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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
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)
(I.R.S. Employer Identification No.)
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.    Yes  ☒ No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes  ☒ 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 filer
☐

Non-accelerated filer
☐

Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check 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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐ No  ☒
As of July 21, 2023, there were 136,355,373 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 JUNE 30, 2023
TABLE OF CONTENTS
Page

Enphase Energy, Inc. | 2023 Form 10-Q | 2
PART I. FINANCIAL INFORMATION
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, respectively
520,306 440,896 
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, respectively
1 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 

See Notes to Condensed Consolidated Financial Statements.
Enphase Energy, Inc. | 2023 Form 10-Q | 3
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 

See Notes to Condensed Consolidated Financial Statements.
Enphase Energy, Inc. | 2023 Form 10-Q | 4
ENPHASE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(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 
    

See Notes to Condensed Consolidated Financial Statements.
Enphase Energy, Inc. | 2023 Form 10-Q | 5
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
ENPHASE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(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 

See Notes to Condensed Consolidated Financial Statements.
Enphase Energy, Inc. | 2023 Form 10-Q | 7
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.    DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Enphase Energy, Inc. (the “Company”) is a global energy technology company. The Company delivers smart, easy-to-use solutions that manage solar generation, storage and communication on one platform. The Company revolutionized the solar industry with its microinverter technology and produces a 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 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.
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 (“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’s financial condition, results of operations, comprehensive income, stockholders’ equity and cash flows for the interim periods indicated. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the operating results for the full year.
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, accrued warranty 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 those estimates due 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
Enphase Energy, Inc. | 2023 Form 10-Q | 8
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 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 October 2021, the Financial 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 2021-08”). ASU 2021-08 requires an acquirer to recognize 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 in the acquiree’s financial statements. The Company adopted ASU 2021-08 effective January 1, 2023. The adoption of ASU 2021-08 did not have an impact on the Company’s condensed consolidated financial statements.
2.    REVENUE RECOGNITION
Disaggregated Revenue
The Company has one major business activity, which is the design, manufacture and sale of solutions for the solar photovoltaic industry. Disaggregated revenue by primary geographical market and timing of revenue recognition for the Company’s single product line are as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
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
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 Company receives payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Contract assets include deferred product costs and commissions associated with the deferred revenue and will be amortized along with the associated revenue. The Company had no asset impairment charges related to contract assets for the six months ended June 30, 2023.
Significant changes in the balances of contract assets (prepaid expenses and other assets) as of June 30, 2023 are 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
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Remaining Performance Obligations
Estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period are as follows:
June 30,
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, 2023 and December 31, 2022 were as follows:
Enphase Energy, Inc. | 2023 Form 10-Q | 11
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 three 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 relationships
2,454 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.
Enphase Energy, Inc. | 2023 Form 10-Q | 12
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
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 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 7, “Fair Value Measurements” for additional information about the monetary impact for change in the discount rate.
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.
Enphase Energy, Inc. | 2023 Form 10-Q | 14
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 - 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 - 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 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The following table presents assets and liabilities 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 
Enphase Energy, Inc. | 2023 Form 10-Q | 15
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Notes due 2028, Notes due 2026 and Notes due 2025
The Company carries the Notes due 2028 and Notes due 2026 at face value less issuance costs on its condensed 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 of 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, 2023 and December 31, 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
ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Warranty obligations
Fair Value Option for Warranty Obligations Related to Products Sold Since January 1, 2014
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 return 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 are 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 designated as Level 3 for the periods indicated:
Three Months Ended
June 30,		Six Months Ended
June 30,
2023202220232022
(In thousands)
Balance at beginning of period$119,508 $61,586 $106,489 $51,007 
Accruals for warranties issued during period16,344 11,120 32,369 19,890 
Changes in estimates(12,925)14,692 (11,680)18,591 
Settlements(6,179)(4,668)(14,013)(8,724)
Increase due to accretion expense3,907 1,828 7,452 3,343 
Change in discount rate 31,797 (9,609)31,797 (9,609)
Other(1,912)(1,026)(1,874)(575)
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 June 30, 2023 and December 31, 2022, the significant unobservable inputs used in the fair value measurement of the Company’s liabilities designated as Level 3 were as follows, of which the monetary impact for change in discount rate is captured in “Change in discount rate” in the table above:
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 discount rate is determined by reference to the Company’s own credit standing at the fair value measurement date, 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 result in a $1.1 million increase to the liability. 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 $9.2 million reduction of the liability. Decreasing the discount rate by 100 basis points would result in a $