SolarEdge Technologies, Inc.

Hello and welcome to the SolarEdge conference call. For the third quarter ended September 30th, 2024. This call is being webcast live on the company's website at www.solaredge.com and the investors section on the events calendar page. This call is self-property and copyright of SolarEdge with all rights reserved in any recording, reproduction, or transmission of this call without the expressed written consent of SolarEdge is prohibited and 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. Please begin.

Thank you, and good afternoon. Thank you for joining us to discuss SolarEdge's operating results for the third quarter ended September 30, 2024, as well as the company's outlook for the fourth quarter of 2024. With me today are Roden Feier, Interim Chief Executive Officer, and Ariel Peratt, Chief Financial Officer. Ronen will begin with a brief review of the results for the third quarter ended September 30th, 2024. Ariel will review the financial results for the third quarter, followed by the company's outlook for the fourth quarter of 2024. 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, the slides posted on our website ahead of this call today, and our filings with the SEC for a more complete description of such risks and uncertainties. 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 presented in this presentation, because we believe that they provide investors with a means of evaluating and understanding how the company's management evaluates the company's operating performance. Reconciliation of these measures can be found in our earnings release, presentation, and SEC filings. 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 September 30, 2024, press release or the supplemental material may obtain a copy by visiting the Investor Relations section of the company's website. I will now turn the call over to Ronen.

Thank you, JB, and thank you for joining our call. As you are well aware, SolarEdge is going through a transition. Eighteen months ago, the market and the company were on an accelerating growth trajectory driven by record demand and outlook. Market dynamics changed abruptly, leading to high inventory levels, both in the channels at its solar edge, and the recovery from this situation has been longer than we anticipated. This current situation is challenging and requires us to delve into every aspect of our business and change the trajectory that the company has been trending over the past five quarters. While going through the transition period, we do not lose sight of the many strengths that SolarEdge has to offer to the renewable energy market, nor of the opportunities that lay ahead of us. SolarEdge's strengths are many. Our technology, which includes cutting-edge, homegrown software capabilities and cybersecurity, positions us well to lead the rapidly changing energy market. This leadership requires relentless innovation in highly sophisticated technologies in order to provide the most advanced, robust, and cost-efficient solutions. In addition, our DC-optimized architecture is ideally suited for all segments of the solar market from residential to small-scale utility due to its scalability. Lastly, our last install base represents a significant opportunity for additional revenues from inverter upgrades to addition of storage, EV chargers, integration with heat pumps, and software-based services. Enabling and powering all of these strengths is our people. We have an extremely dedicated and talented team of innovative thinkers that are passionate about shaping the renewable energy landscape through a proven track record of technological disruption. We believe our opportunities are numerous. The PV market is still in its early stages with relatively low rates of penetration in many areas. As demand for energy increases, More sophisticated technological products offering superior power management, efficient storage solutions, and state-of-the-art software for energy management are needed. Our technology excels in all of those applications. In addition, we expect that manufacturing credits that we generate under Section 45X will allow us to efficiently compete with the low-cost products at very attractive margins for us after we consume the existing inventory. We believe that this advantage will significantly improve our ability to regain share and continue to develop new technologies with lower cost structures. In order to capitalize on these strengths and address these opportunities, we have identified three major priorities to put us back on a profitable growth trajectory. The first priority is to achieve financial and organizational stability. recapture market share, and third, refocus on our core businesses. From a financial stability perspective, our first and most important objective is free cash flow generation. In order to achieve this, we are taking steps to optimize working capital, reduce spending, and boost operational efficiency. Our initial steps have already started to positively impact our financial results. In the third quarter, our free cash use was approximately $75 million within our expected range and down significantly from the approximately $140 million used in the second quarter. This is despite of our continued investment in growing our U.S. manufacturing footprint, which we expect will be a significant driver of profitability in the years ahead. This quarter, we consumed approximately $95 million of finished good inventory net, Inventory consumption will continue to be a source of cash in the next few quarters as the majority of the inventory needed for a non-U.S. market is already manufactured and paid for. Our intention is to return to an inventory level that is essentially representing 90 inventory days by the end of 2025. Also, as announced this week, we successfully sold our first 45X credits in the amount of approximately $40 million, related to our US production in the first half of 2024. We generated a higher amount of 45X credits from our manufacturing in Q3 alone, and we expect to sell them over the next few months. With the recently released treasury clarifications confirming our ability to claim the full 11 cents per watt on DC optimized system, we expect to generate higher volumes of credits in Q4 2024 and in 2025. We're also reiterating our timeline to return to positive cash generation by the first half of 2025 and expect a free cash use in the fourth quarter this year to be within minus $20 million to neutral. Financial stabilization also includes relentless focus on operational efficiency to drive a return to consistent profitability. We've had to make tough decisions in the beginning of the third quarter making additional headcount and expense reductions. Controlling operation expenses is an ongoing reality in this current environment. We will continue to take cost-saving measures by focusing on core projects, concentrating our global footprint on profitable markets, and exiting non-strategic markets and product lines. We will continue renegotiating suppliers and logistic contracts and reducing corporate spending. At the same time, we will continue to invest in the development of new products and new technologies that we believe will drive the company's success in the years to come. Lastly, on stability, our CEO selection process is ongoing and we expect to announce the board decision before the end of this year. Our second key priority is recapturing market share. Our high inventory of European products even after the write-downs and impairments that Ariel will discuss are a result of a decrease in European demand and inventory build-up in the distribution channels. That said, this inventory has already been paid for and allows us to launch aggressive share recapturing measures. Last week, we rolled out price reductions and promotions in Europe and international markets, which will allow us to better compete and reduce the pricing gap with our low-cost competitors. We believe that these price levels, in conjunction of the 45x manufacturing credits and the rollout of next generation product, which will carry significantly improved cost structures, will enable us to return to our historic gross margin levels of over 30% once existing inventory is consumed. These price actions are taking a toll in the short term by requiring us to take inventory write-down and also by generating lower revenues and gross margins for the next two quarters. We expect this period will be defined by continued inventory clearing from our distribution channels, lower seasonal installations, and lower shipments to our due to their move toward the policy of higher inventory turns. As such, we believe that we will see pickup in the demand as a result of our price reductions and promotion campaigns starting in the second quarter and more meaningfully, in the second half of 2025. Our share-taking effort is also important, as we expect that our new products scheduled to be released in 2025 will enjoy lower cost structures and address the changing needs of the markets towards higher installations and higher storage attachments. This brings us to our third key priority, which is refocus on our core solar and storage businesses. We are strategically evaluating our business units, product portfolio, and geographical presence and intend to focus on areas where we see long-term potential for profitability and have a distinct competitive advantage. We've already taken some steps along these lines. First, just last month, we divested our automation machines business that was acquired as part of the SMRE acquisition in 2019, and we will continue to evaluate both core and non-core assets for further rationalized costs and improved profitability. Second, we've already standardized our North American residential portfolio to a single SKU that will serve all system sizes, which has resulted in more streamlined manufacturing process and improved efficiencies across supply chain, logistics, inventory management, and service. We intend to extend this SKU simplification to our European and international businesses as we roll out our next generation products starting next year. Lastly, the suite of next generation products that we intend to roll out within the next several years are keenly focused on our core competencies of solar, storage, and energy management solution. This will be the first residential, solar, and storage product line expansion that SolarEdge has undertaken in several years. and will represent a further leap in our leading edge PV and battery storage technology from both cost and reliability aspects. These next generation products and those that will follow them will all be designed to be manufactured on our proprietary automated assembly lines, which will reduce labor costs and increase quality. We are extremely focused on the execution of these important activities, and I'm confident that these priorities of financial stability, recapturing market share, and focus on the core will be the key drivers in solar's recovery and return to profitability. I will now turn to review the results of our third quarter of 2024. We concluded the quarter with approximately $261 million in revenue. Revenues from our solar business were approximately $248 million, while revenues from our non-solar businesses were approximately $13 million. This quarter, we shipped 1.85 million power optimizers, 58,000 inverters, and 189 megawatt-hour batteries. Our sell-through for the quarter was approximately $450 million, down 13% from the second quarter, primarily a result of promotions implemented at the beginning of the second quarter. On a megawatt basis, sell-through of our products were similar to the second quarter. Moving on to the regions, our U.S. business continued to strengthen as we saw in second quarter. As sell-through in the U.S. residential space grew 8% quarter over quarter, in the U.S. commercial segment, sell-through was up 15%, underscoring the competitive advantages that we have in rooftop CNI through the scalability of our product, which we believe will only be enhanced once we begin shipping domestically produced commercial inverters in Q1 2025. As expected, inventory channels in the United States were largely normalized by the end of the third quarter. In Europe, the market continues to be weak, as we have been describing since the beginning of the year. Sell-through for our residential products on a dollar basis was down 34%, while commercial sell-through was down 26%, mainly a result of our promotions. Here, we are focused on continuing to clear the channel through price reductions and promotions as I discussed above. Moving to operations. In our Austin, Texas facility, we manufactured over 500 megawatts of single-phase inverters in the third quarter and expect to increase this space meaningfully in the fourth quarter given the substantial demand for domestic content products. Our Florida facility continues to ramp and is on track to reach production capacity of 2 million domestic optimizers per quarter in Q1 2025. We also intend to start producing commercial inverters and optimizers as well as domestic residential batteries in Q1 2025. To summarize my remarks, we're all well aware of the challenges the market and our situation have laid in front of us. However, we are confident that our continued efforts and focus on execution will allow us to get back on a trajectory of profitable growth, and we will continue to update you on our progress in this direction. I will now hand the call over to Ariel. Ariel, please.