What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-07 compared with 2023-05-08 · 181 added, 96 removed, 157 unchanged (64% of the section changed)

6 unchanged sentences

Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “could,” “seek,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or similar expressions and the negatives of those terms.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

Forward-looking statements inherently involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

Given these uncertainties, you should not place undue reliance on forward-looking statements.

Forward-looking and other statements regarding our sustainability efforts and aspirations are not an indication that these statements are necessarily material to investors or requiring disclosure in our filing with the Securities and Exchange Commission (“SEC”).

In addition, historical, current and forward-looking sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve and assumptions that are subject to change in the future, including future rule-making.

Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this filing.

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performance of distributors and large installers in selling our products;

• disruption in our global supply chain and rising prices of oil and raw materials as a result of the conflict between Russia and Ukraine may adversely affect our business;

disruption in our global supply chain and rising prices of oil and raw materials as a result of the conflict between Russia and Ukraine;

our customers’ financial stability, creditworthiness, and debt leverage ratio;

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unrest, terrorism, or armed conflict in Israel;

• macroeconomic conditions in our domestic and international markets, as well as inflation concerns, financial institutions instability, 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, recessionary concerns, the prospect of a shutdown of the U.S.

federal government and the Israeli government's plans to significantly reduce the Israeli Supreme Court's judicial oversight;

consolidation in the solar industry among our customers and distributors;

our ability to service our debt;

any unauthorized access to, disclosure, or theft of personal information or unauthorized access to our network or other similar cyber incidents;

the impact of evolving legal and regulatory requirements, including emerging environmental, social and governance requirements;

the other factors set forth under “Item 1A.

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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.

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, a battery and additional smart energy management solutions.

The SolarEdge Energy Hub inverter 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 that enables access to a cloud-based monitoring platform and in many cases, a battery and additional smart energy management solutions.

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

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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.

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

In 2023, we expanded the manufacturing capacity of Sella 1 to add an additional inverter line and expect to reach full capacity in the third quarter of 2023.

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 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.

Sella 2 began producing and shipping cells at the end of 2022 and is expected to reach full manufacturing capacity in early 2024.

In addition, as part of our manufacturing regionalization efforts, we expanded our manufacturing capabilities with a manufacturing site in Mexico which 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 that 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 expect to ramp shipments of inverters from a contract manufacturer's US manufacturing site towards the end of 2023.

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

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

As of June 30, 2023, we shipped approximately 119.6 million power optimizers, 5.2 million inverters and 213.0 thousand residential batteries.

Over 3.5 million installations, many of which may include multiple inverters, are currently connected to, and monitored through, our cloud-based monitoring platform.

As of March 31, 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.

As of June 30, 2023, we shipped approximately 47.9 GW of our DC optimized inverter systems and approximately 1.4 GWh of our residential batteries.

Our revenues for the three months ended June 30, 2023, and 2022 were $991.3 million and $727.8 million, respectively.

Gross margin for the three months ended June 30, 2023, and 2022 was 32.0% and 25.1%, respectively.

Net income for the three months ended June 30, 2023 and 2022 was $119.5 million and $15.1 million, respectively.

Our revenues for the six months ended June 30, 2023, and 2022 were $1,935.2 million and $1,382.9 million, respectively.

Gross margin for the six months ended June 30, 2023, and 2022 was 31.9% and 26.1%, respectively.

Net income for the six months ended June 30, 2023 and 2022 was $257.9 million and $48.2 million, respectively.

Global Circumstances Influencing our Business and Operations

Covid-19 Impact & Response

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

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

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

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

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

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

While we have not experienced any new disruptions resulting directly from Covid-19 in the 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.

Due to the worldwide growing trend in availability and administration of vaccines against Covid-19, we have generally emerged from the Covid-19 pandemic.

However, the future impact of the Covid-19 pandemic remains highly uncertain and while we have not experienced any new disruptions resulting directly from Covid-19 in the second 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 second quarter of 2023, we continued to witness a decrease in shipment prices and transit times.

In fiscal 2022 as a whole and into 2023 specifically, the industry-wide component shortages, which originated from Covid-19 and were 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 the cost of ocean and air freight for components and finished goods.

However, the overall trend is decreasing quarter over quarter.

To mitigate the impact of these disruptions on our supply chain, in some cases, we extended 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.

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In August 2022, the U.S.

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

government enacted the IRA, which includes several incentives intended to promote clean energy, battery and energy storage, electrical vehicles, and other solar products and is expected to impact our business and operations.

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

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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” 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.

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Three Months Ended

June 30, 2023

Six Months Ended

June 30, 2023

Inverters shipped

1 unchanged sentence

Megawatts shipped 1

Megawatts hour shipped - residential batteries

Megawatts shipped - residential batteries

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

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Three Months Ended

Six Months Ended

(In thousands)

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General and administrative

Other operating income, net

Other operating expense (income), net

Total operating expenses

2 unchanged sentences

Income before income taxes

Three Months Ended

Comparison of three and six months ended June 30, 2023, to the three and six months ended June 30, 2022

Three months ended June 30, 2023 to 2022

Six months ended June 30, 2023 to 2022

(In thousands)

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 increased by $263.5 million, or 36.2%, in the three months ended June 30, 2023, as compared to the three months ended June 30, 2022, primarily due to (i) an increase of $256.3 million related to the number of inverters and power optimizers sold, with significant growth in revenues coming from Europe;

and (ii) an increase of $34.7 million related to the number of residential batteries sold mainly in Europe.

These increases were offset by a decrease of $28.6 million related to a decrease in the number of ancillary solar products sold.

Revenues from outside of the U.S.

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.

comprised 80.3% of our revenues in the three months ended June 30, 2023 as compared to 57.3% in the three months ended June 30, 2022.

The number of power optimizers recognized as revenues increased by approximately 0.3 million units, or 5.6%, from approximately 5.2 million units in the three months ended June 30, 2022 to approximately 5.5 million units in the three months ended June 30, 2023.

The number of inverters recognized as revenues increased by approximately 99.2 thousand units, or 42.3%, from approximately 234.6 thousand units in the three months ended June 30, 2022 to approximately 333.8 thousand units in the three months ended June 30, 2023.

The megawatts hour of residential batteries recognized as revenues increased by approximately 74.4 megawatts hour, or 37.7% from approximately 197.0 in the three months ended June 30, 2022 to approximately 271.4 megawatts hour in the three months ended June 30, 2023.

Our blended Average Selling Price (“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 inverters shipped.

Our blended ASP per watt for solar products shipped excluding residential batteries decreased by $0.047, or 20.1%, in the three months ended June 30, 2023, as compared to the three months ended June 30, 2022.

The decrease in blended ASP per watt is mainly attributed to the increase in the sale of commercial products that are characterized by lower ASP per watt, out of our total solar product mix and 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.

This decrease in blended ASP per watt was partially offset by price increases that went into effect gradually during 2022 and the first half of 2023, as well as by the appreciation of the Euro against the U.S.

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

Our blended ASP per watt/hour for residential batteries decreased by $0.026, or 5.2%, in the three months ended June 30, 2023, as compared to the three months ended June 30, 2022.

The decrease in blended ASP per watt/hour is mainly attributed to the addition of a three phase battery to our product portfolio that is sold at a lower ASP per watt/hour.

This decrease was partially offset by the appreciation of the Euro against the U.S.

Revenues increased by $552.3 million, or 39.9%, in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, primarily due to (i) an increase of $501.6 million related to an increase in the number of inverters and power optimizers sold, with significant growth in revenues coming from Europe;

and (ii) an increase of $99.3 million related to an increase in the number of residential batteries sold mainly in Europe.

Revenues from outside of the U.S.

comprised 76.7% of our revenues in the six months ended June 30, 2023 as compared to 58.3% in the six months ended June 30, 2022.

The number of power optimizers recognized as revenues increased by approximately 1.1 million units, or 10.3%, from approximately 10.9 million units in the six months ended June 30, 2022 to approximately 12.0 million units in the six months ended June 30, 2023.

The number of inverters recognized as revenues increased by approximately 225.2 thousand units, or 51.1%, from approximately 440.6 thousand units in the six months ended June 30, 2022 to approximately 665.8 thousand units in the six months ended June 30, 2023.

The megawatts hour of residential batteries recognized as revenues increased by approximately 189.7 megawatts hour, or 63.7% from approximately 297.8 in the six months ended June 30, 2022 to approximately 487.5 megawatts hour in the six months ended June 30, 2023.

Our blended ASP per watt for solar products shipped excluding residential batteries decreased by $0.048, or 19.1%, in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

Moreover, the depreciation of the Euro against the U.S.

Dollar, coupled with our increased sales in Europe, accelerated the decrease in our ASP.

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.

Our blended ASP per watt/hour for residential batteries decreased by $0.035, or 6.8%, in the six months ended June 30, 2023, as compared to the six months ended June 30, 2022.

The decrease in blended ASP per watt/hour is mainly attributed to the addition of a three phase battery, which is sold at a lower ASP per watt/hour, to our product portfolio.

Cost of Revenues and Gross Profit

Three Months Ended

Three months ended June 30, 2023 to 2022

Six months ended June 30, 2023 to 2022

(In thousands)

Cost of revenues

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:

Cost of revenues increased by $128.9 million, or 23.6%, in the three months ended June 30, 2023, as compared to the three months ended June 30, 2022, primarily due to:

an increase in direct cost of revenues sold of $97.5 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:

an increase in warranty expenses and warranty accruals of $30.2 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 personnel-related costs of $4.4 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”) against the U.S.

These were partially offset by:

a decrease in shipment and logistic costs in an aggregate amount of $4.1 million due to a decrease in shipment rates and a decrease in expedited shipments costs;

a decrease of $3.6 million in inventory accrual which is mainly attributed to a lower inventory write-offs as a result of the discontinuation of our UPS related activities in the comparable period.

Gross profit as a percentage of revenue increased to 32.0% from 25.1% in the three months ended June 30, 2023 as compared to the three months ended June 30, 2022, 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;

a decrease in shipment rates as well as a decline in the portion of expedited shipments;

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

continued cost reduction efforts.

1 unchanged sentence

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.

our non-solar businesses, referred to in our financial results as "all other segments", are generally characterized by a lower gross profit which effect was amplified this quarter.

Cost of revenues increased by $296.5 million, or 29.0%, in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, primarily due to:

an increase in direct cost of revenues sold of $195.9 million associated primarily with an increase in the volume of products sold;

an increase in warranty expenses and warranty accruals of $73.7 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 personnel-related costs of $9.2 million related to the expansion of our production, operations, and support headcount which grew in parallel to our growing install base worldwide;

an increase of $6.4 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, partially offset by a decrease in inventory write-offs related to the discontinuation of our UPS related activities in the comparable period.

Gross profit as a percentage of revenue increased to 31.9% from 26.1% in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 primarily due to:

gradual price increases across our product offerings;

a decrease in shipment rates as well as a decline in the portion of expedited shipments out of our total shipments;

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 margins;

our non-solar businesses, that are generally characterized by a lower gross profit which effect was amplified this quarter.

Operating Expenses:

Research and Development

Three months ended

Three months ended June 30, 2023 to 2022

Six months ended June 30, 2023 to 2022

(In thousands)

Research and development

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.

Research and development costs increased by $11.7 million or 15.6%, in the three months ended June 30, 2023, compared to the three months ended June 30, 2022, primarily due to:

an increase in personnel-related costs of $6.7 million resulting from an increase in our research and development headcount as well as salary expenses associated with annual merit increases, which were partially offset by the depreciation of the NIS against the U.S.

dollar 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 consultants and sub-contractors in an amount of $2.2 million;

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

an increase in expenses related to material consumption in the manufacturing of samples and prototypes as part of our development process in an amount of $1.4 million.

Research and development costs increased by $25.2 million or 17.8%, in the six months ended June 30, 2023, compared to the six months ended June 30, 2022, primarily due to:

an increase in personnel-related costs of $15.1 million resulting from an increase in our research and development headcount as well as salary expenses associated with annual merit increases, which were partially offset by the depreciation of the NIS against the U.S.

dollar 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 consultants and sub-contractors in an amount of $5.0 million;

an increase in expenses related to other overhead costs in an amount of $2.1 million;

an increase in depreciation expenses of property and equipment in an amount of $2.0 million.

Sales and Marketing

Three months ended

Three months ended June 30, 2023 to 2022

Six months ended June 30, 2023 to 2022

(In thousands)

Sales and marketing

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.

Sales and marketing expenses increased by $5.2 million, or 13.5%, in the three months ended June 30, 2023, compared to the three months ended June 30, 2022, primarily due to:

an increase in personnel-related costs of $2.4 million as a result of an increase in headcount supporting our growth outside of the U.S, as well as salary expenses associated with annual merit increases and employee equity-based compensation;

an increase of $1.3 million in expenses related to pre-sale initiatives;

an increase in expenses related to other marketing activities by $1.0 million.

Sales and marketing expenses increased by $10.9 million, or 14.7%, in the six months ended June 30, 2023, compared to the six months ended June 30, 2022, primarily due to:

an increase in personnel-related costs of $6.2 million as a result of an increase in headcount supporting our growth outside of the U.S, as well as salary expenses associated with annual merit increases and employee equity-based compensation;

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 2022;

an increase of $1.3 million in expenses related to pre-sale initiatives.

General and Administrative

Three months ended

Three months ended June 30, 2023 to 2022

Six months ended June 30, 2023 to 2022

(In thousands)

General and administrative

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:

General and administrative expenses increased by $8.1 million, or 28.7%, in the three months ended June 30, 2023 compared to the three months ended June 30, 2022, primarily due to:

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

• 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

an increase in personnel-related costs of $2.0 million resulting from an increase in our general and administrative headcount, as well as salary expenses associated with annual merit increases.

General and administrative expenses increased by $18.2 million, or 33.4%, in the six months ended June 30, 2023, compared to the six months ended June 30, 2022, primarily due to:

an increase in expenses related to consultants and sub-contractors in an amount of $9.5 million;

an increase in personnel-related costs of $5.0 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 doubtful debt in an amount of $1.5 million.

Other operating expense (income), net

Three months ended June 30, 2023 to 2022

Six months ended June 30, 2023 to 2022

(In thousands)

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

Other operating expense (income), net

Other operating expenses, were $4.7 million, in the three months ended June 30, 2022, primarily due to:

a decrease 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 $0.7 million in expenses related to write-offs of property, plant and equipment.

Other operating income, net was $1.4 million, in the six months ended June 30, 2023, compared to other operating expenses of $4.7 million the six months ended June 30, 2022, primarily due to:

a decrease 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 $0.7 million in expenses related to write-offs of property, plant and equipment;

an increase of $1.4 million in income from the sale of property, plant and equipment and other assets.

Financial expense, net

Three months ended June 30, 2023 to 2022

Six months ended June 30, 2023 to 2022

(In thousands)

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

Financial income, net was $3.4 million in the three months ended June 30, 2023, compared to financial expenses, net in the amount of $14.3 million in the three months ended June 30, 2022, primarily due to:

a decrease of $15.8 million in expenses due to fluctuations in foreign exchange rates, primarily between the Euro and the NIS against the U.S.

an increase of $3.6 million in interest income and accretion (amortization) of discount (premium) on marketable securities.

This effect was partially offset by a decrease of $3.0 million in income related to hedging transactions.

Financial income, net was $27.1 million in the six months ended June 30, 2023, compared to financial expenses, net in the amount of $18.9 million in the six months ended June 30, 2022, primarily due to:

an income of $21.2 million in the six months ended June 30, 2023, compared to expenses of $20.0 million in the six months ended June 30, 2022, as a result of fluctuations in foreign exchange rates, primarily between the Euro and the NIS against the U.S.

an increase of $7.9 million in interest income and accretion (amortization) of discount (premium) on marketable securities.

This effect was partially offset by a decrease of $3.9 million in income related to hedging transactions.

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

Three months ended June 30, 2023 to 2022

Six months ended June 30, 2023 to 2022

(In thousands)

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

Other loss decreased by $0.7 million, or 85.2%, in the six months ended June 30, 2023, compared to the six months ended June 30, 2022, due to a decrease in realized loss on marketable securities.

Three months ended June 30, 2023 to 2022

Six months ended June 30, 2023 to 2022

(In thousands)

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.

Income taxes increased by $27.6 million, or 417.3%, in the three months ended June 30, 2023, as compared to the three months ended June 30, 2022, primarily due to an increase of $30.7 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 $3.3 million in deferred tax income.

Three months ended

Income taxes increased by $44.6 million, or 236.1%, in the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, primarily due to an increase of $50.3 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 $6.0 million in deferred tax income.

Three months ended June 30, 2023 to 2022

Six months ended June 30, 2023 to 2022

(In thousands)

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.

As a result of the factors discussed above, net income increased by $104.4 million, or 692.3% in the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

As a result of the factors discussed above, net income increased by $209.7 million, or 435.0% in the six months ended June 30, 2023 as compared to the six months ended June 30, 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

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash used in investing

Net cash provided by (used in) financing activities

Increase (decrease) in cash and cash equivalents

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

As of June 30, 2023, our cash and cash equivalents were $557.7 million.

This amount does not include $929.0 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 March 31, 2023, we have open commitments for capital expenditures in an amount of approximately $121.3 million.

As of June 30, 2023, we have open commitments for capital expenditures in an amount of approximately $133.0 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 $1,443.3 million related to raw materials and commitments for the future manufacturing of our products.

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

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

Operating Activities

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

Cash 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.

Cash used in operating activities decreased by $4.8 million in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, mainly due to higher net income adjusted for certain non-cash items.

This was partially offset by a significant increase in inventory procurement as part of our investment in building inventory in order to minimize potential supply disruptions and meet future demand.

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 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.

cash flows consist primarily of capital expenditures, investment in, sales and maturities of available for sale marketable

securities, investment and withdrawal of bank deposits and restricted bank deposits and cash used for acquisitions.

investing activities decreased by $181.5 million in the six months ended June 30, 2023, as compared to the six months ended June 30,

2022, primarily driven by a decrease of $238.0 million in investments in available-for-sale marketable securities, a decrease of

$7.8 million in capital expenditures as well as an increase of $6.8 million in proceeds from government grants in relation to

capital expenditures.

This decrease in cash used in investing activities was partially offset by a $39.5 million decrease in

proceeds provided by sales and maturities of available-for-sale marketable securities, an increase of $16.7 million in cash used for

a business combination, an increase of $10.0 million in the purchase of intangible assets, and by a $6.8 million increase in an

investment in a privately-held company.

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 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.

Financing cash flows consist primarily of proceeds from the sale of shares of common stock in a public offering and employee equity incentive plans.

Cash used in financing activities in the six months ended June 30, 2023 was $10.1 million compared to $648.4 million cash provided by financing activities in the six months ended June 30, 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 and a $11.1 million decrease in proceeds provided by the exercise of stock-based awards.

Secondary public offering

3 unchanged sentences

See Note 15b to our condensed consolidated financial statements for more information.

Critical Accounting Policies and Significant Management Estimates

Management believes that there have been no significant changes during the six months ended June 30, 2023 to the items that we disclosed as our critical accounting policies and estimates in MD&A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, except as mentioned in Note 1, “General”.

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