SolarEdge Technologies, Inc.

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Welcome to the SolarEdge conference call for the first quarter ended March 31st, 2026. This call is being webcast live on the company's website at www.solaredge.com in the investor section of the event 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 Erica Mannion of Sapphire Investor Relations.

Good morning, and thank you for joining us to discuss SolarEdge's operating results for the first quarter ended March 31, 2026, as well as the company's outlook for the second quarter of 2026. With me today are Shuki Mir, Chief Executive Officer, Asaf Alperovitz, Chief Financial Officer, and Mir Ades, Co-Founder of SolarEdge. Shuki will begin with a brief review of the results for the first quarter ended March 31, 2026. Asaf will review the financial results for the first quarter, followed by the company's outlook for the second quarter of 2026. 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 earnings press release and our filings with the SEC for a more complete description of such risks and uncertainties. We disclaim any obligation to update any forward-looking statement. Please note, during this earnings call, we may refer to certain non-GAAP measures which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are being presented 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 press release 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 March 31, 2026 press release may obtain a copy by visiting the investor relations section of the company's website. With that, I will turn the call over to Shuki.

Thank you, Erika. Good morning, everyone, and thank you for joining our call today. Last quarter, I spoke about SolarEdge shifting from defense to offense, with 2026 being a year of transformation and acceleration for the company. Our priorities are clear, driving towards profitable growth, expanding global market share, scaling SolarEdge Nexus, and investing in high growth adjacencies, such as AI data center power. And we are doing this while maintaining the operational and financial discipline we have established. The team's morale and energy are the strongest they have been in years, and we are all aligned around improving our execution and maximizing the various opportunities ahead of us. The first aspect of our transformation is achieving profitable growth. We have been steadily growing our revenues while expanding our gross margins in recent quarters. First quarter revenue was up on a year-over-year basis for the fifth consecutive quarter, growing 46% over Q1 2025. This was achieved without a significant pull forward of revenue and was once again accompanied by expanded margins. At the midpoint of our guidance, we expect to approach break-even operating profit in the second quarter. This marks an important milestone in our transformation and reflects the relentless focus our entire team has had on operational efficiency and delivering best-in-class products and customer experience. The next area of transformation is market share gains, starting with the U.S. resi market. The market got off to a slow start this year as customers faced changes in tax credit policies and uncertainty related to FIOC. These uncertainties have slowed tax equity funding for PPOs, creating strain on installers' businesses and cash flows. Even so, we believe we are well positioned to benefit when the market rebounds since the anticipated market evolution towards the 48E tax credit and higher battery attach rates are expected to play directly to our strengths. Namely, our position as a leading provider of CPOs and our fully integrated DC coupled battery architecture. Turning to the US CNI market, where we continue to build momentum. As you know, our scalable architecture of inverters and optimizers enhances the returns for CNI rooftop projects by harvesting more energy enhancing safety, and enabling customers to benefit from tax credits with products that are designed to be both domestic content and FIO compliant. These advantages have resulted in share gains, and more specifically, in continued penetration of enterprise accounts, which come with a more stable cadence of business and improved visibility. We view this position as structural rather than cyclical. Domestic content and FIO compliance are difficult for non-US competitors to replicate quickly, and we expect this to continue to support our market share over multiple quarters. We secured additional safe harbor transactions from both Resi and CNI customers in the quarter and expect to secure additional deals in the second quarter, primarily through the physical work test method. These transactions provide several important strategic benefits. First, they increase the visibility of our potential future revenue and share gains. The associated product can be deployed for up to four years and will translate into revenue when the customers take delivery of the entire product. Second, they create a natural entry point for incremental sales. When installers complete a safe harbored solar installation that also requires a battery or an EV charger, we are well positioned to capture that upset. Third, These transactions allow us to size our operations more efficiently and support a more stable and predictable manufacturing profile over time. Next, let's turn to Europe. The market was slow in the first two months of the year, but picked up in March, a trend that continued into April, driven in part by rising electricity prices in the region. Despite the slow start, we delivered a strong first quarter in Europe. with revenue reaching its highest point since Q4 2023. The revenue growth is a result of stronger battery demand in both Resi and CNI across the region. I would like to highlight that the strength in Europe is even before we have fully ramped the exports of U.S. manufactured products and before the rollout of SolarEdge Nexus platform. Speaking of Nexus, our third area of transformation is product innovation and leadership. The SolarEdge Nexus launch event in Germany exceeded our expectations. Nearly 1,000 installers joined us in person or via the live stream, creating an atmosphere so electric you could feel it in the room. What made the moment truly powerful was our customers' reaction. Their enthusiasm wasn't just polite applause. It was genuine excitement because Nexus was built for the customer. Every feature exists because we listened closely, understood their pain points, and learned what they valued and what frustrated them in day-to-day installations and operations. Their feedback became the blueprint for Nexus, and the result is something we believe is truly special. The excitement is already reflected in the order book. Our entire planned Q2 Nexus production is fully booked by European customers, and we continue to expand capacity to meet additional demands. We believe the Nexus platform positions us at the leading edge of technology and feature innovation. It also enables us to address incremental segments of the market, including larger homes, which account for over 50% of the residential market in Germany. In addition, two weeks ago, we unveiled the second generation of our commercial battery, the CSS Outdoor 197 kWh solution. which marks another major step forward in our energy storage roadmap. This new system is purpose-built for medium- to large-scale installations, whether deployed as a standalone storage asset or paired seamlessly with PV. What sets the solution apart is the software suite, which enables multiple optimization modes for maximizing self-consumption to peak shaving, tariff optimization, and managing export and import limitations. The fourth element of our transformation is investing in AI data center power solutions. At GTC26, NVIDIA featured a live, energized 800-volt DC power rack, which reinforced that high-voltage DC power is moving from concept to infrastructure roadmap. The 800-volt DC evolution aligns exceptionally well with the technical capabilities SolarEdge has been building for 20 years. We believe this represents a multi-billion dollar addressable opportunity over time. Our plan is to deliver a walking system in 2026, initial pilot installations in 2027, and a broader rollout in 2028. Since our last call, we've continued to advance our solid-state transformer platform and have made progress toward a system capable of converting 34.5 kilovolts directly to 800-volt DC at efficiencies above 99%. To summarize, we're executing on our transformation plan. We believe we have a clear line of sight to profitable growth. We have multiple tailwinds supporting continuous global market share gains. We're moving towards high-volume shipments of new products. We're advancing our AI data center power solution. We've firmly shifted to offense, and we'll press our advantages in every market that we serve. Lastly, I would like to briefly address our CFO transition. Asaf will continue in his role through June 9th, and I would like to use this opportunity to thank him for his professionalism and commitment to the company and for all the work he has done to further our turnaround. Our CFO search is well underway with strong candidates. Our finance organization is deep. Our systems and processes are well established, and we expect no disruption to our 2026 plan or to our financial disciplines. With that, I will turn the call over to Asaf.

Thank you, Shuki, and good morning, everyone. Starting with our quarterly results, non-GAAP revenues for the first quarter were $310 million, up 46% year-over-year and down 7% quarter-over-quarter, outperforming the typical seasonal decline of 10% to 15%. This result does not include any significant one-time or pull-forward of revenue from Safe Harbor. Revenues from U.S. this quarter amounted $150 million, down 20% quarter-over-quarter, and representing 51% of our revenues. Revenues from Europe were $114 million, up 14% quarter-over-quarter, and representing 37% of our revenues. International market revenues were $38 million, up 5% quarter-over-quarter and representing 12% of our revenues. Non-GAAP gross margin this quarter was slightly up to 23.5% compared to 23.3% in Q4, towards the high end of our guidance. We achieved higher gross margins despite the lower revenue, largely due to a more favorable product mix and lower seasonal warranty costs. A brief note on tariffs. On February 20th, the U.S. Supreme Court ruled that certain tariffs imposed under the International Emergency Economic Powers Act, or IPA, were invalid. The refund submission process with U.S. Customs and Border Protection has already commenced, and we anticipate that the refunds could total approximately $55 million. These potential refunds are not included in our Q2 guidance. Non-GAAP operating expenses for the first quarter were $97.7 million. However, excluding a one-time doubtful debt expense of approximately $14 million, our ongoing operating expenses were approximately $84 million below our guidance range and down from $88.7 million last quarter. This doubtful debt is related to one of our U.S. customers, but not to Freedom Forever, which I will discuss shortly. This OPEX reduction is largely reflective of our ongoing cost control, the efficiency measures we've implemented, and our focus on our core businesses. And we are keeping our costs in check despite the continued headwinds we face from a strengthening New Israel shekel against the US dollar. A brief note on our exposure to the bankruptcy of Freedom Forever. Freedom has been a long-standing and valued partner of ours through the scale it brought to the residential solar market over the years. We have a net zero exposure on our balance sheet, as we have not recognized significant revenue from Freedom over the course of the last 18 months. During this period, payments received were first applied to a reduction in their outstanding balances. Given the uncertainty around Freedom's financial position, remaining amounts owed to us have been fully offset by a deferred revenue liability on the balance sheet throughout this 18-month period and netted to zero. We hold the UCC lien against Freedom's assets representing the amount owed to us by Freedom, which we equal approximately $100 million. We do not know what, if any, amount will be recovered, but any amount we ultimately recover would be recognized as a benefit in our P&L in the period received. Non-GAAP operating loss for Q1 was approximately $25 million. When excluding the one-time $14 million debt expense, our ongoing operating loss was approximately $11 million, flat with Q4, despite 7% lower revenue. As these results demonstrate, we are relentlessly pursuing even greater operational efficiencies as we continue to journey back to profitable growth. Our non-GAAP net loss was $26.3 million in Q1, compared to a non-GAAP net loss of $8.2 million in Q4. Non-GAAP net loss per share was 43 cents in Q1, compared to 14 cents in Q4. Both non-GAAP net loss and loss per share were also impacted by the one-time $14 million doubtful debt charge I just mentioned. Turning now to our balance sheet. As of March 31, 2026, our cash-in investments totaled approximately $583 million. During the first quarter, we generated roughly $21 million of free cash flow. Our cash-in investment increased by about $2 million in the quarter as free cash flow was partly offset by several items, the largest being a one-time non-operational $26 million payment related to a lease amendment for our new headquarters. Aligned with our efficiency measures, this amendment significantly reduces our planned footprint when we move into the new campus next year and is expected to lower our annual lease expenses by approximately $8 million. Our capital expenditures this quarter were approximately $4 million. For the full year, 2026, we anticipate capital expenditures in the range of $60 to $80 million. The main buckets of CapEx this year are, one, increased production capacity in the U.S. for both PV and batteries, two, investment in our new headquarters in Israel, largely related to advanced R&D facilities, three, investment related to our AI data center offering, and lastly, ongoing maintenance CapEx. Despite these higher CapEx, and our planned investment in working capital to support our anticipated growth and the Nexus launch, we expect to generate positive cash flow for the full year to 2026. This reflects solid underlying operating performance, continued discipline in managing expenses and capital investment, and our continued ability to monetize 45x credits which are an important contributor to our cash flow expectations. Turning to our working capital items, our rigorous focus on cash management continued to yield positive results. In Q1, our cash conversion cycle reached its fastest point in many years, driven by lower DSO and higher DPOs. And this is despite our inventory growing by $44 million, largely related to higher raw materials procurement, in support of our Nexus launch and higher battery demand. ARNet decreased this quarter to $223 million compared to $267 million last quarter, driven by our strong collection. Turning now to our guidance for the second quarter of 2026. We're expecting revenues to be within the range of $325 to $355 million. This range does not include any significant one-time pull forward of revenue. We expect non-GAAP gross margins to be within the range of 23% to 27%. This range does not include any impact from potential IPA refunds. We expect non-GAAP operating expenses to be in the range of $86 million to $91 million. For comparison, ongoing operating expenses in Q1 were $84 million, excluding the one-time pull $14 million doubtful debt charge. The midpoint of our OPEC's guidance, therefore, reflects a modest sequential increase driven primarily by the strengthening of the new Israeli shekel against the U.S. dollar net over hedging activities. At the midpoint of our Q2 guidance, the implied EBIT loss for the period is approximately $3.5 million, bringing us close to break-even. This represents a meaningful step in our focus on gradual progression towards profitable growth as we move into the third quarter. I will now turn the call over to the operator to open it up for any questions. Operator?

Thank you. If you'd like to ask a question, press star one on your keypad. To leave the queue at any time, press star two. In the interest of time, we ask that you please limit your participation to one question and one follow-up. Once again, that is star one to ask a question. And our first question today comes from Mark Straus with J.P. Morgan. Your line is now open.

Yes, good afternoon, everybody. Thank you very much for taking our questions. Shuki, I think you touched on Europe a bit. I was hoping that you could just kind of give a real-time update what you're seeing in Europe over the last couple of months, not necessarily overall 1Q, but really just since the conflict in Iran broke out, what you're seeing with power pricing, what you're seeing with kind of real-time demand in that region broadly. Thank you.

Yes, thank you, Mark. So, as we said, the first two months of the year started slow, and then since March, including April, which is part of Q2, obviously, we've seen an increased activity and increased demand coming from the region. And it's across several countries. It's not just unique to one specific country. We believe that it's partially related with the increase and the expected increase in electricity prices, as has been noted, The war in Iran impacts these prices. And what we've seen, actually, is not only an increase in demand for PV only, but actually an increase in demand for PV plus storage. And as we mentioned before, both in CNI and in Resi, we are seeing that increase. And the SolarEdge solution that actually is not only the inverter and the battery, but actually sophisticated energy management systems, that in more advanced markets where dynamic tariffs and sometimes negative tariffs may change the ROI quite significantly, that combination of a battery, inverter, and a system that manages the storage, the import, the export, and other features is very much in need. So we are seeing, as I said, stronger demand coming from the market and We're well positioned to serve it both on the CNI side with the introduction of the second generation storage solution and with the upcoming rollout of Nexus.

Okay. Then as my follow-up, I was hoping you could comment on CNI within the U.S. You mentioned that you're gaining share, which makes sense because of your DOMCON and FIOC. Just curious if you can comment on the competitive environment. If you're seeing some of your existing competitors potentially move around their operations, if you're seeing any new competitors potentially coming into that space.

Thank you.

Yes. So the US CNI, as you know, there are three leaders in the market. There have been three leaders in the market of full-stop CNI for the last several years. Out of these three, we are the only ones who can offer our customers not only a winning solution, but actually a product that is qualified for both domestic content and fear compliance. So with that, we are seeing something that is not cyclical, it's actually structural. A change that we believe will help us maintain that level of share for future quarters. Now, to the best of our knowledge, none of these two other major competitors have made any changes to their domestic content and or for one of them, the field compliance. There are obviously other players that have much lower market share that can penetrate this market, but we believe that we've established our solution not only by harvesting more energy, but actually by integrating together with the systems of enterprises which is a much more stable and predictable segment of the market. And also, and we mentioned it as well, we are in the process of securing safe harbor transactions with the larger customers, the ones who are interested in that, through the physical work test, which helps us secure future revenue and future shares as well.

Thank you. Our next question comes from Philip Shin with Roth Capital Partners. Your line is now open.

Hey, guys. Thanks for taking my question. First one is a follow-up on freedom. I think in the documents or the bankruptcy documents, they owe you guys $50 million on a credit line and then $56 million on a product debt line. What do you have... a lien on with respect to those credit facilities. In the first day of the hearing, it seems like these liens are or may be in dispute and that you may not have a lien on cash collateral. So I was wondering if you think that's true. It also seems like the company was late on making payments in Q4 and that's why you may have secured the lien. So I just was wondering if you could address if you think you're covered on the loan. And then this other $14 million expense you took, that's not freedom. Can you give us a little more color on who that might be and what the situation is there? Thanks.

Hi, Phil. How are you? Good morning and thank you for your question. As it relates to freedom, maybe I'll give some background and history. I think I related to that in the pre-paid remarks, and I think we said that we did not recognize any meaningful revenue from Freedom forever over the past 18 months. While Freedom, as you know, has been a valued customer of ours over the year, our current financial exposure to them in our books is zero. During this 18-month period, the payments that we received from Freedom were first applied to a reduction in their outstanding balances, the loan you mentioned, and so forth. And I think we've taken a very cautious approach because of the uncertainty around Freedom's financial condition. And any remaining amount owed to us by them, we have fully offset by deferred revenue liability on our balance sheet throughout this entire period. So net zero exposure. As it relates to the lien that you just mentioned, so we do hold the lien. It may allow us for some level of recovery, if any, but we are certainly not relying on that on our outlook. If anything will be received, it will be an upside. And again, we are not relying on that. I think it's also important to say, before I get to your second question, in terms of these $14 million doubtful debts, is that when we are looking ahead, we continue to believe that demand for solar and storage will be driven primarily by attractive both project and system economics, regardless of which installation companies are active in the market, in the field. Of course, the solar landscape will further evolve, and we expect more partners to choose SolarEdge, particularly as we scale out the rollout of Nexus, which we believe will strengthen our value proposition and positioning with both installers distributors and homeowners, of course Now regarding your second question about this 14 million dollar of doubtful debt that we have recognized in this quarter So it's a I just said 14 million. It's a US customer that is experiencing financial operational challenges lately and We believe, and of course, this is not freedom just to avoid any confusion. It's another customer, not related to freedom whatsoever. We are not disclosing the customer name, and we believe that given the circumstances and the financial challenges this customer is experiencing, we took a conservative and responsible approach. We've actually written down the entire amount they owe us. We do hope, of course, for their recovery. And if conditions improve in the future, if they would improve, we will reassess the situation accordingly. Did I answer your question fully, Phil?

Yes, Azad, thank you very much. I appreciate the call and detail. Sure, my pleasure.

Sure, anytime. Thank you. Our next question comes from Brian Lee with Goldman Sachs. Your line is now open.

Hey, thanks for taking the questions. I guess one question I had just around the, you know, you said for Q1 results as well as Q2 guide, there's not a significant amount of pull forward revenue, i.e., safe harbor. But you did say that there's, you know, a significant amount of, you know, physical work test safe harbor that you're seeing or anticipating. This question would be, I think your peer has had multiple straight quarters of meaningful amount of safe harbor revenue as well as what they're anticipating in the current quarter. And you guys apparently are seeing a lot more on the other classification, the fiscal work test. Is that a function of your strategy, go-to-market and sales? Is that just a function of your customers? Or is there any kind of market share implications of why your number one competitor in the U.S. resi market is seeing a lot of sort of in-period, say, fiber versus the physical. That's just curious on kind of how we should interpret that.

Good morning, and thank you for the question. I'll start, and I'm sure Shuki will shed more color on the market indication. So as we discussed in the preferred remarks, in the last couple of quarters, we have signed multiple physical workday transactions. with both leading TPOs and enterprise customers alike. We believe also that some of our existing and potential new customers may be interested in signing additional transactions before July, July 4th, that is. Also, we are in the process of closing more deals, and as I said, we believe we're very well positioned to do that with all TPOs in the market, given our key advantages. from harvesting more power, efficiencies at both high and low power, or DC coupling solutions, et cetera, et cetera. And we believe it all represents a great opportunity for us to increase market share. And clearly, as we sign such transaction, for us, it increases the visibility significantly for up to four years horizon. And it also helps us secure market share, significant market share. Phil, do you want to add any color?

Yes. So to your first point, Phil, yes. Neither Q1 revenue nor the Q2 guidance assumes any significant pull forward of revenue related to the 5% safe harbor. I think that we covered it in previous calls, but just to make sure that everybody is on the same page, the 5% safe harbor deals are transactions in which the customer is actually buying the product in the first 100 days. after the signing of the contract. And it's not necessarily for products that they're going to install in the period. This is why they're referred to as pull forward of revenue. While the physical work desk has a built-in advantage to the customers because they will complete the transaction only when they need the product. And this is when they're going to install the product. And from our perspective, as Asaf mentioned, it secures future revenue and share It does allow us to have a more efficient operation because we get predictability for customer forecasts and orders. And it does line up the revenue together with the actual purchases from the customers. Whether there are advantages and disadvantages to physical work test, we believe that and the physical work that provides better visibility for us and better in some advantages to the customers and because on the ready side we've actually we are securing the deals using the nexus platform that actually provides the level of confidence that the customers need that this is a product that will actually be modern and a leading product also in the next three to four years, and we are sharing the same view. And that allows us actually to plan forward and for them to plan forward on a system that is robust, that is here to stay, and that is about to be rolled out in the coming quarters, which was from the bottom, from the ground up, was designed to be PV plus storage plus a sophisticated energy management system. On the CNI side, as Asaf mentioned, large companies They are interested in physical workers because they have visibility into their business and what they would like to do with regard to PV. And we are best positioned to support them in that. That's the reason that you see a lot of interest in our physical workers.

Okay. Yeah, it makes a lot of sense. I'll follow up on that. Just a second question on Europe. It seems like that's going to be a source of strength going forward and you're seeing some good trends there. Can you kind of level set us a little bit? I know historically Europe's been a lower-priced environment. Based on some of our data, it seems like at least 20% lower, if not more. And then I think you also had maybe more commercial versus resi mix in Europe historically. What are kind of the pricing and margin implications for you guys as Europe maybe becomes a bigger source of the mix and outgrows some of the challenges that you're seeing in the U.S. rising market. Just any thoughts around pricing and margins specific to Europe?

Thank you, Brian. As you know, in the last several quarters, we've been excited about the potential in Europe, the potential solar edges in Europe. The region in which solar edge lost share in previous years was mainly Europe, and actually was Europe. And we see a huge potential to actually gain share both in the residential and the C&I side of the market. And in a way, we mentioned it, Q2 supply of Nexus for Europe is already all of it is booked. It's not a very large quantity, but it's all booked. And we're working very hard in order to increase the supply to support the Q3 demand. When we bring Nexus, and we talked about the launch event and the excitement and all the benefits that Nexus has, and because of that, we don't think, and we talked about it in the past, pricing is not necessarily a matter of just the price in the market, but it's also the relative advantages that one product has versus another and what it does bring to the customer. And While we've always harvested more energy, now with the energy management system that we are introducing and the dynamic tariffs and the increasing electricity prices in Europe, the benefits that are coming from a system that can actually optimize the entire energy consumption, import and export is significantly higher. And we believe that we will be able to actually have with stable pricing, we can actually gain market share. Now, as it pertains to margin, Asaf will add more color, but at the outset, we've just started exporting U.S.-made products into Europe. So the inverters and optimizers that are made in the U.S., when they are exported to Europe, will generate better margin. And Nexus, as a platform and as a product, has a better cost advantage by itself, So that will be also a tailwind for our margins.

Yeah, maybe just to add, I mean, good morning. As you know, we don't break down margins by territory or product. But to give you some color, very generally, the U.S. resi margin profile would be the highest, and the EU storage or international market storage is the lowest. But again, now that, as Shuki mentioned, we start exporting U.S. produced products to Europe, the cost structure will significantly improve. With that, of course, we work hard to also enhance the European product margin.

Thank you. Our next question comes from Julian DeMoulin-Smith with Jefferies. Your line is now open.

Hey, guys. Hey guys, good morning. Thanks for the time. I appreciate the opportunity to connect here. I wanted to just follow up maybe just on this other customer and freedom. Just to what extent, what market share do they represent with you all? What market share do they represent in the marketplace? Such that we just try to understand what that means as a headwind and understand, because I heard your comments at the end that you're saying you're on the offense. How do you think about the market sort of displacing those lost sales? Again, I'm thinking more prospectively. Obviously, you've been underweighting these customers of late, how you think about that makeshift of your own customer base evolves here. And then I've got to follow up.

Thank you. Good morning. In terms of this $14 million customer for which we have this doubtful debt provision, I can say that for the last three quarters or so, we had very low revenue from them reported in the book. So no direct impact, I would say. And we believe that generally there's no vacuum in the market. So certainly new potential players in the solar will get in. And I think as Shuki and I mentioned, considering the nexus, the rollout, and our significant advantages, we believe that we are best positioned to gain market share with such players. Shuki, do you want to add anything?

Yeah, we do recognize, Julian, it's a good point, and we do recognize that these two valued partners of ours, we wish they would do better, they would recover, and they would come back to be loyal partners with SolarEdge. The demand is fulfilled by the channel, and it's coming from homeowners, TPO's, and CNI customers, and the advantages that we deliver to them and to the installers are such that we believe will help We'll convince others that they would like to join the SolarEdge installation group. But we do hope that these partners of ours do recover and that they go back to install many, many SolarEdge systems.

Got it. Excellent. And then maybe taking more of the offensive step, how do you think about coming back later this year providing some sort of analyst-day-like view and providing some sort of presumably multi-year view on not just Resi but also the CNI? and perhaps some novel products here. How do you think about kind of giving a full-flesh and full-throated view on some of the emerging end markets, but also product portfolio here, just to make sure we've asked explicitly?

Yes, thank you. As you know, and I talked about it, Asaf has been a great partner of mine, and we're making good progress with the CFO transition, and we do plan to have an investor day next, after Labor Day. And on that day, obviously, we will have the new CFO. May will join us, and I will be there as well. Hopefully, you guys will be able to join us as well for something that will be a bit longer term and a bit deeper than what we can do on a quarterly one.

Thank you. Our next question comes from Chris Dendrinos with RBC Capital Markets. Your line is now open.

Yeah, good morning. Thanks. I just wanted to follow up on the comment on, you know, picking up more installers. And I guess what I'm wondering is, can you speak to, you know, adding new customer bases, new customers with that transition to TPO and 48E? You know, are you in conversations at a new group? Thanks.

Thank you, Chris. We've always been in conversations with different installers in the market. We do see an uptick in their interest in working with SolarEdge with the upcoming Nexus. And we believe that installation companies, their business is around identifying what the market needs and then being able to deliver that to the market. So obviously, we're in discussions with different groups and different installation companies. And we believe that once the demand for the SolarEdge solutions is out there, there will be installation companies that will be able to actually install them and bring that value to the customers.

And then maybe just as a follow-up here, on Europe, you highlighted growing demand strength in Germany. Are there other regions where you're seeing similar strength? Or is this maybe... more isolated to Germany. Thanks.

Yeah, so what we said about Germany was actually that we're seeing some strength in March and April, but also Nexus is actually opening a new segment for us that is about 50% of the market, which is the large homes and large installations that are above the 10 kilowatts. We're also seeing an increase in demand for upsells to existing installed base in the Netherlands and in other countries as well. In the Netherlands, it's more pronounced, obviously, because of the very large installed base that we have and the benefits that homeowners over there are going to have if they do that ahead of the January 1st expiration of the feed-in tariff. We also see in Italy, we have a strength in the commercial storage. So, as we mentioned in the previous call, we have focused our energy attention and go-to-market motion into, I would say, 10 countries in Europe. And in all of them, we are seeing that the demand is picking up and there is interest in partnering with SolarEdge. One other segment that we can actually address with Nexus that we didn't mention before is the new build. In different countries, in different states, actually, in the U.S. as well, there are incentives for builders if they do include the system over there. And there is a variation of Nexus that is actually very attractive for that segment of the market as well.

Thank you. Our next question comes from Colin Rush with Oppenheimer. Your line is now open.

Thanks so much, guys. You know, could you talk about remaining inventory in the channel that you guys still see clearing out or, or any of that that that may be a little bit of admin here over the next couple quarters?

Yeah, thank you, Colin. So, as we said in previous calls, the vast majority of our distributors in Europe have already resumed normal levels of inventory. And as you know, days of inventory in the channel is a result of the amount of inventory divided by the by the sales. And when sales are picking up, actually, what you're seeing is that the days of inventory, by definition, are going down. So that situation has not changed, if at all. It's even improved a little bit. But as we said before, when we talk about normalized levels of inventory, they'll give and take, ins and outs, et cetera. Sometimes one distributor can have a bit too much, and another distributor can have a bit too little. So when we look at it from a market perspective, from a company's perspective... Our channel inventory is normalized. And I'd like to emphasize that as we move into the single SKU concept, it will allow our distribution partners to carry much less inventory in order to fulfill the very same sales. Actually, one could say to fulfill even more sales because they will have to have only one type of inverter for the single phase or for the three phase, as an example, or for the CNI. And that will support different levels of power. as opposed to the four or five different fields that they had to carry before. And we are working with them through this transition, so hopefully we'll see the channel inventory even becoming healthier in the future.

Excellent. And then following up on the data center opportunity, can you just give us a current status on where you're at from a product development perspective in terms of kind of subunits or subsystems within the product, how mature that is, where you're at with testing? at this point and when we could see a little bit more robust product announcement from you guys.

Hi, thanks for the question. Basically, what we're doing these days is preparing prototypes which we could share with hyperscalers and potentially hyperscalers, Neocloud's potential customers. We're planning on showing it off proof of concept towards the end of this year so that we could then have pilot plans at their data centers throughout next year leading to ramp up and mass deployment in 2028.

Thank you. Our next question comes from Corrine Blanchard with Deutsche Bank. Your line is now open.

Hey, good morning, Tim. Thank you for taking my question. Maybe one thing I wanted to clarify. We have heard from some of your peers about price cuts. Is it a strategy that you have also been implementing or that you intend to implement, or are you in a different state of first in the market?

Yes, thank you. So we have not implemented the price cuts, and as I mentioned before, we believe that value is reflected in the price. It's not necessarily a cost-plus model. And we believe that with the value that we bring to the customers, that both in terms of the CNI side with the storage and the energy management over there and in the resi side with Nexus that has a much, much better performance in low power and high power versus competition, we feel confident that we can gain share while keeping this premium over competition. At the same time, the market is dynamic, and if we see a need to change it, as I mentioned earlier, the Nexus and the products that are made in the U.S. allow us some room. They are lower-cost products, and that will allow us some room to move if we need to.

Thank you. Maybe another one on battery. I mean, your battery shipments were pretty strong this quarter, especially, again, if we compare versus some of your peers. Can you just talk again, how do you view that trend to continue for the rest of the year? And, you know, maybe if you have a different view, Europe versus the U.S., that would be helpful. Thank you.

Yes. Generally speaking, and talking about the market in general, you see a touch rate of storage to PV going up and to the right, I would say, in almost every segment and almost every state or country. Some of them are very advanced. In some places, you have more than 90% attach rate, like NEM3 installations in California, and some of them are still early on in their advancement toward higher attach rates. So, having a battery, you can have a battery as a standalone as well, or a CNI battery can be a standalone as well, but the combination of PV plus battery allows, in a dynamic rate environment, it allows for a much, much higher return on investment if it's managed well. And I'll give you just one example. If at noon the rates are very low, or sometimes negative, and at night the rates are high, it would make sense that you charge the battery from the solar during lunchtime. And then when the night comes and it's peak hour and the rate is high, you'd use the battery in order to power your house or your business. And that requires, it's not that sophisticated the way I explained it. In some cases, it becomes a little bit more sophisticated because we need to predict what the solar production is going to be next day and what the rates are. But having that system in place actually increases the ROI quite significantly. And the benefit that SolarEdge has, we mentioned it earlier as well, is higher efficiency in low power. And most people don't realize it, but most of the time their houses are operating on one or two kilowatts and even less. And the round-trip efficiency of SolarEdge Nexus is higher than competition in that regard as well.

Thank you. Our next question comes from Mahit Landloy with Mizuho. Your line is now open.

Thanks for the questions. Maybe just in the U.S. solar market and how much of the guidance in Q2 kind of embeds that or U.S. market in general and how to think about the progress here in Q3, Q4 for solar specifically outside of the Nexus platform?

Yeah, so thank you, Muhit. And if I understood you correctly, you're asking about how does the resi-US market dynamics, how are they affecting our Q2 guidance?

Yeah, as in resi and commercial combined, yeah. But like you said, I don't understand the mix for US and Q2 and how to think about that in Q2, Q4.

Thanks. Yeah, so obviously, as we said, the resi market in the US started the year slower than anticipated even because of the slowdown in tax equity investment. We hope that this situation is resolved one way or another in the coming months, and then we believe that the market is going to be stronger. For Q2, we didn't assume that the market is going to be stronger. On the CNI side, the market continues to be in a good shape. And we are seeing, as we said earlier, we are seeing structural change that is leading towards our share. And we expect that to continue, actually.

And I think, hi, good morning. I think you also asked about to give some color beyond Q2. So, as you know, we do not provide guidance beyond the next quarter. With that, what we can say and what we believe is that we do have an opportunity to continue growing, certainly in Q3. supported by our market share momentum, the continued rollout of Nexus, the introduction of the new CNI battery storage solution, and all of these things Shuki mentioned. So that's as much as color that we can provide for the longer term.

Appreciate it.

Thank you. Thank you. And we'll go next to Vikram Bagri with Citi. Your line is now open.

Hi, good morning, everyone. I wanted to go back to the challenges faced by customers in the U.S. I was wondering how much stress are you seeing in the U.S. market? We have one bankruptcy announced and one doubtful expense. We have a fair idea about who it might be. Are you seeing the situation get worse due to capital costs and availability issues? Is this stress something that you foresee could accelerate after, say, Farber expiration date? And I asked because you saw this Freedom Forever issue seems like coming from a mile away and you managed to balance sheet very well. I was wondering how many more customers are you monitoring for such issues? Is that a meaningful number?

So maybe I'll start and then we can provide some more business market indications. We have a very solid team here at Treasury, and we always, of course, look and review, and we have certain processes and procedures to ensure we manage our customers' credit very well. I think that beyond this, thank God, we don't see major exposure, not in the U.S., or I would say globally. Of course, from time to time, things may change, and sometimes you have unexpected surprises. But generally, I would say we don't see... significant exposure related to any of our significant or major customers globally.

Yes, I just would add to that, that as we said earlier, the market dynamics are right now, there is the concern about the slowdown of tax equity investment. We believe that the underlying demand for solar plus storage systems exist. It does add value to many homeowners around the U.S. The TPO and other providers are going to find a way to deliver that value to these customers. And whether it will be with these type of investors or other types, we believe that they will find a way. And once they do, once the market rebounds, SolarEdge is very well positioned to benefit from it. We are the natural partner for the TPO. The battery, the increased attach rate for batteries and solar is something that plays to our strength. So we are, when we look beyond the current quarter, we believe that we can see the growth resumes.

Got it. And then switching gears, are you on track to onshore residential inverted and optimize the production to the U.S. by 2Q? And I think the target was mid-year, if you can update us about the timing, since it's a meaningful driver of 45 benefits and hence the gross margins. Try to understand how much of that onshoring is baked into second quarter guidance and how much of that shows up in third quarter. Thank you.

Yeah, so onshoring of manufacturing, and we said it before, we've ramped up our manufacturing. We have a manufacturing facility through our partners. We're working with Jabil and Flex. So with our partners, we have manufacturing facilities in Tampa, in Florida, in Austin, Texas, and in Salt Lake City. All three manufacturing facilities are already ramped. U.S. demand was actually served by domestic manufacturing since last year. And as we said in our previous call, we started exporting U.S.-made products to Europe and to Asia. And we are continuing in that trend going into the second quarter. At this stage, I would say for inverters and optimizers, more than 90% of our production is made in the U.S.

Thank you. At this time, we've reached our allotted time for questions. I'll now turn the call back to Shuki Nir for closing remarks.

Yes, thank you for your interest in SolarEdge and joining our call today. I would also like to thank the SolarEdge team for their continued commitment, and we look forward to updating you in future quarters. Thank you very much.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation You may now disconnect