SolarEdge Technologies, Inc. Aktie

Well, great. Thanks, everybody, for coming in bright and early. Very pleased to have Shuki Nir here, the CEO of SolarEdge. I'm Jeff Osborne, the TD Cowen Sustainability analyst. Thanks for sticking with us on day 2. Shuki, thanks for taking time out of your busy day to join us and being here from Israel. But I imagine most in the room are familiar with SolarEdge, but just in 90 seconds, a minute or 2 to go over what SolarEdge is about in terms of the platform you've built would be helpful, and then we can dig into some questions.

Thank you. Thank you for having me, and it's great seeing you here and online. So yes, SolarEdge, this is our 20th year. The company was founded on understanding power electronics in general and DC in particular. And based on that, over the years, it built different products and different solutions that are actually bringing value to the end customers, whether it's the homeowner, C&I, now we are going to talk about data centers as well, AI data centers in the future. And what we are trying to do always is to lead by the innovation, the quality of the technology that we develop and make it into workable solutions that are actually increasing the ROI on the project or on the solution that we are providing. That will be the 90 seconds.

Perfect. I appreciate it. I definitely want to touch on data centers. Maybe we'll start there, but I promised to ask quite a few questions on both storage and solar as well. But just given the explosion of interest among the buy side in data centers, maybe we'll start there. So maybe at a high level, let's just walk through how the relationship with Infineon is proceeding? And then I believe the goal is to have sort of alpha and beta units next year. Right now, both yourselves and many peers are sort of in the white paper marketing, waiting for the NVIDIA product cycle to play out then with pull market adoption. But maybe just let's start with the Infineon relationship, what the history is there and how it's progressing?

The history with Infineon is a long -- maybe since almost the beginning of the company, we partnered with Infineon. They are very, very close partners of ours. The silicon carbide and other solutions that they offer is part of our inverters today. And when we announced the entry into the AI data center area, we said that we announced it together with Infineon because the silicon carbide that they are making is going to be part of this product. And the partnership is progressing well. You mentioned that we are in the white paper marketing area. This is not exactly true about SolarEdge. SolarEdge, about 5 or 6 years ago, we started developing -- back then, it was aimed at the utility space, solar utility, a solid-state transformer. So for 3 years, the company invested a lot of money in creating the infrastructure and the labs and everything that is needed and dozens of engineers had actually worked on it. Until 2024, the company had some difficulties and because of expense control, we put the project on hold.

Last year, when NVIDIA released the white paper talking about the expected and very much needed transition to DC infrastructure in the data centers, in the AI data centers, we went and we basically brought this project back to life. This is why we keep talking about the fact that we have all the building blocks already and now we are putting them together. So we put the team together, brought back actually some people who left SolarEdge because we closed that project. And we have some very, very talented people who understand DC for the last 20, 25 years, which is an area of expertise that is very much needed. We are now at the stage that we aim at having a working product in our labs this year. And we are going to have pilot installations next year. And then 2028 is when probably that will meet the transition that NVIDIA is talking about in terms of the GPU road map that will require the transition to the 800 volt. So that's kind of how we look at it.

That's helpful. Just as a point of intellectual curiosity, when the old team pre-'24, was that at a 1,500 volt, which is the solar voltage for utility scale that then you're sort of dialing back to 800 volt. A lot of people would say it's easier to go backwards on voltage than it is to go up.

Yes. So I don't want to say nothing is easy in these technologies, but moving the solid-state transformer from being the solar product that it was originally planned for into the data center SSD, the latter should be less complicated and less complex. But there are many, many learnings that we've had. These things are not working on trial #1, right? So we had to go and learn, make some changes, make some adjustments over the 3 years that the development has been in place. And now we feel confident that we have the architecture in place. This is why we are talking about the 99% efficiency, while others are talking about lower efficiency. And we feel that there is a lot of work that has to go into it. Don't get me wrong. But the feedback that we are getting from the ecosystem, from the potential partners as well as our own feeling is that we are making good progress.

Got it. Maybe just staying on solid-state transformers, as we commercialize the product, what do you feel the top 3 KPIs will be beyond efficiency? Most people are in the 98% realm, you're in 99% today. But I think there's certainly -- the block size is different for everybody. I think your marketing suggests 2 to 5 megawatts. Heron Power, I think, has a white paper out at 4.2. Folks at Enphase are 1.25, but combining 342 small devices to get there. But what -- like as you talk to people, what's the right size if a solid-state transformer to come up behind you and bite you? What -- how big do you expect it to be?

I think that the size or the number that matters here is not whether it's 2 megawatt, 4 megawatts or 5 megawatts. The idea is to start from 34.5 kilovolt, the AC. This is the AC, the medium voltage that is coming from the grid. And you hear about different people that are having 10 kilovolt or 15 kilovolt, based on what we understand, at least. This is not meeting what the expectation is. The expectation is to go in one step from 34.5 kilovolt down to 800-volt DC. And it's complicated. It does require innovation, technology understanding and execution. So the first thing that I believe people want -- you mentioned efficiency. So it's -- the efficiency is also related with the fact that it will be one step from 34.5 down to...

So yours is one step, peers are multiple steps and that has a degradation.

I don't want to comment about peers, but what we are doing is that we...

That gives you confidence to be at 99% versus others maybe you're theoretically at.

Exactly. That as well as other innovations that we have got. Yes, absolutely. So that's number one. The second thing that is in discussions with the ecosystem that is important for them is actually the scale. We are talking about next year, we are going to have some pilot installations. That by itself is going to require some manufacturing capabilities. But if you go to 2028 and beyond, you're talking about the need to scale up manufacturing. The need to actually take it to the hundreds of megawatts, if not gigawatts of manufacturing. And this is something that the hyperscalers or the neoclouds, they are looking at it as this is table stakes, right?

You cannot -- if you can't deliver on that, don't even show up. So that's the second thing. The third thing, which is very important for everybody in the ecosystem is to see that you have partnerships across the entire powertrain. So it's not a stand-alone product. It's actually part of a solution. As a data center builder, you want to make sure that everything is working together, playing together in order to benefit.

So it's construction at the front end, but what about like power electronics distribution? Do you need to interoperate or have...

So the product that we are developing is starting from -- on one end, is the connection to the medium voltage. Then you have the SST, so it's doing the transformation from the 34.5 to 800 volt. And then you have the PDU, a power distribution unit. But part of the change that is going to happen, as an example, is data centers today, they are using UPS that is connected to the AC. If you change to DC, you need to change the UPS infrastructure. So we are developing the DC UPS of the future, if you will. Whether you're a customer or a horizontal player in the market, you want to make sure that everything is talking to each other and you have a complete solution and not something that is just we develop -- somebody develops something in isolation, they bring it into the table and then it doesn't interact or doesn't connect efficiently with the rest of the power electronics infrastructure in the data center.

Got it. And then do you have any preliminary steps around go-to-market or the testing that you're doing in discussions? Or are those all with your own sales force directly today?

So the good news here is the number of players is quite -- it's not huge. It's -- we are used to go after 10,000 installers and after -- in the solar industry. Here, you're talking about several dozens of potential customers and the leaders are probably less than 20 people or less than 20 companies. We've engaged with most of them in discussions. And the discussions today are very, very technical. There are less -- it's not about go-to-market, pricing, quantities, et cetera. It's about the technology. From their perspective, they want to make sure that the solution they choose and pick is something that is reliable. I didn't mention reliability earlier, but obviously, this is a table space, right? Reliable does what it promises to do and delivers on time.

So at this stage, we are discussing with them. They are trying to understand the competitive advantage that we have. And the go-to-market from then on, we don't look at it as something that is too complicated. You and I, we talked about it before. There are -- one way is to go directly to the neocloud and the hyperscalers. The other one is maybe through some collaboration with the power electronics providers of today. We know that they're trying to develop their own solutions. For them, it would make sense also if there is a better solution than what they're developing to try to collaborate. So we are talking to everybody. We don't have any exclusive go-to-market strategy that we're going to exclude any other thing.

Maybe last question for myself, and then I'll open the audience for data center-related questions, and I definitely want to pivot to solar in the last 15 minutes or so is just as I think you folks are aiming to have an Analyst Day later in the year and as investors try to size the market. My understanding, and correct me if I'm wrong, is that not only for argument's sake, we say there's a gigawatt data center that is moving to solid state, but then there's an element of reliability that you need five nines. I had to ask the Google machine what five nines is, but I think it's 5.26 minutes a year is what the 0.0001% downtime is. So expectations are obviously very high at five nines.

But -- so is there an element of 20% overbuild just from a reliability perspective or 10% that I assume. So the gigawatt is really 1.2, 1.1 something higher. And then there's -- you need solid state. I think there's been an explosion of interest as we move to more on-site generation, whether it's gas turbines, reciprocating engines or fuel cells, just the power quality is pretty crappy coming out of those. And so there's a lot of discussion of putting batteries sort of between either the grid or on-site generation in the building, those would all need solid-state transformers as well, right? Or...

So you're taking it 2, 3 steps forward, which is great. And we're exploring these opportunities as well. We're in discussions with different . But at this stage, the focus of the team is to provide the SST that the data center, it's going to be a must, right? The next, next gen of the GPUs has to be supported by the 800-volt DC. That's what NVIDIA is saying. So the focus of the data centers as well as ours is to make sure that they have a working, very efficient solution available for them. Reliability, we're testing different levels of redundancy within our SSD. By the way, the products, some people think about product as something like that. It's a 20-foot container, right? So it's a large product.

Our infrastructure is that these are 30 cells that when combined together, they are 5 megawatts. Inside the container, we are going to put some redundancy as well. And I believe that what you said is right, I believe that the data center owners or builders are going to put some additional redundancy on top of that. So we're expecting all of these things to happen. At this stage, next year, we are going to start working with 20, 30-megawatt installations. And then we're going to have much more data in order to be able to comply with the five nines or the seven nines. Some people are talking about seven nines.

Okay. Perfect. Any questions from the audience on data center-oriented activity? Otherwise, we'll pivot to solar. All right. Maybe just 30,000 foot and we'll drill down. But like what are you hearing from your channel partners as it relates to like the voice of the customer in solar, both maybe compare, contrast Europe versus the U.S. around interest in the category, both residential and commercial.

So I think that overall, globally, by the way, everybody understands that electricity prices will continue to go up. And solar is probably the most affordable and the best solution for that. So the underlying demand and the need for additional solar solutions, especially now when it comes with storage. So it's a solution. It's not just solar, we're going to produce more energy from the sun. Actually, we can now store it, use it later. Time shifting and optimizing the rates here is something that is very, very interesting for companies as well as individuals. So we continue to see a lot of interest and business. Now talking about the interest is one level. The other level is obviously the actual demand. What we've seen in Europe, and we talked about it starting in March, they really -- it came close to home, I would say, for the Europeans that electricity prices are about to go up, some dependency or independency of the grid or energy.

So we are seeing an uptick in Europe that is beyond or above the seasonal uptick that we have seen. That continued into April. And from our initial checks, it continues also in May. So the Europe -- on the European side, both on resi and C&I, we're seeing this uptick. In U.S., and we talked about it before, the C&I market is doing well. We are very well positioned in that market, and we're seeing good progress over there. On the resi side, due to the lack of clarity around PFE and FEOC and slowness in the investment into the TPOs and the elimination of 25D, so that market has contracted, as you know.

You think we're at the bottom? When that recovers is a debate that...

Yes. So I feel that what we're seeing now is a slower level of investment or a lower level of investment in the TPOs. The bottom will be determined by when the level of investment in the TPO is going to go up. They will be -- that will be the catalyst for additional installations on this year on demand. And we'll see what we expected to see this year that, yes, cash and loan is going to go down. But the rest of the business, there is a lot of variability around this business today.

Just a follow-up on that is while the investment is lower, your visibility into the multiple years ahead because of safe harboring, I imagine, is better than in the past, like 2, 3 years ago, pre-Trump, you probably would be saying -- scratching your head saying, we have no idea when this is going to recover, but at least you have an alignment with the channel and partners. Is that the right way to think about that?

Yes. So we've -- over the last several quarters and actually continuing now until July 3, we've engaged in multiple safe harbor deals, both with the TPOs as well as on the C&I side. And what these safe harbor deals are going to provide us and the customers is better visibility to your point, into future revenue or future demand into a more aligned manufacturing and production planning. So from our perspective, it's all goodness. When exactly they're going to start pulling the safe harbor deals is depending upon customer preference, which is good.

Can we just pivot to the Nexus product launch? I think you started in Germany and then broader Europe, and then I saw on LinkedIn this morning that there's now training sessions in America to ramp that up with the channel. But what -- how do we think about where we are in that journey, the single SKU transition, all of those should have a pretty profound impact on margins and cleaning up the channel around.

Absolutely. Look, Nexus, I'm so excited about it that I can talk about it for the next hour, but I'll try to be concise. It's the platform that SolarEdge has launched that is addressing today's residential market. And I'll explain. It's moved -- the market has moved from PV only to PV plus storage. And it's coupled with the fact that the grid is becoming very dynamic. In Europe, you have dynamic rating every 15 minutes. Here in different states in the U.S., it starts to change as well. So what we are seeing is the need from a homeowner perspective, to get a system that doesn't only produce more power from a given set of panels, which SolarEdge has done for the last 2 decades, but actually that uses intelligence, artificial intelligence to optimize when to import, when to export, when to activate some loads and so forth. So that's one piece that Nexus is bringing to the table.

The other piece, and we talked about it is it's very, very installer friendly. When you combine these 2, and we had the launch event back in March in Germany, the excitement from the installers was something that we didn't really expect to be that -- to see that level of excitement. And what we have is the entire Q2 supply that we have for Europe is already booked. We continue to have bookings for Q3. We are ramping up now the manufacturing. As for the U.S. market, we have pilot installations in the U.S. already. We did -- our guidance to ourselves was we prefer reliability and quality over time to market.

So we've had dozens of installations here in the U.S. in order to make sure that the installation process is working well, the commissioning as well as the actual production and activation of the systems. We are going to start rolling out Nexis in the U.S. in the next quarter. And we're going to do it together. The market here is slightly different, as you know, with the TPOs and the different customers. So we're going to roll it out based on customer preferences and together with them.

Can you just touch on at a high level, the financial ramifications of single SKU and Nexus relative to the contract manufacturing footprint and it should be pretty accretive like more...

So there are 2 things that Nexis brings to the table from a cost structure perspective. The first one is the fact that it's made in the U.S. So all of our Nexus inverters and optimizers are going to be made in the U.S., which obviously is entitled to the 45X credits that give us a net cost -- a lower net cost. Nexis itself, apples-to-apples compared to the other or to our previous platform is lower cost. So we have better cost by definition. And then the multiplier is the fact that it's going to be made in the U.S. And the third point around Nexis is we believe that the value that we bring to the homeowners is significantly better and higher than what we brought in the past and what other people are bringing now, which we believe will give us a little bit more pricing power as well, which also contributes to margin, as you know. So between all of these 3 things, we're excited about Nexis, about the value that we bring to customers and the margin impact.

You think by next spring '27, the full transition will be done for Nexis in terms of that ramp?

Yes.

I assume it takes 3 or 4 quarters.

The goal is to do it as quickly as we can while maintaining reliability and quality. And the plan is by the end of Q1 to finish the transition.

Can we just switch gears to Europe -- back to Europe, but there's been some headlines with Italy having an auction that ban Chinese inverters. There's been some stories in Der Spiegel in Germany around hacking and concerns around Chinese inverters and I think even the EU for recently -- in early May for EU-funded programs ban Chinese inverters. But we've got Intersolar coming up in a few weeks. What are you hearing from sort of either policy at the country level discussing banning Chinese inverters? That would be a big deal.

Yes. So the only thing that was actually decided is the directive that you mentioned that the projects that are funded by European banks, the European banks cannot use Chinese...

They're funded by the governments of the country, not the EU.

Exactly. So that's a very, very small fraction of the market, and people have to realize that. Now the European system, the political system, the way that it works is there are some stuff that -- there is some stuff that is done at the European level and then it's up for the countries to decide. I think that it's a question that each country will have to determine to themselves. On one hand, inverters coming from China are the majority of the inverters in Europe today. So they rely on them.

On the other hand, they have some concerns. The sentiment in Europe has some concerns around it. I think that they will make -- whichever decision they're going to make, we're going to continue -- we believe that we can gain share in Europe, by the way, regardless of that. I think that the Nexus that we talked about from a financial perspective also will help us gain share in Europe regardless of the things that you're mentioning.

That's good to hear. Maybe just touching on the battery side of the business. You had the very expensive Samsung cell contract in the past. You're moving to LFP. Is that transition done? And as we move to Nexis and sort of the Clickable Snap, I forget your marketing jargon, but it's a much faster installation time. And for those in the audience that they do a great YouTube series called Night Shift, where literally some guys will sit around over here and talk solar, but if you're ever bored and want to watch.

Not just bored, if you're interested in good customer experience. It's -- Nexis was designed actually in collaboration with many, many installers. And we call it the click, click, click, right? So you come in, you put one module and then you can add additional modules on top of it, which is fantastic. Yes, Nexis is using LFP across the board, which then means that on our single-phase batteries that so far, we've used NMC batteries, we're going to -- NMC cells, we're going to move to LFP. And that by doing that, our entire portfolio is going to be LFP.

Okay. But margins should be better as that transition...

So that's part of the cost advantage that we talked about earlier, right? Nexis is a better cost structure. That's a significant portion of it.

So it's not just the solar piece. And then are these FEOC-compliant cells that will be coming into the U.S. for next year or?

So our battery, the way that it's done is not about the cells themselves, it's about the products that we are making. We're making the product in the U.S. and it's FEOC compliant. It's domestic content compliant, it's everything that our customers need.

And then speaking of FEOC, can we just touch on the C&I business? I think the #1 player in the market, Chint, depending on the day, I think, can be 20%, 40% share depending on the quarter. But what's your expectation of share gains in commercial?

Yes. So you know it, but others might not. In the C&I segment in the U.S., there are 3 leaders: SolarEdge, Chint and SMA. SMA is a German company. And the other 2 companies, they don't have domestic content, and one of them is considered a FEOC company as well. Because of that, the value to the customers that we bring being non-FEOC compliant and domestic content compliant is the 40% tax benefit that they can have. And because of that, what we are seeing is a structural shift of the market share towards SolarEdge. We've gained share in the last 2 or 3 quarters, and we believe that we will continue gaining share, partially because of what I've just mentioned and partially we see that as part of the safe harbor deals that we are signing.

I was going to say, it seems to be interesting if you read between the lines in your marketing message around safe-harboring, you've done a lot of webinars with Novogradac and racking companies for C&I, but less for residential. I guess the TPOs know how to do safe harboring and you don't need to bring awareness. But is maybe something overlooked by investors is the visibility that's shaping up with C&I through safe harbor, because everybody really focuses on...

I don't know whether it's overlooked or not, but we have invested a lot of time and effort and expertise in order to structure a physical work test offering to the C&I customers, which is a different market, to your point, than what the TPOs need. And we feel -- we actually see that this offering is attractive to them, and we are seeing good volumes.

Perfect. Speaking of safe harboring, your rival Enphase was here yesterday, and they had a release out maybe a month ago talking about the cumulative value of physical work test safe harboring, I think, was around $800 million or something, give or take. Have you disclosed that number? Is that something that you would consider doing as you?

So we haven't disclosed the exact numbers, mainly because we are still working on it. So rather focus on the customers, yes, it depends on which time zone. And -- but suffice to say that we're very pleased with the engagement that we've had with customers, both on the C&I side as well as on the resi side, and we feel comfortable with our position.

Perfect. We've got 2 minutes left. Anything from the audience? Otherwise, I had 2 questions on my end. We'll do rapid fire, but -- you've had a herculean effort around improving margins and generating cash. But I think a big chunk of that was the $85 million to $90 million of OpEx target. Do you see with the market in solar rebounding with the SST opportunity, are we at a floor from OpEx? Or is there still efficiencies to be gained as we think about next year? I'm not trying to do a and get guidance for next year.

No. And you know that we don't guide beyond this quarter, right? But I think that the way that we look at expenses, both on the OpEx as well as on the COGS, by the way, we had a concentrated effort on making sure that, on one hand, we reduce our cost. But on the other hand, that we become a more efficient company. The example you gave earlier about single SKU, that will help us save additional cost in the future because we have less SKUs to manage, less SKUs to develop, less SKUs to ship. So we are still actively trying to improve our operational efficiency. And I believe that there is some room to go over there. We have some headwind with the Israeli currency versus the U.S. that does add several million dollars to our OpEx.

Got it. Maybe in the last 30 seconds, but what do you feel is the biggest misperception about SolarEdge among investors? Certainly, you've had a nice run in the stock in the past 2 weeks, but any misperceptions as you've been out there reading?

I wouldn't call it a misperception. I would just say that the way that we look at SolarEdge is we were -- we've been through a rough period of time. 2025 was -- we used it to stabilize the company, to put together all the infrastructure that is needed for profitable growth. This quarter, the midpoint of our guidance is getting there, and we will get there in the future. And so I think that we have a very, very solid solar and storage business that we can build on for the next several years. And on top of that, we're going to add the exciting SSD opportunity. So I'm excited about what's coming.

Perfect. Well, thanks for taking the time out of your busy day.

Thank you. Thank you very much.

I think we can probably start as more people will join. We have about 20 minutes. So let's go fast actually.

Maybe let's just start. I mean, you had the 1Q this last week, so it's still very fresh, I think, on everyone's mind here. Maybe let's start with the European market view. We just had the fireside chat with Enphase touching base on that. I think you guys have very similar observation of the market in the last 2 months.

But can you talk about that inflection point that you have seen on the market? And how do you view that trend to further materialize? Maybe especially if the Middle East impact maybe fades away a little bit? Do you expect a sudden reversal of that enthusiasm in Europe? Or do you expect that to remain?

Yes. Thank you for the question. So as we said in our earnings call, March, we've seen an increase in the activity, which was stronger than expected seasonality and the very same trend continued into April. And from what we could feel and what we hear from the channel in the last week since our earnings call, it continues to be the same.

And definitely, the geopolitical situation and the high energy prices are raising a short-term concern that does impact residential as well as C&I customers, and you can see an increase in demand. But our assumption is that this will continue.

People, they are concerned about the lasting effect of something like that happening. Independence, energy independence, if you will, at the personal level or at the business level is something that is very, very important. And electricity prices are on the rise because the fundamental demand is growing. So it is -- here, we saw an accelerated increase, but our view is that going into the future, electricity prices are on the rise, and therefore, the demand for solar will continue growing.

Can you talk about maybe resi versus C&I? I mean you mentioned you've seen it in both, but do you see like an acceleration that is faster in residential maybe because of the fear or maybe similar?

So what we are seeing is -- and again, keep in mind that it's been only 2 months. And I would say that a lot of the rising prices in electricity are not yet reflected in the market. So it will take a little bit more time for them to flow through the system.

We are seeing it in both resi and C&I. I would say that in C&I, what we are seeing that it is actually growing even faster is the attach rate for batteries. We introduced our next-gen storage solution for C&I, and we are seeing strong demand for that and not only for our solution, but actually for the entire market. So that's something that is very evident on the C&I side.

On the residential side, maybe because the attach rates has been high even to begin with, then the impact is not as strong as we were seeing on C&I on the storage side. But on the PV plus storage, definitely an increase in both.

Which country are you seeing -- or are you expecting the most benefit here? I mean, obviously, you have Netherlands and then some of that retrofit load. I think France is very strong, and Germany as well.

So for us, we call it DACH. It's Deutschland, Austria and Switzerland -- not only we, right? And so we refer to it as one region that has a lot of commonalities. Over there, we definitely see a strong increase in demand for both resi and C&I.

We have a larger installed base. We have plenty of opportunity in DACH. We are launching Nexis in DACH first, and our entire Q2 supply is already booked. It was already booked 2 or 3 weeks ago. So we are very happy with what we are seeing over there.

In the Benelux, the Netherlands and Belgium, what we are seeing is with the expected expiration of feed-in tariffs towards the end of the year, we see a very strong activity around upsell to the base. Our installed base in the Netherlands is almost 800,000 homeowners, but by far, the largest installed base in the country. And we've engaged in different activities in order to come to these homeowners and offer them the ability to upsell to a battery and in some cases, to an improve their system.

Italy is very strong on the C&I storage side, actually. We are seeing that as something that is growing for us. And to be honest, one of the things we've decided about 6 months ago that we're going to be very focused. So we are not going in all 20 or 30 or 40 countries that you can find in Europe, but actually on the top markets where we have the opportunity to make a major impact while growing there.

So the countries that I mentioned are the main focus. We also have the U.K., Poland and France as well. But we are trying to be in a limited number of countries to have controlled expense level, but at the same time, to maximize the impact that we're getting from the market that is actually waking up now.

And then -- so you mentioned launching Nexis, right? I know you guys are very excited about the product. So maybe let's touch a little bit on that one. Is that just, safe to say, C&I first? Are you going to launch it as well? Just give us that and the timing as well that you expect to start seeing the benefit of it.

Yes. I will try to be...

I can give you 5 minutes just on Nexis.

Because I can speak about Nexis for 20 minutes, I'm so excited. But Nexis is a platform. It's a solution that was built from the ground up for today's market. So it's not a PV only, it's a PV plus storage plus the intelligence that is required in order to optimize the energy between grid, battery, the main loads in the house.

And it's a resi solution. It's a global solution. We are launching it first in Germany, then we are going to roll it out to the U.S. and to the rest of the world. We expect that by Q1 2027, 90% of our resi sales are going to be Nexis.

Nexis has many advantages to the homeowners, many advantages to the TPOs, to the installers, we've talked about them. But it has a fundamental financial benefits for SolarEdge. The first one is it's a better cost structure than our previous generation. Secondly, it is going to be manufactured in the U.S. with the IRA benefit that is associated with that.

And thirdly, because it's a new product, we've been able to actually sign many safe harbor deals with the TPOs that are based on a product that is just being launched, and therefore, it's going to be modern, applicable and very efficient for the market, not only today, but actually 4 or 5 years from now when they are going to be installed.

So there is excitement from everybody, mainly from the installers actually. I'm actually positively surprised by the very warm welcome we got from the installers for this product.

Sounds good. Maybe I wanted to go back on geography. I mean, obviously, it's Europe and the U.S. for your main market, I would say, but you have some other international markets as well. Can you just talk about what's your strategy?

I mean you have your manufacturing footprint in the U.S., which obviously makes sense with the 45X. And then just for anyone maybe a little bit newer to the SolarEdge story here, any products in the U.S. can be dispatched even to Europe and you still benefit from that 45X.

But there's a lot of moving pieces on geopolitics as everyone knows here. Does it make you rethink maybe your strategy? I know as well when Europe is not doing well, I think you get the question from investors, don't you want to exit Europe? So maybe just tell us how do you view things?

Yes. So SolarEdge historically operated in many, many countries around the world. Towards the end of last year, we had made a strategic decision that I was alluding to earlier. We had stopped selling in many countries that were not having a good ROI for us.

SolarEdge is selling in 20 countries globally. So it would be the U.S., right? And then, call it, 10 to 12 countries in Europe and another 7 in Asia, Asia Pacific, and that's it. And that allows us actually to have not only the ability to gain market share in each of the countries that we operate in, but actually to apply the single SKU concept that we had initiated. The single SKU concept is very good for us because the supply chain is now streamlined. We are making one product for single phase, one inverter for triple phase and one battery block. And it is very good for the distribution partners as well and for the homeowners.

So for all of these reasons, we are having one global strategy. Now -- so that's on one hand. On the other hand, you want to be local because we have local team. In the U.S., the competition landscape is different than in Europe and Asia. So we have to adjust to the different types of competition. But as is evident from the last 2 months, while the resi market in the U.S. is not necessarily that strong, the C&I market in the U.S. is good. Our position over there is structurally much, much better. But Europe and Asia, for that matter, are kind of compensating for the short-term softness in the U.S.

So we feel that we have a good balance between U.S. and international. There are benefits for all the markets that we are working in, and we have to be a serious player in each of the markets that we operate in, in order to maximize the benefit for our customers and by definition, to generate the returns that we are expecting.

No, that makes sense. To rebound on your comment, I mean, the C&I market in the U.S. has been pretty good, actually with pretty strong demand. Is there like a scenario where you would maybe want to maybe not exit, but let's say, slow down your U.S. resi exposure and just really focus on C&I here in the U.S.?

No. Our strength in the C&I is something that we have invested in quite a lot. We have -- from a product perspective, there are many good reasons why our C&I solution is very, very good.

For the U.S. specifically, we have structural benefits both because of FEOC compliance and the domestic content compliance. There are three main leaders in rooftop C&I. The other two leaders do not have -- do not comply with FEOC and domestic content. And because of that, the large C&I customers are choosing SolarEdge, and we are seeing it both in terms of bookings, in terms of safe harbor transactions and in market share. Our market share is as high as it has been.

That being said, the opportunity for us in resi is still very high. We have more than 30% market share in the resi solar. We are going to gain share on the storage side of the house. Our relationships with the TPOs when that softness is going to be removed, is going to pay dividends for us and we are definitely excited about that opportunity as well.

That makes sense. Maybe -- I mean very quickly still on the U.S. resi on the TPO, right? I mean we have had that transition, right, from the 25D. I know you have very limited exposure here. But any view on the market trend and how is that shaping for TPO here?

Yes. I think like you said, the elimination of 25D was something that everybody expected. It happened at the end of last year. And that half of that segment of the market was expected and did decline in this. What people and we as well didn't expect is the slowing tax equity investment. And that's a result of the FEOC and other things that you and your audience are very familiar with. That actually puts some strain on the entire ecosystem, whether it's the TPOs or the installers, and we've seen some unfortunate bankruptcy and difficulties and challenges that are -- were a result of that.

We hope, and we hear from other players in the market who are more familiar with the investor side that this situation is going to resolve -- to be resolved in second, either by treasury having a better definition or by investors finding ways to comply with the not that clear kind of definition of FEOC. And when that happens, SolarEdge is well positioned to capture the market share that we deserve because our engagement with the TPOs is there. And we are confident that the product benefits and the engagement benefits that we are bringing with them is going to serve us in the long term.

And one of the ways that we ensure that for the longer term is the safe harbor deals that we have signed and that we continue to sign with TPOs as well as with C&I customers. But with the TPOs, we are signing these transactions. The vast, vast majority of them are with a physical work test that allows them to pull the product only when they need it and not just to sit on inventory for the next 3 or 4 years.

Makes sense. Maybe -- sorry, you mentioned something, and I wanted to rebound on that and I lost my thought. But let's go on the safe harbor. I think -- can you talk about how much you have already secured? And then is there like do you have an expectation in terms of like revenue recognition cadence as we go through the year?

Yes. So as we've said, the vast, vast majority of the safe harbor deals that we are signing are physical work test. So -- and the revenue that we reported in Q1 and the guidance that we have in Q2 do not include any significant pull forward.

And that's important to note because it's the natural cadence of our business that we are selling to our channel. And the physical work test, the way that it works is that we are signing with our customers agreements today. These are binding agreements. They have the price, the quantity and liquidated damages in case they don't want to take the product. So these are -- they do take it seriously. It's not something that they are just signing because they don't care.

And the benefit that, that brings is because we have good visibility into future revenue and future market share, and we can plan our manufacturing footprint accordingly. And they are able to pull it at the time that they need it. So we will recognize revenue only when the customers are pulling the product for their planned installation. And obviously, at that point in time, we'll recognize the revenue. So it's not that we are expecting spikes in revenue in the next 4 years. We're expecting the safe harbor deals to actually translate into a normal cadence of revenue that we are actually very, very optimistic about.

All right. I mean maybe also another point like your price strategy, your pricing strategy, some of your peers have cut some of their price to, I think, more like trying to remain competitive, especially on market that they are trying to enter. So maybe a little less relevant for you. But how do you view just like the pricing profile over the next, I would say, maybe 12 months for you guys?

Yes. So first, I'll comment on what we are doing now, then 12 months into the future. But at this stage, we have not made any significant pricing change. We don't see a need for that. As we mentioned, our entire supply -- initial supply of Nexis is sold out. We are having demand for even more. So we believe that when you bring value to the customers, they are willing to pay a premium for. And our goal is actually to be able to not to give up on pricing, but actually to add value to the customers. And by doing that to gain additional market share.

I'd like to remind you that if and when we need to do something like that, we have the room to do it because Nexis has a built-in lower cost structure, and we're going to make it all in the U.S. So from that perspective, at this stage, we feel that we can continue to -- or we can gain market share with Nexis without the need to compromise on price.

That's good to hear. I know we're coming up on time. Maybe what would you say to investors. I think investors are pressing on gross margin profile and breakeven -- operating income being breakeven. Any message you want to share here with them?

Yes. So what we've been doing in the last 1.5 years is slowly but surely putting the foundation for our turnaround and then for our profitable growth. We've stabilized the company. And now at this stage, we have 6 quarters, if I'm not mistaken, of consecutive year-over-year revenue growth, gross margin expansion, and we intend to continue doing that with the midpoint of our Q2 guidance.

If you look at the midpoint of the Q2 guidance, we're approaching breakeven point. Our intention is actually to go beyond that point and become profitable like any other company. We see very good reasons or we see good reason for us to continue growing with the introduction of Nexis, gaining additional market share, the introduction of the second generation of our storage for C&I. And there are very, very good reasons why we are optimistic about what we are doing, and we invite investors to join the ride.

Right. I think that's a good message. I know we are right on time. I think you guys have many more meetings with investors. And then I believe you guys will be as well in Munich, right, in about a month and then for us. So maybe if anyone is going there, they can meet with you as well and see the products that would be good.

Thank you very much.

Thank you, Shuki. Have a good day. Have a good day, everyone.

Thank you. Bye-bye, everybody.

Bye.

Welcome to the SolarEdge Conference Call for the First Quarter ended March 31, 2026. This call is being webcast live on the company's website at www.solaredge.com in the Investors 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 ending March 31, 2026, as well as the company's outlook for the second quarter of 2026. With me today are Shuki Nir, Chief Executive Officer; Asaf Alperovitz, Chief Financial Officer; and Meir Adest, 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 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.

Thank you, Erica. Good morning, everyone, and thank you for joining our call today. Last quarter, I spoke about solar and shifting from defense to open 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 poly. 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 payments 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 VIOC. These uncertainties have slow tax equity funding for PPOs, 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 48 tax credit and higher battery attach rates are expected to play directly to our strength. Mainly, our position as the leading provider of PPOs and are 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 whole energy, enhancing safety and enabling customers to benefit from tax credit with products that are designed to be both domestic content and to your compliance. These advantages have resulted in share gains more specifically, in continuous 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 NCU 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 walk test method.

These transactions provide several important strategic benefits. First, the 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 spend higher products. Second, they create a natural entry going 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 rollout of SolarEdge Nexis platform. Speaking of Nexis, our third area of transformation is product innovation and leadership. The SolarEdge Nexis launch in bank in Germany exceeded our expectations.

Nearly 1,000 installers joined us in person of [indiscernible] stream creating an atmosphere story next week, 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 plan 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 CFS 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 deploy it as a stand-alone storage asset or very seamlessly with TV [indiscernible] aspect the solution part is the software suite, which enables multiple optimization mode for maximizing self-consumption to be saving, tariff optimization and managing export and import limitations.

The fourth element of our transformation is investing in AI data center power solutions. [indiscernible] featured a live energized 800-volt DC power [indiscernible] 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 rollout in 2028. Since our last call, we continued to advance our solid-state transformer platform and have made progress toward the system capable of converting 34.5 kilowatts directly to 80-fold DC as 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 sure gains. We're moving towards high-volume shipments of new products. We're advancing our AI data center power solutions, we feel we shifted to open 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 you 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 visible.

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 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 would have certain tariffs imposed under the International Emergency Economic Powers Act or IPA, 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 free them forever, which I will discuss shortly. This OpEx reduction is largely reflective of our ongoing cost control, the efficiency measures we've implemented and are focused on our core businesses. And we are keeping our cost in check despite the continued headwinds that we face from a strengthening new Israel 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 take 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 Sweden 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 [indiscernible] 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 lean 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 this year. Non-GAAP operating loss for Q1 was approximately $25 million. When excluding the onetime $14 million 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 given 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 third 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 partly 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 CapEx next year and is expected to lower our annual expenses by approximately $8 million. Our capital expenditures this quarter were approximate $4 million. For the full year 2026, we anticipate capital expenditures in the range of $60 million to $80 million.

The main bucket of CapEx this year are: one, increased production capacity in the U.S. for both TV and batteries. Two, investment in our new headquarters in Israel, largely related to advanced R&D facilities; three, investment related to our AI-based center offering and lastly, ongoing maintenance CapEx. Despite the 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 work 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 GPOs. 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 EPA 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 or hedging activities. At the main point 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 Instructions] And our first question today comes from Mark Strouse with JPMorgan.

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?

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 [indiscernible] around 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 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 with the inverter and the [indiscernible], but actually sophisticated the energy management system but in more advanced markets were dynamic varies and sometimes negative stories may change the ROI quite significantly that combination of a battery inverter and a system that manages the storage, the import and export and other features is very [indiscernible] 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.

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 [indiscernible] 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?

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 fuel compliance, so with that, we are seeing something that is not cyclically [indiscernible] a change that we believe will help us maintain that [indiscernible] for the quarter.

Now to the best of our knowledge, not on these 2 other major competitors has made any changes to the domestic content and/or one of them he compliance. Other -- there are obviously other players that have a much lower market share that can benefit this market, but we -- we've established our solution not only by obviously more energy, but actually by integrating together with the systems of enterprises, which is a much more stable and predictable segment of the market. 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 there, which helps us to secure future revenue in [indiscernible]

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

First one is a follow-up on Freedom. I think in the documents or the bankruptcy dock, they owe you guys a $50 million on credit line and then $56 million on a product debt line. What do you have a lean 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 lean cash collateral. So I was wondering if you think that's true, it also seems like the company was late on making payments 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 $4 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?

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 dimension 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 then, we have fully offset -- fully offset by a deferred revenue liability on our balance sheet throughout on this entire period.

So net 0 exposure. As it relates to the lean 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 with that on our outlook. If anything will be received, it will be an upsell. 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 other landscape will further evolve, and we expect more partners to tolerate, 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 whatsoever. We are not disclosing the customer name. And we believe that given the circumstances and the financial challenges this customer is experiencing, we do a conservative and responsible approach we've actually written down the entire amount of the OS. 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?

Our next question comes from Brian Lee with Goldman Sachs.

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 multi 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, say, fiber versus the physical. Just curious on kind of how we should interpret that.

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 GPOs 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 PPOs in the market given our key advantages from harvesting more power efficiencies in both high and low power disabling 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?

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 water has 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 forecasts 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 worlds, we believe that the physical work provides better visibility for us and better -- and some advantages to the customers. And because on the resi side, we've actually securing the deals using the Nexis platform, that actually provides the level of confidence that the customers need, but 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 for all 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 button 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 workplace 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 [indiscernible]

Okay. Yes, makes a lot of sense. A follow-up on line. Just second question on Europe. It seems like 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 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 of some of the challenges that you're seeing in the U.S.? Do you want to give us any thoughts on pricing and margin specific to Europe?

Thank you, Brian. And as you know, in the last several quarters, we've been excited about the potential in Europe, the potential SolarEdge 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 good. 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 also is the relative advantages that you -- that one product is 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 returns 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 are exported to Europe will generate better margins. And Nexis a platform and as a product is a better cost advantage by itself. So that will be also a tailwind to our margins.

Yes, maybe just to add, I mean, as you know, we don't 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.

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

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 [indiscernible]. 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.

Thank you. In terms of the $40 million customer for which we have restarted for that provision, I can say that for the last 3 quarters, 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 player [indiscernible] And I think as Shuki and I mentioned, consider considering the next 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?

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 the loyal partners with SolarEdge. The demand is not -- is fulfilled by the channel and it's coming from homeowners, CPOs and C&I customers. and the advantages that we deliver to them and to the installers are such that we believe will help -- we convince others that they would like to join the solar installation group. But we are -- we do hope that the partners of ours do recover and 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 in 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 stand as 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 it explicitly.

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 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 the quarterly [indiscernible]

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

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? .

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.

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? Is this maybe more isolated to Germany?

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 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 expiration of the feed in tariffs. We also see in Italy, we have a strength in the commercial storage. So we -- 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.

Our next question comes from Colin Rusch with Oppenheimer.

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?

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, the gives and takes in and out, 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, or channel inventory is normalized. And I'd like to emphasize that as we move into the single steel 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 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 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?

Yes. Thanks for the question. Basically, what we're doing these days is preparing prototypes, which we could share with hyperscalers and potential hyperscalers and 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.

Our next question comes from Corinne Blanchard with Deutsche Bank.

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 [indiscernible] in the market?

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 is that have a much, much better performance in low-power and high-power versus competition, we feel confident that we can gain share while keeping that is 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 is and the products that are made in the U.S. allow us some room lower-cost product. And that will allow us some room to move if we need to.

Maybe another one on battery. I mean, your battery shipments were pretty strong this quarter, especially again if we compare versus some of your peer. 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.

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 [indiscernible] 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 expand it. In some cases, it becomes a little bit more sophisticated because we need to produce 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.

Our next question comes from Maheep Mandloi with Mizuho.

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?

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?

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?

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.

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 continue the rollout of Nexis, 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.

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

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 exploration. 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? .

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 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. And 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, 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 the type of investors or other types, we are -- we believe that we 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.

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?

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 Till 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.

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.

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I would now like to turn the call over to your host, Mark Strouse.

Great. Good morning, good afternoon. Thank you, everybody, for joining. My name is Mark Strouse. I cover clean energy and power infrastructure here at JPMorgan. We are very happy to have SolarEdge with us this morning to talk about their new solution for kind of the AI revolution here. So very exciting stuff, very early stage. So I think this will be helpful for everybody. There is a white paper that's available. Hopefully, the link that was in our website worked for everybody. But if you have any issues with that, let me know, and I can forward you the white paper.

We are going to start with a roughly 20 minutes or so kind of presentation here. There will be plenty of time for Q&A at the end. So I think what we're going to do is the raise hand function on Zoom here. If you would prefer to just ping me on Bloomberg, I can ask the question for you. So with that, let's get going. Shuki, I'll hand it over to you. Thank you very much.

Thank you, Mark. Thank you for having us, and thank you, everybody, for joining us this afternoon or this morning. We are having with me Asaf Alperovitz, who is our CFO, and Meir Adest, who is our Co-Founder. He will take you through the presentation that will be focused on the product, the technology and where the market is heading with regard to our solid-state transformer, with the revolution that is coming to support AI factories with DC. And after that, we'll open the session for questions. With that, Meir.

Thank you. Good morning, everyone, and thank you for joining us today. So as Shuki said, my name is Meir Adest. I'm one of the founders of SolarEdge. And I'm here to talk about what we believe is one of the most consequential infrastructure challenges of our time and how SolarEdge is uniquely positioned to solve it. The AI revolution is no longer a future promise. It's happening right now. Billions of dollars are flowing into the data center build-outs. But here's what most people miss. The long-term bottleneck isn't compute, it isn't chip, it's power. And that is exactly where SolarEdge comes in.

In today's presentation, I'll review a recent white paper, hopefully the first in a series, laying out a maturity framework for data center product -- for data center power architecture and show you why SolarEdge has a credible differentiated path to lead this transition. Let me walk you through it.

Before we begin, I'll direct your attention to the safe harbor statement on screen. This presentation obviously contains forward-looking statements. With that noted, let's get into the substance.

So let's set the stage. According to McKinsey, over 100-gigawatts of AI data center capacity is expected to be built between 2026 and 2030. Just look at this buildup curve on the right side of the screen. It's accelerating year-over-year, reaching 31-gigawatts annually by 2030. But here's the problem. The grid is the gating factor. Generation and transmission constraints are limiting new data center build-outs with substantial power shortfalls expected. Grid connection capacity is increasingly the ceiling for expansion, and this is where the current architecture completely breaks down.

Look at the diagram on the bottom of the slide. In a traditional AC data center -- in the traditional AC data center, electricity passes through 5 to 7 conversion stages from grid to chip, transformer, uninterruptible power supply, UPS, PDU, power distribution unit, ramp power supply, each one takes its cut. The total system loss within the data center itself is 9% to 16%. We call it the conversion tax. Now NVIDIA actually puts the conversion tax at an even higher number, up to 30% because they factor-in the transmission losses from the power plant all the way to the data center. That's an interesting number because it also makes a compelling case for on-site generation, cogeneration, photovoltaics and similar solutions that bypass transmission losses entirely. But that's a discussion for another day.

Today, we're focused on what happens once the power reaches the data center fence and even there, the waste is staggering, and it gets worse. Consider the density trajectory. The H-100 racks needed about 40-kilowatts each. NVIDIA announced Kyber racks for Rubin Ultra chips, which are approaching 1-megawatt of power per rack. That's a 25x density leap in just a few product generations. You cannot push a megawatt through a legacy AC chain. The physics don't work, the thermals don't work, the economics don't work. Now in a power-constrained world, the most direct lever you have is efficiency, and let me be direct about what that means economically.

When your data center is capped by its grid interconnection and most new builds will be, every watt you save from conversion losses is a watt that goes into compute, more megaflops, more tokens generated, more revenue. The relationship is linear. Cut your losses in half and you can serve meaningfully more AI workload from the exact same grid connection. It's not an engineering detail. It's a revenue multiplier. So the question isn't whether the industry transitions to DC. The question is how fast and who leads?

To bring clarity to this transition, our white paper introduces a five-stage maturity framework for data center power architecture. I think this is a generally useful framework for the industry, so let me walk you through it. Before we go into the stages -- through the stages, let me orient you on this slide. What you're looking at is the power passed through a data center, reading from left to right. On the far left is a 34.5-kilovolt medium-voltage grid connection. And I want to stress this point. Any AI data center will connect at medium voltage. And even though edge data centers, the smaller ones might connect at the 12-kilovolt or so, the large-scale data centers require a 34.5-kilovolt connection. That's the starting point. From there, power flows through the gray space, that's where the power conversion and distribution equipment lives and finally goes into the white space, which is where the servers and the GPU rack is. So that's the structure left to right.

Now as we move down the road from stage 0 to Stage 4, watch how the gray space simplifies, fewer boxes, fewer conversion steps, fewer losses. Stage 0 is where most data centers are today, pure AC architecture going all the way to the rack. So it's about 84% to 91% system efficiency capped about 200-kilowatts of power per rack. This is the legacy world.

Stage 1, the white space retrofit. This introduces 800-volts DC racks, but bolts an AC to DC sidecar converter into the white space next to each rack. We get DC to the rack, but you're still running everything through the older AC backbone. You've added complexity, consumed floor space and are still at low efficiency. This is a bandaid, it's not a solution.

Stage 2, hybrid power distribution. This starts to get smart. Here, your white space is 800 volts DC. You introduce DC UPS connected in parallel. So during normal operation, power flows directly from the source of the load without passing through energy storage. So this is better, but you still have the complexity and footprint of legacy AC components.

Stage 3, basic solid-state transformer. This is where solid-state transformers enter the picture. And SST replaces the AC-to-DC conversion stage. This is a meaningful step forward. But at this stage, you might still need a step-down transformer to bridge higher grid voltages as some of the solid-state transformers could only accept 10- or 12-kilovolt input. And a separate to low-voltage distribution units are also typically needed. SST efficiency typically peaks at around 98.5%. So this is good, but it's not the end state.

And finally, Stage 4. This is where it becomes truly DC-native. This is the destination. A high-efficiency SST above 99% connects directly to 34.5-kilovolt medium voltage grid. DC distribution is built into the SST and DC UPS capabilities are integrated into a single platform. No intermediate transformers, no separate distribution units. Look at the gray space in this row. It's almost empty, one streamlined path from grid to GPU. Now here's the key takeaway.

Most of the market today is stuck in Stages 0 and 1 with early emergence of Stage 2. That's essentially bandaids on top of AC infrastructure. SolarEdge is targeting Stage 4 directly. We're not implementing we're leapfrogging. So what does our Stage 4 solution actually look like?

It starts with a direct connection to the 34.5-kilovolt medium voltage AC. That's the standard for large industrial loads, including modern data centers. No step-down transformer is needed. A solid-state transformer is being designed to deliver above 99% conversion efficiency, taking that medium voltage AC and delivering clean 18-volt DC directly to the racks. Below the SST sits an integrated DC UPS, an uninterruptible power supply, connected in parallel to the DC bus. During normal operation, it's not in the power path, so there's no AC-to-DC-to-AC round-trip penalties. But it's there when you need it for backup and critically for active peak shaving. And we've designed in per channel monitoring with fast isolation -- with fast fault isolation.

This isn't about -- just about efficiency, it's about intelligence and safety at every point in the power chain. And the result, up to 98% total system efficiency from grid to compute. Think about what that would mean in a power-constrained world where legacy systems weigh 10% to 16%, we're targeting a loss of just 2% to 4%. Every point of efficiency recovered is a point of revenue gain, more racks, more compute, more AI workload from the same grid connection.

Let me go a little deeper into the heart of the system, our solid-state transformer. This is the product you're looking at on the right of the screen, built into a 20-foot container and designed for the industrial demands of modern AI data centers. Four things to take away. First, higher data center revenue. Above 99% operating efficiency means power that was previously lost to conversion and cooling is now freed up for additional racks. Efficiency translates directly to revenue for operators. Second, maximum uptime. The architecture is modular and redundant, delivered in 2- to 5-megawatt building blocks. Cell level redundancy within those blocks means there is no single point of failure. If a module needs service, the system keeps on running.

Third, comprehensive grid support. Our SST performs active harmonic filtering and delivers ultrafast transient response. And this is an area where our heritage really pays off. SolarEdge has spent 20 years navigating grid support standards across dozens of countries through our PV inverter business. We know grid codes inside and out, reactive power, voltage ride-through, frequency response, and we're bringing all of that know-how into the data center market. In an era where grid operators are increasingly concerned about power quality from large data center loads, this is a major differentiator. We don't just take power from the grid. We assure the grid maintains clean power.

And fourth, future-proof by design. The platform supports 800-volt to 1,500-volt DC outputs, OCP plus/minus 400-volt configurations and medium voltage input connections up to 34.5-kilovolts. Whatever the rack standard looks like in 3 years, our platform is ready for it today. Now a fair question is why SolarEdge? Why should you believe we can deliver on this? And I have two words for you, expertise and scale.

On the expertise side, SolarEdge has 20 years of leadership in DC power electronics. This includes 6 years of dedicated medium voltage SST development so far. We are the market leader in DC-coupled solutions. The technologies we've perfected for distributed energy, granular power tracking, advanced string management, rapid arc fault detection. These all translate directly into the rack-level power control and safety demanded by high-density AI workloads.

On the scale side, we have an operational track record exceeding 60-gigawatts. We have over 140 million units deployed worldwide. We have manufacturing and supply chain readiness at gigawatt scale. This isn't a start-up prototype. This is a proven industrial company extending proven technology into an adjacent market with enormous demand.

Let me put this in an industry timeline context. So 2026, that's now. We're in the proof-of-concept phase. NVIDIA's Vera Rubin is in early production. The industry is beginning to validate 800-volt DC architecture. 2027, initial deployment at scale. Most of it is still -- will still be sidecar-based Stage 1, with early SST validation happening. Rubin Ultra is introduced with around 600 kilowatts per rack. And then later 2028 and further, this is when it gets real. SST-based solutions, Stages 3 and 4 become the standard. NVIDIA's Feynman architecture arrives likely heading to a power consumption of about 1-megawatt per rack. At those densities, Stage 4 native infrastructure isn't a nice to have. It's a necessity. SolarEdge intends to be there when the industry needs it with Stage 4 solution ready for the next-generation compute racks.

Before we open for questions, let me just leave you with this. The AI revolution runs on power, not just any power, efficient, reliable, intelligent DC power at unprecedented scale. The legacy AC infrastructure that serves us for decades has hit its physical and economic limits. SolarEdge is building the power platform for the next generation of AI factories. We bring 20 years of DC expertise, 60-gigawatts of operational track record and Stage 4 architecture that we believe is the most integrated, most efficient solution in the industry. The conversion camps is over. The DC era is arriving and SolarEdge intends to lead it. We're happy to take any questions.

Great. Okay. That was very helpful. Thank you. All right. [Operator Instructions]. So maybe on that last point around kind of the timing kind of being more mass deployments in '28 and '30. That's a question I get quite a bit from investors. So understand kind of '28 to '30 mass deployments. Can you talk about the lead times that you see in order activity? So if that is your expectation for customers ramping, when would be a reasonable time that we start seeing kind of real purchase order progress with customers here?

So first of all, thank you, Meir for taking us through a deeper dive into the technology. I understand that this audience is mostly about POs and revenue. But it was important for us that everybody understands where the differentiation is and where the market is heading according to our understanding.

And if you look at the market evolution, one would see that the data center -- if you are building a new data center today, most probably you will start with a sidecar solution in order to support your 800-volt DC installation. But at the same time, you'll start POC-ing, piloting, testing, everybody is using a different term in order to see how -- which vendor of SST you're going to rely on, whether it fits into your overall infrastructure and architecture and then start "playing with it or testing it" in order to see that it works in your data center. And we believe that what we will see in 2026 and 2027 are essentially these things, right? POCs, maybe small orders in order to support some small tests in existing data centers or in labs of that sort.

As we said earlier, we expect revenue not before 2027 because we are looking into the road map that NVIDIA have published, which is what Meir is taking us through. So POs in a massive scale are going to be for 2028 and beyond.

Okay. On that point, on NVIDIA, I think that's another question that we get. Just kind of the go-to-market, can you talk kind of talk about your relationship with NVIDIA? Are you on their list of partners for this 800-volt DC ecosystem? And then are you working with anybody else with -- that has kind of heavy data center experience, just off the top of my head, a company like Vertiv, for example, anybody else?

No, it's a great question. So as Meir indicated, we are taking a technology that has been -- the building blocks have been designed and worked on for the last 20 years, and we are implementing them in an adjacent industry. So the go-to-market aspect is something that is new for SolarEdge in this particular industry. And what we -- as everybody knows, right, it's NVIDIA offsetting the tone as an industry horizontal maker, if you will. And then you have between hyperscalers, Neoclouds and players like Vertiv and others who have been in the power electronics business for data center for years. It's a small set of potential customers or prospects.

In the last several months, we've started conversations with different players in the ecosystem. We -- most of the conversations have been around technical aspects of the solution. So people get to appreciate what we're bringing to the table and the expertise that we are bringing. So at this stage, we are talking to, I would say, the entire ecosystem, not the entire, but we are open to talk to different types of players in the ecosystem, and we are talking to some of the players there. The feedback that we've received so far is twofolds.

Number one is our understanding about where the market is heading and what Meir shared with you is actually supported by what these people are saying. And the second thing is there is a tremendous appreciation to where we are, both in terms of expertise, but also in terms of where we are in terms of the development of the prototypes. So we feel that at this stage, our engagement with the ecosystem is good, and we are open to engage with different players in the ecosystem. We've not said no to anywhere.

Okay. Great. Getting some questions coming in from investors. Kind of on that point, or -- at least initially, are you focused more on kind of hyperscaler customers? Or are you looking at the co-locators? I mean who is kind of the target customer base? At least initially out of the gate here.

So I'd like to emphasize here that this solution is mainly -- is targeting the AI factories, if you will, the new AI data centers. So co-los are getting there definitely. The hyperscalers are obviously there, it's a major part of their business. And the Neoclouds are -- this is what they've been doing. So it mainly depends on each of these particular players where they are in their evolution towards switching their data centers into AI factories that are based on the DC architecture. As you may imagine, the Neoclouds are probably more advanced in that direction because that's not the entirety of their business, but it's a major part of their business. But all three segments that you mentioned are interesting.

Yes. Okay. So I think you used the phrase leapfrogging in the presentation. This is completely new stuff. But I mean, who would you view as your competition? I mean there's other solid-state transformer companies that are out there, Vernova, Delta, et cetera. I don't know. I mean just maybe -- I don't know, maybe can you just kind of talk about the competitive environment? Or the -- are those solutions that are out there kind of to the extent that it's known, can you talk about where they are going with their product and how that compares to where this solution ultimately fits-in?

Well, I'd say there three types of competitors that we're seeing without getting into specifics of what each of them is doing. One is, let's call it, power conversion companies who have been supplying to data centers for years and want to add this offering, this type of offering for the next generation of data centers, large companies.

Second is start-ups that have come up in recent years trying to make products. And as the market is heating up, we're hearing of all kinds of other companies from other segments of the market of power electronics trying to grab into this market as well. I should say though, moving to medium voltage is a whole different ball game. There are a lot of challenges that don't exist in, for example, in the solar, low-voltage DC. That's the -- that's kind of the easy side of the known engineering. The medium voltage side is a lot more complicated, especially because transformer and solid-state transformer, they both have transformer in their name, but they're totally different. Transformers is a lot of copper and usually a lot of oil.

Solid-state transformer is a power electronics device, and the know-how of how to make power electronics devices that work at these kilovolts is challenging. We were actually -- I didn't write explicitly, but it does appear in the white paper. Basically, what we're doing here is we're using the development effort that we've put in for about 6 years for a direct utility scale inverter which connects directly to the medium voltage, and we're now using it with power-point in the opposite direction as a load for the data center. So we have a lot of know-how that came from years of work in this area and just now is becoming relevant for the data centers that would be challenging for companies that don't have this experience. And again, this is without going into the specific because I don't know what exactly every competitor does.

Yes. Okay. Another question from investor. I believe you guys are based on silicon carbide. Can you talk about your views on gallium nitride? I believe Enphase is talking about a Gallium Nitride Solution. So would you view them as a potential competitor?

Yes. So I don't know what exactly Enphase is planning to do. But in general, gallium nitride is -- it's a good device. We actually have products that we're also developing with gallium nitride, but mostly lower-voltage switching devices. So if you're doing a micro-inverter, which is all low voltage, 480 volts AC and 400 or 800-volts DC, that's fine. When you go to higher voltage levels, usually, you need higher voltage switching devices.

Now there have recently been announcements of GaN devices with higher voltages. Just as a general remark, if you look at what happened in the silicon carbide industry, it could take a few years between when a new switching element is announced and when it's actually reliable enough over time with a high-yield production line and something that's stable enough that you would feel comfortable using in the field. So personally, I would be a little hesitant, but -- and that is something that silicon carbide is a much more mature technology for these higher voltages. Again, not going into specifics of what competitors are doing, just a general observation about the mature level of these different technologies.

Okay. That's great. Another question from investor, and I think this is -- I've received something similar from several people now. So you mentioned in the prepared remarks, roughly 6 years of experience in solid-state transformers. Just to kind of level set, do you have an SST product right now in the market?

And then can you talk about some of the milestones that we should be looking for as far as kind of when you would have this working product, what needs to happen for that? Is there a technical breakthrough, manufacturing breakthrough? What are some of the things that we should be evaluating as investors?

So we don't have such product in the market today. I mentioned that we had 6 years of experience. Basically, we were developing a utility scale inverter with direct connection to the medium voltage. And we kind of reached the point where we had a prototype, we proved that the technology was working. And from there, it was a scaling issue.

But then we decided, we had a business decision just a couple of years ago that at least at the time, the utility scale market was not something -- the PV utility scale market was not something that we wanted to pursue. So we completed the development and then froze the project. And recently, as this 800-volts DC and solid state -- this need for solid-state transformers came from the market, we had the realization that basically this is almost identical hardware to what we were developing with obviously different software to have the power flow in the opposite direction from the AC to the DC instead of vice versa. So it's not a product that we were selling, but I think the technical challenges, definitely the major ones are behind us and now it's a scheduling [indiscernible].

Okay. Yes, that makes sense. Another question on the Infineon partnership, which I think you announced a couple of quarters ago now. Can you just talk about who's responsible for what is Infineon bringing to the table in this partnership? Can you, at least at a high level, kind of talk about how the economics of that partnership work? Is it exclusive? Just kind of revenue or market split in that relationship?

So basically, Infineon is a supplier for the SiC that we're going to be using in the device. There's -- obviously, we're going to pay them for the devices, but there's no revenue share. The IP is SolarEdge. The design is all SolarEdge. There are no complicated commitments here. They're a supplier, and we're working together jointly in application engineering and making sure that the devices fit exactly the use case that we need for the product.

No, similar to the way that we work with them. We've been a supplier customer partnership for many, many years. So it's the same type of relationship. They are providing a very important component in our product. And we have to work closely with the engineering teams have to work closely with each other, but that's the nature of the relationship of the partnership.

And then a lot of questions coming in on how you're thinking about the addressable market, which maybe it's a bit early in that process. But I think somebody is pointing out that Infineon is pegging the market at over $1 billion in 2030. I'm not sure if that's an overall market or if that's their kind of -- their portion of the market. But just how would you frame that conversation for the context of SolarEdge?

I believe we did -- we did mention in our Q4 earnings call a couple of weeks ago that we believe that the SST product and the data center opportunity for us as the SolarEdge can be in the billions of dollars. This would be the SAM, the serviceable addressable market for us, specifically for the SST product. This is, of course, based on our view that as Meir presented, 100-gigawatt or more of the AI data center capacity will be built in the U.S. between now and roughly 2030, as we've shown in the webinar.

As it relates to Infineon, we've listened to the call. So I think they related to their specific opportunity, and they provide components for overall solution. So it's only a portion. And as you noted, I don't think you can extract from that number how many billions related to us, but it's really a portion.

Okay. Another question on kind of front-of-the-meter versus behind-the-meter. So obviously, this is this is saving some of that conversion tax of the grid. If the market ultimately gravitates towards behind-the-meter, does that matter? Do you have a play in either of those markets?

I don't think it should matter from a technical perspective, the product could work on either side of the meter. If there's more local generation, there might be other opportunities, which could be relevant. But as I said, I think that's probably the kind of discussion for another day.

Okay. Let's see. I think you addressed some of this in the prepared remarks, but a question, kind of the specific products that you're offering to customers, is it just SST? Are there other components that we should be aware of? Where do you have an advantage in know-how, et cetera, that gives you an edge?

So as I said, the edge is the experience we have in power electronics and the know-how of DC, both from the power conversion side and from the storage side. So as I said, there's the SST product itself, which also has power distribution units, which in other solutions sometimes are external, but they're going to be part of the solid-state transformer and also the DC uninterruptible power supply, which allows both uninterruptible power supply in case there's an outage, but also peak shaving and similar to what we're seeing in energy management in the solar market. So again, this is knowledge that transfers over to this new market.

Okay. Sorry, hopping a bit around the place here. But going back to the product and the technology, are there other adjacent products or adjacent solutions that you're looking to expand into? I mean, obviously, you don't need to say it by name, if there is something. But I mean, should we think about what you're working on now is kind of the solution that you're looking to deliver a few years from now? Are there additional things that you're potentially layering on top of?

So obviously, the opportunity here in the AI data centers is huge, and our focus is on this particular market. As we are going to engage with customers and to Meir's point about the DC UPS, for example, or other added value that we can bring to the table, we'll obviously address that and see where we can add value to the customers. But the market segment that we are addressing -- that we plan on addressing right now is the data center that we talked about, the AI data center.

Its somewhat related, you have a battery business? Are you going to try and leverage some of these data center relationships to sell your Battery Solution?

So we haven't gotten to this point yet. And like I said, if it adds value to our customers, if we feel that we can add value to them, as you know, these customers are very large customers. They have the ability to source their own battery solutions if they're looking into terawatts of battery solutions. But if there is some area in which we can add value to the picture, we'll definitely look into that.

Okay. Maybe switching to the manufacturing here. Would that be something that you would look to take in-house? Would you use outsourced partners? Would you look to build in the U.S.? And are there incentives under the IRA or One Big Beautiful Bill for building in the U.S.?

Yes. So the first thing that is important to note is what Meir had mentioned in his presentation. SolarEdge has already manufactured more than 60 gigawatts of inverters and power electronics that are installed worldwide, sitting out in the wind, in the snow, in the rain, whatever. So we are very confident in our ability to actually scale up the business.

Initially, call it, in the first 12 months, we are going to rely on our own almost R&D manufacturing, if you will, in order to produce the first units that are going to be used for testing, for pilots, for POCs. Later on, and we've done that in other products as well. We partnered with two of the largest contract manufacturers in the world. These manufacturers, they have -- we've had excellent relationships with them. They know their job very, very well. And they have facilities globally, whether it's in the U.S. or elsewhere.

As for the specific location or the specific contract manufacturer, it's early to tell. They are -- they will have -- we will have to show them that we have business that justifies -- that is justified. And at the same time, they will have to show us which facility can actually support us in the most cost-effective way that is also going to be beneficial for our customers. The U.S. is definitely one of the options. But if our customers are going to have other preferences, we'll have to go there.

Okay. Another question. Can your solid-state transformer be used with Google or Amazon chip ecosystems? Or is it just NVIDIA?

Yes. So that's what I mentioned, I think, in one of the slides, the OCP. So 800-volts is an NVIDIA standard. Google and Meta are part of OCP, the Open Compute Project. They are -- it's not final yet, but it looks like their standard is going to be very similar. It's going to be plus/minus 400-volts with a center cap, which is grounded, and we're designing the SST, so it will fit for that. So that shouldn't be a problem.

I'll say more than that. Everybody is starting with 800-volts, but basically, the initial motivation was to reduce, among other things, reduce production losses in the copper going into the racks. And conduction losses are a function of current and the higher the voltage, you could have lower current and therefore, lower losses. So they started with 800-volt. Some of the customers we're talking to are very interested in going also higher. So the low voltage directive is anything up to 1,500-volts DC. And it's possible that in the next generation, they might want to go above 1,000 volts, maybe 1,200 or 1,500 volts. And we're built since this SST, what we've worked on for years, it started as something which could accept up 1,500-volts. We have all of that built-in so that whatever flavor a customer asks for, we're confident that we'll be able to serve it with the SST.

Okay. Some more questions from investors. These are great, by the way. So please keep sending them in, everybody. Okay. What is SolarEdge's 800-volt opportunity in the sidecar approach versus in the full SST approach?

As I said, we're leapfrogging it. I'm sure there's an opportunity in the sidecar approach. It's more expensive. There's more losses. It doesn't make sense long term. Even NVIDIA is saying the sidecar approach is relevant for the Vera Rubin. But when you go above 300-kilowatt or so per rack, it just doesn't fit. So there might be an opportunity there for this year and maybe next year. We don't think that's worth defocusing. We're focused on the long-term solution, which is pure 800-volt going in all the way from the gray area, all the way to the GPUs.

Got it. Okay. And then just a clarifying question. This investor is asking, are you formally partnering with NVIDIA? Maybe it's semantics, but...

So you have to define formally. But we -- obviously, NVIDIA, they've established this standard. They're pushing it very well. We're having conversations with NVIDIA, but we haven't announced any formal partnership or anything of that sort with NVIDIA.

Okay. Another one here. Let's see. Can you talk about which parts in the AI data center space that you are initially focused on getting traction with customers? And have you already sent -- I think you talked earlier about kind of the pilot activity and everything. Is that already happening? Have you already sent samples of these products for customers to test out?

No, we haven't yet. We haven't sent yet. We've started -- as I said earlier, we've been engaging conversations with different players in the ecosystem. They share the same perspective that we are sharing about timeline and the way that it's going to progress. And these are where the discussions are. Once they get comfortable with our solution and where we are heading, we'll start talking about shipping samples and making progress in parallel to the evolution of the market.

Okay. Somewhat related to this next question. Can you talk about the main hurdles that you're trying to solve now? Is it really just kind of a proof-of-concept with the customers, getting them comfortable with your technology? Or are there further R&D steps that you're looking to do to kind of technically improve your efficiency or anything like that?

Yes. It's mostly having these conversations with our customers, making them feel comfortable with the technology. And also different customers have different demands, indoor versus outdoor, what level of power fluctuation are they interested in, what input voltage do their data centers need, all kind of -- a whole list of things, which are -- so marketed there's -- it's not a huge number of customers. It's very different from the residential solar business in that respect. But each of them is very technically savvy and has their own concerns and their own requirements. So having these conversations.

Okay. Another one from investor. Why is this not something that other inverter companies could do? Obviously, you've got -- you talked about with the SST, you've been looking at it for the last 6 years or so. Aside from maybe that first-mover advantage, are there patents? Any other thing that you would call out that would make you a more kind of sustainable competitive advantage here?

Obviously, there are many patents that we put into this over the years. And I won't be surprised if we'll see competitors migrate to this market as well.

Yes.okay. A financial question. What is the incremental CapEx that will be needed in '26 and '27 for the SST product? And then what is the mix of CapEx between your base Solar business versus the SST going forward?

So for this year, for 2026, we noted that CapEx will range anywhere between $60 million and $80 million. We did note the majority of which will be invested in expanding our production capacity, mainly in the U.S. for inverters, optimizer and batteries.

As it relates for this year, specifically for the incremental required CapEx to support SST, we expect it to be in the, I would say, high-single-digit, not anything more than that. And by the way in terms of OpEx, something in that range, maybe more towards the mid-single-digit. From managing our investment and cash perspective, we believe this spend keeps us on track on the development timelines and efforts and focus while, of course, maintaining a disciplined approach towards the resource allocation. As it relates for next year, we are planning, as you may know, to have an Analyst Day in September. So that time frame, we may be providing some more color for 2027 and beyond.

Okay. All right. Another one. So the investor asks, so they understand the initial focus is on the data center market, but do you see other use cases for other end markets or commercial customers over time?

I'm not sure what the official answer is. But from a technical standpoint, I believe this is a product that could be relevant and interesting in other markets as well. But as Shuki said, our focus is on the data center.

Okay. Let's see. Some of these -- I'm sorry, everybody. I'm just kind of going through some of these that are coming in. I think we've gotten to a lot of these.

Okay. Yes, I think that we are at a stopping point. That was great. Actually, sorry. Okay. All right. A clarifying question from an investor. When you say customers, do you mean hyperscalers? Or are you talking about some of the other parts of the ecosystem like Vertiv or an Eaton?

So first of all, we refer to prospects at this stage. You asked whether we got POs so we haven't received POs yet. So these are prospects. And as we said earlier, we are -- at this stage, we are openly discussing our offering and our advantages, both to hyperscalers, to Neoclouds and to power electronics into the data center-type players. There is interest, I would say, from all 3 segments. And as we make more progress, we'll determine whether we proceed with all of them, with some of them. It's -- as Meir said, this is not a market with dozens of prospects. At the end of the day, it's a small set of prospects, and we are engaging with most of them.

Okay. One more question here. On the first part, I'm not sure which you're going to be able to say, but any framework around the dollars-per-megawatt? And then the second part of the question is, how are you thinking about that dollar-per-megawatt relative to the value that you're adding by replacing all of those prior conversion steps? Obviously, the products might be -- maybe it's a premium to other technology that's out there. But if you're really eliminating that whatever it was, 10% to 15% type conversion tax, I mean, how valuable can that ultimately be?

So it's a great question. And I think that what we're trying to emphasize here is as opposed to maybe other markets in which the conversion tax is translated into savings, in the utility bill.And here, it's a different discussion. Here, the value is significantly, significantly higher than that because the conversion tax basically reduces the potential revenue of the data center. If you can have -- instead of having X number of GPUs, you can have X plus 10%, then it's 10% additional incremental revenue coming from the data center, it's lower cost per token. It's all the good things that make the ROI on the data center significantly, significantly better.

And because of that, if you look at the value only, then you're talking many, many, many dollars per watt. Obviously, the customers are going to come back to us and have another -- some other arguments. But if you look at the value only, the value is very, very significant because it helps them maximize their return on investment -- on investments that are in the billions. And this is how we look at it.

Yes, makes sense. Okay. All right. With that, I think we are at a stopping point. So thank you so much. Thanks to everybody for sending in the questions. Those are great. SolarEdge, this was amazing. Thank you so much. We look forward to tracking your progress here.

Thank you very much.

Take care, everybody. Bye.

Hello, and welcome to the SolarEdge conference call for the fourth quarter and year ended December 31, 2025. This call is being webcast live on the company's website at www.solaredge.com in the Investors section on the Event Calendar page. This call is the sole property and copyright of SolarEdge with all rights reserved, and annual recording, reproduction or transmission of this call without the expressed written consent of SolarEdge is prohibited.

You may listen to a webcast replay of this call by visiting the Event Calendar page of the SolarEdge Investor website. I would now like to turn the call over to J.B. Lowe, Head of Investor Relations for SolarEdge. Please go ahead.

Good morning, and thank you for joining us to discuss SolarEdge's operating results for the fourth quarter and year ended December 31, 2025, as well as the company's outlook for the first quarter of 2026. With me today are Shuki Nir, Chief Executive Officer; and Asaf Altarovich, Chief Financial Officer. Shuki will begin with a brief review of the results for the fourth quarter ended December 31, 2025. Asaf will review the financial results for the fourth quarter, followed by the company's outlook for the first 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.

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 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 and year-end December 31, 2025 press release, may obtain a copy by visiting the Investor Relations section of the company's website.

With that, I will turn it over to Shuki.

Thank you, J.B. Good morning, everyone, and thank you for joining us today. A year ago, on my first earnings call and SolarEdge's CEO, I laid out the 4 key priorities that will drive our turnaround. Today, I would like to focus first on the meaningful progress we have made over the last year and then on the transformation of SolarEdge that we see coming in 2026.

First on the turnaround. We gained momentum last year, delivering strong year-over-year revenue growth and expanding our gross margins in each and every quarter. Our solid fourth quarter results continued this trend. Fourth quarter revenue was up 70% year-over-year without the benefit of any significant onetime pull forward of revenue and outperformed the typical seasonal decline.

We expanded margins for the fifth consecutive quarter, exceeding the top end of our margin guidance and generated $43 million of free cash flow. This concludes a very successful year of stabilizing our financial situation. We grew revenue by 30% year-over-year, lifted gross margin from negative territory in 2024 to 23% in the last quarter of 2025 and generated $77 million in free cash flow for the year versus negative $421 million in 2024.

In the U.S., we increased our market share in all categories: residential, commercial and storage. And in Europe, we gained share in C&I and stabilized our share position in the residential market. And we did so before rolling out our SolarEdge Nexus platform, a remarkable achievement and testament to the strength of our brand and execution of our team.

We also introduced the single SKU contract which has received extremely positive feedback from our customers. We launched several new products, including initial units of Nexus platform. And we continue to ramp up our U.S. manufacturing serving domestic demand and exporting our first product late in the year. I'm so proud of the progress we achieved last year, which was made possible by our relentless focus on operational excellence and a renewed commitment to delivering a best-in-class customer experience.

Our 2025 was just the first step in our turnaround journey. It was about decent. Restoring discipline, generating strong free cash flow, rebuilding margin. 2026 is about shifting to offense while keeping this discipline intact. We will focus on moving towards profitable growth, gaining share, scaling nexus and investing in new high-growth adjacencies such as AI data center power.

And I believe 2026 will be a transformational year for SolarEdge that will take the company to the next level. Starting with profitable growth. As you can see from the midpoint of our guidance, we expect Q1 to be another quarter of year-over-year revenue growth and margin expansion and revenue will once again trend above typical seasonality.

If these trends continue, we would be on target to achieve EBIT profitability later this year. We have focused on operational excellence in order to continuously improve our margins and enhanced customer experience. For example, we will be selling our products in a more selected number of key markets where we believe we can win, and we're winning will make a meaningful impact on our results.

Such change allows us to roll out the single SKU concept globally to consolidate warehouses and to streamline our supply chain. The next area of transformation is market share gains. Starting with the U.S. resi market. The market is expected to change this year as 48 is the only available tax credit in residential solar.

We have described how we believe this market evolution plays directly into our strength as the leading provider to PPO. We have deep relationships and integrated infrastructure with these customers. And we offer high-quality products designed to be domestic content and for compliance, produce more energy, deliver better economics and provide faster paybacks to our customers.

As such, we maintained our #1 position in U.S. residential in the third quarter of 2025 and aim to drive further share gains this year. Moving to the C&I market in U.S. We are pressing our advantages here. Out of the 3 leading manufacturers in the market, we are the only one whose products are designed to be both domestic content and FIO compliance, which should provide a significant advantage to our customers.

Consequently, in the third quarter of 2025, we achieved the #1 share position across the entire C&I market, even when including ground mount. We believe that we can grow our share further due to the same dynamics. Let's talk about Europe. While the market remains slow, we expect '26 revenue to exceed '25 levels as we spent most of last year clearing channel inventory.

This growth potential can be amplified by gaining further market share in 2026, and I believe we have several tailwinds in this month. First, U.S.-made products with a lower cost structure that we have started exporting.

Second, the introduction of the single SKU. And third, the Nexus rollout enhances our product offering, particularly in the 15 to 30-kilowatt segment, providing a full home backup solution for larger homes. Reaching to battery which impacts market share in all regions and segments.

Battery attach rates are expected to continue to rise worldwide, and our advantages are very applicable here. Our DC Castel architecture delivered as much as 6% higher efficiency, which can result in up to '24 more days of energy per year than AC-coupled alternatives. This translates into meaningful savings for system owners and is the major reason we believe our products can continue to take share in the TPO dominated U.S. market and around the world. In fact, we are already seeing market share gains in the U.S., where we became the #2 supplier for residential batteries in the third quarter of 2025.

Our third area of transformation is product innovation and leadership. I'm very pleased to say that we are on schedule for the launch of our Nexus platform with an exciting launch event in Germany on March 19.

Our first customers have told us that this is the best solar edge product [indiscernible] and yesterday, my family became part of this group of satisfied customers when the full [indiscernible] system was installed at our hubs. Next is lighter and takes up less to work space. The modularity and stability of the system offers flexibility both during the sales process and during installation.

Our installation and commissioning times are expected to come down showing that the work we've put in to alleviate installed pain point is on the right track. In the U.S., Nexus batteries will come with an industry-leading 185 apps LRA which is needed for true full home backup. Our meter color solution includes passive cooling, which we think is going to improve reliability in the field and serviceability itself is a major differentiator.

Most issues can be sold by swapping necessary parts without having to remove and take apart and tire units. The fourth element of this transformation is investing in AI data center power solutions.

As you all know, power is the limiting factor for AI expansion. NVIDIA is guiding the industry to improve this through a transition to 800-volt DC architecture. An architecture that fits perfectly for the technical expertise, SolarEdge has refined over the last 2 decades.

We believe this represents a multibillion dollar addressable opportunity over time. Since our last call, we have made progress in our solid-state transformer platform as we pursue a unique system that converts 34.5 kilowatt directly into 800-volt DC with efficiency of over 99%. [indiscernible] is purpose-built for direct media voltage input, using a modular high-frequency conversion architecture designed to increase efficiency at the data center and reduced stages, losses and footprint versus conventional alternatives.

We have already engaged with potential customers and ecosystem partners. Based on the feedback and requirements from industry participants, we believe this gives us a structural advantage in efficiency, controllability and power density.

Potential partners also recognize our DC coupled architecture expertise and the system-level value we bring. In addition, based on our large-scale power electronics manufacturing experience, we expect to have a clear path to scale production capacity as market demand develops.

To summarize. In 2025, we set out to turn the SolarEdge business around and to lay the foundations for profitable growth. I'm very proud of the work we did and the progress we made. But that was last year. is about execution at scale. We are working towards profitable growth. Our aim is to gain market share globally.

We will ship Nexus in the high volume and we will advance our opportunity in AI data center power solutions. We are moving forward with discipline, but with an offense mindset focused on winning in every segment we compete in. I cannot wait to share our progress with you in the coming quarters.

With that, I will turn it over to Asaf.

Thank you, Sukhi, and good morning, everyone. Starting with our quarterly results. Non-GAAP revenues for the fourth quarter were $334 million, up 70% year-over-year and slightly down 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 either safe harbor or '25.

Revenue from the U.S. this quarter amounted to $198 million, down 3% quarter-over-quarter and representing 59% of our revenues. Revenues from Europe were $99 million, down 1% quarter-over-quarter and representing 30% of our revenues. International markets revenues were $37 million, up 2% quarter-over-quarter and representing 11% of our revenue.

Non-GAAP gross margin this quarter was up significantly to 23.3% compared to 18.8% in Q3, just above the higher end of our guidance. The higher gross margin is largely due to higher sales of U.S.-made products and lower seasonal warranty costs. We continue to take actions to streamline our operations and focus on our core businesses.

Subsequent to year-end, we sold the remainder of our e-mobility business for a consideration of $12 million. This sale resulted in a GAAP net loss of approximately $8 million. Additionally, in Q4, we recorded a onetime noncash finance expense of approximately $60 million related to the closure of the Kokam battery manufacturing division. These actions are a continuation of the process that we began in late 2024 to optimize our portfolio, which included the sale of our tracker business and battery manufacturing facilities in South Korea.

We believe these portfolio optimization actions are largely complete and the expense reduction associated with these moves will allow us to invest and focus more strategically on our core products and businesses and accelerated development of our data center offering.

Non-GAAP operating expenses for the third quarter were $88.7 million, up slightly from last quarter and within our guidance range despite headwinds from the continued strengthening of the new Israeli shekel metal hedging. Non-GAAP operating loss for Q4 was $11 million compared to a non-GAAP operating loss of $23.8 million in Q3, cutting our operating loss by more than half for the second straight quarter.

This is a promising result and speaks to the progress we have made in executing our turnaround plan and is another step on a journey back to profitable growth. Our non-GAAP net loss was $8.2 million in compared to a non-GAAP net loss of $18.3 million in Q3, also a reduction of over 50%.

Non-GAAP net loss per share was $0.14 in Q4 compared to $0.31 in Q3. The lower operating and net losses, the lowest in 5 consecutive quarters are largely due to our higher growth profit and margins. Turning to our balance sheet now. As of December 31, 2025, our cash and equivalent portfolio was approximately $581 million.

Our cash and investment portfolio increased by approximately $34 million in Q4. This is the result of our strong positive free cash flow for the quarter of approximately $43 million which was largely driven by working capital items and our continued CapEx discipline. Despite the volatile tariff environment, we managed to generate $77 million in free cash flow in 2025 and a complete turnaround from the negative free cash flow of $421 million in 2024.

For Q1, we expect to continue to deliver positive free cash flow despite our planned investment in working capital to support our anticipated growth. This reflects solid underlying operating performance and continued discipline in managing expenses and capital investment. Turning to our working capital items. We remain hyper focused on improving our cash conversion cycle.

Our inventory increased by $22 million as we had higher raw materials procurement to support the launch of our Nexus platform and due to higher battery demand. AR net decreased this quarter to $267 million compared to $286 million last quarter driven by a strong collection this quarter. A quick update on disclosures.

As we mentioned last quarter, we have discontinued the megawatt ship disclosure. We are now disclosing the number of inverters, optimizers and megawatt hours of batteries that we recognize as revenue on a quarterly basis. We are also now providing revenue by product type on a quarterly basis.

You can find the current quarter data in the press release and supplemental tables, which also include historical quarterly data going back to Q1 of 2024. We believe these new metrics will help analysts and investors better understand the underlying dynamics of our business.

Turning now to our guidance for the first quarter of 2026. We are expecting revenues to be within the range of $290 million to $320 million, which, at the midpoint, reflects a better than normal seasonal trend for the first quarter. This range does not include any significant onetime pull forward of revenues.

We expect non-GAAP gross margin to be within the range of 20% to 24%. We expect the non-GAAP operating expenses to be within the range of $88 million to $93 million. The quarter-over-quarter increase at the midpoint is largely due to the strengthening of the new Israeli shekel against the U.S. dollar, net of hedging.

I will now turn the call over to the operator to open it up for any questions. Operator?

[Operator Instructions] And we will take our first question from Brian Lee with Goldman Sachs.

Kudos on the solid execution here. Maybe first question on the AI data center opportunity. I mean it sounds like it's starting to crystallize a bit more. So I appreciate the additional color this quarter. Can you give us a sense -- I know it's not going to impact 2026, but it does sound like it will be part of your 2027 business plan.

What kind of needs to happen between now and then? Like when do you have a product kind of in beta version? How long do you think the qualification cycle will be with potential customers?

And then I guess, how do you envision the actual manufacturing of the product? Is that something that you will take on? Is it [indiscernible] in the factory? Just trying to understand maybe the logistics from very commercial as a product and get into the market.

Yes. Thank you, Brian. It's really exciting time for the data center opportunity that we have. As we said, we believe this is a multibillion-dollar opportunity for us.

And as we shared with you before, NVIDIA is targeting the new generation of the GPUs that require the 800-volt DC architecture for 202. So assuming there is no -- there are no delays in their road map. This is where the market is heading to have initial solution. Initial data centers that are designed to support 800 [indiscernible] and as you know, some of the data centers are looking into hybrid solutions, which is basically taking the AC infrastructure, adding some additional component sits called the sidecar.

And that will give them an 800-volt DC with a lower risk for execution, if you will, but with much lower efficiency. When they look into the SST solution, then that should provide a much higher efficiency. And at the same time, it will require for us and for others to develop the technology, to go through what you refer to as pilots or POCs or other ways for the data centers to feel comfortable around the solution in order to deploy it in mass.

We have started engaging with the ecosystem players. With the different participants, whether it's hyperscalers, whether it's other power electronics providers and some other players in the market. And the feedback that we've received so far about our technology, about the expertise that we bring to the table, some additional information that we actually bring to the table that some of them were not aware of. So the feedback that we've received is that our solution seems to be very attractive for them.

The ability to convert 34.5 kilovolts directly into 800-volt DC with efficiency of over 99% is very impressive. And we've started the discussions. At this stage, the discussions are at a technical level. The technical teams are under NDA, obviously, they try to understand better how our technology is architectured, how we are implementing the different part of the solution.

And we believe that after that, we will start having discussions about initial real or prototype testing and as you said, we do not expect any revenue before 2027. And the industry is expecting the ramp-up to actually start in 2028. That brings another point that many people don't think about, but our ability and our experience in mass production of gigawatt-scale inverters or solutions is something that is going to be very, very important as this data center AI data center builders and operators are going to consider with whom to partner.

And that will give us a clear path, we believe, to mass production.

Super helpful. I appreciate all the color. And then just a follow-up on the -- maybe the guidance in the safe harbor. I know it's not been your on policy to promote on safe harbor, and you don't include it in guidance. Maybe just a question on the sort of notes it relates to safe harbor. You have no safe harbor for your acknowledgement in Q4 revenues.

You're budding anything in really 1 of your peers, major peers has seen it for several quarters in a row. And as also alluded to the fact that they're seeing it in Q1 and expected into Q2 and maybe even into Q3.

So how much of this is maybe just a different go-to-market strategy? Are they just being more aggressive than you? Is there a share shift amongst that part of the market that wants the safe harbor, maybe speak to that?

Are you actually anticipating safe harbor to positively impacted in Q1 and beyond, but just so as -- maybe some thoughts around that and how you're different versus your peers.

Yes, again, thank you for bringing it up because there might be some confusion out there about what we're referring to when we say there is no significant pull forward of revenue. And we'd like to emphasize that.

When staff and I, when we talk about guidance for the quarter or the results of the fourth quarter, we are saying that there was no significant revenue that was recognized that you safe harbor. At the same time, we've done a lot of safe harbor deals based on the physical work test.

And as we shared in previous calls, what happens over there is the structure of the transaction is such that because of the fact that it's a unique inventory item, and it -- there is no revenue recognition until the delivery of the product and the customers have the ability to actually procure the product at the time that they need it. then we've not recognized revenue associated with that, but we have signed significant safe harbor deals associated with the physical work test, in addition to that, from time to time, we are having the 5% safe harbor deal.

And in that case, we recognize them within the quarter. But if they don't fall to the definition of the safe harbor or the pull forward of revenue, then we don't count them towards that.

So just to complement a couple of points. So as it relates to the physical work test, for assets results in a revenue recognition profile that I will say is more similar to the normal cadence of the way we do business.

Again, all forward, no pull forward. We know that not put forward no pull forward for Q1 in terms of our guidance. And an important benefit that we do get is it does provide us with a much better visibility, I would say, and we can tie optimize the entire supply chain.

And of course, from our customer perspective, it's a major benefit because they did not have to put a large upfront amount of payment, and they can pay for the products as we pull I think it's beneficial to both ourselves and our customers.

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

I know you haven't provided an outlook for Q2 and beyond, but I was wondering if you could give us some color on how you would expect revenue to trend in Q2 and margins as well. Would you expect the kind of similar historical seasonality with revenues going higher in Q2 versus Q1?

And if you can share what the magnitude directionally might be that would be fantastic.

Thank you for a great question. So in terms of -- as you know, we do not guide past the next quarter. As you noted, there is, of course, a positive seasonality driver in Q2. Typically, it's around 15% to 20%. So we do expect it to be up, but we won't comment on beyond -- in terms of the overall drivers for the 2006 revenue, I think, as Shuki noted in our prepared remarks, in the U.S., as we have said, we see continued shift towards the DPO this year.

And as you know, we work with all the PPOs, we will designate the infrastructure with them and we have a multiyear relationship with them. So we certainly see that as a positive. Our new [indiscernible] platform is on track. With the rollout plans and comes, as you know, very highly competitive feature set. We do have a better cost structure implemented in these products -- we do see in the U.S. a significant C&I opportunities.

We believe that we have a unique position of the domestic content and [indiscernible] enabler to our customers, including enterprise customers. Now moving to the EU continent. So for the first half of 2025 last year, as you know, we saw significant inventory clearance in the channel. This will make year-over-year comps fairly achievable to exceed in the first half of this year of 2026.

At the same time, the new market remained sluggish, and it could even go down this year. So I would say it will be an interplay between a weak market, a new product rollout, market share expansion efforts.

We're highly focused on that. As Shuki mentioned, I think we have multiple reasons to be optimistic, including, again, the Nexus exporting from the U.S. with a better cost structure that will enable and allow us to be even more competitive.

We're penetrating new segments in Europe with our 20-kilowatt invest and the singer SKU rollout, of course. In terms of margins, so again, we're not guiding beyond the next margin as specifically for Q1 margin, as you can see in the mid-range of our guidance slightly lower than Q4, mostly because of the lower revenue because of the seasonality trend that we referred to.

This will be partly mitigated or set off by higher sales of U.S. products and efficiencies that we'll start seeing from the implementation of our single SKU rollout. Talking about the longer horizon, I think you asked about that.

So again, we don't give guidance where there are certain levers that we discussed, which are very relevant now even more. The one would be the higher revenue, of course, Q2 and beyond, if you look at the natural seasonality trend, we expect to follow that. The continuous ramp-up of the U.S. production. We are ramping up the U.S. production as we go, preparing for growth.

I think I talked about the Nexus and the new products. in terms of the battery in terms of the next is we are shifting from NSE 1P. So that's another major cost driver, Saver. And of course, I think we talked a lot about the [indiscernible] that's going to be also gross margin supportive item for us.

So on top of all of that, of course, you need to look at mix and things that we cannot relate to now. But overall, the trend is positive as we move forward.

Great. Thank you for that color, Asaf. I was wondering if you could talk through maybe your free cash flow expectations for '26. The second part of my question is tied to the European markets. I was wondering if you could help us understand, give us a better understanding. I know you guys are very enthusiastic about the market out there.

And it seems like from a competitive positioning standpoint, with the Chinese removing the VAT rebates that might put to your products in an even better position. So maybe walk us through kind of the competitive dynamics between the new Nexus platform relative to what's out there today? And then the massive focus on storage and your benefits there?

So thank you for the question. I'll start with the cash flow, and I'm sure Shuki be excited to tell you about directions and focus in the new market. So for 2025, in Q4, we ended with $43 million, a very strong free cash flow quarter with overall $77 million for the entire year. So again, we believe it's a pretty strong performance.

And again, for beyond Q1, we said that we will be free cash flow positive for Q1. We gave actual guidance to that. We're not going to give anything beyond that. What I can say is that we're always focusing on improving our cash conversion cycle, which would be supportive of our cash generation, of course.

That said, in a growth environment where we're anticipating, we would invest in working capital, considering our work towards improved margin profile, we believe this would be a prudent investment that we are making. Actually, you can look at what we've done in, again, 2025.

We transitioned from a massively negative free cash flow position in '24 to a strong $77 million and $25 million. and we were positive in 3 out of 4 quarters during 2025. So overall, we're very focused on cash flow and working capital management. Q1 will be positive. Free cash flow. And beyond that, we'll just start to be a bit patient. Shuki, I'm sure you...

Yes. Thank you, Philip. About Europe to your question. So yes, at this stage, it seems that -- and again, we're talking about different countries, different dynamics in each of the countries. But overall, the market remains somewhat slow. .

At the same time, we are -- we believe that we have a good opportunity in Europe to gain additional market share, both in the C&I and the resi market. And it starts with the fact that we are starting -- we started exporting our products from U.S. manufacturing to Europe. These are newly built products. designed by SolarEdge manufactured in the U.S. with a good cost structure that will allow us to compete, as you said, has suggested more aggressively in the market.

The second piece is the rollout of Nexus and as I mentioned, on March 19, we are having a launch event in Germany. We are expecting hundreds of installers to come over to experience firsthand the ease of installation, the speed of the commissioning process and I couldn't avoid sharing the fact that they installed it in my house yesterday.

And we are very, very happy with that. The Nexus platform brings and we discussed it in previous calls as well. It's -- it was designed from the bottoms up as a system. So it's not like an inverter that somehow a battery is attached to it. We're actually looking at the entire system, the efficiency both in the high kilowatt rating, as I used, we are addressing now the 15 to 30-kilowatt rating which is a major segment in the DACH region.

But at the same time, also many houses when they go at night, they go to the battery, they actually consume less than 1 kilowatt and the efficiency over there is really, really important. Some competitors are boasting some high efficiency rating in the high kilowatts. But when you really test them in the low kilowatts, you get embarrassing results.

We are very proud of the expertise that we have in this architecture. And because of that and the decoupling between the inverter and the battery we can actually have both high efficiency at the high kilowatt rating, but also when the system goes to sub 1 kilowatt, we demonstrate leading efficiencies.

I can go on and on about the advantages of Nexus, but we are very excited about it. We believe it will help us gain share. And the last piece is the operational excellence. We talk about single SKU that really simplifies the work and the cash management and the inventory management and the reliability of the product for us and for our customers.

We've also stopped selling our products in many different countries. We are focused on the countries where we can win, where we believe we can win and where winning is going to make an impact on our results. And that allows us actually to focus on less countries but with a much bigger force.

On the C&I side, between our storage solution that is taking off and the inverters that we continue selling, we believe that we can gain share over there. So all in all, we are optimistic about Europe in 2026.

We will move next with David Arcaro with Morgan Stanley.

I was wondering if you could give an update on where channel inventory currently stands maybe in the U.S. and Europe, how healthy the levels are right now?

Yes. Thank you, Dave. So as we discussed in past calls, most of our distributors in Europe have resumed normal levels of inventory and that's the reason that we actually consume some of our inventory. And now we've started producing product for Europe in the U.S.

So when they need additional products and they do they will start buying our newly produced products from the U.S. In the U.S. channel, overall, the channel has normal levels of inventories, nothing major to report over there.

Got it. Okay. Great. And then let's see, the megawatt battery storage were strong for this quarter. I was wondering if you could just touch on what you're seeing in terms of the market backdrop in demand for storage, maybe in the near term, how is that trending kind of seasonally into 1Q and as you look into the first half of the year into 2Q, the direction of -- that you're expecting for battery storage volumes.

Yes. So as we said, the need for storage is increasing globally and in both segments, both the residential and the C&I -- so what you're seeing almost in every market and every segment is up and to the right when it refers to the tax rate.

And as I mentioned earlier, we believe that we are offering a complete solution for our customers. And because of that and where the market is trending, we expect to see storage becoming a bigger and bigger part of our sales. As I mentioned, with the nexus actually, this competitive advantage is significantly higher, and we do expect that to be some sort of step function, if you will, in terms of the attractiveness of our storage and backup solutions.

And in the C&I side in Europe and in international markets, we continue to see that's more and more customers understand or calculate the return on investment that they can have from adding storage to their solution, and we see a major opportunity over there.

And now I believe that later in the year, we will start also addressing the installed base. We have, as you know, a very large installed base in many markets. And in the ones where it makes sense, we will find a way to actually leverage on that as well.

Our next question comes from Dylan Nassano with Wolfe Research. .

I just wanted to go back to the solid-state transformer and maybe approach it from more of a technical perspective. Could you just kind of walk through what you see the relative advantages being or even differences in application between your planned silicon carbide architecture and something that's like GaN-based, for example?

So thank you, Dylan. This is -- it's an excellent question, and I believe that -- it's too early for us to actually comment on such questions. What we are -- what we have said is actually we've looked into several potential partners when we develop the architecture that is going to be highly efficient in the conversion.

And in a way, if you think about it in solar, it's about cost is the main driver. While in -- at the AI data center, the cost of our system is obviously important, but it's not the main driver. It's a performance that we can generate. And if we can increase the efficiency from 98% to 99%, it had significant value. So it's not like a cost game to the same level.

Now I'm not a PhD in engineering. I don't have a PhD in engineering, but to the best of my knowledge, on are less relevant in AI data center solutions, but let's leave it at that because I may be wrong.

Okay. Fair enough. And then just for a quick follow-up. So your partner there, Infineon, they had some bullish comments on AI data center demand on their call. and they raised their CapEx outlook as a result of that.

So just given your earlier comments, can you kind of frame up this ramping demand in terms of like incremental R&D spend or even CapEx? And then -- sorry if I didn't catch this earlier, but have you decided where you intend to manufacture these? And is there any benefit to doing so in the U.S. versus overseas?

Yes. So I cannot obviously comment on what Infineon does or doesn't do. I'd like to emphasize 2 points here. One is we believe that this is a multibillion-dollar opportunity for us, the SST for AI data centers. At the same time, Infineon does support other companies that are larger than solar rate as well.

So what they do with regard to CapEx or their comments about the market. I'm not necessarily referring to what we are doing. And to your question about have we chosen where to manufacturing?

Not yet. There are some considerations that are favoring the U.S., obviously. And we have the infrastructure that is required and the expertise and the partners that are needed in order to ramp up manufacturing in the U.S. quite quickly. And therefore, it's definitely a region or a location that we may favor.

And as it relates to incremental OpEx and CapEx, certainly, we believe in the opportunity of the SST and we plan to invest both CapEx and OpEx. Our investment is incorporated in our guidance for Q1. And beyond that, we will share with you our progress, of course.

We will move next with Mark Strouse with JPMorgan.

Shuki, I wanted to go back to the comments that you guys have been making for a while now about kind of the U.S. C&I business and your favorable competitive advantage with [indiscernible] domestic content. Just curious with the initial guidelines that came out from treasury last week, if you have any comment there, positive or negative and kind of how you're thinking about the durability of that advantage over the next coming quarters or coming years?

Yes. Thank you, Mark. And you're right, we're very optimistic about what we can offer to our customers on the C&I segment in the U.S. as our products have been designed to be both SOC and domestic content compliance. The recent SEC guidelines or rules -- with regard to the materials and the manufacturing are there more specific, but at the same time, they have not really changed what we had assumed until now.

So from that perspective, we are in compliance with -- we continue to believe that we are in compliance. Our products are in compliance with the field requirements. What remained open is about foreign entity. And on that front, SolarEdge has nothing to be concerned about. We are in a U.S. company owned by U.S. shareholders. So we are not concerned about that part.

So we continue to follow any development that may happen. But at this stage, the product that we currently have -- they were designed to comply with the current ruling, and we'll continue doing so.

Great and then just a real quick follow-up, if I can, as the 1Q guide, the 20% to 24% gross margin, I'm sorry if I missed it, but did you say kind of what the impact is or what the impact is from tariffs reflected in that? .

Actually, we did not quantify the tariff impact. At this point, we see tariffs or simply an additional cost of doing business in the U.S., along, of course, with the labor expenses, component codes, everything related to the U.S. manufacturing. As you know, we don't typically single out any specific or state unless temporary or onetime and we see tariffs no longer as such. So we'll just report our gross margin going forward.

And one important point I want to make is that as we increase our exports from U.S.-produced product and so to global business, which is, of course, a meaningful part of our business, as you know, we get back some of the tariffs to what is referred to a drawback mechanism, which will reduce the net impact of tariffs over time, certainly on a weighted average basis of our overall sales.

And just to finalize I say that despite these tariff incremental costs, we can know that we still exceeded the high end of our gross margin guidance in Q4. And we're only seeing, I would say, a slight dip at the midpoint in Q1, the 22% that you referred to despite the decline in seasonality. So I hope I answered you fully.

Thank you. We will move next with Chris Dendrinos with RBC Capital Markets.

I guess maybe just to start here to follow up on that prior comment. As it relates to battery sourcing, and I think you mentioned you're going from NMC to LNP do you have supply from outside of China and just maybe speak to the security of that supply chain.

Thank you, Chris, for the question. And as we stated before, what our supply chain team has been doing for years and definitely in these past years, they've been doing is we constantly look at the combination of [indiscernible] and domestic content compliance, cost, availability and cost is inclusive of everything between tariffs and other parameters that impacted and lastly, but first is reliability of the product, which, obviously, we are trying not to compromise on them.

So we are going to change from time to time. We have more than 1 source of battery cells as well as other components that we are using. So we look at it as optimizing the situation as it goes.

Got it. And then maybe just as a follow-up as it relates to the Nexus platform. How are you thinking about the kind of full-scale rollout here? And when should we expect the platform to be kind of fully skilled or fully rolled out across the globe?

Yes. That's an excellent question. So we are going to start in Europe with the DACH region and with the U.S. And then we are going to continue rolling out to different countries in Europe and then to Australia and some other markets. .

The ramp-up is going to take some time. We are going to start -- as we said, we start initial quantity -- we've started already initial quantities -- but I would say that the high volume is going to start in the third quarter of the year. And we believe that we can finish the transition in Q1 maybe of 27%. But that will be already the long sale, I would say. Most of the transition should happen in the second half of this year.

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

Maybe just a quick few follow-up items. First, just in terms of the seasonality commentary from earlier, just to elaborate a little bit further. Can you comment on the C&I trend? Is that part of the secular trend that you're seeing kind of that performance and why you didn't want to comment too specifically about through the course of '26.

What else is impacting the trends that you're observing, if you can elaborate a little bit more to the earlier question. And I've got a quick follow-up on -- well, I'll ask you the follow-up here as well. Just 5 how much of that credit are you expecting here if you can elaborate just a little bit more on that front in the quarter itself? And when do you expect some of those deferred revenues to unwind?

All right. So thank you, Julien. And I'll start with the first question, and then Asaf will go to the [indiscernible] So for the seasonality trend, and you know it as well as anyone. When we combine storage resi C&I, U.S. and Europe, to start talking about seasonality in specific and very precise number is kind of a hard -- when we say historical trends, we are referring to how the industry has trended over the last several years, which includes both C&I and resi. And for that, when we say that we expect Q2 to be higher than Q1, it's a combination of both.

Thank you, Shuki. I think you asked about [indiscernible] So I think as you know, since the beginning of the year, we don't break out 45 weeks in our press release. The reason we don't is it's an integral part of the U.S. manufacturing cost structure. 45 is the single most attractive incentive that we believe, in the world currently for manufacturing our products.

This is why, as you are aware, we moved the shift at about 90% of our production capacity the U.S. over the last couple of years. And generally, as a company, our strategy is to manufacture in the location that delivers the lowest net cost to us, including incentive, of course, and again, this is currently the U.S., and we expect it will continue to be as such as long as 45 exited players. So we're very focused in the U.S. definitely, as long as the 45 big is there.

We will move next with Colin Rusch with Oppenheimer.

You talked a lot about taking some market share here. And I'm just curious about your strategy around pricing and balancing margin within that strategy and how aggressive you expect to be here over the course of 2026.

Thank you, Colin. This is -- it used to -- as to say it's a million dollar question. It's probably the billion dollar question, how you optimize between margin and market share. We are definitely trying to optimize them both. There are certain things that we need to take into account when we think about pricing and about gaining share.

The first priority for us is to add value to our customers, whether it's through the products and the benefits that it brings, whether it's through our service or reliability of the product and the ease of doing business with us. And we are putting a lot of effort improving all of these. That being said, we have competition. So while we can have a premium, we have to keep a check with what we can do. with what we can do.

And then we are following the share gains as it pertains to the premium that we are charging in the market. And we believe that we are doing a good job so far. Both expanding our margins, increasing our share and increasing our margins actually vent.

Excellent. And then the follow-up is really around the [indiscernible] transformer and the opportunity in data center and how you're tracking the competitive landscape.

There's obviously a number of folks working on solutions here, and there's a lot of, I guess, figuring out that's happening right now. I guess how are you approaching benchmarking progress from some of the other folks working on this and keeping track of your own progress and some of the future improvement that's going to be required to really stay competitive and durable as the equipment provider into that market over time?

Yes. So obviously, we're not the only ones who identified the multibillion dollar opportunity that is out there. And there is a bunch is a bunch of start-up companies that are pursuing this opportunity. Other companies that have been providers of power electronics to data centers and maybe some additional ones. We believe that what we bring to the table is similar to what we did in solar for the last 2 decades.

His expertise in what matters the most here, which is the DC architecture the ability to have highest efficiency, the ability to actually manufacture at scale. And we think that if we can bring a superior solution, and then continue to innovate and to bring additional solutions to the market, we'll maintain the leadership, and we'll be able to get our fair share of this opportunity.

It will require additional investment, additional focus. And luckily for us, it's actually right in our wheelhouse. It's exactly where we are really, really good. Our team is excellent in this area, and we plan on leveraging on that.

We will move next with Karin Blanchard with Deutsche Bank. .

Most of them have been answered, but maybe can you discuss whether you're considering changing pricing strategy in Europe or in the U.S. this year or like in 2027. And then maybe if you can talk as well a little bit about like your exposure to the TPO market and you have less exposure to the 25. Just what are you seeing here in the TPO market and per rate you're trying to enter the market?

Yes. So I've just covered the pricing in Europe and in the U.S. We are not going to change pricing strategy percent. But our intention is to continue pushing forward our advantages to continue providing more and more value to our customers and to have the applicable premium paid to us and at the same time, look at how we can continue to gain share.

And that is applicable in both markets, even though the competitive landscape is slightly different. The strategy remains the same. The second question was about?

Just how you see like the TPO market? And I know it has been already, but like are you seeing like an increased competition like of peers trying to enter the TPO market? And how do you see the market evolving for this year and 2027?

Yes. So obviously, with 4 remaining the only tax benefit in solar -- the market is shifting towards the TPOs. And as we said earlier, we feel that over the years. We've partnered with the TPOs. We are providing them with the value that they need, not only at the product level and the additional power that we generate and the best efficiency that we can have both in kilowatt and low kilowatt.

But actually, in terms of integration of systems, knowing how to work with them and support them. So we feel that we are there for them and we are happy that this part of the market is growing.

We will move next with Vikram Bagri with Citi.

Shuki talked about Signal SKU consolidating warehouses, streamlining operations and a lot of initiatives you're taking to improve the profitability. Is there a way to quantify the impact of these initiatives on coal as well as on I'm trying to understand the building blocks of how you reach EBIT profitability by year end '26.

How much of that is operating leverage from gaining market share, increasing revenues versus ramping up versus cost savings. If you can quantify or sort of directionally guide us how these factors will contribute towards the EBIT profitability by year-end? And then I have a follow-up.

Sure. I think on the gross margin levers expanded in the last question. talking about the main levers, of course, the high revenue, the ramp of U.S. production, introduction of the next, the Citron NMC to LFP and so on and so forth. I didn't touch about the OpEx margin. So maybe it's an opportunity to talk about our OpEx drivers and cost reduction levers. So here, there are, of course, a couple of moving parts, I would say. .

As we noted in the prepared remarks, we continued in 2025 and throughout 2025, to optimize our product portfolio. We shut down our Coke Energy Storage division. We divested our tracker business, [indiscernible] and we sold our mobility operation that just after the year-end. All of these are positive contributors to our expenses, and we enable us to focus more on the core business and on the SSP.

But on the other hand, during 2026 as I said, we plan to increase our investment in OpEx and CapEx in the SST project. Another important factor, maybe the last one to relate to is the strengthening of the new Israeli shekel, which has been a meaningful headwind for us over the course of the last months, if I remember correctly, it's up more than 14% over the course of the last 12 months.

And yet with this circle trend, we've been hedging, of course, but at a less attractive rates. And still putting all of these factors together, we feel very comfortable with our $88 million to $93 million guidance. Like I said, it's a pretty good run rate to assume. Of course, assuming current macro environment condition will persist. Nobody knows that. So again, we didn't give specific guidelines as to when we will reach profitability. We are highly focused on turning to profitable growth sometimes within 2026.

And then as a follow-up, Asaf so you mentioned investments in working capital this year. And you also mentioned in response to this question on previous question is potential investments in solid-state transformer product as well. I wanted to ask the free cash flow question slightly differently. Do you expect positive free cash flow this year? Or there will be sort of free cash flow draw this year because of all the investments you're making?

Sure. So again, I actually answered this question before, but for Q1, we gave specific guidance as it relates to being free cash flow positive. Beyond that, we will -- we are not guiding. We'll have to wait for the next quarter. And we are extremely focused, Shuki, myself and the entire company in managing our working capital. I think as the profile margin would improve, and we keep controlling, of course, the discipline around OpEx and CapEx you will see that. In terms of CapEx, I do have to say that we do expect to have significantly higher CapEx next year.

And in 2025, if I remember correctly, it was in the neighborhood of $25 million with incremental investment associated with SSD and to ramp up our production, I think we will see higher CapEx next year in 2016.

And at this time, we have reached our allotted time for questions. I will now turn the call back over to Shuki.

Thank you. Thank you, everyone, for attending this call. As we said at the beginning, we are very excited about what we did in 2025. And now we are moving into offense. Our intention is to drive into profitable growth to gain market share, to roll out Nexus, and we're very excited about the opportunity we have in the AI data center, power solutions, and we can't wait to update you as we make more progress. Thank you.

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

Hello, and welcome to the SolarEdge Conference Call for the Third Quarter ended September 30, 2025. This call is being webcast live on the company's website at www.solaredge.com in the Investors section on the Events Calendar page.

This call is the sole property and copyright of SolarEdge with all rights reserved and any recording, reproduction or transmission of the call without the expressed written consent of SolarEdge is prohibited. You may listen to a webcast replay of this call by visiting the Events Calendar page of the SolarEdge Investor website.

I would now like to turn the call over to J.B. Lowe, Head of Investor Relations for SolarEdge. Please go ahead.

Good morning, and thank you for joining us to discuss SolarEdge's operating results for the third quarter ended September 30, 2025, as well as the company's outlook for the fourth quarter of 2025. With me today are: Shuki Nir, Chief Executive Officer; and Asaf Alperovitz, Chief Financial Officer. Shuki will begin with a brief review of the results for the third quarter ended September 30, 2025. Asaf will review the financial results for the third quarter, followed by the company's outlook for the fourth quarter of 2025. 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.

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 September 30, 2025, 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, J.B. Good morning, everyone, and thank you for joining us. I'm pleased to report that we delivered a strong third quarter. We believe this is a clear evidence that we are making solid progress on our turnaround and that the company is on the right trajectory.

Our results and our Q4 outlook demonstrate that the momentum we have built throughout the year is continuing. We are executing on our plan, and I'm very proud of the way the team has performed in recent quarters. As for our key priorities, first, on financial strength. In Q3, we delivered 44% year-over-year revenue growth and continued expanding our margin for the fourth straight quarter. The midpoint of our Q4 outlook follows the same trajectory of year-over-year improvement.

I'd like to highlight that both our Q3 financials and our Q4 guidance do not include significant onetime or pull forward of revenue, either from safe harbor or from the 25B (sic) [ 25D ] rush towards the end of the year.

We have also kicked off several operational excellence initiatives. For example, a major change that should have a long-term positive impact is the single SKU. We have implemented a software-defined platform that significantly reduces the complexity of our business for residential and commercial applications globally. It allows us to manufacture and ship one SKU of the inverter to the market. Then the installers can program it to the desired kilowatt rating in the field. This framework simplifies everything from forecasting and manufacturing to inventory management, logistics, service and support, saving time and money for us, our distributors and our installers.

It also adds flexibility for home and business owners. If they need a bigger system in the future, a simple over-the-air software update can boost the inverter rating. It is a true win-win-win solution, and we are working on additional solutions as we continue to improve efficiencies across the business.

At the same time, we have been hyper focused on our cost discipline and reached the lowest non-GAAP OpEx to revenue ratio in the last 2 years. This helped us to generate positive free cash flow in Q3 and exit the quarter with a cash and investment portfolio of approximately $550 million. We also expect to generate positive free cash flow in Q4 and for the full year. This performance and outlook gave us confidence to repay the '25 converts from our balance sheet upon maturity in September.

Our second priority is gaining market share. Starting with the progress in capturing market share in U.S. resi. We are proud that Wood Mackenzie reported SolarEdge as regaining the #1 residential inverter market share position in the second quarter. This is the first time we've had a leading market share position since the third quarter of 2021 and is a reflection of our improved quality and service and our team's performance.

Looking into 2026, the resi market is expected to undergo a structural change in favor of the TPO model. We believe this market shift plays directly into SolarEdge's unique strength. We have developed deep relationships and integrated infrastructure with TPOs for years. We have delivered high-quality domestic content and non-FEOC products that the TPOs require. And our technology platform is perfectly suited for the TPO model due to its superior energy production and native DC architecture.

Safe harboring is an additional and crucial element that can secure future market share. Certain of our partners have safe harbors with us through the 5% method. Additionally, we designed and executed customized safe harboring strategy for our TPO partners through the physical work test. Such transactions have several benefits.

For our customers, it lets them qualify their projects over multiple years for a lower capital outlay. For SolarEdge, these transactions provide better visibility into our business for future years. By helping our customers safe harbor through the physical work of significant nature methods, we are able to manufacture and deliver the full product closer to the time the customer needs it. Therefore, we can manage the manufacturing over time, and there is no pull forward of revenues that is typically associated with a 5% safe harbor transaction.

We believe that our strengths are even more pronounced in the C&I space in the U.S. Some of the largest enterprises in the U.S. have already safe harbored C&I products from us via the physical work method. In addition, we believe that we are the only scaled player capable of delivering a non-FEOC and domestic content compliance C&I solution. This combination positions us very well to gain additional market share in the years ahead.

Turning to Europe. While the markets remain challenging, the majority of our distribution partners hold normalized levels of inventory. This resulted in EU revenues reaching $100 million in the quarter, up 45% quarter-over-quarter and up 21% year-over-year. We believe our position in Europe will continue to improve as we ramp up sales of commercial storage, deliver products made in the U.S. and roll out the next-generation Nexis platform in the coming quarters.

This brings me to our third priority, accelerating innovation. The SolarEdge value proposition is simple. Whether you are an installer, a homeowner or a business, our solutions save you money or save you time and in many cases, save you both. The markets we serve are increasingly looking for integrated systems. And over the last year, we've expanded and improved our technology platform to deliver holistic end-to-end solutions that save our customers even more time and money.

In Q3, we continued the development and field installation of our next-generation Nexis platform. And in the last few weeks, we have shipped initial volumes of the new 3-phase inverter to customers. Even at this early stage, the feedback we are getting is that installations have been significantly simplified compared with our previous generation. Two weeks ago, we rolled out our ONE for C&I energy management system across our entire C&I installed base.

Now customers can control and optimize all types of behind-the-meter devices and loads from solar to storage to EV charging to HVAC, all from a customized dashboard. We intend to add additional enhanced features in the quarters ahead that will generate recurring revenue streams.

Our fourth priority is ramping up our U.S. manufacturing. In Q3, we reached an important milestone by exporting our first U.S. manufactured residential products to Australia. We expect to begin shipping both residential and C&I products to additional markets in the coming weeks, which will allow us to be more competitive in markets outside of the U.S.

To summarize, we believe our turnaround is delivering tangible results. We're improving our finances. We are driving efficiencies across the business. We are strategically positioned to capture market share in our main markets, and we are progressing with our next-gen platform. While we are encouraged by our progress, there is still plenty of work to be done. We remain relentlessly focused on building a healthier, more profitable and more innovative business for the long term.

There is one more thing. This morning, we announced a collaboration with to advance our solid-state transformer platform for the data centers of the future. This has the potential to strategically expand our core technology into the data center market, positioning us to help build smarter, more efficient energy systems for the AI era. We are in the early stages here, and we'll share more as we make progress.

With that, I will turn it over to Asaf.

Thank you, Shuki, and good morning, everyone. Starting with our quarterly results. The non-GAAP revenues for the third quarter were $340 million, up 21% quarter-over-quarter. Revenues from the U.S. this quarter amounted to $203 million, up 10% quarter-over-quarter and representing 60% of our revenues. Revenues from Europe were $101 million, up 55% quarter-over-quarter and representing 30% of our revenues. International markets revenue were $36 million, down 8% quarter-over-quarter and representing 10% of our revenues.

Non-GAAP gross margin this quarter was up to 18.8% compared to 13.1% in Q2, reaching the higher end of our guidance. The higher gross margin is largely due to higher revenue, which drove increased utilization of our operational costs and higher sales of U.S.-made products. This was partly offset by incremental tariffs, which impacted our gross margin by approximately 2%, in line with our expectations.

During the third quarter, we continued to take action to streamline our operations and focus on core business. As such, we sold our Sella 2 manufacturing facility in the third quarter for total proceeds of $26.1 million. As part of this transaction, we recorded a small capital gain. We also settled certain claims associated with the discontinued energy storage division that resulted in a onetime gain of approximately $15 million that was recorded as an offset to our GAAP COGS. Going forward, we continue to seek avenues to rightsize our business with an emphasis on cost reduction and a focus on our core activities.

Non-GAAP operating expenses for the third quarter were $87.7 million at the midpoint of our guidance despite headwinds from the continued strengthening of the new Israeli shekel, net of hedging. Last quarter, we reported non-GAAP OpEx of $85.2 million or $89 million when adjusted for onetime reversal of accrual for bad debt and other items.

Non-GAAP operating loss for Q3 was $23.8 million compared to a non-GAAP operating loss of $48.3 million in Q2, cutting our operating loss by more than half. This is a promising result and speaks to the progress we have made in executing our turnaround plan and is another step on our journey back to profitable growth.

Our non-GAAP net loss was $18.3 million in Q3 compared to a non-GAAP net loss of $47.7 million in Q2, a reduction of over 60%. Non-GAAP net loss per share was $0.31 in Q3 compared to $0.81 in Q2. The lower operating and net losses are largely due to a higher revenue and a higher gross margin.

Turning now to our balance sheet. As of September 30, 2025, our cash and investment portfolio was approximately $547 million. Net of the repayment of $342 million of our 2025 convertible notes in September, our cash and investment portfolio increased by approximately $77 million. This is the result of our positive free cash flow for the quarter of approximately $23 million, which was largely driven by working capital items and our continued CapEx discipline. It also includes the proceeds from the sale of our Sella 2 facility of $26.1 million and other items.

For the first 9 months of the year, we generated approximately $34 million in free cash flow. We also expect to be free cash flow positive in the fourth quarter and therefore, are on track to meet our expectation of generating positive free cash flow for the full year of 2025. This should allow us to head into 2026 with a healthy cash position to support our growth plans. Our inventory was flat at approximately $530 million despite our manufacturing ramp-up to support anticipated growth.

Our DIO declined from 217 to 177 as we continue to improve our inventory management processes. AR net increased this quarter to $286 million compared to $217 million last quarter, mostly due to higher revenues. DSO increased from 57 to 68 days due to the timing of collections, while DPO increased from 59 to 77. In total, our cash conversion cycle days declined from 215 to 168 days as we are laser-focused on improving our working capital management.

Turning to an update on our disclosures. As Shuki mentioned, we are in the process of rolling out the single SKU framework across both residential and commercial applications globally. Under this framework, we will no longer know the kilowatt ratings of the inverter at the time of shipment as the power rating will be set through a software update when installed in the field. As a result, we will be discontinuing the megawatt shipped metric starting in the fourth quarter. Instead, and as you can see in the earnings release this morning, we will be providing the number of inverters, optimizer and megawatt hours of batteries that we recognize as revenues during the quarter.

Additionally, starting in Q4, we intend to begin disclosing revenue derived from inverters, optimizers and batteries on a quarterly basis within our Form 10-Q. We believe this additional disclosure will help analysts and investors more accurately analyze our operating and financial performance. This move is part of the evolution that we started talking about last quarter.

The market is moving to more system-based solution and is less focused on discrete products. Our technology platform, including the single SKU, the launch of our Nexis platform and the introduction of additional elements like EV chargers, batteries and energy management software are helping to drive this evolution. Our solution deliver flexibility and scalability to meet the growing needs of our customers.

Turning now to our guidance for the fourth quarter of 2025. We're expecting revenues to be within the range of $310 million to $340 million, which reflects a better-than-normal seasonal trend for the fourth quarter. We expect non-GAAP gross margin to be within the range of 19% to 23%, including approximately 2 percentage points of new tariff impact. We expect the non-GAAP operating expenses to be within the range of $85 million to $90 million.

I will now turn the call over to the operator to open it up for any questions. Operator?

[Operator Instructions] We'll take our first question from Philip Shen with ROTH Capital Partners.

Congrats on hitting free cash flow positive and making progress there. I was wondering if you could talk through -- I know, you don't have guidance for 2026, but I was wondering if you could help us understand what revenue growth you might be able to see for the year and maybe sequentially? And then if you can commit to positive free cash flow for '26 as well.

Philip, thank you for the question. As you know, we do not guide for the next quarter. Without providing guidance, what we can say is that typically, Q1 is down around 10% versus Q4 due to the typical historical seasonality. At this time, we don't have any reason why it would be much different than Q1 of [ 2006. ]

In terms of relating to 2026 free cash flow, I mean, we don't guide for free cash flow or provide any target on that. As we noted for this year, we're going to be free cash positive. Q1 to Q3 were $34 million free cash positive. And we also noted with the fact that we will be free cash flow positive in Q4. More than that, I don't think we can elaborate.

Okay. Got it. And then shifting over to the Infineon announcement. I was wondering if you could talk through what the timing of any commercialization might be? Do you have any bookings yet? Or do you think it's more likely for like the '27, 2028 time frame? Is it more of a medium-term or longer-term effort? Or do you think near term, there's an opportunity to generate revenues or bookings?

Yes. Thank you, Philip. I'd like to provide some more color before I get to your specific question. I think that everybody is aware of the fact that the data center of the future is going to be based on DC architecture. There are white papers around it, and everybody understands that DC architecture is better for these data centers. And the goal is basically to maximize the utilization of the data center and to squeeze as many GPUs as possible. So DC architecture is directly in our wheelhouse.

We have 20 years of experience with this architecture. We have dozens of gigawatts installed in the field in conditions that are much harsher than data centers. And what we have from past developments and past experience is we have all the building blocks for the solid-state transformer that we're aiming at that market. And so we have started discussions with different players in the ecosystem. And the feedback has been very, very positive.

Our potential solution is very relevant and competitive. We are talking about 99% efficiency rate. And efficiency is very, very critical, as you know, because it increases the utilization of the GPUs as we push more energy through the system, and it reduces the heat that is generated, so you need less cooling in the data center.

And with all of that being said, what we announced today is the evolution of our long-term partnership with Infineon. They are considered to be one of the leaders in the power electronic supply chain for data center and in general. So we are very happy with the partnership with them. And as I mentioned, we've engaged with other people and other companies in the ecosystem. And we are trying to, if you will, scale towards where the pack is going to be. And the 800-volt DC architecture is expected to really start in 2027. And so you said and rightfully so, this is something that we are looking into 2027, 2028 time frame.

We'll take our next question from Christine Cho with Barclays.

Just as a follow-up to your last comment. So you said that you expect to see the financial impact in '27, '28. Are you going to sort of give any indications to the market about how the progress is going with respect to bookings and any contracts that you might sign before that?

So when we get to it, we will -- as we said, we will share more information as we make progress. At this stage, I think that the most important thing is this new architecture is about to happen 2 years from now. And we feel and not just feel based on the inputs that we are getting is that the solution that we have developed that is not final yet, obviously, the building blocks that we have are definitely -- they fit what the market is looking for, and we will update you as we make progress.

Okay. Moving on to gross margins. Those continue to come in nicely. In prior calls, you've mentioned that one of the biggest drivers is the fixed cost absorption with higher revenues. But in 4Q, your revenue is sequentially down, but gross margins continue to improve. So can you just give us an idea, is this primarily due to 45X ramping? Or is there a material impact from like sell-in of your new products, which are better margin?

And I'm assuming that the sequential top line decline in 4Q is mostly due to seasonality. So if you could give us an idea of how much margin improvement there would have been had revenues been flattish?

And lastly, for most of this year, I think you had quite a bit of legacy European products in the inventory on your balance sheet that was probably lower margin. Has that largely washed out at this point?

Christine, you asked a couple of questions there. So I hope I'll cover them all. If we're not, please remind me. So -- you are right, we did indicate that the major driver of gross margin is revenue, where we have leverage as we utilize our fixed cost position. You're also right in terms of the Q4 that we do feel there's a seasonality impact in terms of the guidance we provided on revenue.

Just to remind you, in terms of some additional levers on gross margin, I think you've related to some of them. The ramping up of the U.S. production. As we said in the past, it's the most economically attractive location for us to manufacturing, of course, considering the IRA credit. And as you know, we started selling U.S.-made products globally. We had a PR on initial sales to Australia, and we're going to sell more into the international markets and customers in the coming months.

Also in terms of the Nexis, the new product introduction, I think we had started, and we're going to gradually ramp up the introduction. And these will have a positive contribution because they are coming up with a better margin profile, and they also represent some new revenue streams and some new segments for us, such as the bigger roof in Germany with a 20-kilowatt, which we had underpenetrated, I would say, until today.

These new products are, again, coming with a structure and -- a cost structure and higher margin. And of course, Shuki alluded to the fact in the script about the single SKU framework. We discussed that, and we believe that this will significantly help us improve our margin. It simplifies and improves the efficiency of the entire supply chain. By the way, for both us and our customers. It starts from very efficient planning to component sourcing, logistics, warehousing, manufacturing, of course, inventory management, all the way through service and support.

And of course, whenever you think about the margin profile, you need to consider that it also depends on the mix of our product, geographies and segments. And in terms of Europe, you asked, I think, about the utilization of existing inventories from our balance sheet towards sales. So we said that at least until the end of the year, we will do that. And throughout next year, I think we'll see lower impact of that. And again, as we ramp up the shipments of the Nexis and sending U.S. produced products to export markets, we will enjoy the 45X impact into a further extent.

Anything I missed in my response?

No, that's it.

We'll take our next question from Mark Strouse with JPMorgan.

Sorry, Shuki, can I go back to the Infineon partnership once more? Can you just talk about the go-to-market there, the plan there? Is that -- would that continue to be through your normal distribution partners? Or is there any kind of incremental investment that would be needed on the go-to-market? And then I've got a quick follow-up.

Yes. Thank you, Mark. So as you know, this market is basically -- the ecosystem is pretty tight. The number of potential customers and customers is not that large. We will actually -- I believe we will be able to approach them directly or through some of the distribution partners, but we've not finalized our plans on that regard yet. We are looking at that piece as something that is not going to be a major investment from our side.

And I didn't mention earlier, but one of the things that is actually working in our favor is that in the past, we built the infrastructure to support similar systems here in our labs. So there is a significant amount of CapEx that was going into that infrastructure, and now we don't have to actually spend that money.

Okay. And then you mentioned the market share within U.S. resi. Curious, if you can give similar color on kind of how your market share is trending in Europe. You've lost share over the last several years. How much have you bounced back? How far off the bottom are you? And how far away are you from getting back to where you were several years ago?

Yes, absolutely. So as we said last quarter, we felt that we turned the corner and we actually did. So between Q2 to Q3 -- and we don't have final numbers for Q3 yet, but the numbers we have are more or less the same as Q2. So we definitely feel, based on information coming back from our partners as well as from the field, is that we've turned the corner. There is still a lot of room to grow in terms of market share compared to where we were in the past and where we believe that we can be moving forward.

The reason for our optimism about the momentum -- the positive momentum in Europe is a combination of several different things. One is the commercial storage that we have now, we sell now, and we expect that to continue growing. The second one is, as we said, most of our distribution partners have normalized levels of inventory. So now they can use new products and bring them quickly to the market. And the third one is the introduction of Nexis that Asaf covered earlier.

It does open some new segments for us as well as it has a better cost structure by itself, and also due to the fact that it's going to be manufactured in the U.S. and exported to Europe, this will allow us to be more competitive in the marketplace while not sacrificing margin necessarily. And all of these reasons are giving us optimism as to where we can grow, and there is definitely room to grow.

We'll take our next question from David Arcaro with Morgan Stanley.

I was wondering if you could maybe update us on the trajectory that you're expecting in terms of the tariff impact. Are you still on track to offset tariff impacts over the next couple of quarters as we look into 2026?

David, thank you for your question. We reported a net impact from incremental tariff of 2% in our Q3. We guided pretty much roughly to the same estimated tariff impact in Q4. And I think we -- as we've said in the couple of recent quarters that we are extremely focused on diversifying and finding alternative sources and optimizing the supply chain to address this dynamic tariff involvement.

And of course, at the same time, the quality and reliability of our product is very, very important for us. And I don't think we'll disclose any more information in terms of our sourcing. But overall, we expect in the coming few quarters to have pretty much the same impact. And we also said the net impact also may be mitigated by some pricing actions that we may take.

Okay. Sure. That makes sense. And then could you elaborate on what you're seeing in the U.S. in terms of demand? How healthy has the residential market been? Maybe if you could touch on C&I and if you expect any pull forward to happen in 4Q? I know you didn't bake it into the guidance, but curious what you're seeing there.

Yes, absolutely. Thank you, David. So as mentioned and as I believe most analysts and players in the market expect the U.S. resi market next year to undergo a significant shift that the 25D is going to end. So overall, the market is expected to go down by 20% to 30%. And the share that the TPOs are going to gain is going to come at the account of the cash and loan, as you know.

We feel for a variety of reasons, as I mentioned in our prepared remarks, that our partnership with the TPOs is strong. We have built the infrastructure, the relationship and the advantages of our products are such that they play to what the TPOs require as well as the different transactions that we've engaged with the TPOs, as we mentioned, about the safe harboring. So all of these things give us confidence about future market share.

As for pull forward, as we said earlier, we don't have any significant pull forward of revenue in Q3 or in our guidance for Q4 due to the -- any safe harbor or the rush towards the end of the year of the 25D. So we are looking at, as I said, no significant pull forward in this quarter.

We'll take our next question from Dylan Nassano with Wolfe Research.

I just want to come at the solid-state transformer partnership from a little bit of a different angle. Anything you can provide on just kind of how meaningful that opportunity could be, whether that's like a TAM or maybe just how many dollars are spent on this kind of product per an average sized data center?

Yes. Thank you, Dylan. We can provide -- everybody are -- most people are talking about the 100 gigawatts of data centers that are going to come on board online in the next decade. All of them will need transformers. And now it's a matter of math of what percentage of these data centers are going to be with the new DC architecture and what kind of share we can get out of this piece. But it's a very -- based on every analysis that we've looked at it and that we have seen, it's a very significant opportunity.

And we are very excited about it because it's not that we are seeing a large opportunity out there, and we're trying to chase it. Actually, the core competencies of this company and the components that we already have are all pointing us to that direction, almost regardless of the size of the opportunity. So we are very happy that the opportunity is very large, but we also feel that we are very well positioned to capture on this opportunity.

Got it. And then for my follow-up, just going back to Europe. It sounds like you're in a better spot now relative to the last couple of quarters. So just any kind of outlook on just underlying demand going into 2026? Is there any reason to maybe expect the market to be a little bit stronger or weaker?

So there are -- you can hear opinions why the market can be stronger and why the market can be weaker. And as you know, Europe is a collection of countries and not a single market. So some people are talking about U.K. being stronger and the battery opportunity in the Netherlands. And Germany for us is going to be a very, very large opportunity because of the Nexis opening a new segment for us.

But we have to recall, as I mentioned earlier in one of the earlier questions, the share gain opportunity for us is significant. And whether the market goes up or down 10%, it doesn't really matter in terms of the size of the opportunity for us. I think that we are well positioned, as I mentioned earlier, we believe that we are well positioned to capture additional market share in Europe in 2026. And once we capture more market share, obviously, it helps if the market is growing. But even if the market is stable or declining, it will still show positive momentum for us.

We'll take our next question from Colin Rusch with Oppenheimer.

Can you talk a little bit about sell-through on the stationary storage systems and commissioning for systems that aren't attached to solar or are retrofitted? I know you guys have some visibility into where those things are going, but I just want to get a sense of that growth driver.

Are you referring to storage systems that are not attached to PV?

Exactly. Or would it be a retrofit into an existing PV system that didn't have a storage system previously?

Okay. So for stand-alone storage, it's an insignificant amount that we are seeing. I'm talking about the SolarEdge installations, not about the market in general. We are not seeing anything significant there. As for the retrofit or the upgrade to the installed base, the opportunity for us is huge.

Our installed base is very significant, as you know. And in some countries, homeowners and business owners are going to be driven into adding storage to their existing systems, either by just buying storage or by upgrading the PV and adding storage to it. So we've started experimenting in this area. It's -- these are early days today. I think that as the market evolves and as the opportunity -- as we leverage more on this opportunity, we will provide you with more information.

But what some people tend to forget is also the same opportunity exists in the C&I market actually. For businesses, having the ability to use their PV during the day in order to charge batteries or to store excess PV production can actually be even bigger opportunity than for residential.

That's super helpful. And then I mean, I guess a follow-on question there, just around some of the evolution in battery chemistries and different duty cycles that we're starting to see in some of these larger systems.

Can you talk about maybe adjacent to some of the work you're doing with Infineon and this DC architecture for larger-scale systems, but also at the commercial systems where the solutions may be a bit more complex here and performance may be enabled by newer chemistries that you're seeing on the battery side. Is that an opportunity that you guys are seeing real time? Or is it a little ways out in terms of being able to mix and match some of the chemistries and optimize performance for different value capture on those storage systems particularly for C&I?

Yes. It's a great question. And rest assured that our CTO and technical team is looking into all the different technologies that are out there from sodium to others. At the moment, the solutions that we have are -- we have one solution that is based on NMC and the other ones are using LFP. These are the ones that are today in mass production. These are the ones when we report revenues. These are the solutions that we are selling.

We are obviously looking into all directions. And when other chemistry or other solutions are going to come online and are going to be available either from a cost perspective or from a functionality perspective, we are going to introduce them into our solutions.

As it pertains to data centers, there are many different discussions about what storage can be doing there, whether it's for backup only or is it for spikes from the grid or is it a potential replacement for UPS, but these are early days before we can comment about our solution for storage for data center.

And we'll take our next question from Brian Lee with Goldman Sachs.

I hopped on a little bit late, so apologies if some of this is redundant. Did you guys provide -- or could you guys provide a bit of an update on where your manufacturing footprint stands today in the U.S., whether megawatt units or just kind of percentage of overall shipments? And then kind of what's the thought process around getting that up to, I guess, presumably 100% U.S. manufacturing? What's sort of the time frame and cadence to reach those targets into 2026 or beyond?

Yes. Thank you, Brian, and welcome to our call. It's -- so what we've done, if you look at the last 2 years, we've ramped up the manufacturing in the U.S. in order to support mainly the U.S. demand. The levels that we were talking about in the past were along the lines of 70,000 inverters per quarter and the capacity to manufacture 2 million optimizers per quarter.

And what we have done in the last 2 quarters, I would say, or 1.5 quarters is we've continued the ramp-up in order to start supporting the exportation from outside of the U.S. into Europe and other international markets. As we announced a few weeks ago, we started by shipping some residential units -- residential inverters to Australia. And in the coming weeks, we are expecting to continue shipping to Europe and -- to some countries in Europe and then some other countries in Asia.

And the goal or the end goal, the end state, if you will, is to have most, if not all of -- I would say most of the manufacturing done in the U.S. There will always be pockets that will be made outside of the U.S. for a variety of reasons, whether it's a small volume or whether it's something that is needed in a specific non-U.S. market. But the intention is to concentrate the manufacturing in the U.S. because it helps our scale up. It helps our operational efficiency, and it's closer to our largest market.

Just to add in terms of the units because I -- so we started -- I mentioned what we said before. What we are -- our ramp-up now is mainly around the commercial inverter. And we are reaching about 20,000 inverters in Q4, and we expect to continue increasing this number in the following quarters as we are going after not only the U.S. market, but actually the European market and the Asian market.

Awesome. That makes a lot of sense. And just my follow-up was on, I guess, the near-term revenue cadence. I think you guys mentioned earlier in the call, you're expecting Q1 to be down 10% or so, so kind of in line with normal seasonality. But you're not seeing much, if any, safe harboring or 25D pull forward at the moment. As you think about your Q1 view, that seems to be much better than some of your peers and kind of what we're hearing across the channel, at least in the U.S. And as you said, U.S. is still your biggest market.

Are you anticipating 48E safe harboring and pull forward in your Q1 outlook? Or is that something that you're seeing visibility into 2Q of next year? Just kind of want to understand a little bit about how you're thinking about safe harboring into 1Q and 2Q of next year.

Yes. Also thank you for highlighting the Q1 thing, Brian. As for safe harboring in -- in Q1 '26, at this stage, we don't anticipate any significant pull forward of revenue into Q1. So the direction that Asaf provided is excluding something like that, should it happen. And what we described during the call is that we've worked with our TPO partners and also with the enterprises and the strategic C&I customers on what is referred to as the physical work test safe harboring. And there are several advantages to that method.

One of them is that it allows our customers not to outlay a lot of cash upfront, but actually due to the continuous nature of the transaction, they consume the units as they need them and not just within the first 105 days. For us, what it does is it gives us better visibility into future manufacturing, supply chain and revenue, and it's not creating pull forward of revenue because the units are supposed to be consumed as they need them.

So for that reason, in this type of safe harboring, we don't -- we don't see revenue when the transaction is signed. And so we don't expect any significant other type of safe harbor in Q1 when we talk about the numbers.

We'll take our next question from Julien Dumoulin-Smith with Jefferies.

I just wanted to come back to the Infineon opportunity here. And a, I want to ask you guys very specifically, how do you think about sort of the content per megawatt, sort of the split if you think about the solid-state solution here? How much of that is coming from the Infineon side? Or how much per megawatt is coming from your side as you think about this technology? I know you said it's still obviously in development as you ramp into that '27 opportunity. But as it stands today, how would you frame that -- the split, if you will?

So Infineon has been a very, very close and strategic partner for us for many, many years. And their components have been instrumental to the success of our inverters in the past. But at the end of the day, it's one of the components that is putting together the hardware of the solution.

And on top of that, we have different -- obviously, we put different components together as well as the software or the firmware that makes the entire thing tick. And here, in data center, we believe that we will have to have another layer that will manage the redundancy and other things. So all of these things, SolarEdge is doing. So I don't know whether it -- I don't know how to split it to megawatts, but think about it as they are a very strategic vendor for us, but then we sell the solution eventually.

Got it. So it sounds like you all maintain the majority of that sale to the extent to which you deliver a product here versus Infineon.

Yes, we deliver the product. Knock on wood, but we would deliver product.

Right. No, no, no, of course. And then if I can ask a broader question here. Obviously, in some respects, you're pivoting out of what was an inventory challenge situation. How do you think about providing longer-term views? You guys had a '22 Analyst Day. How do you think about providing a longer-term multiyear view of some sort in '26, especially as the C&I opportunity and as the SST opportunity becomes a little clearer over a multiyear view?

What we said in our recent meeting is that sometime during the first half of next year, we will provide a financial model, financial algorithm. We'll go through the main blocks that will represent our growth trajectory and opportunities, both on revenue and margin. We'll share this model again sometime in the first half of next year, including the C&I opportunity and others, of course.

And we'll take our next question from Jeff Osborne with TD Cowen.

Just 2 quick ones. I was wondering on the fixed costs. I think you folks had talked about $90 million to $95 million. I didn't know if that's a good run rate to think about over the next couple of quarters. That was question one.

And then question two is just any thoughts on pricing as it relates to SolarEdge heading into year-end and into '26 for both yourselves and the industry would be helpful.

So in terms of the fixed cost, yes, we mentioned that it's around $90 million. And of course, being fixed cost, we don't expect them to change dramatically. We are focusing on trying to reduce cost through further automation. I think I believe the single SKU concept, again, will help us streamline the entire supply chain with the simplicity and more efficiency. So we also want to reduce the fixed cost. It may take a couple of quarters. And again, as revenue increase, we'll have better utilization of such fixed costs.

The second question was?

I take that one.

Yes, go ahead.

So for pricing, as you know, pricing is determined by the value we bring to the market and as well as the competitive landscape. And in a way, you can look at the U.S. market and see that pricing over there, I would say, is more or less the same. It's not -- we haven't seen any pressure -- downward pressure.

In Europe and in other markets, while in the past, we did see price reductions and as we shared with all of you earlier -- or not earlier, in November '24, we reduced our prices in Europe. And since then, the feedback that we are getting is that our pricing is competitive compared to the premium and the additional value that we are bringing. So we haven't seen any significant pressure in terms of pricing also in markets outside of the U.S.

We will take our next question from Chris Dendrinos with RBC Capital Markets.

I wanted to follow up on C&I demand here, and I know you all kind of stopped reporting some of the metrics there, but maybe just kind of help frame up what that demand picture looks like right now? And then I think you mentioned you'll be the only ones that can offer a FEOC-compliant product with U.S. manufacturing. So do you have the scale, I guess, to ramp manufacturing for that C&I product if demand really strengthens?

Yes. Thank you, Chris. It's -- we said that we believe that we are the only scaled manufacturer who is capable of providing non-FEOC and domestic content compliant products to the U.S. C&I. And we've actually -- we've already started doing it, obviously.

We've started with -- we've executed some safe harbor transactions with C&I customers for future years as well. And we are -- overall, we believe that we are well positioned to gain additional market share in this important segment in the U.S. So overall, the way we look at it is that we are well positioned in that market, and we believe that we have the solution that our customers need.

Outside of the U.S., as we mentioned, we've continued seeing increased attach rate to storage in commercial. So we are seeing growth on that piece of our business, the commercial storage. And as we will start exporting from the U.S., the commercial units, we believe that we can be more competitive in markets in which we were more constrained, I would say, until now.

We'll take our next question from Jon Windham with UBS.

I wanted to pivot back to the manufacturing conversation you were on previously. Just to be clear, this U.S. manufacturing for export, one, you're entitled to the 45X for that. Is that correct?

And then two, how do you think about expanding U.S. capacity in a flexible way given that the tax credits do expire?

Yes, you are right. We are getting a 45X credit for manufacturing, whether we sell in the U.S. or whether we export to non-U.S. market. We work with the world-leading providers, Jabil and Flex, mostly, as you may know. We have a very scalable operation with them within the existing premises. So we will be able to support the anticipated growth trajectory we have with them. And again, continue to enjoy the leverage of higher volume of the operation.

And there are no further questions on the line at this time. I'll turn the program back to our presenters for any additional or closing remarks.

So thank you, everyone, for attending our call today. As we said, we're excited about the opportunities ahead of us. We've executed well so far, and we're thankful to our team, but there's lots of work to be done, and we are all on it. Thank you, and talk to you next quarter.

Thank you.

This does conclude today's program. Thank you for your participation, and you may now disconnect.

Good morning, and thank you for joining us to discuss SolarEdge's operating results for the second quarter ended June 30, 2025, as well as the company's outlook for the third quarter of 2025.

With me today are Shuki Nir, Chief Executive Officer; and Asaf Alperovitz, Chief Financial Officer. Shuki will begin with a brief review of the results of the second quarter ended June 30, 2025. Asaf will review the financial results for the second quarter, followed by the company's outlook for the third quarter of 2025. 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.

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 June 30, 2025, press release may obtain a copy by visiting the Investor Relations section of the company's website.

And with that, I'll turn the call over to Shuki.

Thank you, J.B. Good morning, everyone, and thank you for joining us. I'm pleased to share with you today the progress we have made across all 4 pillars of our turnaround journey. But first, let me review the recent changes to regulatory and tariff policies that removed some uncertainties hanging over the industry.

The recently enacted One Big Beautiful Bill Act redefines solar and storage markets in several key ways. And I'd like to share with you how we intend to maximize the opportunities and navigate the challenges in this environment.

First, and most importantly for SolarEdge, the bill validates our multiyear strategy of onshoring manufacturing to the U.S. by preserving the 45X advanced manufacturing credit for the next 7 years. With the improved visibility this law provides, we intend to manufacture in the U.S. and to ship U.S.-made SolarEdge products both domestically and across the globe for years to come.

Second, U.S. customers have a built-in incentive to prefer products that are made in the U.S., especially if they comply with FEOC requirements and meet domestic content thresholds. This aligns with our U.S. manufacturing and supply chain strategy, which we believe positions us well to support such customers.

Third, the extension of storage tax credit will support the trend of increasing battery adoption. This expands our TAM and requires just the kind of sophisticated energy management algorithms that we have refined for years by using the vast amount of data source from our large installed base.

Lastly, in the residential space, demand is expected to decline in 2026 with the elimination of the 25D credit, a decline that is expected to be partially offset by a shift to TPOs as the 48E credit continues through 2027. We believe we are well positioned to benefit from this shift given our strong position and product fit with TPOs.

Let's talk about tariffs. Since we last spoke, tariff rates on different countries have changed, and we have continued our efforts to optimize our supply chain for prevailing tariff and domestic content level. When added together, the gross margin headwind in the second half is expected to decline to approximately 2% from the previous expectation of 4% to 6%.

Additionally, we now expect free cash flow to be positive for the full year 2025. We still believe that we will fully offset the tariff headwind in 2026, net of pricing adjustments.

Switching to the progress across our key priorities. Q2 results and Q3 outlook both show that we are firmly moving in the right direction on all 4 priorities, and I'm proud of how our team has executed despite a challenging global environment.

First, on financial strength. In Q2, we delivered quarter-over-quarter and year-over-year top line growth and margin expansion for the second straight quarter. The midpoint of our Q3 guidance follows the same trajectory. At the same time, we have kept our expenses in check and have focused on our core business.

Our second priority is recapturing market share. In U.S. resi, we have seen a continued shift to the TPO model, which we expect will significantly accelerate in 2026. In recent years, we have built an infrastructure that supports our TPO partners, so we believe we are well prepared to capitalize on this market dynamic.

We believe we have met and plan to continue to make efforts to meet requirements for both domestic content and FEOC, which allow them to maximize 48E credits and adders. And we believe that our products are very well suited to support the scale, performance and integration needs of the unique TPO business model.

In the U.S. C&I segment, we believe that the growing importance of domestic content and increasing FEOC restrictions offer us a compelling opportunity to gain share. For example, last week, we announced a multiyear agreement with Solar Landscape to deploy SolarEdge equipment on more than 500 C&I rooftops across the country.

In addition, we signed a multiyear frame agreement with a leading U.S. retailer that will see SolarEdge products integrated across its locations nationwide. These new agreements underscore the value we bring to enterprises and build on the recent momentum we have had with this customer set.

Turning to Europe. Last week, I met with our regional leadership team in Europe and visited with key customers. The positive momentum that we discussed on our last earnings call and experienced at Intersolar has continued. Our pricing and promotion campaigns have shown signs of success and our improved go-to-market strategy is strengthening our partnerships with installers and distributors.

As a result, the majority of our distribution partners reached normalized inventory levels at the end of Q2 2025 as we had anticipated. And importantly, we have seen initial market share gains in Europe in the second quarter. That said, our share in Europe is still below what SolarEdge commanded in the past and is well below what I think we can and should be.

But with our energized team, our leading edge and expanding software and service solutions and our next-generation platform coming soon, I believe we have a very good opportunity to grow our business in Europe even further in the quarters ahead.

Turning to our third priority, accelerating innovation. Our Nexis platform remains on track for initial volumes by the end of the year. We already have several operative units in our facilities, and next month at RE+ we will have a hands-on experience for installers to demonstrate how flexible and easy Nexis is to install, connecting inverters and batteries with a simple click.

On commercial storage, we had a record sales quarter and we expect growth to continue. While still in the early days, we expect commercial storage to follow the same trend of accelerating adoption that we witnessed in the residential storage space.

Moreover, we believe that our commercial storage offering, combined with our software capabilities, position us well as C&I customers increasingly transition to solutions that combine PV, storage and energy management software.

Speaking of software, we have seen increased traction with our Wevo EV charging software solution. In the U.S., Wevo was selected by PG&E to manage its nearly 4,000 EV chargers. Wevo software is also enabling the largest public charging station in New York state located in Queens and backed by a Con Ed program.

Additionally, as we announced this week, we have entered into a strategic partnership with the Schaeffler Group, one of the world's leading manufacturers for the automotive industry. Under the partnership, Wevo will manage the thousands of charge points that Schaeffler intends to deploy at its facilities around the world.

Schaeffler has been a SolarEdge PV customer for years, and this agreement highlights the additional software and service capabilities that we can add to our value stack for enterprise customers.

Our fourth key priority is ramping up our U.S. manufacturing. In Q2 we continued to build out and optimize our U.S. manufacturing footprint, which now includes residential inverters in Texas, optimizers and commercial inverters in Florida, and batteries in Utah. We are also planning to ramp up production towards the end of the year in order to support exports of competitive products to our European and international customers.

To summarize. We believe we are in a much better position today than we were a quarter ago. A layer of uncertainty has been removed from our business. And we have continued making good progress on all 4 pillars of our turnaround journey. While we are encouraged by the progress this quarter, we know there's still plenty of work ahead. We see significant room to improve execution, and even more opportunity to grow and build a healthier, more profitable business for the long term.

With that I will turn it over to Asaf.

Thank you, Shuki, and good morning everyone. Starting with our quarterly results. Total revenues for the second quarter were $289 million. Excluding revenues from our discontinued operations at the Kokam Energy Storage division of $8 million, our non-GAAP revenues were $281 million.

Revenues from the U.S. this quarter amounted to $185 million, representing 66% of our non-GAAP revenues. Revenues from Europe amounted to $65 million, representing 23% of our non-GAAP revenues. International market revenues amounted to $31 million, representing 11% of our non-GAAP revenues.

Non-GAAP gross margin this quarter was up to 13.1% compared to 7.8% in Q1. The higher gross margin is largely due to: higher revenue, which drove increased utilization of our operational cost structure, higher U.S. production volume, and favorable regional mix with higher U.S. revenue.

This was partly offset by incremental tariffs, which impacted our gross margin by 1%, compared to an expectation of 2 percentage points. Adjusting for the lower-than-expected tariff impact, our gross margins came in slightly above the high end of our guidance range.

During the second quarter, we continued to take action to streamline our operations and exit non-core activities. As a result, we recorded a onetime $18 million expense on the disposition of our tracker business.

We also recorded a onetime expense of $37 million related to a write down of our Sella 2 facility, which we are looking to divest, to reflect fair market value. These charges were partially offset by a one-time $10 million gain on the sale of our Nonsan production facility in Korea.

Going forward we will continue to seek avenues to right size our business with an emphasis on expense reduction and a focus on our core activities.

Non-GAAP operating expenses for the second quarter were $85 million compared to $89 million in the previous quarter. Similar to Q1, in the second quarter we were able to collect certain aged AR balances, which resulted in a reversal of an accrual for bad debt.

Excluding this and other non-recurring items that totaled approximately $4 million net, our non-GAAP operating expenses would have been approximately $89 million.

Non-GAAP operating loss for Q2 was $48.3 million compared to a non-GAAP operating loss of $72.4 million in Q1. Our non-GAAP net loss was $47.7 million in Q2, compared to a non-GAAP net loss of $66.1 million in Q1.

Non-GAAP net loss per share was $0.81 in Q2, compared to $1.14 in Q1. The lower operating and net loss are largely due to the higher revenue, higher gross margin and lower operating expenses.

Turning now to our balance sheet. As of June 30, 2025, our cash and investments portfolio was approximately $812 million. Our cash position, net of short-term debt, was up by approximately $19 million to approximately $470 million.

Free cash flow in the quarter was a use of approximately $9 million, largely due to the timing of certain working capital items. For the first half of the year, we generated $10.8 million in free cash flow.

As Shuki mentioned, considering the recent developments in anticipated tariffs, and the progress we have made on our turnaround, we now expect to be free cash flow positive for the full year 2025.

AR net, increased this quarter to $217 million compared to $133 million last quarter, mostly due to higher revenue, with continuous improvement of our DSO through effective collection management.

Our inventory was down by $108 million to $529 million. Q2 marked the fifth consecutive quarter of inventory reduction. This is despite our continued ramp up of U.S. production to support anticipated growth and the introduction of new products.

As you may know, we have approximately $343 million in convertible notes that come due next month. As we have said previously, we intend to pay off these notes with cash on hand upon maturity. Given our healthy cash balance and the reduced uncertainty after the passage of the One Big Beautiful Bill Act, we are confident that our liquidity position is sufficient to both redeem this note and support our business for the foreseeable future.

As Shuki mentioned, by the end of the second quarter the majority of our distribution partners had normalized their inventory levels. As a result, we will no longer be providing quarterly sell through figures.

SolarEdge is focused on providing full system solutions, combining inverters, optimizers, EV chargers, storage systems and energy management software. This aligns with evolving market demand and customer preferences, and coincides with the streamlining of our product portfolio. Therefore, we will no longer be providing a breakdown of megawatt shipments by region or by end market, as management's focus is on regional revenue.

Turning now to our guidance for the third quarter of 2025. We are expecting revenues to be within the range of $315 million to $355 million. We expect non-GAAP gross margin to be within the range of 15% to 19%, including approximately 2 percentage points of new tariff impact. We expect our non-GAAP operating expenses to be within the range of $85 million to $90 million.

I will now turn the call over to the operator to open it up for questions. Operator?

[Operator Instructions] And we will take our first question from Mark Strouse with JPMorgan.

I wanted to ask about kind of sustainability of the revenue that you're seeing here. In 2Q and 3Q, was there any benefit that you saw from safe harbor or in the 3Q guide, are you assuming any kind of pull forward from maybe some of your 25D customers? I know that's a smaller portion for you guys. Just curious if you're seeing any kind of one timers that you might potentially normalize for? And I have a follow-up.

Yes, sure. Thank you, Mark, for your question. And first of all, I'll start by saying that our Q3 guidance does not include a significant pull forward of demand relative to 25D or to safe harbor. So we are pleased with the progress that we are making.

As I said in my prepared remarks, both in Q2 and in the midpoint of the guidance for Q3, we are showing year-over-year and quarter-over-quarter revenue growth and they are a result of building our business back to where it should be.

And then also on gross margin, good to see the progress that you're making there. Just curious to the extent that you're willing to talk beyond 3Q, kind of how to think about the cadence of margins as your revenue continues to normalize?

Thank you for the question. I think we said last time that on margin the biggest driver is more revenue. Of course, the more revenue, better utilization of our fixed cost infrastructure that we have built in our structure.

On top of this, the expansion of our production footprint as we sell -- produce and sell more. And as we noted, we are going to start towards the end of this year to sell the products overseas and enjoy the 45X credits also for -- on out of the U.S. sales.

Another positive factor on -- the new product standards are coming up towards the end of the year, we expect better marginality. They are coming with a better cost structure. And of course, I think we have a continuous effort that we related to our fixed cost improvement and reducing by streamlining production. We talked about automation and enhanced inventory and logistics management and so forth.

One thing to remember, of course, and related to that there is an impact of mix, all of this between different geographies, different products and market segments, which may vary, and we cannot predict that. But I think all of these levers I talked to will provide better marginality, again, with revenue increase as you can see in our Q3 guidance.

And we will take our next question from Philip Shen with ROTH Capital Partners.

First one is on safe harbor again. Some of our checks suggest your C&I business, especially in the U.S., is doing really well. One distributor said it was booming. And so, I know there's no safe harbor in the guide, but was wondering how much could be in the guide? How much more safe harbor do you think you could have? You've already done one C&I safe harbor. Is there more to come either for C&I or resi for that matter?

Thank you, Phil. As you know, and as we stated in the past, we are not going to get into any details as it pertains to the safe harbor deal and both in resi or in C&I. I concur with what you implied.

I believe that our customers are looking at us as the best partner if and when they consider such deal. And if and when they consider such deals, we will definitely be happy to support them. And we believe that our solution, both from a product perspective as well as from many years of working together and supporting this type of customer, is going to be beneficial for them.

More generally on the C&I segment is now with the advantage of domestic content and with the FEOC requirements that are coming in, we believe that we are going to have a significant opportunity in this segment to gain share in this segment. And between our product offering, the FEOC requirements and the domestic content adders, I believe that these customers are going to find that very -- our solution very attractive.

And I've heard you guys might go into allocation mode soon for C&I, so that's very interesting.

Shifting over to 2026 and margins, I know you guys don't guide officially, but I was wondering if you might be able to share what the 2026 margin puts and takes might be? Like is it safe to use maybe a 15% to 19% range from the Q3 guide and remove the tariff impact? So if you remove the tariff impact, could it even be higher? Just some color on that would be fantastic.

So specifically on the tariff, we related that in the script and noted that we expect for the next 2 quarters within the year about 2% incremental tariff impact, which is below by an estimation of 4% to 6%. We also said that next year we are looking to neutralize this entirely with the diversified production basis and some potential price increase.

In terms of the trajectory of next year overall, so again, I think we talked about the main margin levers, of course, the higher revenue, again with the better utilization of fixed costs, the new products. These new products will enable us actually to present some new revenue streams. And the ramping up of the U.S. production is very important to us as you know, the U. S., from a production basis, is the most economically attractive for us given the higher benefits and credits. And as we start selling U.S. made products globally to the EU and international markets, again, that's another lever we will enjoy from.

And our next question comes from Brian Lee with Goldman Sachs.

I guess, first question just on the guidance for revenue. I know Europe looked pretty strong in 2Q and now that you got the destock complete in that region, presumably it's going to be just as strong in 3Q. So can you give us a sense, I know you don't want to break out C&I, resi and all the different detailed factors. But just in terms of the revenue growth guidance for 3Q, just how much more growth are you expecting in Europe? Is the U.S. market expected to be stronger from a sequential growth perspective?

Just maybe some of the puts and takes given both of those markets look pretty strong in 2Q. Wondering if you're expecting exactly the same trends or any kind of divergence into 3Q based on the guidance? And I had a follow-up.

Thank you for the question. I'll start with the U.S. market and then I'll get to Europe. In the U.S., I think as we have said, as Shuki just indicated, we believe that we are in a strong position.

One is the expected shift towards the TPO that we discussed. Again, the new product introduction, they're coming with a growing focus on the full ecosystem, I would say, solution with incorporating more software and more elements. C&I opportunities that we see are significant as well, especially with enterprise customers.

And now to the U.S. territory, so we did note that channels are largely clear. We expect to see a catch up of revenue to the underlying demand. At the same time, I think it is important to know that new market remains fairly weak and potentially it can go even weaker next year. Of course, our focus is to continue and gain market share.

So it will be, I would say, an interplay between the weak -- potentially weak European market and our new products, market share expansion efforts that we're focusing every day. And overlaying all of this, I mean, even on a global basis, the fact that the battery attach rates and demand continue to rise, so we certainly expect to see this momentum continues for Q3 and beyond.

And then I guess on the gross margin, going back to that question from Phil. If you look at the 3Q guide, I think you're implying an over 40% drop through on gross margin. Is that maybe the right way to think about leverage on the gross margin line going forward? I mean every $100 million of incremental revenue from here seems like you could add another 500 to 700 basis points of gross margin if we do the math that way.

And then curious up to what level this underutilization recapture could drive additional margin leverage. I guess, where are you in terms of utilization? Where is the headroom and kind of what does that imply for gross margin step ups from here as you get more volume in?

Sure. So I think you alluded to the fixed cost infrastructure that we have built in the COGS, which as you know we are trying to reduce in terms of automation and product simplicity, more single SKU and so forth.

I think we told you before that the estimate or the rough number for such fixed costs embedded in our COGS is around $90 million to $95 million, and of course we're working to reduce it, as I said. And just in terms of simple math, just divide that by growing revenue, you'll get the incremental impact associated with the better utilization of the fixed cost infrastructure.

And our next question comes from Colin Rusch with Oppenheimer.

Can you talk about some of the key initiatives from an R&D perspective that you're working on? It seems to me that there are some innovations in and around both virtual power plants as well as just optimization of performance of the inverters here that we could be looking at. Just want to see where you can actually get some real leverage out of those R&D efforts?

Yes. Thank you, Colin, for a great question. So as the market evolved, it moved from being a PV only type of a market in which SolarEdge operated into a market in which batteries and storage play a significant role. So you have to -- and the grid is actually -- with electrification and the growth in demand for electricity, the grid is actually -- finds it harder and harder to manage all the loads.

So between these 3, the energy management optimization and knowing when to produce power and export it to the grid, when to store it in the battery, using time of use algorithms and expecting what will happen from a weather perspective and so forth. These are all areas that we are looking at, that our talented team is innovating around. And we believe that what we have to deliver to the market is eventually a system, a solution that combines PV storage and this energy management capabilities in order to maximize the value and the return that they get from the system.

And when you do all of that, then it opens to virtual power plants like you mentioned or grid services and other areas that we can potentially look into in the future. Some of them already exist today, they are nascent. But definitely an area that we can look into in the future as well.

And then from a cost perspective, I mean, are there other areas that you can drive cost out of the system in the organization? Or are you fully stripped down as a company here? Or can we see some incremental cost savings either -- anywhere in the OpEx side of things?

This is a continuous focus for us and I don't think we ever get to a situation that we cannot strip down. This is something that we are driving management, always look at ways to have improved efficiency. I think we did relate to the upcoming Nexis system that the cost structure it has embedded is more attractive. So we expect a better marginality on that. But I can say that we are constantly looking on avenues to reduce costs and that's something we're very focused on.

And our next question comes from Dimple Gosai with Bank of America.

Could you please give us more color on what drove the strong battery performance this quarter? And do you anticipate the TPO market shifts more towards a storage led market with ITC in place? And then I have a follow-up please.

Yes. Thank you, Dimple. So the storage -- the entire market, I would say in all residential regions, we are seeing an increased attach rate between solar and storage. The value is clear whether you -- even in areas that -- the tariffs are not dynamic, there is a value of storing what is produced during the day in order to use it overnight.

In more advanced markets in which there are more sophisticated schemes than the battery is playing an even more important role, be it flexibility, or time of use and other models. So this is the main driver and we are supporting the demand that is coming and we are actually helping growing the pie by providing the energy management solutions that I was talking about.

As for the TPOs, I believe that they operate in the very same market and the requirements coming from their customers are similar. And my expectation at least is that -- I believe that the attach rate is going to grow for them as well. And as they increase their attach rates, we will provide them with the solutions that are actually maximizing the benefits from that.

And then on a more technical note, free cash flow was pretty solid this quarter, can you help quantify how much of that was driven by working capital tailwinds? And how we should think about the sustainability of those drivers going forward?

And then separately, what was the cash impact from 45X in the quarter? Could you maybe talk a bit about the monetization cadence we can expect going forward on that?

So considering the 45X monetization is an ongoing standard part of our business as we have ramped up our production layout in the U.S., we are not disclosing that.

In terms of the cash flow, we did provide an indication and some guidance for the year as a whole. As you remember for H1, Q1 and Q2 together, we generated positive free cash flow of approximately $11 million and we did guide to free cash flow for the entire year, which is also due to the lower incremental tariffs compared to our previous guidance of breaking even. So the incremental positive on that is one of the reasons that resulted in that.

And then as you well know, I mean, the timing of different cash flow items, working capital items change. We are working to plan and control as much as possible, but things may shift. So that's as much I can say about the future of free cash flow.

And our next question comes from Corinne Blanchard with Deutsche Bank.

Just maybe one question on inventory level, if you can comment what you're seeing in the U.S. and maybe in Europe as well. I think one of your peers mentioned seeing an increase here. So just trying to put some context.

So I assume that you're referring to the channel inventory. And as we said for Europe, most of our distributors have already resumed normal levels of inventory. There are some that are not, but most of them are, and we are very pleased with that.

In the U.S., we haven't seen anything that is out of the normal in terms of our channel inventory. So I don't know what exactly you're referring to, but in our business we haven't seen any buildup of inventory in the channel in the U.S.

No, that's helpful. That's what I was referring to. And then maybe just like a very high level question or generic question. What's your view on the U.S. market or like U.S. TAM as we go into '26 and potentially '27?

Yes. So that's a question that many people are asking today. The way that we look at it is that with the elimination of 25D at the end of the year, most probably the segment that is supported by 25D is going to decline significantly, call it 50%, 60% year-over-year.

And at the same time, the TPO segment is going to benefit from that, although -- because 48E continues until the end of 2027. And by how much the TPO segment is going to grow, in principle it can take the entire piece of the pie that people that used to take cash and loan for 25D can all of them -- maybe all of them can switch to TPO, maybe only part of it because of consumer preference or because of capital constraints or any other thing. So your guess is as good as mine in terms of what percentage will go there.

So I think that when you combine both of them, we will see the market declines by something like 20%, maybe a bit more. But as it pertains to SolarEdge, our position within the TPO segment is very strong. And we believe that the years that we spent in order to build the infrastructure to specifically support this type of customer, as well as the domestic content and the compliance with field requirements that we have, so we think that our products are the best out there to support the scale, the performance and the integration needs of the TPO business model. And because of that, if the TPO segment is actually going to grow, we believe that we are in a good position to leverage or to benefit from that.

And our next question comes from Chris Dendrinos with RBC Capital Markets.

Congrats on the strong quarter. I wanted to focus on the European business here. And you mentioned that it's mostly normalized, but the market share that you all have is still kind of below where you ultimately want to be. So maybe looking ahead, I think you mentioned that Nexis is one opportunity, but what other levers do you have in Europe? And how are you thinking about the strategy maybe from a pricing perspective going forward?

Yes. So thank you, Chris. Yes, so as I mentioned, we visited Europe last week, and first of all, we are pleased with the progress that we have made. We do see data that supports that we've started gaining sharing in the second quarter. And as I mentioned, I believe that we have room to grow here in terms of market share in Europe -- in Europe, in general, and in every specific country, in particular.

And it will be a result of many different components that we detailed in past calls. We have to continue working very, very closely with our distribution partners, with the installers. We have to win the trust of the installers. They need to want to install SolarEdge. And so that's one element.

The second element is with Nexis, we are going to open additional segments that until today we operated in, but we didn't have the best fit for this segment. At the same time, the Nexis platform, not only that it's designed from the ground up to support the evolution in the market to go into storage and backup, but also the cost structure is better and that will allow us to be more competitive in the market.

And the last thing I would say is -- and we've heard it in Intersolar or in different meetings in Europe, the channel in Europe, channel meaning the distributors, the installers and the customers, they are all very happy to see SolarEdge back. The composition of the current market is -- they would have liked to see a stronger SolarEdge. A SolarEdge that has higher market share in each of the countries. And we see their support as also an important element to help us get to where we want to go.

Got it. And then maybe just as a follow-up on Nexis. You just mentioned maybe you had some products or segments that weren't a great fit, but that improves with Nexis. Can you expand on that a little bit? And sort of what specifically is kind of the opportunity there?

Yes. So for example, in Germany many of the homeowners they are interested in large systems, maybe 20 kilowatts. And the Nexis -- the 2 phase Nexis is actually going to support up to 20 kilowatts. Our current solution is less than that. So the installers who are really loyal to SolarEdge are installing 2 inverters instead of one.

But in order to seriously address this segment in the market, and it's a growing segment, we're going to offer not only the 2 phase inverter, but actually a stackable battery that can go all the way up to 19.6 kilowatt hour, which is a -- it's a very, very respectful -- respected solution for large houses in Germany. And we believe that once we introduce that with the quality, reliability and the SolarEdge brand, we believe that we'll see an uptick in share.

And we will take our next question from Christine Cho with Barclays.

Apologies if you've already answered this, but you mentioned that Europe has reached normalized inventory levels by the end of 2Q and I appreciate that you're not going to be providing sell through anymore. But the revenue guide for next quarter is below the $375 million sell through that you gave last quarter. So I was just wondering if you could help us bridge the gap. Can you give us a sense of how much the market is down or are customers keeping less inventory? Just sort of any other puts and takes that we should consider.

Thank you, Christine. It's a very -- you put the numbers together and that's very nice. And as we said, most of the distributors have reached the normalized inventory levels, but there are 2 things that we have to keep in mind.

One is some of them have not yet and this is, I would say, part of the gap between what you would call the sell through and the revenue that we see in the third quarter.

And the second piece is, even when the channels are normalized, it goes up and down by quarter, by seasonality, by the way by the preference of the distributors in anticipation of a new product or an old product. So there are many different factors that are playing a role here. But these are the 2 main reasons for what you referred to as the gap.

And you have some products rolling out 4Q, is that right?

I'm sorry, again?

You have some products rolling out at the end of the year, so that's kind of what you're alluding to?

Yes. The Nexis platform. Yes.

And then, the follow-up, in Europe, historically, the revenues and costs, I think, were pretty much in the same currency, so margin was kind of hedged internally and regionally. As you guys come down on your European inventory on the books and you start shipping U.S. products to Europe and other parts of the world, that internal hedge is no longer. So should we expect that you guys are going to use hedges to lock this in, especially with FX rates moving around quite a bit these days?

Actually, we are hedging our major currencies, which are the euro and U.S. or shekel. Currently, it's mostly versus the expense. Revenues are a little bit more challenging to hedge because we can't really expect the flow, but we can certainly hedge the net impact and we are looking on that constantly. We have a policy.

And we're absolutely right, this natural hedge will no longer be and we will, of course, spend accordingly and ensure that we have a good and efficient methodology for hedging.

And our next question comes from Joseph Osha with Guggenheim Partners.

You guys have talked about the need to grow into your manufacturing base and absorb fixed cost. I'm wondering if you can give us some sense based on where you are now as to how much revenue you could support with your existing manufacturing base? And I have a follow-up.

So our current production layout is built to support significant increase in revenue. We plan that and we are executing upon the plan. We cannot give you more than some general color, but certainly we can increase our revenue and the buildup to support us, the production volume with existing infrastructure.

We're working, as you know, with the major contract manufacturer, but we expect that the current facilities and infrastructure that we've built in with the automation that we're implementing more and more will support us through multiple quarters before we need to ramp up the layout again potentially.

And then my follow-up looking at Europe, you're talking about new products that will bring new features probably also lower cost. And I'm curious in the European residential markets, do you think that you are where you need to be from a pricing standpoint? Or could we see you take additional actions on the pricing front as you seek to retake market share?

Yes. As you know price is only one factor in the go-to-market strategy. There is the product, there is the partnership that you have with the channel, there is consumer pool, there are so many different things.

As of last week when we visited with key customers, pricing doesn't seem to be the blocking parameter in terms of if we want to continue growing. And as I said, we started gaining share. We feel confident that we can continue doing that. And at this stage, it doesn't seem as if we need to make a significant price move. At the same time, we're responding to pricing and if the need arises, we will have to do that.

And our next question comes from Maheep Mandloi with Mizuho.

Maybe just one on the battery side. Could you just talk about the battery cell sourcing strategy for this year and next? What changes you're making there?

And on the margin side, if you could just talk about, are we back to target margins for the batteries yet or we have to wait for the new products to get there?

Thank you, Maheep. So I'll start with the battery sourcing and then you'll have to repeat the gross margin question because we didn't hear it well here.

For the battery sourcing, similar to many other components in our supply chain, we first and foremost are looking for quality and reliability of our products to make sure that the products we deliver are actually providing the value that we intend for them to provide for the long-term.

Then we are looking into optimizing the supply chain between different requirements that we have. And we talked at lengths about tariffs and about FEOC, and about other requirements that are making a difference for our customers and for ourselves. So we'll continuously look into the best possible way to source battery cells or any other component in our supply chain.

Could you please repeat the gross margin question?

Yes. Just trying to understand like on the margins on the batteries, I know historically were lower because of the Samsung batteries, but just curious, are you back to the target levels for battery gross margins or is that something you expect to achieve next year?

So thank you for the question. As you may know, I don't think we provide gross margin by products, but naturally batteries are coming with a lower margin and we're working to further improve the battery cost structure. Other than that, we cannot elaborate at this stage.

And our next question comes from Moses Sutton with BNP Paribas.

Great to see gross margin improving further. How much is elevated warranty still impacting margins? So I guess, put differently, how many more like hundreds of basis points can you get back just as these issues abate? I noticed there's still some negative flows for warranty in the cash flow from operating section. Just trying to figure out how that can benefit you longer term?

What we can say is that the quality of our product is improving. We see that continuously and we expect to continue seeing that. Again, with the Nexis, which provides a simplified product structure and a more single SKU structure that is going to even further improve.

Beyond that, we don't provide specific guidelines or guidance towards the warranty impact. But overall, again, the serviceability of the product, the installability of the product and the quality of the product is improving. So naturally, that should have an ongoing positive trend going forward in terms of the warranty impact.

[Operator Instructions] And we will take our next question from Philip Shen with ROTH Capital Partners.

You guys were just talking about the inventory being mostly cleared in Europe, and you talked about price actions on a perhaps a case-by-case basis. But just was wondering, we heard that you guys may have cut pricing in Europe last week effective August 1 by 10%. And so was wondering, can you affirm that at all? And if so, was it across the board or perhaps just for certain countries or just some customers?

Thank you, Phil, for bringing it up. So, just to make sure that we are clear about this thing. We did not take any pricing action in Europe last week or for that matter recently. And what I was referring to and maybe what you heard about is, at the end of the day, the way that the market flows is we are selling to distributors, we are selling to installers. Maybe there was some local promotion that people might interpret that as a price move or maybe there were some other things that we or the channel initiated.But overall, we haven't implemented any price move in Europe recently.

And it appears that there are no further questions at this time. I will now turn the call back to management.

So thank you everyone for attending this call. As we said earlier, we are very pleased with the progress, but we have our work cut out for us and we are going to continue working very, very hard in order to continue making progress in our turnaround story. Thank you very much.

Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.