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PART I. FINANCIAL INFORMATION	F-1
ITEM 1.Financial Statements	F-1
Condensed Consolidated Balance Sheets	F-1
Condensed Consolidated Statements of Income	F-3
Condensed Consolidated Statements of Comprehensive Income	F-4
Condensed Consolidated Statements of Changes in Stockholders’ Equity	F-5
Condensed Consolidated Statements of Cash Flows	F-6
Notes to the Condensed Consolidated Financial Statements (unaudited)	F-8
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.	13
ITEM 4. Controls and Procedures	14
PART II. OTHER INFORMATION.	14
ITEM 1. Legal Proceedings.	14
ITEM 1A. Risk Factors	14
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.	15
ITEM 3. Defaults upon Senior Securities	15
ITEM 4. Mine Safety Disclosures	15
ITEM 5. Other Information.	15
ITEM 6. Exhibits	16
EXHIBIT INDEX.	16

NOTE 1:       GENERAL

 

a.

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

 

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

 

b.

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

 

c.

Basis of Presentation:

 

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

 

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

 

d.

Use of estimates:

 

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

 

e.

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.

 

F - 8

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SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

(in thousands, except per share data)

NOTE 1:       GENERAL (Cont.)

As of March 31, 2022, and December 31, 2021, two contract manufacturers collectively accounted for 20.9% and 27.9% 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.

 

f.

New accounting pronouncements not yet adopted:

 

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

 

g.

Recently issued and adopted pronouncements:

 

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

 

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

 

h.

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

 

F - 9

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NOTE 2:       MARKETABLE SECURITIES

 

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

 

		Amortized cost				Gross unrealized gains				Gross unrealized losses				Fair value
Available-for-sale – matures within one year:
Corporate bonds		$	154,930			$	-			$	(882	)		$	154,048
Governmental bonds			4,528				-				(19	)			4,509
			159,458				-				(901	)			158,557
Available-for-sale – matures after one year:
Corporate bonds			453,220				-				(16,507	)			436,713
Governmental bonds			13,428				-				(468	)			12,960
			466,648				-				(16,975	)			449,673
Total		$	626,106			$	-			$	(17,876	)		$	608,230

 

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

 

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

 

As of March 31, 2022 and December 31, 2021 the Company didn’t record an allowance for credit losses for its available-for-sale marketable debt securities.

NOTE 3:       INVENTORIES, NET

 

		March 31, 2022				December 31, 2021
Raw materials		$	317,173			$	247,386
Work in process			16,800				13,863
Finished goods			98,531				118,894
		$	432,504			$	380,143

NOTE 4:       INVESTMENT IN PRIVATELY-HELD COMPANY

 

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

 

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

 

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

 

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

 

No impairment or other adjustments related to observable price changes in orderly transactions for identical or similar investments were identified for the three months ended March 31, 2022 and 2021.

NOTE 5:       DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

 

To protect against the increase in value of forecasted foreign currency cash flows resulting from salary denominated in the Israeli currency, the New Israeli Shekels (“NIS”), during the three months ended March 31, 2022, the Company instituted a foreign currency cash flow hedging program. The Company hedges portions of the anticipated payroll denominated in NIS for a period of one to nine months with hedging contracts. Accordingly, when the dollar strengthens against the NIS, the decline in present value of future foreign currency expenses is offset by losses in the fair value of the hedging contracts. Conversely, when the dollar weakens, the increase in the present value of future foreign currency cash flows is offset by gains in the fair value of the hedging contracts. These hedging contracts are designated as cash flow hedges, as defined by ASC 815 and are all effective hedges.

 

As of March 31, 2022, the Company entered into forward contracts and put and call options to sell and buy U.S. dollars (“USD”) for NIS in the amount of $29 million and $44 million, respectively.

 

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

 

As of March 31, 2022, the Company entered into forward contracts to sell Australian dollars (“AUD”) for U.S. dollars in the amount of AUD 19 million.

 

As of March 31, 2022, the Company entered into forward contracts to sell Euro for U.S. dollars in the amount of €29 million.

 

As of March 31, 2022, the Company entered into forward contracts to sell U.S. dollars for South Korean Won in the amount of $5,000.

 

The fair value of derivative assets as of March 31, 2022, and December 31, 2021 was $2,042 and $4,009, which was recorded in prepaid expenses and other current assets in the Consolidated Balance Sheets, respectively.

 

The fair value of derivative liabilities as of March 31, 2022, and December 31, 2021 was $536 and $169, which was recorded in accrued expenses and other current liabilities in the Consolidated Balance Sheets, respectively.

 

For the three months ended March 31, 2022 and 2021, the Company recorded a gain and in the amount of $934 and $3,536, respectively, in "Financial expense, net", related to the derivative instruments not designated as hedging instruments.

 

For the three months ended March 31, 2022 and 2021, the Company recorded an unrealized loss in the amount of $1,178 and $128, net of tax effect, respectively, in “Accumulated other comprehensive loss” related to the derivative assets designated as hedging instruments.

 

F - 12

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NOTE 6:      FAIR VALUE MEASUREMENTS

 

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

 

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

 

				Fair value measurements as of
Description		Fair Value Hierarchy		March 31, 2022				December 31, 2021
Assets:
Cash equivalents:
Money market mutual funds		Level 1		$	603,405			$	21,680
Derivative instruments asset:
Forward contracts designated as hedging instruments		Level 2		$	465			$	992
Options and forward contracts not designated as hedging instruments		Level 2		$	1,577			$	3,017
Short-term marketable securities:
Corporate bonds		Level 2		$	154,048			$	160,165
Governmental bonds		Level 2		$	4,509			$	7,563
Long-term marketable securities:
Corporate bonds		Level 2		$	436,713			$	468,841
Governmental bonds		Level 2		$	12,960			$	13,387
Liabilities
Derivative instruments liability:
Options and forward contracts designated as hedging instruments		Level 2		$	(245	)		$	-
Forward contracts not designated as hedging instruments		Level 2		$	(291	)		$	169

NOTE 7:       WARRANTY OBLIGATIONS

 

Changes in the Company’s product warranty obligations for the three months ended March 31, 2022 and 2021, were as follows:

 

		Three Months Ended March 31,
		2022				2021
Balance, at the beginning of the period		$	265,160			$	204,994
Additions and adjustments to cost of revenues			47,907				29,971
Usage and current warranty expenses			(20,401	)			(17,012	)
Balance, at end of the period			292,666				217,953
Less current portion			(82,340	)			(63,443	)
Long term portion		$	210,326			$	154,510

NOTE 8:       DEFERRED REVENUES

 

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

 

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

 

		Three Months Ended March 31,
		2022				2021
Balance, at the beginning of the period		$	169,345			$	140,020
Revenue recognized			(14,529	)			(19,786	)
Increase in deferred revenues and customer advances			29,429				22,999
Balance, at the end of the period			184,245				143,233
Less current portion			(25,511	)			(21,065	)
Long term portion		$	158,734			$	122,168

 

The following table includes estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2022:

 

2022		$	15,468
2023			17,380
2024			8,468
2025			7,506
2026			6,769
Thereafter			128,654
Total deferred revenues		$	184,245

 

NOTE 10:       CONVERTIBLE SENIOR NOTES

 

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

 

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

 

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

 

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

 

		March 31, 2022				December 31, 2021
Liability:
Principal		$	632,500			$	632,500
Unamortized issuance costs			(10,237	)			(10,965	)
Net carrying amount		$	622,263			$	621,535

 

For the three months ended March 31, 2022 and 2021 the Company recorded issuance costs related to the Notes in the amount of $728 and $724, respectively.

 

As of March 31, 2022, the issuance costs of the Notes will be amortized over the remaining term of approximately 3.5 years.

 

The annual effective interest rate of the liability component is 0.47%.

 

As of March 31, 2022, the estimated fair value of the Notes, which the Company has classified as Level 2 financial instruments, is $878,985. The estimated fair value was determined based on the quoted bid price of the Notes in an over-the-counter market on the last trading day of the reporting period.

 

As of March 31, 2022, the if-converted value of the Notes exceeded the principal amount by $246,485.

 

F - 15

---

 

NOTE 11:       STOCK CAPITAL

 

a.            Common stock rights:

 

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

 

b.            Secondary public offering:

 

On March 17, 2022, the Company offered and sold 2,300,000 shares of the Company’s common stock, at a public offering price of $295.00 per share. The shares of Common Stock were issued and sold pursuant to the underwriting agreement dated March 17, 2022 among the Company, Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC (the “Underwriting Agreement”). All of the offered shares were issued at closing, including 300,000 shares of Common Stock that were issued and sold pursuant to the underwriters’ option to purchase additional shares under the Underwriting Agreement, which was exercised in full on March 18, 2022. The shares of Common Stock were issued and sold pursuant to the Company’s Registration Statement on Form S-3, which became effective upon filing with the Securities and Exchange Commission on February 22, 2022, the related prospectus dated February 22, 2022, and the prospectus supplement dated March 17, 2022.

 

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

 

c.            Equity Incentive Plans:

 

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

 

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

 

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

 

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

 

F - 16

---

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

(in thousands, except per share data)

 

NOTE 11:       STOCK CAPITAL  (Cont.)

 

The aggregate maximum number of shares of common stock that may be issued on the exercise of incentive stock options is 10,000,000. As of March 31, 2022, an aggregate of 8,617,974 options are still available for future grant under the 2015 Plan.

 

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

 

 

		Number of options				Weighted average exercise price				Weighted average remaining contractual term in years				Aggregate intrinsic Value
Outstanding as of December 31, 2021			474,280			$	44.68				5.22			$	112,479
Exercised			(51,759	)			28.55				-				15,142
Forfeited or expired			(243	)			5.01				-				-
Outstanding as of March 31, 2022			422,278			$	46.63				5.04			$	114,987
Vested and expected to vest as of March 31, 2022			420,193			$	46.36				5.45			$	115,977
Exercisable as of March 31, 2022			342,083			$	31.86				4.99			$	99,379

 

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

 

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

 

		Number of RSUs				Weighted average grant date fair value
Unvested as of December 31, 2021			1,759,972			$	189.25
Granted			94,839				312.32
Vested			(218,992	)			118.04
Forfeited			(44,567	)			204.02
Unvested as of March 31, 2022			1,591,252			$	185.66

 

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

 

		Number of PSUs				Weighted average grant date fair value
Unvested as of December 31, 2021			108,595			$	296.40
Granted			54,964				209.33
Unvested as of March 31, 2022			163,559			$	267.14

 

d.           Employee Stock Purchase Plan:

 

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

 

F - 17

---

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

(in thousands, except per share data)

 

NOTE 11:       STOCK CAPITAL  (Cont.)

 

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

 

As of March 31, 2022, 661,827 shares of common stock had been purchased under the ESPP.

 

As of March 31, 2022, 3,000,910 shares of common stock were available for future issuance under the ESPP.

 

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

 

e.            Stock-based compensation expenses:

 

The Company recognized stock-based compensation expenses related to all stock-based awards in the consolidated statement of income for the three months ended March 31, 2022, and 2021, as follows:

 

		Three Months Ended March 31,
			2022				2021
Cost of revenues		$	5,062			$	5,790
Research and development			14,985				8,798
Selling and marketing			6,701				5,435
General and administrative			7,359				3,130
Total stock-based compensation expenses		$	34,107			$	23,153

 

The total tax benefit associated with share-based compensation for the three months ended March 31, 2022 and 2021 was $3,478 and $4,397, respectively. The tax benefit realized from share-based compensation for three months ended March 31, 2022 and 2021 was $2,927 and $2,749, respectively.

 

As of March 31, 2022, there were total unrecognized compensation expenses in the amount of $308,373 related to non-vested equity-based compensation arrangements granted under the Company’s plans and non-plan awards. These expenses are expected to be recognized during the period from April 1, 2022 through October 31, 2026.

NOTE 12:       COMMITMENTS AND CONTINGENT LIABILITIES

 

a.            Guarantees:

 

As of March 31, 2022, contingent liabilities exist regarding guarantees in the amounts of $6,284 and $1,541 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 and other purchase orders, which cannot be canceled without penalty. In addition, the Company acquires raw materials or other goods and services, including product components, by issuing authorizations to its suppliers to purchase materials based on its projected demand and manufacturing needs.

 

As of March 31, 2022, the Company had non-cancelable purchase obligations totaling approximately $1,426,689, out of which the Company recorded a provision for loss in the amount of $4,745.

 

As of March 31, 2022, the Company had contractual obligations for capital expenditures totaling approximately $144,201. 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.

 

c.            Legal claims:

 

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

 

In September 2018, the Company’s German subsidiary, SolarEdge Technologies GmbH received a complaint filed by competitor SMA Solar Technology AG (“SMA”). The complaint, filed in the District Court Düsseldorf, Germany, alleges that SolarEdge's 12.5kW - 27.6kW inverters infringe two of the plaintiff’s patents. SMA asserted a value in dispute of EUR 5.5 million (approximately $6,102) 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”). 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 $1,658), including court fees. The Company has filed an appeal with the Supreme People’s Court of China. The Company's appeal to the Supreme People's Court was denied in December of 2021, rendering a payment by us to Huawei in an amount of $1,658. The judgement has not been enforced. In addition, in January 2021, Huawei filed a motion to increase its claimed monetary damages to CNY 50.5 million (approximately $7,975) 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. In addition, in February 22, 2021 a first-instance judgment was issued ordering payment of damages in the amount of CNY 50.5 million (approximately $7,975), including court fees, with respect to the second patent. The Company appealed this judgement with the Supreme People’s Court which case is still pending. The first instance court’s judgement is not effective or enforceable pending the appeal. In October 2021, a first-instance judgment was issued ordering to pay damages in the amount of approximately CNY 10.5 million (approximately $1,658), including court fees, with respect to the third lawsuit. The Company has filed an appeal with the Supreme People’s Court of China which also is still pending. 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 NIS 25.5 million (approximately $8,029) 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 March 31, 2022, accrued amounts for legal claims of $11,476 were recorded in accrued expenses and other current liabilities.

 

F - 19

---

 

NOTE 13:       ACCUMULATED OTHER COMPREHENSIVE LOSS

 

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

 

		Three Months Ended March 31,
		2022				2021
Unrealized gains (losses) on available-for-sale marketable securities
Beginning balance		$	(4,709	)		$	240
Revaluation			(12,721	)			(1,468	)
Tax on revaluation			2,471				283
Other comprehensive loss before reclassifications			(10,250	)			(1,185	)
Reclassification			844				-
Tax on reclassification			(100	)			-
Losses reclassified from accumulated other comprehensive income			744				-
Net current period other comprehensive loss			(9,506	)			(1,185	)
Ending balance		$	(14,215	)		$	(945	)
Unrealized gains (losses) on cash flow hedges
Beginning balance		$	874			$	-
Revaluation			(1,337	)			(146	)
Tax on revaluation			159				18
Other comprehensive loss before reclassifications			(1,178	)			(128	)
Reclassification			565				-
Tax on reclassification			(67	)			-
Losses reclassified from accumulated other comprehensive loss			498				-
Net current period other comprehensive loss			(680	)			(128	)
Ending balance		$	194			$	(128	)
Foreign currency translation adjustments on intra-entity transactions that are of a long-term investment in nature
Beginning balance		$	(17,420	)		$	-
Revaluation			(6,983	)			(3,675	)
Tax on revaluation			-				-
Other comprehensive loss before reclassifications			(6,983	)			(3,675	)
Net current period other comprehensive loss			(6,983	)			(3,675	)
Ending balance		$	(24,403	)		$	(3,675	)
Unrealized gains (losses) on foreign currency translation
Beginning balance		$	(6,064	)		$	3,617
Revaluation			(1,579	)			(5,630	)
Tax on revaluation			-				-
Other comprehensive loss before reclassifications			(1,579	)			(5,630	)
Net current period other comprehensive loss			(1,579	)			(5,630	)
Ending balance		$	(7,643	)		$	(2,013	)
Total		$	(46,067	)		$	(6,761	)

 

F - 20

---

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

(in thousands, except per share data)

 

NOTE 13:       ACCUMULATED OTHER COMPREHENSIVE LOSS (Cont.)

 

The following table summarizes the changes in "Accumulated other comprehensive loss", net of taxes:

 

Details about Accumulated Other Comprehensive Loss Components		Three Months Ended March 31,							Affected Line Item in the Statement of Income
		2022				2021
Unrealized losses on available-for-sale marketable securities
		$	(844	)		$	-		Financial expense, net
			100				-		Income taxes
		$	(744	)		$	-		Total, net of income taxes
Unrealized losses on cash flow hedges, net
			(67	)			-		Cost of revenues
			(338	)			-		Research and development
			(71	)			-		Sales and marketing
			(89	)			-		General and administrative
		$	(565	)		$	-		Total, before income taxes
			67				-		Income taxes
			(498	)			-
Total reclassifications for the period		$	(1,242	)		$	-

 

F - 21

---

 

NOTE 14:       EARNINGS PER SHARE

 

The following table presents the computation of basic and diluted EPS:

 

		Three Months Ended March 31,
		2022				2021
Basic EPS:
Numerator:
Net income		$	33,123			$	30,076
Denominator:
Shares used in computing net earnings per share of common stock, basic			53,134,937				51,726,998
Diluted EPS:
Numerator:
Net income attributable to common stock, basic		$	33,123			$	30,076
Notes due 2025			553				534
Net income attributable to common stock, diluted		$	33,676			$	30,610
Denominator:
Shares used in computing net earnings per share of common stock, basic			53,134,937				51,726,998
Notes due 2025			2,276,818				2,276,818
Effect of stock-based awards			903,438				1,993,320
Shares used in computing net earnings per share of common stock, diluted			56,315,193				55,997,136

 

No shares were excluded from the calculation for the three months ended March 31, 2022 and 2021.

 

NOTE 15:       OTHER OPERATING EXPENSES

 

In the three months ended March 31, 2021, the Company recorded a write-off of long-lived assets in the amount of $2,209.

 

NOTE 16:       INCOME TAXES

 

The effective tax rate for the three months ended March 31, 2022 and 2021 was 27.1% and 20.9%, respectively.

 

The increase in the effective tax rate in the three months ended March 31, 2022, is primarily due to a different allocation of income among the Company’s US, Israeli, and foreign subsidiaries and the change to Section 174 of the U.S Internal Revenue Code, which went into effect on January 1, 2022. The change eliminates the option to deduct research and development expenditures currently and requires taxpayers to amortize them over five years (if generated from a US entity) and fifteen years (if generated from non-US entities). This change resulted in an increase in the Company’s taxable income and Global Intangible Low Taxed Income (“GILTI”) tax.

 

As of March 31, 2022, and December 31, 2021, unrecognized tax benefits were $2,303 and $2,192, respectively. If recognized, such benefits would favorably affect the Company’s effective tax rate.

 

The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. The total amount of penalties and interest were immaterial as of March 31, 2022, and December 31, 2021.

 

F - 22

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NOTE 17:       SEGMENT, GEOGRAPHIC AND PRODUCT INFORMATION (Cont.)

 

The Company operates in five different operating segments: Solar, Energy Storage, e-Mobility, Critical Power and Automation Machines.

 

The Company's Chief Executive Officer, who is the chief operating decision maker (“CODM”), makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis, accompanied by disaggregated information about revenues and contributed profit by the operating segments.

 

The Company does not allocate to its operating segments revenue recognized due to advance payments received for performance obligations that extend for a period greater than one year, related to Accounting Standard Codification 606, “Revenue from Contracts with Customers” (ASC 606).

 

Segment profit is comprised of gross profit for the segment less operating expenses that do not include amortization of purchased intangible assets, stock based compensation expenses and certain other items.

 

The Company manages its assets on a group basis, not by segments, as many of its assets are shared or co-mingled. The Company’s CODM does not regularly review asset information by segments and, therefore, the Company does not report asset information by segment.

 

The Company identified one operating segment as reportable – the Solar segment. The other operating segments are insignificant individually and therefore their results are presented together under “All other”.

 

The Solar segment includes the design, development, manufacturing, and sales of an intelligent inverter solution designed to maximize power generation at the individual PV module level and a residential storage solution, compatible with the Company’s energy hub inverter, intended to store and supply power for back-up and to maximize self-consumption. The Solar segment solution consists mainly of the Company’s power optimizers, inverters, batteries and cloud‑based monitoring platform.

 

The “All other” category includes the design, development, manufacturing and sales of energy storage products, e-Mobility products, UPS products and automated machines.

 

The following table presents information on reportable segments profit (loss) for the period presented:

 

		Three Months Ended March 31,
		2022								2021
		Solar				All other				Solar				All other
Revenues		$	607,997			$	46,948			$	376,287			$	29,116
Cost of revenues			424,500				44,341				226,833				30,483
Gross profit (loss)			183,497				2,607				149,454				(1,367	)
Research and development		$	43,131			$	7,930				31,902				6,265
Sales and marketing			25,805				2,574				18,742				2,497
General and administrative			15,849				3,625				13,272				3,501
Segments profit (loss)		$	98,712			$	(11,522	)		$	85,538			$	(13,630	)

 

F - 23

---

SOLAREDGE TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

(in thousands, except per share data)

 

NOTE 17:       SEGMENT, GEOGRAPHIC AND PRODUCT INFORMATION

 

The following table presents information on reportable segments reconciliation to consolidated revenues for the periods presented:

 

		Three Months Ended March 31,
		2022				2021
Solar revenues		$	607,997			$	376,287
All other revenues			46,948				29,116
Revenues from services ASC 606			135				86
Consolidated revenues		$	655,080			$	405,489

 

The following table presents information on reportable segments reconciliation to consolidated operating income for the periods presented:

 

		Three Months Ended March 31,
		2022				2021
Solar segment profit		$	98,712			$	85,538
All other segment loss			(11,522	)			(13,630	)
Segments operating profit			87,190				71,908
Amounts not allocated to segments:
Stock based compensation expenses			(34,107	)			(23,153	)
Other unallocated expenses			(2,219	)			(4,627	)
Consolidated operating income		$	50,864			$	44,128

•

existing and future responses to and effects of Covid-19;

•

future demand for renewable energy including solar energy solutions;

•

changes to net metering policies or the reduction, elimination or expiration of government subsidies and economic incentives for on-grid solar energy applications;

•

changes in the U.S. trade environment, including the recent imposition of import tariffs;

•

federal, state, and local regulations governing the electric utility industry with respect to solar energy;

•

the retail price of electricity derived from the utility grid or alternative energy sources;

•

interest rates and supply of capital in the global financial markets in general and in the solar market specifically;

•

competition, including introductions of power optimizer, inverter and solar photovoltaic (“PV”) system monitoring products by our competitors;

•

developments in alternative technologies or improvements in distributed solar energy generation;

•

historic cyclicality of the solar industry and periodic downturns;

•

defects or performance problems in our products;

•

our ability to forecast demand for our products accurately and to match production with demand;

•

our dependence on ocean transportation to timely deliver our products in a cost-effective manner;

•

our dependence upon a small number of outside contract manufacturers and limited or single source suppliers;

•

capacity constraints, delivery schedules, manufacturing yields, and costs of our contract manufacturers and availability of components;

•

delays, disruptions, and quality control problems in manufacturing;

•

shortages, delays, price changes, or cessation of operations or production affecting our suppliers of key components;

•

business practices and regulatory compliance of our raw material suppliers;

•

performance of distributors and large installers in selling our products;

•

disruption in our global supply chain and rising prices of oil and raw materials as a result of the conflict between Russia and Ukraine may adversely affect our business; our customers’ financial stability, creditworthiness, and debt leverage ratio;

•

our ability to retain key personnel and attract additional qualified personnel;

•

our ability to effectively design, launch, market, and sell new generations of our products and services;

•

our ability to maintain our brand and to protect and defend our intellectual property;

•

our ability to retain, and events affecting, our major customers;

•

our ability to manage effectively the growth of our organization and expansion into new markets;

•

our ability to integrate acquired businesses;

•

fluctuations in global currency exchange rates;

•

unrest, terrorism, or armed conflict in Israel;

•

general economic conditions in our domestic and international markets;

•

consolidation in the solar industry among our customers and distributors;

•

our ability to service our debt; and

•

the other factors set forth under “Item 1A. Risk Factors” in “Part II-OTHER INFORMATION” section of this report, our annual report on Form 10-K for the year ended December 31, 2021 and subsequent reports on Form 10-Q and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business.

		Three months ended March 31,
		2022				2021
Inverters shipped			211,114				181,905
Power optimizers shipped			5,724,131				3,734,790
Megawatts shipped1			2,130				1,691
Residential batteries shipped			9,985				—

		Three Months Ended March 31,
		2022				2021
		(In thousands)
Revenues			655,080				405,489
Cost of revenues			476,122				265,415
Gross profit			178,958				140,074
Operating expenses:
Research and development			66,349				46,977
Sales and marketing			35,316				26,911
General and administrative			26,429				19,849
Other operating expenses			—				2,209
Total operating expenses			128,094				95,946
Operating income			50,864				44,128
Financial expense, net			(5,449	)			(6,097	)
Income before income taxes			45,415				38,031
Income taxes			12,292				7,955
Net income			33,123				30,076

		Three months ended March 31,								2021 to 2022
		2022				2021				Change
		(In thousands)
Revenues			655,080				405,489				249,591				61.6	%

		Three months ended March 31,								2021 to 2022
		2022				2021				Change
		(In thousands)
Cost of revenues			476,122				265,415				210,707				79.4	%
Gross profit			178,958				140,074				38,884				27.8	%

•

an increase in the volume of products sold and the increase in the cost of components used in the manufacturing of our products;

•

a significant increase in shipment and logistic costs in an aggregate amount of $29.4 million due to (i) an increase in shipment rates; and (ii) an increase in volumes shipped;

•

an increase in warranty expenses and warranty accruals of $17.9 million associated primarily with an increased number of products in our install base as well as an increase in costs related to the different elements of our warranty expenses which include the cost of the products, shipment and other related expenses;

•

an increase in custom duties of $10.1 million attributed to higher tariff charges due to the manufacture of a higher portion of our products for the U.S. in China;

•

an increase in other production costs of $14.9 million, which is mainly attributed to charges from our contract manufacturers due to manufacturing disruptions, related to the global supply constraints, increased logistics costs resulting from transportation disruptions and the mobilization of components among our different manufacturing sites and ramp up costs associated with the new contract manufacturing site in Mexico; and

•

an increase in personnel-related costs of $4.2 million related to the expansion of our production, operations, and support headcount which grew in parallel to our growing install base worldwide and the increase in costs associated with the production of powertrain units manufactured by the SolarEdge e-Mobility division.

•

a decrease of $5.9 million in inventory accrual which is mainly attributed to changes in inventory valuations related to manufacturing volumes, anticipated future use of such raw materials and inventory write-offs.

		Three months ended March 31,								2021 to 2022
		2022				2021				Change
		(In thousands)
Research and development			66,349				46,977				19,372				41.2	%

•

an increase in personnel-related costs of $15.6 million resulting from an increase in our research and development headcount as well as salary expenses associated with employee equity-based compensation. The increase in headcount reflects our continuing investment in enhancements of existing products as well as research and development expenses associated with bringing new products to the market;

•

a decrease in reimbursement of costs, in an amount of $2.6 million, related to the research and development activities performed by SolarEdge e-Mobility;

•

an increase in expenses related to material consumption in the manufacturing of prototypes during our development process in an amount of $1.5 million; and

•

an increase in depreciation expenses of property and equipment in an amount of $0.9 million.

•

a decrease in expenses related to consultants and sub-contractors in an amount of $2.3 million.

		Three months ended March 31,								2021 to 2022
		2022				2021				Change
		(In thousands)
Sales and marketing			35,316				26,911				8,405				31.2	%

•

an increase in personnel-related costs of $5.7 million as a result of an increase in headcount supporting our growth in all geographies, as well as salary expenses associated with employee equity-based compensation; and

•

an increase in expenses related to marketing activities by $1.2 million due to the renewal of marketing activities, exhibitions and shows, which were cancelled or postponed in 2020 and first half of 2021 due to Covid-19 restrictions.

		Three months ended March 31,								2021 to 2022
		2022				2021				Change
		(In thousands)
General and administrative			26,429				19,849				6,580				33.2	%

•

an increase in personnel-related costs of $6.8 million resulting from an increase in our general and administrative headcount, as well as salary expenses associated with employee equity-based compensation; and

•

an increase in expenses related to consultants and sub-contractors in an amount of $2.3 million.

•

a decrease of $3.6 million related to a provision for legal claims.

		Three months ended March 31,								2021 to 2022
		2022				2021				Change
		(In thousands)
Other operating expenses			—				2,209				(2,209	)			(100.0	)%

		Three months ended March 31,								2021 to 2022
		2022				2021				Change
		(In thousands)
Financial expense, net			(5,449	)			(6,097	)			648				10.6	%

•

a decrease of $2.6 million in financial income related to hedging transactions.

•

an increase of $0.8 million in realized loss on marketable securities.

		Three months ended March 31,								2021 to 2022
		2022				2021				Change
		(In thousands)
Income taxes			12,292				7,955				4,337				54.5	%

		Three months ended March 31,								2021 to 2022
		2022				2021				Change
		(In thousands)
Net income			33,123				30,076				3,047				10.1	%

		Three months ended March 31,
		2022				2021
		(In thousands)
Net cash provided by (used in) operating activities			(162,989	)			24,083
Net cash used in investing activities			(15,134	)			(153,582	)
Net cash provided by (used in) financing activities			652,335				(2,062	)
Increase (decrease) in cash, cash equivalents and restricted cash			474,212				(131,561	)

Exhibit No.		Description		Incorporation by Reference
31.1		Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and15d-14(a) of the Securities Exchange Act of 1934, as amended		Filed with this report.
31.2		Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and15d-14(a) of the Securities Exchange Act of 1934, as amended		Filed with this report.
32.1		Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		Filed with this report.
32.2		Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		Filed with this report.
101		The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows,  and (vi) Notes to Condensed Consolidated Financial Statements		Filed with this report.
104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 formatted in Inline XBRL		Included in Exhibit 101