On Tuesday, Enphase Energy (NASDAQ:ENPH) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Enphase Energy reported Q1 2026 revenue of $282.9 million, with shipments of 1.41 million microinverters and 103 megawatt hours of batteries, and a gross margin of 44% on a non-GAAP basis.
The company is piloting a new AI Assistant for customer service and plans to expand this to installers soon.
Enphase Energy’s strategic focus includes expanding its prepaid lease offering, Propel, which has seen a significant increase in installer participation and originations.
The company is optimistic about growth in Europe, driven by increased battery adoption, and anticipates sequential growth despite market challenges.
Future product launches include a fifth-generation battery, bi-directional EV charger, and a commercial battery, with the IQSST targeting AI data centers by 2028.
Full Transcript
OPERATOR
Good day and welcome to Enphase Energy’s first quarter 2026 financial results conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question you may press star then one on a touchtone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. I would now like to turn the conference over to Zack Freedman. Please go ahead. Good afternoon and thank you for joining us on today’s conference call to discuss Enphase Energy’s first quarter 2026 results. On today’s call are Baji Kothandaraman, our President and Chief Executive Officer, Mandy Yang, our Chief Financial Officer and Raghu Belur, our Chief Products Officer. After the market closed today, Enphase issued a press release announcing the results for its first quarter ended March 31, 2026. During the conference call, Enphase Management will be making forward looking statements including, but not limited to, statements related to our expected future financial performance, market trends, the capabilities of our technology and products and the benefits to homeowners and installers our operations including manufacturing, customer service and supply and demand anticipated growth in existing and new markets including the third-party owner (TPO) market the timing of new product introductions and enhancements to existing products and regulatory, tax, tariff and supply chain matters. These forward looking statements involve significant risks and uncertainties and our actual results and the timing of events could differ materially from these expectations. For a more complete discussion of the risks and uncertainties, please see our Most recent form 10-K and 10-Qs filed with the SEC. We caution you not to place any undue reliance on forward looking statements and undertake no duty or obligation to update any forward looking statements as a result of new information, future events or changes in expectations. Also, please note that financial measures used on this call are expressed on a non GAAP basis unless otherwise noted and have been adjusted to exclude certain charges. We have provided a reconciliation of these non GAAP financial measures to GAAP financial measures in our earnings release furnished with the sec on Form 8-K, which can also be found in the Investor Relations section of our website. Now I’d like to introduce Badri Kothandaraman, our President and Chief Executive Officer. Badri, good afternoon and thanks for joining us today to discuss our first quarter 2026 financial results. We reported quarterly revenue of $282.9 million, shipped 1.41 million microinverters and 103 megawatt hours of batteries and generated free cash flow of $83 million. Q1 revenue included $34.5 million of safe harbor revenue. We exited the quarter with channel inventory above normal levels for both microinverters and batteries on a non GAAP basis. We delivered gross margin of 44%, operating expenses of 27% and operating income of 17%, all as a percentage of revenue. Gross margin was above the midpoint of our guidance range. Mandy will cover the financials in more detail later in the call. Our Customer Service NPS Net Promoter Score was 82% in Q1, a record for Enphase, compared to 79% in Q4. We are laser focused on customer experience for the last few years and our average call wait time in the first quarter was approximately 1.4 minutes. We have also begun a soft rollout of our Enphase AI Assistant in the homeowner app to approximately 100,000 homeowners and we expect this to expand over time. The AI Assistant is trained on Enphase product knowledge, historical service cases and relevant customer support data with access to salesforce information to help answer specific system specific questions more accurately. It also supports multiple languages, helping homeowners get faster, more intuitive help wherever they are. We expect to pilot a similar AI assistant for installers during this quarter to help them do fleet management in a much more efficient manner. Let’s cover operations in Q1. We shipped approximately 1.39 million microinverters from our Texas and South Carolina manufacturing facilities and booked the associated 45x production tax credits. These U S made microinverters help residential, lease and Power Purchase Agreement (PPA) providers as well as commercial asset owners qualify for the 100% qualify for the 10% domestic content ITC added. We shipped 49 and a half megawatt hours of IQ batteries from our Texas manufacturing facility. In Q1. We offer IQ batteries that meet domestic content and Federal Investment Tax Credit (FIAC) requirements, helping lease Power Purchase Agreement (PPA) customers qualify for ITC bonuses. Let’s cover the regions. Our US and international revenue mix in Q1 was 83% and 17% respectively. In the US our revenue declined 23% sequentially primarily due to lower residential, solar and battery demand following the expiration of 25d tax credits and typical seasonality. Safe harbor revenue increased to $34.5 million in Q1 compared to $20.3 million in Q4. Our overall sell through declined 48% sequentially as Q4 was elevated by significant demand pull forward ahead of the tax credit expiration on a year over year basis which better reflects the underlying impact of the policy change. Q1 26 sell through declined 18% compared to Q1 2025 our US commercial microinverter sales more than doubled in Q1 as compared to Q4 driven by positive market reception for IQ9 microinverters. We now serve both major US three phase commercial grid types, the 480 volts as well as 208 volts in Q3. We expect to begin shipping our high power 548 watts IQ9s microinverter for 480 volt three phase systems which can support solar panels up to 770 watts DC. We also expect to see near term safe harbor demand from customers placing orders between now and early July. With US manufacturing domestic content eligibility and Federal Investment Tax Credit (FIAC) compliant products, we believe our commercial business is well positioned for continued growth. In Europe our revenue increased 36% in Q1 compared to Q4 primarily because sell in levels rose towards sell through levels after we undershipped the European channel in Q4. We are beginning to see green shoots in April with solar and battery activations up healthy double digits across multiple European markets compared with the monthly averages in Q1. This is being driven by rising power prices and increasing battery adoption. Europe is increasingly becoming a battery critical market as self consumption, dynamic tariffs and VPP become more important. The company that wins the battery relationship is well positioned to win the broader home energy system over time including solar, software and vpp. In the Netherlands our battery activations in April increased by approximately 75% compared to the monthly run rate in Q1 as rising export penalties and the planned phase out of net metering by the end of 2026 strengthen the case for self consumption. In France, the reduction of feed in tariff is also shifting the market towards self consumption and increasing the interest in batteries especially for new solar installations. Our battery activations in France increased approximately 20% in April from the monthly run rate in Q1, a more modest but positive trend. In Germany our battery activations rose approximately 27% in April compared to Q1’s monthly average. We have approximately 475,000 Enphase residential solar system in Netherlands and approximately 400,000 in France, creating a meaningful retrofit opportunity. In both markets we are increasing homeowner events, doing direct marketing to consumers and working with the retail energy providers along with strong support by our technologies such as Power match technology and our upcoming fifth generation battery. We have also built strong inside sales teams and a lead management platform across France and Netherlands in the last three months and we are hoping to convert this demand into revenue with a much higher throughput. Competition remains intense across Europe, particularly from low cost string inverter and battery providers. In response, we are reducing our distributor list prices for batteries by approximately 10% in May, which follows a 20% reduction for microinverters already implemented from December last year. In addition to this sharper pricing, we are instituting a stronger homeowner demand engine and a more competitive product roadmap which includes IQ9 and our fifth generation battery which is coming very soon. Together, these actions improve our competitiveness today and position us for stronger growth as Europe shifts towards self consumption, VPP and flexible storage. In Australia we are bullish on the battery opportunity. Australia is one of the world’s most mature rooftop solar markets with more than 4 million rooftop solar systems installed which is roughly one in every three homes already using. Solar battery adoption is now accelerating, supported by the federal Cheaper Home Batteries program which provides an upfront discount for eligible small scale batteries connected to new or existing rooftop solar. The program is evolving on May 1st to better support right sized systems and reduce incentives for oversized batteries. We believe this plays directly to our advantages, including our upcoming fifth generation battery which has a stackable and scalable architecture that gives homeowners flexible capacity and the ability to add more over time. Let’s now discuss our Q2 outlook. On the last earnings call we said we expected Q2 revenue to be higher than Q1, driven in part by strong safe harbor demand. In line with those comments, our Q2 revenue guidance is 280 million to $310 million, including approximately $85 million of safe harbor revenue. Since we exited the channel with a high inventory in Q1 we are under shipping approximately $25 million compared to the real demand. At this point we are approximately 85% booked to the midpoint of our guidance, we expect modest underlying sell through growth in Q2 as compared to Q1. That said, our Q1 sell through results and Q2 sell through expectations are roughly 10 to 15% below our prior view. A weaker start to the year primarily due to unfavorable weather conditions and TPO financing challenges. We expect to offset some of this pressure in the second half of this year through prepaid lease adoption, which I’ll talk about soon. U.S. commercial growth and potential international recovery for batteries. Our guidance is 100 to 110 megawatt hours. We recently lowered our battery list prices to distributors in the US by approximately 12 to 14% in March, supported by the recently reduced reciprocal tariff rates combined with our pricing changes in Europe. We expect higher battery sales volumes in the second half of this year and just to repeat, our Q2 revenue guidance anticipates us under shipping end market demand by $25 million in order to correct for Q1’s over shipment, let’s talk about safe harbor. We have executed new agreements year to date with third party owners for approximately $843.6 million of product, 89.6 million under the ITC 5% safe harbor method and $754 million under the physical work test method. This is in addition to the 67.7 million physical work test orders secured in Q4. These microinverter orders create two important benefits for NC first, they secure significant multi year volume for our microinverter business and second, they position us very well for future battery attached sales from 2027 to 2030 when these systems are expected to be installed. These also underscores our strength with the TPO providers Moving to financing Prepaid lease adoption continues to build momentum. Prepaid leases give homeowners a lower upfront cost today and the option to own the system after five years. The TPO initially owns the system, claims the 4080 tax credit and shares that value with the homeowner through a prepaid lease or low monthly payments. When paired with a loan. This lowers the homeowner’s effective cost and helps restore the economics closer to the 30% 25d tax credit era. We continue to support Propel, a TPO LED prepaid lease program that exclusively uses Enphase equipment and is being field tested with our loan and distribution partners. The Pilot is designed to service the long tail of installers and has expanded from 40 installers at the time of our February earnings call to more than 200 installers today across four states. We are now seeing a run rate of approximately 200 net originations per week and are encouraged by early customer adoption trends. It must be noted that the battery attached to those originations is approximately 84%. That’s not very surprising because one of the states is now being piloted is in California. We expect to complete the pilots this quarter and expand the program more broadly beginning in July. After validating customer experience, installer execution which is happening now, and financing performance at scale, let’s talk about products starting with IQ batteries. Our fourth generation IQ battery 10C delivers a smaller footprint, higher energy density and simpler installation with the IQ meter collar. The meter collar is now approved by 64 US utilities and growing covering approximately 34 million customer accounts in California. The collar is approved by all three major investor owned utilities and the largest customer owned utility. We believe this gives Enphase the broadest utility approval footprint of any major battery provider today. Our 5th generation AC coupled battery is built from stackable 5kwh modular blocks that can scale up to 30kwh. This battery uses 100ampere hour prismatic cells and targets roughly 50% higher energy density than the 4th generation battery at about 40% lower cost. Paired with our Power Match software we believe it will deliver a compelling combination of performance, flexibility and value for installers and homeowners. We expect to begin pilots in Q3 and begin shipping in Q4. We are also making strong progress on IQ Bolt, our commercial battery. The first product here is an 80 kilowatt hour AC coupled commercial battery designed for small and medium commercial markets in the us. Our internal estimates indicate that that this small commercial market represents an annual opportunity of approximately 1 gigawatt hour. The IQ vault uses 314ampere hour prismatic cells in a compact building block architecture and will be even more cost effective. It can scale up by stringing up to 25 units together for approximately 2 megawatt hours of capacity. The platform is designed to support backup, self consumption, peak shaving, time of use optimization as well as VPP participation, all managed through Enphase software. We believe IQVOT brings our distributed architecture, our electronics expertise and system level intelligence into commercial storage giving customers a flexible, high quality platform for resilience and cost savings. We expect to begin pilots in Q1.27. Turning to microinverters, we began shipping our IQ9 three phase commercial microinverter in December. Built on our GAN architecture, IQ9 opens up the 483 phase US commercial segment for Enphase for the first time, representing a new tam of approximately $400 million annually. The installer feedback has been strong with customers valuing Enphase quality for panel monitoring, simpler system design, lower installations cost and balance of system cost and higher system efficiency. We expect to introduce the higher power IQ9s three phase product in Q3 supporting 548 watts of AC power and pairing with AC pairing with solar panels up to 770 watts DC. We also expect to introduce IQ9 for global residential markets this quarter. Moving on to EV charging, we are making excellent progress on our IQ bi directional EV charger which is built on our 650v GaN power platform and engineered to work with modern 800 volt BC EV architectures. This is a clear example of our ability to move power efficiently and bi directionally between grid facing AC and high voltage DC systems with tight control and protection. The product is especially compelling because it simply pairs with the meter collar in the US or a backup switch in Europe, enabling streamlined home backup and VPP participation. We are in advanced discussion with multiple auto OEMs including two partnership opportunities that are progressing well. We will share more as these discussions mature. We are targeting initial availability in Q4 starting with limited deployments as we complete the certifications, utility coordination and vehicle compatibility validation. So finally we are excited to announce today the development of our IQ solid state transformer product for AI data centers. AI is driving rack power from roughly 150kW to more than a megawatt. The industry is moving towards higher voltage DC architectures including 800 volt DC as outlined in Nvidia’s white paper last September. We estimate the initial annual US addressable opportunity for IQSST in AI data centers to exceed 11 gigawatts by 2031, creating a significant new market for high efficiency medium voltage power conversion. The IQSST product is designed to convert medium voltage AC directly to low voltage DC in a single stage, creating the potential to eliminate sidecar batteries and rack level backup while improving efficiency, reducing cost and complexity. IQSST will be built as a distributed modular architecture. It is expected to deliver approximately 1.25 megawatts through a super cluster of 342 power modules with 800 volt DC output for next generation AI racks. At the core of each power module will be our custom custom silicon Kestrel ASIC and a high frequency GAN based power platform which enables precise control, high efficiency and fast response of the order of 1 to 3 milliseconds. This fast response will enable advanced grid functions, improved handling of load and grid transients and support centralized energy storage at the facility level. IQSST is designed for reliability and serviceability. It is modular, includes built in redundancy and supports hot swapping without shutdown. It is also expected to deliver cost and supply chain advantages through fewer components, standard high volume parts, automated manufacturing and US based production. Our SST platform will be able to scale from a single 1.25 megawatt rack to multi megawatt systems supporting multiple grid voltages and extends beyond data centers into other adjacent high power markets as well. We are now engaged with more than 20 prospective customers and are expanding our partner ecosystem. We have completed product feasibility, built working power modules and converged on the system design in Q1. We restructured the company to fund SST within our existing operating framework and create room for this strategic program. More than 80 engineers are now working on SST across power electronics, ASICS software, mechanical design, manufacturing and reliability. As we continue to drive productivity with AI across the company, we are targeting to fund the SSD program within our current operating expense structure. We expect a full system demo later this year, pilots with customers in 2027 and volume shipments in 2028. We also expect revenue to build over time, but the strategic logic is clear. IQSST is a direct extension of our core strength in distributed power electronics, custom silicon software, defined control and high volume US Manufacturing. We believe this architecture is the right way to power the next gen of AI infrastructure and are positioning Enphase to lead in this transition. Let me conclude the market is going through a transition, especially in the US residential floor, but we are focused on what we can control execution, cost, innovation, financing solutions and customer experience. We are seeing early traction in several important areas. Prepaid leases are gaining momentum in the us Europe is beginning to show signs of recovery with batteries becoming increasingly critical to the customer decision. In the US commercial solar is starting to ramp supported by IQ9 microinverters and our domestic manufacturing position. Our roadmap is also strengthening our 5th generation battery bi directional EV charger, our IQVault commercial battery and the IQ9 family of microinverters all expand what Enphase can deliver to homeowners, installers and commercial customers. These products strengthen the core and open new growth opportunities. Finally, we believe IQSST can give Enphase access to significantly larger end markets. It is a natural extension of what we have built over the last 20 years, reliable power electronics, semiconductor innovation, software intelligence and distributed system design. We believe Enphase is well positioned for the next phase of growth. With that, I will turn the call over to Mandy for her review of our financial results.
Mandy Yang (Chief Financial Officer)
Mandy thanks Baji and good afternoon everyone. I will provide more details related to our first quarter of 2026 financial results as well as our business outlook for the second quarter of 2026. We have provided reconciliations of these non GAAP to GAAP financial measures in our earnings release posted today, which can also be found in the IR section of our website. Total revenue for Q1 was $282.9 million. We shipped approximately 627.6 megawatts DC of microinverters and 103.1 megawatt hours of IQ batteries in the quarter. Q1 revenue included $34.5 million of safe harbor revenue. As a reminder, we define safe harbor revenue as any sales made to customers who plan to install the inventory over more than a year. Non GAAP Gross margin was 43.9% in Q1 compared to 46.1% in Q4. GAAP gross margin was 35.5% in Q1 compared to 44.3% in Q4. GAAP gross margin was negatively impacted by 6.7 percentage points from the sale of our 2025 production tax credits (PTCs) which totaled $235 million and were sold at 93% of face value. This resulted in a discount of approximately $16.5 million plus approximately $2.5 million of transaction related fees. Reciprocal tariffs also impacted our gross margin by 4.3 percentage points in Q1. Non GAAP operating expenses were $77 million for Q1 compared to $78.8 million for Q4. GAAP operating expenses were $130 million for Q1 compared to $129.6 million for Q4. GAAP Operating Expenses for Q1 included $45.4 million of stock based compensation expenses, $3.8 million of acquisition related expenses and amortization, and $3.8 million of restructuring and asset impairment charges. On a non GAAP basis, income from operations for Q1 was $47.3 million compared to $79.4 million for Q4. On a GAAP basis, loss from operations was $29.6 million for Q1 compared to income from operations of $22.4 million for Q4. On a non GAAP basis, net income for Q1 was $62.3 million compared to $93.4 million for Q4. This resulted in non GAAP diluted earnings per share of $0.47 for Q1 compared to $0.71 for Q4. GAAP net loss for Q1 was $7.4 million compared to GAAP net income of $38.7 million for Q4. This resulted of GAAP diluted loss per share of $0.06 for Q1 compared to earnings per share of $0.29 for Q4. We exited Q1 with a total cash, cash equivalent and marketable securities balance of $930.6 million compared to $1.51 billion at the end of Q4. The five year convertible notes we raised in 2021 were due on 3-1-2026 and we settled all the outstanding principal amounts of $632.5 million with our cash on hand as part of our anti dilution plan. We spent approximately $18.7 million in Q1 by withholding shares to cover taxes on employee stock, vesting reducing diluted shares by 441,448 shares. We did not repurchase common stock during the quarter as we are prioritizing disciplined cash allocation and preserving flexibility for strategic investments and potential acquisition opportunities. We had approximately $269 million remaining under our share repurchase authorization and remain confident in our long term business outlook. In Q1, we generated $102.9 million in cash flow from operations and $83 million in free cash flow, including proceeds from the sale of the 2025 production tax credits (PTCs). Capital expenditure was $19.9 million for Q1 compared to $9.7 million for Q4. The increase was primarily due to continued investment in US manufacturing as of March 31, 2026. After monetizing the PTCs generated in 2025, we had approximately $162.9 million of production tax credits (PTCs) on our balance sheet. This includes $108.3 million related to US made microinverters shipped to customers in 2024 and $54.6 million related to shipments in Q1. 2026 we elected direct pay for the 2024 production tax credits (PTCs), which are expected to be refunded through our 2024 tax return filed in April 2025. However, we have limited visibility into the timing of receipt of the $108.3 million due to extended IRS processing timelines. In March 2026, we revoked our direct pay election. Going forward, we plan to sell production tax credits (PTCs) on a regular basis to better align cash inflows with expenses. We expect these sales to be part of our normal course of business, and the impact of this approach is included in our quarterly Gross Margin guidance. In addition, on February 20, 2026, the U.S. supreme Court issued a ruling invalidating certain tariffs previously imposed under the International Emergency Economic powers Act, or IPA. On April 20, 2026, U.S. customs and Border Protection launched an online portal for companies to submit IPA tariff refund requests. As of today, we have submitted approximately $50 million of refund claims through the portal, subject to approval. We currently expect to receive the refunds within the next 90 to 120 days. Now let’s discuss our outlook for the second quarter of 2026. We expect our revenue for Q2 to be within a range of 280 to $310 million, which includes shipments of 100 to 110 megawatt hours of IQ batteries. The revenue guidance includes approximately $85 million of safe harbor revenue. We expect GAAP gross margin to be within a range of 42 to 45%, including approximately 3 percentage points of reciprocal tariff impact. We expect non GAAP gross margin to be within a range of 44 to 47%, including the reciprocal tariff impact. Non GAAP gross margin excludes STAR based compensation expense and acquisition related amortization. We expect our GAAP operating expenses to be within a range of 120 to $124 million, including approximately $45 million estimated for start based compensation expense, acquisition related expenses and amortization and restructuring and asset impairment charges. We expect our non GAAP operating expenses to be within a range of 75 to 79 million dollars. With that, I’ll open the line for questions.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.
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