SOLAREDGE TECHNOLOGIES, INC. - 1419612

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 March 31, 2023

☐	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 May 1, 2023, there were 56,344,727 shares of the registrant’s common stock, par value of $0.0001 per share, outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
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-6
Notes to the Condensed Consolidated Financial Statements (unaudited)	F-8
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	14
ITEM 4. Controls and Procedures	15

PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings	16
ITEM 1A. Risk Factors	16
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	16
ITEM 3. Defaults upon Senior Securities	16
ITEM 4. Mine Safety Disclosures	16
ITEM 5. Other Information	16
ITEM 6. Exhibits	17
EXHIBIT INDEX	17

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SOLAREDGE TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in thousands, except per share data)

	March 31, 2023		December 31, 2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	727,849	$	783,112
Marketable securities		410,820		241,117
Trade receivables, net of allowances of $4,422 and $3,202, respectively		969,543		905,146
Inventories, net		874,212		729,201
Prepaid expenses and other current assets		259,642		241,082
Total current assets		3,242,066		2,899,658
LONG-TERM ASSETS:
Marketable securities		509,127		645,491
Deferred tax assets, net		46,612		44,153
Property, plant and equipment, net		556,138		543,969
Operating lease right-of-use assets, net		69,710		62,754
Intangible assets, net		17,933		19,929
Goodwill		29,934		31,189
Other long-term assets		24,906		18,806
Total long-term assets		1,254,360		1,366,291
Total assets	$	4,496,426	$	4,265,949

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)

	March 31, 2023			December 31, 2022
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade payables, net	$	408,523		$	459,831
Employees and payroll accruals		90,853			85,158
Warranty obligations		129,278			103,975
Deferred revenues and customers advances		27,507			26,641
Accrued expenses and other current liabilities		243,881			214,112
Total current liabilities		900,042			889,717
LONG-TERM LIABILITIES:
Convertible senior notes, net		625,182			624,451
Warranty obligations		313,693			281,082
Deferred revenues		196,917			186,936
Finance lease liabilities		43,711			45,385
Operating lease liabilities		50,855			46,256
Other long-term liabilities		15,232			15,756
Total long-term liabilities		1,245,590			1,199,866
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS’ EQUITY:
Common stock of $0.0001 par value - Authorized: 125,000,000 shares as of March 31, 2023 and December 31, 2022; issued and outstanding: 56,343,164 and 56,133,404 shares as of March 31, 2023 and December 31, 2022, respectively		6			6
Additional paid-in capital		1,545,777			1,505,632
Accumulated other comprehensive loss		(77,204	)		(73,109	)
Retained earnings		882,215			743,837
Total stockholders’ equity		2,350,794			2,176,366
Total liabilities and stockholders’ equity	$	4,496,426		$	4,265,949

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

F - 2

SOLAREDGE TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in thousands, except per share data)

	Three Months Ended March 31,
	2023			2022
Revenues	$	943,889		$	655,080
Cost of revenues		643,763			476,122
Gross profit		300,126			178,958
Operating expenses:
Research and development		79,873			66,349
Sales and marketing		40,966			35,316
General and administrative		36,567			26,429
Other operating income, net		(1,434	)		-
Total operating expenses		155,972			128,094
Operating income		144,154			50,864
Financial income (expense), net		23,674			(4,605	)
Other loss		(125	)		(844	)
Income before income taxes		167,703			45,415
Income taxes		29,325			12,292
Net income	$	138,378		$	33,123
Net basic earnings per share of common stock	$	2.46		$	0.62
Net diluted earnings per share of common stock	$	2.35		$	0.60
Weighted average number of shares used in computing net basic earnings per share of common stock		56,215,490			53,134,937
Weighted average number of shares used in computing net diluted earnings per share of common stock		59,193,831			56,315,193

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 March 31,
	2023			2022
Net income	$	138,378		$	33,123
Other comprehensive income (loss), net of tax:
Available-for-sale marketable securities		6,177			(9,506	)
Cash flow hedges		(331	)		(680	)
Foreign currency translation adjustments on intra-entity transactions that are of a long-term investment nature		(10,800	)		(6,983	)
Foreign currency translation adjustments		859			(1,579	)
Total other comprehensive loss		(4,095	)		(18,748	)
Comprehensive income	$	134,283		$	14,375

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

F - 4

SOLAREDGE TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(in thousands, except per share data)

	Common stock				Additional paid in Capital		Accumulated other comprehensive loss			Retained earnings		Total
	Number		Amount		Additional paid in Capital		Accumulated other comprehensive loss			Retained earnings		Total
Balance as of January 1, 2023		56,133,404	$	6	$	1,505,632	$	(73,109	)	$	743,837	$	2,176,366
Issuance of common stock upon exercise of stock-based awards		209,760		*-		75		-			-		75
Stock based compensation		-		-		40,070		-			-		40,070
Other comprehensive loss adjustments		-		-		-		(4,095	)		-		(4,095	)
Net income		-		-		-		-			138,378		138,378
Balance as of March 31, 2023	$	56,343,164	$	6	$	1,545,777	$	(77,204	)	$	882,215	$	2,350,794

* Represents an amount less than $1.

	Common stock				Additional paid in Capital		Accumulated other comprehensive income (loss)			Retained earnings		Total
	Number		Amount		Additional paid in Capital		Accumulated other comprehensive income (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		-		-		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

* Represents an amount less than $1.

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

F - 5

SOLAREDGE TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands, except per share data)

	Three Months Ended March 31,
	2023			2022
Cash flows from operating activities:
Net income	$	138,378		$	33,123
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		13,464			11,660
Stock-based compensation expenses		39,235			34,107
Deferred income taxes, net		(3,930	)		(1,034	)
Loss (gain) from exchange rate fluctuations		(20,441	)		1,725
Other items		2,810			4,167
Changes in assets and liabilities:
Inventories, net		(141,521	)		(51,323	)
Prepaid expenses and other assets		(20,591	)		(17,163	)
Trade receivables, net		(55,002	)		(224,865	)
Trade payables, net		(50,410	)		(28,045	)
Employees and payroll accruals		10,227			9,246
Warranty obligations		57,864			27,629
Deferred revenues and customers advances		9,325			15,029
Accrued expenses and other liabilities, net		28,515			22,755
Net cash provided by (used in) operating activities		7,923			(162,989	)
Cash flows from investing activities:
Proceed from sales and maturities of available-for-sale marketable securities		11,597			53,096
Purchase of property, plant and equipment		(38,338	)		(43,210	)
Investment in available-for-sale marketable securities		(38,979	)		(26,712	)
Investment in a privately-held company		(5,500	)		-
Other investing activities		3,440			1,692
Net cash used in investing activities	$	(67,780	)	$	(15,134	)

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) (Cont.)

(in thousands, except per share data)

	Three Months Ended March 31,
	2023			2022
Cash flows from financing activities:
Proceeds from secondary public offering, net of issuance costs	$	-		$	650,526
Proceeds from exercise of stock-based awards		75			1,478
Tax withholding in connection with stock-based awards, net		(4,541	)		822
Other financing activities		(756	)		(491	)
Net cash provided by (used in) financing activities		(5,222	)		652,335
Increase (decrease) in cash and cash equivalents		(65,079	)		474,212
Cash and cash equivalents at the beginning of the period		783,112			530,089
Effect of exchange rate differences on cash and cash equivalents		9,816			(1,529	)
Cash and cash equivalents at the end of the period	$	727,849		$	1,002,772

Supplemental disclosure of non-cash activities:
Right-of-use asset recognized with a corresponding lease liability	$	11,258		$	27,248
Purchase of property, plant and equipment	$	12,304		$	19,536

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

F - 7

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(in thousands, except per share data)

NOTE 1: GENERAL

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

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

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

Basis of Presentation:

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

The significant accounting policies applied in the annual consolidated financial statements of the Company as of December 31, 2022, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 22, 2023, have been applied consistently in these unaudited interim condensed consolidated financial statements. Certain prior year amounts have been reclassified to conform to current year presentation.

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.

Concentrations of supply risks:

The Company depends on two contract manufacturers and several limited or single source component suppliers. Reliance on these vendors makes the Company vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields, and costs.

As of March 31, 2023, and December 31, 2022, two contract manufacturers collectively accounted for 31.3% and 34.3% of the Company’s total trade payables, net, respectively.

In the second quarter of 2022, the Company announced the opening of “Sella 2”, a two gigawatt-hour (GWh) Li-Ion battery cell manufacturing facility located in South Korea. Sella 2 began producing and shipping cells at the end of 2022 and is expected to reach full manufacturing capacity in 2023. Sella 2 is the Company's second owned manufacturing facility following the establishment of Sella 1 in 2020. Sella 1 is the Company's manufacturing facility in the North of Israel that produces power optimizers and inverters for the Company's solar activities.

New accounting standards updates:

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies are adopted by the Company as of the specified effective date. The Company believes that the impact of recently issued or newly effective standards were not applicable to the Company, did not have a material impact on the condensed consolidated financial statements or are not expected to have a material impact on the condensed consolidated financial statements.

F - 8

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 March 31, 2023:

	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Available-for-sale – matures within one year:
Corporate bonds	$	390,012	$	82	$	(8,595	)	$	381,499
Governmental bonds		29,788		-		(467	)		29,321
		419,800		82		(9,062	)		410,820
Available-for-sale – matures after one year:
Corporate bonds		515,425		698		(15,855	)		500,268
Governmental bonds		9,251		-		(392	)		8,859
		524,676		698		(16,247	)		509,127
Total	$	944,476	$	780	$	(25,309	)	$	919,947

The following is a summary of available-for-sale marketable securities as of December 31, 2022:

	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Available-for-sale – matures within one year:
Corporate bonds	$	222,482	$	-	$	(4,657	)	$	217,825
Governmental bonds		23,845		-		(553	)		23,292
		246,327		-		(5,210	)		241,117
Available-for-sale – matures after one year:
Corporate bonds		657,238		80		(26,460	)		630,858
Governmental bonds		15,250		-		(617	)		14,633
		672,488		80		(27,077	)		645,491
Total	$	918,815	$	80	$	(32,287	)	$	886,608

As of March 31, 2023, and December 31, 2022, the Company did not record an allowance for credit losses for its available-for-sale marketable securities.

F - 9

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(in thousands, except per share data)

NOTE 3: INVENTORIES, NET

	March 31, 2023		December 31, 2022
Raw materials	$	503,445	$	503,257
Work in process		37,754		23,407
Finished goods		333,013		202,537
Total inventories, net	$	874,212	$	729,201

NOTE 4: PREPAID EXPENSES AND OTHER CURRENT ASSETS

	March 31, 2023		December 31, 2022
Vendor non-trade receivables (*)	$	147,238	$	147,597
Government authorities		57,275		55,670
Prepaid expenses and other		55,129		37,815
Total prepaid expenses and other current assets	$	259,642	$	241,082

(*) Vendor non-trade receivables derived from the sale of components to manufacturing vendors who manufacture products for the Company. The Company purchases these components directly from other suppliers. The Company does not reflect the sale of these components to the contract manufacturers in its revenues.

F - 10

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(in thousands, except per share data)

NOTE 5: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

During the three months ended March 31, 2023, the Company instituted a foreign currency cash flow hedging program to reduce the risk of a forecasted increase in the value of foreign currency cash flows, resulting from payment of salaries in Israeli currency, the New Israeli Shekels (“NIS”). The Company hedges portions of the anticipated payroll denominated in NIS for a period of one to nine months with hedging contracts. These hedging contracts are designated as cash flow hedges, as defined by ASC 815 and are all effective hedges.

As of March 31, 2023, the Company entered into forward contracts and put and call options to sell U.S. dollars (“USD”) for NIS in the amount of approximately NIS 231 million and NIS 125 million, respectively.

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

The Company classifies cash flows related to its hedging as operating activities in its condensed consolidated statement of cash flows.

The fair values of outstanding derivative instruments were as follows:

	Balance sheet location	March 31, 2023			December 31, 2022
Derivative assets of options and forward contracts:
Designated cash flow hedges	Prepaid expenses and other current assets	$	353		$	-
Derivative liabilities of options and forward contracts:
Designated cash flow hedges	Accrued expenses and other current liabilities	$	(2,583	)	$	(1,874	)

Gains (losses) on derivative instruments are summarized below:

		Three Months Ended March 31,
	Affected line item	2023			2022
Foreign exchange contracts
Non Designated Hedging Instruments	Condensed Consolidated Statements of Income - Financial income (expense), net	$	-		$	934
Designated Hedging Instruments	Condensed Consolidated Statements of Comprehensive Income - Cash flow hedges	$	(2,057	)	$	(1,178	)

See Note 13 for information regarding losses from designated hedging instruments reclassified from accumulated other comprehensive loss.

F - 11

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 and cash equivalents are classified within Level 1 because these assets are valued using quoted market prices. Marketable securities and foreign currency derivative contracts are classified within level 2 due to these assets being valued by alternative pricing sources and models utilizing market observable inputs.

The following table sets forth the Company’s assets that were measured at fair value as of March 31, 2023 and December 31, 2022, by level within the fair value hierarchy:

	Fair Value Hierarchy	Fair value measurements as of
Description	Fair Value Hierarchy	March 31, 2023			December 31, 2022
Assets:
Cash and cash equivalents:
Cash	Level 1	$	667,384		$	695,004
Money market mutual funds	Level 1	$	17,486		$	25,149
Deposits	Level 1	$	42,979		$	62,959
Derivative instruments	Level 2	$	353		$	-
Short-term marketable securities:
Corporate bonds	Level 2	$	381,499		$	217,825
Governmental bonds	Level 2	$	29,321		$	23,292
Long-term marketable securities:
Corporate bonds	Level 2	$	500,268		$	630,858
Governmental bonds	Level 2	$	8,859		$	14,633
Liabilities:
Derivative instruments	Level 2	$	(2,583	)	$	(1,874	)

NOTE 7: WARRANTY OBLIGATIONS

Changes in the Company’s product warranty obligations for the three months ended March 31, 2023 and 2022, were as follows:

	Three Months Ended March 31,
	2023			2022
Balance, at the beginning of the period	$	385,057		$	265,160
Additions and adjustments to cost of revenues		91,570			47,907
Usage and current warranty expenses		(33,656	)		(20,401	)
Balance, at end of the period		442,971			292,666
Less current portion		(129,278	)		(82,340	)
Long term portion	$	313,693		$	210,326

F - 12

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(in thousands, except per share data)

NOTE 8: DEFERRED REVENUES AND CUSTOMERS ADVANCES

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

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

	Three Months Ended March 31,
	2023			2022
Balance, at the beginning of the period	$	213,577		$	169,345
Revenue recognized		(11,742	)		(14,529	)
Increase in deferred revenues and customer advances		22,589			29,429
Balance, at the end of the period		224,424			184,245
Less current portion		(27,507	)		(25,511	)
Long term portion	$	196,917		$	158,734

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 March 31, 2023:

2023	$	23,888
2024		12,073
2025		10,764
2026		10,389
2027		8,363
Thereafter		158,947
Total deferred revenues	$	224,424

NOTE 9: ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

	March 31, 2023		December 31, 2022
Accrued expenses	$	127,018	$	117,638
Government authorities		87,159		67,514
Operating lease liabilities		17,215		16,183
Accrual for sales incentives		5,746		6,790
Other		6,743		5,987
Total accrued expenses and other current liabilities	$	243,881	$	214,112

F - 13

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 March 31, 2023 and December 31, 2022:

	March 31, 2023			December 31, 2022
Liability:
Principal	$	632,500		$	632,500
Unamortized issuance costs		(7,318	)		(8,049	)
Net carrying amount	$	625,182		$	624,451

For the three months ended March 31, 2023 and 2022 the Company recorded amortized debt issuance costs related to the Notes in the amount of $731 and $728, respectively.

As of March 31, 2023, the unamortized issuance costs of the Notes will be amortized over the remaining term of approximately 2.5 years.

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

As of March 31, 2023, the estimated fair value of the Notes, which the Company has classified as Level 2 financial instruments, is $823,730. 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 March 31, 2023, the if-converted value of the Notes exceeded the principal amount by $59,537.

F - 14

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 grants were transferred to the Company’s 2015 Global Incentive Plan (the “2015 Plan”) and are reserved for future issuances under the 2015 plan. The 2015 Plan became effective upon the consummation of the IPO. The 2015 Plan provides for the grant of options, restricted stock units ("RSU"), performance stock units ("PSU"), and other share-based awards to directors, employees, officers, and non-employees of the Company and its subsidiaries. As of March 31, 2023, a total of 20,853,755 shares of common stock were reserved for issuance pursuant to stock awards under the 2015 Plan (the “Share Reserve”), an aggregate of 12,005,195 shares are still available for future grants.

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

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

In 2021, the Company has also committed to issuing additional shares, which carry certain performance conditions (including business performance targets and a continued service relationship with the Company) and are treated as PSUs for accounting purposes.

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

The aggregate maximum number of shares of common stock that may be issued on the exercise of incentive stock options is 10,000,000. As of March 31, 2023, an aggregate of 8,617,974 options are still available for future grants under the 2015 Plan.

F - 15

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(in thousands, except per share data)

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

	Number of options			Weighted average exercise price		Weighted average remaining contractual term in years		Aggregate intrinsic Value
Outstanding as of December 31, 2022		339,029		$	50.64		4.86	$	79,414
Exercised		(3,645	)		20.46		-		1,073
Outstanding as of March 31, 2023		335,384		$	50.97		4.63	$	84,989
Vested and expected to vest as of March 31, 2023		334,950		$	50.80		4.62	$	84,937
Exercisable as of March 31, 2023		311,240		$	40.47		4.43	$	82,079

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, 2022		1,488,515		$	232.05
Granted		103,081			296.64
Vested		(197,866	)		164.31
Forfeited		(31,296	)		254.24
Unvested as of March 31, 2023		1,362,434		$	246.27

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

	Number of PSUs			Weighted average grant date fair value
Unvested as of December 31, 2022		149,232		$	295.88
Granted		31,911			314.22
Vested		(8,249	)		270.93
Unvested as of March 31, 2023		172,894		$	300.45

d.	Employee Stock Purchase Plan ("ESPP"):

The Company adopted an ESPP effective upon the consummation of the IPO. As of March 31, 2023, a total of 4,150,380 shares were reserved for issuance under this plan. The number of shares of common stock reserved for issuance under the ESPP will increase automatically on January 1^st of each year, for ten years, by the lesser of 1% of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year or 487,643 shares. However, the Company’s board of directors may reduce the amount of the increase in any particular year at their discretion, including a reduction to zero.

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

As of March 31, 2023, 738,876 shares of common stock had been purchased under the ESPP.

As of March 31, 2023, 3,411,504 shares of common stock were available for future issuance under the ESPP.

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

F - 16

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(in thousands, except per share data)

e.	Stock-based compensation expenses:

The Company recognized stock-based compensation expenses related to all stock-based awards in the condensed consolidated statement of income for the three months ended March 31, 2023, and 2022, as follows:

	Three Months Ended March 31,
	2023		2022
Cost of revenues	$	5,927	$	5,062
Research and development		17,209		14,985
Selling and marketing		8,079		6,701
General and administrative		8,020		7,359
Total stock-based compensation expenses	$	39,235	$	34,107

For the three months ended March 31, 2023, the Company capitalized stock-based compensation expenses in the amount of $430 related to ERP implementation, which were included within other long-term assets in the condensed consolidated balance sheets and $405 related to inventory.

For the three months ended March 31, 2022, the Company did not capitalize any stock-based compensation expenses.

The total tax benefit associated with share-based compensation for the three months ended March 31, 2023 and 2022 was $4,197 and $3,478, respectively. The tax benefit realized from share-based compensation for three months ended March 31, 2023 and 2022 was $2,842 and $2,927, respectively.

As of March 31, 2023, there were total unrecognized compensation expenses in the amount of $335,864 related to non-vested equity-based compensation arrangements granted. These expenses are expected to be recognized during the period from April 1, 2023 through February 28, 2027.

F - 17

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 March 31, 2023, contingent liabilities exist regarding guarantees in the amounts of $5,876, and $1,899 in respect of office rent lease agreements and customs 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 March 31, 2023, the Company had non-cancelable purchase obligations totaling approximately $1,617,376, out of which the Company recorded a provision for loss in the amount of $8,052.

As of March 31, 2023, the Company had contractual obligations for capital expenditures totaling approximately $121,347. These commitments reflect purchases of automated assembly lines and other machinery related to the Company’s general manufacturing process and mainly to its plans to establish manufacturing capabilities in the United States.

c. Legal claims:

From time to time, the Company may be involved in various claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss. These accruals are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular matter.

In September 2018, the Company’s German subsidiary, SolarEdge Technologies GmbH, received a complaint filed by competitor SMA Solar Technology AG (“SMA”). The complaint, filed in the District Court Düsseldorf, Germany, alleges that SolarEdge's 12.5kW - 27.6kW inverters infringed on two of the plaintiff’s patents. SMA asserted a value in dispute of EUR 5.5 million (approximately $5,983) for both patents. The Company challenged the validity of both patents and the first patent was invalidated and SMA’s appeal on the matter was denied in January 2023. In August 2021, the German Patent Court rendered SMA's second patent invalid, and this invalidity has been appealed by SMA and a hearing is pending. The Company believes that it has meritorious defenses to these claims and intends to vigorously defend against the remaining lawsuit.

On July 28, 2022, the Company was served with complaints filed by Ampt LLC in the International Trade Commission (the “Commission”) pursuant to Section 337 of the Tariff Act of 1930, as amended, in the District Court for the District of Delaware alleging patent infringement against the Company and its subsidiary SolarEdge Technologies Ltd. On October 24, 2022, the complaint filed in the District Court of Delaware was administratively stayed until the Commission's action is resolved. The Company believes that it has meritorious defenses to the complaints and intend to vigorously defend against them.

As of March 31, 2023, an immaterial amount for legal claims was recorded in accrued expenses and other current liabilities.

F - 18

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(in thousands, except per share data)

NOTE 13: ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table summarizes the changes in accumulated balances of other comprehensive gain (loss), net of taxes:

	Three Months Ended March 31,
	2023			2022
Unrealized gains (losses) on available-for-sale marketable securities
Beginning balance	$	(25,449	)	$	(4,709	)
Revaluation		7,570			(12,721	)
Tax on revaluation		(1,471	)		2,471
Other comprehensive income (loss) before reclassifications		6,099			(10,250	)
Reclassification		107			844
Tax on reclassification		(29	)		(100	)
Losses reclassified from accumulated other comprehensive income		78			744
Net current period other comprehensive income (loss)		6,177			(9,506	)
Ending balance	$	(19,272	)	$	(14,215	)
Unrealized gains (losses) on cash flow hedges
Beginning balance	$	(1,761	)	$	874
Revaluation		(2,196	)		(1,337	)
Tax on revaluation		139			159
Other comprehensive loss before reclassifications		(2,057	)		(1,178	)
Reclassification		1,840			565
Tax on reclassification		(114	)		(67	)
Losses reclassified from accumulated other comprehensive loss		1,726			498
Net current period other comprehensive loss		(331	)		(680	)
Ending balance	$	(2,092	)	$	194
Foreign currency translation adjustments on intra-entity transactions that are of a long-term investment in nature
Beginning balance	$	(37,960	)	$	(17,420	)
Revaluation		(10,800	)		(6,983	)
Ending balance	$	(48,760	)	$	(24,403	)
Unrealized gains (losses) on foreign currency translation
Beginning balance	$	(7,939	)	$	(6,064	)
Revaluation		859			(1,579	)
Ending balance	$	(7,080	)	$	(7,643	)
Total	$	(77,204	)	$	(46,067	)

F - 19

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(in thousands, except per share data)

The following table summarizes the reclassifications from "Accumulated other comprehensive loss" into the statement of income:

Details about Accumulated Other Comprehensive Loss Components	Three Months Ended March 31,						Affected Line Item in the Statement of Income
	2023			2022
Available-for-sale marketable securities
	$	(107	)	$	(844)		Financial income (expense), net
		29			100		Income taxes
	$	(78	)	$	(744)		Total, net of income taxes
Cash flow hedges
		(212	)		(67	)	Cost of revenues
		(1,129	)		(338	)	Research and development
		(225	)		(71	)	Sales and marketing
		(274	)		(89	)	General and administrative
	$	(1,840	)	$	(565)		Total, before income taxes
		114			67		Income taxes
		(1,726	)		(498	)	Total, net of income taxes
Total reclassifications for the period	$	(1,804	)	$	(1,242)

NOTE 14: OTHER OPERATING INCOME

In the three months ended March 31, 2023, the Company recorded a gain from sale of property, plant and equipment and other assets in the amount of $1,434.

NOTE 15: INCOME TAXES

The effective tax rate for the three months ended March 31, 2023, and 2022 was 17.5% and 27.1%, respectively.

The lower tax rate in the current quarter compared to the first quarter of 2022 is mainly due to the fact that the Company's income before tax, most of which is subject to tax rates lower than the US statutory rate, increased. Conversely, the IRC Section 174 R&D capitalization, and other expenses not recognized for GILTI purposes, did not increase in the same proportion.

As of