Enphase Energy, Inc. (ENPH) Earnings

Management highlights

- Financial and Operational Customer Service Results * Generated $25.9 million in free cash flow and $40.3 million in operating cash flow, with $14.4 million in capital expenditures * Ended the quarter with $937.7 million in total cash, cash equivalents and marketable securities * Achieved a global customer service NPS of 80% (down from 82% in Q1), with average call wait time holding at ~2 minutes * Rolled out an AI customer assistant to 1.5 million homeowners worldwide to speed up support and reduce operational costs - U.S. Manufacturing and Policy Compliance * Shipped ~1.58 million U.S.-made microinverters and battery inverters from Texas and South Carolina facilities, qualifying for 45X production tax credits * Shipped 43 MWh of IQ batteries from the Texas facility, with products that meet domestic content and FIOC requirements to help TPO/lease customers qualify for ITC bonuses * Received $41 million in reciprocal tariff refunds in Q2, with an additional $11 million received after quarter end * Changed tax credit strategy: revoked direct pay election for new PTCs, will sell PTCs on the regular market going forward, and has an agreement to sell $150 million of 2026 PTCs to a financial institution - Market Trends and U.S. Business Development * Third-party data shows the broader U.S. residential solar market stabilized in Q2, with June permits up 4% month-over-month and upstream sales up 5% month-over-month; both metrics remain ~30% below year-ago levels * U.S. residential battery attachment holds near 40% (with materially higher rates in key markets), and U.S. commercial solar + battery permit activity increased 36% year-over-year in June * Expanded the Propel TPO financing program (for the long tail of installers) from 4 to 6 states (added Pennsylvania and Colorado), plans to expand to 12 states in Q3, with 290 participating installers and originations running at ~200 per week with 75% battery attachment; targets 500 originations per week by the end of 2026 - New Product Development Milestones * Showcased the fifth-generation (G5) stackable IQ battery at Intersolar Munich, received positive customer feedback, and expects initial shipments before the end of 2026; G5 offers 50% higher energy density than prior generation products * Completed functional system demonstration for the IQVault 80 commercial 3-phase battery (80 kWh, scalable up to 2 MWh), expects to open pre-orders soon with initial shipments planned for Q1 2027 * Launched the GaN-based IQ9N residential microinverter in the U.S., key European markets, Australia and New Zealand, and began shipping the 548W IQ9S3P (highest power microinverter to date) for 480V commercial systems * Opened pre-orders for a new integrated smart thermostat to manage HVAC as part of the Enphase home energy system, expects shipments in August 2026 * Completed development milestones for the bidirectional DC IQ EV charger, which supports both 400V and 800V DC EV architectures; expects pilot shipments in Q4 2026 alongside OEM vehicle launches * Made substantial technical progress on the IQ Solid State Transformer (IQSST) for high-density AI data centers, with a 120-person engineering team, validated medium voltage transformer design, and demonstrated stable series stack operation of 15 power modules; remains on track for a fully working system by end of 2026, customer pilots in 2027, and commercial shipments in 2028 * The IQSST platform is also being evaluated for broader use cases including utility-scale solar, energy storage, and DC fast charging

Guidance

- Q3 2026 total revenue is expected to be between $290 million and $320 million, representing ~5% growth at the midpoint, with ~$75 million of Safe Harbor revenue included in guidance; the company is currently over 70% booked to the guidance midpoint - Q3 2026 battery shipments are expected to be between 130 MWh and 150 MWh - Total step-up Safe Harbor revenue to be recognized in 2026 is $136.2 million, with $75 million in Q3 and $61.2 million in Q4 - GAAP gross margin for Q3 is expected to be 42% to 45%, including a 2 percentage point negative impact from reciprocal tariffs; non-GAAP gross margin is expected to be 44% to 47%, also including the 2 percentage point tariff impact - GAAP operating expenses for Q3 are expected to be $120 million to $124 million; non-GAAP operating expenses are expected to be $76 million to $80 million - Management expects global Q3 sell-through to increase 10% sequentially compared to Q2 - All physical work test Safe Harbor revenue ($878.6 million in signed agreements as of Q2) will begin to be recognized starting in 2028, and is expected to be recognized roughly linearly through 2030

Segment performance

By region, which serves as the firm's primary revenue segmentation: 78% of total Q2 2026 revenue came from the U.S. market, and 22% came from international markets, primarily Europe. Total global Q2 revenue was $291.9 million, which represented a 3% sequential increase from Q1 2026. U.S. revenue declined 3% sequentially, with $84.3 million of Q2 U.S. revenue coming from Safe Harbor orders (up from $34.5 million in Q1). U.S. sell-through decreased 7% sequentially and 34% year-over-year, but was approximately flat when excluding non-recurring one-time Q1 orders. European revenue increased 35% sequentially, with broad-based growth across Netherlands, France, and Germany. By product category: Enphase shipped 1.59 million microinverters (725.2 MW DC) and 113.8 MWh of IQ batteries in Q2, with battery shipments coming in above the high end of prior guidance. Q2 revenue included $84.3 million in Safe Harbor revenue, which is revenue from sales of inventory to be installed over more than one year. GAAP gross margin for the total company was 60% in Q2, boosted 15.6 percentage points by IEPA tariff refunds, while non-GAAP gross margin was 46.8% (up from 43.9% in Q1). GAAP operating margin was 17.7% of revenue, and non-GAAP operating margin was 19.4% of revenue.

Risks & headwinds

- The U.S. residential solar market remains pressured by higher interest rates and industry transition after the expiration of the 25D tax credit, with overall activity still ~30% below prior year levels - Timing of receipt of the $108.3 million 2024 PTC direct payment from the IRS is uncertain due to extended IRS processing timelines - Treasury has not yet issued final FEOC and effective control guidance, which has created caution among TPO players and tax equity providers, potentially delaying U.S. residential solar market recovery - Broader macroeconomic uncertainty and elevated interest rates keep distributors cautious about inventory levels - Summer holiday seasonality in Europe creates headwinds for sequential Q3 growth in the region - SST for data centers is still in development, with commercial launch not expected until 2028, and market adoption remains uncertain - New regulatory requirements like the European Cyber Act create ongoing compliance obligations

Analyst Q&A

• Q: How does Enphase plan to balance margin capture and market adoption for IQSST, particularly given potential 45X credit support that could enable high margins, and the need for competitive pricing for broader utility-scale end markets? /

  A: Management will prioritize being highly competitive while focusing on Enphase's unique value drivers, including sub-millisecond response time, modularity, redundancy, reliability, and U.S. manufacturing. The fast response time is a key differentiator that allows battery storage to be moved to lower-cost data center black space rather than placing storage next to every rack. While no specific pricing numbers will be shared, management confirmed that 45X PTCs will help support strong profitability while enabling competitive pricing.

• Q: What is driving the stronger-than-expected Safe Harbor revenue momentum, and why is Enphase still planning modest undershipments in Q3 even as U.S. demand signals show early improvement? /

  A: Strong Safe Harbor momentum comes from strong relationships with existing healthy TPO partners, plus new TPO partners entering the space that have confidence in Safe Harbor strategies. For Q3, the ~$15 million undershipment is a deliberate, cautious move to bring down slightly elevated channel microinverter inventory after working to improve channel health in Q2. Excluding Safe Harbor, core U.S. revenue is still expected to grow more than 10% sequentially, with all growth coming from the U.S. even as Europe holds flat due to summer seasonality.

• Q: If the FCC moves forward with a ban on Chinese inverters in the U.S., how much market share could Enphase capture in the small commercial market, where it is expanding its product portfolio? /

  A: A ban would create significant opportunity for Enphase in small commercial, where the company already has a fully compliant, full product portfolio including 3-phase microinverters covering 208V and 480V applications and the upcoming IQVault commercial battery. All products are FIAC-compliant with U.S. manufacturing. U.S. small commercial Q3 revenue is already expected to hit ~$10 million, and management expects that number to grow rapidly through 2026 and into 2027 as customers switch away from Chinese suppliers.

• Q: How has pricing adjustment impacted battery demand elasticity, and what other factors are driving battery volume growth? /

  A: Pricing adjustments are only one part of Enphase's battery growth strategy, particularly in Europe where prices were previously above market value. Enphase has also shifted to a new direct-to-homeowner demand generation model in high-potential markets like the Netherlands (where Enphase has 500,000 existing installed customers) and France (400,000 existing customers), hosting ~6 homeowner events per week in the Netherlands to generate retrofit battery leads that are passed to installers. In the U.S., the Propel financing program already delivers 75% battery attachment, which is driving strong incremental volume. Further acceleration is expected after the launch of the higher energy density G5 battery later this year.