Good morning, and thank you for joining us to discuss SolarEdge's operating results for the second quarter ended June 30, 2025, as well as the company's outlook for the third quarter of 2025. With me today are Shuki Nir, Chief Executive Officer; and Asaf Alperovitz, Chief Financial Officer. Shuki will begin with a brief review of the results of the second quarter ended June 30, 2025. Asaf will review the financial results for the second quarter, followed by the company's outlook for the third quarter of 2025. We will then open the call for questions. Please note that this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. We encourage you to review the safe harbor statements contained in our earnings press release and our filings with the SEC for a more complete description of such risks and uncertainties. Please note, during this earnings call, we may refer to certain non-GAAP measures, which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are being presented because we believe that they provide investors with a means of evaluating and understanding how the company's management evaluates the company's operating performance. Reconciliation of these measures can be found in our earnings press release and SEC filings. These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with U.S. GAAP. Listeners who do not have a copy of the quarter ended June 30, 2025, press release may obtain a copy by visiting the Investor Relations section of the company's website. And with that, I'll turn the call over to Shuki.

Thank you, J.B. Good morning, everyone, and thank you for joining us. I'm pleased to share with you today the progress we have made across all four pillars of our turnaround journey. But first, let me review the recent changes to regulatory and tariff policies that removed some uncertainties hanging over the industry. The recently enacted One Big Beautiful Bill Act redefines solar and storage markets in several key ways. And I'd like to share with you how we intend to maximize the opportunities and navigate the challenges in this environment. First, and most importantly for SolarEdge, the bill validates our multiyear strategy of onshoring manufacturing to the U.S. by preserving the 45X advanced manufacturing credit for the next seven years. With the improved visibility this law provides, we intend to manufacture in the U.S. and to ship U.S.-made SolarEdge products both domestically and across the globe for years to come. Second, U.S. customers have a built-in incentive to prefer products that are made in the U.S., especially if they comply with FEOC requirements and meet domestic content thresholds. This aligns with our U.S. manufacturing and supply chain strategy, which we believe positions us well to support such customers. Third, the extension of the storage tax credit will support the trend of increasing battery adoption. This expands our TAM and requires just the kind of sophisticated energy management algorithms that we have refined for years by using the vast amount of data sourced from our large installed base. Lastly, in the residential space, demand is expected to decline in 2026 with the elimination of the 25D credit, a decline that is expected to be partially offset by a shift to TPOs as the 48E credit continues through 2027. We believe we are well positioned to benefit from this shift given our strong position and product fit with TPOs. Let's talk about tariffs. Since we last spoke, tariff rates on different countries have changed, and we have continued our efforts to optimize our supply chain for prevailing tariff and domestic content levels. When added together, the gross margin headwind in the second half is expected to decline to approximately 2% from the previous expectation of 4% to 6%. Additionally, we now expect free cash flow to be positive for the full year 2025. We still believe that we will fully offset the tariff headwind in 2026, net of pricing adjustments. Switching to the progress across our key priorities. Q2 results and Q3 outlook both show that we are firmly moving in the right direction on all four priorities, and I'm proud of how our team has executed despite a challenging global environment. First, on financial strength. In Q2, we delivered quarter-over-quarter and year-over-year top line growth and margin expansion for the second straight quarter. The midpoint of our Q3 guidance follows the same trajectory. At the same time, we have kept our expenses in check and have focused on our core business. Our second priority is recapturing market share. In U.S. residential, we have seen a continued shift to the TPO model, which we expect will significantly accelerate in 2026. In recent years, we have built an infrastructure that supports our TPO partners, so we believe we are well prepared to capitalize on this market dynamic. We believe we have met and plan to continue to make efforts to meet requirements for both domestic content and FEOC, which allow them to maximize 48E credits and adders. And we believe that our products are very well suited to support the scale, performance, and integration needs of the unique TPO business model. In the U.S. C&I segment, we believe that the growing importance of domestic content and increasing FEOC restrictions offer us a compelling opportunity to gain share. For example, last week, we announced a multiyear agreement with Solar Landscape to deploy SolarEdge equipment on more than 500 C&I rooftops across the country. In addition, we signed a multiyear frame agreement with a leading U.S. retailer that will see SolarEdge products integrated across its locations nationwide. These new agreements underscore the value we bring to enterprises and build on the recent momentum we have had with this customer set. Turning to Europe. Last week, I met with our regional leadership team in Europe and visited with key customers. The positive momentum that we discussed on our last earnings call and experienced at Intersolar has continued. Our pricing and promotion campaigns have shown signs of success and our improved go-to-market strategy is strengthening our partnerships with installers and distributors. As a result, the majority of our distribution partners reached normalized inventory levels at the end of Q2 2025 as we had anticipated. And importantly, we have seen initial market share gains in Europe in the second quarter. That said, our share in Europe is still below what SolarEdge commanded in the past and is well below what I think we can and should be. But with our energized team, our leading edge and expanding software and service solutions and our next-generation platform coming soon, I believe we have a very good opportunity to grow our business in Europe even further in the quarters ahead. Turning to our third priority, accelerating innovation. Our Nexis platform remains on track for initial volumes by the end of the year. We already have several operative units in our facilities, and next month at RE+ we will have a hands-on experience for installers to demonstrate how flexible and easy Nexis is to install, connecting inverters and batteries with a simple click. On commercial storage, we had a record sales quarter and we expect growth to continue. While still in the early days, we expect commercial storage to follow the same trend of accelerating adoption that we witnessed in the residential storage space. Moreover, we believe that our commercial storage offering, combined with our software capabilities, position us well as C&I customers increasingly transition to solutions that combine PV, storage, and energy management software. Speaking of software, we have seen increased traction with our Wevo EV charging software solution. In the U.S., Wevo was selected by PG&E to manage its nearly 4,000 EV chargers. Wevo software is also enabling the largest public charging station in New York State located in Queens and backed by a Con Edison program. Additionally, as we announced this week, we have entered into a strategic partnership with the Schaeffler Group, one of the world's leading manufacturers for the automotive industry. Under the partnership, Wevo will manage the thousands of charge points that Schaeffler intends to deploy at its facilities around the world. Schaeffler has been a SolarEdge PV customer for years, and this agreement highlights the additional software and service capabilities that we can add to our value stack for enterprise customers. Our fourth key priority is ramping up our U.S. manufacturing. In Q2, we continued to build out and optimize our U.S. manufacturing footprint, which now includes residential inverters in Texas, optimizers and commercial inverters in Florida, and batteries in Utah. We are also planning to ramp up production towards the end of the year in order to support exports of competitive products to our European and international customers. To summarize, we believe we are in a much better position today than we were a quarter ago. A layer of uncertainty has been removed from our business. And we have continued making good progress on all four pillars of our turnaround journey. While we are encouraged by the progress this quarter, we know there's still plenty of work ahead. We see significant room to improve execution, and even more opportunity to grow and build a healthier, more profitable business for the long term. With that I will turn it over to Asaf.

Thank you, Shuki, and good morning everyone. Starting with our quarterly results. Total revenues for the second quarter were $289 million. Excluding revenues from our discontinued operations at the Kokam Energy Storage division of $8 million, our non-GAAP revenues were $281 million. Revenues from the U.S. this quarter amounted to $185 million, representing 66% of our non-GAAP revenues. Revenues from Europe amounted to $65 million, representing 23% of our non-GAAP revenues. International market revenues amounted to $31 million, representing 11% of our non-GAAP revenues. Non-GAAP gross margin this quarter was up to 13.1% compared to 7.8% in Q1. The higher gross margin is largely due to higher revenue, which drove increased utilization of our operational cost structure, higher U.S. production volume, and favorable regional mix with higher U.S. revenue. This was partly offset by incremental tariffs, which impacted our gross margin by 1%, compared to an expectation of 2 percentage points. Adjusting for the lower-than-expected tariff impact, our gross margins came in slightly above the high end of our guidance range. During the second quarter, we continued to take action to streamline our operations and exit non-core activities. As a result, we recorded a one-time $18 million expense on the disposition of our tracker business. We also recorded a one-time expense of $37 million related to a write down of our Sella 2 facility, which we are looking to divest, to reflect fair market value. These charges were partially offset by a one-time $10 million gain on the sale of our Nonsan production facility in Korea. Going forward we will continue to seek avenues to right size our business with an emphasis on expense reduction and a focus on our core activities. Non-GAAP operating expenses for the second quarter were $85 million compared to $89 million in the previous quarter. Similar to Q1, in the second quarter we were able to collect certain aged accounts receivable balances, which resulted in a reversal of an accrual for bad debt. Excluding this and other non-recurring items that totaled approximately $4 million net, our non-GAAP operating expenses would have been approximately $89 million. Non-GAAP operating loss for Q2 was $48.3 million compared to a non-GAAP operating loss of $72.4 million in Q1. Our non-GAAP net loss was $47.7 million in Q2, compared to a non-GAAP net loss of $66.1 million in Q1. Non-GAAP net loss per share was $0.81 in Q2, compared to $1.14 in Q1. The lower operating and net loss are largely due to the higher revenue, higher gross margin, and lower operating expenses. Turning now to our balance sheet. As of June 30, 2025, our cash and investments portfolio was approximately $812 million. Our cash position, net of short-term debt, was up by approximately $19 million to approximately $470 million. Free cash flow in the quarter was a use of approximately $9 million, largely due to the timing of certain working capital items. For the first half of the year, we generated $10.8 million in free cash flow. As Shuki mentioned, considering the recent developments in anticipated tariffs, and the progress we have made on our turnaround, we now expect to be free cash flow positive for the full year 2025. Accounts receivable net increased this quarter to $217 million compared to $133 million last quarter, mostly due to higher revenue, with continuous improvement of our DSO through effective collection management. Our inventory was down by $108 million to $529 million. Q2 marked the fifth consecutive quarter of inventory reduction. This is despite our continued ramp up of U.S. production to support anticipated growth and the introduction of new products. As you may know, we have approximately $343 million in convertible notes that come due next month. As we have said previously, we intend to pay off these notes with cash on hand upon maturity. Given our healthy cash balance and the reduced uncertainty after the passage of the One Big Beautiful Bill Act, we are confident that our liquidity position is sufficient to both redeem this note and support our business for the foreseeable future. As Shuki mentioned, by the end of the second quarter, the majority of our distribution partners had normalized their inventory levels. As a result, we will no longer be providing quarterly sell-through figures. SolarEdge is focused on providing full system solutions, combining inverters, optimizers, EV chargers, storage systems, and energy management software. This aligns with evolving market demand and customer preferences and coincides with the streamlining of our product portfolio. Therefore, we will no longer be providing a breakdown of megawatt shipments by region or by end market, as management's focus is on regional revenue. Turning now to our guidance for the third quarter of 2025. We are expecting revenues to be within the range of $315 million to $355 million. We expect non-GAAP gross margin to be within the range of 15% to 19%, including approximately 2 percentage points of new tariff impact. We expect our non-GAAP operating expenses to be within the range of $85 million to $90 million. I will now turn the call over to the operator to open it up for questions.

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

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

Yes, sure. Thank you, Mark, for your question. And first of all, I'll start by saying that our Q3 guidance does not include a significant pull forward of demand relative to 25D or to safe harbor. So we are pleased with the progress that we are making. As I said in my prepared remarks, both in Q2 and in the midpoint of the guidance for Q3, we are showing year-over-year and quarter-over-quarter revenue growth and they are a result of building our business back to where it should be.

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

Thank you for your question. As we mentioned previously, the key factor affecting margins is increased revenue. Higher revenue leads to better utilization of our fixed cost infrastructure. Additionally, expanding our production capabilities will allow us to produce and sell more. We expect to begin selling products overseas later this year, which will also allow us to take advantage of the 45% credits on sales outside the U.S. Another positive aspect is the new product standards set to be introduced at the end of the year, which should enhance margins due to improved cost structures. We're continuously focusing on improving our fixed costs through measures like streamlining production and implementing automation, as well as enhancing inventory and logistics management. It's important to note that there is variability in the impact of product mix across different regions and market segments, which we cannot predict. However, all the strategies I mentioned should lead to improved margins, especially as revenue increases, as indicated in our Q3 guidance.

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

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

Thank you, Phil. As you know, and as we stated in the past, we are not going to get into any details as it pertains to the safe harbor deal and both in resi or in C&I. I concur with what you implied. I believe that our customers are looking at us as the best partner if and when they consider such deal. And if and when they consider such deals, we will definitely be happy to support them. And we believe that our solution, both from a product perspective as well as from many years of working together and supporting this type of customer, is going to be beneficial for them. More generally, on the C&I segment is now with the advantage of domestic content and with the FEOC requirements that are coming in, we believe that we are going to have a significant opportunity in this segment to gain share in this segment. And between our product offering, the FEOC requirements and the domestic content adders, I believe that these customers are going to find our solutions very attractive.

And I've heard you guys might go into allocation mode soon for C&I, so that's very interesting. Shifting over to 2026 and margins, I know you guys don't guide officially, but I was wondering if you might be able to share what the 2026 margin puts and takes might be? Like is it safe to use maybe a 15% to 19% range from the Q3 guide and remove the tariff impact? So if you remove the tariff impact, could it even be higher? Just some color on that would be fantastic.

So specifically on the tariff, we related that in the script and noted that we expect for the next two quarters within the year about 2% incremental tariff impact, which is below by an estimation of 4% to 6%. We also said that next year we are looking to neutralize this entirely with the diversified production basis and some potential price increases. In terms of the trajectory of next year overall, so again, I think we talked about the main margin levers, of course, the higher revenue, again with the better utilization of fixed costs, the new products. These new products will enable us actually to present some new revenue streams. And the ramping up of the U.S. production is very important to us as you know, the U.S., from a production basis, is the most economically attractive for us given the higher benefits and credits. And as we start selling U.S.-made products globally to the EU and international markets, again, that's another lever we will enjoy from.

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

I guess, first question just on the guidance for revenue. I know Europe looked pretty strong in Q2 and now that you got the destock complete in that region, presumably it's going to be just as strong in Q3. So can you give us a sense, I know you don't want to break out C&I, resi and all the different detailed factors. But just in terms of the revenue growth guidance for Q3, just how much more growth are you expecting in Europe? Is the U.S. market expected to be stronger from a sequential growth perspective? Just maybe some of the puts and takes given both of those markets look pretty strong in Q2. Wondering if you're expecting exactly the same trends or any kind of divergence into Q3 based on the guidance? And I had a follow-up.

Thank you for the question. I'll begin with the U.S. market and then move on to Europe. In the U.S., as we’ve mentioned, we believe we are in a strong position. One reason is the anticipated shift towards TPO that we previously discussed. Additionally, the introduction of new products is accompanied by an increased focus on providing comprehensive solutions that incorporate more software and various components. The commercial and industrial opportunities we see are substantial, especially with enterprise customers. Regarding the U.S. territory, we noted that channels are mostly clear. We anticipate a revenue catch-up with the underlying demand. However, it is essential to recognize that new markets remain relatively weak and could potentially weaken further next year. Our focus, of course, is on maintaining and growing our market share. Thus, there will be an interaction between the potentially weak European market and our efforts to expand market share with our new products. Furthermore, on a global scale, the continued rise in battery attach rates and demand indicates that we expect this momentum to persist into Q3 and beyond.

And then I guess on the gross margin, going back to that question from Phil. If you look at the Q3 guide, I think you're implying an over 40% drop through on gross margin. Is that maybe the right way to think about leverage on the gross margin line going forward? I mean, every $100 million of incremental revenue from here seems like you could add another 500 to 700 basis points of gross margin if we do the math that way. And then curious up to what level this underutilization recapture could drive additional margin leverage. I guess, where are you in terms of utilization? Where is the headroom and kind of what does that imply for gross margin step-ups from here as you get more volume in?

Sure. So I think you alluded to the fixed cost infrastructure that we have built in the COGS, which as you know we are trying to reduce in terms of automation and product simplicity, more single SKU and so forth. I think we told you before that the estimate or the rough number for such fixed costs embedded in our COGS is around $90 million to $95 million, and of course, we're working to reduce it, as I said. And just in terms of simple math, just divide that by growing revenue, you'll get the incremental impact associated with the better utilization of the fixed cost infrastructure.

And our next question comes from Colin Rusch with Oppenheimer.

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

Thank you, Colin, for your question. As the market has evolved, it has transitioned from a focus on PV alone to one where batteries and storage are increasingly important. The grid, influenced by electrification and rising electricity demand, is facing greater challenges in managing loads. We are focusing on energy management optimization, figuring out when to generate energy and send it to the grid, when to store it in batteries, and using time-of-use algorithms while considering weather forecasts. Our skilled team is innovating in these areas. We believe our future offerings will integrate PV, storage, and energy management capabilities to maximize system value and returns. This approach will also enable opportunities for virtual power plants, grid services, and other potential areas for exploration. Some exist today but are still in the early stages.

Are there additional areas within the organization where you can reduce costs, or have you fully optimized the company? Can we expect some incremental cost savings in the operating expense side?

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

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

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

Thank you, Dimple. In the residential market overall, we are seeing an increased connection between solar and storage. The benefits are evident even in areas with fixed tariffs, as storing energy produced during the day for use at night is valuable. In more advanced markets with sophisticated systems, batteries play an even more crucial role, providing flexibility and benefiting time-of-use models, among others. This demand is our main focus, and we are contributing to industry growth by offering the energy management solutions I mentioned. Regarding the third-party operators, they are in the same market, and their customer needs align closely with ours. I expect their attachment rates to grow as well, and as that happens, we will offer them solutions that maximize the benefits of these advancements.

And then on a more technical note, free cash flow was pretty solid this quarter, can you help quantify how much of that was driven by working capital tailwinds? And how we should think about the sustainability of those drivers going forward? And then separately, what was the cash impact from 45X in the quarter? Could you maybe talk a bit about the monetization cadence we can expect going forward on that?

So considering the 45X monetization is an ongoing standard part of our business as we have ramped up our production layout in the U.S., we are not disclosing that. In terms of the cash flow, we did provide an indication and some guidance for the year as a whole. As you remember for H1, Q1 and Q2 together, we generated positive free cash flow of approximately $11 million and we did guide to free cash flow for the entire year, which is also due to the lower incremental tariffs compared to our previous guidance of breaking even. So the incremental positive on that is one of the reasons that resulted in that. And then as you well know, I mean, the timing of different cash flow items, working capital items change. We are working to plan and control as much as possible, but things may shift. So that's as much I can say about the future of free cash flow.

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

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

So I assume that you're referring to the channel inventory. And as we said for Europe, most of our distributors have already resumed normal levels of inventory. There are some that are not, but most of them are, and we are very pleased with that. In the U.S., we haven't seen anything that is out of the normal in terms of our channel inventory. So I don't know what exactly you're referring to, but in our business we haven't seen any buildup of inventory in the channel in the U.S.

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

Yes, many people are inquiring about this. We anticipate that with the removal of 25D at the end of the year, the segment reliant on 25D will likely see a significant decline, around 50% to 60% year-over-year. Concurrently, the TPO segment is expected to gain from this transition, especially since 48E will remain in effect until the end of 2027. The extent of growth in the TPO segment could potentially absorb the entire market share previously held by those who utilized cash and loans for 25D. However, it is uncertain how many will actually switch to TPO due to factors like consumer preference or capital limitations. When we consider both segments together, we could see the market shrink by approximately 20%, possibly slightly more. Regarding SolarEdge, we maintain a strong position in the TPO segment. The efforts we have invested in building the necessary infrastructure to support this type of customer, along with our compliance with domestic content and field requirements, position our products as top choices for meeting the scalability, performance, and integration needs of the TPO business model. Therefore, if the TPO segment does grow, we believe we are well-placed to take advantage of that opportunity.

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

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

Thank you, Chris. Last week, we visited Europe and are pleased with our progress. We see data indicating that we began gaining market share in the second quarter, and I believe there’s still potential for growth in Europe, both overall and in specific countries. This growth will result from several factors we've discussed in previous calls. We need to continue working closely with our distribution partners and installers, earning their trust so they choose to install SolarEdge products. Additionally, with Nexis, we will be able to open new segments where we previously did not have the ideal offering. The Nexis platform is designed to support market evolution towards storage and backup, and its improved cost structure will enhance our competitiveness. Finally, feedback from various meetings in Europe indicates that distributors, installers, and customers are pleased to see SolarEdge returning. They are looking forward to a stronger SolarEdge with greater market share in each country, and we view their support as crucial for achieving our goals.

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

In Germany, many homeowners are interested in large systems, potentially around 20 kilowatts. The 2-phase Nexis will support up to 20 kilowatts, while our current solution is below that capacity. Loyal installers of SolarEdge are using two inverters instead of one to meet this demand. To better cater to this growing market segment, we plan to introduce not only the 2-phase inverter but also a stackable battery that can reach up to 19.6 kilowatt hours, which is a solid solution for large homes in Germany. We expect that once we launch this with the quality, reliability, and the SolarEdge brand, we will see an increase in market share.

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

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

Thank you, Christine. It's great to see the numbers you've put together. As we mentioned, most of the distributors have achieved normalized inventory levels, but there are a couple of things to keep in mind. Some distributors have not yet reached this level, and this contributes to the difference between sell-through and the revenue we observed in the third quarter. Additionally, even when the channels are normalized, they can fluctuate from quarter to quarter due to seasonal changes and distributor preferences in anticipation of new or existing products. Many factors are influencing this situation, but these are the two primary reasons for the gap you mentioned.

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

I'm sorry, again?

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

Yes. The Nexis platform. Yes.

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

Actually, we are hedging our major currencies, which are the euro and U.S. or shekel. Currently, it's mostly versus the expense. Revenues are a little bit more challenging to hedge because we can't really expect the flow, but we can certainly hedge the net impact and we are looking on that constantly. We have a policy. And we're absolutely right, this natural hedge will no longer be and we will, of course, spend accordingly and ensure that we have a good and efficient methodology for hedging.

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

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

So our current production layout is built to support significant increase in revenue. We plan that and we are executing upon the plan. We cannot give you more than some general color, but certainly we can increase our revenue and the buildup to support us, the production volume with existing infrastructure. We're working, as you know, with the major contract manufacturer, but we expect that the current facilities and infrastructure that we've built in with the automation that we're implementing more and more will support us through multiple quarters before we need to ramp up the layout again potentially.

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

Yes. As you know, price is only one factor in the go-to-market strategy. There is the product, there is the partnership that you have with the channel, there is consumer pool, there are so many different things. As of last week when we visited with key customers, pricing doesn't seem to be the blocking parameter in terms of if we want to continue growing. And as I said, we started gaining share. We feel confident that we can continue doing that. And at this stage, it doesn't seem as if we need to make a significant price move. At the same time, we're responding to pricing and if the need arises, we will have to do that.

And our next question comes from Maheep Mandloi with Mizuho.

Maybe just one on the battery side. Could you just talk about the battery cell sourcing strategy for this year and next? What changes you're making there? And on the margin side, if you could just talk about, are we back to target margins for the batteries yet or do we have to wait for the new products to get there?

Thank you, Maheep. So I'll start with the battery sourcing and then you'll have to repeat the gross margin question because we didn't hear it well here. For the battery sourcing, similar to many other components in our supply chain, we first and foremost are looking for quality and reliability of our products to make sure that the products we deliver are actually providing the value that we intend for them to provide for the long-term. Then we are looking into optimizing the supply chain between different requirements that we have. And we talked at lengths about tariffs and about FEOC, and about other requirements that are making a difference for our customers and for ourselves. So we'll continuously look into the best possible way to source battery cells or any other component in our supply chain. Could you please repeat the gross margin question?

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

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

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

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

What we can say is that the quality of our product is improving. We see that continuously and we expect to continue seeing that. Again, with the Nexis, which provides a simplified product structure and a more single SKU structure that is going to even further improve. Beyond that, we don't provide specific guidelines or guidance towards the warranty impact. But overall, again, the serviceability of the product, the installability of the product, and the quality of the product is improving. So naturally, that should have an ongoing positive trend going forward in terms of the warranty impact.

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

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

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

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

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

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