Q3 2023 SolarEdge Technologies Inc Earnings Call

Welcome to the Solar Ranch conference call for the third quarter ended September 30th 2023. This call is being webcast live on the company's website at Www Dot solar H dot com in the investors section on the event calendar page. This.

<unk> is the sole property and copyright of solar age with all rights reserved and any recording reproduction or transmission of this call without the expressed written consent of solar H is prohibited.

You may listen to a webcast replay of this call by visiting the event calendar page of the solar age Investor website.

I would now like to turn the call over to J B Lowe head of Investor Relations for solar etch.

Thank you Leo and good afternoon, everyone. Thank you for joining us to discuss solar edges operating results for the third quarter ended September 32023, as well as the Companys outlook for the fourth quarter of 2023.

With me today are as EDI, Lando, Chief Executive Officer, and Rhode Island Fire Chief Financial Officer.

<unk> will begin with a brief review of the results for the third quarter ended September 32023.

Ronen will then review the financial results for the third quarter, followed by the company's outlook for the fourth quarter of 2023.

We'll 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 press release, the slides published today and our filings with the SEC for a more complete description of such rich.

<unk> and uncertainties.

All material contained in the webcast is the sole property and copyright of solar edge technologies with all rights reserved.

Please note. This presentation describes certain non-GAAP measures, including non-GAAP net income and non-GAAP net diluted earnings per share.

Which are not measures prepared in accordance with U S. GAAP.

The non-GAAP measures are presented in this presentation, because we believe they provide investors with a means of evaluating and understanding how the company's management evaluates the company's operating performance.

These non-GAAP measures should not be considered in isolation from as substitutes for or superior to financial measures prepared in accordance with U S. GAAP.

Listeners, who do not have a copy of the quarter ended September 32023 press release or the supplemental material may obtain a copy by visiting the Investor Relations section of the company's web site.

Now I will turn the call over to Judy.

Thank you Jamie good afternoon, and thank you all for joining us on our conference call today.

As reflected in our preliminary announcement, a few weeks ago and in the guidance, we're giving today.

We are going through challenging times in terms of general market dynamics and specific inventory trends related to our products.

In the call today, we will share details of third quarter sales.

And megawatt sales through data aggregated from distributors in some of the regions and our latest estimates of underlying business levels in the near future.

And estimate how long it will take to reach the associated revenue level.

Before getting into the regional picture I want to start with high level perspective.

During 2022 and in particular, the second half of 2022, our industry went through an unprecedented surge in demand, which we attributed to geopolitical and other reasons discussed in our prior calls.

Indicators in the beginning of 2023, where that demand would continue to increase this year in particular in Europe.

This led to a buildup of a significant backlog for our products in particular, because at the time, we faced operational challenges to supply all the demand.

Specifically this was related to three phased commercial inverters that were in high demand and low supply in the late part of 2022.

And our supply improved dramatically in early 2023.

Additionally, in early 2020, we released in Europe.

Differentiated three phase residential offering of a backup inverters and battery, which our customers were waiting for and excited to adopt.

As a result of these factors our shipments in the first half of 2023 were at record levels and we were in the process of increasing capacity to meet the elevated channel demand.

However market demand began to slow in the third quarter and distributors began to experience financial challenges.

As a result, we received a large amount of requests to canceled or pushed out orders.

We should note that while these orders are technically binding on our distributors the nature of our relationships with these customers is such that we accommodated most of these requests.

As a result, there were third quarter revenue in fourth quarter expected revenues are significantly lower than our run rate in recent quarters, while the infrastructure. We built to support the anticipated sales growth has created a burden that is putting pressure on our margins in the near term.

I will describe when and how we believe our revenue will reach a level that reflects stabilized market demand post inventory correction.

And Vernon will elaborate on the margin and financial infrastructure impact of the short term actions we are taking.

Now, let's go over the highlights of our third quarter results.

We concluded the quarter with revenues of approximately $725 million revenues from our solar business were $676 million, while revenues from our non solar businesses were $449 million. This.

This quarter, we shipped $3 3 million power Optimizer and 274000 Inverters.

Additionally, this quarter, we shipped 121 megawatt hours, if residential batteries down from 269 megawatt hours last corner.

Our solar business revenues declined quarter over quarter by 29% and by 14% year over year, driven by market slowdown and high inventory of our products in the channels.

Moving now to market by market dynamics.

Starting in Europe as.

As already described during the second part of the third quarter, we experienced significant unexpected cancellations and pushout of existing backlog from our European distributors.

Those are the dynamics are consistent with what we cautioned during our second quarter earnings call. The magnitude grew much greater than we anticipated.

We also note that the European market has a diverse one in each country comes with its own regulatory environment and energy related dynamics.

I will give some color on what we see and per country basis, and some of the top countries in which we operate.

According to market reports, Germany, which is the largest rooftop solar market in Europe.

Is on track this year to connect to the grid more than 10 gigawatt of solar compared to seven five gigawatts in 2022.

The government has announced a long term goal to reach 215 gigawatts by 2030.

Which in order to be achieved would require annual installation of our first approximately 20 gigawatts per year, indicating the expected long term strength of the German market.

Consistent with this trend our residential energy hub three phase Inverters introduced in April of this year and our three phase battery are optimized for the German market.

We continue to see good adoption of this solution.

From a permit from a demand perspective, our sell through in Germany in the third quarter was up 44% year over year and down 37% quarter over quarter from the peak levels typically seen in the second quarter.

The Swiss and Austrian market, which revenue wise are about a third of the size of our revenue in Germany utilize the same portfolio of products is Germany and.

And similarly grew significantly so far in 2023 on our end or expect it to continue to grow in 2024 in.

In fact, Switzerland was a record revenue quarter for us in Q3, and we are well positioned to continued growth in these markets in 2024.

Downstream in these markets was up 213% year over year and up 42% quarter over quarter.

Moving to the Netherlands.

The market in the Netherlands is dramatically down from peak levels due to uncertainty around government policies and the phase out of net metering, which may become clearer after the elections in November.

That said there are several trends that we believe will work in our favor in the mid and long term in this market.

The increased implementation of dynamic tariffs combined with the phase out of net metering is likely to increase the number of food system installations with batteries EV charging and advanced home energy management capabilities similar to decelerated one platform that we launched at interstellar in June.

Additionally, depending on changes in regulation, the Netherlands could have a large potential for upsell and retrofit of existing installations with additional products, including batteries in EV Chargers as well as software capabilities.

Which is a great opportunity for solar edge, given our market leadership.

And vast installed base in this country.

Furthermore.

There has been a fish a push for new residential homes to be built with three phase service in what has traditionally been a single phase market.

This will enable the use of our differentiated three phased offering that we have been successful with in Germany has described earlier.

So two of our products into combined Belgium, and Netherlands markets were up 4% year over year and down 25% quarter over quarter.

In Italy, the residential market has been sluggish since the super bonus tax credit.

Indeed earlier this year and we saw our point of sale of residential products in this market declined year over year by 48%.

On the other hand, the commercial market has seen significant growth and has largely largely offset the decline in the residential market.

Our point of sale data for commercial products in Italy was up 216% year over year in the third quarter.

Overall, our Mega watch sell through in Italy was up to 85% year over year and down 6% quarter over quarter.

All in all the underlying demand in Europe, the European market were strong in the nine months period ended September 30th.

Although below that much elevated expectation heading into the year, leading to the inventory buildup that I described earlier.

On an aggregated basis in Europe, our sell through in the third quarter was up 34% year over year and down 22% quarter over quarter.

Unknown Executive: Welcome to the Solaredge Conference call for the third quarter ended September 30th, 2023. This call is being broadcast live on the company's website at www.solarage.com in the Investors section on the Event Calendar page.

Moving to the U S. We have not seen a significant change in market dynamics since our second quarter call.

The market is still being adversely impacted by high interest rates and uncertainties around the pace of adoption of NIM 3.0 systems in California.

Unknown Executive: This call is the sole property and copyright of Solaredge with all rights reserved and any recording, reproduction, or transmission of this call without the expressed written consent of Solaredge is prohibited. You may listen to a webcast replay of this call by visiting the Event Calendar page of the Solaredge Investor website.

In commercial we are seeing a slight improvement as projects that were on hold appear to be moving forward.

Simply related to availability of low priced modules in.

In our data sell through into court for in the third quarter for residential was down 13% quarter over quarter and.

JB Lowe: I would now like to turn the call over to JB Lowe, Head of Investor Relations for Solaredge. Thank you Leo and good afternoon everyone. Thank you for joining us to discuss Solaredge's operating results for the third quarter ended September 30th, 2023, as well as the company's outlook for the fourth quarter of 2023. With me today are Zvi Lando, Chief Executive Officer, and Ronan Fire, Chief Financial Officer.

And commercial was up 8% quarter over quarter.

Battery sell through was up 31% quarter over quarter we.

We expect these market dynamics to continue without significant change in the coming quarters.

Zvi Lando: Zvi will begin with a brief review of the results for the third quarter ended September 30th, 2023. Ronan will then review the financial results for the third quarter, followed by the company's outlook for the fourth quarter of 2023.

And the rest of the world our third quarter revenues were relatively stable and we do not see dramatic shifts in overall revenue over the next several quarters.

The rest of world markets are largely dominated by commercial installations, which are impacted by the higher interest rate environment.

Local dynamics in specific countries are largely largely offsetting each other.

Taking into account these market dynamics, we use the demand patterns represented by the sell through data discussed above to model. The time, we think it will take to run down the inventory level and have estimated a normalized level of revenue and margin following the inventory correction.

Unknown Executive: 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 press release, the slides published today, and our filings with the SEC for a more complete description of such risks and uncertainties.

We used our sell through data for the third quarter of 2023 as a baseline and did not include potential additional revenue from new products that we will discuss separately for market share improvements that we are working on and for which we see positive signs.

Unknown Executive: All material contained in the webcast is the sole property and copyright of Solaredge technologies with all rights reserved. Please note, this presentation describes certain non-gap measures including non-gap net income and non-gap net deluded earnings per share, which are not measures prepared in accordance with U.S, gap. The non-gap measures are presented in this presentation 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. These non-gap measures should not be considered in isolation from as substitutes for or superior to financial measures prepared in accordance with U.S, gap.

This modeling currently indicates in the non inventory challenged environment.

Revenue run rate of approximately $600 million to $700 million per quarter.

Using this model and looking at the inventory data that we received from our distributors. We estimate the correction could take two to three quarters of gradual improvement quarter over quarter.

Moving to the operational side.

We are of course already taking measures to adjust our cost base to this projected level of business.

So aligned with reduced demand demand, we have discontinued manufacturing of our product in Mexico and reduced capacity in China.

Unknown Executive: Listeners who do not have a copy of the quarter ended September 30, 2023 press release or the supplemental material may obtain a copy by visiting the investor relations section of the company's website.

In parallel we are ramping up manufacturing and our U S facility, where we expect to ship 12000 energy had been <unk> in the fourth quarter ramping to a run rate of 50000 units per quarter.

Zvi Lando: Now, I will turn the call over to ZDee. Thank you, JB. Good afternoon, and thank you all for joining us on our conference call today.

Additionally, we are targeting for a second site to begin producing commercial inverters and optimize there's by the second quarter of 'twenty 'twenty four.

Zvi Lando: As reflected in our preliminary announcement a few weeks ago, and in the guidance we are giving today, we are going through challenging times in terms of general market dynamics and specific inventory trends related to our products. In the call today, we will share details of the third quarter of sales and megawatt sales through data aggregated from distributors in some of the regions and our latest estimates of underlying business levels in the near future and estimate how long it will take to reach the associated revenue. Level.

An additional step of cost reduction as our decision to discontinue our light commercial vehicle E mobility activity, which we consider as noncore and as such we delivered final kits just Atlantis in October.

We intend to continue making adjustments to achieve the levels of frost the ability at the revenue run rate discussed earlier, which Fernando will elaborate on in his comments.

Moving onto Friday, we recently installed our first 330 kilowatt converter in the U S. Following similar installations that have been running for some time in Europe and Asia.

Zvi Lando: Before getting into the regional picture, I want to start with high level perspective. During 2022, and in particular, the second half of 2022, our industry went through an unprecedented surge in demand, which we attributed to geopolitical and other reasons discussed in our prior calls. Indicators in the beginning of 2023, where that demand would continue to increase this year, in particular, in Europe. This led to a build-up of significant backlog for our products.

This product is specifically targeting community solar and aggregate PV applications.

We will be ramping production in the fourth quarter for further deliveries globally in 2024.

This will expand our offering for these ground Mount applications beyond the tracker product that we released a few months ago.

This quarter. We are also announcing the approval by our board of directors of a share repurchase program, which reflects our confidence in the future growth of our company.

Zvi Lando: In particular, because at the time, we faced operational challenges to supply all the demand. Specifically, this was related to three-phase commercial inverters that were in high demand and low supply in the late part of 2022, and our supply improved dramatically in early 2023. Additionally, in early 2023, we released in Europe a differentiated three-phase residential offering of a backup inverter and battery, which our customers were waiting for and excited to adopt. As a result of these factors, our shipments in the first half of 2023 were at record levels, and we were in the process of increasing capacity to meet the elevated channel demand.

The plan authorizes the repurchase of up to $300 million of the company's stock through 2024.

I would like now to address the ongoing situation in Israel and how it is affecting our company.

Zvi Lando: However, market demand began to slow in the third quarter, and distributors began to experience financial challenges. As a result, we received a large amount of requests to cancel or push out orders. We should note that while these orders are technically binding on our distributors, the nature of our relationship with these customers is such that we accommodated most of these requests.

Zvi Lando: As a result, our third quarter revenue and fourth quarter expected revenues are significantly lower than our run rate in recent quarters, while the infrastructure we built to support the anticipated sale growth has created a burden that is putting pressure on our margins in the near-term. I will describe when and how we believe our revenue will reach a level that reflects stabilized market demand post-inventory corrections, and Vernon will elaborate on the margin and financial infrastructure impact of the short-term actions we are taking.

Mmm should create an opportunity for incremental growth at a faster rate than the solar market in the coming year.

Now handed over doing it.

Thank you T V and good afternoon, everyone.

These financial review includes a gap and non-GAAP discussion.

Full reconciliation of the pro forma results discussed on this call is available on our website and in the press release issued today.

Zvi Lando: Now, let's go over the highlights of our third quarter results. We concluded the quarter with revenues of approximately $725 million. Revenues from our solar business were $676 million, while revenues from our non-solar businesses were $449 million. This quarter we shipped 3.3 million power optimizers and 274,000 inverters. Additionally, this quarter we shipped 121 megawatt hours of residential batteries down from 269 megawatt hours last quarter.

Segment profit is comprised of gross profit for the segment less operating expenses that do not include the Moorthy vision of purchased intangible assets impairment of goodwill and intangible assets stock-based compensation extensive and certain other items.

Total revenues for the third quarter, where $725.3 million at 27% decrease compared to $991.3 million in the last quarter, and a 13% decrease compared to $836.7 million for the same quarter last year.

Zvi Lando: Our solar business revenues declined quarter over quarter by 29%, and by 14% year over year driven by market slowdown and high inventory of our products in the channels.

Revenues from our solar segment, which include the sales of residential batteries and truckers were $676.4 million, 829% decrease compared to 947.4 million last quarter, and a 14% decrease compared to $788.6 million.

Zvi Lando: Moving now to market by market dynamics. Starting in Europe, as already described during the second part of the third quarter, we experienced significant, unexpected cancellations and pushouts of existing backlog from our European distributors. Although the dynamics are consistent with what we cautioned during our second quarter earnings call, the magnitude grew much greater than we anticipated. We also note that the European market is a diverse one, and each country comes with its own regulatory environment and energy-related dynamics.

For the sink Walter last year.

Total revenues from the United States, this quarter, where $195.7 million similar to the last quarter and 22% decrease from the same quarter last year, representing approximately 29% of our solar revenues.

Total revenues from Europe, where $419 $2 million, if 39% decrease from the last quarter and 12% increase from the same quarter last year, representing 62% of our solar revenues.

Zvi Lando: I will give some color on what we see on per country basis in some of the top countries in which we operate. According to market reports, Germany, which is the largest rooftop solar market in Europe, is on track this year to connect to the grid more than 10 gigawatts of solar compared to 7.5 gigawatts in 2022. The government has announced a long-term goal to reach 215 gigawatts by 2030, which in order to be achieved would require annual installation of approximately 20 gigawatts per year, indicating the expected long-term strength of the German market.

In Europe, we so and meaningful quarter over quarter revenue dropped across the board with noticeable declines in Germany, with 43% decline, Netherlands with 40 per cent decline UK with 41% decline in Poland with 67% decline on a positive side revenue.

He was in Switzerland grew this quarter by 11%, reaching a record high and in France revenues grew by 37%.

Zvi Lando: Consistence with this trend, our residential energy hub three-phase inverter introduced in April of this year, and our three-phase battery are optimized for the German market. We continue to see good adoption of this solution. From a demand perspective, our sell-through in Germany in the third quarter was up 44% to year over year, and down 37% quarter over quarter, from the peak levels typically seen in the second quarter. The Swiss and Austrian market, which revenue-wise are about the third of the size of our revenue in Germany, utilizes the same portfolio of products as Germany, and similarly grew significantly so far in 2023, and are expected to continue to grow in 2024.

Significant portion of our revenues declining Europe are attributed to lower sales of batteries were a combination of inventories in the beginning of the quarter and lower demand and anticipated by our customers <unk>.

<unk> to an accumulation of large quantities in the channels.

Rest of World Solar revenues were $61.5 million, 83% decrease compared to the last quarter and flat compared to the third quarter of last year, representing approximately 9% of our solar revenues.

One of megawatts basis, we shipped 774 megawatts of Inverters to the United States.

2.6 D go out to Europe, and 467 megawatts to the rest of the world totaling 3.8 gigawatt of quarterly Invertor shipments.

Zvi Lando: In fact, Switzerland was a record-revenue quarter for us in Q3, and we are well-positioned to continue growth in these markets in 2024. Down through in these markets was up 213% year over year, and up 42% quarter over quarter.

During the quarter, we continued to ship a higher ratio of Inverters related to Optimizers in order to catch up with.

Previous optimize our sales.

During the quarter, 66% of our megawatt shipments were commercial products and the remaining 34%, whereas essentials.

Zvi Lando: Moving to the Netherlands, the market in the Netherlands is dramatically down from peak levels, due to uncertainty around government policies and the phase-out of net metering, which may become clearer after the elections in November. That said, there are several trends that we believe will work in our favor in the mid and long term in this market. The increased implementation of dynamic tariffs, combined with the phase-out of net metering, is likely to increase the number of full-system installations with batteries, EV charging, and advanced home energy management capabilities, similar to the Solar Edge One platform that we launched at Inter Solar in June.

Since the beginning of the year, we have shipped approximately 7.1 gigawatt of commercial products worldwide compared to the 5.2 gigawatts shipped in all of 2022.

And the third quarter will ship 121 megawatt hour of a residential batteries a decrease from 269 megawatt hour last quarter.

While our battery sales in Europe decreased significantly batteries sales, India 19 States remained relatively stable and we continue to see a steady increase in installation rates in the United States.

Zvi Lando: Additionally, depending on changes in regulation, the Netherlands could have a large potential for upsell and retrofit of existing installations with additional products, including batteries and EV chargers, as well as software capabilities, which is a great opportunity for Solar Edge given our market leadership and vast installed base in this country. Furthermore, there has been a push for new residential homes to be built with three-phase Market. This one enabled the use of our differentiated three-phase offering that we have been successful with in Germany as described earlier. Those who have our products in the combined Belgian and Netherlands market were up 4% year-over-year and down 25% quarter-over-quarter.

Average selling for.

What this quarter.

Excluding battery revenues was 16.4 cents, a 13% decrease from 18.8 cents last quarter.

This asby per watt decrease is predominantly a result of allure optimize our shipments mixed during the quarter an increase in the weight or commercial inverters in our overall mix and the weaker euro in general are prices did not change this quarter.

Our battery ASB per kilowatt hour was $475 slightly down from $479 last quarter, mostly a result of a weaker euro.

Revenues this quarter from our non solar segment, where $48.7 million, an increase from $43.7 million last quarter.

Zvi Lando: In Italy, the residential market has been sluggish since the super bonus tax credit ended earlier this year, and we saw our point of sale of residential products in this market, the client year-over-year by 48%. On the other hand, the commercial market has seen significant growth and has largely offset the decline in the residential market. Our point of sale data for commercial products in Italy was up 216% year-over-year in the third quarter. Overhaul our mega-watt sale through in Italy was up 85% year-over-year and down 6% quarter-over-quarter.

Consolidated gap gross margins for the quarter was 19.7% down from 32% in the prior quarter and down from 26.5% in the same quarter last year non.

non-GAAP gross margin this quarter was 20.8% compared to 32.7% in the prior quarter and 37.3% for the same quarter last year.

Gross margin for the solar segment was 24% compared to 34.7% in the prior quarter and 28.3% in the same quarter last year.

Zvi Lando: All in all, the underlying demand in the European market was strong in the nine-month period ended September 30th, although below the much elevated expectations heading into the year leading to the inventory build-up that I described earlier. On an aggregated basis in Europe our sell-through in the third quarter was up 34% year-over-year and down 22% quarter-over-quarter.

I would like now to address the decrease in our gross margins in the third quarter and provide color on the fourth quarter and the quarters ahead.

Our cost of goods sold are comprised of variable costs that are correlated to the product mix and volumes shipped such as manufacturing costs shipping and logistics expenses et cetera.

In addition, we have other indirect costs that are not volume or a mix of specific at.

Such as warranty costs related to our existing and growing installed base.

Zvi Lando: Moving to the US, we have not seen a significant change in market dynamics since our second quarter call. The market is still being adversely impacted by high interest rates and uncertainties around the pace of adoption of NIMS 3.0 systems in California. In commercial, we are seeing a slight improvement as projects that were on hold appear to be moving forward possibly related to availability of low-priced modules. In our data, sell-through in the third quarter for residential was down 13% quarter-over-quarter and commercial was up 8% quarter-over-quarter. Battery sell-through was up 31% quarter-over-quarter.

On tract manufacturer claims related to adjustment made through the manufacturing levels and costs associated with our operation and support department et cetera.

These costs are not correlated to the volumes of product shipped and usually requires some time to be adjusted to significant changes in revenues.

Of the total quarter over quarter reduction of 1070 basis points in the solar segment margins approximately 160 basis points are attributed to higher portion of commercial products and lower portion of optimizers within our product mixed customer mix and evaluate.

<unk> of the euro against the U S dollar <unk>.

Zvi Lando: We expect these market dynamics to continue without significant change in the coming quarters.

The remaining 910 basis points decline are mostly related to the location over indirect costs over a lower revenue base.

Zvi Lando: In the rest of the world, our third quarter revenues were relatively stable and we do not see dramatic shifts in overall revenue over the next several quarters. The rest of the world markets are largely dominated by commercial installations which are impacted by the higher interest rate environment. Local dynamics in specific countries are largely offsetting each other. Taking into account these market dynamics, we use the demand patterns represented by the sell-through data discussed above.

Around a third of the 910 basis points are related to warranty and service costs across our existing and growing installed base, that's do not change when revenues decline.

Approximately 200 basis points are related to the allocation of our operations quality and support organizations over in lower revenues.

The remaining amount as a result of a higher percentage of logistic costs due to increased storage expensive and under utilization cost to construct manufacturers.

Zvi Lando: To model the time we think it will take to run down the inventory level and have estimated a normalized level of revenue and margin following the inventory corrections. We used our sell-through data for the third quarter of 2023 as a baseline and did not include potential additional revenue from new products that we will discuss separately for market share improvements that we are working on and for which we see positive signs. This modeling currently indicates in a non-inventory challenge environment a revenue run rate of approximately 600 to 700 million dollars per quarter, user.

In the third quarter. We've also recorded at one time expense related to the discontinuation of manufacturing in Mexico.

These these economies of scale will persist and even worse than in the fourth quarter revenues are abnormally low most worthy is that these indirect costs were down quarter over quarter on an absolute basis and due to the actions in product and process.

We expect them to be significantly lower again in the fourth quarter in absolute value.

Zvi Lando: Using this model and looking at inventory data that we received from our distributors, we estimate the correction could take two to three quarters of gradual improvement quarter over quarter.

We expect margins to gradually improve in the first and second quarters and over the next year.

As we will continue to reduce cost and as our revenues returned to a more normalised level.

Zvi Lando: Moving to the operational side, we are of course already taking measures to adjust our cost base to this projected level of business. To align with reduced demand, we have discontinued manufacturing of our product in Mexico and reduced capacity in China. In parallel, we are ramping up manufacturing in our US facility where we expect to shift 12,000 energy hub inverters in the fourth quarter, ramping to a run rate of 50,000 units per quarter. Additionally, we are targeting for a second site to begin producing commercial inverters and optimizers by the second quarter of 2024.

Gross margin for our non soldiers segment was minus 22.8% compared to minus 9.6% in the previous quarter.

On a non-GAAP basis operating expenses for the second quarter, where $128 million or 17.6% of revenues compared to $133.3 million or 13.4% of revenues into prior quarter.

And $108 $3 million or 12.9 per cent of revenues for the same quarter last year <unk>.

non-GAAP operating income for the quarter was $23 $1 million compared to $191 million in the previous quarter and $122 million for the same period last year.

Zvi Lando: An additional step of cost reduction is our decision to discontinue our light commercial vehicle immobility activity, which we consider as non-core and as such we delivered final kits to Stellantis in October. We intend to continue making adjustments to achieve the levels of thrust for the ability at the revenue run rate discussed earlier, which Ronin will elaborate on in his comments. Moving on to products, we recently installed our first 330 kilowatt in further in the US, following similar installations that have been running for some time in Europe and Asia.

The solar segment generated operating income of $45.7 million this quarter down from $207 million in the last quarter.

The non solar segment generated an operating loss of $22.6 million compared to an operating loss of $16.1 million in the previous quarter.

non-GAAP financial loss for the quarter was $7.4 million compared to a non-GAAP financial income or $4.4 million in the previous quarter. The loss was largely a result of a weaker euro during the quarter.

Zvi Lando: This product is specifically targeting community solar and agri-pv applications. We will be ramping production in the fourth quarter for further deliveries globally in 2024. This will expand our offering for these ground mount applications beyond the tracker product that we released a few months ago.

Or a non-GAAP tax expense was $46 $6 million compared to $38 million in the previous quarter and $34.5 million for the same period last year.

The unusual result is mostly due to the amortization of R&D expensive for tax purposes, as well as temporarily higher tax rates related to the quarterly tax calculation methodology, we expect our annual non-GAAP tax rate for the entire 2023 to be within two.

Zvi Lando: This quarter, we are also announcing the approval by our board of directors of a share repurchase program, which reflects our confidence in the future growth of our company. The plan authorizes the repurchase of up to 300 million of the company's stock through 2024.

22 22, 24%.

Zvi Lando: I would like now to address the ongoing situation in Israel and how it is affecting our company. We have seen no disruption to our ability to manufacture and deliver products and services to our customers. Approximately 11% of our Israel-based workforce, which is approximately 6% of our global workforce, has been called up for reserve duty and we are prioritizing and reallocating resources between projects to make sure that the impact to our business is minimum.

Got net loss for the third quarter was $61.2 million compared to a net income of $119.5 million in the previous quarter and got net income of 24.7 million in the same quarter last year.

Or non-GAAP net loss was $31 million compared to a non-GAAP net income of $157.4 million in the previous quarter and a non-GAAP net income or $54.1 million in the same quarter last year.

Zvi Lando: To conclude my remarks, standing aside recent and upcoming inventory corrections, we believe the underlying demand for our products, while at a reduced level from the first half of 2023, is above our projected fourth quarter revenue and represents our strong position in the markets. On top of this, our global sales force is energized and focused on gaining market share based on the products and improvements made to our core portfolio in the last 12 to 18 months.

Got net diluted loss per share was $1.08 for the third quarter compared to got net diluted earnings per share of $2.03 in the previous quarter and it got net diluted earnings per share of 43 cents for the same quarter last year.

non-GAAP net they looted loss per share was 55 cents compared to a non-GAAP net diluted earnings per share of $2.62 in the previous quarter and non-governmental diluted earnings per share of 91 cents in the same quarter last year.

Zvi Lando: This, together with the new products we have developed for the new segments we have entered, should create an opportunity for incremental growth at a faster rate than the solar market in the coming, here.

As mentioned by T V. We expect the destabilized sooner revenue levels after the inventory correction.

Has run its course will be approximately $6 million to $700 million quarterly.

Ronen Faier: I will now hand it over to Ornan.

Ronen Faier: Thank you, Trivi, and good afternoon, everyone. This financial review includes a gap and non-gap discussion. Full reconciliation of the performance to gap results discussed on this call is available on our website and in the press release issue today. Tegment profit is comprised of gross profit for the segment, less operating expenses that do not include the mortization of purchased intangible assets impairments of goodwill and intangible assets, stock rates compensation expenses, and certain other items.

Under this scenario corporate non gas gross margins are targeted to be 32, 32%, including approximately 500 basis points of benefits from Iraq manufacturing tax credit and operating profit margins are targeted to be at 11% to 14% after implementing costs.

Ronen Faier: Total revenues for the third quarter were $725.3 million at 27% decrease compared to $991.3 million in the last quarter and a 13% decrease compared to $836.7 million for the quarter last year. Revenues from our solar segment which include the sales of residential batteries and trackers were $676.4 million, a 29% decrease compared to $947.4 million last quarter and a 14% decrease compared to $788.6 million for the same quarter last year. Solar revenues from the United States this quarter were $195.7 million similar to the last quarter and 22% decrease from the same quarter last year, representing approximately 29% of our solar revenues.

Reduction activities.

I reiterate that this scenario is based on no improvement in demand from our third quarter sell through levels and assumes no incremental revenues or margin from new products.

Turning now to the balance sheet.

As of September 30th 2023, cash cash equivalents bank deposits restricted deposits and investments were $1.5 billion net.

Net of death, this amount is $831.4 million.

This quarter cash generated from operations was $40.6 million is a reduction in our receivables account and raw materials inventories were partially offset by an increase in Finnish good inventories.

As we had anticipated we swung back to cash flow from operations generation in the third quarter and you would expect to see greater cash flow from operations in the fourth quarter.

It comes from the Superbowl net decrease this quarter to $940 million compared to one point $15 billion last quarter, representing 149 days outstanding.

Ronen Faier: Solar revenues from Europe were $419.2 million, a 39% decrease from the last quarter and 12% increase from the same quarter last year, representing 62% of our solar revenues. In Europe we saw a meaningful quarter over quarter revenue drop across the board with no visible declines in Germany with 43% decline, Netherlands with 40% decline, UK with 41% decline and Poland with 67% decline. On a positive side revenues in Switzerland grew this quarter by 11% reaching a record high and in France revenues grew by 37%.

This increase in customers. They sales outstanding resulted from extended payment terms provided to our customers, especially in Europe in order to assist them handling with a higher inventory levels than desired as previously described.

As of September 30, our inventory level Nether reserve was at $1.2 billion compared to two $984.2 million in the last quarter.

The increase is solely attributed to higher finished goods inventory a result of the abrupt slept though slowdown in shipments.

Offset by a decrease in raw materials inventory.

Turning to our guidance for the fourth quarter of 2023.

Ronen Faier: The significant portion of our revenues decline in Europe are attributed to lower sales of batteries where a combination of inventories in the beginning of the quarter and lower demand than anticipated by our customers led to an accumulation of large quantities in the channels. Rest of world solar revenues were $61.5 million, a 3% decrease compared to the last quarter and flat compared to the third quarter of last year, representing approximately 9% of our solar revenues.

Regarding revenues to be within the range of 300 million to $350 million, we expect non-GAAP gross margin to be within a range of 5% to 8%, including approximately 130 basis points of net IRA manufacturing tax credit.

We expect our non-GAAP operating expenses to be within the range of $126 million to $130 million.

Revenues from the solar segment are expected to be within the range of $275 million to $320 million.

Ronen Faier: On a megawatt basis we shipped 774 megawatts of inverters to the United States, 2.6 gigawatts to Europe and 467 megawatts to the rest of the world, totaling 3.8 gigawatts of quarterly inverter shipments. During the quarter we continued to ship a higher ratio of inverters relative to optimizers in order to catch up with previous optimizer sales. During the quarter, 66% of our megawatt shipments were commercial products and the remaining 34% were residential.

Gross margin from our solar segment is expected to be within the range of 7% to 10%, including approximately 130 basis points of net I robbing manufacturing tax credit.

I will now turn the call over to the operator to open it up for questions.

At this time, if you would like to ask a question. Please press star one now on your telephone keypad again to ask a question that is star one to remove yourself from the queue you may press start to.

We'll take our first question from Philip Shen of Roth M Kam.

Ronen Faier: Since the beginning of the year, we have shipped approximately 7.1 gigawatts of commercial products worldwide compared to the 5.2 gigawatts shipped in all of 2022. In the third quarter, we shipped 121 megawatt-hour of our residential batteries a decrease from 269 megawatt-hour last quarter. While our battery sales in Europe decreased significantly, battery sales in the United States remained relatively stable and we continued to see a steady increase in installation rates in the United States.

Hi, everyone. Thanks for taking my questions I wanted to explore the correction.

Cadence some more as it relates to you know Q4, yeah, that's 303 $50 million revenue.

Age and you've talked about how things can grow gradually in the coming two to three quarters or the subsequent.

Three quarters. So could you can you quantify it any way I Q1, two and even three is kind of Ah Ah revenue number with either either a three or four in front of it more reasonable and then when we get back to you for once your posts correct.

Ronen Faier: Every selling per watt this quarter, excluding battery revenues was 16.4 cents, a 13% decrease from 18.8 cents last quarter. This ASP per watt decrease is predominantly a result of a lower optimizer shipment mix during the quarter and increase in the weight of commercial inverters in our overall mix and the weaker euro. In general, our prices did not change this quarter. Our battery ASP per kilowatt-hour was $475 slightly down from $479 last quarter, mostly a result of a weaker euro.

Correction you jump right away, it's about 600, and 700 million and then as it relates to the margins could you do the same kind of sketch for that as well you've talked about things gradually improving.

But the margin challenge this corner was only for the guide here in queue for very much has to do with mix would you expect from mixed to be very similar Ah for Q1 or three of next year as well. Thanks.

Okay I feel that first of all I think for the question and I hope that they'll kept her everything if not please attracting so I will start by saying that you know for testing the cadence of changes Ah in particular complicated right now because of the fact that the changes that we've seen we're relatively fast but in.

Ronen Faier: Revenues this quarter from our non-solar segment were $48.7 million and increased from $43.7 million last quarter. Consolidated gap gross margins for the quarter was 19.7% down from 32% in the prior quarter and down from 26.5% in the same quarter last year. Non-gap gross margin in this quarter was 20.8% compared to 32.7% in the prior quarter and 37.3% for the same quarter last year. Gross margin for the solar segment was 24% compared to 34.7% in the prior quarter and 28.3% in the same quarter last year.

In a way that we are analysing the markets and we analyze them based on U S. Europe and rest of the world, where basically looking at the overall shipments that with deed compared to the rate of fell through data is the C. V mentioned in he's prepared remarks, and when we look.

Then we basically see that right now the numbers that we see are representing approximately 50 per cent of our normalised level.

Now when it comes to the correction there is a little bit of a difference I would say between the U S and Europe.

First of all starting from Europe, we usually see the queue for is it down quarter compared to Q3, and then Q1 is not necessarily up compared to queue for because of seasonality and hear winter plays a very.

Ronen Faier: I would like now to address the decrease in our gross margins in the third quarter and provide color on the fourth quarter and the quarters ahead. Our cost of goods sold are comprised of variable costs that are correlated to the product mix and volume shipped such as manufacturing costs, shipping and logistics expenses etc. In addition, we have other indirect costs that are not volume or mix specific such as warranty costs related to our existing and growing install base, contract manufacturer claims related to adjustment made to the manufacturing levels and costs associated with our operation and support department etc.

Imports control the way that we see it is that we should see a higher Ah Ah Ah grossing Ah or revenues in Q1 in Europe already because first of all we do understand that in the composition of the inventory within the distribution channels, we have both commercial and residential products that are not evenly.

Distributed and therefore, we believe that some of the products, even though maybe on let's say single-phase, you'll see a little bit of a higher revenue Ah Ah Ah sorry, a higher inventory than a commercial they will run out of commercial and we'll need to a grow a little bit faster. We see for example that and the last quarters, we stripped a little bit more optima and <unk>.

Ronen Faier: These costs are not correlated to the volumes of product shipped and usually requires some time to be adjusted to significant changes in revenues. Of the total quarter over quarter reduction of 1,070 basis points in the solar segment margins approximately 160 basis points are attributed to higher portion of commercial products and lower portion of optimizers within our product mix. Customer mix and the evaluation of the Euro against the US. The remaining 910 basis points decline are mostly related to the allocation of our indirect costs over a lower revenue base.

Then optimizers, we believe that right no optimizers level may be a little bit lower than should be at the end of Q1.

And therefore, we do expect to see a relatively linear a growth in Europe going from Q Ah this quarter into the let's say, a second and third quarter again with heavy reliance on how winter looks like if it is going to be a light winter.

Where you see a lot of installations as you. So last year, you will see a little bit of a steeper growth from Q4, two Q1, and then a little bit of a slower growth too cute too and then back to Q3, if it's going to be a hard winter. Then you will see a little bit of a Fletcher line Ah compared to Q4, but then a bigger increase.

Ronen Faier: Around the third of the 910 basis points are related to warranty and service costs across our existing and growing install base that do not change when revenues decline. Approximately 200 basis points are related to the allocation of our operations, quality and support organizations over lower revenues. The remaining amount is a result of a higher percentage of logistic costs due to increased storage expenses and under utilization costs to construct manufacturers. In the third quarter we have also recorded a one-time expense related to the discontinuation of manufacturing in Mexico.

When it comes to the U S. A in the U S. We actually do not expect a lot of changes in the overall situation of our revenues because as we've mentioned since the beginning of the year. This is a market, where it's relatively predictable or the Ah slowdown was relatively predictable V.

Ah channels are behaving in a more linear manner, you don't see so much seasonality as you can see and and therefore, we expect to see I would say relatively a similar Ah revenues, let's say from Ah This quarter.

Ronen Faier: These economies of scale will persist and even worsen in the fourth quarter as revenues are abnormally low. Noteworthy is that these indirect costs were down quarter over quarter on an absolute basis and due to the actions in process we expect them to be significantly lower again in the fourth quarter in absolute value. We expect margins to gradually improve in the first and second quarter of the next year as we will continue to reduce cost and as our revenues return to a more normalized level.

To the following quarters, maybe with a little bit of slowdown in queue for because of the end of the year and.

And the rest of the world is expected to be I would say relatively Ah Ah similar with this small linear groups. So now I will try to summarize do how things would look like because if we see that the U S and rest of world should be I would say relatively a similar to where they are today with again in a little bit of a drop it.

The beginning Ah in queue for we do expect to see I would say pretty linear growth from Q Ah Ah four into let's say Q3, where we may normalize it the six two $700 million should be relatively Ah Ah.

Ronen Faier: Growth margin for our non-soldier segment was minus 22.8% compared to minus 9.6% in the previous quarter. On a non-gap basis operating expenses for the second quarter were 128 million dollars or 17.6% of revenues compared to 133.3 million dollars or 13.4% of revenues in the prior quarter and 108.3 million dollars or 12.9% of revenues for the same quarter last year. Non-gap operating income for the quarter was 23.1 million dollars compared to 191 million dollars in the previous quarter and 120.2 million dollars for the same period last year.

Yeah from Q1 until the the third quarter, where we're supposed to be seeing the six two 700 million and we should be pretty linear if we will see that the link that the winter is going to be a little bit later, we will see more impact on Q1, and then Ah yes, it may be starting with a four but.

And right now I will simply need to see how the winter develops there and how the over all our inventory clearing is going away from an margin point of view.

Ronen Faier: The solar segment generated operating income of 45.7 million dollars this quarter down from 207 million dollars in the last quarter. The non-soldier segment generated an operating loss of 22.6 million dollars compared to an operating loss of 16.1 million dollars in the previous quarter. Non-gap financial loss for the quarter was 7.4 million dollars compared to a non-gap financial income of 4.4 million dollars in the previous quarter the loss was largely a result of a weaker euro during the quarter.

It's a little bit different because on the variable areas, we do not see major changes happening over the next three quarters.

Price that we pay for our product from a bill of material point of view of course this is some.

That does not change materially does seem that will really Ah Ah get a little bit better as we move forward.

He's all of the I would call non variable items. So, let's let's try to look at some of them first of all is mentioned in the prepared remarks.

Ronen Faier: Our non-gap tax expense was 46.6 million dollars compared to 38 million dollars in the previous quarter and 34.5 million for the same period last year. The unusual result is mostly due to the amortization of R&D expenses for tax purposes as well as temporarily higher tax rate related to the quarterly tax calculation methodology. We expect our annual non-gap tax rate for the entire 2023 to be within 22 to 24%. Gapnet loss for the third quarter was $61.2 million compared to a Gapnet income of $119.5 million in the previous quarter and Gapnet income of $24.7 million in the same quarter last year.

When you work with contract manufacturers and as good as they are in supporting you.

After building a very large capacity aiming it at a growth that of course, we see now that he's not happening.

We see that our contract manufacturers have fixed costs that we will have to help them cover when the changes or the reduction in the Ah production level is is going down in D. C has waned on our revenues both in a queue for an in Q1, because this is a time that it takes.

For them to make these adjustments and especially given the fact that at that time the basis of revenues is going to be also lower so therefore, the these economies of scale are working extra hours.

We believe that the round cute too we will have much less of these chargers that that will go away at the same time, we have prior to any cost reductions that we will do an efficiencies relatively flat expenses on the Ah support department, because we do not want to reduce the support level that we give today to our exists.

Ronen Faier: Gapnet loss was $31 million compared to a Gapnet income of $157.4 million in the previous quarter and a Gapnet income of $54.1 million in the same quarter last year. Gapnet's diluted loss per share was $1.8 for the third quarter compared to a Gapnet diluted earnings per share of $2.3 million in the previous quarter and a Gapnet diluted earnings per share of $43 for the same quarter last year. Gapnet diluted loss per share was $55, compared to a Gapnet diluted earnings per share of $2.62 in the previous quarter and a Gapnet diluted earnings per share of $0.91 in the same quarter last year.

[noise] fleet and a tour operation team and therefore here, it's mostly going to be related to the fact that you know the more revenues you have you have a higher denominator and therefore, the percentage is going to a little bit better. So if I tried to summarize all of these here I do expect to see that you were.

Not C. A linear growth in gross margins, but it will be more tilted or the improvements will be more tilted towards again second quarter of 2024 in the third quarter. This is also by the way related to the fact that we will continue to ramp up a R. U S factory and see more Iowa. So it's a lot of moving parts, but I would say quite leaner.

Ronen Faier: As mentioned by TV, we expect that the stabilized solar revenue levels after the inventory correction has run its course will be approximately $6 to $700 million quarterly. Under this scenario, corporate non-Gap gross margins are targeted to be 30 to 32% including approximately 500 basis points of benefits from IRA, manufacturing tax credit and operating profit margins are targeted to be at 11 to 14% after implementing cost reduction activities. I reiterate that this scenario is based on no improvement in demand from our third quarter cell-through levels and assumes no incremental revenues or margin from new products.

Revenue return and less linear more inclined towards queue to gross margin change.

And again, sorry for the many moving parts, but that's the complexity of their business.

Oh no problem. Thank you for all the color color in there for them shifting to a cash flow and balance sheet.

Do you guys have a lot of cash and marketable securities was wondering if you could share a love them more on how you expect cash wanted to be in the coming quarters. As you kinda follow this correction Ah do you expect how much Burns you see for Q4.

Sure and then you know through Q3 of next year and then how how do you expect working capital to trend.

Ronen Faier: Starting now to the balance sheet. As of September 30, 2023, cash, cash equivalents, bank deposits, restricted bank deposits and investments were $1.5 billion. Net of debt, this amount, is $831.4 million. This quarter, cash generated from operations was $40.6 million as a reduction in our receivables account and raw materials inventory were partially upset by an increase in finished good inventories. As we had anticipated, we swung back to cash flow from operations generation in the third quarter and we expect to see greater cash flow from operations in the fourth quarter.

I see the inventory Linus has gone up healthily or substantially and when do you expect the bulk of that to kinda normalized as well. Thanks.

Okay. So here the answer is that.

When you were growing you actually usually needs a little bit more working capital. Because you know you are manufacturing you increase inventories then you'll give customer credits and then Ah and that means that you consume a little bit more of working capital.

When we look at cashflow for the next three quarters, let's talk about casual from operations and that's also talking by the way both free cash flow. Because this is a result also of capital investments. So from a a casual from operations, we expect to see actually an increase in the cash flow from a person's generation as I mentioned in my prepared remarks.

Ronen Faier: A accounts receivable net decreased this quarter to $940 million compared to $1.15 billion last quarter representing $149 days outstanding. This increase in customers' day sales on standing resulted from extended payment terms provided to our customers especially in Europe in order to assess them handling with higher inventory levels than desired as previously described. As of September 30, our inventory level net of reserve was at $1.2 billion compared to $984.2 million in the last quarter. The increase is solely attributed to higher finished goods inventories, a result of the abrupt slowdown in shipments offset by a decrease in raw material inventory. Engineering.

We have generated about $41 million this quarter, we accept expect to see much higher number in the Ah Ah Ah fourthquarter and numbers to continue and increase towards Q1, and Q2 simply because of the fact that we have relatively large customer balances from the quarters that we should shipped and sold a little bit more as I mentioned, we <unk>.

Also increased a little bit of payment terms for our European customers and therefore was in Q3 2421, we will collect a relatively heavily on those.

When you look at the inventory levels that were carrying we're carrying quite a high inventory levels. Because again, we were anticipating growth and that means that we're going to start consuming this inventory over time. This will also Ah Ah go back to the Ah Ah cash and when it comes to paying two hour <unk>.

Ronen Faier: Turning to our guidance for the fourth quarter of 2023, we're guiding revenues to be within a range of 300 million to 350 million dollars. We expect non-gab gross margin to be within a range of five to eight percent, including approximately 130 basis points of net IRA manufacturing tax credit. We expect our non-gab operating expenses to be within the range of $126 million to $130 million. Revenues from the solar segment are expected to be within the range of $275 million to $320 million. Gross margin from our solar segment is expected to be within the range of seven to ten percent, including approximately 130 basis points of net IRA manufacturing tax credit.

Anders. The fact is that this is more correlated to we are manufacturing level. So therefore, when you were a manufacturing less you're actually paying less to your Ah payables. So that means that we expect to see an accelerating cash flow from operations within Ah Q4, and Q1 and hopefully.

Darkening to see again growth in revenues are starting to impact cash flow in a queue too, but it still supposed to be a positive and of course because of the fact that we still collect them using inventory.

The second part is how do we translate it to free cash flow and here as well part of the activities that were taken right now is to reduce our capital expenditures a lot of our capital expenditures last year were aimed at increasing manufacturing capacity almost everywhere around the world that means procurement of.

Unknown Executive: I will now turn the call over to the operator to open it up for questions. At this time, if you would like to ask a question, please press star one now on your telephone keypad. Again, to ask a question that is star one, to remove yourself from the queue you may press star two.

Automatic assembly lines that means for example payments for a contract manufacturers to Ah Ah take more areas and make them suitable. This is something that is of course right now other than the investments that we do in the U S manufacturing Ah will be very much reduced in addition to this of course at this time, you're investing a little bit more.

Philip Chen: We'll take our first question from Philip Chen of Roth, MKM. Hi, everyone. Thanks for taking my questions.

More in areas that Ah when you're growing you're allowing yourself to do like you know, maybe a little bit of a newer labs or or or or a bigger labs and that means that also not only you will see a higher cash flow from operations, we will see lower cash flow and investing activities. So over all we should see an accelerated.

Philip Chen: I wanted to explore the correction cadence some more. As it relates to, you know, Q4, you have this 350 million revenue range, and you talked about how things could grow gradually in the coming two to three quarters or the subsequent two to three quarters. So, can you quantify it anyway? Q1, Q2, and even three is kind of a revenue number with either a three or four in front of it more reasonable.

Teen girls in cash.

We'll take our next question from Karen Blanchard of Deutsche Bank.

Hang in the afternoon. Thank you for taking my question.

Philip Chen: And then when we get back to Q4, once your post correction, you jump right away to that 600 to 700 million. And then as it relates to the margins, could you do the same kind of sketch for that as well? You talked about things gradually improving, but the margin challenge this quarter was for the guide here in Q4 very much has to do with mix. Would you expect your mix to be very similar for Q1 through three of next year as well?

Could you may be having.

I know you called I need advice I don't have you know in the previous question, but would you really want to give any type of <unk> cut out a bunch of the U S and maybe broccoli by state <unk> tongue domain in which one a week and I'll you what should I was thinking about going into the next one.

Yeah, it's a it's a great I'm referring to.

Our data set that we use for this purpose is the installation right that that the main indicated for us are monitoring connections two hour monitoring portal.

Philip Chen: Thanks. Okay. I feel that first of all, I think for the question, I hope that I'll capture everything if not please, correct me. So, I will start by saying that, you know, forecasting the cadence of changes in particular complicated right now because of the fact that the changes that we've seen were relatively fast. But in the way that we are analyzing the markets and we analyze them based on US, Europe, and rest of the world, we're basically looking at the overall shipments that we did compared to the rate of sales through data as C.V, mentioned in his prepared remarks.

So I I can say that overall the on residential the connection rate recently for the last you know call at 10 12 weeks has been relatively flat.

And when we break it down by states, it's it's showing a small decline in California and they are in an increase in some of the some of the other states for instance, Puerto Rico.

And in other states around around the nation. This is on the residential and further point of view for batteries were seeing a consistent increase.

Philip Chen: And when we look at them, we basically see that right now, the number that we see are representing approximately 50% of our normalized level. Now, when it comes to the correction, there is a little bit of difference, I would say, between the US and Europe. First of all, starting from Europe, we usually see that Q4 is a down quarter compared to Q3 and then Q1 is not necessarily up compared to Q4 because of seasonality and here winter plays a very important role.

And connection rate and and this is coming from.

Before in there because although installation rates are down.

Installation or a batteries are are up from the historical face because whoever or many of those that are installing in california or installing with batteries and we also see some increase in battery installations in other states again, Puerto Rico as in a as an example, so this is the residential picture, where where California is.

Philip Chen: The way that we see it is that we should see a higher growth in or revenues in Q1 and Europe already because, first of all, we do understand that in the composition of the inventory with within the distribution channels, we have both commercial and residential products that are not evenly distributed and therefore we believe that some of the products, even though, maybe on let's say single phases, you see a little bit of a higher revenue, sorry, a higher inventory than commercial, they will run out of commercial and will need to grow a little bit faster. We see, for example, that in the last quarters we shift a little bit more optimizers and verters than optimizers, we believe that right now optimizers level may be a little bit lower than should be at the end of Q1.

Is slightly down and and other states are accumulated are slightly off and and an overall the rate of installation for a residential in the U S is relatively flat on a commercial as I mentioned also in the prepared remarks that we see in the installation of the same type of pattern that were.

Seeing on the sell through data.

Whereas some period of installation rates of commercial being relatively flat, we're seeing a gradual increase not not dramatic, but but still a positive trend on and on installation and connections of a commercial project and and as I mentioned this is across Ah.

The country with with them and specifically in the markets that are strong for commercial and and it's we believe it's project that that's been held for some time because of people waiting for clarity on the I R a or for understanding the interest rate dynamics and the fact that there are.

Philip Chen: And therefore, we do expect to see a relatively linear growth in Europe going from Q this quarter into the, let's say, second and third quarter. Again, with heavy reliance on how winter looks like. If it is going to be a light winter where you see a lot of installations as you saw last year, you will see a little bit of a steeper growth from Q4 to Q1 and then a little bit of a slower growth to Q2 and then back to Q3.

Oh, no cost modules and people understand that they won't be clarity on some of those elements for some time. So they're moving ahead with the project that were on hold and and we expect this trend to to continue.

Alright. Thank you Ana maybe he saw a final up switching any type of habits, because they talk about the compulsion that sharp pain in the U S test is coming out with new products. So what do you think that maybe whether that's in the meantime off pricing pressure over the next 24 o'clock.

Philip Chen: If it's going to be a hard winter, then you will see a little bit of a flatter line compared to Q4 but then a bigger increase. When it comes to the US, in the US we actually do not expect a lot of changes in the overall situation of our revenues because as we've mentioned since the beginning of the year, this is a market where it's relatively predictable or the slow down was relatively predictable.

Yeah.

We're gonna have to get their naturally into the skull into a lot of product.

Conversation, especially not familiar with the single-phase portfolio, but we we are feeling.

Philip Chen: The channels are behaving in a more linear manner, you don't see so much seasonality as you can see. And therefore, we expect to see, I would say, relatively similar revenues, let's say, from this quarter to the following quarter maybe with a little bit of slow down in Q4 because of the end of the year. And rest of the world is expected to be, I would say, relatively similar with a small linear growth.

Good about our current Ah single phase portfolio, we've recently.

Introduce some improvements have gained a lot of positive feedback on the reliability of the recently released product release product and the installation times and he's in a installation of both the inverters and the batteries and we feel that we're in a good trajectory.

From a market share perspective in in the U S. In particular in what we call. The mid tier installers. So are we are have always been strong with the large steer we are a bit weaker in the long term and we've been we believe we've been gaining some ground in the in the mid tier but.

Philip Chen: So now I'll try to summarize how things would look like because if we see that US and rest of the world should be, I would say, relatively similar to where they are today with again, a little bit of a drop at the beginning in Q4. We do expect to see, I would say, pretty linear growth from Q4 into, let's say, Q3 where we may normalize that the 6 to 700 million should be relatively, sorry, from Q1 until the third quarter where we're supposed to be seeing the 6 to 700 million, we should be pretty linear.

But these are incremental.

Dynamics, where we don't see a major change of pattern and as a result or related or unrelated there we don't see.

Major expectation for a price changes in the U S. A market for the Invertor offering batteries in general not only in the U S. The the battery market is more.

Philip Chen: If we will see that the winter is going to be a little bit lighter, we will see more impact on Q1. And then, yes, it may be starting with a 4, but again right now, I will simply need to see how the winter develops there and how the overall inventory clearing is going away. From a margin point of view, it's a little bit different because on the variable areas, we do not see major changes happening over the next three quarters.

And an oversupply type of dynamic and here in there for a volume purposes, we might reduce battery pricing, but I'm inverters and Optimizers, we see price stability and expect it to continue.

Alright, thank you.

We'll take our next question from Brian Lee of Goldman Sachs.

Philip Chen: You know, the price that we pay for our product from a bill of material point of view, of course, this is something that does not change materially. The thing that will really get a little bit better as we move forward is all of the, I would call non-variable items. So let's try to look at some of them. First of all, as mentioned in the prepared remarks, with new work with contract manufacturers and as good as they are in supporting you.

Hey, guys.

Thanks for taking the questions out a couple here I'm, just leaving bigger picture because there was a lot of moving parts as well as.

You know numbers that are moving quite quite dramatically from what we've seen just the past couple of corner so maybe to start.

You know you you were talking about this normal lines the level of 600 and $700 million in revenue gross margins being 30 to 32 at.

Philip Chen: After building a very large capacity aiming at growth, that of course we see now that it's not happening, we see that our contract manufacturers have fixed costs that we will have to help them cover when the changes or the reduction in the production level is going down. It's time that it takes for them to make these adjustments and especially given the fact that at that time the basis of revenues is going to be also lower so therefore the these economies of scale are working extra hours.

At that level, but then that's including 500 basis points, so core business and like twenty-five be 27% gross margin.

If I look at you know 2022, you were doing that level of revenues and.

Doing higher gross margins without the I R. A benefit and eat them back then you were struggling with the Euro and then some component issues.

Higher than 25% to 27% gross margin. So I don't know it just seems like structurally bargains here are lower even if you do get back to the six to 700 million dollar revenue level, what what's kind of driving that and maybe help us reconcile it a bit and why can't you maybe take more cost out of the system cause it.

Philip Chen: We believe that around Q2 we will have much less of these chargers that will go away. At the same time we have prior to any cost reductions that we will do in efficiencies relatively flat expenses on the support department, because we do not want to worry about that. We have reduced the support level that we give today to our existing fleet and to our operation team and therefore here it's mostly going to be related to the fact that you know the more revenues you have you have a higher denominator and therefore the percentage is going a little bit better.

Like you've just.

Margins are are now the target is lower than what you had prior because you know prior you weren't including 500 basis points from I alright.

Mhm, so extra Brian and thanks for the question. So in general I think that there are two two areas you're the one that will start by saying that Ah as we mentioned from the very beginning the way that we are all looking at these normalised level is the level that we see as a base based on.

Philip Chen: So if I try to summarize all of these here I do expect to see that you will not see a linear growth in growth margins but it will be more tilted or the improvement will be more tilted towards again second quarter of 2024 and the third quarter this is also by the way related to the fact that we will continue to ramp up our US factory and see more ira. So it's a lot of moving parts but I would say quite linear revenue return and less linear more inclined towards Q2 growth margin change.

The point of sale data that we saw in Q3 across the board, which we by the way believe that and again, we took it out of Ah Ah being cautious here. After what we saw at least in the last Ah Ah Ah Ah a month and a half actually or months ago.

And therefore, we are still trying to evaluate whether this normalized level is really the new level that will go for several years from then.

From that point or that maybe in some cases this should be actually a little bit of the higher a rate and that means that from adjusting our expense level is something that we are going to look very cautiously at each and every expense, making sure that we are making.

Philip Chen: And again sorry for the remaining moving parts but that's the complexity of the business. No problem. Thank you for all the color there. Shifting to cash flow and balance sheet I know you guys have a lot of cash and marketable securities.

All the necessary adjustments and that we are taking all cost reduction activities that we were able to do but not returning to a situation that if the market is growing up and we did see this you know boom bust, sometimes ah cycles within this market. We're finding her old self again, having to chase after Ah Ah capacity and having.

Zvi Lando: I wonder if you could share a little bit more on how you expect cash flow to be in the coming quarters as you follow this correction. Do you expect how much burn do you see for Q4 and then you know through Q3 of next year and then how do you expect working capital to trend. I see the inventory line has gone up healthily or substantially and when do you expect the bulk of that to kind of normalize as well.

Two are sheep product because again this is something that that we've seen in the last years as well. So I would say that from the beginning while modeling we took a very cautious approach into how we should build our expense base and how we're going to operate the company assuming that this is not necessarily the level that we will see two or three.

Zvi Lando: Okay so here the answer is that when you are growing you actually usually need a little bit more working capital because you know you are manufacturing you increase inventories then you give customer credits and then and that means that you consume a little bit more of working capital. When we look at cash flow for the next three quarters let's talk about cash flow from operations and let's also talk about about free cash flow because this is a result also of capital investments.

Quarters down the road.

It doesn't mean and and I think that that's the big difference between modeling and actually going into the real world Ah assumption. It doesn't mean that we will not do whatever effort needed in order to make sure that we are indeed capitalizing on every cost reduction activity that we can do but we wanted to be a little bit more cautious and model.

Here, so that that's I would call it from from the very beginning the limitation of the mobile itself. The second element that we need to take here is the fact that we do see that our commercial Ah Ah Ah percentage within our portfolio continues to grow as I mentioned before and in in this quarter 66 per cent of the megawatt she.

Zvi Lando: So from a cash flow from operations we expect to see actually an increase in the cash flow from operations generation as I mentioned in my prepared remarks. We have generated about 41 million dollars this quarter we expect to see much higher number in the fourth quarter and numbers to continue and increase towards Q1 and Q2 simply because of the fact that we have relatively large customer balances from the quarters that we shift and sold a little bit more.

Was actually commercial product. This is their record hide that we see maybe it's a little bit tilted towards commercial because of the fact that these were products that were lacking because of components before but still we do see that at least in the commercial applications.

Zvi Lando: As I mentioned we also increased a little bit payment terms for our European customers and then for within Q3 sorry Q4 and Q1 we will collect relatively heavily on those. When you look at the inventory levels that we're carrying, we're carrying quite high inventory levels because again we were anticipating growth and that means that we're going to start consuming this inventory over time. This will also go back to the cash and when it comes to paying to our vendors, the fact is that this is more correlated to your manufacturing level.

Applications were getting stronger are offering is is good and we're growing and we wanted to give a little bit of attention to this as well and the last thing that that that's related here.

Is the fact that we do expect that we will continue to see maybe a little bit more growth in other areas that will allow us to grow a little bit further like new products and again, when we don't put the revenue here being conservative. These are usually products that are characterized.

Zvi Lando: So therefore when you're manufacturing less, you're actually paying less to your payable. So that means that we expect to see an accelerating cash flow from operations within Q4 and Q1 and hopefully starting to see again growth in revenues, starting to impact cash flow in Q2 but it's still supposed to be positive and of course because of the fact that we still collect and using inventory. The second part is how do we translate it to free cash flow and here as well part of the activity that we're taking right now is to reduce our capital expenditures.

With at least at the beginning Laura gross margin. So in general I would say that we try to be here a little bit more conservative in the way that we are modeling modeling things, we will be making every effort to.

To adjust to the new level as we see it and of course, we will learn as long as we're moving and by the way we intend to continue and give you in the next cool a little bit of you know color about Ah Ah how do we see the normalised level, because we do believe that we will get more information and this increase in commercial that will also allow us by the way to increase.

The revenue base is something that we see we in general I can tell you that we're aiming to get the of course, you know do the highest profitability possible and higher margin as possible and this will be our action for the next two to three quarters.

Zvi Lando: A lot of our capital expenditures last year were aimed at increasing manufacturing capacity almost everywhere around the world. That means procurement of automatic assembly lines. That means for example payments for contract manufacturers to take more areas and make them suitable. This is something that of course right now other than the investments that we do in the US manufacturing will be very much reduced. In addition to this of course at this time you're investing a little bit more in areas that when you're growing you're allowing yourself to do like maybe a little bit of a newer labs or bigger labs. And that means that also not only you will see higher cash flow from operations, we will see lower cash flow in investing activities. So overall we should see an accelerating growth in cash.

Okay I appreciate that additional contacts and then just maybe.

A a follow up to some of the other questions I I could see you know investors growing concerned that this is more than just an inventory correction given you know the the magnitude and also the duration like how how do you think about.

The shared position here, whether M U S or Europe are both like D. Can you provide some evidence or data points or anything that gives you the comfort that.

This is everyone going through the same correction versus maybe there is some shared last year that you guys are experiencing you'll one of the things I guess you know we hear a lot about is there. There are two parents I guess the main sanghat, who have had recent updates that were relatively positive I know, they're not all positive in the universe space. These days, but just maybe.

Karen Blanchard: We'll take our next question from Karen Blanchard of Deutsche Bank. Thanks afternoon. Thank you for taking my question.

Karen Blanchard: Could you maybe I mean I know you provided a very good overview with a previous question, but would you be able to give a little bit more color about the US and maybe brought it by state which area you've seen from the main in which one are weak and how you we should be thinking. Can about it going into next year. Yes, Sabrina, referring to our data set that we use for this purpose is the installation rate that the main indicator for us are monitoring connections to our monitoring portal.

Give us a sense of what you see out there data wise feedback wise that gives you comfort it's not a share issue at all.

Thank you.

Yeah, Yeah. Thanks, Bryan obviously, that's something that we look at the we look at very closely and I'll I'll I'll give you a data point that that is.

You know, it's it's a subjective and it's it's worth Ah Ah, it's worth what it is and and and focusing on the markets that we serve obviously, we don't serve the utility market and we don't so some of the the the names that you're referring to are are are related to.

Karen Blanchard: So I can say that overall the on residential, the connection rate recently for the last, you know, call it 10 12 weeks has been relatively flat. And when we break it down by states, it's showing a small decline in California and an increase in some of the some of the other states, for instance Puerto Rico and in other states around around the nation. This is on the residential and further point of view for batteries.

Dynamics in the utility market that are different but we recently samples with one of the largest European distributors and then I'll take I'll take a step back actually related also to what they said in my earlier comments in the latter part of 2022.

We definitely a sense that we were losing sure just based on availability. So the demand was very strong there were the demand was very strong for our products, we couldn't supply all of it and we and there were installers that's in the air.

Karen Blanchard: We're seeing a consistent increase in our connection rate and this is coming from. California because although installation rates are down, installation of batteries are up from the historical phase because whoever or many of those that are installing in California are installing with batteries. And we also see some increase in battery installations in other states, again Puerto Rico is an example. So this is the residential picture where California is slightly down and other states accumulate accumulated or slightly up and overall the rate of installation for residential in the US is relatively flat.

Agency to install that were longterm, Florida Orange installers.

I tried the other product.

We mapped that out and once the availability became less of a concern for us we in a systematic way in every country identified the installer that that we knew based on our monitoring system have decreased their usage of solar edge because of lack of availability.

And I have been going back and recovering those one by one to be using solaredge. Once availability was no longer a constraint and recently, we sat with one of the largest distributors pan European distributor and went through there.

Karen Blanchard: And commercial, as I mentioned also in the prepared remarks, we see in the installation the same type of pattern that we're seeing on the south route data, where after some period of installation rates of commercial being relatively flat, we're seeing a gradual increase. Not dramatic, but still a positive trend on installation and connections of commercial projects. And as I mentioned, this is across the country with specifically in the markets that are strong for commercial.

Sure picture from Invertor or suppliers point of view and this also relates to something that I mentioned in the in the call last quarter that during periods of shortage people bring on and they widen their line card to include more brands and then is Ah.

Get that goes back to normal they reduce other line card and we were in it with this distributor or going country by country. Overall, we saw they reported an increase of our share in their sales Ah Antoine twenty-three. This wasn't the first eight months of 2023.

Karen Blanchard: And we believe it's projects that have been held for some time because of people waiting for clarity on the IRA or for understanding the interest rate dynamics. And the fact that there are low cost modules and people understand that they won't be clarity on some of those elements for some time. So they're moving ahead with the projects that were on hold. And we expect this trend to continue.

Karen Blanchard: All right, thank you.

A relative to the same periods in in 2020.

So we've been looking at that that the high level of detail and although there are fluctuations in and as I said, we we haven't recovered all of the share that that we lost due to availability in the second half of 2022 Ah we are.

Karen Blanchard: And maybe for a follow up, switching a little bit here, but could you talk about the competition that you're seeing in the US. Test life coming out with new products. So what do you expect there and maybe what do that mean in terms of pricing pressure over the next three or four quarter? Yeah, we didn't get naturally in the skull into a lot of product conversation, especially not on the single phase portfolio.

We are optimistic about the science that we've seen been seeing since the beginning of 2023 and a recovering Ah Ah recovering that sure. So we don't see that as part of the dynamics that Ah Ah that are related to the inventory such or anything that we described.

Okay understood how to pass it on thanks guys.

Karen Blanchard: But we are feeling good about our current single phase portfolio. We've recently introduced some improvements have gained a lot of positive feedback on the reliability of the recently released product release product and the installation times and ease of installation of both the inverters and the batteries. And we feel that we're in a good trajectory from a market share perspective in the US in particular in what we call the mid tier installers.

Thank you.

Our next question is from Colin Rush.

Of Oppenheimer.

Thanks. So much you know that's can you talk a little bit about incremental geography that you guys might be able to move into that are growing and I hope you're right, particularly in the rest of the world or other Democrats at your ended up having to pay out of here in this transition.

[laughter], Yeah, I think we we we spoke about Europe, and it's it's not necessarily.

There are some markets that are are beginning to evolve that you would've never mentioned their names before and I I address some of them in the past like Slovenia or Romania. In a few places are places like that and they're usually influenced from some central country nearby.

Karen Blanchard: So we are have always been strong with the large tier. We are a bit weaker in the long tail. And we've been we believe we've been gaining some ground in the in the mid tier. But these are incremental dynamics where we don't see a major change of pattern. And as a result or related or unrelated, we don't see major expectations for price changes in the US market for the inverter offering batteries in general, not only in the US.

For instance in some of these it's it's it's mostly influenced from from Italy, and and these are these are slowly evolving Ah markets and from our central location again in this case Ah Ah, Italy, we would oversee or we will be active in these market.

As well there are there are other markets that are not they were they did exist before but they're picking up recently and and then we increase our presence and those are in those markets and the glaring cases like that are countries like Spain and and green.

Karen Blanchard: The battery market is more in an oversupply type of dynamic and here and there for volume purposes, we might reduce battery pricing. But on the inverters and optimizers, we see price stability and expected to continue. All right, thank you.

Bye.

By the way years back in 2012, we we had a market share and grief, there's probably I dunno 60, or 70 per cent and then the market was quiet for many years and now it's back we have and it's huge installed base in Greece, and and our growth rate.

Brian Lee: We'll take our next question from Brian Lee of Goldman Sachs. Hey guys, thanks for taking the questions out a couple of years. Maybe bigger picture because there's a lot of moving parts as well as, you know, numbers that are moving quite, quite dramatically from what we've seen just the past couple of closer. So maybe to start, you know, you're talking about this normalized level of 600 to $700 million revenue, gross margins being 30 to 32 at that level, but then that's including 500 basis points.

Spain is is is very very high, but but it's still a relatively small number. So there are like I said there are a few countries, where it's a completely ah new dynamic and there are some some countries that are that were.

Smaller markets that are beginning to grow a bit faster than those would be the examples within within Europe outside of Europe. You know, there's a lot of talk in Brazil, and definitely our our momentum in Brazil is is positive.

Brian Lee: So, you know, core business is like 25 to 27% gross margin. But if I look at, you know, 2022, you are doing that level of revenues and doing higher, you know, gross margins without the IRA benefit and eating back then, you were struggling with the euro and then some component issues, but higher than 25 to 27% gross margin. So, I don't know, it just seems like structurally margins here are lower. Even if you do get back to the $700 million revenue level, what's kind of driving that?

In in Asia, Thailand is.

There's a market that is growing quickly Taiwan as a market that is growing quickly the Philippines as a market that that is growing and evolving and at the same time for instance, there. We we realize that that the Korean market is not what we expected it to me and we reduced the level of activity in the in the Korean market. So.

There are.

There are opportunities in these markets, but but I I think under the current.

Brian Lee: And maybe help reconcile it a bit and why can't you maybe take more costs out of the system because it feels like you're just, again, margins are now the target is lower than what you had prior because, you know, prior you weren't including 500 basis points from IRA.

Circumstances, an interest rate environment, the Europe and the U S.

Are are.

Are much more or much larger in terms of the potential to to gainshare and and see improvement in demand compared to growth instead of these markets. Although we are benefiting from it.

Brian Lee: So, I sure Brian, and thanks for the question. So, in general, I think that there are two areas here. The one I will start by saying is that as we mentioned from the very beginning, the way that we are looking at this normalized level is the level that we see as a base based on the point of sale data that we saw in Q3 across the board, which we, by the way, believe that, again, we took it out of being cautious here after what we saw, at least in the last months and a half actually or months ago.

Oh, that's super helpful and then.

It's really about the <unk> battery solid manufacturing and how that is ramping up in okay. In the south sort of on the batteries and some of the advertising aren't mentioned on there how you're dealing with an expecting to manage her third party celebrating that's along with an internal production.

Yeah, So I I think so.

They tried to answer in two ways.

Brian Lee: And therefore, we are still trying to evaluate whether this normalized level is really the new level that will go for several years from then, from that point, or that maybe in some cases this should be actually a little bit of a higher rate. And that means that from adjusting our expense level is something that we are going to look very cautiously at each and every expense, making sure that we are making all the necessary adjustments and that we are taking all cost reduction activities that we are able to do, but not returning to a situation that if the market is going up, and we did see this boom bust sometimes cycles within this market, we're finding ourselves, again, having to chase after capacity and having to airship products, because again, this is something that we've seen in the last years as well.

I think our our current offering it's based on of of our residential batteries. It's based on third party. So.

And we intended to ramp the factory and and shift over to using the cells from the factory for that for offering to these markets at the current time considering the lower.

Relation right you know, it's it's increasing but it's lower than what we anticipated. We don't expect that that the shift to happen in 2024, and 2024 hour residential battery offering will continue to be based on our third party.

So and Meanwhile.

Wrapping the factory and we will continue to ramp the factory, but and so those are so as as we ramp to.

Brian Lee: So I would say that from the beginning, while modeling, we took a very cautious approach into how we should build our expense base and how we are going to operate the company, assuming that this is not necessarily the level that we will see two or three quarters down the road. It doesn't mean, and I think that that's the big difference between modeling and actually going into the real world assumption, it doesn't mean that we will not do whatever effort needed in order to make sure that we are indeed capitalizing on every cost reduction activity that we can do, but we wanted to be a little bit more cautious in modeling here.

The customers of our storage business that some of them are historical that we've been selling through the years and now we will have more capacity and a better cost structure and some of them are new customers of non solar related energy storage or high C. Right. So south application so.

2024 hour solar attached single-phase batteries will be continued to be based on the third party ourselves supply that but we have today.

Okay. Thanks, so much guys.

We will take our next question from Mark Strauss J P. Morgan.

Brian Lee: So that's, I would call it from the very beginning, the limitation of the model itself. The second element that we need to take here is the fact that we do see that our commercial percentage within our portfolio continues to grow. As mentioned before, in this quarter, 66% of the megawatt shift was actually commercial products. This is the record high that we see, maybe it's a little bit tilted toward commercial because of the fact that these were products that we were lacking because of components before, but still, we do see that at least in the commercial applications were getting stronger, our offering is good and we're growing, and we wanted to give a little bit of attention to this as well.

Great. Thanks for taking our questions two of them. Please I I I think the first one just following up on Brian's question.

The it kind of sounds like the the the <unk>.

Distribute distributor cancellations the order cancellations and delays that you saw the accelerated in the latter half of the of the quarter.

Has that al stabilized I'm, just trying to get a sense of you know you mentioned some some upside risk. So that's six to 700 million and what what gives you comfort that there's no further downside to that number.

Yeah, So maybe work.

Brian Lee: And the last thing that's related here is the fact that we do expect that we will continue to see maybe a little bit more growth in other areas that will allow us to grow a little bit further like new products. And again, while we don't put the revenue here being conservative, these are usually products that are characterized with, at least at the beginning, lower growth margins. So in general, I would say that we try to be here a little bit more conservative in the way that we are modeling things.

First a data point actually our highest ever so through a month globally or.

And in in Europe ever was June.

So in June of 2023.

We reached a record or are distributed to reach the record of sell through for of our of our products. So and then July the sell through was a bit lower but July is typically a a a vacation a month and in.

Brian Lee: We will be making every effort to adjust to the new level as we see it. And of course, we will learn as long as we're moving. And by the way, we intend to continue and give you in the next course a little bit of color about how do we see the normalize level because we do believe that we will get a more information. And this increase in commercial that will also allow us, by the way, to increase the revenue base is something that we see.

Mm.

In Europe. So so the the the the shifting in pattern was around the summer and the picture got clear as as mentioned during the two hour distributors I meant to us in the second half of of the quarter.

And and that is where the installation right Ah Ah declined took place and it's and as we said at it from a quarter over quarter perspective from Q3.

Brian Lee: We, in general, I can tell you that we're aiming to get, of course, you know, to the highest profitability possible and higher margins possible. And this will be our action for the next two to three quarters.

Q2 across all of Europe, if I remember correctly, the number was 22% a quarter over quarter reduction, although it was still higher than then the same quarter.

Same quarter of last year, we were looking at installation rates because they they indicator of a sell through Ah we receive it at a later date until the all of the distributors collect their information and provided to us.

Brian Lee: Okay, I appreciate that additional context. And then just maybe kind of a follow up to some of the other questions. I could see, you know, investors growing concern that this is more than just an inventory correction given, you know, the magnitude and also the duration. And like, how do you think about the share position here, whether in US or Europe or both, like, can you provide some evidence or data points or anything that gives you the comfort that, you know, this is everyone going through the same correction versus maybe there is some share loss here that you guys are experiencing.

Indicator that is less accurate, but we are we have a much more lives view is the indicator of installation rates in connection to the monitoring and a connection to the monitoring in recent weeks in Nebraska couple of months in Europe hasn't been.

Up in places like Germany, Austria, Switzerland, some of the other Ah countries and has it been down in the Netherlands as as we reported but overall the installation right has been relatively stable across Europe since the the <unk>.

Brian Lee: And you know, one of the things, I guess, you know, we hear a lot about is there are two peers, like SMA and Sungrove who have had recent updates that we're seeing. Relatively positive. I know they're not all positive in the universe space these days, but just maybe give us a sense of what you see out there data. I see back wise, that gives you comfort. It's not a share issue at all.

<unk> that we saw off towards the end of the summer and the the end of the third quarter and and going into going into the fourth quarter. Now is that you know does that give confidence that that the.

Brian Lee: Thank you. Yeah, thanks Brian. Obviously it's something that we look at. We look at very closely and I'll give you a data point that is, you know, it's subjective and it's worth. It's worth what it is and focusing on the markets that we serve. Obviously, we don't serve the utility market and we don't. So some of the the names that you're referring to are related to dynamics and utility market that are different, but we recently sampled with one of the largest European distributors in the world.

It won't go down further or when will it begin to pick up and and is that right.

That obviously, we have you know we have the judgment, but not true visibility, but but this is the data points on which we are affecting the baseline scenario in the in the revenue in the stables.

[noise] stabilized revenue projection that we gave.

Okay Thanksgiving and then just to follow up.

Can you talk about your your appetite to kind of lean into your balance sheet. During this macro downturn I mean, you've got <unk>.

Brian Lee: I'll take a step back actually related also to what I said in my earlier comments in the latter part of 2022. We definitely sense that we were losing share just based on availability. So the demand was very strong. There were the demand was very strong for our products. We couldn't supply all of it. And we, and there were installers that in the urgency to install that were long term solo agent dollars tried other products.

Because of your balance sheet, you might have some wherewithal. The some of your competitors may not have can you talk about the appetite selena into R&D substantially look at some M&A, so that you're even better position coming out of this downturn competitively.

Brian Lee: We mapped that out and once availability became less as a concern for us. We in a systematic way in every country identified the installers that that we knew based on our monitoring system have decreased their usage of solar edge because of lack of availability and have been going back and recovering those one by one to be using solar edge. Once availability was no longer a constraint. And recently we sat with one of the largest distributors.

So.

I'm, usually opportunity mark to give a broader broader perspective that is not directly related to the balance sheet, partially related to the balance sheet and parsley related to the to the piano.

With all that's going on it's important to put it in perspective that that we are firm believers and not only in the long term, but also the midterm trajectory of this of this market and the core markets that we serve which are a rooftop solar of Ah residential and CNI and and not only in.

And the the long term growth of these markets for for P V and and Ah Inverters and Optimizers, but also the evolution of the broader solutions that we're seeing that concludes our batteries easy charger is a smart energy management software to manage them grade services.

Brian Lee: Pan European distributor and went through their share picture from inverter suppliers point of view. And this also relates to something that I mentioned in the in the call last quarter that during periods of shortage people bring on. And they widen their line card to include more brand. And then as the market goes back to normal, they reduce the line card. And we in with this distributor going country by country overall. We saw they reported an increase of our share in their sales in 2023.

Applications, you know cyber protection so.

The highest level for us in terms of priority is to continue and develop the portfolio of products that is going to serve these these markets and put us in a in the leadership or keep us in the leadership Ah Ah position that we are and and we see this this situation.

<unk> and the modeling that we gave all sorts of transient that is is not sure how long it was taken when it will happen, but in a market that is.

Attractive that that has longterm vibe, you want that we're very well positioned to Ah Ah to lead.

Brian Lee: This was in the first eight months of 2023 relative to the same period in in 2022. So we've been looking at that at a high level of detail. And although there are fluctuations and as I said, we haven't recovered all of the share that we lost due to availability in the second half of 2022. We are optimistic about the science that we've seen, been seeing since the beginning of 2023 and recovering, recovering that share so we don't see that as part of the dynamics that that are related to the inventory situation that we described. Okay, I'll pass it on, thanks guys.

And that includes the answer to the to the question that you have in in where we see the potential too.

Strengthen accelerate and improve our differentiation or along those served markets.

We will use also our balance sheet, our balance sheet to do so definitely.

Thank you.

Our next question comes from Julians, Julian Julian do Milan Smith of Bank of America. Your line is open Sir.

Thank you operator I appreciate it good afternoon to you really appreciate the opportunity look just to kind of circle back here to square one can we recap a little bit about how we got here right I mean, I I know, we're talking very specifically about the trajectory of the recovery, but can we step back a little bit and understand you talked a moment ago about June 23, being a high wall.

Colin Rusch: Thank you. Our next question is from Colin Rusch of Oppenheimer. Thanks so much.

Colin Rusch: You know, can you talk a little bit about incremental geographies that you guys might be able to move into that are growing and how to be very particularly in the rest of the world or other geographies that you're ending up executing out of here in this transition. Yeah, I think we spoke about Europe and it's not necessarily that there are some markets that are beginning to evolve that you would have never mentioned their names before and I address some of them in the past like Slovenia or Romania in a few places, places like that and they're usually influenced from some.

Mark, but you know obviously, if there was some sure Ah insider transactions during the summer and then obviously things rapidly deteriorated how do we get confidence on the outlook here can you walk us through a little bit more of of the the sort of month by month playbook from that June 20th three watermark.

To where we are today, if you will through through the course of the year, obviously, how it gives you the confidence and in Fork you, but just how this happened so swiftly and it's such a pace that we didn't see this or are presumably you guys didn't identify it earlier and it's coming again I I, just really want to step back and kind of highlight that and how swiftly the cycle moved in.

Colin Rusch: Central country nearby, for instance, in some of these it's mostly influenced from Italy and these are slowly evolving markets and from our central location again, in this case, Italy, we will oversee or we will be active in these markets as well. There are other markets that are not they weren't they did exist before, but they're picking up recently and and then we increase our presence in those in those markets in the glaring cases like that are countries like Spain and in Greece.

And what are the parameters that perhaps you and lessons learned that you guys would identify today after what what sort of transpired here. If you don't mind and I <unk> I I appreciate your thoughtfulness around us.

Yeah, it's really and thank you for the questions. So I'll start maybe by by going back to Q1, because we need to understand that again this.

Pattern that we see is coming after 2022 that was copied year and when we're trying to analyze the business and see where it is it going we're looking at I would say three major sets of data. The first one is of course, how much we're shipping and where where ship.

Colin Rusch: By the way, years back in 2012, we had market share in Greece that was probably I don't know 60 or 70% and then the market was quiet for many years and now it's back we have an huge install base in Greece and our growth rate in Spain is is very, very high, but but it's still relatively small numbers. So there are a few countries where it's a completely new dynamic and there are some some countries that are that were small markets that are beginning to grow a bit faster and those would be the examples within within Europe.

Second is what is the point of sale data that we see coming out from our distributors and as mentioned by T. V. It's something that we measure on a monthly basis and then we're looking into inventory levels that are basically a result of these two things.

Up until the very beginning of Q1, we so that we're shipping is almost one to one correlated emerged with the point of sale data that we so from our distributor so that means that on one hand, you so very little inventory days into channel if you'll recall from.

Are closed at that time, we said that in some cases, we feel close to zero inventory of three-phase products that we sometimes so one or one and a half months of Ah Ah Ah single-phase product and this was something something that that we have looked at consistently at the beginning of Q1, we started to see a real.

Zvi Lando: Outside of Europe, you know, there's a lot of talk in Brazil and definitely our momentum in Brazil is is positive in in Asia, Thailand is a is a market that is going quickly, Taiwan is a market that is going quickly, the Philippines is a market that that is growing and evolving and at the same time, for instance, that we realize that that the Korean market is not what we expected. It to be and we reduced the level of our activity in the in the Korean market, so there are there are opportunities in these markets, but but I think under the current circumstances and interest rate environment, the Europe and the US, are much larger in terms of the potential to gain share and see improvements in demand compared to growth in some of these markets, although we are benefiting from it.

Leaf when it comes to our ability to manufacture single-phase products and we so gradual relief that actually materialized in full only in Q3. This year in our ability to provide three feet product three-phase products, especially the commercial products. So what we so is that during Q1.

And into Q2 and Q3, we came back to the normality of growing market, where our shipment into the channel.

Are lower than the Ah Ah Ah Ah growing up are higher than the actual point of sale, but when we took the two ratios aren't sales into the channels and the point of sale data. We so that the overall day's inventory on hand Ah ranging between 60 to 90 days, which is the norm.

Zvi Lando: That's super helpful, and then the follow-up is really about the internal battery cell manufacturing and how that's ramping up and given the self-through on the batteries and some of the inventory that you're mentioning there, how you're dealing with and expecting to manage your third-party cell agreements along with that internal production. Yes, I think the so try to answer in two ways. As you know our current offering is based on of our residential batteries is based on third-party cells and we intended to ramp the factory and shift over to using the cells from the factory for that for offering to these markets.

Level that we would usually see and by the way. It's it it depends based on the distributor or some of them would like to be at the higher level, because they are less less efficient or more a distributor then someone will be more tight, but we started to see a very nice correlation between the two we so very steep increase in the point of sale.

<unk> Ah Ah fell through the data and and therefore, we felt comfortable with the numbers that with the numbers that were shipping and we continue to monitor all the time their inventory on Hindi.

Now when we're getting the reports on a monthly basis, usually it happens around the 20th of the following months, So I would say that when.

We started July we at the 20th of July approximately Goto. The June the numbers from Europe that were significantly higher than everything that we've seen before these were record high number and and as such our customers continue to make orders and or to accept orders because the backlog was.

Zvi Lando: At the current time, considering the lower installation rate, you know, it's increasing, but it's lower than what we anticipated. We don't expect that shift to happen in 2024, and in 2024, our residential battery offering will continue to be based on our third-party cells, and meanwhile, we're ramping the factory and we will continue to ramp the factory, but and sell those cells as we ramp to customers of our storage business that some of them are historical that we've been selling to two years, and now we will have more capacity in a better cost structure, and some of them are new customers of non-solar-related energy storage or high-series cell applications. So in 2024, our solar-attached single-phase batteries will be continued to be based on the third-party cells supplied that we have today. Okay, thanks so much, Chris.

Mark Strauss: We'll take our next question from Mark Strauss of J.P. Morgan. Great, thanks for taking our questions.

Already dairy if you remember we had a very large backlog.

Comes the end of August we are receiving the July data, which is lower it didn't June but this is again typical because we see a lot of vacations happening in Europe around this time, and we see a decline but by the way I'm not a huge decline, but we do see a decline youth.

Usually August numbers are either flat or I would say relatively a similar to the ones that we see in July so comes the end.

After the 20th of Ah Ah September that we're getting the August numbers from Europe, and the United States and we see that August.

Is down compared to Ah Ah July again, not dramatically down but it is down.

But at that time. This is a very end of September our distributors start to see and by the way, we do not but they start to see that September is not materializing as they expected and usually the pattern that we used to see over the last I would say several years is that usually you see.

Mark Strauss: Two of them, please. I think the first one just following up on Brian's question, it kind of sounds like the distribute, the distributor cancellations, the order cancellations and delays that you saw accelerated in the latter half of the quarter. Has that now stabilized? I'm just trying to get a sense of, you mentioned some upside risk to that six to 700 million. What gives you comfort that there's not further downside to that number?

C. A slower July and August compared to June, but then you see a jumped in September actually we were told by then did the expectation is to see a very strong September and and they acted upon desk, but when they started to see that's September is not materializing. This is the last I would.

Say two weeks of the quarter, we saw an increasing declines of orders and a much more pressure to a delay orders.

Mark Strauss: Yeah, so maybe our first data point, actually, our highest ever cells through months, globally, or actually in Europe, ever was June. So in June of 2023, we reached a record of our distributage, we reached a record of our products. So in July, the cell through was a bit lower, but July is typically a vacation month in, in, in Europe. So the shift in pattern was around the summer and the picture got clear as mentioned during the two hour distributors and then to us in the second half of the quarter.

And when we received actually close to I would say again 15 to 20 of October September of data. We actually found it's September for the first time for many years was lower than the actual August numbers and this is the area that was a little bit surprising now the resolve these.

And this is what these leading to our Q4 numbers and guidance is that again when you take the inventory levels that you see that we're continuing to grow up again, because everyone until sometimes the middle of August expected to see relatively a similar Ah Ah Ah behavior now you see that the inventory on the hand.

These are very very high much higher than the 90 days, that's usually are into channels and this is when we understood together by the way with our customers that December can or the fourth quarter cannot look even like the one that that that that that was Q3 because of this.

Mark Strauss: And that is where the installation rate declined to explain. And as we said, it's from a quarter of a quarter perspective from Q3 to Q2 across all of Europe. If I remember correctly, the number was 22% quarter of a quarter reduction. Although it was still higher than the same quarter of last year. We are looking at installation rate because the indicator of cell through, we receive it at a later date until all of the distributors collect their information and provide it to us.

A decrease the data that were another waiting for and again, we do not have yet. These how October looks like we believe that it's gonna be better than September I do not have any data to see how big better. It is but this is the basis of our consciousness. So as you can understand this is a pattern where.

The deviation from the veteran that we used to see when something that was actually I would say understood in there two to three last weeks of September and not before and that led to basically the fact that a lot of our cancellations in orders came actually at that point of time.

Mark Strauss: The indicator that is less accurate, but we have a much more live view is the indicator of installation rate and connection to the monitoring. And connection to the monitoring in recent weeks and the last couple of months in Europe has been up in places like Germany, Austria, Switzerland, some of the other countries and has been down in the Netherlands as we reported. But overall, the installation rate has been relatively stable across Europe since the drop that we saw towards the end of the summer and the end of the third quarter and going into the fourth quarter.

Or pushups, so I hope I answered your question.

Maybe Julian and on the topic of of course, you know.

Dynamic as as the one described from it but we we need to learn from it one of the elements that there's a meaningful but also we were talking with our distributors and how to handle his visibility into the inventory levels at the hands daughters. Because what's happened is part of this dynamic is of you know, we're coming off and on press.

That didn't event in terms of of the surge in demand the lack of availability everybody was building an inventory, including installers that typically don't take an inventory and and especially inventory of of of products. They they prefer to install than when they slowed down.

Mark Strauss: Now, does that give confidence that it won't go down further or when will it begin to pick up? And in that rate, that obviously we have judgment but not through visibility. But this is the data points on which we are setting the baseline scenario in the revenue, the stabilized revenue projection that we gave.

They they slow down their orders, but they had inventory and they consumed it and that was not visible. So in terms of data points to add to the data that we typically track of installation rates so through inventory levels at our distributors is inventory levels that.

Zvi Lando: Okay. Thanks, Evie. And then just a follow-up, can you talk about your appetite to kind of lean into your balance sheet during this macro downturn? I mean, you've got, because of your balance sheet, you might have somewhere with all the, some of your competitors may not have. Can you talk about the appetite to lean into R&D to potentially look at some M&A so that you're in better position coming out of this downturn competitively?

Are large and starters Ah that would help have a better clarity when fluctuations occur, especially such extreme fluctuations.

Mmm.

We'll take our next question from Jeff Osborne of T D Cowan.

Okay, great. Good evening, two quick questions on my side Ah Rona and what demand levels were assumed when he talked about a normalization of revenue at six to 700 million is that sort of flat.

Zvi Lando: So, you know, I'll use the opportunity mark to give a broader broader perspective that it's not directly related to the balance sheet, partially related to the balance sheet and partially related to the, to the PNM. With all that's going on, it's important to put in perspective that we are firm believers in not only in the long term but also the mid-term trajectory of this of this market. And the core markets that we serve, which are rooftop solar of residential and CNI.

With current levels that was part one other question in part two is just.

As the industry normalizes whenever that is next summer.

Why wouldn't there be a knife fight in terms of pricing I know you said there was a sort of stable outlook in the corner and in the near term.

Zvi Lando: And not only in the, you know, the long-term growth of these markets for PV and inverters and optimizers, but also the evolution of the broader solution that we're seeing that includes batteries, EV chargers, smart energy management software to manage them with services applications, you know, cyber protection. So, at the highest level for us in terms of priority is to continue and develop the portfolio of products that is going to serve these markets and put us in a, in the leadership or keep us in the leadership position that we are.

Payment terms were more important to distributors, but it looks like you know, it's a tech industry with now excess capacity, obviously, you're rationalizing capacity I'm not sure others will but why wouldn't pricing go down meaning point in the second half of the year.

Okay. So first of all I'll start by saying that yes, as you mentioned the way that we modeled the normalized level is taking the point of sale data for the last three months as it is and therefore, yes, if there's going to be recovery. In this then then we can see a higher number I would say that we do taking.

Our our numbers also an assumption about changes in pricing.

You have mentioned right now we did not change our prices are within Q3 and I'm not sure that we will do anything when Dean Virtus side at least in queue for given the fact that we believe that with the inventory levels that you see right now there is almost zero impact on Ah changing pricing first of all because nobody's.

Zvi Lando: And we see this situation and the modeling that we give also as a transient that is, is not sure how long it will take and when it will happen, but in a market that is attractive that has long term value and that we are very well positioned to lead. And that includes the answer to the question that you have and where we see the potential to. Strengthen, accelerate or improve our differentiation along those served markets. We will use also our balance sheet to do so definitely. Thank you.

Taking orders. So you know if they're taking very little orders no reason to change the pricing because everyone's sending the inventory did they have plus we do not see that it can actually change the behavior, along the Ah Ah elasticity of demand curve. So.

I must say that more.

Moving forward, we do assume that prices will have to be adjusted in some places. It is going to be very much related you know through the offering that we see for example, the more markets are moving to dynamic rates. These aren't going actually two products that are a little bit maybe more expensive because of the fact that they're allowing better better capabilities.

We do believe that may be and batteries, we will have to adjust down prices because when we look at a competition today Ah Ah, yes, our our prices I would say are not the cheapest that you see in the market and I can tell you that in hours to <unk> number there is a baked in assumption on Ah possible price.

Julien Dumoulin Smith: Our next question comes from Julien, Julien Dumoulin Smith of Bank of America. Your line is open, sir. Thank you, operator. Appreciate it. Good afternoon, team. Really appreciate the opportunity. Look, just a kind of circle back here to square one. Can we recap a little bit about how we got here, right? I mean, I know we're talking very specifically about the trajectory of the recovery. But can we step back a little bit and understand you talked a moment ago about June 23 being a high watermark, but you know, obviously there was some share insider transactions during the summer.

The gentleman that we will need or may needs to implement the.

The reason that we put in there even if we're not sure. If we will have to take them as as I mentioned, the my answer to Brian. After this unprecedented event that you know that we're missing a quarter never happened. This company history. We wanted also to be very cautious in the way that we're modeling.

Julien Dumoulin Smith: And then obviously things rapidly deteriorated. How do we get confidence on the outlook here? Can you walk us through a little bit more of the sort of month by month playbook from that June 23 watermark to where we are today, if you will, through the course of the year. Obviously, how gives you the confidence in for you, but just how does happen so swiftly in such a pace that we didn't see this or presumably you guys didn't identify it earlier in its coming again.

We'll take our next question from Jonathan Keith of dialogue capital markets. Your line is open.

Great. Thanks for taking my question and squeezing me in there I'll keep mine quick in the interest of time. So I wanted to ask regarding I guess, the the call up in Israel. He's talking about it's about 11% of your staff, there and 6% worldwide that seems kind of to me.

Ah yes.

Julien Dumoulin Smith: I just really want to step back and kind of highlight that and how swiftly the cycle moved. And what are the parameters that perhaps you less learned that you guys would identify today after what sort of transpired here. If you don't mind, and I appreciate your thoughtfulness around us.

Somewhat a significant maybe not material the significant I wanted to ask is that the call up more across the board or especially in Israel is it more like with the your business folks you professionals. Your engineers, obviously under 40 and nail.

Zvi Lando: Yeah, Julian, thank you for the question. So I'll start maybe by by going back to Q1 because we need to understand that again, this pattern that we see is coming after 2022 that was a COVID year. And when we're trying to analyze the business and see where is it going, we're looking at I would say three major sets of data. The first one is, of course, how much we're shipping and where we're shipping it.

Or is it across the board in terms of just occupational and and the professional level I'll leave it with that I'll take the rest of my questions offline things.

Yeah. So.

A quick correction, it's male and female so that it's not it's it's even in that in that regard.

The our our manufacturing and business activities are mostly operated outside of Israel and not not dependent on Ah on anything significant in his run out the infrastructure enough people and that's why this does not have any impact on on our execution towards our customers.

Zvi Lando: Second is, what is the point of sale data that we see coming out from our distributors and as mentioned by CV. It's something that we measure on a monthly basis. And then we're looking at the inventory level that are basically a result of these two things up until the very beginning of Q1. We saw that our shipping is almost one to one correlated and merged with the point of sale data that we saw from our distributor.

From an hour and the perspective.

There is an impact as I as I mentioned the the they caught up is is quite evenly distributed across the different departments and that gives us the ability.

Zvi Lando: So that means that on one hand, you saw very little inventory days in the channel. If you recall from our calls at that time, we said it in some cases. We saw close to zero inventory of three-phase products and we sometimes saw one or one and a half months of single-phase products. And this is something that we have looked at consistently. At the beginning of Q1, we started to see a relief when it comes to our ability to manufacture single-phase products.

To reallocate and move around people to make sure that that the the main projects are staffed with with critical mass.

To move them forward and and and it it it's actually aligned with a business discussion that we're having over here that that that this type of a business environment is the right one to focus on to identify what are the real key drivers of the business and and put the right quantity and quality of people on them. So that's.

Zvi Lando: And we saw gradual relief that actually materialized in full on the Q3 this year in our ability to provide three-phase products, especially the commercial products. So what we saw is that during Q1 and Q2 and Q3, we came back to the normality of a growing market where our shipment into the channel are lower than the... Sorry, going up are higher than the actual point of sale. But when we took the two ratios, our sales into the channels and the point of sale data, we saw that the overall days inventory on hand are ranging between 60 to 90 days, which is the normal level that we would usually see.

What we're doing for both for both reasons. So it's I think it's in that regard what what is important to execute in the business. We will we are able to support without interruption.

Our final question comes from Andrew <unk> of Morgan Stanley.

Great. Thanks, so much for taking my question here I just wanted to discuss some of these backlog cancellations and apologies. He already answered this but can you remember just walk through your decision making process on why you decided to accommodate those requests and and I guess, how do we gain comfort that this is truly a one off in nature and I guess is there anything that you got in return maybe he can.

Directions on on on payment terms for free for future orders or just to make it made me a little bit more mutually beneficial in the long run. Thank you.

Zvi Lando: And by the way, it depends based on the distributor. Some of them would like to be at a higher level because they're less efficient or more distributed and some will be more tight. But we started to see a very nice correlation between the two. We saw very steep increase in the point of sale data, sales through data. And therefore we felt comfortable with the numbers that were shipping. And we continue to monitor all the time the inventory on hand days.

Yeah, I'll keep it short, but you know we've been operating in Europe. Since 2010, we we grew our position in market share in multiple countries through building long term relationships and delivering a quality products and and services.

And we've done this with a network of of partners both distribution partners in installation partners across all of these countries and we intend to continue and do that with them for years to come. So that is at the core of our decision process and consideration is that this is the long.

Zvi Lando: Now, when we're getting the reports on a monthly basis, usually it happens around the 20th of the following months. So, I would say that when we started July, we at the 20th of July approximately got the June numbers from Europe that were significantly higher than everything that we've seen before. These were record high numbers. And as such, our customers continue to make orders and work to accept orders because the backlog was already there.

Term huge market. These are quality players that we've been working with and we will continue to do so and fluctuations and ups and downs and helping each other out during critical times and not sticking to the letter of the law to to to force them to take inventory that they don't.

Need and put them in a financial hazard, we thought that's not the right thing to do is part of our long term view of the future of the market and where we are within that market.

Zvi Lando: If you remember, we had a very large backlog. Comes the end of August, we are receiving the July data, which is lower than June, but this is again typical because we see a lot of vacations happening in Europe around this time. And we see a decline. But by the way, not a huge decline, but we do see a decline. Usually August numbers are either flat or I would say relatively similar to the ones that we see in July.

Mhm.

And this does conclude today's question and answer session as well as our call for this afternoon. You may now disconnect your lines and everyone have a great day.

Thank you.

[laughter].

Zvi Lando: So comes the end after the 20th of September that we're getting the August numbers from Europe and the United States. And we see that August is down compared to July again, not dramatically down, but it is down. But at that time, this is a very end of September. Our distributors start to see, and by the way, we do not, but they start to see that September is not materializing as they expected.

Uh-huh.

Mmm Mmm.

Mm.

Mmm.

Mhm.

[noise] [noise] [noise] mm.

Zvi Lando: And usually the pattern that we used to see over the last, I would say, several years, is that usually you see a slower July and August compared to June, but then you see a jump in September. Actually, we were told by them that the expectation is to see a very strong September. And they acted upon this, but when they started to see that September is not materializing, this is the last, I would say, two weeks of the quarter, we saw an increasing declines of orders and a much more pressure to delay orders.

[music].

Mmm Mmm.

Mmm.

Zvi Lando: And when we received actually close to, I would say again, 15 to 20 of October, the September data, we actually found that September for the first time for many years was lower than the actual August numbers. And this is the area that was a little bit surprising. Now, the result is, and this is what is leading to our queue for numbers and guidance, is that, again, when you take the inventory levels that you see, that we're continuing to grow up again because everyone until sometimes the middle of August expected to see relatively similar behavior, now you see that the inventory on the hand days are very, very high, much higher than the 90 days that usually are in the channels.

[noise] [noise] [noise] [noise] [music].

Mm Hmm mm Hmm.

[music].

Uh-huh.

[music].

Mhm.

[music].

Zvi Lando: And this is when we understood together, by the way, with our customers, that December or the fourth quarter cannot look even like the one that was Q3 because of this decrease. The data that we're now waiting for, and again, we do not have yet, is how October looks like, we believe that it's going to be better than September. I do not have any data to see how big better it is, but this is the basis of our consciousness.

Uh Huh Uh huh.

Mhm.

Uh-huh.

Hmm Hmm Hmm Hmm.

[music].

Zvi Lando: So, as you can understand, this is a pattern where the deviation from the pattern that we used to see was something that was actually, I would say, understood in the two to three last weeks of September and not before. And that led to basically the fact that a lot of our cancellations and orders came actually at that point of time or pushouts. So, I hope I answered your question.

Mmm.

Uh-huh.

Uh huh.

Uh-huh.

Mhm.

Mhm.

Zvi Lando: May be, Julian, on the topic of, of course, you know, the dynamic is as Ronen described from it, but we need to learn from it. One of the elements that is meaningful that also we are talking with our distributors and how to handle is visibility into the inventory levels at the installers, because what happened is part of this dynamic is of, you know, we're coming off of an unprecedented event in terms of[inaudible] track of installation rates, so through inventory levels that our distributors is inventory levels that our large installers, that will help have a better clarity when fluctuations occur, especially such extreme fluctuations.

Mhm.

Mmm.

Mmm.

Mmm.

[noise].

Mmm.

[noise] [noise] [noise] [noise].

Jeff Osborne: We'll take our next question from Jeff Osborne of TD Cowan.

Jeff Osborne: Great.

Ronen Faier: Good evening. Two quick questions on my side. Ronan, what demand levels were assumed when you talked about a normalization of revenue at six to 700 million? Is that sort of flat? With current levels, that was part one of the question, and part two is just as the industry normalizes whenever that is next summer, why wouldn't there be a knife fight in terms of pricing? I know you said there was a sort of stable outlook in the quarter, and then the near-term and payment terms were more important to distributors, but it looks like to tech industry with now access capacity. Obviously, you're rationalizing capacity. I'm not sure others will, but why wouldn't pricing go down meaningful in the second half of the year?

Ronen Faier: Okay, so first of all, I'll start by saying that, yes, as you mentioned, the way that we modeled the normalized level is taking the point of sale data for the last three months as it is. And therefore, yes, it's going to be recovery in this, then we can see a higher number. I would say that we do take in our numbers also an assumption about changes in pricing. As you have mentioned, right now, we did not change our prices within Q3, and I'm not sure that we will do anything on the inverter side, at least in Q4, given the fact that we believe that with the inventory levels that you see right now, there is almost zero impact on changing pricing.

Ronen Faier: First of all, because nobody's taking orders, so if they're taking very little orders, no reason to change a pricing, because everyone's selling the inventory that they have. Plus, we do not see that it can actually change the behavior along the elasticity of demand curves. So, I must say that moving forward, we do assume that prices will have to be adjusted in some places. It is going to be very much related, you know, to the offering that we see, for example, the more markets are moving to dynamic rates.

Ronen Faier: These are going actually to products that are a little bit maybe more expensive because of the fact that they're allowing better capabilities. We do believe that maybe in batteries, we will have to adjust down prices, because when we look at the competition today, yes, our prices, I would say, are not the cheapest that you see in the market. And I can tell you that in our stabilization number, there is a baked in assumption on possible price adjustment that we will need or may need to implement.

Ronen Faier: The reason that we put in there, even if we're not sure if we'll have to take them is, as I mentioned in my answer to Brian, after this unprecedented event that, you know, that we're missing a quarter, never happened. In this company history, we wanted also to be very cautious in the way that we're modeling.

Zvi Lando: We'll take our next question from Jonathan Kees of Dialogue Capital Markets, Julien is open Great thanks for taking my question and squeezing me in there. I'll keep mine quick in the interest of time. So I wanted to ask regarding how you see the call up in Israel. You talked about it's about 11% of your staff there and 6% worldwide. That seems kind of to me, how you see this somewhat significant, maybe not material but significant.

Zvi Lando: I wanted to ask, is that the call up more across the board? Or especially in Israel, is that more like with your business folks, your professionals, your engineers, obviously under 40 and mail, or is it across the board in terms of just occupational and the professional level? I'll leave it with that. I'll take the rest of my questions off fine. Thanks. Yeah, so a quick correction, it's mail and female, so it's not even in that regard.

Zvi Lando: You know, our manufacturing and business activities are mostly operated outside of Israel and not dependent on anything significant in Israel, not infrastructure and not people, and that's why this does not have any impact on our execution towards our customers. From an hour in the perspective, there is an impact as I mentioned, the call up is quite evenly distributed across the different departments and that gives us the ability to reallocate and move around people to make sure that the main projects are staffed with critical mass to move them forward.

Zvi Lando: And it's actually aligned with the business discussion that we're having over here that this type of business environment is the right one to focus and to identify what are the real key drivers of the business and put the right quantity and quality of people on them. So that's what we're doing for both reasons. So I think it's in that regard, what is important to execute in the business? We are able to support without interruption.

Andrew Prokoko: Our final question comes from Andrew Prokoko of Morgan Stanley. Great. Thanks so much for tricking the question here.

Andrew Prokoko: I just wanted to discuss some of these back-auld cancellations and apologies if you're already answered this, but can you maybe just walk through your decision-making process on why you decided to accommodate those requests? And I guess how do we gain comfort that this is truly one-off in nature? And I guess is there anything that you got in return, maybe concessions on payment terms for future orders or just to make it maybe a little bit more mutually beneficial in the long run? Thank you.

Zvi Lando: Yeah, I'll keep it short, but we've been operating in Europe since 2010. We grew our position in market share in multiple countries through building long-term relationships and delivering quality products and services. And we've done this with the network of partners, both distribution partners and installation partners across all of these countries. And we intend to continue and do that with them for years to come. So that is at the core of our decision process and consideration is that this is the long-term, huge market.

Zvi Lando: These are quality players that we've been working with, and we will continue to do so. And fluctuations and ups and downs and helping each other out during critical times and not sticking to the letter of the law to force them to take inventory that they don't need. And put them in the financial hazard. We thought that's not the right thing to do as part of our long-term view of the future of the market and where we are within that.

Unknown Executive: And this does conclude today's question and answer session, as well as our call for this afternoon. You may now disconnect your aligns, and everyone, have a great day, and thank you very much[inaudible] . .