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Date

Tuesday, Feb. 3, 2026 at 4:30 p.m. ET

Call participants

  • President and CEO — Badrinarayanan Kothandaraman
  • Chief Financial Officer — Mandy Yang
  • Chief Product Officer — Raghu Belur

Takeaways

  • Revenue -- $343.3 million reported; US revenue was 89% of total and international was 11%.
  • Sequential revenue trend -- US revenue decreased 13% and Europe revenue decreased 29% compared to the prior quarter.
  • Gross margin -- Non-GAAP gross margin was 46.1% versus 49.2% in the previous quarter; GAAP gross margin was 44.3% versus 47.8%.
  • Tariff impact -- Reciprocal tariffs negatively affected gross margins by 5.1 percentage points.
  • Operating income -- Non-GAAP operating income was $79.4 million; GAAP operating income was $22.4 million.
  • Net income -- Non-GAAP net income was $93.4 million; GAAP net income was $38.7 million.
  • Earnings per share -- Non-GAAP diluted EPS was 71¢; GAAP diluted EPS was 29¢.
  • Free cash flow -- $37.8 million generated for the quarter; $95.9 million generated for the full year.
  • Cash position -- $1.51 billion in cash, cash equivalents, and marketable securities at quarter end.
  • Debt maturity -- $632.5 million of convertible notes maturing March 1, 2026; plan to settle with cash on hand.
  • Production tax credit (PTC) receivable -- $337 million net PTC on the balance sheet; $109 million related to 2024 US-made microinverter shipments, $228 million for 2025 shipments.
  • Safe harbor revenue -- $20.3 million recognized in the quarter; guidance includes $35 million for the upcoming quarter.
  • Microinverter shipments -- Approximately 1,310,000 units shipped from US manufacturing; 682.6 MW DC total shipped.
  • Battery shipments -- 150.1 MWh shipped; 51.1 MWh of IQ batteries produced in Texas meeting domestic content requirements.
  • Channel inventory -- Management cited lean US and international channel inventory, with weeks on hand at or below typical levels.
  • Sell-through growth -- US product sell-through increased 21% sequentially; batteries up 27%, microinverters up approximately 21% compared to prior quarter.
  • Operating expenses -- GAAP operating expenses were $129.6 million; non-GAAP was $78.8 million; stock-based compensation was $48.6 million.
  • Headcount reduction -- Workforce reduction of around 6% announced to reduce expenses; non-GAAP operating expenses guided down to $70 million–$75 million per quarter beginning in 2026.
  • Q1 2026 guidance -- Revenue range of $270 million–$300 million; includes 100–120 MWh of battery shipments and $35 million safe harbor revenue.
  • Q1 2026 gross margin guidance -- GAAP gross margin of 40%–43%, non-GAAP gross margin of 42%–45%; both include approximately 5% reciprocal tariff impact.
  • Product rollouts -- Fifth-generation battery targeting 50% higher energy density and 40% lower cost versus prior generation; IQ9 commercial microinverter platform introduced, addressing a $400 million TAM.
  • Domestic manufacturing -- US-made products help customers qualify for the 10% ITC domestic content adder; first non-China battery expected in Q1 and full shift planned for 2026.
  • Share repurchases -- No stock repurchased in the quarter; $269 million remains under authorization; $1.4 million used for tax withholding on employee stock vesting.

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Risks

  • Gross margins continue to be negatively affected by reciprocal tariffs, which management said are now in effect in every major manufacturing location and contributed to a 5.1 percentage point reduction in Q4.
  • Management reported limited visibility on timing for receiving the $109 million PTC refund from the IRS for 2024, noting IRS processing delays.
  • Headcount was reduced by around 6% in order to better align the workforce with business needs and drive down operating expenses, signaling ongoing cost pressures.
  • European solar markets face challenging demand conditions and heightened pricing pressure, prompting a 20% microinverter price cut at distributors in November to address intensified competition.

Summary

Enphase Energy (ENPH +2.22%) delivered quarterly revenue of $343.3 million, with US sales comprising 89% of the total, and recognized $20.3 million of safe harbor revenue amid contracting US and European revenues. Management provided Q1 2026 revenue guidance of $270 million–$300 million and forecasted GAAP gross margin of 40%–43%, with ongoing 5 percentage point tariff headwinds. The company reported a $1.51 billion cash position and plans to use liquidity to settle $632.5 million of debt maturing in March 2026. Enphase advanced its new product rollout, including the fifth-generation battery with significant cost and density improvements, and launched the IQ9 commercial microinverter targeting a $400 million TAM. The company executed a 6% workforce reduction to reduce costs and indicated that headwinds from tariffs, European pricing, and delayed US tax refunds remain material operational considerations for 2026.

  • CEO Badrinarayanan Kothandaraman stated, "believe Q1 marks the low point for underlying demand, with improvement expected through 2026, particularly in the second half."
  • Management expects Q2 revenue to increase sequentially and highlighted anticipated "frenzy activity" in safe harbor orders from TPO partners through Q2 and Q3.
  • Fifth-generation batteries are slated for customer pilot deployment in 2026, with shipments expected in Q4 to enable a step change in cost structure despite tariff impacts.
  • IQ9 commercial microinverter shipments began in December and initial Q1 2026 bookings have already reached $5 million–$10 million.
  • European retrofit battery demand is expected to accelerate, with management citing over 475,000 installed systems in the Netherlands representing a $2 billion market opportunity.
  • Reciprocal tariffs on inputs now affect microinverters, batteries, and accessories from all international sources, closing prior arbitrage opportunities and amplifying cost structure pressure.
  • In France and the Netherlands, management is driving targeted homeowner outreach and partnership initiatives, including over 100 planned homeowner events in the Netherlands, to build retrofit demand ahead of regulatory changes.
  • A headcount reduction is expected to bring non-GAAP operating expenses to $70 million–$75 million per quarter, beginning in 2026.
  • Management signaled the intent to shift battery cell sourcing outside China, despite a projected 20%–25% increase in non-China supplier costs, to reduce tariff exposure.
  • GAAP and non-GAAP earnings both declined versus the prior quarter, as did operating margins, reflecting deteriorating top-line trends and tariff costs.

Industry glossary

  • Safe harbor revenue: Sales made to customers planning to install inventory over more than a year, qualifying for specific tax incentives under IRS safe harbor guidelines.
  • Production tax credit (PTC): Direct federal incentive—here, for US-manufactured microinverters—accrued as a receivable, with timing and payment subject to IRS processing.
  • Reciprocal tariff: Import duties applied to products or components sourced from any non-US country, including Malaysia and Vietnam, affecting gross margin across product lines.
  • Third-party owner (TPO): Entities that own residential/commercial solar systems deployed by installers, often claiming incentives and offering prepaid or lease financing structures.
  • ITC adder: The 10% domestic content bonus on the federal Investment Tax Credit, accessible to projects meeting US content thresholds.
  • PowerMatch: Enphase's software technology dynamically aligning battery output with real-time demand, purported to improve battery performance and usable energy.
  • FIOQ requirement: Federal Incentive Optimization and Qualification standards for domestic content and compliance used in energy project financing and tax credit eligibility.
  • VPP (virtual power plant): Aggregated, distributed energy resources—such as batteries and solar—that collectively provide grid services including demand response and ancillary support.

Full Conference Call Transcript

inverters, and 150 megawatt hours of batteries, and generated free cash flow of $37,800,000. Our Q4 revenue included $2,300,000 of safe harbor revenue. US consumers pulled forward purchases ahead of the section 25D tax credit deadline, helping us exit 2025 with a lean channel. For Q4, we delivered a 46% gross margin, above the high end of our guidance range, 23% operating expenses, and 23% operating income, all as a percentage of revenue on a non-GAAP basis. Mandy will go into our financials later in the call. Our global customer service NPS was 79 in Q4 compared to 77 in Q3. Average call wait time was 1.6 minutes.

We piloted an AI assistant in the Enphase app in Q4 and plan to roll it out in Q1 to help customers manage their systems intuitively. We also plan to pilot an AI assistant for installers in Q1 to help them manage their fleet and identify upgrade opportunities.

Let's talk about operations. In Q4, we shipped approximately 1,310,000 microinverters from our Texas and South Carolina manufacturing facilities and booked associated section 45X production tax credits. These domestically made microinverters help residential leads and PPA providers, as well as commercial asset owners, qualify for the 10% domestic content ITC adder. In Q4, we shipped 51.1 megawatt hours of IQ batteries from our Texas manufacturing facility, meeting applicable domestic content requirements and helping lease PPA customers qualify for ITC bonuses. We continue to differentiate through our ability to deliver domestic content and meet FIOQ requirements as regulatory standards tighten.

Also, we expect to receive our first non-China battery in Q1 and remain on track to scale non-China cell supply into battery production in 2026.

Let's now cover the regions. Our US and international revenue mix for Q4 was 89% and 11%, respectively. In the US, our revenue decreased 13% in Q4 compared to Q3, primarily due to safe harbor revenue of $20,300,000, compared to $70,900,000 in Q3. The overall sell-through of our products increased 21% in Q4 compared to Q3, to the highest level in more than two years. The strong demand trends that we saw at the beginning of Q4 continued till the end of the year, driven by increased solar and battery installation ahead of the expiring section 25D tax credit. In Europe, our revenue decreased by 29% in Q4 compared to Q3, while our sell-through decreased by 23%.

The overall business environment across the region is still challenging. We are staying disciplined, managing the channel, and focusing on targeted growth areas for 2026.

I will provide some additional color on the key markets in Europe. We are making steady progress towards a large battery retrofit opportunity. In the Netherlands, solar demand remained soft in Q4, driven by structural changes in the market. Rising solar export penalties and the planned phase-out of net metering by 2026 are shifting economics decisively towards self-consumption, strengthening the case for batteries. With an installed base of approximately 475,000 Enphase residential solar systems, we estimate a total opportunity of roughly $2,000,000,000 for batteries. We are seeing early traction from targeted homeowner outreach, including homeowner events and direct marketing, and are expanding partnerships with retail energy providers that offer compelling VPP economics.

With continued rollout of software capabilities like PowerMatch and the launch of our fifth-generation battery later this year, we believe we are very well positioned to lead the battery transition in the Netherlands.

In France, reduction in feed-in tariffs is shifting residential solar economics towards self-consumption, increasing the interest in batteries, particularly for new installations. With approximately 375,000 Enphase residential solar systems installed in France, the retrofit opportunity is more modest than in the Netherlands due to fixed energy contracts. But overall battery adoption is still gaining traction. New business models, including battery leasing, are emerging, and we expect the battery demand in France to build steadily through the year, supported by anticipated increases in utility rates and evolving dynamic tariffs. Across Europe, competition remains intense. Pricing pressure is high as installers adapt to a tougher demand environment.

We are responding by controlling costs within our current products and aligning pricing to market realities, including our microinverter price reductions, which we implemented across Europe in November. At the same time, we are investing in next-generation products very strongly. Both IQ9 microinverters and our fifth-generation battery platform. We expect to deliver structural cost improvements in these products, which enable attractive pricing and sustain healthy gross margins. Our focus remains on supporting our installers and competing effectively as the market evolves.

In Australia, we see a meaningful battery growth opportunity supported by a mature rooftop solar base and accelerating customer interest in self-consumption, resilience, and VPP. The market is installing larger, more capable storage systems to take advantage of current incentives, and installers are increasingly asking for solutions that are simple to size, expand, and commission. With our fifth-generation system expected later this year, we believe our stackable, scalable, AC-coupled architecture is well aligned with what installers want and what homeowners increasingly value: flexible capacity today and the ability to add more over time.

Let's now discuss the Q1 outlook. During last quarter's call, we shared a view of Q1 revenue to be around $250,000,000. Today, we are providing Q1 revenue guidance of $270,000,000 to $300,000,000. We are approximately 90% booked to the midpoint of our revenue guidance. We continue to believe Q1 marks the low point for underlying demand, with improvement expected through 2026, particularly in the second half. Installer sentiment is also improving as higher utility rates strengthen the customer value proposition, including in several Northeast and Midwest markets that have seen double-digit residential electricity price increases over the last year.

The feedback on prepaid lease offerings is also encouraging, giving installers yet another effective tool to drive solar and battery adoption this year.

Let's talk about financing. Enphase is well positioned to support all major TPOs today. In Q4, we announced two TPO orders totaling $123,000,000, including $55,000,000 under the 5% safe harbor method and $68,000,000 under the physical work test method. We collaborate with TPOs on tax equity support, domestic content, and FIOQ-compliant offerings, O&M services through Enphase Care, and an integrated workflow through SolarGraph for design, proposal, and permit, while also partnering on innovative financing structures. We continue to see prepaid leases as an attractive option, which give homeowners a lower upfront cost today and the option to own the system after five years.

In this structure, the TPO owns the system initially and claims the $40.80 tax credit, then shares that value with the homeowner through a prepaid lease or low monthly payments when paired with a loan. The result is a lower effective cost for the homeowner and economics that look much closer to what customers were used to when the 30% section 25D tax credit was available. We are supporting a TPO-led prepaid lease program that is being field-tested with a loan partner as well as a distribution partner. The program, which uses Enphase equipment, is currently in pilot across four states with approximately 40 installers.

We expect a broader rollout to happen upon completing the pilot successfully and validating the customer experience, installer execution, and financing performance at scale. We expect to share more as the program matures in the coming months.

Let's cover products starting with IQ batteries. Our fourth-generation IQ battery density continues to ramp in the US, delivering a smaller footprint, higher energy density, and a simpler installation process enabled by the IQ meter collar. The collar is now approved by 52 US utilities and growing, serving approximately 30,000,000 customer accounts. We believe this represents the broadest utility approval footprint of any major battery provider today. In California, the meter collar is approved by all three major investor-owned utilities. As software-enabled technology, we also launched PowerMatch in Q4, dynamically matching the IQ battery output to real-time home demand, increasing usable energy, extending battery life, and improving performance by up to 40%.

Unlike hybrid systems that push all power through a single large inverter, PowerMatch activates only the microinverters that are needed, reducing the losses at low power consumption so customers get more usable energy from the same battery capacity.

Let's now cover our fifth-generation battery. We are making significant progress on this battery. It is built from stackable five-kilowatt-hour modular blocks and will scale up to 20 kilowatt-hours in the US and up to 30 kilowatt-hours in other regions. The design targets roughly 50% higher energy density than the fourth-generation battery at about 40% lower cost. When paired with PowerMatch, we believe this platform will offer a compelling combination of performance, flexibility, and value for installers and homeowners. We expect to start pilots in 2026 and start shipping in the fourth quarter. We are making strong progress in partnering with retail energy providers and VPP operators across the globe that are seeking flexible distributed capacity.

In these programs, homeowners can earn attractive incentives from their energy provider for installing and enrolling Enphase batteries. In Q4, we added several programs, the notable being a home battery leasing program with GMP in Vermont and eligibility under San Diego Community Power Solar Battery Savings Program. These partnerships can drive meaningful battery volumes, and we are targeting many more additional VPP partnerships this year.

Let's come to microinverters. In December, we began shipping the IQ9 3P commercial microinverter, built on our GaN-based power conversion architecture. IQ9 is a major step forward for Enphase, expanding us into 480V three-phase commercial systems in the US for the first time, and represents an approximately $400,000,000 total addressable market. Demand is encouraging, with more than 50,000 microinverters ordered for Q1, and early feedback confirms the market need for reliability, FIOQ compliance, and domestic content that IQ9 delivers. We expect to introduce IQ9 for the global residential markets in 2026 and the higher-powered 548-watt version for both residential and commercial markets in the third quarter.

More broadly, our GaN-based microinverter platform gives us a step change in speed, efficiency, and controllability, capabilities that matter as the grid and large electrified loads increasingly demand fast response times and load shaping. We are increasing our R&D investment in these areas to extend our core capabilities to address these demanding use cases. More to come here as we make progress.

Let's cover EV charging. In December, we began shipping our new IQ EV Charger 2 to customers across the US. This charger supports fast level 2 charging up to 19.2 kilowatts on 240-volt service and up to 22.1 kilowatts where 277 volts is available. It also works as a standalone charger or fully integrated with Enphase solar and battery systems. The charger is also available in Europe, Australia, New Zealand, and Canada, with additional availability plans for 2026. Let me share an update on our IQ bidirectional EV charger built on our GaN power platform.

Engineered to work seamlessly with modern 800-volt DC EV architectures, it is a concrete example of our ability to move power efficiently between grid-facing AC and 800-volt DC backbone, and to do so bidirectionally with tight control and protection. We continue to target initial availability in 2026, starting with limited deployment as we complete required certifications, utility coordination, and vehicle compatibility validation. The product is compelling because it pairs simply with the IQ meter collar in the US and a backup switch in Europe to enable a streamlined configuration for seamless home backup, which is V2H, and VPP participation, which is V2G.

We are also in active discussions with multiple auto OEMs on partnerships and will share more as those discussions mature.

Let's cover SolarGraph, our all-in-one design and proposal built for installers. We continue to deliver meaningful upgrades, including fully customizable proposals with inline editing, battery-only proposals, and ranking integration to generate a complete bill of material. We're also expanding AI capabilities, including one-touch design and automation enlightened integration to help installers reduce operational overhead. Looking ahead, we are adding support for commercial system designs to align with our expanding commercial products. SolarGraph remains a core installer enablement tool, especially as TPO integration accelerates.

Let me conclude. We are executing well through a challenging period, and our focus on innovation, quality, and customer service continues to support healthy margins and good market share in US residential solar. We are now extending these strengths into commercial solar, where we believe we can build a meaningful business. We expect the underlying demand to stabilize from current levels, with improvements developing as several tailwinds build. Rising electricity costs are making energy affordability a priority for households. New financing options are expanding how consumers can buy solar, and easing interest rates can further improve affordability. In 2026, we are continuing to evolve from a single product and end-market company to a broader technology platform that can apply our power electronics and energy management strength to significantly larger markets. The transition began five years ago with our entry into residential batteries and is now accelerating with our expansion into commercial solar and our planned entry into commercial batteries, bidirectional EV charging, and additional adjacencies in the year ahead. As the world's power needs grow larger and more complex, we believe Enphase brings a differentiated best-in-class power management foundation to meet them. We are laser-focused on the near-term revenue levers that we can control: number one, accelerating IQ battery density growth; number two, scaling IQ9 GaN microinverters to expand our 480-volt three-phase commercial footprint; number three, unlocking battery retrofits across the Netherlands and France; number four, ramping IQ EV Charger 2 while preparing for bidirectional EV charging later in 2026; number five, launching our fifth-generation residential battery along with IQ9 microinverters to materially lower system cost and strengthen solar economics. With that, I will turn the call over to Mandy for her review of our financials. Mandy?

[speaker 3]: Thanks, Badri, and good afternoon, everyone. I will provide more details related to our 2025 financial results, as well as our business outlook for 2026. 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 Q4 was $343,300,000. We shipped approximately 682.6 megawatt DC of microinverters and 150.1 megawatt hours of IQ batteries in the quarter. Q4 revenue included $20,300,000 of safe harbor revenue. As a reminder, we define safe harbor revenue as any sales made to a customer who plans to install the inventory over more than a year.

Non-GAAP gross margin for Q4 was 46.1%, compared to 49.2% in Q3. GAAP gross margin was 44.3% for Q4, compared to 47.8% in Q3. Reciprocal tariffs impacted our gross margins by 5.1% in Q4. Non-GAAP operating expenses were $78,800,000 for Q4, compared to $78,500,000 for Q3. GAAP operating expenses were $129,600,000 for Q4, compared to $130,100,000 for Q3. GAAP operating expenses for Q4 include $48,600,000 of stock-based compensation expenses and $2,900,000 of acquisition-related amortization, offset by $600,000 of restructuring and estate impairment benefit. On a non-GAAP basis, income from operations for Q4 was $79,400,000. On a GAAP basis, income from operations was $22,400,000 for Q4, compared to $66,200,000 for Q3.

On a non-GAAP basis, net income for Q4 was $93,400,000, compared to $117,300,000 for Q3. This resulted in non-GAAP diluted earnings per share of 71¢ for Q4, compared to 90¢ for Q3. GAAP net income for Q4 was $38,700,000, compared to $66,600,000 for Q3. This resulted in GAAP diluted earnings per share of 29¢ for Q4, compared to 50¢ for Q3. We exited Q4 with a total cash, cash equivalents, and marketable securities balance of $1,510,000,000, compared to $1,480,000,000 at the end of Q3. The five-year convertible notes we raised in 2021 are coming due on 03/01/2026, and we expect to settle the principal amount of $632,500,000 at maturity with our cash on hand.

As of 12/31/2025, we have approximately $337,000,000 of production tax credit or PTC receivable on our balance sheet net of income taxes payable. $109,000,000 is related to US-made microinverters shipped to customers in 2024, and $228,000,000 is for shipments made in 2025. As we elected direct pay for 2024, the net PTC would be refunded by the IRS through our completed 2024 tax return. We have limited visibility to when we will receive the 2024 $109,000,000 refund from the IRS due to its extended processing timeline. We are evaluating our options to get paid sooner for our 2025 PTC.

As part of our antidilution plan, we spent approximately $1,400,000 by withholding shares to cover taxes for employees' stock vesting in Q4. That reduced the diluted shares by 41,767. We did not repurchase our common stock in the quarter because we are prioritizing the most disciplined use of our cash, including preparing for the $632,500,000 of debt maturing next month and preserving flexibility for strategic investments and potential acquisition opportunities. We have approximately $269,000,000 remaining under our share repurchase authorization, and we remain confident in our long-term business outlook. In Q4, we generated $47,600,000 in cash flow from operations and $37,800,000 in free cash flow. Capital expenditure was $9,700,000 for Q4, compared to $8,000,000 for Q3.

This increase was primarily due to continued investment in our US manufacturing and R&D equipment. Now let's discuss our outlook for 2026. We expect our revenue for Q1 to be within a range of $270,000,000 to $300,000,000, which includes shipments of 100 to 120 megawatt hours of IQ batteries. Revenue guidance includes approximately $35,000,000 of safe harbor revenue. 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%, including the reciprocal tariff impact. Non-GAAP gross margin excludes stock-based compensation expense and acquisition-related amortization.

We expect our GAAP operating expenses to be within a range of $137,000,000 to $141,000,000, including approximately $60,000,000 estimated for stock-based compensation expense, acquisition-related expenses, amortization, and restructuring and estate impairment charges. We expect our non-GAAP operating expenses to be within a range of $77,000,000 to $81,000,000. As part of our efforts to better align our workforce and cost structure with Enphase's business needs, strategic priorities, and ongoing commitment to profitable growth, we recently reduced headcount by around 6%. We expect to reduce our non-GAAP operating expenses to be in the range of $70,000,000 to $75,000,000 a quarter starting from 2026. In closing, we managed well with our financial disciplines through a difficult global environment in 2025.

We maintained profitability and strong gross margin. In addition, in 2025, we generated approximately $95,900,000 of free cash flow and approximately $228,000,000 of net PTC receivable. We exited the year with $1,510,000,000 in cash, cash equivalents, and marketable securities while repurchasing 2,300,000 shares of our common stock for approximately $130,000,000. With that, I'll open the line for questions.

[speaker 0]: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. In the interest of time, please limit yourself to one question and one follow-up. If you have additional questions, you may rejoin the queue. At this time, we will pause momentarily to assemble our roster. And the first question will come from Phil Shen with ROTH Capital Partners. Please go ahead.

[speaker 11]: Hi, everyone. Thanks for taking my questions. First one is on the cadence for the year. I know you don't guide for other quarters, but I was wondering if you could give us a little bit of color on what Q2 might look like. You talked about Q1 being the low point. And so should we expect Q2 to be flat or up or slightly down? And then from a margin standpoint, would you expect a little bit of expansion in Q2 or kind of similar levels to Q1? Thanks.

[speaker 2]: We expect Q2 to be up, but it's too early for us to talk about it. And what I said in the prepared remarks, there are a few things which we believe are tailwinds for us, and there are a few things that Enphase is specifically doing. So the tailwinds are you can see the utility rates. So the utility rates are going up everywhere in the US. And we see a lot of increases in the Northeast, in the Midwest. So I think that is going to be a definite tailwind for us. New financing options such as the prepaid leases are starting to sprout up, not just the ones that we are involved in, but in general.

So I think that would be an opportunity to essentially replace the loan demand, the loan TAM prior to the 25D expiration, the tax credit expiration. And then the last one is although the interest rates didn't come down in the recent announcement, I think we will see some easing interest rates through the year, and I think that will further improve affordability. So those are three strong tailwinds that we see. They should get better as the year progresses. What are we doing? We are just not sitting and watching. We're doing a few things, like what I listed, accelerating IQ battery density. Now we are approved at all three IOUs in California.

So there is no barrier for the meter collar. We are approved at 52 utilities. So and we expect to add 50 more utilities in 2026 overall. So that's going quite well. Also, 70% of our US battery shipments are now the IQ battery density. We also expect the prepaid leases to help accelerate our battery volumes. In addition, we expect FIOQ and domestic content to be a good value proposition that Enphase can offer, which should also increase the volume sequentially through the year. So that's on the batteries. We are very excited about the IQ9 product, the IQ9 product addresses the 480 volts commercial market, which we have not played in before.

We just started shipping the product in December. We already have a backlog of more than 50,000 microinverters for Q1. And I think there, we expect to grow from strength to strength. It's a new market. Of course, there's going to be a cycle of learning, but I think we bring some things unique, like reliability, quality, and domestic content, FIOQ compliance, all of those we bring. So that's very exciting. Third one, unlocking the battery retrofits across the Netherlands and France. Big deal. We are doing something we have never done before. We are organizing homeowner events in the Netherlands. We are organizing two homeowner events every week.

And so we are talking about 100 homeowner events for the year. Every homeowner event will generate preorders. While it's too early for us to share those details, we believe it will meaningfully change our battery demand in the Netherlands. So we are extremely excited about that one. Same deal in France. Although in France, it is not like in the Netherlands, the energy contracts aren't fixed for a very long time. They change every one to three years. But in France, they are fixed. So the retrofit opportunity isn't as compelling as the Netherlands, but still, people would like to own batteries for resilience and new installations.

Certainly, self-consumption is required because the feed-in tariffs have dropped off a lot. So we are very excited there as well. Both the opportunity to sell to our installed base as well as new installations. New business models,

[speaker 1]: So that's number three.

[speaker 2]: Number four is we just introduced our latest and greatest IQ EV charger into the US. It's a state-of-the-art one, it's a beautiful-looking product, and it's doing quite well in Europe. We expect it to do very well in the US. But the real exciting thing there is the bidirectional charger. The bidirectional charger is a demonstration of how powerful the inverter architecture is. We interface to 800-volt DC on the car side and then to the home using the same single-stage power conversion that Enphase is known for. So just with our bidirectional chargers, which have got the inverters in it, they're forming inverters in it, plus the meter collar, that is enough to do both V2H and V2G.

So we're excited about that one, which will come about in production in Q4. And the last one, we are already preparing ourselves to launch IQ9 residential microinverters in the first quarter, in a few weeks from now, both US as well as international. Then we expect to introduce our fifth-generation battery. The fifth-generation battery will have the energy density close to about 100 watt-hour per liter, which is best in class. The cost of that battery will be 40% down compared to the fourth-generation battery. Therefore, it will allow us to basically reduce our end pricing for the consumer, which is necessary as battery adoption increases, and yet maintain our gross margins in line with the corporate gross margin.

So those five levers are all entirely in our control, and we plan to make full use of them in addition to the three tailwinds I talked about.

[speaker 0]: Great, Badri. Thank you for all that detail. I had a quick follow-up on the you said Q2, I think, you meant revenue. Would be up, but you don't know or can't quantify how much. Just wanna understand if that's versus the $285,000,000 from Q1 with safe harbor, or is it versus the $250,000,000 without Safe Harbor?

[speaker 2]: We usually make the comments regarding respect to the core revenue. But we also expect, although we can never forecast safe harbor, we also expect healthy safe harbor in the second quarter because it's natural. The reason is TPO partners are going to formulate plans for '28, meaning 2028, 2029, 2030. So there is going to be some safe harbor activity happening in both Q2 and we'll have the time to ship it through Q3, I believe. So yep.

[speaker 0]: Great. And as for my follow-up here, in terms of the data center market and the 800 volts, architecture and what you guys might be able to do for that. I know it's super early, but just and so far as you can kinda comment on you know, how you could address that market, what the timing might be, that would be fantastic. But if you if you can't talk about it, I get it. Just wanted to see if we might be able to get some color. Thanks.

[speaker 2]: Sure. We are very aware of the industry's trend going towards 800-volt DC for the data center. Where that actually intersects our expertise is in front-end power conversion. Specifically, how medium voltage AC, and we are talking about 13.8 kV and 34.5 kV AC, can be efficiently converted, controlled, and managed into 800-volt DC before the power reaches the AI rack. So having said that, we are evaluating multiple next-generation power conversion architectures as part of our long-term R&D. But we are not in a position to discuss any specific products or timelines today.

[speaker 0]: The next question will come from Brian Lee with Goldman Sachs. Please go ahead.

[speaker 12]: Hey, guys. Good afternoon. Thanks for taking my questions. First one I had was just on margins, maybe for Mandy, maybe for Badri. I think the 5% reciprocal tariff impact seems to be stabilizing and peaking here. I think last year, you talked about fully offsetting it by 2026. So any updates there on the ability to offset the tariff impact? Is that still a 2Q target? Maybe if you can kind of quantify magnitude and cadence for us off this 5% level that you're still guiding to for Q1? And then I had a follow-up.

[speaker 2]: Right. So Brian, if you remember, the last time, what happened was the tariff, meaning approximately, let's say, three to four quarters ago, that was a tariff specifically with respect to China. And at that time, what we said is we are going to make plans to move into non-China manufacturing, which we are on track to do. And we would be able to avoid any significant tariffs by doing that. However, the situation now has changed. And every country now has got a tariff. Including, you know, that is what is called as the reciprocal tariff. If I go to Malaysia, there is a tariff. If I go to Vietnam, there is a tariff. Everywhere, there is a tariff.

For us, the 5% tariff, just to give you more color, is distributed across 2% of the impact is on microinverters, 2% is on batteries, 1% is on accessories. Why? Example, on microinverters, we will have to bring in raw materials into the US in order to make our microinverters in the US. So therefore, those get hit. So therefore, there is no safe place which has got no tariff. For us, what we believe to answer your question, because that's still a valid question, how are you going to offset that 5% reciprocal tariff? For us, the answer is in innovation. The answer is in IQ9. The answer is in the fifth-generation battery.

Those are IQ9, for example, is despite the power going up by 10%, we are able to maintain a smaller form factor. And we expect to take advantage of that in terms of higher gross margins with IQ9. As you can imagine, higher power products that produce higher power get more production tax credit, 11¢ a watt. So naturally, we expect to make higher gross margins there. Then in addition, on the batteries, that's where the big lever for us. We are rapidly getting close to releasing our fifth-generation battery. The fifth-generation battery uses very compact cells. These are prismatic cells.

And therefore, we essentially are able to reduce that entire form factor of the full battery by a very significant amount. And we are able to do a stackable battery. Ours will be unique. It'll be an AC-coupled stackable battery. Energy density, like what I said, 50% higher than our current battery for generation. Cost structure will be 40% lower. This will enable us to make good gross margins and overcome that 5% reciprocal tariff.

[speaker 12]: Thanks. Appreciate it. The follow-up would be on one of the specific products here. You talked a lot about the IQ9 commercial inverter, the $400,000,000 TAM. If my math is right, it seems like the bookings activity, Badri, you mentioned maybe you're tracking the $5,000,000 to $10,000,000 right out of the gate for that new product. One, is that right? And then two, kind of how do you see yourself scaling up this year against that $400,000,000 TAM? Is this, you know, tens of millions of dollars of revenue by the second half of the year? Thank you, guys.

[speaker 2]: Yeah. You're approximately right. It is between five and ten for the first quarter. And you should think about it the following way. I think what we are this product is it offers a compelling value proposition in terms of quality, reliability, FIOQ compliance, domestic content, you know, customers haven't had such a choice before. So we are getting a lot of good traction. And what we have shown in the residential market is that over the long term, high quality, high serviceability wins. And we therefore expect to demonstrate the same in this small commercial market, and we expect over a three-year time frame to get into the similar market share as what we have on the residential.

[speaker 0]: The next question will come from Praneeth Satish with Wells Fargo. Please go ahead.

[speaker 13]: Thanks. Good evening. I guess just, maybe on the prepaid lease product, assuming the pilot performs well that you're doing, can you share any more details in terms of the timeline of when you would expand into additional states? And would it happen gradually or more of kind of a larger push? And can you get your coverage, potentially nationwide by 2026? And then just on prepaid leases in general, for the other prepaid lease offerings that are being that are out there, how do you think about your market share with those programs? I guess, relative to your traditional cash and loan channels?

[speaker 2]: Yeah. I think those are good questions, but we are in very early stages. Right now, we are in pilots. Right now, we are, as I said, operational in four states. And we have over 40 installers. We are starting to get reasonable originations. But what we want to do is to test out the entire cycle. That's why it's called a pilot. And when we test out the entire cycle, then the kinks will be obvious to us, and then we can either expand rapidly or take a measured step going forward. Our desire is to do it sooner rather than later. And let me actually leave it at that right now.

[speaker 13]: That's fine. And maybe shifting gears, if you can give us an update in terms of IQ10C battery sales, how that's shaping into Q1. Looking at the market share data, it did seem like it kind of ticked up a little bit in December. And then what's been the feedback from installers in California now that the meter collars are approved with all of the utilities? Has that momentum kind of carried over into Q1? Do you think you can get your market share, you know, roughly around 15% plus or minus?

Do you think you can get that back up over 20% with the fourth-gen battery, or do you think it's really the fifth-gen battery where you start to see a lot of market share recapture?

[speaker 2]: Yeah. I think the fourth-gen battery will do its bit because it's got a very nice form factor. The meter collar is now approved in 52 utilities. California IOUs, all of them are now taking the meter collar. We had the last one come through in Q4. So all of the barriers essentially are now removed. Installers, you asked me for installer feedback. I do roundtables with installers almost every week. Installers like the product. They like the installation. They like the commissioning times, which are under an hour. That's not to say that there are no problems at all. There are a few which we are rapidly taking care of.

There is a couple of things that we are doing. We are releasing third-party solar compatibility for IQ battery 10C, which we expect that battery to be used with non-Enphase PV installations too. So that will be a big deal. It's in very high demand by our installers. So we think that will increase our share more. In addition, like what I said, we'll start to see the effect of FIOQ and domestic content. The December uptick was probably related to 25D, so I wouldn't read that much into it, although we'd like to take some credit for it. Yeah. And so we do expect progress with the fourth generation.

On the fifth generation, yes, we do expect to definitely take a lot of shares there too. In addition, simply because the battery will come with much more compelling economics. Even with all of the tariffs in place, I will be able to make good gross margins as well as offer excellent consumer pricing. So we're excited about the fifth-generation battery.

[speaker 13]: Got it. Thank you.

[speaker 0]: The next question will come from Colin Rusch with Oppenheimer. Please go ahead.

[speaker 14]: Thanks so much, guys. Can you talk about where battery inventories are right now? The channel, particularly in Europe as you look at some of the demand that's growing in both the Netherlands and France and even in Australia. I just want to get a sense of how lean the channel is and if there's some product that needs to move through before you start growing in the second quarter.

[speaker 2]: In general, I would say we are very happy where we ended the channel in both the US as well as outside the US. In the past, I've told you what we consider normal is eight to ten weeks. And in the US, the channel is actually much more leaner. That means it's better than eight to ten weeks. While going forward, if you account for the demand reduction in 2026 versus 2025, I would say forward-looking weeks on hand is in the normal range. So there isn't anything bloated in the channel. We are doing a good job. Channel management is ingrained in our DNA right now. We don't expect that to be a problem.

[speaker 14]: Thanks so much. And then thinking about VPPs and some of the capabilities of your system, can you talk about some of your functionality around reactive power voltage management and your ability to serve some of those ancillary services markets? That may be differentiated versus some of your peers?

[speaker 15]: Yeah. Hi. This is Raghu. I think we look at it very broadly. We look at not just the battery as being the only flexible resource that's available. You can think about, you know, as we look at the EV charger today, that's a flex resource. As we think about bidirectional EV charging, that's again, a flex resource. Solar itself is also can be considered as a flex resource. Our view is much broader than just simply thinking about one element of it. So every product that we release, every new product that we release, we think about it in the context of its participation in VPP.

So we make sure that we have best-in-class APIs available so people can then exercise all of those resources. And, you know, because they are value-generating resources, they can actually have with the homeowners ROI. So all of the grid services that you mentioned, which is reactive power voltage support or, you know, just capacity, resource adequacy, all of these functions are organically built into all of the products that we built because we expect they'll all be flexed as we see the VPP evolving. So and so far, the focus has been around batteries, our VPP participation has been very strong with a number of partners.

We mentioned two of them in our prepared remarks with the San Diego Community Power as well as Green Mountain Power. Those were the two examples that we provided, but it's much broader than that. So we are pretty excited about all the work that we have done with our VPP. It's a metric that we track very closely in terms of availability of our VPP APIs, you know, how well our servers are working in order to service the demand. This is US.

Whereas what we are seeing is all of the VPP work that we are also doing in Europe with particularly, you know, in the Netherlands where we are providing capacity, imbalance, dynamic tariffs, others where they're trading our batteries into the market. In some cases, as often as a few seconds. So we see this as a very critical evolution of the business in general. Because as you think about data center demand really overwhelming the grid, I think behind the meter resources will play a pretty big role in helping alleviate some of that pressure.

And so aggregating all of these resources and participating in the market is very key, and we have seen that trend and we are on top of it and really driving our products to make sure that it's best in class with regards to participation in the market.

[speaker 0]: Thanks so much, guys. The next question will come from Eric Stine with Craig Hallum. Please go ahead.

[speaker 16]: Hi, everyone. Just wondering if we can talk about safe harbor a little bit. So just to confirm, $63,000,000 in the order, and some of that coming in Q1, you've included that in your guide. So I guess a similar amount in Q2, you did mention that you think that you could recognize revenue in Q3 for the out years. I mean curious, do you is there a magnitude, any indications you're getting from your partners what those orders might look as you start to think about as you called it in '28 and '29. For safe harbor?

[speaker 2]: No. It's too early for us to forecast any safe harbor orders. We don't really know right now. And they usually, you know, based upon the deadline that we see, TPO partners have until approximately July to finalize their plans. And so we do expect a lot of frenzy activity in Q2. We did, you know, what we announced, we announced basically two transactions that we announced, one was, you know, I think in the fifties and another was in the sixties. And so one was physical work test and the other was a 5% safe harbor. We even expect, you know, some of those customers to do repeat safe harbor orders.

[speaker 3]: But right now, it's too early for us to

[speaker 0]: Yep. No. Understood. Appreciate that. And then I know you talked about share on the storage side, but just curious as you think about the year. It seems that this would be a trough. You know, like you're thinking it is for the overall business. You know, what type of linearity or what trends do you see in storage based on timing of some of the product introductions, etcetera?

[speaker 2]: Yeah. In general, storage should be very positive because tax credits are going to be valid for a much longer time. So batteries are in favor until 2030 or 2031. I forget. So storage market is going to definitely take off. You can see that almost every state, you know, my prediction, and this is only my prediction, is in the next coming years, every state will start to adopt battery storage. Solar plus storage will become the norm. Because at some point, you know, an uncontrollable export of solar is not desired. So California is ahead. We all didn't like NEM three initially because of the way it was implemented. But the concept of NEM three is right.

And in fact, California is a solar plus battery market with a 100% attach now. It's got good economics. Six to eight years of payback. My prediction is every state, you know, in the next ten years will become solar plus storage. So solar storage is going to boom. It is gonna actually, you know, batteries will pull solar. It's gonna become the reverse. It is already like that in Europe. If you go look at Europe, you look at Germany, the attach rate is 80%. You look at Italy, the attach rate is also in the similar range. You look at the Netherlands, that's now going to start moving in that direction.

Look at France, the feed-in tariffs have dropped a lot, so there is, you know, solar plus storage will become the norm. So controllability, you know, VPPs, self-consumption, those are what, you know, they are going to drive the economics. And all in the direction of reducing the utility bill for the homeowner. So yeah, is there something you wanna share, Raghu, on that?

[speaker 15]: I think you're seeing that even happening with NEM three where it's even beyond self-consumption. You're starting to see things where you there's a pricing signal. You get. And based on the pricing signal, you charge or discharge your back, you export to the grid because you get compensated for it. In Europe, they do that as a day-ahead pricing. It's sort of I think you'll see that things such as VPP, day-ahead pricing, dynamic tariffs, etcetera are really going to be very economics for the homeowner to adopt battery. And that's how you saw California evolve in that direction.

[speaker 2]: And I agree that it's gonna happen even maybe faster than ten years that you'll see traditional NEM will slowly sunset.

[speaker 16]: Got it. Thank you.

[speaker 0]: The next question will come from Julien Dumoulin Smith with Jefferies.

[speaker 17]: Badri and team, nicely done on the continued progress here. Just wanted to come back to a couple things that were mentioned. First off, when do you think batteries go to the corporate average here? I mean, you just made gave us a little diatribe about the outlook here. How do you think about margin evolving there and normalizing upwards? And again, get that can be by product here in the evolution. And then separately, can you talk back again about the market evolution here as it pertains to, you know, prepaid lease adoption? And, ultimately, as you say, this is essentially offsetting the impacts of 25D going away. Can you talk about the cadence of that happening?

You know, both your own PPL piece of it, and then separately, your commentary about essentially offsetting 25D. Is that market-wide and how do you think that playing out just timeline-wise?

[speaker 2]: Yeah. On the batteries and gross margins, especially with the tariffs now, the gross margins on batteries are slightly below corporate average. And what we'd like to do is to bring it above. And that's what I extensively talked about. It is, you know, today we have 45% tariff on the cell packs that we get from China. And that is a tough number to work with in terms of margins. Plus, we have tariffs on other raw materials that are coming into the US. So we get hit many ways. We have recognized that the best way for us to counter that is with innovation. So that's why I talked extensively about the fifth-generation battery.

Our cost structure will be radically different. So even with these tariffs, I can comfortably make even above corporate gross margins on my batteries. We are not stopping there. We are already thinking about our sixth-generation battery. So we'll share more as soon as the fifth-generation battery is out. So it's gonna be a nice cadence for us. We are gonna be, I mean, we've gotta bring out approximately every generation of battery, you know, every generation in eighteen months. That's what we'd like to do. So next question on the VPP pipeline. I mean, it's early for us to share any timing given that we are in the process of pilots.

But the theme is that it is to replace the pre-25D loan TAM with VPP. And there's still several things that have to be lined up. That's what the pilots are for. Operational issues, ease of doing business, customer consumer confidence, installer performance, financing. All of those we are trying to solve in the pilots. And we're running in four states for installers, installer feedback is very positive. They like the extra. They like this, you know, prepaid lease as a tool that helps them counter the TAM loss due to loan. So we like what we see so far. I think in the next three to six months, we will know everything.

And, you know, we are confident that we'll be able to expand to a lot more states in the time frame.

[speaker 17]: Comment as soon you gain market share? Or is that more about just the market overall?

[speaker 2]: We do expect to gain market share. Yes.

[speaker 17]: Okay. Excellent. Thanks for clarifying everything. I appreciate it.

[speaker 0]: Next question will come from Moses Sutton with BNP Paribas. Please go ahead.

[speaker 18]: Thanks for squeezing me in. Badri, how many well-capitalized TPOs contender programs are you seeing out there? And by competitor, I mean, that's a good thing. I would help them make the market as Julien was noting. And then also, unlike you on residential, you have you expect a significantly slower uptake relative to, like, IQ7, IQ8. Considering these benefits rely on the larger panel for that. The market is approaching still smaller panel sizes and sort of growing to larger.

[speaker 2]: Good questions. On the prepaid lease, it is still early days. We don't know the details personally about the remaining players, but I heard their names. I heard that some of them do a good job. I'm with them. IQ9 and IQ9 addresses one more thing. Not only addresses high power, 427 watts, also addresses panels that operate at 16 amperes. So if you look at it in Europe, Europe is already starting to operate at 16 amperes right now. So, you know, IQ8 had the capability to go up to 14 amperes. IQ9 will extend the capability to 16 and even 18 amperes.

IQ9S product that will be coming in the third quarter will extend it up to 18 amperes. So we believe Europe will be the first ramp along with Australia and the international. US is a little behind in terms of panel tech there. And so we expect the US, you know, IQ9 to ramp a little more slowly. However, in the commercial space, IQ9 is the only option. IQ9 for 480 volts. There, the panels are at 595 watts, 640 watts. So there, IQ9 is the only option, and there we are going not only the full 427 watts can service to the full 480-volt market. IQ9 for 548 that will be introducing in the second or third quarter.

That will also help a lot. Including safe harbor.

[speaker 18]: Thank you. Very helpful. Maybe I just squeeze one on the Netherlands. Is there a potential actually material pre-demand ahead of the loss of the rent product of the net metering? Basically, most assume that story kicks off next year, are you seeing that there's a significant amount of customers that don't wanna see a gap in their solar system value because they wanna self-consume early and therefore they have to move this year?

[speaker 2]: Yes. Yes. Yes to that. I'll tell you why. You know, first of all, if they have batteries now, they won't have to pay for nothing. One. There is a nuance to it. There are several customers whose energy contracts will be expiring right now. Because they all have limited, you know, one to three-year contracts. So when they are going to sign a new contract for the next two years, they are going to know the full picture. The utility is going to give them the full picture of how the next two years are going to be.

And in order for them to, you know, for them to really get low rates, the only option they'll have is to buy batteries. So I think the education is happening now. Just to elaborate a little more, what we are doing I'm not sure whether you heard my comments before. We are we have not done this before. We are holding homeowner events. Every homeowner event is attended by approximately 200 to 300 people. And let's say from a family, two people show up to approximately 150 families. And they basically get education. And there's a lot of interest in order metrics. Preorders are usually quite high from such an event.

Of course, any event is not representative of what is gonna happen in the market. We plan to hold at least 100 events in 2026. And we plan to basically quantify every event to generate an average, let's say, x kilowatt hours or no. Basically, like, 0.5 megawatts per minute or one megawatt hour per minute. And so that's how we are thinking. We are thinking that, you know, the first step that we have to do is to exactly educate. So in that process, we are helping our installers. We are starting to do that, it's getting fantastic reception.

In fact, our partners are also coming to distributors are now happy that we are doing an organic thing for lead generation instead of depending on them.

[speaker 0]: The next question will come from Vikram Bagri with Citi. Please go ahead.

[speaker 19]: Good evening, everyone. Badri, you mentioned keeping about this up on July 4. Related to that, based on what you've seen, is free call being so far being done by the TPO partners?

[speaker 2]: It's a question for the TPOs, which we can't answer everything for them, but I said if you my opinion, based on what we're seeing. For example, if they do the 5% method, let's say, they got the order in December, you know, let's say December 2025, we would have approximately 105 days from that date to ship that box. That's how it works. And they still get all of the benefits because they place the order within the year, within the end of the year. And they have to prepay. Have to prepay us with the 5%.

With the physical work test, it is similar, but there is a nuance in terms of assessment component, etcetera, which you already know. The question on are consumers taking into account future demand increases, I don't know. It's hard for them to take that into account, not no one really knows. So it's a real question for them. My thought right now is I don't think that is happening. But that's just my guess.

[speaker 19]: Thanks, Badri. And as a follow-up, a quick housekeeping question on inventory. You mentioned Kelly inventory hitting fourth quarter. Is that really thirteen or fifty-two weeks? I ask that because looking back inventory, the channel may be normal, but accounting for a drop in revenue in one first quarter, it seems like the channel would be

[speaker 2]: Yeah. If you calculate the inventory in terms of backward-looking, then we are very lean. If you calculate the inventory based on forward-looking demand, you're not. That's the issue to it.

[speaker 19]: Alright. Thank you.

[speaker 0]: The next question will come from Christine Cho with Barclays. Please go ahead.

[speaker 20]: Thank you for squeezing me in. You know, last quarter, you kind of said that you anticipated sell-through in 04/5350 to April. Just curious if you can sort of confirm that you ended there and then if you would you know, able to give us the split between MIs and storage. And then also if you could give sort of that split what you're expecting for one q extra safe harbor.

[speaker 2]: Yeah. We landed right at the midpoint there between $350,000,000 and $375,000,000. I mean, $350,000,000 and $400,000,000. So that's good. And then just on the split up, in fact, our sell-through on batteries was high. It was 27%. And the sell-through on microinverters was, I think, approximately 21%. Around twenty-ish percent.

[speaker 20]: Okay. Those percentages are up quarter over quarter?

[speaker 2]: Yes. 27% up. The sell-through in Q4 in the US. 7% up. And sell-through microinverters in the US up batteries with respect to Q3. Approximately 20%. Respect to get through.

[speaker 20]: And the split for January?

[speaker 2]: Split for January? Okay. And just sort of on the prepaid leases, I guess when we do like, you know, with the deadline for 5% or a physical work test? I guess why have any sense of why they wouldn't lean more towards physical work test just given it's easier on balance sheet?

[speaker 2]: That's right. I mean, I asked the same question too, but it depends upon how comfortable they are. With respect to they and their tax partners are. So yes, I mean, the principal work is if use them a legally good mechanism. To take care of themselves for 2029. But what we are seeing is we are seeing a mix of both. We are seeing cases, are seeing some TPO partners adopt the mix. That is they do a portion, physical work that they do a portion, 5% pay for some TPO partners only rely on physical work test. It's a mix. There's no general trend. We are capable of providing either. Wait.

Whatever the TPO wants, we are here to provide. And what a misconception that Enphase cannot do this. It's not true. We do physical work test, and we are engaged with them on that.

[speaker 0]: Again, if you have a question, please press star then 1. The next question will come from Chris Dendrinos with RBC Capital Markets. Please go ahead.

[speaker 21]: Yeah. Good evening. I wanted to follow-up on the commentary about, terms price in Europe. In response to the dynamic there. Can you maybe just comment on the demand impact from that? Are you seeing, I guess, any type of benefit there?

[speaker 2]: We expect to see the benefit there. We reduced the list prices at distributors by approximately 20% on a microinverter.

[speaker 21]: Got it. And then maybe as you think about the US, I mean, is that a consideration in the US to potentially cut the line? I apologize. I'll get that every quarter. Thanks.

[speaker 2]: Yeah. I mean, we are always looking at it. And, you know, right now is the best time for us to help our installers, so we're always looking at it. We do installer roundtables every week. We are, you know, we're definitely evaluating it. And when we think it's appropriate, we will do that, and we'll inform you.

[speaker 0]: Thank you. The next question will come from Maheep Mandloi with Mizuho. Please go ahead.

[speaker 22]: Hey. Thanks for seeing me in as well. You talked about access to non-China package supplier? Talk about, like, the pricing environment you're seeing over there? The with most supply coming, I'm seeing

[speaker 2]: Yeah. In general, I think the battery suppliers are having some pressure on their costs. So I would say, we are seeing huge price decreases are they are kind of flat. Move from China to non-China, we would expect about 20% increase in the cell pack. In the cell pack pricing to us. 20, 25%. So for example, if there is a 45% tariff on product from China and there's 0% for from a non-China country, it would make sense. So that's what we took into account, and we are working with a battery cell supplier that enables us in the non-China market or the non-China battery manufacturing. We expect to start ramping that in the second quarter.

[speaker 21]: I think

[speaker 0]: Once again, if you have a question, please press star then 1. The next question will come from Gus Richard with Northland. Please go ahead.

[speaker 23]: Yes. Thanks for taking the question. Inventory on balance sheet was up $99,000,000 sequentially quite a bit. Days inventory went up quite a bit. I'm just wondering if you could walk me through why that happened.

[speaker 2]: Yeah. What we did was we basically, you know, in order to ensure compliance, we took ownership of from a contract manufacturer. And so everything was clean. And then so we did that in the fourth quarter. That factory exists for us. We are managing the factory. And we, you know, it was a little high, like what you say, $100,000,000 more, but we expect to continuously bring that down. Our operations team, we are really focused on it mentally, and we have to get that done.

[speaker 23]: Okay. Got it. And then on the fourth-generation battery, understand that the tear loss is relatively high as what it is with your competitors. I'm just wondering if you're gonna address that in the Gen five battery, you know, is that a concern with your customers?

[speaker 2]: It is a general concern with all batteries. The tab loss is something important just for the benefit of everybody. The tab loss is how much of power the circuitry inside the battery consumes. Not what is supplied or not what is provided to the loads in the home. So it is catalog is a waste of energy is what we call it. It's unusable energy. So we recognize that. We have introduced a new feature called PowerMatch. PowerMatch is a technology, software-enabled technology that dynamically matches the output of the battery to real-time home demand. What does that mean? Is only whatever microinverters are necessary to be on, the rest of the microinverters are switched off.

So battery life improves, usable energy improves. If you contrast it, compare and contrast towards hybrid inverters or hybrid systems, hybrid systems are a single large inverter. So especially when the customer is operating with very low consumption, that burns a lot of unnecessary power, wastes a lot of power. While in the case of Enphase battery, PowerMatch, it reactivates only the microinverters that are necessary. For example, if the home is consuming 500 watts, we are not going to burn a 10-kilowatt inverter. We are only going to turn on, let's say, a kilowatt of an inverter that we have. And the rest of the inverters are going to be off.

Similarly, there are multiple batteries which are not required to be on. They will all be off. So PowerMatch helps in reducing losses and low loads, and we have found approximately, you know, percent improvement compared to competition. So we issued a press release, I think, late in Q4. Very nice video on PowerMatch that explains exactly how we're gonna send. PowerMatch will is a big integral part of the first-generation battery as well. And then you might do in more architecture. Got intrinsic advantage here. I mean, the modularity is not just for rightsizing the battery to a home. Can now use that leverage to modularity to right size how much power you need you're using in real-time.

So it's an incredible advantage that a decentralized or distributed architecture like what Enphase brings to the table to make sure that you are delivering power very done very efficiently. You're not wasting power because your air loss and a large inverter is just running all the time even though the demand of the house may be a tenth of what capacity.