What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-26 compared with 2023-02-22 · 763 added, 707 removed, 85 unchanged (95% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section

of this Annual Report on Form 10-K captioned “Business” and our consolidated financial statements and the related notes to

those statements included elsewhere in this Form 10-K.

In addition to historical financial information, the following discussion and analysis

contains forward looking statements that involve risks, uncertainties, and assumptions.

Our actual results and timing of selected events

may differ materially from those anticipated in these forward looking statements as a result of many factors, including those discussed

under the sections of this Annual Report captioned “Special Note Regarding Forward Looking Statements” and “Risk Factors”.

F or discussion related to changes in financial condition and the results of operations for the year

ended December 31, 2021, refer to Item 7- Management's Discussion and Analysis of Financial Condition and Results of Operations in

our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 22 ,

We develop, manufacture

and sell products that address a broad range of energy market segments through our diversified product offering, including residential, commercial

and large scale photovoltaic or PV, energy storage and backup solutions, electric vehicle or EV charging capabilities, home

energy management, grid services and virtual power plants, as well as products in our non-solar businesses which address e-Mobility

("e-Mobility"), automation machines ("Automation Machines") and lithium-ion batteries ("Storage").

Item 7- Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K, filed

with the Securities and Exchange Commission on February 22, 2023.

develop, manufacture and sell products in a solar segment that addresses a broad range of energy market segments through our diversified

product offering, including residential, commercial and large scale photovoltaic or PV, energy storage and backup solutions, electric

vehicle or EV charging capabilities, home energy management, grid services and virtual power plants, as well as products in our non-solar

businesses including lithium-ion cells, batteries and energy storage systems, which are part of our Energy Storage Segment as well as

automation machines ("Automation Machines") and in prior years, we also had product offerings for the e-mobility market.

In October 2023,

we decided to discontinue our light commercial vehicle e-Mobility ("LCV") activity and the remaining e-mobility activity which include

PV applications, will be included under the solar segment starting January 1, 2024.

fourth quarter 2023 the Company identified two reportable segments:

the Solar segment and Energy Storage segment.

The Solar segment includes

the design, development, manufacturing, and sales of its DC optimized inverter solutions designed to maximize power generation at the

PV module level and batteries for PV applications.

The Solar segment solution consists mainly of the Company’s power optimizers,

inverters, batteries and cloud‑based monitoring platform.

The Energy Storage segment includes the design, development, manufacturing,

and sales of high-energy, high-power, lithium-ion cells and BESS solutions for C&I and Utility markets.

The Energy Storage segment

provides purpose-built components and solutions, hardware and software, as well as pre and post sales engineering support to design, build,

and manage battery and system solutions according to the customer’s use cases and mission profiles.

The “All other”

category includes the design, development, manufacturing and sales of e-Mobility products, automated machines and UPS products (in prior

information regarding our business is provided in “Part I, Item 1.

Business” of this Annual Report.

In the year ended December 31,

2022 , one customer accounted for 18.5% of our

revenues and our top three customers (all distributors) together represented 34.8% of our revenues.

Our revenues were $3,110.3

million and $1,963.9 million for fiscal 2022 and fiscal

2021 , respectively.

Gross margins were 27.2% and 32.0%

for fiscal 2022 and fiscal 2021 , respectively.

Net income was $93.8

million and $169.2 million for fiscal 2022 and fiscal 2021 ,

respectively.

Performance Measures

In managing our business

and assessing financial performance, we supplement the information provided by the financial statements with other operating metrics.

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

business and formulate projections.

We use metrics relating to shipments of inverters, power optimizers and megawatts to evaluate our

sales performance and to track market acceptance of our products.

We use metrics relating to monitoring (systems monitored) to evaluate

market acceptance of our products and usage of our solution.

provide the “megawatts shipped” and "megawatts hour shipped" metrics, which are calculated based on inverter or battery nameplate

the year ended December 31, 2023, two customers accounted for 24.0% of our revenues and our top three customers (all distributors) together

represented 31.1% of our revenues.

revenues were $2,976.5 million and $3,110.3 million for the year ended December 31, 2023 and 2022, respectively.

Gross margins were 23.6%

and 27.2% for the year ended December 31, 2023 and 2022, respectively.

Net income was $34.3 million and $93.8 million for the year ended

December 31, 2023 and 2022, respectively.

managing our business and assessing financial performance, we supplement the information provided by the financial statements with other

operating metrics.

These operating metrics are utilized by our management to evaluate our business, measure our performance, identify

trends affecting our business and formulate projections.

We use metrics relating to shipments of inverters, power optimizers and megawatts

to evaluate our sales performance and to track market acceptance of our products.

We use metrics relating to monitoring (systems monitored)

to evaluate market acceptance of our products and usage of our solution.

the “megawatts shipped” and "megawatts hour shipped" metrics, which are calculated based on inverter or battery nameplate

capacity shipped respectively, to show adoption of our system on a nameplate capacity basis.

Nameplate capacity shipped is the

maximum rated power output capacity of an inverter or battery, and corresponds to our financial results in that higher total nameplate

capacities shipped are generally associated with higher total revenues.

However, revenues may increase in a non-correlated manner to the

"megawatt shipped" metric since other products such as Power Optimizers, are not accounted for in this metric.

Year ended December 31,

Nameplate capacity shipped is the maximum

rated power output capacity of an inverter or battery, and corresponds to our financial results in that higher total nameplate capacities

shipped are generally associated with higher total revenues.

However, revenues may increase in a non-correlated manner to the "megawatt

shipped" metric since other products such as Power Optimizers, are not accounted for in this metric.

ended December 31,

Inverters shipped

1 unchanged sentence

Megawatts shipped 1

Megawatts hour shipped - residential batteries

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

capacity is the maximum rated power output capacity of an inverter as specified by the manufacturer.

Global Circumstances

Influencing our Business and Operations

Impact & Response

Covid-19 continued

to present challenges to our operations and business in 2022, primarily, operational challenges, which we reported on continuously in

our quarterly reports throughout the year, but to a lesser extent than in 2021.

Due to the worldwide growing trend in availability and

administration of vaccines against Covid-19, many restrictions that were placed during the pandemic were gradually lifted by governments

across the globe.

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

Resurgences of Covid-19 cases and the

emergence of new variants may adversely impact our results of operations.

For example, in the second quarter of 2022, the mandatory government

shutdowns resulting from the increase in Covid-19 cases in Shanghai, that were eased in the beginning of the third quarter of 2022, led

to delays in our scheduled shipments from the Shanghai port.

Our first priority continues to be to protect and support our employees while

maintaining company operations and support of our customers with as few disruptions as possible.

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

headquarters located in Israel.

While we have not experienced any new disruptions resulting

directly from Covid-19 in the fourth quarter of 2022, the pandemic and general global economic conditions continue to present challenges

to our operations and business.

In the fourth quarter of 2022, we began to witness a decrease in shipment prices and transit times, both

however are still not at their pre-Covid-19 levels.

In fiscal 2022 as a whole and the fourth quarter of 2022 specifically, the industry-wide

component shortages which originated from Covid-19 and amplified by the increase in demand for our products, as well as other manufacturers

who are competing for the same components, continued to impact our ability to accurately plan and forecast the delivery of our products

to customers and have also increased cost of ocean and air freight for components and finished goods.

To mitigate the impact of these

disruptions on our supply chain, we extended 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.

Our operation team is working tirelessly to mitigate the impact

of the disruptions described above.

Megawatts hour shipped

- batteries for PV applications

Excluding batteries for PV applications, based on the aggregate nameplate capacity of inverters shipped during the applicable period.

Nameplate capacity is the maximum rated power output capacity of an inverter as specified by the manufacturer.

Circumstances Influencing our Business and Operations

seen a slowdown in demand for our products in our Solar segment from our direct customers since the second part of the third quarter of

This was a result of slowed market demand in the third quarter of 2023 as distributors began to take actions to reduce inventory

In particular, beginning in the second part of the third quarter of 2023, we experienced substantial unexpected cancellations

and push outs 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 both in the United States and Europe.

This trend continued in the fourth quarter

of 2023.Additionally, the Company anticipates significantly lower revenues in the first quarter of 2024 as the inventory destocking process

due to the war in Israel

to the war that began on October 7, 2023, approximately 10% of our employees in Israel were called to active reserve duty and additional

employees may be called in the future, if needed.

About half of these employees have returned to work.

While our offices and facilities

are 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, a prolonged war or an escalation of the current conditions in Israel could materially adversely affect our

business, financial condition, and results of operations.

Due to the recency of these events, and their ongoing and evolving nature, the

extent of the adverse effect on our business operations is still unknown.

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.

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.

Inflation Reduction Act

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%.

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

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.

In 2022, rising global interest in becoming less dependent

on gas and oil led to higher demand for our products.

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 decreased in 2023, a change or

escalation of this ongoing conflict could increase the impacts from the circumstances described above and may lead to an adverse effect

on our business and results of operations.

Reduction Act

2022, the U.S.

government enacted the Inflation Reduction Act of 2022 (the “IRA”), which includes several provisions intended

to accelerate U.S.

manufacturing and adoption of 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, among other things, extends the investment

tax credit and production tax credit through 2034 and is therefore expected to increase the demand for solar products.

The IRA also further

incentivizes residential and commercial solar customers and developers through the inclusion of a tax credit for qualifying energy projects

of up to 30%.

Section 45X of the IRA offers advanced manufacturing production tax credits that incentivize the production of eligible

components within the U.S.

To that end, we established manufacturing capabilities in the U.S.

in 2023 and announced additional capacity

expected during 2024.

These provisions of the law are new and regulations and guidance concerning their implementation are gradually being

published by the 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.

Key Components of Our

Results of Operations

The following discussion

describes certain line items in our Consolidated Statements of Operations.

We generate revenues

from the sale of DC optimized inverter systems for solar PV installations which include power optimizers, inverters, storage and backup

so lutions, EV chargers, smart energy devices , our cloud-based monitoring platform as well as

grid services.

Our customer base mainly includes distributors, large solar installers, wholesalers, EPCs, and PV module manufacturers.

In addition, we also generate revenues from the sale of lithium-ion cells, batteries and energy storage solutions, automation machines

and EV powertrain solutions for electric vehicles.

Our revenues from the

sale of solar-related products are affected by changes in the volume and average selling prices of our DC optimized inverter systems.

The volume and average selling price of our systems is driven by the supply and demand for our products, changes in the product mix between

our residential and commercial products, the customer mix between large and small customers, the geographical mix of our sales, sales

incentives, end user government incentives, seasonality, and competitive product offerings.

Revenues from the sale of energy storage system

or ESS products, are affected by the type of product sold (cell, battery or system) and the type of the battery that is sold.

from the sale of SolarEdge Automation Machines and SolarEdge e-Mobility products are affected by the changes in the volumes, customers’

size and average selling prices of the p roducts we sell.

Our revenue growth is

dependent on our ability to expand our market share in each of the geographies in which we compete, expand our global footprint to new

evolving markets, grow our production capabilities to meet demand, continue to develop and introduce new and innovative products that

address the changing technology and performance requirements of our customers and expansion of the new businesses we acquired.

In the year ended December 31,

2022 , 54.3% of our revenues were generated from Europe, 36.5%

of our revenues were generated from the United States and 9.2% of our revenues were generated

In the year ended December 31, 2021 , 45.4%

of our revenues were generated from Europe, 40.0% of our revenues were from the United States

and 14.6% of our revenues were generated from ROW.

We continue to monitor the benefits that may be available to us, such as the availability of

tax credits for domestic manufacturers.

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.

Components of Our Results of Operations

following discussion describes certain line items in our Consolidated Statements of Operations.

generate revenues from the sale of DC optimized inverter systems for solar PV installations, which include power optimizers, inverters,

storage and backup solutions, EV chargers, smart energy devices, our cloud-based monitoring platform and grid services.

Our customer base

mainly includes distributors, large solar installers, wholesalers, and EPCs.

In addition, we also generated revenues from the sale of

lithium-ion cells, batteries and energy storage solutions, automation machines and EV powertrain solutions for electric vehicles.

revenues from the sale of solar-related products are affected by changes in the volume and average selling prices of our DC optimized

inverter systems.

The volume and average selling price of our systems is driven by the supply and demand for our products, changes in

the product mix between our residential and commercial products, the customer mix between large and small customers, the geographical

mix of our sales, sales incentives, end user government incentives, seasonality, and competitive product offerings.

Revenues from the

sale of lithium-ion cells, batteries, energy storage system or ESS products, are affected by the type of product sold (cell, battery or

system) and the type of the battery that is sold.

Revenues from the sale of Automation Machines and e-Mobility products are affected by

the changes in the volumes, customers’ size and average selling prices of the products we sell.

revenue growth is dependent on our ability to expand our market share in each of the geographies in which we compete, expand our global

footprint to new evolving markets, manage our production capabilities to meet demand, continue to develop and introduce new and innovative

products that address the changing technology and performance requirements of our customers and expand of the new businesses we acquired.

the year ended December 31, 2023, 64% of our revenues were generated from Europe, 25.5% of our revenues were generated from the United

States and 10.5% of our revenues were generated from ROW.

In the year ended December 31, 2022, 54.3% of our revenues were generated from

Europe, 36.5% of our revenues were generated from the United States and 9.2% of our revenues were generated from ROW.

of Revenues and Gross Profit

of revenues consists primarily of product costs, including purchases from our contract manufacturers and other suppliers, as well as costs

related to shipping, customer support, product warranty, personnel, depreciation of testing and manufacturing equipment, provision for

losses related to slow moving and dead inventory, hosting services for our cloud based monitoring platform, and other logistics services.

Our product costs are affected by technological innovations, such as advances in semiconductor integration and new product introductions,

economies of scale resulting in lower component costs and improvements in production processes and automation.

Some of these costs, primarily

personnel and depreciation of testing and manufacturing equipment, are not directly affected by sales volume.

respect to ESS, Automation Machines and e-Mobility products ("Non-Solar") cost of revenues, consists primarily of materials costs, labor

costs associated with the manufacturing, variable utility, and operational costs related to the manufacturing factories, depreciation

of testing and manufacturing equipment, amortization of intangible assets and other fixed costs.

Except for the manufacturing

and assembly activities related to our Non-Solar businesses and the manufacturing of solar products

at Sella 1, our manufacturing facility in the North of Israel, we outsource our manufacturing to third-party manufacturers and negotiate

product pricing on a quarterly basis.

During 2022 ,

supply chain and operational challenges coupled with an increase in demand for our products, resulted in increased use of expedited ocean

freight as well as air freight to deliver our products to our customers in a timely manner.

At the beginning of 2022, a high portion of

our products manufactured in non-tariff countries imported into the U.S.

resulted in lower custom tariff charges.

As a result of the operational

challenges we faced during 2022, the levels of our finished goods inventories required to support our growth were reduced.

seeing an improvement in supply chain disruptions and component constraints towards the end of 2022, we expect to continue to deliver

our products through expedited ocean freight and air freight.

To the extent that production in

our Mexican manufacturing facility ramps and production in Sella 1 is expanded as anticipated, we expect inventory levels to return to

those required to support our growing business, the reduction in expedited shipments and air freight usage during the third quarter of

continue to develop our own manufacturing capabilities.

For example, we have developed our own proprietary automated assembly lines for

our power optimizers, manufacture sub-assemblies such as cables and magnetic, and own large amounts of equipment in connection with such

manufacturing activities.

In 2022, we developed and commenced manufacturing from our first partially automated inverter assembly line

which began production in our Sella 1 manufacturing site.

We expect to continue to invest in additional automated assembly lines in the

We have designed and are responsible for funding all of the capital expenses associated with existing and planned automated assembly

The current and expected capital expenses associated with these automated assembly lines will be funded out of our current cash

and cash equivalents, available-for-sale marketable securities and cash flows generation.

Additionally, we continue to develop our

own manufacturing capabilities in Sella 2, our Li-Ion battery factory in Korea.

We expect Sella 2 to continue to incur costs and expenses

We also intend to expand the manufacturing capabilities of Sella 2 in fiscal years 2023 and 2024 which will result in

additional expenses.

related to shipping, customer support, product warranty, personnel, depreciation of testing and manufacturing equipment, amortization

of intangible assets and other fixed costs, provision for losses related to slow moving and dead inventory, hosting services for our cloud

based monitoring platform, variable utility costs, operational costs related to the manufacturing factories, other logistics services,

contract termination costs and renewable electricity production credits.

Our product costs are affected by technological innovations,

such as advances in semiconductor integration and new product introductions, economies of scale resulting in lower component costs, improvements

in production processes and automation, the volume of products subject to import tariffs (for example, for imports from China to the U.S.)

and the volume of products for which manufacturing credits are available (for example, for products made in the U.S.).

Some of these costs,

primarily personnel, amortization of intangible assets and depreciation of testing and manufacturing equipment, are not directly affected

by sales volume.

to develop our own manufacturing capabilities.

During 2023, we continued to ramp up our manufacturing capabilities in Sella 2, our Li-Ion

battery factory in South Korea which serves our Energy Storage segment.

We intend to gradually increase the manufacturing capabilities

of Sella 2 in 2024, which will result in additional expenses.

We intend to use our available cash balances for this expansion.

Key components of our

logistics supply channel consist of third party distribution centers in the U.S., Europe, Au stralia,

Finished goods are either shipped to our customers directly from our contract manufacturers or shipped to third-party

distribution centers and then, finally, shipped to our customers.

Cost of revenues also

includes our operations, production and support departments’ costs.

The operations and production departments are responsible for

production management such as planning, procurement, supply chain, production methodologies and machinery planning, logistics management

and manufacturing support to our contract manufacturers, as well as the quality assurance of our products.

Our support department provides

customer and technical support at various levels through our call centers around the world as well as second and third-level support services,

which are provided by support personnel located in our headquarters.

Our employees headcount

in our operations, production and support departments has grown from 2,052

as of December 31, 2021 to 2,383 as of December 31,

of revenues also includes our operations, production and support departments’ costs.

The operations and production departments are

responsible for production management such as planning, procurement, supply chain, production methodologies and machinery planning, logistics

management and manufacturing support to our contract manufacturers, as well as the quality assurance of our products.

Our support department

provides customer and technical support at various levels through our call centers around the world as well as second and third-level

support services, which are provided by support personnel located in our headquarters.

Our employees headcount in our operations, production

and support departments has grown to 2,857 as of December 31, 2023 from 2,383 as of December 31, 2022.

of 2023, the Company made an announcement regarding its restructuring plans to adjust its manufacturing capacity and increase operating

efficiency,including, terminating the manufacturing process in Mexico, reducing manufacturing capacity in China, and discontinuing the

Company’s LCV e-Mobility activity, and on January 21, 2024, the Company announced adoption of additional measures in response to

challenging industry conditions, including reducing its headcount by approximately 16% over the first half of 2024 through an involuntary

workforce reduction plan (together, the “Restructuring Plan”).

These decisions were made in order to better align the Company

with current market conditions.

The majority of these activities related to the discontinuation of LCV activity and the reduction of our

manufacturing footprint which occurred in December 2023 and the significant part of the workforce reduction occurred in January 2024.

profit may vary from quarter to quarter and is primarily affected by our average selling prices, product costs, manufacturing ramp-up

costs, product mix, customer mix, geographical mix, shipping method, warranty costs, exchange rates and seasonality.

Operating expenses consist

of research and development, sales and marketing, general and administrative, goodwill impairment and other operating expenses, net.

related costs are the most significant component of each of these expense categories and include salaries, benefits, payroll taxes, commissions

and stock-based compensation.

Our employees headcount in our research and development, sales and marketing and general and administrative

departments, has grown from 1,912 as of December 31,

2021 to 2,543 as of December 31, 2022 .

expect to continue to hire significant numbers of new employees to support our growth .

The timing of these additional hires could

materially affect our operating expenses in any particular period, both in absolute dollars and as a percentage of revenue.

to continue to invest substantial resources to support our growth and anticipate that each of the following categories of operating expenses

will increase in absolute dollar amounts for the foreseeable future.

costs, restructuring costs, product mix, customer mix, geographical mix, location of manufacturing, shipping method, warranty costs, inventory

write-offs, exchange rates and seasonality.

expenses consist of research and development, sales and marketing, general and administrative, goodwill impairment and other operating

expenses, net.

Personnel-related costs are a significant component of the operating expenses and include salaries, benefits, payroll taxes,

commissions, severance and stock-based compensation.

Our employees headcount in our research and development, sales and marketing and

general and administrative departments, has grown to 2,776 as of December 31, 2023 from 2,543 as of December 31, 2022.

Under the 2024

Restructuring Plan described above, we expect to reduce our headcount over the first half of 2024.

and development expenses

Research and development

expenses include personnel-related expenses such as salaries, benefits, stock-based compensation and payroll taxes.

Our research and development

employees are engaged in the design and development of power electronics, semiconductors, software, power-line communications, networking

and chemistry .

Our research and development expenses also include third-party design and consulting costs, materials for testing

and evaluation, ASIC development and licensing costs, depreciation and amortization expenses, and other indirect costs.

We devote substantial

resources to ongoing research and development programs that focus on enhancements to, and cost efficiencies in, our existing products

and timely development of new products that utilize technological innovation, thereby maintaining our competitive position.

and development expenses include personnel-related expenses such as salaries, severance, benefits, stock-based compensation and payroll

Our research and development employees are engaged in the design and development of power electronics, semiconductors, software,

power-line communications, networking and chemistry.

Our research and development expenses also include third-party design and consulting

costs, materials for testing and evaluation, ASIC development and licensing costs, depreciation and amortization expenses, and other indirect

We devote substantial resources to ongoing research and development programs that focus on enhancements to, and cost efficiencies

in, our existing products and timely development of new products that utilize technological innovation, thereby maintaining our competitive

and marketing expenses

Sales and marketing expenses

consist primarily of personnel-related expenses such as salaries, sales commissions, benefits, payroll taxes, and stock-based compensation.

These expenses also include travel, fees of independent consultants, trade shows, marketing, costs associated with the operation of our

sales offices and other indirect costs.

We currently have a sales presence in many countries worldwide and intend to continue to expand

our sales presence to additional regions.

and marketing expenses consist primarily of personnel-related expenses such as salaries, severance, sales commissions, benefits, payroll

taxes, and stock-based compensation.

These expenses also include travel, fees of independent consultants, trade shows, marketing, costs

associated with the operation of our sales offices and other indirect costs.

We currently have a sales presence in many countries worldwide

and intend to continue to expand our sales presence to additional regions.

and administrative expenses

General and administrative

expenses consist primarily of salaries, employee benefits and stock-based compensation related to our executives, finance, human resources,

information technology, and legal organizations, travel expenses, facilities costs, fees for professional services, and registration fees

related to being a publicly-traded company.

Professional services consist of audit and legal costs, remuneration to board members, insurance,

information technology and other costs.

General and administrative expenses also include expenses related to legal claims and allowance

for doubtful accounts in the event of uncollectible account receivables balances.

impairment and other operating expenses, net

impairment and other operating expenses, net , consist primarily of impairment

of goodwill, impairment of long-lived assets and certain other nonrecurring items.

and administrative expenses consist primarily of salaries, severance, employee benefits and stock-based compensation related to our executives,

finance, human resources, information technology, and legal organizations, travel expenses, facilities costs, fees for professional services,

and registration fees related to being a publicly-traded company.

Professional services consist of audit and legal costs, remuneration

to board members, insurance, information technology and other costs.

General and administrative expenses also include expenses related

to certain legal claims and allowance for doubtful accounts in the event of uncollectible account receivables balances.

impairment consists of impairment charges of goodwill assigned to our reporting units and tested for impairment at least on an annual

basis, in the fourth quarter of the fiscal year.

operating expenses, net

operating expenses, net, consist primarily of impairment of long-lived assets and certain other nonrecurring items.

Operating Expenses

income (expense), net

Financial income (expense),

net, consists primarily of interest income, interest expense, gains or losses from foreign currency fluctuations and hedging transactions.

Interest income consists

of interest from our investment in available for sale marketable securities, deposits and accretion of discounts related to our investment

in available for sale marketable securities.

Interest expense consists

of interest related to bank loans, 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), interest related to Accounting

Standard Codification 842, “Leases” (ASC 842), amortization of premium related to our investment in available for sale marketable

securities and the accretion of the debt discount and amortization of debt issuance cost associated with our Notes due 2025.

Our functional currency

income (expense), net, consists primarily of interest income, interest expense, gains or losses from foreign currency fluctuations and

hedging transactions.

income consists of interest from our investment in available for sale marketable securities, deposits, loans to third parties and accretion

of discounts related to our investment in available for sale marketable securities.

expense consists of interest related to bank loans, 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), interest

related to Accounting Standard Codification 842, “Leases” (ASC 842), amortization of premium related to our investment in

available for sale marketable securities and the amortization of debt issuance cost associated with our Notes due 2025.

functional currency is the U.S.

With respect to certain of our subsidiaries, the functional currency is the applicable local currency.

Financial (expenses)

income, net, also consists of gains or losses from foreign currency fluctuations primarily of the effect of foreign exchange differences

between the U.S.

dollar and the New Israeli Shekel, the Euro, the South Korean Won and other currencies related to our monetary assets

and liabilities, the fair value remeasurement of hedging contracts not designated as cash flow hedge and bank charges.

Other income consists

primarily of realized and unrealized gains and losses on investments in privately-held companies.

We are subject to income

taxes in the countries where we operate.

In the year ended December 31,

2022 , we recorded a net income tax expense of $83.4 million , which consists of a $94.4

million current income tax expense and $11.0 million of deferred tax income .

In the year ended

December 31, 2021, we recorded a net income tax expense of $18.1 million, which consists of a $29.7 million current income tax expense

and a $11.6 million deferred tax income.

The increase in net income tax expense was mainly attributed to impairments that did not

have a corresponding tax effect and the change to Section 174 of the U.S Internal Revenue Code, which became effective on January 1, 2022.

The change eliminates the option to deduct research and development expenditures currently and requires taxpayers to amortize them over

five years (if generated from a US entity) and fifteen years (if generated from non-U.S.

entities).This change to Section 174, as well

as lower tax benefits relating to stock-based compensation, resulted in an increase in the Company’s taxable income and Global Intangible

Low Taxed Income (“GILTI”) tax.

Financial (expenses) income, net, also consists of gains or losses from foreign currency fluctuations, the fair value remeasurement of

hedging contracts not designated as cash flow hedge and bank charges.

Foreign currency fluctuations primarily consist of the effect of

foreign exchange differences between the U.S.

dollar and the New Israeli Shekel, the Euro, the South Korean Won and other currencies related

to our monetary assets and liabilities.

income (loss)

income (loss) consists primarily of realized and unrealized gains and losses on investments in privately-held companies and realized gains

and losses on investment in available for sale marketable securities.

are subject to income taxes in the countries where we operate.

the year ended December 31, 2023, we recorded a net income tax expense of $46.4 million, which consists of a $89.5 million current income

tax expense and $43.1 million of deferred tax income.

In the year ended December 31, 2022, we recorded a net income tax expense of $83.4

million, which consists of a $94.4 million current income tax expense and a $11.0 million deferred tax income.

Our tax rate for 2023 is

57% compared with 47% in 2022.

The increase in tax rate was mainly attributed to the GILTI effect of IRC Section 174, requiring the capitalization

of R&D expenditures outside the U.S.

(see below), and impairments and losses that did not have a corresponding tax effect.

December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Act") was signed into law, making significant changes to U.S.

1 unchanged sentence

changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years 2018 onwards and created

new taxes on certain foreign-sourced earnings (including GILTI, as explained above) and certain related-party payments.

new taxes on certain foreign-sourced earnings (including tax on Global Intangible Low Taxed Income (“GILTI”) and certain related-party

The Tax Act also amended Section 174 of the U.S Internal Revenue Code, effective from January 1, 2022, eliminating the option

to deduct research and development expenditures currently and requiring taxpayers to amortize them over five years (if incurred in the

U.S.) or fifteen years (if incurred outside the U.S.).

the Tax Act required the Company to pay U.S.

2 unchanged sentences

total tax liability will be paid over the eight-year period provided in the Tax Act (ending 2024).

SolarEdge Technologies Ltd.,

our Israeli subsidiary, is taxed under Israeli law.

Income not eligible for benefits under the Investments Law is taxed at the corporate

Technologies Ltd., our Israeli subsidiary, is taxed under Israeli law.

Income not eligible for benefits under the Investments Law is taxed

at the corporate tax rate.

The Israeli corporate tax rate is 23%.

Our Israeli subsidiary

elected tax year 2012 as a ”Year of Election” for “Benefited Enterprise” under the Israeli Investments Law, which

provides certain benefits, including tax exemptions and reduced tax rates.

Upon meeting the requirements under the Israeli Investments

Law, the two-year tax exemption has ended on December 31, 2018.

The Investment Law was

amended in 2005 and was further amended as of January 1, 2011 and in August 2013 (the “2011 Amendment”).

The 2011 Amendment

canceled the availability of the benefits granted in accordance with the provisions of the Investments Law prior to 2011 and, instead,

introduced new benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (both

as defined in the 2011 Amendment).

Under the 2011 Amendment, income derived by Preferred Companies from Preferred Enterprise would be

subject to a uniform rate of corporate tax.

The tax rate applicable to such income, referred to as “Preferred Income”, would

be 7.5% in areas in Israel that are designated as Development Zone A and 16% elsewhere in Israel starting in the year 2017 and thereafter.

Israeli subsidiary elected tax year 2012 as a ”Year of Election” for “Benefited Enterprise” under the Israeli

Investments Law, which provides certain benefits, including tax exemptions and reduced tax rates.

Upon meeting the requirements under

the Israeli Investments Law, the two-year tax exemption has ended on December 31, 2018.

Investment Law was amended in 2005 and was further amended as of January 1, 2011 and in August 2013 (the “2011 Amendment”).

The 2011 Amendment canceled the availability of the benefits granted in accordance with the provisions of the Investments Law prior to

2011 and, instead, introduced new benefits for income generated by a “Preferred Company” through its “Preferred Enterprise”

(both as defined in the 2011 Amendment).

Under the 2011 Amendment, income derived by Preferred Companies from Preferred Enterprise would

be subject to a uniform rate of corporate tax.

The tax rate applicable to such income, referred to as “Preferred Income”,

would be 7.5% in areas in Israel that are designated as Development Zone A and 16% elsewhere in Israel starting in the year 2017 and thereafter.

Our Israeli subsidiary has established its own manufacturing facility in Israel, located in a Development Zone A, therefore income from

manufacturing attributed to that facility is subject to a 7.5% tax rate.

In December 2016, Amendment

73 to the Investments Law (the “2017 Amendment”) was published.

According to the 2017 Amendment, special tax tracks for technological

enterprises have been introduced, which are subject to rules that were issued by the Israeli Ministry of Finance.

A Preferred Technological

Enterprise (PTE), as defined in the 2017 Amendment, that is located in the central region of Israel, will be subject to a tax at a rate

of 12% on profits deriving from intellectual property, or 6% if its annual revenues exceed New Israeli Shekel 10 billion.

On June 14, 2017,

the Encouragement of Capital Investments Regulations (Preferred Technological Income and Capital Gain for Technological Enterprise), 2017

(the “Regulations”) were published.

The Regulations describe, inter alia, the mechanism used to determine the calculation

of the benefits under the PTE regime.

A company that complies with the terms under the PTE regime, may be entitled to certain tax benefits

with respect to certain income generated during the company’s regular course of business and derived from the preferred intangible

As of January 2019, our

Israeli subsidiary elected to implement the 2011 and 2017 Amendments starting as of tax year 2019 and as a result, under

the PTE regime with respect to our business activities in Israel.

Our PTE income was subject to a 12% tax rate in Israel in the years

2019-2021, and in 2022 to a 6% tax rate as we surpassed 10 billion New Israeli Shekel revenues threshold.

December 2016, Amendment 73 to the Investments Law (the “2017 Amendment”) was published.

According to the 2017 Amendment,

special tax tracks for technological enterprises have been introduced, which are subject to rules that were issued by the Israeli Ministry

A Preferred Technological Enterprise (PTE), as defined in the 2017 Amendment, that is located in the central region of Israel,

will be subject to a tax at a rate of 12% on profits deriving from intellectual property, or 6% if its annual revenues exceed New Israeli

Shekel 10 billion.

June 14, 2017, the Encouragement of Capital Investments Regulations (Preferred Technological Income and Capital Gain for Technological

Enterprise), 2017 (the “Regulations”) were published.

The Regulations describe, inter alia, the mechanism used to determine

the calculation of the benefits under the PTE regime.

A company that complies with the terms under the PTE regime, may be entitled to

certain tax benefits with respect to certain income generated during the company’s regular course of business and derived from the

preferred intangible asset.

of January 2019, our Israeli subsidiary elected to implement the 2011 and 2017 Amendments starting as of tax year 2019 and as a result,

under the PTE regime with respect to our business activities in Israel.

Our PTE income was subject to a 12% tax rate in Israel in the

years 2019-2021, and in 2022-2023 to a 6% tax rate as we surpassed 10 billion New Israeli Shekel revenues threshold.

We currently expect

not to meet the threshold in 2024 and consequently expect our tax on our PTE income to be 12% in 2024.

Law for the Encouragement of Industry (Taxes), 1969, (the “Industry Encouragement Law”), provides certain tax benefits for

3 unchanged sentences

depreciation rates on equipment and buildings.

Results of Operations

following tables set forth our consolidated statements of income for the years ended December 31,

2022 and 2021 .

We have derived this data from our consolidated financial statements included

elsewhere in this Annual Report.

This information should be read in conjunction with our consolidated financial statements and related

notes included elsewhere in this Annual Report.

The results of historical periods are not necessarily indicative of the results of operations

for any future period.

We qualify as an Industrial Company under the Law and benefit from its provisions as applicable.

from equity method investments

from equity method investments consists of our proportionate share of the net income or loss of equity method investments.

of Operations

following tables set forth our consolidated statements of income for the years ended December 31, 2023 and 2022.

We have derived this

data from our consolidated financial statements included elsewhere in this Annual Report.

This information should be read in conjunction

with our consolidated financial statements and related notes included elsewhere in this Annual Report.

The results of historical periods

are not necessarily indicative of the results of operations for any future period.

of year ended December 31, 2023 and year ended December 31, 2022

Year ended December 31,

(In thousands)

ended December 31,

Cost of revenues

Operating expenses:

Research and development

Sales and marketing

General and administrative

Goodwill impairment and other operating expenses, net

and development

and marketing

and administrative

operating expenses, net

operating expenses

Operating income

Financial income (expense), net

Income before income taxes

Year ended December 31,

(In thousands)

increased by $1,146.4 million, or 58.4%, in the year ended December 31, 2022, as compared to the year ended December 31, 2021,

primarily due to (i) an increase of $615.5 million related to the number of inverters and power optimizers sold, with significant

growth in revenues coming from Europe and the U.S.;

and (ii) an increase of $409.6 million related to the number of residential batteries

sold mainly in Europe and in the U.S.

Financial income, net

Other income (loss),

Income before income

Net loss from equity

method investments

ended December 31,

decreased by $133.8 million, or 4.3%, in the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily

due to (i) a decrease of $58.2 million in the amount of ancillary solar products sold;

and (ii) a decrease of $50.8 million related to

the number of batteries for PV applications sold, mainly in Europe;

and (iii) a decrease of $26.0 million in revenues generated from e-mobility

components, related to the discontinuation of the Company’s LCV e-Mobility activity.

The overall decrease in revenues was due to

the decline in demand that began in the third quarter of 2023 and continued in the fourth quarter of 2023.

This decline was the result

of high inventory in the channels and slower than expected installation rates beginning in the third quarter of 2023, leading to substantial

unexpected cancellations and push outs of existing backlog, from our European distributors, which continued into the fourth quarter of

from outside of the U.S.

comprised 63.5% of our revenues in the year ended December 31, 2022 as compared to 60.0% in the year ended

comprised 74.5% of our revenues in the year ended December 31, 2023 as compared to 63.5% in the year ended December

number of power optimizers recognized as revenues decreased by approximately 6.2 million units, or 26.2%, from approximately 23.7 million

units in the year ended December 31, 2022 to approximately 17.5 million units in the year ended December 31, 2023 as a result of reduced

The number of inverters recognized as revenues, increased by approximately 1.2 thousand units, or 0.1%, from approximately 1,014.6

thousand units in the year ended December 31, 2022 to approximately 1,015.8 thousand units in the year ended December 31, 2023.

from inverters relative to optimizers was higher this year due to a "catch up" in inverter production in the first half of 2023 which

was needed to meet backlog demand that we were not able to fulfill in the previous year.

The megawatts hour of batteries for PV applications

recognized as revenues decreased by approximately 148.3 megawatts hour, or 16.7% from approximately 885.7 megawatts in the year ended

December 31, 2022 to approximately 737.4 megawatts in the year ended December 31, 2023 due to a decrease in demand.

blended Average Selling Price or ASP per watt for solar products excluding batteries for PV applications is calculated by dividing solar

revenues, excluding revenues from the sale of batteries for PV applications, by the nameplate capacity of inverters shipped.

ASP per watt for solar products shipped decreased by 0.049, or 20.1%, in the year ended December 31, 2023 as compared to the year ended

December 31, 2022.

number of power optimizers recognized as revenues increased by approximately 5.1 million units, or 27.4%, from approximately 18.6 million

units in 2021 to approximately 23.7 million units in 2022.

The number of inverters recognized as revenues, increased by approximately

226.2 thousand units, or 28.7%, from approximately 788.4 thousand

units in 2021 to approximately 1,014.6 thousand units in 2022 .

Our blended Average Selling

Price or ASP per watt for solar products excluding residential batteries is calculated by dividing solar revenues, excluding revenues

from the sale of residential batteries, by the nameplate capacity of inverters shipped.

Our blended ASP per watt for solar products shipped

decreased by 0.008 , or 3.3% ,

in 2022 as compared to 2021 .

The decrease in blended

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

Dollar, which, coupled with our

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

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

This decrease in blended ASP per watt was partially

offset by price increases that went into effect gradually during the second half of 2021 and continued in 2022, as well as a relatively

higher number of other solar products shipped compared to the number of inverters shipped, which increased our total solar revenues, but

did not impact the watt amount used for calculating the ASP per watt.

blended ASP per hour watt for residential batteries is calculated by dividing residential batteries revenues, by the nameplate capacity

of residential batteries shipped.

Our blended ASP per watt for residential batteries in 2022 was 0.479.

Cost of Revenues and

Year ended December 31,

(In thousands)

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.

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.

blended ASP per hour watt for batteries for PV applications is calculated by dividing batteries for PV applications revenues, by the nameplate

capacity of batteries for PV applications shipped.

Our blended ASP per watt/hour for batteries for PV applications decreased by 0.016

or 3.3%, in the year ended December 31, 2023 as compared to the year ended December 31, 2022.

The decrease in blended ASP per watt/hour

is mainly attributed to an increase in the portion of three phase batteries, which are sold at a lower ASP per watt/hour and a price decrease

of our single phase batteries, that went into effect gradually during 2023.

This decrease was partially offset by the appreciation of

the Euro against the U.S Dollar.

of Revenues and Gross Profit

ended December 31,

Cost of revenues increased

by $931.1 million , or 69.8% , in 2022

as compared to 2021 , primarily due to:

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

a significant increase in shipment and logistic costs in an aggregate amount of $124.0 million due to

(i) an increase in volume shipped;

(ii) an increase in air and expedited shipments;

and (iii) an increase in the shipment rates throughout

2022 that was partially offset by a decrease in shipment rates which began in the fourth quarter of 2022;

in other production costs of $89.0 million, which is mainly attributed to charges from our contract manufacturers, due to manufacturing

disruptions related to global supply constraints, increased logistics costs resulting from transportation disruptions, mobilization of

components between our different manufacturing sites in order to allow for continuous manufacturing, as well as ramp up costs associated

with our new contract manufacturing site in Mexico and Sella 2, our Li-Ion battery cell manufacturing facility located in South Korea;

in warranty expenses and warranty accruals of $88.6

associated primarily with an increased 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;

in personnel-related costs of $22.4 million ,

related to the expansion of our production, operations, and support headcount, which grew in parallel to our growing install base worldwide,

our new contract manufacturing site in Mexico and the completion of our lithium-ion cell and battery factory in Korea, known as "Sella

an increase in customs duties of $17.2 million attributed to

the increase in volumes of products manufactured in China for the U.S.

Gross profit as a percentage of revenue

decreased from 32.0% in 2021

to 27.2% in 2022 , as a result of the above detailed

Operating Expenses:

Research and Development

Year ended December 31,

(In thousands)

Research and development

costs increased by $70.2 million or 32.0% ,

in 2022 compared to 2021 , primarily due to:

in personnel-related costs of $53.0 million resulting from an increase in our research and development

headcount, as well as salary expenses associated with annual merit increases and em ployee stock-based

compensation.

The increase in headcount reflects our continuing investment in enhancements of existing products, as well as research and

development expenses associated with bringing new products to the market;

in expenses related to overhead costs in the amount of $6.6 million ;

in depreciation expenses of property and equipment in the amount of $4.2 million ;

a decrease in

reimbursement of costs, in the amount of $4.2 million , related to the research and development

activities performed by SolarEdge e-Mobility;

in expenses related to material consumption in the manufacturing of prototypes during our development process in the amount of $2.4

increases were partially offset by a decrease in expenses related to consultants and sub-contractors in the amount of $3.7 million.

Sales and Marketing

Year ended December 31,

(In thousands)

Sales and marketing

and marketing expenses increased by $40.7 million , or

34.2% , in 2022 compared to 2021 ,

by $7.1 million, or 0.3%, in the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to:

an increase in warranty expenses and warranty

accruals of $70.5 million associated primarily with an increased number of products in our install base, which increases our actual spending

on product warranty, and 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, which impacts our remaining obligations for all units under warranty, including those sold

in previous years;

an increase of $48.1 million in inventory costs,

which is mainly attributed to changes in inventory valuation, higher inventory accruals related to our initial manufacturing in Sella

2 and the write-off related to the discontinuation of the Company’s LCV e-Mobility activity, partially offset by a decrease in inventory

write-off related to discontinuation of our UPS activities in the year ended December 31, 2022;

an increase in personnel-related costs of $14.2

million, related to the expansion of our production, operations, and support headcount, which grew in parallel to our growing install

base worldwide, as well as an increase in severance and related benefit costs as a result of the Restructuring Plan announced to adjust

our manufacturing capacity and increase distribution efficiency, which includes termination of manufacturing in Mexico, reduction of manufacturing

capacity in China, and discontinuation of the Company’s LCV e-Mobility activity;

an increase in other costs of $11 million mainly

due to the contract termination expenses related to components procurement obligations related to the discontinued LCV e-mobility activity;

an increase of $9.1 million in depreciation expenses

of property, plant and equipment and in expenses related to overhead costs;

an increase of $3.9 million in expenses related

to consultants and sub-contractors.

were partially offset by:

a decrease in direct cost of revenues sold of

$97.5 million associated primarily with a decrease in the volume of product sold;

a decrease in shipment and logistic costs in an

aggregate amount of $42.5 million due to a decrease in the volume of shipments, a decrease in shipment rates and a decrease in expedited

shipments costs;

a decrease in other production costs of $12.6

million mainly attributed to a decrease in charges from our contract manufacturers, due to manufacturing disruptions related to global

supply constraints in the year ended December 31, 2022, partially offset by an increase related to ramp up costs associated with Sella

2, our Li-Ion battery cell manufacturing facility located in South Korea, as well as contract termination cost related to claims from

our contract manufacturers as part of the Restructuring Plan in Mexico and China.

profit as a percentage of revenue decreased by 3.6% to 23.6% in the year ended December 31, 2023 from 27.2% in the year ended December

31, 2022 primarily due to:

an increase in personnel-related costs of $28.6 million, as a result of an increase in headcount supporting

our growth in all geographies, as well as salary expenses associated with annual merit increases and employee stock-based compensation;

an increase in expenses related to marketing activities of $4.8 million;

an increase in expenses related to travel in the amount of $2.7 million.

General and Administrative

Year ended December 31,

(In thousands)

General and administrative

General and administrative expenses increased

by $30.3 million , or 36.9% , in 2022

compared to 2021 , primarily due to:

an increase in personnel-related costs of $22.7 million resulting from an increase in our general and

administrative headcount, as well as salary expenses associated with annual merit increases and employee stock-based compensation;

in expenses related to consultants and sub-contractors in the amount of $7.3 million;

in expenses related to overhead costs in the amount of $2.4 million.

increases were partially offset by a decrease of $5.6 million

related to a provision for legal claims.

Goodwill impairment

and other operating expenses, net

Year ended December 31,

(In thousands)

Goodwill impairment and other operating

expenses, net

an increase in actual warranty expenses and accruals

for future warranty obligations related to our existing install base, which were divided this fiscal year by slightly lower revenues resulting

in lower gross margin of 2.7%;

an increase in the inventory accrual due to the

write-offs of excess inventory, write-offs of inventory related to the discontinuation of the Company’s LCV e-Mobility activity

and inventory disposal related to our initial manufacturing in Sella 2 resulting in lower gross margin of 1.6%;

These were partially

offset by a decrease in shipment rates as well as a reduced portion of expedited shipments out of our total shipments and a decrease in

customs duties attributed to the decrease in volumes of products manufactured in China for the U.S.

market resulting in higher gross margin

and Development

ended December 31,

and development

and development costs increased by $31.7 million or 10.9%, in the year ended December 31, 2023 compared to the year ended December 31,

2022, primarily due to:

an increase in personnel-related costs of $18.3

million resulting from an increase in our research and development headcount, as well as salary expenses associated with annual merit

increases and employee stock-based compensation, which were partially offset by the depreciation of the NIS against the U.S.

increase in headcount reflects our continuing investment in enhancements of existing products, as well as research and development expenses

associated with bringing new products to the market;

an increase in expenses related to consultants

and sub-contractors in the amount of $6.8 million:

an increase in depreciation expenses of property

and equipment in the amount of $3.4 million;

an increase in expenses related to overhead costs

in the amount of $1.5 million.

and Marketing

ended December 31,

and marketing

and marketing expenses increased by $4.6 million, or 2.9%, in the year ended December 31, 2023 compared to the year ended December 31,

2022, primarily due to:

an increase in expenses related to marketing activities

in the amount of $2.4 million;

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 in expenses related to overhead costs

in the amount of $1.2 million.

were partially offset by a decrease in personnel-related costs of $1.2 million as a result of a decrease in commissions and the depreciation

of the NIS against the U.S.

and Administrative

ended December 31,

and administrative

and administrative expenses increased by $34.0 million, or 30.2%, in the year ended December 31, 2023 compared to the year ended December

31, 2022, primarily due to:

an increase in expenses related to doubtful debt

in the amount of $14.0 million;

an increase in expenses related to consultants

and sub-contractors in the amount of $11.5 million;

an increase in personnel-related costs of $6.5

million resulting from an increase in our general and administrative headcount, as well as salary expenses associated with annual merit

increases, partially offset by a decrease in employee stock-based compensation and the depreciation of the NIS against the U.S.

an increase in expenses related to overhead costs

in the amount of $1.5 million.

ended December 31,

Goodwill impairment

and other operating expenses, net were $116.5 million in 2022, compared to $1.4 million in 2021, primarily due to:

an increase in the amount of $90.1 million attributed to a goodwill impairment charge related

to three reporting units:

e-Mobility, Automation Machines and Critical Power ;

of $28.4 million attributed to the impairment of intangible assets,

mainly related to the technology of the e-Mobility asset group, as well as the impairment of the related

intangible assets of the Critical Power asset group, due to the discontinuation of its activities.

were partially offset by an increase of $2.6 million in income related to selling of Critical Power assets and property, plant and equipment.

impairment decreased by $90.1 million or 100% in the year ended December 31, 2023 compared to the year ended December 31, 2022.

This decrease

was mainly due to a decrease in the goodwill impairment charge related to three reporting units e-Mobility, Automation Machines, and Critical

Power in the year ended December 31, 2022.

operating expenses, net

ended December 31,

operating expenses, net

operating expenses, net, increased by $4.9 million, or 18.5% in the year ended December 31, 2023 compared to the year ended December 31,

2022, primarily due to:

an increase of $24.5 million in impairment of

property, plant and equipment income related to the announced Restructuring Plan to adjust our manufacturing capacity and increase distribution

an increase of $1.7 million in legal claims provision,

as a result of a recent court decision against our Italian subsidiary relating to the 2019 acquisition of SolarEdge e-Mobility.

were partially offset by a decrease of $22.8 million in impairment of intangible assets, which was attributed to the intangible assets

impairment recorded in the year ended December 31, 2022 for e-Mobility and Critical Power asset groups.

income (expenses), net

Year ended December 31,

(In thousands)

Financial income (expense), net

Financial income, net

was $3.3 million in 2022 compared to financial expenses, net of $19.9 million in 2021, primarily due to:

a decrease of $20.9 million in financial expenses resulted from foreign exchange fluctuations, mainly

between each of the Euro, the New Israeli Shekel and the South Korean Won against the U.S.

an increase of $7.6 million in interest income and accretion (amortization) of discount (premium) on

marketable securities.

were partially offset by a decrease of $4.7 million in financial income related to hedging transactions.

Year ended December 31,

(In thousands)

Other income increased by $7.7

million , or 100.0% , in 2022 compared to 2021 due

to the sale of our investment in a privately-held company.

Year ended December 31,

(In thousands)

Income taxes increased

by $65.3 million , or 361.8% , in 2022

as compared to 2021 , primarily due to:

an increase of $51.4 million of current tax expenses mainly

attributed to the change to Section 174 of the U.S Internal Revenue Code, as well as impairment of goodwill and intangible assets, higher

non-deductible expenses and lower tax benefits relating to stock-based compensation.

The change to Section 174, which became effective

on January 1, 2022, eliminates the option to deduct research and development expenditures as expensed and requires taxpayers to amortize

them over five years (if generated from a U.S.

entity) and fifteen years (if generated from non-U.S.

an increase of $13.3 million in prior years taxes income;

a decrease of $0.6 million in deferred tax income.

Year ended December 31,

(In thousands)

As a result of the factors discussed above, net

income decreased by $75.4 million , or 44.6 %

in 2022 as compared to 2021 .

Liquidity and Capital

The following table shows our cash flows from

operating activities, investing activities, and financing activities for the stated periods :

Year ended December 31,

(In thousands)

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Increase (decrease)

in cash, cash equivalents and restricted cash

As of December 31, 2022, our cash and

cash equivalents were $783.1 million.

This amount does not include $886.6 million invested in available for sale marketable securities,

$0.5 million invested in short-term restricted bank deposits and $1.4 million invested in long-term restricted bank deposits.

Our principal

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

ended December 31,

income, net increased by $37.5 million or 999.0% in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily

a gain of $24.2 million in the year ended December

31, 2023, compared to a loss of $1.5 million in 2022, as a result of fluctuations in foreign exchange rates, primarily between the Euro

and NIS against the U.S dollar;

an increase of $10.6 million in interest income

from marketable securities and loans to third parties.

income (loss)

ended December 31,

income (loss), net

loss was $0.3 million in the year ended December 31, 2023 compared to other income of $7.3 million in the year ended December 31, 2022,

primarily due to a decrease in gains from the sale of an investment in a privately-held company.

ended December 31,

taxes decreased by $37.0 million, or 44.3%, in the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily

a decrease of $5.0 million in current tax due

to a decrease in profit before tax, offset by an increase in non-deductible expenses, lower tax benefits relating to stock-based compensation

and an increase in our provision for uncertain

tax positions;

an increase of $32.0 million in deferred tax income,

mainly related to the update of the projected preferred technological enterprises tax rate change and certain write-offs items which will

be tax deductible in future periods.

from equity method investments

ended December 31,

Net loss from equity

method investments

loss from equity method investments increased by $0.4 million, or 100% in the year ended December 31, 2023 as compared to the year ended

December 31, 2022.

ended December 31,

a result of the factors discussed above, net income decreased by $59.5 million, or 63.4% in the year ended December 31, 2023 as compared

to the year ended December 31, 2022.

the discontinuation of the Critical Power segment in June 2022, we operated in four different operating segments:

Solar, Energy Storage,

e-Mobility and Automation Machines.

In October 2023, we decided to discontinue our LCV e-Mobility) activity and the remaining e-Mobility

activity is included under the solar segment starting January 1, 2024.

In the fourth quarter of 2023, we identified two operating segments

as reportable – the Solar and the Energy Storage segments.

The other operating segments are insignificant individually, and therefore,

their results are presented together under “All other.”

do not allocate our operating segments revenue recognized due to advance payments received for performance obligations that extend for

a period greater than one year (“financing component”), related to Accounting Standard Codification 606, “Revenue from

Contracts with Customers” (ASC 606).

profit (loss) is comprised of gross profit (loss) for the segment less operating expenses excluding amortization and impairment of purchased

intangible assets, stock based compensation expenses, restructuring charges, discontinued activity charges, impairment of property, plant

and equipment and certain other items (which are reported under "Not allocated to segments").

ended December 31,

allocated to segments

Solar revenues

decreased by $105.6 million, or 3.6%, in the year ended December 31, 2023, as compared to the year ended December 31, 2022 primarily due

to a $58.2 million decrease in the amount of ancillary solar products sold and a $50.8 million decrease in the number of batteries sold

for PV applications.

As discussed above, this decrease in revenues was due to high inventory in the channels and slower than expected

installation rates beginning in the third quarter of 2023, leading to substantial unexpected cancellations and push outs of existing backlog

from our European distributors.

operating profit decreased by $122.3 million, or 25.1%, in the year ended December 31, 2023, as compared to the year ended December 31,

This decrease was mainly due to the decrease in revenue followed by a lower decrease of $55.6 million in cost of revenues, which

was primarily caused by a decrease of $96.5 million in direct cost of revenues and a decrease of $43.0 million in shipment and logistic

costs, which were offset by an increase of $78.0 million in warranty expenses and an increase of $13.2 million in inventory write-downs.

Additionally, operating expenses increased by $72.3 million, primarily due to higher personnel-related costs, expenses related to consultants

and sub-contractors and an increase in expenses related to doubtful debt.

Storage revenues increased by $7.4 million, or 9.7%, in the year ended December 31, 2023,

as compared to the year ended December 31, 2022.

Storage operating loss increased by $46.3 million, or 333.7%, in the year ended December 31, 2023, as compared to the year ended December

The increase in operating loss was primarily due to an increase of $48.8 million in cost of revenues associated with ramp-up

cost and an increase in inventory accrual, both related to the start of manufacturing in our Sella 2 factory.

other segments revenues decreased by $35.7 million, or 31.9%, in the year ended December 31,

2023, as compared to the year ended December 31, 2022 primarily due to the discontinuation of the Company’s LCV e-Mobility activity

and the discontinuation of our Critical Power activity.

other segments operating loss decreased by $16.9 million, or 54.0%, in the year ended December 31, 2023, as compared to the year ended

December 31, 2022.

This improvement was mainly due to a decrease in warranty accruals related to our LCV e-Mobility activity, a reduction

in personnel-related expenses, and a decrease in the loss incurred in the year ended December 31, 2022 associated with the discontinued

Critical Power business.

allocated to segments

allocated to segments revenues increased by $0.2 million, or 35.8%, in the year ended December

31, 2023, as compared to the year ended December 31, 2022.

allocated to segments operating loss decreased by $25.8 million, or 9.4%, in the year ended December 31, 2023, as compared to the year

ended December 31, 2022.

The decrease was mainly due to a decrease in goodwill and intangible assets impairment charges, which were related

to our LCV e-Mobility activity during the year ended December 31, 2022.

However, during the year ended December 31, 2023 we have experienced

an increase in costs related to the Restructuring Plan, including costs related to the discontinuation of the Company's LCV e-Mobility

activity, and an increase in impairment of property, plant, and equipment, all of which are not assessed by our CODM and therefore not

allocated to any of the segments above.

and Capital Resources

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

ended December 31,

cash provided by (used in) operating activities

cash used in investing activities

cash provided by (used in) financing activities

(decrease) in cash, cash equivalents and restricted cash

of December 31, 2023, our cash and cash equivalents were $338.5 million.

This amount does not include $929.4 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, other investments and potential future share repurchases.

As of December 31,

4 unchanged sentences

of $1,041.3 million related to raw materials and commitments for the future manufacturing of our products.

We believe that cash

provided by operating activities, as well as our cash and cash equivalents and available for sale marketable securities, will be sufficient

to meet our anticipated cash needs for at least the next 12 months as well as in the longer term, including the self-funding of our capital

expenditure and operational commitments.

Operating Activities

Cash provided by operating

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

Cash provided by operating

activities decreased by $182.8 million in 2022

as compared to 2021 , mainly due to unfavorable changes in working capital and lower net income

in 2022 compared to the prior year .

Investing Activities

Investing cash flows

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

and withdrawal of bank deposits and restricted bank deposits, cash used for acquisitions and cash provided

by the sale of equity investments .

Cash used for investing activities decreased by $67.2

million in 2022 as compared to 2021 , primarily

driven by a $72.2 million decrease in purchases of available-for-sale debt investments, an increase

of $29.0 million in sales and maturities of available-for-sale debt investments, $16.6

million decrease in an investment in a privately-held company and $24.4 million increase

from sale of an investment in a privately-held company.

This increase was partially offset by a $61.1 million

decrease in cash provided by bank deposits and restricted bank deposits and an increase of $20.1 million

in capital expenditures.

Financing Activities

Financing cash flows

consisted primarily of the issuance and repayment of short-term and long-term debt , proceeds

from the sale of shares of common stock in a public offering and employee equity incentive plans .

Cash provided by financing activities in 2022 was $654.6 million

compared to $15.2 million cash used in financing activities in 2021 ,

primarily due to a $650.5 million increase in cash provided by the issuance of common stock,

net through a secondary public offering, and a decrease of $15.9 million in repayment of bank

believe our cash and cash equivalents and available for sale marketable securities, will be sufficient to meet our anticipated cash needs

for at least the next 12 months as well as in the longer term, including the self-funding of our capital expenditure and operational commitments.

used in operating activities consists of net income adjusted for certain non-cash items and changes in assets and liabilities.

in operating activities was $180.1 million in the year ended December 31, 2023 as compared to $31.3 million cash provided by operating

activities in the year ended December 31, 2022, mainly due to lower net income adjusted for certain non-cash items, as well as higher

operating working capital requirements, specifically, an increase in inventory procurement and manufacturing.

cash flows consist primarily of cash used for capital expenditures, cash provided by government grants for 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, cash provided by the sale of equity investments and disbursements and receipts from loans made by the Company.

Cash used for investing activities decreased by $148.2 million in the year ended December 31, 2023 as compared to the year ended December

31, 2022, primarily driven by a decrease of $210.8 million in purchases of available-for-sale debt investments and an increase of $49.0

million in proceeds from sales and maturities of available-for-sale debt investments.

This was partially offset by an increase of $58.0

million in disbursements of loans made by the Company, a decrease of $23.0 million in proceeds provided by the sale of a privately-held

company, an increase of $16.7 million in cash used for a business combination and an increase of $11.2 million in the purchase of intangible

cash flows consisted primarily of the issuance and repayment of short-term and long-term debt, proceeds from the sale of shares of common

stock in a public offering, and proceeds provided by the exercise of stock-based awards and withholding taxes remitted to the tax authorities

related to stock-based awards.

Cash used in financing activities in the year ended December 31, 2023 was $12.0 million, compared to $654.6

million cash provided by financing activities in the year ended December 31, 2022, primarily due to a $650.5 million decrease in cash

provided by the issuance of common stock, net, through a secondary public offering which occurred in March 2022 and a decrease of $38.6

million in proceeds provided by the exercise of stock-based awards.

This was partially offset by a decrease of $22.5 million in withholding

taxes remitted to the tax authorities related to the exercise of stock-based awards.

September 25, 2020, we issued $632.5 million aggregate principal amount of our Convertible Senior Notes or Notes in a transaction exempt

5 unchanged sentences

public offering

On March 17, 2022, we offered and sold 2,300,000 shares of the Company’s

common stock at a public offering price of $295.00 per share.

The net proceeds to the Company after underwriters' discounts and commissions

and offering costs were $650,526.

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

acquisitions (see Note 18b to our consolidated financial statements for more information).

Critical Accounting Policies and Significant

Management Estimates

We prepare our consolidated financial statements

in accordance with generally accepted accounting principles in the U.S.

The preparation of consolidated financial

statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs

and expenses, and related disclosures.

We base our estimates on historical experience and on various other assumptions that we believe

to be reasonable under the circumstances.

Actual results could differ significantly from the estimates made by our management.

extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition,

results of operations, and cash flows will be affected.

We believe that the accounting policies discussed below are critical to understanding

our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and

Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial

condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the

need to make estimates about the effects of matters that are inherently uncertain (see Note 2 to our annual financial statements for more

information).

We generate revenues

from the sale of DC optimized inverter systems for solar PV installations which include our power optimizers, inverters, and cloud-based

monitoring platform as well as other solar related products, Lithium-ion cells, batteries, energy storage solutions, EV powertrain solutions

and machinery.

Our worldwide customer base includes large solar installers, distributors, EPCs, PV module manufacturers, utility companies

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

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

We intend to use the proceeds

from the public offering for general corporate purposes, which may include acquisitions (see Note 19b to our consolidated financial statements

for more information).

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.

Accounting Policies and Significant Management Estimates

prepare our consolidated financial statements in accordance with generally accepted accounting principles in the U.S.

The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts

of assets, liabilities, revenues, costs and expenses, and related disclosures.

We base our estimates on historical experience and on various

other assumptions that we believe to be reasonable under the circumstances.

Actual results could differ significantly from the estimates

made by our management.

To the extent that there are differences between our estimates and actual results, our future financial statement

presentation, financial condition, results of operations, and cash flows will be affected.

We believe that the accounting policies discussed

below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving

management’s judgments and estimates.

Critical accounting policies and estimates are those that we consider the most important to

the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments,

often as a result of the need to make estimates about the effects of matters that are inherently uncertain (see Note 2 to our annual financial

statements for more information).

generate revenues from the sale of DC optimized inverter systems for solar PV installations which include our power optimizers, inverters,

and cloud-based monitoring platform as well as other solar related ancillary products, Lithium-ion cells, batteries, energy storage solutions,

EV powertrain solutions and machinery.

Our worldwide customer base includes large solar installers, distributors, EPCs, utility companies

and other customers.

1 unchanged sentence

or customization with the exception of some ESS systems that require installation and commissioning.

We recognize revenue under the core principle that transfer of control to the customers should be depicted in an amount reflecting the

consideration we expect to receive in revenue.

We recognize revenue under the core

principle that transfer of control to the customers should be depicted in an amount reflecting the consideration we expect to receive

In order to achieve that core principle, we apply the following five-step approach:

identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price,

(4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation

is satisfied.

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

period that the related sales are recorded.

We generally sell our products to our customers

pursuant to a customer’s standard purchase order and our customary terms and conditions.

We do not offer rights to return our products

other than for normal warranty conditions, and as such, revenue is recognized based on the transfer of control, which includes but is

not limited to, the agreed International Commercial terms.

We evaluate the creditworthiness of our customers to determine that appropriate

credit limits are established prior to the acceptance and shipment of an order.

We provide our

full web-based monitoring platform for our solar products free of charge and revenues associated with the service since that date are

being recognized ratably over 25 years.

(1) identify the contract with a customer,

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

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

Provisions for rebates,

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

generally sell our products to our customers pursuant to a customer’s standard purchase order and our customary terms and conditions.

We do not offer rights to return our products other than for normal warranty conditions, and as such, revenue is recognized based on the

transfer of control, which includes but is not limited to, the agreed International Commercial terms.

We evaluate the creditworthiness

of our customers to determine that appropriate credit limits are established prior to the acceptance and shipment of an order.

provide our full web-based monitoring platform for our solar products free of charge and revenues associated with the service since that

date are being recognized ratably over 25 years.

In the absence of third party comparable pricing for such service, management determines

9 unchanged sentences

monitoring, and (iii) communication services.

See Notes 2 u

and 14 to the consolidated financial statements included in Part II, Item 8 of this Annual Report

on Form 10-K for additional information related to revenue recognition.

We provide a standard

limited product warranty for our solar products against defects in materials and workmanship under normal use and service conditions.

Notes 2u and 15 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional

information related to revenue recognition.

provide a standard limited product warranty for our solar products against defects in materials and workmanship under normal use and service

Our standard warranty period is 25 years for our power optimizers, 12 years for our inverters, 10 years for our storage interface

and a 10-year limited warranty for our residential batteries .

Other products are sold with standard

limited warranties that typically range in duration from one to ten years, and in some cases for a longer period.

In certain cases, customers

can purchase an extended warranty for our battery storage products that extend the standard warranty

In addition, customers can purchase extended warranties for inverters that extend the warranty period to up to 25 years.

Our products are designed

to meet the warranty periods and our reliability procedures cover component selection, design, accelerated life cycle tests, and end-of-manufacturing

line testing.

However, since our history in selling power optimizers and inverters i s shorter

than the warranty period , the calculation of warranty provisions is inherently uncertain.

We accrue for estimated

warranty costs at the time of sale based on anticipated warranty claims and actual historical warranty claims experience.

Warranty provisions,

computed on a per-unit sold basis, are based on our best estimate of such costs and are included in our cost of revenues.

obligation is determined based on actual and predicted failure rates of the products, cost of replacement and service and delivery costs

incurred to correct a product failure.

Our warranty obligation requires management to make assumptions regarding estimated failure rates

and replacement costs.

In order to predict the

failure rate of each of our products, we have established a reliability model based on the estimated mean time between failures (“MTBF”).

and a 10-year limited warranty for our batteries for PV applications.

Other products are sold with standard limited warranties that typically

range in duration from one to ten years, and in some cases for a longer period.

In certain cases, customers can purchase an extended warranty

for our battery storage products and for our batteries for PV applications that extend the standard warranty period.

In addition, customers

can purchase extended warranties for inverters that extend the warranty period to up to 25 years.

products are designed to meet the warranty periods and our reliability procedures cover component selection, design, accelerated life

cycle tests, and end-of-manufacturing line testing.

However, since our history in selling power optimizers and inverters is shorter than

the warranty period, the calculation of warranty provisions is inherently uncertain.

accrue for estimated warranty costs at the time of sale based on anticipated warranty claims and actual historical warranty claims experience.

Warranty provisions, computed on a per-unit sold basis, are based on our best estimate of such costs and are included in our cost of revenues.

The warranty obligation is determined based on actual and predicted failure rates of the products, cost of replacement and service and

delivery costs incurred to correct a product failure.

Our warranty obligation requires management to make assumptions regarding estimated

failure rates and replacement costs.

order to predict the failure rate of each of our products, we have established a reliability model based on the estimated mean time between

failures (“MTBF”).

The MTBF represents the average elapsed time predicted for each product unit between failures during operation.

Applying the MTBF failure

rate over our install base for each product type and generation allows us to predict the number of failed units over the warranty period

and estimates the costs associated with the product warranty.

Predicted failure rates are updated periodically based on data returned

from the field and new product versions, as are replacement costs which are updated to reflect changes in our actual production costs

for our products, subcontractors’ labor costs, and actual logistics costs.

Since the MTBF model

does not take into account additional non-systematic failures, such as failures caused by workmanship or manufacturing or design-related

issues, and since warranty claims are at times opened for cases in which the error has been triggered by an improper installation, we

have developed a supplemental model to predict such cases and recognize the associated expenses ratably over the expected claim period.

This model, which is based on actual root cause analysis of returned products, identification of the causes of claims and time until each

identified problem is revealed, allows us to better predict actual warranty expenses and is updated periodically based on our experience,

taking into account the installed base of approximately 107.5 million power optimizers and approximately

4.5 million inverters as of December 31, 2022 .

If actual warranty costs

differ significantly from these estimates, adjustments may be required in the future, which could adversely affect our gross profit and

results of operations.

Warranty obligations are classified as short-term and long-term warranty obligations, based on the period in which

the warranty is expected to be claimed.

The warranty provision (short and long-term) was $385.1 million

and $265.2 million , in the year ended December 31, 2022

and 2021 , respectively.

See Notes 2 w

and 13 "Warranty obligations" to the consolidated financial statements included in Part II, Item

8 of this Annual Report on Form 10-K for additional information related to product warranty.

Our inventories comprise

sellable finished goods, raw materials bought for own manufacturing or on behalf of our contract manufacturers, and faulty units returned

under our warranty policy.

Sellable finished goods and raw material inventories

are valued at the lower of cost or net realizable value, based on the moving average cost method.

Certain factors could affect the realizable

value of our inventories, including market and economic conditions, technological changes, existing product changes (mainly due to cost

reduction activities) and new product introductions.

We consider historic usage, expected demand, anticipated sales price, the effect

of new product introductions, product obsolescence, product merchantability, and other factors when evaluating the net realizable value

of inventories.

Inventory write-downs are equal to the difference between the cost of inventories and their estimated net realizable value.

Inventory write-downs are recorded as cost of revenues in the accompanying statements of income and were

$10.2 million and $7.1 million , in the year ended December 31, 2022 and 2021, respectively .

Faulty products returned

under our warranty policy are often refurbished and used as replacement units.

Applying the MTBF failure rate over our install base for each product type and generation allows us to predict the number of failed units

over the warranty period and estimates the costs associated with the product warranty.

Predicted failure rates are updated periodically

based on data returned from the field and new product versions, as are replacement costs which are updated to reflect changes in our actual

production costs for our products, subcontractors’ labor costs, and actual logistics costs.

the MTBF model does not take into account additional non-systematic failures, such as failures caused by workmanship or manufacturing

or design-related issues, and since warranty claims are at times opened for cases in which the error has been triggered by an improper

installation, we have developed a supplemental model to predict such cases and recognize the associated expenses ratably over the expected

claim period.

This model, which is based on actual root cause analysis of returned products, identification of the causes of claims and

time until each identified problem is revealed, allows us to better predict actual warranty expenses and is updated periodically based

on our experience, taking into account the installed base of approximately 125.1 million power optimizers and approximately 5.6 million

inverters as of December 31, 2023.

actual warranty costs differ significantly from these estimates, adjustments may be required in the future, which could adversely affect

our gross profit and results of operations.

Warranty obligations are classified as short-term and long-term warranty obligations, based

on the period in which the warranty is expected to be claimed.

The warranty provision (short and long-term) was $518.2 million and $385.1

million, in the year ended December 31, 2023 and 2022, respectively.

Notes 2w and 14 "Warranty obligations" to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form

10-K for additional information related to product warranty.

inventories comprise sellable finished goods, raw materials bought for our own manufacturing facilities or on behalf of our contract manufacturers,

and faulty units returned under our warranty policy.

finished goods and raw material inventories are valued at the lower of cost or net realizable value, based on the moving average cost

Certain factors could affect the realizable value of our inventories, including market and economic conditions, technological

changes, existing product changes (mainly due to cost reduction activities) and new product introductions.

We consider historic usage,

expected demand, anticipated sales price, the effect of new product introductions, product obsolescence, product merchantability, and

other factors when evaluating the net realizable value of inventories.

Inventory write-downs are equal to the difference between the cost

of inventories and their estimated net realizable value.

Inventory write-downs are recorded as cost of revenues in the accompanying statements

of income and were $46.4 million and $10.2 million, in the year ended December 31, 2023 and 2022, respectively.

products returned under our warranty policy are often refurbished and used as replacement units.

Such products are written off upon receipt.

We do not believe that there is a reasonable likelihood

that there will be a material change in future estimates or assumptions that we use to record inventory at the lower of cost or net realizable

However, if estimates regarding customer demand are inaccurate or changes in technology affect demand for certain products in an

unforeseen manner, we may be exposed to losses that could be material.

See Notes 2 j

and Note 4 to the consolidated financial statements included in Part II, Item 8 of this Annual

Report on Form 10-K for additional information related to inventory valuation.

We allocate the fair

value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is

recorded as goodwill.

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

intangible assets.

Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows

from acquired technology and other intangible assets, their useful lives and discount rates.

Our management’s estimates of fair

value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual

results may differ from estimates.

During the measurement period, which is not to exceed one year from the acquisition date, we may record

adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Upon the conclusion of the measurement

period, any subsequent adjustments are recorded to earnings.

"Business Combination" to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional

do not believe that there is a reasonable likelihood that there will be a material change in future estimates or assumptions that we use

to record inventory at the lower of cost or net realizable value.

However, if estimates regarding customer demand are inaccurate or changes

in technology affect demand for certain products in an unforeseen manner, we may be exposed to losses that could be material.

Notes 2j and Note 5 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional

information related to inventory valuation.

allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired

based on their estimated fair value.

The excess of the fair value of purchase consideration over the fair values of these identifiable

assets and liabilities is recorded as goodwill.

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

especially with respect to intangible assets.

Significant estimates in valuing certain intangible assets include, but are not limited

to, future expected cash flows from acquired technology and other intangible assets, their useful lives and discount rates.

Our management’s

estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and,

as a result, actual results may differ from estimates.

During the measurement period, which is not to exceed one year from the acquisition

date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Upon the conclusion

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

Note 2n and Note 3 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional

information related to business combination.

8 unchanged sentences

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

During the year ended December 31,

2022, we recorded impairment charge of $28.4 million mainly related to technology within the e-Mobility asset group and intangible assets

within the Critical Power asset group.

Acquired identifiable

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

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

routinely review the remaining estimated useful lives of finite-lived intangible assets.

In case we reduce the estimated useful life assumption

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

and 8 to the consolidated financial statements included in Part II, Item 8 of this Annual Report

on Form 10-K for additional information related to intangible assets.

Goodwill reflects the

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

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

Goodwill is not amortized, and is assigned to

reporting units and tested for impairment at least on an annual basis.

The goodwill impairment

test is performed according to the following principles:

An initial qualitative assessment may be performed to determine whether it is more likely than not that the fair value of the reporting

unit is less than its carrying amount.

If the Company concludes it is more likely than not that the fair value of the reporting unit is less than its carrying mount, a

quantitative fair value test is performed.

An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s

fair value is recognized.

We complete the required

annual testing of goodwill impairment for the reporting units in the fourth quarter of each year and accordingly, determines whether goodwill

should be impaired.

The Company recorded impairment charges of goodwill during the year 2022 in the amount of $90,104 ,

related to the e-Mobility, Automation Machines and Critical Power reporting units.

See Notes 2 q

and 9 to the consolidated financial statements included in Part II, Item 8 of this Annual Report

on Form 10-K for additional information related to goodwill.

We account for income

taxes in accordance with ASC 740, “Income Taxes.” ASC 740, which prescribes the use of the liability method, whereby deferred

tax asset and liability account balances are determined based on differences between financial reporting and tax basis of assets and liabilities,

and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse.

We account for uncertain

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

The first step is

to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates

that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including

resolution of any related appeals or litigation processes.

The second step is to measure the tax benefit as the largest amount that is

more than 50% (cumulative probability) likely to be realized upon ultimate settlement.

See Note 2 af

to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information related

to income taxes.

more significant estimates and assumptions inherent in the estimate of the fair value of finite-lived intangible assets include (i) assumptions

associated with forecasting product profitability, including sales and cost to sell projections, (ii) tax rates which seek to incorporate

the geographic diversity of the projected cash flows, (iii) expected impact of competitive, legal and/or regulatory forces on the projections

and the impact of technological risk, R&D expenditure for ongoing support of product rights, and (iv) estimated useful lives.

the year ended December 31, 2023, we recorded impairment charge of $5.6 million mainly related to intangible assets within the Solar asset

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

of the assets.

We believe the basis of amortization approximates the pattern in which the assets are utilized, over their estimated useful

We routinely review the remaining estimated useful lives of finite-lived intangible assets.

In case we reduce the estimated useful

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

Notes 2.o and 9 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional

information related to intangible assets.

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

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

Goodwill is not amortized, and is assigned

to reporting units and tested for impairment at least on an annual basis.

goodwill impairment test is performed according to the following principles:

An initial qualitative assessment may be performed

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

If the Company concludes it is more likely than

not that the fair value of the reporting unit is less than its carrying mount, a quantitative fair value test is performed.

An impairment

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

estimate the fair values of all reporting units using a discounted cash flow model which utilizes Level 3 unobservable inputs.

Key estimates

include the revenue growth rates taking into consideration industry and market conditions, terminal growth rate and the discount rate.

The discount rate used is based on the WACC, adjusted for the relevant risk associated with country-specific and business-specific characteristics.

The carrying value of each reporting unit is determined by assigning the assets and liabilities, including the existing goodwill, to those

reporting units.

complete the required annual testing of goodwill impairment for the reporting units in the fourth quarter of each year and accordingly,

determine whether goodwill should be impaired.

During the year ended December 31, 2023, no impairment of goodwill has been identified.

Notes 2.q and 10 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional

information related to goodwill.

August 2022, the U.S.

government enacted the Inflation Reduction Act of 2022 (the “IRA”), which contains several provisions

intended to accelerate U.S.

manufacturing and adoption of clean energy such as solar.

Some of the applicable provisions in IRA include

the extension of the Production Tax Credit through 2034.

These provisions of the law are new and regulations and guidance concerning their

implementation are gradually being published by the U.S.

Treasury Department.

Section 45X of the IRA offers advanced manufacturing production

tax credits ("AMPTC"), that incentivize the production of eligible components within the United States.

To that end, we established manufacturing

capabilities in the United States in 2023 and announced additional capacity planned for 2024.

IRA allows taxpayers to elect to have AMPTCs

refunded in cash ("direct pay") or transfer these credits to a third party.

In addition to using the tax credits to offset tax due to

government, the direct pay option is available as a one-time election, in any taxable year after December 31, 2022, for a facility

in which eligible components are produced, and is applicable for five years.

and transferable tax credits are similar in essence to government grants.

This is because the taxpayer can realize the benefit regardless

of whether they owe income tax or not in the relevant years.

Therefore, these amounts are not considered income taxes and fall outside

the scope of Topic 740.

Instead, they are treated as government grants.

grants are recognized when there is reasonable assurance that:

(1) we will comply with the relevant conditions and (2) the grant disbursement

will be received.

We recognize PTCs as a reduction in the cost of revenues in the statement of income.

We do this systematically over

time as we recognize the related expenses.

Alternatively, we recognize the grant immediately if it compensates us for expenses that we

have already incurred.

The AMPTCs are also reflected in the consolidated balance sheet as a reduction of income tax payable within accrued

expenses and other liabilities, as a tax prepayment, or as AMPTCs to be sold within prepayment and other assets.

The way we expects to

utilize the AMPTCs determines where they are recorded.

In the year ended December 31, 2023, we recognized AMPTCs worth $6.0 million for

inverters produced in the United States and sold to customers.

As of December 31, 2023, benefits recognized from AMPTCs of $6.0 were recorded

as a tax prepayment within prepayment and other current assets.

account for income taxes in accordance with ASC 740, “Income Taxes.” ASC 740, which prescribes the use of the liability method,

whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax basis

of assets and liabilities, and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse.

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

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

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

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

The second step is to measure the tax benefit as the largest

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

Note 2.af and 25 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional

information related to income taxes.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis