Hello and welcome to the SolarEdge Conference Call for the Second Quarter ended June 30, 2024. This call is being webcast live on the company's website at www.solaredge 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 J.B. Lowe, Head of Investor Relations for SolarEdge. Please begin.

Thank you, Jess. Good afternoon, everyone. Thank you for joining us to discuss SolarEdge's operating results for the second quarter ended June 30, 2024, as well as the company's outlook for the third quarter of 2024. With me today are Zvi Lando, Chief Executive Officer; and Ronen Faier, Chief Financial Officer. Zvi will begin with a brief review of the results for the second quarter ended June 30, 2024. Ronen will then review the financial results for the second quarter, followed by the company's outlook for the third quarter of 2024. 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 press release, the slides posted on our website ahead of this call today and our filings with the SEC for a more complete description of such risks and uncertainties. Please note this presentation describes certain non-GAAP measures, including non-GAAP net income and non-GAAP net diluted earnings per share which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are presented in this presentation 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 release, presentation 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, 2024 press release or the supplemental material may obtain a copy by visiting the Investor Relations section of the company's website. I will now turn the call over to Zvi.

Thank you, J.B. Good afternoon and thank you all for joining us on our conference call. Starting with highlights of our second quarter results. We concluded the quarter with approximately $265 million in revenue. Revenues from our solar business were approximately $241 million, while revenues from our non-solar businesses were approximately $24 million. This quarter, we shipped 2 million power optimizers, 66,000 inverters and 128 megawatt hours of batteries. Our sell-through for the quarter was approximately $520 million, up 18% from the first quarter, meaning we undershipped demand by approximately $275 million, in line with our expectations. Before we dive into the regional breakdown, I'd like to address the recent moves we have made to strengthen the company and our business and our key focus areas as we navigate this volatile time in the solar market. We are focusing on 3 areas. The first is supporting the business of our customers and growing our share through their satisfaction and success. Over the last year, we have made significant improvements to customer service and product quality and to the customer experience through ease of installation of our products. We are already seeing positive momentum in sell-through data resulting from these efforts...

Thank you, Zvi and good afternoon, everyone. Total revenues for the second quarter were $265.4 million. Revenues from our solar segment which includes the sales of PV attached residential and commercial batteries were $241.2 million. Solar revenues from the United States this quarter were $97 million, representing 40% of our solar revenues. Solar revenues from Europe were $88.2 million, representing 37% of our solar revenues. Rest of the World solar revenues were $56 million, representing 23% of our total solar revenues. On a megawatt basis, we shipped 261 megawatts to the United States, 278 megawatts to Europe and 333 megawatts to the international markets, for just under 875 megawatts of total shipments...

We'll go first to Philip Shen with ROTH Capital Partners.

So it sounds like normalized revenue might be closer to $550 million now. And it sounds like it could be realized in the back half of '25. What might the associated margins be with this normalized revenue? If you mentioned on the call, sorry if I missed it. And what might the quarterly cadence of the margins look like between now and when you hit 550?

Thank you, Phil. To clarify, we anticipate reaching a normalized revenue level of $550 million in the second quarter of 2025, with gross margins expected to be around 23% at that time. In the upcoming two quarters leading up to that point, we foresee a gradual increase in revenues during Q4 and Q1 of 2025, which will also result in modest growth in gross margins during this period.

Yes. Can you hear me, sorry about that. I think I might have been on mute.

Yes, we hear you.

Maybe just to follow up on Phil's question. When you think about the Q2 $550 million run rate, it sounds like that's when you also expect to get back to a free cash flow positive run rate or maybe cash flow neutral. But in the interim, if I just kind of do the math, it sounds like you'll burn maybe another $100-plus million of free cash flow between now and that period and you still have the outstanding converts in the '25 time frame. So just wondering, is there a strategy in place to address that? And is that going to be part of the strategic review you're going through in terms of determining asset value? Are there potential divestitures, not just write-downs but things you could potentially look to monetize? I guess how wide-ranging is the scope of what you're looking to review here as you look into '25?

Thank you, Brian. So I'll start from the second part of the question. Actually, the review that we're going to do is mostly related to the book value of our assets rather than to the other elements that we can do in order to either reduce cost or improve profitability which is something that we do constantly on the business side...

Just kind of following up there on Brian's question. To the extent that in-market demand does come in lower than expected, maybe that $550 million is lower or it gets pushed out to a later time frame. Can you just kind of talk about how your how you're weighing kind of selling it into the market, improving your cash flow versus trying to have a clear channel that's out there yet?

Sure, Mark. First, thank you for the question. I want to start by saying that based on our sell-through data for Q2, we're already above $520 million. The $550 million figure isn’t based on significant growth that we anticipate but reflects our current position and the natural growth we expect from our new products, such as the 330-kilowatt inverter, trackers, and the commercial battery, which is seeing strong demand, particularly in Italy and other areas in Europe.

Sorry about that, I was on mute. Can you discuss the competitive landscape as you continue to invest in innovation? How quickly is the change occurring? What is the size of the opportunity for you to capture market share through product innovation and a more aggressive approach?

So thanks, Colin. I think as I mentioned in the prepared remarks, the first step that we are focused on in terms of share growth is actually via share growth of our customers. It is literally a situation where their success is translating to our success...

I just want to come back to some questions that have already been asked. But I mean just look at the margins that you guys are posting today in your business clearly set up for a much stronger and higher revenue environment...

Sure, Andrew. And first of all, thank you very much for the question. So I'll start by saying that actually we do not see the sell-through deteriorating at all. Actually, on the opposite. We do see it increasing...

Quick question. As I look at your gross margin guidance, can you elaborate on product mix? So more specifically, to what extent did single-phase battery sales impact gross margin this quarter? And how many years of inventory on hand would you say you have?

Sure. So first of all, thank you for the question again. So I'll start from the batteries themselves. The single-phase batteries represented a drag of approximately 500 basis points on our gross margins this quarter...

You guys have talked a lot about this but I just want to get a sense of kind of where your confidence levels lie in that kind of first half of next year inventory clearing in Europe? And then maybe kind of along those lines, how you all kind of approach the complicated dynamic of undershipment and that sort of thing.

Yes. I'm trying to make sure I understand the question properly. But we are looking and we get reports from our distributors on a per part number sales that they make. And that's how we look at the sell-through...

And yes, thanks for sliding on me in here as well. So to clarify on the response to Phil's question, just real quick, did the 23% gross margins include the 500 basis points of 45x?

So, Julien, I'll start and if I'm not answering all of it, please help me by completing. But in general, we are already shipping domestic contact products right now...

So my first question here, what do you do as being the key near-term catalyst for acceleration in Europe residential demand given rooftop solar is mainly cash business there?

So first of all, I must say that I'm not sure if there is a very immediate catalyst to this growth and this is part of the assumption that we have at least for Q3 and Q4 not to see a major increase...

In addition to Ronen's comments, I would like to mention two more things. The increase in electricity usage is evident, particularly with the growing trend of heat pumps and electric vehicles in Europe.

With no other questions holding. I will now turn the program back over to Zvi Lando for any additional or closing remarks.

Thank you, Jessie. And I just wanted to thank everybody for joining us on our call today and wishing everyone a good evening. Thank you.

Thank you. That does conclude today's program. We thank you for your participation. You may disconnect at this time.