SolarEdge Technologies, Inc.

Good afternoon. Thank you for joining us to discuss SolarEdge's operating results for the first quarter ended March 31st, 2021, as well as the company's outlook for the second quarter of 2021. With me today are C.V. Lando, Chief Executive Officer, and Ronan Fire, Chief Financial Officer. C.V. will begin with a brief review of the results for the first quarter ended March 31st, 2021. Ronan will review the financial results for the first quarter, followed by the company's outlook for the second quarter of 2021. We will then open the call for questions. Please note that this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statements contained in our press release and the slides published today for a more complete description. All material in the webcast is the sole property and copyright of SolarEdge Technologies, with all rights reserved. Please note this presentation describes certain non-GAAP measures, including non-GAAP net income and non-GAAP net diluted earnings per share, which are not measures prepared in accordance with US GAAP. The non-GAAP measures are presented in this presentation as we believe that they provide investors with the means of evaluating and understanding how the company's management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, or as substitutes for or superior to financial measures prepared in accordance with U.S. GAAP. Listeners who do not have a copy of the quarter-ended March 31st, 2021 press release or the supplemental material may obtain a copy by visiting the investor section of the company's website. Now, I will turn the call over to CZ.

Thank you, Erica. Good afternoon, and thank you all for joining us on our conference call. Starting with highlights of our first quarter results, we concluded the quarter with revenues of approximately $405 million, just above the top end of our guidance. Revenues from our solar business were $376 million, while revenue from our non-solar business were $29 million. This quarter, we shipped 3.7 million power optimizers and 182,000 inverters. Our solar business grew this quarter across all segments and geographies, including record quarterly revenues in Australia, Italy, and France. In North America, we saw 23% growth in revenues from Q4 to Q1, representing increased demand for both residential and commercial products. Business in Europe is continuing to grow, led by sales in the Netherlands, where we had a record quarter of residential revenues, as well as revenues from Germany, Italy, and Poland. Also noteworthy is our continued growth in France, where we had record quarter both in residential and commercial sales. In the region outside Europe and the US, which includes Australia, Asia Pacific, Japan, Brazil, Israel, and several other countries, we had our third consecutive quarter of growth and record shipments. Noteworthy among these countries is Australia, where we delivered close to 100 megawatts of products representing more than 50% of quarter-over-quarter growth. A big part of this momentum was due to the volume shipments of our new three-phase residential inverter optimized for the Australian market. When it comes to new market opportunities, we see Korea as a particularly interesting one. We recently completed certification of our three-phase commercial inverter for installation on commercial rooftops in Korea. As the CNI market in Korea is more than two gigawatts in size, and considering our strong local presence, we are optimistic about the growth potential there, and indeed already installed in the first quarter more than 10 megawatts of rooftops in a conditional certification setup. As we projected in recent calls, This quarter, we began to see meaningful signs of recovery in our commercial business across all regions. Our megawatt shipments of commercial products grew by 35% from last quarter. As we have anticipated and discussed in our last earning calls, the commercial sector has been slower to recover from the economic downturn during the pandemic, but inventory in our distribution channel is now back to healthier levels and we are seeing a pickup in commercial installations and opportunity pipeline. We expect revenues from the commercial segments to continue and grow back to the pre-pandemic levels in the second and third quarter of 2021. On the product side, demand for our battery-ready energy hub inverter continues to grow, and it is now more than 20% of our residential shipments to the US. At the same time, We see growing interest in our self-consumption devices, such as our EV charger and water heating product. Our plan to launch our residential battery remains on track. We have active test sites already in the U.S. and will begin initial shipments this quarter. These batteries will be shipped to the U.S., Europe, and later to Australia. The test period is aimed to validate the battery performance in the field and sharpen installation practices with the help of some of our select installers. Additionally, the goal is to confirm the system level battery plus energy hub inverter, self-consumption and backup scenarios. In a recent study of our global installed base of more than 30,000 systems of SolarEdge backup inverters installed with third-party inverter, we analyzed consumer behavior patterns and system performance through more than 75,000 blackout events lasting more than five minutes. We characterized in detail typical blackout frequencies, duration, the power and energy capacity needs, as well as practices to prevent depletion of batteries and extended blackout events. We will be incorporating these learnings into our system in conjunction with the maximization of self-consumption and financial decision-making algorithms in order to enable smart automated system decisions and provide a flexible, easy to manage system for the consumer. As we have said in the past, we don't plan for meaningful battery revenues until Q3 of this year. Given the growing demand for energy consumption and storage, which I referred to earlier, we are confident that our storage ready inverters fitted with our DC coupled battery represent a significant milestone in progressing our vision of a home system that is flexible to provide both maximization of self-consumption and economic value where relevant and backup capability where and when needed. In the commercial segment, we see good adoption of our 120-kilowatt synergy inverter, including a dedicated version for ground mount installations in the U.S. This new high-power inverter is designed to support bigger commercial fields and improve economics, as well as simplify installation and commissioning. Our customers can now set up and test the entire installation before even connecting to the AC grid. As the CNI market continues to improve, our new high-power inverter, combined with our recently released 1,100-watt optimizer, offer a means to reduce the cost per watt for installers, and increase adoption of our solution in larger ground mount and rooftop installations. I would like now to elaborate on our operational status. Cycles of component shortages are common in our industry, and we have experienced such cycles before. Based on our past experience, We have adopted a methodology to closely monitor the procurement of components by our contract manufacturers and at times manage the supply and demand of components directly from their suppliers. This allows us to identify relatively early cycles of shortages. We also typically hold high levels of safety stock and finished goods inventory that allow us to overcome temporary fluctuations of component availability. In addition, we have developed alternate sources for critical components. As a result, at this time, based on the current alignment and delivery schedules with our contract manufacturers and suppliers, we are comfortable in our ability to support the increased demand we are seeing and our projections for further demand increases later in the year. Though at times, this may come at a higher cost due to expedited shipments and cost increases, as is reflected in our gross margin guidance for the forthcoming quarter. On a related note, our Celawan factory in Israel is continuing to ramp. We are now employing over 480 workers and manufacturing inverters and optimizers from our own facility, which is on track to reach full capacity by end of this quarter. The fruits of this investment are already being born, As thanks to a joint project of our R&D and operational teams in Israel, we have been able to increase the output of our power optimizer automated assembly line and copied this improved process to our contract manufacturers in other locations. In our non-solar business, our e-mobility division began delivering full power train units and batteries for the Fiat e-Ducato in Europe. The ramp of the production line will be gradual, and several months will pass until we reach full capacity. In our energy storage division, the Cella II factory for lithium ion cells and batteries in Korea is now well underway with the groundbreaking work behind us and building establishment in process. The factory is expected to start pilot production in the first half of 2022 and will enable us to supply our own cells and reduce our dependency on third-party manufacturers. In summary, we are happy with the results of the first quarter, and with the progress our teams are making across our regions and business units. With this, I hand it over to Onen, who will review our financial results.

Thank you, Tivi, and good afternoon, everyone. This financial review includes a gap and non-gap discussion. Full reconciliation of the pro forma to gap results discussed on this call is available on our website and in the press release issued today. Total revenues for the first quarter were $405.5 million, a 13% increase compared to $358.1 million last quarter, and a 6% decrease compared to $431.2 million for the same quarter last year. Revenues from the sale of solar products were $376.4 million, a 15% increase compared to $327.1 million last quarter. U.S. solar revenues this quarter were $162.5 million and represented 43.2% of our solar revenues. Solar revenues from Europe were $158.4 million, or 42.1% of our revenues, and the rest of the world's solar revenues were $55.5 million, or 14.7% of our total revenues driven mostly by record revenues in Australia. Revenues this quarter represented strong demand for our product in both residential and commercial segments in Europe and the rest of the world, with revenues in the United States continuing to be driven by sales of residential products. On a megawatt basis, we shipped to the United States 573 megawatts, to Europe 721 megawatts, and to the rest of the world, 397 megawatts. 45% of the total amount were commercial products, and the remaining 55% are residential. Channel inventory remains healthy in all regions in anticipation for Q2 and Q3, which are typically characterized as stronger quarters for the solar industry in general. Point-of-sale data received from our distributors demonstrates strength in all regions. In the United States, where commercial sales were weaker over the last quarter, we see, as anticipated, strong point-of-sale data which lowers the inventory days within the channels and new project discussions with our customers are expected to yield an increase in our U.S. commercial sales in Q2 and the following quarters. This quarter, Our top 10 solar customers represented 62.2% of our solar revenues. One US distributor accounted for more than 10% of the solar revenues. Pricing level remained stable this quarter across all regions. Blended ASP per watt for our solar products decreased by approximately 8% compared to the last quarter, driven by customer and product mix. This quarter, revenues from our non-solar products were $29.1 million, led by sales of lithium-ion batteries to non-solar customers by COCAM, and increased sales from our e-mobility business that delivered first full power train kits to Stellantis. Gap gross margins for the quarter was 34.5%, compared to 30.8% in the prior quarter, and 32.5% in the same quarter last year. Non-GAAP gross margin this quarter was 36.5% compared to 32.5% in the prior quarter and 33.6% in the same quarter last year. Non-GAAP gross margin for the solar business was a record 39.7% compared to 36.2% in the last quarter and above our long-term solar gross margin target of 36% plus minus 1%. This increase in the non-gap solar margin is a result of several factors. Primarily, we saw a higher portion of residential products which are characterized by higher gross margins out of the total product mix, improved exchange rate on sales in Europe and Australia, a reduction in the portion of Chinese-made products shipped to the United States and that are subject to U.S. custom tariffs, as well as lower warranty charges as a percentage of revenues associated with the support of our products and economies of scale. 86% of the products shipped to the United States this quarter were not subject to the said tariffs as they were manufactured outside of China. As you can see from our Q2 gross margin guidance, we expect margins to be slightly lower in the coming quarter. Over the last quarters, we experienced substantial increase in ocean freight prices as a result of the effects of COVID-19 on trade and supply chains. Ocean freight prices have increased by more than 100% over the last months, and our pre-negotiated prices have gradually expired and exposed us to higher freight costs worldwide. Another element that affects our margin is increased cost of certain components and freight costs related to the expedited shipments of such components. As Sivi mentioned, We are managing these component shortages in a way that currently allows us to meet the annual operating plan, but such management requires us from time to time to pay higher price for a component or airship them to our contract manufacturer's facility as supply times also fluctuate. Lastly, the seasonal growth in revenues in Europe and increased sales of commercial products in the United States Both are characterized by lower gross margins products in our overall mix. Despite all these factors, our gross margin target and our expectation to meet it remain unchanged at the range of 36% plus minus 1%. Non-GAAP gross margin for our non-solar activities was minus 4.7% compared to minus 6.4% in the previous quarter. The improvement is mainly a result of the growing volumes of powertrain kits supply this quarter, although volumes are not yet stabilized at the anticipated level that will get us to the low single-digit target gross margin on this project. On a non-GAAP basis, operating expenses for the first quarter were $76.2 million or 18.8% of revenues compared to $72.9 million or 20.4% of revenues in the prior quarter and 66.3 million or 15.4% of revenues for the same quarter last year. This increase is a result of our recommenced investment in talent acquisition in our research and development department, as well as the expansion of sales infrastructure in all businesses. Our non-GAAP solar operating expenses as percentage of solar revenues were 17% compared to 18.9% last quarter. Non-GAAP operating income for the quarter was $71.9 million compared to $43.5 million in the previous quarter and $78.6 million for the same period last year. This quarter, non-GAAP solar activities resulted in an operating profit of $85.5 million compared to an operating profit of $56.5 million last quarter. This number represents 22.7% of our solar revenues and is at the higher end of our 20% to 23% long-term operating profit model. The non-solar activities resulted in non-GAAP operating loss of $13.6 million, relatively flat to an operating loss of $13 million in the previous quarter. Non-GAAP financial expense for the quarter was $6.3 million, compared to a non-GAAP financial income of $16.9 million last in the previous quarter. This expense is a result of mostly unrealized foreign currency fluctuations related to intercompany loans between the group companies. Our non-GAAP tax expense was $10.1 million compared to $4.6 million in the previous quarter and $12.5 million for the same period last year. GAAP net income for the first quarter was $30.1 million compared to a GAAP net income of $17.7 million in the previous quarter and $42.2 million in the same quarter last year. Our non-GAAP net income was $55.5 million flat compared to a non-GAAP net income of $55.7 million in the previous quarter. However, this net income this quarter is a result of a substantially higher operating profit. GapNet diluted earning per share was $0.55 for the first quarter compared to $0.33 in the previous quarter and $0.81 for the same quarter last year. Non-GapNet diluted EPS was $0.98, the same as in the previous quarter, and a slight increase compared to $0.95 in the same quarter last year. Turning now to the balance sheet. As of March 31, 2021, cash, cash equivalents, bank deposits, restricted cash deposits, and investments were $1.2 billion. Net of debt, cash, cash equivalents, bank deposits, restricted bank deposits, and investments were $515.2 million. During the first quarter of 2021, we generated $24.1 million in cash from operations. ARNet increased nominally this quarter to $271.7 million compared to $219.7 million last quarter. Death sales outstanding this quarter in the solar business was 73 days, a decrease from 75 days last quarter. As of March 31st, our inventory level, net of reserve, was at $340 million compared to $331.7 million in the prior quarter. This amount reflects slightly lower finished goods inventories and higher raw material inventory in both our solar and non-solar businesses as we are working through the component shortages and ramp up our e-mobility part-time production line. Moving now to the guidance for the second quarter of 2021. We expect revenues for the second quarter to be within the range of $445 billion. to $465 million. Revenues from the sale of solar products are expected to be within the range of $405 million and $420 million. We expect non-GAAP gross margin to be within the range of 32% to 34%. Non-GAAP gross margin for the sale of solar products is expected to be within the range of 36% to 38%. I will now turn the call over to the operator to open it up for questions.