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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

2


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

3


 

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 10,000,000. As of September 30, 2021, an aggregate of 8,617,974 options are still available for future grant under the 2015 Plan.

F - 21


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 (Cont.)

A summary of the activity in the stock options granted to employees and members of the board of directors for the nine months ended September 30, 2021 and related information are as follows:

Number of

options

Weighted

average

exercise

price

Weighted

average

remaining

contractual

term

in years

Aggregate

intrinsic

Value

Outstanding as of December 31, 2020

691,732

31.86

5.07

$

198,709

Granted

19,489

311.35

Exercised

(188,425

)

32.45