, the Company announced the untimely death of Mr.

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

The amount is related to payroll, bonus and acceleration of stock-based compensation award.

As part of SolarEdge Automation Machines acquisition, the Company issued to a shareholder who had served as an executive of SolarEdge Automation Machines 334,095 PSUs, which were subject to certain performance goals and a vesting period.

In December 2019, in connection with a separation agreement between the parties, the Company and the shareholder amended the original agreement, which resulted in a modification to the terms of 150,000 of the original PSUs, such as, the fair value of the PSU, the service period and the performance goals.

The Company exercised a call option with respect to the remaining 183,395 PSUs, for a price per share equal to € 0.01 .

On December 31, 2019, the Company completed the sale of a SolarEdge Automation Machines subsidiary.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

following table presents the computation of basic and diluted EPS attributable to SolarEdge Technologies Inc.:

ended December 31,

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

income attributable to common stock, basic

income attributable to common stock, diluted

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

of stock-based awards

used in computing net earnings per share of common stock, diluted

excluded from the calculation of diluted net EPS due to their anti-dilutive effect

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

IMPAIRMENT AND OTHER OPERATING EXPENSES (INCOME), NET

ended December 31,

of goodwill 1

of long-lived assets 2

Korea (formerly Kokam) purchase escrow 3

goodwill impairment and other operating expenses (income)

In June 2022, the Company decided to discontinue its stand-alone Critical Power activities.

The Company recorded a loss related

to its Critical Power business in the amount of $ 2,782

( see Note 9 ).

in October 2022, as a result of an impairment test performed on the e-Mobility and Automation Machines reporting units, the Company recorded

a loss of $ 80,534

and $ 6,788 ,

respectively (see Note 9).

In October 2022, the Company recorded a loss of $ 26,917

as a result of an impairment test performed on e-Mobility and Automation Machines, respectively, a loss of $ 1,226

due to the discontinuance of Critical Power activities (see Note 8) and other miscellaneous items.

I n the year ended December 31, 2021, the Company received a payment of $ 859

out of the SolarEdge Korea (formerly Kokam) acquisition escrow, with regards to a working capital adjustment.

In the year ended December

31, 2020, the Company was indemnified for an amount of $ 4,900

out of the escrow, with regards to a legal claim of SolarEdge Korea (formerly Kokam) that was settled in arbitration.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

Tax rates in the U.S:

The Company is subject to U.S.

Company is subject to U.S.

federal tax at the rate of 21 %.

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

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

income tax law.

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

The Tax Act required the Company to pay U.S.

changes include, but are not limited to, a corporate tax rate decrease from 35 %

effective for tax years 2018 onwards and created new taxes on certain foreign-sourced earnings and certain related-party payments - the

Global Intangible Low Taxed Income (“GILTI”).

Furthermore, changes introduced by the Tax

Act to Section 174 of the Internal Revenue Code, that came into effect on January 1, 2022, require taxpayers to amortize research and

development expenditures over five years (if expensed by a U.S.

entity) or fifteen years (if expensed by non-U.S.

entities), thereby increasing

taxable income and payable tax.

Tax Act required the Company to pay U.S.

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

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

The total tax liability was calculated to approximately $ 8,500 , which will be paid over the eight-year period provided in the Tax Act (ending 2024).

tax at a rate of 15.5 %

to the extent of foreign cash and certain other net current assets and 8 %

on the remaining earnings.

The total tax liability was calculated to approximately $ 8,500 ,

which will be paid over the eight-year period provided in the Tax Act (ending 2024).

Corporate tax in Israel:

The taxable income of Israeli companies is subject to corporate tax at the rate of 23 %.

The Israeli subsidiary is also eligible for tax benefits as further described in note 22i.

taxable income of Israeli companies is subject to corporate tax at the rate of 23 %.

Israeli subsidiary is also eligible for tax benefits as further described in note 23.j.

Carryforward tax losses:

As of December 31, 2021, the foreign subsidiaries have carryforward tax losses of $ 83,916 which does not have an expiration date.

of December 31, 2022, the foreign subsidiaries have carryforward tax losses of $ 83,391 which

does not have an expiration date.

Deferred taxes:

Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

Significant components of the Company’s deferred tax liabilities and assets are as follows:

Deferred tax assets, net:

Research and Development carryforward expenses

taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting

purposes and the amounts used for income tax purposes.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

components of the Company’s deferred tax liabilities and assets are as follows:

tax assets, net:

and Development carryforward expenses

Carryforward tax losses (1)

Stock based compensation expenses

Deferred revenue

Inventory Impairment

Allowance and other reserves

Total Gross deferred tax assets, net

Less, Valuation Allowance

Total deferred tax assets, net

Deferred tax liabilities, net:

Intercompany transactions

Convertible Note

Purchase price allocation

Total deferred tax liabilities, net

based compensation expenses

and other reserves

Gross deferred tax assets, net

Valuation Allowance

deferred tax assets, net

tax liabilities, net:

R ight-of-use

price allocation

deferred tax liabilities, net

Net deferred tax assets

(1) Related to deferred tax assets that would only be realizable upon the generation of net income in certain foreign jurisdictions.

The Company’s Israeli subsidiary’s tax-exempt profit from Benefited Enterprises (as defined in note 22.i) is permanently reinvested, Therefore, deferred taxes have not been provided for such tax-exempt income.

The Company may incur additional tax liability in the event of intercompany dividend distributions by some of its subsidiaries.

Such additional tax liability in respect of these subsidiaries has not been provided for in the Financial Statements as the Company’s management and the Board of Directors has determined that the Company intends to reinvest earnings of its subsidiaries indefinitely.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

Uncertain tax positions:

Balance, at the beginning of the period

Increases related to current year tax positions

Increase for tax positions related to prior years

Decreases related to prior year tax positions

Balance, at end of the period

The total amount of gross unrecognized tax benefits was $ 2,192 , $ 10,564 and $ 9,532 as of December 31, 2021, 2020 and 2019, respectively, and if recognized, would affect our 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 not material as of December 31, 2021,2020 and 2019.

It is reasonably possible that the Company’s gross unrecognized tax benefits will decrease by up to $ 57 in the next 12 months, primarily due to the lapse of the statute of limitations.

These adjustments, if recognized, would positively impact the Company’s effective tax rate, and would be recognized as additional tax benefits.

tax assets, net

tax liabilities, net

deferred tax assets

to deferred tax assets that would only be realizable upon the generation of net income in certain foreign jurisdictions.

The Company’s Israeli subsidiary’s tax-exempt profit

from Benefited Enterprises (as defined in note 23.j) is permanently reinvested, Therefore, deferred taxes have not been provided for such

tax-exempt income.

Company may incur additional tax liability in the event of intercompany dividend distributions by some of its subsidiaries.

Such additional

tax liability in respect of these subsidiaries has not been provided for in the Financial Statements as the Company’s management

and the Board of Directors has determined that the Company intends to reinvest earnings of its subsidiaries indefinitely.

Uncertain tax positions are comprised as follows:

at the beginning of the period

related to current year tax positions

for tax positions related to prior years

related to prior year tax positions

at end of the period

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

total amount of gross unrecognized tax benefits above would affect the Company's effective tax rate, if recognized.

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

The total amount of penalties

and interest were not material as of December 31, 2022 , 2021 and

is reasonably possible that the Company’s gross unrecognized tax benefits will decrease by an insignificant amount in the next 12

months, primarily due to the lapse of the statute of limitations.

Income before income taxes are comprised as follows:

4 unchanged sentences

Current taxes:

Federal and State

Total current taxes

Deferred taxes:

Federal and State

Total deferred taxes

Income taxes, net

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

Reconciliation of theoretical tax expense to actual tax expense:

The differences between the statutory tax rate of the Company and the effective tax rate are result of a variety of factors, including different effective tax rates applicable to non-US subsidiaries that have tax rates different than the Company tax rate, tax benefits relating to stock-based compensation and adjustments to valuation allowances on deferred tax assets on such subsidiaries.

A reconciliation between the theoretical tax expense and the actual tax expense (benefit) as reported in the consolidated statements of income is as follows:

differences between the statutory tax rate of the Company and the effective tax rate are result of a variety of factors, including different

effective tax rates applicable to non-US subsidiaries that have tax rates different than the Company tax rate, tax benefits relating to

stock-based compensation and adjustments to valuation allowances on deferred tax assets on such subsidiaries.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

reconciliation between the theoretical tax expense and the actual tax expense as reported in the consolidated statements of income is

Year ended December 31,

3 unchanged sentences

Losses and timing differences for which valuation allowance was provided

Prior year tax Income/(Expenses)

Tax Cuts and Jobs Act of 2017

Prior year income taxes (benefit)

R&D Capitalization and other effects of TCJA

Disallowable and allowable deductions

2 unchanged sentences

Tax assessments:

The Israeli tax authorities issued a tax assessments for tax years 2016 and 2018 against the Company’s Israeli subsidiary challenging the subsidiary's positions on several issues.

The Israeli subsidiary has appealed the tax assessments.

The Company believes it has adequately provided for these items, however adverse results could have a material impact on the Company’s financial statements.

As of December 31, 2021, the Company and certain of its subsidiaries filed U.S.

Israeli tax authorities issued a tax order for tax year 2016 and tax assessments for tax years 2017 and 2018 against the Company’s

Israeli subsidiary, challenging the subsidiary's positions on several issues.

The Israeli subsidiary has protested the order before the

Central District Court in Israel and appealed the tax assessments.

Company believes it has adequately provided for these items, however adverse results could have a material impact on the Company’s

financial statements.

of December 31, 2022, the Company and certain of its subsidiaries filed U.S.

federal and various state and foreign income tax returns.

1 unchanged sentence

federal income tax return is closed for all tax years up to and including

The statute of limitations related to tax returns of the Company’s Israeli subsidiary for all tax years up to and including 2015 has lapsed.

The statute of limitations related to tax returns of the Company’s other subsidiaries has lapsed for part of the tax years, which differs between the different subsidiaries.

Tax benefits for Israeli companies under the Law for the Encouragement of Capital Investments, 1959 (the “Investments Law”):

The Israeli subsidiary elected tax year 2012 as a "Year of Election" for “Benefited Enterprise” status under the Investments Law.

According to the Investments Law, the Israeli subsidiary elected to participate in the alternative benefits program which provides certain benefits, including tax exemptions and reduced tax rates (which depend on, inter alia, the geographic location in Israel).

Income not eligible for Benefited Enterprise benefits is taxed at a regular corporate tax rate.

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

Upon meeting the requirements under the Investments Law, undistributed income derived from Benefited Enterprise from productive activity will be exempt from tax for two years from the year in which the Israeli subsidiary first has taxable income (“exempt period”), provided that 12 years have not passed from the beginning of the year of election.

On October 24, 2018, the Company’s Israeli subsidiary received an approval from the Israeli Tax Authorities confirming the applicability of the two-year tax exemption as provided in the Investments Law until December 31, 2018.

As of December 31, 2018, approximately $ 289,900 was derived from tax exempt profits earned by the Israeli subsidiary “Benefited Enterprises” in the two tax years exempt period, tax years 2017 - 2018.

The Company has determined that such tax-exempt income will not be distributed as dividends and intends to reinvest the amount of its tax-exempt income earned by the Israeli subsidiary.

Accordingly, no provision for deferred income taxes has been provided on income attributable to the Israeli subsidiary “Benefited Enterprises” as such income is essentially permanently reinvested.

If the Israeli subsidiary’s retained tax-exempt income is distributed, the income would be taxed at the applicable corporate tax rate which depends on the foreign ownership in each tax year.

Through December 31, 2021, the Israeli subsidiary had generated income under the provision of the Investments Law.

Pursuant to amendment 73 to the Investments Law (the “2017 Amendment"), a preferred enterprise located in development area A will be subject to a tax rate of 7.5 % instead of 9 % effective from January 1, 2017 and thereafter (the tax rate applicable to preferred enterprises located in other areas remains at 16 %).

The 2017 Amendment also prescribes special tax tracks for preferred technological enterprises (“PTE”), which are subject to rules that were issued by the Ministry of Finance.

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

The Regulations describe, inter alia, the mechanism used to determine the calculation of the benefits under the PTE regime.

According to these regulations, a company that complies with the terms under the PTE regime may be entitled to certain tax benefits with respect to income generated during the company’s regular course of business and derived from the preferred intangible asset, excluding income derived from intangible assets used for marketing and income attributed to production activity.

A PTE, which is located in the center of Israel will be subject to tax at a rate of 12 % on profits deriving from intellectual property (in development Zone A - a tax rate of 7.5 %).

The Israeli subsidiary’s PTE facilities in Israel are not located in Development Zone A.

The Israeli subsidiary has developed its own solar products manufacturing facilities in Israel, located in a Development Zone A.

The Israeli subsidiary notified the ITA of its election to implement the PTE with effect from January 1, 2019.

Tax Benefits for Research and Development:

Israeli tax law (section 20A to the Israeli Tax Ordinance (New Version), 1961) allows, a tax deduction for research and development expenses, including capital expenses, for the year in which they are paid.

Such expenses must relate to scientific research in industry, agriculture, transportation or energy, and must be approved by the relevant Israeli government ministry, determined by the field of research.

As for expenses incurred in scientific research that is not approved by the relevant Israeli government ministry, they will be deductible over a three-year period starting from the tax year in which they are paid.

The Company’s Israeli subsidiary intends to submit a formal request to the relevant Israeli government ministry in order to obtain such approval for 2019 - 2021.

statute of limitations related to tax returns of the Company’s Israeli subsidiary for all tax years up to and including 2015 has

statute of limitations related to tax returns of the Company’s other subsidiaries has lapsed for part of the tax years, which differs

between the different subsidiaries.

Tax benefits for Israeli companies

under the Law for the Encouragement of Capital Investments, 1959 (the “Investments Law”):

Israeli subsidiary elected tax year 2012 as a "Year of Election" for “Benefited Enterprise” status under the Investments Law.

According to the Investments Law, the Israeli subsidiary elected to participate in the alternative benefits program which provides certain

benefits, including tax exemptions and reduced tax rates (which depend on, inter alia, the geographic location in Israel).

eligible for Benefited Enterprise benefits is taxed at a regular corporate tax rate.

meeting the requirements under the Investments Law, undistributed income derived from Benefited Enterprise from productive activity will

be exempt from tax for two years from the year in which the Israeli subsidiary first has taxable income (“exempt period”),

provided that 12 years have not passed from the beginning of the year of election.

October 24, 2018, the Company’s Israeli subsidiary received an approval from the Israeli Tax Authorities confirming the applicability

of the two-year tax exemption as provided in the Investments Law until December 31, 2018.

As of December 31, 2018, approximately $ 289,900

was derived from tax exempt profits earned by the Israeli subsidiary “Benefited Enterprises” in the two tax years exempt period,

tax years 2017 - 2018.

The Company has determined that such tax-exempt income will not be distributed as dividends and intends to reinvest

the amount of its tax-exempt income earned by the Israeli subsidiary.

Accordingly, no provision for deferred income taxes has been provided

on income attributable to the Israeli subsidiary “Benefited Enterprises” as such income is essentially permanently reinvested.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

the Israeli subsidiary’s retained tax-exempt income is distributed, the income would be taxed at the applicable corporate tax rate

which depends on the foreign ownership in each tax year.

December 31, 2022, the Israeli subsidiary had generated income under the provision of the Investments Law.

to amendment 73 to the Investments Law (the “2017 Amendment"), a preferred enterprise located in development area A will be

subject to a tax rate of 7.5 %

instead of 9 %

effective from January 1, 2017 and thereafter (the tax rate applicable to preferred enterprises located in other areas remains at 16 %).

2017 Amendment also prescribes special tax tracks for preferred technological enterprises (“PTE”), which are subject to rules

that were issued by the Ministry of Finance.

June 14, 2017, the Encouragement of Capital Investments Regulations (Preferred Technological Income and Capital Gain for Technological

Enterprise), 2017 (the “Regulations”) were published.

Regulations describe, inter alia, the mechanism used to determine the calculation of the benefits under the PTE regime.

According to these

regulations, a company that complies with the terms under the PTE regime may be entitled to certain tax benefits with respect to income

generated during the company’s regular course of business and derived from the preferred intangible asset, excluding income derived

from intangible assets used for marketing and income attributed to production activity.

PTE, which is located in the center of Israel will be subject to tax at a rate of 12 %

on profits deriving from intellectual property, or 6% if its annual revenues exceed NIS 10

The Israeli subsidiary notified the ITA of its election to implement the PTE with effect from January 1, 2019, and its PTE income

was subject to a 12% tax rate in the years 2019-2021, and in 2022 to a 6% tax rate as the group surpassed NIS 10

billion revenues threshold.

Benefits for Research and Development:

tax law (section 20A to the Israeli Tax Ordinance (New Version), 1961) allows, a tax deduction for research and development expenses,

including capital expenses, for the year in which they are paid.

Such expenses must relate to scientific research in industry, agriculture,

transportation or energy, and must be approved by the relevant Israeli government ministry, determined by the field of research.

expenses incurred in scientific research that is not approved by the relevant Israeli government ministry, they will be deductible over

a three-year period starting from the tax year in which they are paid.

The Company’s Israeli subsidiary intends to submit a formal

request to the relevant Israeli government ministry in order to obtain such approval for 2019 - 2021.

Tax benefits under the Law for the Encouragement of Industry (Taxes), 1969:

The Company’s Israeli subsidiary claims currently to be qualified as ‘industrial company’ as defined by this law and as such, is entitled to certain tax benefits, consisting mainly of accelerated depreciation and amortization of patents and certain other intangible property

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

Company’s Israeli subsidiary claims currently to be qualified as ‘industrial company’ as defined by this law and as

such, is entitled to certain tax benefits, consisting mainly of accelerated depreciation and amortization of patents and certain other

intangible property.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

FINANCIAL INCOME (EXPENSE), NET

Year ended December 31,

Exchange rate (loss) gain, net

Marketable securities

Convertible note

Interest expenses

Other financial income (expenses), net

SEGMENT, GEOGRAPHIC AND PRODUCT INFORMATION

ended December 31,

rate (loss) gain, net

income on marketable securities

component expenses related to ASC 606

financial income (expenses), net

GEOGRAPHIC AND PRODUCT INFORMATION

Segment Information:

The Company operates in five different operating segments:

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

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

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

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.

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

The Company identified one operating segment as reportable – the Solar segment.

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

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

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

Year ended December 31,

the discontinuation of Critical Power in June 2022, the Company operates in four different operating segments:

Solar, Energy Storage,

e-Mobility and Automation Machines.

Company's Chief Executive Officer, who is the chief operating decision maker (“CODM”), makes resource allocation decisions

and assesses performance based on financial information presented on a consolidated basis, accompanied by disaggregated information about

revenues and contributed profit by the operating segments.

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” (ASC 606).

profit is comprised of gross profit for the segment less operating expenses that do not include amortization and impairment of purchased

intangible assets, stock based compensation expenses and certain other items.

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

The Company’s CODM

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

Company identified one

operating segment as reportable – the Solar segment.

The other operating segments are insignificant individually and therefore their

results are presented together under “All other”.

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.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

other” category includes the design, development, manufacturing and sales of energy storage products, e-Mobility products, UPS products

and automated machines

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

ended December 31,

Cost of revenues

3 unchanged sentences

Segments profit (loss)

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

Year ended December 31,

Solar segment revenues

All other segment revenues

Revenues from financing component

Inter-segment revenues

Consolidated revenues

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

Year ended December 31,

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

ended December 31,

segment revenues

other segment revenues

from financing component

Inter-segment

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

ended December 31,

Solar segment profit

1 unchanged sentence

Segments operating profit

Amounts not allocated to segments:

Stock based compensation expenses

Amortization related to business combinations

Sale of SolarEdge Automation Machines’ subsidiary

Legal settlement

Other unallocated expenses

Inter-segment profit

Consolidated operating income

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands, except per share data)

Amounts not allocated

based compensation expenses

and depreciation of acquired assets

of goodwill and long-lived assets

of assets related to Critical Power

unallocated income (expenses), net

Consolidated operating

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

Revenues by geographic, based on Customers’ location:

Year ended December 31,

United States

Rest of the world

Total revenues

(*) Except for Netherlands

Revenues by product:

Year ended December 31,

Total revenues

ended December 31,

Except for Germany, Netherlands and Italy

Revenues by type:

ended December 31,

Residential batteries

components and telematics

Communication

Long-lived assets by geographic location:

As of December 31,

of December 31,

Total long-lived assets (*)

(*) Long-lived assets are comprised of property and equipment, net and Operating lease right-of-use assets, net.

(*) Long-lived

assets are comprised of property and equipment, net and Operating lease right-of-use assets, net.

TECHNOLOGIES INC.

TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

(in thousands,

except per share data)

SUBSEQUENT EVENTS

In January 2023,

the Company entered into an agreement to acquire Hark Systems Ltd.

("Hark"), a UK-based energy IoT company for the C&I sector.

platform will enable the Company to grow its commercial and industrial energy management portfolio and offer additional services to its

C&I customers.

The acquisition is still subject to certain customary closing conditions and regulatory approvals and is expected to

close during the second quarter of 2023.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data