SolarEdge Technologies, Inc.

To all sites on hold, we appreciate your patience and ask that you please continue to stand by. Your program will begin momentarily. Please stand by. Your program is about to begin. Welcome to the SolarEdge conference call for the second quarter ended June 30th, 2023. This call is being webcast live on the company's website at www.solaredge.com in the Investors section on the Events Calendar page. This call is the sole property and copyright of SolarEdge with all rights reserved, and any recording, reproduction, or transmission of this call without the express written consent of SolarEdge is prohibited. You may listen to a webcast replay of this call by visiting the event calendar page of the SolarEdge investor website. I would now like to turn the call over to J.B. Lowe, head of investor relations for SolarEdge.

Thank you, David, and good afternoon, everyone. Thank you for joining us to discuss SolarEdge's operating results for the second quarter and to June 30, 2023, as well as the company's outlook for the third quarter of 2023. With me today are Zibi Lando, Chief Executive Officer, and Ronan Fire, Chief Financial Officer. Zibi will begin with a brief review of the results for the second quarter, ended June 30th, 2023. Ronan will then review the financial results for the second quarter, followed by the company's outlook for the third quarter of 2023. 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 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 U.S. 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, 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, 2023 press release or the supplemental material may obtain a copy by visiting the Investor Relations section of the company's website. Now, I will turn the call over to Zevi. Thank you, Jamie.

Thank you, Jamie. Good afternoon, and thank you all for joining us on our conference call today. Starting with highlights of our second quarter results, we concluded the quarter with record revenues of approximately $991 million. Revenues from our solar business were at a record $947 million, while revenues from our non-solar businesses were $44 million. This quarter, we shipped 5.5 million power optimizers and 335,000 inverters. This quarter, we also shipped 269 megawatt hours of residential batteries, a 22% increase from last quarter. Our solar business revenue grew quarter over quarter by 4% and by 38% year over year, mostly driven by record revenues in Europe, offset by a decrease in revenue in the United States and rest of world. We saw record revenues in many countries this quarter, including Germany, the United Kingdom, Switzerland, South Africa, and Thailand. Particularly noteworthy is the growth we have been discussing for several quarters in the commercial segment, which has seen megawatt shift go from 1.5 gigawatt in the fourth quarter of 2022 to 2.1 gigawatt in the first quarter of this year to 2.6 gigawatt of shipments this quarter. The solar market is going through a transition, emerging from the recent period of component shortages, high energy prices, and rapid growth to one now impacted by higher interest rates and excess inventory. Given this shift, I would like to review the major trends we are seeing in the various regions and how it affects our company. In Europe, installation rates continue to be high in both residential and commercial. However, the strength in the market is somewhat more moderate than what was anticipated heading into 2023, largely due to a milder winter, reduced concerns over energy resilience, and lower electricity prices. With that in mind, our growth in Europe in the second quarter was very strong. Overall, our megawatt shipments to Europe grew by 52% quarter over quarter, including 57% in residential and 50% quarter over quarter growth in commercial. Additionally, sell-through by our distributors in the second quarter was up 49% year-over-year in residential and up 115% year-over-year in commercial. On the supply side, the distribution channels in Europe are experiencing higher than optimal inventory levels, especially as it relates to solar modules. During the recent period of shortages and expectations for high growth, distributors placed large orders for modules and inverters in order to ensure stability of supply to support the growing demand. As growth in demand has tapered off, distributors are taking a more cautious approach in order to better manage their cash flow. In addition to taking actions to reduce inventory levels, distributors are also reducing the number of suppliers in their portfolio, which had expanded during the period of shortages. This is a dynamic seen before in the industry during a shift from a period of extreme shortage and accelerated growth to a period of more gradual growth and undisturbed product availability. We expect this inventory adjustment period to continue for the next two quarters, especially when also taking into account the typical fourth quarter seasonality effect in Europe. We see this environment as an opportunity to grow market share. based on our offering that is very suitable to the growing complexity of the European grid, where dynamic tariffs and negative rates are becoming more common. To deal with this growing complexity, our customers require advanced energy management hardware and software of the sort we recently announced at Intersolar and about which I will elaborate in a few moments. Moving to the U.S. residential market. The combination of higher interest rates and the new net metering 3.0 regime in California has led to a decrease in demand compared to the second half of last year. As a result, inventories of our product in the various channels are higher than normal as they were built in anticipation of substantial market growth that did not materialize. As a result, our shipments to the U.S. residential markets were down 29% this quarter from the last quarter. Sell-through of our products by our distributors, however, actually rose by over 10% during the same period. We expect the process of inventory normalization to last at least through the end of the year. Looking into 2024, there are two market trends that we view as positive for our business. First, the expected increase of third-party ownership installations driven by the shift to lease versus loan financing a sub-segment where our market share has traditionally been higher. And second is the expected increase in storage installations, in particular the evolving NEM 3.0 battery market, where our DC-coupled system can offer up to 10% more energy on an annual basis when compared with a non-DC-optimized module-lever electronics solution. In the U.S. commercial market, we continue to see stable demand, which we expect to gradually grow as a result of lower module prices and as projects that were on hold begin to move forward. This is expected as some developers who had halted projects in anticipation of IRA clarifications related to the 10% ITC domestic manufacturing adder move forward with the project execution after realizing that IRA clarity will likely take longer than anticipated. In the rest of the world, we see a mixed picture, where some countries are experiencing headwinds due to a higher interest rate, while others, such as South Africa and Thailand, are growing rapidly due to grid instability and favorable regulatory environments. Moving to products, I now want to spend a few moments discussing the increase investments we are making across our digital solution platform, which is focused on three main pillars. First, our energy management software, known as SolarEdge One, which we recently introduced at Intersolar in Munich. SolarEdge One helps home and business owners optimize their energy production, consumption, and storage. With the proliferation of time of use and dynamic tariffs and growing attach rate of batteries, We believe this will become an increased area of differentiation for our PV plus storage solutions. Second is our installer toolkit, which is a set of tools aimed at helping our customers design, sell, install, and commission PV and storage systems in a fast and efficient manner. At REplus in September, in addition to demonstrating improvements to our already short installation and commissioning times, we will be launching our new installer proposal tool, a sophisticated step-by-step software platform to help installers be more effective when selling a PV plus battery system at the kitchen table. And third, digital infrastructure, which includes grid services and other advanced applications. In the field of grid services, our total number of enrolled sites grew by 70% in the second quarter to over 13,000 sites. In the United States, 16% of our battery installations are now enrolled in grid services programs. In the Netherlands, we launched through two electricity aggregators our first commercial grid services program aimed at grid balancing and already enrolled dozens of commercial sites into the program. We have a high number of additional enrollment requests and are looking at integrating with additional aggregators in the coming months. Another part of our digital offering is based on our acquisition earlier this year of Hark Systems, which offers commercial customers significant monitoring and connectivity capabilities across increasingly complex energy systems. While still not significant in absolute numbers and likely won't be significant for several quarters, our broad digital offering augments and solidifies our leadership in the residential, and particularly in the commercial markets. More importantly, as electrical grids become more constrained and penetration of distributed solar and other renewables increases, optimized interaction with the grid, as well as optimized energy management at the home and in the business, will be critical to the positive functionality and economics of the solar installation. We see this as an opportunity for differentiation for technology companies like SolarEdge and a key reason why we don't believe that the inverter market will become commoditized. More on the product side. We are seeing good progress with our tracker offering as we now have more than 30 megawatts of trackers either installed or in the process of installation. This new product, which is both lightweight and has a small footprint, provides access for us to new market opportunities and will initially enable us to offer a full solution to the growing agri-PV segment, which is lately receiving significant regulatory support. On the electrical vehicle charging front, we continue to supply our AC EV chargers, both the inverter-integrated and standalone versions, and to date have shipped over 45,000 units globally. As we unveiled at Intersolar next year, we plan to release our bidirectional DC EV charger that will be DC coupled, enabling greater charging efficiency through fewer AC to DC conversions. Moving to operations. We are making strides towards building out our U.S. manufacturing footprint. In the third quarter, we expect to ship several thousand inverters from our contract manufacturing partner site, with this number growing to above 30,000 inverters that we expect to ship from this site in the first quarter. More broadly, we mentioned earlier the fact that inventory levels are high for some products. However, on certain products, such as three-phase inverters in the European market, even though we increased output significantly in the second quarter, we are still delivering below demand, and thus air shipments have been required. Part of the relief in this area will be via the long-term purchase agreement we announced last week with Infineon that will help give us assurance in the availability of critical power semiconductor components in the years ahead. In our non-solar business, our Sella 2 battery factory continues to ramp and is on track to reach its full capacity by the end of this year. Additionally, we have initiated manufacturing of the type of cells that will be used in our portfolio of next-generation batteries, starting with the release of a new residential battery planned for the first half of next year. In closing, while we discuss the inventory corrections taking place, the actual PV market is continuing to grow in many places around the world. For example, Germany, one of the largest solar markets, is expected to grow from 7.5 gigawatts installed in 2022 to 10 gigawatts installed in 2023, with further growth anticipated in 2024. I believe that our portfolio and positioning within diverse markets and applications will benefit us as markets continue to grow in some areas and begin to recover in others. I will now hand it over to Honen.