ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING 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, backlog, industry and regulatory environment, effects of acquisitions, growth opportunities, potential future impairments, 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 inherently 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. Forward-looking and other statements regarding our sustainability efforts and aspirations are not an indication that these statements are necessarily material to investors or requiring disclosure in our filing with the Securities and Exchange Commission (“SEC”). In addition, historical, current and forward-looking sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve and assumptions that are subject to change in the future, including future rule-making. 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:
| | • | future demand for renewable energy including solar energy solutions; |
| | • | our ability to forecast demand for our products accurately and to match production to such demand as well as our customers' ability to forecast demand based on inventory levels; |
| | • | macroeconomic conditions in our domestic and international markets, as well as inflation concerns, rising interest rates and recessionary concerns; |
| | • | 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; |
| | • | product quality or performance problems in our products; |
| | • | shortages, delays, price changes, or cessation of operations or production affecting our suppliers of key components; |
| | • | delays, disruptions, and quality control problems in manufacturing; |
| | • | our dependence upon a small number of outside contract manufacturers and limited or single source suppliers; |
| | • | capacity constraints, delivery schedules, manufacturing yields, and costs of our contract manufacturers and availability of components; |
| | • | disruption in our global supply chain and rising prices of oil and raw materials as a result of the conflict between Russia and Ukraine; |
| | • | performance of distributors and large installers in selling our products; |
| | • | consolidation in the solar industry among our customers and distributors; |
| | • | our ability to manage effectively the growth of our organization and expansion into new markets; |
| | • | our ability to recognize expected benefits from restructuring plans; |
| | • | any unauthorized access to, disclosure, or theft of personal information or unauthorized access to our network or other similar cyber incidents; |
| | • | our ability to integrate acquired businesses; |
| | • | disruption to our business operations due to the evolving state of war in Israel and political conditions related to the Israeli government's plans to significantly reduce the Israeli Supreme Court's judicial oversight; |
| | • | our dependence on ocean transportation to timely deliver our products in a cost-effective manner; |
| | • | fluctuations in global currency exchange rates; |
| | • | the impact of evolving legal and regulatory requirements, including emerging environmental, social and governance requirements; |
| | • | existing and future responses to and effects of pandemics, epidemics or other health crises; |
| | • | changes to net metering policies or the reduction, elimination or expiration of government subsidies and economic incentives for on-grid solar energy applications; |
| | • | federal, state, and local regulations governing the electric utility industry with respect to solar energy; |
| | • | changes in tax laws, tax treaties, and regulations or the interpretation of them, including the Inflation Reduction Act; |
| | • | changes in the U.S. trade environment, including the imposition of import tariffs; |
| | • | business practices and regulatory compliance of our raw material suppliers; |
| | • | our ability to maintain our brand and to protect and defend our intellectual property; |
| | • | volatility of our stock price; |
| | • | our customers’ financial stability, creditworthiness, and debt leverage ratio; |
| | • | loss of key executives, and 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 retain, and events affecting, our major customers; |
| | • | natural disasters, public health events and other disruptions; |
| | • | impairment of our goodwill or other long-lived and intangible assets; |
| | • | our liquidity and ability to service our debt; |
the other factors set forth below in Part II, Item 1.A under “Risk Factors” and in Part I, Item 1A under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business.
The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. 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 develop, manufacture and sell products in a solar segment that addresses a broad range of energy market segments through our diversified product offering, including residential, commercial and large scale photovoltaic or PV, energy storage and backup solutions, electric vehicle or EV charging capabilities, home energy management, grid services and virtual power plants, as well as products in our non-solar businesses including lithium-ion cells, batteries and energy storage systems, which are part of our Energy Storage Segment as well as automation machines ("Automation Machines") and in prior years, we also had product offerings for the e-mobility market. In October 2023, we decided to discontinue our light commercial vehicle ("LCV") e-Mobility activity. The remaining e-mobility activity, which includes PV applications, has been included under the solar segment starting January 1, 2024.
The Company identified two reportable segments: the Solar segment and Energy Storage segment. The Solar segment includes the design, development, manufacturing, and sales of its DC optimized inverter solutions designed to maximize power generation at the PV module level and batteries for PV applications. The Solar segment solution consists mainly of the Company’s power optimizers, inverters, batteries and cloud‑based monitoring platform. The Energy Storage segment includes the design, development, manufacturing, and sales of high-energy, high-power, lithium-ion cells and BESS solutions for the C&I and Utility markets. The Energy Storage segment provides purpose-built components and solutions, hardware and software, as well as pre and post sales engineering support to design, build, and manage battery and system solutions according to the customer’s use cases and mission profiles. The “All other” category includes the design, development, manufacturing and sales of e-Mobility products (in prior periods) and automated machines.
In the third quarter of 2020, we began commercial shipments 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 worldwide. In May 2022, we opened “Sella 2”, our own manufacturing facility for Li-Ion cells, in Korea. Sella 2 currently has a 2GWh capacity. In light of the Inflation Reduction Act legislation in the United States, which incentivizes the local manufacturing of renewable energy products by providing benefits to installers for the purchase and installation of product with domestic content, as well as by incentivizing local manufacturing of our products, we began manufacturing inverters in Texas and reached full capacity there during the third quarter of 2024. We are also currently expanding additional manufacturing capabilities in G, for optimizers and inverters. With the manufacturing capabilities of these new sites and due to a decrease in demand for our products, we have reduced capacity in all of our manufacturing sites outside of the U.S. As of September 30, 2024, we shipped approximately 130.0 million power optimizers, 5.7 million inverters and 303.3 thousand batteries for PV applications. Over 4.1 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, 2024, we shipped approximately 55.3 GW of our DC optimized inverter systems and approximately 2.1 GWh of our batteries for PV applications.
Our revenues for the three months ended September 30, 2024, and 2023 were $260.9 million and $725.3 million, respectively,. Gross loss was 269.2% for the three months ended September 30, 2024, compared to our gross margin of 19.7% for the three months ended September 30, 2023. Net loss for the three months ended September 30, 2024, and 2023 was $1,205.3 million and $61.2 million, respectively.
Our revenues for the nine months ended September 30, 2024, and 2023 were $730.7 million and $2,660.5 million, respectively. Gross loss was 101.2% for the nine months ended September 30, 2024, compared to our gross margin of 28.6% for the nine months ended September 30, 2023. Net loss for the nine months ended September 30, 2024 was $1,493.5 million compared to our net income in the amount of $196.7 million, for the nine months ended September 30, 2023.
Global Circumstances Influencing our Business and Operations
Demand for Products
We have seen a slowdown in demand for our products in our Solar segment from our direct customers since the second part of the third quarter of 2023. This was a result of slowed market demand in the third quarter of 2023, as distributors began to take actions to reduce inventory levels. In particular, beginning in the second part of the third quarter of 2023, we experienced substantial unexpected cancellations and push outs of existing backlog from our European distributors. We attribute these cancellations and push outs to high inventory in the channels and slower than expected installation rates both in the United States and Europe. This trend continued in the subsequent quarters. Additionally, the Company anticipates a continued lower level of revenues in the fourth quarter of 2024 when compared to the same quarter last year, as the inventory destocking process continues.
Disruptions due to the war in Israel
Due to the war that began on October 7, 2023, some of our employees in Israel were called to active reserve duty and additional employees may be called in the future, if needed. In the three months ended September 30, approximately 10% of our employees in Israel have been called to active reserve duty for varying periods. While our offices and facilities are open worldwide, including in Israel, and, to date, we have not had disruptions to our ability to manufacture and deliver products and services to customers, a prolonged war or an escalation of the current condition in Israel could materially adversely affect our business, financial condition, and results of operations. Due to the ongoing and evolving nature, and the extent of these events, the adverse effect on our business operations is still unknown.
The majority of our key employees and officers are residents of Israel. If any of our facilities in Israel were to be damaged, destroyed or otherwise rendered unable to operate, whether due to war, acts of hostility, earthquakes, fire, floods, hurricanes, storms, tornadoes, other natural disasters, employee malfeasance, terrorist acts, power outages or otherwise, or if performance of our research and development is disrupted for any other reason, such an event could delay commercialization of our products, and if we choose to manufacture all or any part of them internally, jeopardize our ability to manufacture our products as promptly as our prospective customers will likely expect, or possibly at all. If we experience delays in achieving our development objectives within a timeframe that meets our prospective customers’ expectations, our business, prospects, financial results and reputation could be harmed.
Impact of Ukraine’s Conflict on the Energy Landscape
The conflict between Ukraine and Russia, which started in early 2022, and the sanctions and other measures imposed in response to this conflict, have increased the level of economic and political uncertainty. While we do not have any meaningful business in Russia or Ukraine and we do not have physical assets in these countries, this conflict has, and is likely to continue to have, a multidimensional impact on the global economy, the energy landscape in general and the global supply chain. In 2022, rising global interest in becoming less dependent on gas and oil led to higher demand for our products. The conflict adversely affected the prices of raw materials arriving from Eastern Asia and resulted in an increase in gas and oil prices. Furthermore, various shipment routes were adversely impacted by the conflict resulting in increased shipment lead times and shipping costs for our products. While the impact of this conflict continued to decrease in 2024, a change or escalation of this ongoing conflict could increase the impacts from the circumstances described above and may lead to an adverse effect on our business and results of operations.
Inflation Reduction Act
In August 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the “IRA”), which includes several provisions intended to accelerate U.S. manufacturing and adoption of clean energy, battery and energy storage, electrical vehicles, and other solar products and is expected to impact our business and operations. As part of such incentives, the IRA, among other things, extends the investment tax credit and production tax credit through 2034 and is therefore expected to increase the demand for solar products. The IRA also further incentivizes residential and commercial solar customers and developers through the inclusion of a tax credit for qualifying energy projects of up to 30%. Section 45X of the IRA offers advanced manufacturing production tax credits ("AMPTC") that incentivize the production of eligible components within the U.S. To that end, we established manufacturing capabilities in the U.S. in 2023. These provisions of the law are new and regulations and guidance concerning their implementation are gradually being published by the U.S. Treasury Department. On October 24, 2024, final regulations concerning the application of IRC §45X were published. The regulations contain detailed rules concerning the eligibility, qualifying and accounting for AMPTCs. Of particular relevance to the Company are the rules concerning the qualification and measurement of AMPTCs to Residential Inverters, Commercial Inverters and DC-Optimized Inverter Systems, that are included in the definition of Microinverters.
We continue to monitor the benefits that may be available to us, such as the availability of tax credits for domestic manufacturers and the domestic content tax credit bonus that provides incentives for project owners.
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 of inverters, power optimizers and megawatts to evaluate our sales performance and to track market acceptance of our products.
We provide the “megawatts shipped” and “megawatts hour shipped” metrics, which are calculated based on inverter or battery nameplate capacity shipped, respectively, to show adoption of our system on a nameplate capacity basis. Nameplate capacity shipped is the maximum rated power output capacity of an inverter or battery, and corresponds to our financial results in that higher total nameplate capacities shipped are generally associated with higher total revenues. However, revenues may increase in a non-correlated manner to the “megawatt shipped” metric since other products such as power optimizers, are not accounted for in this metric.
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
Inverters shipped | | | 57,642 | | | | 273,883 | | | | 192,296 | | | | 938,171 | |
Power optimizers shipped | | | 1,848,653 | | | | 3,266,487 | | | | 4,921,254 | | | | 15,238,543 | |
Megawatts shipped1 | | | 850 | | | | 3,796 | | | | 2,668 | | | | 11,728 | |
Megawatts hour shipped - batteries for PV applications | | | 189 | | | | 121 | | | | 446 | | | | 612 | |
1Excluding batteries for PV applications, based on the aggregate nameplate capacity of inverters shipped during the applicable period. Nameplate capacity is the maximum rated power output capacity of an inverter, as specified by the manufacturer.
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.
The following table sets forth selected consolidated statements of income (loss) data for each of the periods indicated.
| | | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | |
| | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| | | (In thousands) | |
Revenues | | $ | 260,903 | | | $ | 725,305 | | | $ | 730,707 | | | $ | 2,660,484 | |
Cost of revenues | | | 963,229 | | | | 582,488 | | | | 1,470,189 | | | | 1,900,236 | |
Gross profit (loss) | | | (702,326 | ) | | | 142,817 | | | | (739,482 | ) | | | 760,248 | |
Operating expenses: | | | | | | | | | | | | | | | | |
Research and development | | | 70,372 | | | | 80,082 | | | | 214,999 | | | | 246,481 | |
Sales and marketing | | | 37,427 | | | | 40,351 | | | | 116,316 | | | | 125,539 | |
General and administrative | | | 41,212 | | | | 39,110 | | | | 111,085 | | | | 111,876 | |
Other operating expense (income), net | | | 233,929 | | | | — | | | | 237,271 | | | | (1,434 | ) |
Total operating expenses | | | 382,940 | | | | 159,543 | | | | 679,671 | | | | 482,462 | |
Operating income (loss) | | | (1,085,266 | ) | | | (16,726 | ) | | | (1,419,153 | ) | | | 277,786 | |
Financial income (expense), net | | | 5,558 | | | | (7,901 | ) | | | (2,371 | ) | | | 19,157 | |
Other income (loss), net | | | (3,928 | ) | | | (484 | ) | | | 14,623 | | | | (609 | ) |
Income (loss) before income taxes | | | (1,083,636 | ) | | | (25,111 | ) | | | (1,406,901 | ) | | | 296,334 | |
Income taxes | | | (121,108 | ) | | | (36,065 | ) | | | (85,109 | ) | | | (99,622 | ) |
Net loss from equity method investments | | | (577 | ) | | | — | | | | (1,440 | ) | | | — | |
Net income (loss) | | $ | (1,205,321 | ) | | $ | (61,176 | ) | | $ | (1,493,450 | ) | | $ | 196,712 | |
Comparison of three and nine months ended September 30, 2024, and the three and nine months ended September 30, 2023
Revenues
| | | Three months ended September 30, 2024 to 2023 | | | Nine months ended September 30, 2024 to 2023 | |
| | | 2024 | | | 2023 | | | Change | | | 2024 | | | 2023 | | | Change | |
| | | (In thousands) | |
Revenues | | $ | 260,903 | | | $ | 725,305 | | | $ | (464,402 | ) | | | (64.0 | )% | | $ | 730,707 | | | $ | 2,660,484 | | | $ | (1,929,777 | ) | | | (72.5 | )% |
Revenues decreased by $464.4 million, or 64.0%, in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, primarily due to (i) a decrease of $416.5 million related to a decrease in the number of inverters and power optimizers sold; (ii) a decrease of $22.1 million in revenues generated in 2023 from e-mobility components, related to the discontinuation of the Company’s LCV e-Mobility activity; and (iii) a decrease of $14.6 million related to less ancillary solar products sold. The overall decrease in revenues was due to a decline in demand that began in the second part of the third quarter of 2023. This decline was the result of high inventory in the channels and slower than expected installation rates, leading to substantial unexpected cancellations and push outs of existing backlog, from our distributors.
Revenues from outside of the U.S. comprised 50.7% of our revenues in the three months ended September 30, 2024 as compared to 73.0% in the three months ended September 30, 2023.
The number of power optimizers recognized as revenues decreased by approximately 1.4 million units, or 43.8%, from approximately 3.3 million units, in the three months ended September 30, 2023, to approximately 1.8 million units in the three months ended September 30, 2024. The number of inverters recognized as revenues decreased by approximately 203.9 thousand units, or 76.5%, from approximately 266.6 thousand units in the three months ended September 30, 2023 to approximately 62.7 thousand units in the three months ended September 30, 2024. The megawatts hour of batteries for PV applications recognized as revenues increased by approximately 55.2 megawatts hour, or 35.9% from approximately 153.7 in the three months ended September 30, 2023 to approximately 208.9 megawatts hour in the three months ended September 30, 2024, as a result of lower demand.
Our blended ASP per watt for solar products excluding batteries for PV applications is calculated by dividing the sales of solar products, excluding the sales of batteries for PV applications, by the name plate capacity of inverters shipped. Our blended ASP per watt for solar products shipped excluding batteries for PV applications increased by $0.039, or 24.0%, in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The increase in blended ASP per watt is mainly attributed to a higher number of power optimizers and other solar products shipped compared to the number of inverters shipped. This increase in blended ASP per watt was partially offset by an increase in the sale of commercial products that are characterized by lower ASP per watt, out of our total solar product mix.
Our blended ASP per watt/hour for batteries for PV applications is calculated by dividing batteries for PV applications sales, by the nameplate capacity of batteries for PV applications shipped. Our blended ASP per watt/hour for batteries for PV applications decreased by $0.158, or 33.3%, in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The decrease in blended ASP per watt/hour is mainly attributed to a price reduction of our batteries for PV applications.
Revenues decreased by $1,929.8 million, or 72.5%, in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to (i) a decrease of $1,640.5 million related to a decrease in the number of inverters and power optimizers sold; (ii) a decrease of $167.7 million related to the lower number of batteries for PV applications sold, primarily in Europe; (iii) a decrease of $65.9 million in revenues generated from e-mobility components, related to the discontinuation of the Company’s LCV e-Mobility activity; and (iv) a decrease of $60.0 million related to less ancillary solar products sold. The overall decrease in revenues was due to the decline in demand that began in the second part of the third quarter of 2023. This decline was the result of high inventory in the channels and slower than expected installation rates, leading to substantial unexpected cancellations and push outs of existing backlog, from our distributors.
Revenues from outside of the U.S. comprised 60.2% of our revenues in the nine months ended September 30, 2024 as compared to 75.7% in the nine months ended September 30, 2023.
The number of power optimizers recognized as revenues decreased by approximately 10.4 million units, or 68.0%, from approximately 15.3 million units, in the nine months ended September 30, 2023, to approximately 4.9 million units in the nine months ended September 30, 2024. The number of inverters recognized as revenues decreased by approximately 742.0 thousand units, or 79.6%, from approximately 932.4 thousand units in the nine months ended September 30, 2023 to approximately 190.4 thousand units in the nine months ended September 30, 2024. The megawatts hour of batteries for PV applications recognized as revenues decreased by approximately 215.2 megawatts hour, or 33.4% from approximately 643.6 megawatts hour in the nine months ended September 30, 2023 to approximately 428.4 megawatts hour in the nine months ended September 30, 2024 as a result of lower demand.
Our blended ASP per watt for solar products shipped excluding batteries for PV applications increased by $0.005, or 2.9%, in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The increase in blended ASP per watt is mainly attributed to a higher number of power optimizers and other solar products shipped compared to the number of inverters shipped. This increase in blended ASP per watt was partially offset by price reduction as well as an increase in the sale of commercial products that are characterized by lower ASP per watt, out of our total solar product mix.
Our blended ASP per watt/hour for batteries for PV applications decreased by $0.126, or 26.3%, in the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. The decrease in blended ASP per watt/hour is mainly attributed to price reduction of our batteries for PV applications.
Cost of Revenues and Gross Profit (loss)
| | | Three months ended September 30, 2024 to 2023 | | | Nine months ended September 30, 2024 to 2023 | |
| | | 2024 | | | 2023 | | | Change | | | 2024 | | | 2023 | | | Change | |
| | | (In thousands) | |
Cost of revenues | | $ | 963,229 | | | $ | 582,488 | | | $ | 380,741 | | | | 65.4 | % | | $ | 1,470,189 | | | $ | 1,900,236 | | | $ | (430,047 | ) | | | (22.6 | )% |
Gross profit (loss) | | $ | (702,326 | ) | | $ | 142,817 | | | $ | (845,143 | ) | | | (591.8 | )% | | $ | (739,482 | ) | | $ | 760,248 | | | $ | (1,499,730 | ) | | | (197.3 | )% |
Cost of revenues increased by $380.7 million, or 65.4%, in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, primarily due to an increase in inventory write-down accruals of $642.4 million related to the slowdown in our products demand, and excess inventory in our channels, the repeated price reductions and the introduction of a new generation of our products, which was partially offset by:
| | • | a decrease in direct cost of revenues sold of $157.2 million which includes a decrease in the volume of products sold and an increase of $14.0 million in AMPTC recognized; |
| | • | a decrease in warranty expenses and warranty accruals of $52.1 million associated primarily with a decrease in revenues; and |
| | • | a decrease in shipment and logistic costs in an aggregate amount of $44.2 million due to a decrease in volumes shipped; |
Gross profit as a percentage of revenue decreased from 19.7%, in the three months ended September 30, 2023, to a gross loss of 269.2% in the three months ended September 30, 2024, primarily due to:
| | • | inventory write-down accruals resulting in lower gross margin of approximately 250%; |
| | • | price reductions to our batteries for PV applications, which contributed a higher portion of our total product mix resulting in lower gross margin of approximately 23%; |
| | • | lower absolute fixed and other production related costs, which were divided this quarter by significantly lower revenue, resulting in lower gross margin of approximately 13%. |
Cost of revenues decreased by $430.0 million, or 22.6%, in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to:
| | • | a decrease in direct cost of revenues sold of $731.2 million which includes both a decrease in the volume of products sold and an increase of $44.1 million AMPTC recognized; |
| | • | a decrease in warranty expenses and warranty accruals of $190.0 million associated primarily with a decrease in revenues; |
| | • | a decrease in shipment and logistic costs in an aggregate amount of $124.1 million due to a decrease in volumes shipped and a decrease in expedited shipments costs. |
These movements were partially offset by an increase of $636.5 million in inventory write-down related to the slowdown in our products demand and excess inventory in our channel, the repeated price reductions and the introduction of a new generation of our products.
Gross profit as a percentage of revenue decreased from 28.6% in the nine months ended September 30, 2023 to gross loss of 101.2% in the nine months ended September 30, 2024 primarily due to:
| | • | inventory write-down accruals resulting in lower gross margin of approximately 90%; |
| | • | lower absolute fixed and other production related costs, which were divided this year by a significantly lower revenue, resulting in a lower gross margin, of approximately 23%; and |
| | • | price reduction and a higher portion of our single phase batteries, out of our total product mix, resulting in lower gross margin of approximately 16%. |
Operating Expenses:
Research and Development
| | | Three months ended September 30, 2024 to 2023 | | | Nine months ended September 30, 2024 to 2023 | |
| | | 2024 | | | 2023 | | | Change | | | 2024 | | | 2023 | | | Change | |
| | | (In thousands) | |
Research and development | | $ | 70,372 | | | $ | 80,082 | | | $ | (9,710 | ) | | | (12.1 | )% | | $ | 214,999 | | | $ | 246,481 | | | $ | (31,482 | ) | | | (12.8 | )% |
Research and development costs decreased by $9.7 million or 12.1%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to:
| | • | a decrease in personnel-related costs of $5.8 million resulting from our workforce reduction plan designed to reduce operating expenses and align our cost structure to current market dynamics; and |
| | • | a decrease in expenses related to consultants and sub-contractors in an amount of $2.5 million. |
Research and development costs decreased by $31.5 million or 12.8%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily due to:
| | • | a decrease in personnel-related costs of $20.6 million resulting from our workforce reduction plan designed to reduce operating expenses and align our cost structure to current market dynamics; and |
| | • | a decrease in expenses related to consultants and sub-contractors in an amount of $8.4 million. |
Sales and Marketing
| | | Three months ended September 30, 2024 to 2023 | | | Nine months ended September 30, 2024 to 2023 | |
| | | 2024 | | | 2023 | | | Change | | | 2024 | | | 2023 | | | Change | |
| | | (In thousands) | |
Sales and marketing | | $ | 37,427 | | | $ | 40,351 | | | $ | (2,924 | ) | | | (7.2 | )% | | $ | 116,316 | | | $ | 125,539 | | | $ | (9,223 | ) | | | (7.3 | )% |
Sales and marketing expenses decreased by $2.9 million, or 7.2%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to a decrease in personnel-related costs of $2.7 million resulting from our workforce reduction plan designed to reduce operating expenses and align our cost structure to current market dynamics.
Sales and marketing expenses decreased by $9.2 million, or 7.3%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily due to:
| | • | a decrease in personnel-related costs of $6.4 million resulting from our workforce reduction plan designed to reduce operating expenses and align our cost structure to current market dynamics; and |
| | • | a decrease of $1.4 million in training-related expenses. |
General and Administrative
| | | Three months ended September 30, 2024 to 2023 | | | Nine months ended September 30, 2024 to 2023 | |
| | | 2024 | | | 2023 | | | Change | | | 2024 | | | 2023 | | | Change | |
| | | (In thousands) | |
General and administrative | | $ | 41,212 | | | $ | 39,110 | | | $ | 2,102 | | | | 5.4 | % | | $ | 111,085 | | | $ | 111,876 | | | $ | (791 | ) | | | (0.7 | )% |
General and administrative expenses increased by $2.1 million, or 5.4%, in the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to an increase in expenses related to doubtful debt of $4.4 million. This was partially offset by:
| | • | a decrease in expenses related to consultants and sub-contractors of $0.7 million; and |
| | • | a decrease in personnel-related costs of $0.5 million resulting from our workforce reduction plan designed to reduce operating expenses and align our cost structure to current market dynamics. |
General and administrative expenses decreased by $0.8 million, or 0.7%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily due to:
| | • | a decrease in personnel-related costs of $7.1 million resulting from our workforce reduction plan designed to reduce operating expenses and align our cost structure to current market dynamics; and |
| | • | a decrease in expenses related to consultants and sub-contractors $5.6 million. |
| | • | a decrease of $1.1 million related to other administrative costs. |
These were partially offset by an increase in expenses related to doubtful debt of $13.2 million
Other operating expense (income), net
| | | Three months ended September 30, 2024 to 2023 | | | Nine months ended September 30, 2024 to 2023 | |
| | | 2024 | | | 2023 | | | Change | | | 2024 | | | 2023 | | | Change | |
| | | (In thousands) | |
Other operating expense (income), net | | $ | 233,929 | | | $ | — | | | $ | 233,929 | | | | 100.0 | % | | $ | 237,271 | | | $ | (1,434 | ) | | $ | 238,705 | | | | (16,646.1 | )% |
Other operating expenses, net, increased by $233.9 million in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to:
| | • | an increase of $207.4 million in losses related to the impairment of property, plant and equipment; |
| | • | an increase of $22.5 million in losses related to the impairment of intangible assets; and |
| | • | an increase of $2.3 million in losses related to the impairment of goodwill. |
Other operating expense, net was $237.3 million, in the nine months ended September 30, 2024, compared to other operating income, net of $1.4 million in the nine months ended September 30, 2023, primarily due to:
| | • | an increase of $209.1 million in losses related to the impairment of property, plant, and equipment; |
| | • | an increase of $22.5 million in losses related to the impairment of intangible assets; and |
| | • | an increase of $2.3 million in losses related to the impairment of goodwill. |
Financial income (expense), net
| | | Three months ended September 30, 2024 to 2023 | | | Nine months ended September 30, 2024 to 2023 | |
| | | 2024 | | | 2023 | | | Change | | | 2024 | | | 2023 | | | Change | |
| | | (In thousands) | |
Financial income (expense), net | | $ | 5,558 | | | $ | (7,901 | ) | | $ | 13,459 | | | | (170.3 | )% | | $ | (2,371 | ) | | $ | 19,157 | | | $ | (21,528 | ) | | | (112.4 | )% |
Financial income, net was $5.6 million in the three months ended September 30, 2024, compared to financial expense, net in the amount of $7.9 million in the three months ended September 30, 2023, primarily due to $4.6 million income in the three months ended September 30, 2024 as compared to expenses of $16.4 million in the three months ended September 30, 2023, as a result of fluctuations in foreign exchange rates, primarily between the Euro and the NIS against the U.S. dollar. This was partially offset by a decrease of $5.8 million in income related to hedging transactions.
Financial expenses, net was $2.4 million in the nine months ended September 30, 2024, compared to financial income, net in the amount of $19.2 million in the nine months ended September 30, 2023, primarily due to:
| | • | an increase in expenses of $11.4 million due to credit loss related to loans receivables. |
| | • | a decrease of $5.0 million in income related to hedging transactions. |
| | • | an expense of $0.5 million compared to an income of $4.8 million in fluctuations in foreign exchange rates primarily between the Euro and the NIS against the U.S. dollar. |
Please refer to the section entitled "Foreign Currency Exchange Risk" under Item 3 of this report for additional information.
Other income (loss), net
| | | Three months ended September 30, 2024 to 2023 | | | Nine months ended September 30, 2024 to 2023 | |
| | | 2024 | | | 2023 | | | Change | | | 2024 | | | 2023 | | | Change | |
| | | (In thousands) | |
Other income (loss), net | | $ | (3,928 | ) | | $ | (484 | ) | | $ | (3,444 | ) | | | 711.6 | % | | $ | 14,623 | | | $ | (609 | ) | | $ | 15,232 | | | | (2,501.1 | )% |
Other loss increased by $3.4 million in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to a loss of $5.0 million related to impairment of an investment in a privately held company. This was partially offset by an increase of $1.1 million in realized gain from marketable securities.
Other income, net was $14.6 million in the nine months ended September 30, 2024, compared to other loss, net of $0.6 million in the nine months ended September 30, 2023, primarily due to:
| | • | an increase of $15.5 million due to a gain from the repurchase of the 2025 Notes; |
| | • | an increase of $3.2 million in realized gain from marketable securities; and |
| | • | an increase of $1.1 million due to a gain from the revaluation of equity investment as a result of business combination. |
These were partially offset by an increase in loss of $5.0 million as a result of an impairment of an investment in privately held company.
Tax benefits (income taxes)
| | | Three months ended September 30, 2024 to 2023 | | | Nine months ended September 30, 2024 to 2023 | |
| | | 2024 | | | 2023 | | | Change | | | 2024 | | | 2023 | | | Change | |
| | | (In thousands) | |
Income taxes | | $ | (121,108 | ) | | $ | (36,065 | ) | | $ | (85,043 | ) | | | 235.8 | % | | $ | (85,109 | ) | | $ | (99,622 | ) | | $ | 14,513 | | | | (14.6 | )% |
Income taxes increased by $85.0 million in the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to:
| | • | an increase in deferred tax expenses of $141.2 million in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, driven mainly by a valuation allowance due to uncertainty regarding future profitability. |
| | • | a decrease of $46.8 million in current tax expenses related to the decrease in profits before tax in certain jurisdictions, partially offset by an increase in our provision for uncertain tax positions. |
Income taxes decreased by $14.5 million in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023 primarily due to:
| | • | a decrease of $104.0 million in current tax expenses mainly related to the decrease in profits before tax in certain jurisdictions, partially offset by an increase in our provision for uncertain tax positions. |
| | • | an increase in deferred tax expenses of $98.0 million, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, driven mainly by the valuation allowance due to uncertainty regarding future profitability. |
Net loss from equity method investments
| | | Three months ended September 30, 2024 to 2023 | | | Nine months ended September 30, 2024 to 2023 | |
| | | 2024 | | | 2023 | | | Change | | | 2024 | | | 2023 | | | Change | |
| | | (In thousands) | |
Net loss from equity method investments | | $ | 577 | | | $ | — | | | $ | 577 | | | | 100.0 | % | | $ | 1,440 | | | $ | — | | | $ | 1,440 | | | | 100.0 | % |
Net loss from equity method investments increased by $0.6 million, or 100% in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.
Net loss from equity method investments increased by $1.4 million, or 100% in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.
Net Income (loss)
| | | Three months ended September 30, 2024 to 2023 | | | Nine months ended September 30, 2024 to 2023 | |
| | | 2024 | | | 2023 | | | Change | | | 2024 | | | 2023 | | | Change | |
| | | (In thousands) | |
Net income (loss) | | $ | (1,205,321 | ) | | $ | (61,176 | ) | | $ | (1,144,145 | ) | | | 1,870.3 | % | | $ | (1,493,450 | ) | | $ | 196,712 | | | $ | (1,690,162 | ) | | | (859.2 | )% |
As a result of the factors discussed above, net loss in the three months ended September 30, 2024 and September 30, 2023 was $1,205.3 million and $61.2 million, respectively.
As a result of the factors discussed above, net loss was $1,493.5 million in the nine months ended September 30, 2024, as compared to a net income of $196.7 million in the nine months ended September 30, 2023.
Segment analysis
In October 2023, we decided to discontinue our LCV e-Mobility activity and the remaining e-Mobility activity is included under the solar segment starting January 1, 2024. Following the discontinuation of its e-Mobility LCV activity, the Company operates in three different operating segments: Solar, Energy Storage and Automation Machines. We have identified two operating segments as reportable – the Solar and the Energy Storage segments. The other operating segments are insignificant individually, and therefore, their results are presented together under “All other.”
We do not allocate our operating segments revenue recognized due to advance payments received for performance obligations that extend for a period greater than one year (“financing component”), related to accounting standard codification 606, “Revenue from Contracts with Customers” ("ASC 606").
Segment profit (loss) is comprised of gross profit (loss) for the segment less operating expenses excluding amortization and impairment of purchased intangible assets, stock based compensation expenses, restructuring charges, discontinued activity charges, impairment of property, plant and equipment and certain other items (which are reported under "Not allocated to segments").
| | | Three Months Ended September 30, | | | 2023 to 2024 | | | Nine Months Ended September 30, | | | 2023 to 2024 | |
| | | 2024 | | | 2023 | | | Change | | | 2024 | | | 2023 | | | Change | |
| | | | | | | | | | | | | | | (In thousands) | |
Solar | | | | | | | | | | | | | | | | | | | | | | | | |
Revenues | | | 247,516 | | | | 676,929 | | | | (429,413 | ) | | | (63.4 | )% | | | 678,861 | | | | 2,532,794 | | | | (1,853,933 | ) | | | (73.2 | )% |
Segment profit (loss) | | | (717,291 | ) | | | 45,132 | | | | (762,423 | ) | | | (1,689.3 | )% | | | (932,734 | ) | | | 458,855 | | | | (1,391,589 | ) | | | (303.3 | )% |
Energy Storage | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenues | | | 10,900 | | | | 24,215 | | | | (13,315 | ) | | | (55.0 | )% | | | 42,960 | | | | 52,492 | | | | (9,532 | ) | | | (18.2 | )% |
Segment loss | | | (91,288 | ) | | | (18,686 | ) | | | (72,602 | ) | | | 388.5 | % | | | (113,061 | ) | | | (52,465 | ) | | | (60,596 | ) | | | 115.5 | % |
All other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenues | | | 2,237 | | | | 23,946 | | | | (21,709 | ) | | | (90.7 | )% | | | 8,156 | | | | 74,594 | | | | (66,438 | ) | | | (89.1 | )% |
Segment profit (loss) | | | 488 | | | | (3,381 | ) | | | 3,869 | | | | (114.4 | )% | | | 866 | | | | (8,571 | ) | | | 9,437 | | | | (110.1 | )% |
Not allocated to segments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenues not allocated to segments | | | 250 | | | | 215 | | | | 35 | | | | 16.3 | % | | | 730 | | | | 604 | | | | 126 | | | | 20.9 | % |
Expenses, net not allocated to segments | | | (277,175 | ) | | | (39,791 | ) | | | (237,384 | ) | | | 596.6 | % | | | (374,224 | ) | | | (120,033 | ) | | | (254,191 | ) | | | 211.8 | % |
Solar
As discussed above, this decrease in revenues was due to high inventory in the channels and slower than expected installation rates beginning in the third quarter of 2023, leading to substantial unexpected cancellations and push outs of existing backlog from our distributors.
Solar revenues decreased by $429.4 million, or 63.4%, in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023 primarily due to (i) a decrease of $416.5 million related to a decrease in the number of inverters and power optimizers sold; and a decrease of $14.6 million related to less ancillary solar products sold.
Solar operating loss was $717.3 million, in the three months ended September 30, 2024, as compared to profit of $45.1 million in the three months ended September 30, 2023. This was due to the decrease of $429.4 million in revenue as well as a significant increase in inventory write-down accrual of $545.2 million related to the slowdown in our products demand and the repeated price reductions, which were partially offset by a decrease in direct cost of revenues associated with a decrease in the volume of products sold of $118.0 million, a decrease in warranty expenses and warranty accruals of $51.4 million associated primarily with a decrease in revenues and a decrease in shipment and logistic costs in an aggregate amount of $32.2 million_ due to a decrease in volumes shipped;
Solar revenues decreased by $1,853.9 million, or 73.2%, in the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023 primarily due to (i) a decrease of $1,640.5 million related to a decrease in the number of inverters and power optimizers sold; (ii) a decrease of $167.7 million related to the number of batteries for PV applications sold primarily in Europe; (iii) a decrease of $60.0 million related to less ancillary solar products sold.
Solar operating loss was $932.7 million, in the nine months ended September 30, 2024, as compared to profit of $458.9 million in the nine months ended September 30, 2023. This was primarily due to the decrease of $1,853.9 million in revenue followed by a decrease in direct cost of revenues of $648.8 million, a decrease in warranty expenses and warranty accruals of $192.8 million, and a decrease of $118.9 million in shipment and logistic costs, all associated with a decrease in the volume of products sold which was offset by a significant increase in inventory write-down accrual valued at $554.3 million related to the slowdown in our products demand and repeated price reductions.
Energy Storage
Energy Storage revenues decreased by $13.3 million, or 55.0%, in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023.
Energy Storage operating loss increased by $72.6 million, or 388.5%, in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The increase in operating loss was primarily due to the decrease in revenues and an increase of $59.4 million in cost of revenues mainly attributed to an increase in inventory write-down partially offset by a decrease in direct cost of revenues.
Energy Storage revenues decreased by $9.5 million, or 18.2%, in the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023.
Energy Storage operating loss increased by $60.6 million, or 115.5%, in the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. The increase in operating loss was primarily due to the decrease in revenues as well as an increase of $55.2 million in cost of revenues mainly attributed to an increase in inventory write-down partially offset by a decrease in direct cost of revenues.
All other
All other segments revenues decreased by $21.7 million, or 90.7%, in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, primarily due to the discontinuation of the Company’s LCV e-Mobility activity.
All other segments operating profit was $0.5 million in the three months ended September 30, 2024, compared to operating loss of $3.4 million, in the three months ended September 30, 2023. This improvement was mainly due to the discontinuation of our LCV e-Mobility activity.
All other segments revenues decreased by $66.4 million, or 89.1%, in the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, primarily due to the discontinuation of the Company’s LCV e-Mobility activity.
All other segments operating profit was $0.9 million in the nine months ended September 30, 2024, compared to operating loss of $8.6 million, in the nine months ended September 30, 2023. This improvement was mainly due to the discontinuation of our LCV e-Mobility activity.
Not allocated to segments
There were no significant changes in revenues not allocated to segments in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023.
Expenses, net, not allocated to segments increased by $237.4 million, or 596.6%, in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The increase was mainly due to the impairment of property, plant and equipment, intangible assets and goodwill.
There were no significant changes in revenues not allocated to segments in the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023.
Expenses, net, not allocated to segments increased by $254.2 million, or 211.8%, in the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. The increase was mainly due to the impairment of property, plant and equipment, intangible assets and goodwill as well as an increase in costs related to the Restructuring Plan, all of which are not assessed by our CODM and therefore not allocated to any of the segments above.
Liquidity and Capital Resources
The following table shows our cash flows from operating activities, investing activities, and financing activities for the stated periods:
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| | | (In thousands) | | | (In thousands) | |
Net cash used in operating activities | | $ | (63,865 | ) | | $ | 40,585 | | | $ | (325,656 | ) | | $ | (40,203 | ) |
Net cash provided by (used in) investing activities | | | 75,531 | | | | (43,733 | ) | | | 318,755 | | | | (188,187 | ) |
Net cash provided by (used in) financing activities | | | 30,811 | | | | (1,164 | ) | | | (19,873 | ) | | | (11,305 | ) |
Increase (decrease) in cash and cash equivalents | | $ | 42,477 | | | $ | (4,312 | ) | | $ | (26,774 | ) | | $ | (239,695 | ) |
As of September 30, 2024, our cash and cash equivalents were $303.9 million. This amount does not include $430.9 million invested in available-for-sale marketable securities and $4.1 million invested in restricted bank deposits. Our principal uses of cash are for funding our operations, capital expenditures, other working capital requirements, other investments, any potential future share repurchases and the repayment of our convertible notes due 2025. As of September 30, 2024, we have open commitments for capital expenditures in an amount of approximately $18.5 million. These commitments mainly reflect purchases of automated assembly lines and other machinery related to our manufacturing and operations. We also have purchase obligations in the amount of $443.8 million related to raw materials and commitments for the future manufacturing of our products.
We believe our cash and cash equivalents, and available-for-sale marketable securities will be sufficient to meet our anticipated cash needs for at least the next 12 months as well as in the longer term, including the self-funding of our capital expenditure, operational commitments and the redemption of our debt.
Operating Activities
Operating cash flows consist primarily of net income (loss), adjusted for certain non-cash items and changes in assets and liabilities. Cash used in operating activities increased by $285.5 million in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, mainly due to net loss adjusted for certain non-cash items generated in the nine months ended September 30, 2024 as compared to net income adjusted for certain non-cash items in the nine months ended September 30, 2023, which was partially offset by lower operating working capital requirements.
Investing Activities
Investing cash flows consist primarily of capital expenditures, investment in, sales and maturities of available for sale marketable securities, investment and withdrawal of bank deposits and restricted bank deposits, cash used for acquisitions and disbursements and receipts from collections of loans made by the Company. Cash provided by investing activities was $318.8 million in the nine months ended September 30, 2024 as compared to cash used in investing activities of $188.2 million in the nine months ended September 30, 2023, primarily driven by an increase of $508.9 million in proceeds provided by sales and maturities of available-for-sale marketable securities and a decrease of $34.1 million in purchase of property plant and equipment and a decrease of $13.6 million in purchases of available-for-sale debt investments. These were partially offset by an increase of $22.9 million in disbursements of loans made by the Company and an increase of $17.7 million in cash used in the purchase of privately-held companies.
Financing Activities
Financing cash flows consisted primarily of repurchases of our common stock under the share repurchase program, the issuance and repurchase of convertible notes, and our employee equity incentive plans. Cash used in financing activities in the nine months ended September 30, 2024 increased by $8.6 million compared to the nine months ended September 30, 2023, primarily due to a $267.9 million increase in cash used for the repurchase of convertible note, an increase of $50.3 million in cash used in share repurchases, a $28.3 million increase in cash used to purchase the capped call transactions and $13.0 million decrease in proceeds provided by the exercise of stock-based awards. This was partially offset by a $329.2 million increase in cash provided by the issuance of convertible notes and a decrease of $21.6 million in withholding taxes remitted to the tax authorities related to the exercise of stock-based awards.
Share Repurchases
On November 1, 2023, we announced the approval by the Board of Directors of a share repurchase program which authorizes the repurchase of up to $300 million of the Company’s common stock. Under the share repurchase program, repurchases can be made using a variety of methods, which may include open market purchases, block trades, privately negotiated transactions, accelerated share repurchase programs and/or a non-discretionary trading plan or other means, including through 10b5-1 trading plans, all in compliance with the rules of the SEC and other applicable legal requirements. The timing, manner, price and amount of any common share repurchases under the share repurchase program are determined by the Company in its discretion and depend on a variety of factors, including legal requirements, price and economic and market conditions. The program does not obligate SolarEdge to acquire any amount of common stock, it may be suspended, extended, modified, discontinued or terminated at any time at the Company’s discretion without prior notice, and will expire on December 31, 2024.
During the nine months ended September 30, 2024, the Company repurchased 753,364 shares of common stock from the open market at an average cost of $66.79 per share for a total of $50.3 million.
Convertible Senior Notes
On June 28, 2024, we sold an aggregate principal amount of $300 million of 2.25% convertible senior notes due 2029 in a transaction exempt from registration pursuant to Rule 144A and Regulation S under the Securities Act. The net proceeds from the offering of the Notes 2029 were approximately $293.2 million, after deducting fees and estimated expenses. Separately, we have entered into capped call transactions. We used approximately $25.2 million of the net proceeds from this offering to pay the cost of the capped call transactions and approximately $267.9 million of the net proceeds from this offering to repurchase $285.0 million principal amount of its outstanding 0.000% convertible notes due 2025. As a result of the repurchase of Notes 2025, we recognized a gain of $15.5 million which was recorded under other income. We intend to use the remainder of the net proceeds from the offering for general corporate purposes.
On July 8, 2024, we sold an aggregate principal amount of $37 million of the Notes 2029. The Notes 2029 were sold pursuant to the Initial Purchasers’ exercise of the option granted by the Company to the Initial Purchasers to purchase additional Notes 2029, as described above in Note 16, “Convertible Senior Notes.”
Critical Accounting Policies and Significant Management Estimates
Management believes that there have been no significant changes during the nine months ended September 30, 2024 to the items that we disclosed as our critical accounting policies and estimates in MD&A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, except as mentioned in Note 1, “General” (if any).
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates, customer concentrations, interest rates and commodity prices. We do not hold or issue financial instruments for trading purposes.
Foreign Currency Exchange Risk
Approximately 44.93% and 70.87% of our revenues for the nine months ended September 30, 2024, and 2023, 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, NIS, Euro, and to a lesser extent, the South Korean Won (“KRW”). Our NIS denominated expenses consist primarily of personnel and overhead costs. Our consolidated results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. A hypothetical 10% change in foreign currency exchange rates between the Euro and the U.S. dollar would increase or decrease our net income by $45.8 million for the nine months ended September 30, 2024. A hypothetical 10% change in foreign currency exchange rates between the NIS and the U.S. dollar would increase or decrease our net income by $20.8 million for the nine months ended September 30, 2024.
For purposes of our consolidated financial statements, local currency assets and liabilities are translated at the rate of exchange to the U.S. dollar on the balance sheet date, and local currency revenues and expenses are translated at the exchange rate as of the date of the transaction or at the average exchange rate to the U.S. dollar during the reporting period.
To date, we have used derivative financial instruments, specifically foreign currency forward contracts and put and call options, to manage exposure to foreign currency risks by hedging portions of the anticipated payroll payments denominated in NIS. These derivative instruments are designated as cash flow hedges.
In addition, from time to time we enter into derivative financial instruments to hedge the Company’s exposure to currencies other than the U.S. dollar, mainly forward contracts to sell Euro and AUD for U.S. dollars. 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, 2024, three major customers jointly accounted for approximately 37.4% of our consolidated trade receivables, net balance. As of September 30, 2023, two major customers jointly accounted for approximately 37.3% of our consolidated trade receivables, net balance. For the three months ended September 30, 2024, one major customer accounted for approximately 16.7% of our total revenues. For the three months ended September 30, 2023, two major customers jointly accounted for approximately 27.3% of our total revenues. For the nine months ended September 30, 2024 one major customer accounted for approximately 11.0% of our total revenues. For the nine months ended September 30, 2023 two major customers accounted for approximately 25.4% of our total revenues.
Commodity Price Risk
We are subject to risk from fluctuating market prices of certain commodity raw materials which are used in our products, including Copper, Lithium, Nickel and Cobalt. Prices of these raw materials may be affected by supply restrictions or other market factors from time to time, and we do not enter into hedging arrangements to mitigate commodity risk. Significant price changes for these raw materials could reduce our operating margins if we are unable to recover such increases from our customers, and could harm our business, financial condition, and results of operations.
ITEM 4. Controls and Procedures.
Disclosure Controls and Procedures
Our management, with the participation of our interim 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 September 30, 2024. 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 interim chief executive officer and chief financial officer concluded, as of September 30, 2024, 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 interim chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the third fiscal quarter of 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION.
ITEM 1. Legal Proceedings
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 Note 18 – “Commitments and Contingent Liabilities” to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q and in Item 3 – “Legal Proceedings” of our Annual Report on Form 10-K for the period ended December 31, 2023. 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 1A. Risk 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 for the year ended December 31, 2023. Other than the risk factors set forth below, there have been no material changes to the risk factors previously disclosed in the 2023 Form 10-K.
Disruption to our business operations as a result of war and hostilities in Israel and other conditions in Israel that affect our operations may limit our ability to develop, produce and sell our products and have a material adverse effect on our business, financial condition, and results of operations.
Our headquarters and research and development center are located in Israel. Accordingly, political, economic, and military conditions in Israel directly affect us. Israel has been and is currently involved in a number of armed conflicts, including recent escalation of the conflict with Iran, and is the target of terrorist activity, including threats from Hezbollah militants in Lebanon, Iranian militia in Syria, and others. The state of hostility disrupts day-to-day civilian activity and negatively affects our business conditions.
Violence between Hamas and Israel started on October 7, 2023 when the terrorist group launched an unprecedented attack on Israel. On October 8, 2023 the Israeli Government declared that the Security Cabinet of the State of Israel approved a war situation in Israel. Hezbollah (an Islamist militia and political group based in Lebanon) also launched missile, rocket, and shooting attacks against Israeli military sites, troops, and towns in northern Israel in October 2023.Since our headquarters and most of our employees operate from Israel, the state of war has disrupted and is continuing to disrupt our business operations. This situation has impacted the availability of our workforce, as approximately 10% of our workforce in Israel, where we are headquartered, have been called into active reserve duty. Several of our employees who reside close to the southern or northern boarders of Israel have been forced to evacuate their homes and have relocated to temporary housing. Since the education system is partially operating, many of our employees with small children are working from home. Due to the recency of these events, and their ongoing and evolving nature, the extent of the adverse effect on our business operations is still unknown. While our offices and facilities are open worldwide, including in Israel, and, to date, we have not had disruptions to our ability to manufacture and deliver products and services to customers a prolonged war or an escalation of the current conditions in Israel could materially adversely affect our business, financial condition, and results of operations.
On September 17, 2024, the Israeli cabinet declared the return of displaced Israeli residents to their homes, in the North of the country as a war goal, which has caused an intensification of fighting. The potential deterioration of Israel’s economy, as a direct and indirect result of these terrorist attacks and the military campaigns in Gaza and Lebanon that has resulted from them, could have a material adverse effect on us and our ability to effectively conduct our operations.
In addition, any future ongoing armed conflict, political instability or violence in the region may impede our ability to manage our business effectively, operate our manufacturing plant in northern Israel, engage in research and development, or otherwise adversely affect our business or operations. In the event of escalation of the current war situation or others, we may be forced to cease operations, which may cause delays in the distribution and sale of our products. Some of our directors, executive officers, and employees in Israel are obligated to perform annual reserve duty in the Israeli military and are subject to being called for additional active duty under emergency circumstances. In the event that our principal executive office is damaged as a result of hostile action, or hostilities otherwise disrupt the ongoing operation of our offices, our ability to operate could be materially adversely affected.
Our commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Although according to the Israeli Property Tax and Compensation Fund Regulation (Compensation Payment) (War Damage and Indirect Damage), 1973 the Israeli government should compensate physical loss or damage to the said property due to War or Terror risks on actual values, we cannot assure you that such government coverage will be maintained or that it will sufficiently cover our full potential damages. Any losses or damages incurred by us could have a material adverse effect on our business.
Additionally, several countries principally in the Middle East, restrict doing business with Israeli companies, and additional countries and groups may impose similar restrictions if hostilities in Israel or political instability in the region continue or increase. If instability in neighboring states results in the establishment of fundamentalist Islamic regimes or governments more hostile to Israel, or if Egypt or Jordan abrogates its respective peace treaty with Israel, Israel could be subject to additional political, economic, and military confines, and our operations and ability to sell our products to countries in the region could be materially adversely affected.
In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods and cooperation with Israeli-related entities based on Israel’s military operations in Gaza and Israeli government policies. Any current or future hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or significant downturn in the economic or financial condition of Israel, could have a material adverse effect on our business, financial condition, and results of operations.
In that regard, since the start of the war on Hamas, we have become aware of pressure being placed on our customers not to engage in business with us due to our affiliation with Israel. In addition, foreign policy could be negatively impacted with regard to Israel. If these pressures intensify or continue to occur, they could impact our business with suppliers and customers which could in turn adversely impact our reputation, results of operations or financial condition.
Additionally, in 2023, the Israeli government announced plans to significantly reduce the Israeli Supreme Court's judicial oversight, including reducing its ability to strike down legislation that it deems unreasonable, and plans to increase political influence over the selection of judges. Although the Israeli Supreme Court partially struck down these plans, the current government has vowed to make other changes to law that limit the powers of the Supreme Court. If such government plans are eventually enacted, they may cause operational challenges for us since we are headquartered in Israel and many of our employees are located in Israel. In response to the foregoing developments, individuals, organizations and institutions, both within and outside of Israel, have voiced concerns that the proposed changes may negatively impact the business environment in Israel due in part to the reluctance of foreign investors to invest or transact business in Israel, and lead to increased volatility in foreign exchange rates involving the Israeli new shekel, downgrades in the credit rating of Israel, increased volatility in securities markets, and other changes in macroeconomic conditions. All of these risks have been compounded by the current wars against Hamas and Hezbollah.
The loss of key executives, and our ability to retain key personnel and attract additional qualified personnel
On August 26, 2024, the Company's former CEO, Zvi Lando resigned, and the Board of Directors appointed its former CFO, Ronen Faier to the position of interim CEO. In conjunction with this transition, the Board of Directors also appointed Ariel Porat, formerly the Company’s Senior Vice President of Finance, to serve as CFO. Executive leadership and senior management transitions, reductions in workforce and employee turnover can be time consuming, difficult to manage, create instability, cause disruption to our business and result in the loss of institutional knowledge, and any of these outcomes could impede the execution of our day-to-day operations and our ability to fully implement our business and growth strategy. These impacts could also make it more difficult to attract and retain talent. The failure to successfully hire and retain key executives and employees or the further loss of any key executives, senior management and employees could have a significant impact on our operations, including declining product identity and competitive differentiation, eroding employee morale and productivity or an inability to maintain internal controls, regulatory or other compliance related requirements, any and all of which could in turn adversely impact our business, financial condition, and results of operations.
Political uncertainty may have an adverse impact on our business.
As described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, we are subject to various legal, compliance and regulatory risks, including with respect to the availability of economic incentives in certain jurisdictions in which we operate. Elections in various countries, including the United States and throughout Europe, may further exacerbate these risks. The lead up to these elections and their outcomes could result in sharp shifts in domestic, economic, and foreign policy approaches or significant changes in, and uncertainty with respect to, legislation and regulation directly affecting us and our business, including tax incentives for the solar industry. Actions taken by new administrations may have an adverse effect on our industry and business, which could result in a material adverse effect on our business, financial condition, results of operations and future growth.
We have incurred significant losses and expect to incur losses in the future, which could restrict our liquidity and ability to service our debt
The Company’s accumulated deficit totaled $715.28 million as of September 30, 2024 and we expect to incur losses in future periods. These losses could restrict our operations and make it more difficult for us to service our debt obligations and satisfy our liquidity needs. These outcomes could increase our vulnerability to general adverse economic, industry or competitive conditions; limit our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate; limit our ability to raise additional debt or equity capital in the future; and restrict us from exploiting business opportunities, any or all of which could adversely affect our business, financial condition, and results of operations.Our future operations are also dependent on the success of the Company’s development and commercialization efforts and, ultimately, upon the market acceptance of the Company’s products. Our failure to develop and commercialize its products successfully, or to achieve market acceptance for our products, could have an adverse effect on our business, financial condition, and results of operations and subject us to further losses.
Additional impairments of the carrying value of our long-lived assets, goodwill or other intangible assets could adversely affect our financial condition and results of operations.
Our long-lived assets, goodwill and other intangible assets represent a significant portion of our total assets. We test our goodwill and such assets for impairment at least annually, or more frequently if an event occurs indicating the potential for impairment, and we assess on an as-needed basis whether there have been impairments in our other intangible assets, which include complex, and often subjective, assumptions and estimates. These assumptions and estimates can be affected by a variety of external factors such as industry and economic trends, and internal factors such as changes in our business strategy or our internal forecasts. To the extent that the factors described above change, we could be required to record additional non-cash impairment charges in the future, which could negatively affect our financial condition and results of operations
During the three months ended September 30, 2024, we concluded indicators of impairment existed due to a sustained decline in the Company's stock price and, as a result, the Company’s market capitalization. Therefore we performed an interim impairment test of long-lived assets, goodwill and other intangible assets, which resulted in an impairment charge and disposals related to certain tangible assets of $207.4 million and a goodwill impairment charge of $2.3 million (see Notes 7, 8 and 9 to the financial statements for additional information).
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
ITEM 3. D efaults upon Senior Securities.
None
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
5.01 Tax Credit Purchase and Sale Agreement between SolarEdge Manufacturing Inc. and Genworth Financial., Inc. dated November 4, 2024.
Pursuant to the Tax Purchase and Sale Agreement (the “Credit Sale and Transfer Agreement”), the Company agreed to sell to the Purchaser $42.6 million of advanced manufacturing production tax credits (“Tax Credits”) generated by the production of certain inverter components in the United States and the sale of such components during the first half of 2024 (the “Eligible Transactions”) pursuant to Sections 45X and and 6418 of the Internal Revenue Code of 1986, as amended (the “Code”). Pursuant to the Credit Sale and Transfer Agreement, the purchase price for such Tax Credits is $40.1 million which was paid at closing.
The foregoing summary of the Credit Sale and Transfer Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Agreement, which will be filed by the Company as required in its Form 10-K for the year ending December 31, 2024.
ITEM 6. Exhibits
Exhibit No. | | Description | | Incorporation by Reference |
| | | | | |
| | | | Filed with this report. |
| | | | Filed with this report. |
| | | | Furnished with this report. |
| | | | Furnished with this report. |
101 | | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, 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, (vi) Notes to Condensed Consolidated Financial Statements, and (vii) part II, Item 5(c) | | |
104 | | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 formatted in Inline XBRL | | Included in Exhibit 101 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 7, 2024
| | |
| | Ronen Faier |
| | Interim Chief Executive Officer (Principal Executive Officer) |
Date: November 7, 2024
| | |
| | Ariel Porat |
| | (Principal Financial Officer) |
29
