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

Thank you, J.B. Good morning, everyone, and thank you for joining us. I'm pleased to share with you today the progress we have made across all 4 pillars of our turnaround journey. But first, let me review the recent changes to regulatory and tariff policies that removed some uncertainties hanging over the industry. The recently enacted One Big Beautiful Bill Act redefines solar and storage markets in several key ways. And I'd like to share with you how we intend to maximize the opportunities and navigate the challenges in this environment. First, and most importantly for SolarEdge, the bill validates our multiyear strategy of onshoring manufacturing to the U.S. by preserving the 45X advanced manufacturing credit for the next 7 years. With the improved visibility this law provides, we intend to manufacture in the U.S. and to ship U.S.-made SolarEdge products both domestically and across the globe for years to come. Second, U.S. customers have a built-in incentive to prefer products that are made in the U.S., especially if they comply with FEOC requirements and meet domestic content thresholds. This aligns with our U.S. manufacturing and supply chain strategy, which we believe positions us well to support such customers. Third, the extension of storage tax credit will support the trend of increasing battery adoption. This expands our TAM and requires just the kind of sophisticated energy management algorithms that we have refined for years by using the vast amount of data source from our large installed base. Lastly, in the residential space, demand is expected to decline in 2026 with the elimination of the 25D credit, a decline that is expected to be partially offset by a shift to TPOs as the 48E credit continues through 2027. We believe we are well positioned to benefit from this shift given our…

Thank you, Shuki, and good morning everyone. Starting with our quarterly results. Total revenues for the second quarter were $289 million. Excluding revenues from our discontinued operations at the Kokam Energy Storage division of $8 million, our non-GAAP revenues were $281 million. Revenues from the U.S. this quarter amounted to $185 million, representing 66% of our non-GAAP revenues. Revenues from Europe amounted to $65 million, representing 23% of our non-GAAP revenues. International market revenues amounted to $31 million, representing 11% of our non-GAAP revenues. Non-GAAP gross margin this quarter was up to 13.1% compared to 7.8% in Q1. The higher gross margin is largely due to: higher revenue, which drove increased utilization of our operational cost structure, higher U.S. production volume, and favorable regional mix with higher U.S. revenue. This was partly offset by incremental tariffs, which impacted our gross margin by 1%, compared to an expectation of 2 percentage points. Adjusting for the lower-than-expected tariff impact, our gross margins came in slightly above the high end of our guidance range. During the second quarter, we continued to take action to streamline our operations and exit non-core activities. As a result, we recorded a onetime $18 million expense on the disposition of our tracker business. We also recorded a onetime expense of $37 million related to a write down of our Sella 2 facility, which we are looking to divest, to reflect fair market value. These charges were partially offset by a one-time $10 million gain on the sale of our Nonsan production facility in Korea. Going forward we will continue to seek avenues to right size our business with an emphasis on expense reduction and a focus on our core activities. Non-GAAP operating expenses for the second quarter were $85 million compared to $89 million in the previous quarter.…

[Operator Instructions] And we will take our first question from Mark Strouse with JPMorgan.

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

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

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

Thank you for the question. I think we said last time that on margin the biggest driver is more revenue. Of course, the more revenue, better utilization of our fixed cost infrastructure that we have built in our structure. On top of this, the expansion of our production footprint as we sell -- produce and sell more. And as we noted, we are going to start towards the end of this year to sell the products overseas and enjoy the 45X credits also for -- on out of the U.S. sales. Another positive factor on -- the new product standards are coming up towards the end of the year, we expect better marginality. They are coming with a better cost structure. And of course, I think we have a continuous effort that we related to our fixed cost improvement and reducing by streamlining production. We talked about automation and enhanced inventory and logistics management and so forth. One thing to remember, of course, and related to that there is an impact of mix, all of this between different geographies, different products and market segments, which may vary, and we cannot predict that. But I think all of these levers I talked to will provide better marginality, again, with revenue increase as you can see in our Q3 guidance.

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

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

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

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

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

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

I guess, first question just on the guidance for revenue. I know Europe looked pretty strong in 2Q and now that you got the destock complete in that region, presumably it's going to be just as strong in 3Q. So can you give us a sense, I know you don't want to break out C&I, resi and all the different detailed factors. But just in terms of the revenue growth guidance for 3Q, just how much more growth are you expecting in Europe? Is the U.S. market expected to be stronger from a sequential growth perspective? Just maybe some of the puts and takes given both of those markets look pretty strong in 2Q. Wondering if you're expecting exactly the same trends or any kind of divergence into 3Q based on the guidance? And I had a follow-up.

Thank you for the question. I'll start with the U.S. market and then I'll get to Europe. In the U.S., I think as we have said, as Shuki just indicated, we believe that we are in a strong position. One is the expected shift towards the TPO that we discussed. Again, the new product introduction, they're coming with a growing focus on the full ecosystem, I would say, solution with incorporating more software and more elements. C&I opportunities that we see are significant as well, especially with enterprise customers. And now to the U.S. territory, so we did note that channels are largely clear. We expect to see a catch up of revenue to the underlying demand. At the same time, I think it is important to know that new market remains fairly weak and potentially it can go even weaker next year. Of course, our focus is to continue and gain market share. So it will be, I would say, an interplay between the weak -- potentially weak European market and our new products, market share expansion efforts that we're focusing every day. And overlaying all of this, I mean, even on a global basis, the fact that the battery attach rates and demand continue to rise, so we certainly expect to see this momentum continues for Q3 and beyond.

And then I guess on the gross margin, going back to that question from Phil. If you look at the 3Q guide, I think you're implying an over 40% drop through on gross margin. Is that maybe the right way to think about leverage on the gross margin line going forward? I mean every $100 million of incremental revenue from here seems like you could add another 500 to 700 basis points of gross margin if we do the math that way. And then curious up to what level this underutilization recapture could drive additional margin leverage. I guess, where are you in terms of utilization? Where is the headroom and kind of what does that imply for gross margin step ups from here as you get more volume in?

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

And our next question comes from Colin Rusch with Oppenheimer.

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

Yes. Thank you, Colin, for a great question. So as the market evolved, it moved from being a PV only type of a market in which SolarEdge operated into a market in which batteries and storage play a significant role. So you have to -- and the grid is actually -- with electrification and the growth in demand for electricity, the grid is actually -- finds it harder and harder to manage all the loads. So between these 3, the energy management optimization and knowing when to produce power and export it to the grid, when to store it in the battery, using time of use algorithms and expecting what will happen from a weather perspective and so forth. These are all areas that we are looking at, that our talented team is innovating around. And we believe that what we have to deliver to the market is eventually a system, a solution that combines PV storage and this energy management capabilities in order to maximize the value and the return that they get from the system. And when you do all of that, then it opens to virtual power plants like you mentioned or grid services and other areas that we can potentially look into in the future. Some of them already exist today, they are nascent. But definitely an area that we can look into in the future as well.

And then from a cost perspective, I mean, are there other areas that you can drive cost out of the system in the organization? Or are you fully stripped down as a company here? Or can we see some incremental cost savings either -- anywhere in the OpEx side of things?

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

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

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

Yes. Thank you, Dimple. So the storage -- the entire market, I would say in all residential regions, we are seeing an increased attach rate between solar and storage. The value is clear whether you -- even in areas that -- the tariffs are not dynamic, there is a value of storing what is produced during the day in order to use it overnight. In more advanced markets in which there are more sophisticated schemes than the battery is playing an even more important role, be it flexibility, or time of use and other models. So this is the main driver and we are supporting the demand that is coming and we are actually helping growing the pie by providing the energy management solutions that I was talking about. As for the TPOs, I believe that they operate in the very same market and the requirements coming from their customers are similar. And my expectation at least is that -- I believe that the attach rate is going to grow for them as well. And as they increase their attach rates, we will provide them with the solutions that are actually maximizing the benefits from that.

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

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

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

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

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

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

Yes. So that's a question that many people are asking today. The way that we look at it is that with the elimination of 25D at the end of the year, most probably the segment that is supported by 25D is going to decline significantly, call it 50%, 60% year-over-year. And at the same time, the TPO segment is going to benefit from that, although -- because 48E continues until the end of 2027. And by how much the TPO segment is going to grow, in principle it can take the entire piece of the pie that people that used to take cash and loan for 25D can all of them -- maybe all of them can switch to TPO, maybe only part of it because of consumer preference or because of capital constraints or any other thing. So your guess is as good as mine in terms of what percentage will go there. So I think that when you combine both of them, we will see the market declines by something like 20%, maybe a bit more. But as it pertains to SolarEdge, our position within the TPO segment is very strong. And we believe that the years that we spent in order to build the infrastructure to specifically support this type of customer, as well as the domestic content and the compliance with field requirements that we have, so we think that our products are the best out there to support the scale, the performance and the integration needs of the TPO business model. And because of that, if the TPO segment is actually going to grow, we believe that we are in a good position to leverage or to benefit from that.

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

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

Yes. So thank you, Chris. Yes, so as I mentioned, we visited Europe last week, and first of all, we are pleased with the progress that we have made. We do see data that supports that we've started gaining sharing in the second quarter. And as I mentioned, I believe that we have room to grow here in terms of market share in Europe -- in Europe, in general, and in every specific country, in particular. And it will be a result of many different components that we detailed in past calls. We have to continue working very, very closely with our distribution partners, with the installers. We have to win the trust of the installers. They need to want to install SolarEdge. And so that's one element. The second element is with Nexis, we are going to open additional segments that until today we operated in, but we didn't have the best fit for this segment. At the same time, the Nexis platform, not only that it's designed from the ground up to support the evolution in the market to go into storage and backup, but also the cost structure is better and that will allow us to be more competitive in the market. And the last thing I would say is -- and we've heard it in Intersolar or in different meetings in Europe, the channel in Europe, channel meaning the distributors, the installers and the customers, they are all very happy to see SolarEdge back. The composition of the current market is -- they would have liked to see a stronger SolarEdge. A SolarEdge that has higher market share in each of the countries. And we see their support as also an important element to help us get to where we want to go.

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

Yes. So for example, in Germany many of the homeowners they are interested in large systems, maybe 20 kilowatts. And the Nexis -- the 2 phase Nexis is actually going to support up to 20 kilowatts. Our current solution is less than that. So the installers who are really loyal to SolarEdge are installing 2 inverters instead of one. But in order to seriously address this segment in the market, and it's a growing segment, we're going to offer not only the 2 phase inverter, but actually a stackable battery that can go all the way up to 19.6 kilowatt hour, which is a -- it's a very, very respectful -- respected solution for large houses in Germany. And we believe that once we introduce that with the quality, reliability and the SolarEdge brand, we believe that we'll see an uptick in share.

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

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

Thank you, Christine. It's a very -- you put the numbers together and that's very nice. And as we said, most of the distributors have reached the normalized inventory levels, but there are 2 things that we have to keep in mind. One is some of them have not yet and this is, I would say, part of the gap between what you would call the sell through and the revenue that we see in the third quarter. And the second piece is, even when the channels are normalized, it goes up and down by quarter, by seasonality, by the way by the preference of the distributors in anticipation of a new product or an old product. So there are many different factors that are playing a role here. But these are the 2 main reasons for what you referred to as the gap.

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

I'm sorry, again?

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

Yes. The Nexis platform. Yes.

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

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

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

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

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

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

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

And our next question comes from Maheep Mandloi with Mizuho.

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

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

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

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

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

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

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

[Operator Instructions] And we will take our next question from Philip Shen with ROTH Capital Partners.

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

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

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

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

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