SOLAREDGE TECHNOLOGIES, INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS SOLAREDGE TECHNOLOGIES INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except per share data) June 30, 2023 December 31, 2022 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 557,744 $ 783,112 Marketable securities 493,176 241,117 Trade receivables, net of allowances of $ 6,890 and $ 3,202 , respectively 1,149,820 905,146 Inventories, net 984,194 729,201 Prepaid expenses and other current assets 264,188 241,082 Total current assets 3,449,122 2,899,658 LONG-TERM ASSETS: Marketable securities 435,800 645,491 Deferred tax assets, net 49,993 44,153 Property, plant and equipment, net 580,503 543,969 Operating lease right-of-use assets, net 66,387 62,754 Intangible assets, net 43,656 19,929 Goodwill 42,332 31,189 Other long-term assets 28,772 18,806 Total long-term assets 1,247,443 1,366,291 Total assets $ 4,696,565 $ 4,265,949 F - 1 SOLAREDGE TECHNOLOGIES INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Cont.) (in thousands, except per share data) June 30, 2023 December 31, 2022 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Trade payables, net $ 434,602 $ 459,831 Employees and payroll accruals 74,709 85,158 Warranty obligations 146,150 103,975 Deferred revenues and customers advances 28,135 26,641 Accrued expenses and other current liabilities 214,133 214,112 Total current liabilities 897,729 889,717 LONG-TERM LIABILITIES: Convertible senior notes, net 625,914 624,451 Warranty obligations 342,437 281,082 Deferred revenues 204,693 186,936 Finance lease liabilities 42,208 45,385 Operating lease liabilities 47,046 46,256 Other long-term liabilities 16,349 15,756 Total long-term liabilities 1,278,647 1,199,866 COMMITMENTS AND CONTINGENT LIABILITIES STOCKHOLDERS’ EQUITY: Common stock of $ 0.0001 par value - Authorized: 125,000,000 shares as of June 30, 2023 and December 31, 2022; issued and outstanding: 56,556,340 and 56,133,404 shares as of June 30, 2023 and December 31, 2022, respectively 6 6 Additional paid-in capital 1,595,890 1,505,632 Accumulated other comprehensive loss ( 77,432 ) ( 73,109 ) Retained earnings 1,001,725 743,837 Total stockholders’ equity 2,520,189 2,176,366 Total liabilities and stockholders’ equity $ 4,696,565 $ 4,265,949 The accompanying notes are an integral part of the condensed consolidated financial statements. F - 2 SOLAREDGE TECHNOLOGIES INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Revenues $ 991,290 $ 727,774 $ 1,935,179 $ 1,382,854 Cost of revenues 673,985 545,132 1,317,748 1,021,254 Gross profit 317,305 182,642 617,431 361,600 Operating expenses: Research and development 86,526 74,847 166,399 141,196 Sales and marketing 44,222 38,975 85,188 74,291 General and administrative 36,199 28,121 72,766 54,550 Other operating expense (income), net - 4,687 ( 1,434 ) 4,687 Total operating expenses 166,947 146,630 322,919 274,724 Operating income 150,358 36,012 294,512 86,876 Financial income (expense), net 3,384 ( 14,311 ) 27,058 ( 18,916 ) Other loss - - ( 125 ) ( 844 ) Income before income taxes 153,742 21,701 321,445 67,116 Income taxes 34,232 6,617 63,557 18,909 Net income $ 119,510 $ 15,084 $ 257,888 $ 48,207 Net basic earnings per share of common stock $ 2.12 $ 0.27 $ 4.58 $ 0.89 Net diluted earnings per share of common stock $ 2.03 $ 0.26 $ 4.38 $ 0.86 Weighted average number of shares used in computing net basic earnings per share of common stock 56,415,636 55,470,279 56,316,116 54,309,060 Weighted average number of shares used in computing net diluted earnings per share of common stock 59,183,666 58,564,734 59,189,302 57,446,416 The accompanying notes are an integral part of the condensed consolidated financial statements. F - 3 SOLAREDGE TECHNOLOGIES INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ( LOSS) (Unaudited) (in thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Net income $ 119,510 $ 15,084 $ 257,888 $ 48,207 Other comprehensive income (loss), net of tax: Available-for-sale marketable securities 661 ( 4,562 ) 6,838 ( 14,068 ) Cash flow hedges 316 ( 3,836 ) ( 15 ) ( 4,516 ) Foreign currency translation adjustments on intra-entity transactions that are of a long-term investment nature ( 1,935 ) ( 28,347 ) ( 12,735 ) ( 35,330 ) Foreign currency translation adjustments 730 ( 6,808 ) 1,589 ( 8,387 ) Total other comprehensive loss ( 228 ) ( 43,553 ) ( 4,323 ) ( 62,301 ) Comprehensive income (loss) $ 119,282 $ ( 28,469 ) $ 253,565 $ ( 14,094 ) The accompanying notes are an integral part of the condensed consolidated financial statements. F - 4 SOLAREDGE TECHNOLOGIES INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (in thousands, except per share data) Common stock Additional paid in Capital Accumulated other comprehensive loss Retained earnings Total Number Amount Balance as of January 1, 2023 56,133,404 $ 6 $ 1,505,632 $ ( 73,109 ) $ 743,837 $ 2,176,366 Issuance of common stock upon exercise of stock-based awards 209,760 * - 75 - - 75 Stock based compensation - - 40,070 - - 40,070 Other comprehensive loss adjustments - - - ( 4,095 ) - ( 4,095 ) Net income - - - - 138,378 138,378 Balance as of March 31, 2023 $ 56,343,164 $ 6 $ 1,545,777 $ ( 77,204 ) $ 882,215 $ 2,350,794 Issuance of common stock upon exercise of stock-based awards 171,682 * - 89 - - 89 Issuance of common stock under employee stock purchase plan 41,494 * - 10,046 - - 10,046 Stock based compensation - - 39,978 - - 39,978 Other comprehensive loss adjustments - - - ( 228 ) - ( 228 ) Net income - - - - 119,510 119,510 Balance as of June 30, 2023 $ 56,556,340 $ 6 $ 1,595,890 $ ( 77,432 ) $ 1,001,725 $ 2,520,189 * Represents an amount less than $1. F - 5 SOLAREDGE TECHNOLOGIES INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (in thousands, except per share data) Common stock Additional paid in Capital Accumulated other comprehensive income (loss) Retained earnings Total Number Amount Balance as of January 1, 2022 52,815,395 $ 5 $ 687,295 $ ( 27,319 ) $ 650,058 $ 1,310,039 Issuance of common stock upon exercise of stock-based awards 270,751 * - 1,478 - - 1,478 Stock based compensation - - 34,107 - - 34,107 Issuance of common stock in a secondary public offering, net of underwriters' discounts and commissions of $ 27,140 and $ 834 of offering costs 2,300,000 1 650,525 - - 650,526 Other comprehensive loss adjustments - - - ( 18,748 ) - ( 18,748 ) Net income - - - - 33,123 33,123 Balance as of March 31, 2022 55,386,146 $ 6 $ 1,373,405 $ ( 46,067 ) $ 683,181 $ 2,010,525 Issuance of common stock upon exercise of stock-based awards 211,839 * - 164 - - 164 Issuance of common stock under employee stock purchase plan 35,105 * - 8,141 - - 8,141 Stock based compensation - - 37,171 - - 37,171 Other comprehensive income adjustments - - - ( 43,553 ) - ( 43,553 ) Net income - - - - 15,084 15,084 Balance as of June 30, 2022 55,633,090 $ 6 $ 1,418,881 $ ( 89,620 ) $ 698,265 $ 2,027,532 * Represents an amount less than $1. The accompanying notes are an integral part of the condensed consolidated financial statements. F - 6 SOLAREDGE TECHNOLOGIES INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands, except per share data) Six Months Ended June 30, 2023 2022 Cash flows from operating activities: Net income $ 257,888 $ 48,207 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 26,725 24,138 Loss (gain) from exchange rate fluctuations ( 23,214 ) 20,398 Stock-based compensation expenses 78,200 71,181 Impairment of goodwill and intangible assets - 4,008 Deferred income taxes, net ( 7,636 ) ( 1,092 ) Other items 4,783 11,396 Changes in assets and liabilities: Inventories, net ( 246,193 ) ( 93,348 ) Prepaid expenses and other assets ( 33,285 ) ( 79,215 ) Trade receivables, net ( 235,086 ) ( 235,316 ) Trade payables, net ( 22,304 ) ( 7,339 ) Employees and payroll accruals 8,283 5,202 Warranty obligations 103,524 59,588 Deferred revenues and customers advances 17,222 32,277 Accrued expenses and other liabilities, net ( 9,695 ) 54,341 Net cash used in operating activities ( 80,788 ) ( 85,574 ) Cash flows from investing activities: Investment in available-for-sale marketable securities ( 124,138 ) ( 362,119 ) Proceed from sales and maturities of available-for-sale marketable securities 86,813 126,287 Purchase of property, plant and equipment ( 84,075 ) ( 91,884 ) Business combinations, net of cash acquired ( 16,653 ) - Purchase of intangible assets ( 10,000 ) - Investment in privately-held companies ( 6,750 ) - Proceeds from governmental grant 6,797 - Other investing activities 3,552 1,783 Net cash used in investing activities $ ( 144,454 ) $ ( 325,933 ) The accompanying notes are an integral part of the condensed consolidated financial statements. F - 7 SOLAREDGE TECHNOLOGIES INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Cont.) (in thousands, except per share data) Six Months Ended June 30, 2023 2022 Cash flows from financing activities: Tax withholding in connection with stock-based awards, net $ ( 8,811 ) $ ( 2,318 ) Payment of finance lease liability ( 1,428 ) ( 1,374 ) Proceeds from secondary public offering, net of issuance costs - 650,526 Other financing activities 98 1,572 Net cash provided by (used in) financing activities ( 10,141 ) 648,406 Increase (decrease) in cash and cash equivalents ( 235,383 ) 236,899 Cash and cash equivalents at the beginning of the period 783,112 530,089 Effect of exchange rate differences on cash and cash equivalents 10,015 ( 21,454 ) Cash and cash equivalents at the end of the period $ 557,744 $ 745,534 Supplemental disclosure of non-cash activities: Purchase of intangible assets and business combinations $ 11,245 $ - Right-of-use asset recognized with a corresponding lease liability $ 12,063 $ 34,176 Purchase of property, plant and equipment $ 16,300 $ 13,451 The accompanying notes are an integral part of the condensed consolidated financial statements. F - 8 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data ) NOTE 1: GENERAL a. SolarEdge Technologies, Inc. (the “Company”) and its subsidiaries design, develop, and sell an intelligent inverter solution designed to maximize power generation at the individual photovoltaic (“PV”) module level while lowering the cost of energy produced by the solar PV system and providing comprehensive and advanced safety features. The Company’s products consist mainly of (i) power optimizers designed to maximize energy throughput from each and every module through constant tracking of Maximum Power Point individually per module, (ii) inverters which invert direct current (DC) from the PV module to alternating current (AC) including the Company’s 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 Company's smart EV charger, (iii) a remote cloud-based monitoring platform, that collects and processes information from the power optimizers and inverters to enable customers and system owners, to monitor and manage the solar PV system (iv) a residential storage and backup solution which includes a company designed and manufactured lithium-ion DC-coupled battery that is used to increase energy independence and maximize self-consumption for homeowners including a battery, and (v) additional smart energy management solutions. The Company and its subsidiaries sell products worldwide through large distributors, electrical equipment wholesalers, as well as directly to large solar installers and engineering, procurement, and construction firms. b. The Company has expanded its activity to other areas of smart energy technology organically and through acquisitions. The Company now offers a variety of energy solutions, which include lithium-ion cells, batteries, and energy storage systems (“Energy Storage”), full powertrain kits for electric vehicles, or EVs (“e-Mobility”), as well as automated machines for industrial use (“Automation Machines”). On April 6, 2023, the Company completed the acquisition of all outstanding shares of Hark Systems Ltd. ("Hark"), a UK-based energy IoT company for the commercial and industrial ("C&I") sector, which operates under the newly established consulting segment (see note 2). c. Basis of Presentation: The unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). In management’s opinion, the unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. The Company’s interim period results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. The significant accounting policies applied in the annual consolidated financial statements of the Company as of December 31, 2022, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 22, 2023, have been applied consistently in these unaudited interim condensed consolidated financial statements. Certain prior year amounts have been reclassified to conform to current year presentation. d. Use of estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures in the accompanying notes. The duration, scope and effects of the ongoing Covid-19 pandemic and the conflict in Ukraine, government and other third-party responses to it, and the related macroeconomic effects, including to the Company’s business and the business of the Company’s suppliers and customers are uncertain, rapidly changing and difficult to predict. As a result, the Company’s accounting estimates and assumptions may change over time in response to this evolving situation. Such changes could result in future impairments of goodwill, intangibles, long-lived assets, inventories, incremental credit losses on receivables and available-for-sale marketable debt securities, or an increase in the Company’s insurance liabilities as of the time of a relevant measurement event. F - 9 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) e. Concentrations of supply risks: The Company depends on two contract manufacturers and several limited or single source component suppliers. Reliance on these vendors makes the Company vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields, and costs. As of June 30, 2023, and December 31, 2022, two contract manufacturers collectively accounted for 45.4 % and 34.3 % of the Company’s total trade payables, net, respectively. In the second quarter of 2022, the Company announced the opening of “Sella 2”, a two gigawatt-hour (GWh) Li-Ion battery cell manufacturing facility located in South Korea. Sella 2 began producing and shipping cells at the end of 2022 and is expected to reach full manufacturing capacity in early 2024. Sella 2 is the Company's second owned manufacturing facility following the establishment of Sella 1 in 2020. Sella 1 is the Company's manufacturing facility in the North of Israel that produces power optimizers and inverters for the Company's solar activities. f. New accounting standards updates: From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies are adopted by the Company as of the specified effective date. The Company believes that the impact of recently issued or newly effective standards were not applicable to the Company, did not have a material impact on the condensed consolidated financial statements or are not expected to have a material impact on the condensed consolidated financial statements. F - 10 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) NOTE 2: BUSINESS COMBINATIONS On April 6, 2023, the Company completed the acquisition of all outstanding shares of Hark Systems Ltd. ("Hark"), a UK-based energy IoT company for the commercial and industrial ("C&I") sector for approximately $ 18,346 in cash. Hark's platform is expected to enable the Company to offer its commercial and industrial customers expanded capabilities in energy management and connectivity, including identification of potential energy savings, detection of anomalies in assets’ energy consumption, and optimization of energy usage and carbon emissions through load orchestration and storage control. Pursuant to ASC 805, the Company accounted for the Hark acquisition as a business combination using the acquisition method of accounting. Identifiable assets and liabilities of Hark, including identifiable intangible assets, were recorded based on their estimated fair values as of the date of the closing of the acquisition. The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill. The Company recorded preliminary estimates for the fair value of assets acquired and liabilities assumed as of the acquisition date. Such preliminary valuation required estimates and assumptions including, but not limited to, estimating future cash flows and direct costs in addition to developing the appropriate discount rates and current market profit margins. The Company’s management believes the fair values recognized for the assets acquired and the liabilities assumed were based on reasonable estimates and assumptions. The following table summarizes the preliminary fair values estimation of assets acquired and liabilities assumed as of the date of the acquisition: Amount Weighted Average Useful Life (In years) Cash $ 448 Net liabilities assumed ( 1,837 ) Identified intangible assets: Current technology 6,576 5 Customer relationships 283 1 Trade name 610 5 Goodwill 12,266 Total $ 18,346 Acquisition costs were immaterial and are included in general and administrative expenses in the consolidated statements of income. Goodwill generated from this acquisition was primarily attributable to the assembled workforce and expected post-acquisition synergies from combining Hark platform with the Company's product offering to its commercial and industrial customers. All of the Goodwill was assigned to the new Consulting segment (see Note 21). Goodwill was not deductible for tax purposes. The fair values of technology, customer relationships and trade name were derived by applying the multi-period excess earnings method, with-and-without method, and the relief-from-royalty method, respectively, all of which are under the income approach whose underlying inputs are considered Level 3. The fair values assigned to assets acquired and liabilities assumed were based on management's estimates and assumptions. The results of Hark have been included in the Company's consolidated statements of income since the acquisition date and are not material. Pro forma financial information has not been presented because the impact of the acquisition was not material to the Company's statement of income. F - 11 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) NOTE 3: MARKETABLE SECURITIES The following is a summary of available-for-sale marketable securities as of June 30, 2023: Amortized cost Gross unrealized gains Gross unrealized losses Fair value Matures within one year: Corporate bonds $ 472,687 $ 424 $ ( 10,314 ) $ 462,797 U.S. governmental bonds 23,954 - ( 248 ) 23,706 Non - U.S. governmental bonds 6,840 - ( 167 ) 6,673 503,481 424 ( 10,729 ) 493,176 Matures after one year: Corporate bonds 416,648 583 ( 13,464 ) 403,767 U.S. governmental bonds 27,842 - ( 313 ) 27,529 Non - U.S. governmental bonds 4,742 - ( 238 ) 4,504 449,232 583 ( 14,015 ) 435,800 Total $ 952,713 $ 1,007 $ ( 24,744 ) $ 928,976 The following is a summary of available-for-sale marketable securities as of December 31, 2022: Amortized cost Gross unrealized gains Gross unrealized losses Fair value Matures within one year: Corporate bonds $ 222,482 $ - $ ( 4,657 ) $ 217,825 U.S. governmental bonds 15,963 - ( 284 ) 15,679 Non - U.S. governmental bonds 7,882 - ( 269 ) 7,613 246,327 - ( 5,210 ) 241,117 Matures after one year: Corporate bonds 657,238 80 ( 26,460 ) 630,858 U.S. governmental bonds 9,939 - ( 261 ) 9,678 Non - U.S. governmental bonds 5,311 - ( 356 ) 4,955 672,488 80 ( 27,077 ) 645,491 Total $ 918,815 $ 80 $ ( 32,287 ) $ 886,608 As of June 30, 2023, and December 31, 2022, the Company did not record an allowance for credit losses for its available-for-sale marketable securities. F - 12 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) NOTE 4: INVENTORIES, NET June 30, 2023 December 31, 2022 Raw materials $ 461,453 $ 503,257 Work in process 35,348 23,407 Finished goods 487,393 202,537 Total inventories, net $ 984,194 $ 729,201 NOTE 5: PREPAID EXPENSES AND OTHER CURRENT ASSETS June 30, 2023 December 31, 2022 Vendor non-trade receivables (*) $ 141,810 $ 147,597 Government authorities 78,963 55,670 Prepaid expenses and other 43,415 37,815 Total prepaid expenses and other current assets $ 264,188 $ 241,082 (*) Vendor non-trade receivables derived from the sale of components to manufacturing vendors who manufacture products for the Company. The Company purchases these components directly from other suppliers. The Company does not reflect the sale of these components to the contract manufacturers in its revenues. F - 13 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) NOTE 6: INTANGIBLE ASSETS, NET Acquired intangible assets consisted of the following as of June 30, 2023 , and December 31, 2022 : June 30, 2023 December 31, 2022 Intangible assets with finite lives: Current Technology $ 34,879 $ 29,196 Customer relationships 3,138 2,958 Trade names 3,769 3,287 Assembled workforce 3,575 3,575 Patents and licenses* 21,400 1,400 Gross intangible assets 66,761 40,416 Less - accumulated amortization ( 23,105 ) ( 20,487 ) Total intangible assets, net $ 43,656 $ 19,929 * See Note 16 For the three months ended June 30, 2023 and 2022 the Company recorded amortization expenses related to intangible assets in the amount of $ 1,820 and $ 2,619 , respectively. For the six months ended June 30, 2023 and 2022 the Company recorded amortization expenses related to intangible assets in the amount of $ 3,238 and $ 5,277 , respectively. Expected future amortization expenses of intangible assets as of June 30, 2023 are as follows: 2023 $ 4,666 2024 8,627 2025 7,698 2026 7,269 2027 4,002 2028 and thereafter 11,394 $ 43,656 F - 14 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) NOTE 7: GOODWILL Changes in the carrying amount of goodwill for the period ended June 30, 2023 were as follows: Solar All other Total Goodwill at December 31, 2022 $ 28,768 $ 2,421 $ 31,189 Changes during the year: Acquisitions - 12,266 12,266 Foreign currency adjustments ( 1,194 ) 71 ( 1,123 ) Goodwill at June 30, 2023 $ 27,574 $ 14,758 $ 42,332 As of June 30, 2023 and December 31, 2022 there were $ 90,104 accumulated goodwill impairment losses. F - 15 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) NOTE 8: OTHER LONG TERM ASSETS June 30, 2023 December 31, 2022 Severance pay fund $ 7,479 $ 8,799 Cloud computing arrangements 8,236 3,457 Investments in privately held companies 8,536 1,863 Prepayments 3,285 2,961 Other 1,236 1,726 Total other long term assets $ 28,772 $ 18,806 F - 16 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) NOTE 9: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES During the six months ended June 30, 2023, the Company instituted a foreign currency cash flow hedging program to reduce the risk of a forecasted increase in the value of foreign currency cash flows, resulting from payment of salaries in Israeli currency, the New Israeli Shekels (“NIS”). The Company hedges portions of the anticipated payroll denominated in NIS for a period of one to nine months with hedging contracts. These hedging contracts are designated as cash flow hedges, as defined by ASC 815 and are all effective hedges. As of June 30, 2023, the Company entered into forward contracts and put and call options to sell U.S. dollars (“USD”) for NIS in the amount of approximately NIS 106.25 million and NIS 216 million, respectively. In addition to the above-mentioned cash flow hedge transactions, the Company occasionally enters into derivative instrument arrangements to hedge the Company’s exposure to currencies other than the USD. These derivative instruments are not designated as cash flow hedges, as defined by ASC 815, and therefore all gains and losses, resulting from fair value remeasurement, were recorded immediately in the statement of income, under "Financial income (expense), net". The Company classifies cash flows related to its hedging as operating activities in its condensed consolidated statement of cash flows. The fair values of outstanding derivative instruments were as follows: Balance sheet location June 30, 2023 December 31, 2022 Derivative liabilities of options and forward contracts: Designated cash flow hedges Accrued expenses and other current liabilities $ ( 1,893 ) $ ( 1,874 ) Gains (losses) on derivative instruments are summarized below: Three Months Ended June 30, Six Months Ended June 30, Affected line item 2023 2022 2023 2022 Foreign exchange contracts Non Designated Hedging Instruments Condensed Consolidated Statements of Income - Financial income (expense), net $ - $ 3,009 $ - $ 3,943 Designated Hedging Instruments Condensed Consolidated Statements of Comprehensive Income - Cash flow hedges $ ( 2,091 ) $ ( 6,351 ) $ ( 4,148 ) $ ( 7,529 ) See Note 17 for information regarding losses from designated hedging instruments reclassified from accumulated other comprehensive loss. F - 17 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) NOTE 10: FAIR VALUE MEASUREMENTS In accordance with ASC 820, the Company measures its cash equivalents and marketable securities, at fair value using the market approach valuation technique. Cash and cash equivalents are classified within Level 1 because these assets are valued using quoted market prices. Marketable securities and foreign currency derivative contracts are classified within level 2 due to these assets being valued by alternative pricing sources and models utilizing market observable inputs. The following table sets forth the Company’s assets that were measured at fair value as of June 30, 2023 and December 31, 2022, by level within the fair value hierarchy: Fair value measurements as of Description Fair Value Hierarchy June 30, 2023 December 31, 2022 Assets: Cash and cash equivalents: Cash Level 1 $ 525,804 $ 695,004 Money market mutual funds Level 1 $ 5,772 $ 25,149 Deposits Level 1 $ 26,168 $ 62,959 Short-term marketable securities: Corporate bonds Level 2 $ 462,797 $ 217,825 U.S. governmental bonds Level 2 $ 23,706 $ 15,679 Non - U.S. governmental bonds Level 2 $ 6,673 $ 7,613 Long-term marketable securities: Corporate bonds Level 2 $ 403,767 $ 630,858 U.S. governmental bonds Level 2 $ 27,529 $ 9,678 Non - U.S. governmental bonds Level 2 $ 4,504 $ 4,955 Liabilities: Derivative instruments Level 2 $ ( 1,893 ) $ ( 1,874 ) NOTE 11: WARRANTY OBLIGATIONS Changes in the Company’s product warranty obligations for the three and six months ended June 30, 2023 and 2022, were as follows: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Balance, at the beginning of the period $ 442,971 $ 292,666 $ 385,057 $ 265,160 Additions and adjustments to cost of revenues 89,631 59,061 181,201 106,968 Usage and current warranty expenses ( 44,015 ) ( 27,551 ) ( 77,671 ) ( 47,952 ) Balance, at end of the period 488,587 324,176 488,587 324,176 Less current portion ( 146,150 ) ( 91,761 ) ( 146,150 ) ( 91,761 ) Long term portion $ 342,437 $ 232,415 $ 342,437 $ 232,415 F - 18 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) NOTE 12: DEFERRED REVENUES AND CUSTOMERS ADVANCES Deferred revenues consist of deferred cloud-based monitoring services, communication services, warranty extension services and advance payments received from customers for the Company’s products. Deferred revenues are classified as short-term and long-term deferred revenues based on the period in which revenues are expected to be recognized. Changes in the balances of deferred revenues and customer advances during the period are as follows: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Balance, at the beginning of the period $ 224,424 $ 184,245 $ 213,577 $ 169,345 Revenue recognized ( 19,000 ) ( 10,595 ) ( 21,990 ) ( 17,560 ) Increase in deferred revenues and customer advances 27,404 27,045 41,241 48,910 Balance, at the end of the period 232,828 200,695 232,828 200,695 Less current portion ( 28,135 ) ( 30,460 ) ( 28,135 ) ( 30,460 ) Long term portion $ 204,693 $ 170,235 $ 204,693 $ 170,235 The following table includes estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2023: 2023 $ 21,700 2024 12,038 2025 10,880 2026 10,649 2027 8,668 Thereafter 168,893 Total deferred revenues $ 232,828 NOTE 13: ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES June 30, 2023 December 31, 2022 Accrued expenses $ 107,902 $ 117,638 Government authorities 76,995 67,514 Operating lease liabilities 16,738 16,183 Accrual for sales incentives 5,439 6,790 Finance lease 3,123 3,263 Other 3,936 2,724 Total accrued expenses and other current liabilities $ 214,133 $ 214,112 F - 19 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) NOTE 14: CONVERTIBLE SENIOR NOTES On September 25, 2020, the Company sold $ 632,500 aggregate principal amount of its 0.00 % convertible senior notes due 2025 (the “Notes”). The Notes were sold pursuant to an indenture, dated September 25, 2020 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee. The Notes do not bear regular interest and mature on September 15, 2025 , unless earlier repurchased or converted in accordance with their terms. The Notes are general senior unsecured obligations of the Company. Holders may convert their Notes prior to the close of business on the business day immediately preceding June 15, 2025 in multiples of $ 1,000 principal amount, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2020 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five-business-day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each trading day of that five consecutive trading day period was less than 98% of the product of the last reported sale price of the common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events as described in the Indenture. In addition, holders may convert their Notes, in multiples of $1,000 principal amount, at their option at any time beginning on or after June 15, 2025, and prior to the close of business on the second scheduled trading day immediately preceding the stated maturity date of the Notes, without regard to the foregoing circumstances. The initial conversion rate for the Notes was 3.5997 shares of common stock per $ 1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $ 277.80 per share of common stock, subject to adjustment upon the occurrence of certain specified events as set forth in the Indenture. Upon conversion, the Company may choose to pay or deliver, as the case may be, cash, shares of common stock, or a combination of cash and shares of common stock. In addition, upon the occurrence of a fundamental change (as defined in the Indenture), holders of the Notes may require the Company to repurchase all or a portion of their Notes, in multiples of $1,000 principal amount, at a repurchase price of 100% of the principal amount of the Notes, plus any accrued and unpaid special interest to, but excluding the fundamental change repurchase date. If certain fundamental changes referred to as make-whole fundamental changes occur, the conversion rate for the Notes may be increased. The Convertible Senior Notes consisted of the following as of June 30, 2023 and December 31, 2022: June 30, 2023 December 31, 2022 Liability: Principal $ 632,500 $ 632,500 Unamortized issuance costs ( 6,586 ) ( 8,049 ) Net carrying amount $ 625,914 $ 624,451 For the three months ended June 30, 2023 and 2022 the Company recorded amortized debt issuance costs related to the Notes in the amount of $ 732 and $ 728 , respectively. For the six months ended June 30, 2023 and 2022 the Company recorded amortized debt issuance costs related to the Notes in the amount of $ 1,463 and $ 1,456 , respectively. As of June 30, 2023, the unamortized issuance costs of the Notes will be amortized over the remaining term of approximately 2.2 years. The annual effective interest rate of the Notes is 0.47 %. As of June 30, 2023, the estimated fair value of the Notes, which the Company has classified as Level 2 financial instruments, is $ 727,116 . The estimated fair value was determined based on the quoted bid price of the Notes in an over-the-counter market on the last trading day of the reporting period. As of June 30, 2023, the if-converted value of the Notes did not exceed the principal amount. F - 20 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) NOTE 15: STOCK CAPITAL a. Common stock rights: Common stock confers upon its holders the right to receive notice of, and to participate in, all general meetings of the Company, where each share of common stock shall have one vote for all purposes, to share equally, on a per share basis, in bonuses, profits, or distributions out of fund legally available therefor, and to participate in the distribution of the surplus assets of the Company in the event of liquidation of the Company. b. Secondary public offering: On March 17, 2022, the Company offered and sold 2,300,000 shares of the Company’s common stock, at a public offering price of $ 295.00 per share. The shares of Common Stock were issued and sold in a registered offering pursuant to the underwriting agreement dated March 17, 2022, among the Company, Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, and Morgan Stanley & Co. LLC (the “Underwriting Agreement”). All of the offered shares were issued at closing, including 300,000 shares of Common Stock that were issued and sold pursuant to the underwriters’ option to purchase additional shares under the Underwriting Agreement, which was exercised in full on March 18, 2022. The net proceeds to the Company were $ 650,526 after deducting underwriters' discounts of $ 27,140 and commissions of $ 834 . c. Equity Incentive Plans: The Company’s 2007 Global Incentive Plan (the “2007 Plan”) was adopted by the board of directors on August 30, 2007. The 2007 Plan terminated upon the Company’s IPO on March 31, 2015 and no further awards may be granted thereunder. All outstanding awards will continue to be governed by their existing terms and 379,358 available options for future grants were transferred to the Company’s 2015 Global Incentive Plan (the “2015 Plan”) and are reserved for future issuances under the 2015 plan. The 2015 Plan became effective upon the consummation of the IPO. The 2015 Plan provides for the grant of options, restricted stock units ("RSU"), performance stock units ("PSU"), and other share-based awards to directors, employees, officers, and non-employees of the Company and its subsidiaries. As of June 30, 2023, a total of 20,853,755 shares of common stock were reserved for issuance pursuant to stock awards under the 2015 Plan (the “Share Reserve”), an aggregate of 11,933,444 shares are still available for future grants. The Share Reserve will automatically increase on January 1 st of each year during the term of the 2015 Plan, commencing on January 1 st of the year following the year in which the 2015 Plan becomes effective, in an amount equal to 5 % of the total number of shares of capital stock outstanding on December 31 st of the preceding calendar year; provided, however, that the Company’s board of directors may determine that there will not be a January 1 st increase in the Share Reserve in a given year or that the increase will be less than 5% of the shares of capital stock outstanding on the preceding December 31 st . The Company granted under its 2015 Plan, PSU awards to certain employees and officers which vest upon the achievement of certain performance or market conditions subject to their continued employment with the Company. In 2021, the Company has also committed to issuing additional shares, which carry certain performance conditions (including business performance targets and a continued service relationship with the Company) and are treated as PSUs for accounting purposes. The market condition for the PSUs is based on the Company’s total shareholder return ("TSR") compared to the TSR of companies listed in the S&P 500 index over a one to three year performance period. The Company uses a Monte-Carlo simulation to determine the grant date fair value for these awards, which takes into consideration the market price of a share of the Company’s common stock on the date of grant less the present value of dividends expected during the requisite service period, as well as the possible outcomes pertaining to the TSR market condition. The Company recognizes such compensation expenses on an accelerated vesting method. The aggregate maximum number of shares of common stock that may be issued on the exercise of incentive stock options is 10,000,000 . As of June 30, 2023, an aggregate of 8,617,974 options are still available for future grants under the 2015 Plan. F - 21 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) A summary of the activity in stock options and related information is as follows: Number of options Weighted average exercise price Weighted average remaining contractual term in years Aggregate intrinsic Value Outstanding as of December 31, 2022 339,029 $ 50.64 4.86 $ 79,414 Exercised ( 6,748 ) 24.34 - 1,900 Outstanding as of June 30, 2023 332,281 $ 51.18 4.39 $ 73,219 Vested and expected to vest as of June 30, 2023 331,930 $ 51.03 4.39 $ 73,186 Exercisable as of June 30, 2023 312,950 $ 42.34 4.23 $ 71,413 The intrinsic value is the amount by which the closing price of the Company’s common stock on June 30, 2023 of $ 269.05 or the price on the day of exercise exceeds the exercise price of the stock options multiplied by the number of in-the-money options. A summary of the activity in the RSUs and related information is as follows: Number of RSUs Weighted average grant date fair value Unvested as of December 31, 2022 1,488,515 $ 232.05 Granted 193,199 287.80 Vested ( 366,445 ) 184.37 Forfeited ( 50,100 ) 257.92 Unvested as of June 30, 2023 1,265,169 $ 278.79 A summary of the activity in the PSUs and related information is as follows: Number of PSUs Weighted average grant date fair value Unvested as of December 31, 2022 149,232 $ 295.88 Granted 32,348 314.22 Vested ( 8,249 ) 270.93 Unvested as of June 30, 2023 173,331 $ 114.79 d. Employee Stock Purchase Plan ("ESPP"): The Company adopted an ESPP effective upon the consummation of the IPO. As of June 30, 2023, a total of 4,150,380 shares were reserved for issuance under this plan. The number of shares of common stock reserved for issuance under the ESPP will increase automatically on January 1 st of each year, for ten years, by the lesser of 1 % of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year or 487,643 shares. However, the Company’s board of directors may reduce the amount of the increase in any particular year at their discretion, including a reduction to zero. The ESPP is implemented through an offering every six months. According to the ESPP, eligible employees may use up to 15 % of their salaries to purchase common stock up to an aggregate limit of $ 15 per participant for every six months plan. The price of an ordinary share purchased under the ESPP is equal to 85 % of the lower of the fair market value of the ordinary share on the subscription date of each offering period or on the purchase date. As of June 30, 2023, 780,370 shares of common stock had been purchased under the ESPP. As of June 30, 2023, 3,370,010 shares of common stock were available for future issuance under the ESPP. In accordance with ASC No. 718, the ESPP is compensatory and, as such, results in recognition of compensation cost. F - 22 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) e. Stock-based compensation expenses: The Company recognized stock-based compensation expenses related to all stock-based awards in the consolidated statement of income for the three and six months ended June 30, 2023, and 2022, as follows: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Stock-based compensation expenses: Cost of revenues $ 5,923 $ 5,286 $ 11,850 $ 10,348 Research and development 17,272 16,819 34,481 31,804 Selling and marketing 7,822 7,047 15,901 13,748 General and administrative 7,948 7,922 15,968 15,281 Total stock-based compensation expenses $ 38,965 $ 37,074 $ 78,200 $ 71,181 Stock-based compensation capitalized: Inventory $ 606 $ - $ 1,011 $ - Other long-term assets 407 97 837 97 Total stock-based compensation capitalized $ 1,013 $ 97 $ 1,848 $ 97 The total tax benefit associated with share-based compensation for the three months ended June 30, 2023 and 2022 was $ 4,102 and $ 3,058 , respectively. The tax benefit realized from share-based compensation for the three months ended June 30, 2023, and 2022 was $ 2,619 and $ 2,885 , respectively. The total tax benefit associated with share-based compensation for the six months ended June 30, 2023, and 2022 was $ 8,298 and $ 6,536 , respectively. The tax benefit realized from share-based compensation for the six months ended June 30, 2023, and 2022 was $ 5,461 and $ 5,812 , respectively. As of June 30, 2023, there were total unrecognized compensation expenses in the amount of $ 318,954 related to non-vested equity-based compensation arrangements granted. These expenses are expected to be recognized during the period from July 1, 2023, through May 31, 2027. F - 23 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) NOTE 16: COMMITMENTS AND CONTINGENT LIABILITIES a. Guarantees: As of June 30, 2023, contingent liabilities exist regarding guarantees in the amounts of $ 5,937 , and $ 1,875 in respect of office rent lease agreements and other transactions, respectively. b. Contractual purchase obligations: The Company has contractual obligations to purchase goods and raw materials. These contractual purchase obligations relate to inventories and other purchase orders, which cannot be canceled without penalty. In addition, the Company acquires raw materials or other goods and services, including product components, by issuing authorizations to its suppliers to purchase materials based on its projected demand and manufacturing needs. As of June 30, 2023, the Company had non-cancelable purchase obligations totaling approximately $ 1,443,251 , out of which the Company recorded a provision for loss in the amount of $ 8,818 . As of June 30, 2023, the Company had contractual obligations for capital expenditures totaling approximately $ 132,988 . These commitments reflect purchases of automated assembly lines and other machinery related to the Company’s general manufacturing process and mainly to its plans to establish manufacturing capabilities in the United States. c. Legal claims: From time to time, the Company may be involved in various claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss. These accruals are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular matter. In September 2018, the Company’s German subsidiary, SolarEdge Technologies GmbH, received a complaint filed by competitor SMA Solar Technology AG (“SMA”). The complaint, filed in the District Court Düsseldorf, Germany, alleged that SolarEdge's 12.5kW - 27.6kW inverters infringed on two of the plaintiff’s patents. SMA asserted a value in dispute of EUR 5.5 million (approximately $ 5,973 ) for both patents. The Company challenged the validity of both patents and the first patent was invalidated and SMA’s appeal on the matter was denied in January 2023. In August 2021, the German Patent Court rendered SMA's second patent invalid, and this invalidity has been appealed by SMA. In May 2023 the Federal Supreme Court as final instance in the nullity proceedings revoked the second patent, and SMA withdrew its infringement complaint. On July 28, 2022, the Company and its subsidiary SolarEdge Technologies Ltd were served with complaints filed by Ampt LLC ("Ampt") in the International Trade Commission (the “Commission”) pursuant to Section 337 of the Tariff Act of 1930, as amended, and related lawsuits in the District Court for the District of Delaware alleging patent infringement against the Company. On May 9, 2023, Ampt and the Company entered into a settlement agreement pursuant to which the parties agreed to dismiss all proceedings related to the complaints, and the parties have granted each other 10-year cross-licenses for certain intellectual property. As of June 30, 2023, an immaterial amount for legal claims was recorded in accrued expenses and other current liabilities. F - 24 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) NOTE 17: ACCUMULATED OTHER COMPREHENSIVE LOSS The following table summarizes the changes in accumulated balances of other comprehensive gain (loss), net of taxes: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Unrealized gains (losses) on available-for-sale marketable securities Beginning balance $ ( 19,272 ) $ ( 14,215 ) $ ( 25,449 ) $ ( 4,709 ) Revaluation 793 ( 5,919 ) 8,363 ( 18,640 ) Tax on revaluation ( 132 ) 1,357 ( 1,603 ) 3,828 Other comprehensive income (loss) before reclassifications 661 ( 4,562 ) 6,760 14,812 Reclassification - - 107 844 Tax on reclassification - - ( 29 ) ( 100 ) Losses reclassified from accumulated other comprehensive income (loss) - - 78 744 Net current period other comprehensive income (loss) 661 ( 4,562 ) 6,838 ( 14,068 ) Ending balance $ ( 18,611 ) $ ( 18,777 ) $ ( 18,611 ) $ ( 18,777 ) Unrealized gains (losses) on cash flow hedges Beginning balance $ ( 2,092 ) $ 194 $ ( 1,761 ) $ 874 Revaluation ( 2,229 ) ( 7,188 ) ( 4,425 ) ( 8,525 ) Tax on revaluation 138 837 277 996 Other comprehensive income (loss) before reclassifications ( 2,091 ) ( 6,351 ) ( 4,148 ) ( 7,529 ) Reclassification 2,566 2,846 4,406 3,411 Tax on reclassification ( 159 ) ( 331 ) ( 273 ) ( 398 ) Losses reclassified from accumulated other comprehensive income (loss) 2,407 2,515 4,133 3,013 Net current period other comprehensive income (loss) 316 ( 3,836 ) ( 15 ) ( 4,516 ) Ending balance $ ( 1,776 ) $ ( 3,642 ) $ ( 1,776 ) $ ( 3,642 ) Foreign currency translation adjustments on intra-entity transactions that are of a long-term investment in nature Beginning balance $ ( 48,760 ) $ ( 24,403 ) $ ( 37,960 ) $ ( 17,420 ) Revaluation ( 1,935 ) ( 28,347 ) ( 12,735 ) ( 35,330 ) Ending balance $ ( 50,695 ) $ ( 52,750 ) $ ( 50,695 ) $ ( 52,750 ) Unrealized gains (losses) on foreign currency translation Beginning balance $ ( 7,080 ) $ ( 7,643 ) $ ( 7,939 ) $ ( 6,064 ) Revaluation 730 ( 6,808 ) 1,589 ( 8,387 ) Ending balance $ ( 6,350 ) $ ( 14,451 ) $ ( 6,350 ) $ ( 14,451 ) Total $ ( 77,432 ) $ ( 89,620 ) $ ( 77,432 ) $ ( 89,620 ) F - 25 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) The following table summarizes the changes in "Accumulated other comprehensive loss", net of taxes: Details about Accumulated Other Comprehensive Loss Components Three Months Ended June 30, Six Months Ended June 30, Affected Line Item in the Statement of Income 2023 2022 2023 2022 Unrealized gains (losses) on available-for-sale marketable securities $ - $ - $ ( 107 ) $ ( 844 ) Financial income (expense), net - - 29 100 Income taxes $ - $ - $ ( 78 ) $ ( 744 ) Total, net of income taxes Unrealized gains (losses) on cash flow hedges, net ( 303 ) ( 318 ) ( 515 ) ( 385 ) Cost of revenues ( 1,521 ) ( 1,694 ) ( 2,650 ) ( 2,032 ) Research and development ( 310 ) ( 349 ) ( 535 ) ( 420 ) Sales and marketing ( 432 ) ( 485 ) ( 706 ) ( 574 ) General and administrative $ ( 2,566 ) $ ( 2,846 ) $ ( 4,406 ) $ ( 3,411 ) Total, before income taxes 159 331 273 398 Income taxes ( 2,407 ) ( 2,515 ) ( 4,133 ) ( 3,013 ) Total, net of income taxes Total reclassifications for the period $ ( 2,407 ) $ ( 2,515 ) $ ( 4,211 ) $ ( 3,757 ) NOTE 18: OTHER OPERATING EXPENSE (INCOME) The following table presents the expenses (income) recorded in the three and six months ended June 30, 2023, and 2022: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Impairment of goodwill and intangible assets $ - $ 4,008 $ - $ 4,008 Sale of assets - - ( 1,434 ) - Write-off of property, plant and equipment - 679 - 679 Total other operating expense (income), net $ - $ 4,687 $ ( 1,434 ) $ 4,687 F - 26 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) NOTE 19: INCOME TAXES The effective tax rate for the three months ended June 30, 2023, and 2022 was 22.3 % and 30.5 %, respectively, and for the six months ended June 30, 2023, and 2022 the effective tax rate was 19.8 % and 28.2 %, respectively. The lower tax rate in the three and six months ended June 30, 2023 compared to the corresponding periods in 2022 is mainly due to the fact that the Company's income before tax, most of which is subject to tax rates lower than the US statutory rate, increased. Conversely, the IRC Section 174 R&D capitalization, and other expenses not recognized for GILTI purposes, did not increase in the same proportion. As of June 30, 2023, and December 31, 2022, unrecognized tax benefits were $ 3,035 and $ 2,756 , respectively. If recognized, such benefits would favorably affect the Company’s effective tax rate. The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. The total amount of penalties and interest were immaterial as of June 30, 2023, and December 31, 2022. In August 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the “IRA”), which includes several incentives intended to promote clean energy, battery and energy storage, electrical vehicles, and other solar products, and is expected to impact our business and operations. As part of such incentives the IRA, will among other things, extend the investment tax credit (“ITC”) through 2034 and is therefore expected to increase the demand for solar products. The IRA is expected to further incentivize residential and commercial solar customers and developers due to the inclusion of a tax credit for qualifying energy projects of up to 30%. Since these regulations are new and their implementation is still pending administrative guidance from the Internal Revenue Service and U.S. Treasury Department, the Company will be examining the benefits that may be available to it, such as the availability of tax credits for domestic manufacturers, in the coming months. The Company also announced its plans to establish manufacturing capabilities in the United States during 2023. F - 27 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) NOTE 20: EARNINGS PER SHARE The following table presents the computation of basic and diluted earnings per share (“EPS”): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Basic EPS: Numerator: Net income $ 119,510 $ 15,084 $ 257,888 $ 48,207 Denominator: Shares used in computing net EPS of common stock, basic 56,415,636 55,470,279 56,316,116 54,309,060 Diluted EPS: Numerator: Net income attributable to common stock, basic $ 119,510 $ 15,084 $ 257,888 $ 48,207 Notes due 2025 536 551 1,072 1,100 Net income attributable to common stock, diluted $ 120,046 $ 15,635 $ 258,960 $ 49,307 Denominator: Shares used in computing net EPS of common stock, basic 56,415,636 55,470,279 56,316,116 54,309,060 Notes due 2025 2,276,818 2,276,818 2,276,818 2,276,818 Effect of stock-based awards 491,212 817,637 596,368 860,538 Shares used in computing net EPS of common stock, diluted 59,183,666 58,564,734 59,189,302 57,446,416 Earnings per share: Basic $ 2.12 $ 0.27 $ 4.58 $ 0.89 Diluted $ 2.03 $ 0.26 $ 4.38 $ 0.86 Shares excluded from the calculation of diluted net EPS due to their anti-dilutive effect 491,212 182,715 596,368 203,246 F - 28 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) NOTE 21: SEGMENT INFORMATION Following the discontinuation of Critical Power in June 2022, the Company operates in five different operating segments: Solar, Energy Storage, e-Mobility, Automation Machines, and the newly formed Consulting segment. The Company’s Chief Executive Officer, who is the chief operating decision maker (“CODM”), makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis, accompanied by disaggregated information about revenues and contributed profit by the operating segments. The Company does not allocate to its operating segments revenue recognized due to advance payments received for performance obligations that extend for a period greater than one year, related to Accounting Standard Codification 606, “Revenue from Contracts with Customers” (ASC 606). Segment profit is comprised of gross profit for the segment less operating expenses that do not include amortization of purchased intangible assets, impairments of goodwill and intangible assets, stock based compensation expenses, and certain other items. The Company manages its assets on a group basis, not by segments, as many of its assets are shared or co-mingled. The Company’s CODM does not regularly review asset information by segments and, therefore, the Company does not report asset information by segment. The Company identified one operating segment as reportable – the Solar segment. The other operating segments are insignificant individually and therefore their results are presented together under “All other”. The Solar segment includes the design, development, manufacturing, and sales of an intelligent inverter solution designed to maximize power generation at the individual PV module level and a residential storage solution, compatible with the Company’s Energy Hub inverter, intended to store and supply power for back-up and to maximize self-consumption. The Solar segment solution consists mainly of the Company’s power optimizers, inverters, batteries, and cloud‑based monitoring platform. The “All other” category includes the design, development, manufacturing, and sales of energy storage products, e-Mobility products, automated machines, and consulting services. The following tables present information on reportable segments profit (loss) for the period presented: Three Months Ended June 30, 2023 Six Months Ended June 30, 2023 Solar All other Solar All other Revenues $ 947,360 $ 43,728 $ 1,855,865 $ 78,925 Cost of revenues 618,943 47,931 1,209,048 94,147 Gross profit (loss) 328,417 ( 4,203 ) 646,817 ( 15,222 ) Research and development 62,102 6,863 117,925 13,391 Sales and marketing 34,136 2,029 65,281 3,590 General and administrative 25,145 2,988 49,888 6,766 Segments profit (loss) $ 207,034 $ ( 16,083 ) $ 413,723 $ ( 38,969 ) F - 29 SOLAREDGE TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share data) Three Months Ended June 30, 2022 Six Months Ended June 30, 2022 Solar All other Solar All other Revenues $ 687,599 $ 40,029 $ 1,295,596 $ 86,977 Cost of revenues 494,400 38,948 918,900 83,289 Gross profit 193,199 1,081 376,696 3,688 Research and development 49,141 8,587 92,272 16,517 Sales and marketing 28,419 3,283 54,224 5,857 General and administrative 16,396 3,789 32,245 7,414 Segments profit (loss) $ 99,243 $ ( 14,578 ) $ 197,955 $ ( 26,100 ) The following table presents information on reportable segments reconciliation to consolidated revenues for the periods presented: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Solar revenues $ 947,360 $ 687,599 $ 1,855,865 $ 1,295,596 All other revenues 43,728 40,029 78,925 86,977 Revenues from finance component 202 146 389 281 Consolidated revenues $ 991,290 $ 727,774 $ 1,935,179 $ 1,382,854 The following table presents information on reportable segments reconciliation to consolidated operating income for the periods presented: Three Months Ended June 30, Six Months Ended June 30,​​​​​​​ 2023 2022 2023 2022 Solar segment profit $ 207,034 $ 99,243 $ 413,723 $ 197,955 All other segment loss ( 16,083 ) ( 14,578 ) ( 38,969 ) ( 26,100 ) Segments operating profit 190,951 84,665 374,754 171,855 Amounts not allocated to segments: Stock based compensation expenses ( 38,965 ) ( 37,074 ) ( 78,200 ) ( 71,181 ) Impairment of goodwill and intangible assets - ( 4,008 ) - ( 4,008 ) Disposal of assets related to Critical Power - ( 4,314 ) - ( 4,314 ) Other unallocated expenses, net ( 1,628 ) ( 3,257 ) ( 2,042 ) ( 5,476 ) Consolidated operating income $ 150,358 $ 36,012 $ 294,512 $ 86,876 F - 30