Welcome to the SolarEdge Conference Call for the First Quarter ended March 31, 2026. This call is being webcast live on the company's website at www.solaredge.com in the Investors section of 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 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 Erica Mannion of Sapphire Investor Relations.

Good morning, and thank you for joining us to discuss SolarEdge's operating results for the first quarter ending March 31, 2026, as well as the company's outlook for the second quarter of 2026. With me today are Shuki Nir, Chief Executive Officer; Asaf Alperovitz, Chief Financial Officer; and Meir Adest, Co-Founder of SolarEdge. Shuki will begin with a brief review of the results for the first quarter ended March 31, 2026. Asaf will review the financial results for the first quarter, followed by the company's outlook for the second quarter of 2026. 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. We disclaim any obligation to update any forward-looking statements. 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 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 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 March 31, 2026 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, Erica. Good morning, everyone, and thank you for joining our call today. Last quarter, I spoke about SolarEdge shifting from defense to offense with 2026 being a year of transformation and acceleration for the company. Our priorities are clear: driving towards profitable growth, expanding global market share, scaling SolarEdge Nexis and investing in high-growth adjacencies such as AI data center power. And we are doing this while maintaining the operational and financial discipline we have established. The team's morale and energy are the strongest they have been in years, and we are all aligned around improving our execution and maximizing the various opportunities ahead of us. The first aspect of our transformation is achieving profitable growth. We have been steadily growing our revenues while expanding our gross margins in recent quarters. First quarter revenue was up on a year-over-year basis for the fifth consecutive quarter, growing 46% over Q1 2025. This was achieved without a significant pull forward of revenue and was once again accompanied by expanded margins. At the midpoint of our guidance, we expect to approach breakeven operating profit in the second quarter. This marks an important milestone in our transformation and reflects the relentless focus our entire team has had on operational efficiency and delivering best-in-class products and customer experience. The next area of transformation is market share gains. Starting with the U.S. residential market. The market got off to a slow start this year as customers face changes in tax credit policies and uncertainty related to FEOC. These uncertainties have slowed tax equity funding for TPOs, creating strain on installer businesses and cash flows. Even so, we believe we are well positioned to benefit when the market rebounds since the anticipated market evolution towards the 48E tax credit and higher battery attach rates are expected to play directly to our strength. Mainly, our position as the leading provider to TPOs and our fully integrated DC-coupled battery architecture. Turning to the U.S. C&I market, where we continue to build momentum. As you know, our scalable architecture of inverters and optimizers enhances the returns for C&I rooftop projects by harvesting more energy, enhancing safety, and enabling customers to benefit from tax credits with products that are designed to be both domestic content and FEOC compliant. These advantages have resulted in share gains, more specifically, in continued penetration of enterprise accounts, which come with a more stable cadence of business and improved visibility. We view this position as structural rather than cyclical. Domestic content and FEOC compliance are difficult for non-U.S. competitors to replicate quickly. And we expect this to continue to support our market share over multiple quarters. We secured additional safe harbor transactions from both residential and C&I customers in the quarter and expect to secure additional deals in the second quarter, primarily through the physical work test method. These transactions provide several important strategic benefits. First, they increase the visibility of our potential future revenue and share gains. The associated products can be deployed for up to four years and will translate into revenue when the customers take delivery of the entire product. Second, they create a natural entry point for incremental sales. When installers complete a safe harbor solar installation that also requires a battery or an EV charger, we are well positioned to capture that asset. Third, these transactions allow us to size our operations more efficiently and support the most stable and predictable manufacturing profile over time. Next, let's turn to Europe. The market was slow in the first two months of the year, but picked up in March, a trend that continued into April, driven in part by rising electricity prices in the region. Despite the slow start, we delivered a strong first quarter in Europe with revenue reaching its highest point since Q4 2023. The revenue growth is a result of stronger battery demand in both residential and C&I across the region. I would like to highlight that the strength in Europe is even before we have fully ramped the export of U.S. manufactured products and before the rollout of SolarEdge Nexis platform. Speaking of Nexis, our third area of transformation is product innovation and leadership. The SolarEdge Nexis launch event in Germany exceeded our expectations. Nearly 1,000 installers joined us in person or via the live stream, creating an atmosphere so electric you could feel it in the room. What's made the moment truly powerful was our customers' reaction. Their enthusiasm wasn't just polite applause, it was genuine excitement because Nexis was built for the customer. Every feature exists because we listened closely, understood their pain points and learned what they valued and what frustrated them in day-to-day installations and operations. Their feedback became the blueprint for Nexis and the result is something we believe is truly special. The excitement is already reflected in the order book. Our entire planned Q2 Nexis production is fully booked by European customers, and we continue to expand capacity to meet additional demand. We believe the Nexis platform positions us at the leading edge of technology and future innovation. It also enables us to address incremental segments of the market, including larger homes which account for over 50% of the residential market in Germany. In addition, two weeks ago, we unveiled the second generation of our commercial battery, the CSS outdoor 197 kilowatt-hour solution, which marks another major step forward in our energy storage roadmap. This new system is purpose-built for medium to large scale installations, whether deployed as a stand-alone storage asset or paired seamlessly with PV. What sets the solution apart is the software suite, which enables multiple optimization modes from maximizing self-consumption to peak shaving, tariff optimization and managing export and import limitations. The fourth element of our transformation is investing in AI data center power solutions. At GTC26, NVIDIA featured a live, energized 800-volt DC power rack which reinforced that high-voltage DC power is moving from concept to infrastructure roadmap. The 800-volt DC evolution aligns exceptionally well with the technical capabilities SolarEdge has been building for 20 years. We believe this represents a multibillion dollar addressable opportunity over time. Our plan is to deliver a working system in 2026, initial pilot installations in 2027 and a broader rollout in 2028. Since our last call, we've continued to advance our solid-state transformer platform and have made progress toward the system capable of converting 34.5 kilovolt directly to 800-volt DC at efficiencies above 99%. To summarize, we're executing on our transformation plan. We believe we have a clear line of sight to profitable growth. We have multiple tailwinds supporting continued global market share gains. We're moving towards high-volume shipments of new products. We're advancing our AI data center power solutions. We firmly shifted to offense and will press our advantages in every market that we serve. Lastly, I would like to briefly address our CFO transition. Asaf will continue in his role through June 9, and I would like to use this opportunity to thank him for his professionalism and commitment to the company and for all the work he has done to further our turnaround. Our CFO search is well underway with strong candidates. Our finance organization is deep. Our systems and processes are well established, and we expect no disruption to our 2026 plan or our financial discipline. With that, I will turn the call over to Asaf.

Thank you, Shuki, and good morning, everyone. Starting with our quarterly results. Non-GAAP revenues for the first quarter were $310 million, up 46% year-over-year and down 7% quarter-over-quarter, outperforming the typical seasonal decline of 10% to 15%. This result does not include any significant one-time or pull forward of revenue from safe harbor. Revenues from the U.S. this quarter amounted to $150 million, down 20% quarter-over-quarter and representing 51% of our revenues. Revenues from Europe were $114 million, up 14% quarter-over-quarter and representing 37% of our revenues. International Markets revenues were $38 million, up 5% quarter-over-quarter and representing 12% of our revenue. Non-GAAP gross margin this quarter was slightly up to 23.5% compared to 23.3% in Q4, towards the high end of our guidance. We achieved higher gross margins despite the lower revenue, largely due to a more favorable product mix and lower seasonal warranty costs. A brief note on tariffs. On February 20, the U.S. Supreme Court ruled that certain tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were invalid. The recent submission process with the U.S. Customs and Border Protection has already commenced, and we anticipate that the refunds could total approximately $55 million. These potential refunds are not included in our Q2 guidance. Non-GAAP operating expenses for the first quarter were $97.7 million. However, excluding a one-time doubtful debt expense of approximately $14 million, our ongoing operating expenses were approximately $84 million, below our guidance range and down from $88.7 million last quarter. This doubtful debt is related to one of our U.S. customers, but not to Freedom Forever, which I will discuss shortly. This OpEx reduction is largely reflective of our ongoing cost control, the efficiency measures we've implemented and our focus on our core businesses. And we are keeping our costs in check despite the continued headwinds we faced from a strengthening New Israeli Shekel against the U.S. dollar. A brief note on our exposure to the bankruptcy of Freedom Forever. Freedom has been a long-standing and valued partner of ours, and we appreciate the scale they brought to the residential solar market over the years. We have a net zero exposure on our balance sheet as we have not recognized significant revenue from Freedom over the course of the last 18 months. During this period, payments received were first applied to a reduction in their outstanding balances. Given the uncertainty around Freedom's financial position, the remaining amount owed to us has been fully offset by a deferred revenue liability on the balance sheet throughout this 18-month period and netted to zero. We hold the UCC lien against Freedom's assets, representing the amounts owed to us by Freedom, which will equal approximately $100 million. We do not know what, if any, amount will be recovered, but any amount we ultimately recover would be recognized as a benefit in our P&L in the period received. Non-GAAP operating loss for Q1 was approximately $25 million. When excluding the one-time $14 million doubtful debt expense, our ongoing operating loss was approximately $11 million, flat with Q4 despite 7% lower revenue. As these results demonstrate, we're relentlessly pursuing greater operational efficiency as we continue our journey back to profitable growth. Our non-GAAP net loss was $26.3 million in Q1 compared to a non-GAAP net loss of $8.2 million in Q4. Non-GAAP net loss per share was $0.43 in Q1 compared to $0.14 in Q4. Both non-GAAP net loss and loss per share were also impacted by the one-time $14 million doubtful debt charge I just mentioned. Turning now to our balance sheet. As of March 31, 2026, our cash and investments totaled approximately $583 million. During the first quarter, we generated roughly $21 million of free cash flow. Our cash and investments increased by about $2 million in the quarter, as free cash flow was partially offset by several items, the largest being a one-time nonoperational $26 million payment related to a lease amendment for our new headquarters. Aligned with our efficiency measures, this amendment significantly reduces our planned footprint when we move into the new campus next year and is expected to lower our annual lease expenses by approximately $8 million. Our capital expenditures this quarter were approximately $4 million. For the full year 2026, we anticipate capital expenditures in the range of $60 million to $80 million. The main buckets of CapEx this year are: one, increased production capacity in the U.S. for both PV and batteries; two, investment in our new headquarters in Israel, largely related to advanced R&D facilities; three, investment related to our AI data center offering; and lastly, ongoing maintenance CapEx. Despite this higher CapEx and our planned investment in working capital to support our anticipated growth and the Nexis launch, we expect to generate positive cash flow for the full year 2026. This reflects solid underlying operating performance, continued discipline in managing expenses and capital investment and our continued ability to monetize 45X credit which are an important contributor to our cash flow expectations. Turning to our working capital items. Our rigorous focus on cash management continued to yield positive results. In Q1, our cash conversion cycle reached its fastest point in many years, driven by lower DSO and higher DPOs. And this is despite our inventory growing by $44 million, largely related to higher raw materials procurement in support of our Nexis launch and higher battery demand. AR net decreased this quarter to $223 million compared to $267 million last quarter, driven by strong collections. Turning now to our guidance for the second quarter of 2026. We're expecting revenues to be within the range of $325 million to $355 million. This range does not include any significant one-time pull forward of revenue. We expect non-GAAP gross margins to be within the range of 23% to 27%. This range does not include any impact from potential IEEPA refunds. We expect non-GAAP operating expenses to be in the range of $86 million to $91 million. For comparison, ongoing operating expenses in Q1 were $84 million, excluding the one-time $14 million debt charge. The midpoint of our OpEx guidance, therefore, reflects a modest sequential increase, driven primarily by the strengthening of the New Israeli Shekel against the U.S. dollar, net of our hedging activities. At the midpoint of our Q2 guidance, the implied EBIT loss for the period is approximately $3.5 million, bringing us close to breakeven. This represents a meaningful step in our focus on gradual progression towards profitable growth as we move into the third quarter. I will now turn the call over to the operator to open it up for any questions.

The conference instructions were provided, and our first question today comes from Mark Strouse with JPMorgan.

Shuki, I think you touched on Europe a bit. I was hoping that you could just kind of give a real-time update on what you're seeing in Europe over the last couple of months, not necessarily overall Q1, but really just since the conflict in Iran broke out, what you're seeing with power pricing, what you're seeing kind of real-time demand in that region broadly?

Yes. Thank you, Mark. As we said, the first two months of the year started slow and then since March, including April, which is part of Q2, we've seen increased activity and increased demand coming from the region. It's across several countries; it's not just unique to one specific country. We believe it's partially related to the increase and the expected increase in electricity prices as you noted. The conflict in Iran impacts these prices. What we've seen is not only an increase in demand for PV only, but actually an increasing demand for PV plus storage and, as we mentioned before, both in C&I and in residential, we are seeing that increase. The SolarEdge solution is not only the inverter and the battery, but actually a sophisticated energy management system that in more advanced markets where dynamic tariffs and sometimes negative tariffs exist can change the ROI quite significantly. That combination of a battery, inverter, and a system that manages storage, import, export and other features is very much in need. So we are seeing stronger demand coming from the market, and we are well positioned to service both on the C&I side with the introduction of the second-generation storage solution and with the upcoming rollout of Nexis.

Okay. And then as my follow-up, I was hoping you could comment on C&I within the U.S. You mentioned that you're gaining share, which makes sense because of your Domestic Content and FEOC. Just curious if you can comment on the competitive environment. If you're seeing some of your existing competitors potentially move around their operations, if you're seeing any new competitors potentially coming into that space?

Yes. So the U.S. C&I market, as you know, there are three leaders in the market. Out of these three, we are the only ones who can offer our customers not only a winning solution, but actually a product that is qualified for both domestic content and FEOC compliance. So with that, we are seeing something that is not cyclical, it's structural; a change that we believe will help us maintain that level of share for the quarters. To the best of our knowledge, none of these two other major competitors has made any changes to domestic content or FEOC compliance. There are, of course, other players with much lower market share who can try to penetrate this market. But we believe we've established our solution not only by harvesting more energy, but actually by integrating with enterprise systems, which is a much more stable and predictable segment of the market. We are in the process of securing safe harbor transactions with larger customers through the physical work test, which helps us secure future revenue and future share as well.

Our next question comes from Philip Shen with ROTH Capital Partners.

First one is a follow-up on Freedom. I think in the documents or the bankruptcy docs, they owe you guys $50 million on a credit line and then $56 million on a product debt line. What do you have a lien on with respect to those credit facilities? In the first day of the hearing, it seems like these liens are or may be in dispute and that you may not have cash collateral. So I was wondering if you think that's true. It also seems like the company was late on making payments in Q4 and that's why you may have secured the lien. So I just was wondering if you could address if you think you're covered on the loan? And then this other $14 million expense you took that's not Freedom. Can you give us a little more color on who that might be and what the situation is there?

Thank you for your question. As it relates to Freedom, maybe I'll give some background history. As I related in the prepared remarks, we did not recognize any meaningful revenue from Freedom Forever over the past 18 months. While Freedom has been a valued customer of ours, over the year our current financial exposure to them in our books is zero. During this 18-month period, the payments we received from Freedom were first applied to a reduction in their outstanding balances. We have taken a very cautious approach and because of the uncertainty around Freedom's financial condition and any remaining amounts owed to us by them, we have fully offset those amounts with a deferred revenue liability on our balance sheet throughout this entire period. So net zero exposure. As it relates to the lien that you just mentioned, we do hold a lien. It may allow us for some level of recovery, if any. But we are certainly not relying on that for our outlook. If anything is received, it will be an upside. Again, we are not relying on that. It's also important to say, before I get to your second question about the $14 million doubtful debt, that when we are looking ahead, we continue to believe that demand for solar and storage will be driven primarily by attractive project and system economics, regardless of which installation companies are active in the market. The solar landscape will further evolve, and we expect more partners to choose SolarEdge, particularly as we scale out the rollout of Nexis, which we believe will strengthen our value proposition and positioning with installers, distributors and homeowners. Now regarding the $14 million of doubtful debt recognized this quarter: it's a U.S. customer that is experiencing financial and operational challenges lately. We believe, and of course we are not disclosing the customer's name, that given the circumstances and the financial challenges this customer is experiencing, we took a conservative and responsible approach and have written down the entire amount they owed us. We do hope for their recovery and if conditions improve in the future, we will reassess the situation accordingly. I hope that answers your question fully, Phil.

Yes.

Our next question comes from Brian Lee with Goldman Sachs.

I guess one question I had just around the safe harbor: you said for Q1 results as well as Q2 guide, there's not a significant amount of pull-forward revenue, i.e., 5% safe harbor. But you did say that there's a significant amount of physical work test safe harbor that you're seeing or anticipating. Is that a function of your go-to-market strategy, is that just a function of your customers, or is there any market share implication of why your number one competitor in the U.S. resi market is seeing a lot of in-period safe harbor versus the physical? Just curious how we should interpret that.

Thank you for the question. I'll start, and Shuki will share more color. As discussed in the prepared remarks, in the last couple of quarters we have signed multiple physical works transactions with both leading TPOs and enterprise customers alike. We believe some of our existing and potential new customers may be interested in signing additional transactions before July 4. We are in the process of closing more deals. We believe we're very well positioned to do that with all TPOs in the market given our key advantages from harvesting more power, efficiencies in both high and low power, DC-coupling solutions, etc. As we sign such transactions, for us it increases visibility significantly for up to a four-year horizon. It also helps us secure significant market share. Shuki, do you want to add any color?

Yes. To your first point, neither Q1 revenue nor the Q2 guidance assumes any significant pull forward of revenue related to the 5% safe harbor. Just to make sure everyone is on the same page, the 5% safe harbor deals are transactions in which the customer is actually buying the product in the first 100 days after signing the contract, and it's not necessarily for products that will be installed in that period. This is why they are referred to as pull-forward revenue. The physical work test has a built-in advantage to customers because they complete the transaction only when they need the product and when they're going to install it. From our perspective, as Asaf mentioned, it's future revenue and share. It allows us to have more efficient operations because we get predictability for customer forecasts and orders, and it lines up the revenue with the actual purchases. There are advantages to the physical work test for both customers and us. On the residential side, we are securing deals using the Nexis platform, which provides the level of confidence customers need that this is a product that will be modern and leading for the next three to four years. That allows us to plan forward and for them to plan forward on a robust system designed to be PV plus storage plus a sophisticated energy management system. On the C&I side, large companies are interested in the physical work test because they have visibility into their business plans and what they would like to do with PV, and we are best positioned to support them in that. That's why you see a lot of interest in our physical work test.

Okay, that makes a lot of sense. I'll follow up on it. Just second question on Europe. It seems like that's going to be a source of strength going forward, and you're seeing some good trends there. Can you level set us a little bit? Historically, Europe has been a lower price environment and it seems like at least 20% lower ASP per watt. You also had maybe more commercial versus residential mix in Europe historically. What are the pricing and margin implications as Europe becomes a bigger source of the mix and outgrows some of the challenges in the U.S.? Any thoughts on pricing and margin specific to Europe?

Thank you, Brian. In the last several quarters, we've been excited about SolarEdge's potential in Europe. The region was where we lost some share in previous years, and we see a huge potential to gain share in both residential and C&I. Q2 supply of Nexis for Europe is already fully booked; it's not a very large quantity but it's all booked. We are working hard to increase supply to support Q3 demand. When we bring Nexis and considering its features and the launch event excitement, we don't think pricing is just about absolute market price; it's about the relative advantages a product brings to customers. We've always harvested more energy; now with the energy management system and dynamic tariffs, and increasing electricity prices in Europe, the benefits from a system that can optimize energy consumption, import and export are significantly higher. We believe we can gain market share while maintaining stable pricing. Regarding margin, Asaf will add more color, but at the outset we've just started exporting U.S.-made products into Europe. The inverters and optimizers made in the U.S. when exported to Europe will generate better margins. Nexis as a platform also has cost advantages that will be a tailwind for our margins.

To add, we do not break down margin by territory or product publicly. Very generally, the U.S. residential margin profile would be the highest and the Europe storage or international market storage tends to be lower. But as Shuki mentioned, now that we started exporting U.S.-produced products to Europe, the cost structure will significantly improve and we are working hard to enhance European product margin.

Our next question comes from Julien Dumoulin-Smith with Jefferies.

I appreciate the opportunity to connect. I wanted to follow up on Freedom. To what extent — what market share do they represent with you? What market share do they represent in the marketplace such that we try to understand what that means as a headwind? I understand you're on the offense. How do you think about the market displacing those lost sales? You've been underweighting these customers of late; how do you think about that mix shift as your customer base evolves? And then I've got a follow-up.

In terms of the $14 million customer for which we have this doubtful debt provision, for the last three quarters or so we have reported very low revenue from them. So no direct impact, I would say. We believe generally there is no vacuum in the market; new potential players will enter. Considering the Nexis rollout and our advantages, we believe we are best positioned to gain market share with such players.

Yes. We do recognize these are valued partners and we wish they will recover and return as loyal partners. The demand is fulfilled by the channel and comes from homeowners, TPOs and C&I customers. The advantages we deliver to installers should convince others to join the SolarEdge installation group. We do hope these partners recover and return to install many SolarEdge systems.

Got it. Excellent. Then maybe taking a more offensive step: how do you think about providing an Analyst Day or an Investor Day with a multiyear view on resi, C&I and emerging products? How do you think about giving a full-throated view on emerging end markets and the product portfolio?

Thank you. As you know, we are making good progress with the CFO transition. We do plan to have an Investor Day after Labor Day. The new CFO may well join us, and I will be there as well. We hope you can join us for a longer and deeper session than what we can do on a quarterly call.

Our next question comes from Chris Dendrinos with RBC Capital Markets.

I wanted to follow up on the comment on picking up more installers. Can you speak to adding new customers with that transition to TPO and 48E? Are you in conversations to add a new group?

Thank you, Chris. We've always been in conversations with different installers in the market. We do see an uptick in interest in working with SolarEdge with the upcoming Nexis. Installers identify market needs and deliver products to the market. We're in discussions with different groups and installation companies and believe that once demand for SolarEdge solutions is visible, installation companies will be able to install them and bring that value to customers.

Got it. As a follow-up on Europe, you highlighted growing demand and strength in Germany. Are there other regions showing similar strength, or is this more isolated to Germany?

We are seeing strength in March and April, and Nexis opens a new segment for us of larger homes above 10 kilowatts. We're also seeing increased demand for upsell to the existing installed base in the Netherlands and other countries. In the Netherlands it's pronounced because of the large installed base and the approaching expiration of certain feed-in tariffs. We also see strength in Italy for commercial storage. We've focused our go-to-market motion on about ten countries in Europe and in all of them demand is picking up and there is interest in partnering with SolarEdge. One other segment Nexis can address is new build; in some regions there are incentives for builders to include systems and there is a Nexis variant attractive to that segment.

Our next question comes from Colin Rusch with Oppenheimer.

Could you talk about remaining inventory in the channel that you still see cleaning out or any of that that may be a headwind over the next couple of quarters?

Thank you, Colin. The vast majority of our distributors in Europe have already resumed normal levels of inventory. Days of inventory is a function of inventory divided by sales; when sales pick up, days of inventory go down. That situation has not changed and has, if anything, improved. Normalized levels can have ups and downs between distributors, but from a company perspective our channel inventory is normalized. As we move into the single SKU concept, it will allow distribution partners to carry much less inventory to fulfill the same sales, and potentially more, because they will need only one type of inverter for single-phase or three-phase and for different power levels instead of four or five SKUs. We are working with partners through this transition and expect channel inventory to become healthier.

Excellent. Following up on the data center opportunity, can you give us a current status on product development in terms of subunits or subsystems within the product? How mature is it? Where are you at with testing, and when could we see a more robust product announcement?

Thanks for the question. We're preparing prototypes which we can share with hyperscalers and potential customers now. We're planning to show a proof-of-concept towards the end of this year so that we can then have pilot installations at data centers throughout next year, leading to ramp-up and mass deployment in 2028.

Our next question comes from Corinne Blanchard with Deutsche Bank.

I wanted to clarify: we've heard from some of your peers about price cuts. Is that a strategy you've been implementing or intend to implement, or are you in a different position in the market?

We have not implemented price cuts. We believe price reflects value. With the value we bring — on the C&I side with storage and energy management and on the residential side with Nexis and better performance in low-power and high-power — we feel confident we can gain share while keeping a premium over competition. The market is dynamic and if we see a need to change pricing, our Nexis and U.S.-made products give us room to move because of lower cost structure.

Maybe another on battery: your battery shipments were pretty strong this quarter. How do you view that trend for the rest of the year? Any different view for Europe versus the U.S.?

Generally, attach rates of storage to PV are increasing across almost every segment and market. Some places are very advanced — in some situations attach rates exceed 90%, like certain NEM 3 installations in California — and others are earlier. A battery can be stand-alone, but the combination of PV plus battery in a dynamic rate environment yields a much higher return on investment if managed well. For example, if midday rates are low or negative and night rates are high, it makes sense to charge the battery from solar during the day and use it at night, which requires prediction and management but significantly increases ROI. SolarEdge’s benefit is higher efficiency in low power; most of the time houses operate on one or two kilowatts or less, and the round-trip efficiency of SolarEdge Nexis is higher than competition in those conditions.

Our next question comes from Maheep Mandloi with Mizuho.

Maybe in the U.S. solar market, how much of your Q2 guidance embeds the U.S. market dynamics? How should we think about progress in Q3 and Q4 for solar specifically outside of the Nexis platform?

Thank you, Maheep. If I understood correctly, you're asking how U.S. residential and commercial market dynamics affect our Q2 guidance. The U.S. residential market started the year slower than anticipated due to a slowdown in tax equity investment. We hope the situation is resolved in the coming months and believe the market will strengthen when it does. For Q2, we did not assume a strong market. On the C&I side, the market continues to be in good shape and we are seeing a structural change that should support our share gains.

You also asked about beyond Q2. We do not provide guidance beyond the next quarter, but we believe we have an opportunity to continue growing in Q3, supported by market share momentum, the continued rollout of Nexis, the introduction of the new C&I battery storage solution and the other elements Shuki mentioned. That's the extent of color we can provide for the longer term.

Our next question comes from Vikram Bagri with Citi.

I wanted to go back to the challenges faced by customers in the U.S. How much stress are you seeing in the U.S. market? We have one bankruptcy announced and one doubtful expense. Are you seeing the situation get worse due to capital costs and availability issues? Could this stress accelerate after safe harbor expiration? How many more customers are you monitoring for such issues? Is that a meaningful number?

I'll start and Shuki can add market context. We have a solid treasury team and processes to manage customer credit. Beyond this specific situation, we don't see major exposure in the U.S. or globally. From time to time there can be surprises, but generally we don't see significant exposure related to any of our significant or major customers globally.

I'll add that current market dynamics include concern about the slowdown in tax equity investments. We believe underlying demand for solar plus storage exists; TPOs and providers will find ways to deliver value to customers, whether via current investors or other types. Once the market rebounds, SolarEdge is well positioned to benefit. We are the natural partner for TPOs and higher battery attach rates play to our strength, so we expect growth to resume beyond the current quarter.

Got it. Switching gears: are you on track to onshore residential inverter and optimizer production to the U.S. by midyear? This was a meaningful driver of 45X benefits and hence gross margins. How much of that onshoring is baked into Q2 guidance and how much shows up in Q3?

Onshoring of manufacturing: we've ramped up manufacturing with partners Jabil and Flex at facilities in Tampa, Austin and Salt Lake City. These manufacturing facilities are already ramped. U.S. demand has been served by domestic manufacturing since last year. We started exporting U.S.-made products to Europe and Asia and are continuing that trend into Q2. At this stage, for inverters and optimizers more than 90% of our production is made in the U.S.

At this time we've reached our allotted time for questions. I'll now turn the call back to Shuki Nir for closing remarks.

Yes. Thank you for your interest in SolarEdge and for joining our call today. I would also like to thank the SolarEdge team for their continued commitment, and we look forward to updating you in future quarters. Thank you very much.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.