UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q |
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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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OR | |
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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. 001-36894
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SOLAREDGE TECHNOLOGIES, INC. |
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(Exact name of registrant as specified in its charter)
Delaware |
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(State or other jurisdiction of incorporation or organization) | 20-5338862 (IRS Employer Identification No.) |
1 HaMada Street
Herziliya Pituach 4673335, Israel
(Address of principal executive offices, zip code)
972 (9) 957-6620
(Registrant’s telephone number, including area code)
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972 (9) 957-6620 | ||
(Registrant’s telephone number, including area code) | ||
Securities registered pursuant to Section 12(b) of the Act: | ||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, par value $0.0001 per share | SEDG | NASDAQ (Global Select Market) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No ☐ |
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 definitiondefinitions of “large accelerated filer”,filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | (Do not check if a smaller reporting company) | Smaller Reporting | ☐ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒ |
As of NovemberMay 1, 2019,2020, there were 48,610,59049,630,559 shares of the registrant’s common stock, par value of $ 0.0001$0.0001 per share, outstanding.
SOLAREDGE TECHNOLOGIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2019March 31, 2020
INDEX
2
PART I. FINANCIAL INFORMATION
ITEM 1FINANCIAL STATEMENTS
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2019MARCH 31, 2020
IN U.S. DOLLARS
UNAUDITED
INDEX
3
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
U.S. dollars in thousands (except share and per share data)
September 30, 2019 | December 31, 2018 | |||||||||||||
(Unaudited) | March 31, 2020 | December 31, 2019 | ||||||||||||
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ASSETS | ||||||||||||||
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CURRENT ASSETS: | ||||||||||||||
Cash and cash equivalents | $ | 247,342 | $ | 187,764 | $ | 324,072 | $ | 223,901 | ||||||
Short-term bank deposits | 5,769 | 9,870 | 8,085 | 5,010 | ||||||||||
Restricted bank deposits | 1,600 | 824 | 27,515 | 27,558 | ||||||||||
Marketable securities | 85,343 | 118,680 | 95,143 | 91,845 | ||||||||||
Trade receivables, net | 292,232 | 173,579 | ||||||||||||
Trade receivables, net of allowances of $4,509 and $2,473, respectively | 235,673 | 298,383 | ||||||||||||
Prepaid expenses and other current assets | 68,234 | 45,073 | 66,874 | 115,268 | ||||||||||
Inventories, net |
| 134,283 |
| 141,519 | 198,557 | 170,798 | ||||||||
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Total current assets |
| 834,803 |
| 677,309 | 955,919 | 932,763 | ||||||||
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LONG-TERM ASSETS: | ||||||||||||||
Marketable securities | 92,871 | 74,256 | 103,863 | 119,176 | ||||||||||
Operating lease right-of-use assets | 34,601 | - | ||||||||||||
Operating lease right-of-use assets, net | 37,896 | 35,858 | ||||||||||||
Property, plant and equipment, net | 149,675 | 119,329 | 195,982 | 176,963 | ||||||||||
Deferred tax assets, net | 17,180 | 14,699 | 17,095 | 16,298 | ||||||||||
Intangible assets, net and goodwill | 200,795 | 73,378 | ||||||||||||
Other long term assets |
| 7,667 |
| 5,501 | ||||||||||
Intangible assets, net | 69,111 | 74,008 | ||||||||||||
Goodwill | 125,520 | 129,654 | ||||||||||||
Other long-term assets | 8,454 | 9,904 | ||||||||||||
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Total long-term assets |
| 502,789 |
| 287,163 | 557,921 | 561,861 | ||||||||
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Total assets | $ | 1,337,592 | $ | 964,472 | $ | 1,513,840 | $ | 1,494,624 | ||||||
The accompanying notes are an integral part of the interimcondensed consolidated financial statements.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
U.S. dollars in thousands (except share and per share data)
September 30, 2019 | December 31, 2018 | |||||||||||||
(Unaudited) | March 31, 2020 | December 31, 2019 | ||||||||||||
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LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||
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CURRENT LIABILITIES: | ||||||||||||||
Trade payables, net | $ | 132,230 | $ | 107,079 | $ | 139,138 | $ | 157,148 | ||||||
Employees and payroll accruals | 44,386 | 29,053 | 58,894 | 47,390 | ||||||||||
Current maturities of bank loans and accrued interest | 16,912 | 16,639 | 15,048 | 15,673 | ||||||||||
Warranty obligations | 45,887 | 28,868 | 70,158 | 65,112 | ||||||||||
Deferred revenues | 15,006 | 14,351 | ||||||||||||
Deferred revenues and customers advances | 30,706 | 70,815 | ||||||||||||
Accrued expenses and other current liabilities |
| 80,986 |
| 29,728 | 75,737 | 80,576 | ||||||||
| ||||||||||||||
Total current liabilities |
| 335,407 |
| 225,718 | 389,681 | 436,714 | ||||||||
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LONG-TERM LIABILITIES: | ||||||||||||||
Bank loans | 4,055 | 3,510 | - | 173 | ||||||||||
Warranty obligations | 125,467 | 92,958 | 116,099 | 107,451 | ||||||||||
Deferred revenues | 81,934 | 60,670 | 98,134 | 89,982 | ||||||||||
Operating lease liabilities | 29,117 | - | 30,336 | 30,213 | ||||||||||
Deferred tax liabilities, net | 7,762 | 1,499 | 2,202 | 4,461 | ||||||||||
Other long term liabilities |
| 16,662 |
| 9,391 | ||||||||||
Other long-term liabilities | 10,970 | 13,960 | ||||||||||||
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Total long-term liabilities |
| 264,997 |
| 168,028 | 257,741 | 246,240 | ||||||||
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COMMITMENTS AND CONTINGENT LIABILITIES | ||||||||||||||
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STOCKHOLDERS’ EQUITY: | ||||||||||||||
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Common stock of $0.0001 par value - Authorized: 125,000,000 shares as of September 30, 2019 (unaudited) and December 31, 2018; issued and outstanding: 48,576,288 and 46,052,802 shares as of September 30, 2019 (unaudited) and December 31, 2018, respectively | 5 | 5 | ||||||||||||
Common stock of $0.0001 par value – Authorized: 125,000,000 shares as of March 31, 2020 and December 31, 2019; issued: 49,599,493 and 49,081,457 shares as of March 31, 2020 and December 31, 2019, respectively; outstanding: 49,599,493 and 48,898,062 shares as of March 31, 2020 and December 31, 2019, respectively. | 5 | 5 | ||||||||||||
Additional paid-in capital | 450,459 | 371,794 | 491,873 | 475,792 | ||||||||||
Accumulated other comprehensive loss | (3,356 | ) | (524 | ) | (5,390 | ) | (1,809 | ) | ||||||
Retained earnings |
| 284,904 |
| 191,133 | 379,930 | 337,682 | ||||||||
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Total SolarEdge Technologies, Inc. stockholders’ equity |
| 732,012 |
| 562,408 | ||||||||||
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Non-controlling interests |
| 5,176 |
| 8,318 | ||||||||||
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Total stockholders’ equity |
| 737,188 |
| 570,726 | 866,418 | 811,670 | ||||||||
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Total liabilities and stockholders’ equity | $ | 1,337,592 | $ | 964,472 | $ | 1,513,840 | $ | 1,494,624 | ||||||
The accompanying notes are an integral part of the interimcondensed consolidated financial statements.
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, | Three months ended March 31, | ||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2020 | 2019 | |||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||
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Revenues | $ | 410,556 | $ | 236,578 | $ | 1,007,437 | $ | 673,567 | $ | 431,218 | $ | 271,871 | ||||||||||||
Cost of revenues |
| 271,247 |
| 158,596 |
| 671,348 |
| 434,042 | 291,210 | 185,761 | ||||||||||||||
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Gross profit |
| 139,309 |
| 77,982 |
| 336,089 |
| 239,525 | 140,008 | 86,110 | ||||||||||||||
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Operating expenses: | ||||||||||||||||||||||||
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Research and development | 30,747 | 20,109 | 86,451 | 57,535 | 36,695 | 26,199 | ||||||||||||||||||
Sales and marketing | 22,026 | 16,938 | 64,325 | 49,097 | 24,253 | 20,172 | ||||||||||||||||||
General and administrative |
| 12,214 |
| 6,898 |
| 37,590 |
| 17,427 | 16,185 | 11,691 | ||||||||||||||
Non recurring expenses |
| 8,305 |
| - |
| 8,305 |
| - | ||||||||||||||||
Other operating income | (4,900 | ) | - | |||||||||||||||||||||
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Total operating expenses |
| 73,292 |
| 43,945 |
| 196,671 |
| 124,059 | 72,233 | 58,062 | ||||||||||||||
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Operating income | 66,017 | 34,037 | 139,418 | 115,466 | 67,775 | 28,048 | ||||||||||||||||||
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Financial expenses, net |
| 17,023 |
| 689 |
| 22,401 |
| 2,585 | 16,605 | 6,151 | ||||||||||||||
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Income before taxes on income | 48,994 | 33,348 | 117,017 | 112,881 | ||||||||||||||||||||
Income before income taxes | 51,170 | 21,897 | ||||||||||||||||||||||
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Taxes on income (tax benefit) |
| 7,270 | (12,295 | ) |
| 24,405 | (3,016 | ) | ||||||||||||||||
Income taxes | 8,922 | 3,922 | ||||||||||||||||||||||
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Net income | $ | 41,724 | $ | 45,643 | $ | 92,612 | $ | 115,897 | $ | 42,248 | $ | 17,975 | ||||||||||||
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Net loss (income) attributable to non-controlling interests | (97 | ) |
| - |
| 1,159 |
| - | ||||||||||||||||
Net loss attributable to Non-controlling interests | - | 1,041 | ||||||||||||||||||||||
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Net income attributable to SolarEdge Technologies, Inc. | $ | 41,627 | $ | 45,643 | $ | 93,771 | $ | 115,897 | $ | 42,248 | $ | 19,016 | ||||||||||||
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Net basic earnings per share of common stock attributable to SolarEdge Technologies, Inc. | $ | 0.86 | $ | 1.00 | $ | 1.97 | $ | 2.57 | $ | 0.86 | $ | 0.40 | ||||||||||||
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Net diluted earnings per share of common stock attributable to SolarEdge Technologies, Inc. | $ | 0.81 | $ | 0.95 | $ | 1.87 | $ | 2.41 | $ | 0.81 | $ | 0.39 | ||||||||||||
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Weighted average number of shares used in computing net basic earnings per share of common stock |
| 48,195,020 |
| 45,601,540 |
| 47,637,023 |
| 45,025,661 | 49,193,240 | 47,020,218 | ||||||||||||||
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Weighted average number of shares used in computing net diluted earnings per share of common stock |
| 51,081,594 |
| 48,281,240 |
| 49,935,638 |
| 48,091,185 | 52,172,720 | 49,026,327 | ||||||||||||||
The accompanying notes are an integral part of the interimcondensed consolidated financial statements.
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, | Three months ended March 31, | ||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2020 | 2019 | |||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||
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Net income | $ | 41,724 | $ | 45,643 | $ | 92,612 | $ | 115,897 | $ | 42,248 | $ | 17,975 | ||||||||||||
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Other comprehensive income (loss): | ||||||||||||||||||||||||
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Available-for-sale securities: | ||||||||||||||||||||||||
Changes in unrealized gains (losses), net of tax | 17 | 32 | 872 | (484 | ) | (1,165 | ) | 485 | ||||||||||||||||
Reclassification adjustments for losses included in net income |
| - |
| - |
| 91 |
| - | - | 120 | ||||||||||||||
Net change |
| 17 |
| 32 |
| 963 |
| (484 | ) | (1,165 | ) | 605 | ||||||||||||
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Cash flow hedges: | ||||||||||||||||||||||||
Changes in unrealized gains, net of tax expense | - | 45 | - | 45 | ||||||||||||||||||||
Reclassification adjustments for loses, net of tax expense included in net income |
| - |
| (9 | ) |
| - |
| (9 | ) | ||||||||||||||
Net change |
| - |
| 36 |
| - |
| 36 | ||||||||||||||||
Changes in unrealized gains, net of tax | 538 | - | ||||||||||||||||||||||
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Foreign currency translation adjustments, net |
| (2,478 | ) |
| 87 |
| (3,795 | ) |
| 76 | (2,954 | ) | (1,301 | ) | ||||||||||
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Total other comprehensive income (loss) | (2,461 | ) | 155 |
| (2,832 | ) |
| (372 | ) | |||||||||||||||
Total other comprehensive loss | (3,581 | ) | (696 | ) | ||||||||||||||||||||
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Comprehensive income | $ | 39,263 | $ | 45,798 | $ | 89,780 | $ | 115,525 | $ | 38,667 | $ | 17,279 | ||||||||||||
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Comprehensive loss attributable to non-controlling interests |
| 286 |
| - |
| 590 |
| - | ||||||||||||||||
Comprehensive loss attributable to Non-controlling interests | - | 849 | ||||||||||||||||||||||
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Comprehensive income attributable to SolarEdge Technologies, Inc. | $ | 39,549 | $ | 45,798 | $ | 90,370 | $ | 115,525 | $ | 38,667 | $ | 18,128 | ||||||||||||
The accompanying notes are an integral part of the interimcondensed consolidated financial statements.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
U.S. dollars in thousands (except share and per share data)
SolarEdge Technologies, Inc. Stockholders’ Equity | |||||||||||||||||||||||||||||||
Common stock | Additional paid in Capital | Accumulated Other comprehensive loss | Retained earnings | Total | Non-controlling interests | Total stockholders’ equity | |||||||||||||||||||||||||
Number | Amount | ||||||||||||||||||||||||||||||
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Balance as of January 1, 2018 | 43,812,601 | $ | 4 | $ | 331,902 | $ | (611 | ) |
| $ | 66,172 | $ | 397,467 | $ | - | $ | 397,467 | ||||||||||||||
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Cumulative effect of adopting ASC 606 | - | - | - | - | (3,872 | ) | (3,872 | ) | - | (3,872 | ) | ||||||||||||||||||||
Issuance of Common Stock upon exercise of employee and non-employees stock-based awards | 1,084,507 | *- | 4,605 | - | - | 4,605 | - | 4,605 | |||||||||||||||||||||||
Stock-based compensation expenses to employees and non-employee consultants | - | - | 6,849 | - | - | 6,849 | - | 6,849 | |||||||||||||||||||||||
Other comprehensive loss adjustments | - | - | - | (524 | ) | - | (524 | ) | - | (524 | ) | ||||||||||||||||||||
Net income |
| - |
| - |
| - |
| - |
| 35,686 |
| 35,686 |
| - |
| 35,686 | |||||||||||||||
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Balance as of March 31, 2018 (unaudited) |
| 44,897,108 | $ | 4 | $ | 343,356 | $ | (1,135 | ) | $ | 97,986 | $ | 440,211 | $ | - | $ | 440,211 | ||||||||||||||
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Issuance of Common Stock upon exercise of employee and non-employees stock-based awards | 601,306 | *- | 2,986 | - | - | 2.986 | - | 2,986 | |||||||||||||||||||||||
Stock-based compensation expenses to employees and non-employee consultants | - | - | 7,128 | - | - | 7,128 | - | 7,128 | |||||||||||||||||||||||
Other comprehensive loss adjustments | - | - | - | (3 | ) | - | (3 | ) | - | (3 | ) | ||||||||||||||||||||
Net income |
| - |
| - |
| - |
| - |
| 34,568 |
| 34,568 |
| - |
| 34,568 | |||||||||||||||
| |||||||||||||||||||||||||||||||
Balance as of June 30, 2018 (unaudited) |
| 45,498,414 | $ | 5 | $ | 353,470 | $ | (1,138 | ) | $ | 132,554 | $ | 484,891 | $ | - | $ | 484,891 | ||||||||||||||
* Represents an amount less than $1. The accompanying notes are an integral part of the condensed consolidated financial statements. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
U.S. dollars in thousands (except share and per share data)
SolarEdge Technologies, Inc. Stockholders’ Equity | |||||||||||||||||||||||||||||||
Common stock | Additional paid in Capital | Accumulated Other comprehensive loss | Retained earnings | Total | Non-controlling interests | Total stockholders’ equity | |||||||||||||||||||||||||
Number | Amount | ||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||
Issuance of Common Stock upon exercise of employee and non-employees stock-based awards | 251,986 | *- | 324 | - | - | 324 | - | 324 | |||||||||||||||||||||||
Stock-based compensation expenses to employees and non-employee consultants | - | - | 7,950 | - | - | 7,950 | - | 7,950 | |||||||||||||||||||||||
Other comprehensive loss adjustments | - | - | - | 155 | - | 155 | - | 155 | |||||||||||||||||||||||
Net income |
| - |
| - |
| - |
| - |
| 45,643 |
| 45,643 |
| - |
| 45,643 | |||||||||||||||
| |||||||||||||||||||||||||||||||
Balance as of September 30, 2018 (unaudited) |
| 45,750,400 | $ | 5 | $ | 361,744 | $ | (983 | ) | $ | 178,197 | $ | 538,963 | $ | - | $ | 538,963 | ||||||||||||||
|
* Represents an amount less than $1. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the interimcondensed consolidated financial statements.
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
U.S. dollars in thousands (except share and per share data)
SolarEdge Technologies, Inc. Stockholders’ Equity | |||||||||||||||||||||||||||||||
Common stock | Additional paid in Capital | Accumulated Other comprehensive loss | Retained earnings | Total | Non-controlling interests | Total stockholders’ equity | |||||||||||||||||||||||||
Number | Amount | ||||||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||||
Balance as of January 1, 2019 | 46,052,802 | $ | 5 | $ | 371,794 | $ | (524 | ) |
| $ | 191,133 | $ | 562,408 | $ | 8,318 | $ | 570,726 | ||||||||||||||
| - | ||||||||||||||||||||||||||||||
Issuance of Common Stock upon exercise of employee and non-employees stock-based awards | 254,515 | *- | 309 | - | - | 309 | - | 309 | |||||||||||||||||||||||
Stock-based compensation expenses to employees and non-employee consultants | - | - | 9,704 | - | - | 9,704 | - | 9,704 | |||||||||||||||||||||||
Consideration in common stock related to business combination | 1,194,046 | *- | 34,601 | - | - | 34,601 | - | 34,601 | |||||||||||||||||||||||
Non-controlling interests related to business combination | - | - | - | - | - | - | 67,734 | 67,734 | |||||||||||||||||||||||
Change to non-controlling interests | - | - | 977 | - | - | 977 | (2,964 | ) | (1,987 | ) | |||||||||||||||||||||
Other comprehensive loss adjustments | - | - | - | (696 | ) | - | (696 | ) | (849 | ) | (1,545 | ) | |||||||||||||||||||
Net income |
| - |
| - |
| - |
| - |
| 19,016 |
| 19,016 |
| (1,041 | ) |
| 17,975 | ||||||||||||||
| |||||||||||||||||||||||||||||||
Balance as of March 31, 2019 (unaudited) | 47,501,363 | $ | 5 | $ | 417,385 | $ | (1,220 | ) | $ | 210,149 | $ | 626,319 | $71,198 | $ | 697,517 | ||||||||||||||||
| |||||||||||||||||||||||||||||||
Issuance of Common Stock upon exercise of employee and non-employees stock-based awards | 466,062 | - | 3,455 | - | - | 3,455 | - | 3,455 | |||||||||||||||||||||||
Stock-based compensation expenses to employees and non-employee consultants | - | - | 11,372 | - | - | 11,372 | - | 11,372 | |||||||||||||||||||||||
Change to non-controlling interests | - | - | (528 | ) | - | - | (528 | ) | (65,551 | ) | (66,079 | ) | |||||||||||||||||||
Other comprehensive income adjustments | - | - | - | 325 | - | 325 | 545 | 870 | |||||||||||||||||||||||
Net income |
| - |
| - |
| - |
| - |
| 33,128 |
| 33,128 |
| (215 | ) |
| 32,913 | ||||||||||||||
| |||||||||||||||||||||||||||||||
Balance as of June 30, 2019 (unaudited) |
| 47,967,425 | $ | 5 | $ | 431,684 | $ | (895 | ) | $ | 243,277 | $ | 674,071 | $ | 5,977 | $ | 680,048 | ||||||||||||||
|
|
The accompanying notes are an integral part of the interim consolidated financial statements.
F - 8
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
U.S. dollars in thousands (except share and per share data)
SolarEdge Technologies, Inc. Stockholders’ Equity | |||||||||||||||||||||||||||||||
Common stock | Additional paid in Capital | Accumulated Other comprehensive loss | Retained earnings | Total | Non-controlling interests | Total stockholders’ equity | |||||||||||||||||||||||||
Number | Amount | ||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||||
Issuance of Common Stock upon exercise of employee and non-employees stock-based awards | 608,863 | - | 1,176 | - | - | 1,176 | - | 1,176 | |||||||||||||||||||||||
Stock-based compensation expenses to employees and non-employee consultants | - | - | 17,609 | - | - | 17,609 | - | 17,609 | |||||||||||||||||||||||
Change to non-controlling interests | - | - | (10 | ) | - | - | (10 | ) | (612 | ) | (622 | ) | |||||||||||||||||||
Other comprehensive income adjustments | - | - | - | (2,461 | ) | - | (2,461 | ) | (286 | ) | (2,747 | ) | |||||||||||||||||||
Net income |
| - |
| - |
| - |
| - |
| 41,627 |
| 41,627 |
| 97 |
| 41,724 | |||||||||||||||
| |||||||||||||||||||||||||||||||
Balance as of September 30, 2019 (unaudited) |
| 48,576,288 | $ | 5 | $ | 450,459 | $ | (3,356 | ) | $ | 284,904 | $ | 732,012 | $ | 5,176 | $ | 737,188 | ||||||||||||||
|
|
The accompanying notes are an integral part of the interim consolidated financial statements.
F - 9
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
U.S. dollars in thousands
Nine months ended September 30, | Three months ended March 31, | ||||||||||||||
2019 |
| 2018 | 2020 | 2019 | |||||||||||
(Unaudited) | |||||||||||||||
| |||||||||||||||
Cash flows provided by operating activities: | |||||||||||||||
Net income | $ | 92,612 | $ | 115,897 | $ | 42,248 | $ | 17,975 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||
Depreciation of property, plant and equipment | 12,532 | 7,997 | 5,004 | 3,870 | |||||||||||
Amortization of intangible assets | 7,514 | 404 | 2,321 | 1,971 | |||||||||||
Amortization of premium and accretion of discount on available-for-sale marketable securities | - | 1,242 | |||||||||||||
Stock-based compensation | 38,685 | 21,927 | |||||||||||||
Loss from disposal of assets | 566 | 64 | |||||||||||||
Realized gain from cash flow hedge | - | (9 | ) | ||||||||||||
Realized loss from sale of available-for-sale marketable securities | 91 | - | |||||||||||||
Amortization of premium and accretion of discount on available-for-sale marketable securities, net | 120 | (59 | ) | ||||||||||||
Stock-based compensation expenses | 12,773 | 9,704 | |||||||||||||
Deferred income tax benefit, net | (2,859 | ) | (973 | ) | |||||||||||
Other expenses, net | 235 | 186 | |||||||||||||
Changes in assets and liabilities: | |||||||||||||||
Inventories, net | 15,746 | (18,120 | ) | (29,004 | ) | 964 | |||||||||
Prepaid expenses and other assets | (19,795 | ) | (4,800 | ) | 49,888 | 10,885 | |||||||||
Trade receivables, net | (114,572 | ) | (42,418 | ) | 59,420 | (7,379 | ) | ||||||||
Operating lease right-of-use assets and liabilities, net and effect of exchange rate differences | 2,138 | (222 | ) | (1,247 | ) | 828 | |||||||||
Deferred tax assets and liabilities, net | (4,923 | ) | (4,789 | ) | |||||||||||
Trade payables, net | 21,301 | 14,006 | (17,589 | ) | (21,720 | ) | |||||||||
Employees and payroll accruals | 15,329 | 1,200 | 11,821 | 3,250 | |||||||||||
Warranty obligations | 49,633 | 28,847 | 13,809 | 14,947 | |||||||||||
Deferred revenues | 19,516 | 21,576 | |||||||||||||
Deferred revenues and customers advances | (31,729 | ) | 1,730 | ||||||||||||
Other liabilities |
| 39,561 | (597 | ) | (7,466 | ) | 20,271 | ||||||||
| |||||||||||||||
Net cash provided by operating activities |
| 175,934 |
| 142,205 | 107,745 | 56,450 | |||||||||
| |||||||||||||||
Cash flows from investing activities: | |||||||||||||||
Proceeds from sales and maturities of available-for-sale marketable securities | 42,333 | 44,575 | |||||||||||||
Purchase of property, plant and equipment | (27,053 | ) | (10,620 | ) | |||||||||||
Investment in available-for-sale marketable securities | (31,924 | ) | (15,316 | ) | |||||||||||
Withdrawal from (investment in) bank deposits | (3,316 | ) | 3,813 | ||||||||||||
Withdrawal from (investment in) restricted bank deposits | 36 | (182 | ) | ||||||||||||
Business combination, net of cash acquired | (38,435 | ) | (11,223 | ) | - | (39,315 | ) | ||||||||
Purchase of property, plant and equipment | (39,679 | ) | (30,051 | ) | |||||||||||
Withdrawal from (investment in) bank deposits | 4,101 | (8,123) | |||||||||||||
Investment in restricted bank deposits | (243 | ) | (201 | ) | |||||||||||
Investment in available-for-sale marketable securities | (103,711 | ) | (143,150 | ) | |||||||||||
Proceeds from sales and maturities of available-for-sale marketable securities |
| 119,570 |
| 71,632 | |||||||||||
| |||||||||||||||
Net cash used in investing activities | $ | (58,397 | ) | $ | (121,116 | ) | $ | (19,924 | ) | $ | (17,045 | ) | |||
The accompanying notes are an integral part of the interimcondensed consolidated financial statements.
108
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Cont.)
U.S. dollars in thousands
Nine months ended September 30, | Three months ended March 31, | ||||||||||||||
2019 |
| 2018 | 2020 | 2019 | |||||||||||
(Unaudited) | |||||||||||||||
| |||||||||||||||
Cash flows from financing activities: | |||||||||||||||
Proceeds from borrowing loans | $ | 232 | $ | - | |||||||||||
Repayment of bank loans, net | (5,142 | ) | - | ||||||||||||
Repayment of bank loans | $ | (15,232 | ) | $ | (1,003 | ) | |||||||||
Proceeds from bank loans | 15,295 | 51 | |||||||||||||
Proceeds from issuance of shares under stock purchase plan and upon exercise of stock-based awards | 4,940 | 7,915 | 3,308 | 309 | |||||||||||
Purchase of land and building under finance lease | (1,248 | ) | - | ||||||||||||
Change in non-controlling interests |
| (67,089 | ) |
| - | ||||||||||
Change in Non-controlling interests | - | (1,987 | ) | ||||||||||||
Other financing activities | (56 | ) | - | ||||||||||||
| |||||||||||||||
Net cash provided by (used in) financing activities | $ | (68,307 | ) | $ | 7,915 | 3,315 | (2,630 | ) | |||||||
| |||||||||||||||
Increase in cash and cash equivalents and restricted cash | 49,230 | 29,004 | |||||||||||||
Increase in cash, cash equivalents and restricted cash | 91,136 | 36,775 | |||||||||||||
Cash, cash equivalents and restricted cash at the beginning of the period | 187,764 | 163,163 | 223,901 | 187,764 | |||||||||||
Effect of exchange rate differences on cash, cash equivalents and restricted cash |
| 10,348 |
| 731 | 9,035 | 1,939 | |||||||||
| |||||||||||||||
Cash, cash equivalents and restricted cash at the end of the period | $ | 247,342 | $ | 192,898 | $ | 324,072 | $ | 226,478 | |||||||
| |||||||||||||||
Supplemental disclosure of non-cash activities: | |||||||||||||||
| |||||||||||||||
Operating lease, right of use assets | $ | 36,174 | $ | - | |||||||||||
Operating lease, right of use asset | $ | 2,158 | $ | 32,531 | |||||||||||
The accompanying notes are an integral part of the interimcondensed consolidated financial statements.
119
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), (iii) a related cloud-based monitoring platform, that collects and processes information from the power optimizers and inverters of a solar PV system to enable customers and system owners as applicable, to monitor and manage the solar PV systems and (iv) a storage solution that is used to increase energy independence and maximize self-consumption for homeowners by utilizing a battery that is sold separately by third party manufacturers, to store and supply power as needed (the “StorEdge solution”). The StorEdge solution is designed to provide smart energy functions such as maximizing self-consumption, Time-of-Use programming for desired hours of the day, and home energy backup solutions.needed.
The Company and its subsidiaries sell their intelligent inverter solution products worldwide through large distributors and electrical equipment wholesalers to smaller solar installers as, well as directly to large solar installers and Engineering, Procurementengineering, procurement and Constructionconstruction firms (“EPCs”).
In July and October 2018, theThe Company completed the acquisitions ("Gamatronic Acquisition")has expanded its activity to other areas of substantially all of the assets and activities of Gamatronic Electronic Industries Ltd. ("Gamatronic IL") and all of the outstanding shares of its wholly owned subsidiary Gamatronic (UK) Limited (“Gamatronic UK”), respectively. Both companies ("UPS Division") are providers and manufacturers of Uninterruptible Power Supplies ("UPS") devices.
On October 17, 2018, thesmart energy technology through acquisitions. The Company completed the acquisition of 74.5% of the outstanding common shares and voting rights of Kokam Co., Ltd. (“Kokam”), a Korean company whose shares are traded on the Korean OTC market, a provider of Lithium-ionnow offers energy solutions which include lithium-ion cells, batteries and energy storage solutions. From October 17, 2018systems (“energy storage”), electric vehicle, or EV components and through September 30, 2019 (unaudited), the Company increased its shareholdings of Kokam to 94.3%.
On January 24, 2019, the Company completed the acquisition of 56.8% of the outstanding common shares and voting rights of S.M.R.E S.p.Acharging capabilities (“SMRE”e-Mobility”), an Italian company whose shares were traded on the Italian AIM, a provider of innovative integrated powertrain technology and electronics for electric vehicles. Between January 24, 2019 and September 30, 2019 (unaudited), the Company increased its shareholdings of SMRE to 99.8% (see Note 2)as well as uninterrupted power supply solutions (“UPS”).
b.New accounting pronouncements not yet effective:Recently issued and adopted pronouncement:
In January 2017,June 2016 the FASB issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB subsequently issued amendments to ASU 2017-04, "Intangibles - Goodwill2016-13, which have the same effective date and Other (Topic 350): Simplifyingtransition date of January 1, 2020. This standard requires entities to estimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings and report credit losses using an expected losses model rather than the Testincurred losses model that was previously used, and establishes additional disclosures related to credit risks. For available-for-sale (“AFS”) debt securities with unrealized losses, the standard eliminates the concept of other-than-temporary impairments and requires allowances to be recorded instead of reducing the amortized cost of the investment.
This standard limits the amount of credit losses to be recognized for Goodwill Impairment". ASU 2017-04 was issuedAFS debt securities to simplify how an entity is required to test goodwill for impairmentthe amount by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the impliedwhich carrying value exceeds fair value and requires the reversal of a reporting unit’s goodwill with the carrying amount of that goodwill. The amendments in ASU 2017-04 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The Company is in the process of evaluating the potential impact of this pronouncement.previously recognized credit losses if fair value increases.
1210
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.)
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in a more timely recognition of losses. The Company will adoptadopted Topic 326 effective January 1, 2020. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated balance sheets, statements of income and cash flows.
c.Recently issued and adopted pronouncements:
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02 (Topic 842) "Leases". Topic 842 supersedes the lease requirements in Accounting Standards Codification (ASC) Topic 840, "Leases". Under Topic 842, lessees are required to recognize assets and liabilities2020, based on the balance sheet for most leasescomposition of the Company’s trade receivables, investment portfolio and provide enhanced disclosures. ASU No. 2016-02 is effective for interimother financial assets, current economic conditions and annual reporting periods beginning after December 15, 2018. In July 2018,historical credit loss activity. The adoption of this standard did not have a material impact on the FASB issued amendments in ASU 2018-11, which provide a transition election to not restate comparative periodsCompany’s condensed consolidated financial statements.
The Condensed Consolidated Financial Statements for the effects of applying the new standard. This transition election permits entities to change the date of initial application to the beginning of the earliest comparative period presented, or retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment. The Company has elected to apply the standard retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment. The Company has also elected certain relief options offered in ASU 2016-02 including certain available transitional practical expedients. The Company adopted Topic 842 effective January 1, 2019. The interim consolidated financial statements for the ninethree months ended September 30, 2019March 31, 2020 are presented under the new standard, while the comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy (See Note 7).
d.c.Basis of Presentation:
The accompanying unaudited interimcondensed consolidated interim financial statements have been prepared in accordance with Article 10 of Regulation S-X, “Interim Financial Statements” and the rules and regulations for Form 10-Q of the Securities and Exchange Commission (the “SEC”). Pursuant to those rules and regulations, the Company has condensed or omitted certain information and disclosures in footnotes that it normally includes in its annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).
In management’s opinion, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present its condensed consolidated financial position, results of operations, and cash flows. The Company’s interim period operating 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, 2018,2019, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2019,27, 2020, have been applied consistently in these unaudited interim condensed consolidated financial statements, except for ASC 815 - Derivatives and Hedging (see Note 6) and the adoption of ASU No. 2016-02, “Leases2016-13, Financial Instruments - Credit Losses (Topic 842)326) (see Note 1c)7).
d.Concentrations of supply risks:
F - 1311
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.)
e.COVID-19 Considerations:
The Company depends primarilyseverity, magnitude and duration, as well as the economic consequences of the COVID-19 pandemic, 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 COVID-19. Such changes could result in future impairments of goodwill, intangibles, long-lived assets, inventories, incremental credit losses on one contract manufacturerreceivables and several limitedAFS debt securities, or single source component suppliers, and isan increase in the process of opening an additional site with this contract manufacturer and its own manufacturing site. 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, 2019 (unaudited) and December 31, 2018, one and three vendors collectively accounted for 59.2% and 58.8%Company’s insurance liabilities as of the Company’s total trade payables, respectively.
e.Accounting for stock-based compensation:
Sometime of the RSUs granted are subject to certain performance criteria’s (“PSUs”): accordingly, compensation expense for PSUs are recognized when it becomes probable that the related performance conditions have been satisfied.a relevant measurement event (see Note 14).
f.Non recurring expenses:
On August 25, 2019, the Company announced the untimely death of Mr. Guy Sella, Founder, who had served as CEO and Chairman of the Board of Directors until shortly before his passing. For the three months ended September 30, 2019, the Company recognized non-recurring expenses in the amount of $8,305 related to payroll, bonus and employees acceleration of stock-based compensation related to Mr. Sella’s passing.
g.Certain prior period amounts have been reclassified to conform to the current period presentation.
NOTE 2:-BUSINESS COMBINATIONINVENTORIES
S.M.R.E
On January 24, 2019, the Company completed the acquisition of 56.8% of the outstanding common shares and voting rights of SMRE, a provider of innovative integrated powertrain technology and electronics for electric vehicles for $73,036, net of cash acquired, out of which $42,240 was paid in cash and $34,601 was paid in shares of SolarEdge common stock (the “SMRE Acquisition”).
As part of the SMRE Acquisition, the Company issued 334,096 PSUs that are subject to certain performance goals and a vesting period, in the aggregate amount of $13,444 which will be expensed in the condensed consolidated statements of operation in general and administrative expenses line item (see Note 9).
As of January 24, 2019 (unaudited), the fair value of the 43.2% non-controlling interests in SMRE was estimated to be $67,733. The fair value of the non-controlling interests was valued based on and at the transaction price.
The primary reason for the SMRE Acquisition was to acquire technology and customer relationships and to expand and diversify the Company’s business by entering into the electric vehicles market.
The Company determined that the SMRE Acquisition will be accounted for as a business combination in accordance with ASC 805 "Business Combinations".
F - 14
March 31, 2020 | December 31, 2019 | |||||||
| ||||||||
Raw materials | $ | 84,948 | $ | 64,714 | ||||
Work in process | 18,790 | 20,752 | ||||||
Finished goods | 94,819 | 85,332 | ||||||
| ||||||||
$ | 198,557 | $ | 170,798 | |||||
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 2:3:- BUSINESS COMBINATION (Cont.)MARKETABLE SECURITIES
During the period from the SMRE Acquisition through September 30, 2019 (unaudited), the Company purchased additional common shares of SMRE in the open market and through a tender offer in a total amount of $66,562. As of September 30, 2019 (unaudited), the Company holds 99.8% of the outstanding common shares and voting rights of SMRE and such company’s shares are delisted from the Italian Alternative Investment Market (“AIM”).
The amounts of revenue and net loss of SMRE included in the Company’s condensed consolidated statements of income for the three and nine months ended September 30, 2019 (unaudited):
Three months ended |
| Nine months ended | |||
September 30, 2019 | |||||
(Unaudited) | |||||
| |||||
Revenue | $ | 4,235 | $ | 12,485 | |
Net loss | $ | 4,136 | $ | 11,403 | |
The following table summarizes the preliminary estimated purchase price allocation of the business combination completed during the nine months ended September 30, 2019 (unaudited):
Components of Purchase Price: | |||
| |||
Cash | $ | 42,240 | |
Less cash acquired |
| (3,805 | ) |
Common stock |
| 34,601 | |
Total purchase price | $ | 73,036 | |
| |||
Allocation of Purchase Price: | |||
| |||
Total net identifiable assets | $ | 7,947 | |
Total identifiable intangible assets, net of deferred tax liabilities and Goodwill (1) | 132,822 | ||
| |||
Non-controlling interest | $ | (67,733 | ) |
| |||
Total purchase price allocation (2) | $ | 73,036 |
|
| |
|
|
During the three months ended September 30, 2019 (unaudited), there were no acquisition-related costs. During the nine months ended September 30, 2019 (unaudited), the Company recognized acquisition-related costs of $604.
The purchase price allocation for Kokam business combination completed during the year ended December 31, 2018 is still preliminaryAFS marketable debt securities as of September 30, 2019 (unaudited).
As of September 30, 2019, the Gamatronic Acquisition purchase price allocation is final.
The following table represents the pro-forma (unaudited) condensed consolidated statements of income as if all acquisitions completed during the year ended DecemberMarch 31, 2018 and the nine months ended September 30, 2019 (unaudited), had been included in the condensed consolidated statements of income of the Company for the three and nine months ended September 30, 2019 (unaudited) and 2018 (unaudited):2020:
Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | ||||||||||||
|
| ||||||||||||||
AFS – matures within one year: |
| ||||||||||||||
Corporate bonds | $ | 95,321 | $ | 101 | $ | (279 | ) | $ | 95,143 | ||||||
| |||||||||||||||
AFS – matures after one year: | |||||||||||||||
Corporate bonds | 103,376 | 104 | (1,023 | ) | 102,457 | ||||||||||
Governmental bonds | 1,398 | 8 | - | 1,406 | |||||||||||
104,774 | 112 | (1,023 | ) | 103,863 | |||||||||||
| |||||||||||||||
Total | $ | 200,095 | $ | 213 | $ | (1,302 | ) | $ | 199,006 | ||||||
F - 1512
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 2:-BUSINESS COMBINATION (Cont.)
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||
| |||||||||||||||
Revenue | $ | 410,556 | $ | 254,433 | $ | 1,008,509 | $ | 734,758 | |||||||
Net income | $ | 41,724 | $ | 39,748 | $ | 91,247 | $ | 95,411 | |||||||
The pro-forma results have been calculated after applying the Company’s accounting policies and adjusting the results of all acquisitions to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied since the acquisitions date, together with the consequential tax effects.
The pro-forma results are based on estimates and assumptions, which the Company believes are reasonable. The pro-forma results are not the results that would have been realized had the acquisitions actually occurred on January 1, 2018 and 2019, and are not necessarily indicative of the Company’s condensed consolidated statements of income in future periods.
NOTE 3:-INTANGIBLE ASSETS AND GOODWILL
Acquired intangible assets and goodwill consisted of the following:
As of September 30, 2019 | As of December 31, 2018 | ||||||
| (Unaudited) |
| |||||
| |||||||
Intangible assets with finite lived: | |||||||
| |||||||
Current technology | $ | 28,775 | $ | 30,821 | |||
Customer relationships | 3,640 | 3,857 | |||||
Trade names | 3,456 | 3,721 | |||||
Patents |
| 1,400 |
| 1,400 | |||
| |||||||
Gross intangible assets | 37,271 | 39,799 | |||||
| |||||||
Less - accumulated amortization |
| (4,538 | ) |
| (1,295 | ) | |
| |||||||
Total intangible assets, net | 32,733 | 38,504 | |||||
| |||||||
Goodwill: | |||||||
| |||||||
Goodwill from business combinations | 34,874 | 34,445 | |||||
Foreign currency translation |
| (2,282 | ) |
| 429 | ||
| |||||||
Goodwill | 32,592 | 34,874 | |||||
| |||||||
Intangible assets with finite lived, net and goodwill resulted from SMRE Acquisition | 135,470 | - | |||||
| |||||||
Total Intangible assets with finite lived, net and goodwill | $ | 200,795 | $ | 73,378 | |||
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 3:-INTANGIBLE ASSETS AND GOODWILLMARKETABLE SECURITIES (Cont.)
Amortization expensesThe following table summarizes the AFS marketable debt securities as of December 31, 2019:
Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | ||||||||||||
|
| ||||||||||||||
AFS – matures within one year: | |||||||||||||||
Corporate bonds | $ | 91,677 | $ | 196 | $ | (28 | ) | $ | 91,845 | ||||||
| |||||||||||||||
AFS – matures after one year: | |||||||||||||||
Corporate bonds | 117,692 | 336 | (250 | ) | 117,778 | ||||||||||
Governmental bonds | 1,398 | - | - | 1,398 | |||||||||||
119,090 | 336 | (250 | ) | 119,176 | |||||||||||
| |||||||||||||||
Total | $ | 210,767 | $ | 532 | $ | (278 | ) | $ | 211,021 | ||||||
As of March 31, 2020, the Company didn’t record an allowance for the three months ended September 30, 2019 (unaudited) and 2018 (unaudited) were $2,619 and $332, respectively.
Amortization expensescredit losses for the nine months ended September 30, 2019 (unaudited) and 2018 (unaudited) were $7,514 and $404, respectively.
The reported amount of net acquisition-related intangible assets and goodwill can fluctuate due to the impact of changes in foreign currency exchange rates on intangible assets and goodwill not denominated in U.S. dollars.
Acquired finite-lived intangible assets are amortized on a straight-line basis or accelerated method over the estimated useful lives of the assets. The Company will amortize its finite-lived intangible assets over a period of 2-13 years.AFS marketable debt securities (See Note 7).
NOTE 4:-INVENTORIES
September 30, 2019 | December 31, 2018 | ||||||
(Unaudited) | |||||||
| |||||||
Raw materials | $ | 65,495 | $ | 39,380 | |||
Work in process | 22,549 | 18,115 | |||||
Finished goods |
| 46,239 |
| 84,024 | |||
| |||||||
$ | 134,283 | $ | 141,519 | ||||
NOTE 5:-WARRANTY OBLIGATIONS
Changes in the Company’s product warranty obligations for the ninethree months ended September 30,March 31, 2020 and 2019 (unaudited) and 2018 (unaudited) were as follows:
Three months ended March 31, | ||||||||
2020 | 2019 | |||||||
| ||||||||
Balance, at beginning of period | $ | 172,563 | $ | 121,826 | ||||
Additions and adjustments to cost of revenues | 26,373 | 22,105 | ||||||
Usage and current warranty expenses | (12,679 | ) | (7,185 | ) | ||||
| ||||||||
Balance, at end of period | 186,257 | 136,746 | ||||||
Less current portion | (70,158 | ) | (35,229 | ) | ||||
| ||||||||
Long-term portion | $ | 116,099 | $ | 101,517 | ||||
Nine months ended September 30, | |||||||
2019 | 2018 | ||||||
(Unaudited) | |||||||
| |||||||
Balance, at beginning of period | $ | 121,826 | $ | 78,811 | |||
Additions and adjustments to cost of revenues | 79,791 | 47,819 | |||||
Usage and current warranty expenses |
| (30,263 | ) |
| (18,911 | ) | |
| |||||||
Balance at end of period | 171,354 | 107,719 | |||||
Less current portion |
| (45,887 | ) |
| (21,660 | ) | |
| |||||||
Long term portion | $ | 125,467 | $ | 86,059 | |||
1713
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 6:5:-FAIR VALUE MEASUREMENTS
In accordance with ASC 820, the Company measures its cash equivalents, foreign currency derivative contracts, and marketable securities, at fair value using the market approach valuation technique. Cash equivalents and marketable securities are classified within Level 1 or Level 2. This is because these assets are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Earn-out provision isForeign currency derivative contracts are classified within the Level 32 value hierarchy, as the valuation isinputs are based on unobservable inputs which are supported by little or noquoted prices and market activity.observable data of similar instruments.
The following table sets forth the Company’s assets that were measured at fair value as of September 30, 2019 (unaudited)March 31, 2020 and December 31, 2018,2019, by level within the fair value hierarchy:
Fair value measurements as of | ||||||||||||||||||||
Fair value measurements as of | Fair Value | March 31, | December 31, | |||||||||||||||||
Description | Fair Value Hierarchy | September 30, 2019 | December 31, 2018 | Hierarchy | 2020 | 2019 | ||||||||||||||
| (Unaudited) | |||||||||||||||||||
Measured at fair value on a recurring basis: | ||||||||||||||||||||
| ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Cash equivalents: | ||||||||||||||||||||
Money market mutual funds | Level 1 | $ | 18,004 | $ | 1,767 | Level 1 | $ | 28,412 | $ | 527 | ||||||||||
| ||||||||||||||||||||
Derivative instruments asset: | ||||||||||||||||||||
Forward contracts designated as hedging instruments | Level 2 | $ | 613 | $ | - | |||||||||||||||
| ||||||||||||||||||||
Short-term marketable securities: | ||||||||||||||||||||
Corporate bonds | Level 2 | 85,343 | 110,385 | Level 2 | $ | 95,143 | $ | 91,845 | ||||||||||||
Governmental bonds | Level 2 | - | 8,295 | |||||||||||||||||
| ||||||||||||||||||||
Long-term marketable securities: | ||||||||||||||||||||
Corporate bonds | Level 2 | 91,477 | 74,256 | Level 2 | $ | 102,457 | $ | 117,778 | ||||||||||||
Governmental bonds | Level 2 | 1,394 | - | Level 2 | $ | 1,406 | $ | 1,398 | ||||||||||||
| ||||||||||||||||||||
Liabilities | ||||||||||||||||||||
Short-term Earn-out provision | Level 3 | (348 | ) | - | ||||||||||||||||
Long-term Earn-out provision | Level 3 | $ | (523 | ) | $ | (332 | ) | |||||||||||||
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 7:6:-LEASESDERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company leases offices, plantsaccounts for derivatives and vehicles under operatinghedging based on ASC 815 (“Derivatives and finance leases. For leases with terms greater than 12 months,Hedging”). ASC 815 requires the Company recordsto recognize all derivatives on the related assetbalance 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 liability atqualifies 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 three months ended March 31, 2020, 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 six months with hedging contracts.
Accordingly, when the dollar strengthens against the foreign currencies, 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 lease payments according to their term. Severalfuture foreign currency cash flows is offset by gains in the fair value of the Company’s leases include renewal optionshedging contracts. These hedging contracts are designated as cash flow hedges, as defined by ASC 815 and some have termination options that are factoredall effective hedges.
As of March 31, 2020, the Company entered into forward contracts to sell U.S. dollars for NIS in the Company’s determinationamount of $17,985 for a period of six months. See Note 5 for information on the lease payments when appropriate. fair value of these hedging contracts.
The fair value of derivative assets as of March 31, 2020, was $613, which was recorded in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets. As of December 31, 2019, the Company had no derivative instruments.
For the three months ended March 31, 2020, the Company recorded unrealized gain in the amount of $538, net of tax effect, in “accumulated other comprehensive loss” related to the derivative assets designated as hedging instruments.
The Company estimateshad no gains or losses related to derivative instruments during the incremental borrowing rate in order to discount the lease payments based on the information available at the lease commencement date.three months ended March 31, 2019.
1815
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 7:-LEASES (cont.)CREDIT LOSSES
Effective January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, prospectively. This ASU replaces the incurred loss impairment model with an expected credit loss impairment model for financial instruments, including trade receivables. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
The amendment requires entities to consider forward-looking information to estimate expected credit losses, resulting in earlier recognition of losses for receivables that are current or not yet due, which were not considered under the previous accounting guidance. As stated above, the Company didn’t record a noncash cumulative effect adjustment on the opening consolidated balance sheet as of January 1, 2020, due to immateriality.
The Company is exposed to credit losses primarily through sales of products. The Company’s expected loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers' trade accounts receivables.
Due to the short-term nature of such receivables, the estimate of amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default.
The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. The Company considered the current and expected future economic and market conditions surrounding COVID-19 pandemic and determined that the estimate of credit losses was not significantly impacted as of March 31, 2020. Estimates are used to determine the allowance. The allowance is based on assessment of anticipated payment and other historical, current and future information that is reasonably available.
The following table summarizesprovides a roll-forward of the Company’s lease-related assets and liabilities recorded onallowance for credit losses that is deducted from the condensed consolidated balance sheet:amortized cost basis of accounts receivable to present the net amount expected to be collected:
Classification on the condensed consolidated Balance Sheet | As of September 30, 2019 | |||||
(Unaudited) | ||||||
Assets | ||||||
| ||||||
Operating lease assets, net of lease incentive obligation | Operating lease right-of-use assets | $ | 34,601 | |||
Finance lease assets | Property, plant and equipment, net | 1,471 | ||||
Total lease assets | $ | 36,072 | ||||
| ||||||
Liabilities | ||||||
| ||||||
Operating and finance leases short term | Accrued expenses and other current liabilities | $ | 9,451 | |||
Operating leases long term | Operating lease liabilities | 29,117 | ||||
Finance leases long term | Other non-current liabilities | 874 | ||||
Total lease liabilities | $ | 39,442 | ||||
| ||||||
Weighted average remaining lease term in years | ||||||
Operating leases | 4.71 | |||||
Finance leases | 7.51 | |||||
| ||||||
Weighted average annual discount rate | ||||||
Operating leases | 1.45 | % | ||||
Finance leases | 2.85 | % | ||||
The following table presents certain information related to the lease costs for operating and finance leases:
Three months ended March 31, | ||||
2020 | ||||
| ||||
Balance, at beginning of period | $ | 2,473 | ||
Provision for expected credit losses | 2,442 | |||
Amounts written off charged against the allowance and others | (406 | ) | ||
| ||||
Balance, at end of period | $ | 4,509 | ||
Three months ended |
| Nine months ended | |||||
September 30, 2019 | |||||||
(Unaudited) | |||||||
Finance lease cost | |||||||
Amortization of leased assets | $ | 20 | $ | 73 | |||
Interest on lease liabilities | 12 | 43 | |||||
| |||||||
Operating lease cost | 2,517 | 7,132 | |||||
| |||||||
Total lease cost | $ | 2,549 | $ | 7,248 | |||
1916
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 7:-LEASES (cont.)
The following table presents supplemental cash flow information related to the lease costs for operating and finance leases:
Three months ended |
| Nine months ended | |||||
September 30, 2019 | |||||||
(Unaudited) | |||||||
| |||||||
Cash paid for amounts included in measurement of lease liabilities | |||||||
Operating cash flows for operating and finance leases | $ | 2,560 | $ | 7,175 | |||
Financing cash flows for finance leases | $ | 1,248 | $ | 1,248 | |||
The following table reconciles the undiscounted cash flows for each of the first five years and total of the remaining years of the operating and finance lease liabilities recorded on the condensed consolidated balance sheets (unaudited):
Operating Lease | Finance Leases | |||||||
| ||||||||
2019 | $ | 2,735 | $ | 22 | ||||
2020 | 9,691 | 88 | ||||||
2021 | 8,384 | 88 | ||||||
2022 | 7,528 | 88 | ||||||
2023 | 6,517 | 88 | ||||||
Thereafter |
| 5,410 |
| 955 | ||||
Total lease payments | 40,265 | 1,329 | ||||||
| ||||||||
Less: amount of lease payments representing interest |
| (1,774 | ) |
| (378 | ) | ||
| ||||||||
Present value of future lease payments | 38,491 | 951 | ||||||
| ||||||||
Less: current obligations under leases |
| (9,374 | ) |
| (77 | ) | ||
| ||||||||
Long-term lease obligations | $ | 29,117 | $ | 874 | ||||
| ||||||||
NOTE 8:-COMMITMENTS AND CONTINGENT LIABILITIES
a.Guarantees:
As of September 30, 2019 (unaudited), contingent liabilities exist regarding guarantees in the amount of $2,036, $57, $184, $388 and $13,353 in respect of office rent lease agreements, customs transactions, credit card limits, capital expenditure and bank loans, respectively.
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 8:-COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
a.Guarantees:
As of March 31, 2020, contingent liabilities exist regarding guarantees in the amounts of $51,472, $18,643, $2,033 and $56 in respect of projects with customers, bank loans, office rent lease agreements and customs transactions, respectively.
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 and suppliers, which cannot be cancelledcanceled without penalty. The Company utilizes third parties to manufacture its products. In addition, it acquires raw materials or other goods and services, including product components, by issuing to suppliers authorizations to purchase based on its projected demand and manufacturing needs.
As of September 30, 2019 (unaudited),March 31, 2020, the Company had non-cancellable purchase obligations totaling approximately $362,968$500,414 out of which the Company already recorded a provision for loss in the amount of $2,231.$2,119.
As of September 30, 2019 (unaudited),March 31, 2020, the Company had contractual obligations for capital expenditures totaling approximately $75,073.$70,961. These commitments reflect purchases of automated assembly lines and other machinery related to the Company’s manufacturing.
c.Legal claims:
From time to time, the Company may be involved in various claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss. These accruals are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter.
In September, 2018, the Company’s German subsidiary, SolarEdge Technologies GmbH received a complaint filed by competitor SMA Solar Technology AG (“SMA”). The complaint, filed in the District Court Düsseldorf, Germany, alleges that SolarEdge's 12.5kW - 27.6kW inverters infringe two of the plaintiff’s patents. In its complaint, SMA requests inter alia an injunction and a determination for a claim for damages for sales in Germany. Plaintiff also asserts a value in dispute of 5 million Euros (approximately $5,500) for both patents. In November 2019, the first instance court accepted the claim of infringement for one of the two patents and the Company has filed an appeal to the Appeals Court Dusseldorf and is challenging the validity of the allegedly infringed patent in the German Patent Court. Also, in November 2019 the first instance court stayed the infringement proceedings regarding the other one of the two patents since it considered it to be highly likely that the patent would be invalid. The Company believes that it has meritorious defenses to the claims asserted and intends to vigorously defend against these lawsuits.
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:-COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
In May 2019, (unaudited), the Company received notice thatwas served with three lawsuits by Huawei Technologies Co., Ltd., a Chinese entity has filed three lawsuits in the Guangzhou intellectual property court(“Huawei”), against the Company's two Chinese subsidiaries and its equipment manufacturer in China. The lawsuits, filed in the Guangzhou intellectual property court, allege infringement of three patents and ask for an injunction of manufacture, use, sale and offer for sale, and damage awards of approximately $4.3 million. In response to30 million RMB (approximately $4,250). Following the receipt of the lawsuits, the Company initiated invalidation proceedingsfiled three lawsuits in China against Huawei’s three patents.Huawei for unauthorized use of patented technology. The Company believes that it has meritorious defenses to the claims asserted and intends to vigorously defend against these lawsuits.
In August 2019, the Company was served with a lawsuit by certain former shareholders of SMRE,S.M.R.E S.p.A (“SMRE”), against its Italian subsidiary that purchased the shares of SMRE in the tender offer which followed the SMRE Acquisition. The shareholders who tendered their shares are asking for the difference between 6 Euro per share, which is the amount for which they tendered their shares, (6and 6.77 Euro per share) and 6.7 Euros per share, for awardsa total award of approximately $3 million.2.7 million Euros (approximately $2,950). The Company believes it has meritorious defenses to the claims asserted and intends to vigorously defend against this lawsuit.
F - 21
SOLAREDGE TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollarsIn December 2019, the Company received a lawsuit filed by a former consultant of the Company and its Israeli subsidiary in thousands (except sharethe amount of 25.5 million NIS (approximately $7,150) claiming damages caused relating to a terminated consulting agreement and per share data)stock options therein. The Company believes it has meritorious defenses to the claims asserted and intends to vigorously defend against this lawsuit.
NOTE 9:-STOCK CAPITALSTOCKHOLDERS’ EQUITY
a.Common Stock:
Number of shares | Number of shares | ||||||||||||||||||||||||||||||||||||||
Authorized | Issued and outstanding | Authorized as of | Issued as of | Outstanding as of | |||||||||||||||||||||||||||||||||||
September 30, 2019 | December 31, 2018 | September 30, 2019 | December 31, 2018 | March 31, 2020 | December 31, 2019 | March 31, 2020 | December 31, 2019 | March 31, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||||||||||||||||||||||||||
Stock of $0.0001 par value: | |||||||||||||||||||||||||||||||||||||||
Common stock | 125,000,000 | 125,000,000 | 48,576,288 | 46,052,802 | 125,000,000 | 125,000,000 | 49,599,493 | 49,081,457 | 49,599,493 | 48,898,062 | |||||||||||||||||||||||||||||
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. OnThe 2007 Plan terminated upon the Company’s IPO on March 31, 2015 once the Company completed its Initial Public Offering (“IPO”), the 2007 Plan was terminated and no further awards willmay be granted thereunder. All outstanding awards are continuingwill continue to be governed by their existing terms and 379,358 available options for future grant were transferred to the Company’s 2015 Global Incentive Plan (the “2015 Plan”) and are reserved for future issuances under the 2015 plan.
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 9:-STOCKHOLDERS’ EQUITY (Cont.)
The 2015 Plan became effective upon the consummation of the IPO. The 2015 Plan provides for the grant of options, RSUs and other stock-basedshare-based awards to directors, employees, officers, and consultantsnonemployees of the Company and its Subsidiaries. As of September 30, 2019 (unaudited),March 31, 2020, a total of 10,383,35712,828,270 shares of common stock were reserved for issuance under the 2015 Plan (the “Share Reserve”).
The Share Reserve will automatically increase on January 1st of each year during the term of the 2015 Plan, commencing on January 1st of the year following the year in which the 2015 Plan becomes effective, in an amount equal to five percent (5%)5% of the total number of shares of capital stock outstanding on December 31st of the preceding calendar year; provided, however, that our 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 five percent (5%)5% of the shares of capital stock outstanding on the preceding December 31st.
The aggregate maximum number of shares of common stock that may be issued on the exercise of incentive stock options is ten million (10,000,000).10,000,000. As of September 30, 2019 (unaudited),March 31, 2020, an aggregate of 8,686,5898,627,031 shares of common stock are still available for future grant under the 2015 Plan.
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 9:-STOCK CAPITAL (Cont.)
c.Options granted to employees and directors:
A summary of the activity in the sharestock options granted to employees and members of the board of directors for the ninethree months ended September 30, 2019 (unaudited)March 31, 2020 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, 2018 | 2,401,893 | 11.04 | 6.19 | 58,323 | |||||||
Granted | 267,852 | 36.15 | |||||||||
Exercised | (377,685 | ) | 6.40 | ||||||||
Forfeited and expired | (11,324 | ) | 13.84 | ||||||||
Outstanding as of September 30, 2019 | 2,280,736 | 14.74 | 6.07 | 157,318 | |||||||
| |||||||||||
Vested and expected to vest as of September 30, 2019 | 2,253,031 | 14.61 | 6.04 | 155,705 | |||||||
| |||||||||||
Exercisable as of September 30, 2019 | 1,910,609 | 12.21 | 5.65 | 136,632 |
Number of Options | Weighted average exercise price | Weighted average remaining contractual term in years | Aggregate intrinsic Value | |||||||||||||
| ||||||||||||||||
Outstanding as of December 31, 2019 | 2,112,009 | 15.44 | 3.58 | 168,229 | ||||||||||||
Granted | 59,558 | 101.81 | ||||||||||||||
Exercised | (428,300 | ) | 7.72 | |||||||||||||
Forfeited or expired | - | - | ||||||||||||||
Outstanding as of March 31, 2020 | 1,743,267 | 20.28 | 3.76 | 108,568 | ||||||||||||
| ||||||||||||||||
Vested and expected to vest as of March 31, 2020 | 2,143,613 | 17.51 | 5.64 | 139,067 | ||||||||||||
| ||||||||||||||||
Exercisable as of March 31, 2020 | 1,406,616 | 15.04 | 2.69 | 94,018 | ||||||||||||
The aggregate intrinsic value 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, 2019 (unaudited) was $23,907.
The weighted average grant date fair values of options granted to employees and executive directors during the nine months ended September 30, 2019 (unaudited) was $19.83.
d.A summary of the activity in the RSUs (excluding PSUs) granted to employees and members of the board of directors for the nine months ended September 30, 2019 (unaudited) is as follows:
Number of RSUs | Weighted average grant date fair value | ||||
Unvested as of December 31, 2018 | 2,807,232 | 34.40 | |||
Granted | 608,112 | 51.55 | |||
Vested | (858,914 | ) | 32.12 | ||
Forfeited | (225,800 | ) | 38.14 | ||
Unvested as of September 30, 2019 (unaudited) | 2,330,630 | 39.35 |
2319
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 9:-STOCK CAPITALSTOCKHOLDERS’ EQUITY (Cont.)
As partThe total intrinsic value of options exercised during the SMRE Acquisition (unaudited), the Company granted 334,096 PSUs that are subject to certain performance goals and a vesting period. three months ended March 31, 2020 was $47,898.
The PSUsweighted average grant date fair value is $40.24.
Duringvalues of options granted to employees and executive directors during the ninethree months ended September 30, 2019 (unaudited),March 31, 2020 was $53.01.
A summary of the Company recognized expensesactivity in the amount of $2,521 relatedRSUs granted to PSU’S vesting that were expensed inemployees and directors for the condensed consolidated statement of operations in general and administrative expenses line item.
e.Options and RSUs issued to non-employee consultants:
The Company has granted options and RSUs to purchase common shares to non-employee consultants as of September 2019 (unaudited)three months ended March 31, 2020 is as follows:
Issuance Date | Outstanding as of September 30, 2019 | Exercise price | Exercisable as of September 30, 2019 | Options exercisable through | ||||
| ||||||||
2014 | 5,249 | $3.51 - $5.01 | 5,137 | October 29, 2024 | ||||
2016 | 3,084 | $0.00 - $15.34 | - | September 21, 2026 | ||||
2017 | 10,376 | $0.00 - $13.70 | - | March 15, 2027 | ||||
2018 | 16,012 | $0.00 | - | |||||
2019 | 13,912 | $0.00 | - | |||||
| ||||||||
48,633 | 5,137 |
The Company had accounted for its options and RSUs granted to non-employee consultants under the fair value method of ASC 505-50 (“Equity-Based Payments to Non-Employees”).
In connection with the grant of stock options and RSUs to non-employee consultants, the Company recorded stock compensation expenses during the nine months ended September 30, 2019 (unaudited) and 2018 (unaudited) in the amount of $525 and $1,070, respectively.
Number of RSUs | Weighted average grant date fair value | |||||||
Unvested as of December 31, 2019 | 2,742,589 | 52.77 | ||||||
Granted | 61,524 | 101.87 | ||||||
Vested | (268,648 | ) | 38.96 | |||||
Forfeited | (58,611 | ) | 54.27 | |||||
Unvested as of March 31, 2020 | 2,476,854 | 55.45 | ||||||
f.Employee Stock Purchase Plan (“ESPP”):
The Company adopted an Employee Stock Purchase Plan (the “ESPP”)ESPP effective upon the consummation of the IPO. As of September 30, 2019 (unaudited),March 31, 2020, a total of 2,199,8082,687,451 shares were reserved for issuance under this plan. The number of shares of common stock reserved for issuance under the ESPP will increase automatically on January 1st of each year, for ten years, by the lesser of 1% of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year or 487,643 shares.
However, the Company’s board of directors may reduce the amount of the increase in any particular year at their discretion, including a reduction to zero.
The ESPP is implemented through an offering every six months. According to the ESPP, eligible employees may use up to 10% of their salaries to purchase common stock shares up to an aggregate limit of $10 per participant for every six monthsmonths’ plan. The price of an ordinary share purchased under the ESPP is equal to 85% of the lower of the fair market value of the ordinary share on the subscription date of each offering period or on the purchase date.
As of September 30, 2019 (unaudited), 460,455March 31, 2020, 528,359 common stock shares had been purchased under the ESPP.
As of March 31, 2020, 2,159,092 common stock shares were available for future issuance under the ESPP.
F - 2420
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 9:-STOCK CAPITALSTOCKHOLDERS’ EQUITY (Cont.)
As of September 30, 2019 (unaudited), 1,739,353 common stock shares were available for future issuance under the ESPP.
In accordance with ASC No. 718, the ESPP is compensatory and as such, results in recognition of compensation cost.
g.Stock-based compensation expense for employees and non-employee consultants:nonemployees:
The Company recognized stock-based compensation expenses related to stock options, RSUs and PSUs granted to employees and non-employee consultants and ESPP in the condensed consolidated statement of income for the three and nine months ended September 30,March 31, 2020 and 2019, (unaudited) and 2018 (unaudited), as follows:
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | Three months ended March 31, | |||||||||||||||||||
(Unaudited) | (Unaudited) | 2020 | 2019 | ||||||||||||||||||||
| |||||||||||||||||||||||
Cost of revenues | $ | 1,691 | $ | 1,127 | $ | 4,696 | $ | 3,019 | $ | 2,273 | $ | 1,354 | |||||||||||
Research and development | 4,269 | 2,988 | 11,935 | 7,975 | 5,378 | 3,490 | |||||||||||||||||
Selling and marketing | 2,779 | 2,250 | 7,905 | 6,548 | 3,192 | 2,404 | |||||||||||||||||
General and administrative |
| 2,628 |
| 1,585 |
| 7,907 |
| 4,385 | 1,930 | 2,456 | |||||||||||||
Non-recurring expenses |
| 6,242 |
| - |
| 6,242 |
| - | |||||||||||||||
| |||||||||||||||||||||||
Total stock-based compensation expense | $ | 17,609 | $ | 7,950 | $ | 38,685 | $ | 21,927 | $ | 12,773 | $ | 9,704 | |||||||||||
As of September 30, 2019 (unaudited),March 31, 2020, there was awere total unrecognized compensation expenseexpenses in the amount of $103,421$141,601 related to non-vested stock-basednon‑vested equity‑based compensation arrangements.arrangements granted under the Company’s Plans. These expenses are expected to be recognized during the period from OctoberApril 1, 20192020 through August 31, 2023.February 29, 2024.
NOTE 10:-BASIC AND DILUTED NET EARNINGS PER SHARE
Basic net earnings per shareEarnings Per Share (“EPS”) is computed by dividing the net earnings attributable to SolarEdge Technologies, Inc. by the weighted-average number of shares of common stock outstanding during the period.
Diluted net earnings per shareEPS is computed by giving effect to all potential shares of common stock, including stock options, to the extent dilutive, all in accordance with ASC No. 260, "Earnings Per Share."
334,096 and 304,725 shares were excluded from the calculation of diluted net earnings per share due to their anti-dilutive effect for the three and nine months ended September 30, 2019 (unaudited), respectively.
No shares were excluded from the calculation of diluted net earnings per shareEPS due to their anti-dilutive effect for the three and nine months ended September 30, 2018 (unaudited).March 31, 2020 and 2019.
2521
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:-BASIC AND DILUTED NET EARNINGS PER SHARE (Cont.)
The following table presents the computation of basic and diluted net earnings per shareEPS attributable to SolarEdge Technologies, Inc. for the periods presented (in thousands, except share and per share data):presented:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
| ||||||||||||||||
Basic EPS: | ||||||||||||||||
Numerator: | ||||||||||||||||
Net income | $ | 41,724 | $ | 45,643 | $ | 92,612 | $ | 115,897 | ||||||||
Net loss (income) attributable to Non-controlling interests |
| (97 | ) |
| - |
| 1,159 |
| - | |||||||
Net income attributable to SolarEdge Technologies, Inc. | $ | 41,627 | $ | 45,643 | $ | 93,771 | $ | 115,897 | ||||||||
| ||||||||||||||||
Denominator: | ||||||||||||||||
Shares used in computing net earnings per share of common stock, basic | 48,195,020 | 45,601,540 | 47,637,023 | 45,025,661 | ||||||||||||
| ||||||||||||||||
Diluted EPS: | ||||||||||||||||
Numerator: | ||||||||||||||||
Net income | $ | 41,724 | $ | 45,643 | $ | 92,612 | $ | 115,897 | ||||||||
Net loss (income) attributable to Non-controlling interests | (97 | ) | - | 1,159 | - | |||||||||||
Undistributed earnings reallocated to non-vested stockholders |
| (270 | ) |
| - |
| (569 | ) |
| - | ||||||
Net income attributable to SolarEdge Technologies, Inc. | $ | 41,357 | $ | 45,643 | $ | 93,202 | $ | 115,897 | ||||||||
| ||||||||||||||||
Denominator: | ||||||||||||||||
Shares used in computing net earnings per share of common stock, basic | 48,195,020 | 45,601,540 | 47,637,023 | 45,025,661 | ||||||||||||
Weighted average effect of dilutive securities: | ||||||||||||||||
Non-vested PSU’S | (334,096 | ) | - | (304,725 | ) | - | ||||||||||
Effect of stock-based awards | 3,220,670 | 2,679,700 | 2,603,340 | 3,065,524 | ||||||||||||
Shares used in computing net earnings per share of common stock, diluted | 51,081,594 | 48,281,240 | 49,935,638 | 48,091,185 | ||||||||||||
F - 26
Three months ended March 31, | ||||||||
2020 | 2019 | |||||||
| ||||||||
Numerator: | ||||||||
Net income | $ | 42,248 | $ | 17,975 | ||||
Net loss attributable to Non-controlling interests | - | 1,041 | ||||||
Net income attributable to SolarEdge Technologies, Inc. | $ | 42,248 | $ | 19,016 | ||||
| ||||||||
Denominator: | ||||||||
Shares used in computing net earnings per share of common stock, basic | 49,193,240 | 47,020,218 | ||||||
Effect of stock-based awards | 2,979,480 | 2,006,109 | ||||||
Shares used in computing net earnings per share of common stock, diluted | 52,172,720 | 49,026,327 | ||||||
SOLAREDGE TECHNOLOGIES, INC.NOTE 11:-OTHER OPERATING INCOME
AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
U.S. dollarsAt the time of the acquisition of Kokam Co., Ltd. (“Kokam”), Kokam had an outstanding claim against it for damages. The claim was settled for an amount of $4,900, which was recognized as an expense in thousands (except share and per share data)other operating expenses in the consolidated statement of income in the year ended December 31, 2019. In March 2020, the Company was indemnified for the full amount by a major selling shareholder of Kokam. The Company recognized this as income in other operating income.
NOTE 11:12:-INCOME TAXES
a.Taxes on incomeIncome taxes (tax benefit) are comprised as follows:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
| ||||||||||||||||
Current year taxes | $ | 10,418 | $ | (10,524 | ) | $ | 29,327 | $ | 1,773 | |||||||
Deferred tax income net, and others |
| (3,148 | ) |
| (1,771 | ) |
| (4,922 | ) |
| (4,789 | ) | ||||
| ||||||||||||||||
Taxes on income (tax benefit) | $ | 7,270 | $ | (12,295 | ) | $ | 24,405 | $ | (3,016 | ) | ||||||
b.Deferred income taxes:
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax liabilities and assets are as follows:
Three months ended March 31, | ||||||||
2020 | 2019 | |||||||
| ||||||||
Current period taxes | $ | 12,458 | $ | 4,895 | ||||
Deferred tax income, net and others | (3,536 | ) | (973 | ) | ||||
| ||||||||
Taxes on income | $ | 8,922 | $ | 3,922 | ||||
As of September 30, 2019 | As of December 31, 2018 | ||||||
(Unaudited) | |||||||
| |||||||
Total deferred tax assets | $ | 28,585 | $ | 22,608 | |||
| |||||||
Total deferred tax liabilities | $ | (19,167 | ) | $ | (9,408 | ) | |
| |||||||
Recorded as: | |||||||
Deferred tax assets, net | $ | 17,180 | $ | 14,699 | |||
Deferred tax liabilities, net |
| (7,762 | ) |
| (1,499 | ) | |
Net deferred tax assets | $ | 9,418 | $ | 13,200 | |||
c.Uncertain tax positions:
As of September 30, 2019 | As of December 31, 2018 | ||||||
(Unaudited) | |||||||
| |||||||
Balance at January 1, | $ | 8,499 | $ | 579 | |||
Increases related to current year tax positions | 1,371 | 8,499 | |||||
Decreases related to prior year tax positions |
| - |
| (579 | ) | ||
$ | 9,870 | $ | 8,499 | ||||
2722
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:-CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERSINCOME TAXES (cont.)
a.For the three month period ended September 30, 2019 (unaudited) and 2018 (unaudited), the Company had two and one major customers that accounted for 32.3% and 15.7% of its condensed consolidated revenues, respectively.
For the nine month period ended September 30, 2019 (unaudited) and 2018 (unaudited), the Company had one major customer that accounted for 17.7% and 17.3% of its condensed consolidated revenues, respectively.
b.As of September 30, 2019 (unaudited) and as of December 31, 2018, one and two customers accounted for Uncertain tax positions:approximately 24.5% and 41.3%, respectively, of the Company’s net trade receivables.
March 31, 2020 | December 31, 2019 | |||||||
| ||||||||
Balance at January 1, | $ | 8,962 | $ | 8,499 | ||||
Increases related to current year tax positions | 96 | 463 | ||||||
| ||||||||
$ | 9,058 | $ | 8,962 | |||||
NOTE 13:-SEGMENT INFORMATION
Following three acquisitions completed during 2018 and 2019, the Company has changed its segments measurement, beginning in 2019. The Company'spurpose of the new measurement is to provide the Company’s chief operating decision maker (“CODM”) better information to asses’ segment performance and to make resource allocation decisions. The Company now operates in five different operating segments: Solar, UPS, energy storage, e-Mobility and machinery.
The Company's CODM is our acting Chief Executive Officer who makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis. Accordingly,basis, accompanied by disaggregated information about revenues and contributed profit by the operating segments.
Segment profit is comprised of gross profit for the segment less operating expenses that do not include amortization, stock based compensation expenses and certain other items.
The Company manages its assets on a group basis, not by segments, as many of its assets are shared or commingled. The Company’s CODM does not regularly review asset information by segments and, therefore, the 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 in aggregate 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. The solution consists mainly of the Company’s power optimizers, inverters and cloud-based monitoring platform.
The “All other” category includes the design, development, manufacturing and sales of UPS products, energy storage products, e-Mobility products, and special machines for automated and semi-automated linear sewing, digital welding and digital cutting.
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 13:-SEGMENT INFORMATION (cont.)
Information on reportable segments and reconciliation to consolidated operating income is as follows:
Three months ended | Three months ended | |||||||||||||||
March 31, 2020 | March 31, 2019 | |||||||||||||||
Solar | All other | Solar | All other | |||||||||||||
Revenues | $ | 407,647 | $ | 23,571 | $ | 253,069 | $ | 18,802 | ||||||||
Cost of revenues | 264,815 | 21,452 | 166,315 | 16,333 | ||||||||||||
Gross profit | 142,832 | 2,119 | 86,754 | 2,469 | ||||||||||||
Research and development | 27,083 | 4,209 | 20,231 | 2,442 | ||||||||||||
Sales and marketing | 18,623 | 2,142 | 15,200 | 1,710 | ||||||||||||
General and administrative | 9,156 | 5,091 | 6,493 | 1,944 | ||||||||||||
Segments profit (loss) | $ | 87,970 | $ | (9,323 | ) | $ | 44,830 | $ | (3,627 | ) | ||||||
Three months ended | ||||||||
March 31, | ||||||||
2020 | 2019 | |||||||
| ||||||||
Solar profit | $ | 87,970 | $ | 44,830 | ||||
All other loss | 9,323 | 3,627 | ||||||
Segments operating profit | 78,647 | 41,203 | ||||||
Expenses not allocated to segments: | ||||||||
Stock based compensation expenses | 12,773 | 9,704 | ||||||
Amortization | 2,686 | 1,971 | ||||||
Legal settlement (see Note 11) | (4,900 | ) | - | |||||
Cost of products adjustments | 313 | 682 | ||||||
Other unallocated expenses | - | 798 | ||||||
Consolidated operating income | $ | 67,775 | $ | 28,048 | ||||
NOTE 14:-SUBSEQUENT EVENTS
a.Subsequent to March 31, 2020, the Company’s senior executives who had already waived their 2020 base salary increases also agreed voluntarily to reduce their base salaries by 20%. In addition, the Company’s directors agreed to reduce the cash portion of their compensation by 20% and the Company has determined that it hastemporarily put on hold most plans for expanding its workforce and suspended planned salary increases.
b.On April 29, 2020, the Company signed an agreement for the purchase of 56,143 square meters of land in South Korea for the development of a single reportable segment -factory for lithium-ion cells and batteries. The land purchase is for approximately $9 million to be paid over the solar segment.next three years.
Total segment assets include corporate assets, such as cash and cash equivalents, marketable securities and tax assets. Total segment assets reconciled to consolidated amounts are as follows:
As of September 30, 2019 | As of December 31, 2018 | ||||||
| (Unaudited) | ||||||
| |||||||
Solar | $ | 1,266,831 | $ | 888,672 | |||
Non-Solar | 124,139 | 92,358 | |||||
Adjustments |
| (53,378 | ) |
| (16,558 | ) | |
| |||||||
Total assets | $ | 1,337,592 | $ | 964,472 | |||
2824
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,product development, financing and investment plans, competitive position, industry and regulatory environment, effects of acquisitions,potential 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-lookingForward 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-lookingforward looking statements. Given these uncertainties, you should not place undue reliance on forward looking statements. Also, forward-lookingforward 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:
•
the effects of the ongoing COVID-19 pandemic and related macroeconomic and operational effects;
•
future demand for 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 recent 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 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;
•
consolidation in the solar industry among our customers and distributors; and
•
the other factors set forth under “Item 1A. Risk Factors” in “Part II-OTHER INFORMATION” section of this report.
Except as required by law, we assume no obligation to update these forward forward‑looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward forward‑looking statements, even if new information becomes available in the future.
Overview
We are a leading provider of intelligentan optimized inverter solutionssolution that has changed the way power is harvested and managed in a solar photovoltaic, known as PV system. Our direct current (“DC”)or DC optimized inverter system is designed to maximizemaximizes power generation at the individual PV module level while lowering the cost of energy produced by the solar PV system, and providingfor improved return on investment, or RoI. Additional benefits of the DC optimized inverter system include comprehensive and advanced safety features. Supporting increased PV proliferation, thefeatures, improved design flexibility, and improved operating and maintenance, or O&M with module-level and remote monitoring. 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, and a cloud-based monitoring platform.solutions. SolarEdge’s solutions addresses a broad range of solar market segments, from residential solar installations to commercial and small utility-scale solar installations.
In addition,
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 large scale PV systems but also product offerings in the past year,areas of energy storage systems, or ESS, and backup, electric vehicle, or EV components and charging capabilities, home energy management, grid services and virtual power plants, lithium-ion batteries and uninterrupted power supply, known as UPS solutions.
As part of our non-organic growth, we have expandedcompleted three acquisitions during 2018 and 2019, each of which address our product offering, by acquiringgrowth in the area of smart energy technology and power optimization.
In July 2018, we acquired the assets of Gamatronic Electronic Industries Ltd.a business for the development, manufacturing and sale of UPSs, (“Gamatronic”), a supplier of uninterruptable power supplies, also known as UPS products (the “Gamatronic Acquisition”Division”); through the.
In October 2018, we closed an acquisition of Kokam Co., Ltd. (“Kokam”), a world provider of lithium ionlithium-ion cells, batteries (the “Kokam Acquisition”and energy reliable, safe, high-performance storage solutions that is headquartered in South Korea.
During 2019, we completed the acquisition of approximately 99.9%. of S.M.R.E. Spa (“SMRE”);. SMRE is headquartered in Italy and develops end-to-end e-Mobility solutions for electric and hybrid vehicles used in motorcycles, commercial vehicles and trucks. These solutions include integrated, high-performing powertrains with e-motor, motor drive, gearbox, battery, BMS, chargers, vehicle control units and software for electric vehicles.
COVID-19 Impact
We are continuously and closely monitoring the quickly evolving impact of COVID-19 on our operations and business. Our first priority continues to be to protect and support our employees through this period while maintaining company operations and support of our customers with as few disruptions as possible. Given that we have employees in many countries world-wide, we follow the guidance from local authorities and health officials in each region in which we do business. In our headquarters located in Herziliya, Israel, we have been able to continue partial work from the office throughout the stay at home orders and beginning mid-April, are bringing employees who were working from home back to the office, while complying with social distancing orders. Our manufacturing facilities have remained operational and at almost full capacity throughout the quarter and into the second quarter. Our customer support centers are working at full capacity, primarily from home. Our operations have not been significantly impacted by these adjustments.
The actions taken around the world to slow the spread of COVID-19 have impacted the installation rate of PV systems which we are closely tracking through our monitoring portal globally and per country. While the COVID-19 pandemic did not have a material adverse impact on our financial results for the first quarter of fiscal 2020, we have seen a decline in installations in certain regions such as the United States and Italy during March and April of this year when compared to the same months last year, and we are accommodating customers in certain regions who have requested to cancel or delay the supply of orders . Our management and board are continuously examining our plans for 2020 and reacting to the expected reduction in business volumes. As of the filing date we have taken the following actions in order to mitigate the negative impacts of COVID-19 on our business, operating results and financial condition: We have reviewed our business plan for 2020 and made certain adjustments in order to accommodate expectations that revenues will be impacted in the forthcoming quarters. These adjustments include substantial reduction of new hiring as well as elimination of redundant positions. In addition we have carefully scrutinized our entry intospending and management of operations including a review of all of our variable expenses in order to identify activities than can be reduced and costs that can be re-negotiated such as consulting and facility related costs. We have also reviewed our research and development projects and prioritized projects with higher revenue potential or infrastructure project over projects with lower expected return. In addition, effective April 1, our senior executives who had already waived their 2020 base salary increases also voluntarily reduced their base salaries by 20%. Our directors also agreed, effective April 1 to reduce the e-mobility market, throughcash portion of their compensation by 20% and the acquisition ofCompany has temporarily put on hold most plans for expanding its workforce and suspended planned salary increases.
5
S.M.R.E S.p.A (“SMRE”), an Italian company providing innovative integrated powertrain technology and electronics for electric vehicles (the “SMRE Acquisition”).
Our revenues for the three months ended September 30,March 31, 2020 and 2019 and 2018 were $410.6$431.2 million and $236.6$271.9 million, respectively. Gross margin was 33.9%32.5 % and 33.0%31.7% for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively. Net income was $41.6$42.2 million and $45.6$19.0 million for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively.
Our revenues for the nine months ended September 30, 2019 and 2018 were $1,007.4 million and $673.6 million, respectively. Gross margin was 33.4% and 35.6% for the nine months ended September 30, 2019 and 2018, respectively. Net income was $93.8 million and $115.9 million for the nine months ended September 30, 2019 and 2018, respectively.respectively
We are a leader in the global module-level power electronics (“MLPE”) market according to HIS Research dated from September 9, 2019 and asmarket. As of September 30, 2019,March 31, 2020, we have shipped approximately 45.454.9 million power optimizers and 1.92.3 million inverters. Over 1.251.5 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, 2019,March 31, 2020, we have shipped approximately 14.618.1 GW of our DC optimized inverter systems.
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 shipped, power optimizers shipped 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 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, | Three Months Ended March 31, | |||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2020 | 2019 | ||||||||||||||||
Inverters shipped | 187,887 | 121,836 | 478,676 | 335,249 | 202,009 | 130,672 | |||||||||||||||
Power optimizers shipped | 4,587,380 | 3,004,264 | 11,347,001 | 8,217,332 | 5,060,391 | 3,029,102 | |||||||||||||||
Megawatts shipped (1) | 1,498 | 1,083 | 3,977 | 2,868 | 1,850 | 1,144 | |||||||||||||||
____________
(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.
6
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, | Three Months Ended March 31, | ||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2020 | 2019 | |||||||||||||||||||
(in thousands) | (in thousands) | (in thousands) | ||||||||||||||||||||||
Revenues | $ | 410,556 | $ | 236,578 | $ | 1,007,437 | $ | 673,567 | $ | 431,218 | $ | 271,871 | ||||||||||||
Cost of revenues |
| 271,247 |
| 158,596 |
| 671,348 |
| 434,042 | 291,210 | 185,761 | ||||||||||||||
Gross profit |
| 139,309 |
| 77,982 |
| 336,089 |
| 239,525 | 140,008 | 86,110 | ||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Research and development | 30,747 | 20,109 | 86,451 | 57,535 | 36,695 | 26,199 | ||||||||||||||||||
Sales and marketing | 22,026 | 16,938 | 64,325 | 49,097 | 24,253 | 20,172 | ||||||||||||||||||
General and administrative |
| 12,214 |
| 6,898 |
| 37,590 |
| 17,427 | 16,185 | 11,691 | ||||||||||||||
Non-recurring expenses |
| 8,305 |
| - |
| 8,305 |
| - | ||||||||||||||||
Other operating income | (4,900 | ) | - | |||||||||||||||||||||
Total operating expenses |
| 73,292 |
| 43,945 |
| 196,671 |
| 124,059 | 72,233 | 58,062 | ||||||||||||||
Operating income | 66,017 | 34,037 | 139,418 | 115,466 | 67,775 | 28,048 | ||||||||||||||||||
Financial expenses, net |
| 17,023 |
|
| 689 |
| 22,401 |
| 2,585 | 16,605 | 6,151 | |||||||||||||
Income before taxes on income | 48,994 | 33,348 | 117,017 | 112,881 | 51,170 | 21,897 | ||||||||||||||||||
Taxes on income (tax benefit) |
| 7,270 |
| (12,295 | ) |
| 24,405 |
| (3,016 | ) | ||||||||||||||
Taxes on income | 8,922 | 3,922 | ||||||||||||||||||||||
Net income | $ | 41,724 | $ | 45,643 | $ | 92,612 | $ | 115,897 | $ | 42,248 | $ | 17,975 | ||||||||||||
Net loss (gain) attributable to non-controlling interests |
| (97 | ) |
| - |
| 1,159 |
| - | |||||||||||||||
Net income attributable to SolarEdge Technologies, Inc. | $ | 41,627 | $ | 45,643 | $ | 93,771 | $ | 115,897 | ||||||||||||||||
Net loss attributable to Non-controlling interests | - | 1,041 | ||||||||||||||||||||||
Net income attributable to SolarEdge Technologies, Inc | $ | 42,248 | $ | 19,016 | ||||||||||||||||||||
Comparison of the Three Months Ended September 30,March 31, 2020 and 2019 and 2018
Revenues
Three Months Ended September 30, | Three Months Ended September 30, 2018 to 2019 | ||||||||||||||
2019 | 2018 | Change | |||||||||||||
(in thousands) | |||||||||||||||
Revenues | $ | 410,556 | $ | 236,578 | $ | 173,978 | 73.5 | % | |||||||
Three Months Ended March 31, | Three Months Ended March 31, 2019 to 2020 | |||||||||||||||
2020 | 2019 | Change | ||||||||||||||
(in thousands) | ||||||||||||||||
Revenues | $ | 431,218 | $ | 271,871 | $ | 159,347 | 58.6 | % | ||||||||
Revenues increased by $174.0$159.3 million, or 73.5%58.6%, for the three months ended September 30, 2019,March 31, 2020 as compared to the three months ended September 30, 2018,March 31, 2019 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 United States (“U.S.”) and Israel;U.S; and (ii) revenues from the new businesses we acquired over the past year, which include sales of UPS units, batteries, storage systems, andprice increases on products sold by SMRE, in the aggregate amount of $22.8 millionU.S. intended to offset the increase in the three months ended September 30, 2019, compared to $2.7 millionimposed tariffs on China made products in the three months ended September 30, 2018.June 2019. Revenues from outside of the U.S. comprised 51.8%42.6% of our revenues in the three months ended September 30, 2019 asMarch 31, 2020 compared to 49.4%56.3% in the three months ended September 30, 2018.March 31, 2019.
In past years, we have experienced seasonal growth between the first and second fiscal calendar quarters. Given the impacts of COVID 19 on the ability of our end customers to install PV systems, we expect that our second quarter revenues in 2020 will be lower than our revenues in the first quarter of 2020. Industry reports, such as IHS support these forecasts.
The number of power optimizers soldrecognized as revenues increased by approximately 1.61.8 million units, or 52.8%58.2%, from approximately 3.0 million units in the three months ended September 30, 2018March 31, 2019 to approximately 4.64.8 million units in the three months ended September 30, 2019.March 31, 2020. The number of inverters soldrecognized as revenues increased by approximately 63,30065,000 units, or 51.2%49.2%, from approximately 123,700132,100 units in the three months ended September 30, 2018March 31, 2019 to approximately 187,000197,100 units in the three months ended September 30, 2019.March 31, 2020. In addition, we increased prices in the U.S. induring the three months ended September 30,second quarter of 2019, compared to the three months ended September 30, 2018, in order to offset the impact of the increase in tariffs on goods made in China that became effective June 1, 2019. This increase in selling prices of products sold was partially offset by the devaluation of the Euro and the Australian Dollar compared toagainst the U.S. Dollar, which negatively impactingimpacted our U.S. Dollar denominated average selling price (“ASP”). on units sold in Europe and Australia. Overall, and primarily due to the factors
7
detailed above, our ASP per watt for units shipped increased by 21.1%$0.007, or 3.2%, in the three months ended September 30, 2019March 31, 2020 as compared to the three months ended September 30, 2018.March 31, 2019.
Cost of Revenues and Gross Profit
Three Months Ended September 30, | Three Months Ended September 30, 2018 to 2019 | Three Months Ended March 31, | Three Months Ended March 31, 2019 to 2020 | ||||||||||||||||||||||||||||
2019 | 2018 | Change | 2020 | 2019 | Change | ||||||||||||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||||||||||||
Cost of revenues | $ | 271,247 | $ | 158,596 | $ | 112,651 | 71.0 | % | $ | 291,210 | $ | 185,761 | $ | 105,449 | 56.8 | % | |||||||||||||||
Gross profit | $ | 139,309 | $ | 77,982 | $ | 61,327 | 78.6 | % | $ | 140,008 | $ | 86,110 | $ | 53,898 | 62.6 | % | |||||||||||||||
Cost of revenues increased by $112.7$105.5 million, or 71.0%56.8%, in the three months ended September 30, 2019,March 31, 2020, as compared to the three months ended September 30, 2018,March 31, 2019, primarily due to: increased
•
an increase in the volume of products sold which is reflected in the XX% growth in revenues in the three months ended September 30, 2019, as compared to the three months ended September 30, 2018:sold;
•
increased customs tariffs, shipment and logistics costs of $26.7$27.9 million attributed to the change in tariffs ratetariff rates on Chinese made products imported tointo the U.S. from 10% to 25% in June 2019 as well as increasedan increase in air shipments resultingdue to increased product demand and an increase in overall freight rates (both ocean and air) as a result of decreased commercial air traffic from increased demandsChina due to the impact of COVID-19. The overall effect of freight rate increases and adjustments which required uswe encountered in the first quarter due to expedite shipments for timely delivery;business interruptions triggered by COVID-19 was approximately $2.7 million;
•
increasedan increase in warranty expenses and warranty accruals of $13.3$4.4 million associated primarily with the rapid increase of products in our install base;
•
inclusion this increase was partially offset by various cost reductions on the different elements of variable costs related to the manufacturing of Kokam and SMRE products in the aggregate amount of $10.7 million,our warranty expenses which were not included ininclude the cost of goods sold for the three months ended September 30, 2019, as those businesses were acquired after September 2018;products, shipment and other related expenses; and
•
increasedan increase in personnel-related costs of $5.0$4.1 million connectedrelated to the expansion of our operations and support headcount which is growinggrew in parallel to our growing install base worldwide and in connection with entering into the batteryUPS, storage, machinery and integrated powertrain technology businesses; and;businesses.
•
increased amortization of intangible assets andWe anticipate that our cost of product adjustmentrevenues will increase in the second quarter of $2.1million related2020 due to higher freight rates triggered by the Gamatronic Acquisition,COVID-19 pandemic as well as due to a possible increase in the Kokam Acquisitionunit pricing of our products as a result of smaller manufacturing volumes and the SMRE Acquisition;reduced economies of scale.
Gross profit as a percentage of revenue increased from 33.0%,31.7 % in the three months ended September 30, 2018,March 31, 2019 to 33.9%32.5% in the three months ended September 30, 2019,March 31, 2020, primarily due to:
•
general economies of scale in our personnel-related costs and other costs associated with our support and operations departments.
•
increased profit on the units sold due to a combination of stable average selling prices and cost reductions achieved in the manufacturing process of these products; and
•
general economiesdecreased warranty accruals due to various cost reductions on the different elements of scale in our personnel-relatedwarranty expenses which include the cost of the products, shipment costs and other costs associated with our support and operations departments;related expenses;
•
decreased support costs related to our warranty obligations;
•
higher gross profit related to the acquired businesses;
These were partially offset by:
•
increased shipment and logistics costs resulting from our expedited growth and heavy reliance on air-shipments much of which was triggered by COVID-19 interruptions in travel schedules which also triggered increases in air freight and shipment rates and from new customs tariff rules in the U.S. and increase in air shipments;;
•
increasedthe arithmetic effect from the increase in selling prices in the U.S. intended to offset by increased tariff expenses presentedthe increase in tariffs on Chinese made products and the same increase in cost of goods sold;sold as a result of the increased tariffs; and
•
increased actual support costs related to our warranty accrualsobligations.
We expect that gross margin as a percent of revenues will decrease in the second quarter of 2020 as a result of COVID-19 due to:
•
a decrease in revenues at a rate higher than the decrease in fixed expenses related to our operations and support personnel and infrastructure costs;
•
an increase in cost of components and services due to thea reduction in production volume;
•
an increase in our install base;the rates of shipment and logistic services;
•
an increase in fixed costs such as labor costs, depreciation and amortization associated with the decrease in revenues that impacts cost reduction as a result of reduced economies of scale; and
•
amortizationpossible write down of intangible assets associated with the acquisitions we performed in 2018 and cost of product adjustment related to the Kokam Acquisition and the SMRE Acquisition.2019.
8
Research and Development
Three Months Ended September 30, | Three Months Ended September 30, 2018 to 2019 | ||||||||||||||
2019 | 2018 | Change | |||||||||||||
(in thousands) | |||||||||||||||
Research and development, net | $ | 30,747 | $ | 20,109 | $ | 10,638 | 52.9 | % | |||||||
Three Months Ended March 31, | Three Months Ended March 31, 2019 to 2020 | |||||||||||||||
2020 | 2019 | Change | ||||||||||||||
(in thousands) | ||||||||||||||||
Research and development | $ | 36,695 | $ | 26,199 | $ | 10,496 | 40.1 | % | ||||||||
Research and development costsexpenses increased by $10.6$10.5 million, or 52.9%40.1%, in the three months ended September 30, 2019,March 31, 2020 as compared to the three months ended September 30, 2018,March 31, 2019, primarily due to:
•
an increase inincreased personnel-related costs of $8.3 million resulting from an increase in our research and development headcount as well as salary expenses associated with employee equity-based compensation. The increase in headcount reflects the inclusion of personnel costs from acquired businesses as well as our continuingan investment in enhancements of existing products as well asand research and development expenses associated with bringing new products to the market;
•
increased expenses related to consultants and sub‑contractorsother overhead costs in an amount of $1.1$1.0 million;
•
increased expenses related to material consumption costs in an amount of $0.6 million;
•
increased depreciation expenses related to lab equipmenttravel, consultants and sub-contractors and other expenses in an amount of $0.4$0.3 million; and
•
increased expenses related to other overhead cost and otherdepreciation expenses in an amount of $0.2 million.$0.3 million;
We expect that our research and development expenses in the second quarter will be lower than in the first quarter primarily due to cost reduction activities initiated in response to COVID-19 and the virtual halt in travel.
Sales and Marketing
Three Months Ended September 30, | Three Months Ended September 30, 2018 to 2019 | ||||||||||||||
2019 | 2018 | Change | |||||||||||||
(in thousands) | |||||||||||||||
Sales and marketing | $ | 22,026 | $ | 16,938 | $ | 5,088 | 30.0 | % | |||||||
Three Months Ended March 31, | Three Months Ended March 31, 2019 to 2020 | |||||||||||||||
2020 | 2019 | Change | ||||||||||||||
(in thousands) | ||||||||||||||||
Sales and marketing | $ | 24,253 | $ | 20,172 | $ | 4,081 | 20.2 | % | ||||||||
Sales and marketing expenses increased by $5.1$4.1 million, or 30.0%20.2%, in the three months ended September 30, 2019, asMarch 31, 2020 compared to the three months ended September 30, 2018,March 31, 2019, primarily due to:
•
an increase inincreased personnel-related costs of $4.4$3.9 million as a result of the inclusion of personnel costs from acquired businesses and an increase in headcount supporting our growth in the U.S., Europe and Asia, as well as salary expenses associated with employee equity-based compensation;
•
expenses related to amortizations of intangible assets that increased by $0.4 million;
•
expenses related to other overhead costs and travel that increased by $0.3 million; and
•
expenses related to external consultants and sub-contractors, and depreciation expenses that increased by $0.3 million.
These were partially offset by expenses related to marketing activities that decreased by $0.3 million;
General and Administrative
Three Months Ended September 30, | Three Months Ended September 30, 2018 to 2019 | ||||||||||||||
2019 | 2018 | Change | |||||||||||||
(in thousands) | |||||||||||||||
General and administrative | $ | 12,214 | $ | 6,898 | $ | 5,316 | 77.1 | % | |||||||
General and administrative expenses increased by $5.3 million, or 77.1%, in the three months ended September 30, 2019, as compared to the three months ended September 30, 2018, primarily due to:
•
an increase in personnel-related costs of $3.1 million related to: (i) increased headcount resulting from the acquisitions of Gamatronic, Kokam and SMRE and the expansions of our legal, finance, human resources and information technology departments , and (ii) increased expenses related to equity-based compensation and changes in management compensation;
9
•
an increase of $1.3 million in external consultants and sub-contractors expenses, mainly due to legal proceedings and various patent protection matters in which we are involved;
•
expenses related to other overhead costs, depreciation, public company related expenses and travel expenses, all of which increased by $0.8 million; and
•
an increase in costs related to doubtful debts of $0.1 million.
Non-Recurring expenses
Three Months Ended September 30, | Three Months Ended September 30, 2018 to 2019 | ||||||||||||||
2019 | 2018 | Change | |||||||||||||
(in thousands) | |||||||||||||||
Non-Recurring expenses | $ | 8,305 | - | $ | 8,305 | N/A | |||||||||
On August 25, 2019, we announced the untimely death of our Mr. Guy Sella, Founder, who had served as CEO and Chairman of the Board of Directors until shortly before his passing. For the three months ended September 30, 2019, we recognized non-recurring expenses in the amount of $8.3 million related to payroll, bonus and employees’ equity-based compensation acceleration related to Mr. Sella’s passing.
Financial expenses, net
Three Months Ended September 30, | Three Months Ended September 30, 2018 to 2019 | ||||||||||||||
2019 | 2018 | Change | |||||||||||||
(in thousands) | |||||||||||||||
Financial expenses, net | $ | 17,023 | $ | 689 | $ | 16,334 | 2,370.7 | % | |||||||
Financial expenses increased by $16.3 million, or 2,371% in the three months ended September 30, 2019, as compared to three months ended September 30, 2018.
The increase in financial expenses is primarily attributed to:
•
an increase of $14.5 million in foreign exchange expenses between the Euro, the New Israeli Shekel, the Australian Dollar and the South Korean Won against the U.S. Dollar;
•
an increase of $0.8 million in foreign exchange fluctuations of lease agreements’ liabilities as part of the adoption of Accounting Standards Update No. 2016-02, (Topic 842) "Leases";
•
an increase of $0.3 million in interest expenses, mainly related to advance payments received for performance obligations that extend for a period greater than one year, as part of the adoption of Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606); and
•
an increase of $0.3 million in bank charges and other financial expenses.
•
a decrease of $0.2 million in interest income and accretion (amortization) of discount (premium) on marketable securities.
•
an increase of $0.2 million in interest expenses related to bank loans which were acquired as part of Kokam acquisition and SMRE acquisition;
10
Taxes on Income (Tax benefit)
Three Months Ended September 30, | Three Months Ended September 30, 2018 to 2019 | ||||||||||||||
2019 | 2018 | Change | |||||||||||||
(in thousands) | |||||||||||||||
Taxes on income (Tax benefit) | $ | 7,270 | $ | (12,295 | ) | $ | 19,565 | N/A | |||||||
Taxes on income were $7.3 million in the three months ended September 30, 2019, as compared to tax benefits of 12.3 for the three months ended September 30, 2018, primarily due to:
•
tax expenses incurred in the U.S. of $1.1 million in the three months ended September 30, 2019, compared to tax benefit of $13.7 million in the three months ended September 30, 2018. The tax benefit in the three months ended September 30, 2018, related to a one time change in our estimate with respect to the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings and assessment of the Global Intangible Low Taxed Income (“GILTI”) inclusion;
•
an increase of $6.0 million in current tax expenses in Israel, mainly attributed to the expiration of the two year tax exemption in Israel which ended on December 31, 2018; and
•
an increase of $0.3 million in current and prior year tax expenses in other jurisdictions.
The increase in these expenses was offset by:
•
an increase of $0.6 million deferred tax assets (presented as tax benefit) in Israel and the U.S; and
•
an increase of $0.6 million in deferred tax assets, net (presented as tax benefit) in other jurisdictions, mainly related to deferred tax assets as a result of the Kokam and SMRE acquisitions.
Net Income
Three Months Ended September 30, | Three Months Ended September 30, 2018 to 2019 | ||||||||||||||
2019 | 2018 | Change | |||||||||||||
(in thousands) | |||||||||||||||
Net income | $ | 41,724 | $ | 45,643 | $ | (3,919 | ) | (8.6 | )% | ||||||
As a result of the factors discussed above, net income decreased by $3.9 million, or 8.6%, in the three months ended September 30, 2019, as compared to the three months ended September 30, 2018.
Comparison of the Nine Months Ended September 30, 2019 and 2018
Revenues
Nine Months Ended September 30, | Nine Months Ended September 30, 2018 to 2019 | ||||||||||||||
2019 | 2018 | Change | |||||||||||||
(in thousands) | |||||||||||||||
Revenues | $ | 1,007,437 | $ | 673,567 | $ | 333,870 | 49.6 | % | |||||||
Revenues increased by $333.9 million, or 49.6%, for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018, primarily due to (i) an increase in the number of systems sold with significant growth in revenues coming from the U.S., Europe, Australia, Israel and Brazil; and (ii) revenues from the new businesses we acquired, which includes sales of UPS units, batteries, storage systems, and
11
products sold by SMRE, in the aggregate amount of $59.9 million in the nine months ended September 30, 2019, compared to $2.7 million in the nine months ended September 30, 2018. Non-U.S. revenues comprised 56.2% of our revenues for the nine months ended September 30, 2019, as compared to 47% for the nine months ended September 30, 2018.
The number of power optimizers sold increased by approximately 3.0 million units, or 36.6%, from approximately 8.2 million units in the nine months ended September 30, 2018, to approximately 11.2 million units in the nine months ended September 30, 2019. The number of inverters sold increased by approximately 143,200 units, or 42.7%, from approximately 335,200 units in the nine months ended September 30, 2018 to approximately 478,400 units in the nine months ended September 30, 2019. In addition, we increased prices in the U.S. in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, in order to offset the impact of the increase in tariffs on goods made in China that became effective June 1, 2019. This increase in selling prices was partially offset by the devaluation of the Euro and the Australian Dollar compared to the U.S. Dollar, negatively impacting our U.S. Dollar denominated average selling price (“ASP”). Overall, and primarily due to the factors detailed above, our ASP per watt for units shipped increased by $0.006, or 2.6%, in the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.
Cost of Revenues and Gross Profit
Nine Months Ended September 30, | Nine Months Ended September 30, 2018 to 2019 | ||||||||||||||
2019 | 2018 | Change | |||||||||||||
(in thousands) | |||||||||||||||
Cost of revenues | $ | 671,348 | $ | 434,042 | $ | 237,306 | 54.7 | % | |||||||
Gross profit | $ | 336,089 | $ | 239,525 | $ | 96,564 | 40.3 | % | |||||||
Cost of revenues increased by $237.3 million, or 54.7%, in the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018, primarily due to:
•
an increase in the volume of products sold;
•
an increase in customs tariffs, shipment and logistics costs of $35.6 million attributed to the change in tariffs rate on Chinese made products imported to the U.S. from 10% to 25% as well as an increase in air shipments due to increased product demand which required us to increase manufacturing capacity and expedite shipments for timely delivery;
•
an increase in warranty expenses and warranty accruals of $32.1 million associated primarily with the rapid increase of products in our install base;
•
inclusion of variable costs related to the assembly of UPS products and the manufacturing of Kokam and SMRE products in the aggregate amount of $37.8 million in the nine months ended September 30, 2019, compared to $2.5 million for the nine months ended September 30, 2018 as Kokam and SMRE were acquired after September 2018;
•
increased personnel-related costs of $14.5 million related to the expansion of our operations and support headcount which is growing in parallel to our growing install base worldwide and in connection with entering the UPS, battery and integrated powertrain technology businesses; and
•
increased of amortization of intangible assets and cost of product adjustment of $6.2 million related to the Gamatronic Acquisition, the Kokam Acquisition and the SMRE Acquisition.
Gross profit as a percentage of revenue decreased from 35.6% in the nine months ended September 30, 2018, to 33.4% in the nine months ended September 30, 2019, primarily due to:
•
increased shipment and logistics costs resulted from our expedited growth, new customs tariff rules in the U.S. and increase in air shipments;
12
•
increases in selling prices in the U.S. to offset the increased tariff expenses presented in cost of goods sold and increases in cost of good sold, as a result of which gross profit as a percentage of revenue declined;
•
lower gross profit from our UPS, battery business and SMRE products and underutilization of production facilities;
•
increased warranty accruals due to the increase in our install base; and
•
amortization of intangible assets and cost of product adjustment related to the Gamatronic Acquisition, the Kokam Acquisition and the SMRE Acquisition.
These were partially offset by:
•
general economies of scale in our personnel-relatedmaterial consumption costs and other costs associated with our support and operations departments;
•
increased profit on the units sold due to a combination of stable average selling prices and cost reductions achieved in manufacturing these products; and
•
decreased actual support costs related to our warranty obligations.
Research and Development
Nine Months Ended September 30, | Nine Months Ended September 30, 2018 to 2019 | ||||||||||||||
2019 | 2018 | Change | |||||||||||||
(in thousands) | |||||||||||||||
Research and development | $ | 86,451 | $ | 57,535 | $ | 28,916 | 50.3 | % | |||||||
Research and development increased by $28.9 million, or 50.3%, in the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018, primarily due to:
•
increased personnel-related costs of $22.2 million resulting from an increase in our research and development headcount as well as salary expenses associated with employee equity compensation. The increase in headcount reflects the inclusion of personnel costs from acquired businesses in addition to our continuing 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 $3.3 million.
•
increased expenses related to materials consumption in an amount of $1.6 million; and
•
increased depreciation expenses related to lab equipment in an amount of $1.1 million; and
•
increased expenses related to other directly related overhead costs and other costs in an amount of $0.7 million;
Sales and Marketing
Nine Months Ended September 30, | Nine Months Ended September 30, 2018 to 2019 | ||||||||||||||
2019 | 2018 | Change | |||||||||||||
(in thousands) | |||||||||||||||
Sales and marketing | $ | 64,325 | $ | 49,097 | $ | 15,228 | 31.0 | % | |||||||
Sales and marketing expenses increased by $15.2 million, or 31.0%, in the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018, primarily due to:
•
increased personnel-related costs of $11.4 million as a result of the inclusion of personnel costs from acquired businesses as well as from an increase in headcount supporting our growth in the U.S., Europe and Asia, as well as salary expenses associated with employee equity compensation;
13
•
increased expenses related to amortization and depreciation expenses in an amount of $1.5$0.5 million;
•
increased expenses related to other overhead costs and travel expenses in an amount of $1.3$0.4 million;
These were partially offset by:
•
increaseddecreased amortization and depreciation expenses related to marketing activityas a result of SMRE purchase price allocation update during the measurement period, in an amount of $0.5 million; and
•
increaseddecreased expenses related to external consultantsmarketing activities of $0.2 million;
We expect a decrease in sales and sub-contractor, material consumption costs and othermarketing expenses in an amountthe second quarter of $0.5 million.2020 due to the impact of COVID-19 on account of a reduction of travel expenses and cancellation or delays of trade shows and on-site training activities.
General and Administrative
Nine Months Ended September 30, | Nine Months Ended September 30, 2018 to 2019 | ||||||||||||||
2019 | 2018 | Change | |||||||||||||
(in thousands) | |||||||||||||||
General and administrative | $ | 37,590 | $ | 17,427 | $ | 20,163 | 115.7 | % | |||||||
Three Months Ended March 31, | Three Months Ended March 31, 2019 to 2020 | |||||||||||||||
2020 | 2019 | Change | ||||||||||||||
(in thousands) | ||||||||||||||||
General and administrative | $ | 16,185 | $ | 11,691 | $ | 4,494 | 38.4 | % | ||||||||
General and administrative expenses increased by $20.2$4.5 million, or 115.7%38.4%, in the ninethree months ended September 30, 2019 asMarch 31, 2020 compared to the ninethree months ended September 30, 2018,March 31, 2019, primarily due to:
•
increased expenses related to accrual for doubtful debts in an increase inamount of $2.7 million;
•
increased personnel costs of $11.7$1.3 million related to (i) increased headcount resulting from the acquisitions of Gamatronic, Kokam and SMRE and the expansions ofin our legal, finance, human resources and information technology departmentsy;departments; and (ii) increased expenses related to equity-based compensation and changes in management compensation;
•
increased expenses related to consultants and sub‑contractors in an amount of $5.6 million due to legal proceedings in which we are involved and other legal expenses in relation to SMRE Acquisition costs;
•
increased expenses related to other overhead costs, other expenses and travel costs in an amount of $1.3 million;
•
increased expenses related to doubtful debt in an amount of $0.8$0.4 million; and
•
increased expenses related to depreciation expenses and public company relatedother expenses in an amount of $0.8$0.2 million;
These were partially offset by a decrease in expenses related to travel and consultants and sub‑contractors in an amount of $0.1 million.
Non-RecurringWe expect that in the second quarter 2020 general and administrative expenses
Nine Months Ended September 30, | Nine Months Ended September 30, 2018 to 2019 | ||||||||||||||
2019 | 2018 | Change | |||||||||||||
(in thousands) | |||||||||||||||
Non-Recurring expenses | $ | 8,305 | - | $ | 8,305 | N/A | |||||||||
For will decrease from the nine month ended September 30, 2019, we recognized non-recurringfirst quarter due to the 20% salary reduction taken by our executive management and board members and reduced travel expenses. We may incur customer defaults on payments and other bad debts as a result of the impact of the economic downturn caused by COVID-19 on our customers. If that happens, these write-offs would be reflected in our general and administrative expenses in the amount of $8.3 million related to payroll, bonus and employees equity-based compensation acceleration related to the untimely passing of Mr. Guy Sella.future fiscal quarters.
Other operating income
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Three Months Ended March 31, | Three Months Ended March 31, 2019 to 2020 | |||||||||||||||
2020 | 2019 | Change | ||||||||||||||
(in thousands) | ||||||||||||||||
Other operating income | $ | 4,900 | $ | - | $ | 4,900 | N/A | |||||||||
Financial expense, net
Nine Months Ended September 30, | Nine Months Ended September 30, 2018 to 2019 | ||||||||||||||
2019 | 2018 | Change | |||||||||||||
(In thousands) | |||||||||||||||
Financial expense, net | $ | 22,401 | $ | 2,585 | $ | 19,816 | 766.6 | % | |||||||
Financial expensesOther operating income increased by $19.8$4.9 million, or 766.6%, in the ninethree months ended September 30, 2019 asMarch 31, 2020 compared to the ninethree months ended September 30, 2018,March 31, 2019, due to the payment to us out of escrow of $5 million relating to a matter settled in arbitration for Kokam in the fourth quarter of 2019, for which we had indemnification.
Financial expenses, net
Three Months Ended March 31, | Three Months Ended March 31, 2019 to 2020 | |||||||||||||||
2020 | 2019 | Change | ||||||||||||||
(in thousands) | ||||||||||||||||
Financial expenses, net | $ | (16,605 | ) | $ | (6,151 | ) | $ | (10,454 | ) | 170.0 | % | |||||
Financial expenses were $16.6 million in the three months ended March 31, 2020 compared to financial expenses of $6.2 million in the three months ended March 31, 2019, primarily due to:
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an increase of $14.9$11.3 million in foreign exchange fluctuations, mainly between the Euro, the New Israeli Shekel, the Australian Dollar and the South Korean Won against the U.S. Dollar;
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an increase of $2.3$1.0 million in foreign exchange fluctuationsrelated to a loss from impairment of lease agreements’ liabilitiesan SMRE affiliate originally acquired as part of the adoptionSMRE acquisition;
•
a decrease of Accounting Standards Update No. 2016-02, (Topic 842) "Leases";$0.5 million in interest income;
•
an increase of $1.4$0.3 million in interest expenses related to advance payments received for performance obligations that extend for a period greater than one year, as part of the adoption of ASC 606;
•
an increase of $0.6 million in other financial expenses and bank charges ;
•
a decrease of $0.6 million in finance income related to hedging transactions; and
•
an increase of $0.2 million in interest expenses related to bank loans which were acquired as part of Kokam acquisition and SMRE acquisition;
The increase in these expenses was partially offset by by:
•
an increase of $0.2$2.0 million related to income in foreign exchange fluctuations of lease agreements’ liabilities as part of the adoption of Accounting Standards Update No. 2016-02, (Topic 842) "Leases;
•
an increase of $0.7 million in interest income and accretion (amortization) of discount (premium) on marketable securities.
Taxes on Income (Tax Benefit)
Nine Months Ended September 30, | Nine Months Ended September 30, 2018 to 2019 | ||||||||||||||
2019 | 2018 | Change | |||||||||||||
(In thousands) | |||||||||||||||
Tax on Income (Tax benefit) | $ | 24,405 | $ | (3,016 | ) | $ | 27,421 | N/A | |||||||
Three Months Ended March 31, | Three Months Ended March 31, 2019 to 2020 | |||||||||||||||
2020 | 2019 | Change | ||||||||||||||
(in thousands) | ||||||||||||||||
Taxes on income | $ | 8,922 | $ | 3,922 | $ | 5,000 | 127.5 | % | ||||||||
Tax expenses were $24.4Taxes on income increased by $5.0 million, or 127.5%, in the ninethree months ended September 30, 2019,March 31, 2020 as compared to tax benefit of $3.0 million in the ninethree months ended September 30, 2018,March 31, 2019, primarily due to:
•
tax expenses incurred in the U.S. of $7.8 million in the nine months ended September 30, 2019, compared to a tax benefit of $7.5 million in the nine months ended September 30, 2018. The tax benefit in the nine months ended September 30, 2018, related to a one-time change in our estimates with respect to the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings and assessment of the GILTI inclusion;
•
an increase of $11.2$5 million inof current tax expenses in Israel, mainly attributed2020 as compared to 2019 related to the terminationincrease of income before taxes, worldwide.
Given the impact of the two year tax exemptioneconomic downturn caused by COVID-19, we expect our profitability to decrease in Israel which ended on December 31, 2018;
•
an increase of $1.1 millionthe coming quarters. Such a decrease would likely result in current and prior yeara decrease in our tax expenses in other jurisdictions; and
•
a decrease of $2.3 million deferred tax assets in Israel and the U.S.
The increase in these expenses was offset by:
•
an increase of $2.5 million in deferred tax assets, net (presented as tax benefit) in other jurisdictions, mainly related to deferred tax assets as a result of the Kokam and SMRE acquisitions; andour taxes on income accordingly.
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Net Income
Nine Months Ended September 30, | Nine Months Ended September 30, 2018 to 2019 | ||||||||||||||
2019 | 2018 | Change | |||||||||||||
(In thousands) | |||||||||||||||
Net income | $ | 92,612 | $ | 115,897 | $ | (23,285 | ) | (20.1 | )% | ||||||
Three Months Ended March 31, | Three Months Ended March 31, 2019 to 2020 | |||||||||||||||
2020 | 2019 | Change | ||||||||||||||
(in thousands) | ||||||||||||||||
Net income | $ | 42,248 | $ | 17,975 | $ | 24,273 | 135.0 | % | ||||||||
As a result of the factors discussed above, net income decreasedincreased by $23.3$24.3 million, or 20.1%135.0%, in the ninethree months ended September 30, 2019,March 31, 2020 as compared to the ninethree months ended September 30, 2018.March 31, 2019.
We expect that as part of the impact of COVID-19, we will experience a decrease in revenues and an increase of cost of goods sold which may be partially offset by reduced operating expenses. As such, we expect that our net income will decrease respectively.
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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, | Three Months Ended March 31, | |||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2020 | 2019 | ||||||||||||||||||
(In thousands) | (in thousands) | ||||||||||||||||||||||
Net cash provided by operating activities | $ | 68,700 | $ | 34,335 | $ | 175,934 | $ | 142,205 | $ | 107,745 | $ | 56,450 | |||||||||||
Net cash used in investing activities | (6,176 | ) | (56,634 | ) | (58,397 | ) | (121,116 | ) | (19,924 | ) | (17,045 | ) | |||||||||||
Net cash provided by (used in) financing activities | (922 | ) | 324 | (68,307 | ) | 7,915 | 3,315 | (2,630 | ) | ||||||||||||||
Increase (decrease) in cash, cash equivalents and restricted cash | $ | 61,602 | $ | (21,975 | ) | $ | 49,230 | $ | 29,004 | ||||||||||||||
Net increase in cash, cash equivalents and restricted cash | $ | 91,136 | $ | 36,775 | |||||||||||||||||||
As of September 30, 2019,March 31, 2020, our cash, and cash equivalents and restricted cash were $247.3$324.1 million. This amount does not include $178.2$199.0 million invested in available-for-saleavailable for sale marketable securities, $27.5 million invested in restricted bank deposits and $7.4$8.1 million invested in short-term bank depositsdeposits. Our principal uses of cash are funding our operations and restricted bank deposits.other working capital requirements. As of March 31, 2020, we have open commitments for capital expenditures in an amount of approximately $71.0 million. These commitments reflect purchases of automated assembly lines and other machinery related to our manufacturing operations. We believe that cash provided by operating activities as well as our cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months.months including the self-funding of our capital expenditure commitments.
To the extent that revenues decrease over the coming few quarters due to the economic downturn caused by the global pandemic, we expect that our cash balances will also decrease. This will be compounded by our continued investment in research and development activities including the establishment of a lithium-ion factory in Korea which is continuing as planned and the support of our other non-solar businesses as they grow. We carefully oversee our cash resources and believe that our strong and healthy balance sheet positions us well to manage the coming quarters despite the expected temporary decline in revenues.
Operating Activities
For the ninethree months, ended September 30,March 31, 2020, cash provided by operating activities was $107.7 million derived mainly from net income of $42.2 million that included $17.6 million of non-cash expenses, a decrease of $59.4 million in trade receivables and $49.9 million in prepaid expenses and other accounts receivable, and an increase of $13.8 million in warranty obligations and $11.8 million accruals for employees. This was offset by a decrease of $31.7 million in deferred revenues and $17.6 million in trade payables, and an increase of $29.0 million in inventories, $7.5 million in accrued expenses and other accounts payable and $1.2 million in operating lease liabilities.
For the three months ended March 31, 2019, cash provided by operating activities was $175.9$56.5 million, derived mainly from a net income of $92.6$18.0 million that included $54.5$15.5 million of non-cash expenses, an increase of $49.6 million in warranty obligations, $39.6$20.3 million in accrued expenses and other accounts payable, $21.3$14.9 million in trade payables, $19.5 million of deferred revenues, $15.3warranty obligations, $3.3 million in accruals for employees, $2.1 in operating lease liabilities$1.7 million of deferred revenues and $15.8 milliona decrease in inventories, which were offset by an increase of $114.6 million in trade receivables, net, and $19.8$10.9 million in prepaid expenses and other receivables.
For the nine months ended September 30, 2018, cash provided by operating activities was $142.2 million, derived mainly from a net income of $115.9 million that included $26.8 million of non-cash expenses, an increase of $28.8receivables and $1.0 million in warranty obligations, $21.6 millioninventories. This was offset by a decrease of deferred revenues, $13.2$21.7 million in trade payables, net and other accounts payable and $1.2 million in accruals for employees which were offset by an increase of $42.4$7.4 million in trade receivables, net, $18.1 millionreceivables.
As a result of the economic downturn triggered by COVID-19, we expect a lower volume of orders in inventoriesthe coming quarters, and $4.8 million in prepaid expenseslight of purchase obligations and other receivables.manufacturing commitments incurred by us prior to the outbreak of COVID-19, we expect that our inventory levels will increase in the next two or three quarters resulting in consumption of cash for operating activities.
Investing Activities
During the ninethree months ended September 30, 2019,March 31, 2020 net cash used in investing activities was $58.4$19.9 million, of which $103.7$31.9 million was invested in available-for-sale marketable securities, $39.7$27.0 million related to capital investments in laboratory equipment, end of line testing equipment, automated assembly lines, manufacturing tools and leasehold improvements net, $38.4and $3.3 million was utilized for SMRE acquisition,invested in bank deposits. This was offset by $119.6$42.3 million from proceeds from sales and the maturities of available-for-sale marketable securities and a decrease of $3.8 million in bank deposits.securities.
During the ninethree months ended September 30, 2018,March 31, 2019, net cash used in investing activities was $121.1$17.0 million, of which $143.1$39.3 million was utilized for SMRE acquisition, $15.3 million was invested in available-for-sale marketable securities $30.1and $10.6 million related to capital investments in laboratory equipment, end of line testing equipment, automated assembly lines, manufacturing tools and leasehold improvements, $7.3improvements. This was offset by $44.6 million investedfrom sales and maturities of available-for-sale marketable securities and $3.6 million decrease in short-term bank deposits and $11.2deposits.
Financing Activities
For the three months ended March 31, 2020, net cash provided by financing activities was $3.3 million, of which, $15.2 million was invested in assetsused for repayment of loans we acquired as part of the acquisition of our UPS division.Kokam Acquisition and $0.1 million used for payments related to finance lease. This was offset by $71.6$15.3 million related to proceeds from new bank loans of Kokam and $3.3 million attributed to cash received from the maturitiesexercise of available-for-sale marketable securities.
Financing Activitiesemployee and non-employee stock-based awards.
For the ninethree months ended September 30,March 31, 2019, net cash used in financing activities was $68.3$2.6 million, of which $67.1$2.0 million related to the purchase of non-controlling interests in Kokam and SMRE, $4.9$1.0 million was used for repayment of loan obligations we acquired as part of the Kokam and SMRE Acquisitions and $1.2 million
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related to the purchase of land and building formerly leased under financial lease.Acquisition. This was offset by $4.9$0.3 million attributed to cash received from the exercise of employee and non-employee stock options.
For the nine months ended September 30, 2018, net cash provided by financing activities was $7.9options and $0.1 million all attributedrelated to cash receivedproceed from the exercise of employee and non-employee stock options.new bank loan.
Debt Obligations
In October 2018, as part ofDuring the three months ended March 31, 2020, our acquired subsidiary Kokam Acquisition, we acquired a number of bank loan obligations in an aggregate amount of $20.1 million (the “Kokam Loans”(“Kokam”). The Kokam Loans mature in various installments through May 2021 redeemed all outstanding loans and their annual interest rates are variable. As of September 30, 2019, the interest rates ranged from 2.7% to 5.3% and the aggregate Kokam Loans outstanding were $17.9 million.
In January 2019, as part of the SMRE Acquisition, we acquired a number ofentered into new bank loans in an aggregate amount of $5.5 million (the “SMRE Loans”).$15.3 million. The SMRE Loansloans mature in varioustwo installments through June 2026 and theirDecember 31, 2020, with annual interest rates are variable.rate of 1.64%. As of September 30, 2019, the interest rates ranged from 0.8% to 3.5% andMarch 31, 2020, the aggregate SMRE Loans outstanding were $3.0loans amount was $14.9 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.
Foreign Currency Exchange Risk
Approximately 52.3%37.3% and 41.8%52.4% of our revenues for the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, 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 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 ninethree months ended September 30, 2019,March 31, 2020, between the Euro and the U.S. Dollar would increase or decrease our net income by $33.4$22.4 million for the ninethree months ended September 30, 2019.March 31, 2020. A hypothetical 10% change in foreign currency exchange rates during the ninethree months ended September 30, 2019,March 31, 2020, between the New Israeli Shekel and the U.S. Dollar would increase or decrease our net income by $9.8$4.8 million for the ninethree months ended September 30, 2019.March 31, 2020. A hypothetical 10% change in foreign currency exchange rates during the ninethree months ended September 30, 2019,March 31, 2020, between the Korean Won and the U.S. Dollar would increase or decrease our net income by $1.0$11.7 million for the ninethree months ended September 30, 2019.March 31, 2020.
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.
WeTo date, we have in the past and may in the future, useused derivative financial instruments, specifically foreign currency forward contracts, and put and call options, to manage exposure to foreign currency risks by hedging a portionportions of our account receivable balances.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. During the nine months ended September 30, 2019, we had no foreign currency forward transactions and as of September 30, 2019, we had no
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foreign currency forward contracts outstanding. We do not use derivative financial instruments for speculative or trading purposes.
As of September 30, 2019, we had cash and cash equivalents of $247.3 million and available-for-sale marketable securities with an estimated fair value of $178.2 million, and $7.4 million invested in bank deposit and restricted bank deposits, which were held for working capital purposes. We do not enter into investments for trading or speculative purposes. Since most of our cash and cash equivalents are held in U.S. Dollar‑denominated money market funds, we believe that our cash and cash equivalents do not have any material exposure to changes in exchange rates.
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, 2019,March 31, 2020, one major customer accounted for approximately 24.5%24.4% of our consolidated trade receivables, net balance. We currently do not foresee a material, adverse credit risk associated with these receivables.receivables other than the amount included in our financial statements.
Credit risk as well as associated risks of defaults on payments and other bad debts could increase as a result of the impact of the economic downturn caused by COVID-19 on our customers.
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
Following the adoption of the Accounting Standards Update No. 2016-02ASU 2016-13, Financial Instruments – Credit Losses (Topic 842) "Leases"326) on January 1, 2019,2020, we implemented changes to our processes related to leasescredit losses and the related control activities. There were significant changes to our internal control over financial reporting due to the adoption of this new standard.
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.
We have not experienced any material impact to our internal controls over financial reporting despite the fact that many of our employees were working remotely during the first quarter due to the COVID-19 pandemic. We are continuously monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.
PART II. OTHER INFORMATION
ITEM 1LEGAL PROCEEDINGS
In October 2019, we announced that we filed three lawsuits in China against Huawei. The lawsuits, filed in the Regional Courts of Jinan and Shenzhen in China, cite unauthorized use of patented technology, and are intended to protect SolarEdge’s significant investment in its innovative DC optimized inverter technology. Seeking damages and an injunction, the lawsuits are intended to prevent Huawei from manufacturing and selling any products infringing upon SolarEdge’s patented PV inverter and power optimizer technology.
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In August 2019, the Company was served with a lawsuit filed in the civil courts of Milan, Italy against the Italian subsidiary of SMRE that purchased the shares of SMRE in the tender offer which followed the SMRE Acquisition by certain former shareholders of SMRE who tendered their shares. The lawsuit asks for damages of approximately $3 million, representing the difference between the amount for which they tendered their shares (6 Euro per share) and 6.7 Euros per share. The Company believes it has meritorious defenses to the claims asserted and intends to vigorously defend against this lawsuit.
We believe we have meritorious defenses to the claims asserted and intend to vigorously defend against this lawsuit and does not expect the outcome of the litigation matters to have a material effect on its balance sheets, statements of income or cash flows.
In addition, as part of 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 1 of Part II3 – “Legal Proceedings” of our QuarterlyAnnual Report on Form 10-Q10-K for the period ended June 30,December 31, 2019. 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
There have been no material changesIn 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, 2018.2019.
The ongoing COVID-19 pandemic is expected to adversely affect our business, results of operations and financial condition.
In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which has created significant volatility, uncertainty and economic disruption. Uncertainties surrounding the COVID-19 pandemic make it difficult for us to assess the full impact on our business at this time however, we are already experiencing push outs and cancellations of orders for the sale of our products for the coming two quarters. In addition, since the outbreak and the restrictions on travel, our employees and management have been unable to travel to customers, manufacturing facilities and to suppliers. In addition, marketing activities, exhibitions and shows have been cancelled or postponed through the third quarter of 2020. The full extent the effects of the said pandemic will have on our business depend on numerous evolving factors that we may not be able to currently accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the effect on our customers and customer demand for our products, disruptions or restrictions on our employees’ ability to work and travel.
The COVID-19 pandemic has resulted in authorities implementing numerous measures to contain the virus, including travel restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. Our compliance with these measures has disrupted, and is expected to continue to disrupt, our business and operations, as well as that of our key customers and suppliers for an indefinite period of time. Additionally, to support the health and well-being of our employees, our work force has had to spend a significant amount of time working remotely which has impacted our day-to-day operations, our ability to meet customers and create future sales and business opportunities. As discussed in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, although the COVID-19 pandemic did not have a material adverse impact on our financial results for the first quarter of fiscal 2020, we currently expect that revenue for the second quarter of fiscal 2020 will be lower than the first quarter and we will not experience the seasonal business increase that usually characterized our business. Revenues may continue to be lower in the following quarters mainly due to a decrease of customer demand for our products and contingent on the duration of the global economic downturn.
More generally, the pandemic raises the possibility of an extended global economic downturn and has caused volatility in financial markets, which may continue to adversely affect demand for our products and could adversely affect our results and financial condition in subsequent quarters. For example, some of our customers could potentially experience financial difficulties, which in turn could make it difficult for us to collect receivables as well as cause a decrease in the demand for our products which could negatively affect our revenues. Additionally, some of our suppliers may experience delivery delays or financial difficulties which could result in supply constraints and increased costs or delays to our productions. The pandemic may also amplify many of the other risks described in Part I, Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2019.
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.
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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) |
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| 31.1 | 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. | |
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| Filed with this report. |
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104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended | Included in Exhibit 101. |
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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. | |
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Date: | /s/ |
Zivi Lando | |
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(Principal Executive Officer) | |
Date: | /s/ Ronen Faier |
Ronen Faier | |
Chief Financial Officer | |
(Principal Financial and Accounting Officer) | |
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