Enphase Energy, Inc. Aktie

Good morning, and thank you for joining us on today's call to discuss Enphase Energy's business. With us today is Badri Kothandaraman, Enphase's President and Chief Executive Officer. [Operator Instructions]

Please note that management may be making forward-looking statements about the company's current plans and expectations with respect to its business, technology and products. Actual results may differ materially from current plans and expectations, so I encourage you to read our SEC filings where we discuss the risks inherent to our business. You'll find detailed discussions in our filings with the SEC, including our annual report on Form 10-K for fiscal year 2025 and our quarterly report on Form 10-Q for the quarter ended March 31, 2026.

Please note that non-GAAP financial measures referenced during this presentation are reconciled to their most directly comparable GAAP financial measures found in the investor presentation posted on our website at investor.enphase.com.

With that, I will turn the call over to Enphase Energy's President and Chief Executive Officer Mr. Badri Kothandaraman to give a short report on the company.

Good morning. Quick overview of the company as usual, founded in 2006, approximately 2,700 employees. I'm talking to you from Fremont, California, that's our headquarters. Our customers are distributors, installers, homeowners as well as business owners. We have shipped approximately 87.8 million microinverters cumulative, big numbers, over 5 million systems in more than 165 countries. We are rapidly making progress in storage. We have shipped over 2.5 gigawatt hours of storage. 2025 revenue was approximately $1.5 billion. We are profitable.

Let's go to the next page. Brief recap here. Core differentiation is a semiconductor integration. You see the zoom there on the left, and that's our ASIC. That's our chip, that's our silicon, custom silicon. We continue to innovate on that silicon. IQ9 uses silicon or Swift along that was the same in IQ8 as well. Going forward for the next generation, we are working on a on a custom silicon called Kestrel, and that will also be used in our solid-state transformer. So a lot of innovation happening on the custom silicon. That's the brain. That helps us to do predictive control, which keeps the architecture to a single stage in converting DC to AC and vice versa.

Software-defined architecture, most of the issues that arise, be it a quality issue, customer issue, we will be able to usually take care of it with software. And our product is incredibly flexible. It is one hardware and software defined according to the country of operation.

Ensemble is our energy management technology, basically, it is the architecture on how an AC-coupled system works and how it interact, how each component interacts with the other. But the general concept is it's a distributed architecture, it's AC coupled and that's the AC bus that you see on the right. Everything we do, for example, microinverters are in the convert DC from solar into AC for the home, storage basically takes the AC and then you have microinverters inside storage, stores it as DC. I get an EV charger, for example, bidirectional EV charger that taps into the DC port of the car. There are inverters, grid forming inverters that once again, DC converted into AC and so on. So AC-coupled architecture. It's modular it helps us to extend the architecture regardless of when a customer bought the system, he should be able to upgrade the system with our latest and greatest products.

Next. So that's the benefit of what I talked about, semiconductor technologies, software and our Ensemble is higher quality. So I told you about the single stage possible because of our custom silicon, and that means fewer components, reduced heat on the batteries, no high-voltage DC. We operate at low voltage DC. LFP, very safe chemistry. We believe in LFP right from the get-go. We haven't changed it. And the industry also adopted LFP now. I talked about the flexibility. Efficiency is high once again because we have a single-stage architecture. So supply chain, quality, efficiency, cost, all of them are interrelated and all points towards our semiconductor technology with the ASIC.

Next. Again, our quality targets have not changed. 500 defects, defective parts per million. That means it's a 0.05% number. And we continue to do well there. Margins, our gross margins are quite good. We are in the mid-40s, and it is possible because of two things. One is value-based pricing and the other is working on world-class costs. We continue to do that well. We established a team, and I joined the company in 2017. That team is growing from strength to strength.

Our customer service is also one of the strongest points. Worldwide NPS has now climbed from the 70s into the 80s now, which is good. And we are taking it to the next level. We are introducing an AI assistant in the homeowner app. 100,000 homeowners have that today already, and we are planning to extend it across the fleet very, very soon. And that can do some pretty amazing things. Similar AI assistant for the installers also is coming, where the installers will be able to get a very quick snapshot of everything in their fleet, and they will be able to intensify issues and it will help them to zoom on to the right issues.

Cost, of course, cost, like what I said, cost very closely related to the -- our architecture, to the semiconductor architecture, to the ASIC. They are all intertwined together. The architecture dictates the components because single stage means less number of components that we have. And semiconductors are miniaturized now, so we take advantage of Moore's law. And we focus on both digital integration, which I talked about ASIC as well as analog integration, too. So we can integrate a bunch of things into high-volume, low-cost semiconductors.

Next. Business models have not changed. It's an efficient manufacturing footprint. OpEx, most of our engineering development is in India, along with New Zealand is our -- it's still our key place where we do brand-new microinverter architectures.

Next. The supply chain not much has changed. We are predominantly making most of our microinverters, I would say, greater than 95% of our microinverters in the U.S. Basically, we get production tax credits there, which is good. And we also make at least, I would say, 50%, maybe 40% of our battery volumes in the U.S., too, and that is increasing. Globalization is important for us. And we are slowly but surely diversifying away from China on batteries.

Next. So this is a big deal. This is what we do. We -- contrary to other companies that have to extract things for ESG. ESG is what we do. We ship microinverters that basically prevent CO2. So these are the statistics over time. So big one to note is 137 terawatt hours of clean energy production over time.

Next, this is important, so I'm going to slowly walk you through this, build best-in-class distributed energy systems and deliver them to homes and businesses through our installer and distribution partners, enabled by a comprehensive platform.

We are getting more into commercial. So that's why the business is there. And distributed energy system, I talked about Ensemble, which is a distributed architecture. So installer and distribution partners are very important for us. So our business is through our installers. So therefore, a lot of our decisions are based upon the ease of doing business for distributors, installers and ultimately, the homes, which is why the installer platform is very critical for us, how to ensure that we are easy to do business with and how to ensure that installers can get their job done with -- not only with the products but also with tools and software.

Next. Actually go back to that page. I'd like to point out the picture there. That's our fourth generation system that -- the one on the left is the Meter Collar. The Meter Collar, we introduced it last year, June time frame to the market. It is now qualified in 64 utilities across the country, qualified in all the major utilities in California. And that basically makes backup very, very easy. And we expect this to help our business considerably as we roll this out more -- to more utilities across the nation.

Next. So a brief recap on what does the Enphase Energy system contain. We started with microinverters. You see on the roof, you have microinverter, that's how the company started. The basic building block for us is still the microinverter, the semiconductor-based software-defined microinverter. So you see microinverters there and then you see the battery there, and I talked about the Meter Collar. You have an EV charger there that is now becoming bidirectional. The Enphase app. Yes. So system is slowly growing. So solar, batteries, EV chargers, home energy management.

Next. So this is the one I was telling here is a more clearer picture. The left is the Meter Collar and the right most box is our 10-kilowatt hour battery, which is our fourth-generation battery. It's more compact than our third generation. And we started shipping this from June last year.

Next. This one, IQ9. IQ9 is our ninth-generation grid-forming microinverter based on GaN technology. As the power becomes higher and higher, silicon has got some limitations, GaN can handle a lot more power. So we started shipping commercial microinverters based on GaN 427 watts in December. Till now, Enphase did not have a 3-phase 480 volts product in the U.S., and that has changed in the last 6 months. We have started shipping. And we have also started shipping in select places, the IQ9 and residential microinverters as well. And that's going to become more mainstream in this quarter.

Today, we announced that we were taking 3 orders on a product, which is IQ9S 3-phase 480 volts. The 480 volts is line to line, it's return 277 that is line to neutral. So why is IQ9S is important? While this product that you're seeing here IQ9N is 427 watts, IQ9S is 548 watts. In the commercial business, the panels are now quite high wattages. The panels can go anywhere from 600 watts to 650 watts. And when you have 650 watts DC commercial panel, you need the correct microinverter to be paired with it. So one obvious was to make a 548 watts, and that was easy to make with our GaN platform. And of course, this is made in the U.S., which is important for the commercial system owners, and it means -- it is free of complain.

Okay. Next. Just a recap of batteries. We entered the battery business. Originally, we entered it in a very small way in 2016, we introduced what we call it first-generation batteries in Australia. That was a very small battery, 1 kilowatt hour. But then we really started getting into the battery business in 2020. So batteries that you see on the left are the ones we shipped at that time, 3 kilowatt hours, 3.3 kilowatt hour building blocks and the 10 kilowatt hour battery would be 3 of the 3.3 kilowatt hours.

The one on the right-hand side is our third-generation product, and that is being used a lot by Europe. Europe uses the FlexPhase version of the third generation because it is -- everything is 3 phase there. 3-phase backup is important. Again, the third generation has got substantially higher power than it's got double the power of the first and second generation.

Next. Then I talked about the fourth generation product. We introduced it in June. The main event here is the Meter Collar. And of course, the compactness of the battery, 62% lesser wall space compared to our third generation. Now we are working on our fifth generation. We expect to pilot the battery there. That will be even more smaller, even more cost effective. It uses 100 ampere hour prismatic cells and the form factor is quite amazing. We will be able to have a stack of 30 kilowatt hours, which means to the end consumer, it will appear as one box on the wall.

Okay, next. PowerMatch technology, this is also an interesting feature. Basically, what this means is you can see on the right, that's the third-generation battery. It's got 6 microinverters in it. And when the home is consuming less watts, for example, 500 watts, which is typical for the most part, 80% to 85% of the time, the home consumes less nominal power, 500 watts. So all of the inverters in the battery do not need to be on. And that's the advantage of an architecture where -- it is a distributed architecture, which means you have -- I have 6 of these microinverters, 640 watts each. So in the case I just now described, I would not have -- I mean I would have 5 of them in standby. I would only have 1 microinverter active.

And what's the advantage of that? All inverters, they need current, meaning they burn current to operate. That's called as a tare loss, which is the -- inherently, they need circuitry in them to be active. And so that consumes current. And by putting them into standby mode, we can eliminate that. So we can exactly tailored these microinverters according to the load, while that is not exactly possible. If you have 1 monolithic string inverter, if your consumption is 500 watts, that string inverter is still active. So this is a big deal. It helps you to save kilowatt hours and stored energy, for example, can last up to 40% longer than competition. So that's available now with the over-the-air software upgrade for both our third-generation and fourth-generation, and it will be default for us going forward.

Next. This is a new one. This is an IQ Vault commercial battery as we -- you saw we got into the 3-phase solar business in the U.S. This will complement solar business and because batteries are getting popular, they save money, basically self-consumption. They provide backup. There is demand charges. So batteries are getting very popular for commercial. And this is for the small commercial business. We are talking about schools, hospitals, gas stations, small businesses, many more applications there. It's a 80 kilowatt hour. This is an 8-kilowatt hour cabinet that you see, and that can be -- 25 of these can be strung together in a site giving up to 2 megawatt hours. It supports 2-hour and 4-hour configuration, which means that 40 kilowatts of continuous power for a 2-hour configuration. Once again, uses exactly our principles, which is distributed architecture uses 314 ampere hour prismatic cells, have 15-year warranty. So this is, again, taking it to a next level here. This -- we expect to pilot this product in Q1 '27.

Next. EV Charger. We have introduced the EV Charger into -- we first introduced it into Europe. And a few months ago, we introduced into the U.S. And this is a beautiful product. It is a completely redesigned product. It's got a lot of bells and whistles, green charging, supports dynamic phase switching, dynamic load balancing, which is -- dynamic load balancing is quite simple, which is, let's say, you have a fixed main panel rating at home, let us say that it's 100 amperes. And you have turned down your charger, the charger is charging at its maximum current. And then suddenly, you turn something else on in the home, that consumes a lot of current. The charger is capable of throttling down itself in order for you to still meet your 100 ampere so that your breaker doesn't trip. So once again, very, very smart, a lot of other features here, seamless integration into Enphase's ecosystem to help homeowners maximize savings. So this is starting to ramp nicely in both Europe as well as America.

Next. Based on that charger architecture, this is a bidirectional charger. What is the bidirectional charger? The charger on the previous page does not have any active circuitry in it. While this one, this bidirectional charger has got grid-forming microinverters inside the charger. And what does it do? This charger taps into the DC port of the car, and converts energy from the car into the home. DC from the car into AC for the home. So can do V2H, which is vehicle to home, which means providing backup for the home as well as vehicle to grid and participate in grid services.

You can see here, again, the architecture is very simple. Meter Collar that we already have, which is actually hidden behind the meter and then one Bidirectional EV Charger. You can only start with this. You don't need solar. And this will give you a vehicle to home. While, of course, solar would be the right economic choice because you need to pay for the charging. So solar will be a good economic choice. This can work. You can have a solar system and you can have a Bi-Di EV Charger. That will work, too. In addition, you can have a solar home battery as well as a Bidirectional EV Charger with the car battery. So it's extremely flexible, and we expect to start shipping this product in Q4.

Next, Energy Management. This is Energy Management, more popular in Europe than the U.S. So customers have things like third-party EV chargers, heat pumps, hot water heaters. So we are able to basically with the IQ Energy Router, we are able to take all of those and then interface it with our Home Energy Management System, so that customer only has got 1 app to work with. And we have a nice feature called AI-based optimization. So a customer doesn't need to bother on how to extract maximum efficiency, how to extract full self-consumption out of his setup. This will be done automatically for.

Next. Installer platform, I'll just briefly touch upon this. This Solargraf is our Installer platform. And it consists of lead management, design and proposal, working with various financing companies, generation of automated permit plan sets. And of course, we have our installation and commissioning software plus O&M. We do O&M with Enphase Care. Enphase Care is getting slowly popular among our fleet.

Next. Let me cover AI and Enphase is offering now IQ SST. SST stands for solid-state transformer. Let's go to the next page. We announced this a couple of weeks ago. This product is for AI data centers. There are three constraints emerging here. Demand is growing much faster than the AI-dedicated capacity and the power infrastructure. That's one. AI loads can swing from idle to full power several times per second, stressing the grid. And then the legacy architectures today have too many conversion stages between grid and compute. So all of these three things need to be addressed because the rack power is slowly increasing. Today, it's of the order 100 kilowatts and that is increasing to 1 megawatt soon in a couple of years. And so whatever architecture that is present today will not work in the future.

Next. This talks about the demand/supply gap. Next. Just a quick background, why we think we are entitled to play in this area is that what we are talking about is power electronics, that's what we have experienced in. We have shipped 9 generations of microinverters we have shipped -- this is what we do for a living 87.8 million microinverters, 5 million systems. And a lot of things I already talked about. So we think our architecture is perfect for addressing the challenges with the data centers.

Okay. Next. This is our IQ Solid-State Transformer. This is a 1.25 megawatt building block. It is a supercluster of 342 power modules. And each power module is approximately, you can think about it as approximately 4 kilowatts. We will support 35 kV and 15 kV class, which means -- what's the definition? I mean, what does the solid-state transformer do? Takes medium voltage AC and converts it into 800 volt DC. Medium voltage AC is the 35 kV class, 35,000 volt class and 15,000 volts that's medium voltage AC.

What's called the low voltage in the industry is actually may not seem low voltage to us, but that's the terminology, that's 800 voltage. So the 800 volt DC is directly going to go into the AI rack, and then you're going to have that 800 volts DC further step down to approximately 1-volt, which is where the NVIDIA chips operate. So the architecture is going to get substantially simplified. There are several power conversions stages in between today, today's architecture is not an 800 volts DC. It is approximately 50 volt DC. So NVIDIA introduced the 800-V DC architecture. The entire industry is working to support that ecosystem and what we are going to be doing is to introduce an SST volume shipments in 2028, plan pilots in 2027. And there may be something like 4 SSTs per skid, which is the last comment, which is 5 megawatts per skid. Once again, each SST is 1.25 megawatts first bullet. And you see in the picture, there are 342 power modules there.

Next. That's the building block. That's the power module. So 4 kVA power module, distributed architecture, single-stage power conversion because of the ASIC advantage I talked about, that's the Custom Kestrel ASIC. GaN, GaN provides us with switching efficiency and high power, 98.5% peak efficiency. Brand-new transformer design. Probably the biggest complexity is the transformer design, because now you're talking about going from 35 kV class, to 800 volt DC. Soft switching design. We are able to -- because we operate at the microinverter scale, we have our soft switching design, low EMI, plastic enclosure, Therefore, we can target microinverter class reliability. There's also built-in redundancy into the product because the availability we need to cater to the data centers is five 9s, 99.999. So that requires us to have clever redundancy, which is what the distributed architecture automatically gives.

Next. Heart of the power module. It's not anything different from what we have today, Kestrel ASIC, fifth-gen custom 22-nanometer custom silicon powering the single-stage converter. Multi-core software, built-in communication, security and safety. Tandem function. Now we have two sections in the power module. One is medium voltage, and that's tens of thousands of volts and then the other is low voltage. There is now a fiber-optic interface between the two. So for communication there. GaN BDS. BDS is a bidirectional switch, that helps us to go from 4 silicon FETs to 2 bidirectional switch for our IQ9 microinverters. This enables compact, very high efficiency power conversion and of course, support fast switching, which is not easy to do when you start switching at -- with silicon carbide, for example.

Next. Who do we believe we have an advantage? Because our response time, because we are single stage, our response time is very good, sub-millisecond response. Because the sub-millisecond response is good, there is potential for us to reduce or eliminate the sidecar infrastructure. Sidecar infrastructure has got the BBU, battery backup units and capacitor backup units as well. We might need a little bit of the CBU, but the BBU can be potentially eliminated. And there is more work to be done there, obviously.

Five-nines availability. I talked about it. Lower field service cost. The whole point is to have built-in redundancy. So it is easy, meaning field service will not be necessary. But if field service were necessary, hot swap is possible. U.S. supply chain. One of the problems is that the transformer supply chain is completely full now. This is the traditional transformer supply chain, and that is completely full. But what we are doing is now a semiconductor-based software-defined supply chain. That's what we bring in, and we have experience doing that till now. So you will no longer rely on the traditional transformer supply chain. And we can do all of this in the U.S. It's high volume. It's -- these are high-volume components available and semiconductors, and we know how to do it here in the U.S.

Next. A quick overview on the financials. Basically, you can see, 2025 was not bad. We grew from 2024 a bit there. 2026 is interesting because what we just went through Q1, Q1 '26 was the first quarter where the 25D tax credit was eliminated for cash and loan business. So obviously, that was not a desired result, but we have to look forward, not look back. And so the industry is adjusting. We have our plans there. You heard a robust introduction of new product pipeline. You saw the expansion into commercial. You saw the foray into data centers.

And in addition, we are working with a few partners on prepaid leases. And this prepaid lease helps us to restore the 25D customer, meaning the cash and loan customer base. It helps us to bring that back. So we are excited about that product, the prepaid lease product, and we expect that to start ramping through the year. But you can see the healthy thing here is regardless of the macro, we continue to make money, and we continue to generate positive free cash flow.

Next. So conclusion, so we are proud of our tech 550 patents and pending applications. Now we not only have products for residential, we are branching aggressively into commercial and data centers. The SAM, served available market is $19 billion as of today, but that is going to expand when we introduce the product for the data centers, that's going to expand significantly. When we introduce product for the small commercial batteries early next year, that SAM is going to expand. And then the Bidirectional Charger when we introduce that, that SAM is also going to expand to that of electric vehicles. So that's a massive market. So that's it. Thank you.

[Operator Instructions]

I do see a question here. Any planned demo in 2026 for existing U.S. AI data centers?

In 2026, our internal plans are to get a full system demo first internally, and then we expect to be doing pilots in 2027. Any questions?

I have a question. So Badri, if you could tell us a little bit what's the dynamics of the worldwide markets? Where do you see most opportunities, U.S. versus Europe, [indiscernible], can give us a perspective from this point of view.

U.S., again, is an attractive market for us. In U.S., the dynamics are -- the dynamics have changed in the last few years. Originally, solar was the thing to do. So net metering drove that a lot. The economics were good. And then all of a sudden, solar becomes not very sustainable because of the Duck Curve. So you find in the U.S., although most of the states are still solar, you are slowly but surely seeing them all gravitate towards solar plus storage. So net metering is getting replaced with the form of net metering, example, California, where there is not much of export incentives. So every state, my prediction is every state sooner or later in the next 10 years will become solar plus storage.

So I think we are well positioned there. So the batteries that will -- the systems that will win are systems that can effectively integrate solar batteries, things like the Bidirectional EV Charger and do proper energy management. So that's my perspective there. And I'm talking mainly about the solar plus battery business, not yet talking about data centers.

Coming to Europe. Europe is actually a little bit ahead of the U.S. In Europe, many countries have already recognized that -- recognize the value of self-consumption. Many countries have something called as a feed-in tariff, which is really another way to say that your export incentive is gradually reducing. Some countries have the export tariff close to 0. Like, for example, France, 2 or 3 years back, France had an export incentive. Now their export incentive is approximately 0, which is like EUR 0.04 per kilowatt hour. It's very, very less. So Germany moved to solar plus storage. Netherlands is now moving to solar plus storage because they are considering to eliminate net metering. France is doing its own thing. They're also going to solar plus storage. And so every country is going in that direction, and that will happen much sooner.

In the U.S., I said 10 years, but in Europe, it's already there for the most part. So therefore, what people are looking for, they are -- Europe consumers are quite cost sensitive. So they are looking for us to give them cost-effective solutions on solar, batteries, Bi-Di, Bidirectional EV Chargers, we believe, will take off in Europe as well. So that. And the key is to make sure the system -- it's a full system, all-in-one system and available for them, at low system prices. Where I think the -- in Europe, today, if you ask me, I have to be candid about it, there is a lot of Chinese product in Europe. What happened was when the Ukraine crisis happened, at that time, the demand skyrocketed. At that time, everyone realized that supply was a massive problem. And so the Chinese suppliers recognized this first, and they started ramping up their presence in Europe ever since then.

And they do -- these are not bad products. They do service the customers decently, but they are point products. The point products means it is not a full solution, but it is, let us say, a battery. So where Enphase can win is if we not only help in overall system cost reduction, but if we offer a comprehensive energy management solution and all-in-one solution that comprises of solar, batteries, bidirectional chargers, normally EV chargers, heat pumps, hot water heaters, everything, around doing Home Energy Management, that will be a lot more value added to the consumer.

And what we are doing on our new products, the fifth-generation battery, for example, will eliminate the illusion that Enphase products are -- or Enphase batteries are high priced. This one will -- it will not only -- it's going to be cost effective. Volume-wise and it uses 100 ampere hour prismatic cells. So it's very, very compact. The energy density is actually 50% higher than our fourth-generation battery, which means that the size, the cost the functionality is going to be always an AC-coupled functionality. PowerMatch, I talked about PowerMatch, we are able to do PowerMatch because we have microinverters in there. We are able to shut them off. So we are able to do a lot of innovation there to add value.

So that's what I see. So I see demand going up for solar and batteries. I see us innovating there with IQ9 on the solar side, soon IQ10, fifth-generation battery with our commercial battery, with the Bi-Di product. And then the last one is -- I mean, last but not least, the data center opportunity is huge for us. The data center opportunity, once again, it solves a real problem for the data centers, which is simplifying power conversion. And the power conversion is simplified now instead of adding multiple stages from medium voltage AC, you now have on solid-state transformer there. And it uses not a brand-new architecture. It uses the architecture that we have tried and tested for years.

When will -- okay, let me -- the one at start at the bottom. There is an uphill in terms of market penetration regarding SST with many data centers already, how do you plan to penetrate and what effort are you currently doing?

So like what I talked about, SST, very -- I mean, brand-new segment. There are a few start-up players. There are a few established players. And I believe everyone is approaching it with the conventional architecture. Our architecture is so unique that if you ask me what do you think the differentiation is? The differentiation for us is going to be a fast response time. Our fast response time, coupled with the distributed architecture, providing the service level with high efficiency is something unique to the microinverter architecture, and we expect to be highly differentiated from that perspective.

Having said that, it is still early days there. And so there is still some ways for us to go in order to going from prototypes to real full systems to actual pilots running for months and showing the concept of sidecar optimization. So we do have some work ahead of us.

When will Bidirectional Charger preorders start for delivery in Q4 2026, what is the price?

We will let you know about the price. But we expect the preorders to begin in Q3.

Given the critical importance of GaN, is there any constraint? How much of the substrate comes from China?

There is not any constraint right now. Our suppliers don't have any constraints there.

Okay, vis-a-vis SolarEdge, how significant is the Made in U.S.A. label to gain further market share on SolarEdge for that matter, elsewhere in the world.

The Made in U.S.A. is important for us on a couple of things. One is the domestic content is critical for the third-party -- TPO suppliers. The domestic content -- products with domestic content enables the third-party, the TPO players, third-party owners, to get their ITC -- to get ITC tax credit. You get your base ITC. And then if you have domestic content, you can get 10% additional. So therefore, that is a requirement.

In addition of what got created by the Biden administration was the IRA. And that provides manufacturing incentives for companies in the U.S. And one such incentive is a production tax credit. In order for us to produce inverters in the U.S., we do get production tax -- we get production tax credit there. So those are the reasons to do it in the U.S.

Is it significant in terms of installers like? Yes, some installers who are actually in favor of Made in U.S.A., they are able to sell that well. But yes, competition -- I expect our competition to also catch up here.

Do you have a plans to offer step-up transformers for the commercial and utility scale solar technology platform, specifically dedicated pad mounted substation transformers, that go from inverter output voltages to medium voltage for grid interconnection?

No. But if you look at it, what we are trying to do here and one possible application of the SST, which I haven't yet focused on, but I don't mind sharing is, if you have a utility scale solar, for example, the utility scale solar, the panel DC voltage is approximately 15 mini panels are strung together and you have 1,500 volt DC. Imagine that 1,500 volt DC directly going to medium voltages, you do not need a low voltage AC inverter. You can directly go to medium voltage AC to the grid. So utility scale solar can benefit a lot through the SST architecture.

You don't need the conventional transform. Similarly, you look at your DC fast charging. DC fast charging if you see medium voltage comes in and then there is a custom transformer. And then you have low voltage AC, and you build a DC charger. So that is not required. You can directly go from medium voltage AC to low voltage DC with one stage, SST, single-stage trend -- single-stage conversion from medium voltage AC to low voltage DC, and you can create all of a sudden fast DC charger by reducing the number of stages. So SST has got a number of applications. And right now, we are leveraging the first one for the data centers, which will reduce the number of power conversion stages, which will directly take medium voltage AC into the compute rack with 800 volt DC.

Is there any plans to reduce microinverter prices to tackle Europe?

Yes, we already did last -- late last year in December, around November, December time frame, we did reduce our microinverter prices in Europe by 20%. And we also reduced earlier this year, we reduced the microinverter prices in the U.S. as well by approximately 20%, I think, 15% to 20% in Q1.

We have also adjusted pricing on batteries. We adjusted pricing on batteries in the U.S. in March, approximately by 10% to 12%. And we adjusted pricing on batteries in Europe just now in the last week. And I said that in the earnings call, we adjusted pricing by another 10% in Europe. So we are able to do that because our cost structure is getting better. And then also with the reversal of the tariff ruling, the IEEPA, we no longer have to pay a lot of tariff. So we were able to get approximately improvement of 2% of gross margin there. And we thought that this would be the good investment for us to basically reduce the prices there. And that will be aligned to our fifth-generation battery, which is coming very soon.

So that was the last question. Thank you again for your attendance today and for your continued support of Enphase Energy.

Thank you.

Good day, and welcome to Enphase Energy's First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Zach Freedman. Please go ahead.

Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's First Quarter 2026 results. On today's call are Badrinarayanan Kothandaraman, our President and Chief Executive Officer; Mandy Yang, our Chief Financial Officer; and Raghu Belur, our Chief Products Officer.

After the market closed today, Enphase issued a press release announcing the results for its first quarter ended March 31, 2026. During the conference call, Enphase management will be making forward-looking statements, including, but not limited to, statements related to our expected future financial performance, market trends, the capabilities of our technology and products and the benefits to homeowners and installers, our operations, including manufacturing, customer service and supply demand anticipated growth in existing and new markets, including the TPO market, the timing of new product introductions and enhancements to existing products and regulatory tax tariffs and supply chain matters.

These forward-looking statements involve significant risks and uncertainties and our actual results and 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-Qs filed with the SEC. We caution you not to place any undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events or changes in expectations.

Also, please note that financial measures used on this call are expressed on a non-GAAP basis unless otherwise noted and have been adjusted to exclude certain charges. We have provided a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release furnished with the SEC on Form 8-K which can also be found in the Investor Relations section of our website.

Now I'd like to introduce Badrinarayanan Kothandaraman, our President and Chief Executive Officer.

Good afternoon, and thanks for joining us today. to discuss our first quarter 2026 financial results. We reported quarterly revenue of $282.9 million, shipped 1.41 million microinverters and 103-megawatt hours of batteries and generated free cash flow of $83 million.

Q1 revenue included $34.5 million of safe harbor revenue. We exited the quarter with channel inventory above normal levels for both microinverters and batteries.

On a non-GAAP basis, we delivered gross margin of 44% and operating expenses of 27% and operating income of 17%, all as a percentage of revenue. Gross margin was above the midpoint of our guidance range. Mandy will cover the financials in more detail later in the call.

Our customer service NPS, Net Promoter Score was 82% in Q1, a record for Enphase compared to 79% in Q4. We are laser focused on customer experience for the last few years, and our average call wait time in the first quarter was approximately 1.4 minutes. We have also begun a soft rollout of our Enphase AI assistant in the homeowner app to approximately 100,000 homeowners, and we expect this to expand over time. The AI assistant is trained on Enphase product knowledge, historical service cases and relevant customer support data with access to sales force information, to help answer specific system-specific questions more accurately. It also supports multiple languages, helping homeowners get faster, more intuitive health wherever they are. We expect to pilot a similar AI assistant for installers during this quarter to help them do fleet management in a much more efficient manner.

Let's cover operations. In Q1, we shipped approximately 1.39 million microinverters from our Texas and South Carolina manufacturing facilities and booked the associated 45x production tax credits. These U.S.-made microinverters help residential lease and PPA providers as well as commercial asset owners qualify for the holiday for the 10% domestic content ITC added.

We shipped 49.5 megawatt hours of IQ batteries from our Texas manufacturing facility in Q1. We offer IQ batteries that meet domestic content and [ FEOC ] requirements, helping lease PPA customers qualify for ITC bonuses.

Let's cover to the regions. Our U.S. and international revenue mix in Q1 was 83% and 17%, respectively. In the U.S., our revenue declined 23% sequentially, primarily due to lower residential solar and battery demand following the expiration of '25 [indiscernible] tax credits and typical seasonality.

Safe harbor revenue increased to $34.5 million in Q1 compared to $20.3 million in Q4. Our overall sell-through declined 48% sequentially as Q4 was elevated by significant demand pull forward ahead of the tax credit expiration.

On a year-over-year basis, which better reflects the underlying impact of the policy change. Q1 '26 sell-through declined 18% compared to Q1 2025.

Our U.S. commercial microinverter sales more than doubled in Q1 as compared to Q4, driven by positive market reception for IQ9 microinverters. We now serve both major U.S. pre-phase commercial grid types, the 480 volts as well as 208 volts. In Q3, we expect to begin shipping our high-power 548 watts IQ9s microinverter for 480 volts 3-phase systems, which can support solar panels up to 770 watts DC.

We also expect to see near-term safe harbor demand from customers placing orders between now and early July. With U.S. manufacturing, domestic content eligibility and [ FEOC ] compliant products, how we believe our commercial business is well positioned for continued growth.

In Europe, our revenue increased 36% in Q1 compared to Q4, primarily because selling levels rose towards sell-through levels after we undershipped the European channel in Q4. We are beginning to see green shoots in April with solar and battery activations, up healthy double digits across multiple European markets compared with the monthly averages in Q1. This is being driven by rising power prices and increasing battery adoption. Europe is increasingly becoming a battery critical market.

As self-consumption dynamic tariffs and VPP become more important, the company that wins the battery relationship is well positioned to win the broader home energy system over time, including solar, software and VPP.

In the Netherlands, our battery activations in April increased by approximately 75% compared to the monthly run rate in Q1, as rising export penalties and the planned phaseout of net metering by the end of 2026, strengthened the case for self consumption.

In France, the reduction of feed-in tariff is also shifting the market towards self-consumption and increasing the interest in batteries, especially for new solar installations. Our battery activations in France increased approximately 20% in April from the monthly run rate in Q1, a more modest but positive trend.

In Germany, our battery activations rose approximately 27% in April, compared to Q1's monthly average. We have approximately 475,000 in phase residential solar system in Netherlands and approximately 400,000 in France, creating a meaningful retrofit opportunity in both markets. We are increasing homeowner events, doing direct marketing to consumers and working with the retail energy providers, along with strong support by our technologies such as power match technology and our upcoming fifth generation battery.

We have also built strong inside sales teams and the lead management platform across France and Netherlands in the last 3 months, and we are hoping to convert this demand into revenue with a much higher throughput.

Competition remains intense across Europe, particularly from low-cost string inverters and battery providers. In response, we are reducing our distributor list prices for batteries by approximately 10% in May, which follows a 20% reduction for microinverters already implemented from December last year.

In addition to this sharper pricing, we are instituting a stronger homeowner demand engine and a more competitive product road map, which includes IQ9 and our fifth generation battery, which is coming very soon.

Together, these actions improve our competitiveness today and position us for stronger growth as Europe shifts towards self-consumption, VPP and flexible storage.

In Australia, we are bullish on the battery opportunity. Australia is one of the world's most mature rooftop solar market with more than 4 million rooftop solar systems in start which is roughly one in every three homes is already using solar. Battery adoption is now accelerating, supported by the federal cheaper home batteries program, which provides an upfront discount for eligible small scale batteries connected in new or existing rooftop solar. The program is evolving on May 1 to better support rightsized systems and reduce incentives for oversized batteries. We believe this plays directly to our advantages, including our upcoming fifth generation battery which has a stackable and scalable architecture that gives homeowners flexible capacity and the ability to add more over time.

Let's now discuss our Q2 outlook. On the last earnings call, we said we expected Q2 revenue to be higher than Q1, driven in part by strong safe harbor demand. In line with those comments, our Q2 revenue guidance is $280 million to $310 million, including approximately $85 million of safe harbor revenue.

Since we exited the channel with a high inventory in Q1, we are under shipping approximately $25 million compared to the real demand. At this point, we are approximately 85% booked to the midpoint of our guidance.

We expect modest underlying sell-through growth in Q2 as compared to Q1. That said, our Q1 sell-through results and Q2 sell-through expectations are roughly 10% to 15% below our prior view, a weaker start to the year, primarily due to unfavorable weather conditions and TPO financing challenges. We expect to offset some of these pressures in the second half of this year through prepaid lease adoption, which I'll talk about soon, U.S. commercial growth and potential international recovery.

For batteries, our guidance is 100 to 110-megawatt hours. We recently lowered our battery list prices to distributors in the U.S. by approximately 12% to 14% in March, supported by the recently reduced reciprocal tariff rates.

Combined with our pricing changes in Europe, we expect higher battery sales volumes in the second half of this year. And just to repeat our Q2 revenue guidance anticipates us under shipping end market demand by $25 million in order to correct for Q1's over shipment.

Let's talk about safe harbor. We have executed new agreements year-to-date with third-party owners for approximately $843.6 million of product. $89.6 million under the ITC 5% safe harbor method and $754 million under the physical work test method. This is in addition to the 67.7 million physical work test orders secured in Q4.

These microinverter orders create two important benefits for in Enphase. First, they secured a significant multiyear volume for our microinverter business. And second, they position us very well for future battery attached sales from 2027 to 2030 when these systems are expected to be installed. These also underscores our strength with the TPO providers.

Moving to financing. Prepaid lease adoption continues to build momentum. Prepaid leases give homeowners an upfront -- lower upfront cost today and the option to own the system after 5 years. The TPO initially owns the system, claims the [ 480 ] tax credit and share that value with the homeowner through a prepaid lease or low monthly payments when paired with the loan. This lowers the homeowners' effective cost and helps restore the economics closer to the 30% 25 day tax credit era.

We continue to support [ Propel ], a TPO led prepaid lease program that exclusively uses Enphase equipment and is being field tested with our loan and distribution partners. The pilot is designed to service the long tail of installers and has expanded from 40 installers at the time of our February earnings call to more than 200 installers to date, across four states. We are now seeing a run rate of approximately 200 net originations per week and are encouraged by early customer adoption trends.

It must be noted that the battery attached to those originations is approximately 84%. That's not very surprising because one of the states [ Propel ] is now being piloted is in California. We expect to complete the pilot this quarter and expand the program more broadly beginning in July after validating customer experience, installed execution, which is happening now and financing performance at scale.

Let's talk about products, starting with IQ batteries. Our fourth generation IQ battery [indiscernible], delivers a smaller footprint, higher energy density and simpler installation with the IQ meter color. The meter color is now approved by 64 U.S. utilities and growing, covering approximately 34 million customer accounts.

In California, the color is approved by all three major investor-owned utilities and the largest customer-owned utility. We believe this gives Enphase the broadest utility approval for print of any major battery provider today. Our fifth generation AC [ corporate ] battery is built from stackable 5-kilowatt hour modular blocks, that can scale up to 30-kilowatt hour. This battery uses 100-amp prismatic cells and target roughly 50% higher energy density than the fourth generation battery and about 40% lower cost. Paired with our power match software we believe it will deliver a compelling combination of performance, flexibility and value for installers and homeowners. We expect to begin pilots in Q3 and begin shipping in Q4.

We are also making strong progress on IQ Board, our commercial badly. The first product here is an 80-kilowatt hour AC-coupled commercial battery designed for small and medium commercial markets in the U.S. Our internal estimates indicate that this small commercial market represents an annual opportunity of approximately 1 gigawatt hour. The IQ Board uses 314-amp of prismatic cells in a compact building block architecture and will be even more cost effective. It can scale up by stringing up to 25 units together for approximately 2-megawatt hours of capacity. The platform is designed to support backup, self-consumption shaving time of use optimization as well as VPP participation all managed through Enphase software. We believe IQ Board brings our distributed architecture, our electronics expertise and system level intelligence into commercial storage, giving customers a flexible, high-quality platform for resilience and cost savings. We expect to begin pilots in Q1 '27.

Turning to microinverters. We began shipping our IQ9 3-phase commercial microinverter in December, built on our GaN architecture. IQ9 opens up the 480 3-phase U.S. commercial segment for Enphase for the first time, representing a new TAM of approximately $400 million annually. The installer feedback has been strong with customers valuing Enphase quality, our panel monitoring, simpler system design, lower installations, cost and balance of system costs and higher system efficiency. We expect to introduce the higher power IQ9s 3-phase product in Q3, supporting 548 watts of AC power and pairing with this -- pairing with solar panels up to 770 watch DC. We also expect to introduce IQ9 for global residential markets this quarter.

Moving on EV charging. We are making excellent progress on our IQ bidirectional EV charger, which is built on our 650 Volt GaN power platform and engineered to work with Model 800 work DC EV architectures. This is a clear example of our ability to move power efficiently and bidirectionally between grid phasing AC and high-voltage DC systems with tight control and protection. The product is especially compelling because it simply pairs with the meter color in the U.S. or a backup switch in Europe, enabling streamlined home backup and VPP participation. We are in advanced discussion with multiple auto OEMs, including two partnership opportunities that are progressing well. We will share more as these discussions mature. We are targeting initial availability in Q4, starting with limited deployments as we complete the certifications, utility coordination and vehicle compatibility validation.

So finally, we are excited to announce today the development of our IQ solid state transformer product for AI data centers. AI is driving [ rack ] power from roughly 150 kilowatts to more than 1 megawatt. The industry is moving towards higher voltage DC architectures, including 800 volt DC, as outlined in NVIDIA's white paper last September. We estimate the initial annual U.S. addressable opportunity for IQ SST in AI data centers to exceed 11 gigawatts by 2021, a creating a significant new market for a high-efficiency medium-voltage power conversion.

The IQ SST product is designed to convert medium voltage AC directly to low-voltage DC in a single stage, creating the potential to eliminate site car batteries and [ rack ] level backup while improving efficiency, reducing cost and complexity. IQ SST will be built as a distributed modular architecture. It is expected to deliver approximately 1.25 megawatts through a super cluster of 342 power modules with 800 volt DC output for next-generation AI racks. At the core of each power module will be our custom silicon, [ testolasic ] and a high-frequency GaN-based about the power platform which enables precise control, high efficiency and fast response of the order of 1 to 3 milliseconds. This fast response will enable advanced grid functions, improved handling of load and grid transient and support centralized energy storage at the facility level.

IQ SST is designed for reliability and serviceability. It is modular includes built-in redundancy and support hot swapping without shutdown. It is also expected to deliver cost and supply chain advantages through fewer components, standard high-volume parts, automated manufacturing and U.S.-based production. Our SST platform will be able to scale from a single 1.25-megawatt [ rack ] to multi-megawatt systems. Supporting multiple grid voltages and extends beyond data centers into other adjacent high-power markets as well.

We are now engaged with more than 20 prospective customers and are expanding our partner ecosystem. We have completed product feasibility, built working power modules and converged on the system design. In Q1, we restructured the company to fund SST within our existing operating framework and create room for the strategic program. More than 80 engineers are now working on SST across power electronics, ASICs, software, mechanical design, manufacturing and reliability. As we continue to drive productivity with AI across the company, we are targeting to fund the SST program within our current operating expense structure.

We expect a full system demo later this year pilots with customers in 2027 and volume shipments in 2028. We also expect revenue to build over time. but the strategic logic is clear. IQ SST is a direct extension of our core strength in distributed power electronics, custom silicon software-defined control and high-volume U.S. manufacturing. We believe this architecture is the right way to power the next gen of AI infrastructure and our positioning Enphase to lead in this transition.

Let me conclude. The market is going through a transition, especially in the U.S. residential sure, but we are focused on what we can control: execution, cost, innovation, financing solutions and customer experience. We are seeing early traction in several important areas. Prepaid leases are gaining momentum in the U.S. Europe is beginning to show signs of recovery. With batteries becoming increasingly critical to the customer decision.

In the U.S., commercial solar is starting to ramp, supported by IQ 9 microinverters and our domestic manufacturing position. Our road map is also strengthening. Our fifth generation battery bidirectional EV charger, our IQ volt commercial battery and the IQ9 family of microinverters all expand what Enphase can deliver to homeowners, installers and commercial customers. These products strengthen the core and open new growth opportunities.

Finally, we believe IQ SST can give Enphase access to significantly larger end markets. It is a natural extension of what we have built over the last 20 years, reliable power electronics, semiconductor innovation, software intelligence and distributed system design. We believe Enphase is well positioned for the next phase of growth. With that, I will turn the call over to Mandy for her review of our financial results. Mandy?

Thanks, Badri, and good afternoon, everyone. I will provide more details related to our first quarter of 2026 financial results, as well as our business outlook for the second quarter of 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 Q1 was $282.9 million. We shipped approximately 627.6 megawatts DC of micro inverters, and 103.1 megawatt hours of IQ batteries in the quarter. Q1 revenue included $34.5 million of safe harbor revenue. As a reminder, we define safe harbor revenue as any sales made to customers who plan to install their inventory over more than a year.

Non-GAAP gross margin was 43.9% in Q1 compared to 46.1% in Q4. The gross margin was 35.5% in Q1 compared to 44.3% in Q4. The gross margin was negatively impacted by 6.7 percentage points from the sale of our 2025 PTCs, which totaled $235 million and were sold at 93% of its value. This resulted in a discount of approximately $16.5 million, plus approximately $2.5 million of transaction-related fees.

[ Reciprocal ] tariffs also impacted our gross margin by 4.3 percentage points in Q1. Non-GAAP operating expenses were $77 million for Q1 compared to $78.8 million for Q4. [indiscernible] operating expenses were $130 million for Q1 compared to $129.6 million for Q4. Safe operating expenses for Q1 included $45.4 million of stock-based compensation expenses, $3.8 million of acquisition-related expenses and amortization and $3.8 million of restructuring and asset impairment charges.

On a non-GAAP basis, income from operations for Q1 was $47.3 million compared to $79.4 million for Q4. On a GAAP basis, loss from operations was $29.6 million for Q1 compared to income from operations of $22.4 million for Q4. On a non-GAAP basis, net income for Q1 was $62.3 million compared to $93.4 million for Q4. This resulted in non-GAAP diluted earnings per share of $0.47 for Q1 compared to $0.71 for Q4. [indiscernible] net loss for Q1 was $7.4 million compared to [indiscernible] net income of $38.7 million for Q4. This resulted in GAAP diluted loss per share of $0.06 for Q1 compared to earnings per share of $0.29 for Q4.

We exited Q1 with a total cash, cash equivalents and marketable securities balance of $930.6 million compared to $1.51 billion at the end of Q4. The 5-year convertible notes we raised in 2021 were due on March 1, 2026, and we settled all the outstanding principal amount of $632.5 million with our cash on hand.

As part of our anti-dilution point, we spent approximately $18.7 million in Q1 with holding shares to cover taxes on employees divesting, reducing diluted shares by 441,448 shares. We did not repurchase common stock during the quarter as we are prioritizing disciplined cash allocation and preserving flexibility for strategic investments and potential acquisition opportunities. We had approximately $269 million remaining under our share repurchase authorization and remain confident in our long-term business outlook.

In Q1, we generated $102.9 million in cash flow from operations and $83 million in free cash flow, including proceeds from the sale of the 2025 PTCs. Capital expenditure was $19.9 million for Q1 compared to $9.7 million for Q4. The increase was primarily due to continued investment in U.S. manufacturing.

As of March 31, 2026, after monetizing the PTCs generated in 2025, we had approximately $162.9 million of PTCs on our balance sheet. This includes $108.3 million related to U.S. main microinverters shipped to customers in 2024 and $54.6 million related to shipments in Q1 2026. We elected the rate pay for the 2024 PTCs, which are expected to be refunded through our 2024 tax return filed in April 2025. However, we have limited visibility into the timing of receipt of the $108.3 million due to extended IRS processing time lines.

In March 2026, we revoked our direct pay election. Going forward, we plan to sell PTCs on a regular basis to better align cash inflows with expenses. We expect these sales to be part of our normal course of business. And the intel of this approach is included in our quarterly gross margin guidance.

In addition, on February 20, 2026 the U.S. Supreme Court issued a ruling embedded in certain tariffs previously imposed under the International Emergency Economic Powers Act or IEPA. On April 20, 2026 U.S. customs and border protection launched an online portal for companies to submit IEPA tariff refund requests. As of today, we have submitted approximately $50 million of refund claims through the portal. Subject to approval, we currently expect to receive the refund within the next 90 to 120 days.

Now let's discuss our outlook for the second quarter of 2026. We saw our revenue for Q2 to be within a range of $280 million to $310 million, which includes shipments of 100 to 110-megawatt hours of IQ batteries. The revenue guidance includes approximately $85 million of safe harbor revenue. We see gross margin to be within a range of 42% to 45%, including approximately 3 percentage points of reciprocal tariff impact. We spend non-GAAP gross margin to be within a range of 44% to 47%, 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 $120 million to $124 million, including approximately $45 million estimated for stock-based compensation expense, acquisition-related expenses and amortization and restructuring and asset impairment charges. We expect our non-GAAP operating expenses to be within a range of $75 million to $79 million. With that, I'll open the line for questions.

[Operator Instructions] The first question will come from Brian Lee with Goldman Sachs.

First one, just on the safe harbor as it's so lumpy here. Can you kind of give us any sense on what the safe harbor expectations are 3Q and then I know you said, Badri, 10% to 15% below run rate you originally expected due to the start of your weakness you kind of give us a sense of where you think core revenue trends are into 3Q and 4Q? Are you going to recapture that kind of volume in the back half of year? Are you any sense on payments from here ex the safe harbor? And then I had a follow-up on the [ FET ].

So Brian, our safe harbor revenue for Q2, the estimate is $85 million. That's what we said. Your question is safe harbor estimate for Q3. It is difficult for us to estimate right now. But if I were to give you a number that between $40 million and $50 million is what I expect, safe harbor revenue for Q3. And that's my opinion there.

Then, yes, I talked about we expect modest underlying sell-through growth in Q2, the current quarter we are in compared to Q1. That said, like what I said, Q1 and Q2 sell-through expectations are roughly 10% to 15% below our view. Weaker start is basically due to the challenges we are seeing in general, [ EPO ] financing and unfavorable weather for us.

But what we are very excited about is [ Propel ], which is our prepaid leads offering through our partners. And I gave you some color on the prepaid lease offering. Basically, the last earnings call, I told you we had 40 installers from [ Propel ], now we have, as of last week, we have 200 installers.

We still have the same four states because we are disciplined in not entering additional states until we finish the pilot. But our originations have increased at a very, very healthy rate. 200 net originations a week.

In fact, I mean, that is a very nice number. That amounts to roughly 90 to 100-megawatt annual run rate if I freeze that 200 as of today -- 200 per week as of today. So extraordinary reception for [ Propel ], and we have to thank our partners to make that happen. So for us, [ Propel ] is something we are very excited about.

The other one that I'm excited about is in [ Propel ], our battery attach is 84%. Obviously, California drives a lot of battery attached. So when we expand it to other states, it might be a little bit lesser than that. So we are excited about that because that means for us more megawatt hours very soon. And we expect that in the second half of the year, for sure.

Then the other one we talked about is what we are seeing in Europe. We gave you color. In fact, we gave you a lot of color on Europe, saying that what we are seeing in April compared to monthly run rate in Q1.

For example, we are seeing our double-digit increases for most of the Europe regions, double-digit percentage increases for most European markets compared with the monthly average that we saw in Europe in Q1. And that's being driven by the rising power prices and increasing battery adoption.

In Netherlands alone, our battery activations in April increased by approximately 75% compared to the monthly run rate in Q1. In France, that number was 20% in April from the monthly run rate in Q1. In Germany, 27% in April compared to the monthly run rate in Q1.

So a long answer to your question is basically we are very encouraged by [ Propel ]. We are very encouraged by the fact that we are seeing some green shoots in Europe. But having said that, the market is fickle right now. You're seeing a lot of dynamics in the market. We don't want to [ answer ] a guess for Q3 and Q4, but this is what we are doing from our side. And I haven't talked about the new products, but we are actively working on four new products. And to be brief, that's the fifth gen battery, the bidirectional charger, the commercial battery as well as the IQ 9 high-power version for commercial. And of course, the big announcement we made is the SST and that one is more a 2028 revenue opportunity.

Yes. No, I appreciate all that color. Maybe just on that last point, the timing for IQ SST 2028, that's helpful. I know you gave a bigger lot sizing for that opportunity. Can you give us a sense of kind of the revenue dollar opportunity for Enphase? And then also, how does the Enphase offering differ from what you're seeing from peers for those that you know actually have the product?

Let me take the second one first. This is Raghu. Brian, so I think we are fundamentally different from at least some of the announcements that we have seen in the market, in that we leverage our 20 years of experience in developing a distributed architecture product. So think about it in a single-stage resident converter, which is what is our core technology that we have dropped since the inception of the company, high frequency design, soft switching, custom [ ASIC ] new band gap devices. We were the first guys in 2008 to deploy white band silicon carbide diodes as an example, now we are doing GaN.

So when you are a completely distributed or a decentralized architecture, it enable 342 power modules that ranged in the supercluster really brings a tremendous amount of value. What it does is, for example, you get sub-millisecond response types. And when you have sub-millisecond response time, now you can target how to get rid of the site car completely. So no [ BBU ] or no storage anywhere in the low-voltage system. You can now move all your storage to the medium voltage section via [ BFF ]. We all know this. When you're a completely distributed architecture, you get very, very high reliability.

When you have 342 of these devices, we have built in 10% redundancy. So you can achieve very high uptime, and our target there is [ Five9 ] which is very good and serviceability of that device without having to take the entire rack down.

We talked about U.S. supply chain and volume manufacturing. It leverages the same platform that already -- that we already have in -- from a manufacturing point of view.

And then on the cost, again, people don't appreciate this very much is the technology that we have, the single-stage resident converter we do what's called soft switching, which means that electromagnetic interference or EMI signature is extremely low. We don't have to build big metal and closures to enclose these devices to reduce your EMI. That's why this device is the power module is in a part of polymeric enclosure. So we really drive the cost down. The single-stage power conversion means very few components. We drive the cost down.

Of course, we'll price to value, but our costs are going to be very, very low. So very good response time, which means we can target completely eliminating the site card, eliminating the site card means you can replace that with a compute rack, more compute rack means more tokens, more tokens means more revenue. We talked about rail and you have a super cluster of 342 of these power modules, you get architecturally correct redundancy and you get very high reliability, and you can target [ Five9 ] uptime, supply chain, volume manufacturing and, of course, cost.

The next question will come from Praneeth Satish with Wells Fargo.

So we've seen some changes on the installer landscape recently, [ Sunrun ] exiting their affiliate channel, Freedom forever, filing for bankruptcy. From what I can tell, neither were really major Enphase users. So I guess do you see an opportunity for Enphase to pick up share as that demand kind of reallocates? And are you seeing any early indications of that today? Or is that something that could play out over the next quarter or 2?

We are not going to talk about our customers. Today [ Sunrun ] as our customer. We have a very good relationship with them. We're not going to talk about that. But on Freedom, we do 0 business with them. So we view that the market will redistribute itself amongst the existing installed base, and we do expect to get our fair share of it.

Got it. And then maybe shifting gears to C&I. So I think for Q1, you previously indicated potentially generating around $5 million or so of revenue for C&I. Maybe I missed it, but is that -- can you share where C&I revenue landed in Q1? And then what is your -- what's embedded in the Q2 guide for C&I? And should we expect C&I revenue to increase every quarter this year based on the pipeline that you're seeing?

Yes. We did in Q1 a little more than $5 million. We did in the high single digits. A little more than 5%. Having said that, C&I is a very lumpy business. And at least for us, until we have a nice pipeline established we do expect it to be lumpy. But the opportunity for us is that C&I installers, C&I developers do have a safe harbor window as well. And that safe harbor window will be closing in. They have to make their plans by early July.

And for that, we have two things, we have actually three products for that. One is our already existing 208-volt 3-phase product, which is [ IQ80 ], which we have been supplying for some time. The other is our brand new IQ9 and [ 427 ] product, which is what we introduced very recently. The third one, which is coming, and we plan to start shipping in Q3. That product is the 548 watts, even high-powered version. That is suitable for safe harbor, which is because if they are going to be using these later in the years, the panel sizes are going to be even more.

Today, for example, the panel sizes are between 595 watts and 650 watts, in the commercial business. It's going to go -- keep going up a little more. So that's why the 548 watch is also exciting. So we're very excited by the C&I business. In general, directionally, we expect it to continuously grow until we establish a pipeline. But in terms of quarterly, it is going to be a little lumpy at the beginning.

The next question will come from Colin Rusch with Oppenheimer.

Can you talk a little bit about the geographic distribution of where the channel inventories? Is it primarily in the U.S.? Are you seeing some channel inventories built up in the EU as well?

It's mostly the U.S.

Okay. And then can you talk about the customer maturity with the solid-state transformer, how soon can we start seeing some pilot in that product? And how many customers are you engaged with now in terms of potential testing here over the near term?

Yes. We have talked to of the order of 20 customers or so prospective customers. And I think the most important thing is to get a dental demonstration system ready, which is what we are targeting for this year.

Once that's done, the all natural following step, there are enough people out there who want to will be willing to test the system, but we need to get to the demonstration system, which is what we will be ready with this year. And that's what we are singularly focused on.

And then followed up by 2027 will be about customer pilots and then 2028 will be about volume shipments. So that's the sequence of events that [ Q4 ].

We have -- we do have a detailed investor presentation, which is on the website as well as on the SST page. One of the things we'd like to highlight is we started working our team, Raghu and the CTO team, they basically recognize the opportunity that we have in the SST data center space about 9 months ago, and we started working on feasibility 9 months ago.

And so since then, over time, we have gradually signed approximately 18 engineers in the company to be working on SST and they're all working full time. We also took the opportunity to think strategically and said, how do we create a lot more room for SST. So we restructured the company in Q1, basically to focus on SST. And you saw focus on assist without changing our operational expense structure. And so we got that done.

And then we have worked on the basic power module. Again, you can find a lot of details in the Investor Relations deck as well. We have built the basic power module. We have it functional, and now the next step is to basically put together the full system, which is a lot more complex, and we expect to demonstrate that by the end of the year. Once we do that, the customer engagements are going to be there, and we target pilots -- customer pilots throughout 2027 and volume shipments in '28.

The next question will come from Philip Shen with ROTH Capital Partners.

Badri, you said that the Q2 sell-through was 10% to 15% below expectations. You cited TPO challenges. We've been talking about tax equity pausing and there's just a fair amount of I guess, challenge out there. So I was wondering with the core revenue for Q2 being down to about $210 million, down from $250-ish million in Q1, what does Q3 and Q4 look like? This is a seasonally strong time, Q2 and 3, but this TPO challenge with this tax equity pause, may endure or linger for a bit. So I know you can't guide or you haven't guided for Q3, but I was wondering if you might be able to give us some qualitative color on -- or quantitative on Q3 and Q4?

Yes. I mean at this point, I will tell you what I see, but that's basically like what I told you the last time. That's my opinion.

As we said, we expected Q1 sell-through to be around in the $250 million range, and we were 10% to 15% below that number, basically. And so we overshipped approximately $25 million in Q1. That's why I said we ended the channel with a little more inventory than what we would have liked. We are correcting that immediately within 1 quarter itself by under shipping in Q2 by that number.

We do expect the native sell-through in Q2 to be a little better than Q1, driven by the usual seasonality. What could surprise us in Q3 and Q4 is the few factors that I just highlighted a few minutes ago. What could surprise us is the [ Propel ] could surprise us. There, we are proceeding with some caution. We are piloting in four states now. We are at a run rate of 200 originations a week, which is a nontrivial number. under originations a week. And that percentage increase on the originations a week is fast. I mean, we are very happy with the percentage increase.

We are also very happy with the number of installers. Our vision with [ Propel ] was to give prepaid lease to our long tail of installers. And I won't declare success right now because we are still in the pilot, but it is going in the right direction. [ Propel ] comes with an 84% storage attached. Of course, that's a high number because of California. But that's a very encouraging number for our batteries as well. So that's one vector.

The other vector is basically what I talked about in Europe. We talked about the business starting to show some sign strength on batteries in Netherlands, in France and in general, even for solar. So we are already seeing that in April compared to Q1. So that's the second thing.

The third one is the IQ battery can see -- of course, the volumes in Q1 were a little light due to the '25 abrupt cut off, but we are making a lot of progress on the IQ battery [ latency ]. We are qualifying and 64 utilities have accepted our major color. And with the [ Propel ] ramping, IQ battery can see will also be ramping with new installers who haven't used in [indiscernible]. So that's that.

And then on the small commercial front, I talked about more opportunities in small commercial in terms of -- before the safe harbor window closes I believe the commercial developers are going to need a solution for '27 through '30 -- I mean, '28 through '30. So I expect both steady increase in the commercial business as well as some potential safe harbor in -- which will be shipped in Q3 order hopefully by the end of Q2.

So as you can see, there are a lot of moving parts. We see the challenges in the last few weeks, like you correctly pointed out, tax equity challenges, installer bankruptcies, they are never good for the business, but we are not the ones to complain. We try to do whatever we can do. And I think all of these initiatives are something that we'll be working on.

Okay. Secondly, as it relates to a quick housekeeping question. In your 10-Q, you guys had commentary about how you entered into a $30 million secured revolving credit facility with a probably held company. I'm wondering if this might be sole source, the company that you guys do propel with? And then back on SST for a moment, Badri, I think you talked about pricing the value with your low cost structure. Just was wondering if you could share what margins you guys might be targeting for this SST product?

It's very early to tell, Phil, about what our cost is what price and cost is going to be. We have a -- we have a rough estimate of it, but it's way too early to tell. Right now, we are focused on continuing the development so we can get to that customer demo by the end of this year.

And we're also investigating because we are using a very similar module to what we already do for solar, we are looking at if there is any IRA advantages here for us as well.

So too early to tell. Right now, the focus is on getting this 1.25-megawatt customer demo by the end of this year. But over time, as we get deeper and deeper into the design, we'll be happy to share with you the details.

And on the $30 million line, we are not breaking out in the customer.

The next question will come from Julien Dumoulin-Smith with Jefferies.

Maybe I should just to pick it up off where Phil left it off. Maybe just to pick up on the tax equity piece and the target. You talked about 200 originations a week. I mean what are you thinking quarter-over-quarter into 4Q, what that target installer partnership would look like? I mean, how many are you pursuing? How do you think about tax equity as a limitation on the [ Propel ] program to ramp? What are the other factors when you think about continuing to get this program up and going, if you can speak to it in those terms. In theory as part of your conscious ramping?

Right, right. yes, [ Propel ] is offered through our partners. So we are working very closely with them. there. Having said that, my wish is to basically get up to a run rate of 500 originations a week by the end of Q4. And that's my wish.

Today, we have 200 installers that are using [ Propel ] again, my desire on why we launched [ Propel ] basically, that number should be a healthy multiple of $200 million. That's why we launched. That's one of the reasons us and our partner, distribution partner, we launched this [ TPU ] led program [ Propel ] is because we wanted to bring that access to the long tail installers with an ease of doing business. The tax equity question is a better question for [ Propel ]. We are not going to make any comments on that right now there.

The next question will come from Eric Stein with Craig Hallum.

So maybe just sticking with [ Propel ]. Can you just talk about -- I know you're piloting in four state. I mean what is the limiting factor to expanding that to other states? I mean, is this I mean I would assume when you're talking about piloting it you going hand-in-hand with your TPO partner to installers, educating those installers. I mean in my Am I thinking about that correctly? And what would that time frame be to expand to different states?

Right. It is -- yes, once again, I'm answering on behalf of our TPO partner. So basically, what we want to look at is that entire chain that is -- you want to basically start from originations, you want to look at installations, you want to look at M2 -- M1, M2, M3 then you want to be able to appropriately monetize the tax credits. So that takes time. So therefore -- and the usual time could be from originations to monetization could be 4 to 5 months. And we are still -- that's why we are still in the pilot. All of that needs to execute flawlessly. Ease of doing business for the installers is very critical. We cannot keep changing parameters on the installers. We need to be able to needs to be able to monitor -- I mean, to monetize the tax credits property.

Again, I am trivializing there their work. They have a lot of work to do. So -- and we need to prove that the entire chain works properly. And until then, we will not be doing a drop launch, like what I stated.

Having said that, what are we piloting for? We are piloting to see if we can support a lot of installers. And the answer to that is yes. Since the last earnings call, at that time, they were 14, now they are $200. The last earnings call, the number of originations is an order of magnitude low. Now it is 200 a week, which is -- and climbing rapidly. So we are closely monitoring it. We are working with our partners. And the moment we are ready to launch. We'll be transparent about it.

Yes. Is it -- I know that you -- that [ Propel ] is one of the things that potentially mean improvement in the second half of the year. But I mean, fair to say that this is much more about 2027 and beyond than potentially positively impacting the second half.

That's right. I think you're thinking about it right, positively impacting the second half and also in 2027. That's right. And don't forget the other things, which are what we do nuts and bolts is basically the Europe opportunity is a big one. We are doing well there, especially Netherlands has picked up steam. France has picked up steam. And there, we are actively doing things. Once again, we are holding two to four homeowner events a week. Each of these homeowner events are attended by almost 150 homeowners each one. And our target for on every event, I told my team every event should at least generate 0.5 megawatt hours. So basically, if you do four events that should generate 2-megawatt hours a week and that should only compound as we go. So we are going to replicate the same thing in France as well, where we have 400,000 installed base.

And we are introducing our third-generation battery third-generation battery. The form fact of -- sorry, 5th generation battery. The form factor is very, very small. It's 50% energy density using 100-amp prismatic cells, a 40% lower cost -- our cost -- internal costs, and we expect to translate that into a lower price for our distribution partners. So that's another very exciting product.

The other one, I didn't talk too much on the buyback. On the day, we are gearing up for a launch in the fourth quarter. Again, a very simple product, which is along with the meter color, and just the charger of it can provide V2H, which is both V2H, vehicle-to-home resiliency and vehicle-to-grid, V2G. So that's another product. And there, we have two partnerships with North American OEM car providers, which we will announce when we are ready. So that's that.

And then, of course, IQ9, we are launching IQ9 residential markets. We have already launched for the commercial market. We are going to introduce higher power higher-powered version. So that business, especially with our domestic content compliance, U.S. manufacturing, all of that is a very big advantage there. That business takes a little time. It's a design in business, and so we expect to make steady progress there.

The last one, which I talked about is the commercial battery. The commercial battery, it's a gigawatt hours of TAM, and we are talking about batteries for small and medium businesses, schools, hospitals, churches, small businesses, the gas stations, convenience stores all of those, they typically need battery size anywhere between a 50-kilowatt hour system and 250 to 300-kilowatt hour system. So now basically, we will be able to offer that along with IQ9 on the [ PB ] side, on the solar side, and now we will have 80-kilowatt hour battery, and you can string 25 units of those, you can go up to 2-megawatt hours. So we are extremely excited by that offering as well.

So we're doing lots of things, and we expect sequential growth. Of course, it's a turbulent market, but we are controlling what we can. And of course, the IQ SST, which we talked about.

The next question will come from Dylan Nassano with Wolf Research.

Badri, I would just love to get your take, I guess, on Europe, just in terms of how durable you think this bump is, I mean, that market went through a boom for kind of similar reasons back in 2022 and it was followed by a pretty severe kind of destocking cycle. So just wondering if you could kind of compare and contrast where we're at today?

Yes. I mean it is anybody's guess. Yes. I shared with you the question and the concern. Last time it was an extended the Ukraine crisis basically led to an explosion of demand this one may be more modest. But nevertheless, we are seeing an increase. I'm not sure how long it will last. But there are some fundamentals there, which is basically batteries are good in general. And Europeans are -- I have to say that Europeans are a little more advanced. And the U.S. here, almost every region is accelerating to a battery-first market.

And battery-first pulls everything else, solar, EV chargers, energy management, it puts everything. And what we are going to be doing there is, of course, we are going to get more competitive. We talked about sharper pricing. We already made necessary pricing corrections on microinverters in December. We are making pricing corrections on batteries in May, which is next month. And we already made battery pricing corrections in the U.S. in March. So we are laser-focused on expanding our battery business. I talked about that.

In Europe, we are going to go from a third-generation battery to our fifth-generation battery in Q4. And so that will be a massive leap there in terms of cost, in terms of pricing, in terms of installation, in terms of space. So we just did -- one of the things we -- before we finalize our design, it's our practice to show it to installers and get a group of installers and get limited or get some feedback from them. So we did that in the first quarter. We did that in France, in Netherlands, in Germany, and we got a lot of feedback on the battery and mostly very positive. So for us, it is all about batteries there and batteries were pulled through solar and I think we are making the right necessary steps for us to grow through 2026.

[Operator Instructions] The next question will come from Vikram Bagri with Citi.

It's Ted on for Vik. I wanted to ask about the guidance for 2Q. It looks like it still includes tariff impact. Are you able just to share how much of the inventory roughly is still impacted by those tariffs? And would there be any interplay between the possible refunds that you may receive on that? And then could you just also talk about the progress being made on ramping the non-China battery cell supply. What's the outlook for that mix?

Yes. The -- in terms of tariffs, like what I said, we do expect -- Mandy said, we have applied sort of $15 million refund and we do expect that to basically the decision and the refund to come within 90 to 120 days. As far as we are concerned on our gross margin guidance for Q2 that basically includes -- there is a benefit for us of a couple of percent, 2% in gross margin due to the change in reciprocal tariff, note that still even now -- all of most of the countries are at 10% right now. So right now incorporated in our current guide is a benefit in gross margin of approximately 2%. And we said in our prepared remarks that this tariff -- the reduction in tariffs helps us to be a little more aggressive on our batteries, and we have taken advantage of that to increase our demand by adjusting the pricing to be a little bit sharper in both Europe as well as the U.S.

Got it. That's very helpful. And I have one follow-up. Just going back to the prepaid lease offering, do you have a view on where you think the prepaid lease products could be as a portion of the total TPO market this year? So not necessarily for [ Propel ], but just looking at the market as a whole.

It's hard to say, and my comments should be taken with a grain of salt because we are still in a pilot. And right now, we are at a run rate of approximately like what I said at 200 originations a week, it corresponds to something like 90 to 100 megawatts a year. So that's the number at 200 originations run rate a week. So you can do your math on how does it compare to the [ TP ] market.

[Operator Instructions] Showing no further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to Badrinarayanan Kothandaraman for any closing remarks.

Thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter. Bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Enphase Energy's Fourth Quarter 2025 Financial Results. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Zach Freedman. Please go ahead, sir.

Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's fourth quarter 2025 results. On today's call are Badri Kothandaraman, our President and Chief Executive Officer; Mandy Yang, our Chief Financial Officer; and Raghu Belur, our Chief Products Officer. After the market closed today, Enphase issued a press release announcing the results of -- for its fourth quarter ended December 31, 2025.

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, the capabilities of our technology and products and the benefits to homeowners and installers, 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 introductions and enhancements to existing products and regulatory tax, tariff and supply chain matters. These forward-looking statements involve significant risks and uncertainties, and our actual results and 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-Qs filed with the SEC. We caution you not to place any undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events or changes in expectations.

Also, please note that financial measures used on this call are expressed on a non-GAAP basis unless otherwise noted and have been adjusted to exclude certain charges. We have provided a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release furnished with the SEC on Form 8-K, 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 to discuss our fourth quarter 2025 financial results. We had a good quarter. We reported quarterly revenue of $343.3 million, shipped 1.55 million microinverters and 150-megawatt hours of batteries and generated free cash flow of $37.8 million. Our Q4 revenue included $2.3 million of safe harbor revenue. U.S. consumers pulled forward purchases ahead of the Section 25D tax credit deadline, helping us exit 2025 with [ the lean ] channel.

For Q4, we delivered 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 1.31 million microinverters from our Texas and South Carolina manufacturing facilities [ in ] booked associated Section 45X production tax credits. These domestically made microinverters helped 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 FEOC requirements as regulatory standards tighten. Also, we expect to receive our first non-China battery cells in Q1 and remain on track to scale non-China cell supply into battery production in the first half of 2026.

Let's now cover the regions. Our U.S. and international revenue mix for the -- for Q4 was 89% and 11%, respectively. In the U.S., our revenue decreased 13% in Q4 compared to Q3, primarily due to safe harbor revenue of $20.3 million compared to $70.9 million in Q3. The overall sell-through of our products increased 21% in Q4 compared to Q3 to the highest level in more than 2 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 installations 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 in managing the channel and focusing on targeted growth areas for 2026. I will provide some additional color on the key markets in Europe.

In the Netherlands, solar demand remained soft in Q4, but we are making steady progress towards a large battery retrofit opportunity driven by structural changes in the market. Rising solar export penalties and the planned phaseout of net metering by the end of 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 billion for batteries. We are seeing early traction for -- 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 Netherlands.

In France, reduction in feed-in tariffs are 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, and 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 with the ability to add more over time.

Let's now discuss Q1 outlook. During last quarter's call, we shared a view of Q1 revenue to be around $250 million. Today, we are providing Q1 revenue guidance of $270 million to $300 million. 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 2 TPO orders totaling $123 million, including $55 million under the 5% safe harbor method and $68 million under the physical work test method. We collaborate with TPUs on tax equity support, domestic content and FEOC-compliant offerings, O&M services through [ Enphase Care ] and an integrated workflow through Solargraf for design, proposal and permitting 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 5 years. In the structure, the TPO owns the system initially and claims the 48D tax credit, then share that value with the homeowner through a prepaid lease or low monthly payments when paired with the 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 [ fully ] tested with a loan partner as well as a distribution partner. The program, which uses Enphase equipment, is currently in pilot across 4 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 product, starting with IQ Batteries. Our fourth generation IQ Battery 10C continues to ramp in the U.S., 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 U.S. utilities and growing, serving approximately 30 million customer accounts. We believe this represents the broadest utility approval footprint of any major battery providers today. In California, the Meter Collar is approved by all 3 major investor-owned utilities.

We also launched PowerMatch in Q4, a software-enabled technology that dynamically matches 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 5-kilowatt hour modular blocks and will scale up to 20-kilowatt hours in the U.S. 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 the third quarter of 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. Through these programs, homeowners can earn attractive incentives from that 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 [indiscernible], 3-phase commercial systems in the U.S. for the first time and represents an approximately $400 million total addressable market. The demand is encouraging, with more than 50,000 microinverters ordered for Q1, and early feedback confirms the market need for reliability, FEOC compliance and domestic content that IQ9 delivers. We expect to introduce IQ9 for the global residential markets in the first quarter of 2026 and the higher powered 548-watt version for both residential and commercial markets in the third quarter.

More broadly, [ our IQ ], 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 U.S. This charger supports a 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 stand-alone 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 planned 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 the fourth quarter of 2026, starting with limited deployments as we complete required certifications, utility coordination and vehicle compatibility validation. The product is compelling because it [ pass ] simply with the IQ Meter Collar in the U.S. 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 Solargraf, our all-in-one design and proposal platform built for installers. We continue to deliver meaningful upgrades, including fully customizable proposals with in-line editing, battery-only proposals and racking integration to generate a complete bill of materials. We are also expanding AI capabilities, including one touch, design and automation and lighten integration to help installers reduce operational overhead. Looking ahead, we are adding support for commercial system designs to align with our expanding commercial products. Solargraf 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 U.S. 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 into a broader technology platform that can apply our power electronics and energy management strength to significantly larger markets. The transition began 5 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, bidirectionally recharging 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 remain laser focused on the near-term revenue levers that we can conclude. Number one, accelerating IQ Battery 10C growth. Number two, scaling IQ9 GaN microinverters to expand our 480-volt 3-phase commercial footprint. Number three, unlocking battery retrofits across 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 costs and strengthen solar economics.

With that, I will turn the call over to Mandy for a further review of our financials. Mandy?

Thanks, Badri, and good afternoon, everyone. I will provide more details related to our fourth quarter of 2025 financial results, as well as our business outlook for the first quarter of 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 $343.3 million. We shipped approximately 682.6 megawatts [ DC ] microinverters and 150.1 megawatt hours of IQ Batteries in the quarter. Q4 revenue included $20.3 million of safe harbor revenue. As a reminder, we define safe harbor revenue as any sales made to customers who plan to install their 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 $78.8 million for Q4 compared to $78.5 million for Q3. GAAP operating expenses were $129.6 million for Q4 compared to $130.1 million for Q3. GAAP operating expenses for Q4 included $48.6 million of stock-based compensation expenses and $2.9 million of acquisition-related amortization, offset by $600,000 of restructuring and asset impairment benefit.

On a non-GAAP basis, income from operations for Q4 was $79.4 million compared to $123.4 million for Q3. On a GAAP basis, income from operations was $22.4 million for Q4 compared to $66.2 million for Q3. On a non-GAAP basis, net income for Q4 was $93.4 million compared to $117.3 million for Q3. This resulted in non-GAAP diluted earnings per share of $0.71 for Q4 compared to $0.90 for Q3. GAAP net income for Q4 was $38.7 million compared to $66.6 million for Q3. This resulted in GAAP diluted earnings per share of $0.29 for Q4 compared to $0.50 for Q3.

We exited Q4 with a total cash, hedge equivalents and marketable securities balance of $1.51 billion compared to $1.48 billion at the end of Q3. The 5-year convertible notes we raised in 2021 are coming due on March 1, 2026, and respect to stakeholder principal amount of $632.5 million in maturity with our cash on hand.

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

As part of our anti-dilution plan, we spent approximately $1.4 million by withholding shares to cover taxes for employees divesting in Q4 that reduced the diluted shares by 41,767 shares. 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 $632.5 million of debt maturing next month and preserving flexibility for strategic investments and potential acquisition opportunities. We have approximately $269 million remaining under our share repurchase authorization, and we remain confident in our long-term business outlook.

In Q4, we generated $47.6 million in cash flow from operations and $37.8 million in free cash flow. Capital expenditure was $9.7 million for Q4 compared to $8 million for Q3. This increase was primarily due to continued investment in our U.S. manufacturing and R&D equipment.

Now let's discuss our outlook for the first quarter of 2026. We expect our revenue for Q1 to be within a range of $270 million to $300 million, which includes treatments of 100 to 120-megawatt hours of IQ Batteries. The revenue guidance includes approximately $35 million of safe harbor revenue.

We expect GAAP gross margin to be within a range of 40% to 43%, including approximately 5 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 the range of $137 million to $141 million, including approximately $60 million estimated for stock-based compensation expense, acquisition-related expenses and 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. 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 million to $75 million per quarter, starting from the third quarter of 2026.

In closing, we managed well with our financial discipline through a difficult global environment in 2025. We maintained profitability and strong gross margins. In addition, in 2025, we generated approximately $95.9 million of free cash flow and approximately $228 million of net PTC receivable. We exited the year with $1.51 billion in cash, cash equivalents and marketable securities while repurchasing 2.3 million shares of our common stock for approximately $130 million.

With that, I will open the line for questions.

[Operator Instructions] And the first question will come from Phil Shen with ROTH Capital Partners.

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 or kind of similar levels to Q1?

Right. We expect Q2 to be up, but it's too early for us to talk about it. And like what I said in the prepared remarks, there are a few things which are -- which we believe is 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 U.S. 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, 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 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 3 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 are doing a few things like what I listed, accelerating IQ Battery 10C. Now we are approved at all 3 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 U.S. battery shipments are now the IQ Battery 10C. We also expect the prepaid leases to help accelerate our battery volumes. In addition, we expect FEOC 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 IQ9N 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 via compliance, all of those we bring. So that's very exciting.

The third one, unlocking the battery retrofits across Netherlands and France, big deal. We are doing something we have never done before. We are organizing homeowner events in Netherlands. We are organizing 2 homeowner events every week. And so we are talking of 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 Netherlands. So we are extremely excited about that.

Same deal in France. Although in France, the -- it is not like -- in Netherlands, the energy contracts aren't fixed for a very long time. They change every 1 to 3 years. But in France, they are fixed. So retrofit opportunity isn't as compelling as Netherlands, but still, people who would like to own batteries for resilience and new installations, certainly, self-consumption is required because the [ field and ] 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. So that's number three.

Number four is we just introduced our IQ -- latest and greatest IQ EV charger into the U.S. 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 U.S. But the real exciting thing there is the bidirectional charger. The bidirectional charger is a demonstration of how powerful the inverter architecture is. We interfaced to 800 volt DC on the cost side and then to home AC using the same single-stage power conversion that Enphase is known for. So just with our bidirectional chargers, which has got the inverters in grid 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 going to -- preparing ourselves to launch IQ9 residential microinverters in the first quarter in a few weeks from now, both U.S. as well as international. Then we expect to introduce our fifth generation battery. 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 enterprising for the consumer, which is necessary as batteries -- battery adoption increases and yet maintain our gross margins in line with the [ corporate gross molecule ]. So those 5 levers are all entirely in our control, and we plan to make full use of them in addition to the 3 tailwinds we talked about.

Great, Badri. 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 want to understand if that's versus the $285 million from Q1 with safe harbor or versus the $250 million without safe harbor?

We usually make the comments regarding -- with 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. And we'll have the time to ship it through Q3, I believe. So yes.

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

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 that -- 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 time lines today.

The next question will come from Brian Lee with Goldman Sachs.

First one I had was just on margins, maybe for Mandy, maybe for Badri. I think the 5% reciprocal tariff impact, it seems to be stabilizing and peaking here. I think last year, you talked about fully offsetting it by 2Q of 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.

Right. So Brian, if you remember the last time, what happened was the tariff -- meaning approximately, let's say, 3 to 4 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 -- that is what is called as the reciprocal tariff. I have -- if I go to Malaysia, there is a tariff. If I go to Vietnam, there is a tariff. Everywhere, there is tariff. And 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? For example, on microinverters, we will have to bring in raw materials into the U.S. in order to make our microinverters into the U.S. -- in the U.S. So therefore, those get hit.

So therefore, there is no safe play which has got no tariff for us. What we believe, to answer your question, because that's still a valid question, what you got to -- 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, $0.11 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 is. We are rapidly getting close to releasing our fifth-generation battery. The fifth generation battery uses very compact, compact cells. These are prismatic cells. And therefore, we essentially are able to reduce that entire form factor, the full battery by a very significant amount. And we are able to do a stackable battery. Ours will be unique. It will be an AC coupled, stackable battery. Energy density, like what I said, 50% higher than our current battery fourth generation. Cost structure will be 40% lower. This will enable us to make good gross margins and overcome that 5% reciprocal tariff.

The follow-up would be on one of the specific products here. You talked a lot about the IQ9 Commercial Inverter, the $400 million TAM. If my math is right, it seems like the bookings activity, Badri, you mentioned maybe you're tracking the $5 million to $10 million 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 million TAM? Is this tens of millions of dollars of revenue by the second half of the year?

Yes, you're approximately right. It is between 5 and 10 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, FEOC compliance, domestic content. 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 3-year time frame to get into the similar market share as what we have on the residential.

The next question will come from Praneeth Satish with Wells Fargo.

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 time line 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 the end of 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?

Yes. 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 4 states. And we have over 14 [ starters ]. We are starting to get reasonable originations. But what we want to do is to test out the entire cycling. That's why it's called as 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 limit that right now.

That's fine. And maybe shifting gears. If you can give us an update in terms of IQ 10C 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. Has that momentum kind of carried over into Q1? And then what's been the feedback from installers in California now that the Meter Collar's approved with all of the utilities? Do you think you can get your -- I think your market share is 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?

Yes. The -- I think the fourth-gen battery will do it a bit because it's got a very nice form factor. It's -- 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 late part of Q4. So all of the barriers essentially are now removed.

Installers, you asked me for installer feedback. We do roundtables with installers almost every week. And 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's a couple of things that we are doing is 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, that will increase our share more.

In addition, like what I said, we'll start to see the effect of FEOC 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. Yes. And -- so we do expect progress with the fourth generation.

On the fifth generation, yes, we do expect to definitely take a lot of share 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 bet.

The next question will come from Colin Rusch with Oppenheimer.

Can you talk about where battery inventories are right now in the channel, particularly in Europe as you look at some of the demand that's growing in both 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.

In general, I would say our -- we are very happy where we ended the channel in both the U.S. as well as outside the U.S. Our -- in the past, I have told you, what we consider normal is 8 to 10 weeks. And in the U.S., the channel is actually much more leaner. That means it's better than 8 to 10 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.

And then just 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?

Yes. This is Raghu. Yes, 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 as we look at the EV charger today, that's a flex resource. As we think about bidirectionally recharging, that's, again, a flex resource. Solar itself is also can be considered as a flex resource. So our view is much broader than just simply thinking about 1 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. Because they're value-generating resources, they can actually help with homeowners' ROI. So all of the grid services that you mentioned, which is reactive power, voltage support or just capacity, resource adequacy, all of these functions are organically built into all of the products that we build because we expect they'll all be flexed as we see the VPP market evolving.

So -- and so far, while 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're pretty excited about all the work that we have done with our VPP.

We -- it's a metric that we track very closely in terms of availability of our VPP APIs, how well our servers are working in order to service the demand. This is U.S., whereas what we are seeing is all of the VPP work that we are also doing in Europe with particularly in the Netherlands, where we are providing capacity imbalance, dynamic tariffs. Others, where they're creating 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.

The next question will come from Eric Stine with Craig Hallum.

Just wondering if we can talk about safe harbor a little bit. So just the -- sort of confirm, $63 million 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 some 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?

No, it's too early for us to forecast any safe harbor orders, we don't really know right now. And they usually based upon the deadline that we see, TPO partners have until approximately July 1 week to finalize their plans. And so we do expect a lot of frenzy activity in Q2.

We did -- what we announced, we announced basically two or two transactions that we announced. One was I think in the 50s, and another was in the 60s. And so one was physical work test, and the other was a 5% safe harbor. We even expect some of those customers to do repeat safe harbor orders. But right now, it's too early for us to -- yes.

No, understood. I 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. Like you're thinking it is for the overall business. What type of linearity or what trends do you see in storage based on timing of some of the product introductions, et cetera?

Yes. In general, storage should be very positive because the tax credits are going to be valid for a much longer time. So batteries are in favor I think until 2030 or 2031, I forget. So storage, storage market is going to definitely take off. You can see that almost every state -- 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, uncontrollable export of solar is not desired.

So California is ahead. We all didn't like NEM 3.0 initially because of the way it was implemented. But the concept of NEM 3.0 is right. And in fact, California is a solar plus battery market with 100% attach now. It's got good economics, 6 to 8 years of payback. So my prediction is every state in the next 10 years will become solar plus storage. So storage is going to boom. It is going to actually -- batteries will pull solar. It's going to 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 Netherlands, that's now going to start to move in that direction. You look at France, the feed-in tariffs have dropped a lot. So there is -- solar plus storage will become the norm. So controllability, VPPs, self-consumption, those are what -- they are going to drive the economics. And they're all in the direction of reducing the utility bill for the homeowner. So -- yes. Is there something you want to share, Raghu, on that?

No, I think you're seeing that even happening with NEM 3.0, where it's -- even beyond self-consumption, you're starting to see things where you -- there's a pricing signal that you get. And based on the pricing signal, you charge or discharge your battery, you export to the grid because you get compensated for it. In Europe, they do that as day-ahead pricing, so -- and I think you'll see that things such as VPP, day-ahead pricing, dynamic tariffs, et cetera, are really going to be very compelling economics for the homeowner to adopt battery.

And that's how you saw California evolve in that direction. And I agree that it's going to happen even maybe faster than 10 years, that you'll see traditional NEM will slowly sunset.

The next question will come from Julien Dumoulin-Smith with Jefferies.

Badri and team, nicely done on the continued progress here. Just wanted to come back to a couple of things that were mentioned. First off, what do you think batteries go to the corporate average here? I mean, you just made -- you gave us a little backtrack about the outlook here. How do you think about margins evolving there and normalizing upwards? And again, I 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 prepaid lease adoption? And ultimately, as you say, this is essentially offsetting the impact of 25D going away. Can you talk about the cadence of that happening, 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 time line-wise?

Yes. 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 -- today, we are -- I mean, 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 U.S. 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 going to be a nice cadence for us. We have got to be -- I mean, we've got to bring out approximately every generation of battery -- every generation in 18 months, that's what we'd like to do.

So next question. On the PPL time line, I mean -- it's early for us to share any time lines given that we are in the process of pilots. But the dream is that it is to replace the pre-25D loan TAM with prepaid lease. And there is still several things that have to be ironed out, that's what the pilots are doing. Operational issues, ease of doing business, customer and consumer confidence, installer performance, financing. All of those, we are trying to solve with the pilots.

And we are running in 4 states. So far, the installers -- installer feedback is very positive. They like the extra -- they like this prepaid release 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 3 to 6 months, we will know everything. And we are confident that we'll be able to expand through a lot more states in that time frame.

And your comment assumes you gain market share? Or is that more about just the market overall?

We do expect to gain market share.

The next question will come from Moses Sutton with BNP Paribas.

Badri, how many well-capitalized prepaid lease competitor programs are you seeing out there? And by competitor, I mean that is a broader good thing as it would help stimulate the market, as Julien was noting. And then also on the IQ9 residential, do you have -- do you expect a significantly slower uptake relative to the IQ7 to IQ8, considering its benefits rely on the larger panel [indiscernible] and the market is emerging still smaller panel sizes and they have to like sort of grow into the larger panels?

Good questions. On the prepaid lease, it is still early days. We see -- I don't know the details personally about the remaining players, but I've heard their names. I've heard that some of them do a good job, but time will tell.

On IQ9 -- and IQ9 addresses one more thing. It not only addresses higher power for 27 watts. It 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 IQ8 had the capability to go up to 14 amperes, and IQ9 will extend that capability to 16 and even 18 amperes. The [ 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 to ramp, along with Australia and the international.

U.S. is a little behind in terms of panel tech there. And so we expect in the U.S., IQ9 to ramp a little more slowly. However, in the commercial space, IQ9 is the only option. IQ9, 480 volts. There, the panels are at 595 watts to 640 watts. So there, IQ9 is the only option. And there, we are going not only the 427 watts can service the 480-volt market, the 548 that we will be introducing in the second or third quarter, that will also help a lot, including safe harbor.

Very helpful. And maybe if I could squeeze 1 in on the Netherlands. Is there a potential for actually material pre demand ahead of the loss of the grandfather -- of the net metering? Basically, most assume that, that story kicks off next year, but are you seeing that there's a significant amount of customers that don't want to see a gap in their solar systems' value next year so they want to self-consume early and therefore, they have to move this year?

Yes, there is -- yes, yes to that. I'll tell you why. First of all, if they have batteries now, they won't have to pay a penalty, one. Also, there is a nuance to it. There are several customers whose energy contracts will be expiring right now because they all have limited a 1- to 3-year contract. So when they are going to sign a new contract for the next 2 years, they are going to know the full picture. The utility is going to give them the full picture of how the next 2 years are going to be. And in order for them to really get low rates, the only option they will have is to buy a battery. So I think the education is happening now.

Just to elaborate a little more on what we are doing -- and I'm not sure whether you heard my comments before -- we are -- we have not done this before at Enphase. We are holding homeowner events. Every homeowner event is attended by approximately 200 to 300 people. And let's say, from a family, 2 people show up, so approximately 150 families. And they basically get education. And there is a lot of interest in ordering batteries. Preorders are usually quite high from such an event. Of course, 10 events is not representative of what is going to happen in the year. We plan to hold at least 100 events in 2026. And we plan to basically quantify. Every event should generate an average, let's say, x kilowatt hours. Or let's say, something like 0.5 megawatt hours per event or 1 megawatt hour per event.

And so that's how we are thinking. We are thinking that the first step that we have to do is to -- is actually education. 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 our distributors. I'm now happy that we are doing an organic thing for lead generation instead of depending on only the installers. And the installers are happy because they are getting leads that they didn't plan on before. So yes.

The next question will come from Vikram Bagri with Citi.

Good evening, everyone. Badri, you mentioned keep your partners have until July 4 to safe harbor. Could you share what the lead time to safe harbor is that you've seen recently? I imagine a month or more to safe harbor, which would mean TPOs have less time to decide than the deadline. And then wondering when should we expect the frenzy to begin based on that lead time?

Related to that, based on what you've seen, is the safe harboring so far being done by the TPO partners? Is that being done expecting growth in forward years? Even all the drivers that you've mentioned rates, electricity price increases, policies, et cetera, or the TPO partners are conservatively to safe harbor in current volumes or multiple years so far?

A question for the TPOs, which we cannot answer everything for them, but I'll just give you my opinion based on what we are seeing. For example, if they do the 5% method, let's say they got their order in December, let's say, the last week of December 2025. We would have approximately 105 days from that date to ship that product. 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 us with the 5% method.

With the physical work test, it is similar, but there is a nuance in terms of custom component, et cetera, which you already know. The question on consumers taking into account future demand increases, I don't know. It is 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.

And as a follow-up, a quick housekeeping question on inventory. You mentioned healthy inventory exiting fourth quarter. Is that trailing 13 or 52 weeks? I ask because looking back, the inventory, the channel may be normal, but accounting for a drop in revenues in first quarter, it seems like the channel could be higher than like 10 days of inventory that you typically sort of like, keep. Is the inventory comment made on first quarter revenues, excluding safe harbor or the inventory government is backward -- looking backward, looking 13 or 52 weeks?

Yes. If you calculate the inventory in terms of backward looking, then we are very, very lean. If you calculate the inventory based on forward-looking demand, we are normal. That's the way you should look at it.

The next question will come from Christine Cho with Barclays.

Last quarter, you kind of said that you anticipated sell-through in 4Q to be 350 to 400. Just curious if you can sort of confirm that you landed there? And then if you would be able to give us the split between [ MIs ] and storage? And then also if you could give sort of that split for what you're expecting for 1Q ex the safe harbor revenue?

Yes. The -- we landed right at the midpoint there, between 350 and 375 -- I mean, 350 and 400 sell-through. So that's good. And then just on the split up, in fact, our sell-through on batteries was higher, was 27%. And the sell-through on microinverters was I think approximately...

21.

Around 20-ish percent.

I'm sorry, those percentages are up quarter-over-quarter?

Yes, 27% up. The sell-through in Q4 in the U.S., 27% up on batteries with respect to Q3. And sell-through of microinverters in the U.S., up approximately 20% with respect to Q3.

And then the split for 1Q?

Split for 1Q, we do not know. Right now.

But what about your sell-through expectations for 1Q? Just given...

We are not going to break that out right now.

Okay. And just sort of on the prepaid leases, I guess, when we do -- like with the deadline for safe harbor coming up, are you getting a sense of, at least with your partners, if they're leaning towards 5% or physical work test? And I guess why -- do you have any sense of why they wouldn't lean more towards physical work test, just given it's easier on the balance sheet?

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 physical work test, if gives them a legally good mechanism to take care of themselves for '28, '29, '30. But what we are seeing is we are seeing a mix of both. We are seeing -- in some cases, we are seeing some TPO partners adopt a mix that is -- they do a portion, physical work test. They do a portion, 5% safe harbor. Some partners only rely on physical work test. It's a mix. There is no general trend.

We are capable of providing either -- whatever the TPO wants, we are here to provide that. There was a misconception that Enphase cannot do physical work test, not true. We do physical work test, and we are engaged with the multiple TPO providers on that.

The next question will come from Chris Dendrinos with RBC Capital Markets.

I wanted to follow up on the commentary about [ terming reprice ] in Europe and your response to the competitive dynamic there. Can you maybe just comment on the demand impact from that? Are you seeing, I guess, any type of benefit there?

We expect to see some benefit there. We reduced the list prices at distributors by approximately 20% on our microinverters.

Got it. And then maybe as you think about the U.S., I mean, is that a consideration in the U.S. to potentially cut price as well? And I apologize, I know this gets asked every quarter.

Yes. I mean, it is -- we are always looking at it. And right now is the best time for us to help our installers. So we are always looking at it. We do an installer roundtable every week. We are carefully evaluating it. And when we think it is appropriate, we will do that, and we will inform you.

The next question will come from Maheep Mandloi with Mizuho.

You talked about access to non-China battery supplier. Can you just talk about like the pricing environment you're seeing over there? A little more supply coming. Are we seeing costs come down over there, or it seems kind of stable for the next year or 2 there?

Yes. In general, I think the battery suppliers are having some pressure on their costs. So I would say we aren't seeing huge price decreases. They are kind of flat. When we move from China to non-China, we would expect about anywhere about 20% increase in the cell pack pricing to us, 20% to 25%. So for example, if there is a 45% tariff on product from China and there's 0% from a non-China country, it would make sense. So that's what we took into account. And we are working with the battery cell suppliers that will enable us in the non-China market or in the non-China battery manufacturing. We expect to start ramping that in the second quarter.

The next question will come from Gus Richard with Northland.

Inventory on the balance sheet was up $99 million sequentially quite a bit. Days of inventory went up quite a bit. And I'm just wondering if you could walk me through why that happened?

Yes. The -- what we did was we basically -- in order to ensure FEOC compliance, we took ownership of the inventory from our contract manufacturer. And so everything was clean. And so we did that in the fourth quarter. That factory exists for us. We are managing the factory. And we -- it was a little high, like what you state, $100 million more, but we expect to continuously bring that down. Our operations had -- and mean we are laser focused on inventory, and we have clear plans to get that down.

Okay. Got it. And then on the fourth generation battery, I understand that the tear loss is relatively high as what it is with your competitors. I'm just wondering if you're going to address that in the Gen 5 battery? And is that a concern with your customers?

It is a general concern with all batteries. And the [ tab loss ] is something important. Just for the benefit of everybody, [ a 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 -- a [ tab loss ] is a wasted energy is what we call it, is 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 are 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 have a single large inverter. So especially when the customer is operating with very low consumption, that burns a lot of unnecessary power or wastes a lot of power. While in the case of an Enphase battery, PowerMatch basically activates only the microinverters that are necessary.

For example, in 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 what often inverter that we have. And the rest of the inverters are going to be off. Similarly, if there are multiple batteries which are not required to be on, they will all be off. So PowerMatch helps in reducing losses at low loads. And we have found approximately a 40% improvement compared to competition.

So we issued a press release I think late in Q4, very nice video on PowerMatch that explains exactly how it works. And PowerMatch will -- is a big integral part of the first generation battery as well. And the microinverter architecture has got an intrinsic advantage here.

If I may, the modularity is not just for rightsizing the battery to a home. You can now use that leverage the modularity to rightsize how much power you're using in real time. So it's an incredible advantage that a decentralized or a distributed architecture like what Enphase has brings to the table to make sure that your delivery of power is very -- done very efficiently. You're not wasting power because you have a tail loss and a large inverter just running all the time, even though the demand of the house may be 1/10 of what the capacity of that large inverter is.

[Operator Instructions] And we have one more question with Dimple Gosai with Bank of America.

Thanks for getting me in here. One question as it relates to the prepaid leases. What is the attach rate for batteries in your opinion? And how does that kind of compare to the cash and loan channels? And just as a follow-up, what kind of changes the attach rate most? Do you think it's more about like payment structure or the system sizing or maybe even the utility tariff design. Any views on that?

Sorry, it's just too early for us to answer. But I mean, the obvious answer in California, it's -- we expect it to be 100% attached in California. We don't have enough for a presentation, not enough statistics from other states to tell you meaningfully. So hopefully, in another 3 months, we'll be able to share a lot more.

This concludes our question-and-answer session. I would like to turn the conference back over to Badri Kothandaraman for any closing remarks.

Thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter. Bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good afternoon, everyone, and welcome to the Enphase Energy's Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please also note today's event is being recorded.

At this time, I'd like to turn the floor over to Zach Freedman. Sir, please go ahead.

Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's Third Quarter 2025 Results. On today's call are Badri Kothandaraman, our President and Chief Executive Officer; Mandy Yang, our Chief Financial Officer; and Raghu Belur Officer.

After the market closed today, Enphase issued a press release announcing the results of its third quarter ended September 30, 2025. 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, the capabilities of our technology and products and the benefits to homeowners and installers, 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 introductions and enhancements to existing products and regulatory tax tariffs and supply chain matters. These forward-looking statements involve significant risks and uncertainties and our actual results and 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-Qs filed with the SEC. We caution you not to place any undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events or changes in expectations.

Also, please note that financial measures used on this call are expressed on a non-GAAP basis unless otherwise noted and adjusted to exclude certain charges. We have provided a reconciliation of these non-GAAP financial matters to GAAP financial measures in our earnings release furnished with the SEC on Form 8-K, 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 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 2 years. We shipped 1.77 million microinverters and the record 195-megawatt hours of batteries. 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 food generation battery.

For the third quarter, we delivered 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 our financial retain the call.

Our customer service NPS was 77% in Q3 compared to 79% in Q2. The average call wait time was 2 minutes. To further enhance the customer experience, we are preparing to launch our AI-powered assistant in the NPS app, which will help customers find answers quickly, troubleshoot issues and manage their systems more intuitively. Our data engineering team continues to strengthen the intelligence behind our support systems and leveraging analytics and machine learning to identify common issues, predict service needs and reduce response time across our regions.

Let's cover operations. In Q3, we shipped approximately 1.53 million microinverters from our U.S. facilities, booking [ 45x ] production tax credits. Our domestically made micro inverters help residential lease PPA providers and commercial asset owners to qualify for the 10% domestic content ITC error. We grew our U.S. battery production in Q3, shipping 67.5 megawatt hours compared to 46.9 megawatt hours in Q2. We are now building our fourth generation battery, the IQ Battery 10C in the U.S. using domestically made microinverters, domestically made thermal and battery management systems as well as packaging while only sourcing cell pack 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 sell packs by the end of this year, scaling into battery builds in the first half of '26. Therefore, we expect limited exposure to the recent China-related tariffs as our supply chain transitions away from China.

In summary, our U.S. made microinverters and batteries can help customers qualify for domestic content ITC bonuses as well as meet Fia compliance even as the criteria becomes increasingly stringent each year, a big differentiator for Enphase.

Let's now cover the regions. Our U.S. and international revenue mix for Q3 was 85% and 15%, respectively. In the U.S., 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 as 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 revenues.

I will now provide some color on key markets in Europe. In Netherlands, the solar demand remained soft in Q3. We are making steady progress towards the sizable battery retrofit opportunity we see in 2026 and beyond, rising solar export penalties and the planned sunset of net metering at the end of 2026 are creating a compelling use case for storage with an Enphase installed base of about 475,000 residential solar systems in Netherlands, we estimate a $2 billion total opportunity for batteries.

We recently announced a collaboration with Essent, one of Netherlands' largest residential energy providers or REPs, enabling customers to add IQ Batteries and participate in essence, smart steering VPP program. This program is designed to boost self-consumption and lower utility bills. Through the smart steering, participating customers may receive fixed monthly compensation of up to EUR 122 depending on the battery size. Essent intelligently controls, charging and discharging to optimize value for the home and the grid supporting a more reliable energy system. Building on this momentum, we are advancing additional partnerships and expect battery sales in Netherlands to be a growth driver in 2026 and beyond.

In France, the 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 reduce 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 solar plus battery solutions.

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 though our performance was relatively stable, supported by our partnership with leading installers and the strong uptake of the flex space battery, which provides both self-consumption as well as 3-phase backup.

In the U.K., the 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 our REPs and supporting them with a robust API platform. In Q3, we also added backup capability for our batteries in U.K., which was long overdue and further expanded our resilience offering.

In Australia, the residential storage demand is accelerating following the July 2025 Battery Rebate Program with installers bundling, PV and batteries and average battery size is increasing as low export rates per cell consumption. Distribution operators are rolling out dynamic export limits and interoperability standards favoring systems with fast controls and 3-phase backup. Against this backdrop, we launched the Flex phase battery in Q3, delivering 3-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 IQ EV chargers strengthening our position in the strategic market.

Let's discuss our outlook for Q4. We are seeing a further ramp in the U.S. demand in Q4, primarily due to homeowners moving to capture the expiring 25D tax credit before the end of this year. In the first 3 weeks of October, our U.S. 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 that our overall sell-through for the company to be between $350 million into $400 million in Q4. However, our revenue guidance is in the range of $310 million to $350 million. And for IQ batteries, we expect to ship between 140 and 160-megawatt hours. There are 2 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 U.S. Treasury guidance in Q3. And second, we are reducing shipments of product to the channel in order to destock the channels as we head into 2026. This positions us to enter 2026 with a healthy channel, setting us up for a clean Q1 and beyond.

Currently, we have approximately 75% booked to the midpoint of our Q4 revenue guidance. Safe harbor opportunities are not yet included in our Q4 guidance, but similar to Q3, they present upside opportunity. We are working closely with several TPO partners on safe harbor planning and are well positioned to support both methods of safe harbor. The 5% method as well as the physical work test method based on each partner's preference.

Let's look ahead to 2026. While we don't typically guide beyond the next quarter, we are sharing our preliminary views to frame expectations. For Q1 '26, we anticipate a larger than normal seasonal decline, following the expiration of '25 tax credit and estimate a company revenue of $250 million. We view Q1 as the cycle trough with conditions improving through the rest of the year. While are we constructive on the balance of the year, there are 3 external drivers that could support recovery. First, the U.S. power prices are rising. About 5% this winter with additional increases expected in 2026. Second, interest rates are declining, using affordability. Third, new and attractive financing solutions are entering the market to help offset the loss of 25D. Taken together, these drivers could enable a second half of 2026 rebound and set the stage for growth.

In addition, we see several Enphase specific revenue drivers that are 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 IQ 9 and GaN microinverter, which we expect to ship this December and ramp in 2026. We are also leveraging strategic partnerships to capture the battery retrofit opportunity in Netherlands.

Our newest IQ EV chargers and upcoming IQ bidirectional EV chargers are poised to expand our market and our fifth generation battery system paired with IQ 9 residential microinverters will drive a step change reduction in system costs in both the U.S. 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 VOC-compliant products offering O&M services solar graph 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 5 years. In this model, the TPO captures the 48E tax credit and in turn, offers the homeowner and attractive lease prepayment or a lower monthly payment when paired with the loan. This structure makes the economics similar to today's solar loan economics with the 30% '25 detax credit. Furthermore, financing providers like the Enphase system value proposition, which includes not only the Enphase equipment but support for operations and maintenance as well as solar graph integration to offer an overall attractive package to consumers. We believe the TPO market is poised to growth in '26 and see multiple ways for Enphase to support their 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 U.S., delivering domestic content, which is significant value in the growing TPO market. As a reminder, we introduced our fourth-generation battery towards the end of June. The fourth generation battery stands out for its smaller footprint enhanced features, easy installation and reliability. It delivers 30% more energy density, occupy 62% lesser 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 color which simplifies backup and IQ combined 6, which seamlessly integrates solar, batteries, EV chargers and load control. The IQ meter collar is now approved by 39 U.S. utilities, and that list is growing every week.

We are making strong progress in building partnership with REPs as well as BPP 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 asset program I mentioned earlier, we signed multiple new contracts with the utilities, including one recently with San Diego community pulp with advanced APIs, our battery seamlessly integrate into VPPs, in regulated markets like the U.S. and participate in wholesale energy markets in deregulated regions such as Europe and Australia.

We are actively engaged currently and over 53 VPP programs worldwide, and this is growing at a strong pace. Let's talk about micro inverters. In September, we opened U.S. preorders for the IQ 9N commercial microinverter, our first microinverter powered by gallium nitride organ. We expect to begin shipping the product in December. As I said earlier, we believe IQ 9 marks a major leap in performance and platform flexibility. And most importantly, unlocks a 2 gigawatt market opportunity by enabling us to service 480 volt 3-phase commercial systems in the U.S.A. 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. IQ microinverters are expected to meet SEC compliance as well as domestic content right off the back, offering a powerful and reliable alternative in a market still dominated by Chinese equipment.

Wide GaN matter, GaN replaces legacy silicon power devices to deliver faster switching, better thermal performance and higher reliability we have invested over 5 years in the conductor technology, and this rollout sets a new trajectory for cost and performance across our next-generation micro inverters, batteries, bidirectional EV chargers and move.

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 3-phase charging and works as a stand-alone unit are fully integrated with Enphase solar and better. We have opened U.S. preorders and expect Q4 shipments into the U.S. with further expansion planned in additional European markets and India.

Let me share an update of our IQ bidirectional EV charge are expected to launch in mid-2026. We showcased this 11-kilowatt solution powered by 3 high-performance GaN-based microinverters of 3.84 kilowatts each at the recent REs trade show. The IQ Bidi EV charger only needs to be paired with the IQ meter color for a simple, powerful configuration that enables home backup and grid services together. These 2 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 solar graph, 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 solar draft 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 markets. The loss of the 25% tax credit is a near-term headwind that will impact our results in early 2026. But we believe there is also reminds positive change that is bolstering the long-term outlook for our business. We are entering an interest rate reduction cycle, which historically has been the catalyst for residential solar sector.

Power 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 90 days. The U.S. residential and commercial rooftop solar industry brings on nearly 2 gigawatts of new power interconnected to the grid every quarter with the 48 tax credit expanding to more customers in 2026 through innovative financing solutions like the prepaid leases we see an attractive value proposition for solar driving recovery in the second half of 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 Netherlands. Ramping our new EV chargers now and the Bidi EV chargers, which will launch later in 2026.

And last, launching our fifth generation residential batteries, along with IQ 9 residential microinverters to reduce system costs significantly for residential solar for both U.S. as well as Europe. As always, we remain focused on operational excellence, product reliability and 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?

Thanks, Badri, and good afternoon, everyone. I will provide more details related to our third quarter of 2025 financial results as well as our business outlook for the fourth quarter of 2025. We have provided a reconciliation 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 IQ 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 compared to 46.9% in Q2. Non-GAAP gross margin without the net II benefit for Q3 was 38.9% compared to 37.2% in Q2. Receivable tariffs impacted our gross margin by 4.9% in Q3. Given non-GAAP gross margin for Q3 also included $42.5 million of net II benefit.

Non-GAAP operating expenses were $78.5 million for Q3 compared to $77.8 million for Q2. Ship operating expenses were $130.1 million for Q3 compared to $133.5 million for Q2. Ship operating expenses for Q3 included $47.4 million of stock-based compensation expenses, $2.9 million of acquisition-related amortization and $1.3 million of restructuring 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, net 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 5-year convertible notes we raised in 2021 are coming due on March 1 next year, and we expect to sell the principal amount of $632.5 million at maturity with our cash on hand.

As of September 30, 2025, we have approximately $280 million of production tax credit, or PTC, receivable on our balance sheet net of income taxes payable. $108 million is related to U.S. in microinverters shipped to customers in 2024 and $172 million is for shipments made in the first 9 months of 2025. As we elected Direct Pay, the net PTC will be refunded by the IRS through our annual tax return filing. Due to extended IRS processing time lines, we expect to receive 2024s $108 million payment from the IRS in Q2 next year. We expect to receive our 2025 test refund sometime in the first half of 2027, based on the current estimated IRS processing time.

As part of our anti-dilution plan, we spent approximately $1.7 million by withholding shares to cover taxes for employees start vesting in Q3. That reduced the diluted shares by 49,023 shares. 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 for Q2.

Now let's discuss our outlook for the fourth quarter of 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 transaction. We expect gross margin to be within a range of 40% to 43%, including approximately 5 percentage points of reciprocal tariff impact. We spent non-GAAP gross margin to be within a range of 42% to 45%, including the receivable tariff impact. Non-GAAP gross margin excludes stock-based compensation expense and acquisition-related amortization.

Given the vast majority of our manufacturing occurs in the U.S. and due to fluctuating tariff impact to our international manufacturing cost baseline. We will no longer be guiding and reporting gross margin without the net IRA credit. As always, gross production tax credit earned will be reported in our 10-Q quarterly statement and 10-K annual financial report filed with the SEC.

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

With that, I'll open the line for questions.

[Operator Instructions] And our first question today comes from Colin Rusch from Oppenheimer.

Can you talk a little bit about the dynamics going into the first quarter next year in terms of the amount of inventory that you feel like is appropriate? Are you still thinking about kind of 8 to 10 weeks' worth of inventory out in the channel as you enter into the first quarter of next year?

Colin, you may not have heard our comments in the prepared remarks. We anticipate an overall sell-through for the company to be between $350 million to $400 million in Q4, but we are only guiding Q4 revenue from in the range of $310 million to $350 million. So therefore, you can do the math. And that represents approximately $45 million of under shipment at the midpoint. So we are very cautious. We want 2026 to have a very healthy setup in the channel. And therefore -- and our rule of thumb is 8 to 10 weeks. That's a rule of thumb. So we'd like to basically be abundantly cautious and not overload the channel. That's why we gave the revenue guidance from $310 million to $350 million. Also, another reason for a 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 U.S. Treasury guidance in Q3. So we beat the guidance handily for Q3, but we are more cautious for Q4.

I'll take the clarification offline. With the new battery, can you talk about pricing dynamics. Are you being able -- 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?

Yes. We are not raising any prices. In fact, I'm sure you know, over the last 2 quarters, there have been tariffs. So we pay approximately about a 40-plus percent tariff on the cell packs that are coming from China as well as the cost of making batteries in the U.S. is quite expensive. So -- but on the other hand, what we have done is not change our pricing. And our position is basically to capture share. You see our gross margins are already pretty healthy. Our gross margins for Q3 were 49% despite us paying or despite us including a 5% tariff in that 49%.

So our gross margins are good. The way our gross margins will become even better on batteries is we are working on our fifth generation battery. And that fifth generation battery will take the cost down significantly. It is a 100 amp-hour cell pack. It is a much higher energy density, almost 50% compared to the fourth generation battery. And it's got -- the power electronics is actually collapsed into one single bullet. So it's a very elegant form factor. It is a stackable battery. You can put 20-kilowatt hours. And you will not -- and it will appear like a monolithic structure on the wall, not as for boxes.

So we are going in the right direction on batteries. The fourth generation we expect to make a dent with it because what we have done and we have said this very clearly before. Our third-generation battery was very good for grid tide backup, which is prevalent in California However, our fourth-generation batteries can do both grid-tie and back up for almost the same cost. The backup comes a little more, slightly more because of the addition of the meter collar, which is a few hundred dollars only. And we introduced that product into the channel, which started shipping in June. And installers basically started originating around that time frame, and it takes installers anywhere from 60 to 90 days from that origination time to start the installations. In addition, we introduced the domestic content fourth generation battery in August, manufacturing in the U.S. So -- but we are in a very healthy clip. Just as a statistic in Q3 of our total battery shipments into the U.S., the fourth generation battery constituted 40% of the overall U.S. shipments.

Our next question comes from Brian Lee from Goldman Sachs.

I had two just kind of around the guidance. One is the non-U.S. revenue, I know you, Badri, walked through some of the European country statistics. But I mean it's really the lowest it's been since 2021 non-U.S. revenue. So I'm just trying to understand a little bit what's going on. I know there's seasonality in Europe. I know the market is weak, but it seems like you're underperforming peers. So is there something company-specific going on, whether it's product shift or market share or pricing? And then can you give us a sense of kind of what the go-forward is. Is 4Q 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.

Yes. You're correct on what you said that Europe has got seasonality in Q3. So we are seeing a portion of that. But the markets we are in basically, Netherlands, I described the dynamics to you. It is the end of net metering in Netherlands. So it's an uncertain time for solar. There what recovery looks like is we just announced a large partnership with Essent. It's a huge opportunity there. We have 475,000 homes, with solar. And unlike the U.S., their energy contracts in Netherlands expire are only valid for 1 to 3 years, for example.

So when they have the new energy contract at that time, their utility bills for people who have put solar are going to be higher. In order to -- in order to prevent that situation, there is a very elegant option there, which is by 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 should spur our battery sales throughout 2026.

So basically, weak solar market due to net metering going away, but has got the potential to become a strong solar plus battery market. That's 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 and the feed in tariff was also quite good, which is 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. And so we see that However, what we are doing there is basically to sell solar plus storage through end consumers. Their payback is going to go up compared to what they had before, but will be manageable of the order of 8 to 10 years.

For people who cannot afford to add batteries, we are also coming up with a solution to steer their solar and not exported 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 an excess solar to a hot water heater, we have introduced all of those solutions as well. So -- in France, it is the elimination of the 5.5% VAT tax for sub-9 kilowatts installation should give a boost, but it is not giving today because of an added criteria of low carbon content panels. The industry is trying to meet that by ramping on low carbon panels. That may take a little bit of time, but we expect the market to recover. However, it is going to be a solar plus battery market. This is not going to be the same as what it was before.

Similarly, in Germany, there have been various start tops, there have been reduction of 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 U.K., we have a strong partnership with one of the top 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 Netherlands and France. We have clear plans there. I would say, 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 -- today, our third-generation flex phase 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. And it is going to add a lot of value. It is the an AC corporate battery with modularity with the high with high quality, with superior serviceability and now it is going to be stackable with an outstanding cost structure.

So in addition to that, we are also going to be introducing IQ 9, starting early 2026 for residential microinverters. IQ 9 with GaN also can support up to 10% higher power for the same cost structure. So cost for what -- for the installers is a big deal. And we are going to make sure that the system cost is reduced significantly. So I talked a lot, but that's how the trajectory looks for us in Europe.

No. I appreciate all that additional color. Maybe just one on the margins. The guidance at the midpoint, non-GAAP gross margin guidance is 43.5%. I mean, it's lower than you've seen in some time. you did the 49% this quarter. Can you kind of 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 telegraph for Q1 next year?

Yes. The -- our margins basically are impacted, as we said, by a 5% reciprocal tariff. So that's the straight answer. Without the reciprocal tariff that was introduced in 2025, we would be at 48.5%, which is a reasonable number. Now where -- 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 3 to 5 years. Our microinverter impact is not that high as 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.

So at this time, it is too early for us to talk about our Q1 gross margins. But look, I mean, you can see that we have managed the last 2 years. In fact, with our gross margin quite stable. Our gross margins have been in the 45 to 50 range. All the time in the last 2 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.

Just a super quick clarification. So I think 3Q, you said the gross margin result included a 4.9% tariff impact. So you're saying there's an incremental 5 percentage point impact in the 4Q guidance, so it's not flat impact Q-to-Q, it's an incremental 5%. I just want to quantify that.

Let me say like this, in Q3, we shipped a lot more microinverters because of the $70.9 million safe harbor shipments, which was all microinverters. So therefore, our gross margin was elevated. And 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 4.5%, including a 5% tariff impact. That means without that 5% resi broker tariff impact, our gross margin would have been 48.5%.

Our next question comes from Phil Shen from ROTH Capital Partners.

Wanted to ask if we could get some more color around the safe harbor approach using the physical work test. Thus far, historically, at least through this safe harbor season, you guys have done more safe harbor, I think, or all safe harbor with the 5% of FMV with your customers. 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, I think typically, the physical work test likely is less revenue as it's not buying the full microinverter versus the 5% safe harbor efforts. So I just was wondering if you might be able to talk through that as well.

Yes. 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. And 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 custom component that is not in our normal inventory. So that's the high-level view. So in fact, it is -- 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. At the same time, from our perspective, we do not like all of that revenue in a lump sum manner, too. It is -- it reflects that they only buy that custom component from us, and therefore, they will come back to buy the main microinverter from us at a later stage when they really need it. So it's really the best of both worlds. It is for us. It represents classic linear revenue -- quarterly revenue with no lump sum, which is what we like. And then for them, it represents a possible connect reduction in the cash that they have to paid compared to the 5% method. So it's all goodness.

And when do they do it? When do you do the 5%. You do the 5%, perhaps, I'm not an expert in it. If you want to safeguard 2028, 2029 and 2030. And of course, as always, the 5% as well as the physical work test has to be approved by their tax partners.

Great. Shifting to the prepaid lease concept we heard from Tesla on the last their last earnings call that I think they're launching a PPL. And 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 resi EPCs that historically were dependent on the 25C, maybe shifting over to the small-scale C&I market and I was wondering if that might be a source of strength for you guys as some of these smaller EPCs, maybe the megawatts are down in resi, but they can gain some of that back in, again, that small-scale C&I.

Got it. Yes, 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. We think that the PPL with a loan could be very attractive. The consumer has the option of ownership after year 5. 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 25 tax credit. So we believe that there is a promise for this structure in order to revive we all talked about the '25 deal loan market will go away. But with the prepaid lease with the loan may help that market to be That's our opinion. Of course, it is going to take some time to introduce this to get everybody comfortable. But our job, what's our job in it. Our job is to support our TPO partners. Our job is to basically 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 solar graph, 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. So we are looking to work looking forward to work 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.

Great. Just a quick follow-up on that. As it relates to your job. You mentioned tax equity support. So 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?

Yes, we are not going to give a number. Also, you asked about -- I realize 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 3-phase product. And really, if you look at the small C&I market, 80% is 480, 20% is the 208 vole 3-phase. With gallium nitride, we are now able to do the 480-volt market. It's 480 volt line to line to 77 line to neutral, the advantages are of the microinverter are the same: Exceptional reliability, exceptional thermal performance, rapid shutdown compliance. U.S. manufacturing, domestic content, PIC-compliant. So really an excellent product, and we are going to be selling and marketing this very aggressively, and we expect this to make a dent. As far as what you've said, we are also seeing the same thing. Some of our residential installers are also considering to get into the small commercial solar opportunities because that is a more stable market right now.

Our next question comes from Praneeth Satish from Wells Fargo.

Maybe just starting on the Q1 '26 outlook of $250 million. Can you provide any more detail on how you're sizing the expected decline in the U.S. post 25D? So is that based on consultant forecast or I seem to recall, you have kind of a real-time feed of demand. And so are you seeing any change over the last few weeks now that it's presumably too late to secure the 25D credit?

Yes. I mean, we're not going to give you any numbers on that. We thought we will give you a preliminary look and that look is $250 million. The -- that's not guidance, but that's a preliminary look. The way our forecasting -- let me describe the forecasting process is, we run a process in the company, which is a rolling 6 quarter forecasting and we look at it on a monthly basis. So every month, the job of every sales guy is to go look at his accounts bottoms up, talk to his customers and then roll up the view for the headquarters and then we have a meeting about it and decide what to do. So I'm not saying we have a 100% certain view, but we usually understand the trend reasonably, and we can make some informed decisions. And that is how we decided to give you our preliminary look today.

Got it. And then maybe just following up on that. On the battery side, can you comment on like why in the Q4 guidance, it's showing a 50-megawatt hour drop. And then for the outlook, recognizing it's preliminary, but is that based on the Q4 battery level? Or does it assume any pickup market share gains tied to the 10X launch?

Yes. I think it's mainly a function of getting into 2026 with a healthy channel. That's it, for the $140 million to $160 million guide. For Q1, we expect to do well in batteries. Batteries, we don't expect batteries to be impacted too much next year. And that is because the batteries are still in reasonable shape on -- as far as 48E is concerned, the batteries have a much longer lease of life. And we are well positioned in batteries. We have FIAP compliance. We have domestic content our IQ meter color is now qualified with 39 utilities, arguably similar to our leading competitor there. And we are able to cut cost of installations for backup quite significantly. We're very 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. And we have not made any -- we have not increased prices. We have held the pricing. We want to gain more share there. the tariffs are high, and I describe how we are going to improve the gross margins of batteries are not going to go there again. But that's our strategy.

Our next question comes from Christine Cho from Barclays.

Just a follow-up on that $250 million revenue number for 1Q? 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?

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

Slightly higher what?

Yes, sell-through is slightly higher than $250 million.

Okay. And then apologies if I just missed this, but -- with the prepaid lease structure that you've been talking about that you're going to launch with partners, when should we expect like an update with more detail? And with respect to safe harbor for this entity, should we think that it's going to be fiscal work test year? Or would it be 5%? and if the latter, how would you and the partners go about forecasting annual demand for this product, just given that there hasn't been great historical data to lean on?

Yes. I mean that's a lot of loaded questions there. So I was quite simple. The prepaid lease will be announced by our partners. So -- and we are not going to tell you an exactly. You'll see it when you see it. That's one, hopefully in Q4. Yes, hopefully, in the current quarter. Number two is, again, too early for me to talk about safe harbor physical or test of 5%. But let me give you some general color. We are talking with all TPO partners about both farms. There was a misconception that Enphase will not do 5% physical work test. They yes, -- sorry, Enphase will not do physical work test, we'll do only 5% safe harbor. That is not true. We do whatever the TPO partner wants and whatever the TPO partner is comfortable with. So options and physical work test, and I already described in detail when people use physical work test, and when we reduce 5%. So we work -- with our TPO partners, we work on cloth methods of safe harbor, and we plan to do that even with the PPL.

And our next question comes from Dylan Nassano from Wolfe Research.

I appreciate the early look into 1Q '26. I guess my question is, are you expecting to have to take any further actions to reduce OpEx heading into that? And can you just give us some color around what kind of OpEx model you're considering for 2026 just given the uncertainty around how demand could ramp through the year?

Yes. I'd just point you to how we have managed OpEx again in the last 2 years of the downturn. So this quarter, for example, with almost half the revenue that we once had, we are talking about 49% gross margin. The OpEx was approximately 19% and 30% of our operating income. So we are laser-focused on operating income, laser-focused on operational excellence. So our run rate today is $80 million a quarter, non-GAAP. It is safe to say we are going to be looking at our expenses to trim down spending in order to track revenue. And it's also safe to say that we won't compromise on any innovation activity or anything that affects customers adversely.

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

Yes. It is too early for me to talk about any numbers there, but the concept is quite simple. We -- 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, identify trends, fix problems online and, if necessary, send our field service technicians on site. There is a reason why our NPS is 77% with the call wait time of 2 minutes. So we are really the best in our partnership with the TPOs, they find this one attractive -- like, for example, in a market like Puerto Rico, for example, if we are able to come in and help in terms of O&M for batteries, that's something that TPOs would welcome and similar opportunities elsewhere. So it also helps us to structure partnerships where we might offer incentives on the O&M. So each TPO partnership is unique, we cannot generalize it. And at the same time, it's too early for us to give you color on the numbers. In addition, there is solar graph as well. Now we are -- I mean we've been in the design and proposal and permitting business. Solar graft has become very robust. We have worked on the platform for 3 years. We have a lot of installers using the platform. And we are building all of the TPO partners, they all can be accessed through the platform. Similarly, the PPL can be accessed through the platform and can be 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 solar graph integration, operations and maintenance, safe harbor support and tax equity support on -- with -- on an as-needed basis. Those are the benefits that we offer.

Our next question comes from Julien Dumoulin-Smith from Jefferies.

Appreciate it. Look, 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? Like what's the early expectation about the offsets here, right? Like BPL plus loan or what have you, that would otherwise mitigate it, right? You described it as a seasonal trend in exacerbated seasonal trend of 1Q. But what it suggests that, that doesn't persist, right? I mean if you adjust your 1Q million for the safe harbor, it looks like it's down almost 20%, which is kind of consistent with industry trends that are contemplated for the full year '26. Can you speak to maybe the cadence of '26 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?

Yes. I mean we -- it's impossible now for me to provide any quantification. But what we said is the following. We, in fact, said we are constructive on the balance of the year. We said there are 3 external drivers that support recovery. One is the power pricing, which you're aware. It is 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 using the affordability I think there is multiple interest rate cuts for next year. Third is the PPL. New attractive financing solutions are entering the market to help offset of the loss of the 25D. And really, the PPL with the loan could help there to 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 U.S. belong to the fourth generation. installers are just getting their hands on and starting to install the product. And we are qualified now at 39 utilities with the meter color. The major color is indeed a differentiated installed because it reduces the cost back up significantly.

Next one, we are entering the 480 volt commercial market, which we didn't have with IQ9 GaN microinverter, which we expect to ship in December, which is a couple of months from now. This is going to for the ramp in '26. So that's in phase specific. Third is the strategic partnerships that we recently announced to capture the battery retrofit opportunity in Netherlands.

Fourth, our newest IT EV chargers, along with the bidirectional EV chargers. The bidirectional charger alone is a game changer. That is a beautiful way to do vehicle to home, which is backup olone backup and vehicle to grid, which is grid services with a very simple product, a color and the charger. The charger has got our 3 of our GaN microinverters in depth. It's 11-kilowatt charge. It taps directly into the DC port on the car. We are working with a couple of OEMs there, and we will announce we'll announce them when we get ready.

Then the last one really is the most exciting one is our fifth generation battery. I can't stop talking about it. Our fourth-generation battery uses a 64 MPRs -- Our fifth generation battery uses 100-amp or sell. Energy density is 50% higher. It's a very compact form factor. Although each modular unit is 5-kilowatt hour, there can be 5 -- 4, 5 kilowatt-hour batteries, 20-kilowatt hours, which can be stacked one on top of the other. It's got excellent serviceability, which means you never need to remove the entire battery of the wall. You can simply remove the battery for to replace either the battery management circuit or the microinverter, you can just simply do as well.

So most important there, the system cost is going to drop a lot because our architecture helps us to reduce the cost significantly. And we are going to pass that cost on to the homeowner, while maintaining our gross margin because the cost is low. Similar IQ9, for example, IQ9, the first flavor that we are releasing this December is 27 watts. The next one that's coming is 548 watts. That will come in middle of the year. The 27-watt product we are able to achieve the same dollar cost structure for 10% more wattage. So therefore, we expect to drive those costs continuously down. And also the more power for the microinverter, we do get more PTC. So -- those all are going in the right direction. So there's a lot of Enphase specific drivers. There are the 3 general market drivers. The combination, we see revenues growing in the back half.

Quick follow-up there, if I can, just a response to the earlier comments. Just with respect to the battery in Net Netherlands, can you comment a little bit around what the total opportunity is? Like how would you quantify the 475,000 household and the potential for battery retrofit? Like how would you begin to quantify that for '26-'27 in terms of the rate of adoption there?

I'm not going to quantify it right now, but I will tell you a way to think about it. It's 475,000 homes. If each of them were to get -- let us say, 7.5 kilowatt hour battery. We are talking about 3 gigawatt hours, I think. And then if you -- but if you say there is only a 10% attach of that, you can do the math. And so it's significant. And what we need to do is to make that 10% happen through strong partnerships, and that's not a done deal. It's not easy to do. 10% take rate is tough to do because customers have their own way of deciding what is good for them. What we need to do is to is these VPP partnerships. One of the big drivers of demand there is a utility like the partnership that we announced, Essent, paying consumers for their battery, paying consumers up to EUR 122 a month for a battery, which is 20-kilowatt hour battery. I think that's a big deal. Programs like that can significantly reduce the payback, but they need to be with other utilities too. This is one utility. It is the largest utility, but it needs to be with the others, too. So lot more things coming there, but we are -- we are excited by this opportunity. It's a tremendous opportunity for us.

[Operator Instructions] Our next question comes from Maheep Mandloi from Mizuho.

This is David Benjamin on for Mohit. I know we talked about Europe. Can you talk a little bit about the international markets outside specifically in the past there's some enthusiasm about Japan. Where does that stand today? Is there still a strong outlook there?

Yes. We introduced the product into Japan in April. That's when we introduced the product. We are very excited by that market. What is the driver there? Tokyo. Tokyo has got a mandate that all new construction needs to have solar. And what's unique about Tokyo is small roofs of the order of 2 to 3 kilowatts in regular size is shading. And therefore, microinverter is really a beautiful, beautiful opportunity that it is the best product for the Tokyo roofs. In fact, Japan has recognized that, and we do -- the homeowner gets an incentive for the microinverters, which is, I think, almost $0.13 a watt if I remember. So it's a big incentive. But all of you know that the Japanese market is slow to react. We have a great partner. Our partner -- and we are working now we are working with that partner to train a lot of installers. We are in the training phase. We are meeting with several of them. We have established an entity in Japan. We will have a big office there. We will have approximately 10-plus people in Japan by early next year. So we are making all of the necessary investments there. We are making further a couple of more new products for Japan in order to unlike backup, which is a feature that they would like to do. So lot more to come. The revenue growth will be slow and steady. They don't expect any hockey stick.

Similarly, in Australia, Australia is actually a great story. And from July, there is a rebate from the government. It's very similar. It's not a tax credit, but it's a rebate. but it's similar to the 30% amount that we have used to in the U.S. So that significantly reduces the cost of batteries that is causing people to buy a lot more batteries than what they would. The attach rate in Australia has gone from approximately 10% to 20% to 80% to 90%. And we are starting to see that in our -- both our sell-through data activation data. However, we're reacting there we are introducing -- or we just introduced the flex phase battery, which can do 3-phase backup, which is required in Australia. FlexPhase battery also has got the ability to adjust the power according to DSO requirements. Many of them originally felt the power of our battery was too high for Australia. That is a 5-kilowatt hour battery has got 3.8 4 kilowatts of power, and that's scaled. So we now have options that can help them scale the power all the way, even half of that amount. And that is taken care of during commissioning of the battery for the newest 3-phase battery. So we've introduced that new product in Q3. We are ramping up on that. Our teams are very excited. They are, in fact, right now at a trade show in Australia. In addition to that, we introduced our IQAP product, which is IQAP is 480 watts AC. As the panels start to become more than 500 watts. Our 384 Watt AC products is no longer enough. Therefore, we introduced a 480 watts AC and that's been received very well. We introduced our latest IQ EV chargers there. And now we are planning to introduce hot water heater capabilities. So they have the entire ecosystem. It's one system. It can be Enphase solar can be in phase battery and EV chargers. -- hot water capability, it's a complete system. So we are very excited. We hope to make a dent there shortly.

And then I know there's also a lot of enthusiasm around Balcony Solar. Is there any -- are you still continuing to see that growth in that product?

Yes. Balcony Solar, we just introduced the product. We've had some hiccups in Balcony Solar. And we resolved all of them. We are ready to ramp again. We are going to be introducing several variants of that product, more focused towards the end consumer. B2C is an area where we need to learn a little bit more. And we are doing exactly that. We are launching an e-commerce team. We are doing aggressive things there. We hope to ramp on that throughout 2026.

And our next question comes from Vikram Bagri from Citi.

Badri, I wanted to understand the framework to think about 2026 revenues or outlook historically or previously, you've mentioned that installs in the U.S. may be down 20% year-on-year. But when I look at the inventory reduction in third quarter, so of $45 million and potentially more inventory reduction in first quarter of next year. It seems like you're preparing for a 30% -- 25% to 30% decline in installs from an inventory reduction standpoint. Is that one, my understanding of inventory reduction right to do you know more about the outlook today than you did before? That's why the inventory traction is so high? Or there is conservatism in that inventory reduction? And then finally, is it a function of new product launches, so you're clearing the channel? I'm trying to compare what you said historically about decline in U.S. residential installs year-on-year versus the magnitude of the reduction you're looking for in the channel inventory?

Right. If anybody tells you that they know what is going to happen in Q1, they're wrong, that it's not many people know. But what we gave you a preliminary view of our number, $250 million. However, you should think about historically Q1 has been done even for a normal, let's say, there is no 25D happening, Q1 is historically down by 15% as compared to the prior quarter Q4. This time, there is additional pressure from 25D. So the industry as a whole will expect anywhere between 20% and 30% reduction in the overall market. And that those are range numbers because different folks believe different things. But the reduction comes from one thing. The reduction comes from the fact that the cash and the loan market are the ones to see that decline because for them, the 25D, 30% tax credit is going away. That is why financing structures, financing solutions like the prepaid lease with the loan can alter that trajectory and alter that assumption.

So right now, we are assuming that Q1 will be stressed, but the numbers we have seen on the prepaid lease with the loan, make us believe that a portion of the loan market, which was thought to be gone has got a good chance to come back.

And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Badri Kothandaraman for any closing remarks.

Thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter. Bye.

SP541324311 And ladies and gentlemen, the conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.

Good day, and welcome to the Enphase Energy's Second Quarter 2025 Financial Results Call. [Operator Instructions] Please note that this event is being recorded.

I would now like to turn the conference over to Zach Freedman. Please go ahead.

Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's Second Quarter 2025 results. On today's call are Badri Kothandaraman, our President and Chief Executive Officer; Mandy Yang, our Chief Financial Officer; and Raghu Belur, our Chief Products Officer.

After the market closed today, Enphase issued a press release announcing the results for its second quarter ended June 30, 2025. 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, the capabilities of our technology and products and the benefits to homeowners and installers, our operations, including manufacturing, customer service and supply and demand, anticipated growth in existing and new markets, the timing of new product introductions and regulatory tax, tariff and supply chain matters. These forward-looking statements involve significant risks and uncertainties, and our actual results and 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-Qs filed with the SEC. We caution you not to place any undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events or changes in expectations.

Also, please note that financial measures used on this call are expressed on a non-GAAP basis unless otherwise noted and have been adjusted to exclude certain charges. We have provided a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release furnished with the SEC on Form 8-K, 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 to discuss our second quarter 2025 financial results. We reported quarterly revenue of $363.2 million, shipped 1.53 million microinverters and 190.9 megawatt hours of batteries and generated free cash flow of $18.4 million. Our Q2 revenue included $40.4 million of safe harbor revenue. As we exited Q2, our battery channel inventory was normal, while our microinverter channel inventory was slightly elevated. For the second quarter, we delivered 49% gross margin, 21% operating expenses and 27% operating income, all as a percentage of revenue on a non-GAAP basis and including the net IRA benefit. Mandy will go into our financials later in the call.

Our global customer service NPS was 79% in Q2 compared to 77% in Q1. The average call wait time decreased to 1.8 minutes, largely due to staffing and continued investment in automation.

Let's cover operations. Our global capacity is around 7 million microinverters per quarter with 5 million in the U.S. In Q2, we shipped approximately 1.41 million microinverters from our U.S. contract manufacturers, booking 45x production tax credits. Our domestically produced microinverters help residential lease PPA providers and commercial asset owners to qualify for the 10% domestic content ITC adder. We expect to ship approximately 1.2 million microinverters from the U.S. in Q3.

We grew our domestic battery production in Q2, shipping 46.9 megawatt hours compared to 44.1 megawatt hours in Q1. We are building the IQ Battery 5P in the U.S. using domestic -- domestically manufactured microinverters, thermal and battery management systems as well as packaging, while sourcing cell packs from China. These batteries with greater than 45% domestic content once again can help our lease and PPA customers qualify for ITC bonuses.

We remain on track to have non-China cells by the end of this year, scaling into battery builds during the first half of 2026. Our U.S.-made batteries with non-China cells can help customers qualify for domestic content ITC bonuses and meet foreign entity of concern or FEOC compliance as the criteria become increasingly stringent every year.

Let's cover tariffs. In Q2, we absorbed a 2% gross margin impact due to tariffs. The originally proposed 145% tariff on Chinese products was ultimately reduced to 30% in May. As a result, our expected 6% to 8% margin headwind in Q3 has improved to an estimated 3% to 5% even after accounting for new tariff increases on several non-China countries, which are going to be effective August 1. This progress is a direct result of our team's relentless execution in diversifying our supply chain. We are not only mitigating tariff risk, we are future-proofing our operations and positioning Enphase to lead under tightening FEOC compliance rules.

Let's cover the regions. Our U.S. and international revenue mix for Q2 was 75% and 25%, respectively. In the U.S., our revenue increased 3% in Q2 compared to Q1, primarily due to higher seasonal demand, partially offset by lower safe harbor revenue of $40.4 million compared to $54 million in Q1. The overall sell-through of our products was up 17% in Q2 as compared to Q1.

Let me make some brief comments on the market. The U.S. solar market is showing signs of improvement with rising battery attach rates and seasonal demand contributing to increased momentum. While we haven't yet seen a material rush related to the expiring 25D homeowner tax credit, we expect urgency to build later in the year as more consumers move to secure the credit.

As we head into 2026, the U.S. solar industry must evolve rapidly in response to the recent tax reconciliation bill. First, we expect an accelerated shift towards leases and PPA anchored by the 48E tax credit through 2027. Second, batteries will become central to every solar sale propelled by declining installation costs, long-term credit -- tax credit support through 2033 and growing homeowner demand for energy resilience and participation in VPPs. Third, the industry must drive down customer acquisition and selling costs to remain competitive in a maturing market. We believe these structural shifts, coupled with the escalating utility rates and increasing grid instability create a tailwind for sustained demand in the residential solar plus storage.

Enphase is executing a multipronged strategy to lead the industry through these transitions. We are partnering closely with third-party owners or TPOs to design innovative financing structures that maximize tax credit capture under the new rules. Our goal is to expand lease financing availability across a much wider installer base, including smaller and midsized players. By removing friction in financing and by broadening access, we aim to accelerate residential solar adoption and ensure that more homeowners can participate in the clean energy transition.

Our battery technology road map has been advancing rapidly with a laser focus on driving down installation costs and unlocking scale. In June, we began shipping our fourth-generation battery systems in the U.S., cutting backup costs by several thousand dollars. Our fifth-generation battery is already under development and is expected to deliver a 50% increase in energy density and a major cost reduction, pushing the boundaries of performance and affordability. When paired with our next-generation IQ 9 microinverters, which are launching later this year, we expect to deliver one of the most compelling and integrated solar plus battery solutions in the industry designed to meet the needs of both homeowners and installers at scale.

Finally, we are doubling down on our installer services platform to aggressively reduce soft costs across the industry. With Solargraf, our all-in-one design and proposal platform, SolarLeadFactory, our performance-driven lead generation engine and Enphase Care, our 24/7 expert-backed homeowner support program, we offer a unique integrated toolkit to streamline operations, cut acquisition costs and boost installer productivity. We believe these assets position Enphase not just as a technology provider, but as a full stack partner to help the industry scale more efficiently. We are executing with urgency and look forward to sharing the progress in quarters ahead.

In Europe, our revenue increased 11% in Q2 compared to Q1, while our overall sell-through increased by 5%. The overall business environment across the region is still challenging, but we are maintaining our discipline on controlling the channel as well as expanding our served available market by introducing new products.

I'll now provide some additional color on our key markets in Europe, the Netherlands, France, Germany and U.K. In the Netherlands, demand remained soft in Q2 as the market transitions from a solar -- from solar-only systems to integrated solar plus battery solutions. This shift is accelerating due to rising export penalties and the planned sunset of net metering at the end of 2026. We are uniquely positioned to lead in this evolving landscape with an installed base of approximately 500,000 residential solar systems. As net metering phases out in the Netherlands, we believe homeowners will increasingly turn to batteries, not only to maximize self-consumption and backup power, but also to participate in VPP programs that offer new value streams in retail energy markets. This transition can unlock a compelling $2 billion market and represents a strategic opportunity for us to deepen our utility partnerships, scale battery deployments and drive growth across the region.

In France, the market remained subdued in Q2 as expected, with the industry anticipating a significant reduction in VAT on solar systems, which is set to take effect in October. This policy change is expected to reignite demand. Despite the current slowdown, France remains very critical for us, driven by our strong brand, technology leadership and the country's relatively low solar penetration. We are seeing a very meaningful uptick in battery demand spurred by low feed-in tariffs that make self-consumption far more valuable. Our IQ Battery 5P with full backup capability has been well received by both homeowners and installers.

In May, we introduced intelligent hot water heater steering to further boost self-consumption and savings. This feature is expected to become a key driver in the French market where heating water represents a substantial portion of household energy use. With these building blocks in place, we believe we are well positioned to capitalize on the next wave of growth in solar plus battery adoption in France.

In Germany, we are ramping sales of our IQ Battery 5P with FlexPhase and IQ EV charger 2, both of which are gaining strong momentum with homeowners seeking all-in-one solutions. We also launched our IQ Balcony solar systems in Q2, unlocking a fast-growing market segment for renters and apartment dwellers. These innovations, combined with our deep partnership with some of the top installers are helping us return to growth and expand our presence in a strategically important market.

The U.K. market. The U.K. market continues to perform well for us as we strengthen our relationships with retail energy providers in the region and our robust API platform is proving invaluable in supporting them. We are shipping our IQ EV charger 2 into the market and plan to also introduce backup capability for our batteries in Q3 of this year, further expanding our energy resilience offering in the region.

In Australia, momentum is building with the July 1 rebate from the government fueling strong interest in battery. We are gearing up to launch our IQ Battery 5P with FlexPhase in the country imminently, delivering powerful 3-phase backup and flexible power in order to meet dynamic DSO requirements.

Our IQ8P microinverters are also set to launch soon, supporting the latest high-power solar modules in both residential and commercial markets. We have also introduced our next-generation IQ EV chargers, expanding our electrification offering. To simplify retrofit installations, we are enabling compatibility between IQ 7 and IQ 8 microinverters on the same branch circuit, improving installer productivity and accelerating adoption.

Let's turn to our Q3 guidance. We expect revenue to be in the range of $330 million to $370 million. We anticipate continued growth in the U.S. and seasonal softness in Europe. We are approximately 75% booked to the midpoint of our revenue guidance. For IQ batteries, we expect to ship between 190 and 210 megawatt hours during the quarter. We are actively engaged with several TPO partners who are awaiting further clarity on safe harbor rules following the recent executive order, and we remain well positioned to support them once they finalize their plans.

Let's talk about new products, starting with IQ Batteries. In June, we began shipping our fourth-generation battery systems to the U.S. The new battery delivers 30% more energy density, occupies 62% lesser wall space and reduces installation cost.

Our IQ Meter Collar simplifies whole home backup by integrating MID functionality, while the new combiner unifies the connection of solar, batteries, EV charging and load control into a single enclosure. Together, these innovations simplify backup installation, improve reliability and deliver superior homeowner value. The meter collar is now approved by 29 U.S. utilities and growing. And as I noted earlier, we believe our aggressive battery road map beyond the fourth generation will continue to push boundaries on performance, integration and cost.

Our IQ Batteries are built for more than just backup. They are designed to earn. With advanced APIs, our batteries can seamlessly integrate into VPPs in regulated markets like the U.S. and participate in wholesale energy markets in deregulated regions such as Europe and Australia. Together, we are actively engaged in over 50 VPP programs worldwide with 210-megawatt hours of Enphase batteries enrolled, unlocking new revenue streams for homeowners and accelerating the transition to a more flexible, resilient grid.

Let's talk about microinverters. Our IQ8 microinverter family is now deployed in 58 countries and growing. Building on this global momentum, we are preparing to launch IQ9, our most advanced microinverter yet. Powered by cutting-edge gallium nitride technology, IQ9 is built for the future, supporting higher DC input currents, higher AC voltages and 3-phase compatibility. With 427-watt peak output, IQ9 is optimized for pairing with the most powerful residential and commercial panels on the market. Internal pilots are already running at Enphase facilities, and we remain on track for full-scale production in Q4.

We believe IQ9 marks a major leap in performance and platform flexibility and importantly, unlocks a 2-gigawatt market opportunity by enabling us to serve 480-volt 3-phase commercial systems in the U.S. for the first time. Our commercial IQ8P-3P microinverters is building momentum with over 850 commercial sites deployed across the U.S., averaging 35 kilowatts per system and earning consistent positive feedback from the field. These 208-volt 3-phase microinverters now ship with U.S. domestic content, enabling the customers to benefit from the 10% ITC bonus adder, a significant edge for commercial asset owners. Both IQ8P 3P and IQ9 microinverters are expected to meet FEOC compliance, offering a powerful alternative in a market still dominated by Chinese equipment. The timing of IQ9 launch is strategic, delivering a high-quality, reliable and policy aligned solution as the industry pivots towards a domestically compliant infrastructure.

Let me come to Balcony Solar. Our IQ Balcony Solar product is now shipping into Germany and Belgium with additional launches planned across Europe, Japan, India and Utah in the next few quarters. Built on Enphase's AC architecture, it enables homeowners to plug in anywhere between 1 and 4 panels directly into a standard wall outlet, no permits, no rewiring and no complexity. A standout feature is sunlight backup, which allows critical appliances to stay powered during daytime outages even without a battery, an industry first that sets us apart.

On the portable power front, the IQ PowerPack 1500 marks our entry into the direct-to-consumer energy frontier. We expect to scale -- significantly scale e-commerce sales as the category opens a new channel for customer engagement and brand growth. In parallel, we plan to expand the IQ PowerPack family into new regions including Europe, India and Japan, while broadening use cases to address a wide spectrum of mobile energy needs.

Let's talk about EV charging. We are now shipping our next-generation IQ EV charger 2 into 18 countries across Europe as well as Australia and New Zealand. This charger is designed to integrate seamlessly with Enphase solar and battery systems while also performing as a high-quality stand-alone solution. We recently earned EV Ready certification in France, one of the country's most rigorous standards, demonstrating our commitment to safety and performance. Over the coming months, we plan to expand availability into more European countries as well as Brazil, India and introducing it back in the U.S., supporting the global shift to electrification with a trusted proven solution.

Let me now share an update on our IQ bidirectional EV charger, which is expected to launch in middle of 2026. This 11-kilowatt solution is powered by three high-performance microinverters built on a full GaN architecture, delivering exceptional efficiency and compact design. Paired with the IQ Meter Collar in the U.S., it enables seamless vehicle-to-home and vehicle-to-grid functionality with automatic black start. Together, they offer one of the lowest cost and simplest ways to provide whole home backup even without solar or stationary batteries. Homeowners can just start with an EV, our bidirectional charger and the meter car. and then later can add solar or Enphase batteries depending on their preferences and energy goals. Built to ISO 15118-20 standard and currently undergoing testing with multiple global OEMs, we believe this platform has the potential to redefine energy resilience by turning the EV into a flexible grid-aware energy asset for the home.

Let's talk about Solargraf, our all-in-one platform purpose-built for installers. We are rolling out major enhancements, including seamless integration with our top TPO partners, powerful custom tariff builder, advanced dealer management tools and a dramatically simplified AI-driven design experience. Every upgrade is designed to make Solargraf more intuitive, intelligent and more indispensable. As it continues to evolve, Solargraf is becoming a strategic growth engine for us, empowering installers to sell faster, design smarter and scale with confidence.

The signing of the tax reconciliation bill marks a turning point for the U.S. solar industry, but adapting to change is core to Enphase's DNA. Over the past several years, we have evolved from a single microinverter product company into a global energy technology leader. Today, we offer a full portfolio of microinverters, batteries, EV chargers and intelligent home energy management software. Our systems are deployed in more than 160 countries with over 4.9 million Enphase-powered homes worldwide. We are entering new consumer markets with products like Balcony Solar and portable energy systems. And with our upcoming IQ9 microinverters, we expect to unlock the 480-volt commercial solar market in the U.S., which is a major expansion of our addressable market and a key step into larger-scale energy applications.

We believe we are strongly positioned to lead through the next phase of industry transformation. Our product road map is accelerating with next-generation microinverters and batteries focusing on lowering installation costs and simplifying installations. We are doubling down on our installer services platform to help drive soft costs and expand lease financing access across the industry. The long-term fundamentals for distributed energy remain powerful, rising demand, higher utility rates and growing homeowner interest in resilience and energy independence. As the market shifts, we will keep doing what we do best, innovating with purpose, moving fast and staying relentlessly focused on our customers.

With that, I will turn the call over to Mandy for her review of our financial results. Mandy?

Thanks, Badri, and good afternoon, everyone. I will provide more details related to our second quarter of 2025 financial results as well as our business outlook for the third quarter of 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 Q2 was $363.2 million. We shipped approximately 675.4 megawatt DC microinverters and 190.9 megawatt hours of IQ Batteries in the quarter. Q2 revenue included $40.4 million of safe harbor revenue. As a reminder, we define safe harbor revenue as any sales made to customers who claim to install the inventory over more than a year.

Non-GAAP gross margin for Q2 was 48.6% compared to 48.9% in Q1. GAAP gross margin was 46.9% for Q2 compared to 47.2% in Q1. Non-GAAP gross margin without net IRA benefit for Q2 was 37.2% compared to 38.3% in Q1. Reciprocal tariffs impacted our gross margins by approximately 2% in Q2. GAAP and non-GAAP gross margin for Q2 also included $41.5 million of net IRA benefit.

Non-GAAP operating expenses were $77.8 million for Q2 compared to $79.4 million for Q1. GAAP operating expenses were $133.5 million for Q2 compared to $136.3 million for Q1. GAAP operating expenses for Q2 included $49.5 million of stock-based compensation expenses, $2.9 million of amortization for acquired intangible assets and $3.3 million of restructuring and asset impairment charges.

On a non-GAAP basis, income from operations for Q2 was $98.6 million compared to $94.6 million for Q1. On a GAAP basis, income from operations was $37 million for Q2 compared to $31.9 million for Q1.

On a non-GAAP basis, net income for Q2 was $89.9 million compared to $89.2 million for Q1. This resulted in non-GAAP diluted earnings per share of $0.69 for Q2 compared to $0.68 for Q1. GAAP net income for Q2 was $37.1 million compared to $29.7 million for Q1. This resulted in GAAP diluted earnings per share of $0.28 for Q2 compared to $0.22 for Q1.

We exited Q2 with a total cash, cash equivalents and marketable securities balance of $1.53 billion, flat when compared to Q1. As part of our $1 billion share repurchase program authorized by our Board of Directors in July 2023, we repurchased 702,948 shares of our common stock in Q2 at an average price of $42.67 per share for a total of approximately $30 million. We have a remaining $268.7 million authorized for further share repurchases. In addition, we spent approximately $3 million by withholding shares to cover taxes for employees divesting in Q2 that reduced the diluted shares by 58,332 shares. We expect to continue this anti-dilution plan.

In Q2, we generated $26.6 million in cash flow from operations and $18.4 million in free cash flow.

Capital expenditure was $8.2 million for Q2 compared to $14.6 million for Q1.

Now let's discuss our outlook for the third quarter of 2025. We expect our revenue for Q3 to be within a range of $330 million to $370 million, which includes shipments of 190 to 210 megawatt hours of IQ Batteries. We expect GAAP gross margin to be within a range of 41% to 44%, including approximately 3 to 5 percentage points of reciprocal tariff impact. We expect non-GAAP gross margin to be within a range of 43% to 46% with net IRA benefit, and 33% to 36% before net IRA benefit, including the reciprocal tariff impact.

Non-GAAP gross margin excludes stock-based compensation expense and acquisition-related amortization. We expect the net IRA benefit to be between $34 million and $38 million on estimated shipments of 1.2 million units of U.S. microinverters in Q3.

We expect our GAAP operating expenses to be within a range of $130 million to $134 million, including approximately $52 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 $78 million to $82 million. For the year 2025, we expect our GAAP tax rate of 19% to 21% and a non-GAAP tax rate of 15% to 17%, including IRA benefits.

With that, I will open the line for questions.

[Operator Instructions] And your first question today will come from Praneeth Satish with Wells Fargo.

Badri, I think you mentioned in your remarks partnering with TPO providers and introducing some creative financing structures that could help maximize the tax credit capture. Can you just elaborate on what those type of structures could look like and when you plan to launch that? And I guess is the goal here to kind of take your relationships with the long-tail installers and get them on to a TPO platform?

And then maybe just a follow-up on that. What is -- just to level set, what is your market share with TPO providers today after the recent bankruptcies in the space? And I guess, how do you expect that to evolve in 2026?

Yes. So I'll start with the second question first. First of all, our overall market share in the U.S. is quite healthy, as you all know. and it is available in public, public analytic reports. We have a healthy share at both -- for both cash, loan customers as well as healthy share with the TPO customers. We have not broken it out, and we do have healthy share. We work with every one of these TPO customers. We work with every single one. And right now, we are in deep discussions with them because what we have is we know how to service long-tail installers. We have the relationships with the long-tail installers. And if we can bring lease financing access to the long tail. We can prevent a market erosion, overall market erosion. So that's what we are aiming to do. And we are working with a lot of the TPOs. We aren't ready to share more details yet, but we will share those very soon, perhaps in the next earnings call. And we are looking to move on it aggressively. So let me leave it at that.

So I'll add a couple of more things. I've seen many of the analyst reports. They all say the U.S. TAM is about 4.5 gigawatts for solar in 2025. And I think it's approximately a couple of gigawatt hours for batteries in 2025. And what is the view for it to be in 2026. There are various numbers. Our -- my personal view is that we expect a 20% drop in TAM in 2026 due to 25D.

So there are three things which we believe we need to do in order to mitigate the market reduction. One is what we just talked about, bringing lease financing to the long tail, how to facilitate that most effectively with our strong TPO partnerships.

The second one, working on driving down installation costs. And there, we talked about batteries. We just released our fourth-generation batteries. Batteries in general, are ramping up in the U.S. They are getting more cost effective. I just told you that I'm working on my fifth generation battery scheduled to come out in exactly a year from now. And in that fifth generation battery, we are able to improve the energy density by more than 50%. And we, therefore, can make a major improvement in cost and hence, installation costs. And also IQ9 has got a lot of innovation on it with GaN in order to reduce the overall cost. So we are looking forward to basically introducing world-class products, which have a very efficient footprint and which will bring down the end installation costs.

The third one is an interesting one is lead generation. The customer acquisition cost is very high in the solar industry and of the order of anywhere between $0.70 a watt to $1 a watt. And Enphase needs to do a lot more in order to reduce that. And I think we are taking up that. Once again, we are launching aggressive initiatives where we will be able to generate leads and pass on to our installers. The -- also note that we have a fleet that is 5 million homes. Earlier in the past, installation may not have had time -- installers may not have had time to focus on the upgrade market. But now it is going to be lucrative for them to focus on that market, too.

So three things are -- which we are going to do well under our control while working with our partners is bring lease financing to the long tail, make world-class products, driving down installation costs. Third is help reduce lead generation costs across the industry.

Got it. That's very helpful. Maybe kind of switching gears, you mentioned that the micro channel is slightly elevated. We know demand is going to decline in 2026 once the 25D credit expires. I guess how do you intend on managing field inventories with distributors for the balance of the year? Do you plan to undership micros in either Q3 or Q4 to help reduce inventories? Or do you think inventories could just get rightsized more organically if we see maybe a pull forward of demand or some safe harbors in the second half?

I think you answered the question yourself. Basically, that's exactly what we expect. We expect 25D increase in demand, which will come from the channel and make the channel at reasonable levels by the end of the year.

And your next question today will come from Philip Shen with ROTH Capital.

In terms of the Q3 guide, sorry if I missed it, but did you share how much safe harbor you expect in the Q3 revenue?

And then you talked about not yet seeing the pull forward of demand yet. How do you expect that to manifest? Would it be more of a Q4 element? Or do you think there could be an upside surprise to Q3?

And then in terms of the elevated channel, how did we get to elevated channel levels? Was there a pause earlier in the year? Or did you overship into the channel? And what are the levels? Historically, you're -- when you got rightsized recently, you're at 8 to 10 weeks. I mean are we talking about 12 weeks now or something higher?

Right. So first of all, the Q3 revenue guidance does not include any safe harbor. As I said, we are working with several TPO partners, and they are all looking at recently -- at the recent Executive Order, and they are waiting for further clarity. And once they have that clarity, they will take the actions. From our side, what we are doing is to ensure that we are ready in terms of capacity. Any time that they want the product, we are going to be ready in order to service them.

On your 25D question, I think we will see the 25D demand possibly in early Q4 is what we will start seeing. Right now, we aren't seeing it, but we still have August and September left. So that's what I expect that we'll start seeing it soon. I'm sure that installers -- some installers will have to make workforce changes. They may have to add temporary teams in order to feed the rush, and that -- those all take a little bit of time. And so I'm sure it's coming in Q4.

The question on channel, we are completely transparent to you. It is -- we are actually in very good shape in channel management. We -- our experience in the last two years on the quantity of undershipment, et cetera, that we had, we have recognized that's an anomaly, and we will never get to that stage. So whenever I say slightly above, it should mean slightly above 8% to 10%. That's what it means.

Thanks, Badri. My follow-up question is on something you said earlier, you said your assumption for '26 is a TAM that's 20% lower. Can you walk us through the assumptions of how you get to the 20%, the baseline for loan versus TPO versus cash, et cetera? And then separately, can you -- if you can, I know you won't guide to Q4 and Q1, but how are you thinking about Q4 and Q1 from a cadence standpoint if you are able to share?

Yes. So we expect approximately a 20% reduction in TAM. The way I'm thinking about it, just to tell you simple straightforward is, let us say the -- I mean, the 4.5 has got 2 gigawatts of lease and 2.5 gigawatts of cash and loan. I expect basically the leasing market to be increasing a little bit and the cash and loan market to decrease by a lot. So the end picture will -- in our opinion, the end picture may look like 2.5 gigawatts lease and 1 gigawatt cash and loan in 2026.

Of course, everybody's estimate is different. But our rationale is the following. There are -- the key markets in the U.S. are basically -- you take a look at California. If you take a look at California, the utility prices are high in California. Payback today is six to eight years in 2025. And with ITC not being there for a cash loan purchase or cash purchase, I should say, the payback is going to stretch by two years, 6 to 8 will become something like an 8 to 10, still very attractive economics with a 25-year product. We see the same economics in a similar economics even in the East Coast where the utility rates are high. And in the East Coast, VPPs are popular. Puerto Rico, for example, most of the business gets transacted on lease. So we see that market to be remaining intact.

So the markets that probably will be hit hard is the Midwest, Central and even Southeast, where the utility rates are in general on the lower side. But that's the big picture, 4.5 gigawatts in 2025, we think it will go down to 3.5 gigawatts in 2026. The lease market will slightly expand 2 to 2.5. The cash and loan will go from 2.5 to 1. That's the math, and that's my opinion. It's not a fact.

[Operator Instructions] And the next question will come from Brian Lee with Goldman Sachs.

I guess, Badri, just following up on your strategic initiatives in a declining TAM environment. I appreciate you guys have an action plan already sort of in place. I mean when you talk about working with the long tail on TPO and financing and then the lead gen, can you maybe give us a sense how quickly you can implement those strategies? And then how much incremental cost you would have to incur? I would imagine maybe the OpEx has some incremental cost or some investment required to be able to start driving those two initiatives.

And then I guess my follow-up would just be in this environment where you just outlined a potential 20% reduction in volume, you're looking at ways to maintain as much of that volume as possible. Would pricing actions to mitigate some of that TAM loss and capture more volume be part of the strategy? Maybe walk us through what you're thinking around pricing in that type of environment as well.

Yes. In terms of operating expenses, we don't anticipate any major change because what we are really doing is will be ultimately lucrative for the TPOs. It is -- we are essentially making sure that, that demand is not lost. The long tail has got access. So the TPOs should have more business. So the operating costs for us in order to facilitate this is not meaningfully higher.

In terms of pricing actions, what I've told you is the following. Our -- the way we are going on batteries, for example, we are going to have -- we already reduced the installation cost, for example, with the fourth generation product. Now we are taking that and cutting it down by another big factor, basically increasing the energy density. We are going to prismatic cells. And so once we do that, what happens is our margins fundamentally improve. Similarly, on IQ9, when we go to the bidirectional GaN switch, what happens is once we start running GaN at an increased frequency, then what happens is we are able to optimize the rest of the bill of material. Ultimately, we are able to produce 10% power, maybe even 20% power at a similar cost structure as before.

So innovation is the answer. Innovation is the answer. So we are innovating on batteries. We are innovating on IQ9. As I said, we are also going to get -- for the first time, we are going to introduce a 3-phase 480-volt product.

So that's -- so coming back to pricing. So once we have fundamentally altered the cost structure, then the pricing action is simple. It is -- it allows us room to do the correct pricing for the consumer, depending on the value that we add.

And your next question today will come from Julien Dumoulin-Smith with Jefferies.

This is [ Dishant ] here for Julien. Maybe the first one, could you discuss how the dynamics will work for the 4Q safe harboring? As we understand it, the system needs to be installed by year-end to get the credit, right? So will we see loan originations in 4Q given that uncertainty on timing of install?

No. I think safe harbor, basically, the rules are that the TPO partners, and I'm speaking for them, the TPO partners have approximately a year until June 30th in order to finalize their safe harbor inventory and strategy. So what I guess you're talking about is the 25B.

25B, yes. Correct.

You're talking about 25B is where expenditure means it is both the customer has to pay -- the consumer has to pay for it as well as the system should be installed by the year-end.

Yes. So in that instance, do you think we will see -- because I know that you haven't seen installed yet in -- or you haven't seen that demand pull in yet in 3Q. So unless you expect to see that in 4Q, do you think that will actually happen because there might be some uncertainty on loan originations, right?

Well, our opinion is it will happen. Our installers are experts. They know what to do. And I think right now, they need to make sure they expand their crews so that they start to cater to the demand rush. But they have a lot of experience. They can get solar installations done quickly. So I do expect it to happen.

And your next question today will come from Colin Rusch with Oppenheimer.

Can you talk about your ability to upsell existing homeowners on either chargers or batteries and kind of what those unit economics look like as a combined sale and your access to those customers through your partners? Or can you go direct to those folks?

Colin, this is Raghu. Yes, as Badri mentioned, that is a very important segment of the market that we are looking at. Of course, the customer acquisition cost is significantly lower because it's already an existing customer.

But I think from a product point of view, there is a fundamental advantage. We are AC-coupled. What that means is that we don't have to touch the existing solar system. You can come in and add a battery, you can come in and add an EV charger. And if you need to, which is very likely going to be the case, you may need to expand your solar system as well, which is also very simple with an AC-coupled solution.

So intrinsically, it has significant advantages both for customer acquisition as well as from a product point of view. There's no rip and replace. You don't have to pull out any inverters, et cetera. You just leave them alone and you can come in and add the solution. And just by -- simply by adding the battery, if there's an existing -- if there's a VPP program that you want to participate in, the battery can get enrolled in that VPP program as well. So we see a lot of advantages that in that market for us is very large. I mean we have an installed base worldwide of about 4.9 million homes. And the majority of them are here in the U.S. So it is a very important market segment that we are going after.

And then my follow-up is on the non-EU, non-U.S. markets. Obviously, you've had some success in Latin America, Australia and other places. Can you talk a little bit about what growth looks like outside of those two main markets and how we should think about that as a contributor to the balance of this year and into next year?

Yes. In terms of Australia, for example, Australia was flat in growth -- I mean, flat to down in growth in the last year or so and even for the first 6 months of this year. But what happened is the new government. The new government came and introduced a battery rebate. And because it is a very lucrative battery rebate, the battery attach rate, everybody believes the battery attach rate is going to go up from like 30% to like 80%, 90%. So that's a huge opportunity for us.

We are already seeing that in installations happening. And we are introducing a few products for them. For example, Australia needs 3-phase backup, and we are going to be introducing our flex phase battery imminently any day now in Australia. In addition, we are also introducing our high-powered microinverters to capitalize on commercial opportunities. And in fact, Australia is getting an entire facelift of products. So all of them will be available in Australia in the next couple of months. So we expect Australia to resume growth starting from Q3.

India. India, I haven't talked about it too much. But in India, what we are doing is now we have an IQ8, full IQ8 P system, which is very cost effective for the high panel voltages that are available. In addition, we have the battery. And India, you lose power, for example, 5x a day in India. So resilience is top of mind for that.

Having said that, these batteries are -- what we cater to is the premium client. For example, premium villas and those will have both IQ microinverters plus IQ battery. It's a beautiful system. It's compatible to 3-phase and give you complete energy independence. So we are seeing India growth steady. It's not a hockey stick, but every quarter, it's higher than the previous quarter.

The next one I'll talk about is Japan. We introduced a product for Japan very recently in the middle of Q2, just a few months ago. In fact, last week, there was a round table. I met with all the Japan installers. As you know, Japan takes a little bit of time to ramp up. But once it is there, it's a big opportunity for us. So Japan is something we are very excited about. We expect to incrementally go there. We are already going to introduce new products there. The Balcony Solar product with the small systems gateway is going to be ideal for Japan. We will be introducing batteries into Japan next year. So we got a nice road map for Japan. Right now, they have microinverters and we are figuring out how to ramp those along with our installers. That's what we're doing.

And your next question today will come from Maheep Mandloi with Mizuho.

First one, just on the tariff impact. Could you quantify the tariff impact on the Q3 earnings guidance?

And kind of follow-up on that on the Section 232 polysilicon investigation, it looks like there could be tariffs on silicon carbide, which I think is like 5% of the cost. Any thoughts on what tariffs could be expected on silicon carbide? And is IQ9 the way to kind of offset that or something else you have on that as well?

Just to answer that question first, we don't use silicon carbide. So that is not -- that does not affect us.

Now -- the other question you asked is the tariff. So let me give you a full download on that. We had the 145% China tariffs in the last earnings call. So at that time, we projected an impact of 6% to 8% in the gross margin. Subsequently, in May, the 145% dropped to 30%.

However, now effective August 1, there are reciprocal tariffs with a lot of countries. For example, Malaysia is 25%. Vietnam is 20% now -- I mean, basically, there is no safe haven to call it. So wherever we are, we got some kind of a tariff. And right now, I mean, when we said 3% to 5%, let me take the midpoint. 4% is our gross margin impact due to tariff. If I take that as a given, that 4%, if you break down, 1% is from microinverters. 3% is from batteries. So that 1% microinverters tells you that we have been working on this problem for a long time on microinverters, a couple of years ago. So we already diversified our supply chain in microinverters, and we can adjust yet there is still going to be a small component of the tariffs, but that impact is only 1%.

On the battery side, we obviously have the impact on the cells. And so the only way we can avoid that is by making the cells, for example, in the U.S., but the labor cost in the U.S. being high, the cost is a wash between the two. So how do we get back? How do we get that 4%? How do we make that a very small number that doesn't matter. So the way we will do that is with our fifth generation battery, which is fundamentally going to alter our gross margin structure, essentially, our gross margins will be a step change better than the third or fourth generation battery.

So the way you -- the way we should think about it as the tariffs right now is 4%. It might get a little smaller as you hit Q1 and Q2, 4 might become 3-ish and then would go away once we launch the fifth generation battery.

And your next question today will come from Eric Stine with Craig-Hallum.

Just curious, you mentioned that some of the TPO is waiting on guidance and set to figure out their safe harbor plans. I mean any thoughts on when the treasury might issue that guidance? I mean I've seen a number of potential dates, and it seems that no one really knows, but I would love your opinion of when that might be.

We are in the same boat as you. We do not know when the treasury is going to release their guidance. And that -- our TPO partners are a lot more experts at this. They are looking at it every day. And their plans, unfortunately, are changing, too. So right now, it is wait and see. to look for the nuances of the guidance from treasury and then execute on the safe harbor.

Your next question today will come from Dylan Nassano with Wolfe Research.

I just wanted to follow up and see if there's any additional kind of demographic information you could share about the TPO players that you're currently in discussions with. Are these like large existing players? Where do they sit kind of geographically?

And then as a follow-up, have you identified any potential obstacles when it comes to helping the long tail shift to the leases? So just thinking about are there any customers saying they'd rather try to sell cash-only systems without the credits rather than maybe add the complexity of offering leases?

Yes. We work with every TPO, and we are having conversations with almost 80% of them right now on safe harbor.

Your second question? Can you repeat your second question?

Yes. Sorry, yes. Just in terms of what your customers are saying, are there any that are kind of indicating they'd rather just try to sell cash systems without credits...

Of course, of course, there are a lot of them who think that, for example, in California, if -- especially -- yes, let me take actually San Diego, right? San Diego has got a 6-year payback today with solar plus batteries, and that might go to 8-year payback. So some of our installers, I mean, we are having -- just to tell you this, we are having installer roundtables every week. and every week is from a different region to exactly ask the same question. How are you managing this transition? Some of them are absolutely confident of selling cash and loans still. Some of them are pivoting towards lease and PPA. So the answer is mixed.

And your next question today will come from Mark Strouse with JPMorgan.

At this point, I'll just stick with one. A clarifying question on an earlier topic on the -- helping your tail customers get financing, I understand you're going to give us more details sometime soon, but is using your own balance sheet part of that potential scenarios that you're looking at? Or is it really just kind of data and partnerships and that kind of thing? I'm just curious about if you're looking to lever your balance sheet at all.

Yes. We are not looking at, at doing anything with the balance sheet. But if that changes, we'll let you know. However, what's important is we have a history of all of these installers. We know exactly how much volume they did. We know exactly the customer service, NPS, Net Promoter Score. We know everything about the installers. We know what drives them. We work very closely with them. So when it comes to vetting, vetting things, we are in an ideal position to do so. And of course, we -- since we design the products, we also can do the service, for example, the service and maintenance is easy. Most of the problems can be solved remotely, 90% of the problem. So we have our data analytics team, which can solve those problems. Let me leave it at that.

And your next question today will come from David Arcaro with Morgan Stanley.

I was just wondering if you might be able to elaborate as you look into 2026, you talked about a bunch of product innovation efforts to lower cost. I was wondering if there are any other kind of internal cost reduction efforts, potentially efforts to lower overhead, OpEx, for example, anything you're exploring there?

Absolutely. I mean, look, we -- the market has had a demand problem over the last couple of years. And over the last couple of years, where our demand has dropped, we have continuously adjusted our expenses without compromising on R&D or customer service. And we will always be doing that. For us, it is a process, not an event. And we think about expenses as -- don't think about expenses as only labor. We have to think about expenses as labor plus nonlabor.

For example, we asked the question where do we need this software tool? Can we eliminate the software tool and do something else, which is more intelligent. We ask those questions all the time. So in light of any reduced demand, which we are trying to mitigate, but let us say we are not able to mitigate the demand drop, we will continuously adjust our expenses.

[Operator Instructions] And your next question today will come from [ Nicol Ghazi ] with Bank of America.

And our next question today will come from Chris Dendrinos with RBC Capital Markets.

I wanted to go back to some of the comments on the strategy, and there's been a big focus here on marketing to the long tail and you've mentioned getting lease financing to them, improving lead generation. But I guess there's an argument that with the adoption of TPO, maybe there is additional consolidation in the industry. So maybe focusing on the other end, the maybe the fat part of the tail here. Is there any changes or anything you're doing in strategy to maybe expand your share with some of the bigger TPO providers? And how are you, I guess, maybe looking at those relationships? And is there anything you can do to improve those relationships?

Absolutely. I mean there is a myth that we don't work with the TPOs. That's totally wrong. We work with every TPO. We look for opportunities to make them successful. And what does that mean? It is basically total installation cost. It's total installation time. O&M, meaning taking care of servicing. So we are -- we work with every one of those TPOs on these issues. For example, the fourth-generation battery. And with the meter collar, our cost for backup -- and our cost for backup is similar, meaning slightly -- only slightly higher than the cost for no backup or grid tied option.

So what I'm trying to tell you is that the products that we do, we collaborate closely with the TPOs. We collaborate closely with them on service opportunities. And since we work with every one of them, we have deep partnerships there and we'll be working on it even more aggressively in order to gain more market share.

[Operator Instructions] No further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to Badri Kothandaraman for any closing remarks.

Thanks for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.