SolarEdge Technologies, Inc.

Good afternoon. Thank you for joining us to discuss SolarEdge's operating results for the second quarter ended June 30, 2021, as well as the company's outlook for the third quarter of 2021. With me today are C.V. Landau, Chief Executive Officer, and Ronan Fire, Chief Financial Officer. C.V. will begin with a brief review of the results for the second quarter ended June 30, 2021. Ronan will review the financial results for the second quarter followed by the company's outlook for the third 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 contained in the webcast is a 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 a 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, 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 June 30, 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 CeeDee.

Thank you, Erica. Good afternoon, and thank you all for joining us on our conference call. In my remarks today, I'll discuss the trends and momentum in our different business segments, update on new product releases, in particular, the introduction of our residential battery, and at the end, discuss how we are navigating the much talked about global supply and logistics challenges. We are happy to report record revenues in both our solar and non-solar segments for the second quarter of 2021. Our total revenues this quarter were $480 million, consisting of a record $431 million from our solar business and a record $49 million of revenue from our non-solar business. Overall this quarter, we shipped 5 million power optimizers and approximately 180,000 inverters. The record solar revenues reflect strong demand for our solar products across all segments and geographies. In particular, we saw this quarter record revenues in Europe, led by record revenues in the Netherlands, Italy, and Poland, as well as record revenues in what we call rest of the world, representing all regions outside of North America and Europe. In the U.S., this was the third consecutive quarter of growth in delivery of residential products, In U.S. commercial, revenue grew more than 80% quarter over quarter. In addition to the revenue growth, we are seeing consistent increase in sell-through and installation rates of both our residential and commercial products globally. If in recent quarters we discussed healthy inventories in residential and relatively high inventory levels in commercial, today In most channels, inventory levels are below historical normal levels, both in residential and commercial. On the product side, we continue to see very good acceptance of the Energy Hub backup ready inverter in the US residential market. And in this quarter, we began shipping the Energy Hub to Australia. Later in the year, we expect to begin shipping the European version of the Energy Hub as well. I want to take a couple of minutes to elaborate on the capabilities of the energy hub, which make it so attractive to our customers. As reflected in its name, the energy hub inverter is designed to accommodate and control multiple energy elements of the home. For example, already today, in addition to the battery, we ship a SolarEdge EV charger as well as an electric water heater controller, all of which are controlled by the energy hub inverters. Homeowners manage all of these functionalities through our recently released MySolarEdge app that has more than 2 million users to date. Referring specifically to the storage capability, our energy hub inverter is DC coupled with a battery in a way that maximizes utilization of the energy coming from the solar system. The importance of the additional energy from a DC coupled system is critical in particular during backup scenarios. As we explained in the past, when the grid is down, a DC-coupled system will harvest all of the energy generated by the modules and feed it into the battery even when the power generated by the solar system exceeds the nameplate capacity of the inverter. As frequencies and durations of outages are becoming more prevalent, the benefit of this architecture is accentuated and we see more and more homeowners benefiting from the use of this feature. In California alone in the past three months, more than 6,500 homes benefited from 45,000 hours of backup energy provided by their SolarEdge system. On that note, as planned, we initiated shipment of our SolarEdge Energy Bank residential battery to the United States and Europe. The DC-coupled 10-kilowatt-hour battery uses Samsung SDI cells and has been designed based on our knowledge and experience from more than 30,000 SolarEdge installed systems with batteries. The availability of our battery means that our installers and homeowners can enjoy the benefit of high efficiency, easy installation, and seamless integration with our energy hub inverter that optimizes self-consumption while connected to the grid and maximizes power during outage events. We are gradually ramping production of the battery and plan to ship between 25 to 30 megawatt hour of batteries in the third quarter. In order to meet the strong demand, we have signed an agreement with Samsung SDI for the supply of one gigawatt hour of cells to be provided in 2022. We are excited about this cooperation with a leading high quality cell manufacturer. From the second half of 2022, we expect to be shipping batteries based on cells manufactured in our Sela2 factory in Korea, currently under construction. Just as we have our own Sela1 manufacturing facility for inverters and optimizers, which gives us speed and flexibility for initial volume of new products, augmented by high volumes from contract manufacturers, we expect that Sela2 will give us similar flexibility for cell and battery needs for our various businesses, while cooperating with Tier 1 partners in supplying the high volumes needed to meet demand. Moving to trends in our CNI business. As anticipated, we are seeing steady growth in sales and installations of our commercial products. This coincides with the release of our new 120-kilowatt synergy inverter that is targeting both rooftops and ground mount installations. We recently began shipping the 120-kilowatt synergy inverter to the U.S., which we believe will give a boost to our recent momentum of penetration to community solar ground mount installation segments, where in recent months we have installed more than 50 megawatts in more than 40 projects. In other regions as well, we are seeing progress in penetrating the market of small-scale utility projects. For example, we have a 35 megawatt project currently being installed in Japan, and a 77 megawatt project in Taiwan expected to begin delivery in the third quarter. Moving to our non-solar business, where we reported record revenues of $49 million this quarter, primarily driven by the ramp of production of powertrain units and batteries for the Fiat e-Ducato in Europe. We expect these volumes to continue and increase in the coming quarters. Also contributing to the growth in non-solar revenue this quarter were initial deliveries by COCOM of batteries for the first of two utility scale energy storage projects, one in Australia. Moving to the operational side. Like other industries, our industry is also dealing with issues around component shortages, logistic costs, and the impact of COVID. As we discussed in last quarter's call, from a component supply point of view, the multi-source strategy we put in place several years ago enables us to meet the current and we believe future growth and demand. At times, this comes at a higher cost due to expedited logistics. A temporary challenge is the COVID outbreak in Vietnam. As of a couple of weeks ago, production in our contract manufacturers factory in Vietnam is at a reduced level due to a government mandated lockdown. We are mitigating this short-term challenge by increasing output in our manufacturing facilities in China, Hungary, and Israel. This will require some expedited shipments and additional tariffs due to a higher portion of shipments coming from China to the United States. All in all, based on current visibility, thanks to the flexibility that we have built into our operational strategy, we are confident in our ability to continue and meet the growing demand we are experiencing for our products. And with this, I hand it over to Ronen, who will review our financial results.

Thank you, Sivi, and good afternoon, everyone. This financial review includes a GAAP and non-GAAP discussion. Full reconciliation of the pro forma to GAAP results discussed on this call is available on our website and in the press release issued today. Total revenues for the second quarter were $480.1 million, an 18% increase compared to $405.5 million last quarter, and a 45% increase compared to $331.9 million for the same quarter last year. Revenues from the solar segment were $431.5 million, a 15% increase compared to $376.4 million last quarter. The quarter's revenue do not include residential battery shipments which we initiated at the end of the quarter. US solar revenues this quarter were $175.1 million and represented 40.6% of our solar revenues. Solar revenues from Europe were a record $200.7 million or 46.5% of our revenues and the rest of the world's solar revenues were a record $55.7 million, or 12.9% of our total solar revenues. On a megawatt basis, we shipped 580 megawatts to the United States, 745 megawatts to Europe, and 319 megawatts to the rest of the world. 43% of this amount were commercial products, and the remaining 57% were residential. This quarter, our top 10 solar customers represented 61.4% of our solar revenues. Two US customers accounted for more than 10% of our solar revenues. Blended ASP increased by approximately 20.5% compared to the last quarter, since the ratio of optimizers to inverters was higher than usual due to temporary manufacturing and logistic optimization. In general, The pricing environment remained stable this quarter, while for the third quarter, we notified our customers of a modest price increase to support increased freight expenses. This quarter, revenues from our non-solar segments were a record $48.5 million. These record revenues were led by the e-mobility division, where sales of powertrain systems to Stellantis continue to grow, and by increased sales, of COCAMs, lithium-ion batteries, and cells. We expect the non-solar segment revenues to continue and grow as a proportion of the total revenues in the upcoming quarters. Gap gross margin for the quarter was 32.5% compared to 34.5% in the prior quarter and 31% in the same quarter last year. Non-gap gross margin this quarter was 33.9% compared to 36.5% in the prior quarter, and 32.4% in the same quarter last year. Gross margin for the solar segment was 37.4% compared to 39.7% in the prior quarter, and above our long-term solar gross margin target of 36% plus minus 1%. In comparison to the last quarter, solar segment gross margin was affected by approximately 150 basis points by higher logistic costs resulting from increased freight costs. This quarter, 88% of the products imported to the United States came from non-tariff manufacturing sites. Gross margin for our non-solar segment was positive at 3.3% compared to minus 4.7% in the previous quarter, due to increased production level of powertrains from our e-mobility business, combined with healthy margins from the storage business. On a non-GAAP basis, operating expenses for the second quarter were $81.5 million or 17% of revenues, compared to $76.2 million or 18.8% of revenues in the prior quarter, and $61.1 million or 18.4% of revenues for the same quarter last year. This increase is mainly a result of increased headcount in our R&D and sales departments, as well as salary increases that came into effect on April 1st. Our non-GAAP solar operating expenses as percentage of solar revenues were 15.8% compared to 17% last quarter. Non-GAAP operating income for the quarter was $81.3 million compared to $71.9 million in the previous quarter and $46.6 million for the same quarter last year. This quarter, the solar segment generated an operating profit of $92.9 million compared to an operating profit of $85.5 million last quarter. This number represents 21.5% of our solar revenues and is in the midpoint of our 20% to 23% long-term operating profit model. The non-solar segment generated an operating loss of $11.6 million, an improvement compared to an operating loss of $13.6 million in the previous quarter. Non-GAP financial income for the quarter was $1.7 million, compared to a non-GAP financial expense of $6.3 million in the previous quarter, due to the relatively stable foreign currency exchange rates. Our non-GAAP tax expense was $10.5 million compared to $10.1 million in the previous quarter and $8.1 million for the same period last year. GAAP net income for the second quarter was $45.1 million compared to a GAAP net income of $30.1 million in the previous quarter and $36.7 million in the same quarter last year. Our non-GAAP net income was $72.5 million compared to a non-GAAP net income of $55.5 million in the previous quarter. GAAP net diluted earning per share was 82 cents for the second quarter compared to 55 cents in the previous quarter and 70 cents for the same quarter last year. Non-GAAP net diluted EPS was $1.28 compared to $0.98 in the previous quarter and $0.97 in the same quarter last year. Turning now to the balance sheet. As of June 30, 2021, cash, cash equivalents, bank deposits, restricted cash deposits, and investments were $1.1 billion. Net of debt, cash, cash equivalents, bank deposits, restricted bank deposits, and investments were $509.3 million. During the second quarter of 2021, we generated $38.7 million in cash from operation and continue to invest in the construction of our Sella 2 cell factory in Korea, as well as in increased manufacturing capacity with our contract manufacturers. Accounts receivable net increased this quarter to $343.7 million compared to $271.7 million last quarter. Their sales outstanding this quarter in the solar business was 76 days, an increase from 73 days last quarter, a result of higher revenues generated at the later part of the quarter and an increase in sales to large customers that enjoy more favorable credit terms in the overall mix. As of June 30, our inventory level net of reserves was at $321.9 million compared to $340 million in the prior quarter. Most of this reduction is related to finished good levels in the solar segment, while raw material decreased to a lower extent in the solar segment and slightly increased in the non-solar segment where we continue to ramp up production. Moving now to our guidance for the third quarter of 2021. We expect revenues for the third quarter of 2021 to be within the range of $520 million to $540 million. Revenues of the solar segment are expected to be within the range of $460 million and $480 million. In the third quarter, we expect to ship 25 to 30 megawatt hour of residential storage systems to the United States and Europe as we continue to ramp the manufacturing of this product. We expect non-GAAP gross margin to be within the range of 32% to 34%. Gross margin of the solar segment is expected to be within the range of 35% to 37%. I will now turn the call to the operator to open it up for questions. Operator, please.