UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

OR
 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to __________

Commission File Number: 001-36894

SOLAREDGE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	20-5338862
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
1 HaMada Street
Herziliya Pituach, 4673335, Israel
(Address of Principal Executive Offices, zip code)

972 (9) 957-6620

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.0001 per share	SEDG	NASDAQ (Global Select Market)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes         ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 ☒ Yes         ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller Reporting Company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes        ☒ No

As of July 25, 2022, there were  55,635,089 shares of the registrant’s common stock, par value of $0.0001 per share, outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	F-1
ITEM 1.Financial Statements	F-1
Condensed Consolidated Balance Sheets	F-1
Condensed Consolidated Statements of Income	F-3
Condensed Consolidated Statements of Comprehensive Income	F-4
Condensed Consolidated Statements of Changes in Stockholders’ Equity	F-5
Condensed Consolidated Statements of Cash Flows	F-7
Notes to the Condensed Consolidated Financial Statements (unaudited)	F-9
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.	16
ITEM 4. Controls and Procedures	17
PART II. OTHER INFORMATION.	18
ITEM 1. Legal Proceedings.	18
ITEM 1A. Risk Factors	18
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.	18
ITEM 3. Defaults upon Senior Securities	18
ITEM 4. Mine Safety Disclosures	18
ITEM 5. Other Information.	18
ITEM 6. Exhibits	19
EXHIBIT INDEX.	19

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SOLAREDGE TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in thousands, except per share data)

	June 30, 2022		December 31, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	745,534	$	530,089
Marketable securities		150,259		167,728
Trade receivables, net of allowances of $3,805 and $2,626, respectively		669,100		456,339
Inventories, net		470,272		380,143
Prepaid expenses and other current assets		248,643		176,992
Total current assets		2,283,808		1,711,291
LONG-TERM ASSETS:
Marketable securities		709,571		482,228
Deferred tax assets, net		33,400		27,572
Property, plant and equipment, net		489,109		410,379
Operating lease right-of-use assets, net		58,375		47,137
Intangible assets, net		50,372		58,861
Goodwill		116,173		129,629
Other long-term assets		31,970		33,856
Total long-term assets		1,488,970		1,189,662
Total assets	$	3,772,778	$	2,900,953

The accompanying notes are an integral part of the condensed consolidated financial statements.

F - 1

SOLAREDGE TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Cont.)

(in thousands, except per share data)

	June 30, 2022			December 31, 2021
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade payables, net	$	253,399		$	252,068
Employees and payroll accruals		68,154			74,465
Warranty obligations		91,761			71,480
Deferred revenues and customers advances		30,460			17,789
Accrued expenses and other current liabilities		168,400			109,379
Total current liabilities		612,174			525,181
LONG-TERM LIABILITIES:
Convertible senior notes, net		622,991			621,535
Warranty obligations		232,415			193,680
Deferred revenues		170,235			151,556
Finance lease liabilities		46,680			40,508
Operating lease liabilities		42,849			38,912
Other long-term liabilities		17,902			19,542
Total long-term liabilities		1,133,072			1,065,733
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS’ EQUITY:
Common stock of $0.0001 par value - Authorized: 125,000,000 shares as of June 30, 2022 and December 31, 2021; issued and outstanding: 55,633,090 and 52,815,395 shares as of June 30, 2022 and December 31, 2021, respectively		6			5
Additional paid-in capital		1,418,881			687,295
Accumulated other comprehensive loss		(89,620	)		(27,319	)
Retained earnings		698,265			650,058
Total stockholders’ equity		2,027,532			1,310,039
Total liabilities and stockholders’ equity	$	3,772,778		$	2,900,953

The accompanying notes are an integral part of the condensed consolidated financial statements.

F - 2

SOLAREDGE TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Revenues	$	727,774		$	480,057		$	1,382,854		$	885,546
Cost of revenues		545,132			323,865			1,021,254			589,280
Gross profit		182,642			156,192			361,600			296,266
Operating expenses:
Research and development		74,847			52,664			141,196			99,641
Sales and marketing		38,975			29,458			74,291			56,369
General and administrative		28,121			19,370			54,550			39,219
Other operating expenses (income), net		4,687			(859	)		4,687			1,350
Total operating expenses		146,630			100,633			274,724			196,579
Operating income		36,012			55,559			86,876			99,687
Financial expense, net		(14,311	)		(1,743	)		(19,760	)		(7,840	)
Income before income taxes		21,701			53,816			67,116			91,847
Income taxes		6,617			8,724			18,909			16,679
Net income	$	15,084		$	45,092		$	48,207		$	75,168
Net basic earnings per share of common stock	$	0.27		$	0.87		$	0.89		$	1.45
Net diluted earnings per share of common stock	$	0.26		$	0.82		$	0.86		$	1.36
Weighted average number of shares used in computing net basic earnings per share of common stock		55,470,279			52,076,208			54,309,060			51,903,123
Weighted average number of shares used in computing net diluted earnings per share of common stock		58,564,734			55,930,562			57,446,416			55,965,369

The accompanying notes are an integral part of the condensed consolidated financial statements.

F - 3

SOLAREDGE TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Net income	$	15,084		$	45,092		$	48,207		$	75,168
Other comprehensive income (loss), net of tax:
Net change related to available-for-sale securities		(4,562	)		(691	)		(14,068	)		(1,876	)
Net change related to cash flow hedges		(3,836	)		439			(4,516	)		311
Foreign currency translation adjustments on intra-entity transactions that are of a long-term investment nature		(28,347	)		1,779			(35,330	)		(1,896	)
Foreign currency translation adjustments, net		(6,808	)		1,698			(8,387	)		(3,932	)
Total other comprehensive income (loss)		(43,553	)		3,225			(62,301	)		(7,393	)
Comprehensive income (loss)	$	(28,469	)	$	48,317		$	(14,094	)	$	67,775

The accompanying notes are an integral part of the condensed consolidated financial statements.

F - 4

SOLAREDGE TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(in thousands, except per share data)

	Common stock				Additional		Accumulated other
	Number		Amount		paid in Capital		comprehensive loss			Retained earnings		Total
Balance as of January 1, 2022		52,815,395	$	5	$	687,295	$	(27,319	)	$	650,058	$	1,310,039
Issuance of common stock upon exercise of stock-based awards		270,751		* -		1,478		-			-		1,478
Stock based compensation expenses		-		-		34,107		-			-		34,107
Issuance of common stock in a secondary public offering, net of underwriters' discounts and commissions of $27,140 and $834 of offering costs		2,300,000		1		650,525		-			-		650,526
Other comprehensive loss adjustments		-		-		-		(18,748	)		-		(18,748	)
Net income		-		-		-		-			33,123		33,123
Balance as of March 31, 2022		55,386,146	$	6	$	1,373,405	$	(46,067	)	$	683,181	$	2,010,525
Issuance of Common Stock upon exercise of stock-based awards		211,839		* -		164		-			-		164
Issuance of Common stock under employee stock purchase plan		35,105		* -		8,141		-			-		8,141
Stock based compensation expenses		-		-		37,171		-			-		37,171
Other comprehensive loss adjustments		-		-		-		(43,553	)		-		(43,553	)
Net income		-		-		-		-			15,084		15,084
Balance as of June 30, 2022		55,633,090	$	6	$	1,418,881	$	(89,620	)	$	698,265	$	2,027,532

* Represents an amount less than $1.

The accompanying notes are an integral part of the consolidated financial statements.

F - 5

SOLAREDGE TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(in thousands, except per share data)

	Common stock				Additional			Accumulated other
	Number		Amount		paid in Capital			comprehensive income (loss)			Retained earnings		Total
Balance as of January 1, 2021		51,560,936	$	5	$	603,891		$	3,857		$	478,004	$	1,085,757
Cumulative effect of adopting ASU 2020-06		-		-		(36,336	)		-			2,884		(33,452	)
Issuance of Common Stock upon exercise of stock-based awards		405,239		* -		5,008			-			-		5,008
Stock based compensation expenses		-		-		23,153			-			-		23,153
Other comprehensive loss adjustments		-		-		-			(10,618	)		-		(10,618	)
Net income		-		-		-			-			30,076		30,076
Balance as of March 31, 2021		51,966,175	$	5	$	595,716		$	(6,761	)	$	510,964	$	1,099,924
Issuance of Common Stock upon exercise of stock-based awards		297,801		* -		5,500			-			-		5,500
Stock based compensation expenses		-		-		24,052			-			-		24,052
Other comprehensive income adjustments		-		-		-			3,225			-		3,225
Net income		-		-					-			45,092		45,092
Balance as of June 30, 2021		52,263,976	$	5	$	625,268		$	(3,536	)	$	556,056	$	1,177,793

* Represents an amount less than $1.

The accompanying notes are an integral part of the condensed consolidated financial statements.

F - 6

SOLAREDGE TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands, except per share data)

	Six Months Ended June 30,
	2022			2021
Cash flows from operating activities:
Net income	$	48,207		$	75,168
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation of property, plant and equipment		18,861			14,008
Amortization of intangible assets		5,277			4,871
Amortization of debt discount and debt issuance costs		1,456			1,450
Amortization of premium and accretion of discount on available-for-sale marketable securities, net		5,376			3,558
Impairment of goodwill and intangible assets		4,008			-
Stock-based compensation expenses		71,181			47,205
Deferred income taxes, net		(1,092	)		(3,931	)
Loss from sale and disposal of assets		296			2,051
Exchange rate fluctuations and other items, net		24,666			12,983
Changes in assets and liabilities:
Inventories, net		(93,348	)		13,229
Prepaid expenses and other assets		(79,215	)		(20,356	)
Trade receivables, net		(235,316	)		(128,564	)
Trade payables, net		(7,339	)		(20,120	)
Employees and payroll accruals		5,202			9,734
Warranty obligations		59,588			27,298
Deferred revenues and customers advances		32,277			4,524
Other liabilities, net		54,341			19,660
Net cash provided by (used in) operating activities		(85,574	)		62,768
Cash flows from investing activities:
Proceed from sales and maturities of available-for-sale marketable securities		126,287			103,763
Purchase of property, plant and equipment		(91,884	)		(65,267	)
Investment in available-for-sale marketable securities		(362,119	)		(422,470	)
Withdrawal from bank deposits, net		-			46,534
Other investing activities		1,783			1,442
Net cash used in investing activities	$	(325,933	)	$	(335,998	)

The accompanying notes are an integral part of the condensed consolidated financial statements.

F - 7

SOLAREDGE TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Cont.)

(in thousands, except per share data)

	Six Months Ended June 30,
	2022			2021
Cash flows from financing activities:
Proceeds from secondary public offering, net of issuance costs	$	650,526		$	-
Repayment of bank loans		-			(16,385	)
Proceeds from exercise of stock-based awards		1,642			5,472
Tax withholding in connection with stock-based awards, net		(2,318	)		(9,668	)
Other financing activities		(1,444	)		(625	)
Net cash provided by (used in) financing activities		648,406			(21,206	)
Increase (decrease) in cash and cash equivalents		236,899			(294,436	)
Cash and cash equivalents at the beginning of the period		530,089			827,146
Effect of exchange rate differences on cash and cash equivalents		(21,454	)		(8,598	)
Cash and cash equivalents at the end of the period	$	745,534		$	524,112
Supplemental disclosure of non-cash activities:
Right-of-use asset recognized with corresponding lease liability	$	34,176		$	3,336

The accompanying notes are an integral part of the condensed consolidated financial statements.

F - 8

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(in thousands, except per share data)

NOTE 1:       GENERAL

a. SolarEdge Technologies, Inc. (the “Company”) and its subsidiaries design, develop, and sell an intelligent inverter solution designed to maximize power generation at the individual photovoltaic (“PV”) module level while lowering the cost of energy produced by the solar PV system and providing comprehensive and advanced safety features. The Company’s products consist mainly of (i) power optimizers designed to maximize energy throughput from each and every module through constant tracking of Maximum Power Point individually per module, (ii) inverters which invert direct current (DC) from the PV module to alternating current (AC) including the Company’s future ready energy hub inverter which supports, among other things, connection to a DC- coupled battery for backup capabilities, (iii) a remote cloud-based monitoring platform, that collects and processes information from the power optimizers and inverters to enable customers and system owners, to monitor and manage the solar PV system (iv) a residential storage and backup solution which includes a company designed and manufactured lithium-ion DC-coupled battery that is used to increase energy independence and maximize self-consumption for homeowners including a battery, and (v) additional smart energy management solutions.

The Company and its subsidiaries sell products worldwide through large distributors, electrical equipment wholesalers, as well as directly to large solar installers and engineering, procurement, and construction firms.

b. The Company has expanded its activity to other areas of smart energy technology organically and through acquisitions. The Company now offers a variety of energy solutions, which include lithium-ion cells, batteries, and energy storage systems (“Energy Storage”), full powertrain kits for electric vehicles, or EVs (“e-Mobility”), uninterrupted power supply solutions or UPS (“Critical Power”), as well as automated machines for industrial use (“Automation Machines”).

In June 2022, the Company decided to discontinue its stand-alone Critical Power activities. The Company determined that the discontinuance of the Critical Power business doesn't represent a strategic shift that will have a major effect on the Company's operations and financial results and therefore it did not meet the criteria for discontinued operations classification.

c. Basis of Presentation:

The unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). In management’s opinion, the unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. The Company’s interim period results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year.

The significant accounting policies applied in the annual consolidated financial statements of the Company as of December 31, 2021, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 22, 2022, have been applied consistently in these unaudited interim condensed consolidated financial statements. Certain prior year amounts have been reclassified to conform to current year presentation.

d. Use of estimates:

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures in the accompanying notes. The duration, scope and effects of the ongoing Covid-19 pandemic and the conflict in Ukraine, government and other third-party responses to it, and the related macroeconomic effects, including to the Company’s business and the business of the Company’s suppliers and customers are uncertain, rapidly changing and difficult to predict. As a result, the Company’s accounting estimates and assumptions may change over time in response to this evolving situation. Such changes could result in future impairments of goodwill, intangibles, long-lived assets, inventories, incremental credit losses on receivables and available-for-sale marketable debt securities, or an increase in the Company’s insurance liabilities as of the time of a relevant measurement event.

F - 9

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

(in thousands, except per share data)

e. Concentrations of supply risks:

The Company depends on two contract manufacturers and several limited or single source component suppliers, including, Samsung SDI, that provides lithium-ion battery cells required for the Company's residential storage solution. Reliance on these vendors makes the Company vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields, and costs.

As of June 30, 2022, and December 31, 2021, two contract manufacturers collectively accounted for 31.9% and 27.9% of the Company’s total trade payables, net, respectively.

In the second quarter of 2022, the Company announced the opening of “Sella 2”, a two gigawatt-hour (GWh) Li-Ion battery cell manufacturing facility located in South Korea. Sella 2 is currently in testing phase with ramp-up expected during the second half of 2022. Sella 2, is the Company's second owned manufacturing facility following the opening of the Company's manufacturing facility in the North of Israel, “Sella 1” in 2020.

f. New accounting pronouncements not yet adopted:

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies are adopted by the Company as of the specified effective date. The Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

g. Recently issued and adopted pronouncements:

In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of the ASU should be applied prospectively. Early adoption is also permitted, including adoption in an interim period. The Company elected to early adopt ASU 2021-08 on January 1, 2022, and will apply this new guidance to all business combinations consummated subsequent to this date. Currently, this ASU has no material impact on our consolidated financial statements.

In November 2021 the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. Under ASU 2021-10, the accounting entities with transactions with a government that are accounted for by analogy to a grant or contribution accounting model are required to annually disclose certain information regarding the transaction including: (i) nature and related accounting policy used; (ii) line items on the balance sheet and income statement affected by the transactions; (iii) amounts applicable to each line item; and (iv) significant terms and conditions. This guidance is effective for financial statements issued for annual periods beginning after 15 December 2021. The adoption of this ASU will have a minor impact on the disclosures to the annual consolidated financial statements.

F - 10

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

(in thousands, except per share data)

NOTE 2:       MARKETABLE SECURITIES

The following is a summary of available-for-sale marketable securities as of June 30, 2022:

	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Available-for-sale – matures within one year:
Corporate bonds	$	149,106	$	-	$	(2,067	)	$	147,039
Governmental bonds		3,279		-		(59	)		3,220
		152,385		-		(2,126	)		150,259
Available-for-sale – matures after one year:
Corporate bonds		694,300		136		(21,145	)		673,291
Governmental bonds		36,940		-		(660	)		36,280
		731,240		136		(21,805	)		709,571
Total	$	883,625	$	136	$	(23,931	)	$	859,830

The following is a summary of available-for-sale marketable securities as of December 31, 2021:

	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Available-for-sale – matures within one year:
Corporate bonds	$	160,462	$	23	$	(320	)	$	160,165
Governmental bonds		7,576		-		(13	)		7,563
		168,038		23		(333	)		167,728
Available-for-sale – matures after one year:
Corporate bonds		474,412		9		(5,580	)		468,841
Governmental bonds		13,506		-		(119	)		13,387
		487,918		9		(5,699	)		482,228
Total	$	655,956	$	32	$	(6,032	)	$	649,956

As of June 30, 2022, and December 31, 2021, the Company did not record an allowance for credit losses for its available-for-sale marketable securities.

F - 11

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

(in thousands, except per share data)

NOTE 3:       INVENTORIES, NET

	June 30, 2022		December 31, 2021
Raw materials	$	365,709	$	247,386
Work in process		15,643		13,863
Finished goods		88,920		118,894
	$	470,272	$	380,143

NOTE 4:       INVESTMENT IN PRIVATELY-HELD COMPANY

On January 31, 2021, the Company completed an investment of $11,643 in the preferred stock of AutoGrid Systems, Inc. ("AutoGrid"), a privately held company without readily determinable fair values.

On February 1, 2021, the Company signed on a preferred stock purchase agreement for an additional investment of $5,000 in AutoGrid's preferred stock (the "second investment"). On April 28, 2021, the Company completed the second investment.

The Company accounted for the AutoGrid investment as an equity investment that does not have readily determinable fair values. As such, the Company’s non-marketable equity securities had a carrying value of $16,643 as of June 30, 2022, and December 31, 2021.

Investments in privately-held companies are included within other long-term assets on the consolidated balance sheets.

No impairment or other adjustments related to observable price changes in orderly transactions for identical or similar investments were identified for the three and six months ended June 30, 2022, and 2021.

On July 20, 2022, the Company sold its investment in AutoGrid, see Note 18.

F - 12

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

(in thousands, except per share data)

NOTE 5:       DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

To protect against the increase in value of forecasted foreign currency cash flows resulting from salary denominated in the Israeli currency, the New Israeli Shekels (“NIS”), during the six months ended June 30, 2022, the Company instituted a foreign currency cash flow hedging program. The Company hedges portions of the anticipated payroll denominated in NIS for a period of one to nine months with hedging contracts. Accordingly, when the dollar strengthens against the NIS, the decline in present value of future foreign currency expenses is offset by losses in the fair value of the hedging contracts. Conversely, when the dollar weakens, the increase in the present value of future foreign currency cash flows is offset by gains in the fair value of the hedging contracts. These hedging contracts are designated as cash flow hedges, as defined by ASC 815 and are all effective hedges.

As of June 30, 2022, the Company entered into forward contracts and put and call options to sell and buy U.S. dollars (“USD”) for NIS in the amount of approximately $75 million and $34 million, respectively.

In addition to the above-mentioned cash flow hedges transactions, the Company also entered into derivative instrument arrangements to hedge the Company’s exposure to currencies other than the U.S. dollar. These derivative instruments are not designated as cash flow hedges, as defined by ASC 815, and therefore all gains and losses, resulting from fair value remeasurement, were recorded immediately in the statement of income, under "Financial expense, net".

As of June 30, 2022, the Company entered into forward contracts to sell Australian dollars (“AUD”) for U.S. dollars in the amount of AUD 10 million.

As of June 30, 2022, the Company entered into forward contracts to sell Euro for U.S. dollars in the amount of €18 million.

The fair value of derivative assets as of June 30, 2022, and December 31, 2021, was $2,348 and $4,009, which was recorded in prepaid expenses and other current assets in the Consolidated Balance Sheets, respectively.

The fair value of derivative liabilities as of June 30, 2022, and December 31, 2021, was $4,123 and $169, which was recorded in accrued expenses and other current liabilities in the Consolidated Balance Sheets, respectively.

For the three months ended June 30, 2022, and 2021, the Company recorded a gain in the amount of $3,009 and $820, respectively, in financial expense, net, related to the derivative instruments not designated as cash flow hedges.

For the three months ended June 30, 2022 and 2021, the Company recorded an unrealized loss in the amount of $6,351, net of tax effect and an unrealized gain in the amount of $841, net of tax effect, respectively, in “accumulated other comprehensive loss” related to the derivative assets designated as hedging instruments.

For the six months ended June 30, 2022, and 2021, the Company recorded a gain in the amount of $3,943 and $4,355, respectively, in financial expense, net, related to the derivative instruments not designated as cash flow hedges.

For the six months ended June 30, 2022 and 2021, the Company recorded an unrealized loss in the amount of $7,529, net of tax effect and an unrealized gain in the amount of $713, net of tax effect, respectively, in “accumulated other comprehensive loss” related to the derivative assets designated as hedging instruments.

F - 13

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

(in thousands, except per share data)

NOTE 6:       FAIR VALUE MEASUREMENTS

In accordance with ASC 820, the Company measures its cash equivalents and marketable securities, at fair value using the market approach valuation technique. Cash equivalents and marketable securities are classified within Level 1 and Level 2, respectively, because these assets are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Foreign currency derivative contracts are classified within the Level 2 value hierarchy, as the valuation inputs are based on quoted prices and market observable data of similar instruments.

The following table sets forth the Company’s assets that were measured at fair value as of June 30, 2022 and December 31, 2021, by level within the fair value hierarchy:

		Fair value measurements as of
Description	Fair Value Hierarchy	June 30, 2022			December 31, 2021
Assets:
Cash equivalents:
Money market mutual funds	Level 1	$	132,750		$	21,680
Derivative instruments asset:
Forward contracts designated as hedging instruments	Level 2	$	-		$	992
Options and forward contracts not designated as hedging instruments	Level 2	$	2,348		$	3,017
Short-term marketable securities:
Corporate bonds	Level 2	$	147,039		$	160,165
Governmental bonds	Level 2	$	3,220		$	7,563
Long-term marketable securities:
Corporate bonds	Level 2	$	673,291		$	468,841
Governmental bonds	Level 2	$	36,280		$	13,387
Liabilities
Derivative instruments liability:
Options and forward contracts designated as hedging instruments	Level 2	$	(4,123	)	$	-
Forward contracts not designated as hedging instruments	Level 2	$	-		$	(169	)

NOTE 7:       WARRANTY OBLIGATIONS

Changes in the Company’s product warranty obligations for the three and six months ended June 30, 2022 and 2021, were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Balance, at the beginning of the period	$	292,666		$	217,953		$	265,160		$	204,994
Additions and adjustments to cost of revenues		59,061			36,343			106,968			66,314
Usage and current warranty expenses		(27,551	)		(22,129	)		(47,952	)		(39,141	)
Balance, at end of the period		324,176			232,167			324,176			232,167
Less current portion		(91,761	)		(64,855	)		(91,761	)		(64,855	)
Long term portion	$	232,415		$	167,312		$	232,415		$	167,312

F - 14

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

(in thousands, except per share data)

NOTE 8:       DEFERRED REVENUES

Deferred revenues consist of deferred cloud-based monitoring services, communication services, warranty extension services and advance payments received from customers for the Company’s products. Deferred revenues are classified as short-term and long-term deferred revenues based on the period in which revenues are expected to be recognized.

Significant changes in the balances of deferred revenues during the period are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Balance, at the beginning of the period	$	184,245		$	143,233		$	169,345		$	140,020
Revenue recognized		(10,595	)		(15,807	)		(25,124	)		(35,593	)
Increase in deferred revenues and customer advances		27,045			16,827			56,473			39,826
Balance, at the end of the period		200,695			144,253			200,695			144,253
Less current portion		(30,460	)		(16,144	)		(30,460	)		(16,144	)
Long term portion	$	170,235		$	128,109		$	170,235		$	128,109

The following table includes estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2022:

2022	$	15,314
2023		20,693
2024		9,970
2025		9,067
2026		8,372
Thereafter		137,279
Total deferred revenues	$	200,695

NOTE 9:       ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

	June 30, 2022		December 31, 2021
Accrued expenses	$	100,425	$	57,158
Government authorities		39,194		22,631
Operating lease liabilities		15,313		12,728
Provision for legal claims		141		11,622
Accrual for sales incentives		5,131		3,048
Other		8,196		2,192
	$	168,400	$	109,379

F - 15

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

(in thousands, except per share data)

NOTE 10:       CONVERTIBLE SENIOR NOTES

On September 25, 2020, the Company sold $632,500 aggregate principal amount of its 0.00% convertible senior notes due 2025 (the “Notes”). The Notes were sold pursuant to an indenture, dated September 25, 2020 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee. The Notes do not bear regular interest and mature on September 15, 2025, unless earlier repurchased or converted in accordance with their terms. The Notes are general senior unsecured obligations of the Company. Holders may convert their Notes prior to the close of business on the business day immediately preceding June 15, 2025 in multiples of $1,000 principal amount, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2020 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five-business-day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each trading day of that five consecutive trading day period was less than 98% of the product of the last reported sale price of the common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events as described in the Indenture. In addition, holders may convert their Notes, in multiples of $1,000 principal amount, at their option at any time beginning on or after June 15, 2025, and prior to the close of business on the second scheduled trading day immediately preceding the stated maturity date of the Notes, without regard to the foregoing circumstances. The initial conversion rate for the Notes was 3.5997 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $277.80 per share of common stock, subject to adjustment upon the occurrence of certain specified events as set forth in the Indenture.

Upon conversion, the Company may choose to pay or deliver, as the case may be, cash, shares of common stock, or a combination of cash and shares of common stock.

In addition, upon the occurrence of a fundamental change (as defined in the Indenture), holders of the Notes may require the Company to repurchase all or a portion of their Notes, in multiples of $1,000 principal amount, at a repurchase price of 100% of the principal amount of the Notes, plus any accrued and unpaid special interest to, but excluding the fundamental change repurchase date. If certain fundamental changes referred to as make-whole fundamental changes occur, the conversion rate for the Notes may be increased.

The Convertible Senior Notes consisted of the following as of June 30, 2022 and December 31, 2021:

	June 30, 2022			December 31, 2021
Liability:
Principal	$	632,500		$	632,500
Unamortized issuance costs		(9,509	)		(10,965	)
Net carrying amount	$	622,991		$	621,535

For the three months ended June 30, 2022 and 2021 the Company recorded issuance costs related to the Notes in the amount of $728 and $726, respectively.

For the six months ended June 30, 2022 and 2021 the Company recorded issuance costs related to the Notes in the amount of $1,456 and $1,450, respectively.

As of June 30, 2022, the issuance costs of the Notes will be amortized over the remaining term of approximately 3.2 years.

The annual effective interest rate of the Notes is 0.47%.

As of June 30, 2022, the estimated fair value of the Notes, which the Company has classified as Level 2 financial instruments, is $755,920. The estimated fair value was determined based on the quoted bid price of the Notes in an over-the-counter market on the last trading day of the reporting period.

As of June 30, 2022, the if-converted value of the Notes did not exceed the principal amount.

F - 16

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

(in thousands, except per share data)

NOTE 11:       STOCK CAPITAL

a. Common stock rights:

Common stock confers upon its holders the right to receive notice of, and to participate in, all general meetings of the Company, where each share of common stock shall have one vote for all purposes; to share equally, on a per share basis, in bonuses, profits, or distributions out of fund legally available therefor; and to participate in the distribution of the surplus assets of the Company in the event of liquidation of the Company.

b. Secondary public offering:

On March 17, 2022, the Company offered and sold 2,300,000 shares of the Company’s common stock, at a public offering price of $295.00 per share. The shares of Common Stock were issued and sold in a registered offering pursuant to the underwriting agreement dated March 17, 2022, among the Company, Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, and Morgan Stanley & Co. LLC (the “Underwriting Agreement”). All of the offered shares were issued at closing, including 300,000 shares of Common Stock that were issued and sold pursuant to the underwriters’ option to purchase additional shares under the Underwriting Agreement, which was exercised in full on March 18, 2022.

The net proceeds to the Company were $650,526 after deducting underwriters' discounts of $27,140 and commissions of $834.

c. Equity Incentive Plans:

The Company’s 2007 Global Incentive Plan (the “2007 Plan”) was adopted by the board of directors on August 30, 2007. The 2007 Plan terminated upon the Company’s IPO on March 31, 2015 and no further awards may be granted thereunder. All outstanding awards will continue to be governed by their existing terms and 379,358 available options for future grant were transferred to the Company’s 2015 Global Incentive Plan (the “2015 Plan”) and are reserved for future issuances under the 2015 plan. The 2015 Plan became effective upon the consummation of the IPO. The 2015 Plan provides for the grant of options, restricted stock units ("RSU"), performance stock units ("PSU"), and other share-based awards to directors, employees, officers, and non-employees of the Company and its subsidiaries. As of June 30, 2022, a total of 18,047,085 shares of common stock were reserved for issuance pursuant to stock awards under the 2015 Plan (the “Share Reserve”).

The Share Reserve will automatically increase on January 1^st of each year during the term of the 2015 Plan, commencing on January 1^st of the year following the year in which the 2015 Plan becomes effective, in an amount equal to 5% of the total number of shares of capital stock outstanding on December 31^st of the preceding calendar year; provided, however, that the Company’s board of directors may determine that there will not be a January 1^st increase in the Share Reserve in a given year or that the increase will be less than 5% of the shares of capital stock outstanding on the preceding December 31^st.

The Company granted under its 2015 Plan, PSU awards to certain employees and officers which vest upon the achievement of certain performance or market conditions subject to their continued employment with the Company.

The market condition for the PSUs is based on the Company’s total shareholder return ("TSR") compared to the TSR of companies listed in the S&P 500 index over a one to three year performance period. The Company uses a Monte-Carlo simulation to determine the grant date fair value for these awards, which takes into consideration the market price of a share of the Company’s common stock on the date of grant less the present value of dividends expected during the requisite service period, as well as the possible outcomes pertaining to the TSR market condition. The Company recognizes such compensation expenses on an accelerated vesting method.

F - 17

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

(in thousands, except per share data)

The aggregate maximum number of shares of common stock that may be issued on the exercise of incentive stock options is 10,000,000. As of June 30, 2022, an aggregate of 8,617,974 options are still available for future grant under the 2015 Plan.

A summary of the activity in stock options and related information is as follows:

	Number of options			Weighted average exercise price		Weighted average remaining contractual term in years		Aggregate intrinsic Value
Outstanding as of December 31, 2021		474,280		$	44.68		5.22	$	112,479
Exercised		(58,211	)		28.21		-		-
Forfeited or expired		(243	)		5.01		-		-
Outstanding as of June 30, 2022		415,826		$	47.01		4.85	$	94,991
Vested and expected to vest as of June 30, 2022		415,826		$	47.01		4.85	$	94,991
Exercisable as of June 30, 2022		349,635		$	33.78		4.43	$	84,107

The aggregate intrinsic value in the tables above represents the total intrinsic value (the difference between the fair value of the Company’s common stock as of the last day of each period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on the last day of each period.

A summary of the activity in the RSUs and related information is as follows:

	Number of RSUs			Weighted average grant date fair value
Unvested as of December 31, 2021		1,759,972		$	189.25
Granted		203,161			293.31
Vested		(424,379	)		124.92
Forfeited		(75,161	)		210.94
Unvested as of June 30, 2022		1,463,593		$	199.25

A summary of the activity in the PSUs and related information is as follows:

	Number of PSUs		Weighted average grant date fair value
Unvested as of December 31, 2021		108,595	$	296.40
Granted		39,263		293.04
Unvested as of June 30, 2022		147,858	$	295.51

d. Employee Stock Purchase Plan:

The Company adopted an ESPP effective upon the consummation of the IPO. As of June 30, 2022, a total of 3,662,737 shares were reserved for issuance under this plan. The number of shares of common stock reserved for issuance under the ESPP will increase automatically on January 1st of each year, for ten years, by the lesser of 1% of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year or 487,643 shares. However, the Company’s board of directors may reduce the amount of the increase in any particular year at their discretion, including a reduction to zero.

F - 18

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

(in thousands, except per share data)

The ESPP is implemented through an offering every six months. According to the ESPP, eligible employees may use up to 15% of their salaries to purchase common stock up to an aggregate limit of $15 per participant for every six months plan. The price of an ordinary share purchased under the ESPP is equal to 85% of the lower of the fair market value of the ordinary share on the subscription date of each offering period or on the purchase date.

As of June 30, 2022, 696,852 shares of common stock had been purchased under the ESPP.

As of June 30, 2022, 2,965,885 shares of common stock were available for future issuance under the ESPP.

In accordance with ASC No. 718, the ESPP is compensatory and, as such, results in recognition of compensation cost.

e. Stock-based compensation expenses:

The Company recognized stock-based compensation expenses related to all stock-based awards in the consolidated statement of income for the three and six months ended June 30, 2022, and 2021, as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Cost of revenues	$	5,286	$	4,291	$	10,348	$	10,081
Research and development		16,819		9,805		31,804		18,603
Selling and marketing		7,047		5,780		13,748		11,215
General and administrative		7,922		4,176		15,281		7,306
Total stock-based compensation expenses	$	37,074	$	24,052	$	71,181	$	47,205

An immaterial amount of stock-based compensation was capitalized to prepaid expenses during the three and six months ended June 30, 2022.

The total tax benefit associated with share-based compensation for the three months ended June 30, 2022 and 2021 was $3,058 and $2,062, respectively. The tax benefit realized from share-based compensation for the three months ended June 30, 2022, and 2021 was $2,885 and $2,931, respectively.

The total tax benefit associated with share-based compensation for the six months ended June 30, 2022, and 2021 was $6,536 and $6,459, respectively. The tax benefit realized from share-based compensation for the six months ended June 30, 2022, and 2021 was $5,812 and $5,680, respectively.

As of June 30, 2022, there were total unrecognized compensation expenses in the amount of $306,131 related to non-vested equity-based compensation arrangements granted under the Company’s plans and non-plan awards. These expenses are expected to be recognized during the period from July 1, 2022, through May 31, 2026.

F - 19

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

(in thousands, except per share data)

NOTE 12:       COMMITMENTS AND CONTINGENT LIABILITIES

a. Guarantees:

As of June 30, 2022, contingent liabilities exist regarding guarantees in the amounts of $5,892, $2,815, and $1,388 in respect of office rent lease agreements, projects with customers, and other transactions, respectively.

b. Contractual purchase obligations:

The Company has contractual obligations to purchase goods and raw materials. These contractual purchase obligations relate to inventories and other purchase orders, which cannot be canceled without penalty. In addition, the Company acquires raw materials or other goods and services, including product components, by issuing authorizations to its suppliers to purchase materials based on its projected demand and manufacturing needs.

As of June 30, 2022, the Company had non-cancelable purchase obligations totaling approximately $1,532,469, out of which the Company recorded a provision for loss in the amount of $5,408.

As of June 30, 2022, the Company had contractual obligations for capital expenditures totaling approximately $92,915. These commitments reflect purchases of automated assembly lines and other machinery related to the Company’s manufacturing process as well as capital expenditures associated with the constru