Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ____________________________________________
Form 10-Q
 ____________________________________________
(Mark One)
Form 10-Q
x
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172022
or
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-35480

enph-20220630_g1.jpg
Enphase Energy, Inc.
(Exact name of registrant as specified in its charter)
 ____________________________________________
Delaware
20-4645388
(State or other jurisdiction of
incorporation or organization)
20-4645388
(I.R.S. Employer
Identification No.)
1420 N. McDowell Blvd.
Petaluma, California
94954
(Address of principal executive offices)(Zip Code)
(707)47281 Bayside Parkway
Fremont, CA 94538
(Address of principal executive offices, including zip code)
(877) 774-7000
(Registrant’s telephone number, including area code)
 ____________________________________________Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.00001 par value per shareENPHNasdaq Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yesx☒No¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x☒No¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an “emerging growth company.” See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
☒

¨Accelerated filerx
☐

Non-accelerated filer
¨ (Do not check if a smaller reporting company)☐

Smaller reporting company¨☐
Emerging growth Companycompanyx☐
If an emerging growth company, indicate by checkmarkcheck mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨☐Nox☒
As of November 3, 2017,July 21, 2022, there were 85,532,519135,457,275 shares of the registrant’s common stock outstanding, $0.00001 par value per share.


Enphase Energy, Inc. | 2022 Form 10-Q | 1

ENPHASE ENERGY, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBERJUNE 30, 20172022
TABLE OF CONTENTS
 
Page
PART I. FINANCIAL INFORMATION
Page
Item 1.
Financial Statements (Unaudited)
3
3
4
5
6
67
78
1937
2947
2948
PART II. OTHER INFORMATION
3049
3049
5149
5150
5150
5150
Exhibits
51
52

Enphase Energy, Inc. | 2022 Form 10-Q | 2

Table of Contents
PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements (Unaudited)
Item 1.Financial Statements (Unaudited)

ENPHASE ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
As of
June 30,
2022		December 31,
2021
ASSETS
Current assets:
Cash and cash equivalents$495,473 $119,316 
Marketable securities752,328 897,335 
Accounts receivable, net of allowances of $740 and $1,590 at June 30, 2022 and December 31, 2021, respectively312,451 333,626 
Inventory130,266 74,400 
Prepaid expenses and other assets45,474 37,784 
Total current assets1,735,992 1,462,461 
Property and equipment, net86,778 82,167 
Operating lease, right of use asset, net16,987 14,420 
Intangible assets, net96,887 97,758 
Goodwill197,004 181,254 
Other assets129,153 118,726 
Deferred tax assets, net174,307 122,470 
Total assets$2,437,108 $2,079,256 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$90,398 $113,767 
Accrued liabilities197,919 157,912 
Deferred revenues, current74,067 62,670 
Warranty obligations, current (includes $24,772 and $14,612 measured at fair value at June 30, 2022 and December 31, 2021, respectively)29,197 19,395 
Debt, current88,429 86,052 
Total current liabilities480,010 439,796 
Long-term liabilities:
Deferred revenues, non-current217,095 187,186 
Warranty obligations, non-current (includes $49,151 and $36,395 measured at fair value at June 30, 2022 and December 31, 2021, respectively)67,354 53,982 
Other liabilities23,864 16,530 
Debt, non-current1,197,786 951,594 
Total liabilities1,986,109 1,649,088 
Commitments and contingencies (Note 10)00
Stockholders’ equity:
Common stock, $0.00001 par value, 300,000 shares authorized; and 135,426 shares and 133,894 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively1 1 
Additional paid-in capital713,473 837,924 
Accumulated deficit(251,230)(405,737)
Accumulated other comprehensive loss(11,245)(2,020)
Total stockholders’ equity450,999 430,168 
Total liabilities and stockholders’ equity$2,437,108 $2,079,256 
(Unaudited)
 September 30,
2017		 December 31,
2016
ASSETS   
Current assets:   
Cash and cash equivalents$28,878
 $17,764
Accounts receivable, net of allowances of $2,824 and $2,921 at September 30, 2017 and December 31, 2016, respectively68,869
 61,019
Inventory25,316
 31,960
Prepaid expenses and other assets13,254
 7,121
Total current assets136,317
 117,864
Property and equipment, net28,191
 31,440
Goodwill3,664
 3,664
Intangibles, net591
 945
Other assets8,318
 9,663
Total assets$177,081
 $163,576
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Accounts payable$34,620
 $31,696
Accrued liabilities24,152
 22,937
Deferred revenues, current9,014
 6,411
Warranty obligations, current (includes $2,765 and $3,296 measured at fair value at September 30, 2017 and December 31, 2016, respectively)7,151
 8,596
Revolving credit facility—
 10,100
Current portion of term loan10,552
 3,032
Total current liabilities85,489
 82,772
Long-term liabilities:   
Deferred revenues, noncurrent36,327
 33,893
Warranty obligations, noncurrent (includes $8,954 and $7,036 measured at fair value at September 30, 2017 and December 31, 2016, respectively)23,201
 22,818
Other liabilities2,808
 2,025
Term loan, less current portion37,058
 20,768
Total liabilities184,883
 162,276
Commitments and contingencies

 

Stockholders’ equity:   
Preferred stock, $0.00001 par value, 10,000 shares authorized; none issued and outstanding—
 —
Common stock, $0.00001 par value, 125,000 and 100,000 shares authorized and 85,217 and 62,269 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively1
 1
Additional paid-in capital285,449
 252,126
Accumulated deficit(292,787) (250,535)
Accumulated other comprehensive loss(465) (292)
Total stockholders’ (deficit) equity(7,802) 1,300
Total liabilities and stockholders’ (deficit) equity$177,081
 $163,576

See notesNotes to condensed consolidated financial statements.Condensed Consolidated Financial Statements.

Enphase Energy, Inc. | 2022 Form 10-Q | 3
Table of Contents
ENPHASE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

(Unaudited)
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
Net revenues$530,196 $316,057 $971,488 $617,811 
Cost of revenues311,191 188,256 575,510 367,061 
Gross profit219,005 127,801 395,978 250,750 
Operating expenses:
Research and development39,256 22,708 74,975 44,526 
Sales and marketing53,588 25,586 94,932 45,208 
General and administrative32,125 20,107 70,211 40,230 
Total operating expenses124,969 68,401 240,118 129,964 
Income from operations94,036 59,400 155,860 120,786 
Other income (expense), net
Interest income796 98 1,256 171 
Interest expense(2,168)(12,506)(4,904)(19,835)
Other expense, net(456)(633)(2,597)(60)
Loss on partial settlement of convertible notes— (13)— (56,382)
Total other expense, net(1,828)(13,054)(6,245)(76,106)
Income before income taxes92,208 46,346 149,615 44,680 
Income tax (provision) benefit(15,232)(6,995)(20,818)26,369 
Net income$76,976 $39,351 $128,797 $71,049 
Net income per share:
Basic$0.57 $0.29 $0.96 $0.53 
Diluted$0.54 $0.28 $0.91 $0.49 
Shares used in per share calculation:
Basic135,196 135,094 134,768 133,209 
Diluted143,725 141,533 143,602 144,022 
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Net revenues$77,038
 $88,684
 $206,492
 $231,990
Cost of revenues60,577
 72,805
 169,438
 190,215
Gross profit16,461
 15,879
 37,054
 41,775
Operating expenses:
      
Research and development7,397
 13,169
 24,949
 39,326
Sales and marketing5,453
 11,016
 18,186
 31,218
General and administrative5,441
 6,708
 16,238
 21,121
Restructuring charges4,071
 2,717
 14,927
 2,717
Total operating expenses22,362
 33,610
 74,300
 94,382
Loss from operations(5,901) (17,731) (37,246) (52,607)
Other income (expense), net:       
Interest expense(1,760) (1,234) (5,979) (1,598)
Other income623
 353
 1,771
 655
Total other expense, net(1,137) (881) (4,208) (943)
Loss before income taxes(7,038) (18,612) (41,454) (53,550)
Income tax (provision) benefit184
 (144) (798) (724)
Net loss$(6,854) $(18,756) $(42,252) $(54,274)
Net loss per share:       
Basic and diluted$(0.08) $(0.40) $(0.52) $(1.16)
Shares used in per share calculation:       
Basic and diluted84,862
 47,278
 81,993
 46,704

See notesNotes to condensed consolidated financial statements.Condensed Consolidated Financial Statements.

Enphase Energy, Inc. | 2022 Form 10-Q | 4

Table of Contents
ENPHASE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME
(In thousands)
(Unaudited)
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
Net income$76,976 $39,351 $128,797 $71,049 
Other comprehensive income (loss):
Foreign currency translation adjustments(2,570)1,284 (2,306)1,490 
Marketable securities
Change in net unrealized loss(1,351)— (6,919)— 
Less: reclassification adjustment for net losses included in net income— — — — 
Net change, net of income tax benefit of $475 and $2,431 for the three and six months ended June 30, 2022, respectively(1,351)— (6,919)— 
Comprehensive income$73,055 $40,635 $119,572 $72,539 

See Notes to Condensed Consolidated Financial Statements.
Enphase Energy, Inc. | 2022 Form 10-Q | 5
Table of Contents
ENPHASE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)

(Unaudited)
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
Common stock and paid-in capital
Balance, beginning of period$666,512 $751,689 $837,925 $534,745 
Cumulative-effect adjustment to Additional paid-in capital related to the adoption of ASU 2020-06— — (207,967)— 
Issuance of common stock from exercise of equity awards4,183 3,428 4,587 3,642 
Payment of withholding taxes related to net share settlement of equity awards(5,463)(7,813)(14,807)(16,998)
Equity component of convertible notes issued, net of tax— 8 — 207,970 
Cost of convertible notes hedge related to the convertible notes issued, net of tax— — — (213,322)
Sale of warrants related to the convertible notes issued— — — 220,800 
Equity component of partial settlement of convertible notes— (74)— (966,557)
Cost of reacquired equity component on partial settlement of convertible notes— 62 — 962,176 
Stock-based compensation expense48,242 15,312 93,736 30,156 
Balance, end of period$713,474 $762,612 $713,474 $762,612 
Accumulated deficit
Balance, beginning of period$(328,206)$(19,488)$(405,737)$(51,186)
Cumulative-effect adjustment to accumulated deficit related to the adoption of ASU 2020-06— — 25,710 — 
Net income76,976 39,351 128,797 71,049 
Repurchase of common stock— (200,000)— (200,000)
Balance, end of period$(251,230)$(180,137)$(251,230)$(180,137)
Accumulated other comprehensive income (loss)
Balance, beginning of period$(7,324)$640 $(2,020)$434 
Foreign currency translation adjustments(2,570)1,284 (2,306)1,490 
Change in net unrealized loss on marketable securities, net of tax(1,351)— (6,919)�� 
Balance, end of period$(11,245)$1,924 $(11,245)$1,924 
Total stockholders' equity, ending balance$450,999 $584,399 $450,999 $584,399 
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Net loss$(6,854) $(18,756) $(42,252) $(54,274)
Other comprehensive loss:       
Foreign currency translation adjustments(296) 54
 (173) (44)
Comprehensive loss$(7,150) $(18,702) $(42,425) $(54,318)

See notesNotes to condensed consolidated financial statements.Condensed Consolidated Financial Statements.

Enphase Energy, Inc. | 2022 Form 10-Q | 6

Table of Contents
ENPHASE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
(Unaudited)
 Nine Months Ended
September 30,
 2017 2016
Cash flows from operating activities:   
Net loss$(42,252) $(54,274)
Adjustments to reconcile net loss to net cash used in operating activities:   
Depreciation and amortization6,763
 8,039
Provision for doubtful accounts911
 3,194
Asset impairment and restructuring1,638
 1,440
Amortization of debt issuance costs1,337
 101
Stock-based compensation5,277
 8,239
Changes in operating assets and liabilities:   
Accounts receivable(8,761) (16,577)
Inventory6,644
 1,699
Prepaid expenses and other assets(5,110) (3,857)
Accounts payable, accrued and other liabilities3,051
 14,867
Warranty obligations(1,062) (198)
Deferred revenues5,036
 8,739
Net cash used in operating activities(26,528) (28,588)
Cash flows from investing activities:   
Purchases of property and equipment(3,609) (9,607)
Purchases of intangible assets—
 (678)
Net cash used in investing activities(3,609) (10,285)
Cash flows from financing activities:   
Proceeds from issuance of common stock, net of issuance costs26,425
 14,593
Proceeds from term loan, net24,240
 24,175
Proceeds from borrowings under revolving credit facility—
 10,000
Payments under revolving credit facility(10,100) (14,550)
Payments of deferred financing costs—
 (401)
Contingent consideration payment related to prior acquisition—
 (29)
Proceeds from issuance of common stock under employee stock plans174
 852
Net cash provided by financing activities40,739
 34,640
Effect of exchange rate changes on cash512
 (107)
Net increase (decrease) in cash and cash equivalents11,114
 (4,340)
Cash and cash equivalents—Beginning of period17,764
 28,452
Cash and cash equivalents—End of period$28,878
 $24,112
Supplemental disclosures of non-cash investing and financing activities:   
Purchases of fixed and intangible assets included in accounts payable$871
 $517
Warrants issued in connection with debt$1,447
 $—
Six Months Ended
June 30,
20222021
Cash flows from operating activities:
Net income$128,797 $71,049 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization30,805 13,154 
Provision for doubtful accounts131 271 
Asset impairment1,200 — 
Non-cash interest expense4,025 19,463 
Loss on partial settlement of convertibles notes— 56,382 
Deemed repayment of convertible notes attributable to accreted debt discount— (15,585)
Change in fair value of debt securities129 (2,369)
Stock-based compensation100,861 30,156 
Deferred income taxes15,617 (30,127)
Changes in operating assets and liabilities:
Accounts receivable27,546 (98,531)
Inventory(55,866)4,008 
Prepaid expenses and other assets(21,352)(15,194)
Accounts payable, accrued and other liabilities10,228 46,890 
Warranty obligations22,878 14,025 
Deferred revenues38,094 47,909 
Net cash provided by operating activities303,093 141,501 
Cash flows from investing activities:
Purchases of property and equipment(21,066)(26,368)
Investments in private companies— (45,000)
Business acquisitions, net of cash acquired(27,680)(55,239)
Purchases of marketable securities(60,061)— 
Maturities of marketable securities193,033 — 
Net cash provided by (used in) investing activities84,226 (126,607)
Cash flows from financing activities:
Issuance of convertible notes, net of issuance costs— 1,188,439 
Purchase of convertible note hedges— (286,235)
Sale of warrants— 220,800 
Principal payments and financing fees on debt— (1,422)
Partial repurchase of convertible notes— (289,312)
Proceeds from exercise of equity awards and employee stock purchase plan4,587 3,642 
Repurchase of common stock— (200,000)
Payment of withholding taxes related to net share settlement of equity awards(14,807)(16,998)
Net cash provided by (used in) financing activities(10,220)618,914 
Effect of exchange rate changes on cash and cash equivalents(942)(926)
Net increase in cash and cash equivalents376,157 632,882 
Cash and cash equivalents—Beginning of period119,316 679,379 
Cash and cash equivalents—End of period$495,473 $1,312,261 
Supplemental cash flow disclosure:
Supplemental disclosures of non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable$2,783 $4,175 
Purchases of property and equipment through tenant improvement allowance$748 $— 
Contingent consideration in connection with the acquisition$— $3,596 
See notesNotes to condensed consolidated financial statements.Condensed Consolidated Financial Statements.

Enphase Energy, Inc. | 2022 Form 10-Q | 7
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.    DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Enphase Energy, Inc. and subsidiaries (the “Company”) is a global energy technology company. The Company delivers simple, innovative and reliable energy managementsmart, easy-to-use solutions that advancemanage solar generation, storage and communication on one platform. The Company revolutionized the worldwide potential of renewable energy. Our semiconductor-basedsolar industry with its microinverter system converts direct current (DC) electricity to alternating current (AC) electricity at the individual solar module level,technology and bringsproduces a system-based, high technology approach to solar energy generation leveraging our design expertise across power electronics, semiconductors, networking, and cloud-based software technologies. Since inception, the Company has shipped approximately 16 million microinverters, representing over 3 gigawatts of solar photovoltaic (PV) generating capacity, and approximately 700,000 Enphase residential and commercial systems have been deployed in over 100 countries.fully integrated solar-plus-storage solution.
Basis of Presentation and Consolidation
The accompanying condensed consolidated financial statements are presented in accordance with accounting principles generally accepted in the U.S, or GAAP.United States (“GAAP”). The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
The Company disclosed in its Form 10-K for the year ended December 31, 2016 that certain conditions led it to conclude that substantial doubt existed as to the Company’s ability to continue as a going concern. The Company believes that the same or similar conditions continue to exist and that substantial doubt as to its ability to continue as a going concern within one year from the date of this filing also continues to exist. The accompanying consolidated financial statements for the three and nine months ended September 30, 2017 are presented on a going concern basis and do not include any adjustments that might result from the outcome of this uncertainty.
The Company has taken actions and intends to take further actions to improve its liquidity, including raising funds in the capital markets. In 2016, the Company completed a public offering of its common stock. The Company sold approximately 15 million shares and realized net proceeds of approximately $16.2 million.
In December of 2016, the Company entered into an At The Market Issuance Sales Agreement (ATM) under which it may sell shares of common stock up to a gross aggregate offering price of $17.0 million. The Company realized the full gross proceeds of $17.0 million from common stock sold under the ATM during the three months ended March 31, 2017.
In January 2017, the Company completed a private placement of securities that resulted in gross proceeds of $10.0 million.
In July 2016, the Company entered into a loan and security agreement (the “Term Loan Agreement”) with lenders that are affiliates of Tennenbaum Capital Partners, LLC (collectively “TCP”). Under the agreement, the lenders committed to advance a term loan in an aggregate principal amount of up to $25.0 million with a maturity date of July 1, 2020. The Company drew down the $25.0 million term loan commitment at closing. In February 2017, the Company amended its loan and security agreement with TCP to provide an additional $25.0 million in principal. The Company simultaneously terminated its revolving credit facility with Wells Fargo Bank, N.A., and the combined principal and interest balance of $10.3 million was fully repaid. The amended loan has the same July 1, 2020 maturity date as the original TCP loan, both of which are interest only until February 2018. See Note 7, “Debt” for further information.
The Company launched its next generation microinverter, the Enphase Home Energy Solution with IQ, in March 2017. This product is a major milestone in the Company’s product cost reduction initiative, and the Company expects to introduce the next generation of the Enphase Home Energy Solution with IQ in the first quarter of 2018, which the Company believes will achieve further cost savings.
Actions the Company has taken to reduce its operating expenses include a reduction in its global workforce in the third quarter of 2016 and a second reduction in January 2017. The Company has eliminated certain projects that did not have a near-term return on investment, consolidated office space at its headquarters, divested its services business and engaged a management consulting firm to help it lower expenses and improve operational efficiencies. The Company expects the cumulative impact of these actions to decrease its ongoing annualized

operating expenses by approximately $40.0 million as compared to pre-restructuring annualized operating expenses. For the nine months ended September 30, 2017, the Company achieved a combined $32.3 million in savings for research and development, sales and marketing and general and administrative expenses over the same period in 2016, which was partially offset by increased restructuring charges of $12.2 million.
Unaudited Interim Financial Information
These accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”(“SEC”) for interim financial reporting. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring items, considered necessary to present fairly the Company'sCompany’s financial condition, results of operations, comprehensive income, (loss)stockholders’ equity and cash flows for the interim periods indicated. The results of operations for the three and ninesix months ended SeptemberJune 30, 20172022 are not necessarily indicative of the operating results for the full year. Certain information and footnote disclosures typically included in annual consolidated financial statements have been condensed or omitted. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
There have been no material changes in the Company’s significant accounting policies during the nine months ended September 30, 2017, as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Reference is made to the disclosures therein for a summary of all of the Company’s significant accounting policies.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Significant estimates and assumptions reflected in the financial statements include revenue recognition, allowance for doubtful accounts, stock-based compensation, deferred compensation arrangements, inventory valuation, and accrued warranty obligations.obligations, fair value of investments, debt derivatives, convertible notes and contingent consideration, fair value of acquired intangible assets and goodwill, useful lives of acquired intangible assets and property and equipment, incremental borrowing rate for right-of-use assets and lease liability. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ materially from management’sthose estimates using different assumptions or under different conditions.due to risks and uncertainties, including uncertainty in the ongoing semiconductor supply and logistics constraints, and the continuing COVID-19 pandemic.

The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States. The Company filed audited consolidated financial statements, which included all information and notes necessary for such a complete presentation in conjunction with its Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on February 11, 2022 (the “Form 10‑K”).
Summary of Significant Accounting Policies
There have been no changes to the Company’s significant accounting policies as described in Note 2, “Summary of Significant Accounting Policies” of the notes to consolidated financial statements included in Part II, Item 8 of the Form 10-K, other than as a result of the Company’s adoption of the new accounting guidance related to convertible senior notes, effective January 1, 2022, as discussed in “Recently Adopted Accounting Pronouncements” below.
Enphase Energy, Inc. | 2022 Form 10-Q | 8
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recently Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, “Debt - Debt with Conversion and Other Options (subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (subtopic 815-40)” (“ASU 2020-06”), which reduces the number of accounting models in subtopic ASC 470-20 that require separate accounting for embedded conversion features. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the effective interest rate of convertible debt instruments will be closer to the coupon interest rate. Further, the diluted net income per share calculation for convertible instruments will require the Company to use the if-converted method. The treasury stock method should no longer be used to calculate diluted net income per share for convertible instruments.
The Company adopted ASU 2020-06 in the annual period beginning January 1, 2022, on a modified retrospective basis. Upon adoption of ASU 2020-06, the Company is no longer required to bifurcate the conversion feature related to the issuance of $575.0 million aggregate principal amount of its 0.0% convertible senior notes due 2028 (the “Notes due 2028”) and $632.5 million aggregate principal amount of its 0.0% convertible senior notes due 2026 (the “Notes due 2026”) in equity. Instead, the Company combined the previously separated equity component with the liability component, which together is now classified as debt, thereby eliminating the subsequent amortization of the debt discount. Similarly, the portion of issuance costs previously allocated to equity was reclassified to the carrying value of debt and amortized over the remaining terms of the convertible senior notes. Accordingly, the Company recorded a net decrease to additional paid-in capital by $207.9 million, net of tax to remove the equity component separately recorded for the conversion features associated with the convertible senior notes and equity component associated with the issuance costs, an increase to the carrying value of its convertible debt instrument by $244.5 million to reflect the full principal amount of the convertible senior notes outstanding net of issuance costs, a decrease to deferred tax liability of $62.3 million, and a decrease to accumulated deficit by $25.7 million, net of tax in the Company’s consolidated balance sheet with no impact on the Company’s consolidated statements of operations.
Also upon adoption of ASU 2020-06, the Company is no longer utilizing the treasury stock method for earnings per share impact for 0.25% convertible senior notes due 2025 (the “Notes due 2025”), the Notes due 2026 and the Notes due 2028 (together, the “Convertible Senior Notes”). Instead, the Company is applying the if-converted method when reporting the number of potentially dilutive shares of common stock as the Company may at its election, settle its Convertible Senior Notes through payment or delivery, as the case may be, in cash, shares of its common stock or a combination of cash and shares of its common stock. Further, the Company under the relevant sections of the indentures, irrevocably may elect to settle principal in cash and any excess in cash or shares of the Company’s common stock for its Convertible Senior Notes. If and when the Company makes such election, there will be no adjustment to the net income and the Company will use the average share price for the period to determine the potential number of shares to be issued based upon assumed conversion to be included in the diluted share count.
Recently Issued Accounting Pronouncements
Not Yet Effective
In July 2015,October 2021, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” which requires most entities to measure most inventories at the lower of cost or net realizable value ("NRV"). This simplifies the evaluation from the current method of lower of cost or market, where market is based on one of three measures (i.e. replacement cost, net realizable value, or net realizable value less a normal profit margin). ASU 2015-11 does not apply to inventories measured under the last-in, first-out method or the retail inventory method,2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and defines NRV as the “estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” This standard, which was adopted in the first quarter of 2017, did not have a material impact on the consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which will simplify the income tax consequences, accounting for forfeitures and classification on the Statements of Consolidated Cash Flows. This standard, which was adopted in the first quarter of 2017, did not have a material impact on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This ASU simplifies the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. Under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment

assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. A public business entity that is an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 was early adopted by the Company for the year beginning January 1, 2017. The Company has a single reporting unit, and adoption of the standard did not have a material impact on the Company's condensed consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Effective
In May 2014, the FASB issued ASU 2014-09, RevenueContract Liabilities from Contracts with Customers: Topic 606 and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, May 2016 and December 2016 within Customers" (“ASU 2015-14,2021-08”). ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20, respectively (ASU 2014-09, ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20, respectively, and collectively Topic 606). Topic 606 supersedes nearly all existing revenue recognition guidance under GAAP. The updated standard’s core principle is that revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The standard generally2021-08 requires an entityacquirer in a business combination to identify performance obligationsrecognize and measure contract assets and contract liabilities acquired in its contracts, estimate the amount of variable consideration to be receiveda business combination in the transaction price, allocate the transaction price to each separate performance obligation, and recognize revenue as obligations are satisfied. In addition, the updated standard requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. Topic 606 is effective for the Company as of our first quarter of fiscal 2018 using either of two methods: (1) retrospective application of Topic 606 to each prior reporting period presentedaccordance with the option to elect certain practical expedients as defined within Topic 606 or (2) retrospective application of Topic 606 with the cumulative effect of initially applying Topic 606 recognized at the date of initial application and providing certain additional disclosures as defined per Topic 606. The Company plans to adopt Topic 606 in the first quarter of fiscal 2018 pursuant to the aforementioned adoption method (2). Under ASC 605 Envoy hardware and Enlighten service are considered two units of accounting with a portion of the consideration related to the hardware recognized upfront and the remaining deferred over the estimated service period. Under ASC 606, “Revenue from Contracts with Customers,” as if it had originated the full consideration for these products may represent a single performance obligation and need to be deferred over the estimated service period. This treatment would result in an increase in deferred revenue upon adoption of ASC 606. Under ASC 605 the Company recorded certain contra revenue promotions at the later of the date the sale was made and revenue recognized or the date at which the promotional offer was extended. Under ASC 606 all such contra revenue programs will be treated as variable consideration and recognized at the time the related revenue is recorded resulting in a potential increase in and change in timing of contra revenue upon adoption. The Company is finalizing its review of contracts to quantify the impact of adoption on its consolidated financial statements. The Company is also in the process of assessing the appropriate changes to its business processes and upgrading its systems and controls to support recognition and disclosure under ASC 606.
 In January 2016, the FASB issuedcontracts. ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Changes to the current guidance include the accounting for equity investments, the presentation and disclosure requirements for financial instruments, and the assessment of valuation allowance on deferred tax assets related to available-for-sale securities. In addition, ASU 2016-01 establishes an incremental recognition and disclosure requirement related to the presentation of fair value changes of financial liabilities for which the fair value option has been elected. Under this guidance, an entity would be required to separately present in other comprehensive income the portion of the total fair value change attributable to instrument-specific credit risk as opposed to reflecting the entire amount in earnings. ASU 2016-012021-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective.2022. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income.permitted. The Company does not expect the adoption of this standardASU 2021-08 to have a materialsignificant impact on theits condensed consolidated financial statements.statements and plans to adopt the standard effective January 1, 2023.

Enphase Energy, Inc. | 2022 Form 10-Q | 9
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2.    INVENTORYREVENUE RECOGNITION
Disaggregated Revenue
The Company has one major business activity, which is the design, manufacture and sale of solutions for the solar photovoltaic (“PV”) industry. Disaggregated revenue by primary geographical market and timing of revenue recognition for the Company’s single product line are as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
(In thousands)
Primary geographical markets:
U.S.$422,628 $254,576 $792,120 $502,358 
International107,568 61,481 179,368 115,453 
Total$530,196 $316,057 $971,488 $617,811 
Timing of revenue recognition:
Products delivered at a point in time$511,865 $302,100 $936,014 $590,971 
Products and services delivered over time18,331 13,957 35,474 26,840 
Total$530,196 $316,057 $971,488 $617,811 
Contract Balances
Receivables, and contract assets and contract liabilities from contracts with customers, are as follows:
June 30,
2022		December 31,
2021
(In thousands)
Receivables$312,451 $333,626 
Short-term contract assets (Prepaid expenses and other assets)26,537 23,508 
Long-term contract assets (Other assets)78,139 69,583 
Short-term contract liabilities (Deferred revenues, current)74,067 62,670 
Long-term contract liabilities (Deferred revenues, non-current)217,095 187,186 
The Company receives payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Contract assets include deferred product costs and commissions associated with the deferred revenue and will be amortized along with the associated revenue. The Company had no asset impairment charges related to contract assets in the six months ended June 30, 2022.
Significant changes in the balances of contract assets (prepaid expenses and other assets) as of June 30, 2022 are as follows (in thousands):
Contract Assets
Contract Assets, beginning of period$93,091 
Amount recognized(13,156)
Increase24,741 
Contract Assets, end of period$104,676 
Contract liabilities are recorded as deferred revenue on the accompanying condensed consolidated balance sheets and include payments received in advance of performance obligations under the contract and are realized when the associated revenue is recognized under the contract.
Enphase Energy, Inc. | 2022 Form 10-Q | 10
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Significant changes in the balances of contract liabilities (deferred revenues) as of June 30, 2022 are as follows (in thousands):
Contract Liabilities
Contract Liabilities, beginning of period$249,856 
Revenue recognized(35,474)
Increase due to billings76,780 
Contract Liabilities, end of period$291,162 
Remaining Performance Obligations
Estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period are as follows:
June 30,
2022
(In thousands)
Fiscal year:
2022 (remaining six months)$38,983 
202368,667 
202462,924 
202555,770 
202640,141 
Thereafter24,677 
Total$291,162 
3.    OTHER FINANCIAL INFORMATION
    Inventory
Inventory consists of the following:
June 30,
2022		December 31,
2021
(In thousands)
Raw materials$25,559 $25,429 
Finished goods104,707 48,971 
Total inventory$130,266 $74,400 
Enphase Energy, Inc. | 2022 Form 10-Q | 11
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
    Accrued Liabilities
Accrued liabilities consist of the following:
June 30,
2022		December 31,
2021
(In thousands)
Salaries, commissions, incentive compensation and benefits$14,670 $13,062 
Customer rebates and sales incentives116,647 79,038 
Freight17,788 20,522 
Operating lease liabilities, current3,804 3,830 
Liability due to supply agreements12,278 14,653 
Contingent consideration— 3,710 
Post combination expense accrual7,585 8,602 
VAT payable10,952 7,231 
Other14,195 7,264 
Total accrued liabilities$197,919 $157,912 
4.    BUSINESS COMBINATIONS
Acquisition of SolarLeadFactory, LLC. (“SolarLeadFactory”)
On March 14, 2022, the Company completed the acquisition of 100% of the shares of SolarLeadFactory, a privately-held company. SolarLeadFactory provides high quality leads to solar installers. As part of the purchase price, the Company paid approximately $26.1 million in cash on March 14, 2022.
The acquisition has been accounted for as a business combination under the acquisition method, and accordingly, the total purchase price is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values on the acquisition date.
In addition to the purchase price summarized above, the Company will be obligated to issue up to approximately $10.0 million in shares of common stock of the Company payable in the second quarter of 2023, subject to achievement of certain operational targets. As the additional payments require continuous employment of certain key employees of SolarLeadFactory and are subject to other conditions, these payments are being accounted for as post-combination expense and will be recognized ratably over the one-year period presuming conditions will be met.
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date, which are subject to change within the measurement period as the fair value assessments are finalized (in thousands):
Cash and cash equivalents$1,426 
Net tangible assets acquired813 
Intangible assets11,200 
Goodwill12,612 
Net assets acquired$26,051 
The excess of the consideration paid over the fair values assigned to the assets acquired and liabilities assumed represents the goodwill resulting from the acquisition. Goodwill is primarily attributable to expected synergies in the Company’s solar offerings and cross-selling opportunities. The entire goodwill amount is expected to be deductible for U.S. federal income tax purposes over 15 years.
Enphase Energy, Inc. | 2022 Form 10-Q | 12
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Intangible assets consist primarily of developed technology and customer relationships. Developed technology intangible attributable to developed technology includes a combination of unpatented technology, trade secrets, computer software and research processes that represent the foundation for the existing and planned new products to facilitate the generation of new content. Customer relationships intangible relates to SolarLeadFactory’s ability to sell current and future offerings, as well as products built around the current offering, to its existing customers.
The following table shows the fair value of the separately identifiable intangible assets at the time of acquisition and the period over which each intangible asset will be amortized:
Preliminary Fair ValueUseful Life
(In thousands)(Years)
Developed technology$3,600 5
Customer relationships7,600 5
Total identifiable intangible assets$11,200 
Pro forma financial information has not been presented for the SolarLeadFactory acquisition as the impact to the Company’s condensed consolidated financial statements was not material.
The Company incurred and accrued costs related to acquisition of $0.4 million that were recorded in general and administrative expenses in the accompanying condensed consolidated statements of operations for the six months ended June 30, 2022.
5.    GOODWILL AND INTANGIBLE ASSETS
The Company’s goodwill as of SeptemberJune 30, 20172022 and December 31, 2016 consists2021 are as follows:
GoodwillJune 30,
2022		December 31,
2021
(In thousands)
Goodwill, beginning of period$181,254 $24,783 
Goodwill acquired16,378 156,390 
Currency translation adjustment(628)81 
Goodwill, end of period$197,004 $181,254 
The Company’s purchased intangible assets as of the followingJune 30, 2022 and December 31, 2021 are as follows:
June 30, 2022December 31, 2021
GrossAdditionsAccumulated AmortizationNetGrossAdditionsAccumulated AmortizationNet
(In thousands)
Intangible assets:
Other indefinite-lived intangibles$286 $— $— $286 $286 $— $— $286 
Intangible assets with finite lives:
Developed technology38,650 3,600 (12,834)29,416 13,100 25,550 (8,958)29,692 
Customer relationships41,021 7,600 (15,273)33,348 26,421 14,600 (11,448)29,573 
Trade names37,700 — (3,863)33,837 — 37,700 (93)37,607 
Order backlog600 — (600)— — 600 — 600 
Total purchased intangible assets$118,257 $11,200 $(32,570)$96,887 $39,807 $78,450 $(20,499)$97,758 
Enphase Energy, Inc. | 2022 Form 10-Q | 13
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Amortization expense related to finite-lived intangible assets are as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
(In thousands)
Developed technology$2,010 $891 $3,876 $1,690 
Customer relationships2,067 1,532 3,825 2,462 
Trade names1,885 85 3,770 147 
Order backlog323 — 600 — 
Total amortization expense$6,285 $2,508 $12,071 $4,299 
Amortization of developed technology is recorded to cost of sales and customer relationships and trade names is recorded to sales and marketing expense.
The expected future amortization expense of intangible assets as of June 30, 2022 is presented below (in thousands):
June 30,
2022
Fiscal year:
2022 (remaining six months)$11,926 
202324,096 
202421,299 
202519,984 
202616,425 
Thereafter2,871 
Total$96,601 
Enphase Energy, Inc. | 2022 Form 10-Q | 14
 September 30,
2017		 December 31,
2016
Raw materials$1,975
 $5,095
Finished goods23,341
 26,865
Total inventory$25,316
 $31,960
Table of Contents
ENPHASE ENERGY, INC.
3.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6.    CASH EQUIVALENTS AND MARKETABLE SECURITIES
The cash equivalents and marketable securities consist of the following:
As of June 30, 2022
Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueCash EquivalentsMarketable Securities
(In thousands)
Money market funds$432,946 $— $— $432,946 $432,946 $— 
Certificates of Deposit3,126 — (24)3,102 — 3,102 
Commercial paper121,294 — (224)121,070 — 121,070 
Corporate notes and bonds144,438 1 (3,189)141,250 — 141,250 
U.S. Treasuries39,551 1 (8)39,544 — 39,544 
U.S. Government agency securities456,128 — (8,766)447,362 — 447,362 
Total$1,197,483 $2 $(12,211)$1,185,274 $432,946 $752,328 
As of December 31, 2021
Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueCash EquivalentsMarketable Securities
(In thousands)
Money market funds$35,789 $— $— $35,789 $35,789 $— 
Certificates of Deposit16,001 — (2)15,999 6,000 9,999 
Commercial paper215,964 — (114)215,850 26,997 188,853 
Corporate notes and bonds199,244 — (872)198,372 760 197,612 
U.S. Treasuries14,999 — (1)14,998 — 14,998 
U.S. Government agency securities487,743 — (1,870)485,873 — 485,873 
Total$969,740 $— $(2,859)$966,881 $69,546 $897,335 
The following table summarizes the contractual maturities of the Company’s cash equivalents and marketable securities as of June 30, 2022:
Amortized CostFair Value
(In thousands)
Due within one year$1,023,275 $1,017,129 
Due within one to three years174,208 168,145 
Total$1,197,483 $1,185,274 
All available-for-sale securities have been classified as current, based on management's intent and ability to use the funds in current operations.
Enphase Energy, Inc. | 2022 Form 10-Q | 15
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7.    WARRANTY OBLIGATIONS
The Company’s warranty activities duringwere as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
(In thousands)
Warranty obligations, beginning of period$83,579 $54,553 $73,377 $45,913 
Accruals for warranties issued during period11,311 3,319 20,221 7,213 
Changes in estimates17,063 4,269 21,975 11,924 
Settlements(6,590)(2,757)(12,471)(5,687)
Increase due to accretion expense1,828 1,104 3,343 2,047 
Other(10,641)(550)(9,895)(1,472)
Warranty obligations, end of period96,551 59,938 96,551 59,938 
Less: current portion(29,197)(15,009)(29,197)(15,009)
Non-current$67,354 $44,929 $67,354 $44,929 
Changes in Estimates
In the three and nine months ended SeptemberJune 30, 20172022, the Company recorded $17.1 million in warranty expense from change in estimates, of which $13.3 million relates to continuing analysis of field performance data and 2016 were as follows (in thousands):diagnostic root-cause failure analysis primarily for Enphase IQ™ Battery storage systems and $3.8 million is due to an increase in labor reimbursement rates. In the three months ended June 30, 2021, the Company recorded $4.3 million in warranty expense from change in estimates, of which $2.9 million relates to the timing of cost reduction assumptions for replacement products and $1.4 million relates to continuing analysis of field performance data and diagnostic root-cause failure analysis primarily for its prior generation products.
In the six months ended June 30, 2022, the Company recorded $22.0 million in warranty expense from change in estimates, of which $13.3 million relates to continuing analysis of field performance data and diagnostic root-cause failure analysis primarily for Enphase IQ™ Battery storage systems, $4.9 million is related to an increase in expedited freight costs and replacement costs and $3.8 million is due to an increase in labor reimbursement rates. In the six months ended June 30, 2021, the Company recorded $11.9 million in warranty expense from change in estimates, of which $7.7 million relates to continuing analysis of field performance data and diagnostic root-cause failure analysis primarily for its prior generation products, $2.9 million relates to the timing of cost reduction assumptions for replacement products and $1.3 million relates to the other cost assumption changes.
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Warranty obligations, beginning of period$31,613
 $30,066
 $31,414
 $30,547
Accruals for warranties issued during period1,009
 1,194
 2,913
 2,931
Changes in estimates(1,046) 783
 (826) 1,548
Settlements(1,494) (2,561) (5,092) (6,517)
Increase due to accretion expense549
 461
 1,542
 1,279
Other(279) 406
 401
 561
Warranty obligations, end of period$30,352
 $30,349
 $30,352
 $30,349
Less current portion

 

 $(7,151) $(6,761)
Noncurrent

 

 $23,201
 $23,588
As of September 30, 2017, the $30.4 million of warranty obligations included $11.7 million measured at fair value. See Note 4, “Fair Value Measurements” for additional information.
4.8.    FAIR VALUE MEASUREMENTS
The accounting guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
•Level 1—1 - Valuations based on quoted prices in active markets for identical assets or liabilities that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of such assets or liabilities do not entail a significant degree of judgment.
•Level 2—2 - Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Enphase Energy, Inc. | 2022 Form 10-Q | 16
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
•Level 3—3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The following table presents the Company’sassets and liabilities that were measured at fair value on a recurring basis using the above input categories:
June 30, 2022December 31, 2021
(In thousands)
Level 1Level 2Level 3Level 1Level 2Level 3
Assets:
Cash and cash equivalents:
Money market funds$432,946 $— $— $35,789 $— $— 
Certificates of deposit— — — — 6,000 — 
Commercial paper— — — — 26,997 — 
Corporate notes and bonds— — — — 760 — 
Marketable securities:
Certificates of deposit— 3,102 — — 9,999 — 
Commercial paper— 121,070 — — 188,853 — 
Corporate notes and bonds— 141,250 — — 197,612 — 
U.S. Government agencies— 447,362 — — 485,873 — 
U.S. Treasuries— 39,544 — — 14,998 — 
Other assets
Investments in debt securities— — 40,913 — — 41,042 
Total assets measured at fair value$432,946 $752,328 $40,913 $35,789 $931,092 $41,042 
Liabilities:
Accrued liabilities
Contingent consideration$— $— $— $— $— $3,710 
Warranty obligations
Current— — 24,772 — — 14,612 
Non-current— — 49,151 — — 36,395 
Total warranty obligations measured at fair value— — 73,923 — — 51,007 
Total liabilities measured at fair value$— $— $73,923 $— $— $54,717 
Notes due 2028, Notes due 2026 andNotes due 2025
The Company carries the Notes due 2028 and Notes due 2026 at face value less issuance costs on its categorization withincondensed consolidated balance sheets, and Notes due 2025 at face value less unamortized discount and issuance costs on its condensed consolidated balance sheets. As of June 30, 2022, the fair value hierarchyof the Notes due 2028, Notes due 2026 and Notes due 2025 was $568.2 million, $611.9 million and $256.5 million, respectively. The fair value as of June 30, 2022 was determined based on the closing trading price per $100 principal amount as of the last day of trading for the period. The Company considers the fair value of the Notes due 2028, Notes due 2026 and Notes due 2025 to be a Level 2 measurement as they are not actively traded.
Investments in debt securities
In January 2021, the Company invested approximately $25.0 million in a privately-held company. The Company concluded the investment qualifies as an investment in a debt security, as it accrues interest and principal plus accrued interest becomes payable back to the Company at September 30, 2017certain dates unless it is converted to equity at a pre-determined price. As the investment includes a conversion option, the Company has elected to account for this investment under the fair value option and December 31, 2016 (in thousands):any change in fair value of the investment is recognized in “Other income (expense), net” in the Company’s condensed consolidated statement of operations for that period. Further, the Company has concluded that the Company’s investment in a debt security is considered to be a Level 3 measurement due to the use of significant unobservable inputs in the valuation model. The fair value was
Enphase Energy, Inc. | 2022 Form 10-Q | 17
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Fair Value
Hierarchy		 September 30,
2017		 December 31,
2016
Liabilities:     
Warranty obligationsLevel 3 $11,719
 $10,332
determined using discounted cash flow methodology and assumptions include implied yield and change in estimated term of investment being held-to-maturity.
In September 2021, the Company invested approximately $13.0 million in secured convertible promissory notes issued by the stockholders of a privately-held company. The investment qualifies as an investment in a debt security and will accrete interest and principal plus accrued interest that becomes payable at certain dates unless it is converted to equity at a pre-determined price. As the investment includes a conversion option, the Company has elected to account for this investment under the fair value option and any change in fair value of the investment is recognized in “Other income (expense), net” in the Company’s condensed consolidated statement of operations for that period. Further, the Company has concluded that the Company’s investment in a debt security is considered a Level 3 measurement due to the use of significant unobservable inputs in the valuation model. Principal plus accrued interest receivable of the investment approximates the fair value.
Investment in debt securities are recorded in “Other assets” on the accompanying condensed consolidated balance sheet as of June 30, 2022. The changes in the balance in investments in debt securities during the period are as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
(In thousands)
Balance at beginning of period$39,926 $26,437 $41,042 $— 
Investment— 20,000 — 45,000 
Fair value adjustments included in other (expense) income, net987 932 (129)2,369 
Balance at end of period$40,913 $47,369 $40,913 $47,369 
Contingent consideration
The estimated fair value of the contingent consideration incurred in connection with the Company’s acquisition of Sofdesk Inc. is considered a Level 3 measurement due to the use of significant unobservable inputs. These unobservable inputs include probability assessment of expected future customer count over the period in which the obligation is expected to be settled. The value was determined using a discounted risk-neutral expected (probability-weighted) cash flow methodology. The resulting expected contingent consideration payment is discounted back to present value using the Company’s cost of debt. The fair value of contingent consideration arrangement is reassessed quarterly based on assumptions used in the Company’s latest projections and input provided by management. Any change in the fair value estimate, which could include accretion of interest expense due to passage of time as well as any changes in the inputs to the model, is recorded in the Company’s condensed consolidated statement of operations for that period.
Enphase Energy, Inc. | 2022 Form 10-Q | 18
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table reflects the activity for the Company’s contingent consideration liabilities measured at fair value using Level 3 inputs for the six months ended June 30, 2022:
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
(In thousands)
Balance at beginning of period$— $3,540 $3,710 $— 
Addition— — — 3,500 
Fair value adjustments included in other income (expense), net— 56 15 96 
Paid— — (3,725)— 
Balance at end of period$— $3,596 $— $3,596 
Warranty obligations.
Fair Value Option for Warranty Obligations Related to MicroinvertersProducts Sold Since January 1, 2014
The Company’s warranty obligations related to substantially all microinverters sold since January 1, 2014 provide the Company the right, but not the requirement, to assign its warranty obligations to a third-party. Under Accounting Standards Codification (“ASC”) 825—Financial Instruments, (“fair value option”), an entity may choose to elect the fair value option for such warranties at the time it first recognizes the eligible item. The Company made an irrevocable election to account for all eligible warranty obligations associated with microinverters sold since January 1, 2014 at fair value. This election was made to reflect the underlying economics of the time value of money for an obligation that will be settled over an extended period of up to 25 years.
The Company estimates the fair value of warranty obligations by calculating the warranty obligations in the same manner as for sales prior to January 1, 2014 and applying an expected present value technique to that result. The expected present value technique, an income approach, converts future amounts into a single current discounted amount. In addition to the key estimates of failure rates, claim rates and replacement costs, the Company used certain Level 3 inputs which are unobservable and significant to the overall fair value measurement. Such additional assumptions included a discount rate based on the Company’s credit-adjusted risk-free rate and compensation comprised of a profit element and risk premium required of a market participant to assume the obligation.
The following table provides information regarding changes in nonfinancial liabilities related to the Company’s warranty obligations measured at fair value on a recurring basis using significant unobservable inputs (Level 3)designated as Level 3 for the periods indicated (in thousands):indicated:
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2017 2016 2017 2016(In thousands)
Balance at beginning of period$12,564
 $8,053
 $10,332
 $6,182
Balance at beginning of period$61,586 $33,319 $51,007 $28,736 
Accruals for warranties issued during period867
 1,185
 2,760
 2,898
Accruals for warranties issued during period11,120 3,319 19,890 7,213 
Changes in estimates(1,452) (200) (2,051) (678)Changes in estimates14,692 2,755 18,591 5,338 
Settlements(530) (390) (1,265) (726)Settlements(4,668)(1,910)(8,724)(3,825)
Increase due to accretion expense549
 461
 1,542
 1,279
Increase due to accretion expense1,828 1,104 3,343 2,047 
Other(279) 406
 401
 560
Other(10,636)(550)(10,185)(1,472)
Balance at end of period$11,719
 $9,515
 $11,719
 $9,515
Balance at end of period$73,923 $38,037 $73,923 $38,037 
Quantitative and Qualitative Information about Level 3 Fair Value Measurements
As of SeptemberJune 30, 2017,2022 and December 31, 2021, the significant unobservable inputs used in the fair value measurement of the Company’s liabilities designated as Level 3 are as follows:
Item Measured at Fair ValueValuation TechniqueDescription of Significant Unobservable Input
Percent Used
(Weighted-Average)
Warranty obligations for microinverters sold since January 1, 2014Discounted cash flowsProfit element and risk premium17%
Credit-adjusted risk-free rate18%

Asfollows, of December 31, 2016,which the significant unobservable inputs usedmonetary impact for change in discount rate is captured in “Other” in the fair value measurementtable above:
Percent Used
(Weighted Average)
Item Measured at Fair ValueValuation TechniqueDescription of Significant Unobservable InputJune 30,
2022		December 31,
2021
Warranty obligations for products sold since January 1, 2014Discounted cash flowsProfit element and risk premium16%15%
Credit-adjusted risk-free rate16%12%
Enphase Energy, Inc. | 2022 Form 10-Q | 19
Table of the Company’s liabilities designated as Level 3 are as follows:Contents
ENPHASE ENERGY, INC.
Item Measured at Fair ValueValuation TechniqueDescription of Significant Unobservable Input
Percent Used
(Weighted-Average)
Warranty obligations for microinverters sold since January 1, 2014Discounted cash flowsProfit element and risk premium17%
Credit-adjusted risk-free rate19%
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


Sensitivity of Level 3 Inputs
- Warranty Obligations
Each of the significant unobservable inputs is independent of the other. The profit element and risk premium are estimated based on requirements of a third-party participant willing to assume the Company’s warranty obligations. The credit-adjusted risk credit‑adjusted risk‑free rate (“discount rate”) is determined by reference to the Company’s own credit standing at the fair value measurement date. Increasing or decreasing the profit element and risk premium input by 100 basis points would not haveresult in a material impact on$0.6 million increase to the fair value measurementliability. Decreasing the profit element and risk premium by 100 basis points would result in a $0.6 million reduction of the liability. Increasing the discount rate by 100 basis points would result in a $0.5$2.5 million reduction of the liability. Decreasing the discount rate by 100 basis points would result in a $0.6$2.8 million increase to the liability.
9.    DEBT
5. GOODWILL AND INTANGIBLE ASSETS

The following table presents the details of the Company’s goodwill and purchased intangible assets as of September 30, 2017 and December 31, 2016 (in thousands):
 September 30, 2017 December 31, 2016
 Gross Accumulated Amortization Net Gross Accumulated Amortization Net
Goodwill$3,664
 $—
 $3,664
 $3,664
 $—
 $3,664
            
Other indefinite-lived intangibles$286
 $—
 $286
 $286
 $—
 $286
            
Intangible assets with finite lives:           
Patents and licensed technology$1,665
 $(1,360) $305
 $1,665
 $(1,006) $659
In July 2014, the Company purchased certain patents related to system interconnection and photovoltaic AC module construction. The patents are being amortized over their legal life of 3 years. In October 2015, the Company licensed certain technology related to ASIC development for a 3 year term, which is also its estimated useful life.
For the nine months ended September 30, 2017, amortization expense related to intangible assets was $0.4 million. As of September 30, 2017, estimated future amortization expense related to finite-lived intangible assets was as follows:
Year (In thousands)
2017 $76
2018 229
Total $305
6. RESTRUCTURING

In the third quarter of 2016, the Company began implementing restructuring actions to lower its operating expenses and cost of revenues. The restructuring actions have included reductions in the Company’s global workforce, the elimination of certain non-core projects, consolidation of office space at the Company’s corporate

headquarters and the engagement of management consultants to assist the Company in making organizational and structural changes to improve operational efficiencies and reduce expenses.
The following table presents the details of the Company’s restructuring charges for the periods indicated (in thousands):
 Three Months Ended September 30,Nine Months Ended
September 30,
 2017 20162017 2016
Employee severance and benefit arrangements$1,111
 $1,308
$2,826
 $1,308
Asset impairments—
 1,409
522
 1,409
Consultants engaged in restructuring activities3,100
 —
10,100
 —
Lease loss reserves and contract termination costs(140) —
1,479
 —
Total restructuring and asset impairment charges$4,071
 $2,717
$14,927
 $2,717
The following table provides information regarding changes in the Company’s accrued restructuring balancedebt:
June 30,
2022		December 31,
2021
(In thousands)
Convertible notes
Notes due 2028$575,000 $575,000 
Less: unamortized debt discount— (143,636)
Less: unamortized debt issuance costs(7,359)(5,775)
Carrying amount of Notes due 2028 (1)
567,641 425,589 
Notes due 2026632,500 632,500 
Less: unamortized debt discount— (104,755)
Less: unamortized debt issuance costs(7,312)(6,678)
Carrying amount of Notes due 2026 (1)
625,188 521,067 
Notes due 2025102,175 102,175 
Less: unamortized debt discount(12,447)(14,584)
Less: unamortized debt issuance costs(1,299)(1,539)
Carrying amount of Notes due 202588,429 86,052 
Notes due 20235,000 5,000 
Less: unamortized issuance costs(43)(62)
Carrying amount of Notes due 20234,957 4,938 
Total carrying amount of debt1,286,215 1,037,646 
Less: current portion of convertible notes(88,429)(86,052)
Debt, non-current$1,197,786 $951,594 
(1)    The net carrying amount was increased on January 1, 2022 as a result of the adoption of ASU 2020-06. Refer to Note 2, Summary of Significant Accounting Policies, in this Quarterly Report on Form 10-Q for the periods indicated (in thousands):further information.
Enphase Energy, Inc. | 2022 Form 10-Q | 20
 Employee Severance and Benefits Asset Impairments Lease Loss Reserves and Contractual Obligations Total
Balance at beginning of period as of December 31, 2016$198
 $—
 $484
 $682
Charges2,826
 522
 11,579
 14,927
Cash settlement(2,783) —
 (10,857) (13,640)
Non-cash settlement—
 (522) —
 (522)
Balance at end of period as of September 30, 2017$241
 $—
 $1,206
 $1,447
Table of Contents
ENPHASE ENERGY, INC.
7. DEBTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Revolving Credit Facility(Unaudited)
The Company had a $50.0 million revolving credit facility with Wells Fargo Bank, N.A. (“Wells Fargo”) that was entered into in November 2012, as first amended on February 14, 2014. Convertible Senior Notes due 2028
On December 18, 2015,March 1, 2021, the Company entered into an amended and restated revolving credit agreement with Wells Fargo (the “Revolver”) which extended the maturity date to November 7, 2019 and added an uncommitted accordion feature that could increase the size of the facility by $25.0issued $575.0 million subject to the satisfaction of certain conditions. The Revolver was fully repaid and terminated in February 2017.
Term Loan
In July 2016, the Company entered into a Term Loan Agreement (the “Original Term Loan”) with lenders that are affiliates of Tennenbaum Capital Partners, LLC. (the “Lenders”). Under the agreement, the Lenders committed to advance a term loan in an aggregate principal amount of upthe Notes due 2028. The Notes due 2028 will not bear regular interest, and the principal amount of the Notes due 2028 will not accrete. The Notes due 2028 are general unsecured obligations and are governed by an indenture between the Company and U.S. Bank National Association, as trustee. The Notes due 2028 will mature on March 1, 2028, unless earlier repurchased by the Company or converted at the option of the holders. The Company received approximately $566.4 million in net proceeds, after deducting the initial purchasers’ discount, from the issuance of the Notes due 2028.
The initial conversion rate for the Notes due 2028 is 3.5104 shares of common stock per $1,000 principal amount of the Notes due 2028 (which represents an initial conversion price of approximately $284.87 per share). The conversion rate for the Notes due 2028 will be subject to $25.0 millionadjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid special interest, if any. In addition, if a make-whole fundamental change or a redemption with arespect to the Notes due 2028 occurs prior to the maturity date, of July 1, 2020. The Company borrowedunder certain circumstances as specified in the entire $25.0 million of term loan commitments on the loan closing date. Monthly payments due through June 30, 2017 were interest only, followed by consecutive equal monthly payments of principal plus accrued interest that were to begin on July 1, 2017 and continue through the maturity date. The term loan provides for an interest rate per annum equal to the higher of (i) 10.25% or (ii) LIBOR plus 9.5625%, subject to a 1.0% reduction ifrelevant indenture, the Company achieves minimum levels of Revenue and EBITDA (each as defined inwill increase the Term Loan Agreement)conversion rate for the twelve-consecutive month period ending June 30, 2017 as set forthNotes due 2028 by a number of additional shares of the Company’s common stock for a holder that elects to convert its notes in the Term Loan Agreement. In addition,connection with such make-whole fundamental change or redemption. Upon conversion, the Company paid a commitment fee of 3.3%will settle conversions of the loan amount upon closingNotes due 2028 through payment or delivery, as the case may be, of cash, shares of its common stock or a combination of cash and a closing feeshares of 10.0% ofits common stock, at the loan amount is payable in four equal installments at each anniversary of the closing date. Company’s election.
The Company may electnot redeem the Notes due 2028 prior to prepaySeptember 6, 2024. The Company may redeem for cash all or any portion of the loan by incurring a prepayment fee between 1%Notes due 2028, at the Company’s election, on or after September 6, 2024, if the last reported sale price of the Company’s common stock has been greater than or equal to 130% of the conversion price then in effect for the Notes due 2028 (i.e. $370.33, which is 130% of the current conversion price for the Notes due 2028) for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and 3%including, the trading day immediately preceding the date on which the Company provides notice of redemption. The redemption price will equal 100% of the principal amount of the term loan dependingNotes due 2028 to be redeemed, plus accrued and unpaid special interest, if any to, but excluding, the relevant redemption date. No sinking fund is provided for the Notes due 2028.
The Notes due 2028 may be converted on any day prior to the close of business on the timingbusiness day immediately preceding September 1, 2027, in multiples of $1,000 principal amount, at the option of the holder only under any of the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and circumstancesincluding, the last trading day of prepayment.

In February 2017, the Company entered into an Amended and Restated Loan and Security Agreement (the “Loan Agreement”) that amended and restatedimmediately preceding calendar quarter is greater than or equal to 130% of the Original Term Loan. The Loan Agreement providesconversion price for a $25.0 million secured term loan to the Company (the “New Term Loan”)Notes due 2028 (i.e., $370.33 which is in addition to the $25.0 million secured term loan borrowed by the Company under the Original Term Loan (together with the “New Term Loan” the “Term Loans”). The New Term Loan has the same July 1, 2020 maturity date that was applicable to the Original Term Loan. The New Term Loan was fully drawn at closing, with approximately $10.3 million130% of the proceeds used to repay existing combined principal and interestcurrent conversion price for the Notes due under2028) on each applicable trading day; (2) during the Company’s Revolver with Wells Fargo. Uponfive business day period after any 5 consecutive trading day period (the “Measurement Period”) in which the repayment of loans under the Wells Fargo Revolver, the Wells Fargo Revolving Credit Agreement was terminated. The Company expects to use the remainder of the proceeds from the New Term Loan for general corporate purposes.
Monthly payments under the Term Loans through February 28, 2018 are interest only, followed by consecutive equal monthly payments of principal plus accrued interest beginning on March 1, 2018 and continuing through the maturity date; provided, however, that the Company may extend the interest only period on a month to month basis up to February 28, 2019 if no Event of Default“trading price” (as defined in the Loan Agreement) has occurred and is continuingrelevant indenture) per $1,000 principal amount of notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for the Notes due 2028 on each such trading day; (3) if the Company has Consolidated Operating Incomecalls any or all of the Notes due 2028 for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On and after September 1, 2027 until the close of business on the second scheduled trading day immediately preceding the maturity date of March 1, 2028, holders of the Notes due 2028 may convert their notes at any time, regardless of the foregoing circumstances. Upon the occurrence of a fundamental change (as defined in the Loan Agreement)relevant indenture), holders may require the Company to repurchase all or a portion of their Notes due 2028 for the calendar year 2017 and each month thereafter oncash at a trailing twelve consecutive month basis of at least $15.0 million (collectively, the “Accommodation Conditions”). The Term Loans provide for an interest rate per annumprice equal to the greater of (i) 10.3125% and (ii) LIBOR plus 9.25%, subject to a 1.0% reduction if and for so long as the Accommodation Conditions have been met. In addition, the Company paid a commitment fee of 3.0% of the New Term Loan amount upon closing and a closing fee of 4.0% of the New Term Loan amount, which is payable with the closing fee under the Original Term Loan in four equal installments at each anniversary of the closing date of the Original Loan Agreement. The Company may elect to prepay the Term Loans by incurring a prepayment fee between 1% and 3%100% of the principal amount of the Term Loans dependingnotes to be repurchased plus any accrued and unpaid special interest, if any, to, but excluding, the fundamental change repurchase date.
In accounting for the issuance of the Notes due 2028 on March 1, 2021, the Company separated the Notes due 2028 into liability and equity components. The carrying amount of the liability component of approximately $415.0 million was calculated by using a discount rate of 4.77%, which was the Company’s borrowing rate on the timing and circumstances of prepayment.
The Term Loans are secured by a first-priority security interest on substantially all assetsdate of the Company; provided, however that the security interest in the Company’s intellectual property may be released if the Company satisfies certain requirements. The Company’s obligations under the Term Loans are not guaranteed by anyissuance of the Company’s existing subsidiaries, nor have any existing subsidiariesNotes due 2028 for a similar debt instrument without the conversion feature. The carrying amount of the Company pledged anyequity component of their assets to secureapproximately $160.0 million, representing the Term Loans.
The Loan Agreement requires that (i) at all times from the closing date to and including March 31, 2018, the Company, and any future guarantors, have Unrestricted Cash (as defined in the Loan Agreement)
Enphase Energy, Inc. | 2022 Form 10-Q | 21
Table of at least $10.0 million; (ii) at all times from the closing date to and including March 31, 2018, that the aggregate amount of Consolidated Unrestricted Cash, plus the value of Consolidated Receivables, plus the value of Consolidated Inventory (each as defined in the Loan Agreement) dividedContents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
conversion option, was determined by the outstanding principal amount of Term Loans, shall equal or exceed 1.5; and (iii) at all times from April 1, 2018 and thereafter, that the aggregate amount of Consolidated Unrestricted Cash, plus the value of Consolidated Receivables, plus the value of Consolidated Inventory divided by the outstanding principal amount of Term Loans, shall equal or exceed 1.75. In addition, the Loan Agreement is subject to customary affirmative and negative covenants including restrictions on creation of liens, dispositions of assets, mergers, changing the nature of its business and dividends and other distributions, in each case subject to certain exceptions. The Term Loan Agreement also contains certain customary events of default including, but not limited to, failure to pay interest, principal and fees or other amounts when due, material breach of any representation or warranty, covenant defaults, cross defaults to other material indebtedness, events of bankruptcy and the occurrence of a material adverse change (as defined in the agreement) to the Company’s business. The Term Loan Agreement offers TCP typical rights and remedies in any event of default, including the ability to declare all amounts outstanding immediately due and payable. The Company was in compliance with all financial covenants as of September 30, 2017.
In connection with the New Term Loan, the Company issued to the Lenders warrants to purchase an aggregate 1,220,000 shares of the Company’s Common Stock at an exercise price of $1.05 per share. The warrants have a term of seven years and contain a “cashless exercise” feature that allows the holder to exercise the warrant without a cash payment upon the terms set forth therein.
The Company estimateddeducting the fair value of the warrants byliability component from the par value of the Notes due 2028. The equity component of the Notes due 2028 was included in additional paid-in capital in the condensed consolidated balance sheet through December 31, 2021 and was not remeasured. The difference between the principal amount of the Notes due 2028 and the liability component (the “debt discount”) was amortized to interest expense using the Black-Scholes approacheffective interest method over the term of the Notes due 2028 through December 31, 2021.
Through December 31, 2021, the Company separated the Notes due 2028 into liability and equity components which resulted in a tax basis difference associated with the following assumptions: stock priceliability component that represents a temporary difference. The Company recognized the deferred taxes of $1.56; strike price$40.1 million for the tax effect of $1.05; volatilitythat temporary difference as an adjustment to the equity component included in additional paid-in capital in the condensed consolidated balance sheet.
Debt issuance costs for the issuance of 85.9%, risk-free ratethe Notes due 2028 were approximately $9.1 million, consisting of 2.23%; dividend yield of 0%;initial purchasers' discount and a 7 year term. The resulting fair value was usedother issuance costs. In accounting for the transaction costs, the Company allocated the total amount incurred to allocatethe liability and equity components using the same proportions as the proceeds from the Term Loan between liability and equity components.

The Company classified the warrants as equity and allocated the proceeds from the Term Loan and warrants using the relative fair value method. Using this method, the Company allocated $1.4 millionNotes due 2028. Transaction costs attributable to the warrants,liability component were approximately $6.6 million, which waswere recorded as equity. This amount represents debt discount that will beissuance cost (presented as contra debt in the condensed consolidated balance sheet) and are being amortized to interest expense over the term of the loan.Notes due 2028. The transaction costs attributable to the equity component were approximately $2.5 million and were netted with the equity component in stockholders’ equity.

Long-termFollowing the adoption of ASU 2020-06 as of January 1, 2022, the Company no longer records the conversion feature of Notes due 2028 in equity. Instead, the Company combined the previously separated equity component with the liability component, which together is now classified as debt, was comprisedthereby eliminating the subsequent amortization of the following at September 30, 2017debt discount as interest expense. Similarly, the portion of issuance costs previously allocated to equity was reclassified to the carrying amount of Notes due 2028 and December 31, 2016 (in thousands):
 September 30,
2017		 December 31,
2016
Term loan$50,000
 $25,000
Less unamortized discount and issuance costs(2,390) (1,200)
Carrying amount of debt47,610
 23,800
Less current portion(10,552) (3,032)
Long-term debt$37,058
 $20,768
is amortized over the remaining term of the notes. Accordingly, the Company recorded a net decrease to additional paid-in capital by approximately $117.3 million, net of tax to remove the equity component separately recorded for the conversion features associated with the Notes due 2028 and equity component associated with the issuance costs, an increase of approximately $141.3 million in the carrying value of Notes due 2028 to reflect the full principal amount of the Notes due 2028, net of issuance costs, a decrease to deferred tax liability of approximately $36.0 million, and a decrease to accumulated deficit of approximately $12.0 million, net of tax in the Company’s consolidated balance sheet with no impact on the Company’s consolidated statements of operations. As of SeptemberJune 30, 2017,2022, the unamortized deferred issuance cost for the Notes due 2028 was $7.4 million on the condensed consolidated balance sheet.
The following table presents the total amount of scheduledinterest cost recognized in the statement of operations relating to the Notes due 2028:
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
(In thousands)
Amortization of debt discount$— $4,872 $— $6,483 
Amortization of debt issuance costs327 236 643 315 
Total interest cost recognized$327 $5,108 $643 $6,798 
Notes due 2028 Hedge and Warrant Transactions
In connection with the offering of the Notes due 2028, the Company entered into privately-negotiated convertible note hedge transactions (“Notes due 2028 Hedge”) pursuant to which the Company has the option to purchase a total of approximately 2.0 million shares of its common stock (subject to anti-dilution adjustments), which is the same number of shares initially issuable upon conversion of the Notes due 2028, at a price of $284.87 per share, which is the initial conversion price of the Notes due 2028. The total cost of the convertible note hedge transactions was approximately $161.6 million. The convertible note hedge transactions are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of the Notes due 2028 and/or offset
Enphase Energy, Inc. | 2022 Form 10-Q | 22
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
any cash payments the Company is required to make in excess of the principal payments dueamount of converted notes, as the case may be.
Additionally, the Company separately entered into privately-negotiated warrant transactions (the “2028 Warrants”) whereby the Company sold warrants to acquire approximately 2.0 million shares of the Company’s common stock (subject to anti-dilution adjustments) at an initial strike price of $397.91 per share. The Company received aggregate proceeds of approximately $123.4 million from the sale of the 2028 Warrants. If the market value per share of the Company’s common stock, as measured under the 2028 Warrants, exceeds the strike price of the 2028 Warrants, the 2028 Warrants will have a dilutive effect on the term loanCompany’s earnings per share, unless the Company elects, subject to certain conditions, to settle the 2028 Warrants in cash. Taken together, the purchase of the Notes due 2028 Hedge and the sale of the 2028 Warrants are intended to reduce potential dilution from the conversion of the Notes due 2028 and to effectively increase the overall conversion price from $284.87 to $397.91 per share. The 2028 Warrants are only exercisable on the applicable expiration dates in accordance with the Notes due 2028 Hedge. Subject to the other terms of the 2028 Warrants, the first expiration date applicable to the Notes due 2028 Hedge is June 1, 2028, and the final expiration date applicable to the Notes due 2028 Hedge is July 27, 2028.
Given that the transactions meet certain accounting criteria, the Notes due 2028 Hedge and the 2028 Warrants transactions are recorded in stockholders’ equity, and they are not accounted for as follows (in thousands):derivatives and are not remeasured each reporting period.
Convertible Senior Notes due 2026
Year Amounts
2017 $—
2018 15,229
2019 20,084
2020 14,687
Total $50,000
On March 1, 2021, the Company issued $575.0 million aggregate principal amount of the Notes due 2026. In addition, on March 12, 2021, the Company issued an additional $57.5 million aggregate principal amount of the Notes due 2026 pursuant to the initial purchasers’ full exercise of the over-allotment option for additional Notes due 2026. The Notes due 2026 will not bear regular interest, and the principal amount of the Notes due 2026 will not accrete. The Notes due 2026 are general unsecured obligations and are governed by an indenture between the Company and U.S. Bank National Association, as trustee. The Notes due 2026 will mature on March 1, 2026, unless earlier repurchased by the Company or converted at the option of the holders. The Company received approximately $623.0 million in net proceeds, after deducting the initial purchasers’ discount, from the issuance of the Notes due 2026.
8. COMMITMENTS AND CONTINGENCIESThe initial conversion rate for the Notes due 2026 is 3.2523 shares of common stock per $1,000 principal amount of the Notes due 2026 (which represents an initial conversion price of approximately $307.47 per share). The conversion rate for the Notes due 2026 will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest. In addition, if a make-whole fundamental change or a redemption with respect to the Notes due 2026 occurs prior to the maturity date, under certain circumstances as specified in the relevant indenture, the Company will increase the conversion rate for the Notes due 2026 by a number of additional shares of the Company’s common stock for a holder that elects to convert its notes in connection with such make-whole fundamental change or redemption. Upon conversion, the Company will settle conversions of Notes due 2026 through payment or delivery, as the case may be, of cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election.
The Company may not redeem the Notes due 2026 prior to the September 6, 2023. The Company may redeem for cash all or any portion of the Notes due 2026, at the Company’s election, on or after September 6, 2023, if the last reported sale price of the Company’s common stock has been greater than or equal to 130% of the conversion price then in effect for the Notes due 2026 (i.e., $399.71, which is 130% of the current conversion price for the Notes due 2026) for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. The redemption price will equal 100% of the principal amount of the Notes due 2026 to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the relevant redemption date for the Notes due 2026. The redemption price will be increased as described in the relevant indentures by a number of additional shares of the Company in connection with such optional redemption by the Company. No sinking fund is provided for the Notes due 2026.
The Notes due 2026 may be converted on any day prior to the close of business on the business day immediately preceding September 1, 2025, in multiples of $1,000 principal amount, at the option of the holder only
Enphase Energy, Inc. | 2022 Form 10-Q | 23
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
under any of the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price of the Notes due 2026 (i.e., $399.71, which is 130% of the current conversion price for the Notes due 2026) on each applicable trading day; (2) during the five business day period after any 5 consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the relevant indenture) per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for Notes due 2026 on each such trading day; (3) if the Company calls any or all of the Notes due 2026 for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On and after September 1, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date of March 1, 2026, holders of the Notes due 2026 may convert their notes at any time, regardless of the foregoing circumstances. Upon the occurrence of a fundamental change (as defined in the relevant indenture), holders may require the Company to repurchase all or a portion of their Notes due 2026 for cash at a price equal to 100% of the principal amount of the notes to be repurchased plus any accrued and unpaid special interest, if any, to, but excluding, the fundamental change repurchase date.
In accounting for the issuance of the Notes due 2026 on March 1, 2021, the Company separated the Notes due 2026 into liability and equity components. The carrying amount of the liability component of approximately $509.0 million was calculated by using a discount rate of 4.44%, which was the Company’s borrowing rate on the date of the issuance of the Notes due 2026 for a similar debt instrument without the conversion feature. The carrying amount of the equity component of approximately $123.5 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the Notes due 2026. The equity component of the Notes due 2026 was included in additional paid-in capital in the condensed consolidated balance sheet through December 31, 2021 and was not remeasured. The difference between the principal amount of the Notes due 2026 and the liability component (the “debt discount”) was amortized to interest expense using the effective interest method over the term of the Notes due 2026 through December 31, 2021.
Through December 31, 2021, the Company separated the Notes due 2026 into liability and equity components which resulted in a tax basis difference associated with the liability component that represents a temporary difference. The Company recognized the deferred taxes of $31.0 million for the tax effect of that temporary difference as an adjustment to the equity component included in additional paid-in capital in the condensed consolidated balance sheet.
Debt issuance costs for the issuance of the Notes due 2026 were approximately $10.0 million, consisting of initial purchasers' discount and other issuance costs. In accounting for the transaction costs, the Company allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds from the Notes due 2026. Transaction costs attributable to the liability component were approximately $8.0 million, which were recorded as debt issuance cost (presented as contra debt in the condensed consolidated balance sheet) and are being amortized to interest expense over the term of the Notes due 2026. The transaction costs attributable to the equity component were approximately $2.0 million and were netted with the equity component in stockholders’ equity.
Following the adoption of ASU 2020-06 as of January 1, 2022, the Company no longer records the conversion feature of Notes due 2026 in equity. Instead, the Company combined the previously separated equity component with the liability component, which together is now classified as debt, thereby eliminating the subsequent amortization of the debt discount. Similarly, the portion of issuance costs previously allocated to equity was reclassified to the carrying amount debt and is amortized over the remaining term of the notes. Accordingly, the Company recorded a net decrease to additional paid-in capital by approximately $90.6 million, net of tax to remove the equity component separately recorded for the conversion features associated with the Notes due 2026 and equity component associated with the issuance costs, an increase of approximately $103.2 million in the carrying value of its Notes due 2026 to reflect the full principal amount of the Notes due 2026 outstanding net of issuance costs, a decrease to deferred tax liability of approximately $26.3 million, and a decrease to accumulated deficit of
Enphase Energy, Inc. | 2022 Form 10-Q | 24
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
approximately $13.7 million, net of tax in the Company’s consolidated balance sheet with no impact on the Company’s consolidated statements of operations. As of June 30, 2022, the unamortized deferred issuance cost for the Notes due 2026 was $7.3 million on the condensed consolidated balance sheet.
The following table presents the total amount of interest cost recognized in the statement of operations relating to the Notes due 2026:
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
(In thousands)
Amortization of debt discount$— $5,587 $— $7,373 
Amortization of debt issuance costs502 404 987 539 
Total interest cost recognized$502 $5,991 $987 $7,912 
Notes due 2026 Hedge and Warrant Transactions
In connection with the offering of the Notes due 2026 (including in connection with the issuance of additional Notes due 2026 upon the initial purchasers’ exercise of their over-allotment option), the Company entered into privately-negotiated convertible note hedge transactions (the “Notes due 2026 Hedge”) pursuant to which the Company has the option to purchase a total of approximately 2.1 million shares of its common stock (subject to anti-dilution adjustments), which is the same number of shares initially issuable upon conversion of the Notes due 2026, at a price of $307.47 per share, which is the initial conversion price of the Notes due 2026. The total cost of the Notes due 2026 Hedge was approximately $124.6 million. The Notes due 2026 Hedge are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of the Notes due 2026 and/or offset any cash payments the Company is required to make in excess of the principal amount of converted notes, as the case may be.
Additionally, the Company separately entered into privately-negotiated warrant transactions, including in connection with the issuance of additional Notes due 2026 upon the initial purchasers’ exercise of their over-allotment option (the “2026 Warrants”), whereby the Company sold warrants to acquire approximately 2.1 million shares of the Company’s common stock (subject to anti-dilution adjustments) at an initial strike price of $397.91 per share. The Company received aggregate proceeds of approximately $97.4 million from the sale of the 2026 Warrants. If the market value per share of the Company’s common stock, as measured under the 2026 Warrants, exceeds the strike price of the 2026 Warrants, the 2026 Warrants will have a dilutive effect on the Company’s earnings per share, unless the Company elects, subject to certain conditions, to settle the 2026 Warrants in cash. Taken together, the purchase of the Notes due 2026 Hedge and the sale of the 2026 Warrants are intended to reduce potential dilution from the conversion of the Notes due 2026 and to effectively increase the overall conversion price from $307.47 to $397.91 per share. The 2026 Warrants are only exercisable on the applicable expiration dates in accordance with the 2026 Warrants. Subject to the other terms of the 2026 Warrants, the first expiration date applicable to the Warrants is June 1, 2026, and the final expiration date applicable to the 2026 Warrants is July 27, 2026.
Given that the transactions meet certain accounting criteria, the Notes due 2026 hedge and the 2026 Warrants transactions are recorded in stockholders’ equity, and they are not accounted for as derivatives and are not remeasured each reporting period.
Enphase Energy, Inc. | 2022 Form 10-Q | 25
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Convertible Senior Notes due 2025
On March 9, 2020, the Company issued $320.0 million Notes due 2025. The Notes due 2025 are general unsecured obligations and bear interest at an annual rate of 0.25% per year, payable semi-annually on March 1 and September 1 of each year, beginning September 1, 2020. The Notes due 2025 are governed by an indenture between the Company and U.S. Bank National Association, as trustee. The Notes due 2025 will mature on March 1, 2025, unless earlier repurchased by the Company or converted at the option of the holders. The Company may not redeem the notes prior to the maturity date, and no sinking fund is provided for the notes. The Notes due 2025 may be converted, under certain circumstances as described below, based on an initial conversion rate of 12.2637 shares of common stock per $1,000 principal amount (which represents an initial conversion price of $81.54 per share). The conversion rate for the Notes due 2025 will be subject to legal proceedings arisingadjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest. In addition, upon the occurrence of a make-whole fundamental change (as defined in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty,relevant indenture), the Company currently doeswill, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its notes in connection with such make-whole fundamental change. The Company received approximately $313.0 million in net proceeds, after deducting the initial purchasers’ discount, from the issuance of the Notes due 2025.
The Notes due 2025 may be converted prior to the close of business on the business day immediately preceding September 1, 2024, in multiples of $1,000 principal amount, at the option of the holder only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2020 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not believeconsecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any 5 consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the relevant indenture) per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On and after September 1, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date of March 1, 2025, holders may convert their notes at any time, regardless of the foregoing circumstances. Upon the occurrence of a fundamental change (as defined in the relevant indenture), holders may require the Company to repurchase all or a portion of their Notes due 2025 for cash at a price equal to 100% of the principal amount of the notes to be repurchased plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
As of June 30, 2022 and December 31, 2021, the sale price of the Company’s common stock was greater than or equal to $106.00 (130% of the notes conversion price) for at least 20 trading days (whether consecutive or not) during a period of 30 consecutive trading days preceding the quarter-ended June 30, 2022 and December 31, 2021. As a result, as of July 1, 2022, the Notes due 2025 are convertible at the holders’ option through September 30, 2022. Accordingly, the Company classified the net carrying amount of the Notes due 2025 of $88.4 million and $86.1 million as Debt, current on the condensed consolidated balance sheet as of June 30, 2022 and December 31, 2021, respectively. From July 1, 2022 through the date this Quarterly Report on Form 10-Q is available to be issued, the Company has not received any requests for conversion of the Notes due 2025.
For the period from March 9, 2020, the issuance date, through May 19, 2020, the number of authorized and unissued shares of the Company’s common stock that are not reserved for other purposes was less than the maximum number of underlying shares that would be required to settle the Notes due 2025 into equity. Accordingly, unless and until the Company had a number of authorized shares that were not issued or reserved for any other purpose that equaled or exceeded the maximum number of underlying shares (the “Share Reservation Condition”), the Company would have been required to pay to the converting holder in respect of each $1,000 principal amount of notes being converted solely in cash in an amount equal to the sum of the daily conversion values for each of the 20 consecutive trading days during the related observation period. However, following satisfaction of the Share Reservation Condition, the Company could settle conversions of notes through payment or delivery, as the case may be, of cash, shares of the Company’s common stock or a combination of cash and shares of its common stock, at the Company’s election. As further discussed below, the Company satisfied the Share Reservation Condition during May 2020.
Enphase Energy, Inc. | 2022 Form 10-Q | 26
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In accounting for the issuance of the Notes due 2025, on March 9, 2020, the conversion option of the Notes due 2025 was deemed an embedded derivative requiring bifurcation from the Notes due 2025 (the “host contract”) and separate accounting as an embedded derivative liability, as a result of the Company not having the necessary number of authorized but unissued shares of its common stock available to settle the conversion option of the Notes due 2025 in shares. The proceeds from the Notes due 2025 were first allocated to the embedded derivative liability and the remaining proceeds were then allocated to the host contract. On March 9, 2020, the carrying amount of the embedded derivative liability of $68.7 million representing the conversion option was determined using the Binomial Lattice model and the remaining $251.3 million was allocated to the host contract. The difference between the principal amount of the Notes due 2025 and the fair value of the host contract (the “debt discount”) is amortized to interest expense using the effective interest method over the term of the Notes due 2025.
On May 20, 2020, at the Company’s annual meeting of stockholders, the stockholders approved an amendment to the Amended and Restated Certificate of Incorporation to increase the number of authorized shares of the Company’s common stock, par value $0.00001 per share, from 150,000,000 shares to 200,000,000 shares (the “Amendment”). The Amendment became effective upon filing with the Secretary of State of Delaware on May 20, 2020. As a result, the Company satisfied the Share Reservation Condition. The Company may now settle the Notes due 2025 and warrants issued in conjunction with the Notes due 2025 (the “2025 Warrants”) through payment or delivery, as the case may be, of cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. Accordingly, on May 20, 2020, the embedded derivative liability was remeasured at a fair value of $116.3 million and was then reclassified to additional paid-in-capital in the condensed consolidated balance sheet in the second quarter of 2020 and is no longer remeasured as long as it continues to meet the conditions for equity classification. The Company recorded the change in the fair value of the embedded derivative in other expense, net in the condensed consolidated statement of operations during the year ended December 31, 2020.
The Company separated the Notes due 2025 into liability and equity components which resulted in a tax basis difference associated with the liability component that represents a temporary difference. The Company recognized the deferred taxes of $0.2 million for the tax effect of that temporary difference as an adjustment to the equity component included in additional paid-in capital in the condensed consolidated balance sheet.
Debt issuance costs for the issuance of the Notes due 2025 were approximately $7.6 million, consisting of initial purchasers' discount and other issuance costs. In accounting for the transaction costs, the Company allocated the total amount incurred to the Notes due 2025 host contract. Transaction costs were recorded as debt issuance cost (presented as contra debt in the condensed consolidated balance sheet) and are being amortized to interest expense over the term of the Notes due 2025.
Partial repurchase of Notes due 2025
Concurrently with the offering of the Notes due 2026 and Notes due 2028, the Company entered into separately- and privately-negotiated transactions to repurchase approximately $217.7 million aggregate principal amount of the Notes due 2025. The Company paid $217.7 million in cash and issued approximately 1.67 million shares of its common stock to the holders of the repurchased notes with an aggregate fair value of $302.7 million, representing the conversion value in excess of the principal amount of the Notes due 2025, which were fully offset by shares received from the Company’s settlement of the associated note hedging arrangements discussed below. The total amount of $217.7 million paid to partially settle the repurchases of the Notes due 2025 was allocated between the liability and equity components of the amount extinguished by determining the fair value of the liability component immediately prior to the note repurchases and allocating that portion of the conversion price to the liability component in the amount of $184.5 million. The residual of the conversion price of $4.3 million of the repurchased Notes due 2025, net of inducement loss of $37.5 million for additional shares issued, was allocated to the equity component of the repurchased Notes due 2025 as an increase of additional paid-in capital. The fair value of the note settlement for such repurchases was calculated using a discount rate of 4.35%, representing an estimate of the Company's borrowing rate at the date of repurchase with a remaining expected life of approximately 4.1 years. As part of the settlement of the repurchase of the Notes due 2025, the Company wrote-off the $38.5 million unamortized debt discount and $4.1 million debt issuance cost apportioned to the principal amount of Notes due 2025 repurchased. The Company recorded a loss on partial settlement of the repurchased Notes due 2025 of $9.4 million in Other income (expense), net in the six months ended June 30, 2021, representing the difference between the consideration attributed to the liability component and the sum of the net carrying amount of the liability
Enphase Energy, Inc. | 2022 Form 10-Q | 27
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
component and unamortized debt issuance costs. Further, the Company also recorded loss on inducement of $37.5 million in Other income (expense), net in the six months ended June 30, 2021, representing the difference between the fair value of the shares that would have been issued under the original conversion terms with respect to the repurchased Notes due 2025.
During the second quarter of 2021, $0.1 million in aggregate principal amount of the Notes due 2025 were converted, and the principal amount of the converted Notes due 2025 was repaid in cash. In connection with such conversions during the second quarter of 2021, the Company also issued 485 shares of its common stock to the holders of the converted Notes due 2025, with an aggregate fair value of $0.1 million, representing the conversion value in excess of the principal amount of the Notes due 2025, which were fully offset by shares received from the settlements of the associated note hedging arrangements. Following the repurchase transactions summarized above, as of June 30, 2022, $102.2 million aggregate principal amount of the Notes due 2025 remained outstanding.
The following table presents the total amount of interest cost recognized relating to the Notes due 2025:

Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
(In thousands)
Contractual interest expense$64 $64 $128 $214 
Amortization of debt discount1,088 1,033 2,137 3,422 
Amortization of debt issuance costs123 122 241 416 
Total interest cost recognized$1,275 $1,219 $2,506 $4,052 
The derived effective interest rate on the Notes due 2025 host contract was determined to be 5.18%, which remains unchanged from the date of issuance. The remaining unamortized debt discount was $12.4 million as of June 30, 2022, and will be amortized over approximately 2.7 years from June 30, 2022.
Notes due 2025 Hedge and Warrant Transactions
In connection with the offering of the Notes due 2025, the Company entered into privately-negotiated convertible note hedge transactions (the “Notes due 2025 Hedge”) pursuant to which the Company has the option to purchase a total of approximately 3.9 million shares of its common stock (subject to anti-dilution adjustments), which is the same number of shares initially issuable upon conversion of the notes, at a price of $81.54 per share, which is the initial conversion price of the Notes due 2025. The total cost of the convertible note hedge transactions was approximately $89.1 million. The convertible note hedge transactions are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of the Notes due 2025 and/or offset any cash payments the Company is required to make in excess of the principal amount of converted notes, as the case may be.
Additionally, the Company separately entered into privately-negotiated warrant transactions in connection with the offering of the Notes due 2025 whereby the Company sold the 2025 Warrants to acquire approximately 3.9 million shares of the Company’s common stock (subject to anti-dilution adjustments) at an initial strike price of $106.94 per share. The Company received aggregate proceeds of approximately $71.6 million from the sale of the 2025 Warrants. If the market value per share of the Company’s common stock, as measured under the 2025 Warrants, exceeds the strike price of the 2025 Warrants, the 2025 Warrants will have a dilutive effect on the Company’s earnings per share, unless the Company elects, subject to certain conditions, to settle the 2025 Warrants in cash. Taken together, the purchase of the convertible note hedges in connection with the Notes due 2025 Hedge and the sale of the 2025 Warrants are intended to reduce potential dilution from the conversion of the Notes due 2025 and to effectively increase the overall conversion price from $81.54 to $106.94 per share. The 2025 Warrants are only exercisable on the applicable expiration dates in accordance with the agreements relating to each of the 2025 Warrants. Subject to the other terms of the 2025 Warrants, the first expiration date applicable to the 2025 Warrants is June 1, 2025, and the final outcomeexpiration date applicable to the 2025 Warrants is September 23, 2025.
Enphase Energy, Inc. | 2022 Form 10-Q | 28
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During the first quarter of 2021, in connection with the repurchase of $217.7 million aggregate principal amount of the Notes due 2025 summarized above, the Company entered into partial unwind agreements with respect to certain of the Notes due 2025 Hedge and the 2025 Warrants. In connection with these unwind transactions, the Company received shares of the Company’s common stock as a termination payment for the portion of the Notes due 2025 Hedge that were unwound, and the Company issued shares of its common stock as a termination payment for the portion of the 2025 Warrants that were unwound. As a result of the unwind agreements for the Notes due 2025 Hedge and the 2025 Warrants, the Company received 1.9 million of the Company’s common stock from the Notes due 2025 Hedge settlement and issued 1.8 million of the Company’s common stock from the 2025 Warrants that were unwound. Following the unwind transactions summarized above, as of June 30, 2022, options to purchase approximately 1.3 million shares of common stock remained outstanding under the Notes due 2025 Hedge, and 2025 Warrants exercisable to purchase approximately 1.3 million shares remained outstanding.
For the period from March 9, 2020, the issuance date of the Notes due 2025 Hedge and 2025 Warrants, through May 19, 2020, the number of authorized and unissued shares of the Company’s common stock that are not reserved for other purposes was less than the maximum number of underlying shares that will be required to settle the Notes due 2025 through the delivery of shares of the Company’s common stock. Accordingly, the Notes due 2025 Hedge and 2025 Warrants could only be settled on net cash settlement basis. As a result, the Notes due 2025 Hedge and 2025 Warrants were classified as a Convertible notes hedge asset and 2025 Warrants liability, respectively, in the condensed consolidated balance sheet and the change in fair value of derivatives was included in other expense, net in the condensed consolidated statement of operations.
On May 20, 2020, at the Company’s annual meeting of stockholders, the stockholders approved the Amendment and satisfied the Share Reservation Condition (as discussed above), and as a result, the Convertible notes hedge asset and the 2025 Warrants liabilities were remeasured at a fair value of $117.1 million and $96.4 million, respectively, and were then reclassified to additional paid-in-capital in the condensed consolidated balance sheet in the second quarter of 2020 and is no longer remeasured as long as they continue to meet the conditions for equity classification. The change in the fair value of the Convertible notes hedge asset and the 2025 Warrants liability were recorded in other expense, net in the condensed consolidated statements of operations during the six months ended June 30, 2021.
Convertible Senior Notes due 2023
In August 2018, the Company sold $65.0 million aggregate principal amount of 4.0% convertible senior notes due 2023 (the “Notes due 2023”) in a private placement. On May 30, 2019, the Company entered into separately and privately-negotiated transactions with certain holders of the Notes due 2023 resulting in the repurchase and exchange, as of June 5, 2019, of $60.0 million aggregate principal amount of the notes in consideration for the issuance of 10,801,080 shares of common stock and separate cash payments totaling $6.0 million. As of both June 30, 2022 and December 31, 2021, $5.0 million aggregate principal amount of the Notes due 2023 remained outstanding.
The remaining outstanding Notes due 2023 are general unsecured obligations and bear interest at a rate of 4.0% per year, payable semi-annually on February 1 and August 1 of each year. The Notes due 2023 are governed by an indenture between the Company and U.S. Bank National Association, as trustee. The remaining outstanding Notes due 2023 will mature on August 1, 2023, unless earlier repurchased by the Company or converted at the option of the holders. The Company may not redeem the remaining Notes due 2023 prior to the maturity date, and no sinking fund is provided for such notes. The remaining Notes due 2023 are convertible, at a holder’s election, in multiples of $1,000 principal amount, into shares of the Company’s common stock based on the applicable conversion rate. The initial conversion rate for such notes is 180.018 shares of common stock per $1,000 principal amount of notes (which is equivalent to an initial conversion price of approximately $5.56 per share). The conversion rate and the corresponding conversion price are subject to adjustment upon the occurrence of certain events but will not be adjusted for any such matters willaccrued and unpaid interest. Holders of the remaining Notes due 2023 who convert their notes in connection with a make-whole fundamental change (as defined in the applicable indenture) are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a fundamental change, holders of the remaining Notes due 2023 may require the Company to repurchase all or a portion of their notes at a price equal to 100% of the principal amount of notes, plus any accrued and unpaid interest, including any additional interest to, but excluding, the repurchase date. Holders may convert all or any
Enphase Energy, Inc. | 2022 Form 10-Q | 29
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
portion of their Notes due 2023 at their option at any time prior to the close of business on the business day immediately preceding the maturity date, in multiples of $1,000 principal amount.
The following table presents the amount of interest cost recognized relating to the contractual interest coupon and the amortization of debt issuance costs of the Notes due 2023:
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
(In thousands)
Contractual interest expense$50 $50 $100 $100 
Amortization of debt issuance costs10 10 20 20 
Total interest costs recognized$60 $60 $120 $120 
10.    COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office facilities under noncancelable operating leases that expire on various dates through 2032, some of which may include options to extend the leases for up to 12 years.
The components of lease expense are presented as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
(In thousands)
Operating lease costs$2,052 $1,815 $3,989 $3,446 
The components of lease liabilities are presented as follows:
June 30,
2022		December 31,
2021
(In thousands except years and percentage data)
Operating lease liabilities, current (Accrued liabilities)
$3,804 $3,830 
Operating lease liabilities, non-current (Other liabilities)16,181 11,920 
Total operating lease liabilities$19,985 $15,750 
Supplemental lease information:
Weighted average remaining lease term5.8 years5.9 years
Weighted average discount rate6.3%7.4%
Supplemental cash flow and other information related to operating leases, are as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$1,325 $1,425 $2,843 $2,786 
Non-cash investing activities:
Lease liabilities arising from obtaining right-of-use assets$— $— $6,742 $— 
Enphase Energy, Inc. | 2022 Form 10-Q | 30
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Undiscounted cash flows of operating lease liabilities as of June 30, 2022 are as follows:
Lease Amounts
(In thousands)
Year:
2022 (remaining six months)$2,417 
20235,141 
20244,281 
20253,577 
20262,618 
Thereafter5,825 
Total lease payments23,859 
Less: imputed lease interest(3,874)
Total lease liabilities$19,985 
Purchase Obligations
The Company has contractual obligations related to component inventory that its contract manufacturers procure on its behalf in accordance with its production forecast as well as other inventory related purchase commitments. As of June 30, 2022, these purchase obligations totaled approximately $439.4 million.
Litigation
From time-to-time, the Company may be involved in litigation relating to claims arising out of its operations, the ultimate disposition of which could have a material adverse effect on the Company’s business,its operations, financial position, results of operationscondition or cash flows.
9. SALE OF COMMON STOCK

In January 2017, The Company is not currently involved in any material legal proceedings; however, the Company completed a private placement of securities that resultedmay be involved in material legal proceedings in the issuance of approximately 10.8 million shares of common stockfuture. Such matters are subject to uncertainty and gross proceeds of $10.0 million.
In December of 2016, the Company entered into an At Market Issuance Sales Agreement (ATM) under which it could sell shares of its common stock up to a gross aggregate offering price of $17.0 million. During the three months ended March 31, 2017 the Company sold approximately 11.1 million shares of common stock under the ATM and received net proceeds of approximately $16.6 million.
10. STOCK-BASED COMPENSATION
The Company has adopted certain equity incentive and stock purchase plans as described in the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
Equity Awards Activity
Stock Options
The following is a summary of stock option activity for the nine months ended September 30, 2017 (in thousands, except per share data):

 
Number of
Shares
Outstanding
 
Weighted-
Average
Exercise Price
per Share
Outstanding at December 31, 20168,730
 $4.56
Granted4,191
 1.14
Exercised(17) 0.39
Canceled(4,193) 7.02
Outstanding at September 30, 20178,711
 $1.74
The intrinsic value of options exercised in the nine months ended September 30, 2017 was nominal. As of September 30, 2017, the intrinsic value of options outstanding was $3.1 million based on the closing price of the Company’s stock as of September 30, 2017.
Restricted Stock Units
The following is a summary of restricted stock unit activity for the nine months ended September 30, 2017 (in thousands, except per share data):
 RSUs Weighted Average
Fair Value per Share at
Grant Date
Outstanding at December 31, 2016606
 $9.33
Granted4,318
 1.13
Vested(824) 3.87
Canceled(1,299) 2.03
Outstanding at September 30, 20172,801
 $1.68

On April 3, 2017, the Company commenced a Tender Offer (Offer) to exchange out of the money stock options for restricted stock units. The Offer expired on Monday, May 1, 2017. Pursuant to the Offer, the Company accepted elections to exchange options to purchase 2,362,470 shares of common stock and issued replacement awards of restricted stock units for 733,559 shares of common stock. As the transaction approximated a value-for-value exchange, it didthere can be no assurance that such legal proceedings will not have a material impacteffect on the Company’s stock based compensation expense.its business, results of operations, financial position or cash flows.
The total intrinsic value
Enphase Energy, Inc. | 2022 Form 10-Q | 31
Table of restricted stock units that were vested in the nine months ended September 30, 2017 was $0.8 million. As of September 30, 2017, the intrinsic value of restricted stock units outstanding was $4.3 million based on the closing price of the Company’s stock as of September 30, 2017.Contents
Stock-BasedENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

11.    STOCK-BASED COMPENSATION
Stock-based Compensation Expense
CompensationStock-based compensation expense for all stock-based awards, which includes stock options, restricted stock units (“RSUs”) and performance-based stock units (“PSUs”), expected to vest is measured at fair value on the date of grant and recognized ratably over the requisite service period.
In addition, as part of certain business acquisitions, the Company is obligated to issue shares of common stock of the Company as payment subject to achievement of certain targets. For such payments, the Company records stock-based compensation classified as post-combination expense ratably over the measurement period presuming the targets will be met.
The following table summarizes the components of total stock-based compensation expense included in the condensed consolidated statements of operations for the periods presented (in thousands):presented:
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2017 2016 2017 2016(In thousands)
Cost of revenues$347
 $295
 $796
 $907
Cost of revenues$3,131 $1,060 $5,638 $2,042 
Research and development607
 941
 1,994
 3,047
Research and development16,266 5,467 29,995 11,216 
Sales and marketing226
 560
 889
 1,760
Sales and marketing22,176 5,335 35,233 8,872 
General and administrative547
 736
 1,598
 2,525
General and administrative11,491 3,450 29,995 8,026 
Total$1,727
 $2,532
 $5,277
 $8,239
Total$53,064 $15,312 $100,861 $30,156 
The following table summarizes the various types of stock-based compensation expense for the periods presented (in thousands):presented:
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Stock options and restricted stock units$1,473
 $1,983
 $4,363
 $6,703
Employee stock purchase plan254
 549
 914
 1,536
Total$1,727
 $2,532
 $5,277
 $8,239
The following table presents the weighted-average grant date fair value of options granted for the periods presented and the assumptions used to estimate those values using a Black-Scholes option pricing model:
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Weighted average grant date fair value$0.69
 $1.25
 $0.70
 $1.31
Expected term (in years)4.2
 4.5
 4.4
 4.5
Expected volatility83.8% 84.7% 84.4% 79.8%
Annual risk-free rate of return1.6% 1.1% 1.8% 1.1%
Dividend yield0.0% 0.0% 0.0% 0.0%
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
(In thousands)
Stock options, RSUs and PSUs$47,228 $14,361 $91,340 $28,201 
Employee stock purchase plan1,014 951 2,396 1,955 
Post combination expense accrual (Accrued liabilities)4,822 — 7,125 — 
Total$53,064 $15,312 $100,861 $30,156 
As of SeptemberJune 30, 2017,2022, there was approximately $8.8$319.8 million of total unrecognized stock-based compensation expense related to unvested equity awards, which are expected to be recognized over a weighted-average period of 2.82.3 years.
11.
Enphase Energy, Inc. | 2022 Form 10-Q | 32
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Equity Awards Activity
Stock Options
The following table summarizes stock option activity:
Number of
Shares
Outstanding		Weighted-
Average
Exercise Price
per Share		Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value (1)
(In thousands)(Years)(In thousands)
Outstanding at December 31, 20212,264 $1.90 0
Granted— — 
Exercised(360)1.74 $65,153 
Canceled(1)8.82 
Outstanding at June 30, 20221,903 $1.93 2.4$367,918 
Vested and expected to vest at June 30, 20221,903 $1.93 2.4$367,918 
Exercisable at June 30, 20221,903 $1.93 2.4$367,918 
(1)    The intrinsic value of options exercised is based upon the value of the Company’s stock at exercise. The intrinsic value of options outstanding, vested and expected to vest, and exercisable as of June 30, 2022 is based on the closing price of the last trading day during the period ended June 30, 2022. The Company’s stock fair value used in this computation was $195.24 per share.
The following table summarizes information about stock options outstanding at June 30, 2022:
Options OutstandingOptions Exercisable
Range of Exercise PricesNumber of
Shares		Weighted-
Average
Remaining
Life		Weighted-
Average
Exercise
Price		Number of
Shares		Weighted-
Average
Exercise
Price
(In thousands)(Years)(In thousands)
$0.70 —– $1.11479 2.8$0.80 479 $0.80 
$1.29 —– $1.291,000 2.21.29 1,000 1.29 
$1.31 —– $5.53380 2.02.15 380 2.15 
$14.58 —– $14.5833 3.814.58 33 14.58 
$64.17 —– $64.1711 4.864.17 11 64.17 
Total1,903 2.4$1.93 1,903 $1.93 

Enphase Energy, Inc. | 2022 Form 10-Q | 33
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Restricted Stock Units
The following table summarizes RSU activity:
Number of
Shares
Outstanding		Weighted-
Average
Fair Value
per Share at
Grant Date		Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value (1)
(In thousands)(Years)(In thousands)
Outstanding at December 31, 20212,786 $100.73 0
Granted561 175.97 
Vested(916)67.21 $151,219 
Canceled(113)139.67 
Outstanding at June 30, 20222,318 130.32 1.2$452,664 
Expected to vest at June 30, 20222,318 $130.32 1.2$452,556 
(1)    The intrinsic value of RSUs vested is based upon the value of the Company’s stock when vested. The intrinsic value of RSUs outstanding and expected to vest as of June 30, 2022 is based on the closing price of the last trading day during the period ended June 30, 2022. The Company’s stock fair value used in this computation was $195.24 per share.
Performance Stock Units
The following summarizes PSU activity:
Number of
Shares
Outstanding		Weighted-
Average
Fair Value
per Share at
Grant Date		Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value (1)
(In thousands)(Years)(In thousands)
Outstanding at December 31, 2021445 $169.82 0
Granted392 192.72 
Vested(303)168.88 $51,393 
Canceled(176)170.96 
Outstanding at June 30, 2022358 $195.14 0.7$69,900 
Expected to vest at June 30, 2022358 $195.14 0.7$69,900 
(1)    The intrinsic value of PSUs vested is based upon the value of the Company’s stock when vested. The intrinsic value of PSUs outstanding and expected to vest as of June 30, 2022 is based on the closing price of the last trading day during the period ended June 30, 2022. The Company’s stock fair value used in this computation was $195.24 per share.
12.    INCOME TAXES
The Company usedFor the discretethree months ended June 30, 2022 and 2021, the Company’s income tax approach in calculatingprovision of $15.2 million and $7.0 million, respectively, on a net income before income taxes of $92.2 million and $46.3 million, respectively, and for the six months ended June 30, 2022, the Company’s income tax provision of $20.8 million on a net income before income taxes of $149.6 million was calculated using the annualized effective tax rate method and was primarily due to projected tax expense forin the U.S. and foreign jurisdictions that are profitable, partially offset by tax deduction from employee stock compensation reported as a discrete event.
For the six months ended June 30, 2021, the Company’s income tax benefit of $26.4 million, on a net income before income taxes of $44.7 million calculated using the annualized effective tax rate method, was primarily due to tax deduction in the first quarter of 2021 from employee stock compensation reported as a discrete event, partially offset by projected tax expense in the U.S. and foreign jurisdictions that are profitable.
For the three and ninesix months ended SeptemberJune 30, 20172022 and 2016 due to2021, in accordance with FASB guidance for interim reporting of income tax, the fact thatCompany has computed its benefit (provision) for income taxes based on a relatively small change in the Company’s projected pre-tax net income (loss) could result in a volatileannual effective tax rate. Under the discrete method, the Company determines its tax (expense) benefit based upon actual results as if the interim period was an annual period. The tax provision recorded was primarily related to income taxes attributable to its foreign operations.rate while excluding loss jurisdictions which cannot be benefited.
Enphase Energy, Inc. | 2022 Form 10-Q | 34
12.
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

13.    NET LOSSINCOME PER SHARE
Basic net lossincome per share is computed by dividing net lossincome by the weighted average number of shares of common stock outstanding during the period. Diluted lossnet income per share is computed in a similar manner, but it also includes the effect of potential common shares outstanding during the period, when dilutive. Potential common shares include outstanding in-the-money stock options, restricted stock units,RSUs, PSUs, shares to be purchased under the Company’s employee stock purchase plan2011 Employee Stock Purchase Plan (the “ESPP”), the Notes due 2023, 1.0% convertible senior notes due 2024 (the “Notes due 2024”), Notes due 2025, Notes due 2026, Notes due 2028, and warrants to purchase common stock. warrant transactions in connection with the offering of the Notes due 2024 (the “2024 Warrants”), 2025 Warrants, 2026 Warrants and the 2028 Warrants. See Note 9, “Debt,” for additional information about the Company’s outstanding notes.
The following table presents the computation of basic and diluted net income per share for the periods presented:
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
(In thousands, except per share data)
Numerator:
Net income$76,976 $39,351 $128,797 $71,049 
Convertible Senior Notes interest and financing costs, net662 45 1,304 89 
Adjusted net income$77,638 $39,396 $130,101 $71,138 
Denominator:
Shares used in basic per share amounts:
Weighted average common shares outstanding135,196 135,094 134,768 133,209 
Shares used in diluted per share amounts:
Weighted average common shares outstanding135,196 135,094 134,768 133,209 
Effect of dilutive securities:
Employee stock-based awards3,042 4,554 3,399 5,177 
Notes due 2023900 900 900 900 
Notes due 2024— 45 — 1,506 
2024 Warrants— 43 — 1,268 
Notes due 2025— 557 — 1,137 
2025 Warrants512 340 460 825 
Notes due 20262,057 — 2,057 — 
Notes due 20282,018 — 2,018 — 
Weighted average common shares outstanding for diluted calculation143,725 141,533 143,602 144,022 
Basic and diluted net income per share
Net income per share, basic$0.57 $0.29 $0.96 $0.53 
Net income per share, diluted$0.54 $0.28 $0.91 $0.49 
For the three and six months ended June 30, 2022, the dilutive effect of potentially dilutive common shares is reflected in diluted earnings per share by application of the treasury stock method.method for stock options, RSUs, PSUs, the 2025 Warrants, the 2026 Warrants and the 2028 Warrants. To the extent these potential common shares are antidilutive, they are excluded from the calculation of diluted net lossincome per share.
The following table presents
Enphase Energy, Inc. | 2022 Form 10-Q | 35
Table of Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

For the computationthree and six months ended June 30, 2022, due to adoption of basicASU 2020-06 on January 1, 2022, the Company is no longer utilizing the treasury stock method for earnings per share impact for the Notes due 2025, Notes due 2026 and Notes due 2028. Instead, the Company is applying the if-converted method when reporting the number of potentially dilutive shares of common stock as the Company may at its election, settle its Convertible Senior Notes through payment or delivery, as the case may be, in cash, shares of its common stock or a combination of cash and shares of its common stock. Under this method, diluted earnings per share is determined by assuming that all of the Convertible Senior Notes were converted into shares of the Company’s common stock at the beginning of the reporting period.
Further, the Company under the relevant sections of the indentures, irrevocably may elect to settle principal in cash and any excess in cash or shares of the Company’s common stock for its Notes due 2025, Notes due 2026 and Notes due 2028. If and when the Company makes such election, there will be no adjustment to the net lossincome and the Company will use the average share price for the period to determine the potential number of shares to be issued based upon assumed conversion to be included in the diluted share count.
Diluted earnings per share for the periods presented (in thousands, except per share data):

 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Numerator:       
Net loss$(6,854) $(18,756) $(42,252) $(54,274)
        
Denominator:       
Weighted average common shares outstanding84,862
 47,278
 81,993
 46,704
        
Net loss per share, basic and diluted$(0.08) $(0.40) $(0.52) $(1.16)
Asthree and six months ended June 30, 2021 includes the Company incurred a net loss for all periods presented, potential dilutive securities from employeeeffect of stock options, restrictedRSUs, PSUs, shares to be purchased under the ESPP, the Notes due 2023, the Notes due 2024, the 2024 Warrants, the Notes due 2025 and the 2025 Warrants. Certain common stock unitsissuable under stock options, RSUs, PSUs, the Notes due 2026, the 2026 Warrants, the Notes due 2028 and warrantsthe 2028 Warrants have been excludedomitted from the diluted net lossincome per share computationscalculation because the effect of including such shares would have been anti-dilutive. antidilutive.
The following table sets forth the potentially dilutive securitiesoutstanding shares of common stock equivalents were excluded from the computationcalculation of the diluted net lossincome per share (in thousands):attributable to common stockholders because their effect would have been antidilutive:
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
(In thousands)
Employee stock-based awards572 178 598 88 
Notes due 2028— 1,902 — 1,234 
2028 Warrants2,425 3,457 2,735 2,264 
Notes due 2026— 2,255 — 1,468 
2026 Warrants2,471 3,457 2,788 2,264 
Notes due 20251,253 — 1,253 — 
Total6,721 11,249 7,374 7,318 
14.    RELATED PARTY
In 2018, a member of the Company’s board of directors and one of its principal stockholders, Thurman John Rodgers, purchased $5.0 million aggregate principal amount of the Notes due 2023 in a concurrent private placement. As of both June 30, 2022 and December 31, 2021, $5.0 million aggregate principal amount of the Notes due 2023 were outstanding. For additional information related to this purchase, see Note 9, “Debt,” for additional information related to this purchase.
Enphase Energy, Inc. | 2022 Form 10-Q | 36
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Employee stock options7,844
 9,383
 8,121
 8,944
Restricted stock units3,306
 840
 1,959
 994
Warrants to purchase common stock1,220
 45
 1,033
 85
Total12,370
 10,268
 11,113
 10,023


Item 2.Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations and involves risks and uncertainties. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential” or “continue” or the negative of these terms or other comparable terminology. For example,Such statements, include but are not limited to statements regarding our expectations as to future financial performance; expense levels; liquidity sources; the capabilities and performance anticipated cost savings, expectedof our technology and products and planned changes; timing of new product releases, expense levelsreleases; our business strategies, including anticipated trends; growth and liquidity sourcesdevelopments in markets in which we target; the anticipated market adoption of our current and future products; performance in operations, including component supply management; product quality and customer service; risks related to the ongoing COVID-19 pandemic; geo-political events, such as the conflict in Ukraine; and the anticipated benefits and risks relating to our recent acquisitions. You should be aware that the forward-looking statements contained in this report are forward-looking statements. Ourbased on our current views and assumptions, and are subject to known and unknown risks, uncertainties and other factors that may cause actual events or results to differ materially. For a discussion identifying some of the important factors that could cause actual results and the timing of events may differto vary materially from those discussedanticipated in ourthe forward-looking statements, as a result of various factors, including those discussed see below, and those discussed in the section entitled “Risk Factors” herein and those included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2016.2021 filed on February 11, 2022 (the “Form 10-K”). Unless the context requires otherwise, references in this report to “Enphase,” “we,” “us” and “our” refer to Enphase Energy, Inc. and its consolidated subsidiaries.
Business Overview
We are a global energy technology company. We deliver simple, innovative and reliable energy managementsmart, easy-to-use solutions that advance the worldwide potential of renewable energy.manage solar generation, storage and communication on one platform. We were founded in March 2006 and have grown rapidly to become a market leader inrevolutionized the solar industry with our microinverter category. Our technology was designed to increase energy production, simplify design and installation, improve system uptime and reliability, reduce fire risk, and providewe produce a platform for intelligent energy management. Since inception,fully integrated solar-plus-storage solution. As of June 30, 2022, we have shipped approximately 16more than 48 million microinverters, representing over 3 gigawatts of solar PV generating capacity and approximately 700,0002.5 million Enphase residential and commercial systems have been deployed in over 100more than 140 countries.
We sellThe Enphase® Energy System™, powered by IQ® Microinverters and IQ™ Batteries, our home energy management products primarily to distributors who resell them to solar installers. We also sell directly to large installers and through original equipment manufacturers (“OEMs”) and strategic partners.
New Products
Enphase IQ Microinverter System
In the first quarter of 2017, we began shipping our Enphase Home Energy Solution with IQ™, our next-generationcurrent generation integrated solar, storage and energy management offering, enables self-consumption and delivers our core value proposition of yielding more energy, simplifying design and installation, and improving system in North America.uptime and reliability. The solution featuresIQ family of microinverters, like all of our sixth-generation microinverter system, which supports high-powered 60previous microinverters, is fully compliant with NEC 2014 and 72-cell2017 rapid shutdown requirements. Unlike string inverters, this capability is built-in, with no additional equipment necessary.
The Enphase Energy System brings a high technology, networked approach to solar modules, integratesgeneration plus energy storage, by leveraging our design expertise across power electronics, semiconductors and cloud-based software technologies. Our integrated approach to energy solutions maximizes a home’s energy potential while providing advanced monitoring and remote maintenance capabilities. The Enphase Energy System with AC modules from LG and Jinko Solar, and we believe offers installers faster and simpler installations, saving on costs. This product isIQ uses a major milestone in the Company’s product cost reduction, and we expect to introduce the next generationsingle technology platform for seamless management of the whole solution, enabling rapid commissioning with the Enphase Home Energy Solution® Installer App; consumption monitoring with IQ™ in the first quarter of 2018, which we believe will achieve further cost savings.
TheGateway with IQ Combiner+™, Enphase IQ microinverter is a key component of the Enphase Home Energy Solution, which can also include our Envoy™ Communications Gateway, Enphase Enlighten™,® App, a cloud-based energy management platform, and our Enphase AC Battery™.IQ™ Battery. System owners can use the Enphase EnlightenApp to monitor their home’s solar generation, energy storage and consumption from any web-enabled device. Unlike some of our competitors, who utilize a traditional inverter, or offer separate components of solutions, we have built-in system redundancy in both photovoltaic generation and energy storage, eliminating the risk that comes with a single point of failure. Further, the nature of our cloud-based, monitored system allows for remote firmware and software updates, enabling cost-effective remote maintenance and ongoing utility compliance.
Enphase Energized AC Modules
We began shipping Enphase Energized AC ModulesIn March 2022, we completed the acquisition of SolarLeadFactory, LLC. (“SolarLeadFactory”), a privately-held company. SolarLeadFactory provides high quality leads to solar installers. As part of the purchase price, we paid approximately $26.1 million in North Americacash on March 14, 2022. In addition to the purchase price paid, we are obligated to pay up to approximately $10.0 million in shares of our common stock in the second quarter of 2017.2023 subject to achievement of certain operational and employment targets.
Further details on the above acquisition may be found in Note 4, “Business Combinations,” in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Enphase Energy, Inc. | 2022 Form 10-Q | 37

Impact of the COVID-19 Pandemic
We continue to monitor, evaluate and respond to developments relating to the COVID-19 pandemic, which has resulted in, and is expected to continue to result in manufacturing or supply chain problems, disruptions in local and global economies, volatility in the global financial markets, overall reductions in demand, delays in payment, restrictions on the shipment of our products, or other ramifications. We have reopened some of our offices, but a majority of our employees continue to work remotely. We continue to take meaningful precautions in accordance with relevant guidelines to protect the health and safety of our employees. The extent of the continuing impact of COVID-19 on our operational and financial performance will depend on various developments, including the duration and spread of the virus and its variants, impact on our end-customers’ spending, volume of sales, impact on our partners, suppliers and employees, and actions that may be taken by governmental authorities, including the effects of recent government-mandated lockdowns in several cities in China. If the COVID-19 pandemic or its adverse effects become more severe or prevalent or are prolonged in the locations where we, our customers, suppliers or manufacturers conduct business, or we experience more pronounced disruptions in our business or operations, or in economic activity and demand for our products and services generally, our business and results of operations in future periods could be materially adversely affected. Further information relating to the risks and uncertainties related to the ongoing COVID-19 pandemic may be found in Part I, Item 1A “Risk Factors” of the Form 10-K.
Supply Chain Constraints
Due to increased demand across a range of industries, the global supply chain and the semiconductor industry have experienced significant disruptions in recent periods. We have seen supply chain challenges and logistics constraints increase, including component shortages, which have, in certain cases, caused delays in critical components and inventory, longer lead times, and have resulted in increased costs. We believe these supply chain challenges will persist for the foreseeable future. In addition, the impact of inflation on the price of components, raw materials and labor has increased.
We continue to work to mitigate the effects from supply chain constraints. Given the dynamic nature of these circumstances on our ongoing business, results of operations and overall financial performance, the full impact of COVID-19 and other macroeconomic factors, including the conflict in Ukraine, cannot be reasonably estimated at this time. In the event we are unable to mitigate the impact of delays and/or price increases in raw materials, electronic components and freight, it could delay the manufacturing and installation of our products, which would adversely impact our cash flows and results of operations, including revenue and gross margin.
Products
Our Enphase IQ Battery storage systems, with usable and scalable capacity of 10.1 kWh and 3.4 kWh, based on Ensemble OS™ energy management technology, which powers the world’s first grid-independent microinverter-based storage system to customers in North America, have been shipping since the second quarter of 2020. The Enphase Energized AC ModulesIQ Battery storage systems feature our embedded grid-forming microinverters that enable the Always-On capability that keeps homes powered when the grid goes down, and the ability to save money when the grid is up. These systems are now compatible with both new and existing Enphase IQ utilizesolar systems with M-series™, IQ6™ and IQ7™ microinverters. In January 2021, we announced expanded compatibility of the Enphase® Energy System™ with our sixth generationM-series microinverters and are producedstring inverters. The expanded compatibility provides approximately 300,000 additional Enphase system owners with the possibility of achieving grid-agnostic energy resilience through the Enphase Upgrade Program. The program provides solar installers the opportunity to renew engagements with the installed base of Enphase system owners through microinverter, solar, and energy storage upgrades, and reflects our AC module partnershipscontinued commitment to reliability, service, and long-term customer relationships. We currently ship our Enphase IQ Battery storage systems to customers in North America, Germany and Belgium. Enphase IQ Batteries in Germany and Belgium can be installed with LGboth single-phase and Jinko Solar. three-phase third-party solar energy inverters, enabling homeowners to upgrade their existing home solar systems with a residential battery storage solution that reduces costs while providing increased self-reliance. We plan to introduce Enphase IQ Batteries in other European countries throughout 2022.
During the second quarter of 2021, we introduced IQ™ Load Controller for our Enphase IQ Battery storage systems. Load control allows homeowners to decide what gets power in their home in the event of a grid outage, with the ability to choose up to four loads. These loads will be on when the grid is present and shed automatically in the event of a grid failure. We began shipping our IQ Load Controller, which includes updated features, in December 2021.
Enphase Energy, Inc. | 2022 Form 10-Q | 38

Our Enphase Energy System integrates with most leading models of home standby AC Battery™generators, providing enhanced performance and a glitch-free transition for homeowners during power outages. Homeowners can also monitor real-time power flow, start and stop their generator remotely, set quiet hours to prevent their generator from operating until their batteries fall below a designated threshold, and control it all with the Enphase® App. The new feature functions without a generator automatic transfer switch and is designed to eliminate the power glitches that reset home electronic appliances when switching to generator power.
We began shipping our Enphase Energy System with IQ8™ microinverters in the fourth quarter of 2021 to customers in North America. Our investment in custom application specific integrated circuit chips has resulted in a software-defined microinverter smart enough to form a microgrid. Many homeowners often assume that their solar systems will function if the sun is shining, even during a power outage. This has unfortunately not been true until the introduction of IQ8. Now, with IQ8 homeowners can realize the true promise of solar — to make and use their own power. IQ8 solar microinverters can provide Sunlight Backup™ during an outage, even without a battery.
In the second quarter of 2022 the Enphase IQ8 Microinverter-based system was certified by UL, a global safety science leader, for the new North American safety and grid interconnection standards for connecting solar inverters, energy storage systems, and distributed energy resources to the grid.
We participate in the ConnectedSolutions program, which is an incentive program implemented by two utilities in the Northeast region of the United States to reduce electrical demand during high-use periods. Enphase Storage customers in Connecticut, Massachusetts and Rhode Island can sign-up, monitor, track money earned, and control participation in the program using the Enphase App. We announced during the third quarter of 2016, we began shipments2021 our participation in Hawaiian Electric’s Battery Bonus grid services program. This program offers a new incentive for homeowners on the island of our Enphase AC Battery™Oahu to distributors in Australia and New Zealand. Ininstall a new home battery. During the fourth quarter of 2016,2021, we started shippingannounced our AC Batteryparticipation in the Arizona Public Service (“APS”) residential battery services program. The APS program offers homeowners who install Enphase IQ Batteries in its service territory the chance to participate and earn money through one-time, upfront incentives. In addition, we announced during the first quarter of 2022 that the Vermont-based utility Green Mountain Power (“GMP”) will offer Enphase Energy Systems to its customers in a cutting-edge battery lease grid services pilot program. Homeowners can also enroll in GMP’s “Bring Your Own Device” grid services program, which enables customers with their own Enphase Energy Systems to participate and earn an up-front incentive. These grid services programs enable utilities to leverage the United States, France,IQ Battery instead of turning on polluting peaker plants, while generating an income stream for the United Kingdom andIQ Battery owner. Facilitating grid services participation for our customers intended to reduce the Netherlands. The Enphase AC Battery is a scalable, modular energy storage system with a 1.2kWh energy capacity.
Operating Expense Reduction Initiatives
In the third quarter of 2016, we began implementing restructuring actions to lower operating expenses andlifetime cost of revenues. The restructuring actions have included reductions in our global workforce, the elimination ofIQ Batteries and help drive increased demand.

certain non-core projects, consolidation of office space at our corporate headquarters and the engagement of management consultants to assist us in making organizational and structural changes to improve operational efficiencies and reduce expenses.
Components of Condensed Consolidated StatementsResults of Operations
Net Revenues
We generate net revenues from sales of our microinverter systems and related accessories, which in addition to microinverter units can also include the Envoy communications gateway, our Enlighten cloud-based monitoring service, and our AC Battery storage systems.
Our revenue is affected by changes in the volume and average selling prices of our microinverter systems and related accessories, supply and demand, sales incentives, and competitive product offerings. Our revenue growth is dependent on our ability to compete effectively in the marketplace by remaining cost competitive, developing and introducing new products that meet the changing technology and performance requirements of our customers, the diversification and expansion of our revenue base, and our ability to market our products in a manner that increases awareness for microinverter technology and differentiates us in the marketplace.
Cost of Revenues and Gross Profit
Cost of revenues is comprised primarily of product costs, warranty, manufacturing personnel and logistics costs, freight costs, depreciation of test equipment and hosting service costs. Our product costs are impacted by technological innovations, such as advances in semiconductor integration and new product introductions, economies of scale resulting in lower component costs, and improvements in production processes and automation. Certain costs, primarily personnel and depreciation of test equipment, are not directly affected by sales volume.
We outsource our manufacturing to third-party contract manufacturers and generally negotiate product pricing with them on a quarterly basis. We believe our contract manufacturing partners have sufficient production capacity to meet the anticipated demand for our products for the foreseeable future. However, shortages in the supply of certain key raw materials could adversely affect our ability to meet customer demand for our products. We contract with third parties, including one of our contract manufacturers, to serve as our logistics providers by warehousing and delivering our products in the United States, Europe and Asia.
Gross profit may vary from quarter to quarter and is primarily affected by our average selling prices, product cost, product mix, warranty costs and sales volume fluctuations resulting from seasonality. Our ability to reduce product costs and the timing of product cost reductions relative to declines in average selling prices can have a significant impact on our gross margin.
Operating Expenses
Operating expenses consist of research and development, sales and marketing, general and administrative and restructuring expenses. Personnel-related costs are the most significant component of each of these expense categories other than restructuring expense and include salaries, benefits, payroll taxes, sales commissions, incentive compensation and stock-based compensation.
Research and development expense includes personnel-related expenses, third-party design and development costs, testing and evaluation costs, depreciation expense and other indirect costs. Research and development employees are primarily engaged in the design and development of power electronics, semiconductors, powerline communications, networking and software functionality, and storage. We devote substantial resources to research and development programs that focus on enhancements to, and cost efficiencies in, our existing products and timely development of new products that utilize technological innovation to drive down product costs, improve functionality, and enhance reliability. We intend to continue to invest appropriate resources in our research and development efforts because we believe they are critical to maintaining our competitive position.
Sales and marketing expense consists primarily of personnel-related expenses such as salaries, commissions, stock-based compensation, employee benefits and travel. It also includes trade shows, marketing, customer support and other indirect costs. We expect to continue to make the necessary investments to enable us to execute our strategy to increase our market penetration geographically and enter into new markets by expanding our customer base of distributors, large installers, OEMs and strategic partners. We currently offer microinverter systems targeting the residential and commercial markets in the United States, Canada, Mexico and certain Central

American markets, the United Kingdom, France, the Benelux region, certain other European markets, Australia, New Zealand and certain other Asian markets. We expect to continue to expand the geographic reach of our product offerings and explore new sales channels in addressable markets in the future.
General and administrative expense consists primarily of salaries, incentive compensation, stock-based compensation and employee benefits for personnel related to our executive, finance, human resources, information technology and legal organizations. General and administrative expense also includes facilities costs and fees for professional services, which consist primarily of outside legal, accounting and information technology consulting costs.
Restructuring expense is the net of charges and adjustments resulting from restructuring initiatives that we began implementing in the third quarter of 2016 to improve operational performance and reduce overall operating expense. Costs included in restructuring expense primarily consist of fees paid to management consultants engaged to assist us in making organizational and structural changes to improve operational efficiencies and reduce expenses, severance for workforce reduction actions, non-cash charges related to the disposition of assets and impairment of property and equipment, and the establishment of lease loss reserves. See Note 6 to our condensed consolidated financial statements under item 1 of this report, “Restructuring” for additional information.
Other Income (Expense), Net
Other expense, net primarily consists of interest expense and commitment fees under our term loans and non-cash interest expense related to the amortization of deferred financing costs. Other expense, net also includes gains or losses upon conversion of foreign currency transactions into U.S. dollars.
Provision for Income Taxes
We are subject to income taxes in the countries where we sell our products. Historically, we have primarily been subject to taxation in the United States because we have sold the majority of our products to customers in the United States. As we have expanded the sale of products to customers outside the United States, we have become subject to taxation based on the foreign statutory rates in the countries where these sales took place. As sales in foreign jurisdictions increase in the future, our effective tax rate may fluctuate accordingly. Due to the history of losses we have generated in the United States since inception, we believe that it is more-likely-than-not that all of our U.S. and state deferred tax assets will not be realized as of September 30, 2017.
Results of Operations for the Three and Nine Months Ended September 30, 2017 and 2016
Net Revenues
 Three Months Ended
September 30,		 Change in Nine Months Ended
September 30,		 Change in
 2017 2016 $ % 2017 2016 $ %
 (dollars in thousands) (dollars in thousands)
Net revenues$77,038
 $88,684
 $(11,646) (13)% $206,492
 $231,990
 $(25,498) (11)%
Three Months Ended
June 30,		Change inSix Months Ended
June 30,		Change in
20222021$%20222021$%
(In thousands, except percentages)
Net revenues$530,196 $316,057 $214,139 68  %$971,488 $617,811 $353,677 57  %
Three Months Ended Septembermonths ended June 30, 20172022 and 20162021
Net revenues decreasedincreased by 13% for the three months ended September 30, 2017 compared to the same period in 2016 due to lower average selling prices combined with a decrease in units sold. We sold 790,000 microinverter units68%, or $214.1 million, in the three months ended SeptemberJune 30, 2017 versus 869,000 units in the same period in 2016. The average revenue per watt of microinverter systems sold declined by approximately 10% for the three months ended September 30, 2017,2022, as compared to the same period in 2016.
Nine Months Ended September 30, 20172021, driven primarily by a 42% increase in microinverter units volume shipped and 2016
Net revenues decreased by 11% fora 205% increase in Enphase IQ Battery Megawatt-hour (“MWh”) shipped. In the ninethree months ended SeptemberJune 30, 20172022, consumer demand increased and component supply improved as we sold approximately 3.3 million microinverter units, as compared to the same period in 2016 due to a decrease in microinverter systems sold and lower average selling prices. We sold 2,138,000 microinverterapproximately 2.4 million units in the ninethree months ended SeptemberJune 30, 2017 versus 2,276,000 units2021. In the three months ended June 30, 2022, we also increased shipments of our Enphase IQ Batteries to customers in the United States and Europe to 132.4 MWh as compared to 43.4 MWh shipped in the same period in 2016. Volumes were negatively affected2021. The average selling price of our microinverter products increased by the unusually wet weather in California18% in the first quarter of 2017, which is a significant market for us. The average revenue per watt of microinverter systems sold declined by approximately 11% for the ninethree months ended SeptemberJune 30, 2017,2022, as compared to the same period in 2016. We expect average selling prices for microinverter systems2021, primarily driven by a favorable product mix as we sold more IQ8 and IQ7+™ microinverters relative to continue to declineIQ7 microinverters in the future, which may negatively affect net revenues.

Cost of Revenues and Gross Profit
 Three Months Ended
September 30,		 Change in Nine Months Ended
September 30,		 Change in
 2017 2016 $ % 2017 2016 $ %
 (dollars in thousands) (dollars in thousands)
Cost of revenues$60,577
 $72,805
 $(12,228) (17)% $169,438
 $190,215
 $(20,777) (11)%
Gross profit16,461
 15,879
 582
 4 % 37,054
 41,775
 (4,721) (11)%
Gross margin21.4% 17.9% 3.5%   17.9% 18.0% (0.1)%  
Three Months Ended September 30, 2017 and 2016
Cost of revenues decreased by 17% for the three months ended SeptemberJune 30, 20172022 and increased prices for our product offerings in the second half of 2021 to partially offset the impact of higher logistics costs and component costs from global supply chain pricing pressures.
Enphase Energy, Inc. | 2022 Form 10-Q | 39

Six months ended June 30, 2022 and 2021
Net revenues increased by 57%, or $353.7 million, in the six months ended June 30, 2022, as compared to the same period in 2016. The decrease2021, driven primarily by a 28% increase in cost of revenues was primarily attributablemicroinverter units volume shipped and a 196% increase in Enphase IQ Battery MWh shipped. In the six months ended June 30, 2022, consumer demand increased and component supply improved, as we sold approximately 6.2 million microinverter units, as compared to a decreaseapproximately 4.8 million units in the average cost per watt of microinverter systems, lower volume, lower warranty expense and reduced overhead expenses as a resultsix months ended June 30, 2021. In the six months ended June 30, 2022, we also increased shipments of our cost reduction efforts. Gross marginEnphase IQ Batteries to customers in the United States and Europe to 252.8 MWh, as compared to 85.4 MWh shipped in the same period in 2021. The average selling price of our microinverter products increased by 3.5 percentage points for16% in the threesix months ended SeptemberJune 30, 20172022, as compared to the same period in 2016. The increase in gross margin was2021, primarily duedriven by a favorable product mix, as we sold more IQ8 and IQ7+ microinverters relative to a greater decreaseIQ7 microinverters in the average cost per wattsix months ended June 30, 2022 and increased prices for our product offerings in the second half of our microinverter systems than2021 to partially offset the average revenue per wattimpact of higher logistics costs and lower overheadcomponent costs from global supply chain pricing pressures.
Cost of Revenues and warranty expenseGross Margin
Three Months Ended
June 30,		Change inSix Months Ended
June 30,		Change in
20222021$%20222021$%
(In thousands, except percentages)
Cost of revenues$311,191 $188,256 $122,935 65 %$575,510 $367,061 $208,449 57 %
Gross profit$219,005 $127,801 $91,204 71 %$395,978 $250,750 $145,228 58 %
Gross margin41.3 %40.4 %0.9 %40.8 %40.6 %0.2 %
Three months ended June 30, 2022 and 2021
Cost of revenues increased by 65%, or $122.9 million, in the three months ended SeptemberJune 30, 20172022, as compared to the same period last year.in 2021, primarily due to higher volume of microinverter units sold, higher Enphase IQ Battery MWh shipped, higher shipping costs of our products due to supply chain disruptions and constraints globally. The increase was also due to $1.4 million higher amortization of developed technology and $2.1 million higher stock-based compensation.
Nine Months Ended September 30, 2017 and 2016
Cost of revenues decreasedGross margin increased by 11% for0.9 percentage points in the ninethree months ended SeptemberJune 30, 20172022, as compared to the same period in 2016.2021. The decreaseincrease was primarily due to product mix as we sold more IQ8 and IQ7+™ microinverters relative to IQ7 microinverters in the three months ended June 30, 2022, an increase in average selling prices driven by favorable product mix and price increases to our products, as well as cost management effort. This increase was partially offset by higher shipping costs of our products due to supply chain disruptions globally in combination with semiconductor supply constraints, $1.4 million higher amortization of developed technology and $2.1 million higher stock-based compensation.
Six months ended June 30, 2022 and 2021
Cost of revenues was primarily attributable to a decreaseincreased by 57%, or $208.4 million, in the average cost per watt of microinverter systems, lower volume, lower warranty expense and reduced overhead expenses as a result of our cost reduction efforts. Gross margin decreased by 0.1 percentage points for the ninesix months ended SeptemberJune 30, 20172022, as compared to the same period in 2016.2021, primarily due to higher volume of microinverter units sold, higher Enphase IQ Battery MWh shipped and higher shipping costs of our products due to supply chain disruptions and constraints globally. The primary driverincrease was also due to $2.7 million higher amortization of the decrease in grossdeveloped technology and $3.6 million higher stock-based compensation.
Gross margin was the absorption of fixed overhead costs and warranty charges on a lower revenue baseincreased by 0.2 percentage points in the first quarter of 2017. Our ability to reduce product costs and the timing of product cost reductions relative to declines in average selling prices can have a significant impact on our gross margin.
Research and Development
 Three Months Ended
September 30,		 Change in Nine Months Ended
September 30,		 Change in
 2017 2016 $ % 2017 2016 $ %
 (dollars in thousands) (dollars in thousands)
Research and development$7,397
 $13,169
 $(5,772) (44)% $24,949
 $39,326
 $(14,377) (37)%
Three Months Ended September 30, 2017 and 2016
Research and development expense decreased by 44% for the threesix months ended SeptemberJune 30, 20172022, as compared to the same period in 2016.2021. The decrease isincrease was primarily due to product mix, as we sold more IQ8 and IQ7+ microinverters relative to IQ7 microinverters in the implementationsix months ended June 30, 2022, an increase in average selling prices driven by favorable product mix and price increases to our products, as well as cost management effort. The increase was partially offset by higher shipping costs of our restructuring initiative that eliminated non-core projects resultingproducts due to supply chain disruptions globally in a $3.5combination with semiconductor supply constraints, $2.7 million reduction in researchhigher amortization of developed technology and development personnel related expenses$3.6 million higher stock-based compensation.
Enphase Energy, Inc. | 2022 Form 10-Q | 40

Research and a $1.7 million reduction in lab parts, product prototypesDevelopment
Three Months Ended
June 30,		Change inSix Months Ended
June 30,		Change in
20222021$%20222021$%
(In thousands, except percentages)
Research and development$39,256 $22,708 $16,548 73 %$74,975 $44,526 $30,449 68 %
Percentage of net revenues7 %7 %8 %7 %
Three months ended June 30, 2022 and professional fees.
Nine Months Ended September 30, 2017 and 20162021
Research and development expense decreasedincreased by 37% for73%, or $16.5 million, in the ninethree months ended SeptemberJune 30, 20172022, as compared to the same period in 2016.2021. The decrease isincrease was primarily due to the implementation$16.3 million of our restructuring initiative that eliminated non-core projects resulting in an $8.7 million reduction in research and development personnel relatedhigher personnel-related expenses and a $5.1$0.2 million reductionof outside consulting services and equipment expense associated with our investment in lab parts,the development, introduction and qualification of new product prototypesinnovation. The increase in personnel-related expenses was primarily due to hiring and professional fees.retention programs for employees in New Zealand, India and the United States, which increased total compensation costs, including stock-based compensation. The amount of research and development expenseexpenses may fluctuate from period to period due to the differing levels and stages of researchdevelopment activity.
Six months ended June 30, 2022 and 2021
Research and development activity.

Sales and Marketing
 Three Months Ended
September 30,		 Change in Nine Months Ended
September 30,		 Change in
 2017 2016 $ % 2017 2016 $ %
 (dollars in thousands) (dollars in thousands)
Sales and marketing$5,453
 $11,016
 $(5,563) (50)% $18,186
 $31,218
 $(13,032) (42)%
Three Months Ended September 30, 2017 and 2016
Sales and marketing expense decreasedincreased by 50% for the three months ended September 30, 2017 compared to the same period in 2016. The decrease is primarily due to the implementation of our restructuring initiative that eliminated non-core projects resulting in a $2.9 million reduction in sales and marketing personnel related expenses. Spending on advertising activities and professional services decreased by $0.868%, or $30.4 million, in the third quarter of 2017 as compared to the third quarter of 2016. Additionally, bad debt expense was $1.7 million higher in the third quarter of 2016 as compared to the third quarter of 2017 due to provisions taken for certain customers experiencing financial difficulties.
Nine Months Ended September 30, 2017 and 2016
Sales and marketing expense decreased by 42% for the ninesix months ended SeptemberJune 30, 2017 compared to the same period in 2016. The decrease is primarily due to the implementation of our restructuring initiative that eliminated non-core projects resulting in an $8.3 million reduction in sales and marketing personnel related expenses. Spending on advertising activities and professional services decreased by $2.1 million in the nine months ended September 30, 20172022, as compared to the same period in 2016. Additionally, bad debt2021. The increase was primarily due to $28.4 million of higher personnel-related expenses and $1.6 million of outside consulting services and equipment expense was $2.3 million higherassociated with our investment in the ninedevelopment, introduction and qualification of new product innovation. The increase in personnel-related expenses was primarily due to hiring and retention programs for employees in New Zealand, India and the United States, which increased total compensation costs, including stock-based compensation. The amount of research and development expenses may fluctuate from period to period due to the differing levels and stages of development activity.
Sales and Marketing
Three Months Ended
June 30,		Change inSix Months Ended
June 30,		Change in
20222021$%20222021$%
(In thousands, except percentages)
Sales and marketing$53,588 $25,586 $28,002 109 %$94,932 $45,208 $49,724 110 %
Percentage of net revenues10 %8 %10 %7 %
Three months ended SeptemberJune 30, 2016 than2022 and 2021
Sales and marketing expense increased by 109%, or $28.0 million, in the current period.
General and Administrative
 Three Months Ended
September 30,		 Change in Nine Months Ended
September 30,		 Change in
 2017 2016 $ % 2017 2016 $ %
 (dollars in thousands) (dollars in thousands)
General and administrative$5,441
 $6,708
 $(1,267) (19)% $16,238
 $21,121
 $(4,883) (23)%
Three Months Ended September 30, 2017 and 2016
General and administrative expense decreased by 19% for the three months ended SeptemberJune 30, 20172022, as compared to the same period in 2016.2021. The decrease isincrease was primarily due to the implementation$25.4 million of our restructuring initiative that eliminated non-core projects resulting in a $0.6 million reduction in general and administrative personnel relatedhigher personnel-related expenses a $0.3 million reduction in facilities related expenses and a $0.3 million reduction in depreciation expensefrom increased headcount as a result of our efforts to improve customer experience, to provide 24/7 support along with a lower fixed asset base.
Nine Months Ended September 30, 2017field service desk for installers and 2016
GeneralEnphase system owners globally, and administrativeto support our business growth in the United States and international expansion in Europe. In addition, annual retention programs for employees also resulted in the increase in total compensation costs, including stock-based compensation. The increase in sales and marketing expense decreased by 23% forin the ninethree months ended SeptemberJune 30, 20172022, as compared to the same period in 2016.2021, was also attributable to $2.0 million higher amortization of intangible assets acquired through business combinations and $0.6 million of higher professional services and facility costs to enable business growth.
Six months ended June 30, 2022 and 2021
Sales and marketing expense increased by 110%, or $49.7 million, in the six months ended June 30, 2022, as compared to the same period in 2021. The decrease isincrease was primarily due to the implementation$42.9 million of our restructuring initiative that eliminated non-core projects resulting in a $3.1 million reduction in general and administrative personnel relatedhigher personnel-related expenses a $0.6 million reduction in facilities related expenses, a $0.3 million reduction in professional services and a $0.8 million reduction in depreciation expensefrom increased headcount as a result of our efforts to improve customer experience, to provide 24/7 support along with a lower fixed asset base.field service desk for installers and Enphase system owners globally, and to support our business growth in the United States and international expansion in Europe. In addition, annual retention programs

Enphase Energy, Inc. | 2022 Form 10-Q | 41
Restructuring Charges

 Three Months Ended
September 30,		 Change in Nine Months Ended
September 30,		 Change in
 2017 2016 $ % 2017 2016 $ %
 (dollars in thousands) (dollars in thousands)
Restructuring charges$4,071
 $2,717
 $1,354
 50% $14,927
 $2,717
 $12,210
 449%
for employees also resulted in the increase in total compensation costs, including stock-based compensation. The increase in sales and marketing expense in the six months ended June 30, 2022, as compared to the same period in 2021, was also attributable to $4.4 million higher amortization of intangible assets acquired through business combinations and $2.3 million of higher professional services and facility costs to enable business growth
General and Administrative
Three Months Ended
June 30,		Change inSix Months Ended
June 30,		Change in
20222021$%20222021$%
(In thousands, except percentages)
General and administrative$32,125 $20,107 $12,018 60 %$70,211 $40,230 $29,981 75 %
Percentage of net revenues6 %6 %7 %7 %
Three Months Ended Septembermonths ended June 30, 20172022 and 20162021
We implemented a restructuring planGeneral and administrative expense increased by 60%, or $12.0 million, in 2016 to lower operating expenses and cost of revenues that included reductions in our global workforce and the elimination of certain non-core projects. In 2017 we engaged a management consulting firm to assist us in making organizational and structural changes to improve operational efficiencies and reduce expenses. Restructuring charges for the three months ended SeptemberJune 30, 2017 include2022, as compared to the same period in 2021. The increase was primarily due to $7.1 million of higher personnel-related expenses from increased headcount increasing total compensation costs, including stock-based compensation and post business combination employment-related expense, $2.6 million of investments in technological infrastructure and other operational and facilities costs to support scalability of our business growth, $1.5 million of higher legal and professional services and $1.2 million of asset impairment, partially offset by a $0.5 million decrease in acquisition-related costs.
Six months ended June 30, 2022 and 2021
General and administrative expense increased by 75%, or $30.0 million, in the six months ended June 30, 2022, as compared to the same period in 2021. The increase was primarily due to $25.0 million of higher personnel-related expenses as a result of an increase in headcount increasing total compensation costs, including stock-based compensation and post business combination employment-related expense, $4.6 million of investments in technological infrastructure and other operational and facilities costs to support scalability of our business growth, $2.1 million of higher legal and professional services and $1.2 million of asset impairment, partially offset by a decrease of $3.1 million of consulting services and $1.1 million in cash-based severance and related benefits offset by a $0.1 million adjustment to previously established lease loss reserves.
Nine Months Ended September 30, 2017 and 2016
We implemented a restructuring plan in 2016 to lower operating expenses and cost of revenues that included reductions in our global workforce and the elimination of certain non-core projects. In 2017 we engaged a management consulting firm to assist us in making organizational and structural changes to improve operational efficiencies and reduce expenses. Restructuring charges for the nine months ended September 30, 2017 include $10.1 million of consulting services, $2.8 million in cash-based severance and related benefits and $2.0 million in charges for asset impairments and lease loss reserves. We expect to incur additional fees for management consulting services in the near-term.acquisition-related costs.
Other Income (Expense), Net
 Three Months Ended
September 30,		 Change in Nine Months Ended
September 30,		 Change in
 2017 2016 $ % 2017 2016 $ %
 (dollars in thousands) (dollars in thousands)
Other income (expense), net$(1,137) $(881) $(256) 29% $(4,208) $(943) $(3,265) 346%
Three Months Ended
June 30,		Change inSix Months Ended
June 30,		Change in
20222021$%20222021$%
(In thousands, except percentages)
Interest income$796 $98 $698 712 %$1,256 $171 $1,085 635 %
Interest expense(2,168)(12,506)10,338 (83)%(4,904)(19,835)14,931 (75)%
Other expense, net(456)(633)177 (28)%(2,597)(60)(2,537)4,228 %
Loss on partial settlement of convertible notes— (13)13 (100)%— (56,382)56,382 (100)%
Total other expense, net$(1,828)$(13,054)$11,226 (86)%$(6,245)$(76,106)$69,861 (92)%
Three Months Ended Septembermonths ended June 30, 20172022 and 20162021
Interest income of $0.8 million in the three months ended June 30, 2022 increased, as compared to $0.1 million for the three months ended June 30, 2021, was primarily due to an increase in interest rates earned on cash, cash equivalents and marketable securities in the three months ended June 30, 2022, as compared to the same period in 2021.
Cash interest expense
Cash interest expense in each of the three months ended June 30, 2022 and 2021 totaled $0.1 million. Cash interest expense in the three months ended June 30, 2022 primarily includes $0.1 million interest incurred with the Notes due 2025 and Notes due 2023. Cash interest expense in the three months ended June 30, 2021 primarily
Enphase Energy, Inc. | 2022 Form 10-Q | 42

includes approximately $0.1 million coupon interest incurred with our Notes due 2025, Notes due 2024 and Notes due 2023 and less than approximately $0.1 million accretion of interest expense on contingent consideration.
Non-cash interest expense
Non-cash interest expense of $2.1 million in the three months ended June 30, 2022 primarily related to $2.1 million for the debt discount amortization with our Notes due 2025 and amortization of debt issuance costs with our Notes due 2023, Notes due 2025, Notes due 2026 and Notes due 2028. Non-cash interest expense of $12.3 million in the three months ended June 30, 2021 primarily relates to $12.3 million for the debt discount and amortization of debt issuance costs with our Notes due 2024, Notes due 2025, Notes due 2026 and Notes due 2028 and less than approximately $0.1 million relates to the amortization of debt issuance costs associated with Notes due 2023.
Other expense, net was $1.1of $0.5 million forexpense in the three months ended SeptemberJune 30, 2017 versus $0.92022 relates to a $1.5 million for the same period in 2016. Interest expense increased by $0.6 million duenet loss related to amended term loan, which wasforeign currency denominated monetary assets and liabilities, partially offset by $0.3$1.0 million increasenon-cash net gain related to change in otherthe fair value of debt securities. Other (expense) income, duenet of $0.6 million expense in the three months ended June 30, 2021, relates to a $1.5 million net gainsloss related to foreign currency exchange and remeasurement, partially offset by $0.9 million non-cash gain related to the change in the fair value of debt securities.
Six months ended June 30, 2022 and 2021
Interest income of $1.3 million in the six months ended June 30, 2022 increased, as compared to $0.2 million for the threesix months ended SeptemberJune 30, 20172021, primarily due to an increase in interest rates earned on cash, cash equivalents and marketable securities in the six months ended June 30, 2022, as compared to the same period in 2016.2021.
Nine Months Ended SeptemberCash interest expense
Cash interest expense in the six months ended June 30, 20172022 and 20162021 totaled $0.9 million and $0.4 million, respectively. Cash interest expense in the six months ended June 30, 2022 primarily includes $0.8 million interest incurred with the Notes due 2025 and Notes due 2023, and $0.1 million accretion of interest expense on contingent consideration for an acquisition. Cash interest expense in the six months ended June 30, 2021 primarily includes $0.3 million coupon interest incurred with our Notes due 2025, Notes due 2024 and Notes due 2023 and $0.1 million accretion of interest expense on contingent consideration.
Non-cash interest expense
Non-cash interest expense of $4.0 million in the six months ended June 30, 2022 primarily related to $4.0 million for the debt discount amortization with our Notes due 2025 and amortization of debt issuance costs with our Notes due 2023, Notes due 2025, Notes due 2026 and Notes due 2028. Non-cash interest expense of $19.5 million in the six months ended June 30, 2021 primarily relates to $19.4 million for the debt discount and amortization of debt issuance costs with our Notes due 2024, Notes due 2025, Notes due 2026 and Notes due 2028 and less than $0.1 million relates to the amortization of debt issuance costs associated with Notes due 2023.
Other expense, net was $4.2of $2.6 million for nineexpense in the six months ended SeptemberJune 30, 2017 versus $0.92022 relates to $2.2 million net loss related to foreign currency denominated monetary assets and liabilities, $0.3 million impairment of note receivable and $0.1 million non-cash net loss related to change in the same periodfair value of debt securities. Other (expense) income, net of less than $0.1 million expense in 2016. Interest expense increased by $4.4the six months ended June 30, 2021, related to a $2.4 million due to our term loan, which was partially offset by an increase in net gainsloss related to foreign currency exchange and remeasurement, partially offset by $2.3 million non-cash gain related to change in the fair value of $1.1 million.debt securities.
Loss on partial settlement of convertible notes recorded in the six months ended June 30, 2021 primarily related to the $9.5 million non-cash loss on partial settlement of $87.1 million aggregate principal amount of the Notes due 2024, $9.5 million non-cash loss on partial settlement of $217.8 million aggregate principal amount of the Notes due 2025 and $37.5 million non-cash inducement loss incurred on repurchase of Notes due 2025. We did not have any such loss in the six months ended June 30, 2022.
Enphase Energy, Inc. | 2022 Form 10-Q | 43

Income Tax (Provision) Benefit
Three Months Ended
June 30,		Change inSix Months Ended
June 30,		Change in
20222021$%20222021$%
(In thousands, except percentages)
Income tax (provision) benefit$(15,232)$(6,995)$(8,237)118 %$(20,818)$26,369 $(47,187)(179)%
Three months ended June 30, 2022 and 2021
The income tax provision of $15.2 million in the three months ended June 30, 2022 increased, as compared to the income tax provision of $7.0 million in the same period in 2021, both calculated using the annualized effective tax rate method, primarily due to higher projected tax expense in U.S. and foreign jurisdictions that are more profitable in 2022 compared to 2021, partially offset by tax deduction from employee stock-based compensation.
Six months ended June 30, 2022 and 2021
The income tax provision of $20.8 million in the six months ended June 30, 2022 was calculated using the annualized effective tax rate method, primarily relates to higher projected tax expense in U.S. and foreign jurisdictions that are more profitable in 2022, partially offset by tax deduction from employee stock-based compensation.
The income tax benefit of $26.4 million for the six months ended June 30, 2021 was calculated using the annualized effective tax rate method, primarily relates to higher tax deduction from employee stock-based compensation, partially offset by higher projected tax expense in foreign jurisdictions that are profitable in 2021.
Liquidity and Capital Resources
Sources of Liquidity
As of SeptemberJune 30, 2017,2022, we had $28.9 million$1.3 billion in net working capital, including cash, and cash equivalents and working capitalmarketable securities of $50.8 million. Cash and cash equivalents$1.2 billion, of which approximately $1.2 billion were held in the United States were $23.0 millionStates. Our cash, cash equivalents and consistedmarketable securities primarily consist of U.S. Governmenttreasuries, money market mutual funds, corporate notes and non-interest bearing checkingbonds and both interest-bearing and non-interest-bearing deposits, with the remainder held in various foreign subsidiaries. We consider amounts held outside the U.S.United States to be accessible and have provided for the estimated U.S. income tax liability associated with our foreign earnings.
Although we have taken actions to improve our liquidity
Six Months Ended
June 30,		Change in
20222021$%
(In thousands, except percentages)
Cash, cash equivalents and marketable securities$1,247,801 $1,312,261 $(64,460)(5)%
Total Debt1,286,215 1,014,140 272,075 27 %
Our cash, cash equivalents and help us achieve profitability,marketable securities decreased by $64.5 million in the solar market is volatile, and we are subject to market dynamics that are beyond our control. As disclosed in our annual report on Form 10-K for the year ended December 31, 2016, we concluded that substantial doubt exists as to our ability to continue as a going concern within the next year. The accompanying consolidated financial statements for the three and ninesix months ended SeptemberJune 30, 2017 are presented on a going concern basis and do not include any

adjustments that might result from the outcome of this uncertainty. Information about the actions we have taken and are taking2022, compared to mitigate our liquidity constraints is presented below.
Actions we have taken to reduce our operating expenses include a reduction in our global workforce in the third quarter of 2016 and a second reduction in January 2017. We have eliminated certain projects that did not have a near-term return on investment, consolidated office space at our headquarters, divested our services business and engaged a management consulting firm to help us improve operational efficiencies. We expect the cumulative impact of these actions to decrease our ongoing annual operating expenses by approximately 35%. For the nine months ended September 30, 2017, we achieved a combined $32.3 million in savings for research and development, sales and marketing and general and administrative expenses over the same period in 2016, which was partially offset by increased restructuring charges2021, primarily due to use of $12.2 million.
Sources of Liquidity
We have taken and are taking actionscash to improve our liquidity, including raising funds in the capital markets. In 2016, we completed a public offering of approximately 15 million shares and realized net proceeds of approximately $16.2 million.
In December 2016, we entered into an At The Market Issuance Sales Agreement (ATM) under which we could sellfund acquisitions, repurchase shares of our common stock, upmake investments in private companies, and make payments of withholding taxes related to a gross aggregate offering pricenet share settlement of $17.0 million. We realizedequity awards, partially offset by cash generated from operations.
Total carrying amount of debt increased by $272.1 million in the full $17.0 million of gross proceeds available under the ATM during the threesix months ended March 31, 2017.
In January 2017, we completed a private placement of common stock that resulted in gross proceeds of $10.0 million.
In July 2016, we entered into a loan and security agreement (the “Original Term Loan Agreement”) with lenders that are affiliates of Tennenbaum Capital Partners, LLC (“TCP”), which has subsequently been amended and modified as discussed below and in Note 7 to our condensed consolidated financial statements, “Debt.” Under the agreement, the lenders committed to advance a term loan in an aggregate principal amount of up to $25.0 million with a maturity date of July 1, 2020. We drew down the $25.0 million term loan commitment at closing.
Payments under the original agreement were interest only through June 30, 2017, followed by consecutive equal monthly payments of principal plus accrued interest that were to begin on July 1, 2017 and continue through the maturity date. The Original Term Loan Agreement provides for an interest rate per annum equal2022, as compared to the highersame period in 2021, primarily due to adoption of (i) 10.25% or (ii) LIBOR plus 9.5625%, subjectASU 2020-06 as of January 1, 2022, partially offset by repayment of the Notes due 2024 and partial repayment of the Notes due 2025. Refer to a 1.0% reduction ifNote 1, “Description of Business and Basis of Presentation - Recently Adopted Accounting Pronouncements” in this Quarterly Report on Form 10-Q for further information on adoption of ASU 2020-06.
We had net operating loss carryforwards for federal and California income tax purposes of approximately $153.9 million and $92.8 million, respectively, as well as federal and state research credit carryforwards of approximately $17.3 million and $9.8 million, respectively, as of December 31, 2021. When we achieve minimum levelsutilize all of Revenueour net operating loss and EBITDA (each as definedresearch credit carryforwards, which we expect to occur within the next twelve months from June 30, 2022, our cash paid for taxes in the Original Term Loan Agreement) forU.S. will substantially increase.
Enphase Energy, Inc. | 2022 Form 10-Q | 44

We plan to fund any cash requirements from our existing cash, cash equivalents and marketable securities on hand, and cash generated from operations. We anticipate that the twelve-consecutive month period ending June 30, 2017. In addition,debt market will be more limited compared to prior years as interest rates are expected to rise. Our ability to obtain debt or any other additional financing that we paid a commitment fee of 3.3%may choose to, or need to, obtain will depend on, among other things, our development efforts, business plans, operating performance and the condition of the loan amount upon closingcapital markets at the time we seek financing.
Cash from operations could be affected by various risks and a closing fee of 10.0% of the loan amount is payable in four equal installments at each anniversary of the closing date. We may elect to prepay the loan by incurring a prepayment fee between 1% and 3% of the principal amount of the term loan depending on the timing and circumstances of prepayment.
The term loan was secured by a second-priority security interest on substantially all our assets except intellectual property. The Original Term Loan Agreement does not contain any financial covenants, but is subject to customary affirmative and negative covenants including restrictions on creation of liens, dispositions of assets, dividends, mergers, or changing the nature of its business, in each case, subject to certain customary exceptions. In addition, the Term Loan Agreement contains certain customary events of defaultuncertainties, including, but not limited to, failurethe continued effects of COVID-19, the ongoing conflict in Ukraine and other risk factors discussed in the section entitled “Risk Factors” herein and those included in the Form 10-K. We believe that our cash flow from operations with existing cash, cash equivalents and marketable securities will be sufficient to pay interest, principalmeet our anticipated cash needs for working capital and feescapital expenditures for at least the next 12 months and thereafter for the foreseeable future, including our ability to make payment on our outstanding debt.
Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced products, the costs to acquire or other amounts when due, material breachinvest in complementary businesses and technologies, the costs to ensure access to adequate manufacturing capacity, the continuing market acceptance of any representation or warranty, covenant defaults, cross defaults to other material indebtedness,our products and macroeconomic events, of bankruptcysuch as the impacts from the COVID-19 pandemic, inflation, and the occurrenceongoing conflict in Ukraine. We may also choose to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results and financial condition may be adversely affected.
Repurchase of Common Stock. In May 2021, our board of directors authorized a material adverse change (as defined in the agreement)share repurchase program (the “2021 Repurchase Program”) pursuant to which we may repurchase up to an additional $500.0 million of our business.common stock. The Original Term Loan Agreement offers TCP typical rights and remedies in any event of default, including the abilityrepurchases may be executed from time to declare all amounts outstanding immediately due and payable. We do not expect the lender to declare default under any event, including the material adverse change clause.
In 2016 we had a $50.0 million revolving credit facility with Wells Fargo Bank, N.A. (“Wells Fargo”) that was entered into on November 7, 2012, as first amended on February 14, 2014. On December 18, 2015, we entered into an amended and restated revolving credit agreement with Wells Fargo (the “Revolver”) which extended the maturity date from November 7, 2016 to November 7, 2019 and added an uncommitted accordion feature that could increase the size of the facility by $25.0 million,time, subject to certain approvalsgeneral business and meeting certain criteria.
In February 2017, we amendedmarket conditions and other investment opportunities, through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans. Such purchases are expected to continue through May 2024 unless otherwise extended or shortened by our loan and security agreement with TCP to provide an additional $25 million in principal (the “New Term Loan Agreement”). We simultaneously terminated our revolving credit facility with Wells Fargo Bank, N.A., and the combined principal and interest balanceboard of $10.3 million was fully repaid. The new term loan is secured by a first-priority security interest on substantially all our assets except intellectual property and has

the same July 1, 2020 maturity date as the original TCP loan, bothdirectors. As of which are now interest only until February 2018.
The New Term Loan Agreement requires that (i) at all times from the closing date to and including March 31, 2018,June 30, 2022, we have Unrestricted approximately $200.0 million remaining for repurchase of shares under the 2021 Repurchase Program.
Cash (as defined in the New Term Loan Agreement) of at least $10.0 million; (ii) at all times from the closing date to and including March 31, 2018, that the aggregate amount of Consolidated Unrestricted Cash, plus the value of Consolidated Receivables, plus the value of Consolidated Inventory (each as defined in the New Term Loan Agreement) divided by the outstanding principal amount of both term loans, shall equal or exceed 1.5; and (iii) at all times from April 1, 2018 and thereafter, that the aggregate amount of Consolidated Unrestricted Cash, plus the value of Consolidated Receivables, plus the value of Consolidated Inventory divided by the outstanding principal amount of both term loans, shall equal or exceed 1.75. In addition, the New Term Loan Agreement is subject to customary affirmative and negative covenants including restrictions on creation of liens, dispositions of assets, mergers, changing the nature of its business and dividends and other distributions, in each case subject to certain exceptions. The New Term Loan Agreement also contains certain customary events of default including, but not limited to, failure to pay interest, principal and fees or other amounts when due, material breach of any representation or warranty, covenant defaults, cross defaults to other material indebtedness, events of bankruptcy and the occurrence of a material adverse change (as defined in the agreement) to our business. The New Term Loan Agreement offers TCP typical rights and remedies in any event of default, including the ability to declare all amounts outstanding immediately due and payable. We expect to be in compliance with the financial covenants noted above, and we do not expect the lender to declare default under any event, including the material adverse change clause. See Note 7. “Debt.”
Flows. The following table summarizes our cash flows for the periods indicated:presented:
Six Months Ended
June 30,
20222021
(In thousands)
Net cash provided by operating activities$303,093 $141,501 
Net cash provided by (used in) investing activities84,226 (126,607)
Net cash provided by (used in) financing activities(10,220)618,914 
Effect of exchange rate changes on cash(942)(926)
Net increase in cash and cash equivalents$376,157 $632,882 
 Nine Months Ended
September 30,
 2017 2016
 (In thousands)
Net cash used in operating activities$(26,528) $(28,588)
Net cash used in investing activities(3,609) (10,285)
Net cash provided by financing activities40,739
 34,640
Effect of exchange rate changes on cash512
 (107)
Net increase (decrease) in cash and cash equivalents11,114
 (4,340)
Cash Flows from Operating Activities
For the nine months ended September 30, 2017, net cash used inCash flows from operating activities consist of $26.5 million was primarily attributable to aour net loss of $42.3 million offset byincome adjusted for certain non-cash charges of $15.9 million. Non-cash charges included $5.3 million ofreconciling items, such as stock-based compensation $6.8 millionexpense, change in the fair value of investments, deferred income taxes, depreciation and amortization $0.9 million provision for doubtful accounts and a net $1.6 million in asset impairment and restructuring charges.
The primary drivers of cash outflows from changes in operating assets and liabilities included a $8.8 million increase in accounts receivable primarily due to timing of sales within the quarter, an increase in prepaid expenses and other assets of $5.1 million primarily due to prepaid inventory items, and a decrease in warranty obligations of $1.1 million. Cash outflows from changes in operating assets and liabilities were offset by a $6.6 million decrease in inventory due to our inventory management efforts, a $3.2 million increase in accounts payable primarily due to the timing of inventory receipts and a $5.0 million increase in deferred revenue.
For the nine months ended September 30, 2016, net cash used in operating activities of $28.6 million was primarily attributable to a net loss of $54.3 million offset by non-cash charges of $21.0 million and net cash inflows from changes in our operating assets and liabilities of $4.7 million. Non-cash charges included $8.2 million of stock-based compensation, $8.0 million of depreciation and amortization, $3.2 million provision for doubtful accounts and $1.4liabilities. Net cash provided by operating activities increased by $161.6 million in asset impairment charges.
The primary drivers of cash inflows from changesthe six months ended June 30, 2022, as compared to the same period in operating assets and liabilities was a $14.9 million increase in accounts payable, accrued and other liabilities resulting from timing of vendor payments. Also contributing2021, primarily due to cash inflows was an increase in deferred revenue related to our cloud-based monitoring service of $8.7 million and a decrease in inventory of $1.7 million , which was attributable to improved working capital management. Cash outflows from changes in operating assets and liabilities included a $16.6 million increase in

accounts receivablegross profit as a result of increased revenue, partially offset by higher salesoperating expenses as we continue to invest in the third quarterlong-term growth of 2016 compared to the fourth quarter of 2015, a $3.9 million increase in prepaid expenses and other assets attributable to deferral of costs for certain sales arrangements with extended payment terms and a $0.2 million decrease to warranty obligations.our business.
Cash Flows from Investing Activities
For the ninesix months ended SeptemberJune 30, 2017,2022, net cash provided from investing activities of $84.2 million was primarily from $193.0 million maturities of marketable securities, partially offset by $60.1 million purchase of marketable securities, $27.7 million net cash used to acquire SolarLeadFactory and Clipper Creek, Inc., and $21.1 million used in purchases of test and assembly equipment to expand our supply capacity, related facility improvements and information technology enhancements including capitalized costs related to internal-use software.
Enphase Energy, Inc. | 2022 Form 10-Q | 45

For the six months ended June 30, 2021, net cash used in investing activities of $3.6$126.6 million was primarily resulted from $55.3 million net cash used to acquire Sofdesk Inc. and DIN Engineer Service LLP’s solar design services business, $45.0 million from the investment in a debt security, and $26.4 million used in purchases of test and assembly equipment to expand our supply capacity, related facility improvements and information technology enhancements including capitalized costs related to internal-use software.
For the nine months ended September 30, 2016, net cash used in investing activities of $10.3 million primarily resultedCash Flows from purchases of test and assembly equipment, capitalized costs related to internal-use software and license fees for certain technology related to ASIC development.
Financing Activities
For the ninesix months ended SeptemberJune 30, 2017,2022, net cash used by financing activities of approximately $10.2 million was primarily due to $14.8 million payment of employee withholding taxes related to net share settlement of equity awards, partially offset by $4.6 million net proceeds from employee stock option exercises and purchases under our employee stock purchase plan.
For the six months ended June 30, 2021, net cash provided by financing activities of $40.7approximately $618.9 million consisted of net proceedswas primarily from sales of common stock of $26.5$1,188.4 million which included proceeds from the private placement and ATM offering described above and net proceeds from the term loanissuance of $24.2our Notes due 2028 and Notes due 2026, $220.8 million offset by the repaymentfrom sale of principal onwarrants related to our revolving credit facility of $10.1 million.
For the nine months ended September 30, 2016, net cash provided by financing activities of $34.6Notes due 2028 and Notes due 2026 and $3.6 million consisted of net proceeds from employee stock option exercises, partially offset by $286.2 million purchase of convertible note hedge related to our term loanNotes due 2028 and Notes due 2026, $289.3 million cash paid to settle both $87.1 million in aggregate principal amount of $23.9the Notes due 2024 and $217.8 million net public equity offering proceedsin aggregate principal amount of $14.4the Notes due 2025, $200.0 million and proceeds received from the issuancepaid to repurchase shares of our common stock, under$17.0 million payment of employee stock planswithholding taxes related to net share settlement of $0.9equity awards, and $1.4 million offset by the netof repayment on sale of our revolving credit facility of $4.6 million.long-term financing receivables.
Contractual Obligations
There wereOur contractual obligations primarily consist of our Notes due 2028, Notes due 2026, Notes due 2025, Notes due 2023, obligations under operating leases and inventory component purchase. As of June 30, 2022, there have been no material changes duringfrom our disclosure in the nine months ended SeptemberForm 10-K. For more information on our future minimum operating leases and inventory component purchase obligations as of June 30, 20172022, see Note 10, “Commitments and Contingencies - Purchase Obligations” and for more information on our notes and other related debt, see Note 9, “Debt” of the notes to our contractual commitments as presentedcondensed consolidated financial statements included in “Management’s Discussion and AnalysisPart I, Item 1 of Financial Condition and Results of Operations” of our 2016this Quarterly Report on Form 10-K other than the termination of our revolving credit facility and additional term debt as described in Note 7. “Debt.”10-Q.
Off-Balance Sheet Arrangements
As of September 30, 2017, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K. 
Critical Accounting Policies
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S., or GAAP. (“GAAP”). In connection with the preparation of our condensed consolidated financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our condensed consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our condensed consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
We consider an accounting policy to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the condensed consolidated financial statements.
There have been no significant changes during the nine months ended September 30, 2017 to the items that we disclosed as our critical accounting policies
Adoption of New and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2016.

Recently Issued Accounting Pronouncements Not Yet Effective
See Refer to Note 1Description, “Description of Business and Basis of Presentation, - Summary of Significant Accounting Policies” of the Notesnotes to Condensed Consolidated Financial Statements undercondensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of adoption of new and recently issued accounting pronouncements not yet effective.


pronouncements.
Enphase Energy, Inc. | 2022 Form 10-Q | 46
Item 3.Quantitative and Qualitative Disclosures About Market Risk

For quantitativeItem 3.    Quantitative and qualitative disclosures aboutQualitative Disclosures About Market Risk
There have been no material changes in our market risk seecompared to the disclosures in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our annual report onin the Form 10-K for10-K. Also see the year ended December 31, 2016. Our exposures to market risk have not changed materially since December 31, 2016.
section entitled “Risk Factors” in Part I, Item 1A in the Form 10-K.
Enphase Energy, Inc. | 2022 Form 10-Q | 47
Item 4.

Item 4.    Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officerChief Executive Officer and chief financial officer,Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of SeptemberJune 30, 2017.2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended or the Exchange Act,(the “Exchange Act”) includes, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of SeptemberJune 30, 2017,2022, our chief executive officerChief Executive Officer and chief financial officerChief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.effective.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Changes in Internal Control
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. During the quarter ended June 30, 2022, we migrated to a new Enterprise Resource Planning (“ERP”) system designed to maintain our financial records used to report operating results. We have not experienced any material impact to our internal controls over financial reporting despite the new ERP system and the fact that most of our employees continue to work remotely due to the COVID-19 pandemic. We continue to monitor and assess the impact of the new ERP system and ongoing COVID-19 pandemic on our internal controls to minimize the impact on their design and operating effectiveness.

Enphase Energy, Inc. | 2022 Form 10-Q | 48

PART II. OTHER INFORMATION

Item 1.Item 1.    Legal Proceedings
From time to time, we may be involved in litigation relating to claims arising out of our operations.operations, the ultimate disposition of which could have a material adverse effect on our operations, financial condition, or cash flows. We are not currently involved in any material legal proceedings, and our management believes there are currently no claims or actions pending against us,us.
Item 1A.    Risk Factors
The disclosure below supplements our risk factors from those disclosed in Part I, Item 1A in the ultimate dispositionForm 10‑K. These risks and uncertainties, along with those previously disclosed, could materially adversely affect our business or financial results.
Challenges relating to current supply chain constraints, including with respect to semiconductors and integrated circuits, could adversely impact our revenues, gross margins and results of whichoperations.
Due to increased demand across a range of industries, the global supply market for certain raw materials and components, including, in particular, semiconductor, integrated circuits and other electronic components used in some of our products, has experienced significant constraint and disruption in recent periods. This constrained supply environment has adversely affected, and could further affect, component availability, lead times and cost, and could increase the likelihood of unexpected cancellations or delays of previously committed supply of key components. In an effort to mitigate these risks, we have a materialincurred higher costs to secure available inventory, have extended our purchase commitments and placed non-cancellable, advanced orders with or through suppliers, particularly for long lead time components. Our efforts to expand our manufacturing capacity and multi-source and pre-order components may fail to reduce the impact of these adverse effectsupply chain conditions on our operations, financial condition, or cash flows. Webusiness.
Despite our mitigation efforts, these constrained supply conditions may however, be involvedadversely impact our revenues and results of operations. At the same time, increased costs associated with supply premiums, labor, expediting fees and freight and logistics may adversely impact our gross margin, profitability and ability to reduce the cost to manufacture our products in material legal proceedingsa manner consistent with prior periods. The COVID-19 pandemic and conflict in the future. Such matters are subjectUkraine has also contributed to uncertaintyand exacerbated this strain, and there can be no assurance that such legal proceedingsthe impacts of the pandemic and conflict in Ukraine on our supply chain will not have a material adverse effect oncontinue, or worsen, in the future. The current supply chain challenges could also result in increased use of cash, engineering design changes and delays in new product introductions, each of which could adversely impact our business results of operations,and financial position or cash flows.
Item 1A.Risk Factors
We have identifiedresults. In the following risks and uncertainties that may have a material adverse effect onevent these supply chain challenges persist for the foreseeable future, these conditions could adversely impact our business, financial condition or results of operations.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
Stock Repurchase Program
In May 2021, our board of directors authorized the 2021 Repurchase Program pursuant to which we may repurchase up to an aggregate of $500.0 million of our common stock. As of June 30, 2022, we have approximately $200.0 million remaining for repurchase of shares under the 2021 Repurchase Program. Purchases may be completed from time to time in the open market or through structured repurchase agreements with third parties. The risks described belowprogram may be discontinued or amended at any time and expires on May 13, 2024. Such purchases are not the only ones we face. Additional risks not presently knownexpected to uscontinue through May 2024 unless otherwise extended or that we currently believe are not material may also significantly impairshortened by our business operations. Our business could be harmed by anyboard of these risks. directors.
Enphase Energy, Inc. | 2022 Form 10-Q | 49

The trading pricefollowing table provides information about our purchases of our common stock could decline dueduring the three months ended June 30, 2022 (in thousands, except per share amounts):
Period EndedTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced ProgramsApproximate Dollar Value of Shares that May Yet Be Purchased Under the Programs
April 2022— — — $200,000 
May 2022— — — $200,000 
June 2022— — — $200,000 
Total— — 
Item 3.    Defaults Upon Senior Securities
None.
Item 4.    Mine Safety Disclosures
Not applicable.
Item 5.    Other Information
None.
Enphase Energy, Inc. | 2022 Form 10-Q | 50

Item 6.    Exhibits
A list of exhibits filed with this report or incorporated herein by reference is found in the Exhibit Index below.
Incorporation by Reference
Exhibit NumberExhibit DescriptionFormSEC File No.ExhibitFiling DateFiled Herewith
3.1
Amended and Restated Certificate of Incorporation of Enphase Energy, Inc.
8-K001-354803.14/6/2012
3.2
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Enphase Energy, Inc.
10-Q001-354803.18/9/2017
3.3
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Enphase Energy, Inc.
10-Q001-354802.18/6/2018
3.4
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Enphase Energy, Inc.
8-K001-354803.15/27/2020
3.5
S-8333-2562904.55/19/2021
3.6
Amended and Restated Bylaws of Enphase Energy, Inc.
8-K001-354803.14/8/2022
10.1
Amendment No. 4 to Master Supply Agreement, dated January 4, 2021, by and between Enphase Energy, Inc. and SunPower Corporation.
X
10.2#
Amendment No. 5 to Master Supply Agreement, dated July 6, 2022, by and between Enphase Energy, Inc. and SunPower Corporation.
X
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).
X
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).
X
32.1*
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema Document.X
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.X
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.X
101.LABXBRL Taxonomy Extension Label Linkbase Document.X
101.PREXBRL Taxonomy Extension Presentation Document.X
104Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).X
#    Certain portions of this exhibit have been omitted pursuant to anyItem 601 of these risks, and you may lose all or part of your investment. In assessing these risks, you should also refer to the other information contained inRegulation S-K.
*    The certifications attached as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q including our condensed consolidated financial statements and related notes.
We have marked with an asterisk (*) those risks described below that reflect substantive changes from, or additions to, the risks described in our Annual Report on Form 10-K for the year ended December 31, 2016.
We have a history of losses which may continue in the future, and we cannot be certain that we will achieve or sustain profitability.
We have incurred significant net losses since we began doing business, including a net loss of $42.3 million during the nine months ended September 30, 2017. As of September 30, 2017, we had an accumulated deficit of $292.8 million. Our revenue may increase or decrease for a number of possible reasons, many of which are outside our control, including a decline in demand for our offerings, increased competition, a decrease in the growth of the solar industry or our market share, or our failure to capitalize on growth opportunities. If we fail to generate sufficient revenue to support our operations, we may not be able to achieve or sustain profitability. In connection with the issuance of our consolidated financial statements for the year ended December 31, 2016, we concluded that there is substantial doubt regarding our ability to continue as a going concern. While we have taken and continue to take steps to improve our financial position since December 31, 2016 (including raising additional capital and further reducing expenses), there can be no assurance that these steps will be sufficient and we could fail to continue as a going concern. Furthermore, if we require additional capital to finance our operations, this determination could impair our ability to finance our operations through the sale of equity, incurring debt, or other financing alternatives.
We may not be able to raise additional capital to execute on our current or future business opportunities on favorable terms, if at all, or without dilution to our stockholders.
We have disclosed our conclusion under ASU 2014-15, “Presentation of Financial Statements - Going Concern” that there is substantial doubt about our ability to continue as a going concern and our plans to mitigate the conditions that led to that conclusion. Therefore, we may need to raise additional capital to execute on our current or future business strategies, including to:
fund our operations;
invest in our research and development efforts;
expand our operations into new product markets and new geographies;
acquire complementary businesses, products, services or technologies; or
otherwise pursue our strategic plans and respond to competitive pressures.
We do not know what forms of financing, if any, will be available to us, and the determination that there is substantial doubt about our ability to continue as a going concern could impair our ability to raise financing, if needed. If financing is not available on acceptable terms, if and when needed, our ability to fund our operations, enhance our research and development and sales and marketing functions, develop and enhance our products,

respond to unanticipated events, including unanticipated opportunities, or otherwise respond to competitive pressures would be significantly limited. In any such event, our business, financial condition and results of operations could be materially harmed, and we may be unable to continue our operations. Moreover, if we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we fail to raise sufficient additional capital if needed, we may not be able to completely execute our business plan and may not be able to continue as a going concern.
The rapidly changing solar industry makes it difficult to evaluate our current business and future prospects.
The rapidly changing solar industry makes it difficult to evaluate our current business and future prospects. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries, including increased expenses as we continue to grow our business. If we do not manage these risks and overcome these difficulties successfully, our business will suffer.
Since we began commercial shipments of our products, our revenue, gross profit and results of operations have varied and are likely to continue to vary from quarter to quarter due to a number of factors, many of which are not within our control. It is difficult for us to accurately forecast our future revenue and gross profit and plan expenses accordingly and, therefore, it is difficult for us to predict our future results of operations.
If demand for solar energy solutions does not grow or grows at a slower rate than we anticipate, our business will suffer.
Our microinverter and AC Battery storage systems are utilized in solar photovoltaic, or PV, installations, which provide on-site distributed power generation. As a result, our future success depends on continued demand for solar energy solutions and the ability of solar equipment vendors to meet this demand. The solar industry is an evolving industry that has experienced substantial changes in recent years, and we cannot be certain that consumers and businesses will adopt solar PV systems as an alternative energy source at levels sufficient to continue to grow our business. Traditional electricity distribution is based on the regulated industry model whereby businesses and consumers obtain their electricity from a government regulated utility. For alternative methods of distributed power to succeed, businesses and consumers must adopt new purchasing practices. The viability and continued growth in demand for solar energy solutions, and in turn, our products, may be impacted by many factors outside of our control, including:
market acceptance of solar PV systems based on our product platform;
cost competitiveness, reliability and performance of solar PV systems compared to conventional and non-solar renewable energy sources and products;
availability and amount of government subsidies and incentives to support the development and deployment of solar energy solutions;
the extent to which the electric power industry and broader energy industries are deregulated to permit broader adoption of solar electricity generation;
the cost and availability of key raw materials and components used in the production of solar PV systems;
prices of traditional utility-provided energy sources;
levels of investment by end-users of solar energy products, which tend to decrease when economic growth slows; and
the emergence, continuance or success of, or increased government support for, other alternative energy generation technologies and products.
If demand for solar energy solutions does not grow, demand for our customers' products as well as demand for our products will decrease, which would have an adverse impact on our ability to increase our revenue and grow our business.
Short-term demand and supply imbalances, especially for solar module technology, have recently caused prices for solar technology solutions to decline rapidly. Furthermore, competition in the solar industry has increased due to the emergence of lower-cost manufacturers along the entire solar value chain causing further price declines, excess inventory and oversupply. These market disruptions may continue to occur and may increase pressure to reduce prices, which could adversely affect our business and financial results, including impairing the recorded value of our inventory.

The loss of, or events affecting, one of our major customers could reduce our sales and have a material adverse effect on our business, financial condition and results of operations.
In 2016, CED Greentech accounted for approximately 18% of total net revenues. In 2015, CED Greentech and Vivint Solar, Inc. accounted for approximately 17% and 12% of total net revenues, respectively. Our customers’ decisions to purchase our products are influenced by a number of factors outside of our control, including retail energy prices and government regulation and incentives, among others. Although we have agreements with some of our largest customers, these agreements generally do not have long-term purchase commitments and are generally terminable by either party after a relatively short notice period. In addition, these customers may decide to no longer use, or to reduce the use of, our products and services for other reasons that may be out of our control. For example, beginning in 2015, Vivint Solar, Inc. implemented a multi-sourcing strategy, and therefore, is not sole-sourcing our microinverters, which has resulted in and may continue to result in a reduction in our revenue generated from sales to Vivint. In addition, adverse events affecting our customers could also adversely affect our revenue and results of operations (for instance, the recent filing of a voluntary petition for bankruptcy protection by one of our customers prevented us from timely collection of our accounts receivable from that customer).  The loss of, or events affecting, Vivint or one or more of our other large customers have had, could have and could continue to have a material adverse effect on our business, financial condition and results of operations.
Our gross profit may fluctuate over time, which could impair our ability to achieve or maintain profitability.
Our gross profit has varied in the past and is likely to continue to vary significantly from period to period. Our gross profit may be adversely affected by numerous factors, some of which are beyond our control, including:
changes in customer, geographic or product mix;
increased price competition, including the impact of customer and competitor discounts and rebates;
our ability to reduce and control product costs, including our ability to make product cost reductions in a timely manner to offset declines in our product prices;
warranty costs and reserves, including changes resulting from changes in estimates related to the long-term performance of our products, product replacement costs and warranty claim rates;
loss of cost savings due to changes in component or raw material pricing or charges incurred due to inventory holding periods if product demand is not correctly anticipated;
introduction of new products;
ordering patterns from our distributors;
price reductions on older products to sell remaining inventory;
our ability to reduce production costs, such as through technology innovations, in order to offset price declines in our products over time;
changes in shipment volume;
changes in distribution channels;
excess and obsolete inventory and inventory holding charges;
expediting costs incurred to meet customer delivery requirements; and
fluctuations in foreign currency exchange rates.
Fluctuations in gross profit may adversely affect our ability to manage our business or achieve or maintain profitability.
We are under continuous pressure to reduce the prices of our products, which has adversely affected, and may continue to adversely affect, our gross margins.
The solar power industry has been characterized by declining product prices over time. We have reduced the prices of our products in the past, and we expect to continue to experience pricing pressure for our products in the future, including from our major customers. In addition, we have reduced our prices ahead of planned cost reductions of our products, which has adversely affected our gross margins. When seeking to maintain or increase their market share, our competitors may also reduce the prices of their products. In addition, our customers may have the ability or seek to internally develop and manufacture competing products at a lower cost than we would otherwise charge, which would add additional pressure on us to lower our selling prices. If we are unable to offset any future reductions in our average selling prices by increasing our sales volume, reducing our costs and expenses or introducing new products, our gross margins would continue to be adversely affected.

Given the general downward pressure on prices for our products driven by competitive pressure and technological change, a principal component of our business strategy is reducing the costs to manufacture our products to remain competitive. If our competitors are able to drive down their manufacturing costs faster than we can or increase the efficiency of their products, our products may become less competitive even when adjusted for efficiency, and we may be forced to sell our products at a price lower than our cost. Further, if raw materials costs and other third-party component costs were to increase, we may not meet our cost reduction targets. If we cannot effectively execute our cost reduction roadmap, we may not be able to remain price competitive, which would result in lost market share and lower gross margins.
The inverter industry is highly competitive and we expect to face increased competition as new and existing competitors introduce products, which could negatively impact our results of operations and market share.
The market for PV inverter solutions is highly competitive. To date, we have competed primarily against central and string inverter manufacturers, but as the solar industry rapidly grows, new solutions and technologies are emerging that will directly compete with our business. Competitors in the inverter market include, amongst others, SMA Solar Technology AG, Fronius International GmbH, ABB Ltd. and SolarEdge Technologies, Inc.. Other existing or emerging companies, such as Huawei Technologies Co. Ltd., may also begin offering alternative microinverter, DC to DC optimizer and other power electronic solutions.
Competition has intensified, and we expect the trend to continue as new and existing competitors enter the microinverter market, or market and sell related products, such as DC to DC optimizers that can be used in conjunction with central or string inverters. SMA Solar Technology AG and ABB Ltd. market and sell microinverter products, and several new entrants to the microinverter market have recently announced plans to ship or have already shipped products. We believe that a number of companies have developed or are developing microinverters and other products that will compete directly with our microinverter systems in the module-level power electronics, or MLPE market, including low-cost manufacturers such as Huawei Technologies Co. Ltd.. In addition, central and string inverter manufacturers continue to reduce their prices, putting additional pressure on us and other alternative technologies.
Several of our existing and potential competitors are significantly larger than we are and may have greater financial, marketing, distribution, and customer support resources, and may have significantly broader brand recognition, especially in certain markets. In addition, some of our competitors have more resources and experience in developing or acquiring new products and technologies and creating market awareness for these offerings. Further, certain competitors may be able to develop new products more quickly than we can and may be able to develop products that are more reliable or that provide more functionality than ours. In addition, some of our competitors have the financial resources to offer competitive products at aggressive or below-market pricing levels, which could cause us to lose sales or market share or require us to lower prices of our products in order to compete effectively. Suppliers of solar products, particularly solar modules, have experienced eroding prices over the last several years and as a result many have faced margin compression and declining revenues. If we have to reduce our prices by more than we anticipate, or if we are unable to offset any future reductions in our average selling prices by increasing our sales volume, reducing our costs and expenses or introducing new products, our revenues and gross profit would suffer.
We also may face competition from some of our customers or potential customers who evaluate our capabilities against the merits of manufacturing products internally. For instance, SunPower Corporation acquired a microinverter company SolarBridge Technologies, Inc. in November of 2014. Other solar module manufacturers could also develop or acquire competing inverter technology or attempt to develop components that directly perform DC to AC conversion in the module itself. Due to the fact that such customers may not seek to make a profit directly from the manufacture of these products, they may have the ability to manufacture competitive products at a lower cost than we would charge such customers. As a result, these customers or potential customers may purchase fewer of our microinverter systems or sell products that compete with our microinverters systems, which would negatively impact our revenue and gross profit.

Developments in alternative technologies or improvements in distributed solar energy generation may have a material adverse effect on demand for our offerings.
Significant developments in alternative technologies, such as advances in other forms of distributed solar PV power generation, storage solutions such as batteries, the widespread use or adoption of fuel cells for residential or commercial properties or improvements in other forms of centralized power production may have a material

adverse effect on our business and prospects. Any failure by us to adopt new or enhanced technologies or processes, or to react to changes in existing technologies, could result in product obsolescence, the loss of competitiveness of our products, decreased revenue and a loss of market share to competitors.
Our microinverter systems, including our AC Battery storage solution and recently announced integrated AC Module, may not achieve broader market acceptance, which would prevent us from increasing our revenue and market share.
If we fail to achieve broader market acceptance of our products, there would be an adverse impact on our ability to increase our revenue, gain market share and achieve and sustain profitability. Our ability to achieve broader market acceptance for our products will be impacted by a number of factors, including:
our ability to produce microinverter systems and AC Battery storage products that compete favorably against other solutions on the basis of price, quality, reliability and performance;
our ability to timely introduce and complete new designs and timely qualify and certify our products;
whether installers, system owners and solar financing providers will continue to adopt our microinverter systems, which have a relatively limited history with respect to reliability and performance;
whether installers, system owners and solar financing providers will adopt our AC Battery storage solution, which is a new technology with a limited history with respect to reliability and performance;
the ability of prospective system owners to obtain long-term financing for solar PV installations based on our product platform on acceptable terms or at all;
our ability to develop products that comply with local standards and regulatory requirements, as well as potential in-country manufacturing requirements; and
our ability to develop and maintain successful relationships with our customers and suppliers.
In addition, our ability to achieve increased market share will depend on our ability to increase sales to established solar installers, who have traditionally sold central or string inverters. These installers often have made substantial investments in design, installation resources and training in traditional central or string inverter systems, which may create challenges for us to achieve their adoption of our microinverter systems.
The reduction, elimination or expiration of government subsidies and economic incentives for on-grid solar electricity applications could reduce demand for solar PV systems and harm our business.
The market for on-grid applications, where solar power is used to supplement a customer’s electricity purchased from the utility network or sold to a utility under tariff, depends in large part on the availability and size of government and economic incentives that vary by geographic market. Because our customers’ sales are typically into the on-grid market, the reduction, elimination or expiration of government subsidies and economic incentives for on-grid solar electricity may negatively affect the competitiveness of solar electricity relative to conventional and non-solar renewable sources of electricity, and could harm or halt the growth of the solar electricity industry and our business.
In general, the cost of solar power currently exceeds retail electricity rates, and we believe this tendency will continue in the near term. As a result, national, state and local government bodies in many countries, most notably Australia, Canada, France, Belgium, Germany, Italy, Japan, the People’s Republic of China, Spain and the United States, have provided incentives in the form of feed-in tariffs, or FiTs, rebates, tax credits and other incentives to system owners, distributors, system integrators and manufacturers of solar PV systems to promote the use of solar electricity in on-grid applications and to reduce dependency on other forms of energy. Many of these government incentives expire, phase out over time, terminate upon the exhaustion of the allocated funding, require renewal by the applicable authority or are being changed by governments due to changing market circumstances or changes to national, state or local energy policy.
Electric utility companies or generators of electricity from other non-solar renewable sources of electricity may successfully lobby for changes in the relevant legislation in their markets that are harmful to the solar industry. Reductions in, or eliminations or expirations of, governmental incentives in regions that we focus our sales efforts could result in decreased demand for and lower revenue from solar PV systems there, which would adversely affect sales of our products. In addition, our ability to successfully penetrate new geographic markets may depend on new countries adopting and maintaining incentives to promote solar electricity, to the extent such incentives are not currently in place. Additionally, electric utility companies may establish pricing structures or interconnection requirements that could adversely affect our sales and be harmful to the solar and distributed rooftop solar generation industry.

*U.S. government actions with regard to the solar energy sector or international trade could materially harm our business, financial condition and results of operations.
The recent change in the U.S. presidential administration may create regulatory uncertainty in the clean energy sector generally and the solar energy sector in particular. If the new administration or the U.S. Congress take action to eliminate or reduce legislation, regulations and incentives supporting solar energy, such actions may result in a decrease in demand for solar energy in the United States and other geographical markets, which could materially harm our business, financial condition and results of operations.
The U.S. International Trade Commission (“ITC”) made a determination of injury on September 22, 2017 on a petition filed by Suniva Inc. calling for tariffs and minimum price guarantees on solar equipment manufactured outside of the U.S. The ITC now has until November 13, 2017 to formally recommend a remedy to the president, who may subsequently impose minimum price requirements, tariffs, quotas or other remedies. Any such remedies could have a negative impact on the overall demand for solar products in the U.S. If applied specifically to products that we or our commercial partners import such remedies could materially harm our business, financial condition and results of operations.
Furthermore, a significant portion of our business activities are conducted in foreign countries, including Mexico, Canada and China. During the 2016 election campaign, the new president made comments suggesting that he was not supportive of certain existing international trade agreements, including the North American Free Trade Agreement (“NAFTA”). At this time, it remains unclear what the new administration or the U.S. Congress may or may not do with respect to these international trade agreements. If the new administration takes action to impose any border tariff or to withdraw from or materially modify NAFTA or certain other international trade agreements, our business, financial condition and results of operations could be adversely affected.
If we do not forecast demand for our products accurately, we may experience product shortages, delays in product shipment, excess product inventory, or difficulties in planning expenses, any of which will adversely affect our business and financial condition.
We manufacture our products according to our estimates of customer demand. This process requires us to make multiple forecasts and assumptions relating to the demand of our distributors, their end customers and general market conditions. Because we sell most of our products to distributors, who in turn sell to their end customers, we have limited visibility as to end-customer demand. We depend significantly on our distributors to provide us visibility into their end-customer demand, and we use these forecasts to make our own forecasts and planning decisions. If the information from our distributors turns out to be incorrect, then our own forecasts may also be inaccurate. Furthermore, we do not have long-term purchase commitments from our distributors or end customers, and our sales are generally made by purchase orders that may be canceled, changed or deferred without notice to us or penalty. As a result, it is difficult to forecast future customer demand to plan our operations.
If we overestimate demand for our products, or if purchase orders are canceled or shipments are delayed, we may have excess inventory that we cannot sell. We may have to make significant provisions for inventory write-downs based on events that are currently not known, and such provisions or any adjustments to such provisions could be material. Conversely, if we underestimate demand, we may not have sufficient inventory to meet end-customer demand, and we may lose market share, damage relationships with our distributors and end customers and forgo potential revenue opportunities. Obtaining additional supply in the face of product shortages may be costly or impossible, particularly in the short term and in light of our outsourced manufacturing processes, which could prevent us from fulfilling orders in a timely and cost efficient manner or at all. In addition, if we overestimate our production requirements, our contract manufacturers may purchase excess components and build excess inventory. If our contract manufacturers, at our request, purchase excess components that are unique to our products and are unable to recoup the costs of such excess through resale or return or build excess products, we could be required to pay for these excess parts or products and recognize related inventory write-downs.
In addition, we plan our operating expenses, including research and development expenses, hiring needs and inventory investments, in part on our estimates of customer demand and future revenue. If customer demand or revenue for a particular period is lower than we expect, we may not be able to proportionately reduce our fixed operating expenses for that period, which would harm our operating results for that period.

Our focus on a limited number of specific markets increases risks associated with the modification, elimination or expiration of governmental subsidies and economic incentives for on-grid solar electricity applications.
To date, we have generated the majority of our revenues from North America and expect to continue to generate a substantial amount of our revenues from North America in the future. There are a number of important incentives that are expected to phase-out or terminate in the future, which could adversely affect sales of our products. A substantial majority of our revenues come from the United States, which has both federal and state incentives. For instance, the Renewable Energy and Job Creation Act of 2008 currently provides a 30% federal tax credit for residential and commercial solar installations through December 31, 2019 and reduced tax credits of 26% and 22% through December 31, 2020 and 2021 respectively, before being reduced to 10% for commercial installations and 0% for residential installations beginning in 2022. These tax credits could be reduced or eliminated as part of tax code changes or regulatory reform initiatives by the new Congress and presidential administration.
In addition, net energy metering tariffs are being evaluated and in some instances modified which may have a negative impact on future inverter sales. We derive a significant portion of our revenues from California’s residential solar market and the existing California net energy metering tariff has been very successful in incentivizing the installation of residential solar systems. California, however, is re-evaluating existing incentives, tariffs and rates for residential systems in order to accommodate a sustainable growth trajectory for residential solar and to also encourage the adoption of other distributed energy resources, such as energy storage, that provide additional benefits to the consumer and the electricity grid. There is a risk that future regulatory changes will not adequately stimulate future growth in the residential solar market.
We also sell our products in Europe. A number of European countries, including Germany, Belgium, Spain, Italy and the United Kingdom have adopted reductions or concluded their FiT programs. Certain countries, notably Greece and Spain, have proposed or enacted taxes levied on renewable energy. These and related developments have significantly impacted the solar industry in Europe and may adversely affect the future demand for the solar energy solutions in Europe.
We also sell our products in Australia. In 2012 Australia enacted a Renewable Energy Target (RET) that is intended to ensure that 33,000 Gigawatt-hours of Australia's electricity comes from renewable sources by 2020.  In 2013, Australia elected a new national government. The new leadership pledged to revise national energy policy, including potentially reducing Australia’s RET and revising certain renewable energy financing mechanisms. In July 2014, the new leadership successfully repealed the tax on carbon emissions. This has been replaced with the Direct Action Plan, which primarily provides funding to corporations to reduce emissions. States and territories in Australia have different FiTs, and the gradual reduction of FiTs in some states may reduce the incentive for homeowners to export unused solar energy produced back to the grid.
We also sell our products in Ontario, Canada. The Government of Ontario has the authority to change the FiTs for future contracts at its discretion and has the authority to modify, suspend, or discontinue the program at any time. Suspension of the FiT program in Ontario directly impacted and could continue to impact our business. Furthermore, any future suspension or modification of the program could negatively affect our business, financial condition and results of operations.
We believe the Federal and State tax credits, applicable federal and state grants, applicable tariffs and other incentive programs have had a positive effect on our sales since inception. However, unless these programs are further extended or modified to allow for continued growth in the residential solar market, the phase-out of such programs could adversely affect sales of our products in the future. The reductions in incentives and uncertainty around future energy policy, including local content requirements, have negatively affected and may continue to negatively affect our business, financial condition, and results of operations as we seek to increase our business domestically and abroad. Additionally, as we further expand to other countries, changes in incentive programs or electricity policies could negatively affect returns on our investments in those countries as well as our business, financial condition, and results of operations.
Changes in current laws or regulations or the imposition of new laws or regulations, or new interpretations thereof, by federal or state agencies or foreign governments could impair our ability to compete in international markets.
Changes in current laws or regulations applicable to us or the imposition of new laws and regulations in the United States, Canada, Mexico and certain Central American markets, France, the Benelux region, certain other European markets, Australia, New Zealand and certain other Asian markets, could materially and adversely affect

our business, financial condition and results of operations. In addition, changes in our products or changes in export and import laws and implementing regulations may create delays in the introduction of new products in international markets, prevent our customers from deploying our products internationally or, in some cases, prevent the export or import of our products to certain countries altogether.
For example, the Italian energy authority (AEEG) enacted a new set of interconnection standards for solar energy installations that became effective in July 2012, which has negatively impacted our sales in Italy. We continue to explore potential solutions to meet these requirements. However, in the event that we cannot implement a solution in the near term the total market available for our microinverter products in Italy, and our business as a result, may continue to be adversely impacted.
In addition, several states or territories, including California, Hawaii and Queensland, Australia, have either implemented or are considering implementing new restrictions on incentives or rules regulating the installation of solar systems that we may not be able to currently comply with. In the event that we cannot comply with these or other new regulations or implement a solution to such noncompliance as they arise, the total market available for our microinverter products in such states, and our business as a result, may be adversely impacted.
While we are not aware of any other current or proposed export or import regulations that would materially restrict our ability to sell our products in countries where we offer our products for sale, any change in export or import regulations or related legislation, shift in approach to the enforcement or scope of existing regulations, or change in the countries, persons or technologies targeted by these regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations. In such event, our business and results of operations could be adversely affected.
The threat of continuing global economic, capital markets and credit disruptions, including sovereign debt issues, pose risks for our business.
The threat of continuing global economic, capital markets and credit disruptions, including the sovereign debt issues in Europe, pose risks for our business. These risks include slower economic activity and investment in projects that make use of our products and services. These economic developments, particularly decreased credit availability, have reduced demand for solar products. The European sovereign debt crisis has caused and may continue to cause European governments to reduce, eliminate or allow to expire government subsidies and economic incentives for solar energy, which could limit our growth or cause our net sales to decline and materially and adversely affect our business, financial condition, and results of operations. These conditions, including reduced incentives, continued decreases in credit availability, as well as continued economic instability, have and may continue to adversely impact our business, financial condition and results of operations as we seek to increase our sales in Europe.
A drop in the retail price of electricity derived from the utility grid or from alternative energy sources, or a change in utility pricing structures, may harm our business, financial condition and results of operations.
We believe that a system owner’s decision to purchase a solar PV system is strongly influenced by the cost of electricity generated by solar PV installations relative to the retail price of electricity from the utility grid and the cost of other renewable energy sources, including electricity from solar PV installations using central inverters. Decreases in the retail prices of electricity from the utility grid would make it more difficult for all solar PV systems to compete. In particular, growth in unconventional natural gas production and an increase in global liquefied natural gas capacity are expected to keep natural gas prices relatively low for the foreseeable future. Persistent low natural gas prices, lower prices of electricity produced from other energy sources, such as nuclear power, or improvements to the utility infrastructure could reduce the retail price of electricity from the utility grid, making the purchase of solar PV systems less economically attractive and lowering sales of our products. In addition, energy conservation technologies and public initiatives to reduce demand for electricity also could cause a fall in the retail price of electricity from the utility grid. Moreover, technological developments by our competitors in the solar components industry, including manufacturers of central inverters and DC to DC optimizers, could allow these competitors or their partners to offer electricity at costs lower than those that can be achieved from solar PV installations based on our product platform, which could result in reduced demand for our products. Additionally, as increasing adoption of distributed generation places pressure on traditional utility business models or utility infrastructure, utilities may change their pricing structures to make installation or operation of solar distributed generation more costly. Such measures can include grid access fees, costly or lengthy interconnection studies, limitations on distributed generation penetration levels, or other measures. If the cost of electricity generated by solar PV installations

incorporating our microinverter systems is high relative to the cost of electricity from other sources, our business, financial condition and results of operations may be harmed.
Problems with product quality or product performance may cause us to continue to incur additional warranty expenses and may damage our market reputation and cause our revenue and gross profit to decline.
We have offered 15-year limited warranties for our first and second generation microinverters and offer a limited warranty of up to 25 years on each subsequent generation microinverters. Our limited warranties cover defects in materials and workmanship of our microinverters under normal use and service conditions for up to 25 years following installation. As a result, we bear the risk of warranty claims long after we have sold the product and recognized revenue. Our estimated costs of warranty for previously sold products may change to the extent future products are not compatible with earlier generation products under warranty.
While we offer warranties of up to 25 years, our microinverters have only been in use since mid-2008, when we first commenced commercial sales of our products. Although we conduct accelerated life cycle testing to measure performance and reliability, our microinverter systems have not been tested over the full warranty cycle and do not have a sufficient operating history to confirm how they will perform over their estimated useful life. In addition, under real-world operating conditions, which may vary by location and design, as well as insolation, soiling and weather conditions, a typical solar PV installation may perform in a different way than under standard test conditions. If our products perform below expectations or have unexpected reliability problems, we may be unable to gain or retain customers and could face substantial warranty expense.
We are required to make assumptions and apply judgments, based on our accelerated life cycle testing and the limited operating history of our products, regarding a number of factors, including the durability and reliability of our products, our anticipated rate of warranty claims and the costs of replacement of defective products. Our assumptions have proved and could in the future prove to be materially different from the actual performance of our products, which has caused and may in the future cause us to incur substantial expense to repair or replace defective products. Increases in our estimates of future warranty obligations due to actual product failure rates, field service obligations and rework costs incurred in correcting product failures have caused and could in the future cause us to materially increase the amount of warranty obligations, and have had and may have in the future a corresponding negative impact on our results of operations.
We also depend significantly on our reputation for reliability and high-quality products and services, exceptional customer service and our brand name to attract new customers and grow our business. If our products and services do not perform as anticipated or we experience unexpected reliability problems or widespread product failures, our brand and reputation could be significantly impaired and we may lose, or be unable to gain or retain, customers.
Defects and poor performance in our products could result in loss of customers, decreased revenue and unexpected expenses, and we may face warranty, indemnity and product liability claims arising from defective products.
Our products must meet stringent quality requirements and may contain undetected errors or defects, especially when first introduced or when new generations are released. Errors, defects or poor performance can arise due to design flaws, defects in raw materials or components or manufacturing difficulties, which can affect both the quality and the yield of the product. These errors or defects may be dangerous, as defective power components may cause power overloads, potentially resulting in explosion or fire. As we develop new generations of our products and enter new markets, we face higher risk of undetected defects because our testing protocols may not be able to fully test the products under all possible operating conditions. In the past, we have experienced defects in our products due to certain errors in the manufacturing and design process. Any actual or perceived errors, defects or poor performance in our products could result in the replacement or recall of our products, shipment delays, rejection of our products, damage to our reputation, lost revenue, diversion of our engineering personnel from our product development efforts in order to address or remedy any defects and increases in customer service and support costs, all of which could have a material adverse effect on our business and operations.
Furthermore, defective, inefficient or poorly performing power components may give rise to warranty, indemnity or product liability claims against us that exceed any revenue or profit we receive from the affected products. We could incur significant costs and liabilities if we are sued and if damages are awarded against us. We currently maintain a moderate level of product liability insurance, and there can be no assurance that this insurance

will provide sufficient coverage in the event of a claim. Also, we cannot predict whether we will be able to maintain this coverage on acceptable terms, if at all, or that a product liability claim would not harm our business or financial condition. Costs or payments we may make in connection with warranty and product liability claims or product recalls may adversely affect our financial condition and results of operations.
Our Enlighten web-based monitoring service, which our customers use to track and monitor the performance of their solar PV systems based on our product platform, may contain undetected errors, failures, or bugs, especially when new versions or enhancements are released. We have from time to time found defects in our service and new errors in our existing service may be detected in the future. Any errors, defects, disruptions in service or other performance problems with our monitoring service could harm our reputation and may damage our customers’ businesses.
If we are unable to effectively manage our workforce, our business and operating results may suffer.
We have experienced, and expect to experience in the future, volatility in our sales and operations. Our historical growth and our more recent cost reduction initiatives have placed, and are expected to continue to place, significant demands on our management as well as our financial and operational resources, to:
manage a dynamic organization;
expand third-party manufacturing, testing and distribution capacity;
execute on our cost reduction efforts and product initiatives with reduced headcount;
build additional custom manufacturing test equipment;
manage an increasing number of relationships with customers, suppliers and other third parties;
increase our sales and marketing efforts;
train and manage a dynamic employee base;
broaden our customer support capabilities; and
implement new and upgrade existing operational and financial systems.
We cannot assure you that our current and planned operations, personnel, systems, internal procedures and controls will be adequate to support our future operations. If we cannot manage our sales and operations effectively, we may be unable to take advantage of market opportunities, execute our business strategies or respond to competitive pressures, any of which could have a material adverse effect on our financial condition, results of operations, business or prospects.
Our recent and planned expansion into new markets could subject us to additional business, financial and competitive risks.
We currently offer microinverter systems targeting the residential and commercial markets in the United States, Canada, Mexico and certain Central American markets, the United Kingdom, France, the Benelux region, certain other European markets, Australia, New Zealand and certain other Asian markets. We recently introduced our AC Battery storage solution in Australia, the United States, and the United Kingdom. We intend to expand into other international markets. Our success in these new geographic and product markets will depend on a number of factors, such as:
acceptance of microinverters in markets in which they have not traditionally been used;
our ability to compete in new product markets to which we are not accustomed;
our ability to manage manufacturing capacity and production;
willingness of our potential customers to incur a higher upfront capital investment than may be required for competing solutions;
timely qualification and certification of new products;
our ability to reduce production costs in order to price our products competitively over time;
availability of government subsidies and economic incentives for solar energy solutions;
accurate forecasting and effective management of inventory levels in line with anticipated product demand; and
our customer service capabilities and responsiveness.

Further, new geographic markets and the larger commercial and utility-scale installation markets have different characteristics from the markets in which we currently sell products, and our success will depend on our ability to properly address these differences. These differences may include:
differing regulatory requirements, including tax laws, trade laws, labor, safety, local content, recycling and consumer protection regulations, tariffs, export quotas, customs duties or other trade restrictions;
limited or unfavorable intellectual property protection;
risk of change in international political or economic conditions;
restrictions on the repatriation of earnings;
fluctuations in the value of foreign currencies and interest rates;
difficulties and increased expenses in complying with a variety of U.S. and foreign laws, regulations and trade standards, including the Foreign Corrupt Practices Act and UK Bribery Act;
potentially longer sales cycles;
higher volume requirements;
increased customer concentrations;
warranty expectations and product return policies; and
cost, performance and compatibility requirements.
Failure to develop and introduce these new products successfully, to generate sufficient revenue from these products to offset associated research and development, marketing and manufacturing costs, or to otherwise effectively anticipate and manage the risks and challenges associated with our potential expansion into new product and geographic markets, could adversely affect our revenues and our ability to achieve or sustain profitability.
Ordering patterns from our distributors may cause our revenue to fluctuate significantly from period to period.
Our distributors place purchase orders with us based on their assessment of end-customer demand and their forecasts. Because these forecasts may not be accurate, channel inventory held at our distributors may fluctuate significantly due to the difference between their forecasts and actual demand. As a result, distributors adjust their purchase orders placed with us in response to changing channel inventory levels, as well as their assessment of the latest market demand trends. We have limited visibility into future end customer demand. A significant decrease in our distributors’ channel inventory in one period may lead to a significant rebuilding of channel inventory in subsequent periods, or vice versa, which may cause our quarterly revenue and operating results to fluctuate significantly. This fluctuation may cause our results to fall short of analyst or investor expectations in a certain period, which may cause our stock price to decline.
We depend upon a small number of outside contract manufacturers. Our operations could be disrupted if we encounter problems with these contract manufacturers.
We do not have internal manufacturing capabilities, and rely upon a small number of contract manufacturers to build our products. In particular, we rely on contract manufacturers for the manufacture of microinverter products, cabling and our communications gateway related to our microinverter systems. Our reliance on a small number of contract manufacturers makes us vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields and costs. We do not have long-term supply contracts with our other manufacturing partners. Consequently, these manufacturers are not obligated to supply products to us for any period, in any specified quantity or at any certain price.
The revenues that our contract manufacturers generate from our orders may represent a relatively small percentage of their overall revenues. As a result, fulfilling our orders may not be considered a priority in the event of constrained ability to fulfill all of their customer obligations in a timely manner. In addition, the facilities in which most of our microinverters, related cabling and communications gateway products are manufactured are located outside of the United States. We believe that the location of these facilities outside of the United States increases supply risk, including the risk of supply interruptions or reductions in manufacturing quality or controls.
If any of our contract manufacturers were unable or unwilling to manufacture our products in required volumes and at high quality levels or renew existing terms under supply agreements, we would have to identify, qualify and select acceptable alternative contract manufacturers. An alternative contract manufacturer may not be available to us when needed or may not be in a position to satisfy our quality or production requirements on commercially reasonable terms, including price. Any significant interruption in manufacturing would require us to reduce our

supply of products to our customers, which in turn would reduce our revenues, harm our relationships with our customers and damage our relationships with our distributors and end customers and cause us to forgo potential revenue opportunities.
Manufacturing problems could result in delays in product shipments to customers and could adversely affect our revenue, competitive position and reputation.
We may experience delays, disruptions or quality control problems in our manufacturing operations. Our product development, manufacturing and testing processes are complex and require significant technological and production process expertise. Such processes involve a number of precise steps from design to production. Any change in our processes could cause one or more production errors, requiring a temporary suspension or delay in our production line until the errors can be researched, identified and properly addressed and rectified. This may occur particularly as we introduce new products, modify our engineering and production techniques, and expand our capacity. In addition, our failure to maintain appropriate quality assurance processes could result in increased product failures, loss of customers, increased production costs and delays. Any of these developments could have a material adverse effect on our business, financial condition, and results of operations.
A disruption could also occur in our manufacturing partner’s fabrication facility due to any number of reasons, such as equipment failure, contaminated materials or process deviations, which could adversely impact manufacturing yields or delay product shipments. As a result, we could incur additional costs that would adversely affect our gross profit, and product shipments to our customers could be delayed beyond the shipment schedules requested by our customers, which would negatively affect our revenue, competitive position and reputation.
Additionally, manufacturing yields depend on a number of factors, including the stability and manufacturability of the product design, manufacturing improvements gained over cumulative production volumes and the quality and consistency of component parts. Capacity constraints, raw materials shortages, logistics issues, labor shortages, changes in customer requirements, manufacturing facilities or processes, or those of some third-party contract manufacturers and suppliers of raw materials and components have historically caused, and may in the future cause, reduced manufacturing yields, negatively impacting the gross profit on, and our production capacity for, those products. Moreover, an increase in the rejection and rework rate of products during the quality control process before, during or after manufacture would result in our experiencing lower yields, gross profit and production capacity.
The risks of these types of manufacturing problems are further increased during the introduction of new product lines, which has from time to time caused, and may in the future cause, temporary suspension of production lines while problems are addressed or corrected. Since our business is substantially dependent on a limited number of product lines, any prolonged or substantial suspension of manufacturing production lines could result in a material adverse effect on our revenue, gross profit, competitive position, and distributor and customer relationships.
We depend on sole source and limited source suppliers for key components and products. If we are unable to source these components on a timely basis, we will not be able to deliver our products to our customers.
We depend on sole source and limited source suppliers for key components of our products. For example, our ASICs are purchased from a sole source supplier or developed for us by sole source suppliers. Similarly, the battery cells for our AC Battery storage products are also currently sole sourced. Any of the sole source and limited source suppliers upon whom we rely could experience quality and reliability issues, could stop producing our components, cease operations or be acquired by, or enter into exclusive arrangements with, our competitors. We generally do not have long-term supply agreements with our suppliers, and our purchase volumes may currently be too low for us to be considered a priority customer by most of our suppliers. As a result, most of these suppliers could stop selling to us at commercially reasonable prices, or at all. Any such quality or reliability issue, or interruption or delay may force us to seek similar components or products from alternative sources, which may not be available on commercially reasonable terms, including price, or at all. Switching suppliers may require that we redesign our products to accommodate new components, and may potentially require us to re-qualify our products, which would be costly and time-consuming. Any interruption in the quality or supply of sole source or limited source components for our products would adversely affect our ability to meet scheduled product deliveries to our customers and could result in lost revenue or higher expenses and would harm our business.

If we or our contract manufacturers are unable to obtain raw materials in a timely manner or if the price of raw materials increases significantly, production time and product costs could increase, which may adversely affect our business.
The manufacturing and packaging processes used by our contract manufacturers depend on raw materials such as copper, aluminum, silicon and petroleum-based products. From time to time, suppliers may extend lead times, limit supplies or increase prices due to capacity constraints or other factors. Certain of our suppliers have the ability to pass along to us directly or through our contract manufacturers any increases in the price of raw materials. If the prices of these raw materials rise significantly, we may be unable to pass on the increased cost to our customers. While we may from time to time enter into hedging transactions to reduce our exposure to wide fluctuations in the cost of raw materials, the availability and effectiveness of these hedging transactions may be limited. Due to all these factors, our results of operations could be adversely affected if we or our contract manufacturers are unable to obtain adequate supplies of raw materials in a timely manner or at reasonable cost. In addition, from time to time, we or our contract manufacturers may need to reject raw materials that do not meet our specifications, resulting in potential delays or declines in output. Furthermore, problems with our raw materials may give rise to compatibility or performance issues in our products, which could lead to an increase in customer returns or product warranty claims. Errors or defects may arise from raw materials supplied by third parties that are beyond our detection or control, which could lead to additional customer returns or product warranty claims that may adversely affect our business and results of operations.
If potential owners of solar PV systems based on our product platform are unable to secure financing on acceptable terms, we could experience a reduction in the demand for our solar PV systems.
Many owners of solar PV systems depend on financing to purchase their systems. The limited use of microinverters to date, coupled with our relatively smaller size and capitalization compared to some of our competitors, could result in lenders refusing to provide the financing necessary to purchase solar PV systems based on our product platform on favorable terms, or at all. Moreover, in the case of debt financed projects, even if lenders are willing to finance the purchase of these systems, an increase in interest rates or a change in tax incentives could make it difficult for owners to secure the financing necessary to purchase a solar PV system on favorable terms, or at all. In addition, we believe that a significant percentage of owners purchase solar PV systems as an investment, funding the initial capital expenditure through a combination of upfront cash and financing. Difficulties in obtaining financing for solar PV systems on favorable terms, or increases in interest rates or changes in tax incentives, could lower an investor’s return on investment in a solar PV system, or make alternative solar PV systems or other investments more attractive relative to solar PV systems based on our product platform. Any of these events could result in reduced demand for our products, which could have a material adverse effect on our financial condition and results of operations. In addition, a significant share of residential solar installations has been provided through third party financing structures, such as power purchase or lease agreements. Our sales growth may depend on sales to developers of third party solar finance offerings who provide solar as a service via power purchase agreements or leasing structures. The third party finance market for residential solar in the United States and elsewhere is or may become highly concentrated, with a few significant finance companies and several smaller entrants. If we are unable develop relationships and gain a significant share of inverter sales to the major finance companies or new entrants, our overall sales growth could be constrained.
We rely primarily on distributors, large installers and providers of solar financing to assist in selling our products, and the failure of these customers to perform as expected could reduce our future revenue.
We sell our microinverter systems primarily through distributors, as well as through direct sales to solar equipment installers and sales to developers of third party solar finance offerings. We do not have exclusive arrangements with these third parties and, as a result, many of our customers also use or market and sell products from our competitors, which may reduce our sales. Our customers may generally terminate their relationships with us at any time, or with short notice. Our customers may fail to devote resources necessary to sell our products at the prices, in the volumes and within the time frames that we expect, or may focus their marketing and sales efforts on products of our competitors. In addition, participants in the solar industry are becoming increasingly focused on vertical integration of the solar financing and installation process, which may lead to an overall reduction in the number of potential parties who may purchase and install our products.
Our future performance depends on our ability to effectively manage our relationships with our existing customers, as well as to attract additional customers that will be able to market and support our products effectively, especially in markets in which we have not previously distributed our products. Termination of agreements with

current customers, failure by these customers to perform as expected, or failure by us to cultivate new customer relationships, could hinder our ability to expand our operations and harm our revenue and operating results.
We may fail to capture customers in the new product and geographic markets that we are pursuing.
We are pursuing opportunities in energy management and energy storage which are highly competitive markets. We have made investments in our infrastructure, increased our operating costs and forgone other business opportunities in order to seek opportunities in these areas and will continue to do so. Any new product is subject to certain risks, including component sourcing, strategic partner selection and execution, customer acceptance, competition, product differentiation, market timing, challenges relating to economies of scale in component sourcing and the ability to attract and retain qualified personnel. There can be no assurance that we will be able to develop and grow these or any other new concepts to a point where they will become profitable, or generate positive cash flow. If we fail to execute on our plan with respect to new product introductions, these new potential business segments may fail to translate into revenue in the quantities or timeline projected, thus, having a materially adverse impact on our revenue, operating results and financial stability. In addition, we are pursuing new geographic markets. The inability to capture new customers in these high-growth geographic markets could have a material adverse effect on our business, financial condition or results of operations.
Our success in an “AC module” version of our microinverter system may depend in part upon our ability to continue to work closely with leading solar module manufacturers.
We have developed variants of our microinverter system that enable an “AC module” in which the microinverter is directly attached to the solar modules. The market success of such solutions will depend in part on our ability to continue to work closely with solar module manufacturers to design solar modules that are compatible with such direct attachment of our microinverter. We may not be able to encourage additional solar module manufacturers to work with us on the development of such compatible solutions combining our microinverter system and solar modules for a variety of reasons, including differences in marketing or selling strategy, competitive considerations, lack of competitive pricing, and technological compatibility. In addition, our ability to form additional effective partnerships with solar module manufacturers may be adversely affected by the substantial changes faced by many of these manufacturers due to declining prices and revenues from sales of solar modules.
If we fail to retain our key personnel or if we fail to attract additional qualified personnel, we may not be able to achieve our anticipated level of growth and our business could suffer.
Our future success and ability to implement our business strategy depends, in part, on our ability to attract and retain key personnel, and on the continued contributions of members of our senior management team and key technical personnel, each of whom would be difficult to replace. All of our employees, including our senior management, are free to terminate their employment relationships with us at any time. Competition for highly skilled technical people is extremely intense, and we face challenges identifying, hiring and retaining qualified personnel in many areas of our business. If we fail to retain our senior management and other key personnel or if we fail to attract additional qualified personnel, we may not be able to achieve our strategic objectives and our business could suffer.
If we fail to protect, or incur significant costs in defending, our intellectual property and other proprietary rights, our business and results of operations could be materially harmed.
Our success depends to a significant degree on our ability to protect our intellectual property and other proprietary rights. We rely on a combination of patent, trademark, copyright, trade secret and unfair competition laws, as well as confidentiality and license agreements and other contractual provisions, to establish and protect our intellectual property and other proprietary rights. We have applied for patent and trademark registrations in the United States and in certain other countries, some of which have been issued. We cannot guarantee that any of our pending applications will be approved or that our existing and future intellectual property rights will be sufficiently broad to protect our proprietary technology, and any failure to obtain such approvals or finding that our intellectual property rights are invalid or unenforceable could force us to, among other things, rebrand or re-design our affected products. In countries where we have not applied for patent protection or where effective intellectual property protection is not available to the same extent as in the United States, we may be at greater risk that our proprietary rights will be misappropriated, infringed or otherwise violated.
To protect our unregistered intellectual property, including our trade secrets and know-how, we rely in part on trade secret laws and confidentiality and invention assignment agreements with our employees and independent consultants. We also require other third parties who may have access to our proprietary technologies and

information to enter into non-disclosure agreements. Such measures, however, provide only limited protection, and we cannot assure that our confidentiality and non-disclosure agreements will prevent unauthorized disclosure or use of our confidential information, especially after our employees or third parties end their employment or engagement with us, or provide us with an adequate remedy in the event of such disclosure. Furthermore, competitors or other third parties may independently discover our trade secrets, in which case we would not be able to assert trade secret rights, copy or reverse engineer our products or portions thereof or develop similar technology. If we fail to protect our intellectual property and other proprietary rights, or if such intellectual property and proprietary rights are infringed, misappropriated or otherwise violated, our business, results of operations or financial condition could be materially harmed.
In the future, we may need to take legal action to prevent third parties from infringing upon or misappropriating our intellectual property or from otherwise gaining access to our technology. Protecting and enforcing our intellectual property rights and determining their validity and scope could result in significant litigation costs and require significant time and attention from our technical and management personnel, which could significantly harm our business. In addition, we may not prevail in such proceedings. An adverse outcome of any such proceeding may reduce our competitive advantage or otherwise harm our financial condition and our business.
Third parties may assert that we are infringing upon their intellectual property rights, which could divert management’s attention, cause us to incur significant costs and prevent us from selling or using the technology to which such rights relate.
Our competitors and other third parties hold numerous patents related to technology used in our industry, and claims of patent or other intellectual property right infringement or violation have been litigated against certain of our competitors. From time to time we may also be subject to such claims and litigation. Regardless of their merit, responding to such claims can be time consuming, divert management’s attention and resources and may cause us to incur significant expenses. While we believe that our products and technology do not infringe in any material respect upon any valid intellectual property rights of third parties, we cannot be certain that we would be successful in defending against any such claims. Furthermore, patent applications in the United States and most other countries are confidential for a period of time before being published, so we cannot be certain that we are not infringing third parties’ patent rights or that we were the first to conceive or protect inventions covered by our patents or patent applications. An adverse outcome with respect to any intellectual property claim could invalidate our proprietary rights and force us to do one or more of the following:
obtain from a third party claiming infringement a license to sell or use the relevant technology, which may not be available on reasonable terms, or at all;
stop manufacturing, selling, incorporating or using our products that embody the asserted intellectual property;
pay substantial monetary damages;
indemnify our customers pursuant to indemnification obligations under some of our customer contracts; or
expend significant resources18 U.S.C. Section 1350, as adopted pursuant to redesign the products that use the infringing technology and to develop or acquire non-infringing technology.
Any of these actions could result in a substantial reduction in our revenue and could result in losses over an extended period of time.
Our failure to obtain the right to use necessary third-party intellectual property rights on reasonable terms, or our failure to maintain, and comply with the terms and conditions applicable to these rights, could harm our business and prospects.
From time to time we have licensed, and in the future, we may choose to or be required to license, technology or intellectual property from third parties in connection with the development of our products. We cannot assure that such licenses will be available to us on commercially reasonable terms, or at all, and our inability to obtain such licenses could require us to substitute technology of lower quality or of greater cost. In addition, we incorporate open source software code in our proprietary software. Use of open source software can lead to greater risks than use of third-party commercial software since open source licensors generally do not provide warranties or controls with respect to origin, functionality or other features of the software. Some open source software licenses require users who distribute open source software as part of their products to publicly disclose all or part of the source code in their software and make any derivative works of the open source code available for limited fees or at no cost. Although we monitor our use of open source software, open source license terms may be ambiguous, and many of

the risks associated with the use of open source software cannot be eliminated. If we were found to have inappropriately used open source software, we may be required to release our proprietary source code, re-engineer our software, discontinue the sale of certain products in the event re-engineering cannot be accomplished on a timely basis or take other remedial action. Furthermore, if we are unable to obtain or maintain licenses from third parties or fail to comply with applicable open source licenses, we may be subject to costly third party claims of intellectual property infringement or ownership of our proprietary source code. Any of the above could harm our business and put us at a competitive disadvantage.
Our business has been and could continue to be affected by seasonal trends and construction cycles.
We have been and could continue to be subject to industry-specific seasonal fluctuations, particularly in climates that experience colder weather during the winter months, such as northern Europe, Canada, and the United States. In general, we expect our products in the second, third, and fourth quarters will be positively affected by seasonal customer demand trends, including solar economic incentives, weather patterns and construction cycles, preceded by a seasonally softer first quarter. In the United States, customers will sometimes make purchasing decisions towards the end of the year in order to take advantage of tax credits or for budgetary reasons. In addition, construction levels are typically slower in colder months. In European countries with FiTs, the construction of solar PV systems may be concentrated during the second half of the calendar year, largely due to the annual reduction of the applicable minimum FiT and the fact that the coldest winter months are January through March. Accordingly, our business and quarterly results of operations could be affected by seasonal fluctuations in the future.
Covenants in our credit facility and term loan may limit our flexibility in responding to business opportunities and competitive developments and increase our vulnerability to adverse economic or industry conditions.
We are a party to a term loan agreement with affiliates of Tennenbaum Capital Partners, LLC (“TCP”). This agreement restricts our ability to take certain actions such as incurring additional debt, encumbering our tangible or intangible property, paying dividends, or engaging in certain transactions, such as mergers and acquisitions, investments and asset sales. These restrictions may limit our flexibility in responding to business opportunities, competitive developments and adverse economic or industry conditions. In addition, our obligations under these agreements are secured by substantially all of our assets (excluding intellectual property), which limits our ability to provide collateral for additional financing. A breach of any of these covenants, or a failure to pay interest or indebtedness when due under any of our credit facilities, could result in a variety of adverse consequences, including the acceleration of our indebtedness and the forfeiture of our assets subject to security interests in favor of the lenders.
We are an “emerging growth company,” and have elected to comply with reduced public company reporting requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act enacted in April 2012, or the JOBS Act. We have chosen to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404906 of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirementsshall not be deemed “filed” by Enphase Energy, Inc. for purposes of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We will cease to be an “emerging growth company” on December 31, 2017 (the last daySection 18 of the fiscal year following the fifth anniversarySecurities Exchange Act of our initial public offering), although we could cease to be an “emerging growth company” earlier if certain events occur1934, as specified in the JOBS Act, such as our achieving annual revenue of at least $1 billion or our becoming a “large accelerated filer” as defined in Rule 12b-2 of the Exchange Act. We cannot predict if investors will find our common stock less attractive because we have chosen to take advantage of these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and our stock price may be more volatile.amended.
If we fail to maintain an effective system of internal controls or are unable to remediate any deficiencies in our internal controls, we might not be able to report our financial results accurately or prevent fraud; in that case, our stockholders could lose confidence in our financial reporting, which would harm our business and could negatively impact the price of our stock.

Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. In addition, Section 404 of the Sarbanes-Oxley Act requires us to establish and maintain internal control over financial reporting and disclosure controls procedures. The process of implementing our internal controls and complying with Section 404 of the Sarbanes-Oxley Act has required, and will continue to require, significant attention of management. Although we are currently not required to provide an auditor’s attestation report on management’s assessment of the effectiveness of our internal control over financial reporting, otherwise required by Section 404(b) of the Sarbanes-Oxley Act, this exemption will no longer be available to us beginning with our first Annual Report on 10-K for the year in which we cease to be an “emerging growth company,” as defined in the JOBS Act. If we or our independent registered public accounting firm discover a material weakness in the future, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our stock price. In addition, a delay in compliance with Section 404 of the Sarbanes-Oxley Act could subject us to a variety of administrative sanctions, including SEC action, ineligibility for short form resale registration, the suspension or delisting of our common stock from the stock exchange on which it is listed and the inability of registered broker-dealers to make a market in our common stock, which would further reduce our stock price and could harm our business. To the extent any material weaknesses in our internal control over financial reporting are identified in the future, we could be required to expend significant management time and financial resources to correct such material weaknesses or to respond to any resulting regulatory investigations or proceedings.
Our ability to use net operating losses to reduce future tax payments may be limited by provisions of the Internal Revenue Code, and may be subject to further limitation as a result of future transactions.
Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), contain rules that limit the ability of a company that undergoes an “ownership change,” generally defined as a more than 50 percentage point increase in the percentage of its stock owned by certain stockholders over a three-year period, to utilize its net operating loss and tax credit carryforwards and certain built-in losses recognized in the years after the ownership change. These rules generally operate by focusing on ownership changes involving stockholders who directly or indirectly own 5% or more of the stock of a company and any change in ownership arising from a new issuance of stock by the company. Generally, if an ownership change occurs, the yearly taxable income limitation on the use of net operating loss and tax credit carryforwards is equal to the product of the applicable long-term tax exempt rate and the value of the company’s stock immediately before the ownership change. If these limitations apply, we may be unable to offset our taxable income with net operating losses, or our tax liability with credits, before these losses and credits expire. We recently completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since we became a loss corporation under the Code. However, we do not anticipate these limitations will significantly impact our ability to utilize the net operating losses and tax credit carryforwards.
In addition, it is possible that future transactions (including issuances of new shares of our common stock and sales of shares of our common stock) will cause us to undergo one or more additional ownership changes. In that event, we generally would not be able to use our net operating losses from periods prior to this ownership change to offset future taxable income in excess of the annual limitations imposed by Sections 382 and 383 and those attributes that are already subject to limitations (as a result of our prior ownership changes) may be subject to more stringent limitations.
Natural disasters, terrorist or cyber attacks, or other catastrophic events could harm our operations.
Our worldwide operations could be subject to natural disasters and other business disruptions, which could harm our future revenue and financial condition and increase our costs and expenses. For example, our corporate headquarters in Petaluma, California is located near major earthquake fault lines. Further, a terrorist attack, including one aimed at energy or communications infrastructure suppliers or our cloud-based monitoring service, could hinder or delay the development and sale or performance of our products. In the event that an earthquake, tsunami, typhoon, terrorist or cyber attack, or other natural, manmade or technical catastrophe were to destroy any part of our facilities or those of our contract manufacturer, destroy or disrupt vital infrastructure systems or interrupt our operations or services for any extended period of time, our business, financial condition and results of operations would be materially and adversely affected.
Any unauthorized access to, or disclosure or theft of personal information we gather, store or use could harm our reputation and subject us to claims or litigation.
We receive, store and use certain personal information of our customers, and the end-users of our customers’ solar PV systems, including names, addresses, e-mail addresses, credit information and energy production

statistics. We also store and use personal information of our employees. We take steps to protect the security, integrity and confidentiality of the personal information we collect, store and transmit, but there is no guarantee that inadvertent or unauthorized use or disclosure will not occur or that third parties will not gain unauthorized access to this information despite our efforts. Because techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we and our suppliers or vendors may be unable to anticipate these techniques or to implement adequate preventative or mitigation measures.
Unauthorized use or disclosure of, or access to, any personal information maintained by us or on our behalf, whether through breach of our systems, breach of the systems of our suppliers or vendors by an unauthorized party, or through employee or contractor error, theft or misuse, or otherwise, could harm our business. If any such unauthorized use or disclosure of, or access to, such personal information were to occur, our operations could be seriously disrupted and we could be subject to demands, claims and litigation by private parties, and investigations, related actions, and penalties by regulatory authorities. In addition, we could incur significant costs in notifying affected persons and entities and otherwise complying with the multitude of foreign, federal, state and local laws and regulations relating to the unauthorized access to, or use or disclosure of, personal information. Finally, any perceived or actual unauthorized access to, or use or disclosure of, such information could harm our reputation, substantially impair our ability to attract and retain customers and have an adverse impact on our business, financial condition and results of operations.
We may be subject to disruptions or failures in information technology systems and network infrastructures that could have a material adverse effect on our business and financial condition.
We rely on the efficient and uninterrupted operation of complex information technology systems and network infrastructures to operate our business. A disruption, infiltration or failure of our information technology systems as a result of software or hardware malfunctions, system implementations or upgrades, computer viruses, cyber-attacks, third-party security breaches, employee error, theft or misuse, malfeasance, power disruptions, natural disasters or accidents could cause breaches of data security, loss of intellectual property and critical data and the release and misappropriation of sensitive competitive information and partner, customer and employee personal data. We have been and may in the future be subject to fraud attempts from outside parties through our electronic systems (such as “phishing” e-mail communications to our finance, technical or other personnel), which could put us at risk for harm from fraud, theft or other loss if our internal controls do not operate as intended. Any of these events could harm our competitive position, result in a loss of customer confidence, cause us to incur significant costs to remedy any damages and ultimately materially adversely affect our business and financial condition.
We are dependent on ocean transportation to deliver our products in a cost efficient manner. If we are unable to use ocean transportation to deliver our products, our business and financial condition could be materially and adversely impacted.
We rely on commercial ocean transportation for the delivery of a large percentage of our products to our customers in North America, Europe, Australia and other markets. We also rely on more expensive air transportation when ocean transportation is not available or compatible with the delivery time requirements of our customers. Our ability to deliver our products via ocean transportation could be adversely impacted by shortages in available cargo capacity, changes by carriers and transportation companies in policies and practices, such as scheduling, pricing, payment terms and frequency of service or increases in the cost of fuel, taxes and labor; and other factors, such as labor strikes and work stoppages, not within our control. If we are unable to use ocean transportation and are required to substitute more expensive air transportation, our financial condition and results of operations could be materially and adversely impacted. Material interruptions in service or stoppages in transportation, whether caused by strike, work stoppage, lock-out, slowdown or otherwise, could materially and adversely impact our business, results of operations and financial condition.
The market price of our common stock may be volatile or may decline regardless of our operating performance.
The market price of our common stock has been and could be subject to wide fluctuations in response to, among other things, the risk factors described in this Quarterly Report onEnphase Energy, Inc. | 2022 Form 10-Q and other factors beyond our control, such as fluctuations in the valuation of companies perceived by investors to be comparable to us. Furthermore, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations,| 51

as well as general economic, political and market conditions, such as recessions, interest rate changes or international currency fluctuations, may negatively affect the market price of our common stock. In the past, many companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may become the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
Our financial results may vary significantly from quarter to quarter due to a number of factors, which may lead to volatility in our stock price.
Our quarterly revenue and results of operations have varied in the past and may continue to vary significantly from quarter to quarter. This variability may lead to volatility in our stock price as research analysts and investors respond to these quarterly fluctuations. These fluctuations are due to numerous factors, including:
fluctuations in demand for our products;
the timing, volume and product mix of sales of our products, which may have different average selling prices or profit margins;
changes in our pricing and sales policies or the pricing and sales policies of our competitors;
our ability to design, manufacture and deliver products to our customers in a timely and cost-effective manner and that meet customer requirements;
our ability to manage our relationships with our contract manufacturers, customers and suppliers;
quality control or yield problems in our manufacturing operations;
the anticipation, announcement or introductions of new or enhanced products by our competitors and ourselves;
reductions in the retail price of electricity;
changes in laws, regulations and policies applicable to our business and products, particularly those relating to government incentives for solar energy applications;
unanticipated increases in costs or expenses;
the amount and timing of operating costs and capital expenditures related to the maintenance and expansion of our business operations;
the impact of government-sponsored programs on our customers;
our exposure to the credit risks of our customers, particularly in light of the fact that some of our customers are relatively new entrants to the solar market without long operating or credit histories;
our ability to estimate future warranty obligations due to product failure rates, claim rates or replacement costs;
our ability to forecast our customer demand and manufacturing requirements, and manage our inventory;
fluctuations in our gross profit;
our ability to predict our revenue and plan our expenses appropriately; and
fluctuations in foreign currency exchange rates.
The above factors are difficult to forecast, and these, as well as other factors, could materially and adversely affect our quarterly and annual results of operations. Any failure to adjust spending quickly enough to compensate for a revenue shortfall could magnify the adverse impact of this revenue shortfall on our results of operations. Moreover, our results of operations may not meet our announced guidance or the expectations of research analysts or investors, in which case the price of our common stock could decrease significantly. There can be no assurance that we will be able to successfully address these risks.
If research analysts do not publish research about our business or if they issue unfavorable commentary or downgrade our common stock, our stock price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that research analysts publish about us and our business. The price of our common stock could decline if one or more research analysts downgrade our stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business. If one or more of the research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our common stock could decrease, which could cause our stock price or trading volume to decline.

*If we fail to meet the continued listing standards of Nasdaq, our common stock may be delisted, which could have a material adverse effect on the liquidity and market price of our common stock.
Our common stock is currently traded on the Nasdaq Global Market. The Nasdaq Stock Market LLC (“Nasdaq”) has requirements that a company must meet in order to remain listed. There can be no assurance that we will continue to meet these requirements in the future. If we fail to meet any such requirements, Nasdaq may initiate delisting processes. If our common stock were to be delisted, the liquidity of our common stock would be adversely affected and the market price of our common stock could decrease.
Our affiliated stockholders, executive officers and directors own a significant percentage of our stock, and they may take actions that our other stockholders may not view as beneficial.
Our affiliated stockholders, executive officers and directors collectively own a significant percentage of our common stock. This significant concentration of share ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. Also, as a result, these stockholders, acting together, may be able to control our management and affairs and matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as mergers, consolidations or the sale of substantially all of our assets. Consequently, this concentration of ownership may have the effect of delaying or preventing a change in control, including a merger, consolidation or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if this change in control would benefit our other stockholders.
Sales of a substantial number of shares of our common stock in the public market by our existing stockholders could cause our stock price to fall.
Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our common stock. All outstanding shares of our common stock are eligible for sale in the public market, subject in some cases to the volume limitations and manner of sale requirements of Rule 144 under the Securities Act. Sales of stock by our stockholders could have a material adverse effect on the trading price of our common stock.
Certain holders of our securities are entitled to rights with respect to the registration of their shares under the Securities Act. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.
We currently do not intend to pay dividends on our common stock and, consequently, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.
We currently do not plan to declare dividends on shares of our common stock in the foreseeable future. In addition, our term loan agreement restricts our ability to pay dividends. Consequently, an investor’s only opportunity to achieve a return on its investment in our company will be if the market price of our common stock appreciates and the investor sells its shares at a profit.
Our charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our stock.
Our certificate of incorporation and our bylaws contain provisions that could delay or prevent a change in control of our company. These provisions could also make it more difficult for stockholders to elect directors and take other corporate actions, including effecting changes in our management. These provisions include:
providing for a classified board of directors with staggered, three-year terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;
not providing for cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
authorizing our board of directors to issue, without stockholder approval, preferred stock rights senior to those of common stock, which could be used to significantly dilute the ownership of a hostile acquiror;

prohibiting stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
requiring the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of voting stock, voting as a single class, to amend provisions of our certificate of incorporation relating to the management of our business, our board of directors, stockholder action by written consent, advance notification of stockholder nominations and proposals, forum selection and the liability of our directors, or to amend our bylaws, which may inhibit the ability of stockholders or an acquiror to effect such amendments to facilitate changes in management or an unsolicited takeover attempt;
requiring special meetings of stockholders may only be called by our chairman of the board, if any, our chief executive officer, our president or a majority of our board of directors, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and
requiring advance notification of stockholder nominations and proposals, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.
In addition, the provisions of Section 203 of the Delaware General Corporate Law may prohibit large stockholders, in particular those owning 15% or more of our outstanding common stock, from engaging in certain business combinations, without approval of substantially all of our stockholders, for a certain period of time.
These provisions in our certificate of incorporation, our bylaws and under Delaware law could discourage potential takeover attempts, reduce the price that investors might be willing to pay for shares of our common stock in the future and result in the market price being lower than it would be without these provisions.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
None.

Item 3.Defaults Upon Senior Securities
None.
Item 4.Mine Safety Disclosures
Not applicable.
Item 5.Other Information
None.
Item 6.Exhibits
See the Exhibit Index which follows the signature page of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: November 8, 2017
July 26, 2022
ENPHASE ENERGY, INC.
ENPHASE ENERGY, INC.By:/s/ Mandy Yang
Mandy Yang
By:/s/ Humberto Garcia
Humberto Garcia
Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)

EXHIBIT INDEX
Exhibit
Number
(Duly Authorized Officer)		Description
3.1
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Enphase Energy, Inc. dated May 18, 2017(1)
3.2
Amended and Restated Bylaws of Enphase Energy, Inc.(2)
4.1
Specimen Common Stock Certificate of Enphase Energy, Inc.(3)
4.2
2010 Amended and Restated Investors’ Rights Agreement by and between Enphase Energy, Inc. and the investors listed on Exhibit A thereto, dated March 15, 2010, as amended.(4)
10.1+
Offer Letter by and between Enphase Energy, Inc. and Badrinarayanan Kothandaraman, dated September 3, 2017.
10.2+
Separation Agreement by and between Enphase Energy Inc. and Paul Nahi, dated August 8, 2017.
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).
32.1*
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document.
101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Document.
________________________
(1)Previously filed as Exhibit 3.1 to the Quarterly Report on Form 10-Q (File No. 001-35480), filed with the Securities and Exchange Commission on August 9, 2017, and incorporated by reference herein.
(2)Previously filed as Exhibit 3.5 to Amendment No. 7 to the Registration Statement on Form S-1/A (File No. 333-174925), filed with the Securities and Exchange Commission on March 12, 2012, and incorporated by reference herein.
(3)Previously filed as Exhibit 4.1 to the Registration Statement on Form S-1/A (File No. 333-174925), and incorporated herein by reference herein.
(4)Previously filed as Exhibit 4.2 to Amendment No. 1 to the Registration Statement on Form S-1/A (File No 333-174925), filed with the Securities and Exchange Commission on July 25, 2011, and incorporated by reference herein.

+Management contract, compensatory plan or arrangement
*The certifications attached as Exhibit 32.1 accompany this quarterly report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by Enphase Energy, Inc. for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.


53
Enphase Energy, Inc. | 2022 Form 10-Q | 52