UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
| | ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20212022
| | ☐ | TRANSITIONANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _________ to __________
SOLAREDGE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware | | 20-5338862 |
(State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) |
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1 HaMada Street | | |
Herziliya Pituach, Israel | | 4673335 |
(Address of Principal Executive Offices) | | (Zip Code) |
972 (9) 957-6620
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, par value $0.0001 per share | SEDG | NASDAQ (Global Select Market) |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
Yes ☒No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or “emerging growth company”. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):
☒ Large accelerated filer | | ☐ Accelerated filer | | ☐ Non-accelerated filer | | ☐ Smaller reporting company |
| | | | | | | ☐ Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
The aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates of the registrant on June 30, 2021,2022, the last business day of the registrant’s most recently completed second fiscal quarter was approximately $12,748,438,796approximately $15.1 billion (assuming that the registrant’s only affiliates are its officers, directors and non-institutional 10% stockholders) based upon the closing market price on that date of $276.37$273.68 per share as reported on the Nasdaq Global Select Market.
As of February 14, 2022,10, 2023, there were 52,818,655 56,146,608shares of the registrant’s common stock, par value of $0.0001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this report, to the extent not set forth herein, is incorporated herein by reference from our definitive proxy statement relating to the Annual Meeting of Stockholders to be held in 2022,2023, which definitive proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the annual period to which this report relates.
FISCAL YEAR FORM 10-K
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We face risks related to intellectual property, including those related to:
| • | Our ability to protect our intellectual property and other proprietary rights.
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| • | Any claims by third parties that we are infringing upon their intellectual property rights.
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| • | Any claims for remuneration or royalties for assigned service invention rights by our employees.
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| • | The impairment of our goodwill or other intangible assets.
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Our ability to protect our intellectual property and other proprietary rights.
Any claims by third parties that we are infringing upon their intellectual property rights.
Any claims for remuneration or royalties for assigned service invention rights by our employees.
The impairment of our goodwill or other intangible assets.
We face risks related to the ownership of our common stock, including those related to: Related
Volatility of our stock price.
Provisions in our certificate of incorporation and by-laws that may have the effect of delaying or preventing a change of control or changes in our management.
The forum selection clause contained in our certificate of incorporation.
Our lack of plans to pay any cash dividends on our common stock in the Ownership of Our Common Stockforeseeable future.
| • | Volatility of our stock price.
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| • | Provisions in our certificate of incorporation and by-laws that may have the effect of delaying or preventing a change of control or changes in our management.
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| • | The forum selection clause contained in our certificate of incorporation.
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| • | Our lack of plans to pay any cash dividends on our common stock in the foreseeable future.
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The summary risk factors described above should be read together with the text of the full risk factors in the Risk Factors sections and the other information set forth in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes, as well as in other documents that we file with the SEC. The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not precisely known to us, or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, results of operations and future growth prospects.
Risk Factors
You should carefully consider the risks described below together with the other information set forth in this report, which could materially affect our business, financial condition and future results. The risks described below are not the only risks facing our company. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and operating results.
Risks related to Our Business and Our Industry
WeWe cannot be certain that we will sustain our current level of profitability in the future.
We achieved a net profit of Our$93.8 million and $169.2 million for the years ended December 31, 2022 and 2021 respectively. A high growth rate in profitability may not be sustainable over time. For example, our revenue and profitability for the year ended December 31, 2020 did not grow as we previously anticipated mainly due to the adverse effects of Covid-19 on demands for our products, and on the global economy in general. In 2021, we experienced an increase in revenues and profitability when compared to the same period in 2020. However,2020 and in 2022 our revenues grew when compared to the same period in 2021 while our net profit decreased due to reasons detailed in the Management's Discussion and Analysis Section of this report. In the future, our revenues from both solar and non-solar business may not grow at the pace we anticipate, or may decline for a number of 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, the short term and long term effects of Covid-19 on our industry and business and the recent industry trends including component shortages and supply chain disruptions due to ocean freight capacity, shipping times and port congestions as well as inflationary pressure,other macroeconomic conditions in our domestic and international markets, inflation concerns, rising interest rates and recessionary concerns , 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, or the extent of these expenses or their impact on our results of operations.
The rapidly evolving and competitive nature of the solar industry makes it difficult to evaluate our future prospects. Our entry into other adjacent markets through recent acquisitions is new and highly competitive and it is difficult to evaluate our future in these new markets as well.
The rapidly evolving and competitive nature of the 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 non-solar businesses in adjacent markets, such as storage 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 our business continues to grow. The viability and demand for our products may be affected by many factors beyond our control, including:
| • | cost competitiveness, reliability and performance of solar PV systems compared to conventional and non-solar renewable energy sources and products; |
| • | competing new technologies at more competitive prices than those we offer for our products;
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| • | availability and amount of government subsidies and incentives to support the development and deployment of solar energy solutions;
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| • | the extent of deregulation in the electric power industry and broader energy industries to permit broader adoption of solar electricity generation;
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| • | prices of traditional carbon-based energy sources;
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| • | levels of investment by end-users of solar energy products, which tend to decrease when economic growth slows; and
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| • | the emergence, continuance or success of, or increased government support for, other alternative energy generation technologies and products.
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competing new technologies at more competitive prices than those we offer for our products;
availability and amount of government subsidies and incentives to support the development and deployment of solar energy solutions;
the extent of deregulation in the electric power industry and broader energy industries to permit broader adoption of solar electricity generation;
prices of traditional carbon-based energy sources;
levels of investment by end-users of solar energy products, which tend to decrease when economic growth slows; and
the emergence, continuance or success of, or increased government support for, other alternative energy generation technologies and products.
If demand for solar energy solutions does not continue to grow or grows at a slower rate than anticipated, our business and results of operations will suffer.
Our revenues are primarily derived from products utilized in solar PV installations. Thus, our future success depends on continued demand for solar energy solutions and the ability of 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, businesses, or utilities 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 continue to develop sufficiently, demand for our products will decrease, resulting in an adverse impact on our ability to increase our revenue and grow our business.
The current revenues generated from our e-Mobility business are dependent on orders from a leading automotive manufacturer. The automotive industry is facing significant shortages of components for their assembly and their slowdown in manufacturing could delay orders of our powertrain kits.
Shortages in components in the automotive industry, including semiconductors, due in large part to strong cross-industry demand, have presented challenges and global production disruptions. Many leading automotive manufacturers have announced that these shortages will remain constrained and could extend into 2023. As a result, during 2021, our leading customer announced temporary suspensions of its manufacturing due to component shortages. These suspensions may occuroccurred again in 2022 and causecaused delays of orders for our powertrain units and an accumulation of inventory related to the production of these products, which in turnunits. Additional delays or suspensions may have an adverse effect on our revenues, profitability and other financial results from this business.business.
AAdditionally,dditionally, projects in the automotive industry are long term and involve a long qualification process. Our e-Mobility business currently does not have additional substantial projects in the pipeline beyond the project with Stellantis, which was announced in February 2021. Our inability to enter into additional projects may have an adverse effect on our revenues, profitability and other financial results from the e-Mobility business. In 2022, we impaired goodwill and intangible assets related to our e-Mobility business (see Notes 8 and 9 of the financial statements for additional information).
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; |
• | relief of transmission constraints that enable local centers to generate energy less expensively;
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• | reductions in the price of natural gas, or alternative energy resources other than solar;
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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 average 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.
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relief of transmission constraints that enable local centers to generate energy less expensively;
reductions in the price of natural gas, or alternative energy resources other than solar;
utility rate adjustment and customer class cost reallocation;
energy conservation technologies and public initiatives to reduce electricity consumption;
development of smart-grid technologies that lower the peak energy requirements of a utility generation facility;
development of new or lower-cost energy storage technologies that have the ability to reduce a customer’s average cost of electricity by shifting load to off-peak times; and
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 offered by us to 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 smart 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 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. Furthermore, the continuous effects of Covid-19 on the economy may detrimentally influence the end-users' willingness to invest in solar PV systems, both due to end-users’ economic uncertainty as well as the market’s unwillingness to extend favorable financial terms to the end-users.
The market for our products is highly competitive and we expect to face increased competition as new and existing competitors introduce power optimizers, 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, microinverter manufacturers, as well as emerging technology companies offering alternative MLPE products. Over the past few years, several new entrants to the inverter and MLPE market, including low-cost Asian manufacturers, have announced plans to ship or have already shipped products in markets in which we sell our products, including, with respect to sales in the United States, 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 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.
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.
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 demand for our products. The solar industry has undergone challenging business conditions in past years, including downward pricing pressure for PV modules, mainly as a result of overproduction, and reductions in applicable governmental subsidies, contributing to demand decreases. Therefore, 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. Any actual or perceived errors, defects, or poor performance in our products could result in the replacement or recall of our products or components thereof, shipment delays, rejection of our products, damage to our reputation, lost revenue, diversion of our 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.
FFurthermore,urthermore, 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. In most cases, we offer a minimum 12-year limited warranty for our inverters, extendable to twenty-five years for an additional cost, a 25-year limited warranty for our power optimizers and a 10-year limited warranty for our residential energy bank battery. Our limited warranties cover defects in materials and workmanship of our products under normal use and service conditions; therefore, 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 expenses 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. In particular, our residential energy hub battery is new on the market and we do not have the experience in servicing this product yet.
IfIf one of our products were to cause injury to someone or cause property damage, thenor in the event that a claim is made alleging false or misleading advertisement, unfair competition or other consumer related claims, we could potentially be exposed to product liability claims and lawsuits which could result in significant costs and liabilities if damages are awarded against us. Further, any product liability claim we face could be expensive to defend and could divert management’s attention. Even in litigation where we believe our liability is remote, there is a risk that a negative finding or decision in a matter involving multiple plaintiffs or a purported class action could have a material adverse effect on our competitive position, results of operations or financial condition.
For example, we provide warranty for the products sold by our e-Mobility division that are installed in vehicles. If such products contain design or manufacturing defects that cause them not to perform as expected, they may cause injury or damage to property and we may experience product recalls, product liability and significant warranty and other expenses. 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.
We depend upon a small number of outside contract manufacturers. Our operations could be disrupted if we encounter problems with these contract manufacturers.
While we are manufacturing a small portion of our products in Israel, we still heavily rely upon our contract manufacturers to manufacture most of our products. We mainly rely on two contract manufacturers. Any change in our relationship or contractual terms with our contract manufacturers, or changes in our contract manufacturers’ ability to comply with their contractual obligations 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 though we have commenced manufacturing in our facility in Israel, the expected production volumes will not be sufficient to relieve our significant dependence on our contract manufacturers. In addition, we 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. Therefore, 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, especially considering restrictions imposed by Covid-19.manner. In addition, the facilities in which our products are manufactured are located outside of the U.S., currently in China, Vietnam, Israel, Hungary and most recently, Mexico, where the ramping up process has recently begun.is expected to be completed in the first half of 2023. The location of theseour facilities outside of key markets such as the U.S. increases shipping time, thereby causing a long lead time between manufacturing and delivery. In addition, for approximately twelve weeks in the third quarter of 2021, our manufacturing facility in Vietnam was shut down due to government imposed Covid-19 related lockdowns.
If either of our contract manufacturers were unable or unwilling to manufacture our products in required volumes and at high quality levels or continue to supply under existing terms, we would have to identify, qualify, and select acceptable alternative contract manufacturers, which may not be available to us when needed or may be unable to satisfy our quality or production requirements on commercially reasonable terms. 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, subject us to liquidated damages for late deliveries, and damage our reputation with local installers and potential end-users, all of which will cause us to forego potential revenue opportunities. Further, the ramp of a new contract manufacturer is time consuming and draining on the resources of our operations team.
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 involving several 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 identified and properly 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 costs and delays, all of which could have a material adverse effect on our business, financial condition, and results of operations.
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 changes or shortages in raw materials or key components 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 supplying, or offering at commercially reasonable prices, our components or raw materials, cease operations or be acquired by, or enter into exclusive arrangements with our competitors. Because there are a few suppliers of raw materials used to manufacture our products, it may be difficult to timely identify and/or qualify alternate suppliers on commercially reasonable terms; therefore, 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 that could harm our business or financial performance.
Managing our supplier and contractor relationships is particularly difficult when we are introducing new products. For example, as we began to ramp assembly and production of powertrain kits for the automotive industry, we became heavily reliant on new third-party suppliers that needed to be approved through rigorous testing and validation processes for use in our supply chain. Once selected, it is time consuming and costly to replace such vendors. The same is true for our recently introduced residential energy hub batteryHome Battery for production of which we rely on a single source for supply of the lithium ion cells .cells. Any delay or shortage of supply or inability to deliver the components to our manufacturing facilities could harm our business or financial performance.
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 and 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, we continue to experience raw material shortages due to increased lead time which may affect our ability to timely receive certain components within the previously expected lead times. These shortages may result in a delay in sales, higher costs associated with air shipments, cancellations of orders by customers,liquidated damages for late deliveries and loss of market share.
23Disruption in our global supply chain and rising prices of oil and raw materials as a result of the conflict between Russia and Ukraine may adversely affect our businesses and results of operations.
The conflict that began between Russia and Ukraine in late February 2022, may significantly amplify already existing disruptions to our supply-chain and logistics. Specifically, the conflict may disrupt the transit of goods by train from China to Europe, resulting in an increase in prices of certain raw materials sourced in Russia (such as nickel and aluminum) that we use in the manufacture of our products as well as increase oil prices that will in turn cause overall shipping costs to rise. In addition, the governments of the United States, the European Union, Japan and other jurisdictions have announced sanctions on certain industry sectors and parties in Russia and the regions of Donetsk and Luhansk, as well as enhanced export controls on certain products and industries. These and any additional sanctions, as well as any counter responses by the governments of Russia or other jurisdictions, could adversely affect the global financial markets generally and levels of economic activity as well as increase financial markets volatility. , and any additional measures or sanctions, as well as the resulting rise in prices of oil and certain raw materials sourced in Russia may disrupt our business and results of operations and/or adversely affect the pricing of our products.
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 revenues.
Our customers’ decisions to purchase our products are influenced by several factors outside of our control. The agreements we have with some of our largest customers do not have long-term purchase commitments and are generally cancellable 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 (see Note 2.x2aa to our consolidated financial statements).
In addition, we do not have exclusive arrangements with our third-party distributors and large installers, many of which also market and sell 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.
Mergers in the solar industry among our current or potential customers may adversely affect our competitive position.
There has been an increase in consolidation activities among distributors, large installers, and other strategic partners in the solar industry. For example, in October 2020, Sunrun, a leading provider of residential solar, battery storage and energy services, acquired Vivint Solar. If this consolidation continues, it will 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.
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. We also may from time to time engage in acquisitions of businesses or product lines with the potential to strengthen and expand our market position, 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 successful operation in these new markets, or 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 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, and our ability to manage increased manufacturing capacity and production and to identify and integrate any acquired businesses.
Further, we expect these new solar PV markets and additional markets we have entered, or may enter, into to have different characteristics from the markets in which we currently sell our products. Our success will depend on our ability to properly adapt to these differences, which include differing regulatory requirements, such as 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, and performance and compatibility requirements. In addition, expanding into new geographic markets will increase our exposure to existing risks, such as fluctuations in the value of foreign currencies 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 successfully develop and introduce these new products, 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.
If we fail to build our non-solar businesses 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 152,500 inverters and approximately 3.6 million power optimizers in the fiscal year ending June 30, 2015, to annual product sales exceeding 788,4111.0 million inverters and 18.623.6 million power optimizers in the year ended December 31, 2021.2022. 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 such 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.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 an efficient manner. If we cannot manage our growth, we may be unable to take advantage of market opportunities, execute our business plans or 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.
Conversely, the global pandemic and resulting economic downturn in many regions require our ability to be flexible and decrease expenses where growth has slowed down. Our ability to timely react to market conditions is not always in our control and any inability to do so could also adversely impact our business.
We may not have the ability to raise the funds necessary to settle conversion of our Convertible Senior Notes or Notes in cash or to repurchase the Notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion of the Notes or to repurchase the Notes.
Holders of the Notes have the right to require us to repurchase all or a portion of their Notes upon the occurrence of a fundamental change (as defined in the Indentures governing their respective Notes) at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid special interest, if any. In addition, upon conversion of the Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Notes being converted. We may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Notes surrendered or Notes being converted. In addition, our ability to repurchase the Notes or to pay cash upon conversions of the Notes may be limited by law, regulatory authority or agreements governing our future indebtedness. Our failure to repurchase Notes at a time when the repurchase is required by the indenture governing such Notes or to pay cash upon conversion of the Notes as required by such indenture would constitute a default under such indenture. A default under the indenture governing the Notes or the fundamental change itself could also lead to a default under agreements governing our future indebtedness. If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or make cash payments upon conversion of the Notes.
Any unauthorized access to, 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 employees, customers, and the end-users of our customers’ solar PV systems. We take steps to protect the security, integrity, and confidentiality of the personal information we process; however, 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 access, use or disclosure will not occur despite our efforts. Because techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until after 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 mitigatory 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, particularly in light of the European General Data Protection Regulation, the California Consumer Privacy Act, and China Personal Information Protection Law (PIP) which came into effect November 1, 2021. 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.
Third parties, our employees, or our vendors might gain unauthorized access to our network or seek to compromise our products and services.
Occasionally, we face attempts by others, including our own employees or vendors, to access our networks, to gain unauthorized access through the Internet, introduce malicious software to our information technology (IT) systems, or 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. Occasionally, 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, although 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, 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 subject us to significant costs arising from, , among others, rebuilding internal systems, reduced inventory value, providing modifications to our products and services, defending against litigation, responding to official 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 acquisition of Kokam,our Korean subsidiary (formerly Kokam), we sell a small portion of our products to customers who integrate our storage systems or cells and then sell these products to military customers. Our sales to military customers often involve standard form contracts, which may not be subject to negotiation. In particular, certain of these contracts involve unlimited damages provisions that could result in large-scale liabilities.
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 future acquisitions or be effective in integrating such acquisitions.
As part of our growth strategy, we have made a number of acquisitions, and may continue to make acquisitions and investments in the future. 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 ours or investing in new technologies may result in unforeseen operating difficulties and large expenditures and 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 businesses 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.
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, and the SolarEdge energy bank battery which launched during the second quarter of 2021,Home Battery, 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 or delivery, 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.
Conditions in Israel affect our operations and may limit our ability to develop, produce and sell our products.
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 is the target of terrorist activity, including threats from Hezbollah militants in Lebanon, Iranian militia in Syria, and others. Ongoing state of hostility, varying in degree such as rocket fire from the Gaza Strip, has occurred on an irregular basis, disrupting day-to-day civilian activity and negatively affecting business conditions. 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, operate our manufacturing plant in northern Israel, engage in research and development, or otherwise adversely affect our business or operations. In the event of war, we 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 instability in neighboring states results in the establishment of fundamentalist Islamic regimes or governments more hostile to Israel, or if Egypt, Turkey, 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.
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.
Additionally, the newly elected Israeli government has announced plans to significantly reduce the Israeli Supreme Court's judicial oversight, including reducing its ability to strike down legislation that it deems unreasonable, and plans to increase political influence over the selection of judges. These plans have prompted protests of Israeli citizens and criticism of leading Israeli business leaders as well as some foreign leaders. If such government plans are eventually enacted, they may cause operational challenges for us since we are headquartered in Israel and approximately half of our employees are located in Israel. In addition, if foreign policy is negatively impacted with regard to Israel, this could impact our business with suppliers and customers which could in turn adversely impact our reputation, results of operations or financial condition.
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 was eligible for certain tax benefits provided to “Benefited Enterprises” under the Israeli Law for the Encouragement of Capital Investments, 1959 (the “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“Preferred Enterprise” (“PE”) 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 PE or PTE, we must continue to meet certain conditions stipulated in the Investments Law and its regulations, as amended. If these tax benefits are reduced, cancelled, or discontinued, or if we are held to have violated the conditions stipulated in the Law, our Israeli taxable income would be subject, in whole or in part, 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 statutory corporate tax rate for Israeli companies is 23% as of January 1, 2018 and onward. Additionally, if we increase our activities outside of Israel through acquisitions 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 Investments 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.
Many of our directors and executive officers, their assets, and most of our assets 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 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 of forum non conveniens. 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 lengthy 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, judgment against many of our directors and executive officers may be unachievable or unenforceable.
The ongoing Covid-19 pandemic, and global measures taken in response thereto have adversely impacted, and may continue to adversely impact, our operations and financial results.
The Covid-19 pandemic has had, and may continue to have, a material adverse impact on our results of operations including its impact on our supply chain operations, and initially on customer demand. As a result of the Covid-19 pandemic, governmental authorities worldwide have imposed mandatory closures, stay-at-home orders, and social distancing protocols that significantly limit the movement of people, goods, and services or otherwise restrict normal business operations or consumption patterns. Our compliance with these measures has disrupted, and may continue to disrupt, our business and operations, as well as that of our key customers and suppliers. Additionally, to support the health and well-being of our employees, our workforce has spent a significant amount of time working remotely which has impacted our day-to-day operations, our ability to meet customers demand and create future sales and business opportunities. The Covid-19 pandemic has resulted in slower growth and demand for our products and may continue to impact our revenues in the following quarters, mainly contingent on the duration of the global economic downturn. In addition, since the outbreak and the restrictions on travel, our ability to travel to customers, manufacturing facilities and to suppliers has been limited and our marketing activities, exhibitions and shows have also been significantly reduced, or have been held virtually. We also have had disruption to our manufacturing in Vietnam during the third quarter of 2021 which led to a reduction of our supply in the third and fourth quarter 2021.inflationary pressures.
The full extent the effects Covid-19 will have on our business depends on numerous evolving factors that we may not be able to currently accurately predict, including: the duration and scope of the pandemic; governmental, business and individual responses to the pandemic; the effect on our customers and customer demand for our products, disruptions or restrictions on our employees’ ability to work and travel availability and long-term effectivenesspotential disruptions to our manufacturing capacity, similar to the restrictions experienced by our manufacturing facility in Vietnam in the third quarter of Covid-19 vaccination, especially in light of its recent, more contagious mutation.2021, which would limit our ability to meet customer demand and impact our operating results.
More generally, the Covid-19 pandemic raises the possibility of an extended global economic downturn and has caused volatility in financial markets, which may continue to adversely affect demand for our products and could adversely affect our results and financial condition in subsequent quarters. For example, some of our customers could potentially experience financial difficulties, which in turn could hinder us in collecting receivables as well as cause a decrease in the demand for our products which could negatively affect our revenues. Additionally, some of our suppliers may experience delivery delays or financial difficulties, resulting in supply constraints and increased costs or delays to our productions. Furthermore, we may experience delays in timely delivery of our products to our customers, exposing us to cancellations of orders and/or potential liquidated damages resulting from our inability to timely delivery our products.
The unprecedented and continuously evolving nature of Covid-19, other pandemics or epidemics, could also have the effect of amplifying many of the other risks described in this Item 1A, Risk Factors.
We are dependent on ocean transportation to deliver our products in a timely and 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 ocean transportation for the delivery of most of our products to our customers, and when unavailable, incompatible with customer delivery time requirements, or when we are unable to accommodate accelerated delivery times due to growing customer volume demands, we rely on alternative, more expensive air transportation. 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 Covid-19 or other epidemics and other factors 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.
While we have witnessed a reduction in shipment rates in the fourth quarter of 2022, during theIn the year ended December 31, 2021,2022, we experienced and continue to experience an increase in the cost of goods sold due to an increase in shipping rates that resulted from a reduction in ocean freight capacity the accumulation of containers in the U.S and Europe that were not returned to Asia and the reduction in the availability of air freight that increased the demand for ocean freight. We also experienced and expect to continue to experience disruptions to our logistics supply chain caused by constraints in the global transportation system including limited availability of local ground transportation coupled with congestion in ports and borders.
The factors discussed above, caused transit time to almost double in 2021 compared to pre-pandemic transit time. In the second half of 2021, the Chinese rail company, which was routinely used by the us to ship products out of China, cancelled allocations of containers for shipments from China to Europe. In the fourth quarter of 2021, trucks carrying our products were stuck between the borders of Kazakhstan, Mongolia and China when such borders closed due to governmental mandates related to Covid-19. We also experienced congestion in other borders, such as the Vietnam border, which was closed periodically in 2021 due to Covid-19 governmental mandates. Even when borders were opened, there was a severe backlog of trucks waiting to cross the border which created further delays. There is no assurance that these delays and increased costs in goods sold will not continue in 2022.
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, 54.3% 60.1% of our revenues in the year ended December 31, 20212022 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), the Euro and,to a lesser extent, the South Korean Won (“KRW”) and other currencies. As detailed in the Foreign Currency Exchange Risk under Item 7A -Quantitative and Qualitative Disclosures About Market Risk, our profitability is affected by movements of the U.S. dollar against the Euro, and, to a lesser extent, the New Israeli Shekel, KRW 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 which are denominated primarily in U.S. dollars. If there is a 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 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, New Israeli Shekel, KRW and other currencies, against the U.S. dollar could have an adverse effect on our profitability and financial condition.
Occasionally, we may enter into derivative financial instruments to hedge the exchange rates impacts on our assets and liabilities denominated in Israeli Shekels, Euro, KRW and other currencies.
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, and may make it difficult to hedge our foreign currency exposures effectively.
We are subject to risks related to corporate social responsibility.
We are facing increasing scrutiny related to our environmental, social and governance (“ESG”) practices and requested disclosures by institutional and individual investors who are increasingly using ESG screening criteria in making investment decisions. Our disclosures on these matters or a failure to satisfy evolving stakeholder expectations for ESG practices and reporting may potentially harm our reputation and impact relationships with investors. Certain market participants including major institutional investors use third-party benchmarks or scores to measure our ESG practices in making investment decisions. Furthermore,some of our customers and suppliers evaluate our ESG practices or request that we adopt certain ESG policies as a condition of awarding contracts. In addition, our failure or perceived failure to pursue or fulfill our goals, targets and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could expose us to government enforced actions and/or private litigation. As ESG best-practices, reporting standards and disclosure requirements continue to develop, we may incur increasing costs related to ESG monitoring and reporting.
Complications with the design or implementation of our new ERP system could adversely impact our business and operations.
RisksRisks Related to Legal, Compliance and Regulations
The reduction, elimination or expiration of government subsidies and economic incentives for on-grid solar electricity applications could reduce demand for solar PV systems and harm our business.
Federal, state, local and foreign government bodies provide incentives to promote solar electricity in the form of rebates, tax credits or exemptions and other financial incentives. 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. Because our customers’ sales are typically into the on-grid market, the reduction, elimination or expiration of government subsidies and incentives for on-grid solar electricity may negatively affect the desirability of solar electricity and could harm or halt the growth of the solar electricity industry and our business. For example, in 2015 the U.S. congress passed a multi-year extension to the solar Investment Tax Credit (ITC), and such extension helped grow the U.S. solar market. AsThe Inflation Reduction Act of January 1, 2021,2022 extended the term of the ITC is reduced from 30 percent to 26 percent for both residential and commercial projects and is expected to reach 10 percent for commercial projects in 2024. Thethrough 2034. However future reduction in the ITC could reduce the demand for solar energy solutions in the U.S. which would have an adverse impacteffect on our business, financial condition, and results of operations. Furthermore, due to the continued economic downturn from Covid-19, many of the institutions utilizing ITC may significantly pull back or no longer have the ability to invest, meaning that financing for solar projects may become seriously diminished.
In general, subsidies and incentives may expire on a particular date, end when the allocated funding is reduced or terminated due to, inter alia, legal challenges, adoption of new statutes or regulations or the passage of time, they often occur without warning.
In addition, several jurisdictions have adopted renewable portfolio standards, mandating that a certain portion of electricity delivered by utilities to customers come from a set of eligible renewable energy resources, such as solar, by a certain compliance date. 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 or sold by the generator. A renewable energy credit allows the utility to add this electricity to its renewable portfolio requirement without actually expending the capital for generating facilities. However, there can be no assurances that such policies will continue. 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.
Unfavorable regulatory treatment under the Inflation Reduction Act of 2022 may harm our business.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into federal law. The IRA provides for, among other things, certain incentives, including certain tax credits, intended to promote clean energy. Given that the IRA is a complex new piece of legislation, additional guidance on the regulatory treatment of the IRA is expected from the Internal Revenue Service and U.S. Treasury Department. It is currently uncertain the extent to which all of our products will qualify for such incentives. Any unfavorable regulatory treatment, or guidance, including any tax benefits being made available to competing technology and not to our technology, could adversely impact our business and financial condition.
Changes to net metering policies may reduce demand for electricity from solar PV systems and harm our business.
Our business benefits from favorable net metering policies in most U.S. states and some European countries, that allow a solar PV system owner to pay his or her electric utility only for power usage net of production from the solar PV system. 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 if more energy is produced than consumed.
Most U.S. states have adopted some form of net metering. Yet, net metering programs have recently come under regulatory scrutiny in some U.S. states due to allegations 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. For example, in 2019, Louisiana Public Service Commissions adopted net metering policies aiming at lowering the solar customers’ savings. In December 2021,2022, the California Public Utilities Commission proposedvoted to approve lowering current net energy metering tariffs in addition to imposing a new grid-connection fee on new rooftop solar users.users the tariff cuts are intended to become effective in April of 2023. We cannot assure you that these programs will not be significantly modified going forward.
If the value of the credit that customers receive for net metering is reduced, end-users may be unable to recognize the current level of cost savings associated with net metering. 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 our products and could have a material adverse effect on our business, financial condition, results of operations and future growth.
Existing electric utility industry regulations and changes to regulations, may present technical, regulatory, and economic barriers to the purchase and use of solar PV systems, that may significantly reduce demand for our products or harm our ability to compete. compete. In addition, determinations of various regulatory bodies regarding lack of compliance with certifications or other regulatory requirements, could harm our ability to sell our products in certain countries.
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, and could deter purchases of solar PV systems sold by our customers, significantly reducing 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 causing a significant reduction in demand for our products and services. In addition, changes in our products or changes in export and import laws and implementing regulations may delay 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, resulting in a material adverse effect on our business, financial condition, and results of operations.
Compliance with various regulatory requirements and standards is a prerequisite for placing our products on the market in most countries in which we do business. We have all such certifications but there are at times, challenges by local administrative telecommunications, consumer board or other authorities that can place sales bans on products.
ForFor example, in December 2021, the Swedish Electrical Safety Board announced that certain models of our power optimizers are subject to a sales ban alleging that they do not meet the EMC Directive. While we disagree with this finding and maintain our position that all current SolarEdge products are tested, approved and compliant with the EMC Directive and other EU regulations, , any such rulings can have a negative impact on our business and reputation. In this specific incident, we have already begun transitioning into our next generation optimizers and do not expect any impact on our business in Sweden or elsewhere.Risks Related To Intellectual Property
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 patents, trademarks, copyrights, trade secrets, 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 (IP) and other proprietary rights. Our ability to enforce these rights is subject to litigation risks, as well as uncertainty as to the enforceability of our IP rights in various countries, specifically claims that our IP rights are invalid or unenforceable. 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. 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 several legal proceedings related to intellectual property. Litigation proceedings are inherently uncertain, and adverse rulings may occur, including monetary damages, 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. Occasionally, we may also be subject to claims of intellectual property right infringement and related litigation, and, as we gain greater recognition in the market, we face a higher risk of being the subject to claims of violation of others’ intellectual property rights. For example, in May 2019,July, 2022, we were served with three lawsuitsa complaint by HuaweiAmpt LLC filed with the International Trade Commission pursuant to Section 337 of the Tariff Act of 1930, as amended and the District Court for the District of Delaware alleging patent infringement against the Company and its subsidiary SolarEdge Technologies Co., Ltd., a Chinese entity (“Huawei”), against our two Chinese subsidiaries and our equipment manufacturer in China. The lawsuits, filed in the Guangzhou intellectual property court, alleged infringement of three patents and asked for an injunction to manufacture, use, sale and offer for sale, and damages. In August, 2020 a first-instance judgment was issued ordering the three defendants to collectively pay damages in the amount of approximately $1.6 million (including court fees) and our appeal to the Supreme People’s Court was denied in December 2021, rendering a payment due by us to Huawei in the amount of $1.6 million. The judgement is not enforceable until February 2022. The other two lawsuits are still pending appeal at the Supreme Court level. Please see Item 3 - Legal Proceedings for additional information.
Although we are certain that we have meritorious defenses to the claims, respondingResponding to such claims can be time consuming, 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 third-party IP rights, we cannot be certain of successfully defending against any such claims. If we do not successfully defend or settle an IP 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 unavailable at all or unavailable 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 could be forced to modify, limit or, in extreme cases, stop manufacturing and sales of our affected products in the relevant country and may be unable to effectively compete. Any of these results could 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. Case law clarifies that the right to receive consideration for “service inventions” can be waived by the employee and that in certain circumstances, such waiver does not necessarily have to be explicit. The Committee will examine, on a case-by-case basis, the general contractual framework between the parties, using interpretation rules of the general Israeli contract laws. Further, the Committee has not yet determined the method for calculating this Committee-enforced remuneration, but rather uses the criteria specified in the Patent Law. 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.
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 and following the impairment recorded during 2022, goodwill and other intangible assets totaled approximately $188.5$51.1 million, or approximately 6.5%1.2% of our total assets, as of December 31, 2021.2022. 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, which include complex, and often subjective, assumptions and estimates. These assumptions and estimates can be affected by a variety of 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.operations (see Notes 8 and 9 of the financial statements for additional information).
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.
Shares of ourOur 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, 2021, the reported high and low prices of our common stock2022, ranged from $199.33 $190.15 to $389.71$375.90 per share. As further detailed in the Performance Graph in Item 5 below, the price of our Common Stock in 20212022 was highly volatile and may fluctuate in response to our results of operations in future periods or due 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:
| • | the addition or loss of significant customers;
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33the 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 including due to general macro-economic and geopolitical changes and developments 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;
| • | thechanges in laws or regulations applicable to our industry, products or services; |
| • | 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;
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| • | our ability to protect our intellectual property and other proprietary rights;
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| • | sales of our common stock by us or our significant stockholders, officers and directors;
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| • | the expiration of contractual lock-up agreements;
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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;
| • | taxsuccess 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;
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| • | the effectiveness of our internal controls over financial reporting;
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| • | changes in our capital structure, such as future issuances of debt or equity securities;
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| • | our entry into new markets;
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| • | tax developments in the U.S., Europe, or other markets;
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| • | conversion of all or portion of the Notes;
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| • | strategic actions by us or our competitors, such as acquisitions or restructurings; and
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| • | changes in accounting principles.
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conversion of all or portion of the Notes;
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 unrelated or disproportionate to the operating performance of affected 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, changes in U.S. regulations and policies with respect to renewable energy, 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, of which we may be the target 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.
ProvisionsProvisions 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;
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| • | 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;
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| • | not providing for cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
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| • | limiting the ability of stockholders to call a special stockholder meeting;
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| • | prohibiting stockholders from acting by written consent;
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| • | 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;
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34authorizing “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 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 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
| • | providing that our board of directors is expressly authorized to amend, alter, rescind or repeal our by-laws; and
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| • | 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. |
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.
OurOur 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 and 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. 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.
ITEM 1B.1B. Unresolved Staff Comments.
Not applicable.
Our corporate headquarters are located in Herziliya Pituach, Israel.Israel.
Leased Offices and R&D Laboratories
As of December 31, 2021,2022, we lease office, testing, and product design facilities in Israel. In May, 2021, we signed a long-term lease agreement for the development of a 38,000 square meter campus, to be built on 16.5 acres of land, in the central area of Israel. The campus, which is scheduled to be completed in the first half of 2025, will replace our current headquarters in Herziliya, Israel.
Inn addition to our leased properties in Israel, we lease offices and lab facilities in California, Nevada, Germany, Netherlands, Italy, France, Australia, UK, Japan, Turkey, India, Bulgaria, Belgium, Taiwan, Korea, Brazil, Mexico and China as well as an R&D and call center in Bulgaria.
Manufacturing
We outsource most of our manufacturing to our manufacturing partners. We have our own manufacturing facility, Sella 1, in the North of Israel. We also have a factory in which we manufacture lithium-ion batteries for Kokam’sour storage business operations, through our Korean subsidiary (formerly Kokam), and have beguncompleted the construction of Sella 2, our second lithium-ion cell and battery factory in Korea. For our e-Mobility division,and Automation Machines divisions, we have manufacturing facilities in Umbria, Italy for the assembly of batteries and other components for light commercial vehicles.
Owned Properties
Owned Properties
In addition to our leased properties, we also own manufacturing facilities in Italy, office and manufacturing facilities in South Korea and an office space in the U.K. Additionally, we own land in South Korea on which we are building Sella 2, our second lithium-ion cell and battery factory in Korea.U.K.
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 3.3. 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 and optimizers from the German market, the lawsuit is intended to prevent the defendants from selling any multi-level inverters and optimizers infringing upon SolarEdge’s PV inverter and optimizer technology protected in the asserted patents in Germany. In November 2021, we withdrew one of the infringement claims after the asserted patent was revoked. 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. In the parallel nullity proceedings regarding this patent, a hearing has been held, but no decision has been rendered. The third lawsuit is pending a court appointed expert opinion. In addition, in January 2021, we extended this complaint to include also the second generation Huawei Smart PV Optimizers. We intend to continue to vigorously defend our patented technology.
In May 2019, we were served with three lawsuits by Huawei Technologies Co., Ltd., a Chinese entity (“Huawei”), against our two Chinese subsidiaries and our equipment manufacturer in China. The lawsuits, filed in the Guangzhou intellectual property court, alleged infringement of three patents and asked for an injunction of manufacture, use, sale and offer for sale, and damage awards. In August 2020 a first-instance judgment was issued ordering the three defendants to collectively pay damages in the amount of approximately $1.6 million (including court fees) with respect of one of the patents and our appeal to the Supreme People’s Court in that case was denied in December of 2021, rendering a payment due by us to Huawei in the amount of $1.6 million. The judgement is not enforceable until the end of February 2022. In addition, in January 2021, Huawei filed a motion to increase its claimed monetary damages to approximately $7.9 million with respect to the second lawsuit. In February 2021, a preliminary injunction was rendered by the Guangzhou intellectual property court with respect to a second lawsuit and applying to seven inverter models. In line with the court’s mandate, we took immediate action to make software changes to meet the court order and also appealed the decision with the Supreme People's Court which is still pending. Additionally, in October 2021, a first-instance judgment was issued with respect of the third lawsuit, ordering the three defendants to collectively pay damages in the amount of approximately $1.6 million (including court fees) with respect to one of the patents. We filed an appeal with the Supreme People's Court which remains pending. We believe that we have meritorious defenses to the claims asserted by Huawei.
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 infringeinfringed on two of the plaintiff’s patents. In its complaints, SMA requests, inter alia, an injunction, rendering account about past sales, a recall of products and a determination for a claim for damages for sales in Germany. SMA asserted a value in dispute of 5.5 million Euros (approximately $6.2$5.9 million) for both patents. We challenged the validity of both patents. In December 2019 the District Court of Düsseldorf found one of the two patents to be infringed upon and we appealed this decision to the Appeals Court Düsseldorf. In the parallel nullity proceedings regarding this patent, in October 2020, the German Patent Court rendered the SMA patent invalid; this invalidity has beenwas appealed by SMA. Due toSMA and in January 2023, the invalidity proceedings,German Supreme Court upheld the infringement proceedings regarding this patent have been stayed.finding of invalidity. With respect to the othersecond patent, in November 2019 the first instance court stayed the infringement proceedings since it considered it to be highly likely that the patent would also be invalid. In August 2021, the German Patent Court rendered this patent invalid as well, and this invalidity has been appealed by SMA. We believe that we have meritorious defenses to these claims and intend to vigorously defend against this lawsuit.
On July 28, 2022, we were served with a complaint by Ampt LLC filed with the International Trade Commission (the “Commission”) pursuant to Section 337 of the Tariff Act of 1930, as amended in the District Court for the District of Delaware alleging patent infringement against the Company and its subsidiary SolarEdge Technologies Ltd. On October 24, 2022, the complaint filed in the District Court of Delaware was administratively stayed until the Commission's action is resolved. We believe that we have meritorious defenses to the claims assertedcomplaints and intend to vigorously defend against this lawsuit.them.
On November 3, 2022, we received notice that a class action lawsuit was filed in the U.S District Court of the Southern District of New York against us, our subsidiary SolarEdge Technologies Ltd., our CEO and our CFO, by a purported stockholder of the Company, alleging violations of the Federal Securities Act in connection with complaints filed against us by Ampt LLC, as described in the preceding paragraph. On February 14, 2023, the lawsuit was voluntarily withdrawn by the plaintiffs and subsequently dismissed by the court.
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 (including as a result of initiating such legal claims, actions 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 4.4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5.5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Market Information
Our common stock, par value $0.0001 per share, trades on the Nasdaq Global Select Market, where prices are quoted under the symbol “SEDG”.
Holders of Record
As of December 31, 2021,2022, there were 1810 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.
Dividends
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.
Performance Graph
The following graph compares the cumulative total shareholder return on our common stock from January 1, 20172018 to December 31, 20212022 to that of the total return of the S&P 500 Index and the Invesco Solar ETF, the Nasdaq Composite Index and the MAC Global Solar Energy Index. As a result of our entrance into the S&P 500, we have added the S&P 500 Index and Invesco Solar ETF for 2021 in accordance with Regulation S-K and because we believe these are more relevant indexes. In future years, we will not use the Nasdaq Composite Index or the MAC Global Solar Energy Index. ETF. 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 containedcontained in such filing.
ITEM 7.7. 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 sectionssection 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”. ForFor discussion related to changes in financial condition and the results of operations for the year ended December 31, 2020,2021, refer to Item 7- Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K/A,10-K, filed with the Securities and Exchange Commission on February 19, 2021. 22, 2022.
Overview
We develop, manufacture and sell products that address a broad range of energy market segments through our diversified product offering, including residential, commercial and large scale photovoltaic or PV, energy storage and backup solutions, electric vehicle or EV charging capabilities, home energy management, grid services and virtual power plants, as well as products in our non-solar businesses which address e-Mobility ("e-Mobility"), automation machines ("Automation Machines") and lithium-ion cells and battery packs and UPS solutions.batteries ("Storage").
Further information regarding our business is provided in “Part I, Item 1. Business” of this Annual Report.
In the year ended December 31, 2021, two customers2022, one customer accounted for 30.9%18.5% of our revenues and our top three customers (all distributors) together represented 37.8%34.8% of our revenues.
Our revenues were $1,459.3$3,110.3 million and $1,963.9$1,963.9 million for fiscal 2020,2022 and fiscal 2021, respectively. Gross margins were 31.6%27.2% and 32.0% for fiscal 2020,2022 and fiscal 2021, respectively. Net profits were $140.3income was $93.8 million and $169.2$169.2 million for fiscal 20202022 and fiscal 2021, respectively.
Performance Measures
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,of inverters, power optimizers shipped, and megawatts shipped) to evaluate our sales performance and to track market acceptance of our products from year to year.products. 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,and "megawatts hour shipped" metrics, which isare calculated based on inverter or battery nameplate capacity shipped respectively, to show adoption of our system on a nameplate capacity basis.basis. Nameplate capacity shipped is the maximum rated power output capacity of an inverter or battery, and corresponds to our financial results in that higher total nameplate capacities shipped are generally associated with higher total revenues. However, revenues may increase with each additional unit sold,in a non-correlated manner to the "megawatt shipped" metric since other products such as Power Optimizers, are not necessarily each additional MW of capacity sold. Accordingly, we also provide the “inverters shipped” and “power optimizers shipped” operating metrics.
accounted for in this metric.
| | | Year ended December 31, | |
| | | 2022 | | | 2021 | |
| Inverters shipped | | | 1,019,307 | | | | 789,565 | |
| Power optimizers shipped | | | 23,736,368 | | | | 18,568,297 | |
Megawatts shipped1 | | | 10,491 | | | | 7,159 | |
| Megawatts hour shipped - residential batteries | | | 889 | | | | 53 | |
1 Excluding residential batteries, 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.
Global Circumstances Influencing our Business and Operations
Covid-19 Impact & Response
Covid-19 continued to present challenges onto our operations and business in 2021,2022, primarily, operational challenges, which we reported on continuously in our quarterly reports throughout the year. Althoughyear, but to a lesser extent than in 2021. Due to the global distributionworldwide growing trend in availability and administration of vaccines continues to progress andagainst Covid-19, many government-imposed restrictions have beenthat were placed during the pandemic were gradually lifted or removed,by governments across the globe. However, the future impact of the Covid-19 pandemic remains highly uncertain. Resurgences of Covid-19 cases and the emergence of new variants may adversely impact our results of operations.Ouroperations. For example, in the second quarter of 2022, the mandatory government shutdowns resulting from the increase in Covid-19 cases in Shanghai, that were eased in the beginning of the third quarter of 2022, led to delays in our scheduled shipments from the Shanghai port. Our first priority continues to be to protect and support our employees while maintaining company operations and support of our customers with as few disruptions as possible. WeWe follow the guidance issued by applicable local authorities and health officials in each region in which we do business, including in our headquarters located in Israel.
In the third quarter of 2021, our contract manufacturer in Vietnam was forced to temporarily close its facilities due to government mandated lockdowns. The mandatory shut downs lasted 12 weeks and the Vietnam factory returned to full capacity in November of 2021. While we increased manufacturing capacity in China, Israel and Hungary in order to compensate for the Vietnam factoryhave not experienced any new disruptions resulting directly from Covid-19 related lockdown, our aggregate overall manufacturing capacity was negatively impacted and together with shipping constraints caused by port congestions, caused a reduction in our finished goods inventory and availability to supply in the third and fourth quarter of 2021. Our manufacturing facilities in Korea (for our energy storage business), Italy (for our e-Mobility components) and Israel and our contract manufacturers’ facilities in Vietnam, China, and Hungary were operational at almost full capacity in the fourth quarter of 2021 as we continued to ramp our new manufacturing site in Mexico. To2022, the extent that there are no further lockdowns, manufacturing capacity will revert to levels that accommodate the growing demand for our products within the first half of 2022. Our customer support centers are working at full capacity, partially from home. Continued travel restrictions, however,pandemic and general global economic conditions continue to have an impact onpresent challenges to our operations.
In 2021, we experiencedoperations and continue to experience an increase in the cost of goods sold due to an increase in shipping rates that resulted from a reduction in ocean freight capacity, the accumulation of containers in the ports in U.S and Europe that were not returned to Asia and the reduction in the availability of air freight that increased the demand for ocean freight.business. In the fourth quarter of 2021,2022, we experiencedbegan to witness a decrease in shipment prices and expect to continue to experience intransit times, both however are still not at their pre-Covid-19 levels. In fiscal 2022 disruptions to our logistics supply chain caused by constraints inas a whole and the global transportation system including limited availabilityfourth quarter of local ground transportation coupled with congestion in shipping ports and2022 specifically, the industry-wide component shortages. These factors have impactedshortages which originated from Covid-19 and amplified by the increase in demand for our products, as well as other manufacturers who are competing for the same components, continued to impact our ability to accurately plan and forecast the delivery of our products to customers and have also increased the total shipping time and cost of ocean and air freight for components and finished goods. To mitigate the impact of these disruptions on our supply chain, we extended shipment terms that differ from our standard terms in certain transactions including Free-Carrier and Ex-works (INCOTERMS, 2020) delivery from our manufacturing facilities. This change was implemented as part of our ongoing efforts to expedite shipments to our customers and improve visibility throughout our supply chain. Moreover, industry-wide component shortages require our R&D teams to focus their attention on manufacturing and production design workarounds solutions, which can impact our ability to meet our plans to roll out new innovative products and services. Additionally, a customerOur operation team is working tirelessly to mitigate the impact of SolarEdge e-Mobility that has experiencedthe disruptions in its own manufacturing process due to global component shortages has delayed the delivery date of powertrain units that were expected to be supplied by SolarEdge e-Mobility in the third quarter of 2021. We expect that the aforementioned e-Mobility project to return to normal operations during 2022.described above.
Despite the operational hurdles detailed above, our fourth quarter 2021 revenues of $551.9 million, reflect an increase from revenues of $526.4 million in the third quarter of 2021.
Impact of Ukraine’s Conflict on the Energy Landscape
The conflict between Ukraine and Russia, which started in early 2022, and the sanctions and other measures imposed in response to this conflict, have increased the level of economic and political uncertainty. While we do not have any meaningful business in Russia or Ukraine and we do not have physical assets in these countries, this conflict has, and is likely to continue to have, a multidimensional impact on the global economy, the energy landscape in general and the global supply chain. On one hand, in 2022, rising global interest in becoming less dependent on gas and oil led to higher demand for our products. On the other hand, the conflict further adversely affected the prices of raw materials arriving from Eastern Asia and resulted in an increase in gas and oil prices. Furthermore, various shipment routes were adversely impacted by the conflict resulting in increased shipment lead times and shipping costs for our products. While the impact of this conflict cannot be predicted at this time, the circumstances described above may have an adverse effect on our business and results of operations.
Inflation Reduction Act
In August 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the “IRA”), which includes several incentives intended to promote clean energy, battery and energy storage, electrical vehicles, and other solar products and is expected to impact our business and operations. As part of such incentives, the IRA, will among other things, extend the investment tax credit (“ITC”) through 2034 and is therefore expected to increase the demand for solar products. The IRA is expected to further incentivize residential and commercial solar customers and developers due to the inclusion of a tax credit for qualifying energy projects of up to 30%. Since these regulations are new and are still pending administrative guidance from the Internal Revenue Service and U.S. Treasury Department, we will be examining the benefits that may be available to us, such as the availability of tax credits for domestic manufacturers, in the coming months. To the extent that tax benefits or credits may be available to competing technology and not to our technology, our business could be adversely disadvantaged.
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, storage and backup solutions,solutions, EV chargers, smart energy devices, our cloud-based monitoring platform as well as grid services. Our customer base mainly includes distributors, large solar installers, wholesalers, EPCs, and PV module manufacturers. In addition, we also generate revenues from the sale of lithium-ion cells, batteries and energy storage solutions, UPS systems, automation machines 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 energy storage system or ESS 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, SolarEdge Automation Machines and SolarEdge e-Mobility products are affected by the changes in the volumes, customers’ size and average selling prices of the productsproducts 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, continue to develop and introduce new and innovative products that address the changing technology and performance requirements of our customers and expansion of the new businesses we acquired.
In the year ended December 31, 2021, 45.4%2022, 54.3% of our revenues were generated from Europe, 40.0%36.5% of our revenues were generated from the United States and 14.6%9.2% of our revenues were generated from ROW. In the year ended December 31, 2020, 42.9%2021, 45.4% of our revenues were generated from Europe, 42.0%40.0% of our revenues were from the United States and 15.1%14.6% of our revenues were generated from ROW.
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 testing and manufacturing equipment, provision for losses related to slow moving and dead inventory, 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 testing and manufacturing equipment, are not directly affected by sales volume.
With respect to ESS, Automation Machines and e-Mobility products ("Non-Solar") cost of revenues, consists primarily of materials costs, labor costs associated with the manufacturing, variable utility, and operational costs related to the manufacturing factories, depreciation of testing and manufacturing equipment, amortization of intangible assets and other fixed costs.
Except for the manufacturing and assembly activities related to our acquiredNon-Solar businesses and the manufacturing of solar products at Sella 1, our manufacturing facility in the North of Israel, we outsource our manufacturing to third-party manufacturers and negotiate product pricing on a quarterly basis.
During 2021,2022, supply chain and operational challenges coupled with an increase in demand for our products, resulted in increased use of expedited ocean freight as well as air freight to deliver our products to our customers in a timely manner. At the beginning of 2021,2022, a high portion of our products manufactured in non-tariff countries imported into the U.S. resulted in lower custom tariff charges; however, disruptions to our Vietnam manufacturing facilities due to Covid-19 restrictions, required us to increase manufacturing from our other manufacturing facilities that are subject to custom tariffs in the later part of the year, which consequentially caused us to temporarily incur an increase in our tariff charges. As a result of the operational challenges we faced during 2021,2022, the levels of our finished goods inventories required to support our growth were reduced. Therefore,While we are seeing an improvement in supply chain disruptions and component constraints towards the end of 2022, we expect to continue to deliver our products through expedited ocean freight and air freight. In absence of additional Covid-19 related shutdowns To the extent that production in our Mexican manufacturing facility ramps and production in Sella 1 is expanded as anticipated, we expect inventory levels to return to those required to support our growing business, and the reduction in expedited shipments and air freight usage during the third quarter of 2022.2023.
We continue to develop our own manufacturing capabilities. For example, we have developed our own proprietary automated assembly lines for our power optimizers, manufacture sub-assemblies such as cables and magnetic, and own large amounts of equipment in connection with such manufacturing activities. In 2022, we developed and commenced manufacturing from our first partially automated inverter assembly line which began production in our Sella 1 manufacturing site. 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 planned automated assembly lines. The current and expected capital expenses associated with these automated assembly lines will be funded out of our current cash and cash equivalents, available-for-sale marketable securities and cash flows generation. Additionally, we continue to develop our own manufacturing capabilities in Sella 2, our Li-Ion battery factory in Korea. We expect Sella 2 to continue to incur costs and expenses as it ramps. We also intend to expand the manufacturing capabilities of Sella 2 in fiscal years 2023 and 2024 which will result in additional expenses. We intend to use our available cash balances for this expansion.
Key components of our logistics supply channel consist of third party distribution centers in the U.S., Europe, Australia,Australia, and Japan.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.
In the third quarter of 2020 we began commercial shipments to the United States of optimizers and inverters from Sella 1, which reached full manufacturing capacity in the second quarter of 2021.
Cost of revenues also includes our operations, production and support departments’ costs. The operations and production departments are 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 employees headcount in our operations, production and support departments has grown from 1,5492,052 as of December 31, 20202021 to 2,0522,383 as of December 31, 2021.2022.
Gross profit may vary from quarter to quarter and is primarily affected by our average selling prices, product costs, manufacturing ramp-up costs, product mix, customer mix, geographical mix, shipping method, warranty costs, exchange rates and seasonality.
Operating Expenses
Operating expenses consist of research and development, sales and marketing, general and administrative, goodwill impairment and other expenses.operating expenses, net. 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 employees headcount in our research and development, sales and marketing and general and administrative departments, has grown from 1,6251,912 as of December 31, 20202021 to 1,9122,543 as of December 31, 2021. 2022. We expect to continue to hire significant numbers of new employees to support our growth.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
Research and development expenses 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, power linepower-line communications, networking and chemistry.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 amortization expenses, 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.
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 into new markets. These expenses will be determined to the extent that marketing activities resume, contingent upon the recovery of certain activities which have been halted due to Covid-19 such as travel, trade shows and in person customer trainings. We currently have a sales presence in many countries worldwide and intend to continue to expand our sales presence to additional regions.
General and administrative expenses
General and administrative expenses consist primarily of salaries, employee benefits 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, insurance, information technology and other costs. General and administrative expenses also include expenses related to legal claims and allowance for doubtful accounts in the event of uncollectible account receivables balances.
Goodwill impairment and other operating expenses, net
Goodwill impairment and other operating expenses, net, consist primarily of impairment of goodwill, impairment of long-lived assets and certain other nonrecurring items.
Other operating expenses (income), netNon Operating Expenses
Other operating expenses (income), net, consist primarily of losses related to write-offs of tangible and intangible assets and income related to payments made to us from the Kokam acquisition escrow account with regards to a working capital adjustment and a legal claim acquired as part of the Kokam acquisition which was settled in arbitration in 2019.
Non Operating Expenses
Financial income (expense), net
Financial income (expense), net, consists primarily of interest income, interest expense, gains or losses from foreign currency fluctuations and hedging transactions.
Interest income consists of interest from our investment in available for sale marketable securities, deposits and accretion of discounts related to our investment in available for sale marketable securities.
Interest expense consists of interest related to bank loans, advance payments received for performance obligations that extend for a period greater than one year, related to Accounting Standard Codification 606, “Revenue from Contracts with Customers” (ASC 606), interest related to Accounting Standard Codification 842, “Leases” (ASC 842), amortization of premium related to our investment in available for sale marketable securities and the accretion of the debt discount and amortization of debt issuance cost associated with our Notes due 2025.
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) income, net, also consists of gains or losses from foreign currency fluctuations primarily of the effect of foreign exchange differences between the U.S. dollar and the New Israeli Shekel, the Euro, the South Korean Won and other currencies related to our monetary assets and liabilities, the fair value remeasurement of hedging contracts not designated as cash flow hedge and bank charges.
Income taxesOther income
Other income consists primarily of realized and unrealized gains and losses on investments in privately-held companies.
Income taxes
We are subject to income taxes in the countries where we operate.
In the year ended December 31, 2020,2022, we recorded a net income tax expense of $23.3$83.4 million, which consists of a $26.8$94.4 million current income tax expense and a $3.5$11.0 million of deferred tax income. income. In the year ended December 31, 2021, we recorded a net income tax expense of $18.1 million, which consists of a $29.7 million current income tax expense and a $11.6 million of deferred tax income. The decreaseincrease in net income tax expense was mainly attributed to impairments that did not have a corresponding tax benefit relatedeffect and the change to Section 174 of the laps ofU.S Internal Revenue Code, which became effective on January 1, 2022. The change eliminates the option to deduct research and development expenditures currently and requires taxpayers to amortize them over five years (if generated from a statute of limitation of uncertainUS entity) and fifteen years (if generated from non-U.S. entities).This change to Section 174, as well as lower tax positions andbenefits relating to stock-based compensation, resulted in an increase in deferred taxthe Company’s taxable income related to unrealized losses of foreign currency transactions. This decrease was partially offset by an increase in tax expense related to operations of our foreign subsidiaries.and Global Intangible Low Taxed Income (“GILTI”) tax.
On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Act") was signed into law, making significant changes to U.S. income tax law. These changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years 2018 onwards and created new taxes on certain foreign-sourced earnings (including GILTI, as explained above) and certain related-party payments.
TheFurthermore, 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 will be paid over the eight-year period provided in the Tax Act (ending 2024).
SolarEdge Technologies Ltd., our Israeli subsidiary, is taxed under Israeli law. Income not eligible for benefits under the Investments Law is taxed at the corporate tax rate. The Israeli corporate tax rate is 23%.
Our Israeli subsidiary elected tax year 2012 as a “Year”Year of Election” for “Benefited Enterprise” under the Israeli Investments Law, which provides certain benefits, including tax exemptions and reduced tax rates. Upon meeting the requirements under the Israeli Investments Law, the two-year tax exemption has 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 2011 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 Preferred Companies from Preferred Enterprise would be subject to a uniform rate of corporate tax. 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 starting in the year 2017 and thereafter. Our Israeli subsidiary has established its own manufacturing facility in Israel, located in a Development Zone A, therefore income from manufacturing attributed to that facility is subject to a 7.5% tax rate.
In December 2016, Amendment 73 to the Investments Law (the “2017 Amendment”) was published. According to the 2017 Amendment, special tax tracks for technological enterprises have been introduced, which are subject to rules that were issued by the Israeli Ministry of Finance. A Preferred Technological Preferred Enterprise (PTE), as defined in the 2017 Amendment, that is located in the central region of Israel, will be subject to a tax at a rate of 12% on profits deriving from intellectual property, (in Development Zone A - a tax rate of 7.5%). Ouror 6% if its annual revenues exceed New Israeli subsidiary has established its own manufacturing facilities in Israel, located in a Development Zone A.Shekel 10 billion.
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. 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 of January 2019, our Israeli subsidiary elected to implement the 2011 and 2017 Amendments starting as of tax year 2019 and as a result, under the PTE regime with respect to our business activities in Israel. Our PTE income was subject to a 12% tax rate in Israel in the years 2019-2021, and in 2022 to a 6% tax rate as we expect that it will be entitled to an effective tax at a rate of approximately 12% in 2020.surpassed 10 billion New Israeli Shekel revenues threshold.
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, amortization over an eight-year period of the cost of purchased know-how, and patents and accelerated depreciation rates on equipment and buildings.
Results of Operations
The following tables set forth our consolidated statements of income for the years ended December 31, 20212022 and 2020.2021. 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 Annual Report. The results of historical periods are not necessarily indicative of the results of operations for any future period.
Comparison of year ended December 31, 20212022 and year ended December 31, 20202021
| | | Year ended December 31, | | | 2020 to 2021 | | | Year ended December 31, | | | 2021 to 2022 | |
| | | 2021 | | | 2020 | | | Change | | | 2022 | | | 2021 | | | Change | |
| | | (In thousands) | | | (In thousands) | |
Revenues | | 1,963,865 | | | 1,459,271 | | | 504,594 | | | 34.6 | % | | $
| 3,110,279 | | | $ | 1,963,865 | | | $ | 1,146,414 | | | $ | 58.4 | % |
Cost of revenues | | | 1,334,547 | | | | 997,912 | | | | 336,635 | | | | 33.7 | % | | | 2,265,631 | | | | 1,334,547 | | | | 931,084 | | | | 69.8 | % |
Gross profit | | | 629,318 | | | | 461,359 | | | | 167,959 | | | | 36.4 | % | | | 844,648 | | | | 629,318 | | | | 215,330 | | | | 34.2 | % |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Research and development | | 219,633 | | | 163,123 | | | 56,510 | | | 34.6 | % | | | 289,814 | | | | 219,633 | | | | 70,181 | | | | 32.0 | % |
Sales and marketing | | 119,000 | | | 95,985 | | | 23,015 | | | 24.0 | % | | | 159,680 | | | | 119,000 | | | | 40,680 | | | | 34.2 | % |
General and administrative | | 82,196 | | | 63,119 | | | 19,077 | | | 30.2 | % | | | 112,496 | | | | 82,196 | | | | 30,300 | | | | 36.9 | % |
Other operating expenses (income), net | | | 1,350 | | | | (3,429 | ) | | | 4,779 | | | | (139.4 | )% | |
| Goodwill impairment and other operating expenses, net | | | | 116,538 | | | | 1,350 | | | | 115,188 | | | | 8,532.4 | % |
Total operating expenses | | | 422,179 | | | | 318,798 | | | | 103,381 | | | | 32.4 | % | | | 678,528 | | | | 422,179 | | | | 256,349 | | | | 60.7 | % |
Operating income | | 207,139 | | | 142,561 | | | 64,578 | | | 45.3 | % | | | 166,120 | | | | 207,139 | | | | (41,019 | ) | | | (19.8 | )% |
Financial income (expense), net | | | (19,915 | ) | | | 21,105 | | | | (41,020 | ) | | | (194.4 | )% | | | 3,316 | | | | (19,915 | ) | | | 23,231 | | | | (116.7 | )% |
| Other income | | | | 7,719 | | | | — | | | | 7,719 | | | | 100.0 | % |
Income before income taxes | | 187,224 | | | 163,666 | | | 23,558 | | | 14.4 | % | | | 177,155 | | | | 187,224 | | | | (10,069 | ) | | | (5.4 | )% |
Income taxes | | | 18,054 | | | | 23,344 | | | | (5,290 | ) | | | (22.7 | )% | | | 83,376 | | | | 18,054 | | | | 65,322 | | | | 361.8 | % |
Net income | | 169,170 | | | 140,322 | | | 28,848 | | | 20.6 | % | | $
| 93,779 | | | $ | 169,170 | | | $ | (75,391 | ) | | $ | (44.6 | )% |
Revenues
| | | Year ended December 31, | | | 2021 to 2022 | |
| | | 2022 | | | 2021 | | | Change | |
| | | (In thousands) | |
Revenues | | $
| 3,110,279 | | | $ | 1,963,865 | | | $
| 1,146,414 | | | | 58.4 | % |
| | | Year ended December 31, | | | 2020 to 2021 | |
| | | 2021 | | | 2020 | | | Change | |
| | | (In thousands) | |
Revenues | | | 1,963,865 | | | | 1,459,271 | | | | 504,594 | | | | 34.6 | % |
Revenues increased by $504.6$1,146.4 million, or 34.6%58.4%, in the year ended December 31, 20212022, as compared to the year ended December 31, 2020,2021, primarily due to (i) an increase inof $615.5 million related to the number of inverters and power optimizers sold, with significant growth in revenues in all geographies coming from Europe and the U.S.; and (ii) an increase of $409.6 million related to the number of residential batteries sold mainly in Europe and in the numbers of powertrain kits supplied by SolarEdge e-Mobility, in an aggregate amount of $55.5 million. U.S.
Revenues from outside of the U.S. comprised 60.0%63.5% of our revenues in the year ended December 31, 20212022 as compared to 58.0%60.0% in the year ended December 31, 2020.2021.
The number of power optimizers recognized as revenues increased by approximately 3.15.1 million units, or 20.3%27.4%, from approximately 15.5 million units in 2020 to approximately 18.6 million units in 2021.2021 to approximately 23.7 million units in 2022. The number of inverters recognized as revenues, increased by approximately 125.1226.2 thousand units, or 18.9%28.7%, from approximately 663.3788.4 thousand units in 2021 to approximately 1,014.6 thousand units in 2020 to approximately 788.4 thousand units in 2021.2022.
Our blended Average Selling Price or ASP per watt for solar products excluding residential batteries is calculated by dividing solar revenues, excluding revenues from the sale of residential batteries, by the nameplate capacity of inverters shipped. Our blended ASP per watt for solar products shipped increaseddecreased by 0.024,0.008, or 10.8%3.3%, in 20212022 as compared to 2020.2021. The increasedecrease in blended ASP per watt is mainly attributed to an increase in the sale of residential products out of our total solar product mix in the U.S, that are characterized with higher ASP per watt, an increase in the sale of products with enhanced capabilities such as the SolarEdge energy hub inverter that are characterized with higher ASP per watt as well as the appreciationdepreciation of the Euro and other currencies against the U.S. dollar.
Dollar, which, coupled with our increased sales in Europe, accelerated this effect, as well as the increase in the sale of commercial products in Europe and the U.S., out of our total solar product mix that is characterized with lower ASP per watt. This increasedecrease in blended ASP per watt was partially offset by price increases that went into effect gradually during the second half of 2021 and continued in 2022, as well as a changerelatively higher number of other solar products shipped compared to the number of inverters shipped, which increased our total solar revenues, but did not impact the watt amount used for calculating the ASP per watt.
Our blended ASP per hour watt for residential batteries is calculated by dividing residential batteries revenues, by the nameplate capacity of residential batteries shipped. Our blended ASP per watt for residential batteries in our customer mix in the U.S. toward larger customers that enjoy preferential pricing due to volume commitments.2022 was 0.479.
Cost of Revenues and Gross Profit
| | | Year ended December 31, | | | 2021 to 2022 | |
| | | 2022 | | | 2021 | | | Change | |
| | | (In thousands) | |
Cost of revenues | | $
| 2,265,631 | | | $ | 1,334,547 | | | $
| 931,084 | | |
| 69.8 | % |
Gross profit | | $
| 844,648 | | | $
| 629,318 | | | $
| 215,330 | | |
| 34.2 | % |
| | | Year ended December 31, | | | 2020 to 2021 | |
| | | 2021 | | | 2020 | | | Change | |
| | | (In thousands) | |
Cost of revenues | | | 1,334,547 | | | | 997,912 | | | | 336,635 | | | | 33.7 | % |
Gross profit | | | 629,318 | | | | 461,359 | | | | 167,959 | | | | 36.4 | % |
Cost of revenues increased by $336.6$931.1 million, or 33.7%69.8%, in 20212022 as compared to 2020,2021, primarily due to:
an increase in the volume of products sold and the increase in the cost of components used in the manufacturing of our products;
a significant increase in shipment and logistic costs in an aggregate amount of $124.0 million due to (i) an increase in volume shipped; (ii) an increase in air and expedited shipments; and (iii) an increase in the shipment rates throughout 2022 that was partially offset by a decrease in shipment rates which began in the fourth quarter of 2022;
an increase in other production costs of $89.0 million, which is mainly attributed to charges from our contract manufacturers, due to manufacturing disruptions related to global supply constraints, increased logistics costs resulting from transportation disruptions, mobilization of components between our different manufacturing sites in order to allow for continuous manufacturing, as well as ramp up costs associated with our new contract manufacturing site in Mexico and Sella 2, our Li-Ion battery cell manufacturing facility located in South Korea;
| • | an increase in the volume of products sold and the increase in the cost of components used in the manufacturing of our products.
|
| • | an increase in warranty expenses and warranty accruals of $48.4$88.6 million. associated primarily with an increased number of products in our install base. Thisbase, as well as an increase was partially offset by various cost reductions onin costs related to the different elements of our warranty expenses, which include the cost of the products, shipment and other related expenses; |
| • | a significant increase in shipment and logistic costs in an aggregate amount of $40.1 million due to (i) an increase in shipment rates; and (ii) an increase in volume shipped;
|
| • | an increase in personnel-related costs of $16.4$22.4 million, related to the expansion of our production, operations, and support headcount, which grew in parallel to our growing install base worldwide, our new contract manufacturing site in Mexico and the constructioncompletion of our lithium-ion cell and battery factory in Korea, known as "Sella 2"; and the increase in costs associated with the production of powertrain units manufactured by our SolarEdge e-Mobility division; and
|
| • | an increase in other production costs of $9.9 million, which is mainly attributed to charges from our contract manufacturers due to manufacturing disruptions related to Covid-19 lockdowns, increased logistics costs resulting from transportation disruptions and the mobilization of components among our different manufacturing sites.
|
These increases were partially offset by:an increase in customs duties of $17.2 million attributed to the increase in volumes of products manufactured in China for the U.S. market.
| • | a decrease in custom duties of $25.5 million attributed to lower tariff charges due to the manufacture of a higher portion of our products for the U.S. outside of China;
|
Gross profit as a percentage of revenue increaseddecreased from 31.6%32.0% in 20202021 to 32.0%27.2% in 20212022, as a result of the above detailed analysis.
Operating Expenses:
Research and Development
| | | Year ended December 31, | | | 2021 to 2022 | |
| | | 2022 | | | 2021 | | | Change | |
| | | (In thousands) | |
Research and development
| | $
| 289,814 | | | $ | 219,633 | | | $
| 70,181 | | | | 32.0 | % |
| | | Year ended December 31, | | | 2020 to 2021 | |
| | | 2021 | | | 2020 | | | Change | |
| | | (In thousands) | |
Research and development | | | 219,633 | | | | 163,123 | | | | 56,510 | | | | 34.6 | % |
Research and development costs increased by $56.5$70.2 million or 34.6%32.0%, in 20212022 compared to 2020,2021, primarily due to:
| • | an increase in personnel-related costs of $48.5$53.0 million resulting from an increase in our research and development headcount, as well as salary expenses associated with employee equity-basedannual merit increases and employee stock-based compensation. The increase in headcount reflects our continuing investment in enhancements of existing products, as well as research and development expenses associated with bringing new products to the market; |
| • | an increase in expenses related to overhead costs in anthe amount of $3.1 million;$6.6 million; |
| • | an increase in depreciation expenses of property and equipment in anthe amount of $3.0 million; and$4.2 million; |
| • | a decreasein reimbursement of costs, in the amount of $4.2 million, related to the research and development activities performed by SolarEdge e-Mobility; and |
| • | an increase in expenses related to material consumption in the manufacturing of prototypes during our development process in anthe amount of $2.9 million.$2.4 million. |
These increases were partially offset by:by a decrease in expenses related to consultants and sub-contractors in the amount of $3.7 million.
| • | an increase in reimbursement of costs, in an amount of $1.7 million, related to the research and development activities performed by SolarEdge e-Mobility; andSales and Marketing |
| • | a decrease in expenses related to consultants and sub-contractors in an amount of $1.0 million.
|
| | | Year ended December 31, | | | 2021 to 2022 | |
| | | 2022 | | | 2021 | | | Change | |
| | | (In thousands) | |
Sales and marketing
| | $ | 159,680 | | | $ | 119,000 | | | $ | 40,680 | | | | 34.2 | % |
Sales and Marketing
| | | Year ended December 31, | | | 2020 to 2021 | |
| | | 2021 | | | 2020 | | | Change | |
| | | (In thousands) | |
Sales and marketing | | | 119,000 | | | | 95,985 | | | | 23,015 | | | | 24.0 | % |
Sales and marketing expenses increased by $23.0$40.7 million, or 24.0%34.2%, in 20212022 compared to 2020,2021, primarily due to:
an increase in personnel-related costs of $28.6 million, as a result of an increase in headcount supporting our growth in all geographies, as well as salary expenses associated with annual merit increases and employee stock-based compensation;
an increase in expenses related to marketing activities of $4.8 million; and
an increase in expenses related to travel in the amount of $2.7 million.
| • | an increase in personnel-related costs of $18.4 million as a result of an increase in headcount supporting our growth in all geographies, as well as salary expenses associated with employee equity-based compensation;
|
| • | an increase in expenses related to marketing activities by $2.1 million due to the renewal of marketing activities, exhibitions and shows, which were cancelled or postponed in 2020 due to Covid-19 restrictions; and
|
| • | an increase in expenses related to consultants and sub-contractors in an amount of $1.1 million.
|
General and Administrative
| | | Year ended December 31, | | | 2020 to 2021 | |
| | | 2021 | | | 2020 | | | Change | |
| | | (In thousands) | |
General and administrative | | | 82,196 | | | | 63,119 | | | | 19,077 | | | | 30.2 | % |
| | | Year ended December 31, | | | 2021 to 2022 | |
| | | 2022 | | | 2021 | | | Change | |
| | | (In thousands) | |
| General and administrative | | $
| 112,496 | | | $ | 82,196 | | | $
| 30,300 | | | | 36.9 | % |
General and administrative expenses increased by $19.1$30.3 million, or 30.2%36.9%, in 20212022 compared to 2020,2021, primarily due to:
an increase in personnel-related costs of $22.7 million resulting from an increase in our general and administrative headcount, as well as salary expenses associated with annual merit increases and employee stock-based compensation;
an increase in expenses related to consultants and sub-contractors in the amount of $7.3 million; and
| • | an increase in expenses related to overhead costs in the amount of $2.4 million. |
These increases were partially offset by a decrease of $5.6 million related to a provision for legal claims.
Goodwill impairment and other operating expenses, net
| | | Year ended December 31, | | | 2021 to 2022 | |
| | | 2022 | | | 2021 | | | Change | |
| | | (In thousands) | |
| Goodwill impairment and other operating expenses, net | | $
| 116,538 | | | $ | 1,350 | | | $
| 115,188 | | | | 8,532.4 | % |
Goodwill impairment and other operating expenses, net were $116.5 million in 2022, compared to $1.4 million in 2021, primarily due to:
| • | an increase in personnel-related coststhe amount of $16.6$90.1 million resulting from an increase in our general attributed to a goodwill impairment charge related to three reporting units: e-Mobility, Automation Machines and administrative headcount, the reinstatement of executive management salaries that management voluntarily reduced in early 2020 to mitigate the potential effects of Covid-19, as well as salary expenses associated with employee equity-based compensation;Critical Power ; and |
| • | an increase of $2.6$28.4 million attributed to the impairment of intangible assets, mainly related to insurance and legal expenses.the technology of the e-Mobility asset group, as well as the impairment of the related intangible assets of the Critical Power asset group, due to the discontinuation of its activities. |
Other operating expenses (income), net
| | | Year ended December 31, | | | 2020 to 2021 | |
| | | 2021 | | | 2020 | | | Change | |
| | | (In thousands) | |
Other operating expenses (income), net | | | 1,350 | | | | (3,429 | ) | | | 4,779 | | | | (139.4 | )% |
Other operating expenses were $1.4 million in 2021, compared to other operating income of $3.4 million in 2020, primarily due to:
| • | a decrease in income in the amount of $4.9 million related to an acquired legal claim as part of the Kokam acquisition which was settled in arbitration in 2019 and subsequently repaid to the Company in 2020; and
|
| • | an increase of $2.1 million in expenses related to write-offs of tangible assets in our solar business, which we ceased using during the second quarter of 2021.
|
These were partially offset by:by an increase of $2.6 million in income related to selling of Critical Power assets and property, plant and equipment.
51
| • | an increase of $0.8 million in income related to a payment made to us from an escrow account with regards to a working capital adjustment in connection with the Kokam acquisition; and
|
| • | a decrease of $1.5 million in expenses related to write-offs of intangible assets of SolarEdge e-Mobility, which we ceased to use during 2020.
|
Financial income (expenses), net
| | | Year ended December 31, | | | 2020 to 2021 | |
| | | 2021 | | | 2020 | | | Change | |
| | | (In thousands) | |
Financial income (expense), net | | | (19,915 | ) | | | 21,105 | | | | (41,020 | ) | | | (194.4 | )% |
| | | Year ended December 31, | | | 2021 to 2022 | |
| | | 2022 | | | 2021 | | | Change | |
| | | (In thousands) | |
| Financial income (expense), net | | $
| 3,316 | | | $ | (19,915 | ) | | $
| 23,231 | | |
| (116.7 | )% |
Financial income, net was $3.3 million in 2022 compared to financial expenses, werenet of $19.9 million in 2021, compared to financial income of $21.1 million in 2020, primarily due to an increaseto:
a decrease of $55.6$20.9 million in financial expenses resulted from foreign exchange fluctuations, mainly between each of the Euro, the New Israeli Shekel and the South Korean Won against the U.S. dollar.dollar; and
an increase of $7.6 million in interest income and accretion (amortization) of discount (premium) on marketable securities.
These expenses were partially offset by an increasea decrease of $13.4$4.7 million in financial income related to hedging transactions.
Income taxesOther income
| | | Year ended December 31, | | | 2021 to 2022 | |
| | | 2022 | | | 2021 | | | Change | |
| | | (In thousands) | |
Other income
| | $ | 7,719 | | | $ | — | | | $ | 7,719 | | | | 100.0 | % |
| | | Year ended December 31, | | | 2020 to 2021 | |
| | | 2021 | | | 2020 | | | Change | |
| | | (In thousands) | |
Income taxes | | | 18,054 | | | | 23,344 | | | | (5,290 | ) | | | (22.7 | )% |
Other income increased by $7.7 million, or 100.0%, in 2022 compared to 2021 due to the sale of our investment in a privately-held company.
Income taxes
| | | Year ended December 31, | | | 2021 to 2022 | |
| | | 2022 | | | 2021 | | | Change | |
| | | (In thousands) | |
Income taxes
| | $ | 83,376 | | | $ | 18,054 | | | $ | 65,322 | | | | 361.8 | % |
Income taxes decreasedincreased by $5.3$65.3 million, or 22.7%361.8%, in 20212022 as compared to 2020,2021, primarily due to:
| • | an increase of $8.2 million in deferred tax income; and
|
| • | an increase of $6.1 million in prior years taxes income.
|
This was partially offset by
an increase of $9.0$51.4 million of current tax expenses mainly attributed to the change to Section 174 of the U.S Internal Revenue Code, as well as impairment of goodwill and intangible assets, higher non-deductible expenses and lower tax benefits relating to stock-based compensation. The change to Section 174, which became effective on January 1, 2022, eliminates the option to deduct research and development expenditures as expensed and requires taxpayers to amortize them over five years (if generated from a U.S. entity) and fifteen years (if generated from non-U.S. entities).
an increase of $13.3 million in taxable incomeprior years taxes income; and
a decrease of $0.6 million in foreign subsidiaries.deferred tax income.
Net Income
| | | Year ended December 31, | | | 2020 to 2021 | |
| | | 2021 | | | 2020 | | | Change | |
| | | (In thousands) | |
Net income | | | 169,170 | | | | 140,322 | | | | 28,848 | | | | 20.6 | % |
| | | Year ended December 31, | | | 2021 to 2022 | |
| | | 2022 | | | 2021 | | | Change | |
| | | (In thousands) | |
Net income
| | $
| 93,779 | | | $
| 169,170 | | | $
| (75,391 | ) | | | (44.6 | )% |
As a result of the factors discussed above, net income increaseddecreased by $28.8$75.4 million, or 20.6%44.6% in 20212022 as compared to 2020.2021.
Liquidity and Capital Resources
The following table shows our cash flows from operating activities, investing activities, and financing activities for the stated periods:periods:
| | | Year ended December 31, | |
| | | 2022 | | | 2021 | |
| | | (In thousands) | |
| Net cash provided by operating activities | | $
| 31,284 | | | $
| 214,129 | |
| Net cash used in investing activities | | | (417,044 | ) | | | (484,211 | ) |
| Net cash provided by (used in) financing activities | | | 654,607 | | | | (15,178 | ) |
| Increase (decrease) in cash, cash equivalents and restricted cash | | $
| 268,847 | | | $
| (285,260 | ) |
| | | Year ended December 31, | |
| | | 2021 | | | 2020 | |
| | | (In thousands) | |
Net cash provided by operating activities | | | 214,129 | | | | 222,655 | |
Net cash used in investing activities | | | (484,211 | ) | | | (236,637 | ) |
Net cash provided by (used in) financing activities | | | (15,178 | ) | | | 640,484 | |
Increase (decrease) in cash, cash equivalents and restricted cash | | | (285,260 | ) | | | 626,502 | |
As of December 31, 2021,2022, our cash and cash equivalents were $530.1$783.1 million. This amount does not include $650.0$886.6 million invested in available for sale marketable securities, $0.3$0.5 million invested in short-term restricted bank deposits and $1.5$1.4 million invested in long-term restricted bank deposits. Our principal uses of cash are for funding our operations, capital expenditures, other working capital requirements and other investments. As of December 31, 2021,2022, we have open commitments for capital expenditures in anthe amount of approximately $168.5$74.0 million. These commitments reflect purchases of automated assembly lines and other machinery related to our manufacturing operations. We also have purchase obligations in the amount of $1,428.8$1,590.2 million related to raw materials and commitments for the future manufacturing of our products.
We believe that cash provided by operating activities, as well as our cash and cash equivalents and available for sale marketable securities, will be sufficient to meet our anticipated cash needs for at least the next 12 months as well as in the longer term, including the self-funding of our capital expenditure and operational commitments.
Operating Activities
Cash provided by operating activities consists of net income adjusted for certain non-cash items and changes in assets and liabilities. Cash provided by operating activities decreased by $8.5$182.8 million in 20212022 as compared to 2020,2021, mainly due to unfavorable changes in working capital and lower net income in 20212022 compared to the prior year partially offset by higher net income..
Investing Activities
Investing Activities
Investing cash flows consist primarily of capital expenditures, investment in, sales and maturities of available for sale marketable securities, investment and withdrawal of bank deposits and restricted bank deposits, cash used for acquisitions and cash used for acquisitions.provided by the sale of equity investments. Cash used for investing activities increaseddecreased by $247.6$67.2 million in 20212022 as compared to 2020,2021, primarily driven by a $355.7$72.2 million increase decrease in purchases of available-for-sale debt investments, net, an increase of $22.5$29.0 million in capital expendituressales and maturities of available-for-sale debt investments, $16.6 million decrease in an increase of $19.6 million cash used for asset acquisitions and investmentsinvestment in a privately heldprivately-held company and $24.4 million increase from sale of an investment in a privately-held company. This increase was partially offset by a $90.4$61.1 million decrease in cash used for investment inprovided by bank deposits and restricted bank deposits net.and an increase of $20.1 million in capital expenditures.
Financing Activities
Financing cash flows consistconsisted primarily of the issuance and repayment of short-term and long-term debt and, proceeds from the sale of shares of common stock throughin a public offering and employee equity incentive plans.plans. Cash used for financing activities in 2021 was $15.2 million compared to $640.5 million cash provided by financing activities in 2020,2022 was $654.6 million compared to $15.2 million cash used in financing activities in 2021, primarily due to a $617.9$650.5 million decrease increase in cash provided by the issuance of the Notes,common stock, net through a secondary public offering, and a decrease of $19.3$15.9 million in cash received from the exerciserepayment of stock-based awards net of withholding taxes remitted to the tax authorities and an increase of $17.4 million in bank loans repayments, net.loans.
Convertible Senior Note
On September 25, 2020, we issued $632.5 million aggregate principal amount of our Convertible Senior Notes or Notes in a transaction exempt from registration pursuant to Rule 144A and Regulation S under the Securities Act. Net proceeds from the offering, after underwriters’ discount and commissions and offering expenses, was $617.9 million. We intend to use the proceeds of the Notes for general corporate purposes. Seepurposes (see Note 1516 to our annual financial statements for more information.information).
Secondary public offering
On March 17, 2022, we offered and sold 2,300,000 shares of the Company’s common stock at a public offering price of $295.00 per share. The net proceeds to the Company after underwriters' discounts and commissions and offering costs were $650,526. We intend to use the proceeds from the public offering for general corporate purposes, which may include acquisitions (see Note 18b to our consolidated financial statements for more information).
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. Seeuncertain (see Note 2 to our annual financial statements for more information.
information).
Revenue Recognition
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 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, PV module 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 with the exception of some UPS and ESS systems that require installation and commissioning. We recognize revenue 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 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 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.
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 andrecognized based on the transfer of title and risk of loss under standard commercialcontrol, which includes but is not limited to, the agreed International 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 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. These revenues are minimal and we do not expect this to become a significant source of revenue in the near future.
The most significant impact of the standard on our financial statements relates to advance payments received for performance obligations that extend for a period greater than one year. Applying the standard, such performance obligations are those that include a financing component, specifically: (i) warranty extension services, (ii) cloud-based monitoring, and (iii) communication services.
We recognize financing component expenses in our 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 our deferred revenues balance. Such performance obligations are those that include a financing component, specifically: (i) warranty extension services, (ii) cloud-based monitoring, and (iii) communication services.
See Note 2s "revenue recognition"Notes 2u and Note 13 "Deferred revenues" of the notes14 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to revenue recognition.
Product Warranty
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, 10 years for our storage interface and a 10-year limited warranty for our residential energy hub battery. batteries. 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 Critical Power products and our battery storage products that exceed extend the standard warranty period. In addition, customers can purchase extended warranties for inverters that increaseextend 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 substantiallyis 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.
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 $83.8107.5 million power optimizers and approximately $3.54.5 million inverters as of December 31, 2021.2022.
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 $205.0$385.1 million and $265.2$265.2 million, in the year ended December 31, 20202022 and 2021, respectively.
See Note 2u "warranty obligations"Notes 2w and Note 1213 "Warranty obligations" of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to product warranty.
Inventory Valuation
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,net realizable value, 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 net realizable value of inventories. Inventory write-downs are equal to the difference between the cost of inventories and their estimated fair marketnet realizable value. Inventory write-downs are recorded as cost of revenues in the accompanying statements of income and were $8.9 $10.2 million and $7.1 million, in the year ended December 31, 20202022 and 2021, respectively.respectively.
Faulty products returned under our warranty policy are often refurbished and used as replacement 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.net realizable value. 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.
See Note 2j "Inventories"Notes 2j and Note 4 "Inventories, net" of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to inventory valuation.
Business Combination
Business Combination
We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair value. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require 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 measurement period, any subsequent adjustments are recorded to earnings.
See Note 2m2n "Business Combination" of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to business combination.
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 measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are 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. We have not recorded any impairment charges duringDuring the year ended December 31, 2021.2022, we recorded impairment charge of $28.4 million mainly related to technology within the e-Mobility asset group and intangible assets within the Critical Power asset group.
Acquired identifiable finite-lived intangible assets are amortized on a straight-line basis or accelerated method over the estimated useful lives of the assets. We believe the basis of amortization approximates the pattern in which the assets are utilized, over their estimated useful lives. We routinely review the remaining estimated useful lives of finite-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 revised estimated useful life.
See Note 2n "Intangible Assets" of the notesNotes 2.o and 8 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to intangible assets.
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.
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. |
We complete the required annual testing of goodwill for impairment for the reporting unit on October 1units in the fourth quarter of each year and accordingly, determines whether goodwill should be impaired. DuringThe Company recorded impairment charges of goodwill during the year ended December 31, 2021, no impairment2022 in the amount of goodwill has been identified.$90,104, related to the e-Mobility, Automation Machines and Critical Power reporting units.
See Note 2o "Goodwill" of the notesNotes 2q and 9 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to goodwill.
Income taxes
Income 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 basis 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 740-10 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.
See Note 2ac "Income taxes" of the notes2af to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to income taxes.
ITEM 7A.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 48.7%60.1%, 52.2%54.3% and 54.3%52.2% of our revenues for the years ended December 31, 2019,2022, 2021 and 2020, and 2021, 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 ("NIS"), Euro, and to a lesser extent, the South Korean Won ("KRW"). Our NIS 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 $68.1$152.0 million for the year ended December 31, 2021.2022. A hypothetical 10% change in foreign currency exchange rates between the NIS and the U.S. dollar would increase or decrease our net income by $24.4$36.4 million for the year ended December 31, 2021. A hypothetical 10% change in foreign currency exchange rates during the year ended December 31, 2021, between the KRW and the U.S. dollar would increase or decrease our net income by $19.6 million for the year ended December 31, 2021.2022.
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 and put and call options, to manage exposure to foreign currency risks by hedging portions of the anticipated payroll payments denominated in NIS. Our foreign currency forward contracts are expected to mitigate exchange rate changes related to the hedged assets. Those hedging contracts are designated as cash flow hedges.
In addition, we also entered into derivative instrument arrangements to hedge the Company’s exposure to currencies other than the U.S. dollar, mainly put and call options to sell Euro for U.S.U.S. dollars, forward contracts to sell AUD for U.S. dollars, forward contracts to sell Euro for U.S. dollars and forward contracts to sell U.S. dollars for KRW.KRW. These derivative instruments are not designated as cash flow hedges.
We had cash and cash equivalents of 783.1 millionand restricted cash530.1 million as of $827.1 million and $530.1 million at the end of the year ending December 31, 20202022 and the year ended December 31, 2021, respectively, which was held for working capital purposes. We had available-for-sale marketable securities with an estimated fair value of 291.1886.6 million and 650.0 million on as of December 31, 20202022 and December 31, 2021, respectively. In addition, we had bank deposits of $60.1 million as of December 31, 2020. We had restricted bank deposits of $2.61.9 million and $1.9 million as of December 31, 20202022 and December 31, 2021 respectively..
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, 2021, two2022, one major customerscustomer accounted for 30.9%18.5% of our total revenues, and as of December 31, 2021, two2022, three major customers accounted for approximately 39.3%42.2% of our consolidated trade receivables balance. For the year ended December 31, 2020, one major customer accounted for 14.8% of total revenues, and as of December 31, 2020, 2021, two major customers accounted for 30.9% of total revenues, and as of December 31, 2021, two major customers accounted for approximately 34.6% 39.3% of our consolidated trade receivables balance.balance. We currently do not foresee a credit risk associated with these receivables.
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.products, including Copper, Lithium, Nickel and Cobalt. 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| | |
Consolidated Financial Statements | |
| F-2 | F-2 |
| F-5 |
| F-7 |
| F-8 |
| F-9 |
| F-11F-10 |
| F-13F-12 |
None.
Report of Independent Registered Public Accounting Firm To the Shareholders 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, 20212022 and 2020,2021, the related consolidated statements of income, comprehensive income, (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2021,2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20212022 and 2020,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021,2022, 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's internal control over financial reporting as of December 31, 2021,2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 22, 20222023 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 financial statements based on our audits. 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 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 statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the account or disclosuredisclosures to which it relates.
Description of the Matter | As described in Notes 2u2w and 1213 to the consolidated financial statements, as of December 31, 2021,2022, the warranty obligation was $265,160$385,057 thousand. 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 inverters and up to 25 years 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 warranty obligations valuation of warranty obligationsthe solar business was complex and subject to judgment calls due to the significant estimationestimations required in determiningcalculating its amount. In particular, the warranty obligation isobligations are 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 for warranties,warranty obligations of solar business, including controls over management's review of the significant assumptions and data underlying the warranty obligationobligations valuation. OurTo test the Company’s warranty obligations our substantive audit procedures included, among others, look back analysesanalysis and testing the accuracy and completeness of the underlying data used in management's warranty obligationobligations valuation assessment. We assessed the accuracy of historical data used in estimating 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.
|
/s/ Kost Forer Gabbay & Kasierer
A Member of Ernst & Young Global
We have served as the Company's auditor since 2007.
Tel-Aviv, Israel
February 22, 2023, 2022
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of SolarEdge Technologies Inc.
Opinion on Internal Control Over Financial Reporting
We have audited SolarEdge Technologies Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2021,2022, 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 subsidiaries (the "Company")Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021,2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20212022 and 2020,2021, the related consolidated statements of income, comprehensive income, (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2021,2022, and the related notes and our report dated February 22, 20222023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’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 over 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.
Definition and Limitations of Internal Control Over 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, projectionsprojections 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
A Member of Ernst & Young Global
Tel-Aviv, Israel
February 22, 2023, 2022
SOLAREDGE TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS (in thousands, except per share data)
| | | December 31, | | | December 31, | |
| | | 2021 | | | 2020 | | | 2022 | | | 2021 | |
ASSETS | | | | | | | | | | | | |
CURRENT ASSETS: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 530,089 | | | $ | 827,146 | | | $ | 783,112 | | | $ | 530,089 | |
Marketable securities | | 167,728 | | | 143,687 | | | 241,117 | | | 167,728 | |
Trade receivables, net of allowances of $2,626 and $2,886, respectively | | | 456,339 | | | | 218,706 | | |
Trade receivables, net of allowances of $3,202 and $2,626, respectively | | | | 905,146 | | | | 456,339 | |
Inventories, net | | 380,143 | | | 331,696 | | | 729,201 | | | 380,143 | |
Prepaid expenses and other current assets | | | 176,992 | | | | 198,106 | | | | 241,082 | | | | 176,992 | |
Total current assets | | | 1,711,291 | | | | 1,719,341 | | | | 2,899,658 | | | | 1,711,291 | |
LONG-TERM ASSETS: | | | | | | | | | | | | | | | | |
Marketable securities | | 482,228 | | | 147,434 | | | 645,491 | | | 482,228 | |
Deferred tax assets, net | | | 27,572 | | | | 11,676 | | | | 44,153 | | | | 27,572 | |
Property, plant and equipment, net | | 410,379 | | | 303,408 | | | 543,969 | | | 410,379 | |
Operating lease right-of-use assets, net | | | 47,137 | | | | 41,600 | | | | 62,754 | | | | 47,137 | |
Intangible assets, net | | 58,861 | | | 67,818 | | | 19,929 | | | 58,861 | |
Goodwill | | | 129,629 | | | | 140,479 | | | | 31,189 | | | | 129,629 | |
Other long-term assets | | | 24,963 | | | | 5,353 | | | | 18,806 | | | | 33,856 | |
Total long-term assets | | | 1,180,769 | | | | 717,768 | | | | 1,366,291 | | | | 1,189,662 | |
Total assets | | $ | 2,892,060 | | | $ | 2,437,109 | | | $ | 4,265,949 | | | $ | 2,900,953 | |
The accompanying notes are an integral part of the consolidated financial statements.
SOLAREDGE TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS (Cont.)
(in thousands, except per share data)
| | | December 31, | | | December 31, | |
| | | 2021 | | | 2020 | | | 2022 | | | 2021 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | | | | | |
Trade payables, net | | $ | 252,068 | | | $ | 162,051 | | | $ | 459,831 | | | $ | 252,068 | |
Employees and payroll accruals | | 74,465 | | | 63,738 | | | 85,158 | | | 74,465 | |
Warranty obligations | | | 71,480 | | | | 62,614 | | | | 103,975 | | | | 71,480 | |
Deferred revenues and customers advances | | 17,789 | | | 24,648 | | | 26,641 | | | 17,789 | |
Accrued expenses and other current liabilities | | | 109,379 | | | | 123,048 | | | | 214,112 | | | | 109,379 | |
Total current liabilities | | | 525,181 | | | | 436,099 | | | | 889,717 | | | | 525,181 | |
LONG-TERM LIABILITIES: | | | | | | | | | | | | | | | | |
Convertible senior notes, net | | 621,535 | | | 573,350 | | | 624,451 | | | 621,535 | |
Warranty obligations | | | 193,680 | | | | 142,380 | | | | 281,082 | | | | 193,680 | |
Deferred revenues | | 151,556 | | | 115,372 | | | 186,936 | | | 151,556 | |
Finance lease liabilities | | | 40,508 | | | | 26,173 | | | | 45,385 | | | | 40,508 | |
Operating lease liabilities | | 38,912 | | | 35,194 | | | 46,256 | | | 38,912 | |
Other long-term liabilities | | | 10,649 | | | | 22,784 | | | | 15,756 | | | | 19,542 | |
Total long-term liabilities | | | 1,056,840 | | | | 915,253 | | | | 1,199,866 | | | | 1,065,733 | |
COMMITMENTS AND CONTINGENT LIABILITIES | | | 0 | | | | 0 | | | | | | | | | |
STOCKHOLDERS’ EQUITY: | | | | | | | | | | | | |
Common stock of $0.0001 par value - Authorized: 125,000,000 shares as of December 31, 2021 and December 31, 2020; issued and outstanding: 52,815,395 and 51,560,936 shares as of December 31, 2021 and December 31, 2020, respectively | | | 5 | | | | 5 | | |
Common stock of $0.0001 par value - Authorized: 125,000,000 shares as of December 31, 2022 and December 31, 2021; issued and outstanding: 56,133,404 and 52,815,395 shares as of December 31, 2022 and December 31, 2021, respectively | | | | 6 | | | | 5 | |
Additional paid-in capital | | 687,295 | | | 603,891 | | | 1,505,632 | | | 687,295 | |
Accumulated other comprehensive income (loss) | | | (27,319 | ) | | | 3,857 | | |
| Accumulated other comprehensive loss | | | | (73,109 | ) | | | (27,319 | ) |
Retained earnings | | | 650,058 | | | | 478,004 | | | | 743,837 | | | | 650,058 | |
Total stockholders’ equity | | | 1,310,039 | | | | 1,085,757 | | | | 2,176,366 | | | | 1,310,039 | |
Total liabilities and stockholders’ equity | | $ | 2,892,060 | | | $ | 2,437,109 | | | $ | 4,265,949 | | | $ | 2,900,953 | |
The accompanying notes are an integral part of the consolidated financial statements.
SOLAREDGE TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
| | | Year ended December 31, | |
| | | 2022 | | | 2021 | | | 2020 | |
Revenues | | $ | 3,110,279 | | | $ | 1,963,865 | | | $ | 1,459,271 | |
Cost of revenues | | | 2,265,631 | | | | 1,334,547 | | | | 997,912 | |
Gross profit | | | 844,648 | | | | 629,318 | | | | 461,359 | |
Operating expenses: | | | | | | | | | | | | |
Research and development | | | 289,814 | | | | 219,633 | | | | 163,123 | |
Sales and marketing | | | 159,680 | | | | 119,000 | | | | 95,985 | |
General and administrative | | | 112,496 | | | | 82,196 | | | | 63,119 | |
Goodwill impairment and other operating expenses (income), net | | | 116,538 | | | | 1,350 | | | | (3,429 | ) |
Total operating expenses | | | 678,528 | | | | 422,179 | | | | 318,798 | |
Operating income | | | 166,120 | | | | 207,139 | | | | 142,561 | |
Financial income (expense), net | | | 3,316 | | | | (19,915 | ) | | | 21,105 | |
Other income | | | 7,719 | | | | - | | | | - | |
Income before income taxes | | | 177,155 | | | | 187,224 | | | | 163,666 | |
Income taxes | | | 83,376 | | | | 18,054 | | | | 23,344 | |
Net income | | $ | 93,779 | | | $ | 169,170 | | | $ | 140,322 | |
Net basic earnings per share of common stock | | $ | 1.70 | | | $ | 3.24 | | | $ | 2.79 | |
Net diluted earnings per share of common stock | | $ | 1.65 | | | $ | 3.06 | | | $ | 2.66 | |
Weighted average number of shares used in computing net basic earnings per share of common stock | | | 55,087,770 | | | | 52,202,182 | | | | 50,217,330 | |
Weighted average number of shares used in computing net diluted earnings per share of common stock | | | 58,100,649 | | | | 55,971,030 | | | | 52,795,476 | |
The accompanying notes are an integral part of the consolidated financial statements.
SOLAREDGE TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share data)
| | | Year ended December 31, | |
| | | 2021 | | | 2020 | | | 2019 | |
Revenues | | $ | 1,963,865 | | | $ | 1,459,271 | | | $ | 1,425,660 | |
Cost of revenues | | | 1,334,547 | | | | 997,912 | | | | 946,322 | |
Gross profit | | | 629,318 | | | | 461,359 | | | | 479,338 | |
Operating expenses: | | | | | | | | | | | | |
Research and development | | | 219,633 | | | | 163,123 | | | | 121,351 | |
Sales and marketing | | | 119,000 | | | | 95,985 | | | | 87,984 | |
General and administrative | | | 82,196 | | | | 63,119 | | | | 49,361 | |
Other operating expenses (income), net | | | 1,350 | | | | (3,429 | ) | | | 30,696 | |
Total operating expenses | | | 422,179 | | | | 318,798 | | | | 289,392 | |
Operating income | | | 207,139 | | | | 142,561 | | | | 189,946 | |
Financial income (expense), net | | | (19,915 | ) | | | 21,105 | | | | (11,343 | ) |
Income before income taxes | | | 187,224 | | | | 163,666 | | | | 178,603 | |
Income taxes | | | 18,054 | | | | 23,344 | | | | 33,646 | |
Net income | | $ | 169,170 | | | $ | 140,322 | | | $ | 144,957 | |
Net loss attributable to Non-controlling interests | | | 0 | | | | 0 | | | | 1,592 | |
Net income attributable to SolarEdge Technologies, Inc. | | $ | 169,170 | | | $ | 140,322 | | | $ | 146,549 | |
Net basic earnings per share of common stock | | $ | 3.24 | | | $ | 2.79 | | | $ | 3.06 | |
Net diluted earnings per share of common stock | | $ | 3.06 | | | $ | 2.66 | | | $ | 2.90 | |
Weighted average number of shares used in computing net basic earnings per share of common stock | | | 52,202,182 | | | | 50,217,330 | | | | 47,918,938 | |
Weighted average number of shares used in computing net diluted earnings per share of common stock | | | 55,971,030 | | | | 52,795,475 | | | | 50,195,661 | |
| | | Year ended December 31, | |
| | | 2022 | | | 2021 | | | 2020 | |
Net income | | $ | 93,779 | | | $ | 169,170 | | | $ | 140,322 | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | | |
Net change related to available-for-sale securities | | | (20,740 | ) | | | (4,949 | ) | | | (24 | ) |
Net change related to cash flow hedges | | | (2,635 | ) | | | 874 | | | | - | |
Foreign currency translation adjustments on intra-entity transactions that are of a long-term investment nature | | | (20,540 | ) | | | (17,420 | ) | | | - | |
Foreign currency translation adjustments, net | | | (1,875 | ) | | | (9,681 | ) | | | 5,690 | |
Total other comprehensive income (loss) | | | (45,790 | ) | | | (31,176 | ) | | | 5,666 | |
Comprehensive income | | $ | 47,989 | | | $ | 137,994 | | | $ | 145,988 | |
The accompanying notes are an integral part of the consolidated financial statements.
SOLAREDGE TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)STOCKHOLDERS’ EQUITY (in thousands, except per share data) | | SolarEdge Technologies, Inc. Stockholders’ Equity | |
| | Common stock | | | Additional paid in
Capital | | | Accumulated
other comprehensive Income (loss) | | | Retained earnings | | | Total | |
| | Number | | | Amount | |
Balance as of December 31,2019 | | | 48,898,062 | | | $ | 5 | | | $ | 475,792 | | | $ | (1,809 | ) | | $ | 337,682 | | | $ | 811,670 | |
Issuance of common stock upon exercise of stock-based awards | | | 2,579,004 | | | | * - | | | | 16,671 | | | | - | | | | - | | | | 16,671 | |
Issuance of Common stock under employee stock purchase plan | | | 83,870 | | | | * - | | | | 7,783 | | | | - | | | | - | | | | 7,783 | |
Stock based compensation | | | - | | | | - | | | | 67,309 | | | | - | | | | - | | | | 67,309 | |
Equity component of convertible senior notes, net | | | - | | | | - | | | | 36,336 | | | | - | | | | - | | | | 36,336 | |
Other comprehensive gain adjustments | | | - | | | | - | | | | - | | | | 5,666 | | | | - | | | | 5,666 | |
Net income | | | - | | | | - | | | | - | | | | - | | | | 140,322 | | | | 140,322 | |
Balance as of December 31,2020 | | | 51,560,936 | | | $ | 5 | | | $ | 603,891 | | | $ | 3,857 | | | $ | 478,004 | | | $ | 1,085,757 | |
Cumulative effect of adopting ASU 2020-06 | | | - | | | $ | - | | | | (36,336 | ) | | | - | | | | 2,884 | | | | (33,452 | ) |
Issuance of common stock upon exercise of stock-based awards | | | 1,204,861 | | | | * - | | | | 6,486 | | | | - | | | | - | | | | 6,486 | |
Issuance of Common stock under employee stock purchase plan | | | 49,598 | | | | * - | | | | 10,661 | | | | - | | | | - | | | | 10,661 | |
Stock based compensation | | | - | | | | - | | | | 102,593 | | | | - | | | | - | | | | 102,593 | |
Other comprehensive loss adjustments | | | - | | | | - | | | | - | | | | (31,176 | ) | | | - | | | | (31,176 | ) |
Net income | | | - | | | | - | | | | - | | | | - | | | | 169,170 | | | | 169,170 | |
Balance as of December 31,2021 | | | 52,815,395 | | | $ | 5 | | | $ | 687,295 | | | $ | (27,319 | ) | | $ | 650,058 | | | $ | 1,310,039 | |
Issuance of common stock upon exercise of stock-based awards | | | 940,880 | | | | * - | | | | 4,030 | | | | - | | | | - | | | | 4,030 | |
Issuance of Common stock under employee stock purchase plan | | | 77,129 | | | | * - | | | | 17,863 | | | | - | | | | - | | | | 17,863 | |
Stock based compensation | | | - | | | | - | | | | 145,919 | | | | - | | | | - | | | | 145,919 | |
Issuance of common stock in a secondary public offering, net of underwriters' discounts and commissions of $27,140 and $834 of offering costs | | | 2,300,000 | | | | 1 | | | | 650,525 | | | | - | | | | - | | | | 650,526 | |
Other comprehensive loss adjustments | | | - | | | | - | | | | - | | | | (45,790 | ) | | | - | | | | (45,790 | ) |
Net income | | | - | | | | - | | | | - | | | | - | | | | 93,779 | | | | 93,779 | |
Balance as of December 31,2022 | | | 56,133,404 | | | $ | 6 | | | $ | 1,505,632 | | | $ | (73,109 | ) | | $ | 743,837 | | | $ | 2,176,366 | |
| | | Year ended December 31, | |
| | | 2021 | | | 2020 | | | 2019 | |
Net income | | $ | 169,170 | | | $ | 140,322 | | | $ | 144,957 | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | | |
Net change related to available-for-sale securities | | | (4,949 | ) | | | (24 | ) | | | 920 | |
Net change related to cash flow hedges | | | 874 | | | | 0 | | | | 0 | |
Foreign currency translation adjustments on intra-entity transactions that are of a long-term investment nature | | | (17,420 | ) | | | 0 | | | | 0 | |
Foreign currency translation adjustments, net | | | (9,681 | ) | | | 5,690 | | | | (2,205 | ) |
Total other comprehensive income (loss) | | | (31,176 | ) | | | 5,666 | | | | (1,285 | ) |
Comprehensive income | | $ | 137,994 | | | $ | 145,988 | | | $ | 143,672 | |
Comprehensive loss attributable to Non-controlling interests | | | 0 | | | | 0 | | | | 981 | |
Comprehensive income attributable to SolarEdge Technologies, Inc. | | $ | 137,994 | | | $ | 145,988 | | | $ | 144,653 | |
* Represents an amount less than $1.
The accompanying notes are an integral part of the consolidated financial statements.
SOLAREDGE TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in thousands, except per share data)| | | SolarEdge Technologies, Inc. Stockholders’ Equity | | | | | | | |
| | | Common stock | | | Additional paid in Capital | | | Accumulated Other comprehensive Income (loss) | | | Retained earnings | | | Total | | | Non-controlling interests | | | Total stockholders' equity | |
| | | Number | | | Amount | | | | | |
Balance as of 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 employees and non-employees stock-based awards | | | 1,691,896 | | | | * 0 | | | | 3,498 | | | | - | | | | - | | | | 3,498 | | | | - | | | | 3,498 | |
Issuance of Common stock under employees stock purchase plan | | | 142,713 | | | | * 0 | | | | 5,568 | | | | - | | | | - | | | | 5,568 | | | | - | | | | 5,568 | |
Equity based compensation expenses to employees and non-employees | | | - | | | | - | | | | 60,353 | | | | - | | | | - | | | | 60,353 | | | | - | | | | 60,353 | |
Treasury Stock | | | (183,395 | ) | | | * 0 | | | | (2 | ) | | | - | | | | - | | | | (2 | ) | | | - | | | | (2 | ) |
Issuance of Common stock upon business combination | | | 1,194,046 | | | | * 0 | | | | 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 | | | $ | 0 | | | $ | 811,670 | |
Issuance of Common Stock upon exercise of employee and non-employees stock-based awards | | | 2,579,004 | | | | * 0 | | | | 16,671 | | | | - | | | | - | | | | 16,671 | | | | - | | | | 16,671 | �� |
Issuance of Common stock under employee stock purchase plan | | | 83,870 | | | | * 0 | | | | 7,783 | | | | - | | | | - | | | | 7,783 | | | | - | | | | 7,783 | |
Equity based compensation expenses to employees and non-employees | | | - | | | | - | | | | 67,309 | | | | - | | | | - | | | | 67,309 | | | | - | | | | 67,309 | |
Equity component of convertible senior notes, net | | | - | | | | - | | | | 36,336 | | | | - | | | | - | | | | 36,336 | | | | - | | | | 36,336 | |
Other comprehensive loss adjustments | | | - | | | | - | | | | - | | | | 5,666 | | | | - | | | | 5,666 | | | | 0 | | | | 5,666 | |
Net income | | | - | | | | - | | | | - | | | | - | | | | 140,322 | | | | 140,322 | | | | 0 | | | | 140,322 | |
Balance as of December 31, 2020 | | | 51,560,936 | | | $ | 5 | | | $ | 603,891 | | | $ | 3,857 | | | $ | 478,004 | | | $ | 1,085,757 | | | $ | - | | | $ | 1,085,757 | |
* Represents an amount less than $1.
F - 9
SOLAREDGE TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Cont.)
(in thousands, except per share data)
| | | SolarEdge Technologies, Inc. Stockholders’ Equity | | | | | | | |
| | | Common stock | | | Additional paid in Capital | | | Accumulated Other comprehensive Income (loss) | | | Retained earnings | | | Total | | | Non-controlling interests | | | Total stockholders' equity | |
| | | Number | | | Amount | | | | | |
Balance as of December 31, 2020 | | | 51,560,936 | | | $ | 5 | | | $ | 603,891 | | | $ | 3,857 | | | $ | 478,004 | | | $ | 1,085,757 | | | $ | - | | | $ | 1,085,757 | |
Cumulative effect of adopting ASU 2020-06 | | | - | | | | - | | | | (36,336 | ) | | | - | | | | 2,884 | | | | (33,452 | ) | | | - | | | | (33,452 | ) |
Issuance of Common Stock upon exercise of employee and non-employees stock-based awards | | | 1,204,861 | | | | * - | | | | 6,486 | | | | - | | | | - | | | | 6,486 | | | | - | | | | 6,486 | |
Issuance of Common stock under employee stock purchase plan | | | 49,598 | | | | * - | | | | 10,661 | | | | - | | | | - | | | | 10,661 | | | | - | | | | 10,661 | |
Equity based compensation expenses to employees and non-employees | | | - | | | | - | | | | 102,593 | | | | - | | | | - | | | | 102,593 | | | | - | | | | 102,593 | |
Other comprehensive income adjustments | | | - | | | | - | | | | - | | | | (31,176 | ) | | | - | | | | (31,176 | ) | | | - | | | | (31,176 | ) |
Net income | | | - | | | | - | | | | - | | | | - | | | | 169,170 | | | | 169,170 | | | | - | | | | 169,170 | |
Balance as of December 31, 2021 | | | 52,815,395 | | | $ | 5 | | | $ | 687,295 | | | $ | (27,319 | ) | | $ | 650,058 | | | $ | 1,310,039 | | | $ | - | | | $ | 1,310,039 | |
* Represents an amount less than $1.
The accompanying notes are an integral part of the consolidated financial statements.
SOLAREDGE TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share data)
| | | Year ended December 31, | | | Year ended December 31, | |
| | | 2021 | | | 2020 | | | 2019 | | | 2022 | | | 2021 | | | 2020 | |
Cash flows provided by operating activities: | | | | | | | | | | |
Cash flows from operating activities: | | | | | | | | | | |
Net income | | $ | 169,170 | | | $ | 140,322 | | | $ | 144,957 | | | $ | 93,779 | | | $ | 169,170 | | | $ | 140,322 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | | |
Depreciation of property, plant and equipment | | 29,359 | | | 22,355 | | | 17,261 | | | 40,580 | | | 29,359 | | | 22,355 | |
Amortization of intangible assets | | | 10,176 | | | | 9,479 | | | | 9,634 | | | 9,096 | | | 10,176 | | | 9,479 | |
Amortization of debt discount and debt issuance costs | | 2,903 | | | 3,185 | | | 0 | | | 2,916 | | | 2,903 | | | 3,185 | |
Amortization of premium and accretion of discount on available-for-sale marketable securities, net | | | 9,462 | | | | 1,168 | | | | 92 | | | 9,310 | | | 9,462 | | | 1,168 | |
| Impairment of goodwill and intangible assets | | | 118,492 | | | - | | | - | |
Stock-based compensation expenses | | 102,593 | | | 67,309 | | | 60,353 | | | 145,539 | | | 102,593 | | | 67,309 | |
| Gain from sale of privately held company | | | (7,719 | ) | | - | | | - | |
Deferred income taxes, net | | | (12,045 | ) | | | (2,738 | ) | | | (6,037 | ) | | (11,055 | ) | | (12,045 | ) | | (2,738 | ) |
Exchange rate fluctuations and other items, net | | 20,697 | | | 3,860 | | | 8,174 | | | 10,052 | | | 20,697 | | | 3,860 | |
Changes in assets and liabilities: | | | | | | | | | | | | | | | | | | | | | |
Inventories, net | | (43,051 | ) | | (149,661 | ) | | (22,544 | ) | | (341,085 | ) | | (43,051 | ) | | (149,661 | ) |
Prepaid expenses and other assets | | | (39,444 | ) | | | (3,276 | ) | | | (67,323 | ) | | (64,991 | ) | | (39,444 | ) | | (3,276 | ) |
Trade receivables, net | | (247,723 | ) | | 86,538 | | | (124,071 | ) | | (457,610 | ) | | (247,723 | ) | | 86,538 | |
Trade payables, net | | | 91,709 | | | | 3,333 | | | | 47,837 | | | 194,524 | | | 91,709 | | | 3,333 | |
Employees and payroll accruals | | 26,519 | | | 18,315 | | | 18,592 | | | 26,238 | | | 26,519 | | | 18,315 | |
Warranty obligations | | | 60,524 | | | | 32,274 | | | | 50,780 | | | 120,169 | | | 60,524 | | | 32,274 | |
Deferred revenues and customers advances | | 29,936 | | | (21,438 | ) | | 83,137 | | | 44,376 | | | 29,936 | | | (21,438 | ) |
Other liabilities, net | | | 3,344 | | | | 11,630 | | | | 38,158 | | |
Accrued expenses and other liabilities, net | | | | 98,673 | | | | 3,344 | | | | 11,630 | |
Net cash provided by operating activities | | | 214,129 | | | | 222,655 | | | | 259,000 | | | | 31,284 | | | | 214,129 | | | | 222,655 | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | | |
| Proceed from sales and maturities of available-for-sale marketable securities | | | 231,210 | | | 202,188 | | | 141,839 | |
Purchase of property, plant and equipment | | | (169,341 | ) | | (149,251 | ) | | (126,790 | ) |
Investment in available-for-sale marketable securities | | (579,377 | ) | | (223,705 | ) | | (160,054 | ) | | (507,171 | ) | | (579,377 | ) | | (223,705 | ) |
Proceed from sales and maturities of available-for-sale marketable securities | | | 202,188 | | | | 141,839 | | | | 142,744 | | |
Investment in privately-held company | | (16,643 | ) | | 0 | | | 0 | | |
Purchase of property, plant and equipment | | | (149,251 | ) | | | (126,790 | ) | | | (72,562 | ) | |
Investment in a privately-held company | | | - | | | (16,643 | ) | | - | |
| Proceeds from sale of a privately-held company | | | 24,362 | | | - | | | - | |
Withdrawal from (investment in) bank deposits, net | | 60,096 | | | (54,752 | ) | | 4,860 | | | - | | | 60,096 | | | (54,752 | ) |
Withdrawal from (investment in) restricted bank deposits, net | | | 798 | | | | 25,267 | | | | (26,145 | ) | |
Business combinations, net of cash acquired | | 0 | | | 0 | | | (38,435 | ) | |
Withdrawal from (investment in) restricted bank Deposits, net | | | (242 | ) | | 798 | | | 25,267 | |
Other investing activities | | | (2,022 | ) | | | 1,504 | | | | (3,261 | ) | | | 4,138 | | | | (2,022 | ) | | | 1,504 | |
Net cash used in investing activities | | $ | (484,211 | ) | | $ | (236,637 | ) | | $ | (152,853 | ) | | $ | (417,044 | ) | | $ | (484,211 | ) | | $ | (236,637 | ) |
SOLAREDGE TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.)
(in thousands, except per share data)
| | | Year ended December 31, | | | Year ended December 31, | |
| | | 2021 | | | 2020 | | | 2019 | | | 2022 | | | 2021 | | | 2020 | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | |
| Proceeds from secondary public offering, net of issuance costs | | | $ | 650,526 | | | $ | - | | | $ | - | |
Repayment of bank loans | | $ | (16,073 | ) | | $ | (15,595 | ) | | $ | (9,514 | ) | | | (138 | ) | | | (16,073 | ) | | | (15,595 | ) |
Proceeds from exercise of stock-based awards and payment of withholding taxes | | | 2,203 | | | | 21,500 | | | | 9,066 | | |
Proceeds from exercise of stock-based award | | | 4,030 | | | 6,486 | | | 16,671 | |
| Tax withholding in connection with stock-based awards, net | | | 3,023 | | | (4,283 | ) | | 4,829 | |
Proceeds from issuance of convertible senior notes, net | | 0 | | | 617,869 | | | 0 | | | - | | | - | | | 617,869 | |
Proceeds from bank loans | | | 0 | | | | 16,944 | | | | 249 | | | - | | | - | | | 16,944 | |
Change in non-controlling interests | | 0 | | | 0 | | | (71,468 | ) | |
Other financing activities | | | (1,308 | ) | | | (234 | ) | | | (1,354 | ) | | | (2,834 | ) | | | (1,308 | ) | | | (234 | ) |
Net cash provided by (used in) financing activities | | | (15,178 | ) | | | 640,484 | | | | (73,021 | ) | | | 654,607 | | | | (15,178 | ) | | | 640,484 | |
Increase (decrease) in cash and cash equivalents | | | (285,260 | ) | | | 626,502 | | | | 33,126 | | | 268,847 | | | (285,260 | ) | | 626,502 | |
Cash and cash equivalents at the beginning of the period | | 827,146 | | | 223,901 | | | 187,764 | | | 530,089 | | | 827,146 | | | 223,901 | |
Effect of exchange rate differences on cash and cash equivalents | | | (11,797 | ) | | | (23,257 | ) | | | 3,011 | | | | (15,824 | ) | | | (11,797 | ) | | | (23,257 | ) |
Cash and cash equivalents at the end of the period | | $ | 530,089 | | | $ | 827,146 | | | $ | 223,901 | | | $ | 783,112 | | | $ | 530,089 | | | $ | 827,146 | |
| | | | | | | | | | | | | | | | | | | | | | |
Supplemental disclosure of non-cash activities: | | | | | | | | | | | | | | | | | | |
Right-of-use asset recognized with corresponding lease liability | | $ | 20,526 | | | $ | 29,623 | | | $ | 37,298 | | | $ | 46,004 | | | $ | 20,526 | | | $ | 29,623 | |
Issuance of common stock upon business combination | | $ | 0 | | | $ | 0 | | | $ | 34,601 | | |
| Purchase of property, plant and equipment | | | $ | 16,016 | | | $ | 10,781 | | | $ | 5,612 | |
| | | | | | | | | | | | | | | | | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | | | | | | | | | | | | |
Cash paid for income taxes | | $ | 45,977 | | | $ | 38,990 | | | $ | 41,076 | | | $ | 74,689 | | | $ | 45,977 | | | $ | 38,990 | |
Cash paid for interest on bank loans | | $ | 36 | | | $ | 321 | | | $ | 1,096 | | |
The accompanying notes are an integral part of the consolidated financial statements.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share data)
NOTE 1: GENERAL
SolarEdge Technologies, Inc. (the “Company”) and its subsidiaries design, develop, and sell an intelligent inverter solution designed to maximize power generation at the individual photovoltaic (“PV”) module level while lowering the cost of energy produced by the solar PV system and providing comprehensive and advanced safety features. The Company’s products consist mainly of (i) power optimizers designed to maximize energy throughput from each and every module through constant tracking of Maximum Power Point individually per module, (ii) inverters which invert direct current (DC) from the PV module to alternating current (AC) including the Company's future ready energy hub inverter which supports among other things, connection to a DC - coupled battery for backup capabilities, (iii) a remote cloud-based monitoring platform, that collects and processes information from the power optimizers and inverters to enable customers and system owners, to monitor and manage the solar PV system (iv) a residential storage and backup solution that is used to increase energy independence and maximize self-consumption for homeowners including a battery ,and (v) additional smart energy management solutions.
The Company and its subsidiaries sell products worldwide through large distributors, electrical equipment wholesalers, as well as directly to large solar installers and engineering, procurement and construction firms.
The Company has expanded its activity to other areas of smart energy technology organically and through acquisitions. The Company now offers a variety of energy solutions, which include lithium-ion cells, batteries and energy storage systems (“Energy Storage”), full powertrain kits for electric vehicles, or EVs (“e-Mobility”), uninterrupted power supply solutions or UPS (“Critical power”), as well as automated machines for industrial use (“Automation Machines”).
In June 2022, the Company decided to discontinue its stand-alone uninterrupted power supply solutions or UPS (“Critical Power”). The Company determined that the discontinuance of the Critical Power business does not represent a strategic shift that will have a major effect on the Company's operations and financial results and therefore it did not meet the criteria for discontinued operations classification.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared according to United States generally accepted accounting principles (“U.S. GAAP”).
a.Principles of consolidation:
The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances including profit from intercompany sales not yet realized outside the Company have been eliminated upon consolidation.
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 reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures in the accompanying notes. The Company bases itsduration, scope and effects of the ongoing Covid-19 pandemic and the conflict in Ukraine, government and other third-party responses to it, and the related macroeconomic effects, including to the Company’s business and the business of the Company’s suppliers and customers are uncertain, rapidly changing and difficult to predict. As a result, the Company’s accounting estimates and assumptions may change over time in response to this evolving situation. Such changes could result in future impairments of goodwill, intangibles, long-lived assets, inventories, incremental credit losses on historical experiencereceivables and on various other assumptions thatavailable-for-sale marketable debt securities, or an increase in the Company believes to be reasonable underCompany’s insurance liabilities as of the circumstances. On an ongoing basis, the Company evaluates these assumptions, judgments and estimates. Actual results may differ from these estimates.time of a relevant measurement event.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
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 these entities is the U.S. dollar. Financing activities, including cash investments are primarily made in U.S. dollars.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
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 Currency Matters”. All transaction gains and losses of the re-measurement of monetary balance sheet items are reflected in the statements of income 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 as of the balance sheet date. Statements of income amounts have been translated using the date of the transaction or at the average exchange rate to for the relevant periods.period.
The resulting translation adjustments are reported as a component of stockholders’ equity in accumulated other comprehensive income (loss). Gains and losses arising from intercompany foreign currency transactions that are of a long-term investment in nature are reported in the same manner as translation adjustments.
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.
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:
Short-term restricted bank deposits possess an original maturity of more than three months and less than a year from the date of investment. Long-term restricted bank deposits possess an original maturity of more than one year from the date of investment. Restricted bank deposits are primarily used as collateral 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 ("AFS") 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.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
The Company classifies its marketable securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Marketable securities with maturities of 12 months or less are classified as short-term and marketable securities with maturities greater than 12 months are classified as long-term.
On each reporting period, the Company evaluates whether declines in fair value below carrying value are due to expected credit losses, as well as the ability and intent to hold the investment until a forecasted recovery occurs, in accordance with ASC 326. Allowance for credit losses on AFS debt securities are recognized as a charge in financial income (expenses), net, on the consolidated statements of income, and any remaining unrealized losses, net of taxes, are included in accumulated other comprehensive income (loss) in stockholders' equity.
The Company has not recorded credit losses for the years ended December 31, 2022, 2021 and 2020. There was no other-than-temporary-impairment charge for any unrealized losses in 2019.
The Company determines realized gains or losses on sale of marketable securities on a specific identification method and records such gains or losses in financial income (expenses), net on the consolidated statements of income.
h.Investment in privately-held companies:
The Company's equity investments are investments in equity securities of privately-held companies, that are not traded and therefore not supported with observable market prices. The Company elected to account for its equity investments without readily determinable market values that either (i) do not meet the definition of in-substance common stock or (ii) do not provide the Company with control or significant influence using Accounting Standards Update (“ASU”) 2016-01.
Under ASU 2016-01, theThe Company adjusts the carrying value of its investments to fair value upon observable transactions for identical or similar investments of the same issuer. The Company periodically evaluates the carrying value of the investments in privately-held companies when events and circumstances indicate that the carrying amount of the investment may not be recovered. The maximum loss the Company can incur for its investments is their carrying value.
The Company may determine the fair value by reviewing equity valuation reports, current financial results, long-term plans of the privately-held companies, the amount of cash that the privately-held companies have on-hand, the ability to obtain additional financing and overall market conditions in which the privately-held companies operate or based on the price observed from the most recent completed financing.
All gains and losses on investments in privately-held companies, realized and unrealized, are recognized in financial income (expenses), net.other income.
i.Trade receivables:
Trade receivables are stated net of credit losses allowance. The Company is exposed to credit losses primarily through sales of products. The allowance against gross trade receivables reflects the current expected credit loss inherent in the receivables portfolio determined based on the Company’s methodology. The Company’s methodology is based on historical collection experience, customer creditworthiness, current and future economic condition and market condition. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. Trade receivables are written off after all reasonable means to collect the full amount have been exhausted.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of trade receivables to present the net amount expected to be collected:
| | | Year Ended December 31, 2021 | | | Year Ended December 31, 2022 | |
| Balance, at beginning of the period | | $ | 2,886 | | | $ | 2,626 | |
| Decrease in provision for expected credit losses | | (142 | ) | |
Increase in provision for expected credit losses | | | 679 | |
| Amounts written off charged against the allowance and others | | | (118 | ) | | | (103 | ) |
| Balance, at end of the period | | $ | 2,626 | | | $ | 3,202 | |
Inventories are stated at the lower of cost or net 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 net realizable value. Cost of finished goods and raw materials is determined using the moving average cost method.
k.Property, plant and equipment:
Property, plant and equipment are stated at cost, net of accumulated depreciation and government grants. Assets under construction represent 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 life of the assets, at the following rates:
| | | % |
Buildings and plants | | 2.5-5.7 (mainly 5.4)2.5) |
Computers and peripheral equipment | | 14.3-33.3 (mainly 33.3) |
Office furniture and equipment | | 7-25 (mainly 7) |
Machinery and equipment | | 10-209-33.3 (mainly 10) |
Laboratory and testing equipment | | 7-20 (mainly 10) |
Leasehold improvements | | over the shorter of the lease term or useful economic life |
l. Government assistance
In 2020, SolarEdge Ltd, a wholly owned subsidiary of the Company, entered into an agreement with the Israeli Ministry of Economy and Industry to partially subsidize the construction of Sella 1, a factory for production of inverters and optimizers, in the amount of approximately $7,000.
In 2020, SolarEdge Korea (formerly Kokam), a wholly owned subsidiary of the Company, entered into an agreement with Chungcheongbuk-do province of South Korea to partially subsidize the construction of Sella 2, a factory for production of lithium-ion cells and batteries, in the amount of approximately $12,000.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
The assistance is in the form of a cash subsidy, which the government will pay as a grant upon the satisfaction of predetermined construction completion milestones. When the defined milestones are reached and the right to receive a subsidy amount becomes virtually certain, the amount of the grant is recorded as a reduction of the related asset's value under “Property, plant and equipment, net”.
The Company recorded reduction of property, plant and equipment in the amount of $7,359 and $4,842 for the years ended December 31, 2022 and 2021, respectively.
As of December 31, 2022, the Company has a right to receive of $9,233 that has yet to be paid which was recorded under “Prepaid expenses and other current assets”.
The Company determines if an arrangement is a lease at inception. Contracts containing a lease are further evaluated for classification as an operating or finance lease. In determining the leases classification the Company assesses among other criteria: (i) 75% or more of the remaining economic life of the underlying asset is a major part of the remaining economic life of that underlying asset; and (ii) 90% or more of the fair value of the underlying asset comprises substantially all of the fair value of the underlying asset. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and long-term operating lease liabilities in the Company’s consolidated balance sheets. Finance leases are included in property, plant and equipment, net, other current liabilities, and long-term finance lease 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. For leases with terms greater than 12 months, the Company records the ROU asset and liability at commencement date based on the present value of lease payments according to their term.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
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 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 are recognized on a straight-line basis over the lease term or the useful life of the leased asset.
In addition, the carrying amount of the ROU and lease liabilities are remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.
m.n.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.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
n.o.Intangible Assets:
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.
Acquired identifiable finite-lived intangible assets are amortized 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 8).
For the years ended December 31, 2021, 2020 and 2019, no impairment losses have been identified.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
o.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 amount, 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, 2021, 2020 and 2019.
p.Impairment of long-lived assets:
The Company’s long-lived assets to be held and used, including ROU assets and identifiable intangible assets that are subject to amortization, other than goodwill, and intangible assets, including right-of-use assets, are reviewed for impairment in accordance with ASC 360 “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 evaluation indicates that the carrying amount of the asset (or asset group) is not recoverable, the assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds their fair value.value (see Note 8).
For the years ended December 31, 2022, 2021 and 2020, the Company recorded impairment charges of $29,037, $2,209 and $1,471, under Goodwill impairment and other operating expenses (income), net, respectively.
q.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 amount, a quantitative impairment test is performed. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value is recognized (see Note 9). |
For the year ended December 31, 2022, the Company recorded impairment charges of goodwill in the amount of $90,104.
For the years ended December 31, 2021 and 2020, the Company did not record any impairment charges.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
r.Cloud computing arrangements:
In 2021, due to the growing size and 2019, no impairment losses have been identified.complexity of the Company, the Company decided to implement a new global enterprise resource planning ("ERP") system, which will replace the Company's existing operating and financial systems. During the year ended December 31, 2022, the Company began implementing a cloud-based ERP system. The implementation is expected to occur in phases over the next several years.
The Company incurs costs to implement cloud computing arrangements ("CCA") that are hosted by third party vendors. Implementation costs associated with CCA are capitalized when incurred during the application development phase until the software is ready for its intended use. The costs are then amortized on a straight-line basis over the contractual term of the cloud computing arrangement and are recognized as an operating expense within the consolidated statements of income. Capitalized amounts related to such arrangements are recorded within other long-term assets in the consolidated balance sheets. Cash payments for CCA implementation costs are classified as cash outflows from operating activities.
For the year ended December 31, 2022, the Company has capitalized implementation costs related to its upcoming ERP conversion in the amount of $3,457 and presented it under other long-term assets in the consolidated balance sheet.
q.s.Severance pay:
The employees of the Company’s Israeli subsidiary are included under Section 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 sheets.
If applicable, severance costs are recorded in each entity in accordance with local laws and regulations.
For the years ended December 31, 2022, 2021 2020 and 2019,2020, the Company recorded $17,202, $14,231 $10,598 and $7,285$10,598 in severance expenses related to its employees, respectively.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
r.t.Derivatives and Hedging:
The Company accounts for derivatives and hedging based on ASC 815 (“Derivatives and Hedging”). ASC 815 requires the Company to recognize all derivatives on the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship.
To protect against the increase in value of forecasted foreign currency cash flows resulting from salary denominated in the Israeli currency, the New Israeli Shekels (“NIS”), during the year ended December 31, 2021,2022, the Company instituted a foreign currency cash flow hedging program whereby portions of the anticipated payroll denominated in NIS for a period of one to nine months with hedging contracts.
Accordingly, when the dollar strengthens against the NIS, the decline in present value of future foreign currency expenses is offset by losses in the fair value of the hedging contracts. Conversely, when the dollar weakens, the increase in the present value of future foreign currency cash flows is offset by gains in the fair value of the hedging contracts. These hedging contracts are designated as cash flow hedges, as defined by ASC 815 and are all effective hedges.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
The Company also entered into derivative instrument arrangements to hedge the Company’s exposure to currencies other than the U.S. dollar. These derivative instruments are not designated as cash flow hedges, as defined by ASC 815, and therefore all gains and losses, resulting from fair value remeasurement, were recorded immediately in the statement of income, as a financial (expense) income net.(expense), net..
The Company classifies cash flows related to its hedging as operating activities in its consolidated statement of cash flows.
s.u.Revenue recognition:
Revenues are recognized in accordance with ASC 606; revenue from contracts with customers is recognized when control of the promised goods or services is transferred to the customers, in an amount that the Company expects in exchange for those goods or services.
The Company’s products and services consist mainly of (i) power optimizers, (ii) inverters, (iii) residential batteries, (iv) a related cloud-based monitoring platform, (v) communication services, (vi) UPS units,warranty extension services, (vii) Lithium-ion cells and other storage solutions (viii) powertrain kits for EVs,EV components, and (ix) automated 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 satisfied.
(1)Identify the contract with a customer
A contract is an agreement or purchase order between two or more parties that creates enforceable rights and obligations. In evaluating the contract, the Company analyzes the customer’s intent and ability to pay the amount of promised consideration (credit risk) and considers the probability of collecting substantially all of the consideration.
The Company determines whether collectability is reasonably assured on a customer-by-customer basis pursuant to its credit review policy. The Company typically sells to customers with whom it has a long-term business relationship and a history of successful collection. For a new customer, or when an existing customer substantially expands its commitments, the Company evaluates the customer’s financial position, the number of years the customer has been in business, the history of collection with the customer, and the customer’s ability to pay, and typically assigns a credit limit based on that review.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
(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: deliveryproviding of the Company’s products; cloud based monitoring services; extended warranty services and communication services. Depending on the shipping terms agreed with the customer, the Company may perform shipping and handling activities after the customer obtains control of the goods and revenue is recognized. The Company has elected to account for shipping and handling costs as activities to fulfill the promise to transfer the goods. As a result of this accounting policy election, the Company does not consider shipping and handling activities after the customer obtains control of the goods as promised services to its customers.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
(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.
Accrual for rebates for direct customers is presented net of receivables. Accrual for sale incentives related to non-direct customers is presented under accrued expenses and other current liabilities. The Company accrued $152,717$176,706 and $65,131$152,717 for rebates and sales incentives as of December 31, 2022 and 2021, and 2020, respectively.
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, 2021,2022, 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.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
Revenues from sales of products are recognized whenbased on the transfer of control, which includes but is transferred (based onnot limited to, the agreed International Commercial terms, or “INCOTERMS”). Revenues related to warranty extension services, cloud-based monitoring, and communication services are recognized over time on a straight-line basis.
Deferred revenues consist of deferred cloud-based monitoring services, communication services, warranty extension services and advance payments received from customers for the Company’s products. Deferred revenues are classified as short-term and long-term deferred revenues based on the period in which revenues are expected to be recognized (see Note 13)14).
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
t.v.Cost of revenues:
Cost of revenues includes the following: product costs consisting of purchases from contract manufacturers and other suppliers, direct and indirect manufacturing costs, shipping and handling, support, warranty expenses, and changes in warranty provision, provision for losses related to slow moving and dead inventory, personnel and logistics costs.
Shipping and handling costs, which amounted to $257,753, $116,574 $101,597 and $113,635,$101,597, for the years ended December 31, 2022, 2021 2020 and 2019,2020, respectively, are included in the cost of revenues in the consolidated statements of income. Shipping and handling costs include custom tariff charges and all other costs associated with the distribution of finished goods from the Company’s point of sale directly to its customers.
u.w.Warranty obligations:The Company provides a product warranty for its solar segment related products as follows: a standard 10-year limited warranty for its residential batteries, a standard 12-year limited warranty for the majority of its inverters, that is extendable up to 20 or 25 years for an additional cost and a 25-year limited warranty for power optimizers.optimizers.
In certain cases, the Company provides an extended warranty for inverters that increases the warranty period for up to 25 years.
The Company maintains reserves to cover the expected costs that could result from the standard warranty. The warranty liability is 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 subcontractors’ services associated with the replacement products.
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 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, result in generating additional replacement costs to the replacement costs projected under the MTBF model.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
For other products, the Company accrues for warranty costs based on the Company’s best estimate of product and 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.
v.Convertible senior notes:F - 21
Prior to January 1, 2021, the Company separated the Notes into liability and equity components. On issuance, the carrying amount of the equity components was recorded as a debt discount and subsequently amortized to interest expense. Total initial issuance costs of $14,631 related to the Notes were allocated between the liability and equity components
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in the same proportion as the allocation of the total proceeds to the liability and equity components. The Company initially allocated issuance costs of $13,501 and $1,130 to the liability and equity components, respectively. The issuance costs attributable to the equity component were netted against the respective equity component in additional paid-in capital. Issuance costs attributable to the liability component are being amortized to interest expense over the respective term of the Notes using the effective interest rate method.thousands, except per share data)
x.Convertible senior notes:
Effective January 1, 2021, the Company early adopted ASU 2020-06 using the modified retrospective approach. The Notes are accounted for as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives. Adoption of the new standard resulted in an increase of retained earnings in anthe amount of $2,884, a decrease of an additional paid-in capital in anthe amount of $36,336, an increase of convertible senior notes, net, in anthe amount of $45,282 and a decrease of deferred tax liabilities, net, in anthe amount of $11,830. The impact of adoption of this standard on the Company’s earnings per share was immaterial.
The Company’s Convertible Senior Notes are included in the calculation of diluted Earnings Per Share (“EPS”) if the assumed conversion into common shares is dilutive, using the “if-converted” method. This involves adding back the periodic non-cash interest expense net of tax associated with the Notes to the numerator and by adding the shares that would be issued in an assumed conversion (regardless of whether the conversion option is in or out of the money) to the denominator for the purposes of calculating diluted EPS, unless the Notes are antidilutive (See(see Note 20)21).
w.y.Advertising costs
Advertising costs are expensed when incurred and are included in sales and marketing expenses in the consolidated statements of income. The Company incurred advertising expenses of $11,090, $6,323, and $4,199 for the years ended December 31, 2022, 2021, and 2020, respectively.
z.Research and development costs:
Research and development costs, are charged to the consolidated statement of income as incurred.
x.aa.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 bank deposits, marketable securities, trade receivables, derivative instruments and other accounts receivable.
Cash and cash equivalents, short-term bank deposits and restricted bank deposits are mainly invested in major banks in the U.S., Israel, Germany and 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.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
The Company's debt marketable securities include investments in highly-rated corporate debentures (located mainly in U.S., Canada, France, UK, France, South Korea, NetherlandsCayman Islands and other countries) and governmental bonds.bonds. The financial institutions that hold the Company's debt marketable securities are major financial institutions located in the United States. The Company believes its debt 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 an issuer (see Note 2g.).
The trade receivables of the Company derive from sales to customers located primarily in the United States and Europe.
The Company performs ongoing credit evaluations of its customers for the purpose of determining the appropriate allowance for credit losses (see Note 2i.). The Company generally does not require collaterals, however, in certain circumstances, the Company may require letters of credit, other collateral, or additional guarantees. From time to time, the Company may purchase trade credit insurance.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
The Company had twoone major customerscustomer (customers with attributable revenues that represents more than 10% of total revenues) for the year ended December 31, 2022, two major customers for the year ended December 31, 2021, and one major customer for the yearsyear ended December 31, 2020 and 2019 that accounted for approximately 30.9%18.5%, 14.8%30.9%% and 20.4%14.8% of the Company’s consolidated revenues, respectively. All of the revenues from these customers were generated in the solar segment.
The Company had twothree major customers (customer with a balance that represents more than 10% of total trade receivables, net) as of December 31, 20212022 and 2020two major customers for the year ended December 31, 2021 that accounted in the aggregate for approximately 39.3%42.2% and 34.6%39.3%, of the Company’s consolidated trade receivables, net, respectively.
y.ab.Concentrations of supply risks:
The Company depends on two contract manufacturers and several limited or single source component suppliers.suppliers, including, Samsung SDI, that provides lithium-ion battery cells required for the Company's residential storage solution. Reliance on these vendors makes the Company vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields, and costs.
As of December 31, 20212022 and 2020,2021, two contract manufacturers collectively accounted for 27.9%34.3% and 48.5%27.9% of the Company’s total trade payables, net, respectively.
During 2020,In the second quarter of 2022, the Company started productionannounced the opening of “Sella 2”, a two gigawatt-hour (GWh) Li-Ion battery cell manufacturing facility located in itsSouth Korea. Sella 2 is in the ramp-up phase, that is expected to continue throughout 2023. Sella 2 is the Company's second owned manufacturing facility following the establishment of Sella 1 in 2020. Sella 1 is the Company's manufacturing facility in the North of Israel “Sella 1”. Duringthat produces power optimizers and inverters for the second quarter of 2021, Sella 1 reached full manufacturing capacity.Company's solar activities.
z.ac.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 bank deposits, trade receivables, net, long term bank loans and current maturities, prepaid expenses and other current assets, trade payables, net, employee and payroll accruals and accrued expenses and other current 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, 20212022 and 20202021 are comprised of money market funds, derivative instruments and debt marketable securities (see Note 11)12).
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
The Company applies ASC 820 “Fair Value Measurements and Disclosures”, with respect to fair value measurements of all financial assets and liabilities. Fair value is an exit price, representing the amount that would be received for 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.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
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 1-1 -Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2-2 -Include other inputs that are directly or indirectly observable in the marketplace.
Level 3-3 -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.
aa.ad.Stock-based compensation:
The Company uses the closing trading price of its common stock on the day before the grant date as the fair value of awards of restricted stock units ("RSUs"), and performance stock units that are based on the Company's financial performance targets ("PSUs"). The compensation expense for RSUs is recognized using a straight-line attribution method over the requisite employee service period while compensation expense for PSUs is recognized using an accelerated amortization model. The Company estimates the forfeitures 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.
The Company granted under its 2015 Plan, PSU awards to certain employees and officers which vest upon the achievement of certain performance or market conditions subject to their continued employment with the Company.
The market condition for the PSUs is based on the Company’s total shareholder return ("TSR") compared to the TSR of companies listed in the S&P 500 index over a one to three year performance period. The Company uses a Monte-Carlo simulation to determine the grant date fair value for these awards, which takes into consideration the market price of a share of the Company’s common stock on the date of grant less the present value of dividends expected during the requisite service period, as well as the possible outcomes pertaining to the TSR market condition. The Company recognizes such compensation expenses on an accelerated vesting method.
The Company selected the Black-Scholes-Merton option-pricing model as the most appropriate fair value method for its stock-option awards and Employee Stock Purchase 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 and ESPP was calculated based upon the Company’s stock prices. The expected term of options granted is based upon historical experience and represents the period between the options’ grant date and the expected exercise or expiration date. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company doesn'tdoes not 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.
A modification of the terms of a stock-based award is treated as an exchange of the original award for a new award with total compensation cost equal to the grant-date fair value of the original award plus the incremental value of the modification to the award.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
The Company measures a modified stock based award at fair value and recognizes the compensation cost at the beginning of the modification date over the employee’s requisite service period of the modified award. The fair value for options granted to employees and ESPP in the years ended December 31, 2022, 2021 and 2020, and 2019, areis estimated at the date of grant using the following assumptions:
| | | Year ended December 31, | |
| | | 2022 | | | 2021 | | | 2020 | |
Employee Stock Options (1) | | | | | | | | | |
| Risk-free interest | | - | | | 0.43% | | | 1.73% | |
| Dividend yields | | - | | | 0% | | | 0% | |
| Volatility | | - | | | 60.74% | | | 58.98% | |
| Expected option term in years | | - | | | 5.48 | | | 6.00 | |
| Estimated forfeiture rate | | - | | | 0% | | | 0% | |
| ESPP | | | | | | | | | |
| Risk-free interest | | 1.64% - 4.70% | | | 0.03% - 0.10% | | | 0.09% - 1.63% | |
| Dividend yields | | 0% | | | 0% | | | 0% | |
| Volatility | | 71.28% - 71.97% | | | 48.39% - 76.05% | | | 55.95% - 92.57% | |
| Expected term | | 6 months | | | 6 months | | | 6 months | |
| PSU | | | | | | | | | |
| Risk-free interest | | 1.77% | | | - | | | - | |
| Dividend yields | | 0% | | | - | | | - | |
| Volatility | | 67.42% | | | - | | | - | |
| Expected term | | 1 - 3 years | | | - | | | - | |
| | | Year ended December 31, | |
| | | 2021 | | | 2020 | | | 2019 | |
| Employee Stock Options | | | | | | | | | |
| Risk-free interest | | | 0.43 | % | | | 1.73 | % | | | 2.53 | % |
| Dividend yields | | | 0 | % | | | 0 | % | | | 0 | % |
| Volatility | | | 60.74 | % | | | 58.98 | % | | | 56.26 | % |
| Expected option term in years | | | 5.48 | | | | 6.00 | | | | 6.03 | |
| Estimated forfeiture rate | | | 0 | % | | | 0 | % | | | 0 | % |
| ESPP | | | | | | | | | | | | |
| Risk-free interest | | | 0.03% - 0.10 | % | | | 0.09% - 1.63 | % | | | 1.63% - 2.35 | % |
| Dividend yields | | | 0 | % | | | 0 | % | | | 0 | % |
| Volatility | | | 48.39% - 76.05 | % | | | 55.95% - 92.57 | % | | | 46.68% - 55.95 | % |
| Expected term | | 6 months | | | 6 months | | | 6 months | |
ab.(1) No new options were granted in 2022.
ae.Earnings per share
Basic net 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, to the extent dilutive, including stock options, RSUs, PSUs, shares to be purchased under the Company���sCompany’s ESPP, and the Notes due 2025, all in accordance with ASC No. 260, "Earnings Per Share."
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
ac.af.Income taxes:
The Company and its subsidiaries account for income taxes in accordance with ASC 740, “Income 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. 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 considers all available evidence, including historical information, long range forecast of future taxable income and evaluation of tax planning strategies. Amounts recorded for valuation allowance can result from a complex series of judgments about future events and can rely on estimates and assumptions.
Tax has not been recorded for (a) taxes that would apply in the event of disposal of investments in subsidiaries, as it is generally the Company’s intention to hold these investments, not to realize them; and (b) taxes that would apply on the distribution of unremitted earnings from foreign subsidiaries, as these are retained for reinvestment in the Group.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
The Company accounts for uncertain tax positions in accordance with ASC 740-10 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.
ad.ag.New accounting pronouncements not yet effective:
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies are adopted by the Company as of the specified effective date. The Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
ah.Recently issued and adopted pronouncements:
In October 2021, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that(Topic 805). This ASU requires an acquirer ofin a business shouldcombination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in a business combination in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606). This guidance606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. The ASU is effective for fiscal yearsannual periods beginning after December 15, December 2022, andincluding interim periods within those fiscal years. Adoption of the ASU should be applied prospectively. Early adoption is permitted.also permitted, including adoption in an interim period. The Company is currently evaluating the impact of theelected to early adopt ASU 2021-08 on January 1, 2022, and will apply this new guidance to all business combinations consummated subsequent to this date. Currently, this ASU has no impact on itsthe Company's consolidated financial statementsstatements.
In November 2021, the FASBFinancial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Update No. 2021-10, Government Assistance (Topic 832): DisclosureDisclosures by Business Entities about Government Assistance (ASU 2021-10), which improves the transparency of government assistance received by most business entities by requiring the disclosure of: (1) the types of government assistance received; (2)Assistance. Under ASU 2021-10, the accounting entities with transactions with a government that are accounted for such assistance;by analogy to a grant or contribution accounting model are required to annually disclose certain information regarding the transaction including: (i) nature and (3)related accounting policy used; (ii) line items on the effect ofbalance sheet and income statement affected by the assistance on a business entity's financial statements.transactions; (iii) amounts applicable to each line item; and (iv) significant terms and conditions. This guidance is effective for financial statements issued for annual periods beginning after December 15, December 2021. EarlyThe adoption is permitted. The impact of this ASU has a minor impact on the Company’sdisclosures to the annual consolidated financial statements is expected to be immaterial.
ae.Recently issued and adopted pronouncements:statements.
In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), which clarifies the interaction between the accounting for equity securities in Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. The guidance is effective for interim and annual periods beginning after December 15, 2020. Effective January 1, 2021, the Company adopted this standard on a prospective basis. The impact of adoption of this standard on the Company’s consolidated financial statements was immaterial.
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. Effective January 1, 2021, the Company early adopted ASU 2020-06 using the modified retrospective approach. Adoption of the new standard resulted in an increase of retained earnings in an amount of $2,884, a decrease of an additional paid-in capital in an amount of $36,336, an increase of convertible senior notes, net, in an amount of $45,282 and a decrease of deferred tax liabilities, net, in an amount of $11,830. Interest expense recognized in future periods will be reduced as a result of accounting for the convertible debt instrument as a single liability measured at its amortized cost. The impact of adoption of this standard on the Company’s earnings per share was immaterial.
The consolidated financial statements for the year ended December 31, 2021 are presented under the new standards, while comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy.
af.ai.Certain prior period amounts have been reclassified to conform to the current period presentation.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
NOTE 3: MARKETABLE SECURITIES
The following is a summary of available-for-sale marketable securities at December 31, 2021:2022:
| | | Amortized cost | | | Gross unrealized gains | | | Gross unrealized losses | | | Fair value | | | Amortized cost | | | Gross unrealized gains | | | Gross unrealized losses | | | Fair value | |
Available-for-sale – matures within one year: | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate bonds | | $ | 160,462 | | | $ | 23 | | | $ | (320 | ) | | $ | 160,165 | | | $ | 222,482 | | | $ | - | | | $ | (4,657 | ) | | $ | 217,825 | |
Governmental bonds | | | 7,576 | | | | 0 | | | | (13 | ) | | | 7,563 | | | | 23,845 | | | | - | | | | (553 | ) | | | 23,292 | |
| | | | 168,038 | | | | 23 | | | | (333 | ) | | | 167,728 | | | | 246,327 | | | | - | | | | (5,210 | ) | | | 241,117 | |
Available for-sale – matures after one year: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate bonds | | 474,412 | | | 9 | | | (5,580 | ) | | 468,841 | | | 657,238 | | | 80 | | | (26,460 | ) | | 630,858 | |
Governmental bonds | | | 13,506 | | | | 0 | | | | (119 | ) | | | 13,387 | | | | 15,250 | | | | - | | | | (617 | ) | | | 14,633 | |
| | | | 487,918 | | | | 9 | | | | (5,699 | ) | | | 482,228 | | | | 672,488 | | | | 80 | | | | (27,077 | ) | | | 645,491 | |
Total | | $ | 655,956 | | | $ | 32 | | | $ | (6,032 | ) | | $ | 649,956 | | | $ | 918,815 | | | $ | 80 | | | $ | (32,287 | ) | | $ | 886,608 | |
The following is a summary of available-for-sale marketable securities at December 31, 2020:2021:
| | | Amortized cost | | | Gross unrealized gains | | | Gross unrealized losses | | | Fair value | |
Available-for-sale – matures within one year: | | | | | | | | | | | | |
Corporate bonds | | $ | 141,824 | | | $ | 509 | | | $ | (57 | ) | | $ | 142,276 | |
Governmental bonds | | | 1,400 | | | | 11 | | | | 0 | | | | 1,411 | |
| | | | 143,224 | | | | 520 | | | | (57 | ) | | | 143,687 | |
Available for-sale – matures after one year: | | | | | | | | | | | | | | | | |
Corporate bonds | | | 142,701 | | | | 65 | | | | (214 | ) | | | 142,552 | |
Governmental bonds | | | 4,895 | | | | 0 | | | | (13 | ) | | | 4,882 | |
| | | | 147,596 | | | | 65 | | | | (227 | ) | | | 147,434 | |
Total | | $ | 290,820 | | | $ | 585 | | | $ | (284 | ) | | $ | 291,121 | |
| | | Amortized cost | | | Gross unrealized gains | | | Gross unrealized losses | | | Fair value | |
Available-for-sale – matures within one year: | | | | | | | | | | | | |
Corporate bonds | | $ | 160,462 | | | $ | 23 | | | $ | (320 | ) | | $ | 160,165 | |
Governmental bonds | | | 7,576 | | | | - | | | | (13 | ) | | | 7,563 | |
| | | | 168,038 | | | | 23 | | | | (333 | ) | | | 167,728 | |
Available for-sale – matures after one year: | | | | | | | | | | | | | | | | |
Corporate bonds | | | 474,412 | | | | 9 | | | | (5,580 | ) | | | 468,841 | |
Governmental bonds | | | 13,506 | | | | - | | | | (119 | ) | | | 13,387 | |
| | | | 487,918 | | | | 9 | | | | (5,699 | ) | | | 482,228 | |
Total | | $ | 655,956 | | | $ | 32 | | | $ | (6,032 | ) | | $ | 649,956 | |
Proceeds from maturity of available-for-sale marketable securities during the years ended December 31, 2022, 2021 and 2020, were $201,974, $187,375 and 2019, were $187,375, $141,839, and $120,834, respectively.
Proceeds from sales of available-for-sale marketable securities during the year ended December 31, 2022 were $29,236, which led to realized losses of $434.
Proceeds from sales of available-for-sale marketable securities during the year ended December 31, 2021 were $14,813, which led to realized losses of $16.
The Company had no proceeds from sales of available-for sale, marketable securities during the year ended December 31, 2020, therefore no realized gains or losses from the sale of available-for-sale marketable securities were recognized.
Proceeds from sales of available-for-sale marketable securities during the year ended December 31, 2019 were $21,910, which led to realized losses of $91.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
NOTE 4: INVENTORIES, NET
| | As of December 31, | | | As of December 31, | |
| | 2021 | | 2020 | | | 2022 | | 2021 | |
Raw materials | | $ | 247,386 | | $ | 128,363 | | | $ | 503,257 | | $ | 247,386 | |
Work in process | | | 13,863 | | 25,461 | | | | 23,407 | | 13,863 | |
Finished goods | | | 118,894 | | | 177,872 | | | | 202,537 | | | 118,894 | |
| | $ | 380,143 | | $ | 331,696 | | | $ | 729,201 | | $ | 380,143 | |
The Company recorded inventory write-downs of $10,170, $7,142 $8,864 and $4,528$8,864 for the years ended December 31, 2022, 2021 2020 and 2019,2020, respectively.
NOTE 5: PREPAID EXPENSES AND OTHER CURRENT ASSETS
| | | As of December 31, | | | As of December 31, | |
| | | 2021 | | 2020 | | | 2022 | | 2021 | |
Vendor non-trade receivables (*) | | $ | 71,041 | | $ | 56,617 | | | $ | 147,597 | | $ | 71,041 | |
Government authorities | | 63,440 | | 50,041 | | | 55,670 | | 63,440 | |
| Bank deposits | | 0 | | 60,096 | | |
Prepaid expenses and other | | | 42,511 | | | 31,352 | | | | 37,815 | | | 42,511 | |
| | | $ | 176,992 | | $ | 198,106 | | | $ | 241,082 | | $ | 176,992 | |
(*) Vendor non-trade receivables derived 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 18b)19b).
NOTE 6: PROPERTY, PLANT AND EQUIPMENT, NET
| | | As of December 31, | | | As of December 31, | |
| | | 2021 | | 2020 | | | 2022 | | 2021 | |
| Cost: | | | | | | | | | | |
| Land | | $ | 13,829 | | $ | 17,935 | | | $ | 13,070 | | $ | 13,829 | |
| Buildings and plants | | 62,519 | | 49,855 | | | 152,218 | | 62,519 | |
| Computers and peripheral equipment | | 44,960 | | 37,354 | | | 46,376 | | 44,960 | |
| Office furniture and equipment | | 10,772 | | 8,639 | | | 10,911 | | 10,772 | |
| Laboratory and testing equipment | | 41,365 | | 29,733 | | | 58,454 | | 41,365 | |
| Machinery and equipment | | 201,406 | | 183,512 | | | 315,155 | | 201,406 | |
| Leasehold improvements | | 73,991 | | 48,610 | | | 85,147 | | 73,991 | |
| Assets under construction and payments on account | | | 112,037 | | | 48,344 | | | | 47,168 | | | 112,037 | |
| Gross property, plant and equipment | | 560,879 | | 423,982 | | | 728,499 | | 560,879 | |
| Less - accumulated depreciation | | | 150,500 | | | 120,574 | | | | 184,530 | | | 150,500 | |
| Total property, plant and equipment, net | | $ | 410,379 | | $ | 303,408 | | | $ | 543,969 | | $ | 410,379 | |
Depreciation expenses for the years ended December 31, 2022, 2021 and 2020, were $40,580, $29,359 and 2019, were $29,359, $22,355, and $17,261, respectively.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
NOTE 7: LEASES
The following table summarizes the Company’s lease-related assets and liabilities recorded onin the consolidated balance sheets:
Description | | Classification on the consolidated Balance Sheet | | 2021 | | 2020 | | | Classification on the consolidated Balance Sheet | | 2022 | | 2021 | |
Assets: | | | | | | | | | | | | | | |
Operating lease assets, net of lease incentive obligation | | Operating lease right-of use assets, net | | $ | 47,137 | | $ | 41,600 | | | Operating lease right-of use assets, net | | $ | 62,754 | | $ | 47,137 | |
Finance lease assets | | Property, plant and equipment, net | | | 41,758 | | | 28,551 | | | Property, plant and equipment, net | | | 52,934 | | | 41,758 | |
Total lease assets | | | | $ | 88,895 | | $ | 70,151 | | | | | $ | 115,688 | | $ | 88,895 | |
Liabilities: | | | | | | | | | | | | | | |
Operating leases short term | | Accrued expenses and other current liabilities | | $ | 12,728 | | $ | 10,994 | | | Accrued expenses and other current liabilities | | $ | 16,183 | | $ | 12,728 | |
Finance leases short term | | Accrued expenses and other current liabilities | | 1,875 | | 1,686 | | | Accrued expenses and other current liabilities | | 3,263 | | 1,875 | |
Operating leases long term | | Operating lease liabilities | | 38,912 | | 35,194 | | | Operating lease liabilities | | 46,256 | | 38,912 | |
Finance leases long term | | Finance lease liabilities | | | 40,508 | | | 26,173 | | | Finance lease liabilities | | | 45,385 | | | 40,508 | |
Total lease liabilities | | | | $ | 94,023 | | $ | 74,047 | | | | | $ | 111,087 | | $ | 94,023 | |
The following table presents certain information related to the operating and finance leases:
| | | Year ended December 31, | | | Year ended December 31, | |
| | | 2021 | | 2020 | | | 2022 | | 2021 | |
Finance leases: | | | | | | | | | | |
Finance lease cost | | $ | 2,065 | | $ | 198 | | | $ | 4,196 | | $ | 2,065 | |
Weighted average remaining lease term in years | | 16.43 | | 16.75 | | | 16.28 | | 16.43 | |
Weighted average annual discount rate | | 1.93 | % | | 1.49 | % | | 2.30 | % | | 1.93 | % |
Operating leases: | | | | | | | | | | |
Operating lease cost | | $ | 14,890 | | $ | 12,741 | | | $ | 15,901 | | $ | 14,890 | |
Weighted average remaining lease term in years | | 10.25 | | 9.94 | | | 8.33 | | 10.25 | |
Weighted average annual discount rate | | 1.68 | % | | 1.68 | % | | 2.17 | % | | 1.68 | % |
The following table presents supplemental cash flows information related to the lease costs for operating and finance leases:
| | Year ended December 31, | | | Year ended December 31, | |
| | 2021 | | 2020 | | 2022 | | 2021 |
Cash paid for amounts included in measurement of lease liabilities: | | | | | | | | | | | |
Operating cash flows for operating leases | | $ | 14,890 | | $ | 12,741 | | $ | 16,343 | | $ | 14,890 |
Operating cash flows for finance leases | | $ | 523 | | | $ | 72 | | | $ | 420 | | | $ | 523 | |
Financing cash flows for finance leases | | $ | 1,293 | | | $ | 234 | | $ | 2,834 | | | $ | 1,293 |
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
The following table reconciles the undiscounted cash flows for each of the first five years and the total of the remaining years of the operating and finance lease liabilities recorded onin the consolidated balance sheets:
| | | Operating Leases | | Finance Leases | | | Operating Leases | | Finance Leases | |
2022 | | $ | 13,332 | | $ | 2,749 | | |
2023 | | 11,495 | | 2,749 | | | $ | 16,330 | | $ | 3,298 | |
2024 | | 6,512 | | 2,798 | | | 14,746 | | 3,369 | |
2025 | | 3,671 | | 2,945 | | | 7,338 | | 3,539 | |
2026 | | 2,416 | | 2,945 | | | 4,246 | | 3,539 | |
2027 | | | 3,285 | | 4,083 | |
Thereafter | | | 19,968 | | | 36,509 | | | | 22,085 | | | 40,445 | |
Total lease payments | | $ | 57,394 | | $ | 50,695 | | | $ | 68,030 | | $ | 58,273 | |
Less amount of lease payments representing interest | | | (5,754 | ) | | | (8,312 | ) | | | (5,591 | ) | | | (9,625 | ) |
Present value of future lease payments | | $ | 51,640 | | $ | 42,383 | | | $ | 62,439 | | $ | 48,648 | |
Less current lease liabilities | | | (12,728 | ) | | | (1,875 | ) | | | (16,183 | ) | | | (3,263 | ) |
Long-term lease liabilities | | $ | 38,912 | | $ | 40,508 | | | $ | 46,256 | | $ | 45,385 | |
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
NOTE 8:INTANGIBLE ASSETS, AND GOODWILL, NET
In June 2022, the Company decided to discontinue its stand-alone uninterrupted power supply activities or UPS (“Critical Power”). The Company recorded a loss in the amount of $1,226 pertaining to Critical Power's current technology and customer relationships. In October 2022, following the e-Mobility and Automation Machines reporting unit’s goodwill analysis, an impairment test for long-lived assets was performed. The test included comparing the sum of the estimated undiscounted future cash flow attributable to the identified assets group and its carrying amounts, and recognizing an impairment for the amount to which the carrying amount exceeds the fair value of the assets groups. As a result, the Company recorded a current technology impairment of $26,917 related to e-Mobility's asset group and a $245 trade name impairment related to Automation Machines' asset group. The impairments are recorded under Goodwill impairment and other operating expenses (income), net in the consolidated statement of income. a.
| Intangible assets:
|
Acquired intangible assets consisted of the following as of December 31, 2021,2022, and 2020:2021: | | As of December 31, | |
| | 2022 | | | 2021 | |
Intangible assets with finite lives: | | | | | | | | |
Current Technology | | $ | 29,196 | | | $ | 74,976 | |
Customer relationships | | | 2,958 | | | | 3,946 | |
Trade names | | | 3,287 | | | | 3,929 | |
Assembled workforce | | | 3,575 | | | | 3,575 | |
Patents | | | 1,400 | | | | 1,400 | |
Gross intangible assets | | | 40,416 | | | | 87,826 | |
Less - accumulated amortization | | | (20,487 | ) | | | (28,965 | ) |
Total intangible assets, net | | $ | 19,929 | | | $ | 58,861 | |
| | As of December 31, | |
| | 2021 | | | 2020 | |
Intangible assets with finite lives: | | | | | | | | |
Current Technology | | $ | 74,976 | | | $ | 78,375 | |
Customer relationships | | | 3,946 | | | | 4,227 | |
Trade names | | | 3,929 | | | | 4,280 | |
Assembled workforce | | | 3,575 | | | | 0 | |
Patents | | | 1,400 | | | | 1,400 | |
Gross intangible assets | | | 87,826 | | | | 88,282 | |
Less - accumulated amortization | | | (28,965 | ) | | | (20,464 | ) |
Total intangible assets, net | | $ | 58,861 | | | $ | 67,818 | |
Amortization expenses for the years ended December 31, 2022, 2021 2020 and 2019,2020, were $10,176, $9,479$9,096, $10,176 and $9,634,$9,479, respectively.
Expected future amortization expenses of intangible assets as of December 31, 20212022 are as follows:
2022 | | | 10,755 | |
2023 | | | 10,741 | |
2024 | | | 10,176 | |
2025 | | | 9,142 | |
2026 | | | 8,356 | |
2027 and thereafter | | | 9,691 | |
| | | 58,861 | |
2023 | | $ | 5,736 | |
2024 | | | 5,717 | |
2025 | | | 3,890 | |
2026 | | | 3,826 | |
2027 | | | 558 | |
2028 and thereafter | | | 202 | |
| | $ | 19,929 | |
The following summarizes the goodwill activity for the year ended December 31, 2021, and 2020:
| | Solar | | | All other | | | Total | |
Goodwill at December 31, 2019 | | $ | 31,265 | | | $ | 98,389 | | | $ | 129,654 | |
Changes during the year: | | | | | | | | | | | | |
Foreign currency adjustments | | | 1,990 | | | | 8,835 | | | | 10,825 | |
Goodwill at December 31, 2020 | | | 33,255 | | | | 107,224 | | | | 140,479 | |
Changes during the year: | | | | | | | | | | | | |
Foreign currency adjustments | | | (2,750 | ) | | | (8,100 | ) | | | (10,850 | ) |
Goodwill at December 31, 2021 | | $ | 30,505 | | | $ | 99,124 | | | $ | 129,629 | |
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
NOTE 9:GOODWILL
Goodwill is tested for impairment annually in the fourth quarter of each year and is examined between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired.
In June 2022, the Company decided to discontinue its stand-alone Critical Power activities. The Company recorded a loss in the amount of $2,782 pertaining to Critical Power's goodwill.
The Company completed its annual goodwill impairment test in the fourth quarter of 2022 for all reporting units and determined the following:
Qualitative assessment of the Company’s storage reporting unit was performed in order to determine whether it is necessary to conduct the quantitative goodwill impairment test. Based on the results, the Company believes that it is more likely than not that the fair value of said reporting unit is greater than its carrying value and therefore a quantitative goodwill impairment test was not performed, and no goodwill impairment was recorded.
Due to impairment indicators of the e-Mobility reporting unit, which include, among other things, a shift in the Company's strategy that may result in a decline of the projected growth forecasted at the time of acquisition, the Company performed a quantitative goodwill impairment test. As a result, the Company recorded goodwill impairment in the amount of $80,534 which is presented under Goodwill impairment and other operating expenses (income), net in the consolidated statement of income.
In addition, a quantitative test has also been performed for the Automation Machines reporting unit due to indicators of impairment identified, which include, among other things, managerial changes and a decline in the overall financial performance compared with past projections. As a result, the Company recorded goodwill impairment in the amount of $6,788, which was recorded under Goodwill impairment and other operating expenses (income), net in the consolidated statement of income.
The fair value of the reporting units was estimated using a discounted cash flow analysis. When performing this analysis, the Company also considered multiples of earnings from comparable public companies. The decline in fair value primarily resulted from an increased discount rate and reduced estimated future cash flows.
The following summarizes the goodwill activity for the year ended December 31, 2022, and 2021:
| | | Solar | | | All other | | | Total | |
Goodwill at December 31, 2020 | | $ | 33,255 | | | $ | 107,224 | | | $ | 140,479 | |
Changes during the year: | | | | | | | | | | | | |
Foreign currency adjustments | | | (2,750 | ) | | | (8,100 | ) | | | (10,850 | ) |
Goodwill at December 31, 2021 | | | 30,505 | | | | 99,124 | | | | 129,629 | |
Changes during the year: | | | | | | | | | | | | |
Foreign currency adjustments | | | (1,737 | ) | | | (6,599 | ) | | | (8,336 | ) |
Accumulated impairment losses | | | - | | | | (90,104 | ) | | | (90,104 | ) |
Goodwill at December 31, 2022 | | $ | 28,768 | | | $ | 2,421 | | | $ | 31,189 | |
As of December 31, 2022 there were $90,104 accumulated goodwill impairment losses. As of December 31, 2021 and 2020 there were no accumulated goodwill impairment losses.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
NOTE 10: INVESTMENT IN PRIVATELY-HELD COMPANY
On January 31, 2021, the Company completed an investment of $11,643 in the preferred stock of AutoGrid Systems, Inc. ("AutoGrid"), a privately held company without readily determinable fair values.company.
On February 1, 2021, the Company signed on a preferred stock purchase agreement for an additional investment of $5,000 in AutoGrid's preferred stock (the "second investment"). On April 28, 2021, the Company completed the second investment.
The Company accounted for the AutoGrid investment as an equity investment that does not havewithout readily determinable fair values. As such,
On July 20, 2022, the Company’s non-marketable equity securities hadCompany completed the sale of its investment in AutoGrid for proceeds of $24,362, thus recognizing a carrying valuegain of $16,643 as$7,719 which was recorded in the statement of December 31, 2021.income under "Other income".
Investments in privately-held companies are included within other long-term assets onin the consolidated balance sheets. As of December 31, 2022, the Company had no investments in privately-held companies. As of December 31, 2021, the carrying value of investments in privately-held companies was $16,643. No impairment or other adjustments related to observable price changes in orderly transactions for identical or similar investments were identified forup to the year ended December 31, 2021.date of the sale.
NOTE 10: 11:DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
As of December 31, 2021, the Company entered into forward contracts to sell U.S. dollars for NIS in the amount of $64,997.As of December 31, 2021, the Company entered into forward contracts to sell Australian dollars (“AUD”) for U.S. dollars in the amount of AUD 18 million.
As of December 31, 2021,2022
, the Company entered into forward contracts and put and call options to buy and sell Euro for U.S. dollars (“USD”) for NIS in the amount of €24.5approximately NIS 194 million and €9NIS 18 million, respectively. AsThe fair values of December 31, 2021, the Company entered into forward contracts to sell U.S. dollars for South Korean Wonoutstanding derivative instruments were as follows:
| | Balance sheet location | | December 31, 2022 | | | December 31, 2021 | |
Derivative assets of options and forward contracts: | | | | | | | |
Designated cash flow hedges | Prepaid expenses and other current assets | | $ | - | | | $ | 992 | |
Non-designated hedges | Prepaid expenses and other current assets | | | - | | | | 3,017 | |
Total derivative assets | | | $ | - | | | $ | 4,009 | |
Derivative liabilities of options and forward contracts: | | | | | | | | | |
Designated cash flow hedges | Accrued expenses and other current liabilities | | $ | (1,874 | ) | | $ | - | |
Non-designated hedges | Accrued expenses and other current liabilities | | | - | | | | (169 | ) |
Total derivative liabilities | | | $ | (1,874 | ) | | $ | (169 | ) |
Gains (losses) on derivative instruments recognized in the amountconsolidated statements of $40,000.income are summarized below:
The fair value of derivative assets as of December 31, 2021, and 2020 was $4,009 and $3,786, which were recorded in prepaid expenses and other current assets in the Consolidated Balance Sheets, respectively.
The fair value of derivative liabilities as of December 31, 2021, and 2020 was $169 and $5,819, which was recorded in accrued expenses and other current liabilities in the Consolidated Balance Sheets, respectively.
| | Year ended December 31, | | | | |
| | 2022 | | 2021 | | | 2020 | | | Affected line item | |
Foreign exchange contracts | | | | | | | | | | | | | | |
Non Designated Hedging Instruments | | $ | 4,716 | | | $ | 9,417 | | | $ | (4,013 | ) | | Financial income (expense), net | |
For the years ended December 31, 2021 and 2020 Company recorded a gain and a loss in the amount of $9,417 and $4,013, respectively, in financial (expense) income, net, related to the derivativeSee Note 20 for information regarding gains (losses) from designated hedging instruments not designated as cash flow hedges (see Note 23).
For the years ended December 31, 2021 and 2020, the Company recorded an unrealized gain in the amount of $3,289 and $966 net of tax effect, respectively, in “accumulatedreclassified from accumulated other comprehensive gain (loss)” related to the derivative assets designated as hedging instruments.loss.
As of December 31, 2019 and for the year then ended, the Company had no derivative instruments.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
Gains (losses) on derivative instruments recognized in the consolidated statements of comprehensive income were as follows:
| | | Year ended December 31 |
| | 2022 | | | 2021 | | | 2020 | |
Foreign exchange contracts: | | | | | | | | | |
Designated Hedging Instruments | | $ | (8,965 | ) | | $ | 3,289 | | | $ | 966 | |
As of December 31, 2022, the Company estimates that all of the net derivative losses related to the Company's foreign exchange cash flow hedges included in accumulated other comprehensive loss will be reclassified into earnings within the next 12 months.
NOTE 11:12: FAIR VALUE MEASUREMENTS
In accordance with ASC 820, the Company measures its cash equivalents and marketable securities, at fair value using the market approach valuation technique. Cash equivalents and marketable securitiescash equivalents are classified within Level 1 and Level 2, respectively, because these assets are valued using quoted market prices orprices. Marketable securities and foreign currency derivative contracts are classified within level 2 due to these assets being valued by 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, 20212022 and 20202021 by level within the fair value hierarchy:
| | | Fair Value Hierarchy | | Fair value measurements as of December 31, | | | Fair Value
Hierarchy | | Fair value measurements as of | |
Description | | 2021 | | | 2020 | | | December 31, 2022 | | | December 31, 2021 | |
Assets: | | | | | | | | | | | | | | | | |
Cash equivalents: | | | | | | | | | |
Cash and cash equivalents: | | | | | | | | | |
Cash | | | Level 1 | | $ | 695,004 | | | $ | 508,389 | |
Money market mutual funds | | Level 1 | | $ | 21,680 | | | $ | 480,673 | | | Level 1 | | $ | 25,149 | | | $ | 21,680 | |
Derivative instruments asset: | | | | | | | | | |
Forward contracts designated as hedging instruments | | Level 2 | | $ | 992 | | | $ | 0 | | |
Options and forward contracts not designated as hedging instruments | | Level 2 | | $ | 3,017 | | | $ | 3,786 | | |
Deposits | | | Level 1 | | $ | 62,959 | | | $ | 20 | |
Derivative instruments | | | Level 2 | | $ | - | | | $ | 4,009 | |
Short-term marketable securities: | | | | | | | | | | | | | | | | | | |
Corporate bonds | | Level 2 | | $ | 160,165 | | | $ | 142,276 | | | Level 2 | | $ | 217,825 | | | $ | 160,165 | |
Governmental bonds | | Level 2 | | $ | 7,563 | | | $ | 1,411 | | | Level 2 | | $ | 23,292 | | | $ | 7,563 | |
Long-term marketable securities: | | | | | | | | | | | | | | | | |
Corporate bonds | | Level 2 | | $ | 468,841 | | | $ | 142,552 | | | Level 2 | | $ | 630,858 | | | $ | 468,841 | |
Governmental bonds | | Level 2 | | $ | 13,387 | | | $ | 4,882 | | | Level 2 | | $ | 14,633 | | | $ | 13,387 | |
Liabilities | | | | | | | | | | | |
Derivative instruments liability: | | | | | | | | | |
Options and forward contracts not designated as hedging instruments | | Level 2 | | $ | (169 | ) | | $ | (5,819 | ) | |
Liabilities: | | | | | | | | | |
Derivative instruments | | | Level 2 | | $ | (1,874) | | | $ | (169) | |
In addition to assets and liabilities that are recorded at fair value on a recurring basis, impairment indicators may subject goodwill and long-lived assets to nonrecurring fair value measurements. The implied fair values of the e-Mobility and Automation Machines reporting units were estimated using the discounted cash flow approach (see Notes 8 and 9). The inputs to these models are considered Level 3.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
NOTE 12: 13:WARRANTY OBLIGATIONS Changes in the Company’s product warranty obligations for the years ended December 31, 2022, 2021 and 2020 were as follows:
| | | December 31, | |
| | | 2021 | | | 2020 | |
Balance, at the beginning of the period | | $ | 204,994 | | | $ | 172,563 | |
Additions and adjustments to cost of revenues | | | 150,684 | | | | 102,832 | |
Usage and current warranty expenses | | | (90,518 | ) | | | (70,401 | ) |
Balance, at end of the period | | | 265,160 | | | | 204,994 | |
Less current portion | | | (71,480 | ) | | | (62,614 | ) |
Long term portion | | $ | 193,680 | | | $ | 142,380 | |
| | | December 31, | |
| | | 2022 | | | 2021 | | | 2020 | |
Balance, at the beginning of the period | | $ | 265,160 | | | $ | 204,994 | | | $ | 172,563 | |
Additions and adjustments to cost of revenues | | | 239,401 | | | | 150,684 | | | | 102,832 | |
Usage and current warranty expenses | | | (119,504 | ) | | | (90,518 | ) | | | (70,401 | ) |
Balance, at end of the period | | | 385,057 | | | | 265,160 | | | | 204,994 | |
Less current portion | | | (103,975 | ) | | | (71,480 | ) | | | (62,614 | ) |
Long term portion | | $ | 281,082 | | | $ | 193,680 | | | $ | 142,380 | |
NOTE 13:14: DEFERRED REVENUES
Deferred revenues consist of deferred cloud-based monitoring services, communication services, warranty extension services and advance payments received from customers for the Company’s products. Deferred revenues are classified as short-term and long-term deferred revenues based on the period in which revenues are expected to be recognized.
Significant changes in the balances of deferred revenues during the period are as follows:follows:
| | | December 31, | | | December 31, | |
| | | 2021 | | 2020 | | | 2022 | | | 2021 | | | 2020 | |
Balance, at the beginning of the period | | $ | 140,020 | | $ | 160,797 | | | $ | 169,345 | | | $ | 140,020 | | | $ | 160,797 | |
Revenue recognized | | (26,765 | ) | | (72,870 | ) | | (23,017 | ) | | (26,093 | ) | | (72,046 | ) |
Increase in deferred revenues and customer advances | | | 56,089 | | | 52,093 | | | | 67,249 | | | | 55,418 | | | | 51,269 | |
Balance, at the end of the period | | 169,344 | | 140,020 | | | 213,577 | | | 169,345 | | | 140,020 | |
Less current portion | | | (17,788 | ) | | | (24,648 | ) | | | (26,641 | ) | | | (17,789 | ) | | | (24,648 | ) |
Long term portion | | $ | 151,556 | | $ | 115,372 | | | $ | 186,936 | | | $ | 151,556 | | | $ | 115,372 | |
The following table includes estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of December 31, 2021:2022:
2023 | | $ | 26,641 | |
2024 | | | 10,891 | |
2025 | | | 10,160 | |
2026 | | | 9,691 | |
2027 | | | 7,565 | |
Thereafter | | | 148,629 | |
Total deferred revenues | | $ | 213,577 | |
2022 | | $ | 17,788 | |
2023 | | | 12,742 | |
2024 | | | 7,609 | |
2025 | | | 6,355 | |
2026 | | | 5,595 | |
Thereafter | | | 119,255 | |
Total deferred revenues | | $ | 169,344 | |
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
NOTE 14:15: ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
| | As of December 31, | | | As of December 31, | |
| | 2021 | | 2020 | | | 2022 | | 2021 | |
Accrued expenses | | $ | 51,014 | | $ | 47,757 | | | $ | 117,638 | | $ | 57,158 | |
Government authorities | | | 22,631 | | 26,218 | | | | 67,514 | | 22,631 | |
Operating lease liabilities | | | 12,728 | | 10,994 | | | | 16,183 | | 12,728 | |
Accrual for sales incentives | | | | 6,790 | | 3,048 | |
Provision for legal claims | | | 11,622 | | 5,866 | | | | 43 | | 11,622 | |
Loans and borrowings | | | 148 | | 16,894 | | |
Other | | | 11,236 | | | 15,319 | | | | 5,944 | | | 2,192 | |
| | $ | 109,379 | | $ | 123,048 | | |
Total accrued expenses and other current liabilities | | | $ | 214,112 | | $ | 109,379 | |
NOTE 15:16: CONVERTIBLE SENIOR NOTES
On September 25, 2020, the Company sold $632,500 aggregate principal amount of its 0.00% convertible senior notes due 2025 (the “Notes”). The Notes were sold pursuant to an indenture, dated September 25, 2020 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee (the “Trustee”). The Notes do not bear regular interest and mature on September 15, 2025, unless earlier repurchased or converted in accordance with their terms. The Notes are general senior unsecured obligations of the Company.
Holders may convert their Notes prior to the close of business on the business day immediately preceding June 15, 2025 in multiples of $1,000 principal amount, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2020 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five-business-day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each trading day of that five consecutive trading day period was less than 98% of the product of the last reported sale price of the common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events as described in the Indenture. In addition, holders may convert their Notes, in multiples of $1,000 principal amount, at their option at any time beginning on or after June 15, 2025, and prior to the close of business on the second scheduled trading day immediately preceding the stated maturity date of the Notes, without regard to the foregoing circumstances. The initial conversion rate for the Notes was 3.5997 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $277.80 per share of common stock, subject to adjustment upon the occurrence of certain specified events as set forth in the Indenture.
Upon conversion, the Company may choose to pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock.
In addition, upon the occurrence of a fundamental change (as defined in the Indenture), holders of the Notes may require the Company to repurchase all or a portion of their Notes, in multiples of $1,000 principal amount, at a repurchase price of 100% of the principal amount of the Notes, plus any accrued and unpaid special interest, if any, to, but excluding, the repurchase date. If certain fundamental changes referred to as make-whole fundamental changes occur, the conversion rate for the Notes may be increased.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
The Convertible Senior Notes consisted of the following as of December 31, 20212022 and 2020:2021:
| | As of December 31, | |
| | | 2021 | | | 2020 | |
Liability: | | | | | | | | |
Principal | | $ | 632,500 | | | $ | 632,500 | |
Unamortized debt discount | | | 0 | | | | (46,353 | ) |
Unamortized issuance costs | | | (10,965 | ) | | | (12,797 | ) |
Net carrying amount | | $ | 621,535 | | | $ | 573,350 | |
Equity component: | | | | | | | | |
Amount allocated to conversion option | | $ | 0 | | | $ | 48,834 | |
Deferred taxes liability, net | | | 0 | | | | (11,368 | ) |
Allocated issuance costs | | | 0 | | | | (1,130 | ) |
Equity component, net | | $ | 0 | | | $ | 36,336 | |
| | As of December 31, | |
| | | 2022 | | | 2021 | |
Liability: | | | | | | | | |
Principal | | $ | 632,500 | | | $ | 632,500 | |
Unamortized issuance costs | | | (8,049 | ) | | | (10,965 | ) |
Net carrying amount | | $ | 624,451 | | | $ | 621,535 | |
Effective January 1, 2021, the Company early adopted ASU 2020-06 using the modified retrospective approach (see Note 2v.)and therefore the Company did not record amortized debt discount costs related to the Notes in the years ended December 31, 2022 and 2021. For the year ended December 31, 2020, the Company recorded amortized debt discount costs related to the Notes in the amount of $2,480.
For the years ended December 31, 2022, 2021 and 2020 the Company recorded amortized debt issuance costs related to the Notes in the amount of $2,916, $2,903 and $3,185, respectively.
As of December 31, 2021,2022, the issuance costs of the Notes will be amortized over the remaining term of approximately 3.72.7 years.
The annual effective interest rate of the liability component following the adoption of ASU 2020-06 is 0.47%.
The following table presents the total amount of interest expenses recognized related to the Notes for the years ended December 31, 2021 and 2020:
| | Year ended December 31, | |
| | 2021 | | | 2020 | |
Amortization of debt discount | | $ | 0 | | | $ | 2,480 | |
Amortization of debt issuance costs | | | 2,903 | | | | 705 | |
Total interest expenses | | $ | 2,903 | | | $ | 3,185 | |
As of December 31, 2021,2022, the estimated fair value of the Notes, which the Company has classified as Level 2 financial instruments, is $811,327.$831. The estimated fair value was determined based on the quoted bid price of the Notes in an over-the-counter market on the last trading day of the reporting period.
As of December 31, 2021,2022, the if-converted value of the Notes exceeded the principal amount by $178,827.$12,452.
NOTE 16:17: OTHER LONG TERM LIABILITIES
| | As of December 31, | | | As of December 31, | |
| | 2021 | | | 2020 | | | 2022 | | | 2021 | |
Tax liabilities | | $ | 5,105 | | | $ | 5,062 | | | $ | 3,830 | | | $ | 5,105 | |
Accrued severance pay | | | 1,739 | | | 1,561 | | | | 9,848 | | | 10,632 | |
Deferred tax liability | | | 156 | | | 8,593 | | |
Other | | | 3,649 | | | | 7,568 | | | | 2,078 | | | | 3,805 | |
| | $ | 10,649 | | | $ | 22,784 | | | $ | 15,756 | | | $ | 19,542 | |
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
NOTE 17: 18:STOCK CAPITAL a.Common stock rights:
Common stock confers upon its holders the right to receive notice of, and to participate in, all general meetings of the Company, where each share of common stock shall have one vote for all purposes;purposes, to share equally, on a per share basis, in bonuses, profits, or distributions out of fund legally available therefor;therefor, and to participate in the distribution of the surplus assets of the Company in the event of liquidation of the Company.
| b.Secondary public offering: | Equity Incentive Plans: |
On March 17, 2022, the Company offered and sold 2,300,000 shares of the Company’s common stock, at a public offering price of $295.00 per share. The shares of Common Stock were issued and sold in a registered offering pursuant to the underwriting agreement dated March 17, 2022, among the Company, Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, and Morgan Stanley & Co. LLC (the “Underwriting Agreement”). All of the offered shares were issued at closing, including 300,000 shares of Common Stock that were issued and sold pursuant to the underwriters’ option to purchase additional shares under the Underwriting Agreement, which was exercised in full on March 18, 2022.
The net proceeds to the Company were $650,526 after deducting underwriters' discounts of $27,140 and commissions of $834.
c.Equity Incentive Plans:
The Company’s 2007 Global Incentive Plan (the “2007 Plan”) was adopted by the board of directors on August 30, 2007. The 2007 Plan terminated upon the Company’s IPO on March 31, 2015 and no further awards may be granted thereunder. All outstanding awards will continue to be governed by their existing terms and 379,358 available options for future grantgrants 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, PSUs,restricted stock units ("RSU"), performance stock units ("PSU"), and other share-based awards to directors, employees, officers, and non-employees of the Company and its subsidiaries. As of December 31, 2021,2022, a total of 15,406,31618,047,085 shares of common stock were reserved for issuance pursuant to stock awards under the 2015 Plan (the “Share Reserve”)., an aggregate of 9,410,816 shares are still available for future grants.
The Share Reserve will automatically increase on January 1st1st of each year during the term of the 2015 Plan, commencing on January 1st1st 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 31st31st of the preceding calendar year; provided, however, that the Company’s board of directors may determine that there will not be a January 1st1st 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.31st.
The Company granted under its 2015 Plan, PSU awards to certain employees and officers which vest upon the achievement of certain performance or market conditions subject to their continued employment with the Company.
In 2021, the Company has also committed to issuing additional shares, which are subject to resale registration rights and which carry certain performance conditions (including business performance targets and a continued service relationship with the Company) and are treated as PSUs for accounting purposes.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
The market condition for the PSUs is based on the Company’s total shareholder return ("TSR") compared to the TSR of companies listed in the S&P 500 index over a one to three year performance period. The Company uses a Monte-Carlo simulation to determine the grant date fair value for these awards, which takes into consideration the market price of a share of the Company’s common stock on the date of grant less the present value of dividends expected during the requisite service period, as well as the possible outcomes pertaining to the TSR market condition. The Company recognizes such compensation expenses on an accelerated vesting method.
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, 2021,2022, an aggregate of 8,617,974 options are still available for future grantgrants under the 2015 Plan.
The Company has also granted non-plan awards, which have been authorized by the Company's board of directors and granted as PSUs.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
A summary of the activity in the stock options granted to employees and members of the board of directors for the year ended December 31, 2021 and related information areis as follows:
| | | Number of options | | | Weighted average exercise price | | | Weighted average remaining contractual term in years | | | Aggregate intrinsic Value | |
Outstanding as of December 31, 2021 | | | 474,280 | | | $ | 44.68 | | | | 5.22 | | | $ | 112,479 | |
Exercised | | | (135,008 | ) | | | 29.77 | | | | | | | | - | |
Forfeited or expired | | | (243 | ) | | | 5.01 | | | | | | | | | |
Outstanding as of December 31, 2022 | | | 339,029 | | | $ | 50.64 | | | | 4.86 | | | $ | 79,414 | |
Vested and expected to vest as of December 31, 2022 | | | 338,345 | | | $ | 50.45 | | | | 4.85 | | | $ | 79,315 | |
Exercisable as of December 31, 2022 | | | 300,865 | | | $ | 38.52 | | | | 4.58 | | | $ | 73,875 | |
| | | Number of options | | | Weighted average exercise price | | | Weighted average remaining contractual term in years | | | Aggregate intrinsic Value | |
| Outstanding as of December 31, 2020 | | | 691,732 | | | $ | 31.86 | | | | 5.07 | | | $ | 198,709 | |
| Granted | | | 19,489 | | | | 311.35 | | | | | | | | | |
| Exercised | | | (231,008 | ) | | | 28.02 | | | | | | | | | |
| Forfeited or expired | | | (10,432 | ) | | | 44.24 | | | | | | | | | |
| Outstanding as of December 31, 2021 | | | 469,781 | | | $ | 45.07 | | | | 5.25 | | | $ | 111,236 | |
| Vested and expected to vest as of December 31, 2021 | | | 441,238 | | | $ | 40.48 | | | | 5.53 | | | $ | 106,377 | |
| Exercisable as of December 31, 2021 | | | 373,664 | | | $ | 29.58 | | | | 5.16 | | | $ | 93,897 | |
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 years ended December 31, 2022, 2021 and 2020 was $37,948, $65,668, and 2019 was $65,668, $251,564, and $37,509, respectively.
There were no options granted in 2022.
The weighted average grant date fair value of options granted to employees and directors during the years ended December 31, 2021 2020, and 2019,2020, was $168.71 $62.11 and $19.83,$62.11, respectively.
A summary of the activity in the RSUs and PSUs granted to employees and directors for the year ended December 31, 2021,related information is as follows:
| | | Number of RSUs | | | Weighted average grant date fair value | |
Unvested as of January 1, 2022 | | | 1,759,972 | | | $ | 189.25 | |
Granted | | | 683,548 | | | | 266.06 | |
Vested | | | (805,872 | ) | | | 131.79 | |
Forfeited | | | (149,133 | ) | | | 214.65 | |
Unvested as of December 31, 2022 | | | 1,488,515 | | | $ | 232.05 | |
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
| | | Number of RSUs and PSUs | | | Weighted average grant date fair value | |
Unvested, at beginning of the period | | | 2,216,841 | | | $ | 103.79 | |
Granted (1) | | | 703,039 | | | | 278.03 | |
Vested | | | (955,125 | ) | | | 81.76 | |
Forfeited | | | (125,804 | ) | | | 136.71 | |
| Unvested, at end of the period | | | 1,838,951 | | | $ | 178.64 | |
A summary of the activity in the PSUs and related information is as follows:
The number of PSUs granted to employees was 132,673 with a weighted average grant date fair value of $294.04.
| | | Number of PSUs | | | Weighted average grant date fair value | |
Unvested as of January 1, 2022 | | | 108,595 | | | $ | 296.40 | |
Granted | | | 40,637 | | | | 294.48 | |
Unvested as of December 31, 2022 | | | 149,232 | | | $ | 295.88 | |
The weighted-average grant-date fair value of RSUs and PSUs granted during the years ended December 31, 2021, 2020 and 2019, was $278.03, $71.46 and $41.45, respectively.d.Employee Stock Purchase Plan:
c.
| Employee Stock Purchase Plan: |
The Company adopted an ESPP effective upon the consummation of the IPO. As of December 31, 2021,2022, total of 3,175,0943,662,737 shares were reserved for issuance under this plan. The number of shares of common stock reserved for issuance under the ESPP will increase automatically on January 1st of each year, for ten years, by the lesser of 1% of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year or 487,643 shares. However, the Company’s board of directors may reduce the amount of the increase in any particular year at their discretion, including a reduction to zero.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
The ESPP is implemented through an offering every six months. According to the ESPP, eligible employees may use up to 15% of their salaries to purchase common stock up to an aggregate limit of $15 per participant for every six months plan. The price of an ordinary share purchased under the ESPP is equal to 85% of the lower of the fair market value of the ordinary share on the subscription date of each offering period or on the purchase date.
As of December 31, 2021, 661,8272022, 738,876 shares of common stock had been purchased under the ESPP.
As of December 31, 2021, 2,513,2672022, 2,923,861 shares of common stock were available for future issuance under the ESPP.
In accordance with ASC No. 718, the ESPP is compensatory and, as such, results in recognition of compensation cost.
d.e.Stock-based compensation expenses: | Stock-based compensation expenses for employees and non-employees: |
The Company recognized stock-based compensation expenses related to stock options, RSUs and PSUs granted to employees and non-employees and the ESPPall stock-based awards in the consolidated statement of income for the years ended December 31, 2022, 2021 2020 and 2019,2020, as follows:
| | | Year ended December 31, | | | Year ended December 31, |
| | | 2021 | | 2020 | | 2019 | | | 2022 | | | 2021 | | | 2020 | |
Cost of revenues | | $ | 18,743 | | $ | 11,082 | | $ | 6,964 | | | $ | 21,818 | | | $ | 18,743 | | | $ | | |
Research and development | | 45,424 | | 27,048 | | 16,872 | | | 63,211 | | | 45,424 | | | | |
Selling and marketing | | 22,834 | | 19,413 | | 11,062 | | | 31,017 | | | 22,834 | | | | |
General and administrative | | 15,592 | | 9,766 | | 6,991 | | | | 29,493 | | | | 15,592 | | | | | |
Other operating expenses | | | 0 | | | 0 | | | 18,464 | | |
Total stock-based compensation expenses | | $ | 102,593 | | $ | 67,309 | | $ | 60,353 | | | $ | 145,539 | | | $ | 102,593 | | | $ | | |
As ofFor the year ended December 31, 2021, there were total unrecognized2022, the Company capitalized $380 stock-based compensation expensesrelated to the ERP implementation within other long-term assets in the amount of $309,177 related to non-vested equity-basedconsolidated balance sheets for the year ended December 31, 2022. In 2021 and 2020 the Company did not capitalize any stock-based compensation arrangements granted under the Company’s Plans and non-plan awards. These expenses are expected to be recognized during the period from January 1, 2022 through May 31, 2026.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
The total tax benefit associated with share-based compensation for the year ended December 31, 2022, 2021 and 2020 was $7,747, $19,113 and $7,847, respectively. The tax benefit realized from share-based compensation for the year ended December 31, 2022, 2021 and 2020 was $10,171, $13,379 and $11,263, respectively.
As of December 31, 2022, there were total unrecognized compensation expenses in the amount of $343,473related to non-vested equity-based compensation arrangements granted. These expenses are expected to be recognized during the period from October 1, 2022 through November 30, 2026.
NOTE 18: 19:COMMITMENTS AND CONTINGENT LIABILITIES As of December 31, 2021,2022, contingent liabilities exist regarding guarantees in the amounts of $4,938$5,655 and $2,250$1,372 in respect of office rent lease agreements and customs and other transactions, respectively. | b. | Contractual purchase obligations: |
The Company has contractual obligations to purchase goods and raw materials. These contractual purchase obligations relate to inventories and other purchase orders, , which cannot be canceled without penalty. In addition, the Company acquires raw materials or other goods and services, including product components, by issuing authorizations to its suppliers to purchase materials based on its projected demand and manufacturing needs. As of December 31, 2021,2022, the Company had non-cancelable purchase obligations totaling approximately $1,428,766,$1,590,229, out of which the Company recorded a provision for loss in the amount of $4,071.$7,002.
As of December 31, 2021,2022, the Company had contractual obligations for capital expenditures totaling approximately $168,528.$73,955. These commitments reflect purchases of automated assembly lines and other machinery related to the Company’s manufacturing process as well as capital expenditures associated with the construction of Sella 2, the Company’s planned second lithium-ion cell and battery factory in Korea. 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 infringeinfringed on two of the plaintiff’s patents. SMA asserted a value in dispute of EUR 5.5 million (approximately $6,225)$5,866) for both patents. The Company challenged the validity of both patents. With respect to 1one of the claims, in October 2020, the German Patent Court rendered the SMA patent invalid, and thisthe invalidity has beenwas appealed by SMA.SMA and in January 2023, the German Supreme Court upheld the finding of invalidity. With respect to the other claim, in November 2019, the first instance court stayed the infringement proceedings since it considered it to be highly likely that the second SMA patent would also be rendered invalid. In August 2021, the German Patent Court rendered SMA's second patent invalid, and this invalidity has been appealed by SMA and a hearing is pending. The Company believes that it has meritorious defenses to these claims and intends to vigorously defend against the remaining lawsuit.
On July 28, 2022, the Company was served with complaints filed by Ampt LLC in the International Trade Commission (the “Commission”) pursuant to Section 337 of the Tariff Act of 1930, as amended, in the District Court for the District of Delaware alleging patent infringement against the Company and its subsidiary SolarEdge Technologies Ltd. On October 24, 2022, the complaint filed in the District Court of Delaware was administratively stayed until the Commission's action is resolved. The Company believes that it has meritorious defenses to the claims assertedcomplaints and intendsintend to vigorously defend against them.
On November 3, 2022, the remaining lawsuit.
In May 2019, the Company’s two Chinese subsidiaries and its equipment manufacturer in China were served with three lawsuits by Huawei Technologies Co., Ltd.,Company received notice that a Chinese entity (“Huawei”). The lawsuits,class action lawsuit was filed in the Guangzhou intellectual property court, alleged infringementU.S District Court or the Southern District of three patents and asked for an injunction of manufacture, use, sale and offer for sale, and damage awards. A first-instance judgment was issued on August 7, 2020 ordering the 3 defendants to collectively pay damages in the amount of approximately Chinese Yuan (“CNY”) 10.5 million (approximately $1,647), including court fees. The Company has filed an appeal with the Supreme People’s Court of China. The Company's appeal to the Supreme People's Court was denied in December of 2021, rendering a payment by us to Huawei in an amount of $1,647. The judgement is not enforceable until the end of February 2022. In addition, in January 2021, Huawei filed a motion to increase its claimed monetary damages to CNY 50.5 million (approximately $7,923) with respect to the second lawsuit. In February 2021, a preliminary injunction was rendered by the Guangzhou intellectual property court with respect to such second lawsuit and applying to seven inverter models. In line with the court’s mandate,New York against the Company, took immediate action to make software changes to meetSolarEdge Technologies Ltd., the court order. In addition, in February 22, 2021 a first-instance judgment was issued ordering payment of damages inCompany’s CEO and the amount of CNY 50.5 million (approximately $7,923), including court fees, with respect to the second patent. The Company appealed this judgement with the Supreme People’s Court which case is still pending. The first instance court’s judgement is not effective or enforceable pending the appeal. In October 2021, a first-instance judgment was issued ordering to pay damages in the amount of approximately CNY 10.5 million (approximately $1,647), including court fees, with respect to the third lawsuit. The Company has filed an appeal with the Supreme People’s Court of China which also is still pending. The first instance court’s judgement is not effective or enforceable pending the appeal. The Company believes that it has meritorious defenses to the claims asserted by Huawei.
In December 2019, the Company received a lawsuit filedCompany’s CFO, by a former consultantpurported stockholder of the Company, alleging violations of the Federal Securities Act in connection with complaints filed against the Company by Ampt LLC, detailed above. On February 14, 2023, the lawsuit was voluntarily withdrawn by the plaintiffs and its Israeli subsidiary indismissed by the amount of NIS 25.5 million (approximately $8,199) claiming damages caused relating to a terminated consulting agreement and stock options therein. The Company believes it has meritorious defenses to the claims asserted and intends to vigorously defend against this lawsuit.
As of December 31, 2021, accrued amounts for legal claims of $11,622 were recorded in accrued expenses and other current liabilities.
court.SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
NOTE 19:20: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes the changes in accumulated balances of other comprehensive income (loss), net of taxes, for the year ended December 31, 2021:
| | Unrealized gains (losses) on available-for-sale marketable securities | | | Unrealized gains on cash flow hedges | | | Foreign currency translation adjustments on intra-entity transactions that are of a long-term investment in nature | | | Unrealized gains (losses) on foreign currency translation | | | Total | |
Beginning balance | | $ | 240 | | | $ | 0 | | | $ | 0 | | | $ | 3,617 | | | $ | 3,857 | |
Revaluation | | | (6,283 | ) | | | 3,735 | | | | (17,420 | ) | | | (9,681 | ) | | | (29,649 | ) |
Tax on revaluation | | | 1,346 | | | | (446 | ) | | | 0 | | | | 0 | | | | 900 | |
Other comprehensive income (loss) before reclassifications | | | (4,937 | ) | | | 3,289 | | | | (17,420 | ) | | | (9,681 | ) | | | (28,749 | ) |
Reclassification | | | (16 | ) | | | (2,742 | ) | | | 0 | | | | 0 | | | | (2,758 | ) |
Tax on reclassification | | | 4 | | | | 327 | | | | 0 | | | | 0 | | | | 331 | |
Losses reclassified from accumulated other comprehensive income | | | (12 | ) | | | (2,415 | ) | | | 0 | | | | 0 | | | | (2,427 | ) |
Net current period other comprehensive income (loss) | | | (4,949 | ) | | | 874 | | | | (17,420 | ) | | | (9,681 | ) | | | (31,176 | ) |
Ending balance | | $ | (4,709 | ) | | $ | 874 | | | $ | (17,420 | ) | | $ | (6,064 | ) | | $ | (27,319 | ) |
| | | Unrealized gains (losses) on available-for-sale marketable securities | | | Unrealized gains (losses) on cash flow hedges | | | Foreign currency translation adjustments on intra-entity transactions that are of a long-term investment in nature | | | Unrealized gains (losses) on foreign currency translation | | | Total | |
| Beginning balance as of January 1, 2020 | | $ | 264 | | | $ | — | | | $ | — | | | $ | (2,073 | ) | | $ | (1,809 | ) |
| Revaluation | | | 45 | | | | 1,101 | | | | — | | | | 5,690 | | | | 6,836 | |
| Tax on revaluation | | | (69 | ) | | | (135 | ) | | | | | | | — | | | | (204 | ) |
| Other comprehensive income (loss) before reclassifications | | | (24 | ) | | | 966 | | | | — | | | | 5,690 | | | | 6,632 | |
| Reclassification | | | — | | | | (1,101 | ) | | | — | | | | — | | | | (1,101 | ) |
| Tax on reclassification | | | — | | | | 135 | | | | — | | | | — | | | | 135 | |
| Gains reclassified from accumulated other comprehensive income | | | — | | | | (966 | ) | | | — | | | | — | | | | (966 | ) |
| Net current period other comprehensive income (loss) | | | (24 | ) | | | — | | | | — | | | | 5,690 | | | | 5,666 | |
| Ending balance as of December 31, 2020 | | $ | 240 | | | $ | — | | | $ | — | | | $ | 3,617 | | | $ | 3,857 | |
| Revaluation | | | (6,283 | ) | | | 3,735 | | | | (17,420 | ) | | | (9,681 | ) | | | (29,649 | ) |
| Tax on revaluation | | | 1,346 | | | | (446 | ) | | | — | | | | — | | | | 900 | |
| Other comprehensive income (loss) before reclassifications | | | (4,937 | ) | | | 3,289 | | | | (17,420 | ) | | | (9,681 | ) | | | (28,749 | ) |
| Reclassification | | | (16 | ) | | | (2,742 | ) | | | — | | | | — | | | | (2,758 | ) |
| Tax on reclassification | | | 4 | | | | 327 | | | | — | | | | — | | | | 331 | |
| Gains reclassified from accumulated other comprehensive income | | | (12 | ) | | | (2,415 | ) | | | — | | | | — | | | | (2,427 | ) |
| Net current period other comprehensive income (loss) | | | (4,949 | ) | | | 874 | | | | (17,420 | ) | | | (9,681 | ) | | | (31,176 | ) |
| Ending balance as of December 31, 2021 | | $ | (4,709 | ) | | $ | 874 | | | $ | (17,420 | ) | | $ | (6,064 | ) | | $ | (27,319 | ) |
| Revaluation | | | (26,944 | ) | | | (9,890 | ) | | | (20,540 | ) | | | (1,875 | ) | | | (59,249 | ) |
| Tax on revaluation | | | 5,583 | | | | 925 | | | | — | | | | — | | | | 6,508 | |
| Other comprehensive loss before reclassifications | | | (21,361 | ) | | | (8,965 | ) | | | (20,540 | ) | | | (1,875 | ) | | | (52,741 | ) |
| Reclassification | | | 736 | | | | 7,024 | | | | — | | | | — | | | | 7,760 | |
| Tax on reclassification | | | (115 | ) | | | (694 | ) | | | — | | | | — | | | | (809 | ) |
| Losses reclassified from accumulated other comprehensive income | | | 621 | | | | 6,330 | | | | — | | | | — | | | | 6,951 | |
| Net current period other comprehensive loss | | | (20,740 | ) | | | (2,635 | ) | | | (20,540 | ) | | | (1,875 | ) | | | (45,790 | ) |
| Ending balance as of December 31, 2022 | | $ | (25,449 | ) | | $ | (1,761 | ) | | $ | (37,960 | ) | | $ | (7,939 | ) | | $ | (73,109 | ) |
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
The following table summarizes the changes in accumulated balances of other comprehensive loss (loss), net of taxes, for the year ended December 31, 2020:
| | Unrealized gains (losses) on available-for-sale marketable securities | | | Unrealized gains on cash flow hedges | | | Foreign currency translation adjustments on intra-entity transactions that are of a long-term investment in nature | | | Unrealized gains (losses) on foreign currency translation | | | Total | |
Beginning balance | | $ | 264 | | | $ | 0 | | | $ | 0 | | | $ | (2,073 | ) | | $ | (1,809 | ) |
Revaluation | | | 45 | | | | 1,101 | | | | 0 | | | | 5,690 | | | | 6,836 | |
Tax on revaluation | | | (69 | ) | | | (135 | ) | | | | | | | 0 | | | | (204 | ) |
Other comprehensive income (loss) before reclassifications | | | (24 | ) | | | 966 | | | | 0 | | | | 5,690 | | | | 6,632 | |
Reclassification | | | 0 | | | | (1,101 | ) | | | 0 | | | | 0 | | | | (1,101 | ) |
Tax on reclassification | | | 0 | | | | 135 | | | | 0 | | | | 0 | | | | 135 | |
Losses reclassified from accumulated other comprehensive income | | | 0 | | | | (966 | ) | | | 0 | | | | 0 | | | | (966 | ) |
Net current period other comprehensive income (loss) | | | (24 | ) | | | 0 | | | | 0 | | | | 5,690 | | | | 5,666 | |
Ending balance | | $ | 240 | | | $ | 0 | | | $ | 0 | | | $ | 3,617 | | | $ | 3,857 | |
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
The following table summarizes the changes in accumulated balances of other comprehensive income (loss), net of taxes, for the year ended December 31, 2019:
| | Unrealized gains (losses) on available-for-sale marketable securities | | | Unrealized gains on cash flow hedges | | | Foreign currency translation adjustments on intra-entity transactions that are of a long-term investment in nature | | | Unrealized gains (losses) on foreign currency translation | | | Total | |
Beginning balance | | $ | (656 | ) | | $ | 0 | | | $ | 0 | | | $ | 132 | | | $ | (524 | ) |
Revaluation | | | 1,034 | | | | 0 | | | | 0 | | | | (2,205 | ) | | | (1,171 | ) |
Tax on revaluation | | | (205 | ) | | | 0 | | | | 0 | | | | 0 | | | | (205 | ) |
Other comprehensive income (loss) before reclassifications | | | 829 | | | | 0 | | | | 0 | | | | (2,205 | ) | | | (1,376 | ) |
Reclassification | | | 91 | | | | 0 | | | | 0 | | | | 0 | | | | 91 | |
Tax on reclassification | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Losses reclassified from accumulated other comprehensive income | | | 91 | | | | 0 | | | | 0 | | | | 0 | | | | 91 | |
Net current period other comprehensive income (loss) | | | 920 | | | | 0 | | | | 0 | | | | (2,205 | ) | | | (1,285 | ) |
Ending balance | | $ | 264 | | | $ | 0 | | | $ | 0 | | | $ | (2,073 | ) | | $ | (1,809 | ) |
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
The following table provides details about reclassifications out of accumulated other comprehensive income (loss) for the years ended December 31, 2022, 2021 2020 and 2019:2020:
Details about Accumulated Other Comprehensive Income (Loss) Components | | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | | | Affected Line Item in the Statement of Income | | | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | | | Affected Line Item in the Statement of Income | |
| | | 2021 | | | 2020 | | | 2019 | |
| | | | 2022 | | | 2021 | | | 2020 | |
| |
Unrealized gains on available-for-sale marketable securities | | | | | | | | | | | |
Unrealized gains (losses) on available-for-sale marketable securities | | | | | | | | | | | |
| | $ | 16 | | $ | 0 | | $ | (91 | ) | | Financial income (expenses), net | | | $ | (736 | ) | | $ | 16 | | $ | - | | | Financial income (expenses), net | |
| | | (4 | ) | | | 0 | | | 0 | | Income taxes | | | | 115 | | | | (4 | ) | | | - | | Income taxes | |
| | $ | 12 | | | 0 | | $ | (91 | ) | | Total, net of income taxes | | | $ | (621 | ) | | $ | 12 | | $ | - | | | Total, net of income taxes | |
Unrealized gains on cash flow hedges, net | | | | | | | | | | | |
Unrealized gains (losses) on cash flow hedges | | | | | | | | | | | |
| | | 333 | | 189 | | 0 | | Cost of revenues | | | | (801 | ) | | 333 | | 189 | | Cost of revenues | |
| | | 1,645 | | 623 | | 0 | | Research and development | | | | (4,142 | ) | | 1,645 | | 623 | | Research and development | |
| | | 334 | | 136 | | 0 | | Sales and marketing | | | | (959 | ) | | 334 | | 136 | | Sales and marketing | |
| | | 430 | | | 153 | | | 0 | | General and administrative | | | | (1,122 | ) | | | 430 | | | 153 | | General and administrative | |
| | $ | 2,742 | | $ | 1,101 | | $ | 0 | | Total, before income taxes | | | $ | (7,024 | ) | | $ | 2,742 | | $ | 1,101 | | Total, before income taxes | |
| | | (327 | ) | | | (135 | ) | | | 0 | | Income taxes | | | | 694 | | | | (327 | ) | | | (135 | ) | | Income taxes | |
| | | 2,415 | | | 966 | | | 0 | | | | | | (6,330 | ) | | | 2,415 | | | 966 | | Total, net of income taxes | |
Total reclassifications for the period | | $ | 2,427 | | $ | 966 | | $ | (91 | ) | | | | $ | (6,951 | ) | | $ | 2,427 | | $ | 966 | | | |
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
NOTE 20:21: EARNINGS PER SHARE
The following table presents the computation of basic and diluted EPS attributable to SolarEdge Technologies Inc.:
| | Year ended December 31, | |
| | | 2021 | | | 2020 | | | 2019 | |
Basic EPS: | | | | | | | | | | | | |
Numerator: | | | | | | | | | | | | |
Net income | | $ | 169,170 | | | $ | 140,322 | | | $ | 144,957 | |
Net loss attributable to Non-controlling interests | | | 0 | | | | 0 | | | | 1,592 | |
| | | 169,170 | | | | 140,322 | | | | 146,549 | |
Denominator: | | | | | | | | | | | | |
Shares used in computing net earnings per share of common stock, basic | | | 52,202,182 | | | | 50,217,330 | | | | 47,918,938 | |
Diluted EPS: | | | | | | | | | | | | |
Numerator: | | | | | | | | | | | | |
Net income attributable to common stock, basic | | $ | 169,170 | | | $ | 140,322 | | | $ | 144,957 | |
Net loss attributable to Non-controlling interests | | | 0 | | | | 0 | | | | 1,592 | |
Undistributed earnings reallocated to non-vested stockholders | | | 0 | | | | 0 | | | | (906 | ) |
Notes due 2025 | | | 2,134 | | | | 0 | | | | 0 | |
Net income attributable to common stock, diluted | | $ | 171,304 | | | $ | 140,322 | | | $ | 145,643 | |
Denominator: | | | | | | | | | | | | |
Shares used in computing net earnings per share of common stock, basic | | | 52,202,182 | | | | 50,217,330 | | | | 47,918,938 | |
Non-vested PSUs | | | 0 | | | | 0 | | | | (312,128 | ) |
Notes due 2025 | | | 2,276,818 | | | | 0 | | | | 0 | |
Effect of stock-based awards | | | 1,492,030 | | | | 2,578,146 | | | | 2,588,851 | |
Shares used in computing net earnings per share of common stock, diluted | | | 55,971,030 | | | | 52,795,475 | | | | 50,195,661 | |
| | | Year ended December 31, | |
| | | 2022 | | | 2021 | | | 2020 | |
Basic EPS: | | | | | | | | | |
Numerator: | | | | | | | | | |
Net income | | $ | 93,779 | | | $ | 169,170 | | | $ | 140,322 | |
Denominator: | | | | | | | | | | | | |
Shares used in computing net earnings per share of common stock, basic | | | 55,087,770 | | | | 52,202,182 | | | | 50,217,330 | |
Diluted EPS: | | | | | | | | | | | | |
Numerator: | | | | | | | | | | | | |
Net income attributable to common stock, basic | | $ | 93,779 | | | $ | 169,170 | | | $ | 140,322 | |
Notes due 2025 | | | 2,203 | | | | 2,134 | | | | - | |
Net income attributable to common stock, diluted | | $ | 95,982 | | | $ | 171,304 | | | $ | 140,322 | |
Denominator: | | | | | | | | | | | | |
Shares used in computing net earnings per share of common stock, basic | | | 55,087,770 | | | | 52,202,182 | | | | 50,217,330 | |
Notes due 2025 | | | 2,276,818 | | | | 2,276,818 | | | | - | |
Effect of stock-based awards | | | 736,061 | | | | 1,492,030 | | | | 2,578,146 | |
Shares used in computing net earnings per share of common stock, diluted | | | 58,100,649 | | | | 55,971,030 | | | | 52,795,476 | |
| | | | | | | | | | | | | |
Shares excluded from the calculation of diluted net EPS due to their anti-dilutive effect | | | 207,980 | | | | 132,133 | | | | 715,510 | |
No shares were excluded from the calculation for the year ended December 31, 2021.
2,276,818 and 312,128 shares of common stock were excluded from the calculation of diluted net EPS due to their anti-dilutive effect for the years ended December 31, 2020 and 2019, respectively.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
NOTE 22:NOTE 21:GOODWILL IMPAIRMENT AND OTHER OPERATING EXPENSES (INCOME), NET
| | Year ended December 31, | |
| | | 2021 | | | 2020 | | | 2019 | |
Kokam purchase escrow (1)(2) | | $ | (859 | ) | | $ | (4,900 | ) | | $ | 4,900 | |
Write-off of long-lived assets | | | 2,209 | | | | 1,471 | | | | 0 | |
Compensation package related to the passing of the former Founder, CEO and Chairman(3) | | | 0 | | | | 0 | | | | 8,305 | |
Termination of SolarEdge Automation Machines’s former executive(4) | | | 0 | | | | 0 | | | | 12,222 | |
Sale of SolarEdge Automation Machines’s subsidiary(5) | | | 0 | | | | 0 | | | | 5,269 | |
Total other operating expenses (income) | | $ | 1,350 | | | $ | (3,429 | ) | | $ | 30,696 | |
| | | Year ended December 31, | |
| | | 2022 | | | 2021 | | | 2020 | |
Impairment of goodwill 1 | | $ | 90,104 | | | $ | - | | | $ | - | |
Impairment of long-lived assets 2 | | | 29,037 | | | | 2,209 | | | | 1,471 | |
Sale of assets | | | (2,603 | ) | | | - | | | | - | |
SolarEdge Korea (formerly Kokam) purchase escrow 3 | | | - | | | | (859 | ) | | | (4,900 | ) |
Total goodwill impairment and other operating expenses (income) | | $ | 116,538 | | | $ | 1,350 | | | $ | (3,429 | ) |
1. | In the year ended December 31, 2021, the Company received a payment of $859 out of the Kokam Co., Ltd. (“Kokam”) acquisition escrow (“the escrow”), with regards to a working capital adjustment. |
2. | In the year ended December 31, 2020, the Company was indemnified for an amount of $4,900 out of the escrow, with regards to a legal claim of Kokam that was settled in arbitration. |
3. | 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. The amount is related to payroll, bonus and acceleration of stock-based compensation award. |
4. | As part of SolarEdge Automation Machines acquisition, the Company issued to a shareholder who had served as an executive of SolarEdge Automation Machines 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. |
5. | On December 31, 2019, the Company completed the sale of a SolarEdge Automation Machines subsidiary. |
1 In June 2022, the Company decided to discontinue its stand-alone Critical Power activities. The Company recorded a loss related to its Critical Power business in the amount of $2,782 (see Note 9). In addition, in October 2022, as a result of an impairment test performed on the e-Mobility and Automation Machines reporting units, the Company recorded a loss of $80,534 and $6,788, respectively (see Note 9).
2 In October 2022, the Company recorded a loss of $26,917 and $245 as a result of an impairment test performed on e-Mobility and Automation Machines, respectively, a loss of $1,226 due to the discontinuance of Critical Power activities (see Note 8) and other miscellaneous items.
3 In the year ended December 31, 2021, the Company received a payment of $859 out of the SolarEdge Korea (formerly Kokam) acquisition escrow, with regards to a working capital adjustment. In the year ended December 31, 2020, the Company was indemnified for an amount of $4,900 out of the escrow, with regards to a legal claim of SolarEdge Korea (formerly Kokam) that was settled in arbitration.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
NOTE 22:23:INCOME TAXES
a. Tax rates in the U.S:
The Company is subject to U.S. federal tax at the rate of 21%.
On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Act") was signed into law making significant changes to U.S. income tax law. These changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years 2018 onwards and created new taxes on certain foreign-sourced earnings and certain related-party payments.payments - the Global Intangible Low Taxed Income (“GILTI”). Furthermore, changes introduced by the Tax Act to Section 174 of the Internal Revenue Code, that came into effect on January 1, 2022, require taxpayers to amortize research and development expenditures over five years (if expensed by a U.S. entity) or fifteen years (if expensed by non-U.S. entities), thereby increasing taxable income and payable 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, which will be paid over the eight-year period provided in the Tax Act (ending 2024).
b. Corporate tax in Israel:
The taxable income of Israeli companies is subject to corporate tax at the rate of 23%. The Israeli subsidiary is also eligible for tax benefits as further described in note 22i.23.j.
c. Carryforward tax losses:
As of December 31, 2021,2022, the foreign subsidiaries have carryforward tax losses of $83,916$83,391 which does not have an expiration date.
d. Deferred taxes:
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.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
Significant components of the Company’s deferred tax liabilities and assets are as follows:
| | | December 31, | |
| | | 2021 | | | 2020 | | | 2019 | |
| Deferred tax assets, net: | | | | | | | | | | | | |
| Research and Development carryforward expenses | | $ | 2,479 | | | $ | 1,843 | | | $ | 4,994 | |
| Carryforward tax losses(1) | | | 19,635 | | | | 20,468 | | | | 6,318 | |
| Stock based compensation expenses | | | 12,140 | | | | 6,400 | | | | 4,898 | |
| Deferred revenue | | | 8,078 | | | | 5,609 | | | | 3,621 | |
| Inventory Impairment | | | 1,326 | | | | 1,977 | | | | 2,442 | |
| Allowance and other reserves | | | 10,911 | | | | 4,372 | | | | 7,305 | |
| Total Gross deferred tax assets, net | | $ | 54,569 | | | $ | 40,669 | | | $ | 29,578 | |
| Less, Valuation Allowance | | | (14,648 | ) | | | (9,634 | ) | | | (2,317 | ) |
| Total deferred tax assets, net | | $ | 39,921 | | | $ | 31,035 | | | $ | 27,261 | |
| Deferred tax liabilities, net: | | | | | | | | | | | | |
| Intercompany transactions | | $ | (6,099 | ) | | $ | 0 | | | $ | 0 | |
| Convertible Note | | | 0 | | | | (11,830 | ) | | | 0 | |
| Purchase price allocation | | | (6,406 | ) | | | (16,122 | ) | | | (15,424 | ) |
| Total deferred tax liabilities, net | | $ | (12,505 | ) | | $ | (27,952 | ) | | $ | (15,424 | ) |
| Recorded as: | | | | | | | | | | | | |
| Deferred tax assets, net | | $ | 27,572 | | | $ | 11,676 | | | $ | 16,298 | |
| Deferred tax liabilities, net | | | (156 | ) | | | (8,593 | ) | | | (4,461 | ) |
| Net deferred tax assets | | $ | 27,416 | | | $ | 3,083 | | | $ | 11,837 | |
| | | December 31, | |
| | | 2022 | | | 2021 | |
Deferred tax assets, net: | | | | | | |
Research and Development carryforward expenses | | $ | 9,335 | | | $ | 2,479 | |
Carryforward tax losses(1) | | | 19,916 | | | | 19,635 | |
Stock based compensation expenses | | | 9,863 | | | | 12,140 | |
Deferred revenue | | | 8,954 | | | | 8,078 | |
Lease liabilities | | | 6,520 | | | | 11,168 | |
Inventory Impairment | | | 627 | | | | 1,326 | |
Allowance and other reserves | | | 30,242 | | | | 10,229 | |
Total Gross deferred tax assets, net | | $ | 85,457 | | | $ | 65,055 | |
Less, Valuation Allowance | | | (23,777 | ) | | | (14,648 | ) |
Total deferred tax assets, net | | $ | 61,680 | | | $ | 50,407 | |
Deferred tax liabilities, net: | | | | | | | | |
Intercompany transactions | | $ | (6,292 | ) | | $ | (6,099 | ) |
Right-of-use assets | | | (6,618 | ) | | | (10,486 | ) |
Purchase price allocation | | | (4,617 | ) | | | (6,406 | ) |
Total deferred tax liabilities, net | | $ | (17,527 | ) | | $ | (22,991 | ) |
Recorded as: | | | | | | | | |
Deferred tax assets, net | | $ | 44,153 | | | $ | 27,572 | |
Deferred tax liabilities, net | | | - | | | | (156 | ) |
Net deferred tax assets | | $ | 44,153 | | | $ | 27,416 | |
(1) Related to deferred tax assets that would only be realizable upon the generation of net income in certain foreign jurisdictions.The Company’s Israeli subsidiary’s tax-exempt profit from Benefited Enterprises (as defined in note 22.i)23.j) is permanently reinvested, Therefore, deferred taxes have not been provided for such tax-exempt income.
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.
e. Uncertain tax positions are comprised as follows:
| | | December 31, | |
| | | 2022 | | | 2021 | | | 2020 | |
Balance, at the beginning of the period | | $ | 2,192 | | | $ | 10,564 | | | $ | 9,532 | |
Increases related to current year tax positions | | | 564 | | | | 635 | | | | 757 | |
Increase for tax positions related to prior years | | | - | | | | - | | | | 275 | |
Decreases related to prior year tax positions | | | - | | | | (9,007 | ) | | | - | |
Balance, at end of the period | | $ | 2,756 | | | $ | 2,192 | | | $ | 10,564 | |
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
e. Uncertain tax positions:
| | | December 31, | |
| | | 2021 | | | 2020 | | | 2019 | |
| Balance, at the beginning of the period | | $ | 10,564 | | | $ | 9,532 | | | $ | 8,499 | |
| Increases related to current year tax positions | | | 635 | | | | 757 | | | | 651 | |
| Increase for tax positions related to prior years | | | 0 | | | | 275 | | | | 382 | |
| Decreases related to prior year tax positions | | | (9,007 | ) | | | 0 | | | | 0 | |
| Balance, at end of the period | | $ | 2,192 | | | $ | 10,564 | | | $ | 9,532 | |
The total amount of gross unrecognized tax benefits was $2,192, $10,564 and $9,532 as of December 31, 2021, 2020 and 2019, respectively, and if recognized,above would affect ourthe Company's effective tax rate.rate, if recognized.
The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. The total amount of penalties and interest were not material as of December 31, 2021,20202022, 2021 and 2019.2020.
It is reasonably possible that the Company’s gross unrecognized tax benefits will decrease by up to $57an insignificant amount in the next 12 months, primarily due to the lapse of the statute of limitations. These adjustments, if recognized, would positively impact the Company’s effective tax rate, and would be recognized as additional tax benefits.
f. Income before income taxes are comprised as follows:
| | | Year ended December 31, | |
| | | 2021 | | | 2020 | | | 2019 | |
| Domestic | | $ | 13,659 | | | $ | 33,909 | | | $ | 6,029 | |
| Foreign | | | 173,565 | | | | 129,757 | | | | 172,574 | |
| Income before income taxes | | $ | 187,224 | | | $ | 163,666 | | | $ | 178,603 | |
| | | Year ended December 31, | |
| | | 2022 | | | 2021 | | | 2020 | |
| Domestic | | $ | 47,324 | | | $ | 13,659 | | | $ | 33,909 | |
| Foreign | | | 129,831 | | | | 173,565 | | | | 129,757 | |
| Income before income taxes | | $ | 177,155 | | | $ | 187,224 | | | $ | 163,666 | |
g. Income taxes (tax benefit) are comprised as follows:
| | | Year ended December 31, | |
| | | 2021 | | | 2020 | | | 2019 | |
| Current taxes: | | | | | | | | | |
| U.S. Federal and State | | $ | (7,872) | | | $ | 1,842 | | | $ | 10,093 | |
| Foreign | | | 37,564 | | | | 24,936 | | | | 29,590 | |
| Total current taxes | | | 29,692 | | | | 26,778 | | | | 39,683 | |
| Deferred taxes: | | | | | | | | | | | | |
| U.S. Federal and State | | | (3,682 | ) | | | 2,794 | | | | (3,414 | ) |
| Foreign | | | (7,956 | ) | | | (6,228 | ) | | | (2,623 | ) |
| Total deferred taxes | | | (11,638 | ) | | | (3,434 | ) | | | (6,037 | ) |
| Income taxes, net | | $ | 18,054 | | | $ | 23,344 | | | $ | 33,646 | |
| | | Year ended December 31, | |
| | | 2022 | | | 2021 | | | 2020 | |
| Current taxes: | | | | | | | | | |
| Domestic | | $ | 56,957 | | | $ | (7,872 | ) | | $ | 1,842 | |
| Foreign | | | 37,473 | | | | 37,564 | | | | 24,936 | |
| Total current taxes | | | 94,430 | | | | 29,692 | | | | 26,778 | |
| Deferred taxes: | | | | | | | | | | | | |
| Domestic | | | (8,954 | ) | | | (3,682 | ) | | | 2,794 | |
| Foreign | | | (2,100 | ) | | | (7,956 | ) | | | (6,228 | ) |
| Total deferred taxes | | | (11,054 | ) | | | (11,638 | ) | | | (3,434 | ) |
| Income taxes, net | | $ | 83,376 | | | $ | 18,054 | | | $ | 23,344 | |
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
h. 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 result of a variety of factors, including different effective tax rates applicable to non-US subsidiaries that have tax rates different than the Company tax rate, tax benefits relating to stock-based compensation and adjustments to valuation allowances on deferred tax assets on such subsidiaries.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
A reconciliation between the theoretical tax expense and the actual tax expense (benefit) as reported in the consolidated statements of income is as follows:
| | | Year ended December 31, | |
| | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | |
| Statutory tax rate | | | 21 | % | | | 21 | % | | | 21 | % |
| Effect of: | | | | | | | | | | | | |
| Income tax at rate other than the U.S. statutory tax rate | | | (7.4 | )% | | | (6.9 | )% | | | (5.0 | )% |
| Losses and timing differences for which valuation allowance was provided | | | 0 | | | | 4.4 | % | | | 1.3 | % |
| Prior year tax Income/(Expenses) | | | (4.4 | )% | | | (0.4 | )% | | | 0.1 | % |
| Tax Cuts and Jobs Act of 2017 | | | 0.1 | % | | | 0 | % | | | (0.7 | )% |
| Disallowable and allowable deductions | | | 2.0 | % | | | (2.6 | )% | | | 2.3 | % |
| Other individually immaterial income tax items, net | | | (1.7 | )% | | | (1.3 | )% | | | (0.2 | )% |
| Effective tax rate | | | 9.6 | % | | | 14.2 | % | | | 18.8 | % |
| | | Year ended December 31, | |
| | | 2022 | | | 2021 | | | 2020 | |
| Statutory tax rate | | | 21 | % | | | 21 | % | | | 21 | % |
| Effect of: | | | | | | | | | | | | |
| Income tax at rate other than the U.S. statutory tax rate | | | (10.8 | )% | | | (7.4 | )% | | | (6.9 | )% |
| Losses and timing differences for which valuation allowance was provided | | | 5.2 | % | | | 2.7 | % | | | 4.4 | % |
| Prior year income taxes (benefit) | | | 2.9 | % | | | (4.4 | )% | | | (0.4 | )% |
| R&D Capitalization and other effects of TCJA | | | 18.9 | % | | | 0.1 | % | | | - | % |
| Disallowable and allowable deductions | | | 13.2 | % | | | 2.0 | % | | | (2.6 | )% |
| Other individually immaterial income tax items, net | | | (3.3 | )% | | | (4.4 | )% | | | (1.3 | )% |
| Effective tax rate | | | 47.1 | % | | | 9.6 | % | | | 14.2 | % |
i. Tax assessments:
The Israeli tax authorities issued a tax order for tax year 2016 and tax assessments for tax years 20162017 and 2018 against the Company’s Israeli subsidiary, challenging the subsidiary's positions on several issues. The Israeli subsidiary has protested the order before the Central District Court in Israel and appealed the tax assessments.
The Company believes it has adequately provided for these items, however adverse results could have a material impact on the Company’s financial statements.
As of December 31, 2021,2022, 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 2017.2018.
The statute of limitations related to tax returns of the Company’s Israeli subsidiary for all tax years up to and including 2015 has lapsed.
The statute of limitations related to tax returns of the Company’s other subsidiaries has lapsed for part of the tax years, which differs between the different subsidiaries.
j. Tax benefits for Israeli companies under the Law for the Encouragement of Capital Investments, 1959 (the “Investments Law”):j. | Tax benefits for Israeli companies under the Law for the Encouragement of Capital Investments, 1959 (the “Investments Law”): |
The Israeli subsidiary elected tax year 2012 as a "Year of Election" for “Benefited Enterprise” status under the Investments Law. According to the Investments Law, the Israeli subsidiary elected to participate in the alternative benefits program which provides certain benefits, including tax exemptions and reduced tax rates (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.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
Upon meeting the requirements under the Investments Law, undistributed income derived from Benefited Enterprise from productive activity will be exempt from tax for two years from the year in which the Israeli subsidiary first has taxable income (“exempt period”), provided that 12 years have not passed from the beginning of the year of election.
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, 2018, approximately $289,900 was derived from tax exempt profits earned by the Israeli subsidiary “Benefited Enterprises” in the two tax years exempt period, tax years 2017 - 2018. The Company has determined that such tax-exempt income will not be distributed as dividends and intends to reinvest the amount of its tax-exempt income earned by the Israeli subsidiary. Accordingly, no provision for deferred income taxes has been provided on income attributable to the Israeli subsidiary “Benefited Enterprises” as such income is essentially permanently reinvested.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
If the Israeli subsidiary’s retained tax-exempt income is distributed, the income would be taxed at the applicable corporate tax rate which depends on the foreign ownership in each tax year.
Through December 31, 2021,2022, the Israeli subsidiary had generated income under the provision of the Investments Law.
Pursuant to amendment 73 to the Investments Law (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 Regulations describe, inter alia, the mechanism used to determine the calculation of the benefits under the PTE regime. According to these regulations, a company that complies with the 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 intangible asset, excluding income derived from intangible assets used for marketing and income attributed to production activity.
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 Zone A - a tax rate of 7.5%). The Israeli subsidiary’s PTE facilities in Israel are not located in Development Zone A. The Israeli subsidiary has developedor 6% if its own solar products manufacturing facilities in Israel, located in a Development Zone A.
annual revenues exceed NIS 10 billion. The Israeli subsidiary notified the ITA of its election to implement the PTE with effect from January 1, 2019.2019, and its PTE income was subject to a 12% tax rate in the years 2019-2021, and in 2022 to a 6% tax rate as the group surpassed NIS 10 billion revenues threshold.
Tax Benefits for Research and Development:
Israeli tax law (section 20A to the Israeli Tax Ordinance (New Version), 1961) allows, 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. 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 - 2021.
k. 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 propertyproperty.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
NOTE 23:24: FINANCIAL INCOME (EXPENSE), NET
| | | Year ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
Exchange rate (loss) gain, net | | $ | (22,493 | ) | | $ | 33,065 | | | $ | (10,342 | ) |
Marketable securities | | | 2,973 | | | | 3,750 | | | | 4,712 | |
Convertible note | | | (2,903 | ) | | | (3,185 | ) | | | 0 | |
Hedging | | | 9,417 | | | | (4,013 | ) | | | 0 | |
Interest expenses | | | (6,376 | ) | | | (5,330 | ) | | | (4,805 | ) |
Bank charges | | | (1,991 | ) | | | (2,048 | ) | | | (1,021 | ) |
Other financial income (expenses), net | | | 1,458 | | | | (1,134 | ) | | | 113 | |
| | $ | (19,915 | ) | | $ | 21,105 | | | $ | (11,343 | ) |
| | | Year ended December 31, | |
| | | 2022 | | | 2021 | | | 2020 | |
Exchange rate (loss) gain, net | | $ | (1,547 | ) | | $ | (22,493 | ) | | $ | 33,065 | |
Interest income on marketable securities | | | 10,551 | | | | 2,973 | | | | 3,750 | |
Convertible note | | | (2,916 | ) | | | (2,903 | ) | | | (3,185 | ) |
Hedging | | | 4,716 | | | | 9,417 | | | | (4,013 | ) |
Financing component expenses related to ASC 606 | | | (7,038 | ) | | | (5,771 | ) | | | (4,887 | ) |
Bank charges | | | (1,584 | ) | | | (1,991 | ) | | | (2,048 | ) |
Interest income, net | | | 1,402 | | | | 183 | | | | 67 | |
Other | | | (268 | ) | | | 670 | | | | (1,644 | ) |
Total financial income (expenses), net | | $ | 3,316 | | | $ | (19,915 | ) | | $ | 21,105 | |
NOTE 24: 25:SEGMENT, GEOGRAPHIC AND PRODUCT INFORMATION
a. Segment Information:
TheFollowing the discontinuation of Critical Power in June 2022, the Company operates in fivefour different operating segments: Solar, Energy Storage, e-Mobility Critical Power and Automation Machines.
The Company's Chief Executive Officer, who is the chief operating decision maker (“CODM”), makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis, accompanied by disaggregated information about revenues and contributed profit by the operating segments.
The Company does not allocate to its operating segments revenue recognized due to advance payments received for performance obligations that extend for a period greater than one year (“financing component”), related to Accounting Standard Codification 606, “Revenue from Contracts with Customers” (ASC 606).
Segment profit is comprised of gross profit for the segment less operating expenses that do not include amortization and impairment of purchased intangible assets, stock based compensation expenses and certain other items.
The Company manages its assets on a group basis, not by segments, as many of its assets are shared or co-mingled. The Company’s CODM does not regularly review asset information by segments and, therefore, the Company does not report asset information by segment.
The Company identified 1one operating segment as reportable – the Solar segment. The other operating segments are insignificant individually and therefore their results are presented together under “All other”.
The Solar segment includes the design, development, manufacturing, and sales of an intelligent inverter solution designed to maximize power generation at the individual PV module level and a residential storage solution, compatible with the Company’s energy hub inverter, intended to store and supply power for back-up and to maximize self-consumption. The Solar segment solution consists mainly of the Company’s power optimizers, inverters, batteries and cloud‑based monitoring platform.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
The “All other” category includes the design, development, manufacturing and sales of energy storage products, e-Mobility products, UPS products and automated machines.machines
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
The following table presents information on reportable segments profit (loss) for the period presented:
| | | Year ended December 31, | |
| | | 2021 | | | 2020 | | | 2019 |
| | | Solar | | | All other | | | Solar | | | All other | | | Solar | | | All other | |
Revenues | | $ | 1,787,280 | | | $ | 176,167 | | | $ | 1,357,261 | | | $ | 102,804 | | | $ | 1,336,618 | | | $ | 89,042 | |
Cost of revenues | | | 1,136,896 | | | | 169,582 | | | | 882,420 | | | | 95,280 | | | | 852,330 | | | | 75,702 | |
Gross profit | | | 650,384 | | | | 6,585 | | | | 474,841 | | | | 7,524 | | | | 484,288 | | | | 13,340 | |
Research and development | | | 143,173 | | | | 30,506 | | | | 110,567 | | | | 25,417 | | | | 91,868 | | | | 12,520 | |
Sales and marketing | | | 85,309 | | | | 9,930 | | | | 66,823 | | | | 8,562 | | | | 67,275 | | | | 8,433 | |
General and administrative | | | 53,156 | | | | 13,536 | | | | 41,723 | | | | 10,389 | | | | 31,201 | | | | 9,561 | |
Segments profit (loss) | | $ | 368,746 | | | $ | (47,387 | ) | | $ | 255,728 | | | $ | (36,844 | ) | | $ | 293,944 | | | $ | (17,174 | ) |
| | | Year ended December 31, | |
| | | 2022 | | | 2021 | | | 2020 | |
| | | Solar | | | All other | | | Solar | | | All other | | | Solar | | | All other | |
Revenues | | $ | 2,921,175 | | | $ | 188,490 | | | $ | 1,787,280 | | | $ | 176,167 | | | $ | 1,357,261 | | | $ | 102,804 | |
Cost of revenues | | | 2,050,147 | | | | 181,923 | | | | 1,136,896 | | | | 169,582 | | | | 882,420 | | | | 95,280 | |
Gross profit | | | 871,028 | | | | 6,567 | | | | 650,384 | | | | 6,585 | | | | 474,841 | | | | 7,524 | |
Research and development | | | 196,381 | | | | 29,016 | | | | 143,173 | | | | 30,506 | | | | 110,567 | | | | 25,417 | |
Sales and marketing | | | 118,154 | | | | 9,687 | | | | 85,309 | | | | 9,930 | | | | 66,823 | | | | 8,562 | |
General and administrative | | | 69,631 | | | | 13,001 | | | | 53,156 | | | | 13,536 | | | | 41,723 | | | | 10,389 | |
Segments profit (loss) | | $ | 486,862 | | | $ | (45,137 | ) | | $ | 368,746 | | | $ | (47,387 | ) | | $ | 255,728 | | | $ | (36,844 | ) |
The following table presents information on reportable segments reconciliation to consolidated revenues for the periods presented:
| | Year ended December 31, | |
| | 2022 | | | 2021 | | | 2020 | |
Solar segment revenues | | $ | 2,921,175 | | | $ | 1,787,280 | | | $ | 1,357,261 | |
All other segment revenues | | | 188,490 | | | | 176,167 | | | | 102,804 | |
Revenues from financing component | | | 614 | | | | 418 | | | | - | |
Inter-segment revenues | | | - | | | | - | | | | (794 | ) |
Consolidated revenues | | $ | 3,110,279 | | | $ | 1,963,865 | | | $ | 1,459,271 | |
| | Year ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
Solar segment revenues | | $ | 1,787,280 | | | $ | 1,357,261 | | | $ | 1,336,618 | |
All other segment revenues | | | 176,167 | | | | 102,804 | | | | 89,042 | |
Revenues from financing component | | | 418 | | | | 0 | | | | 0 | |
Inter-segment revenues | | | 0 | | | | (794 | ) | | | 0 | |
Consolidated revenues | | $ | 1,963,865 | | | $ | 1,459,271 | | | $ | 1,425,660 | |
The following table presents information on reportable segments reconciliation to consolidated operating income for the periods presented:
| | | Year ended December 31, | |
| | | 2022 | | | 2021 | | | 2020 | |
Solar segment profit | | $ | 486,862 | | | $ | 368,746 | | | $ | 255,728 | |
All other segment loss | | | (45,137 | ) | | | (47,387 | ) | | | (36,844 | ) |
Segments operating profit | | | 441,725 | | | | 321,359 | | | | 218,884 | |
Amounts not allocated to segments: | | | | | | | | | | | | |
Stock based compensation expenses | | | (145,539 | ) | | | (102,593 | ) | | | (67,309 | ) |
Amortization and depreciation of acquired assets | | | (9,478 | ) | | | (10,812 | ) | | | (9,336 | ) |
Impairment of goodwill and long-lived assets | | | (119,141 | ) | | | - | | | | - | |
Disposal of assets related to Critical Power | | | (4,314 | ) | | | - | | | | - | |
Other unallocated income (expenses), net | | | 2,867 | | | | (815 | ) | | | 322 | |
Consolidated operating income | | $ | 166,120 | | | $ | 207,139 | | | $ | 142,561 | |
| | Year ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
Solar segment profit | | $ | 368,746 | | | $ | 255,728 | | | $ | 293,944 | |
All other segment loss | | | (47,387 | ) | | | (36,844 | ) | | | (17,174 | ) |
Segments operating profit | | | 321,359 | | | | 218,884 | | | | 276,770 | |
Amounts not allocated to segments: | | | | | | | | | | | | |
Stock based compensation expenses | | | (102,593 | ) | | | (67,309 | ) | | | (60,353 | ) |
Amortization related to business combinations | | | (10,812 | ) | | | (9,336 | ) | | | (9,470 | ) |
Sale of SolarEdge Automation Machines’ subsidiary | | | 0 | | | | 0 | | | | (5,269 | ) |
Legal settlement | | | 763 | | | | 4,900 | | | | (4,900 | ) |
Other unallocated expenses | | | (1,578 | ) | | | (4,450 | ) | | | (6,832 | ) |
Adjustments: | | | | | | | | | | | | |
Inter-segment profit | | | 0 | | | | (128 | ) | | | 0 | |
Consolidated operating income | | $ | 207,139 | | | $ | 142,561 | | | $ | 189,946 | |
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
b. Revenues by geographic, based on Customers’ location:
| | Year ended December 31, | | | Year ended December 31, | |
| | | 2021 | | | 2020 | | | 2019 | | | | 2022 | | | 2021 | | | 2020 | |
United States | | $ | 786,019 | | $ | 613,090 | | $ | 678,565 | | | $ | 1,133,798 | | $ | 786,019 | | $ | 613,090 | |
Europe(*) | | | 670,394 | | 426,531 | | 345,685 | | | | 528,197 | | 297,684 | | 233,583 | |
Germany | | | | 449,160 | | 191,066 | | 118,350 | |
Netherlands | | | 222,103 | | 199,498 | | 199,526 | | | | 382,226 | | 222,103 | | 199,498 | |
Italy | | | | 330,565 | | 181,644 | | 74,598 | |
Rest of the world | | | 285,349 | | 220,152 | | 201,884 | | | | 286,333 | | 285,349 | | 220,152 | |
Total revenues | | $ | 1,963,865 | | $ | 1,459,271 | | $ | 1,425,660 | | | $ | 3,110,279 | | $ | 1,963,865 | | $ | 1,459,271 | |
(*) Except for NetherlandsGermany, Netherlands and Italy
c. Revenues by product:type:
| | | Year ended December 31, | |
| | | 2022 | | | 2021 | | | 2020 | |
Inverters | | $ | 1,137,142 | | | $ | 828,101 | | | $ | 641,799 | |
Optimizers | | | 1,135,040 | | | | 828,542 | | | | 625,465 | |
Residential batteries | | | 429,119 | | | | 19,531 | | | | - | |
e-Mobility components and telematics | | | 94,446 | | | | 68,946 | | | | 13,399 | |
Communication | | | 72,812 | | | | 24,111 | | | | 41,771 | |
Others | | | 241,720 | | | | 194,634 | | | | 136,837 | |
Total revenues | | $ | 3,110,279 | | | $ | 1,963,865 | | | $ | 1,459,271 | |
| | Year ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
Inverters | | $ | 828,101 | | | $ | 641,799 | | | $ | 626,445 | |
Optimizers | | | 828,542 | | | | 625,465 | | | | 634,007 | |
Others | | | 307,222 | | | | 192,007 | | | | 165,208 | |
Total revenues | | $ | 1,963,865 | | | $ | 1,459,271 | | | $ | 1,425,660 | |
d. Long-lived assets by geographic location:
| | As of December 31, | | | As of December 31, | |
| | | 2021 | | | 2020 | | | 2022 | | | 2021 | |
Israel | | $ | 271,700 | | $ | 216,095 | | | $ | 333,740 | | | $ | 271,700 | |
Korea | | | 118,209 | | 62,570 | | | 201,731 | | | 118,209 | |
China | | | 30,412 | | 32,655 | | | | 34,230 | | | | 30,412 | |
Europe | | | 21,547 | | 24,233 | | | 21,282 | | | 21,547 | |
Other | | | 15,649 | | | 9,455 | | | | 15,740 | | | | 15,649 | |
Total long-lived assets (*) | | $ | 457,517 | | $ | 345,008 | | | $ | 606,723 | | | $ | 457,517 | |
(*) Long-lived assets are comprised of property and equipment, net and Operating lease right-of-use assets, net.
SOLAREDGE TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(in thousands, except per share data)
NOTE 26: SUBSEQUENT EVENTS
In January 2023, the Company entered into an agreement to acquire Hark Systems Ltd. ("Hark"), a UK-based energy IoT company for the C&I sector. Hark's platform will enable the Company to grow its commercial and industrial energy management portfolio and offer additional services to its C&I customers. The acquisition is still subject to certain customary closing conditions and regulatory approvals and is expected to close during the second quarter of 2023.
F - 54
ITEM 9.9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
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, 2021.2022. 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.
Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective and operating 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 to provide reasonable assurance 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, 2021.2022. 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.
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 Global, independently assessed the effectiveness of the company’s internal control over financial reporting, as stated in 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 the fourth fiscal quarter of 20212022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. Other Information
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
ITEM 10. Directors, Executive Officers and Corporate Governance.
The information required by Item 10 will be included under the captions “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 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the year ending December 31, 20212022 (the "2021"2023 Proxy Statement") and is incorporated herein by reference.
ITEM 11. Executive Compensation
The information required by Item 11 will be included under the captions “Executive Compensation” in our 20222023 Proxy Statement and is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 will be included under the captions “Security Ownership of Certain Beneficial Owners and Management” in our 20222023 Proxy Statement and is incorporated herein by reference.
Compensation Plan Information
The information required regarding securities authorized for issuance under our equity compensation plans is incorporated by reference from the information contained in the section entitled “Executive Compensation” in our 20222023 Proxy Statement.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 will be included under the captions “Transactions with Related Persons” in our 20222023 Proxy Statement and is incorporated herein by reference.
ITEM 14. Principal Accountant Fees and Services
The information required by Item 13 will be included under the captions “Transactions with Related Persons” in our 20222023 Proxy Statement and is incorporated herein by reference.
PART IV
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 |
| | Description
| | Incorporation by Reference
|
| | | | Incorporated by reference to Exhibit 4.1 to Form S-8 (Registration No. 333-203193) filed with the SEC on April 2, 2015 |
| | | | Incorporated by reference to Exhibit 4.23.1 to Form S-8 (Registration No. 333-203193)8-K filed with the SEC on April 2, 2015 December 1, 2022 |
| | | | filed with this report |
| | Incorporated by reference to Exhibit 3.3 to Form 10-K/A filed with the SEC on February 19, 2021
|
| | | | 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 |
| | | | Incorporated by reference to Exhibit 4.1 to Form 8-K filed with the SEC on September 25, 2020 |
| | | | Incorporated by reference to Exhibit 4.2 to Form 8-K filed with the SEC on September 25, 2020 |
| | | | Incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on August 21, 2019 |
| | | | 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 |
| | | | 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 |
| | | | Incorporated by reference to Exhibit 99.3 to Form S-8 (Registration No. 333-203193) filed with the SEC on April 2, 2015 |
| | | | Incorporated by reference to Exhibit 99.1 to Form S-8 (Registration No. 333-203193) filed with the SEC on April 2, 2015 |
| | | | Incorporated by reference to Exhibit 99.2 to Form S-8 (Registration No. 333-203193) filed with the SEC on April 2, 2015 |
| | | | Incorporated by reference to Exhibit 10.11 to Form 10-K filed with the SEC on August 20, 2015 |
| | | | Incorporated by reference to Exhibit 10.12 to Form 10-K filed with the SEC on August 20, 2015 |
| | | | Incorporated by reference to Exhibit 10.13 to Form 10-K filed with the SEC on August 20, 2015 |
| | | | Incorporated by reference to Exhibit 10.14 to Form 10-K filed with the SEC on August 20, 2015 |
10.11 | | Form of Performance Award Agreement | | Filed with this report. |
| | | | Filed with this report. |
| | Filed with this report.
|
| | | | Filed with this report. |
| | Filed with this report.
|
| | | | Filed with this report. |
| | Filed with this report.
|
| | | | Filed with this report. |
| | Filed with this report.
|
| | | | Filed with this report. |
| | Filed with this report.
|
| | | | Filed with this report. |
| | Filed with this report.
|
| | | | Filed with this report. |
101.INS | | XBRL Instance Document - - embedded within the Inline XBRL document | | Filed with this report. |
101.SCH | | XBRL Taxonomy Extension Schema Document | | Filed with this report. |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | Filed with this report. |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | Filed with this report. |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | Filed with this report. |
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.
ITEM 16. Form 10–K Summary
None.
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.
By: | /s/ Zvi Lando | |
Name: | Zvi Lando | |
Title: | Chief Executive Officer | |
Date: | February 22, 2022 | 2023 |
Know all persons by these presents, that each person whose signature appears below constitutes and appoints 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/Zvi Lando | Chief Executive Officer and Director (Principal Executive Officer) | February 22, 2022 2023 |
/s/Ronen Faier | Chief Financial Officer (Principal Financial and Accounting Officer) | February 22, 2022 2023 |
/s/Nadav Zafrir | Chairman of the Board | February 22, 2022 2023 |
/s/Yoni Cheifetz Dirk Hoke | Director | February 22, 2022 2023 |
/s/Marcel Gani | Director | February 22, 2022 2023 |
/s/Doron Inbar
| Director
| February 22, 2022
|
/s/Avery More | Director | February 22, 2022 2023 |
/s/Tal Payne | Director | February 22, 2022 2023 |
/s/Betsy Atkins | Director | February 22, 2022 2023 |
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