0001178913-21-000700 | 10-K/A | XBRL Viewer | Solaredge Technologies INC

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Document and Entity Information - USD ($)	12 Months Ended
Document and Entity Information - USD ($)	Dec. 31, 2020	Feb. 10, 2021	Jun. 30, 2020
Document and Entity Information [Abstract]
Document Type	10-K/A
Entity Central Index Key	0001419612
Document Period End Date	Dec. 31, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	FY
Current Fiscal Year End Date	--12-31
Amendment Flag	true
Amendment description	EXPLANATORY NOTE This Amendment No. 1 on Form 10-K/A (the "Amendment") amends the Annual Report on Form 10-K of SolarEdge Technologies Inc. (the "Company") for the year ended December 31, 2020, filed with the Securities and Exchange Commission (the "SEC") on February 19, 2021 (the "Original Filing"). This Amendment is being filed solely to correct a typographical error appearing on pages F-2 and F-4 of the Report of Independent Registered Public Accounting Firm. Specifically, on pages F-2 and F-4, the reference to the Report was erroneously stated as February 23, 2021 and this date has been corrected to the correct date of the report, which is February 19, 2021. This Amendment does not alter or affect any other part or any other information originally set forth in the Original Filing. This Amendment does not reflect events that have occurred subsequent to the filing of the Original Filing or modify or update in any way disclosures made in the Original Filing.
Document Annual Report	true
Document Transition Report	false
Entity File Number	001-36894
Entity Registrant Name	SOLAREDGE TECHNOLOGIES, INC
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	20-5338862
Entity Address, Address Line One	1 HaMada Street
Entity Address, City or Town	Herziliya Pituach
Entity Address, Country	IL
Entity Address, Postal Zip Code	4673335
City Area Code	972
Local Phone Number	(9) 957-6620
Title of 12(b) Security	Common stock, par value $0.0001 per share
Trading Symbol	SEDG
Name of Exchange on which Security is Registered	NASDAQ
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Auditor Attestation Flag	false
Entity Public Float			$ 6,828,285,341
Entity Common Stock, Shares Outstanding		51,581,559

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
CURRENT ASSETS:
Cash and cash equivalents	$ 827,146	$ 223,901
Short-term bank deposits	60,096	5,010
Restricted bank deposits	2,611	27,558
Marketable securities	143,687	91,845
Trade receivables, net of allowances of $2,886 and $2,473, respectively	218,706	298,383
Inventories, net	331,696	170,798
Prepaid expenses and other current assets	135,399	115,268
Total current assets	1,719,341	932,763
LONG-TERM ASSETS:
Marketable securities	147,434	119,176
Deferred tax assets, net	11,676	16,298
Property, plant and equipment, net	303,408	176,963
Operating lease right-of-use assets, net	41,600	35,858
Intangible assets, net	67,818	74,008
Goodwill	140,479	129,654
Other long-term assets	5,353	9,904
Total long-term assets	717,768	561,861
Total assets	2,437,109	1,494,624
CURRENT LIABILITIES:
Trade payables, net	162,051	157,148
Employees and payroll accruals	63,738	47,390
Current maturities of bank loans and accrued interest	16,894	15,673
Warranty obligations	62,614	65,112
Deferred revenues and customers advances	24,648	70,815
Accrued expenses and other current liabilities	106,154	80,576
Total current liabilities	436,099	436,714
LONG-TERM LIABILITIES:
Convertible senior notes, net	573,350
Warranty obligations	142,380	107,451
Deferred revenues	115,372	89,982
Deferred tax liabilities, net	8,593	4,461
Finance lease liabilities	26,173	2,399
Operating lease liabilities	35,194	30,213
Other long-term liabilities	14,191	11,734
Total long-term liabilities	915,253	246,240
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY:
Common stock of $0.0001 par value - Authorized: 125,000,000 shares as of December 31, 2020, and 2019; issued: 51,560,936 and 49,081,457 shares as of December 31, 2020, and 2019, respectively; outstanding: 51,560,936 and 48,898,062 shares as of December 31, 2020 and 2019, respectively.	5	5
Additional paid-in capital	603,891	475,792
Accumulated other comprehensive income (loss)	3,857	(1,809)
Retained earnings	478,004	337,682
Total stockholders' equity	1,085,757	811,670
Total liabilities and stockholders' equity	$ 2,437,109	$ 1,494,624

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Allowances of trade receivable	$ 2,886	$ 2,473
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, authorized shares	125,000,000	125,000,000
Common stock, issued shares	51,560,936	49,081,457
Common stock, outstanding shares	51,560,936	48,898,062

CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	12 Months Ended
CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Income Statement [Abstract]
Revenues	$ 1,459,271	$ 1,425,660	$ 937,237
Cost of revenues	997,912	946,322	618,001
Gross profit	461,359	479,338	319,236
Operating expenses:
Research and development	163,123	121,351	82,245
Sales and marketing	95,985	87,984	68,307
General and administrative	63,119	49,361	29,264
Other operating expenses (income), net	(3,429)	30,696
Total operating expenses	318,798	289,392	179,816
Operating income	142,561	189,946	139,420
Financial expenses (income), net	(21,105)	11,343	2,297
Income before income taxes	163,666	178,603	137,123
Income taxes	23,344	33,646	9,077
Net income	140,322	144,957	128,046
Net loss attributable to Non-controlling interests		1,592	787
Net income attributable to SolarEdge Technologies, Inc.	$ 140,322	$ 146,549	$ 128,833
Net basic earnings per share of common stock attributable to SolarEdge Technologies, Inc.	$ 2.79	$ 3.06	$ 2.85
Net diluted earnings per share of common stock attributable to SolarEdge Technologies, Inc.	$ 2.66	$ 2.90	$ 2.69
Weighted average number of shares used in computing net basic earnings per share of common stock	50,217,330	47,918,938	45,235,310
Weighted average number of shares used in computing net diluted earnings per share of common stock	52,795,475	50,195,661	47,980,002

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Consolidated Statements Of Comprehensive Income
Net income	$ 140,322	$ 144,957	$ 128,046
Available-for-sale securities:
Changes in unrealized gains (losses), net of tax	(24)	829	(360)
Reclassification adjustments for losses included in net income		91	137
Net change	(24)	920	(223)
Cash flow hedges:
Changes in unrealized gains, net of tax	966		31
Reclassification adjustments for gains, net of tax included in net income	(966)		(31)
Net change
Foreign currency translation adjustments, net	5,690	(2,205)	310
Total other comprehensive income (loss)	5,666	(1,285)	87
Comprehensive income	145,988	143,672	128,133
Comprehensive loss (income) attributable to Non-controlling interests		981	(150)
Comprehensive income attributable to SolarEdge Technologies, Inc.	$ 145,988	$ 144,653	$ 127,983

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($)
$ in Thousands

Common Stock [Member]

Additional paid in capital [Member]

Accumulated other comprehensive Income (loss) [Member]

Retained earnings [Member]

Total

Noncontrolling Interest [Member]

Stockholders Equity

Balance at Dec. 31, 2017

$ 4

$ 331,902

$ (611)

$ 66,172

$ 397,467

Balance (in shares) at Dec. 31, 2017

43,812,601

Cumulative effect of adopting new accounting standard

(3,872)

Issuance of Common Stock upon exercise of employee and non-employees stock-based awards

$ 1

6,333

6,334

Issuance of Common Stock upon exercise of employee and non-employee stock options, shares

2,122,932

Issuance of Common stock under employee stock purchase plan

^[1]

3,687

Issuance of Common stock under employee stock purchase plan, share

117,269

Equity based compensation expenses to employees and nonemployees

30,618

Issuance of Common stock upon business combination

Non-controlling interests related to business combination

$ 22,159

22,159

Change in non-controlling interests

(746)

(13,204)

(13,950)

Other comprehensive income (loss) adjustments

150

237

Net income

128,833

(787)

128,046

Balance at Dec. 31, 2018

$ 5

371,794

(524)

191,133

562,408

8,318

570,726

Balance (in shares) at Dec. 31, 2018

46,052,802

Issuance of Common Stock upon exercise of employee and non-employees stock-based awards

^[1]

3,498

Issuance of Common Stock upon exercise of employee and non-employee stock options, shares

1,691,896

Issuance of Common stock under employee stock purchase plan

^[1]

5,568

Issuance of Common stock under employee stock purchase plan, share

142,713

Equity based compensation expenses to employees and nonemployees

60,353

Treasury Stock

^[1]

(2)

Treasury Stock, shares

(183,395)

Issuance of Common stock upon business combination

^[1]

34,601

Issuance of Common stock upon business combination, shares

1,194,046

Non-controlling interests related to business combination

67,734

Change in non-controlling interests

(20)

(73,479)

(73,499)

Other comprehensive income (loss) adjustments

(1,285)

(981)

(2,266)

Net income

146,549

(1,592)

144,957

Balance at Dec. 31, 2019

$ 5

475,792

(1,809)

337,682

811,670

Balance (in shares) at Dec. 31, 2019

48,898,062

Issuance of Common Stock upon exercise of employee and non-employees stock-based awards

^[1]

16,671

Issuance of Common Stock upon exercise of employee and non-employee stock options, shares

2,579,004

Issuance of Common stock under employee stock purchase plan

^[1]

7,783

Issuance of Common stock under employee stock purchase plan, share

83,870

Equity based compensation expenses to employees and nonemployees

67,309

Issuance of Common stock upon business combination

Equity component of convertible senior notes, net

36,336

Other comprehensive income (loss) adjustments

5,666

Net income

140,322

Balance at Dec. 31, 2020

$ 5

$ 603,891

$ 3,857

$ 478,004

$ 1,085,757

Balance (in shares) at Dec. 31, 2020

51,560,936

[1]	Represents an amount less than $1.

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Cash flows provided by operating activities:
Net income	$ 140,322	$ 144,957	$ 128,046
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment	22,355	17,261	11,426
Amortization of intangible assets	9,479	9,634	1,193
Amortization of debt discount and debt issuance costs	3,185
Amortization of premium and accretion of discount on available-for-sale marketable securities, net	1,168	92	1,242
Stock-based compensation expenses	67,309	60,353	30,618
Deferred income taxes, net	(2,738)	(6,037)	(7,093)
Loss from sale of business		5,269
Other items	2,451	713	551
Changes in assets and liabilities:
Inventories, net	(149,661)	(22,544)	(20,178)
Prepaid expenses and other assets	(3,276)	(67,323)	(2,711)
Trade receivables, net	86,538	(124,071)	(60,514)
Operating lease right-of-use assets and liabilities, net and effect of exchange rate differences	1,409	2,192
Trade payables, net	3,333	47,837	31,482
Employees and payroll accruals	18,315	18,592	4,583
Warranty obligations	32,274	50,780	41,878
Deferred revenues and customers advances	(21,438)	83,137	37,041
Other liabilities	11,630	38,158	(8,485)
Net cash provided by operating activities	222,655	259,000	189,079
Cash flows from investing activities:
Investment in available-for-sale marketable securities	(223,705)	(160,054)	(142,627)
Proceed from sales and maturities of available-for-sale marketable securities	141,839	142,744	129,345
Purchase of property, plant and equipment	(126,790)	(72,562)	(38,608)
Withdrawal from (investment in) bank deposits, net	(54,752)	4,860	(9,870)
Withdrawal from (investment in) restricted bank Deposits, net	25,267	(26,145)	(112)
Business combinations, net of cash acquired		(38,435)	(94,737)
Other investing activities	1,504	(3,261)
Net cash used in investing activities	(236,637)	(152,853)	(156,609)
Cash flows from financing activities:
Proceeds from issuance of convertible senior notes, net	617,869
Repayment of bank loans	(15,595)	(9,514)	(3,786)
Proceeds from bank loans	16,944	249
Proceeds from exercise of stock-based awards	21,500	9,066	10,021
Change in non-controlling interests		(71,468)	(14,190)
Other financing activities	(234)	(1,354)
Net cash provided by (used in) financing activities	640,484	(73,021)	(7,955)
Increase in cash and cash equivalents	626,502	33,126	24,515
Cash and cash equivalents at the beginning of the period	223,901	187,764	163,163
Effect of exchange rate differences on cash and cash equivalents	(23,257)	3,011	86
Cash and cash equivalents at the end of the period	827,146	223,901	187,764
Supplemental disclosure of non-cash activities:
Right-of-use asset recognized with corresponding lease liability	29,623	37,298
Issuance of common stock upon business combination		34,601
Supplemental disclosure of cash flow information:
Cash paid for income taxes	38,990	41,076	15,368
Cash paid for interest on bank loans	$ 321	$ 1,096	$ 143

GENERAL

12 Months Ended

Dec. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

GENERAL

NOTE 1:-GENERAL

a.SolarEdge Technologies, Inc. (the “Company”) and its subsidiaries design, develop, and sell an intelligent inverter solution designed to maximize power generation at the individual photovoltaic (“PV”) module level while lowering the cost of energy produced by the solar PV system and providing comprehensive and advanced safety features. The Company’s products consist mainly of (i) power optimizers designed to maximize energy throughput from each and every module through constant tracking of Maximum Power Point individually per module, (ii) inverters which invert direct current (DC) from the PV module to alternating current (AC), (iii) a remote cloud-based monitoring platform, that collects and processes information from the power optimizers and inverters to enable customers and system owners, to monitor and manage the solar PV system (iv) a storage and backup solution that is used to increase energy independence and maximize self-consumption for homeowners by utilizing a battery that is sold separately by third party manufacturers, to store and supply power as needed, and (v) additional smart energy management solutions.

The Company and its subsidiaries sell products worldwide through large distributors, electrical equipment wholesalers, as well as directly to large solar installers and engineering, procurement and construction firms.

b.The Company has expanded its activity to other areas of smart energy technology organically and through acquisitions. The Company now offers variety of energy solutions, which include lithium-ion cells, batteries and energy storage systems (“Energy Storage”), full powertrain kits for electric vehicles, or EVs (“e-Mobility”), uninterrupted power supply solutions (“UPS”), as well as automated machines for industrial use (“Automation Machines”).

During 2018, the Company completed the acquisitions of substantially all of the assets and activities of Gamatronic Electronic Industries Ltd and all of the outstanding shares of its wholly owned subsidiary Gamatronic (UK) Limited, respectively. Together, this activity is referred to as Critical Power, which provides and manufactures UPS devices.

During 2018 and 2019, the Company completed the acquisition of Kokam Co., Ltd., a provider of lithium-ion cells, batteries and energy storage solutions (“Kokam”).

On January 24, 2019, the Company completed the acquisition of 56.8% of the outstanding common stock and voting rights of SolarEdge Automation Machines, formerly known as S.M.R.E S.p.A (“SolarEdge Automation Machines”) and its subsidiaries, providers of innovative integrated powertrain technology and electronics for electric vehicles as well as automated machines for industries. As of December 31, 2020, the Company increased its shareholdings in SolarEdge Automation Machines to 99.9%.

SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements are prepared according to United States generally accepted accounting principles (“U.S. GAAP”).

a.Principles of consolidation:

The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances including profit from intercompany sales not yet realized outside the Company have been eliminated upon consolidation.

b.Use of estimates:

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures in the accompanying notes.

The duration, scope and effects of the ongoing COVID-19 pandemic, government and other third party responses to it, and the related macroeconomic effects, including to the Company’s business and the business of the Company’s suppliers and customers are uncertain, rapidly changing and difficult to predict. As a result, the Company’s accounting estimates and assumptions may change over time in response to this evolving situation. Such changes could result in future impairments of goodwill, intangibles, long-lived assets, inventories, incremental credit losses on receivables and AFS debt securities, or an increase in the Company’s insurance liabilities as of the time of a relevant measurement event.

c.Financial statements in U.S. dollars:

A major part of the Company’s operations is carried out in the United States, Israel and certain other countries. The functional currency of these entities is the U.S. dollar.

Financing activities, including cash investments are primarily made in U.S. dollars.

Accordingly, monetary accounts maintained in currencies other than the U.S. dollar are translated into U.S. dollars in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) No. 830 “Foreign Currency Matters”. All transaction gains and losses of the re-measurement of monetary balance sheet items are reflected in the statements of income as financial income or expenses, as appropriate.

The financial statements of other Company’s subsidiaries whose functional currency is other than the U.S. dollar have been translated into U.S dollars. Assets and liabilities have been translated using the exchange rates in effect as of the balance sheet date. Statements of income amounts have been translated using the average exchange rate for the relevant periods.

The resulting translation adjustments are reported as a component of stockholders’ equity in accumulated other comprehensive income (loss).

Accumulated other comprehensive income (loss) related to foreign currency translation adjustments, net amounted to $3,617 and $(2,073) as of December 31, 2020 and 2019, respectively.

F - 14

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

d.Cash and cash equivalents:

Cash equivalents are short-term, highly liquid investments that are readily convertible to cash, with original maturities of three months or less at the date acquired.

e.Short-term bank deposits:

Short-term bank deposits are deposits with an original maturity of more than three months and less than a year from the date of investment and which do not meet the definition of cash equivalents. The deposits are presented according to their term deposits.

f.Restricted bank deposits:

Restricted bank deposits are primarily invested in short-term bank deposits, with an original maturity of more than three months and less than a year from the date of investment and which are primarily used as collateral for a letter of credit for the Company’s customers and security for the Company’s office leases and credit cards.

g.Marketable Securities:

Marketable securities consist of corporate and governmental bonds. The Company determines the appropriate classification of marketable securities at the time of purchase and re-evaluates such designation at each balance sheet date. In accordance with FASB ASC No. 320 “Investments - Debt and Equity Securities”, the Company classifies marketable securities as available-for-sale.

Available-for-sale securities are stated at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), a separate component of stockholders’ equity, net of taxes. Realized gains and losses on sales of marketable securities, as determined on a specific identification basis, are included in financial expenses (income), net. The amortized cost of marketable securities is adjusted for amortization of premium and accretion of discount to maturity, both of which, together with interest, are included in financial expenses (income), net.

The Company classifies its marketable securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Marketable securities with maturities of 12 months or less are classified as short-term and marketable securities with maturities greater than 12 months are classified as long-term.

On each reporting period, the Company evaluates whether declines in fair value below carrying value are due to expected credit losses, as well as the ability and intent to hold the investment until a forecasted recovery occurs, in accordance with ASC 326. Allowance for credit losses on AFS debt securities are recognized as a charge in financial expenses (income), net, on the consolidated statements of income, and any remaining unrealized losses, net of taxes, are included in accumulated other comprehensive income (loss) in stockholders' equity.

The Company has not recorded credit losses for the year ended December 31, 2020.

There was no other-than-temporary-impairment charge for any unrealized losses in 2019 and 2018.

The Company determines realized gains or losses on sale of marketable securities on a specific identification method and records such gains or losses in financial expenses (income) on the consolidated statements of income.

F - 15

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

h.Trade receivables:

Trade receivables are stated net of credit losses allowance. The Company is exposed to credit losses primarily through sales of products. The allowance against gross trade receivables reflects the current expected credit loss inherent in the receivables portfolio determined based on the Company’s methodology. The Company’s methodology is based on historical collection experience, customer creditworthiness, current and future economic condition and market condition. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company also considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined that the estimate of credit losses was not significantly impacted. Trade receivables are written off after all reasonable means to collect the full amount have been exhausted.

The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of trade receivables to present the net amount expected to be collected:

	Year ended December 31, 2020
Balance, at beginning of period	$	2,473
Provision for expected credit losses		956
Amounts written off charged against the allowance and others		(543)
Balance, at end of period	$	2,886

i.Inventories:

Inventories are stated at the lower of cost or net realizable value. Cost includes depreciation, labor, material and overhead costs. Inventory reserves are provided to cover risks arising from slow-moving items or technological obsolescence. The Company periodically evaluates the quantities on hand relative to historical, current, and projected sales volume. Based on this evaluation, an impairment charge is recorded when required to write-down inventory to its net realizable value.

Cost of finished goods and raw materials is determined using the moving average cost method.

j.Property, plant and equipment:

Property, plant and equipment are stated at cost, net of accumulated depreciation. Machinery and equipment in progress represent the construction or development stage of property and equipment that have not yet been placed in service for the Company's intended use. Depreciation is calculated by the straight-line method over the estimated useful live of the assets, at the following rates:

		%

Buildings and plants		2.5 – 5 (mainly 2.5)
Computers and peripheral equipment		20 – 33 (mainly 33)
Office furniture and equipment		7 – 25 (mainly 7)
Machinery and equipment		10 – 25 (mainly 10)
Laboratory and testing equipment		7 – 20 (mainly 10)
Leasehold improvements		over the shorter of the lease term or useful economic life

F - 16

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

k.Leases:

The Company determines if an arrangement is a lease at inception. Contracts containing a lease are further evaluated for classification as an operating or finance lease. In determining the leases classification the Company assesses among other criteria: (i) 75% or more of the remaining economic life of the underlying asset is a major part of the remaining economic life of that underlying asset; and (ii) 90% or more of the fair value of the underlying asset comprises substantially all of the fair value of the underlying asset. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and long-term operating lease liabilities in the Company’s consolidated balance sheets. Finance leases are included in property, plant and equipment, net, other current liabilities, and long-term finance lease liabilities in the Company’s consolidated balance sheets. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. For leases with terms greater than 12 months, the Company records the ROU asset and liability at commencement date based on the present value of lease payments according to their term.

The Company uses incremental borrowing rates based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expenses are recognized on a straight-line basis over the lease term or the useful life of the leased asset.

In addition, the carrying amount of the ROU and lease liabilities are remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

l.Business Combination:

The Company allocates the fair value of the purchase price to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair value. The excess of the fair value of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets.

Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired technology and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which does not exceed one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the finalization of the measurement period, any subsequent adjustments are recorded to earnings.

m.Intangible Assets:

The Company evaluates the recoverability of finite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable.

F - 17

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these group of assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the group of assets is expected to generate.

If such review indicates that the carrying amount of intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. The Company has not recorded any impairment charges of finite-lived intangible assets during the years ended December 31, 2020 and 2019.

Acquired identifiable finite-lived intangible assets are amortized on a straight-line basis or accelerated method over the estimated useful lives of the assets. The basis of amortization approximates the pattern in which the assets are utilized, over their estimated useful lives. The Company routinely reviews the remaining estimated useful lives of finite-lived intangible assets. In case the Company reduces the estimated useful life for any asset, the remaining unamortized balance is amortized or depreciated over the revised estimated useful life (see Note 9).

n.Goodwill:

Goodwill reflects the excess of the consideration transferred, including the fair value of any contingent consideration and any non-controlling interest in the acquiree, over the assigned fair values of the identifiable net assets acquired. Goodwill is not amortized, and is assigned to reporting units and tested for impairment at least on an annual basis, in the fourth quarter of the fiscal year.

The goodwill impairment test is performed according to the following principles:

(1)An initial qualitative assessment may be performed to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount.

(2)If the Company concludes it is more likely than not that the fair value of the reporting unit is less than its carrying amount, a quantitative fair value test is performed. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value is recognized.

The Company has not recorded any impairment charges of goodwill during the years ended December 31, 2020 and 2019.

o.Impairment of long-lived assets:

The Company’s long-lived assets, other than goodwill and intangible assets, including right-of-use assets, are reviewed for impairment in accordance with ASC 360 “Property, Plants and Equipment”, whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset (or asset group) to the future undiscounted cash flows expected to be generated by the assets (or asset group).

If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds their fair value. For the years ended December 31, 2020, 2019 and 2018, no impairment losses have been identified.

F - 18

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

p.Severance pay:

The employees of the Company’s Israeli subsidiary are included under Section 14 of the Severance Pay Law, 1963, under which these employees are entitled only to monthly deposits made in their name with insurance companies, at a rate of 8.33% of their monthly salary. These payments cause the Company to be released from any future obligation under the Israeli Severance Pay Law to make severance payments in respect of those employees; therefore, related assets and liabilities are not presented in the consolidated balance sheets.

For the years ended December 31, 2020, 2019 and 2018, the Company recorded $10,598, $7,285 and $4,331, in severance expenses related to its employees, respectively.

q.Derivatives and Hedging:

The Company accounts for derivatives and hedging based on ASC 815 (“Derivatives and Hedging”). ASC 815 requires the Company to recognize all derivatives on the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship.

To protect against the increase in value of forecasted foreign currency cash flows resulting from salary denominated in the Israeli currency, the New Israeli Shekels (“NIS”), during the year ended December 31, 2020, the Company instituted a foreign currency cash flow hedging program whereby portions of the anticipated payroll denominated in NIS for a period of one to six months with hedging contracts.

Accordingly, when the dollar strengthens against the NIS, the decline in present value of future foreign currency expenses is offset by losses in the fair value of the hedging contracts. Conversely, when the dollar weakens, the increase in the present value of future foreign currency cash flows is offset by gains in the fair value of the hedging contracts. These hedging contracts are designated as cash flow hedges, as defined by ASC 815 and are all effective hedges.

The Company also entered into derivative instrument arrangements to hedge the Company’s exposure to currencies other than the U.S. dollar. These derivative instruments are not designated as cash flow hedges, as defined by ASC 815, and therefore all gains and losses, resulting from fair value remeasurement, were recorded immediately in the statement of income, as a financial expense (income), net.

r.Revenue recognition:

Revenues are recognized in accordance with ASC 606; revenue from contracts with customers is recognized when control of the promised goods or services is transferred to the customers, in an amount that the Company expects in exchange for those goods or services.

The Company’s products consist mainly of (i) power optimizers, (ii) inverters, (iii) a related cloud-based monitoring platform, (iv) communication services, (v) a storage solution, (vi) UPS units, (vii) Lithium-ion cells, batteries and energy storage solutions, (viii) powertrain kits for the e-Mobility segment and (ix) automated machinery for manufacturing lines.

The Company recognizes revenue under the core principle that transfer of control to the Company’s customers should be depicted in an amount reflecting the consideration the Company expects to receive in revenue.

F - 19

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when the performance obligation is satisfied.

(1)Identify the contract with a customer

A contract is an agreement or purchase order between two or more parties that creates enforceable rights and obligations. In evaluating the contract, the Company analyzes the customer’s intent and ability to pay the amount of promised consideration (credit risk) and considers the probability of collecting substantially all of the consideration.

The Company determines whether collectability is reasonably assured on a customer-by-customer basis pursuant to its credit review policy. The Company typically sells to customers with whom it has a long-term business relationship and a history of successful collection. For a new customer, or when an existing customer substantially expands its commitments, the Company evaluates the customer’s financial position, the number of years the customer has been in business, the history of collection with the customer, and the customer’s ability to pay, and typically assigns a credit limit based on that review.

(2)Identify the performance obligations in the contract

At a contract’s inception, the Company assesses the goods or services promised in a contract with a customer and identifies the performance obligations.

The main performance obligations are the provisions of the following: delivery of the Company’s products; cloud based monitoring services; extended warranty services and communication services.

(3)Determine the transaction price

The transaction price is the amount of consideration to which the Company is entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

Generally, the Company does not provide price protection, stock rotation, and/or right of return. The Company determines the transaction price for all satisfied and unsatisfied performance obligations identified in the contract from contract inception to the beginning of the earliest period presented.

Rebates or discounts on goods or services are accounted for as variable consideration. The rebate or discount program is applied retrospectively for future purchases. Provisions for rebates, sales incentives, and discounts to customers are accounted for as reductions in revenue in the same period the related sales are recorded.

Accrual for rebates for direct customers is presented net of receivables. Accrual for sale incentives related to non-direct customers is presented under accrued expenses and other current liabilities. The Company accrued $65,131 and $62,288 for rebates as of December 31, 2020 and 2019, respectively.

F - 20

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

When a contract provides a customer with payment terms of more than a year, the Company considers whether those terms create variability in the transaction price and whether a significant financing component exists.

As of December 31, 2020, the Company has not provided payment terms of more than a year.

The performance obligations that extend for a period greater than one year are those that include a financial component: (i) warranty extension services, (ii) cloud-based monitoring, and (iii) communication services.

The Company recognizes financing component expenses in its consolidated statement of income in relation to advance payments for performance obligations that extend for a period greater than one year. These financing component expenses are reflected in the Company’s deferred revenues balance.

(4)Allocate the transaction price to the performance obligations in the contract

The Company performs an allocation of the transaction price to each separate performance obligation, in proportion to their relative standalone selling prices.

(5)Recognize revenue when a performance obligation is satisfied

Revenue is recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer. Control either transfers over time or at a point in time, which affects when revenue is recorded.

Revenues from sales of products are recognized when control is transferred (based on the agreed International Commercial terms, or “INCOTERMS”). Revenues related to warranty extension services, cloud-based monitoring, and communication services are recognized over time on a straight-line basis.

Deferred revenues consist of deferred cloud-based monitoring services, communication services, warranty extension services and advance payments received from customers for the Company’s products. Deferred revenues are classified as short-term and long-term deferred revenues based on the period in which revenues are expected to be recognized (see Note 14).

s.Cost of revenues:

Cost of revenues includes the following: product costs consisting of purchases from contract manufacturers and other suppliers, direct and indirect manufacturing costs, shipping and handling, support, warranty expenses and changes in warranty provision, provision for losses related to slow moving and dead inventory, personnel and logistics costs.

Shipping and handling costs, which amounted to $101,597, $113,635 and $45,821, for the years ended December 31, 2020, 2019 and 2018, respectively, are included in the cost of revenues in the consolidated statements of income. Shipping and handling costs include custom tariff charges and all other costs associated with the distribution of finished goods from the Company’s point of sale directly to its customers.

F - 21

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

t.Warranty obligations:

The Company provides a product warranty for its solar related products as follows: a 10-year limited warranty for StorEdge products, a standard 12-year limited warranty for inverters, and a 25-year limited warranty for power optimizers.

In certain cases, the Company provides an extended warranty for inverters that increases the warranty period for up to 25 years.

The Company maintains reserves to cover the expected costs that could result from the standard warranty. The warranty liability is in the form of product replacement and associated costs. Warranty reserves are based on the Company’s best estimate of such costs and are included in cost of revenues. The reserve for the related warranty expenses is based on various factors including assumptions about the frequency of warranty claims on product failures, derived from results of accelerated lab testing, field monitoring, analysis of the history of product field failures, and the Company’s reliability estimates.

The Company has established a reliability measurement system based on the units’ estimated mean time between failure, or MTBF, a metric that equates to a steady-state failure rate per year for each product generation. The MTBF predicts the expected failure rate of each product within the Company's products installed base during the expected product warranted lifetime.

The Company performs accelerated life cycle testing, which simulates the service life of the product in a short period of time.

The accelerated life cycle tests incorporate test methodologies derived from standard tests used by solar module vendors to evaluate the period over which solar modules wear out. Corresponding replacement costs are updated periodically to reflect changes in the Company’s actual and estimated production costs for its products, rate of usage of refurbished units as a replacement of faulty units, and other costs related to logistic and subcontractors’ services associated with the replacement products.

In addition, through the collection of actual field failure statistics, the Company has identified several additional failure causes that are not included in the MTBF model. Such causes, which mostly consist of design errors, workmanship errors caused during the manufacturing process and, to a lesser extent, replacement of non-faulty units by installers, result in generating additional replacement costs to the replacement costs projected under the MTBF model.

For other products, the Company accrues for warranty costs based on the Company’s best estimate of product and associated costs. The Company’s other products are sold with a standard limited warranty that typically range in duration from one to ten years.

Warranty obligations are classified as short-term and long-term obligations based on the period in which the warranty is expected to be claimed.

u.Convertible senior notes:

The Company accounts for its convertible senior notes in accordance with ASC 470-20 "Debt with Conversion and Other Options". The Company separately accounts for the liability and equity components of convertible debt instruments. The liability component at issuance is recognized at fair value, based on the fair value of a similar instrument that does not have a conversion feature.

F - 22

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The equity component is based on the excess of the principal amount of the debentures over the fair value of the liability component, after adjusting for an allocation of debt issuance costs and deferred taxes, and is recorded in additional paid-in capital. Debt discount is amortized as additional non-cash interest expense over the expected life of the debt using the effective interest rate method. In accounting for the issuance costs related to the Notes, the issuance costs incurred were allocated between the liability and equity components based on their relative values.

The Company’s convertible senior notes are included in the calculation of diluted Earnings Per Share (“EPS”) if the assumed conversion into common shares is dilutive, using the “if-converted” method. This involves adding back the periodic non-cash interest expense net of tax associated with the Notes to the numerator and by adding the shares that would be issued in an assumed conversion (regardless of whether the conversion option is in or out of the money) to the denominator for the purposes of calculating diluted EPS, unless the Notes are antidilutive (See Note 20).

v.Research and development costs:

Research and development costs, are charged to the consolidated statement of income as incurred.

w.Concentrations of credit risks:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term bank deposits, restricted bank deposits, marketable securities, trade receivables and other accounts receivable.

Cash and cash equivalents, short-term bank deposits and restricted bank deposits are mainly invested in major banks in the U.S., Israel and Korea. Management believes that the financial institutions that hold the Company’s investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments.

The Company's debt marketable securities include investments in highly-rated corporate debentures (located mainly in U.S., UK, France, South Korea, Netherlands and other countries) and governmental bonds. The financial institutions that hold the Company's debt marketable securities are major financial institutions located in the United States. The Company believes that the its debt marketable securities portfolio is a diverse portfolio of highly-rated securities and the Company's investment policy limits the amount the Company may invest in an issuer (see Note 2g).

The trade receivables of the Company derive from sales to customers located primarily in United States, Europe and Australia.

The Company performs ongoing credit evaluations of its customers for the purpose of determining the appropriate allowance for doubtful accounts (see Note 2h). The Company generally does not require collaterals, however, in certain circumstances, the Company may require letters of credit, other collateral, or additional guarantees. From time to time, the Company may purchase trade credit insurance.

The Company had one major customer (customer with attributable revenues that represents more than 10% of total revenues) that accounted for approximately 14.8%, 20.4% and 19.4% of the Company’s consolidated revenues, for the years ended December 31, 2020, 2019 and 2018, respectively. All of the revenues from this customer were generated in the solar segment.

F - 23

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The Company had two major customers (customer with a balance that represents more than 10% of total trade receivables, net) as of December 31, 2020 and one major customer as of December 31, 2019 that accounted in the aggregate for approximately 34.6% and 32.1%, of the Company’s consolidated trade receivables, net, respectively.

x.Concentrations of supply risks:

The Company depends on two contract manufacturers and several limited or single source component suppliers. Reliance on these vendors makes the Company vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields, and costs.

As of December 31, 2020 and 2019, two contract manufacturers collectively accounted for 48.5% and 42.3% of the Company’s total trade payables, net, respectively.

During 2020, the Company started production in its manufacturing facility in the North of Israel, “Sella 1”.

y.Fair value of financial instruments:

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

The carrying value of cash and cash equivalents, short-term bank deposits, restricted bank deposits, trade receivables, net, long term bank loans and current maturities, prepaid expenses and other current assets, trade payables, net, employee and payroll accruals and accrued expenses and other current liabilities approximate their fair values due to the short-term maturities of such instruments.

Assets measured at fair value on a recurring basis as of December 31, 2020 and 2019 are comprised of money market funds and debt marketable securities (see Note 4).

The Company applies ASC 820 “Fair Value Measurements and Disclosures”, with respect to fair value measurements of all financial assets and liabilities.

Fair value is an exit price, representing the amount that would be received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

A three-tiered fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

Level 1-Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2-Include other inputs that are directly or indirectly observable in the marketplace.

Level 3-Unobservable inputs which are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

F - 24

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

z.Accounting for stock-based compensation:

The Company accounts for stock-based compensation in accordance with ASC 718 “Compensation-Stock Compensation”.

ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an Option-Pricing Model (“OPM”). The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statements of income.

The Company recognizes compensation expenses for the value of its awards granted based on the straight-line method over the requisite service period of each of the awards, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Estimated forfeitures are based on actual historical pre-vesting forfeitures.

The Company selected the Black-Scholes-Merton option-pricing model as the most appropriate fair value method for its stock-option awards and Employee Stock Purchase Plan (“ESPP”). The option-pricing model requires a number of assumptions, of which the most significant are the fair market value of the underlying common stock, expected stock price volatility, and the expected option term. Expected volatility for stock-option awards was calculated until December 31, 2017 based upon certain peer companies that the Company considered to be comparable and starting January 1, 2018 based upon the Company’s actual historical stock price movements over the most recent periods. Expected volatility for ESPP was calculated based upon the Company’s stock prices. The expected term of options granted is based upon historical experience and represents the period between the options’ grant date and the expected exercise or expiration date.

The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term.

The Company doesn't use dividend yield rate since the Company has not declared or paid any dividends on its common stock and does not expect to pay any dividends in the foreseeable future.

The Company measures a modified stock based award at fair value and recognizes the compensation cost at the beginning of the modification date over the employee’s requisite service period of the modified award.

F - 25

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The fair value for options granted to employees and ESPP in the years ended December 31, 2020, 2019 and 2018, are estimated at the date of grant using a Black-Scholes-Merton option-pricing model with the following assumptions:

	Year ended December 31,
	2020		2019		2018

Employee Stock Options
Risk-free interest		1.73%		2.53%		2.32%
Dividend yields		0%		0%		0%
Volatility		58.98%		56.26%		56.53%
Expected option term in years		6.00		6.03		6.06
Estimated forfeiture rate		0%		0%		0%

ESPP
Risk-free interest		0.09% - 1.63%		1.63% - 2.35%		2.10% - 2.52%
Dividend yields		0%		0%		0%
Volatility		55.95% - 92.57%		46.68% - 55.95%		54.13% - 56.67%
Expected term	6 months		6 months		6 months

The Company recognizes compensation expenses for the value of its restricted stock units (“RSU”) awards, based on the straight-line method over the requisite service period of each of the awards, net of estimated forfeitures. The fair value of each RSU is the market value of the Company’s stock as determined by the closing price of the common stock on the grant date.

aa.Income taxes:

The Company and its subsidiaries account for income taxes in accordance with ASC 740, “Income Taxes”. ASC 740 prescribes the use of the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse.

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent the Company believes they will not be realized.

The Company accounts for uncertain tax positions in accordance with ASC 740. ASC 740-10 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% (cumulative probability) likely to be realized upon ultimate settlement.

F - 26

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

bb.New accounting pronouncements not yet effective:

In January 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (ASU 2020-01), which clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. This guidance will be effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company do not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

In August 2020, the FASB issued Accounting Standards Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. This guidance will be effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is not permitted before fiscal years beginning after December 15, 2020. The Company do not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

cc.Recently issued and adopted pronouncements:

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB subsequently issued amendments to ASU 2016-13, which have the same effective date and transition date of January 1, 2020. This standard requires entities to estimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings and report credit losses using an expected losses model rather than the incurred losses model that was previously used, and establishes additional disclosures related to credit risks. For available-for-sale (“AFS”) debt securities with unrealized losses, the standard eliminates the concept of other-than-temporary impairments and requires allowances to be recorded instead of reducing the amortized cost of the investment.

This standard limits the amount of credit losses to be recognized for AFS debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases.

F - 27

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The Company adopted Topic 326 effective January 1, 2020, based on the composition of the Company’s trade receivables, investment portfolio and other financial assets, current economic conditions and historical credit loss activity. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

The consolidated financial statements for the year ended December 31, 2020 are presented under the new standard, while comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy.

dd.Certain prior period amounts have been reclassified to conform to the current period presentation.

MARKETABLE SECURITIES

12 Months Ended

Dec. 31, 2020

Marketable Securities [Abstract]

MARKETABLE SECURITIES

NOTE 3:-MARKETABLE SECURITIES

The following is a summary of available-for-sale marketable securities at December 31, 2020:

	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value

Available-for-sale – matures within one year:
Corporate bonds	$	141,824	$	509	$	(57	)	$	142,276
Governmental bonds		1,400		11		-			1,411
		143,224		520		(57	)		143,687

Available for-sale – matures after one year:
Corporate bonds		142,701		65		(214	)		142,552
Governmental bonds		4,895		-		(13	)		4,882
		147,596		65		(227	)		147,434

Total	$	290,820	$	585	$	(284	)	$	291,121

F - 28

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 3:-MARKETABLE SECURITIES (Cont.)

The following is a summary of available-for-sale marketable securities at December 31, 2019:

	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value

Available-for-sale – matures within one year:
Corporate bonds	$	91,677	$	196	$	(28	)	$	91,845

Available for-sale – matures after one year:
Corporate bonds		117,692		336		(250	)		117,778
Governmental bonds		1,398		-		-			1,398
		119,090		336		(250	)		119,176

Total	$	210,767	$	532	$	(278	)	$	211,021

Proceeds from maturity of available-for-sale marketable securities during the years ended December 31, 2020, 2019 and 2018, were $141,839, $120,834 and $84,497, respectively.

The Company had no proceeds from sales of available-for sale, marketable securities during the year ended December 31, 2020, therefore no realized gains or losses from the sale of available for sale marketable securities were recognized.

Proceeds from sales of available-for-sale marketable securities during the year ended December 31, 2019 and 2018 were $21,910 and $44,848, which led to realized losses of $91 and $137, respectively.

FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2020

Fair Value Measurements

FAIR VALUE MEASUREMENTS

NOTE 4:-FAIR VALUE MEASUREMENTS

In accordance with ASC 820, the Company measures its cash equivalents and marketable securities, at fair value using the market approach valuation technique. Cash equivalents and marketable securities are classified within Level 1 and Level 2, respectively, because these assets are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Foreign currency derivative contracts are classified within the Level 2 value hierarchy, as the valuation inputs are based on quoted prices and market observable data of similar instruments.

F - 29

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 4:-FAIR VALUE MEASUREMENTS (Cont.)

The following table sets forth the Company’s assets that were measured at fair value as of December 31, 2020 and 2019 by level within the fair value hierarchy:

	Fair Value	Fair value measurements as of December 31,
Description	Hierarchy	2020		2019

Measured at fair value on a recurring basis:

Assets:
Cash equivalents:
Money market mutual funds	Level 1	$	480,673	$	527

Derivative instruments asset:
Options and forward contracts not designated as hedging instruments	Level 2	$	3,786	$	-

Short-term marketable securities:
Corporate bonds	Level 2	$	142,276	$	91,845
Governmental bonds	Level 2	$	1,411	$	-

Long-term marketable securities:
Corporate bonds	Level 2	$	142,552	$	117,778
Governmental bonds	Level 2	$	4,882	$	1,398

Liabilities
Derivative instruments liability:
Options and forward contracts not designated as hedging instruments	Level 2	$	(5,819)	$	-

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

12 Months Ended

Dec. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

NOTE 5:-DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

As of December 31, 2020, the Company had no derivative instruments that were designated as cash flow hedges.

As of December 31, 2020, the Company entered into forward contracts and put and call options to sell Australian dollars (“AUD”) for U.S. dollars in the amount of AUD 12 million and AUD 42 million, respectively.

As of December 31, 2020, the Company entered into forward contracts and put and call options to sell Euro (“EUR”) for U.S. dollars in the amount of EUR 48 million and EUR 60 million, respectively.

As of December 31, 2020, the Company entered into forward contracts to sell U.S. dollars for South Korean Won in the amount of USD 40.6 million.

The fair value of derivative assets as of December 31, 2020, was $3,786, which was recorded in prepaid expenses and other current assets in the Consolidated Balance Sheets.

The fair value of derivative liabilities as of December 31, 2020, was $5,819, which was recorded in accrued expenses and other current liabilities in the Consolidated Balance Sheets.

F - 30

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 5:-DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Cont.)

For the year ended December 31, 2020, the Company recorded a loss in the amount of $4,013, in financial expense (income), net, related to the derivative instruments not designated as cash flow hedges.

As of December 31, 2019 and for the year then ended, the Company had no derivative instruments (see Note 4).

For the year ended December 31, 2018, the Company recorded a gain in the amount of $698, in financial expense (income), net, related to the derivative instruments not designated as cash flow hedges

PREPAID EXPENSES AND OTHER CURRENT ASSETS

12 Months Ended

Dec. 31, 2020

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

PREPAID EXPENSES AND OTHER CURRENT ASSETS

NOTE 6:-PREPAID EXPENSES AND OTHER CURRENT ASSETS

	As of December 31,
	2020		2019

Vendor non-trade receivables (*)	$	56,617	$	83,917
Government authorities		50,041		16,434
Prepaid expenses and other		28,741		14,917
	$	135,399	$	115,268

(*) Vendor non-trade receivables related to contract manufacturers derive from the sale of components to manufacturing vendors who manufacture products for the Company. The Company purchases these components directly from other suppliers. The Company does not reflect the sale of these components to the contract manufacturers in its revenues (see also Note 18b).

INVENTORIES, NET

12 Months Ended

Dec. 31, 2020

Inventory Disclosure [Abstract]

INVENTORIES, NET

NOTE 7:-INVENTORIES, NET

	As of December 31,
	2020		2019

Raw materials	$	128,363	$	64,714
Work in process		25,461		20,752
Finished goods		177,872		85,332
	$	331,696	$	170,798

The Company recorded inventory write-downs of $8,864, $4,528 and $943 for the years ended December 31, 2020, 2019 and 2018, respectively.

PROPERTY, PLANT AND EQUIPMENT, NET

12 Months Ended

Dec. 31, 2020

Property, Plant and Equipment [Abstract]

PROPERTY, PLANT AND EQUIPMENT, NET

NOTE 8:-PROPERTY, PLANT AND EQUIPMENT, NET

	As of December 31,
	2020		2019

Cost:
Land	$	17,935	$	6,938
Buildings and plants		49,855		23,670
Computers and peripheral equipment		37,354		23,431
Office furniture and equipment		8,639		6,792
Laboratory and testing equipment		29,733		22,666
Machinery and equipment		183,512		113,355
Leasehold improvements		48,610		12,748
Assets under construction and payments on account		48,344		59,058

Gross property, plant and equipment		423,982		268,658

Less - accumulated depreciation		120,574		91,695

Total property, plant and equipment, net	$	303,408	$	176,963

Depreciation expenses for the years ended December 31, 2020, 2019 and 2018, were $22,355, $17,261 and $11,426, respectively.

INTANGIBLE ASSETS AND GOODWILL, NET

12 Months Ended

Dec. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE ASSETS AND GOODWILL, NET

NOTE 9:-INTANGIBLE ASSETS AND GOODWILL, NET

a.Intangible assets:

Acquired intangible assets consisted of the following as of December 31, 2020, and 2019:

	As of December 31,
	2020			2019

Finite-lived intangible assets:
Current Technology	$	78,375		$	72,613
Customer relationships		4,227			4,351
Trade names		4,280			5,990
Patents		1,400			1,400

Gross intangible assets		88,282			84,354

Less - accumulated amortization		(20,464	)		(10,346	)

Total intangible assets, net	$	67,818		$	74,008

Amortization expenses for the years ended December 31, 2020, 2019 and 2018, were $9,479, $9,634 and $1,193, respectively.

F - 32

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 9:-INTANGIBLE ASSETS AND GOODWILL (Cont.)

Expected future amortization expenses of intangible assets as of December 31, 2020 are as follows:

2021	$	9,883
2022		9,949
2023		9,933
2024		9,859
2025		9,516
Thereafter		18,678
	$	67,818

b.Goodwill:

The following summarizes the goodwill activity for the year ended December 31, 2020, and 2019:

	Solar			All other			Total

Goodwill at January 1, 2019	$	31,205		$	3,669		$	34,874
Changes during the year:
Business combinations		-			97,498			97,498
Other changes related to measurement period and disposals		1,299			(1,653	)		(354	)
Foreign currency adjustments		(1,239	)		(1,125	)		(2,364	)
Goodwill at December 31, 2019		31,265			98,389			129,654
Changes during the year:
Foreign currency adjustments		1,990			8,835			10,825
Goodwill at December 31, 2020	$	33,255		$	107,224		$	140,479

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

12 Months Ended

Dec. 31, 2020

Payables and Accruals [Abstract]

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

NOTE 10:-ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

	As of December 31,
	2020		2019

Accrued expenses	$	53,623	$	39,836
Government authorities		26,218		27,191
Operating lease liabilities		10,994		9,590
Derivative liabilities		5,819		-
Other		9,500		3,959
	$	106,154	$	80,576

CONVERTIBLE SENIOR NOTES

12 Months Ended

Dec. 31, 2020

Debt Disclosure [Abstract]

CONVERTIBLE SENIOR NOTES

NOTE 11:-CONVERTIBLE SENIOR NOTES

On September 25, 2020, the Company sold $632,500 aggregate principal amount of its 0.00% convertible senior notes due 2025 (the “Notes”). The Notes were sold pursuant to an indenture, dated September 25, 2020 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee (the “Trustee”). The Notes do not bear regular interest and mature on September 15, 2025, unless earlier repurchased or converted in accordance with their terms. The Notes are general senior unsecured obligations of the Company. Holders may convert their Notes prior to the close of business on the business day immediately preceding June 15, 2025 in multiples of $1,000 principal amount, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2020 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five-business-day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each trading day of that five consecutive trading day period was less than 98% of the product of the last reported sale price of the common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events as described in the Indenture. In addition, holders may convert their Notes, in multiples of $1,000 principal amount, at their option at any time beginning on or after June 15, 2025, and prior to the close of business on the second scheduled trading day immediately preceding the stated maturity date of the Notes, without regard to the foregoing circumstances.

The initial conversion rate for the Notes was 3.5997 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $277.80 per share of common stock, subject to adjustment upon the occurrence of certain specified events as set forth in the Indenture.

Upon conversion, the Company may choose to pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock.

In addition, upon the occurrence of a fundamental change (as defined in the Indenture), holders of the Notes may require the Company to repurchase all or a portion of their Notes, in multiples of $1,000 principal amount, at a repurchase price of 100% of the principal amount of the Notes, plus any accrued and unpaid special interest, if any, to, but excluding, the repurchase date. If certain fundamental changes referred to as make-whole fundamental changes occur, the conversion rate for the Notes may be increased.

The Convertible Senior Notes consisted of the following as of December 31, 2020:

	As of December 31, 2020

Liability:
Principal	$	632,500
Unamortized debt discount		(46,353	)
Unamortized issuance costs		(12,797	)
Net carrying amount	$	573,350

Equity component:
Amount allocated to conversion option	$	48,834
Deferred taxes liability, net		(11,368	)
Allocated issuance costs		(1,130	)
Equity component, net	$	36,336

As of December 31, 2020, the debt discount and debt issuance costs of the Notes will be amortized over the remaining term of approximately 4.7 years.

F - 34

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 11:-CONVERTIBLE SENIOR NOTES (Cont.)

The annual effective interest rate of the liability component is 2.10% for the Notes which remains unchanged from the Notes issuance date.

The following table presents the total amount of interest expenses recognized related to the Notes for the year ended December 31, 2020:

	Year ended December 31, 2020
Amortization of debt discount	$	2,480
Amortization of debt issuance costs		705
Total interest expenses	$	3,185

Total initial issuance costs of $14,631 related to the Notes were allocated between the liability and equity components in the same proportion as the allocation of the total proceeds to the liability and equity components. Issuance costs attributable to the liability component are being amortized to interest expense over the respective term of the Notes using the effective interest rate method. The issuance costs attributable to the equity component were netted against the respective equity component in additional paid-in capital. The Company initially allocated issuance costs of $13,502 and $1,130 to the liability and equity components, respectively.

As of December 31, 2020, the estimated fair value of the Notes, which the Company has classified as Level 2 financial instruments, is $871,117. The estimated fair value was determined based on the quoted bid price of the Notes in an over-the-counter market on the last trading day of the reporting period.

As of December 31, 2020, the if-converted value of the Notes exceeded the principal amount by $238,617.

BANK LOANS

12 Months Ended

Dec. 31, 2020

Debt Disclosure [Abstract]

BANK LOANS

NOTE 12:-BANK LOANS

The following table summarizes the Company’s bank loans:

	As of December 31, 2020		Effective interest rate on bank loans

Maturities calendar year:
Current maturities of bank loans and accrued interest	$	16,894		1.54% - 2.5%
Long-term bank loans		1,383		2.5%
	$	18,277

The Company has two bank loans that are denominated in KRW and one loan, which is denominated in NIS in the amount of $1,523. The bank loans bear interest at a fix rate and are payable monthly. The bank loans do not contain financial covenants.

During the years ended December 31, 2020 and 2019, the Company recognized $302 and $1,116 as interest expenses related to the bank loans in the consolidated statement of income in financial expenses (income), net.

As of December 31, 2020, the Company secured certain bank loans with an aggregate principal amount of $18,373 against bank guarantees.

WARRANTY OBLIGATIONS

12 Months Ended

Dec. 31, 2020

Product Warranties Disclosures [Abstract]

WARRANTY OBLIGATIONS

NOTE 13:-WARRANTY OBLIGATIONS

Changes in the Company’s product warranty obligations for the years ended December 31, 2020 and 2019, were as follows:

	December 31,
	2020			2019

Balance, at the beginning of the year	$	172,563		$	121,826
Additions and adjustments to cost of revenues		102,832			94,048
Usage and current warranty expenses		(70,401	)		(43,311	)

Balance, at the end of the year		204,994			172,563
Less current portion		(62,614	)		(65,112	)

Long term portion	$	142,380		$	107,451

DEFERRED REVENUES

12 Months Ended

Dec. 31, 2020

Revenue Recognition and Deferred Revenue [Abstract]

DEFERRED REVENUES

NOTE 14:-DEFERRED REVENUES

Significant changes in the balances of deferred revenues during the period are as follows:

	December 31,
	2020			2019

Balance, at the beginning of the year	$	160,797		$	75,021
Revenue recognized		(72,870	)		(15,653	)
Increase in deferred revenues and customer advances		52,093			101,429

Balance, at the end of the year		140,020			160,797
Less current portion		(24,648	)		(70,815	)

Long term portion	$	115,372		$	89,982

The following table includes estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of December 31, 2020:

2021	$	24,648
2022		8,000
2023		6,328
2024		4,789
2025		3,023
Thereafter		93,232
Total deferred revenues	$	140,020

OTHER LONG TERM LIABILITIES

12 Months Ended

Dec. 31, 2020

Other Liabilities Disclosure [Abstract]

OTHER LONG TERM LIABILITIES

NOTE 15:-OTHER LONG TERM LIABILITIES

	As of December 31,
	2020		2019
Tax liabilities	$	5,062	$	5,389
Accrued severance pay, net		1,561		4,647
Other		7,568		1,698
	$	14,191	$	11,734

ACCUMULATED OTHER COMPREHENSIVE (INCOME) LOSS

12 Months Ended

Dec. 31, 2020

Appletech Ltd [Member]

ACCUMULATED OTHER COMPREHENSIVE (INCOME) LOSS

NOTE 16:-ACCUMULATED OTHER COMPREHENSIVE (INCOME) LOSS

The following table summarizes the changes in accumulated balances of other comprehensive income, net of taxes, for the year ended December 31, 2020:

	Unrealized gains (losses) on available- for-sale marketable securities			Unrealized gains on cash flow hedges			Unrealized gains (losses) on foreign currency translation			Total

Beginning balance	$	264		$	-		$	(2,073	)	$	(1,809	)
Other comprehensive income (loss) before reclassifications		(24	)		966			5,690			6,632
Losses reclassified from accumulated other comprehensive income		-			(966	)		-			(966	)
Net current period other comprehensive income (loss)		(24	)		-			5,690			5,666

Ending balance	$	240		$	-		$	3,617		$	3,857

The following table summarizes the changes in accumulated balances of other comprehensive loss, net of taxes, for the year ended December 31, 2019:

	Unrealized gains (losses) on available- for-sale marketable securities			Unrealized gains on cash flow hedges		Unrealized gains (losses) on foreign currency translation			Total

Beginning balance	$	(656	)	$	-	$	132		$	(524	)
Other comprehensive income (loss) before reclassifications		829			-		(2,205	)		(1,376	)
Losses reclassified from accumulated other comprehensive income		91			-		-			91
Net current period other comprehensive income (loss)		920			-		(2,205	)		(1,285	)

Ending balance	$	264		$	-	$	(2,073	)	$	(1,809	)

The following table summarizes the changes in accumulated balances of other comprehensive, net of taxes, for the year ended December 31, 2018:

	Unrealized losses on available- for-sale marketable securities			Unrealized gains on cash flow hedges			Unrealized gains (losses) on foreign currency translation			Total

Beginning balance	$	(433	)	$	-		$	(178	)	$	(611	)
Other comprehensive income (loss) before reclassifications		(360	)		31			310			(19	)
Losses (gains) reclassified from accumulated other comprehensive income		137			(31	)		-			106
Net current period other comprehensive income (loss)		(223	)		-			310			87

Ending balance	$	(656	)	$	-		$	132		$	(524	)

LEASES

12 Months Ended

Dec. 31, 2020

Lessee Disclosure [Abstract]

LEASES

NOTE 17:-LEASES

The Company leases offices, plants and vehicles under operating and finance leases.

During the year ended December 31, 2020, due to a change in the expected lease term of the Company’s offices and laboratories in Modiin, Israel, the Company reassessed the lease classification of the leased building, which resulted in a change in classification of this lease from an operating lease to a finance lease. As a result, the ROU assets and lease liabilities under operating leases decreased by $4,144 and $4,910 million, respectively, and the ROU assets and lease liabilities under finance leases increased by $24,471 and $25,237, respectively.

During the year ended December 31, 2020, due to a change in the expected lease term of the Company’s manufacturing facility, “Sella 1”, the ROU assets and lease liabilities under operating leases increased by $10,203.

The following table summarizes the Company’s lease-related assets and liabilities recorded on the condensed consolidated balance sheet:

Description	Classification on the condensed consolidated Balance Sheet	2020		2019

Assets:
Operating lease assets, net of lease incentive obligation	Operating lease right-of use assets, net	$	41,600	$	35,858
Finance lease assets	Property, plant and equipment, net		28,551		3,923
Total lease assets		$	70,151	$	39,781

Liabilities:
Operating leases short term	Accrued expenses and other current liabilities	$	10,994	$	9,590
Finance leases short term	Accrued expenses and other current liabilities		1,686		231
Operating leases long term	Operating lease liabilities		35,194		30,213
Finance leases long term	Finance lease liabilities		26,173		2,399
Total lease liabilities		$	74,047	$	42,433

F - 38

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 17:-LEASES (Cont.)

The following table presents certain information related to the operating and finance leases:

	Year ended December 31,
	2020			2019
Finance leases:
Finance lease cost	$	198		$	213
Weighted average remaining lease term in years		16.75			7.25
Weighted average annual discount rate		1.49	%		2.85	%

Operating leases:
Operating lease cost	$	12,741		$	9,665
Weighted average remaining lease term in years		9.94			4.61
Weighted average annual discount rate		1.68	%		1.46	%

The following table presents supplemental cash flows information related to the lease costs for operating and finance leases:

	Year ended December 31,
	2020		2019
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows for operating and finance leases	$	12,813	$	9,748
Financing cash flows for finance leases	$	234	$	1,354

The following table reconciles the undiscounted cash flows for each of the first five years and the total of the remaining years of the operating and finance lease liabilities recorded on the consolidated balance sheets:

	Operating Leases			Finance Leases

2021	$	11,242		$	1,756
2022		9,944			1,756
2023		8,161			1,756
2024		4,617			1,785
2025		2,152			1,871
Thereafter		14,655			23,629
Total lease payments		50,771			32,553

Less amount of lease payments representing interest		(4,583	)		(4,694	)

Present value of future lease payments		46,188			27,859

Less current lease liabilities		(10,994	)		(1,686	)

Long-term lease liabilities	$	35,194		$	26,173

COMMITMENTS AND CONTINGENT LIABILITIES

12 Months Ended

Dec. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENT LIABILITIES

NOTE 18:-COMMITMENTS AND CONTINGENT LIABILITIES

a.Guarantees:

As of December 31, 2020, contingent liabilities exist regarding guarantees in the amounts of $18,373, $2,813 and $675 in respect of bank loans, office rent lease agreements and other transactions, respectively.

b.Contractual purchase obligations:

The Company has contractual obligations to purchase goods and raw materials. These contractual purchase obligations relate to inventories held by contract manufacturers and purchase orders initiated by the contract manufacturers, which cannot be canceled without penalty.

The Company utilizes third parties to manufacture its products.

In addition, the Company acquires raw materials or other goods and services, including product components, by issuing authorizations to its suppliers to purchase materials based on its projected demand and manufacturing needs. As of December 31, 2020, the Company had non-cancelable purchase obligations totaling approximately $380,100, out of which the Company recorded a provision for loss in the amount of $3,545.

As of December 31, 2020, the Company had contractual obligations for capital expenditures totaling approximately $79,447. These commitments reflect purchases of automated assembly lines and other machinery related to the Company’s manufacturing process as well as capital expenditures associated with the construction of Sella 2, the Company’s planned second lithium-ion cell and battery factory in Korea.

c.Legal claims:

From time to time, the Company may be involved in various claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss. These accruals are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter.

In September 2018, the Company’s German subsidiary, SolarEdge Technologies GmbH received a complaint filed by competitor SMA Solar Technology AG (“SMA”). The complaint, filed in the District Court Düsseldorf, Germany, alleges that SolarEdge's 12.5kW - 27.6kW inverters infringe two of the plaintiff’s patents. SMA asserted a value in dispute of EUR 5.5 million (approximately $6,747) for both patents. The Company challenged the validity of both patents. In December 2019 the District Court of Düsseldorf found one of the two patents to be infringed and the Company appealed this decision to the Appeals Court Düsseldorf. In the parallel nullity proceedings regarding this patent, in October 2020, the German Patent Court rendered the SMA patent invalid. This invalidity decision has been appealed by SMA. Due to the invalidity proceedings, the infringement proceedings regarding this patent have been stayed. With respect to the other patent, in November 2019, the first instance court stayed the infringement proceedings since it considered it to be highly likely that the second SMA patent would also be rendered invalid. The Company believes that it has meritorious defenses to the claims asserted and intends to vigorously defend against the remaining lawsuit.

F - 40

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 18:-COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

In May 2019, the Company’s two Chinese subsidiaries and its equipment manufacturer in China were served with three lawsuits by Huawei Technologies Co., Ltd., a Chinese entity (“Huawei”). The lawsuits, filed in the Guangzhou intellectual property court, alleged infringement of three patents and asked for an injunction of manufacture, use, sale and offer for sale, and damage awards. A first-instance judgment was issued on August 7, 2020 ordering the three defendants to collectively pay damages in the amount of approximately Chinese Yuan (“CNY”) 10.5 million (approximately $1,609), including court fees, with respect of one of the patents. The Company has filed an appeal with the Supreme People’s Court of China. The first instance court’s judgement is not effective or enforceable pending the appeal. In addition, in January 2021, Huawei filed a motion to increase its claimed monetary damages to CNY 50 million (approximately $7,660) and for a preliminary injunction with respect to the second lawsuit. In February 2021, a preliminary injunction was rendered by the Guangzhou intellectual property court with respect to such second lawsuit and applying to seven inverter models. In line with the court’s mandate, the Company took immediate action to make software changes to meet the court order and also appealed the decision. The Company believes that it has meritorious defenses to the claims asserted by Huawei.

In December 2019, the Company received a lawsuit filed by a former consultant of the Company and its Israeli subsidiary in the amount of 25.5 million NIS (approximately $7,932) claiming damages caused relating to a terminated consulting agreement and stock options therein. The Company believes it has meritorious defenses to the claims asserted and intends to vigorously defend against this lawsuit.

As of December 31, 2020, accrued amounts for legal claims of $5,866, were recorded in accrued expenses and other current liabilities.

STOCK CAPITAL

12 Months Ended

Dec. 31, 2020

Share-based Payment Arrangement [Abstract]

STOCK CAPITAL

NOTE 19:-STOCK CAPITAL

a.Common stock rights:

Common stock confers upon its holders the right to receive notice of, and to participate in, all general meetings of the Company, where each share of common stock shall have one vote for all purposes; to share equally, on a per share basis, in bonuses, profits, or distributions out of fund legally available therefor; and to participate in the distribution of the surplus assets of the Company in the event of liquidation of the Company.

F - 41

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 19:-STOCK CAPITAL (Cont.)

b.Stock option plans:

The Company’s 2007 Global Incentive Plan (the “2007 Plan”) was adopted by the board of directors on August 30, 2007. The 2007 Plan terminated upon the Company’s IPO on March 31, 2015 and no further awards may be granted thereunder. All outstanding awards will continue to be governed by their existing terms and 379,358 available options for future grant were transferred to the Company’s 2015 Global Incentive Plan (the “2015 Plan”) and are reserved for future issuances under the 2015 plan. The 2015 Plan became effective upon the consummation of the IPO. The 2015 Plan provides for the grant of options, RSUs and other share-based awards to directors, employees, officers and nonemployees of the Company and its subsidiaries. As of December 31, 2020, a total of 12,828,270 shares of common stock were reserved for issuance pursuant to stock awards under the 2015 Plan (the “Share Reserve”).

The Share Reserve will automatically increase on January 1st of each year during the term of the 2015 Plan, commencing on January 1st of the year following the year in which the 2015 Plan becomes effective, in an amount equal to 5% of the total number of shares of capital stock outstanding on December 31st of the preceding calendar year; provided, however, that the Company’s board of directors may determine that there will not be a January 1st increase in the Share Reserve in a given year or that the increase will be less than 5% of the shares of capital stock outstanding on the preceding December 31st.

The aggregate maximum number of shares of common stock that may be issued on the exercise of incentive stock options is 10,000,000. As of December 31, 2020, an aggregate of 8,627,031 options are still available for future grant under the 2015 Plan.

A summary of the activity in the stock options granted to employees and members of the board of directors for the year ended December 31, 2020 and related information are as follows:

						Weighted
						average
				Weighted		remaining
	Number			average		contractual		Aggregate
	of			exercise		term		intrinsic
	options			price		in years		Value

Outstanding as of December 31, 2019		2,112,009			15.44		3.58		168,229
Granted		59,558			101.81
Exercised		(1,479,835	)		11.24
Forfeited or expired		-			-
Outstanding as of December 31, 2020		691,732			31.86		5.07		198,709

Vested and expected to vest as of December 31, 2020		633,898			29.85		6.55		183,366

Exercisable as of December 31, 2020		495,669			24.28		6.18		146,143

F - 42

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 19:-STOCK CAPITAL (Cont.)

The aggregate intrinsic value in the tables above represents the total intrinsic value (the difference between the fair value of the Company’s common stock as of the last day of each period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on the last day of each period.

The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 was $251,564, $37,509, and $58,601, respectively.

The weighted average grant date fair value of options granted to employees and directors during the years ended December 31, 2020, 2019, and 2018, was $62.11, $19.83 and $20.83, respectively.

A summary of the activity in the RSUs granted to employees and directors for the year ended December 31, 2020, is as follows:

	Number of RSUs			Weighted average grant date fair value
Unvested as of January 1, 2020		2,742,589			52.77
Granted		739,541			202.10
Vested		(1,076,071	)		49.78
Forfeited		(189,218	)		66.94
Unvested as of December 31, 2020		2,216,841			103.79

The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2020, 2019 and 2018, was $202.10, $71.46 and $41.45, respectively.

c.Employee Stock Purchase Plan:

The Company adopted an ESPP effective upon the consummation of the IPO. As of December 31, 2020, total of 2,687,451 shares were reserved for issuance under this plan. The number of shares of common stock reserved for issuance under the ESPP will increase automatically on January 1st of each year, for ten years, by the lesser of 1% of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year or 487,643 shares.

However, the Company’s board of directors may reduce the amount of the increase in any particular year at their discretion, including a reduction to zero.

The ESPP is implemented through an offering every six months. According to the ESPP, eligible employees may use up to 10% of their salaries to purchase common stock up to an aggregate limit of $10 per participant for every six months plan. The price of an ordinary share purchased under the ESPP is equal to 85% of the lower of the fair market value of the ordinary share on the subscription date of each offering period or on the purchase date.

As of December 31, 2020, 612,229 shares of common stock had been purchased under the ESPP.

As of December 31, 2020, 2,075,222 shares of common stock were available for future issuance under the ESPP.

In accordance with ASC No. 718, the ESPP is compensatory and, as such, results in recognition of compensation cost.

F - 43

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 19:-STOCK CAPITAL (Cont.)

d.Stock-based compensation expenses for employees and non-employees:

The Company recognized stock-based compensation expenses related to stock options and RSUs granted to employees and nonemployees and ESPP in the consolidated statement of income for the years ended December 31, 2020, 2019 and 2018, as follows:

	Year ended December 31,
	2020		2019		2018

Cost of revenues	$	11,082	$	6,964	$	4,343
Research and development		27,048		16,872		11,205
Selling and marketing		19,413		11,062		9,111
General and administrative		9,766		6,991		5,959
Other operating expenses		-		18,464		-
Total stock-based compensation expenses	$	67,309	$	60,353	$	30,618

As of December 31, 2020, there were total unrecognized compensation expenses in the amount of $230,503 related to non-vested equity-based compensation arrangements granted under the Company’s Plans. These expenses are expected to be recognized during the period from January 1, 2021 through November 30, 2025.

EARNINGS PER SHARE

12 Months Ended

Dec. 31, 2020

Earnings Per Share [Abstract]

EARNINGS PER SHARE

NOTE 20:-EARNINGS PER SHARE

Basic net EPS is computed by dividing the net earnings attributable to SolarEdge Technologies, Inc. by the weighted-average number of shares of common stock outstanding during the period.

Diluted net EPS is computed by giving effect to all potential shares of common stock, to the extent dilutive, including stock options, RSUs, PSUs, shares to be purchased under the Company’s ESPP, and the Notes due 2025, all in accordance with ASC No. 260, "Earnings Per Share."

2,276,818 and 312,128 shares of common stock were excluded from the calculation of diluted net EPS due to their anti-dilutive effect for the year ended December 31, 2020 and 2019, respectively.

No shares were excluded from the calculation for the year ended December 31, 2018.

F - 44

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 20:-EARNINGS PER SHARE (Cont.)

The following table presents the computation of basic and diluted EPS attributable to SolarEdge Technologies, Inc.:

	Year ended December 31,
	2020		2019			2018

Basic EPS:
Numerator:
Net income	$	140,322	$	144,957		$	128,046
Net loss attributable to Non-controlling interests		-		1,592			787
Net income attributable to SolarEdge Technologies, Inc.	$	140,322	$	146,549		$	128,833

Denominator:
Shares used in computing net earnings per share of common stock, basic		50,217,330		47,918,938			45,235,310

Diluted EPS:
Numerator:
Net income	$	140,322	$	144,957		$	128,046
Net loss attributable to Non-controlling interests		-		1,592			787
Undistributed earnings reallocated to non-vested stockholders		-		(906	)		-
Net income attributable to SolarEdge Technologies, Inc.	$	140,322	$	145,643		$	128,833

Denominator:
Shares used in computing net earnings per share of common stock, basic		50,217,330		47,918,938			45,235,310
Weighted average effect of dilutive securities:
Non-vested PSUs		-		(312,128	)		-
Effect of stock-based awards		2,578,146		2,588,851			2,744,692
Shares used in computing net earnings per share of common stock, diluted		52,795,475		50,195,661			47,980,002

OTHER OPERATING EXPENSES (INCOME)

12 Months Ended

Dec. 31, 2020

Temporary Equity Stock Issued During Period Shares New Issues

OTHER OPERATING EXPENSES (INCOME)

NOTE 21:-OTHER OPERATING EXPENSES (INCOME)

	Year ended December 31,
	2020		2019
A settlement of pre-acquisition legal claim against Kokam (1)	$	(4,900)	$	4,900
Write-off of intangible assets (2)		1,471		-
Compensation package related to the passing of the former Founder, CEO and Chairman (3)		-		8,305
Termination of SolarEdge Automation Machines’s former executive (4)		-		12,222
Sale of SolarEdge Automation Machines’s subsidiary (5)		-		5,269
Total other operating expenses (income)	$	(3,429)	$	30,696

(1)At the time of the acquisition of Kokam, Kokam had an outstanding claim against it for damages. The claim was settled for an amount of $4,900, which was recognized as an expense in the year ended December 31, 2019. In March 2020, the Company was indemnified for the full amount by a major selling shareholder of Kokam, which was recognized as an income in the year ended December 31, 2020.

(2)The Company ceased to use intangible assets of one of SolarEdge Automation Machines’s subsidiaries.

(3)On August 25, 2019, the Company announced the untimely death of Mr. Guy Sella, Founder, who had served as CEO and Chairman of the Board of Directors until shortly before his passing. The amount is related to payroll, bonus and acceleration of stock-based compensation award.

(4)As part of SolarEdge Automation Machines acquisition, the Company issued to a shareholder who had served as an executive of SolarEdge Automation Machines 334,095 PSUs, which were subject to certain performance goals and a vesting period. In December 2019, in connection with a separation agreement between the parties, the Company and the shareholder amended the original agreement, which resulted in a modification to the terms of 150,000 of the original PSUs, such as, the fair value of the PSU, the service period and the performance goals. The Company exercised a call option with respect to the remaining 183,395 PSUs, for a price per share equal to €0.01.

(5)On December 31, 2019, the Company completed the sale of a SolarEdge Automation Machines subsidiary.

INCOME TAXES

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 22:-INCOME TAXES

a. Tax rates in U.S:

The Company is subject to U.S. federal tax at the rate of 21%.

On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Act") was signed into law making significant changes to U.S. income tax law. These changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years 2018 onwards and created new taxes on certain foreign-sourced earnings and certain related-party payments.

The Tax Act required the Company to pay U.S. income taxes on accumulated foreign subsidiaries earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining earnings. The total tax liability was calculated to approximately $8,500. The Company has elected to pay its transition tax over the eight-year period provided in the Tax Act.

b.Kokam is subject to Korean tax on progressive tax rates of up to 22%.

c.SolarEdge Automation Machines is subject to Italian corporate tax rate of 24%.

d.Corporate tax in Israel:

Taxable income of Israeli companies is subject to corporate tax at the rate of 23%.

In December 2016, the Israeli Parliament approved the Economic Efficiency Law 2016 (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), which reduces the corporate income tax rate to 23% effective from January 1, 2018 onwards.

The Israeli subsidiary is also eligible for tax benefits as further described in note 22l.

e.Carryforward tax losses:

As of December 31, 2020, Kokam has carryforward tax losses of $28,520.

As of December 31, 2020, SolarEdge Automation Machines has carryforward tax losses of approximately $59,140.

f.Deferred taxes:

Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

F - 47

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 22:-INCOME TAXES (Cont.)

The Company’s Israeli subsidiary’s tax-exempt profit from Benefited Enterprises (as defined in note 22l) is permanently reinvested, as the Company’s management and the Board of Directors has determined that the Company does not currently intend to distribute dividends. Therefore, deferred taxes have not been provided for such tax-exempt income. The Company intends to continue to reinvest these profits and does not currently foresee a need to distribute dividends out of such tax-exempt income. Therefore, no deferred taxes have been provided in respect of such tax-exempt income as the undistributed tax-exempt income is essentially permanent in duration.

The Company may incur additional tax liability in the event of intercompany dividend distributions by some of its subsidiaries. Such additional tax liability in respect of these subsidiaries has not been provided for in the Financial Statements as the Company’s management and the Board of Directors has determined that the Company intends to reinvest earnings of its subsidiaries indefinitely.

Taxes that would apply in the event of disposal of investments in subsidiaries have not been taken into account in computing deferred income taxes, as the Company’s management and the Board of Directors has determined that the Company’s intention to hold, and not to realize, these investments.

Significant components of the Company’s deferred tax liabilities and assets are as follows:

	December 31,
	2020			2019			2018

Deferred tax assets, net:

Research and Development carryforward expenses	$	1,843		$	4,994		$	9,482
Carryforward tax losses		20,468			6,318			4,155
Stock based compensation expenses		6,400			4,898			3,160
Deferred revenue		5,609			3,621			1,268
Inventory Impairment		1,977			2,442			1,471
Allowance and other reserves		4,372			7,305			3,072

Total Gross deferred tax assets, net	$	40,669		$	29,578		$	22,608

Less, Valuation Allowance		(9,634	)		(2,317	)		-

Total deferred tax assets, net	$	31,035		$	27,261		$	22,608

Deferred tax liabilities, net:
Convertible Note		(11,830	)		-			-
Purchase price allocation		(16,122	)		(15,424	)		(9,408	)

Total deferred tax liabilities, net	$	(27,952	)	$	(15,424	)	$	(9,408	)

Recorded as:
Deferred tax assets, net	$	11,676		$	16,298		$	14,699
Deferred tax liabilities, net		(8,593	)		(4,461	)		(1,499	)
Net deferred tax assets	$	3,083		$	11,837		$	13,200

(1) Related to deferred tax assets that would only be realizable upon the generation of net income in certain foreign jurisdictions.

F - 48

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 22:-INCOME TAXES (Cont.)

g.Uncertain tax positions:

	December 31,
	2020		2019		2018
Balance at January 1,	$	9,532	$	8,499	$	579
Increases related to current year tax positions		757		651		8,499
Increase for tax positions related to prior years		275		382		-
Decreases related to prior year tax positions		-		-		(579	)
Balance at December 31,	$	10,564	$	9,532	$	8,499

The total amount of gross unrecognized tax benefits was $10,564, $9,532 and $8,499 as of December 31, 2020, 2019 and 2018, respectively, and if recognized, would affect our effective tax rate.

The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. The total amount of penalties and interest were $127 as of December 31, 2020 and not material as of December 31, 2019 and 2018.

h.Income before income taxes are comprised as follows:

	Year ended December 31,
	2020		2019		2018

Domestic	$	33,909	$	6,029	$	13,405
Foreign		129,757		172,574		123,718

Income before income taxes	$	163,666	$	178,603	$	137,123

i.Income taxes (tax benefit) are comprised as follows:

	Year ended December 31,
	2020			2019			2018
Current taxes:
U.S. Federal and State	$	1,842		$	10,093		$	13,894
Foreign		24,936			29,590			2,276
Total current taxes		26,778			39,683			16,170

Deferred taxes:
U.S. Federal and State		2,794			(3,414	)		(1,284	)
Foreign		(6,228	)		(2,623	)		(5,809	)
Total deferred taxes		(3,434	)		(6,037	)		(7,093	)

Income taxes, net	$	23,344		$	33,646		$	9,077

F - 49

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 22:-INCOME TAXES (Cont.)

j.Reconciliation of theoretical tax expense to actual tax expense:

The differences between the statutory tax rate of the Company and the effective tax rate are result of a variety of factors, including different effective tax rates applicable to non-US subsidiaries that have tax rates different than the Company tax rate, tax benefits relating to stock-based compensation and adjustments to valuation allowances on deferred tax assets on such subsidiaries.

A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company, and the actual tax expense (benefit) as reported in the consolidated statements of income is as follows:

	Year ended December 31,
	2020			2019			2018

Statutory tax rate		21	%		21	%		21	%
Effect of:
Income tax at rate other than the U.S. statutory tax rate		(6.9	)%		(5.0	)%		(12.7	)%
Losses and timing differences for which valuation allowance was provided		4.4	%		1.3	%		-
Tax Cuts and Jobs Act of 2017		-			(0.7	)%		(1.0	)%
Disallowable and allowable deductions		(2.6	)%		2.3	%		(0.5	)%
Other individually immaterial income tax items, net		(1.7	)%		(0.1	)%		(0.2	)%

Effective tax rate		14.2	%		18.8	%		6.6	%

k.Tax assessments:

As of December 31, 2020, the Company and certain of its subsidiaries filed U.S. federal and various state and foreign income tax returns. The statute of limitations relating to the consolidated U.S. federal income tax return is closed for all tax years up to and including 2016. Net operating losses generated in years prior to 2016 and carried forward are available to adjustment and subject to the statute of limitation provisions of such year when the net operating losses were utilized.

The statute of limitations related to tax returns of the Company’s Israeli subsidiary for all tax years up to and including 2014 has lapsed.

The statute of limitations related to tax returns of the Company’s other subsidiaries has lapsed for part of the tax years, which differs between the different subsidiaries.

The Company believes that it has adequately provided for reasonably foreseeable outcomes related to tax audits and settlements. The final tax outcome of any company tax audits could be different from that which is reflected in the Company’s income tax provisions and accruals. Such differences could have a material effect on the Company’s income tax provision and net income in the period in which such determination is made.

The Israeli tax authorities issued a tax assessment for 2018 against the Company’s Israeli subsidiary in the total amount of $11.5 million. The Israeli subsidiary has challenged the tax assessment.

The Company believes it has adequately provided for this tax assessment such that any adverse results would have an immaterial impact on the Company’s financial statements.

F - 50

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 22:-INCOME TAXES (Cont.)

l.Tax benefits for Israeli companies under the Law for the Encouragement of Capital Investments, 1959 (the “Investments Law”):

The Israeli subsidiary elected tax year 2012 as a "Year of Election" for “Benefited Enterprise” status under the Investments Law. According to the Investments Law, the Israeli subsidiary elected to participate in the alternative benefits program which provides certain benefits, including tax exemptions and reduced tax rates (which depend on, inter alia, the geographic location in Israel). Income not eligible for Benefited Enterprise benefits is taxed at a regular corporate tax rate.

Upon meeting the requirements under the Investments Law, undistributed income derived from Benefited Enterprise from productive activity will be exempt from tax for two years from the year in which the Israeli subsidiary first has taxable income (“exempt period”), provided that 12 years have not passed from the beginning of the year of election.

By December 31, 2016, the Israeli subsidiary utilized all of its operating loss carryforwards in Israel and became profitable for tax purposes.

On October 24, 2018, the Company’s Israeli subsidiary received an approval from the Israeli Tax Authorities confirming the applicability of the two-year tax exemption as provided in the Investments Law until December 31, 2018. As of December 31, 2018, approximately $289,900 was derived from tax exempt profits earned by the Israeli subsidiary “Benefited Enterprises” in the two tax years exempt period, years 2017 - 2018. The Company has determined that such tax-exempt income will not be distributed as dividends and intends to reinvest the amount of its tax-exempt income earned by the Israeli subsidiary. Accordingly, no provision for deferred income taxes has been provided on income attributable to the Israeli subsidiary “Benefited Enterprises” as such income is essentially permanently reinvested.

If the Israeli subsidiary’s retained tax-exempt income is distributed, the income would be taxed at the applicable corporate tax rate which depends on the foreign ownership in each tax year, and the tax rate can range between 10% (when foreign ownership exceeds 90%) to 25% (when foreign ownership is below 49%).

The dividend recipient is subject to withholding tax at the rate of 15%, applicable to dividends from Benefited enterprises, or such lower rate as may be provided in an applicable tax treaty, which would generally be withheld at source by the distributing company.

Through December 31, 2020, the Israeli subsidiary had generated income under the provision of the Investments Law.

Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 73) - In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which includes Amendment 73 to the Investments Law (the “2017 Amendment") was published. According to the 2017 Amendment, a preferred enterprise located in development area A will be subject to a tax rate of 7.5% instead of 9% effective from January 1, 2017 and thereafter (the tax rate applicable to preferred enterprises located in other areas remains at 16%).

The 2017 Amendment also prescribes special tax tracks for preferred technological enterprises (“PTE”), which are subject to rules that were issued by the Ministry of Finance.

F - 51

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 22:-INCOME TAXES (Cont.)

On June 14, 2017, the Encouragement of Capital Investments Regulations (Preferred Technological Income and Capital Gain for Technological Enterprise), 2017 (the “Regulations”) were published.

The Regulations applied Action 5 under the Action Plan on Base Erosion and Profit Shifting (BEPS). The Regulations describe, inter alia, the mechanism used to determine the calculation of the benefits under the PTE regime and determine certain requirements relating to documentation of intellectual property for the purpose of the PTE. According to these provisions, a company that complies with the terms under the PTE regime may be entitled to certain tax benefits with respect to income generated during the company’s regular course of business and derived from the preferred intangible asset (as determined in the Investment Law), excluding income derived from intangible assets used for marketing and income attributed to production activity. In the event that intangible assets used for marketing purposes generate over 10% of the PTE’s income, the relevant portion, calculated using a transfer pricing study, would be subject to regular corporate income tax. If such income does not exceed 10%, the PTE will not be required to exclude the marketing income from the PTE’s total income.

The Regulations establish a presumption of direct production expenses plus 10% with respect to income related to production, which can be countered by the results of a supporting transfer pricing study. Tax rates applicable to such production income will be similar to the tax rates under the Preferred Enterprise regime to the extent such income would be considered as eligible. In order to calculate the preferred income, the PTE is required to take into account the income and the research and development expenses that are attributed to each single preferred intangible asset. Nevertheless, it should be noted that the transitional provisions allow companies to take into account the income and research and development expenses attributed to all of the preferred intangible assets they have.

A PTE, which is located in the center of Israel will be subject to tax at a rate of 12% on profits deriving from intellectual property (in development Zone A - a tax rate of 7.5%). The Israeli subsidiary’s PTE facilities in Israel are not located in Development Zone A. The Israeli subsidiary has developed its own solar products manufacturing facilities in Israel, located in a Development Zone A.

The Israeli subsidiary notified the ITA of its election to implement the PTE with effect from January 1, 2019.

A Preferred Company distributing dividends from Preferred Income or income derived from its PTE, would subject the recipient to a tax at the rate of 20% (or lower, if so provided under an applicable tax treaty). In certain circumstances, a dividend distributed to a corporate shareholder who is not an Israeli resident for tax purposes, would be subject to a tax at the rate of 4%. Such taxes would generally be withheld at source by the distributing company.

To benefit from any lower tax rates under an applicable tax treaty, a non-resident of Israel would need to receive in advance a valid certificate from the ITA allowing for a reduced tax rate, or to file an appropriate tax return with the ITA claiming a refund based on the lower rate under the applicable tax treaty.

F - 52

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 22:-INCOME TAXES (Cont.)

Tax Benefits for Research and Development:

Israeli tax law (section 20A to the Israeli Tax Ordinance (New Version), 1961) allows, a tax deduction for research and development expenses, including capital expenses, for the year in which they are paid. Such expenses must relate to scientific research in industry, agriculture, transportation or energy, and must be approved by the relevant Israeli government ministry, determined by the field of research. Furthermore, the research and development must be for the promotion of the company’s business and carried out by or on behalf of the company seeking such tax deduction. However, the amount of such deductible expenses is reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects. As for expenses incurred in scientific research that is not approved by the relevant Israeli government ministry, they will be deductible over a three-year period starting from the tax year in which they are paid. The Company’s Israeli subsidiary intends to submit a formal request to the relevant Israeli government ministry in order to obtain such approval for 2019 - 2020.

m.Tax benefits under the Law for the Encouragement of Industry (Taxes), 1969:

The Company’s Israeli subsidiary claims currently to be qualified as ‘industrial company’ as defined by this law and as such, is entitled to certain tax benefits, consisting mainly of accelerated depreciation and amortization of patents and certain other intangible property.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References + Details

FINANCIAL EXPENSES (INCOME), NET

12 Months Ended

Dec. 31, 2020

Nonoperating Income (Expense) [Abstract]

FINANCIAL EXPENSES (INCOME), NET

NOTE 23:-FINANCIAL EXPENSES (INCOME), NET

	Year ended December 31,
	2020			2019			2018

Exchange rate loss (income), net	$	(33,065	)	$	10,342		$	4,725
Interest income on marketable securities		(4,900	)		(4,590	)		(5,629	)
Interest expenses		5,330			4,805			2,536
Hedging activity, net		4,013			-			-
Amortization of debt discount and debt issuance costs		3,185			-			-
Bank charges		2,048			1,021			675
Other financial expenses (income), net		2,284			(235	)		(10	)
Financial expenses (income), net	$	(21,105	)	$	11,343		$	2,297

SEGMENT, GEOGRAPHIC, MAJOR CUSTOMER AND PRODUCT INFORMATION

12 Months Ended

Dec. 31, 2020

Segment Reporting [Abstract]

SEGMENT, GEOGRAPHIC, MAJOR CUSTOMER AND PRODUCT INFORMATION

NOTE 24:-SEGMENT, GEOGRAPHIC, MAJOR CUSTOMER AND PRODUCT INFORMATION

a.Segment Information:

Following the completion of three acquisitions during 2018 and 2019, the Company has changed its segments measurement, beginning in 2019. The purpose of the new measurement is to provide the Company’s chief operating decision maker (“CODM”) better information to asses’ segment performance and to make resource allocation decisions. The Company now operates in five different operating segments: Solar, Critical Power (formerly known as UPS), Energy Storage, e-Mobility and Automation Machines.

The Company's Chief Executive Officer, who is the CODM, makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis, accompanied by disaggregated information about revenues and contributed profit by the operating segments.

Segment profit is comprised of gross profit for the segment less operating expenses that do not include amortization, stock based compensation expenses and certain other items.

The Company manages its assets on a group basis, not by segments, as many of its assets are shared or commingled. The Company’s CODM does not regularly review asset information by segments and, therefore, the Company does not report asset information by segment.

The Company identified one operating segment as reportable – the Solar segment. The other operating segments are insignificant individually and therefore their results are presented together under “All other”.

The Solar segment includes the design, development, manufacturing, and sales of an intelligent inverter solution designed to maximize power generation at the individual PV module level. The solution consists mainly of the Company’s power optimizers, inverters and cloud-based monitoring platform.

The “All other” category includes the design, development, manufacturing and sales of UPS products, energy storage products, e-Mobility products and automated machines.

Intersegment sales are a source of revenue for one of the operating segments included in the “All other” category. The Company accounts for intersegment sales as if the sales were to third parties, that is, at current market prices.

The following table presents information on reportable segments profit (loss) for the period presented:

	Year ended December 31,
	2020					2019
	Solar		All other			Solar		All other
Revenues	$	1,357,261	$	102,804		$	1,336,618	$	89,042
Cost of revenues		882,420		95,280			852,330		75,702
Gross profit		474,841		7,524			484,288		13,340
Research and development		110,567		25,417			91,868		12,520
Sales and marketing		66,823		8,562			67,275		8,433
General and administrative		41,723		10,389			31,201		9,561
Segments profit (loss)	$	255,728	$	(36,844	)	$	293,944	$	(17,174	)

F - 54

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 24:-SEGMENT, GEOGRAPHIC, MAJOR CUSTOMER AND PRODUCT INFORMATION (Cont.)

The following table presents information on reportable segments reconciliation to consolidated revenues for the periods presented:

	Year ended December 31,
	2020			2019
Solar segment revenues	$	1,357,261		$	1,336,618
All other segment revenues		102,804			89,042
Adjustment of intersegment revenues		(794	)		-
Consolidated revenues	$	1,459,271		$	1,425,660

The following table presents information on reportable segments reconciliation to consolidated operating income for the periods presented:

	Year ended December 31,
	2020				2019

Solar segment profit	$	255,728		$	293,944
All other segment loss		(36,844	)		(17,174	)
Segments operating profit		218,884			276,770
Amounts not allocated to segments:
Stock based compensation expenses		(67,309	)		(60,353	)
Amortization related to business combinations		(9,336	)		(9,470	)
Sale of SolarEdge Automation Machines’ subsidiary		-			(5,269	)
Legal settlement (see Note 21)		4,900			(4,900	)
Cost of products adjustments		(313	)		(1,556	)
Other unallocated expenses		(4,137	)		(5,276	)
Adjustments:
Intersegment profit		(128	)		-
Consolidated operating income	$	142,561		$	189,946

The All other segment results were immaterial for the year ended December 31, 2018.

b.Revenues by geographic, based on Customers’ location:

	Year ended December 31,
	2020		2019		2018

United States	$	613,090	$	678,565	$	505,469
Europe (*)		426,531		345,685		175,894
Netherlands		199,498		199,526		123,959
Rest of the world		220,152		201,884		131,915
Total revenues	$	1,459,271	$	1,425,660	$	937,237

(*) Except for Netherlands

F - 55

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 24:-SEGMENT, GEOGRAPHIC, MAJOR CUSTOMER AND PRODUCT INFORMATION (Cont.)

c.Revenues by product:

	Year ended December 31,
	2020		2019		2018

Inverters	$	641,799	$	626,445	$	416,966
Optimizers		625,465		634,007		432,410
Others		192,007		165,208		87,861
Total revenues	$	1,459,271	$	1,425,660	$	937,237

d.Long-lived assets by geographic location:

	As of December 31,
	2020		2019

Israel	$	216,095	$	133,113
Korea		62,570		35,490
China		32,655		26,364
Europe		24,233		12,925
Other		9,455		4,929
Total long-lived assets (*)	$	345,008	$	212,821

(*) Long-lived assets are comprised of property and equipment, net and Operating lease right-of-use assets, net.

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 31
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8924-108599

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 34
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8981-108599

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 21
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8721-108599

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 40
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e9031-108599

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 32
-Subparagraph (f)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8933-108599

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 32
-Subparagraph (e)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8933-108599

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 26
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8844-108599

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 41
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e9038-108599

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
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-Section 50
-Paragraph 32
-Subparagraph (d)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8933-108599

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 22
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8736-108599

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 42
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e9054-108599

Reference 12: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8657-108599

Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
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-Section 50
-Paragraph 21
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-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8721-108599

Reference 14: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-URI http://asc.fasb.org/topic&trid=2134510

+ Details

SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

Principles of consolidation

a.Principles of consolidation:

Use of estimates

b.Use of estimates:

Financial statements in U.S. dollars

c.Financial statements in U.S. dollars:

A major part of the Company’s operations is carried out in the United States, Israel and certain other countries. The functional currency of these entities is the U.S. dollar.

Financing activities, including cash investments are primarily made in U.S. dollars.

The resulting translation adjustments are reported as a component of stockholders’ equity in accumulated other comprehensive income (loss).

Accumulated other comprehensive income (loss) related to foreign currency translation adjustments, net amounted to $3,617 and $(2,073) as of December 31, 2020 and 2019, respectively.

Cash and cash equivalents

d.Cash and cash equivalents:

Cash equivalents are short-term, highly liquid investments that are readily convertible to cash, with original maturities of three months or less at the date acquired.

Short-term bank deposits

e.Short-term bank deposits:

Restricted bank deposits

f.Restricted bank deposits:

Marketable Securities

g.Marketable Securities:

The Company has not recorded credit losses for the year ended December 31, 2020.

There was no other-than-temporary-impairment charge for any unrealized losses in 2019 and 2018.

Trade receivables

h.Trade receivables:

The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of trade receivables to present the net amount expected to be collected:

	Year ended December 31, 2020
Balance, at beginning of period	$	2,473
Provision for expected credit losses		956
Amounts written off charged against the allowance and others		(543)
Balance, at end of period	$	2,886

Inventories

i.Inventories:

Cost of finished goods and raw materials is determined using the moving average cost method.

Property, plant and equipment

j.Property, plant and equipment:

		%

Buildings and plants		2.5 – 5 (mainly 2.5)
Computers and peripheral equipment		20 – 33 (mainly 33)
Office furniture and equipment		7 – 25 (mainly 7)
Machinery and equipment		10 – 25 (mainly 10)
Laboratory and testing equipment		7 – 20 (mainly 10)
Leasehold improvements		over the shorter of the lease term or useful economic life

Leases

k.Leases:

Business Combination

l.Business Combination:

Intangible Assets

m.Intangible Assets:

F - 17

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Goodwill

n.Goodwill:

The goodwill impairment test is performed according to the following principles:

(1)An initial qualitative assessment may be performed to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount.

The Company has not recorded any impairment charges of goodwill during the years ended December 31, 2020 and 2019.

Impairment of long-lived assets

o.Impairment of long-lived assets:

Severance pay

p.Severance pay:

For the years ended December 31, 2020, 2019 and 2018, the Company recorded $10,598, $7,285 and $4,331, in severance expenses related to its employees, respectively.

Derivatives and Hedging

q.Derivatives and Hedging:

Revenue recognition

r.Revenue recognition:

F - 19

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

(1)Identify the contract with a customer

(2)Identify the performance obligations in the contract

At a contract’s inception, the Company assesses the goods or services promised in a contract with a customer and identifies the performance obligations.

The main performance obligations are the provisions of the following: delivery of the Company’s products; cloud based monitoring services; extended warranty services and communication services.

(3)Determine the transaction price

F - 20

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

As of December 31, 2020, the Company has not provided payment terms of more than a year.

(4)Allocate the transaction price to the performance obligations in the contract

The Company performs an allocation of the transaction price to each separate performance obligation, in proportion to their relative standalone selling prices.

(5)Recognize revenue when a performance obligation is satisfied

Cost of revenues

s.Cost of revenues:

Shipping and handling costs

Warranty obligations

t.Warranty obligations:

In certain cases, the Company provides an extended warranty for inverters that increases the warranty period for up to 25 years.

The Company performs accelerated life cycle testing, which simulates the service life of the product in a short period of time.

Warranty obligations are classified as short-term and long-term obligations based on the period in which the warranty is expected to be claimed.

Convertible senior notes

u.Convertible senior notes:

F - 22

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Research and development costs

v.Research and development costs:

Research and development costs, are charged to the consolidated statement of income as incurred.

Concentrations of credit risks

w.Concentrations of credit risks:

The trade receivables of the Company derive from sales to customers located primarily in United States, Europe and Australia.

F - 23

SOLAREDGE TECHNOLOGIES, INC.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Concentrations of supply risks

x.Concentrations of supply risks:

As of December 31, 2020 and 2019, two contract manufacturers collectively accounted for 48.5% and 42.3% of the Company’s total trade payables, net, respectively.

During 2020, the Company started production in its manufacturing facility in the North of Israel, “Sella 1”.

Fair value of financial instruments