The solar energy market is subject to seasonal and quarterly fluctuations affected by weather. For example, during the winter months in Europe and the northeastern U.S. where the climate is particularly cold and snowy, it is typical to see a decline in PV installations and this decline can impact the timing of orders for our products.

As of December 31, 2017,2019, we had 1,0072,431 full‑time employees. Of these full‑time employees, 367755 were engaged in research and development, 210416 in sales and marketing, 3481,031 in operations, production and support, and 82229 in general and administrative capacities. Of our employees, 6061,161 were based in Israel, 143295 were based in Korea, 235 were based in the U.S., 83185 were based in China, 49197 were based in Germany,Italy, and an additional 126358 were based elsewhere.

Except for our SMRE employees and the employees of its subsidiary IET, none of our employees are represented by a labor union. We have not experienced any employment-related work stoppages, and we consider relations with our employees to be good.

We were incorporated in Delaware in 2006. Our principal executive offices are located at 1 HaMada Street, Herziliya Pituach 4673335, Israel and our telephone number at this address is 972 (9) 957-6620. Our website is www.solaredge.com.

We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (the “SEC”), pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”). You may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330. Our reports, proxy statements and other documents filed electronically with the SEC are available at the website maintained by the SEC at www.sec.gov.

We also make available, free of charge onuse the Investor Relations portion of our website at www.solaredge.com, as a routine channel of distribution of important information such as press releases, analyst presentations, corporate governance practices and corporate responsibility information, financial information including our annual, quarterly, and current reports, our proxy statements, and, if applicable, amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the SEC. We also make available on the Investor Relations portion of our website at www.solaredge.com our earnings presentation and other important information, which we encourage you to review.

We achieved a net profit of $21.1$84.2 million, $76.6 million, $25.4$128.0 million and $84.2$145.0 million in fiscal 2015, 2016, the six months ended December 31, 2016, and the yearyears ended December 31, 2017, 2018 and 2019, respectively. OurThis high growth rate in profitability may not be sustainable over time. While we continue to grow our market share, our revenue growth may slow oris not expected to grow at the same pace that it has in past years. In addition, our revenue may decline for a number of possible reasons, many of which are outside our control, including a decline in demand for our products, increased competition, a decrease in the growth of the solar industry, or our market share, or our failure to continue to capitalize on growth opportunities. If we fail to maintain sufficient revenue to support our operations, we may not be able to sustain profitability.

In addition, we expect to incur additional costs and expenses related to the continued development and expansion of our business, including in connection with recent or future acquisitions as well as ongoing marketing and developing our products, development of our own manufacturing facilities, expanding into new product markets and geographies, maintaining and enhancing our research and development operations and hiring additional personnel. We do not know whether our revenues will grow rapidly enough to absorb these costs and our limited operating history makes it difficult to assessor the extent of these expenses or their impact on our results of operations.

Much of our growth has occurred in recent periods. This operating history, combined with theThe rapidly evolving and competitive nature of ourthe solar industry makes it difficult to evaluate our current business and future prospects. In addition, we have limited insight into emerging trends that may adversely affect our business, financial condition, results of operations and prospects. Our recent acquisitions in adjacent markets, such as UPSs, ESS and e-Mobility are new to us and these are highly competitive markets in which we will need to compete. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries, including unpredictable and volatile revenues and increased expenses as we continue to grow our business.

The viability and demand for solar energy solutions, UPS solutions, ESS and e-Mobility products, and in turn, our products, may be affected by many factors outside of our control, including:

If we do not manage these risks and overcome these difficulties successfully, our business and results of operations will suffer.

Our solution is utilized in solar PV installations. As a result, our future success depends on continued demand for solar energy solutions and the ability of solar equipment vendors to meet this demand. The solar industry is an evolving industry that has experienced substantial changes in recent years, and we cannot be certain that consumers and businesses, with respect to distributed solar solutions, or utilities, with respect to utility-scale solar projects, will adopt solar PV systems as an alternative energy source at levels sufficient to grow our business. If demand for solar energy solutions fails to develop sufficiently, demand for our products will decrease, which would have an adverse impact on our ability to increase our revenue and grow our business.

Federal, state, local and foreign government bodies provide incentives to owners, end users, distributors, system integrators and manufacturers of solar PV systems to promote solar electricity in the form of rebates, tax credits and other financial incentives such as system performance payments, payments of renewable energy credits associated with renewable energy generation and exclusion of solar PV systems from property tax assessments. The market for on-grid applications, where solar power is used to supplement a customer’s electricity purchased from the utility network or sold to a utility under tariff, often depends in large part on the availability and size of government and economic incentives that vary by geographic market. Because our customers’ sales are typically into the on-grid market, the reduction, elimination or expiration of government subsidies and economic incentives for on-grid solar electricity may negatively affect the competitiveness of solar electricity relative to conventional and non-solar renewable sources of electricity, and could harm or halt the growth of the solar electricity industry and our business. For example, in August 2015 the United Kingdom’s DepartmentU.S congress passed a multi-year extension to the solar Investment Tax Credit (ITC), such extension helped exponentially grow the U.S solar market. As of EnergyJanuary 1, 2020 the ITC is being gradually reduced from 30 percent to 26 percent for both residential and Climate Change (DECC) launched a consultationcommercial in 2020 and is expected to reach 10 percent for commercial only in 2023. The reduction in the ITC could reduce the demand for solar energy solutions in the U.S which would have an adverse impact on the futureour business, financial condition, and results of the Feed-in Tariffs (FITs) scheme, the consultation reduced the levels of FIT effective February 2016. Under the new FIT scheme UK solar installations have significantly dropped. Theseoperations.

In general subsidies and incentives may expire on a particular date, end when the allocated funding is exhausted or be reduced or terminated as solar energy adoption rates increase or as a result of legal challenges, the adoption of new statutes or regulations or the passage of time. These reductions or terminations often occur without warning.

In addition, several jurisdictions have adopted renewable portfolio standards, which mandate that a certain portion of electricity delivered by utilities to customers come from a set of eligible renewable energy resources by a certain compliance date. Some programs further specify that a portion of the renewable energy quota must be from solar electricity. Under some programs, a utility can receive a “credit” for renewable energy produced by a third party by either purchasing the electricity directly from the producer or paying a fee to obtain the right to renewable energy generated but used by the generator or sold to another party. A renewable energy credit allows the utility to add this electricity to its renewable portfolio requirement total without actually expending the capital for generating facilities. However, there can be no assurances that such policies will continue. For example, in December 2015, Nevada's Public Utilities Commission increased the fixed service charge for net-metered solar customers and lowered compensation for net excess solar generation.generation Proposals to extend compliance deadlines, reduce targets or repeal standards have also been introduced in a number of states. Reduction or elimination of renewable portfolio standards or successful efforts to meet current standards could harm or halt the growth of the solar PV industry and our business.

Escalating trade tensions between the United States and China have led to increased tariffs and trade restrictions, including tariffs applicable to certain of our products. In January 22, 2018, a tariff on imported solar modules and cells was adopted in the United States. The approved taxation imposes an initialtariff, which does not apply directly to our products, except possibly with respect to power optimizers that are embedded onto solar panels in China, was initially set at 30% tariff on all imported solar modules and cells,, with a gradual reduction over four years to 15%. TheseIn addition, in July 2018, a 10% tariff on a long list of products imported from China, including inverters and power optimizers was adopted in the United States under Section 301 of the Trade Act of 1974, and became effective on September 24, 2018. In June 2019, the USTR increased the rate of such tariffs do not apply directlyfrom 10% to 25%.

On January 15, 2020, the United States and China entered into an initial trade deal which preserves the bulk of the tariffs placed in 2018 and maintains a threat of additional sanctions should China breach the terms of the deal.

In order to mitigate the negative effect of increased tariffs, we raised the price of our products. However, theseproducts sold in the United States in the third quarter of 2019. Despite the price increases, the tariffs had a negative effect on our gross margins. In response to the increased tariffs, we focused efforts and resources on opening an additional manufacturing facility in Vietnam. The tariffs and the possibility of additional tariffs in the future have created uncertainty in the industry concerning whether they will cause a material increase in the price of solar systems in the U.S.industry. If the price of solar systems in the U.S.United States increases, the use of solar wouldsystems could become less economically feasible and would likelycould reduce our gross margins or reduce the numberdemand of solar systems manufactured and sold, which in turn may decrease demand for our products. Additionally, existing or future tariffs may negatively affect key customers, suppliers, and manufacturing partners. Such outcomes could adversely affect the amount or timing of our revenues, results of operations or cash flows, and continuing uncertainty could cause sales volatility, price fluctuations or supply shortages or cause our customers to advance or delay their purchase of our products.

Our business benefits from favorable net metering policies in severalmost U.S. states Canadian provinces, and some European countries in which our customers operate. Net metering allows a solar PV system owner to pay his or her local electric utility only for power usage net of production from the solar PV system, transforming the conventional relationship between customers and traditional utilities. System owners receive credit for the energy that the solar installation generates to offset energy usage at times when the solar installation is not generating energy. Under a net metering program, the customer typically pays for the net energy used or receives a credit against future bills at the retail rate if more energy is produced than consumed. In some locations, customers are also reimbursed by the electric utility for net excess generation on a periodic basis.

Most U.S. states have adopted some form of net metering. However, net metering programs have recently come under regulatory scrutiny in some U.S. states due to challenges alleging that net metering policies inequitably shift costs onto non-solar ratepayers by allowing solar ratepayers to sell electricity at rates that are too high for utilities to recoup their fixed costs. We cannot assure you that the programs will not be significantly modified going forward.

If the value of the credit that customers receive for net metering is significantly reduced, end-users may be unable to recognize the same level of cost savings associated with net metering that current end-users enjoy. The absence of favorable net metering policies or of net metering entirely, or the imposition of new charges that only or disproportionately affect end-users that use net metering would significantly limit demand for solar PV systems that are sold by our customers and could have a material adverse effect on our business, financial condition, results of operations and future growth.

Federal, state, local and foreign government regulations and policies concerning the electric utility industry, and internal policies and regulations promulgated by electric utilities, heavily influence the market for electricity generation products and services. These regulations and policies often relate to electricity pricing and the interconnection of customer-owned electricity generation, and governments and utilities continuously modify these regulations and policies. These regulations and policies could deter purchases of renewable energy products, including solar PV systems sold by our customers. This could result in a significant reduction in the potential demand for our products. For example, utilities commonly charge fees to larger, industrial customers for disconnecting from the electric grid or for having the capacity to use power from the electric grid for back-up purposes. These fees could increase the cost to use solar PV systems sold by our customers and make them less desirable, thereby harming our business, prospects, financial condition and results of operations. In addition, depending on the region, electricity generated by solar PV systems competes most effectively with expensive peak-hour electricity from the electric grid, rather than the less expensive average price of electricity. Modifications to the utilities’ peak hour pricing policies or rate design, such as to a flat rate, could require the price of solar PV systems and their component parts to be lower in order to compete with the price of electricity from the electric grid.

Changes in current laws or regulations applicable to us or the imposition of new laws and regulations in the U.S., Europe, or other jurisdictions in which we do business could have a material adverse effect on our business, financial condition and results of operations. Any changes to government or internal utility regulations and policies that favor electric utilities could reduce the competitiveness of solar PV systems sold by our customers and cause a significant reduction in demand for our products and services. For example, regulators in certain U.S. states have been asked to consider proposals to assess fees on consumers purchasing energy from solar PV systems or imposing a new charge that would disproportionately impact solar PV system owners who utilize net metering, either of which would increase the cost of solar PV energy to those consumers and could reduce demand for our products. Any similar government or utility policies adopted in the future that discourage the growth of solar PV systems could reduce demand for our products and services and adversely impact our growth. In addition, changes in our products or changes in export and import laws and implementing regulations may create delays in the introduction of new products in international markets, prevent our customers from deploying our products internationally or, in some cases, prevent the export or import of our products to certain countries altogether. Any such event could have a material adverse effect on our business, financial condition, and results of operations.

A drop in the retail price of electricity derived from the utility grid or from alternative energy sources may harm our business, financial condition, results of operations, and prospects.

Decreases in the retail prices of electricity from the utility grid or other renewable energy resources, would make the purchase of solar PV systems less economically attractive and would likely lower sales of our products. The price of electricity derived from the utility grid could decrease as a result of:

•

construction of a significant number of new power generation plants, including plants utilizing natural gas, nuclear, coal, renewable energy, or other generation technologies;

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•

relief of transmission constraints that enable local centers to generate energy less expensively;

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reductions in the price of natural gas;

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utility rate adjustment and customer class cost reallocation;

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energy conservation technologies and public initiatives to reduce electricity consumption;

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development of smart-grid technologies that lower the peak energy requirements of a utility generation facility;

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development of new or lower-cost energy storage technologies that have the ability to reduce a customer’s averagecostaverage cost of electricity by shifting load to off-peak times; and

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development of new energy generation technologies that provide less expensive energy.

Moreover, technological developments in the solar components industry could allow our competitors and their customers to offer electricity at costs lower than those that can be achieved by us and our customers, which could result in reduced demand for our products.

If the cost of electricity generated by solar PV installations incorporating our systems is high relative to the cost of electricity from other sources, our business, financial condition, and results of operations may be harmed.

An increase in interest rates or tightening of the supply of capital in the global financial markets could make it difficult for end-users to finance the cost of a solar PV system and could reduce the demand for solar systemssmart energy products and thus demand for our products.

Many end-users depend on financing to fund the initial capital expenditure required to develop, build, or purchase a solar PV system. As a result, an increase in interest rates or a reduction in the supply of project debt financing or tax equity investments, could reduce the number of solar projects that receive financing or otherwise make it difficult for our customers or their customers, the end-users, to secure the financing necessary to develop, build, purchase, or install a solar PV system on favorable terms, or at all, and thus lower demand for our products which could limit our growth or reduce our net sales. In addition, we believe that a significant percentage of end-users install solar PV systems as an investment, funding the initial capital expenditure through financing. An increase in interest rates could lower such end-user’s return on investment on a solar PV system, increase equity return requirements or make alternative investments more attractive relative to solar PV systems, and, in each case, could cause such end-users to seek alternative investments.

The market for our products is highly competitive and we expect to face increased competition as new and existing competitors introduce power optimizer, inverter, andoptimizers, inverters, solar PV system monitoring and other smart energy products, which could negatively affect our results of operations and market share.

The market for solar PV solutions is highly competitive. We principally compete with traditional inverter manufacturers as well as microinverter manufacturers. Currently, our DC optimized inverter system competes with products from traditional inverter manufacturers, and microinverter manufacturers, as well as emerging technology companies offering alternative MLPE products. SeveralOver the past few years, several new entrants to the inverter and MLPE market including low-cost Asian manufacturers, have recently announced plans to ship or have already shipped products in markets in which we sell our products, including most recently, with respect to sales in Australia and in Europe. We expect competition to intensify as new and existing competitors enter the market.

In addition, there are several new entrants that are proposing solution to the rapid shutdown functionality which has become a regulatory requirement for PV rooftop solar systems in the United States. If these new technologies are successful in offering a price competitive and technological attractive solution to the residential solar PV market, this could make it more difficult for us to maintain market share.

Several of our existing and potential competitors are significantly larger, have greater financial, marketing, distribution, customer support, and other resources, are longer established, and have better brand recognition. Further, certain competitors may be able to develop new products more quickly than us, may partner with other competitors to provide combined technologies and competing solutions and may be able to develop products that are more reliable or that provide more functionality than ours. In addition, some of our competitors have the financial resources to offer competitive products at aggressive or below-market pricing levels, which could cause us to lose sales or market share or require us to lower prices for our products in order to compete effectively. If we have to reduce our prices by more than we anticipated, or if we are unable to offset any future reductions in our average selling prices by increasing our sales volume, reducing our costs and expenses or introducing new products, our revenues and gross profit would suffer.

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In addition, competitors may be able to develop new products more quickly than us, may partner with other competitors to provide combined technologies and competing solutions and may be able to develop products that are more reliable or that provide more functionality than ours.

Developments in alternative technologies or improvements in distributed solar energy generation may have a material adverse effect on demand for our offerings.

Significant developments in alternative technologies, such as advances in other forms of distributed solar PV power generation, storage solutions, such as batteries, the widespread use or adoption of fuel cells for residential or commercial properties or improvements in other forms of centralized power production, may have a material adverse effect on our business and prospects. Any failure by us to adopt new or enhanced technologies or processes, or to react to changes in existing technologies, could result in product obsolescence, the loss of competitiveness of our products, decreased revenue and a loss of market share to competitors.

Our

The solar industry has historically been cyclical and experienced periodic downturns.

Our future success partly depends on continued demand for solar PV systems in the end-markets we serve, including the residential and commercial sectors in the United States and Europe. The solar industry has historically been cyclical and has experienced periodic downturns which may affect the demand for equipment that we manufacture. The solar industry has undergone challenging business conditions in recentpast years, including downward pricing pressure for PV modules, mainly as a result of overproduction, and reductions in applicable governmental subsidies, contributing to demand decreases. Although the solar industry is experiencing a slow recovery,has recovered from this downturn, there is no assurance that the solar industry will not suffer significant downturns in the future, which will adversely affect demand for our solar products and our results of operations.

Defects or performance problems in our products could result in loss of customers, reputational damage, and decreased revenue, and we may face warranty, indemnity, and product liability claims arising from defective products.

Although our products meet our stringent quality requirements, they may contain undetected errors or defects, especially when first introduced or when new generations are released. Errors, defects, or poor performance can arise due to design flaws, defects in raw materials or components or manufacturing difficulties, which can affect both the quality and the yield of the product. In the first three quarters of 2019, we indeed experienced an increased number of single-phase inverter failures and heightened call center activity which we attributed to releasing new products and capabilities which is typically characterized by an initial period of stabilization until manufacturing processes are fully mature. Any actual or perceived errors, defects, or poor performance in our products could result in the replacement or recall of our products, shipment delays, rejection of our products, damage to our reputation, lost revenue, diversion of our engineering personnel from our product development efforts, and increases in customer service and support costs, all of which could have a material adverse effect on our business, financial condition, and results of operations.

Furthermore, defective components may give rise to warranty, indemnity, or product liability claims against us that exceed any revenue or profit we receive from the affected products. We offer a minimum 12-year limited warranty for our inverters, extendable to twenty five years for an additional cost, and a 25-year limited warranty for our power optimizers. Our limited warranties cover defects in materials and workmanship of our products under normal use and service conditions. As a result, we bear the risk of warranty claims long after we have sold products and recognized revenue. While we do have accrued reserves for warranty claims, our estimated warranty costs for previously sold products may change to the extent future products are not compatible with earlier generation products under warranty. Our warranty accruals are based on our assumptions and we do not have a long history of making such assumptions. As a result, these assumptions could prove to be materially different from the actual performance of our systems, causing us to incur substantial unanticipated expense to repair or replace defective products in the future or to compensate customers for defective products. Our failure to accurately predict future claims could result in unexpected volatility in, and have a material adverse effect on, our financial condition.

If one of our products were to cause injury to someone or cause property damage, including as a result of product malfunctions, defects, or improper installation, then we could be exposed to product liability claims. We could incur significant costs and liabilities if we are sued and if damages are awarded against us. Further, any product liability claim we face could be expensive to defend and could divert management’s attention. The successful assertion of a product liability claim against us could result in potentially significant monetary damages, penalties or fines, subject us to adverse publicity, damage our reputation and competitive position, and adversely affect sales of our products. In addition, product liability claims, injuries, defects, or other problems experienced by other companies in the residential solar industry could lead to unfavorable market conditions for the industry as a whole, and may have an adverse effect on our ability to attract new customers, thus harming our growth and financial performance.

If we do not forecast demand for our products accurately, we may experience product shortages, delays in product shipment, excess product inventory, or difficulties in planning expenses, which will adversely affect our business and financial condition.

Our products are manufactured according to our estimates of customer demand, which requires us to make multiple forecasts and assumptions relating to demand from solar PV installers and distributors, their end customers, and general market conditions. Because we sell a large portion of our products to larger solar installers and various distributors, who in turn sell to local installers, who in turn sell to their end customers, the system owner, we have limited visibility as to end customer demand and it is difficult to forecast future end-user demand to plan our operations. If we overestimate demand for our products, or if purchase orders are cancelled or shipments are delayed, we may have excess inventory that we cannot sell. Conversely, if we underestimate demand, we may not have sufficient inventory to meet end customer demand or to ramp up production at our contract manufacturers in a timely manner, or we could incur additional costs, lose market share, damage relationships with our distributors and end customers and forego potential revenue opportunities. For example, in late 2017, and during the quarteryears ended December 31, 2017,2018 and 2019, we had high customer demand and certain component shortages which forced us to shorten transportation time from our factories in China by using air freight rather than less expensive ocean freight.

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We face risks related to actual or threatened health epidemics and other outbreaks, which could significantly disrupt our manufacturing and operations.

Our business could be adversely impacted by the effects of a widespread outbreak of contagious disease, including the recent outbreak of respiratory illness caused by a novel coronavirus first identified in Wuhan, China. Any widespread outbreak of contagious diseases, and other adverse public health developments, could cause disruption to our suppliers and contract manufacturers located in China and elsewhere and have a material and adverse effect on our business operations. Our suppliers and manufacturers could be disrupted by worker absenteeism, quarantines, office and factory closures, disruptions to ports and other shipping infrastructure, or other travel or health-related restrictions. If our suppliers or manufacturers are so affected, our supply chain, manufacturing and product shipments will be delayed, which could adversely affect our business, operations and customer relationships. In addition, the macroeconomic effects of the coronavirus outbreak in China and other markets could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our products and likely impact our operating results. Our business is also highly dependent on travel of our sales, operations, quality and reliability and other managers and employees. Limitations placed on travel, both to China and other regions in Asia or elsewhere could significantly limit our ability to continue to market our products, establish relationships with new customers, lead training of installers and oversee and maintain quality control of our manufacturing lines. Although the impact of the coronavirus outbreak on our business and operations remains uncertain, the continued spread of the coronavirus or the occurrence of other epidemics and the imposition of related public health measures and travel restrictions may adversely impact our business, financial condition, operating results and cash flows.

We are dependent on ocean transportation to deliver our products in a cost efficient manner. If we are unable to use ocean transportation to deliver our products, our business and financial condition could be materially and adversely impacted.

We rely on commercial ocean transportation for the delivery of a large percentage of our products to our customers. We also rely on more expensive air transportation when ocean transportation is not available or compatible with the delivery time requirements of our customers or when we are unable to meet the growing volume demands of our customers and need to accelerate delivery times. Our ability to deliver our products via ocean transportation could be adversely impacted by shortages in available cargo capacity, changes by carriers and transportation companies in policies and practices, such as scheduling, pricing, payment terms and frequency of service or increases in the cost of fuel, taxes and labor, disruptions to ports and other shipping facilities as a result of the coronavirus or other epidemics, and other factors, such as labor strikes and work stoppages, not within our control. If we are unable to use ocean transportation and are required to substitute more expensive air transportation, our financial condition and results of operations could be materially and adversely impacted.

We depend upon a small number of outside contract manufacturers. Our operations could be disrupted if we encounter problems with these contract manufacturers.

We do not yet have

While we are developing our own internal manufacturing capabilities, and currentlywe rely upon our contract manufacturers to buildmanufacture all of our products. One of our contract manufacturers is in the process of ramping up manufacturing. During this period, weWe mainly rely on onetwo contract manufacturer.manufacturers. Any change in our relationship with our contract manufacturers or changes to contractual terms of our agreements with the contract manufacturers could adversely affect our financial condition and results of operations. Our reliance on a small number of contract manufacturers makes us vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields and costs.

Even once we begin manufacturing in our facility in northern Israel, the expected production volumes will not be sufficient to relive our significant dependence on our contract manufacturers. In addition, we will remain heavily dependent on suppliers of the components needed for our manufacturing.

The revenues that our contract manufacturers generate from our orders represent a relatively small percentage of their overall revenues. As a result, fulfilling our orders may not be considered a priority in the event of constrained ability to fulfill all of their customer obligations in a timely manner. In addition, the facilities in which our products are manufactured are located outside of the U.S., currently in China, RomaniaVietnam and Hungary. The location of these facilities outside of key markets such as the U.S. increases shipping time, thereby causing a long lead time between manufacturing and delivery.

If any of our contract manufacturers were unable or unwilling to manufacture our products in required volumes and at high quality levels or renew existing terms under supply agreements, we would have to identify, qualify, and select acceptable alternative contract manufacturers. An alternative contract manufacturer may not be available to us when needed or may not be in a position to satisfy our quality or production requirements on commercially reasonable terms, including price. Any significant interruption in manufacturing would require us to reduce our supply of products to our customers or increase our shipping costs to make up for delays in manufacturing, which in turn could reduce our revenues, harm our relationships with our customers and damage our reputation with local installers and potential end-users, and cause us to forego potential revenue opportunities.

We may experience delays, disruptions, or quality control problems in our manufacturing operations.

Our product development, manufacturing, and testing processes are complex and require significant technological and production process expertise. Such processes involve a number of precise steps from design to production. Any change in our processes could cause one or more production errors, requiring a temporary suspension or delay in our production line until the errors can be researched, identified, and properly addressed and rectified. This may occur particularly as we introduce new products, modify our engineering and production techniques, and/or expand our capacity. In addition, our failure to maintain appropriate quality assurance processes could result in increased product failures, loss of customers, increased warranty reserve, increased production, and logistical costs and delays. Any of these developments could have a material adverse effect on our business, financial condition, and results of operations.

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We depend on a limited number of suppliers for key components and raw materials in our products to adequately meet anticipated demand. Due to the limited number of such suppliers, any cessation of operations or production or any shortage, delay, price change, imposition of tariffs or duties, or other limitation on our ability to obtain the components and raw materials we use could result in sales delays, higher costs associated with air shipments, cancellations, and loss of market share.

We depend on limited or single source suppliers for certain key components and raw materials used to manufacture our products, making us susceptible to quality issues, shortages, and price changes. Any of these limited or single source suppliers could stop producing our components or supplying our raw materials, cease operations or be acquired by, or enter into exclusive arrangements with, one or more of our competitors. As a result, these suppliers could stop selling to us at commercially reasonable prices, or at all. Because there are a limited number of suppliers of solar PV system components, e-Mobility components and raw materials used to manufacture our products, including for manufacturing lithium-ion batteries, it may be difficult to quickly identify alternate suppliers or to qualify alternative components or raw materials on commercially reasonable terms, and our ability to satisfy customer demand may be adversely affected. Transitioning to a new supplier or redesigning a product to accommodate a new component manufacturer would result in additional costs and delays. These outcomes could harm our business or financial performance.

Managing our supplier and contractor relationships is particularly difficult when we are introducing new products and when demand for our products is increasing, especially if demand increases more quickly than we expect.

Any interruption in the supply of limited source components or raw materials for our products would adversely affect our ability to meet scheduled product deliveries to our customers, could result in lost revenue or higher expenses associated with increased air shipments required to meet customer demand in a timely manner, and would harm our business.

For example, during 2017, 2018 and to a lesser extent in 2019, the solar industry suffered from component shortages which affected our ability to timely receive components within lead time and caused an extension of certain lead times by our suppliers. This shortages resulted in a delay in cost reduction activities, which negatively impacted our gross margin, as well as necessitated expedited air shipments that had an impact on our operating margins.

Failure by our contract manufacturers or our component or raw material suppliers to use ethical business practices and comply with applicable laws and regulations may adversely affect our business.

We do not control our contract manufacturers or suppliers or their business practices. Accordingly, we cannot guarantee that they follow ethical business practices such as fair wage practices and compliance with environmental, safety, and other local laws. A lack of demonstrated compliance could lead us to seek alternative manufacturers or suppliers, which could increase our costs and result in delayed delivery of our products, product shortages, or other disruptions of our operations. Violation of labor or other laws by our manufacturers or suppliers or the divergence of a supplier’s labor or other practices from those generally accepted as ethical in the U.S. or other markets in which we do business could also attract negative publicity for us and harm our business.

Our results of operations may fluctuate from quarter to quarter, which could make our future performance difficult to predict and could cause our results of operations for a particular period to fall below expectations, resulting in a decline in the price of our common stock.

Our quarterly results of operations are difficult to predict and may fluctuate significantly in the future. We have experienced seasonal and quarterly fluctuations in the past as a result of seasonal fluctuations in our customers’ business. For example, our customers’ and end-users’ ability to install solar energy systems is affected by weather, as for example during the winter months in Europe and the northeastern U.S. Such installation delays can impact the timing of orders for our products. Further, given that we are operating in an industry that is affected by fluctuations as a result of economic factors such as tariff changes, the true extent of these fluctuations may have been masked by our recent growth rates and consequently may not be readily apparent from our historical results of operations and may be difficult to predict. Our financial performance, sales, working capital requirements, and cash flow may fluctuate, and our past quarterly results of operations may not be good indicators of future performance. Any substantial decrease in revenues would have an adverse effect on our financial condition, results of operations, cash flows, and stock price.

We rely on distributors and large installers to assist in selling our products, and the failure of these customers to perform as expected could reduce our future revenue.

We currently sell a substantial percentage of our products through distributors, who in turn sell to local installers, and through direct sales to large installers. We do not have exclusive arrangements with these third party distributors and large installers. Many of our distributors also market and sell products from our competitors, and all of our large installer customers also use products from our competitors. These distributors and large installers may terminate their relationships with us at any time and with little or no notice. Further, these distributors and large installers may fail to devote resources necessary to sell our products at the prices, in the volumes, and within the time frames that we expect, or may focus their marketing and sales efforts on products of our competitors. Termination of agreements with current distributors or large installers, failure by these distributors or large installers to perform as expected, or failure by us to cultivate new distributor or large installer relationships, could hinder our ability to expand our operations and harm our revenue and results of operations.

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The loss of one or more members of our senior management team or other key personnel or our failure to attract additional qualified personnel may adversely affect our business and our ability to achieve our anticipated level of growth.

We depend on the continued services of our senior management team, including our chief executive officer and chief financial officer, and other key personnel, each of whom would be difficult to replace. The loss of any such personnel could have a material adverse effect on our business and ability to implement our business strategy. In August 2019, we announced the untimely death of Mr. Guy Sella, our chairman, chief executive officer and co-founder. While the Company’s short term performance has continued as planned and on target, we cannot ensure that his loss will not negatively impact the long term strategy execution and continued innovative planning of our Company, which was led in large part by him.

All of our employees, including our senior management, are free to terminate their employment relationships with us at any time. We do not maintain key-person insurance for any of our employees, including senior management.

Additionally, our ability to attract qualified personnel, including senior management and key technical personnel, is critical to the execution of our growth strategy. Competition for qualified senior management personnel and highly skilled individuals with technical expertise is extremely intense, and we face challenges identifying, hiring, and retaining qualified personnel in all areas of our business. In addition, integrating new employees into our team could prove disruptive to our operations, require substantial resources and management attention, and ultimately prove unsuccessful. Our failure to attract and retain qualified senior management and other key technical personnel could limit or delay our strategic efforts, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

If we fail to protect, or incur significant costs in defending our intellectual property and other proprietary rights, our business and results of operations could be materially harmed.

Our success depends to a significant degree on our ability to protect our intellectual property and other proprietary rights. We rely on a combination of patent, trademark, copyright, trade secret, and unfair competition laws, as well as confidentiality and license agreements and other contractual provisions with our customers, suppliers, employees, and others, to establish and protect our intellectual property and other proprietary rights. Our ability to enforce these rights is subject to general litigation risks, as well as uncertainty as to the enforceability of our IP rights in various countries. When we seek to enforce our rights, we may be subject to claims that our IP rights are invalid or not enforceable. Our assertion of IP rights may result in another party seeking to assert claims against us, which could harm our business. Our inability to enforce our IP rights under any of these circumstances can harm our competitive position and business.

We have applied for patents in the U.S., Europe, and China, some of which have been issued. We cannot guarantee that any of our pending applications will be approved or that our existing and future intellectual property rights will be sufficiently broad to protect our proprietary technology, and any failure to obtain such approvals or finding that our intellectual property rights are invalid or unenforceable could force us to, among other things, rebrand or re-design our affected products. In countries where we have not applied for patent protection or where effective intellectual property protection is not available to the same extent as in the U.S., we may be at greater risk that our proprietary rights will be misappropriated, infringed, or otherwise violated.

Our intellectual property may be stolen or infringed upon. In fact, as further detailed in Item 3 – “Legal Proceedings” we are engaged in a number of legal proceedings related to intellectual property. Litigation proceedings are inherently uncertain, and adverse rulings may occur, including monetary damages, or injunction stopping us from manufacturing or selling certain products, or requiring other remedies. These lawsuits are intended to protect our significant investment in our intellectual property but they also may consume management and financial resources for long periods of time and may not result in favorable outcome for us, which may adversely affect our business, results of operations or financial condition.

Third parties may assert that we are infringing upon their intellectual property rights, which could divert management’s attention, cause us to incur significant costs, and prevent us from selling or using the technology to which such rights relate.

Our competitors and other third parties hold numerous patents related to technology used in our industry. From time to time, we may also be subject to claims of intellectual property right infringement and related litigation, and, if we gain greater recognition in the market, we face a higher risk of being the subject of claims that we have violated others’ intellectual property rights. RegardlessFor example, in September 2018, our German subsidiary, SolarEdge Technologies GmbH received a complaint filed by SMA Solar Technology AG. The complaint, filed in the District Court Düsseldorf, Germany, alleges that SolarEdge's 12.5kW - 27.6kW inverters infringe two of their merit,plaintiff’s patents. In November 2019, the first instance court accepted the claim of infringement for one of the two patents and we have filed an appeal to the Appeals Court Dusseldorf and are challenging the validity of the allegedly infringed patent in the German Patent Court. Also, in November 2019 the first instance court stayed the infringement proceedings regarding the other one of the two patents since it considered it to be highly likely that the patent would be invalid. Although we are certain that we have meritorious defenses to the claims, responding to such claims can be time consuming, can divert management’s attention and resources and may cause us to incur significant expenses in litigation or settlement. While we believe that our products and technology do not infringe in any material respect upon any valid intellectual property rights of third parties, we cannot be certain that we would be successful in defending against any such claims. If we do not successfully defend or settle an intellectual property claim, we could be liable for significant monetary damages and could be prohibited from continuing to use certain technology, business methods, content, or brands. To avoid a prohibition, we could seek a license from the applicable third party, which could require us to pay significant royalties, increasing our operating expenses. If a license is not available at all or not available on reasonable terms, we may be required to develop or license a non-violating alternative, either of which could require significant effort and expense. If we cannot license or develop a non-violating alternative, we would be forced to limit or stop sales of our offerings and may be unable to effectively compete. Any of these results would adversely affect our business, financial condition, and results of operations.

We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.

We enter into agreements with our employees pursuant to which they agree that any inventions created in the scope of their employment or engagement are assigned to us or owned exclusively by us, depending on the jurisdiction, without the employee retaining any rights. A significant portion of our intellectual property has been developed by our employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967 (the “Patent Law”), inventions conceived by an employee during the scope of his or her employment with a company are regarded as “service inventions,” which belong to the employer, absent a specific agreement between the employee and employer giving the employee service invention rights. The Patent Law also provides that if there is no such agreement between an employer and an employee, the Israeli Compensation and Royalties Committee (the “Committee”), a body constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for his or her inventions. Recent decisions by the Committee and the Israeli Supreme Court have created uncertainty in this area, as the Israeli Supreme Court held that employees may be entitled to remuneration for their service inventions despite having specifically waived any such rights. Further, the Committee has not yet determined the method for calculating this Committee-enforced remuneration. Although our employees have agreed that any rights related to their inventions are owned exclusively by us, we may face claims demanding remuneration in consideration for such acknowledgement. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current and/or former employees, or be forced to litigate such claims, which could negatively affect our business.

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The loss of, or events affecting, one of our major customerscustomer could reduce our sales and have a material adverse effect on our business, financial condition, and results of operations.

For the year ended December 31, 2017, three of2019, our major customerscustomer, which is also our largest customer was Consolidated Electrical Distributors Inc. (CED), and accounted for 29.9%20.4% of our revenues. Our next five largest customers for the year ended December 31, 20172019 together accounted for 23.3% of our revenues. For the year ended December 31, 2017, our largest customer was Consolidated Electrical Distributors Inc. (CED), accounting for 14.8%29.1% of our revenues. Our customers’ decisions to purchase our products are influenced by a number of factors outside of our control, including retail energy prices and government regulation and incentives, among others. In addition, these customers may decide to no longer use our products and services for other reasons which may be out of our control. Although we have agreements with some of our largest customers, these agreements do not have long-term purchase commitments and are generally terminable by either party after a relatively short notice period. The loss of, or events affecting, one or more of these customers could have a material adverse effect on our business, financial condition, and results of operations. For example, in April 2017, one of our customers, Sungevity, filed for reorganization under Chapter 11 of the U.S. bankruptcy laws.

Consolidations in the solar industry among our current or potential customers or distributors may adversely affect our competitive position.

position.

There has been an increase in consolidation activity among distributors, large installers, and other strategic partners in the solar industry. For example, in July 2015, SunEdison (SUNEQ) announced its intention to purchase Vivint Solar for $2 billion, in March 2016, Vivint Solar announced it was terminating the merger due to SunEdison’s “willful breach of the merger agreement”. In June 2016, Tesla Motors (TSLA) announced that it had submitted a proposal to acquire all of the outstanding shares of common stock of SolarCity Corporation (SCTY).Corporation. In June 2018, Enphase Energy (ENPH) announced its acquisition of SunPower’s (SPWR) microinverter business. This trend could further increase our reliance on a small number of customers for a significant portion of our sales and may negatively impact our competitive position in the solar market.

Our planned expansion into new geographic markets or new product lines or services could subject us to additional business, financial, and competitive risks.

In the year ended December 31, 2017,2019, we sold our products to approximately 230 direct customers in 48different countries, including the U.S., Canada, Belgium, France, Germany, Israel, Italy, the Netherlands, the United Kingdom, Australia, Japan, Korea, Sweden, Poland and China.Brazil among others. We have in the past, and may in the future, evaluate opportunities to expand into new geographic markets and introduce new product offerings and services that are a natural extension of our existing business. We also may from time to time engage in acquisitions of businesses or product lines with the potential to strengthen our market position, enable us to enter attractive markets, expand our technological capabilities, or provide synergy opportunities. For example, we intend to continue to introduce new products targeted at large commercial and utility-scale installations and to continue to expand into other international markets.

Our success operating in these new geographic or product markets, or in operating any acquired business, will depend on a number of factors, including our ability to develop solutions to address the requirements of the large commercial and utility-scale solar PV markets, timely qualification and certification of new products for large commercial and utility-scale solar PV installations, acceptance of power optimizers in solar PV markets in which they have not traditionally been used, our ability to manage increased manufacturing capacity and production, and our ability to identify and integrate any acquired businesses.

Further, we expect these new solar PV markets and the additional markets we have entered as a result of our recent acquisitions to have different characteristics from the markets in which we currently sell products, and our success will depend on our ability to adapt properly to these differences. These differences may include differing regulatory requirements, including tax laws, trade laws, labor regulations, tariffs, export quotas, customs duties, or other trade restrictions, limited or unfavorable intellectual property protection, international, political or economic conditions, restrictions on the repatriation of earnings, longer sales cycles, warranty expectations, product return policies and cost, performance and compatibility requirements. In addition, expanding into new geographic markets will increase our exposure to presently existing risks, such as fluctuations in the value of foreign currencies and difficulties and increased expenses in complying with U.S. and foreign laws, regulations and trade standards, including the Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”).

Failure to develop and introduce these new products successfully, to successfully integrate acquired businesses or to otherwise manage the risks and challenges associated with our potential expansion into new product and geographic markets, could adversely affect our revenues and our ability to sustain profitability.

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If we fail to manage our recent and future growth effectively, we may be unable to execute our business plan, maintain high levels of customer service, or adequately address competitive challenges.

We have experienced significant growth in recent periods with our annual product sales growing rapidly from approximately 8,400152,500 inverters and approximately 181,0003.6 million power optimizers in the fiscal 2011 (the period beginning July 1, 2010 andyear ending June 30, 2011), our first full fiscal year of commercial shipments,2015, to annual product sales exceeding 316,000664,000 inverters and 7.315.7 million power optimizers in the year ended December 31, 2017.2019. We intend to continue to expand our business significantly within existing and new markets. This growth has placed, and any future growth may place, a significant strain on our management, operational, and financial infrastructure. In particular, we will be required to expand, train, and manage our growing employee base and scale and otherwise improve our IT infrastructure in tandem with that headcount growth. Our management will also be required to maintain and expand our relationships with customers, suppliers, and other third parties and attract new customers and suppliers, as well as manage multiple geographic locations.

Our current and planned operations, personnel, customer support, IT, information systems, and other systems and procedures might be inadequate to support our future growth and may require us to make additional unanticipated investment in our infrastructure. Our success and ability to further scale our business will depend, in part, on our ability to manage these changes in a cost-effective and efficient manner. If we cannot manage our growth, we may be unable to take advantage of market opportunities, execute our business strategies, or respond to competitive pressures. This could also result in declines in quality or customer satisfaction, increased costs, difficulties in introducing new offerings, or other operational difficulties. Any failure to effectively manage growth could adversely impact our business and reputation.

Fluctuations in currency exchange rates may negatively impact our financial condition and results of operations.

Although our financial results are reported in U.S. dollars, 37.4%48.7% of our revenues in the year ended December 31, 20172019 were generated in currencies other than the U.S. Dollar. In addition, a significant portion of our operating expenses are accrued in New Israeli Shekels (primarily related to payroll) and, to a lesser extent, the Euro and other currencies. Our profitability is affected by movements of the U.S. dollar against the Euro, and, to a lesser extent, the New Israeli Shekel, Korean Won and other currencies in which we generate revenues, incur expenses, and maintain cash balances. Foreign currency fluctuations may also affect the prices of our products. Our prices are denominated primarily in U.S. dollars. If there is a significant devaluation of a particular currency, the prices of our products will increase relative to the local currency and may be less competitive. Despite our efforts to minimize foreign currency risks, primarily by entering into forward-hedging transactions to sell Euro for U.S. dollars at a predefined rate, and maintaining cash balances in New Israeli Shekels, significant long-term fluctuations in relative currency values, in particular a significant change in the relative values of the Euro and, to a lesser extent, the New Israeli Shekel, Korean Won and other currencies, against the U.S. dollar could have an adverse effect on our profitability and financial condition.

From time to time, we may enter into forward contracts to hedge the exchange impacts on assets and liabilities denominated in Israeli Shekels, Euros and other currencies. As of December 31, 2017,2019, we entered into forward and put and call options contracts to sell Euros for U.S. dollars, which did not meet the requirement for hedge accounting, in the amount of €54 million.had no derivative instruments. We may use derivative financial instruments, such as foreign exchange forward contracts and put and call options, to mitigate the risk of changes in foreign exchange rates on accounts receivable and forecast cash flows denominated in certain foreign currencies. We may not be able to purchase derivative instruments adequate to fully insulate ourselves from foreign currency exchange risks.

Additionally, our hedging activities may also contribute to increased losses as a result of volatility in foreign currency markets. If foreign exchange currency markets continue to be volatile, such fluctuations in foreign currency exchange rates could materially and adversely affect our profit margins and results of operations in future periods. Also, the volatility in the foreign currency markets may make it difficult to hedge our foreign currency exposures effectively.

We may have exposure to greater than anticipated tax liabilities.

The determination of our worldwide provision for income taxes and other tax liabilities requires estimation and significant judgment, and there are many transactions and calculations where the ultimate tax determination is uncertain. Like many other multinational corporations, we are subject to tax in multiple jurisdictions, both in the U.S. and outside the U.S. Our determination of our tax liability is alwaysmay be subject to audit and review by applicable tax authorities. Any adverse outcome of any such audit or review could affect our business, and the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the periods for which such determination is made. While we have established reserves based on assumptions and estimates that we believe are reasonable to cover such eventualities, these reserves may prove to be insufficient.

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In addition, our future income taxes could be adversely affected by earnings being lower than anticipated, or by the incurrence of losses, in jurisdictions that have lower statutory tax rates and higher than anticipated in jurisdictions that have higher statutory tax rates, by changes in the valuation of our deferred tax assets and liabilities, as a result of gains on our foreign exchange risk management program, or changes in tax laws, regulations, or accounting principles, as well as certain discrete items.

Various levels of government, such as U.S. federal and state legislatures, and international organizations, such as the Organization for Economic Co-operation and Development (“OECD”) and the European Union, are increasingly focused on tax reform and other legislative or regulatory action to increase tax revenue. Any such tax reform or other legislative or regulatory actions could increase our effective tax rate.

rate and may even create a double taxation event.

Any unauthorized access to, or disclosure or theft of personal information we gather, store, or use could harm our reputation and subject us to claims or litigation.

Our business and operations may be impacted by data security breaches and cybersecurity attacks, including attempts to gain unauthorized access to confidential data. We receive, store, and use certain personal information of our customers, and the end-users of our customers’ solar PV systems, including names, addresses, e-mail addresses, credit information, and energy production statistics. We also store and use personal information of our employees. We take steps to protect the security, integrity, and confidentiality of the personal information we collect, store, and transmit, buthowever, we have been subject to cybersecurity attacks and other information technology system disruptions in the past and, there is no guarantee that inadvertent or unauthorized use or disclosure will not occur or that third parties will not gain unauthorized access to this information despite our efforts. Because techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we and our suppliers or vendors may be unable to anticipate these techniques or to implement adequate preventative or mitigation measures.

Unauthorized use or disclosure of, or access to, any personal information maintained by us or on our behalf, whether through breach of our systems, breach of the systems of our suppliers or vendors by an unauthorized party, or through employee or contractor error, theft or misuse, or otherwise, could harm our business.business, particularly in light of the European General Data Protection Regulation and the California Consumer Privacy Act which came into effect January 1, 2020. If any such unauthorized use or disclosure of, or access to, such personal information were to occur, our operations could be seriously disrupted and we could be subject to demands, claims and litigation by private parties, and investigations, related actions, and penalties by regulatory authorities. In addition, we could incur significant costs in notifying affected persons and entities and otherwise complying with the multitude of foreign, federal, state, and local laws and regulations relating to the unauthorized access to, or use or disclosure of, personal information. Finally, any perceived or actual unauthorized access to, or use or disclosure of, such information could harm our reputation, substantially impair our ability to attract and retain customers, and have an adverse impact on our business, financial condition, and results of operations.

We could be adversely affected by any violations of the FCPA, the U.K. Bribery Act, and other foreign anti-bribery laws.

The FCPA generally prohibits companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business. Other countries in which we operate also have anti-bribery laws, some of which prohibit improper payments to government and non-government persons and entities. Our policies mandate compliance with these anti-bribery laws. However, we currently operate in and intend to further expand into, many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. In addition, due to the level of regulation in our industry, our entry into certain jurisdictions requires substantial government contact where norms can differ from U.S. standards. It is possible that our employees, subcontractors, agents, and partners may take actions in violation of our policies and anti-bribery laws. Any such violation, even if prohibited by our policies, could subject us to criminal or civil penalties or other sanctions, which could have a material adverse effect on our business, financial condition, cash flows, and reputation.

Third parties might attempt to gain unauthorized access to our network or seek to compromise our products and services.

From time to time, we face attempts by others to gain unauthorized access through the Internet or to introduce malicious software to our information technology (IT) systems. Additionally, malicious hackers may attempt to gain unauthorized access and corrupt the processes of hardware and software products that we manufacture and services we provide. We or our products may be a target of computer hackers, organizations or malicious attackers who attempt to gain access to our network or data centers or those of our customers or end users; steal proprietary information related to our business, products, employees, and customers; or interrupt our systems or those of our customers or others. From time to time, we encounter intrusions or attempts at gaining unauthorized access to our network. To date, none have resulted in any material adverse impact to our business or operations.operations; however, there can be no guarantee that such impacts will not be material in the future. While we seek to detect and investigate all unauthorized attempts and attacks against our network and products, and to prevent their recurrence where practicable through changes to our internal processes and tools and/or changes to our products, we remain potentially vulnerable to additional known or unknown threats. In addition to intentional third-party cyber-security breaches, the integrity and confidentiality of Company and customer data may be compromised as a result of human error, product defects, or technological failures. Cyber-security breaches, whether successful or unsuccessful, and other IT system interruptions, including those resulting from human error and technological failures, could result in our incurring significant costs related to, for example, rebuilding internal systems, reduced inventory value, providing modifications to our products and services, defending against litigation, responding to regulatory inquiries or actions, paying damages, or taking other remedial steps with respect to third parties.

Our entry into business engagements with military bodies as our customers in the lithium-ion battery and energy storage business embodies a risk for potentially large-scale and uncapped liability.

As a result of the Kokam Acquisition, a small portion of our business involves the sale of products to military customers. Our sales to military customers often involve standard form contracts, which are less subject to negotiation than the agreements we enter into in our ordinary course of business. In particular, certain of these contracts involve unlimited damages provisions that could result in large-scale liabilities.

We may not have sufficient insurance coverage to cover business continuity.

We rely on a limited number of contracted manufacturers to manufacture our products as well as on component manufacturers which are sometimes a single source. As a result, a sustained or repeated interruption in the manufacturing of our products by such outsourced providers due to fire, flood, war, pandemic or nature disasters, and/or an interruption in the provision of the required components for our business by these components manufacturers may interfere with our ability to sell our products to our customers in a timely manner. The described nature of our business and our size, makes it difficult to insure some or all of such possible loss of profit, which may adversely affect our financial results.

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Our business could be materially adversely affected as a result of the risks associated with acquisitions and investments. In particular, we may not succeed in making additional acquisitions or be effective in integrating such acquisitions.

As part of our growth strategy, we have made a significant number of acquisitions. We may continue to make acquisitions and investments in the future as part of our growth strategy. We frequently evaluate the tactical or strategic opportunities available related to complementary businesses, products or technologies. There can be no assurance that we will be successful in making additional acquisitions. Even if we are successful in making additional acquisitions, integrating an acquired company’s business into our operations or investing in new technologies may (1) result in unforeseen operating difficulties and large expenditures and (2) absorb significant management attention that would otherwise be available for the ongoing development of our business, both of which may result in the loss of key customers or personnel and expose us to unanticipated liabilities. Further, we may not be able to retain the key employees that may be necessary to operate the business we acquire and we may not be able to attract, in a timely manner, new skilled employees and management to replace them.

We may not be able to consummate acquisitions or investments that we have identified as crucial to the implementation of our strategy for other commercial or economic reasons. Further, we may not be able to obtain the necessary regulatory approvals, including those of competition authorities and foreign investment authorities, in countries where we seek to consummate acquisitions or make investments. For those and other reasons, we may ultimately fail to consummate an acquisition, even if we announce the intended acquisition.

If our goodwill or other intangible assets become impaired, our financial condition and results of operations could be negatively affected.

Due to our latest acquisitions, goodwill and other intangible assets totaled approximately $203.7 million, or approximately 13.6% of our total assets, as of December 31, 2019. We test our goodwill for impairment at least annually, or more frequently if an event occurs indicating the potential for impairment, and we assess on an as-needed basis whether there have been impairments in our other intangible assets. We make assumptions and estimates in this assessment which are complex and often subjective. These assumptions and estimates can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy or our internal forecasts. To the extent that the factors described above change, we could be required to record additional non-cash impairment charges in the future, which could negatively affect our financial condition and results of operations.

Environmental obligations and liabilities could have a substantial negative impact on our business, financial condition, and results of operations.

The manufacturing, assembly storage, transportation and disposal of our products require the use of hazardous materials that are subject to a broad array of environmental, health, and safety laws and regulations in the jurisdictions in which we operate such as RoHS (Restriction of Hazardous Substance), REACH (Registration, Evaluation, Authorization and Restriction of Chemicals), WEEE (Waste Electrical and Electronic Equipment) Directive, Conflict Minerals Regulation, California’s Proposition 65 (known as the Safe Drinking Water and Toxic Enforcement Act of 1986), K-REACH (Korean REACH) and more. Failure to comply with these laws and regulations may result in regulatory fines, penalties and legal liabilities, suspension of production of our products, adjustments or alterations to our manufacturing processes and damage to our reputation all of which may adversely impact our business and financial condition and result of operations.

Lithium-Ion used in our battery cells and packs can potentially catch fire or vent smoke and cause damage or injury

The battery cells and packs produced by our subsidiary, Kokam make use of lithium-ion cells. We regularly test our products and take safety measures when manufacturing, selling and installing battery cells and packs. However, due to the high energy density of lithium-ion cells, mishandling, inappropriate storage, non-compliance with safety instructions or field failures can potentially cause a battery cell to rapidly release its stored energy, which may in turn cause a thermal event that can ignite nearby materials, including other lithium-ion cells. As the use of lithium-ion batteries becomes more widespread, these events may occur more often, causing damage to property, injury, lawsuits and adverse publicity, which may adversely affect our reputation, results of operations or financial condition.

Risks Related to Operations in Israel

Conditions in Israel affect our operations and may limit our ability to develop, produce and sell our products.

Although we are incorporated in Delaware, our headquarters and research and development center are located in Israel. Accordingly, political, economic, and military conditions in Israel directly affect us. Israel has been involved in a number of armed conflicts and has been the target of terrorist activity. Ongoing state of hostility, varying in degree such as rocket fire from the Gaza Strip, including against civilian targets, has occurred on an irregular basis, disrupting day-to-day civilian activity and negatively affecting business conditions. Israel also faces threats from Hezbollah militants in Lebanon, and others. We cannot predict whether or when such armed conflicts or attacks may occur or the extent to which such events may impact us. Any future armed conflict, political instability or violence in the region may impede our ability to manage our business effectively or to engage in research and development, or may otherwise adversely affect our business or operations. In the event of war, we and our Israeli subcontractors and suppliers may be forced to cease operations, which may cause delays in the distribution and sale of our products. Some of our directors, executive officers, and employees in Israel are obligated to perform annual reserve duty in the Israeli military and are subject to being called for additional active duty under emergency circumstances. In the event that our principal executive office is damaged as a result of hostile action, or hostilities otherwise disrupting the ongoing operation of our offices, our ability to operate could be materially adversely affected.

Additionally, several countries, principally in the Middle East, restrict doing business with Israeli companies, and additional countries and groups may impose similar restrictions if hostilities in Israel or political instability in the region continue or increase. If recent regime changes and civil wars in neighboring states result in the establishment of fundamentalist Islamic regimes or governments more hostile to Israel, or if Egypt or Jordan abrogates its respective peace treaty with Israel, Israel could be subject to additional political, economic, and military confines, and our operations and ability to sell our products to countries in the region could be materially adversely affected. These restrictions may limit materially our ability to obtain manufactured components and raw materials or to sell our products.

Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or significant downturn in the economic or financial condition of Israel, could have a material adverse effect on our business, financial condition, and results of operations.

The tax benefits that are available to us under Israeli law require us to meet various conditions and may be terminated or reduced in the future, which could increase our costs and taxes.

Our Israeli subsidiary iswas eligible for certain tax benefits provided to “Benefited Enterprises” under the Israeli Law for the Encouragement of Capital Investments, 1959 (the “Investment“Investments Law”). Beginning in January 2019, and with respect to its taxable results from 2019 onwards, our Israeli subsidiary further elected to apply the terms of the Investments Law as per “Preferred Enterprise” or “Preferred Technological Enterprise” (“PTE”). In order to remain eligible for the tax benefits for “Benefited Enterprises” with respect to our Israeli subsidiary’s taxable results until 2018 and with respect to its taxable results from 2019 for “Preferred Enterprise” or “Preferred Technological Enterprise”, we must continue to meet certain conditions stipulated in the InvestmentInvestments Law and its regulations, as amended. If these tax benefits are reduced, cancelled, or discontinued, our Israeli taxable income would be subject to regular Israeli corporate tax rates and we may be required to refund any tax benefits that we have already received, plus interest and penalties thereon. The standard corporate tax rate for Israeli companies was increased to 26.5%24% in 2014 and 2015 decreased to 25% in 20162017 and decreased againfurther to 24% as of January 1, 2017 and 23% as of January 1, 2018.2018 and onward. Additionally, if we increase our activities outside of Israel through acquisitions for example,or otherwise through our Israeli subsidiary, our existing or expanded activities might not be eligible for inclusion in existing or future Israeli tax benefit programs. The Israeli government may furthermore independently determine to reduce, phase out, or eliminate entirely the benefit programs under the InvestmentInvestments Law, regardless of whether we then qualify for benefits under those programs at the time, which would also adversely affect our global tax rate and our results of operations.

It may be difficult to enforce a judgment of a U.S. court against our officers and directors, to assert U.S. securities laws claims in Israel, or to serve process on our officers and directors.

The majority of our directors and executive officers reside outside of the U.S., and most of our assets and most of the assets of these persons are located outside of the U.S. Consequently, a judgment obtained against any of these persons, including a judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the U.S. It also may be difficult for you to effect service of process on these persons in the U.S. or to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws on the grounds that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court hears a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert witnesses, which can be a time consuming and costly process. Further, an Israeli court may not enforce a judgment awarded by a U.S. or other non-Israeli court. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses these matters. As a result of the difficulty associated with enforcing a judgment against any of these persons in Israel, you may not be able to obtain or enforce a judgment against many of our directors and executive officers.

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Risks Related to the Ownership of Our Common Stock

We cannot assure you that our stock price will not decline or not be subject to significant volatility.

The trading price of our common stock has been volatile since our initial public offering. Since shares

Shares of our common stock were sold in our initial public offering in March 2015 at a price of $18.00 per share, and during the year ended December 31, 2017,2019, the reported high and low prices of our common stock has ranged from $12.25$34.05 to $39.9$96.69 per share. The price of our stock may change in response to fluctuations in our results of operations in future periods and also may change in response to other factors, including factors specific to companies in our industry, many of which are beyond our control. As a result, our share price may experience significant volatility and may not necessarily reflect the value of our expected performance. Among other factors that could affect our stock price are:

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the addition or loss of significant customers;

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changes in laws or regulations applicable to our industry, products or services;

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speculation about our business in the press or the investment community;

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price and volume fluctuations in the overall stock market;

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volatility in the market price and trading volume of companies in our industry or companies that investors consider comparable;

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share price and volume fluctuations attributable to inconsistent trading levels of our shares;

·	the addition or loss of significant customers;

·	changes in laws or regulations applicable to our industry, products or services;

·	speculation about our business in the press or the investment community;

·	price and volume fluctuations in the overall stock market;

·	volatility in the market price and trading volume of companies in our industry or companies that investors consider comparable;

·	share price and volume fluctuations attributable to inconsistent trading levels of our shares;

·	our ability to protect our intellectual property and other proprietary rights;

·	sales of our common stock by us or our significant stockholders, officers and directors;

·	the expiration of contractual lock-up agreements;

·	the development and sustainability of an active trading market for our common stock;

·	success of competitive products or services;

·	the public’s response to press releases or other public announcements by us or others, including our filings with the Securities and Exchange Commission (the “SEC”), announcements relating to litigation or significant changes to our key personnel;

·	the effectiveness of our internal controls over financial reporting;

·	changes in our capital structure, such as future issuances of debt or equity securities;

·	our entry into new markets;

·	tax developments in the U.S., Europe, or other markets;

·	strategic actions by us or our competitors, such as acquisitions or restructurings; and

·	changes in accounting principles.

25

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•

our ability to protect our intellectual property and other proprietary rights;

•

sales of our common stock by us or our significant stockholders, officers and directors;

•

the expiration of contractual lock-up agreements;

•

the development and sustainability of an active trading market for our common stock;

•

success of competitive products or services;

•

the public’s response to press releases or other public announcements by us or others, including our filings with the Securities and Exchange Commission (the “SEC”), announcements relating to litigation or significant changes to our key personnel;

•

the effectiveness of our internal controls over financial reporting;

•

changes in our capital structure, such as future issuances of debt or equity securities;

•

our entry into new markets;

•

tax developments in the U.S., Europe, or other markets;

•

strategic actions by us or our competitors, such as acquisitions or restructurings; and

•

changes in accounting principles.

Further, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. In addition, the stock prices of many renewable energy companies have experienced wide fluctuations that have often been unrelated to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political, and market conditions such as recessions, interest rate changes, or international currency fluctuations, may cause the market price of our common stock to decline. In the past, many companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial cost and divert our management’s attention from other business concerns, which could seriously harm our business.

The price of our common stock could decline if securities analysts or other third parties publish inaccurate or unfavorable research about us or if one or more of our analysts ceases to cover us or to regularly publish reports about us.

The trading of our common stock is likely to be influenced by the reports and research that industry or securities analysts publish about us, our business, our market, or our competitors. If one or more securities or industry analysts downgrades our common stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more securities or industry analysts ceases to cover the Company or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Provisions in our certificate of incorporation and by-laws may have the effect of delaying or preventing a change of control or changes in our management.

Our certificate of incorporation and by-laws contain provisions that could depress the trading price of our common stock by discouraging, delaying, or preventing a change of control of our Company or changes in our management that the stockholders of our Company may believe advantageous. These provisions include:

•

authorizing “blank check” preferred stock that our board of directors could issue to increase the number of outstanding shares to discourage a takeover attempt;

•

providing for a classified board of directors with staggered, three-year terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;

·	authorizing “blank check” preferred stock that our board of directors could issue to increase the number of outstanding shares to discourage a takeover attempt;

·	providing for a classified board of directors with staggered, three-year terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;

·	not providing for cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

·	limiting the ability of stockholders to call a special stockholder meeting;

·	prohibiting stockholders from acting by written consents;

·	establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings;

·	the removal of directors only for cause and only upon the affirmative vote of the holders of at least 662/3% in voting power of all the then-outstanding shares of common stock of the Company entitled to vote thereon, voting together as a single class;

·	providing that our board of directors is expressly authorized to amend, alter, rescind or repeal our by-laws; and

·

requiring the affirmative vote of holders of at least 662/3% of the voting power of all of the then outstanding shares of common stock, voting as a single class, to amend provisions of our certificate of incorporation relating to the management of our business, our board of directors, stockholder action by written consent, advance notification of stockholder nominations and proposals, calling special meetings of stockholders, forum selection and the liability of our directors, or to amend, alter, rescind, or repeal our by-laws.

•

not providing for cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

•

limiting the ability of stockholders to call a special stockholder meeting;

•

prohibiting stockholders from acting by written consent;

•

establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings;

•

the removal of directors only for cause and only upon the affirmative vote of the holders of at least 66⅔% in voting power of all the then-outstanding shares of common stock of the Company entitled to vote thereon, voting together as a single class;

•

providing that our board of directors is expressly authorized to amend, alter, rescind or repeal our by-laws; and

•

requiring the affirmative vote of holders of at least 66⅔% of the voting power of all of the then outstanding shares of common stock, voting as a single class, to amend provisions of our certificate of incorporation relating to the management of our business, our board of directors, stockholder action by written consent, advance notification of stockholder nominations and proposals, calling special meetings of stockholders, forum selection and the liability of our directors, or to amend, alter, rescind, or repeal our by-laws.

In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law (“DGCL”), which generally prohibits a Delaware corporation from engaging in a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder becomes an “interested” stockholder.

26

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Our certificate of incorporation includes a forum selection clause, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for any stockholder (including any beneficial owner) to bring (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or employees to us or to our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or our certificate of incorporation or by-laws, or (iv) any action asserting a claim governed by the internal affairs doctrine, will be a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware); in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the foregoing provisions. This forum selection provision may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. It is also possible that, notwithstanding the forum selection clause that is included in our certificate of incorporation, a court outside of Delaware could rule that such a provision is inapplicable or unenforceable.

We do not intend to pay any cash dividends on our common stock in the foreseeable future.

We have never declared or paid any dividends on our common stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws and organizational documents, after taking into account our financial condition, results of operations, capital requirements, general business conditions, and other factors that our board of directors may deem relevant. As a result, capital appreciation in the price of our common stock, if any, may be your only source of gain on an investment in our common stock.

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ITEM 1B.

UNRESOLVED STAFF COMMENTS

ITEM 1B.Unresolved Staff Comments

Not applicable.

ITEM 2.

PROPERTIES

ITEM 2.PROPERTIES

Our corporate headquarters are located in Herzliya Pituach, Israel, in an office consistingIsrael.

Leased Offices and R&D Laboratories

As of December 31, 2019 we leased approximately 56,000267,000 square feet of office, testing, and product design space. We have a ten‑year lease on our corporate headquarters, which expires on December 31, 2024. As our company has grown, to accommodate new employees we have leased additional office space adjacent to our corporate headquarters totaling 25,000 square feet, with leases that expirefacilities in 2020. We have also leased additional office spacethe aggregate in Lod, Israel totaling 20,000 square feet with a lease that expires in 2018 and 18,000 square feet in Netanya, Israel with a lease that expires in 2019.

Israel.

In addition to our corporate headquarters,leased properties in Israel, we lease approximately 27,000186,400 square feet of general office, sales, support and lab space in Fremont, California, under a lease that will expire on March 31, 2020. We also lease sales and support office spacethe aggregate in Northern California, China, Germany, Netherlands, Italy, France, Australia, UK, Japan, Turkey, Romania, India, Bulgaria, Belgium, Taiwan and Korea, as well as an R&D center in Bulgaria.

Manufacturing

We currently outsource allmost of our manufacturing to our manufacturing partners, and currently do not own any manufacturing facilities.partners. We have a factory in which we manufacture lithium-ion batteries for Kokam’s operations (the “Kokam Factories”). In July 2017, we executed a long-term lease agreement for 107,000103,400 square feet in Israel, intended for the establishment of a manufacturing facility. Thefacility for our solar products. That facility is under development.

anticipated to reach its full production capacity in the third quarter of 2020.

Owned Properties

In addition to our leased properties, we also own properties in Italy, the UK and Korea, which include an office space of approximately 5,600 square feet in the UK, 212,700 square feet of offices and manufacturing facilities in South Korea, and 61,000 square feet of offices and manufacturing facilities in Italy.

We believe that our existing properties are in good condition and are sufficient and suitable for the conduct of our business for the foreseeable future. To the extent our needs change as our business grows, we expect that additional space and facilities will be available on commercially reasonable terms.

ITEM 3.

LEGAL PROCEEDINGS

ITEM 3.LEGAL PROCEEDINGS

In June and July 2018, we filed three lawsuits for patent infringement against Huawei Technologies Co., Ltd., a Chinese entity, Huawei Technologies Düsseldorf GmbH, a German entity, and WATTKRAFT Solar GmbH, a German distributor for Huawei. The lawsuits, filed in the Mannheim District Court in Germany, assert unauthorized use of patented technology, and are intended to protect SolarEdge’s significant investment in its innovative DC optimized inverter technology. Seeking monetary damages, an injunction, and recall of infringing Huawei inverters from the German market, the lawsuit is intended to prevent the defendants from selling any multi-level inverters infringing upon SolarEdge’s PV inverter technology protected in the asserted patents in Germany. In November 2019, one of the patents underlying one of the lawsuits was revoked by the European Patent Office and as such the relevant parallel infringement proceedings have been stayed. In the other two lawsuits hearings were held and in one of the proceedings the claim was dismissed and we have appealed to a higher court. The third lawsuit is pending a court appointed expert opinion. We intend to continue to vigorously fight to protect our patented technology.

In May 2019, we were served with three lawsuits by Huawei Technologies Co., Ltd., a Chinese entity (“Huawei”), against the Company's two Chinese subsidiaries and its equipment manufacturer in China. The lawsuits, filed in the Guangzhou Intellectual property court, allege infringement of three patents and ask for an injunction of manufacture, use, sale and offer for sale, and damage awards of approximately $4.3 million. We believe that we have meritorious defenses to the claims asserted by Huawei and intend to continue to vigorously defend against these lawsuits.

In October 2019, we announced that we filed three lawsuits in China against Huawei. The lawsuits, filed in the Regional Courts of Jinan and Shenzhen in China, cite unauthorized use of patented technology, and are intended to protect SolarEdge’s significant investment in its innovative DC optimized inverter technology. Seeking damages and an injunction, the lawsuits are intended to prevent Huawei from manufacturing and selling any products infringing upon SolarEdge’s patented PV inverter and power optimizer technology.

In September, 2018, our German subsidiary, SolarEdge Technologies GmbH received a complaint filed by a competitor, SMA Solar Technology AG (“SMA”). The complaint, filed in the District Court Düsseldorf, Germany, alleges that SolarEdge's 12.5kW - 27.6kW inverters infringe two of plaintiff’s patents. In its complaint, SMA requests inter alia an injunction and a determination for a claim for damages for sales in Germany. SMA also asserts a value in dispute of five million Euros for both patents. In November 2019, the first instance court accepted the claim of infringement for one of the two patents and we have filed an appeal to the Appeals Court Dusseldorf and are challenging the validity of the allegedly infringed patent in the German Patent Court. Also, in November 2019 the first instance court stayed the infringement proceedings regarding the other one of the two patents since it considered it to be highly likely that the patent would be invalid. We believe that we have meritorious defenses to the claims asserted and intend to vigorously defend against this lawsuit.

In August 2019, we were served with a lawsuit by certain former shareholders of SMRE, against the Company’s Italian subsidiary that purchased the shares of SMRE in the tender offer which followed the SMRE Acquisition. The lawsuit asks for damages of approximately $3 million, representing the difference between the amount for which they tendered their shares (6 Euro per share) and 6.7 Euros per share. We believe we have meritorious defenses to the claims asserted and intend to vigorously defend against this lawsuit.

In addition, in the normal course of business, we may from time to time be named as a party to various legal claims, actions and complaints.complaints (including as a result of initiating such legal claims, action or complaints on behalf of the Company). It is impossible to predict with certainty whether any resulting liability would have a material adverse effect on our financial position, results of operations or cash flows.

ITEM 4.

MINE SAFETY DISCLOSURES

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

applicable.

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PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock, par value $0.0001 per share, began tradingtrades on the NASDAQ Global Select Market, on March 26, 2015, where prices are quoted under the symbol “SEDG”.

Holders of Record

As of December 31, 2017,2019, there were 2920 holders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

Price Range of Our Common Stock

The following table set for the high and low sales prices for our common stock for the periods indicated, in each case as regularly on the NASDAQ Global Select Market:

		Price Range
		High				Low
Fiscal Year 2016
First Quarter (July 1 – September 30)		$	38.11			$	15.60
Second Quarter (October 1 – December 31)		$	29.50			$	15.02
Third Quarter (January 1 – March 31)		$	30.50			$	21.92
Fourth Quarter (April – June 30)		$	28.80			$	17.10
Six Months ended December 31, 2016
First Quarter (July 1 – September 30)		$	20.54			$	14.41
Second Quarter (October 1 – December 31)		$	17.34			$	11.35
Fiscal Year 2017
First Quarter (January 1 – March 31)		$	16.00			$	12.25
Second Quarter (April 1 – June 30)		$	21.85			$	15.05
Third Quarter (July 1 – September 30)		$	29.80			$	19.06
Fourth Quarter (October 1 – December 31)		$	39.90			$	28.15

Dividend Policy

  We have never declared or paid any dividends on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws and organizational documents, after taking into account our financial condition, results of operations, capital requirements, general business conditions, and other factors that our board of directors may deem relevant.

Purchases of Equity Securities by the Issuer and Affiliated Purchases

There

As part of the SMRE Acquisition, we issued to a certain shareholder who also served as an executive in SMRE, Performance Stock Units or PSUs that were no purchasessubject to certain performance goals and a vesting period. In December 2019, in connection with a separation agreement between the parties, the Company and the certain shareholder signed on an amendment to the original agreement that resulted, among other things, in the exercising of equity securitiesa call option by the issuer and affiliated purchases duringCompany with respect to 183,395 shares out of the year ended December 31, 2017.

29

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granted PSUs, for a price per share equal to €0.01.

Performance Graph

The following graph compares the cumulative total shareholder return on our common stock from March 26, 2015 (using the price of which our shares of common stock were initially sold to the public) to December 31, 20172019 to that of the total return of the Nasdaq Composite Index ([INDEXNASDAQ.IXIC])(INDEXNASDAQ.IXIC) and the MAC Global Solar Energy Index (SUNIDX). The comparison illustrates the relative change in stock price since our initial public offering on March 26, 2015. This graph is furnished and not “filed” with the Securities and Exchange Commission or “soliciting material” under the Securities Exchange Act of 1934 and shall not be incorporated by reference into any such filings, irrespective of any general incorporation contained in such filing.

 

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ITEM 6.

SELECTED FINANCIAL DATA

ITEM 6.SELECTED FINANCIAL DATA

Change in Fiscal Year

In 2016, our Board of Directors approved thea change to our fiscal year end from June 30 to December 31. We made this change to align our fiscal year end with other companies within our industry. We refer to the period beginning July 1, 2013 and ending June 30, 2014 as “fiscal 2014”, the period beginning July 1, 2014 and ending June 30, 2015 as “fiscal 2015”, the period beginning July 1, 2015 and ending June 30, 2016 as “fiscal 2016”, and the period beginning January 1, 2017 and ending December 31, 2017 as “fiscal 2017”. We previously filed a Form 10-KT to cover the transition period for the six-month period of July 1, 2016 through December 31, 2016.

Following Fiscal 2016 all of our fiscal reporting periods begin January 1 and end December 31,

Selected Financial Data

The selected consolidated statement of operations data for each of fiscal year ended June 30, 2015, June 30, 2016 as well as the six monthsyears ended December 31, 2016, the fiscal year ended December 31, 2017, 2018 and 2019 and the selected consolidated balance sheet data as of June 30, 2016, the six months ended December 31, 2016, and the fiscal year ended December 31, 2017, December 31, 2018 and December 31, 2019, are derived from our audited consolidated financial statements included elsewhere in this Annual Report. The selected consolidated statements of operations data for the fiscal yearyears ended June 30, 20132015 and 20142016 and the six months ended December 31, 2016 and the selected consolidated balance sheet data as of June 30, 2013, 2014,2015 and 2015,2016 and December 31, 2016 are derived from our audited financial statements not included in this Annual Report. Our historical results are not necessarily indicative of our results to be expected in any future period. These selected financial data should be read together with our consolidated financial statements and the related notes, as well as the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report.

		Twelve Months Ended June 30,								Six Months Ended December 31,				Years Ended December 31,
		2015				2016				2016				2017				2018				2019
		(In thousands)
Consolidated Statements of Operations Data:
Revenues		$	325,078			$	489,843			$	239,997			$	607,045			$	937,237			$	1,425,660
Cost of revenues			243,295				337,887				159,097				392,279				618,001				946,322
Gross profit			81,783				151,956				80,900				214,766				319,236				479,338
Operating expenses:
Research and development, net			22,018				33,231				20,279				54,966				82,245				121,351
Sales and marketing			24,973				34,833				20,444				50,032				68,307				87,984
General and administrative			6,535				12,133				6,790				18,682				29,264				49,361
Other			—				—				—				—				—				30,696
Total operating expenses			53,526				80,197				47,513				123,680				179,816				289,392
Operating income			28,257				71,759				33,387				91,086				139,420				189,946
Financial income (expenses)			(5,077	)			471				(2,789	)			9,158				(2,297	)			(11,343	)
Other expenses			104				—				—				—				—				—
Income before taxes on income			23,076				72,230				30,598				100,244				137,123				178,603
Taxes on income (tax benefit)			1,955				(4,379	)			5,217				16,072				9,077				33,646
Net Income		$	21,121			$	76,609			$	25,381			$	84,172			$	128,046			$	144,957
Net loss attributable to non-controlling interests		$	—			$	—			$	—			$	—			$	787			$	1,592
Net income attributable to SolarEdge Technologies Inc.		$	—			$	—			$	—			$	—			$	128,833			$	146,549
Net basic earnings per share of common stock attributable to SolarEdge Technologies, Inc.		$	0.30			$	1.92			$	0.62			$	1.99			$	2.85			$	3.06
Net diluted earnings per share of common stock attributable to SolarEdge Technologies, Inc.		$	0.27			$	1.73			$	0.58			$	1.85			$	2.69			$	2.90
Weighted average number of shares used in computing net basic earnings per share of common stock			11,902,911				39,987,935				41,026,926				42,209,238				45,235,310				47,918,938
Weighted average number of shares used in computing net diluted earnings per share of common stock			15,269,448				44,376,075				43,839,342				45,425,307				47,980,002				50,195,661

		Fiscal Years Ended June 30,																Six Months Ended December 31,				Fiscal Year Ended December 31,
		2013				2014				2015				2016				2016				2017
						(In thousands)
Consolidated Statements of Operations Data:
Revenues		$	79,035			$	133,217			$	325,078			$	489,843			$	239,997			$	607,045
Cost of revenues			74,626				111,246				243,295				337,887				159,097				392,279
Gross profit			4,409				21,971				81,783				151,956				80,900				214,766
Operating expenses:
Research and development, net			15,823				18,256				22,018				33,231				20,279				54,966
Sales and marketing			12,784				17,792				24,973				34,833				20,444				50,032
General and administrative			3,262				4,294				6,535				12,133				6,790				18,682
Total operating expenses			31,869				40,342				53,526				80,197				47,513				123,680
Operating income (loss)			(27,460	)			(18,371	)			28,257				71,759				33,387				91,086
Financial income (expenses)			(612	)			(2,787	)			(5,077	)			471				(2,789	)			9,158
Other expenses			—				—				104				—				—				—
Income (loss) before taxes on income			(28,072	)			(21,158	)			23,076				72,230				30,598				100,244
Taxes on income (tax benefit)			108				220				1,955				(4,379	)			5,217				16,072
Net income (loss)		$	(28,180	)		$	(21,378	)		$	21,121			$	76,609			$	25,381			$	84,172
Net basic earnings (loss) per share of common stock		$	(10.28	)		$	(7.64	)		$	0.30			$	1.92			$	0.62			$	1.99
Net diluted earnings (loss) per share of common stock		$	(10.28	)		$	(7.64	)		$	0.27			$	1.73			$	0.58			$	1.85
Weighted average number of shares used in computing net basic earnings (loss) per share of common stock			2,741,370				2,798,894				11,902,911				39,987,935				41,026,926				42,209,238
Weighted average number of shares used in computing net diluted earnings (loss) per share of common stock			2,741,370				2,798,894				15,269,448				44,376,075				43,839,342				45,425,307

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		As of June 30,								As of December 31,
		2015				2016				2016				2017				2018				2019
		(In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents		$	144,750			$	74,032			$	104,683			$	163,163			$	187,764			$	223,901
Available-for-sale marketable securities			-				111,609				118,727				180,384				192,936				211,021
Total assets			305,658				397,438				424,743				641,305				964,472				1,494,624
Total debt			-				-				-				-				20,149				15,846
Total stockholders’ equity		$	166,944			$	256,108			$	288,778			$	397,467			$	570,726			$	811,670

		As of June 30,																As of December 31,
		2013				2014				2015				2016				2016				2017
		(In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents		$	13,142			$	9,754			$	144,750			$	74,032			$	104,683			$	163,163
Available-for-sale marketable securities			-				-				-				111,609				118,727				180,384
Total assets			49,086				74,998				305,658				397,438				424,743				641,305
Total debt			12,823				20,244				-				-				-				-
Total stockholders’ equity (deficiency)		$	(115,014	)		$	(135,294	)		$	166,944			$	256,108			$	288,778			$	397,467

Key Operating Metrics

We regularly review a number of metrics, including the key operating metrics set forth in the table below, to evaluate our business, measure our performance, identify trends affecting our business, formulate projections, and make strategic decisions.

		Years Ended December 31,
		2017			2018			2019
Inverters shipped			317,288			455,793			665,520
Power optimizers shipped			7,367,921			11,351,678			15,801,378
Megawatts shipped (1)			2,461			3,919			5,618

		Fiscal Years Ended June 30,								Six Months Ended December 31,				Fiscal Year Ended December 31,
		2015				2016				2016				2017
Inverters shipped			150,428				223,589				120,117				317,288
Power optimizers shipped			3,533,528				5,738,546				2,904,858				7,367,921
Megawatts shipped(1)			920				1,615				880				2,461

(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. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Performance Measures”.

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ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the sections of this Annual Report on Form 10-K captioned “Selected Financial Data” and “Business” and our consolidated financial statements and the related notes to those statements included elsewhere in this Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward‑looking statements that involve risks, uncertainties, and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward‑looking statements as a result of many factors, including those discussed under the sections of this Annual Report captioned “Special Note Regarding Forward‑Looking Statements” and “Risk Factors”.

Overview

We are

Established in 2006, we developed a leading provider of intelligentDC optimized inverter solutionssolution that are changingchanged the way power is harvested and managed in solarphotovoltaic, known as PV systems. Our direct current, or DC optimized inverter solutionsystem maximizes power generation at the individual PV module level while lowering the cost of energy produced by the solar PV system. Our systems allowsystem, for superior power harvesting and module management by deploying power optimizers at each PV module while maintaining a competitiveimproved return on investment, or RoI. Additional benefits of the DC optimized inverter system cost by using a simplified DC‑AC inverter. Our systems are monitored through our cloud‑based monitoring platform that enables lower system operating and maintenance (“O&M”) costs. We believe that these benefits, along with ourinclude providing comprehensive and advanced safety features, are highly valued byimproved design flexibility, and improved operating and maintenance, or O&M with module-level and remote monitoring. The typical SolarEdge optimized inverter system consists of our customers.

inverters, power optimizers, a communication device which enables access to a cloud based monitoring platform and in many cases, additional smart energy management solutions. Our solutions address a broad range of solar market segments, from residential solar installations to commercial and small utility‑scale solar installations. Since we began commercial shipments in 2010, we have shipped approximately 16.2 gigawatts (“GW”) of our DC optimized inverter systems and our products have been installed in solar PV systems in 133 countries.

Since introducing the optimized inverter solution in 2010, SolarEdge has expanded its activity to other areas of smart energy technology, both through organic growth and through acquisitions. By leveraging world-class engineering capabilities and with a relentless focus on innovation, SolarEdge now offers energy solutions which include not only residential, commercial and large scale PV systems but also product offerings in the areas of energy storage systems, or ESS, and backup, electric vehicle, or EV components and charging capabilities, home energy management, grid services and virtual power plants, lithium-ion batteries and uninterrupted power supply, known as UPS solutions.

We are a leader in the global module-level power electronics (“MLPE”) market according to GTM Research,IHS and as of December 31, 2017,2019, we have shipped approximately 22.749.9 million power optimizers and 950,0002.1 million inverters. More than 560,0001.38 million installations, many of which may include multiple inverters, are currently connected to, and monitored through, our cloud‑based monitoring platform. As of December 31, 2017,2019, we have shipped approximately 6.716.2 GW of our DC optimized inverter systems. Our products have sold in approximately 54 countries, and are installed in solar PV systems in 121 countries.

We primarily sell our products directly to large solar installers, EPCs, and indirectly to thousands of smaller solar installers through large distributors and electrical equipment wholesalers. Our sales strategy focuses on top‑tier customers in markets where electricity prices, irradiance (amount of sunlight), and government policies make solar PV installations economically viable. We also sell our power optimizers to several PV module manufacturers that offer PV modules with our power optimizer physically embedded into their modules.

In the year ended December 31, 2017, we sold our products to approximately 230 direct customers in 48 countries and as of December 31, 2017, approximately 355,000 indirect customers had registered with us through our cloud‑based monitoring platform. In the year ended December 31, 2017,2019, one customer accounted for revenues20.4% of above 10%our revenues and our top three customers (all distributors) together represented 29.9%35.4% of our revenues.

We were founded in 2006 with the goal Today, we address a broad range of addressing the lostenergy market segments through our diversified product offering, including residential, commercial and large scale PV, energy storage and backup solutions, e-Mobility, home energy management, grid services and virtual power generation potential that is inherent in the use of traditional solar PV inverter technology, thereby increasing the return on investment in solar PV systems. The following is a chronology of some of our key milestones:

In 2012, we shipped our millionthplants, batteries and uninterrupted power optimizer and increased our sales personnel presence in the U.S. market.

In 2013, we introduced our third generation power optimizer, based on our third generation ASIC, with a power rating of up to 700 watts and improved heat dissipation capabilities for high reliability and lower cost.

In March 2015, we completed our initial public offering and started to trade on the NASDAQ Global Select Market under the ticker SEDG.

In September 2015, we released information about the development of our new HD-Wave inverter technology. 

In January 2016, we announced the immediate international availability of our StorEdge™ solution.

In February 2016, we shipped our ten millionth power optimizer.

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In June 2016, we received the Intersolar Award in the Photovoltaics category for our HD-Wave technology inverter and began shipments of our HD-Wave inverter.

In May 2017, we unveiled our new S-Series power optimizer, an Intersolar Award Finalist in the Photovoltaics category.

In July 2017, we launched the world’s first inverter-integrated electric vehicle (EV) charger, supplementing grid power with PV power.

In September 2017, we approved an expansion for our residential offering in Australia with higher production of single-phase inverters and launched a line of three-phase inverters.

In September 2017, we released our DC optimized inverter solution in South Korea.

supply (UPS) solutions.

Our revenues were $325.1$607.0 million, $489.8 million, $240.0$937.2 million, and $607.0$1,425.7 million for fiscal 2015 and 2016, the six months ended December 31, 2016,2017, fiscal 2018, and fiscal 2017,2019 respectively. Gross margins were 25.2 %, 31.0%35.4%, 33.7%34.1%, and, 35.4 %,33.6% for fiscal 2015 and 2016, the six months ended December 31, 2016,2017, fiscal 2018, and fiscal 2017,2019 respectively. Net profits were $21.1$84.2 million, $76.6 million, $25.4$128.8 million, and $84.2$146.5 million for fiscal 2015 and 2016, for the six months ended December 31, 2016,2017, fiscal 2018, and fiscal 2017,2019 respectively.

We continue to focus on our long‑term growth and profitability. We believe that our market opportunity is large and that the transition from traditional inverter architecture to DC optimized inverter architecture will continue as the architecture of choice for distributed solar installations globally. We believe that we are well positioned to benefit from this market trend. Additionally, we are expanding our offering with products such as storage inverters for increased self-consumption and backup, EV-charging inverters, smart meters, smart energy devices (sockets, water heater controllers, wireless relay), aimed to increase our average revenue per installation (ARPI). We intend to continue to invest in sales and marketing to acquire new customers in our existing markets and in adjacent markets, grow internationally and drive additional revenue. We also planaim to expand our product offerings to furtherincrease market share in the C&I segment and penetrate the large commercial and utility segments.segment through specialized product development. We expect to continue to invest in research and development to enhance our product offerings and develop new, cost-effective solutions.

We believe that our strategy for continued growth in the solar market results in an efficient operating base with relatively low expenses that will enable profitability on lower revenues relative to our competitors. We believe that our sales and marketing, research and development, and general and administrative costs will decrease as a percentage of revenue in the long‑term as we continue to grow due to economies of scale. With this increased operating leverage, we expect our gross and operating margins to increase in the long‑term. We believelong-term. With respect to our penetration of non-solar businesses in which we have invested, we expect that it is too earlywe will need to estimate the impact, if any, the newly adopted U.S. tariff imposed on all imported solar modulesmake significant research and cells, may have on the price of solar systems in the United States. If the price of solar systems in the U.S. increases, it may reduce the number of solar systems manufactureddevelopment, sales and sold, which in turn may decrease demand for our products

marketing investments before making those businesses profitable.

Performance Measures

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 yearly shipments (inverters shipped, power optimizers shipped, and megawatts shipped) to evaluate our sales performance and to track market acceptance of our products from year to year. We use metrics relating to monitoring (systems monitored and megawatts 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.

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Key Components of Our Results of Operations

The following discussion describes certain line items in our Consolidated Statements of Operations.

Revenues

We generate revenues from the sale of DC optimized inverter systems for solar PV installations which include power optimizers, inverters, andEV chargers, smart energy devices, our cloud‑based monitoring platform.platform as well as grid services. Our customer base mainly includes distributors, large solar installers, wholesalers, EPCs, and PV module manufacturers.

In addition, following our recent acquisitions, we also generate revenues from the sale of lithium-ion cells, batteries and energy storage solutions, UPS systems, machinery and EV powertrain solutions for electric vehicles.

Our revenues from the sale of solar-related products are affected by changes in the volume and average selling prices of our DC optimized inverter systems. The volume and average selling price of our systems is driven by the supply and demand for our products, changes in the product mix between our residential and commercial products, the customer mix between large and small customers, the geographical mix of our sales, sales incentives, end‑user government incentives, seasonality, and competitive product offerings.

Revenues from the sale of Kokam’s products are affected by the type of product sold (cell, battery or system) and the type of the battery that is sold. Revenues from the sale of UPS products and SMRE products are affected by the changes in the volumes, customers’ size and average selling prices of the products we sell.

Our revenue growth is dependent on our ability to expand our market share in each of the geographies in which we compete, expand our global footprint to new evolving markets, grow our production capabilities to meet demand, and to continue to develop and introduce new and innovative products that address the changing technology and performance requirements of our customers.

customers and expansion of the new businesses we acquired.

Cost of Revenues and Gross Profit

Cost of revenues consists primarily of product costs, including purchases from our contract manufacturers and other suppliers, as well as costs related to shipping, customer support, product warranty, personnel, depreciation of test and manufacturing equipment, hosting services for our cloud‑based monitoring platform, and other logistics services. Our product costs are affected by technological innovations, such as advances in semiconductor integration and new product introductions, economies of scale resulting in lower component costs, and improvements in production processes and automation. Some of these costs, primarily personnel and depreciation of test and manufacturing equipment, are not directly affected by sales volume.

We

With respect to Li-Ion batteries, cost of revenues consists primarily of materials costs, labor costs associated with the manufacturing, variable utility, and operational costs related to the cell and battery factories, depreciation and other fixed costs.

Except for the manufacturing and assembly activities related to our newly acquired businesses, we outsource our manufacturing to third‑party manufacturers and negotiate product pricing on a quarterly basis. Our third‑party manufacturers are responsible for funding the capital expenses incurred in connection with the manufacture of our products, except with regard to end-of-line testing equipment and the automated assembly lines for our power optimizers and the equipment for the manufacturing of sub-assemblies, as further described below (which resulted in capital expenditures of $5.2$13.6 million, $1.4$9.0 million and $13.6$23.2 million for fiscal 2016 for the six monthsyear ended December 31, 20162017, the year ended December 31, 2018, and fiscal 2017,the year ended December 31, 2019 respectively). We expect to continue this funding arrangement in the future, with respect to any expansions to such existing lines. We also procure strategic and critical components from various approved vendors on behalf of our contract manufacturers. At times,In fiscal 2019, higher than anticipated demand for our solar products has exceeded the production capacities of these manufacturers. In 2014manufacturers and early 2015, for example, such production shortfalls, as well as shortages in the supply of certain raw materials,we were required us to use air freight, rather than less expensive ocean freight, to deliver the majority of our products. The expansion of current manufacturing sites by our contract manufacturers allowedas well as our own manufacturing site, is anticipated to allow us to reduce these expenses in fiscal 20152020 as well as to build sufficient inventory to continue our growth without the need to ship substantial amounts of products by air. In 2016, we managed to continuously increase the efficiency of our supply chain, reduce our reliance on air freight to a minimum and use ocean freight for the majority of our shipments.

In 2017, 2018 and 2019 global shortages in power components used in our products and in other industries, such as electrical motor drives and uninterrupted power systems (UPS) caused delays indisruptions to our ongoing manufacturing. This phenomenon combined with increased demand for our products required us to use expensive air shipments in order to meet our delivery schedule, which negatively affected our gross profit. We expect component shortages to continue to affect us in upcoming quarters, a combination of increased component safety stocks, qualification of additional suppliers, and increased capacity of our existing vendors coupled with continued expansion of the current manufacturing sites by our contract manufacturers, and the development and deployment of our proprietary automated assembly line (described below), will provide sufficient manufacturing capacity to meet our forecasted demands with lower shipment volumes of products by air freight.

We completed development ofand manufacturing our first proprietary automated assembly linelines for our power optimizersoptimizers. Additionally, we manufacture sub-assemblies such as cables, and had 3 additional automated assembly lines deployedmagnetics and own significant amounts of equipment in the first half of 2017.connection with such manufacturing activities. We expect to continue to invest in additional automated assembly lines in the future. We have designed and are responsible for funding all of the capital expenses associated with existing and future automated assembly lines. The current and expected capital expenses associated with these automated assembly lines will be funded out of our cash flows.

flows generation.

Key components of our logistics supply channel consist of third party distribution centers in the U.S., Europe, Australia, and Japan. Finished goods are either shipped to our customers directly from our contract manufacturers or shipped to third-party distribution centers and then, finally, shipped to our customers.

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Cost of revenues also includes our operations and support departments’department costs. The operations department is responsible for production management such as planning, procurement, supply chain, production methodologies, and machinery planning, logistics management and manufacturing support to our contract manufacturers, as well as the quality assurance of our products. Our support department provides customer and technical support at various levels through our call centers around the world as well as second and third-level support services which are provided by support personnel located in our headquarters. Our full‑time employee headcount in our operations, production and support departments has grown from 106 as of June 30, 2015 to 175 as of June 30, 2016, to 244 as of December 31, 2016, and to 348 as of December 31, 2017.

2017 to 663 as of December 31, 2018 and to 1,031 as of December 31, 2019.

Part of the increase in our cost of revenues is derived from an increase in tariffs on Chinese made products sold in the U.S.

Gross profit may vary from quarter to quarter and is primarily affected by our average selling prices, product costs, product mix, customer mix, geographical mix, shipping method, warranty costs, and seasonality.

Operating Expenses

Operating expenses consist of research and development, sales and marketing, and general and administrative and other expenses. Personnel‑related costs are the most significant component of each of these expense categories and include salaries, benefits, payroll taxes, commissions and stock‑based compensation. Our full‑time employee headcount in our research and development, sales and marketing, and general and administrative departments has grown from 334 as of June 30, 2015 to 434 as of June 30, 2016, to 475 as of December 31, 2016, and to 660 as of December 31, 2017.2017 to 1,074 to as of December 31, 2018 and to 1,400 as of December 31, 2019. We expect to continue to hire significant numbers of new employees to support our growth. The timing of these additional hires could materially affect our operating expenses in any particular period, both in absolute dollars and as a percentage of revenue. We expect to continue to invest substantial resources to support our growth and anticipate that each of the following categories of operating expenses will increase in absolute dollar amounts for the foreseeable future.

Research and development expenses net

Research and development expenses net include personnel‑related expenses such as salaries, benefits, stock‑based compensation, and payroll taxes. Our research and development employees are engaged in the design and development of power electronics, semiconductors, software, and power line communications, networking and networking.chemistry. Our research and development expenses also include third‑party design and consulting costs, materials for testing and evaluation, ASIC development and licensing costs, depreciation expense, and other indirect costs. We devote substantial resources to ongoing research and development programs that focus on enhancements to and cost efficiencies in our existing products and timely development of new products that utilize technological innovation, thereby maintaining our competitive position.

Research and development expenses are presented net of the amount of any grants we receive for research and development in the period in which we receive the grant. We previously received grants and other funding from the Binational Industrial Research and Development Foundation and the Israel Innovation Authority (the IIA). Certain of those grants required us to pay royalties on sales of certain of our products, which were recorded as cost of revenues. As of December 31, 2017, no such royalty obligations remained.

Sales and marketing expenses

Sales and marketing expenses consist primarily of personnel‑related expenses such as salaries, sales commissions, benefits, payroll taxes, and stock‑based compensation. These expenses also include travel, fees of independent consultants, trade shows, marketing, costs associated with the operation of our sales offices, and other indirect costs. The expected increase in sales and marketing expenses is due to an expected increase in the number of sales and marketing personnel and the expansion of our global sales and marketing footprint, enabling us to increase our penetration of new markets. While most of our sales in fiscal 2012 (the period beginning July 1, 2011 and ending June 30, 2012) were in Europe, sales inIn the U.S. have grown steadily since fiscal 2012. Revenues generated in the U.S. represented 68.2 %, 66.8 %, and 57.5 %year ended December 31, 2019, 38.2% of our revenues in fiscal 2016,were generated from Europe, 47.6% of our revenues are generated from the six monthsUSA and 14.2% of our revenues are generated from ROW. In the year ended December 31, 2016, and fiscal 2017, respectively. Sales in Europe, which represented most of our sales until fiscal 2013 (the period beginning July 1, 2012 and ending June 30, 2013) also increased and represented 22.7 %, 25.2 %, and 32.7 %2018, 32% of our revenues in fiscal 2016, inwere generated from Europe, 53.9% of our revenues are generated from the six monthsUSA and 14.1% of our revenues were generated from ROW. In the year ended December 31, 2016,2017, 32.7% of our revenues were generated from Europe, 57.5% of our revenues were generated from the USA and in fiscal 2017, respectively.9.8% of our revenues were generated from ROW. We currently have a sales presence in the U.S., Canada, France, Germany, Italy, the Netherlands, the United Kingdom, Israel, Turkey, Japan, Australia, China, Sweden, Poland, India, Belgium, Korea, Brazil and Belgium.Taiwan. We intend to continue to expand our sales presence to additional countries.

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General and administrative expenses

General and administrative expenses consist primarily of salaries, employee benefits, payroll taxes, and stock‑based compensation related to our executives, finance, human resources, information technology, and legal organizations, travel expenses, facilities costs, fees for professional services, and registration fees related to being a publicly-traded company. Professional services consist of audit and legal costs, remuneration to board members, tax, insurance, information technology, and other costs. General and administrative expenses also include allowance for doubtful accounts in the event of uncollectable account receivables balances.

Non‑Operating

Other expenses

Other expenses consist primarily of losses related to the sale of an SMRE subsidiary originally acquired as part of the SMRE Acquisition, stock‑based compensation related to the untimely death of Mr. Guy Sella, our Founder, who had served as CEO and Chairman of the Board of Directors until shortly before his passing On August 25, 2019, modification of PSUs terms originally granted as part of the SMRE Acquisition and a legal claim acquired as part of the Kokam Acquisition which was settled in arbitration.

Non-Operating Expenses

Financial income (expenses)

Financial income (expenses) consists primarily of interest income, interest expense, gains or losses from foreign currency fluctuations and hedging transactions, and gains or losses related to re‑measurement of warrants granted in relation to long‑term debt incurred by the Company in December 2012.

transactions.

Interest income consists of interest from our investment in available for sale marketable securities.

Interest expense consists of interest related to loans taken by Kokam and other charges paid to Silicon Valley Bank (“SVB”) in connectionSMRE, advance payments received for performance obligations that extend for a period greater than one year, as part of the adoption of Accounting Standard Codification 606, “Revenue from Contracts with our revolving line of credit which expired on December 31, 2016,Customers” (ASC 606) and interest on our term loan from Kreos, which was fully repaid on January 26, 2015 (both described below).

Gains or losses related to re‑measurementthe adoption of warrants granted in relation to long‑term debt incurred by the Company in December 2012 are not expected to occur in the future as the warrants were fully exercised on June 18, 2015.

Accounting Standard Codification 842, “Leases” (ASC 842).

Our functional currency is the U.S. Dollar. With respect to certain of our subsidiaries, the functional currency is the applicable local currency. Financial expenses, net is net of financial income which consists primarily of the effect of foreign exchange differences between the U.S. Dollar and the New Israeli Shekel, the Euro, the Korean Won and other currencies, related to our monetary assets and liabilities, and the realization of gain from hedging transactions.

Taxes on income

We are subject to income taxes in the countries where we operate.

From incorporation through the end of fiscal 2014, we experienced operating losses, and consequently, accumulated a significant amount of operating loss carryforwards in several jurisdictions. By the end of fiscal 2015, we fully utilized our unused operating loss carryforwards with respect to U.S. federal tax obligations. In fiscal 2016, we recorded net income tax expenses of $0.4 million for federal and state tax in the U.S, which consisted of $1.8 million current income tax expenses and $1.4 million deferred tax assets.

In the six monthsyear ended December 31, 2016, we recorded net income tax expenses of $1.6 million for federal and state tax in the U.S, which consisted of $1.1 million current income tax expenses and $0.5 million deferred tax liabilities. In fiscal 2017, we recorded net income tax expenses of $19.8 million for federal and state tax in the U.S., which consists of $19.9 million current income tax expenses and $0.1 million deferred tax. In the year ended December 31, 2018, we recorded net income tax expenses of $12.6 million for federal and state tax in the U.S., which consists of $13.9 million current income tax expenses and $1.3 million deferred tax benefit. In the year ended December 31, 2019, we recorded net income tax expenses of $6.7 million for federal and state tax in the U.S., which consists of $10.1 million current income tax expenses and $3.4 million deferred tax benefit.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “TCJA”"Tax Act") was signed into law making significant changes to the USU.S. income tax law. ChangesThese changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017,2018 onwards, created new taxes on certain foreign-sourced earnings and certain related-party payments.

Due to the transitiontiming of U.S. international taxation from a worldwide tax system to a territorial system,the enactment and a one-time transition tax on the mandatory deemed repatriationcomplexity involved in applying the provisions of foreign earningsthe Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in our consolidated financial statements as of December 31, 2017. We have estimated our provisionAs we collected and prepared necessary data, and interpreted the additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, we made adjustments, over the course of 2018, to the provisional amounts including refinements to deferred taxes. The accounting for income taxes in accordance with the TCJA and guidance available astax effects of the date of this filing, and as a result, have recorded $19.2 million as additional income tax expense in the fourth quarter of 2017, the period in which the legislationTax Act was enacted. The provisional amount related to the remeasurement of certain deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future, resulted in $0.5 million of additional expense. The provisional amount related to the one-time transition tax on mandatory deemed repatriation of foreign earnings resulted in $18.7 million of additional expense, based on cumulative foreign earnings of $145.0 million.

We have determined that the $0.5 million of the deferred tax expense recorded in connection with the remeasurement of certain deferred tax assets and liabilities and the $18.7 million of current tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings was a provisional amount and a reasonable estimatecompleted as of December 31, 2017. Additional work is necessary for2018.

The Tax Act required us to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a more detailed analysisrate of our deferred tax15.5% to the extent of foreign cash and certain other net current assets and liabilities and our historical foreign earnings,8% on the remaining earnings. The Company has elected to pay its transition tax over an eight-year period as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expenseprovided in the quarter of 2018 when the analysis is complete.

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Additionally, the TCJA requires certain Global Intangible Low Taxed Income (“GILTI”) earned by controlled foreign corporations (“CFCs”) to be included in the gross income of the CFCs’ U.S. shareholder. GAAP allows the Company to either: (i) treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”); or (ii) factor such amounts into its measurement of deferred taxes (the “deferred method”). The GILTI tax rules will become effective for the 2018 tax year and therefore the Company has not made any adjustments related to the potential GILTI tax in its financial statements for the year ended December 31, 2017. The Company continues to evaluate the impact of the new GILTI tax rules and the application of ASC 740 on its financial statements.

Tax Act.

SolarEdge Technologies Ltd., our Israeli subsidiary, is taxed under Israeli law. Income not eligible for benefits under the InvestmentInvestments Law is taxed at the corporate tax rate. The corporate tax rate in Israel was 26.5% in fiscal 2015 and 25% in fiscal 2016. Recent amendmentsAmendments of the Israeli Income Tax Ordinance (New Version), 1961 (the “Tax Ordinance”) decreased the corporate tax rate to 25% commencing on January 1, 2016,23% command 24% starting January 1, 2017, and 23% starting January 1, 2018. However, our

Our Israeli subsidiary elected tax year 2012 as a "Year of Election" for “Beneficiary“Benefited Enterprise” under the Israeli InvestmentInvestments Law, which provides certain benefits, including tax exemptions and reduced tax rates. Income not eligible for BeneficiaryBenefited Enterprise benefits is taxed at the then prevailing regular corporate tax rate. Upon meeting the requirements under the Israeli InvestmentInvestments Law, income derived from productive activity under the BeneficiaryBenefited Enterprise status, would subject to certain terms and limits, will be exempt from tax for two years from the year in which the Israeli subsidiary first generated taxable income, provided that 12 years have not passed from the beginning of the Year of Election.income. Because SolarEdge Technologies Ltd. usedutilized all of its losses carryforwards in the six months ended in December 31, 2016, and as it was granted an approval by the Israeli Tax Authorities (“ITA”) in this regard, the two-year tax exemption is expectedhas ended on December 31, 2018.

The Investment Law was amended in 2005 and was further amended as of January 1, 2011 and in August 2013 (the “2011 Amendment”). The 2011 Amendment canceled the availability of the benefits granted in accordance with the provisions of the Investments Law prior to end on June 30, 2018. Capital gains2011 and, instead, introduced new benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (both as defined in the 2011 Amendment). Under the 2011 Amendment, income derived by an Israeli company arePreferred Companies from Preferred Enterprise would be subject to tax at the prevailinga uniform rate of corporate tax rate.

for an unlimited period as opposed to the incentives prior to the 2011 Amendment that were limited to income from Approved or Benefited Enterprise during the respective benefits period. According to the 2011 Amendment (considering the rates as amended in the 2017 Amendment as defined herein), the tax rate applicable to such income, referred to as “Preferred Income”, would be 7.5% in areas in Israel that are designated as Development Zone A and 16% elsewhere in Israel in the year 2017 and thereafter. Under the transitional provisions of the 2011 Amendment, companies may elect to irrevocably implement the 2011 Amendment while waiving benefits provided under the legislation prior to the 2011 Amendment or keep implementing the legislation prior to the 2011 Amendment.

In December 2016, the Economic Efficiency Law 2016 (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), which includes Amendment 73 to the Investments Law for the Encouragement of Capital Investments ("the 2017(the “2017 Amendment") was published. According to the 2017 Amendment, a preferred enterprise located in development area A (as defined therein and which details specific areas in development in Israel) will be subject to a tax rate of 7.5% instead of 9%, effective from January 1, 2017 and thereafter (the tax rate applicable to preferred enterprises located in other areas remains at 16%).

The Amendment also prescribes special tax tracks for technological enterprises have been introduced, which are subject to rules that were issued by the Israeli Ministry of Finance. In such rules, a “Technological Preferred Enterprise refers to an enterprise whose total consolidated revenues of its parent company and all subsidiaries are less than NIS 10 billion. A Technological Preferred Enterprise, as defined in the 2017 Amendment, that is located in the central region of Israel, will be subject to tax at a rate of 12% on profits deriving from intellectual property (in development areaDevelopment Zone A - a tax rate of 7.5%).

On June 14, 2017, the Encouragement of Capital Investments Regulations (Preferred Technological Income and Capital Gain for Technological Enterprise), 2017 (the “Regulations”) were published. The Regulations describe, inter alia, the mechanism used to determine the calculation of the benefits under the PTE regime and determine certain requirements relating to documentation of intellectual property for the purpose of the PTE. According to these provisions, a company that complies with the terms under the PTE regime may be entitled to certain tax benefits with respect to certain income generated during the company’s regular course of business and derived from the preferred intangible asset (as determined in the Investments Law), excluding certain portion of income as prescribed therein.

As of January 2019, SolarEdge Technologies Ltd. elected to implement the 2011 and 2017 Amendments, starting as of tax year 2019. Under the PTE regime with respect to our business activities in Israel we expect that SolarEdge Technologies Ltd. will be entitled to an effective tax at a rate of 14.02%12.3%.

Our production facilities in Israel are not located in Development Zone A. SolarEdge Technologies Ltd. is in the final stages of developing its own manufacturing facilities in Israel, which will be located in a Development Zone A.

The Law for the Encouragement of Industry (Taxes), 1969, (the “Industry Encouragement Law”), provides certain tax benefits for an ‘Industrial Company’ as such term is defined in the Industry Encouragement Law. An Industrial Company is entitled to certain tax benefits including, inter alia: (i) amortization over an eight-year period of the cost of purchased know-how and patents and rights to use a patent and know-how which are used for the development or advancement of the company; and (ii) accelerated depreciation rates on equipment and buildings. Eligibility for benefits under the 2017 Amendment.

Our subsidiaries areIndustry Encouragement Law is not subject to taxesreceipt of prior approval from any governmental authority. We believe that our Israeli subsidiary currently qualifies as an Industrial Company; however, there can be no assurance that it will continue to so qualify or that the benefits described above will be available to it in eachthe future. Furthermore, the ITA may determine that we do not qualify as an Industrial Company, which could entail a loss of the countriesbenefits that relate to that status.

Israeli tax law (Section 20A of the Tax Ordinance) allows, under certain conditions, a tax deduction for certain research and development expenses as prescribed in the Tax Ordinance for the year in which they operate. All of our products are developed and manufactured by our subsidiary, SolarEdge Technologies Ltd., which sells our products to its customers as well as to other entities in the SolarEdge group, which then sell them to their customers. All intercompany sales of products and services are paid, for or reimbursed pursuantsubject to transfer price policies established for eachappropriate approval by the relevant Israeli government ministry, determined by the field of research. Expenses incurred in scientific research that are not approved by the countries in which we operate, consistent with arm’s length profit levels.

Due to our history of lossesrelevant Israeli government ministry will be deductible over a three-year period commencing from inception through the end of fiscal 2014, we have recorded a full valuation allowance on our deferred tax assets. In fiscal 2015, the first fiscal year in which we were profitable, we used a portion of our carryforward losses from previous years in Israel and California. In fiscal 2016, we continued being profitable, stopped recording valuation allowances, and started recording deferred tax assets in the amount of $5.0 million in Israel, most of which is relatedthey are paid. Our Israeli subsidiary did not obtain to operating loss carryforward. In the six months ended December 31, 2016, we utilized all of our operating loss carryforwards in Israel and became profitable for tax purposes. As of June 30, 2016, we are entitled to benefit from a 24 months tax exemption until June 30, 2018, as part of the Beneficiary Enterprise Tax Incentive Program extended by the Israeli government.

date such approval.

Results of Operations

The following tables set forth our consolidated statements of operations for the calendar years ended December 31, 20162017, 2018 and 2017, the six months ended December 31, 2015 and 2016, and for the fiscal years ended June 30, 2015 and 2016.2019. We have derived this data from our consolidated financial statements included elsewhere in this Annual Report. This information should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this this Annual Report. The results of historical periods are not necessarily indicative of the results of operations for any future period.

38

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Comparison of year ended December 31, 2016 (unaudited)2018 and year ended December 31, 2017 (audited)2019

		Year ended December 31,								2018 to 2019
		2018				2019				Change
		(In thousands)
Revenues		$	937,237			$	1,425,660			$	488,423				52.1	%
Cost of revenues			618,001				946,322				328,321				53.1	%
Gross profit			319,236				479,338				160,102				50.2	%
Operating expenses:
Research and development			82,245				121,351				39,106				47.5	%
Sales and marketing			68,307				87,984				19,677				28.8	%
General and administrative			29,264				49,361				20,097				68.7	%
Other operating expenses			-				30,696				30,696				N/A
Total operating expenses			179,816				289,392				109,576				60.9	%
Operating income			139,420				189,946				50,526				36.2	%
Financial expenses			2,297				11,343				9,046				393.8	%
Income before taxes on income			137,123				178,603				41,480				30.3	%
Taxes on income			9,077				33,646				24,569				270.7	%
Net income		$	128,046			$	144,957			$	16,911				13.2	%
Net loss attributable to Non-controlling interests			787				1,592				805				102.3	%
Net income attributable to SolarEdge Technologies Inc.		$	128,833			$	146,549			$	17,716				13.8	%

		Year ended December 31,								2016 to 2017
		2016 (unaudited)				2017				Change
		(In thousands)
Revenues		$	489,954			$	607,045			$	117,091				23.9	%
Cost of revenues			329,207				392,279				63,072				19.2	%
Gross profit			160,747				214,766				54,019				33.6	%
Operating expenses:
Research and development, net			38,220				54,966				16,746				43.8	%
Sales and marketing			38,200				50,032				11,832				31.0	%
General and administrative			13,317				18,682				5,365				40.3	%
Total operating expenses			89,737				123,680				33,943				37.8	%
Operating income			71,010				91,086				20,076				28.3	%
Financial income (expenses)			(1,287	)			9,158				10,445				N/A
Income before taxes on income			69,723				100,244				30,521				43.8	%
Taxes on income			6,270				16,072				9,802				156.3	%
Net income		$	63,453			$	84,172			$	20,719				32.7	%

Revenues

		Year Ended December 31,								2018 to 2019
		2018				2019				Change
		(In thousands)
Revenues		$	937,237			$	1,425,660			$	488,423				52.1	%

Revenues

		Year Ended December 31,								2016 to 2017
		2016 (unaudited)				2017				Change
		(In thousands)
Revenues		$	489,954			$	607,045			$	117,091				23.9	%

Revenues increased by $117.1$488.4 million, or 23.9%52.1%, in 20172019 as compared to 2016,2018 primarily due to (i) an increase in the number of systemsinverters and power optimizers sold,outside of the U.S. Specifically, non-U.S. revenues comprised 42.5% of our revenues in 2017 as compared to 34.0% in 2016, with significant growth in revenues coming from GermanyEurope, the U.S. and Israel; (ii) price increases on products sold in the Netherlands as well asU.S. intended to offset the newly imposed tariffs on China made products; and (iii) revenues from non-U.S. marketsthe new businesses we acquired, which includes sales of UPS units, batteries, storage systems, and products sold by SMRE, in an aggregate amount of $89.0 million in the year ended December 31, 2019, compared to $23.0 million in the year ended December 31, 2018. Revenues from outside of Europe. the U.S. comprised 52.4% of our revenues in 2019 as compared to 46.1% in 2018.

The number of power optimizers sold increased by approximately 1.44.3 million units, or 24.5%38.2%, from approximately 5.911.4 million units in 20162018 to approximately 7.315.7 million units in 2017.2019. The number of inverters sold increased by approximately 82,000210,000 units, or 35.1%46.3%, from approximately 234,000454,000 units in 20162018 to approximately 316,000664,000 units in 2017. While2019. In addition, we increased prices in the U.S. in 2019, in order to offset the impact of the increase in tariffs on goods made in China that became effective June 1, 2019. This increase in selling prices was partially offset by the devaluation of the Euro and the Australian Dollar compared to the U.S. Dollar, negatively impacting our U.S. Dollar denominated average selling price per product remained relatively stable in 2017,(“ASP”). Overall, and primarily due to the factors detailed above, our blended average selling priceASP per watt for units shipped decreasedincreased by $0.029,$0.005, or 10.2%2.3%, in 2017 as2019 compared to 2016, primarily due to increased sales of our commercial products which are characterized with lower average selling price per watt and a change in our customer mix, which included larger portion of sales to distribution channels and large customers to whom we provide volume discounts.

39

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2018.

Cost of Revenues and Gross Profit

		Year Ended December 31,								2018 to 2019
		2018				2019				Change
		(In thousands)
Cost of revenues		$	618,001			$	946,322			$	328,321				53.1	%
Gross profit		$	319,236			$	479,338			$	160,102				50.2	%

		Year Ended December 31,								2016 to 2017
		2016 (unaudited)				2017				Change
		(In thousands)
Cost of revenues		$	329,207			$	392 ,279			$	63,072				19.2	%
Gross profit		$	160,747			$	214,766			$	54,019				33.6	%

Cost of revenues increased by $63.1$328.3 million, or 19.2%53.1%, in 20172019 as compared to 2016,2018, primarily due to:

·

an increase in the volume of products sold;

·

increased warranty expenses and warranty accruals of $5.3 million associated with the rapid increase in our install base;

·

increased shipment and logistical costs of $11.1 million attributed, in part, to the growth in volumes shipped, and to an increase in air shipments caused by  power component shortages; and

·

increased personnel-related costs of $8.9 million connected to the expansion of our operations and increased support headcount which is growing in parallel with our growing install base worldwide.

Gross profit as a percentage of revenue increased from 32.8% in 2016 to 35.4% in 2017, primarily due to:

·

reductions in per-unit production costs that exceeded price erosion of our products;

·

increased efficiency in our supply chain;

·

lower costs associated with warranty product replacements; and

·

general economies of scale in our personnel-related costs and other costs associated with our support and operations departments.

Operating Expenses:

Research and Development, Net

		Year Ended December 31,								2016 to 2017
		2016 (unaudited)				2017				Change
		(In thousands)
Research and development, net		$	38,220			$	54,966			$	16,746				43.8	%

Research and development, net increased by $16.7 million, or 43.8%, in 2017 as compared to 2016, primarily due to:

·

an increase in personnel-related costs of $11.7 million as a result of an increased headcount of engineers. The increase in headcount reflects our continuing investment in enhancements of existing products as well as development associated with bringing new products to market;

·

expenses related to other directly related overhead costs that increased by $2.2 million;

·

expenses related to consultants and sub‑contractors that increased by $1.1 million;

·

depreciation expenses related to lab equipment that increased by $1.0 million; and

·

materials consumption for development, travel expenses and other expenses that increased by $0.7 million.

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Sales and Marketing

		Year Ended December 31,								2016 to 2017
		2016 (unaudited)				2017				Change
		(In thousands)
Sales and marketing		$	38,200			$	50,032			$	11,832				31.0	%

Sales and marketing expenses increased by $11.8 million, or 31.0%, in 2017 as compared to 2016, primarily due to:

·

an increase in personnel-related costs of $9.0 million as a result of an increase in headcount supporting our growth in the U.S., Europe, and Asia, as well as salary increases;

·

expenses related to consultants and sub‑contractors that increased by $0.9 million;

·

expenses related to trade shows and marketing activities that increased by $0.8 million;

·

expenses related to other directly related overhead costs that increased by $0.7 million; and

·

expenses related to travel that increased by $0.4 million.

General and Administrative

		Year Ended December 31,								2016 to 2017
		2016 (unaudited)				2017				Change
		(In thousands)
General and administrative		$	13,317			$	18,682			$	5,365				40.3	%

General and administrative expenses increased by $5.4 million, or 40.3%, in 2017 as compared to 2016, primarily due to:

·

an increase in personnel-related costs of $2.5 million related to (i) higher headcount in the 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;

·

legal expenses increased by $1.8 million mainly due to legal proceedings initiated by us during 2017 and settled by the end of 2017;

·

costs related to the accrual of doubtful debts increased by $0.7 million; and

·

other overhead costs, costs related to being a public company and depreciation, all of which increased by $0.4 million.

Financial Income (Expenses)

		Year Ended December 31,								2016 to 2017
		2016 (unaudited)				2017				Change
		(In thousands)
Financial Income (Expenses)		$	(1,287	)		$	9,158			$	10,445				N/A

Financial income was $9.2 million in 2017 as compared to financial expenses of $1.3 million in 2016, primarily due to:

·

an increase of $10.6 million in foreign exchange fluctuations between the Euro and the New Israeli Shekel against the U.S. Dollar; and

·

an increase of $1.0 million in interest income, net of accretion (amortization) of discount (premium) on marketable securities.

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 These increases in financial income were offset by decreases of $1.2 million in costs related to hedging transactions in 2017, as compared to 2016.

Taxes on Income

		Year Ended December 31,								2016 to 2017
		2016 (unaudited)				2017				Change
		(In thousands)
Taxes on income		$	6,270			$	16,072			$	9,802				156.3	%

Taxes on income increased by $9.8 million, or 156.3%, in 2017 as compared to 2016, primarily due to

·

a one-time transition tax of $18.7 million on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017;

·

an increase of $0.6 million in current tax expenses;

·

an increase of $9.2 million in deferred tax assets (presented as tax income); and

·

$0.3 million of income related to the previous year’s tax credit.

Net Income

		Year Ended December 31,								2016 to 2017
		2016 (unaudited)				2017				Change
		(In thousands)
Net income		$	63,453			$	84,172			$	20,719				32.7	%

 As a result of the factors discussed above, net income increased by $20.7 million, or 32.7%, in 2017 as compared to 2016.

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Comparison of the six months ended December 31, 2015 (unaudited) and the six months ended December 31, 2016

		Six Months Ended December 31,								2015 to 2016
		2015 (unaudited)				2016				Change
		(In thousands)
Revenues		$	239,886			$	239,997			$	111				0.0	%
Cost of revenues			167,777				159,097				(8,680	)			(5.2	)%
Gross profit			72,109				80,900				8,791				12.2	%
Operating expenses:
Research and development, net			15,290				20,279				4,989				32.6	%
Sales and marketing			17,077				20,444				3,367				19.7	%
General and administrative			5,606				6,790				1,184				21.1	%
Total operating expenses			37,973				47,513				9,540				25.1	%
Operating income			34,136				33,387				(749	)			(2.2	)%
Financial expenses			1,031				2,789				1,758				170.5	%
Income before taxes on income			33,105				30,598				(2,507	)			(7.6	)%
Taxes on income (tax benefit)			(5,432	)			5,217				10,649				N/A
Net income		$	38,537			$	25,381			$	(13,156	)			(34.1	)%

Six Months Ended December 31, 2016 vs. Six Months Ended December 31, 2015 (unaudited):

·	Revenues for the six-month period ended December 31, 2016 remained stable when compared to revenues in the same period in the prior year.

·	An increase of $8.8 million in gross profit principally due to:

o

Reductions in per unit production costs

o

Installation of automatic assembly line for optimizers and self-manufacturing of sub components

o

Lower costs associated with warranty product replacements

o

Cash received from our insurance company covering a bad debt from a former customer that declared bankruptcy

·	An increase of $9.5 million in operating expenses principally due to:

o

Increase in personnel-related costs to support (1) our continuing investment in enhancements of existing products as well as development associated with bringing new products to market; (2) our growth in the U.S., European, and other markets such as Australia and Japan; and (3) higher headcount in the legal, finance, human resources, and information technology department functions required of a fast-growing publicly-traded company

·	An increase of $1.8 million in financial expenses mainly due to:

o

Foreign exchange fluctuations between the Euro and the New Israeli Shekel against the U.S. Dollar

·	An increase of $10.6 million in tax expenses principally due to:

o

A reversal of deferred tax assets recorded during fiscal 2016

o

Exhaustion of carry forwards of net operating loss balances related to our past losses

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Comparison of fiscal year ended June 30, 2015 and fiscal year ended June 30, 2016

		Fiscal Year Ended June 30,								2015 to 2016
		2015				2016				Change
		(In thousands)
Revenues		$	325,078			$	489,843			$	164,765				50.7	%
Cost of revenues			243,295				337,887				94,592				38.9	%
Gross profit			81,783				151,956				70,173				85.8	%
Operating expenses:
Research and development, net			22,018				33,231				11,213				50.9	%
Sales and marketing			24,973				34,833				9,860				39.5	%
General and administrative			6,535				12,133				5,598				85.7	%
Total operating expenses			53,526				80,197				26,671				49.8	%
Operating income			28,257				71,759				43,502				154.0	%
Financial income (expenses)			(5,077	)			471				5,548				N/A
Other expenses			104				-				(104	)			N/A
Income before taxes on income			23,076				72,230				49,154				213.0	%
Taxes on income (tax benefit)			1,955				(4,379	)			(6,334	)			N/A
Net income		$	21,121			$	76,609			$	55,488				262.7	%

Revenues

		Fiscal Year Ended June 30,								2015 to 2016
		2015				2016				Change
		(In thousands)
Revenues		$	325,078			$	489,843			$	164,765				50.7	%

Revenues increased by $164.8 million, or 50.7%, in fiscal 2016 as compared to fiscal 2015, primarily due to an increase in the number of systems sold worldwide, with the U.S. being the largest market. The number of power optimizers sold increased by approximately 2.2 million units, or 62.1%, from approximately 3.5 million units in fiscal 2015 to approximately 5.7 million units in fiscal 2016. The number of inverters sold increased by approximately 72,000 units, or 47.4%, from approximately 152,000 units in fiscal 2015 to approximately 224,000 units in fiscal 2016. The increase in the number of units sold was mainly attributable to an increase in the number of systems sold in the U.S. market and certain countries in Europe. In general, our increase in revenues in fiscal 2016 was attributable to rapid expansion in the U.S. market. Our blended average selling price per watt for units shipped decreased by $0.048, or 13.5%, in fiscal 2016 as compared to fiscal 2015, primarily due to increased sales of our commercial products which are characterized with lower average selling price per watt and a change in our customer mix, which included larger portion of sales to distribution channels and large customers to whom we provide volume discounts.

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Cost of Revenues and Gross Profit

		Fiscal Year Ended June 30,								2015 to 2016
		2015				2016				Change
		(In thousands)
Cost of revenues		$	243,295			$	337,887			$	94,592				38.9	%
Gross profit		$	81,783			$	151,956			$	70,173				85.8	%

Cost of revenues increased by $94.6 million, or 38.9%, in fiscal 2016 as compared to fiscal 2015, primarily due to (i)

•

an increase in the volume of products sold; (ii)

•

increased customs tariffs, shipment and logistics costs of $67.7 million attributed to the change in tariff rates on Chinese made products imported into the U.S. from 10% to 25% as well as an increase in air shipments due to increased product demand which required us to increase manufacturing capacity and expedite shipments for timely delivery;

•

an increase in warranty expenses and warranty accruals of $24.3 million associated primarily with the rapid increase of products in our install base; this increase was partially offset by various cost reductions on the different elements of our warranty expenses which include the cost of the products, shipment and other related expenses;

•

inclusion of variable costs related to the assembly of UPS products, manufacturing of Kokam and SMRE products in an aggregate amount of $56.9 million in 2019, compared to $19.7 million for 2018 as Gamatronic and Kokam were partially represented in our results for the year ended December 31, 2018 and SMRE was acquired in January of 2019;

•

an increase in personnel-related costs resulting from an increase inof $20.4 million related to the expansion of our operations and support headcount; (iii) increased warranty expenses associatedheadcount which is growing in parallel to our growing install base worldwide and in connection with entering into the UPS, storage, machinery and integrated powertrain technology businesses; and

•

an increase in our install base;amortization of intangible assets and (iv) an inventory write-offcost of $1.0product adjustment of $8.3 million related to unrecognized revenues from a customer that filed for bankruptcy. These increases were offset by reductions derived from increased efficiency in our supply chain including a decrease in shipping costs associated with the minimal use of air freight. Gamatronic Acquisition, the Kokam Acquisition and the SMRE Acquisition;

Gross profit as a percentage of revenue increaseddecreased from 25.2% fiscal 201534.1% in 2018 to 31.0%33.6% in fiscal 20162019, primarily due to:

•

increased shipment and logistics costs resulted from our expedited growth and heavy reliance on air-shipments, new customs tariff rules in the U.S. and an increase in air shipments;

•

the arithmetic effect from the increase in selling prices in the U.S. intended to reductionsoffset the increase in per unit productiontariffs on Chinese made products and the same increase in cost of goods sold as a result of the increased tariffs;

•

lower gross profit from our UPS products, battery solutions and SMRE products and underutilization of Kokam’s manufacturing facilities;

•

increased actual support costs related to our warranty obligations; and

•

amortization of intangible assets and cost increased efficiency in our supply chain includingof product adjustment related to the use of more ocean freight shipments rather than air shipments, lower costs associated with warranty product replacements,Gamatronic Acquisition, the Kokam Acquisition and the SMRE Acquisition;

These were partially offset by:

•

general economies of scale in our personnel-related costs and other costs associated with our support and operations departments.

•

increased profit on the units sold due to a combination of stable average selling prices and cost reductions in the manufacturing process of these products; and

•

decreased warranty accruals due to various cost reductions on the different elements of our warranty expenses which include the cost of the products, shipment and other related expenses;

Operating Expenses:

Research and Development Net

		Year Ended December 31								2018 to 2019
		2018				2019				Change
		(In thousands)
Research and development		$	82,245			$	121,351			$	39,106				47.5	%

		Fiscal Year Ended June 30,								2015 to 2016
		2015				2016				Change
		(In thousands)
Research and development, net		$	22,018			$	33,231			$	11,213				50.9	%

Research and development net increased by $11.2$39.1 million, or 50.9%47.5%, in fiscal 20162019 as compared to fiscal 2015,2018, primarily due to:

•

increased personnel-related costs of $31.0 million resulting from an increase in our research and development headcount as well as salary expenses associated with employee equity-based compensation. The increase in headcount reflects the inclusion of personnel costs from acquired businesses as well as our continued investment in enhancements of existing products and research and development expenses associated with bringing new products to the market;

•

increased expenses related to consultants and sub‑contractors in an amount of $4.5 million.

•

increased expenses related to material consumption costs in an amount of $1.6 million;

•

increased expenses related to other overhead costs and other expenses in an amount of $1.2 million; and

•

increased expenses related to amortization and depreciation expenses $0.8 million;

Sales and Marketing

		Year Ended December 31,								2018 to 2019
		2018				2019				Change
		(In thousands)
Sales and marketing		$	68,307			$	87,984			$	19,677				28.8	%

Sales and marketing expenses increased by $19.7 million, or 28.8%, in 2019 as compared to 2018, primarily due to:

•

increased personnel-related costs of $15.4 million as a result of the inclusion of personnel costs from acquired businesses and an increase in headcount supporting our growth in the U.S., Europe and Asia, as well as salary expenses associated with employee equity-based compensation;

•

increased expenses related to other overhead costs and travel expenses in an amount of $1.5 million;

•

increased expenses related to amortization and depreciation expenses in an amount of $1.4 million;

•

increased expenses related to marketing activity in an amount of $0.9 million; and

•

increased expenses related to external consultants and sub-contractors, material consumption costs and other expenses in an amount of $0.5 million.

General and Administrative

		Year Ended December 31,								2018 to 2019
		2018				2019				Change
		(In thousands)
General and administrative		$	29,264			$	49,361			$	20,097				68.7	%

General and administrative expenses increased by $20.1 million, or 68.7%, in 2019 as compared to 2018, primarily due to:

•

increased personnel costs of $10.8 million related to (i) increased headcount resulting from the acquisitions of Gamatronic, Kokam and SMRE and the expansion of our legal, finance, human resources and information technology departments; and (ii) increased expenses related to equity-based compensation and changes in management compensation;

•

increased expenses related to consultants and sub‑contractors in an amount of $5.9 million due to legal proceedings in which we are involved in and other legal expenses in relation to SMRE Acquisition costs;

•

increased expenses related to other overhead costs, other expenses and travel costs in an amount of $1.5 million;

•

increased expenses related to depreciation expenses and public company related expenses in an amount of $1.0 million; and

•

increased expenses related to doubtful debt in an amount of $0.9 million;

Other operating expenses

		Year Ended December 31,								2018 to 2019
		2018				2019				Change
		(in thousands)
Other operating expenses			-			$	30,696			$	30,696				N/A

Other expenses increased by $30.7 million, in 2019 as compared to 2018, primarily due to:

For the year ended December 31, 2019, we recognized compensation expenses resulting from a modification in PSU terms originally granted as part of the SMRE Acquisition in an amount of $12.2 million. This modification was part of a separation agreement with a former SMRE executive as further detailed in Item 5 – “Purchases of Equity Securities by the Issuer and Affiliated Purchases”. In addition, we recognized the following (i) $8.3 million expense related to payroll, bonus and employees equity-based compensation acceleration related to the untimely passing of Mr. Guy Sella, our founder, Chairman and CEO, (ii) $5.3 million loss related to the sale of an SMRE subsidiary originally acquired as part of the SMRE acquisition and (iii) $4.9 million expenses related to an acquired legal claim under the Kokam Acquisition which was settled in arbitration.

Financial expenses, net

		Year Ended December 31,								2018 to 2019
		2018				2019				Change
		(In thousands)
Financial expenses, net		$	(2,297	)		$	(11,343	)			(9,046	)			393.8	%

Financial expenses were $11.3 million in 2019 as compared to financial expenses of $2.3 million in 2018, primarily due to:

•

an increase of $3.0 million in foreign exchange fluctuations, mainly between the Euro, the New Israeli Shekel, the Australian Dollar and the South Korean Won against the U.S. Dollar;

•

an increase of $2.6 million in foreign exchange fluctuations of lease agreements’ liabilities as part of the adoption of Accounting Standards Update No. 2016-02, (Topic 842) "Leases";

•

an increase of $1.7 million in interest expenses related to advance payments received for performance obligations that extend for a period greater than one year, as part of the adoption of ASC 606;

•

an increase of $0.8 million in other financial expenses and bank charges;

•

a decrease of $0.7 million in finance income related to hedging transactions; and

•

an increase of $0.6 million in interest expenses related to bank loans which were acquired as part of the Kokam Acquisition and the SMRE Acquisition;

The increase in these expenses was partially offset by an increase of $0.4 million in interest income and accretion (amortization) of discount (premium) on marketable securities.

Taxes on Income

		Year Ended December 31,								2018 to 2019
		2018				2019				Change
		(In thousands)
Taxes on income		$	9,077			$	33,646			$	24,569				270.7	%

Tax on income increased by $24.6 million, or 270.7%, in 2019 as compared to 2018, primarily due to:

•

an increase of $26.2 million of current tax in 2019 as compared to 2018 related to the entitlement of SolarEdge Technologies Ltd. to a preferred effective tax rate of 12.3% under the PTE, ;

•

an increase of $6.1 million in current tax expenses worldwide (with the exclusion of SolarEdge Technologies Ltd);

•

an increase of $1.1 million in deferred tax assets, net; and

These taxes on income were offset by:

•

a decrease of $8.8 million in Global Intangible Low Taxed Income or GILTI and E&P taxes

Net Income

		Year Ended December 31,								2018 to 2019
		2018				2019				Change
		(In thousands)
Net income		$	128,046			$	144,957			$	16,911				13.2	%

As a result of the factors discussed above, net income increased by $16.9 million, or 13.2%, in 2019 as compared to 2018.

Comparison of year ended December 31, 2017 and year ended December 31, 2018

		Year ended December 31,								2017 to 2018
		2017				2018				Change
		(In thousands)
Revenues		$	607,045			$	937,237			$	330,192				54.4	%
Cost of revenues			392,279				618,001				225,722				57.5	%
Gross profit			214,766				319,236				104,470				48.6	%
Operating expenses:
Research and development			54,966				82,245				27,279				49.6	%
Sales and marketing			50,032				68,307				18,275				36.5	%
General and administrative			18,682				29,264				10,582				56.6	%
Total operating expenses			123,680				179,816				56,136				45.4	%
Operating income			91,086				139,420				48,334				53.1	%
Financial income (expenses)			9,158				(2,297	)			11,455				N/A
Income before taxes on income			100,244				137,123				36,879				36.8	%
Taxes on income			16,072				9,077				(6,995	)			(43.5	)%
Net income		$	84,172			$	128,046			$	43,874				52.1	%
Net loss attributable to Non-controlling interests			-				787				787				N/A
Net income attributable to SolarEdge Technologies Inc.		$	84,172			$	128,833			$	44,661				53.1	%

Revenues

		Year Ended December 31,								2017 to 2018
		2017				2018				Change
		(In thousands)
Revenues		$	607,045			$	937,237			$	330,192				54.4	%

Revenues increased by $330.2 million, or 54.4%, in 2018 as compared to 2017, primarily due to an increase in the number of systems sold, with significant growth in revenues coming from the United States, Europe, Australia, Japan and Israel. Non-U.S. revenues comprised 46.1% of our revenues in 2018 as compared to 42.5% in 2017. In addition, the Gamatronic Acquisition and the Kokam Acquisition increased our revenues over the last months of 2018, which included sales of UPS units, batteries and storage systems in the aggregate amount of $23.0 million.

The number of power optimizers sold increased by approximately 4.0 million units, or 54.1%, from approximately 7.4 million units in 2017 to approximately 11.4 million units in 2018. The number of inverters sold increased by approximately 139,000 units, or 43.7%, from approximately 317,000 units in 2017 to approximately 456,000 units in 2018. Overall, our blended ASP of solar products per watt decreased by $0.018, or 6.8%, in 2018 as compared to 2017, primarily due to:

•

a change in the mix of products, yielding a higher portion of sales of commercial products that are characterized with lower ASP per Watt in comparison to residential products;

•

we initiated price reductions of our commercial products in order to increase market share in this segment;

•

the introduction of new commercial products with higher capacity which carry a lower ASP per watt; and

•

selective price decreases of our residential products

Cost of Revenues and Gross Profit

		Year Ended December 31,								2017 to 2018
		2017				2018				Change
		(In thousands)
Cost of revenues		$	392 ,279			$	618,001			$	225,722				57.5	%
Gross profit		$	214,766			$	319,236			$	104,470				48.6	%

Cost of revenues increased by $225.7 million, or 57.5%, in 2018 as compared to 2017, primarily due to:

•

an increase in the volume of products sold;

•

increased warranty expenses of $35.1 million associated with the rapid increase in our install base;

•

increased shipment and logistical costs of $16.1 million attributed, in part, to the growth in volumes shipped, an increase of customs tariff in the US and an increase in air shipments due to power component shortages;

•

increased fixed and variable costs related to the manufacturing of Kokam related products and the assembly of UPS products in the amount of $14.7 million; and

•

increased personnel-related costs of $8.0$13.1 million related to the expansion of our operations and support headcount which is growing in parallel to our growing install base worldwide and as result of the acquisition of our UPS and battery divisions ;

Gross profit as a percentage of revenue decreased from 35.4% in 2017 to 34.1% in 2018, primarily due to:

•

increased warranty and support services expenses and accruals;

•

price reduction to customers at a rate higher than our cost reduction;

•

lower gross profit on UPS and battery products due to underutilization of production facilities, as well as certain transactions for the sale of batteries with low gross profit, which had been entered into prior to closing the Kokam Acquisition; and

•

amortization of intangible assets and cost of product adjustment related to the UPS assets acquisition and Kokam Acquisition;

These were partially offset by:

•

reductions in per-unit production costs that exceeded price erosion of our products;

•

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.

Operating Expenses:

Research and Development, Net

		Year Ended December 31								2017 to 2018
		2017				2018				Change
		(In thousands)
Research and development		$	54,966			$	82,245			$	27,279				49.6	%

Research and development increased by $27.3 million, or 49.6%, in 2018 as compared to 2017, primarily due to:

•

an increase in personnel-related costs of $21.2 million as a result of an increased headcount of engineers.engineers, as well as hiring Gamatronic's employees and the consolidation of Kokam's employees. The increase in headcount reflects our continuing investment in enhancements of existing products as well as development associated with bringing new products to market. Expensesmarket;

•

depreciation expenses related to lab equipment and amortization expenses related to intangible assets increased by $2.1 million;

•

materials consumption for development increased by $1.5 million, part of it related to Kokam activities;

•

expenses related to other directly related overhead costs that increased by $1.1 million;

•

expenses related to consultants and sub‑contractors other directly related overhead costs, depreciation related to lab equipment and materials consumption for developmentthat increased by $0.7 million, $0.7 million, $0.6 million,$1.1 million; and $0.4 million, respectively, in fiscal 2016 as compared to fiscal 2015. In addition, grants received from the IIA decreased

•

Other expenses, including travel expenses increased by $0.8 million in fiscal 2016 as compared to fiscal 2015.$0.3 million.

Sales and Marketing

		Year Ended December 31,								2017 to 2018
		2017				2018				Change
		(In thousands)
Sales and marketing		$	50,032			$	68,307			$	18,275				36.5	%

		Fiscal Year Ended June 30,								2015 to 2016
		2015				2016				Change
		(In thousands)
Sales and marketing		$	24,973			$	34,833			$	9,860				39.5	%

Sales and marketing expenses increased by $9.9$18.3 million, or 39.5%36.5%, in fiscal 20162018 as compared to fiscal 2015,2017, primarily due to to:

•

an increase in personnel-related costs of $7.3$14.6 million as a result of (i) an increase in headcount supporting our growth in the U.S., Europe Asia and Europe. In addition,the rest of the world, (ii) salary expenses associated with employee equity compensation resulting from the impact of the increase in our worldwide sales offices,stock price affecting the fair value of any share award, and (iii) hiring Gamatronic's employees and the consolidation of Kokam's employees;

•

expenses related to travel and other directly related overhead costs, costsincreased by $1.0 million;

•

expenses related to trade shows and marketing activities and the use of third party vendors, increased by $1.5 million, $0.9 million$1.0 million;

•

expenses related to other overhead costs increased by $0.6 million;

•

depreciation expenses related to tangible assets and $0.2 million, respectively, in fiscal 2016 as comparedamortization expenses related to fiscal 2015.

45

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intangible assets increased by $0.6 million; and

•

expenses related to consultants and sub‑contractors increased by $0.5 million.

General and Administrative

		Year Ended December 31,								2017 to 2018
		2017				2018				Change
		(In thousands)
General and administrative		$	18,682			$	29,264			$	10,582				56.6	%

		Fiscal Year Ended June 30,								2015 to 2016
		2015				2016				Change
		(In thousands)
General and administrative		$	6,535			$	12,133			$	5,598				85.7	%

General and administrative expenses increased by $5.6$10.6 million, or 85.7%56.6%, in fiscal 20162018 as compared to fiscal 2015,2017, primarily due to to:

•

an increase in personnel-related costs of $3.3$5.8 million related to (i) higher headcount in the legal, finance, human resources, and information technology department, functions required of a fast-growing public company, (ii) changes in management compensation and (ii) increased expenses related to equity-based compensation resulting from the impact of the increase in our stock price affecting the fair value of any share award and changes in management compensation. In addition, costs(iii) hiring Gamatronic's employees and the consolidation of Kokam's employees;

•

expenses related to accounting, tax,external consultants and sub-contractors increased by $3.9 million due to legal proceedings initiated by us and information systemsother consulting costsexpenses in relation to the Gamatronic Acquisition and the Kokam Acquisition;

•

expenses related to being a public company, travel and other directly related overhead costs increased by $0.6 million;

•

expenses related to travel increased by $0.5 million;

•

increase of $0.4 million in 2018 due to the disposal of fixed assets; and

•

depreciation expenses increased by $0.3 million.

This increase was offset by a decrease in costs related to the accrual of doubtful and bad debts increased byof $0.9 million, $0.9 million, $0.3 million, and $0.2 million, respectively, in fiscal 2016 as compared to fiscal 2015.

million.

Financial Income (Expenses)

		Year Ended December 31,								2017 to 2018
		2017				2018				Change
		(In thousands)
Financial Income (Expenses)		$	9,158			$	(2,297	)		$	(11,455	)			N/A

		Fiscal Year Ended June 30,								2015 to 2016
		2015				2016				Change
		(In thousands)
Financial Income (Expenses)		$	(5,077	)		$	471			$	5,548				N/A

Financial income was $0.5$9.2 million in fiscal 20162018 as compared to financial expenses of $5.1$2.3 million in fiscal 2015,2017, primarily due to $6.7 expenses related to re-measurementto:

•

an increase of certain warrants granted to Kreos$13.3 million in relation to the Kreos Loan in fiscal 2015, and expenses related to interest expenses on a term loan received from Kreos Capital IV (Expert Fund) Limited (“Kreos”) in December 2012 (the “Kreos Loan”), and the revolving line of credit from SVB (described below) as compared to no such expenses in fiscal 2016 due to full repayment of the Kreos Loan and exercise of the warrants by Kreos. Additionally, income of $1.9 million generated from hedging transactions and foreign exchange fluctuations mostly between the Euro and the New Israeli Shekel against the U.S. Dollar in fiscal 2015 as compared to $0.2Dollar; and

•

an increase of $2.4 million in fiscal 2016, and $0.7interest expenses, mainly related to advance payments received for performance obligations that extend for a period greater than one year, as part of the adoption of Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606).

These increases in financial expenses were offset by:

•

an increase of $2.2 million in interest income net ofand accretion (amortization) of discount (premium) on marketable securitiessecurities; and time deposits were generated in fiscal 2016 compared to $0.1 million in fiscal 2015.

Other expenses

		Fiscal Year Ended June 30,								2015 to 2016
		2015				2016				Change
		(In thousands)
Other expenses		$	104				-			$	(104	)			N/A

Other expenses of $104 recorded in fiscal 2015 are related to the disposal of furniture and other equipment related to the move to our new offices in Israel.

Taxes on Income

		Fiscal Year Ended June 30,								2015 to 2016
		2015				2016				Change
		(In thousands)
Taxes on income (tax benefit)		$	1,955			$	(4,379	)		$	(6,334	)			N/A

Tax benefits were $4.4 million in fiscal 2016 compared to taxes on income

•

a decrease of $2.0 million in fiscal 2015,costs related to hedging transactions in 2018, as compared to 2017.

Taxes on Income

		Year Ended December 31,								2017 to 2018
		2017				2018				Change
		(In thousands)
Taxes on income		$	16,072			$	9,077			$	(6,995	)			(43.5	)%

Tax on income decreased by $7.0 million, or 43.5 %, in 2018 as compared to 2017, primarily due to the recognizing

•

a one-time transition tax net decrease of a $6.4$1.3 million deferred tax asset for the first time in fiscal 2016 and2018 as compared to an increase of $0.1$18.7 million in 2017 on the federal mandatory deemed repatriation of cumulative foreign earnings; and

•

a decrease of $1.6 million in deferred tax assets (presented as tax income).

These taxes on income were offset by:

•

a tax provision of $12.0 million in the year ended December 31, 2018, with respect to Global Intangible Low Taxed Income inclusion;

•

an increase of $1.7 million in other current tax expenses in the US; and

•

an increase of $0.9 million in current tax expenses for fiscal 2016in all jurisdictions.

Net Income

		Year Ended December 31,								2017 to 2018
		2017				2018				Change
		(In thousands)
Net income		$	84,172			$	128,046			$	43,874				52.1	%

As a result of the factors discussed above, net income increased by $43.9 million, or 52.1%, in 2018 as compared to fiscal 2015.

Net Income

		Fiscal Year Ended June 30,								2015 to 2016
		2015				2016				Change
		(In thousands)
Net income		$	21,121			$	76,609			$	55,488				262.7	%

Net income was $76.6 million in fiscal 2016 as compared to a net income of $21.1 million in fiscal 2015.

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2017.

Liquidity and Capital Resources

The following table shows our cash flows from operating activities, investing activities, and financing activities for the stated periods:

		Fiscal Year ended December 31,
		2017				2018				2019
		(In thousands)
Net cash provided by operating activities		$	136,665			$	189,079			$	259,000
Net cash used in investing activities			(85,407	)			(156,609	)			(152,853	)
Net cash provided by (used in) financing activities			7,240				(7,955	)			(73,021	)
Increase (decrease) in cash, cash equivalents and restricted cash		$	58,498			$	24,515			$	33,126

		Fiscal Year ended June 30,								Six Months Ended December 31,				Fiscal Year ended December 31,
		2015				2016				2016				2017
		(In thousands)
Net cash provided by operating activities		$	12,054			$	52,427			$	49,098			$	136,665
Net cash used in investing activities			(13,937	)			(125,837	)			(19,747	)			(85,407	)
Net cash provided by financing activities			136,953				2,779				1,284				7,240
Increase (decrease) in cash and cash equivalents		$	135,070			$	(70,631	)		$	30,635			$	58,498

As of December 31, 2017,2019, our cash, and cash equivalents and restricted cash were $163.2$223.9 million. This amount does not include $180.4 $211.0 million invested in available for sale marketable securities, and $1.5$27.6 million ofinvested in restricted cash (primarily held to secure letters of credit to vendorsbank deposits and $5.0 million invested in short-term bank guarantees securing office lease payments). On March 31, 2015, we consummated our initial public offering in which we sold 8,050,000 shares of our common stock at a price of $18.00 per share, resulting in net proceeds of $131.2 million, after deducting underwriting discounts and commissions and $3.6 million in offering expenses. As of December 31, 2017, we maintain the net proceeds received from our initial public offering as well as cash provided by operating activities in cash and cash equivalents and in available-for-sale marketable securities.deposits. Our principal uses of cash are funding our operations and other working capital requirements. As of December 31, 2017,2019, we have open commitments for capital expenditures in an amount of approximately $23.3$60.6 million. These commitments reflect purchases of automated assembly lines and other machinery related to our manufacturing. We believe that cash provided by operating activities as well as our cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months.

months and to fund our capital expenditure commitments.

Operating Activities

During 2019, cash provided by operating activities was $259.0 million derived mainly from net income of $145.0 million that included $87.3 million of non-cash expenses. An increase of $50.8 million in warranty obligations, $83.1 million in deferred revenues, $47.8 million in trade payables, $38.1 in accrued expenses and other accounts payable, $18.6 million accruals for employees and $2.2 million in operating lease liabilities. This was offset by an increase of $124.1 million in trade receivables, $22.5 million in inventories and $67.3 million in prepaid expenses and other accounts receivable.

During 2018, cash provided by operating activities was $189.1 million derived mainly from net income of $128.0 million that included $38.0 million of non-cash expenses. An increase of $41.9 million warranty obligations, $37.0 million in deferred revenues, $31.5 million in trade payables and $4.6 million accruals for employees. This was offset by an increase of $60.5 million in trade receivables, $20.2 million in inventories, $2.7 million in prepaid expenses and other accounts receivable and a decrease of $8.5 in accrued expenses and other accounts payable.

During 2017, cash provided by operating activities was $136.7 million derived mainly from net income of $84.2 million that included $26.8$21.3 million of non-cash expenses. An increase of $63.0 million in trade payables and other accounts payable, $20.4 million warranty obligations, $14.1 million in deferred revenues and $9.4 million accruals for employees. This was offset by an increase of $38.1 million in trade receivables, $21.9 million in prepaid expenses and other accounts receivable and $15.7 million in inventories, and $5.5 millioninventories.

Investing Activities

During 2019, net cash used in deferred tax assets.

During the six months ended December 31, 2016, cash provided by operatinginvesting activities was $49.1 million derived mainly from net income of $25.4 million that included $10.0$152.9 million, of non-cash expenses. An increasewhich $160.1 million was invested in available-for-sale marketable securities, $38.4 million was utilized for the SMRE Acquisition, $72.6 million related to capital investments in laboratory equipment, end of $7.2line testing equipment, automated assembly lines, manufacturing tools and leasehold improvements, $26.1 million was invested in warranty obligations, $3.0restricted bank deposits and $3.3 million accruals for employees and $1.3 millionwere decreased in deferred revenues and a decreaserelation to the sale of $14.0 million in inventories, $3.7 million in deferred tax assets and $1.6 million in trade receivablesan SMRE subsidiary originally acquired as part of the SMRE Acquisition. This was offset by a$142.7 million from sales and maturities of available-for-sale marketable securities and $4.9 million decrease of $16.4 million in trade payables and other accounts payable and $0.3 millionshort-term bank deposits.

During 2018, net cash used in lease incentive obligations and an increase of $0.4 million in prepaid expenses and other accounts receivable.

During fiscal 2016, cash provided by operatinginvesting activities was $52.4 million derived mainly from net income of $76.6 million that included $13.5$156.6 million, of non-cash expenses. An increasewhich $142.6 million was invested in available-for-sale marketable securities, $94.7 million was utilized for the acquisitions of $19.3the assets of Gamatronic and the Kokam Acquisition, $38.6 million related to capital investments in warranty obligations, $8.6laboratory equipment, end of line testing equipment, automated assembly lines, manufacturing tools and leasehold improvements and $10.0 million was invested in deferred revenues and $3.3 million accruals for employees and a decrease of $10.5 million in prepaid expenses and other receivablesbank deposits. This was offset by an increase$129.3 million from sales and maturities of $37.3 million in trade receivables, $7.4 million in inventories, $6.4 million in deferred tax assets, and a decrease of $28.3 million in trade payables and other accounts payable.

During fiscal 2015, cash provided by operating activities was $12.1 million derived mainly from net income in the amount of $21.1 million that included $9.7 million of non-cash expenses. An increase of $46.3 million in trade payables and other accounts payable, $13.7 million in warranty obligations, $4.0 million in deferred revenues and $1.7 million in accruals for employees was offset by an increase of $48.5 million in inventories, $19.6 million in prepaid expenses and other receivables, and $16.3 million in trade receivables.

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Investing Activities

available-for-sale marketable securities.

During 2017, net cash used in investing activities was $85.4 million, of which $143.7 million was invested in available-for-sale marketable securities, $21.4 million related to capital investments in laboratory equipment, end of line testing equipment, automated assembly lines, manufacturing tools and leasehold improvements and $0.6 million related to an increase in restricted cash. This was offset by $80.3 million from the maturities of available-for-sale marketable securities.

Financing Activities

During the six months ended December 31, 2016,2019, net cash used in investingfinancing activities was $19.7$73.0 million, of which $40.9$71.5 million was invested in available-for-sale marketable securities, $11.0related to the purchase of non-controlling interests, $9.2 million was used for repayment of loans we acquired as part of the Kokam Acquisition and the SMRE Acquisition and $1.4 million related to capital investments in laboratory equipment, endthe purchase of line testing equipment, automated assembly lines, manufacturing toolsland and leasehold improvements and $0.6 million related to intangible assets investment.building formerly leased under a financial lease. This was offset by $32.8$9.1 million attributed to cash received from the maturitiesexercise of available-for-sale marketable securities.

employee and non-employee stock-base awards.

During fiscal 2016,2018, net cash used in investingfinancing activities was $125.8$8.0 million, of which $118.5 million was invested in available-for-sale marketable securities, $15.7$14.2 million related to capital investments in laboratory equipment, endthe purchase of line testing equipment, automated assembly lines, manufacturing toolsnon-controlling interests and leasehold improvements and $0.8$3.8 million related to intangible assets investment.was used for repayment of loans we acquired as part of Kokam's Acquisition. This was offset by $6.4$10.0 million attributed to cash received from the maturitiesexercise of available-for-sale marketable securitiesemployee and a $2.8 million repayment of a security deposit held to secure payments under our previous office lease and the expiration of a letter of credit, which was issued by us to one of our contract manufacturers.

During fiscal 2015, net cash used in investing activities was $13.9 million, of which $11.8 million related to capital investments in laboratory equipment, end of line testing equipment, manufacturing tools and leasehold improvements, $2.0 million related to security deposits held to secure letters of credit to vendors and bank guarantees securing office lease payments, and $0.1 million related to an increase of long term deposits.

Financing Activities

non-employee stock-base awards.

During 2017, net cash provided by financing activities was $7.2 million, all of which is attributed to cash received from the exercise of employee and non-employee stock-base awards.

During the six months ended December 31, 2016, net cash provided by financing activities was $1.3 million, all of which is attributed to cash received from the exercise of employee and non-employee stock-base awards.

During fiscal 2016, net cash provided by financing activities was $2.8 million, of which $3.0 million related to cash received from the exercise of employee and non-employee stock options, offset by $0.2 million attributed to issuance costs related to our initial public offering.

During fiscal 2015, net cash provided by financing activities was $137.0 million, of which $131.4 million was net proceeds from our initial public offering, $24.7 million was net proceeds from our Series E convertible preferred stock issuance, $23.0 million was from short-term borrowings under our revolving line of credit with SVB, and $0.1 million was proceeds from exercise of employee stock options, offset by $36.3 million of repayment

Debt Obligations

In October 2018, as part of the revolving lineKokam Acquisition, we acquired a number of credit with SVB,bank loan obligations in an aggregate amount of $20.1 million (the “Kokam Loans”). The Kokam Loans mature in various installments through May 2021 and $5.9 million of repayment of a term loan.

Debt Obligations

We had no outstanding indebtedness astheir annual interest rates are variable. As of December 31, 20162019, the interest rates on the Kokam Loans ranged from 2.7% to 3.4% and 2017. the aggregate outstanding Kokam Loans were $15.7 million.

In fiscal 2015,January 2019, as part of the SMRE Acquisition, we financed our business in part through debt financing, as described below.

$40 Million Revolving Lineacquired a number of Credit

In February 2015, we amended and restated an agreement with SVB for a revolving line of credit, which permits aggregate borrowings of up to $40 millionbank loans in an aggregate amount not to exceed 80% of the eligible accounts receivable and bears interest, payable monthly, at SVB’s prime rate plus a margin of 0.5% to 2.0%$7.2 million (the “SMRE Loans”). The revolving lineSMRE Loans mature in various installments through June 2026 and their annual interest rates are variable. As of credit terminated on December 31, 2016 and we had not made borrowings under this revolving line of credit with SVB.

Term Loan

On December 28, 2012, we entered into a term loan agreement with Kreos, providing for a term loan of up to $10 million, which was fully drawn2019, the interest rates on the closing date. The borrowings underSMRE Loans ranged from 2.6% to 3.5% and the term loanaggregate outstanding SMRE Loans were primarily used to finance working capital needs. On January 26, 2015, we repaid the entire outstanding balance of the Kreos term loan.

$0.1 million.

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Interest on the term loan was payable monthly at a rate of 11.90% per year, compounded on a monthly basis. Principal was paid in 33 equal monthly installments from September 1, 2013 through May 1, 2016, the last of which was prepaid in advance pursuant to the terms of the term loan.

In connection with the term loan agreement, we granted Kreos 563,014 D‑1 Warrants to purchase Series D‑1 convertible preferred shares at an exercise price of $2.309. The D‑1 Warrants were exercised on June 18, 2015 and we issued to Kreos 154,768 shares of common stock.

Contractual Obligations

The following table summarizes our outstanding contractual obligations as of December 31, 2017:

2019:

		Payment Due By Period
		Total				Less Than 1 Year				1 – 3 Years				4 – 5 Years				More Than 5 Years
		(In thousands)
Operating leases(1)		$	23,333			$	4,520			$	6,895			$	4,984			$	6,934
Purchase commitments under agreements(2)			196,222				196,222				-				-				-
Capital expenditures(3)			23,263				23,263				-				-				-
Total		$	242,818			$	224,005			$	6,895			$	4,984			$	6,934

		Payment Due By Period
		Total				Less Than 1 Year				1 – 3 Years				4 – 5 Years				More Than 5 Years
		(In thousands)
Operating and finance leases(1)		$	44,666			$	10,839			$	25,464			$	4,317			$	4,046
Purchase commitments under agreements(2)		$	472,086			$	472,086				-				-				-
Capital expenditures(3)		$	60,634			$	60,634				-				-				-
Total		$	577,386			$	543,582			$	25,464			$	4,317			$	4,046

(1)
(1)	Represents future minimum lease commitments under non‑cancellable operating lease agreements through which we lease our operating facilities.

(2)

(2)

Represents non‑cancelable amounts associated with our manufacturing contracts. Such purchase commitments are based on our forecasted manufacturing requirements and typically provide for fulfillment within agreed‑upon or commercially standard lead‑times for the particular part or product. The timing and amounts of payments represent our best estimates and may change due to business needs and other factors.

(3)
(3)	Represents non‑cancelable amounts associated with purchases of automated assembly lines and other machinery related to our manufacturing.

Off‑Balance Sheet Arrangements

We did not have any off‑balance sheet arrangements in fiscal 2015, fiscal 2016, the six monthsyear ended December 31, 2016,2017, the year ended December 31, 2018 or the year ended December 31, 2017.

2019.

Critical Accounting Policies and Significant Management Estimates

We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the U.S. (“GAAP”). The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

Revenue Recognition

Effective January 1, 2018, we adopted the Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606) using the modified retrospective method applied to those contracts which were not substantially completed as of January 1, 2018. As a result of this adoption, we revised our accounting policy for revenue recognition as detailed below.

We generate revenues from the sale of DC optimized inverter systems for solar PV installations which include our power optimizers, inverters, and cloud‑based monitoring platform.platform as well as other solar related products, UPS systems, Lithium-ion cells, batteries, energy storage solutions, EV powertrain solutions and machinery. Our worldwide customer base includes large solar installers, distributors, EPCs, and PV module manufacturers.manufacturers, utility companies and other customers. Our products are fully functional at the time of shipment to the customer and do not require production, modification, or customization.customization with the exception of some UPS and ESS systems that require installation and commissioning. We recognize revenues when allrevenue under the core principle that transfer of control to the customers should be depicted in an amount reflecting the consideration we expect to receive in revenue. In order to achieve that core principle, we apply the following conditions are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred; (iii)five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is fixed or determinable; and (iv) collectability is reasonably assured.satisfied. Provisions for rebates, sales incentives, and discounts to customers are accounted for as reductions in revenue in the same period that the related sales are recorded.

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We generally sell our products to our customers pursuant to a customer’s standard purchase order and our customary terms and conditions. We do not offer rights to return our products other than for normal warranty conditions, and as such, revenue is recorded upon shipment of products to customers and transfer of title and risk of loss under standard commercial terms. We evaluate the creditworthiness of our customers to determine that appropriate credit limits are established prior to the acceptance and shipment of an order.

We provide our full web‑based monitoring platform for our solar products free of charge and revenues associated with the service since that date are being recognized ratably over 25 years. In the absence of vendor‑specific objective evidence or third party comparable pricing for such service, management determines the revenue levels of this service based on the costs associated with providing the service plus appropriate margins that reflect management’s best estimate of the selling price. Since May 2013, theseThese revenues wereare minimal and we do not expect this to become a significant source of revenue in the near future.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new standard related to revenue recognition. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of modification: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). We will adopt the new standard as of January 1, 2018 using the modified retrospective method applied to those contracts which were not substantially completed as of January 1, 2018. The cumulative adjustment will decrease the Company’s retained earnings by $3,875 while increasing the Company’s deferred revenues by the same amount.

The most significant impact of the standard on the Company’sour financial statements relates to advance payments received for performance obligations that extend for a period longergreater than one year. Applying the new standard, such performance obligations relate toare those that include a financing component, specifically: (i) warranty extensions,extension services, (ii) cloud-based monitoring, and other(iii) communication services.

Upon adoption, the

We recognize financing component will resultexpenses in interest expenses which will be included in the Companyour consolidated statement of operationsincome in relation to reflectadvance payments for performance obligations that extend for a period greater than one year. These financing component expenses are reflected in our deferred revenues balance. The cumulative adjustments have decreased the financial portion cost ofretained earnings by $3.9 million while increasing the long term deferred revenue that is related to services.

revenues by the same amount.

Product Warranty

We provide a standard limited product warranty for our solar products against defects in materials and workmanship under normal use and service conditions. Our standard warranty period is 25 years for our power optimizers, 12 years for our inverters, and 10 years for our storage interface. Other products are sold with standard limited warranties that typically range in duration from one to ten years, and in some cases for a longer period. In certain cases, customers can purchase an extended warranty for UPS products and our battery storage products that exceed the standard warranty period. In addition, customers can purchase extended warranties for inverters that increase the warranty period to up to 25 years.

Our products are designed to meet the warranty periods and our reliability procedures cover component selection, design, accelerated life cycle tests, and end-of-manufacturing line testing. However, since our history in selling power optimizers and inverters is substantially shorter than the warranty period, the calculation of warranty provisions is inherently uncertain.

We accrue for estimated warranty costs at the time of sale based on anticipated warranty claims and actual historical warranty claims experience. Warranty provisions, computed on a per‑unit sold basis, are based on our best estimate of such costs and are included in our cost of revenues. The warranty obligation is determined based on actual and predicted failure rates of the products, cost of replacement and service and delivery costs incurred to correct a product failure. Our warranty obligation requires management to make assumptions regarding estimated failure rates and replacement costs.

In order to predict the failure rate of each of our products, we have established a reliability model based on the estimated mean time between failures (“MTBF”). The MTBF represents the average elapsed time predicted for each product unit between failures during operation. Applying the MTBF failure rate over our install base for each product type and generation allows us to predict the number of failed units over the warranty period and estimates the costs associated with the product warranty. Predicted failure rates are updated periodically based on data returned from the field and new product versions, as are replacement costs which are updated to reflect changes in our actual production costs for our products, subcontractors’ labor costs, and actual logistics costs.

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Since the MTBF model does not take into account additional non‑systematic failures such as failures caused by workmanship or manufacturing or design‑related issues, and since warranty claims are at times opened for cases in which the error has been triggered by an improper installation, we have developed a supplemental model to predict such cases and recognize the associated expenses ratably over the expected claim period. This model, which is based on actual root cause analysis of returned products, identification of the causes of claims and time until each identified problem is revealed, allows us to better predict actual warranty expenses and is updated periodically based on our experience, taking into account the installed base of approximately 22.749.8 million power optimizers and approximately 948,0002.1 million inverters as of December 31, 2017.

2019.

If actual warranty costs differ significantly from these estimates, adjustments may be required in the future, which could adversely affect our gross profit and results of operations. Warranty obligations are classified as short-term and long-term warranty obligations based on the period in which the warranty is expected to be claimed. The warranty provision (short and long-term) was $51.2 million in fiscal 2016, $58.4 million as of December 31, 2016, and $78.8 million as of December 31, 2017.

2017, $121.8 million as of December 31, 2018 and $172.6 million as of December 31, 2019.

Inventory Valuation

Our inventories comprise sellable finished goods, raw materials bought for own manufacturing or on behalf of our contract manufacturers, and faulty units returned under our warranty policy.

Sellable finished goods and raw material inventories are valued at the lower of cost or market, based on the moving average cost method. Certain factors could affect the realizable value of our inventories, including market and economic conditions, technological changes, existing product changes (mainly due to cost reduction activities), and new product introductions. We consider historic usage, expected demand, anticipated sales price, the effect of new product introductions, product obsolescence, product merchantability, and other factors when evaluating the value of inventories. Inventory write‑downs are equal to the difference between the cost of inventories and their estimated fair market value. Inventory write‑downs are recorded as cost of revenues in the accompanying statements of operations and were $2.5$1.4 million, $0.1$0.9 million and $1.4$4.5 million, in fiscal 2016, the six months ended December 31, 2016, and in the year ended December 31, 2017, 2018 and 2019, respectively.

Faulty products returned under our warranty policy are often refurbished and used as replacement units in warranty cases.units. Such products are written off upon receipt.

We do not believe that there is a reasonable likelihood that there will be a material change in future estimates or assumptions that we use to record inventory at the lower of cost or market. However, if estimates regarding customer demand are inaccurate or changes in technology affect demand for certain products in an unforeseen manner, we may be exposed to losses that could be material.

Stock‑Based Compensation Expense

Business Combination

We account for stock‑based compensation granted to employees, non‑employee directors, and independent contractors in accordance with ASC 718, “Compensation — Stock Compensation” and ASC 505‑50, “Equity‑Based Payments to Non‑Employees,” which requireallocate the measurement and recognition of compensation expense for all stock‑based payment awards based on fair value.

The fair value of each option award ispurchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated onfair value. The excess of the grant date using the Black‑Scholes‑Merton option‑pricing model. The stock‑based compensation expense, netfair value of forfeitures, is recognized using a straight‑line basispurchase consideration over the requisite servicefair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require our 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 and other intangible assets, their useful lives and discount rates. Our 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, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the award,measurement period, any subsequent adjustments are recorded to earnings.

Intangible and other long lived assets

We evaluate the recoverability of finite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these assets is generally four years. Estimated forfeituresmeasured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are basedexpected to generate. If such review indicates that the carrying amount of intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. We have not recorded any impairment charges during the year ended December 31, 2019.

Acquired identifiable finite-lived intangible assets are amortized on actual historical pre‑vesting forfeitures.

We recognize compensation expenses for the value of its restricted stock unit (“RSU”) awards, based on thea straight-line basis or accelerated method over the requisite service period of eachestimated useful lives of the awards, netassets. We believe the basis of amortization approximates the pattern in which the assets are utilized, over their estimated forfeitures. The fair valueuseful lives. We routinely review the remaining estimated useful lives of each RSUfinite-lived intangible assets. In case we reduce the estimated useful life assumption for any asset, the remaining unamortized balance is amortized or depreciated over the market value as determined byrevised estimated useful life.

Goodwill

Goodwill reflects the closing priceexcess of the common stock on the day of grant.

Key Assumptions

The Black‑Scholes‑Merton option‑pricing model requires the input of highly subjective assumptions,consideration transferred, including the fair value of any contingent consideration and any non-controlling interest in the underlying common stock,acquiree, over the expected volatilityassigned fair values of the price of our common stock,identifiable net assets acquired. Goodwill is not amortized, and is assigned to reporting units and tested for impairment at least on an annual basis, in the expected termfourth quarter of the option, risk‑free interest rates, andfiscal year.

The goodwill impairment test is performed according to the expected dividend yield of our common stock. These estimates involve inherent uncertainties andfollowing principles:

(1) An initial qualitative assessment may be performed to determine whether it is more likely than not that the application of management’s judgment. If factors change and different assumptions are used, our stock‑based compensation expense could be materially different in the future. These assumptions are estimated as follows:

Fair fair value of our common stock.  Because our stock wasthe reporting unit is less than its carrying amount.

(2)If the Company concludes it is more likely than not publicly traded prior to March 26, 2015, for periods prior to our initial public offering, we have estimatedthat the fair value of our common stock by using, among other factors, third party valuations at the time of grant of the option, by consideringreporting unit is less than its carrying mount, a number of objective and subjective factors, including data from other comparable companies, issuance of convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of capital stock, and general and industry-specific economic outlook. Thequantitative fair value of the underlying common stock was determined by the management until such time as the Company’s common stocktest is listed on an established stock exchange or national market system. Since the completion of our initial public offering, we have valued our common stock by reference to the trading price of our common stock in the public market.

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Expected term.  The expected term represents the period that our stock‑based awards are expected to be outstanding. For stock option awards that were granted at fair market value, we have based our expected term on the simplified method available under SAB 110, as we do not have sufficient historical experience for determining the expected term of the stock option awards granted. For stock option awards that were granted at fair market value prior to the time that our common stock traded in the public market, we use an expected term that we believe is appropriate under these circumstances, which does not produce a materially different result than determining the expected term for our stock options that were granted with an exercise price at least equal to the then current fair market value of our common stock.

Risk‑free rate.  The risk‑free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected terms of the options for each option group.

Dividend yield.  We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.

Volatility.  The expected share price volatilityperformed. An impairment charge for the shares was determinedamount by examiningwhich the historical volatilities of a group ofcarrying amount exceeds the Company’s industry peers, as there was insufficient trading history of the Company’s shares.

If any of the assumptions used in the Black‑Scholes‑Merton model change significantly, future stock‑based compensation awards for employees may differ materially compared with the awards granted previously.

The following table presents the assumptions used to estimate thereporting unit’s fair value is recognized.

We complete the required annual testing of options granted to employees duringgoodwill for impairment for the periods presented:

	Fiscal Year Ended June 30,				Six Months Ended December 31,		Year Ended December 31,
	2015		2016		2016		2017
Expected term (in years)	5.50 – 6.27 years		5.50 – 6.11 years		6.06 years		6.06 years
Expected volatility	46. 5% - 55.1%		55.45% - 56.03%		55.33% - 55.34%		58.08%-58.10%
Risk‑free rate	1.39% - 2.06%		1.39% - 1.97%		1.28% - 1.34%		2.14%-2.17%
Dividend yield	0.00%		0.00%		0.00%		0.00%

During fiscal 2015reporting unit on October 1 of each year and 2016, the six months endedaccordingly, determines whether goodwill should be impaired. As of December 31, 2016, and the year ended December 2017, we incurred non‑cash stock‑based compensation and employee stock purchase plan expenses2019, no impairment of $2,956,000, $9,089,000, $6,600,000, and $17,564,000, respectively. We expect to continue to grant stock-based awards in the future, and to the extent that we do, our actual share‑based compensation expense for employees and consultants recognized will likely increase.goodwill has been identified.

Income taxes:

taxes

We account for income taxes in accordance with ASC 740, “Income Taxes.” ASC 740, which prescribes the use of the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax basesbasis of assets and liabilities, and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse.

We account for uncertain tax positions in accordance with ASC 740. ASC 740-10 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% (cumulative probability) likely to be realized upon ultimate settlement.

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ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates, customer concentrations, and interest rates. We do not hold or issue financial instruments for trading purposes.

Foreign Currency Exchange Risk

Approximately 21.8%, 24.0%, 27.7%,37.4% 41.2% and 37.4%48.7% of our revenues for fiscal 2015, fiscal 2016, the six monthsyear ended December 31, 2016,2017, the year ended December 31, 2018 and the year ended December 31, 2017,2019, respectively, were earned in non‑U.S. dollar denominated currencies, principally the Euro. Our expenses are generally denominated in the currencies in which our operations are located, primarily the U.S. dollar and New Israeli Shekel, and to a lesser extent, the Euro.Euro and Korean Won. Our New Israeli Shekel‑denominated expenses consist primarily of personnel and overhead costs. Our consolidated results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. A hypothetical 10% change in foreign currency exchange rates between the Euro and the U.S. dollar would increase or decrease our net income by $17.7$42.7 million for the year ended December 31, 2017.2019. A hypothetical 10% change in foreign currency exchange rates between the New Israeli Shekel and the U.S. dollar would increase or decrease our net income by $7.1$13.5 million for the year ended December 31, 2017.

2019. A hypothetical 10% change in foreign currency exchange rates during the year ended December 31, 2019, between the Korean Won and the U.S. Dollar would increase or decrease our net income by $1.2 million for the year ended December 31, 2019.

For purposes of our consolidated financial statements, local currency assets and liabilities are translated at the rate of exchange to the U.S. dollar on the balance sheet date and local currency revenues and expenses are translated at the exchange rate as of the date of the transaction or at the average exchange rate to the U.S. dollar during the reporting period.

To date, we have used derivative financial instruments, specifically foreign currency forward contracts, to manage exposure to foreign currency risks by hedging a portion of our account receivable balances denominated in Euros expected to be paid within six months. Our foreign currency forward contracts are expected to mitigate exchange rate changes related to the hedged assets. We do not use derivative financial instruments for speculative or trading purposes.

We had cash, and cash equivalents and restricted cash of $144.8 million, $74.0 million, $104.7$187.8 million and $163.2 million$223.8 at the end of fiscal 2015, 2016,the year ending December 31, 2016,2018 and as ofthe year ended December 31, 2017,2019, respectively, which was held for working capital purposes. In addition, weWe had available-for-sale marketable securities with an estimated fair value of $111.6$192.9 million $118.7 million and $180.4 $211.0 million on June 30, 2016, December 31, 20162018 and December 31, 2017,2019, respectively.

In addition, we had bank deposits of $9.8 million and $5.0 million as of December 31, 2018 and December 31, 2019, respectively. We entered intohad restricted bank deposits of $1.6 million and $27.6 million as of December 31, 2018 December 31, 2019, respectively.

As of December 31, 2019, we had no outstanding forward contracts andor put and call options to hedge the exchange impacts on assets and liabilities denominated in other than the U.S. dollar. As of December 31, 2017, we had outstanding forward contracts and put and call options to sell Euros for U.S. dollars, in the amount of €54 million, that did not meet the requirement for hedge accounting. We useor derivative financial instruments, such as foreign exchange forward contracts, to mitigate the risk of changes in foreign exchange rates on accounts receivable and forecast cash flows denominated in certain foreign currencies. We may not be able to purchase derivative instruments adequate to fully insulate ourselves from foreign currency exchange risks and over the past year we have incurred losses as a result of exchange rate fluctuations on exposures that have not been covered by our hedging strategy.

Additionally, our hedging activities may also contribute to increased losses as a result of volatility in foreign currency markets. If foreign exchange currency markets continue to be volatile, such fluctuations in foreign currency exchange rates could materially and adversely affect our profit margins and results of operations in future periods. Also, the volatility in the foreign currency markets may make it difficult to hedge our foreign currency exposures effectively.

Concentrations of Major Customers

Our trade accounts receivables potentially expose us to a concentration of credit risk with our major customers. For the year ended December 31, 2017,2019, one major customer accounted for 14.8%20.4% of our total revenues, and as of December 31, 2019, one major customer accounted for approximately 32.1% of our consolidated trade receivables balance. For the year ended December 31, 2018, one major customer accounted for 19.4% of total revenues, and as of December 31, 2017,2018, two major customers accounted for approximately 35.2%41.3% of our consolidated trade receivables balance. We currently do not foresee a credit risk associated with these receivables. In fiscal 2016, three major customers accounted for 32.5% of our total revenues, in the six months ended December 31, 2016, one major customer accounted for 11.2% of our total revenues.

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Inflation

We do not believe that inflation had a material effect on our business, financial condition, or results of operations in the last three years. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition, and results of operations.

Commodity Price Risk

We are subject to risk from fluctuating market prices of certain commodity raw materials, including copper, which are used in our products. Prices of these raw materials may be affected by supply restrictions or other market factors from time to time, and we do not enter into hedging arrangements to mitigate commodity risk. Significant price changes for these raw materials could reduce our operating margins if we are unable to recover such increases from our customers, and could harm our business, financial condition, and results of operations.

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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements

ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 20172019 and 2016 and June 30, 20162018	F-4 F-7
Consolidated Statements of OperationsIncome for the year ended December 31, 2017, the six months ended December 31, 2016,2019, 2018 and the years ended June 30, 2016 and 20152017	F-6 F-9
Consolidated Statements of Comprehensive Income for the year ended December 31, 2017,  the six months ended December 31, 2016,2019, 2018 and the years ended June 30, 2016 and 20152017	F-7 F-10
Statements of Changes in Stockholders’ Equity for the year ended December 31, 2017, the six months ended December 31, 2016,2019, 2018 and the years ended June 30, 2016 and 20152017	F-8 F-11
Consolidated Statements of Cash Flows for the year ended December 31, 2017, the six months ended December 31, 2016,2019, 2018 and the years ended June 30, 2016 and 20152017	F-10 F-13
Notes to Consolidated Financial Statements	F-12 F-15

Unaudited Quarterly Results of Operations

The following table sets forth our unaudited quarterly consolidated statements of operations data for each of the fiscal years covered by the financial statements provided with this filing. The data presented below has been prepared on the same basis as the audited consolidated financial statements included elsewhere in this Annual Report and, in the opinion of management, reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data. This information should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report. The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.

		Mar. 31, 2018				June 30, 2018				Sept. 30, 2018				Dec. 31, 2018				Mar. 31, 2019				June 30, 2019				Sept. 30, 2019				Dec. 31, 2019
		(In thousands, unaudited)
Revenues		$	209,871			$	227,118			$	236,578			$	263,670			$	271,871			$	325,010			$	410,556			$	418,223
Cost of revenues			130,274				145,172				158,596				183,959				185,761				214,340				271,247				274,974
Gross profit			79,597				81,946				77,982				79,711				86,110				110,670				139,309				143,249
Operating expense
Research and development			17,875				19,551				20,109				24,710				26,199				29,505				30,747				34,900
Sales and marketing			16,205				15,954				16,938				19,210				20,172				22,127				22,026				23,659
General and administrative			4,753				5,776				6,898				11,837				11,691				13,685				12,214				11,771
Other			-				-				-				-				-				-				8,305				22,391
Total operating expenses			38,833				41,281				43,945				55,757				58,062				65,317				73,292				92,721
Operating income			40,764				40,665				34,037				23,954				28,048				45,353				66,017				50,528
Financial income (expenses)			584				(2,480	)			(689	)			288				(6,151	)			773				(17,023	)			11,058
Income before taxes on income			41,348				38,185				33,348				24,242				21,897				46,126				48,994				61,586
Taxes on income (tax benefit)			5,662				3,617				(12,295	)			12,093				3,922				13,213				7,270				9,241
Net income		$	35,686			$	34,568			$	45,643			$	12,149			$	17,975			$	32,913			$	41,724			$	52,345
Net income (loss) attributable to noncontrolling interests			-				-				-				(787	)			(1,041	)			(215	)			97				(433	)
Net income attributable to SolarEdge Technologies Inc.		$	35,686			$	34,568			$	45,643			$	12,936			$	19,016			$	33,128			$	41,627			$	52,778

Subsequent Events

None.

		Three Months Ending
		Sept. 30, 2015				Dec. 31, 2015				Mar. 31, 2016				June 30, 2016				Sept. 30, 2016				Dec. 31, 2016				Mar. 31, 2017				June 30, 2017				Sept. 30, 2017				Dec. 31, 2017
		(In thousands, unaudited)
Revenues		$	115,054			$	124,832			$	125,205			$	124,752			$	128,484			$	111,513			$	115,054			$	136,099			$	166,552			$	189,340
Cost of revenues			81,527				86,250				84,471				85,639				86,609				72,488				76,378				89,033				108,498				118,370
Gross profit			33,527				38,582				40,734				39,113				41,875				39,025				38,676				47,066				58,054				70,970
Operating expense
Research and development, net			6,991				8,299				8,709				9,232				9,935				10,344				11,458				12,725				14,363				16,420
Sales and marketing			8,244				8,833				8,826				8,930				10,036				10,408				10,775				11,961				13,217				14,079
General and administrative			3,418				2,188				3,460				3,067				3,664				3,126				4,439				3,265				5,078				5,900
Total operating expenses			18,653				19,320				20,995				21,229				23,635				23,878				26,672				27,951				32,658				36,399
Operating income			14,874				19,262				19,739				17,884				18,240				15,147				12,004				19,115				25,396				34,571
Financial income (expenses)			(72	)			(959	)			2,029				(527	)			390				(3,179	)			1,410				3,595				2,666				1,487
Income before taxes on income			14,802				18,303				21,768				17,357				18,630				11,968				13,414				22,710				28,062				36,058
Taxes on income (tax benefit)			370				(5,802	)			969				84				3,014				2,203				(761	)			186				91				16,556
Net income		$	14,432			$	24,105			$	20,799			$	17,273			$	15,616			$	9,765			$	14,175			$	22,524			$	27,971			$	19,502

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.

CONTROLS AND PROCEDURES

ITEM 9A.CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2017.2019. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

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Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Management assessed our internal control over financial reporting as of December 31, 2017, the end of our 2017 year.2019. Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment.

Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of the purchased SMRE business, that was acquired during 2019 and included in the 2019 consolidated financial statements of the Company and constituted 2.4% and 3.1% of total and net assets respectively, as of December 31, 2019 and 1.4% of revenues for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of the purchased SMRE business.

Based on this assessment, management has concluded that our internal control over financial reporting was effective as of the end of the year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors.

Our independent registered public accounting firm, Kost Forer Gabbay & Kasierer, a member of Ernst & Young, independently assessed the effectiveness of the company’s internal control over financial reporting, as stated in the firm’s attestation report, which is incorporated by reference into Part II, Item 8 of this Form 10-K.

Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during our most recentthe fourth fiscal quarter of 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.

OTHER INFORMATION

ITEM 9B.OTHER INFORMATION

None.

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PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Except as set forth below, the

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by Item 10 will be included under the captions “Directors“Directors and Corporate Governance”, “The Board’s Role in Risk Oversight”, “Board Committees”, “Director Compensation”, “Compensation Committee Report”, and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement for the 20182020 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the year ending December 31, 20172019 (the "2018"2020 Proxy Statement") and is incorporated herein by reference.

Our Executive Officers

Name		Age(1)		Position(s) Held
Guy Sella		53		Chief Executive Officer and Chairman of the Board
Ronen Faier		46		Chief Financial Officer
Rachel Prishkolnik		49		Vice President, General Counsel & Corporate Secretary
Zvi Lando		53		Vice President, Global Sales
Lior Handelsman		44		Vice President, Marketing and Product Strategy
Yoav Galin		44		Vice President, Research & Development
Meir Adest		42		Vice President, Core Technologies

⁽¹⁾ As of December 31, 2017.

Guy Sella is a co‑founder of SolarEdge and has served as Chairman of the board of directors and Chief Executive Officer since 2006. Prior to founding SolarEdge, Mr. Sella was a partner at Star Ventures, a leading venture capital firm, where he led investments in several startups, including AeroScout, Inc. (acquired by Stanley Black & Decker, Inc.) and Vidyo, Inc. Previously, Mr. Sella acted as the director of technology for the Israeli National Security Council and as the secretary for the National Committee for Cyber Protection. Mr. Sella also served as the head of the Electronics Research Department (“ERD”), one of Israel’s national labs, which is tasked with developing innovative and complex systems. Mr. Sella holds a B.S. in Engineering from the Technion, Israel’s Institute of Technology in Haifa. Mr. Sella brings to our board of directors demonstrated senior leadership skills, expertise from years of experience in electronics industries, and historical knowledge of our Company from the time of its founding.

Ronen Faier joined SolarEdge in 2011 as our Chief Financial Officer. Prior to joining SolarEdge, Mr. Faier served from 2008 to 2010 as the chief financial officer of Modu Ltd, a privately owned Israeli company, which entered into voluntary liquidation proceedings in Israel in December 2010. Between 2004 and 2007, Mr. Faier held several senior finance positions, including chief financial officer at M-Systems prior to its acquisition by SanDisk Corporation in 2006. Previously, Mr. Faier served as corporate controller of VocalTec Communications Ltd. Mr. Faier holds a CPA (Israel) license, an MBA (with Honors) from Tel Aviv University and a B.A. in Accounting and Economics from the Hebrew University in Jerusalem.

Rachel Prishkolnik joined SolarEdge in 2010 as our Vice President, General Counsel and Corporate Secretary. Prior to joining SolarEdge, Mrs. Prishkolnik served as the vice president, general counsel & corporate secretary of Gilat Satellite Networks Ltd. At Gilat she held various positions beginning as legal counsel in 2001 and becoming corporate secretary in 2004 and vice president, general counsel in 2007. Prior to Gilat, she worked at the law firm of Jeffer, Mangels, Butler & Marmaro LLP in Los Angeles. Before that, Mrs. Prishkolnik worked at Kleinhendler & Halevy (currently GKH Law Offices) in Tel Aviv. Mrs. Prishkolnik holds an LLB law degree from the Faculty of Law at the Tel Aviv University and a B.A. from Wesleyan University in Connecticut. She is licensed to practice law and is a member of the Israeli Bar.

Zvi Lando joined SolarEdge in 2009 as our Vice President, Global Sales. Mr. Lando had previously spent 16 years at Applied Materials, based in Santa Clara, California, where he held several positions, including process engineer for metal disposition and chemical vapor deposition systems, business manager for the Process Diagnostic and Control Group, vice president, and general manager of the Baccini Cell Systems Division in the Applied Materials Solar Business Group. Mr. Lando holds a BSc in Chemical Engineering from the Technion, Israel’s Institute of Technology in Haifa, and is the author of several publications in the field of chemical disposition.

Lior Handelsman co‑founded SolarEdge in 2006 and currently serves as our Vice President, Marketing and Product Strategy where he is responsible for SolarEdge’s marketing activities, product management and business development. Previously, Mr. Handelsman served as Vice President, Product Strategy and Business Development, from 2009 through 2013 and Vice President, Product Development, from our founding through 2009. Mr. Handelsman also served as acting Vice President, Operations, from 2008 through 2010. Prior to co‑founding SolarEdge, Mr. Handelsman spent 11 years at the ERD, where he held several positions including research and development power electronics engineer, head of the ERD’s power electronics group and manager of several large-scale development projects and he was a branch head in his last position at the ERD. Mr. Handelsman holds a B.S. in Electrical Engineering (cum laude) and an MBA from the Technion, Israel’s Institute of Technology in Haifa.

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Yoav Galin co‑founded SolarEdge in 2006 and has served since our founding as our Vice President, Research & Development where he is responsible for leading the execution of our technology strategy, building and managing the technology team and overseeing research and development of SolarEdge’s innovative PV power harvesting products. Prior to joining SolarEdge, Mr. Galin served for 11 years at the ERD. During this period, Mr. Galin held various research and development and management positions, including his last position at the ERD where he led a project and its development team of over 30 hardware and software engineers. He was also responsible for overseeing the research and development of future technologies. Mr. Galin holds a B.S. in Electrical Engineering from Tel Aviv University.

Meir Adest co‑founded SolarEdge in 2006 and has served since 2007 as our Vice President, Core Technologies where he is responsible for SolarEdge’s certification and long‑term reliability of SolarEdge products and research of future technologies. Prior to co‑founding SolarEdge, Mr. Adest spent 7 years at the ERD, where he held a number of positions, starting as an embedded software engineer for mission‑critical systems, progressing to the position of a software team leader, managing a large‑scale techno‑operational project, and finally managing a multi‑disciplinary section with approximately 25 hardware and software engineers. Mr. Adest holds a B.Sc in mathematics, physics, and computer science from the Hebrew University in Jerusalem.

Our Board of Directors

The following table sets forth certain information concerning our directors:

Name		Age(1)		Position(s) Held
Guy Sella		53		Chief Executive Officer and Chairman of the Board
Dan Avida		54		Director*
Yoni Cheifetz		57		Director*
Marcel Gani		65		Director*
Doron Inbar		68		Director*
Avery More		63		Director*
Tal Payne		46		Director*

⁽¹⁾ As of December 31, 2017.

 *          Our board of directors has determined that this director is independent under the standards of the NASDAQ Global Select Market.

Guy Sella.  Please see Item 1 of Part I, “ITEM 1. Business—Executive Officers of the Registrant.”

Dan Avida has served as a member of our board of directors since 2007. Mr. Avida is a partner at Opus Capital. Before joining Opus Capital in 2005, Mr. Avida served for four years as president and chief executive officer at Decru Inc., a pioneering storage security company that Mr. Avida co‑founded in 2001. Between 1989 and 1999 Mr. Avida was employed by Electronics for Imaging, Inc. (NASDAQ:EFII), where he held a number of positions and ultimately served as chairman and chief executive officer. Prior to Electronics for Imaging, Mr. Avida served as an officer in the Israel Defense Forces. Mr. Avida holds a B.Sc. in Computer Engineering (summa cum laude) from the Technion, the Israel Institute of Technology. Mr. Avida’s historical knowledge of our company and years of experience in working with innovative companies in the United States and Israel provide a valuable perspective to the board of directors.

Yoni Cheifetz has served as a member of our board of directors since 2010. Since 2006, Mr. Cheifetz has served as a Partner at Lightspeed Venture Partners, where he focuses on investment activity in Israel in areas of interest, including the Internet, general media, mobile, communications, software, semiconductors and cleantech. Prior to joining Lightspeed Venture Partners, Mr. Cheifetz was a partner with Star Ventures from 2003 to 2006. Before joining Star Ventures, Mr. Cheifetz was a serial entrepreneur and the founder, CEO and Chairman of several privately held software companies most of which have been acquired. Mr. Chiefetz holds a B.Sc. in Applied Mathematics from Tel Aviv University and a M.Sc. in Applied Mathematics and Computer Science from the Weizmann Institute of Science. Mr. Cheifetz’s historical knowledge of our company and extensive experience in working with technology companies qualify him to serve as a member of our board of directors.

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Marcel Gani has served as a member of our board of directors since 2015. From 2005 to 2009, Mr. Gani lectured at Santa Clara University, where he taught classes on accounting and finance. In 1997, Mr. Gani joined Juniper Networks, Inc. where he served as chief financial officer and executive vice president from December 1997 to December 2004, and as chief of staff from January 2005 to March 2006. Prior to joining Juniper, Mr. Gani served as chief financial officer at various companies, including NVIDIA Corporation, Grand Junction Networks, Primary Access Corporation and Next Computers. Mr. Gani served as corporate controller at Cypress Semiconductor from 1991 to 1992. Prior to joining Cypress Semiconductor, Mr. Gani worked at Intel Corporation from 1978 to 1991. Mr. Gani holds a B.A. in Applied Mathematics from Ecole Polytechnique Federal and an M.B.A. from University of Michigan, Ann Arbor. Mr. Gani serves on the board of directors of Infinera, where he is a member of the audit committee and the chairman of the compensation committee. Mr. Gani brings valuable financial and business experience to our board through his years of experience as a chief financial officer with public companies and experience as a director of other public companies.

Doron Inbar has served as a member of our board of directors since 2010. Mr Inbar has been a venture partner at Carmel Ventures, an Israeli‑based venture capital firm that invests primarily in early stage companies in the fields of software, communications, semiconductors, internet, media, and consumer electronics, since 2006. Previously, Mr. Inbar served as the president of ECI Telecom Ltd., a global telecom networking infrastructure provider, from November 1999 to December 2005 and its chief executive officer from February 2000 to December 2005. Mr. Inbar joined ECI Telecom Ltd. in 1983 and during his first eleven years with the company, served in various positions at its wholly‑owned U.S. subsidiary, ECI Telecom, Inc., in the U.S., including executive vice president and General Manager. In July 1994, Mr. Inbar returned to Israel to become vice president, corporate budget, control and subsidiaries of ECI Telecom Ltd. In June 1996, Mr. Inbar was appointed senior vice president and chief financial officer of ECI Telecom Ltd., and he became executive vice president of ECI Telecom Ltd. in January 1999. Mr. Inbar has served on the board of directors of Alvarion Ltd. (formerly NASDAQ: ALVR), a company that sells broadband wireless and Wi‑Fi products, from September 2009 until September 2013 and was a member of its audit and compensation committees and served as chairman of its nominating and governance committee. Mr. Inbar also served on the board of directors of Archimedes Global Ltd. from 2008 until 2017, a company which provides health insurance and health provision in Eastern Europe, and serves on the board of directors of MaccabiDent Ltd., the largest chain of dental service clinics in Israel. In 2012, Mr. Inbar joined the board of directors of Comverse Technology Inc. (formerly NASDAQ: CNSI), where he was a member of the audit committee and corporate governance committee until August 2016. Mr. Inbar served also as a board member and management consultant at Degania Medical Ltd., a medical device designer and manufacturer, and serves as a board member and management advisor to the board of Tzinorot Ltd. and Cellwize Wireless Technologies Ltd., a developer of innovative wireless solutions. Previously, Mr. Inbar served as chairman of the board of C‑nario Ltd., a global provider of digital signage software solutions, chairman of the board of Followap Ltd., which was sold to Neustar, Inc. in November 2006, and chairman of the board of Enure Networks Ltd. Mr. Inbar holds a B.A. in Economics and Business Administration from Bar‑Ilan University, Israel.

Avery More has served as a member of our board of directors since 2006. Mr. More was the sole seed investor in the Company through his fund, ORR Partners I, L.P., and has participated in all successive rounds. Mr. More joined Menlo Ventures in 2013 as a venture partner, and focuses on investments in technology companies. Prior to joining Menlo Ventures, Mr. More was the president and chief executive officer of CompuCom Systems Inc. from 1989 to 1993. Mr. More currently serves on the board of directors of Vidyo, Inc., QualiSystems Ltd., Takipi, BuzzStream, AppDome, and Dome9. Mr. More has specific attributes that qualify him to serve as a member of our board of directors, including his historical knowledge of our company and his experience as a director of other private and public technology companies.

Tal Payne has served as a member of our board of directors since 2015. Tal Payne brings over 15 years of financial management experience, serving as Chief Financial Officer in Check Point Software Technologies Ltd. (“Check Point”) since joining in 2008 and as Chief Financial and Operations Officer since 2015. Ms. Payne oversees Check Point’s global operations and finance, including investor relations, legal, treasury, purchasing and facilities. Prior to joining Check Point, Ms. Payne served as Chief Financial Officer at Gilat Satellite Networks, Ltd., where she held the role of Vice President of Finance for over five years. Ms. Payne began her career as a CPA in public accounting at PricewaterhouseCoopers. Ms. Payne holds a B.A. in Economics and Accounting and an Executive M.B.A., both from Tel Aviv University. Ms. Payne is a certified public accountant. Ms. Payne brings valuable financial and business experience to our board through her years of experience as a chief financial officer with publicly traded companies.

ITEM 11.

EXECUTIVE COMPENSATION

ITEM 11.EXECUTIVE COMPENSATION

The information required by Item 11 will be included under the captions “Executive“Executive Compensation” in our 20182020 Proxy Statement and is incorporated herein by reference.

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ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Except as set forth below, the information required by Item 12 will be included under the captions “Security“Security Ownership of Certain Beneficial Owners and Management” in our 20182020 Proxy Statement and is incorporated herein by reference.

Equity Compensation Plan Information

The following table summarizes information as of December 31, 2017,2019, about shares of common stock that may be issued under our equity compensation plans.

Plan Category		Number of securities to be issued upon exercise of outstanding stock awards(a)				Weighted-average exercise price of outstanding stock awards (b)				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders (1)			5,676,231			$	4.63				3,035,903
Equity compensation plans not approved by security holders			—				—				—
Total			5,676,231			$	4.63				3,035,903

Plan Category		Number of securities to be issued upon exercise of outstanding stock awards(a)				Weighted-average exercise price of outstanding stock awards (b)				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders (1)			4,916,115			$	6.65				5,095,591
Equity compensation plans not approved by security holders			—				—				—
Total			4,916,115			$	6.65				5,095,591

(1)

Includes in column (a) 3,005,5623,916,361 shares of common stock issuable upon exercise of stock awards outstanding under the Company’s 2015 Global Incentive Plan, 2,670,669999,754 shares of common stock issuable upon exercise of options outstanding under the Company’s 2007 Global Incentive Plan. Includes in column (c) 2,003,1263,424,142 shares of common stock available for future issuance under the Company’s 2015 Global Incentive Plan and 1,032,7771,671,449 shares of common stock available for future issuance under the Company’s Employee Stock Purchase Plan. Upon consummation of our initial public offering, the Company’s 2007 Global Incentive Plan was terminated and no further awards can be granted under this plan.

Employee Stock Purchase Plan

We have adopted an employee stock purchase plan (“ESPP”), pursuant to which our eligible employees and eligible employees of our subsidiaries may elect to have payroll deductions made during the offering period in an amount not exceeding 10% of the compensation which the employees receive on each pay day during the offering period. In the second quarter of calendar 2016, we started granting eligible employees the right to purchase our common stock under the ESPP. As of December 31, 2017,2019, a total of 1,301,1542,199,808 shares were reserved for issuance under the ESPP. The number of shares of common stock reserved for issuance under the ESPP will increase annually on January 1st, 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. Our board of directors may reduce the number of shares to be added to the share reserve for the ESPP in any particular year at their discretion. As of June 30, 2016, no shares of our common stock had yet been purchased under the ESPP. As of December 31, 2016 and 2017, 83,319 and 268,377 common stock shares had been purchased under the ESPP, respectively.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by Item 13 will be included under the captions “Transactions“Transactions with Related Persons” in our 20182020 Proxy Statement and is incorporated herein by reference.

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by Item 14 will be included under the captions “Audit“Audit and Related Fees”Fees” in our 20182020 Proxy Statement and is incorporated herein by reference.

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PART IV

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Our Consolidated Financial Statements and Notes thereto are included in ITEM 8 of this Annual Report on Form 10-K. See Index to ITEM 8 for more detail.

All financial schedules have been omitted either because they are not applicable or because the required information is provided in our Consolidated Financial Statements and Notes thereto, included in ITEM 8 of this Annual Report on Form 10-K.

Index to Exhibits

Exhibit No.		Description		Incorporation by Reference
3.1		Amended and Restated Certificate of Incorporation		Incorporated by reference to Exhibit 4.1 to Form S-8 (Registration No. 333-203193) filed with the SEC on April 2, 2015
3.2		Amended and Restated By‑Laws		Incorporated by reference to Exhibit 4.2 to Form S-8 (Registration No. 333-203193) filed with the SEC on April 2, 2015
3.3		Description of Common Stock		Filed with this report.
4.1		Specimen Common Stock Certificate of the Registrant		Incorporated by reference to Exhibit 4.1 of Amendment No. 1 to Form S-1 (Registration No. 333-202159) filed with the SEC on March 11, 2015
10.2†
		Employment Agreement, dated August 26, 2007,20, 2019 between SolarEdge Technologies Inc.Ltd. and Guy SellaUri Bechor		Incorporated by reference to Exhibit 10.2 of Amendment No. 110.1 to Form S-1 (Registration No. 333-202159)8-K filed with the SEC on March 11, 2015August 21, 2019
10.3		Employment Agreement, dated December 1, 2010, between SolarEdge Technologies, Inc. and Ronen Faier		Incorporated by reference to Exhibit 10.3 of Amendment No. 1 to Form S-1 (Registration No. 333-202159) filed with the SEC on March 11, 2015
10.4†		Employment Agreement, dated May 17, 2009, between SolarEdge Technologies, Inc. and Zvi Lando		Incorporated by reference to Exhibit 10.3 of Amendment No. 1 to Form S-1 (Registration No. 333-202159) filed with the SEC on March 11, 2015
10.5†		SolarEdge Technologies, Inc. 2007 Global Incentive Plan.		Incorporated by reference to Exhibit 99.3 to Form S-8 (Registration No. 333-203193) filed with the SEC on April 2, 2015
10.6†		SolarEdge Technologies, Inc. 2015 Global Incentive Plan		Incorporated by reference to Exhibit 99.1 to Form S-8 (Registration No. 333-203193) filed with the SEC on April 2, 2015
10.7†		SolarEdge Technologies, Inc. 2015 Employee Stock Purchase Plan		Incorporated by reference to Exhibit 99.2 to Form S-8 (Registration No. 333-203193) filed with the SEC on April 2, 2015
10.8		Manufacturing Services Agreement, dated February 14, 2010 between Flextronics (Israel) Ltd. and SolarEdge Technologies Ltd. (previously filed as Exhibit 10.10 to the Company's Registration Statement on Form S-1, filed with the Commission on February 18, 2015		Incorporated by reference to Exhibit 10.10 to Form S-1 (Registration No. 333-202159) filed with the SEC on February 18, 2015

10.9#

Interim Agreement, dated April 7, 2013 among Flextronics Industrial Ltd. between Flextronics (Israel) Ltd. and SolarEdge Technologies Ltd. (previously filed as Exhibit 10.11 to the Company's Registration Statement on Form S-1, filed with the Commission on February 18, 2015)

Incorporated by reference to Exhibit 10.11 to Form S-1 (Registration No. 333-202159) filed with the SEC on February 18, 2015

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10.10#		Manufacturing Services Agreement, dated June 9, 2011 between Jabil Circuit Inc. and SolarEdge Technologies Inc. (previously filed as Exhibit 10.11 to the Company's Registration Statement on Form S-1, filed with the Commission on February 18, 2015)		Incorporated by reference to Exhibit 10.12 to Form S-1 (Registration No. 333-202159) filed with the SEC on February 18, 2015
10.11 †		Form of Non-Employee Director RSU Award Agreement		Incorporated by reference to Exhibit 10.11 to Form 10-K filed with the SEC on August 20, 2015
10.12 †		Form of Non-Employee Director Stock Option Award Agreement		Incorporated by reference to Exhibit 10.12 to Form 10-K filed with the SEC on August 20, 2015
10.13 †		Form of Employee RSU Award Agreement		Incorporated by reference to Exhibit 10.13 to Form 10-K filed with the SEC on August 20, 2015
10.14 †		Form of Employee Stock Option Award Agreement		Incorporated by reference to Exhibit 10.14 to Form 10-K filed with the SEC on August 20, 2015
10.15		Share Purchase Agreement, dated January 7, 2019, between SolarEdge Technologies Ltd. and MTI Holding s.r.l., Mr. Gabriele Amati and Mr. Giampaolo Giammarioli.		Incorporated by reference to Exhibit 2.1 to Form 8-K filed with the SEC on January 7, 2019
10.16		Share Purchase Agreement with Mr. Ji Jun Hong with respect to Kokam Co., Ltd.		Incorporated by reference to Exhibit 10.16 to Form 10-K filed with the SEC on February 28, 2019
10.17		Form of Ancillary Purchase Agreement with respect to Kokam Co., Ltd.		Incorporated by reference to Exhibit 10.17 to Form 10-K filed with the SEC on February 28, 2019
21.1		List of Subsidiaries of the Registrant		Filed with this report.
23.1		Consent of Kost Forer Gabbay & Kasierer, independent registered public accounting firm		Filed with this report.
24.1		Power of Attorney (included in signature page)		Filed with this report.
31.1		Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and15d-14(a) of the Securities Exchange Act of 1934, as amended		Filed with this report.
31.2		Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and15d-14(a) of the Securities Exchange Act of 1934, as amended		Filed with this report.
32.1		Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		Filed with this report.
32.2		Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		Filed with this report.
101.INS
101.INS		XBRL Instance Document - - embedded within the Inline XBRL document		Filed with this report.
101.SCH
101.SCH		XBRL Taxonomy Extension Schema Document		Filed with this report.
101.CAL
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document		Filed with this report.
101.DEF
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document		Filed with this report.
101.LAB
101.LAB		XBRL Taxonomy Extension Label Linkbase Document		Filed with this report.
101.PRE
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document		Filed with this report.
104		Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.		Filed with this report.

† Management contract or compensatory plan or arrangement.

# Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2017

2019

AUDITED

INDEX

AUDITED

INDEX

	Page
Reports of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2017, 20162019 and June 30, 20162018	F-4 F-7
Consolidated Statements of OperationsIncome for the year ended December 31, 2017, the six months ended December 31, 20162019, 2018 and the years ended June 30, 2016 and 20152017	F-6 F-9
Consolidated Statements of Comprehensive Income for the year ended December 31, 2017, the six months ended December 31, 20162019, 2018 and the years ended June 30, 2016 and 20152017	F-7 F-10
Statements of Changes in Stockholders’ Equity for the year ended December 31, 2017, the six months ended December 31, 20162019, 2018 and the years ended June 30, 2016 and 20152017	F-8 F-11
Consolidated Statements of Cash Flows for the year ended December 31, 2017, the six months ended December 31, 20162019, 2018 and the years ended June 30, 2016 and 20152017	F-10 F-13
Notes to Consolidated Financial Statements	F-12 F-15

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Kost Forer Gabbay & Kasierer 144 Menachem Begin St. Tel-Aviv 6492102, Israel

Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of

SOLAREDGE TECHNOLOGIES, INC.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of SolarEdge Technologies, Inc. and subsidiaries (the “Company”) as of December 31, 2017, December 31, 20162019 and June 30, 2016 and 2018, the related consolidated statements of operations,income, comprehensive income, changes in stockholders’ equity and cash flows for the year ended December 31, 2017, the period from July 1, 2016 to December 31, 2016, and each of the two fiscalthree years in the period ended June 30, 2016,December 31, 2019, and the related notes (collectively referred to as the "financial statements"“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2017, December 31, 20162019 and June 30, 2016,2018, and the consolidated results of its operations and its cash flows for the year ended December 31, 2017, the period from July 1, 2016 to December 31, 2016, and each of the two fiscalthree years in the period ended June 30, 2016,December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sCompany’s internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control-IntegratedControl - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 20, 2018 27, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement.statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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		Valuation of Warranty Obligations
Description of the Matter		As of December 31, 2019, the warranty obligation was $172,563 thousands, as more fully described in Notes 2.r and 12 to the consolidated financial statements. Substantially all of the Company’s warranty obligations are related to the solar business. The calculation of such warranty obligations requires significant judgment due to the inherent complexity in estimating the amount and timing of future warranty costs. The Company's products include a warranty of up to 12 years for its inverters and up to 25 year for its power optimizers. In order to predict the failure rate of each product, the Company established a reliability model based on the estimated mean time between failures (“MTBF”) and an additional model to capture non-systematic failures. Predicted failure rates are updated periodically based on new product versions and analysis of the root cause of actual failures, as are warranty related replacement costs. Auditing the management’s valuation of warranty obligation was complex and highly judgmental due to the significant estimation required in determining its amount. In particular, the warranty obligation is subject to significant assumptions such as product failure rates, the average cost of products replacements and other warranty related costs.
How We Addressed the Matter in Our Audit		We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the accounting of warranty, including management's assessment of the assumptions and data underlying the warranty valuation. Our substantive audit procedures included, among others, look back analysis and testing the accuracy and completeness of the underlying data used in management's warranty valuation assessment. We assessed the accuracy of historical data as the best estimate for forecasted failure rates, repair replacement ratios and other warranty related costs and compared them to actual warranty claims. In addition, we involved a specialist to assess the assumptions and the precision of the inputs underlying the MTBF model, including, evaluating the appropriateness of the MTBF model and its consistency with data obtained from external sources.

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		Acquisition accounting for S.M.R.E S.p.A business combination
Description of the Matter		As described in Notes 2.k and 3 to the consolidated financial statements, on January 24, 2019, the Company acquired 56.8% of the outstanding common shares and voting rights of S.M.R.E S.p.A for a net consideration of $73 million (the “SMRE Acquisition”). The SMRE Acquisition was accounted for as a business combination in accordance with ASC 805 “Business Combinations”. Auditing the Company’s accounting for the SMRE Acquisition was complex due to the significant estimation required in determining the fair value of the current technology intangible asset in the amount of $44 million. The significant estimation was primarily due to the complexity of the valuation model used to measure the fair value of such asset, as well as the sensitivity of the respective fair value to the underlying significant assumptions. The Company used a discounted cash flow model to measure the intangible asset. The significant assumptions used to estimate the fair value of the intangible asset included discount rates and certain assumptions that form the basis of the forecasted results, such as revenue growth rates and profitability margins. These significant assumptions are forward-looking and could be affected by future economic and market conditions.
How We Addressed the Matter in Our Audit		We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the accounting for acquisitions, such as controls over the measurement of current technology intangible asset, including the valuation models and underlying assumptions used to develop such estimates. To test the estimated fair value of the intangible asset, we performed audit procedures that included, among others, evaluating the Company’s selection of the valuation methodology, evaluating the methods and significant assumptions used by the Company’s valuation specialist and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. Specifically, when assessing the key assumptions effecting the current technology intangible asset, we focused on forecasted revenue, weighted average cost of capital rate, market benchmarks assumptions and long-term revenue growth rates. We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimates. We also evaluated the appropriateness of the related disclosures included in Note 3 to the consolidated financial statements in relation to SMRE Acquisition.

/s/ Kost Forer Gabbay & Kasierer

Kost Forer Gabbay & Kasierer, a

A Member of Ernst & Young Global

We have served as the Company'sCompany’s auditor since 2007

2007.

Tel-Aviv, Israel

February 27, 2020

Tel-Aviv, Israel
February 20, 2018

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Kost Forer Gabbay & Kasierer 144 Menachem Begin St. Tel-Aviv 6492102, Israel

Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of

SOLAREDGE TECHNOLOGIES, INC.

Opinion on Internal Control over Financial Reporting

We have audited SolarEdge Technologies, Inc. and its subsidiaries internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, SolarEdge Technologies, Inc. and its subsidiaries (the "Company"“Company”) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, based on the COSO criteria.

As indicated in the accompanying Management's Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of the business of S.M.R.E S.p.A, that was acquired during 2019 and included in the 2019 consolidated financial statements of the Company and constituted 2.4% and 3.1% of total and net assets, respectively, as of December 31, 2019 and 1.4% of revenues for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of the business of S.M.R.E S.p.A.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of SolarEdge Technologies, Inc. and its subsidiariesthe Company as of December 31, 2017, December 31, 2016,2019, and June 30, 2016 and2018, the related consolidated statements of operations,income, comprehensive income, changes in stockholders’ equity and cash flows for the year ended December 31, 2017, the period from July 1, 2016 to December 31, 2016, and each of the two fiscalthree years in the period ended June 30, 2016December 31, 2019, and the related notes and our report dated February 20, 201827, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

The Company'sCompany’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Overover Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures, as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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Definition and Limitations of Internal Control Overover Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Kost Forer Gabbay & Kasierer

Kost Forer Gabbay & Kasierer, a

A Member of Ernst & Young Global

Tel-Aviv, Israel

February 27, 2020

Tel-Aviv, Israel
February 20, 2018

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)
		December 31,
		2019				2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	223,901			$	187,764
Short-term bank deposits			5,010				9,870
Restricted bank deposits			27,558				824
Marketable securities			91,845				118,680
Trade receivables, net			298,383				173,579
Prepaid expenses and other current assets			115,268				45,073
Inventories, net			170,798				141,519
Total current assets			932,763				677,309
LONG-TERM ASSETS:
Marketable securities			119,176				74,256
Operating lease right-of-use assets, net			35,858				-
Property, plant and equipment, net			176,963				119,329
Deferred tax assets, net			16,298				14,699
Intangible assets, net			74,008				38,504
Goodwill			129,654				34,874
Other long-term assets			9,904				5,501
Total long-term assets			561,861				287,163
Total assets		$	1,494,624			$	964,472

CONSOLIDATED BALANCE SHEETS

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

		December 31,				December 31,				June 30,
		2017				2016				2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	163,163			$	104,683			$	74,032
Restricted cash			1,516				897				928
Marketable securities			77,264				74,465				59,163
Trade receivables, net			109,528				71,041				72,737
Prepaid expenses and other accounts receivable			42,223				21,347				21,340
Inventories			82,992				67,363				81,550
Total current assets			476,686				339,796				309,750
LONG-TERM ASSETS:
Marketable securities			103,120				44,262				52,446
Property, equipment and intangible assets, net			52,297				37,381				28,547
Prepaid expenses and lease deposits			862				489				399
Deferred tax assets, net			8,340				2,815				6,296
Total long term assets			164,619				84,947				87,688
Total assets		$	641,305			$	424,743			$	397,438

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

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Cont.)
U.S. dollars in thousands (except share and per share data)
		December 31,
		2019				2018
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade payables, net		$	157,148			$	107,079
Employees and payroll accruals			47,390				29,053
Current maturities of bank loans and accrued interest			15,673				16,639
Warranty obligations			65,112				28,868
Deferred revenues			70,815				14,351
Accrued expenses and other current liabilities			80,576				29,728
Total current liabilities			436,714				225,718
LONG-TERM LIABILITIES:
Bank loans			173				3,510
Warranty obligations			107,451				92,958
Deferred revenues			89,982				60,670
Operating lease liabilities			30,213				-
Deferred tax liabilities, net			4,461				1,499
Other long-term liabilities			13,960				9,391
Total long-term liabilities			246,240				168,028
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS’ EQUITY:
Common stock of $0.0001 par value - Authorized: 125,000,000 shares as of December 31, 2019, and 2018; issued: 49,081,457 and 46,052,802 shares as of December 31, 2019, and 2018, respectively; outstanding: 48,898,062 and 46,052,802 shares as of December 31, 2019 and 2018, respectively.			5				5
Additional paid-in capital			475,792				371,794
Accumulated other comprehensive loss			(1,809	)			(524	)
Retained earnings			337,682				191,133
Total SolarEdge Technologies, Inc. stockholders’ equity			811,670				562,408
Non-controlling interests			-				8,318
Total stockholders’ equity			811,670				570,726
Total liabilities and stockholders’ equity		$	1,494,624			$	964,472

CONSOLIDATED BALANCE SHEETS

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

		December 31,				December 31,				June 30,
		2017				2016				2016
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade payables, net		$	69,488			$	34,001			$	48,481
Employees and payroll accruals			22,544				13,018				10,092
Warranty obligations			14,785				13,616				14,114
Deferred revenues			2,559				1,202				3,859
Accrued expenses and other accounts payables			20,378				8,648				10,725
Total current liabilities			129,754				70,485				87,271
LONG-TERM LIABILITIES:
Warranty obligations			64,026				44,759				37,078
Deferred revenues			31,453				18,660				14,684
Lease incentive obligation			1,765				2,061				2,297
Non-current tax liabilities			16,840				-				-
Total long-term liabilities			114,084				65,480				54,059
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS’ EQUITY:
Share capital
Common stock of $0.0001 par value - Authorized: 125,000,000 shares as of December 31, 2017,  2016, and June 30, 2016; issued and outstanding: 43,812,601, 41,259,391, 40,889,922 shares  as of December 31, 2017 , 2016 and June 30, 2016, respectively.			4				4				4
Additional paid-in capital			331,902				307,098				299,214
Accumulated other comprehensive income (loss)			(611	)			(324	)			271
Retained earnings (Accumulated deficit)			66,172				(18,000	)			(43,381	)
Total stockholders’ equity			397,467				288,778				256,108
Total liabilities and stockholders’ equity		$	641,305			$	424,743			$	397,438

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

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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

		Year ended December 31,
		2019				2018				2017
Revenues		$	1,425,660			$	937,237			$	607,045
Cost of revenues			946,322				618,001				392,279
Gross profit			479,338				319,236				214,766
Operating expenses:
Research and development			121,351				82,245				54,966
Sales and marketing			87,984				68,307				50,032
General and administrative			49,361				29,264				18,682
Other operating expenses			30,696				-				-
Total operating expenses			289,392				179,816				123,680
Operating income			189,946				139,420				91,086
Financial expenses (income), net			11,343				2,297				(9,158	)
Income before income taxes			178,603				137,123				100,244
Income taxes			33,646				9,077				16,072
Net income		$	144,957			$	128,046			$	84,172
Net loss attributable to Non-controlling interests			1,592				787				-
Net income attributable to SolarEdge Technologies, Inc.		$	146,549			$	128,833			$	84,172
Net basic earnings per share of common stock attributable to SolarEdge Technologies, Inc.		$	3.06			$	2.85			$	1.99
Net diluted earnings per share of common stock attributable to SolarEdge Technologies, Inc.		$	2.90			$	2.69			$	1.85
Weighted average number of shares used in computing net basic earnings per share of common stock			47,918,938				45,235,310				42,209,238
Weighted average number of shares used in computing net diluted earnings per share of common stock			50,195,661				47,980,002				45,425,307

CONSOLIDATED STATEMENTS OF OPERATIONS

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

		Year ended December 31,				Six months ended December 31,				Year ended June 30,
		2017				2016				2016				2015
Revenues		$	607,045			$	239,997			$	489,843			$	325,078
Cost of revenues			392,279				159,097				337,887				243,295
Gross profit			214,766				80,900				151,956				81,783
Operating expenses:
Research and development, net			54,966				20,279				33,231				22,018
Sales and marketing			50,032				20,444				34,833				24,973
General and administrative			18,682				6,790				12,133				6,535
Total operating expenses			123,680				47,513				80,197				53,526
Operating income			91,086				33,387				71,759				28,257
Other expenses			-				-				-				104
Financial income (expenses), net			9,158				(2,789	)			471				(5,077	)
Income before taxes on income			100,244				30,598				72,230				23,076
Taxes on income (tax benefit)			16,072				5,217				(4,379	)			1,955
Net income		$	84,172			$	25,381			$	76,609			$	21,121
Net basic earnings per share of common stock		$	1.99			$	0.62			$	1.92			$	0.30
Net diluted earnings per share of common stock		$	1.85			$	0.58			$	1.73			$	0.27
Weighted average number of shares used in computing net basic earnings per share of common stock			42,209,238				41,026,926				39,987,935				11,902,911
Weighted average number of shares used in computing net diluted earnings per share of common stock			45,425,307				43,839,342				44,376,075				15,269,448

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

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
U.S. dollars in thousands (except share and per share data)
		Year ended December 31,
		2019				2018				2017
Net income		$	144,957			$	128,046			$	84,172
Other comprehensive income (loss):
Available-for-sale securities:
Changes in unrealized gains (losses), net of tax			829				(360	)			(297	)
Reclassification adjustments for losses included in net income			91				137				-
Net change			920				(223	)			(297	)
Cash flow hedges:
Changes in unrealized gains, net of tax			-				31				975
Reclassification adjustments for gains, net of tax included in net income			-				(31	)			(994	)
Net change			-				-				(19	)
Foreign currency translation adjustments, net			(2,205	)			310				29
Total other comprehensive income (loss)			(1,285	)			87				(287	)
Comprehensive income		$	143,672			$	128,133			$	83,885
Comprehensive loss attributable to Non-controlling interests			981				150				-
Comprehensive income attributable to SolarEdge Technologies, Inc.		$	144,653			$	127,983			$	83,885

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

		Year ended December 31,				Six months ended December 31,				Year ended June 30,
		2017				2016				2016				2015
Net income		$	84,172			$	25,381			$	76,609			$	21,121
Other comprehensive income (loss):
Available-for-sale securities:
Changes in unrealized gains, net of tax benefit			(297	)			(193	)			56				-
Reclassification adjustments for losses included in net income			-				-				1				-
Net change			(297	)			(193	)			57				-
Cash flow hedges:
Changes in unrealized gains, net of tax expense			975				93				412				-
Reclassification adjustments for gains, net of tax expense included in net income			(994	)			(317	)			(169	)			-
Net change			(19	)			(224	)			243				-
Foreign currency translation adjustments, net			29				(178	)			193				(161	)
Total other comprehensive income (loss)			(287	)			(595	)			493				(161	)
Comprehensive income		$	83,885			$	24,786			$	77,102			$	20,960

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

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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 (Accumulated Deficit)				Total				Non- controlling interests				Total stockholders’ equity
		Number		Amount
Balance as of December 31, 2016		41,259,391		$	4		$	307,098			$	(324	)		$	(18,000	)		$	288,778			$	-			$	288,778
Issuance of Common Stock upon exercise of employee and non-employees stock-based awards		2,368,152			* -			4,854				-				-				4,854				-				4,854
Issuance of Common stock under employee stock purchase plan		185,058			* -			2,386				-				-				2,386				-				2,386
Equity based compensation expenses to employees and nonemployees		-			-			17,564				-				-				17,564				-				17,564
Other comprehensive loss adjustments		-			-			-				(287	)			-				(287	)			-				(287	)
Net income		-			-			-				-				84,172				84,172				-				84,172
Balance as of December 31, 2017		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		2,122,932			1			6,333				-				-				6,334				-				6,334
Issuance of Common stock under employee stock purchase plan		117,269			* -			3,687				-				-				3,687				-				3,687
Equity based compensation expenses to employees and nonemployees		-			-			30,618				-				-				30,618				-				30,618
Non-controlling interests related to business combination		-			-			-				-				-				-				22,159				22,159
Change in non-controlling interests		-			-			(746	)			-				-				(746	)			(13,204	)			(13,950	)
Other comprehensive loss adjustments		-			-			-				87				-				87				150				237
Net income		-			-			-				-				128,833				128,833				(787	)			128,046
Balance as of December 31, 2018		46,052,802		$	5		$	371,794			$	(524	)		$	191,133			$	562,408			$	8,318			$	570,726

*	Represents an amount less than $1.

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Cont.)

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

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		SolarEdge Technologies, Inc. Stockholders’ Equity
		Common stock					Additional paid in Capital				Accumulated Other comprehensive Income (loss)				Retained earnings (Accumulated Deficit)				Total				Non- controlling interests				Total stockholders’ equity
		Number		Amount
Balance as of December 31, 2018		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		1,691,896			* -			3,498				-				-				3,498				-				3,498
Issuance of Common stock under employee stock purchase plan		142,713			* -			5,568				-				-				5,568				-				5,568
Equity based compensation expenses to employees and nonemployees		-			-			60,353				-				-				60,353				-				60,353
Treasury Stock		(183,395	)		* -			(2	)			-				-				(2	)			-				(2	)
Issuance of Common stock upon business combination		1,194,046			* -			34,601				-				-				34,601				-				34,601
Non-controlling interests related to business combination		-			-			-				-				-				-				67,734				67,734
Change in non-controlling interests		-			-			(20	)			-				-				(20	)			(73,479	)			(73,499	)
Other comprehensive loss adjustments		-			-			-				(1,285	)			-				(1,285	)			(981	)			(2,266	)
Net income		-			-			-				-				146,549				146,549				(1,592	)			144,957
Balance as of December 31, 2019		48,898,062		$	5		$	475,792			$	(1,809	)		$	337,682			$	811,670			$	-			$	811,670

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

*	Represents an amount less than $1.

		Convertible Preferred stock								Common stock								Additional paid in Capital				Accumulated other comprehensive Income (loss)				Retained earnings (Accumulated Deficit)				Total stockholders’ equity
		Number				Amount				Number				Amount
Balance as of June 30, 2014			75,422,773			$	116,203				2,809,950			$	* -			$	5,878			$	(61	)		$	(141,111	)		$	(135,294	)
Issuance of Common Stock upon exercise of employee stock options			-				-				34,898				* -				84				-				-				84
Issuance of Series E Convertible Preferred stock, net of issuance expenses in the amount of $288			9,321,019				24,712				-				-				-				-				-				-
Equity based compensation expenses to employees and non-employee consultants			-				-				-				-				2,956				-				-				2,956
Conversion of convertible preferred stock into ordinary shares			(84,743,792	)			(140,915	)			28,247,923				3				140,912				-				-				140,915
Issuance of common stock in initial public offering, net of issuance expenses in an amount of $13,692			-				-				8,050,000				1				131,207				-				-				131,208
Exercise of warrants into common stock			-				-				154,768				* -				6,115				-				-				6,115
Change in accumulated other comprehensive loss related to foreign currency translation adjustments			-				-				-				-				-				(161	)			-				(161	)
Net income			-				-				-				-				-				-				21,121				21,121
Balance as of June 30, 2015			-			$	-				39,297,539			$	4			$	287,152			$	(222	)		$	(119,990	)		$	166,944

*          Represents an amount less than $1.

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

F - 8

12

---

---

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

		Year ended December 31,
		2019				2018				2017
Cash flows provided by operating activities:
Net income		$	144,957			$	128,046			$	84,172
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment			17,261				11,426				7,011
Amortization of intangible assets			9,634				1,193				144
Amortization of premium and accretion of discount on available-for-sale marketable securities, net			92				1,242				2,061
Stock-based compensation expenses			60,353				30,618				17,564
Deferred income tax benefit, net			(6,037	)			(7,093	)			(5,455	)
Loss from sale of business			5,269				-				-
Other expenses (income), net			713				551				(994	)
Changes in assets and liabilities:
Inventories, net			(22,544	)			(20,178	)			(15,690	)
Prepaid expenses and other assets			(67,323	)			(2,711	)			(20,943	)
Trade receivables, net			(124,071	)			(60,514	)			(38,139	)
Operating lease right-of-use assets and liabilities, net and effect of exchange rate differences			2,192				-				-
Trade payables, net			47,837				31,482				35,455
Employees and payroll accruals			18,592				4,583				9,394
Warranty obligations			50,780				41,878				20,436
Deferred revenues			83,137				37,041				14,106
Other liabilities			38,158				(8,485	)			27,543
Net cash provided by operating activities			259,000				189,079				136,665
Cash flows from investing activities:
Business combinations, net of cash acquired			(38,435	)			(94,737	)			-
Purchase of property, plant and equipment			(72,562	)			(38,608	)			(21,382	)
Withdrawal from (investment in) bank deposits			4,860				(9,870	)			-
Investment in restricted bank deposits			(26,145	)			(112	)			(619	)
Investment in available-for-sale marketable securities			(160,054	)			(142,627	)			(143,675	)
Proceed from sales and maturities of available-for-sale marketable securities			142,744				129,345				80,269
Other investing activities			(3,261	)			-				-
Net cash used in investing activities		$	(152,853	)		$	(156,609	)		$	(85,407	)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Cont.)

---

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

		Convertible Preferred stock								Common stock								Additional paid in Capital				Accumulated Other comprehensive Income (loss)				Retained earnings (Accumulated Deficit)				Total stockholders’ equity
		Number				Amount				Number				Amount
Balance as of June 30, 2015			-			$	-				39,297,539			$	4			$	287,152			$	(222	)		$	(119,990	)		$	166,944
Issuance of Common Stock upon exercise of employee and non-employees stock-based awards			-				-				1,592,383				* -				2,973				-				-				2,973
Equity based compensation expenses to employees and non-employee consultants			-				-				-				-				9,089				-				-				9,089
Other comprehensive income adjustments			-				-				-				-				-				493				-				493
Net income			-				-				-				-				-				-				76,609				76,609
Balance as of June 30, 2016			-			$	-				40,889,922			$	4			$	299,214			$	271			$	(43,381	)		$	256,108
Issuance of Common Stock upon exercise of employee and non-employees stock-based awards			-				-				286,150				* -				349				-				-				349
Issuance of Common stock under employee stock purchase plan			-				-				83,319				* -				935				-				-				935
Equity based compensation expenses to employees and non-employee consultants			-				-				-				-				6,600				-				-				6,600
Other comprehensive loss adjustments			-				-				-				-				-				(595	)			-				(595	)
Net income			-				-				-				-				-				-				25,381				25,381
Balance as of December 31, 2016			-			$	-				41,259,391			$	4			$	307,098			$	(324	)		$	(18,000	)		$	288,778
Issuance of Common Stock upon exercise of employee and non-employees stock-based awards			-				-				2,368,152				* -				4,854				-				-				4,854
Issuance of Common stock under employee stock purchase plan			-				-				185,058				* -				2,386				-				-				2,386
Equity based compensation expenses to employees and non-employee consultants			-				-				-				-				17,564				-				-				17,564
Other comprehensive loss adjustments			-				-				-				-				-				(287	)			-				(287	)
Net income			-				-				-				-				-				-				84,172				84,172
Balance as of December 31, 2017			-			$	-				43,812,601			$	4			$	331,902			$	(611	)		$	66,172			$	397,467

*          Represents an amount less than $1.

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

F - 9

13

---

---

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.)

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

		Year ended December 31,
		2019				2018				2017
Cash flows from financing activities:
Repayment of bank loans, net		$	(9,265	)		$	(3,786	)		$	-
Proceeds from issuance of shares under stock purchase plan and upon exercise of stock-based awards			9,066				10,021				7,240
Change in non-controlling interests			(71,468	)			(14,190	)			-
Other financing activities			(1,354	)			-				-
Net cash provided (used in) by financing activities			(73,021	)			(7,955	)			7,240
Increase in cash and cash equivalents			33,126				24,515				58,498
Cash and cash equivalents at the beginning of the period			187,764				163,163				104,683
Effect of exchange rate differences on cash and cash equivalents			3,011				86				(18	)
Cash and cash equivalents at the end of the period		$	223,901			$	187,764			$	163,163
Supplemental disclosure of non-cash activities:
Operating lease, right of use assets		$	37,298			$	-			$	-
Issuance of common stock upon business combination		$	34,601			$	-			$	-
Goodwill		$	3,067			$	-			$	-
Supplemental disclosure of cash flow information:
Cash paid for income taxes		$	41,076			$	15,368			$	3,100
Cash paid for interest on bank loans		$	1,096			$	143			$	-

CONSOLIDATED STATEMENTS OF CASH FLOWS

---

U.S. dollars in thousands

		Year ended December 31,				Six months ended December 31,				Year ended June 30,
		2017				2016				2016				2015
Cash flows provided by operating activities:
Net income		$	84,172			$	25,381			$	76,609			$	21,121
Adjustments to reconcile net income to net cash provided by  operating activities:
Depreciation and amortization of property, equipment and intangible assets			7,155				2,759				3,847				2,253
Amortization of premium and accretion of discount on available-for-sale marketable securities			2,061				681				532				-
Stock-based compensation			17,564				6,600				9,089				2,956
Financial income, net related to term loan			-				-				-				(992	)
Remeasurement of warrants to purchase convertible preferred stock			-				-				-				5,350
Capital loss from disposal of property			-				-				-				104
Changes in assets and liabilities:
Inventories			(15,690	)			14,022				(7,356	)			(48,507	)
Prepaid expenses and other accounts receivable			(21,937	)			(367	)			10,542				(19,563	)
Trade receivables, net			(38,139	)			1,555				(37,271	)			(16,333	)
Deferred tax assets, net			(5,455	)			3,652				(6,380	)			-
Trade payables			35,455				(14,464	)			(32,200	)			41,111
Employees and payroll accruals			9,394				2,996				3,278				1,668
Warranty obligations			20,436				7,183				19,313				13,698
Deferred revenues			14,106				1,335				8,578				3,989
Accrued expenses, other accounts payable and non-current tax liabilities			27,839				(1,999	)			3,934				2,530
Lease incentive obligation			(296	)			(236	)			(88	)			2,669
Net cash provided by operating activities			136,665				49,098				52,427				12,054
Cash flows from investing activities:
Purchase of property and equipment			(21,382	)			(11,025	)			(15,690	)			(11,765	)
Purchase of intangible assets			-				(600	)			(800	)			-
Decrease (increase) in restricted cash			(619	)			31				2,711				(2,038	)
Decrease (increase) in long-term lease deposit			-				(77	)			103				(134	)
Investment in available-for-sale marketable securities			(143,675	)			(40,858	)			(118,511	)			-
Maturities of available-for-sale marketable securities			80,269				32,782				6,350				-
Net cash used in investing activities		$	(85,407	)		$	(19,747	)		$	(125,837	)		$	(13,937	)

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

F - 10

14

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SOLAREDGE TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.)

---

U.S. dollars in thousands

		Year ended December 31,				Six months ended December 31,				Year ended June 30,
		2017				2016				2016				2015
Cash flows from financing activities:
Proceeds from short term bank loan			-				-				-				23,000
Repayment of short term bank loan			-				-				-				(36,326	)
Repayments of term loan			-				-				-				(5,919	)
Proceeds from issuance of Series E Convertible Preferred stock, net			-				-				-				24,712
Proceeds from initial public offering, net			-				-				-				131,402
Issuance costs related to initial public offering			-				-				(194	)			-
Proceeds from issuance of shares under stock purchase plan and upon exercise of stock-based awards			7,240				1,284				2,973				84
Net cash provided by financing activities			7,240				1,284				2,779				136,953
Increase (decrease) in cash and cash equivalents			58,498				30,635				(70,631	)			135,070
Cash and cash equivalents at the beginning of the period			104,683				74,032				144,750				9,754
Effect of exchange rate differences on cash and cash equivalents			(18	)			16				(87	)			(74	)
Cash and cash equivalents at the end of the period		$	163,163			$	104,683			$	74,032			$	144,750
Supplemental disclosure of non-cash investing and financing activities:
Net change in accrued expenses and other accounts payable related to property and equipment additions		$	598			$	-			$	1,187			$	-
Deferred issuance costs related to initial public offering		$	-			$	-			$	-			$	194
Cashless exercise of warrants to purchase common stock		$	-			$	-			$	-			$	6,115
Supplemental disclosure of cash flow information:
Cash paid for interest		$	-			$	-			$	-			$	896
Cash paid for income taxes		$	3,100			$	1,103			$	1,178			$	4,040

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

F - 11

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands except(except 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 output from each and every module through constant tracking of Maximum Power Point individually per module; (ii) inverters which convert 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. In addition, the Company offers several communication and smart energy management solutions.

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 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”).

b.

Basis of presentation:

Effective December 31, 2016,

In 2018, the Company changed its fiscal year end from June 30 to December 31. This change was made in order to aligncompleted the Company’s fiscal year end with other companies within the industry. As a resultacquisitions of this change, the consolidated financial statements include presentationsubstantially all of the six month transition period from July 1, 2016assets 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 (together, the “Gamatronic Acquisition”). Together, this activity is referred to as the UPS division which provides and manufactures 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 were traded on the Korean OTC market, a provider of Lithium-ion cells, batteries and energy storage solutions. Since the Kokam acquisition date through December 31, 2016. 2019, the Company has increased its shareholdings in Kokam to 100%.

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 (“e-Mobility”). Between January 24, 2019 and December 31, 2019, the Company increased its shareholdings in SMRE to 99.9% (see Note 3).

The Company refers to the period beginning July 1, 2015organizes its operations into five operating segments: solar, UPS, energy storage, e-Mobility and ending June 30, 2016 as “fiscal 2016” and the period beginning July 1, 2014 and ending June 30, 2015 as “fiscal 2015”.

c.

Initial Public Offering:

On March 31, 2015, the Company closed its initial public offering (“IPO”) whereby 8,050,000 shares of common stock were sold by the Company to the public (inclusive of 1,050,000 shares of common stock pursuant to the full exercise of an overallotment option granted to the underwriters). The aggregate net proceeds received by the Company from the offering were approximately $131,208, net of underwriting discounts and commissions and offering expenses. Upon the closing of the IPO, all shares of the Company’s outstanding convertible preferred stock automatically converted into 28,247,923 shares of common stock, and outstanding warrants to purchase convertible preferred stock automatically converted into warrants to purchase 187,671 shares of common stock (Seemachinery (see Note 10)22).

F - 12

15

---

---

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands except(except share data

NOTE 1:-

GENERAL (Cont.)

d.

For the year ended December 31, 2017 and the six months ended December 31, 2016, the Company had one major customer (customer with attributable revenues that represents more than 10% of total revenues) that accounted for approximately 14.8% and 11.2% of the Company’s consolidated revenues, respectively (see Note 20), and for the years ended June 30, 2016 and 2015, the Company had three and one major customers that accounted for approximately 32.5% and 24.6% of the Company’s consolidated revenues, respectively (see Note 20).

e.

The Company depends on three contract manufacturers and several limited or single source component suppliers. Reliance on these vendors makes the Company vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields, and costs.

These contract manufacturers collectively accounted for 51.6%, 61% and 69% of the Company’s total trade payables as of December 31, 2017, 2016 and June 30, 2016, respectively.

The Company has the right to offset its payables to one of its contract manufacturers against vendor non-trade receivables. As of December 31, 2017, a total of $3,180 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 Consolidated Balance Sheets.

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES

per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements are prepared according to United States generally accepted accounting principles (“U.S. GAAP”).

a.

Principles of consolidation:

a.Principles of consolidation:

The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances including profitsprofit from intercompany sales not yet realized outside the Company have been eliminated upon consolidation.

F - 13

---

SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

b.

Use of estimates:

b.Use of estimates:

The preparation of financial statements, in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company evaluates its assumptions on an ongoing basis, including those related to warranty obligation, inventory valuation, contingencies,  share-based compensation cost, marketable securities, deferred tax assets and liabilities, intangible assets and estimates used in applying the revenue recognition policy.basis. The Company’s management believes that the estimates, judgment, and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

c.

Financial statements in U.S. dollars:

c.Financial statements in U.S. dollars:

A major part of the Company’s operations is carried out in the United States, Israel and certain other countries. The functional currency of the Company and its subsidiaries (with the exception of Germany, Australia, and Japan)these entities is the U.S. dollar, as the U.S. dollar is the currency of the primary economic environment in which the Company has operated and expects to continue to operate in the foreseeable future. Currently, the operations of these subsidiaries and the Company are primarily conducted in Israel, and a significant portion of its expenses are paid in U.S. dollars. dollar.

Financing activities, including loans and cash investments are primarily made in U.S. dollars.

Accordingly, monetary accounts maintained in currencies other than the U.S. dollar are translated into U.S. dollars in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) No. 830 (“Foreign“Foreign Currency Matters”). All transaction gains and losses of the re-measurement of monetary balance sheet items are reflected in the statements of operationsincome as financial income or expenses, as appropriate.

The financial statements of other Company’s subsidiaries whose functional currency is other than the U.S. dollar have been translated into U.S dollars. Assets and liabilities have been translated using the exchange rates in effect onas of the balance sheet date. Statements of operationsincome amounts have been translated using the average exchange rate for the relevant periods.

The resulting translation adjustments are reported as a component of stockholders’ equity in accumulated other comprehensive income.

loss.

Accumulated other comprehensive lossgains (losses) related to foreign currency translation adjustments, net amounted to $178, $207,$(2,073) and $29$132 as of December 31, 20172019 and 2016, and June 30, 2016,2018, respectively.

F - 14

16

---

---

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

d.

Basic and Diluted Net Earnings Per Share:

Basic net earnings per share is computed by dividing the net earnings 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 and convertible preferred stock, to the extent dilutive, all in accordance with ASC No. 260, "Earnings Per Share."

The total weighted average number of shares related to the outstanding stock options, convertible preferred stock and warrants to purchase convertible preferred stock, excluded from the calculation of diluted net earnings per share due to their anti-dilutive effect was  197,516, 374,156, 16,208, and 20,565,747 for the year ended December 31, 2017, the six months ended December 31, 2016 and the years ended June 30, 2016 and 2015, respectively.

Basic and diluted earnings per share is presented in conformity with the two-class method for participating securities for the periods prior to their conversion. Under this method, the earnings per share for each class of shares are calculated assuming 100% of the Company’s earnings are distributed as dividends to each class of shares based on their contractual rights.

F - 15

---

SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The following table presents the computation of basic and diluted net earnings per share for the periods presented (in thousands, except(except share and per share data):

		Year ended				Six months Ended				Year ended June 30,
		December 31, 2017				December 31, 2016				2016				2015
Net basic earnings (loss) per share of common stock:
Numerator:
Net income		$	84,172			$	25,381			$	76,609			$	21,121
Dividends accumulated for the period			-				-				-				(17,550	)
Net income available to shareholders of common stock			84,172				25,381				76,609				3,571
Denominator:
Shares used in computing net earnings  per share of common stock, basic			42,209,238				41,026,926				39,987,935				11,902,911
Net diluted earnings per share of common stock:
Numerator:
Net income			84,172				25,381				76,609				21,121
Dividends accumulated for the period			-				-				-				(16,971	)
Net income available to shareholders of common stock			84,172				25,381				76,609				4,150
Denominator:
Shares used in computing net earnings per share of common stock, basic			42,209,238				41,026,926				39,987,935				11,902,911
Effect of stock-based awards			3,216,069				2,812,416				4,388,140				3,366,537
Shares used in computing net earnings per share of common stock, diluted			45,425,307				43,839,342				44,376,075				15,269,448
Basic net income per share		$	1.99			$	0.62			$	1.92			$	0.30
Diluted net income per share		$	1.85			$	0.58			$	1.73			$	0.27

F

NOTE 2:- 16

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

e.

Cash and cash equivalents:

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

d.Cash and cash equivalents:

Cash equivalents are short-term, highly liquid investments that are readily convertible to cash, with original maturities of three months or less at the date acquired.

f.

Marketable Securities:

e.Short-term bank deposits:

Short-term bank deposits are deposits with an original maturity of more than three months and less than a year from the date of investment and which do not meet the definition of cash equivalents. The deposits are presented according to their term deposits.

f.Restricted bank deposits:

Restricted bank deposits are primarily invested in short-term bank deposits, with an original maturity of more than three months and less than a year from the date of investment and which are primarily used as collateral for a letter of credit for the Company’s customers and security for the Company’s office leases and credit cards.

g.Marketable Securities:

Marketable securities consist of corporate and governmental bonds. The Company determines the appropriate classification of marketable securities at the time of purchase and re-evaluates such designation at each balance sheet date. In accordance with FASB ASC No. 320 “Investments - Debt and Equity Securities”, the Company classifies marketable securities as available-for-sale.

Available-for-sale securities are stated at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), a separate component of stockholders’ equity, net of taxes.

Realized gains and losses on sales of marketable securities, as determined on a specific identification basis, are included in financial income (expenses), net. The amortized cost of marketable securities is adjusted for amortization of premium and accretion of discount to maturity, both of which, together with interest, are included in financial income (expenses), net.

The Company classifies its marketable debt securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Marketable debt securities with maturities of 12 months or less are classified as short-term and marketable debt securities with maturities greater than 12 months are classified as long-term.

F - 17

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The Company recognizes an impairment charge when a decline in the fair value of its investments in debt securities below the cost basis of such securities is judged to be other-than-temporary. Factors considered in making such a determination include the duration and severity of the impairment, the reason for the decline in value, the potential recovery period, and the Company’s intent to sell, including whether it is more likely than not that the Company will be required to sell the investment before recovery of cost basis. If the Company does not intend to sell the security or it is not more likely than not that it will be required to sell the security before it recovers in value, the Company must estimate the net present value of cash flows expected to be collected. If the amortized cost exceeds the net present value of cash flows, such excess is considered a credit loss and an other-than-temporary impairment (“OTTI”) has occurred.

For securities that are deemed other-than-temporarily impaired (“OTTI”),OTTI, the amount of impairment is recognized in the statement of operationsincome and is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income (loss).

The Company did not recognize OTTI on its marketable securities during the yearyears ended December 31, 2017, the six months ended December 31, 2016,2019, 2018, and the years ended June 30, 2016 and 2015.

F - 17

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

g.

Restricted cash:

Restricted cash is primarily invested in short-term bank deposits, which are primarily used to guarantee a letter of credit which has been issued to one of the Company’s major vendors, to the Company’s landlords for its office leases, and as security for the Company’s credit cards.

h.

Inventories:

2017.

h.Inventories:

Inventories are stated at the lower of cost or marketnet realizable value. Cost includes depreciation, labor, material and overhead costs. Inventory reserves are provided to cover risks arising from slow-moving items or technological obsolescence.

The Company periodically evaluates the quantities on hand relative to historical, current, and projected sales volume. Based on this evaluation, an impairment charge is recorded when required to write-down inventory to its marketnet realizable value. Cost of finished goods and raw materials is determined using the moving average cost method.

i.

Property, equipment, and intangible assets:

i.Property, plant and equipment:

Property, plant and equipment are stated at cost, net of accumulated depreciation. Machinery &and equipment in progress isrepresent the construction or development stage of property and equipment that have not yet been placed in service for the Company's intended use. Depreciation is calculated by the straight-line method over the estimated useful liveslive of the assets, at the following rates:

F - 18

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

		%
Buildings and plants		2 – 5 (mainly 2.5)
Computers and peripheral equipment		15 20 – 33 (mainly 33)
Office furniture and equipment		7 – 25 (mainly 7)
Machinery &and equipment		7 – 33 (mainly 10)
Laboratory and testing equipment		10 – 20 (mainly 10)15)
Laboratory equipment		15 – 25 (mainly 15)
Vehicles		15
Leasehold improvements		over the shorter of the lease term or useful economic life

j.Leases:

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and operating lease liabilities in the Company’s consolidated balance sheets. Finance leases are included in property, plant and equipment, net, other current liabilities, and other long-term liabilities in the Company’s consolidated balance sheets.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

The Company uses incremental borrowing rates based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expenses for lease payments are recognized on a straight-line basis over the lease term.

k.Business Combination:

The Company allocates the fair value of the purchase price to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair value. The excess of the fair value of the purchase price 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 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 does not 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 finalization of the measurement period, any subsequent adjustments are recorded to earnings.

F - 19

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

l.Intangible assets:

IntangibleAssets:

The Company evaluates the recoverability of finite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable.

The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these group of assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the group of assets is expected to generate.

If such review indicates that the carrying amount of intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. The Company has not recorded any impairment charges of finite-lived intangible assets during the years ended December 31, 2019 and 2018.

Acquired identifiable finite-lived intangible assets are stated at cost, net of accumulated amortization. Amortization is calculated by theamortized on a straight-line basis or accelerated method over the estimated useful lives of the assets. The basis of amortization approximates the pattern in which the assets are utilized, over their estimated useful lives. The Company routinely reviews the remaining estimated useful lives of finite-lived intangible assets. In case the Company reduces the estimated useful life for any asset, the remaining unamortized balance is amortized or depreciated over the revised estimated useful life (see Note 7)9).

m.Goodwill:

Goodwill reflects the excess of the consideration transferred, including the fair value of any contingent consideration and any non-controlling interest in the acquiree, over the assigned fair values of the identifiable net assets acquired. Goodwill is not amortized, and is assigned to reporting units and tested for impairment at least on an annual basis, in the fourth quarter of the fiscal year.

The goodwill impairment test is performed according to the following principles:

(1) An initial qualitative assessment may be performed to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount.

(2) If the Company concludes it is more likely than not that the fair value of the reporting unit is less than its carrying mount, a quantitative fair value test is performed. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value is recognized.

The Company has not recorded any impairment charges of goodwill during the years ended December 31, 2019 and 2018.

F - 18

20

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands except(except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

j.

Impairment of long-lived assets:

and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

n.Impairment of long-lived assets:

The Company’s long-lived assets to be held or used, including right-of-use assets and intangible assets that are subject to amortization, are reviewed for impairment in accordance with ASC 360 (“Property,“Property, Plants and Equipment”), whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset (or asset group) to the future undiscounted cash flows expected to be generated by the assets (or asset group).

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. For the yearyears ended December 31, 2017, the six months ended December 31, 2016,2019, 2018 and the years ended June 30, 2016 and 2015,2017, no impairment losses have been identified.

k.          

o.Severance pay:

Pursuant to Israel’s Severance Pay Law, Israeli employees are entitled to severance pay equal to one month’s salary for each year of employment, or a portion thereof.

The employees of the Company’s Israeli subsidiary have elected to beare included under sectionSection 14 of the Severance Pay Law, 1963, under which these employees are entitled only to monthly deposits made in their name with insurance companies, at a rate of 8.33% of their monthly salary. These payments cause the Company to be released from any future obligation under the Israeli Severance Pay Law to make severance payments in respect of those employees; therefore, related assets and liabilities are not presented in the consolidated balance sheet.

sheets.

For the yearyears ended December 31, 2017, the six months ended December 31, 2016,2019, 2018 and the years ended June 30, 2016 and 2015,2017, the Company recorded $7,285, $4,331, $2,995, $1,131, $1,761, and $1,273 in severance expenses respectively.

l.

Revenue recognition:

The Company andrelated to its subsidiaries generate their revenues mainly from the sale of power optimizers, inverters, and cloud-based monitoring services to distributors, installers and PV module manufacturers.

employees, respectively.

p.Revenue recognition:

Revenues from product sales and related services are recognized in accordance with ASC 605 (“Revenue Recognition”)606, revenue from contracts with customers when persuasive evidencecontrol of the promised goods or services is transferred to the customers, in an arrangement exists, delivery has occurred,amount that the sellingCompany expects in exchange for those goods or services.

The Company’s products consist mainly of (i) power optimizers, (ii) inverters, (iii) a related cloud-based monitoring platform, (iv) a storage solution, (v) UPS units (vi) Lithium-ion cells, batteries and energy storage solutions (vii) powertrains solutions for the e-Mobility segment and (viii) machinery for manufacturing lines.

The Company recognizes revenue under the core principle that transfer of control to the Company’s customers should be depicted in an amount reflecting the consideration the Company expects to receive in revenue. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when the performance obligation is fixed or determinable, collectability is reasonably assured, and no significant obligations remain.

satisfied.

F - 19

21

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands except(except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Persuasive evidence ofand per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

(1) Identify the contract with a customer

A contract is an arrangement exists. The Company’s customers mainly consist of distributorsagreement between two or more parties that creates enforceable rights and installers (the “Customers”).  The Company’s sales arrangements with Customers are pursuant to written documentation, either by a writtenobligations. In evaluating the contract, or purchase order. The actual documentation used is dependent on the business practice with each Customer. Therefore, the Company determines that persuasive evidenceanalyzes the customer’s intent and ability to pay the amount of an arrangement exists with respect to a Customer when it has a written contract or a binding purchase order frompromised consideration (credit risk) and considers the Customer.

Delivery has occurred. Each itemprobability of written documentation relating to a sale arrangement that is agreed upon with the Customer specifically sets forth when risk  of loss and title are being transferred (based on the agreed International Commercial terms, or “INCOTERMS”). Unless a different written arrangement with the Customer exists, the Company determines that risk of loss and title are transferred to the Customer when the applicable INCOTERMS are satisfied and thus delivery of its products has occurred.

The fee is fixed or determinable. The Company does not provide any price protection, stock rotation, and/or right of return, and thus the Company considerscollecting substantially all the Customers as end-users and the fee is considered fixed and determinable upon execution of the written documentation with the Customers.

Additionally, payments that are due within the normal course of the Company’s credit terms, which are currently no more than three months from the delivery date, are deemed to be fixed and determinable. Fees and arrangements with payment terms extending beyond customary payment terms are considered not to be fixed or determinable, in which case revenues are deferred and recognized when payments become due, provided that all other revenue recognition criteria have been met.

Collectability is reasonably assured. consideration.

The Company determines whether collectability is reasonably assured on a Customer-by-Customercustomer-by-customer basis pursuant to its credit review policy.

The Company typically sells to Customerscustomers with whom it has a long-term business relationship and a history of successful collection. For a new Customer,customer, or when an existing Customercustomer substantially expands its commitments, the Company evaluates the Customer’scustomer’s financial position, the number of years the Customercustomer has been in business, the history of collection with the Customer,customer, and the Customer’scustomer’s ability to pay, and typically assigns a credit limit based on that review.

(2) Identify the performance obligations in the contract

At a contract’s inception, the Company assesses the goods or services promised in a contract with a customer and identifies the performance obligations.

The main performance obligations are the provisions of the following: delivery of the Company’s products; cloud based monitoring services; extended warranty services and communication services.

(3) Determine the transaction price

The transaction price is the amount of consideration to which the Company is entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

Generally, the Company does not provide price protection, stock rotation, and/or right of return. The Company determines the transaction price for all satisfied and unsatisfied performance obligations identified in the contract from contract inception to the beginning of the earliest period presented.

Rebates or discounts on goods or services are accounted for as variable consideration. The rebate or discount program is applied retrospectively for future purchases. Provisions for rebates, sales incentives, and discounts to customers are accounted for as reductions in revenue in the same period the related sales are recorded.

The accrual for rebates is allocated to specific receivables. The Company increases a credit limit only after it has established a successful collection history with the Customer. The Company recognizes revenue under a particular arrangementaccrued $62,288 and $39,018 for rebates as Customer payments are actually received if it determines at any time that collectability is not reasonably assured under that arrangement based upon its credit review process, the Customer’s payment history, or information that comes to light about a Customer’s financial position. No material revenues were recognized by the Company under that arrangement.

of December 31, 2019 and 2018, respectively.

F - 20

22

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands except(except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

When a contract provides a customer with payment terms of more than a year, the Company considers whether those terms create variability in the transaction price and whether a significant financing component exists.

As of December 31, 2019, the Company has not provided payment terms of more than a year.

The performance obligations that extend for a period greater than one year are those that include a financial component: (i) warranty extension services, (ii) cloud-based monitoring, and (iii) communication services.

The Company recognizes financing component expenses in its consolidated statement of income in relation to advance payments for performance obligations that extend for a period greater than one year. These financing component expenses are reflected in the Company’s deferred revenues balance.

(4) Allocate the transaction price to the performance obligations in the contract

The Company performs an allocation of the transaction price to each separate performance obligation, in proportion to their relative standalone selling prices.

(5) Recognize revenue when a performance obligation is satisfied

Revenue is recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer. Control either transfers over time or at a point in time, which affects when revenue is recorded.

Revenues from sales of products are recognized when control is transferred (based on the agreed International Commercial terms, or “INCOTERMS”). Revenues related to warranty extension services, cloud-based monitoring, and communication services are recognized ratablyover time on a straight-line basis over the estimated service period.

For multiple-element arrangements, the Company allocates revenue to all deliverables based on their relative selling prices. In such circumstances, the Company uses a hierarchy to determine the selling price to be used for allocating revenue to deliverables: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”), and (iii) best estimate of the selling price (“ESP”).

VSOE generally exists only when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable. ESPs reflect the Company’s best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis. The Company has allocated revenue between its deliverables based on their relative selling prices. Because the Company has neither VSOE nor TPE for its deliverables, the allocation of revenue has been based on the Company’s ESPs. Amounts allocated to the delivered elements are recognized at the time of sale provided the other conditions for revenue recognition have been met.

The Company’s process for determining its ESP considers multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable.

Key factors considered by the Company in developing the ESPs for its products include prices charged by the Company for similar offerings, the Company’s historical pricing practices and product-specific business objectives.

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

F - 23

---

m.

Cost of revenues:

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

q.Cost of revenues:

Cost of revenues sold includes the following: product costs consisting of purchases from contract manufacturers and other suppliers, direct and indirect manufacturing costs, shipping and handling, costs, support, warranty expenses and changes in warranty provision, provision for losses related to slow moving and dead inventory, personnel and logistics costs, and royalty expense payments to the Israel Innovation Authority (“IIA”) (see Note 2p).

n.

Shipping and handling costs:

costs.

Shipping and handling costs, which amounted to $29,693, $8,131, $21,922,$113,635, $45,821 and $26,931$29,693, for the yearyears ended December 31, 2017, the six months ended December 31, 2016,2019, 2018 and the years ended June 30, 2016 and 2015,2017, respectively, are included in the cost of revenues in the consolidated statements of operations.income. Shipping and handling costs include all costs associated with the distribution of finished productsgoods from the Company’s point of sellingsale directly to its Customers.

F - 21

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

o.

Warranty obligations:

customers.

r.Warranty obligations:

The Company’sCompany provides a product warranty for its solar related products includeas follows: a 10-year limited warranty for StorEdge products, a minimumstandard 12-year limited warranty for inverters, and a 25-year limited warranty for power optimizers.

In certain cases, the Company provides an extended warrantieswarranty for inverters that bringincreases the warranty period for up to 25 years.

The Company maintains reserves to cover the expected costs that could result from these warranties.the standard warranty. The warranty liability is generally in the form of product replacement and associated costs. Warranty reserves are based on the Company’s best estimate of such costs and are included in cost of revenues. The reserve for the related warranty expenses is based on various factors including assumptions about the frequency of warranty claims on product failures, derived from results of accelerated lab testing, field monitoring, analysis of the history of product field failures, and the Company’s reliability estimates.

The Company has established a reliability measurement system based on the units’ estimated mean time between failure, or MTBF, a metric that equates to a steady-state failure rate per year for each product generation. The MTBF predicts the expected failure rate of each product within the Company's products installed base during the expected product warranted lifetime.

The Company performs accelerated life cycle testing, which simulates the service life of the product in a short period of time.

The accelerated life cycle tests incorporate test methodologies derived from standard tests used by solar module vendors to evaluate the period over which solar modules wear out. Corresponding replacement costs are updated periodically to reflect changes in the Company’s actual and estimated production costs for its products, rate of usage of refurbished units as a replacement of faulty units, and other costs related to logistic and subcontractorssubcontractors’ services associated with the replacement.replacement products.

F - 24

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

In addition, through the collection of actual field failure statistics, the Company has identified several additional failure causes that are not included in the MTBF calculations.model. Such causes, which mostly consist of design errors, workmanship errors caused during the manufacturing process and, to a lesser extent, replacement of non-faulty units by installers, areresult in generating additional replacement costs to the replacement costs projected under the MTBF model. The Company identified each of those causes, its failure pattern and the relative ratio compared to the pattern of malfunctions identified under the MTBF and accrued additional provisions for the occurrence of such malfunctioning.

For the major causes of  failures,other products, the Company evaluatesaccrues for warranty costs based on the continuationCompany’s best estimate of these occurrencesproduct and the appearance of potential additional malfunctioning cases beyond the MTBF pattern and accrues additional expenses accordingly.

associated costs. The Company’s other products are sold with a standard limited warranty that typically range in duration from one to ten years.

Warranty obligations are classified as short-term and long-term obligations based on the period in which the warranty is expected to be claimed.

F - 22

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

p.

Government grants:

Government grants received by the Company’s Israeli subsidiary relating to categories of operating expenditures are credited to the consolidated statements of operations during the period in which the expenditure to which they relate is charged. Royalty-bearing grants from the IIA for funding certain approved research

s.Research and development projects are recognized at the time when the Company’s Israeli subsidiary is entitled to such grants, on the basis of the related costs incurred, and are included as a deduction from research and development expenses.

The Company recorded grants in the amount of $763 for the year ended June 30, 2015,  which was deducted from research and development expenses.

No grants were recorded for the year ended December 31, 2017, the six months ended December 31, 2016, and for the year ended June 30, 2016.

q.

Research and development costs:

costs:

Research and development costs, net of grants received, are charged to the consolidated statement of operationsincome as incurred.

r.

Concentrations of credit risks:

t.Concentrations of credit risks:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term bank deposits, restricted cash,bank deposits, marketable securities, trade receivables and other accounts receivable, and marketable securities.

receivable.

Cash and cash equivalents, short-term bank deposits and restricted bank deposits are mainly invested in major banks in the U.S., Israel Australia, Japan, and Germany.Korea. Management believes that the financial institutions that hold the Company’s investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments.

The Company’s marketable securities consist of corporate and governmental bonds.

The Company's marketable securities include investments in highly-rated corporate debentures (mainly of U.S., UK, Canada, France, Canada,Australia, New Zealand and other countries) and governmental bonds. The financial institutions that hold the Company's marketable securities are major financial institutions located in the United States. Management believes that the Company's marketable securities portfolio is a diverse portfolio of highly-rated securities and the Company's investment policy limits the amount the Company may invest in each issuer, and accordingly, management believes that minimal credit risk exists from geographic or credit concentration with respect to these securities.

As of December 31, 2017, December 31, 2016, and June 30, 2016, the amortized cost of the Company’s marketable securities was $180,974, $118,950, and $111,514, respectively, and their stated market value was $180,384, $118,727, and $111,609, respectively, representing a net unrealized loss of $590, $223, and a net unrealized gain of $95, respectively.

F - 23

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The trade receivables of the Company are derivedderive from sales to Customerscustomers located primarily in North America, Europe, Korea and Australia.

F - 25

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The Company generally does not require collateral, however, in certain circumstances, the Company may require letters of credit, other collateral, or additional guarantees.

An allowance for doubtful accounts is determined with respect to specific debtsreceivables that are doubtful of collection. The Company accrued $128, $226,$2,473 and $235$427 as allowance for doubtful accounts as of December 31, 20172019 and 2016 and June 30, 2016,2018, respectively.

In addition, an accrual for rebates is allocated to specific debts.

The Company accrued $17,428, $9,089,had one major customer (customer with attributable revenues that represents more than 10% of total revenues) that accounted for approximately 20.4%, 19.4% and $4,29414.8% of the Company’s consolidated revenues, for rebates as ofthe years ended December 31, 2019, 2018 and 2017, and 2016 and June 30, 2016, respectively.

As of December 31, 2017 and 2016 and June 30, 2016, the

The Company had two, one and two major customers (customerscustomer (customer with a balance that represents more than 10% of total trade receivables), respectively, whichreceivables, net) as of December 31, 2019 and two major customers as of December 31, 2018 that accounted in the aggregate for approximately 35.2%, 20.2%,32.1% and 34.4%41.3%, respectively, of the Company’s consolidated trade receivables.

receivables, net, respectively.

u.Concentrations of supply risks:

The Company depends on two contract manufacturers and its subsidiaries have no off-balance sheet concentrationseveral limited or single source component suppliers. Reliance on these vendors makes the Company vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields, and costs.

As of credit risk exceptDecember 31, 2019 and 2018, two and three contract manufacturers collectively accounted for certain derivative instruments as mentioned below.

s.          42.3% and 58.8% of the Company’s total trade payables, net, respectively.

v.Fair value of financial instruments:

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

The carrying value of cash and cash equivalents, short-term bank deposits, restricted cash,bank deposits, trade receivables, net, long term bank loans and current maturities, prepaid expenses and other accounts receivable,current assets, trade payables, net, employee and payroll accruals and accrued expenses and other accounts payablecurrent liabilities approximate their fair values due to the short-term maturities of such instruments.

Assets measured at fair value on a recurring basis as of December 31, 2017, December 31, 2016,2019 and June 30, 20162018 are comprised of money market funds foreign currency derivative contracts and marketable securities.securities (see Note 4)

.

The Company applies ASC 820 (“Fair“Fair Value Measurements and Disclosures”), with respect to fair value measurements of all financial assets and liabilities.

F - 26

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Fair value is an exit price, representing the amount that would be received to sellfor the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

F - 24

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

A three-tiered fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

Level 1-

Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2-

Include other inputs that are directly or indirectly observable in the marketplace.

Level 3-

Unobservable inputs which are supported by little or no market activity.

Level 1-Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2- Include other inputs that are directly or indirectly observable in the marketplace.

Level 3-Unobservable inputs which are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

t.

Warrants to Purchase Convertible Preferred Stock:

The Company accounts

w.Accounting for freestanding warrants to purchase shares of its convertible preferred stock as a liability on the balance sheets at fair value. The warrants to purchase convertible preferred stock are recorded as a liability because of a provision calling for minimum proceeds upon or after an “Exit Event”, as described in Note 10.

The fair value of warrants to purchase convertible preferred stock on the issuance date and on subsequent reporting dates was determined using a hybrid method utilizing the assumptions noted below. The fair value of the underlying preferred stock price was determined by the board of directors considering, among others, third party valuations. The valuation of the Company was performed using the hybrid method, a hybrid between the probability-weighted estimated return method (“PWERM”) and Option Pricing Method (“OPM”) estimating the probability-weighted value across multiple scenarios but using the OPM to estimate the allocation of value within one or more of those scenarios. The OPM was used to allocate the Company’s equity value between the preferred stock, common stock and warrants in a scenario of other liquidation events.

The expected terms of the warrants were based on the remaining contractual expiration period. The expected share price volatility for the shares was determined by examining the historical volatilities of a group of the Company’s industry peers as there was insufficient trading history of the Company’s shares. The risk-free interest rate was calculated using the average of the published interest rates for U.S. Treasury zero-coupon issues with maturities that approximate the expected term.

The dividend yield assumption was zero, as there is no history of dividend payments and the Company does not expect to pay any dividends in the foreseeable future.

F - 25

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The following assumptions were used to estimate the value of the warrants to purchase  convertible preferred stock:

		June 30,
		2014
Expected volatility			45.0	%
Risk-free rate			0.09	%
Dividend yield			0	%
Expected term (in years)			1.21

The warrants to purchase convertible preferred stock were subject to re-measurement to fair value at each balance sheet date and any change in fair value was recognized as a component of financial expenses, net, on the statements of operations.

The change in the fair value of warrants to purchase convertible preferred stock is summarized below:

		Balance at beginning of period				Issuance of warrants to purchase preferred stock				Exercise of warrants to purchase common stock (*)				Change in fair value				Balance at end of period
June 30, 2015		$	765			$	-			$	(6,115	)		$	5,350			$	-

(*)

Upon the closing of the IPO, all outstanding warrants to purchase convertible preferred stock automatically converted into warrants to purchase 187,671 shares of common stock (See Note 1c).

On June 18, 2015, the warrants were redeemed in a cashless exercise into 154,768 common shares. Immediately before the cashless exercise, the warrants were remeasured to fair value based on their intrinsic value which amounted to $6,115 (see Note 10).

u.

Accounting for stock-based compensation:

stock-based compensation:

The Company accounts for stock-based compensation in accordance with ASC 718 (“Compensation-Stock“Compensation-Stock Compensation”).

ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an Option-Pricing Model (“OPM”). The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statements of operations.

F - 26

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

income.

The Company recognizes compensation expenses for the value of its awards granted based on the straight-line method over the requisite service period of each of the awards, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Estimated forfeitures are based on actual historical pre-vesting forfeitures (pursuant to the adoption of ASU 2016-09, the Company made a policy election to estimate the number of awards that are expected to vest).

forfeitures.

The Company selected the Black-Scholes-Merton option pricingoption-pricing model as the most appropriate fair value method for its stock-option awards and Employee Stock Purchase Plan.Plan (“ESPP”). The option-pricing model requires a number of assumptions, of which the most significant are the fair market value of the underlying common stock, expected stock price volatility, and the expected option term. Expected volatility for stock-option awards was calculated until December 31, 2017 based upon certain peer companies that the Company considered to be comparable.comparable and starting January 1, 2018 based upon the Company’s actual historical stock price movements over the most recent periods. Expected volatility for Employee Stock Purchase PlanESPP was calculated based upon the Company’s stock prices. The expected option term of options granted is based upon historical experience and represents the period of time that options granted are expected to be outstanding. The expected option term is determined based onbetween the simplified method in accordance with SAB No. 110, as adequate historical experience is not available to provide a reasonable estimate. The simplified method will continue to apply until enough historical experience is available to provide a reasonable estimate ofoptions’ grant date and the expected term. exercise or expiration date.

F - 27

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term.

The Company doesn't use dividend yield rate since the Company has not declared or paid any dividends on its common stock and does not expect to pay any dividends in the foreseeable future.

F - 27

---

SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The fair value for options granted to employees and executive directors and Employee Stock Purchase PlanESPP in the yearyears ended December 31, 2019, 2018 and 2017, the six months ended December 31, 2016, and the years ended June 30, 2016 and 2015 isare estimated at the date of grant using a Black-Scholes-Merton option pricingoption-pricing model with the following assumptions:

		Year ended December 31,
		2019				2018				2017
Employee Stock Options
Risk-free interest			2.53	%			2.32	%			2.14% - 2.17	%
Dividend yields			0	%			0	%			0	%
Volatility			56.26	%			56.53	%			58.08% - 58.10	%
Expected option term in years			6.03				6.06				6.06
Estimated forfeiture rate			0	%			0	%			0	%
ESPP
Risk-free interest			1.63% - 2.35	%			2.10% - 2.52	%			0.60% - 1.07	%
Dividend yields			0	%			0	%			0	%
Volatility			46.68% - 55.95	%			54.13% - 56.67	%			45.60% - 48.08	%
Expected term		6 months				6 months				6 months

		Year ended December 31, 2017				Six months ended December 31, 2016				Year Ended June 30,
										2016				2015
Employee Stock Options
Risk-free interest			2.14% - 2.17	%			1.28% - 1.34	%			1.39% - 1.97	%			1.39% - 2.06	%
Dividend yields			0	%			0	%			0	%			0	%
Volatility			58.08% - 58.10	%			55.33% - 55.34	%			55.45%-56.03	%			46.5%-55.1	%
Expected option term in years			6.06				6.06				5.50-6.11				5.50-6.27
Estimated forfeiture rate			0	%			0	%			10.3	%			12.5%-18.7	%
Employee Stock Purchase Plan
Risk-free interest			0.6% - 1.07	%			0.60	%			0.40	%			-
Dividend yields			0	%			0	%			0	%			-
Volatility			45.6% - 48.08	%			48.08	%			62.84	%			-
Expected term		6 months				6 months				6 months					-

The following table set forth the parameters used in computation of the options compensation to non-employee consultants in the year ended December 31, 2017, the six months ended December 31, 2016, and the years ended June 30, 2016 and 2015, using a Black-Scholes-Merton option pricing model with the following assumptions:

		Year ended December 31, 2017				Six months ended December 31, 2016				Year ended June 30,
										2016				2015
Risk-free interest			2.12% - 2.42	%			1.16% - 2.45	%			1.15%-2.21	%			1.59%-2.58	%
Dividend yields			0	%			0	%			0	%			0	%
Volatility			61.21% - 62.62	%			55.33% - 58.57	%			55.37%-55.75	%			45.5%-56.2	%
Contractual life in years			6-10				6 - 10				6.4-10				7.4-10

The Company recognizes compensation expenses for the value of its restricted stock unit (“RSU”) awards, based on the straight-line method over the requisite service period of each of the awards, net of estimated forfeitures. The fair value of each RSU is the market value of the Company’s stock as determined by the closing price of the common stock on the day of grant.

F - 28

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

w.

Income taxes:

x.Income taxes:

The Company and its subsidiaries account for income taxes in accordance with ASC 740, “Income Taxes.”Taxes”. ASC 740 prescribes the use of the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse.

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered.

F - 28

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent the Company believes they will not be realized.

The Company accounts for uncertain tax positions in accordance with ASC 740. ASC 740-10 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% (cumulative probability) likely to be realized upon ultimate settlement.

The Company record reserves for uncertain tax positions to the extent it is more likely than not that the tax position will be sustained on audit, based on the technical merits of the position.

x.

Derivative financial instruments:

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

To protect against the increase in value of forecasted foreign currency cash flows resulting from salary and lease payments of its Israeli facilities denominated in the Israeli currency, the New Israeli Shekel (“NIS”), the Company instituted a foreign currency cash flow hedging program. The Company hedges portions of the anticipated payroll and lease payments denominated in NIS for a period of one to twelve months with hedging contracts. These hedging contracts are designated as cash flow hedges, as defined by ASC 815 and are all effective hedges.

In accordance with ASC 815, for derivative instruments that are designated and qualify as a cash flow hedge (i.e. hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gain or loss on a derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item is recognized in current earnings during the period of change.

F - 29

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

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 operations, as financial income (expenses).

As of December 31, 2017, the Company entered into forward contracts and put and call options to sell Euros for U.S. dollars in the amount of  €54 million.

As of December 31, 2017, the Company had no derivative instruments that are designated as cash flow hedges.

As of December 31, 2016, the Company entered into forward contracts to sell U.S. dollars for NIS in the amount of $5,098. These hedging contracts do not contain any credit-risk-related contingency features. See Note 4 for information on the fair value of these hedging contracts.

As of December 31, 2016, the Company had no derivative instruments that are not designated as cash flow hedges.

As of June 30, 2016, the Company entered into forward contracts and put and call options to sell U.S. dollars for NIS and Euros for U.S. dollars in the amount of $17,693 and €30 million, respectively. These hedging contracts do not contain any credit-risk-related contingency features.

The fair value of derivative assets and derivative liabilities as of December 31, 2017 was $221 and $401, respectively, which was recorded at net amount in accrued expenses and other accounts payable in the consolidated balance sheets (see Note 13).

The fair value of derivative assets as of December 31, 2016 was $19, which was recorded in other accounts receivable and prepaid expenses in the consolidated balance sheets (see Note 13).

The fair value of derivative assets and derivative liabilities as of June 30, 2016 was $504 and $23, respectively, which was recorded at net amount in other accounts receivable and prepaid expenses in the consolidated balance sheets.

The Company recorded changes in the fair value (i.e., gains or losses) of the derivatives in the accompanying consolidated statements of cash flows as changes in operating activities.

F - 30

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

y.

Comprehensive income:

y.Comprehensive income:

The Company reports comprehensive income in accordance with ASC 220 (“Comprehensive Income”). ASC 220 establishes standards for the reporting and presentation of comprehensive income and its components in a full set of general purpose financial statements.

Total comprehensive income and the components of accumulated other comprehensive income are presented in the consolidated statements of stockholders’ equity. Accumulated other comprehensive income consists of foreign currency translation effects, unrealized gains and losses on available-for-sale marketable securities and hedging contracts.

z.

z.New accounting pronouncements not yet effective: In May 2014, the FASB issued a new standard related to revenue recognition. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flow arising from contracts with customers. The guidance permits two methods of modification: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method.). The Company will adopt the new standard, effective January 1, 2018, using the modified retrospective method applied to those contracts which were not substantially completed as of January 1, 2018. The cumulative adjustment will decrease the Company’s retained earnings by $3,875 while increasing the Company’s deferred revenues by the same amount.

The most significant impact of the standard on the Company’s financial statements relates to advance payments received for performance obligations that extend for a period greater than one year. Applying the new standard, such performance obligations related to warranty extension services, cloud-based monitoring, and other communication services are those that include a financial component.

Upon adoption, the financing component will result in interest expenses which will be included in the Company’s consolidated statement of operations to reflect the financial portion cost of the long-term deferred revenue that is related to such services.

F - 31

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842), whereby lessees will be required to recognize for all leases at the commencement date a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. A modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements must be applied. The modified retrospective approach wouldpronouncements not require any transition accounting for leases that expired before the earliest comparative period presented. Companies may not apply a full retrospective transition approach. ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018. Early application is permitted. The Company is evaluating the potential impact of this pronouncement.

yet effective:

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 financial statements, footnote disclosures, and employee benefit plans’ accounting.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance with the intent of reducing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU No. 2016-15 isbe effective for the fiscal yearsyear beginning after December 15, 2017,on January 1, 2020, including interim periods within those fiscal years with early adoption permitted, including adoption in an interim period.that year. The Company will adopt the new standard effective January 1, 2018, and does not expect thethat adoption of this guidance tostandard will have a material impact on the Company’sits consolidated financial statements.

F - 32

29

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands except(except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

aa.Recently issued and adopted pronouncements:

In OctoberFebruary 2016, the FASBFinancial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-16, Income Taxes2016-02 (Topic 740): Intra-Entity Transfers Other than Inventory (ASU 2016-16), which requires companies842) "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 income-tax consequencesbalance 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 an intra-entity transferapplying the new standard. This transition election permits entities to change the date of an asset other than inventory wheninitial application to the transfer occurs, rather than whenbeginning of the asset has been sold to an outside party.earliest comparative period presented, or retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment. The Company will adopthas elected to apply the standard retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment. The new lease standard provides a number of optional practical expedients in transition. The Company elected the transition practical expedients, which permits the Company not to reassess its prior conclusions regarding lease identification, lease classification and initial direct costs under the new standard and the use of hindsight in determining the lease term. The Company also elected the short-term lease recognition exemption for all leases with a term shorter than 12 months. The Company adopted Topic 842 effective January 1, 20182019. The Consolidated Financial Statements for the year ended December 31, 2019 are presented under the new standard, while comparative periods presented are not adjusted and does not expectcontinue to be reported under ASC 840 (See Note 15).

On October 1, 2019, the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.

In November 2016, the FASB issuedCompany early adopted Accounting Standards Update No. 2016-18, Statement2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04) using the prospective approach, which eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires companiesa reporting unit exceeds its fair value up to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statementamount of cash flows. The Company will adopt the new standardgoodwill allocated to that reporting unit. This guidance was effective beginning January 1, 2018, and does not expect the2020, with early adoption permitted. The adoption of this guidance to have a material impact on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, "Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting."  ASU 2017-09 was issued to provide clarity and reduce both 1) diversity in practice and 2) cost and complexity when applying the guidance in Topic 718 to a change in the terms or conditions of a share-based payment award.  ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting under Topic 718.  The amendments in ASU 2017-09 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017.  Early adoption is permitted, including adoption in any interim period.  The amendments in ASU 2017-09 should be applied prospectively to an award modified on or after the adoption date. The Company will adopt the new standard effective January 1, 2018 and adoption of this standard is not expected to have a material impact on the consolidated financial statements.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions of the Tax Cuts and Jobs Act (the "TCJA"). The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or to treat any taxes on GILTI inclusions as period cost are both acceptable methods subject to an accounting policy election. Due to the complexity of this new tax rule, the Company continues to evaluate this provision of the TCJA and whether such taxes are recorded as a current-period expense when incurred or whether such amount should be factored into a company’s measurement of its deferred taxes. As a result, the Company has not included an estimate of the tax expense/benefit related to this item for the year ended December 31, 2017.

aa.

Recently issued and adopted pronouncements:

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”). The new standard applies only to inventory for which cost is determined by methods other than last-in, first-out or the retail inventory method, such as inventory measured using first-in, first-out, or average cost. Inventory within the scope of ASU 2015-11 is required to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company adopted ASU 2015-11 during the first quarter of 2017, which did not have a material impact on our resultsthe Company's consolidated financial statements.

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

NOTE 3:-BUSINESS COMBINATION

On January 24, 2019, the Company completed the acquisition of operations,56.8% of the outstanding common shares and voting rights of SMRE, a provider of innovative integrated powertrain technology and electronics for electric vehicles in the total consideration of $73,036, net of cash flows, or financial position.

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 of January 24, 2019, the fair value of the 43.2% non-controlling interests in SMRE amounted to $67,734. The fair value of the non-controlling interests was valued based on and at the transaction price.

F - 33

30

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 3:-BUSINESS COMBINATION (Cont.)

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 e-Mobility market. The SMRE Acquisition was accounted for as a business combination in accordance with ASC 805 "Business Combinations”.

During the period from the SMRE Acquisition through December 31, 2019, the Company purchased additional common shares of SMRE in the open market and through a tender offer in a total amount of $66,604. As of December 31, 2019, the Company holds 99.9% of the outstanding common shares and voting rights of SMRE and SMRE’s shares were delisted from the Italian Alternative Investment Market (“AIM”).

The following table summarizes the purchase price allocation of SMRE Acquisition:

Components of Purchase Price:
Cash		$	42,240
Less cash acquired			(3,805	)
Common shares			34,601
Total purchase price			73,036
Allocation of Purchase Price:
Net tangible assets (liabilities):
Trade receivables, net			7,516
Prepaid expenses and other current assets			4,495
Inventories, net			7,529
Property, plant and equipment, net			9,454
Other non-current assets			11,102
Trade payables			(4,450	)
Loans			(7,230	)
Accrued expenses and other current liabilities			(6,868	)
Other non-current liabilities			(14,379	)
Total net tangible assets			7,169
Identifiable intangible assets (1):
Technology			44,071
Customer relationships			953
Backlog			254
Tradename			2,509
Deferred tax liabilities			(11,684	)
Total identifiable intangible assets acquired			36,103
Goodwill (2)			97,498
Non-controlling interests			(67,734	)
Total purchase price allocation		$	73,036

F - 31

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 3:-BUSINESS COMBINATION (Cont.)

(1)SMRE’s definite-lived intangible assets include current technology of $44,071 (10 years weighted-average useful life), tradename of $2,509 (9 years weighted-average useful life), customer relationships of $953 (8 years weighted-average useful life) and backlog of $254 (6 months weighted-average useful life).

(2)The goodwill resulted from SMRE Acquisition is primarily attributable to sales growth from future products, new customers, together with certain intangible assets that do not qualify for separate recognition.

The amounts of revenue and net loss of SMRE included in the Company’s consolidated statements of income for the period from January 24, 2019 to December 31, 2019 are $20,461 and $33,795 (including other operating expenses in the amount of $17,491, see Notes 19 (2) and 19 (3)), respectively.

The Company recognized $604 of aggregate acquisition-related costs that were expensed in the consolidated statement of income in general and administrative expenses.

The following table represents the pro-forma (unaudited) consolidated revenues and net income of the Company as if SMRE Acquisition had occurred as of the beginning of 2018:

		Year ended December 31,
		2019				2018
		Unaudited
Revenue		$	1,426,883			$	961,367
Net income		$	144,433			$	120,027

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of SMRE to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to tangible and intangible assets had been applied since the acquisition date, together with the consequential tax effects.

These pro-forma results (unaudited) are based on estimates and assumptions, which the Company believe are reasonable. They 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 consolidated statements of income in future periods. The pro-forma results (unaudited) include adjustments related to purchase accounting, primarily amortization of intangible assets.

As of December 31, 2019, the purchase price allocation for all acquisitions was finalized.

NOTE 3:-

MARKETABLE SECURITIES

F - 32

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 4:-MARKETABLE SECURITIES

The following is a summary of available-for-sale marketable securities at December 31, 2017:2019:

		Amortized cost				Gross unrealized gains				Gross unrealized losses				Fair value
Available-for-sale – matures within one year:
Corporate bonds		$	91,677			$	196			$	(28	)		$	91,845
Available for-sale – matures after one year:
Corporate bonds			117,692				336				(250	)			117,778
Governmental bonds			1,398				-				-				1,398
			119,090				336				(250	)			119,176
Total		$	210,767			$	532			$	(278	)		$	211,021

		Amortized cost				Gross unrealized gains				Gross unrealized losses				Fair value
Available for-sale – matures within one year:
Corporate bonds		$	68,392			$	1			$	(121	)		$	68,272
Governmental bonds			9,019				-				(27	)			8,992
			77,411				1				(148	)			77,264
Available for-sale – matures after one year:
Corporate bonds			95,540				-				(380	)			95,160
Governmental bonds			8,023				-				(63	)			7,960
			103,563				-				(443	)			103,120
Total		$	180,974			$	1			$	(591	)		$	180,384

The following is a summary of available-for-sale marketable securities at December 31, 2016:2018:

		Amortized cost				Gross unrealized gains				Gross unrealized losses				Fair value
Available-for-sale – matures within one year:
Corporate bonds		$	110,904			$	-			$	(519	)		$	110,385
Governmental bonds			8,343				-				(48	)			8,295
			119,247				-				(567	)			118,680
Available for-sale – matures after one year:
Corporate bonds			74,564				-				(308	)			74,256
Total		$	193,811			$	-			$	(875	)		$	192,936

		Amortized cost				Gross unrealized gains				Gross unrealized losses				Fair value
Available for-sale – matures within one year:
Corporate bonds		$	71,753			$	20			$	(54	)		$	71,719
Governmental bonds			2,758				-				(12	)			2,746
			74,511				20				(66	)			74,465
Available for-sale – matures after one year:
Corporate bonds			39,435				3				(159	)			39,279
Governmental bonds			5,004				-				(21	)			4,983
			44,439				3				(180	)			44,262
Total		$	118,950			$	23			$	(246	)		$	118,727

F - 34

33

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---

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands except(except share data

NOTE 3:-

MARKETABLE SECURITIES (Cont.)

The following is a summary of available-for-sale marketable securities at June 30, 2016:

		Amortized cost				Gross unrealized gains				Gross unrealized losses				Fair value
Available for-sale – matures within one year:
Corporate bonds		$	57,119			$	50			$	(11	)		$	57,158
Governmental bonds			2,005				-				-				2,005
			59,124				50				(11	)			59,163
Available for-sale – matures after one year:
Corporate bonds			46,375				86				(31	)			46,430
Governmental bonds			6,015				7				(6	)			6,016
			52,390				93				(37	)			52,446
Total		$	111,514			$	143			$	(48	)		$	111,609

The following table presents gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31, 2017, December 31, 2016, and June 30, 2016  based on the investments maturity date:

		Less than 12 months								12 months or greater
		Fair value				Gross unrealized losses				Fair value				Gross unrealized losses
As of December 31, 2017		$	72,269			$	(148	)		$	103,116			$	(443	)
As of December 31, 2016		$	51,124			$	(66	)		$	39,373			$	(180	)
As of June 30, 2016		$	22,895			$	(11	)		$	20,070			$	(37	)

F - 35

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, exceptper share data

NOTE 3:-

MARKETABLE SECURITIES (Cont.)

data)

NOTE 4:-MARKETABLE SECURITIES (Cont.)

As of December 31, 20172019, 2018 and 2016 and June 30, 2016, management believes2017, the unrealized losses are not other than temporary and therefore such unrealized losses were recorded in accumulated other comprehensive income (loss). The Company has no intent to sell these securities and it is more likely than not that the Company will not be required to sell these securities prior to the recovery of the entire amortized cost basis.

loss.

Proceeds from maturity of available-for-sale marketable securities during the yearyears ended December 31, 2019, 2018 and 2017, the six months ended December 31, 2016,were $120,834, $84,497 and the year ended June 30, 2016 were $80,269, $32,782 and $6,350, respectively. The Company had no proceedsProceeds from sales of available-for-sale marketable securities during the year ended December 31, 2017, the six months ended December 31, 2016,2019 and the year ended June 30, 2016, therefore no2018 were $21,910 and $44,848, which lead to a realized gains or losses from the saleloss of available-for sale marketable securities were recognized. The Company determines realized gains or losses on the sale of available-for-sale marketable securities based on a specific identification method.

NOTE 4:-

FAIR VALUE MEASUREMENTS

$91 and $137, respectively.

NOTE 5:-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 orand Level 2. This is2, 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 December 31, 2019, 2018 and 2017 by level within the fair value hierarchy:

		Fair Value		Fair value measurements as of December 31,
Description		Hierarchy		2019				2018				2017
Measured at fair value on a recurring basis:
Assets:
Cash equivalents:
Money market mutual funds		Level 1		$	527			$	1,767			$	6,163
Short-term marketable securities:
Corporate bonds		Level 2		$	91,845			$	110,385			$	68,272
Governmental bonds		Level 2		$	-			$	8,295			$	8,992

Long-term marketable securities:
Corporate bonds		Level 2		$	117,778			$	74,256			$	95,160
Governmental bonds		Level 2		$	1,398			$	-			$	7,960
Liabilities
Long-term earn-out provision		Level 3		$	-			$	(332	)		$	-
Derivative instruments liability		Level 2		$	-			$	-			$	(180	)

		Balance as of				Fair value measurements
Description		December 31, 2017				Level 1				Level 2				Level 3
Cash equivalents:
Money market mutual funds		$	6,163			$	6,163				-				-
Derivative instruments liability		$	(180	)			-			$	(180	)			-
Short-term marketable securities:
Corporate bonds		$	68,272				-			$	68,272				-
Governmental bonds		$	8,992				-			$	8,992				-
Long-term marketable securities:
Corporate bonds		$	95,160				-			$	95,160				-
Governmental bonds		$	7,960				-			$	7,960				-

F - 36

34

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands except(except share data

NOTE 4:-

FAIR VALUE MEASUREMENTS (Cont.)

The following table sets forth the Company’s assets that were measured at fair value as of December 31, 2016 by level within the fair value hierarchy:

		Balance as of				Fair value measurements
Description		December 31, 2016				Level 1				Level 2				Level 3
Cash equivalents:
Money market mutual funds		$	6,510			$	6,510				-				-
Derivative instruments asset		$	19				-			$	19				-
Short-term marketable securities:
Corporate bonds		$	71,719				-			$	71,719				-
Governmental bonds		$	2,746				-			$	2,746				-
Long-term marketable securities:
Corporate bonds		$	39,279				-			$	39,279				-
Governmental bonds		$	4,983				-			$	4,983				-

The following table sets forth the Company’s assets that were measured at fair value as of June 30, 2016 by level within the fair value hierarchy:

		Balance as of				Fair value measurements
Description		June 30, 2016				Level 1				Level 2				Level 3
Cash equivalents:
Money market mutual funds		$	13,373			$	13,373				-				-
Derivative instruments asset		$	481				-			$	481				-
Short-term marketable securities:
Corporate bonds		$	57,158				-			$	57,158				-
Governmental bonds		$	2,005				-			$	2,005				-
Long-term marketable securities:
Corporate bonds		$	46,430				-			$	46,430				-
Governmental bonds		$	6,016				-			$	6,016				-

F - 37

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, exceptand per share datadata)

NOTE 6:-PREPAID EXPENSES AND OTHER CURRENT ASSETS

		As of December 31,
		2019				2018
Vendor non-trade receivables (*)		$	83,917			$	28,284
Government authorities			16,434				5,751
Prepaid expenses and other			14,917				11,038
		$	115,268			$	45,073

NOTE 5:-

PREPAID EXPENSES AND OTHER ACCOUNTS RECEIVABLE

		December 31,								June 30,
		2017				2016				2016
Vendor non-trade receivables (*)		$	33,719			$	15,209			$	15,375
Government authorities			3,421				2,585				2,727
Prepaid expenses and other			5,083				3,534				2,756
Foreign currency derivative contracts			-				19				482
		$	42,223			$	21,347			$	21,340

(*) Vendor non-trade receivables related to contract manufacturers derive from the sale of components to manufacturing vendors who manufacture products for the Company. The Company purchases these components directly from other suppliers. The Company does not reflect the sale of these components to the contract manufacturers in its revenues (see also Note 14e)16b).

NOTE 7:-INVENTORIES

		As of December 31,
		2019				2018
Raw materials		$	64,714			$	39,380
Work in process			20,752				18,115
Finished goods			85,332				84,024
		$	170,798			$	141,519

NOTE 6:-

INVENTORIES

		December 31,								June 30,
		2017				2016				2016
Raw materials		$	25,887			$	10,053			$	9,805
Finished goods			57,105				57,310				71,745
		$	82,992			$	67,363			$	81,550

The Company recorded inventory write-downs of $1,352, $113, $2,539,$4,528, $943 and $992 for the year ended December 31, 2017, the six months ended December 31, 2016, and$1,352 for the years ended June 30, 2016December 31, 2019, 2018 and 2015,2017, respectively.

F - 38

35

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 8:-PROPERTY, PLANT AND EQUIPMENT, NET

		As of December 31,
		2019				2018
Cost:
Land		$	6,938			$	6,592
Buildings and plants			23,670				18,196
Computers and peripheral equipment			24,953				17,615
Office furniture and equipment			6,792				5,286
Laboratory and testing equipment			22,666				18,160
Machinery and equipment			160,231				113,553
Leasehold improvements			23,408				11,741
Gross property, plant and equipment			268,658				191,143
Less - accumulated depreciation			91,695				71,814
Total property, plant and equipment, net		$	176,963			$	119,329

NOTE 7:-

PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS, NET

a.

Property and equipment:

		As of December 31,								As of June 30,
		2017				2016				2016
Cost:
Computers and peripheral equipment		$	9,872			$	6,053			$	5,190
Office furniture and equipment			1,785				1,505				1,289
Laboratory and testing equipment			13,732				9,589				8,590
Machinery and equipment			38,422				26,285				18,433
Leasehold improvements			7,536				5,898				5,450
Vehicles			39				13				13
			71,386				49,343				38,965
Less - accumulated depreciation			20,204				13,221				11,134
Depreciated cost		$	51,182			$	36,122			$	27,831

Property, plant and equipment in progress under construction and development with a cost basis of $8,783, $10,698,$59,058 and $5,519$22,890, was included in Machinerymachinery and equipment as of December 31, 20172019 and 2016 and June 30, 2016,2018, respectively.

Depreciation expenses for the years ended December 31, 2019, 2018 and 2017, were $17,261, $11,426 and $7,011, respectively.

NOTE 9:-INTANGIBLE ASSETS AND GOODWILL

a.Intangible assets:

Acquired intangible assets consisted of the following as of December 31, 2019, and 2018:

		As of December 31,
		2019				2018
Intangible assets with finite lives:
Current Technology		$	72,613			$	30,821
Customer relationships			4,351				3,857
Trade names			5,990				3,721
Patents			1,400				1,400
Backlog			193				193
Gross intangible assets			84,547				39,992
Less - accumulated amortization			(10,539	)			(1,488	)
Total intangible assets, net		$	74,008			$	38,504

Amortization expenses for the years ended December 31, 2019, 2018 and 2017, were $9,634, $1,193 and $144, respectively.

F - 36

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 9:-INTANGIBLE ASSETS AND GOODWILL (Cont.)

Expected future amortization expenses of intangible assets as of December 31, 2019 are as follows:

2020		$	9,736
2021			9,783
2022			9,844
2023			9,830
2024			9,397
2025 and thereafter			25,418
		$	74,008

b.Goodwill:

The following summarizes the goodwill activity for the year ended December 31, 2017, the six months ended December 31, 2016,2019, and for the years ended June 30, 2016 and 2015 were $7,011, $2,702, $3,763, and $2,253, respectively.2018:

		Solar				All other				Total
Goodwill at January 1, 2018		$	-			$	-			$	-
Business combinations			30,789				3,656				34,445
Foreign currency translation			416				13				429
Goodwill at December 31, 2018			31,205				3,669				34,874
Business combination			-				97,498				97,498
Other changes related to measurement period and disposals			1,299				(1,653	)			(354	)
Foreign currency translation			(1,239	)			(1,125	)			(2,364	)
Goodwill at December 31, 2019		$	31,265			$	98,389			$	129,654

NOTE 10:-ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

		As of December 31,
		2019				2018
Accrued expenses		$	36,158			$	14,859
Government authorities			27,191				11,344
Operating lease liabilities			9,590				-
Other			7,637				3,525
		$	80,576			$	29,728

b.

Intangible assets:

On March 9, 2015, the Company and Beacon Power LLC, a Delaware limited liability company (“Beacon”) entered into a patent purchase agreement pursuant to which the Company agreed to purchase all rights in the patents. In July 2015, the Company completed the purchase of the patents for $800.

In October 2016, the Company and Accurate Solar Power, LLC, a limited liability corporation, entered into a patent purchase agreement, under which the Company agreed to purchase certain patents, provisional patent applications, and pending patent applications. The Company completed the purchase in return for total consideration of $600.

Intangible assets include an acquired patents with an original cost of $1,400 as of December 31, 2017 and December 31, 2016, and $800 as of June 30, 2016.

Accumulated amortization amounted to $285, $141, and $84 as of December 31, 2017, 2016 and June 30, 2016, respectively. The patents are amortized over  a 10 year period.

Amortization expenses for the year ended December 31, 2017, for the six months ended December 31, 2016, and for the year ended June 30, 2016 were $144, $57, and $84, respectively.

F - 39

37

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 11:-BANK LOANS

The following table summarizes the Company’s bank loans:

				As of December 31, 2019				Effective interest rate
Maturities calendar year:
Current maturities of bank loans				$	15,653				2.5% - 3.85%
Long-term bank loans					173				2.48%
					15,826
Accrued interest of bank loans					20
				$	15,846

All bank loans are denominated in KRW except share data

NOTE 8:-

ACCRUED EXPENSES AND OTHER ACCOUNTS PAYABLE

		As of December 31,								As of June 30,
		2017				2016				2016
Accrued expenses		$	14,863			$	4,209			$	5,615
Government authorities			1,905				1,568				1,406
Loss provision related to contractual inventory purchase obligations *			1,627				2,009				2,834
Other			1,983				862				870
		$	20,378			$	8,648			$	10,725

*

See also Note 14e.

NOTE 9:-

WARRANTY OBLIGATIONS

for two loans, which are denominated in USD and in EUR in the amount of $3,000 and €141 thousand, respectively. The bank loans bear interest at variable rates and are mainly payable monthly. The bank loans do not contain financial covenants.

During the years ended December 31, 2019 and 2018, the Company recognized $1,116 and $132 as interest expenses related to the bank loans in the consolidated statement of income in financial expenses (income), net.

As of December 31, 2019, the Company secured certain bank loans with an aggregate principal amount of $15,667 against bank guarantees.

NOTE 12:-WARRANTY OBLIGATIONS

Changes in the Company’s product warranty liabilityobligations for the yearyears ended December 31, 2017, the six months ended December 31, 2016,2019 and the year ended June 30, 20162018, were as follows:

		December 31,
		2019				2018
Balance, at the beginning of the year		$	121,826			$	78,811
Additions and adjustments to cost of revenues			94,048				70,854
Usage and current warranty expenses			(43,311	)			(27,839	)
Balance, at the end of the year			172,563				121,826
Less current portion			(65,112	)			(28,868	)
Long term portion		$	107,451			$	92,958

		December 31,								June 30,
		2017				2016				2016
Balance, at beginning of year		$	58,375			$	51,192			$	31,879
Additions and adjustments to cost of revenues			34,650				13,749				28,848
Usage and current warranty expenses			(14,214	)			(6,566	)			(9,535	)
Balance, at end of year			78,811				58,375				51,192
Less current portion			(14,785	)			(13,616	)			(14,114	)
Long term portion		$	64,026			$	44,759			$	37,078

NOTE 10:-

TERM LOAN AND WARRANTS TO PURCHASE CONVERTIBLE PREFERRED STOCK

On December 28, 2012, (the “Agreement Date”), the Company entered into a loan facility agreement (the “Loan Agreement”) with a lender (the “Lender”), pursuant to which the Lender agreed to loan the Company up to $10,000. On the Agreement Date, the Company received a total of $10,000, less a $100 loan transaction fee paid to the Lender (the “Loan”). The Loan is for a period of 42 months and bears annual interest of 11.90%, which is to be paid monthly.

The principal of the loan is to be paid in 33 monthly payments, beginning in September 2013, except for the last loan payment which was paid in advance on the Agreement Date. Repayment of the Loan and payment of all other amounts owed to the Lender is paid in Euro.

F - 40

38

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---

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands except(except share data

NOTE 10:-

TERM LOAN AND WARRANTS TO PURCHASE CONVERTIBLE PREFERRED STOCK  (Cont.)

In connection with the Loan Agreement, the Company granted the Lender 563,014 warrants to purchase Series D-1 convertible preferred stock at an exercise price of $2.309 (the “Warrants”). The Warrants were exercisable in whole or in part prior to earliest of (i) the tenth anniversary of the Agreement Date, or (ii) 12 months after a qualified initial public offering, or (iii) immediately prior to the consumption of a merger or sale of all or substantially all of the Company’s assets (“M&A Transaction”, and together with a qualified initial public offering, an “Exit Event”).

Upon the closing of the IPO, all outstanding warrants to purchase convertible preferred stock automatically converted into warrants to purchase 187,671 shares of common stock (See Note 1c).

In January 2015, the Company fully settled the amount borrowed from the Lender under the Term Loan.

On June 18, 2015, the Lender elected to exercise its cashless exercise rights under which the Company issued 154,768 shares of common stock. The fair value of the Warrants liability as of the exercise date in the amount of  $6,115 was reclassified to stockholders’ equity (deficiency).

NOTE 11:-

REVOLVING CREDIT LINE

In June 2011, the Company entered into an agreement for a revolving line of credit from a Bank Lender (the "Bank Lender"), which, as amended to date, permits aggregate borrowings of up to $20,000 in an amount not to exceed 80% of the eligible trade receivables plus 65% of inventories in transit to customers and bears interest, payable monthly, at the Bank Lender’s prime rate plus a margin of 0.75% to 2.75%.

On February 17, 2015, the Company amended and restated the agreement with the Bank Lender for a revolving line of credit, which permits aggregate borrowings of up to $40,000 in an amount not to exceed 80% of the eligible accounts receivable and bears interest, payable monthly, at the Bank Lender’s prime rate plus a margin of 0.5% to 2.0%. As of December 31, 2016, the revolving line of credit was terminated and the Company had no outstanding borrowings related to this revolving line of credit.

As of June 30, 2016 and 2015, the Company met all its Bank Lender covenants.

As of December 31, 2016, June 30, 2016 and 2015, the Company had no outstanding borrowings related to this revolving line of credit. The revolving line of credit terminated on December 31, 2016.

F - 41

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, exceptper share data

data)

NOTE 12:13:-OTHER LONG TERM LIABILITIES

		As of December 31,
		2019				2018
Tax liabilities		$	5,389			$	7,147
Accrued severance pay, net			4,647				411
Other			3,924				1,833
		$	13,960			$	9,391

NOTE 14:-ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes in accumulated balances of other comprehensive income, net of taxes, for the year ended December 31, 2017:

		Unrealized gains (losses) on available-for-sale marketable securities				Unrealized gains (losses) on cash flow hedges				Unrealized gains (losses) on foreign currency translation				Total
Beginning balance		$	(136	)		$	19			$	(207	)		$	(324	)
Other comprehensive income (loss) before reclassifications			(297	)			975				29				707
Gains reclassified from accumulated other comprehensive income			-				(994	)			-				(994	)
Net current period other comprehensive income (loss)			(297	)			(19	)			29				(287	)
Ending balance		$	(433	)		$	-			$	(178	)		$	(611	)

LOSS

The following table summarizes the changes in accumulated balances of other comprehensive loss, net of taxes, for the six monthsyear ended December 31, 2016:2019:

		Unrealized gains (losses) on available-for-sale marketable securities				Unrealized gains on cash flow hedges				Unrealized gains (losses) on foreign currency translation				Total
Beginning balance		$	(656	)		$	-			$	132			$	(524	)
Other comprehensive income (loss) before reclassifications			829				-				(2,205	)			(1,376	)
Loses reclassified from accumulated other comprehensive income			91				-				-				91
Net current period other comprehensive income (loss)			920				-				(2,205	)			(1,285	)
Ending balance		$	264			$	-			$	(2,073	)		$	(1,809	)

		Unrealized gains (losses) on available-for-sale marketable securities				Unrealized gains (losses) on cash flow hedges				Unrealized gains (losses) on foreign currency translation				Total
Beginning balance		$	57			$	243			$	(29	)		$	271
Other comprehensive income (loss) before reclassifications			(193	)			93				(178	)			(278	)
Gains reclassified from accumulated other comprehensive income			-				(317	)			-				(317	)
Net current period other comprehensive loss			(193	)			(224	)			(178	)			(595	)
Ending balance		$	(136	)		$	19			$	(207	)		$	(324	)

F - 42

39

---

---

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands except(except share dat

and per share data)

NOTE 12:14:-ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)LOSS (Cont.)

The following table summarizes the changes in accumulated balances of other comprehensive income,loss, net of taxes, for the year ended June 30, 2016:December 31, 2018:

		Unrealized losses on available-for-sale marketable securities				Unrealized gains on cash flow hedges				Unrealized gains (losses) on foreign currency translation				Total
Beginning balance		$	(433	)		$	-			$	(178	)		$	(611	)
Other comprehensive income (loss) before reclassifications			(360	)			31				310				(19	)
Loses (gains) reclassified from accumulated other comprehensive income			137				(31	)			-				106
Net current period other comprehensive income (loss)			(223	)			-				310				87
Ending balance		$	(656	)		$	-			$	132			$	(524	)

		Unrealized gains (losses) on available-for-sale marketable securities				Unrealized gains (losses) on cash flow hedges				Unrealized gains (losses) on foreign currency translation				Total
Beginning balance		$	-			$	-			$	(222	)		$	(222	)
Other comprehensive income (loss) before reclassifications			56				412				193				661
Losses (gains) reclassified from accumulated other comprehensive income (loss)			1				(169	)			-				(168	)
Net current period other comprehensive income			57				243				193				493
Ending balance		$	57			$	243			$	(29	)		$	271

F - 43

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 12:-      ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Cont.)

The following tables provides details about reclassifications outtable summarizes the changes in accumulated balances of accumulated other comprehensive, income (loss):

Details about Accumulated Other Comprehensive Loss Components		Amount Reclassified from Accumulated Other Comprehensive Loss			Affected Line Item in the Statements of Operations
		Year ended
		December 31, 2017
Unrealized gains on cash flow hedges		$	166		Cost of revenues
			570		Research and development
			151		Sales and marketing
			153		General and administrative
			1,040		Total, before income taxes
			46		Income tax expense
		$	994		Total, net of income taxes
Unrealized gains on available-for-sale marketable securities		$	-		Financial income, net
			-		Income tax expense
		$	-		Total, net of income taxes
		$	994		Total, net of income taxes

F - 44

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 12:-      ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Cont.)

Details about Accumulated Other Comprehensive Loss Components		Amount Reclassified from Accumulated Other Comprehensive Loss			Affected Line Item in the Statements of Operations
		Six months ended
		December 31, 2016
Unrealized gains on cash flow hedges		$	47		Cost of revenues
			227		Research and development
			58		Sales and marketing
			46		General and administrative
			378		Total, before income taxes
			61		Income tax expense
		$	317		Total, net of income taxes
Unrealized gains on available-for-sale marketable securities		$	-		Financial income, net
			-		Income tax expense
		$	-		Total, net of income taxes
		$	317		Total, net of income taxes

F - 45

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 12:-      ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Cont.)

Details about Accumulated Other Comprehensive Income Components		Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Statements of Operations
		Year ended
		June 30, 2016
Unrealized gains on cash flow hedges		$	30		Cost of revenues
			115		Research and development
			33		Sales and marketing
			24		General and administrative
			202		Total, before income taxes
			33		Income tax expense
		$	169		Total, net of income taxes
Unrealized losses on available-for-sale marketable securities		$	(1	)	Financial income, net
			-		Income tax expense
		$	(1	)	Total, net of income taxes
		$	168		Total, net of income taxes

No amounts were reclassified from accumulated other comprehensive income for the year ended June 30, 2015.

F - 46

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 13:-     DERIVATIVE INSTRUMENTS

The fair value of the Company’s outstanding derivative instruments is as follows:

		As of December 31,								As of June 30,
		2017				2016				2016
Derivative assets:
Derivatives not designated as cash flow hedging instruments:
Foreign exchange option contracts		$	221			$	-			$	214
Derivatives designated as cash flow hedging instruments:
Foreign exchange forward contracts			-				19				290
Total		$	221			$	19			$	504
Derivative liabilities:
Derivatives not designated as cash flow hedging instruments:
Foreign exchange option contracts		$	(285	)		$	-			$	(23	)
Foreign exchange forward contracts			(116	)			-				-
Total		$	(401	)		$	-			$	(23	)

The increase (decrease) in unrealized gains (losses) recognized in “accumulated other comprehensive income (loss)” on derivatives, net of tax effect, is as follows:

		Year ended December 31,				Six months ended December 31,				Year ended June 30,
		2017				2016				2016				2015
Derivatives designated as cash flow hedging instruments:
Foreign exchange forward contracts		$	975			$	93			$	412			$	-
Total		$	975			$	93			$	412			$	-

F - 47

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 13:-      DERIVATIVE INSTRUMENTS (Cont.)

The net (gains) losses reclassified from “accumulated other comprehensive income (loss)” into income (loss), are as follows:

		Year ended  December 31,				Six months ended December 31,				Year ended June 30,
		2017				2016				2016				2015
Derivatives designated as cash flow hedging instruments:
Foreign exchange forward contracts		$	994			$	(317	)		$	(169	)		$	-
Total		$	994			$	(317	)		$	(169	)		$	-

The Company recorded in the financial income (expenses), a net gain (loss) of $1,334, $(87), $(136), and $1,721 during the year ended December 2017, the six months ended December 31, 2016, and years ended June 30, 2016 and 2015, respectively, related to derivatives not qualified as hedging instruments.

NOTE 14:-

COMMITMENTS AND CONTINGENT LIABILITIES

a.

Lease commitments:

The Company and its subsidiaries lease their operating facilities under non-cancelable operating lease agreements, which expire over the next ten years, with the last ending in September 2027.

On July 10, 2017 the Company entered into a ten years lease agreement, intended for the establishment of a manufacturing facility and includes three extension period options. The Company accounts for this lease as an operating lease according to ASC 840 (“Leases”).

The future minimum lease commitments of the Company and its subsidiaries under various non-cancelable operating lease agreements in respect of premises, that are in effect as of December 31, 2017, are as follows:

2018			4,520
2019			3,801
2020			3,094
2021			2,512
2022			2,472
2023 and thereafter			6,934
		$	23,333

F - 48

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 14:-

COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

Rent expensestaxes, for the year ended December 31, 2017,2017:

		Unrealized losses on available-for-sale marketable securities				Unrealized gains on cash flow hedges				Unrealized losses on foreign currency translation				Total
Beginning balance		$	(136	)		$	19			$	(207	)		$	(324	)
Other comprehensive income (loss) before reclassifications			(297	)			975				29				707
Gains reclassified from accumulated other comprehensive income			-				(994	)			-				(994	)
Net current period other comprehensive income (loss)			(297	)			(19	)			29				(287	)
Ending balance		$	(433	)		$	-			$	(178	)		$	(611	)

F - 40

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 15:-LEASES

The Company leases offices, plants and vehicles under operating and finance leases. For leases with terms greater than 12 months, the six months ended December 31, 2016,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.

The following table presents certain information related to the operating and finance leases:

		Year ended December 31, 2019
Finance leases:
Finance lease cost		$	213
Weighted average remaining lease term in years			7.25
Weighted average annual discount rate			2.85	%
Operating leases:
Operating lease cost		$	9,665
Weighted average remaining lease term in years			4.61
Weighted average annual discount rate			1.46	%

The following table presents supplemental cash flows information related to the lease costs for operating and finance leases:

		Year ended December 31, 2019
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows for operating and finance leases		$	9,748
Financing cash flows for finance leases		$	1,354

F - 41

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 15:-LEASES (Cont.)

The following table reconciles the undiscounted cash flows for each of the first five years ended June 30, 2016 and 2015 were approximately $3,449, $1,199, $2,238,the total of the remaining years of the operating and $1,714, respectively.finance lease liabilities recorded on the consolidated balance sheets:

		Operating Lease				Finance Leases
2020		$	10,522			$	317
2021			9,195				317
2022			8,176				302
2023			7,172				302
2024			4,015				302
Thereafter			2,543				1,503
Total lease payments			41,623				3,043
Less amount of lease payments representing interest			(1,820	)			(413	)
Present value of future lease payments			39,803				2,630
Less current lease liabilities			(9,590	)			(231	)
Long-term lease liabilities		$	30,213			$	2,399

b.

Guarantees:

NOTE 16:-COMMITMENTS AND CONTINGENT LIABILITIES

a.Guarantees:

As of December 31, 2017,2019, contingent liabilities exist regarding guarantees in the amountamounts of $1,191, $58,$51,473, $18,373, $2,064 and $184$328 in respect of projects with customers, bank loans, office rent lease agreements and customs transactions, and credit card limits, respectively.

c.

Governmental commitments:

The Company has received royalty-bearing grants sponsored by the Israeli government for the support of research and development activities. Through June 30, 2015, the Company had obtained grants from the IIA for certain of the Company’s research and development projects. The Company is obligated to pay royalties to the IIA, amounting to 4% in the first three years, and 4.5% thereafter, of the sales of the products and other related revenues (based on the dollar equivalent amount of the grant) generated from such projects, up to 100% of the grants received. The royalty payment obligations also bear interest at the LIBOR rate. The obligation to pay these royalties is contingent on actual sales of the applicable products and in the absence of such sales, no payment is required.

As of December 31, 2016, the aggregate contingent liability to the IIA with respect to royalty-bearing participation, net of royalties accrued, amounted to $1,022 out of which the Company already recorded a provision for royalties in the amount of $260. The total research and development grants that the Company has received from the IIA as of December 31, 2016 were $990. The accumulated interest as of December 31, 2016 was $32.

As of December 31, 2017, the Company redeemed its entire obligation to the IIA.

Royalty expenses relating to the IIA grants included in cost of revenues for the year ended December 31, 2017 and the six months ended December 31, 2016, amounted to $748 and $260, respectively.

As of June 30, 2016 and 2015, there have been no sales or revenues on which royalties are payables.

The Israeli Research and Development Law provides that know-how developed under an approved research and development program may not be transferred to third parties without the approval of the IIA.  Such approval is not required for the sale or export of any products resulting from such research or development.

F - 49

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 14:-

COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

The IIA, under special circumstances, may approve the transfer of IIA-funded know-how outside Israel, in the following cases: (a) the grant recipient pays to the IIA a portion of the sale price paid in consideration for such IIA -funded know-how or in consideration for the sale of the grant recipient itself, as the case may be, which portion will not exceed six times the amount of the grants received plus interest (or three times the amount of the grant received plus interest, in the event that the recipient of the know-how has committed to retain the R&D activities of the grant recipient in Israel after the transfer); (b) the grant recipient receives know-how from a third party in exchange for its IIA-funded know-how; (c) such transfer of IIA-funded know-how arises in connection with certain types of cooperation in research and development activities; or (d) if such transfer of know-how arises in connection with a liquidation by reason of insolvency or receivership of the grant recipient.

e.

Contractual purchase obligations:

b.Contractual purchase obligations:

The Company has contractual obligations to purchase goods and raw materials. These contractual purchase obligations relate to inventories held by contract manufacturers and purchase orders initiated by the contract manufacturers, which cannot be canceled without penalty. The Company utilizes third parties to manufacture its products.

In addition, itthe Company acquires raw materials or other goods and services, including product components, by issuing to suppliers authorizations to its suppliers to purchase materials based on its projected demand and manufacturing needs. As of December 31, 2017,2019, the Company had non-cancelable purchase obligations totaling approximately $196,222,$472,086, out of which the Company already recorded a provision for loss in the amount of $1,627 (see also Note 8).$1,896.

F - 42

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 16:-COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

As of December 31, 2017,2019, the Company had contractual obligations for capital expenditures totaling approximately $23,263.$60,634. These commitments reflect purchases of automated assembly lines and other machinery related to the Company’s manufacturing.

f.

Legal claims:

manufacturing process.

c.Legal claims:

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

In September, 2018, the Company’s German subsidiary, SolarEdge Technologies GmbH received a complaint filed by competitor SMA Solar Technology AG (“SMA”). The complaint, filed in the District Court Düsseldorf, Germany, alleges that SolarEdge's 12.5kW - 27.6kW inverters infringe two of plaintiff’s patents. In its complaint, SMA requests inter alia an injunction and a determination for a claim for damages for sales in Germany. Plaintiff also asserts a value in dispute of 5 million Euros (approximately $5,600) for both patents. In November 2019, the first instance court accepted the claim of infringement for one of the two patents and the Company has filed an appeal to the Appeals Court Dusseldorf and is challenging the validity of the allegedly infringed patent in the German Patent Court. Also, in November 2019 the first instance court stayed the infringement proceedings regarding the other one of the two patents since it considered it to be highly likely that the patent would be invalid. The Company believes that it has meritorious defenses to the claims asserted and intends to vigorously defend against these lawsuits.

In May 2019, the Company was served with three lawsuits by Huawei Technologies Co., Ltd., a Chinese entity (“Huawei”), against the Company's two Chinese subsidiaries and its equipment manufacturer in China. The lawsuits, filed in the Guangzhou intellectual property court, allege infringement of three patents and ask for an injunction of manufacture, use, sale and offer for sale, and damage awards of 30 million RMB (approximately $4,300). Following the receipt of the lawsuits, the Company filed three lawsuits in China against Huawei for unauthorized use of patented technology. The Company believes that it has meritorious defenses to the claims asserted and intends to vigorously defend against these lawsuits.

F - 50

43

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands except(except share data

NOTE 15:-

LEASE INCENTIVE OBLIGATION

and per share data)

NOTE 16:-COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

In August 2019, the Company was served with a lawsuit by certain former shareholders of SMRE, against its Italian subsidiary that purchased the shares of SMRE in the tender offer which followed the SMRE Acquisition. The shareholders who tendered their shares are asking for the difference between 6 Euro per share, which is the amount they tendered their shares, and 6.77 Euro per share, for a total awards of 2.7 million Euros (approximately $3,100). The Company believes it has an operating lease agreement for building in Herzliya, Israel. meritorious defenses to the claims asserted and intends to vigorously defend against this lawsuit.

In connection with this lease,December 2019, the Company received a lawsuit filed by a former consultant of the Company and its third party lessor (the "Lessor") agreed thatIsraeli subsidiary in the Lessor would pay approximately $2,938 for certain leasehold improvements on behalfamount of 25.5 million NIS (approximately $7,400) claiming damages caused relating to a terminated consulting agreement and stock options therein. The Company believes it has meritorious defenses to the claims asserted and intends to vigorously defend against this lawsuit.

NOTE 17:-STOCK CAPITAL

a.Composition of common stock capital of the Company:

		Number of shares
		Authorized as of December 31,								Issued as of December 31,							Outstanding as of December 31,
		2019				2018				2019				2018				2019				2018
Stock of $0.0001 par value:
Common stock			125,000,000				125,000,000				49,081,457				46,052,802				48,898,062				46,052,802

b.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.

c.Stock option plans:

The Company’s 2007 Global Incentive Plan (the “2007 Plan”) was adopted by the board of directors on August 30, 2007. The 2007 Plan terminated upon the Company’s IPO on March 31, 2015 and no further awards may be granted thereunder. All outstanding awards will continue to be governed by their existing terms and 379,358 available options for future grant were transferred to the Company’s 2015 Global Incentive Plan (the “2015 Plan”) and are reserved for future issuances under the 2015 plan. The 2015 Plan became effective upon the consummation of the IPO. The 2015 Plan provides for the grant of options, RSUs and other share-based awards to directors, employees, officers and nonemployees of the Company and its subsidiaries. As of December 31, 2017,2019, a total of 10,383,357 shares of common stock were reserved for issuance pursuant to stock awards under the Company received in cash the entire amount of $2,938 from the Lessor in connection with such leasehold improvements. These leasehold improvements are accounted for as a lease incentive obligation, which is recorded under long-term liabilities, net of the current portion recorded in accrued expenses and other accounts payable under current liabilities. The lease incentive obligation is being amortized over the life of the lease and as a reduction to rent expense. As of December 31, 2017, the net amortized amount of lease incentive obligation is $2,049, out of which $1,765 was recorded under long-term liabilities.

2015 Plan (the “Share Reserve”).

NOTE 16:-

CONVERTIBLE PREFERRED STOCK

a.

Composition of convertible preferred stock of the Company:

		Authorized												Issued and outstanding
		Number of shares
		December 31,								June 30,				December 31,								June 30,
		2017				2016				2016				2017				2016				2016
Stock of $0.0001 par value:
Preferred stock			95,000,000				95,000,000				95,000,000				-				-				-

The Company issued Series A through E Preferred stock between the years 2006 and 2015. The Company classified the convertible preferred stock outside of stockholders’ equity  (deficiency) as required by ASC 480-10-S99-3A and ASR 268, since the shares possessed deemed liquidation features that could trigger a distribution of cash or assets not solely within the Company’s control.

F - 51

44

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands except(except share data

NOTE 16:-

CONVERTIBLE PREFERRED STOCK (Cont.)

b.

Prior to the consummation of the Company’s IPO on March 31, 2015, the Company had the following convertible preferred stock outstanding, all of which was converted into common stock following with the IPO on March 31, 2015 (see Note 1c) which resulted in classification of convertible preferred stock temporary equity in the amount of $140,915 into stockholders’ equity (deficiency):

		Shares outstanding				Number of shares of Common Stock issued upon conversion
Series A Preferred stock			15,558,830				5,186,276
Series B Preferred stock			18,760,196				6,253,398
Series C Preferred stock			15,984,655				5,328,217
Series D Preferred stock			16,024,251				5,341,416
Series D-1 Preferred stock			2,165,441				721,813
Series D-2 Preferred stock			2,598,528				866,175
Series D-3 Preferred stock			4,330,872				1,443,623
Series E Preferred stock			9,321,019				3,107,005
			84,743,792				28,247,923

NOTE 17:-

STOCK CAPITAL

a.

Composition of common stock capital of the Company:

		Authorized												Issued and outstanding
		Number of shares
		December 31,								June 30,				December 31,								June 30,
		2017				2016				2016				2017				2016				2016
Stock of $0.0001 par value:
Common stock			125,000,000				125,000,000				125,000,000				43,812,601				41,259,391			��	40,889,922

b.

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.

F - 52

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

data)

NOTE 17:-STOCK CAPITAL (Cont.)

c.

As a result of the reverse stock split, (i) every 3 shares of authorized, issued, and outstanding common stock was decreased to one share of authorized, issued, and outstanding common stock, (ii) the number of shares of common stock into which each outstanding warrant or option to purchase common stock is exercisable was proportionally decreased on a 1-for-3 basis, and (iii) all share prices and exercise prices were proportionately increased. All of the share numbers, share prices, and exercise prices have been adjusted within these consolidated financial statements, on a retroactive basis, to reflect this 1-for-3 reverse stock split.

d.

Stock option plans: The Company’s 2007 Global Incentive Plan (the “2007 Plan”) was adopted by the board of directors on August 30, 2007. The 2007 Plan terminated upon the Company’s IPO on March 31, 2015 and no further awards may be granted thereunder. All outstanding awards will continue to be governed by their existing terms and 379,358 available options for future grant were transferred to the Company’s 2015 Global Incentive Plan (the “2015 Plan”) and are reserved for future issuances under the 2015 plan. The 2015 Plan became effective upon the consummation of the IPO. The 2015 Plan provides for the grant of options, RSUs, and other share-based awards to directors, employees, officers, and consultants of the Company and its Subsidiaries. As of December 31, 2017, a total of 5,890,087 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 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 December 31, 2017, an aggregate of 2,003,126 options are still available for future grant under the 2015 Plan.

F - 53

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 17:-

STOCK CAPITAL (Cont.)

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 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 December 31, 2019, an aggregate of 8,686,589 options are still available for future grant under the 2015 Plan.

A summary of the activity in the sharestock options granted to employees and members of the board of directors for the year ended December 31, 20172019 and related information are as 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			(546,412	)			6.30
Forfeited or expired			(11,324	)			13.84
Outstanding as of December 31, 2019			2,112,009				15.44				3.58				168,229
Vested and expected to vest as of December 31, 2019			2,088,711				15.31				5.92				166,637
Exercisable as of December 31, 2019			1,789,915				13.07				2.77				146,813

										Weighted
										average
						Weighted				remaining
		Number				average				contractual				Aggregate
		of				exercise				term				intrinsic
		options				price				in years				Value
Outstanding as of December 31, 2016			4,864,469				5.05				6.24				39,585
Granted			445,680				14.64
Exercised			(1,758,288	)			2.70
Forfeited or expired			(27,551	)			10.06
Outstanding as of December 31, 2017			3,524,310				7.40				6.35				106,251
Vested and expected to vest as of December 31, 2017			3,442,470				7.32				6.34				104,050
Exercisable as of December 31, 2017			2,406,369				5.58				5.64				76,931

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.

The total intrinsic value of options exercised during the yearyears ended December 31, 2019, 2018 and 2017 the six months ended December 31, 2016,was $37,509, $58,601, and the year ended June 30, 2016 was $44,625, $1,790, and $30,670, respectively.

The weighted average grant date fair valuesvalue of options granted to employees and executive directors during the yearyears ended December 31, 2019, 2018, and 2017, the six months ended December 31, 2016,was $19.83, $20.83 and the years ended June 30, 2016 and 2015 were $7.94, $8.86, $13.27, and $4.24, respectively.

F - 54

45

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands except(except share data

NOTE 17:-

STOCK CAPITAL (Cont.)

The options outstanding as of December 31, 2017, have been separated into exercise price ranges as follows:

				Options				Weighted				Options				Weighted
				outstanding				average				exercisable				average
Range of				as of				remaining				as of				remaining
exercise				December 31,				contractual				December 31,				contractual
price				2017				Life in years				2017				Life in years
$	0.87 - $1.50				202,281				1.44				202,281				1.44
$	1.68 - $2.46				660,264				3.68				660,264				3.68
$	3.03 - $5.01				1,778,547				6.81				1,263,352				6.79
$	9.36				15,267				7.08				8,949				7.08
$	13.70 – $14.85				438,430				9.12				78,309				9.02
$	15.34 – $17.14				193,571				8.61				60,314				8.49
$	20.81 - $25.09				235,950				7.57				132,900				7.49
					3,524,310				6.35				2,406,369				5.64

and per share data)

NOTE 17:-STOCK CAPITAL (Cont.)

A summary of the activity in the RSUs granted to employees and members of the board of directors for the year ended December 31, 2017,2019, is as follows:

		Number of RSUs				Weighted average grant date fair value
Unvested as of January 1, 2019			2,807,232				34.40
Granted			1,332,053				71.46
Vested			(1,122,712	)			32.23
Forfeited			(273,984	)			39.61
Unvested as of December 31, 2019			2,742,589				52.77

		No. of RSUs				Weighted average grant date fair value
Unvested as of January 1, 2017			1,515,018				19.74
Granted			1,252,815				27.30
Vested			(547,104	)			20.07
Forfeited			(132,737	)			18.65
Unvested as of December 31, 2017			2,087,992				24.33

F - 55

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 17:-

STOCK CAPITAL (Cont.)

Options

The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2019, 2018 and RSUs issued to non-employee consultants:

2017, was $71.46, $41.45 and $27.30, respectively.

d.Employee Stock Purchase Plan:

The Company has granted options to purchase common shares and RSU’s to non-employee consultants asadopted an ESPP effective upon the consummation of the IPO. As of December 31, 2017 as follows:

		Options & RSU’s
		outstanding								Exercisable
		as of								as of
Issuance		December 31,				Exercise				December 31,			Exercisable
Date		2017				price				2017			Through
October 24, 2012			2,000				2.46				2,000		October 24, 2022
January 27, 2014			1,144				3.51				713		January 27, 2024
May 1, 2014			2,000				3.51				1,875		May 1, 2024
September 17, 2014			6,498				3.96				5,509		September 17, 2024
October 29, 2014			2,668				5.01				224		October 29, 2024
August 19, 2015			10,439				0.00				-
November 8, 2015			1,449				0.00				-
April 18, 2016			1,250				0.00				-
July 11, 2016			1,501				0.00				-
September 21, 2016			4,000				15.34				250		September 21, 2026
September 21, 2016			3,813				0.00				-
March 15, 2017			7,000				0.00				-
March 15, 2017			7,500				13.70				500		March 15, 2027
March 27, 2017			4,000				0.00				-
November 20, 2017			6,000				0.00				-
December 26, 2017			2,667				0.00				667
			63,929								11,738

2019, total of 2,199,808 shares were reserved for issuance under this plan. The Company accountsnumber of shares of common stock reserved for its options granted to non-employee consultantsissuance under the fair value methodESPP will increase automatically on January 1st of ASC 505-50 (“Equity-Based Paymentseach 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 Non-Employees”).

In connection with the grant of stock options to non-employee consultants, the Company recorded stock compensation expenses in the year ended December 31, 2017, the six months ended December 31, 2016, and the years ended June 30, 2016 and 2015 in the amounts of $986, $66, $524, and $563, respectively.

e.

Employee Stock Purchase Plan (“ESPP”): The Company adopted an Employee Stock Purchase Plan (the “ESPP”) effective upon the consummation of the IPO. As of December 31, 2017, a total of 1,301,154 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 - 56

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 17:-

STOCK CAPITAL (Cont.)

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 December 31, 2017, 268,3772019, 528,359 shares of common stock shares had been purchased under the ESPP.

As of December 31, 2017, 1,032,7772019, 1,671,449 shares of 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.

F - 46

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f.

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

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 17:-STOCK CAPITAL (Cont.)

e.Stock-based compensation expenses for employees and non-employees:

The Company recognized stock-based compensation expenses related to stock options and RSUs granted to employees and non-employee consultantsnonemployees and ESPP in the consolidated statement of operations for the year ended December 31, 2017, the six months ended December 31, 2016, andincome for the years ended June 30, 2016December 31, 2019, 2018 and 2015,2017, as follows:

		Year ended December 31,
		2019				2018				2017
Cost of revenues		$	6,964			$	4,343			$	2,250
Research and development			16,872				11,205				5,703
Selling and marketing			11,062				9,111				5,387
General and administrative			6,991				5,959				4,224
Other operating expenses			18,464				-				-
Total stock-based compensation expenses		$	60,353			$	30,618			$	17,564

		Year ended December 31,				Six months ended December 31,				Year ended June 30,
		2017				2016				2016				2015
Cost of revenues		$	2,250			$	871			$	945			$	442
Research and development, net			5,703				2,061				2,364				635
Selling and marketing			5,387				1,852				2,915				809
General and administrative			4,224				1,816				2,820				1,070
Total stock-based compensation expense		$	17,564			$	6,600			$	9,044			$	2,956

As of December 31, 2017,2019, there was awere total unrecognized compensation expenseexpenses in the amount of $56,867$145,033 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 January 1, 20182020 through November 30, 2021.

February 29, 2024.

NOTE 18:-EARNINGS PER SHARE

Basic net Earnings Per Share (“EPS”) 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 EPS 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.”

312,128 shares of common stock were excluded from the calculation of diluted net EPS due to their anti-dilutive effect for the year ended December 31, 2019.

No shares were excluded from the calculation for the year ended December 31, 2018.

The total weighted average number of shares related to the outstanding stock options, excluded from the calculation of diluted net EPS due to their anti-dilutive effect was 197,516, for the year ended December 31, 2017.

F - 57

47

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands except(except share data

and per share data)

NOTE 18:-EARNINGS PER SHARE (Cont.)

The following table presents the computation of basic and diluted EPS attributable to SolarEdge Technologies, Inc.:

		Year ended December 31,
		2019				2018				2017
Basic EPS:
Numerator:
Net income		$	144,957			$	128,046			$	84,172
Net loss attributable to Non-controlling interests			1,592				787				-
Net income attributable to SolarEdge Technologies, Inc.		$	146,549			$	128,833			$	84,172
Denominator:
Shares used in computing net earnings per share of common stock, basic			47,918,938				45,235,310				42,209,238
Diluted EPS:
Numerator:
Net income		$	144,957			$	128,046			$	84,172
Net loss attributable to Non-controlling interests			1,592				787				-
Undistributed earnings reallocated to non-vested stockholders			(906	)			-				-
Net income attributable to SolarEdge Technologies, Inc.		$	145,643			$	128,833			$	84,172
Denominator:
Shares used in computing net earnings per share of common stock, basic			47,918,938				45,235,310				42,209,238
Weighted average effect of dilutive securities:
Non-vested PSUs			(312,128	)			-				-
Effect of stock-based awards			2,588,851				2,744,692				3,216,069
Shares used in computing net earnings per share of common stock, diluted			50,195,661				47,980,002				45,425,307

F - 48

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 19:-OTHER OPERATING EXPENSES

		Year ended December 31, 2019
Compensation package related to the passing of the former Founder, CEO and Chairman (1)		$	8,305
Termination of SMRE’s former executive (2)			12,222
Sale of SMRE’s subsidiary (3)			5,269
A settlement of pre-acquisition legal claim against Kokam (4)			4,900
Total other operating expenses		$	30,696

(1)On August 25, 2019, the Company announced the untimely death of Mr. Guy Sella, Founder, who had served as CEO and Chairman of the Board of Directors until shortly before his passing. For the year ended December 31, 2019, the Company recognized expenses in the amount of $8,305, in other operating expenses in the consolidated statement of income, related to payroll, bonus and acceleration of stock-based compensation award.

(2)As part of SMRE Acquisition, the Company issued to a shareholder who had served as an executive of SMRE 334,095 PSUs, which were subject to certain performance goals and a vesting period. In December 2019, in connection with a separation agreement between the parties, the Company and the shareholder amended the original agreement, which resulted in a modification to the terms of 150,000 of the original PSUs, such as, the fair value of the PSU, the service period and the performance goals. The Company exercised a call option with respect to the remaining 183,395 PSUs, for a price per share equal to €0.01. As a result of the modification, the Company accelerated the award and recognized expenses in the amount of $12,222, in other operating expenses in the consolidated statement of income.

(3)On December 31, 2019, the Company completed the sale of an SMRE’s subsidiary. As a result of this transaction, the Company recognized a loss of $5,269 in other operating expenses in the consolidated statement of income.

(4)At the time of the Kokam acquisition, Kokam had outstanding against it a claim for damages. In December 2019, the claim was settled for an amount of $4,900, which was recognized as an expense in other operating expenses in the consolidated statement of income.

F - 49

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 20:-INCOME TAXES

a.

Tax rates in U.S:

a. Tax rates in U.S:

The Company is subject to U.S. federal tax at the rate of 34%21%.

On December 22, 2017, the TCJATax Cuts and Jobs Act (the "Tax Act") was signed into law making significant changes to U.S. income tax law. ChangesThese changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017,2018 onwards and created new taxes on certain foreign-sourced earnings and certain related-party payments.

Due to the transitiontiming of U.S. international taxation from a worldwide tax system to a territorial system,the enactment and a one-time transition tax on the mandatory deemed repatriationcomplexity involved in applying the provisions of cumulative foreign earningsthe Tax Act, the Company made reasonable estimates of the effects and recorded provisional amounts in our consolidated financial statements as of December 31, 2017. As the Company collected and prepared necessary data, and interpreted the additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, it made adjustments, over the course of 2018, to the provisional amounts including refinements to deferred taxes. The accounting for the tax effects of the Tax Act was completed as of December 31, 2018.

Transition tax:

The Tax Act required the Company to pay U.S. income taxes on accumulated foreign subsidiaries earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining earnings. The total tax liability was calculated to approximately $8,500. The Company has calculatedelected to pay its best estimate oftransition tax over the impact of the TCJA in its year end income tax provision in accordance with its understanding of the TCJA and guidance available as of the date of this filing and as a result has recorded $19.2 million as an additional income tax expenseeight-year period provided in the fourth quarter of 2017, the period in which the legislation was enacted.

The provisional amount relatedTax Act.

b.Kokam is subject to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future was $0.5 million. Additional work is necessary to reflect the actual rate at which those deferred tax assets and liabilities expected to reverse.

The provisional amount related to the one-time transitionKorean tax on the mandatory deemed repatriationprogressive tax rates of foreign earnings was $18.7 million based on cumulative foreign earningsup to 22%.

SMRE is subject to Italian corporate tax rate of $145 million. Additional work is necessary to do a more detailed analysis of historical foreign earnings as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in the quarter of 2018 when the analysis is complete.

Additionally, the TCJA requires certain Global Intangible Low Taxed Income (“GILTI”) earned by controlled foreign corporations (“CFCs”) to be included in the gross income of the CFCs’ U.S. shareholder.  GAAP allows the Company to either: (i) treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”); or (ii) factor such amounts into its measurement of deferred taxes (the “deferred method”)24%.  The GILTI tax rules will become effective for the 2018 tax year and therefore the Company has not made any adjustments related to the potential GILTI

c.Corporate tax in its financial statements for the year ended December 31, 2017.  The Company continues to evaluate the impact of the new GILTI tax rules and the application of ASC 740 on its financial statements.

b.

The Company’s German subsidiary is subject to German tax at the rate of 33%.

c.

Corporate tax in Israel:

Israel:

Taxable income of Israeli companies is subject to corporate tax at the rate of 26.5% in the years ended June 30, 2014 and 2015, and 25% in the year ended June 30, 2016 onwards.

The Israeli subsidiary is also eligible for tax benefits as further described in note 18k.

F - 58

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 18:-     INCOME TAXES (Cont.)

23%.

In December 2016, the Israeli Parliament approved the Economic Efficiency Law 2016 (Legislative(Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017 and to 23% effective from January 1, 2018.2018 onwards.

The Israeli subsidiary is also eligible for tax benefits as further described in note 20k.

F - 50

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d.

Carryforward tax losses:

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 20:-INCOME TAXES (Cont.)

d.Carryforward tax losses:

As of December 31, 2017, the Company2019, Kokam has no federal or state carryforward tax losses.

losses of $17,353.

As of December 31, 2017, the Israeli and German subsidiaries have no net2019, SMRE has carryforward tax losses.

e.

Deferred income taxes:

losses of approximately $11,000.

e.Deferred incometaxes:

Deferred 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.

The Company’s Israeli subsidiary’s tax-exempt profit from Benefited Enterprises (as defined in in note 20k) is permanently reinvested, as the Company’s management and the Board of Directors has determined that the Company does not currently intend to distribute dividends. Therefore, deferred taxes have not been provided for such tax-exempt income. The Company intends to continue to reinvest these profits and does not currently foresee a need to distribute dividends out of such tax-exempt income.

Therefore, no deferred taxes have been provided in respect of such tax-exempt income as the undistributed tax-exempt income is essentially permanent in duration.

The Company may incur additional tax liability in the event of intercompany dividend distributions by some of its subsidiaries. Such additional tax liability in respect of these subsidiaries has not been provided for in the Financial Statements as the Company’s management and the Board of Directors has determined that the Company intends to reinvest earnings of its subsidiaries indefinitely.

Taxes that would apply in the event of disposal of investments in subsidiaries have not been taken into account in computing deferred income taxes, as the Company’s management and the Board of Directors has determined that the Company’s intention to hold, and not to realize, these investments.

F - 51

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 20:-INCOME TAXES (Cont.)

Significant components of the Company’s deferred tax liabilities and assets are as follows:

		December 31,
		2019				2018				2017
Deferred tax assets, net:
Research and Development carryforward expenses		$	4,994			$	9,482			$	5,380
Carryforward tax losses			6,318				4,155				-
Stock based compensation expenses			4,898				3,160				1,622
Deferred revenue			3,621				1,268				205
Inventory Impairment			2,442				1,471				-
Allowance and other reserves			7,305				3,072				1,133
Total Gross deferred tax assets, net		$	29,578			$	22,608			$	8,340
Less, Valuation Allowance (1)			(2,317	)			-				-
Total deferred tax assets, net		$	27,261			$	22,608			$	8,340
Deferred tax liabilities, net:
Purchase price allocation			(15,424	)			(9,408	)			-
Total deferred tax liabilities, net		$	(15,424	)		$	(9,408	)		$	-
Recorded as:
Deferred tax assets, net		$	16,298			$	14,699			$	8,340
Deferred tax liabilities, net			(4,461	)			(1,499	)			-
Net deferred tax assets		$	11,837			$	13,200			$	8,340

(1)Related primarily to deferred tax assets that would only be realizable upon the generation of net income in certain foreign jurisdictions.

		December 31,								June 30,
		2017				2016				2016
Assets in respect of:
Carryforward tax losses		$	-			$	-			$	4,186
Research and Development carryforward expenses- temporary differences			5,380				908				743
Stock based compensation			1,622				1,039				562
Other reserves			1,338				868				805
Deferred tax assets, net		$	8,340			$	2,815			$	6,296

F - 59

52

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands except(except share data

and per share data)

NOTE 18:20:-INCOME TAXES (Cont.)

f.Uncertain tax positions:

		December 31,
		2019				2018				2017
Balance at January 1,		$	8,499			$	579			$	249
Increases related to current year tax positions			463				8,499				330
Decreases related to prior year tax positions			-				(579	)			-
Balance at December 31,		$	8,962			$	8,499			$	579

The Company remeasured these non-current assetstotal amount of gross unrecognized tax benefits was $9,500, $8,500, and liabilities at the applicable tax rate of 21% in accordance with the TCJA. The remeasurement resulted in a total decrease in these assets of $0.5 million.

f.

Uncertain tax positions:

As$600 as of December 31, 2019, 2018 and 2017, respectively, of which, $9,500, $8,500 and 2016, the Company’s Israeli subsidiary$600, if recognized, awould affect our effective tax rate, respectively.

The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. The total liability for uncertain tax positions in the amount of $0.6penalties and $0.3 million, respectively.interest were not material as of December 31, 2019, 2018 and 2017. The Company does not expect a material change in its unrecognized tax benefits within the next 12 months.

g.Income before taxes are comprised as follows:

		Year ended December 31,
		2019				2018				2017
Domestic		$	6,029			$	13,405			$	7,461
Foreign			172,574				123,718				92,783
		$	178,603			$	137,123			$	100,244

h.Income taxes (tax benefit) are comprised as follows:

		Year ended December 31,
		2019				2018				2017
Current taxes:
U.S. Federal & State		$	10,093			$	13,894			$	19,889
Foreign			29,590				2,276				1,638
Total current taxes			39,683				16,170				21,527
Deferred taxes:
U.S. Federal & State			(3,414	)			(1,284	)			(42	)
Foreign			(2,623	)			(5,809	)			(5,413	)
Total deferred taxes			(6,037	)			(7,093	)			(5,455	)
Income taxes, net		$	33,646			$	9,077			$	16,072

F - 53

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g.

Income before taxes is comprised as follows:

		Year Ended December 31, 2017				Six months ended December 31, 2016				Year ended June 30,
										2016				2015
Domestic		$	7,461			$	3,165			$	3,758			$	2,830
Foreign			92,783				27,433				68,472				20,246
		$	100,244			$	30,598			$	72,230			$	23,076

h.

Taxes on income (tax benefit) are comprised as follows:

		Year ended December 31, 2017				Six months ended December 31, 2016				Year ended June 30,
										2016				2015
Domestic taxes:
Current			19,889				1,047				1,737				1,655
Deferred			(42	)			507				(1,380	)			-
Foreign taxes:
Current			1,639				518				263				300
Deferred			(5,414	)			3,145				(4,999	)			-
		$	16,072			$	5,217			$	(4,379	)		$	1,955

i.

Reconciliation of theoretical tax expense to actual tax expense:

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 20:-INCOME TAXES (Cont.)

i.Reconciliation of theoretical tax expense to actual tax expense:

The differences between the statutory tax rate of the Company and the effective tax rate are primarily accounted for by the non-recognition of tax benefits from accumulated net carryforward tax losses among the Company and various subsidiaries due to uncertainty of the realization of such tax benefits.

F - 60

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 18:-     INCOME TAXES (Cont.)

A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company, and the actual tax expense (benefit) as reported in the consolidated statements of operationsincome is as follows:

		Year ended December 31,
		2019				2018				2017
Income before taxes, as reported in the consolidated statements of income		$	178,603			$	137,123			$	100,244
Statutory tax rate			21	%			21	%			34	%
Theoretical tax expenses on the above amount at the US statutory tax rate			37,507				28,796				34,083
Income tax at rate other than the U.S. statutory tax rate			(8,784	)			(17,432	)			(34,734	)
Losses and timing differences for which valuation allowance was provided			2,317				-				-
Tax Cuts and Jobs Act of 2017			(1,246	)			(1,367	)			18,735
Non-deductible expenses			4,040				(644	)			(1,545	)
Other individually immaterial income tax items, net			(188	)			(276	)			(467	)
Actual tax expense (tax benefit)		$	33,646			$	9,077			$	16,072
Effective tax rate			18.8	%			6.6	%			16	%

		Year ended December 31,				Six months ended December 31,				Year ended June 30,
		2017				2016				2016				2015
Income before taxes, as reported in the consolidated statements of operations		$	100,244			$	30,598			$	72,230			$	23,076
Statutory tax rate			34	%			34	%			34	%			35	%
Theoretical tax benefits on the above amount at the US statutory tax rate			34,083				10,403				24,558				8,077
Income tax at rate other than the U.S. statutory tax rate			(34,734	)			(5,396	)			(30,229	)			(9,305	)
Tax Cuts and Jobs Act of 2017			18,735				-				-				-
Non-deductible expenses			(1,545	)			164				1,514				3,003
Other individually immaterial income tax items			(467	)			46				(222	)			180
Actual tax expense (tax benefit)		$	16,072			$	5,217			$	(4,379	)		$	1,955

j.

Tax assessments:

j.Tax assessments:

As of December 31, 2017,2019, the Company and certain of its subsidiaries filed U.S. federal and various state and foreign income tax returns. The statute of limitations relating to the consolidated U.S. federal income tax return is closed for all tax years up to and including 2014.

2015. Net operating losses generated in years prior to 2016 and carried forward are available to adjustment and subject to the statute of limitation provisions of such year when the net operating losses were utilized.

The statute of limitations related to tax returns of the Company’s Israeli subsidiary is closed for all tax years up to and including 2012.

2013 has lapsed.

The statute of limitations related to tax returns of the Company’s German subsidiary is closedother subsidiaries has lapsed for allpart of the tax years, up towhich differs between the different subsidiaries.

F - 54

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share and including 2014.

With respect to the Company’s Chinese, Australian, Canadian, Dutch, Japanese, UK, French, Italian, Bulgarian, Turkish, Belgian, Indian, Swedish, and Romanian subsidiaries, the statute of limitations related to its tax returns is open for all tax years since incorporation.

per share data)

NOTE 20:-INCOME TAXES (Cont.)

The Company believes that it has adequately provided for reasonably foreseeable outcomes related to tax audits and settlements. The final tax outcome of any Company tax audits could be different from that which is reflected in the Company’s income tax provisions and accruals. Such differences could have a material effect on the Company’s income tax provision and net income (loss) in the period in which such determination is made.

F - 61

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 18:-     INCOME TAXES (Cont.

k.Tax benefits for Israeli companies under the Law for the Encouragement of Capital Investments, 1959 (the “Investments Law”)

k.

Tax benefits for Israeli companies under the Law for the Encouragement of Capital Investments, 1959 (the “Investment Law”):

:

The Israeli subsidiary elected tax year 2012 as a "Year of Election" for “Beneficiary“Benefited Enterprise” status under the InvestmentInvestments Law. According to the InvestmentInvestments Law, the Israeli subsidiary elected to participate in the alternative benefits program which provides certain benefits, including tax exemptions and reduced tax rates. Income not eligible for Beneficiary Enterprise benefits is taxed at a regular corporate tax raterates (which depend on, inter alia, the geographic location in Israel). Income not eligible for Benefited Enterprise benefits is taxed at a regular corporate tax rate.

Upon meeting the requirements under the InvestmentInvestments Law, undistributed income derived from BeneficiaryBenefited Enterprise from productive activity will be exempt from tax for two years from the year in which the Israeli subsidiary first has taxable income, provided that 12 years have not passed from the beginning of the year of election. In the six months ended

By December 31, 2016, the Israeli subsidiary utilized all of its operating loss carryforwards in Israel and became profitable for tax purposes.

On October 24, 2018, the Company’s Israeli subsidiary received an approval from the Israeli Tax Authorities confirming the applicability of the two-year tax exemption as provided in the Investments Law until December 31, 2018.

As of December 31, 2017, the Israeli subsidiary is entitled to benefit from a two year tax exemption as part of the Beneficiary Enterprise regime.

If dividends are distributed out of tax-exempt profits, the Israeli subsidiary will then become liable for tax, with respect of the gross amount of the dividend at the rate applicable to its profits from the Beneficiary Enterprise in the year in which the income was earned, as if it had not chosen the alternative track of benefits.

The dividend recipient is subject to withholding tax at the rate of 15% applicable to dividends from Beneficiary enterprises, or such lower rate as may be provided in an applicable tax treaty.  If the dividend is distributed during the tax benefits period or within twelve years thereafter. This limitation does not apply to a foreign investors' company. The Israeli subsidiary currently has no plans to distribute dividends and intends to retain future earnings to finance the development of its business.

Through December 31, 2017, the Israeli subsidiary had generated income under the provision of the Investment Law.

As of December 31, 2017,2018, approximately $151 million$289,900 was derived from tax exempt profits earned by the Israeli subsidiary “Beneficiary Enterprises.”“Benefited Enterprises”. The Company has determined that such tax-exempt income will not be distributed as dividends and intends to reinvest the amount of its tax exempttax-exempt income earned by the Israeli subsidiary. Accordingly, no provision for deferred income taxes has been provided on income attributable to the Israeli subsidiary “Beneficiary“Benefited Enterprises” as such income is essentially permanently reinvested.

If the Israeli subsidiary retained tax-exempt income is distributed, the income would be taxed at the applicable corporate tax rate which dependdepends on the foreign ownership in each tax year, and the tax rate can range between 10% (when foreign ownership exceeds 90%) to 25% (when foreign ownership exceedsis below 49%).

The dividend recipient is subject to withholding tax at the rate of 15%, applicable to dividends from Benefited enterprises, or such lower rate as may be provided in an applicable tax treaty, which would generally be withheld at source by the distributing company.

F - 62

55

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands except(except share data

and per share data)

NOTE 18:20:-INCOME TAXES (Cont.)

Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 71):

On August 5, 2013,

Through December 31, 2019, the Israeli Parliament issuedsubsidiary had generated income under the Law for Changing National Priorities (Legislative Amendments for Achieving Budget Targets for 2013 and 2014), 2013 which consistsprovision of Amendment 71 to the Law for the Encouragement of Capital Investments ("the Amendment"). According to the Amendment, the tax rate on preferred income from a preferred enterprise in 2014 and thereafter will be 16% (in development area A (as defined therein and which details specific areas in development in Israel) will be 9%).

The Amendment also prescribes that any dividends distributed to individuals or foreign residents from the preferred enterprise's earnings as above will be subject to tax at a rate of 20%.

Law.

Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 73):

- In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which includes Amendment 73 to the Investments Law for the Encouragement of Capital Investments ("the  2017(the “2017 Amendment") was published. According to the 2017 Amendment, a preferred enterprise located in development area A will be subject to a tax rate of 7.5% instead of 9% effective from January 1, 2017 and thereafter (the tax rate applicable to preferred enterprises located in other areas remains at 16%).

The 2017 Amendment also prescribes special tax tracks for preferred technological enterprises (“PTE”), which are subject to rules that were issued by the Ministry of Finance.

On June 14, 2017, the Encouragement of Capital Investments Regulations (Preferred Technological Income and Capital Gain for Technological Enterprise), 2017 (the “Regulations”) were published.

The new tax tracksRegulations applied Action 5 under the 2017 Amendment are as follows:

Action Plan on Base Erosion and Profit Shifting (BEPS). The Regulations describe, inter alia, the mechanism used to determine the calculation of the benefits under the PTE regime and determine certain requirements relating to documentation of intellectual property for the purpose of the PTE. According to these provisions, a company that complies with the 2017 Amendment,terms under the PTE regime may be entitled to certain tax benefits with respect to income generated during the company’s regular course of business and derived from the preferred technological enterprise is an enterprise for which total consolidated revenues of its parent company and all subsidiaries are less than NIS 10 billion. A technological preferred enterprise, as definedintangible asset (as determined in the Investment Law,Law), excluding income derived from intangible assets used for marketing and income attributed to production activity. In the event that intangible assets used for marketing purposes generate over 10% of the PTE’s income, the relevant portion, calculated using a transfer pricing study, would be subject to regular corporate income tax. If such income does not exceed 10%, the PTE will not be required to exclude the marketing income from the PTE’s total income.

The Regulations establish a presumption of direct production expenses plus 10% with respect to income related to production, which can be countered by the results of a supporting transfer pricing study. Tax rates applicable to such production income expenses will be similar to the tax rates under the Preferred Enterprise regime to the extent such income would be considered as eligible. In order to calculate the preferred income, the PTE is required to take into account the income and the research and development expenses that are attributed to each single preferred intangible asset. Nevertheless, it should be noted that the transitional provisions allow companies to take into account the income and research and development expenses attributed to all of the preferred intangible assets they have.

F - 56

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 20:-INCOME TAXES (Cont.)

A PTE, which is located in the center of Israel will be subject to tax at a rate of 12% on profits deriving from intellectual property (in development area A - a tax rate of 7.5%).

Special preferred technological enterprise

The Israeli subsidiary’s PTE facilities in Israel are not located in Development Zone A. SolarEdge Technologies Ltd. is an enterprise forin the final stages of building its own manufacturing facilities in Israel, which total consolidated revenuesis located in a Development Zone A.

The Company notified the ITA of its parent company and all subsidiaries exceed NIS 10 billion. Such enterprise will beelection to implement the PTE with effect from January 1, 2019.

A Preferred Company distributing dividends from Preferred Income or income derived from its PTE, would subject the recipient to a tax at athe rate of 6% on profits deriving from intellectual property, regardless of the enterprise's geographical location.

F - 63

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SOLAREDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands, except share data

NOTE 18:-      INCOME TAXES (Cont.)

Any dividends distributed deriving from income from the preferred technological enterprises or special preferred technological enterprise will be subject to20% (or lower, if so provided under an applicable tax at a rate of 20%treaty). The 2017 Amendment further provides that, inIn certain circumstances, a dividend distributed to a foreign corporate shareholder who is not an Israeli resident for tax purposes, would be subject to a tax at athe rate of 4% (if. Such taxes would generally be withheld at source by the amountdistributing company. To benefit from any lower tax rates under an applicable tax treaty, a non-resident of foreign investors exceeds 90%).

The Israeli subsidiary is entitleIsrael would need to receive in advance a valid certificate from the above mentioned preferred technological enterprise benefits and will be subjectITA allowing for a reduced tax rate, or to file an appropriate tax atreturn with the ITA claiming a rate of 12%refund based on profits deriving from intellectual property or 7.5% in development area A,the lower rate under the 2017 Amendment.

applicable tax treaty.

Tax Benefits for Research and Development:

Israeli tax law (section 20a20A to the Israeli Tax Ordinance)Ordinance (New Version), 1961) allows, under certain conditions, a tax deduction for research and development expenses, including capital expenses, for the year in which they are paid. Such expenses must relate to scientific research in industry, agriculture, transportation or energy, and must be approved by the relevant Israeli government ministry, determined by the field of research. Furthermore, the research and development must be for the promotion of the company’s business and carried out by or on behalf of the company seeking such tax deduction. However, the amount of such deductible expenses is reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects. As for expenses incurred in scientific research that is not approved by the relevant Israeli government ministry, they will be deductible over a three-year period starting from the tax year in which they are paid.

The Company’s Israeli subsidiary intends to submit a formal request to the relevant Israeli government ministry in order to obtain such approval for 2019.

l.Tax benefits under the Law for the Encouragement of Industry (Taxes), 1969:

The Company’s Israeli subsidiary claims currently to be qualified as ‘industrial company’ as defined by this law and as such, is entitled to certain tax benefits, consisting mainly of accelerated depreciation and amortization of patents and certain other intangible property.

NOTE 19:-

FINANCIAL EXPENSES (INCOME), NET

		Year ended December 31,				Six months ended December 31,				Year ended June 30,
		2017				2016				2016				2015
Remeasurement of warrants to purchase convertible preferred stock		$	-			$	-			$	-			$	5,350
Interest on term loan			-				-				-				579
Other financial expenses related to term loan			-				-				-				373
Expenses (income) related to hedging transaction			1,334				87				136				(1,721	)
Interest on short- term loan			-				-				-				316
Interest on marketable securities			(4,398	)			(1,504	)			(1,112	)			-
Amortization of marketable securities premium and accretion of discount, net			2,017				685				532				-
Exchange rate loss (income), net, bank charges and other finance expenses			(8,111	)			3,521				(27	)			180
		$	(9,158	)		$	2,789			$	(471	)		$	5,077

F - 64

57

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 21:-FINANCIAL EXPENSES (INCOME), NET

		Year ended December 31,
		2019				2018				2017
Interest income on marketable securities		$	(4,590	)		$	(5,629	)		$	(4,398	)
Exchange rate loss (income), net			10,342				4,725				(8,488	)
Interest expenses			4,805				2,536				-
Bank charges			1,021				675				377
Amortization of marketable securities premium and accretion of discount, net			122				1,242				2,017
Other financial income, net			(357	)			(1,252	)			1,334
		$	11,343			$	2,297			$	(9,158	)

NOTE 20:-

GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER AND PRODUCT DATA

Summary information about geographic areas:

ASC 280 (“

NOTE 22:-SEGMENT, GEOGRAPHIC, MAJOR CUSTOMER AND PRODUCT INFORMATION

a.Segment Reporting”) establishes standards for reporting information about operating segments. OperatingInformation:

Following the acquisitions of Gamatronic, Kokam, and SMRE, the Company has changed its segments are defined as componentsmeasurement, beginning in 2019. The purpose of an enterprise about which separate financial informationthe new measurement is available that is evaluated regularly byto provide the Company’s chief operating decision maker (“CODM”) better information to asses’ segment performance and to make resource allocation decisions. The Company now operates in deciding how to allocate resourcesfive different operating segments: Solar, UPS, energy storage, e-Mobility and in assessing performance. machinery.

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

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

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

The Company identified one operating segment as reportable segment,– the solar segment. The other operating segments are insignificant individually and derives revenues from selling its products (see Note 1a for a brief description of the Company’s business)in aggregate and therefore their results are presented together under “All other”.

The following is a summary of revenues within geographic areas:

		Year ended December 31,				Six months ended December 31,				Year ended June 30,
		2017				2016				2016				2015
Revenues based on Customers’ location:
United States		$	348,949			$	160,321			$	334,260			$	238,340
Netherlands			70,067				23,099				36,377				21,349
Europe (*)			128,295				37,500				74,830				44,104
Rest of the World			59,734				19,077				44,376				21,285
Total revenues		$	607,045			$	239,997			$	489,843			$	325,078

(*) Except for Netherlands

Major customer data as a percentage of total revenues:

		Year ended December 31,				Six months ended December 31,				Year ended June 30,
		2017				2016				2016				2015
Customer A			14.8	%			11.2	%			11.6	%			4.9	%
Customer B			8.1	%			8.4	%			10.1	%			5.4	%
Customer C			3.0	%			8.7	%			10.9	%			24.6	%

The following is a summary of revenues by product family:

		Year ended December 31,				Six months ended December 31,				Year ended June 30,
		2017				2016				2016				2015
Inverters		$	290,632			$	112,585			$	223,756			$	156,984
Optimizers			286,856				115,229				244,852				158,513
Others			29,557				12,183				21,235				9,581
Total revenues		$	607,045			$	239,997			$	489,843			$	325,078

F - 65

58

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

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

NOTE 22:-SEGMENT, GEOGRAPHIC, MAJOR CUSTOMER AND PRODUCT INFORMATION (Cont.)

The solar segment includes the design, development, manufacturing, and sales of an intelligent inverter solution designed to maximize power generation at the individual PV module level. The solution consists mainly of the Company’s power optimizers, inverters and cloud‑based monitoring platform.

The All other category includes the design, development, manufacturing and sales of UPS products, energy storage products, e-Mobility products, and special machines for automatic and semi-automatic linear sewing, digital welding and digital cutting.

Information on reportable segments and reconciliation to consolidated operating income is as follows:

		As of December 31, 2019
		Solar				All other
Revenues		$	1,336,618			$	89,042
Cost of revenues			852,330				75,702
Gross profit			484,288				13,340
Research and development			91,868				12,520
Sales and marketing			67,275				8,433
General and administrative			31,201				9,561
Segments profit (loss)		$	293,944			$	(17,174	)

		As of December 31,
		2019
Solar profit		$	293,944
All other loss			17,174
Segments operating profit			276,770
Expenses not allocated to segments:
Stock based compensation expenses			60,353
Amortization			11,112
Sale of SMRE’s subsidiary			5,269
Legal settlement			4,900
Cost of products adjustments			1,556
Other unallocated expenses			3,634
Consolidated operating income		$	189,946

The All other Segment results were immaterial for the year ended December 31, 2018. For the year ended December 31, 2017, the Company operated in the solar segment only.

F - 59

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 22:-SEGMENT, GEOGRAPHIC, MAJOR CUSTOMER AND PRODUCT INFORMATION (Cont.)

b.Revenues by geographic location:

		Year ended December 31,
		2019				2018				2017
Revenues based on Customers’ location:
United States		$	678,565			$	505,469			$	348,949
Europe (*)			345,685				175,894				128,295
Netherlands			199,526				123,959				70,067
Rest of the world			201,884				131,915				59,734
Total revenues		$	1,425,660			$	937,237			$	607,045

(*) Except for Netherlands

c.Revenues by product:

NOTE 20:-

GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER AND PRODUCT DATA (Cont.)

		Year ended December 31,
		2019				2018				2017
Inverters		$	626,445			$	416,966			$	290,632
Optimizers			634,007				432,410				286,856
Others			165,208				87,861				29,557
Total revenues		$	1,425,660			$	937,237			$	607,045

d.Long-lived assets by geographic region:location:

		As of December 31,
		2019				2018
Israel		$	101,143			$	59,126
Asia			61,652				51,701
Europe			11,693				6,600
Other			2,475				1,902
Total long-lived assets (*)		$	176,963			$	119,329

(*) Long-lived assets are comprised of property and equipment, net.

		As of December 31,								As of June 30,
		2017				2016				2016
Israel		$	43,273			$	35,055			$	26,751
U.S.			567				515				518
Europe			1,219				466				508
China			5,985				36				31
Other			138				50				23
Total long-lived assets*		$	51,182			$	36,122			$	27,831

*

Long-lived assets are comprised of property and equipment, net (marketable securities, prepaid expenses, and lease deposits, intangible assets and deferred tax assets are not included).

F - 66

60

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SOLAREDGE TECHNOLOGIES, INC.
	By:	/s/ Guy SellaZvi Lando
		Name: Guy SellaZvi Lando
		Title: Chief Executive Officer and Chairman
	Date:	February 20, 201827, 2020

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POWER OF ATTORNEY

Know all persons by these presents, that each person whose signature appears below constitutes and appoints Guy Sella,Zvi Lando, Ronen Faier, and Rachel Prishkolnik, or any of them, as such person’s true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for such person and in such person’s name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or any of them or their or such person’s substitute or substitutes, may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated below.

Signature	Title	Date
/s/ Guy Sella Guy Sella Zvi Lando Zvi Lando	Chief Executive Officer and Chairman (Principal Executive Officer)	February 20, 201827, 2020
/s/Ronen Faier Ronen Faier	Chief Financial Officer (Principal Financial and Accounting Officer)	February 20, 201827, 2020
/s/ Dan Avida Dan Avida Nadav Zafrir Nadav Zafrir	Director Chairman of the Board	February 20, 201827, 2020
/s/ Yoni Cheifetz Yoni Cheifetz Dan Avida Dan Avida	Director	February 20, 201827, 2020
/s/ Marcel Gani Marcel Gani Yoni Cheifetz Yoni Cheifetz	Director	February 20, 201827, 2020
/s/ Doron Inbar Doron Inbar Marcel Gani Marcel Gani	Director	February 20, 201827, 2020
/s/ Avery More Avery More Doron Inbar Doron Inbar	Director	February 20, 201827, 2020
/s/Avery More Avery More	Director	February 27, 2020
/s/Tal Payne Tal Payne	Director	February 20, 201827, 2020

64

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