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DATE

Wednesday, May 6, 2026 at 8 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Yehoshua Nir
  • Chief Financial Officer — Asaf Alperovitz
  • Chief Product Officer — Meir Adest

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TAKEAWAYS

  • Revenue -- $310 million, up 46% year over year and down 7% from the previous quarter, with no material safe harbor pull-forward included.
  • Gross margin (non-GAAP) -- 23.5%, a slight sequential increase from 23.3%, attributed to favorable product mix and lower seasonal warranty costs.
  • U.S. revenue -- $150 million, representing 51% of total revenue and declining 20% sequentially.
  • Europe revenue -- $114 million, 37% of total revenue, and up 14% from the previous quarter.
  • International revenue -- $38 million, 12% of total revenue, increasing 5% from the previous quarter.
  • Non-GAAP operating expenses -- $97.7 million; ongoing expenses were approximately $84 million, excluding a $14 million one-time doubtful debt from a single U.S. customer.
  • Doubtful debt -- $14 million charge recognized for a non-Freedom Forever U.S. customer currently facing significant financial challenges.
  • Freedom Forever exposure -- Net zero balance sheet exposure; "remaining amount owed to us has been fully offset by a deferred revenue liability on the balance sheet throughout this 18-month period and netted to 0."
  • Operating loss (non-GAAP) -- $25 million; ongoing loss was $11 million when excluding the one-time doubtful debt, remaining flat sequentially despite lower revenue.
  • Net loss (non-GAAP) -- $26.3 million; net loss per share was $0.43, compared to $0.14 in the previous quarter, both impacted by the $14 million doubtful debt.
  • Cash and investments -- $583 million at quarter end; cash increased by $2 million even after a $26 million lease amendment payment, with $21 million in free cash flow generated during the quarter.
  • Capital expenditures -- $4 million for the quarter; full-year 2026 expected between $60 million and $80 million, focused on U.S. capacity, new Israeli headquarters, AI data center initiatives, and maintenance.
  • Channel inventory Europe -- "The vast majority of our distributors in Europe have already resumed normal levels of inventory," with further reduction expected due to the transition to a single SKU concept.
  • U.S. manufacturing -- Over 90% of inverters and optimizers now produced domestically, fueling margin tailwinds and enabling exports to Europe and Asia.
  • Potential IEEPA tariff refund -- Opportunity for approximately $55 million in refunds following a Supreme Court ruling; not included in Q2 guidance.
  • Q2 revenue guidance -- Expected between $325 million and $355 million, with gross margin of 23%-27%.
  • Nexis platform -- Entire Q2 production is fully booked by European customers; demand exceeds current capacity, opening access to larger homes accounting for over 50% of the German residential market.
  • Commercial battery launch -- Introduced second-generation CSS outdoor 197 kWh system for medium to large installations, with software supporting multiple operational modes.
  • AI data center power roadmap -- Targeting initial system delivery in 2026, pilots in 2027, and broader rollout in 2028; pursuing high-voltage DC solutions with greater than 99% conversion efficiency.
  • Operating expense guidance -- Q2 non-GAAP operating expenses projected between $86 million and $91 million, reflecting currency headwinds from the Israeli Shekel.
  • Cash conversion cycle -- Improved to fastest level in many years, driven by lower days sales outstanding and higher days payables outstanding, despite a $44 million inventory increase for Nexis and battery demand.

RISKS

  • Non-GAAP net loss and loss per share widened quarter over quarter, both impacted by a $14 million doubtful debt expense for a financially distressed U.S. customer.
  • The market got off to a slow start this year as customers face changes in tax credit policies and uncertainty related to FEOC. These uncertainties have slowed tax equity funding for TPOs, creating strain on installer businesses.
  • Freedom Forever bankruptcy represents loss of a valued distribution partner and uncertainty regarding asset recovery, though net exposure is zero; management stated, "We do not know what, if any, the amount will be recovered."
  • Management noted continued headwinds from a strengthening New Israeli Shekel against the U.S. dollar, pressuring ongoing operating expenses.

SUMMARY

SolarEdge Technologies (SEDG 4.92%) reported non-GAAP revenue growth of 46% year over year, driven by expanded European demand and battery sales, while U.S. revenues fell sequentially and overall margins improved slightly. Management highlighted a fully booked Nexis platform launch in Europe, substantial progress on AI data center power initiatives, and structural market share gains in U.S. commercial and industrial segments due to compliance advantages. Free cash flow remained positive, and management anticipates positive cash flow for the full year amid significant capital investments; guidance suggests near-breakeven EBIT in Q2 as expenses and revenues trend upward. Non-GAAP net losses widened due to a one-off $14 million doubtful debt expense, and tariff refunds from IEEPA litigation could represent a future cash inflow not yet included in guidance.

  • Management confirmed, "we have not implemented the price cut," maintaining a premium product strategy in a dynamic market.
  • Demand in Europe increased in March and April, with multiple countries contributing beyond Germany, and further growth anticipated as dynamic tariffs and electricity prices rise.
  • Channel inventory normalization was reported, with new single-SKU inverters expected to further reduce distributor inventory requirements across phases.
  • The company holds secured UCC liens for amounts owed by Freedom Forever, but does not rely on asset recovery for forward-looking projections.
  • SolarEdge Technologies affirmed all three U.S. manufacturing facilities are operational, with more than 90% of inverters and optimizers produced domestically, and exports to Europe already underway.
  • Nexis platform and second-generation commercial battery solutions are cited as catalysts for market share increases, especially in Europe and enterprise commercial and industrial customers.
  • AI data center prototypes for hyperscalers are scheduled for proof-of-concept demonstrations by year-end, with pilots planned for 2027 and full deployment by 2028.
  • An Investor Day is planned for after Labor Day to provide a multi-year outlook and deeper strategic insight following the CFO transition.

INDUSTRY GLOSSARY

  • Safe harbor: A regulatory method allowing solar project developers to lock in tax credit eligibility by either making an upfront purchase of equipment (5%) or initiating construction (physical work test), affecting revenue timing and visibility for suppliers.
  • FEOC (Foreign Entity of Concern): U.S. regulatory designation that restricts use of components or materials from certain countries, with compliance required for access to specific tax credits and incentives.
  • TPO (Third party owner): Companies that own and operate residential or commercial solar systems, typically leasing them to end customers while capturing tax incentives.
  • DC-coupled battery architecture: Energy storage configuration in which the battery is connected on the direct current side of the inverter, offering installation and efficiency advantages.
  • CSS (Commercial storage solution): SolarEdge Technologies' product line for large-scale battery installations, featuring modular designs and advanced energy management software.
  • SKU (Stock keeping unit): Inventory management identifier; the transition to "single SKU" allows for a universal inverter per phase, reducing complexity in the distribution channel.
  • UCC lien: Legal claim filed under the Uniform Commercial Code against a debtor's assets, offering the creditor potential priority in bankruptcy proceedings.
  • IEEPA: International Emergency Economic Powers Act, under which tariffs were previously imposed; recent U.S. Supreme Court decision revokes certain tariffs and may trigger refund claims.
  • 45X credit: U.S. advanced manufacturing production tax credit under the Inflation Reduction Act, referenced as a positive driver for SolarEdge Technologies' cash flow.

Full Conference Call Transcript

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 statements.

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 the 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.

Yehoshua Nir: Thank you, Erica. 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 Nexis 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 breakeven 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 face changes in tax credit policies and uncertainty related to FEOC. These uncertainties have slow tax equity funding for TPOs, creating strain on installer businesses and cash flows. Even so, we believe we are well positioned to benefit when the market rebound since the anticipated market evolution towards the 48E tax credit and higher battery attach rates are expected to play directly to our strength. Mainly, our position as the leading provider to TPOs and our fully integrated DC-coupled battery architecture. Turning to the U.S. C&I market, where we continue to build momentum.

As you know, our scalable architecture of inverters and optimizers enhances the returns for C&I rooftop projects by harvesting more energy, enhancing safety, and enabling customers to benefit from tax credit with products that are designed to be both domestic content and FEOC compliant. These advantages have resulted in share gains 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 FEOC compliance are difficult for non-U.S. competitors to replicate quickly. And we expect this continue to support our market share over multiple quarters.

We secured additional safe harbor transactions from both resi and C&I 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 products can be deployed for up to 4 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 harbor solar installation that also requires a battery or an EV charger, we are well positioned to capture that asset.

Third, these transactions allow us to size our operations more efficiently and support the most stable and predictable manufacturing profile over time. Next, let's turn to Europe. The market was slow in the first 2 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 C&I across the region.

I would like to highlight that the strength in Europe is even before we have fully ramped the export of U.S. manufactured products and before the roll out of SolarEdge Nexis platform. Speaking of Nexis, our third area of transformation is product innovation and leadership. The SolarEdge Nexis launch event in Germany exceeded our expectations. Nearly 1,000 installers joined us in person of or via the live stream, creating an atmosphere so electric you could feel it in the room. What's made the moment truly powerful was our customers' reaction. Their enthusiasm wasn't just polite applause, it was genuine excitement because Nexis 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 Nexis and the result is something we believe is truly special. The excitement is already reflected in the order book. Our entire planned Q2 Nexis production is fully booked by European customers, and we continue to expand capacity to meet additional demand. We believe the Nexis platform positions us at the leading edge of technology and future 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, 2 weeks ago, we unveiled the second generation of our commercial battery, the CSS outdoor 197 kilowatt-hour solution, which marks another major step forward in our energy storage road map. This new system is purpose built for medium to large scale installations, whether deployed as a stand-alone storage asset or paired seamlessly with PV. What sets the solution apart is the software suite, which enables multiple optimization mode from 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 road map. The 800-volt DC evolution aligns exceptionally well with the technical capabilities SolarEdge has been building for 20 years. We believe this represents a multibillion dollar addressable opportunity over time. Our plan is to deliver a working system in 2026, initial pilot installations in 2027 and a broader roll out in 2028. Since our last call, we've continued to advance our solid-state transformer platform and have made progress toward the system capable of converting 34.5 kilovolt 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 continued global market share gains. We're moving towards high-volume shipments of new products. We're advancing our AI data center power solutions. We firmly shifted to offense and will 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 9, 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, also our financial discipline. With that, I will turn the call over to Asaf.

Asaf Alperovitz: 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 onetime or pull forward of revenue from safe harbor. Revenues from U.S. this quarter amounted to $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 Markets revenues were $38 million, up 5% quarter-over-quarter and representing 12% of our revenue.

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 20, the U.S. Supreme Court ruled that certain tariffs imposed under the International Emergency Economic Powers Act or IEEPA, were invalid. The recent submission process with the 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 onetime 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 faced from a strengthening New Israeli Shekel against the U.S. dollar. A brief note on our exposure to the bankruptcy of Freedom Forever.

Freedom has been a long-standing and valued partner of ours, and we appreciate the scale they brought to the residential solar market over the years. We have a net 0 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, payment received were first applied to a reduction in their outstanding balances. Given the uncertainty around Freedom's financial position, remaining amount owed to us has been fully offset by a deferred revenue liability on the balance sheet throughout this 18-month period and netted to 0.

We hold the UCC lien against Freedom's assets, representing the amounts owed to us by Freedom, which will equal approximately $100 million. We do not know what, if any, the 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 onetime $14 million doubtful debt expense, our ongoing operating loss was approximately $11 million, flat with Q4 despite 7% lower revenue. As these results demonstrate, we're relentlessly pursuing give us greater operational efficiency 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 $0.43 in Q1 compared to $0.14 in Q4. Both non-GAAP net loss and loss per share were also impacted by the onetime $14 million doubtful debt charge I just mentioned. Turning now to our balance sheet. As of March 31, 2026, our cash investments totaled approximately $583 million. During the first quarter, we generated roughly $21 million of free cash flow.

Our cash and investments increased by about $2 million in the quarter, as free cash flow was partially offset by several items, the largest being a onetime nonoperational $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 million 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 this higher CapEx and our planned investment in working capital to support our anticipated growth and the Nexis launch, we expect to generate positive cash flow for the full year 2026. This reflects solid underlying operating performance, continued discipline in managing expenses and capital investment and our continued ability to monetize 45x credit 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 Nexis launch and higher battery demand. AR net decreased this quarter to $223 million compared to $267 million last quarter, driven by a strong collection. Turning now to our guidance for the second quarter of 2026. We're expecting revenues to be within the range of $325 million to $355 million. This range does not include any significant onetime 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 IEEPA 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 onetime $14 million debt charge. The midpoint of our OpEx guidance, therefore, reflects a modest sequential increase, driven primarily by the strengthening of the New Israeli Shekel against the U.S. dollar, net of our 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 breakeven.

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?

Operator: [Operator Instructions] And our first question today comes from Mark Strouse with JPMorgan.

Mark W. Strouse: 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 kind of real-time demand in that region broadly?

Yehoshua Nir: Yes. Thank you, Mark. And so as we said, the first 2 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 around -- across several countries. It's not just unique to one specific country. We believe it's partially related with the increase and the expected increase in electricity prices as you 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 increasing demand for PV plus storage and as we mentioned before, both in C&I 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 system 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, export and other features is very much in need.

So we are seeing, as I said, stronger demand coming from the market, and we are well positioned to service both on the C&I side with the introduction of the second-generation storage solution and with the upcoming rollout of Nexis.

Mark W. Strouse: Okay. And then as my follow-up, I was hoping you could comment on C&I within the U.S. You mentioned that you're gaining share, which makes sense because of your Dom Content and FEOC. 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?

Yehoshua Nir: Yes. So the U.S. C&I, as you know, there are 3 leaders in the market. There have been leaders in the market of rooftop C&I for the last several years. Out of these 3, we are the only ones who can offer our customers not only a winning solution, but actually something that -- a product that is qualified for both domestic content and FEOC 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 the quarters.

Now to the best of our knowledge, none of these 2 other major competitors has made any changes to the domestic content and/or one of them in the FEOC compliance. Other -- there are obviously other players that have a 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 that who are interested in that through the physical work test, which helps us to secure future revenue and future share as well.

Operator: Our next question comes from Philip Shen with ROTH Capital Partners.

Philip Shen: First one is a follow-up on Freedom. I think in the documents or the bankruptcy docs, they owe you guys a $50 million on 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 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?

Asaf Alperovitz: Thank you for your question. As it relates to Freedom, maybe I'll give some background history. I think I related to that in the prepared remarks, 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 0. During this 18-month period, the payments that we received from Freedom were first applied to a reduction in their outstanding balances, the loan we mentioned and so forth.

And I think we've taken a very cautious approach and because of the uncertainty around Freedom's financial condition and any remaining amounts owed to us by them, we have fully offset -- fully offset by a deferred revenue liability on our balance sheet throughout this entire period. So net 0 exposure. As it relates to the lien that you just mentioned, so we do hold a lien. It may allow us for some level of recovery, if any. But we are certainly not relying with 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 this $14 million doubtful debt is that when we are looking ahead, we continue to believe that demand for solar and storage will be driven primarily by attractive, both projects 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 Nexis, 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 of doubtful debt that we have recognized in this quarter. So it's -- as I said, $14 million. It's a U.S. customer that is experiencing financial operational challenges lately. We believe and of course, it's 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 owed us. We do hope, of course, for their recovery.

And if conditions improve in the future, if they will improve, we will reassess the situation accordingly. Did I answer your question fully, Phil?

Philip Shen: Yes.

Operator: Our next question comes from Brian Lee with Goldman Sachs.

Brian Lee: I guess one question I had just around the -- 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 a significant amount of physical work test safe harbor that you're seeing or anticipating. So just 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 of the physical work test. Is that a function of your strategy go-to-market in sales? Is that just a function of your customers?

Or is there any kind of market share implications of why your #1 competitor in the U.S. resi market is seeing a lot of sort of in-period safe harbor versus the physical. Just curious on kind of how we should interpret that.

Asaf Alperovitz: Thank you for the question. I'll start, and I'm sure Shuki will share more color on the market indication. So as we discussed in the prepared remarks, in the last couple of quarters, we have signed multiple physical works 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 4, that is. Also, we are in the process of closing more deals.

And we -- 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 in both high and low power, 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 signed such transaction, for us, it increases the visibility significantly for up to 4 years horizon. And it also helps us secure market share, significant market share. Shuki, do you want to add any color?

Yehoshua Nir: 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 are going to install in the period. This is why they are referred to as pull forward of revenue.

While the physical work test 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's a future, revenue, and share. It does allow us to have a more efficient operation because we get predictability for customer forecast and orders, and it does line up the revenue together with the actual purchases from the customers. And whether there are advantages and disadvantages to physical work test, we believe that the physical work test provides better visibility for us and better -- and some advantages to the customers.

And because on the resi side, we've actually -- we are securing the deals using the Nexis 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 3 to 4 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 sophisticated energy management system.

On the C&I side, as Asaf mentioned, large companies they are interested in physical work test 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 work test.

Brian Lee: Okay. Yes, makes a lot of sense. I'll follow up on it. Just 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 has been a lower price environment based on some of our data, it seems like at least 20% lower, if not more ASP per watt? 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. give us any thoughts on pricing and margin specific to Europe?

Yehoshua Nir: Thank you, Brian. And as you know, in the last several quarters, we've been excited about the potential in Europe, the potential SolarEdge has in Europe. The region in which SolarEdge lost share in previous years was mainly Europe and was 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 Nexis for Europe is already -- all of it is booked. It's not a very large quantity, but it's all booked. And we are working very hard in order to increase the supply to support the Q3 demand.

So when we bring Nexis, and we talked about the launch event and the excitement and all the benefits that Nexis 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 you -- 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, we -- 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 going to be exported -- when they are exported to Europe will generate better margins. And Nexis as a platform and as a product is a better cost advantage by itself. So that will be also a tailwind for our margins. But Asaf, do you...

Asaf Alperovitz: Yes, maybe just to add, I mean, as you know, we do not break down margin 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 started exporting the 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.

Operator: Our next question comes from Julien Dumoulin-Smith with Jefferies.

Julien Dumoulin-Smith: I appreciate the opportunity to connect here. I wanted to just follow up, maybe just on this other customer 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 I understand because I heard your comments, in the answers 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 mix shift of your own customer base evolves here? And then I've got a follow-up.

Asaf Alperovitz: Thank you. In terms of the $14 million customer for which we have this doubtful debt provision, I can say that for the last 3 quarters or so, we have very low revenue from them reported in the book. So no direct impact, I would say. And we believe that generally, there is no vacuum in the market. So certainly, new potential players in solar will get in. And I think as Shuki and I mentioned, considering the Nexis 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?

Yehoshua Nir: Yes. We do recognize, Julien. It's a good point. And we do recognize that these 2 valued partners of ours. We wish they will do better, they would recover and they will come back to be loyal partners with SolarEdge. And the demand is not -- is fulfilled by the channel and it's coming from homeowners, TPOs and C&I customers. And the advantages that we deliver to them and to the installers are such that we believe will help -- will convince others that they would like to join the SolarEdge installation group. But we are -- we do hope that these partners of ours do recover and that they go back to install many, many SolarEdge systems.

Julien Dumoulin-Smith: Got it. Excellent. And then maybe taking more of the offensive step, how do you think about coming back maybe this year, providing some sort of Analyst Day like view and providing some sort of presumably multiyear view on not just resi, but also the C&I and perhaps novel products here. How do you think about kind of giving a full-fledged and full-throated view on some of the emerging end markets but also product portfolio here? Just to make sure we've asked it explicitly.

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

Operator: Our next question comes from Chris Dendrinos with RBC Capital Markets.

Christopher Dendrinos: I just wanted to follow up on the comment on picking up more installers. I guess what I'm wondering is, can you speak to adding new customer base, new customers with that transition to TPO and 48E? Are you in conversations to add a new group?

Yehoshua Nir: Yes. 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 upcoming Nexis. And we believe that installers, installation companies, their business is around identifying what the market needs and then being able to deliver that to the market. So obviously, there are -- 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.

Christopher Dendrinos: Got it. 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?

Yehoshua Nir: Yes. So what we said about Germany was actually that we are seeing some strength in March and April, but also Nexis 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 also are seeing an increase in demand for upsell 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 help if they do that ahead of the January 1st expiration of the feed-in tariffs.

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 demand is picking up, and there is interest in partnering with SolarEdge. One thing -- one other segment that we can actually address with Nexis, 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 Nexis that is actually very attractive for that segment of the market as well.

Operator: Our next question comes from Colin Rusch with Oppenheimer.

Colin Rusch: Could you talk about remaining inventory in the channel that you guys still see cleaning out or any of that, that may be a little bit of headwind here over the next couple of quarters?

Yehoshua Nir: Yes. 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 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, there are gives and takes 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 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 that to fulfill even more sales because they will have to have only one type of inverter for the single phase or for the 3 phases, as an example, also the C&I.

And that will support different levels of power as opposed to the 4 or 5 different SKUs 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.

Colin Rusch: 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 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 for you guys?

Meir Adest: Yes. Thanks for the question. Basically, what we're doing these days is preparing prototypes, which we could share with hyperscalers and potential hyperscalers now potential customers. We're planning on showing it off a proof-of-concept towards the end of this year so that we could then have pilot plants at their data centers throughout next year, leading to ramp-up and mass deployment in 2028.

Operator: Our next question comes from Corinne Blanchard with Deutsche Bank.

Corinne Blanchard: Maybe one thing I wanted to clarify. We have heard from some of your peers about the price cuts. Is it a strategy that you have also been implementing or that you intend to implement? Or are you in a different set of in the market?

Yehoshua Nir: Yes. Thank you. So we have not implemented the price cut. And as I mentioned before, we believe that price reflects -- 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 C&I side, with the storage and the energy management over there and in the resi side with Nexis 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 Nexis and the products that are made in the U.S. allow us some room that are lower-cost products. And that will allow us some room to move, if we need to.

Corinne Blanchard: 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 maybe if you have a different view, Europe versus the U.S., that would be helpful.

Yehoshua Nir: Yes. So generally speaking and talking about the market in general, you see attach rates of storage to PV going up and to the right, I would say, in almost every segment in almost every state or country. Some of them are very advanced. In some places, we have more than 90% attach rate, like NEM 3 installations in California and some of them are still early on in their advancement towards higher attach rates. So having a battery -- you can have a battery of stand-alone as well. Our C&I battery can be a stand-alone 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 the lunchtime. And then when the night comes and its 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 this 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 1 or 2 kilowatts and even less. And the round trip efficiency of SolarEdge Nexis is higher than competition on that regard as well.

Operator: Our next question comes from Maheep Mandloi with Mizuho.

Maheep Mandloi: Maybe just in the U.S. solar market, 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 Nexis platform?

Yehoshua Nir: Yes. So thank you, Maheep. And if I understood you correctly, you're asking about how does the resi U.S. market dynamics, how are they affecting our Q2 guidance?

Maheep Mandloi: Yes, in resi and commercial combined, yes. But just trying to understand the mix for U.S. in Q2 and how do you think about that in Q3, Q4?

Yehoshua Nir: Yes. So obviously, as we said, the resi market in the U.S. 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 strong. On the C&I side, the market continues to be in a good shape. And we are seeing -- as we said earlier, we are seeing a structural change that is leading towards our share, and we expect that to continue actually.

Asaf Alperovitz: 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, they continued rollout of Nexis, the introduction of the new C&I battery storage solution and all of these things that Shuki mentioned. So that's as much of color that we can provide for the longer term.

Operator: And we'll go next to Vikram Bagri with Citi.

Vikram Bagri: 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 safe harbor expiration? And I asked because you saw this Freedom Forever issue, seems like coming from a mile away and you manage the balance sheet very well. I was wondering how many more customers are you monitoring for such issues? Is that a meaningful number?

Asaf Alperovitz: So maybe I'll start and Shuki can provide some more business market indications. We had a very solid team here at treasury, and we always, of course, look and review and we have set of process procedures to ensure we manage our customers' credit very well. I think 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.

Yehoshua Nir: Yes. I just would add to that, that as we said earlier, we -- the market dynamics are right now, there is a concern about the slowdown of tax equity investments. We believe that the underlying demand for solar plus storage systems exists. It does add value to many homeowners around the U.S. The TPOs and other providers are going to find a way to deliver that value to these customers. And if -- whether it will be with this type of investors or other types, we are -- we believe that we'll find a way. And once they do, once the market rebounds, SolarEdge is very well positioned to benefit from.

We are the natural partner for the TPOs, 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.

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

Yehoshua Nir: Yes. 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 3 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.

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

Yehoshua Nir: 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.

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