Enphase Energy, Inc.: Form 10-Q for the period ended Sep 30, 2024

Forward-Looking Statements

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations and involves risks and uncertainties. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential” or “continue” or the negative of these terms or other comparable terminology. Such statements, include but are not limited to statements regarding: our expectations as to future financial performance, including expenses, liquidity sources and cash requirements; the capabilities, performance and competitive advantage of our technology and products and planned changes; timing of new product releases, and the anticipated market adoption of our current and future products; our expectations regarding demand for our products; our business strategies, including anticipated trends and operating conditions; growth of and development in markets we target, and our expansion into new and existing markets; our performance in operations, including factors affecting our supply chain; our product quality and customer service; our expectations regarding the macroeconomic environment, geopolitical developments that may impact our business operations, financial performance and the markets in which we, our suppliers, manufacturers and installers operate; and the importance of and anticipated benefits from government incentives for solar products, including through changes in the tax laws, rules and regulations. You should be aware that the forward-looking statements contained in this report are based on our current views and assumptions, and are subject to known and unknown risks, uncertainties and other factors that may cause actual events or results to differ materially. For a discussion identifying some of the important factors that could cause actual results to vary materially from those anticipated in the forward-looking statements, see below, those discussed in the section entitled “Risk Factors” herein and those included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed on February 9, 2024 (the “Form 10-K”). Unless the context requires otherwise, references in this report to “Enphase,” “we,” “us” and “our” refer to Enphase Energy, Inc. and its consolidated subsidiaries.

Business Overview

We are a global energy technology company. We deliver smart, easy-to-use solutions that manage solar generation, storage and communication on one platform. Our intelligent microinverters work with virtually every solar panel made, and when paired with our smart technology, result in one of the industry’s best-performing clean energy systems. As of September 30, 2024, we have shipped approximately 78.0 million microinverters, and over 4.5 million Enphase residential and commercial systems have been deployed in more than 160 countries.

The Enphase® Energy System™, powered by IQ® Microinverters and IQ® Batteries, our current generation integrated solar, storage and energy management offering, enables self-consumption and delivers our core value proposition of yielding more energy, simplifying design and installation and improving system uptime and reliability. The IQ family of microinverters, like all of our previous microinverters, is fully compliant with NEC 2014 and 2017 rapid shutdown requirements. Unlike string inverters, this capability is built-in, with no additional equipment necessary.

The Enphase Energy System brings a high technology, networked approach to solar generation plus energy storage, by leveraging our design expertise across power electronics, semiconductors and cloud-based software technologies. Our integrated approach to energy solutions maximizes a home’s energy potential while providing advanced monitoring and remote maintenance capabilities. The Enphase Energy System with IQ uses a single technology platform for seamless management of the whole solution, enabling rapid commissioning with the Enphase® Installer App and consumption monitoring with IQ® Gateway with IQ® Combiner+, Enphase® App, a cloud-based energy management platform, and our IQ Battery. System owners can use the Enphase App to monitor their home’s solar generation, energy storage and consumption from any web-enabled device. Unlike some of our competitors, who utilize a traditional inverter, or offer separate components of solutions, we have built-in system redundancy in both photovoltaic generation and energy storage, eliminating the risk that comes with a single point of failure. Further, the nature of our cloud-based, monitored system allows for remote firmware and software updates, enabling cost-effective remote maintenance and ongoing utility compliance.

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We sell primarily to solar distributors who combine our products with others, including solar modules products and racking systems, and resell to installers in each target region. In addition to our solar distributors, we sell directly to select large installers, original equipment manufacturers (“OEMs”) and strategic partners. Our OEM customers include solar module manufacturers who integrate our microinverters with their solar module products and resell to both distributors and installers. Strategic partners include providers of solar financing solutions. We also sell certain products and services to homeowners primarily in support of our warranty services and legacy product upgrade programs via our online store.

Factors Affecting our Business and Operations

As we have a growing global footprint, we are subject to risk and exposure from the evolving macroeconomic environment, including the effects of increased global inflationary pressures, tariffs and interest rates, fluctuations in foreign currency exchange rates, potential economic slowdowns or recessions, geopolitical pressures and potential regulatory changes through future legislative action or by a new presidential administration, including the unknown impacts of current and future trade regulations. We continuously monitor the direct and indirect impacts of these circumstances on our business and financial results.

Demand for Products. The demand environment for our products experienced a broad-based slowdown beginning in the second quarter of 2023 in the United States and in the third quarter of 2023 in Europe that continued into 2024. This demand environment has negatively impacted several distributors and installers, resulting in reduced liquidity, bankruptcy and business closures, which has affected our revenue and profitability, days sales outstanding and allowances for doubtful accounts. The slower demand environment also resulted in elevated inventory with distributors and installers in past quarters, and as a result we sold fewer microinverters to distributors and installers during the nine months ended September 30, 2024 compared to the same period in 2023 in response to this slower demand environment.

In the United States, this slowdown was primarily the result of higher interest rates and the transition from Net Energy Metering 2.0 (“NEM 2.0”) to Net Energy Metering 3.0 (“NEM 3.0”) in California, which has increased the payback period for our customers in California. In Europe, this slowdown was primarily the result of a decrease in purchases beginning in the third quarter of 2023 after the initial surge of sales related to onset of the armed conflict in Ukraine in 2022, and overall channel inventory correction. In addition, there has been increased uncertainty in net energy metering policies and solar export penalties in a key European market. The phase out of net energy metering in that market was ultimately not approved but solar export penalties are still causing uncertainty among consumers. While we believe we have made the appropriate corrections to our channel inventory, some of the foregoing trends in the United States and Europe could continue to have an adverse effect on our results of operations in the fourth quarter of 2024.

Products

The Enphase Energy System, powered by IQ Microinverters, IQ Batteries and other products and services, is an integrated solar, storage and energy management offering that enables self-consumption and delivers our core value proposition of yielding more energy, simplifying design and installation, and improving system uptime and reliability.

IQ Microinverters. We ship IQ8™ series microinverters into 51 countries worldwide. We are also shipping IQ8 Microinverters with peak output power of 480 W AC for the small-commercial market in North America, and grid-tied applications in South Africa, Mexico, Brazil, India, Thailand, the Philippines, France, Spain, Columbia, Panama, Costa Rica, Vietnam, and 13 Caribbean countries. The new IQ8 Microinverters are designed to maximize energy production and can manage a continuous DC current of 14 amperes, supporting higher powered solar modules through increased energy harvesting.

Our new IQ8 Microinverter, the IQ8P-3P™ for the small commercial solar market in North America, enables a peak output power of up to 480 W, supporting small three-phase commercial applications and newer, high-powered solar panels.

We now ship the IQ8HC™ Microinverters supplied from our contract manufacturing facilities in the United States with higher domestic content than previous models when paired with other U.S.-made solar equipment that could qualify for the domestic content bonus tax credit under the Inflation Reduction Act of 2022 (“IRA”).

IQ Batteries. Our Enphase IQ Battery storage systems, with usable and scalable capacity of 10.1 kWh and 3.4 kWh for the United States, and 10.5 kWh and 3.5 kWh for Europe and other international countries, are based on our Ensemble OS™ energy system, which powers our grid-independent microinverter-based storage systems.

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We currently ship our Enphase IQ Battery storage systems to customers in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, Belgium, Germany, the United Kingdom, Italy, Austria, France, the Netherlands, Luxembourg, Finland, Switzerland, Spain, Portugal, Sweden, Denmark and Greece. Enphase IQ Batteries in Europe can be installed with both single-phase and three-phase third-party solar energy inverters, enabling homeowners to upgrade their existing home solar systems with a residential battery storage solution that reduces costs while providing increased self-reliance.

Our latest Enphase Energy System, which features the new IQ® Battery 5P and IQ8 Microinverters. The IQ Battery 5P is modular with 5 kWh capacity and the IQ8 Microinverters provide a peak output power of 384 W. The IQ Battery 5P is available for customers in Australia, New Zealand, the United States, Puerto Rico, Mexico, Canada, the United Kingdom, Italy, France, the Netherlands, Luxembourg, and Belgium. The IQ Battery 5P is modular by design and is designed to deliver 3.84 kW continuous power and 7.68 kW peak power, which allows homeowners to start heavy loads like air conditioners easily during power outages.

Electric Vehicle (“EV”) Chargers. Our EV chargers are compatible with most EVs sold in North America. Customers are able to purchase Enphase-branded EV chargers, which support both J1772 and North American Charging Standard (“NACS”) connectors with a charging power range between 32 amperes and 64 amperes.

Our smart IQ® EV Chargers sold in the United States and Canada are Wi-Fi-equipped and include smart control and monitoring capabilities. The IQ EV Charger is designed to seamlessly integrate into our solar and battery system to help homeowners maximize electricity cost savings by charging directly from solar energy.

The new CS-100 EV Charger, our most powerful EV charger to date providing up to 19.2 kW of continuous power, is available for customers with commercial fleet EVs in the United States.

Grid Services. We expanded our support for virtual power plants (“VPPs”) through grid services programs in New Hampshire, North Carolina and California, powered by our new IQ Battery 5P. Grid services help utility companies avoid using electricity from expensive, polluting power plants when electricity demand is high.

Results of Operations

Net Revenues

(In thousands, except percentages)

Three months ended September 30, 2024 and 2023

Net revenues decreased by $170.2 million, or 31%, in the three months ended September 30, 2024, as compared to the same period in 2023, driven primarily by a 56% decrease in microinverter units shipped, partially offset by an increase in average selling price (“ASP”) for our microinverters as we sold more IQ8 microinverters relative to IQ7™ microinverters. During the three months ended September 30, 2024, we sold approximately 1.7 million microinverter units, as compared to approximately 3.9 million microinverter units in the three months ended September 30, 2023. The decrease in net revenues was also partially offset by a 101% increase in IQ Batteries Megawatt-hours (“MWh”) shipped. During the three months ended September 30, 2024, we shipped 172.9 MWh of IQ Batteries, as compared to 86.2 MWh shipped in the three months ended September 30, 2023.

Nine months ended September 30, 2024 and 2023

Net revenues decreased by $1.0 billion, or 52%, in the nine months ended September 30, 2024, as compared to the same period in 2023, driven primarily by a 68% decrease in microinverter units shipped, partially offset by an increase in ASP for our microinverters as we sold more IQ8 microinverters relative to IQ7 microinverters. During the nine months ended September 30, 2024, we sold approximately 4.5 million microinverter units, as compared to approximately 13.9 million microinverter units in the nine months ended September 30, 2023. The decrease in net revenues was also partially offset by a 36% increase in IQ Batteries MWh shipped. During the nine months ended September 30, 2024, we shipped 368.6 MWh of IQ Batteries, as compared to 270.9 MWh shipped in the nine months ended September 30, 2023.

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The overall decrease in net revenues during both the three and nine months ended September 30, 2024, as compared to the same periods in 2023 was due to a broad-based slowdown that began in the second quarter of 2023 in the United States and the third quarter of 2023 in Europe that resulted in elevated inventory with distributors and installers, and as a result we sold fewer microinverters to distributors and installers during the nine months ended September 30, 2024, as compared to the same period in 2023. In the United States, this slowdown was primarily the result of higher interest rates, high channel inventory and the transition from NEM 2.0 to NEM 3.0 in California. Higher interest rates resulted in larger monthly costs and longer pay-back periods for those customers who financed their systems. In Europe, this slowdown was primarily driven by a softer customer demand as utility rates dropped, policy changes were implemented, and the impacts from the Ukraine war were felt to be less impactful. This resulted in oversupply, financial stresses throughout the industry and the resulting channel inventory correction.

Cost of Revenues and Gross Margin

(In thousands, except percentages)

Three months ended September 30, 2024 and 2023

Cost of revenues decreased by $86.4 million, or 30%, in the three months ended September 30, 2024, as compared to the same period in 2023, primarily due to the lower volume of microinverter units shipped, as well as from the benefit recognized from tax credits of $46.6 million in the three months ended September 30, 2024, as compared to $18.5 million in the same period in 2023, under the Advanced Manufacturing Production Tax Credit (“AMPTC”) enacted under the IRA for U.S. manufactured microinverters shipped to customers. The benefit recognized from the AMPTC was partially offset by $11.4 million and $4.1 million of incremental cost for manufacturing in the United States in the three months ended September 30, 2024 and September 30, 2023, respectively, thereby providing a net benefit of $35.2 million and $14.4 million, respectively (“Net IRA benefit”).

Gross margin decreased by 0.7 percentage points in the three months ended September 30, 2024, as compared to the same period in 2023. The decrease was primarily due to product mix, relatively higher fixed overhead costs and a $4.6 million higher warranty expense for changes in estimates in the three months ended September 30, 2024, as compared to a $2.0 million lower warranty expense for changes in estimates in the three months ended September 30, 2023, partially offset by the recognition of a 9.2 percentage point Net IRA benefit in the three months ended September 30, 2024, as compared to a 2.6 percentage point Net IRA benefit in the three months ended September 30, 2023, and an increase in ASP for microinverters.

Nine months ended September 30, 2024 and 2023

Cost of revenues decreased by $559.7 million, or 52%, in the nine months ended September 30, 2024, as compared to the same period in 2023, primarily due to the lower volume of microinverter units, as well as from the benefit recognized from tax credits of $89.5 million in the nine months ended September 30, 2024, as compared to $20.6 million in the same period in 2023, under the AMPTC for U.S. manufactured microinverters shipped to customers. The benefit recognized from the AMPTC was partially offset by $22.2 million and $4.5 million of incremental cost for manufacturing in the United States in the nine months ended September 30, 2024 and September 30, 2023, respectively, thereby providing a Net IRA benefit of $67.3 million and $16.1 million, respectively.

Gross margin decreased by 0.4 percentage points in the nine months ended September 30, 2024, as compared to the same period in 2023. The decrease was primarily due to product mix and relatively higher fixed overhead costs, partially offset by the recognition of a 7.1 percentage point Net IRA benefit in the nine months ended September 30, 2024, as compared to a 0.8 percentage point Net IRA benefit in the same period in 2023, and an increase in ASP for microinverters.

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Research and Development

(In thousands, except percentages)

Three months ended September 30, 2024 and 2023

Research and development expense decreased by $7.0 million, or 13%, in the three months ended September 30, 2024, as compared to the same period in 2023. The decrease was primarily due to actions implemented in connection with the 2023 Restructuring Plan (as defined below) that lowered personnel-related expenses by $4.0 million due to a reduction in headcount and equipment, and professional services costs by $3.0 million. In the fourth quarter of 2023, we implemented a restructuring plan (the “2023 Restructuring Plan”) designed to increase operational efficiencies and execution, reduce operating costs, and better align our workforce and cost structure with current market conditions, and our business needs, strategic priorities and ongoing commitment to profitable growth. The amount of research and development expenses may fluctuate from period to period due to the differing levels and stages of development activity for our products.

Nine months ended September 30, 2024 and 2023

Research and development expense decreased by $21.1 million, or 12%, in the nine months ended September 30, 2024, as compared to the same period in 2023. The decrease was primarily due to actions implemented in connection with the 2023 Restructuring Plan that lowered equipment and professional services costs by $10.6 million and personnel-related expenses by $10.5 million due to a reduction in headcount. The amount of research and development expenses may fluctuate from period to period due to the differing levels and stages of development activity for our products.

Sales and Marketing

(In thousands, except percentages)

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Three months ended September 30, 2024 and 2023

Sales and marketing expense decreased by $5.7 million, or 10%, in the three months ended September 30, 2024, as compared to the same period in 2023. The decrease was primarily due to actions implemented in connection with the 2023 Restructuring Plan that lowered professional services and advertising costs by $4.3 million and personnel-related expenses by $1.4 million due to a reduction in headcount.

Nine months ended September 30, 2024 and 2023

Sales and marketing expense decreased by $23.6 million, or 13%, in the nine months ended September 30, 2024, as compared to the same period in 2023. The decrease was primarily due to actions implemented in connection with the 2023 Restructuring Plan that lowered professional services and advertising costs by $14.2 million and personnel-related expenses by $9.4 million due to a reduction in headcount.

General and Administrative

(In thousands, except percentages)

Three months ended September 30, 2024 and 2023

General and administrative expense decreased by $3.6 million, or 11%, in the three months ended September 30, 2024, as compared to the same period in 2023. The decrease was primarily due to actions implemented in connection with the 2023 Restructuring Plan that lowered professional services and facilities expense.

Nine months ended September 30, 2024 and 2023

General and administrative expense decreased by $5.5 million, or 5%, in the nine months ended September 30, 2024, as compared to the same period in 2023. The decrease was primarily due to actions implemented in connection with the 2023 Restructuring Plan that lowered professional services and facilities expense by $3.6 million and lower personnel-related costs by $1.9 million due to a reduction in headcount.

Restructuring and Asset Impairment Charges

(In thousands, except percentages)

Three months ended September 30, 2024 and 2023

Restructuring and asset impairment charges incurred in connection with the 2023 Restructuring Plan increased by $0.7 million, or 100%, in the three months ended September 30, 2024, as compared to the same period in 2023.

Restructuring charges of $0.7 million in the three months ended September 30, 2024, primarily consisted of $0.6 million of asset impairment charges and $0.1 million of one-time termination benefits and other employee-related expenses.

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Nine months ended September 30, 2024 and 2023

Restructuring charges of $3.8 million in the nine months ended September 30, 2024, primarily consisted of $1.6 million of contract termination charges, $1.2 million of employee severance, one-time benefits and other employee related expenses, and $1.0 million of asset impairment charges. Restructuring charges of $0.9 million in the three months ended September 30, 2023, primarily consisted of one-time termination benefits and other employee-related expenses.

Other Income, Net

(In thousands, except percentages)

Three months ended September 30, 2024 and 2023

Interest income of $20.0 million increased in the three months ended September 30, 2024, as compared to $19.7 million for the three months ended September 30, 2023, primarily due to higher average balances.

Interest expense of $2.2 million in the three months ended September 30, 2024, primarily included $2.2 million for the coupon interest, debt discount amortization with our 0.25% convertible senior notes due 2025 (the “Notes due 2025”), and amortization of debt issuance costs with the Notes due 2025, our 0.0% convertible senior notes due 2026 (the “Notes due 2026”) and our 0.0% convertible senior notes due 2028 (the “Notes due 2028”). Interest expense of $2.2 million in the three months ended September 30, 2023, primarily related to coupon interest expense, debt discount amortization with the Notes due 2025, and amortization of debt issuance costs with our 4.0% convertible senior notes due 2023 (the “Notes due 2023”), Notes due 2025, Notes due 2026 and Notes due 2028.

Other expense, net, of $16.8 million in the three months ended September 30, 2024, primarily related to a $17.0 million impairment of investment in a private company and a $0.5 million net loss due to foreign currency denominated monetary assets and liabilities, partially offset by $0.6 million non-cash net gain related to change in the fair value of debt securities and $0.1 million in realized gain on investments. Other income, net, of $1.9 million expense in the three months ended September 30, 2023 related to a $1.9 million non-cash net gain related to a change in the fair value of debt securities and a $0.1 million net gain due to foreign currency denominated monetary assets and liabilities, partially offset by $0.1 million in realized loss on investments.

Nine months ended September 30, 2024 and 2023

Interest income of $58.9 million increased in the nine months ended September 30, 2024, as compared to $49.2 million for the nine months ended September 30, 2023, primarily due to an increase in interest rates.

Interest expense of $6.7 million in the nine months ended September 30, 2024, primarily included $6.7 million for the coupon interest, debt discount amortization with the Notes due 2025, and amortization of debt issuance costs with the Notes due 2025, Notes due 2026 and Notes due 2028. Interest expense of $6.6 million in the nine months ended September 30, 2023, primarily related to $6.6 million for coupon interest expense, debt discount amortization with the Notes due 2025, and amortization of debt issuance costs with the Notes due 2023, Notes due 2025, Notes due 2026 and Notes due 2028.

Other expense, net, of $24.3 million in the nine months ended September 30, 2024, primarily related to $23.0 million impairment of investments in private companies, $1.1 million net loss due to foreign currency denominated monetary assets and liabilities, and $0.3 million non-cash net loss related to change in the fair value of debt securities, partially offset by $0.1 million in realized gain on investments. Other income, net, of $2.3 million in the nine months ended September 30, 2023, primarily related to a $5.4 million non-cash net gain related to a change in the fair value of debt securities and $0.4 million in realized gain on investments, partially offset by a $3.5 million net loss due to foreign currency denominated monetary assets and liabilities.

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Income Tax Provision

(In thousands, except percentages)

Three months ended September 30, 2024 and 2023

The income tax provision was $5.0 million in the three months ended September 30, 2024, as compared to an income tax provision of $23.4 million in the same period in 2023. The decrease was primarily due to lesser projected tax expense as our operations in U.S. and foreign jurisdictions were less profitable in 2024 as compared to the same period in 2023, and tax expense from equity compensation shortfalls, partially offset by a discrete tax benefit from the impairment of an investment in a private company.

Nine months ended September 30, 2024 and 2023

The income tax provision was $10.0 million in the nine months ended September 30, 2024, as compared to an income tax provision of $82.9 million in the same period in 2023. The decrease was primarily due to lesser projected tax expense as our operations in U.S. and foreign jurisdictions were less profitable in 2024 as compared to the same period in 2023, and tax expense from equity compensation shortfalls, partially offset by a discrete tax benefit from the impairment of an investment in a private company.

Liquidity and Capital Resources

Sources of Liquidity

As of September 30, 2024, we had $1.8 billion in net working capital, including cash, cash equivalents and marketable securities of $1.8 billion, of which approximately $1.7 billion were held in the United States. Our cash, cash equivalents and marketable securities primarily consist of U.S. treasuries, money market mutual funds, corporate notes, commercial paper and bonds and both interest-bearing and non-interest-bearing deposits, with the remainder held in various foreign subsidiaries. We consider amounts held outside the United States to be accessible and have provided for the estimated income tax liability on the repatriation of our foreign earnings.

(In thousands, except percentages)

Our cash, cash equivalents and marketable securities decreased by $17.3 million for the nine months ended September 30, 2024, as compared to the same period in 2023, primarily due to repurchases of common stock pursuant to our share repurchase program and payments of withholding taxes related to net share settlement of equity awards, partially offset by cash generated from operations.

Total carrying amount of debt increased by $8.6 million for the nine months ended September 30, 2024, as compared to the same period in 2023, primarily due to accretion of debt discount and issuance costs.

We expect that our principal short-term (over the next 12 months) and long-term cash needs related to our operations will be to fund working capital, strategic investments, acquisitions, repurchases of common stock pursuant to our share repurchase program and payments of withholding taxes for net share settlement of equity awards, payments on our outstanding debt and the purchases of property and equipment. We plan to fund any cash requirements for the next 12 months and the longer term from our existing cash, cash equivalents and marketable securities on hand, and cash generated from operations. We anticipate that access to the debt market will be more limited compared to prior years as interest rates have increased and are expected to remain high. Our ability to obtain debt or any other additional financing that we may choose to, or need to, obtain will depend on, among other things, our development efforts, business plans, operating performance and the condition of the capital markets at the time we seek financing.

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Repurchase of Common Stock. In July 2023, our board of directors authorized a share repurchase program (the “2023 Repurchase Program”) pursuant to which we were authorized to repurchase up to $1.0 billion of our common stock. The repurchases could be funded from available working capital and could be executed from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans. The program may be discontinued or amended at any time and expires on July 26, 2026. During the three months ended September 30, 2024, we repurchased 434,947 shares, for an aggregate amount of $49.8 million.

Cash Flows. The following table summarizes our cash flows for the periods presented:

(In thousands)

Cash Flows from Operating Activities

Cash flows from operating activities consisted of our net income adjusted for certain non-cash reconciling items, such as stock-based compensation expense, non-cash interest expense, change in the fair value of debt securities, deferred income taxes, asset impairment, depreciation and amortization, and changes in our operating assets and liabilities. Net cash provided by operating activities decreased by $314.9 million for the nine months ended September 30, 2024, as compared to the same period in 2023, primarily due to lower revenue.

Cash Flows from Investing Activities

For the nine months ended September 30, 2024, net cash used in investing activities of $122.4 million was primarily from the purchase of $96.9 million of marketable securities, net of maturity and sale, partially offset by $25.5 million used in purchases of test and assembly equipment for U.S. manufacturing, related facility improvements and information technology enhancements, including capitalized costs related to internal-use software.

For the nine months ended September 30, 2023, net cash used in investing activities of $442.4 million was primarily from the maturity and sale of $337.1 million of marketable securities, net of purchases and $90.3 million used in purchases of test and assembly equipment to expand our supply capacity, related facility improvements and information technology enhancements, including capitalized costs related to internal-use software, and $15.0 million used in the investment in a private company.

Cash Flows from Financing Activities

For the nine months ended September 30, 2024, net cash used in financing activities of approximately $257.5 million was primarily from $191.7 million used to repurchase our common stock under the 2023 Repurchase Program, payment of $73.8 million in employee withholding taxes related to net share settlement of equity awards, and less than $0.1 million from the partial settlement of the Notes due 2025, partially offset by $8.0 million net proceeds from employee stock option exercises and purchases under our employee stock purchase plan.

For the nine months ended September 30, 2023, net cash used in financing activities of approximately $401.8 million was primarily from $310.0 million used to repurchase our common stock under our share repurchase programs, and the payment of $93.1 million in employee withholding taxes related to net share settlement of equity awards, partially offset by $1.3 million net proceeds from employee stock option exercises and purchases under our employee stock purchase plan.

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Contractual Obligations

Our contractual obligations primarily consist of the Notes due 2028, Notes due 2026 and Notes due 2025, obligations under operating leases and inventory component purchases. As of September 30, 2024, there have been no material changes from our disclosure in the Form 10-K, except that the Notes due 2025 mature in less than a year and are classified as Debt, current on the condensed consolidated balance sheet as of September 30, 2024. For more information on our future minimum operating leases and inventory component purchase obligations as of September 30, 2024, refer to Note 10, “Commitments and Contingencies - Purchase Obligations” and for more information on our notes and other related debt, refer to Note 9, “Debt” of the notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Critical Accounting Policies

Our condensed consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles (“GAAP”). In connection with the preparation of our condensed consolidated financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our condensed consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our condensed consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

We consider an accounting policy to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the condensed consolidated financial statements. There have been no changes to our critical accounting policies as described in our Form 10-K for the year ended December 31, 2023.

Adoption of New and Recently Issued Accounting Pronouncements

Refer to Note 1, “Description of Business and Basis of Presentation - Summary of Significant Accounting Policies” of the notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of adoption of new accounting pronouncements.

There have been no material changes in our market risk compared to the disclosures in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in the Form 10-K. Also see the section entitled “Risk Factors” in Part I, Item 1A in the Form 10-K.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2024. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) includes, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of September 30, 2024, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

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Changes in Internal Control

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Enphase Energy, Inc. | 2024 Form 10-Q | 42

Investing in our securities involves a high degree of risk. Before investing in our securities, you should consider carefully the information contained in this quarterly report and in the Form 10-K, including the risk factors identified in Part I, Item 1A, “Risk Factors” thereof. This quarterly report contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements” in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” above. Our actual results could differ materially from those contained in the forward-looking statements. Any of the risks discussed in the Form 10-K, in other reports we file with the SEC, and other risks we have not anticipated or discussed, could have a material adverse impact on our business, financial condition or results of operations. Except as set forth below, there has been no material change to our risk factors from those disclosed in Part I, Item 1A, “Risk Factors” in the Form 10‑K.

We depend upon a small number of outside contract manufacturers, and our business and operations could be disrupted if we encounter problems with these contract manufacturers.

We do not have internal manufacturing capabilities and rely upon a small number of contract manufacturers to build our products. In particular, we outsource the manufacturing of our products to third-party contract manufacturers. Flex, Salcomp and Sunwoda assemble and test our IQ Microinverter, IQ Battery storage systems and IQ Gateway products. Prices for such services are agreed to by the parties on a quarterly basis, and we are obligated to purchase manufactured products and raw materials that cannot be resold upon the termination of the related agreement. As of December 31, 2023, our related purchase obligations (including amounts related to component inventory procured by our primary contract manufacturers on our behalf) were approximately $184.4 million. The timing of purchases in future periods could differ materially from our estimates due to fluctuations in demand requirements related to varying sales levels as well as changes in economic conditions.

Flex also provides receiving, kitting, storage, transportation, inventory visibility and other value-added logistics services at locations managed by Flex. In addition, we rely on several unaffiliated companies to supply certain components used in the fabrication of our products.

Our reliance on a small number of contract manufacturers makes us vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields and costs. We do not have long-term supply contracts with our contract manufacturing partners. Consequently, these manufacturers are not obligated to supply products to us for any period, in any specified quantity or at any certain price. If any of these suppliers reduce or eliminate the supply of the components to us in the future, our revenue, business, financial condition and results of operations would be adversely impacted.

Further, the revenue that our contract manufacturers generate from our orders may represent a relatively small percentage of their overall revenue. As a result, fulfilling our orders may not be considered a priority in the event of constrained ability to fulfill all of their customer obligations in a timely manner. In addition, some of our products continue to be manufactured outside of the United States. We believe that the location of these facilities outside of the United States may increase our supply risk, including the risk of supply interruptions or reductions in manufacturing quality or controls.

If any of our contract manufacturers were unable or unwilling to manufacture our products in required volumes and at high quality levels or renew existing terms under supply agreements, we would have to identify, qualify and select acceptable alternative contract manufacturers, which may not be available to us on favorable terms, if at all. An alternative contract manufacturer may not be available to us when needed or may not be in a position to satisfy our quality or production requirements on commercially reasonable terms. Any significant interruption in manufacturing would require us to reduce our supply of products to our customers, which in turn would reduce our revenue, harm our relationships with our customers and cause us to forgo potential revenue opportunities.

Enphase Energy, Inc. | 2024 Form 10-Q | 44

The loss of, or events affecting, any of our large customers could reduce our sales and have an adverse effect on our business, financial condition and results of operations.

We sell primarily to solar distributors who combine our products with others, including solar modules products and racking systems, and resell to installers in each target region. In addition to our solar distributors, we sell directly to select large installers, OEMs and strategic partners.

Our customers’ decisions to purchase our products are influenced by a number of factors outside of our control, including, among others, retail energy prices, the macroeconomic environment, government regulation, incentives and liquidity constraints of solar installers. Although we have agreements with our customers, these agreements generally do not have long-term purchase commitments and are generally terminable by either party after a relatively short notice period. In addition, these customers may decide to no longer use, or to reduce the use of, our products and services for other reasons that may be out of our control. We may also be affected by events impacting our large customers that result in them decreasing their orders with us or impairing their ability to pay for our products, whether due to a decrease in demand from the end markets they serve or the deterioration in the financial condition or bankruptcy of any such customer or the solar installers they resell to, or a significant decrease in their business. During the three months ended September 30, 2024, one of our large customer’s filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. We evaluated the carrying amount of a customer intangible asset related to that customer and determined that the carrying amount of the asset as of September 30, 2024 is recoverable. Additionally, net of allowance for doubtful accounts as of September 30, 2024, included $4.8 million that relates to the one customer. We regularly monitor and evaluate the credit status of our customers and attempt to adjust sales terms as appropriate, which may not be successful. The loss of, or events affecting, any of our large customers has had from time to time, and could in the future have a material adverse effect on our business, financial condition and results of operations.

Our financial results may vary significantly from quarter to quarter due to a number of factors, which may lead to volatility in our stock price.

Our quarterly revenue and results of operations have varied in the past and may continue to vary significantly from quarter to quarter. As a result, the trading price of our common stock has been, and is likely to continue to be, volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition, the trading prices of the securities of solar companies in general have been highly volatile, and the volatility in market price and trading volume of securities is often unrelated or disproportionate to the financial performance of the companies issuing the securities. Factors affecting the market price of our common stock, some of which are beyond our control, include:

• seasonal and other fluctuations in demand for our products;
• the timing, volume and product mix of sales of our products, which may have different ASPs or profit margins;
• changes in our pricing and sales policies or the pricing and sales policies of our competitors;
• the impact of supply chain disruptions on our business, sales and results of operations;
• our ability to design, manufacture and deliver products to our customers in a timely and cost-effective manner and that meet customer requirements;
• our ability to manage our relationships with our contract manufacturers, customers and suppliers;
• quality control or yield problems in our manufacturing operations;
• the anticipation, announcement or introductions of new or enhanced products by our competitors and ourselves;
• reductions in the retail price of electricity;
• the failure by any major customer to pay for orders, whether due to liquidity issues, bankruptcy or otherwise;
• our exposure to the credit risks of our customers, particularly in light of the fact that some of our customers are relatively new entrants to the solar market without long operating or credit histories, and the impact of inflation and higher interest rates;

Enphase Energy, Inc. | 2024 Form 10-Q | 45

• changes in laws, regulations and policies applicable to our business and products, particularly those relating to government incentives for solar energy applications;
• the impact of tariffs on the solar industry in general and our products in particular;
• the amount and timing of operating costs and capital expenditures related to the maintenance and expansion of our business operations;
• the impact of government-sponsored programs on our customers;
• our ability to estimate future warranty obligations due to product failure rates, claim rates or replacement costs;
• our ability to forecast our customer demand and manufacturing requirements, and manage our inventory;
• fluctuations in foreign currency exchange rates;
• announcement of acquisitions or dispositions of our assets or business operations;
• issuances of our common stock or equity-linked securities such as the Convertible Notes;
• changes in our management;
• technical factors in the public trading market for our common stock that may produce price movements that may or may not comport to macro, industry or company-specific fundamentals, including, without limitation, the sentiment of retail investors (including as may be expressed on financial trading and other social media sites), the amount and status of short interest in our securities, rising interest rates, inflation, access to margin debt, trading in options and other derivatives on our common stock and any related hedging or other technical trading factors; and
• general social, geopolitical, environmental or health factors, including pandemics or widespread health epidemics such as the COVID-19 pandemic.

The above factors are difficult to forecast, and these, as well as other factors, could materially and adversely affect our quarterly and annual results of operations. Any failure to adjust spending quickly enough to compensate for a revenue shortfall could magnify the adverse impact of this revenue shortfall on our results of operations. Moreover, our results of operations may not meet our announced guidance or the expectations of research analysts or investors, in which case the price of our common stock could decrease significantly. There can be no assurance that we will be able to successfully address these risks.

In addition, in the past, many companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We have been in the past, are currently, and may become in the future the target of this type of litigation. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.