| • | DC Coupling with Energy Storage. Our DC optimized inverter system allows solar energy to be directly stored in batteries without any conversion, referred to as DC coupling, thereby eliminating energy losses that are associated with such conversionsconversions. This enables better management of energy stored in the battery, hence improving efficiency, increasing savings for the end user and improvingincreasing the RoI of PV associated battery systems.overall return on investment, or, ROI. When coupled with a DC enabled EV charger, solar energy can directly charge the electric vehicle, without any AC conversion applying similar energy retention due to less conversions. |
| • | Energy Management. Strategically located atOur residential and commercial systems feature the intersection between PV modules, home usage, and the grid, inverters are well positioned to act as smartSolarEdge ONE energy managers. Our smart inverters incorporate the management of PVoptimization system which manages solar energy, battery storage, smart devices, and grid interaction. By enablingThis smart energy management in our inverter,capability enables system owners can not onlyto store solar energy butat cost-effective times, and also control the timing of their PV energy consumption in order to increase their energy independence, take advantage of lower time-of-use rates, reduce electricity bills, and improve overall system RoI.ROI. |
| • | Distributed Energy Generation. As the electric grid transitions from centralized power stations to a network of distributed, renewable energy sources, our inverter actscan serve as a local control system that can manage the energy resources underlying such a distributed network. Our inverters are a key part of developingcan be used to create a distributed and interactive grid that can help support grid stability. One such example is inverter-enabled charging and discharging of batteries as part of a virtual power plantVirtual Power Plant or VPP, to help manage the load on the grid and support grid stability. |
Our PV Solar ProductsProduct Offering
SolarEdge began its commercial sales with a product offering of simplified inverters, power optimizers, and cloud-based monitoring platform. AsOur primary segment is our solar business, which includes the solar energy industry has evolved, SolarEdge has developed innovative solutions to further enhance smart energy technology, including inverters that include compatibility with batteries for increased self-consumption and storage, inverters that allow EV charging, smart meters, smart energy devices (sockets, water heater controllers, wireless relay) and smart PV modules. This product expansion has enabled us to increase average revenue per installation, or ARPI.following products:
SolarEdge Power Optimizer. Our Power Optimizer which forms an integral part of our DC power optimizeroptimized inverter system is a highly reliable and efficient DC-to-DC converter which is connected by installers to each PV module or embedded by PV module manufacturers into their modules as part of the manufacturing process. Our power optimizerPower Optimizer increases energy output from the PV module to which it is connected by continuously tracking the Maximum Power Point or MPP of each module and controlling its workingproduction point. The power optimizer’sPower Optimizer’s ability to track the MPP of each PV module and its ability to increase or decrease its output voltage enables the inverter’s input voltage to remain fixed under a large variety of string configurations. This feature enhances the flexibility in PV system designs, enabling use of different string lengths in a single PV system connected to the same inverter, use of PV modules situated on multiple orientations connected to the same inverter, and using varied PV module types in the same string. In addition, our power optimizersPower Optimizers monitor the performance of each PV module and communicate this data to our inverter using our proprietary power line communication. In turn, the inverter transmits this information to our monitoring server. Each power optimizerPower Optimizer is equipped with our proprietary safety mechanism which automatically reduces the output voltage of each PV module to 1 volt unless the power optimizerPower Optimizer receives a fail-safe signal from a functioning inverter. As a result, if the inverter is shut down (e.g., for system maintenance, due to malfunction, in the event of a fire or otherwise), the DC voltage throughout the system is reduceddesigned to reduce the DC voltage to a safe level.
Our power optimizersPower Optimizers are designed to withstand high temperatures and harsh environmental conditions and contain multiple bypass features that localize failures and enable continued system operation in the vast majority of cases of power optimizer'sPower Optimizer failure. Our power optimizersPower Optimizers are compatible with the vast majority ofmost modules on the market today and carry a 25-year product warranty. Our power optimizers are designed to be used with our inverters to provide power optimization. Monitoring and safety features can also be achieved with third party inverters by adding supplemental communications hardware. During the year ended December 31, 2019,2023, the year ended December 31, 20202022 and the year ended December 31, 2021, revenues derived from the sale of power optimizersPower Optimizers represented 44.5%30.3%, 42.9%36.5% and 42.2% of total revenues, respectively.
SolarEdge Inverter. Our DC-to-AC inverters which form an integral part of our DC optimized inverter systems, contain sophisticated digital control technology with efficient power conversion architecture resulting in superior solar power harvesting and high reliability, and are designed to work exclusively with our DC power optimizers.Power Optimizers. A proprietary power line communication receiver is integrated into each inverter, receiving data from our power optimizers,Power Optimizers, storing this data and transmitting it to our monitoring server when an internet connection exists. Since each string which is equipped with our power optimizersPower Optimizers provides fixed input voltage to our inverter, the inverter is able to operate at its highest efficiencyefficient at all times and therefore is more cost efficient,effective, energy efficient and reliable.
Like our power optimizers,Power Optimizers, our inverters are designed to withstand harsh environmental conditions. Since the power rating of an inverter determines how many PV modules it can serve, larger installations require inverters with higher power ratings. We currently offer a single-phase inverterinverters designed to address the residential market (1(3 kilowatt (“kW”) to 11.4 kW) which is based on our HD-Wave technology and a three-phase inverterinverters designed to address the residential market in certain European countries and Australia as well as the commercial marketmarkets (4 kW to 120 kW). Our single-phase, and three-phase inverters support a range of smart energy capabilities. In 2020, we launched the SolarEdge energy hub inverter and home backup solution for the U.S. residential market. The SolarEdge energy hub inverter contains built-in consumption monitoring, embedded revenue-grade production metering ,integrated arc fault protection, rapid shutdown and is ready for a battery. In 2021, we launched the new SolarEdge energy hub inverter models ranging from 7.6 kW up to 11.4 kW PV power and 10.3 kW backup power. Both the SolarEdge energy hub inverter and the SolarEdge energy bank battery, described below, are part of the new SolarEdge full residential solution, the “SolarEdge Home”, an intelligent smart energy management system that allows homeowners to better manage and monitor solar energy production, consumption and backup storage in real time. Our product offering also includes our commercial three-phase 120kw inverter with Synergy technology and enhanced power capabilities, which is designed to enable quickaddress the ground mount market (300kW to 330kW). In 2023, SolarEdge released the 330kW inverter coupled with new H-Series Power Optimizers for distributed and easy installation and inventory management for the commercial market. The vast majority of our inverters are sold with a 12 year warranty that is extendable to 20 or 25 years for an additional cost. During the year ended December 31, 2019, the year ended December 31, 2020 and the year ended December 31, 2021 revenues derived from the sale of inverters represented 43.9%, 44.0% and 42.2% of total revenues, respectively.
EV Charging Inverter. SolarEdge’s EV chargingcentralized inverter offers homeowners the ability to charge electric vehicles up to six times faster than a standard Level 1 charger through an innovative solar boost mode that utilizes grid and PV charging simultaneously.configurations. This inverter is designed for small-scale utility installations, agriculture or Agri-PV sites that harvest crops and solar energy on the world’s first EV charger with an integrated PV inverter. Reducing the burden of installing separately a standalone EV chargersame farmland, and a PV inverter, the EV charging inverter eliminates the need for additional wiring, conduitCommunity Solar installations which bring smart energy savings to households, businesses and a breaker installation. By installing an inverter that has an integrated EV charge, no additional dedicated circuit breaker is needed, saving space and eliminating the need for a potential upgrade to the main distribution panel.public organizations.
Storage Solutions. In 2021, we launchedThe SolarEdge Home Battery 400V, our residential battery, the SolarEdge energy bank, which is a 10 kWDC-coupled, 10kWh, single phase battery that integrates with our SolarEdge energy hubHome Hub family of inverters. TheWhen connected with our SolarEdge energy bank batteryHome Backup Interface (BUI), the SolarEdge Home Battery provides homeowners the ability and the backup to power their homes even when the grid is off.off for anywhere from several hours to many days, depending on use of loads and available sunlight during the outage. The battery also works in tandem with the SolarEdge ONE energy managementoptimization system to optimize the use of solar energy in places where the feed inwith different types of import and export tariffs are less favorable (maximum self-consumption). The SolarEdge energy bank battery connects with the SolarEdge inverter through DC-coupling, which minimizes the numberscenarios (such as time of DC to AC conversions which are typical in competing technologies, saving energyuse, or TOU and enabling higher efficiency. The solution is based on a single inverter for both solar PV and storage. To optimize self-consumption, the battery is charged and discharged to meet consumption needs and reduce the amount of power acquired from the grid. dynamic rates).
With the SolarEdge backup solution, unused solar PV power is stored in a battery and can be used during a power outage when a combination of solar PV power and battery is used to power important sourcesessential devices such as the refrigerator,refrigerators, communication devices, lighting, and AC outlets. Our proprietary monitoring platform provides visibility intooutlets for anywhere from several hours to many days, depending on use of loads and available sunlight during the battery's status, solar PV production, and self-consumption, while offering easy maintenance with remote access to inverter and battery software. Multiple batteries can be connected to a single SolarEdge energy hub inverter, adding more available power to backup more significant loads such as air-conditioners or refrigerators. In addition, SolarEdge inverters can be connected to third party batteries via the SolarEdge StorEdge solution, where batteries can perform both maximum self- consumption and backup functions.outage.
Some existingEV Chargers. SolarEdge systemssells EV chargers for residential applications which allow the homeowner to redirect excess PV energy to power their electric vehicles. This enables consumer to increase their self-consumption of clean energy. The SolarEdge ONE smart energy optimization system can be upgradedprogrammed to automatically charge the vehicle using the most advantageous and economical times and rates.
Smart Energy Products. As the solar energy industry has evolved, SolarEdge has developed innovative solutions to further enhance smart energy technology, including inverters that include compatibility with batteries for increased self-consumption for backup, backup interfaces devices, smart meters, smart energy management devices (sockets, hot water controllers, wireless relay) and smart PV modules. This product expansion has enabled us to increase average the revenue per installation, or ARPI.
Smart Trackers. Our SolarGik smart PV tracker is optimized for installations on constrained and sloped terrains, eliminating the need for costly grading and construction. Our trackers come with advanced software that is designed to optimize production, predict weather changes, maximize bifacial gains and respond to remote commands. The tracker solutions are light weight, which allows them to be installed not only in regular ground mount projects, but also on rooftops, greenhouses, carports and agricultural fields.
Smart Energy Management. We have developed smart energy management software and capabilities that are offered with our hardware solutions and enable system owners to store solar energy at cost-effective times, and also control the timing of their PV energy consumption in order to increase their energy independence, take advantage of lower time-of-use rates, reduce electricity bills, and improve overall system ROI.
In 2023, we launched the SolarEdge Home smart energy ecosystem which enables homeowners to control and optimize their energy production, consumption and storage with mySolarEdge app. SolarEdge Home manages the home’s production and usage 24 hours a day, 7 days a week through the SolarEdge ONE energy optimization system which analyzes a variety of external and internal data to minimize electricity costs and maximize savings. In addition to SolarEdge Power Optimizers, inverters and batteries, SolarEdge Home has capabilities enabling integration with SolarEdge Home batteries, EV chargers, load controls and third party devices, to monitor and optimize the home energy production and usage. The features are thus far available in the United States, in Germany and are being released elsewhere around the world over time.
In addition, in April 2023, we completed the acquisition of all outstanding shares of Hark Systems Ltd. ("Hark"), a UK-based energy IoT company for the commercial and industrial ("C&I") sector. Hark's platform is designed to enable commercial and industrial customers expanded capabilities in energy management and connectivity, including identification of potential energy savings, detection of anomalies in assets’ energy consumption, and optimization of energy usage and carbon emissions through load orchestration and storage solution for both backup or on-grid maximum self-consumption use.control.
SolarEdge Software.Software Solutions. We offer a variety of professional software tools from system design to monitoring:support the complete PV planning, installation, monitoring and maintenance processes of our DC optimized inverter solutions:
Our “Designer platform”Monitoring Platform. The SolarEdge monitoring platform is a free web-based tool that helps solar professionals plan, build and validate our residential and commercial systems from inception to installation.
Our “Mapper app” provides SolarEdge installers with an efficient, streamlined process for registering the physical layout of new PV sites in the SolarEdge monitoring platform. Installers use the Mapper app to scan SolarEdge power optimizer and inverter barcodes, creating a virtual map of the PV site in thecloud-based monitoring platform to help facilitate remote diagnostics.
Making installations quick and simple, our “SetApp” is used to activate and configure SolarEdge inverters during commissioning directly through a smartphone.
In 2021, we launched the mySolarEdge application version 2.0 which enables system owners to easily track their real-time system production and household energy consumption, view their inverter and battery status for quick troubleshooting, and control the battery's back-up capabilities, all from the convenience of their mobile phones.
Our cloud-based monitoring platform collects power, voltage, current and system data sent from ourSolarEdge inverters and power optimizersPower Optimizers and allows users to view the data for their SolarEdge site/s at the module level, string level, inverter level and system level from most browsers orand from most smart phones and tablets. The monitoring software continuously analyzes data and flags potential problems. The monitoring software includes features which are used on a routine basis by integrators, installers, maintenance staff, and system owners to improve a solar PV system’s performance by maximizing solar power harvesting and reducing O&M costs by increasing system up-time and detecting PV module performance issues more effectively. Connection to the monitoring server is completed during installation by the installer. The installer then receives full access to system data through the monitoring software and can select the amount of data to be shared with the system owner.performance.
Smart Energy Management.MySolarEdge appThere are two separate energy technology industries that exist today, solar energy production and automation technology. Inverters are taking on an expanded role in energy management and automation, and,in order to address these market needs, we are developing and providing automation products. This line of products, when used with the SolarEdge PV solution, is designed to allow. The mySolarEdge application enables system owners to increase self-consumption by shiftingtrack their real-time system production and household energy usage to match peak solar PV production as well as offer a convenient, wirelessconsumption, view their inverter and battery status for quick troubleshooting, and control option over various building and/or home devices. An example of this solution, would be using excess solar PV energy to heat water or the ability to remotely turn on or off certain power sources such as lighting or electrical appliances. The introduction of these products is dependent upon certification and region specific needs and as such, these products are not yet available inbattery's back-up capabilities, all of the geographies in which SolarEdge operates.from their mobile phones.
Designer platform. Our designer platform is a proprietary web-based tool that helps solar professionals plan, build and validate residential and commercial systems from inception to installation.
5Mapper application. The mapper application provides SolarEdge installers with an efficient, streamlined process for registering the physical layout of new PV sites installed with SolarEdge DC optimized inverter systems in the SolarEdge Monitoring Platform. Installers can use the Mapper application to scan SolarEdge Power Optimizer and SolarEdge inverter barcodes, creating a virtual map of the PV site in the monitoring platform which can later help facilitate remote diagnostics thereby enabling enhanced customer support and reducing maintenance costs for installers and SolarEdge system owners.
SetApp application.The SetApp application is used to activate and configure SolarEdge inverters during commissioning directly through a smartphone, in order to simplify and expedite installations.
Grid Services. As PV and storage continue to proliferate around the world, energy production is transitioning from a centralized system to a distributed network model, where energy is produced close to the location in which it is consumed and stored. This model creates an opportunity for new interconnected and decentralized energy networks offering improved grid reliability and stability, new energy servicesservice and reduction of grid infrastructure costs. SolarEdge grid services deliver near real-time aggregative control and data reporting, enabling the pooling of distributed energy resources —- photovoltaic systems, battery storage and electric vehicle chargers and loads — in the cloud for the creation of virtual power plants ("VPP")(VPP). The SolarEdge grid services and VPP solution provides sophisticatedprovide management platforms to enable near real-time, aggregated control of available energy resources to meet ever-changing supply needs and demand. Our distributed energy resources management system or DERMS application and application program interfaces ("APIs")(APIs) are used by utilities for countering peak demand events.events and participating in various electricity markets. In 2021,2023, SolarEdge continued to generate revenues from sellingsell grid services in the U.S., Europe and Australia, including services provided to independent system operators, energy retailers, national installers and others.
Products from Non-Solar businesses. The SolarEdge Energy Storage segment provides energy storage solutions which include battery cells, modules, racks and containerized battery systems (BESS). The proprietary technology of our cells and batteries is manufactured and assembled in our own facilities in South Korea, which have production capacity of 2GWh.
Our lithium-ion technology packs high energy density into small footprints and supports high c-rate power throughputs, without compromising the calendar and cycle life of the battery.
SolarEdge’s ESS solutions are used in different fields, such as stationary energy storage (EV charging, utility, commercial or industrial), energy storage in transportation (trains, trams and marine-based transportation), different engineering, procurement and construction projects in the grid and C&I energy space, and more.
Product Roadmap
Our products in the solar segment reflect the innovation focus and capabilities of our technology departments as well as the importance we place on creating value for our customers. Our core solar product roadmap is divided into five categories: power optimizers,Power Optimizers, inverters, software energy storage,which supports our DC optimized inverter systems, batteries for PV applications, and smart energy management.
Power Optimizers. We currently sell our third and fourth generations of power optimizersPower Optimizers (P-Series and S-Series, respectively) which were designed for fully automated assembly and are based on our third and fourth generation ASICs, respectively. We have launched H1300, a Gen 4 based power optimizer, as a part of the SolarEdge 330kW inverter solution. This is our first optimizer equipped with high frequency DC power line communications technology which allows communication with larger numbers of optimizers for ground mount applications as well as improved remote software upgrade capabilities, allowing larger installations to support Ground Mount applications, as well as improved remote upgrade. We are in the process of launching our fifth generation S1400 Series Power Optimizers. A key element of our reliability strategy, and a significant differentiator relative to our competitors, is our use of proprietary ASICs to control, among other things, our power optimizer’sPower Optimizer’s power conversion, safety features, and PV module monitoring. Instead of using large numbers of discrete components, our power optimizerPower Optimizer uses a single proprietary ASIC, thus reducing the total number of components in an electrical circuit and thereby improving reliability. In 2021, we launched our fourth generation power optimizer which uses fourth generation ASIC that provides higher efficiency and incorporates a new safety mechanism for PV systems including connector level fault detection.
Each new ASIC generation reduces the number of components required for any given functionality, adds more functions to the optimizer,Power Optimizer, and meaningfully improves the efficiency of the power optimizer.Power Optimizer. The efficiency improvement reduces the energy losses which in turn reduces the amount of heat dissipation. This enables design of a more cost-effective and usually smaller enclosure and also keeps the electronics cooler, thereby improving the power optimizer’sPower Optimizer’s reliability. Our research and development teams continuously work on further improving our ASICs and releasing new generations of this improved technology.
Inverters.Inverters. Our inverter roadmap includes both new products as well as additional capabilities for existing inverters. Our inverter roadmap is intended to serve four purposes: (i) expand addressable markets by developing new and larger inverters designed specifically for larger commercial installations and utility-scale projects; (ii) improve the electronics to increase the total power throughput while minimally changing the existing enclosure, thereby reducing the actual cost per watt and increasing economies of scale; (iii) improve ease of installation by integrating additional functionality required in certain installations in order to reduce costs of additional hardware and subcontractors’ labor costs; and (iv) improve the residential inverter's functionality to serve as a hub for home energy management, integrating, controlling and optimizing the main home energy sources and loads.
Software. We continue to expand our software offering with the introduction of new tools and features .features. This includes both professional web-based software and system owner applications such as the fleet management, the site designer tool, the mySolarEdge consumer app and installer applications.applications, all of which are offered to our install base as complimentary to the sales of our hardware solutions.
Our cloud-based monitoring platformMonitoring Platform is continuously growing by the amount of data aggregated. We are continuously developing tools to accommodate our growth and further enhance our service offering. We plan to continue developing algorithms that detect and pinpoint problems that can affect power production in field systems. We further plan to add more capabilities through our public API to allow users to build and integrate our system into their own systems and build and share useful applications based on monitoring data gathered by our software.
6Batteries for PV applications.
Energy Storage. Our residential storage solution, launched in 2021, is designed to integrate with our single-phase and three-phase inverters to provide optimal energy management, maximum efficiency, longer backup times and ease of use for the homeowners. Our DC-coupled SolarEdge residential battery for the single-phase inverters are currently available in North America and Europe and are expected to be introduced to additional global markets. We expect to continue to expand our storage solutions to cover more applications, specifically a three- phase solution, as well as improve battery management, efficiency and integration with energy management systems.
Smart Energy Management.Our smart energy management offering manages and controls PV production, home consumption, storage, home generator and grid interaction, is designed to automatically use excess PV power to increase self-consumption of solar energy, and reduce energy bills and carbon footprints. The offering controls electrical loads such as, pool pumps, fans, lighting and other home appliances by using several accessories such as a smart socket, smart switch relays and more, and is able to divert excess solar energy to heat water. We are developing new features and capabilities for the smart energy suitemanagement solutions, which isare constantly evolving. Specifically, we have current plansevolving, such as our SolarEdge Home Local Controller, which will enable the homeowner to add the abilityrun and manage their most energy-intensive devices on excess solar energy. We are also introducing smart energy management and fleet management to control additional energy loads and are developing capabilities for the commercial segment. We also plan on expanding the availability of our smart energy products, including smart energy management devices, to new geographies and use cases.
Products from Non-Solar Businesses
In 2018, we expanded our product offering by completing the acquisition of the assets of a business for the development, manufacturing and sale of uninterrupted power supply or UPSs (“Critical Power”). In January 2019, we further expanded our product offering by completing the acquisition of approximately 99.9% of SolarEdge Automation Machines SPA (“SolarEdge Automation Machines”) and its wholly owned subsidiary SolarEdge eMobility SPA (“SolarEdge e-Mobility”) (formerly S.M.R.E Spa and I.E.T Spa, respectively). During 2019, we also completed the acquisition of Kokam Co., Ltd. (“Kokam”), a provider of Lithium-ion cells, batteries and energy storage solutions. SolarEdge Automation Machines manufactures automated machinery for industrial applications and SolarEdge e-Mobility develops, manufactures and sells end-to-end e-Mobility solutions for electric and hybrid vehicles used in motorcycles and light commercial vehicles. These acquisitions allow us to offer a variety of products and solutions in addition to the SolarEdge solution, in adjacent markets.
UPS products. Our Critical Power product offering includes a range of UPS and power supply solutions for use in various applications including data-centers, communications, defense, healthcare, industrial, financial, transportation, government and, retail. The products include UPS solutions ranging from 10 kW to 1.2 MW, modular power systems for the telecommunications market, and different control and management solutions. In 2021, we further enhanced our three-phase modular product family offered in the U.S. by improving the hardware configuration and introducing a new version of the software for both 208V and 480V systems, which are intended to improve the products' performance. We also introduced a new cost effective standalone UPS system for applications ranging from 10 kW to 40 kW.
Lithium-ion batteries and related products. Founded in 1989, Kokam, develops, manufactures and sells premium lithium-ion battery cells, batteries and energy storage solutions. Kokam’s patented cell manufacturing technology allows us to provide energy solutions of improved performance, safety, and reliability which can integrate with a wide-variety of industries, including Energy Storage Systems known as ESS, UPS, EVs, and marine. This year we began the construction of an additional factory in Korea for the manufacturing of 2GW of cell capacity which is expected to begin operation in the second half of 2022.
Products for e-Mobility. Through the acquisition of SolarEdge e-Mobility and SolarEdge Automation Machines, SolarEdge added to its product offering components for e-Mobility, automated production machines and telematics software. These solutions include innovative powertrain technology integrated with the gearbox, engine, battery, BMS, software, electronics and batteries for light goods vehicles, light commercial vehicles and e-motorcycles. During 2021, we announced that we were selected and are supplying full electrical powertrain units and batteries for the production of the Fiat E-Ducato light commercial vehicle in Europe.
New Products or Product CategoriesCategories.
We continuously evaluate opportunities to expand our product offerings and services to our customers. We may from time to time develop new products or services that are a natural extension of our existing business, or may engage in acquisitions of businesses or product lines with the potential to strengthen our market position, enable us to enter attractive markets, expand our technological capabilities, or provide synergistic opportunities.
Sales and Marketing Strategy
Our solar business strategy is to focus on penetrating new geographic regions and increasing our market share. More specifically, we focus on markets where electricity prices, irradiance and government policies make solar PV installations economically viable. Our solar products have been installed in 133over 140 countries.
We target our sales and marketing efforts to the largest distributors, electrical equipment wholesalers, EPC contractors and installers in each of the countries where we operate. In the U.S., Germany, Italy, the Netherlands, Poland and Australia, ourOur products are carried and actively sold by most of the top solar PV distributors as well as the largest electrical distribution companies that are active in solar PV. We anticipate that an increasing percentage of solar PV equipment sales will also occur through electrical equipment wholesalers who sell to a broad range of electrical contractors, and we are focused on cultivating these global relationships.companies. As of December 31, 2021,2023, based on the number of installer accounts on our monitoring portal, over 45,00065,000 installers around the world have installed SolarEdge solar PV systems. We also sell our power optimizers pre-installed onto several PV modules for manufacturers that offer PV modules with our power optimizer physically embedded into their modules.
Additionally, as further detailed below, we have a number of programs focused on educating installers and other industry professionals about our technology, and we use a combination of road shows, webinars, and partner trainings to educate them how best to design, sell, and implement our technology in their projects. Most of these activities were converted to on-line platforms since the start of the Covid-19 pandemic to enable continued training, education and marketing during the global pandemic.
Our battery business strategy focuses on utilizing Kokam’s battery technology in our residential and commercial solar products and using any remaining manufacturing capacity for generating revenues from the sale of battery cells, modules and systems to other applications including ESS, e-mobility, marine and other applications. In the future we intend to further integrate our batteries into the UPS products and other applications.
Our Customers
We derive a significant portion of our revenues from key solar distributors, electrical equipment wholesalers and large installers in the U.S. and worldwide. In 2021,2023, two of our customers, Consolidated Electrical Distributors Inc. (CED)Memodo GmbH and Sunrun Inc. (Sunrun) togetherKrannich Solar GmbH & Co. KG, represented 30.9%24.0% of our revenues. None of our other customers accounted for more than ten percent of our revenues in the year ended December 31, 2021.2023.
Training and Customer Support
We offer our installer base a comprehensive package of customer support and training services which include pre-sales support, ongoing trainings, and technical support before, during, and after installation. We also provide customized support programs to PV module manufacturers, large installers and distributors to help prioritize and track support issues, thereby enabling short cycle times for issue resolution.
8In 2023, we revamped our first level certification, SolarEdge Fundamentals Training, a comprehensive training course for installers, with up-to-date installation methodologies and practices. During 2023, our training portal (Edge Academy) hosted over 222,000 learners.
In 2021, as Covid-19 related lockdowns continued to make in-person training events impracticalAdditionally, in many countries,2023, we continued to offer training programs in a hybrid approachenhanced our installer’s performance enablement by combining hands-on and digital learning techniques. As a result, we were able to significantly increase our overall training reach, offering more than 400 training events and attracting approximately 50,000 participants.
In 2021 we continued to improve and enhance our “Edge Academy”, an intuitive web-based learning portal that aims to help SolarEdge installers improve their installation skills and minimize installation time. As part of the Edge Academy, installers can complete two levels of certification programs: a Scholar certification program, which is offered in 12 different languages;adding over 50 product-specific courses, as well as the SolarEdge Expert Trainingincreasing accessibility by creating a professional installation toolkit. During 2023, over 19,000 installers completed our certification program, which is only available to installers that have completed the Scholar program and provides them with in-depth knowledge of our products, further enhancing their ability to install SolarEdge products.programs.
Furthermore, in 2021, we conducted an organization wide, global and extensive training need analysis as preparation for a new training strategy implementation. The new training is designed to determine the needs of individual installers and offer them training programs tailored to these needs.
In addition, in 2021, we launched the SolarEdge energy bank battery certification path for installers. The certification is required for our installers to be able to install our full storage solution.
In 2021, we published over 120 new product training videos on our YouTube channel in multiple languages, which were viewed over 2 million times. Our mobile learning tools continue to be available to installers, assisting in improving their ability to quickly and efficiently install our products.
In addition to the above, we support our commercial system customers with design consulting throughout their sales process and installation.
Our technical support organization includes local expert teams, tech centers, an online service portal and live chat service. Our toll-free call and live chat centers are open Monday through Friday at least from 9:00 a.m. to 6:00 p.m. in every region in which we sell our products. In addition, customers can open and track support cases 24/7 utilizing our online portal. All support cases are monitored via a customer relationship management system in order to provide service, track closure of all customer issues and further improve our customer service. Our call centers have access to our cloud-based monitoring platform database, which enables real-time remote diagnostics.
Customer service and satisfaction continues to be a key component of our business offering and we consider it integral to our success in the future.continued success. We maintain high levels of customer engagement through our call centers in California, Australia, Japan, Israel, India, Bulgaria, Brazil, Taiwan, Thailand, South Africa, Philippines and Bulgaria. During 2021, we added an additional call center in Philippines, which is operated through a third party supplier, to better serve our customers in west coast, United States.Poland. In addition to our call centers, we have field service engineers located in the geographies where we are active, and support our customers with commissioning of large projects, introduction of new technologies and features and on-the-job training of new installers. As of December 31, 2021,2023, our customer support and training organization consisted of 626659 employees worldwide.
Our Technology
We have drawn on our expertise in the fields of power electronics, magnetic design, mechanical and heat dissipation, capabilities, control loops and algorithms, and power line communications and lithium-ion battery technology to design and develop what we believe to be the most advanced commercial solutions for harvesting power from solar PV, systems. Our advancedstorage and energy management solutions for residential and commercial applications. These technologies are explained in more detail below.
As part of our growth strategy, we have acquired companies that have technologies that can leverage our expertise in power electronics and power optimization. By combining acquired resources with our current research and development teams, we are expanding our activities into other essential areas such as e-Mobility, battery storageenergy IoT and energy storage systems.
Power optimizersOptimizers
Our power optimizersPower Optimizers are DC/DC step up/step down (buck boost) converters designed and developed to operate in harsh outdoor environments at very high conversion efficiency. Our power optimizersPower Optimizers include proprietary power electronics and control loops customized to efficiently convert power from the PV module to the inverter. The components are selected and the conversion topology is designed for the power optimizer specifications, and the power optimizer design is verified for consistent performance and reliability in numerous lab tests and simulations.
A key factor in the performance of our power optimizerPower Optimizer is determined by the digital control algorithms and closed-loop control mechanism. The power optimizer’sPower Optimizer’s control is built into our advanced ASIC which is responsible for all critical digital control functions of the power optimizer, including detailed power analysis, digital real-time control of the power conversion subsystem, power line communications and networking. Since each power optimizerPower Optimizer handles the power and voltage of either a single module,or two modules, we are able to reach a high degree of semiconductor integration by leveraging low costlow-cost silicon in standard semiconductor packages. As a result, much of the Power Optimizer functionality of our power optimizer can be integrated into a standard ASIC instead of use ofrequiring discrete electronic components, resulting in lower costs and higher reliability.
The ASIC performs the critical power analysis and power conversion control functions of the power optimizer.Power Optimizer. The power analysis functions process the state and working parameters at the power optimizer’sPower Optimizer’s input and output and, together with advanced digital control and state machine logic, control the power conversion function. In addition, our digital control system uses technology that allows the solar PV installation to anticipate and adapt to changing operating conditions, and to protect itself against system anomalies. In 2021, we incorporated our fourth generation ASIC in our new generation of power optimizers (S-series). In addition, we added cable temperature monitoring functionality to this new generation of optimizers to improve their safety.
Each power optimizerPower Optimizer in the array is connected to the inverter by a power line communications networking link. Our power line communications link uses a proprietary networking technology that we developed, utilizing the existing DC wiring between the power optimizersPower Optimizers and the inverter to transmit and receive data between these devices.devices using scalable technology supporting a wide range of installation sizes, from small residential to large commercial installations.
Inverters
Most of our inverters are designed for single-stage DC/AC conversion. Using our inverter in combination with the power optimizersPower Optimizers allows the inverter control loop to maintain a regulated DC voltage level at its input, thereby allowing forenabling the inclusion of long, uneven, and multi-faceted strings of solar modules while also enabling custom, cost efficient, and reliable inverter design and component selection. All of the power components, as well as the main magnetic components for our inverters, can then be optimized for DC/AC inversion at high efficiency.
Our inverters’ digital control algorithms are implemented using programmable digital signal processors which allow for flexibility and adaptation of control loops for various grids and for the requirements and standards of different grid operators across geographies. We have already implemented the control mechanisms necessary to support advanced grid codes and standards that are required to support high penetration of solar energy into utility grids. We continue to develop and manufacture our own DSP (ASIC) in our inverters which enables us to improve the performance of our control loops, increase our cost savings and be less dependent on third party suppliers in our manufacturing process. The DSP (ASIC) performs the critical power analysis and power conversion control functions of the inverter. The power analysis functions process the state and working parameters at the power inverter’s input and output, and together with advanced digital control and state machine logic controls the power conversion function. In addition, our digital control system uses technology that allows the inverter to anticipate and adapt to changing operating conditions, and to protect itself against system anomalies as well as comply with applicable regulations in the different regions in which we operate.
Our DSP (ASIC) is also in charge of the power line communications ("PLC") networking link.link towards the optimizers. Our PLC uses a proprietary networking technology that we developed, utilizing the existing DC wiring between the power optimizersPower Optimizers and the inverter to transmit and receive data between these devices.
We have developed and continue to develop in-house design and manufacturing capabilities for several major passive components, such as magnetic components, in order to decrease dependence on suppliers, improve component performance, reduce costs and have better control over our production processes.
Batteries for PV applications
In 2021, we released our first lithium-ion residential batteries for sale in the U.S. and Europe through our solar distribution channels. Our batteries are composed of lithium cells, a battery management system, ("BMS"),or BMS, bi-directional DC/DC high efficiency converter that allows charge and discharge of the battery, as well as user interface. Our DC/DC converter uses digital control algorithms, which are implemented using a programmable digital signal processor. Therefore, both theOur power products, inverter, Power Optimizers and battery and optimizers are connected to the same DC bus, allowing the battery to be directly charged by the DC current generated by the optimizersPower Optimizers and bypassing the AC conversion.conversion, thereby reducing the rounding efficiency of PV generated power towards the AC loads.
Our efficient DC-coupled battery is designed to connect with our single-phase inverters, (upallowing up to three batteries per inverter), and provides 9.7 kWh of backup power.inverter. Our batteries can be connected to our cloud‑based monitoring platform, reporting information on the battery status, solar production, and self-consumption data.
Manufacturing
We have designed our manufacturing processes to produce high quality products at competitive costs. The strategy is threefold: outsource, automate, and localize. We currently contract to have our solar products manufactured by two of the world’s leading global electronics manufacturing service providers, Jabil Circuit, Inc. (“Jabil”) and Flex Industrial Ltd. (“Flex”). By using contract manufacturers, we are able to access advanced manufacturing equipment, processes, skills and capacity on a “capitalrelatively “asset light” budget.budget while remaining flexible in our manufacturing operations and are able to enjoy the CM’s global reach and access to different manufacturing regions. Our contract manufacturers are responsible for funding some of the the capital expenses incurred in connection with the manufacture of our products, except with regard to some of the automated optimizer assembly lines, our proprietary end-of-line testing equipment and other specific manufacturing equipment utilized in assembling our products or sub-components which are financed and owned by the Company. We expect to continue this funding arrangement in the future, with respect to any expansions to such existing lines.lines save for circumstances where the direct purchase by us of non-specific manufacturing equipment will result in a substantial reduction in costs in which case we will consider financing such non-specific manufacturing equipment ourselves. Further, contracting with global providers, such as Jabil and Flex, gives us added flexibility to manufacture certain products inenjoy such manufacturers' global reach and access to different regions such as China and Vietnam, where we are able to manufacture closer to target markets in Asia, and the North American west coast, as well as other products in Hungary, closer to target markets in Europe, and the North American east coast, in each case, potentially increasing responsiveness to customers while reducing costs and delivery times. In addition,light of recent Inflation Reduction Act legislation in the United States which incentivizes the local manufacturing of renewable energy products by providing benefits to installers for the purchase and installation of US-manufactured products, as partwell as by incentivizing manufacturers of oursuch products domestically, we have begun manufacturing regionalization efforts, weinverters in Texas and are expanding ourcurrently establishing additional manufacturing capabilities within Florida for optimizers and inverters. With the ramp-up of these new sites and due to a newdecrease in demand for our products, we have reduced capacity in our manufacturing site in Mexico, which is planned to start volumeChina and discontinued manufacturing during the second half of 2022. Once ramped, we believe this site will significantly increase our capacity and give us further flexibility to manage growing demand.products in Mexico.
During 2021,In the third quarter of 2020, we reached fullbegan commercial shipments from our own manufacturing capacity in our manufacturing facility located in the North of Israel, “Sella 1”, from which we began commercial shipments to the U.S. of optimizers and inverters in 2020.1". The proximity of Sella 1 to our R&D team and labs enables us to accelerate new product development cycles as well as define equipment and manufacturing processes of newly developed products which can then be adopted by our contract manufacturers worldwide.
11During 2023, we expanded the manufacturing portfolio available for manufacturing in Sella 1.
In May 2022, we opened our own manufacturing facility, “Sella 2”, a 2GWh Li-Ion cell factory in Korea. “Sella 2” began producing and shipping cells at the end of 2022 and is expected to gradually increase manufacturing capacity during 2024, slightly behind the original plan. We also have an additional smaller lithium-ion cells and batteries facility in South Korea that has the capacity to manufacture up to 150 MWh per annum.
We have developed propriety automated assembly lines for the manufacturing of our power optimizers. These assembly lines, currently operating in all of our manufacturing facilities, enable the manufacturing of more than 5,0006,000 optimizers per machinemanufacturing line per day. We invest resources in additional automated assembly lines as well as in automated machinery for subassembly and self-manufacturing of certain components used in our products, and we own and are responsible for funding all of the capital expenses related thereto. The current and expected capital expenses associated with these automated assembly lines and other machinery is funded out of our cash flows.
We source our raw materials through various component manufacturers and invest resources in continued cost-reduction efforts as well as verifying second and third sources so as to limit dependence on sole suppliers.
Our Korean subsidiary, Kokam, has a manufacturing facility for lithium-ion cells and batteries that has the capacity to manufacture up to 150 MWh per annum. In 2020, we began construction of “Sella 2”, a 2GWh Li-Ion battery factory in Korea. The new factory is being constructed to meet the growing global demand for Li-Ion batteries, specifically in the energy storage system (ESS) and e-Mobility markets. Sella 2 is expected to begin operation in the second half of 2022.
SolarEdgeIn light of the Company’s decision to discontinue its LCV e-Mobility has aactivity, we began ramping down manufacturing and assemblyof e-Mobility components in our facility in Umbertide, Italy, towards the end of 2023. We are still using this facility for ourAutomation Machines, refurbishment of batteries and support of the e-Mobility division. Furthermore, during 2021, we began manufacturing a portion of our batteries for the SolarEdge e-Mobility business in Hungary.project.
Reliability and Quality Control
Our power optimizersPower Optimizers are either connected to each PV module by installers, or embedded in each PV module by PV module manufacturers. Our power optimizersand are designed to be as reliable as the PV module itself and capable of withstanding the same operating and environmental conditions.
Our reliability methodology includes a multi-level plan with design analysis, sub-system testing of critical components by Accelerated Life Testing, and integrative testing of design prototypes by Highly Accelerated Life Testing and large sample groups. As part of our reliability efforts, we subject components to industry standard conditions and tests including in accelerated life chambers that simulate burn-in, thermal cycling, damp-heat, and other stresses. We also conduct out of box audits (OBA) on our finished products. In addition, online reliability tests (ORT) are conducted on our optimizers and we test complete products in stress tests and in the field. Our rigorous testing processes have helped us to develop highly reliable products.
In order to verify the quality of each of our products when it leaves the manufacturing plant, each component, sub-assembly, and final product are tested multiple times during production. These tests include Automatic Optical Inspection, In-Circuit Testing, Board- FunctionalBoard-Functional Testing, Safety Testing, and Integrative Stress Testing. We employ a serial number-driven manufacturing process auditing and traceability system that allows us to control production line activities, verify correct manufacturing processes and to achieve item-specific traceability.
As a part of our quality and reliability approach, failed products from the field are returned and subjected to root cause analysis, the results of which are used to improve our product and manufacturing processes and design and further reduce our field failure rate.
Certifications
Our products and systems comply with the applicable regulatory requirements of the jurisdictions in which they are sold as well as all other major markets around the world. These include safety regulations, electromagnetic compatibility standards and grid compliance.
Research and Development
We devote substantial resources to research and development with the objective of developing new products and systems, adding new features to existing products and systems and reducing unit costs of our products and systems. Our development strategy is to identify software and hardware features, products, and systems for both software and hardware that reduce the cost and improve the effectiveness of our solutions for our customers. We measure the effectiveness of our research and development by metrics including product unit cost, efficiency, reliability, power output, and ease of use.
We have a strong research and development team with wide ranging experience in power electronics, semiconductors, power line communications and networking, chemical, mechanical and software engineering. In addition, many members of our research and development team have expertise in solar technologies. As of December 31, 20212023 our research and development organization had a headcount of 1,1051,525 employees.
Intellectual Property
The success of our business depends, in part, on our ability to maintain and protect our proprietary technologies, information, processes, and know-how. We rely primarily on patent, trademark, copyright and trade secrets laws in the U.S. and similar laws in other countries, confidentiality agreements and procedures and other contractual arrangements to protect our technology. As of December 31, 2021,2023, SolarEdge had 405602 issued patents worldwide and 397528 patent applications pending for examination. A majority of our patents relate to DC power optimization and DC to AC conversion for alternative energy power systems, power system monitoring and control, battery technology and management systems. Our issued patents are scheduled to expire between 20222024 and 2039.2042.
We continually assess opportunities to seek patent protection for those aspects of our technology, designs, and methodologies and processes that we believe provide significant competitive advantages.
We rely on trade secret protection and confidentiality agreements to safeguard our interests with respect to proprietary know-how that is not patentable and processes for which patents are difficult to enforce. We believe that many elements of our manufacturing processes involve proprietary know-how, technology, or data that are not covered by patents or patent applications, including technical processes, test equipment designs, algorithms, and procedures.
All of our research and development personnel are required to enter into confidentiality and proprietary information agreements with us. These agreements address intellectual property protection issues and require our employees to assign to us all of the inventions, designs, and technologies they develop during the course of employment with us.
Our customers and business partners are required to enter into confidentiality agreements before we disclose any sensitive aspects of our technology or business plans.
Competition
The markets for our solar products are competitive, and we compete with manufacturers of traditional inverters, as well as manufacturers of other MLPE systems. The principal areas in which we compete with other companies include:
| • | product and system performance and features; |
| • | total cost of ownership;ownership (TCO); |
| • | reliability and duration of product warranty; |
| • | customer service and support; |
| • | breadth of product line; |
| • | local sales and distribution capabilities; |
| • | compliance with applicable certifications and grid codes; |
| • | size and financial stability of operations; and |
Recent market trends show an increased focus on safety features in rooftop installations, and the emergence of standards that are evolving to address such concerns. In particular, the arc fault detection and interruption (AFDI) and rapid shutdown (RSD) standards in the US market, have led to the introduction of module-level rapid-shutdown devices from our competitors. We believe the existence of rapid shutdown capabilities built into our optimizersPower Optimizers positions us well in this regard, and could serveserves as a competitive advantage. Additionally, in 2020 we have seen PV module manufacturers introduce larger PV modules with higher power levels reaching over 600W. This market trend, which comes as a result of PV cell manufacturers introducing larger cell sizes such as M10 and M12 as well as different module build configurations, leads to market interest in higher power rating optimizers,Power Optimizers, micro inverters, and other MLPE devices. The increasing demand for storage and battery solutions is an additional noteworthy market trend which is expected to increase the attachment rate of storage to PV installations in the coming years.
Our DC optimized inverter system competes principally with products from traditional inverter manufacturers, such as SMA Solar Technology AG, ABBSungrow Power Supply Co., Ltd. and Huawei Technologies Co. Ltd. as well as from other Chinese inverter manufacturers. In the North American residential market, we compete with traditional inverter manufacturers such as Tesla Motors Inc., as well as microinverter manufacturers such as Enphase Energy, Inc. In addition, there are several new entrants to the MLPE market, including low-cost Asian manufacturers, have recently announced plans to ship or have already shipped similar products.manufacturers. We believe that our DC optimized inverter system offers significant technology and cost advantages that reflect a competitive differentiation over traditional inverter systems and microinverter technologies.
The markets for our energy storageEnergy Storage division products are competitive as well. The competition ranges from other cell manufacturers, both of Nickel Manganese Cobalt (NMC) and of Lithium Iron Phosphate (LFP), which are also vertically integrated and provide a partial or complete storage system as well as from integrators that are acquiring cells from different vendors and we compete withassemble their own storage system. Our competitors include global cell and battery manufacturers in the ESS market. Our energy storage solutions compete with products from global manufactures such as LG Energy Solutions, Samsung SDI, CATL, BYD and Panasonic.etc.
Our residential lithium-ion batteries for PV applications compete with global manufacturers of both lithium-ion and other residential battery storage solutions such as Tesla, LG Energy solutions, BYD and Enphase Energy.
In the UPS market, our UPS products compete with products and solutions from global UPS providers such as Schneider Electric, Eaton and Vertiv.
The vehicle e-Mobility component market is dominated primarily by manufacturers such as Robert Bosch GmbH, ZF Friedrichshafen AG, Dana Incorporated and Magna International. As the global e-Mobility market expands, major automotive manufacturers, such as Toyota, Honda, Tesla, General Motors, and Ford, have increased their investments in the electric and hybrid vehicle components in order to increase their market share.
Government Incentives
U.S. federal, state, and local government bodies as well as non-U.S. government bodies, provide incentives to owners, end users, distributors, and manufacturers of solar PV systems to promote solar electricity in the form of rebates, tax credits, lower VAT rate and other financial incentives such as system performance payments, payments for renewable energy credits associated with renewable energy generation, and exclusion of solar PV systems from property tax assessments. The market for on grid applications, where solar power is used to supplement a customer’s electricity purchased from the utility network or sold to a utility under tariff, often depends in large part on the availability and size of these government subsidies and economic incentives, which vary from time to time by geographic market.
In August 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the “IRA”), which contains several provisions intended to accelerate U.S. manufacturing and adoption of clean energy such as solar, wind, hydrogen and electric vehicles and therefore is expected to impact our business and operations. Some of the applicable provisions in IRA that are expected to positively impact the market for renewable energy include the extension of the investment tax credit (“ITC”) and the Production Tax Credit (“PTC") through 2034. The IRA also further incentivizes residential and commercial solar customers and developers through the inclusion of a tax credit for qualifying energy projects of up to 30%. These provisions of the law are new and regulations and guidance concerning their implementation are gradually being published by the U.S. Treasury Department. We continue to monitor the benefits that may be available to us. Section 45X of the IRA offers advanced manufacturing production tax credits, that incentivize the production of eligible components within the United States. To that end, we have established manufacturing capabilities in the United States in 2023 and announced additional capacity expected during 2024.
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.
Trade Regulation and Import Tariffs
Our business activities are subject to numerous laws and regulations in the jurisdictions in which we operate. Particularly, our exports and imports are subject to complex trade and customs laws, tax requirements and tariffs set by governments through mutual agreements or unilateral actions. Countries duties, tariffs or other restrictions on our imports or adversely modify existing restrictions. Changes in tax policies or trade regulations, the disallowance of tax deductions on imported merchandise, or the imposition of new tariffs on imported products, could have an adverse effect on our business and results of operations.
Escalating trade tensions between the United States and China have led to increased tariffs and trade restrictions, including tariffs applicable to some of our products. As of June 2019, the U.S. trade representative (“USTR”) imposed import tariffs of 25% on a long list of products imported from China, including inverters and power optimizers. On January 15, 2020, the United States and China entered into an initial trade deal, which preserves the initial tariffs from 2018 and indicates additional sanctions may be imposed if China breaches the terms of the deal.
In order to mitigate the negative effect of increased tariffs, we increased our manufacturing capabilities at our Vietnam manufacturing facility beginning in the fourth quarter of 2019.facility. We reached full manufacturing capacity in our manufacturing facility in Israel, Sella 1 and are planning to start volume. In addition, as mentioned above, we established manufacturing capabilities in Mexico during the second half of 2022.United States. For the year ended December 31, 2021,2023, the majority of our products being imported to the U.S. arewere manufactured in Mexico, Vietnam, Israel and Hungary and arewere therefore not subject to the aforementioned tariffs.
Seasonality
The solar energy market is subject to seasonal and quarterly fluctuations affected by weather. For example, during the winter months in Europe and the northeastern U.S. where the climate is particularly cold and snowy, it is typical to see a decline in PV installations and this decline can impact the timing of orders for our products.
Sustainable, Responsible and Transparent Business Practices
During 2021,2023, we continued making progress in our Environmental, Social and Governance ("ESG") performance and disclosure. Our ESG practices are guided by our social purpose: “To power the future of energy so we can all enjoy better living and a cleaner, greener future.”,future” and our social mission: “Shaping the future of sustainable energy production, energy storage and e-mobility through innovation”. We have crafted a comprehensive sustainability strategy with 2025 targets in several areas. Our thirdfifth annual Sustainability Report, published in 2021, meets the requirements of2023, was prepared in alignment with leading global sustainability disclosure standards, GRI (Global Reporting Initiative) and SASB (Sustainability Accounting Standards Board) aligning our disclosure with leading corporations around the world and with the expectations of investors and other stakeholders.. Our sustainability strategy includes the following pillars:
• | Powering Clean Energy: Accelerating the uptake of clean energy, delivering new smart energy, innovative solutions and improving the lifecycle impacts of our products. As a business founded upon the acceleration of clean energy, we strive to reduce our climate impact by minimizing GHG (greenhouse gas) emissions and transitioning to renewable electricity usage in our facilities. In 2021, we conductedWe have completed a first lifecycle analysis for three of our key products, examining the carbon footprint of all product life stages. Thestages and following the examination of the results of such analysis has recently been conducted, and we are currently examining its results, as well as consideringwere able to highlight possible reduction opportunities. Furthermore, we have set a target of reducing 30% of our Scope 1+2 GHG emissions per revenue, by 2025 (compared with the 2020 basis). We have set another target of achieving near-zero e-wastetaken significant efforts to reduce energy and resource consumption in our sites, reducing related GHG emissions. We continue to act to recycle our e-waste. We also act to minimize landfill by 2025. In 2020,for all waste types, and in 2022, a total of 85%88% of all waste at our owned and operated sites was recycled.either recycled or recovered to energy (2023 figures are currently in examination and will be published in our upcoming sustainability report). |
• | Powering People: Maintaining leading responsible employment practices, upholding human rights and investing in communities. In 2021,2023, we increasedcontinued to expand our workforce to support SolarEdge’s business growth, and maintained responsible employment practices, including an enhanced focus on safety.safety and on employee growth and development. We set quantitative targets and formulated multi-year programs to enhance gender equality in accordance with equal opportunities laws within our workforce and to strengthen its inclusiveness, including by reaching over 150 women in management roles. (see further details in "Human Capital" below). Also in 2021,2023, we published a new statement on human rights in Xinjiang, China, confirming that we do not maintain any manufacturing facilities in, or source any material directly from, this region, as well as our commitment to taking necessary actions to prevent any connection between SolarEdge and human rights abuses in China, as in any other region. We continued to donate to causes that support technologyenhance our community engagement program. Our updated program focuses on the advancement of renewable energy for environmental community value, encouraging STEM education and other social causes in areas in which we haveyouth innovation and strengthening diverse populations. A prominent example is our long-term educational program, EDGEUcate, aimed to raise awareness and educate children from a presence.young age on sustainable practices and the role of solar energy on the global efforts of decarbonization. |
• | Powering Business: Maintaining and reinforcing ethical conduct throughout our value chain, advancing climate resilience, improving the efficiency of our resource consumption and ethical sourcing of raw materials and components. In 2021 we published ourOur supplier code of conduct ("SCoC"), which includes provisions regarding, among others, ethics, safety, environmental protection, human rights, and fair employment. As of December 31, 2021,2023, over 100280 key suppliers have signed their acknowledgment of the SCoC terms. In 2021,To date, we also conducted on-site audits of threefour contract manufacturers and onethree major raw material supplier of ourssuppliers in connection with their compliance with the SCoC requirements, and are aiming to further expand these efforts in 2022.2024. In addition, our conflict-minerals practices involve engaging our suppliers to evaluate the traceability of their upstream sources. |
We believe that our sustainability strategy aligns directly with 10 United Nations Sustainable Development Goals (SDGs), and our products and activities are most critical to achievement of SDG #7, Affordable Clean Energy.
Human Capital
We believe our success depends on our ability to attract and retain outstanding employees at all levels of our business. As of December 31, 2021,2023, we had 3,9645,633 employees (full time and part time). Of these employees, 1,1051,525 were engaged in research and development, 453689 in sales and marketing, 2,0522,857 in operations, production, Q&R, and support, and 354562 in general and administrative capacities. Of our employees, 2,1893,160 were based in Israel, 483746 were based in Europe, 725 were based in Korea, 262326 were based in the U.S., 187U.S and 676 were based in the remaining countries in which we operate including China, 253 were based in Italy,Vietnam, India, Mexico, Australia and an additional 590 were based elsewhere.others.
Except for our SolarEdge Automation Machines employees and the employees of SolarEdge e-Mobility, none of our employees are represented by a labor union. We have not experienced any employment-related work stoppages, and we consider relations with our employees to be good.
Recruitment: As a rapidly growing business, we rely on the success of our recruitment efforts to attract and retain technically skilled people who can support our ongoing innovation and expansion. We aim to be inclusive in our hiring practices, focusing on the best talent for the role, welcoming all genders, nationalities, ethnicities, abilities and other dimensions of diversity.
Employee benefits: We aim to provide our employees with competitive salary and benefits that enable them to achieve a good quality of life and plan for the future. Our benefits differ according to local norms and market preferences, but typically include all salary and social benefits required by local law (including retirement saving programs, paid vacation and sick leave) and many additional benefits that go beyond legal requirements in local markets.
Leadership, Training and Development: We aim to provide our employees with advanced professional and development skills, so that they can perform effectively in their roles and build their capabilities and career prospects for the future. We maintain a leadership program for managers and team leaders and deliver advanced professional training for sales, research and development and other functional teams as part of our extensive training program each year. Furthermore, we partner with local educational resources to offer formal learning programs on a variety of subjects for the personal development and advancement of our workforce.
Diversity, Equity and Inclusion: During the past three years, we have more than doubled the total number of women in our organization, adding women at all levels. We are striving to increase the presence ofopportunities for women in executive and management positions as part of our 2025 targetmission to promote gender parity and equal pay.pay in accordance with equal opportunity laws.
We are taking active steps to increase the diversity of our workforce and promote inclusiveness ofamong our employee base. We have been providing training and promoting education to create awareness and encourage inclusive practices across our global workplaces. For example, we have conducted foundational diversity and inclusion training for both managers and employees, training on the inclusion of people with disabilities in 2021, we engaged in several partnerships with social organizations in Israel, designed to increase our recruitment of candidates from the Arab-Israeli population, ultra-orthodox women,workplace, as well as hosting workshops, lectures, and individuals with disabilities.webinars on various topics such as valuing diversity and fostering respectful and positive interactions. Additionally, in 2021, as part of our commitment to creating a platform forenhance gender equalizationequality within theour workforce, we initiatedmaintained partnerships with NGOs to enhance our pool of female candidates for tech roles and to encourage more women to take up tech-related careers. We conducted an annual analysis of our gender pay gap to identify and work on closing any gaps, and we launched a global program forinternal Women's Day campaign called "Towards Gender Equality." The campaign included lectures by women in executive roles from SolarEdge and other global businesses to empower and inspire women. We also helped foster mentoring relationships among our female employees and managers across various professional fields and geographical regions within SolarEdge. Over 50 women from sites around the professional development of key talent among women within the Company.globe have successfully completed these programs in 2023.
Workplace safety and health: We believe that all accidents and injuries at work are preventable and we strive to achieve a zero-injury culture across our offices and operations. WeOur safety practices are designed to comply with applicable occupational health and safety regulations and are certified to Occupational Health and Safety Quality Management Standard ISO 45001:2018. Our injury rates are low.
During the Covid-19 pandemic, we have been offering mostsafety practices include: nominated safety officers at each of our manufacturing or R&D sites, mandatory annual safety training for all employees, the flexibility to work remotely when possiblemandatory job-specific training for all employees in relevant roles (e.g., for those working in high-voltage labs), comprehensive safety, fire, and have implemented rigorous hygiene and social distancing practices in the workplace. We also offeremergency drill programs so that our employees free antigen testing. Additionally, we provide resources to our employees, such as informationare well-versed with emergency procedures and subsidized counseling for a large populationroot-cause assessments of our employees, to address the psychological challenges caused by the pandemic.incidents and corrective actions.
Corporate Information
We were incorporated in Delaware in 2006. Our principal executive offices are located at 1 HaMada Street, Herziliya Pituach 4673335, Israel and our telephone number at this address is 972 (9) 957-6620. Our website is www.solaredge.com.
We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (the “SEC”), pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”). Our reports, proxy statements and other documents filed electronically with the SEC are available at the website maintained by the SEC at www.sec.gov.
We use the Investor Relations portion of our website at www.solaredge.com, as a routine channel of distribution of important information such as press releases, analyst presentations, corporate governance practices and corporate responsibility information, financial information including our annual, quarterly, and current reports, our proxy statements, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the SEC. We also make available on the Investor Relations portion of our website at www.solaredge.com our earnings presentation and other important information, which we encourage you to review. All such postings and filings are available on our Investor Relations website free of charge.
Information contained on our website is not incorporated by reference into this Annual Report, and you should not
consider information contained on our website as part of this Annual Report.
Risk Factors Summary
The following summarizes the principal factors that make an investment in our company speculative or risky, all of which are more fully described in the Risk Factors section below. This summary should be read in conjunction with the Risk Factors section and should not be relied upon as an exhaustive summary of the material risks facing our business. The order of presentation is not necessarily indicative of the level of risk that each factor poses to us.
We face risks related toWhen evaluating our business, you should carefully consider the risks, events and our industry, including those related to:
| • | Our ability to maintain our current level of profitability.
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| • | The rapidly evolving and competitive nature of the solar industry.
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| • | Demand for solar energy solutions.
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| • | The dependence of our e-Mobility business on orders from a leading automotive manufacturer.
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| • | The impact of declines in the retail price of electricity derived from the utility grid or from alternative energy sources.
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| • | The impact of increases in interest rates or tightening of the supply of capital on the ability of end-users to finance the cost of a solar PV system.
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| • | The impact of increased competition as new and existing competitors introduce power optimizers, inverters, solar PV system monitoring and other smart energy products.
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| • | Developments in alternative technologies or improvements in distributed solar energy generation.
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| • | The cyclicality of the solar industry.
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| • | Defects or performance problems in our products.
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| • | Our dependence on a small number of outside contract manufacturers.
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| • | Any delays, disruptions, or quality control problems in our manufacturing operations.
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| • | Our dependence on a limited number of suppliers for key components and raw materials in our products to adequately meet anticipated demand.
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| • | Our reliance on distributors and large installers to assist in selling our products.
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| • | Mergers in the solar industry among our current or potential customers.
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| • | Our planned expansion into new geographic markets or new product lines or services.
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| • | Our ability to build our non-solar businesses and manage future growth effectively.
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| • | Our 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.
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| • | Any unauthorized access to, disclosure, or theft of personal information we gather, store, or use.
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| • | Attempts by third parties, our employees, or our vendors mighty to gain unauthorized access to our network or seek to compromise our products and services.
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| • | Our entry into business engagements with military bodies as our customers.
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| • | Our ability to successfully execute future acquisitions or be effective in integrating such acquisitions.
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| • | Any damage or injury caused by Lithium-Ion used in our battery cells and packs.
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| • | Conditions in Israel that may affect our operations.
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| • | Difficulties in enforcing 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.
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| • | The ongoing Covid-19 pandemic.
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| • | Our dependence on ocean transportation to deliver our products in a timely and cost efficient manner.
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| • | Fluctuations in currency exchange rates.
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| • | Issues related to corporate social responsibility
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We face risks related to legal, compliance and regulatory matters, including those related to:
| • | Any reduction, elimination or expiration of government subsidies and economic incentives for on-grid solar electricity.
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| • | Changes to net metering policies.
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| • | Technical and economic barriers to the purchase and use of solar PV systems resulting from current or future regulations.
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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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We face risks related to the ownership of our common stock, including those related to: Related to the Ownership of Our Common Stock
| • | 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 factorsuncertainties described above should be readbelow 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 statements10-K. The events and the related notes, as well asconsequences discussed 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 alsothese risk factors could 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.results in the future.
Risk Factors Summary
The following summarizes the principal factors that make an investment in our company speculative or risky. This summary should be read in conjunction with the full risk factors discussed below and should not be relied upon as an exhaustive summary of the material risks facing our business. The order of presentation is not necessarily indicative of the level of risk that each factor poses to us.
We face risks related to our business and our industry, including those related to:
• | Our ability to be profitable in the future. | |
• | The rapidly evolving and competitive nature of the solar industry, which makes it difficult to evaluate our future prospects. | |
• | Fluctuations in demand for solar energy solutions, including if demand for solar energy solutions does not resume growth or grows at a slower rate than anticipated, and our ability to accurately forecast customer demand. | |
• | Macroeconomic conditions in our domestic and international markets, as well as inflation concerns, instability of financial institutions, rising interest rates, and recessionary concerns. | |
• | The impact of declines in the retail price of electricity derived from the utility grid or from alternative energy sources. | |
• | The impact of increases in interest rates or tightening of the supply of capital on the ability of end-users to finance the cost of a solar PV system. | |
• | The impact of increased competition as new and existing competitors introduce power optimizers, inverters, solar PV system monitoring, batteries and other smart energy products. | |
• | Developments in alternative technologies or improvements in distributed solar energy generation. | |
• | The cyclicality of the solar industry. | |
• | Defects or performance problems in our products. | |
• | Our dependence on a small number of outside contract manufacturers, including difficulties ramping production with new contract manufacturers. | |
• | Any delays, disruptions, or quality control problems in our manufacturing operations. | |
• | Our dependence on a limited number of suppliers for key components and raw materials in our products to adequately meet anticipated demand. | |
• | Disruptions to our global supply chain and rising prices of oil and raw materials due to the conflict between Russia and Ukraine. | |
• | Our reliance on distributors and large installers to assist in selling our products, and the failure of these customers to perform as expected. | |
• | Mergers in the solar industry among our current or potential customers. | |
• | Our planned expansion into new geographic markets or new product lines or services. | |
• | Our ability to build our non-solar businesses and manage future growth effectively. | |
• | Discontinuance of our e-Mobility business, resulting in the write-off of tangible and intangible assets. | |
• | Our ability to recognize expected benefits from cost reduction and restructuring. | |
• | Any unauthorized access to, disclosure, or theft of personal information we gather, store, or use. | |
• | Attempts by third parties, our employees, or our vendors to gain unauthorized access to our network or seek to compromise our products and services. | |
• | Our entry into business engagements with military bodies as our customers in the lithium-ion battery and energy storage business. | |
• | Our entry into adjacent markets through recent acquisitions and risks associated with acquisitions, including our ability to be effective in integrating such acquisitions. | |
• | Disruption to our business operations as a result of war and hostilities in Israel and other conditions in Israel that affect our operations. | |
• | The tax benefits that are available to us under Israeli law that require us to meet various conditions and may be terminated or reduced in the future, which could increase our costs and taxes. | |
• | Difficulties in enforcing 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. | |
• | Our dependence on ocean transportation to deliver our products in a timely and cost-efficient manner. | |
• | Fluctuations in currency exchange rates. | |
• | Corporate social responsibility and sustainability, including the impact of evolving legal and regulatory requirements. | |
• | Complications with the design or implementation of our new ERP system. | |
• | Natural disasters, public health events, significant disruptions of information technology systems, data security breaches, or other catastrophic events. | |
We face risks related to legal, compliance and regulatory matters, including those related to:
• | Any reduction, elimination or expiration of government subsidies and economic incentives for on-grid solar electricity applications. | |
• | Any change in or elimination of regulatory treatment, or guidance related to, or an inability to ramp up production to benefit from incentives under the IRA. | |
• | Changes to net metering policies. | |
• | Existing electric utility industry regulations and changes to regulations, which may present technical regulatory, and economic barriers to the purchase and use of solar PV systems. | |
We face risks related to intellectual property, including those related to:
• | 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 our Notes and the ownership of our common stock, including those related to:
• | 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 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. |
• | Our ability to raise additional capital to execute on our current or future business opportunities. |
• | Our lack of plans to pay any cash dividends on our common stock in the foreseeable future. |
• | Our share repurchase program. |
Risk Factors
Risks related to Our Business and Our Industry
We cannot be certain that we will sustain our current level of profitabilitybe profitable in the future.
We achieved a net profit of $34.3 million and $93.8 million for the years ended December 31, 2023 and 2022 respectively. Maintaining profitability in the currently volatile market may not be sustainable over time. 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 our Annual Report on Form 10-K for the year ended December 31, 2022. Conversely, in the third quarter of 2023, we experienced a slowdown in the demand for our products and during the second part of the third quarter of 2023, we experienced substantial unexpected cancellations and push outs of existing backlog from our European distributors. As a result, revenues in 2023 were significantly lower than the Company expected.
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 and services 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;products and services; |
| • | 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. |
Demand for solar energy solutions fluctuates, and if demand for solar energy solutions does not continue to growresume growth or grows at a slower rate than anticipated, or if we are unable to accurately forecast customer demand, 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 and services will decrease, resulting in an adverse impact on our ability to increase our revenue and grow our business.
Additionally, there is fluctuating demand for solar energy solutions and we manufacture our products according to our estimate of future customer demand. We have experienced, and may in the future continue to experience, excess or shortages of product inventory as a result. This process requires us to make multiple forecasts and assumptions relating to the demand of our distributors, their end customers and general market conditions. Because we sell most of our products to distributors, who in turn sell to their end customers, we have limited visibility as to end-customer demand. We depend significantly on our distributors to provide us visibility into their end-customer demand, and we use these forecasts to make our own forecasts and planning decisions. If the information from our distributors turns out to be incorrect or incomplete, then our own forecasts may also be inaccurate. Furthermore, we do not have long-term purchase commitments with most of our distributors or end customers, and our sales are generally made by purchase orders that may be canceled, changed or deferred without notice to us or penalty. As a result, it is difficult to forecast future customer demand to plan our operations.
The cancellation or deferral of product orders, or overproduction due to a change in anticipated order volumes could result in us holding excess or obsolete inventory, which could result in inventory write-downs and, in turn, could have a material adverse effect on our financial condition. For example, in the second part of 2023, the solar industry began to experience a downturn, particularly in Europe, and we experienced substantial unexpected cancellations and push outs of existing backlog from our European distributors. This was a result of operational challenges in the later part of 2022, followed by record level shipments in the first half of 2023 and slowing market demand in the third quarter of 2023 as distributors began to experience financial challenges. We may have to make significant provisions for inventory write-downs based on events that are currently not known, and such provisions or any adjustments to such provisions could be material. We may also become involved in disputes with our suppliers who may claim that we failed to fulfill forecast or minimum purchase requirements.
Conversely, if we underestimate demand, we may not have sufficient inventory to meet end-customer demand, and we may incur excess costs related to expedited deliveries, lose market share, damage relationships with our distributors and end customers, harm our reputation and forego potential revenue opportunities. Obtaining additional supply in the face of product shortages may be costly or impossible, particularly in light of supply chain disruptions and our outsourced manufacturing processes, which could prevent us from fulfilling orders in a timely and cost-efficient manner or at all. In addition, if we overestimate our production requirements, our contract manufacturers may purchase excess components and build excess inventory. If our contract manufacturers, at our request, purchase excess components that are unique to our products and are unable to recoup the costs of such excess through resale or return or build excess products, we could be required to pay for these excess parts or products and recognize related inventory write-downs.
In addition, we plan our operating expenses, including research and development expenses, hiring needs and inventory investments, in part on our estimates of customer demand and future revenue. If customer demand or revenue for a particular period is lower than we expect, we may not be able to proportionately reduce our fixed operating expenses for that period, which would harm our operating results for that period.
Macroeconomic conditions in our domestic and international markets, as well as inflation concerns, instability of financial institutions, rising interest rates, and recessionary concerns may adversely affect our industry, business and financial results.
Our business depends on the overall demand for our solar energy products and on the economic health and willingness of our customers and potential customers to make capital commitments to purchase our products and services. As a result of macroeconomic or market uncertainty, including inflation concerns, rising interest rates, recessionary concerns, and geopolitical conflicts, customers may decide to delay purchasing our products and services or not purchase at all. In addition, a number of the risks associated with our business, which are disclosed in these risk factors, may increase in likelihood, magnitude or duration, and we may face new risks that we have not yet identified.
The current revenues generated from our e-Mobility business are dependent on orders fromIn the past, unfavorable macroeconomic and market conditions have resulted in sustained periods of decreased demand. Macroeconomic and market conditions could be adversely affected by a leading automotive manufacturer. The automotive industry is facing significant shortagesvariety of components for their assemblypolitical, economic or other factors in the U.S. and their slowdowninternational markets, which could, in manufacturingturn, adversely affect spending levels of installers and end users and could delay orders of our powertrain kits.create volatility or deteriorating conditions in the markets in which we operate. Macroeconomic uncertainty or weakness could result in:
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 occur again in 2022 and cause delays of orders for our powertrain units and an accumulation of inventory related to the production of these products, which in turn may have an adverse effect on our revenues, profitability and other financial results from this business. | • | reduced demand for our products as a result of constraints on capital spending for residential solar energy systems by our customers; |
| • | increased price competition for our products that may adversely affect revenue, gross margin and profitability; |
| • | decreased ability to forecast operating results and make decisions about budgeting, planning and future investments; |
| • | business and financial difficulties faced by our suppliers or other partners, including impacts to material costs, sales, liquidity levels, ability to continue investing in their businesses, ability to import or export goods, ability to meet development commitments and manufacturing capability; and |
| • | increasedoverhead and production costs as a percentage of revenue. |
Additionally, projectsReductions in the automotive industry are long termcustomer spending in response to unfavorable or uncertain macroeconomic and involvemarket conditions, globally or in a long qualification process. Our e-Mobilityparticular region where we operate, would adversely affect our 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, profitabilityresults of operations and other financial results from the e-Mobility business.condition.
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; |
• | 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 the 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, anAn 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,During 2022 and 2023, record levels of inflation have resulted in significant volatility and disruptions in the continuous effectsglobal economy. In response to rising inflation, central banks in the markets in which we operate, including the U.S. Federal Reserve and the European Central Bank, have tightened their monetary policies and raised interest rates. Such measures have adversely impacted the demand for our products which may continue if there is a period 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.sustained heightened inflation.
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, batteries 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,U.S., 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 solutionstorage batteries as well as solutions to the rapid shutdown functionality which has become a regulatory requirement for PV rooftop solar systems in the United States.U.S. 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 StatesU.S. and Europe. The solar industry has historically been cyclical and has experienced periodic downturns which have affected and may in the future 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. For example, in the second part of 2023, the solar industry began to experience a downturn, particularly in Europe, which led to a large amount of requests to cancel or push out orders and the buildup of significant backlog for our products. 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.
Furthermore, defective components may give rise to warranty, indemnity, or product liability claims against us that exceed any revenue or profit we receive from the affected products. 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 isbatteries are still relatively new on the market and we do not have the experience in servicing this productthese products yet.
If 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.
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, including difficulties ramping production with new 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 facilityfacilities 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. 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. The location of these facilities outside of key markets such as the U.S. increases shipping time, thereby causing a long lead time between manufacturing and delivery. 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.manner.
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. For example, in light of the IRA, legislation in the United States that incentivizes the local manufacturing of renewable energy products by providing benefits to installers for the purchase and installation of U.S.-manufactured products as well as by incentivizing manufacturers of such products domestically, we have engaged two contract manufacturers in the U.S. Our ability to ramp up production with these contract manufacturers in a timely manner, and to realize the benefits from the IRA as planned, is dependent upon supply times of equipment deliveries and readiness of the assembly lines, recruitment and training of the necessary work force, ramp up of the assembly lines and the quality of the initial production.
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. Moreover, we rely on suppliers in China for certain key components, and rising tensions between China and other countries could damage our relationships with these suppliers. 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.
In addition, given our dependence on suppliers in China, changes in international trade policies, tariffs, or trade disputes could significantly and adversely affect our business, revenues, margins, results of operations, and cash flows.
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 huband commercial battery for production of which we rely on a single source for supply of the lithium ion cells .lithium-ion 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, in 2021 and 2022, we continue to experienceexperienced raw material shortages due to increased lead time which may affectaffected our ability to timely receive certain components within the previously expected lead times. TheseIf this were to reoccur, such shortages maycould 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. Disruption in our global supply chain and rising prices of oil and raw materials as a result of the conflict between Russia and Ukraine may adversely affect our businesses and results of operations.
The conflict that began between Russia and Ukraine in late February 2022 may significantly amplify 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 in oil prices that will in turn cause overall shipping costs to rise. In addition, the governments of the U.S., 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.x2.aa 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 harmcould negatively impact our revenue and results of operations.
In the second half of 2023 and into 2024, with the downturn of the renewable energy demand, some players in the market have announced exiting the solar market and others have shown signs of financial distress. For example, in January 2024, ADT announced that it was exiting the residential solar business completely after having bought Sunpro Solar in 2021. ADT was not a customer of SolarEdge, but the trend could continue and SolarEdge customers could also decide to exit the solar business. Some of our customers and some installers who purchase our products from distributors have shown signs of financial distress and some have requested and received extended payment terms or loans from us. If these installers and distributors become insolvent or if some of their customers fail to pay our distributors for products sold by such distributors, we may need to write off some of their debt to us and we may suffer harm to our business, financial condition, 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. In addition, in December 2021, Stem Inc., a storage software and services company acquired AlsoEnergy, a solar asset management software company. If this consolidation continues and impacts our customers, 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 manage 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 experiencedspent significant resources in the past five years on organic and non-organic 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 788,411 inverters and 18.6 million power optimizers in the year ended December 31, 2021. We intend to continueorder 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.
Conversely, the recent decline in demand for our products requires us to be flexible and react rapidly to changes in market conditions for example by reducing manufacturing capacity and decreasing expenses where growth has slowed down while retaining the ability to quickly increase manufacturing capacity should conditions change. 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. For example, in January 2024, we announced adoption of a restructuring plan in response to challenging industry conditions that included a reduction in workforce.
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 changes in the downturn and upturn in our growth,industry swiftly and efficiently, we may be unable to take advantage of market opportunities when they arise, 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 and changes in demand could adversely impact our business and reputation.
Conversely,We have discontinued our e-Mobility business, resulting in the global pandemicwrite-off of tangible and resulting economic downturnintangible assets.
In October 2023, the Company decided to discontinue its LCV e-Mobility activity related to the supply of products to its sole customer, Stellantis. Our e-Mobility business currently does not have additional substantial projects in many regions requirethe pipeline, and we do not plan to engage additional customers or generate revenues from the e-Mobility business. We have therefore discontinued this business. In the year ended December 31, 2022, we impaired goodwill and intangible assets related to our ability to be flexiblee-Mobility business (see Notes 8 and decrease expenses where growth has slowed down. Our ability to timely react to market conditions is not always9 of the financial statements for additional information) and in the year ended December 31, 2023 we impaired tangible assets including machinery and inventory write-off (see Note 24 of the financial statements for additional information). Such impairment charges have had negative impact on our controloperating results and any inability to do so could also adversely impact our business.related financial statements.
We may not have the ability to raise the funds necessary to settle conversion ofrealize expected benefits from our Convertible Senior Notes or Notes in cash or to repurchase the Notes upon a fundamental change,cost reduction and restructuring efforts, and our future debt may contain limitations onprofitability or our ability to pay cash upon conversion of the Notes or to repurchase the Notes.business otherwise might be adversely affected.
HoldersIn order to operate more efficiently and cost effectively, we have, and we may from time to time, adjust employment levels, optimize our footprint and/or implement other restructuring activities. For example, in January 2024, we announced adoption of a restructuring plan in response to challenging industry conditions, including a reduction in workforce. These activities are complex and may involve or require significant changes to our operations. If we do not successfully manage these activities, expected efficiencies and benefits might be delayed or not realized. Risks associated with these actions and other workforce management issues include: unfavorable political responses and reputational harm; unforeseen delays in the implementation of the Notes haverestructuring activities; additional costs; adverse effects on employee morale; the rightfailure to require usmeet operational targets due to repurchase allthe loss of employees or a portionwork stoppages; and difficulty managing our operations during or after facility consolidations, any 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. Wewhich 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,impair our ability to repurchase the Notesachieve anticipated cost reductions, harm our business or to payreputation, or have a material adverse effect on our competitive position, results of operations, cash upon conversions of the Notes may be limited by law, regulatory authorityflows 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.financial condition.
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 cybersecurity incidents 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 may also share information with contractors and third-party providers to conduct our business. Although such contractors and third-party providers typically implement encryption and authentication technologies to secure the transmission and storage of data, those third-party providers may experience a significant data security breach, which may also detrimentally affect our business, results of operations, and financial condition.
As detailed in Item 106 - Cybersecurity, 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. BecauseAs such, while we have not experienced a material cybersecurity incident to date, a material cybersecurity incident could materially affect our operations and production, including our ability to produce goods or provide services and our ability to timely and accurately produce financial reports. In addition, 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 third 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), and other state and federal laws in the U.S., which cameare already in effect or are coming into effect November 1, 2021.between 2024 and 2026. If any such unauthorized use manipulation, corruption, loss, or disclosure of, or access to, such personal information were to occur, our operations could be seriously disrupted, including the inability to render services due to system outages, 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, anyAny 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. Any of the foregoing may be exacerbated by a delay or failure to detect a cybersecurity incident or the full extent of such incident. We may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future. In addition, our liability insurance, which includes cyber insurance, might not be sufficient in type or amount to cover us against claims related to security incidents, cyberattacks and other related incidents.
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 of these incidents 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-securitycybersecurity 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-securityCybersecurity 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 entry into adjacent markets through recent acquisitions is new and highly competitive and it is difficult to evaluate our future in these new markets. 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 integratinginvestments including our ability to effectively integrate such acquisitions.
Our non-solar businesses in adjacent markets, such as energy storage, 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. For example, in October 2023, we decided to discontinue our light commercial vehicle e-Mobility ("LCV") activity related to the supply of products to the sole customer and do not plan to be active in the e-Mobility business in 2024. The viability and demand for our products and services may be affected by many factors beyond our control, including:
| • | cost competitiveness, reliability and performance of storage solutions, including the price of raw materials for battery cells and the manufacturing costs of battery cells, packs and containers; |
| • | competing new technologies at more competitive prices than those we offer for our products and services; |
| • | prices of traditional carbon-based energy sources; and |
| • | the emergence, continuance or success of, or increased government support for, other alternative energy generation and storage technologies and products. |
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 usedDisruption to our business operations as a result of war and hostilities in our battery cellsIsrael 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, 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 mayother conditions in turn cause a thermal eventIsrael 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 and is currently 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. OngoingThe state of hostility varying in degree such as rocket fire from the Gaza Strip, has occurred on an irregular basis, disruptingdisrupts day-to-day civilian activity and negatively affectingaffects our business conditions. We cannot predict whether
Violence between Hamas and Israel intensified on October 7th, 2023 when the terrorist group launched an unprecedented attack on Israel. On October 8, 2023 the Israeli Government declared that the Security Cabinet of the State of Israel approved a war situation in Israel. Since our headquarters and most of our employees operate from Israel, the state of war has disrupted and is continuing to disrupt our business operations. This situation has impacted the availability of our workforce, as part of our workforce in Israel, where we are headquartered, have been called into active reserve duty. In November 2023, the Houthis, a rebel Shi'a group in Yemen began attacking international shipping lanes in the red sea forcing commercial ships to redirect away from the Bab al Mandab Strait and find alternative longer and safer travel routes. If this situation continues or when such armed conflictsintensifies shipment costs and energy prices may increase which in turn may have an impact on the Company as well as on the global economy. While our offices and facilities are open worldwide, including in Israel, and, to date, we have not had disruptions to our ability to manufacture and deliver products and services to customers, a prolonged war or attacks may occur oran escalation of the extent to which such events may impact us. Anycurrent conditions in Israel could materially adversely affect our business, financial condition, and results of operations.
In addition, 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 escalation of the current war situation or others, 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 disruptingdisrupt 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 current or future 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.
In that regard, since the start of the war on Hamas, we have become aware of pressure being placed on our customers not to engage in business with us due to our affiliation with Israel. In addition, foreign policy could be negatively impacted with regard to Israel. If these pressures intensify or continue to occur, they could impact our business with suppliers and customers which could in turn adversely impact our reputation, results of operations or financial condition.
Additionally, in 2023, the Israeli government 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. .. Although the Israeli Supreme Court partially struck down these plans, the current government has vowed to make other changes to law that limit the powers of the Supreme Court. If such government plans are eventually enacted, they may cause operational challenges for us since we are headquartered in Israel and many of our employees are located in Israel.
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 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 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.
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 effectiveness of Covid-19 vaccination, especially in light of its recent, more contagious mutation.
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. Additionally, we are impacted by storage prices that have increased in the past year.
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 or shipment constraints, 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.
InWhile we witnessed a reduction in shipment rates in the fourth quarter of 2022, during the year ended December 31, 2021,2022, we experienced and continue to experience an increase in the cost of goodsrevenues 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 out2023, we experienced increased storage fees, associated with higher levels of China, cancelled allocations of containersinventory and general increases in pricing 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.storage.
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%68.2% of our revenues in the year ended December 31, 20212023 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- 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, liabilities and liabilitiescertain transactions 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.responsibility and sustainability, including the impact of evolving legal and regulatory requirements.
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. At the same time, stakeholders and regulators have increasingly expressed or pursued opposing views, legislation, and investment expectations with respect to sustainability initiatives, including the enactment or proposal of “anti-ESG” legislation or policies in certain U.S. jurisdictions. 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,ESG-related, reporting standards and disclosure requirements continue to develop, we may incur increasing costs related to ESG monitoring and reporting. For example, in March 2022, the U.S. Securities and Exchange Commission proposed climate disclosure rules that would require public companies to significantly increase disclosure of GHG emissions and strategies, targets, costs and risks associated with climate change and the energy transition. Additionally, in January 2023, the EU enacted the Corporate Sustainability Reporting Directive, which will require sustainability reporting across a broad range of environmental, social and governance topics for both EU and non-EU companies, and in October 2023, California enacted legislation addressing the disclosure of greenhouse gas emissions, climate-related risks, environmental claims and the use or sale of voluntary carbon offsets. Numerous countries have also begun proposing climate-reporting frameworks aligned with the International Sustainability Standards Board standards. These proposed regulatory changes related to climate change and reporting could increase the complexity of and costs associated with compliance with such regulations that could have a material adverse effect on our business, results of operations and financial condition.
Complications with the design or implementation of our new ERP system could adversely impact our business and operations.
We rely extensively on information systems and technology to manage our business and summarize operating results. We are in the process of a multi-year implementation of a new global enterprise resource planning (“ERP”) system. This ERP system will replace our existing operating and financial systems. The ERP system is designed to accurately maintain the Company’s financial records, enhance operational functionality and provide timely information to the Company’s management team related to the operation of the business. The ERP system implementation process has required, and will continue to require, the investment of significant personnel and financial resources. We may not be able to successfully implement the ERP system without experiencing delays, increased costs and other difficulties. If we are unable to successfully design and implement the new ERP system as planned, our financial positions, results of operations and cash flows could be negatively impacted. Additionally, if we do not effectively implement the ERP system as planned or the ERP system does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected or our ability to assess those controls adequately could be delayed.
Natural disasters, public health events, significant disruptions of information technology systems, data security breaches, or other catastrophic events could adversely affect our operations.
Our worldwide operations could be subject to natural disasters (including as a result of climate change), public health events, significant disruptions of information technology systems, data security breaches and other catastrophic business disruptions, which could harm our future revenue and financial condition and increase our costs and expenses. We own manufacturing facilities in Israel, Italy and South Korea and rely on third-party manufacturing facilities, including for all product assembly and final testing of our products, which are performed at third-party manufacturing facilities, in China, Vietnam, Hungary, and the United States. There may be conflict or uncertainty in the countries in which we operate, including public health issues (for example, a pandemic or an outbreak of contagious diseases or health epidemics), safety issues, natural disasters, fire, disruptions of service from utilities, nuclear power plant accidents, regional wars, or general economic or political factors. Such risks could result in an increase in the cost of components, production delays, general business interruptions, delays from difficulties in obtaining export licenses for certain technology, tariffs and other barriers and restrictions, longer payment cycles, increased taxes, restrictions on the repatriation of funds and the burdens of complying with a variety of foreign laws, any of which could ultimately have a material adverse effect on our business.
In the event that natural disasters (including as a result of climate change), public health epidemics or technical catastrophes were to damage or destroy any part of our facilities or those of our contract manufacturers, destroy or disrupt vital infrastructure systems or interrupt our operations or services for any extended period of time, our business, financial condition and results of operations would be materially and adversely affected.
Risks 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 intoto 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 (the “IRA”) 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.
A change in or elimination of regulatory treatment or guidance related to, or an inability to ramp up production to benefit from incentives under the Inflation Reduction Act of 2022 may harm our business.
On August 16, 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. The Company has invested resources in establishing a manufacturing presence in the U.S. to benefit from the incentives available under the IRA, including benefits to installers for the purchase and installation of U.S. manufactured products and incentives for manufacturers of such products domestically. Moreover, we incorporated into our financial planning and agreements with our customers and suppliers certain assumptions regarding the future level of U.S. tax incentives. Any unfavorable regulatory treatment, or guidance, expiration of or changes to the benefits being made available, which we relied upon in structuring certain projects and investments, or any adverse impacts on our ability to ramp up production in the U.S. in a timely manner to benefit from the incentives available under the IRA, 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 aimingaimed 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. The tariff cuts became effective in April of 2023. This new rate plan, known as NEM 3.0, has significantly reduced how much money California solar homeowners receive for a PV system resulting in a reduced rate of installations in the second half of 2023. We cannot assure yoube certain that thesesimilar programs will not be significantlyadopted in other states or that existing programs will not be further modified going forward.
If the value of the credit that customers receive for net metering is reduced, end-users may be unable to recognizeit could impact 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. For 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 Toto 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, China, and China,other jurisdictions, 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 detailedWe were in Item 3 – “Legal Proceedings” we are engagedthe past and may in severalthe future engage in 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 lawsuitsLawsuits 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., In May 2023, we entered into a Chinese entity (“Huawei”), against our two Chinese subsidiaries and our equipment manufacturer in China. The lawsuits, filed insettlement agreement under which the Guangzhou intellectual property court, alleged infringement of three patents and asked for an injunctionparties agreed 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 appealdismiss all proceedings related to the Supreme People’s Court was denied in December 2021, rendering a payment due by us to Huawei incomplaints and the amount of $1.6 million. The judgement is not enforceable until February 2022. Theparties have granted each other two lawsuits are still pending appeal at the Supreme Court level. Please see Item 3 - Legal Proceedings10-year cross-licenses for additional information.certain intellectual property.
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.
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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 acquisitions and following the latest acquisitions,impairment recorded during 2023, goodwill and other intangible assets totaled approximately $188.5$78.3 million, or approximately 6.5%1.7% of our total assets, as of December 31, 2021.2023. 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 9 and 10 of the financial statements for additional information).
Risks Related to our Notes and the Ownership of Our Common Stock
We cannot assure you that ourOur stock price will not decline or nothas been, and may continue to 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 stock2023, ranged from $199.33$63.25 to $389.71$345.80 per share. As further detailed in the Performance Graph in Item 5 below, the price of our Common Stock in 20212023 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. We have been subject to securities class action litigation as a result of our stock price volatility, which could result in substantial cost and diversion of our management’s attention from other business concerns, which could seriously harm our business.
Among other factors that could affect our stock price are:
| • | the addition or loss of significant customers; |
| • | changes in laws or regulations applicable to our industry, products or services; |
| • | speculation about our business in the press or the investment community; |
| • | price and volume fluctuations 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; |
| • | the expiration of contractual lock-up agreements; |
| • | success of competitive products or services; |
| • | the public’s response to press releases or other public announcements by us or others, including our filings with the Securities and Exchange Commission (the “SEC”), announcements relating to litigation or significant changes to our key personnel; |
| • | the effectiveness of our internal controls over financial reporting; |
| • | changes in our capital structure, such as future issuances of debt or equity securities; |
| • | our entry into new markets; |
| • | tax developments in the U.S., Europe, or other markets; |
• | the inclusion, exclusion, or deletion of our stock from any trading indices, such as the S&P 500 Index; |
• | 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.
Provisions in our certificate of incorporation and by-laws may have the effect of delaying or preventing a change of control or changes in our management.
Our certificate of incorporation and by-laws contain provisions that could depress the trading price of our common stock by discouraging, delaying, or preventing a change of control of our Company or changes in our management that the stockholders of our Company may believe advantageous. These provisions include:
| • | authorizing “blank check” preferred stock that our board of directors could issue to increase the number of outstanding shares to discourage a takeover attempt; |
| • | providing for a classified board of directors with staggered, three-year terms until the 2026 annual meeting of stockholders at which time all of the board members will be subject to annual elections, which, until then, 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; and |
| • | the removal of directors only for cause and only upon the affirmative vote of the holders of at least 662/3%a majority 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;class until the 2026 annual meeting of stockholders; |
| • | providing that our board of directors is expressly authorized to amend, alter, rescind or repeal our by-laws; and |
| • | requiring the affirmative vote of holders of at least 662/3% of the voting power of all of the then outstanding shares of common stock, voting as a single class, to amend provisions of our certificate of incorporation relating to the management of our business, our board of directors, stockholder action by written consent, advance notification of stockholder nominations and proposals, calling special meetings of stockholders, forum selection and the liability of our directors, or to amend, alter, rescind or repeal our by-laws.
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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.
Our certificate of incorporation includes a forum selection clause, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for any stockholder (including any beneficial owner) to bring (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or employees to us or to our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or our certificate of incorporation or by-laws, or (iv) any action asserting a claim governed by the internal affairs doctrine, will be a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware);. In addition, unless the Corporation, in all cases subjectwriting, selects or consents to the court’s having personal jurisdiction overselection of an alternative forum, to the indispensable parties named as defendants.fullest extent permitted by law, the sole and exclusive forum for any complainant asserting a cause of action arising under the Securities Act of 1933, to the fullest extent permitted by law, shall be the federal district courts of the United States of America. 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 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.
We may not be able to raise additional capital to execute on our current or future business opportunities on favorable terms, if at all, or without dilution to our stockholders.
We believe that our existing cash and cash equivalents and cash flows from our operating activities will be sufficient to meet our anticipated cash needs for at least the next 12 months. However, we may need to raise additional capital or debt financing to execute on our current or future business strategies, including to:
| • | provide additional cash reserves to support our operations; |
| • | invest in our research and development efforts; |
| • | expand our operations into new product markets and new geographies; |
| • | acquire complementary businesses, products, services or technologies; or |
| • | otherwise pursue our strategic plans and respond to competitive pressures, including adjustments to our business to mitigate the effects of any tariffs that might apply to us or our industry. |
We do not know what forms of financing, if any, will be available to us. If financing is not available on acceptable terms, if and when needed, our ability to fund our operations, enhance our research and development and sales and marketing functions, develop and enhance our products, respond to unanticipated events and opportunities, or otherwise respond to competitive pressures would be significantly limited. In any such event, our business, financial condition and results of operations could be materially harmed, and we may be unable to continue our operations. Moreover, if we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders.
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.
Our share repurchase program may be subject to certain risks.
Although the board of directors has authorized the share repurchase program, any determination to execute the share repurchase program will be subject to, among other things, the Company’s financial position and results of operations, available cash and cash flow, capital requirements and other factors, as well as the board of director’s continuing determination that the repurchase program is in the best interests of its stockholders and is in compliance with all laws and agreements applicable to the repurchase program. Our share repurchase program does not obligate us to acquire any common stock. If we fail to meet any expectations related to share repurchases, this could have a material adverse impact on investor confidence and the market price of our common stock could decline. Additionally, price volatility of our common stock over a given period may cause the average price at which we repurchase our common stock to exceed the stock’s market price at a given point in time.
We may further increase or decrease the amount of repurchases of our common stock in the future. Any reduction or discontinuance of repurchases of our common stock pursuant to our current share repurchase program could cause the market price of our common stock to decline. Moreover, in the event repurchases of our common stock are reduced or discontinued, our failure or inability to resume repurchasing common stock at historical levels could result in a lower market valuation of our common stock.
ITEM 1B. Unresolved Staff Comments.
Not applicable.
ITEM 1C. Cyber security
Cyber security risk is an area of increasing focus for our Board, particularly as an increasingly significant part of our operations rely on digital technologies. As a result, we have implemented a cyber security program to assess, identify, and manage risks from cyber security threats that may result in material adverse effects on the confidentiality, integrity, and availability of our information systems. This program has been integrated into the Company’s overall risk management process.
Risk Management and Strategy
While we follow IoT cybersecurity standards and regulations, our products and information systems are potentially subject to cyber risks of data leakage and operational damages. To protect our products and information systems from cybersecurity threats, we use various security tools that help prevent, identify, escalate, investigate, resolve and recover from identified vulnerabilities and security incidents in a timely manner. These include, but are not limited to, annual cyber testing, internal auditing, monitoring and detection tools, and a bug bounty program to allow security researchers to assist us in identifying vulnerabilities in our products before they are exploited by malicious threat actors. Any reported vulnerability is analyzed and reported to the CISO.
As part of our program to mitigate risk from cyber security threats, the Company actively evaluates and refines its cyber security tools and processes with the intention of reducing cyber security risks and aligning with the National Institute of Standards and Technology Cyber-security Framework for risk management. Features of our cybersecurity program include:
| ◦ | Processes designed to comply with information security standards and privacy regulations, including the European Union's General Data Protection Regulation. |
| ◦ | Maintenance of an ISO 27001 Information Security Management Standard certification. |
| ◦ | Implementation of a variety of security controls, such as firewalls, and intrusion detection systems. |
| ◦ | Protection against Denial-of-Service attacks which prevent legitimate use of our services. |
| ◦ | Security events monitoring in our security operations center. |
| ◦ | Development of incident response policies and procedures designed to initiate remediation and compliance activities in a timely manner. |
| ◦ | Implementation of data loss prevention tools. |
| ◦ | Implementing an ID management system to enforce granular role-based access controls. |
| ◦ | Performing penetration testing on cloud and app platform. |
| ◦ | Administration of a comprehensive cyber security awareness program to educate employees about cyber security risks and best practices. |
| ◦ | Retention of a third-party, independent cyber security firm to conduct cyber security assessments of our systems and procedures. |
| ◦ | Employment of a responsible disclosure policy, which includes a Bug Bounty Program designed to help identify and fix any potential flaws in the company’s services or products. |
We also employ processes designed to oversee, identify, and reduce the potential impact of a security incident at a third-party vendor, or customer, or otherwise implicating the third-party technology and systems we use. Such security measures include, without limitation:
| ◦ | A security solution designed to safeguard customer data and systems. |
| ◦ | Security assessments of our major vendors. |
| ◦ | Risk assessments by an insurance company. |
| ◦ | Implementation of endpoint detection and response (EDR) technology, as well as partial operational technology (OT) security measures on some of our factories, to protect our on-premises systems. |
Governance & Oversight
The Board has delegated primary oversight of the Company's risks from cyber security threats to the Technology Committee. Our management team, including our Chief Information Security Officer (CISO), provides quarterly updates to our Technology Committee and annually to the full Board regarding our cyber security activities and other developments impacting our digital security. We have protocols by which certain cyber security incidents are escalated within the Company and, where appropriate, reported to the Board and Technology Committee in a timely manner.
At the management level, our CISO, who reports to our Chief Information Officer, is responsible for overseeing the assessment and management of our material risks from cyber security threats. Our CISO has extensive experience and knowledge in cyber security as a result of 26 years of experience in leading security teams, developing security strategies, and managing risk across various industries. The CISO is informed about and monitors the prevention, detection, mitigation, and remediation of cybersecurity incidents through reports from a number of experienced information security officers responsible for various parts of the business and regularly reviewing risk management measures implemented by the Company to identify and mitigate cyber security risks.
The Company’s internal auditor and CISO are informed in the event of any significant cyber security incident and operate to comply with applicable laws regulations.
Cyber Security Risks
A material cyber security incident could materially affect our operations and production, including our ability to produce goods or provide services and our ability to timely and accurately produce financial reports. Further a cyber security incident could result in unauthorized access or disclosure of sensitive data, such as financial information, intellectual property, or customer, employee or supplier related data, including personally identifiable information. A material cyber incident could adversely affect our financial condition and results of operations, have as an adverse effect on our reputation and could result in legal actions against the Company. Please see the discussion under "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." and "Third parties, our employees, or our vendors might gain unauthorized access to our network or seek to compromise our products and services" in Item 1A. Risk Factors for additional information.
To date, risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected us, including our business strategy, results of operations or financial condition, and we do not believe that such risks are reasonably likely to have such an effect over the long term. However, there can be no guarantee that we will not be the subject of future successful threats or incidents. The Company has not been subject to any information security breach penalties or settlement payments.
Our corporate headquarters are located in Herziliya Pituach, Israel.
Leased Offices and R&D Laboratories
As of December 31, 2021,2023, 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 acres16,500 square meters of land, in the central area of Israel. The campus, which is scheduled to be completed in by the first halfend of 2025, will replace our current headquarters in Herziliya, Israel.
In 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, China, Spain, Sweden, Vietnam and China as well as an R&D and call center in Bulgaria.Poland.
Manufacturing
We outsource most of our manufacturing to our manufacturing partners. We have our own manufacturing facility, Sella 1 (which property is leased), in the North of Israel.Israel, which is used in our solar segment. We also have a factory in which we manufacture lithium-ion batteries for Kokam’s operations, our Korean subsidiary, and have begun construction ofown manufacturing facility, Sella 2 (which property is leased), in South Korea and own an additional smaller facility in South Korea, both of which are used in our second lithium-ion cell and battery factory in Korea. For our e-Mobility division, we haveEnergy Storage segment. We also own manufacturing facilities in Umbria, Italy which currently are used by Automation Machines and for the assemblyrefurbishment of batteries and other componentssolar products as well as support for light commercial vehicles.remaining commitments of e-Mobility parts.
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.
We believe that our existing properties are in good condition and are sufficient and suitable for the conduct of our business for the foreseeable future. To the extent our needs change as our business grows, we expect that additional space and facilities will be available on commercially reasonable terms.
ITEM 3. Legal Proceedings
In JuneOn November 3, 2023, Daphne Shen, a purported stockholder of the Company, filed a proposed class action complaint for violation of federal securities laws, individually 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, filedputatively on behalf of all others similarly situated, in the MannheimU.S 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 afterSouthern District of New York against the asserted patent was revoked. InCompany, the other two lawsuits, hearings were heldCompany’s CEO and in onethe Company’s CFO. The complaint alleges violations of Section 10(b) and Rule 10b-5 of the proceedingsExchange Act, as well as violations of Section 20(a) of the claim was dismissedExchange Act against the individual defendants. The complaint seeks class certification, damages, interest, attorneys’ fees, and other relief. On December 13, 2023, Javier Cascallar filed a similar proposed class action. On February 7, 2024, the Court consolidated the two actions, and appointed co-lead plaintiffs and lead counsel. Due to the early stage of this proceeding, we have appealed tocannot reasonably estimate the potential range of loss, if any, or the likelihood of a higher court. Inpotential adverse outcome. The Company disputes 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 continueallegations of wrongdoing and intends 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.them.
In September, 2018, our German subsidiary, SolarEdge Technologies GmbH, receivedAugust 2019, the Company was served with a complaint filed by a competitor, SMA Solar Technology AG (“SMA”). The complaint,lawsuit filed in the District Court Düsseldorf, Germany, allegesTribunal of Milan, Italy against our Italian subsidiary SolarEdge e-Mobility S.r.l (previously SMRE S.p.A) that SolarEdge's 12.5kW - 27.6kW inverters infringe twopurchased the shares of plaintiff’s patents. In its complaints, SMA requests, inter alia, an injunction, rendering account about past sales,SolarEdge e-Mobility s.r.l in the tender offer that followed the SolarEdge e-Mobility Acquisition by certain former shareholders of SolarEdge e-Mobility who tendered their shares. The lawsuit asked for damages of approximately $3 million, representing the difference between the amount for which they tendered their shares (6 Euro per share) and 6.7 Euros per share. On December 6, 2023, the courts of Milan rendered a recalldecision ordering SolarEdge to pay, in favor of productseach plaintiff, the difference between the price paid (6 Euro per share) and a determination6.44 Euro per share, i.e. 0.44 euros per share for a claim for damages for sales in Germany. SMA asserted a value in disputetotal payment of 5.5approximately $1.6 million Euros (approximately $6.2 million) for both patents. We challenged the validity of both patents. In December 2019 the District Court of Düsseldorf found one of the two patentsEuros. The Company is evaluating whether to be infringed and we appealedappeal 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 been appealed by SMA. Due to the invalidity proceedings, the infringement proceedings regarding this patent have been stayed. With respect to the other 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. We believe that we have meritorious defenses to the claims asserted and intend to vigorously defend against this lawsuit.decision.
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. Mine Safety Disclosures.
Not applicable.
PART II
Item ITEM 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, 2021,2023, there were 1811 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 to finance the operation and expansion of our business and fund our share repurchase program, and we 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.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
On November 1, 2023, we announced the approval by the Board of Directors of a share repurchase program which authorizes the repurchase of up to $300 million of the Company’s common stock. Under the share repurchase program, repurchases can be made using a variety of methods, which may include open market purchases, block trades, privately negotiated transactions, accelerated share repurchase programs and/or a non-discretionary trading plan or other means, including through 10b5-1 trading plans, all in compliance with the rules of the SEC and other applicable legal requirements. The timing, manner, price and amount of any common share repurchases under the share repurchase program are determined by the Company in its discretion and depend on a variety of factors, including legal requirements, price and economic and market conditions. The program does not obligate the Company to acquire any amount of common stock, it may be suspended, extended, modified, discontinued or terminated at any time at the Company’s discretion without prior notice, and will expire on December 31, 2024. As of December 31, 2023, we had not yet repurchased any Company shares.
Performance Graph
The following graph compares the cumulative total shareholder return on our common stock from January 1, 2017December 31, 2018 to December 31, 20212023 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 contained in such filing.
ITEM 6. Reserved
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the 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”. For discussion related to changes in financial condition and the results of operations for the year ended December 31, 2020,2022, 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, 2023.
Overview
We develop, manufacture and sell products in a solar segment that addressaddresses 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 including lithium-ion cells, batteries and energy storage systems, which address e-Mobility,are part of our Energy Storage Segment as well as automation machines ("Automation Machines") and in prior years, we also had product offerings for the e-mobility market. In October 2023, we decided to discontinue our light commercial vehicle e-Mobility ("LCV") activity and the remaining e-mobility activity which include PV applications, will be included under the solar segment starting January 1, 2024.
In the fourth quarter 2023 the Company identified two reportable segments: the Solar segment and Energy Storage segment. The Solar segment includes the design, development, manufacturing, and sales of its DC optimized inverter solutions designed to maximize power generation at the PV module level and batteries for PV applications. The Solar segment solution consists mainly of the Company’s power optimizers, inverters, batteries and cloud‑based monitoring platform. The Energy Storage segment includes the design, development, manufacturing, and sales of high-energy, high-power, lithium-ion cells and BESS solutions for C&I and Utility markets. The Energy Storage segment provides purpose-built components and solutions, hardware and software, as well as pre and post sales engineering support to design, build, and manage battery packsand system solutions according to the customer’s use cases and mission profiles. The “All other” category includes the design, development, manufacturing and sales of e-Mobility products, automated machines and UPS solutions.products (in prior periods).
Further information regarding our business is provided in “Part I, Item 1. Business” of this Annual Report.
In the year ended December 31, 2021,2023, two customers accounted for 30.9%24.0% of our revenues and our top three customers (all distributors) together represented 37.8%31.1% of our revenues.
Our revenues were $1,459.3$2,976.5 million and $1,963.9$3,110.3 million for fiscal 2020,the year ended December 31, 2023 and fiscal 20212022, respectively. Gross margins were 31.6%23.6% and 32.0%27.2% for fiscal 2020,the year ended December 31, 2023 and fiscal 2021,2022, respectively. Net profits were $140.3income was $34.3 million and $169.2$93.8 million for fiscal 2020the year ended December 31, 2023 and fiscal 2021,2022, respectively.
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. 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, | |
| | 2023 | | | 2022 | |
Inverters shipped | | | 1,011,890 | | | | 1,019,307 | |
Power optimizers shipped | | | 17,430,082 | | | | 23,736,368 | |
Megawatts shipped1 | | | 12,629 | | | | 10,491 | |
Megawatts hour shipped - batteries for PV applications | | | 744 | | | | 889 | |
Covid-19 Impact & Response1 Excluding batteries for PV applications, 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.
Covid-19 continued to present challenges onGlobal Circumstances Influencing our operationsBusiness and business in 2021, primarily, operational challenges which we reported on continuously in our quarterly reports throughout the year. Although the global distribution of vaccines continues to progress and many government-imposed restrictions have been lifted or removed, 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.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. We 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.Operations
InDemand for Products
We have seen a slowdown in demand for our products in our Solar segment from our direct customers since the second part of the third quarter of 2021, our contract manufacturer in Vietnam2023. This 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 Novembera result of 2021. While we increased manufacturing capacity in China, Israel and Hungary in order to compensate for the Vietnam factory 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 supplyslowed market demand in the third and fourth quarter of 2021. Our manufacturing facilities2023 as distributors began to take actions to reduce inventory levels. In particular, beginning in Korea (forthe second part of the third quarter of 2023, we experienced substantial unexpected cancellations and push outs of existing backlog from our energy storage business), Italy (for our e-Mobility components)European distributors. We attribute these cancellations and Israelpushouts to high inventory in the channels and our contract manufacturers’ facilitiesslower than expected installation rates both in Vietnam, China,the United States and Hungary were operational at almost full capacityEurope. This trend continued in the fourth quarter of 2021 as we continued to ramp our new manufacturing site2023.Additionally, the Company anticipates significantly lower revenues in Mexico. To 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, continue to have an impact on our operations.
In 2021, 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 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. In the fourth quarter of 2021, we experienced and expect to continue to experience in 2022, disruptions to our logistics supply chain caused by constraints in2024 as the global transportation system including limited availability of local ground transportation coupled with congestion in shipping ports and industry-wide component shortages. These factors have impacted 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 freight for components and finished goods. 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 customer of SolarEdge e-Mobility that has experienced disruptions in its own manufacturinginventory destocking 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.
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.continues.
Disruptions due to the war in Israel
Due to the war that began on October 7, 2023, approximately 10% of our employees in Israel were called to active reserve duty and additional employees may be called in the future, if needed. About half of these employees have returned to work. While our offices and facilities are open worldwide, including in Israel, and, to date, we have not had disruptions to our ability to manufacture and deliver products and services to customers, a prolonged war or an escalation of the current conditions in Israel could materially adversely affect our business, financial condition, and results of operations. Due to the recency of these events, and their ongoing and evolving nature, the extent of the adverse effect on our business operations is still unknown.
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. In 2022, rising global interest in becoming less dependent on gas and oil led to higher demand for our products. The conflict 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 decreased in 2023, a change or escalation of this ongoing conflict could increase the impacts from the circumstances described above and may lead to 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 provisions intended to accelerate U.S. manufacturing and adoption of 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, among other things, extends the investment tax credit and production tax credit through 2034 and is therefore expected to increase the demand for solar products. The IRA also further incentivizes residential and commercial solar customers and developers through the inclusion of a tax credit for qualifying energy projects of up to 30%. Section 45X of the IRA offers advanced manufacturing production tax credits that incentivize the production of eligible components within the U.S. To that end, we established manufacturing capabilities in the U.S. in 2023 and announced additional capacity expected during 2024. These provisions of the law are new and regulations and guidance concerning their implementation are gradually being published by the U.S. Treasury Department. We continue to monitor the benefits that may be available to us, such as the availability of tax credits for domestic manufacturers. 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, EV chargers, smart energy devices, our cloud-based monitoring platform as well asand grid services. Our customer base mainly includes distributors, large solar installers, wholesalers, EPCs, and PV module manufacturers.EPCs. In addition, we also generategenerated 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 lithium-ion cells, batteries, 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 products we sell.
Our revenue growth is dependent on our ability to expand our market share in each of the geographies in which we compete, expand our global footprint to new evolving markets, growmanage 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 expansionexpand of the new businesses we acquired.
In the year ended December 31, 2021, 45.4%2023, 64% of our revenues were generated from Europe, 40.0%25.5% of our revenues were generated from the United States and 14.6%10.5% of our revenues were generated from ROW. In the year ended December 31, 2020, 42.9%2022, 54.3% of our revenues were generated from Europe, 42.0%36.5% of our revenues were generated from the United States and 15.1%9.2% 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, amortization of intangible assets and other fixed costs, provision for losses related to slow moving and dead inventory, hosting services for our cloud based monitoring platform, andvariable utility costs, operational costs related to the manufacturing factories, other logistics services.services, contract termination costs and renewable electricity production credits. 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.automation, the volume of products subject to import tariffs (for example, for imports from China to the U.S.) and the volume of products for which manufacturing credits are available (for example, for products made in the U.S.). Some of these costs, primarily personnel, amortization of intangible assets and depreciation of testing and manufacturing equipment, are not directly affected by sales volume.
With respect to ESS, Automation Machines and e-Mobility products 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 and other fixed costs.
Except for the manufacturing and assembly activities related to our acquired businesses and the manufacturing of solar products at Sella 1, we outsource our manufacturing to third-party manufacturers and negotiate product pricing on a quarterly basis.
During 2021, 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, 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, the levels of our finished goods inventories required to support our growth were reduced. Therefore, we expect to continue to deliver our products through expedited ocean freight and air freight. In absence of additional Covid-19 related shutdowns 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.
We continue to develop our own manufacturing capabilities. For example,During 2023, we have developedcontinued to ramp up our own proprietary automated assembly lines formanufacturing capabilities in Sella 2, our power optimizers, manufacture sub-assemblies such as cables and magnetic, and own large amountsLi-Ion battery factory in South Korea which serves our Energy Storage segment. We intend to gradually increase the manufacturing capabilities of equipmentSella 2 in connection with such manufacturing activities. We expect to continue to invest2024, which will result in additional automated assembly lines in the future.expenses. We have designed and are responsibleintend to use our available cash balances 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 cash flows generation.
Key components of our logistics supply channel consist of third party distribution centers in the U.S., Europe, Australia, and Japan. Finished goods are either shipped to our customers directly from our contract manufacturers or shipped to third-party distribution centers and then, finally, shipped to our customers.
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.this expansion.
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 1,549to 2,857 as of December 31, 2020 to 2,0522023 from 2,383 as of December 31, 2021.2022.
In October of 2023, the Company made an announcement regarding its restructuring plans to adjust its manufacturing capacity and increase operating efficiency,including, terminating the manufacturing process in Mexico, reducing manufacturing capacity in China, and discontinuing the Company’s LCV e-Mobility activity, and on January 21, 2024, the Company announced adoption of additional measures in response to challenging industry conditions, including reducing its headcount by approximately 16% over the first half of 2024 through an involuntary workforce reduction plan (together, the “Restructuring Plan”). These decisions were made in order to better align the Company with current market conditions. The majority of these activities related to the discontinuation of LCV activity and the reduction of our manufacturing footprint which occurred in December 2023 and the significant part of the workforce reduction occurred in January 2024.
Gross profit may vary from quarter to quarter and is primarily affected by our average selling prices, product costs, manufacturing ramp-up costs, restructuring costs, product mix, customer mix, geographical mix, location of manufacturing, shipping method, warranty costs, inventory write-offs, exchange rates and seasonality.
Operating Expenses
Operating expenses consist of research and development, sales and marketing, general and administrative, goodwill impairment and other expenses. Personnel relatedoperating expenses, net. Personnel-related costs are the mosta significant component of each of these expense categoriesthe operating expenses and include salaries, benefits, payroll taxes, commissions, severance and stock-based compensation. Our employees headcount in our research and development, sales and marketing and general and administrative departments, has grown from 1,625to 2,776 as of December 31, 2020 to 1,9122023 from 2,543 as of December 31, 2021. We2022. Under the 2024 Restructuring Plan described above, we expect to continue to hire significant numbersreduce our headcount over the first half of new employees to support our growth. The timing of these additional hires could materially affect our operating expenses in any particular period, both in absolute dollars and as a percentage of revenue. We expect to continue to invest substantial resources to support our growth and anticipate that each of the following categories of operating expenses will increase in absolute dollar amounts for the foreseeable future.2024.
Research and development expenses
Research and development expenses include personnel-related expenses such as salaries, severance, 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. 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, severance, 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, severance, 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 certain legal claims and allowance for doubtful accounts in the event of uncollectible account receivables balances.
Goodwill impairment
Goodwill impairment consists of impairment charges of goodwill assigned to our reporting units and tested for impairment at least on an annual basis, in the fourth quarter of the fiscal year.
Other operating expenses, (income), net
Other operating expenses, (income), net, consist primarily of losses related to write-offsimpairment of tangible and intangiblelong-lived 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.certain other nonrecurring items.
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, loans to third parties 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, the fair value remeasurement of hedging contracts not designated as cash flow hedge and bank charges. Foreign currency fluctuations primarily consist 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.liabilities.
Other income (loss)
Other income (loss) consists primarily of realized and unrealized gains and losses on investments in privately-held companies and realized gains and losses on investment in available for sale marketable securities.
Income taxestaxes
We are subject to income taxes in the countries where we operate.
In the year ended December 31, 2020,2023, we recorded a net income tax expense of $23.3$46.4 million, which consists of a $26.8$89.5 million current income tax expense and a $3.5$43.1 million of deferred tax income. In the year ended December 31, 2021,2022, we recorded a net income tax expense of $18.1$83.4 million, which consists of a $29.7$94.4 million current income tax expense and $11.6a $11.0 million of deferred tax income. Our tax rate for 2023 is 57% compared with 47% in 2022. The decreaseincrease in net income tax expenserate was mainly attributed to the GILTI effect of IRC Section 174, requiring the capitalization of R&D expenditures outside the U.S. (see below), and impairments and losses that did not have a corresponding tax benefit related to the laps of a statute of limitation of uncertain tax positions and an increase in deferred tax 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.effect.
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 tax on Global Intangible Low Taxed Income (“GILTI”) and certain related-party payments. The Tax Act also amended Section 174 of the U.S Internal Revenue Code, effective from January 1, 2022, eliminating the option to deduct research and development expenditures currently and requiring taxpayers to amortize them over five years (if incurred in the U.S.) or fifteen years (if incurred outside the U.S.).
Furthermore, 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 2022-2023 to a 6% tax rate as we surpassed 10 billion New Israeli Shekel revenues threshold. We currently expect that it willnot to meet the threshold in 2024 and consequently expect our tax on our PTE income to be entitled to an effective tax at a rate of approximately 12% in 2020.2024.
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. We qualify as an Industrial Company under the Law and benefit from its provisions as applicable.
Loss from equity method investments
Loss from equity method investments consists of our proportionate share of the net income or loss of equity method investments.
Results of Operations
The following tables set forth our consolidated statements of income for the years ended December 31, 20212023 and 2020.2022. 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, 20212023 and year ended December 31, 20202022
| | Year ended December 31, | | | 2020 to 2021 | |
| | 2021 | | | 2020 | | | Change | |
| | (In thousands) | |
Revenues | | | 1,963,865 | | | | 1,459,271 | | | | 504,594 | | | | 34.6 | % |
Cost of revenues | | | 1,334,547 | | | | 997,912 | | | | 336,635 | | | | 33.7 | % |
Gross profit | | | 629,318 | | | | 461,359 | | | | 167,959 | | | | 36.4 | % |
Operating expenses: | | | | | | | | | | | | | | | | |
Research and development | | | 219,633 | | | | 163,123 | | | | 56,510 | | | | 34.6 | % |
Sales and marketing | | | 119,000 | | | | 95,985 | | | | 23,015 | | | | 24.0 | % |
General and administrative | | | 82,196 | | | | 63,119 | | | | 19,077 | | | | 30.2 | % |
Other operating expenses (income), net | | | 1,350 | | | | (3,429 | ) | | | 4,779 | | | | (139.4 | )% |
Total operating expenses | | | 422,179 | | | | 318,798 | | | | 103,381 | | | | 32.4 | % |
Operating income | | | 207,139 | | | | 142,561 | | | | 64,578 | | | | 45.3 | % |
Financial income (expense), net | | | (19,915 | ) | | | 21,105 | | | | (41,020 | ) | | | (194.4 | )% |
Income before income taxes | | | 187,224 | | | | 163,666 | | | | 23,558 | | | | 14.4 | % |
Income taxes | | | 18,054 | | | | 23,344 | | | | (5,290 | ) | | | (22.7 | )% |
Net income | | | 169,170 | | | | 140,322 | | | | 28,848 | | | | 20.6 | % |
| | Year ended December 31, | | | 2022 to 2023 | |
| | 2023 | | | 2022 | | | Change | |
| | (In thousands) | |
Revenues | | $ | 2,976,528 | | | $ | 3,110,279 | | | $ | (133,751 | ) | | | (4.3 | )% |
Cost of revenues | | | 2,272,705 | | | | 2,265,631 | | | | 7,074 | | | | 0.3 | % |
Gross profit | | | 703,823 | | | | 844,648 | | | | (140,825 | ) | | | (16.7 | ) % |
Operating expenses: | | | | | | | | | | | | | | | | |
Research and development | | | 321,482 | | | | 289,814 | | | | 31,668 | | | | 10.9 | % |
Sales and marketing | | | 164,318 | | | | 159,680 | | | | 4,638 | | | | 2.9 | % |
General and administrative | | | 146,504 | | | | 112,496 | | | | 34,008 | | | | 30.2 | % |
Goodwill impairment | | | — | | | | 90,104 | | | | (90,104 | ) | | | (100 | )% |
Other operating expenses, net | | | 31,314 | | | | 26,434 | | | | 4,880 | | | | 18.5 | % |
Total operating expenses | | | 663,618 | | | | 678,528 | | | | (14,910 | ) | | | (2.2 | )% |
Operating income | | | 40,205 | | | | 166,120 | | | | (125,915 | ) | | | (75.8 | ) % |
Financial income, net | | | 41,212 | | | | 3,750 | | | | 37,462 | | | | 999.0 | % |
Other income (loss), net | | | (318 | ) | | | 7,285 | | | | (7,603 | ) | | | (104.4 | )% |
Income before income taxes | | | 81,099 | | | | 177,155 | | | | (96,056 | ) | | | (54.2 | ) % |
Income taxes | | | (46,420 | ) | | | (83,376 | ) | | | 36,956 | | | | (44.3 | )% |
Net loss from equity method investments | | | (350 | ) | | | — | | | | (350 | ) | | | 100.0 | % |
Net income | | $ | 34,329 | | | $ | 93,779 | | | $ | (59,450 | ) | | | (63.4 | )% |
Revenues
| | Year ended December 31, | | | 2020 to 2021 | |
| | 2021 | | | 2020 | | | Change | |
| | (In thousands) | |
Revenues | | | 1,963,865 | | | | 1,459,271 | | | | 504,594 | | | | 34.6 | % |
| | Year ended December 31, | | | 2022 to 2023 | |
| | 2023 | | | 2022 | | | Change | |
| | (In thousands) | |
Revenues | | $ | 2,976,528 | | | $ | 3,110,279 | | | $ | (133,751 | ) | | | (4.3 | )% |
Revenues increaseddecreased by $504.6$133.8 million, or 34.6%4.3%, in the year ended December 31, 20212023, as compared to the year ended December 31, 2020,2022, primarily due to (i) an increasea decrease of $58.2 million in the amount of ancillary solar products sold; and (ii) a decrease of $50.8 million related to the number of invertersbatteries for PV applications sold, mainly in Europe; and power optimizers sold, with significant growth(iii) a decrease of $26.0 million in revenues generated from e-mobility components, related to the discontinuation of the Company’s LCV e-Mobility activity. The overall decrease in all geographies ; and (ii) an increaserevenues was due to the decline in demand that began in the numbersthird quarter of powertrain kits supplied by SolarEdge e-Mobility,2023 and continued in an aggregate amountthe fourth quarter of $55.5 million. 2023. This decline was the result of high inventory in the channels and slower than expected installation rates beginning in the third quarter of 2023, leading to substantial unexpected cancellations and push outs of existing backlog, from our European distributors, which continued into the fourth quarter of 2023.
Revenues from outside of the U.S. comprised 60.0%74.5% of our revenues in the year ended December 31, 20212023 as compared to 58.0%63.5% in the year ended December 31, 2020.2022.
The number of power optimizers recognized as revenues increaseddecreased by approximately 3.16.2 million units, or 20.3%26.2%, from approximately 15.523.7 million units in 2020the year ended December 31, 2022 to approximately 18.617.5 million units in 2021.the year ended December 31, 2023 as a result of reduced demand. The number of inverters recognized as revenues, increased by approximately 125.11.2 thousand units, or 18.9%0.1%, from approximately 663.31,014.6 thousand units in 2020the year ended December 31, 2022 to approximately 788.41,015.8 thousand units in 2021.the year ended December 31, 2023. Revenues from inverters relative to optimizers was higher this year due to a "catch up" in inverter production in the first half of 2023 which was needed to meet backlog demand that we were not able to fulfill in the previous year. The megawatts hour of batteries for PV applications recognized as revenues decreased by approximately 148.3 megawatts hour, or 16.7% from approximately 885.7 megawatts in the year ended December 31, 2022 to approximately 737.4 megawatts in the year ended December 31, 2023 due to a decrease in demand.
Our blended Average Selling Price or ASP per watt for solar products excluding batteries for PV applications is calculated by dividing solar revenues, excluding revenues from the sale of batteries for PV applications, by the nameplate capacity of inverters shipped. Our blended ASP per watt for solar products shipped increaseddecreased by 0.024,0.049, or 10.8%20.1%, in 2021the year ended December 31, 2023 as compared to 2020.the year ended December 31, 2022. The increasedecrease in blended ASP per watt is mainly attributed to a relatively lower number of power optimizers and other solar products shipped compared to the number of inverters shipped, leading to an overall reduction in our ASP per watt as well as due to an increase in the sale of residentialcommercial products that are characterized by lower ASP per watt, 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 appreciation of the Euro and other currencies against the U.S. dollar.
mix. This increasedecrease in blended ASP per watt was partially offset by a change in our customer mixprice increases that went into effect gradually during 2022 and in the first half of 2023, as well as by the appreciation of the Euro against the U.S. toward larger customersDollar.
Our blended ASP per hour watt for batteries for PV applications is calculated by dividing batteries for PV applications revenues, by the nameplate capacity of batteries for PV applications shipped. Our blended ASP per watt/hour for batteries for PV applications decreased by 0.016 or 3.3%, in the year ended December 31, 2023 as compared to the year ended December 31, 2022. The decrease in blended ASP per watt/hour is mainly attributed to an increase in the portion of three phase batteries, which are sold at a lower ASP per watt/hour and a price decrease of our single phase batteries, that enjoy preferential pricing due to volume commitments.went into effect gradually during 2023. This decrease was partially offset by the appreciation of the Euro against the U.S Dollar.
Cost of Revenues and Gross Profit
| | Year ended December 31, | | | 2020 to 2021 | | | Year ended December 31, | | | 2022 to 2023 | |
| | 2021 | | | 2020 | | | Change | | | 2023 | | | 2022 | | | Change | |
| | (In thousands) | | | (In thousands) | |
Cost of revenues | | 1,334,547 | | | 997,912 | | | 336,635 | | | 33.7 | % | | $ | 2,272,705 | | | $ | 2,265,631 | | | $ | 7,074 | | | | 0.3 | % |
Gross profit | | 629,318 | | | 461,359 | | | 167,959 | | | 36.4 | % | | $ | 703,823 | | | $ | 844,648 | | | $ | (140,825 | ) | | (16.7 | )% |
Cost of revenues increased by $336.6$7.1 million, or 33.7%0.3%, in 2021the year ended December 31, 2023 as compared to 2020,the year ended December 31, 2022, 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. |
| • | an increase in warranty expenses and warranty accruals of $48.4$70.5 million associated primarily with an increased number of products in our install base. Thisbase, which increases our actual spending on product warranty, and 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;expenses, which impacts our remaining obligations for all units under warranty, including those sold in previous years;
|
| • | a significant increase in shipment and logistic costs in an aggregate amount of $40.1 million due to (i) an increase of $48.1 million in shipment rates;inventory costs, which is mainly attributed to changes in inventory valuation, higher inventory accruals related to our initial manufacturing in Sella 2 and (ii) an increasethe write-off related to the discontinuation of the Company’s LCV e-Mobility activity, partially offset by a decrease in volume shipped;inventory write-off related to discontinuation of our UPS activities in the year ended December 31, 2022;
|
| • | an increase in personnel-related costs of $16.4$14.2 million, related to the expansion of our production, operations, and support headcount, which grew in parallel to our growing install base worldwide, the construction of our lithium-ion cell and battery factory in Korea, known as "Sella 2" and thewell as an increase in severance and related benefit costs associated withas a result of the productionRestructuring Plan announced to adjust our manufacturing capacity and increase distribution efficiency, which includes termination of powertrain units manufactured by our SolarEdgemanufacturing in Mexico, reduction of manufacturing capacity in China, and discontinuation of the Company’s LCV e-Mobility division; andactivity; |
| • | an increase in other production costs of $9.9$11 million which is mainly attributed to charges from our contract manufacturers due to manufacturing disruptionsthe contract termination expenses related to Covid-19 lockdowns, increased logistics costs resulting from transportation disruptionscomponents procurement obligations related to the discontinued LCV e-mobility activity; |
| • | an increase of $9.1 million in depreciation expenses of property, plant and the mobilizationequipment and in expenses related to overhead costs; and |
| • | an increase of components among our different manufacturing sites.$3.9 million in expenses related to consultants and sub-contractors. |
These increases were partially offset by:
| • | a decrease in direct cost of revenues sold of $97.5 million associated primarily with a decrease in the volume of product sold; |
| • | a decrease in shipment and logistic costs in an aggregate amount of $42.5 million due to a decrease in the volume of shipments, a decrease in shipment rates and a decrease in expedited shipments costs; and |
| • | a decrease in custom dutiesother production costs of $25.5$12.6 million mainly attributed to lower tariffa decrease in charges from our contract manufacturers, due to manufacturing disruptions related to global supply constraints in the manufactureyear ended December 31, 2022, partially offset by an increase related to ramp up costs associated with Sella 2, our Li-Ion battery cell manufacturing facility located in South Korea, as well as contract termination cost related to claims from our contract manufacturers as part of a higher portion of our products for the U.S. outside of China;Restructuring Plan in Mexico and China. |
Gross profit as a percentage of revenue increaseddecreased by 3.6% to 23.6% in the year ended December 31, 2023 from 31.6%27.2% in 2020 to 32.0%the year ended December 31, 2022 primarily due to:
| • | an increase in actual warranty expenses and accruals for future warranty obligations related to our existing install base, which were divided this fiscal year by slightly lower revenues resulting in lower gross margin of 2.7%; and |
| | |
| • | an increase in the inventory accrual due to the write-offs of excess inventory, write-offs of inventory related to the discontinuation of the Company’s LCV e-Mobility activity and inventory disposal related to our initial manufacturing in Sella 2 resulting in lower gross margin of 1.6%; |
These were partially offset by a decrease in 2021shipment rates as well as a resultreduced portion of expedited shipments out of our total shipments and a decrease in customs duties attributed to the above detailed analysis.decrease in volumes of products manufactured in China for the U.S. market resulting in higher gross margin of 1.1%.
Operating Expenses:
Research and Development
| | Year ended December 31, | | | 2020 to 2021 | |
| | 2021 | | | 2020 | | | Change | |
| | (In thousands) | |
Research and development | | | 219,633 | | | | 163,123 | | | | 56,510 | | | | 34.6 | % |
| | Year ended December 31, | | | 2022 to 2023 | |
| | 2023 | | | 2022 | | | Change | |
| | (In thousands) | |
Research and development | | $ | 321,482 | | | $ | 289,814 | | | $ | 31,668 | | | | 10.9 | % |
Research and development costs increased by $56.5$31.7 million or 34.6%10.9%, in 2021the year ended December 31, 2023 compared to 2020,the year ended December 31, 2022, primarily due to:
| • | an increase in personnel-related costs of $48.5$18.3 million resulting from an increase in our research and development headcount, as well as salary expenses associated with annual merit increases and employee equity-based compensation.stock-based compensation, which were partially offset by the depreciation of the NIS against the U.S. dollar. 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 costsconsultants and sub-contractors in anthe amount of $3.1 million;$6.8 million: |
| • | an increase in depreciation expenses of property and equipment in anthe amount of $3.0$3.4 million; and |
| • | an increase in expenses related to material consumption in the manufacturing of prototypes during our development process in an amount of $2.9 million.
|
These increases were partially offset by:
| • | 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; and
|
| • | a decrease in expenses related to consultants and sub-contractors in an amount of $1.0 million.
|
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 million, or 24.0%, in 2021 compared to 2020, primarily due to:
| • | 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-contractorsoverhead costs in anthe amount of $1.1$1.5 million. |
GeneralSales and AdministrativeMarketing
| | 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, | | | 2022 to 2023 | |
| | 2023 | | | 2022 | | | Change | |
| | (In thousands) | |
Sales and marketing | | $ | 164,318 | | | $ | 159,680 | | | $ | 4,638 | | | | 2.9 | % |
GeneralSales and administrativemarketing expenses increased by $19.1$4.6 million, or 30.2%2.9%, in 2021the year ended December 31, 2023 compared to 2020,the year ended December 31, 2022, primarily due to:
| • | an increase in expenses related to marketing activities in the amount of $2.4 million; |
| • | an increase of $1.4 million in training-related expenses as a result of resuming training activities that had been previously cancelled or postponed due to Covid-19 restrictions in 2022; and |
| • | an increase in expenses related to overhead costs in the amount of $1.2 million. |
These were partially offset by a decrease in personnel-related costs of $1.2 million as a result of a decrease in commissions and the depreciation of the NIS against the U.S. dollar.
General and Administrative
| | Year ended December 31, | | | 2022 to 2023 | |
| | 2023 | | | 2022 | | | Change | |
| | (In thousands) | |
General and administrative | | $ | 146,504 | | | $ | 112,496 | | | $ | 34,008 | | | | 30.2 | % |
General and administrative expenses increased by $34.0 million, or 30.2%, in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to:
| • | an increase in expenses related to doubtful debt in the amount of $14.0 million; |
| • | an increase in expenses related to consultants and sub-contractors in the amount of $11.5 million; |
| • | an increase in personnel-related costs of $16.6$6.5 million resulting from an increase in our general 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 annual merit increases, partially offset by a decrease in employee equity-based compensation;stock-based compensation and the depreciation of the NIS against the U.S. dollar; and |
| • | an increase in expenses related to overhead costs in the amount of $1.5 million. |
Goodwill impairment
| | Year ended December 31, | | | 2022 to 2023 | |
| | 2023 | | | 2022 | | | Change | |
| | (In thousands) | |
Goodwill impairment | | | — | | | | 90,104 | | | | (90,104 | ) | | | (100 | )% |
Goodwill impairment decreased by $90.1 million or 100% in the year ended December 31, 2023 compared to the year ended December 31, 2022. This decrease was mainly due to a decrease in the goodwill impairment charge related to three reporting units e-Mobility, Automation Machines, and Critical Power in the year ended December 31, 2022.
Other operating expenses, net
| | Year ended December 31, | | | 2022 to 2023 | |
| | 2023 | | | 2022 | | | Change | |
| | (In thousands) | |
Other operating expenses, net | | | 31,314 | | | | 26,434 | | | | 4,880 | | | | 18.5 | % |
Other operating expenses, net, increased by $4.9 million, or 18.5% in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to:
| • | an increase of $24.5 million in impairment of property, plant and equipment income related to the announced Restructuring Plan to adjust our manufacturing capacity and increase distribution efficiency; and |
| • | an increase of $1.7 million in legal claims provision, as a result of a recent court decision against our Italian subsidiary relating to the 2019 acquisition of SolarEdge e-Mobility. |
These were partially offset by a decrease of $22.8 million in impairment of intangible assets, which was attributed to the intangible assets impairment recorded in the year ended December 31, 2022 for e-Mobility and Critical Power asset groups.
Financial income (expenses), net
| | Year ended December 31, | | | 2022 to 2023 | |
| | 2023 | | | 2022 | | | Change | |
| | (In thousands) | |
Financial income, net | | $ | 41,212 | | | $ | 3,750 | | | $ | 37,462 | | | | 999.0 | % |
Financial income, net increased by $37.5 million or 999.0% in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to:
| • | a gain of $24.2 million in the year ended December 31, 2023, compared to a loss of $1.5 million in 2022, as a result of fluctuations in foreign exchange rates, primarily between the Euro and NIS against the U.S dollar; and |
| • | an increase of $2.6$10.6 million relatedin interest income from marketable securities and loans to insurance and legal expenses.third parties. |
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 $1.4income (loss)
| | Year ended December 31, | | | 2022 to 2023 | |
| | 2023 | | | 2022 | | | Change | |
| | (In thousands) | |
Other income (loss), net | | $ | (318 | ) | | $ | 7,285 | | | $ | (7,603 | ) | | | (104.4 | )% |
Other loss was $0.3 million in 2021,the year ended December 31, 2023 compared to other operating income of $3.4$7.3 million in 2020,the year ended December 31, 2022, primarily due to a decrease in gains from the sale of an investment in a privately-held company.
Income taxes
| Year ended December 31, | | 2022 to 2023 |
| 2023 | | 2022 | | Change |
| (In thousands) |
Income taxes | $ (46,420) | | $ (83,376) | | $ 36,956 | | (44.3)% |
Income taxes decreased by $37.0 million, or 44.3%, in the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to:
| • | a decrease of $5.0 million in incomecurrent tax due to a decrease in the amount of $4.9 million relatedprofit before tax, offset by an increase in non-deductible expenses, lower tax benefits relating to stock-based compensation |
| • | and an acquired legal claim as part of the Kokam acquisition which was settledincrease in arbitration in 2019 and subsequently repaid to the Company in 2020;our provision for uncertain tax positions; and |
| • | an increase of $2.1$32.0 million in expensesdeferred tax income, mainly related to the update of the projected preferred technological enterprises tax rate change and certain write-offs of tangible assetsitems which will be tax deductible in our solar business, which we ceased using during the second quarter of 2021.future periods. |
These were partially offset by:Loss from equity method investments
| • | 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, | | | 2022 to 2023 | |
| | 2023 | | | 2022 | | | Change | |
| | (In thousands) | |
Net loss from equity method investments | | $ | (350 | ) | | $ | — | | | $ | (350 | ) | | | 100.0 | % |
Financial expenses were $19.9 million in 2021 compared to financial income of $21.1 million in 2020, primarily due to an increase of $55.6 million in financial expenses resultedNet loss from foreign exchange fluctuations, mainly between each of Euro, the New Israeli Shekel and the South Korean Won against the U.S. dollar.
These expenses were partially offsetequity method investments increased by an increase of $13.4 million in financial income related to hedging transactions.
Income taxes
| | Year ended December 31, | | | 2020 to 2021 | |
| | 2021 | | | 2020 | | | Change | |
| | (In thousands) | |
Income taxes | | | 18,054 | | | | 23,344 | | | | (5,290 | ) | | | (22.7 | )% |
Income taxes decreased by $5.3$0.4 million, or 22.7%,100% in 2021the year ended December 31, 2023 as compared to 2020, primarily due to:the year ended December 31, 2022.
| • | 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 million of current tax expenses mainly attributed to an increase in taxable income in foreign subsidiaries.
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, | | | 2022 to 2023 | |
| | 2023 | | | 2022 | | | Change | |
| | (In thousands) | |
Net income | | $ | 34,329 | | | $ | 93,779 | | | $ | (59,450 | ) | | | (63.4 | )% |
As a result of the factors discussed above, net income increaseddecreased by $28.8$59.5 million, or 20.6%63.4% in 2021the year ended December 31, 2023 as compared to 2020.the year ended December 31, 2022.
Segment analysis
Following the discontinuation of the Critical Power segment in June 2022, we operated in four different operating segments: Solar, Energy Storage, e-Mobility and Automation Machines. In October 2023, we decided to discontinue our LCV e-Mobility) activity and the remaining e-Mobility activity is included under the solar segment starting January 1, 2024. In the fourth quarter of 2023, we identified two operating segments as reportable – the Solar and the Energy Storage segments. The other operating segments are insignificant individually, and therefore, their results are presented together under “All other.”
We do not allocate our 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 (loss) is comprised of gross profit (loss) for the segment less operating expenses excluding amortization and impairment of purchased intangible assets, stock based compensation expenses, restructuring charges, discontinued activity charges, impairment of property, plant and equipment and certain other items (which are reported under "Not allocated to segments").
| | Year ended December 31, | | | 2022 to 2023 | |
| | 2023 | | | 2022 | | | Change | |
| | (In thousands) | |
Solar | | | | | | | | | | | | |
Revenues | | | 2,815,539 | | | | 2,921,175 | | | | (105,636 | ) | | | (3.6 | )% |
Segment profit | | | 364,517 | | | | 486,862 | | | | (122,345 | ) | | | (25.1 | )% |
Energy Storage | | | | | | | | | | | | | | | | |
Revenues | | | 83,717 | | | | 76,325 | | | | 7,392 | | | | 9.7 | % |
Segment loss | | | (60,119 | ) | | | (13,863 | ) | | | (46,256 | ) | | | 333.7 | % |
All other | | | | | | | | | | | | | | | | |
Revenues | | | 76,438 | | | | 112,165 | | | | (35,727 | ) | | | (31.9 | )% |
Segment loss | | | (14,374 | ) | | | (31,274 | ) | | | 16,900 | | | | (54.0 | )% |
Not allocated to segments | | | | | | | | | | | | | | | | |
Revenues | | | 834 | | | | 614 | | | | 220 | | | | 35.8 | % |
Segment loss | | | (249,819 | ) | | | (275,605 | ) | | | 25,786 | | | | (9.4 | )% |
Solar
Solarrevenues decreased by $105.6 million, or 3.6%, in the year ended December 31, 2023, as compared to the year ended December 31, 2022 primarily due to a $58.2 million decrease in the amount of ancillary solar products sold and a $50.8 million decrease in the number of batteries sold for PV applications. As discussed above, this decrease in revenues was due to high inventory in the channels and slower than expected installation rates beginning in the third quarter of 2023, leading to substantial unexpected cancellations and push outs of existing backlog from our European distributors.
Solar operating profit decreased by $122.3 million, or 25.1%, in the year ended December 31, 2023, as compared to the year ended December 31, 2022. This decrease was mainly due to the decrease in revenue followed by a lower decrease of $55.6 million in cost of revenues, which was primarily caused by a decrease of $96.5 million in direct cost of revenues and a decrease of $43.0 million in shipment and logistic costs, which were offset by an increase of $78.0 million in warranty expenses and an increase of $13.2 million in inventory write-downs. Additionally, operating expenses increased by $72.3 million, primarily due to higher personnel-related costs, expenses related to consultants and sub-contractors and an increase in expenses related to doubtful debt.
Energy Storage
Energy Storagerevenues increased by $7.4 million, or 9.7%, in the year ended December 31, 2023, as compared to the year ended December 31, 2022.
Energy Storage operating loss increased by $46.3 million, or 333.7%, in the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase in operating loss was primarily due to an increase of $48.8 million in cost of revenues associated with ramp-up cost and an increase in inventory accrual, both related to the start of manufacturing in our Sella 2 factory.
All other
All other segmentsrevenues decreased by $35.7 million, or 31.9%, in the year ended December 31, 2023, as compared to the year ended December 31, 2022 primarily due to the discontinuation of the Company’s LCV e-Mobility activity and the discontinuation of our Critical Power activity.
All other segments operating loss decreased by $16.9 million, or 54.0%, in the year ended December 31, 2023, as compared to the year ended December 31, 2022. This improvement was mainly due to a decrease in warranty accruals related to our LCV e-Mobility activity, a reduction in personnel-related expenses, and a decrease in the loss incurred in the year ended December 31, 2022 associated with the discontinued Critical Power business.
Not allocated to segments
Not allocated to segmentsrevenues increased by $0.2 million, or 35.8%, in the year ended December 31, 2023, as compared to the year ended December 31, 2022.
Not allocated to segments operating loss decreased by $25.8 million, or 9.4%, in the year ended December 31, 2023, as compared to the year ended December 31, 2022. The decrease was mainly due to a decrease in goodwill and intangible assets impairment charges, which were related to our LCV e-Mobility activity during the year ended December 31, 2022. However, during the year ended December 31, 2023 we have experienced an increase in costs related to the Restructuring Plan, including costs related to the discontinuation of the Company's LCV e-Mobility activity, and an increase in impairment of property, plant, and equipment, all of which are not assessed by our CODM and therefore not allocated to any of the segments above.
Liquidity and Capital Resources
The following table shows our cash flows from operating activities, investing activities, and financing activities for the stated periods:
| | Year ended December 31, | | | Year ended December 31, | |
| | 2021 | | | 2020 | | | 2023 | | | 2022 | |
| | (In thousands) | | | (In thousands) | |
Net cash provided by operating activities | | 214,129 | | | 222,655 | | |
Net cash provided by (used in) operating activities | | | $ | (180,113 | ) | | $ | 31,284 | |
Net cash used in investing activities | | (484,211 | ) | | (236,637 | ) | | (268,894 | ) | | (417,044 | ) |
Net cash provided by (used in) financing activities | | | (15,178 | ) | | | 640,484 | | | | (11,956 | ) | | | 654,607 | |
Increase (decrease) in cash, cash equivalents and restricted cash | | | (285,260 | ) | | | 626,502 | | | $ | (460,963 | ) | | $ | 268,847 | |
As of December 31, 2021,2023, our cash and cash equivalents were $530.1$338.5 million. This amount does not include $650.0$929.4 million invested in available for sale marketable securities and $0.3 million invested in short-term restricted bank deposits and $1.5 million invested in long-term restricted bank deposits. Our principal uses of cash are for funding our operations, capital expenditures, other working capital requirements, other investments and other investments.potential future share repurchases. As of December 31, 2021,2023, we have open commitments for capital expenditures in anthe amount of approximately $168.5$95.5 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$1,041.3 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 byused in operating activities consists of net income adjusted for certain non-cash items and changes in assets and liabilities. Cash used in operating activities was $180.1 million in the year ended December 31, 2023 as compared to $31.3 million cash provided by operating activities decreased by $8.5 million in 2021 as compared to 2020,the year ended December 31, 2022, mainly due to unfavorable changes inlower net income adjusted for certain non-cash items, as well as higher operating working capital requirements, specifically, an increase in 2021 compared to the prior year, partially offset by higher net income.inventory procurement and manufacturing.
Investing Activities
Investing cash flows consist primarily of cash used for capital expenditures, cash provided by government grants for capital expenditures, investment in, sales and maturities of available for sale marketable securities, investment and withdrawal of bank deposits and restricted bank deposits, and cash used for acquisitions.acquisitions, cash provided by the sale of equity investments and disbursements and receipts from loans made by the Company. Cash used for investing activities increaseddecreased by $247.6$148.2 million in 2021the year ended December 31, 2023 as compared to 2020,the year ended December 31, 2022, primarily driven by a $355.7decrease of $210.8 million increase in purchases of available-for-sale debt investments net, an increase of $22.5 million in capital expenditures and an increase of $19.6$49.0 million cash used for asset acquisitionsin proceeds from sales and investments in a privately held company.maturities of available-for-sale debt investments. This increase was partially offset by an increase of $58.0 million in disbursements of loans made by the Company, a $90.4decrease of $23.0 million decreasein proceeds provided by the sale of a privately-held company, an increase of $16.7 million in cash used for investmenta business combination and an increase of $11.2 million in bank deposits and restricted bank deposits, net.the purchase of intangible assets.
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 through employee equity incentive plans.in a public offering, and proceeds provided by the exercise of stock-based awards and withholding taxes remitted to the tax authorities related to stock-based awards. Cash used forin financing activities in 2021the year ended December 31, 2023 was $15.2$12.0 million, compared to $640.5$654.6 million cash provided by financing activities in 2020,the year ended December 31, 2022, primarily due to a $617.9$650.5 million decrease in cash provided by the issuance of the Notes,common stock, net, through a secondary public offering which occurred in March 2022 and a decrease of $19.3$38.6 million in cash received fromproceeds provided by the exercise of stock-based awards netawards. This was partially offset by a decrease of $22.5 million in withholding taxes remitted to the tax authorities and an increaserelated to the exercise of $17.4 million in bank loans repayments, net.stock-based awards.
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 1517 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 19b to our consolidated financial statements for more information).
Share Repurchases
On November 1, 2023, we announced the approval by the Board of Directors of a share repurchase program which authorizes the repurchase of up to $300 million of the Company’s common stock. Under the share repurchase program, repurchases can be made using a variety of methods, which may include open market purchases, block trades, privately negotiated transactions, accelerated share repurchase programs and/or a non-discretionary trading plan or other means, including through 10b5-1 trading plans, all in compliance with the rules of the SEC and other applicable legal requirements. The timing, manner, price and amount of any common share repurchases under the share repurchase program are determined by the Company in its discretion and depend on a variety of factors, including legal requirements, price and economic and market conditions. The program does not obligate SolarEdge to acquire any amount of common stock, it may be suspended, extended, modified, discontinued or terminated at any time at the Company’s discretion without prior notice, and will expire on December 31, 2024.
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 ancillary 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 notes15 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
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 for PV applications. 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 and for our batteries for PV applications that exceedextend 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 substantially shorter than the warranty period, the calculation of warranty provisions is inherently uncertain.
We accrue for estimated warranty costs at the time of sale based on anticipated warranty claims and actual historical warranty claims experience. Warranty provisions, computed on a per-unit sold basis, are based on our best estimate of such costs and are included in our cost of revenues. The warranty obligation is determined based on actual and predicted failure rates of the products, cost of replacement and service and delivery costs incurred to correct a product failure. Our warranty obligation requires management to make assumptions regarding estimated failure rates and replacement costs.
In order to predict the failure rate of each of our products, we have established a reliability model based on the estimated mean time between failures (“MTBF”). The MTBF represents the average elapsed time predicted for each product unit between failures during operation. Applying the MTBF failure rate over our install base for each product type and generation allows us to predict the number of failed units over the warranty period and estimates the costs associated with the product warranty. Predicted failure rates are updated periodically based on data returned from the field and new product versions, as are replacement costs which are updated to reflect changes in our actual production costs for our products, subcontractors’ labor costs, and actual logistics costs.
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 $83.8125.1 million power optimizers and approximately $3.55.6 million inverters as of December 31, 2021.2023.
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$518.2 million and $265.2$385.1 million, in the year ended December 31, 20202023 and 2021,2022, respectively.
See Note 2u "warranty obligations"Notes 2w and Note 1214 "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
Our inventories comprise sellable finished goods, raw materials bought for our own manufacturing facilities 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$46.4 million and $7.1$10.2 million, in the year ended December 31, 20202023 and 2021,2022, 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 NoteNotes 2j "Inventories" and Note 4 "Inventories, net" of the notes5 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
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 2m "Business Combination" of the notes2n and Note 3 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 during
The more significant estimates and assumptions inherent in the estimate of the fair value of finite-lived intangible assets include (i) assumptions associated with forecasting product profitability, including sales and cost to sell projections, (ii) tax rates which seek to incorporate the geographic diversity of the projected cash flows, (iii) expected impact of competitive, legal and/or regulatory forces on the projections and the impact of technological risk, R&D expenditure for ongoing support of product rights, and (iv) estimated useful lives.
During the year ended December 31, 2021.2023, we recorded impairment charge of $5.6 million mainly related to intangible assets within the Solar 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 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 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 estimate the fair values of all reporting units using a discounted cash flow model which utilizes Level 3 unobservable inputs. Key estimates include the revenue growth rates taking into consideration industry and market conditions, terminal growth rate and the discount rate. The discount rate used is based on the WACC, adjusted for the relevant risk associated with country-specific and business-specific characteristics. The carrying value of each reporting unit is determined by assigning the assets and liabilities, including the existing goodwill, to those reporting units.
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, determinesdetermine whether goodwill should be impaired. During the year ended December 31, 2021,2023, no impairment of goodwill has been identified.
See Note 2o "Goodwill" of the notesNotes 2.q and 10 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.
Government grants
In August 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the “IRA”), which contains several provisions intended to accelerate U.S. manufacturing and adoption of clean energy such as solar. Some of the applicable provisions in IRA include the extension of the Production Tax Credit through 2034. These provisions of the law are new and regulations and guidance concerning their implementation are gradually being published by the U.S. Treasury Department. Section 45X of the IRA offers advanced manufacturing production tax credits ("AMPTC"), that incentivize the production of eligible components within the United States. To that end, we established manufacturing capabilities in the United States in 2023 and announced additional capacity planned for 2024. IRA allows taxpayers to elect to have AMPTCs refunded in cash ("direct pay") or transfer these credits to a third party. In addition to using the tax credits to offset tax due to the U.S. government, the direct pay option is available as a one-time election, in any taxable year after December 31, 2022, for a facility in which eligible components are produced, and is applicable for five years.
Refundable and transferable tax credits are similar in essence to government grants. This is because the taxpayer can realize the benefit regardless of whether they owe income tax or not in the relevant years. Therefore, these amounts are not considered income taxes and fall outside the scope of Topic 740. Instead, they are treated as government grants.
Government grants are recognized when there is reasonable assurance that: (1) we will comply with the relevant conditions and (2) the grant disbursement will be received. We recognize PTCs as a reduction in the cost of revenues in the statement of income. We do this systematically over time as we recognize the related expenses. Alternatively, we recognize the grant immediately if it compensates us for expenses that we have already incurred. The AMPTCs are also reflected in the consolidated balance sheet as a reduction of income tax payable within accrued expenses and other liabilities, as a tax prepayment, or as AMPTCs to be sold within prepayment and other assets. The way we expects to utilize the AMPTCs determines where they are recorded. In the year ended December 31, 2023, we recognized AMPTCs worth $6.0 million for inverters produced in the United States and sold to customers. As of December 31, 2023, benefits recognized from AMPTCs of $6.0 were recorded as a tax prepayment within prepayment and other current assets.
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 notes2.af and 25 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. 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%68.2%, 52.2%60.1% and 54.3% of our revenues for the years ended December 31, 2019, 20202023, 2022 and 2021, respectively, were earned in non U.S.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$194.7 million for the year ended December 31, 2021.2023. 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$39.3 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, 2021.2023.
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, from time to time we also enteredenter into derivative instrument arrangementsfinancial instruments to hedge the Company’s exposure to currencies other than the U.S. dollar, mainly forward contracts or put and call options to sell Euro for 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.dollars. These derivative instruments are not designated as cash flow hedges.
We had cash and cash equivalents and restricted cash of $827.1$338.5 million and $530.1$783.1 million at the endas of the year ending December 31, 20202023 and the year ended December 31, 2021,2022, respectively, which was held for working capital purposes. We had available-for-sale marketable securities with an estimated fair value of 291.1$929.4 million and 650.0$886.6 million onas of December 31, 20202023 and December 31, 2021,2022, respectively. In addition, we had bank deposits of $60.1 million as of December 31, 2020. We had restricted bank deposits of $2.60.3 million and $1.9 million as of December 31, 20202023 and December 31, 2021,2022, 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, 2021,2023, two major customers accounted for 30.9%24.0% of our total revenues, and as of December 31, 2021, two2023, three major customers accounted for approximately 39.3%46.8% of our consolidated trade receivables balance. For the year ended December 31, 2020,2022, one major customercustomers accounted for 14.8%18.5% of total revenues, and as of December 31, 2020,2022, two major customers accounted for approximately 34.6%42.2% of our consolidated trade receivables 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-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, 20212023 and 2020,2022, 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, 2021,2023, 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, 20212023 and 2020,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021,2023, 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, 2021,2023, 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, 202226, 2024 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 MatterMatters
The critical audit mattermatters communicated below is a matterare matters arising from the current period audit of the financial statements that waswere communicated or required to be communicated to the audit committee and that: (1) relatesrelate 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 mattermatters 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 mattermatters below, providing a separate opinionopinions on the critical audit mattermatters or on the account or disclosuredisclosures to which it relates.they relate.
Description of the Matter | | As described in Notes 2u2w and 1214 to the consolidated financial statements, as of December 31, 2021,2023, the warranty obligation was $265,160$512,748 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.optimizers and 10 years for batteries for PV applications. 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.
Our
To 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. |
Valuation of Inventories - Provisions for Excess Inventories and excess product for the contractual obligations
Description of the Matter | | As of December 31, 2023, the Company’s consolidated inventories balance was $1,443 thousand and the Company’s contractual obligations to purchase inventories from contract manufacturers ("contractual purchase obligations") were $543 thousand.
As described in Notes 1, 5 and 20 to the consolidated financial statements, the Company values its inventories at the lower of cost or net realizable value. Reserves for potentially excess inventories and excess product contractual purchase obligations are made based on management's analysis of inventory levels, future sales forecasts, and market conditions.
Auditing the valuation of inventory reserves for the excess inventories and excess product contractual purchase obligations were complex and subject to judgment due to the significant estimates and assumptions required by management to calculate the reserves, especially, the future salability of the inventories. These assumptions include the assessment by inventory category of future demand and market conditions for the Company's products.
|
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 Company's excess inventory reserve process and excess product contractual purchase obligations including management's assessment of the underlying assumptions and data.
To test the valuation of inventory reserve for the excess inventories and excess product contractual purchase obligations our substantive audit procedures included, among others, evaluating the reasonableness of the significant assumptions used by management including those related to forecasted inventory usage, future demand, and market conditions. We examined the completeness, accuracy, and relevance of the underlying data used in management's estimate. We held discussions with appropriate non-financial personnel including sales, R&D and operating management, regarding strategic or operational changes in the business would impact expected demand or related carrying value of inventories, introduction of new products and other factors to corroborate management's assertions regarding excess inventories. We performed an examination of historical forecasted sales estimation to actual utilization of inventories and performed sensitivity analysis on demand assumptions to evaluate the changes in the inventory reserve that would result from changes in the assumptions. |
/s/ Kost Forer Gabbay & Kasierer
A Member of Ernst & YoungEY Global
We have served as the Company's auditor since 2007.
Tel-Aviv, Israel
February 2226, 2024, 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’'s internal control over financial reporting as of December 31, 2021,2023, 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, 2021,2023, 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, 20212023 and 2020,2022, 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, 2021,2023, and the related notes and our report dated February 22, 202226, 2024 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, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Kost Forer Gabbay & Kasierer
A Member of Ernst & YoungEY Global
Tel-Aviv, Israel
February 2226, 2024, 2022
SOLAREDGE TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS (in thousands, except per share data)
| | December 31, | | | December 31, | |
| | 2021 | | | 2020 | | | 2023 | | | 2022 | |
ASSETS | | | | | | | | | | | | |
CURRENT ASSETS: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 530,089 | | | $ | 827,146 | | | $ | 338,468 | | | $ | 783,112 | |
Marketable securities | | 167,728 | | | 143,687 | | | 521,570 | | | 241,117 | |
Trade receivables, net of allowances of $2,626 and $2,886, respectively | | | 456,339 | | | | 218,706 | | |
Trade receivables, net of allowances of $16,400 and $3,202, respectively | | | | 622,425 | | | | 905,146 | |
Inventories, net | | 380,143 | | | 331,696 | | | 1,443,449 | | | 729,201 | |
Prepaid expenses and other current assets | | | 176,992 | | | | 198,106 | | | | 378,394 | | | | 241,082 | |
Total current assets | | | 1,711,291 | | | | 1,719,341 | | | | 3,304,306 | | | | 2,899,658 | |
LONG-TERM ASSETS: | | | | | | | | | | | | | | | | |
Marketable securities | | 482,228 | | | 147,434 | | | 407,825 | | | 645,491 | |
Deferred tax assets, net | | | 27,572 | | | | 11,676 | | | | 80,912 | | | | 44,153 | |
Property, plant and equipment, net | | 410,379 | | | 303,408 | | | 614,579 | | | 543,969 | |
Operating lease right-of-use assets, net | | | 47,137 | | | | 41,600 | | | | 64,167 | | | | 62,754 | |
Intangible assets, net | | 58,861 | | | 67,818 | | | 35,345 | | | 19,929 | |
Goodwill | | | 129,629 | | | | 140,479 | | | | 42,996 | | | | 31,189 | |
Other long-term assets | | | 24,963 | | | | 5,353 | | | | 37,601 | | | | 18,806 | |
Total long-term assets | | | 1,180,769 | | | | 717,768 | | | | 1,283,425 | | | | 1,366,291 | |
Total assets | | $ | 2,892,060 | | | $ | 2,437,109 | | | $ | 4,587,731 | | | $ | 4,265,949 | |
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 | | | 2023 | | | 2022 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | | | | | |
Trade payables, net | | $ | 252,068 | | | $ | 162,051 | | | $ | 386,471 | | | $ | 459,831 | |
Employees and payroll accruals | | 74,465 | | | 63,738 | | | 76,966 | | | 85,158 | |
Warranty obligations | | | 71,480 | | | | 62,614 | | | | 183,047 | | | | 103,975 | |
Deferred revenues and customers advances | | 17,789 | | | 24,648 | | | 40,836 | | | 26,641 | |
Accrued expenses and other current liabilities | | | 109,379 | | | | 123,048 | | | | 205,911 | | | | 214,112 | |
Total current liabilities | | | 525,181 | | | | 436,099 | | | | 893,231 | | | | 889,717 | |
LONG-TERM LIABILITIES: | | | | | | | | | | | | | | | | |
Convertible senior notes, net | | 621,535 | | | 573,350 | | | $ | 627,381 | | | $ | 624,451 | |
Warranty obligations | | | 193,680 | | | | 142,380 | | | | 335,197 | | | | 281,082 | |
Deferred revenues | | 151,556 | | | 115,372 | | | 214,607 | | | 186,936 | |
Finance lease liabilities | | | 40,508 | | | | 26,173 | | | | 41,892 | | | | 45,385 | |
Operating lease liabilities | | 38,912 | | | 35,194 | | | 45,070 | | | 46,256 | |
Other long-term liabilities | | | 10,649 | | | | 22,784 | | | | 18,444 | | | | 15,756 | |
Total long-term liabilities | | | 1,056,840 | | | | 915,253 | | | | 1,282,591 | | | | 1,199,866 | |
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, 2023 and December 31, 2022; issued and outstanding: 57,123,437 and 56,133,404 shares as of December 31, 2023 and December 31, 2022, respectively | | | | 6 | | | | 6 | |
Additional paid-in capital | | 687,295 | | | 603,891 | | | 1,680,622 | | | 1,505,632 | |
Accumulated other comprehensive income (loss) | | | (27,319 | ) | | | 3,857 | | |
Accumulated other comprehensive loss | | | | (46,885 | ) | | | (73,109 | ) |
Retained earnings | | | 650,058 | | | | 478,004 | | | | 778,166 | | | | 743,837 | |
Total stockholders’ equity | | | 1,310,039 | | | | 1,085,757 | | | | 2,411,909 | | | | 2,176,366 | |
Total liabilities and stockholders’ equity | | $ | 2,892,060 | | | $ | 2,437,109 | | | $ | 4,587,731 | | | $ | 4,265,949 | |
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, | |
| | 2023 | | | 2022 | | | 2021 | |
Revenues | | $ | 2,976,528 | | | $ | 3,110,279 | | | $ | 1,963,865 | |
Cost of revenues | | | 2,272,705 | | | | 2,265,631 | | | | 1,334,547 | |
Gross profit | | | 703,823 | | | | 844,648 | | | | 629,318 | |
Operating expenses: | | | | | | | | | | | | |
Research and development | | | 321,482 | | | | 289,814 | | | | 219,633 | |
Sales and marketing | | | 164,318 | | | | 159,680 | | | | 119,000 | |
General and administrative | | | 146,504 | | | | 112,496 | | | | 82,196 | |
Goodwill impairment | | | - | | | | 90,104 | | | | - | |
Other operating expenses, net | | | 31,314 | | | | 26,434 | | | | 1,350 | |
Total operating expenses | | | 663,618 | | | | 678,528 | | | | 422,179 | |
Operating income | | | 40,205 | | | | 166,120 | | | | 207,139 | |
Financial income (expense), net | | | 41,212 | | | | 3,750 | | | | (20,014 | ) |
Other income (loss), net | | | (318 | ) | | | 7,285 | | | | 99 | |
Income before income taxes | | | 81,099 | | | | 177,155 | | | | 187,224 | |
Income taxes | | | 46,420 | | | | 83,376 | | | | 18,054 | |
Net loss from equity method investments | | | 350 | | | | - | | | | - | |
Net income | | $ | 34,329 | | | $ | 93,779 | | | $ | 169,170 | |
Net basic earnings per share of common stock | | $ | 0.61 | | | $ | 1.70 | | | $ | 3.24 | |
Net diluted earnings per share of common stock | | $ | 0.60 | | | $ | 1.65 | | | $ | 3.06 | |
Weighted average number of shares used in computing net basic earnings per share of common stock | | | 56,557,106 | | | | 55,087,770 | | | | 52,202,182 | |
Weighted average number of shares used in computing net diluted earnings per share of common stock | | | 57,237,518 | | | | 58,100,649 | | | | 55,971,030 | |
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, | |
| | 2023 | | | 2022 | | | 2021 | |
Net income | | $ | 34,329 | | | $ | 93,779 | | | $ | 169,170 | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | | |
Available-for-sale marketable securities | | | 20,489 | | | | (20,740 | ) | | | (4,949 | ) |
Cash flow hedges | | | 5,701 | | | | (2,635 | ) | | | 874 | |
Foreign currency translation adjustments on intra-entity transactions that are of a long-term investment nature | | | (5,375 | ) | | | (20,540 | ) | | | (17,420 | ) |
Foreign currency translation adjustments | | | 5,409 | | | | (1,875 | ) | | | (9,681 | ) |
Total other comprehensive income (loss) | | | 26,224 | | | | (45,790 | ) | | | (31,176 | ) |
Comprehensive income | | $ | 60,553 | | | $ | 47,989 | | | $ | 137,994 | |
The accompanying notes are an integral part of the consolidated financial statements.
SOLAREDGE TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF INCOMESTOCKHOLDERS’ EQUITY (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 | |
| | 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, 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, net | | | - | | | | - | | | | - | | | | (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, net | | | - | | | | - | | | | - | | | | (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 | |
Issuance of common stock upon exercise of stock-based awards | | | 790,745 | | | | * - | | | | 226 | | | | - | | | | - | | | | 226 | |
Issuance of Common stock under employee stock purchase plan | | | 199,288 | | | | * - | | | | 20,693 | | | | - | | | | - | | | | 20,693 | |
Stock based compensation | | | - | | | | - | | | | 154,071 | | | | - | | | | - | | | | 154,071 | |
Other comprehensive income adjustments, net | | | - | | | | - | | | | - | | | | 26,224 | | | | - | | | | 26,224 | |
Net income | | | - | | | | - | | | | - | | | | - | | | | 34,329 | | | | 34,329 | |
Balance as of December 31, 2023 | | | 57,123,437 | | | $ | 6 | | | $ | 1,680,622 | | | $ | (46,885 | ) | | $ | 778,166 | | | $ | 2,411,909 | |
* Represents an amount less than $1.
The accompanying notes are an integral part of the consolidated financial statements.
SOLAREDGE TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)CASH FLOWS (in thousands, except per share data)
| | 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 | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | | | 2021 | |
Cash flows from operating activities: | | | | | | | | | |
Net income | | $ | 34,329 | | | $ | 93,779 | | | $ | 169,170 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 57,196 | | | | 49,676 | | | | 39,535 | |
Loss (gain) from exchange rate fluctuations | | | (26,878 | ) | | | 9,527 | | | | 21,131 | |
Stock-based compensation expenses | | | 149,945 | | | | 145,539 | | | | 102,593 | |
Impairment of goodwill and long-lived assets | | | 30,790 | | | | 119,141 | | | | - | |
Deferred income taxes, net | | | (43,071 | ) | | | (11,055 | ) | | | (12,045 | ) |
Other items | | | 8,164 | | | | 4,382 | | | | 11,931 | |
Changes in assets and liabilities: | | | | | | | | | | | | |
Inventories, net | | | (690,854 | ) | | | (341,085 | ) | | | (43,051 | ) |
Prepaid expenses and other assets | | | (91,523 | ) | | | (64,991 | ) | | | (39,444 | ) |
Trade receivables, net | | | 296,429 | | | | (457,610 | ) | | | (247,723 | ) |
Trade payables, net | | | (67,795 | ) | | | 194,524 | | | | 91,709 | |
Employees and payroll accruals | | | 21,419 | | | | 26,238 | | | | 26,519 | |
Warranty obligations | | | 133,090 | | | | 120,169 | | | | 60,524 | |
Deferred revenues and customers advances | | | 39,632 | | | | 44,376 | | | | 29,936 | |
Accrued expenses and other liabilities, net | | | (30,986 | ) | | | 98,674 | | | | 3,344 | |
Net cash provided by (used in) operating activities | | | (180,113 | ) | | | 31,284 | | | | 214,129 | |
Cash flows from investing activities: | | | | | | | | | | | | |
Investment in available-for-sale marketable securities | | | (296,396 | ) | | | (507,171 | ) | | | (579,377 | ) |
Proceeds from sales and maturities of available-for-sale marketable securities | | | 280,189 | | | | 231,210 | | | | 202,188 | |
Purchase of property, plant and equipment | | | (170,523 | ) | | | (169,341 | ) | | | (149,251 | ) |
Disbursements for loans receivables | | | (58,000 | ) | | | - | | | | - | |
Business combinations, net of cash acquired | | | (16,653 | ) | | | - | | | | - | |
Purchase of intangible assets | | | (10,600 | ) | | | - | | | | - | |
Investment in privately-held companies | | | (8,000 | ) | | | - | | | | (16,643 | ) |
Proceeds from governmental grant | | | 6,794 | | | | 4,479 | | | | - | |
Proceeds from sale of a privately-held company | | | 1,313 | | | | 24,362 | | | | - | |
Withdrawal from bank deposits, net | | | - | | | | - | | | | 60,096 | |
Other investing activities | | | 2,982 | | | | (583 | ) | | | (1,224 | ) |
Net cash used in investing activities | | $ | (268,894 | ) | | $ | (417,044 | ) | | $ | (484,211 | ) |
SOLAREDGE TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.)
(in thousands, except per share data)
| | Year ended December 31, | |
| | 2023 | | | 2022 | | | 2021 | |
Cash flows from financing activities: | | | | | | | | | |
Tax withholding in connection with stock-based awards, net | | $ | (9,259 | ) | | $ | 3,023 | | | $ | (4,283 | ) |
Payments of finance lease liability | | | (2,794 | ) | | | (2,834 | ) | | | (1,308 | ) |
Proceeds from secondary public offering, net of issuance costs | | | - | | | | 650,526 | | | | - | |
Repayment of bank loans | | | (129 | ) | | | (138 | ) | | | (16,073 | ) |
Other financing activities | | | 226 | | | | 4,030 | | | | 6,486 | |
Net cash provided by (used in) financing activities | | | (11,956 | ) | | | 654,607 | | | | (15,178 | ) |
| | | | | | | | | | | | |
Increase (decrease) in cash and cash equivalents | | | (460,963 | ) | | | 268,847 | | | | (285,260 | ) |
Cash and cash equivalents at the beginning of the period | | | 783,112 | | | | 530,089 | | | | 827,146 | |
Effect of exchange rate differences on cash and cash equivalents | | | 16,319 | | | | (15,824 | ) | | | (11,797 | ) |
Cash and cash equivalents at the end of the period | | $ | 338,468 | | | $ | 783,112 | | | $ | 530,089 | |
| | | | | | | | | | | | |
Supplemental disclosure of non-cash activities: | | | | | | | | | | | | |
Purchase of intangible assets and business combinations | | $ | 11,307 | | | $ | - | | | $ | - | |
Right-of-use asset recognized with corresponding lease liability | | $ | 18,077 | | | $ | 46,004 | | | $ | 20,526 | |
Purchase of property, plant and equipment | | $ | 6,323 | | | $ | 16,016 | | | $ | 10,781 | |
| | | | | | | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | | | | | | |
Cash paid for income taxes | | $ | 137,981 | | | $ | 74,689 | | | $ | 45,977 | |
The accompanying notes are an integral part of the consolidated financial statements.
SOLAREDGE TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, | |
| | 2021 | | | 2020 | | | 2019 | |
Cash flows provided by operating activities: | | | | | | | | | |
Net income | | $ | 169,170 | | | $ | 140,322 | | | $ | 144,957 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation of property, plant and equipment | | | 29,359 | | | | 22,355 | | | | 17,261 | |
Amortization of intangible assets | | | 10,176 | | | | 9,479 | | | | 9,634 | |
Amortization of debt discount and debt issuance costs | | | 2,903 | | | | 3,185 | | | | 0 | |
Amortization of premium and accretion of discount on available-for-sale marketable securities, net | | | 9,462 | | | | 1,168 | | | | 92 | |
Stock-based compensation expenses | | | 102,593 | | | | 67,309 | | | | 60,353 | |
Deferred income taxes, net | | | (12,045 | ) | | | (2,738 | ) | | | (6,037 | ) |
Exchange rate fluctuations and other items, net | | | 20,697 | | | | 3,860 | | | | 8,174 | |
Changes in assets and liabilities: | | | | | | | | | | | | |
Inventories, net | | | (43,051 | ) | | | (149,661 | ) | | | (22,544 | ) |
Prepaid expenses and other assets | | | (39,444 | ) | | | (3,276 | ) | | | (67,323 | ) |
Trade receivables, net | | | (247,723 | ) | | | 86,538 | | | | (124,071 | ) |
Trade payables, net | | | 91,709 | | | | 3,333 | | | | 47,837 | |
Employees and payroll accruals | | | 26,519 | | | | 18,315 | | | | 18,592 | |
Warranty obligations | | | 60,524 | | | | 32,274 | | | | 50,780 | |
Deferred revenues and customers advances | | | 29,936 | | | | (21,438 | ) | | | 83,137 | |
Other liabilities, net | | | 3,344 | | | | 11,630 | | | | 38,158 | |
Net cash provided by operating activities | | | 214,129 | | | | 222,655 | | | | 259,000 | |
Cash flows from investing activities: | | | | | | | | | | | | |
Investment in available-for-sale marketable securities | | | (579,377 | ) | | | (223,705 | ) | | | (160,054 | ) |
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 | ) |
Withdrawal from (investment in) bank deposits, net | | | 60,096 | | | | (54,752 | ) | | | 4,860 | |
Withdrawal from (investment in) restricted bank deposits, net | | | 798 | | | | 25,267 | | | | (26,145 | ) |
Business combinations, net of cash acquired | | | 0 | | | | 0 | | | | (38,435 | ) |
Other investing activities | | | (2,022 | ) | | | 1,504 | | | | (3,261 | ) |
Net cash used in investing activities | | $ | (484,211 | ) | | $ | (236,637 | ) | | $ | (152,853 | ) |
SOLAREDGE TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.)
(in thousands, except per share data)
| | Year ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
Cash flows from financing activities: | | | | | | | | | |
Repayment of bank loans | | $ | (16,073 | ) | | $ | (15,595 | ) | | $ | (9,514 | ) |
Proceeds from exercise of stock-based awards and payment of withholding taxes | | | 2,203 | | | | 21,500 | | | | 9,066 | |
Proceeds from issuance of convertible senior notes, net | | | 0 | | | | 617,869 | | | | 0 | |
Proceeds from bank loans | | | 0 | | | | 16,944 | | | | 249 | |
Change in non-controlling interests | | | 0 | | | | 0 | | | | (71,468 | ) |
Other financing activities | | | (1,308 | ) | | | (234 | ) | | | (1,354 | ) |
Net cash provided by (used in) financing activities | | | (15,178 | ) | | | 640,484 | | | | (73,021 | ) |
Increase (decrease) in cash and cash equivalents | | | (285,260 | ) | | | 626,502 | | | | 33,126 | |
Cash and cash equivalents at the beginning of the period | | | 827,146 | | | | 223,901 | | | | 187,764 | |
Effect of exchange rate differences on cash and cash equivalents | | | (11,797 | ) | | | (23,257 | ) | | | 3,011 | |
Cash and cash equivalents at the end of the period | | $ | 530,089 | | | $ | 827,146 | | | $ | 223,901 | |
| | | | | | | | | | | | |
Supplemental disclosure of non-cash activities: | | | | | | | | | | | | |
Right-of-use asset recognized with corresponding lease liability | | $ | 20,526 | | | $ | 29,623 | | | $ | 37,298 | |
Issuance of common stock upon business combination | | $ | 0 | | | $ | 0 | | | $ | 34,601 | |
| | | | | | | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | | | | | | |
Cash paid for income taxes | | $ | 45,977 | | | $ | 38,990 | | | $ | 41,076 | |
Cash paid for interest on bank loans | | $ | 36 | | | $ | 321 | | | $ | 1,096 | |
The accompanying notes are an integral part of the consolidated financial statements.NOTE 1: GENERAL
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 - coupledDC-coupled battery for full or partial home backup capabilities, and optional connection to the Company's smart EV charger, (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 solutionbatteries for PV applications that isare used to increase energy independence and maximize self-consumption for homeownersPV system's owners 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 and batteries 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”).
On April 6, 2023, the Company completed the acquisition of all outstanding shares of Hark Systems Ltd. ("Hark"), a UK-based energy IoT company for the commercial and industrial ("C&I") sector.
In October 2023, the Company decided to discontinue its light commercial vehicle e-Mobility ("LCV") activity (see Note 24).