UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended | |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to | |
Commission File No.
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(Exact name of registrant as specified in its charter)
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(Registrant’s telephone number, including area code) ____________________________________________________________________ | ||
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Securities registered pursuant to Section 12(b) of the Act: | ||
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Title of each class |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller Reporting Company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Yes ☐ No |
As of October 25, 2021, there were:
SOLAREDGE TECHNOLOGIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2021
INDEX
2
PART I. FINANCIAL INFORMATION
ITEM 1FINANCIAL STATEMENTS
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2021
IN U.S. DOLLARS
UNAUDITED
INDEX
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Page |
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F-2 | |
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F-4 | |
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F-5 | |
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F-6 | |
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F-8 | |
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F-10 |
3
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
U.S. dollars in thousands (except share and per share data)
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September 30, 2021 |
December 31, 2020 | ||||||
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ASSETS | |||||||
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CURRENT ASSETS: | |||||||
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Cash and cash equivalents |
$ |
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$ |
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Short-term bank deposits |
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Restricted bank deposits |
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Marketable securities |
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Trade receivables, net of allowances of $ |
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Inventories, net |
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Prepaid expenses and other current assets |
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Total current assets |
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LONG-TERM ASSETS: | |||||||
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Marketable securities |
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Deferred tax assets, net |
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Property, plant and equipment, net |
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Operating lease right-of-use assets, net |
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Intangible assets, net |
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Goodwill |
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Other long-term assets |
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Total long-term assets |
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Total assets |
$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
F - 2
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Cont.)
U.S. dollars in thousands (except share and per share data)
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September 30, 2021 |
December 31, 2020 | ||||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
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CURRENT LIABILITIES: | |||||||
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Trade payables, net |
$ |
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$ |
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Employees and payroll accruals |
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Current maturities of bank loans and accrued interest |
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Warranty obligations |
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Deferred revenues and customers advances |
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Accrued expenses and other current liabilities |
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Total current liabilities |
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LONG-TERM LIABILITIES: | |||||||
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Convertible senior notes, net |
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Warranty obligations |
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Deferred revenues |
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Deferred tax liabilities, net |
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Finance lease liabilities |
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Operating lease liabilities |
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Other long-term liabilities |
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Total long-term liabilities |
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COMMITMENTS AND CONTINGENT LIABILITIES | |||||||
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STOCKHOLDERS’ EQUITY: | |||||||
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Common stock of $ |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
( |
) |
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Retained earnings |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
F - 3
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
U.S. dollars in thousands (except share and per share data)
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Three months ended September 30, |
Nine months ended September 30, | |||||||||||||||
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2021 |
2020 |
2021 |
2020 | |||||||||||||
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Revenues |
$ |
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$ |
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$ |
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$ |
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Cost of revenues |
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Gross profit |
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Operating expenses: | ||||||||||||||||
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Research and development |
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Sales and marketing |
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General and administrative |
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Other operating expenses (income), net |
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( |
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Total operating expenses |
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Operating income |
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Financial income (expenses), net |
( |
) |
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( |
) |
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Income before income taxes |
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Income taxes |
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Net income |
$ |
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$ |
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$ |
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$ |
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Net income per share: | ||||||||||||||||
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Net basic earnings per share of common stock |
$ |
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$ |
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$ |
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$ |
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Net diluted earnings per share of common stock |
$ |
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$ |
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$ |
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$ |
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Weighted average number of shares used in computing net basic earnings per share of common stock |
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Weighted average number of shares used in computing net diluted earnings per share of common stock |
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The accompanying notes are an integral part of the consolidated financial statements.
F - 4
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
U.S. dollars in thousands (except share and per share data)
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Three months ended September 30, |
Nine months ended September 30, |
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2021 |
2020 |
2021 |
2020 | |||||||||||||
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Net income |
$ |
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$ |
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$ |
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$ |
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Other comprehensive income (loss), net of tax: |
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Net change related to available-for-sale securities |
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( |
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( |
) |
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Net change related to cash flow hedges |
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( |
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Foreign currency translation adjustments on intra-entity transactions that are of a long-term investment nature |
( |
) |
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( |
) |
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Foreign currency translation adjustments, net |
( |
) |
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( |
) |
( |
) | |||||||||
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Total other comprehensive income (loss) |
( |
) |
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( |
) |
( |
) | |||||||||
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Comprehensive income |
$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
F - 5
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
U.S. dollars in thousands (except share and per share data)
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Common stock |
Additional paid in |
Accumulated Other comprehensive |
Retained |
Total stockholders’ | ||||||||||||||||||
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Number |
Amount |
Capital |
income (loss) |
earnings |
equity | |||||||||||||||||
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Balance as of January 1, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Cumulative effect of adopting ASU 2020-06 |
- |
- |
( |
) |
- |
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( |
) | ||||||||||||||
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Issuance of Common Stock upon exercise of employee and non-employees stock-based awards |
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* |
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- |
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Equity based compensation expenses to employees and non-employees |
- |
- |
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- |
- |
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Other comprehensive income (loss) adjustments |
- |
- |
- |
( |
) |
- |
( |
) | ||||||||||||||
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Net income |
- |
- |
- |
- |
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Balance as of March 31, 2021 |
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$ |
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$ |
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$ |
( |
) |
$ |
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$ |
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Issuance of Common Stock upon exercise of employee and non-employees stock-based awards |
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* |
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- |
- |
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Equity based compensation expenses to employees and non-employees |
- |
- |
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- |
- |
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Other comprehensive loss adjustments |
- |
- |
- |
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- |
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Net income |
- |
- |
- |
- |
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Balance as of June 30, 2021 |
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$ |
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$ |
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$ |
( |
) |
$ |
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$ |
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Issuance of Common Stock upon exercise of employee and non-employees stock-based awards |
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* |
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- |
- |
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Equity based compensation expenses to employees and non-employees |
- |
- |
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- |
- |
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Other comprehensive loss adjustments |
- |
- |
- |
( |
) |
- |
( |
) | ||||||||||||||
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Net income |
- |
- |
- |
- |
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Balance as of September 30, 2021 |
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$ |
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$ |
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$ |
( |
) |
$ |
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$ |
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* Represents an amount less than $1.
F - 6
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (Cont.)
U.S. dollars in thousands (except share and per share data)
|
Common stock |
Additional paid in |
Accumulated Other comprehensive |
Retained |
Total stockholders’ | ||||||||||||||||||
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Number |
Amount |
Capital |
loss |
earnings |
equity | |||||||||||||||||
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Balance as of January 1, 2020 |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
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$ |
| ||||||||||
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Issuance of Common Stock upon exercise of employee and non-employees stock-based awards |
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* |
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- |
- |
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Equity based compensation expenses to employees and non-employees |
- |
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- |
- |
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Other comprehensive loss adjustments |
- |
- |
- |
( |
) |
- |
( |
) | ||||||||||||||
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Net income |
- |
- |
- |
- |
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Balance as of March 31, 2020 |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
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$ |
| ||||||||||
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Issuance of Common Stock upon exercise of employee and non-employees stock-based awards |
|
* |
|
- |
- |
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Equity based compensation expenses to employees and non-employees |
- |
- |
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- |
- |
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Other comprehensive loss adjustments |
- |
- |
- |
|
- |
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Net income |
- |
- |
- |
- |
|
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Balance as of June 30, 2020 |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
| ||||||||||
|
Issuance of Common Stock upon exercise of employee and non-employees stock-based awards |
|
* |
|
- |
- |
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Equity based compensation expenses to employees and non-employees |
- |
- |
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- |
- |
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Equity component of convertible senior notes, net |
- |
- |
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- |
- |
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Other comprehensive loss adjustments |
- |
- |
- |
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- |
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Net income |
- |
- |
- |
- |
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Balance as of September 30, 2020 |
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$ |
|
$ |
|
$ |
( |
) |
$ |
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$ |
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*
The accompanying notes are an integral part of the consolidated financial statements.
F - 7
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
U.S. dollars in thousands (except share and per share data)
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Nine months ended September 30, | ||||||||
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2021 |
2020 | |||||||
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Cash flows provided by operating activities: | ||||||||
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Net income |
$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
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Depreciation of property, plant and equipment |
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Amortization of intangible assets |
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Amortization of debt discount and debt issuance costs |
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Amortization of premium and accretion of discount on available-for-sale marketable securities, net |
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Stock-based compensation expenses |
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Deferred income taxes, net |
( |
) |
( |
) | ||||
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Loss from disposal of assets |
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Exchange rate fluctuations and other items, net |
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( |
) | |||||
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Changes in assets and liabilities: | ||||||||
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Inventories, net |
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( |
) | |||||
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Prepaid expenses and other assets |
( |
) |
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Trade receivables, net |
( |
) |
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Trade payables, net |
( |
) |
( |
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Employees and payroll accruals |
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Warranty obligations |
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Deferred revenues and customers advances |
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( |
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Other liabilities, net |
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Net cash provided by operating activities |
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Cash flows from investing activities: | ||||||||
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Investment in available-for-sale marketable securities |
( |
) |
( |
) | ||||
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Proceeds from sales and maturities of available-for-sale marketable securities |
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Purchase of property, plant and equipment |
( |
) |
( |
) | ||||
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Withdrawal from (investment in) bank deposits, net |
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( |
) | |||||
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Investment in privately held company |
( |
) |
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Payment for asset acquisition, net of cash acquired |
( |
) |
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Withdrawal from restricted bank deposits |
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Other investing activities |
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Net cash provided by (used in) investing activities |
$ |
( |
) |
$ |
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F - 8
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Cont.)
U.S. dollars in thousands (except share and per share data)
|
Nine months ended September 30, | ||||||||
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2021 |
2020 | |||||||
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Cash flows from financing activities: | ||||||||
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Repayment of bank loans |
$ |
( |
) |
$ |
( |
) | ||
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Proceeds from exercise of stock-based awards and payment of withholding taxes |
( |
) |
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Proceeds from issuance of convertible senior notes, net |
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Proceeds from bank loans |
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Other financing activities |
( |
) |
( |
) | ||||
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Net cash provided by (used in) financing activities |
( |
) |
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Increase (decrease) in cash and cash equivalents |
( |
) |
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Cash and cash equivalents at the beginning of the period |
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Effect of exchange rate differences on cash and cash equivalents |
( |
) |
( |
) | ||||
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Cash and cash equivalents at the end of the period |
$ |
|
$ |
| ||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 9
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands (except share and per share data)
NOTE 1:-GENERAL
a.SolarEdge Technologies, Inc. (the “Company”) and its subsidiaries design, develop, and sell an intelligent inverter solution designed to maximize power generation at the individual photovoltaic (“PV”) module level while lowering the cost of energy produced by the solar PV system and providing comprehensive and advanced safety features. The Company’s products consist mainly of (i) power optimizers designed to maximize energy throughput from each and every module through constant tracking of Maximum Power Point individually per module, (ii) inverters which invert direct current (DC) from the PV module to alternating current (AC) including the Company’s future ready energy hub inverter which supports, among other things, connection to a DC- coupled battery for backup capabilities, (iii) a remote cloud-based monitoring platform, that collects and processes information from the power optimizers and inverters to enable customers and system owners, to monitor and manage the solar PV system (iv) a storage and backup solution that is used to increase energy independence and maximize self-consumption for homeowners by utilizing a battery, either the energy bank battery introduced by the Company or a battery that is sold separately by third party manufacturers, to store and supply power as needed, and (v) additional smart energy management solutions.
The Company and its subsidiaries sell products worldwide through large distributors, electrical equipment wholesalers, as well as directly to large solar installers and engineering, procurement and construction firms.
b.The Company has expanded its activity to other areas of smart energy technology organically and through acquisitions. The Company now offers a variety of energy solutions, which include lithium-ion cells, batteries and energy storage systems (“Energy Storage”), full powertrain kits for electric vehicles, or EVs (“e-Mobility”), uninterrupted power supply solutions or UPS (“Critical Power”), as well as automated machines for industrial use (“Automation Machines”).
c.Recently issued and adopted pronouncements:
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. ASU 2020-06 will be effective for fiscal years beginning after December 15, 2021, with early adoption permitted. Effective January 1, 2021, the Company early adopted ASU 2020-06 using the modified retrospective approach. Adoption of the new standard resulted in an increase of retained earnings in an amount of $
In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), which clarifies the interaction between the accounting for equity securities in Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. The guidance is effective for interim and annual periods beginning after December 15, 2020. Effective January 1, 2021, the Company adopted this standard on a prospective basis. The impact of adoption of this standard on the Company’s consolidated financial statements was immaterial.
F - 10
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands (except share and per share data)
NOTE 1:-GENERAL (Cont.)
d.Basis of Presentation:
The unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). In management’s opinion, the unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. The Company’s interim period results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year.
The significant accounting policies applied in the annual consolidated financial statements of the Company as of December 31, 2020, contained in the Company’s Annual Report on Form 10-K/A filed with the SEC on February 19, 2021, have been applied consistently in these unaudited interim condensed consolidated financial statements, except for the adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (Topic 470) (see Note 7).
e.Use of estimates:
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures in the accompanying notes. The duration, scope and effects of the ongoing COVID-19 pandemic, government and other third-party responses to it, and the related macroeconomic effects, including to the Company’s business and the business of the Company’s suppliers and customers are uncertain, rapidly changing and difficult to predict. As a result, the Company’s accounting estimates and assumptions may change over time in response to this evolving situation. Such changes could result in future impairments of goodwill, intangibles, long-lived assets, inventories, incremental credit losses on receivables and AFS debt securities, or an increase in the Company’s insurance liabilities as of the time of a relevant measurement event.
f.Concentrations of supply risks:
The Company depends on two contract manufacturers and several limited or single source component suppliers. Reliance on these vendors makes the Company vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields, and costs.
As of September 30, 2021, and December 31, 2020, two contract manufacturers collectively accounted for
During 2020, the Company began commercial shipments from its manufacturing facility in the North of Israel, “Sella 1”. During the second quarter of 2021, Sella 1 reached full manufacturing capacity.
g.Certain prior period amounts have been reclassified to conform to the current period presentation.
NOTE 2:-INVENTORIES, NET
|
September 30, 2021 |
December 31, 2020 | |||||||
|
Raw materials |
$ |
|
$ |
| ||||
|
Work in process |
|
| ||||||
|
Finished goods |
|
| ||||||
|
$ |
|
$ |
| |||||
F - 11
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands (except share and per share data)
NOTE 3:-MARKETABLE SECURITIES
The following is a summary of available-for-sale marketable debt securities as of September 30, 2021:
|
Amortized cost |
Gross unrealized gains |
Gross unrealized losses |
Fair value | ||||||||||||
|
Available-for-sale – matures within one year: | |||||||||||||||
|
Corporate bonds |
$ |
|
$ |
|
$ |
( |
) |
$ |
| ||||||
|
Governmental bonds |
|
|
( |
) |
| ||||||||||
|
|
|
( |
) |
| |||||||||||
|
| |||||||||||||||
|
Available for-sale – matures after one year: | |||||||||||||||
|
Corporate bonds |
|
|
( |
) |
| ||||||||||
|
Governmental bonds |
|
|
( |
) |
| ||||||||||
|
|
|
( |
) |
| |||||||||||
|
| |||||||||||||||
|
Total |
$ |
|
$ |
|
$ |
( |
) |
$ |
| ||||||
The following is a summary of available-for-sale marketable debt securities as of December 31, 2020:
|
Amortized cost |
Gross unrealized gains |
Gross unrealized losses |
Fair value | ||||||||||||
|
Available-for-sale – matures within one year: |
| ||||||||||||||
|
Corporate bonds |
$ |
|
$ |
|
$ |
( |
) |
$ |
| ||||||
|
Governmental bonds |
|
|
|
| |||||||||||
|
|
|
( |
) |
| |||||||||||
|
| |||||||||||||||
|
Available for-sale – matures after one year: | |||||||||||||||
|
Corporate bonds |
|
|
( |
) |
| ||||||||||
|
Governmental bonds |
|
|
( |
) |
| ||||||||||
|
|
|
( |
) |
| |||||||||||
|
| |||||||||||||||
|
Total |
$ |
|
$ |
|
$ |
( |
) |
$ |
| ||||||
As of September 30, 2021, the Company didn’t record an allowance for credit losses for its available-for-sale marketable debt securities.
F - 12
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands (except share and per share data)
NOTE 4:-INVESTMENT IN PRIVATELY-HELD COMPANY
On January 31, 2021, the Company completed an investment of $
On February 1, 2021, the Company signed on a preferred stock purchase agreement for an additional investment of $
Under ASU 2016-01 equity investments without readily determinable fair value include ownership rights that either (i) do not meet the definition of in-substance common stock or (ii) do not provide the Company with control or significant influence.
The Company adjusts the carrying value of its non-marketable equity securities to fair value upon observable transactions for identical or similar investments of the same issuer or upon impairment. All gains and losses on non-marketable equity securities, realized and unrealized, are recognized in financial income (expenses), net.
The Company accounted for the AutoGrid investment as an equity investment that does not have readily determinable fair values. As such, the Company’s non-marketable equity securities had a carrying value of $
The Company periodically evaluates the carrying value of the investments in privately-held companies when events and circumstances indicate that the carrying amount of the investment may not be recovered. These investments include the Company’s holdings in privately-held companies that are not traded and therefore not supported with observable market prices. The Company may determine the fair value by reviewing equity valuation reports, current financial results, long-term plans of the privately-held companies, the amount of cash that the privately-held companies have on-hand, the ability to obtain additional financing and overall market conditions in which the privately-held companies operate or based on the price observed from the most recent completed financing.
No impairment or other adjustments related to observable price changes in orderly transactions for identical or similar investments were identified for the three and nine months ended September 30, 2021.
F - 13
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands (except share and per share data)
NOTE 5:-FAIR VALUE MEASUREMENTS
In accordance with ASC 820, the Company measures its cash equivalents and marketable securities, at fair value using the market approach valuation technique. Cash equivalents and marketable securities are classified within Level 1 and Level 2, respectively, because these assets are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Foreign currency derivative contracts are classified within the Level 2 value hierarchy, as the valuation inputs are based on quoted prices and market observable data of similar instruments.
The following table sets forth the Company’s assets that were measured at fair value as of September 30, 2021 and December 31, 2020 by level within the fair value hierarchy:
|
Fair value measurements as of | ||||||||||
|
Fair Value |
September 30, |
December 31, | ||||||||
|
Description |
Hierarchy |
2021 |
2020 | |||||||
|
Measured at fair value on a recurring basis: | ||||||||||
|
| ||||||||||
|
Assets: | ||||||||||
|
Cash equivalents: | ||||||||||
|
Money market mutual funds |
Level 1 |
$ |
|
$ |
| |||||
|
| ||||||||||
|
Derivative instruments asset: | ||||||||||
|
Options and forward contracts designated as hedging instruments |
Level 2 |
$ |
|
$ |
| |||||
|
Options and forward contracts not designated as hedging instruments |
Level 2 |
$ |
|
$ |
| |||||
|
| ||||||||||
|
Short-term marketable securities: | ||||||||||
|
Corporate bonds |
Level 2 |
$ |
|
$ |
| |||||
|
Governmental bonds |
Level 2 |
$ |
|
$ |
| |||||
|
| ||||||||||
|
Long-term marketable securities: | ||||||||||
|
Corporate bonds |
Level 2 |
$ |
|
$ |
| |||||
|
Governmental bonds |
Level 2 |
$ |
|
$ |
| |||||
|
| ||||||||||
|
Liabilities | ||||||||||
|
Derivative instruments liability: | ||||||||||
|
Options and forward contracts not designated as hedging instruments |
Level 2 |
$ |
|
$ |
( |
) | ||||
F - 14
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands (except share and per share data)
NOTE 6:-DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company accounts for derivatives and hedging based on ASC 815 (“Derivatives and Hedging”). ASC 815 requires the Company to recognize all derivatives on the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship.
To protect against the increase in value of forecasted foreign currency cash flows resulting from salary denominated in the Israeli currency, the New Israeli Shekels (“NIS”), during the nine months ended September 30, 2021, the Company instituted a foreign currency cash flow hedging program. The Company hedges portions of the anticipated payroll denominated in NIS for a period of one to nine months with hedging contracts. Accordingly, when the dollar strengthens against the NIS, the decline in present value of future foreign currency expenses is offset by losses in the fair value of the hedging contracts. Conversely, when the dollar weakens, the increase in the present value of future foreign currency cash flows is offset by gains in the fair value of the hedging contracts. These hedging contracts are designated as cash flow hedges, as defined by ASC 815 and are all effective hedges.
As of September 30, 2021, the Company entered into forward contracts to sell U.S. dollars for NIS in the amount of $
In addition to the above-mentioned cash flow hedges transactions, the Company also entered into derivative instrument arrangements to hedge the Company’s exposure to currencies other than the U.S. dollar. These derivative instruments are not designated as cash flow hedges, as defined by ASC 815, and therefore all gains and losses, resulting from fair value remeasurement, were recorded immediately in the statement of income, under financial income (expenses), net.
As of September 30, 2021, the Company entered into forward contracts and put and call options to sell Australian dollars (“AUD”) for U.S. dollars in the amount of AUD
As of September 30, 2021, the Company entered into forward contracts and put and call options to sell Euro (“EUR”) for U.S. dollars in the amount of EUR
The fair value of derivative assets as of September 30, 2021 and December 31, 2020, was $
As of September 30, 2021, there were no derivative liabilities. As of December 31, 2020, the fair value of derivative liabilities was $
For the three months ended September 30, 2021 and 2020, the Company recorded a gain and loss in the amount of $
For the three months ended September 30, 2021 and 2020, the Company recorded an unrealized gain in the amount of $
F - 15
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands (except share and per share data)
NOTE 6:-DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Cont.)
For the nine months ended September 30, 2021 and 2020, the Company recorded a gain and loss in the amount of $
For the nine months ended September 30, 2021 and 2020, the Company recorded unrealized gain in the amount of $
NOTE 7:-OTHER COMPRENHENSIVE INCOME (LOSS)
The following table provides details about reclassifications out of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2021 and 2020:
|
Details about Accumulated Other Comprehensive Income (Loss) Components |
|
Amount Reclassified from Accumulated Other Comprehensive Income (Loss) |
|
Affected Line Item in the Statements of Income | ||||||||||||
|
Three months ended |
Nine months ended | |||||||||||||||
|
September 30, |
September 30, | |||||||||||||||
|
|
|
2021 |
|
|
2020 |
2021 |
|
|
2020 |
| ||||||
|
Unrealized gains on cash flow hedges, net |
$ |
|
$ |
|
$ |
|
$ |
|
Cost of revenues | |||||||
|
|
|
|
|
Research and development | ||||||||||||
|
|
|
|
|
Sales and marketing | ||||||||||||
|
|
|
|
|
General and administrative | ||||||||||||
|
|
|
|
|
Total, before income taxes | ||||||||||||
|
( |
) |
( |
) |
( |
) |
( |
) |
Income tax expense | ||||||||
|
$ |
|
$ |
|
$ |
|
$ |
|
Total, net of income taxes | ||||||||
|
Unrealized gains on available-for-sale marketable securitie |
$ |
|
$ |
|
$ |
|
$ |
|
Financial income (expenses), net | |||||||
|
|
|
( |
) |
|
Income tax expense | |||||||||||
|
$ |
|
$ |
|
$ |
|
$ |
|
Total, net of income taxes | ||||||||
|
$ |
|
$ |
|
$ |
|
$ |
|
Total, net of income taxes | ||||||||
F - 16
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands (except share and per share data)
NOTE 8:-CONVERTIBLE SENIOR NOTES
Upon conversion, the Company may choose to pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock.
In addition, upon the occurrence of a fundamental change (as defined in the Indenture), holders of the Notes may require the Company to repurchase all or a portion of their Notes, in multiples of $1,000 principal amount, at a repurchase price of 100% of the principal amount of the Notes, plus any accrued and unpaid special interest, if any, to, but excluding, the repurchase date. If certain fundamental changes referred to as make-whole fundamental changes occur, the conversion rate for the Notes may be increased.
The Convertible Senior Notes consisted of the following as of September 30, 2021 and December 31, 2020:
|
As of |
As of | |||||||
|
September 30, 2021 |
December 31, 2020 | |||||||
|
Liability: | ||||||||
|
Principal |
$ |
|
$ |
| ||||
|
Unamortized debt discount |
|
( |
) | |||||
|
Unamortized issuance costs |
( |
) |
( |
) | ||||
|
Net carrying amount |
$ |
|
$ |
| ||||
|
| ||||||||
|
Equity component: | ||||||||
|
Amount allocated to conversion option |
$ |
|
$ |
| ||||
|
Deferred taxes liability, net |
|
( |
) | |||||
|
Allocated issuance costs |
|
( |
) | |||||
|
Equity component, net |
$ |
|
$ |
| ||||
F - 17
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands (except share and per share data)
NOTE 8:-CONVERTIBLE SENIOR NOTES (Cont.)
As of September 30, 2021, the debt issuance costs of the Notes will be amortized over the remaining term of approximately
Prior to January 1, 2021, the Company separated the Notes into liability and equity components. On issuance, the carrying amount of the equity components was recorded as a debt discount and subsequently amortized to interest expense. Effective January 1, 2021, the Company early adopted ASU 2020-06 using the modified retrospective approach. The Notes are accounted for as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives.
Adoption of the new standard resulted in an increase of retained earnings in an amount of $
The annual effective interest rate of the Notes following the adoption of ASU 2020-06 is
The following table presents the total amount of interest expenses recognized related to the Notes for the three and nine months ended September 30, 2021 and 2020:
|
Three months ended September 30, |
Nine months ended September 30, |
| ||||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||||
|
Amortization of debt discount |
$ |
|
$ |
|
$ |
|
$ |
|
| |||||||
|
Amortization of debt issuance costs |
|
|
|
|
| |||||||||||
|
Total interest expenses |
$ |
|
$ |
|
$ |
|
$ |
|
| |||||||
As of September 30, 2021, the estimated fair value of the Notes, which the Company has classified as Level 2 financial instruments, is $
As of September 30, 2021, the if-converted value of the Notes exceeded the principal amount by $
NOTE 9:-WARRANTY OBLIGATIONS
Changes in the Company’s product warranty obligations for the nine months ended September 30, 2021 and 2020, were as follows:
|
As of September 30, | ||||||||
|
2021 |
2020 | |||||||
|
Balance, at the beginning of the period |
$ |
|
$ |
| ||||
|
Additions and adjustments to cost of revenues |
|
| ||||||
|
Usage and current warranty expenses |
( |
) |
( |
) | ||||
|
Balance, at the end of the period |
|
| ||||||
|
Less current portion |
( |
) |
( |
) | ||||
|
Long term portion |
$ |
|
$ |
| ||||
F - 18
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands (except share and per share data)
NOTE 10:-COMMITMENTS AND CONTINGENT LIABILITIES
a.Guarantees:
As of September 30, 2021, contingent liabilities exist regarding guarantees in the amounts of $
b.Contractual purchase obligations:
The Company has contractual obligations to purchase goods and raw materials.
These contractual purchase obligations relate to inventories held by contract manufacturers and purchase orders initiated by the contract manufacturers, which cannot be canceled without penalty.
The Company utilizes third parties to manufacture its products. In addition, the Company acquires raw materials or other goods and services, including product components, by issuing authorizations to its suppliers to purchase materials based on its projected demand and manufacturing needs. As of September 30, 2021, the Company had non-cancelable purchase obligations totaling approximately $
As of September 30, 2021, the Company had contractual obligations for capital expenditures totaling approximately $
c.Legal claims:
From time to time, the Company may be involved in various claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss. These accruals are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter.
In September 2018, the Company’s German subsidiary, SolarEdge Technologies GmbH received a complaint filed by competitor SMA Solar Technology AG (“SMA”).
The complaint, filed in the District Court Düsseldorf, Germany, alleged that the Company’s 12.5kW - 27.6kW inverters infringe two of the plaintiff’s patents. In its complaint, SMA asserted a value in dispute of EUR
In May 2019, the Company’s two Chinese subsidiaries and its equipment manufacturer in China were served with three lawsuits by Huawei Technologies Co., Ltd., a Chinese entity (“Huawei”).
F - 19
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands (except share and per share data)
NOTE 10:-COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
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. A first-instance judgment was issued on August 7, 2020 ordering the three defendants to collectively pay damages in the amount of approximately Chinese Yuan (“CNY”)
In December 2019, the Company received a lawsuit filed by a former consultant of the Company and its Israeli subsidiary in the amount of
As of September 30, 2021, accrued amounts for legal claims of $
F - 20
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands (except share and per share data)
NOTE 11:-STOCK CAPITAL
a.Common stock rights:
Common stock confers upon its holders the right to receive notice of, and to participate in, all general meetings of the Company, where each share of common stock shall have one vote for all purposes; to share equally, on a per share basis, in bonuses, profits, or distributions out of fund legally available therefor; and to participate in the distribution of the surplus assets of the Company in the event of liquidation of the Company.
b.Stock incentive plans:
The Company’s 2007 Global Incentive Plan (the “2007 Plan”) was adopted by the board of directors on August 30, 2007. The 2007 Plan terminated upon the Company’s IPO on March 31, 2015 and no further awards may be granted thereunder. All outstanding awards will continue to be governed by their existing terms and
The Share Reserve will automatically increase on January 1st of each year during the term of the 2015 Plan, commencing on January 1st of the year following the year in which the 2015 Plan became effective, in an amount equal to 5% of the total number of shares of capital stock outstanding on December 31st of the preceding calendar year; provided, however, that the Company’s board of directors may determine that there will not be a January 1st increase in the Share Reserve in a given year or that the increase will be less than
In the three and nine months ended September 30, 2021, the Company granted under its 2015 Plan, performance-based restricted stock unit (“PRSU”) awards to certain employees which vest upon the achievement of certain performance conditions subject to the employees’ continued service relationship with the Company. The probability of vesting is assessed at each reporting period and compensation cost is adjusted based on this probability assessment. The Company recognizes such compensation expenses on an accelerated vesting method.
As of September 30, 2021, a total of
The aggregate maximum number of shares of common stock that may be issued on the exercise of incentive stock options is
F - 21
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands (except share and per share data)
NOTE 11:-STOCK CAPITAL (Cont.)
A summary of the activity in the stock options granted to employees and members of the board of directors for the nine months ended September 30, 2021 and related information are as follows:
|
Number of options |
Weighted average exercise price |
Weighted average remaining contractual term in years |
Aggregate intrinsic Value | |||||||||||||
|
Outstanding as of December 31, 2020 |
|
|
|
$ |
| |||||||||||
|
Granted |
|
| ||||||||||||||
|
Exercised |
( |
) |
| |||||||||||||
|
Forfeited or expired |
( |
) |
| |||||||||||||
|
Outstanding as of September 30, 2021 |
|
|
|
$ |
| |||||||||||
|
| ||||||||||||||||
|
Vested and expected to vest as of September 30, 2021 |
|
|
|
$ |
| |||||||||||
|
| ||||||||||||||||
|
Exercisable as of September 30, 2021 |
|
|
|
$ |
| |||||||||||
The aggregate intrinsic value in the tables above represents the total intrinsic value (the difference between the fair value of the Company’s common stock as of the last day of each period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on the last day of each period.
The total intrinsic value of options exercised during the nine months ended September 30, 2021 was $
The weighted average grant date fair values of options granted to employees and executive directors during the nine months ended September 30, 2021 was $
A summary of the activity in the RSUs and PRSUs granted to employees and directors for the nine months ended September 30, 2021, is as follows:
|
Number of RSUs |
Weighted average grant date fair value | |||||||
|
Unvested as of January 1, 2021 |
|
$ |
| |||||
|
Granted (1) |
|
| ||||||
|
Vested |
( |
) |
| |||||
|
Forfeited |
( |
) |
| |||||
|
Unvested as of September 30, 2021 |
|
$ |
| |||||
|
| |
|
(1) |
|
F - 22
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands (except share and per share data)
NOTE 11:-STOCK CAPITAL (Cont.)
c.Employee Stock Purchase Plan (“ESPP”):
The Company adopted an ESPP effective upon the consummation of the IPO. As of September 30, 2021, a total of
The ESPP is implemented through an offering every six months. According to the ESPP, eligible employees may use up to
As of September 30, 2021,
As of September 30, 2021,
In accordance with ASC No. 718, the ESPP is compensatory and, as such, results in recognition of compensation cost.
d.Stock-based compensation expenses for employees and non-employees:
The Company recognized stock-based compensation expenses related to stock options, RSUs and PRSUs granted to employees and nonemployees and ESPP in the condensed consolidated statement of income for the three and nine months ended September 30, 2021 and 2020, as follows:
|
Three months ended September 30, |
Nine months ended September 30, | |||||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||||
|
Cost of revenues |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
Research and development |
|
|
|
| ||||||||||||
|
Selling and marketing |
|
|
|
| ||||||||||||
|
General and administrative |
|
|
|
| ||||||||||||
|
Total stock-based compensation expenses |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
As of September 30, 2021, there were total unrecognized compensation expenses in the amount of $
F - 23
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands (except share and per share data)
NOTE 12:-EARNINGS PER SHARE
Basic net EPS is computed by dividing the net earnings by the weighted-average number of shares of common stock outstanding during the period. Diluted net EPS is computed by giving effect to all potential shares of common stock, to the extent dilutive, including stock options, RSUs, PRSUs, shares to be purchased under the Company’s ESPP, and the Notes due 2025, all in accordance with ASC No. 260, “Earnings Per Share.”
The following table presents the computation of basic and diluted EPS:
|
Three months ended September 30, |
Nine months ended September 30, | |||||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||||
|
Basic EPS: | ||||||||||||||||
|
Numerator: | ||||||||||||||||
|
Net income |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
| ||||||||||||||||
|
Denominator: | ||||||||||||||||
|
Shares used in computing net earnings per share of common stock, basic |
|
|
|
| ||||||||||||
|
| ||||||||||||||||
|
Diluted EPS: | ||||||||||||||||
|
Numerator: | ||||||||||||||||
|
Net income attributable to common stock, basic |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
Notes due 2025 |
|
|
|
| ||||||||||||
|
Net income attributable to common stock, diluted |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
| ||||||||||||||||
|
Denominator: | ||||||||||||||||
|
Shares used in computing net earnings per share of common stock, basic |
|
|
|
| ||||||||||||
|
Notes due 2025 |
|
|
|
| ||||||||||||
|
Effect of stock-based awards |
|
|
|
| ||||||||||||
|
Shares used in computing net earnings per share of common stock, diluted |
|
|
|
| ||||||||||||
F - 24
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands (except share and per share data)
NOTE 12:-EARNINGS PER SHARE (Cont.)
The vesting of PRSUs is contingent upon the achievement of certain performance conditions. The performance awards are not included in the diluted EPS calculation until the performance conditions have been met.
As of September 30, 2021, certain performance conditions associated with these PRSUs were met and consequently
NOTE 13:-OTHER OPERATING EXPENSES (INCOME)
|
Three months ended September 30, |
Nine months ended September 30, | |||||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||||
|
Kokam purchase escrow (1) (2) |
$ |
|
$ |
|
|
$ |
( |
) |
$ |
( |
) | |||||
|
Write-off of property, plant and equipment |
|
|
|
| ||||||||||||
|
Total other operating expenses (income) |
$ |
|
$ |
|
|
$ |
|
$ |
( |
) | ||||||
|
(1) |
|
|
| |
|
(2) |
|
NOTE 14:-INCOME TAXES
The effective tax rate for the three months ended September 30, 2021 and 2020 were
The increase in the effective tax rate in the current year is primarily due to presence of a full valuation allowance in various jurisdictions and different allocation of income among the Company’s US, Israel, and foreign subsidiaries.
The Company’s effective tax rate was lower than the U.S. federal statutory rate for the three and nine months ended September 30, 2021, due to earnings taxed at lower rates in foreign jurisdictions and tax benefits relating to stock-based compensation, which were partially offset by full valuation allowance in various jurisdictions and Global intangible low-taxed income (“GILTI”) tax.
As of September 30, 2021, and December 31, 2020, unrecognized tax benefits were $
F - 25
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands (except share and per share data)
NOTE 15:-SEGMENT INFORMATION
The Company operates in five different operating segments: Solar, Energy Storage, e-Mobility, Critical Power and Automation Machines.
The Company's Chief Executive Officer, who is the chief operating decision maker (“CODM”), makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis, accompanied by disaggregated information about revenues and contributed profit by the operating segments.
The Company does not allocate to its operating segments revenue recognized due to advance payments received for performance obligations that extend for a period greater than one year (“financing component”), related to Accounting Standard Codification 606, “Revenue from Contracts with Customers” (ASC 606).
Segment profit is comprised of gross profit for the segment less operating expenses that do not include amortization of purchased intangible assets, stock based compensation expenses and certain other items.
The Company manages its assets on a group basis, not by segments, as many of its assets are shared or co-mingled. The Company’s CODM does not regularly review asset information by segments and, therefore, the Company does not report asset information by segment.
The Company identified one operating segment as reportable – the Solar segment. The other operating segments are insignificant individually and therefore their results are presented together under “All other”.
The Solar segment includes the design, development, manufacturing, and sales of an intelligent inverter solution designed to maximize power generation at the individual PV module level and a residential storage solution, compatible with the Company’s energy hub inverter, intended to store and supply power for back-up and to maximize self-consumption. The Solar segment solution consists mainly of the Company’s power optimizers, inverters, batteries and cloud-based monitoring platform.
The “All other” category includes the design, development, manufacturing and sales of energy storage products, e-Mobility products, UPS products and automated machines.
The following table presents information on reportable segments profit (loss) for the periods presented:
|
Three months ended September 30, 2021 |
Nine months ended September 30, 2021 | |||||||||||||||
|
Solar |
All other |
Solar |
All other | |||||||||||||
|
Revenues |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
Cost of revenues |
|
|
|
| ||||||||||||
|
Gross profit |
|
|
|
| ||||||||||||
|
Research and development |
|
|
|
| ||||||||||||
|
Sales and marketing |
|
|
|
| ||||||||||||
|
General and administrative |
|
|
|
| ||||||||||||
|
Segments profit (loss) |
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) | ||||||
F - 26
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollars in thousands (except share and per share data)
NOTE 15:-SEGMENT INFORMATION (Cont.)
The following table presents information on reportable segments reconciliation to consolidated operating income for the periods presented:
|
Three months ended September 30, 2020 |
Nine months ended September 30, 2020 | |||||||||||||||
|
Solar |
All other |
Solar |
All other | |||||||||||||
|
Revenues |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
Cost of revenues |
|
|
|
| ||||||||||||
|
Gross profit |
|
|
|
| ||||||||||||
|
Research and development |
|
|
|
| ||||||||||||
|
Sales and marketing |
|
|
|
| ||||||||||||
|
General and administrative |
|
|
|
| ||||||||||||
|
Segments profit (loss) |
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) | ||||||
The following table presents information on reportable segments reconciliation to consolidated revenues for the periods presented:
|
Three months ended September 30, |
Nine months ended September 30, | |||||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||||
|
Solar segment revenues |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
All other segment revenues |
|
|
|
| ||||||||||||
|
Revenues from financing component |
|
|
|
| ||||||||||||
|
Intersegment revenues |
|
|
|
( |
) | |||||||||||
|
Consolidated revenues |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
The following table presents information on reportable segments reconciliation to consolidated operating income for the periods presented:
|
Three months ended September 30, |
Nine months ended September 30, | |||||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||||
|
Solar segment profit |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
All other segment loss |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
|
Segments operating profit |
|
|
|
| ||||||||||||
|
Amounts not allocated to segments: | ||||||||||||||||
|
Stock based compensation expenses |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
|
Amortization related to business combinations |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
|
Legal settlement |
|
|
|
| ||||||||||||
|
Other unallocated income (expenses), net |
|
( |
) |
( |
) |
( |
) | |||||||||
|
Adjustments: | ||||||||||||||||
|
Intersegment profit |
|
|
|
( |
) | |||||||||||
|
Consolidated operating income |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
F - 27
ITEM 2MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Statements contained in this Form 10-Q or statements incorporated by reference from documents we have filed with the Securities and Exchange Commission may contain forward-looking statements that are based on our management’s expectations, estimates, projections, beliefs and assumptions in accordance with information currently available to our management. Forward-looking statements should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in Part 1, Item 1 of this report. This discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, technology developments, new products and services, financing and investment plans, competitive position, industry and regulatory environment, effects of acquisitions, growth opportunities and the effects of competition. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “could,” “seek,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or similar expressions and the negatives of those terms.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on forward looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this filing. Important factors that could cause actual results to differ materially from our expectations include:
•
existing and future responses to and effects of COVID-19;
•
future demand for renewable energy including solar energy solutions;
•
changes to net metering policies or the reduction, elimination or expiration of government subsidies and economic incentives for on-grid solar energy applications;
•
changes in the U.S. trade environment, including the imposition of import tariffs;
•
federal, state and local regulations governing the electric utility industry with respect to solar energy;
•
the retail price of electricity derived from the utility grid or alternative energy sources;
•
interest rates and supply of capital in the global financial markets in general and in the solar market specifically;
•
competition, including introductions of power optimizer, inverter and solar photovoltaic (“PV”) system monitoring products by our competitors;
•
developments in alternative technologies or improvements in distributed solar energy generation;
•
historic cyclicality of the solar industry and periodic downturns;
•
defects or performance problems in our products;
•
our ability to forecast demand for our products accurately and to match production and delivery with demand;
•
our dependence on ocean transportation to deliver our products in a cost-effective manner;
•
our dependence upon a small number of outside contract manufacturers and suppliers;
4
•
capacity constraints, delivery schedules, manufacturing yields and costs of our contract manufacturers and availability of components;
•
delays, disruptions and quality control problems in manufacturing;
•
shortages, delays, price changes or cessation of operations or production affecting our suppliers of key components;
•
business practices and regulatory compliance of our raw material suppliers;
•
performance of distributors and large installers in selling our products;
•
our customers’ financial stability, creditworthiness and debt leverage ratio;
•
our ability to retain key personnel and attract additional qualified personnel;
•
our ability to effectively design, launch, market and sell new generations of our products and services;
•
our ability to maintain our brand and to protect and defend our intellectual property;
•
our ability to retain, and events affecting, our major customers;
•
our ability to manage effectively the growth of our organization and expansion into new markets;
•
our ability to integrate acquired businesses;
•
fluctuations in global currency exchange rates;
•
unrest, terrorism or armed conflict in Israel;
•
general economic conditions in our domestic and international markets;
•
our ability to service our debt; and
•
the other factors set forth under “Item 1A. Risk Factors” in “Part II-OTHER INFORMATION” section of this report, our annual report on Form 10-K/A for the year ended December 31, 2020 and subsequent reports on Form 10-Q and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business.
Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Overview
We are a leading provider of an optimized inverter solution that has changed the way power is harvested and managed in a solar photovoltaic, known as PV systems. Our direct current or DC optimized inverter system maximizes power generation at the individual PV module level while lowering the cost of energy produced by the solar PV system, for improved return on investment, or ROI. Additional benefits of the DC optimized inverter system include comprehensive and advanced safety features, improved design flexibility, and improved operating and maintenance, or O&M with module-level and remote monitoring. Our future ready SolarEdge energy hub inverter which supports, among other things, connection to a DC-coupled battery for full or partial home backup, and optional connection to the SolarEdge smart EV charger. The typical SolarEdge optimized inverter system consists of power optimizers, inverters, a communication device which enables access to a cloud-based monitoring platform and in many cases, additional smart energy management solutions. Our solutions address a broad range of solar market segments, from residential solar installations to commercial and small utility-scale solar installations.
5
Since introducing the optimized inverter solution in 2010, SolarEdge has expanded its activity to other areas of smart energy technology, both through organic growth and through acquisitions. SolarEdge now offers energy solutions which include not only residential, commercial and small utility scale PV systems but also product offerings in the areas of energy storage systems or ESS and backup including our own SolarEdge energy bank battery, electric vehicle, or EV components and charging capabilities, home energy management, grid services and virtual power plants, lithium-ion batteries and uninterrupted power supply, known as UPS solutions.
In the third quarter of 2020 we began commercial shipments to the U.S. from our manufacturing facility in the North of Israel, “Sella 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 world-wide. During the second quarter of 2021, Sella 1 reached full manufacturing capacity. In 2020, we began construction of “Sella 2”, a 2GWh Li-Ion cell factory in Korea. The new factory is being constructed to meet the growing global demand for Li-Ion cells and batteries, specifically in the energy storage system (“ESS”) and e-Mobility markets. Sella 2 is expected to initiate test runs for manufacturing in the first half of 2022.
We are a leader in the global module-level power electronics (“MLPE”) market. As of September 30, 2021, we have shipped approximately 78.8 million power optimizers and 3.3 million inverters. Over 2.3 million installations, many of which may include multiple inverters, are currently connected to, and monitored through, our cloud-based monitoring platform. As of September 30, 2021, we have shipped approximately 27.6 GW of our DC optimized inverter systems.
Our revenues for the three months ended September 30, 2021 and 2020 were $526.4 million and $338.1 million, respectively. Gross margin was 32.8% and 32.0% for the three months ended September 30, 2021 and 2020, respectively. Net income was $53.0 million and $43.8 million for the three months ended September 30, 2021 and 2020, respectively.
Our revenues for the nine months ended September 30, 2021 and 2020 were $1,412.0 million and $1,101.2 million, respectively. Gross margin was 33.2% and 31.9% for the nine months ended September 30, 2021 and 2020, respectively. Net income was $128.2 million and $122.7 million for the nine months ended September 30, 2021 and 2020, respectively.
COVID-19 Impact
We continue to monitor the evolving impact of COVID-19 on our operations and business. Our first priority continues to be protecting and supporting 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. In the third quarter of 2021 our contract manufacturer in Vietnam was forced to temporarily close its facilities due to government mandated lockdowns. The mandatory shut down lasted 12 weeks, longer than had been anticipated and ramp of the site is still underway, expected to reach full capacity in mid-November of 2021. Our manufacturing facilities in Korea (for our energy storage business), Italy (for our e-Mobility components) and Israel and our contract manufacturers’ facilities in China, and Hungary have remained operational at almost full capacity this quarter. While we increased manufacturing capacity in China, Israel and Hungary in order to compensate for the Vietnam factory Covid related lockdown, our aggregate overall manufacturing capacity was negatively impacted and together with shipping constraints caused by port congestions, has reduced our finished goods inventory and availability to supply for this quarter and next quarter. 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.
6
While our operations and operating expenses have not been significantly impacted by COVID-19, in the third quarter of 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 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 third quarter we 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 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 work-arounds solutions which may impact our ability to meet our plans to roll out new innovative products and services. Additionally, a customer of SolarEdge e-Mobility SPA (“SolarEdge e-Mobility”) that has experienced disruptions in its own manufacturing process due to global component shortages has delayed the delivery date of powertrain units that were expected to be supplied by SolarEdge e-Mobility in the third quarter of 2021.
Despite the logistics and manufacturing hurdles, our third quarter revenues of $526.4 million reflect healthy demand for our products, with an increase of 9.7% from $ 480.1 million of revenues in the second quarter of 2021. This increase reflects a significant increase in demand for our products in all geographies in which we operate.
Key Operating Metrics
In managing our business and assessing financial performance, we supplement the information provided by the financial statements with other operating metrics. These operating metrics are utilized by our management to evaluate our business, measure our performance, identify trends affecting our business and formulate projections. We use metrics relating to shipments (inverters, power optimizers and megawatts shipped) to evaluate our sales performance and to track market acceptance of our products. We use metrics relating to monitoring (systems monitored) to evaluate market acceptance of our products and usage of our solution.
We provide the “megawatts shipped” metric, which is calculated based on nameplate capacity shipped, to show adoption of our system on a nameplate capacity basis. Nameplate capacity shipped is the maximum rated power output capacity of an inverter and corresponds to our financial results in that higher total nameplate capacities shipped are generally associated with higher total revenues. However, revenues increase with each additional unit, not necessarily each additional MW of capacity sold. Accordingly, we also provide the “inverters shipped” and “power optimizers shipped” operating metrics.
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||
|
Inverters shipped |
230,849 |
152,531 |
592,300 |
496,229 | ||||||||||
|
Power optimizers shipped |
4,699,443 |
3,271,787 |
13,445,523 |
11,848,084 | ||||||||||
|
Megawatts shipped (1) |
1,903 |
1,451 |
5,237 |
4,743 | ||||||||||
| | |
|
(1) |
Calculated based on the aggregate nameplate capacity of inverters shipped during the applicable period. Nameplate capacity is the maximum rated power output capacity of an inverter as specified by the manufacturer. |
Results of Operations
The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this report.
7
The following table sets forth selected consolidated statements of income data for each of the periods indicated.
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||
|
Dollars in thousands |
2021 |
2020 |
2021 |
2020 | ||||||||||||
|
Revenues |
$ |
526,404 |
$ |
338,095 |
$ |
1,411,950 |
$ |
1,101,164 | ||||||||
|
Cost of revenues |
353,843 |
230,032 |
943,123 |
750,130 | ||||||||||||
|
Gross profit |
172,561 |
108,063 |
468,827 |
351,034 | ||||||||||||
|
Operating expenses: | ||||||||||||||||
|
Research and development |
55,666 |
40,817 |
155,307 |
115,610 | ||||||||||||
|
Sales and marketing |
29,383 |
21,924 |
85,752 |
67,113 | ||||||||||||
|
General and administrative |
21,098 |
14,928 |
60,317 |
45,077 | ||||||||||||
|
Other operating expenses (income) |
- |
- |
1,350 |
(4,900 |
) | |||||||||||
|
Total operating expenses |
106,147 |
77,669 |
302,726 |
222,900 | ||||||||||||
|
Operating income |
66,414 |
30,394 |
166,101 |
128,134 | ||||||||||||
|
Financial expenses (income), net |
5,751 |
(15,765 |
) |
13,591 |
(10,725 |
) | ||||||||||
|
Income before taxes on income |
60,663 |
46,159 |
152,510 |
138,859 | ||||||||||||
|
Taxes on income |
7,615 |
2,408 |
24,294 |
16,192 | ||||||||||||
|
Net income |
$ |
53,048 |
$ |
43,751 |
$ |
128,216 |
$ |
122,667 | ||||||||
Comparison of the Three and Nine Months Ended September 30, 2021 to the Three and Nine Months Ended September 30, 2020
Revenues
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
|
2021 |
2020 |
Change |
2021 |
2020 |
Change | |||||||||||||||||||||||||||
|
Revenues (Dollars in thousands) |
$ |
526,404 |
$ |
338,095 |
$ |
188,309 |
55.7 |
% |
$ |
1,411,950 |
$ |
1,101,164 |
$ |
310,786 |
28.2 |
% | ||||||||||||||||
|
Power optimizers (units) |
4,706,682 |
4,587,380 |
119,302 |
2.6 |
% |
13,432,126 |
11,848,084 |
1,584,042 |
13.4 |
% | ||||||||||||||||||||||
|
Inverters (units) |
234,636 |
152,531 |
82,105 |
53.8 |
% |
596,243 |
496,229 |
100,014 |
20.2 |
% | ||||||||||||||||||||||
Revenues increased by $188.3 million, or 55.7%, for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, primarily due to (i) an increase in the number of inverters and power optimizers sold, with significant growth in revenues in all geographies; and (ii) an increase in the numbers of powertrain kits supplied by SolarEdge e-Mobility, in an aggregate amount of $17.2 million. Revenues from outside of the U.S. comprised 64.1% of our revenues in the three months ended September 30, 2021, as compared to 68.4% in the three months ended September 30, 2020.
Our blended ASP per watt for solar products is calculated by dividing the solar revenues by the name plate capacity of inverters shipped. Our blended ASP per watt increased by $0.04, or 18.5%, in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. The increase in blended ASP per watt is mainly attributed to an increase, in the sale of residential products out of our total solar product mix in the U.S, that are characterized with higher ASP per watt and 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.
This increase in blended ASP per watt was partially offset by a change in our customer mix in the U.S. toward larger customers that enjoy preferential pricing due to volume commitments as well as the depreciation of the Euro and other currencies against the U.S. Dollar.
8
Revenues increased by $310.8 million, or 28.2%, for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to (i) an increase in the number of inverters and power optimizers sold, with significant growth in revenues coming from Europe, and the rest of the world; and (ii) an increase in the numbers of powertrain kits supplied by SolarEdge e-Mobility in an aggregate amount of $48.0 million. This increase was partially offset by a decrease in revenues this quarter relative to the high level of safe harbor-related revenues in the amount of $51.4 million generated in the U.S. in the first quarter of 2020 which was not evident in 2021, likely due to the expected extension of the Solar Investment Tax Credits. Revenues from outside of the U.S. comprised 62.6% of our revenues in the nine months ended September 30, 2021, as compared to 56.4% in the nine months ended September 30, 2020.
Our blended ASP per watt for solar products shipped increased by $0.028, or 12.7%, in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. This increase is primarily attributed to an increase in all geographies in the proportion of residential products sold out of our solar product mix, that are characterized with higher ASP per watt as well as the strengthening of the Euro and other currencies against the U.S. Dollar.
Cost of Revenues and Gross Profit
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
|
Dollars in thousands |
2021 |
2020 |
Change |
2021 |
2020 |
Change | ||||||||||||||||||||||||||
|
Cost of revenues |
$ |
353,843 |
$ |
230,032 |
$ |
123,811 |
53.8 |
% |
$ |
943,123 |
$ |
750,130 |
$ |
192,993 |
25.7 |
% | ||||||||||||||||
|
Gross profit |
$ |
172,561 |
$ |
108,063 |
$ |
64,498 |
59.7 |
% |
$ |
468,827 |
$ |
351,034 |
$ |
117,793 |
33.6 |
% | ||||||||||||||||
Cost of revenues increased by $123.8 million, or 53.8%, in the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, primarily due to:
•
an increase in the volume of products sold and the increase in cost of components used in the manufacturing of our products;
•
an increase in warranty expenses and warranty accruals of $16.6 million due to an increase in our install base, an increase in the cost of our products caused by an increase in the price of materials and components as well as other costs associated with providing our warranty coverage;
•
a significant increase in shipment costs in an aggregate amount of $13.8 million due to (i) an increase in shipment rates; and (ii) an increase in volumes shipped;
•
an increase in other production costs of $5.7 million, which is mainly attributed to charges from our contract manufacturers due to manufacturing disruptions related to Covid-19 lockdowns, increased logistics costs resulting from transportation disruptions and the need to mobilize components between our different manufacturing sites; and
•
an increase in personnel-related costs of $4.5 million mainly related to the expansion of our operations and support headcount in the solar business, which grew in parallel to our growing install base worldwide.
Gross profit as a percentage of revenue increased from 32.0% in the three months ended September 30, 2020 to 32.8% in the three months ended September 30, 2021, primarily due to:
•
an increased portion of sales of residential products in the U.S, that are characterized with higher gross margin out of our total product mix;
9
This was partially offset by:
•
an increase in warranty obligations due to an increase in our install base, an increase in the cost of our products caused by an increase in the price of materials and components as well as other costs associated with providing our warranty coverage;
•
a change in our customer mix in the U.S. toward larger customers that enjoy preferential pricing due to volume commitments;
•
unfavorable exchange rates on our sales outside of the U.S.;
•
a significant increase in shipping rates world-wide; and
•
a negative impact on margins attributed to our non-solar businesses, that are characterized by a lower gross profit.
Cost of revenues increased by $193.0 million, or 25.7%, in the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, primarily due to:
•
an increase in the volume of products sold and the cost of components used in the manufacturing of our products;
•
an increase in warranty expenses and warranty accruals of $35.4 million due to an increase in our install base, an increase in the cost of our products caused by an increase in the price of materials and components as well as other costs associated with providing our warranty coverage;
•
an increase in shipping costs, in an aggregate amount of $18.1 million due to (i) an increase in shipment rates; and (ii) an increase in volumes shipped; and
•
an increase in personnel-related costs of $10.9 million related to the expansion of our operations and support headcount in the solar business which grew in parallel to our growing install base worldwide;
These factors were partially offset by:
•
decreased custom duties of $29.2 million attributed to lower tariff charges due to the manufacture of a higher portion of our products for the U.S. outside of China;
Gross profit as a percentage of revenue increased from 31.9% in the nine months ended September 30, 2020 to 33.2% in the nine months ended September 30, 2021, primarily due to:
•
an increased portion of sales of residential products, that are characterized with higher gross margin out of our total product mix;
•
decreased custom duties in the U.S. mainly attributed to a decrease in the portion of products manufactured in China;
•
the absence of safe harbor related sales, that were characterized with a lower gross margin in the first quarter of 2020;
•
favorable exchange rates on our sales outside of the U.S.; and
•
continued cost reduction efforts.
10
These were partially offset by:
•
an increase in support costs and warranty obligations due to an increase in our install base, an increase in the cost of our products caused by an increase in the price of materials and components as well as other costs associated with providing our warranty coverage;
•
a change in our customer mix in the U.S. toward larger customers that enjoy preferable pricing;
•
a significant increase in shipping rates world-wide; and
•
a negative impact on margin attributed to our non-solar businesses, that are characterized by a lower gross profit.
Research and Development
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
|
Dollars in thousands |
2021 |
2020 |
Change |
2021 |
2020 |
Change | ||||||||||||||||||||||||||
|
Research and development |
$ |
55,666 |
$ |
40,817 |
$ |
14,849 |
36.4 |
% |
$ |
155,307 |
$ |
115,610 |
$ |
39,697 |
34.3 |
% | ||||||||||||||||
Research and development costs increased by $14.8 million, or 36.4%, in the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, primarily due to:
•
an increase in personnel-related costs of $11.5 million resulting from an increase in our research and development headcount, as well as salary expenses associated with employee equity-based compensation. The increase in headcount reflects our continuing investment in the enhancement of existing products as well as research and development expenses associated with bringing new products to the market; and
•
increased expenses related to material consumption in the manufacturing of prototypes during our development process in an amount of $1.5 million;
Research and development costs increased by $39.7 million, or 34.3%, in the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, primarily due to:
•
an increase in personnel-related costs of $34.0 million resulting from an increase in our research and development headcount as well as salary expenses associated with employee equity-based compensation. The increase in headcount reflects our continued investment in enhancements of existing products and research and development expenses associated with bringing new products to the market;
•
increased expenses related to consultants and sub-contractors in an amount of $2.8 million;
•
an increase in depreciation expenses of property and equipment in an amount of $2.7 million.
•
increased expenses related to other overhead costs in an amount of $2.4 million; and
•
increased expenses related to material consumption in the manufacturing of prototypes during our development process in an amount of $2.1 million;
These increases were partially offset by a reimbursement of costs charged to a customer, in an amount of $4.6 million, related to the research and development activities performed by SolarEdge e-Mobility.
11
Sales and Marketing
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
|
Dollars in thousands |
2021 |
2020 |
Change |
2021 |
2020 |
Change | ||||||||||||||||||||||||||
|
Sales and Marketing |
$ |
29,383 |
$ |
21,924 |
$ |
7,459 |
34.0 |
% |
$ |
85,752 |
$ |
67,112 |
$ |
18,640 |
27.8 |
% | ||||||||||||||||
Sales and marketing expenses increased by $7.5 million, or 34.0%, in the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, primarily due to increased personnel-related costs of $5.8 million as a result of an increase in headcount supporting our growth in Israel and the U.S., as well as salary expenses associated with employee equity-based compensation.
Sales and marketing expenses increased by $18.6 million, or 27.8%, in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to increased personnel-related costs of $17.0 million as a result of an increase in headcount supporting our growth in Israel and the U.S., as well as salary expenses associated with employee equity-based compensation.
General and Administrative
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
|
Dollars in thousands |
2021 |
2020 |
Change |
2021 |
2020 |
Change | ||||||||||||||||||||||||||
|
General and Administrative |
$ |
21,098 |
$ |
14,928 |
$ |
6,170 |
41.3 |
% |
$ |
60,317 |
$ |
45,077 |
$ |
15,240 |
33.8 |
% | ||||||||||||||||
General and administrative expenses increased by $6.2 million, or 41.3%, in the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, primarily due to:
•
an increase in personnel-related costs of $4.4 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 employee equity-based compensation; and
•
an increase of $1.0 million related to insurance and legal expenses.
General and administrative expenses increased by $15.2 million, or 33.8%, in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 primarily due to:
•
an increase in personnel-related costs of $13.5 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 employee equity-based compensation;
•
an increase of $5.2 million in expenses related to insurance and legal expenses.
These expenses were partially offset by a decrease in expenses related to an accrual for doubtful debts in an amount of $4.0 million.
12
Other operating expenses (income)
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
|
Dollars in thousands |
2021 |
2020 |
Change |
2021 |
2020 |
Change | ||||||||||||||||||||||||||
|
Other operating expenses (income) |
$ |
- |
$ |
- |
$ |
- |
N/A |
$ |
1,350 |
$ |
(4,900 |
) |
$ |
6,250 |
(127.6 |
)% | ||||||||||||||||
Other operating expenses were $1.4 million in the nine months ended September 30, 2021, compared to other operating income of $4.9 million in nine months ended September 30, 2020, primarily due to:
•
a decrease in income in the amount of $4.9 million incurred in the second quarter of 2020 related to an acquired legal claim as part of the Kokam acquisition which was settled in arbitration (and subsequently repaid to the Company in the quarter ended December 31, 2020); and
•
an increase of $2.1 million in expenses related to write-offs of tangible assets in our solar business, which we ceased using during the second quarter of 2021.
These were partially offset by 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.
Financial expenses (income), net
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
|
Dollars in thousands |
2021 |
2020 |
Change |
2021 |
2020 |
Change | ||||||||||||||||||||||||||
|
Financial expenses (income), net |
$ |
5,751 |
$ |
(15,765 |
) |
$ |
21,516 |
(136.5 |
)% |
$ |
13,591 |
$ |
(10,725 |
) |
$ |
24,316 |
(226.7 |
)% | ||||||||||||||
Financial expenses were $5.8 million in the three months ended September 30, 2021 compared to an income in the amount of $15.8 million in the three months ended September 30, 2020, primarily due to an increase of $25.8 million in foreign exchange fluctuations expense, mainly between the Euro, the Australian dollar, the New Israeli Shekel and the South Korean Won against the U.S. Dollar.
These expenses were partially offset by an increase of $4.8 million in finance income related to hedging transactions.
Financial expenses were $13.6 million in the nine months ended September 30, 2021 compared to an income in the amount of $10.7 million in the nine months ended September 30, 2020, primarily due to:
•
an increase of $31.4 million in foreign exchange fluctuation expenses, mainly between the Euro, the Australian dollar, the New Israeli Shekel and the South Korean Won against the U.S. Dollar;
•
an increase of $2.1 million in expenses related to amortization of issuance costs on our convertible senior notes (“Notes”); and
•
an increase of $0.8 million in accretion (amortization) of discount (premium) on marketable securities, net of interest income.
These expenses were partially offset by an increase of $8.7 million in finance income related to hedging transactions.
13
Taxes on Income
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
|
Dollars in thousands |
2021 |
2020 |
Change |
2021 |
2020 |
Change | ||||||||||||||||||||||||||
|
Taxes on Income |
$ |
7,615 |
$ |
2,408 |
$ |
5,207 |
216.2 |
% |
$ |
24,294 |
$ |
16,192 |
$ |
8,102 |
50.0 |
% | ||||||||||||||||
Taxes on income increased by $5.2 million, or 216.2%, in the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, primarily due to an increase of $7.3 million of current tax expenses mainly attributed to an increase in taxable income in foreign subsidiaries that are profitable and a decrease of $1.2 million in prior year tax income. These tax expenses, net, were partially offset by an increase of $3.3 million in deferred tax income.
Taxes on income increased by $8.1 million, or 50.0% in the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, primarily due to an increase of $7.1 million of current tax expenses mainly attributed to an increase in taxable income in foreign subsidiaries that are profitable and a decrease of $1.5 million in prior year tax income. These tax expenses were partially offset by an increase of $0.5 million in deferred tax income.
Net Income
|
Three Months Ended September 30, 2021 to 2020 |
Nine Months Ended September 30, 2021 to 2020 | |||||||||||||||||||||||||||||||
|
Dollars in thousands |
2021 |
2020 |
Change |
2021 |
2020 |
Change | ||||||||||||||||||||||||||
|
Net Income |
$ |
53,048 |
$ |
43,751 |
$ |
9,297 |
21.2 |
% |
$ |
128,216 |
$ |
122,668 |
$ |
5,548 |
4.5 |
% | ||||||||||||||||
As a result of the factors discussed above, net income increased by $9.3 million, or 21.2%, in the three months ended September 30, 2021, as compared to the three months ended September 30, 2020.
As a result of the factors discussed above, net income increased by $5.5 million, or 4.5% in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.
Liquidity and Capital Resources
The following table shows our cash flow from operating activities, investing activities and financing activities for the stated periods:
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||
|
Dollars in thousands |
2021 |
2020 |
2021 |
2020 | ||||||||||||
|
Net cash provided by operating activities |
$ |
61,784 |
$ |
28,374 |
$ |
124,552 |
$ |
195,429 | ||||||||
|
Net cash provided by (used in) investing activities |
$ |
(61,961 |
) |
$ |
(26,177 |
) |
$ |
(397,959 |
) |
$ |
699 | |||||
|
Net cash provided by (used in) financing activities |
$ |
1,774 |
$ |
628,317 |
$ |
(19,432 |
) |
$ |
637,313 | |||||||
|
Increase (decrease) in cash and cash equivalents |
$ |
1,597 |
$ |
630,514 |
$ |
(292,839 |
) |
$ |
833,441 | |||||||
As of September 30, 2021, our cash and cash equivalents were $526.6 million. This amount does not include $618.8 million invested in available for sale marketable securities, $10.1 million invested in short-term bank deposits and $2.5 million invested in restricted bank deposits. Our principal use of cash is funding our operations and other working capital requirements. As of September 30, 2021, we have open commitments for capital expenditures in an amount of approximately $126.2 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 $1,178.9 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 will be sufficient to meet our anticipated cash needs for at least the next 12 months including the self-funding of our capital expenditure commitments.
14
Operating Activities
Cash provided by operating activities consists of net income adjusted for certain non-cash items and changes in assets and liabilities. Cash provided by operating activities decreased by $70.9 million for the first nine months of 2021 as compared to the first nine months of 2020, mainly due to unfavorable changes in working capital in the first nine months of 2021 compared to the prior year, partially offset by higher net income.
Investing Activities
Investing cash flows consist primarily of capital expenditures, investment in, sales and maturities of available for sale marketable securities, investment and withdrawal of bank deposits and cash used for acquisitions. Cash used for investing activities was $398.0 million in the first nine months of 2021 compared to 0.7 million cash provided in the first nine months of 2020, primarily driven by a $416.4 million increase in purchases of available-for-sale debt investments, net, partially offset by a $39.2 million decrease in bank and restricted bank deposits.
Financing Activities
Financing cash flows consist primarily, 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. Cash used for financing activities in the first nine months of 2021 was $19.4 million compared to $637.3 million cash provided by financing activities in the first nine months of 2020, primarily due to a $618.3 million decrease in cash provided by issuance of the Notes, net, and a decrease of $21.5 million in cash received from the exercise of stock-based awards net of withholding taxes remitted to the tax authorities.
Convertible Senior Note
On September 25, 2020, we issued $632.5 million aggregate principal amount of our 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. See Note 8 to our interim consolidated financial statements for more information.
Debt Obligations
During 2020, we redeemed all outstanding loans, including the bank loan obligations acquired as part of the acquisition of Kokam and entered into new bank loans in an aggregate amount of $15.2 million. During the second quarter of 2021 we redeemed the new bank loans. In addition, during 2020, we entered into a second bank loan in an aggregate amount of $1.4 million. The second bank loan matures in September 2030, with a monthly interest rate of 2.5%. As of September 30, 2021, the aggregate outstanding amount of the second bank loan was $1.4 million.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
ITEM 3QUANTITATIVE 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.
15
Foreign Currency Exchange Risk
Approximately 57.1% and 50.7% of our revenues for the nine months ended September 30, 2021 and 2020, respectively, were earned in non-U.S. Dollar denominated currencies, principally the Euro. Our expenses are generally denominated in the currencies in which our operations are located, primarily the U.S. Dollar and New Israeli Shekel, and to a lesser extent, the Euro and South Korean Won. Our New Israeli Shekel-denominated expenses consist primarily of personnel and overhead costs. Our consolidated results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. A hypothetical 10% change in foreign currency exchange rates during the nine months ended September 30, 2021, between the Euro and the U.S. Dollar would increase or decrease our net income by $50.9 million for the nine months ended September 30, 2021. A hypothetical 10% change in foreign currency exchange rates during the nine months ended September 30, 2021 between the New Israeli Shekel and the U.S. Dollar would increase or decrease our net income by $8.4 million for the nine months ended September 30, 2021. A hypothetical 10% change in foreign currency exchange rates during the nine months ended September 30, 2021, between the South Korean Won and the U.S. Dollar would increase or decrease our net income by $22.5 million for the nine months ended September 30, 2021.
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 to manage exposure to foreign currency risks by hedging portions of the anticipated payroll payments denominated in New Israeli Shekels (“NIS”). Our foreign currency forward contracts are expected to mitigate exchange rate changes related to the hedged assets. Those hedging contracts are designated as cash flow hedges.
In addition, we also entered into derivative instrument arrangements to hedge the Company’s exposure to currencies other than the U.S. dollar, mainly forward contracts and put and call options to sell Euro for U.S. dollars, forward contracts and put and call options to sell Australian dollars (“AUD”) for U.S. dollars and forward contracts to sell U.S. dollars for South Korean Won (“KRW”). These derivative instruments are not designated as cash flow hedges.
Concentrations of Major Customers
Our trade accounts receivables potentially expose us to a concentration of credit risk with our major customers. As of September 30, 2021, two customers accounted for approximately 29.09% of our consolidated trade receivables, net balance. We currently do not foresee a credit risk associated with these receivables other than the amount included in our financial statements.
ITEM 4CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective and operating to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and to provide reasonable assurance that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
Based on an evaluation by our chief executive officer and chief financial officer, such officers concluded that there have been no other changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
16
PART II. OTHER INFORMATION
ITEM 1LEGAL PROCEEDINGS
In our Annual Report on Form 10-K/A for the year ended December 31, 2020 we disclosed that 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 ask for an injunction of manufacture, use, sale and offer for sale. A first-instance judgment was issued in October 2021, 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. We believe that we have meritorious defenses to the claims asserted by Huawei and the judgement of the first instance court and have filed an appeal with the Supreme People’s Court. The first instance court’s judgement is not effective or enforceable pending the appeal.
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, action or complaints on behalf of the Company), including the matters described in Item 3 – “Legal Proceedings” of our Annual Report on Form 10-K/A for the period ended December 31, 2020 and Part II – Other Information; Item 1- “Legal Proceedings” of our Quarterly Report on form 10-Q for the period ended March 31, 2021. It is impossible to predict with certainty whether any resulting liability from any such legal claims, actions or complaints would have a material adverse effect on our financial position, results of operations or cash flows.
ITEM 1ARISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the risk set forth below and the risk factors as described in Part I, Item 1A, ”Risk Factors”, in our Annual Report on Form 10-K/A for the year ended December 31, 2020.
The revenues generated from our e-Mobility business are dependent on orders from a leading automotive manufacturer. The automotive industry is facing significant shortages of components for their assembly and their slowdown in manufacturing could delay orders of our powertrain kits.
The automotive industry is facing significant shortages of components, including semiconductors due in large part to strong cross-industry demand, which has presented challenges and production disruptions globally. Many leading automotive manufacturers have announced that these shortages will remain constrained and could extend into 2023. As a result, our customer has announced temporary suspensions of its manufacturing due to component shortages. These suspensions may 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 and other financial results from this business.
ITEM 2UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5OTHER INFORMATION
None.
17
ITEM 6EXHIBITS
|
Exhibit No. |
Description |
Incorporation by Reference (where a report is indicated below, that document has been previously filed with the SEC and the applicable exhibit is incorporated by reference thereto) | ||
|
| ||||
|
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) |
Filed with this report. | |||
|
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a). |
Filed with this report. | |||
|
Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Filed with this report. | |||
|
Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Filed with this report. | |||
|
101 |
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements. |
Filed with this report. | ||
|
104 |
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 formatted in Inline XBRL |
Included in Exhibit 101. |
18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
SOLAREDGE TECHNOLOGIES, INC. | |
|
| |
|
Date: November 3, 2021 |
/s/ Zvi Lando |
|
Zvi Lando | |
|
Chief Executive Officer | |
|
(Principal Executive Officer) | |
|
| |
|
Date: November 3, 2021 |
/s/ Ronen Faier |
|
Ronen Faier | |
|
Chief Financial Officer | |
|
(Principal Financial and Accounting Officer) | |
19