Company Quick10K Filing
Quick10K
Solaredge Technologies
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$51.49 48 $2,450
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-K 2016-06-30 Annual: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-K 2015-06-30 Annual: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
8-K 2019-06-10 Shareholder Vote
8-K 2019-05-06 Earnings, Exhibits
8-K 2019-04-25 M&A
8-K 2019-02-20 Earnings, Exhibits
8-K 2019-02-12 Other Events, Exhibits
8-K 2019-01-25 M&A, Sale of Shares, Regulation FD, Exhibits
8-K 2019-01-25 M&A, Sale of Shares, Regulation FD, Exhibits
8-K 2019-01-07 Enter Agreement, Sale of Shares, Regulation FD, Exhibits
8-K 2019-01-02 Other Events
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-10-17 Enter Agreement, M&A
8-K 2018-10-11 Regulation FD, Exhibits
8-K 2018-09-25 Other Events, Exhibits, Exhibits
8-K 2018-08-02 Earnings, Exhibits
8-K 2018-07-02 Regulation FD, Exhibits
8-K 2018-06-18 Regulation FD, Exhibits
8-K 2018-05-24 Shareholder Vote
8-K 2018-05-09 Earnings, Exhibits
8-K 2018-02-14 Earnings, Exhibits
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SEDG 2019-03-31
Part I. Financial Information
Item 1 Financial Statements
Note 1:- General
Note 2:- Business Combination
Note 3:- Intangible Assets and Goodwill
Note 4:- Inventories
Note 5:- Warranty Obligations
Note 6:- Fair Value Measurements
Note 7:- Leases
Note 8:- Commitments and Contingent Liabilities
Note 9:- Stock Capital
Note 10:- Basic and Diluted Net Earnings per Share
Note 11:- Income Taxes
Note 12:- Concentration of Credit Risk and Major Customers
Note 13:- Segment Information
Note 14:- Subsequent Events
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures About Market Risk
Item 4 Controls and Procedures
Part II. Other Information
Item 1 Legal Proceedings
Item 1A Risk Factors
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Mine Safety Disclosures
Item 5 Other Information
Item 6 Exhibits
EX-31.1 exhibit_31-1.htm
EX-31.2 exhibit_31-2.htm
EX-32.1 exhibit_32-1.htm
EX-32.2 exhibit_32-2.htm

Solaredge Technologies Earnings 2019-03-31

SEDG 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 zk1923036.htm 10-Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10-Q
 
 

 
 ☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2019
 
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
 
20-5338862
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
 
1 HaMada Street
Herziliya Pituach 4673335, Israel
(Address of principal executive offices, zip code)
 
 
972 (9) 957-6620
 
 
(Registrant’s telephone number, including area code)
 

Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, par value $0.0001 per share
SEDG
NASDAQ (Global Select Market)

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 and post 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
☐  (Do not check if a smaller reporting company)
Smaller Reporting Company
   
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.         ☐
 
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
 
Yes ☐     No 
 
As of May 7, 2019, there were 47,547,688 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 March 31, 2019
INDEX
 
3
 
 
 
3
     
  Condensed Consolidated Balance Sheets as of March 31, 2019 (unaudited) and December 31, 2018 F-2 - F-3
     
  Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018 (unaudited) F-4
     
  Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018 (unaudited) F-5
     
  Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three month ended March 31, 2019 and 2018 F-6 - F-7
     
  Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (unaudited) F-8 - F-9
     
  Notes to the Condensed Consolidated Financial Statements (unaudited)           F-10 - F-26
     
ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
     
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 13
     
ITEM 4 Controls and Procedures 14
     
14
     
ITEM 1 Legal Proceedings 14
     
ITEM 1A Risk Factors 14
     
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds 14
     
ITEM 3 Defaults upon Senior Securities 14
     
ITEM 4 Mine Safety Disclosures 14
     
ITEM 5 Other Information 14
     
ITEM 6 Exhibits 15
     
EXHIBIT INDEX   15
 
2

 
PART I. FINANCIAL INFORMATION
 
ITEM 1          FINANCIAL STATEMENTS
 
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF MARCH 31, 2019

IN U.S. DOLLARS

UNAUDITED

INDEX

 
Page
   
F-2 - F-3
   
F-4
   
F-5
   
F-6 - F-7
   
F-8 - F-9
   
F-10 - F-26

3
 
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
U.S. dollars in thousands (except share and per share data)

   
March 31,
   
December 31,
 
   
2019
   
2018
 
   
Unaudited
       
ASSETS
           
             
CURRENT ASSETS:
           
Cash and cash equivalents
 
$
226,478
   
$
191,633
 
Short-term bank deposits
   
6,057
     
6,001
 
Restricted cash
   
1,811
     
1,628
 
Marketable securities
   
107,064
     
118,680
 
Trade receivables, net
   
187,496
     
173,579
 
Prepaid expenses and other current assets
   
37,828
     
45,073
 
Inventories
   
150,798
     
141,519
 
                 
Total current assets
   
717,532
     
678,113
 
                 
LONG-TERM ASSETS:
               
   Marketable securities
   
57,252
     
74,256
 
   Operating lease right-of-use assets
   
30,839
     
-
 
   Property, plant and equipment, net
   
132,988
     
119,329
 
   Deferred tax assets, net
   
14,589
     
14,699
 
   Intangible assets, net and Goodwill
   
211,420
     
73,378
 
   Other non-current assets
   
12,303
     
4,697
 
                 
Total long term assets
   
459,391
     
286,359
 
                 
Total assets
 
$
1,176,923
   
$
964,472
 

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

F - 2

SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
U.S. dollars in thousands (except share and per share data)
 
   
March 31,
   
December 31,
 
   
2019
   
2018
 
   
Unaudited
       
             
LIABILITIES AND STOCKHOLDERS' EQUITY
           
             
CURRENT LIABILITIES:
           
Trade payables, net
 
$
90,190
   
$
107,079
 
Employees and payroll accruals
   
31,524
     
29,053
 
Current maturities of bank loans and accrued interest
   
17,233
     
16,639
 
Warranty obligations
   
35,229
     
28,868
 
Deferred revenues
   
13,527
     
14,351
 
Accrued expenses and other current liabilities
   
60,369
     
29,728
 
                 
Total current liabilities
   
248,072
     
225,718
 
                 
LONG-TERM LIABILITIES:
               
Bank loans
   
7,029
     
3,510
 
Warranty obligations
   
101,517
     
92,958
 
Deferred revenues
   
66,037
     
60,670
 
Operating lease liabilities
   
24,790
     
-
 
Deferred tax liabilities, net
   
8,544
     
1,499
 
Other non-current liabilities
   
23,417
     
9,391
 
                 
Total long-term liabilities
   
231,334
     
168,028
 
                 
COMMITMENTS AND CONTINGENT LIABILITIES
               
                 
STOCKHOLDERS’ EQUITY:
               
                 
Common stock of $0.0001 par value - Authorized: 125,000,000 shares as of March 31, 2019 (unaudited) and December 31, 2018; issued and outstanding: 47,501,363 and 46,052,802 shares as of March 31, 2019  (unaudited) and December 31, 2018, respectively
   
5
     
5
 
Additional paid-in capital
   
417,385
     
371,794
 
Accumulated other comprehensive loss
   
(1,220
)
   
(524
)
Retained earnings
   
210,149
     
191,133
 
                 
Total SolarEdge Technologies, Inc. stockholders’ equity
   
626,319
     
562,408
 
                 
Non-controlling interests
   
71,198
     
8,318
 
                 
Total stockholders’ equity
   
697,517
     
570,726
 
                 
Total liabilities and stockholders’ equity
 
$
1,176,923
   
$
964,472
 
 
The accompanying notes are an integral part of the condensed consolidated financial statements.

F - 3

SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
U.S. dollars in thousands (except share and per share data)
 
   
Three months ended
March 31,
 
   
2019
   
2018
 
   
Unaudited
 
             
Revenues
 
$
271,871
   
$
209,871
 
Cost of revenues
   
185,761
     
130,274
 
                 
Gross profit
   
86,110
     
79,597
 
                 
Operating expenses:
               
                 
Research and development
   
26,199
     
17,875
 
Sales and marketing
   
20,172
     
16,205
 
General and administrative
   
11,691
     
4,753
 
                 
Total operating expenses
   
58,062
     
38,833
 
                 
Operating income
   
28,048
     
40,764
 
                 
Financial expenses (income), net
   
6,151
     
(584
)
                 
Income before taxes on income
   
21,897
     
41,348
 
                 
Taxes on income
   
3,922
     
5,662
 
                 
Net income
 
$
17,975
   
$
35,686
 
                 
Net loss attributable to Non-controlling interests
   
1,041
     
-
 
                 
Net income attributable to SolarEdge Technologies, Inc.
 
$
19,016
   
$
35,686
 
                 
Net basic earnings per share of common stock attributable to SolarEdge Technologies, Inc.
 
$
0.40
   
$
0.81
 
                 
Net diluted earnings per share of common stock attributable to SolarEdge Technologies, Inc.
 
$
0.39
   
$
0.75
 
                 
Weighted average number of shares used in computing net basic earnings per share of common stock
   
47,020,218
     
44,231,679
 
                 
Weighted average number of shares used in computing net diluted earnings per share of common stock
   
49,026,327
     
47,673,522
 
 
The accompanying notes are an integral part of the condensed 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
March 31,
 
   
2019
   
2018
 
   
Unaudited
 
             
Net income
 
$
17,975
   
$
35,686
 
                 
Other comprehensive income (loss):
               
                 
  Available-for-sale securities:
               
     Changes in unrealized gains (losses) net of tax
   
485
     
(510
)
     Reclassification adjustments for losses included in net income
   
120
     
-
 
 Net change
   
605
     
(510
)
                 
Foreign currency translation adjustments, net
   
(1,301
)
   
(14
)
                 
Total other comprehensive loss
   
(696
)
   
(524
)
                 
Comprehensive income
 
$
17,279
   
$
35,162
 
                 
Comprehensive loss attributable to Non-controlling interests
   
849
     
-
 
                 
Comprehensive income attributable to SolarEdge Technologies, Inc.
 
$
18,128
   
$
35,162
 
 
The accompanying notes are an integral part of the condensed consolidated financial statements.

F - 5

 
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
U.S. dollars in thousands (except share and per share data)
 
   
SolarEdge Technologies, Inc. Stockholders’ Equity
             
   
Common stock
   
Additional paid in
Capital
   
Accumulated
Other comprehensive
Income (loss)
   
Retained earnings
   

Total
   
Non-controlling interests
   
Total stockholders’
equity
 
   
Number
   
Amount
 
                                                 
Balance as of January 1, 2018
   
43,812,601
   
$
4
   
$
331,902
   
$
(611
)
 
$
66,172
   
$
397,467
   
$
-
   
$
397,467
 
                                                     
 
         
Cumulative effect of adopting ASC 606
   
-
     
-
     
-
     
-
     
(3,872
)
   
(3,872
)
   
-
     
(3,872
)
Issuance of Common Stock upon exercise of employee and non-employees stock-based awards
   
1,084,507
     
* -
     
4,605
     
-
     
-
     
4,605
     
-
     
4,605
 
Equity based compensation expenses to employees and non-employee consultants
   
-
     
-
     
6,849
     
-
     
-
     
6,849
     
-
     
6,849
 
Other comprehensive loss adjustments
   
-
     
-
     
-
     
(524
)
   
-
     
(524
)
   
-
     
(524
)
Net income
   
-
     
-
     
-
     
-
     
35,686
     
35,686
     
-
     
35,686
 
                                                                 
Balance as of March 31, 2018
   
44,897,108
   
$
4
   
$
343,356
   
$
(1,135
)
 
$
97,986
   
$
440,211
   
$
-
   
$
440,211
 

* Represents an amount less than $1.

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

F - 6

SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
U.S. dollars in thousands (except share and per share data)
 
   
SolarEdge Technologies, Inc. Stockholders’ Equity
             
   
Common stock
   
Additional paid in
Capital
   
Accumulated
Other comprehensive
Income (loss)
   
Retained earnings
   

Total
   
Non-controlling interests
   
Total stockholders’
equity
 
   
Number
   
Amount
 
                                                 
Balance as of January 1, 2019
   
46,052,802
   
$
5
   
$
371,794
   
$
(524
)
 
$
191,133
   
$
562,408
   
$
8,318
   
$
570,726
 
                     
-
                                         
Issuance of Common Stock upon exercise of employee and non-employees stock-based awards
   
254,515
     
* -
     
309
     
-
     
-
     
309
     
-
     
309
 
Equity based compensation expenses to employees and non-employee consultants
   
-
     
-
     
9,704
     
-
     
-
     
9,704
     
-
     
9,704
 
Consideration in common stock related to business combination
   
1,194,046
     
* -
     
34,601
     
-
     
-
     
34,601
     
-
     
34,601
 
Non-controlling interests related to business combination
   
-
     
-
     
-
     
-
     
-
     
-
     

67,734
     
67,734
 
Change to Non-controlling interests
   
-
     
-
     
977
     
-
     
-
     
977
     
(2,964
)
   
(1,987
)
Other comprehensive income adjustments
   
-
     
-
     
-
     
(696
)
   
-
     
(696
)
   
(849
)
   
(1,545
)
Net income
   
-
     
-
     
-
     
-
     
19,016
     
19,016
     
(1,041
)
   
17,975
 
                                                                 
Balance as of March 31, 2019
   
47,501,363
   
$
5
   
$
417,385
   
$
(1,220
)
 
$
210,149
   
$
626,319
   
$
71,198
   
$
697,517
 
 
* 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
 
   
Three months ended
March 31,
 
   
2019
   
2018
 
   
Unaudited
 
             
Cash flows provided by operating activities:
           
Net income
 
$
17,975
   
$
35,686
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation of property, plant and equipment
   
3,870
     
2,394
 
Amortization of intangible assets
   
1,971
     
36
 
Amortization of premium and accretion of discount on available-for-sale marketable securities
   
(59
)
   
778
 
Stock-based compensation
   
9,704
     
6,849
 
Capital loss from disposal of equipment
   
66
     
64
 
Realized loss from sale of available-for-sale marketable securities
   
120
     
-
 
Changes in assets and liabilities:
               
Inventories
   
964
     
(15,348
)
Prepaid expenses and other assets
   
10,885
     
9,210
 
Trade receivables, net
   
(7,379
)
   
(17,935
)
Operating lease right-of-use assets and liabilities, net and effect of exchange rate differences
   
828
     
(74
)
Deferred tax assets and liabilities, net
   
(973
)
   
(1,321
)
Trade payables, net
   
(21,720
)
   
13,595
 
Employees and payroll accruals
   
3,250
     
7,153
 
Warranty obligations
   
14,947
     
9,384
 
       Deferred revenues
   
1,730
     
6,981
 
       Other liabilities
   
20,271
     
6,527
 
                 
Net cash provided by operating activities
   
56,450
     
63,979
 
                 
Cash flows from investing activities:
               
Business combination, net of cash acquired
   
(39,315
)
   
-
 
Purchase of property, plant and equipment
   
(10,620
)
   
(11,325
)
Investment in short term bank deposits
   
(56
)
   
-
 
Investment in available-for-sale marketable securities
   
(15,316
)
   
(25,436
)
Proceeds from sales and maturities of available-for-sale marketable securities
   
44,575
     
34,500
 
                 
Net cash used in investing activities
 
$
(20,732
)
 
$
(2,261
)
 
The accompanying notes are an integral part of the condensed consolidated financial statements.

F - 8

SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Cont.)
U.S. dollars in thousands

   
Three months ended
March 31,
 
   
2019
   
2018
 
   
Unaudited
 
             
Cash flows from financing activities:
           
Proceeds from bank loans borrowing
 
$
51
   
$
-
 
Payments of bank loans
   
(1,003
)
   
-
 
Proceeds from issuance of shares under stock purchase plan and upon exercise of stock-based awards
   
309
     
4,605
 
Change in Non-controlling interests
   
(1,987
)
   
-
 
                 
Net cash provided by (used in) financing activities
   
(2,630
)
   
4,605
 
                 
Increase in cash, cash equivalents and restricted cash
   
33,088
     
66,323
 
Cash, cash equivalents and restricted cash at the beginning of the period
   
193,261
     
164,679
 
Effect of exchange rate differences on cash, cash equivalents and restricted cash
   
1,940
     
(17
)
                 
Cash, cash equivalents and restricted cash at the end of the period
 
$
228,289
   
$
230,985
 
                 
Supplemental disclosure of non-cash activities:
               
                 
Operating lease, right of use asset
 
$
32,531
   
$
-
 

The accompanying notes are an integral part of the condensed 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), (iii) a related cloud-based monitoring platform, that collects and processes information from the power optimizers and inverters of a solar PV system to enable customers and system owners as applicable, to monitor and manage the solar PV systems and (iv) a storage solution that is used to increase energy independence and maximize self-consumption for homeowners by utilizing a battery that is sold separately by third party manufacturers, to store and supply power as needed (the “StorEdge solution”). The StorEdge solution is designed to provide smart energy functions such as maximizing self-consumption, Time-of-Use programming for desired hours of the day, and home energy backup solutions.

The Company and its subsidiaries sell their products worldwide through large distributors and electrical equipment wholesalers to smaller solar installers as, well as directly to large solar installers and engineering, procurement and construction firms (“EPCs”).

Since 2018, the Company completed certain strategic acquisitions in order to further expand its business.

In July and October 2018, the Company completed the acquisition ("Gamatronic Acquisition") of substantially all of the assets and activities of Gamatronic Electronic Industries Ltd ("Gamatronic IL") and all of the outstanding shares of its wholly owned subsidiary Gamatronic (UK) Limited (“Gamatronic UK”), respectively. Both companies ("UPS Division") are providers and manufacturers of Uninterruptible Power Supplies ("UPS") devices.

On October 17, 2018, the Company completed the acquisition of 74.5% of the outstanding common shares and voting rights of Kokam Co., Ltd. (“Kokam”), a Korean company whose shares are traded on the Korean OTC market, a provider of Lithium-ion cells, batteries and energy storage solutions. From October 17, 2018 and through March 31, 2019, the Company increased its shareholdings of Kokam to 94.2%.

On January 24, 2019, the Company completed the acquisition of 56.8% of the outstanding common shares and voting rights of S.M.R.E S.p.A (“SMRE”), an Italian company whose shares were traded on the Italian AIM, a provider of innovative integrated powertrain technology and electronics for electric vehicles (see note 2).

b.
New accounting pronouncements not yet effective:

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". ASU 2017-04 was issued to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The amendments in ASU 2017-04 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The Company is evaluating the potential impact of this pronouncement.

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.)

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. ASU 2016-13 also applies to employee benefit plan accounting, with an effective date of the first quarter of fiscal 2022. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated balance sheets, statements of operations and cash flows.

c.
Recently issued and adopted pronouncement:

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02 (Topic 842) "Leases". Topic 842 supersedes the lease requirements in Accounting Standards Codification (ASC) Topic 840, "Leases". Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. ASU No. 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. In July 2018, the FASB issued amendments in ASU 2018-11, which provide a transition election to not restate comparative periods for the effects of applying the new standard. This transition election permits entities to change the date of initial application to the beginning of the earliest comparative period presented, or retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment. The Company has elected to apply the standard retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment. The Company has also elected certain relief options offered in ASU 2016-02 including certain available transitional practical expedients. The Company adopted Topic 842 effective January 1, 2019. The Condensed Consolidated Financial Statements for the three months ended March 31, 2019 are presented under the new standard, while comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy (See note 7).

d.
Basis of Presentation:

The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with Article 10 of Regulation S-X, “Interim Financial Statements” and the rules and regulations for Form 10-Q of the Securities and Exchange Commission (the “SEC”). Pursuant to those rules and regulations, the Company has condensed or omitted certain information and disclosures in footnotes that it normally includes in its annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).

In management’s opinion, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present its condensed consolidated financial position, results of operations, and cash flows. The Company’s interim period operating 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, 2018, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2019, have been applied consistently in these unaudited interim condensed consolidated financial statements, except for the adoption of ASU No. 2016-02, “Leases (Topic 842) (see Note 1c).

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 1:-
GENERAL (Cont.)

e.
The Company depends on three contract manufacturers and several limited or single source component suppliers. The Company is in the process of discontinuing its activity with one of those contract manufacturers. Reliance on these vendors makes the Company vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields, and costs.

These three vendors collectively accounted for 48.7% and 58.8% of the Company’s total trade payables as of March 31, 2019 (unaudited) and December 31, 2018, respectively.

The Company has the right to offset its payables to one of its contract manufacturers against vendor non-trade receivables. As of March 31, 2019 (unaudited), a total of $1,784 of these receivables met the criteria for net recognition and were offset against the corresponding accounts payable balances for this contract manufacturer in the accompanying condensed consolidated balance sheets.

f.
Business Combination:

The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair value. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired technology, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is not to exceed one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

g.
Accounting for share-based compensation:

Some of the RSUs granted are subject to certain performance criteria (“PSUs”): accordingly, compensation expense for PSUs is recognized when it becomes probable that the related performance condition has been satisfied.

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

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 2:-
BUSINESS COMBINATION

S.M.R.E

On January 24, 2019, the Company completed the acquisition of 56.8% of the outstanding common shares and voting rights of SMRE, a provider of innovative integrated powertrain technology and electronics for electric vehicles for approximately $73.9 million, net of cash acquired, out of which $42,240 was paid in cash and $34,601 was paid in shares of SolarEdge common stock (the “SMRE Acquisition”).

As part of SMRE Acquisition, the Company issued 334,096 PSUs that are subject to certain performance goals and a vesting period, at the amount of $13,444, which will be expensed in the condensed consolidated statements of operation in general and administrative expenses line item.

As of January 24, 2019, the fair value of the 43.2% non-controlling interests in SMRE is estimated to be $67.7 million. The fair value of the non-controlling interests was valued based on and at the transaction price.

The primary reason for the SMRE Acquisition was to acquire technology and customer relationships and to expand and diversify the Company’s business by entering into the electric vehicles market.

The Company determined that the SMRE Acquisition will be accounted for as a business combination in accordance with ASC 805 "Business Combinations".

During the period from the SMRE Acquisition through March 31, 2019, the Company purchased additional common shares of SMRE in the open market, for a further investment of $1.2 million.
 
The amounts of revenue and net loss of SMRE included in the Company’s condensed consolidated statements of operations for the period from January 24, 2019 through March 31, 2019 are $2,902 and $1,879, respectively.

The following table summarizes the preliminary estimated purchase price allocation of the business combination completed during the three months ended March 31, 2019:

Components of Purchase Price:
     
       
Cash
 
$
42,240
 
Less cash acquired
   
(2,925
)
Common stock
   
34,601
 
Total purchase price
 
$
73,916
 
         
Allocation of Purchase Price:
       
         
Total net identifiable assets
 
$
9,916
 
Total identifiable intangible assets, net and Goodwill (1)
   
131,734
 
         
Noncontrolling interest
   
(67,734
)
         
Total purchase price allocation (2)
 
$
73,916
 

(1)
The intangible assets comprised primarily of technology, in process research and development and customer relationships.

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 2:-
BUSINESS COMBINATION (Cont.)

(2)
The Company is expecting to complete the preliminary estimated purchase price allocation during the measurement period of one year from January 24, 2019. Fair values that are still under review include among others, values assigned to identifiable intangible assets, goodwill, deferred income taxes and contingent liabilities.

During the three months ended March 31, 2019, the Company recognized $453 of aggregate acquisition-related costs that were expensed in the condensed consolidated statement of operations in general and administrative expenses line item.

The purchase price allocations for the business combinations completed during the year ended December 31, 2018 are still preliminary as of March 31, 2019.

The following table represents the pro-forma (unaudited) condensed consolidated statements of operations as if all acquisitions completed during the year ended December 31, 2018 and the three months ended March 31, 2019, had been included in the condensed consolidated statements of operations of the Company for the three months ended March 31, 2019 (unaudited) and 2018 (unaudited):
 
   
Three months ended March 31,
 
   
2019
   
2018
 
   
Unaudited
 
             
Revenue
 
$
272,943
   
$
231,784
 
Net income
 
$
16,610
   
$
28,654
 

The pro-forma results have been calculated after applying the Company’s accounting policies and adjusting the results of all acquisitions to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied since the acquisitions date, together with the consequential tax effects.

The pro-forma results are based on estimates and assumptions, which the Company believes are reasonable. The pro-forma results are not the results that would have been realized had the acquisitions actually occurred on January 1, 2018 and 2019, and are not necessarily indicative of the Company’s condensed consolidated statements of operations in future periods. The pro-forma results include adjustments related to business combinations accounting, primarily depreciation of property plant and equipment, amortization of intangible assets and together with the consequential tax effects.

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 3:-
INTANGIBLE ASSETS AND GOODWILL

Acquired intangible assets and goodwill consisted of the following:

   
As of March 31, 2019
   
As of December 31, 2018
 
             
Intangible assets with finite lived:
           
             
Current technology
 
$
30,214
   
$
30,821
 
Customer relationships
   
3,793
     
3,857
 
Trade names
   
3,642
     
3,721
 
Patents
   
1,400
     
1,400
 
Backlog
   
193
     
193
 
                 
Gross intangible assets
   
39,242
     
39,992
 
                 
Less - accumulated amortization
   
(2,619
)
   
(1,488
)
                 
Total intangible assets, net
   
36,623
     
38,504
 
                 
Goodwill:
               
                 
Goodwill from business combinations
   
34,874
     
34,445
 
Foreign currency translation
   
(678
)
   
429
 
                 
Goodwill
   
34,196
     
34,874
 
                 
Intangible assets with finite lived, net and goodwill resulting from SMRE Acquisition
   
140,601
     
-
 
                 
Total Intangible assets with finite lived, net and goodwill
 
$
211,420
   
$
73,378
 

Amortization expenses for the three months ended March 31, 2019 (unaudited) and 2018 (unaudited) were $1,971 and $36, respectively.

The reported amount of net acquisition-related intangible assets and goodwill can fluctuate due to the impact of changes in foreign currency exchange rates on intangible assets and goodwill not denominated in U.S. dollars.

Acquired finite-lived intangible assets are amortized on a straight-line basis or accelerated method over the estimated useful lives of the assets. The Company will amortize its finite- lived intangible assets over a period of 7-10 years.
 
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 4:-
INVENTORIES

   
March 31,
2019
   
December 31,
2018
 
   
(unaudited)
       
             
Raw materials
 
$
55,133
   
$
39,380
 
Work in process
   
21,332
     
18,115
 
Finished goods
   
74,333
     
84,024
 
                 
   
$
150,798
   
$
141,519
 
 
NOTE 5:-
WARRANTY OBLIGATIONS

Changes in the Company’s product warranty obligations for the three months ended March 31, 2019 (unaudited) and 2018 (unaudited) were as follows:

   
Three months ended
March 31,
 
   
2019
   
2018
 
   
(unaudited)
 
             
Balance, at beginning of period
 
$
121,826
   
$
78,811
 
Additions and adjustments to cost of revenues
   
22,105
     
13,159
 
Usage and current warranty expenses
   
(7,185
)
   
(3,775
)
                 
Balance, at end of period
   
136,746
     
88,195
 
Less current portion
   
(35,229
)
   
(16,605
)
                 
Long term portion
 
$
101,517
   
$
71,590
 
 
NOTE 6:-
FAIR VALUE MEASUREMENTS

In accordance with ASC 820, the Company measures its cash equivalents, foreign currency derivative contracts, and marketable securities, at fair value using the market approach valuation technique. Cash equivalents and marketable securities are classified within Level 1 or Level 2. This is because these assets are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Earn-out provision is classified within the Level 3 value hierarchy, as the valuation is based on unobservable inputs which are supported by little or no market activity.

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 6:-
FAIR VALUE MEASUREMENTS (Cont.)

The following table sets forth the Company’s assets that were measured at fair value as of March 31, 2019 and December 31, 2018, by level within the fair value hierarchy:

   
Fair value measurements
as of
 
  Fair Value  
March 31,
   
December 31,
 
Description
 
Hierarchy
 
2019
   
2018
 
        
(unaudited)
       
Measured at fair value on a recurring basis:
               
                 
Assets:
               
Cash equivalents:
               
Money market mutual funds
 
Level 1
 
$
3,050
   
$
1,767
 
                     
Short-term marketable
securities:
                   
Corporate bonds
 
Level 2
   
101,734
     
110,385
 
Governmental bonds
 
Level 2
   
5,330
     
8,295
 
                     
Long-term marketable
securities:
                   
Corporate bonds
 
Level 2
   
57,252
     
74,256
 
Governmental bonds
 
Level 2
   
-
     
-
 
                     
Liabilities
                   
Long-term Earn-out provision
 
Level 3
   
(1,045
)
   
(332
)
 
NOTE 7:-
LEASES

The Company adopted ASU No. 2016-02, “Leases (Topic 842),” effective on January 1, 2019, which requires leases with durations greater than twelve months to be recognized on the balance sheet. The Company adopted the standard using the modified retrospective approach with an effective date as of the beginning of the fiscal year, January 1, 2019. Prior year financial statements were not recast under the new standard and, therefore, those amounts are not presented below.

The Company leases offices, plants and vehicles under operating and finance leases. For leases with terms greater than 12 months, the Company records the related asset and liability at the present value of lease payments according to their term. Several of the Company’s leases include renewal options and some have termination options that are factored into the Company’s determination of the lease payments when appropriate. The Company estimates the incremental borrowing rate in order to discount the lease payments based on the information available at the lease commencement date.

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 7:-
LEASES (cont.)

The following table summarizes the Company’s lease-related assets and liabilities recorded on the condensed consolidated balance sheet:

 
Classification on the condensed consolidated Balance Sheet
 
As of March 31, 2019
 
Assets
         
           
Operating lease assets, net of lease incentive obligation
 
Operating lease right-of-use assets
 
$
30,839
 
Finance lease assets
 
Property, plant and equipment, net
   
2,905
 
Total lease assets
     
$
33,744
 
             
Liabilities
           
             
Operating and finance leases short term
 
Accrued expenses and other current liabilities
 
$
8,808
 
Operating leases long term
 
Operating lease liabilities
   
24,790
 
Finance leases long term
 
Other non-current liabilities
   
2,045
 
Total lease liabilities
     
$
35,643
 
             
Weighted average remaining lease term in years
           
  Operating leases
       
5.08
 
Finance leases
       
8.67
 
             
Weighted average annual discount rate
           
Operating leases
       
1.56
%
Finance leases
       
2.87
%

The following table presents certain information related to the lease costs for operating and finance leases for the three months ended March 31, 2019:

   
Three months
ended March
31, 2019
 
Finance lease cost
     
Amortization of leased assets
 
$
27
 
Interest on lease liabilities
   
16
 
         
Operating lease cost
   
2,231
 
         
Total lease cost
 
$
2,274
 

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 7:-
LEASES (cont.)

The following table presents supplemental cash flow information related to the lease costs for operating and finance leases for the three months ended March 31, 2019:

   
Three months
ended March
31, 2019
 
Cash paid for amounts included in the measurement of lease liabilities
     
Operating cash flows for operating leases
 
$
2,231
 

The following table reconciles the undiscounted cash flows for each of the first five years and total of the remaining years of the operating and finance lease liabilities recorded on the condensed consolidated balance sheets:

   
Operating
Lease
   
Finance
Leases
 
2019
 
$
6,632
   
$
156
 
2020
   
7,444
     
208
 
2021
   
6,443
     
208
 
2022
   
5,470
     
194
 
2023
   
4,732
     
194
 
Thereafter
   
4,435
     
1,620
 
Total lease payments
   
35,156
     
2,580
 
Less: amount of lease payments representing interest
   
(1,737
)
   
(356
)
Present value of future lease payments
   
33,419
     
2,224
 
Less: current obligations under leases
   
(8,629
)
   
(179
)
Long-term lease obligations
 
$
24,790
   
$
2,045
 
 
NOTE 8:-
COMMITMENTS AND CONTINGENT LIABILITIES

a.
Guarantees:

As of March 31, 2019 (unaudited), contingent liabilities exist regarding guarantees in the amount of $13,353, $1,938, $55 and $176 in respect of bank loans, office rent lease agreements, customs transactions and credit card limits, 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 and suppliers, which cannot be canceled without penalty. The Company utilizes third parties to manufacture its products. In addition, it acquires raw materials or other goods and services, including product components, by issuing to suppliers authorizations to purchase based on its projected demand and manufacturing needs.

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 8:-
COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

As of March 31, 2019 (unaudited), the Company had non-cancellable purchase obligations totaling approximately $242,551 out of which the Company already recorded a provision for loss in the amount of $2,061.

As of March 31, 2019 (unaudited), the Company had contractual obligations for capital expenditures totaling approximately $30,183. These commitments reflect purchases of automated assembly lines and other machinery related to the Company’s manufacturing.

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 June 2018, the Company was served with a complaint from a trustee of a former customer that filed for bankruptcy in the US. The lawsuit seeks to recover approximately $2,481 based on theories of preferential and fraudulent transfers. During the three months ended March 31, 2019 (unaudited), the Company entered into mediation process which has not yet settled. As of March 31, 2019 (unaudited), the Company has recorded an adequate provision in expectation of a settlement.
 
NOTE 9:-
STOCK CAPITAL

a.
Common Stock:
 
   
Number of shares
 
   
Authorized
   
Issued and outstanding
 
   
March 31, 2019
   
December 31, 2018
   
March 31, 2019
   
December 31, 2018
 
   
(unaudited)
         
(unaudited)
       
Stock of $0.0001 par value:
                       
Common stock
   
125,000,000
     
125,000,000
     
47,501,363
     
46,052,802
 

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. On March 31, 2015, once the Company completed its Initial Public Offering (“IPO”), the 2007 Plan was terminated and no further awards will 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 consultants of the Company and its Subsidiaries. As of March 31, 2019 (unaudited), a total of 10,383,357 shares of common stock were reserved for issuance under the 2015 Plan (the “Share Reserve”).
 
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 9:-
STOCK CAPITAL (Cont.)

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 becomes effective in an amount equal to five percent (5%) of the total number of shares of capital stock outstanding on December 31st of the preceding calendar year; provided, however, that our 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 five percent (5%) of the shares of capital stock outstanding on the preceding December 31st.
 
The aggregate maximum number of shares of common stock that may be issued on the exercise of incentive stock options is ten million (10,000,000). As of March 31, 2019 (unaudited), an aggregate of 8,686,589 shares of common stock are still available for future grant under the 2015 Plan.

c.
Options granted to employees and members of the board of directors:

A summary of the activity in the share options granted to employees and members of the board of directors for the three months ended March 31, 2019 (unaudited) and related information follows:

               
Weighted
       
               
average
       
         
Weighted
   
remaining
       
   
Number
   
average
   
contractual
   
Aggregate
 
   
of
   
exercise
   
term
   
intrinsic
 
   
Options
   
price
   
in years
   
Value
 
                         
Outstanding as of December 31, 2018
   
2,401,893
     
11.04
     
6.19
     
58,323
 
Granted
   
267,852
     
36.15
                 
Exercised
   
(25,512
)
   
11.33
                 
Forfeited or expired
   
(10,625
)
   
14.51
                 
Outstanding as of March 31, 2019
   
2,633,608
     
13.58
     
6.33
     
63,544
 
                                 
Vested and expected to vest as of March 31, 2019
   
2,592,033
     
13.44
     
6.30
     
62,901
 
                                 
Exercisable as of March 31, 2019
   
1,896,037
     
8.32
     
5.46
     
55,675
 

The aggregate intrinsic value 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. The total intrinsic value of options exercised during the three months ended March 31, 2019 (unaudited) was $788.

The weighted average grant date fair values of options granted to employees and executive directors during the three months ended March 31, 2019 (unaudited) was $19.83.

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 9:-
STOCK CAPITAL (Cont.)

d.      A summary of the activity in the RSUs (excluding PSUs) granted to employees and members of the board of directors for the three months ended March 31, 2019 (unaudited) is as follows:

   
Number of
RSUs
   
Weighted average
grant date
fair value
 
Unvested as of December 31, 2018
   
2,807,232
     
34.40
 
Granted
   
306,562
     
38.55
 
Vested
   
(223,210
)
   
31.14
 
Forfeited
   
(96,018
)
   
33.91
 
Unvested as of March 31, 2019
   
2,794,566
     
35.13
 

As part of SMRE acquisition, the Company granted 334,096 PSUs that are subject to certain performance goals and a vesting period. The PSUs grant date fair value is $40.24.

During the three months ended March 31, 2019, the Company recognized expenses at the amount of $841 related to PSU’S vesting that were expensed in the condensed consolidated statement of operations in general and administrative expenses line item.

e.
Options and RSUs issued to non-employee consultants:

The Company has granted options and RSUs to purchase common shares to non-employee consultants as of March 31, 2019 (unaudited) as follows:

   
Outstanding
         
Exercisable
   
   
as of
         
as of
   
Issuance
 
March 31,
   
Exercise
   
March 31,
 
Options exercisable
Date
 
2019
   
price
   
2019
 
through
                         
2014
   
6,023
   
$3.51 - $5.01
     
5,245
 
October 29, 2024
2015
   
2,127
   
$0.00
     
-
   
2016
   
5,001
   
$0.00 - $15.34
     
-
 
September 21, 2026
2017
   
13,126
   
$0.00 - $13.70
     
-
 
March 15, 2027
2018
   
19,496
   
$0.00
     
-
   
2019
   
9,499
   
$0.00
     
-
   
                             
     
55,272
           
5,245
   

The Company had accounted for its options and RSUs granted to non-employee consultants under the fair value method of ASC 505-50 (“Equity-Based Payments to Non-Employees”).

In connection with the grant of stock options and RSUs to non‑employee consultants, the Company recorded stock compensation expenses in the three months ended March 31, 2019 (unaudited) and 2018 (unaudited) in the amount of $173 and $ 529, respectively.

F - 22

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 9:-
STOCK CAPITAL (Cont.)

f.
Employee Stock Purchase Plan (“ESPP”):

The Company adopted an Employee Stock Purchase Plan (the “ESPP”) effective upon the consummation of the IPO. As of March 31, 2019 (unaudited), a total of 2,199,808 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.
 
The ESPP is implemented through an offering every six months. According to the ESPP, eligible employees may use up to 10% of their salaries to purchase common stock shares up to an aggregate limit of $10 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, 2019 (unaudited), 385,646 common stock shares had been purchased under the ESPP.
 
As of March 31, 2019 (unaudited), 1,814,162 common stock shares 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.

g.
Stock-based compensation expense for employees and non-employee consultants:

The Company recognized stock-based compensation expenses related to stock options, RSUs and PSUs granted to employees and non-employee consultants and ESPP in the condensed consolidated statement of income for the three months ended March 31, 2019 (unaudited) and 2018 (unaudited), as follows:

   
Three months ended March 31,
 
   
2019
   
2018
 
             
Cost of revenues
 
$
1,354
   
$
924
 
Research and development
   
3,490
     
2,382
 
Selling and marketing
   
2,404
     
2,204
 
General and administrative
   
2,456
     
1,339
 
                 
Total stock-based compensation expense
 
$
9,704
   
$
6,849
 

As of March 31, 2019 (unaudited), there was a total unrecognized compensation expense of $104,122 related to non‑vested equity‑based compensation arrangements granted under the Company’s Plans. These expenses are expected to be recognized during the period from April 1, 2019 through May 31, 2023.

F - 23

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:-
 BASIC AND DILUTED NET EARNINGS PER SHARE

Basic net earnings per share is computed by dividing the net earnings attributable to SolarEdge Technologies, Inc. by the weighted-average number of shares of common stock outstanding during the period.

Diluted net earnings per share is computed by giving effect to all potential shares of common stock, including stock options, to the extent dilutive, all in accordance with ASC No. 260, "Earnings Per Share."

No shares were excluded from the calculation of diluted net earnings per share due to their anti-dilutive effect for the three months ended March 31, 2019 (unaudited) and 2018 (unaudited).

The following table presents the computation of basic and diluted net earnings per share attributable to SolarEdge Technologies, Inc. for the periods presented (in thousands, except share and per share data):
 
   
Three months ended March 31,
 
   
2019
   
2018
 
   
Unaudited
 
             
Numerator:
           
Net income
 
$
17,975
   
$
35,686
 
 Net loss attributable to Non-controlling interests
   
1,041
     
-
 
Net income attributable to SolarEdge Technologies, Inc.
 
$
19,016
   
$
35,686
 
                 
Denominator:
               
Shares used in computing net earnings per share of common stock, basic
   
47,020,218
     
44,231,679
 
 Effect of stock-based awards
   
2,006,109
     
3,441,843
 
Shares used in computing net earnings per share of common stock, diluted
   
49,026,327
     
47,673,522
 
 
NOTE 11:-
  INCOME TAXES

a.
Taxes on income (tax benefit) are comprised as follows:
 
   
Three months ended
March 31,
 
   
2019
   
2018
 
   
Unaudited
 
             
Current period taxes
 
$
4,895
   
$
7,001
 
Deferred tax income, net and others
   
(973
)
   
(1,339
)
                 
Taxes on income
 
$
3,922
   
$
5,662
 
 

F - 24

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:-      INCOME TAXES (cont.)

b.
Deferred income taxes:

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax liabilities and assets are as follows:
 
   
As of March 31, 2019
   
As of December 31, 2018
 
   
(Unaudited)
       
Deferred tax assets, net:
           
             
Research and Development carryforward expenses
 
$
8,751
   
$
9,482
 
Carryforward tax losses
   
5,384
     
4,155
 
Stock based compensation expenses
   
3,571
     
3,160
 
Inventory Impairment
   
1,299
     
1,471
 
Allowance and other reserves
   
6,675
     
4,340
 
                 
Total deferred tax assets
 
$
25,680
   
$
22,608
 
                 
Deferred tax liabilities, net:
               
Purchase price allocation adjustments
   
(19,635
)
   
(9,408
)
                 
Total deferred tax liabilities
 
$
(19,635
)
 
$
(9,408
)
                 
Recorded as:
               
Deferred tax assets, net
 
$
14,589
   
$
14,699
 
Deferred tax liabilities, net
   
(8,544
)
   
(1,499
)
Net deferred tax assets
 
$
6,045
   
$
13,200
 
 
c.
Uncertain tax positions:

   
March 31, 2019
   
December 31, 2018
 
   
(Unaudited)
       
             
Balance at January 1,
 
$
8,499
   
$
579
 
Increases related to current year tax positions
   
1,033
     
8,499
 
Decreases related to prior year tax positions
   
-
     
(579
)
   
$
9,532
   
$
8,499
 

F - 25

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 12:-
  CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

a.
For the three months period ended March 31, 2019 (unaudited) and 2018 (unaudited), the Company had one major customer that accounted for 14.2% and 20.4% of its condensed consolidated revenues, respectively.

b.
As of March 31, 2019 (unaudited) and as of December 31, 2018, one and two customers accounted for approximately 13.1% and 41.3%, respectively, of the Company’s net accounts receivables.
 
NOTE 13:-
  SEGMENT INFORMATION

The Company's chief operating decision maker (“CODM”) is our Chief Executive Officer who makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis. Accordingly, the Company has determined that it has a single reportable segment - the solar segment.

Total segment assets include corporate assets, such as cash and cash equivalents, marketable securities and tax assets. Total segment assets reconciled to consolidated amounts are as follows:

   
As of
March 31,
   
As of
December 31,
 
   
2019
   
2018
 
             
Solar
 
$
1,038,612
   
$
866,868
 
Non-Solar
   
138,311
     
97,604
 
                 
Total assets
 
$
1,176,923
   
$
964,472
 


NOTE 14:-
  SUBSEQUENT EVENTS
 
a.
During the period from March 31, 2019 through May 10, 2019, the Company purchased additional common shares of SMRE in the market and through a tender offer in a total amount of $64.5 million. As of May 10, 2019, the Company holds 99.6% of the outstanding common shares and voting rights of SMRE and such company’s shares have been delisted from the Italian AIM.

b.
On May 8, 2019, the Company received notice that Huawei has filed two lawsuits in the Guangzhou intellectual property court against the Company's two Chinese subsidiaries and its equipment manufacturer in China. The lawsuit alleges infringement of two patents and asks for an injunction of manufacture, use, sale and offer for sale, and damage awards of approximately $3.1 million. The Company has not yet been served, believes that it has meritorious defenses to the claims asserted and intends to vigorously defend against this lawsuit.
 
F - 26

 
ITEM 2          MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Forward-Looking Statements
 
Statements contained in this Form 10-Q or statements incorporated by reference from documents we have filed with the Securities and Exchange Commission may contain forward-looking statements that are based on our management’s expectations, estimates, projections, beliefs and assumptions in accordance with information currently available to our management. Forward-looking statements should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in Part 1, Item 1 of this report. This discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, technology developments, new product development, financing and investment plans, competitive position, industry and regulatory environment, potential growth opportunities, and the effects of competition. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “could,” “seek,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or similar expressions and the negatives of those terms.
 
Forward looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward looking statements. Given these uncertainties, you should not place undue reliance on forward looking statements. Also, forward looking statements represent our management’s beliefs and assumptions only as of the date of this filing. Important factors that could cause actual results to differ materially from our expectations include:
 
·
our limited history of profitability, which may not continue in the future;
 
·
our limited operating history, which makes it difficult to predict future results;
 
·
future demand for 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;
 
4

·
our dependence on ocean transportation to deliver our products in a cost effective manner;
 
·
our dependence upon a small number of outside contract manufacturers and 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;
 
·
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; and
 
the other factors set forth under “Item 1A. Risk Factors” in “Part II-OTHER INFORMATION” section of this report.
 
Except as required by law, we assume no obligation to update these forward‑looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward‑looking statements, even if new information becomes available in the future.
 
Overview
 
We are a leading provider of intelligent inverter solutions that has changed the way power is harvested and managed in a solar PV system. Our direct current (“DC”) optimized inverter system is designed to maximize power generation at the individual PV module level while lowering the cost of energy produced by the solar PV system and providing comprehensive and advanced safety features. Supporting increased PV proliferation, the SolarEdge system consists of power optimizers, inverters, communication and smart energy management solutions, and a cloud-based monitoring platform. SolarEdge’s solutions addresses a broad range of solar market segments, from residential solar installations to commercial and small utility-scale solar installations.
 
5

In addition, in the past year, we have expanded our product offering to include uninterruptable power supplies, also known as UPS products by means of acquiring the assets for such business (the “Gamatronic Acquisition”) and to include lithium ion batteries through the acquisition of Kokam Co. Ltd. (the Kokam Acquisition”).
 
In January 2019, we closed an acquisition of 56.8% of S.M.R.E S.p.A (“SMRE”) (the “SMRE Acquisition”), an Italian provider of innovative integrated powertrain technology and electronics for electric vehicles. Since the SMRE Acquisition and subsequent to the close of the quarter, we have increased our shareholdings in SMRE to approximately 99.6%. On April 25, 2019 SMRE’s shares were delisted from the Italian AIM.
 
Our revenues for the three months ended March 31, 2019 and 2018 were $271.9 million and $209.9 million, respectively. Gross margin was 31.7% and 37.9% for the three months ended March 31, 2019 and 2018, respectively. Net income was $19.0 million and $35.7 million for the three months ended March 31, 2019 and 2018, respectively.
 
We are a leader in the global module-level power electronics (“MLPE”) market according to GTM Research and as of March 31, 2019, we have shipped approximately 37.1 million power optimizers and 1.5 million inverters. Over 1,000,000 installations, many of which may include multiple inverters, are currently connected to, and monitored through, our cloud‑based monitoring platform. As of March 31, 2019, we have shipped approximately 11.8 GW of our DC optimized inverter systems.
 
Key Operating Metrics
 
In managing our business and assessing financial performance, we supplement the information provided by the financial statements with other operating metrics. These operating metrics are utilized by our management to evaluate our business, measure our performance, identify trends affecting our business and formulate projections. We use metrics relating to shipments (inverters shipped, power optimizers shipped and megawatts shipped) to evaluate our sales performance and to track market acceptance of our products. We use metrics relating to monitoring (systems monitored) to evaluate market acceptance of our products and usage of our solution.
 
We provide the “megawatts shipped” metric, which is calculated based on nameplate capacity shipped, to show adoption of our system on a nameplate capacity basis. Nameplate capacity shipped is the maximum rated power output capacity of an inverter and corresponds to our financial results in that higher total capacities shipped are generally associated with higher total revenues. However, revenues increase with each additional unit, not necessarily each additional MW of capacity, sold. Accordingly, we also provide the “inverters shipped” and “power optimizers shipped” operating metrics.
 
   
Three Months Ended
March 31,
 
   
2019
   
2018
 
Inverters shipped          
   
130,672
     
99,646
 
Power optimizers shipped          
   
3,029,102
     
2,475,544
 
Megawatts shipped (1)          
   
1,144
     
800
 

——————
(1)
Calculated based on the aggregate nameplate capacity of inverters shipped during the applicable period. Nameplate capacity is the maximum rated power output capacity of an inverter as specified by the manufacturer.

6

 
Results of Operations
 
The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this report.
 
The following table sets forth selected consolidated statements of income data for each of the periods indicated.
 
   
Three Months Ended
March 31,
 
   
2019
   
2018
 
   
(in thousands)
 
Revenues          
 
$
271,871
   
$
209,871
 
Cost of revenues          
   
185,761
     
130,274
 
Gross profit          
   
86,110
     
79,597
 
Operating expenses:
               
Research and development          
   
26,199
     
17,875
 
Sales and marketing          
   
20,172
     
16,205
 
General and administrative          
   
11,691
     
4,753
 
Total operating expenses          
   
58,062
     
38,833
 
Operating income          
   
28,048
     
40,764
 
Financial expenses (income), net          
   
6,151
     
(584
)
Income before taxes on income          
   
21,897
     
41,348
 
Taxes on income          
   
3,922
     
5,662
 
Net income          
 
$
17,975
   
$
35,686
 
Net loss attributable to Non-controlling interests
   
1,041
     
-
 
Net income attributable to SolarEdge Technologies, Inc
 
$
19,016
   
$
35,686
 
 
Comparison of the Three Months Ended March 31, 2019 and 2018
 
Revenues
   
Three Months Ended
March 31,
   
Three Months Ended
March 31,
2018 to 2019
 
   
2019
   
2018
   
Change
 
   
(in thousands)
 
Revenues          
 
$
271,871
   
$
209,871
   
$
62,000
     
29.5
%
 
Revenues increased by $62.0 million, or 29.5%, for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018, primarily due to (i) an increase in the number of inverters and power optimizers sold, with significant growth in revenues coming from Europe, Australia and Israel, and (ii) revenues from the new businesses we acquired over the past nine months, which includes sales of UPS units, batteries, storage systems, and SMRE related products, in the aggregate amount of $18.8 million. Non-U.S. revenues comprised 56.3% of our revenues in the three months ended March 31, 2019 as compared to 43.4% in the three months ended March 31, 2018.
 
The number of power optimizers sold increased by approximately 0.6 million units, or 25.5%, from approximately 2.4 million units in the three months ended March 31, 2018 to approximately 3.0 million units in the three months ended March 31, 2019. The number of inverters sold increased by approximately 33,000 units, or 34.0%, from approximately 99,000 units in the three months ended March 31, 2018 to approximately 132,000 units in the three months ended March 31, 2019. In the three months ended March 31, 2018 and 2019, the pricing environment remained stable for our prices denominated in local currencies in the countries in which we sell. However, the devaluation of the Euro and the Australian dollar compared to the U.S. Dollar, negatively impacted our U.S. Dollar denominated average selling price (“ASP”). In addition, revenues from sale of commercial products that are characterized with lower ASP per watt increased during the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. Overall, and primarily due to the factors detailed above, ASP decreased by 17.7% in the three months ended March 31, 2019 as compared to the three months ended March 31, 2018.
 
7

 
Cost of Revenues and Gross Profit
   
Three Months Ended
March 31,
   
Three Months Ended
March 31,
2018 to 2019
 
   
2019
   
2018
   
Change
 
   
(in thousands)
 
Cost of revenues          
 
$
185,761
   
$
130,274
   
$
55,487
     
42.6
%
Gross profit          
 
$
86,110
   
$
79,597
   
$
6,513
     
8.2
%
 
Cost of revenues increased by $55.5 million, or 42.6%, in the three months ended March 31, 2019, as compared to the three months ended March 31, 2018, primarily due to:
 
·
an increase in the volume of products sold;
 
·
inclusion of variable costs related to the assembly of UPS products and the manufacturing of Kokam and SMRE products in the aggregate amount of $14.3 million, which were not included in the cost of goods sold for the three months ended March 31, 2018 as those businesses were acquired after July 2018;
 
·
increased warranty expenses and warranty accruals of $9.0 million associated with the rapid increase of products in our install base;
 
·
increased personnel-related costs of $4.3 million connected to the expansion of our operations and support headcount which is growing in parallel to our growing install base worldwide and in connection with entering the UPS, battery and integrated powertrain technology businesses;
 
·
increased shipment and logistics costs of $2.0 million attributed to the growth in volume of products shipped;
 
·
increased of amortization of intangible assets and cost of product adjustment of $1.8 million related to the UPS assets acquisition, Kokam Acquisition and SMRE Acquisition; and
 
·
depreciation expenses related to manufacturing that increased by $0.9 million.
 
Gross profit as a percentage of revenue decreased from 37.9% in the three months ended March 31, 2018 to 31.7% in the three months ended March 31, 2019, primarily due to: ASP erosion related to foreign currency changes for our non U.S. Dollars sales while manufacturing costs of the same units are U.S. Dollar denominated;
 
·
increased warranty and support services expenses and accruals;
 
·
price reductions outpacing our costs reductions, primarily in commercial systems;
 
·
lower gross profit from our UPS, battery business and SMRE products and due to underutilization of production facilities; and
 
·
amortization of intangible assets and cost of product adjustment related to the UPS assets acquisition, Kokam Acquisition and SMRE Acquisition.
 
These were partially offset by:
 
·
increased efficiency in our supply chain; and
 
·
general economies of scale in our personnel-related costs and other costs associated with our support and operations departments.
 
8

Research and Development
   
Three Months Ended
March 31,
   
Three Months Ended
March 31,
2018 to 2019
 
   
2019
   
2018
   
Change
 
   
(in thousands)
 
Research and development          
 
$
26,199
   
$
17,875
   
$
8,324
     
46.6
%
 
Research and development expenses increased by $8.3 million, or 46.6%, in the three months ended March 31, 2019 as compared to the three months ended March 31, 2018, primarily due to:
 
·
an increase in personnel-related costs of $6.1 million resulting from an increase in our research and development headcount as well as salary expenses associated with employee equity compensation. The increase in headcount reflects the inclusion of personnel costs from acquired businesses as well as our continuing investment in enhancements of existing products as well as research and development expenses associated with bringing new products to market;
 
·
increased expenses related to consultants and sub‑contractors in an amount of $0.9 million;
 
·
increased expenses related to material consumption costs in an amount of $0.5 million;
 
·
increased expenses related to other overhead in an amount of $0.4 million; and
 
·
increased depreciation expenses related to lab equipment in an amount of $0.4 million.
 
Sales and Marketing
   
Three Months Ended
March 31,
   
Three Months Ended
March 31,
2018 to 2019
 
   
2019
   
2018
   
Change
 
   
(in thousands)
 
Sales and marketing          
 
$
20,172
   
$
16,205
   
$
3,967
     
24.5
%
 
Sales and marketing expenses increased by $4.0 million, or 24.5%, in the three months ended March 31, 2019 as compared to the three months ended March 31, 2018, primarily due to:
 
·
an increase in personnel-related costs of $2.4 million as a result of the inclusion of personnel costs from acquired businesses as well as from an increase in headcount supporting our growth in the U.S., Europe, and Asia, as well as salary expenses associated with employee equity compensation;
 
·
expenses related to amortization of intangible assets that increased by $ 0.9 million;
 
·
expenses related to other overhead costs and travel that increased by $0.4 million;
 
·
expenses related to external consultants and sub-contractors, sales and marketing activity and depreciation expenses that increased by $0.2 million; and
 
·
expenses related to material consumption costs that increased by $0.1 million.
 
General and Administrative
   
Three Months Ended
March 31,
   
Three Months Ended
March 31,
2018 to 2019
 
   
2019
   
2018
   
Change
 
   
(in thousands)
 
General and administrative          
 
$
11,691
   
$
4,753
   
$
6,938
     
146.0
%
 
General and administrative expenses increased by $6.9 million, or 146.0%, in the three months ended March 31, 2019 as compared to the three months ended March 31, 2018, primarily due to:
 
9

·
an increase in personnel costs of $3.6 million related to (i) increased headcount resulting from the acquisitions of the UPS business and Kokam and SMRE and increased legal, finance, human resources, and information technology department, functions required of a fast-growing public company; and (ii) increased expenses related to equity-based compensation and changes in management compensation;
 
·
expenses related to consultants and sub‑contractors that increased by $2.5 million due to legal proceedings initiated by us and other legal expenses in relation to SMRE acquisition costs;
 
·
expenses related to overhead costs, depreciation, public company related expenses and travel expenses, all of which increased by $0.4 million; and
 
·
a provision we recorded in the three months ended March 31, 2019, for $0.4 million in expectation of a settlement in a litigation process.
 
Financial expenses (income), net
   
Three Months Ended
March 31,
   
Three Months Ended
March 31,
2018 to 2019
 
   
2019
   
2018
   
Change
 
   
(in thousands)
 
Financial expenses (income), net          
 
$
6,151