Q2 2024 SolarEdge Technologies Inc Earnings Call

August 7, 2024

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Operator: Please stand by. Your program is about to begin. If you need assistance during your conference call today, please press star zero. Hello, and welcome to the Solaredge conference call for the second quarter ended June 30, 2024. This call is being webcast live on the company's website at www.solaredge in the Investors section on the events calendar page. This call is the sole property and copyright of Solaredge, with all rights reserved, and any recording, reproduction, or transmission of 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.

Unknown Executive: If you need assistance during your conference today, please press star zero.

Unknown Executive: Hello and welcome to the SolarEdge conference call for the second quarter and June 30th, 2024. This call is being webcast live on the company's website at www.solaredge in the investor section on the events calendar page.

Operator: With me today are Zvi Lando, Chief Executive Officer, and Ronen Faier, Chief Financial Officer. Zvi will begin with a brief review of the results for the second quarter ended June 30, 2024. 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 posted on our website ahead of this call today, and our filings with the SEC for a more complete description of such risks and uncertainties.

Speaker Change: Hello and welcome to the Solaredge conference call for the second quarter ended June 30, 2024. This call is being webcast live on the company's website at www.solaredge in the investor section on the events calendar page.

Unknown Executive: This call is the sole property and copyright of SolarEdge. With all rights reserved, 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.

Speaker Change: 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.

Speaker Change: You may listen to a webcast replay of this call by visiting the event calendar page of the SolarEdge Investor website.

JB Lowe: I would now like to turn the call over to JB Lowe, Head of Investor Relations for SolarEdge. Please begin.

J.B. Lowe: I would now like to turn the call over to J.B. Lowe, Head of Investor Relations for Solaredge. Please begin.

Unknown Executive: Thank you, Jess.

Zvi Lando: Good afternoon, everyone. Thank you for joining us to discuss SolarEdge's operating results for the second quarter and the June 30th, 2024, as well as the company's outlook for the third quarter of 2024.

J.B. Lowe: Thank you, Jess. Good afternoon, everyone. Thank you for joining us to discuss Solaredge's operating results for the second quarter ended June 30, 2024, as well as the company's outlook for the third quarter of 2024.

Zvi Lando: With me today are Zeevee Londo, Chief Executive Officer, and Ronen Fire, Chief Financial Officer. Zeevee will begin with a brief review of the results for the second quarter and a June 30th, 2024. Ronen will then review the financial results for the second quarter, followed by the company's outlook for the third quarter of 2024.

Speaker Change: With me today are Zvi Lando, Chief Executive Officer, and Ronen Faier, Chief Financial Officer.

Speaker Change: Zvi will begin with a brief review of the results for the second quarter ended June 30, 2024. Ronen will then review the financial results for the second quarter, followed by the company's outlook for the third quarter of 2024.

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 posted on our website ahead of this call today, and our filings with the SEC for a more complete description of such risks and uncertainties.

Speaker Change: We will then open the call for questions.

Speaker Change: 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.

Speaker Change: We encourage you to review the Safe Harbor statements contained in our press release, the slides posted on our website ahead of this call today, and our filings with the SEC for a more complete description of such risks and uncertainties.

Unknown Executive: Please note that 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 US GAAP. The non-GAAP 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. Reconciliation of these measures can be found in our earnings release, presentation, and SEC filings. These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with US GAAP.

Operator: Please note that 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. Reconciliation of these measures can be found in our earnings release, presentation, and SEC filing.

Speaker Change: 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.

Speaker Change: The non-GAAP 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.

Speaker Change: Reconciliation of these measures can be found in our earnings release, presentation, and SEC filings.

Speaker Change: 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.

Unknown Executive: Listeners who do not have a copy of the quarter-ended June 30th, 2024 press release or the supplemental material may obtain a copy by visiting the Investor Relations section of the company's web.

Speaker Change: Listeners who do not have a copy of the quarter-ended June 30, 2024 press release or the supplemental material may obtain a copy by visiting the Investor Relations section of the company's website.

Zvi Lando: I will now turn the call over to Zvi. Thank you, JB.

Zvi Lando: Good afternoon, and thank you all for joining us on our conference call. Our sell-through for the quarter was approximately $520 million, up 18% from the first quarter, meaning we undershifted demand by approximately $275 million, in line with our expectations.

Speaker Change: I will now turn the call over to Zvi.

Zvi Lando: Good afternoon, and thank you all for joining us on our conference call. Starting with highlights of our second quarter results, we concluded the quarter with approximately $265 million in revenue. Revenues from our solar business were approximately $241 million, while revenues from our non-solar businesses were approximately $24 million. It's 2 million power optimizers, 66,000 inverters, and 128 megawatt hours of batteries. Our sell-through for the quarter was approximately $520 million, up to 18% from the first quarter, meaning we undershipped demand by approximately $275 million in line with our expectations.

Zvi Lando: Thank you, J.B. Good afternoon and thank you all for joining us on our conference call.

Zvi Lando: Starting with highlights of our second quarter results.

Zvi Lando: We concluded the quarter with approximately $265 million in revenue. Revenues from our solar business were approximately $241 million, while revenues from our non-solar businesses were approximately $24 million.

Zvi Lando: This quarter, we shipped 2 million power optimizers, 66,000 inverters, and 128 megawatt hours of batteries.

Zvi Lando: Our sell-through for the quarter was approximately $520 million, up 18% from the first quarter, meaning we undershifted demand by approximately $275 million, in line with our expectations.

Zvi Lando: Before we dive into the regional breakdown, I'd like to address the recent moves we have made to strengthen the company and our business and our key focus areas as we navigate this volatile time in the solar markets. We are focusing on three areas. The first is supporting the business of our customers and growing our share through their satisfaction and success. Over the last year, we have made significant improvements to customer service and product quality and to the customer experience through ease of installation of our products. We are already seeing positive momentum in sell-through data results resulting from these efforts.

Zvi Lando: We are focusing on three areas. The first is supporting the business of our customers and growing our share through their satisfaction and success.

Zvi Lando: Over the last year, we have made significant improvements to customer service and product quality and to the customer experience through ease of installation of our products.

Zvi Lando: We are already seeing positive momentum in sell-through data resulting from these efforts.

Zvi Lando: Second is the execution of our product roadmap, which is aimed to improve our share and profitability in segments we serve and build the position in new segments by pushing the envelope of hardware and software technology advancements in the energy generation, storage, and management space. We are seeing gradual growth in revenue generated from new products released over the last 12 months, including our ground mount 330 kilowatt inverter system, trackers, and commercial storage. We are also excited and focused on the next generation of products that we will release within the next 12 months, including inverters, optimizers, and batteries for the US and European residential markets.

Zvi Lando: Over the last year, we have made significant improvements to customer service and product quality and to the customer experience through the ease of installation of our products. We are already seeing positive momentum in sell-through data resulting from these efforts. Second, is the execution of our product roadmap, which is aimed at improving our share and profitability in segments we serve and build a position in new segments by pushing the envelope of hardware and software technology advancements in the energy generation, storage, and management space.

Zvi Lando: Second is execution of our product roadmap, which is aimed to improve our share and profitability in segments we serve.

Zvi Lando: and build a position in new segments by pushing the envelope of hardware and software technology advancements in the energy generation, storage and management space.

Zvi Lando: We are seeing gradual growth in revenue generated from new products released over the last 12 months, including our ground-mount 330 kW inverter system, trackers, and commercial storage. We are also excited and focused on the next generation of products that we will release within the next 12 months, including inverters, optimizers, and batteries for the U.S. and European residential markets. Thirdly, ensuring financial stability and sizing the company infrastructure such that we are in a healthy position for further growth post-channel inventory clearing when our revenue is aligned with our true business run rate. Ronen will touch on this in his remarks.

Zvi Lando: We are seeing gradual growth in revenue generated from new products released over the last 12 months, including our ground-mount 330-kilowatt inverter system, trackers, and commercial storage.

Zvi Lando: We are also excited and focused on the next generation of products that we will release within the next 12 months including inverters, optimizers, and batteries for the US and European residential markets.

Zvi Lando: Third is ensuring financial stability and sizing the company infrastructure such that we are in a healthy position for further growth, post-channel inventory clearing when our revenue is aligned with our true business run rate. One end will touch on this in his remarks, and now to the details of our second quarter results.

Zvi Lando: Third is ensuring financial stability and sizing the company infrastructure such that we are in a healthy position for further growth post channel inventory clearing when our revenue is aligned with our true business run rate. Ronen will touch on this in his remarks.

Ronen Faier: And now to the details of our second quarter results.

Zvi Lando: Starting with the US residential segment, generally market reports suggest that installations were relatively flat in the second quarter. While our sell-through of inverters and optimizers in the US residential space grew 32% quarter over quarter, and our battery sell-through rose 55% quarter over quarter. We attribute this growth to the general trend in the market towards TPO's and large installers where we traditionally have a strong position, and the growing recognition in the market of the benefits of our DC coupled backup storage system, in particular, doing extended outage periods has been experienced recently in several events across the country.

Ronen Faier: Starting with the U.S. residential segment.

Ronen Faier: Generally, market reports suggest that installations were relatively flat in the second quarter.

Ronen Faier: While our sell-through of inverters and optimizers in the U.S. residential space grew 32% quarter over quarter, and our battery sell-through rose 55% quarter over quarter.

Zvi Lando: We attribute this growth to the general trend in the market towards TPOs and large installers, where we traditionally have a strong position, and the growing recognition in the market of the benefits of our DC coupled backup storage system. Added to this is the very strong interest we are seeing for domestic content commercial products that we expect to begin shipping before the end of this year. For commercial, sell-through was down 3%.

Ronen Faier: We attribute this growth to the general trend in the market towards TPOs and large installers, where we traditionally have a strong position, and the growing recognition in the market of the benefits of our DC-coupled backup storage system.

Ronen Faier: In particular, during extended outage periods, as have been experienced recently in several events across the country.

Zvi Lando: We are seeing strains in particular in California and Puerto Rico where installations of our batteries were up substantially in the second quarter. We are focused on maintaining our momentum in the US residential markets through the shift towards domestic content products as we are shipping domestic content residential and voters and optimizers now and expect to begin shipping domestic content batteries in the beginning of 2025. So through was up 18% quarter over quarter from a seasonally low first quarter and up 13% year over year. We remain encouraged by the potential of the US CNI market as large enterprise customers are increasingly interested in standardizing their global portfolio on our solution.

Ronen Faier: We are seeing strength in particular in California and Puerto Rico, where installations of our batteries were up substantially in the second quarter.

Ronen Faier: We are focused on maintaining our momentum in the U.S. residential market through the shift towards domestic content products as we are shipping domestic content residential inverters and optimizers now and expect to begin shipping domestic content batteries in the beginning of 2025.

Speaker Change: Moving to U.S. commercial. Sell-through was up 18% quarter over quarter from a seasonally low first quarter and up 13% year over year.

Ronen Faier: We remain encouraged by the potential of the U.S. C&I market, as large enterprise customers are increasingly interested in standardizing their global portfolio on our solution.

Zvi Lando: Due to our panel level monitoring and hand safety features, cutting edge cybersecurity capabilities and highly sophisticated energy management systems. Added to this is a very strong interest we are seeing for domestic content commercial products that we expect to begin shipping before the end of this year, moving to Europe. The residential market continued to be slow in Q2 and, in fact, declined in the Netherlands for the third straight quarter. For Solaredge, our residential sell-through in Europe in the second quarter was up 10% quarter over quarter, with voters and optimizers up 6% and batteries up 20%. In commercial sell-through was down 3%.

Ronen Faier: Due to our panel-level monitoring, enhanced safety features, cutting-edge cybersecurity capabilities and highly sophisticated energy management systems.

Ronen Faier: Added to this is the very strong interest we are seeing for domestic content commercial products that we expect to begin shipping before the end of this year.

Ronen Faier: Moving to Europe .

Ronen Faier: The residential market continued to be slow in Q2 and, in fact, declined in the Netherlands for the third straight quarter.

Speaker Change: For Solaredge, our residential sell-through in Europe in the second quarter was up 10% quarter over quarter, with inverters and optimizers up 6% and batteries up 20%.

Zvi Lando: In general, the European CNI market has been relatively flat over the last 3 quarters, and there is not an expectation for acceleration in the second half of the year in most countries. In the Italian market, however, a special incentive plan equivalent to the residential eco bonus program, which significantly boosted the Italian residential market in recent years, is in final stages of regulatory approval. Between our strong market share in the Italian CNI market and our recently released commercial battery, we are in a position to benefit from this program, which will likely include a commercial storage component.

Zvi Lando: In general, the European CNI market has been relatively flat over the last three quarters, and there is not an expectation of acceleration in the second half of the year in most countries. In the Italian market, however, a special incentive plan equivalent to the Residential EcoBonus program, which significantly boosted the Italian residential market in recent years, is in the final stages of regulatory approval. Between our strong market share in the Italian C&I market and our recently released commercial battery, we are in a position to benefit from this program, which will likely include a commercial storage component. Until that time, however, inventory consumption of our commercial products in the European channels will likely remain sluggish. In the international markets region, revenue in the second quarter was $56 million, up 43% quarter over quarter.

Ronen Faier: In commercials, sell-through was down 3%.

Ronen Faier: In general, the European C&I market has been relatively flat over the last three quarters, and there is not an expectation for acceleration in the second half of the year in most countries.

Ronen Faier: In the Italian market, however, a special incentive plan equivalent to the residential EcoBonus program, which significantly boosted the Italian residential market in recent years, is in final stages of regulatory approval.

Ronen Faier: Between our strong market share in the Italian C&I market and our recently released commercial battery, we are in a position to benefit from this program, which will likely include a commercial storage component.

Zvi Lando: Until that time, however, the inventory consumption of our commercial products in the European channels will likely remain sluggish. In the international markets region, revenue in the second quarter was 56 million dollars, up 43% quarter over quarter. We are making nice strides in the Thailand market, where we posted record quarterly revenues in the second quarter. The momentum here is related to what we discussed above as enterprise customers standardized their global supply chain infrastructure on our equipment in order to meet safety standards and, in many cases, to address various scope 1 and scope 2 emission requirements for corporate ESG ratings.

Ronen Faier: Until that time, however, the inventory consumption of our commercial products in the European channels will likely remain sluggish.

Ronen Faier: In the international markets region, revenue in the second quarter was $56 million, up 43% quarter over quarter. We are making nice strides in the Thailand market, where we posted record quarterly revenues in the second quarter.

Zvi Lando: We are making nice strides in the Thailand market, where we posted record quarterly revenues in the second quarter. The momentum here is related to what we discussed above, as enterprise customers standardize their global supply chain infrastructure on our equipment in order to meet safety standards and, in many cases, to address various scope one and scope two emission requirements for corporate ESG ratings. We are continuing to make progress on clearing the channels and expect channel inventory in the U.S. to be largely normalized by the end of the third quarter.

Ronen Faier: The momentum here is related to what we discussed above, as enterprise customers standardize their global supply chain infrastructure on our equipment.

Ronen Faier: In order to meet safety standards and in many cases to address various scope 1 and scope 2 emission requirements for corporate ESG ratings.

Zvi Lando: We are continuing to make progress on clearing the channels and expect channel inventory in the US to be largely normalized by the end of the third quarter. In Europe, the clearing process will likely extend into the early part of 2025 due to the above-mentioned slower recovery and changing inventory holding behavior of distributors in the European markets, who are targeting lower levels of days on hand compared to past practices.

Ronen Faier: We are continuing to make progress on clearing the channels and expect channel inventory in the U.S. to be largely normalized by the end of the third quarter.

Zvi Lando: In Europe, the clearing process will likely extend into the early part of 2025 due to the above-mentioned slower recovery and changing inventory holding behavior of distributors in the European markets, who are targeting lower levels of days on hand compared to past practices. During this period, as the channel clears inventory, our revenue will continue to track below the underlying demand for our product.

Ronen Faier: In Europe , the clearing process will likely extend into the early part of 2025 due to the above-mentioned slower recovery.

Ronen Faier: and changing inventory holding behavior of distributors in the European markets who are targeting lower levels of days on hand compared to past practices.

Zvi Lando: Services. During this period, as the channel clears inventory, our revenue will continue to track below the underlying demand for our products.

Ronen Faier: During this period, as the channel clears inventory, our revenue will continue to track below the underlying demand for our products.

Zvi Lando: Moving to products and to expand on the second focused area I discussed in the start of my remarks, our product roadmap. At Inter Solo and Munich in June, we announced the global rollout of SolarEdge 1 for CNI, our software-based energy optimization platform for commercial and industrial applications. Solaredge 1 for CNI is a key piece of our strategy to capture market share and margin as systems and requirements become more complex and require sophisticated energy management software and enhanced cybersecurity protection. We have already started to sell recurring software services and will be adding additional features in the quarters of heads.

Zvi Lando: Moving to products, and to expand on the second focus area I discussed at the start of my remarks, our product roadmap. At InterSolar in Munich in June, we announced the global rollout of Solaredge One for CNI, our software-based energy optimization platform for commercial and industrial applications. Solaredge 1 for CNI is a key piece of our strategy to capture market share and margin as systems and requirements become more complex and require sophisticated energy management software and enhanced cybersecurity protection.

Ronen Faier: Moving to products and to expand on the second focus area I discussed in the start of my remarks, our product roadmap.

Ronen Faier: At InterSolar in Munich in June , we announced the global rollout of Solaredge 1 for CNI, our software-based energy optimization platform for commercial and industrial applications.

Ronen Faier: Solaredge 1 for CNI is a key piece of our strategy to capture market share and margin. As systems and requirements become more complex,

Ronen Faier: and requires sophisticated energy management software and enhanced cybersecurity protection.

Zvi Lando: We have already started to sell recurring software services and will be adding additional features in the quarters ahead. Solaredge 1 for CNI is based on a combination of organic capabilities developed by Solaredge, as well as the integration of technical and go-to-market assets we added through the acquisition of Hark and Weva. Let's talk a bit about cybersecurity. In recent months, a growing share of customers, especially in the CNI segment, have made cybersecurity a go-no-go factor in their procurement decisions.

Ronen Faier: We have already started to sell recurring software services and will be adding additional features in the quarters ahead.

Zvi Lando: Solaredge 1 for CNI is based on a combination of organic capabilities developed by Solaredge and as well as the integration of technical and go-to-market assets, assets we added through the acquisition of Hark and Weibo.

Ronen Faier: Solaredge 1 for CNI is based on a combination of organic capabilities developed by Solaredge as well as the integration of technical and go-to-market assets we added through the acquisition of Hark and Wevo.

Zvi Lando: Let's talk a bit about cybersecurity. In recent months, a growing share of customers, especially in the CNI segment, have made cybersecurity a go-nogo factor in their procurement decisions. While this has long been common and sensitive installations like military bases or government buildings, it is becoming the new norm for all types of customers, from universities to gas stations. We have built significant expertise in this area, which is becoming a real differentiator. At the same time, several countries have already started putting more comprehensive cybersecurity regulations in place for critical grid infrastructure. We have many meaningful dialogues with regulatory bodies as these new rules are drafted, and we expect to be in a position to quickly comply with any new regulation as a result, which is further set apart from the competition.

Ronen Faier: Let's talk a bit about cybersecurity. In recent months, a growing share of customers, especially in the CNI segment, have made cybersecurity a go-no-go factor in their procurement decisions.

Ronen Faier: While this has long been common in sensitive installations like military bases or government buildings, it is becoming the new norm for all types of customers from universities to gas stations.

Zvi Lando: We have built significant expertise in this area, which is becoming a real differentiator. At the same time, several countries have already started putting more comprehensive cybersecurity regulations in place for critical grid infrastructure. In fact, we invite any of those that are attending ARRI Plus next month in California to join the workshop we are leading on cyber security for solar systems to learn more about this critical topic, comprised of our next-generation three-phase inverter and next-generation battery.

Speaker Change: We have built significant expertise in this area, which is becoming a real differentiator.

Speaker Change: At the same time, several countries have already started putting more comprehensive cybersecurity regulations in place for critical grid infrastructure.

Speaker Change: We have many meaningful dialogues with regulatory bodies as these new rules are drafted, and we expect to be in a position to quickly comply with any new regulation as a result, which should further set us apart from the competition.

Zvi Lando: In fact, we invite any of those that are attending RE Plus next month in California to join the workshop we are leading on cybersecurity for solar systems to learn more about this critical topic.

Speaker Change: In fact, we invite any of those that are attending ARRI Plus next month in California to join the workshop we are leading on cybersecurity for solar systems to learn more about this critical topic.

Zvi Lando: Also at Inter Solar, we unveiled our next generation three-phase residential energy solution for European markets that will be available next year, comprised of our next generation three-phase inverter and next-generation battery. This new inverter was significantly reduced cost per waft and is designed to fully optimize backup-attached solar systems on larger rooftops that we are increasingly seeing in the German-speaking countries. This inverter will also be simpler to install, significantly reducing installation times and costs. In the second quarter, we made first shipments of our commercial outdoor batteries to Europe. This is a market that we think has the potential to follow a similar growth trajectory seen in the residential storage space in recent years.

Speaker Change: Also at InterSolar, we unveiled our next generation three-phase residential energy solution for European markets that will be available next year, comprised of our next generation three-phase inverter and next generation battery.

Speaker Change: This new inverter will significantly reduce cost per watt and is designed to fully optimize backup attached solar systems on larger rooftops that we are increasingly seeing in the German speaking countries.

Zvi Lando: This inverter will also be simpler to install, significantly reducing installation times and costs. This new system will include an inverter, battery, backup interface, and meter collar. There are now approximately 175 megawatts that have been installed or are in the process of installation, and confirmed orders for approximately 30 additional megawatts that are scheduled to be installed this year. IRA-designated products are an exciting opportunity for the solar and storage markets, as more installers are able to access the various incentives.

Speaker Change: This inverter will also be simpler to install, significantly reducing installation times and costs.

Speaker Change: In the second quarter, we made first shipments of our commercial outdoor batteries to Europe .

Speaker Change: This is a market that we think has the potential to follow a similar growth trajectory seen in the residential storage space in recent years.

Zvi Lando: Our offering will expand with an indoor commercial storage battery that will be released in 2025.

Speaker Change: Our offering will expand with an indoor commercial storage battery that will be released in 2025.

Zvi Lando: At RE Plus next month, we will be displaying our next generation single-phase residential system for the North American market that is expected to be released in the second half of 2025. This new system will include an inverter, battery, backup interface, and meter collar. The inverter will be based on silicon carbide switching elements and advanced power topology to deliver enhanced system level efficiency, greater backup power, and safety features above and beyond our current offering. The new inverter will also come pre-equipped with PCS, which means customers can install much more PV while avoiding costly main panel upgrades.

Speaker Change: At RE+, next month we will be displaying our next generation single-phase residential system for the North American market that is expected to be released in the second half of 2025.

Speaker Change: This new system will include an inverter, battery, backup interface, and meter collar.

Speaker Change: The inverter will be based on silicon carbide switching elements and advanced power topology to deliver enhanced system level efficiency, greater backup power, and safety features above and beyond our current offering.

Speaker Change: The new inverter will also come pre-equipped with PCS, which means customers can install much more PV while avoiding costly main panel upgrades.

Zvi Lando: Also at our RePlus, we will be showcasing our next generation battery. This new battery will be a US-made DC-coupled LFP-based modular and scalable solution from 4.4 to 44 kWh that will bring our expertise in module level optimization to the battery module level. We expect it will also represent a significant improvement in our cost structure relative to our current single-phase offering.

Speaker Change: Also at RE+, we will be showcasing our next-generation battery. This new battery will be a U.S.-made, DC-coupled, LFP-based modular and scalable solution from 4.4 to 44 kWh.

Speaker Change: that will bring our expertise in module level optimization to the battery module level.

Speaker Change: We expect it will also represent a significant improvement in our cost structure relative to our current single-phase offering.

Zvi Lando: Our tracker product also continues to gain momentum. There are now approximately 175 megawatts that have been installed or in the process of installation, and confirmed orders for approximately 30 additional megawatts that are scheduled to be installed this year.

Speaker Change: Our tracker product also continues to gain momentum. There are now approximately 175 megawatts that have been installed or are in the process of installation, and confirmed orders for approximately 30 additional megawatts that are scheduled to be installed this year.

Zvi Lando: Moving to operations. In our Austin, Texas facility, we manufactured approximately 450 megawatts of single-phase inverters in the second quarter, and as we announced last month, we achieved our target run rate of 500 megawatts during Q2. We also announced the shipment of the first 20,000 of our domestically produced optimizers in the second quarter from our second US contract manufacturing facility in Florida. We believe that the inverters and optimizers we manufacture in the United States, when paired with US-made racking equipment that is available in the market, allow our TPO customers to use elective safe harbor to qualify for the 10% domestic content ITC adder today.

Speaker Change: Moving to operations.

Speaker Change: In our Austin, Texas facility, we manufactured approximately 450 megawatts of single-phase inverters in the second quarter. And as we announced last month, we achieved our target run rate of 500 megawatts during Q2.

Speaker Change: We also announced the shipment of the first 20,000 of our domestically produced optimizers in the second quarter from our second U.S. contract manufacturing facility in Florida.

Speaker Change: We believe that the inverters and optimizers we manufacture in the United States, when paired with U.S. made racking equipment that is available in the market, allow our TPO customers to use Elective Safe Harbor to qualify for the 10% domestic content ITC adder today.

Zvi Lando: We are also on track to have domestic content commercial product available by the end of the year. As mentioned above, we also expect to begin shipping domestically produced batteries in the first quarter of 2025, which is expected to enable solar plus storage TPO installations to access the bonus credit as well.

Speaker Change: We are also on track to have domestic content commercial product available by the end of the year.

Speaker Change: As mentioned above, we also expect to begin shipping domestically produced batteries in the first quarter of 2025, which is expected to enable solar plus storage TPO installations to access the bonus credit as well.

Zvi Lando: These IRA-designated products are an exciting opportunity for the solar and storage market, as more installers are able to access the various incentives.

Speaker Change: These IRA-designated products are an exciting opportunity for the solar and storage market as more installers are able to access the various incentives.

Zvi Lando: To conclude my remarks, we have taken steps to return to profitability and cash flow stabilization post-channel inventory clearing at a quarterly revenue level of $500 million, which our underlying business represents already today.

Speaker Change: To conclude my remarks, we have taken steps to return to profitability and cash flow stabilization post-channel inventory clearing at a quarterly revenue level of $500 million, which our underlying business represents already today.

Zvi Lando: The actions we are taking in the areas of market share gains and product roadmaps should enable us to surpass $550 million in quarterly revenue in a post-inventory clearing environment, which we expect will be in the second quarter of 2025, and set the stage for additional growth with more products and continued technological innovation.

Speaker Change: The actions we are taking in the areas of market share gains and product roadmaps.

Speaker Change: should enable us to surpass $550 million in quarterly revenue.

Speaker Change: in a post-inventory clearing environment.

Speaker Change: which we expect will be in the second quarter of 2025 and set the stage for additional growth with more products and continued technological innovation.

Ronen Faier: I will now hand it over to UNN. Thank you, C.V., and good afternoon, everyone. Total revenues for the second quarter were 265.4 million dollars. Revenues from our solar segment, which include the solar sales of PV attached residential and commercial batteries, were 241.2 million dollars. Solar revenues from the United States this quarter were 97 million dollars, representing 40% of our solar revenues. Solar revenues from Europe were 88.2 million dollars, representing 37 million dollars over solar revenues. Rest of the world solar revenues were 56 million dollars, representing 23% of our total solar revenues. On a megawatt basis, we shipped 261 megawatts to the United States, 278 megawatts to Europe, and 333 megawatts to the international markets for just under 875 megawatts of total shipments. As in the last two quarters, the geographical mix of our revenues is mainly a result of inventory levels in the channels and does not necessarily represent installation rates, competitive environments, or long-term trends. 65% of the total megawatt shipments this quarter were commercial products, while the remaining 35% were residential. In the second quarter, we shipped 128 megawatt hours of batteries, with the majority shipped to Europe and international markets. Our US battery shipments as a percentage of total shipments were lower this quarter but still represent a significant drag of approximately 500 basis points on our margins in the second quarter due to the continued inventory imbalances in the distribution channels, as well as a larger portion of commercial products within our revenue mix. We shipped a higher ratio of optimizers to inverters than in the last quarter. As a result, a speed per watt this quarter, excluding battery revenues, was 21.4 cents, a 25% increase from 17.2 cents last quarter. While the typical ratio of optimizers to inverters is 24 to 1, the ratio of this quarter was 31. In the first quarter, we began to implement promotions to help our distribution channel partners to reach balanced levels of inventory. We started to be reflected in our financials in the second quarter. In all, we expect the effect of these measures to translate to average price reductions within the mid to high single-digit range in 2024. As we have previously discussed, our blended ASP per kilowatt hour on all PV attached batteries was 371 dollars this quarter, down from 383 dollars per kilowatt hour in the previous quarter. The decrease is largely due to previously announced price reductions and geographic mix shifts. Revenues this quarter from our non-solar business, comprising our energy storage and all other segments, were 23.9 million dollars. Consolidated GAAP gross margin for the quarter was a negative 4.1% compared to a negative 12.8% in the prior quarter, as we benefited from the economies of scale that resulted from higher revenues. Non-GAAP consolidated gross margin this quarter was 0.2% compared to negative 6.5% in the prior quarter. This amount includes 330 basis points of net IRA benefit.

Speaker Change: I will now hand it over to Ronen.

Ronen Faier: Thank you, TV, and good afternoon, everyone.

Ronen Faier: Total revenues for the second quarter were $265.4 million.

Ronen Faier: Revenues from our solar segment, which includes the sales of PV-attached residential and commercial batteries, were $241.2 million.

Ronen Faier: Solar revenues from the United States this quarter were $97 million, representing 40% of our solar revenues.

Ronen Faier: Solar revenues from Europe were $88.2 million, representing 37% of our solar revenues.

Ronen Faier: Solar revenues were $56 million, representing 23% of our total solar revenues. Operating loss for the non-solar segment was $9.3 million this quarter compared to operating loss of $12.1 million in the previous quarter. In the third quarter, we expect our free cash burn to be reduced to a range of $70 to $90 million and anticipate the burn to step down again in the fourth quarter. We expect to be cash flow positive. We are guiding revenues to be within the range of $260 to $290 million.

Ronen Faier: Rest of the world's solar revenues were $56 million, representing 23% of our total solar revenues.

Ronen Faier: On a megawatt basis, we shipped 261 MW to the United States, 278 MW to Europe , and 333 MW to the international markets, for just under 875 MW of total shipments.

Ronen Faier: As in the last two quarters, the geographical mix of our revenues is mainly a result of inventory levels in the channels and does not necessarily represent installation rates, competitive environments, or long-term trends.

Ronen Faier: 65% of the total megawatt shipments this quarter were commercial products, while the remaining 35% were residential.

Ronen Faier: In the second quarter, we shipped 128 MWh of batteries, with the majority shipped to Europe and international markets. Our US battery shipments, as a percentage of total shipments, were lower this quarter but still represent a significant drag of approximately 500 basis points on our margins.

Ronen Faier: In the second quarter, due to the continued inventory imbalances in the distribution channels as well as a larger portion of commercial products within our revenue mix, we shipped a higher ratio of optimizers to inverters than in the last quarter.

Ronen Faier: As a result, ASV per watt this quarter, excluding battery revenues, was $0.214, a 25% increase from $0.172 last quarter.

Ronen Faier: While the typical ratio of optimizers to inverter is 24 to 1, the ratio this quarter was 30 to 1.

Ronen Faier: In the first quarter, we began to implement promotions to help our distribution channel partners.

Ronen Faier: to reach balanced level of inventory.

Ronen Faier: which started to be reflected in our financials in the second quarter. In all, we expect the effect of these measures to translate to average price reductions within the mid to high single-digit range in 2024, as we have previously discussed.

Ronen Faier: Our blended ASP per kilowatt hour on all PV attached batteries was $371 this quarter, down from $383 per kilowatt hour in the previous quarter.

Ronen Faier: The decrease is largely due to previously announced price reductions and geographic mix shifts.

Ronen Faier: Revenues this quarter from our non-solar business comprising our energy storage and all other segments were $23.9 million.

Ronen Faier: Consolidated gap gross margin for the quarter was a negative 4.1% compared to a negative 12.8% in the prior quarter, as we benefited from the economies of scale that resulted from higher revenues.

Ronen Faier: non-GAAP consolidated gross margin this quarter was 0.2% compared to negative 6.5% in the prior quarter. This amount includes 330 basis points of net IRA benefit.

Ronen Faier: Gross margin for our solar segment was 1.3% compared to negative 3.5% in the prior quarter, including 360 basis points of a net IRA benefit.

Ronen Faier: And this quarter was relatively similar to what we saw in the first quarter. In the second quarter, our non-GAAP other cost of goods sold as a percentage of revenues decreased by approximately 400 basis points as a result of economies of scale related to higher revenues, offset by seasonal increase in warranty expenses and additional expenses related to the ramp up of our US manufacturing. Notably, the fact that our measures to improve product reliability, as well as the impact of lower revenues, yielded an over 70% decrease year over year in warranty-related expenses and accruals on an absolute dollar basis.

Ronen Faier: Our direct gross margin this quarter was relatively similar to what we saw in the first quarter.

Ronen Faier: In the second quarter, our non-gap other cost of goods sold as percentage of revenues decreased by approximately 400 basis points.

Ronen Faier: As a result of economies of scale related to higher revenues, offset by seasonal increase in warranty expenses and additional expenses related to the ramp-up of our U.S. manufacturing.

Ronen Faier: Notable is the fact that our measures to improve product reliability, as well as the impact of lower revenues, yielded an over 70% decrease year-over-year in warranty-related expenses and accruals on an absolute dollar basis.

Ronen Faier: Gross Margin from our non-solar segments was a negative 11% compared to negative 47.2% last quarter, a result of higher sales in our non-solar storage business. Our non-GAAP on a non-GAAP basis operating expenses for the second quarter were 114.8 million dollars compared to 109.2 million dollars in the prior quarter. The quarter-over-quarter increase is largely related to the role of one-time items that reduced operating expenses in the first quarter.

Ronen Faier: Gross margin from our non-solar segments was a negative 11% compared to negative 47.2% last quarter, a result of higher sales in our non-solar storage business.

Ronen Faier: On a non-gap basis, operating expenses for the second quarter were $114.8 million compared to $109.2 million in the prior quarter.

Ronen Faier: The quarter-over-quarter increase is largely related to the roll-off of one-time items that reduced operating expenses in the first quarter.

Ronen Faier: Following the cost reduction measures we have taken in recent quarters, we anticipate operating expenses to stabilize in the range of 100 to 105 million dollars, including the impact of the workforce reductions we implemented in the first and the third quarters. We will work to continue to push our expenditures down while allowing significant resources for new product development. Gap operating loss for the quarter was 160.2 million dollars, compared to an operating loss of 173.7 million dollars in the previous quarter. Non-Gap operating loss per quarter was 114.3 million dollars compared to an operating loss of 122.5 million dollars in the previous quarter.

Ronen Faier: Following the cost reduction measures we have taken in recent quarters, we anticipate operating expenses to stabilize in the range of $100 to $105 million, including the impact of the workforce reductions we implemented in the first and the third quarters.

Ronen Faier: We will work to continue to push our expenditures down while allowing significant resources for new product development.

Ronen Faier: GAAP operating loss for the quarter was $160.2 million compared to an operating loss of $173.7 million in the previous quarter.

Ronen Faier: non-GAAP operating loss per quarter was $114.3 million compared to operating loss of $122.5 million in the previous quarter.

Ronen Faier: Operating loss for the solar segment was 105.1 million dollars in the previous quarter, compared to operating loss of 110.4 million dollars in the previous quarter. Operating loss for the non-solar segment was 9.3 million dollars this quarter compared to an operating loss of 12.1 million dollars in the previous quarter. Non-Gap financial income for the quarter was 1.2 million dollars compared to a non-Gap financial income expense of 4.8 million dollars in the previous quarter. Gap other income was 18.6 million dollars; the majority of which represents the early redemption of our September 2025 convertible notes as part of the 2029 convertible debt issue.

Ronen Faier: Operating loss for the solar segment was $105.1 million this quarter compared to operating loss of $110.4 million in the previous quarter.

Ronen Faier: Operating loss for the non-solar segment was $9.3 million this quarter compared to operating loss of $12.1 million in the previous quarter.

Ronen Faier: non-GAAP financial income for the quarter was $1.2 million compared to a non-GAAP financial income expense of $4.8 million in the previous quarter.

Ronen Faier: Gap Other Income was $18.6 million, the majority of which represents the early redemption of our September 2025 convertible notes as part of the 2029 convertible debt issuance.

Ronen Faier: Our non-GAAP tax benefit was $11.9 million this quarter compared to non-GAAP tax benefit of $18.7 million in the previous month. Our non-GAAP tax rate for the quarter was 11%, and we expected to climb back towards 20% upon return to profitability. Gap net diluted loss per share was $2.31 for the second quarter compared to $2.75 in the previous quarter. Non-GAAP net diluted loss per share was $1.79 compared to $1.90 in the previous quarter.

Ronen Faier: Our Non-Gap Tax Benefit was $11.9 million this quarter compared to Non-Gap Tax Benefit of $18.7 million in the previous one.

Ronen Faier: Our non-gap tax rate for the quarter was 11% and we expect it to climb back towards 20% upon return to profitability.

Ronen Faier: Gap net loss for the second quarter was $130.8 million compared to a gap net loss of $157.3 million in the previous quarter.

Ronen Faier: Our non-GAAP net loss was $101.2 million compared to a non-GAAP net loss of $108.6 million in the previous quarter.

Ronen Faier: Gap net diluted loss per share was $2.31 for the second quarter compared to $2.75 in the previous quarter.

Ronen Faier: non-GAAP net diluted loss per share was $1.79 compared to $1.90 in the previous quarter.

Ronen Faier: Turning now to the balance sheet. As of June 30, 2024, cash, cash equivalents, bank deposits, restricted bank deposits, and investments were $814 million. Net of debt, this amount is approximately $165 million. This quarter, cash used in operating activities was $45 million. This cash utilization was largely a result of our reported net losses. Working capital was a source of cash in the second quarter as collections far exceeded vendor payments. However, a delayed tax reimbursement and an increased accumulation of IRA credits resulted in higher cash consumption than we initially expected. Cash investment activities in addition to CapEx related to our U.S.

Ronen Faier: Turning now to the balance sheet.

Ronen Faier: As of June 30, 2024, cash, cash equivalents, bank deposits, restricted cash bank deposits, and investments were $814 million.

Ronen Faier: Net of debt, this amount is approximately $165 million.

Ronen Faier: This quarter, cash used in operating activities was $45 million.

Ronen Faier: This cash utilization was largely a result of our reported net losses.

Speaker Change: Working capital was a source of cash in the second quarter, as collections far exceeded vendor payments. However, a delayed tax reimbursement and an increased accumulation of IRA credits resulted in higher cash consumption than we initially expected.

Ronen Faier: Cash investment activities, in addition to CAPEX related to our U.S. manufacturing, included $38 million related to the acquisitions of Wevo, as well as the minority share of Amperes, both of which closed this quarter following the receipt.

Ronen Faier: manufacturing included $38 million related to the acquisitions of Wevo as well as the minority share of Amperes, both of which closed this quarter following the receipt of legal and regulatory authorization. In addition, we increased long term credit to customers by $30 million. Additionally, this quarter we repurchased 247,000 shares of our common stock for an average gross purchase price of $68.70 per share, a total of approximately $17 million. Free cash flow for the quarter was used of $140 million. In the third quarter, we expect our free cash burn to be reduced to a range of $70 to $90 million and anticipate the burn to step down again in the fourth quarter.

Ronen Faier: Receipt of Legal and Regulatory Authorization

Ronen Faier: In addition, we increased long-term credit to customers by $30 million.

Ronen Faier: Additionally, this quarter, we repurchased 247,000 shares of our common stock for an average gross purchase price of $68.70 per share, a total of approximately $17 million.

Ronen Faier: Free cash flow for the quarter was used of $140 million.

Ronen Faier: In the third quarter, we expect our free cash burn to be reduced to a range of $70 to $90 million and anticipate the burn to step down again in the fourth quarter. We expect to be cash flow positive.

Ronen Faier: We expect to be cash flow positive in the first half of 2025. A counts receivable net decreased this quarter to $295.6 million compared to $404 million last quarter. As a result, we brought down DSO from 220 days in the first quarter to 153 days in the second quarter. We continue to successfully make collections from customers despite lengthen payment terms made by European customers and in particularly in the Dutch market. As of June 30, our inventory level net of reserve was approximately 1.5 billion compared to 1.55 billion in the prior quarter. Our average inventory days decreased from 619 days in the first quarter to 519 days in the second quarter.

Ronen Faier: in the first half of 2025.

Ronen Faier: Accounts receivable net decreased this quarter to $295.6 million compared to $404 million last quarter. As a result, we brought down DSO from 220 days in the first quarter to 153 days in the second quarter.

Ronen Faier: We continue to successfully make collections from customers despite lengthened payment terms made by European customers and in particularly in the Dutch market.

Ronen Faier: As of June 30, our inventory level, net of reserve, was at approximately $1.5 billion compared to $1.55 billion in the prior quarter.

Ronen Faier: Our average inventory days decreased from 619 days in the first quarter to 519 days in the second quarter.

Ronen Faier: This quarter, we have accelerated the timeline of our US manufacturing ramp given the significant demand we are seeing. For US-made products, particularly as it relates to domestic content. I would note that while our inventory level declined into the second quarter, they remain elevated largely due to the slower recovery in Europe.

Ronen Faier: This quarter, we have accelerated the timeline of our U.S. manufacturing ramp given the significant demand we are seeing for U.S.-made products, particularly as it relates to domestic content.

Speaker Change: i would note that while our inventory level declined in into the second quarter they remain elevated largely due to the slower recovery in europe we expect our inventory levels to continue to decline through the end of two thousand and twenty-fourth to approximately one point three billion dollars

Ronen Faier: We expect our inventory levels to continue to decline through the end of 2024 to approximately 1.3 billion dollars.

Ronen Faier: In late June, we issued $300 million in convertible notes due in 2021 and used a substantial portion of the proceeds to repurchase a portion of our convertible notes due in 2025. This raise was part of our third focused area of ensuring financial stability and positioning ourselves to capitalize on opportunities that will strengthen the company in the long term.

Ronen Faier: In late June , we issued $300 million in convertible notes due 2029 and used a substantial portion of the proceeds to repurchase portions of our convertible notes due 2025.

Ronen Faier: This raise was part of our third focused area of ensuring financial stability and positioning ourselves to capitalize on opportunities that will strengthen the company in the long term.

Ronen Faier: Before turning to the third quarter guidance, in light of the decline in our stock price and as a result of our market capitalization, we intend to conduct an in-depth evaluation of the book value of our assets in the third quarter to determine whether impairment of certain items is required. We will give an update on this impairment testing on our next earning call and in our Form 10-Q for the third quarter.

Ronen Faier: Before turning to the third quarter guidance, in light of the decline in our stock price and as a result of our market capitalization, we intend

Ronen Faier: to conduct an in-depth evaluation of the book value of our assets in the third quarter to determine whether impairment of certain items is required

Ronen Faier: We will give an update on this impairment testing on our next earning call and in our Form 10-Q for the third quarter.

Ronen Faier: Turning now to our guidance for the third quarter of 2024, we are guiding revenues to be within the range of $260-290 million. We expect non-GAAP gross margin to be within the range of negative 3% to positive 1%, including approximately 560 basis points of net IRA benefit. We expect our non-GAAP operating expenses to be within the range of 111-116 million dollars.

Ronen Faier: Turning now to our guidance for the third quarter of 2024.

Ronen Faier: We are guiding revenues to be within the range of $260 to $290 million. We expect non-GAAP gross margins to be within the range of negative 3% to positive 1%, including approximately 560 basis points of net IRA benefit.

Ronen Faier: We expect non-GAAP gross margins to be within the range of negative 3% to positive 1%, including approximately 560 basis points of net IRA benefits. Revenues from the solar segment are expected to be within the range of $245 to $280 million. Gross margins from the solar segment are expected to be within the range of 0 to 4%, including approximately 590 basis points of net IRA benefits.

Ronen Faier: We expect our non-GAAP operating expenses to be within the range of $111 to $116 million.

Ronen Faier: Revenues from the solar segment are expected to be within the range of $245-280 million. Gross margins from the solar segment is expected to be within the range of 0-4%, including approximately 590 basis points of net IRA benefit.

Ronen Faier: Revenues from the solar segment are expected to be within the range of $245 to $280 million.

Ronen Faier: Gross margins from the solar segment is expected to be within the range of 0 to 4%, including approximately 590 basis points of net IRA benefit.

Unknown Executive: I will now turn the call over to the operator to open it up for questions. Thank you. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing Star 2. We ask that you please limit yourself to one question. You may rejoin the queue for any additional questions. Once again, that is star 1 to ask a question.

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

Speaker Change: Thank you. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2.

Speaker Change: We ask that you please limit yourself to one question. You may rejoin the queue for any additional questions.

Philip Shen: We will go first to fill up Shin with Roth's Capital Partners. Your line is open. Please go ahead.

Speaker Change: Once again, that is star one to ask a question.

Operator: We'll go first to Philip Shen with Roth Capital Partners. Your line is open, please go ahead.

Speaker Change: We'll go first to Philip Shen with Roth Capital Partners. Your line is open. Please go ahead.

Philip Shen: Hey guys, thanks for taking my questions. So it sounds like normalized revenue might be closer to $550 million now.

Unknown Executive: Now, and it sounds like it could be realized in the back half of 25. What might the associated margins be with this normalized revenue? If you mention on the call, sorry if I missed it, and what might the quarterly cadence of the margins look like between now and when you hit 550?

Speaker Change: And it sounds like it could be realized in the back half of 25. What might the associated margins be with this normalized revenue? If you mentioned on the call, sorry if I missed it.

Speaker Change: and what might the quarterly cadence of the margins look like between now and you know when you hit 550. Thanks.

Unknown Executive: Thanks.

Unknown Executive: Thank you, Phil.

Ronen Faier: So, first of all, correction: we stated that we expect the normalized level of 550 million to arrive in the second quarter of 2025, and we expect gross margins at that point to be around 23% gross margins. The actually going through the next two quarters until we get there, is going to be a relatively moderate increase in Q4 and Q1 of 2025 in revenues, which will also yield in a revenue. Relatively modest growth in the gross margins in this quarter; that is also, by the way, supported by some of the seasonal impacts that we see related to our warranty expenses and support expenses.

Speaker Change: Thank you, Phil. So first of all, correction. We stated that we expect the normalized level of 550 million to arrive in the second quarter of 2025. And we expect gross margins at that point to be around 23% gross margins.

Speaker Change: The, actually going through the next two quarters until we get there is going to be a relatively moderate increase in Q4 and Q1 of 2025 in revenues, which will also yield in a relatively modest growth in the gross margins in this quarter that is also, by the way, supported by some of the seasonal impacts that we see related to our warranty expenses and support expenses.

Ronen Faier: So therefore, given the economies of scale that we will see once we're getting to the 550, most of the growth that will happen between Q1 to Q2 will be accompanied in revenue; sorry, it will be accompanied with a similar strong growth in gross margins.

Speaker Change: Given the economies of scale that we will see once we're getting to the 550, most of the growth that will happen between Q1 to Q2 will be accompanied in revenue, sorry, will be accompanied with a similar strong growth in gross margins between Q1 to Q2 2025.

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

Speaker Change: We'll take our next question from Brian Lee with Goldman Sachs.

Brian Lee: Mr. Lee, your line is open; if you could check your mute button. Yeah, can you hear me? Sorry about that. I think I might have been on mute. Yes, we hear you. Thanks for taking the questions. Good afternoon, guys. Maybe just to follow up on Phil's question, you know, when you think about the Q2, you know, 550 million run rate, it sounds like that's when you also expect to get back to a free cash flow positive run rate or maybe cash flow neutral. But in the interim, if I just kind of do the math, it sounds like you'll burn maybe another 100 plus million dollars of free cash flow between now and that period, and you still have the outstanding converts in the 25 timeframe.

Operator: Mr. Lee, your line is open. If you could check your mute button, please.

Speaker Change: Mr. Lee, your line is open. If you could check your mute button.

Brian Lee: Yeah, can you hear me? Sorry about that. I think I might have been on mute.

Operator: Yeah, we hear you.

Speaker Change: Yes, we hear you.

Brian Lee: Hey, thanks for taking the questions. Good afternoon, guys. Maybe just to follow up on Phil's question, you know, when you think about the Q2, you know, $550 million run rate, it sounds like that's when you also expect to get back to a free cash flow positive run rate or maybe cash flow neutral.

Speaker Change: But, in the interim, if I just kind of do the math, it sounds like you'll burn maybe another hundred plus million dollars of free cash flow between now and that period.

Speaker Change: And you still have the outstanding converts in the 25 time frame. So just wondering, is there a strategy in place to address that? And is that going to be part of the strategic review you're going through in terms of determining asset value or their potential?

Brian Lee: So just wondering, is there a strategy in place to address that, and is that going to be part of the strategic review you're going through in terms of determining asset value or their potential? You know, investiture is not just write down what things you could potentially look to monetize. I guess how wide-ranging is the scope of what you're looking to review here as you look into 25.

Speaker Change: Investitures, not just write-downs, but things you could potentially look to monetize. I guess how wide-ranging is the scope of what you're looking to review here as you look into 25?

Unknown Executive: Thank you, guys.

Unknown Executive: Thank you, Brian. So I'll start from the second part of the question. Actually, the review that we're going to do is mostly related to the book value of our assets rather than to the, you know, other elements that we can do in order to either reduce costs or improve profitability, which is something that we do constantly on the business side. So whatever we do in this review will be mostly related to the book value of our assets. Now, when you look at the cash and cash accumulation that or usage that we see. In general, I would assume that, you know, your assumption of around $100 million, give or take, is something that we also see as possible, given the fact that, again, we believe that will be anywhere between $70 to $90 million in the next quarter and then in a much lower number in the fourth quarter.

Speaker Change: thank you bran ill start from the second part of the question actually the view that we're going to do is mostly related to the book value of our assets rather than to the

Speaker Change: other elements that we can do in order to either reduce costs or improve profitability which is something that we do constantly on the business side so whatever we do in in this review will be mostly related to the book value of our assets

Speaker Change: Now, when you look at the cash and cash accumulation or usage that we see,

Speaker Change: In general, I would assume that your assumption of around $100 million, give or take, is something that we also see as possible, given the fact that, again, we believe that we'll be anywhere between $70 million to $90 million in the next quarter, and then in a much lower number in the fourth quarter.

Ronen Faier: And this is actually a number that still keeps us above all the debt that we have. The more important part of it, though, is the fact that, you know, now that we have actually issued the new debt, the timing of returning the convertives basically changed where only about $330 million needs to be repaid in September 25, which we intend to do. And this is our strategy here, while another $300 million. And by the way, the green shoe was also exercised. So it's a little bit of a bigger amount will be only returned in 25 and 29.

Speaker Change: And this is actually a number that still keeps us above all the debt that we have.

Speaker Change: The more important part of it, though, is the fact that, you know, now that we have actually...

Speaker Change: Issued the new debt.

Speaker Change: The timing of returning the convert has basically changed, where only about $330 million needs to be repaid.

Speaker Change: in September 25, which we intend to do, and this is our strategy here.

Speaker Change: While another $300 million, and by the way, the green shoe was also exercised, so it's a little bit of a bigger amount, will be only returned in 2029. So, in general, the way that we see it is that we have enough cash to support everything.

Ronen Faier: So, in general, the way that we see it is that we have enough cash that we have enough cash to support everything.

Ronen Faier: The last thing that I would state, and this is very important: you know, part of the burn that you see right now is actually related to the acceleration of the manufacturing that you do in the US and the IRA results. of it. In a normal world, you know, had it been an ITC credit, there would have been already a very developed market where we could have sold the IRA credits, like, you know, the quarter after it is being incurred. Right now, the market for 45X credit selling is not yet there. And as such, we expect to have by the end of the year approximately $100 million of ITC credits that will be accumulated, but not yet claimed during this year.

Speaker Change: The last thing that I would state, and this is very important, you know, part of the burn that you see right now is actually related to the acceleration of the manufacturing that you do in the U.S. and the IRA result of it.

Ronen Faier: In a normal world, you know, had it been an ITC credit, there would have been already a very developed market where we could have sold the IRA credits, like, you know, the quarter after they were incurred. Right now, the market for 45x credit selling is not yet there. And as such, we expect to have, by the end of the year, approximately $100 million of ITC credits that will be accumulated but not yet claimed this year. And this is part of the thing that we see right now. We are accelerating the time frame of manufacturing.

Speaker Change: In a normal world, you know, had it been an ITC credit, there would have been already a very developed market where we could have sold the IRA credits, like, you know, the quarter after it is being incurred.

Speaker Change: Right now the market for 45x

Speaker Change: our credit selling is not yet there

Speaker Change: And as such, we expect to have by the end of the year approximately $100 million of ITC credits that will be accumulated, but not yet claimed during this year. And this is part of the thing that...

Ronen Faier: And this is part of the thing that we see right now. We are accelerating the time frame of manufacturing. This, in turn, is increasing our IRA credits accumulation that we cannot sell immediately, which means that, by the way, we're utilizing cash. We expect to recover all of these $100 million of IRA credits accumulated before the end of the year. Either when we will have an open market for these kind of selling these assets. And I think that we're going to be able to make sure that we can get a lot of money. It's a matter of one or two more quarters.

Speaker Change: that we see right now. We are accelerating the time frame of manufacturing. This in turn...

Ronen Faier: This, in turn, is increasing our IRA credit accumulation that we cannot sell immediately, which means that, by the way, we're utilizing cash. We expect to recover all of these $100 million of IRA credits accumulated before the end of the year, either when we have an open market for these kinds of selling these assets, and I think that it's a matter of one or two more quarters, or else we will simply ask for a direct payment when we file our financial or tax reports in the second or third quarter.

Speaker Change: is increasing our IRA credits accumulation that we cannot sell immediately, which means that, by the way, we're utilizing cash. We expect to recover all of these $100 million of IRA credits accumulated before the end of the year.

Speaker Change: Either when we will have an open market for these kind of selling these assets, and I think that it's a matter of one or two more quarters.

Ronen Faier: Or else, we will simply ask for a direct pay when we file our financials or tax reports in the second or a third quarter. So, in essence, part of the burden that you see right now is actually just putting money aside and expecting it to be paid by the IRS. And as long as we feel that getting money from the IRS is something that should happen, it should be viewed as, I would say, almost equivalent to cash in the level of confidence that we have.

Speaker Change: or else we will simply ask for a direct pay when we file our financials.

Ronen Faier: So, in essence, part of the burden that you see right now is actually just putting money aside and expecting it to be paid by the IRS. And as long as we feel that getting money from the IRS is something that should happen, it should be viewed as, I would say, almost equivalent to cash in the level of confidence that we have in it.

Speaker Change: or a tax reports in this second or a third quarter so in essence part of the burn that you see right now it's actually just putting money aside and expecting it to be paid by dirers and as long as we feel that getting money from the r s is something that should happen it should be view this as i would say almost equivalent to cash in the level of confidence that we have on it

Mark Strouse: Our next question comes from Mark Strauss with JP Morgan. Yeah, great. Thank you very much for taking our questions.

Speaker Change: Our next question comes from Mark Strouse with J.P. Morgan.

Unknown Executive: Yeah, great. Thank you very much for taking our questions. Just kind of following up on Brian's question. You know, to the extent that in-market demand does come in lower than expected, maybe that $550 million is lower, or it gets pushed out to a later time frame. Can you just kind of talk about how you're weighing the kind of selling it into the market, improving your cash flow, versus you're trying to have a clear channel that's out there? Sure, Mark.

Mark Strouse: Just kind of following up there on Brian's question. To the extent that in market demand does come in lower than expected, maybe that 550 million is lower, or you could push out a later time frame. Can you just kind of talk about how you're weighing kind of selling it into the market, improving your cash flow versus you're trying to have a clear channel that's out there.

Mark Strouse: yeah great thank very much for taking our questions just kind of following up there on on brian's question how to the extent that in market demand does come in lower than expected maybe that that five hundred fifty million is lower ward gets push out

Speaker Change: well a later time frame you just kind of talk about how your' how you're weghing kind of selling it into the market improving your cash flow versus you're trying to have a clear channel that's out there

Unknown Executive: Sure, Mark. So first of all, I'll start by saying that yes, Mark. And thank you for the question.

Zvi Lando: Sure, Mark. So first of all, I'll start by saying that yes, Mark, and thank you for the question. So I'll start by saying that we are already today based on the self-through data that we have worked you to at above 520 million dollars. So the 550 is not a result of a massive growth that we expect to see, but rather very much where we are already today and add to this the natural growth that we expect to see to our new products related to the 330 kilowatt inverter. The tractors, the commercial battery, which is something a product that we see a lot of demand, especially right now, we start to see it in Italy and other places in Europe.

Unknown Executive: So I'll start by saying that, based on the sell-through data that we have for Q2, we are already today, at above $520 million. So the $550 is not a result of the massive growth that we expect to see but rather very much where we are already today. And add to this the natural growth that we expect to see in our new products related to the 330 kilowatt inverter, the trackers, the commercial battery, which is something, a product that we see a lot of demand for, especially right now; we are starting to see it in Italy and other places in Europe. So, in general, we feel very comfortable with the $530, $530, sorry, and $50.

Speaker Change: truemark surfffor stars i saying that

Speaker Change: Yes, Mark, and thank you for the question. So I'll start by saying that we're already today

Speaker Change: based on the sell-through data that we have for Q2 at above $520 million. So the $550 million is not a result of a massive growth that we expect to see, but rather very much where we are already today. And add to this the natural growth that we expect to see through our new products related to the 330 kW inverter, the trackers, the commercial battery, which is a product that we see a lot of demand, especially right now we start to see it in Italy. Especially in other places in Europe.

Unknown Executive: And as we also said in the prepared remarks, we view it as a stepping stone to additional increases that will follow, given the fact that we do expect to see more growth in our sales. Now, when we're planning cash, I think that there are two stages to look at cash utilization when we get to this number. First of all, getting to this number will involve releasing a lot of the inventory that we already have and have paid for.

Zvi Lando: So, in general, we feel very comfortable with the 500 and 30, 500 and sorry, and 50. And as we also said in the preferred remarks, we view it as a stepping stone to additional increases that will follow, given the fact that we do expect to see more growth in our in our sales.

Speaker Change: So in general, we feel very comfortable with the $530, $550, and as we also said in the prepared remarks, we view it as a stepping stone to additional increases that will follow given the fact that we do expect to see more growth in our sales.

Zvi Lando: Now, when we're planning cash, I think that there are two stages to look at cash utilization above when we get to this number. First of all, getting to this number will involve releasing a lot of the inventory that we already have and paid for. Most of the growth that we expect to see will come from Europe, and most of the European inventory is something that we have. That means that the majority is not all of the sales that we will do into Europe over the next few quarters will come from inventory that we've already paid for.

Speaker Change: now when we are planning cash

Speaker Change: I think that there are two stages to look at cash utilization when we get to this number. First of all,

Unknown Executive: Most of the growth that we expect to see will come from Europe, and most of the European inventory is something that we have. That means that the majority, if not all, of the sales that we will do in Europe over the next few quarters will come from inventories that we've already paid for. And actually, most of the cash usage is going to come from manufacturing in the United States. So that's one thing that we will see.

Mark Strouse: Getting to this number will involve releasing a lot of the inventory that we already have and paid for. Most of the growth that we expect to see will come from Europe and most of the European inventory is something that we have. That means that...

Mark Strouse: The majority, if not all of the sales that we will do into Europe over the next few quarters will come from inventories that we've already paid for. And actually, most of the cash usage is going to come from manufacturing in the United States.

Zvi Lando: And actually, most of the cash usage is going to come from manufacturing in the United States. So that's one thing that we will see, and therefore we assume that getting to the 550 and even throughout 2025, cash flow should be positive because of this.

Unknown Executive: And therefore, we assume that getting to $550 and even throughout 2025, cash flow should be positive because of this. Once we cross 2025, that means that inventories will clear from our warehouses, not only the channels. And then we will need to return to manufacturing. Then it's a question of what the pace of growth will be and how much cash will be needed. But at least in 2025, most of the growth will be financed from products that have already been paid for.

Mark Strouse: So that's one thing that we will see and therefore we assume that getting to the $5.50 and even throughout 2025, cash flow should be positive because of this.

Zvi Lando: Once we cross 2025, that means that inventories will clear from our warehouses, not only the channels, and then we will need to return to manufacturing. And then it's a question of what will be pace of growth and how much cash will be needed. But at least in 2025, most of the growth will be financed from products that were already been paid for.

Mark Strouse: Once we cross 2025, that means that inventories will clear from our warehouses, not only the channels, and then we will need to return to manufacturing, and then it's a question of what will be pace of growth.

Mark Strouse: And how much cash will be needed. But at least in 2025, most of the growth will be financed from products that were already being paid for.

Colin Rusch: Our next question comes from Colin Rusch with Oppenheimer. Sorry about that. I was on mute.

Operator: Our next question comes from Colin Rusch with Oppenheimer.

Mark Strouse: Our next question comes from Colin Rusch with Oppenheimer.

Operator: Sorry about that. I was on mute.

Zvi Lando: Can you talk a little bit about the competitive landscape as you continue to invest in innovation here, how fast is the cadence of change happening, and how big an opportunity is there for you to start taking care of by innovating the products in a little bit more aggressively. Thank you, Colin. I think it's mentioned in the prepared remarks; the first step that we are focused on in terms of share growth is actually via share growth of our customers. It is literally a situation where there are successes translating to our success. And in that regard, we're very focused on enabling their efficiencies with improved.

Colin Rusch: Sorry about that, I was on mute. Guys, can you talk a little bit about the, you know, the competitive landscape as you continue to invest in innovation here? Like, how much, you know, how fast is the cadence of change happening and how big an opportunity is there for you to start taking share by innovating the products in a little bit more aggressive way?

Speaker Change: Thank you. Thank you.

Unknown Executive: Guys, can you talk a little bit about the, you know, the competitive landscape as you continue to invest in innovation here? Like, how much, you know, how fast the cadence of change is happening? And, and how big an opportunity is there for you to start taking share by innovating products and being a little bit more aggressive?

Speaker Change: but sort thank coming i think is

Speaker Change: As mentioned in the prepared remarks, the first step that we are focused on in terms of

Unknown Executive: As mentioned in the prepared remarks, the first step that we are focused on in terms of share growth is actually via the share growth of our customers. It is literally a situation where their success is translating to our success, and in that regard, we're very focused on enabling their efficiencies with improved service and ease of installation. And that is also translating to more installers either coming back to us or trusting us. And I think it's evident by the high ratio of increase in sell-through in the second quarter compared to the first quarter.

Speaker Change: of ShareGrowth.

Speaker Change: It's actually via shared growth of our customers. It is literally a situation where their success is translating to our success and in that regard

Zvi Lando: Improved service and ease of installation, and that is also translating to more installers, either coming back to us or trusting us. And I think it's evident by the high ratio of increase in sell through in the second quarter versus the first quarter.

Speaker Change: We're very focused on enabling their efficiencies with improved service and ease of installation. And that is also translating to more...

Speaker Change: Installers.

Speaker Change: either coming back to us or trusting us. And I think it's evident by the the high ratio of increase in sell through in the second quarter versus versus the first quarter. The second.

Zvi Lando: The second step is indeed a new product and innovation. Some of them are aimed at segments that we are already with a strong presence in, like the next generation single phase inverter and next generation single phase battery. And some of them are for segments that that we have an offering for, but it's not the ideal one, like for large residential installations in Europe. We're today for a 20 kilowatt inverter, which is becoming the larger for 20 kilowatt installation, which is becoming the larger residential segment in Germany. We support that with a solution of two inverters, and our next generation inverter will be able to do this at a much reduced cost with one inverter and with high efficiencies at both ends of the performance, also in low power and also in high power, which is an innovative solution and a potential key differentiator.

Unknown Executive: The second step is indeed new products and innovation. Some of them are aimed at segments that we are already a strong presence in, like the next-generation single-phase inverter and next-generation single-phase battery. And some of them are for segments that we have an offering for, but it's not the ideal one, like for large residential installations in Europe, where today for a 20-kilowatt inverter, which is becoming the larger – for a 20-kilowatt installation, which is becoming the larger residential

Speaker Change: The second step is indeed new products and innovation. Some of them are aimed at segments that we are already...

Speaker Change: with a strong presence in like the next generation single-phase inverter and next generation single-phase battery.

Speaker Change: And some of them are for segments that we have an offering for, but it's not the ideal one. Like for large residential installations in Europe , where today for a 20-kilowatt inverter, which is becoming the larger...

Speaker Change: for a 20 kilowatt installation, which is becoming the larger residential.

Speaker Change: In Germany, we support that with a solution of two inverters, and our next generation inverter will be able to do this at a much reduced cost with one inverter.

Speaker Change: And with high efficiencies at both ends of the performance, also in low power and also in high power, which is an innovative solution and a potential key.

Zvi Lando: So there's innovation in the segments that we are in. There are innovation to the evolving or parts in the segments that we are in that we don't serve in an ideal manner.

Speaker Change: Differentiator. So there's innovation in the segments that we are in.

Speaker Change: There are innovations to the evolving or parts in the segments that we are in that we don't serve in an ideal manner.

Zvi Lando: And then there are new solutions for segments that we don't serve today completely, like commercial storage or both indoor and outdoor. But what we're seeing is that innovation today is around, I would say, three components. The first is the old fashioned power efficiency and increased harvest together with safety. The second is cost reduction and, to a large extent, installation cost reduction because the systems are more complex. Next, they take the installers a lot more time to install. They take more resources, expensive electricians. There's a lot of room for optimization and innovation in that space. And the third is the whole area of software and energy management, which extends into cybersecurity and grid interaction.

Speaker Change: And then there are new solutions for segments that we don't serve today completely like commercial storage, both indoor and outdoor. But what we're seeing is that innovation today is around, I would say, three components.

Speaker Change: The first is the old-fashioned power efficiency and an increased harvest together with safety. The second is cost reduction and to a large extent...

Speaker Change: Installation.

Speaker Change: Cost Reduction because the systems are more complex, they take the installers a lot more time to install, they take more resources, expensive electricians, there's a lot of room for optimization and innovation in that space.

Speaker Change: And the third is the whole area of software and energy management, which extends into cybersecurity and grid interaction. So we're very focused on innovation in these three segments.

Zvi Lando: So we're very focused on innovation in these three segments. And especially when you talk about software, the cadence of releasing new features and capabilities is very high. And as a result of that, we're seeing this type of impact of what we feel are faster conversions and turns around with cost.

Speaker Change: And especially when you talk about software, the cadence of releasing new features and capabilities is very high, and as a result of that, we're seeing this type of impact of what we feel are faster conversions and turnarounds with customers.

Andrew Percoco: We'll move next to Andrew Percoco with Morgan Stanley. Great, thanks so much for taking the question. You know, I just want to come back to some questions that have already been asked, but I mean, just look at the margins that you guys are, you know, posting today in your business. You know, clearly set up for a much stronger and higher revenue environment. Understand that there's still a lot of ownership happening, but it feels like that be stocking cycle will continue to get pushed to the right. At the same time that underlying demand is continuing to maybe deteriorate in some of your key markets.

Speaker Change: We'll move next to Andrew Percoco with Morgan Stanley .

Andrew Percoco: Thanks so much for taking the question. I just want to come back to some questions that have already been asked. If you just look at the margins that you guys are posting today in your business, clearly set up for a much stronger and higher revenue environment, I understand that there's still a lot of undership happening, but it feels like that destocking cycle continues to get pushed to the right.

Speaker Change: At the same time, the underlying demand is continuing to maybe deteriorate in some of your key markets. So...

Andrew Percoco: So can you maybe just discuss what you're doing internally to maybe rationalize some of your fixed costs, such that if this continues to get pushed to the right, you have the balance sheet and liquidity to kind of just sustain yourselves to the extent that this key stocking doesn't actually clear by by the second quarter or 25. Sure, Andrew. And first of all, thank you very much for the question. So I'll start by saying that actually, we do not see the sell-through deteriorating at all. Actually, on the opposite, we do see it increasing. We increase in Q2 at about, you know, over 20% in the US residential, over 30% in US commercial.

Speaker Change: Can you maybe just discuss what you're doing internally to maybe rationalize some of your fixed costs such that if this continues to get pushed to the right, you have the balance sheet and liquidity to kind of to sustain yourselves to the extent that this de-stocking doesn't actually clear by the second quarter of 2025.

Speaker Change: that

Speaker Change: Sure, Andrew, and first of all, thank you very much for the question. So, I'll start by saying that actually...

Speaker Change: We do not see the sell-through deteriorating at all, actually, on the opposite. We do see it increasing. It increased in Q2 at about, you know, over 20% in the U.S. residential, over 30% in U.S. commercial. And the only place where you saw a little bit of deterioration in point of sale was in the commercial Europe , where it was about 3%, which in our view is almost flat, you know.

Zvi Lando: And the only place that where you saw a little bit of deterioration in the point of sale was in the commercial Europe, where it was about 3%, which in our view is almost flat, you know. So in that case, we do not see, we do not see a lot of changes there, but to the base of the question, and I think that this is part of the reasoning that we have also raised the convert and took some of the other elements of cost reductions. First of all, when we look at the way to control cash, it's first of all how are we able to reduce the operating expenses?

Speaker Change: So in that case...

Speaker Change: We do not see a lot of changes there, but to the base of the question, and I think that this is part of the reasoning that we have also raised the convert and took some of the other elements of cost reductions. First of all,

Unknown Executive: When we look at the way to control cash, first of all, how are we able to reduce operating expenses, and I would call them variable costs, in our cost of goods sold? And here actually, we implemented, at the very beginning of the third quarter, a reduction in force. As painful as it was, it is something that will help us reduce expenses by approximately $15 million compared to where we were before. And this is something that we did by cutting more activities that were not very necessary in the very short term.

Speaker Change: When we look at the way to control cash, it's first of all...

Zvi Lando: And I would call it variable costs in our cost of goods sold.

Speaker Change: How are we able to reduce the operating expenses and I would call it variable costs in our cost of goods sold? And here actually we have implemented at the very beginning of the third quarter

Zvi Lando: And here, actually, we have implemented, at the very beginning of the third quarter, a reduction in force, as painful as it was. We are increasing our efforts and speed of migrating some of our activities to lower cost regions, like moving some of our support centers to lower cost areas. And, of course, renegotiating pricing and renegotiating every term that we can have, applying more AI power tools in order to make sure that we can translate conversations to many languages in a way that allows our representatives, even if they talk completely different languages, to respond as if they were locals.

Speaker Change: a reduction in force as painful as it was it is something that will help us reducing expenses by approximately fifteen a million dollars compared to where we were beforeand this is something that we did by cutting

Speaker Change: More activities that were not very necessary for the

Unknown Executive: By the way, some of them are painful because we thought that we would need them for the long term, but it is something that we did not invest in so much right now. We are increasing our efforts and speed of migrating some of our activities to lower-cost regions, like moving some of our support centers to lower-cost areas. And, of course, renegotiating pricing and renegotiating every term that we can have, applying more AI power tools in order to make sure that we can translate conversations into many languages in a way that allows our representatives, even if they talk a completely different languages, to respond as if they were local. So a lot of things are being done there.

Speaker Change: very short term by the some of them were painful because we thought that we would need them for the long term but it is right now something that we did not invest so much we are increasing our efforts in speed of migrating some of our activities to lower cost regions like moving some of our support centers to lowera coast areas

Speaker Change: and of course renegotiating pricing and renegotiating every term that we can have applying more a i power tools in order to make sure that we can translate conversations to many languages in a way that allows our representatives even if they completely different language to respond if they were local so a lot of things are being done there

Zvi Lando: So, a lot of things are being done there. The next thing that we are doing is, of course, looking at what are the expenses that we have related to our manufacturing. And, again, here, the fact that we have a lot of inventory doesn't help cost reduction, but given the fact that we have a lot of inventory that we need to sell. But, you know, on all of our products, we are continuing to do cost reduction. And even on products that were manufacturing in the United States, we already take measures to reduce costs. So, I would say that, you know, the, in general, the fact that, yes, we do see a relatively stable sell-through that is indeed pushing a little bit the timing of getting normalized.

Unknown Executive: The next thing that we are doing is, of course, looking at the expenses that we have related to our manufacturing. And again, the fact that we have a lot of inventory does not help cost reduction, but given the fact that we have a lot of inventory that we need to sell. But on all of our products, we are continuing to do cost reduction, and even on products that we are manufacturing in the United States, we already take measures to reduce costs.

Speaker Change: The next thing that we are doing is of course looking at what are the expenses

Speaker Change: that we have related to our manufacturing and again here the fact thatwe have a lot of inventory doesn't help cost reduction but in the given the fact that we have a lot of inventory that we need to sell but you know on all of our products

Speaker Change: We are continuing to do cost reduction, and even on products that we're manufacturing in the United States, we already take measures to reduce costs. So I would say that, you know, in general, the fact that, yes, we do see a relatively stable sell-through.

Unknown Executive: I would say that, in general, the fact that, yes, we do see a relatively stable sell-through rate that is indeed pushing the timing of getting normalized, but using this time in order to reduce operating expenses, to reduce costs, to be more efficient in the way that we do things, to reduce spending on other items if we can, is something that we're pushing all the time. And if all of this is not needed, we have basically deferred about $300 million of debt that we needed to return by the end of 2025, and we delayed it until 2029. So this is something that also buys us enough water below, you know, the keel of this ship, so we can continue sailing securely while the inventories are being killed.

Speaker Change: that is indeed pushing a little bit the timing of getting normalized, but using this time in order to reduce operating expenses, to reduce costs, to be more efficient in the way that we do things.

Zvi Lando: But, using this time in order to reduce operating expenses, to reduce costs, to be more efficient in a way that we do things, to reduce spending on other items if we can, is something that we're pushing all the time.

Speaker Change: to reduce spending on other items, if we can, is something that we're pushing all the time. And if all of these are not needed, we have basically deferred about $300 million of debt that we needed to return by the end of 2025, and we delayed it until 2029. So this is something that also buys us enough water below, you know, the keel of this ship, so we can continue sailing securely while the inventories are being cleared.

Zvi Lando: And, if all of these are not needed, we have basically deferred about 300 million dollars of debt that we needed to return by the end of 2025.

Dimple Gosai: We'll move next to Dimple Gosai with Blake of America. Your line is open. Please go ahead. Hi, good evening. Appreciate the time. Quick question.

Operator: We'll move next to Dimple Gosai with Bank of America. Your line is open. Please go ahead.

Speaker Change: We'll move next to Dimple Gosai with Wake of America. Your line is open. Please go ahead.

Dimple Gosai: As a look at your growth margin guidance, can you elaborate on product mix so most specifically, to what extent did single phase battery sales impact growth margins with Porter, and how many years of inventory on hand would you say you have? Sure, so first of all, thank you for the question again. So I'll start from the batteries themselves. The single phase batteries represented the drag of approximately 500 basis points on our growth margins this quarter, and this is always, I would say, very much dependent on the overall revenues that we have, because you know the bigger revenues are, the portion of this product is a little bit lower.

Dimple Gosai: Hi, good evening. Appreciate the time. Quick question. As we look at your gross margin guidance, can you elaborate on product mix? So more specifically, to what extent did single phase battery sales impact gross margins this quarter? And how many years of inventory on hand would you say you have?

Unknown Executive: Sure. So, first of all, thank you again for the question. So I'll start with the batteries themselves. The single-phase batteries represented a drag of approximately 500 basis points on our gross margins this quarter. And this is always, I would say, very much dependent on the overall revenues that we have because, you know, the bigger the revenues are, the portion of this product is a little bit lower. In general, when it comes to this product, it is a product that, right now, we're actually rationing, given the fact that we have enough products.

Speaker Change: Sure, so first of all thank you for the question again. So I'll start from the batteries themselves. The single-phase batteries represented a drag of approximately 500 basis points.

Speaker Change: on our gross margins this quarter and this is always I would say very much dependent on the overall revenues that we have because you know the bigger revenues are the portion of this product is a little bit lower.

Dimple Gosai: In general, when it comes to this product, it is a product that's right right now. We're actually rationing given the fact that we have enough products. We can basically sell these products relatively quickly, seeing the growth in the sell-through of these products that we see in mostly in the US market, where it is directed. But given the fact that our next generation product will be ready only towards the second half of 2025, we need to ration the usage of these batteries until then. So we expect to use this product. We can use these batteries up until somewhere in the middle of 2025, maybe not longer than the third quarter, and by then we will simply will not have these batteries anymore.

Dimple Gosai: In general, when it comes to this product, it is a product that right now we're actually rationing, given the fact that we have enough products.

Unknown Executive: We can basically sell these products relatively quickly, seeing growth in the sell-through of these products that we see mostly in the U.S. market, where it is directed. But given the fact that our next generation product will be ready only towards the second half of 2025, we need to ration the usage of these batteries until then. So we expect to use these batteries up until somewhere in the middle of 2025, maybe not longer than the third quarter, and by then, we will simply not have these batteries anymore.

Dimple Gosai: We can basically sell these products relatively quickly, seeing the growth in the sell-through of these products that we see mostly in the U.S. market, where it is directed.

Dimple Gosai: But given the fact that our next generation product...

Dimple Gosai: We'll be ready only towards the second half of 2025. We need to ration the usage of these batteries until then.

Dimple Gosai: We expect to use these batteries up until somewhere in the middle of 2025, maybe not longer than the third quarter, and by then we will simply will not have these batteries anymore.

Unknown Executive: Other than these, the influence that we see on the margins is also related to how much commercial products we're selling compared to residential products. And what we actually see this quarter, as much as we saw it also in the last quarter, is that the commercial portion of products sold right now is getting higher. Actually, this quarter, 65% of the megawatts that we shipped were commercial. By the way, the majority of them are going to Europe and international markets that are characterized by much lower gross margins. And we do expect that once the U.S. residential market becomes...

Dimple Gosai: Other than this, the influence that we see on the margins is also related to how much of commercial products were selling compared to residential products, and what we actually see this quarter, as much as we saw it also in the last quarter, is that the commercial portion of our product sold right now is getting higher. Actually, this quarter, 65 percent of the megawatts that we have shipped were commercial. By the way, the majority of them are going to Europe and international markets that are characterized with much lower gross margins. We do expect that once the US market's residential will start to grow again, as the expectation for the next years, and also, evidentially in Europe, that are enjoying better margins, we will also see some help there.

Dimple Gosai: Other than these, the...

Speaker Change: Influence that we see on the margins is also related to how much of commercial products we're selling compared to residential products.

Speaker Change: And what we actually see this quarter as much as we saw it also in the last quarter is that

Speaker Change: The commercial portion of products sold right now is getting higher. Actually, this quarter...

Speaker Change: 65% of the megawatts that we have.

Speaker Change: Shifts were commercial, by the way, the majority of them are going to Europe and international markets that are characterized with much lower gross margins.

Jordan Levy: We'll go next to Jordan Levy, which is the truest. Thanks for taking my question.

Jordan Levy: You guys have talked a lot about this, but I just wanted to get a sense of where your confidence levels lie in that kind of first half of next year inventory clearing in Europe, and then maybe kind of along those lines, how you all kind of approach the complicated dynamic of undershipments and that sort of thing. Yeah, I'm trying to make sure I understand the question properly, but what we are looking at and we get reports from our distributors on a per-part number sale that they make, and that's how we look at the sold-through, and we obviously track installations, and as soon as it inverters and installed, it connects and we see the installation.

Zvi Lando: And so we are able to... to view the underlying business quite accurately on a product basis, on a country basis, on a channel basis. So, when we're seeing in the second quarter, the underlying business growing from about $440 million in the first quarter to a little bit above $520 million in the second quarter, we have good visibility in terms of which countries this is coming from. And which products are the ones that are being installed, and where are we gaining share, and where is there more opportunity. And this is the basis for our expectation. And then, of course, relative to what we ship to quantify the undershifment.

Zvi Lando: So this is the basis for our expectation and plan how this leads to clearing of most of the US inventory.

Zvi Lando: By the end of the third quarter of this year, the third quarter of 2024, and the European inventory at the beginning of 2025. And in the international market segment, we're already pretty much at a routine that invents of no undershifting. And a revenue run rate of this quarter, which was about $56 million.

Unknown Executive: Our next question comes from Current Blanchard at Deutsche Bank. Okay, thank you for taking my question. So, one more question on the inventory, but maybe, is there anything you can do, any measure you can take to maybe go from that faster? I mean, is there anything that is in your power that you could enter?

Unknown Executive: Is there one queue of 2025 with a very return inventory? And we see that's normalized for a new coming sooner.

Zvi Lando: Yeah, thanks for the question. And first of all, obviously, this is exactly what we're trying to do. And I think that this was reflected to a large extent in our message that for the remaining of 2024, our main objective is to help our channels clear. As much as close to all of the inventory that we have. Now, our inventory is, because of our breadth of product and offering, the inventory management is complex. There are some places where there is already a deficit in optimizers, and customers need optimizers. And at the same time, in other places, they need; they need inverters.

Zvi Lando: So our efforts to help in clearing the projects to a large extent are, in some cases, mating between distributors or between installers so that they have the opportunity to move inventory. And as well as directing our promotions that were mentioned by one entity's prepared remarks, which effectively are our price reductions on the missing parts that some of the channels have in order to be able to move to move bigger portions of inventory.

Zvi Lando: So this is indeed what we are focused on, and through these means of looking and optimizing on a regional and global level, and not only on a country level, and special promotions and support in order to clear the channels, again, by the end of the year or likely into the first quarter of next year.

Dylan Nassano: We'll go next to Dylan Nassano with Wolf Research. Yeah, hi. Thanks for taking my question. I just wanted to go back to the prepared remarks around changes to distributors' purchasing patterns in Europe. In the past, you've spoken about how distributors were reducing the number of OEMs they've stocked. Can you just provide an update on where they are in that process? I guess that another way, how much second and third gear inverter brands are still kind of taking up space in the channel. Thank you.

Zvi Lando: So, you know, this is a qualitative comment, and you need to look at it one distributor at a time, but we're definitely seeing that trend being executed. Now, that doesn't mean that they were not still in the market and in various types of, you know, second tier or sub-distribution remaining inventories from second and third tier suppliers, but the large first tier distributors, as a general term in Europe, have rationalized to a large extent their line card to something that is more similar to the pre-2022 shortage period with the combination of, in our case, some mix of module level power electronics with local string with non-European string, but a much shorter line card than before. Then, before, but there are still, as I said, there are still volumes of second and third tier inverters and products that are moving around and gradually declining.

Kristen Drenow: We'll move next to Kristen Drenow at RBC Capital Markets. Yeah, good evening, and thanks for taking the question. I wanted to go back to the question on inventory balances, your manufacturing footprint, and cost rest rationalization efforts.

Ronen Faier: And the question is, you know, as you continue to ramp the US manufacturing supply, he believes you have an optimized manufacturing footprint today, or is there opportunity to further refine that global capacity going forward. Thanks. Thanks for the question. It is obvious. It is indeed a challenge, and we've shut down a number of manufacturing facilities outside of the United States, and we still are in the process of ramping the United States. So we are not at an optimized point right now. And as a result of that, we are in our gross margin is still affected by under utilization cases, under utilization costs for some of the factories that have still not come to complete closure or that we haven't been able yet during this transition to fully, fully optimized.

Ronen Faier: So that is where we're going to have the ramp facilities in Florida and in Austin in the US and leave probably one manufacturing facility outside of the United States. But it's not optimized yet.

Ronen Faier: It will it will take us a few quarters to reach a full optimized footprint for the forecast that we are seeing for 2025 and 2020.

Christine Cho: We'll move next to Christine Cho, with Barclays. Hi, thank you for squeezing me in. I just had a clarification question. I think in the past, you've talked about, you know, streamlining manufacturing. And I think you said that the US facilities that you have will only be producing 11 kilowatt inverters. Is that right? And I guess if that is, how should I say that?

Christine Cho: I think about how that sets you up competitively for your customers who may want domestic content, but don't necessarily need that inverter size. The inverter that we are manufacturing is a backup capable inverter with backup power of up to 11.4 kilowatt. And on grid power, which is set for the requirement of the customer. So it actually gives them a benefit when they are buying a system targeting it for the amount of PV that they have and the grid connection that they are aiming for on-grid applications. The 11.4 backup capability is a benefit. It doesn't come at the expense of their competitiveness to them.

Cassie Harrison: We'll move next to Cassie Harrison, with Piper Sandler. Good afternoon, gentlemen. Thanks for taking my questions. And yeah, thanks for a sight of me in here as well. So to clarify on the response to Phil's question, just real quick, that the 23% gross margins include the 500 basis points of 45X.

Cassie Harrison: And then maybe just a bigger, bigger picture question. You know, you talked about a new suite of three-phase, Rezzy products for Europe and solar. You're also talking about domestic content products for solar and storage within the U.S. And so I was just curious, how do you think about the risk of finished goods, inventory, obsolescence in Europe, you know, if the distributors wanted your product or launching next year. And then similarly, that same risk within the U.S. Is all of a sudden, you know, the distributors and installers are really just focused on the domestic content that you're discussing.

Cassie Harrison: Thank you.

Zvi Lando: Thanks, Cassie, for the question. So, first of all, yes, we are, of course, starting to manufacture new products related to domestic content here, and a little bit later, the new three-phase products. But actually, when we're looking at product transitioning, and this is something that we have done in the past as well, I think that there are two elements to take here into account. The first one is when exactly it is done, and that means, for example, that by the time that we expect to have our new three phase product for the residential three phase product that we're discussing so much, this is a product that today is, first of all, approaching a segment of the market that we're not very much addressing, which is the large installations between 15 to 30 kilowatts that you mostly see in Germany.

Zvi Lando: And therefore, here, this product is mostly not cannibalizing any of the other products that we're selling today, other than the fact that when it will come at the beginning of 2025, and by the time that we will rent up, we will also consume some of this inventory. The second thing that we're doing when we're producing new products or new product lines is the fact that we can basically play within the geographical areas in which we are actually selling them. So, for example, if we're having inventories of three-phase products, we can start selling a new three-phase product only in Europe while continuing to sell for a while the other generation in our international markets or in the United States.

Zvi Lando: And therefore, there's an ability to play both with timing, but more importantly, with the regions and locations that we are releasing the inventory, is very much helping us.

Zvi Lando: So, this is on the three phase. On the domestic contact, a content, it's first of all a relatively similar answer, but here there is another element that domestic content made products are mostly important for TPO installation, while we know that some of the market is still a loan market. And by the way, as we expect interest rates to go down, I also expect that you will see the loan market coming back to life. And this is an inventory that can be used there. Unfortunately, for good and bad, we need to, from time to time, replace products so we can use this for this product as well.

Zvi Lando: So, in general, the way that we view it is that we are, in a sense, rationalizing and introducing the products in a way that will lead to minimal to none. Right-offs, we've done it very successfully in the past, really writing off, I would say marginal or not even sometimes we didn't write off anything because we continue to use old products for support purposes. Now, with the larger inventory, of course, this is something that becomes a little bit more complex, but you know, we'll simply have to run it delicately. The most important thing is that to know is that at least by the end of Q2, when we evaluated our inventory levels in light of these product introductions as well, we did not find any reason to accrue or already to write down products.

Zvi Lando: So, this is also something that we do on a very regular basis.

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

John Windham: Hey, great. Thanks for taking the questions. I just want to go back. You had mentioned in your prepared comments some changes of behavior with the amount of inventory being held by, I believe, installers in Europe. If you could just give a little bit more color on what you were talking about there, I'd really appreciate it. Thanks so much for your time.

Zvi Lando: Yeah, thanks for the question. I think we were referring to distribution and distributors in Europe. And if, and it's not only in Europe, I think in Europe, it's a bit more evident. If, if, prior to the current challenging period, a typical distributor would want to hold about a quarter's worth of inventory in order to be able to respond to market opportunities. We are seeing them now trying to hold and reach a point where they're holding less than that, maybe two thirds or even half of that level of inventory. So, with that in mind, it's in that being their goal; it is extending a little bit the time that it will take to clear our inventory from their channels and reach that level of inventory.

Zvi Lando: Of the level that they desire and resume by buying patterns that fit the level of business that we've been discussing. And to add to TV's answer, John, the fact is that they also know what they are at the level of inventory that we're holding. And you know, if you take, for example, a distributor in Germany, knowing that within half a day of truck delivery, we have warehouse fooling millions or tens or hundreds of millions of dollars of products. This is something that also allows them at least, you know, to be much more lean in the way that they're managing their inventory.

Zvi Lando: But that means that once our inventories are cleared, also from our warehouses, they will have to go back to their previous behavior as well.

Austin Mueller: So we'll move next to Austin Mueller with Canaccord.

Austin Mueller: Mr. Mueller, you may check your mute button. We'll check back with him.

Joseph O'Sha: We'll move next to Joseph O'Sha with Guggenheim Partners. Your line is open. Please go ahead. Hi, thank you. As returning to the cash issue, one of the big inputs to the model is where you trade accounts and, of course, your inventory are headed. Can you give us some sense as to what the assumptions are there that underpin the operating cash for a number you talked about? So, in general, what really moves it is that we expect, first of all, as mentioned, to be at the end of the year at approximately $1.3 billion of inventory compared to $1.5 billion where we are today.

Joseph O'Sha: So I'll answer it towards then, but I will also answer how it would move forward into $25. So the first thing that happens is that the vast majority, if not all products sold in Europe over the next Q3 and Q4 will be inventories that already exist and are sitting in our warehouses. And that means that, in general, take an assumption: if you saw the last quarter, for example, Europe was about 40% of our revenues. Take 40% of your estimate of revenues, and you'll get to the inventory that can go out based on this. The second thing is that we also very much decrease our purchase of new components that we're utilizing or selling today.

Joseph O'Sha: Today, if you look at the $1.5 billion of inventory that we have, approximately $400 million of those raw materials that are going to be used and consumed even through the local and domestic content products that we're going to utilize here, and this is also something that reduces the inventory quite substantially. I would say that if we want to look into, and again, so that we expect to be approximately $200 million towards the end of this year. If you look into $25, I would say that a good assumption will be that raw material inventory will not increase significantly compared to the end of the year.

Joseph O'Sha: And again, I would assume that at the end of the year will be around, let's say, $300 million of raw materials. And at that point, once raw materials are not growing during 2025, just assume that we have enough product to take us to the vast majority, if not all, of 25 on our sales in Europe. So again, whatever proportions are models for Europe, you can basically make this calculation. So that's the way that we look at it.

Joseph O'Sha: We are trying, of course, to accelerate various other products that we have and the usage of them. I think that the only product that we're not accelerating sales are the batteries and the single-phase batteries that are a big drag on our margins related to the batteries made of some cells because here we don't really have a product that we can make before the second half of next year. So that will be, and I would say, the only exception.

Julien Dumoulin Smith: to this. We'll go next to Julien Dumoulin Smith with Jefferies. Hey, good afternoon, Kate. Thank you guys very much. Appreciate the time. Be up. I can go back to where some of the others were talking about gross margin and that recovery. Can you clarify what portion of US inverters and optimizers are now qualifying for domestic content? And how is that impacting your view of the competitive landscape here, especially as you guys think about shipments in the third quarter and fourth quarter? I heard your comments about Austin and reaching the run rate for 500 megawatts here, Florida ramping up.

Julien Dumoulin Smith: But how is that impacting your market share here and expectations here, because which your competitors have already achieved, you know, reasonably high at domestic content markets here on the products that they're selling, as well as how does that impact your more expectations and expansion expectations to the 23% in the next year?

Zvi Lando: So I'll start in, and if I'm not answering all of it, please, please help me by completing. But in general, we are already shipping domestic contract products right now. We started shipping those already in Q2, and actually, from now on, the majority of the product that will be sold in the United States for all those that need actually domestic content will be delivered here from products that we make here and will reach there. So we expect really not to see any kind of market share losses related to domestic content, given the fact that we believe that we'll be accelerating our full domestic content.

Zvi Lando: Now we started in Q2. We're accelerating in Q3. This is, by the way, some of the cash investments that we're doing are related to this one and batteries that will come at the beginning of Q1. So we see a very negligible part. As your question related again to gross margin and whether it is going to meet us, this is actually a good question because, on one hand, making domestic content products is going to be more expensive, especially now until the supply chain is really, I would say, optimized. And that means that those expenses will be higher, given the fact that the benefit given to our customers by having the domestic content where they can actually get 10% higher ITC credit on the entire installation elements, including service and everything that goes to the next years. By having us just increasing, I would say, not very significantly, the cost of manufacturing here is something that we believe that we will recover some of these amounts and more in a way that it will at least won't be harming our gross margin.

Zvi Lando: So I hope that answered all of the elements of the question.

Unknown Executive: Once again, if you would like to ask a question, please press star one on your telephone keypad now.

Andrew Steinhardt: We'll move next to Andrew Steinhardt with Canacorn. Hi, thanks for taking my questions today. I'm just two quick ones. First, the recent news with some power, and I know the PM&M bankruptcy last month. I guess, just generally speaking, have installed bankruptcies slowed the clearing out of the sales channel.

Andrew Steinhardt: And then I guess just a second question in a different direction here. Have the latest home batteries started to take any significant share from the Tesla Powerwall in the US? Thank you.

Zvi Lando: So, I'll start maybe by the first question, and TV will answer the second one. In relation to the bankruptcies themselves, in general, we do not believe that bankruptcies of installers are significantly slowing or changing the market. At the end, the problem today in the US market is that the demand is relatively lower, and usually the installation companies are simply fulfilling this demand. We do see installers go out of business, of course, PM&M, and of course, Hand Power, our large one, the names that we know, but we started to see bankruptcies starting before. And that means that those remaining installers will continue to serve the demand that is there, that is not impacted by the bankruptcies.

Zvi Lando: I do not expect to see; maybe even it will be a little bit better given the fact that you'll see some economies of scale coming from these installers. So, this may actually make them a little bit more healthy as time goes by, but in general, we do not see any impact or significant impact on the market. You may see maybe pinpoint areas where, you know, if companies going bankrupt, maybe some products are being fire sails, you know, from their inventory. But again, given the size, at least of our exposure, which was only to PM&M, which was not a very large one, we do not see a major impact here.

Zvi Lando: On the second question, the fact that our share in batteries is growing, I think, is evident. Also, in some of the third-party reports, it is spelled out in that way. And also when, as we reported in the prepared remarks, growing our sell through by around 55% from the first quarter to the second quarter is a higher growth rate of growth. I can say for sure, at the expense of who is this share gain from geographical point of view, we pointed out that the states at which we've seen the highest growth are Puerto Rico and California.

Zvi Lando: So that helps realize where the share gains are coming from, but I think it's across the board. And for the reasons that I mentioned before, the DC coupled configuration with the module level powered electronics is beneficial from an efficiency and power generation point of view, which is important also in on grid applications, but even more in backup, backup applications. And also, our battery has a very positive reputation for ease of installation and commissioning time. And that is another element behind the share gains, we believe.

Andrew Percoco: Our next question comes from, will return to Andrew Perroco with Morgan Stanley. Yeah, great. Thanks so much for taking a second question. I just wanted to come back to the margin question. I'm not sure they heard the answer to it, but you know, is that 23% growth margin by the second quarter of next year? Is that inclusive of 45X? And if it is, that would be, it looks like materially lower than the 30 to 32% margin expectation. And you know, what is what you guys have characterized for your expectation in a normalized environment earlier this year?

Andrew Percoco: So we could just provide some clarification on that. That would be helpful. Thank you.

Ronen Faier: Yes, of course, Andrew. And thanks for the question, and sorry, Cassie, for not answering before, as well. So thank you, Andrew, for this. Actually, yes. First of all, the 23% is including the IRA benefit and the 45X benefit.

Ronen Faier: However, just to clarify that when we were talking about the 30 to 32%, this was on a normalized revenue of 600 to 650. And as we've mentioned all along, since we have a relatively large portion of 100 to 120 million dollars that is almost non- almost fixed item within our COGS related to, you know, the past warranty that we need to serve, the departments that we have. Actually, the bigger revenues are, this percentage of these expenses is going down. So we do believe that, first of all, we will reach eventually to the 600 to 650, not maybe in the second quarter, but we will reach there because we believe that the market will grow.

Ronen Faier: And we are expecting this to happen. And once this will happen, we will be as said in 30 to 32%. We are not expecting to see a change in this.

Austin Mueller: We will return next to Austin Mueller with Canacorn. Hi, good evening. So my first question here, what do you do as being the key near-term catalyst for acceleration in Europe, residential demand, gift rooftop solar is mainly a cash business there? Sorry, we couldn't hear you well. Can you repeat the question? Sure. Can you hear me now? Yes, we do.

Austin Mueller: What do you view as being the key near-term catalyst for acceleration in residential Europe demand, given rooftop solar is mainly a cash business there? So first of all, I must say that I'm not sure if there is a very immediate catalyst to this growth, and this is part of the assumption that we have at least for Q3 and Q4, not to see a major increase. But the problem with Europe is always the fact that this is a combination of various countries and several countries with different behavior. I think that the main catalyst for not growing actually right now is the fact that the Dutch market, that used to be one of the largest markets, is now becoming very small, given the, I would call it, opposition and media coming from the utility companies there, as well as the in-clarity from the government policy around solar.

Zvi Lando: So that's one thing, and I think, by the way, this is bigger than cash or anything else, because, you know, if you don't have a clarity when you build the system that you will be able to sell electricity to the utility, why would you put a system, no matter, you know, how much of what is interest rate or the cost of alternative investment is there? When it comes to the other countries, we believe that the catalyst for growth after a maybe the next quarter or so is the fact that we still see in Europe relatively low electricity prices compared to what we've seen in the past.

Zvi Lando: And you know, during the midst of the war between Ukraine and Russia, electricity prices actually skyrocketed in Europe. They went down quite significantly at the beginning of this year, reaching in the second quarter to really almost historically low prices, or at least history, near history as we know it. And we do not expect these electricity prices to continue and prevail in the market, given changes that may happen in LNG prices, as well as investment that are needed in utility. And when you are looking at the market in Europe, I would say that usually you will see policy, electricity prices as the main catalyst, sorry, and interest rates as the main catalyst.

Zvi Lando: I think that policy in most places will be relatively supporting, or at least not negatively supporting once you are dealing with a storage. Second is that electricity prices are expected to continue and move up, and interest rates are expected, and already, by the way, started to be reduced in Europe. The CEP just reduced the interest rates in about the months and a half ago, and more reduction is expected. So we think that this will eventually push it up, but again, not in our assumptions in Q3 or Q4.

Zvi Lando: The CEP just reduced the interest rates as the main catalyst. I'll maybe add to one of those comments, just two additional comments. The element of increased electricity usage, the trend towards heat pumps and EVs in Europe is there. It's not at the rate that it was, and maybe not at the rate that was expected, but it is still there. And with that comes the complexity and grid management. And that you definitely see more and more regions and countries in Europe that are moving to all kinds of more complex rate structures and varying rate. And we see this every time we release a feature like maximizing self-consumption or negative rate optimization or other such features that you get thousands of registrations within a short period because there's a wide variation of complex rate structures across Europe.

Zvi Lando: And that will only increase, and that is pushing people towards controlling their own destiny as well.

Zvi Lando: And all of that said is on the residential side; the commercial side in Europe has an additional driver to everything that we said before, which is decarbonization and ESG, which is still high on the regulatory and political agenda in Europe. And with that is the expectation that the commercial market will be in Europe. We'll, at some points, resume faster growth.

Cassie Harrison: We'll return next to Cassie Harrington. Excuse me, Harrison with Piper Sandler. Thanks for taking my follow-up, and thanks for answering the margin question I run. So my follow-up is on the on the sell-through. I think you flagged 520 million of sell-through in 2Q. Can you give us a sense of the geographic mix? And then how much do you expect to drain the channel in 3Q? I think you said 275 in 2Q, just trying to think about that number in 3Q as well. Thank you. Yeah, Cassie, we're just pulling up the notes to answer the question on the sell-through.

Ronen Faier: I think it was probably on the remaining that is not international markets, which was the $55 million or so out of the 520. The remaining is probably about 60-40% towards Europe, I think from a percentage point of view. So I think it's about 60% of that was Europe, and 40% was US, roughly.

Ronen Faier: In terms of inventory clearing in the third quarter, we expect it to be maybe flat, maybe a little bit lower in that type of range as it was in the second quarter.

Zvi Lando: With another question holding, I would now turn the program back over to CV Lando for any additional or closing remarks. Thank you, Jason, and I just wanted to thank everybody for joining us on our call today and wishing everyone a good evening. Thank you.

Unknown Executive: That does conclude today's program. We thank you for your participation.

Unknown Executive: You may disconnect at this time.

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