Hello and welcome to the SolarEdge Conference Call for the Third Quarter ended September 30, 2024. 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 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 and good afternoon. Thank you for joining us to discuss SolarEdge's operating results for the third quarter ended September 30, 2024, as well as the company's outlook for the fourth quarter of 2024. With me today are Ronen Faier, Interim Chief Executive Officer; and Ariel Porat, Chief Financial Officer. Ronen will begin with a brief review of the results for the third quarter ended September 30, 2024. Ariel will review the financial results for the third quarter followed by the company's outlook for the fourth 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 presented in this presentation 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 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 September 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 Ronen.

Thank you, J.B. and thank you for joining our call. As you're well aware, SolarEdge is going through a transition. 18 months ago, the market and the company were on an accelerating growth trajectory driven by record demand and outlook. Market dynamics have changed abruptly, leading to high inventory levels, both in the channels at SolarEdge and the recovery from this situation has been longer than we anticipated. This current situation is challenging and requires us to delve into every aspect of our business and change the trajectory that the company has been trending over the past five quarters. While going through the transition period, we do not lose sight of the many strengths that SolarEdge has to offer to the renewable energy market nor of the opportunities that lay ahead of us. SolarEdge's strengths are many. Our technology, which includes cutting-edge homegrown software capabilities and cybersecurity positions us well to lead the rapidly changing energy market. This leadership requires relentless innovation in highly sophisticated technologies to provide the most advanced, robust, and cost-efficient solutions. In addition, our DC optimized architecture is ideally suited for all segments of the solar market from residential to small-scale utility due to its scalability. Lastly, our last installed base represents a significant opportunity for additional revenues from internal upgrades, the addition of storage EV chargers, integration with heat pumps, and software-based services. Enabling and empowering all of these strengths is our people. We have an extremely dedicated and talented team of innovative thinkers passionate about shaping the renewable energy landscape through a proven track record of technological disruption. We believe our opportunities are numerous. The PV market is still in its early stages with relatively low rates of penetration in many areas. As demand for energy increases, more sophisticated technological products offering superior power management, efficient storage solutions, and state-of-the-art software for energy management are needed. Our technology excels in all of those applications. In addition, we expect that manufacturing credits that we generate under Section 45x will allow us to efficiently compete with low-cost products at very attractive margins for us after we consume the existing inventory. We believe that this advantage will significantly improve our ability to regain share and continue to develop new technologies with lower cost structures. In order to capitalize on these strengths and address these opportunities, we have identified three major priorities to put us back on a profitable growth trajectory. The first priority is to achieve financial and organizational stability; second, recapture market share; and third, refocus on our core businesses. From a financial stability perspective, our first and most important objective is free cash flow generation. In order to achieve this, we are taking steps to optimize working capital, reduce spending, and boost operational efficiency. Our initial steps have already started to positively impact our financial results. In the third quarter, our free cash use was approximately $75 million within our expected range and down significantly from the approximately $140 million used in the second quarter. This is despite our continued investment in growing our U.S. manufacturing footprint which we expect will be a significant driver of profitability in the years ahead. This quarter, we consumed approximately $95 million of finished goods inventory net. Inventory consumption will continue to be a source of cash in the next few quarters as the majority of the inventory needed for non-U.S. markets is already manufactured and paid for. Our intention is to return to an inventory level that essentially represents 90 inventory days by the end of 2025. Also, as announced this week, we successfully sold our first 45x credit in the amount of approximately $40 million related to our U.S. production in the first half of 2024. We generated a higher amount of 45x credits from our manufacturing in Q3 alone and we expect to sell them over the next few months. With the recently released treasury clarifications confirming our ability to claim the full $0.11 per watt on DC optimized systems, we expect to generate higher volumes of credits in Q4 2024 and in 2025. We are also reiterating our timeline to return to positive cash generation by the first half of 2025 and expect free cash use in the fourth quarter this year to be within minus $20 million to neutral. Financial stabilization also includes a relentless focus on operational efficiency to drive a return to consistent profitability. We've had to make tough decisions at the beginning of the third quarter, making additional headcount and expense reductions. Controlling operational expenses is an ongoing reality in this current environment. We will continue to take cost-saving measures by focusing on core projects, concentrating our global footprint on profitable markets, and exiting non-strategic markets and product lines. We will continue renegotiating suppliers and logistic contracts and reducing corporate spending. At the same time, we will continue to invest in the development of new products and technologies that we believe will drive the company's success in the years to come. Lastly, regarding stability, our CEO selection process is ongoing, and we expect to announce the Board's decision before the end of this year. Our second key priority is recapturing market share. Our high inventory of European products, even after the write-downs and impairments that Ariel will discuss, results from decreased European demand and inventory build-up in the distribution channels. That said, this inventory has already been paid for and allowed us to launch aggressive share-recapturing measures. Last week, we rolled out price reductions and promotions in Europe and international markets, which will allow us to better compete and reduce the pricing gap with our low-cost competitors. We believe that these price levels, combined with the 45x manufacturing credits and the rollout of next-generation products that will carry significantly improved cost structures, will enable us to return to our historic gross margin levels of over 30% once existing inventory is consumed. These price actions are taking a toll in the short term by requiring us to take inventory write-downs and also by generating lower revenues and gross margins for the next two quarters. We expect this period will be defined by continued inventory clearing from our distribution channels, lower seasonal installations, and lower shipments due to our move towards a policy of higher inventory turns. As such, we believe that we will see a pickup in demand as a result of our price reductions and promotion campaigns starting in the second quarter and more meaningfully in the second half of 2025. Our share-taking effort is also important as we expect that our new products scheduled to be released in 2025 will enjoy lower cost structures and address the changing needs of the markets toward higher installations and higher storage attachements. This brings us to our third key priority which is the refocus on our core solar and storage businesses. We are strategically evaluating our business units, product portfolio, and geographical presence and intend to focus on areas where we see long-term potential for profitability and have a distinct competitive advantage. We've already taken some steps along these lines. First, just last month, we divested our automation machines business that was acquired as part of the S.M.R.E. acquisition in 2019, and we will continue to evaluate both core and non-core assets for further cost rationalization and improving profitability. Second, we've already standardized our North American residential portfolio to a single SKU that will serve all system sizes, which has resulted in a more streamlined manufacturing process and improved efficiencies across the supply chain, logistics, inventory management, and service. We intend to extend this SKU simplification to our European and international businesses as we roll out our next-generation products starting next year. Lastly, the suite of next-generation products that we intend to roll out within the next several years are keenly focused on our core competencies of solar, storage, and energy management solutions. This will be the first residential solar and storage product line expansion that SolarEdge has undertaken in several years and will represent a further leap in our leading-edge PV and battery storage technology from both cost and reliability aspects. These next-generation products and those that will follow them will be all designed to be manufactured on our proprietary automated assembly lines, which will reduce labor costs and increase quality. We are extremely focused on the execution of these important activities, and I am confident that these priorities of financial stability, recapturing market share, and focus on the core will be the key drivers in solar recovery and return to profitability. I will now turn to review the results of our third quarter of 2024. We concluded the quarter with approximately $261 million in revenue. Revenues from our solar business were approximately $248 million, while revenues from our non-solar businesses were approximately $13 million. This quarter, we shipped 1.85 million power optimizers, 58,000 inverters, and 189-megawatt hours of batteries. Our sell-through for the quarter was approximately $450 million, down 13% from the second quarter, primarily a result of promotions implemented at the beginning of the second quarter. On a megawatt basis, sell-through of our products was similar to the second quarter. Moving on to the regions. Our U.S. business continued to strengthen as we saw in the second quarter as sell-through in the U.S. residential space grew 8% quarter-over-quarter. In the U.S. Commercial segment, sell-through was up 15%, underscoring the competitive advantages that we have in rooftop C&I through the scalability of our products, which we believe will only be enhanced once we begin shipping domestically produced commercial inverters in Q1 2025. As expected, inventory channels in the United States were largely normalized by the end of the third quarter. In Europe, the market continued to be weak as we have been describing since the beginning of the year. Sell-through for our residential products on a dollar basis was down 34%, while commercial sell-through was down 26%, mainly as a result of our promotions. Here, we are focused on continuing to clear this channel through price reductions and promotions, as I discussed above. Moving to operations. In our Austin, Texas facility, we manufactured over 500 megawatts of single-phase inverters in the third quarter and expect to increase this space meaningfully in the fourth quarter, given the substantial demand for domestic content products. Our Florida facility continues to ramp and is on track to reach production capacity of 2 million domestic optimizers per quarter in Q1 2025. We also intend to start producing commercial inverters and optimizers as well as domestic residential batteries in Q1 2025. To summarize my remarks, we are all well aware of the challenges the market and our situation have laid in front of us. However, we are confident that our continued efforts and focus on execution will allow us to get back on the trajectory of profitable growth, and we will continue to update you on our progress in this direction. I will now hand the call over to Ariel. Ariel, please.

Thank you very much, Ronen, and good afternoon, everyone. This quarter, my first as the CFO of SolarEdge, was characterized by a thorough analysis of the company's financial situation and its assets and liabilities in relation to our business outlook. As Ronen mentioned, the first of our three priorities is financial stability. Specifically, our top objective within this priority is to work towards positive free cash flow generation and profitable growth. I am extremely pleased that we were able to announce yesterday our first sale of 45x advanced manufacturing production tax credits in consideration for approximately $40 million net of discounts and fees. The liquidity provided by the sale of these credits will enhance our cash position, further strengthening our balance sheet. On the side of expenses, we have and will continue to focus on reducing costs and to reach our non-GAAP OpEx target of $100 million to $105 million per quarter by the beginning of 2025 and put ourselves on a path to continue to reduce expenses even further. Before reviewing the results of the third quarter, I would like to address the impairment and write-downs of various assets that significantly impacted our financials this quarter. This was the result of a thorough analysis of the current economic value of our assets as required by GAAP, due to the significant difference between the book value of our assets and the company's market cap due to the sustained decline in our stock price. The result of this review was an impairment and write-down in the amount of $1.03 billion, which impacted many line items of the company's P&L and balance sheet. I will start with the inventory. This quarter, we wrote down $612 million of inventory, of which $536 million is related to our solar business and $76 million is related to our non-solar business. This is a result of our assessment of the outlook for various markets, price reductions, and promotions taken as part of the market share recapture initiative, as well as other steps taken to focus on core markets and product lines. These write-downs fall into the following categories: First, excess inventory we no longer expect to sell due to lower demand in the European region, which we continue to see in this quarter; Second, the accelerated increase in demand for domestic content which came sooner than anticipated and has reduced demand for some products in our inventory; Third, raw materials related to the above-mentioned SKUs; Fourth, partial write-downs of certain SKUs due to the pricing reductions and promotions that we implemented in Europe as we now anticipate selling below cost. Separately, we also took a $47 million charge related to non-cancelable raw material orders. The next item is long-lived assets. For the solar business, we took a write-down of $94 million, primarily due to the retirement of machinery which is no longer in use following a reduction in manufacturing. These machines are highly specialized, so their salvage value is assumed to be zero or close to zero. In the energy storage business, we took an impairment of $113 million on manufacturing assets as a result of the continued lower utilization of Sella 2 and lack of certainty around future orders. Next, on intangibles. We wrote off $28 million of various other intangible assets and certain investments since, based on our assessment, the carrying value on our books was higher than the fair market value. Lastly, on deferred tax assets. We believe there is uncertainty as to when we will be able to utilize certain of our net operating losses, credit carryforwards, and other deferred tax assets. Therefore, we have recorded a valuation allowance in the amount of $131 million against deferred tax assets, for which we have concluded it is more likely than not that they will not be realized. Now, I will go into the quarterly results. Total revenues for the third quarter were $260.9 million. Revenues from our solar segment, which include the sale of PV-attached residential and commercial batteries, were $247.5 million. Solar revenues from the U.S. this quarter amounted to $128.7 million, representing 52% of our solar revenues. Solar revenues from Europe amounted to $78.9 million, representing 32% of our solar revenues. International markets, solar revenues amounted to $39.9 million, representing 16% of our total solar revenues. On a megawatt basis, we shipped 341 megawatts to the United States, 191 megawatts to Europe, and 318 megawatts to the international markets for approximately 850 megawatts of total shipments. 67% of total megawatt shipments this quarter were commercial and utility products and the remaining 33% were residential. In the third quarter, we shipped 189 megawatt hours of batteries with a majority shipped to Europe and international markets. As a result of the pricing decreases and promotions we implemented earlier this year, average selling price per watt, excluding battery revenues, was $0.203, a 5% decrease from $0.214 last quarter. Our blended average selling price per kilowatt-hour on all PV-attached batteries was $317 this quarter, down from $371 in the previous quarter. This decrease is largely due to additional price reductions and promotions as well as geographic mix shift. Revenues this quarter from our non-solar businesses comprising our energy storage and all other segments amounted to $13.1 million. Consolidated GAAP gross margin for the quarter was a negative 269.2% compared to negative 4.1% in the previous quarter driven by the large impairment charge taken this quarter. Non-GAAP consolidated gross margin this quarter was negative 265.4% compared to 0.2% in the previous quarter, driven by the large impairment charge taken this quarter. On a non-GAAP basis, operating expenses for the third quarter were $116.3 million compared to $114.8 million in the previous quarter. The quarter-over-quarter increase was largely related to bad debt expense recorded as part of our asset impairment analysis. At a normalized level of bad debt accrual, our operating expenses would have been approximately $108 million. As mentioned by Ronen, we will work to continue to push our expenditures down while still allowing significant resources for new product developments. GAAP operating loss for the quarter was $1.09 billion compared to an operating loss of $160.2 million in the previous quarter. Non-GAAP operating loss for the quarter was $801.1 million compared to a non-GAAP operating loss of $114.3 million in the previous quarter. GAAP net loss was $1.2 billion or $117 million, excluding the impact of write-downs and impairments compared to a GAAP net loss of $130.8 million in the previous quarter. Our non-GAAP net loss was $874.3 million or $125 million, excluding the impact of write-downs and impairments compared to a non-GAAP net loss of $101.2 million in the previous quarter. GAAP net loss per share was $21.13 for the third quarter compared to $2.31 in the previous quarter. Non-GAAP net loss per share was $15.33 compared to $1.79 in the previous quarter. Turning now to the balance sheet. As of September 30, 2024, cash, cash equivalents, bank deposits, restricted bank deposits, and investments were approximately $740 million. Net of debt, this amount was approximately $53 million. This quarter, cash used in operating activities was $64 million. Free cash flow for the quarter was a use of $75 million. Accounts receivable net decreased this quarter to $239.4 million compared to $295.6 million last quarter. As a result, we brought down days sales outstanding from 153 days in the second quarter to 129 days in the third quarter. Our inventory level, net of reserves, was at approximately $800 million compared to $1.5 billion in the previous quarter. This figure is, of course, inclusive of the $612 million in impairments we took in inventory. Turning to our guidance for the fourth quarter of 2024. We are guiding revenues to be within the range of $180 million to $200 million. We expect non-GAAP gross margin to be within the range of negative 4% to 0% including approximately 1,000 basis points of net IRA benefit. We expect our non-GAAP operating expenses to be within the range of $103 million to $108 million. Revenues from the solar segment are expected to be within the range of $170 million to $190 million. Gross margin from the solar segment is expected to be within the range of 0% to 3%, including approximately 1,050 basis points of net IRA benefit. In the fourth quarter, we expect our free cash flow will be within the range of negative $20 million to neutral. I will now turn the call over to the operator to open it up for questions.

We will take our first question from Brian Lee with Goldman Sachs.

First off, on the new price reductions and the asset revaluation, it seems like that's a little bit more steep than we had been anticipating. So I know, Ronen, you had talked about last quarter, you can exceed kind of, I think it was $550 million in revenue when inventory normalizes by 3Q '25. That was the view last quarter. Given the pricing and just sort of the promotional activity, sell-through obviously is much lower than that right now. Can you speak to kind of what the cadence is of this new level and whether that $550 million is still in play for later 2025?

So I think that when, especially today after the results of the actions last night, I think that we understand that we are living now in a little bit of a more volatile world. If you look at the U.S., the U.S. for us was good in Q3, we expect it, by the way, to continue and be good. But with the recent developments here in the United States, it’s very hard to see and to understand what the market's looking like in the next year. So here, I would say that while we did see an improvement, I think that this has become a little bit unclear. When it comes to Europe, Europe is definitely, as we see today, continuing to decline. It is not actually strengthening. And we believe that we may see this decline continuing into 2025. And as such, for us to commit to a number, given the fact that volumes may change, political stances are taking a very large, I would call it, impact on the market as it's going to look in the near term. And the fact that, as you mentioned, we did increase our prices but also, by the way, launched some of the promotions that we did throughout the last quarter. I think that it will be very hard for us to commit to such a number and the timing of this amount. At the same time, we do believe that the actions that we've taken will allow us to continue, and especially, as we said, towards the second quarter of '25, to increase the revenues again because we are helping with those prices the channels to be clear, slightly quicker than even anticipated. We do believe and we also got feedback from the last price reductions and promotions from our distributors that they believe that this is something that can improve share. But again, the extent and timing, I think, today is hard to predict.

Just a quick follow-up. Based on your comments, it seems that you're suggesting the Q4 revenue forecast is down, and Q1 might also see a decline before Q2 begins to recover sequentially. If that’s the expected trend, could you address the fact that you fell short by nearly $200 million this quarter? What are your expectations for the next few quarters? Additionally, regarding market share, it appears that you acknowledge losing some last year. How much is that contributing to the declines projected in the coming quarters? Are you anticipating that share gains will start to materialize with the Q2 recovery? Is that your baseline outlook?

First of all, Brian, we do not anticipate Q1 to be lower than Q4. In Q4, we reduced our prices, but we won’t see an immediate increase in sales volume. Typically, lower prices should boost demand, yet Q4 is usually affected by seasonal factors as we transition into winter. For many distributors, this is also when they release their annual reports, leading them to reduce inventories. Consequently, we view Q4 as a slight low point since we are facing the effects of price reductions without seeing the benefits yet. Additionally, we have made some assumptions regarding the amount and type of inventory that distributors are likely to hold at year-end. We expect to see stabilization, if not an increase in Q1, due to the anticipated effects of our past price cuts. Regarding market share in the U.S., it’s easier to track using Wood Mackenzie’s charts, but the reliability of the past data can vary. In Europe, measuring market share is more challenging. We’re unsure if any share loss is a contributing factor, but we’ve been hearing from almost every market that the overall market size is decreasing. This uncertainty affects our performance numbers. Looking ahead to Q2, we believe volumes should begin to increase as we have received feedback from customers indicating that there is demand elasticity relative to current prices. Additionally, our limited-time promotions on new products have been effective in helping to clear inventory more quickly. While we missed market expectations, we have an idea of Q3 figures, but given seasonal effects and pricing changes, it’s difficult to predict underperformance in the upcoming quarters. However, we do expect that the pace of inventory clearance will accelerate due to the increased competitiveness of our products because of the lower prices. Ultimately, we recognize that there are many factors at play in this somewhat volatile market, making it challenging to provide definitive forecasts or precise measurements moving forward.

We will take our next question from Colin Rusch with Oppenheimer.

As you aim to return to breakeven on a cash flow basis, could you share some of the assumptions you are using regarding megawatts, operational expenses, and gross margin? This information would help us understand the scale of your business and the expected margin profile.

So while we cannot give the actual percentages because simply, they're changing very much based on the amounts that we're selling in each and every market, the composition of each and every market's products between those inventories that we haven't done. And also, by the way, again, the gross margin that’s going to be determined from those ones because, for example, if you sell batteries, this is much lower gross margin than inverters. It's not something that we do but I'll try to give you at least a direction around it. Far and foremost, the most important thing is that when you look today and if you'd say that roughly 50% of our business is coming from non-U.S. markets, that means that this is an inventory that already exists. So by taking the sales that we have or revenue that we have every quarter in the non-U.S. market, just take the gross margin and assume that it comes from inventory. And here, you have the first source of our cash intake. That's, by the way, in the last quarter we said that we approximately consumed $95 million of inventory. So as you saw that operating expenses were lower, this by itself is covering. And if you saw in our guidance that next quarter margin will be approximately zero, even at zero margin, you're plus/minus covering the operating expenses. The other aspect that we're looking, and I think that we're happy to announce yesterday, is the fact that we're able now to start selling our IRA credits. So we did sell already $40 million of IRA credits. These are credits that were accumulated until the first half. As we mentioned on the call, we have a similar or actually higher number if you take the $0.11 number for Q3. So now we're working to sell this one. So I think that the cadence of starting to sell IRA credits, let's say, a quarter or two quarters after they're being actually accumulated. And the fact that at least half of our business will come from the inventory that is already paid for and exists on our balance sheet is something that by itself should cover the operating expenses and will allow us to generate cash flow. And lastly, by the way, because we talk about free cash flow and not just operating cash flow, We’ve materialized most of our investments needed in the U.S. in order to grow. So also, capital expenditures are going to be low. So these three things, almost zero capital expenditures, sale of IRA credits, and usage of inventory should get us there related almost to the level of OpEx.

And then, how quickly can you start bringing in new products into the portfolio and starting to sell them?

They are anticipated to be launched throughout next year. Initially, we will roll out our 20-kilowatt inverter for the three-phase market in Germany and Austria, which is experiencing rapid growth, particularly in the 15 to 30-kilowatt installation sizes, where this inverter is targeted. Following that, we will introduce our second-generation battery, which boasts a more favorable cost structure. This modular battery is designed to work seamlessly with our new inverters, making installation easier and more cost-effective due to its LFP composition. This launch will occur about a quarter after the first inverter's introduction. Our U.S. fourth-generation inverter will be released towards the end of the year, ensuring that all products are available next year. The speed of these introductions hinges on two factors: how quickly we can scale up manufacturing in our Sella 1 factory before expanding to other facilities, and our efficiency in ramping up production through our automated assembly lines. Although this inverter manufacturing process is relatively new for us and may involve some adjustments, I expect to see the first shipments of these products within the next year. Most of our forecasts regarding cash generation for next year are not tied to these new products, which is why we are taking a cautious approach in our financial planning for them. However, we are highly focused on ensuring these products are timely and efficiently manufactured, and I believe they will be well-suited for the evolving market.

And we will take our next question from Mark Strouse with JPMorgan.

A follow-up to Colin's question there on cash flow. Can you just kind of give us an update now that the convert is current how you're thinking about refinancing, repaying that. Is the goal to kind of demonstrate your improvement in cash flow, potentially wait as long as possible to get better terms. Is there anything you're looking to tactically do sooner? And then just a real quick follow-up. On the 45x tax credit transfer, are you able to talk about the net pricing that you received on that, maybe just in general terms, if nothing else kind of low to mid-90s maybe?

Sorry. Can you please just repeat that, sorry, I lost my train of thought. Can you repeat only the first part of the question?

Yes, of course, Ronen. The first part was now that the convertible debt is current.

I apologize for losing my train of thought. To start, regarding the convertible debt, our approach is straightforward. We have the funds, and we have partially financed the existing convertible by the new one, having already repurchased a significant portion of the old convertible, about half. Currently, we plan to wait until September when the conversions are due. We have allocated the necessary funds and don't intend to use them for anything else. They continue to yield good interest income for us. Our strategy is simply to invest the money until it’s time to repay it, and once that time comes, we will handle the repayment without any concerns. Ariel, do you want to discuss the 45x tax credit transfer?

Sure. Thanks, Mark. We had about $40 million in net charges and we sold it for around the mid-90s.

We will take our next question from Andrew Percoco with Morgan Stanley.

I do want to just come back to pricing point for a second. I guess in your prepared remarks, you discussed a few different drivers here. I heard some promotions, I heard that you're planning on selling below cost to kind of clear out some of this inventory in Europe. But then I also heard you're trying to regain some market share and compete with some of your low-cost competitors in the European region. And I guess I'm just trying to get a sense for how much of this pricing reduction is one time just to clear the inventory and to get to a point where your run rate and kind of where your sell-through is? And how much of it is kind of structural in nature where you need to be more competitive on price to be able to sustain your market share in that region and if it's the latter, what does that mean for go-forward margins in the European market, if you have to structurally kind of take down your price to stay competitive?

First, let me clarify the pricing and promotions, as they are part of the answer. Since late 2019, our prices have increased due to tariffs in the United States, followed by COVID-19-related shipping costs and component shortages. We experienced a price increase of nearly 20% to 25% over four years. However, the overall cost structure has not changed significantly on a permanent basis. While component prices rose during shortages, they eventually decreased, which will be important for our future margins. The price reductions we are implementing are intended to establish more permanent lower prices, returning to pre-COVID levels. Many competitors, particularly in Europe, have already adjusted their prices, creating a notable gap between our prices and theirs. Promotions will generally consist of spot discounts on new products to help our distributors manage their inventory. For instance, we had a promotion on optimizers to assist distributors who had excess inverters that needed optimizers. When I assess our pricing trends, I am considering the overall impact for 2024 compared to 2023. The combined effect of our pricing and promotions suggests an increase in the high single digits to low double digits, with Europe seeing double-digit increases while the U.S. shows minimal or low single-digit changes. In summary, we anticipate a pricing change in the range of high single digits to low teens for 2024. The price decreases fall within the mid to high single digits, and anything beyond that reflects promotions. In 2025, we expect pricing over 2024 to decrease by mid to high single digits, excluding promotions, and we anticipate that trend continuing. In Europe, we expect double-digit reductions, while prices in the U.S. might rise slightly as we shift towards more domestic content, which typically fetches higher prices compared to non-domestic products.

And maybe to launch that into my next question. You mentioned kind of refocusing to core markets. And I know there's a lot of added uncertainty here with the election now behind us. But I guess, how do you see or how do you view your core markets? You've grown into Europe pretty meaningfully over the last few years and it has become a majority of your market share, your revenue concentration. Do you see that shifting back to the U.S., just given I think the value that local installers have for domestic manufacturing and how that probably continues under the new administration? Or are you still committed to the European market still being a majority of your business?

So, I'll start by saying that both the European and the U.S. markets are going to be very significant for us in the coming years. And I would say that they are equally important, even though I think that you will see a little bit of shift between the two. First of all, you mentioned the new administration, and when we were preparing even for this call and we talked about what can happen after elections, we just remember that actually, that the previous Trump administration was the best time for Solar in the United States. We did see that the solar market grew and we saw a very nice extension. And even if I'm not mistaken, the ITC was extended under the Trump administration as well. So, I think that the dynamics that we see right now in the United States and if you combine it with the weakness that we see in Europe, will increase at least in the short term, the weight that we put on the U.S. market, given the fact that this is, at least now, a growing market, becoming more and more a healthy market and I think that, of course, for the long term, as we've mentioned in some of our meetings and meetings with investors, we truly believe that investments in U.S. infrastructure will be needed and electricity prices will increase, which means that it will be a good market in the long term. When we look at Europe, we believe that what we see in Europe is I would say temporary, I don't know for how long temporary but temporarily lower prices because we do see that because of gas prices, because of some of the European governments trying to rearrange the grid after having so much solar, there is a little bit of a thinking process that is happening there. But even after all of these changes, we cannot ignore the fact that when you look at Germany, when you look at other European markets, even by the way, the Dutch market that is suffering so much, you look at anything between 6 to 8 years of payback on investment which is still a very good investment, or I would call it a reasonable investment to make. So, I would say that we are committed to both markets we will put efforts in both of them. In the short term, I see a better U.S. market or more leaning towards the U.S. market than European but I'm not sure that this is going to be something that will prevail for many years to come.

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

Just wanted to follow up on some of the undershipment comments. Can you give us a sense for what the under shipment was in Q3, what you expect it to be in Q4? And then if you can share what it could be in '25, that would be great.

So I'll start from Q3. As we mentioned on the prepared remarks, since we sold about $450 million of point-of-sale data compared to about 240 million that we shipped. The math is relatively clear. Moving forward, this is a little bit more complicated because, again, first of all, the price decreases that we're doing are not allowing us to really measure what will be the undershipment because how do you measure it against the oil prices, the new prices and what is it? And second, and we do not yet know what will be the impact of the promotions and the price decreases that we did on the pace of clearing the channels, especially, by the way, at the beginning of '25 because again, in '24, we do believe that we will not see substantial increases in purchasing from us or selling out because of the seasonality. So, I would say that we still believe that we'll see by the second half of next year European channels being in a much healthier situation than they were but I'm not sure that we are able, right now, at least, to quantify it in a reliable manner.

Our recent observations indicate that the European list price you offer to your customers has dropped by 20% to 30%, depending on the specific product. Conversations with some of your customers suggest they do not expect this price reduction to significantly boost demand, primarily due to the substantial inventory still available in Europe. Installers and distributors can access these prices because they have the option to purchase from others in the market. I know you touched on this earlier, Ronen, but I wanted to clarify how much channel inventory remains in Europe. If the price reduction doesn't lead to increased demand, could it be necessary to further lower your prices in the European market? If so, what timeline do you foresee for that adjustment?

The situation is complex due to various assumptions regarding behaviors and trends within the distributors. Let me clarify a few points. Regarding the price decreases we implemented, the figures you're seeing reflect both these decreases and the promotions offered, some of which are short-term while others will be permanent. As we mentioned, in Europe, the decrease is in double digits. I'm uncertain about the channel checks, but since everything was done last week, I think the one-week reports from November might underestimate the impact of the price reduction. However, based on feedback from major players we consulted before the changes, it appears this strategy could help us gain market share. We'll need to monitor its effectiveness over time. We expect that the channel clearing will speed up due to the price promotions and decreases, as some promotions help the channels reduce excess inventory by averaging existing prices with new products needed to replenish supplies. From initial indications, there should be a positive effect, but it's only been a week since these changes were made. As promised, we will provide updates. I believe we will see some price elasticity in demand, but we will have to wait and observe. If it turns out that this approach is not effective, we will adapt our strategy. We are a major player in this market, and we are confident that we can find an appropriate price point. My impression is that we are already positioned effectively.

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

Maybe just a follow-up on some of the commentary here and just ask it more explicitly. How do you think about the decision tree given the cost that's contemplated to stay in some of these markets? I know you've been talking about some of the merits and paybacks. But can you elaborate specifically as you think about the potential for further cost cuts below that $100 million level? Is there a potential to pull back and re-entrench entirely from certain geographies as you think about not just the sort of incremental value of selling an incremental unit here but rather the fixed cost of being in a given country or whatnot, sort of re-entrenching if you will? Or what are other avenues of cost reduction beyond that $100 million as you think about run rating into '25?

Sure. So Julien, first of all, all the assumptions are right. This is the way that we look at the markets. But I'm starting from even a different point. Other than looking at the market, the inventory and the profit that we can make in this market, we also look at what is the requirement of this market from our other resources because sometimes the fact is that you can see a market that is relatively healthy and that you can get relatively good return but it's not a large market in the overall picture but still it takes, for example, R&D resources in order to make sure that this product actually complies with the regulations in this market. and the ability to certify it and the ability to continue with the pace of changing certification. So I would say that it's not always just looking at the profitability of this market is also how much effort and the alternative costs it takes from us. Looking at the decision tree. Decision tree will be very simple. First of all, we are looking at whether a market is or was profitable over the last few quarters. And we analyze what was the reason for this result? Is it something that is related to more of a permanent reasoning? Or is it something that is more related to something specific that happened in this market? If a market is a market where we don't see any future profitability coming, we will pull out of this market. Of course, we will do it in a way that is allowing our customers to continue to get service and to get service and to get all of the support that is needed but we will not sell new products. If it is a market that is already profitable; we see what is the magnitude of the profitability compared to the overall effort that we do there. So we may see a market that has, for example, double the margin than another market but it's a very, very small market where the potential is not large while the resources that we need to put there from R&D or something will be too large and therefore, we decided to pull back from this market. So losing market first, then we'll come markets where the potential profit over time is not similar to the amount of resources that we need to look at. Another thing that we do, by the way, is not just looking at the geographies themselves but also at product lines. And we did the same, by the way, in some of the write-offs that we did this quarter because we looked at some products that we understand that this is a product that is not a relatively profitable or that it's a product where we are comparing it to the other offerings that we see in the market, especially in the long term and the pricing that we expect to see there long term, we believe that because of either installability, exact size of the product, the installation method is not very attractive. So this is also something that we're doing. And the last thing I would say is that we're also looking at products and we are discontinuing products where we see that they have too many permutations and too many SKUs because this is something that is impacting our supply chain, our manufacturing. And it also, by the way, impacts the way that our distributors are holding their inventory because it's becoming very complicated for them to have many SKUs. So this is also something that we're looking. I must say that we are going very thoroughly and Ariel and the team, together with our sales team did a lot of work in the third quarter to go product by product, country by country, offering by offering and optimize this. And I think that eventually, you will see us in fewer markets but markets that are bigger and more profitable in the long term and can enjoy mutual resource investment when we're developing the new generation of products in those markets.

We will take our next question from Joseph Osha with Guggenheim.

Looking first at the fourth quarter, I am trying to understand how much of the sequential revenue decrease that you're talking about in solar is coming from volume versus price. Can you give us some rough sense as to what you feel like the megawatt volume comp might look like Q3 to Q4? And then I have another question.

So first of all, Joe, part of what you're seeing is not primarily due to product volume in the long term, but rather because we sold a higher proportion of batteries in Q3. Given that batteries are a more complex product to manage, especially as we enter the less active winter season, distributors are typically hesitant to hold large inventories of batteries. Consequently, in Q4 compared to Q3, we expect to sell fewer batteries than other products. However, we believe this will rebound in the next quarter. If I were to identify the main factors affecting this without specifying the exact impact of each, the leading factor would be the price reduction. As noted in previous discussions, especially in Europe, we've implemented double-digit price decreases. If we consider that about 50% of our business comes from Europe and international markets, a 20% price drop from the last quarter would significantly lower our revenue from Q3 to Q4. The next factor will be the decrease in battery shipments, as previously mentioned. Lastly, as we are entering winter, we have opted not to aggressively push products outside of the typical holding pattern during this season. Overall, these elements will constitute the major impact on our performance.

And it appears that we have reached our allotted time for questions. I will now turn the program back to CEO, Ronen Faier, for any additional or closing remarks.

Thank you very much. So I would like to thank all of you for joining our call today. We know that the solar market has always been interesting, and I think that over the last few days it's been more interesting. We stay very committed to bringing the company back to its growth trajectory. We're very focused on the measures that we're taking, we're happy to explain them today, and we'll be happy to continue informing and updating you all on the progress of our journey. Thank you very much and have a good and safe evening.

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