10-Q 1 zk2228235.htm 10-Q SOLAREDGE TECHNOLOGIES, INC. - 1419612 - 2022
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2022
 
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 Number: 001-36894
 
SOLAREDGE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
20-5338862
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
 
 
1 HaMada Street
Herziliya Pituach, 4673335, Israel
(Address of Principal Executive Offices, zip code)
 
972 (9) 957-6620
 
Registrant’s telephone number, including area code
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, par value $0.0001 per share
SEDG
NASDAQ (Global Select Market)
 
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
☒ Yes         ☐ No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 ☒ Yes         ☐ No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller Reporting Company
   
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
☐ Yes         No
 
As of July 25, 2022, there were  55,635,089 shares of the registrant’s common stock, par value of $0.0001 per share, outstanding.

 


TABLE OF CONTENTS
 
F-1
F-1
F-1
F-3
F-4
F-5
F-7
F-9
3
16
17
  
18
18
18
18
18
18
18
19
19
 
2

 
PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
SOLAREDGE TECHNOLOGIES INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
 
(in thousands, except per share data)
 
   
June 30,
2022
   
December 31,
2021
 
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
 
$
745,534
   
$
530,089
 
Marketable securities
   
150,259
     
167,728
 
Trade receivables, net of allowances of $3,805 and $2,626, respectively
   
669,100
     
456,339
 
Inventories, net
   
470,272
     
380,143
 
Prepaid expenses and other current assets
   
248,643
     
176,992
 
Total current assets
   
2,283,808
     
1,711,291
 
LONG-TERM ASSETS:
                 
Marketable securities
   
709,571
     
482,228
 
Deferred tax assets, net
   
33,400
     
27,572
 
Property, plant and equipment, net
   
489,109
     
410,379
 
Operating lease right-of-use assets, net
   
58,375
     
47,137
 
Intangible assets, net
   
50,372
     
58,861
 
Goodwill
   
116,173
     
129,629
 
Other long-term assets
   
31,970
     
33,856
 
Total long-term assets
   
1,488,970
     
1,189,662
 
Total assets
 
$
3,772,778
   
$
2,900,953
 
 
The accompanying notes are an integral part of the condensed consolidated financial statements.
 

F - 1


 
SOLAREDGE TECHNOLOGIES INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Cont.)
 
(in thousands, except per share data)
 
   
June 30,
2022
   
December 31,
2021
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
           
CURRENT LIABILITIES:
           
Trade payables, net
 
$
253,399
   
$
252,068
 
Employees and payroll accruals
   
68,154
     
74,465
 
Warranty obligations
   
91,761
     
71,480
 
Deferred revenues and customers advances
   
30,460
     
17,789
 
Accrued expenses and other current liabilities
   
168,400
     
109,379
 
Total current liabilities
   
612,174
     
525,181
 
LONG-TERM LIABILITIES:
               
Convertible senior notes, net
   
622,991
     
621,535
 
Warranty obligations
   
232,415
     
193,680
 
Deferred revenues
   
170,235
     
151,556
 
Finance lease liabilities
   
46,680
     
40,508
 
Operating lease liabilities
   
42,849
     
38,912
 
Other long-term liabilities
   
17,902
     
19,542
 
Total long-term liabilities
   
1,133,072
     
1,065,733
 
COMMITMENTS AND CONTINGENT LIABILITIES
           
STOCKHOLDERS’ EQUITY:
               
Common stock of $0.0001 par value - Authorized: 125,000,000 shares as of June 30,
2022 and December 31, 2021; issued and outstanding: 55,633,090 and 52,815,395
shares as of June 30, 2022 and December 31, 2021, respectively
   
6
     
5
 
Additional paid-in capital
   
1,418,881
     
687,295
 
Accumulated other comprehensive loss
   
(89,620
)
   
(27,319
)
Retained earnings
   
698,265
     
650,058
 
Total stockholders’ equity
   
2,027,532
     
1,310,039
 
Total liabilities and stockholders’ equity
 
$
3,772,778
   
$
2,900,953
 
 
The accompanying notes are an integral part of the condensed consolidated financial statements.

 

F - 2


SOLAREDGE TECHNOLOGIES INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 
(in thousands, except per share data)
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2022
   
2021
   
2022
   
2021
 
Revenues
 
$
727,774
   
$
480,057
   
$
1,382,854
   
$
885,546
 
Cost of revenues
   
545,132
     
323,865
     
1,021,254
     
589,280
 
Gross profit
   
182,642
     
156,192
     
361,600
     
296,266
 
Operating expenses:
                               
Research and development
   
74,847
     
52,664
     
141,196
     
99,641
 
Sales and marketing
   
38,975
     
29,458
     
74,291
     
56,369
 
General and administrative
   
28,121
     
19,370
     
54,550
     
39,219
 
Other operating expenses (income), net
   
4,687
     
(859
)
   
4,687
     
1,350
 
Total operating expenses
   
146,630
     
100,633
     
274,724
     
196,579
 
Operating income
   
36,012
     
55,559
     
86,876
     
99,687
 
Financial expense, net
   
(14,311
)
   
(1,743
)
   
(19,760
)
   
(7,840
)
Income before income taxes
   
21,701
     
53,816
     
67,116
     
91,847
 
Income taxes
   
6,617
     
8,724
     
18,909
     
16,679
 
Net income
 
$
15,084
   
$
45,092
   
$
48,207
   
$
75,168
 
Net basic earnings per share of common stock
 
$
0.27
   
$
0.87
   
$
0.89
   
$
1.45
 
Net diluted earnings per share of common stock
 
$
0.26
   
$
0.82
   
$
0.86
   
$
1.36
 
Weighted average number of shares used in computing net basic earnings per share of common stock
   
55,470,279
     
52,076,208
     
54,309,060
     
51,903,123
 
Weighted average number of shares used in computing net diluted earnings per share of common stock
   
58,564,734
     
55,930,562
     
57,446,416
     
55,965,369
 

 

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

 

F - 3


SOLAREDGE TECHNOLOGIES INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 
(in thousands, except per share data)
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2022
   
2021
   
2022
   
2021
 
Net income
 
$
15,084
   
$
45,092
   
$
48,207
   
$
75,168
 
Other comprehensive income (loss), net of tax:
                               
Net change related to available-for-sale securities
   
(4,562
)
   
(691
)
   
(14,068
)
   
(1,876
)
Net change related to cash flow hedges
   
(3,836
)
   
439
     
(4,516
)
   
311
 
Foreign currency translation adjustments on intra-entity transactions that are of a long-term investment nature
   
(28,347
)
   
1,779
     
(35,330
)
   
(1,896
)
Foreign currency translation adjustments, net
   
(6,808
)
   
1,698
     
(8,387
)
   
(3,932
)
Total other comprehensive income (loss)
   
(43,553
)
   
3,225
     
(62,301
)
   
(7,393
)
Comprehensive income (loss)
 
$
(28,469
)
 
$
48,317
   
$
(14,094
)
 
$
67,775
 

 

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

 

F - 4


SOLAREDGE TECHNOLOGIES INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
 
(in thousands, except per share data)
 
   

Common stock

   

Additional

   
Accumulated
other
             
   
Number
   
Amount
   
paid in
Capital
   
comprehensive
loss
   
Retained
earnings
   
Total
 
Balance as of January 1, 2022
   
52,815,395
   
$
5
   
$
687,295
   
$
(27,319
)
 
$
650,058
   
$
1,310,039
 
Issuance of common stock upon exercise of stock-based awards
   
270,751
     
* -
     
1,478
     
-
     
-
     
1,478
 
Stock based compensation expenses
   
-
     
-
     
34,107
     
-
     
-
     
34,107
 
Issuance of common stock in a secondary public offering, net of underwriters' discounts and commissions of $27,140 and $834 of offering costs
   
2,300,000
     
1
     
650,525
     
-
     
-
     
650,526
 
Other comprehensive loss adjustments
   
-
     
-
     
-
     
(18,748
)
   
-
     
(18,748
)
Net income
   
-
     
-
     
-
     
-
     
33,123
     
33,123
 
Balance as of March 31, 2022
   
55,386,146
   
$
6
   
$
1,373,405
   
$
(46,067
)
 
$
683,181
   
$
2,010,525
 
Issuance of Common Stock upon exercise of stock-based awards
   
211,839
     
* -
     
164
     
-
     
-
     
164
 
Issuance of Common stock under employee stock purchase plan
   
35,105
     
* -
     
8,141
     
-
     
-
     
8,141
 
Stock based compensation expenses
   
-
     
-
     
37,171
     
-
     
-
     
37,171
 
Other comprehensive loss adjustments
   
-
     
-
     
-
     
(43,553
)
   
-
     
(43,553
)
Net income
   
-
     
-
     
-
     
-
     
15,084
     
15,084
 
Balance as of June 30, 2022
   
55,633,090
   
$
6
   
$
1,418,881
   
$
(89,620
)
 
$
698,265
   
$
2,027,532
 
 
* Represents an amount less than $1.
 
The accompanying notes are an integral part of the consolidated financial statements.
 

F - 5


 
SOLAREDGE TECHNOLOGIES INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
 
(in thousands, except per share data)
 
   

Common stock

   

Additional

   
Accumulated
other
             
   
Number
   
Amount
   
paid in
Capital
   
comprehensive
income (loss)
   
Retained
earnings
   
Total
 
Balance as of January 1, 2021
   
51,560,936
   
$
5
   
$
603,891
   
$
3,857
   
$
478,004
   
$
1,085,757
 
Cumulative effect of adopting ASU 2020-06
   
-
     
-
     
(36,336
)
   
-
     
2,884
     
(33,452
)
Issuance of Common Stock upon exercise of stock-based awards
   
405,239
     
* -
     
5,008
     
-
     
-
     
5,008
 
Stock based compensation expenses
   
-
     
-
     
23,153
     
-
     
-
     
23,153
 
Other comprehensive loss adjustments
   
-
     
-
     
-
     
(10,618
)
   
-
     
(10,618
)
Net income
   
-
     
-
     
-
     
-
     
30,076
     
30,076
 
Balance as of March 31, 2021
   
51,966,175
   
$
5
   
$
595,716
   
$
(6,761
)
 
$
510,964
   
$
1,099,924
 
Issuance of Common Stock upon exercise of stock-based awards
   
297,801
     
* -
     
5,500
     
-
     
-
     
5,500
 
Stock based compensation expenses
   
-
     
-
     
24,052
     
-
     
-
     
24,052
 
Other comprehensive income adjustments
   
-
     
-
     
-
     
3,225
     
-
     
3,225
 
Net income
   
-
     
-
             
-
     
45,092
     
45,092
 
Balance as of June 30, 2021
   
52,263,976
   
$
5
   
$
625,268
   
$
(3,536
)
 
$
556,056
   
$
1,177,793
 
 
* Represents an amount less than $1.
 
The accompanying notes are an integral part of the condensed consolidated financial statements.

 

F - 6


SOLAREDGE TECHNOLOGIES INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

(in thousands, except per share data)

 
   
Six Months Ended
June 30,
 
   
2022
   
2021
 
Cash flows from operating activities:
           
Net income
 
$
48,207
   
$
75,168
 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
               
Depreciation of property, plant and equipment
   
18,861
     
14,008
 
Amortization of intangible assets
   
5,277
     
4,871
 
Amortization of debt discount and debt issuance costs
   
1,456
     
1,450
 
Amortization of premium and accretion of discount on available-for-sale marketable securities, net
   
5,376
     
3,558
 
Impairment of goodwill and intangible assets
   
4,008
     
-
 
Stock-based compensation expenses
   
71,181
     
47,205
 
Deferred income taxes, net
   
(1,092
)
   
(3,931
)
Loss from sale and disposal of assets
   
296
     
2,051
 
Exchange rate fluctuations and other items, net
   
24,666
     
12,983
 
Changes in assets and liabilities:
               
Inventories, net
   
(93,348
)
   
13,229
 
Prepaid expenses and other assets
   
(79,215
)
   
(20,356
)
Trade receivables, net
   
(235,316
)
   
(128,564
)
Trade payables, net
   
(7,339
)
   
(20,120
)
Employees and payroll accruals
   
5,202
     
9,734
 
Warranty obligations
   
59,588
     
27,298
 
Deferred revenues and customers advances
   
32,277
     
4,524
 
Other liabilities, net
   
54,341
     
19,660
 
Net cash provided by (used in) operating activities
   
(85,574
)
   
62,768
 
Cash flows from investing activities:
               
Proceed from sales and maturities of available-for-sale marketable securities
   
126,287
     
103,763
 
Purchase of property, plant and equipment
   
(91,884
)
   
(65,267
)
Investment in available-for-sale marketable securities
   
(362,119
)
   
(422,470
)
Withdrawal from bank deposits, net
   
-
     
46,534
 
Other investing activities
   
1,783
     
1,442
 
Net cash used in investing activities
 
$
(325,933
)
 
$
(335,998
)
 
The accompanying notes are an integral part of the condensed consolidated financial statements.

 

F - 7


 

SOLAREDGE TECHNOLOGIES INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Cont.)
 
(in thousands, except per share data)
 
   
Six Months Ended
June 30,
 
   
2022
   
2021
 
Cash flows from financing activities:
           
Proceeds from secondary public offering, net of issuance costs
 
$
650,526
   
$
-
 
Repayment of bank loans
   
-
     
(16,385
)
Proceeds from exercise of stock-based awards
   
1,642
     
5,472
 
Tax withholding in connection with stock-based awards, net
   
(2,318
)
   
(9,668
)
Other financing activities
   
(1,444
)
   
(625
)
Net cash provided by (used in) financing activities
   
648,406
     
(21,206
)
Increase (decrease) in cash and cash equivalents
   
236,899
     
(294,436
)
Cash and cash equivalents at the beginning of the period
   
530,089
     
827,146
 
Effect of exchange rate differences on cash and cash equivalents
   
(21,454
)
   
(8,598
)
Cash and cash equivalents at the end of the period
 
$
745,534
   
$
524,112
 
                 
Supplemental disclosure of non-cash activities:
               
Right-of-use asset recognized with corresponding lease liability
 
$
34,176
   
$
3,336
 
 
The accompanying notes are an integral part of the condensed consolidated financial statements.
 

F - 8


SOLAREDGE TECHNOLOGIES INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
(in thousands, except per share data)

 

NOTE 1:       GENERAL
 
  a.
SolarEdge Technologies, Inc. (the “Company”) and its subsidiaries design, develop, and sell an intelligent inverter solution designed to maximize power generation at the individual photovoltaic (“PV”) module level while lowering the cost of energy produced by the solar PV system and providing comprehensive and advanced safety features. The Company’s products consist mainly of (i) power optimizers designed to maximize energy throughput from each and every module through constant tracking of Maximum Power Point individually per module, (ii) inverters which invert direct current (DC) from the PV module to alternating current (AC) including the Company’s future ready energy hub inverter which supports, among other things, connection to a DC- coupled battery for backup capabilities, (iii) a remote cloud-based monitoring platform, that collects and processes information from the power optimizers and inverters to enable customers and system owners, to monitor and manage the solar PV system (iv) a 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”).
 
In June 2022, the Company decided to discontinue its stand-alone Critical Power activities. The Company determined that the discontinuance of the Critical Power business doesn't represent a strategic shift that will have a major effect on the Company's operations and financial results and therefore it did not meet the criteria for discontinued operations classification.
 
  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. Certain prior year amounts have been reclassified to conform to current year presentation.
 
  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.

 

F - 9


SOLAREDGE TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

 

(in thousands, except per share data)

 

  e.
Concentrations of supply risks:
 
The Company depends on two contract manufacturers and several limited or single source component suppliers, including, Samsung SDI, that provides lithium-ion battery cells required for the Company's residential storage solution. Reliance on these vendors makes the Company vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields, and costs.
 
As of June 30, 2022, and December 31, 2021, two contract manufacturers collectively accounted for 31.9% and 27.9% of the Company’s total trade payables, net, respectively.
 
In the second quarter of 2022, the Company announced the opening of “Sella 2”, a two gigawatt-hour (GWh) Li-Ion battery cell manufacturing facility located in South Korea. Sella 2 is currently in testing phase with ramp-up expected during the second half of 2022. Sella 2, is the Company's second owned manufacturing facility following the opening of the Company's manufacturing facility in the North of Israel, “Sella 1” in 2020.
 
  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.

 

F - 10


SOLAREDGE TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

 

(in thousands, except per share data)

 

NOTE 2:       MARKETABLE SECURITIES
 
The following is a summary of available-for-sale marketable securities as of June 30, 2022:
 
   
Amortized cost
   
Gross unrealized
gains
   
Gross unrealized
losses
   
Fair value
 
Available-for-sale – matures within one year:
                       
Corporate bonds
 
$
149,106
   
$
-
   
$
(2,067
)
 
$
147,039
 
Governmental bonds
   
3,279
     
-
     
(59
)
   
3,220
 
     
152,385
     
-
     
(2,126
)
   
150,259
 
Available-for-sale – matures after one year:
                               
Corporate bonds
   
694,300
     
136
     
(21,145
)
   
673,291
 
Governmental bonds
   
36,940
     
-
     
(660
)
   
36,280
 
     
731,240
     
136
     
(21,805
)
   
709,571
 
Total
 
$
883,625
   
$
136
   
$
(23,931
)
 
$
859,830
 
 
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 June 30, 2022, and December 31, 2021, the Company did not record an allowance for credit losses for its available-for-sale marketable securities.

 

F - 11


SOLAREDGE TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

 

(in thousands, except per share data)

 

NOTE 3:       INVENTORIES, NET
 
   
June 30,
2022
   
December 31,
2021
 
Raw materials
 
$
365,709
   
$
247,386
 
Work in process
   
15,643
     
13,863
 
Finished goods
   
88,920
     
118,894
 
   
$
470,272
   
$
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 June 30, 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 and six months ended June 30, 2022, and 2021.
 
On July 20, 2022, the Company sold its investment in AutoGrid, see Note 18.

 

F - 12


SOLAREDGE TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

 

(in thousands, except per share data)

 

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 six months ended June 30, 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 June 30, 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 approximately $75 million and $34 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 June 30, 2022, the Company entered into forward contracts to sell Australian dollars (“AUD”) for U.S. dollars in the amount of AUD 10 million.
 
As of June 30, 2022, the Company entered into forward contracts to sell Euro for U.S. dollars in the amount of €18 million.
 
The fair value of derivative assets as of June 30, 2022, and December 31, 2021, was $2,348 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 June 30, 2022, and December 31, 2021, was $4,123 and $169, which was recorded in accrued expenses and other current liabilities in the Consolidated Balance Sheets, respectively.
 
For the three months ended June 30, 2022, and 2021, the Company recorded a gain in the amount of $3,009 and $820, respectively, in financial expense, net, related to the derivative instruments not designated as cash flow hedges.
 
For the three months ended June 30, 2022 and 2021, the Company recorded an unrealized loss in the amount of $6,351, net of tax effect and an unrealized gain in the amount of $841, net of tax effect, respectively, in “accumulated other comprehensive loss” related to the derivative assets designated as hedging instruments.
 
For the six months ended June 30, 2022, and 2021, the Company recorded a gain in the amount of $3,943 and $4,355, respectively, in financial expense, net, related to the derivative instruments not designated as cash flow hedges.
 
For the six months ended June 30, 2022 and 2021, the Company recorded an unrealized loss in the amount of $7,529, net of tax effect and an unrealized gain in the amount of $713, net of tax effect, respectively, in “accumulated other comprehensive loss” related to the derivative assets designated as hedging instruments.

 

F - 13


SOLAREDGE TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

 

(in thousands, except per share data)

 

NOTE 6:       FAIR VALUE MEASUREMENTS
 
In accordance with ASC 820, the Company measures its cash equivalents and marketable securities, at fair value using the market approach valuation technique. Cash 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 June 30, 2022 and December 31, 2021, by level within the fair value hierarchy:
 
       
Fair value measurements as of
 
Description
 
Fair Value Hierarchy
 
June 30,
2022
   
December 31,
2021
 
Assets:
               
Cash equivalents:
               
Money market mutual funds
 
Level 1
 
$
132,750
   
$
21,680
 
Derivative instruments asset:
                   
Forward contracts designated as hedging instruments
 
Level 2
 
$
-
   
$
992
 
Options and forward contracts not designated as hedging instruments
 
Level 2
 
$
2,348
   
$
3,017
 
Short-term marketable securities:
                   
Corporate bonds
 
Level 2
 
$
147,039
   
$
160,165
 
Governmental bonds
 
Level 2
 
$
3,220
   
$
7,563
 
Long-term marketable securities:
                   
Corporate bonds
 
Level 2
 
$
673,291
   
$
468,841
 
Governmental bonds
 
Level 2
 
$
36,280
   
$
13,387
 
Liabilities
                   
Derivative instruments liability:
                   
Options and forward contracts designated as hedging instruments
 
Level 2
 
$
(4,123
)
 
$
-
 
Forward contracts not designated as hedging instruments
 
Level 2
 
$
-
   
$
(169
)
 
NOTE 7:       WARRANTY OBLIGATIONS
 
Changes in the Company’s product warranty obligations for the three and six months ended June 30, 2022 and 2021, were as follows:
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2022
   
2021
   
2022
   
2021
 
Balance, at the beginning of the period
 
$
292,666
   
$
217,953
   
$
265,160
   
$
204,994
 
Additions and adjustments to cost of revenues
   
59,061
     
36,343
     
106,968
     
66,314
 
Usage and current warranty expenses
   
(27,551
)
   
(22,129
)
   
(47,952
)
   
(39,141
)
Balance, at end of the period
   
324,176
     
232,167
     
324,176
     
232,167
 
Less current portion
   
(91,761
)
   
(64,855
)
   
(91,761
)
   
(64,855
)
Long term portion
 
$
232,415
   
$
167,312
   
$
232,415
   
$
167,312
 
 

F - 14


SOLAREDGE TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

 

(in thousands, except per share data)

 

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 June 30,
   
Six Months Ended June 30,
 
   
2022
   
2021
   
2022
   
2021
 
Balance, at the beginning of the period
 
$
184,245
   
$
143,233
   
$
169,345
   
$
140,020
 
Revenue recognized
   
(10,595
)
   
(15,807
)
   
(25,124
)
   
(35,593
)
Increase in deferred revenues and customer advances
   
27,045
     
16,827
     
56,473
     
39,826
 
Balance, at the end of the period
   
200,695
     
144,253
     
200,695
     
144,253
 
Less current portion
   
(30,460
)
   
(16,144
)
   
(30,460
)
   
(16,144
)
Long term portion
 
$
170,235
   
$
128,109
   
$
170,235
   
$
128,109
 
 
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 June 30, 2022:
 
2022
 
$
15,314
 
2023
   
20,693
 
2024
   
9,970
 
2025
   
9,067
 
2026
   
8,372
 
Thereafter
   
137,279
 
Total deferred revenues
 
$
200,695
 

 

NOTE 9:       ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
 
   
June 30,
2022
   
December 31,
2021
 
Accrued expenses
 
$
100,425
   
$
57,158
 
Government authorities
   
39,194
     
22,631
 
Operating lease liabilities
   
15,313
     
12,728
 
Provision for legal claims
   
141
     
11,622
 
Accrual for sales incentives
   
5,131
     
3,048
 
Other
   
8,196
     
2,192
 
   
$
168,400
   
$
109,379
 

 

F - 15


SOLAREDGE TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

 

(in thousands, except per share data)

 

NOTE 10:       CONVERTIBLE SENIOR NOTES
 
On September 25, 2020, the Company sold $632,500 aggregate principal amount of its 0.00% convertible senior notes due 2025 (the “Notes”). The Notes were sold pursuant to an indenture, dated September 25, 2020 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee. The Notes do not bear regular interest and mature on September 15, 2025, unless earlier repurchased or converted in accordance with their terms. The Notes are general senior unsecured obligations of the Company. Holders may convert their Notes prior to the close of business on the business day immediately preceding June 15, 2025 in multiples of $1,000 principal amount, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2020 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five-business-day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each trading day of that five consecutive trading day period was less than 98% of the product of the last reported sale price of the common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events as described in the Indenture. In addition, holders may convert their Notes, in multiples of $1,000 principal amount, at their option at any time beginning on or after June 15, 2025, and prior to the close of business on the second scheduled trading day immediately preceding the stated maturity date of the Notes, without regard to the foregoing circumstances. The initial conversion rate for the Notes was 3.5997 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $277.80 per share of common stock, subject to adjustment upon the occurrence of certain specified events as set forth in the Indenture.
 
Upon conversion, the Company may choose to pay or deliver, as the case may be, cash, shares of common stock, or a combination of cash and shares of common stock.
 
In addition, upon the occurrence of a fundamental change (as defined in the Indenture), holders of the Notes may require the Company to repurchase all or a portion of their Notes, in multiples of $1,000 principal amount, at a repurchase price of 100% of the principal amount of the Notes, plus any accrued and unpaid special interest to, but excluding the fundamental change repurchase date. If certain fundamental changes referred to as make-whole fundamental changes occur, the conversion rate for the Notes may be increased.
 
The Convertible Senior Notes consisted of the following as of June 30, 2022 and December 31, 2021:
 
   
June 30,
2022
   
December 31,
2021
 
Liability:
           
Principal
 
$
632,500
   
$
632,500
 
Unamortized issuance costs
   
(9,509
)
   
(10,965
)
Net carrying amount
 
$
622,991
   
$
621,535
 
 
For the three months ended June 30, 2022 and 2021 the Company recorded issuance costs related to the Notes in the amount of $728 and $726, respectively.
 
For the six months ended June 30, 2022 and 2021 the Company recorded issuance costs related to the Notes in the amount of $1,456 and $1,450, respectively.
 
As of June 30, 2022, the issuance costs of the Notes will be amortized over the remaining term of approximately 3.2 years.
 
The annual effective interest rate of the Notes is 0.47%.
 
As of June 30, 2022, the estimated fair value of the Notes, which the Company has classified as Level 2 financial instruments, is $755,920. 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 June 30, 2022, the if-converted value of the Notes did not exceed the principal amount.

 

F - 16


SOLAREDGE TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

 

(in thousands, except per share data)

 

NOTE 11:       STOCK CAPITAL
 
a. Common stock rights:
 
Common stock confers upon its holders the right to receive notice of, and to participate in, all general meetings of the Company, where each share of common stock shall have one vote for all purposes; to share equally, on a per share basis, in bonuses, profits, or distributions out of fund legally available therefor; and to participate in the distribution of the surplus assets of the Company in the event of liquidation of the Company.
 
b. Secondary public offering:
 
On March 17, 2022, the Company offered and sold 2,300,000 shares of the Company’s common stock, at a public offering price of $295.00 per share. The shares of Common Stock were issued and sold in a registered offering pursuant to the underwriting agreement dated March 17, 2022, among the Company, Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, and Morgan Stanley & Co. LLC (the “Underwriting Agreement”). All of the offered shares were issued at closing, including 300,000 shares of Common Stock that were issued and sold pursuant to the underwriters’ option to purchase additional shares under the Underwriting Agreement, which was exercised in full on March 18, 2022.
 
The net proceeds to the Company were $650,526 after deducting underwriters' discounts of $27,140 and commissions of $834.
 
c. Equity Incentive Plans:
 
The Company’s 2007 Global Incentive Plan (the “2007 Plan”) was adopted by the board of directors on August 30, 2007. The 2007 Plan terminated upon the Company’s IPO on March 31, 2015 and no further awards may be granted thereunder. All outstanding awards will continue to be governed by their existing terms and 379,358 available options for future 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 June 30, 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 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 5% of the total number of shares of capital stock outstanding on December 31st of the preceding calendar year; provided, however, that the Company’s board of directors may determine that there will not be a January 1st increase in the Share Reserve in a given year or that the increase will be less than 5% of the shares of capital stock outstanding on the preceding December 31st.
 
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 - 17


SOLAREDGE TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

 

(in thousands, except per share data)

 

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 June 30, 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
   
(58,211
)
   
28.21
     

-

     
-
 
Forfeited or expired
   
(243
)
   
5.01
     

-

     

-

 
Outstanding as of June 30, 2022
   
415,826
   
$
47.01
     
4.85
   
$
94,991
 
Vested and expected to vest as of June 30, 2022
   
415,826
   
$
47.01
     
4.85
   
$
94,991
 
Exercisable as of June 30, 2022
   
349,635
   
$
33.78
     
4.43
   
$
84,107
 
 
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
   
203,161
     
293.31
 
Vested
   
(424,379
)
   
124.92
 
Forfeited
   
(75,161
)
   
210.94
 
Unvested as of June 30, 2022
   
1,463,593
   
$
199.25
 
 
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
   
39,263
     
293.04
 
Unvested as of June 30, 2022
   
147,858
   
$
295.51
 
 
d. Employee Stock Purchase Plan:
 
The Company adopted an ESPP effective upon the consummation of the IPO. As of June 30, 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 - 18


SOLAREDGE TECHNOLOGIES INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

 

(in thousands, except per share data)

 

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 June 30, 2022, 696,852 shares of common stock had been purchased under the ESPP.
 
As of June 30, 2022, 2,965,885 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 and six months ended June 30, 2022, and 2021, as follows:
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2022
   
2021
   
2022
   
2021
 
Cost of revenues
 
$
5,286
   
$
4,291
   
$
10,348
   
$
10,081
 
Research and development
   
16,819
     
9,805
     
31,804
     
18,603
 
Selling and marketing
   
7,047
     
5,780
     
13,748
     
11,215
 
General and administrative
   
7,922
     
4,176
     
15,281
     
7,306