SEC Filing | SolarEdge Technologies, Inc.

View:

Download DOC

Download PDF

Download XLS

Download XBRL

SolarEdge Technologies Inc

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 September 30, 2021
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 No. 001-36894

SOLAREDGE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		20-5338862 (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)

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 October 25, 2021, there were: 52,519,519 shares of the registrant’s common stock, par value of $0.0001 per share, outstanding.

SOLAREDGE TECHNOLOGIES, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2021

INDEX



PART I. FINANCIAL INFORMATION	3
ITEM 1Financial Statements	3
Condensed Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020	F-2
Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2021 and 2020 (unaudited)	F-4
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020 (unaudited)	F-5
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2021 and 2020 (unaudited)	F-6
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited)	F-8
Notes to the Condensed Consolidated Financial Statements (unaudited)	F-10
ITEM 2Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
ITEM 3Quantitative and Qualitative Disclosures About Market Risk	15
ITEM 4Controls and Procedures	16
PART II. OTHER INFORMATION	17
ITEM 1Legal Proceedings	17
ITEM 1ARisk Factors	17
ITEM 2Unregistered Sales of Equity Securities and Use of Proceeds	17
ITEM 3Defaults upon Senior Securities	17
ITEM 4Mine Safety Disclosures	17
ITEM 5Other Information	17
ITEM 6Exhibits	18
EXHIBIT INDEX	18

PART I. FINANCIAL INFORMATION

ITEM 1FINANCIAL STATEMENTS

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2021

IN U.S. DOLLARS

UNAUDITED

INDEX

	Page
Condensed Consolidated Balance Sheets	F-2
Condensed Consolidated Statements of Income	F-4
Condensed Consolidated Statements of Comprehensive Income	F-5
Condensed Consolidated Statements of Stockholders’ Equity	F-6
Condensed Consolidated Statements of Cash Flows	F-8
Notes to Condensed Consolidated Financial Statements	F-10

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

U.S. dollars in thousands (except share and per share data)

	September 30, 2021		December 31, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	526,588		$	827,146
Short-term bank deposits		10,122			60,096
Restricted bank deposits		1,064			2,611
Marketable securities		145,459			143,687
Trade receivables, net of allowances of $2,639 and $2,886, respectively		416,244			218,706
Inventories, net		304,713			331,696
Prepaid expenses and other current assets		148,364			135,399
Total current assets		1,552,554			1,719,341
LONG-TERM ASSETS:
Marketable securities		473,315			147,434
Deferred tax assets, net		21,827			11,676
Property, plant and equipment, net		353,344			303,408
Operating lease right-of-use assets, net		39,314			41,600
Intangible assets, net		61,639			67,818
Goodwill		131,757			140,479
Other long-term assets		23,083			5,353
Total long-term assets		1,104,279			717,768
Total assets	$	2,656,833		$	2,437,109

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

F - 2

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Cont.)

U.S. dollars in thousands (except share and per share data)

	September 30, 2021			December 31, 2020
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade payables, net	$	137,621		$	162,051
Employees and payroll accruals		63,845			63,738
Current maturities of bank loans and accrued interest		141			16,894
Warranty obligations		67,096			62,614
Deferred revenues and customers advances		16,939			24,648
Accrued expenses and other current liabilities		119,865			106,154
Total current liabilities		405,507			436,099
LONG-TERM LIABILITIES:
Convertible senior notes, net		620,808			573,350
Warranty obligations		179,967			142,380
Deferred revenues		136,269			115,372
Deferred tax liabilities, net		405			8,593
Finance lease liabilities		25,375			26,173
Operating lease liabilities		31,509			35,194
Other long-term liabilities		14,910			14,191
Total long-term liabilities		1,009,243			915,253
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS’ EQUITY:
Common stock of $0.0001 par value - Authorized: 125,000,000 shares as of September 30, 2021 and December 31, 2020; issued and outstanding: 52,519,490 and 51,560,936 shares as of September 30, 2021 and December 31, 2020, respectively		5			5
Additional paid-in capital		652,109			603,891
Accumulated other comprehensive income (loss)		(19,135	)		3,857
Retained earnings		609,104			478,004
Total stockholders’ equity		1,242,083			1,085,757
Total liabilities and stockholders’ equity	$	2,656,833		$	2,437,109

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

F - 3

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

U.S. dollars in thousands (except share and per share data)


	Three months ended September 30,					Nine months ended September 30,
	2021			2020		2021			2020
Revenues	$	526,404		$	338,095	$	1,411,950		$	1,101,164
Cost of revenues		353,843			230,032		943,123			750,130
Gross profit		172,561			108,063		468,827			351,034
Operating expenses:
Research and development		55,666			40,817		155,307			115,610
Sales and marketing		29,383			21,924		85,752			67,113
General and administrative		21,098			14,928		60,317			45,077
Other operating expenses (income), net		-			-		1,350			(4,900	)
Total operating expenses		106,147			77,669		302,726			222,900
Operating income		66,414			30,394		166,101			128,134
Financial income (expenses), net		(5,751	)		15,765		(13,591	)		10,725
Income before income taxes		60,663			46,159		152,510			138,859
Income taxes		7,615			2,408		24,294			16,192
Net income	$	53,048		$	43,751	$	128,216		$	122,667
Net income per share:
Net basic earnings per share of common stock	$	1.01		$	0.87	$	2.46		$	2.46
Net diluted earnings per share of common stock	$	0.96		$	0.83	$	2.32		$	2.33
Weighted average number of shares used in computing net basic earnings per share of common stock		52,355,867			50,529,691		52,056,233			49,842,399
Weighted average number of shares used in computing net diluted earnings per share of common stock		55,929,000			53,144,188		55,955,441			52,623,675

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

F - 4

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

U.S. dollars in thousands (except share and per share data)


	Three months ended September 30,						Nine months ended September 30,
	2021			2020			2021			2020
Net income	$	53,048		$	43,751		$	128,216		$	122,667
Other comprehensive income (loss), net of tax:
Net change related to available-for-sale securities		29			(210	)		(1,847	)		556
Net change related to cash flow hedges		308			(446	)		619			-
Foreign currency translation adjustments on intra-entity transactions that are of a long-term investment nature		(12,272	)		-			(14,168	)		-
Foreign currency translation adjustments, net		(3,664	)		1,455			(7,596	)		(1,390	)
Total other comprehensive income (loss)		(15,599	)		799			(22,992	)		(834	)
Comprehensive income	$	37,449		$	44,550		$	105,224		$	121,833

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

F - 5

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

U.S. dollars in thousands (except share and per share data)

	Common stock			Additional paid in			Accumulated Other comprehensive			Retained		Total stockholders’
	Number	Amount		Capital			income (loss)			earnings		equity

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 employee and non-employees stock-based awards	405,239		* -		5,008			-			-		5,008
Equity based compensation expenses to employees and non-employees	-		-		23,153			-			-		23,153
Other comprehensive income (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 employee and non-employees stock-based awards	297,801		* -		5,500			-			-		5,500
Equity based compensation expenses to employees and non-employees	-		-		24,052			-			-		24,052
Other comprehensive loss 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
Issuance of Common Stock upon exercise of employee and non-employees stock-based awards	255,514		* -		656			-			-		656
Equity based compensation expenses to employees and non-employees	-		-		26,185			-			-		26,185
Other comprehensive loss adjustments	-		-		-			(15,599	)		-		(15,599	)
Net income	-		-		-			-			53,048		53,048
Balance as of September 30, 2021	52,519,490	$	5	$	652,109		$	(19,135	)	$	609,104	$	1,242,083

* Represents an amount less than $1.

F - 6

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (Cont.)

U.S. dollars in thousands (except share and per share data)

	Common stock			Additional paid in		Accumulated Other comprehensive			Retained		Total stockholders’
	Number	Amount		Capital		loss			earnings		equity

Balance as of January 1, 2020	48,898,062	$	5	$	475,792	$	(1,809	)	$	337,682	$	811,670
Issuance of Common Stock upon exercise of employee and non-employees stock-based awards	701,431		* -		3,308		-			-		3,308
Equity based compensation expenses to employees and non-employees	-		-		12,773		-			-		12,773
Other comprehensive loss adjustments	-		-		-		(3,581	)		-		(3,581	)
Net income	-		-		-		-			42,248		42,248
Balance as of March 31, 2020	49,599,493	$	5	$	491,873	$	(5,390	)	$	379,930	$	866,418
Issuance of Common Stock upon exercise of employee and non-employees stock-based awards	476,258		* -		5,806		-			-		5,806
Equity based compensation expenses to employees and non-employees	-		-		13,961		-			-		13,961
Other comprehensive loss adjustments	-		-		-		1,948			-		1,948
Net income	-		-		-		-			36,668		36,668
Balance as of June 30, 2020	50,075,751	$	5	$	511,640	$	(3,442	)	$	416,598	$	924,801
Issuance of Common Stock upon exercise of employee and non-employees stock-based awards	1,131,559		* -		10,091		-			-		10,091
Equity based compensation expenses to employees and non-employees	-		-		16,259		-			-		16,259
Equity component of convertible senior notes, net	-		-		36,336		-			-		36,336
Other comprehensive loss adjustments	-		-		-		799			-		799
Net income	-		-		-		-			43,751		43,751
Balance as of September 30, 2020	51,207,310	$	5	$	574,326	$	(2,643	)	$	460,349	$	1,032,037

* Represents an amount less than $1.

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

F - 7

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

U.S. dollars in thousands (except share and per share data)

	Nine months ended September 30,
	2021			2020
Cash flows provided by operating activities:
Net income	$	128,216		$	122,667
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		21,492			16,376
Amortization of intangible assets		7,487			7,081
Amortization of debt discount and debt issuance costs		2,175			168
Amortization of premium and accretion of discount on available-for-sale marketable securities, net		6,301			602
Stock-based compensation expenses		73,390			42,993
Deferred income taxes, net		(6,686	)		(5,263	)
Loss from disposal of assets		2,013			-
Exchange rate fluctuations and other items, net		13,086			(235	)
Changes in assets and liabilities:
Inventories, net		30,678			(121,999	)
Prepaid expenses and other assets		(14,977	)		37,871
Trade receivables, net		(206,131	)		118,044
Trade payables, net		(22,959	)		(35,499)
Employees and payroll accruals		14,321			3,132
Warranty obligations		42,368			23,155
Deferred revenues and customers advances		13,723			(24,283	)
Other liabilities, net		20,055			10,619
Net cash provided by operating activities		124,552			195,429
Cash flows from investing activities:
Investment in available-for-sale marketable securities		(511,615	)		(36,781	)
Proceeds from sales and maturities of available-for-sale marketable securities		174,817			116,419
Purchase of property, plant and equipment		(94,135	)		(90,553	)
Withdrawal from (investment in) bank deposits, net		50,020			(14,667	)
Investment in privately held company		(16,643	)		-
Payment for asset acquisition, net of cash acquired		(2,996	)		-
Withdrawal from restricted bank deposits		46			25,538
Other investing activities		2,547			743
Net cash provided by (used in) investing activities	$	(397,959	)	$	699

F - 8

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

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

U.S. dollars in thousands (except share and per share data)

	Nine months ended September 30,
	2021			2020
Cash flows from financing activities:
Repayment of bank loans	$	(16,219	)	$	(15,194	)
Proceeds from exercise of stock-based awards and payment of withholding taxes		(2,274	)		19,205
Proceeds from issuance of convertible senior notes, net		-			618,269
Proceeds from bank loans		-			15,185
Other financing activities		(939	)		(152	)
Net cash provided by (used in) financing activities		(19,432	)		637,313
Increase (decrease) in cash and cash equivalents		(292,839	)		833,441
Cash and cash equivalents at the beginning of the period		827,146			223,901
Effect of exchange rate differences on cash and cash equivalents		(7,719	)		(9,233	)
Cash and cash equivalents at the end of the period	$	526,588		$	1,048,109

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

F - 9

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

U.S. dollars in thousands (except share and 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 storage and backup solution that is used to increase energy independence and maximize self-consumption for homeowners by utilizing a battery, either the energy bank battery introduced by the Company or a battery that is sold separately by third party manufacturers, to store and supply power as needed, 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”).

c.Recently issued and adopted pronouncements:

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. ASU 2020-06 will be effective for fiscal years beginning after December 15, 2021, with early adoption permitted. Effective January 1, 2021, the Company early adopted ASU 2020-06 using the modified retrospective approach. Adoption of the new standard resulted in an increase of retained earnings in an amount of $2,884, a decrease of an additional paid-in capital in an amount of $36,336, an increase of convertible senior notes, net, in an amount of $45,282 and a decrease of deferred tax liabilities, net, in an amount of $11,830. Interest expense recognized in future periods will be reduced as a result of accounting for the convertible debt instrument as a single liability measured at its amortized cost. The impact of adoption of this standard on the Company’s earnings per share was immaterial.

In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), which clarifies the interaction between the accounting for equity securities in Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. The guidance is effective for interim and annual periods beginning after December 15, 2020. Effective January 1, 2021, the Company adopted this standard on a prospective basis. The impact of adoption of this standard on the Company’s consolidated financial statements was immaterial.

F - 10

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

U.S. dollars in thousands (except share and per share data)

NOTE 1:-GENERAL (Cont.)

d.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, 2020, contained in the Company’s Annual Report on Form 10-K/A filed with the SEC on February 19, 2021, have been applied consistently in these unaudited interim condensed consolidated financial statements, except for the adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (Topic 470) (see Note 7).

e.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, 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 AFS debt securities, or an increase in the Company’s insurance liabilities as of the time of a relevant measurement event.

f.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 September 30, 2021, and December 31, 2020, two contract manufacturers collectively accounted for 23.2% and 48.5% of the Company’s total trade payables, net, respectively.

During 2020, the Company began commercial shipments from its manufacturing facility in the North of Israel, “Sella 1”. During the second quarter of 2021, Sella 1 reached full manufacturing capacity.

g.Certain prior period amounts have been reclassified to conform to the current period presentation.

NOTE 2:-INVENTORIES, NET

	September 30, 2021		December 31, 2020
Raw materials	$	161,863	$	128,363
Work in process		21,795		25,461
Finished goods		121,055		177,872
	$	304,713	$	331,696

F - 11

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

U.S. dollars in thousands (except share and per share data)

NOTE 3:-MARKETABLE SECURITIES

The following is a summary of available-for-sale marketable debt securities as of September 30, 2021:

	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Available-for-sale – matures within one year:
Corporate bonds	$	138,938	$	69	$	(143	)	$	138,864
Governmental bonds		6,600		1		(6	)		6,595
		145,538		70		(149	)		145,459

Available for-sale – matures after one year:
Corporate bonds		463,081		64		(1,979	)		461,166
Governmental bonds		12,211		-		(62	)		12,149
		475,292		64		(2,041	)		473,315

Total	$	620,830	$	134	$	(2,190	)	$	618,774

The following is a summary of available-for-sale marketable debt securities as of December 31, 2020:

	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Available-for-sale – matures within one year:
Corporate bonds	$	141,824	$	509	$	(57	)	$	142,276
Governmental bonds		1,400		11		-			1,411
		143,224		520		(57	)		143,687

Available for-sale – matures after one year:
Corporate bonds		142,701		65		(214	)		142,552
Governmental bonds		4,895		-		(13	)		4,882
		147,596		65		(227	)		147,434

Total	$	290,820	$	585	$	(284	)	$	291,121

As of September 30, 2021, the Company didn’t record an allowance for credit losses for its available-for-sale marketable debt securities.

F - 12

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

U.S. dollars in thousands (except share and per share data)

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, the Company completed the second investment.

Under ASU 2016-01 equity investments without readily determinable fair value include ownership rights that either (i) do not meet the definition of in-substance common stock or (ii) do not provide the Company with control or significant influence.

The Company adjusts the carrying value of its non-marketable equity securities to fair value upon observable transactions for identical or similar investments of the same issuer or upon impairment. All gains and losses on non-marketable equity securities, realized and unrealized, are recognized in financial income (expenses), net.

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 September 30, 2021. The maximum loss the Company can incur for its investments is their carrying value. Investments in privately-held companies are included within other long-term assets on the consolidated balance sheets.

The Company periodically evaluates the carrying value of the investments in privately-held companies when events and circumstances indicate that the carrying amount of the investment may not be recovered. These investments include the Company’s holdings in privately-held companies that are not traded and therefore not supported with observable market prices. The Company may determine the fair value by reviewing equity valuation reports, current financial results, long-term plans of the privately-held companies, the amount of cash that the privately-held companies have on-hand, the ability to obtain additional financing and overall market conditions in which the privately-held companies operate or based on the price observed from the most recent completed financing.

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

F - 13

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

U.S. dollars in thousands (except share and per share data)

NOTE 5:-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 September 30, 2021 and December 31, 2020 by level within the fair value hierarchy:

		Fair value measurements as of
	Fair Value	September 30,		December 31,
Description	Hierarchy	2021		2020
Measured at fair value on a recurring basis:

Assets:
Cash equivalents:
Money market mutual funds	Level 1	$	85,581	$	480,673

Derivative instruments asset:
Options and forward contracts designated as hedging instruments	Level 2	$	706	$	-
Options and forward contracts not designated as hedging instruments	Level 2	$	3,796	$	3,786

Short-term marketable securities:
Corporate bonds	Level 2	$	138,864	$	142,276
Governmental bonds	Level 2	$	6,595	$	1,411

Long-term marketable securities:
Corporate bonds	Level 2	$	461,166	$	142,552
Governmental bonds	Level 2	$	12,149	$	4,882

Liabilities
Derivative instruments liability:
Options and forward contracts not designated as hedging instruments	Level 2	$	-	$	(5,819	)

F - 14

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

U.S. dollars in thousands (except share and per share data)

NOTE 6:-DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company accounts for derivatives and hedging based on ASC 815 (“Derivatives and Hedging”). ASC 815 requires the Company to recognize all derivatives on the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship.

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 nine months ended September 30, 2021, 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 September 30, 2021, the Company entered into forward contracts to sell U.S. dollars for NIS in the amount of $36,481.

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 income (expenses), net.

As of September 30, 2021, the Company entered into forward contracts and put and call options to sell Australian dollars (“AUD”) for U.S. dollars in the amount of AUD 6 million and AUD 9 million, respectively.

As of September 30, 2021, the Company entered into forward contracts and put and call options to sell Euro (“EUR”) for U.S. dollars in the amount of EUR 56 million and EUR 24 million, respectively.

The fair value of derivative assets as of September 30, 2021 and December 31, 2020, was $4,502 and $3,786, respectively, which was recorded in prepaid expenses and other current assets in the consolidated balance sheets.

As of September 30, 2021, there were no derivative liabilities. As of December 31, 2020, the fair value of derivative liabilities was $5,819, which was recorded in accrued expenses and other current liabilities in the consolidated balance sheets.

For the three months ended September 30, 2021 and 2020, the Company recorded a gain and loss in the amount of $3,350 and $1,450, respectively, in financial income (expense), net, related to the derivative instruments not designated as cash flow hedges.

For the three months ended September 30, 2021 and 2020, the Company recorded an unrealized gain in the amount of $1,006 and $85 net of tax effect, respectively, in “accumulated other comprehensive loss” related to the derivative assets designated as hedging instruments.

F - 15

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

U.S. dollars in thousands (except share and per share data)

NOTE 6:-DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Cont.)

For the nine months ended September 30, 2021 and 2020, the Company recorded a gain and loss in the amount of $7,706 and $959, respectively, in financial income (expense), net, related to the derivative instruments not designated as cash flow hedges.

For the nine months ended September 30, 2021 and 2020, the Company recorded unrealized gain in the amount of $1,719 and $966 net of tax effect, respectively, in “accumulated other comprehensive loss” related to the derivative assets designated as hedging instruments.

NOTE 7:-OTHER COMPRENHENSIVE INCOME (LOSS)

The following table provides details about reclassifications out of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2021 and 2020:

Details about Accumulated Other Comprehensive Income (Loss) Components	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)												Affected Line Item in the Statements of Income
	Three months ended						Nine months ended
	September 30,						September 30,
	2021			2020			2021			2020
Unrealized gains on cash flow hedges, net	$	97		$	90		$	152		$	189		Cost of revenues
		476			353			751			623		Research and development
		97			75			153			136		Sales and marketing
		124			87			196			153		General and administrative
		794			605			1,252			1,101		Total, before income taxes
		(96	)		(74	)		(152	)		(135	)	Income tax expense
	$	698		$	531		$	1,100		$	966		Total, net of income taxes
Unrealized gains on available-for-sale marketable securitie	$	12		$	-		$	16		$	-		Financial income (expenses), net
		-			-			(4	)		-		Income tax expense
	$	12		$	-		$	12		$	-		Total, net of income taxes
	$	710		$	531		$	1,112		$	966		Total, net of income taxes

F - 16

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

U.S. dollars in thousands (except share and per share data)

NOTE 8:-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 “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, if any, to, but excluding, the 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 September 30, 2021 and December 31, 2020:

	As of			As of
	September 30, 2021			December 31, 2020
Liability:
Principal	$	632,500		$	632,500
Unamortized debt discount		-			(46,353	)
Unamortized issuance costs		(11,692	)		(12,797	)
Net carrying amount	$	620,808		$	573,350

Equity component:
Amount allocated to conversion option	$	-		$	48,834
Deferred taxes liability, net		-			(11,368	)
Allocated issuance costs		-			(1,130	)
Equity component, net	$	-		$	36,336

F - 17

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

U.S. dollars in thousands (except share and per share data)

NOTE 8:-CONVERTIBLE SENIOR NOTES (Cont.)

As of September 30, 2021, the debt issuance costs of the Notes will be amortized over the remaining term of approximately 4 years.

Prior to January 1, 2021, the Company separated the Notes into liability and equity components. On issuance, the carrying amount of the equity components was recorded as a debt discount and subsequently amortized to interest expense. Effective January 1, 2021, the Company early adopted ASU 2020-06 using the modified retrospective approach. The Notes are accounted for as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives.

Adoption of the new standard resulted in an increase of retained earnings in an amount of $2,884, a decrease of an additional paid-in capital in an amount of $36,336, an increase of convertible senior notes, net, in an amount of $45,282 and a decrease of deferred tax liabilities, net, in an amount of $11,830. The impact of adoption of this standard on the Company’s earnings per share was immaterial.

The annual effective interest rate of the Notes following the adoption of ASU 2020-06 is 0.47%.

The following table presents the total amount of interest expenses recognized related to the Notes for the three and nine months ended September 30, 2021 and 2020:

	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Amortization of debt discount	$	-	$	131	$	-	$	131
Amortization of debt issuance costs		726		37		2,176		37
Total interest expenses	$	726	$	168	$	2,176	$	168

As of September 30, 2021, the estimated fair value of the Notes, which the Company has classified as Level 2 financial instruments, is $791,106. 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 September 30, 2021, the if-converted value of the Notes exceeded the principal amount by $158,606.

NOTE 9:-WARRANTY OBLIGATIONS

Changes in the Company’s product warranty obligations for the nine months ended September 30, 2021 and 2020, were as follows:

	As of September 30,
	2021			2020
Balance, at the beginning of the period	$	204,994		$	172,563
Additions and adjustments to cost of revenues		109,382			74,465
Usage and current warranty expenses		(67,313	)		(51,334	)
Balance, at the end of the period		247,063			195,694
Less current portion		(67,096	)		(65,080	)
Long term portion	$	179,967		$	130,614

F - 18

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

U.S. dollars in thousands (except share and per share data)

NOTE 10:-COMMITMENTS AND CONTINGENT LIABILITIES

a.Guarantees:

As of September 30, 2021, contingent liabilities exist regarding guarantees in the amounts of $5,167 and $2,782 in respect of office rent lease agreements 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 held by contract manufacturers and purchase orders initiated by the contract manufacturers, which cannot be canceled without penalty.

The Company utilizes third parties to manufacture its products. 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 September 30, 2021, the Company had non-cancelable purchase obligations totaling approximately $1,178,921 out of which the Company recorded a provision for loss in the amount of $3,992.

As of September 30, 2021, the Company had contractual obligations for capital expenditures totaling approximately $126,210. 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 construction of Sella 2, the Company’s planned second lithium-ion cell and battery factory in Korea which is under construction.

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, alleged that the Company’s 12.5kW - 27.6kW inverters infringe two of the plaintiff’s patents. In its complaint, SMA asserted a value in dispute of EUR 5.5 million (approximately $6,364) for both patents. The Company challenged the validity of both patents. With respect to one of the claims, in October 2020, the German Patent Court rendered the SMA patent invalid and this invalidity has been appealed by SMA. With respect to the other claim, in November 2019, the first instance court stayed the infringement proceedings since it considered it to be highly likely that the second SMA patent would also be rendered invalid. The Company believes that it has meritorious defenses to the claims asserted and intends to vigorously defend against the remaining lawsuit.

In May 2019, the Company’s two Chinese subsidiaries and its equipment manufacturer in China were served with three lawsuits by Huawei Technologies Co., Ltd., a Chinese entity (“Huawei”).

F - 19

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

U.S. dollars in thousands (except share and per share data)

NOTE 10:-COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

The lawsuits, filed in the Guangzhou intellectual property court, alleged infringement of three patents and asked for an injunction of manufacture, use, sale and offer for sale, and damage awards. A first-instance judgment was issued on August 7, 2020 ordering the three defendants to collectively pay damages in the amount of approximately Chinese Yuan (“CNY”) 10.5 million (approximately $1,623), including court fees, with respect of one of the patents. The Company has filed an appeal with the Supreme People’s Court of China. The first instance court’s judgement is not effective or enforceable pending the appeal. In addition, in January 2021, Huawei filed a motion to increase its claimed monetary damages to CNY 50.5 million (approximately $7,808) and for a preliminary injunction with respect to the second lawsuit. In February 2021, a preliminary injunction was rendered by the Guangzhou intellectual property court with respect to such second lawsuit and applying to seven inverter models. In line with the court’s mandate, the Company took immediate action to make software changes to meet the court order and also appealed the decision. In addition, in February 22, 2021 a first-instance judgment was issued ordering the three defendants to collectively pay damages in the amount of CNY 50.5 million (approximately $7,808), including court fees, with respect to the second patent. The Company appealed this judgement with the Supreme People’s Court. The first instance court’s judgement is not effective or enforceable pending the appeal. In October 2021, a first-instance judgment was issued ordering the three defendants to collectively pay damages in the amount of approximately CNY 10.5 million (approximately $1,623), including court fees, with respect to the third lawsuit. The Company has filed an appeal with the Supreme People’s Court of China. The first instance court’s judgement is not effective or enforceable pending the appeal. The Company believes that it has meritorious defenses to the claims asserted by Huawei.

In December 2019, the Company received a lawsuit filed by a former consultant of the Company and its Israeli subsidiary in the amount of 25.5 million NIS (approximately $7,897) claiming damages caused relating to a terminated consulting agreement and stock options therein. The Company believes it has meritorious defenses to the claims asserted and intends to vigorously defend against this lawsuit.

As of September 30, 2021, accrued amounts for legal claims of $11,132, were recorded in accrued expenses and other current liabilities.

F - 20

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

U.S. dollars in thousands (except share and 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.Stock 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, RSUs and other share-based awards to directors, employees, officers and nonemployees of the Company and its subsidiaries.

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

In the three and nine months ended September 30, 2021, the Company granted under its 2015 Plan, performance-based restricted stock unit (“PRSU”) awards to certain employees which vest upon the achievement of certain performance conditions subject to the employees’ continued service relationship with the Company. The probability of vesting is assessed at each reporting period and compensation cost is adjusted based on this probability assessment. The Company recognizes such compensation expenses on an accelerated vesting method.

As of September 30, 2021, a total of 15,406,316 shares of common stock were reserved for issuance pursuant to stock awards under the 2015 Plan (the “Share Reserve”).

The aggregate maximum number of shares of common stock that may be issued on the exercise of incentive stock options is