SolarEdge Technologies, Inc. Aktie

Good morning, everyone, and welcome. I am Michelle Spina. I'm the Director of Residential Marketing for SolarEdge North America. I'm so excited to have you here today for SolarEdge Investors Day. Whether you're joining us in person or online, I just want to thank you for being here and taking the time.

The video that we just saw actually serves as a reminder that for the last 20 years, SolarEdge has been driven by 1 simple belief that optimization is the key to the future of energy and that every watt matters. Energy is becoming one of our most precious resources, and our mission has never been more relevant. Every watt generated, stored and managed in a more intelligent way serves an exponential value for homeowners, businesses, communities and increasingly emerging markets. Today's story is about how SolarEdge continues to turn that belief into opportunity, innovation and growth.

Before we begin, I want to draw your attention to our safe harbor statement. So we will jump into the main agenda shortly, but a few brief stats on SolarEdge and where we're at today. SolarEdge technology powers approximately 1 in 3 homes with more than 4.6 million monitored systems worldwide. We've shipped 65 gigawatts of technology globally, delivered more than 150 million power optimizers and can be found on 60% of Fortune 100 rooftops.

Our presence spans global markets supported by regional teams, world-class R&D centers, U.S. manufacturing facilities and more than 96,000 certified installers worldwide. These achievements are important not just because of scale, but because they provide the foundation for what's next. And I look forward to taking you on that journey today. So let's jump into the agenda.

First, you're going to hear from our CEO, Shuki Nir, who will share how we've returned to profitability and the strategic framework guiding the next phase of growth. Liron Einav will take you through SolarEdge Nexis and explain how we're positioning the company to capture the growing opportunity in residential energy storage. You'll hear directly from a customer's perspective with a conversation featuring Prologis, offering insights into what industry leaders are thinking about the future of energy. We'll then take a short break and reconvene with 1 of our co-founders, Meir Adest, who will take us beyond our existing markets and into one of the most exciting opportunities ahead, AI factories. Finally, CFO Maoz Sigron, will bring everything together through our financial framework, outlining the path we see towards profitable sustained growth. We will end with a Q&A session with the leadership team to provide additional clarity on any items that are important to you.

What connects all of these discussions is a single story, leveraging 2 decades of innovation and execution to expand the opportunities in our core markets and our emerging ones. So with that, I am pleased to introduce our CEO, Shuki Nir. Please join me in welcoming Shuki to the stage.

Good morning, everyone, and thank you for joining us today in person and online. Well, very excited to have you here for our Investor Day in which we are going to share with you the next chapter in SolarEdge's journey. We will start by talking about what brought us here, but then we will spend most of the time talking about the huge opportunities we see ahead of us and why we believe SolarEdge is well positioned to benefit from them.

Let's start with where we are today. At the beginning of 2025, I shared with you the 4 initiatives, the 4 pillars that are required in order to turn the business around -- to turn our business around, ensuring financial stability, gaining market share, driving innovation and ramping up our U.S. manufacturing. Through '25 and into 2026, we made very good progress in each and every one of them. We reduced our expenses, we moved into positive free cash flow in '25 and '26, we went out of noncore activities, we did gain share in some of the segments we operate in, we introduced products that our customers really need like commercial storage, Nexis and others and we ramped up our U.S. manufacturing to the point that the vast majority of our inverters and optimizers are made domestically.

What you're seeing here is the financial result of that progress. Six consecutive quarters of year-over-year revenue growth. Six consecutive quarters starting from $212 million of revenue, going all the way up to $345 million in the second quarter. Six consecutive quarters of margin expansion. And throughout this time, we continue to reduce the EBITDA loss until the last quarter in which we moved to a positive EBITDA.

Let's be precise about what we are seeing here. This is not a celebration of a milestone. This is not 1 quarter of -- 1 successful quarter. This is a trend line going up and to the right. And this trend line is what we are going to build on as we go and talk to you about the future.

Now a word about the second half of 2026 before we talk about the future, all right? As you know, our guidance -- our revenue guidance for the third quarter is $310 million to $340 million. Today, we are reiterating this guidance. We do not guide, we do not guide beyond the current quarter. However, we assume that Q4 is going to be slightly below Q3 due to seasonality. For convenience in today's presentation, you will hear us referring to estimated revenue in 2026 as $1.29 billion. Again, this is not a guidance.

But we didn't invite you here to talk about 2026. We've invited you to talk about the next chapter in SolarEdge's story. We've invited you to talk about how we are going to turn strong foundations into profitable -- sustainable, profitable growth.

Now for the last 2 decades, SolarEdge has built something that is really hard to build. Deep expertise in DC power conversion and power electronics. We have the ability actually to take that technology, make the product at scale, at gigawatt scale and deploy them in millions of homes and businesses. This is the foundation. More than 600 patents, more than 65 gigawatts installed, more than 4.6 million sites monitored through our secured cloud. This is the foundation upon which we are going to build everything that we're going to talk to you about.

And the growth opportunities are very exciting. We plan on accelerating our growth in the core markets. The core markets are changing in the direction that is good for us. And today, we will share with you more details about Nexis. We will dive into our strategy in the evolving residential market, and we will share with you why we believe that we will continue winning in C&I. Then we will talk about how we plan on unlocking a multibillion dollar opportunity in the AI factories, okay? The market is evolving quickly. We will talk to you, we will share with you our estimate, our perspective about where the market is heading, how it's growing and why we believe most of it is going to be 800-volt DC native. We will share with you the details of the technology behind our solution and why we believe and players in the ecosystem tell us that we are very well positioned to benefit from that opportunity.

Before we start going into each one of them, let's talk about the underlying capability underneath all 3 of them. Power has never been in higher demand, and everything SolarEdge does comes back into one single value added. Our customers are getting more usable energy from every watt that is coming -- that is going through our system. They get more usable energy that goes through our system from every watt that goes through our system. It may sound simple, but it is not. It is a result of 20 years of DC expertise, deep understanding in the technology, safety, efficiency.

And this is a result -- it results in residential, a 10.5% more energy harvested from every home. This is 10.5% more energy harvested compared to string technology. It was validated by VDE Renewables, a third-party research firm. This is 10.5% more energy every day, every year through the lifetime of the system.

This is the reason why more than 60% of the Fortune 100 companies chose SolarEdge. 60%, more than 60% of the largest companies in the country have SolarEdge system installed on their rooftop. And that is the reason why in AI factories, we are the only one -- the only company that is about to introduce an SST, solid-state transformer with efficiency above 99%. Three different markets, three different types of customers, one underlying capability underneath them all. Everything that you will hear today is going to tie to one of these really, and I would like to start by talking about our core markets.

Our core markets are going through a real shift. It has started to happen already. The move from PV only to PV-plus storage. Until recently, a solar system, the value of a solar system was the value of the electricity it produced and exported. That is now changing. Grids are more congested, tariffs are changing by the day, and export compensation is going down. And in some countries, it's actually eliminated altogether. Customers are no longer interested in production only. They are interested in control. They want to control what happens with their energy. They want to make sure that they maximize the ROI, the return on investment from this system. So back up, time shifting, grid flexibility events are the new normal. And that shift in these markets is actually creating an

opportunity where the addressable market is going to grow in dollars by 2% to 3% every year in the next 3 to 4 years. More importantly, storage is going to be the bigger piece of the pie. And that opportunity -- and that change, these dynamics have created 2 opportunities in the residential market for SolarEdge. The first one was new customers. When a battery is attached in a new installation, the revenue for SolarEdge more than doubles. So instead of selling only the inverter and the optimizers, we are selling the inverter, the optimizers and the battery. So think about it as attach rates continue to grow globally, the average revenue for SolarEdge per installation is growing.

The second opportunity is the existing installed base that we already have. Globally, we have more than 4 million residential sites. Think about it, it's a lot. 90% of them do not have a battery today. It doesn't mean that each and every one of them will have a battery later, but this represents tens of gigawatt hours kind of opportunity for us.

In the second quarter -- and we shared it with you, in the second quarter, we generated $20 million from upsell activities in Netherlands and Germany alone. Germany and -- in Netherlands and Germany, we have more than 1 million sites. In the second quarter, we generated $20 million, and this is just the beginning.

So these two exciting opportunities required us to bring a platform that was designed from the ground up to address these opportunities. And earlier this year, we launched what we refer to as the most important launch in the last decade for this company. We actually brought one here, SolarEdge Nexis. Liron will take you through the details later on. But suffice to say that this product since its introduction has actually received many, many different accolades. Forbes recognized it as changing the future of home energy, right? And it was named Green Builder Sustainable Product of the Year for 2026.

But the number I'd like to draw your attention to is this number here, the $7,000. These are $7,000 of additional return to the system owner. These are $7,000 through the life of the system that an owner of a SolarEdge system is going to get versus an owner of a competing system. So these $7,000 are not just a line in a spread sheet. This is the incremental profit for the homeowner and those who actually appreciate it even more for the TPOs, and that's another reason why installers are going to choose Nexis.

So that is about residential. Let's switch to the second segment of our core markets. In C&I, we are winning. Less than 2 years ago, in the fourth quarter of 2024, SolarEdge accounted for 29% of the installation in rooftops in C&I. Fast forward to Q2 2026, we account for 57%, moving from about a quarter to more than half. This growing market share is actually growing our installed base in C&I, which when attach rates for storage are going to grow, we are going to see the same opportunity that we talked about in residential, storage attached to the installed base.

And this growth in market share is not a single quarter phenomenon. It is a result of a structural shift. And the structural shift is -- has 2 drivers behind it. The first one is technology, and the second one is regulation. So let's start with technology.

SolarEdge systems harvest more energy. And for an enterprise customer, for a large C&I customer, that means that more dollars are flowing through the bottom line, and they like it. More importantly, because think about it, they install the system on the rooftop of their businesses. Safety is their #1 concern. And for the last 2 decades, SolarEdge has been known for the safety of its systems and enterprise customers recognize that.

The second thing is around the regulation, non-FEOC, FCC authorized domestic content made in the U.S., none of the major C&I competitors can claim all 4. We can. And the large C&I customers, the enterprise customers, they appreciate that because it delivers a ton of value to them. And that's the reason why leading enterprise and C&I customers are choosing SolarEdge.

We are -- I don't know which one you drive Mercedes or Toyota, whether you like the DHL, you like Shell. These are only a few names. More than 60% of the Fortune 100 companies. And today, we are honored to host an executive from one of our strategic enterprise customers Prologis. Alta Yen is the Senior Vice President, Head of the Energy U.S. at Prologis, and she will share with you and with us their perspective on the market where it's heading, and why they choose to partner with SolarEdge globally.

So in both residential and C&I, we see tremendous growth opportunities ahead of us. But the reason that we are more confident in our ability to gain share in these markets is related to safe harbor transactions. So let's talk about this number, the $3.3 billion that you see here.

For the last several quarters, our teams have had multiple conversations with the largest TPOs, financing companies, enterprise companies, large C&I companies. And in these conversations, we try to understand what type of safe harbor transactions they prefer. And as you may imagine, the vast majority of them, they prefer the physical work that one. No cash laid out. No inventory has to be taken ahead of when they really need the product.

So these large customers, these key customers, both in resi and C&I, in recent quarters, as of today, have signed $1.7 billion worth of contracts with us. $1.7 billion of firm commitments for delivery between '27 and mid-2030 with liquidated damages if the customer chooses to cancel. Now most of the contracts in the residential space are for the inverters. And as you all know, our inverters need optimizers in order to work. So when you add the expected number of optimizers that is going to be added, that's another $1.6 billion, and you get to the $3.3 billion opportunity that we believe is out there for us.

Now I'd like to be careful here. Not all commitments convert. Some customers may go out of business, some customers may decide to cancel and liquidated damages are not the same value as the transaction itself. But nonetheless, this is the largest forward visibility this company has ever had. And the vote of confidence from both key customers in resi and key customers at C&I, give us the confidence that we can see future market shares as well -- future market share gains as well.

Now one last thing. We talked earlier about the transition to PV-plus storage. If one assumes even 30% attach rate, a conservative 30% attach rate, this number is going well beyond $5 billion. So that concludes or that's how we look at the growth opportunities in our core business. And now let me switch to the multibillion dollar opportunity we see with AI factories.

Now for 20 years, we focused on converting DC power efficiently and safely at scale. Now this expertise meets once in a generation, power architecture revolution. As you know, AI factories growth is constrained by power. It's constrained by -- because grid connections are the bottleneck and because the rack power density is expected to exceed 1 megawatt in 2028.

AI factories realized that the laws of physics will require them to move from AC architecture to DC architecture. And what we would like to share with you is the size of the build-out, why we believe most of it is going to be DC native, 800-volt DC native. And why ecosystem -- players in the ecosystem are telling us that we are in a leadership position. So let's start with the size.

AI factories are being built at a pace this industry has never seen before and the power density this industry has never seen before. Estimates for AI factories growth in the U.S. alone are between 12 to 15 gigawatts in each of the -- in each of the next 4 years. And you can see it here in the slide. And this massive build-out is running into a wall. This is not -- in our opinion, this is not going to be a GPU wall. It is going to be an energy wall. And people have started talking about it already.

So again, at the same time that the industry is going through a massive build-out, NVIDIA and more recently, OCP as well, the Open Compute Project, have realized that switching to DC architecture is a necessity. And in 2030, as you can see here, 67% of the new builds, 2/3 of the new builds are going to be 800-volt DC based. That's 2/3 from practically 0 this year, okay?

Now Meir is going to share with you later on that there are several different ways to get to 800-volt DC. But not all solutions are created equal. On one end of the spectrum, you have the sidecar based on AC architecture. On the other hand, you have the solid state transformer. The sidecar is easier to get to, and it carries less risk but it is less efficient. The SST is the holy grail. And now the question is why AI factories are going to take the risk with a new technology that is not yet proven when they are going through this massive build out.

So in order to understand it, one needs to understand the value of efficiency. You're numbers people, so you can check my math here. Let's take a 100-megawatt AI factory. If one can recover 1% of efficiency, 1% of incremental efficiency in the powertrain, that means that you have 1 additional megawatts available for GPUs. This 1 additional megawatt doesn't require new grid connection, no new substation, no new permits, right? This is power that has already arrived at the site and was lost on the way to the chip, to the rack. So this 1 additional megawatt in today's economics, will generate $20 million, again, $20 million of incremental revenue for the AI factory owner every year.

So if you run a net present value over 7 years for $20 million a year, you get to $100 million. So a value of $100 million as a result of 1% incremental efficiency. That's the math that AI factories, hyperscalers and other players in the ecosystem are doing. And that's the reason that the industry is moving and moving fast.

Now this is the same build-out. Again, you see between 12 to 15 gigawatts of new builds. But here, we broke down the 800-volt DC into AI factories that will decide to stay with the AC infrastructure versus the AI factories that will go DC native. As you can see in 2027, DC native is just a sliver. In 2030, it is expected to be 50% of the new build and the vast majority of the new builds that are going to 800-volt DC. The industry is changing the architecture of the powertrain, and it does it within this decade.

Now how does it translate into total available market in dollars? When you put all of these estimates together, we go from $200 million of TAM in 2027 to $4.1 billion of TAM in 2030 and probably continue to grow exponentially from there, which now leaves one more question. Why SolarEdge? The opportunity is big, but why SolarEdge should be the one to benefit from it?

So for the last 20 years, we focused on DC-coupled architecture. We are DC people, right? This experience and expertise led to 3 key advantages that players in the ecosystem find very, very attractive: efficiency, safety and scale. Let's start with efficiency.

SolarEdge provides a DC native powertrain that goes from utility to rack from 34.5-kilovolt AC to 800-volt DC with more than 99% efficiency. Competition, the good ones, are at 98%. And we've already established the value of 1% efficiency. In a 100-megawatt AI factory, it is equal to approximately $100 million. $100 million is more than the cost of the entire system. So you can do the math, AI factories can do the math, other people can do the math.

The second point is around safety. And again, the transition to 800-volt DC is going to depend on whether these systems can be protected, serviced and trusted at scale, right? That's the way the data center owners are going to think about. So at SolarEdge, as we told you, we are building the full solution. And earlier this morning, we shared with the world that we wrote, we actually authored a white paper with NVIDIA's contribution to help advance key protection and grounding considerations, right, within the broader industry.

Now in the many conversations that we've had with prospects and with NVIDIA, it became clear to us that solving these grounding and safety issues is a top priority for the industry. Similarly, the same expertise led to our announcement with Infineon yesterday. And again, together with Infineon, we are enabling solid-state protection for these data centers. Infineon, like NVIDIA have realized that safety, solving the safety issue is a requirement for mass adoption. And they -- because they've worked with us for a long time, they turn to SolarEdge for the DC expertise and DC safety expertise that we've developed over the last 2 decades.

The third element or the third advantage is around scale. Future customers are going to benefit from our supply chain, from the scale of our supply chain. We've installed more than 60 gigawatts. The reliability of the product is out there for them to see. And our U.S.-based manufacturing footprint gives them the confidence that we will address supply chain resiliency and will help them with domestic content consideration when and if it becomes applicable.

So these advantages are -- we are being told by both, as I said, horizontal players and these -- and prospects that these advantages really matter to them. And based on what they say, we believe that we are ahead of the competition both in terms of the product capabilities as well as in terms of time line, where we are.

So how will it translate into revenue? We shared our time line with you. We've shared it multiple times. We expect to have a working product in our labs by the end of this year. We expect to have pilot installations in 2027 and initial revenue in 2028. This is in line with the road map that NVIDIA are talking about, everybody is talking about. In 2029, when there is mass adoption, we expect to generate $600 million from the AI factories revenue. $600 million of revenue in 2029.

So let me put together both growth engines. Our expectation is that in 2029, we will generate $2.4 billion of revenue. $1.8 billion is going to come from the core business and $600 million are going to come from the AI factories. 23% CAGR, okay? With the core business, I shared with you the opportunities that we see. And the core business, expected revenue is dependent upon products that we have and customers that we know. Old products, not products that we know and customers that we have, but also as well. The AI factories revenue is going to be very exponential, as I shared with you in the last slide. And it's grounded with our belief that the industry is going to move quickly to DC native architecture and that we are best positioned to benefit from that opportunity.

But revenue is only part of the picture. Margin expansion completes the picture. Our estimated margin in 2026, excluding IEEPA, Maoz will take you through all the details, is 24%. We expect -- we target 35% in 2029. This margin expansion is going to result from scale, from mix, from Nexis, from U.S. manufacturing from operational excellence. All of these things are under our control. Since the beginning of '25, we've proven to you that we can apply discipline into these processes that result in increased and expanded margin. And our intention is to operate with the very same discipline in the coming 3 years, targeting the 35% gross margin.

So let me recap. This is SolarEdge's next chapter. Revenue of $2.4 billion, margin of 35% in 2029. Accelerating growth in our evolving core markets, where they're evolving in a direction that is good for us. Unlocking a multibillion dollar opportunity with AI factories based on DC expertise that we've developed over the last 2 decades. And doing all of that while expanding our gross margins.

So when you put it all together, I hope that you see why we are excited about what's ahead of us, and we promise to keep you updated as we make progress.

With that, I would like to introduce you to Liron Einav, our Director of Residential Marketing. Throughout my career, I haven't met a person who is more knowledgeable and passionate about their product than Liron. Nexis was brought to the market by many, many people. But today, you will have the privilege of hearing about its wonders from Liron.

Thank you, Shuki. Good morning, everyone, and thank you for being with us today. For the past 3 years, I've been breathing and living the product that you see right here. This is SolarEdge Nexis, our next-generation residential energy system and the platform we're counting on to deliver the residential growth Shuki just mentioned. Today, I'll walk you through why we build it, how we build it, what makes it so special and why we believe it's the right platform exactly in the right time for this market.

But before we talk about where we're going, let's start with where we stand. As of Q2 2026, SolarEdge powers more than 4 million homes worldwide. 1 in 3 homes that has solar on the roof is powered by SolarEdge technology in the U.S. And we're the #1 MLPE, module-level power electronics provider by inverter shipments in the world. But why am I telling you this? Because you as an investor, it's not just me bragging about our past success. This is our future. This is our installed base. These are our channel relationships and both of which are built-in distribution engines just for everything that I will walk you through. Shortly, you will also see how we plan to turn this base into revenue.

But let's be honest, because the market underneath that installed base is changing and is changing dramatically. I will walk you through 3 main changes. First, the value proposition is moving from pure energy export credits to market-based ROI, as we know, that net metering and feed-in tariffs are fading out market after market. Second the home energy system themselves are becoming more and more complex, more EVs, batteries, smart loads, backup requirements, it means that a single inverter or a single-purpose mindset is simply not longer enough.

And third, the go-to-market itself is changing, and you see it here in the U.S. from homeowner led cash purchase business model towards third-party ownership and installer driven fleets. Well, some of you can see these transformation as challenges to the market. We actually see these as opportunities, pure opportunities because Nexis was built exactly for that. And when I just -- what I showed you, it's not just theory because when we see it with our 3 main core customer groups, we hear it loud and clear. For our homeowners, this is personal because without any guaranteed export rate to fall back on, the value now comes for them from using, storing and timing their energy very well. So they're looking for energy predictability. They want to know how much they pay in the end of the month, how much they earn. They want to maximize the return on each kilowatt hours, and of course, like we all do, they want it automatically with AI in their smartphones.

Then our installers, they keep telling us one thing. We want more jobs per day. Less complexity, less O&M, easier upselling. The TPOs, they think fleet wide. They don't care about home-by-home alone. They want to maximize their returns across every system, and they want it for years, for decades. They want fewer truck rolls, full portfolio visibility and eventually extra revenue from virtual power plants. Nexis is built to satisfy all 3 audiences. And when a single product serves all audiences, that's exactly what turns into real share gain and better economics per site.

Meeting those shifts isn't just good for our customers. It's a major opportunity for SolarEdge as well. Everything I walk you -- I just walked you through, is going to turn into real measurable upside and it's coming from 2 main directions. The first one, our existing installed base, as I said and as Shuki mentioned, SolarEdge powers more than 4 million homes globally. Only 10% of them has storage. It means that 90% are PV-only systems with battery potential, and we estimate that as dozens of gigawatt hours of battery potential and we don't have to win a single new customer. They are already our customers. And even when we look at net new customers, when we sell PV plus storage system from day one, we actually double -- more than double our revenue per site. It means that with the same sales effort, it's worth more than twice that much to us. So I think we're all ready now. Let's meet Nexis.

[Presentation]

So here, it is SolarEdge Nexis. We just launched it, but it's already turning ahead. Forbes named it as shaping the home of -- the future of home energy and it won the 2026 Green Builder awards for Sustainable Product of the Year. But the number we are coming back to is one, extra $7,000 of savings per home throughout the system lifetime compared with our leading competitor. Now that's the number that wins the homeowner. And a product that wins a homeowner by value is exactly what protects our pricing and, of course, our margins.

And if you take only 3 words from my part today, make it these: powerful, flexible and durable. Powerful means a real leap in energy and savings. That's what wins the homeowner. Flexible means installer can move faster and earn more on every visit. That's what swings the channel. And durable means a system keeps performing and keeps earning for years from now, and that's what wins the TPOs. Together, they make the strongest platform we've ever built.

Now let's start with powerful, so powerful breaks down into 3 concrete validated numbers, and I want to walk you through each one. First, harvest more. This is the story of our power optimizers 10.5% more energy per year validated by VDE Renewables. Store more, together with the value of the power optimizers, our homeowners can save up to $7,000 in lifetime savings versus leading competitor. And additionally, they also save more because more than additional $1,000 saving per year is done with our Sera AI Energy Management companion.

Now let's go a level deeper, starting with how we harvest more energy. Let's talk topologies for a second because this is exactly where SolarEdge shines and separates itself from anyone else on the roof. Starting with string inverters. The old guard, simple but unforgiving because 1 weak panel drags down the whole system. It means that 1 shaded panel and the whole string pays for it. Now microinverters, they try to solve that going panel by panel. But eventually, they still cap every panel output at the microinverter's own power rating. So even on a perfect sunny day, you're still leaving power on the table or on the roof in that case, and SolarEdge eventually with our power optimizers technology, each panel produces its maximum power independently. So shading, mismatch or just 1 weak panel never drags down the system. That's why SolarEdge roof simply produces more value than anyone else and in this case, 10.5% more energy.

Store more, so on the storage side, we have a real advantage as well, and I could just repeat that number again and again, but you're here. And I want to take you through the bits and bites of our Nexis technology, and this is exactly why we brought it. So first, we'll begin with new product requirements that are coming from the field. Because of the market trends that I mentioned earlier, the export payments that are drying up and the homes, the energy system that are getting more and more complex. Storage is now the king. And once you add storage to the system, it's not just working a few hours a day. It's working around the clock, charging and discharging as conditions change.

So I want to ask you the question we've been asking ourselves when we designed Nexis. If the job now changed that much, shouldn't the way we measure performance and the way that we design products change as well? So to understand the meaning of this change, let me take you somewhere completely different for a second, the car industry.

For most of the 20th century, it was very simple. When a new car launched, all the commercials and the window stickers all mentioned one thing. Big performance, how fast the car gets to 60 miles, top speed highway driving, but the world, as we know, has changed. Urbanization pulled people back into cities. So suddenly, nobody cares how fast the car gets to 60 because in real-world performance, a car goes from 0 to 7 to 5 to 30 back again. And the solar industry is actually going through a similar transition now when solar is entering the picture because for years, every data sheet mentioned, either peak efficiency or CEC, more focus on high power rather than the low power. It's a simple number, it's easy to sell. We did it as well. I did it all the time. But today, it's simply not the picture anymore.

This is exactly how we looked like before storage. You can see here in the curve, 90% of the time it spends at a high power, only 10% of the time in low power. So that's exactly why our industry was very comfortable in measuring and marketing according to peak efficiency or CEC, but as I said, when we enter storage to the picture, you see here that 70% of the time we're actually in low power now, not just 10%. And 30% of the time alone we're in high power. Nexis is -- what we need with Nexis is to optimize it for how systems actually operates today, not for the data sheet of yesterday.

So what exactly did we do here? This is our unique power control design, I invite you, of course, all to see that afterwards. It optimize for silicon carbide, SiC, semiconductors, a cutting-edge architecture that cuts switching losses and heat compared to traditional silicon-based inverters. It's a big part of how we hold high efficiency across that full power range we just talked about. And that efficiency is what turns into real dollars for our customers and a real competitive advantage for us. Thank you. I'm sorry, I got a bit I'm excited about the Nexis launch and that you see it here.

We paired it also with an important innovation. From the creators of the power optimizer and with the same principle, we designed the battery optimizer. You can see it right here. What it does, it lets each battery block has its own brain. So 1 weak block never drags down the stack. So just think of it like it's midnight, when the home only consume around 200 watts because only the fridge and the WiFi are working. The brain of each block knows exactly not to make all of them work. Only 1 of them can work in 200 watts. And this is why we drag down the waste of the energy, okay? So there is no wasted energy and no weakest block that is dragging down the whole stack. It's the same philosophy that transformed solar harvesting now applied to storage.

And after we reviewed the importance of high efficiency and low power that is in charge, again on 70% of the time, let's put some real numbers behind it. This chart compares round trip efficiency for Nexis against leading competitors, focusing on low power range from 0 to 2 kilowatts. You can see Nexis has a meaningful advantage here. That exact gap is what's enabling our homeowners to earn more. That advantage sits deep into our architecture. It's hard to copy. And as Meir will show you later, it's a part of why Nexis carries stronger margins than anyone else.

The third piece of powerful Sera. Our AI energy companion and frankly 1 of my favorite things we've ever built. Sera automatically optimizes how the home uses storage and export energy, so the homeowner doesn't have to lift a finger. And as you recall, it was their #1 requirement. So Sera brings value that's worth over $1,000 every year. But for us, Sera is also strategic because it's adding a software layer on top of hardware. So it deepens our relationships with every homeowner and it's the foundation of future services like virtual power plants. That's powerful.

But a great system still has to be simple to sell and easy to install, which brings us to the second pillar, flexible. Nexis is scalable by design. So no rewiring is required, and the system is field expandable at any time. That has 2 business implications. First, every service visit can become a potential upsell. Installer can add capacity without a full system rework. Second, the system grows with the home, more EV chargers, more loads, all on the same platform.

Flexibility also translates into simpler operations, Nexis ships as single SKU, covering 3.8 to 13 kilowatts. That's easier forecasting and easier inventory management, and it's installed under 30 minutes, which means installers can fit more jobs per day every single day like they ask. That complexity pays off in better installer margins. And of course, stronger loyalty to our brand and to our platform. That was flexible.

Now let's move to durable.

[Presentation]

Well, speed and simplicity only matters if the system is standing from years from now, which brings us to the third pillar, durable. And here, I'll admit, I get to drag a little because we built Nexis for the extreme. It operates from negative 22 to 131 Fahrenheit degrees. It survives underwater up to 1 foot for up to 72 hours, sand and dust, sealed out. But why does this matter so much for you as an investor? Because the residential system has to perform for 15, 20, 25 years in somebody's backyard, not just in a lab. Every year, it keeps performing. It brings higher lifetime value to our partners.

That durability is backed by manufacturing with the highest Western quality and safety standards. And Nexis is manufactured here in the U.S.A. So for our installers and TPOs, that means resilience, confidence in long-term reliability, which matters enormously the compliance for large-scale fleet deployments.

So to bring these 3 pillars together, powerful, DC native optimized architecture with intelligent management. Flexible, it's a future-ready, scalable solution adapted to any home. And durable, built from durable materials built in safety and cybersecurity protections. And we bring this all to market in the U.S.A. and in Europe with 2 different approaches. In the U.S., we're winning the shift towards third-party ownership and Nexis is built just for TPO economics, as we mentioned, with faster deployment, better lifetime value and strong adoption. We're proud to share, as Shuki mentioned before, that we've signed a few billion dollars deals with a few leading TPOs in the U.S.

In Europe, we're scaling through thousands of neighborhood installers, oftentimes mom-and-pop shops. And we offer them a full suite of B2B2C and B2C solutions designed to help them exactly to win and to market in their own region, in their own neighborhood. We do that with the help of our DC bus. This is, by the way, an actual bus. I drove it myself a few weeks ago. It travels right now all over Europe, doing roadshows with the Nexis technology inside exactly to help them to get to everywhere in Europe. Two different markets, 2 custom playbooks, but 1 platform unified underneath.

I would like to close on why Nexis is a win for every stakeholder in the value chain, all at once. For the homeowners, more usable energy, backup and savings, easy management and sleek design. For our installers, increased capacity, more jobs per day, less complexity, O&M and, of course, easier upselling. For our TPOs, improved economics with maximum system ROI, reduced truck rolls, portfolio visibility and control and VPP monetization potential. And last but not least, for us for SolarEdge, we have an expanded revenue opportunity here per site. It's a modular platform with more attached opportunities, data-driven installed base and improved margin potential for us. That alignment where every participant in the value chain, in the ecosystem wins together is exactly why we believe SolarEdge Nexis is the right platform to power our next phase of residential growth.

Thank you. And now let's hear the voice of one of our enterprise customers, Alta Yen, from Prologis.

Alta, thank you so much for being with us today. We're honored to have you.

Thank you for inviting me to be here.

Yes, the customer perspective is so important. First, I really want the group here to know about Prologis. Prologis is described as the world's most valuable logistics platform. Can you tell us a little bit about the company? .

Prologis global leader in logistics real estate. We have about 1.3 billion square feet across 5,900 buildings in 20 different countries. We serve 6,500 customers, and we have approximately $240 billion under management.

Our facilities tend to be located in commerce centers. And so we have about $3.2 trillion of goods that flow through or touch Prologis warehouse. And just to put that into context, that's about 3% of the world's GDP. What we're increasingly seeing from our customers is demand and asks around power. Power has just been a theme, access to power, power affordability, power reliability.

And so the role of Prologis Energy Solutions is to deliver to our customers. And so that can be either through solar or battery, EV charging or on-site power.

Great. I mean, so a that you really dove into the span of Prologis, I mean, huge real estate footprint. But you mentioned power, it's a resource that is increasingly constrained. And so why is renewable energy such a priority for Prologis and your customers?

So renewable energy allows us to use our -- what would otherwise be underutilized rooftops to deliver energy infrastructure to our assets. This allows us an opportunity to deliver incremental value to our buildings, to our customers and to -- in some places, even for communities to deliver incremental value there as well.

Okay. And really, the process that Prologis goes through is kind of a well-oiled machine, you're really building the same roof hundreds of times what earns the vendor, the volume across your fleet? What does qualify as one?

So at our scale, we're really looking for 3 attributes from our vendors. We're looking for safety. We're looking for scalability, and we're really looking for a partnership. Safety is quintessential to the Prologis philosophy, as you can imagine, building live solar systems on operating warehouses is really, safety is really critical for us. And we really value SolarEdge -- sorry, the volume went up. We really value SolarEdge's technology and safety features, especially around the module-level architecture that you all have, the Arc Flash detection, the module-level monitoring. It really allows us to protect our buildings, our customers, first responders as well as other service providers.

On the scalability side, we have developed a repeatable platform at Prologis, but every project still has its unique attributes, whether it's the EPC contractor or the utility territory or any kind of regulatory constraints.

And so from our vendors, what we want to see is a high level of service at every project, but then also across our entire portfolio. We want to see consistency of service, whether that's a project that's in construction or a project that's in operations.

And then finally, we're looking at partnerships. We don't want vendors who just look at every interaction as a single transaction. We believe that the real value from our solar assets is over 20-plus year of useful life. And so we really want vendors who have that like-minded mindset for -- and will work with us.

Great. And SolarEdge and Prologis have been partners for years now. You mentioned safety was a big priority. How else has SolarEdge supported Prologis kind of in that relationship piece across that large distributor portfolio we have with you?

So Prologis and SolarEdge have had a relationship for at least 6 years. I've only been at Prologis for 2. But I will say that I really appreciate the collaboration between our teams, whether it's on the engineering side or the construction side all the way through operations. SolarEdge continues to great partner, one that we can bring ideas with and have just very candid conversations.

What I will say is that it's very helpful to have a partner like SolarEdge and discussing all of these different issues because a 6-year relationship. As one can imagine, there will be unexpected challenges and difficulties. And really you find the value of a partner when you're trying to solve types of live problems. And I, for one, worked personally with SolarEdge in a situation where we had -- we were trying to develop a procurement strategy that had some scheduling challenges and then also some internal business goals that we needed to meet. And I very much appreciated SolarEdge bringing a cross-functional team who included engineering and legal and commercial and operations to work with us to really solve that.

And then I would say, finally, what's been really helpful with SolarEdge is just your continued innovation and your proactive nature in terms of bringing forth ideas around how Prologis can continue to improve and optimize our Energy Solutions business.

Great. Yes. Prologis passed a huge milestone in 2025, 1 gigawatt of solar plus storage on rooftops across the entire fleet. So what's the path to scaling further? Kind of what's next? .

It was important for us to have that 1 gigawatt milestone. It allowed us to demonstrate that we can build distributed energy at scale. But we didn't stop there. So we're currently at 1.4 gigawatts right now, and we will continue to push and execute on our current pipeline. We're continuing to develop in markets where we have some tailwinds behind us. And then we trying to continue to open up new markets.

I would say additionally, we're also looking at other technologies, so pairing solar and battery together and working across new geographies. But we're really optimistic about what we see ahead of us.

Yes, us too, together. Thank you. I just wanted to get a little note of real customer experience. Thank you for sharing all of that with us today and being here with us and your continued partnership as well.

All right. I will invite all of you for a quick 15-minute break, and we'll come back here and reconvene and talk about AI factories. Thank you.

Thank you.

[Break]

All right. I hope you enjoyed the short break, had some time to rest. The first half -- let's see, so the first half of the presentation, we focused on our core markets. Thank you to Liron. Thank you to Alta for sharing their perspective with you. Now we're going to move to the second and exciting multibillion-dollar opportunity that we have, unlocking the AI factories opportunity.

I'd like to warn you, this next session is a bit more technical. But what we figured is that with all the noise that is -- people are talking about it. It will help you and other investors, we believe, decipher between signal and noise. So Meir will take you through the details and the technology behind our solution and why we believe that's the right way to transition to 800-volt DC. So without further ado, one of our co-founders, Meir Adest.

Hi there, everybody. I hope you enjoyed the coffee break. As Shuki said, it might get a little technical, so I hope you're well caffeinated, and I'll try not to make this too painful. For the next 25 minutes, I want to talk about what I believe is the most exciting opportunity in front of this company, powering AI factories with our solid-state transformer and the DC native architecture we've built around it. We're going to talk about why the industry needs it, why it's hard, why we're the ones to do it and where we're standing today.

And a note on why this is personal to me. 20 years ago, 5 of us founded SolarEdge on a contrarian bet that the future of power lies with intelligent DC electronics. I've been living DC ever since then. It's physics, it's dangers, it's economics. So when I look at AI factories, I'm not seeing a new market. I'm seeing the same bet at 100x the stakes.

Let's start with the one thing you need to understand about AI infrastructure today. Demand is enormous and it's growing. But the bounding factor is no longer chips, it's energy because every extra watt you could get from the grid is an extra watt that goes to GPUs. More watts mean more tokens and more tokens mean more revenue. So don't think of this as a power problem but as a production problem. In an AI factory, every watt is a token and every token is revenue. Shuki, in his presentation showed you those the dollar figures, keep those in mind. We'll be coming back to them later.

Here's my argument in 3 lines. It's the structure of this whole section. First, DC native architecture is the key to the AI power bottleneck. NVIDIA, the Open Compute Project, OCP, and the hyperscalers, all agree on that. Second, getting there means solving 2 hard physics problems: medium-voltage isolation, where the solid-state transformer replaces the old transformer and DC safety because DC behaves nothing like AC. And third, SolarEdge is positioned to lead this transition with 20 years of experience of DC at scale and a multiyear head start in medium-voltage electronics development. And I won't just claim it. Towards the end of the show, I'll show you -- towards the end of the presentation, I'll show you the system running.

So quickly the numbers. Global data center demand -- the global data center capacity is projected to double by 2030 with 100 gigawatts being added to the grid, led mostly by the Americas but growing everywhere. The scarcest resource in AI is no longer silicon. It's electricity. And the industry knows it. 92% of data center operators cite utility capacity or transmission constraints as their most significant obstacles. And you could see it also in the chart. Starting by late 2024, the long-term ambition is far exceeding the grid connections. The demand is there, the grid connections aren't keeping up. What's clear is that however you get your megawatts, you cannot afford to waste a single one.

Now the second thing happening at the same time, is that the power architecture inside these facilities is changing fundamentally. NVIDIA has realized that the current design doesn't scale and announced a new 800-volt DC ecosystem for power dense, efficient, scalable AI factories. This is a once in a generation shift.

To see why this shift is fundamental and maybe even inevitable, we need to go back to when the grid was born. It's 1880. Thomas Edison has just perfected a practical incandescent bulb and suddenly everyone wants electric lights. But there's a problem, a bulb works at low voltage and low-voltage power can't travel, try sending it down half a mile of copper and most of it is burned off as heat. Long distance demands high voltage. The home demands low voltage, and it's 1880, there's no power electronics, not 1 semiconductor on earth.

So an ugly fight started about how to build the grid. In the left corner, Thomas Edison, pushing for DC, but because low voltage DC can't travel, that means you need a power plant in every neighborhood. And in the right corner, Nikola Tesla, pushing for AC because only AC could change voltages with the transformer, 2 coils with an iron core and no moving parts. The war of the currents, as it was later known, that ugly, but eventually physics and AC won.

Now here's the takeaway. AC didn't win because AC is better. AC won because the transformer was the only voltage changing machine on the planet. Every grid in the world today is downstream of that 1 missing technology. Now fast-forward 140 years and look at what we actually plug into the grid today, lights, LEDs, DC; phones, computers, chips, everything that computes, DC; industrial motors behind the behind their variable speed drives, DC; EVs, solar, wind, every battery ever manufactured, all DC; and AI data centers most power hungry loads humanity has ever built, pure DC all the way down to the transistor. We live in a DC world, served by a 140-year-old AC delivery system.

The old justification for AC, no power electronics, has evaporated decades ago. We now have the semiconductors that Edison was missing, but the grid never caught up because nothing ever forced the issue. AI factories are the load that actually forces it. So let's count what the old system cost.

34.5 kilovolt goes -- comes in from the grid and runs a gauntlet, transformer, low-voltage distribution, double conversion UPS, low-voltage AC power supply, 12% of the power lost before it reaches a single GPU. You'll notice that inside there, there's another 2% to 4% loss. But since we're focusing on what's outside and comparing apples-to-apples, we'll focus on this 12% number. On a gigawatt campus, 12% is 120 megawatts, an entire data center's worth of power, burned off as heat before it touches a single GPU.

Now this is a sneak preview of what you'll see later. SolarEdge's integrated DC native solution end-to-end. Same utility connection on the left, same GPUs on the right, but 1 difference, instead of 12% lost, there's less than 1% lost, 1 conversion instead of 5. So remember, Shuki's arithmetic, at 100-megawatt AI factory, every 1% of power is approximately $20 million per year in compute revenue. So closing this gap from 12% to 1% means efficiency is no longer a footnote on a spec sheet, it's aligned on the income statement.

Hold this picture. The rest of my talk is what it takes to make it real and why we believe almost no one else can do it. So how does the industry capture this price? Think of it as a maturity level -- as a maturity ladder for data center power, differentiated by system efficiency. At the bottom is level 0, legacy AC architecture, basically every data center today. Traditional transformer, local distribution, double conversion UPS, PDU, et cetera, going to the chips. As you can see, 84% to 91% of the power actually reaches the chips.

Above that is level 1. Basically, you keep the white space with the same AC that you have today, and you just bolt on a sidecar which converts from AC to DC so that you could power the 800-volt next-generation. You're able to turn them on, but you're not really gaining any power. In between are the compromises. Level 2 and level 3, get you to the mid-90s, still dragging around a long legacy hardware. By the way, if you want to deep dive into this, we have a white paper on this. And at the top is level 4, the integrated DC native solution. with a high-efficiency solid state transformer, an intelligent power distribution unit, a DC UPS, which is connected in parallel, so we're not losing any power, converting 800 volts directly to the chip, 98% to 99% efficiency end-to-end.

Most of the market is stuck at level 1. Band-Aids on AC. The market is climbing this ladder, 1 rung at a time. SolarEdge is going straight to the top, straight to level 4. So why hasn't everyone done that? Because between level 1 and level 4 are 2 walls of physics. Bear with me for a minute of science. This is the heart of the story. The grid is layered, transmission runs at hundreds of kilovolts. And as it enters an area, it steps down to medium voltage. 10 to 20 kilovolts for the smaller loads, such as edge data centers and 34.5 kilovolts for the large loads, such as AI factories. And the higher the voltage, the harder it is on power electronics. And this enemy has a name, partial discharge.

As you could see in the middle pane, every insulator could have tiny microscopic voids. And under high electric stress, these voids could spark, tiny lightning bolts inside the insulator eating away at them. One of these sparks is not a big deal, but billions of billions of them over the years caused erosion and treeing and degradation and eventual failure of the equipment.

And this stress is voltage dependent, manageable at 10 kilovolts, but brutal at 34.5. Building a transformer that stays quiet at this level while switching thousands of times per second is one of the hardest problems in power engineering.

So here are the 2 barriers. Barrier 1 what you've just seen, direct conversion from medium voltage to 800-volts DC with a single stage and full galvanic isolation at more than 99% efficiency. Everything you see here is makes it hard. And you've already met the hardest enemy, partial discharge. And barrier 2 is 800 volts DC because DC never crosses 0. When there's an arc in AC, it extinguishes itself 100 times a second. Every time the AC signal goes to 0. The DC arcs keep burning. So protection and detection and control and safety have to be designed from the ground up for DC, safety by design, not by retrofit. This is completely new to the data center industry, 2 problems, both hard, both physics, not software.

And here's why we believe SolarEdge is best suited to solve them, 3 proof points. First, proven solid-state transformer medium-voltage isolation. Remember those tiny lightning bulbs I mentioned before? We tested our solid-state transformer at 150% rated voltage and measured partial discharge of less than 1 picocoulomb ,that's less than 1 trillionth of coulomb. It's 10x better than what the standard requires. That difference is the difference between a lab demo and a product that survives for years in the field.

Second, 20 years of DC architecture and safety. With 150 million units in the field, it has been our core business since day 1. And third, we have the scale to execute with 65 gigawatts shipped in global R&D, manufacturing and operations, we're not a start-up with a slide. We're an industrial company with a running machine. The 2 hardest problems in AI are medium-voltage isolation and DC safety. We've spent 20 years of training exactly for these 2 problems.

So let's open the hood and look at how SolarEdge is powering the next phase of the AI revolution. Let me bring back the picture we started with. Five conversions, each taking its cut, 12% of the energy gone before a first GPU sees a single watt. That's the machine the industry is running today. And here, the same first mile rebuilt, 1 stage, 34.5 all the way to 800 volts into the rack with less than 1% lost, 5 conversions become 1, 12% becomes less than 1%.

What we deliver is 1 unified solution all the way from the utility connection to the compute rack with 3 1s, one conversion where the AC chain needed 5; 1 protection scheme, all the way from the SST output to every individual rack feed with no coordination gap because there's 1 vendor and 1 control loop, the source, the SST and the buffer share of bus, but both of them are controlled by us. So stability of this bus is engineered and not integrated afterwards and hoped for.

And there's an important degree of freedom here. Everything you see could be located either inside the data center, in the white space or in the gray space or outdoors based on the customer preference. So they have a degree of freedom, and it's not dictated by us as a supplier.

The solution is built from 3 purpose-built engines, the SST, the power distribution unit and the DC UPS. And you can see 3 of them come together here in a second. This is 1 architecture that scales all the way from a single haul to a gigawatt campus without acquiring redesign. Here's how: here's the SST. The medium voltage comes in 3 phases. And each of them has up to a dozen cells in series to stand off the medium voltage. The output of these cells is connected in parallel to provide the power for the 800-volt bus. In addition to that, you have the DC UPS connected to the bus in parallel. So there's no series losses. And this DC UPS is storage agnostic. We supply the conversion and the interface, not the battery cells themselves. So our customers are never locked into 1 vendor or 1 battery technology. From the bus, they are separate channels going to each rack, each 1 providing its own protection and isolation.

I noticed 1 detail. The galvanic isolation, the red part down there, is built into inside of each cell's DC to DC stage. So any fault energy from the medium voltage physically can't reach the bus. The isolation isn't a component we added. It's built into the architecture. One design for any size. This isn't the concept. A few weeks ago, I took off the jacket, put on a polo shirt and went into our high-voltage lab to show you the system running.

[Presentation]

That's real hardware converting real medium-voltage today. And we're not doing it alone. Earlier today, we've released a white paper about protection and grounding for 800-volt DC for data centers. NVIDIA contributed to this white paper as an ecosystem partner and a technical reviewer. We didn't wait for the 800-volt DC safety standard to be handed to us. We're writing the playbook and NVIDIA engineers reviewed it.

And the partnerships go deeper than paper. Yesterday, we announced an extension of our collaboration with Infineon, solid-state circuit breakers for high-voltage DC distribution. Remember, barrier 2 about DC safety, try extinguishing an arc with a mechanical circuit breaker, quenching the arc could take milliseconds. At the power densities of AI factories, that's near eternity. With solid-state circuit breakers, we could do it in microseconds. We're leading the design with the Infineon silicon carbide devices at the core. Protection is what unlocks 800-volt DC at scale. And together with Infineon, we're building this solution.

So where are we on this journey? Through 2024, we've been doing scientific validation and medium-voltage transformer testing, basically the deep physics work. As you've just seen, we have a demo currently working in our lab and expect to have a working product by the end of 2026, leading to pilot installations in 2027 and commercial deployment in 2028, together with availability of the 800-volt DC racks. We're not aligned to a paper road map. We're aligned to NVIDIA's rollout. So when the next generation racks arrive, we aim to be there powering them. Maoz in a few minutes, we'll show you what this ramp means in dollars as he takes you through the model.

And when I say customers, we're engaged across the entire AI infrastructure ecosystem, starting with the hyperscalers, who are building the AI infrastructure for their own platforms, through the neoclouds, the GPU providers who are writing the standards and the facility operators and energy providers which -- with whom we're having strategic partnerships and joint system offerings. Basically, everyone who touches the power path of an AI factory.

Before I end, 5 takeaways. If you remember nothing else, please remember these. First, the world is moving towards 800 volts DC. This is a once in a generation shift. Efficiency is tokens and tokens are revenue. To quote back Shuki's 100-megawatt AI factory example, every additional percent -- 1% of power is $20 million per year in compute revenue with an NPV of $100 million. Not only 10 or 20 kilovolt, but the full 34.5 kilovolt directly to 800-volt DC at over 99% efficiency demonstrated running.

20 years of distributed DC architecture expertise with 150 million units in the field and 65 gigawatts shipped, DC is not new to us, it is us. And finally, as you've just seen, we're not promising. We're executing.

And now what I'm sure you've all been waiting for the numbers. Everything you've seen today, starting with Shuki's strategy, the Nexis, the SST, it all comes together in 1 financial model. And the man who built it will take you through it. Please welcome our CFO, Maoz Sigron.

Thank you, Meir. Good morning, everybody, here in the room and also online. I joined SolarEdge a few months ago, and I'm very excited to be here today. SolarEdge is an organization aligned with one main goal, translating and leveraging technology and innovation into a sustainable, profitable growth in the coming years. Today, I would like to discuss with you our model for the coming years. I will discuss the assumptions, the revenue drivers, the margin expand drivers, the operating leverage that we have in the model. Our discussion today will split to 2 sections. The first one is the turnaround, what we did so far in the last 2 years. And second is the profitable growth plan for the coming years.

Let me start with one slide that, in my view, give a good picture about the 2 sections that we're going to have today. First is the turnaround where we are today. And second is the profitable growth where we are heading. The turnaround, the main objective was to first sustain the business and translate this business into a profitable business. In 2024 and 2025 were years of first restoring discipline; second, expanding the margin; and last, generating cash.

In 2026, we returned the business to profitability. As we shared in the last earnings call, in the second quarter, we had a positive operating profit for the first time since 2023. This is the foundation for the model that I'm going to share with you in the second section on the profitable growth for 2027 to 2029.

Three numbers to remember from this slide. First is the $2.4 billion in 2029, reflecting 23% CAGR for the 3 years. Second is the SST revenue that we're expecting for 2029 with $600 million. And the last is the EBITDA margin that we're expecting in 2029 with 18%, significant improvement from where we are today. Let's start with the turnaround.

During 2023 and 2024, the solar industry went through a significant correction. Our response was to simplify the portfolio, reduce cost and complexity and to refocus on profitable market and products. 3 years with 3 lines. First is the revenue that increased significantly from the $900 million in 2024 to almost $1.3 billion in 2026. The gross margin improved significantly from minus 90% in 2024 to 28% in 2026, 24% excluding IEEPA, this is important for our discussion later. The last one is the EBITDA, moving from a negative EBITDA in 2024 and 2025 to a positive EBITDA that we're expecting for the full year in 2026 with 2%.

I'm going to share with you today our model with adjusted EBITDA rather than EBIT. We believe that the adjusted EBITDA better reflects the underlying of our business. And this is the way are we going to report moving forward, our results.

Let's start with the gross margin. The gross margin increased significantly from 8% in Q1 2025 to 24% in 2026 for the full year. As I said before, this is excluding the IEEPA impact. This is 16% improvement in 2 years. And this is the foundation of our model, so I will discuss now the main drivers, and then I will talk about the margin improvement that we're expecting also in the model.

The first effort is the refocus on profitable countries and businesses. Part of what we did in the last 2 years is exited nonprofitable countries and businesses. And we are focused and we are allocating today most of our investment into these countries and businesses. The second one is the single SKU. Part of what we did as part of the operational excellence efforts is making sure that we are running and moving to a single SKU. Single SKU simplified manufacturing, forecasting, operation. Logistics and support, it saves real dollars.

The next one is the offshore. Part of what we did in the last 2 years is moving operation and support function into offshore countries. It helped us to improve our margin over the last 2 years.

The next one is the business scale. Part of our cost of goods include fixed expenses. The fixed expenses can absorb more revenue. And part of what is happening from -- moving from the $900 million that we had to the $1.3 billion in 2026 is the scale of the business.

And last but not least, is the U.S. manufacturer that we have in the U.S. 90% of our production of optimizer and inverter is happening now in the U.S. This is good for SolarEdge from the benefit of the 45X, but also important for the domestic content from our clients -- for our clients. So this is good for margin, but also important for our revenue.

Let's move 1 line down to the cost discipline. The operating expenses decreased from $447 million in 2024 to $367 million in 2026. This is non-GAAP numbers, moving from 50% operating expenses to revenue in 2024 to 28% operating expenses to revenue in 2026. This is a significant improvement. This is $80 million reduction in our operating expenses, while the revenue is actually growing over the last 2 years.

The main efforts that we have here in the operating expenses are the following: first, as I said before, about the gross margin, the same is right for the operating expenses. The focus on the core market and core businesses, is translating also here into the operating expenses. We are allocating our investment to where we are making money. The next line is the offshore. As we did in the cost of goods, we are doing the same with the R&D, S&M and G&A. We have a global footprint, and we are allocating resources in some cases, to lower-cost countries. And the last one is the headcount. Part of what we did in the last 2 years is aligning the headcount to the current level of the business. Moving here with the headcount to the current level of the business while preserving our ability to increase and to scale the business in the coming years.

Cost discipline is not a onetime effort. This is ongoing efforts that's also going to be part of what I'm going to share with you in the model. We are going to include AI and automation as part of our efforts to improve our operating expenses in the coming years.

Let's move to the balance sheet and the free cash flow. The cash -- the net cash increased from $82 million at the end of 2024 to $265 million at the end of the second quarter. Important to say that the cash level at the end of the second quarter achieved more than $600 million cash, cash equivalents and marketable securities. Another improvement here that is significantly is the free cash flow, improving from minus $422 million in 2024 to $24 million in H1 2026. We're expecting the year to be with a positive free cash flow.

The main efforts around the balance sheet and the free cash flow include the following: first is the working capital discipline. This is a very important effort that we are running. It include, first, the inventory. We are making sure that the inventory level is aligned to our needs. We are making sure that sales forecast and operations are aligned and translating to our footprint. Second is the payment terms with our customer and vendor, making sure that there is alignment between them. The next one is the cash conversion cycle. At the end of the day, this is include the DIO, DSO and DPO, every day that we are improving our ability to support our future growth for the coming years.

In September 2025, we return our convertible notes on the maturity date with our cash without using any external financing. The balance sheet that we have today is a strong balance sheet that will support our future plan in the coming years, which lead me to the next section that we are going to discuss today is the profitable growth plan for 2027 and 2029.

Before we are getting into the numbers, we'd like to share with you the assumptions for the model and the process that we run internally. In the last 3 months, we ran the process globally with the U.S. team, the EU and the international marketing with sales and operation with the resi, C&I and the SST team to make sure that we're all aligned with the consolidated process that I'm going to share with you today.

So the first things that I would say is that this model is a bottom-up model country by country with the market share assumptions that we have in the model. The second is that we are using our 20 years of data in SolarEdge, making sure that we know where we are today, what was in the last 3 years and where we are heading, what is the potential of the business for the coming years. We are using a third-party data from Wood Mackenzie, Ohm Analytics and Solar Power Europe and others to make sure that our assumption for the coming years are aligned with market analysis.

After we have the market share per country, we are translating this through a product mix, taking the assumption of the price and making sure that the market share is also reflecting the footprint that we're expected for the coming years. The SST model built separately based on our discussion with potential customers and based on the third-party data that are important for our assumption that we have in the model.

The IRA, as I said before, the 45X, is another important element in our P&L. So the assumption of the IRA is part of the product mix that we are expecting and based on what we're expecting to have here in the U.S. from the U.S. made point of view.

The indirect cost expenses are based on our revenue level for the coming years. Part of them are variable, but part of them are fixed, and we're expecting a moderate growth in the coming years, not on the same level as the revenue. One line down to the OpEx, the same. We're expecting to see leverage.

Important to say about the R&D as our plan include innovation, we are going to invest and keep and invest in the R&D, and we're expecting that 50% of our operating expenses will go to the R&D in the coming years.

So let's move to the model. So first, I would like to talk about the first line, the revenue, moving from $1.3 billion in 2026, almost there, to $2.4 billion in 2024 -- in 2029, sorry. 23% CAGR. The next line that is important is the gross margin, extending from 24% without the IEEPA impact to 35%, 7% with IEEPA, 11% without the IEEPA margin expansion in the coming years.

Let's go to the OpEx, moving from 28% operating expenses to revenue today to 20% in 2029, 8% improvement. Last, but not least is the EBITDA, moving from 2% today to 18% in 2029. In all P&L KPIs, we are doing better, and we're expecting to improve our position.

With that, I would like to dive into our growth drivers that we have in the model. So 4 main drivers that I would like to discuss and dive into. First is the SolarEdge Nexis. As shared before by Liron, we are expecting to see the Nexis in the coming years. The move from PV only to PV plus storage is exactly aligned with the way we design Nexis. As shared before, we're expecting to see more revenue per site with the Nexis more than 2x. Additional, we're expecting to see better ROI with Nexis with a 10.5% more energy with our optimizer per year with a $7,000 that mentioned before that we're expecting to see on the life of the system and the $1,000 additional benefit per year with our Sera, with the AI application, we're expecting the ROI to be much better also compared to our competitors.

During the second quarter, we did a $60 million with Nexis, and we're expecting more. Our assumption here in the model that Nexis is going to be a significant contributor to our growth for the coming years.

The next one is the C&I. We are winning on the C&I on product, but also on our regulatory positioning. We are FEOC compliant, FCC authorized, domestic content authorized, and we are U.S. made. We doubled our U.S. rooftop market share in the last few years, moving from 29% in Q4 2024 to 57% in the second quarter. This is a significant improvement. And part of the assumption here that we will keep and see more market share in Europe and in the U.S. with the C&I.

Moving one line down to the safe harbor. Part of what we shared before that before the July deadline, we signed a $1.7 billion contract with resi and C&I customer. Together with the optimizer that associated with the inverter and other products that are included in the $1.7 billion, we're getting to the $3.3 billion as shared before by Shuki. And if we are taking a conservative assumption of a 30% batteries, we're getting to more than $5 billion. This is a significant amount. We're expecting this to translate to revenue between 2027 to 2030.

As shared before, we have liquidated damages in the contract, but still some customer may cancel, some customer will go out of business, and this is part of what we are reflecting in the model. So we're expecting safe harbor to definitely contribute for the coming years and helping us to gain market in the coming years.

The last one is the AI factories. With a $600 million revenue in 2029, we have here taken assumption based on where we are today with the early stage. As Meir shared before, in lab demonstration with prospective customers, the system achieved 99%, this is a significant achievement. Important to say that another. Important to say that together with the AI and the core business, we are getting to the $2.4 billion, $1.8 billion is the business that we know and that we are running for 20 years. And another $600 million is the AI that is also using our knowledge from the last 20 years in the company.

Let's talk about the SST for a minute. So our assumption for the SST that in 2027, will have insignificant amount of revenue. It will be mainly pilot installation. 2028, we're starting to see the ramp-up from the Nexis from commercial agreement and the scale is expected in 2029 with a $600 million.

We are in early stage with the SST. So we are cautious about our expectation. But with our technology, with the lab demonstration and with a discussion that we have with potential customers and with our understanding with the [indiscernible] that safety and efficiency is the most important KPIs for our clients, we feel that we are in a good position, and we're seeing here a multibillion-dollar opportunity for the coming years.

With that, I would like to move to the gross margin in our model. So the gross margin is expected to increase from 24% in 2026 to 35% in 2029. The main contributor to the 11% improvement are the following: first is the Nexis. As shared before by Liron, we're expecting to see more margin with Nexis. This is not only more revenue. We're expecting to see more margin compared to the legacy margin that -- the margin that we have with the legacy product today. The next one is the AI factories. Our assumption in the model that the margin of the -- the margin of the SST will be higher than our normal margin. So this is another contributor to the margin for the coming years.

Operational excellence. As I said before, this is not a onetime effort. We are running different teams globally, making sure that we are running with different efforts to make sure that we are keeping and improving our leverage in the model, and we're expecting to see more benefit from the operational excellence efforts in the company in the coming years.

The next one is the business scale. Also here, we're expecting to see some leverage in the model as we have fixed costs that are expected to contribute to the margin as well. The last but not least is the 45X. Important to say that today, we are not yet benefiting in full from the 45X. As we are getting into the next years, '27 and '28, we will move to full benefit, 100% benefit in our P&L. As we are ramping up the production and as we are ramping up our new products, the benefit of the 45X is not yet in full and we're expecting more benefit in the coming years.

With that, I would like to move to the OpEx discipline that is also important in the model. So the operating expense is expected to increase from $367 million in 2026 to $480 million in 2029, a reduction from 28% to 20% in 2029. The main efforts in the operating expenses are the following: first is the operating leverage that we have in the model.

As I shared before, we are increasing our revenue significantly, and we are expecting a moderate growth in the operating expenses. This is the first driver.

Second is the offshore. We built in the last 2 years a global offshore that can also contribute in R&D, S&M and G&A, and we're expecting to benefit from that in the coming years. The next one is the R&D. As I said before, we're going to invest more than 50% from our operating expenses to support our future growth with the new product and technology. And last, but not least, is the automation. We are giving access to AI tools globally to all our employees. We believe that with automation and with AI, we can improve this line as well and have more benefit in the coming years from the AI.

With that, I would like to conclude. So the turnaround, return SolarEdge to profitability, as I shared before in the second quarter. The coming years in the model expected to increase their revenue significantly while extending the margin. Together with our people, our technology, our market position, our operational discipline and our unique products, we're expecting to gain market in the coming years, and that will translate into sustainable, profitable growth in the coming years.

With that, I would like to conclude my session. So thank you, and we will move to the Q&A. So I would like to invite Shuki, Liron and Meir.

So thank you for spending the time with us. I hope that all these sessions were educating for you, that you learn something new today, which is very, very important. We'll now open it for questions, and then we'll wrap it up.

Just wait for the mic before.

This is Philip Shen with ROTH Capital Partners. I wanted to check in with you on the $600 million AI target for revenue in 2029 and the 35% margin. So specifically, can you share with us a little bit more detail on the assumptions that go into the $600 million? I think my quick math suggests that you have 25% market share in '29. Is that the assumption?

And then also, if you can, what's the rough price per watt? Are we in the $0.30 to $0.35 a watt, maybe $0.40, I think it was on the slide earlier, but are you assuming something in that range?

And then also on margins, would you -- in the past, we've talked about this, Shuki, you guys were still deciding if the 45X could be claimed on the SST. And so just curious if you guys have made a decision on whether or not 45X will be assumed for the SST?

And that's your first question.

I do have other.

Yes. So thank you, Phil. So first about the SST. The model that we have here with the $600 million is the model that build based on our assumption. We need to separate between the TAM that we shared during the discussion to our model for 2029. We are, of course, taking some assumptions inside the model that are more conservative. We're not going to share exactly what our -- the details behind the scene, behind the model. But let's say that the numbers that are out there in terms of -- as I said, we are using our conversation with customers. We are using a third-party data. We are using all the available data that we can have in order to make sure that the model is reasonable and that is something that we can support. But this is very much aligned with the data that we have internally and the data that we have externally.

So this is for the first question. About the margin question of the 45X for the SST. So the model does not include any assumption on 45X. So this is to be conservative and without having any question about where we are with the 45X. We will keep and follow carefully, if there is a potential, we'll see how we're utilizing it. But the assumption here is without the 45X.

Okay. Great. Any thoughts on pricing or you can't share?

We are not getting into this level of data. We gave the direction where we are heading, but we are not getting into the detail.

Okay. And my second one here, and then I'll pass it on. As it relates to, again, still AI and data center. Meir, I think you talked about a once in a generational shift to 800 volts. One of our inside the data center EPC, a major one, Rosendin, they've talked about potentially shifting to 1,500 volts. And there's a lot more standardization around that, a lot of volume in there. Could you see a shift to 1,500-volt pretty quickly? And if so, are you guys ready for it? And then -- and how does that improve potentially your efficiency even more? Can you go from 99.2% to something even higher or closer to 100%?

Yes. So the short answer is yes, there's no problem to shift to 1,500 volts. The slightly longer answer is, actually, that's where we started. I was mentioning that we have a multiyear head start in developing medium-voltage electronics when NVIDIA just announced this 800-volt shift about a year ago. And that's because we were working in the lab working on a direct -- basically utility scale inverter that's directly connected to the medium voltage.

So back then, we were 1,500 volts. And actually, what we've been doing is scaling down to 800 volts because this is what the ecosystem needs right now. And we're hearing similar sentiment. I'm going to guess that the first few years will be 800 volts just because the whole DC infrastructure is new to the data center industry, and it will take some time for them to feel confident that 800 volt before moving on to higher voltages. But yes, it definitely makes a lot of sense, not only because of the maturity of the components, but also just because you could push more -- if you have a higher voltage, you could push more power without increasing the current, which means without increasing the losses and thermal issues are easier if you don't have to increase the current. So yes, I'm guessing the industry is going to start gravitating towards that. I'm guessing it's also going to take time, but we're there.

[ Mike Malte ] with Deutsche Bank. For the presentation, so my first question pertains to the 30% attach rate that you mentioned, representing up to $5 billion in additional revenues. Can you talk about how feasible you view that 30% possible upside or downside to that number? And what the revenue opportunity could look like?

Yes. So when we talk about attach rates of storage and safe harbor transactions are in the U.S., in U.S. resi, I think that one of the charts that Liron shared with you showed the attach rate that today we have in the U.S. And the average attach rate is above 30%. In some of the states, it's hovering above 90% as well. So that's the reason today, we are above 30% attach rate. When we are modeling things out, we are trying to be more careful about the assumptions that we are taking, it's very easy to go to 50% and 60% and 70% attach rate. We feel that 30% attach rate is probably -- is achievable. It's something that we can achieve with these transactions, and then that's the number that we are sharing with you today.

Maheep from Mizuho over here. A few questions on the SST revenues and business segments. So first on the $600 million for '29, when could we expect the bookings visibility? What's the lead time on that? And on that delivery, is that for energization in '29 or 2030? Like should we look at the TAM in 2030 for that?

And could you also like talk about the gross margin and EBITDA margin you expect for SST versus the core business? Standards on how much of the 35% is from SST versus the rest?

So I'll talk about the revenue and Maoz will refer to your margin question. So when you look at the industry, and we were talking about exponential growth, and you could see that in the industry adoption, you can see that in the revenue evolution that we are sharing and so forth. And the way that we look at it is the industry, the data center owners, the AI factory builders and everybody, they understand the value already. They understand the value, they understand the need as well. Direct density is going to be over 1 megawatt in 2028. NVIDIA are not going to stop, and this is just a calculation.

So they understand the need, understand necessity to move to 800 volt DC, they understand the immense value, financial value that they have in moving to these native solutions, SST. And because of that, we feel -- and this is why we focused on safety as well here. We feel that there is one roadblock, if you will, in their mindset because safety is serious. They don't want to put as lucrative of a technology as it might be if it risks the entire building or the entire equipment that they have over there. I think that once we get over the safety hurdle, if you will, which is a big one. I think that then we will start seeing that the pilots are getting into higher gear and AI data centers are going to start placing orders, preparing for that and so forth.

As for lead times and everything, we haven't gotten to this point yet from whether it's going to be before the AI factory is ready or not, it will be before. They need to place the power before they actually bring the equipment in. So it's for AI factories that are going to come online in '29 and '30, if you think about it this way.

So about the margin. We are -- we want to be mindful with the way how we are building the SST model for 2028 and 2029, and including the margin and the margin assumption. I can say that the margin of the SST is better than the core business that we are running. This is our assumption based on all our discussion, and this is what we have in the model.

And maybe 1 follow-up, Shuki, on the safety aspect. Something which we also learned is like that SST are pretty important for DC. So are you assuming some SST revenues in that $600 million or the package for the customers? Or is it just plain SST?

So Meir showed you the container. When we talk about SST, everybody assumes it is a product. It's a 20-foot container, right? It's a 5-megawatt, 20-foot container that starts with the MV side and going all the way to the low voltage side, including the protection over there.

Now some of the customers would like us to bring the entire container. Some customers may choose that we bring only the middle part or some others. So it's kind of almost a configuration that will be dependent upon customer selection. But if the customers that would like us to bring the entire container, it will have the protection as part of it.

Dylan Nassano, Wolfe Research. Sorry, I just want to comment the assumptions behind the $600 million a little differently. Just I mean, should we think about that assumption as purely looking at the market and making a market share assumption? Are there indications of interest for orders already that maybe are contingent on the pilot and how that goes? Just any more kind of color around how you're comfortable you are at that.

Yes. So had we signed a firm agreement similar to the safe harbor contracts, we would have told you about them already. We are in -- we have been in discussions with most, if not all of the players in the ecosystem, whether these are neoclouds, the hyperscalers and others. And in these conversations, we start with the conversation, then we have some technical discussions. Some of the customers have actually seen live demonstration of the system. And this is where you start seeing people kind of tilting towards. Yes, there are 20 companies that are doing it to, oh my god, there is something that is unique here. This is why we keep saying that players in the ecosystem are telling us that we are ahead of competition in terms of time line and in terms of the performance of our product.

So we don't have any concrete PO or any concrete agreement with any specific customer. But we have the confidence that based on all the feed that we are hearing that these assumptions make sense.

Great. Just a quick follow-up on the base business, solar assumption for 2029. Could you give us maybe the split between C&I and resi that's embedded in that assumption?

So it will be similar to today. And the main drivers, if you think about it on the growth are the ones that we mentioned, right? It's about the storage attach rate that is going to grow. In resi, we are going to actually benefit from retrofit going into residential markets. And we will continue winning in C&I, as we said. So both -- we expect both businesses to continue growing.

It's Colin Rusch from Oppenheimer. Can we start with the channel strategy on go-to-market with the SSTs. Obviously, the data center work with a number of existing vendors you're looking to displace in a number of components in those designs. Can you talk a little bit about redundancy in the initial thought process of implementing these SSTs?

And if you'll go direct to the data center operators or be working with existing vendors that are currently designing a number of the infrastructure components for these folks?

Okay. Do you want to take the redundancy -- he'is talking about the go-to-market -- okay, so as you mentioned -- and the go-to-market, fortunately, for us, the number of end customers is not unlimited. It's actually quite -- one can count them on probably 4 hands. And between the neoclouds and the hyperscalers. And as you mentioned, Colin, and we talked about it in the past as well, potentially, there are 2 ways to go there. One is to go and sell directly to the hyperscalers -- to the neocloud, or go and partner with one of the power -- the power electronics companies that are already installing different equipment along the powertrain. And you name a few of them, and we know that there are several of them.

At this stage, we are talking to everybody. And the reason for that is twofold. Even if we chose to go through the channel, as you call them, the end customer would like to talk to us. So that will not save anything. And definitely, if we want to go and sell directly to the data center owners, we are going to work directly with them. So the conversations are with everybody, with different players in the ecosystem. It allows us to be better. It allows us to gain more feedback because end customers are seeing their own needs. Horizontal players are seeing the industry needs and where the industry is heading and are more exposed to developments in other places.

But in all of these conversations, we feel confident that the technology and the value that we bring is going to be very valuable to the end customers. And this is what matters at the end of the day, right? Whether you go here, here or here, the end customer needs to appreciate what we are bringing, understand that the safety is something that we are going to take care of it and that we have the scale and reliability to support their business. So I think that we have all the things that are needed. We haven't yet decided how to go to the market.

Okay. Perfect. And then 2 questions on the supply chain. Just the evolving battery, the cell supply as you go through some of the logistics around tariffs and whatnot. Just curious what you're seeing in terms of that. But also on silicon carbide, given with the scale up on EVs as well as a number of other applications, are you seeing any tightness or potential tightness around components with silicon carbide?

So starting with the batteries, it's been a very interesting 1.5 years with supply chain surrounding batteries because of non-FEOC regulation and tariffs that are changing and where the source is. And we kept saying, and this is a very dynamic set of decisions that we have to make between reliability and availability of components, supply chain resiliency and obviously complying with all the requirements that we have in the market.

Because of that, our supply chain team has been working with several different sources. We're continuously evaluating which one is the best for us, optimizing all of these parameters. And at this stage, from a battery sourcing perspective, we feel that we're in a good place. But we are continuously evaluating where we are and how we are going to -- how we can do even better.

On the [indiscernible] side, it's -- the data center -- we are talking about the AI factories build-out here from our perspective about power. But this build-out is actually requiring -- is putting a lot of strain on the entire semiconductor industry, including the silicon carbide manufacturers who are needed on both ends of the data centers. Fortunately, for us, we've partnered with these companies for a long period of time.

And these vendors, these are strategic vendors for us. We partnered with them [indiscernible] and other products for many, many years. And our supply chain team is working hard to make sure that we have enough supply at reasonable prices to continue supporting our customers. But as you know, from other industries and other markets, there is tightness in the market that [indiscernible].

Chris Dendrinos with RBC. I just wanted to go back to the safety topic here, and you all published a paper this morning on grounding, which kind of leads into this. But as we just think holistically about all the safety aspects that go into higher voltage deployment inside a data center, I mean, can you maybe talk about what else needs to be written from maybe a code perspective that could be a bottleneck, I guess, to this industry? And then as we sit here, I mean, what markers should we be looking out for to tell us that, hey, all the boxes are being checked that will allow, call it, scale deployment starting in 2029?

I don't think there's any code missing about DC safety. The NEC covers it. There are plenty of safety standards. It's more just a matter of market education and adapting the standards that already exist to this new environment. So that's part of the -- part of the learning mechanism and having devices which are adapted to this specific application. I don't think the industry needs to really wait for a new standard to appear. I don't believe that will delay implementation of these 800-volt GPUs. I think it's just going to be a matter of execution.

I have learned so much. I've got 2 questions. The first is so that the -- when I think through the architecture that you're proposing for the batteries and the inverters, you're going to put the batteries on the 800-volt bus. Does that mean that you'll have all of the system long-duration backup on that 800-volt bus? Or you'd still propose to have a second battery farm outside of the building that would be connecting to that battery bus, the 800-volt. So that's the first question.

I'll take that. We have the flexibility to allow both of them, and from discussion with potential customers, we see that different customers think about this differently and have different approaches. There are really 2 challenges here. One is the short-term stability of the 800-volt bus, especially in training clusters where you have the whole data center going 0 to 100 in milliseconds.

And here, it's important to have -- it's important to have storage on the DC bus without reflecting it out to the grid, which could also cause grid issues and kind of wreck the THD of the AC of the grid. Grid operators don't necessarily like it. So that's short-term storage. My assumption is that almost everybody would want that.

And then the longer-term storage for grid outages, minutes, UPS, et cetera, some will take the approach of wanting that to be as well on the 800-volt bus, and then you just add more storage, possibly with different chemistry batteries, whatever. But that could just be added. And others prefer to have it on the AC side, like an AC UPS or a genset or whatever. Different approaches, we have the flexibility to...

And the downside of putting that on the 800-volt bus, it has to be near the training cluster and probably inside that building because you wouldn't want to go with a gazillion amps to a building further away.

Depending on how big the fluctuations are and what the architecture of that specific data center, that might be the case or maybe not. Again, it's very dependent on what the actual application is and how they designed it, how they're using it, what the specific neural net needs, if it's very scenario dependent.

Second question is just on the assets. I mean, at $0.40 a watt, which is what you had on one of those slides, like the 2029 number is a tiny fraction of what NVIDIA is supposed to do in 2029. I mean it's like 1.5 data centers or something like that.

So we had -- we looked into that. And during the break, some people told us that our estimates are a bit too optimistic. You're now sharing that our estimates are a bit or more than a bit on the conservative side. I think that we spent a lot of time trying to understand there are 3 ramp-ups here, right?

It's the buildup of the data center of the AI factories. It's how many of them will go 800-volt DC and how quickly they are going to convert to DC native. When we put all of these assumptions together, this is how we are getting -- this is what we are getting at, but NVIDIA are definitely more optimistic than us.

Dave Arcaro with Morgan Stanley. I wanted to ask about the 99% efficiency level on the SST. How defensible is that? Can competitors catch up? Or can you push that even higher as you continue to develop the product? What kind of a moat do you see around the efficiency for SSTs?

I'll talk about us, not necessarily about our competitors. But to answer your question of whether or not we could push it up, yes, we actually have been pushing it up. So I think there's some more room to go there. And I think different topology -- the efficiency at the end is a product of what topology you chose and exactly what device -- switching devices you chose. And finding that sweet spot, which we -- not only we believe we've been hearing from customers that seems to be better than what our competitors are doing was a trickier deal. And I think if you choose the wrong components, you can't really get there, but not anything up to 100% isn't against the laws of physics.

Got it. And other patents or just other intellectual property that you think would come into play here and help protect.

Yes, I didn't mention in the presentation that we have a number of patents, which patent applications, which we filed around exactly both the solid-state transformer and the conversion side and the safety side. So yes, there's definitely defensible IP there.

Gus Richard with Northland. I'm just curious about the timing for prototype shipment. When do you think you'd be ready to have something to ship? What's the cycle time of building one? What's the scale of a prototype? Is it 5 megawatts? Can you give a little color on how you're progressing towards getting one in the field?

So most customers for the prototype are interested in a unit, a 5-megawatt unit. Some of them are asking for also some earlier partial prototypes. But when we say prototypes in 2027, we're talking about the containers with the full SST working at 5 megawatts. And anything above that is basically replications of that container.

And in terms of having -- being ready to ship a prototype and the cycle time to build system, can you give us any color?

Yes. No, absolutely. It's -- so for [indiscernible] products, as Meir said, different customers are defining different pilots. Some are asking for the 34.5 kilovolts going all the way to 800-volt DC, and we will ship the 5 megawatts. There are some potential customers that are asking for reduced levels, potentially because this is the grid connection that they have in their test site, potentially because others do not talk about 34.5 kilovolts product yet, but they are looking for 13.8 kilovolts, for example. And over there, it's 2 to 4 megawatts.

From our perspective, our product is customizable, and for us to ship the full product or a product that has a lower AC going into it is more or less customization at the end of the production line. To your question about scale and lead time to build the product. Obviously, the first products are going to be built. We are going to ramp up manufacturing, if you will. As we scale, we're going to partner with one of -- the SolarEdge for the last 20 years, our model was around supply chain was to partner with the likes of Flex and Jabil. They've been our close partners for many, many years. It's a model that is working well for us. We bring a very good technology. Together with them, we are ramping up manufacturing, but then we are leveraging or benefiting from their expertise in mass production.

Our plan around SST is going along the same lines. So initial, the first few units that we're going to ship, we are going to build them ourselves, similar to what we are doing on the solar side. But later on, we are going to ramp up manufacturing. As I mentioned earlier, our supply chain is going to be based in the U.S. to make sure that we have the resiliency that is needed and in case of domestic content considerations and other considerations that these customers may have.

This is Joe Nussbaum from BNP Paribas. I know we're anchoring to 2030 to not get ahead of our skis, but kind of what informs your view on the scale of the industry into the 2030s with power equipment backlogs of load interconnection requests only going up to like 2032 today? And then within that question, like how much of demand do you see coming from retrofits versus new data center constructions?

Okay. So I remember the second part of your question about retrofit, and then you please remind me the first one. So about retrofits, initially, we don't expect -- the model doesn't assume retrofit revenues. What is the lifetime of GPUs and racks, it's up to -- there are different discussions about whether it's 2 years, 3 years, 4 years, 5 years. So if you go 4 or 5 years back, the size of the data centers, the retrofit opportunity is there, but it's not that significant. So we didn't take that into account. And your first question was?

Yes. First question, just kind of on how you see the shape of demand going into the 2030s and how you're managing kind of capacity expansions against that. This...

It's -- everything that you read, everything that you look into is talking about an acceleration of this build-out, the power requirements of the rack. Look, today, rack requires less than 100 kilowatts. In 2028, it will be more than 1 megawatt. It's a 10x factor. And the power density of the rack is going to continue growing. That was the conversation about 1,500 volt versus 800 volts.

So as we move forward, the power requirements are going to continue growing. And our estimate is that demand for AI factories is going to continue growing as well, which I believe is something that many people share with us. So when you look into all of that and the transition to 800-volt DC and DC native solutions is going to almost be over by that time and the retrofit and others. So that's how we come to that conclusion.

Are there any more questions?

Thank you. So this question is from a large shareholder. He's asking short question on SST. Silicon carbide has a lower switching speed than GaN. In what way does this become a challenge when competing with GaN-based SST solutions?

Yes. So I actually don't think that's an issue for the application we're talking about. It's true that GaN could switch at higher frequencies now, megahertz instead of, let's say, hundreds of kilohertz for silicon carbide. And that makes GaN attractive for certain applications. Like, for example, you'll see a lot of it in small chargers where you could increase the frequency, make the magnetics smaller. Okay, that's very nice. It isn't necessarily the pain point in data center.

Actually in data centers, when we're talking about medium voltage connection, I think a more important deciding factor is the withstand voltage of the device. And typically, silicon carbide devices go to higher voltages than GaN devices. That's why I think if you look at SST designs that are based on GaN, you'll see not as they've shown today, dozens of units, but maybe hundreds of units, and also lower efficiency because I'm not -- I don't know, I haven't seen anything working at these megahertz frequencies for this application.

So GaNs are great. I'm not sure. I mean when we were looking into designing the SST and GaNs were on the table, we decided to go with the devices that we decided to go with because we thought they are a better fit for this application.

Investor question. What would your target margins have been in the base business, excluding SST? Historically, they've hoped for -- or you guys have hoped for maybe 30% to 32% with a 5% IRA boost. So then maybe 25% to 27%. Does that sound like the right ballpark?

[indiscernible] between the 2 part of the business. But as I said, SST is definitely an important contributor, but we'll not get to the split between the 2 of them. It's one number that we are sharing.

All right. Good. So thank you for the question. It keeps us sharp. And I'd like to wrap it up and basically where we started, okay? SolarEdge has a very strong foundation. We built it for 2 decades. Meir was there from the start. I joined about 1.5 years ago. And we are going to use this strong foundation in order to not only grow our top line, but actually expand our margins and grow our bottom line as well, okay?

We're going to do it by accelerating the growth in the core business. We talked about it. The markets are evolving. Storage is becoming a bigger deal. Our confidence level is higher because of the safe harbor transactions that we signed. And we believe that we can continue winning in C&I. We are going to unlock the AI factory opportunity. We talked about it, whether it's exponential that starts here or starts there, whether the ASP is here or that. Overall, it's a big, big, big opportunity.

It falls right down our alley. This is an expertise that we've developed in the last 20 years. And eco players -- players in the ecosystem are telling us that we are ahead of the competition, both in terms of the performance of the product as well as the time line. And we're going to do both of those while expanding our margins. So we are very, very excited about what's ahead of us. I hope you are as well, and we'll definitely keep you posted as we continue to make progress. Thank you very much.

Hello, and welcome to the SolarEdge Conference Call for the Second Quarter ended June 30, 2026.

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 any 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 Erica Mannion at Sapphire Investor Relations. Please go ahead.

Good morning, and thank you for joining us to discuss SolarEdge's operating results for the second quarter June 30, 2026, as well as the company's outlook for the third quarter of 2026.

With me today are Shuki Nir, Chief Executive Officer; Maoz Sigron, Chief Financial Officer; and Meir Adest, Co-Founder of SolarEdge. Shuki will begin with a brief review of the results for the second quarter ended June 30, 2026. Maoz will review the financial results for the second quarter, followed by the company's outlook for the third 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 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, 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.

On our last call, I discussed how 2026 would be a year of transformation and acceleration for the company, built around 4 main priorities: driving profitable growth, expanding global market share, scaling the SolarEdge Nexis platform and advancing our opportunity in power infrastructure for the AI factories of the future. This quarter, we saw tangible progress across each of these priorities, and I'm pleased to say that we reached an important milestone in our turnaround.

Starting with our execution towards profitable growth. Since the beginning of 2025, we have grown our quarterly revenue year-over-year and have just delivered a strong second quarter. Revenue grew 20% year-over-year to $346 million, once again, with no significant pull-forward of revenue and non-GAAP gross margin expanded for the sixth consecutive quarter.

Combined with our continued expense discipline, we delivered non-GAAP operating profitability for the first time in nearly 3 years, an important milestone in our transformation and a reflection of the relentless focus our team has maintained on operational efficiency and customer centricity.

Looking to the third quarter, we expect revenue to be in the range of $310 million to $340 million. Most of the sequential decline is expected in Europe at approximately $15 million at the midpoint, mainly due to seasonality. At the same time, given the continued softness in the market, we do not expect the typical third quarter pickup in the U.S.

Shifting to our second priority: market share gains. Our objective in 2026 has been to grow market share through product innovation, operational focus and improved customer satisfaction. The U.S. resi market demand remained soft in the second quarter as customers navigated a slower tax equity funding environment and continued uncertainty around FEOC.

This environment has resulted in less funds available to start new projects and to pay for the completion of existing ones. It has put a strain on installers' businesses and cash flows and led to lower purchases from distributors who have also reduced the amount of inventory they carry. We expect this softness to continue in the third quarter as the market awaits further clarity and better funding environment.

With that said, when the market rebounds, we believe we are well positioned to gain share. This is due to our fit with the TPO business model and the amount of safe harbor transactions closed ahead of the July 4 deadline. We will share more information about the safe harbor transactions in both resi and C&I during our Investor Day on September 10.

In U.S. C&I, we have seen strong momentum. Better execution across EPCs, small C&I customers and enterprise accounts has helped increase our market share to more than 50% of U.S. C&I rooftop installations in the most recent report. In addition, SolarEdge systems are now installed on rooftops of more than 60% of Fortune 100 companies.

The outlook for this market remains positive, supported by rising electricity prices and data center-driven demand. We have been the only major C&I inverter vendor to deliver U.S.-manufactured products at scale designed to meet domestic content, non-FEOC and FCC Covered List requirements. Together with the safe harbor agreements we have secured, we believe that we can gain further share in the coming years.

In Europe, we more than doubled our revenue year-over-year as demand for solar grew in anticipation of higher electricity prices and demand for storage increased in anticipation of the phaseout of net metering across several major markets. We believe the excitement around Nexis, along with the orders we have received in recent months are positive indicators of our ability to gain share in the DACH region in the coming quarters. We expect a similar momentum across Europe with the planned rollout of the single-phase Nexis in Q1 2027.

In addition, in recent quarters, we have launched retrofit campaigns in the Netherlands and the DACH region, where our combined installed base is greater than 1 million homes. In Q2, we generated more than $20 million in upsell activities, and we expect this opportunity to continue growing.

Turning to our third priority: scaling the Nexis platform. At Intersolar in Germany this June, the highlight for us was the fantastic feedback we received from installers about Nexis. As discussed in previous calls, the platform was designed from the ground up to be a leading PV and storage solution in an environment where the grid is congested and utilities introduce dynamic tariffs.

Recently, an independent renewable energy engineering consultant benchmarked Nexis against a leading competitor in Europe from the homeowners perspective. The analysis shows that Nexis is expected to deliver EUR 5,000 in additional savings over 15 years, driven by superior round trip efficiency across all power levels and higher PV production.

In the second quarter, we began to meaningfully roll out the 3-phase version of Nexis in Europe with shipments exceeding $60 million. In the U.S., initial feedback from installers and TPOs has been very positive, and we expect Nexis installations to grow as we begin to roll out in volume.

Nexis has been approved on a growing list of U.S. financing platforms, spanning TPO, prepaid PPA and loan products, giving installers and homeowners more ways to access SolarEdge Nexis regardless of how they choose to finance.

Turning to our fourth priority in the AI factory market, where we believe there is a substantial long-term opportunity. In the second quarter, our data center business shifted from development to demonstrations as we continue to advance our solution and to engage with prospects and the ecosystem.

Prospective customers, which importantly included their technical and engineering teams, had the opportunity to see live demonstrations of our SST in our labs. These demonstrations validated several critical elements of the system, including 99% efficiency across a range of power levels, direct conversion from medium-voltage AC to a regulated DC bus and encouraging installation results.

In a number of RFIs we have responded to, efficiency is a key area of focus. Efficiency directly translates into greater compute capacity within a fixed-power envelope. And this additional compute leads to higher revenue, lower cost per token and improved return on investment for the data center.

Our technical progress and customer evaluations and feedback have increased our confidence in both the size of this opportunity and the strength of our position. We believe SolarEdge is developing a highly differentiated solution that addresses the growing need for greater power efficiency and increased compute capacity within data centers. We remain focused on our next planned milestones: getting to a working system in our lab by the end of this year, followed by pilot installations in 2027 and volume shipments in 2028.

To summarize, the second quarter marked a meaningful point in our turnaround. We returned to non-GAAP operating profitability and made progress in all 4 priorities. While we are pleased with this progress, our team continues to focus on maintaining the operating and financial discipline, driving profitable growth, gaining share in our core markets, scaling up the Nexis platform and advancing our SST to capture the AI factory opportunity.

Lastly, I would like to welcome our new CFO, Maoz. His experience across finance, operations, capital markets and organizational transformation is highly relevant as we continue our journey from turnaround to profitable growth. I'm confident that his leadership, together with the strength of our finance organization, will serve us well as we enter this next phase.

With that, I will hand it over to Maoz.

Thank you, Shuki, and good morning, everyone. I'm very pleased to join SolarEdge and to speak with you today on my first earnings call as CFO of the company. I'm excited about the opportunities ahead in residential and C&I as well as the vast emerging opportunity in AI factories. I have spent time with teams across the organization and have been impressed by the extent of the company's technology, the quality of its people and the operational discipline that has been established.

My immediate priorities are continuity and execution, including: first, supporting profitable growth of our core business by ensuring our investments in Nexis and in our offering in the AI factory market are aligned with clear milestones and returns; second, focusing on operational excellence by driving cost discipline and cost structure while strengthening execution rigor across manufacturing and the supply chain; third, managing cash by prioritizing free cash flow generation, maintaining a strong balance sheet and liquidity position.

Starting with our quarterly results. GAAP revenue for the second quarter was $346.2 million, up 11.5% quarter-over-quarter and 19.6% year-over-year. Non-GAAP revenue was $345.5 million, up 11.5% quarter-over-quarter and 23% year-over-year, above the midpoint of our guidance range. This result does not include any significant pull forward of revenue from safe harbor.

GAAP revenue from the U.S. amounted to $154.9 million, down 2% quarter-over-quarter and representing 44.7% of our revenue. Revenue from Europe was $154.4 million, up 36% quarter-over-quarter, representing 44.6% of our revenue. International market revenue was $36.9 million, down 5% quarter-over-quarter, representing 10.7% of our revenue.

GAAP gross margin was 27.5% this quarter compared to 22% in the first quarter and 11.1% in the second quarter of last year. Non-GAAP gross margin was 28.6% this quarter compared to 23.5% in the first quarter and 13.1% in the second quarter of last year, above the high end of our guidance range. These results include a gross benefit of $13.3 million related to IEEPA tariff refunds. The improvement was driven by continued cost discipline, favorable product mix, the IEEPA refunds and the improved operational leverage as fixed costs were absorbed over higher volume.

GAAP operating expenses for the second quarter were $111.2 million compared to $123.3 million in the first quarter and $147.6 million in the second quarter of last year. Non-GAAP operating expenses for the second quarter were $88.5 million, the exact midpoint of our guidance range, compared to $97.7 million in the first quarter and $85.2 million in the second quarter of last year. Despite the continued headwinds we faced from a strengthening new Israeli shekel against the U.S. dollar, we are maintaining our ongoing cost control and leveraging efficiency measures to ensure profitable growth.

GAAP operating losses for the second quarter were $16 million compared to GAAP operating losses of $55 million in the first quarter and $115.5 million in the second quarter of last year. Non-GAAP operating income for the second quarter was $10.2 million compared to non-GAAP operating losses of $24.8 million in the first quarter and $48.3 million in the second quarter of last year.

Our GAAP net loss was $30.8 million in the second quarter compared to GAAP net losses of $57.4 million in the first quarter and GAAP net losses of $124.7 million in the second quarter of last year.

Our non-GAAP net income was $3.6 million in the second quarter compared to a non-GAAP net loss of $26.3 million in the first quarter and non-GAAP net loss of $47.7 million in the second quarter of last year, positive for the first time since the second quarter of 2023.

GAAP net loss per share was $0.50 in the second quarter compared to a loss of $0.95 in the first quarter and a loss of $2.13 in the second quarter of last year. Non-GAAP net profit per diluted share was $0.05 in the second quarter compared to a loss of $0.43 in the first quarter and a loss of $0.81 in the second quarter of last year.

Turning now to our balance sheet. As of June 30, 2026, cash, cash equivalents and marketable securities were $601.6 million, up from $581.1 million as of December 31, 2025. During the second quarter, we generated $3.1 million of free cash flow compared to $20.7 million in the first quarter and a negative free cash flow of $9.1 million in the second quarter of last year.

Our capital expenditure in the first half was $12 million. For the full year 2026, we continue to expect capital expenditure within the range of $60 million to $80 million with our principal investment areas remaining: first, increased production capacity in the U.S. for both PV and batteries; second, investment in our new headquarters in Israel, largely related to advanced R&D facilities; third, investment related to our AI factory offering; and lastly, ongoing maintenance CapEx.

We continue to expect positive free cash flow for the full year, reflecting our improving operating performance, continued discipline in managing expenses and capital investments and our ongoing ability to monetize 45X credit.

Turning to our working capital items. Our rigorous focus on cash management continued to yield positive results. In the second quarter, the net AR decreased once again, driven by strong collection. Combined with lower DSO and higher DPO, our conversion cycle continues to improve.

Turning now to our guidance for the third quarter of 2026. We expect revenue to be within the range of $310 million to $340 million. This range does not include any significant pull-forward of revenue. We expect a non-GAAP gross margin of approximately 22% to 26%. This range does not include any impact from potential IEEPA refunds.

We expect non-GAAP operating expenses of approximately $86 million to $91 million, in line with our second quarter run rate of $88.5 million, and reflecting continued discipline in our core operations and planned investment in Nexis and AI factory SST. Including the $11.5 million of IEEPA refunds we have already received in July, the midpoint of our guidance imply a non-GAAP operating profit in the third quarter.

We believe the combination of our operational discipline, market share gains and the introduction of new innovative products, including Nexis, will continue to drive profitable growth in the years ahead.

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

[Operator Instructions] We take our first question from Christine Cho with Barclays.

I wanted to start off with -- so I understand you kind of gave some reasons for the top line sequential decline. Can we talk about what's driving the lower sequential gross margins? Is that mostly driven by U.S., Europe? Just any color on that as well.

So thank you for the question. Yes, the gross margin for Q3, we're expecting 24%. The main reason for that is the scale of the business that is different in Q3 and very much in line with our fixed cost that we have in the cost of goods. And this is actually the main reason. If you take this out, you actually can see a small improvement quarter-over-quarter.

Okay. And then in the prepared remarks, you mentioned that with the current backdrop in the U.S., distributors are coming down on inventory. Do you have a sense of how many weeks they have on hand currently and how that compares to how much they typically like to carry? And I know you mentioned that you don't expect to see 3Q pickup in the U.S., but should we think that there's enough inventory in the channel that they can continue to come down in 4Q and so it's possible that there's a sequential decline in 4Q as well? And how much of this is also being driven by people wanting to destock ahead of purchasing Nexis?

Yes. So thank you, Christine. For the channel inventory, as we said, due to the softness in the market, everybody is becoming a little bit more cautious and a little bit more careful. Our channel inventory, to the best of our knowledge, is normalized. It's moving between products and between distributors, both in Europe and the U.S., but overall, it's normalized. And we don't have a reason to believe that something is going to be materially different going into the quarter.

We did mention that because in conversations with distributors and channel partners, they are stating that they are trying to be careful about how much inventory they bring because nobody -- because it's not yet clear to everybody when the clarity around the FEOC definition is going to happen.

We will move next with Brian Lee with Goldman Sachs.

Maybe just to kind of piggyback off of Christine's questions. How much -- well, for the 3Q guide, can you kind of walk us through the pieces? It sounds like you're calling out some European seasonality, some softness in the resi market for the U.S. And curious kind of what your view is embedded for storage volumes in the 3Q? And then how much of this sort of persists into 4Q? Kind of, can you maybe -- I know you don't want to give guidance, but kind of the setup for European seasonality and the channel as well as U.S. resi and storage into year-end?

Yes. Thank you, Brian. So what we have is there are 2 or 3 factors that are in play here and some of them are going in one direction and the others on the other one. If you think about seasonality, then usually, the fourth quarter -- and we are not guiding for fourth quarter right now. Usually, fourth quarter is seasonally lower than Q3.

However, going into the third quarter, what we said was that we expect Europe to go down -- in the midpoint to go down by $15 million, mainly due to seasonality. And it's a combination of PV and storage. And in the U.S., the softness in the resi, we expect it to continue. And again, it's both resi -- it's both PV and storage.

One thing that people may want to pay attention to is the growth of storage in the revenue, both in Q2, and we expect that to, over time, without any particular quarter -- any particular quarter can be up or down a little bit. But overall, the industry is moving into higher attach rates of storage. We've seen it in the U.S. We've seen it in Germany. We've seen it in other places. And the retrofit activities in anticipation of the phaseout of feed-in tariff is also a main driver for storage when -- in a retrofit installation, it's mostly storage. So all in all, we are expecting storage to become a bigger piece of our business. So that's the second piece.

The third piece is you asked about what will happen in future quarters. As we said, it ties into clarity around the FEOC definition and the ability of the financing companies to secure investments that then will actually allow additional money to flow into the market, into installers. And when that happens, we will see that the market rebounds. And when the market rebounds, we feel that we are very well positioned to benefit from that. Our engagements with the TPOs and safe harbors that we signed and the Nexis with all of its advantages, we believe, position us well to benefit from that.

Helpful. I appreciate that. And then maybe just a second question. I know you've been clear for the past several quarters, including on this call, that there's no significant pull-forward revenue, no safe harbor. I'm just curious on that dynamic because I know your peer has seen a significant amount of safe harbor over the course of the entirety of 2026.

So can you kind of walk us through what's the difference between your go-to-market or your safe harbor strategy or maybe customers as to why that's happening? And then also maybe kind of, in relation to that, any thoughts on the recent FCC foreign inverter ban? How does SolarEdge kind of fit into that? And do you need waivers? And what's sort of the potential implications that you think that you have to contemplate?

Thank you, Brian. It was a little bit more than one question. So if I forget something, please remind me. When you refer to our peer and what they've done, you should definitely ask them. But in our conversations with our customers, with our partners, both on the C&I side and the resi side, the strong preference is obviously to go with the physical walk test. The physical walk test allows them to align their purchases with their demand basically.

So when they need the equipment, they are pulling it or they are buying it from us. That will align our revenue with their purchases, with their installations, and it's a healthier flow of the channel, if you will. And because of that and due to the fact that many of them have seen Nexis, believe in the value that it brings to the table and they understand very well that even in 3 or 4 years from now, it will still be a leading product in the market, because of all of these reasons, they felt comfortable going with the physical walk test safe harbor deals with us.

We've signed, as I mentioned, both on C&I side and the resi side, a significant amount of safe harbor transactions, and we will elaborate on that and share more information during Investor Day.

As it pertains to the FCC ruling, so as you know, SolarEdge is a Delaware company, we're listed in NASDAQ, the majority of our manufacturing is done in the U.S., in Utah, in Florida and in Texas. To the best of our understanding, the FCC Covered List is something that we comply with, and we plan to continue being in compliance with. So from that perspective, it's a step in the right direction maybe from -- for the safety of the energy market in the U.S., but SolarEdge being an American company is definitely part of that, and we see no reason that we won't be in compliance with it.

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

I have a follow-up on Brian's question about the FCC inverter action. And so they talked about exemptions, I think. Well, actually, we wrote about potential for exemptions coming. I don't know if they talked about it. But the point here is that we see potential for the FCC, near term, to issue exemptions and approve exemptions, but it still might take a few weeks.

And so I was wondering, like, let's say, this takes 3 weeks, like have you guys already applied for Nexis, for example, to be exempted? And if not, do you think that this could -- like, this process could delay the rollout of Nexis in the U.S.? And then ultimately, this is, I think, a tailwind more for your C&I business as there's not much Chinese inverter penetration in the resi business. I just want to confirm that you see if there is a tailwind for you guys that's more of a C&I tailwind as opposed to resi. And if you could quantify where you think that tailwind would be, that would be great as well.

So let me -- thank you, Phil. And let me take the first thing out of the way. I don't know where it's coming from. I'd like to be very, very clear. Nexis is made in the U.S. by a U.S. company. There is no need or reason to ask for exemption. It's [ apart ] of the FCC list. Period. And I don't know where that comes from, but it's not true. So it's not going to delay the Nexis rollout in any way, shape or form. And as we said, we are actually starting to roll out Nexis in the U.S. as well in the third quarter. It's already been approved by many financing companies, and we expect Nexis to gain traction this quarter and in future quarters.

As for the C&I opportunity due to the FCC Covered List, so it's not yet clear. As you said, it's not yet clear when it is going to impact companies that are not going to be approved for their new product. It's not yet clear whether their existing products can actually continue to be imported into the U.S. or not and when, if at all, it will stop.

We have actually -- in the last report, we've actually gained share in the C&I market to the point of 50% of the rooftop C&I installations in that quarter. And the reason for that was the superiority of our technology as well as the FEOC and domestic content compliance. And as you know, and you know it very well, Phil, there have been 3 leaders in the C&I market: SMA, Chint and SolarEdge. The other 2, to the best of our knowledge, are not complying with both. And because of that, we've seen a good traction towards the SolarEdge and that traction, if at all, should continue with the FCC ruling actually.

Our next question comes from Colin Rusch with Oppenheimer.

Can you talk a little bit about the trend lines on storage pricing? It looks like you're seeing a little bit of improvement on that. And I just want to get a sense of whether that's mix related or if you're actually monetizing a little bit more effectively in the market.

Yes. Thank you, Colin. So storage pricing, as always, is a combination of 3 different products that we are selling at the moment on the storage side. One is the C&I storage in Europe, which has a higher power density. The other ones are the single-phase and the 3-phase residential storage, but each one of them is slightly different, and it depends on the market.

Overall, our storage prices have remained stable per product. What you're seeing, the differences that you're seeing quarter-to-quarter are mainly due to product mix, I would say. But as I mentioned earlier, we definitely are seeing a growing demand for storage products in general in the market and for our own storage products specifically. The C&I storage in Europe continues to improve. And with Nexis that was designed from the ground up to be a PV plus storage solution, we believe that we're going to continue benefiting from that trend.

Great. And then on the supply chain side, I want to get a sense of any sort of shifts that you're seeing in terms of component availability, pricing, inflationary pressures that we should be thinking about as we get into the back half of 2026.

Yes. So component suppliers, they've always said that shortages are coming. As you know, the data center demand is actually creating some strain on some of the components, memory in particular. Our supply chain team has worked diligently in order to secure supply. In some cases, like memory, we have to actually absorb some of the price increases, but these are -- in the grand scheme of things, these are not something that is significant. We are working together with our partners to secure supply and to make sure that we are able to support our customers to the best of our ability.

[Operator Instructions] We will move next with Corinne Blanchard with Deutsche Bank.

Maybe shifting gears a little bit here, can you talk about the SST? And I know you have talked previously about the time line and trying to get more like a proof of concept by the end of this year and then pilot program [indiscernible] in 2027. But can you just maybe tell us what we should be expecting in the next 6 months for that one?

Okay. So thank you for the question. I think the first thing to start with is the fact that we spent the last couple of weeks demonstrating a working prototype of the SST to prospective customers. And really, it was interesting to see the difference between slide shows and presentations and having them see an actual working model at going from medium voltage to 800-volt DC regulated. So I think that alleviates, from their perspective, a lot of the concerns they had about the maturity of the product.

Where we're going from here is we're going to spend the next few months until the end of the year to get the proof-of-concept prototype fully working at the full 3-phase 34.5 kilovolt voltage. And then 2026 will be pilots in -- at the data centers -- sorry, 2027 will be pilots at the data centers so that we could have a meaningful revenue in 2028.

Do you -- just to rebound on that quantifying revenues, when do you expect to be in a position to share maybe like a ballpark of expectation and how much it can contribute to the portfolio?

Yes. So as we've said, we -- it's a transition that the industry is going through, right? And with NVIDIA actually sharing with the entire ecosystem, their road map for GPUs that will require 800 volt, that will be step 1. The second step is whether people are going to use sidecar or other inefficient solutions or when they will transition into SSTs. And we expect revenue to start in 2028. During our Investor Day on September 10, we are actually going to share more information about how we think about the opportunity and evolution of revenue in that part of the business.

We will move next with Maheep Mandloi with Mizuho.

Maybe just on Q4, so obviously not looking for guidance there, but just in terms of seasonality, anything which would be different or similar to what we've seen historically for you guys?

Yes. So as you know, we don't guide beyond the current quarter. And when we talk about Q4, I think that, as I mentioned earlier, on one hand, we are seeing the improvement on the storage side. More and more in the Netherlands, for example, people are in anticipation of the elimination of net metering, more and more people would like to upgrade their existing systems into storage. So one can expect that maybe there will be some upside coming from there.

Usually, it's a seasonal -- from seasonality, there is a decline between -- in the market between Q3 and Q4. And in our case, actually, we are going to see the ramp-up of Nexis. So between these 3 moving parts, we are not providing guidance at this stage, and we'll share with you, obviously, everything as we come closer to Q4.

I appreciate that. And just maybe a follow-up on Europe. We're hearing about potential inverter bans on the Chinese players over there. So what have you heard on that? What are customers talking about that thing over there?

Yes. So there is one directive that was already issued in Europe that for projects that are funded by the European Bank, they cannot use unauthorized inverters. And that has been the case so far, the only thing that has been actually out and being official. This, as we said in the past, is mainly applicable for utility and maybe some C&I business opportunity for us. For other segments of the market, namely the C&I and the residential market, there is some sentiment that maybe there will be a ban, but we don't want to speculate about if and when.

And at this time, there are no further questions in queue. I will now turn the meeting back to Shuki Nir for closing comments.

Thank you. Thank you, everyone, for joining us for today's call. We -- I'd like to thank the SolarEdge team for working really, really hard and after almost 3 years, moving back to profitability, and thank you all.

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

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.