Operator: Good afternoon, everyone, and welcome to Enphase Energy's Second Quarter 26 Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touch tone phones. To withdraw your questions, you may press star and 2. Please also note this event is being recorded. At this time, I would like to turn the floor over to Zachary Freedman with Enphase. Please go ahead.
Zachary Freedman: Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's second quarter 26 results. On today's call are Badrinarayanan Kothandaraman, our President and Chief Executive Officer; Mandy Yang, our Chief Financial Officer and Raghuveer R. Belur, our Chief Products Officer. After the market closed today, Enphase issued a press release announcing the results for its second quarter ended 06/30/2026. During this conference call, Enphase management will make forward 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 10 Qs filed with the SEC. 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, 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.
Operator: Now I would like to introduce Badrinarayanan Kothandaraman, our President and Chief Executive Officer. Badrinarayanan?
Badrinarayanan Kothandaraman: Good afternoon, and thank you for joining us today to discuss our second quarter 26 financial results. We reported quarterly revenue of $291.9 million shipped 1.59 million microinverters and 113.8 megawatt hours of batteries. And generated free cash flow of $25.9 million. Our Q2 revenue included $84.3 million of safe harbor revenue. We exited the quarter with channel inventory normal for batteries, and slightly elevated for microinverters. On a GAAP basis, we delivered gross margin of 60% operating expense of 42.3%, and operating income of 17.7 all as a percentage of revenue. On a non GAAP basis, we delivered gross margin of 46.8%, operating expense of 27.3%, and operating income of 19.4%, all as a percentage of revenue. Mandy will cover the financials later in the call. Our global customer service NPS was 80% in the second quarter as compared to 82% in the first quarter. Our average call wait time remained approximately 2 minutes. We also made our AI assistant available to 1.5 million homeowners worldwide. This gives our customers faster access personalized system specific support and making their energy systems easier to understand and manage. Ultimately reducing the number of calls to operations. In the second quarter, we shipped 1.58 million US made microinverters and battery inverters from our Texas and South Carolina manufacturing facilities and booked the associated 45X production tax credits We also shipped 43 megawatt hours of IQ batteries from our Texas facility in the second quarter. We offer IQ batteries that meet domestic content requirements, helping lease and PPA customers qualify for ITC bonuses. Let's now cover revenue and regional performance. Our global Q2 revenue increased 3% compared to Q1. Our global sell through was approximately flat as compared to Q1. As growth in Europe offset the softness in the US. Our revenue mix was 78% from The US and 22% from international markets. In The US, revenue declined 3% sequentially. Safe Harbor revenue increased to $84.3 million in Q2 as compared to $34.5 million in Q1. Excluding safe harbor revenue, The US revenue declined primarily due to us undershipping into the channel. Our US sell through in Q2 decreased 7% as compared to Q1. Excluding onetime orders in Q1 that did not recur in Q2, the sell through was approximately flat sequentially. Our Q2 26 sell through declined, 34% as compared to 1 year ago. In Q2 25, reflecting continued pressure from higher interest rates and transition following the expiration of the 25B tax credit. Third party market report suggests that the broader US residential solar market has stabilized with the industry wide permits in June increasing 4% from May. And upstream sales activity rising 5%. Both remain about 30% below prior year levels. Higher electricity cost markets are performing better while several Sunbelt states remain under pressure. The stronger industry wide signals are for storage and commercial solar. National residential battery attachment remains near 40% with materially higher levels in key markets. While The US commercial solar permit activity increased 36% year on year in June. Taken together, these third party data points suggest that the next phase of US market growth will be shaped by storage economics, commercial demand, financing availability, and utility rates. In Europe, our revenue increased 35% sequentially in the second quarter, while sell through grew 30% with strong performance across both solar and batteries in multiple markets. The growth was supported by higher power prices as well as accelerating battery adoption. As we have discussed, Europe is increasingly becoming a battery led market. As self consumption, dynamic tariffs, and VPPs gain importance. The company that owns the battery relationship is well positioned to expand over time into the broader home energy system including solar, EV charging, and VPP. In The Netherlands, our battery activations increased approximately a 102% from the first quarter. As rising export penalties and the planned phase out of net metering at the end of 2026 strengthened self-consumption. In France, lower feed in tariffs are similarly shifting the market towards self- consumption and driving greater interest in batteries, particularly with new solar installations. Battery activations in France increased approximately 34% sequentially. In Germany, the growth was broad based with both microinverter and battery activations increasing approximately by 35% and 30%, respectively. We are intensifying our focus on battery retrofits in both Netherlands and France where we have a combined installed base of nearly 900 thousand Enphase customers. Building on the success of our initial programs, we have increased the cadence of homeowner events and direct marketing campaigns. Our newly established inside sales team supported by an improved lead management platform is helping convert this demand into revenue. We also showcased our fifth generation battery at Intersolar Munich where customer feedback was positive, and we expect initial shipments before the end of this year. Let's now discuss our outlook for the third quarter. We expect revenue of $290 million to $320 million representing approximately 5% growth at the midpoint. Our Q3 revenue guidance includes $75 million of safe harbor revenue. We are currently over 70% booked to the midpoint of our guidance. We expect global sell through in Q3 to increase 10% as compared to Q2. Distributors remain cautious amid broader macroeconomic uncertainty, including interest rates, and our guidance assumes modest under shipment relative to sell through. For batteries, we expect shipments between 130 to 150 megawatt hours as momentum continues to build in both the US and Europe. As reciprocal tariffs have moderated somewhat, we reduced battery pricing in late May, and we expect to take further targeted pricing actions as necessary to improve system economics and support demand. Turning to safe harbor. We have executed year to date agreements with third party owners totaling approximately $1.1 billion. $102 million under the 5% ITC safe harbor method and $878.6 million under the physical work test, or beginning of construction, method. These agreements provide 2 important benefits. They secure meaningful multiyear volume for our microinverter and accessory business. And second, they create a strong foundation for future battery attach opportunities. As these systems are installed from 2028 through 2030. Moving to financing. PROPEL is entering a new phase of growth. Just to remind you, Propel is a TPO offering from sole source solutions. That combines Enphase equipment financing loan financing provided by TriBeam Financial through the Concert Finance platform and national distribution through Green-Tech Renewables. Purpose-built for the long tail of installers, Propel has expanded from 4 states to 6 states with recent launches in Pennsylvania and Colorado. And plans to reach a total of 12 states by the end of the third quarter. Installer participation has grown to above 290. The Propel originations are running at approximately 200 per week with battery attachment at roughly 75%. We expect this will begin to grow again as installers in new states start to ramp up. Sole Source is targeting 500 originations per week by the end of the year and scaling by securing sufficient warehousing capacity and tax credit buyers. In today's higher interest rate environment, Propel offers homeowners and installers a compelling alternative to conventional solar loans and can help restore a meaningful portion of the cash and loan market affected by 25B expiry. Let's talk about products. Starting with IQ batteries. We showcased our fifth generation IQ Battery G5 at Intersolar Munich in June where it received a strong response. Built from stackable, AC coupled, 5 kilowatt-hour modules that can scale up to 30 kilowatt-hours in 1 stack The G5 uses 100 ampere hour prismatic cell. And is designed to deliver 50% higher energy density than our fourth generation battery at roughly 40% lower cost per kilowatt hour. When shipments begin in the fourth quarter of 26, we believe the IQ Battery G5 will stand out as 1 of the few truly stackable AC coupled battery platforms in the market. Its combination of lower cost, flexible sizing, strong performance, high quality, high serviceability, should make it highly competitive across The US, Europe, and Australia. We are also making good progress on our commercial battery, called IQ Vault, targeted for both 3 phase 208 and 480-volt markets. The first product, called IQV-80 is an 80 kilowatt hour battery Again, 3-phase, 480 and 208 volts with 40 kilowatts of continuous power. Basically, it is a 2-hour battery. Each outdoor cabinet uses 5 field-serviceable 16 kilowatt hour LFP modules built with 314 ampere hour prismatic cells and up to 25 cabinets can scale the system to 2 megawatt hours. The 480-volt 3-phase configuration is designed for larger commercial buildings. While the 208-volt 3-phase configuration will address small commercial and multifamily properties including applicable California projects driven by Title 24 requirements. The distributed architecture provides module level fire suppression and is designed for self consumption peak shaving, time-of-use, VPP, and backup. We have completed the functional system demonstration in the last quarter. And we expect to open preorders soon. With initial shipments planned for Q1 27. Turning to microinverters. We launched our GaN-based IQ9 residential microinverter across The US and key European markets in June. Followed by Australia and New Zealand earlier this month. Also gaining traction in The US commercial market with several promising national opportunities advancing with large retail customers. During the second quarter, we began shipping the IQ9s 3 p microinverter, our highest power microinverter to date, 480 watts based on gallium nitride, for 480-volt systems. This is designed to support solar panels up to 770 watts. With US manufacturing, domestic content eligibility, and FIAT, we believe our commercial business is well positioned for continued growth. We recently opened preorders for our smart thermostat, a new control point for the Enphase energy system. By bringing HVAC into the system, Enphase can optimize 1 of the home's largest energy loads alongside solar and batteries to improve savings, preserve backup capacity, and support VPP. Integrated display on the device also give homeowners a simple way to view their solar, battery, and home power--live from inside the home. We expect shipments next month. Moving on to EV charging. We are making strong progress on the DC based IQ bidirectional EV charger. Which we showcased at Intersolar Munich. Built on our GaN power platform, this is designed to support both 400-volt DC and 800-volt DC EVs and deliver up to 11.5 kilowatts of bidirectional power. The ISO 15.1 thousand-20 standard enables standardized communication between the vehicle and the charger. While our expertise in utility interconnection, grid code compliance, and distributed energy management supports V2H backup, V2G, and use cases like green charging. We are collaborating with 3 leading automotive OEMs in the US. And 1 in Europe. With additional engagements underway. Subject to the successful completion of applicable compliance testing, we expect to begin pilot shipments in the fourth quarter. Alongside vehicle launches from 1 U.S. OEM and 1 European OEM. Finally, let me provide more details on our IQ solid state transformer, or IQSST. The rapid build out of AI infrastructure is reshaping data center power architecture as rack densities rise from approximately 15 kilowatts today towards 1 megawatt and beyond. Delivering power at that scale will require a more fundamental--will require a fundamentally more efficient, responsive and reliable way to move medium voltage power directly to the computer. IQSST is designed to meet that need. By converting 13 kV and 13.8 kV or 34.5 kV medium-voltage AC directly to 800 volt DC through a modular single stage architecture. At the core of the platform is our IQSST power module. Which utilizes our predictive control enabled by the custom silicon, GaN, which enables high- frequency switching, and innovation in medium voltage transformer design. Built on more than 20 years experience in distributed power electronics, we are targeting approximately 98.5% efficiency, 5-nines reliability, and sub- millisecond response time. That response time is a key differentiator. AI workloads can create rapid swings in power demand and IQSST is designed to respond in real time to help stabilize the load as seen by the data center power system. This could allow most of the energy storage to be centralized in a BESS located in the data center's black space rather than placed beside every compute rack freeing up valuable white space. This configuration would utilize a second SST for the BESS effectively doubling our data center opportunity. For customers that still require storage near the rack, the same platform can also support a DC configuration that charges and discharges a local high C rate battery to help manage dynamic AI loads. US manufacturing and a FIAT-compliant supply chain adds another important layer of differentiation. They give customers greater confidence in supply continuity, product traceability, and the ability to deploy at scale without relying on restricted foreign entity. For hyper scalers and data center operators making long-lived infrastructure decisions, we believe domestic manufacturing, resilient sourcing, and a clear path to high-volume production will be as important as product performance. Our new and existing customer engagements continue to deepen. We have advanced a few of these opportunities to the RFI RFP stages representing potential demand totaling multiple gigawatts. These engagements are directly shaping our road map across power level input voltage, footprint, cooling, battery connectivity, and serviceability. Importantly, we have been able to address evolving customer requirements without changing the fundamental IQ SST power module, underscoring the flexibility of our platform. We have also made substantial technical progress over the last 3 months towards a fully working system later this year. Our team has now grown to about 120 people. We have begun testing the second revision of the IQSST power module and results give us confidence that the next revision can become our production candidate. We have completed the build out of our medium voltage lab and validated the medium voltage transformer design. We are now optimizing it for manufacturability and cost. This work has already generated meaningful IP, particularly around the transformer. At the system level, our power modules are connected in series on the medium voltage input side and in parallel on the regulated 800 volt DC output side. Managing stability and balancing power across the series stack are mission critical. Through modeling and hardware experimentation, we have demonstrated that our proprietary True Control architecture can robustly manage the series stack and maintain balanced power across modules. Specifically, we have demonstrated 15 IQSST power modules operating in series. Are now advancing the complete first generation system including the thermal architecture, rack level controls, and mechanical design. The first generation platform is designed to scale from 1.25 megawatts to 2.5 megawatts across 13.8 kV and 34.5 kV configurations. We remain on track for a fully working system later this year Customer pilots beginning in 2027 and commercial shipments in 2028. Beyond AI data centers, we are evaluating the broader applicability of the IQ SSD platform across utility scale solar, storage, and DC fast charging. In each of these markets, we believe IQSST can connect directly to medium voltage AC. Eliminating the need for a conventional transformer and simplifying the overall power architecture. This can reduce the number of stages, system complexity, footprint, and cost while preserving the same core advantages of high efficiency, fast control, and modular redundancy. While these applications are at an earlier stage, we believe that the same underlying platform can ultimately support a much broader set of power conversion markets. Let me conclude. Our next phase of growth starts with residential energy systems. Across The US and Europe, IQ 9 microinverters our upcoming fifth generation battery, and the IQ bidirectional EV charger significantly expand the value of the Enphase home. Together, they position us to win new battery led systems. Deepen engagement with our installed base, and address stand alone bidirectional EV charging. In The US, prepaid lease programs like Propel add an important financing lever to support that growth. Beyond residential, we are expanding into small commercial energy systems. Our 3 phase microinverter portfolio now spans both 2 208 volts and 84 volts applications. The IQV-80 with the 80 kilowatt hour battery adds commercial storage and our EV charging portfolio broadens the opportunity further. Together, these products give us the foundation for an integrated small commercial energy system spanning solar, batteries, EV charging controls, energy management. The next frontier is data center infrastructure. We talked about with IQSST. And the same architecture can extend into utility scale solar battery, and high power DC fast charging. These markets require the same fundamental capabilities. Direct medium voltage connectivity, high efficiency, fast control, modular redundancy, compact design, and competitive system cost. Our expansion from residential to commercial, to data centers, and ultimately, utility scale is built on the same core technology foundation. Single stage power conversion, custom silicon enabled control, high frequency GaN switching, and innovation in transformer design. We believe this positions Enphase to compound growth across progressively larger markets while leveraging the same differentiated architecture technology, and execution capabilities that established our leadership in residential energy systems. With that, I will turn the call over to Mandy for her review of our financial results. Mandy?
Mandy Yang: Thanks, Badrinarayanan, and good afternoon, everyone. I will provide more details related to our second quarter of 2020 financial results. As well as our business outlook for the third 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 Q2 was $291.9 million. We shipped approximately 725.2 megawatt DC of microinverters and 113.8 megawatt hours of battery above the high end of our battery guidance. Q2 revenue included $84.3 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 was 46.8% in Q2. Compared to 43.9% in Q1. GAAP gross margin was 60% in Q2. Compared to 35.5% in Q1. GAAP gross margin was positively impacted by 15.6 percentage point for the IEPA tariff refunds received. Reciprocal tariffs negatively impacted gross margin by 2 percentage points in Q2. Non-GAAP operating expenses were $79.8 million for Q2. Compared to $77 million for Q1. The increase was driven by higher investment in R&D spending. GAAP operating expenses were $123.5 million for Q2. Compared to $130 million for Q1. GAAP operating expenses for Q2 included $39.7 million of stock-based compensation expenses and $4 million of acquisition related expenses and amortization restructuring, and asset impairment charges. On a non GAAP basis, income from operations for Q2 was $56.7 million, compared to $47.3 million for Q1. On a GAAP basis, income from operations was $1.5 million for Q2. Compared to loss from operations of $29.6 million for Q1. On a non GAAP basis, net income for Q2 was $61.5 million. Compared to $62.3 million for Q1. This resulted in non GAAP diluted earnings per share of $0.46 for Q2. Compared to $0.47 for Q1. GAAP net income for Q2 was $36.1 million compared to GAAP net loss of $7.4 million for Q1. This resulted in GAAP diluted earnings per share of $0.27 for Q2. Compared to diluted loss per share of $0.06 for Q1. We exited Q2 with a total cash equivalents, and marketable securities balance of $937.7 million. Compared to $930.6 million at the end of Q1. In Q2, we generated $40.3 million in cash flow from operations. and $25.9 million in free cash flow. Capital expenditure was $14.4 million for Q2. Compared to $19.9 million for Q1. As of 06/30/2026, after monetizing the PTCs generated in 2025 and Q1 26, we had approximately $193.5 million of PTCs on our balance sheet. This included $108.3 million related to US-made microinverters shipped to customers in 2024 $85.2 million related to shipments in the first half of 26. We elected direct 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 IRS processing. As a reminder, in May 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 impact of this approach is included in our quarterly gross margin guidance. We announced a tax credit transfer agreement to sell $150 million of PTCs generated in 2026 to a leading financial institution. With 4 quarterly payments from April 2026 to January 2027. We received tariff refunds of approximately $41 million from US Customs and Border Protection or CBP in the second quarter with another $11 million received after the quarter end. Second quarter GAAP results were impacted by $52 million of which $45.4 million was recognized as an increase to gross profit, $1.6 million was recognized as GAAP interest income. And $5 million was capitalized as a cost of inventory as of 06/30/2026. We have submitted additional refund claims that remain subject to CPP's review and validation. Now let's discuss our outlook for the third quarter of 2026. We expect Q3 revenue to be in the range of $290 million to $320 million including shipments of 130 to 150 megawatt hours of IQ Batteries. For the remainder of 2026, we anticipate recognizing $136.2 million of Safe Harbor revenue. With $75 million in Q3 and $61.2 million in Q4. We expect GAAP gross margin to be within a range of 42% to 45%. Including approximately 2 percentage points of reciprocal tariff impact. We expect non GAAP gross margin to be within a range of 44% to 47%, including approximately 2 percentage points of reciprocal tariff impact. Non-GAAP gross margin excludes stock based compensation expenses and acquisition-related amortization. We expect our GAAP operating expenses to be within a range of $120 to $124 million. Including approximately $44 million estimated for stock-based compensation expenses, acquisition-related amortization, and restructuring and asset impairment charges. We spent our non GAAP operating expenses to be within a range of $76 to $80 million. With that, I will open the line for questions.
Operator: Ladies and gentlemen, at this time, we will begin the session. To ask a question, you may press star then 1 on a touch-tone telephone. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys. We do ask that you please limit yourselves to a single question and 1 follow-up. To withdraw your questions, you may press star and 2. Again, that is star and then 1 to join the question queue. At this time, we will pause momentarily to assemble the roster. Our first question today comes from Praneeth Satish from Wells Fargo. Please go ahead with your question.
Praneeth Satish: Okay. Thanks. Good afternoon, everyone. Maybe on SST, recognizing it is early, but just conceptually, how are you thinking about balancing a margin capture versus market share adoption? You know, I guess based on our understanding, if you include 45X credits, the IQSSTs could potentially support very, very high gross margins. But then on the other hand, you have talked about in your prepared remarks ultimately selling the product into other markets like utility scale solar, which presumably would imply setting maybe a more competitive ASP. So just trying to understand at a high level how you how you plan on navigating that.
Badrinarayanan Kothandaraman: Are not gonna give you actual numbers, but we are going to tell you how we are thinking about it. We are going to be extremely competitive. But we are going to, you know, clearly focus on our value drivers. There are a lot of competitors also developing SSDs. So therefore, the focus for us is what does Enphase do different and better compared to the competition. Our value drivers are like what we stated fast response times. And because the IQSST can respond within sub millisecond, we think the battery storage can move to the facility space, which is called the data center black space. That will be a key differentiator for our solution. In addition, our, you know, modularity our redundancy, reliability, US manufacturing, are all other value drivers. So, you know, like what I said, I am not going to give out numbers, but just told you how we are thinking about it. Plus, you are correct on the 45X PTC. We are finalizing those details, but that will also that will also help us to be highly profitable.
Praneeth Satish: Got it. And then maybe just shifting gears on PROPEL. So last quarter, if I remember correctly, you said originations were running at roughly 200 per week. And then it sounds like they are still tracking at around that same level today. So, like, should we interpret, you know, the relatively flat sequential trend there as a function of financing capacity or other supply side constraints? And I guess what is going to be the driver there that gets you to 500, originations a week by year end? Is that based on demand increasing or just based on your partner's increasing financing capacity? Thank you.
Badrinarayanan Kothandaraman: Yeah. I think we were clear. We said, you know, Propel is running its pilot started with 4 states. We were conservative. And you know, sole source is basically responsible in what they do. They are in the process of securing, you know, financing so that they can scale phased deliberately, you know, properly. So it is simply a function of how many how many states we are in. For example, if I look at the first 4 weeks of this month, I would say the numbers are running a little bit higher than the 200. So what we are going to do is to scale it to 12 states You know, today, PROPEL is in 6 states right now. And sole source is going to scale it to 12 states by the end of Q3. And we expect A more aggressive ramp in Q4. And their target is to exit the year with 500 originations per week. Got it.
Praneeth Satish: Thank you.
Operator: Our next question comes from Brian Lee from Goldman Sachs. Please go ahead with your question.
Brian Lee: Hey, everyone. Good afternoon. Thanks for taking the questions. I guess, Badrinarayanan, for you, I 'm curious. The Safe Harbor revenue, it is pretty significant both in the third quarter and appreciate you giving us the fourth quarter number as well. And it seems to be tracking higher than you have been guiding to. So is this market share gain amongst TPOs? Or maybe can you speak to what is driving that momentum? And then I had a follow-up.
Badrinarayanan Kothandaraman: Yeah. I think we have, like what you said, we are always I mean, we have strong relationships with a lot of our TPO partners. And some of our TPO partners are healthy. They are supported by a strong balance sheet in their parent companies. There are some new TPO partners as well who I am sure you will see. Going to show up So basically, it is just the confidence that, you know, they have in either pursuing a 5% safe harbor strategy or a PWT, which is the physical work test safe harbor strategy. And for us, I think we said approximately $1.1 billion are the agreements that we have executed till date. Of that, the $202 million under the 5% method and 879 million under the physical work test. So it just we have strong relationship with the TPO guys. Alright.
Brian Lee: Fair enough. And then maybe just related to that, you sounded a little bit more positive on a kind of return of growth in resi, even in the near term. But if we adjust for the undershipping in 2Q and safe harbor, you know, you are implying flat revenue from 2Q to 3Q. You are still undershipping, you said. So I guess why ship in 3Q when demand is seemingly improving based on some of your comments? And then how should we think about also 4Q seasonality? Do you expect to still be undershipping into 4Q? Should 4Q revenue including safe harbor, be higher than 3Q, including safe harbor all in? Thank you.
Badrinarayanan Kothandaraman: Yeah. So, basically, just to break it. Our Q3 guidance at the midpoint is $305 million. Out of that $75 million safe harbor, so core revenue of $230 million. Let's say I expect sell through to be 10% higher in Q3. We are talking about a sell through approximately in the $245 million range. And we are talking about a modest undershipment of about $15 million. We are just cautious, and we would like to make sure we have a healthy channel inventory like we focused Q2 on getting healthier in the channel. that is why we said we are fine on batteries and, you know, slightly elevated on micros. And we are gonna bring that down. But if you look at apples-to-apples, the core revenue you know, if you say the core revenue from Q2 to Q3, excluding safe harbor, that is increasing by approximately 10 plus percent. And in Europe, as you know, Q3 is usually the summer holidays. Despite that, we are we will we think we will be flat from Q2 to Q3 in Europe. So all of that growth is coming from The US. Then I also told you about third party reports talking about an increase of 5% on the permit side So we talked about that. In addition, as a company, we have a platform called SolarGraph, as you know. SolarGraph, basically, also monitors all of the proposals. For both solar as well as storage. And we are able to see An increase in proposals in Q2. As compared to Q1. That will reflect as installations in Q3. So triangulating all of these, we think you know, with the third party reports, with our own internal data, and what we see on a sell through basis, plus what we have on Propel We think we will grow by approximately 10%. In Q3.
Operator: Our next question comes from Philip Shen from ROTH Capital Partners. Please go ahead with your question.
Philip Shen: Hey, everyone. Thanks for taking my questions. First 1 is very topical. Just when you are release hits for Q2 results, the FCC announced that their working on a plan to ban Chinese inverters. in the US. And so wanted to check-in with you on your views on this. You know, it does not really impact your resi segment too much. Given the limited exposure or mix of Chinese inverters. But was curious how much share do you think you could take in your commercial business as a result of this? Of course, you have been addressing just a limited portion, and now you are going to expand that to a larger portion of the C and I market. And so you know, how much Chinese inverters do you see out there? And then how much do you think you could grab of that? Thanks.
Badrinarayanan Kothandaraman: Yeah. I think there are 2 opportunities for us. 1 is, like you rightly pointed out, you know, the residential is not really there. You know, not an issue because of fiat, etcetera. So the 2 topics are small commercial as well as utility scale solar. So I will focus on small commercial for now because we have not yet introduced any products for utility scale. In the small commercial, basically, we are seeing lots of opportunities. Especially with the big retail providers both in terms of small size installations as well as big size installations. Our revenue that I expect in Q3 for small commercial The U. S. Is approximately $10 million I expect that number to grow from strength to strength. As we advance through the year. We have introduced, you know, we have introduced 2 products in the last 6-month period. We introduced 1 product in December, That is the IQ9N with GaN. it is a 3-phase, 480-volt. You know, addresses the 3 phase 480-volt market. And that is got a power of 270 watts. That can go up to let's say, approximately 600 watt panels. We just introduced in June an IQ9s 3-phase product that is 480 watts. That will be able to go up to 700 watts. So from a product portfolio, we are fully covered. We are having the right discussions with everybody. In addition, I talked a little bit about small commercial storage. Small commercial storage is a fantastic opportunity for us. The market is a little tough to estimate It is anywhere from 1 gigawatt hour to 2 gigawatt hour it is a very diverse set of installations in small businesses. You can say schools, hospitals, churches, gas stations, retail shops, The product we are introducing is ideal for that 80 kilowatt-hour, 80 kilowatt-hour cabinet can be scaled; 25 of these can go to a site. Can do 2 megawatt hours, Yeah. For example, in the building that we are in, in Fremont, we are going to have a megawatt hour of storage very shortly, you know, comprised of 12 80 kilowatt hour cabinets. So there, for example, the same concept. FIAT compliant you know, domestic content, and US manufacturing. So we have the portfolio. We have both small commercial solar We have small commercial storage, and we expect to be ramping not only this year but, you know, 27 could be big there.
Philip Shen: Okay. Thanks, Badrinarayanan. Shifting over to the core US resi solar market. You know, the challenge that I see here, the root cause is weak capital flows and some challenges with the TPOs. And in turn, they are slowing down the amount that they are you know, investing in. And so the root cause of that is driven by tax equity, and their caution with the FIAC and effective control guidance. That treasury has still not issued. We published back in May that it could be by end of the year. They are waiting to see how different Chinese companies are adjusting their corporate structures. As well as their IP. And then they may wanna close those loopholes. And then we wrote recently that it might not note that it might not come out till the first half of 27. So is there a scenario where you know, the US resi outlook could still be challenged even as we get through a bunch of 2027. And how do you guys manage through that? Thanks.
Badrinarayanan Kothandaraman: Yeah. It is a good question. Like you said, I mean, there is limited visibility on the treasury guidance. But, you know, the market is adjusting. The FIAT guidelines, etcetera, are reasonable. Our TPO partners are becoming a lot more mature. Yes. There have been some hiccups, but those hiccups are being solved. We are hearing that tax equity, you know, is tight, but we are hearing it is it is tight, but we are hearing it is likely to improve. For us, our opportunity is a few things. Here. Our opportunity is I talked about sole source and Propel. that is a fantastic opportunity for us. Because it basically make you know, the 25 d loan market which was getting approximately a 30% ITC, now have has a chance to be replaced with the prepaid lease. That 1. So that is a big opportunity for us Second big opportunity for us is we are getting a lot better on batteries. So we are going to be introducing the fifth generation product In Q4. into the US, and that will be at a much reduced cost structure. So while we will make good gross margins, that will help--it will enable us to help installers. With the positive reduction in tariffs that we got, we took the opportunity to make more pricing adjustments in order to drive volumes with our fourth generation product. Our fourth generation product is also ramping from strength to strength. We are now qualified at the meter caller is now qualified at 69 utilities, including Canada. It is by far the highest of any supplier. So and we expect the same to continue, meaning with our fifth generation battery, all of these 69 can be reused. And they are also going to be a big differentiator for a standalone BDI because a stand alone bidirectional charger can, you know, consist of the bidirectional EV charger, which has got 11.5 kilowatt inverter. that is what we have. In addition to that, we have a meter collar. Just 2 components which will enable V2H, V2G in a seamless manner. So for us, we are not we are not stopping and waiting. We are not waiting for things to improve. We are taking matters into our own hands. It is about, it is about innovative financing. It is about innovative new products. It is about extending our range into commercial. And, of course, the big 1 is data centers. Great. Thanks, Badrinarayanan. I will pass it on.
Operator: Thank you. Colin Rusch from Oppenheimer.
Colin Rusch: Thanks so much. Badrinarayanan, can you talk a little bit about the elasticity of demand on the batteries? You talked about, dropping prices a little bit. Just wanna get a sense of how much volume you feel like you can start driving as you make those pricing adjustments.
Badrinarayanan Kothandaraman: Yeah, I mean, the what we are doing is basically just to tell you some background here. There are 2 actions that we specifically do. 1 was in Europe where we were high priced. There is no question. We were high priced relative to the value we were generating. And that was clear to us. So earlier in the year, we did a pricing adjustment in Europe. In addition, in Europe, what we are you know, extremely excited about is a business model change that we are driving. In addition to the B2B sales, which is Enphase selling to installers through distributors, we are actually generating organic demand from organic battery demand from our own installed base. And we are doing that in Netherlands. We are doing that in France. We are doing right now--you guys may not believe, 6 homeowner events a week. In Netherlands. Each homeowner event is attended by approximately 150 sites or 150 families. And the yield on these is quite good, on the order of 50%. So what we are able to do is we are able to close these very quickly and then pass the leads to our installers. And, of course, sophisticated lead management to make sure the installers you know, after taking the lead, do not do any funny business and install only in face product. So we are doing that, and we are seeing a lot of success in Europe. Both in Netherlands and France. To answer your question, the actions in Europe are due to not just due to pricing, but what we are doing to generate organic demand. While the actions in the US, very similar. So pricing is only part of the equation. Product stuff, for example, the meter color, which I said, you know, we are we are qualified at 69 utilities. The other big 1 is Propel. You know, Propel by definition, has, you know, there we have a 75% battery attached in Propel. So that we expect that to be driving more and more battery volumes. So that is why in Q3, we expect shipments between 130 to 150 And then the big ramp will come from G5. The fifth generation product has got 50% energy density. What does that mean for you? It is if you compare, for example, our third generation product and the fifth generation product, Why third generation? Because that is the 1 in Europe. The fifth generation product will be roughly 40%, you know, 40% in height as compared to the third generation product. And similarly, the it is it is also 50% higher more energy density compared to the fourth generation product. So all of these improvements are going in. The fifth generation product we expect will start to drive even more demand. Especially with the same, you know, major caller qualifications, etcetera. So not just pricing action, but pricing plus a few other actions to drive demand.
Colin Rusch: Thanks so much. that is super helpful. And then looking at the data center opportunity, you know, it sounds like you are making a meaningful impact on the actual design of the facilities. I am just curious how mature pricing conversations are at this point and how mature some of those designs really are, that would embed the Enphase solution.
Badrinarayanan Kothandaraman: Yeah. So just to give a quick complete overview. We are making very strong internal progress in our data center development. Meaning IQ SST IQSST development for data centers, I mean. Our team now we have about 120 full time engineers. We are building the power module. And we are finalizing the design there. Interestingly, we demonstrated a 4.16 kV AC series stack. What does that mean? We can stack 15 power modules in series. So 15 times 277 approximately 4 kilovolts AC. We demonstrated proof of concept there. And importantly, we have achieved significant milestone on the feasibility of the medium voltage transformer. So that is on the technical side. We are making a lot of great progress there. On the active engagements there, we are engaged in conversations with hyperscalers, neoclouds, colos, EPCs, and the full ecosystem. We are engaged in a few RFI/RFPs. In fact, some of the learning that we got on the product were from those RFPs. I mean, it was massive learning for us. But then we realized how powerful our platform was. Because we were able to you know, get the product requirements, understand the product requirements, from these customers, and then we were able to quickly rework our plan without any changes to the power module. Because ours is a modular structure. And, for example, we were we were able to quickly adapt you know, we talked about supporting 2 kinds of storage. 1 kind of storage which is where your question about value proposition comes in Is because our SST is super fast in terms of response times, sub millisecond response times, we envision the you know, storage can be in the facility space or in the black space. But there are people who have a current architecture who might not be willing to deviate from that. Who would want to put high c rate batteries closer to the rack and for those hyperscalers, we enabled a DC a DC product in conjunction with IQSST. And we were able to repurpose the same SSD, same power module in order to get that DC product. As well, In addition to the SSD. So our architecture is very flexible. We are learning a lot. We are adapting a lot. We understand what our value drivers are very clearly. Like what I said, it is the fast response time It is the power module flexibility. It is the high reliability, which is yet to be proven. It is US manufacturing. What is the next big milestone? The next big milestone is to build a full product. Building a full product by approximately end of the year, likely November, and showing it to some of these customers will open the gates for much bigger conversation. And pilots. So we are looking forward to that. And you know, right now, as I see here, we are on track to getting that done.
Operator: Our next question comes from Eric Stine from Craig Hallum. Please go ahead with your question.
Eric Stine: Hey, Badrinarayanan. Just wondering, can you just talk a little bit about your thoughts on Europe or expand on that? I know last quarter, you had some cautious optimism that there were some green shoots. I mean, clearly, you are more optimistic here. coming off of Q2, and I know that is really gonna be more of a battery driven market. But, I mean, how do you view that? It sounds like 3Q flat even with taking into account seasonality. Is that still kind of driven by a few markets? Is that something that you think it is becoming more widespread? You know, just how are you thinking about that here, I guess, over the remainder of 2026? And going forward?
Badrinarayanan Kothandaraman: Yeah. So just to recap, in Europe, we increased revenue by approximately 35% in the second quarter And more importantly, our sell through grew 30% with strong performance across both solar as well as batteries. What markets am I excited about in Europe? 3 markets, which is basically Netherlands, France, and German. And in Netherlands, as you know, because net metering is expiring, at the end of 26, there is a huge interest in batteries. And that is starting to materialize. And our activations basically increased by about a 100%. Compared to--I mean, the activations in Q2 compared to Q1. That increased by a 100%. We have staffed our internal sales representative team, about 10 people--and 10 sales folks who manage leads that come from the homeowner events. These homeowner events, we have not done before, but we are now you know, we are now ramping up on those We started them 9 months ago. We are now ramping up on those in a systematic fashion. Now we are talking 6 homeowner events a week, which is approximately something like 75 to 80, 80 a quarter, 78 a quarter. So that is generating a lot of interest, and it is a flywheel because once we help installers, installers you know, are likely to reciprocate. So there, I think the inflection curve can--I mean, the inflection can be very big? Because the deadline is approaching. NEM is going to go away. And the only way that customers, consumers can be protected is if they have self consumption. Which is solar plus storage. Now coming over to France, okay. 1 more thing which I left out in Netherlands. We have a base of half a million homes there. So that is how we are able to do the homeowner events. That is how we are able to generate the battery leads, which we which we are you know, we will continue to do. In the case of France, we have about 400 thousand solar base in France. This is Enphase homes. And in France, the economics are slightly different. In France, feed in tariff is quite small for new installations, But for existing installations, they are still grandfathering net meter. But, however, the there is high sensitivity maybe because of the war I am not sure. But high sensitivity on energy independence. So in France, we find that it is almost to the same level as Netherlands if not higher. And we have exactly the same model there too. We are driving both demand organically from homeowners as well as working with our installers. And that is that is going fine. So those are the 2 most you know, 2 most exciting things that generate a lot of results. In the case of Germany, very attractive market We have you know, I should say we have not yet exploited that to our fullest potential Of course, we do have some fantastic partners there who are helping us, and I think we are going to grow from strength to strength there with our fifth generation battery, which is gonna help us everywhere. So Yep. We are quite bullish. And the last 1, I have an excellent management team in Europe. We put an Enphase veteran in there and he understands, you know, how to work with the internal teams get products as well as understands customers very well. So all of our you know, performance is attributed to him in addition to his sales team as well. So we are extremely bullish about Europe.
Eric Stine: Alright. Thank you.
Operator: Our next question comes from Dylan Nassano from Wolfe Research. Please go ahead with your question.
Dylan Nassano: Yeah. Hi. Thanks for taking my question. I just wanted to check if you had any updated views on the kind of shape of the cash flows from that $880 million physical work test? Backlog Just for, like, modeling purposes, should we be amortizing that over next couple of years? Is it more back end weighted? Then how much if you could in the forward guidance for 3Q and 4Q, how much of that is 5% rule versus physical work test?
Badrinarayanan Kothandaraman: We already said we already told you that but let me let me repeat. So the 5% physical work test essentially just to give you a full context in Q1 2026, we did approximately 34 million. In Q2 2026, we did approximately 84 million. In Q3 2026, we are guiding to 75 million. And in Q4, we already gave you a number that it is about $61.2 million of safe harbor. So that is the 5%, and the 5% is done. Then more exciting thing is physical work test. Physical work test according to what we said, we have $878.6 million is what we have signed this year, plus we signed 1 agreement last year too. We have not recognized any revenue from any of the physical work test shipments yet. Any of the physical work test that is signed this year, we have not recognized any revenue yet. Revenue, when will it be recognized? If according, you know, according to me, likely, beginning 2028. Because that is the whole point of safe harbor. The tax credits remain open till the end of 27. And from 2028, they would have to utilize these PWT inventory physical work test inventory. And they would order micro they would ask us to make microinverters with that physical work test product. So we will see normal microinverter run rate. We will see x run rate. We will see battery run rate if they decide to do attach you know, if they decide to attach batteries. So it is a long answer. it is quite difficult for us to predict However, we think it will be linear, and we think it will start in 2028.
Dylan Nassano: Okay. Great. Thanks for clarifying that. And then just quick follow-up on the tariff impacts in the guidance, specifically for batteries. You know, I know in the past, you had talked about kind of shifting your cell supply Can you just update us Have you completed that? Is there any more cells that you are getting from China? Yeah. Thanks.
Badrinarayanan Kothandaraman: Yeah. The in general, the tariffs have come down and under control. We talked about our you know, we had base tariffs, let's say, approximately year ago, we had base tariffs and then we had this reciprocal tariff that was introduced by this administration. We said, because of reciprocal tariffs, we had approximately 5% gross margin impact. Our gross margins came down to the mid forties. But then with the recent rulings, that impact, the reciprocal tariff impact is reduced from 5% to 2%, which is quite positive for us. What we have done, again, we are not, you know, we are taking our own actions. Our microinverter supply chain has diversified quite nicely. So if there is any further tariff for example, in a region, we can always move to another 1. To answer your question, yes, we have we have you know, other than China, we have a non China cell source as well. Which we are able to leverage in the event it is, you know, in the event Chinese batteries have a much higher tariffs, we can always leverage that. So that is--we brought that into production. And as we go, the more we are looking, at we are looking very hard at US sources as well. As we get into more commercial battery, as we get into the you know, our fifth generation and sixth generation battery. We are also looking at US made cells. And we have a lot of suppliers there who want our business. Thank you.
Operator: Our next question comes from Corinne Blanchard from Deutsche Bank. Please go ahead with your question.
Corinne Blanchard: Hi. Good afternoon. Maybe just coming back to the SST and maybe this has been already addressed, but wanted to come back on what has been the feedback you have received from customer And maybe if you can share some detail on which kind of customer partnerships you are trying to look for and achieve. And then I would have a question on the European market after.
Raghuveer R. Belur: Hi. This is Raghu. I think as Badrinarayanan mentioned, we are talking to the entire ecosystem. Of SSD of the data center market. Which includes, of course, the hyperscalers, the colos, the neoclouds, EPCs, etcetera. All the way even down to some of the server providers as well. Because we wanna make sure that the solution that they are providing is not just a product. it is an entire solution set. From medium voltage to rack as Badrinarayanan mentioned, Is covered that we are addressing of the entire issue. And the feedback has been quite positive. We have a very unique solution relative to what others are doing and what is been done in academia is that we have a fully distributed architecture. Where we have hundreds of these power modules. And that brings and each power module is undergirded by about 10%. So the key value proposition of reliability plays very well. Plus, we also point out our history of almost 90 million microinverters shipped to date with a 500 Dppm failure rate. So the combination of historical performance plus the new art plus this architecture which is fully distributed, really resonates very well with a lot of the players. In terms of in terms of reliability. Now we also talked about you know, we have some intrinsic structural advantages in terms of cost. Right? If you the products the components that we use in our products, they are all off the shelf generally available parts. Almost commodity parts, including GAN. We consider GAN to be a commodity anymore. So that helps us a lot on cost. We do what is called soft switching, and soft switching enables us to have a very, very light EMI footprint. And a light EMI footprint means that we can package this device, this power module, in a plastic enclosure. And that again drives cost. Since it is only 4 kilowatts and very, very efficient, thermal management is also very easy. Combine all of that with high volume manufacturing, and that is standard line that we use today to manufacture microinverters, we have some intrinsic cost advantage as well. So the combination of the value drivers that we talked about in terms of, you know, reliability, in terms of response time, which is sub millisecond response time that can help eliminate the need for that high c rate battery from the 800 volt section and rely on the BESS to do all of the work. Those are the things that are resonating very well. And, of course, US manufacturing and a FIAT-compliant supply chain are all very positive feedbacks that we are getting.
Corinne Blanchard: Right. Thank you. And maybe the second question. Can you talk about the European Cyber Act? I think you know, we met with your team in Munich, like, in June, and I think there is a lot of focus during Intersolar on the cyber act 2.0. But just wondering, like, you know, what is your latest view and how do you think it could, impact you?
Raghuveer R. Belur: I think we are fully tuned into all of the things that are happening there. I think the key here is to make sure that we are ahead of any of the compliance requirements. And so far, we are giving this incredible amount of importance. We have a person there who is exclusively focused on all of these new requirements that are coming. And we already met a number of the requirements And any new requirements that are coming around cyber, we continue to meet both Europe as well as in well as in the in the US as well. We understand that both inverters SSDs, etcetera, or anything that are called as inverter based resources are going to be classified as critical infrastructure. And so they will have an additional layer of scrutiny in terms of communication layer that each 1 of these devices have and how are they managed. And all of the other security requirements or cyber requirements that are needed. So we feel like we are on top of it. We feel like we are ahead of the curve there. In meeting all of the requirements.
Corinne Blanchard: Right. Thank you so much.
Operator: Once again, if you would like to withdraw your questions, you may press star and 2. Our next question comes from Vikram Bagri from Citi. Please go ahead with your question.
Vikram Bagri: Hi. it is Ted on for Vic. Thanks for taking the questions. I wanted to just go back to the guidance. If we could maybe just touch on some of the assumptions there. The Netherlands storage activations were over a 100% this quarter. Could you share what the guidance assumes for activations in 3Q? And then just going back to the comment about undershipments could you just elaborate on what the source of that caution is? Is it to do with EU demand? Is it the seasonal slowdown? Is it interest rate driven, or is there anything else in there? And then I have a follow-up.
Badrinarayanan Kothandaraman: Yeah. So typically in Q3, know, there is there is summer seasonality in Europe. So, basically, you know, we expect more or less flattish performance From Q2 to Q3. However, we think from Q4 onwards, particularly in regions like Netherlands, which are seeing the expiration of net metering, there is going to be a big breakout on batteries. And we are we do not usually break out volumes by region. Why we gave you a percentage. And the moment it becomes big enough, we will we will start breaking that down. But that is what we are most excited about. It is you know, Enphase has got half a million solar homes. And all of them are going to be scrambling--I mean, many of them are--or, or I should say a small fraction of them have converted or added batteries, and many of them are going to be scrambling in, you know, between now and the end of the year. So that they can be ready when net metering goes away. Thank you. Another question that you asked, in terms of the under shipment. Look, What I said this question was asked before. What I said is our sell through basically is approximately $245 million forecasted in Q3. And we have a modest undershipment there. So of approximately $15 million. that is why our core number is $230 million. Plus safe harbor is $75 million, so that is how you get the $305 million. So just it assumes a modest level of under shipment. Not a lot. And it is just sort of caution. that is all.
Vikram Bagri: Got it. Thank you. And then in terms of the SST product line, is there any clarity on what you could recognize from a 45x standpoint? And then just to clarify in terms of expected needs for that product, Is that a 2027 or a 2028 then?
Badrinarayanan Kothandaraman: Yeah. We expect, you know, we have previously said this volume shipments in 2028, and pilots in 2027. Regarding 45 x, we are working through the details. And once we have a good understanding, we will be able to share more information in the upcoming quarters. Got it. Thank you.
Operator: Thank you. And it is showing no additional questions. I would like to turn the conference call back over to Badrinarayanan Kothandaraman for any closing remarks.
Badrinarayanan Kothandaraman: Yes. Thank you all for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter. Bye.
Operator: The conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.