Note: This is an earnings call transcript. Content may contain errors.

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DATE

Tuesday, Oct. 28, 2025, at 4:30 p.m. ET

CALL PARTICIPANTS

  • President and Chief Executive Officer — Badri Kothandaraman
  • Chief Financial Officer — Mandy Yang

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RISKS

  • Management said it expects the loss of the 25D tax credit to be a "near-term headwind" that will impact results in early 2026.
  • European revenue declined 38% sequentially from Q2 to Q3 2025, contributing a $25 million negative impact, with expectations for continued regional market challenges.
  • Q4 2025 revenue guidance reflects a midpoint undershipment of approximately $45 million, as the company aims for "abundantly cautious" channel inventory levels entering 2026, according to Badri Kothandaraman.
  • A reciprocal tariff introduced in 2025 reduced gross margins by five percentage points, primarily affecting battery products due to high tariffs on China-sourced cell packs.

TAKEAWAYS

  • Revenue -- $410.4 million, the highest level in two years, including $70.9 million of safe harbor revenue in Q3 2025.
  • Microinverter Shipments -- 1,770,000 units delivered, with 1,530,000 shipped from U.S. facilities, qualifying for a 45x production tax credit.
  • Battery Shipments -- 195 megawatt hours, a company record, with U.S. battery shipment volume rising to 67.5 megawatt hours from 40.9 megawatt hours in Q2 2025.
  • Gross Margin (Non-GAAP) -- 49.2% non-GAAP in Q3 2025, exceeding the guided range and including a 4.9% impact from reciprocal tariffs (GAAP and non-GAAP) and a $42.5 million net IRA benefit.
  • Gross Margin (GAAP) -- 47.8% gross margin in Q3 2025, with tariff-related impacts fully recognized.
  • Operating Expenses (Non-GAAP) -- $78.5 million, up slightly from $77.8 million in Q2.
  • Operating Expenses (GAAP) -- $130.1 million in operating expenses for Q3 2025, incorporating $47.4 million in service compensation, $2.9 million in acquisition-related amortization, and $1.3 million of restructuring and asset impairment charges.
  • Non-GAAP Operating Income -- $123.4 million, compared with $98.6 million in Q2.
  • GAAP Operating Income -- $66.2 million, up from $37 million in Q2.
  • Non-GAAP Net Income -- $117.3 million, yielding non-GAAP diluted EPS of $0.90, versus $0.69 in the prior quarter.
  • GAAP Net Income -- Net income was $66.6 million, with diluted EPS of $0.50, up from $0.28 sequentially.
  • Free Cash Flow -- $5.9 million free cash flow, based on $13.9 million operating cash flow and $8 million capital expenditure.
  • Cash and Equivalents -- $1.48 billion, down from $1.53 billion at the end of Q2; $632.5 million in convertible notes due March 2026 to be settled from current cash.
  • Production Tax Credit (PTC) Receivable -- $280 million net on the balance sheet as of Sept. 30, 2025, with $108 million attributable to 2024 shipments and $172 million to shipments in the first nine months of 2025.
  • Q4 Revenue Guidance -- $310 million to $350 million in revenue guidance for Q4 2025, with IQ Battery shipments expected between 140 and 160 megawatt hours.
  • Q4 Gross Margin Guidance (GAAP/Non-GAAP) -- GAAP: 40%-43%; Non-GAAP: 42%-45%, both reflecting approximately five percentage points of tariff impact in Q4 2025.
  • Q4 Operating Expense Guidance -- GAAP: $130 million to $134 million; Non-GAAP: $77 million to $81 million, including an estimated $53 million in share-based, amortization, and restructuring costs on a GAAP basis for Q4 2025.
  • Regional Mix -- 85% of revenue from the U.S., with U.S. sales up 29% compared to Q2 and Europe down 38% compared to Q2.
  • Sell-Through -- Company-wide product sell-through increased 9% sequentially compared to Q2 2025, with U.S. activity up over 20% in early Q4 2025 compared to the Q3 average.
  • Channel Inventory -- Microinverter inventory "returned to normal," according to management; battery inventory remains "slightly elevated" due to the introduction of new generation products.
  • Product Launches -- Began shipments of the fourth-generation IQ Battery 10C in the U.S. IQ9N commercial microinverter with GaN technology opens access to the 480-volt market, with U.S. shipments starting in December.
  • Software & Service Metrics -- Average customer call wait time was two minutes, and Net Promoter Score measured 77%, down from 79% in Q2 2025.
  • Safe Harbor Revenue Strategy -- The Q3 2025 pull-in of $70.9 million impacts Q4 guidance; approximately 75% of Q4 2025 revenue guidance is currently booked, with additional safe harbor opportunities not yet included in Q4 2025 guidance.
  • Battery Technology Transition -- U.S.-built batteries used over 45% domestic content; plans on track to shift to non-China cell packs by late 2025, reducing future tariff exposure.
  • Production Mix & Tax Credit Positioning -- U.S.-made microinverters and batteries enable qualification for domestic content ITC bonuses and help meet FIOT compliance requirements.
  • European Business Environment -- Management cited "weak solar market" according to Badri Kothandaraman in the Netherlands and France, with sector shifts toward storage-driven self-consumption solutions and partnerships aimed at 2026 growth.
  • Financing & TPO Partnerships -- Expansion of prepaid lease (PPL) and third-party ownership (TPO) models, with Enphase providing O&M, SolarGraph integration, and tax equity support.
  • Commercial Market Entry -- Launch into 480-volt, three-phase commercial solar segment, representing an estimated $400 million addressable U.S. market opportunity.
  • Virtual Power Plant (VPP) Programs -- Participation in 53 VPPs globally, supported by advanced API integrations and new partnerships with utilities, including San Diego Community Power.
  • EV Charging Portfolio -- Shipping IQ EV Charger 2 in international markets; U.S. preorders open with Q4 shipments expected; bidirectional charger scheduled for mid-2026 launch.
  • Innovation Focus -- Upcoming fifth-generation battery to enable significant cost reduction through increased energy density and modular, stackable design, with commercial introduction expected in 2026.

SUMMARY

Enphase Energy (ENPH 0.30%) reported quarterly revenue of $410.4 million, driven by U.S. market strength and a large $70.9 million safe harbor shipment that advanced sales from the following period. European revenues decreased by 38% compared to Q2 2025, offsetting gains in the U.S., while overall product demand continued to increase sequentially during the period. Gross margins benefited from favorable mix but were negatively impacted by new tariffs, prompting management to highlight planned cost-reduction measures in next-generation batteries and ongoing supply chain shifts. Looking ahead, the company has guided for lower revenue in Q4 2025, with conservative sell-in strategies prioritizing healthy channel inventories and explicit caution tied to expiring tax credits and evolving U.S. policy support. Management outlined a broad roadmap of product launches, commercial market entry, and expanded financing solutions to address near-term headwinds and capture anticipated recovery drivers—particularly innovative battery systems, commercial microinverters, and financing partnerships supporting future growth.

  • Chief Executive Officer Kothandaraman said, "our microinverter channel inventory returned to normal while our battery channel inventory was slightly elevated due to sell-in of our new fourth-generation battery."
  • Chief Financial Officer Yang said, "The five-year convertible notes we raised in 2021 are coming due in March, and we expect to settle the principal amount of $632.5 million at maturity with our cash on hand."
  • Chief Executive Officer Kothandaraman said, "We are seeing a further ramp in US demand in Q4, primarily due to homeowners moving to capture the expiring 25D tax credit before the end of this year."
  • Battery product pricing remained unchanged in the face of tariff pressure, as management prioritized market share over passing through increased costs.
  • The company's guidance does not include additional safe harbor activity, leaving upside potential if further transactions close by year-end.

INDUSTRY GLOSSARY

  • Safe Harbor Revenue: Sales to customers intending future installation, allowing tax credit qualification by securing components in advance of stricter regulatory guidance.
  • FIOT Compliance: Federal Investment Tax Credit (ITC) domestic content and other compliance requirements for renewable energy equipment eligibility.
  • PPL (Prepaid Lease): A third-party solar financing structure where customers pay upfront to lease a system, with an option for ownership after a defined term.
  • TPO (Third-Party Ownership): A solar financing model where an external entity owns the system and provides the end customer with solar energy through lease or power-purchase agreements.
  • VPP (Virtual Power Plant): A networked aggregation of distributed energy resources, such as batteries and solar, participating in grid and wholesale energy markets via coordinated control software.
  • IQ Meter Collar: An Enphase device providing customers rapid backup capability and utility compatibility, streamlining installation and cost for backup power functionality.
  • Production Test Credit (PTC): A federal incentive providing direct payment or credits tied to U.S.-manufactured renewable energy system components shipped to customers.

Full Conference Call Transcript

Badri Kothandaraman: On today's call are Badri Kopanda Raman, Mandy Yang, our chief financial and Raju. During this conference call, Enphase management will make forward-looking statements including, but not limited to, statements related to our expected future financial performance, market trends, product introductions and enhancements, and the benefits the capabilities of our technology bring to homeowners and installers, as well as regulatory tax, tariff, and supply chain matters. Our operations including manufacturing, customer service, and supply and demand, anticipated growth in existing and new markets, including the TPO market, the timing of new product launches are also subjects of discussion.

These forward-looking statements involve significant risks and uncertainties, and our actual results, as well as the timing of events, could differ materially from these expectations. For a more complete discussion of the risks and uncertainties, please see our most recent Form 10-K and 10-Q, filed with the SEC. We caution you not to place any undue reliance on forward-looking statements unless otherwise noted and adjusted to exclude certain charges. We have no duty or obligation to update any forward-looking statements. We have provided a reconciliation of non-GAAP financial measures to GAAP financial measures in our earnings release, which can also be found in the Investor Relations section of our website.

Now I'd like to introduce Badri Kothandaraman, our President and Chief Executive Officer. Badri, good afternoon, and thanks for joining us today.

Badri Kothandaraman: To discuss our third quarter 2025 financial results. We had a good quarter. We reported quarterly revenue of $410.4 million, our highest revenue level in two years. We shipped 1,770,000 microinverters and a record 195 megawatt hours of battery. We generated free cash flow of $5.9 million. Our Q3 revenue also included $70.9 million of safe harbor revenue. As we exited Q3, our microinverter channel inventory returned to normal while our battery channel inventory was slightly elevated due to sell-in of our new fourth-generation battery. For the third quarter, we delivered a 49% gross margin, above the higher end of our guidance range, 19% operating expense, and 30% operating income.

All as a percentage of revenue on a non-GAAP basis and including the net IRA benefit. Mandy will go into her financials later in the call. Our 77% in Q3 compared to 79% in Q2. The average call wait time was two minutes. To further enhance the customer experience, we are proactive in launching our AI-powered assistant in the Enphase app. Which will help customers find answers quickly, troubleshoot issues, and manage their system more intuitively. Our data engineering team continues to strengthen the intelligence behind our support systems, leveraging analytics and machine learning to identify common issues, predict service needs, and reduce response times across all regions. Let's cover operations.

In Q3, we shipped approximately 1,530,000 microinverters from our US facilities, booking a 45x production tax credit. This helps our domestically made microinverters, residential lease PPA providers, and commercial asset owners qualify for the 10% domestic content ITC. We grew our US battery production in Q3, shipping 67.5 megawatt hours compared to 40.9 megawatt hours in Q2. We are now building our fourth-generation battery, the IQ Battery 10C, in the US using domestically-made microinverters, domestically-made thermal and battery management systems, as well as packaging, while only sourcing cell packs from China. These batteries have greater than 45% domestic content and help our lease PPA customers qualify for ITC bonuses.

We remain on track to source non-China cell packs by the end of this year, scaling into battery builds in 2026. Therefore, we expect limited exposure to the recent China-related tariffs as our supply chain transitions away from China. In summary, our US-made microinverters and batteries can help customers qualify for domestic content ITC bonuses as well as meet FIOT compliance, even as the criteria become increasingly stringent each year, a big differentiator for Enphase. Let's now cover the regions. Our US and international revenue mix for Q3 was 85% US and 15% international.

In the US, our revenue increased 29% in Q3 compared to Q2, primarily due to increased demand as well as higher safe harbor revenue of $70.9 million compared to $40.4 million in Q2. The overall sell through of our products was up 9% in Q3 compared to Q2. In Europe, our revenue decreased by 38% in Q3 compared to Q2, while overall sell-through decreased by 27%. Europe negatively impacted our Q3 revenue by approximately $25 million compared to Q2, a larger sequential decline than expected. The overall business environment across the region is still challenging, but we are maintaining our discipline on the channel as well as targeting specific growth areas that could drive higher 2026 revenue.

I will now provide some color on key markets in Europe. In the Netherlands, demand remained soft in Q3. The solar market is making steady progress towards the sizable battery retrofit opportunity we see in 2026 and beyond. Rising solar export penalties with an Enphase installed base of about 475,000 residential solar systems and the planned sunset of net metering in 2026 are creating a compelling use case for storage. We estimate a $2 billion total opportunity for batteries in the Netherlands. We recently announced a collaboration with Essent, one of the Netherlands' largest residential energy providers, enabling customers to add IQ Batteries and participate in the SMART Steering BPP program.

This program is designed to boost self-consumption and lower utility bills. Through smart steering, participating customers may receive fixed monthly compensation of up to €122, depending on battery size. Essent intelligently controls charging and discharging to optimize value for the home and grid, supporting a more reliable energy system. Building on this momentum, we are advancing additional partnerships and expect battery sales in the Netherlands to be a growth driver in 2026 and beyond. In France, residential demand remained muted in Q3. Many households waited for the October 1 VAT cut of 5.5% for sub-9 kilowatts, but its limited scope and dependence on low-carbon panels reduced the impact.

Meanwhile, 2025 policy changes have extended the payback period, creating a tougher market for installers. We are focusing on self-consumption, where low export incentives strengthen the value proposition for a solar plus battery solution. In Germany, the residential market remained weak in Q3. Lower export value and stop-start incentives have kept many households on the sidelines, softening demand for both solar and batteries. Even so, our performance was relatively stable, supported by our partnership with leading installers and the strong uptake of the FlexPhase battery, which provides both self-consumption and three-phase backup. In the UK, residential solar and storage adoption is stable, driven by time-of-use tariffs, low export rates, and a growing focus on resilience and self-consumption.

We are deepening ties with REPs and supporting them with a robust API platform. In Q3, we also added backup capability for our batteries in the UK, which was long overdue, and further expanded our resilience offering. In Australia, residential storage demand is accelerating following the July 2025 battery rebate program, with installers bundling PV and batteries, and the average battery size increasing as low export rates push self-consumption. Distribution operators are rolling out dynamic export limits and interoperability standards, favoring systems with fast controls and three-phase backups. Against this backdrop, we launched the FlexPhase battery in Q3, delivering three-phase backup as well as flexible power to meet evolving DSO requirements.

We also launched IQ8P high-power microinverters for higher power modules, as well as our newest IQEV charger, strengthening our position in this strategic market. Let's discuss our outlook for Q4. We are seeing a further ramp in US demand in Q4, primarily due to homeowners moving to capture the expiring 25D tax credit before the end of this year. In the first three weeks of October, our US sell-through was up over 20% compared to the Q3 average. We anticipate this elevated activity will continue for much of Q4. We also anticipate our overall sell-through for the company to be between $350 to $400 million in Q4. However, our revenue guidance is in the range of $310 to $350 million.

For IQ Batteries, we expect to ship between 140 and 160 megawatt hours. There are two reasons contributing to this lower revenue guidance. First, we had $70.9 million of safe harbor revenue pulled in from Q4 to Q3 as customers wanted the product before the US Treasury guidance in Q3. Second, in order to destock the channel, we are reducing shipments of product to the channel as we head into 2026. Currently, we are approximately 75% booked for Q4 revenue guidance. Safe Harbor opportunities are not yet included in our Q4 guidance. We are working closely with several TPO partners based on each partner's preference. Let's look ahead on safe harbor planning for 2026.

While we do not typically guide beyond the next quarter, we are well-positioned to support both methods of safe harbor. The 5% method and physical work test method present upside following the expiration of the 25D tax credit, and we estimate company revenue of $250 million. We view Q1 as a cycle trough, with conditions improving through the rest of the year. Why are we constructive on the balance of the year? There are three external drivers that could support recovery. First, US power prices are rising by about 5% this winter, with additional increases expected in 2026. Second, interest rates are declining, easing affordability.

Third, new and attractive financing solutions are entering the market to help offset the loss of 25B. Together, these drivers could enable a second half of 2026 rebound and set the stage for growth. We see several Enphase-specific revenue drivers expected to fuel growth through 2026. Our fourth-generation battery, the IQ Battery 10C, is positioned to capture share through lower installation costs for backup. We are now entering the 480-volt commercial solar market with our IQ9 and GaN microinverter. We expect to begin shipping in December and ramping in 2026. We are also leveraging strategic partnerships to capture the battery retrofit opportunity in the Netherlands.

Our newest IQEV chargers and upcoming IQ bidirectional EV chargers are poised to expand our market. And our fifth-generation battery system, paired with IQ9 residential microinverters, will drive a step-change reduction in system cost in both the US and Europe. While there is uncertainty around 2026, we remain confident in our ability to execute and deliver growth across these vectors. Now let's talk about financing. The industry is moving towards the TPO model in 2026. Enphase supports all the major TPOs today. We are further strengthening these relationships through safe harbor and tax equity support, providing domestic content as well as FIOT-compliant products, offering O&M services, SolarGraph integration, and helping to implement innovative financing solutions.

Looking ahead, we see a strong trend developing in the market towards prepaid lease offerings, which can provide homeowners with the option of ownership after five years. In this model, the TPO captures the 48E tax credit and, in turn, offers the homeowner an attractive lease prepayment or a lower monthly payment when paired with a loan. This structure makes the economics similar to today's solar loan economics with the 30% 25D tax credit. Furthermore, financing providers like BNB Enphase system value proposition, which includes not only the Enphase equipment, but support for operations and maintenance as well as SolarGraph integration, to offer an overall attractive package to consumers.

We believe the TPO market is poised for growth in 2026 and see multiple ways for Enphase to support this growth. Let's talk about products, starting with IQ Batteries. In August, we began shipping our IQ Battery 10C, supplied by our manufacturing facilities in the US, delivering domestic content, which is significant value in the growing TPO market. As a reminder, we introduced our fourth-generation battery towards June. The fourth-generation battery stands out for its smaller footprint, enhanced features, easy installation, and reliability. It delivers 30% more energy density, occupies 62% less wall space, and reduces installation cost of backup compared to our prior products.

In addition, our fourth-generation battery system also includes the IQ Meter Collar, which simplifies backup and IQ Combiner 60, which seamlessly integrates solar, batteries, EV chargers, and load control. The IQ Meter Collar is now approved by 39 US utilities, and that list is growing every week. We are making strong progress in building partnerships with REPs as well as VPP operators around the world that are looking for flexible distributed energy capacity. Homeowners can receive attractive compensation for installing Enphase batteries as part of these programs. In addition to the Essent program I mentioned earlier, we signed multiple new contracts with utilities, including one recently with San Diego Community Power.

With advanced APIs, our batteries seamlessly integrate into VPPs in regulated markets like the US and participate in wholesale energy markets in deregulated regions such as Europe and Australia. We are actively engaged currently in over 53 VPP programs worldwide, and this is growing at a strong pace. Let's talk about microinverters. In September, we opened US preorders for the IQ9N commercial microinverter, our first microinverter powered by gallium nitride (GaN). We expect to begin shipping the product in December, as I said earlier. We believe IQ9 marks a major leap in performance and platform flexibility and, most importantly, unlocks the 2-gigawatt market opportunity by enabling us to service 480-volt three-phase commercial systems in the US for the first time.

This represents an approximately $400 million total addressable market for Enphase, which we believe will help drive additional revenue in 2026 and beyond. IQ9 microinverters are expected to meet FIOT compliance as well as domestic content right off the bat, offering a powerful and reliable alternative in a market still dominated by Chinese equipment. Why does GaN matter? GaN replaces legacy silicon power devices to deliver faster switching, better thermal performance, and higher reliability. We have invested over five years in the semiconductor technology, and this rollout sets a new trajectory for cost and performance across our next-generation microinverters, batteries, bidirectional EV chargers, and more. Let's talk about EV charging.

We are now shipping our latest and greatest IQ EV Charger 2 across 18 European countries, as well as Australia and New Zealand. The charger supports up to 22 kilowatts, three-phase charging, and works as a standalone unit or fully integrated with Enphase solar and battery. We have opened US preorders and expect Q4 shipments into the US, with further expansion planned in additional European markets and India. Let me share an update of our IQ Bidirectional EV Charger expected to launch in mid-2026. We showcased this 11-kilowatt solution powered by three high-performance GaN-based microinverters of 3.84 kilowatts each at the recent RE Plus trade show.

The IQ Bidirectional EV Charger only needs to be paired with the IQ Meter Collar for a simple, powerful configuration that enables home backup and grid services. Together, these two components offer one of the lowest-cost and simplest ways to provide whole-home backup, even without rooftop solar or home batteries. Homeowners can just start with this configuration and expand over time by adding Enphase solar and batteries to build a full energy system. Let's now switch to SolarGraph, our all-in-one platform, purpose-built for installers.

We have been rolling out major enhancements, including seamless integration with TPO partners, an express editor that allows installers to quickly adjust proposals on the spot, a powerful custom tariff builder, advanced installer management tools, and a simplified AI-driven design experience. We believe these updates make it easier for installers to service more homeowners at the kitchen table with greater flexibility, speed, and financial transparency. We plan to expand the SolarGraph platform into additional markets and countries and introduce new features to support productivity, sales velocity, and customization for solar installers. Let me conclude. There is a significant change occurring in our market.

The loss of the 25D tax credit is a near-term headwind that will impact our results in early 2026, but we believe there is also tremendous positive change that is bolstering the long-term outlook for our business. We are entering an interest rate reduction cycle, which historically has been a catalyst for the residential solar sector. Our price outlooks are surging on the back of AI power demand as well as overall electrification growth. Utilities are struggling to keep up with this demand, creating bottlenecks and price inflation across the grid that are poised to accelerate. We provide homeowners and commercial businesses with an easy off-ramp from this price inflation with a solution that can be interconnected in ninety days.

The US residential and commercial rooftop solar industry brings on nearly 2 gigawatts of new power interconnected to the grid every quarter. With the 48E tax credit expanding to more customers in 2026 through innovative financing solutions like prepaid leases, we see an attractive value proposition for solar driving recovery in 2026 and beyond.

We are laser-focused on the revenue drivers we can control: growing battery sales with our fourth-generation battery, expanding into the 480-volt commercial market with GaN microinverters, capitalizing on battery retrofits to our solar installed base in the Netherlands, ramping our newest EV chargers now, and the bidirectional EV chargers, which will launch later in 2026, and last, launching our fifth-generation residential batteries along with IQ9 residential microinverters to reduce system costs significantly for residential solar in both the US as well as Europe. We remain focused on operational excellence, product reliability, quality, and customer service, delivering best-in-class solutions for our long-term growth markets. With that, I will turn the call over to Mandy for her review of our financial results.

Mandy?

Mandy Yang: Thanks, Badri, and good afternoon, everyone. I will provide more details related to our 2025 financial results, as well as our business outlook for 2025. We have provided reconciliations of these non-GAAP to GAAP financial measures in our earnings release posted today, which can also be found in the IR section of our website. Total revenue for Q3 was $410.4 million. We shipped approximately 784.6 megawatts DC of microinverters and a record 195 megawatt hours of active batteries in the quarter. Q3 revenue included $70.9 million of safe harbor revenue. As a reminder, we define safe harbor revenue as any sales made to customers who plan to install the inventory over more than a year.

Non-GAAP gross margin for Q3 was 49.2% compared to 48.6% in Q2. GAAP gross margin was 47.8% for Q3. Non-GAAP gross margin without the NII benefit for Q3 was 38.9% compared to 37.2% in Q2. Reciprocal tariffs impacted our gross margins by 4.9% in GAAP and non-GAAP gross margin for Q3 also included $42.5 million of net IIA benefit. Non-GAAP operating expenses were $78.5 million for Q3 compared to $77.8 million for Q2. GAAP operating expenses were $130.1 million for Q3 compared to $133.5 million for Q2. GAAP operating expenses for Q3 included $47.4 million of service compensation expenses, $2.9 million of acquisition-related amortization, and $1.3 million of restructuring and asset impairment charges.

On a non-GAAP basis, income from operations for Q3 was $123.4 million compared to $98.6 million for Q2. On a GAAP basis, income from operations was $66.2 million for Q3 compared to $37 million for Q2. On a non-GAAP basis, income for Q3 was $117.3 million compared to $89.9 million for Q2. This resulted in non-GAAP diluted earnings per share of $0.90 for Q3 compared to $0.69 for Q2. GAAP net income for Q3 was $66.6 million compared to $37.1 million for Q2. This resulted in GAAP diluted earnings per share of $0.50 for Q3 compared to $0.28 for Q2.

We exited Q3 with a total cash, cash equivalents, and marketable securities balance of $1.48 billion compared to $1.53 billion at the end of Q2. The five-year convertible notes we raised in 2021 are coming due in March, and we expect to settle the principal amount of $632.5 million at maturity with our cash on hand. As of 09/30/2025, we have approximately $280 million of production test credit (PTC) receivable on our balance sheet, net of income taxes payable. $108 million is related to US-made microinverters shipped to customers in 2024, and $172 million is for shipments made in the first nine months of 2025.

As we elected direct pay, the net PTC would be refunded by the IRS through our annual tax return filing. Due to extended IRS processing timelines, we expect to receive 2024's $108 million payment from the IRS in Q2 next year. We expect to receive our 2025 test refund sometime in 2027 based on the current estimated IRS processing time. Part of our antidilution plan, we spent approximately $1.7 million by withholding shares to cover taxes for employees vesting, which reduced the diluted shares by 49,023 shares in Q3. There were no repurchases of our common stock in Q3 due to our limited free cash flow generation in the quarter.

We are evaluating opportunities to accelerate the monetization of our PTC. Our remaining buyback authorization is approximately $269 million, and we remain confident in our overall business outlook over the long term. In Q3, we generated $13.9 million in cash flow from operations and $5.9 million in free cash flow. Capital expenditure was $8 million for Q3, compared to $8.2 million last quarter. Now let's discuss our outlook for 2025. We expect our revenue for Q4 to be within a range of $310 million to $350 million, which includes shipments of 140 to 160 megawatt hours of IQ batteries. The revenue guidance doesn't include any safe harbor transactions.

We expect GAAP gross margin to be within a range of 40 to 43%, including approximately five percentage points of reciprocal tariff impact. We expect non-GAAP gross margin to be within a range of 42 to 45%, excluding stock-based compensation amortization. Even considering the vast majority of our manufacturing occurs in the US, and due to fluctuating tariff impacts to our international manufacturing cost baseline, we would no longer be guiding it without the net IRA credit. As always, gross production test credits earned will be reported in our 10-Q quarterly statement and 10-K annual financial report filed with the SEC.

GAAP operating expenses are expected within a range of $130 to $134 million, including approximately $53 million estimated for stock-based compensation expenses, acquisition-related amortization, and restructuring and asset impairment charges. We expect our non-GAAP operating expenses to be within a range of $77 million to $81 million. For 2025, we expect our tax rate to be 18 to 20%, and the non-GAAP tax rate to be 14 to 16%. With that, I'll open the line for questions.

Operator: Ladies and gentlemen, we will now begin the question-and-answer session. To ask a question, you may press star and then one on your touch-tone phones. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and two. We do also ask that you please limit yourselves to one question and a single follow-up. Please note that you may rejoin the question queue if you have additional questions. At this time, we will pause momentarily to assemble the roster. Our first question today comes from Colin Rusch from Oppenheimer. Please go ahead with your question.

Colin Rusch: Thanks so much, guys. Can you talk a little bit about the dynamic going into the first quarter of next year in terms of the amount of inventory that you feel like is appropriate? Are you still thinking about having eight to ten weeks' worth of inventory out in the channel as you enter into the first quarter of next year?

Badri Kothandaraman: Colin, you may not have heard our comments. We anticipate an overall sell-through for the company to be between $350 to $400 million in Q4, but we are only guiding Q4 revenue in the range of $310 to $350 million. Therefore, you can do the math, and that represents approximately $45 million of undershipment at the midpoint. So we are very cautious. We want 2026 to have a very healthy setup in the channel. Our rule of thumb is ten weeks. That's our rule of thumb, so we'd like to be abundantly cautious and not overload the channel. That's why we gave the revenue guidance from $310 to $350 million.

Another reason for our reduced Q4 guidance is we had about $70 million of safe harbor pulled in from Q4 to Q3, as customers wanted the product before the US Treasury guidance in Q3. So we beat the guidance handily for Q3, but we are more cautious for Q4.

Colin Rusch: Thanks. I'll take the clarification offline. With the new battery, can you talk about pricing dynamics? Are you able to push through incremental price increases with the incremental functionality, or are you using some of that functionality as a way to pick up share?

Badri Kothandaraman: We are not raising any prices. In fact, I'm sure you know over the last two quarters, there have been tariffs, so we pay approximately over 40% tariff on the cell packs coming from China, as well as the cost of making batteries in the US being quite expensive. On the other hand, what we have done is not change pricing. Our position is to capture share. You see our gross margins are already pretty healthy. Our gross margins for Q3 were 49% despite including a 5% tariff in that 49%. Our gross margins are good, and the way our gross margins will become even better on batteries is we are working on our fifth-generation battery.

That fifth-generation battery will take the cost down significantly. It is a 100 ampere-hour cell pack and much higher energy density, almost 50% compared to the fourth-generation battery. The power electronics are collapsed into one single board. It's a very elegant form factor. It's a stackable battery. You can put 20 kilowatt hours, and it will appear like a monolithic structure on the wall, not as a group of four boxes. We are going in the right direction on batteries. The fourth-generation battery is expected to make a dent because what we have done—our third-generation battery was very good for grid-tied backup, which is prevalent in California due to NEM 3.

However, our fourth-generation battery can do both grid-tied and backup for almost the same cost. Backup comes with slightly more cost due to the addition of the meter collar, which is a few hundred dollars only. We introduced that product into the channel, started shipping in June, and installers started originating around that timeframe. It takes installers anywhere from sixty to ninety days from that origination time to start installation. We introduced the domestic content fourth-generation battery in August, manufacturing in the US. We are in a very healthy clip. Just as a statistic, in Q3, of our total battery shipments into the US, the fourth-generation battery constituted 40% of the overall US shipments.

Colin Rusch: Thanks, guys.

Operator: Please go ahead with your question.

Brian Lee: Hey, everyone. Good afternoon. Thanks for taking the questions. I had two questions, mostly around the guidance. One is, the non-US revenue, I know you, Badri, walked through some of the European country-by-country statistics, but it's really the lowest it's been since 2021. Non-US revenue, I'm just trying to understand a little bit what's going on. I know there's seasonality in Europe. I know the market's weak, but it seems like you're underperforming peers. Is there something company-specific going on whether it's product shift or market share or price? And then can you give us a sense of what the go-forward is? Is Q4 going to be about the same? Is it down further?

Just trying to understand what the recovery path looks like given this low base we're at now. And then I had a question on margins as well.

Badri Kothandaraman: You're correct on what you said, that Europe has got seasonality in Q3, so we are seeing a portion of that. But you know, the markets we are in, basically Netherlands, I described the dynamics to you. It is the end of net metering in the Netherlands, so it's an uncertain time for solar there. What recovery looks like is we just announced a large partnership with Essent, and it's a huge opportunity there. We have 475,000 homes with solar, and unlike the US, their energy contracts in the Netherlands expire or are only valid for one to three years, for example.

So when they have the new energy contract, at that time, their utility bills for people who have bought solar are going to be higher. In order to prevent that situation, there's a very elegant option there, which is to buy batteries for self-consumption for the customer while the utility pays you in order to support imbalance for the utility. So it's really a beautiful option which suits our battery sales throughout 2026. So basically, we see a weak solar market due to net metering going away but with the potential to become a strong solar-plus-battery market in the Netherlands. In France, what has happened is, again, in 2025, the feed-in tariffs, France used to be quite healthy.

France used to have net metering. The feed-in tariff was quite good. The export incentive was not as high as the import incentive, but it was pretty good. That export incentive has now been reduced to a very small amount. So in France, also, self-consumption is the name of the game. And because of that, the market in France has reduced quite significantly. As you know, Enphase has more than 50% market share in France. So we see that. However, what we are doing there is basically sell solar plus storage to end consumers. Their payback is going to go up compared to what they had before but will be manageable of the order of eight to ten years.

For people who cannot afford to add batteries, we are also coming up with a solution to steer their solar and not export it back to the grid. Steering the solar can be diverting the solar to an EV charger, diverting excess solar to a heat pump, or diverting excess solar to a hot water heater. We have introduced all of these solutions as well. So in France, it is the elimination of the 5.5% VAT tax for sub-9 kilowatt installations should give a boost, but it is not giving today because of an added criteria of a low-carbon content panel. The industry is trying to meet that by ramping on low-carbon panels, which may take a little time.

But we expect the market to recover. However, it is going to be a solar-plus-battery market. It's not going to be the same as what it was before. Similarly, in Germany, there have been various start-stops. There have been reductions in feed-in tariffs. Germany, our performance is a little better because we work with a couple of the leading installers in Europe who are headquartered in Germany. So we're doing okay there. In the UK, we have a strong partnership with one of the top RDPs. The same thing there. It's the solar-plus-storage market. We just introduced backup capability as well. So that market is stable.

So really, what we are talking about is the Netherlands and France, where we have clear plans. Because of the big reduction in the time, there is a lot of competition. I do have to acknowledge that competition. So what are we going to do? We believe our response to the competition is innovation. What are we going to innovate on? Our third-generation FlexPhase battery is the mainstream battery in Europe. In a couple of quarters from now, we are going to have the fifth-generation battery, which is going to take the costs down significantly. It is going to be an AC-coupled battery with modularity, high quality, superior serviceability, and a stackable design with an outstanding cost structure.

In addition to that, we are also going to be introducing IQ9 starting early 2026 for residential microinverters. IQ9 with GaN also can support up to 10% higher power for the same cost structure. So cost per watt for the installers is a big deal, and we are going to make sure that their system cost is reduced significantly. I talked a lot, but that's how the trajectory looks for us in Europe.

Brian Lee: No. I appreciate all that additional color. Maybe just one on the margins. The guidance, you know, at the midpoint, non-GAAP gross margin guidance, 43.5%. I mean, it's lower than you've seen in some time. You did 49% this quarter. Can you kinda help bridge the gap why margins are down so much? And then sort of additional margin decline should we expect on the $250 million revenue low point that you telegraphed for Q1 next year? Thank you.

Badri Kothandaraman: Yeah. Our margins are impacted by a 5% reciprocal tariff, as we said. So that's the straight answer. Without the reciprocal tariff introduced in 2025, we would be at 48.5%, which is a reasonable number. Now, on which products is that affecting us? It's mainly on batteries for us because the batteries have a 40% tariff. We have diversified our supply chain well enough on microinverters in the last three to five years that our microinverter impact is not that high compared to batteries. So what does recovery in gross margin look like?

The recovery in gross margin is when our battery costs come down, and that is by moving to non-China sources, which we are going to move by early 2026 when we plan to ramp up our non-China batteries as well as our fifth-generation battery, which will result in a step change in cost. At this time, it is too early for us to talk about our Q1 gross margins, but you can see that we have managed the last two years, in fact, with our gross margins quite stable. Our gross margins have been in the 45 to 50% range all the time in the last two years where there has been significant pressure in revenue.

So we expect to manage like that. It's too early to talk about Q1 guidance.

Brian Lee: Just a super quick clarification. I think, Badri, you said the gross margin result included a 4.9% tariff impact. So you're saying there's an incremental five percentage point impact in the Q4 guidance? So it's not a flat impact Q to Q. It's an incremental 5%? I just wanna clarify that.

Badri Kothandaraman: Let me say it like this. In Q3, we shipped a lot more microinverters because of the $70.9 million safe harbor shipments, which were all microinverters. Therefore, our gross margin was elevated. Yes, that is correct. Our gross margin was 49%, and if we did not have the reciprocal tariff, the gross margin would have been 54%. What we are saying in Q4, our gross margin is 43.5%, and that reflects more a normal mix. We have not yet indicated any safe harbor right now at this point in time. That could change. But with the current mix, we are talking about 43.5%, including a 5% tariff impact.

That means without that 5% reciprocal tariff impact, our gross margin would have been 48.5%.

Brian Lee: Thank you for the clarification. Appreciate it.

Zachary Freedman: Yep.

Operator: Our next question comes from Phil Shen from Roth Capital Partners. Please go ahead with your question.

Philip Shen: Hey, thanks for taking my questions. Wanted to ask if we could get some more color around the safe harbor approach using the physical work test. But thus far, historically, at least through this safe harbor season, you guys have done more safe harbor, I think, or all safe harbor was the 5% of FMB with your customer. And so with the physical work test that you guys announced, or talked about today, can you talk to us about how you're helping your customers satisfy that test?

In the past, I've heard something about a customized bracket or something, and so I was wondering how you guys are helping your customers do that. And then from a revenue contribution standpoint, typically, the physical work test likely is less revenue as it's not buying the full microinverter versus the 5% safe harbor effort? So just was wondering if you might be able to talk through that as well.

Badri Kothandaraman: I cannot talk about the details because it is customer-specific on the physical work test, but we are in very active discussions with all our TPO partners. The concept is quite simple. It is a custom product that needs to be done for them with higher performance than the standard product and with a complete custom component that is not in our normal inventory. That's the high-level view. If they are comfortable, meaning the TPO partners are comfortable, their tax folks are comfortable, this is not a bad way to do safe harbor because it reduces their cash outlay. From our perspective, we do not, you know, like all of that revenue in a lump-sum manner too.

It reflects that they only buy that custom component from us and therefore will come back to buy the main microinverter from us at a later stage when they really need it. It's really the best of both worlds. For us, it represents classic linear revenue, you know, quarterly revenue with no lump sum, which is what we like. For them, it represents a possible reduction in the cash that they have to pay compared to the 5% method. It's all goodness. When do they do it?

You do the 5%, perhaps if you want to safeguard 2028, 2029, and 2030, and, of course, as always, the 5% as well as the physical work test have to be approved by their tax partners.

Philip Shen: Great. Thanks for the color there, Badri. Shifting to the prepaid lease concept, we heard from Tesla on their last earnings call that I think they're launching a PPL. I was wondering if you can talk through some of the efforts that you might be seeing out there. Is this something that you guys might actually participate in on your side? And on a different topic, C&I, it seems like the outlook might be kind of improving there in the sense that a lot of small residential EPCs that historically were dependent on the 25D might be shifting over to the small-scale C&I market.

Was wondering if that might be a source of strength for you guys as some of these smaller EPC EPCs, maybe the megawatts are down in resi, but they can gain some of that back and, again, that small-scale C&I.

Badri Kothandaraman: There has been a lot of talk about PPL or prepaid lease in the industry. We have heard independently of us that a few companies are looking at PPL and going to offer PPL. We are also working with a few partners closely. Our opinion—this is our opinion only—is that the BPL with a loan could be very attractive. The consumer has the option of ownership after year five. The TPO gets the 48E tax credit while the consumer gets a lower monthly payment, with no escalator. So this has the economics of a loan structure with the 25D tax credit. We believe that there is a promise for this structure to revive the 25D loan market.

We all talked about the 25D loan market will go away, but the prepaid lease with a loan may help that market to be revived. That's our opinion. Of course, it is going to take some time to introduce this and get everybody comfortable, but our job—what's our job in it? Our job is to support our TPO partners. Our job is to bring our long tail of installers and give them access to such a structure. Our job is to help them in O&M, operations, and maintenance, because we are really the right people to do it.

Our job is to help them in SolarGraph, where modeling of such a prepaid lease can be done in a relatively simple manner. In addition to things like safe harbor support or tax equity support, we are looking forward to working with our partners to bring that structure while all the communication will come from those partners. It will not come from us. Our job is to help and support them. Let me leave it at that.

Philip Shen: Great. Just a quick follow-up, as it relates to your job. You mentioned tax equity support. Could that mean you could provide some of your tax liability, and from a financial standpoint, how much might you guys contribute to this effort?

Badri Kothandaraman: Yes. We are not going to give a number. Also, you asked about C&I. I realized I forgot to answer the question on C&I. C&I, we're very excited. It's the first time Enphase has done a 480-volt three-phase product. If you look at the small C&I market, 80% is 480. 20% is the 208-volt three-phase. With gallium nitride, we are now able to do the 480-volt market. It's 480-volt line-to-line. 277 line-to-neutral. The advantages of the microinverter are the same. Exceptional reliability, exceptional thermal performance, rapid shutdown compliance, US manufacturing, domestic content, FIOT compliant. So it's an excellent product and we are going to be selling and marketing this very aggressively. We expect this to make a dent.

As you said, we are also seeing the same thing. Some of our residential installers are also considering getting into the small commercial solar opportunities because that is a more stable market right now.

Operator: Our next question comes from Praneeth Satish from Wells Fargo. Please go ahead with your question.

Praneeth Satish: Thanks. Maybe just starting on the Q1 2026 outlook of $250 million. Can you provide any more detail on how you're sizing the expected decline in the US post-25D? Is that based on consultant forecasts or do you have a real-time feed of demand? Are you seeing any change over the last few weeks now that it's presumably too late to secure the 25D credit?

Badri Kothandaraman: We're not going to give any numbers on that. We thought we would give you a preliminary look, and that look is $250 million. That's not guidance, but it's a preliminary look. Let me describe the forecasting process. In the company, we run a process which is a rolling six-quarter forecasting. We look at it on a monthly basis. Every month, the job of every sales guy is to go look at his accounts bottom-up, talk to his customers, and then roll up the view for the headquarters. We have a meeting about it and decide what to do.

I'm not saying we have a 100% certain view, but we usually understand the trends reasonably and can make some informed decisions. That is how we decided to give you our preliminary look today.

Praneeth Satish: Got it. Just following up on that, on the battery side, can you comment on why in the Q4 guidance, it's showing a 50 megawatt-hour drop? For the Q1 2026 outlook, recognizing it's preliminary, is that based on the Q4 battery level or does it assume any pickup or market share gains tied to the 10C launch?

Badri Kothandaraman: It's mainly a function of getting into 2026 with a healthy channel. For the Q4 guidance, we expect the guidance to be within 140 to 160 megawatt hours. For Q1, we expect to do well in batteries. We don't expect batteries to be impacted too much next year because the batteries are still in reasonable shape. As far as 48E is concerned, the batteries have a much longer lease of life. We are well positioned in batteries. We have FIOT compliance. We have domestic content. Our IQ Meter Collar is now qualified with 39 utilities, arguably similar to our leading competitor there. We can cut installation costs for backup significantly. We're excited about the battery.

The installation times are also pretty small. I'm talking physical installation time as compared to the third-generation battery. The only thing about the batteries is the tariffs are high. We have not increased prices. We have held the pricing because we want to gain more share there. The tariffs are high. I described how we will improve the gross margins of batteries. I'm not going to go there again, but that's our strategy.

Operator: Our next question comes from Christine Cho from Barclays. Please go ahead with your question.

Christine Cho: Thank you for taking my question. Just a follow-up on that $250 million revenue number for Q1. Would you say that this is kind of what you're expecting sell-through to be? Or would you expect some destocking to continue in the first half of next year?

Badri Kothandaraman: I would expect equilibrium there, maybe slightly higher, but it's too early for me to say.

Christine Cho: Slightly higher what?

Badri Kothandaraman: Sell-through is slightly higher than $250 million.

Christine Cho: Okay. Apologies if I missed it. With the prepaid lease structure that you know, you've been talking about that you're gonna launch with partners. When should we expect to like, an update with more detail? With respect to safe harbor, for you know, this entity, should we think that it's gonna be a physical work test here or would it be 5%? If the latter, how would you and the partners go about forecasting annual demand for this product, given that there hasn't been great historical data?

Badri Kothandaraman: Yeah. That's a lot of loaded questions there. Quite simple, the prepaid lease will be announced by our partners. We are not going to tell you an exact date. You'll see it when you see it. That's one. Hopefully, in Q4. Yeah. Hopefully, in the current quarter. Number two, is again too early for me to talk about safe harbor physical work tests or 5%. But let me give you some general color. We are talking with all TPO partners about both forms. There was a misconception that Enphase will not do a 5% physical work test. They will only do 5% safe harbors. That is not true. We do whatever the 5%. So we work with our DPO partners.

We work on both methods of safe harbor, and we plan to do that even with the PPO.

Operator: Our next question comes from Dylan Misano from Wolfe Research. Please go ahead with your question.

Dylan Nassano: Hi. Thanks for taking my question. I appreciate the early look into Q1 2026. Are you expecting to have to take any further actions to reduce OpEx heading into that? Can you just give us some color around what kind of OpEx model you're considering for 2026, given the uncertainty around how demand could ramp through the year?

Badri Kothandaraman: I just point you to how we have managed OpEx in the last two years of the downturn. This quarter, for example, with almost half the revenue that we once had, we're talking about a 49% gross margin. The OpEx was approximately 19% and 30% operating income. We are laser-focused on operating income and operational excellence. Our run rate today is $80 million a quarter, non-GAAP. It's safe to say we are going to be looking at our expenses to trim down spending to track revenue. It's also safe to say we won't compromise on any innovation activity or anything that affects customers adversely.

Dylan Nassano: Thanks for that. If we can go back to the conversation around the PPL. Badri, I think you were saying how Enphase is well suited to offer the O&M service. Can you just clarify, is that expected to be an enhanced revenue stream for you guys? If so, could you just kinda level set us on what that could look like in terms of margins or how much you could get?

Badri Kothandaraman: It is too early for me to talk about any numbers there, but the concept is quite simple. If the TPO partner uses our equipment, we are the best ones to do operations and maintenance. We have a very big data analytics team who basically looks at problems, identifies trends, fixes problems online, and if necessary, sends our field service technicians on-site. That is why our NPS is 77%, with a call wait time of two minutes. In our partnership with the DPOs, they find this one attractive. For instance, in a market like Puerto Rico, if we can come in and help with O&M for batteries, that's something that TPOs would welcome. There are similar opportunities elsewhere.

It also helps us to structure partnerships where we might offer incentives on the BeatOn owner. Each TPO partnership is unique, and we cannot generalize it. At the same time, it's too early for us to give you color on the numbers. Additionally, there is SolarGraph as well. We have been in the design and proposal and permitting business. SolarGraph has become very robust. We worked on the platform for three years. We have many installers using the platform, and we are building all the TPO partners. They can all be accessed through the platform. Similarly, the PPL can be accessed through the platform and sold at the kitchen table by the installer.

Of course, there is a lot of work that needs to happen for that. But we are there in order to do that work. The SolarGraph integration, operations and maintenance, safe harbor support, and tax equity support on an as-needed basis are the benefits that we offer.

Operator: Our next question comes from Julien Dumoulin-Smith from Jefferies. Hey. Thanks, team, very much. Appreciate it.

Julien Dumoulin-Smith: Maybe to follow up on this $250 million, obviously, you guys are speaking to the year-over-year trends here. How do you think about that annualizing? What's the early expectation about the offsets here? Be it PPL plus a loan or what have you? That would otherwise mitigate it. You describe it as a seasonal trend and an exacerbated seasonal trend of Q1. But what's to suggest that doesn't persist? Like, if you adjust your Q1 25 for the safe harbor, it looks like it's down almost 20%, which is consistent with industry trends that are contemplated for the full year '26. Can you speak to maybe the cadence of '26 and what you're seeing?

You talked about these early strong developing trends on PPL. Is that supposed to mitigate in the back half of next year, for instance?

Badri Kothandaraman: It's impossible now for me to provide any quantification. But what we said is the following: We are constructive on the balance of the year. We said there are three external drivers that support recovery. One is the power pricing, which you're aware. It's increasing by 5% this winter, with additional increases expected in 2026. AI is going to make these increases even more. Second, the interest rates are declining, easing affordability. There are multiple interest rate cuts for next year. Third, the PPL, new attractive financing solutions that are entering the market to help offset the loss of 25D. Really, the BPL with the loan could help offset the loss of the loan portion of the 25D.

These drivers could enable a decent recovery in the second half. That's what we think. That's our view. Then, in addition, we see several Enphase-specific revenue drivers. I'm very excited about the progress with the fourth-generation battery. 40% of our shipments in Q3 into the US belong to the fourth-generation. Installers are just getting their hands on and starting to install the product. We are qualified now at 39 utilities with the meter collar. The meter collar is indeed a differentiated install because it reduces the cost of backup significantly. Next, we are entering the 480-volt commercial market, which we didn't have before. So that's Enphase specific.

Third, strategic partnerships that we recently announced to capture the battery retrofit opportunity in the Netherlands.