What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-06 compared with 2023-08-07 · 178 added, 158 removed, 180 unchanged (65% of the section changed)

24 unchanged sentences

• product quality or performance problems in our products;

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

• our ability to forecast demand for our products accurately and to match production to such demand as well as our customers' ability to forecast demand based on inventory levels;

• our dependence on ocean transportation to timely deliver our products in a cost-effective manner;

3 unchanged sentences

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

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

• existing and future responses to and effects of pandemics, epidemics or other health crises;

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

1 unchanged sentence

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

• disruption to our business operations due to the evolving state of war in Israel;

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

27 unchanged sentences

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

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

from our manufacturing facility in the North of Israel, “Sella 1”.

In the third quarter of 2020, we began commercial shipments from our manufacturing facility in the North of Israel, “Sella 1”.

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 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 2023, we expanded the manufacturing capacity of Sella 1 to add an additional inverter line that reached full manufacturing 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 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.

Sella 2 began producing and shipping cells at the end of 2022 and is expected to gradually increase manufacturing capacity during 2024.

With the ramp-up of this new site and due to a decrease in demand, this quarter we have reduced capacity in our manufacturing site in China and discontinued manufacturing of our products in Mexico, with the intention to close the Mexico manufacturing site in coming months.

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

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

As of September 30, 2023, we shipped approximately 122.9 million power optimizers, 5.5 million inverters and 229.5 thousand residential batteries.

Over 3.6 million installations, many of which may include multiple inverters, are currently connected to, and monitored through, our cloud-based monitoring platform.

As of June 30, 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.

As of September 30, 2023, we shipped approximately 51.7 GW of our DC optimized inverter systems and approximately 1.6 GWh of our residential batteries.

Our revenues for the three months ended September 30, 2023, and 2022 were $725.3 million and $836.7 million, respectively.

Gross margin for the three months ended September 30, 2023, and 2022 was 19.7% and 26.5%, respectively.

Net loss for the three months ended September 30, 2023 was $61.2 million compared to net income in the amount of $24.7 million for the three months ended September 30, 2022.

Our revenues for the nine months ended September 30, 2023, and 2022 were $2,660.5 million and $2,219.6 million, respectively.

Gross margin for the nine months ended September 30, 2023, and 2022 was 28.6% and 26.3%, respectively.

Net income for the nine months ended September 30, 2023 and 2022 was $196.7 million and $73.0 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, 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.

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

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

Disruptions due to the war in Israel

Violence between Hamas and Israel started on October 7th when the terrorist group launched an unprecedented attack on Israel.

On October 8th, the Israeli Government declared that the Security Cabinet of the State of Israel approved a war situation in Israel.

Approximately 11% of our workforce in Israel, where we are headquartered, have been called into active reserve duty.

Recently, Israel’s credit outlook was cut to negative by S&P Global Ratings, which cited risks that the war could spread more widely and have a more pronounced impact on the country’s economy than expected.

Our offices and facilities are currently open worldwide, including in Israel, and, to date, we have not had disruptions to our ability to manufacture and deliver products and services to customers.

We are prioritizing and reallocating resources between projects to minimize the impact on our business.

Due to these recent events, and their ongoing and evolving nature, the extent of the adverse effect on our business operations is still unknown.

A prolonged war or an escalation could materially adversely affect our business, financial condition, and results of operations.

Impact of Ukraine’s Conflict on the Energy Landscape

The conflict between Ukraine and Russia, which started in early 2022, and the sanctions and other measures imposed in response to this conflict have increased the level of economic and political uncertainty.

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

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

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

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

The conflict adversely affected the prices of raw materials arriving from Eastern Asia and resulted in an increase in gas and oil prices.

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

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

While the impact of this conflict is currently decreasing, a change or escalation of this ongoing conflict, could increase the impacts from the circumstances described above and may have an adverse effect on our business and results of operations.

Inflation Reduction Act

3 unchanged sentences

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

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

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

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

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

Demand for Products

The demand environment for our products experienced a slowdown beginning in the third quarter of 2023 in Europe.

During the second part of the third quarter of 2023, we experienced substantial unexpected cancellations and pushouts of existing backlog from our European distributors.

We attribute these cancellations and pushouts to high inventory in the channels and slower than expected installation rates.

In particular, installation rates for the third quarter were much slower at the end of the summer and in September where traditionally there is a rise in installation rates.

As a result, third quarter revenue, gross margin and operating income was below the low end of the prior guidance range.

Additionally, the Company anticipates significantly lower revenues in the fourth quarter of 2023 as the inventory destocking process continues.

Key Operating Metrics

6 unchanged sentences

Three Months Ended

June 30, 2023

Six Months Ended

June 30, 2023

September 30, 2023

Nine Months Ended

September 30, 2023

Inverters shipped

1 unchanged sentence

Megawatts shipped1

Megawatts shipped - residential batteries

Megawatts hour shipped - residential batteries

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

4 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(In thousands)

6 unchanged sentences

Total operating expenses

Operating income

Operating income (loss)

Financial income (expense), net

Income before income taxes

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

Other income (loss), net

Income (loss) before income taxes

Net income (loss)

Comparison of three and nine months ended September 30, 2023, to the three and nine months ended September 30, 2022

Three months ended September 30, 2023 to 2022

Nine months ended September 30, 2023 to 2022

(In thousands)

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 decreased by $111.4 million, or 13.3%, in the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, primarily due to (i) a decrease of $89.0 million related to the number of residential batteries sold mainly in Europe;

and (ii) a decrease of $17.2 million related to a decrease in the number of ancillary solar products sold.

Revenues from outside of the U.S.

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.

comprised 73.0% of our revenues in the three months ended September 30, 2023 as compared to 69.9% in the three months ended September 30, 2022.

The decrease in revenues was due to high inventory in the channels and slower than expected installation rates.

The number of power optimizers recognized as revenues decreased by approximately 2.9 million units, or 46.9%, from approximately 6.1 million units in the three months ended September 30, 2022 to approximately 3.3 million units in the three months ended September 30, 2023 as a result of lower demand.

The number of inverters recognized as revenues increased by approximately 9.5 thousand units, or 3.7%, from approximately 257.1 thousand units in the three months ended September 30, 2022 to approximately 266.6 thousand units in the three months ended September 30, 2023.

The relative increase in inverters shipped vs.

the decrease in optimizers shipped this quarter is a result of our ability to catch up inverter production with demand that we were not able to fulfil in previous quarters.

The megawatts hour of residential batteries recognized as revenues decreased by approximately 209.2 megawatts hour, or 57.6% from approximately 363.0 in the three months ended September 30, 2022 to approximately 153.7 megawatts hour in the three months ended September 30, 2023, as a result of lower demand.

Our blended Average Selling Price (“ASP”) per watt for solar products excluding residential batteries is calculated by dividing the sales of solar products, excluding the sales 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 $0.069, or 29.5%, in the three months ended September 30, 2023, as compared to the three months ended September 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.

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

Our blended ASP per watt/hour for residential batteries increased by $0.027, or 6.1%, in the three months ended September 30, 2023, as compared to the three months ended September 30, 2022.

The increase in blended ASP per watt/hour is mainly attributed to the increase in the sale of one phase batteries that are characterized by higher ASP per watt/hour, as well as the appreciation of the Euro against the U.S.

Revenues increased by $440.9 million, or 19.9%, in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to an increase of $497.9 million related to an increase in the number of inverters sold, with significant growth in revenues coming from Europe.

This increase was partially offset by a decrease of $53.7 million related to a decrease in the number of ancillary solar products sold.

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 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.

comprised 75.7% of our revenues in the nine months ended September 30, 2023 as compared to 62.7% in the nine months ended September 30, 2022.

The increase in revenues in the nine months ended September 30, 2023 was partially offset by a decrease in revenues in the third quarter of 2023 due to unexpected cancellations and pushouts of existing backlog from our European distributors.

The number of power optimizers recognized as revenues decreased by approximately 1.7 million units, or 10.2%, from approximately 17.0 million units in the nine months ended September 30, 2022 to approximately 15.3 million units in the nine months ended September 30, 2023 as a result of lower demand.

The number of inverters recognized as revenues increased by approximately 234.7 thousand units, or 33.6%, from approximately 697.7 thousand units in the nine months ended September 30, 2022 to approximately 932.4 thousand units in the nine months ended September 30, 2023.

The relative increase in inverters recognized versus the decrease in optimizers recognized in the nine months ended September 30, 2023 was a result of our ability to catch up inverter production with demand that we were not able to fulfil in previous quarters.

The megawatts hour of residential batteries recognized as revenues decreased by approximately 19.6 megawatts hour, or 3.0% from approximately 660.8 megawatts hour in the nine months ended September 30, 2022 to approximately 641.2 megawatts hour in the nine months ended September 30, 2023 due to a decrease in demand.

Our blended ASP per watt for solar products shipped excluding residential batteries decreased by $0.054, or 22.1%, in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

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

This decrease in blended ASP per watt was partially offset by price increases that went into effect gradually during 2022 and in 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 decreased by $0.005, or 1.0%, in the nine months ended September 30, 2023, as compared to the nine months ended September 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, which was partially offset by the appreciation of the Euro against the U.S.

Cost of Revenues and Gross Profit

Three months ended June 30, 2023 to 2022

Six months ended June 30, 2023 to 2022

Three months ended September 30, 2023 to 2022

Nine months ended September 30, 2023 to 2022

(In thousands)

Cost of revenues

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;

Cost of revenues decreased by $32.2 million, or 5.2%, in the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, primarily due to:

• a decrease in direct cost of revenues sold of $83.5 million associated mainly with a decrease in the volume of products sold;

• a decrease in customs duties of $5.0 million attributed to the decrease in volumes of products manufactured in China for the U.S.

• a decrease in shipment and logistic costs in an aggregate amount of $3.2 million due to a decrease in shipment rates and a decrease in expedited shipments costs.

These were partially offset by:

• an increase in warranty expenses and warranty accruals of $28.0 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 of $14.0 million in inventory accrual which is mainly attributed to a higher inventory write-down;

• an increase in other production costs of $6.6 million, which is mainly attributed to charges from our contract manufacturers related to the downsizing of our manufacturing in Mexico and China, as well as ramp up costs associated with Sella 2, our Li-Ion battery cell manufacturing facility located in South Korea;

• an increase in personnel-related costs of $5.6 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.

Gross profit as a percentage of revenue decreased to 19.7% from 26.5% in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, primarily due to:

• An increase in personnel and manufacturing related costs from the expansion of our infrastructure geared towards accelerated growth;

• an increase in costs related to our existing install base such as warranty expenses, which were divided this quarter by lower revenue resulting in lower gross margin;

• an increase in inventory accrual for impairment of excess inventory;

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

• 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.

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 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.;

• gradual price increases across our product offerings;

• continued cost reduction efforts.

These were partially offset by:

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

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;

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:

Cost of revenues increased by $264.3 million, or 16.2%, in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to:

• an increase in direct cost of revenues sold of $112.4 million associated primarily with an increase in the volume of products sold;

• an increase in warranty expenses and warranty accruals of $101.7 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 of $20.4 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-off related to the discontinuation of our UPS related activities in the comparable period;

• an increase in personnel-related costs of $14.8 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:

• an increase in other production costs of $6.5 million, which is mainly attributed to charges from our contract manufacturers related to the downsizing of our manufacturing sites in China and discontinuance of our manufacturing site in Mexico, as well as ramp up costs associated with Sella 2, our Li-Ion battery cell manufacturing facility located in South Korea.

These were partially offset by:

• a decrease in customs duties of $4.2 million attributed to the decrease in volumes of products manufactured in China for the U.S.

• a decrease in shipment and logistic costs in an aggregate amount of $2.7 million due to a decrease in shipment rates and a decrease in expedited shipments costs.

Gross profit as a percentage of revenue increased to 28.6% from 26.3% in the nine months ended September 30, 2023 as compared to the nine months ended September 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;

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

• a decrease in shipment rates as well as a reduced 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;

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

• 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;

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

• higher revenues from our non-solar businesses, which are generally characterized by a lower gross profit, which effect was amplified this quarter;

• an increase in inventory accrual for impairment of excess inventory.

Operating Expenses:

Research and Development

Three months ended June 30, 2023 to 2022

Six months ended June 30, 2023 to 2022

Three months ended September 30, 2023 to 2022

Nine months ended September 30, 2023 to 2022

(In thousands)

Research and development

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:

Research and development costs increased by $10.4 million or 15.0%, in the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to:

• an increase in personnel-related costs of $6.4 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.

2 unchanged sentences

• an increase in expenses related to consultants and sub-contractors in an amount of $2.4 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:

Research and development costs increased by $35.6 million or 16.9%, in the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to:

• an increase in personnel-related costs of $21.6 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.

2 unchanged sentences

• an increase in expenses related to consultants and sub-contractors in an amount of $7.4 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 $2.7 million;

• an increase in expenses related to other overhead costs in an amount of $2.5 million.

Sales and Marketing

Three months ended June 30, 2023 to 2022

Six months ended June 30, 2023 to 2022

Three months ended September 30, 2023 to 2022

Nine months ended September 30, 2023 to 2022

(In thousands)

Sales and marketing

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;

Sales and marketing expenses decreased by $2.4 million, or 5.6%, in the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to a decrease in personnel-related costs of $3.2 million as a result of a depreciation of the NIS against the U.S.

dollar, a decrease in employee equity-based compensation and a decrease in sales commissions, which were partially offset by an increase in headcount outside of the U.S.

This decrease was partially offset by an increase in expenses related to other marketing activities by $1.0 million.

Sales and marketing expenses increased by $8.5 million, or 7.3%, in the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to:

• an increase in personnel-related costs of $3.0 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, which were partially offset by the depreciation of the NIS against the U.S.

• an increase of $1.8 million in expenses related to other marketing activities;

• 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.

• an increase in expenses related to other overhead costs of $0.9 million.

General and Administrative

Three months ended June 30, 2023 to 2022

Six months ended June 30, 2023 to 2022

Three months ended September 30, 2023 to 2022

Nine months ended September 30, 2023 to 2022

(In thousands)

General and administrative

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 $2.0 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.

General and administrative expenses increased by $11.2 million, or 40.0%, in the three months ended September 30, 2023 compared to the three months ended September 30, 2022, primarily due to:

• an increase in expenses related to doubtful debt of $7.6 million;

• an increase in expenses related to consultants and sub-contractors of $2.2 million;

• an increase in personnel-related costs of $1.4 million resulting from an increase in our general and administrative 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.

General and administrative expenses increased by $29.4 million, or 35.6%, in the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to:

• an increase in expenses related to consultants and sub-contractors of $11.7 million;

• an increase in expenses related to doubtful debt of $9.1 million;

• an increase in personnel-related costs of $6.4 million resulting from an increase in our general and administrative 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.

Other operating expense (income), net

Three months ended June 30, 2023 to 2022

Six months ended June 30, 2023 to 2022

Three months ended September 30, 2023 to 2022

Nine months ended September 30, 2023 to 2022

(In thousands)

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:

Other operating income, net, decreased by $2.7 million in the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to:

• a decrease of $1.6 million in income related to the discontinuation of our UPS-related activities and the sale of assets related to these activities;

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

Other operating income, net was $1.4 million, in the nine months ended September 30, 2023, compared to other operating expenses, net of $2.0 million in the nine months ended September 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.

These were partially offset by a decrease of $1.5 million in income from the sale of property, plant and equipment.

Financial expense, net

Three months ended June 30, 2023 to 2022

Six months ended June 30, 2023 to 2022

Three months ended September 30, 2023 to 2022

Nine months ended September 30, 2023 to 2022

(In thousands)

Financial income (expense), net

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:

Financial expense, net decreased by $25.2 million in the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to:

• a decrease of $19.0 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 $4.6 million in income related to hedging transactions.

Financial income, net was $19.2 million in the nine months ended September 30, 2023, compared to financial expenses, net in the amount of $52.1 million in the nine months ended September 30, 2022, primarily due to:

• an income of $4.8 million in the nine months ended September 30, 2023, compared to expenses of $55.4 million in the nine months ended September 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 $9.9 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

Other income (loss), net

Three months ended September 30, 2023 to 2022

Nine months ended September 30, 2023 to 2022

(In thousands)

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

Other income (loss), net

Other loss was $0.5 million in the three months ended September 30, 2023, compared to other income, of $7.7 million in the three months ended September 30, 2022, primarily due to a decrease in gain from the sale of an investment in a privately-held company.

Other loss, net was $0.6 million in the nine months ended September 30, 2023, compared to other income, net of $6.8 million in the nine months ended September 30, 2022, primarily due to a decrease in gain from the sale of investment in a privately-held company.

Three months ended September 30, 2023 to 2022

Nine months ended September 30, 2023 to 2022

(In thousands)

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.

Income taxes increased by $1.9 million, or 5.5%, in the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, primarily due to an increase of $11.0 million in current tax expenses mainly attributed to an increase in the Company’s Global Intangible Low Taxed Income (“GILTI”) tax and unfavorable impact of losses in foreign subsidiaries where we do not anticipate a future tax benefit.

This increase was partially offset by an increase of $8.3 million in deferred tax income.

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.

Income taxes increased by $46.5 million, or 87.7%, in the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, primarily due to an increase of $61.2 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 $14.4 million in deferred tax income.

Three months ended June 30, 2023 to 2022

Six months ended June 30, 2023 to 2022

Net Income (loss)

Three months ended September 30, 2023 to 2022

Nine months ended September 30, 2023 to 2022

(In thousands)

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.

Net income (loss)

As a result of the factors discussed above, net loss was $61.2 million in the three months ended September 30, 2023, as compared to a net income of $24.7 million in the three months ended September 30, 2022.

As a result of the factors discussed above, net income increased by $123.8 million, or 169.7% in the nine months ended September 30, 2023 as compared to the nine months ended September 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 June 30,

Six Months Ended June 30,

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

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

3 unchanged sentences

Increase (decrease) in cash and cash equivalents

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

As of September 30, 2023, our cash and cash equivalents were $551.1 million.

This amount does not include $913.4 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 June 30, 2023, we have open commitments for capital expenditures in an amount of approximately $133.0 million.

Our principal uses of cash are for funding our operations, capital expenditures, other working capital requirements, other investments and any potential future share repurchases.

As of September 30, 2023, we have open commitments for capital expenditures in an amount of approximately $120.6 million.

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

3 unchanged sentences

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

Cash used in operating activities 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.

Cash used in operating activities decreased by $39.8 million in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, mainly due to higher net income adjusted for certain non-cash items.

This was partially offset by higher operating working capital requirements, specifically, an increase in inventory procurement and manufacturing.

Investing Activities

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.

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 disbursements and receipts from collections of loans made by the Company.

Cash used in investing activities decreased by $192.3 million in the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, primarily driven by a decrease of $247.0 million in investments in available-for-sale marketable securities, an increase of $16.2 million in proceeds provided by sales and maturities of available-for-sale marketable securities as well as an increase of $6.8 million in proceeds provided by government grants in relation to capital expenditures.

This decrease in cash used in investing activities was partially offset by a $24.2 million decrease in proceeds provided by the sale of a privately-held company, an increase of $16.7 million in cash used for a business combination, an increase of $13.0 million in disbursements of loans made by the company, an increase of $11.2 million in the purchase of intangible assets and a $8.0 million increase in investments in privately-held companies.

Financing Activities

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.

Cash used in financing activities in the nine months ended September 30, 2023 was $11.3 million compared to $647.1 million cash provided by financing activities in the nine months ended September 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 $27.3 million decrease in proceeds provided by the exercise of stock-based awards.

This was partially offset by a decrease of $19.3 million in withholding taxes remitted to the tax authorities related to the exercise of stock-based awards.

Secondary Public Offering

3 unchanged sentences

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

Share Repurchases

On November 1, 2023, we announced the approval by the Board of Directors of a share repurchase program which authorizes the repurchase of up to $300 million of the Company’s common stock.

Under the share repurchase program, repurchases can be made using a variety of methods, which may include open market purchases, block trades, privately negotiated transactions, accelerated share repurchase programs and/or a non-discretionary trading plan or other means, including through 10b5-1 trading plans, all in compliance with the rules of the SEC and other applicable legal requirements.

The timing, manner, price and amount of any common share repurchases under the share repurchase program are determined by the Company in its discretion and depend on a variety of factors, including legal requirements, price and economic and market conditions.

The program does not obligate SolarEdge to acquire any amount of common stock, it may be suspended, extended, modified, discontinued or terminated at any time at the Company’s discretion without prior notice, and will expire on December 31, 2024.

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”.

Management believes that there have been no significant changes during the nine months ended September 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” (if any).

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