SOLAREDGE TECHNOLOGIES, INC. - Quarter Report: 2019 March (Form 10-Q)

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SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF MARCH 31, 2019

IN U.S. DOLLARS

UNAUDITED

INDEX

 

U.S. dollars in thousands (except share and per share data)

The accompanying notes are an integral part of the condensed consolidated financial statements.

U.S. dollars in thousands (except share and per share data)

 

		March 31,				December 31,
		2019				2018
		Unaudited
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables, net		$	90,190			$	107,079
Employees and payroll accruals			31,524				29,053
Current maturities of bank loans and accrued interest			17,233				16,639
Warranty obligations			35,229				28,868
Deferred revenues			13,527				14,351
Accrued expenses and other current liabilities			60,369				29,728
Total current liabilities			248,072				225,718
LONG-TERM LIABILITIES:
Bank loans			7,029				3,510
Warranty obligations			101,517				92,958
Deferred revenues			66,037				60,670
Operating lease liabilities			24,790				-
Deferred tax liabilities, net			8,544				1,499
Other non-current liabilities			23,417				9,391
Total long-term liabilities			231,334				168,028
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS’ EQUITY:
Common stock of $0.0001 par value - Authorized: 125,000,000 shares as of March 31, 2019 (unaudited) and December 31, 2018; issued and outstanding: 47,501,363 and 46,052,802 shares as of March 31, 2019  (unaudited) and December 31, 2018, respectively			5				5
Additional paid-in capital			417,385				371,794
Accumulated other comprehensive loss			(1,220	)			(524	)
Retained earnings			210,149				191,133
Total SolarEdge Technologies, Inc. stockholders’ equity			626,319				562,408
Non-controlling interests			71,198				8,318
Total stockholders’ equity			697,517				570,726
Total liabilities and stockholders’ equity		$	1,176,923			$	964,472

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

U.S. dollars in thousands (except share and per share data)

 

		Three months ended March 31,
		2019				2018
		Unaudited
Revenues		$	271,871			$	209,871
Cost of revenues			185,761				130,274
Gross profit			86,110				79,597
Operating expenses:
Research and development			26,199				17,875
Sales and marketing			20,172				16,205
General and administrative			11,691				4,753
Total operating expenses			58,062				38,833
Operating income			28,048				40,764
Financial expenses (income), net			6,151				(584	)
Income before taxes on income			21,897				41,348
Taxes on income			3,922				5,662
Net income		$	17,975			$	35,686
Net loss attributable to Non-controlling interests			1,041				-
Net income attributable to SolarEdge Technologies, Inc.		$	19,016			$	35,686
Net basic earnings per share of common stock attributable to SolarEdge Technologies, Inc.		$	0.40			$	0.81
Net diluted earnings per share of common stock attributable to SolarEdge Technologies, Inc.		$	0.39			$	0.75
Weighted average number of shares used in computing net basic earnings per share of common stock			47,020,218				44,231,679
Weighted average number of shares used in computing net diluted earnings per share of common stock			49,026,327				47,673,522

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

U.S. dollars in thousands (except share and per share data)

 

		Three months ended March 31,
		2019				2018
		Unaudited
Net income		$	17,975			$	35,686
Other comprehensive income (loss):
Available-for-sale securities:
Changes in unrealized gains (losses) net of tax			485				(510	)
Reclassification adjustments for losses included in net income			120				-
Net change			605				(510	)
Foreign currency translation adjustments, net			(1,301	)			(14	)
Total other comprehensive loss			(696	)			(524	)
Comprehensive income		$	17,279			$	35,162
Comprehensive loss attributable to Non-controlling interests			849				-
Comprehensive income attributable to SolarEdge Technologies, Inc.		$	18,128			$	35,162

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

U.S. dollars in thousands (except share and per share data)

 

* Represents an amount less than $1.

The accompanying notes are an integral part of the consolidated financial statements.

U.S. dollars in thousands (except share and per share data)

 

		SolarEdge Technologies, Inc. Stockholders’ Equity
		Common stock								Additional paid in Capital				Accumulated Other comprehensive Income (loss)				Retained earnings				Total				Non-controlling interests				Total stockholders’ equity
		Number				Amount
Balance as of January 1, 2019			46,052,802			$	5			$	371,794			$	(524	)		$	191,133			$	562,408			$	8,318			$	570,726
											-
Issuance of Common Stock upon exercise of employee and non-employees stock-based awards			254,515				* -				309				-				-				309				-				309
Equity based compensation expenses to employees and non-employee consultants			-				-				9,704				-				-				9,704				-				9,704
Consideration in common stock related to business combination			1,194,046				* -				34,601				-				-				34,601				-				34,601
Non-controlling interests related to business combination			-				-				-				-				-				-				67,734				67,734
Change to Non-controlling interests			-				-				977				-				-				977				(2,964	)			(1,987	)
Other comprehensive income adjustments			-				-				-				(696	)			-				(696	)			(849	)			(1,545	)
Net income			-				-				-				-				19,016				19,016				(1,041	)			17,975
Balance as of March 31, 2019			47,501,363			$	5			$	417,385			$	(1,220	)		$	210,149			$	626,319			$	71,198			$	697,517

 

* Represents an amount less than $1.

The accompanying notes are an integral part of the consolidated financial statements.

U.S. dollars in thousands

 

		Three months ended March 31,
		2019				2018
		Unaudited
Cash flows provided by operating activities:
Net income		$	17,975			$	35,686
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment			3,870				2,394
Amortization of intangible assets			1,971				36
Amortization of premium and accretion of discount on available-for-sale marketable securities			(59	)			778
Stock-based compensation			9,704				6,849
Capital loss from disposal of equipment			66				64
Realized loss from sale of available-for-sale marketable securities			120				-
Changes in assets and liabilities:
Inventories			964				(15,348	)
Prepaid expenses and other assets			10,885				9,210
Trade receivables, net			(7,379	)			(17,935	)
Operating lease right-of-use assets and liabilities, net and effect of exchange rate differences			828				(74	)
Deferred tax assets and liabilities, net			(973	)			(1,321	)
Trade payables, net			(21,720	)			13,595
Employees and payroll accruals			3,250				7,153
Warranty obligations			14,947				9,384
Deferred revenues			1,730				6,981
Other liabilities			20,271				6,527
Net cash provided by operating activities			56,450				63,979
Cash flows from investing activities:
Business combination, net of cash acquired			(39,315	)			-
Purchase of property, plant and equipment			(10,620	)			(11,325	)
Investment in short term bank deposits			(56	)			-
Investment in available-for-sale marketable securities			(15,316	)			(25,436	)
Proceeds from sales and maturities of available-for-sale marketable securities			44,575				34,500
Net cash used in investing activities		$	(20,732	)		$	(2,261	)

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Cont.)

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U.S. dollars in thousands

The accompanying notes are an integral part of the condensed consolidated financial statements.

NOTE 1:-

GENERAL

a.

SolarEdge Technologies, Inc. (the “Company”) and its subsidiaries design, develop, and sell an intelligent inverter solution designed to maximize power generation at the individual photovoltaic (“PV”) module level while lowering the cost of energy produced by the solar PV system and providing comprehensive and advanced safety features. The Company’s products consist mainly of (i) power optimizers designed to maximize energy throughput from each and every module through constant tracking of Maximum Power Point individually per module, (ii) inverters which invert direct current (DC) from the PV module to alternating current (AC), (iii) a related cloud-based monitoring platform, that collects and processes information from the power optimizers and inverters of a solar PV system to enable customers and system owners as applicable, to monitor and manage the solar PV systems and (iv) a storage solution that is used to increase energy independence and maximize self-consumption for homeowners by utilizing a battery that is sold separately by third party manufacturers, to store and supply power as needed (the “StorEdge solution”). The StorEdge solution is designed to provide smart energy functions such as maximizing self-consumption, Time-of-Use programming for desired hours of the day, and home energy backup solutions.

The Company and its subsidiaries sell their products worldwide through large distributors and electrical equipment wholesalers to smaller solar installers as, well as directly to large solar installers and engineering, procurement and construction firms (“EPCs”).

Since 2018, the Company completed certain strategic acquisitions in order to further expand its business.

In July and October 2018, the Company completed the acquisition ("Gamatronic Acquisition") of substantially all of the assets and activities of Gamatronic Electronic Industries Ltd ("Gamatronic IL") and all of the outstanding shares of its wholly owned subsidiary Gamatronic (UK) Limited (“Gamatronic UK”), respectively. Both companies ("UPS Division") are providers and manufacturers of Uninterruptible Power Supplies ("UPS") devices.

On October 17, 2018, the Company completed the acquisition of 74.5% of the outstanding common shares and voting rights of Kokam Co., Ltd. (“Kokam”), a Korean company whose shares are traded on the Korean OTC market, a provider of Lithium-ion cells, batteries and energy storage solutions. From October 17, 2018 and through March 31, 2019, the Company increased its shareholdings of Kokam to 94.2%.

On January 24, 2019, the Company completed the acquisition of 56.8% of the outstanding common shares and voting rights of S.M.R.E S.p.A (“SMRE”), an Italian company whose shares were traded on the Italian AIM, a provider of innovative integrated powertrain technology and electronics for electric vehicles (see note 2).

b.

New accounting pronouncements not yet effective:

NOTE 1:-

GENERAL (Cont.)

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. ASU 2016-13 also applies to employee benefit plan accounting, with an effective date of the first quarter of fiscal 2022. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated balance sheets, statements of operations and cash flows.

c.

Recently issued and adopted pronouncement:

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02 (Topic 842) "Leases". Topic 842 supersedes the lease requirements in Accounting Standards Codification (ASC) Topic 840, "Leases". Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. ASU No. 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. In July 2018, the FASB issued amendments in ASU 2018-11, which provide a transition election to not restate comparative periods for the effects of applying the new standard. This transition election permits entities to change the date of initial application to the beginning of the earliest comparative period presented, or retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment. The Company has elected to apply the standard retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment. The Company has also elected certain relief options offered in ASU 2016-02 including certain available transitional practical expedients. The Company adopted Topic 842 effective January 1, 2019. The Condensed Consolidated Financial Statements for the three months ended March 31, 2019 are presented under the new standard, while comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy (See note 7).

d.

Basis of Presentation:

The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with Article 10 of Regulation S-X, “Interim Financial Statements” and the rules and regulations for Form 10-Q of the Securities and Exchange Commission (the “SEC”). Pursuant to those rules and regulations, the Company has condensed or omitted certain information and disclosures in footnotes that it normally includes in its annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).

In management’s opinion, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present its condensed consolidated financial position, results of operations, and cash flows. The Company’s interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year.

The significant accounting policies applied in the annual consolidated financial statements of the Company as of December 31, 2018, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2019, have been applied consistently in these unaudited interim condensed consolidated financial statements, except for the adoption of ASU No. 2016-02, “Leases (Topic 842) (see Note 1c).

 

NOTE 1:-

GENERAL (Cont.)

e.

The Company depends on three contract manufacturers and several limited or single source component suppliers. The Company is in the process of discontinuing its activity with one of those contract manufacturers. Reliance on these vendors makes the Company vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields, and costs.

These three vendors collectively accounted for 48.7% and 58.8% of the Company’s total trade payables as of March 31, 2019 (unaudited) and December 31, 2018, respectively.

The Company has the right to offset its payables to one of its contract manufacturers against vendor non-trade receivables. As of March 31, 2019 (unaudited), a total of $1,784 of these receivables met the criteria for net recognition and were offset against the corresponding accounts payable balances for this contract manufacturer in the accompanying condensed consolidated balance sheets.

f.

Business Combination:

The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair value. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired technology, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is not to exceed one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

g.

Accounting for share-based compensation:

Some of the RSUs granted are subject to certain performance criteria (“PSUs”): accordingly, compensation expense for PSUs is recognized when it becomes probable that the related performance condition has been satisfied.

h.

Certain prior period amounts have been reclassified to conform to the current period presentation.

NOTE 2:-

BUSINESS COMBINATION

S.M.R.E

On January 24, 2019, the Company completed the acquisition of 56.8% of the outstanding common shares and voting rights of SMRE, a provider of innovative integrated powertrain technology and electronics for electric vehicles for approximately $73.9 million, net of cash acquired, out of which $42,240 was paid in cash and $34,601 was paid in shares of SolarEdge common stock (the “SMRE Acquisition”).

As part of SMRE Acquisition, the Company issued 334,096 PSUs that are subject to certain performance goals and a vesting period, at the amount of $13,444, which will be expensed in the condensed consolidated statements of operation in general and administrative expenses line item.

As of January 24, 2019, the fair value of the 43.2% non-controlling interests in SMRE is estimated to be $67.7 million. The fair value of the non-controlling interests was valued based on and at the transaction price.

The primary reason for the SMRE Acquisition was to acquire technology and customer relationships and to expand and diversify the Company’s business by entering into the electric vehicles market.

The Company determined that the SMRE Acquisition will be accounted for as a business combination in accordance with ASC 805 "Business Combinations".

During the period from the SMRE Acquisition through March 31, 2019, the Company purchased additional common shares of SMRE in the open market, for a further investment of $1.2 million.

 

The following table summarizes the preliminary estimated purchase price allocation of the business combination completed during the three months ended March 31, 2019:

(1)

The intangible assets comprised primarily of technology, in process research and development and customer relationships.

NOTE 2:-

BUSINESS COMBINATION (Cont.)

(2)

The Company is expecting to complete the preliminary estimated purchase price allocation during the measurement period of one year from January 24, 2019. Fair values that are still under review include among others, values assigned to identifiable intangible assets, goodwill, deferred income taxes and contingent liabilities.

During the three months ended March 31, 2019, the Company recognized $453 of aggregate acquisition-related costs that were expensed in the condensed consolidated statement of operations in general and administrative expenses line item.

 

The pro-forma results have been calculated after applying the Company’s accounting policies and adjusting the results of all acquisitions to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied since the acquisitions date, together with the consequential tax effects.

The pro-forma results are based on estimates and assumptions, which the Company believes are reasonable. The pro-forma results are not the results that would have been realized had the acquisitions actually occurred on January 1, 2018 and 2019, and are not necessarily indicative of the Company’s condensed consolidated statements of operations in future periods. The pro-forma results include adjustments related to business combinations accounting, primarily depreciation of property plant and equipment, amortization of intangible assets and together with the consequential tax effects.

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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U.S. dollars in thousands (except share and per share data)

 

NOTE 3:-

INTANGIBLE ASSETS AND GOODWILL

Amortization expenses for the three months ended March 31, 2019 (unaudited) and 2018 (unaudited) were $1,971 and $36, respectively.

The reported amount of net acquisition-related intangible assets and goodwill can fluctuate due to the impact of changes in foreign currency exchange rates on intangible assets and goodwill not denominated in U.S. dollars.

Acquired finite-lived intangible assets are amortized on a straight-line basis or accelerated method over the estimated useful lives of the assets. The Company will amortize its finite- lived intangible assets over a period of 7-10 years.

 

NOTE 4:-

INVENTORIES

 

NOTE 5:-

WARRANTY OBLIGATIONS

Changes in the Company’s product warranty obligations for the three months ended March 31, 2019 (unaudited) and 2018 (unaudited) were as follows:

 

NOTE 6:-

FAIR VALUE MEASUREMENTS

In accordance with ASC 820, the Company measures its cash equivalents, foreign currency derivative contracts, and marketable securities, at fair value using the market approach valuation technique. Cash equivalents and marketable securities are classified within Level 1 or Level 2. This is because these assets are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Earn-out provision is classified within the Level 3 value hierarchy, as the valuation is based on unobservable inputs which are supported by little or no market activity.

NOTE 6:-

FAIR VALUE MEASUREMENTS (Cont.)

The following table sets forth the Company’s assets that were measured at fair value as of March 31, 2019 and December 31, 2018, by level within the fair value hierarchy:

 

NOTE 7:-

LEASES

The Company adopted ASU No. 2016-02, “Leases (Topic 842),” effective on January 1, 2019, which requires leases with durations greater than twelve months to be recognized on the balance sheet. The Company adopted the standard using the modified retrospective approach with an effective date as of the beginning of the fiscal year, January 1, 2019. Prior year financial statements were not recast under the new standard and, therefore, those amounts are not presented below.

The Company leases offices, plants and vehicles under operating and finance leases. For leases with terms greater than 12 months, the Company records the related asset and liability at the present value of lease payments according to their term. Several of the Company’s leases include renewal options and some have termination options that are factored into the Company’s determination of the lease payments when appropriate. The Company estimates the incremental borrowing rate in order to discount the lease payments based on the information available at the lease commencement date.

NOTE 7:-

LEASES (cont.)

The following table summarizes the Company’s lease-related assets and liabilities recorded on the condensed consolidated balance sheet:

The following table presents certain information related to the lease costs for operating and finance leases for the three months ended March 31, 2019:

NOTE 7:-

LEASES (cont.)

The following table presents supplemental cash flow information related to the lease costs for operating and finance leases for the three months ended March 31, 2019:

The following table reconciles the undiscounted cash flows for each of the first five years and total of the remaining years of the operating and finance lease liabilities recorded on the condensed consolidated balance sheets:

 

NOTE 8:-

COMMITMENTS AND CONTINGENT LIABILITIES

a.

Guarantees:

As of March 31, 2019 (unaudited), contingent liabilities exist regarding guarantees in the amount of $13,353, $1,938, $55 and $176 in respect of bank loans, office rent lease agreements, customs transactions and credit card limits, respectively.

 

 

The Company has contractual obligations to purchase goods and raw materials. These contractual purchase obligations relate to inventories held by contract manufacturers and purchase orders initiated by the contract manufacturers and suppliers, which cannot be canceled without penalty. The Company utilizes third parties to manufacture its products. In addition, it acquires raw materials or other goods and services, including product components, by issuing to suppliers authorizations to purchase based on its projected demand and manufacturing needs.

NOTE 8:-

COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

As of March 31, 2019 (unaudited), the Company had non-cancellable purchase obligations totaling approximately $242,551 out of which the Company already recorded a provision for loss in the amount of $2,061.

As of March 31, 2019 (unaudited), the Company had contractual obligations for capital expenditures totaling approximately $30,183. These commitments reflect purchases of automated assembly lines and other machinery related to the Company’s manufacturing.

c.

Legal claims:

From time to time, the Company may be involved in various claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss. These accruals are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter.

 

 

NOTE 9:-

STOCK CAPITAL

a.

Common Stock:

 

b.

Stock Incentive plans:

The Company’s 2007 Global Incentive Plan (the “2007 Plan”) was adopted by the board of directors on August 30, 2007. On March 31, 2015, once the Company completed its Initial Public Offering (“IPO”), the 2007 Plan was terminated and no further awards will be granted thereunder. All outstanding awards will continue to be governed by their existing terms and 379,358 available options for future grant were transferred to the Company’s 2015 Global Incentive Plan (the “2015 Plan”) and are reserved for future issuances under the 2015 plan.

 

The 2015 Plan became effective upon the consummation of the IPO. The 2015 Plan provides for the grant of options, RSUs and other share-based awards to directors, employees, officers, and consultants of the Company and its Subsidiaries. As of March 31, 2019 (unaudited), a total of 10,383,357 shares of common stock were reserved for issuance under the 2015 Plan (the “Share Reserve”).

 

NOTE 9:-

STOCK CAPITAL (Cont.)

The Share Reserve will automatically increase on January 1st of each year during the term of the 2015 Plan commencing on January 1st of the year following the year in which the 2015 Plan becomes effective in an amount equal to five percent (5%) of the total number of shares of capital stock outstanding on December 31st of the preceding calendar year; provided, however, that our board of directors may determine that there will not be a January 1st increase in the Share Reserve in a given year or that the increase will be less than five percent (5%) of the shares of capital stock outstanding on the preceding December 31st.

 

The aggregate maximum number of shares of common stock that may be issued on the exercise of incentive stock options is ten million (10,000,000). As of March 31, 2019 (unaudited), an aggregate of 8,686,589 shares of common stock are still available for future grant under the 2015 Plan.

c.

Options granted to employees and members of the board of directors:

A summary of the activity in the share options granted to employees and members of the board of directors for the three months ended March 31, 2019 (unaudited) and related information follows:

The aggregate intrinsic value represents the total intrinsic value (the difference between the fair value of the Company’s common stock as of the last day of each period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on the last day of each period. The total intrinsic value of options exercised during the three months ended March 31, 2019 (unaudited) was $788.

The weighted average grant date fair values of options granted to employees and executive directors during the three months ended March 31, 2019 (unaudited) was $19.83.

NOTE 9:-

STOCK CAPITAL (Cont.)

d.      A summary of the activity in the RSUs (excluding PSUs) granted to employees and members of the board of directors for the three months ended March 31, 2019 (unaudited) is as follows:

As part of SMRE acquisition, the Company granted 334,096 PSUs that are subject to certain performance goals and a vesting period. The PSUs grant date fair value is $40.24.

During the three months ended March 31, 2019, the Company recognized expenses at the amount of $841 related to PSU’S vesting that were expensed in the condensed consolidated statement of operations in general and administrative expenses line item.

e.

Options and RSUs issued to non-employee consultants:

The Company has granted options and RSUs to purchase common shares to non-employee consultants as of March 31, 2019 (unaudited) as follows:

The Company had accounted for its options and RSUs granted to non-employee consultants under the fair value method of ASC 505-50 (“Equity-Based Payments to Non-Employees”).

In connection with the grant of stock options and RSUs to non‑employee consultants, the Company recorded stock compensation expenses in the three months ended March 31, 2019 (unaudited) and 2018 (unaudited) in the amount of $173 and $ 529, respectively.

NOTE 9:-

STOCK CAPITAL (Cont.)

f.

Employee Stock Purchase Plan (“ESPP”):

The Company adopted an Employee Stock Purchase Plan (the “ESPP”) effective upon the consummation of the IPO. As of March 31, 2019 (unaudited), a total of 2,199,808 shares were reserved for issuance under this plan. The number of shares of common stock reserved for issuance under the ESPP will increase automatically on January 1st of each year, for ten years, by the lesser of 1% of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year or 487,643 shares. However, the Company’s board of directors may reduce the amount of the increase in any particular year at their discretion, including a reduction to zero.

 

The ESPP is implemented through an offering every six months. According to the ESPP, eligible employees may use up to 10% of their salaries to purchase common stock shares up to an aggregate limit of $10 per participant for every six months plan. The price of an ordinary share purchased under the ESPP is equal to 85% of the lower of the fair market value of the ordinary share on the subscription date of each offering period or on the purchase date.

 

As of March 31, 2019 (unaudited), 385,646 common stock shares had been purchased under the ESPP.

 

As of March 31, 2019 (unaudited), 1,814,162 common stock shares were available for future issuance under the ESPP.

 

In accordance with ASC No. 718, the ESPP is compensatory and as such results in recognition of compensation cost.

g.

Stock-based compensation expense for employees and non-employee consultants:

The Company recognized stock-based compensation expenses related to stock options, RSUs and PSUs granted to employees and non-employee consultants and ESPP in the condensed consolidated statement of income for the three months ended March 31, 2019 (unaudited) and 2018 (unaudited), as follows:

As of March 31, 2019 (unaudited), there was a total unrecognized compensation expense of $104,122 related to non‑vested equity‑based compensation arrangements granted under the Company’s Plans. These expenses are expected to be recognized during the period from April 1, 2019 through May 31, 2023.

NOTE 10:-

BASIC AND DILUTED NET EARNINGS PER SHARE

Basic net earnings per share is computed by dividing the net earnings attributable to SolarEdge Technologies, Inc. by the weighted-average number of shares of common stock outstanding during the period.

Diluted net earnings per share is computed by giving effect to all potential shares of common stock, including stock options, to the extent dilutive, all in accordance with ASC No. 260, "Earnings Per Share."

No shares were excluded from the calculation of diluted net earnings per share due to their anti-dilutive effect for the three months ended March 31, 2019 (unaudited) and 2018 (unaudited).

The following table presents the computation of basic and diluted net earnings per share attributable to SolarEdge Technologies, Inc. for the periods presented (in thousands, except share and per share data):

 

		Three months ended March 31,
		2019				2018
		Unaudited
Numerator:
Net income		$	17,975			$	35,686
Net loss attributable to Non-controlling interests			1,041				-
Net income attributable to SolarEdge Technologies, Inc.		$	19,016			$	35,686
Denominator:
Shares used in computing net earnings per share of common stock, basic			47,020,218				44,231,679
Effect of stock-based awards			2,006,109				3,441,843
Shares used in computing net earnings per share of common stock, diluted			49,026,327				47,673,522

 

NOTE 11:-

INCOME TAXES

a.

Taxes on income (tax benefit) are comprised as follows:

 

		Three months ended March 31,
		2019				2018
		Unaudited
Current period taxes		$	4,895			$	7,001
Deferred tax income, net and others			(973	)			(1,339	)
Taxes on income		$	3,922			$	5,662

 

NOTE 11:-      INCOME TAXES (cont.)

b.

Deferred income taxes:

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax liabilities and assets are as follows:

 

		As of March 31, 2019				As of December 31, 2018
		(Unaudited)
Deferred tax assets, net:
Research and Development carryforward expenses		$	8,751			$	9,482
Carryforward tax losses			5,384				4,155
Stock based compensation expenses			3,571				3,160
Inventory Impairment			1,299				1,471
Allowance and other reserves			6,675				4,340
Total deferred tax assets		$	25,680			$	22,608
Deferred tax liabilities, net:
Purchase price allocation adjustments			(19,635	)			(9,408	)
Total deferred tax liabilities		$	(19,635	)		$	(9,408	)
Recorded as:
Deferred tax assets, net		$	14,589			$	14,699
Deferred tax liabilities, net			(8,544	)			(1,499	)
Net deferred tax assets		$	6,045			$	13,200

 

c.

Uncertain tax positions:

NOTE 12:-

CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

a.

For the three months period ended March 31, 2019 (unaudited) and 2018 (unaudited), the Company had one major customer that accounted for 14.2% and 20.4% of its condensed consolidated revenues, respectively.

b.

As of March 31, 2019 (unaudited) and as of December 31, 2018, one and two customers accounted for approximately 13.1% and 41.3%, respectively, of the Company’s net accounts receivables.

 

NOTE 13:-

SEGMENT INFORMATION

The Company's chief operating decision maker (“CODM”) is our Chief Executive Officer who makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis. Accordingly, the Company has determined that it has a single reportable segment - the solar segment.

NOTE 14:-

SUBSEQUENT EVENTS

 

 

 

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