Solaredge Technologies, Inc. Q3 FY2025 Earnings Call

Hello, and welcome to the SolarEdge Conference Call for the Third Quarter ended September 30, 2025. This call is being webcast live on the company's website at www.solaredge.com in the Investors section on the Events Calendar page. This call is the sole property and copyright of SolarEdge with all rights reserved and any recording, reproduction or transmission of the call without the expressed written consent of SolarEdge is prohibited. You may listen to a webcast replay of this call by visiting the Events Calendar page of the SolarEdge Investor website. I would now like to turn the call over to J.B. Lowe, Head of Investor Relations for SolarEdge. Please go ahead.

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

Thank you, J.B. Good morning, everyone, and thank you for joining us. I'm pleased to report that we delivered a strong third quarter. We believe this is clear evidence that we are making solid progress on our turnaround and that the company is on the right trajectory. Our results and our Q4 outlook demonstrate that the momentum we have built throughout the year is continuing. We are executing on our plan, and I'm very proud of the way the team has performed in recent quarters. As for our key priorities, first, on financial strength. In Q3, we delivered 44% year-over-year revenue growth and continued expanding our margin for the fourth straight quarter. The midpoint of our Q4 outlook follows the same trajectory of year-over-year improvement. I'd like to highlight that both our Q3 financials and our Q4 guidance do not include significant onetime or pull forward of revenue, either from safe harbor or from the 25D rush towards the end of the year. We have also kicked off several operational excellence initiatives. For example, a major change that should have a long-term positive impact is the single SKU. We have implemented a software-defined platform that significantly reduces the complexity of our business for residential and commercial applications globally. It allows us to manufacture and ship one SKU of the inverter to the market. Then the installers can program it to the desired kilowatt rating in the field. This framework simplifies everything from forecasting and manufacturing to inventory management, logistics, service and support, saving time and money for us, our distributors and our installers. It also adds flexibility for home and business owners. If they need a bigger system in the future, a simple over-the-air software update can boost the inverter rating. It is a true win-win-win solution, and we are working on additional solutions as we continue to improve efficiencies across the business. At the same time, we have been hyper-focused on our cost discipline and reached the lowest non-GAAP OpEx to revenue ratio in the last two years. This helped us to generate positive free cash flow in Q3 and exit the quarter with a cash and investment portfolio of approximately $550 million. We also expect to generate positive free cash flow in Q4 and for the full year. This performance and outlook gave us confidence to repay the 2025 converts from our balance sheet upon maturity in September. Our second priority is gaining market share. Starting with the progress in capturing market share in U.S. residential. We are proud that Wood Mackenzie reported SolarEdge as regaining the #1 residential inverter market share position in the second quarter. This is the first time we've had a leading market share position since the third quarter of 2021 and is a reflection of our improved quality and service and our team's performance. Looking into 2026, the residential market is expected to undergo a structural change in favor of the TPO model. We believe this market shift plays directly into SolarEdge's unique strength. We have developed deep relationships and integrated infrastructure with TPOs for years. We have delivered high-quality domestic content and non-FEOC products that the TPOs require. And our technology platform is perfectly suited for the TPO model due to its superior energy production and native DC architecture. Safe harboring is an additional and crucial element that can secure future market share. Certain of our partners have safe harbors with us through the 5% method. Additionally, we designed and executed a customized safe harboring strategy for our TPO partners through the physical work test. Such transactions have several benefits. For our customers, it lets them qualify their projects over multiple years for a lower capital outlay. For SolarEdge, these transactions provide better visibility into our business for future years. By helping our customers safe harbor through the physical work of significant nature methods, we are able to manufacture and deliver the full product closer to the time the customer needs it. Therefore, we can manage the manufacturing over time, and there is no pull forward of revenues that is typically associated with a 5% safe harbor transaction. We believe that our strengths are even more pronounced in the C&I space in the U.S. Some of the largest enterprises in the U.S. have already safe harbored C&I products from us via the physical work method. In addition, we believe that we are the only scaled player capable of delivering a non-FEOC and domestic content compliance C&I solution. This combination positions us very well to gain additional market share in the years ahead. Turning to Europe. While the markets remain challenging, the majority of our distribution partners hold normalized levels of inventory. This resulted in EU revenues reaching $100 million in the quarter, up 45% quarter-over-quarter and up 21% year-over-year. We believe our position in Europe will continue to improve as we ramp up sales of commercial storage, deliver products made in the U.S. and roll out the next-generation Nexis platform in the coming quarters. This brings me to our third priority, accelerating innovation. The SolarEdge value proposition is simple. Whether you are an installer, a homeowner or a business, our solutions save you money or save you time and in many cases, save you both. The markets we serve are increasingly looking for integrated systems. And over the last year, we've expanded and improved our technology platform to deliver holistic end-to-end solutions that save our customers even more time and money. In Q3, we continued the development and field installation of our next-generation Nexis platform. And in the last few weeks, we have shipped initial volumes of the new 3-phase inverter to customers. Even at this early stage, the feedback we are getting is that installations have been significantly simplified compared with our previous generation. Two weeks ago, we rolled out our ONE for C&I energy management system across our entire C&I installed base. Now customers can control and optimize all types of behind-the-meter devices and loads from solar to storage to EV charging to HVAC, all from a customized dashboard. We intend to add additional enhanced features in the quarters ahead that will generate recurring revenue streams. Our fourth priority is ramping up our U.S. manufacturing. In Q3, we reached an important milestone by exporting our first U.S. manufactured residential products to Australia. We expect to begin shipping both residential and C&I products to additional markets in the coming weeks, which will allow us to be more competitive in markets outside of the U.S. To summarize, we believe our turnaround is delivering tangible results. We're improving our finances. We are driving efficiencies across the business. We are strategically positioned to capture market share in our main markets, and we are progressing with our next-gen platform. While we are encouraged by our progress, there is still plenty of work to be done. We remain relentlessly focused on building a healthier, more profitable and more innovative business for the long term. There is one more thing. This morning, we announced a collaboration to advance our solid-state transformer platform for the data centers of the future. This has the potential to strategically expand our core technology into the data center market, positioning us to help build smarter, more efficient energy systems for the AI era. We are in the early stages here, and we'll share more as we make progress. With that, I will turn it over to Asaf.

Thank you, Shuki, and good morning, everyone. Starting with our quarterly results. The non-GAAP revenues for the third quarter were $340 million, up 21% quarter-over-quarter. Revenues from the U.S. this quarter amounted to $203 million, up 10% quarter-over-quarter and representing 60% of our revenues. Revenues from Europe were $101 million, up 55% quarter-over-quarter and representing 30% of our revenues. International markets revenue were $36 million, down 8% quarter-over-quarter and representing 10% of our revenues. Non-GAAP gross margin this quarter was up to 18.8% compared to 13.1% in Q2, reaching the higher end of our guidance. The higher gross margin is largely due to higher revenue, which drove increased utilization of our operational costs and higher sales of U.S.-made products. This was partly offset by incremental tariffs, which impacted our gross margin by approximately 2%, in line with our expectations. During the third quarter, we continued to take action to streamline our operations and focus on core business. As such, we sold our Sella 2 manufacturing facility in the third quarter for total proceeds of $26.1 million. As part of this transaction, we recorded a small capital gain. We also settled certain claims associated with the discontinued energy storage division that resulted in a onetime gain of approximately $15 million that was recorded as an offset to our GAAP COGS. Going forward, we continue to seek avenues to rightsize our business with an emphasis on cost reduction and a focus on our core activities. Non-GAAP operating expenses for the third quarter were $87.7 million at the midpoint of our guidance despite headwinds from the continued strengthening of the new Israeli shekel, net of hedging. Last quarter, we reported non-GAAP OpEx of $85.2 million or $89 million when adjusted for onetime reversal of accrual for bad debt and other items. Non-GAAP operating loss for Q3 was $23.8 million compared to a non-GAAP operating loss of $48.3 million in Q2, cutting our operating loss by more than half. This is a promising result and speaks to the progress we have made in executing our turnaround plan and is another step on our journey back to profitable growth. Our non-GAAP net loss was $18.3 million in Q3 compared to a non-GAAP net loss of $47.7 million in Q2, a reduction of over 60%. Non-GAAP net loss per share was $0.31 in Q3 compared to $0.81 in Q2. The lower operating and net losses are largely due to a higher revenue and a higher gross margin. Turning now to our balance sheet. As of September 30, 2025, our cash and investment portfolio was approximately $547 million. Net of the repayment of $342 million of our 2025 convertible notes in September, our cash and investment portfolio increased by approximately $77 million. This is the result of our positive free cash flow for the quarter of approximately $23 million, which was largely driven by working capital items and our continued CapEx discipline. It also includes the proceeds from the sale of our Sella 2 facility of $26.1 million and other items. For the first nine months of the year, we generated approximately $34 million in free cash flow. We also expect to be free cash flow positive in the fourth quarter and therefore, are on track to meet our expectation of generating positive free cash flow for the full year of 2025. This should allow us to head into 2026 with a healthy cash position to support our growth plans. Our inventory was flat at approximately $530 million despite our manufacturing ramp-up to support anticipated growth. Our DIO declined from 217 to 177 as we continue to improve our inventory management processes. AR net increased this quarter to $286 million compared to $217 million last quarter, mostly due to higher revenues. DSO increased from 57 to 68 days due to the timing of collections, while DPO increased from 59 to 77. In total, our cash conversion cycle days declined from 215 to 168 days as we are laser-focused on improving our working capital management. Turning to an update on our disclosures. As Shuki mentioned, we are in the process of rolling out the single SKU framework across both residential and commercial applications globally. Under this framework, we will no longer know the kilowatt ratings of the inverter at the time of shipment as the power rating will be set through a software update when installed in the field. As a result, we will be discontinuing the megawatt shipped metric starting in the fourth quarter. Instead, and as you can see in the earnings release this morning, we will be providing the number of inverters, optimizers and megawatt hours of batteries that we recognize as revenues during the quarter. Additionally, starting in Q4, we intend to begin disclosing revenue derived from inverters, optimizers and batteries on a quarterly basis within our Form 10-Q. We believe this additional disclosure will help analysts and investors more accurately analyze our operating and financial performance. This move is part of the evolution that we started talking about last quarter. The market is moving to more system-based solution and is less focused on discrete products. Our technology platform, including the single SKU, the launch of our Nexis platform and the introduction of additional elements like EV chargers, batteries and energy management software are helping to drive this evolution. Our solution deliver flexibility and scalability to meet the growing needs of our customers. Turning now to our guidance for the fourth quarter of 2025. We're expecting revenues to be within the range of $310 million to $340 million, which reflects a better-than-normal seasonal trend for the fourth quarter. We expect non-GAAP gross margin to be within the range of 19% to 23%, including approximately 2 percentage points of new tariff impact. We expect the non-GAAP operating expenses to be within the range of $85 million to $90 million. I will now turn the call over to the operator to open it up for any questions.

We'll take our first question from Philip Shen with ROTH Capital Partners.

Congratulations on achieving free cash flow positivity and making progress. Could you provide insight into potential revenue growth for the upcoming year, even though you don't have guidance for 2026? Additionally, can you commit to positive free cash flow for 2026 as well?

Philip, thank you for the question. As you know, we do not guide for the next quarter. Without providing guidance, what we can say is that typically, Q1 is down around 10% versus Q4 due to the typical historical seasonality. At this time, we don't have any reason why it would be much different than Q1. In terms of relating to 2026 free cash flow, I mean, we don't guide for free cash flow or provide any target on that. As we noted for this year, we're going to be free cash positive. Q1 to Q3 were $34 million free cash positive. And we also noted with the fact that we will be free cash flow positive in Q4. More than that, I don't think we can elaborate.

Okay. Got it. And then shifting over to the Infineon announcement. I was wondering if you could talk through what the timing of any commercialization might be? Do you have any bookings yet? Or do you think it's more likely for like the '27, 2028 time frame? Is it more of a medium-term or longer-term effort? Or do you think near term, there's an opportunity to generate revenues or bookings?

Yes. Thank you, Philip. I'd like to provide some more color before I get to your specific question. I think that everybody is aware of the fact that the data center of the future is going to be based on DC architecture. There are white papers around it, and everybody understands that DC architecture is better for these data centers. And the goal is basically to maximize the utilization of the data center and to squeeze as many GPUs as possible. So DC architecture is directly in our wheelhouse. We have 20 years of experience with this architecture. We have dozens of gigawatts installed in the field in conditions that are much harsher than data centers. And what we have from past developments and past experience is we have all the building blocks for the solid-state transformer that we're aiming at that market. And so we have started discussions with different players in the ecosystem. And the feedback has been very, very positive. Our potential solution is very relevant and competitive. We are talking about a 99% efficiency rate. And efficiency is very, very critical, as you know, because it increases the utilization of the GPUs as we push more energy through the system, and it reduces the heat that is generated, so you need less cooling in the data center. And with all of that being said, what we announced today is the evolution of our long-term partnership with Infineon. They are considered to be one of the leaders in the power electronic supply chain for data center and in general. So we are very happy with the partnership with them. And as I mentioned, we've engaged with other people and other companies in the ecosystem. And we are trying to, if you will, scale towards where the pack is going to be. And the 800-volt DC architecture is expected to really start in 2027. And so you said and rightfully so, this is something that we are looking into the 2027, 2028 time frame.

We'll take our next question from Christine Cho with Barclays.

Just as a follow-up to your last comment. So you said that you expect to see the financial impact in '27, '28. Are you going to sort of give any indications to the market about how the progress is going with respect to bookings and any contracts that you might sign before that?

When the time comes, we will share more information as we make progress. At this stage, the most important aspect is that this new architecture is set to begin in two years. Based on the information we are receiving, we believe that the solution we are developing, which is not yet final, has building blocks that align well with market needs. We will keep you updated as we make progress.

Okay. Moving on to gross margins. Those continue to come in nicely. In prior calls, you've mentioned that one of the biggest drivers is the fixed cost absorption with higher revenues. But in Q4, your revenue is sequentially down, but gross margins continue to improve. So can you just give us an idea, is this primarily due to 45X ramping? Or is there a material impact from like sell-in of your new products, which are better margin? And I'm assuming that the sequential top line decline in 4Q is mostly due to seasonality. So if you could give us an idea of how much margin improvement there would have been had revenues been flattish? And lastly, for most of this year, I think you had quite a bit of legacy European products in the inventory on your balance sheet that was probably lower margin. Has that largely washed out at this point?

Thank you, Christine, for your questions. I will do my best to address all of them. You are correct that revenue is the main factor driving our gross margin as we leverage our fixed cost structure. You also mentioned seasonality effects in our Q4 revenue guidance, which we indeed expect. Regarding gross margin levers, the ramp-up of our U.S. production is significant. It remains our most economically attractive manufacturing location, especially with the IRA credit. We have begun selling U.S.-made products globally, starting with initial sales to Australia, and we plan to expand into more international markets soon. As for our new product, Nexis, we have started the introduction and will gradually increase our production. These products are expected to enhance our margins while also opening up new revenue streams and segments, such as the larger 20-kilowatt roof in Germany, which we have not fully penetrated until now. They come with a better cost structure and higher margins. Shuki mentioned in the script the benefits of our single SKU framework, which we believe will significantly enhance our margins by simplifying and improving the efficiency of our entire supply chain. This improvement will benefit both us and our customers, allowing for more effective planning, component sourcing, logistics, warehousing, manufacturing, inventory management, and support services. When assessing margin profiles, it's important to consider the mix of products, geographies, and market segments. Regarding your question about utilizing existing inventory on our balance sheet for sales, we expect to continue this practice at least until the end of the year, with a reduced impact anticipated next year. As we increase the shipments of Nexis and send U.S.-produced products to export markets, we will benefit from this trend further. Is there anything I overlooked in my response?

No, that's it.

We'll take our next question from Mark Strouse with JPMorgan.

Sorry, Shuki, can I revisit the Infineon partnership? Can you share your go-to-market strategy for that? Will it continue through your usual distribution partners, or will there be any additional investment needed for the go-to-market approach? I also have a quick follow-up.

Yes. Thank you, Mark. As you know, the market is quite tight with a limited number of potential customers. I believe we will be able to reach them directly or through some distribution partners, although we haven't finalized our plans yet. We view this as something that won't require a major investment from us. I also want to highlight that in the past, we developed the necessary infrastructure to support similar systems in our labs. As a result, there was a significant amount of capital expenditure invested in that infrastructure, and now we don't need to spend that money again.

Okay. And then you mentioned the market share within U.S. residential. Curious, if you can give similar color on kind of how your market share is trending in Europe. You've lost share over the last several years. How much have you bounced back? How far off the bottom are you? And how far away are you from getting back to where you were several years ago?

Yes, we certainly believe we have turned a corner. While we don't have final figures for Q3 yet, the preliminary numbers are similar to those in Q2. Based on feedback from our partners and the field, we are confident we've made progress. There is still significant potential for growth in market share compared to our past performance and our future aspirations. Our positive outlook for momentum in Europe stems from several factors. First, we have established commercial storage that we are currently selling, which we anticipate will continue to grow. Second, our distribution partners have returned to normalized inventory levels, allowing them to introduce new products to the market more quickly. Lastly, the launch of Nexis, which Asaf discussed earlier, creates new opportunities for us and offers a better cost structure. Additionally, since it will be produced in the U.S. and exported to Europe, we can enhance our competitiveness in the market without compromising margins. All these factors contribute to our optimism about our growth potential, and we see ample room for expansion.

We'll take our next question from David Arcaro with Morgan Stanley.

I was wondering if you could maybe update us on the trajectory that you're expecting in terms of the tariff impact. Are you still on track to offset tariff impacts over the next couple of quarters as we look into 2026?

Thank you for your question, David. In our third quarter, we reported a net impact from the incremental tariff of 2%. We anticipate a similar estimated tariff impact in the fourth quarter. As we've mentioned in recent quarters, we are very focused on diversifying, finding alternative sources, and optimizing our supply chain to navigate this evolving tariff situation. Additionally, the quality and reliability of our product are extremely important to us. While we won't provide further details regarding our sourcing, we expect the impact to remain fairly consistent in the upcoming quarters. We also mentioned that some pricing actions we might implement could help mitigate the net impact.

Okay. Sure. That makes sense. And then could you elaborate on what you're seeing in the U.S. in terms of demand? How healthy has the residential market been? Maybe if you could touch on C&I and if you expect any pull forward to happen in 4Q? I know you didn't bake it into the guidance, but curious what you're seeing there.

Yes, thank you, David. As previously mentioned, most analysts anticipate that the U.S. residential market will experience a significant change next year due to the expiration of the D tax credit. Overall, the market is projected to decline by 20% to 30%. The share that third-party originators (TPOs) will gain is expected to come at the expense of cash and loans. We believe, for several reasons that we discussed in our prepared remarks, that our partnership with TPOs is robust. We have established the necessary infrastructure, relationships, and product advantages that align with TPOs' needs and the various transactions we have undertaken with them, including safe harboring. All these factors provide us with confidence regarding our future market share. Regarding any pull forward, we noted earlier that there is no significant revenue pull forward in Q3 or our guidance for Q4 due to safe harbor considerations or a rush at the end of the year related to the D tax credit. Therefore, we are not expecting any significant pull forward this quarter.

We'll take our next question from Dylan Nassano with Wolfe Research.

I just want to come at the solid-state transformer partnership from a little bit of a different angle. Anything you can provide on just kind of how meaningful that opportunity could be, whether that's like a total addressable market or maybe just how many dollars are spent on this kind of product per an average sized data center?

Yes, thank you, Dylan. Many people are discussing the 100 gigawatts of data centers expected to come online in the next decade, and all these facilities will require transformers. The key consideration now is determining the percentage of these data centers that will adopt the new DC architecture and the share we can capture from this market. Based on our analyses, this represents a significant opportunity. We are very excited about it because it's not just about identifying a large opportunity and chasing it; our company's core competencies and existing components align well with this trend, regardless of the opportunity's size. We are pleased that the potential is substantial, and we believe we are well-positioned to take advantage of it.

Got it. And then for my follow-up, just going back to Europe. It sounds like you're in a better spot now relative to the last couple of quarters. So just any kind of outlook on just underlying demand going into 2026? Is there any reason to maybe expect the market to be a little bit stronger or weaker?

There are various opinions about why the market might be stronger or weaker. Europe consists of multiple countries rather than being a single market. Some people believe the U.K. will perform well and see potential in the battery sector in the Netherlands. For us, Germany presents a significant opportunity with Nexis opening a new segment. It's important to remember that the potential for us to gain market share is considerable. Whether the market fluctuates by 10% doesn't impact the size of this opportunity. We feel confident about our position to increase market share in Europe by 2026. Gaining more market share is beneficial, especially if the market expands, but even in stable or declining conditions, we expect to see positive momentum.

We'll take our next question from Colin Rusch with Oppenheimer.

Can you talk a little bit about sell-through on the stationary storage systems and commissioning for systems that aren't attached to solar or are retrofitted? I know you guys have some visibility into where those things are going, but I just want to get a sense of that growth driver.

Are you referring to storage systems that are not attached to PV?

Exactly. Or would it be a retrofit into an existing PV system that didn't have a storage system previously?

For stand-alone storage, we are observing a negligible amount related to SolarEdge installations specifically, and not the overall market. There isn’t anything substantial to note in that area. However, regarding upgrades to our installed base, the potential is significant. Our existing installations are considerable, and in several countries, both homeowners and business owners will likely need to add storage to their systems, whether through new purchases of storage or by enhancing their existing PV systems with storage. We are beginning to explore this area, and while it’s still early, we anticipate providing more information as the market develops and we capitalize on this opportunity. It's also worth noting that a similar opportunity exists in the commercial and industrial sector, where businesses can utilize their PV systems during the day to charge batteries or to save excess PV generation, which could present an even larger opportunity than that in the residential market.

That's super helpful. And then I mean, I guess a follow-on question there, just around some of the evolution in battery chemistries and different duty cycles that we're starting to see in some of these larger systems. Can you talk about maybe adjacent to some of the work you're doing with Infineon and this DC architecture for larger-scale systems, but also at the commercial systems where the solutions may be a bit more complex here and performance may be enabled by newer chemistries that you're seeing on the battery side. Is that an opportunity that you guys are seeing real time? Or is it a little ways out in terms of being able to mix and match some of the chemistries and optimize performance for different value capture on those storage systems particularly for C&I?

Yes, it’s a great question. Our CTO and technical team are exploring various technologies, including sodium and others. Currently, we have one solution based on NMC and others using LFP, which are in mass production and generating revenue. We are continuously looking into all options, and as new chemistries become available that offer cost or functionality benefits, we will implement them into our offerings. Regarding data centers, there are many discussions on the role of storage, whether for backup, handling grid spikes, or as a UPS replacement, but it’s still early to comment on our specific storage solutions for data centers.

And we'll take our next question from Brian Lee with Goldman Sachs.

I joined a bit late, so I apologize if some of this has already been covered. Can you give us an update on your manufacturing footprint in the U.S., specifically regarding megawatt units or the percentage of overall shipments? Additionally, what is your plan for reaching full U.S. manufacturing? What is the expected timeline to achieve these goals through 2026 and beyond?

Thank you, Brian, and welcome to our call. Over the past two years, we have increased our manufacturing capabilities in the U.S. to meet domestic demand. Previously, we mentioned targets of producing 70,000 inverters per quarter and a capacity of 2 million optimizers per quarter. In the last one and a half quarters, we have continued to ramp up production to support exports to Europe and other international markets. Recently, we began shipping residential inverters to Australia and plan to expand our shipments to various European countries and some Asian nations in the coming weeks. Our ultimate goal is to primarily conduct manufacturing in the U.S. While some production will occur outside the U.S. for specific reasons, our focus is on U.S. manufacturing because it enhances our scalability and operational efficiency and is situated closer to our largest market. Currently, our ramp-up is concentrated around commercial inverters, with an expected production of around 20,000 units in Q4. We aim to increase this number in future quarters as we target both the U.S. market and international markets in Europe and Asia.

Awesome. That makes a lot of sense. And just my follow-up was on, I guess, the near-term revenue cadence. I think you guys mentioned earlier in the call, you're expecting Q1 to be down 10% or so, so kind of in line with normal seasonality. But you're not seeing much, if any, safe harboring or D pull forward at the moment. As you think about your Q1 view, that seems to be much better than some of your peers and kind of what we're hearing across the channel, at least in the U.S. And as you said, U.S. is still your biggest market. Are you anticipating any safe harboring and pull forward in your Q1 outlook? Or is that something that you're seeing visibility into Q2 of next year? Just kind of want to understand a little bit about how you're thinking about safe harboring into 1Q and 2Q of next year.

Thank you for bringing up the Q1 topic, Brian. Regarding safe harboring in Q1 '26, we don't expect any significant revenue to be pulled forward into that quarter at this time. As mentioned by Asaf, our guidance excludes such possibilities, should they arise. We've collaborated with our TPO partners as well as enterprises and strategic C&I customers on what is known as the physical work test safe harboring, which has several benefits. One advantage is that it helps our customers avoid large upfront cash outlays; instead, they consume the units as needed over time, rather than just in the first 105 days. For us, this approach provides better visibility into future manufacturing, supply chain, and revenue, without pulling revenue forward because units are used as required. Consequently, we do not recognize revenue at the time of signing the transaction under this type of safe harboring, and we do not foresee any significant alternative type of safe harbor in Q1 when discussing the numbers.

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

I wanted to return to the Infineon opportunity and ask specifically about the content per megawatt in relation to the solid-state solution. How much of that is attributed to Infineon, and how much is coming from your side as you consider this technology? I understand you mentioned it's still in development as you approach the 2027 opportunity, but how would you describe the current split?

Infineon has been a close and strategic partner for us for many years, and their components have been crucial to the success of our inverters in the past. However, it's just one of the elements that make up our hardware solution. In addition, we integrate various other components along with the software or firmware needed to make everything operate efficiently. In data centers, we believe there will need to be an additional layer to manage redundancy and other factors. SolarEdge is addressing all of these aspects. I'm not sure how to quantify this in terms of megawatts, but it's important to view Infineon as a strategic vendor for us, while ultimately we are the ones selling the complete solution.

Got it. So it sounds like you all maintain the majority of that sale to the extent to which you deliver a product here versus Infineon.

Yes, we deliver the product. Knock on wood, but we would deliver product.

Right. No, no, no, of course. And then if I can ask a broader question here. Obviously, in some respects, you're pivoting out of what was an inventory challenge situation. How do you think about providing longer-term views? You guys had a '22 Analyst Day. How do you think about providing a longer-term multi-year view of some sort in '26, especially as the C&I opportunity and as the SST opportunity becomes a little clearer over a multi-year view?

What we said in our recent meeting is that sometime during the first half of next year, we will provide a financial model, financial algorithm. We'll go through the main blocks that will represent our growth trajectory and opportunities, both on revenue and margin. We'll share this model again sometime in the first half of next year, including the C&I opportunity and others, of course.

And we'll take our next question from Jeff Osborne with TD Cowen.

Just 2 quick ones. I was wondering on the fixed costs. I think you folks had talked about $90 million to $95 million. I didn't know if that's a good run rate to think about over the next couple of quarters. That was question one. And then question two is just any thoughts on pricing as it relates to SolarEdge heading into year-end and into '26 for both yourselves and the industry would be helpful.

So in terms of the fixed cost, yes, we mentioned that it's around $90 million. And of course, being fixed cost, we don't expect them to change dramatically. We are focusing on trying to reduce cost through further automation. I think I believe the single SKU concept, again, will help us streamline the entire supply chain with the simplicity and more efficiency. So we also want to reduce the fixed cost. It may take a couple of quarters. And again, as revenue increase, we'll have better utilization of such fixed costs. The second question was?

I take that one.

Yes, go ahead.

Regarding pricing, it reflects the value we provide to the market as well as the competitive environment. In the U.S. market, pricing has remained relatively stable without any downward pressure. In Europe and other markets, we previously experienced price reductions and, as we mentioned in November 2024, we lowered our prices in Europe. Since then, we've received feedback indicating that our pricing is competitive in relation to the premium and added value we offer. Overall, we haven't encountered significant pricing pressure in markets outside the U.S.

We will take our next question from Chris Dendrinos with RBC Capital Markets.

I wanted to follow up on C&I demand here, and I know you all kind of stopped reporting some of the metrics there, but maybe just kind of help frame up what that demand picture looks like right now? And then I think you mentioned you'll be the only ones that can offer a FEOC-compliant product with U.S. manufacturing. So do you have the scale, I guess, to ramp manufacturing for that C&I product if demand really strengthens?

Thank you, Chris. We believe we are the only scaled manufacturer capable of providing non-FEOC and domestically compliant products to the U.S. commercial and industrial market. We have already begun this process and have executed safe harbor transactions with C&I customers for future years. Overall, we feel well positioned to capture additional market share in this important segment in the U.S. Our perspective is that we are set up effectively in this market, and we have the solutions that our customers require. Outside the U.S., we have noticed an increased attachment rate to storage in the commercial sector, indicating growth in that part of our business. As we start exporting commercial units from the U.S., we believe we can become more competitive in markets where we have faced constraints until now.

We'll take our next question from Jon Windham with UBS.

I wanted to pivot back to the manufacturing conversation you were on previously. Just to be clear, this U.S. manufacturing for export, one, you're entitled to the 45X for that. Is that correct? And then two, how do you think about expanding U.S. capacity in a flexible way given that the tax credits do expire?

Yes, you are right. We are getting a 45X credit for manufacturing, whether we sell in the U.S. or whether we export to non-U.S. market. We work with the world-leading providers, Jabil and Flex, mostly, as you may know. We have a very scalable operation with them within the existing premises. So we will be able to support the anticipated growth trajectory we have with them. And again, continue to enjoy the leverage of higher volume of the operation.

And there are no further questions on the line at this time. I'll turn the program back to our presenters for any additional or closing remarks.

So thank you, everyone, for attending our call today. As we said, we're excited about the opportunities ahead of us. We've executed well so far, and we're thankful to our team, but there's lots of work to be done, and we are all on it. Thank you, and talk to you next quarter.

Thank you.

This does conclude today's program. Thank you for your participation, and you may now disconnect.