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, 20172023
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

enpha15.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)
47281 Bayside Parkway
Fremont, CA 94538
(Address of principal executive offices, including zip code)
(707) 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, 2023, there were 85,532,519136,355,373 shares of the registrant’s common stock outstanding, $0.00001 par value per share.


Enphase Energy, Inc. | 2023 Form 10-Q | 1

ENPHASE ENERGY, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBERJUNE 30, 20172023
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Page
Item 1.
Financial Statements (Unaudited)
3
3
4
5
6
67
78
1935
2945
2945
PART II. OTHER INFORMATION
3046
3046
5148
5148
5148
5148
Exhibits
49
5250



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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,
2023		December 31,
2022
ASSETS
Current assets:
Cash and cash equivalents$278,676 $473,244 
Marketable securities1,521,816 1,139,599 
Accounts receivable, net of allowances of $1,322 and $979 at June 30, 2023 and December 31, 2022, respectively520,306 440,896 
Inventory166,111 149,708 
Prepaid expenses and other assets73,880 60,824 
Total current assets2,560,789 2,264,271 
Property and equipment, net151,657 111,367 
Operating lease, right of use asset, net22,954 21,379 
Intangible assets, net85,960 99,541 
Goodwill214,290 213,559 
Other assets195,283 169,291 
Deferred tax assets, net234,949 204,872 
Total assets$3,465,882 $3,084,280 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$79,075 $125,085 
Accrued liabilities425,285 295,939 
Deferred revenues, current109,176 90,747 
Warranty obligations, current36,686 35,556 
Debt, current93,383 90,892 
Total current liabilities743,605 638,219 
Long-term liabilities:
Deferred revenues, non-current354,296 281,613 
Warranty obligations, non-current144,029 95,890 
Other liabilities50,251 43,520 
Debt, non-current1,201,114 1,199,465 
Total liabilities2,493,295 2,258,707 
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock, $0.00001 par value, 300,000 shares authorized; and 136,006 shares and 136,441 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively1 1 
Additional paid-in capital858,039 819,119 
Accumulated earnings189,539 17,335 
Accumulated other comprehensive loss(6,852)(10,882)
Treasury stock, at cost(68,140)— 
Total stockholders’ equity972,587 825,573 
Total liabilities and stockholders’ equity$3,465,882 $3,084,280 
(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. | 2023 Form 10-Q | 3
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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,
2023202220232022
Net revenues$711,118 $530,196 $1,437,134 $971,488 
Cost of revenues387,776 311,191 787,421 575,510 
Gross profit323,342 219,005 649,713 395,978 
Operating expenses:
Research and development60,043 39,256 117,172 74,975 
Sales and marketing58,405 53,588 123,026 94,932 
General and administrative34,397 32,125 70,662 70,211 
Restructuring charges177 — 870 — 
Total operating expenses153,022 124,969 311,730 240,118 
Income from operations170,320 94,036 337,983 155,860 
Other income (expense), net
Interest income16,526 796 29,566 1,256 
Interest expense(2,219)(2,168)(4,375)(4,904)
Other income (expense), net(33)(456)393 (2,597)
Total other income (expense), net14,274 (1,828)25,584 (6,245)
Income before income taxes184,594 92,208 363,567 149,615 
Income tax provision(27,403)(15,232)(59,503)(20,818)
Net income$157,191 $76,976 $304,064 $128,797 
Net income per share:
Basic$1.15 $0.57 $2.23 $0.96 
Diluted$1.09 $0.54 $2.11 $0.91 
Shares used in per share calculation:
Basic136,607 135,196 136,650 134,768 
Diluted145,098 143,725 145,608 143,602 
 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.

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ENPHASE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME
(In thousands)

(Unaudited)
Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
Net income$157,191 $76,976 $304,064 $128,797 
Other comprehensive income (loss):
Foreign currency translation adjustments431 (2,570)1,508 (2,306)
Marketable securities
Change in net unrealized gain (loss), net of income tax provision (benefit) of $(193) and $(475) for the three and six months ended June 30, 2023, respectively, and $886 and $(2,431) for the three and six months ended June 30, 2022, respectively.(549)(1,351)2,522 (6,919)
Comprehensive income$157,073 $73,055 $308,094 $119,572 
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Net loss$(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. | 2023 Form 10-Q | 5

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ENPHASE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
Common stock and paid-in capital
Balance, beginning of period$812,619 $666,512 $819,120 $837,925 
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 awards556 4,183 596 4,587 
Issuance of common stock related to 365 Pronto, Inc. post combination expense4,000 — 10,307 — 
Payment of withholding taxes related to net share settlement of equity awards(12,790)(5,463)(84,635)(14,807)
Stock-based compensation expense53,655 48,242 112,652 93,736 
Balance, end of period$858,040 $713,474 $858,040 $713,474 
Treasury stock, at cost
Balance, beginning of period$— $— $— $— 
Purchases of treasury stock, at cost(68,140)— (68,140)— 
Balance, end of period$(68,140)$— $(68,140)$— 
Accumulated earnings (deficit)
Balance, beginning of period$164,208 $(328,206)$17,335 $(405,737)
Cumulative-effect adjustment to accumulated deficit related to the adoption of ASU 2020-06— — — 25,710 
Repurchase of common stock(131,860)— (131,860)— 
Net income157,191 76,976 304,064 128,797 
Balance, end of period$189,539 $(251,230)$189,539 $(251,230)
Accumulated other comprehensive loss
Balance, beginning of period$(6,734)$(7,324)$(10,882)$(2,020)
Foreign currency translation adjustments431 (2,570)1,508 (2,306)
Change in net unrealized gain (loss) on marketable securities, net of tax(549)(1,351)2,522 (6,919)
Balance, end of period$(6,852)$(11,245)$(6,852)$(11,245)
Total stockholders' equity, ending balance$972,587 $450,999 $972,587 $450,999 

See Notes to Condensed Consolidated Financial Statements.
Enphase Energy, Inc. | 2023 Form 10-Q | 6
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ENPHASE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
(Unaudited)
Six Months Ended
June 30,
20232022
Cash flows from operating activities:
Net income$304,064 $128,797 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization34,419 28,102 
Net amortization (accretion) of premium (discount) on marketable securities(17,705)2,703 
Provision for doubtful accounts629 131 
Asset impairment— 1,200 
Non-cash interest expense4,140 4,025 
Net (gain) loss from change in fair value of debt securities(3,498)129 
Stock-based compensation113,821 100,861 
Deferred income taxes(26,796)15,617 
Changes in operating assets and liabilities:
Accounts receivable(83,497)27,546 
Inventory(16,403)(55,866)
Prepaid expenses and other assets(41,993)(21,352)
Accounts payable, accrued and other liabilities107,225 10,228 
Warranty obligations49,269 22,878 
Deferred revenues91,800 38,094 
Net cash provided by operating activities515,475 303,093 
Cash flows from investing activities:
Purchases of property and equipment(66,478)(21,066)
Business acquisitions, net of cash acquired— (27,680)
Purchases of marketable securities(1,272,908)(60,061)
Maturities and sale of marketable securities911,804 193,033 
Net cash provided by (used in) investing activities(427,582)84,226 
Cash flows from financing activities:
Proceeds from exercise of equity awards and employee stock purchase plan596 4,587 
Payment of withholding taxes related to net share settlement of equity awards(84,635)(14,807)
Repurchase of common stock(200,000)— 
Net cash used in financing activities(284,039)(10,220)
Effect of exchange rate changes on cash and cash equivalents1,578 (942)
Net increase (decrease) in cash and cash equivalents(194,568)376,157 
Cash and cash equivalents—Beginning of period473,244 119,316 
Cash and cash equivalents—End of period$278,676 $495,473 
Supplemental cash flow disclosure:
Supplemental disclosures of non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable$8,310 $2,783 
Purchases of property and equipment through tenant improvement allowance$— $748 
 Nine Months Ended
September 30,
 2017 2016
Cash flows from operating activities:   
Net loss$(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
 $—

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

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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, 20172023 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 assumptionsdue to risks and uncertainties, including uncertainty in the ongoing semiconductor supply and logistics constraints.
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, 2022 filed with the SEC on February 13, 2023 (the “Form 10‑K”).
Summary of Significant Accounting Policies
Except for the accounting policy for treasury stock added as a result of the common stock repurchased but not yet retired by the Company during the three months ended June 30, 2023, and government grants benefits recognized following the enactment of the Inflation Reduction Act of 2022 (“IRA”), 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.
Treasury Stock, at Cost
The Company accounts for treasury stock at cost per Accounting Standards Codification (“ASC”) 505. This results in a reduction of stockholders’ equity on the Company’s condensed consolidated balance sheet and on the
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Company’s condensed consolidated statement of stockholders’ equity. Upon the retirement of treasury stock, the Company reclasses the value of treasury shares to accumulated earnings (deficit). As of June 30, 2023, the Company recorded the repurchase of 420,957 shares not retired as treasury stock.
Government Grants
Government grants represent benefits provided by federal, state, or under different conditions.local governments that are not subject to the scope of ASC 740. The Company recognizes a grant when it has reasonable assurance that it will comply with the grant’s conditions and that the grant will be received. Government grants that are not related to long-lived assets are considered income-based grants, which are recognized as a reduction to the related cost of activities that generated the benefit.

In August 2022, the U.S. enacted the IRA, which includes extension of the investment tax credit as well as a new advanced manufacturing production tax credit (“AMPTC”), to incentivize clean energy component sourcing and production, including for the production of microinverters. The IRA provides for an AMPTC on microinverters of 11 cents per alternating current watt basis. The AMPTC on microinverters decreases by 25% each year beginning in 2030 and ending after 2032. The Company recognized the benefit of credits from AMPTC as a reduction to cost of revenues in the condensed consolidated statement of operations for the microinverters manufactured in the United States and sold to customers in the three and six months ended June 30, 2023. Such credit is also reflected as a reduction of income tax payable on the Company’s condensed consolidated balance sheets within accrued liabilities.
Recently Adopted Accounting Pronouncements

In July 2015,October 2021, the FASBFinancial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers" (“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"2021-08”). 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 apply2021-08 requires an acquirer to inventoriesrecognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, “Revenue from Contracts with Customers,” as if it had originated the contracts. This should generally result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured under the last-in, first-out method or the retail inventory method, and defines NRV as the “estimated selling price in the ordinary courseacquiree’s financial statements. The Company adopted ASU 2021-08 effective January 1, 2023. The adoption of business, less reasonably predictable costs of completion, disposal, and transportation.” This standard, which was adopted in the first quarter of 2017,ASU 2021-08 did not have a materialan 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'sCompany’s condensed consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Effective2.    REVENUE RECOGNITION
In May 2014,Disaggregated Revenue
The Company has one major business activity, which is the FASB issued ASU 2014-09, Revenue from Contracts with Customers: Topic 606design, manufacture and issued subsequent amendments tosale of solutions for the initial guidance in August 2015, March 2016, April 2016, May 2016solar photovoltaic industry. Disaggregated revenue by primary geographical market and December 2016 within ASU 2015-14, 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 existingtiming of revenue recognition guidance under GAAP. for the Company’s single product line are as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
(In thousands)
Primary geographical markets:
U.S.$417,582 $422,628 $890,543 $792,120 
International293,536 107,568 546,591 179,368 
Total$711,118 $530,196 $1,437,134 $971,488 
Timing of revenue recognition:
Products delivered at a point in time$684,122 $511,865 $1,385,774 $936,014 
Products and services delivered over time26,996 18,331 51,360 35,474 
Total$711,118 $530,196 $1,437,134 $971,488 
Enphase Energy, Inc. | 2023 Form 10-Q | 9
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Contract Balances
Receivables, and contract assets and contract liabilities from contracts with customers, are as follows:
June 30,
2023		December 31,
2022
(In thousands)
Receivables$520,306 $440,896 
Short-term contract assets (Prepaid expenses and other assets)38,073 32,130 
Long-term contract assets (Other assets)122,982 100,991 
Short-term contract liabilities (Deferred revenues, current)109,176 90,747 
Long-term contract liabilities (Deferred revenues, non-current)354,296 281,613 
The updated standard’s core principle is thatCompany 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 is recognized when promised goods or services are transferredand will be amortized along with the associated revenue. The Company had no asset impairment charges related to customers in an amount that reflectscontract assets for the consideration to which an entity expects to be entitled in exchange for those goods or services. The standard generally requires an entity to identify performance obligations in its contracts, estimate the amount of variable consideration to be receivedsix months ended June 30, 2023.
Significant changes in the transaction price, allocate the transaction price to each separate performance obligation,balances of contract assets (prepaid expenses 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 Companyother assets) as of our first quarter of fiscal 2018 using either of two methods: (1) retrospective application of Topic 606 to each prior reporting period presented 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 serviceJune 30, 2023 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 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 issued 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 2016-01 is effective for fiscal years and interim periods 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. 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. The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements.

2. INVENTORY
Inventory as of September 30, 2017 and December 31, 2016 consists of the following (in thousands):
 September 30,
2017		 December 31,
2016
Raw materials$1,975
 $5,095
Finished goods23,341
 26,865
Total inventory$25,316
 $31,960
3. WARRANTY OBLIGATIONS
The Company’s warranty activities during the three and nine months ended September 30, 2017 and 2016 were as follows (in thousands):
Contract Assets
Contract Assets, beginning of period$133,121 
Amount recognized(17,658)
Increased due to shipments45,592 
Contract Assets, end of period$161,055 
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.
Significant changes in the balances of contract liabilities (deferred revenues) as of June 30, 2023 are as follows (in thousands):
Contract Liabilities
Contract Liabilities, beginning of period$372,360 
Revenue recognized(51,360)
Increased due to billings142,472 
Contract Liabilities, end of period$463,472 
Enphase Energy, Inc. | 2023 Form 10-Q | 10
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 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
Remaining Performance Obligations
AsEstimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied or partially unsatisfied at the end of Septemberthe reporting period are as follows:
June 30,
2023
(In thousands)
Fiscal year:
2023 (remaining six months)$55,492 
2024105,360 
202597,787 
202681,815 
202762,174 
Thereafter60,844 
Total$463,472 
3.    OTHER FINANCIAL INFORMATION
Inventory
Inventory consists of the following:
June 30,
2023		December 31,
2022
(In thousands)
Raw materials$30,993 $34,978 
Finished goods135,118 114,730 
Total inventory$166,111 $149,708 

Accrued Liabilities
Accrued liabilities consist of the following:
June 30,
2023		December 31,
2022
(In thousands)
Customer rebates and sales incentives$219,814 $153,916 
Income tax payable81,271 16,146 
VAT payable35,511 19,852 
Liability due to supply agreements35,368 17,341 
Freight18,653 35,011 
Salaries, commissions, incentive compensation and benefits14,575 18,009 
Operating lease liabilities, current5,773 5,371 
Post combination expense accrual— 9,138 
Liabilities related to restructuring activities186 714 
Other14,134 20,441 
Total accrued liabilities$425,285 $295,939 
4.    GOODWILL AND INTANGIBLE ASSETS
The Company’s goodwill as of June 30, 2017,2023 and December 31, 2022 were as follows:
Enphase Energy, Inc. | 2023 Form 10-Q | 11
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
GoodwillJune 30,
2023		December 31,
2022
(In thousands)
Goodwill, beginning of period$213,559 $181,254 
Goodwill acquired— 33,354 
Currency translation adjustment731 (1,049)
Goodwill, end of period$214,290 $213,559 
The Company’s purchased intangible assets as of June 30, 2023 and December 31, 2022 were as follows:
June 30, 2023December 31, 2022
GrossAdditionsAccumulated AmortizationNetGrossAdditionsAccumulated AmortizationNet
(In thousands)
Intangible assets:
Other indefinite-lived intangibles$286 $— $— $286 $286 $— $— $286 
Intangible assets with finite lives:
Developed technology51,044 — (22,166)28,878 38,650 12,394 (17,260)33,784 
Customer relationships55,106 — (24,607)30,499 41,021 14,085 (19,702)35,404 
Trade names37,700 — (11,403)26,297 37,700 — (7,633)30,067 
Order backlog600 — (600)— 600 — (600)— 
Total purchased intangible assets$144,736 $— $(58,776)$85,960 $118,257 $26,479 $(45,195)$99,541 
During the $30.4three months ended June 30, 2023, intangible assets acquired increased by less than $0.1 million due to the impact of foreign currency translation.
Amortization expense related to finite-lived intangible assets were as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
(In thousands)
Developed technology$2,455 $2,010 $4,910 $3,876 
Customer relationships2,454 2,067 4,908 3,825 
Trade names1,885 1,885 3,770 3,770 
Order backlog— 323 — 600 
Total amortization expense$6,794 $6,285 $13,588 $12,071 
Amortization of developed technology is recorded to cost of sales, amortization of customer relationships and trade names are recorded to sales and marketing expense, and amortization of certain customer relationships is recorded as a reduction to revenue.
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The expected future amortization expense of intangible assets as of June 30, 2023 is presented below (in thousands):
June 30,
2023
Fiscal year:
2023 (remaining six months)$13,585 
202424,538 
202523,032 
202619,473 
20275,046 
Total$85,674 
5.    CASH EQUIVALENTS AND MARKETABLE SECURITIES
The cash equivalents and marketable securities consist of the following:
As of June 30, 2023
Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueCash EquivalentsMarketable Securities
(In thousands)
Money market funds$134,398 $— $— $134,398 $134,398 $— 
Certificates of deposit49,544 3 (76)49,471 — 49,471 
Commercial paper119,203 — (306)118,897 — 118,897 
Corporate notes and bonds339,972 29 (3,148)336,853 — 336,853 
U.S. Treasuries354,112 35 (398)353,749 — 353,749 
U.S. Government agency securities666,104 166 (3,424)662,846 — 662,846 
Total$1,663,333 $233 $(7,352)$1,656,214 $134,398 $1,521,816 
As of December 31, 2022
Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueCash EquivalentsMarketable Securities
(In thousands)
Money market funds$165,407 $— $— $165,407 $165,407 $— 
Certificates of deposit31,874 13 (130)31,757 — 31,757 
Commercial paper148,832 10 (171)148,671 50,764 97,907 
Corporate notes and bonds168,887 2 (3,313)165,576 — 165,576 
U.S. Treasuries301,349 8 (132)301,225 4,094 297,131 
U.S. Government agency securities554,035 — (6,807)547,228 — 547,228 
Total$1,370,384 $33 $(10,553)$1,359,864 $220,265 $1,139,599 
Enphase Energy, Inc. | 2023 Form 10-Q | 13
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the contractual maturities of the Company’s cash equivalents and marketable securities as of June 30, 2023:
Amortized CostFair Value
(In thousands)
Due within one year$1,357,928 $1,352,679 
Due within one to three years305,405 303,535 
Total$1,663,333 $1,656,214 
All available-for-sale securities have been classified as current, based on management's intent and ability to use the funds in current operations.
6.    WARRANTY OBLIGATIONS
The Company’s warranty obligations included $11.7 million measured at fair value.obligation activities were as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
(In thousands)
Warranty obligations, beginning of period$146,034 $83,579 $131,446 $73,377 
Accruals for warranties issued during period16,344 11,311 32,515 20,221 
Changes in estimates(10,363)17,063 (6,635)21,975 
Settlements(5,092)(6,590)(13,986)(12,471)
Increase due to accretion expense3,907 1,828 7,452 3,343 
Change in discount rate(1)
31,797 (9,609)31,797 (9,609)
Other(1,912)(1,031)(1,874)(285)
Warranty obligations, end of period180,715 96,551 180,715 96,551 
Less: warranty obligations, current(36,686)(29,197)(36,686)(29,197)
Warranty obligations, non-current$144,029 $67,354 $144,029 $67,354 
(1)     See Note 4,7, “Fair Value Measurements” for additional information.information about the monetary impact for change in the discount rate.
4.Changes in Estimates
During the three months ended June 30, 2023, the Company recorded a $10.4 million decrease in warranty expense from change in estimates, of which $14.4 million related to a decrease in product replacement costs related to Enphase IQ™ Battery systems and $2.1 million related to decrease in product replacement costs for all other products, partially offset by $6.1 million for increasing the warranty period for the Enphase IQ Battery from 10 years to 15 years. During the three months ended June 30, 2022, the Company recorded $17.1 million in warranty expense from change in estimates, of which $13.3 million related to continuing analysis of field performance data and diagnostic root-cause failure analysis primarily for Enphase IQ Battery storage systems and $3.8 million due to an increase in labor reimbursement rates.
During the six months ended June 30, 2023, the Company recorded a $6.6 million decrease in warranty expense from change in estimates, of which $20.5 million related to a decrease in product replacement costs related to Enphase IQ Battery systems and $2.1 million related to decrease in product replacement costs for all other products, partially offset by $6.1 million for increasing the warranty period for the Enphase IQ Battery from 10 years to 15 years, and by $9.9 million related to continuing analysis of field performance data and diagnostic root-cause failure analysis primarily for Enphase IQ Battery storage systems and prior generation products. During 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 related 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 due to an increase in labor reimbursement rates.
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7.    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.
•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, 2023December 31, 2022
(In thousands)
Level 1Level 2Level 3Level 1Level 2Level 3
Assets:
Cash and cash equivalents:
Money market funds$134,398 $— $— $165,407 $— $— 
Commercial paper— — — — 50,764 — 
U.S. Treasuries— — — — 4,094 — 
Marketable securities:
Certificates of deposit— 49,471 — — 31,757 — 
Commercial paper— 118,897 — — 97,907 — 
Corporate notes and bonds— 336,853 — — 165,576 — 
U.S. Treasuries— 353,749 — — 297,131 — 
U.S. Government agency securities— 662,846 — — 547,228 — 
Other assets
Investments in debt securities— — 60,275 — — 56,777 
Total assets measured at fair value$134,398 $1,521,816 $60,275 $165,407 $1,194,457 $56,777 
Liabilities:
Warranty obligations
Current$— $— $27,282 $— $— $30,740 
Non-current— — 123,258 — — 75,749 
Total warranty obligations measured at fair value— — 150,540 — — 106,489 
Total liabilities measured at fair value$— $— $150,540 $— $— $106,489 
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. The Company carries the Notes due 2025 at face value less unamortized discount and issuance costs on its condensed consolidated balance sheets. As of June 30, 2023, the fair value hierarchyof the Notes due 2028, Notes due 2026 and Notes due 2025 was $543.6 million, $594.7 million and $261.6 million, respectively. The fair value as of June 30, 2023 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. Refer to Note 8, “Debt,” for additional information about the Company’s outstanding debt.
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 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 to be a Level 3 measurement due to the use of significant unobservable inputs in the valuation model. The fair value was 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. Principal plus accrued interest receivable of the investment approximates the fair value.
In December 2022, the Company took a non-voting participating interest of approximately $15.0 million in a loan held by a privately-held company. The debt security qualifies as an investment in a debt security and interest will be payable on a monthly basis. The principal becomes repayable at a certain date when a qualified equity investment or a junior debt is raised, or as long as certain applicable payment conditions are satisfied. The accreted interest is recognized in “Other income (expense), net” in the Company’s condensed consolidated statement of operations for that period. Principal plus unpaid accrued interest receivable of the investment approximates the fair value.
Investment in debt securities is recorded in “Other assets” on the accompanying condensed consolidated balance sheet as of June 30, 20172023 and December 31, 2016 (in thousands):2022. The changes in the balance in investments in debt securities during the period were as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
(In thousands)
Balance at beginning of period$58,521 $39,926 $56,777 $41,042 
Fair value adjustments included in other income (expense), net1,754 987 3,498 (129)
Balance at end of period$60,275 $40,913 $60,275 $40,913 
Enphase Energy, Inc. | 2023 Form 10-Q | 16
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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
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, claimreturn 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 rateare based on the Company’s credit-adjusted risk-free rate (“discount 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,
2023202220232022
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$119,508 $61,586 $106,489 $51,007 
Accruals for warranties issued during period867
 1,185
 2,760
 2,898
Accruals for warranties issued during period16,344 11,120 32,369 19,890 
Changes in estimates(1,452) (200) (2,051) (678)Changes in estimates(12,925)14,692 (11,680)18,591 
Settlements(530) (390) (1,265) (726)Settlements(6,179)(4,668)(14,013)(8,724)
Increase due to accretion expense549
 461
 1,542
 1,279
Increase due to accretion expense3,907 1,828 7,452 3,343 
Change in discount rateChange in discount rate31,797 (9,609)31,797 (9,609)
Other(279) 406
 401
 560
Other(1,912)(1,026)(1,874)(575)
Balance at end of period$11,719
 $9,515
 $11,719
 $9,515
Balance at end of period$150,540 $73,923 $150,540 $73,923 
Quantitative and Qualitative Information about Level 3 Fair Value Measurements
As of SeptemberJune 30, 2017,2023 and December 31, 2022, the significant unobservable inputs used in the fair value measurement of the Company’s liabilities designated as Level 3 arewere 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 “Change in discount rate” in the fair value measurement of the Company’s liabilities designated as Level 3 are as follows:table above:
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%



Percent Used
(Weighted Average)
Item Measured at Fair ValueValuation TechniqueDescription of Significant Unobservable InputJune 30,
2023		December 31,
2022
Warranty obligations for products sold since January 1, 2014Discounted cash flowsProfit element and risk premium17%16%
Credit-adjusted risk-free rate8%13%
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 the requirements of a third-party participant willing to assume the Company’s warranty obligations. The credit-adjusted risk freediscount rate (“discount rate”) is determined by reference to the Company’s own credit standing at the fair value measurement date. Increasing or decreasingdate, which improved in the three and six months ended June 30, 2023 contributing to the 5% decline in discount rate and associated increase in warranty expense in the same period captured in “Change in discount rate” in the table above. Under the expected present value technique, increasing the profit element and risk premium input by 100 basis points would not haveresult in a material impact on$1.1 million increase to the fair value measurementliability. Decreasing the profit element and risk premium by 100 basis points would result in a $1.1 million reduction of the liability. Increasing the discount rate by 100 basis points would result in a $0.5$9.2 million reduction of the liability. Decreasing the discount rate by 100 basis points would result in a $0.6$10.3 million increase to the liability.
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5. GOODWILL AND INTANGIBLE ASSETSENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8.    DEBT
The following table provides information regarding the Company’s debt:
June 30,
2023		December 31,
2022
(In thousands)
Convertible notes
Notes due 2028$575,000 $575,000 
Less: unamortized debt issuance costs(6,062)(6,705)
Carrying amount of Notes due 2028568,938 568,295 
Notes due 2026632,500 632,500 
Less: unamortized debt issuance costs(5,320)(6,307)
Carrying amount of Notes due 2026627,180 626,193 
Notes due 2025102,175 102,175 
Less: unamortized debt discount(7,979)(10,229)
Less: unamortized debt issuance costs(813)(1,054)
Carrying amount of Notes due 202593,383 90,892 
Notes due 20235,000 5,000 
Less: unamortized issuance costs(4)(23)
Carrying amount of Notes due 20234,996 4,977 
Total carrying amount of debt1,294,497 1,290,357 
Less: debt, current(93,383)(90,892)
Debt, non-current$1,201,114 $1,199,465 
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the detailstotal amount of interest cost recognized in the Company’s goodwill and purchased intangible assets ascondensed consolidated statement of September 30, 2017 and December 31, 2016 (in thousands):operations relating to the Notes:
Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
(In thousands)
Notes due 2028
Amortization of debt issuance costs$327 $327 $643 $643 
Total interest cost recognized$327 $327 $643 $643 
Notes due 2026
Amortization of debt issuance costs$502 $502 $987 $987 
Total interest cost recognized$502 $502 $987 $987 
Notes due 2025
Contractual interest expense$64 $64 $128 $128 
Amortization of debt discount1,144 1,088 2,249 2,137 
Amortization of debt issuance costs123 123 241 241 
Total interest cost recognized$1,331 $1,275 $2,618 $2,506 
Notes due 2023
Contractual interest expense$50 $50 $100 $100 
Amortization of debt issuance costs10 10 20 20 
Total interest costs recognized$60 $60 $120 $120 
Convertible Senior Notes due 2028
 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,On March 1, 2021, 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 balance for the periods indicated (in thousands):
 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
7. DEBT
Revolving Credit Facility
The Company had a $50.0issued $575.0 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. On December 18, 2015, 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 $25.0 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 upour 0.0% convertible senior notes due 2028 (the “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%its common stock, at the Company’s election.
Enphase Energy, Inc. | 2023 Form 10-Q | 19
Table of the loan amount is payable in four equal installments at each anniversary of the closing date. Contents
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 five 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) 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) dividedconversion 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.

Enphase Energy, Inc. | 2023 Form 10-Q | 20
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Long-termENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Following the adoption ASU 2020-06, “Debt - Debt with Conversion and Other Options (subtopic 470-20)” (“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, thereby eliminating the subsequent amortization of the debt discount as interest expense. Similarly, the portion of issuance costs previously allocated to equity was comprisedreclassified to the carrying amount of Notes due 2028 and 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 June 30, 2023, the unamortized deferred issuance cost for the Notes due 2028 was $6.1 million on the condensed consolidated balance sheet.
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 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 (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 Company’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 derivatives and are not remeasured each reporting period.
Convertible Senior Notes due 2026
On March 1, 2021, the Company issued $575.0 million aggregate principal amount of 0.0% convertible senior notes due 2026 (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 repurchased earlier by the Company or converted at the option of
Enphase Energy, Inc. | 2023 Form 10-Q | 21
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
The 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 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 five 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.
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 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, 20172023, the unamortized deferred issuance cost for the Notes due 2026 was $5.3 million on the condensed consolidated balance sheet.
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.
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
Convertible Senior Notes due 2025
On March 9, 2020, the Company issued $320.0 million aggregate principal amount of our 0.25% convertible senior notes due 2025 (the “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 adjustment 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 relevant indenture), the Company will, 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 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 on each applicable trading day; (2) during the five business day period after any five 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.
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of June 30, 2023 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
2022, 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, 2023 and December 31, 2022. As ofa result, the Notes due 2025 are convertible at the holders’ option through September 30, 2017,2023. Accordingly, the Company classified the net carrying amount of the Notes due 2025 of $93.4 million and $90.9 million as Debt, current on the condensed consolidated balance sheet as of June 30, 2023 and December 31, 2022, respectively. From July 1, 2023 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.
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.
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 scheduled$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 paymentsamount 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 three months ended March 31, 2021, representing the difference between the consideration attributed to the liability component and the sum of the net carrying amount of the liability 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 three months ended March 31, 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, 2023, $102.2 million aggregate principal amount of the Notes due 2025 remained outstanding.
The derived effective interest rate on the term loanNotes due 2025 host contract was determined to be 5.18%, which remains unchanged from the date of issuance. The remaining unamortized debt discount was $8.0 million as of June 30, 2023, and will be amortized over approximately 1.7 years from June 30, 2023.
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 follows (in thousands):
the case may be.
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Year Amounts
2017 $—
2018 15,229
2019 20,084
2020 14,687
Total $50,000
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 expiration date applicable to the 2025 Warrants is September 23, 2025.
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, 2023, 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.
8.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 three and six months ended June 30, 2020.
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, 2023 and December 31, 2022, $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
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 accrued 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 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.
9.    COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office facilities under noncancellable 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,
2023202220232022
(In thousands)
Operating lease costs$2,416 $2,052 $5,008 $3,989 
The components of lease liabilities are presented as follows:
June 30,
2023		December 31,
2022
(In thousands except years and percentage data)
Operating lease liabilities, current (Accrued liabilities)
$5,773 $5,371 
Operating lease liabilities, non-current (Other liabilities)20,311 19,077 
Total operating lease liabilities$26,084 $24,448 
Supplemental lease information:
Weighted average remaining lease term5.6 years5.3 years
Weighted average discount rate6.7%6.5%
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Supplemental cash flow and other information related to operating leases, were as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$1,788 $1,325 $3,490 $2,843 
Non-cash investing activities:
Lease liabilities arising from obtaining right-of-use assets$2,852 $— $4,368 $6,742 
Undiscounted cash flows of operating lease liabilities as of June 30, 2023 were as follows:
Lease Amounts
(In thousands)
Year:
2023 (remaining six months)$3,752 
20246,691 
20255,940 
20264,252 
20272,882 
Thereafter7,857 
Total lease payments31,374 
Less: imputed lease interest(5,290)
Total lease liabilities$26,084 
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, 2023, these purchase obligations totaled approximately $633.4 million.
Litigation
From time-to-time, the Company may be subjectinvolved in litigation relating to legal proceedingsclaims arising inout of its operations, the ordinary courseultimate disposition of business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently does not believe that the final outcome of any such matters willwhich could have a material adverse effect on its operations, financial condition or cash flows. The Company is not currently involved in any material legal proceedings; however, the Company’sCompany may be involved in material legal proceedings in the future. Such matters are subject to uncertainty and there can be no assurance that such legal proceedings will not have a material effect on its business, financial position, results of operations, financial position or cash flows.
9. SALE OF COMMON STOCK

10.    STOCKHOLDERS' EQUITY
In January 2017,May 2021, the board of directors authorized a share repurchase program (the “2021 Repurchase Program”) pursuant to which the Company completed a private placementwas authorized to repurchase up to $500.0 million of securities that resultedthe Company’s common stock, from time to time in the issuanceopen market or through structured repurchase agreements with third parties, $200.0 million of approximately 10.8 millionwhich was remaining as of March 31, 2023.
During the three and six months ended June 30, 2023, the Company repurchased and subsequently retired 1,254,474 shares of common stock from the open market at an average cost of $159.43 per share for a total of $200.0 million. Of the 1,254,474 shares repurchased, 833,517 shares were retired as of June 30, 2023 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 sharesrecorded as “Repurchase 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 describedstock” in the accompanying condensed consolidated financial statements of changes in stockholders’ equity. The remaining 420,957 shares repurchased were retired in July 2023 and related notes includedrecorded as “Treasury stock, at cost” in the Company’s Annual Report onaccompanying consolidated statements of changes in stockholders’ equity. The full
Enphase Energy, Inc. | 2023 Form 10-K for the year ended December 31, 2016.10-Q | 29
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Equity Awards ActivityENPHASE ENERGY, INC.
Stock OptionsNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of stock option activity for the nine months ended September 30, 2017 (in thousands, except per share data):

(Unaudited)
 
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$500.0 million based on the closing price of the Company’s common stock authorized under the 2021 Repurchase Program has been repurchased as of SeptemberJune 30, 2017.2023.
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):11.    STOCK-BASED COMPENSATION
 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 did not have a material impact on the Company’s stock based compensation expense.
The total intrinsic value 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.
Stock-BasedStock-based Compensation Expense
CompensationStock-based compensation expense for all stock-based awards, which includes shares purchased under the Company’s 2011 Employee Stock Purchase Plan (“ESPP”), restricted stock units (“RSUs”) and performance 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 recognized 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,
2023202220232022
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$3,398 $3,131 $7,067 $5,638 
Research and development607
 941
 1,994
 3,047
Research and development23,765 16,266 45,243 29,995 
Sales and marketing226
 560
 889
 1,760
Sales and marketing14,515 22,176 35,934 35,233 
General and administrative547
 736
 1,598
 2,525
General and administrative12,488 11,491 25,577 29,995 
Total$1,727
 $2,532
 $5,277
 $8,239
Total$54,166 $53,064 $113,821 $100,861 
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,
2023202220232022
(In thousands)
Stock options, RSUs and PSUs$51,852 $47,228 $108,809 $91,340 
Employee stock purchase plan1,803 1,014 3,843 2,396 
Post combination expense accrual (Accrued liabilities)511 4,822 1,169 7,125 
Total$54,166 $53,064 $113,821 $100,861 
As of SeptemberJune 30, 2017,2023, there was approximately $8.8$407.6 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 2.8 years.
11.
Enphase Energy, Inc. | 2023 Form 10-Q | 30
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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, 20221,464 $1.83 
Granted— — 
Exercised(92)1.64 $15,375 
Canceled— — 
Outstanding at June 30, 20231,372 $1.85 1.5$227,200 
Vested and expected to vest at June 30, 20231,372 $1.85 1.5$227,200 
Exercisable at June 30, 20231,372 $1.85 1.5$227,200 
(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, 2023 is based on the closing price of the last trading day during the period ended June 30, 2023. The Company’s stock fair value used in this computation was $167.48 per share.
The following table summarizes information about stock options outstanding at June 30, 2023:
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 —– $1.11422 2.0$0.89 422 $0.89 
$1.29 —– $1.29858 1.21.29 858 1.29 
$1.31 —– $5.5365 1.74.43 65 4.43 
$14.58 —– $14.5820 2.814.58 20 14.58 
$64.17 —– $64.177 3.864.17 7 64.17 
Total1,372 1.5$1.85 1,372 $1.85 
Enphase Energy, Inc. | 2023 Form 10-Q | 31
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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, 20222,253 $181.01 
Granted423 214.80 
Vested(691)142.41 $140,740 
Canceled(147)176.87 
Outstanding at June 30, 20231,838 $203.65 1.3$307,877 
Expected to vest at June 30, 20231,838 $203.65 1.3$307,865 
(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, 2023 is based on the closing price of the last trading day during the period ended June 30, 2023. The Company’s stock fair value used in this computation was $167.48 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, 2022376 $197.82 
Granted383 240.72 
Vested(375)195.81 $79,438 
Canceled(19)227.35 
Outstanding at June 30, 2023365 $243.30 1.7$61,087 
Expected to vest at June 30, 2023365 $243.30 1.7$61,087 
(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, 2023 is based on the closing price of the last trading day during the period ended June 30, 2023. The Company’s stock fair value used in this computation was $167.48 per share.
12.    INCOME TAXES
The Company usedFor the discretethree months ended June 30, 2023 and 2022, the Company’s income tax approach in calculatingprovision totaled $27.4 million and $15.2 million, respectively, on a net income before income taxes of $184.6 million and $92.2 million, respectively. For the six months ended June 30, 2023 and 2022, the Company’s income tax expense forprovision totaled $59.5 million and $20.8 million, respectively, on a net income before income taxes of $363.6 million and $149.6 million, respectively. For both the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022, the income tax provision was calculated using the annualized effective tax rate method and was primarily due to the fact that a relatively small changeprojected tax expense in the Company’sU.S. and foreign jurisdictions that are profitable, partially offset by a tax deduction from employee stock compensation reported as a discrete event.
For the three and six months ended June 30, 2023 and 2022, in accordance with FASB guidance for interim reporting of income tax, the Company has computed its provision for income taxes based on a projected pre-tax net income (loss) could result in a volatileannual effective tax rate. Underrate while excluding loss jurisdictions which cannot be benefited.
Enphase Energy, Inc. | 2023 Form 10-Q | 32
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In August 2022, the discrete method,U.S. enacted the IRA, which included revisions to the Internal Revenue Code of 1986, as amended. The IRA introduced a 15% corporate alternative minimum income tax (“CAMT”) for corporations whose average adjusted financial income for any consecutive three-year period ending after December 31, 2021, exceeds $1.0 billion. Further, the IRA also extended the investment tax credits for clean energy and expanded the incentives to clean energy manufacturing. The Company determines its tax (expense) benefitis not subject to the CAMT based upon actualon the current operating results as ifand interpretations of the interim period was an annual period. The tax provision recorded was primarily related to income taxes attributable to its foreign operations.latest IRA guidance.
12.13.    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 planESPP, the Notes due 2023, Notes due 2025, Notes due 2026, Notes due 2028, and warrantsthe 2025 Warrants. Refer to purchase common stock. Note 8. “Debt,” for additional information about the Company’s outstanding debt.
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,
2023202220232022
(In thousands, except per share data)
Numerator:
Net income$157,191 $76,976 $304,064 $128,797 
Convertible senior notes interest and financing costs, net1,651 662 3,255 1,304 
Adjusted net income$158,842 $77,638 $307,319 $130,101 
Denominator:
Shares used in basic per share amounts:
Weighted average common shares outstanding136,607 135,196 136,650 134,768 
Shares used in diluted per share amounts:
Weighted average common shares outstanding used for basic calculation136,607 135,196 136,650 134,768 
Effect of dilutive securities:
Employee stock-based awards1,760 3,042 2,155 3,399 
Notes due 2023900 900 900 900 
Notes due 20251,253 — 1,253 — 
2025 Warrants503 512 575 460 
Notes due 20262,057 2,057 2,057 2,057 
Notes due 20282,018 2,018 2,018 2,018 
Weighted average common shares outstanding for diluted calculation145,098 143,725 145,608 143,602 
Basic and diluted net income per share
Net income per share, basic$1.15 $0.57 $2.23 $0.96 
Net income per share, diluted$1.09 $0.54 $2.11 $0.91 
Enphase Energy, Inc. | 2023 Form 10-Q | 33
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Diluted earnings per share for the three and six months ended June 30, 2023 and 2022 includes 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, ESPP, the 2025 Warrants, the 2026 Warrants, the 2028 Warrants and includes potentially dilutive common shares by application of the if-converted method for the Notes due 2025, Notes due 2026 and Notes due 2028. To the extent these potential common shares are antidilutive, they are excluded from the calculation of diluted net lossincome per share.
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 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.
The following table presents the computationoutstanding shares of basic and diluted net loss 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)
As the Company incurred a net loss for all periods presented, potential dilutive securities from employeecommon stock options, restricted stock units and warrants have beenequivalents were excluded from the diluted net loss per share computations because the effect of including such shares would have been anti-dilutive. The following table sets forth the potentially dilutive securities 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,
2023202220232022
(In thousands)
Employee stock-based awards1,226 572 1,006 598 
2028 Warrants2,477 2,425 2,046 2,735 
2026 Warrants2,524 2,471 2,085 2,788 
Notes due 2025— 1,253 — 1,253 
Total6,227 6,721 5,137 7,374 
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, 2023 and December 31, 2022, $5.0 million aggregate principal amount of the Notes due 2023 were outstanding. Refer to Note 8. “Debt,” for additional information related to this purchase.    
15.    SUBSEQUENT EVENTS
Investment in a privately-held company
In July 2023, the Company invested $15.0 million in cash in a privately-held company. The investment does not require consolidation into the Company’s financial statements because the privately-held company is not a variable interest entity and the Company does not hold a majority voting interest.
Share repurchase program
In July 2023, the Company’s Board of Directors authorized the repurchase of up to $1.0 billion of the Company’s common stock. The Company may repurchase shares of common stock from time to time through solicited or unsolicited transactions in the open market, in privately negotiated transactions or pursuant to a Rule 10b5-1 plan. The timing, price and volume of repurchases will be based on market conditions, relevant securities laws, and other considerations. The share repurchase program may be discontinued or amended at any time by the Company’s Board of Directors and expires on July 26, 2026.
Enphase Energy, Inc. | 2023 Form 10-Q | 34
 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

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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, regardinginclude but are not limited to statements regarding: our expectations as to future financial performance, anticipated cost savings, expectedincluding expenses, liquidity sources and cash requirements; the capabilities, performance and competitive advantage of our technology and products and planned changes; timing of new product releases, expense levels and liquidity sourcesthe anticipated market adoption of our current and future products; our expectations regarding, demand for our products; our business strategies, including anticipated trends and operating conditions; our expectations regarding our internal reorganization; growth of and development in markets we target, and our expansion into new and existing markets; our performance in operations, including component supply management; our product quality and customer service; our expectations regarding geopolitical developments, such as the conflict in Ukraine and inflationary pressures and their impact on our business operations, financial performance and the markets in which we, our suppliers, manufacturers and installers operate; and the importance of and anticipated benefits from government incentives for solar products, including through changes in the tax laws, rules and regulations. 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 discussedsee 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, 2016.2022 filed on February 13, 2023 (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, 2023, we have shipped approximately 1668 million microinverters, representing over 3 gigawatts of solar PV generating capacity and approximately 700,000more than 3.5 million Enphase residential and commercial systems have been deployed in over 100145 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 and 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 ModulesEnergy, Inc. | 2023 Form 10-Q | 35
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We began shipping Enphase Energized AC Modulessell primarily to solar distributors who combine our products with others, including solar modules products and racking systems, and resell to installers in North Americaeach target region. In addition to our solar distributors, we sell directly to select large installers, original equipment manufacturers (“OEMs”) and strategic partners. Our OEMs customers include solar module manufacturers who integrate our microinverters with their solar module products and resell to both distributors and installers. Strategic partners include providers of solar financing solutions. We also sell certain products and services to homeowners primarily in support of our warranty services and legacy product upgrade programs via our online store.
Inflation Reduction Act of 2022. In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted, which includes extension of the investment tax credit (“ITC”) as well as a new advanced manufacturing production tax credit (“AMPTC”) to incentivize clean energy component sourcing and production, including for the production of microinverters. The IRA provides an AMPTC on microinverters of 11 cents per alternating current watt. The AMPTC for microinverters decreases by 25% each year beginning in 2030 and ending after 2032. Under the IRA, the ITC was extended until 2032 to allow a qualifying homeowner to deduct 30% of the cost of installing residential solar systems from their U.S. federal income taxes, thereby returning a material portion of the purchase price of the residential solar system to homeowners. Under the terms of the current extension, the ITC will remain at 30% through the end of 2032, reduce to 26% for 2033, reduce to 22% for 2034, and further reduce to 0% after the end of 2034 for residential solar systems, unless it is extended before that time. We believe the enactment of the IRA is favorable to our overall business worldwide; however, we are continuing to evaluate the overall impact and applicability of the IRA to our results of operations going forward, including the revisions to the U.S. Internal Revenue Code, which include a 15% corporate minimum income tax and a 1% excise tax on corporate stock repurchases in tax years beginning after December 31, 2022.
During the second quarter of 2017. The Enphase Energized AC Modules with IQ utilize our sixth generation microinverters and are produced through our AC module partnerships with LG and Jinko Solar. 
Enphase AC Battery™
In the third quarter of 2016,2023, we began our first shipments of microinverters from our Enphase AC Battery™ to distributors in Australia and New Zealand. In the fourth quarter of 2016, we started shipping our AC Battery to customerscontract manufacturer partners in the United States, France,States. We expect to add a total capacity of approximately 4.5 million microinverters per quarter with three different manufacturing partners in the United KingdomU.S. as we exit 2023, which would bring our overall global capacity to approximately 10 million microinverters per quarter. This allows us to take advantage of the benefits of the IRA, and along with the manufacturing capacity in Romania, could help us better serve our customers by cutting down delivery times and diversifying our supply chain.
Factors Affecting our Business and Operations
As we have a growing global footprint, we are subject to risk and exposure from the evolving macroeconomic environment, including the effects of increased global inflationary pressures and interest rates, fluctuations in foreign currency exchange rates, potential economic slowdowns or recessions, the COVID-19 pandemic and geopolitical pressures, including the unknown impacts of current and future trade regulations and the Netherlands. The Enphase AC Battery is a scalable, modular energy storage system with a 1.2kWh energy capacity.
Operating Expense Reduction Initiatives
InRussia-Ukraine armed conflict. We continuously monitor the third quarterdirect and indirect impacts of 2016, we began implementing restructuring actions to lower operating expenses and cost of revenues. The restructuring actions have included reductions in our global workforce, the elimination of

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 Statements 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 dependentthese circumstances on our ability to compete effectively in the marketplace by remaining cost competitive, developingbusiness 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 awarenessfinancial results.
Demand 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 anticipatedProducts.The demand environment 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 Europehas experienced a broad-based slowdown, primarily due to high interest rates. During the second quarter of 2023, this resulted in elevated inventory with distributors 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.installers. We expect to sell less microinverters to distributors and installers during the third quarter of 2023 as they respond to this slower demand environment. We expect these trends to have an adverse effect on our revenue in the second half of 2023.
Unfavorable Macroeconomic and Market Conditions. The global macroeconomic and market uncertainty, including higher interest rates and inflation, have caused disruptions in financial markets and may continue to have an adverse effect on the U.S. and world economies. As a result, customers may decide to delay purchasing our products and services or not purchase at all. A tighter credit market for consumer and business spending could, in turn, adversely affect spending levels of installers and end users and lead to increased price competition for our products. Reductions in customer spending in response to unfavorable or uncertain macroeconomic and market conditions, globally or in a particular region where we operate, would adversely affect our business, results of operations and financial condition. Further information relating to the risks and uncertainties related to unfavorable macroeconomic and market conditions may be found in Part I, Item 1A, “Risk Factors” of the Form 10-K.
Enphase Energy, Inc. | 2023 Form 10-Q | 36
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Products
The Enphase Energy System, powered by IQ Microinverters, IQ Batteries and other products and services, is an integrated solar, storage and energy management offering that enables self-consumption and delivers our core value proposition of yielding more energy, simplifying design and installation and improving system uptime and reliability.
IQ Microinverters. We recently began shipping our new IQ8 microinverters with peak output AC power of 384W in France, the Netherlands, Spain, Portugal, Poland, and Germany to support newer high-powered solar modules. The new IQ8 Microinverters are designed to maximize energy production and can manage a continuous DC current of 14 amperes, supporting higher powered solar modules through increased energy harvesting.
AC Module (“ACM”) products are integrated systems that allow installers to be more competitive through improved logistics, reduced installation times, faster inspection and training. We continue to make steady progress with our ACM partners, including SunPower Corporation and Maxeon Solar Technologies, Ltd.
IQ Batteries. Our Enphase IQ Battery storage systems, with usable and scalable capacity of 10.1 kWh and 3.4 Kilowatt-hour (“kWh”) for the necessary investments to enable us to executeUnited States, and 10.5 kWh and 3.5 kWh for Europe and other international countries, are based on 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.Ensemble OS™ energy system, which powers the world’s first grid-independent microinverter-based storage systems. We currently offer microinvertership our Enphase IQ Battery storage systems targetingto customers in North America, Belgium, Germany, Austria, France, the Netherlands and Switzerland, Spain and Portugal. Enphase IQ Batteries in Europe can be installed with both single-phase and 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.
In May 2023, we introduced our most powerful Enphase Energy System to-date, featuring the new IQ™ Battery 5P and commercial marketsIQ8 Microinverters, for customers in Australia. The IQ Battery 5P is modular with 5 kWh capacity; the IQ8 Microinverters provide a peak output power of 384 W. The IQ Battery 5P is also available for customers in the United States Canada, Mexico and certain CentralPuerto Rico. The IQ Battery 5P is modular by design and can deliver 3.84 kW continuous power and 7.68 kW peak power, enabling homeowners to start heavy loads like air conditioners easily during power outages.

Our IQ™ Load Controller for our Enphase IQ Battery storage systems allow 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. This product makes installation simpler and saves time for installers.
American markets,Electric Vehicle (“EV”) Chargers. The increasing penetration of EVs has implications for home energy management, as households not only consume significantly more power with an EV, but also have a large battery that can be used for both backup and grid service. In the United Kingdom, France, the Benelux region, certain other European markets, Australia, New Zealand and certain other Asian markets.first quarter of 2023, we began production shipments of Enphase branded EV chargers at our existing contract manufacturing facility in Mexico. We expect this move could help to continuemeet the rapidly growing demand for reliable and affordable EV charging solutions by providing a greater supply of product and more predictable lead times. Our EV chargers are compatible with most EVs sold in North America. Customers are able to expandpurchase Enphase-branded EV chargers with a charging power range between 32 amperes and 64 amperes.
In January 2023, we demonstrated our bidirectional EV charger technology enabling vehicle-to-home and vehicle-to-grid functionality. This new bidirectional EV charger is designed to leverage the geographic reachpower of our product offeringsgrid forming IQ8 Microinverters and explore new sales channelsEnsemble OS™ energy management technology to seamlessly integrate into Enphase home energy systems, and can be controlled from the Enphase App, empowering homeowners to make, use, save, and sell their own power.
In June 2023, we introduced the IQ™ Energy Router family of devices in addressable markets inGermany and Austria to enable the future.integration of select third-party EV chargers and heat pumps into Enphase solar and battery systems. The IQ Energy Router integrates with EV chargers, while the IQ™ Energy Router+ works with both EV chargers and heat pumps.
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 
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 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
 $(25,498) (11)%
Three Months Ended
June 30,		Change inSix Months Ended
June 30,		Change in
20232022$%20232022$%
(In thousands, except percentages)
Net revenues$711,118 $530,196 $180,922 34 %$1,437,134 $971,488 $465,646 48 %
Three Months Ended Septembermonths ended June 30, 20172023 and 20162022
Net revenues decreasedincreased by 13% for$180.9 million, or 34%, in the three months ended SeptemberJune 30, 20172023, as compared to the same period in 2016 due to lower average selling prices combined with2022, driven primarily by a decrease55% increase in microinverter units sold. Wevolume shipped, as we sold 790,000approximately 5.2 million microinverter units in the three months ended SeptemberJune 30, 2017 versus 869,0002023, as compared to approximately 3.3 million 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 SeptemberJune 30, 2017,2022. The average selling price of our microinverter products increased by 3% in the three months ended June 30, 2023, as compared to the same period in 2016.2022, which contributed to an approximately $13.6 million increase in revenue, primarily driven by a favorable product mix as we sold more IQ8 microinverters relative to IQ7 microinverters in the three months ended June 30, 2023. The increase in total net revenues was partially offset by a decrease in shipments of IQ Batteries from 132.4 Megawatt-hour (“MWh”) shipped in the three months ended June 30, 2022 to 82.3 MWh shipped in the three months ended June 30, 2023.
Nine Months Ended SeptemberSix months ended June 30, 20172023 and 20162022
Net revenues decreasedincreased by 11%$465.6 million, or 48%, for the ninesix months ended SeptemberJune 30, 2017 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 microinverter units in the nine months ended September 30, 2017 versus 2,276,000 units in the same period in 2016. Volumes were negatively affected by the unusually wet weather in California 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 nine months ended September 30, 2017,2023, as compared to the same period in 2016. We expect2022, driven primarily by a 62% increase in microinverter units volume shipped as we sold approximately 10.0 million microinverter units in the six months ended June 30, 2023, as compared to approximately 6.2 million units for the six months ended June 30, 2022. The average selling prices forprice of our microinverter systems to continue to declineproducts increased by 4% 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 threesix months ended SeptemberJune 30, 20172023, as compared to the same period in 2016.2022, which contributed to an approximately $39.7 million increase in revenue, primarily driven by a favorable product mix as we sold more IQ8 microinverters relative to IQ7 microinverters in the six months ended June 30, 2023. The decreaseincrease in cost oftotal net revenues was primarily attributable topartially offset by a decrease in shipments of IQ Batteries from 252.8 MWh shipped in the average cost per wattsix months ended June 30, 2022 to 184.7 MWh shipped in the six months ended June 30, 2023.
Cost of microinverter systems, lower volume, lower warranty expenseRevenues and reduced overhead expenses as a resultGross Margin
Three Months Ended
June 30,		Change inSix Months Ended
June 30,		Change in
20232022$%20232022$%
(In thousands, except percentages)
Cost of revenues$387,776 $311,191 $76,585 25 %$787,421 $575,510 $211,911 37 %
Gross profit323,342 219,005 104,337 48 %649,713 395,978 253,735 64 %
Gross margin45.5 %41.3 %45.2 %40.8 %
Three months ended June 30, 2023 and 2022
Cost of our cost reduction efforts. Gross marginrevenues increased by 3.5 percentage points for$76.6 million, or 25%, in the three months ended SeptemberJune 30, 20172023, as compared to the same period in 2016. The increase in gross margin was2022, primarily due to higher volume of microinverter units sold and monetary impact for change in discount rate input to the fair value of our warranty obligations. These costs were partially offset by a greater decrease in shipments of IQ Batteries, and recognition of credits under the average cost per watt of our microinverter systems thanAMPTC, for microinverters manufactured and shipped to customers in the average revenue per watt and lower overhead and warranty expenseUnited States during the three months ended June 30, 2023.
Gross margin increased by 4.2 percentage points in the three months ended SeptemberJune 30, 20172023, as compared to the same period last year.
Nine Months Ended September 30, 2017 and 2016
Cost of revenues decreasedin 2022. The increase was primarily due to a higher average selling prices driven by 11% fora favorable product mix as we sold more IQ8 microinverters relative to IQ7 microinverters in the ninethree months ended SeptemberJune 30, 20172023, and favorable impact from foreign currency exchange rate. Gross margin also increased in the three months ended June 30, 2023, as compared to the same period in 2016. The decrease in2022, due to cost management efforts, such as lower shipping costs and the benefit recognized from credits under AMPTC.
Six months ended June 30, 2023 and 2022
Enphase Energy, Inc. | 2023 Form 10-Q | 38
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Cost of revenues was primarily attributable to a decrease 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 decreasedincreased by 0.1 percentage points$211.9 million, or 37%, for the ninesix months ended SeptemberJune 30, 20172023, as compared to the same period in 2016. The primary driver2022, primarily due to higher volume of microinverter units sold and monetary impact for change in discount rate input to the fair value of our warranty obligations. These costs were partially offset by a decrease in gross margin wasshipments of IQ Batteries and the absorptionrecognition of fixed overhead costscredit under the AMPTC for microinverters manufactured and warranty charges on a lower revenue baseshipped to customers in the first quarter of 2017. Our ability to reduce product costs andUnited States during the timing of product cost reductions relative to declines in average selling prices can have a significant impact on our gross margin.six months ended June 30, 2023.
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 decreasedGross margin increased by 44%4.4 percentage points for the threesix months ended SeptemberJune 30, 20172023, as compared to the same period in 2016.2022. The decrease isincrease was primarily due to a higher average selling prices driven by a favorable product mix, as we sold more IQ8 microinverters relative to IQ7 microinverters, as well as cost management efforts such as lower shipping costs and the implementation of our restructuring initiative that eliminated non-core projects resulting in a $3.5 million reduction in researchbenefit recognized from credits under AMPTCs.
Research and development personnel related expensesDevelopment
Three Months Ended
June 30,		Change inSix Months Ended
June 30,		Change in
20232022$%20232022$%
(In thousands, except percentages)
Research and development$60,043 $39,256 $20,787 53 %$117,172 $74,975 $42,197 56 %
Percentage of net revenues8 %7 %8 %8 %
Three months ended June 30, 2023 and a $1.7 million reduction in lab parts, product prototypes and professional fees.
Nine Months Ended September 30, 2017 and 20162022
Research and development expense decreasedincreased by 37% for$20.8 million, or 53%, in the ninethree months ended SeptemberJune 30, 20172023, as compared to the same period in 2016.2022. The decrease isincrease was primarily due to $15.5 million of higher personnel-related expenses, $3.5 million of equipment expense associated with our investment in the implementationdevelopment, introduction and qualification of new products, and $2.4 million of professional services and corporate expenses to support our business growth, partially offset by a decrease of $0.6 million of facility costs from restructuring initiative that eliminated non-core projects resultingactivities. The increase in an $8.7 million reduction in researchpersonnel-related expenses was primarily due to hiring and development personnel related expenses and a $5.1 million reduction in lab parts, product prototypes and professional fees.retention programs for employees, 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 for our products.
Six months ended June 30, 2023 and 2022
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%$42.2 million, or 56%, for the threesix 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 a $2.9 million reduction in sales and marketing personnel related expenses. Spending on advertising activities and professional services decreased by $0.8 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 nine 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 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, 20172023, as compared to the same period in 2016. Additionally, bad debt2022. The increase was primarily due to $32.2 million of higher personnel-related expenses, $7.0 million of equipment expense was $2.3 million higherassociated with our investment in the ninedevelopment, introduction and qualification of new products, and $3.9 million of professional services and corporate expenses to support our business growth, partially offset by a decrease of $0.9 million of facility costs from restructuring activities. The increase in personnel-related expenses was primarily due to a growth in headcount from hiring and retention programs for employees, which increased total compensation costs, including stock-based compensation. The amount of research and development expenses may fluctuate from period to period due to the differing levels and stages of development activity for our products.
Sales and Marketing
Three Months Ended
June 30,		Change inSix Months Ended
June 30,		Change in
20232022$%20232022$%
(In thousands, except percentages)
Sales and marketing$58,405 $53,588 $4,817 9 %$123,026 $94,932 $28,094 30 %
Percentage of net revenues8 %10 %9 %10 %
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Three months ended SeptemberJune 30, 2016 than2023 and 2022
Sales and marketing expense increased by $4.8 million, or 9%, 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, 20172023, as compared to the same period in 2016.2022. The decrease isincrease was primarily due to the implementation$2.1 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 globally. The increase in sales and marketing expense decreased by 23% forin the ninethree months ended SeptemberJune 30, 20172023, as compared to the same period in 2016.2022, was also attributable to $3.3 million of higher professional services and advertising costs to support our business growth. This increase was partially offset by a decrease of $0.6 million in equipment and facility costs from restructuring activities.
Six months ended June 30, 2023 and 2022
Sales and marketing expense increased by $28.1 million, or 30%, for the six months ended June 30, 2023, as compared to the same period in 2022. The decrease isincrease was primarily due to the implementation$22.4 million of our restructuring initiative that eliminated non-core projects resultinghigher personnel-related expenses from a growth in a $3.1 million reduction in general and administrative 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 expenseheadcount 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 globally. The increase in sales and marketing expense for the six months ended June 30, 2023, as compared to the same period in 2022, was also attributable to $5.7 million of higher professional services, equipment and facility costs to support our business growth.

General and Administrative
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
 $12,210
 449%
Three Months Ended
June 30,		Change inSix Months Ended
June 30,		Change in
20232022$%20232022$%
(In thousands, except percentages)
General and administrative$34,397 $32,125 $2,272 7 %$70,662 $70,211 $451 1 %
Percentage of net revenues5 %6 %5 %7 %
Three Months Ended Septembermonths ended June 30, 20172023 and 20162022
We implementedGeneral and administrative expense increased by $2.3 million, or 7%, in the three months ended June 30, 2023, as compared to the same period in 2022. The increase was primarily due to $2.8 million of higher personnel-related expenses, including stock-based compensation, and $2.3 million of higher legal, professional services and technological infrastructure to support scalability of our business growth, offset by $2.8 million of lower facility costs from restructuring activities.
Six months ended June 30, 2023 and 2022
General and administrative expense increased by $0.5 million, or 1%, in the six months ended June 30, 2023, as compared to the same period in 2022. The increase was primarily due to $3.9 million of higher legal, professional services and other operational and facility costs to support scalability of our business growth, offset by a $3.4 million of lower personnel-related expenses primarily due to a decrease in stock based compensation from stock awards modification expense recorded in the six months ended June 30, 2022.
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Restructuring Charges
Three Months Ended
June 30,		Change inSix Months Ended
June 30,		Change in
20232022$%20232022$%
(In thousands, except percentages)
Restructuring charges$177 $— $177 **$870 $— $870 **
Percentage of net revenues0.1 %0.1 %
**    Not meaningful
Three months ended June 30, 2023 and 2022
During the second half of 2022, we began implementing restructuring plan in 2016actions to lower operating expenses and cost of revenues that included reductions inreorganize our global workforce, consolidate facilities and the elimination of certaineliminate 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 include $3.12023 primarily consisted of $0.2 million of consulting servicesone-time termination benefits and $1.1 millionother employee-related expenses. We had no restructuring charges in cash-based severancethe three months ended June 30, 2022. As of June 30, 2023, we have completed our restructuring activities.
Six months ended June 30, 2023 and related benefits offset by a $0.1 million adjustment to previously established lease loss reserves.2022
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 forin the ninesix months ended SeptemberJune 30, 2017 include $10.12023 primarily consisted of $0.9 million of consulting services, $2.8 million in cash-based severance and relatedone-time termination benefits and $2.0 million inother employee-related expenses. We had no restructuring charges for asset impairments and lease loss reserves. We expect to incur additional fees for management consulting services in the near-term.six months ended June 30, 2022. As of June 30, 2023, we have completed our restructuring activities.
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) $(3,265) 346%
Three Months Ended
June 30,		Change inSix Months Ended
June 30,		Change in
20232022$%20232022$%
(In thousands, except percentages)
Interest income$16,526 $796 $15,730 1,976 %$29,566 $1,256 $28,310 2,254 %
Interest expense(2,219)(2,168)(51)2 %(4,375)(4,904)529 (11)%
Other income (expense), net(33)(456)423 (93)%393 (2,597)2,990 (115)%
Total other income (expense), net$14,274 $(1,828)$16,102 881 %$25,584 $(6,245)$31,829 (510)%
Three Months Ended Septembermonths ended June 30, 20172023 and 20162022
Other expense, netInterest income was $1.1$16.5 million forin the three months ended SeptemberJune 30, 2017 versus $0.92023, as compared to $0.8 million for the same period in 2016. Interest expense increased by $0.6 million due to amended term loan, which was partially offset by $0.3 million increase in other income due to net gains related to foreign currency exchange and remeasurement for the three months ended SeptemberJune 30, 20172022, primarily due to an increase in interest rates and a higher average cash, cash equivalents and marketable securities balance in the three months ended June 30, 2023, as compared to the same period in 2016.2022.
Nine Months Ended SeptemberCash interest expense
Cash interest expense for each of the three months ended June 30, 20172023 and 20162022 totaled $0.1 million, which primarily included interest incurred with the Notes due 2025 the Notes due 2023.
Non-cash interest expense
Non-cash interest expense of $2.1 million in each of the three months ended June 30, 2023 and 2022, primarily related to $2.1 million for the debt discount amortization with the Notes due 2025 and amortization of debt issuance costs with the Notes due 2023, Notes due 2025, Notes due 2026 and the Notes due 2028.
Other income (expense), net of less than $0.1 million expense net was $4.2 million for ninein the three months ended SeptemberJune 30, 2017 versus $0.92023 related to a $2.1 million net loss due to foreign currency denominated monetary assets and liabilities, partially offset by a $2.1 million non-cash net gain related to change in the fair value of debt securities and interest income.
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Other income (expense), net of $0.5 million expense in the three months ended June 30, 2022 related to a $1.5 million net loss related to foreign currency denominated monetary assets and liabilities, partially offset by $1.0 million non-cash net gain related to change in the fair value of debt securities.
Six months ended June 30, 2023 and 2022
Interest income was $29.6 million in the six months ended June 30, 2023, as compared to $1.3 million in the same period in 2016. Interest expense increased by $4.4 million2022, primarily due to our term loan, which wasan increase in interest rates and a higher average cash, cash equivalents and marketable securities balance in the six months ended June 30, 2023, as compared to the same period in 2022.
Cash interest expense
Cash interest expense in the six months ended June 30, 2023 and 2022 totaled $0.2 million and $0.9 million, respectively. Cash interest expense in the six months ended June 30, 2023, primarily included $0.2 million in interest incurred with the Notes due 2025 and Notes due 2023. Cash interest expense for the six months ended June 30, 2022, primarily included $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.
Non-cash interest expense
Non-cash interest expense of $4.1 million in the six months ended June 30, 2023, primarily related to $4.1 million for the debt discount amortization with the Notes due 2025 and amortization of debt issuance costs with the Notes due 2023, Notes due 2025, Notes due 2026 and Notes due 2028.
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 the Notes due 2025 and amortization of debt issuance costs with the Notes due 2023, Notes due 2025, Notes due 2026 and Notes due 2028.
Other income (expense), net of $0.4 million income in the six months ended June 30, 2023, primarily related to $3.4 million non-cash net gain related to a change in the fair value of debt securities and $0.5 million in interest income, partially offset by an increasea $3.5 million net loss due to foreign currency denominated monetary assets and liabilities.
Other income (expense), net of $2.6 million expense in the six months ended June 30, 2022, primarily related to a $2.2 million net gainsloss related to foreign currency exchangedenominated monetary assets and remeasurementliabilities, $0.3 million impairment of $1.1 million.note receivable and $0.1 million non-cash net loss related to change in the fair value of debt securities.
Income Tax Provision
Three Months Ended
June 30,		Change inSix Months Ended
June 30,		Change in
20232022$%20232022$%
(In thousands, except percentages)
Income tax provision$(27,403)$(15,232)$(12,171)80 %$(59,503)$(20,818)$(38,685)186 %
Three months ended June 30, 2023 and 2022
The income tax provision was $27.4 million in the three months ended June 30, 2023, as compared to the income tax provision of $15.2 million in the same period in 2022, 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 2023 compared to 2022, partially offset by tax deduction from employee stock-based compensation.
Six months ended June 30, 2023 and 2022
The income tax provision was $59.5 million in the six months ended June 30, 2023, as compared to the income tax provision of $20.8 million in the same period in 2022, both calculated using the annualized effective tax rate method, primarily due to higher projected tax expense in the U.S. and foreign jurisdictions that are more profitable in 2023, compared to 2022, partially offset by the tax deduction from employee stock-based compensation.
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Liquidity and Capital Resources
Sources of Liquidity
As of SeptemberJune 30, 2017,2023, we had $28.9 million$1.8 billion in net working capital, including cash, and cash equivalents and working capitalmarketable securities of $50.8 million. Cash and cash equivalents$1.8 billion, of which approximately $1.8 billion were held in the United States were $23.0 millionStates. Our cash, cash equivalents and consistedmarketable securities primarily consist of U.S. Governmenttreasuries, money market mutual funds, corporate notes and non-interest bearing checkingbonds and both interest-bearing and non-interest-bearing deposits, with the remainder held in various foreign subsidiaries. We consider amounts held outside the U.S.United States to be accessible and have provided for the estimated U.S. income tax liability associated withon the repatriation of our foreign earnings.
Although we have taken actions to improve our liquidity
Six Months Ended
June 30,		Change in
20232022$%
(In thousands, except percentages)
Cash, cash equivalents and marketable securities$1,800,492 $1,247,801 $552,691 44 %
Total Debt$1,294,497 $1,286,215 $8,282 1 %
Our cash, cash equivalents and help us achieve profitability, 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-Kmarketable securities increased by $552.7 million 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 taking2023, as 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 was2022, primarily due to cash generated from operations, partially offset by cash used to fund acquisitions, investments in private companies, and payments of withholding taxes related to net share settlement of equity awards.
Total carrying amount of debt increased restructuring chargesby $8.3 million for the six months ended June 30, 2023, as compared to the same period in 2022, primarily due to the accretion of $12.2 million.debt discount.
SourcesWe expect that our principal short-term (over the next 12 months) and long-term cash needs related to our operations will fund working capital, strategic investment, acquisitions, payment of Liquidity
withholding taxes for net share settlement of equity awards and purchase of property and equipment, such as production lines at our contract manufacturing partners. We plan to fund any cash requirements for the next 12 months from our existing cash, cash equivalents and marketable securities on hand, and cash generated from operations. We anticipate that access to the debt market will be more limited compared to prior years as interest rates have takenincreased and are taking actionsexpected to improvecontinue to rise. Our ability to obtain debt or any other additional financing that we may choose to, or need to, obtain will depend on, among other things, our liquidity, including raising funds indevelopment efforts, business plans, operating performance and the condition of the capital markets.markets at the time we seek financing.
Repurchase of Common Stock. In 2016, we completedMay 2021, our board of directors authorized 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) undershare repurchase program (the “2021 Repurchase Program”) pursuant to which we could sell shareswere authorized to repurchase up to $500.0 million of our common stock, up to a gross aggregate offering price of $17.0 million. We realized the full $17.0$200.0 million of gross proceedswhich was remaining as of March 31, 2023. The repurchases could be funded from available under the ATM duringworking capital and could be executed from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans. During the three 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 provides2023, we repurchased 1,254,474 shares 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 if we achieve minimum levels of Revenue and EBITDA (each as defined in the Original Term Loan Agreement) for the twelve-consecutive month period ending June 30, 2017. In addition, we paid a commitment fee of 3.3% of the loan amount upon closing 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 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 Original 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 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, subject to certain approvals and meeting certain criteria.
In February 2017, we amended 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 balance 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, both 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, we have Unrestricted 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$200.00 million. Of the value of Consolidated Receivables, plus the value of Consolidated Inventory (each as defined in the New Term Loan Agreement) divided1,254,474 shares repurchased, 833,517 shares were retired 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 bankruptcyJune 30, 2023 and the occurrenceremaining 420,957 shares repurchased were retired in July 2023. As of a material adverse change (as defined inJune 30, 2023, 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.”2021 Repurchase Program has been completed.
Cash Flows. The following table summarizes our cash flows for the periods indicated:presented:
Six Months Ended
June 30,
20232022
(In thousands)
Net cash provided by operating activities$515,475 $303,093 
Net cash provided by (used in) investing activities(427,582)84,226 
Net cash used in financing activities(284,039)(10,220)
Effect of exchange rate changes on cash and cash equivalents1,578 (942)
Net increase (decrease) in cash and cash equivalents$(194,568)$376,157 
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 Nine Months Ended
September 30,
 2017 2016
 (In thousands)
Net cash used in operating activities$(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 consisted 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, non-cash interest expense, change in the fair value of debt securities, 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 $8.2liabilities. Net cash provided by operating activities increased by $212.4 million of stock-based compensation, $8.0 million of depreciation and amortization, $3.2 million provision for doubtful accounts and $1.4 millionthe six months ended June 30, 2023, as compared to the same period in asset impairment charges.
The primary drivers of cash inflows from changes 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 contributing2022, 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, 2017,2023, net cash used in investing activities of $3.6$427.6 million was primarily resulted from the purchase of $1,272.9 million of marketable securities, $66.5 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, partially offset by $911.8 million sale and maturities of marketable securities.
For the six months ended June 30, 2022, net cash used from investing activities of $84.2 million was primarily $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.
Cash Flows from Financing Activities
For the ninesix months ended SeptemberJune 30, 2016,2023, net cash used in investingfinancing activities of $10.3approximately $284.0 million was primarily resulted from purchases$200.0 million paid to repurchase our common stock under the 2021 Repurchase Program, and the payment of test and assembly equipment, capitalized costs$84.6 million in employee withholding taxes related to internal-use softwarenet share settlement of equity awards, partially offset by $0.6 million net proceeds from employee stock option exercises and license fees for certain technology related to ASIC development.
Financing Activitiespurchases under our employee stock purchase plan.
For the ninesix months ended SeptemberJune 30, 2017,2022, net cash providedused by financing activities of $40.7approximately $10.2 million consistedwas primarily from the payment of $14.8 million in employee withholding taxes related to net share settlement of equity awards, partially offset by $4.6 million net proceeds from sales of common stock of $26.5 million, which included proceeds from the private placement and ATM offering described above and net proceeds from the term loan of $24.2 million, offset by the repayment of principal on our revolving credit facility of $10.1 million.
For the nine months ended September 30, 2016, net cash provided by financing activities of $34.6 million consisted of net proceeds from our term loan of $23.9 million, net public equity offering proceeds of $14.4 million and proceeds received from the issuance of common stock under employee stock plans of $0.9 million, offset by the net repayment ofoption exercises and purchases under our revolving credit facility of $4.6 million.employee stock purchase plan.
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 purchases. As of June 30, 2023, 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, 20172023, refer to Note 9, “Commitments and Contingencies - Purchase Obligations” and for more information on our contractual commitments as presentednotes and other related debt, refer to Note 8, “Debt” of the notes to condensed 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.United States (“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.
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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 recently issueda discussion of adoption of new accounting pronouncements not yet effective.pronouncements.


Item 3.    Quantitative and Qualitative Disclosures About Market Risk
Item 3.Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures aboutThere 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.
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, 2017.2023. 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, 2017,2023, 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 have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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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. We are not currently involved in any material legal proceedings, and our management believes there are currently no claims or actions pending against us,operations, the ultimate disposition of which could have a material adverse effect on our operations, financial condition, or cash flows. We may, however, beare not currently involved in any material legal proceedings, and our management believes there are currently no material claims or actions pending against us.
Item 1A.    Risk Factors
Investing in our securities involves a high degree of risk. Before investing in our securities, you should consider carefully the information contained in this quarterly report and in the future. Such matters are subject to uncertaintyForm 10-K, including the risk factors identified in Part I, Item 1A, “Risk Factors” thereof. This quarterly report contains forward-looking statements that involve risks and there can be no assurance that such legal proceedings willuncertainties. See “Forward-Looking Statements” in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” above. Our actual results could differ materially from those contained in the forward-looking statements. Any of the risks discussed in the Form 10-K, in other reports we file with the U.S. Securities and Exchange Commission (“SEC”), and other risks we have not anticipated or discussed, could have a material adverse effect on our business, results of operations, financial position or cash flows.
Item 1A.Risk Factors
We have identified the following risks and uncertainties that may have a material adverse effectimpact on our business, financial condition or results of operations. The risks describedExcept as set forth below, are not the only ones we face. Additional risks not presently knownthere has been no material change to us or that we currently believe are not material may also significantly impair our business operations. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any 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 containedrisk factors from those disclosed in 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 continuePart I, Item 1A, “Risk Factors” 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.Form 10‑K.
The reduction, elimination or expiration of government subsidies and economic incentives for on-grid solar electricity applications could reduce demand for solar PVphotovoltaic 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 of solar power 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,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 andincluding the United States, have provided incentives in the form of feed-in tariffs or FiTs,(“FiTs”), rebates, tax credits and other incentives to system owners, distributors, system integrators and manufacturers of solar PVphotovoltaic (“PV”) systems to promotebolster the usecost competitiveness of solar electricity in on-grid applications relative to the cost of utility power, 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 thatwhere 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,Furthermore, 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 regardAmong other government-established incentives, net metering and related policies have supported the growth of on-grid solar products, and changes to such policies may reduce demand for electricity from our solar service offerings. Net metering is a utility rate program that requires a consumer’s electric company to purchase the excess solar energy that the consumer’s solar panels produce and pay the retail rate for electricity exported to the grid, less certain non-bypassable fees paid by the consumer. For example, in 2016, the California Public Utilities Commission (CPUC) issued an order retaining retail rate-based net metering credits for residential customers of California's major utilities as part of NEM 2.0. Customers under NEM 2.0 were subject to interconnection charges and must take service under time‑of-use rates with different electricity prices during peak and off-peak hours. Existing customers who receive service under the prior net metering program, as well as new customers under the NEM 2.0 program,
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remain eligible for the NEM 2.0 program for a period of 20 years. However, on December 15, 2022, the CPUC adopted a “NEM 3.0” policy, also known as the Net Billing Tariff, that unbundles export compensation from retail rates and instead bases it on a tool called the Avoided Cost Calculator (“ACC”), which estimates the hourly utility costs that are avoided by exports from distributed generation. The CPUC did seek to ease the transition for the solar energy sector or international trademarket by adopting export “adders” to the hourly ACC values for the first several years of the tariff. Nevertheless, these ACC-based export compensation values are significantly lower than retail rates for most hours of the year and may therefore increase payback periods, and thereby reduce demand, for solar-only systems. These types of modifications to net metering incentives could materially harm our business, financial condition and resultsboth in California where we have derived a significant portion 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 energyhistorical revenues in the United States, and if pursued in other geographical markets, which could materially harm our business, financial condition and results of operations.jurisdictions.
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 majoritymost of our revenues from North America, and revenues generated from the U.S. market represented 76%, 80%, and 82% of our total revenue for the annual period ending on December 31, 2022, 2021, and 2020, respectively. We also expect to continue to generate a substantial amountmajority of our revenues from North America in the future.
There are a number ofseveral important incentives that are expected to phase-out or terminate in(including the future, which could adversely affect sales of our products. A substantial majority of our revenues come from the United States, which has bothITC), AMPTC and other U.S. federal and state incentives. For instance,tax incentives, that impact our business. Under the Renewable EnergyIRA, the ITC was extended until 2032 to allow a qualifying homeowner to deduct 30% of the cost of installing residential solar systems from their U.S. federal income taxes, thereby returning a material portion of the purchase price of the residential solar system to homeowners. Under the terms of the current extension, the ITC will remain at 30% through the end of 2032, reduce to 26% for 2033, reduce to 22% for 2034, and Job Creation Actfurther reduce to 0% after the end of 2008 currently provides a 30% federal tax credit2034 for residential and commercial solar installations through December 31, 2019 and reducedsystems, unless it is further extended before that time. The Internal Revenue Service has not provided guidance so there is still uncertainty on how the new tax rules will be applied. If the ITC, AMPTC, or other 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 beare reduced or eliminated as part of tax codefutures changes to the U.S. Internal Revenue Code, changes to state law or regulatory reform initiatives by the new Congress andsubsequent legislative action or by a 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 portionadministration, sales 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 ofNorth America and other markets could be adversely affected. In addition, changes to the IRA could impact the benefits we currently expect to receive from our plans to increase our domestic manufacturing footprint in the United States, in partnership with third-party contract manufacturers.
Several European countries, including Germany, Belgium, Spain, Italy and the United Kingdom, have adopted reductions in or concluded their net energy metering or 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.Europe, which could adversely impact our results of operations.
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'sAustralia’s electricity comes from renewable sources by 2020. In 2013, Australia elected a new national government. The new leadership pledgedThis policy supports both the installation of large-scale centralized renewable generation projects, along with small-scale systems of under 100kW each for residential and small business customers. This target was met in 2019; however, the scheme continues to revise national energyrequire high-energy users to meet their obligations under the policy including potentially reducing Australia’s RET and revising certain renewable energy financing mechanisms. In July 2014,until 2030. During 2018, the new leadership successfully repealedstate of Victoria introduced state-based incentive schemes, aimed at solar customers in the tax on carbon emissions. This has been replaced with the Direct Action Plan, which primarily provides funding to corporations to reduce emissions. Statesstate of Victoria. Other Australian states and territories introduced similar programs in Australia have different FiTs, and2019. Any change in, or failure to implement, these programs may adversely affect the gradual reduction of FiTs in some states may reduce the incentivedemand for homeowners to export unused solar energy produced back to the grid.solutions in Australia.
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 reductionsReductions 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
Our business is subject to tax liabilities.
We are subject to income tax, indirect tax or other tax claims by tax agencies in currentjurisdictions in which we conduct business. Significant judgment is required in determining our worldwide provision for income taxes. Tax laws or regulations or the imposition ofare dynamic and subject to change as new laws or regulations, orare passed and new interpretations thereof,of the law are issued or applied. The IRA included significant changes to the U.S. federal income tax laws, the consequences of which could
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increase our future U.S. income tax expense. As additional guidance is issued by federalthe applicable taxing authorities and as new accounting treatment is clarified, we may report additional adjustments in the period if new information becomes available. We have deferred tax assets related to net operating losses or state agenciestax credits that could be subject to limitations under IRS Code Sections 382 or foreign governments383, and State separate return limitation year rules. The limitations could impairreduce our ability to compete in international markets.
Changes in current lawsutilize our net operating losses or regulations applicable to ustax credits before the expiration of the tax attributes. Tax law changes or the imposition of new lawslimitations could be material 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 affect our tax obligations and adversely affecteffective tax rate.

In the ordinary course of our business, financial conditionthere are many transactions and results of operations. In addition, changes incalculations where the ultimate income tax, indirect tax, or other tax determination is uncertain. Although we believe our products or changes in export and import laws and implementing regulations may create delays intax estimates are reasonable, we cannot be certain that the introduction of new products in international markets, prevent our customers from deploying our products internationally or, in some cases, prevent the export or importfinal determination 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,tax audits 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 maylitigation will 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 performancethat which is reflected in historical tax provisions and accruals. Should additional taxes be assessed as a result of our products, which has caused and may in the future cause us to incur substantial expense to repairan audit, assessment 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 andlitigation, there 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 businesscash, tax provisions 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 coveragenet income in the eventperiod or periods for which that determination is made.
Item 2.    Unregistered Sales 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 warrantyEquity Securities and product liability claims or product recalls may adversely affect our financial condition and resultsUse of operations.Proceeds
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 managementOn June 27, 2023, 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 cellsearn out consideration for our AC Battery storage products are also currently sole sourced. Anyacquisition of all the sole source and limited source suppliers upon whomoutstanding shares of 365 Pronto, Inc. (“365 Pronto”) in December 2021, 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 resources 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 404 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 requirements 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 day of the fiscal year following the fifth anniversary of our initial public offering), although we could cease to be an “emerging growth company” earlier if certain events occur 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.
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 newissued 23,366 shares of our common stock to the stockholder representative of the former holders of capital stock of 365 Pronto. The issuance of the shares was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), in reliance on Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving any public offering. The issuance of these shares was made without any general solicitation or advertising, and salesan appropriate legend was placed on the share certificate issued in the transaction to reflect the restricted nature of the shares.
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. We utilized approximately $200.0 million remaining for repurchase of shares during the three months ended June 30, 2023. As of June 30, 2023, the 2021 Repurchase Program is completed.
The following table provides information about our purchases of our common stock during the three months ended June 30, 2023 (in thousands, except per share amounts):
Period EndedTotal Number of Shares Purchased
Average Price Paid per Share(1)
Total Number of Shares Purchased as Part of Publicly Announced Programs
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs(2)
April 2023148,557 $164.60 148,557 $175,548 
May 2023684,960 $156.81 684,960 $68,140 
June 2023420,957 $161.87 420,957 $— 
Total1,254,474 1,254,474 
(1)     Average price paid per share includes brokerage commissions.
(2)     During the three months ended June 30, 2023, we repurchased 1,254,474 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 usestock at a weighted average price of $159.43 per share for an aggregate amount of $200.0 million.
Item 3.    Defaults Upon Senior Securities
None.
Item 4.    Mine Safety Disclosures
Not applicable.
Item 5.    Other Information
Rule 10b5-1 Trading Plans
Enphase Energy, Inc. | 2023 Form 10-Q | 48
Table of Contents
During the three months ended June 30, 2023, Mandy Yang, our net operating losses from periods prior to this ownership change to offset future taxable income in excessVice President and Chief Financial Officer, and an officer for purposes of Section 16 of the annual limitations imposed by Sections 382Exchange Act, terminated her equity trading plan put in place in accordance with Rule 10b5-1(c)(1) under the Exchange Act. Ms. Yang’s trading plan was terminated on May 2, 2023 during an open insider trading window. An equity trading plan is a written document that preestablishes the amounts, prices and 383dates (or formula for determining the amounts, prices and those attributes that are already subject to limitations (as a resultdates) of future purchases or sales of our prior ownership changes) may be subjectstock, including sales of shares acquired under our employee and director equity plans.

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
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#
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, as amended.
X
101.INSXBRL Instance Document.X
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 as Inline XBRL and contained in Exhibits 101).X

#     Certain portions of this exhibit have been omitted pursuant 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 disastersItem 601 of Regulation S-K, as the Company has determined that (i) the omitted information is not material 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(ii) the omitted information 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 guaranteetype that inadvertentthe Company customarily treats as private 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.confidential.
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*    The certifications attached 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 inExhibit 32.1 accompany this Quarterly Report on Form 10-Q and other factors beyond our control, suchpursuant to 18 U.S.C. Section 1350, as fluctuations in the valuation of companies perceived by investorsadopted pursuant 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,

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 lightSection 906 of the fact that someSarbanes-Oxley Act, and shall not be deemed “filed” by Enphase Energy, Inc. for purposes 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 moreSection 18 of the research analysts ceases coverageSecurities Exchange Act 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 may1934, as amended, nor shall they 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 meetdeemed incorporated by reference 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 sharesfiling under the Securities Act, would resultexcept as shall be expressly set forth by specific reference 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.

filing.
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 onEnphase Energy, Inc. | 2023 Form 10-Q which is incorporated herein by reference.| 49
Table of Contents


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 27, 2023
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. | 2023 Form 10-Q | 50