What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-08 compared with 2022-11-08 · 107 added, 181 removed, 146 unchanged (66% of the section changed)

41 unchanged sentences

• unrest, terrorism, or armed conflict in Israel;

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

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

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

7 unchanged sentences

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

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

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

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

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

Our solutions address a broad range of solar market segments, from residential solar installations to commercial and small utility-scale solar installations.

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

Additional benefits of the DC optimized inverter system include comprehensive and advanced safety features, improved design flexibility, efficient integration (DC coupled) with SolarEdge storage solutions, and improved operating and maintenance, or O&M with remote monitoring at the module level.

The SolarEdge Energy Hub inverter which supports, among other things, connection to a DC-coupled battery for full or partial home backup, and optional connection to the SolarEdge smart EV charger.

Our solutions address a broad range of solar market segments, from residential to commercial and small utility-scale solar installations.

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

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

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

SolarEdge now offers energy solutions which also include energy storage systems or ESS, home backup systems, electric vehicle or EV components and charging capabilities, home energy management, grid services and virtual power plants or VPPs, and lithium-ion batteries.

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

1 unchanged sentence

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

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

In 2023, we plan to expand the manufacturing capacity of Sella 1 to add an additional inverter line.

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

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

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

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

Sella 2 began producing and shipping cells at the end of 2022 and is expected to reach full manufacturing capacity in 2023.

In addition, as part of our manufacturing regionalization efforts, we expanded our manufacturing capabilities with a manufacturing site in Mexico significantly increased our capacity and gave us further flexibility to manage growing demand.

In light of the Inflation Reduction Act of 2022 (“IRA”) legislation in the United States which incentivizes the local manufacturing of renewable energy products by providing benefits to installers for the purchase and installation of US-manufactured products, as well as by incentivizing manufacturers of such products domestically, we are planning to establish manufacturing capabilities in the United States by using contract manufacturers and by establishing our own manufacturing facility.

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

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

As of March 31, 2023, we shipped approximately 114.1 million power optimizers, 4.9 million inverters and 171.2 thousand residential batteries.

Over 3.3 million installations, many of which may include multiple inverters, are currently connected to, and monitored through, our cloud-based monitoring platform.

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

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

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

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

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

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

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

As of March 31, 2023, we shipped approximately 43.6 GW of our DC optimized inverter systems and approximately 1.2 GWh of our residential batteries.

Our revenues for the three months ended March 31, 2023, and 2022 were $943.9 million and $655.1 million, respectively.

Gross margins for the three months ended March 31, 2023, and 2022 was 31.8% and 27.3%, respectively.

Net income for the three months ended March 31, 2023 and 2022 was $138.4 million and $33.1 million, respectively.

Global Circumstances Influencing our Business and Operations

Covid-19 Impact & Response

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

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

4 unchanged sentences

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

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

In the third quarter of 2022, we experienced and expect to continue to experience in the fourth quarter of 2022, continued disruptions to our logistics supply chain caused by constraints in the global transportation system including limited availability of local ground transportation coupled with congestion in shipping ports and industry-wide component shortages.

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

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

While we have not experienced any new disruptions resulting directly from Covid-19 in the first quarter of 2023, long lasting impacts of the pandemic and general global economic conditions continue to present challenges to our operations and business.

In the first quarter of 2023, we continued to witness a decrease in shipment prices and transit times, both however are still not at their pre-Covid-19 levels.

In fiscal 2022 as a whole and the first quarter of 2023 specifically, the industry-wide component shortages which originated from Covid-19 and amplified by the increase in demand for our products, as well as other manufacturers who are competing for the same components, continued to impact our ability to accurately plan and forecast the delivery of our products to customers and have also increased cost of ocean and air freight for components and finished goods.

To mitigate the impact of these disruptions on our supply chain, we extended in some cases shipment terms that differ from our standard terms in certain transactions, including Free-Carrier and Ex-works (INCOTERMS, 2020) delivery from our manufacturing facilities.

This change was implemented as part of our ongoing efforts to expedite shipments to our customers and improve visibility throughout our supply chain.

Moreover, industry-wide component shortages require our R&D teams to focus their attention on manufacturing and production design workarounds solutions, which can impact our ability to meet our plans to roll out new innovative products and services and may also result in a higher failure rate of products due to the rapid changes in product designs made prior to the commercial release of the products.

Our operation team is working tirelessly to mitigate the impact of the disruptions described above.

2 unchanged sentences

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

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

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

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

1 unchanged sentence

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

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

Inflation Reduction Act

9 unchanged sentences

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

We use metrics relating to shipments (inverters, power optimizers, residential batteries and megawatts shipped 1 ) to evaluate our sales performance and to track market acceptance of our products.

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

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

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

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

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

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

We provide the “megawatts shipped” and “megawatts hour shipped” metrics, which are calculated based on inverter or battery nameplate capacity shipped, respectively, to show adoption of our system on a nameplate capacity basis.

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

However, revenues may increase in a non-correlated manner to the “megawatt shipped” metric since other products such as power optimizers, are not accounted for in this metric.

Three months ended

September 30, 2022

Nine Months Ended

September 30, 2022

Inverters shipped

1 unchanged sentence

Megawatts shipped 1

Megawatts shipped - residential batteries

Megawatts hour shipped - residential batteries

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

4 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

(In thousands)

4 unchanged sentences

General and administrative

Other operating expenses (income), net

Other operating income, net

Total operating expenses

Operating income

Financial expense, net

Financial income (expense), net

Income before income taxes

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

Three months ended September 30, 2022 to 2021

Nine months ended September 30, 2022 to 2021

Three Months Ended

(In thousands)

Revenues increased by $310.3 million, or 59.0%, in the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, primarily due to (i) an increase in the number of inverters and power optimizers sold, with significant growth in revenues coming from Europe and the U.S.;

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

Revenues from outside of the U.S.

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

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

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

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

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

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

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

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

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

This decrease in blended ASP per watt was partially offset by price increases that went into effect gradually during 2022 as well as by a relatively higher number of other solar products shipped compared to the number of inverters shipped, which increased our total solar revenues but did not impact the watt amount used for calculating the ASP per watt.

Revenues increased by $807.6 million, or 57.2%, in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily due to (i) an increase in the number of inverters and power optimizers sold, with significant growth in revenues coming from Europe and the U.S;

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

Revenues increased by $288.8 million, or 44.1%, in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, primarily due to (i) an increase of $245.4 million related to the number of inverters and power optimizers sold, with significant growth in revenues coming from Europe;

and (ii) an increase of $64.6 million related to the number of residential batteries, sold primarily in Europe.

Revenues from outside of the U.S.

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

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

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

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

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

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

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

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

This decrease in blended ASP per watt was partially offset by price increases that went into effect gradually during the second half of 2021 and continued in 2022 as well as a relatively higher number of other solar products shipped compared to the number of inverters shipped, which increased our total solar revenues but did not impact the watt amount used for calculating the ASP per watt.

comprised 72.6% of our revenues in the three months ended March 31, 2023 as compared to 59.4% in the three months ended March 31, 2022.

The number of power optimizers recognized as revenues increased by approximately 0.8 million units, or 14.7%, from approximately 5.7 million units in the three months ended March 31, 2022 to approximately 6.5 million units in the three months ended March 31, 2023.

The number of inverters recognized as revenues increased by approximately 126 thousand units, or 61.2%, from approximately 206 thousand units in the three months ended March 31, 2022 to approximately 332 thousand units in the three months ended March 31, 2023.

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

Our blended ASP per watt for solar products decreased by $0.052, or 19.4%, in the three months ended March 31, 2023, as compared to the three months ended March 31, 2022.

The decrease in blended ASP per watt is mainly attributed to the increase in the sale of commercial products that are characterized with lower ASP per watt, out of our total solar product mix, a relatively lower number of power optimizers and other solar products shipped compared to the number of inverters shipped, leading to a reduced overall effect on our ASP per watt.

Moreover, the depreciation of the Euro and other currencies against the U.S.

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

This decrease in blended ASP per watt was partially offset by price increases that went into effect gradually during 2022 and 2023.

Our blended ASP per watt/hour for residential batteries is calculated by dividing residential batteries revenues, by the nameplate capacity of residential batteries shipped.

Our blended ASP per watt/hour for residential batteries decreased by $0.055, or 10.4%, in the three months ended March 31, 2023, as compared to the three months ended March 31, 2022.

The decrease in blended ASP per watt/hour is mainly attributed to the addition of a three phase battery, that is sold at a lower ASP per watt/hour, to our product portfolio and the Euro’s depreciation against the U.S.

The combination of these factors, along with our growing European battery sales, has amplified this impact.

Cost of Revenues and Gross Profit

Three months ended September 30, 2022 to 2021

Nine months ended September 30, 2022 to 2021

Three Months Ended

(In thousands)

Cost of revenues

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

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

• a significant increase in shipment and logistic costs in an aggregate amount of $25.4 million due to (i) an increase in shipment rates;

and (ii) an increase in volumes shipped;

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

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

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

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

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

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

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

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

and (ii) an increase in volumes shipped;

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

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

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

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

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

Cost of revenues increased by $167.6 million, or 35.2%, in the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, primarily due to:

• an increase in direct cost of revenues sold of $98.4 million associated primarily with an increase in the volume of products sold;

• an increase in warranty expenses and warranty accruals of $43.5 million associated primarily with an increased number of products in our install base;

• an increase of $10.0 million in inventory accrual which is mainly attributed to changes in inventory valuations, and higher inventory accruals related to our initial manufacturing in Sella 2;

• an increase in shipment and logistic costs in an aggregate amount of $5.5 million due to an increase in volumes shipped, which was partially offset by a decrease in air and expedited shipments and by a decrease in shipment rates;

• an increase in personnel-related costs of $4.8 million, related to the expansion of our production, operations, and support headcount, which grew in parallel to our growing install base worldwide and manufacturing volumes which were partially offset by the depreciation of the New Israeli Shekel (“NIS”) and the Euro against the U.S.

• an increase in other production costs of $1.4 million, which is mainly attributed to ramp up costs associated with Sella 2.

Gross profit as a percentage of revenue increased from 27.3% in the three months ended March 31, 2022 to 31.8% in the three months ended March 31, 2023 primarily due to:

• gradual price increases across our product offerings;

• a decline in the portion of air and expedited shipments, as well as a decrease in shipment rates;

• favorable exchange rates on our cost of revenues;

• decreased custom duties in the U.S.

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

• continued cost reduction efforts.

These were partially offset by:

• an increased portion of sales of commercial products out of our total product mix, that are characterized with lower gross margin ;

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

• an increase in warranty expenses and warranty accruals associated primarily with the change in the composition of our install base, as well as an increase in costs related to the different components of our warranty expenses, as reflected in our actual support costs;

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

Operating Expenses:

Research and Development

Three months ended September 30, 2022 to 2021

Nine months ended September 30, 2022 to 2021

Three months ended

(In thousands)

Research and development

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Research and development costs increased by $13.5 million or 20.4%, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily due to:

• an increase in personnel-related costs of $8.5 million resulting from an increase in our research and development headcount, as well as salary expenses associated with employee equity-based compensation.

The increase in headcount reflects our continuing investment in enhancements of existing products, as well as research and development expenses associated with bringing new products to the market, which were partially offset by the depreciation of the NIS and the Euro against the U.S.

• an increase in expenses related to consultants and sub-contractors in an amount of $2.8 million;

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

Sales and Marketing

Three months ended September 30, 2022 to 2021

Nine months ended September 30, 2022 to 2021

Three months ended

(In thousands)

Sales and marketing

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

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

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

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

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

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

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

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

Sales and marketing expenses increased by $5.7 million, or 16.0%, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily due to:

• an increase in personnel-related costs of $3.8 million as a result of an increase in headcount supporting our growth in all geographies, as well as salary expenses associated with employee equity-based compensation, partially offset by the depreciation of the NIS and the Euro against the U.S.

• an increase of $1.4 million in training-related expenses as a result of resuming training activities that had been previously cancelled or postponed due to Covid-19 restrictions in prior years.

General and Administrative

Three months ended September 30, 2022 to 2021

Nine months ended September 30, 2022 to 2021

Three months ended

(In thousands)

General and administrative

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

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

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

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

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

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

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

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

General and administrative expenses increased by $10.1 million, or 38.4%, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily due to:

• an increase in expenses related to consultants and sub-contractors in an amount of $5.0 million;

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

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

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

Other operating expenses (income), net

Three months ended September 30, 2022 to 2021

Nine months ended September 30, 2022 to 2021

• an increase in personnel-related costs of $2.9 million resulting from an increase in our general and administrative headcount, as well as salary expenses associated with employee equity-based compensation, partially offset by the depreciation of the NIS and the Euro against the U.S.

• an increase in expenses related to an accrual for doubtful debts in an amount of $0.9 million.

Other operating income

Three months ended

(In thousands)

Other operating expenses (income), net

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

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

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

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

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

• a decrease of $0.9 million in income related to a payment made to us from an escrow account with regards to a working capital adjustment in connection with the Kokam acquisition.

These increases were partially offset by:

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

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

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

Financial expense, net

Three months ended September 30, 2022 to 2021

Nine months ended September 30, 2022 to 2021

Other operating income, net

Other operating income, net increased by $1.4 million, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022 due to an increase in income related to the sale of property, plant and equipment and other assets.

Financial income (expense), net

Three months ended

(In thousands)

Financial expense, net

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

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

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

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

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

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

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

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

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

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

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

Three months ended September 30, 2022 to 2021

Nine months ended September 30, 2022 to 2021

Financial income (expense), net

Financial income, net, was $23.7 million in the three months ended March 31, 2023, compared to financial expenses, net, in the amount of $4.6 million in the three months ended March 31, 2022, primarily due to:

• an increase of $25.4 million in income due to fluctuations in foreign exchange rates, primarily between the Euro and the NIS against the U.S.

• an increase of $2.7 million related to interest income from marketable securities.

Three months ended

(In thousands)

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

Three months ended September 30, 2022 to 2021

Nine months ended September 30, 2022 to 2021

Other loss decreased by $0.7 million, or 85.2%, in the three months ended March 31, 2023, compared to the three months ended March 31, 2022, due to a decrease in realized loss on marketable securities.

Three months ended

(In thousands)

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

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

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

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

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

Three months ended September 30, 2022 to 2021

Nine months ended September 30, 2022 to 2021

Income taxes increased by $17.0 million, or 138.6%, in the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, primarily due to an increase of $19.6 million in current tax expenses, mainly attributed to an increase in profit before tax in our foreign subsidiaries.

This increase was partially offset by an increase of $2.7 million in deferred tax income.

Three months ended

(In thousands)

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

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

As a result of the factors discussed above, net income increased by $105.3 million, or 317.8% in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

Liquidity and Capital Resources

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended

(In thousands)

3 unchanged sentences

Increase (decrease) in cash and cash equivalents

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

As of March 31, 2023, our cash and cash equivalents were $727.8 million.

This amount does not include $919.9 million invested in available-for-sale marketable securities and $0.3 million invested in restricted bank deposits.

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

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

As of March 31, 2023, we have open commitments for capital expenditures in an amount of approximately $121.3 million.

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

We also have purchase obligations in the amount of $1,617.4 million related to raw materials and commitments for the future manufacturing of our products.

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

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

Operating Activities

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

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

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

Cash provided by operating cash flows in the three months ended March 31, 2023 was $7.9 million as compared to $163.0 million used in operating activities in the three months ended March 31, 2022, mainly due to higher net income adjusted for certain non-cash items and favorable changes in working capital due to a decrease in shipping times to customers which shortened the period of time between payment to our vendors and delivery to and collection from our customers, partially offset by an increase in inventory procurement in response to increased demand for our products and increased purchasing of battery cells for our residential storage solution.

Investing Activities

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

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

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

Cash used for investing activities increased by $52.6 million in the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, primarily driven by a $41.5 million decrease in proceeds provided by sales and maturities of available-for-sale marketable securities, an increase of $12.3 million in investments in available-for-sale marketable securities, and by a $5.5 million increase in an investment in a privately-held company.

This increase in cash used for investing activities was partially offset by a decrease of $4.9 million in capital expenditures, as well as a $1.4 million increase in cash provided due to withdrawal from bank deposits and restricted bank deposits.

Financing Activities

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

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

Cash used in financing activities in the three months ended March 31, 2023 was $5.2 million compared to $652.3 million cash provided by financing activities in the three months ended March 31, 2022, primarily due to a $650.5 million decrease in cash provided by the issuance of common stock, net through a secondary public offering which occurred in March 2022.

Secondary public offering

On March 17, 2022, we offered and sold 2,300,000 shares of the Company’s common stock at a public offering price of $295.00 per share.

The net proceeds to the Company after underwriters' discounts and commissions and offering costs were $650,526.

The net proceeds to the Company after underwriters’ discounts and commissions and offering costs were $650.5 million.

We intend to use the proceeds from the public offering for general corporate purposes, which may include acquisitions.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis