SolarEdge Technologies (NASDAQ:SEDG) released first-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below.

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Summary

SolarEdge Technologies reported a 46% year-over-year increase in Q1 2026 revenue, reaching $310 million, but experienced a 7% decrease quarter-over-quarter, outperforming typical seasonal declines.

The company is focusing on profitable growth, market share expansion, and product innovation, with significant attention on the SolarEdge Nexus platform and AI data center power solutions.

SolarEdge is targeting breakeven operating profit by Q2 2026, driven by expanding gross margins and operational efficiency, despite headwinds from a strengthening New Israel Shekel.

In the US, the company is gaining market share in the residential and commercial and industrial (CNI) markets, leveraging domestic content and compliance advantages.

European markets showed increased demand due to rising electricity prices, with strong performance in both residential and CNI segments, and the company has fully booked its Q2 Nexus production for Europe.

The company is managing customer exposure risk, having written down a $14 million doubtful debt from a US customer and maintaining no significant exposure to Freedom Forever, which filed for bankruptcy.

SolarEdge plans to hold an investor day post-Labor Day to provide a more detailed long-term view, amidst ongoing CFO transition.

Onshoring efforts have ramped up, with over 90% of inverter and optimizer production now in the US, contributing to improved gross margins.

Full Transcript

OPERATOR

Welcome to the Solaredge Conference call for the first quarter ended March 31, 2026. This call is being webcast live on the company's website at www.solaredge.com in the Investors section of 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 express 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 of Sapphire Investor Relations.

Erica Mannion

Good morning and thank you for joining us to discuss Solaredge's operating results for the first quarter ending March 31, 2026 as well as the company's outlook for the second quarter of 2026. With me today are Shuki Nir, Chief Executive Officer, Asaf Alperitz, Chief Financial Officer and Mir Adest, co founder of SolarEdge. Shouki will begin with a brief review of the results for the first quarter ended March 31, 2026. Assaf will review the financial results for the first quarter followed by the company's outlook for the second quarter of 2026. We will then open the call for questions. Please note that this call will include forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. We encourage you to review the safe harbor statements contained in our earnings press release and our filings with the SEC for a more complete description of such risks and uncertainties. We disclaim any obligation to update any forward looking statements. Please note during this earnings call we may refer to certain non GAAP measures which are not measures prepared in accordance with US gaap. The non GAAP measures are being presented because we believe that they provide investors with a means of evaluating and understanding how the Company's management evaluates the company's operating performance. Reconciliation of these measures can be found in our earnings press release and SEC filings. These non GAAP measures should not be considered in isolation from as substitutes for or superior to financial measures prepared in accordance with US gaap. Listeners who do not have a copy of the quarter ended March 31, 2026 press release may obtain a copy by visiting the Investor Relations section of the Company's website. With that, I will turn the call

Shuki Nir (Chief Executive Officer)

over to Shuki thank you Erika Good morning everyone and thank you for joining our call today. Last quarter I spoke about SolarEdge shifting from defense to offense with 2026 being a year of transformation and acceleration for the company. Our priorities are driving towards profitable growth, expanding global market share, scaling SolarEdge Nexus and investing in high growth adjacencies such as AI data center power and we are doing this while maintaining the operational and financial discipline we have established. The team's morale and energy are the strongest they have been in years and we are all aligned around improving our execution and and maximizing the various opportunities ahead of us. The first aspect of our transformation is achieving profitable growth. We have been steadily growing our revenues while expanding our gross margins in recent quarters. First quarter revenue was up on a year over year basis for the fifth consecutive quarter, growing 46% over Q1 2025. This was achieved without a significant pull forward of revenue and was once again accompanied by expanded margins. At the midpoint of our guidance, we expect to approach breakeven operating profit in the second quarter. This marks an important milestone in our transformation and reflects the relentless focus our entire team has had on operational efficiency and delivering best in class products and customer experience. The next area of transformation is market share gains, starting with the US RESI market. The market got off to a slow start this year as customers faced changes in tax credit policies and uncertainty related to FIAC. These uncertainties have slowed tax equity funding for PPOs, creating strain on installers, businesses and cash flow. Even so, we believe we are well positioned to benefit when the market rebounds since the anticipated market evolution towards the 48e tax credit and higher battery attach rates are expected to play directly to our strength, namely our position as a leading provider to CPO's and our fully integrated DC coupled battery architecture. Turning to the US CNI market where we continue to build momentum. As you know, our scalable architecture of inverters and optimizers enhances the returns for CNI rooftop projects by harvesting more energy, enhancing safety and enabling customers to benefit from tax credits with products that are designed to be both domestic content and FIO compliant. These advantages have resulted in share gains and more specifically in continued penetration of enterprise accounts which come with a more stable cadence of business and improved visibility. We view this position as structural rather than cyclical. Domestic content and FIO compliance are difficult for non US competitors to replicate quickly and we expect this continue to support our market share over multiple quarters. We secured additional safe harbor transactions from both RESI and CNI customers in the quarter and expect to secure additional deals in the second quarter, primarily through the physical walk test method. These transactions provide several important strategic benefits. First, they increase the visibility of our potential future revenue and share gains. The associated product can be deployed for up to four years and will translate into revenue when the customers take delivery of the entire product. Second, they create a natural entry point for incremental sales. When installers complete a safe harbor solar installation that also requires a battery or an EV charger, we are well positioned to capture that upset. Third, these transactions allow us to size our operations more efficiently and support a more stable and predictable manufacturing profile over time. Next, let's turn to Europe. The market was slow in the first two months of the year but picked up in March, a trend that continued into April, driven in part by rising electricity prices in the region.. Despite the slow start, we delivered a strong first quarter in Europe with revenue reaching its Highest point since Q4 2023. The revenue growth is a result of stronger battery demand in both RESI and CNI across the region. I would like to highlight that the strength in Europe is even before we have fully ramped the exports of US manufactured products and before the rollout of SolarEdge Nexus platform Speaking of Nexus, our third area of transformation is product innovation and leadership. The SolarEdge Nexus launch event in Germany exceeded our expectations. Nearly 1000 installers joined us in person or via the livestream, creating an atmosphere so electric you could feel it in the room. What made the moment truly powerful was our customers reaction. Their enthusiasm wasn't just polite applause, it was genuine excitement because Nexus was built for the customer. Every feature exists because we listened closely, understood their pain points and learned what they valued and what frustrated them in day to day installations and operations. Their feedback became the blueprint for Nexus and the result is something we believe is truly special. The excitement is already reflected in the order book. Our entire planned Q2 Nexus production is fully booked by European customers and we continue to expand capacity to meet additional demand. We believe the Nexus platform positions us at the leading edge of technology and feature innovation. It also enables us to address incremental segments of the market, including larger homes which account for over 50% of the residential market in Germany. In addition, two weeks ago we unveiled the second generation of our commercial battery, the CSS Outdoor 197 kilowatt hour solution, which marks another major step forward in our energy storage roadmap. This new system is purpose built for medium to large scale installations, whether deployed as a standalone storage asset or paired seamlessly with pv. What sets the solution apart is the software suite which enables multiple optimization modes for maximizing self consumption to peak shaving, tariff optimization and managing export and import limitations. The fourth element of our transformation is investing in AI data center power solutions. At GTC26, Nvidia featured a live energized 800 volt DC power rack which reinforced that high voltage DC power is moving from concept to infrastructure roadmap. The 800 volt DC evolution aligns exceptionally well with the technical capabilities SolarEdge has been building for 20 years. We believe this represents a multi billion dollar addressable opportunity over time. Our plan is to deliver a working system in 2026, initial pilot installations in 2027 and a broader rollout in 2028. Since our last call, we've continued to advance our solid state transformer platform and have made progress toward a system capable of converting 34.5 kilovolts directly to 800 volt DC at efficiencies above 99%. To summarize, while executing on our transformation plan, we believe we have a clear line of sight to profitable growth with multiple tailwinds supporting continued global market share gains. We're moving toward high volume shipments of new products. We're advancing our AI Data center power solution. We've firmly shifted to offense and will press our advantages in every market that we serve. Lastly, I would like to briefly address our CFO transition. Assaf will continue in his role through June 9th and I would like to use this opportunity to thank him for his professionalism and commitment to the company and for all the work he has done to further our turnaround. Our CFO search is well underway with strong candidates. Our finance organization is deep, our systems and processes are well established and we expect no disruption to our 2026 plan or to our financial discipline. With that, I will turn the call over to Assaf.

Assaf Alperitz

Thank you Shuki and good morning everyone. Starting with our quarterly results, non GAAP revenues for the first quarter were $310 million, up 46% year over year and down 7% quarter over quarter, outperforming the typical seasonal decline of 10 to 15%. This result does not include any significant onetime or pull forward of revenue from Safe Harbor. Revenues from US this quarter amounted $150 million, down 20% quarter over quarter and representing 51% of our revenues. Revenues from Europe were $114 million, up 14% quarter over quarter and representing 37% of our revenues. International market revenues were $38 million, up 5% quarter over quarter and representing 12% of our revenues. Non GAAP gross margin this quarter was slightly up to 23.5% compared to 23.3% in Q4. Towards the high end of our guidance, we achieved higher gross margins despite the lower revenue largely due to a more favorable product mixed and lower seasonal warranty costs. A Brief Note on tariffs on February 20, the US Supreme Court ruled that certain tariffs imposed under the International Emergency Economic Powers act or EPA were invalid. The refund submission process with the US CUStoms and Border Protection has already commenced and when anticipated that the refunds could total approximately $55 million. These potential refunds are not included in our Q2 guidance. Non GAAP operating expenses for the first quarter were $97.7 million. However, excluding a one time doubtful debt expense of approximately $14 million, our ongoing operating expenses were approximately $84 million below our guidance range and down from $88.7 million last quarter. This doubtful debt is related to one of our US CUStomers but not to Freedom Forever, which I will discUSs shortly. This OPEX reduction is largely reflective of our ongoing cost control, the efficiency measures we've implemented and our focUS on our core bUSinesses, and we are keeping our costs in check despite the continued headwinds we face from a strengthening New Israel Shekel against the US Dollar. A Brief Note on our Exposure to the Bankruptcy of Freedom Forever Freedom has been a long standing and valued partner of ours. The scale they brought to the residential solar market over the years we have net zero exposure on our balance sheet as we have not recognized significant revenue from Freedom over the course of the last 18 months. During this period, payments received were first applied to a reduction in their outstanding balances. Given the uncertainty around Freedom's financial position, remaining amounts owed to US have been fully offset by a deferred revenue liability on the balance sheet throughout this 18 month period and netted to zero. We hold the UCC lien against Freedom's assets representing the amount owed to US by Freedom which will equal approximately $100 million. We do not know what if any amount will be recovered, but any amount we ultimately recover would be recognized as a benefit in our P and L. In the period received, non GAAP operating loss for Q1 was approximately $25 million. When excluding the one time fourteen million dollar debt expense, our ongoing operating loss was approximately $11 million flat with Q4 despite 7% lower revenue. As these results demonstrate, we're relentlessly pursuing even greater operational efficiency as we continue to journey back to profitable growth. Our non GAAP net loss was $26.3 million in Q1 compared to a non GAAP net loss of $8.2 million in Q4. Non GAAP net loss per share was $0.43 in Q1 compared to $0.14. Both non GAAP net loss and loss per share were also impacted by the 1 time 14 million doubtful debt charge I jUSt mentioned. Turning now to our balance sheet, as of March 31, 2026, our cash and investments totaled approximately $583 million. During the first quarter we generated roughly $21 million of free cash flow. Our cash investment increased by about $2 million in the quarter as free cash flow was partly offset by several items, the largest being a one time non operational $26 million payment related to a lease amendment for a new headquarters aligned with our efficiency measures. This amendment significantly reduces our planned footprint when we move into the new CAPEX next year and is expected to lower our annual lease expenses by approximately $8 million. Our capital expenditures this quarter were approximately $4 million. For the full year 2026, we anticipate capital expenditures in the range of 60 to 80 million dollars. The main bucket of CapEx this year 1 increased production capacity in the U.S. for both PV and and batteries 2 investment in our new headquarters in Israel largely related to advanced R and D facilities three Investment related to our AI data center offering and lastly ongoing maintenance capex. Despite this higher CAPEX and our planned investment in working capital to support our anticipated growth and the NexUS launch, we expect to generate positive cash flow for the full year 2026. This reflects solid underlying operating performance, continued discipline in managing expenses and capital investment, and our continued ability to monetize 45x credit which are an important contributor to our cash flow expectations. Turning to our working capital items, our rigoroUS focUS on cash management continued to yield positive results in Q1. Our cash conversion cycle reached its fastest point in many years driven by lower DSO and higher DPOs and this is despite our inventory growing by $44 million largely related to higher raw materials procurement in support of our NexUS launch and higher battery demand, AR net decreased this quarter to $223 million compared to $267 million last quarter driven by our strong collection. Turning now to our guidance for the second quarter of 2026 we're expecting revenues to be within the range of 325 to $355 million. This range does not include any significant one time pull forward of revenue. We expect non GAAP gross margins to be within the range of 23 to 27%. This range does not include any impact from potential EPA refunds we expect non GAAP operating expenses to be in the range of $86 million to 91 million for Coparigen. Ongoing operating expenses in Q1 were $84 million, excluding the 1 time 14 million doubtful debt charge. The midpoint of our OPEX guidance therefore reflects a modest sequential increase driven primarily by the strengthening of the new Israeli shekel against the US dollar net or hedging activities. At the midpoint of our Q2 guidance, the implied EBIT loss for the period is approximately $3.5 million, bringing US close to breakeven. This represents a meaningful step in our focUS on gradual progression towards profitable growth as we move into the third quarter. I will now turn the call over to the operator to open it up for any questions. Operator,

OPERATOR

thank you. If you'd like to ask a question, press Star one on your keypad. To leave the queue at any time, press star 2. In the interest of time, we ask that you please limit your participation to one question and one follow up. Once again, that is Star one to ask a question. And our first question today comes from Mark Strauss with JPMorgan. Your line is now open.

Mark Strauss (Equity Analyst)

Yes, good afternoon everybody. Thank you very much for taking our questions. Shuki, I think you touched on Europe a bit. I was hoping that you could just kind of give a real time update what you're seeing in Europe over the last couple of months. Not necessarily overall 1Q, but really just since the conflict in Iran broke out, what you're seeing with power pricing, what you're seeing with kind of real time demand in that region broadly. Thank you.

Shuki Nir (Chief Executive Officer)

Yes, thank you, Mark. So as we said, the first two months of the year started slow and then since March, including April, which is part of Q2, obviously we've seen an increased activity and increased demand coming from the region and it's around across several countries. It's not just unique to one specific country. We believe that it's partially related with the increase and the expected increase in electricity prices. As you noted, the conflict in Ukraine impacts these prices. And what we've seen actually is not only an increase in demand for PV only, but actually an increasing demand for PV plus storage. And as we mentioned before, both in CNI and in resi, we are seeing that increase. And the solared solution that actually is not only the inverter and the battery, but actually sophisticated the energy management system that in more advanced markets where dynamic tariffs and sometimes negative tariffs make it may change the ROI quite significantly. And that combination of a battery inverter and a system that manages the storage the import, the export and other features is very much in need. So we are seeing, as I said, stronger demand coming from the market and we're well positioned to serve it both on the CNI side with the introduction of the second generation storage solution and with the upcoming rollout of Nexus.

Mark Strauss (Equity Analyst)

Okay then, as my follow up, I was hoping you could comment on CNI within the us. You mentioned that you're gaining share, which makes sense because of your DOMCON and fiac. Just curious if you can comment on the competitive environment. If you're seeing some of your existing competitors potentially move around their operations, if you're seeing any new competitors potentially coming into that space. Thank you.

Shuki Nir (Chief Executive Officer)

Yes. So the US cni, as you know, there are three leaders in the market. There have been three leaders in the market of rooftop CNI for the last several years. Out of these three, we are the only ones who can offer our customers not only a winning solution, but actually something that a product that is qualified for both domestic content and fiat compliance. So with that we are seeing something that is not cyclical, it's actually structural, a change that we believe will help us maintain that level of share for future quarters. Now, to the best of our knowledge, none of these two other major competitors have made any changes to their domestic content and, or for one of them, the FIA compliance. There are obviously other players that have much lower market share that can penetrate this market. But we believe that we've established our solution not only by harvesting more energy, but actually by integrating together with the systems of enterprises, which is a much more stable and predictable segment of the market. And also, and we mentioned it as well, we are in the process of securing safe harbor transactions with the larger customers, the ones that were interested in that, through the physical work test, which helps us secure future revenue and future shares.

OPERATOR

Thank you. Our next question comes from Philip Shin with Roth Capital Partners. Your line is now open.

Assaf Alperitz

Hey guys, thanks for taking my question. First one is a follow up on Freedom. I think in the documents or the bankruptcy doc, they owe you guys 50 million on a credit line and then $56 million on a product debt line. What do you have a lien on with respect to those credit facilities? In the first day of the hearing, it seems like these liens are or may be in dispute and that you may not have a lien on cash collateral. So I was wondering if you think that's true. It also seems like the company was late on making payments in Q4 and that's why you may have secured the lien. So just Was wondering if you could address, if you think you're covered and then this other $14 million expense you took. That's not Freedom. Can you give us a little more color on who that might be and what the situation is there? Thanks. Hi, Phil, how are you? Good morning and thank you for your question. As it relates to Freedom, maybe I'll give some background in history. I think I related to that in the prepaid remarks and I think we said that we did not recognize any meaningful revenue from Freedom forever over the past 18 months. While freedom, as you know, has been a valued customer of ours over the year, our current financial exposure to them in our books is zero. During this 18 month period, the payments that we received from Freedom were first applied to a reduction in their outstanding balances, the loan you mentioned, and so forth. And I think we've taken a very cautious approach. And because of the uncertainty around Freedom's financial condition and any remaining amount owed to us by them, we have fully offset, fully offset by a deferred revenue liability on our balance sheet throughout this entire period. So net zero exposure as it relates to the lien that you just mentioned. So we do hold the lien. It may allow us for some level of recovery, if any, but we are certainly not relying on that, on our outlook. If anything will be received, it will be an upside. And again, we are not relying on that. I think it's also important to say before I get to your second question in terms of these $14 million doubtful debt is that when we are looking ahead, we continue to believe that demand for solar and storage will be driven primarily by attractive, both project and system economics, regardless of which installation companies are active in the market, in the field, of course, the installer landscape will further evolve and we expect more partners to choose SolarEdge, particularly as we scale out the rollout of Nexus, which we believe will strengthen our value proposition and positioning with both installers, distributors and homeowners. Of course. Now, regarding your second question about this $14 million of doubtful debt that we have recognized in this quarter. So it's as you said, 14 million. It's a US customer that is experiencing financial operational challenges lately, we believe. And of course this is not Freedom, just to avoid any confusion, it's another customer not related to whatsoever. We are not disclosing the customer name and we believe that given the circumstances and the financial challenges this customer is experiencing, we took a conservative and responsible approach. We have actually written down the entire amount they owe us. We do hope, of course, for their recovery and if conditions improve in the future. If they would improve, we will reassess the situation accordingly. Did I answer your question fully, Phil? Yes. Azak, thank you very much. Appreciate the call. Sure.

OPERATOR

Thank you. Our next question comes from Brian Lee with Goldman Sachs. Your line is now open.

Brian Lee (Equity Analyst)

Hey, thanks for taking the questions, I guess. One question I had just around the you said for Q1 results as well as Q2 guide, there's not a significant amount of pull forward revenue that is safe harbor. But you did say that there's a significant amount of physical work test safe harbor that you're seeing or anticipating. So this question would be I think your peer has had multiple straight quarters of meaningful amount of safe harbor revenue as well as what they're anticipating in the current quarter. And you guys apparently are seeing a lot more on the other classification, the physical work test, is that a function of your strategy go to market and sales, is that just a function of your customers? Or is there any kind of market share implications of why your number one competitor in the US Resi market is seeing a lot of sort of in period, say fiber versus the physical test? Just curious on how we should interpret that.

Assaf Alperitz

Good morning and thank you for your question. I'll start. I'm sure Shuki will shed more color on the market indication. So as we discussed in the prepared remarks in the last couple of quarters, we have signed multiple physical work transactions with both leading TPOs and enterprise customers alike. We believe also that some of our existing and potential new customers may be interested in signing additional transactions before July 4th, that is. Also we are in the process of closing more deals and as I said, we believe we're very well positioned to do that with all TPOs in the market, given our key advantages from harvesting more power efficiencies in both high and low power DC coupling solutions, et cetera, et cetera. And we believe it all represents a great opportunity for us to increase market share. And clearly as we sign such transaction for us, it increases the visibility significantly for up to four years horizon and it also helps us secure market share. Significant market share. Shuki, you want to add any color?

Shuki Nir (Chief Executive Officer)

Yes. So to your first Point, yes, neither Q1 revenue nor the Q2 guidance assumes any significant pull forward of revenue related to the 5% safe harbor. I think that we covered it in previous calls, but just to make sure that everybody is on the same page, the 5% safe harbor deals are transactions in which the customer is actually buying the product in the first 100 days after the signing of the contract. And it's not necessarily for product that they are going to install in the period. This is why they are referred to as pull forward of revenue. While the physical work test has a built in advantage to the customers because they will complete the transaction only when they need the product and this is when they are going to install the product. And from our perspective, as Assaf mentioned, it secures future revenue and share. It does allow us to have a more efficient operation because we get predictability for customers forecast and order and it does line up the revenue together with the actual purchases from the customers. Whether there are advantages and disadvantages to physical work tests, we believe that the physical walk test provides better visibility for us and better and some advantages to the customers. And because on the rezi side we've actually securing the deals using the Nexus platform that actually provides the level of confidence that the customers need that this is a product that will actually be modern and a living product also in the next three to four years. And we are sharing the same view and that allows us actually to plan forward and for them to plan forward on a system that is robust, that is here to stay and that is about to be rolled out in the coming quarters. Which was from the ground up was designed to be PV plus storage plus a sophisticated energy management system. On the CNI side, as Saf mentioned, large companies, they are interested in physical work tests because they have visibility into their business and what they would like to do with regard to PV and we are best positioned to support them in that. That's the reason that you see a lot of interest in our physical workplace.

Brian Lee (Equity Analyst)

Okay, yeah, makes a lot of sense. I'll follow up up on just second question on Europe it seems like that going to be a source of strength going forward and you're seeing some good trends there. Can you level set us a little bit? I know historically Europe's been a lower priced environment. Based on some of our data it seems like at least 20% lower if not more asp per watt. And then I think you also had maybe more commercial versus Resi mix in Europe historically. What are kind of the pricing and margin implications for you guys as Europe maybe becomes a bigger source of the mix and outgrows some of the challenges that you're seeing in the US as you might get just any thoughts around pricing and margins specific to Europe?

Shuki Nir (Chief Executive Officer)

Yeah, thank you Brian. And as you know in the last several quarters we've been excited about the potential in Europe, the potential solar in Europe. The region in which Solaredge lost share in previous years was mainly Europe and actually was Europe. And we see a huge potential to actually gain share both in the residential and the CNI side of the market. And in a way we mentioned it, Q2 supply of Nexus for Europe is already, all of it is booked. It's not a very large quantity, but it's all booked. And we're working very hard in order to increase the supply to support the Q3 demand. So when we bring Nexus and we talked about the launch event and the excitement and all the benefits that Nexus has and because of that we don't think, and we talked about it in the past, pricing is not necessarily a matter of just the price in the market, but it's also the, the relative advantages that one product has versus another and what it does bring to the customer. And while we've always harvested more energy, now with the energy management system that we are introducing and the dynamic tariffs and the increasing electricity prices in Europe, the benefits that are coming from a system that can actually optimize the entire energy consumption, import and export is significantly higher. And we believe that we will be able to actually have, with stable pricing, we can actually gain market share. Now, as it pertains to margin, ASAF will add more color, but at the outset we've just started exporting US made products into Europe. So the inverters and optimizers that are made in the US when they are going to be exported, when they are exported to Europe will generate better margin. And Nexus as a platform and as a product has a better cost advantage by itself. So that will be also a tailwind for our margins. Dr. Safa, do you.

Assaf Alperitz

Yeah, maybe just to add, I mean. Good morning. As you know, we don't break down margin by territory or product, but to give you some color, very generally the US Resi margin profile would be the highest and the EU storage or international market storage is the lowest. But again, now that as Shuki mentioned, we start exporting US produced products to Europe, the cost structure will significantly improve. With that. Of course, we work hard to also enhance the European product margin.

OPERATOR

Thank you. Our next question comes from Julian Demoulin Smith with Jefferies. Your line is now open.

Julian Demoulin Smith (Equity Analyst)

Hey guys, good morning. Thanks for the time. I appreciate the opportunity to connect here. I wanted to just follow up maybe just on this other customer and freedom. Just to what extent what market share do they represent with you all? What market share do they represent in the marketplace? Such that we just try to understand what that means as a headwind and understand because I heard your comments. At the essence you're saying you're on the offense, how do you think about the market sort of displacing those lost sales? Again, I'm thinking more prospectively. Obviously you've been underweighting these customers of late. How you think about that mix shift of your own customer base evolves here. And then I've got a follow up.

Assaf Alperitz

Thank you. Good morning. In terms of this $14 million customer for which we had this doubtful DEB provision, I can say that for the last three quarters. So we had very low revenue from them reported in the book. So no direct impact, I would say. And we believe that generally there's nowhere vacuum in the market. So certainly new potential players in solar will get in. And I think as Shuki and I mentioned, considering the Nexus rollout and our significant advantages, we believe that we are best positioned to gain market share with such players. Do you want to add that?

Shuki Nir (Chief Executive Officer)

Yeah, we do recognize. Julian, it's a good point. And we do recognize that these two valued partners of ours, we wish they would do better, they would recover and they would come back to be loyal partners with SolarEdge. The demand is not fulfilled by the channel and it's coming from homeowners, TPOs and CNI customers. And the advantages that we deliver to them and to the installers are such that we believe will help will convince others that they would like to join the SolarEdge installation group. But we do hope that these partners of ours do recover and that they go back to install many, many SolarEdge systems.

Julian Demoulin Smith (Equity Analyst)

Got it. Excellent. And then maybe taking more of the offensive step. How do you think about coming back later this year providing some sort of analyst day like view and providing some sort of presumably multi year view on not just resi but also the CNI and perhaps novel products here. How do you think about kind of giving a full flesh and full throated view on some of the emerging end markets but also product portfolio here just to make sure we've asked explicitly.

Shuki Nir (Chief Executive Officer)

Yes, thank you. As you know when I talked about it, ASTAF has been a great partner of mine and we're making good progress with the CFO transition and we do plan to have an investor day after Labor Day and on that day obviously we will have the new CFO may join us and I will be there as well. Hopefully you guys will be able to join as well for something that will be a bit longer term and a bit deeper than what we can do on a quarterly firm.

OPERATOR

Thank you. Our next question comes from Chris Dendrinos with RBC Capital Markets. Your Line is now open.

Chris Dendrinos (Equity Analyst)

Yeah, good morning. Thanks. I just wanted to follow up on the comment on picking up more installers. I guess what I'm wondering is, can you speak to adding new customer bases, new customers, with that transition to TPO and 48, are you in conversations to add a new group? Thanks.

Shuki Nir (Chief Executive Officer)

Yeah, thank you, Chris. We've always been in conversations with different installers in the market. We do see an uptick in their interest in working with SolarEdge with the upcoming Nexus. And we believe that installation companies, their business is around identifying what the market needs and then being able to deliver that to the market. So obviously we're in discussions with different groups and different installation companies and we believe that once the demand for the SolarEdge solutions is out there, there will be installation companies that will be able to actually install them and bring that value to the customers.

Chris Dendrinos (Equity Analyst)

And then maybe just as a follow up here on Europe, you highlighted growing demand strength in Germany. Are there other regions where you're seeing similar strength or is this maybe more isolated to Germany? Thanks.

Shuki Nir (Chief Executive Officer)

Yeah, so what we said about Germany was actually that we're seeing some strength in March and April, but also Nexus is actually opening a new segment for us that is about 50% of the market, which is the large homes and large installations that are above the 10kW. We also are seeing an increase in demand for upsell to existing installed base in the Netherlands and in other countries as well. In the Netherlands it's more pronounced obviously because of the very large installed base that we have and the benefits that homeowners over there are going to have if they do that ahead of the January 1st expiration of the feed in tariff. We also see in Italy we have a strength in the commercial storage. So as we mentioned in the previous call, we have focused our energy attention and go to market motion into I would say 10 countries in Europe and in all of them we are seeing that the demand is picking up and there is interest in partnering with SolarEdge. One other segment that we can actually address with Nexus that we didn't mention before is the new build in different countries in different states. Actually in the US as well, there are incentives for builders if they do include system over there. And there is a variation of Nexus that is actually very attractive for that segment of the market as well.

OPERATOR

Thank you. Our next question comes from Colin Rush with Oppenheimer. Your line is now open.

Colin Rush (Equity Analyst)

Thanks so much guys. Could you talk about remaining inventory in the channel that you guys still see clearing out or any of that? That may be a Little bit windy over the next couple of quarters.

Shuki Nir (Chief Executive Officer)

Yeah. Thank you, Colin. So, as we said in previous calls, the vast majority of our distributors in Europe have already resumed normal levels of inventory. And as you know, days of inventory in the channel is a result of the amount of inventory divided by the sales. And when sales are picking up, actually what you're seeing is that the days of inventory by definition are going down. So that situation has not changed, if at all. It even improved a little bit. But as we said before, when we talk about normalized levels of inventory, there are gives and takes, ins and outs, et cetera. Sometimes one distributor can have a bit too much and another distributor can have a bit too little. So when we look at it from a market perspective, from a company's perspective, our channel inventory is normalized. And I'd like to emphasize that as we move into the single SKU concept, it will allow our distribution partners to carry much less inventory in order to fulfill the very same sales. Actually, one could say that to fulfill even more sales because they will have to have only one type of inverter for the single phase or for the three phase as an example, or for the cni. And that will support different levels of power as opposed to the four or five different fields that they had to carry before. And we are working with them through this transition. So hopefully we'll see the channel inventory even becoming healthier in the future.

Colin Rush (Equity Analyst)

Excellent. And then following up on the data center opportunity, can you just give us a current status on where you're at from a product development perspective in terms of subunits or subsystems within the product, how mature that is, where you're at with testing and at this point and when we could see a little bit more robust product announcement from you guys.

Shuki Nir (Chief Executive Officer)

Thanks for the question. Basically what we're doing these days is preparing prototypes which we could share with hyperscalers and potential hyperscalers. Now Cloud's potential customers, we're planning on showing it off proof of concept towards the end of of this year so that we could then have pilot plants at their data centers throughout next year, leading to ramp up and mass deployment in 2028.

OPERATOR

Thank you. Our next question comes from Corrine Blanchard with Deutsche Bank. Your line is now open. Hey, good morning, Tim. Thank you for taking my question. Maybe one thing I wanted to clarify, we have heard from some of your peer about price cut. Is it a strategy that you have also been implementing or that you intend

Corrine Blanchard (Equity Analyst)

to implement or are you in a different state of being the market?

Shuki Nir (Chief Executive Officer)

Yes, thank You. So we have not implemented the price cut and as I mentioned before, we believe that price reflect value is reflected in the price. It's not necessarily a cost plus model. And we believe that with the value that we bring to the customers, that both in terms of the CNI side with the storage and the energy management over there and in the resi side with Nexis, that has a much, much better performance in low power and high power versus competition, we feel confident that we can gain share while keeping this premium over competition. At the same time, the market is dynamic and if we see a need to change it, as I mentioned earlier, the Nexus and the products that are made in the US allow us some room, lower cost product and that will allow us some room to move if we need to.

Corrine Blanchard (Equity Analyst)

Thank you. Maybe another one on battery. I mean your battery shipments were pretty strong this quarter. Especially again if we compare versus some of your peer. Can you just talk again, how do you view that trend to continue for the rest of the year? And maybe if you have a different view, Europe versus the US that will be helpful. Thank you.

Shuki Nir (Chief Executive Officer)

Yes. So generally speaking and talking about the market in general, you see attach rates of storage to PV going up and to the right, I would say in almost every segment and almost every state or country, some of them are very advanced. In some places you have more than 90% attach rate like NEM3 installations in California. And some of them are still early on in their advancement toward higher attach rates. So having a battery, you can have a battery as a standalone as well. Our CNI battery can be a standalone as well. But the combination of PV plus battery allows in a dynamic rate environment, it allows for a much, much higher return on investment if it's managed well. And I'll give you just one example. If at noon the rates are very low or sometimes negative and at night the rates are high, it would make sense that you charge the battery from the solar during lunchtime and then when the night comes and it's peak hour and the rate is high, you'd use the battery in order to, you know, to power your house or your business. And that requires. It's not that sophisticated the way I explained it. In some cases it becomes a little bit more sophisticated because we need to predict what the solar production is going to be next day and what the rates are. But having that system in place actually increases the ROI quite significantly. And the benefit that SolarEdge has, we mentioned it earlier as well, is higher efficiency in low power. And most people don't realize it but most of the time their houses are operating on 1 or 2 kilowatts and even less. And the round trip efficiency of SolarEdge Nexus is higher than competition on that regard as well.

OPERATOR

Thank you. Our next question comes from Mahit Mandaloy with Mizuho. Your line is now open.

Mahit Mandaloy

Thanks for the question. Maybe just in the US solar market, how much of the guidance in Q2 can bet that or US market in general and how to think about the Progress here in Q3, Q4 or solar specifically outside of the Nexus platform.

Assaf Alperitz

Yeah, so thank you, Mohit. And if I understood you correctly, you're asking about how does the resi US market dynamics, how are they affecting our Q2 guidance?

Mahit Mandaloy

Yeah. As in RESI and commercial combined. Yeah, but like just trying to understand the mix for us in Q2 and how to think about that in Q4. Thanks.

Shuki Nir (Chief Executive Officer)

Yeah. So obviously as we said, the RESI market in the US started the year slower than anticipated even because of the slowdown in tax equity investments. We hope that this situation is resolved one way or another in the coming months. And then we believe that the market is going to be stronger for Q2. We didn't assume that the market is going to be stronger on the CNI side. The market continues to be in a good shape and we are seeing, as we said earlier, we are seeing structural change that is leading towards our share and we expect that to continue actually.

Assaf Alperitz

And I think. Hi, good morning. I think you also asked about to give some color beyond Q2. So as you know, we do not provide guidance beyond the next quarter with that. What we can say and what we believe is that we do have an opportunity to continue growing certainly in Q3, supported by our market share momentum, the continuing rollout of Nexus, the introduction of the new CNI battery storage solution and all of these things Shouki mentioned. So that's as much as color that we can provide for the longer term.

Mahit Mandaloy

Appreciate it. Thank you.

OPERATOR

Thank you. And we'll go next to Vikram Bhagari with Citi. Your line is now open.

Vikram Bhagari (Equity Analyst)

Hi, good morning everyone. I wanted to go back to the challenges faced by customers in the us. I was wondering how much stress are you seeing in the US Market? We have one bankruptcy announced and one doubtful expense. We have a fair idea about who it might be. Are you seeing the situation get worse due to capital cost and availability issues? Is this stress something that you foresee could accelerate after safe harbor expiration? And I asked because you saw this freedom forever issue seems like coming from a mile away and you managed to balance sheet very well. I was wondering how many more customers are you monitoring for such issues? Is that a meaningful number?

Assaf Alperitz

So maybe I'll start and Shui can provide some more business market indications. We have a very solid team here treasury and we always of course look and review and we have certain processes procedures to ensure we manage our customers credit very well. I think that beyond this, thank God we don't see major exposure not in the US or I would say globally. Of course from time to time things may change and sometimes you have unexpected surprises but generally I would say we don't see significant exposure related to any of our significant or major customers.

Shuki Nir (Chief Executive Officer)

Globally yes. So I just would add to that that as we said earlier we the market dynamics are right now there is the concern about the slowdown of tax equity investment. We believe that the underlying demand for solar plus storage systems exists. It does add value to many homeowners around the U.S. the TPOs and other providers are going to find a way to deliver that value to these customers. And whether it will be with these type of investors or other types, we believe that they will find a way. And once they do, once the market rebounds, SolarEdge is very well positioned to benefit from we are the natural partner for the TPOs. The battery, the increased attach rate for batteries and solar is something that plays to our strength. So we are when we look beyond the current quarter we believe that we can see the growth resumes.

Vikram Bhagari (Equity Analyst)

Got it. And then switching gears. Are you on track to onshore residential inverted and optimizer production to the US by 2Q and I think the target was mid year. If you can update us about the timing since it's a meaningful driver of modified benefits and hence the gross margins. Try to understand how much of that onshoring is baked into second quarter guidance and how much of that shows up in third quarter. Thank you.

Shuki Nir (Chief Executive Officer)

So onshoring of manufacturing and we said before we've ramped up our manufacturing. We have a manufacturing facility through our partners. We're working with JBIL and Flex. So with our partners we have manufacturing facilities in Tampa, in Florida, in Austin, Texas and in Salt Lake City. All three manufacturing facilities are already ramped. US Demand was actually served by domestic manufacturing since last year. And as we said in our previous call, we started exporting US made products to Europe and to Asia and we're continuing in that trend going into the second quarter. At this stage, I would say for inverters and optimizers, more than 90% of our production is made in the US.

OPERATOR

Thank you. At this time, we've reached our allotted time for questions. I'll now turn the call back to Shuki Nir for closing remarks.

Shuki Nir (Chief Executive Officer)

Yes. Thank you for your interest in SolarEdge and joining our call today. I would also like to thank the Solaredge team for their continued commitment, and we look forward to updating you in future quarters. Thank you very much.

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