To the SolarEdge conference call for the first quarter ended March 31st, 2023. This call is being webcast live on the company's website at www.solaredge.com in the Investors section on the Event Calendar page. This call is the sole property and copyright of SolarEdge, with all rights reserved and any recording, reproduction or transmission of this call without the expressed written consent of SolarEdge is prohibited. You may listen to a webcast replay of this call by visiting the Event/Calendar page of the SolarEdge investor website. I would now like to turn the call over to Erica Mannion at Sapphire Investor Relations, investor relations for SolarEdge. Good afternoon. Thank you for joining us to discuss SolarEdge's operating results for the first quarter ended March 31, 2023, as well as the company's outlook for the second quarter of 2023. 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 first quarter ending March 31, 2023. Ronen will review the financial results for the quarter, followed by the company's outlook for the second quarter of 2023. 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 and the slides published today for a more complete description. All material contained in the webcast is the sole property and copyright of SolarEdge Technologies with all rights reserved. Please note this presentation describes certain non-GAAP measures, including non-GAAP net income and non-GAAP net diluted earnings per share, which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are presented in this presentation as we believe they provide investors with a means of evaluating and understanding how the company's management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for or superior to financial measures prepared in accordance with U.S. GAAP. Listeners who do not have a copy of the quarter ending March 31, 2023 press release or the supplemental material may obtain it, a copy by visiting the Investors section of the company's website. I will turn the call over to Zvi. Thank you, Erica. Good afternoon, thank you all for joining us on our conference call today. Starting with highlights of our first quarter results. We concluded the quarter with record revenues of approximately $944 million. Revenues from our solar business were at a record $909 million, while revenues from our non-solar business were $35 million. This quarter, we shipped 6.4 million power optimizers and 330,000 inverters. This quarter, we also shipped 221 MWh of residential batteries, a slight increase from last quarter. Our solar business revenue grew quarter-over-quarter by 9% and by 49% year-over-year, mostly driven by record revenues in Europe and rest of world. We saw record revenues in many countries this quarter, including Germany, Austria, Switzerland, France, South Africa and Australia, and very strong revenues from the Netherlands and Italy. Considering that this was a record revenue quarter from our non-U.S., non-Europe region, I want to share a little more information about the geographic landscape which we define as rest of world. Revenue this quarter from these regions were up 30% quarter-over-quarter and came from 24 countries across the Asia Pacific, Africa and South America. Noteworthy countries in size of market and revenue include Australia, Israel, Taiwan, Thailand, Korea, Brazil and South Africa. What I think is often overlooked is the extent of our geographic presence and the growth opportunities in these regions. For example, in South Africa, where due to a significant increase in power outage frequency and duration, we are seeing unprecedented demand for solar products, including our residential battery. In Japan, where a recent regulation of the Tokyo Metropolitan Government has created a special incentive for PV systems with module-level power electronics, for which we already have local certification. As we have said in the past and is evident this quarter, our global presence and infrastructure provides us with stability in our business and access to many growth opportunities. Moving back to the core regions and segments, the European residential markets continued to be very strong for us this quarter as we ramped shipments of three-phase residential inverters, in particular our new backup inverter, as well as the three-phase residential battery. We expect this momentum to continue in the coming quarters as we are still increasing capacity of backup inverters to deliver on the significant backlog and the strong demand for this product. In the U.S., revenues were down quarter-over-quarter, driven by weakness in the residential segment related to the general effect of interest rates and lower battery sales. As we noted last quarter, residential originations in the fourth quarter were seasonally down more significantly than in prior years. Origination data has improved in the first quarter to the level of the same time last year and even slightly higher. While we expect the uncertainties in the U.S. residential market to continue in the short term, we believe that the long-term dynamics of NEM 3.0 and our advantages under this regulation, which I will discuss further in a few moments, as well as the expectation for TPO share growth, cater well to our product offering and position in the markets. Moving to commercial. In the first quarter, we shipped a record 2.1 GW of inverters, representing 36% quarter-over-quarter and 108% growth year-over-year. This record is a result of the strong demand we have been discussing in recent quarters around corporate ESG initiatives and the multiple C&I applications, coupled with the ramp in production that we have achieved. Momentum of the C&I market is global, the inherent advantages of our solution in this market, among them safety, scalability, and balance of system cost efficiency, position us well such that demand for our product is still outpacing capacity. On top of the strong demand and market position of our commercial offering, part of our growth strategy includes providing our customers with energy management applications and services. In this context, this quarter, we closed the previously announced acquisition of Hark Systems. Hark's SaaS products allow companies to get a granular level of energy transparency and then start acting on what they are seeing. It integrates with solar, storage, EV charging, HVAC, factory machinery, building management systems, smart meters, and other assets. Now that the acquisition has closed, we will use Hark's capabilities to augment our software offering for C&I customers by providing additional monitoring and connectivity capabilities as our customers move from solar-only installation to systems with storage, EV charging, and other advanced energy needs. I want now to return to the topic of NEM 3.0, which became effective in California in April, and the suitability of our product offering to address this regulation. The main impact of the NEM 3.0 regulation is significant reduction in the economic benefit of exporting power to the grid, and as such, it is to the system's owner's advantage to use their energy the solar system produces during most times of the day, other than in specific instances when the utility pays an exceptionally high rate for the power exported from the system. Our large installed base of solar plus batteries in time of use or self-consumption markets, predominantly in European countries, has enabled us to gain experience managing such use cases, as well as develop specific algorithms to maximize the import and export optimization. Our analysis shows that the best return on investment under NEM 3.0 is achieved with a solar plus battery combination, but exact payback times can be affected by many different factors. Among these factors are system size, consumption patterns, oversizing ratio of DC panels to the inverter AC power, battery capacity and power, and the local utility provider's policy. In specific use cases, payback can be met within six to seven years. More importantly, homeowners can offset their monthly electricity bill by up to 95% using solar plus battery when paying for the system in cash, while when using a loan, monthly electricity bill can be reduced by approximately 30%. To achieve best economics from a solar plus battery solution, the battery needs to be sized and managed in an optimal way. For example, under NEM 3.0, during the month of September, the export rate in some of the California utilities is as high as $3 per kWh for two hours in the afternoon after the sun is down and there is no solar power. To take full advantage of this high rate, the battery needs to have the right capacity and power. The SolarEdge Home Battery, with its 10 kWh capacity and 5 kW of continuous power, can discharge in full during this two-hour duration, contributing to maximum savings. In addition, with our DC coupled battery, there is only one AC to DC conversion of the energy stored in the battery, compared to three conversions with an AC coupled battery. We estimate that approximately 5%-7% of the energy is lost in every charge cycle of an AC battery. DC coupled batteries also make maximum use of system oversizing. Since the battery is connected directly to the inverter and not through the AC panel, the system can store all excess energy generated from the panels above inverter AC capacity in the battery, generating as much as 3% more power during the peak summer months. Finally, in self-consumption mode, DC coupled batteries are simple to install and commission, as they only require one DC connection to the inverter and do not require a main panel upgrade. Homeowners can choose to start with a more cost-effective self-consumption battery, what we call rate saver mode, and add a backup option when desired. In conclusion, we feel that our hardware plus software solution addresses the NEM 3.0 requirements in an optimal way, and we look forward to good adoption of our offering in this market. Before handing it over to Ronen, I would like to give a brief update on our operational stability and growth. Over the last two years, we have dealt with challenges around component availability, supply chain issues, and logistics constraints. The general improvement in the market, combined with the actions that we have taken, have allowed us to return to a more normal mode of operation. In most product areas, we are at a point where our manufacturing capacity is able to meet demand, and we can use normal shipping routes, build inventory, and reduce lead times. For other products, in particular three-phase inverters for commercial and residential use, we are still ramping and expect to reach stability within the next couple of quarters. Our operational plan includes adding manufacturing sites in the U.S. to increase capacity and benefit from the manufacturing credits of the IRA, where we are on track to have U.S. manufactured products in the third quarter of this year. With this, I hand it over to Ronen, who will review our financial results. Thank you, Zvi, and good afternoon, everyone. This financial review includes a GAAP and non-GAAP discussion. Full reconciliation of the pro forma to GAAP results discussed on this call is available on our website and in the press release issued today. Segment profit is comprised of gross profit for the segment, less operating expenses that do not include amortization of purchasing tangible assets, impairments of goodwill and intangible assets, stock-based compensation expenses, and certain other items. Total revenues for the first quarter were a record $943.9 million, a 6% increase compared to $890.7 million last quarter, and a 44% increase compared to $655.1 million for the same quarter last year. Revenues from our solar segment, which include the sales of residential batteries, were a record $908.5 million, a 9% increase compared to $837 million last quarter, and a 49% increase compared to $608 million for the same quarter last year. Solar revenues from the United States this quarter were $255.5 million, a 16% decrease from the last quarter and a 4% decrease from the same quarter last year, representing 28.1% of our solar revenues. Solar revenues from Europe were a record $577.1 million, a 22% increase from the last quarter and 102% increase from the same quarter last year, representing 63.5% of our solar revenues. Two countries in Europe represented well above $100 million each, and we achieved record revenue in several countries. In particular, we saw meaningful quarter-over-quarter growth in Germany with 17%, Switzerland with 177%, Austria with 253%, and France with 31% growth. Revenues from batteries grew slightly this quarter in Europe, limited by the fact that we are still ramping three-phase inverter supply, which is needed for battery-coupled systems. Rest of the world solar revenues were a record $75.9 million, a 30% increase compared to the last quarter and a 32% increase from last year, representing 8.4% of total solar revenues. On a megawatt basis, we shipped a record 975 MW of inverters to the United States, a record 2.1 GW to Europe, and a record 493 MW to the rest of the world, surpassing 3.6 GW of record quarterly inverter shipments. 68% of the megawatt shipments this quarter were commercial products, and the remaining 42% were residential, a result of higher European and rest of the world revenues in the total mix. In the first quarter, we shipped 221 MWh of our residential batteries, a slight increase from 217.6 MWh last quarter. The vast majority of our batteries continued to be shipped to Europe, driven by the strong adoption and the demand for our three-phase solution. ASP per watt this quarter, excluding battery revenue, was $0.22, a 7% decrease from $0.237 last quarter. This ASP per watt decrease is predominantly a result of increased commercial products in our overall mix, partially offset by a stronger euro. On a unit basis, our prices did not change this quarter. Our battery ASP per kilowatt hour was $475, slightly up from $473 in the last quarter, mostly a result of stronger euro and customer mix changes. Revenues this quarter from our non-solar business were $35.2 million, a decrease from $53.6 million in the last quarter, a result of seasonality in the storage business. Consolidated GAAP gross margin for the quarter was 31.8%, compared to 29.3% in the prior quarter and 27.3% in the same quarter last year. Our non-GAAP gross margin this quarter was 32.6%, compared to 30.2% in the prior quarter and 28.4% in the same quarter last year. Gross margin for the solar segment was 35% compared to 32.4% in the prior quarter and 30.2% in the same quarter last year. Before diving into the gross margin details, I would like to note that this quarter we have exceeded our financial targets as presented in our Analyst Day in March 2022. In the solar division, our inverter and optimizer margins have exceeded 37%. Our residential inverter and optimizer products margin exceeded 40%, and our battery margins exceeded 25%. We continue to improve our gross margin through cost reduction activities and higher efficiency within our supply chain, and we expect that future gross margin trends will be mostly driven by product, customer, and geographic mix. This quarter, our gross margin results were primarily driven by an improved exchange rate between the euro and the U.S. dollar, further improvement in our shipping and logistic costs, a result of stabilized component availability and manufacturing, which also resulted in lower charges from our contract manufacturers. Offsetting our gross margin improvement was a higher portion of commercial sales that are characterized by lower gross margins and adjustments made to our warranty obligations. Goods subject to tariffs, excluding batteries shipped into the United States from China, accounted for 12% of our U.S. shipments this quarter, a level that we expect to slightly decrease in the next quarter. Gross margin for our non- solar segment was -31.3% compared to -4.6% in the previous quarter, a result of process stabilization costs associated with our Sella 2 ramp in Korea. On a non-GAAP basis, operating expenses for the first quarter were $123.6 million or 13.1% of revenues, compared to $119 million or 13.4% of revenues in the prior quarter, and $98.9 million or 15.1% of revenue for the same quarter last year. We expect to continue to see our operational leverage expanding during 2023 as our revenues continue to grow faster than our operating expenses. In the second quarter of 2023, we will see relatively flat% of operating expenses to revenue, a result of our annual employee merit process that takes place in the second quarter of each year. Our solar segment operating expenses as% of solar revenue were 12.3% compared to 13% last quarter. Non-GAAP operating income for the quarter was a record $183.8 million compared to $149.6 million in the previous quarter, and $87.2 million for the same period last year. This quarter, the solar segment generated a record operating profit of $206.7 million compared to an operating profit of $162.2 million last quarter. The non-solar segment generated an operating loss of $22.9 million compared to an operating loss of $12.5 million in the previous quarter. Non-GAAP financial income for the quarter was $24 million compared to a non-GAAP financial income of $59.4 million in the previous quarter, a result of the appreciation of our euro-denominated cash and customer balances. At the prevailing exchange rates, we will gradually decrease our balance sheet exposure to the euro by converting some of our cash balances from euro to U.S. dollar at a higher frequency. Our non-GAAP tax expense was $33.2 million compared to $37.5 million in the previous quarter and $13.5 million for the same period last year. GAAP net income for the first quarter was a record $138.4 million compared to a GAAP net income of $20.8 million in the previous quarter and $33.1 million in the same quarter last year. Our non-GAAP net income was a record $174.5 million compared to a non-GAAP net income of $171.5 million in the previous quarter and $68.8 million in the same quarter last year. GAAP net diluted earnings per share was a record $2.35 for the first quarter, compared to $0.36 in the previous quarter and $0.60 for the same quarter last year. non-GAAP net diluted earnings per share was a record $2.90 compared to $2.86 in the previous quarter and $1.20 in the same quarter last year. Turning now to the balance sheet. As of March 31st, 2023, cash equivalents, bank deposits, restricted bank deposits, and investments were $1.6 billion. Net of debt, this amount is $1 billion. Accounts receivable net increased this quarter to $969.5 million compared to $905.1 million last quarter, a reflection of our increased revenues. As of March 31st, our inventory level, net of reserve, was at a level of $874.2 million compared to $729.2 million in the prior quarter. It's important to note that our inventory levels this quarter include higher levels of finished good products, a result of streamlined manufacturing. These finished good inventories in the various regions will allow us to further improve our customer delivery times and reduce shipping and logistic expenses. Turning to our guidance for the 2Q of 2023. We're guiding revenues to be within the range of $970 million-$1.01 billion. We expect non-GAAP gross margins to be within the range of 32%-35%. We expect our non-GAAP operating profit to be within the range of $195 million-$215 million. Revenues from the solar segment are expected to be within the range of $930 million-$980 million. Gross margins from the solar segment is expected to be within the range of 34%-37%. I will now turn the call over to the operator to open it up for questions. At this time, if you would like to ask a question, please press the star and one on your touch tone phone. You may withdraw your question at any time by pressing the pound key. Once more, that is star and one. We'll move first to Brian Lee with Goldman Sachs. Your line is open. Hey, guys. Good afternoon. Thanks for taking the questions. I just had two. First one, you know, kudos on the gross margin execution here. Clearly, you know, the outlook for 2Q, as you acknowledged, Ronen, is ahead of the long-term model. Just wondering, you know, if this should be the new level for the rest of this year to be thinking about or maybe kind of what the levers are here going forward, and then what would make you consider adjusting, you know, the long-term targets at some point. I had a follow-up. First of all, thank you. Thank you, Brian. Currently, we're not adjusting our numbers compared to what we've guided before, although indeed, the gross margins that we presented for the next quarter are above what we've guided. In many senses, we've improved the margin drivers, especially related to the logistic costs and of course, some of the pricing differences related to the fact that the euro was a little bit better, and we did affect some increases of prices at the beginning of the 1st quarter. This is very much impacting the gross margin favorably. At the same time, we do know that we expect to see some changes to the mix of our product offering and sales over the next few quarters, especially with a higher amount of batteries that will be shipped. These are characterized with a little bit of a lower gross margin. On one hand, we still have opportunities to continue and grow gross margins after a long time that we dealt with component changes. We are doing cost reduction activities within our R&D organization. There are still spaces to improve the shipment costs and the higher inventories that we have in the channel set, certainly in our warehouses at least, certainly help this one. Since we do expect that we'll see some changes, at least right now, we are guiding for a higher level. We'll remain for a few quarters, you know, looking at what are the market trends that we see and what is the adoption rate of each of our products, then we will decide whether we need to change anything. Okay. Makes sense. Fair enough. Then just again, kudos on, you know, executing well in Europe here. You know, there's been more and more chatter, I feel like, to start the year around a potential slowdown in that region, and then also some concerns around maybe pricing getting tougher there. Maybe, you know, Ronen, maybe walk us through, you know, how much visibility, one, you have in Europe for the second half. It seems like that's a region that has more visibility and historically has had more visibility the way ordering happens there versus the U.S., but maybe if you could walk us through that. Then also on pricing, you know, what you're doing there, commercial, resi, and then also what you're seeing from competition on the pricing front. Thanks, guys. Yeah, Brian. In regards to market dynamics, we don't see right now a change in the pattern of demand in the market in Europe. It power prices have reduced to a certain extent, but they're still quite significantly higher than in the past. The return on the investment is good for both consumers and businesses. We don't see at least until now, any change in the dynamic, and the market continues to be strong. On the competitive side, yes, many companies have availability of product has increased, and the market has become more competitive in that in that regard, and more similar to market dynamics of the past, where we are competing less on the basis of availability and more on the basis of value and the premium capabilities of our solution and the other advantages in service and presence. It's a dynamic that, you know, we've lived with for more than 10 years and are quite comfortable with our ability to obtain premium pricing for our products and solutions. All right. We'll take our next question from Colin Rusch with Oppenheimer. Your line is open. Thanks so much, guys. Can you talk a little bit about the R&D staff returning to product evolution and costing programs rather than just qualifying new components and when we might start to see some incremental improvements on the underlying cost structure for both solar and the battery products? Definitely there's been a shift. Can't quantify it exactly, but this, if at the peak times during last year, we would have suggested that about 50% of the R&D organization is dealing with finding alternative components in order to maintain and keep manufacturing products. That number has declined significantly. We've been able to redirect the R&D resources to focus on, first of all, on development of new products and cost reduction in parallel to adding more R&D resources globally. I don't wanna give the exact ratio just 'cause I don't remember it right now in terms of quantities and ratios, but there's definitely been a change in that regard. Typically cycles for cost reduction are a few quarters long until we implement the changes and then put out initial units for qualification. Usually that type of effort translates to actual cost reduction in the production line probably in the range of two-three quarters after we actually put the R&D resources on it. Um, that's a- Does that answer the question? Yep. It sure does. Thank you so much. Looking at the battery production, you know, obviously there's been a lot of movement in and around raw materials. Can you talk a little bit about what your supply chain looks like in terms of pricing and how that's trending here over the next several quarters, and how much of that those input prices you've been able to pass on, you know, in some of your, you know, forward contracts and models with some of these customers? Sure. When it comes to the battery, we have basically two streams for the battery cells. One is the agreement that we have with Samsung and the other one with the second player that we cannot disclose. In both cases, as, as is the case, by the way, in all battery major battery supplies, there is a dynamic where the cost of the battery cell is following the ability or actually the price, the index of raw materials used by the various manufacturers. Therefore it's a very technical process where at the end of every quarter, there is an adjustment of the price of the battery cells based on the changes in the various raw materials that are comprising it. On top of these, there are of course, all of the elements related to the mechanical parts and manufacturing. Here in general, the bigger the amounts are and the bigger the volumes are, you see economies of scale getting a little bit more of a buying power when buying those. The other element that we need to take into account is the fact that we are of course ramping Sella 2, once we will have our own battery manufacturing, the cost of our products will be tied again to the actual cost related to the material manufacturers, not the cell manufacturers anymore, but actually the materials manufacturers. Here, the agreements that we have are following again price indices. In general, what we see right now is that, indexes related to the materials that are making batteries are, generally, moving down, although not yet at the level that we used to see before. This is the dynamic that we see right now, and, we believe that, you know, as we grow, we will be able to take more advantages, given our economies of scale here. Okay. I'm gonna take the rest of it offline. Thanks, guys. Thank you. Back to Philip Shen with Roth MKM. Your line is open. Hey, Ron. Thanks for taking my questions. Congrats on the strong results. First question here is on pricing as a follow-up. Our checks with a bunch of your customers in the U.S. suggest the Home Hub inverter pricing may have been lowered by 10-ish% effective May 1st in the U.S.. Can you talk about that at all? Is it true? How do you expect pricing in the U.S. to trend? You know, you still are guiding really strong margins in spite of this, if true. Also, we were in touch with an, a European distributor recently, and they're seeing more and more availability of inverters. I think, Zvi, you were just talking about you're competing less on the availability of inverters. Curious to see if you can talk about pricing as well in Europe because they're expecting and looking for a price reduction on that continent as well. Thanks for the additional questions on pricing here. Thanks. Starting from the U.S. Indeed in the U.S., we did some repricing of the single phase offering in order to encourage usage and what the market needs of the Energy Hub that leads to the easier attachment of batteries later on. It is, it, the, in effect, it's more expensive than the normal inverter, and on some of the models it's slightly lower than it was prior, the overall effect is actually a price increase, and we think it will improve, or for sure not hamper the bottom line. In terms of the dynamic in Europe, yeah, as I mentioned, it's a, it's back or in a mode of competitive environment. As you know, in Europe, some of the elements that I discussed before in terms of the importance of software solutions and energy management component is becoming a very critical differentiating factor between technologies and alternatives. It continues to be a driven type of application. And that's among other reasons why at this point at least we don't have a plan for any type of broad-based price reductions in Europe. Okay, great. Thanks for that clarity. Then, in terms of the channel inventory, can you talk us through what it might look like in the U.S.? You know, our checks suggest it might be a little bit heavy in the US, whereas in Europe, it seems like it might be still tight there. Do you expect a massive restocking at some point? Just talk us through what you're seeing with channel inventories. Gerald, still, I think that your, the notion here is right. We do see higher levels of inventory in the channels when it comes to what we call weeks or days of inventory on hand compared to Europe, where I would say that U.S., I would say, is relatively okay when it comes to levels of inventory. Because of the fact that, you know, some of the sell-out is a little bit lower, then you see that the weeks of inventory on hand are a little bit higher. In Europe, we actually see low inventory days on hand. This is, by the way, the dynamic that we said related to the higher inventories in U.S. are actually more related to our single-phase inverter because wherever we're looking at our three-phase inverter inventory in the channel, this is the place that we see almost across the board in C&I that we see relatively lower levels of inventory. That's something that I think more important to mention, and this is that when we are looking at Europe, for example, not only that we see that the level of inventory is relatively not high, but it's actually that we see record sell-out of products coming from the distribution channels. Here again, it's a kind of a double impact. Not only that you don't have a very high level, it's actually being sold much quicker. This is something that at least in the U.S. right now, we see again, relatively normal levels, but the sell-out is a little bit lower. We'll move next to Mark Strouse with JP Morgan. Your line is open. Yes, good afternoon. Thanks for taking our questions. Wanted to talk about the C&I business. We talked about this on the last call, the amount of backlog that you have, giving you visibility for the rest of this year. I'm just at a high level, though, curious, you know, some of the weakness that we're hearing about, kind of on a macro perspective from the just the general commercial real estate market. Is that starting to impact your pipeline, funnel opportunities, that might manifest in 2024 or later? No. The backlog for C&I is very strong for the remaining of the year. As I mentioned in the remarks, we are still behind in terms of being able to increase capacity to meet it. This is true globally. There might be here and there some markets that are slowing down a little bit, but other markets that are accelerating. Overall, as also when you look at the reports that I've seen regarding the expectation for the year-over-year growth in C&I in the U.S. market is expected to be higher than that of the residential. This is a phenomenon that to the best of our knowledge, we're seeing globally for the same combination of reasons that I mentioned, the higher power prices and the ESG motivations. We're engaged in several portfolios of multinational companies that are installing systems in several countries on their facilities, be it warehouses, manufacturing sites, et cetera, for ESG purposes. As far as we see the C&I market is robust and our backlog is very strong. Very clear. Thanks. Then wanted to come back to the comments about U.S. manufacturing in 3Q. Are you able to provide more color there as far as where you are in that process as far as, you know, building up tooling, whatever it might be? Then is there any initial color that you can give us as far as, you know, kind of quantifying what that output might look like in 3Q and kind of what the expectation is for that to ramp over the next few quarters? Sure. First of all, as we mentioned before, our approach to U.S. manufacturing is divided in first starting with a contract manufacturer in order to be very fast to the market and to be able to capture U.S. manufacturing as soon as possible. Since we are already, of course, engaged with the contract manufacturers, we already have teams that are trained on how to make our products. One of the bigger benefits that we have by having Sella 1 is that, you know, when we have a new factory that's supposed to ramp up, we can bring people from that factory to Sella 1 to learn how to make our products, how to build them, and how to basically configure the line. This is something that was already done, and I can tell you that we are in process of getting equipment to start manufacturing in Q3, starting to build training the employees around it. In Q3, still we're going to see relatively small amounts. We believe that within three-four quarters, the contract manufacturer capacity will be built. One of the reasons for this process is because we wanna make sure that the quality of the manufacturing also is at the right level, and we wanna make sure that we take the right time to do this. At the same time, we are working on our own factory that will be also built and operated by us. We're already in advanced negotiations related to the location of this place. Here, as mentioned, since it will require a little bit more innovation, it is something that will take us, I believe, at least a year to start having product coming out from the end of Q3 this year. I believe that it's gonna be in the second half of next year. In general, we intend to have all products coming to the United States to be manufactured in the United States. Here, I think it's more related to the pull from the market rather than our capabilities. We will make sure that our access, We will have access capacity or enough capacity to cover any demand that comes from the U.S. once we have these two factories ramped up. Very helpful. Thank you. We'll move next to Michael Blum with Wells Fargo. Your line is open. Thanks. Good afternoon. I want to go back to batteries for a minute. You know, it looks like shipments are still not quite taking off, and just wondered if you talk about where attach rates are trending, both in the U.S. and rest of world. You know, should we expect battery shipments to be somewhat constrained until the three-phase inverter supply catches up with demand? Thanks. Yeah. In the US, attach rates are growing, let's put it, growing very slowly. We expect it to shift to NEM 3.0, as people begin to understand how to sell it, for the reasons that I mentioned during the comments before, we expect the attach rates to gradually increase in the next quarters. In regards to Europe, this is as Ronen referenced in his comments, that we're seeing very strong demand for the batteries and actually the constraint is the availability of our inverters. We're trying to ramp inverter shipments as much as possible because without an inverter, people don't have what to do with the battery. As we continue to increase our capacity on the inverters, we believe that the volumes of batteries will increase as well. Generally speaking, we are expecting, and Ronen also referred to that in the comments about the model and the impact on the margin, that the ratio of batteries in our overall shipments will be increasing in the coming quarters. Great. Thanks for that. Then I want to just go back to your prepared remark comments about rest of world growth opportunities, really the countries outside of Europe. Are those markets primarily residential, or are you also seeing strong demand for C&I? Really any color you can provide there would be really helpful. Thanks. Most of those markets are actually much more tilted to C&I than to residential. Among the markets that I mentioned, the strongest residential markets are Australia, and Israel is a good residential market, and South Africa is evolving as a reasonable residential market as well as Brazil. The C&I portion in almost all of these markets, and in particular in the Asian markets like Taiwan and Thailand, places like that are heavily tilted towards C&I. They are sizable markets. I don't remember right now for each of these markets, but they're in the hundreds of MW, if not GW scale for many of these countries in terms of the size of the market overall. Like I say, C&I tilted in many cases. Thank you. We'll move next to Corinne Blanchard with Deutsche Bank. Your line is open. Great. Thank you for taking my question. The first question, I want to go back on the European market and trying to get a sense on expectation in 2Q and 3Q versus the first quarter. Can we expect the same growth and the same cadence there? I, without getting into specifically how, what growth rate we expect in each market and how that fits into the guidance, as I commented, we see a continued strength in the European market for both applications of residential and commercial. In both cases, most of the European residential market, not all of it, but a lot of it is three-phase based. Obviously all of the C&I market is three-phase based. There our growth is less dependent on demand. It's more dependent on our ramp of manufacturing, which I mentioned, will take us another couple of quarters until we're at full scale of matching the supply to the demand. Right now, we continue to see the European market strong, and we're sitting on a robust backlog that we intend to deliver between now and the end of the year. Okay. My follow-up is a similar question, but more from the residential versus commercial megawatt-hour ship. You had, I believe, like you had a 7% or so decrease quarter-over-quarter for the residential one. How should we think about it going forward? I believe the slowdown is mostly driven by the U.S. Should we expect like flat number, or do you expect further decrease there? Again, I separate for a minute between the U.S. and in Europe. In Europe, the situation is more dependent on our supply and our intent is to continue and increase capacity of three-phase residential inverters. The outlook is for likely growth. In the U.S., the dynamic is more market related and as I mentioned in the remarks, we think that like it happens, by the way, in many markets where there's a significant change in regulation or in the financial atmosphere, it takes the market some time to adjust and to learn how to sell under this environment and how to install under this environment. It's true for for NEM 3.0 in California, and it's true for the rest of the market and the interest rates. How long it will take for the market to adjust and is this the bottom level or, and is it going to begin to increase or is it going to remain flat? I don't think we have a good specific indication on that. As I mentioned, in terms of mid and midterm, we feel that the dynamics are positive, both from a solar adoption point of view and the ITC and everything around it and from our position and technology. All right. Thank you. I appreciate it. we'll move next to Julien Dumoulin-Smith from Bank of America. Your line is open. Hi, this is Morgan Reid on for Julien. Can you walk through the moving pieces to get to the growth margin improvement quarter-over-quarter? What's coming from cost declines and price increases, FX benefits, shift in mix, things like that? Just curious to try to understand what's driving that. Sure. First of all, again, without going into the numbers themselves, because the amount of moving parts is growing, I would say that we divided to basically, I would say two main areas. The first area is the difference between the price of the product that we are manufacturing, the price that we're selling. This is mostly related usually to currency changes and to mix changes. In these cases, the currency changes definitely helped because of the fact that the EUR came back to a level of about $1.8-$1.9. As we mentioned before, at a EUR of $1.10 per EUR, we're almost on par on margins when it comes to the United States. Therefore, of course, stronger EUR is helping there. At the same time, we did see, and I think that you see it in our numbers, were commercial products within the mix that are characterized with lower growth margins were substantially higher this quarter. In that sense, the two phenomenas were relatively similar in size and not contributing or reducing dramatically the margin difference. Most of the improvement that we saw this quarter came from other elements that are not related to pricing or manufacturing costs, and these are all of the other costs related to the supply chain. By definition, the more streamlined manufacturing we had, the shipment costs that used to be elevated went down, not yet to level that they were before. There's still a little bit of room to grow there, and I think that it's evident in our margin for the next quarter. We also saw because of the fact that we have a very streamlined manufacturing, the fact that some of the charges that we used to get from our contract manufacturers did not exist this quarter because, you know, they were working at full steam, having all of the shipped ships occupied. That's where most of our, I would say, advantage came this year. As mentioned before, we are already getting close to where we see ourself in our model from the various costs. From now on, we expect that most of the changes will be related to the mix of the product. definitely more batteries will reduce the gross margin, even though again, on operating profit margins, we are talking about an increase because of the operational leverage that they create. We still see some tailwinds that can help us on shipping and other manufacturing costs. Of course, you know, the, the currency is always a mystery because we do not know how to project it. At least right now, it seems to be either stable or possibly favorable, but again, this is something that very much changes. In all aspects, I think that we're getting closer to where we wanna be on a model. I think that right now, the mix of the products will be the thing that will take most of the I would call it the driving forces when it comes to our gross margin. That's really helpful. Thank you. You alluded to it earlier, the improvement in the operating margin kind of throughout the year. I know previously you had given the sort of guidance of maybe like 20%- 22% operating margin towards the end of this year as we exit. I'm just curious how that's faring given sort of the stronger growth margin than maybe we had expected mid-year here. Just curious if your operating margin expectations are changing at all, given the strength of the gross margin line and operating leverage still to fold in here. Sure. So here, definitely, we continue to see the operating leverage. We've mentioned before that we expected to see our gross margins getting to the target levels by the end of Q2, and the operating profit margins are at the end of the year. In that sense, we're already at 19.5% of operating profit margins on a consolidated level. And on a consolidated level, we said it will be between 19%-20%. On solar, we did say that will be 20%-22%. Again, we're very close to this number. We feel very comfortable as we guided before that we'll exit the year with operating margins to be at the level that we've guided before, as it relates to our financial model. Got it. Thank you. We'll take the rest offline. Thank you. Once again, for your questions, that is star and one. We'll move next to Kashy Harrison with Piper Sandler. Your line is open. Hi. Good afternoon. Good afternoon, and thanks for taking the questions. So as your results show, operating performance was very robust in Q1. You know, while we're seeing, you know, a significant amount of operating income in Q1 and Q2 guide, you know, working capital was another big use of cash this quarter. Maybe just, Mike, can you provide any context on how you're thinking about, you know, working capital and maybe some of that conversion from income to operating cash throughout the year? Then maybe even just at a high level structurally, how you think about, you know, that conversion on a multi-year basis? Then I have a follow-up. Okay, sure. First of all, you know, usually, the three elements that are impacting dramatically the working capital is, of course, you know, days sales outstanding when it comes to a collection from our customers. Actually, this quarter, our DSO decreased a little bit, which means that we did not see any major change. When it comes to customer, to vendor payments, again, our terms have not changed significantly. The thing that changed significantly this quarter is actually related to our inventories that grew by about $150 million, and this is actually almost the missing cash from the formula that I will give you in a second. This is related to the fact that based on our agreement with Samsung, we needed to buy battery cells up until the end of Q1 and pay for them while the batteries that are coming from these cells that are the single-phase batteries, mostly going to the United States, are simply being sold a little bit slower, given all of the aspects that Tzvika mentioned before related to the U.S. market attachment rates and battery growth. As a result, we found ourselves where, at least in Q1, we're buying battery cells while we have less battery cells. Again, this is about $150 million of difference in our inventory. What we expect to see during this year is that since we've already bought all of these battery cells, we will start clearing them out, and therefore, we will reverse this phenomena. We expect to see on an annual basis that approximately 80% of our operating profit is turning into cash within the same period. This is simply a result of the fact that we do see that our First of all, we're growing, which of course means that usually we are paying quicker than we collect. Second is the fact that we do see that in general our sales are more inclined towards the end of the quarter. The result of this is that we believe that about 80% of operational profit will turn into cash on an annual basis. I think that this is something that didn't happen in Q1. Actually in Q1, Q2 to Q3, we should see a little bit of a reversed, situation where actually, and especially in the other, second half of the year, where we're going to generate more than 80%. In, in general, the number that we have is 80% conversion. Thanks for that added color there. Then, you know, as for my second question, I was wondering if you'd just maybe give us a bit more of a detailed update on this Sella 2 ramp process. When do you expect Sella 2 to achieve your targeted, you know, desired output level? When do you expect to start selling Sella 2 residential batteries? Is there a possibility- Mm-hmm. that you may just simply end up selling the cells if battery demand isn't where you'd like it to be? Just any sort of detailed update on Sella 2 would be great. Sure, gladly. First of all, I apologize for maybe a little bit of educational note at the beginning, but you know, when you're ramping a battery manufacturing a factory, there's a process or a stage within the ramp-up that is called process stabilization. You basically adjust various elements within the manufacturing process itself, like temperature, like concentration of materials in the air, level of suction within vacuum chambers, and even the flow of goods on the production floor to the processes that you're using. This is exactly where we are, we were in Q1. That means that at that time, we are consuming a little bit more materials because we're making a lot of tests and we're stabilizing the process. Not all of the materials can basically be used, and therefore the yield of the factory is not yet there. This is a process that's supposed to end sometimes within Q1, Q2, or actually it was Q1 and Q2 this year. At that time, we simply start to grow over time the manufacturing capacity by ramping and increasing the speed of movement of components within the manufacturing stations themselves. This is what we expect to happen in the second half of this year. In general, the manufacturing capacity of Sella 2 is supposed to be it's 2 GWh. At the beginning because of yields, we expect it to be around 1.7 GW. We expect to get this to this level either by the end of the year or beginning of next year, simply because of the fact that, you know, you need to ramp. What are going to be the usages? First of all, we need to remember that there is a business that is actually growing very nicely for us of the storage division itself. We are selling today within the storage division to outside customers, both battery cells, bare cells, that they're later on using to make their own battery or battery packs. We also sell ESS products that are going to applications that are not necessarily tied to solar, these are spinning reserve and other storage containers that you see in various places. We sell in Australia, we sell in Asia. First of all, there is a demand that is already fulfilled and that is already manufactured for from Sella 2 for these products. Actually to date, or at least until Sella 2 existed, we had limitation on our supply and not on the demand for these products. This is something that we see, we expect to grow. To your question, yes, if we don't take enough cells to our RSS, we believe that we can utilize Sella 2 for these kind of activities. The second activity is to have our own residential storage system based on our Sella 2 products. As we mentioned here, we're basically now in advanced stages of developing this product, and we expect to have first manufacturing batches coming towards the end of this year. All in all, we believe that throughout 2024, we will consume the majority, if not all, of the Sella 2 cell production capability. We'll take our next question from Maheep Mandloi with Credit Suisse. Your line is open. Hi, this is Dave Benjamin on for Maheep. Just I guess to follow up on that and on one of your earlier responses, you mentioned that you foresee all U.S. products being manufactured in the U.S.. Can you detail any of your thoughts on battery manufacturing plans for the U.S.? At this point, we're focused on getting inverters and optimizers manufactured in the United States, starting with the residential and moving on to commercial. We're also waiting to understand clarifications around some of the regulations for batteries, and we'll make decisions once we understand in terms of potentially doing battery assembly in the U.S. Obviously, cell manufacturing in the U.S. is a much more complex and long-term question. Right now we're focusing on inverters and optimizers, and once we understand the regulations on batteries, we'll decide if and how to assemble them in the U.S.. I'll take our next question from Joseph Osha with Guggenheim Partners. Your line is open. Hi there. Thanks, guys. Two questions. First, I appreciate the sort of the operating margin target towards the end of this year. You know, thinking about the longer term financial model, you know, how quickly is OpEx likely to grow relative to the top line? How should we think about that in the out years? It's, I'm not sure that I have a very good answer for it because, you know, I'll try to give you what moves this ratio because it's a little bit tricky. First of all, it's revenue growth. As we've mentioned before, we do believe that in the next few years, we can grow at a rate of 20%-30%. We said it on the Analyst Day last year. We've actually exceeded it dramatically by growing 58% year-over-year. I think that with the demand that we see there are chances, you know, to maybe grow even faster than what we think this year, as long as the demand is there and we're able to cope and get the components needed to make sure that... The capacity to make sure that we meet it. Potentially it's high growth. The second part, of course, is how quickly we can ramp the expenses. About two-thirds of our expenses today, operating expenses, are actually employee costs. These are salaries to employees. When it comes to hiring employees, it's very hard to grow them at the pace of 30% where you already have more than 5,200 employees working for you. In R&D, this is in particular hard simply because of the fact that you need very skilled people. Actually in where we do R&D today, we've already attracted a lot of the talent, so you're actually going into a pool that is getting a little bit more shallow. Here I will tell you that we would like to grow as much as we can. I simply do not believe that we can grow at 30% or more year-over-year. When it comes to sales and marketing and G&A, here we usually used to say that we would like to see sales and marketing and G&A growing in average, let's say at about 50%-60% of the growth of revenues when we're looking at expenses. That by definition, of course, is widening the levels. These are the moving parts. We believe that, yes, we can over time go beyond this 22% of operating margins. Again, we need to remember that we need to see also what's gonna be the impact of batteries on the growth margin because this is the other part. We feel confident that we can increase the operational lever. I think that we gave you what's moving, and we'll have to see again if and when we need to adjust the overall operating margin target. Yeah, thank you. That's very helpful. You know, my follow-up, I guess I feel like we've kind of been tap dancing around this, so let me just ask directly. How long is it gonna take until you have all of your US-bound commercial and residential inverters and optimizers, not batteries, but inverters and optimizers being made in the US? Yeah, generally, we're targeting to try and have all of that capacity produced, in the U.S. by the end of 2024, beginning of 2025. Okay, great. Thanks. I'm sorry, maybe. Yeah, I may have missed that, but thank you. I appreciate the clarity. Have a good day. Thank you. We'll move next to Ameet Thakkar with BMO Capital. Your line is open. Hi, thanks for squeezing me in. Just one real quick one for me. I was wondering, you guys talked a lot about, kind of the NEM 3.0 transition, but, during the quarter, do you guys have a rough sense for how much of your revenues kinda came from California? No, not really. Generally speaking, you know, when we look at California in our historical distribution of our revenue globally, and then within the U.S. and between the segments of residential and commercial. California by itself has never been a huge part of our ongoing business. But specifically in Q1, how much is related to California or even what are the installed rate of our products in California during the first quarter, we don't have that type of information in front of us right now. All right. Thanks. I'll take the rest offline. We'll move next to Steve Fleishman with Wolfe Research. Your line is open. Yeah. Hi, thank you. You mentioned in the trends in the U.S. that one of them was the shift to TPO, and I'm curious kinda how much did you see that actually happening in Q1 versus kind of expecting it to happen, you know, the rest of 2023, 2024? It's definitely more of a expectation based on what you read and see in the market. It's not something that I can say that we've seen a clear indication in the first quarter. What is generally discussed, you know, related to the IRA, advantages that go to the TPOs, and this has been a market segment that historically we have been strong in and made some announcements recently and continue to strengthen and build those relationships further. Okay. Just on the C&I growth, maybe, could you just talk to more trends of how quickly that's growing relative to residential and just is it something that, any trends that you're seeing in C&I particular relative to just overall economics of solar? Yeah. Thank you. Yes. Actually, well, just related to some of the previous questions about the C&I market in Europe, while we were discussing the other with the other questions, I pulled up some data. An interesting data point will be that our point of sale data from our distribution channels in Europe grew from the fourth quarter to the first quarter by 40% and from the third quarter to the fourth quarter of 2022 by 25% almost. We're these are the type of accelerating factors we're seeing for the growth of the C&I market in Europe. Again, this is a data point related to how much our distributors are selling to installers and EPCs in the C&I market in Europe. The dynamic is positive and strong over there. Also, again, in the U.S., we didn't grow significantly quarter-over-quarter in megawatt shipments in C&I. The general Assessment in the market is that the expectation is for a stronger year-over-year growth in C&I in the U.S. market compared to residential. When we look at the three geographies that we typically consider of U.S., Europe and rest of world, we are seeing a momentum of accelerated growth for C&I. It relates to everything that we discussed in terms of corporates, but as well as the broad adoptions and push. You know, France just passed a legislation that mandate solar installations on car parks. That regulation is being adopted by other European countries. You also see a range of government legislations in different countries encouraging growth of the C&I market. When we collect all of these indicators together, that's where we conclude that this market has a good momentum and is going to grow at a relatively fast rate. Great. Thank you. It does appear that there are no further questions at this time. I would now like to turn it back to CEO, Zvi Lando. Thank you. In summary, we are pleased with our results this quarter, which demonstrate the advantages of our strong position across diverse markets and applications. We wanna thank you for joining us on our call today, and have a good evening. This does conclude today's program. Thank you for your participation. You may disconnect at any time. Have a wonderful evening.