SOLAREDGE TECHNOLOGIES, INC. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Statements contained in this Form 10-Q or statements incorporated by reference from documents we have filed with the Securities and Exchange Commission may contain forward-looking statements that are based on our management’s expectations, estimates, projections, beliefs and assumptions in accordance with information currently available to our management. Forward-looking statements should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in Part 1, Item 1 of this report. This discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, technology developments, new products and services, financing and investment plans, competitive position, backlog, industry and regulatory environment, effects of acquisitions, growth opportunities, potential future impairments, and the effects of competition. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “could,” “seek,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or similar expressions and the negatives of those terms. Forward-looking statements inherently involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on forward-looking statements. Forward-looking and other statements regarding our sustainability efforts and aspirations are not an indication that these statements are necessarily material to investors or requiring disclosure in our filing with the Securities and Exchange Commission (“SEC”). In addition, historical, current and forward-looking sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve and assumptions that are subject to change in the future, including future rule-making. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this filing. Important factors that could cause actual results to differ materially from our expectations include: • future demand for renewable energy including solar energy solutions; • our ability to forecast demand for our products accurately and to match production to such demand as well as our customers' ability to forecast demand based on inventory levels; • macroeconomic conditions in our domestic and international markets, as well as inflation concerns, rising interest rates and recessionary concerns; • the retail price of electricity derived from the utility grid or alternative energy sources; • interest rates and supply of capital in the global financial markets in general and in the solar market specifically; • competition, including introductions of power optimizer, inverter and solar photovoltaic (“PV”) system monitoring products by our competitors; • developments in alternative technologies or improvements in distributed solar energy generation; • historic cyclicality of the solar industry and periodic downturns; • product quality or performance problems in our products; • shortages, delays, price changes, or cessation of operations or production affecting our suppliers of key components; • delays, disruptions, and quality control problems in manufacturing; • our dependence upon a small number of outside contract manufacturers and limited or single source suppliers; • capacity constraints, delivery schedules, manufacturing yields, and costs of our contract manufacturers and availability of components; • disruption in our global supply chain and rising prices of oil and raw materials as a result of the conflict between Russia and Ukraine; • performance of distributors and large installers in selling our products; • consolidation in the solar industry among our customers and distributors; • our ability to manage effectively the growth of our organization and expansion into new markets; 4 • our ability to recognize expected benefits from restructuring plans; • any unauthorized access to, disclosure, or theft of personal information or unauthorized access to our network or other similar cyber incidents; • our ability to integrate acquired businesses; • disruption to our business operations due to the evolving state of war in Israel and political conditions related to the Israeli government's plans to significantly reduce the Israeli Supreme Court's judicial oversight; • our dependence on ocean transportation to timely deliver our products in a cost-effective manner; • fluctuations in global currency exchange rates; • the impact of evolving legal and regulatory requirements, including emerging environmental, social and governance requirements; • existing and future responses to and effects of pandemics, epidemics or other health crises; • changes to net metering policies or the reduction, elimination or expiration of government subsidies and economic incentives for on-grid solar energy applications; • federal, state, and local regulations governing the electric utility industry with respect to solar energy; • changes in tax laws, tax treaties, and regulations or the interpretation of them, including the Inflation Reduction Act; • changes in the U.S. trade environment, including the imposition of import tariffs; • business practices and regulatory compliance of our raw material suppliers; • our ability to maintain our brand and to protect and defend our intellectual property; • volatility of our stock price; • our customers’ financial stability, creditworthiness, and debt leverage ratio; • loss of key executives, and our ability to retain key personnel and attract additional qualified personnel; • our ability to effectively design, launch, market, and sell new generations of our products and services; • our ability to retain, and events affecting, our major customers; • natural disasters, public health events and other disruptions; • impairment of our goodwill or other long-lived and intangible assets; • our liquidity and ability to service our debt; the other factors set forth below in Part II, Item 1.A under “Risk Factors” and in Part I, Item 1A under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business. The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. Overview We 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 ("LCV") e-Mobility activity. The remaining e-mobility activity, which includes PV applications, has been included under the solar segment starting January 1, 2024. 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 the 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 (in prior periods) and automated machines. 5 In the third quarter of 2020, we began commercial shipments from our manufacturing facility in the North of Israel, “Sella 1”. The proximity of Sella 1 to our R&D team and labs enables us to accelerate new product development cycles, as well as define equipment and manufacturing processes of newly developed products which can then be adopted by our contract manufacturers worldwide. In May 2022, we opened “Sella 2”, our own manufacturing facility for Li-Ion cells, in Korea. Sella 2 currently has a 2GWh capacity. In light of the Inflation Reduction Act legislation in the United States, which incentivizes the local manufacturing of renewable energy products by providing benefits to installers for the purchase and installation of product with domestic content, as well as by incentivizing local manufacturing of our products, we began manufacturing inverters in Texas and reached full capacity there during the third quarter of 2024. We are also currently expanding additional manufacturing capabilities in G, for optimizers and inverters. With the manufacturing capabilities of these new sites and due to a decrease in demand for our products, we have reduced capacity in all of our manufacturing sites outside of the U.S. As of September 30, 2024, we shipped approximately 130.0 million power optimizers, 5.7 million inverters and 303.3 thousand batteries for PV applications. Over 4.1 million installations, many of which may include multiple inverters, are currently connected to, and monitored through, our cloud-based monitoring platform. As of September 30, 2024, we shipped approximately 55.3 GW of our DC optimized inverter systems and approximately 2.1 GWh of our batteries for PV applications. Our revenues for the three months ended September 30, 2024, and 2023 were $260.9 million and $725.3 million, respectively,. Gross loss was 269.2% for the three months ended September 30, 2024, compared to our gross margin of 19.7% for the three months ended September 30, 2023. Net loss for the three months ended September 30, 2024, and 2023 was $1,205.3 million and $61.2 million, respectively. Our revenues for the nine months ended September 30, 2024, and 2023 were $730.7 million and $2,660.5 million, respectively. Gross loss was 101.2% for the nine months ended September 30, 2024, compared to our gross margin of 28.6% for the nine months ended September 30, 2023. Net loss for the nine months ended September 30, 2024 was $1,493.5 million compared to our net income in the amount of $196.7 million, for the nine months ended September 30, 2023. Global Circumstances Influencing our Business and Operations Demand for Products We have 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 2023. This was a result of slowed market demand in the third quarter of 2023, as distributors began to take actions to reduce inventory levels. 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 push outs to high inventory in the channels and slower than expected installation rates both in the United States and Europe. This trend continued in the subsequent quarters. Additionally, the Company anticipates a continued lower level of revenues in the fourth quarter of 2024 when compared to the same quarter last year, as the inventory destocking process continues. Disruptions due to the war in Israel Due to the war that began on October 7, 2023, some of our employees in Israel were called to active reserve duty and additional employees may be called in the future, if needed. In the three months ended September 30, approximately 10% of our employees in Israel have been called to active reserve duty for varying periods. 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 condition in Israel could materially adversely affect our business, financial condition, and results of operations. Due to the ongoing and evolving nature, and the extent of these events, the adverse effect on our business operations is still unknown. The majority of our key employees and officers are residents of Israel. If any of our facilities in Israel were to be damaged, destroyed or otherwise rendered unable to operate, whether due to war, acts of hostility, earthquakes, fire, floods, hurricanes, storms, tornadoes, other natural disasters, employee malfeasance, terrorist acts, power outages or otherwise, or if performance of our research and development is disrupted for any other reason, such an event could delay commercialization of our products, and if we choose to manufacture all or any part of them internally, jeopardize our ability to manufacture our products as promptly as our prospective customers will likely expect, or possibly at all. If we experience delays in achieving our development objectives within a timeframe that meets our prospective customers’ expectations, our business, prospects, financial results and reputation could be harmed. 6 Impact of Ukraine’s Conflict on the Energy Landscape The conflict between Ukraine and Russia, which started in early 2022, and the sanctions and other measures imposed in response to this conflict, have increased the level of economic and political uncertainty. While we do not have any meaningful business in Russia or Ukraine and we do not have physical assets in these countries, this conflict has, and is likely to continue to have, a multidimensional impact on the global economy, the energy landscape in general and the global supply chain. 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 continued to decrease in 2024, 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. Inflation Reduction Act In August 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 ("AMPTC") that incentivize the production of eligible components within the U.S. To that end, we established manufacturing capabilities in the U.S. in 2023. These provisions of the law are new and regulations and guidance concerning their implementation are gradually being published by the U.S. Treasury Department. On October 24, 2024, final regulations concerning the application of IRC §45X were published. The regulations contain detailed rules concerning the eligibility, qualifying and accounting for AMPTCs. Of particular relevance to the Company are the rules concerning the qualification and measurement of AMPTCs to Residential Inverters, Commercial Inverters and DC-Optimized Inverter Systems, that are included in the definition of Microinverters. We continue to monitor the benefits that may be available to us, such as the availability of tax credits for domestic manufacturers and the domestic content tax credit bonus that provides incentives for project owners. 7 Key Operating Metrics 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 provide the “megawatts shipped” and “megawatts hour shipped” metrics, which are calculated based on inverter or battery nameplate capacity shipped, respectively, to show adoption of our system on a nameplate capacity basis. Nameplate capacity shipped is the maximum rated power output capacity of an inverter or battery, and corresponds to our financial results in that higher total nameplate capacities shipped are generally associated with higher total revenues. However, revenues may increase in a non-correlated manner to the “megawatt shipped” metric since other products such as power optimizers, are not accounted for in this metric. Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Inverters shipped 57,642 273,883 192,296 938,171 Power optimizers shipped 1,848,653 3,266,487 4,921,254 15,238,543 Megawatts shipped 1 850 3,796 2,668 11,728 Megawatts hour shipped - batteries for PV applications 189 121 446 612 1 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. 8 Results of Operations The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this report. The following table sets forth selected consolidated statements of income (loss) data for each of the periods indicated. Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (In thousands) Revenues $ 260,903 $ 725,305 $ 730,707 $ 2,660,484 Cost of revenues 963,229 582,488 1,470,189 1,900,236 Gross profit (loss) (702,326 ) 142,817 (739,482 ) 760,248 Operating expenses: Research and development 70,372 80,082 214,999 246,481 Sales and marketing 37,427 40,351 116,316 125,539 General and administrative 41,212 39,110 111,085 111,876 Other operating expense (income), net 233,929 — 237,271 (1,434 ) Total operating expenses 382,940 159,543 679,671 482,462 Operating income (loss) (1,085,266 ) (16,726 ) (1,419,153 ) 277,786 Financial income (expense), net 5,558 (7,901 ) (2,371 ) 19,157 Other income (loss), net (3,928 ) (484 ) 14,623 (609 ) Income (loss) before income taxes (1,083,636 ) (25,111 ) (1,406,901 ) 296,334 Income taxes (121,108 ) (36,065 ) (85,109 ) (99,622 ) Net loss from equity method investments (577 ) — (1,440 ) — Net income (loss) $ (1,205,321 ) $ (61,176 ) $ (1,493,450 ) $ 196,712 Comparison of three and nine months ended September 30, 2024, and the three and nine months ended September 30, 2023 9 Revenues Three months ended September 30, 2024 to 2023 Nine months ended September 30, 2024 to 2023 2024 2023 Change 2024 2023 Change (In thousands) Revenues $ 260,903 $ 725,305 $ (464,402 ) (64.0 )% $ 730,707 $ 2,660,484 $ (1,929,777 ) (72.5 )% Revenues decreased by $464.4 million, or 64.0%, in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, primarily due to (i) a decrease of $416.5 million related to a decrease in the number of inverters and power optimizers sold; (ii) a decrease of $22.1 million in revenues generated in 2023 from e-mobility components, related to the discontinuation of the Company’s LCV e-Mobility activity; and (iii) a decrease of $14.6 million related to less ancillary solar products sold. The overall decrease in revenues was due to a decline in demand that began in the second part of the third quarter of 2023. This decline was the result of high inventory in the channels and slower than expected installation rates, leading to substantial unexpected cancellations and push outs of existing backlog, from our distributors. Revenues from outside of the U.S. comprised 50.7% of our revenues in the three months ended September 30, 2024 as compared to 73.0% in the three months ended September 30, 2023. The number of power optimizers recognized as revenues decreased by approximately 1.4 million units, or 43.8%, from approximately 3.3 million units, in the three months ended September 30, 2023, to approximately 1.8 million units in the three months ended September 30, 2024. The number of inverters recognized as revenues decreased by approximately 203.9 thousand units, or 76.5%, from approximately 266.6 thousand units in the three months ended September 30, 2023 to approximately 62.7 thousand units in the three months ended September 30, 2024. The megawatts hour of batteries for PV applications recognized as revenues increased by approximately 55.2 megawatts hour, or 35.9% from approximately 153.7 in the three months ended September 30, 2023 to approximately 208.9 megawatts hour in the three months ended September 30, 2024, as a result of lower demand. Our blended ASP per watt for solar products excluding batteries for PV applications is calculated by dividing the sales of solar products, excluding the sales of batteries for PV applications, by the name plate capacity of inverters shipped. Our blended ASP per watt for solar products shipped excluding batteries for PV applications increased by $0.039, or 24.0%, in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The increase in blended ASP per watt is mainly attributed to a higher number of power optimizers and other solar products shipped compared to the number of inverters shipped. This increase in blended ASP per watt was partially offset by an increase in the sale of commercial products that are characterized by lower ASP per watt, out of our total solar product mix. Our blended ASP per watt/hour for batteries for PV applications is calculated by dividing batteries for PV applications sales, by the nameplate capacity of batteries for PV applications shipped. Our blended ASP per watt/hour for batteries for PV applications decreased by $0.158, or 33.3%, in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The decrease in blended ASP per watt/hour is mainly attributed to a price reduction of our batteries for PV applications. Revenues decreased by $1,929.8 million, or 72.5%, in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to (i) a decrease of $1,640.5 million related to a decrease in the number of inverters and power optimizers sold; (ii) a decrease of $167.7 million related to the lower number of batteries for PV applications sold, primarily in Europe; (iii) a decrease of $65.9 million in revenues generated from e-mobility components, related to the discontinuation of the Company’s LCV e-Mobility activity; and (iv) a decrease of $60.0 million related to less ancillary solar products sold. The overall decrease in revenues was due to the decline in demand that began in the second part of the third quarter of 2023. This decline was the result of high inventory in the channels and slower than expected installation rates, leading to substantial unexpected cancellations and push outs of existing backlog, from our distributors. 10 Revenues from outside of the U.S. comprised 60.2% of our revenues in the nine months ended September 30, 2024 as compared to 75.7% in the nine months ended September 30, 2023. The number of power optimizers recognized as revenues decreased by approximately 10.4 million units, or 68.0%, from approximately 15.3 million units, in the nine months ended September 30, 2023, to approximately 4.9 million units in the nine months ended September 30, 2024. The number of inverters recognized as revenues decreased by approximately 742.0 thousand units, or 79.6%, from approximately 932.4 thousand units in the nine months ended September 30, 2023 to approximately 190.4 thousand units in the nine months ended September 30, 2024. The megawatts hour of batteries for PV applications recognized as revenues decreased by approximately 215.2 megawatts hour, or 33.4% from approximately 643.6 megawatts hour in the nine months ended September 30, 2023 to approximately 428.4 megawatts hour in the nine months ended September 30, 2024 as a result of lower demand. Our blended ASP per watt for solar products shipped excluding batteries for PV applications increased by $0.005, or 2.9%, in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The increase in blended ASP per watt is mainly attributed to a higher number of power optimizers and other solar products shipped compared to the number of inverters shipped. This increase in blended ASP per watt was partially offset by price reduction as well as an increase in the sale of commercial products that are characterized by lower ASP per watt, out of our total solar product mix. Our blended ASP per watt/hour for batteries for PV applications decreased by $0.126, or 26.3%, in the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. The decrease in blended ASP per watt/hour is mainly attributed to price reduction of our batteries for PV applications. 11 Cost of Revenues and Gross Profit (loss) Three months ended September 30, 2024 to 2023 Nine months ended September 30, 2024 to 2023 2024 2023 Change 2024 2023 Change (In thousands) Cost of revenues $ 963,229 $ 582,488 $ 380,741 65.4 % $ 1,470,189 $ 1,900,236 $ (430,047 ) (22.6 )% Gross profit (loss) $ (702,326 ) $ 142,817 $ (845,143 ) (591.8 )% $ (739,482 ) $ 760,248 $ (1,499,730 ) (197.3 )% Cost of revenues increased by $380.7 million, or 65.4%, in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, primarily due to an increase in inventory write-down accruals of $642.4 million related to the slowdown in our products demand, and excess inventory in our channels, the repeated price reductions and the introduction of a new generation of our products, which was partially offset by: • a decrease in direct cost of revenues sold of $157.2 million which includes a decrease in the volume of products sold and an increase of $14.0 million in AMPTC recognized; • a decrease in warranty expenses and warranty accruals of $52.1 million associated primarily with a decrease in revenues; and • a decrease in shipment and logistic costs in an aggregate amount of $44.2 million due to a decrease in volumes shipped; Gross profit as a percentage of revenue decreased from 19.7%, in the three months ended September 30, 2023, to a gross loss of 269.2% in the three months ended September 30, 2024, primarily due to: • inventory write-down accruals resulting in lower gross margin of approximately 250%; • price reductions to our batteries for PV applications, which contributed a higher portion of our total product mix resulting in lower gross margin of approximately 23%; • lower absolute fixed and other production related costs, which were divided this quarter by significantly lower revenue, resulting in lower gross margin of approximately 13%. Cost of revenues decreased by $430.0 million, or 22.6%, in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to: • a decrease in direct cost of revenues sold of $731.2 million which includes both a decrease in the volume of products sold and an increase of $44.1 million AMPTC recognized; • a decrease in warranty expenses and warranty accruals of $190.0 million associated primarily with a decrease in revenues; • a decrease in shipment and logistic costs in an aggregate amount of $124.1 million due to a decrease in volumes shipped and a decrease in expedited shipments costs. These movements were partially offset by an increase of $636.5 million in inventory write-down related to the slowdown in our products demand and excess inventory in our channel, the repeated price reductions and the introduction of a new generation of our products. Gross profit as a percentage of revenue decreased from 28.6% in the nine months ended September 30, 2023 to gross loss of 101.2% in the nine months ended September 30, 2024 primarily due to: • inventory write-down accruals resulting in lower gross margin of approximately 90%; • lower absolute fixed and other production related costs, which were divided this year by a significantly lower revenue, resulting in a lower gross margin, of approximately 23%; and • price reduction and a higher portion of our single phase batteries, out of our total product mix, resulting in lower gross margin of approximately 16%. 12 Operating Expenses: Research and Development Three months ended September 30, 2024 to 2023 Nine months ended September 30, 2024 to 2023 2024 2023 Change 2024 2023 Change (In thousands) Research and development $ 70,372 $ 80,082 $ (9,710 ) (12.1 )% $ 214,999 $ 246,481 $ (31,482 ) (12.8 )% Research and development costs decreased by $9.7 million or 12.1%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to: • a decrease in personnel-related costs of $5.8 million resulting from our workforce reduction plan designed to reduce operating expenses and align our cost structure to current market dynamics; and • a decrease in expenses related to consultants and sub-contractors in an amount of $2.5 million. Research and development costs decreased by $31.5 million or 12.8%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily due to: • a decrease in personnel-related costs of $20.6 million resulting from our workforce reduction plan designed to reduce operating expenses and align our cost structure to current market dynamics; and • a decrease in expenses related to consultants and sub-contractors in an amount of $8.4 million. Sales and Marketing Three months ended September 30, 2024 to 2023 Nine months ended September 30, 2024 to 2023 2024 2023 Change 2024 2023 Change (In thousands) Sales and marketing $ 37,427 $ 40,351 $ (2,924 ) (7.2 )% $ 116,316 $ 125,539 $ (9,223 ) (7.3 )% Sales and marketing expenses decreased by $2.9 million, or 7.2%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to a decrease in personnel-related costs of $2.7 million resulting from our workforce reduction plan designed to reduce operating expenses and align our cost structure to current market dynamics. Sales and marketing expenses decreased by $9.2 million, or 7.3%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily due to: • a decrease in personnel-related costs of $6.4 million resulting from our workforce reduction plan designed to reduce operating expenses and align our cost structure to current market dynamics; and • a decrease of $1.4 million in training-related expenses. 13 General and Administrative Three months ended September 30, 2024 to 2023 Nine months ended September 30, 2024 to 2023 2024 2023 Change 2024 2023 Change (In thousands) General and administrative $ 41,212 $ 39,110 $ 2,102 5.4 % $ 111,085 $ 111,876 $ (791 ) (0.7 )% General and administrative expenses increased by $2.1 million, or 5.4%, in the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to an increase in expenses related to doubtful debt of $4.4 million. This was partially offset by: • a decrease in expenses related to consultants and sub-contractors of $0.7 million; and • a decrease in personnel-related costs of $0.5 million resulting from our workforce reduction plan designed to reduce operating expenses and align our cost structure to current market dynamics. General and administrative expenses decreased by $0.8 million, or 0.7%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily due to: • a decrease in personnel-related costs of $7.1 million resulting from our workforce reduction plan designed to reduce operating expenses and align our cost structure to current market dynamics; and • a decrease in expenses related to consultants and sub-contractors $5.6 million. • a decrease of $1.1 million related to other administrative costs. These were partially offset by an increase in expenses related to doubtful debt of $13.2 million 14 Other operating expense (income), net Three months ended September 30, 2024 to 2023 Nine months ended September 30, 2024 to 2023 2024 2023 Change 2024 2023 Change (In thousands) Other operating expense (income), net $ 233,929 $ — $ 233,929 100.0 % $ 237,271 $ (1,434 ) $ 238,705 (16,646.1 )% Other operating expenses, net, increased by $233.9 million in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to: • an increase of $207.4 million in losses related to the impairment of property, plant and equipment; • an increase of $22.5 million in losses related to the impairment of intangible assets; and • an increase of $2.3 million in losses related to the impairment of goodwill. Other operating expense, net was $237.3 million, in the nine months ended September 30, 2024, compared to other operating income, net of $1.4 million in the nine months ended September 30, 2023, primarily due to: • an increase of $209.1 million in losses related to the impairment of property, plant, and equipment; • an increase of $22.5 million in losses related to the impairment of intangible assets; and • an increase of $2.3 million in losses related to the impairment of goodwill. 15 Financial income (expense), net Three months ended September 30, 2024 to 2023 Nine months ended September 30, 2024 to 2023 2024 2023 Change 2024 2023 Change (In thousands) Financial income (expense), net $ 5,558 $ (7,901 ) $ 13,459 (170.3 )% $ (2,371 ) $ 19,157 $ (21,528 ) (112.4 )% Financial income, net was $5.6 million in the three months ended September 30, 2024, compared to financial expense, net in the amount of $7.9 million in the three months ended September 30, 2023, primarily due to $4.6 million income in the three months ended September 30, 2024 as compared to expenses of $16.4 million in the three months ended September 30, 2023, as a result of fluctuations in foreign exchange rates, primarily between the Euro and the NIS against the U.S. dollar. This was partially offset by a decrease of $5.8 million in income related to hedging transactions. Financial expenses, net was $2.4 million in the nine months ended September 30, 2024, compared to financial income, net in the amount of $19.2 million in the nine months ended September 30, 2023, primarily due to: • an increase in expenses of $11.4 million due to credit loss related to loans receivables. • a decrease of $5.0 million in income related to hedging transactions. • an expense of $0.5 million compared to an income of $4.8 million in fluctuations in foreign exchange rates primarily between the Euro and the NIS against the U.S. dollar. Please refer to the section entitled "Foreign Currency Exchange Risk" under Item 3 of this report for additional information. 16 Other income (loss), net Three months ended September 30, 2024 to 2023 Nine months ended September 30, 2024 to 2023 2024 2023 Change 2024 2023 Change (In thousands) Other income (loss), net $ (3,928 ) $ (484 ) $ (3,444 ) 711.6 % $ 14,623 $ (609 ) $ 15,232 (2,501.1 )% Other loss increased by $3.4 million in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to a loss of $5.0 million related to impairment of an investment in a privately held company. This was partially offset by an increase of $1.1 million in realized gain from marketable securities. Other income, net was $14.6 million in the nine months ended September 30, 2024, compared to other loss, net of $0.6 million in the nine months ended September 30, 2023, primarily due to: • an increase of $15.5 million due to a gain from the repurchase of the 2025 Notes; • an increase of $3.2 million in realized gain from marketable securities; and • an increase of $1.1 million due to a gain from the revaluation of equity investment as a result of business combination. These were partially offset by an increase in loss of $5.0 million as a result of an impairment of an investment in privately held company. Tax benefits (income taxes) Three months ended September 30, 2024 to 2023 Nine months ended September 30, 2024 to 2023 2024 2023 Change 2024 2023 Change (In thousands) Income taxes $ (121,108 ) $ (36,065 ) $ (85,043 ) 235.8 % $ (85,109 ) $ (99,622 ) $ 14,513 (14.6 )% Income taxes increased by $85.0 million in the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to: • an increase in deferred tax expenses of $141.2 million in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, driven mainly by a valuation allowance due to uncertainty regarding future profitability. • a decrease of $46.8 million in current tax expenses related to the decrease in profits before tax in certain jurisdictions, partially offset by an increase in our provision for uncertain tax positions. Income taxes decreased by $14.5 million in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023 primarily due to: • a decrease of $104.0 million in current tax expenses mainly related to the decrease in profits before tax in certain jurisdictions, partially offset by an increase in our provision for uncertain tax positions. • an increase in deferred tax expenses of $98.0 million, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, driven mainly by the valuation allowance due to uncertainty regarding future profitability. 17 Net loss from equity method investments Three months ended September 30, 2024 to 2023 Nine months ended September 30, 2024 to 2023 2024 2023 Change 2024 2023 Change (In thousands) Net loss from equity method investments $ 577 $ — $ 577 100.0 % $ 1,440 $ — $ 1,440 100.0 % Net loss from equity method investments increased by $0.6 million, or 100% in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. Net loss from equity method investments increased by $1.4 million, or 100% in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. Net Income (loss) Three months ended September 30, 2024 to 2023 Nine months ended September 30, 2024 to 2023 2024 2023 Change 2024 2023 Change (In thousands) Net income (loss) $ (1,205,321 ) $ (61,176 ) $ (1,144,145 ) 1,870.3 % $ (1,493,450 ) $ 196,712 $ (1,690,162 ) (859.2 )% As a result of the factors discussed above, net loss in the three months ended September 30, 2024 and September 30, 2023 was $1,205.3 million and $61.2 million, respectively. As a result of the factors discussed above, net loss was $1,493.5 million in the nine months ended September 30, 2024, as compared to a net income of $196.7 million in the nine months ended September 30, 2023. 18 Segment analysis 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. Following the discontinuation of its e-Mobility LCV activity, the Company operates in three different operating segments: Solar, Energy Storage and Automation Machines. We have 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.” We 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"). Segment 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"). Three Months Ended September 30, 2023 to 2024 Nine Months Ended September 30, 2023 to 2024 2024 2023 Change 2024 2023 Change (In thousands) Solar Revenues 247,516 676,929 (429,413 ) (63.4 )% 678,861 2,532,794 (1,853,933 ) (73.2 )% Segment profit (loss) (717,291 ) 45,132 (762,423 ) (1,689.3 )% (932,734 ) 458,855 (1,391,589 ) (303.3 )% Energy Storage Revenues 10,900 24,215 (13,315 ) (55.0 )% 42,960 52,492 (9,532 ) (18.2 )% Segment loss (91,288 ) (18,686 ) (72,602 ) 388.5 % (113,061 ) (52,465 ) (60,596 ) 115.5 % All other Revenues 2,237 23,946 (21,709 ) (90.7 )% 8,156 74,594 (66,438 ) (89.1 )% Segment profit (loss) 488 (3,381 ) 3,869 (114.4 )% 866 (8,571 ) 9,437 (110.1 )% Not allocated to segments Revenues not allocated to segments 250 215 35 16.3 % 730 604 126 20.9 % Expenses, net not allocated to segments (277,175 ) (39,791 ) (237,384 ) 596.6 % (374,224 ) (120,033 ) (254,191 ) 211.8 % Solar 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 distributors. Solar revenues decreased by $429.4 million, or 63.4%, in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023 primarily due to (i) a decrease of $416.5 million related to a decrease in the number of inverters and power optimizers sold; and a decrease of $14.6 million related to less ancillary solar products sold. Solar operating loss was $717.3 million, in the three months ended September 30, 2024, as compared to profit of $45.1 million in the three months ended September 30, 2023. This was due to the decrease of $429.4 million in revenue as well as a significant increase in inventory write-down accrual of $545.2 million related to the slowdown in our products demand and the repeated price reductions, which were partially offset by a decrease in direct cost of revenues associated with a decrease in the volume of products sold of $118.0 million, a decrease in warranty expenses and warranty accruals of $51.4 million associated primarily with a decrease in revenues and a decrease in shipment and logistic costs in an aggregate amount of $32.2 million_ due to a decrease in volumes shipped; Solar revenues decreased by $1,853.9 million, or 73.2%, in the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023 primarily due to (i) a decrease of $1,640.5 million related to a decrease in the number of inverters and power optimizers sold; (ii) a decrease of $167.7 million related to the number of batteries for PV applications sold primarily in Europe; (iii) a decrease of $60.0 million related to less ancillary solar products sold. Solar operating loss was $932.7 million, in the nine months ended September 30, 2024, as compared to profit of $458.9 million in the nine months ended September 30, 2023. This was primarily due to the decrease of $1,853.9 million in revenue followed by a decrease in direct cost of revenues of $648.8 million, a decrease in warranty expenses and warranty accruals of $192.8 million, and a decrease of $118.9 million in shipment and logistic costs, all associated with a decrease in the volume of products sold which was offset by a significant increase in inventory write-down accrual valued at $554.3 million related to the slowdown in our products demand and repeated price reductions. 19 Energy Storage Energy Storage revenues decreased by $13.3 million, or 55.0%, in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. Energy Storage operating loss increased by $72.6 million, or 388.5%, in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The increase in operating loss was primarily due to the decrease in revenues and an increase of $59.4 million in cost of revenues mainly attributed to an increase in inventory write-down partially offset by a decrease in direct cost of revenues. Energy Storage revenues decreased by $9.5 million, or 18.2%, in the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. Energy Storage operating loss increased by $60.6 million, or 115.5%, in the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. The increase in operating loss was primarily due to the decrease in revenues as well as an increase of $55.2 million in cost of revenues mainly attributed to an increase in inventory write-down partially offset by a decrease in direct cost of revenues. All other All other segments revenues decreased by $21.7 million, or 90.7%, in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, primarily due to the discontinuation of the Company’s LCV e-Mobility activity. All other segments operating profit was $0.5 million in the three months ended September 30, 2024, compared to operating loss of $3.4 million, in the three months ended September 30, 2023. This improvement was mainly due to the discontinuation of our LCV e-Mobility activity. All other segments revenues decreased by $66.4 million, or 89.1%, in the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, primarily due to the discontinuation of the Company’s LCV e-Mobility activity. All other segments operating profit was $0.9 million in the nine months ended September 30, 2024, compared to operating loss of $8.6 million, in the nine months ended September 30, 2023. This improvement was mainly due to the discontinuation of our LCV e-Mobility activity. Not allocated to segments There were no significant changes in revenues not allocated to segments in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. Expenses, net, not allocated to segments increased by $237.4 million, or 596.6%, in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The increase was mainly due to the impairment of property, plant and equipment, intangible assets and goodwill. There were no significant changes in revenues not allocated to segments in the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. Expenses, net, not allocated to segments increased by $254.2 million, or 211.8%, in the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. The increase was mainly due to the impairment of property, plant and equipment, intangible assets and goodwill as well as an increase in costs related to the Restructuring Plan, all of which are not assessed by our CODM and therefore not allocated to any of the segments above. 20 Liquidity and Capital Resources The following table shows our cash flows from operating activities, investing activities, and financing activities for the stated periods: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (In thousands) (In thousands) Net cash used in operating activities $ (63,865 ) $ 40,585 $ (325,656 ) $ (40,203 ) Net cash provided by (used in) investing activities 75,531 (43,733 ) 318,755 (188,187 ) Net cash provided by (used in) financing activities 30,811 (1,164 ) (19,873 ) (11,305 ) Increase (decrease) in cash and cash equivalents $ 42,477 $ (4,312 ) $ (26,774 ) $ (239,695 ) As of September 30, 2024, our cash and cash equivalents were $303.9 million. This amount does not include $430.9 million invested in available-for-sale marketable securities and $4.1 million invested in restricted bank deposits. Our principal uses of cash are for funding our operations, capital expenditures, other working capital requirements, other investments, any potential future share repurchases and the repayment of our convertible notes due 2025. As of September 30, 2024, we have open commitments for capital expenditures in an amount of approximately $18.5 million. These commitments mainly reflect purchases of automated assembly lines and other machinery related to our manufacturing and operations. We also have purchase obligations in the amount of $443.8 million related to raw materials and commitments for the future manufacturing of our products. We believe our cash and cash equivalents, and available-for-sale marketable securities will be sufficient to meet our anticipated cash needs for at least the next 12 months as well as in the longer term, including the self-funding of our capital expenditure, operational commitments and the redemption of our debt. Operating Activities Operating cash flows consist primarily of net income (loss), adjusted for certain non-cash items and changes in assets and liabilities. Cash used in operating activities increased by $285.5 million in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, mainly due to net loss adjusted for certain non-cash items generated in the nine months ended September 30, 2024 as compared to net income adjusted for certain non-cash items in the nine months ended September 30, 2023, which was partially offset by lower operating working capital requirements. 21 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 disbursements and receipts from collections of loans made by the Company. Cash provided by investing activities was $318.8 million in the nine months ended September 30, 2024 as compared to cash used in investing activities of $188.2 million in the nine months ended September 30, 2023, primarily driven by an increase of $508.9 million in proceeds provided by sales and maturities of available-for-sale marketable securities and a decrease of $34.1 million in purchase of property plant and equipment and a decrease of $13.6 million in purchases of available-for-sale debt investments. These were partially offset by an increase of $22.9 million in disbursements of loans made by the Company and an increase of $17.7 million in cash used in the purchase of privately-held companies. Financing Activities Financing cash flows consisted primarily of repurchases of our common stock under the share repurchase program, the issuance and repurchase of convertible notes, and our employee equity incentive plans. Cash used in financing activities in the nine months ended September 30, 2024 increased by $8.6 million compared to the nine months ended September 30, 2023, primarily due to a $267.9 million increase in cash used for the repurchase of convertible note, an increase of $50.3 million in cash used in share repurchases, a $28.3 million increase in cash used to purchase the capped call transactions and $13.0 million decrease in proceeds provided by the exercise of stock-based awards. This was partially offset by a $329.2 million increase in cash provided by the issuance of convertible notes and a decrease of $21.6 million in withholding taxes remitted to the tax authorities related to the exercise of stock-based awards. Share Repurchases On November 1, 2023, we announced the approval by the Board of Directors of a share repurchase program which authorizes the repurchase of up to $300 million of the Company’s common stock. Under the share repurchase program, repurchases can be made using a variety of methods, which may include open market purchases, block trades, privately negotiated transactions, accelerated share repurchase programs and/or a non-discretionary trading plan or other means, including through 10b5-1 trading plans, all in compliance with the rules of the SEC and other applicable legal requirements. The timing, manner, price and amount of any common share repurchases under the share repurchase program are determined by the Company in its discretion and depend on a variety of factors, including legal requirements, price and economic and market conditions. The program does not obligate SolarEdge to acquire any amount of common stock, it may be suspended, extended, modified, discontinued or terminated at any time at the Company’s discretion without prior notice, and will expire on December 31, 2024. During the nine months ended September 30, 2024, the Company repurchased 753,364 shares of common stock from the open market at an average cost of $66.79 per share for a total of $50.3 million. Convertible Senior Notes On June 28, 2024, we sold an aggregate principal amount of $300 million of 2.25% convertible senior notes due 2029 in a transaction exempt from registration pursuant to Rule 144A and Regulation S under the Securities Act. The net proceeds from the offering of the Notes 2029 were approximately $293.2 million, after deducting fees and estimated expenses. Separately, we have entered into capped call transactions. We used approximately $25.2 million of the net proceeds from this offering to pay the cost of the capped call transactions and approximately $267.9 million of the net proceeds from this offering to repurchase $285.0 million principal amount of its outstanding 0.000% convertible notes due 2025. As a result of the repurchase of Notes 2025, we recognized a gain of $15.5 million which was recorded under other income. We intend to use the remainder of the net proceeds from the offering for general corporate purposes. On July 8, 2024, we sold an aggregate principal amount of $37 million of the Notes 2029. The Notes 2029 were sold pursuant to the Initial Purchasers’ exercise of the option granted by the Company to the Initial Purchasers to purchase additional Notes 2029, as described above in Note 16, “Convertible Senior Notes.” 22 Critical Accounting Policies and Significant Management Estimates Management believes that there have been no significant changes during the nine months ended September 30, 2024 to the items that we disclosed as our critical accounting policies and estimates in MD&A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, except as mentioned in Note 1, “General” (if any).