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, ~~2020~~2021



☐			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

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,, CA94538

(Address of principal executive offices, including zip code)

(~~707~~) (877) 774-7000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.00001 par value per share

ENPH

Nasdaq 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 ~~28, 2020,~~23, 2021, there were ~~126,007,389~~134,621,196 shares of the registrant’s common stock outstanding, $0.00001 par value per share.

Enphase Energy, Inc. | 2021 Form 10-Q | 1

ENPHASE ENERGY, INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, ~~2020~~2021

TABLE OF CONTENTS


				Page
		PART I. FINANCIAL INFORMATION

			~~Page~~
	~~PART I. FINANCIAL INFORMATION~~

Item 1.	Financial Statements (Unaudited)		13
		Condensed Consolidated Balance Sheets		13
		Condensed Consolidated Statements of Operations		24
		Condensed Consolidated Statements of Comprehensive Income		35
		Condensed Consolidated Statements of Stockholders’ Equity		46
		Condensed Consolidated Statements of Cash Flows		57
		Notes to Condensed Consolidated Financial Statements		68
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		2942
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		4057
Item 4.		Controls and Procedures		4258

		PART II. OTHER INFORMATION

Item 1..		Legal Proceedings		4359
Item 1A.		Risk Factors		4361
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		4761
Item 3.		Defaults Upon Senior Securities		4861
Item 4.		Mine Safety Disclosures		4861
Item 5.		Other Information		4861
Item 6.		Exhibits		4962
		Signature		5064

Enphase Energy, Inc. | 2021 Form 10-Q | 2

Table of Contents

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, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	1,312,261	$	679,379

Accounts receivable, net of allowances of $1,311 and $462 at June 30, 2021 and December 31, 2020, respectively	281,154		182,165
Inventory	37,756		41,764
Prepaid expenses and other assets	34,748		29,756
Total current assets	1,665,919		933,064
Property and equipment, net	63,211		42,985
Operating lease, right of use asset, net	15,693		17,683
Intangible assets, net	45,409		28,808
Goodwill	61,321		24,783
Other assets	118,532		59,875
Deferred tax assets, net	130,571		92,904

Total assets	$	2,100,656	$	1,200,102
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	82,141	$	72,609
Accrued liabilities	119,234		76,542

Deferred revenues, current	55,084		47,665
Warranty obligations, current (includes $10,759 and $8,267 measured at fair value at June 30, 2021 and December 31, 2020, respectively)	15,009		11,260

Debt, current	85,125		325,967
Total current liabilities	356,593		534,043
Long-term liabilities:

Deferred revenues, noncurrent	165,645		125,473
Warranty obligations, noncurrent (includes $27,278 and $20,469 measured at fair value at June 30, 2021 and December 31, 2020, respectively)	44,929		34,653
Other liabilities	20,075		17,042
Debt, noncurrent	929,015		4,898

Total liabilities	1,516,257		716,109
Commitments and contingencies (Note 9)	0		0

Stockholders’ equity:

Common stock, $0.00001 par value, 300,000 shares and 200,000 shares authorized; and 134,571 shares and 128,962 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively	1		1
Additional paid-in capital	762,611		534,744
Accumulated deficit	(180,137)		(51,186)
Accumulated other comprehensive income	1,924		434

Total stockholders’ equity	584,399		483,993
Total liabilities and stockholders’ equity	$	2,100,656	$	1,200,102

As of
June 30,
2020 December 31,
2019
ASSETS
Current assets:
Cash and cash equivalents $ 607,254
$ 251,409
Restricted cash —
44,700
Accounts receivable, net of allowances of $296 and $564 at June 30, 2020 and December 31, 2019, respectively 89,504
145,413
Inventory 31,186
32,056
Prepaid expenses and other assets 29,257
26,079
Total current assets 757,201
499,657
Property and equipment, net 32,972
28,936
Operating lease, right of use asset 11,462
10,117
Intangible assets, net 28,086
30,579
Goodwill 24,783
24,783
Other assets 49,551
44,620
Deferred tax assets, net 93,872
74,531
Total assets $ 997,927
$ 713,223
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 24,135
$ 57,474
Accrued liabilities 46,691
47,092
Deferred revenues, current 40,256
81,783
Warranty obligations, current (includes $6,917 and $6,794 measured at fair value at June 30, 2020 and December 31, 2019, respectively) 10,170
10,078
Debt, current 102,271
2,884
Total current liabilities 223,523
199,311
Long-term liabilities:
Deferred revenues, noncurrent 110,977
100,204
Warranty obligations, noncurrent (includes $14,215 and $13,012 measured at fair value at June 30, 2020 and December 31, 2019, respectively) 27,737
27,020
Other liabilities 12,340
11,817
Debt, noncurrent 253,174
102,659
Total liabilities 627,751
441,011
Commitments and contingencies (Note 9)

Stockholders’ equity:
Common stock, $0.00001 par value, 200,000 shares and 150,000 shares authorized; and 125,979 shares and 123,109 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively 1
1
Additional paid-in capital 534,867
458,315
Accumulated deficit (163,539 ) (185,181 )
Accumulated other comprehensive loss (1,153 ) (923 )
Total stockholders’ equity 370,176
272,212
Total liabilities and stockholders’ equity $ 997,927
$ 713,223

See Notes to Condensed Consolidated Financial Statements.

Enphase Energy, Inc. | ~~2020~~2021 Form 10-Q | 13

Table of Contents

ENPHASE ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)
(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net revenues	$	316,057	$	125,538	$	617,811	$	331,083
Cost of revenues	188,256		77,151		367,061		202,021
Gross profit	127,801		48,387		250,750		129,062
Operating expenses:
Research and development	22,708		13,192		44,526		25,068
Sales and marketing	25,586		12,371		45,208		24,143
General and administrative	20,107		11,970		40,230		24,285

Total operating expenses	68,401		37,533		129,964		73,496
Income from operations	59,400		10,854		120,786		55,566
Other income (expense), net
Interest income	98		282		171		1,373
Interest expense	(12,506)		(5,952)		(19,835)		(9,107)
Other (expense) income, net	(633)		653		(60)		(271)
Loss on partial settlement of convertible notes	(13)		0		(56,382)		0
Change in fair value of derivatives	0		(59,692)		0		(44,348)

Total other expense, net	(13,054)		(64,709)		(76,106)		(52,353)
Income (loss) before income taxes	46,346		(53,855)		44,680		3,213
Income tax benefit (provision)	(6,995)		6,561		26,369		18,429
Net income (loss)	$	39,351	$	(47,294)	$	71,049	$	21,642
Net income (loss) per share:
Basic	$	0.29	$	(0.38)	$	0.53	$	0.17
Diluted	$	0.28	$	(0.38)	$	0.49	$	0.16
Shares used in per share calculation:
Basic	135,094		125,603		133,209		124,567
Diluted	141,533		125,603		144,022		138,910

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
Net revenues $ 125,538
$ 134,094
$ 331,083
$ 234,244
Cost of revenues 77,151
88,775
202,021
155,586
Gross profit 48,387
45,319
129,062
78,658
Operating expenses:
Research and development 13,192
9,604
25,068
18,128
Sales and marketing 12,371
9,054
24,143
16,487
General and administrative 11,970
8,583
24,285
18,463
Restructuring charges —
631
—
999
Total operating expenses 37,533
27,872
73,496
54,077
Income from operations 10,854
17,447
55,566
24,581
Other expense, net
Interest income 282
593
1,373
804
Interest expense (5,952 ) (1,351 ) (9,107 ) (5,102 )
Other (expense) income, net 653
(5,480 ) (271 ) (5,961 )
Change in fair value of derivatives (59,692 ) —
(44,348 ) —
Total other expense, net (64,709 ) (6,238 ) (52,353 ) (10,259 )
Income (loss) before income taxes (53,855 ) 11,209
3,213
14,322
Income tax benefit (provision) 6,561
(591 ) 18,429
(939 )
Net income (loss) $ (47,294 ) $ 10,618
$ 21,642
$ 13,383
Net income (loss) per share:
Basic $ (0.38 ) $ 0.09
$ 0.17
$ 0.12
Diluted $ (0.38 ) $ 0.08
$ 0.16
$ 0.11
Shares used in per share calculation:
Basic 125,603
113,677
124,567
110,951
Diluted 125,603
130,737
138,910
129,400

See Notes to Condensed Consolidated Financial Statements.

Enphase Energy, Inc. | ~~2020~~2021 Form 10-Q | 24

Table of Contents

ENPHASE ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)
(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income (loss)	$	39,351	$	(47,294)	$	71,049	$	21,642
Other comprehensive income (loss):
Foreign currency translation adjustments	1,284		(62)		1,490		(230)
Comprehensive income (loss)	$	40,635	$	(47,356)	$	72,539	$	21,412

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
Net income (loss) $ (47,294 ) $ 10,618
$ 21,642
$ 13,383
Other comprehensive loss:
Foreign currency translation adjustments (62 ) (249 ) (230 ) (328 )
Comprehensive income (loss) $ (47,356 ) $ 10,369
$ 21,412
$ 13,055

See Notes to Condensed Consolidated Financial Statements.

Enphase Energy, Inc. | ~~2020~~2021 Form 10-Q | 35

Table of Contents

ENPHASE ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~STOCKHOLDER’S~~ STOCKHOLDERS’ EQUITY

(In thousands)
(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Common stock and paid-in capital
Balance, beginning of period	$	751,689	$	433,543	$	534,745	$	458,316

Issuance of common stock from exercise of equity awards	3,428		2,867		3,642		4,846
Payment of withholding taxes related to net share settlement of equity awards	(7,813)		(9,385)		(16,998)		(43,652)

Equity component of convertible notes issued, net of tax	8		116,300		207,970		116,300
Cost of convertible notes hedge related to the convertible notes issued, net of tax	0		(117,108)		(213,322)		(117,108)
Sale of warrants related to the convertible notes issued	0		96,351		220,800		96,351
Equity component of partial settlement of convertible notes	(74)		0		(966,557)		0
Cost of reacquired equity component on partial settlement of convertible notes	62		0		962,176		0




Stock-based compensation expense	15,312		12,300		30,156		19,815

Balance, end of period	$	762,612	$	534,868	$	762,612	$	534,868

Accumulated deficit
Balance, beginning of period	$	(19,488)	$	(116,245)	$	(51,186)	$	(185,181)

Net income (loss)	39,351		(47,294)		71,049		21,642
Repurchase of common stock	(200,000)		0		(200,000)		0

Balance, end of period	$	(180,137)	$	(163,539)	$	(180,137)	$	(163,539)

Accumulated other comprehensive income (loss)
Balance, beginning of period	$	640	$	(1,091)	$	434	$	(923)
Foreign currency translation adjustments	1,284		(62)		1,490		(230)

Balance, end of period	$	1,924	$	(1,153)	$	1,924	$	(1,153)
Total stockholders' equity, ending balance	$	584,399	$	370,176	$	584,399	$	370,176

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
Common stock and paid-in capital
Balance, beginning of period $ 433,543
$ 357,024
$ 458,316
$ 353,336
Cumulative-effect adjustment to additional paid in capital⁽¹⁾
—
1
—
27
Issuance of common stock from exercise of equity awards 2,867
958
4,846
2,622
Payment of withholding taxes related to net share settlement of equity awards (9,385 ) (735 ) (43,652 ) (2,090 )
Conversion of convertible notes due 2023, net —
58,857
—
58,857
Equity component of convertible notes 116,300
35,089
116,300
35,089
Cost of convertible notes hedge related to the convertible notes (117,108 ) (36,313 ) (117,108 ) (36,313 )
Sale of warrants related to the convertible notes 96,351
29,818
96,351
29,818
Stock-based compensation expense and other 12,300
5,104
19,815
8,457
Balance, end of period $ 534,868
$ 449,803
$ 534,868
$ 449,803

Accumulated deficit
Balance, beginning of period $ (116,245 ) $ (343,563 ) $ (185,181 ) $ (346,302 )
Cumulative-effect adjustment to accumulated deficit⁽¹⁾and other
—
(1 ) —
(27 )
Net income (loss) (47,294 ) 10,618
21,642
13,383
Balance, end of period $ (163,539 ) $ (332,946 ) $ (163,539 ) $ (332,946 )

Accumulated other comprehensive income (loss)
Balance, beginning of period $ (1,091 ) $ 663
$ (923 ) $ 742
Foreign currency translation adjustments (62 ) (249 ) (230 ) (328 )
Balance, end of period $ (1,153 ) $ 414
$ (1,153 ) $ 414
Total stockholders' equity, ending balance $ 370,176
$ 117,271
$ 370,176
$ 117,271


~~(1)~~	~~Includes the adoption of Accounting Standards Update (“ASU”) 2018-07, “Compensation - Stock Compensation: Improvements to Non-employee Share-Based Payment Accounting” on January 1, 2019.~~

See Notes to Condensed Consolidated Financial Statements.

Enphase Energy, Inc. | ~~2020~~2021 Form 10-Q | 46

Table of Contents

ENPHASE ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
(Unaudited)


	Six Months Ended June 30,
		2021		2020
Cash flows from operating activities:
Net income		$	71,049	$	21,642
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		13,154		7,985
Provision for doubtful accounts		271		185
Non-cash interest expense		19,463		8,094

Loss on partial settlement of convertibles notes		56,382		0
Deemed repayment of convertible notes attributable to accreted debt discount		(15,585)		0


Change in fair value of debt securities		(2,369)		0

Stock-based compensation		30,156		19,815
Change in fair value of derivatives		0		44,348
Deferred income taxes		(30,127)		(19,567)
Changes in operating assets and liabilities:
Accounts receivable		(98,531)		56,166
Inventory		4,008		870
Prepaid expenses and other assets		(15,194)		(9,534)

Accounts payable, accrued and other liabilities		46,890		(35,389)
Warranty obligations		14,025		809
Deferred revenues		47,909		(30,771)
Net cash provided by operating activities		141,501		64,653
Cash flows from investing activities:
Purchases of property and equipment		(26,368)		(7,804)

Investments in private companies		(45,000)		0
Business acquisitions, net of cash acquired		(55,239)		0
Net cash used in investing activities		(126,607)		(7,804)
Cash flows from financing activities:
Issuance of convertible notes, net of issuance costs		1,188,439		312,420
Purchase of convertible note hedges		(286,235)		(89,056)
Sale of warrants		220,800		71,552




Principal payments and financing fees on debt		(1,422)		(1,633)


Partial repurchase of convertible notes		(289,312)		0



Proceeds from exercise of equity awards and employee stock purchase plan		3,642		4,846
Repurchase of common stock		(200,000)		0
Payment of withholding taxes related to net share settlement of equity awards		(16,998)		(43,652)

Net cash provided by financing activities		618,914		254,477
Effect of exchange rate changes on cash and cash equivalents		(926)		(181)
Net increase in cash, cash equivalents and restricted cash		632,882		311,145
Cash, cash equivalents and restricted cash—Beginning of period		679,379		296,109
Cash, cash equivalents and restricted cash—End of period		$	1,312,261	$	607,254





Supplemental cash flow disclosure:



Supplemental disclosures of non-cash investing and financing activities:



Purchases of fixed assets included in accounts payable		$	4,175	$	1,636
Contingent consideration in connection with the acquisition		$	3,596	$	0

Six Months Ended
June 30,
2020 2019
Cash flows from operating activities:
Net income $ 21,642
$ 13,383
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 7,985
7,694
Provision for doubtful accounts 185
207
Non-cash interest expense 8,094
2,266
Financing fees on extinguishment of debt —
2,152
Fees paid for repurchase and exchange of convertible notes due 2023 —
6,000
Stock-based compensation 19,815
8,224
Change in fair value of derivatives 44,348
—
Deferred income taxes (19,567 ) —
Changes in operating assets and liabilities:
Accounts receivable 56,166
(19,104 )
Inventory 870
(3,827 )
Prepaid expenses and other assets (9,534 ) (9,568 )
Accounts payable, accrued and other liabilities (35,389 ) 16,805
Warranty obligations 809
1,699
Deferred revenues (30,771 ) 5,904
Net cash provided by operating activities 64,653
31,835
Cash flows from investing activities:
Purchases of property and equipment (7,804 ) (3,176 )
Net cash used in investing activities (7,804 ) (3,176 )
Cash flows from financing activities:
Issuance of convertible notes, net of issuance costs 312,420
128,040
Purchase of convertible note hedges (89,056 ) (36,313 )
Sale of warrants 71,552
29,819
Fees paid for repurchase and exchange of convertible notes due 2023 —
(6,000 )
Principal payments and financing fees on debt (1,633 ) (45,122 )
Proceeds from exercise of equity awards and employee stock purchase plan 4,846
2,622
Payment of withholding taxes related to net share settlement of equity awards (43,652 ) (2,090 )
Net cash provided by financing activities 254,477
70,956
Effect of exchange rate changes on cash and cash equivalents (181 ) 107
Net increase in cash and cash equivalents 311,145
99,722
Cash, cash equivalents and restricted cash—Beginning of period 296,109
106,237
Cash and cash equivalents—End of period $ 607,254
$ 205,959

Supplemental disclosures of non-cash investing and financing activities:
Purchases of fixed assets included in accounts payable $ 1,636
$ 1,194
Accrued interest payable unpaid upon exchange of convertible notes due 2023 $ —
$ 833

See Notes to Condensed Consolidated Financial Statements.

Enphase Energy, Inc. | ~~2020~~2021 Form 10-Q | 57

Table of Contents

~~ENPHASE ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~


1.	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 ~~intelligent~~ 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 (“U.S.”), or 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 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 (loss), stockholders’ equity and cash flows for the interim periods indicated. The results of operations for the three and six months ended June 30, ~~2020~~2021 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, legal contingencies, and tax valuation allowance. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ materially from management’s estimates using different assumptions or under different conditions.

~~The worldwide spread~~In light of ongoing semiconductor supply constraints and the evolving COVID-19 ~~virus~~pandemic, management has resulted in a global slowdown of economic activity which decreased demand for a broad variety of goods and services, including from our customers, while also disrupting sales channels and marketing activities for an unknown period of time and may continue to create significant uncertainty in future operational and financial performance. The Company expects this to result in negativeconsidered their impact on ~~its sales and its results of operations. In preparing~~ the Company’s ~~condensed consolidated financial statements in accordance with GAAP, the Company is required to make~~critical and significant accounting estimates assumptions and judgments that affect the amounts reported in its financial statements and the accompanying disclosures. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As ofon the date of issuance of these financial ~~statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, judgments or revise the carrying value of its assets or liabilities.~~statements. These estimates may change, as new events occur and additional information is obtained, and are recognized in the ~~condensed~~ consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s condensed financial statements.

~~Enphase Energy, Inc. | 2020~~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 U.S. 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-Q | 6~~

~~Table of Contents~~

~~ENPHASE ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

10-K filed with the Securities and Exchange Commission (the “SEC”) on February 16, 2021 (“Form 10‑K”).

Summary of Significant Accounting Policies

~~There~~Except for the accounting policy for repurchase of common stock, added as a result of the common stock repurchased by the Company during the quarter ended June 30, 2021, there have been no significant changes to the Company’s significant accounting policies in Note 2.2, “Summary of Significant Accounting Policies,” of the notes

Enphase Energy, Inc. | 2021 Form 10-Q | 8

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

to consolidated financial statements included in Part II, Item 8 of the Company’s ~~2019~~ Annual Report on Form ~~10-K.~~10-K for the fiscal year ended December 31, 2020.

Common Stock Repurchase

The Company accounts for repurchase of common stock under ASC 505 and charged the entire cost of repurchase to the accumulated deficit in the condensed consolidated balance sheet as of June 30, 2021.

Recently ~~Adopted~~Issued Accounting Pronouncements

Not Yet Effective

In August ~~2018,~~2020, the FASB issued ~~ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred~~Account Standard Update (“ASU”) 2020-06, “Debt - Debt with Conversion and Other Options (subtopic 470-20) and Derivatives and Hedging - Contracts in ~~a Cloud Computing Arrangement That Is a Service Contract,~~Entity’s Own Equity (subtopic 815-40),” ~~to reduce diversity~~which reduces the number of accounting models in ~~practice in~~ASC 470-20 that require separate accounting for embedded conversion features. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the ~~costs~~effective interest rate of ~~implementing cloud computing arrangements that are service contracts. ASU 2018-15 allows entities~~convertible debt instruments will be closer to ~~apply~~ the ~~guidance in~~coupon interest rate. Further, the ~~ASC 350-40, “Intangibles–Goodwill and Other–Internal-Use Software,”~~diluted net income per share calculation for convertible instruments will require the Company to ~~determine which implementation costs are eligible~~use the if-converted method. The treasury stock method should no longer be used to calculate diluted net income per share for convertible instruments. The amendment will be ~~capitalized as assets in a cloud computing arrangement that is considered a service contract. ASU 2018-15 is~~ effective for ~~fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. Entities have~~ the ~~option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively and are required to make certain disclosures in the interim and~~Company with annual period ~~of adoption.~~beginning January 1, 2022. The Company ~~adopted~~is currently evaluating the ~~new~~accounting, transition and disclosure requirements of the standard, ~~effective January 1, 2020 on a prospective basis and the adoption of this guidance did not have a material impact on its consolidated financial statements.~~

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with a current expected credit loss (CECL) model which will result in earlier recognition of credit losses. On January 1, 2020,however, the Company onexpects its interest expense will be reduced as a ~~prospective basis adopted Topic 326, the measurement~~result of ~~expected credit losses under the CECL model is applicable to financial assets~~accounting for its convertible debt instruments as a single liability measured at its amortized ~~cost, including accounts receivable. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.~~cost.


2.	2. REVENUE RECOGNITION

Disaggregated Revenue

The Company has one business activity, which is the design, manufacture and sale of solutions for the solar photovoltaic (“PV”) industry. Disaggregated revenue by primary geographical market and timing of revenue recognition for the Company’s single product line are as follows:

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
(In thousands)
Primary geographical markets:
United States $ 100,791
$ 99,909
$ 280,391
$ 177,595
International 24,747
34,185
50,692
56,649
Total $ 125,538
$ 134,094
$ 331,083
$ 234,244

Timing of revenue recognition:
Products delivered at a point in time $ 114,299
$ 124,336
$ 308,978
$ 214,736
Products and services delivered over time 11,239
9,758
22,105
19,508
Total $ 125,538
$ 134,094
$ 331,083
$ 234,244

~~Enphase Energy, Inc. | 2020 Form 10-Q | 7~~

~~Table of Contents~~

~~ENPHASE ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In thousands)
Primary geographical markets:
U.S.	$	254,576	$	100,791	$	502,358	$	280,391




International	61,481		24,747		115,453		50,692
Total	$	316,057	$	125,538	$	617,811	$	331,083

Timing of revenue recognition:
Products delivered at a point in time	$	302,100	$	114,299	$	590,971	$	308,978
Products and services delivered over time	13,957		11,239		26,840		22,105
Total	$	316,057	$	125,538	$	617,811	$	331,083

Contract Balances

Receivables, and contract assets and contract liabilities from contracts with customers are as follows:


	June 30, 2021		December 31, 2020
	(In thousands)
Receivables	$	281,154	$	182,165

Short-term contract assets (Prepaid expenses and other assets)	21,135		17,879
Long-term contract assets (Other assets)	63,752		51,986



Short-term contract liabilities (Deferred revenues)	55,084		47,665
Long-term contract liabilities (Deferred revenues)	165,645		125,473

June 30,
2020 December 31,
2019
(In thousands)
Receivables $ 89,504
$ 145,413
Short-term contract assets (Prepaid expenses and other assets) 16,416
15,055
Long-term contract assets (Other assets) 46,960
42,087
Short-term contract liabilities (Deferred revenues) 40,256
81,783
Long-term contract liabilities (Deferred revenues) 110,977
100,204

Enphase Energy, Inc. | 2021 Form 10-Q | 9

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 0 asset impairment charges related to contract assets in the three and six months ended June 30, ~~2020.~~2021.

Significant changes in the balances of contract assets (prepaid expenses and other assets) during the period are as follows (in thousands):

Contract Assets
Balance on December 31, 2019 $ 57,142
Amount recognized (8,439 )
Increase 14,673
Balance as of June 30, 2020 $ 63,376


Contract Assets
Contract Assets, beginning of period	$	69,865
Amount recognized	(10,255)
Increase	25,277
Contract Assets, end of period	$	84,887

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) during the period are as follows (in thousands):

Contract Liabilities
Balance on December 31, 2019 $ 181,987
Revenue recognized (66,841 )
Increase due to billings 36,087
Balance as of June 30, 2020 $ 151,233


Contract Liabilities
Contract Liabilities, beginning of period	$	173,138
Revenue recognized	(33,544)

Increase due to billings	81,135

Contract Liabilities, end of period	$	220,729

~~Enphase Energy, Inc. | 2020 Form 10-Q | 8~~

~~Table of Contents~~

~~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, 2021
	(In thousands)
Fiscal year:
2021 (remaining six months)	$	29,069
2022	51,375
2023	45,388
2024	40,157
2025	33,174
Thereafter	21,566
Total	$	220,729

June 30,
2020
(In thousands)
Fiscal year:
2020 (remaining six months) $ 21,679
2021 36,389
2022 31,357
2023 25,564
2024 20,373
Thereafter 15,871
Total $ 151,233


3.	~~OTHER FINANCIAL INFORMATION~~

~~Accounts Receivable, Net~~

~~The Company receives payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional.~~

~~Accounts receivable, net consist of the following:~~

June 30,
2020 December 31,
2019
(In thousands)
Accounts receivable $ 89,800
$ 145,977
Allowance for doubtful accounts (296 ) (564 )
Accounts receivable, net $ 89,504
$ 145,413

~~Allowance for Doubtful Accounts~~

The Company maintains allowances for doubtful accounts for uncollectible accounts receivable. Management estimates anticipated losses from doubtful accounts based on financial health of customers, days past due, collection history and existing economic conditions. The following table sets forth activities in the allowance for doubtful accounts for the periods indicated.

Three Months Ended
June 30, Six Months Ended
June 30,
2020
(In thousands)
Balance, at beginning of the period $ 374
$ 564
Net charges to expenses 81
185
Write-offs, net of recoveries (159 ) (453 )
Balance, at end of the period $ 296
$ 296

Enphase Energy, Inc. | ~~2020~~2021 Form 10-Q | 910

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. OTHER FINANCIAL INFORMATION

Inventory

Inventory consist of the following:

June 30,
2020 December 31,
2019
(In thousands)
Raw materials $ 5,800
$ 4,197
Finished goods 25,386
27,859
Total inventory $ 31,186
$ 32,056



	June 30, 2021		December 31, 2020
	(In thousands)
Raw materials	$	11,870	$	10,140
Finished goods	25,886		31,624
Total inventory	$	37,756	$	41,764

Accrued Liabilities

Accrued liabilities consist of the following:

June 30,
2020 December 31,
2019
(In thousands)
Salaries, commissions, incentive compensation and benefits $ 3,607
$ 5,524
Customer rebates and sales incentives 20,741
24,198
Freight 2,640
4,908
Operating lease liabilities, current 3,570
3,170
Other 16,133
9,292
Total accrued liabilities $ 46,691
$ 47,092


	June 30, 2021		December 31, 2020
	(In thousands)
Salaries, commissions, incentive compensation and benefits	$	9,919	$	6,634
Customer rebates and sales incentives	57,151		36,622
Freight	14,818		10,300
Operating lease liabilities, current	4,603		4,542
Liability due to supply agreements	14,418		5,500
Contingent consideration	3,596		0
Post combination expense accrual	2,842		0
Other	11,887		12,944
Total accrued liabilities	$	119,234	$	76,542

4. BUSINESS COMBINATION

Acquisition of Sofdesk Inc. (“Sofdesk”)

On January 25, 2021, the Company completed the acquisition of 100% of the shares of Sofdesk, a privately-held company. Sofdesk provides design tools and services software for residential solar installers and roofing companies and will enhance the Company’s digital transformation efforts.

As part of the purchase price, the Company (i) paid approximately $32.0 million in cash on January 25, 2021 and (ii) is liable for up to approximately $3.7 million of contingent consideration payable during the first quarter of 2022, of which the Company recorded a liability of approximately $3.5 million representing the fair value of the contingent consideration.

The contingent consideration is subject to remeasurement at each reporting period until paid. The acquisition date fair value of the purchase price was approximately $35.5 million, which consisted of the following (in thousands):


4.Cash consideration						~~GOODWILL AND INTANGIBLE ASSETS~~$	31,988

~~The Company’s goodwill and purchased intangible assets as of June 30, 2020 and December 31, 2019 are as follows:~~

June 30, 2020 December 31, 2019
Gross Accumulated Amortization Net Gross Accumulated Amortization Net
(In thousands)
Goodwill $ 24,783
$ —
$ 24,783
$ 24,783
$ —
$ 24,783

Intangible assets:
Other indefinite-lived intangibles $ 286
$ —
$ 286
$ 286
$ —
$ 286
Intangible assets with finite lives:

Developed technology 13,100
(4,185 ) 8,915
13,100
(3,093 ) 10,007
Customer relationships 23,100
(4,215 ) 18,885
23,100
(2,814 ) 20,286
Total purchased intangible assets $ 36,486
$ (8,400 ) $ 28,086
$ 36,486
$ (5,907 ) $ 30,579


Fair value of contingent consideration	3,500
Total	$	35,488

In addition to the purchase price discussed above, the Company will be obligated to pay up to approximately $3.7 million, during the first quarter of 2022, subject to continued employment of key employees of Sofdesk. As this payment is contingent upon the continuous service of the employees, it is being accounted for as a post-combination expense and will be recognized ratably over the one year period.

Enphase Energy, Inc. | ~~2020~~2021 Form 10-Q | 1011

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The acquisition has been accounted for as a business combination under the acquisition method, and accordingly, the total purchase price is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values on the acquisition date. The results of operations of Sofdesk have been included in the Company’s condensed consolidated statement of operations from the acquisition date.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date, which are subject to change within the measurement period as the fair value assessments are finalized (in thousands):


Net tangible assets acquired	$	1,441
Intangible assets	9,200
Deferred tax asset	457
Goodwill	24,390
Net assets acquired	$	35,488

The excess of the consideration paid over the fair values assigned to the assets acquired and liabilities assumed represents the goodwill resulting from the acquisition. Goodwill is primarily attributable to expected synergies in the Company’s solar offerings and cross-selling opportunities.

Intangible assets consist primarily of developed technology, customer relationship intangibles and trade name intangibles. Intangible assets attributable to developed technology include a combination of unpatented technology, trade secrets, computer software and research processes that represent the foundation for the existing and planned new products to facilitate the generation of new content. Customer relationship intangibles relate to Sofdesk’s software ability to sell current and future offerings, as well as products built around the current offering, to its existing customers. Trade name intangibles are attributable to marketing goods and services under the SolargrafTM and RoofgrafTM brands.

The following table shows the fair value of the separately identifiable intangible assets at the time of acquisition and the period over which each intangible asset will be amortized:


	Preliminary Fair Value		Useful Life
	(In thousands)		(Years)
Developed technology	$	6,900	5
Customer relationship	1,800		5
Trade Name	500		5
Total identifiable intangible assets	$	9,200

The Company incurred costs related to this acquisition of $0.3 million and $2.0 million that were recorded in general and administrative expenses in the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2021, respectively.

Enphase Energy, Inc. | 2021 Form 10-Q | 12

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Acquisition of DIN’s Solar Design Services Business (“DIN”)

On March 31, 2021, the Company completed its acquisition of DIN’s solar design services business. DIN's solar design services business provides outsourced proposal drawings and permit plan sets for residential solar installers in North America and will enhance the Company’s digital transformation effort. As part of the purchase price, the Company paid approximately $24.8 million in cash at closing on March 31, 2021.

The acquisition has been accounted for as a business combination under the acquisition method; accordingly, the total purchase price is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values on the acquisition date. The results of operations of DIN have been included in the Company’s condensed consolidated statement of operations from the acquisition date.

In addition to the purchase price summarized above, the Company will be obligated to pay up to i) approximately $5.0 million in equal monthly installments over the course of one year following the acquisition date and ii) approximately $5.0 million payable on the one year anniversary following the acquisition date subject to achievement of certain revenue and operational targets. As both additional payments require continuous employment of certain key employees of DIN and are subject to other conditions, these payments are being accounted for as post-combination expense and will be recognized ratably over the one year period.


Net tangible assets acquired	$	1,541
Intangible assets	11,700
Goodwill	11,544
Net assets acquired	$	24,785

Intangible assets consist primarily of customer relationship intangibles. Customer relationship intangibles relate to the ability of the acquired DIN solar design services business to sell current and future offering, as well as products built around the current offering, to its existing customers.

The following table shows the fair value of the separately identifiable intangible assets at the time of acquisition and the period over which each intangible asset will be amortized:

Preliminary Fair Value

Useful Life

(In thousands)

(Years)

Customer relationship

11,700

The Company incurred costs related to this acquisition of $0.5 million and $1.9 million that were recorded in general and administrative expenses in the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2021, respectively.

Enphase Energy, Inc. | 2021 Form 10-Q | 13

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. GOODWILL AND INTANGIBLE ASSETS

The Company’s goodwill as of June 30, 2021 and December 31, 2020 are as follows:


Goodwill	June 30, 2021		December 31, 2020
	(In thousands)
Goodwill, beginning of period	$	24,783	$	24,783
Goodwill acquired	35,934		0
Currency translation adjustment	604		0
Goodwill, end of period	$	61,321	$	24,783

The Company’s purchased intangible assets as of June 30, 2021 and December 31, 2020 are as follows:


	June 30, 2021								December 31, 2020
	Gross		Additions		Accumulated Amortization		Net		Gross		Additions		Accumulated Amortization		Net
	(In thousands)


Intangible assets:
Other indefinite-lived intangibles	$	286	$	—	$	—	$	286	$	286	$	—	$	—	$	286

Intangible assets with finite lives:

Developed technology	13,100		6,900		(6,966)		13,034		13,100		0		(5,276)		7,824
Customer relationships	26,421		13,500		(8,185)		31,736		23,100		3,321		(5,723)		20,698
Trade names	0		500		(147)		353		0		0		0		0
Total purchased intangible assets	$	39,807	$	20,900	$	(15,298)	$	45,409	$	36,486	$	3,321	$	(10,999)	$	28,808

Amortization expense related to finite-lived intangible assets are as follows:

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
(In thousands)
Developed technology, and patents and licensed technology $ 546
$ 546
$ 1,092
$ 1,092
Customer relationships 700
635
1,401
1,271
Total amortization expense $ 1,246
$ 1,181
$ 2,493
$ 2,363


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In thousands)
Developed technology	$	891	$	546	$	1,690	$	1,092
Customer relationships	1,532		700		2,462		1,401
Trade names	85		0		147		0
Total amortization expense	$	2,508	$	1,246	$	4,299	$	2,493

Amortization of developed technology, ~~patents~~customer relationships and ~~licensed technology~~trade names is recorded to sales and marketing expense. ~~The developed technology acquired from the Company’s acquisition~~

Enphase Energy, Inc. | 2021 Form 10-Q | 14

Table of SunPower Corporation’s (“SunPower”) microinverter business in August 2018 was embedded in the microinverters that SunPower sold to its customers. The Company does not actively use the developed technology acquired from SunPower and holds the developed technology to prevent others from using it. Accordingly, the Company accounts for the developed technology as a defensive intangible asset and amortizes the associated value over a period of six years from the date of acquisition.Contents

The master supply agreement (“MSA”) entered into with SunPower in August 2018 provides the Company with the exclusive right to supply SunPower with module level power electronics for a period of five years, with options for renewals. The exclusivity arrangement extends throughout the term of the MSA, which comprises all of the expected cash flows from the customer relationship intangible asset, and was a condition to, and was an essential part of the acquisition of SunPower’s microinverter business by the Company. As the fair value ascribed to the customer relationship intangible asset represents payments to a customer, the Company amortizes the value of the customer relationship intangible asset as a reduction to revenue using a pattern of economic benefit method over a useful life of nine years.ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


5.	(Unaudited) 6. WARRANTY OBLIGATIONS

The Company’s warranty activities were as follows:

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
(In thousands)
Warranty obligations, beginning of period $ 37,501
$ 31,042
$ 37,098
$ 31,294
Accruals for warranties issued during period 766
1,312
2,290
2,170
Changes in estimates 1,748
699
3,425
1,503
Settlements (2,578 ) (2,206 ) (5,848 ) (4,502 )
Increase due to accretion expense 804
550
1,578
1,101
Other (334 ) 1,597
(636 ) 1,428
Warranty obligations, end of period 37,907
32,994
37,907
32,994
Less: current portion (10,170 ) (7,468 ) (10,170 ) (7,468 )
Noncurrent $ 27,737
$ 25,526
$ 27,737
$ 25,526


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In thousands)
Warranty obligations, beginning of period	$	54,553	$	37,501	$	45,913	$	37,098
Accruals for warranties issued during period	3,319		766		7,213		2,290
Changes in estimates	4,269		1,748		11,924		3,425
Settlements	(2,757)		(2,578)		(5,687)		(5,848)
Increase due to accretion expense	1,104		804		2,047		1,578
Other	(550)		(334)		(1,472)		(636)
Warranty obligations, end of period	59,938		37,907		59,938		37,907
Less: current portion	(15,009)		(10,170)		(15,009)		(10,170)
Noncurrent	$	44,929	$	27,737	$	44,929	$	27,737

Changes in Estimates

~~For~~In the three months ended June 30, 2021, the Company recorded $4.3 million in warranty expense from change in estimates, of which $2.9 million relates to the timing of cost reduction assumptions for replacement products and ~~six~~$1.4 million for continuing analysis of field performance data and diagnostic root-cause failure analysis primarily relating to its prior generation products. In the three months ended June 30, 2020, the Company recorded ~~additional~~$1.7 million in warranty expense ~~of $1.7 million and $3.4 million, respectively, based on~~primarily related to continuing analysis of field performance data and diagnostic root-cause failure analysis primarily relating to its prior generation products.

In the six months ended June 30, 2021, the Company recorded $11.9 million in warranty expense from change in estimates, of which $7.7 million relates to continuing analysis of field performance data and diagnostic root-cause failure analysis primarily relating to its prior generation products, $2.9 million relates to the timing of cost reduction assumptions for replacement products and $1.3 million relates to the other cost assumption changes. In the six months ended June 30, 2020, the Company recorded $3.4 million in warranty expense primarily related to continuing analysis of field performance data and diagnostic root-cause failure analysis primarily relating to its prior generation products.

~~Enphase Energy, Inc. | 2020 Form 10-Q | 11~~7. FAIR VALUE MEASUREMENTS

~~Table of Contents~~

~~ENPHASE ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


6.	~~FAIR VALUE MEASUREMENTS~~

The accounting guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

•Level 1—1 - Valuations based on quoted prices in active markets for identical assets or liabilities that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of such assets or liabilities do not entail a significant degree of judgment.

•Level 2—2 - Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Enphase Energy, Inc. | 2021 Form 10-Q | 15

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

•Level 3—3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.


	June 30, 2021						December 31, 2020
	(In thousands)
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents:
Money market funds	$	1,277,860	$	0	$	0	$	654,699	$	0	$	0
Other assets
Investments in debt securities	0		0		47,369		0		0		0

Total assets measured at fair value	$	1,277,860	$	0	$	47,369	$	654,699	$	0	$	0

Liabilities:
Accrued liabilities
Contingent consideration	$	0	$	0	$	3,596	$	0	$	0	$	0
Warranty obligations
Current	0		0		10,759		0		0		8,267
Non-current	0		—		27,278		0		0		20,469
Total warranty obligations measured at fair value	0		0		38,037		0		0		28,736
Total liabilities measured at fair value	$	0	$	0	$	41,633	$	0	$	0	$	28,736

Level 1.

The Company considers all highly liquid investments, such as certificates of deposit and money market instruments with maturities of three months or less at the time of acquisition to be cash equivalents. For all periods presented, its cash balances consist of amounts held in non-interest-bearing and interest-bearing deposits and money market accounts and are within Level 1 of the fair value hierarchy because they are valued using quoted market prices for identical instruments in active markets. ~~As of June 30, 2020, cash and cash equivalents balance includes money market funds of $598.5 million.~~

Level 2.

~~Convertible~~ Notes due ~~2025 Derivatives~~

2028~~On March 9, 2020, the Company issued $320 million aggregate principal amount of 0.25% convertible senior notes due 2025 (the “Notes due 2025”). Concurrently with the issuance of~~ , Notes due 2025, the Company entered into privately-negotiated convertible note hedge and warrant transactions which in combination are intended to reduce the potential dilution from the conversion of the Notes due 2025. On May 20, 2020, at the Company’s annual meeting of stockholders, the stockholders approved an amendment to its certificate of incorporation to increase the number of authorized shares of the Company’s common stock. As a result, the Company satisfied the share reservation condition (as defined in the relevant indenture associated with the Notes due 2025). The Company will now be able to settle the Notes due 2025, convertible notes hedge and warrants through payment or delivery, as the case may be, of cash, shares of its common stock or a combination thereof, at the Company’s election. Accordingly, on May 20, 2020, the embedded derivative liability, convertible notes hedge and warrants liability were remeasured at a fair value of $116.3 million, $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 are no longer remeasured as long as they continue to meet the conditions for equity classification. See Note 20268, ~~. “Debt” for additional information related to these transactions.~~

The fair value of the Convertible notes embedded derivative was estimated using Binomial Lattice model and the fair value of Convertible notes hedge and Warrants liability was estimated using Black-Scholes-Merton model. The significant observable inputs, either directly or indirectly, and assumptions used in the models to calculate the fair value of the derivatives include the Company’s common stock price, exercise price of the derivatives, risk-free interest rate, volatility, annual coupon rate and remaining contractual term.

~~Enphase Energy, Inc. | 2020 Form 10-Q | 12~~

~~Table of Contents~~

~~ENPHASE ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Notes due 2025 and Notes due 2024.

The Company carries the Notes due 2028, Notes due 2026, Notes due 2025 and Notes due 2024 (as defined below) at face value less unamortized discount and issuance costs on its condensed consolidated balance sheets. The fair value of the Notes due 2028, Notes due 2026, Notes due 2025 and Notes due 2024 ~~of $288.9~~was $564.9 million, $624.1 million, $220.8 million and ~~$350.5~~$9.1 million, respectively, ~~was determined~~as of June 30, 2021 based on the closing trading prices 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, Notes due 2025 and Notes due 2024 to be a Level 2 measurement as they are not actively traded.

~~Level 3~~.

Enphase Energy, Inc. | 2021 Form 10-Q | 16

~~rranty Obligations.~~Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Level 3.

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 become 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. These assumption include implied yield and change in estimated term of investment being held-to-maturity.

In June 2021, the Company invested approximately $20.0 million in secured convertible promissory notes issued by a privately-held company. The investment qualifies as an investment in a debt security and will accrete interest and principal plus accrued interest becomes payable at certain dates unless it is converted to equity at a pre-determined price. As the investment includes a conversion option, the Company has elected to account for this investment under the fair value option and any change in fair value of the investment is recognized in “Other income (expense), net” in the Company’s condensed consolidated statement of operations for that period. Further, the Company has concluded that the Company’s investment in a debt security is considered to be a Level 3 measurement due to the use of significant unobservable inputs in the valuation model.

Investment in debt securities are recorded in “Other Assets” on the accompanying condensed consolidated balance sheet as of June 30, 2021. The changes in the balance in investments in debt securities during the period are as follows:


	Three Months Ended June 30,		Six Months Ended June 30,
	2021			2021
	(In thousands)
Balance at beginning of period	$	26,437		$	0
Investment	20,000			45,000
Fair value adjustments included in other (expense) income, net	932			2,369
Balance at end of period	$	47,369		$	47,369

Contingent consideration

The estimated fair value of the contingent consideration incurred in connection with the Company’s acquisition of Sofdesk is considered to be a Level 3 measurement due to the use of significant unobservable inputs. These unobservable inputs include probability assessment of expected future customer count over the period in which the obligation is expected to be settled. The value was determined using a discounted risk-neutral expected (probability-weighted) cash flow methodology. The resulting expected contingent consideration payment is discounted back to present value using our cost of debt. The fair value of contingent consideration arrangement is reassessed quarterly based on assumptions used in the Company’s latest projections and input provided by management. Any change in the fair value estimate, which could include accretion of interest expense due to passage of time as well as any changes in the inputs to the model, is recorded in the Company’s condensed consolidated statement of operations for that period.

Enphase Energy, Inc. | 2021 Form 10-Q | 17

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table ~~presents~~reflects the activity for the Company’s ~~warranty obligation that were~~contingent consideration liabilities measured at fair value ~~on a recurring basis~~using Level 3 inputs for the three and ~~its categorization within the fair value hierarchy.~~six months ended June 30, 2021:


	Three Months Ended June 30,		Six Months Ended June 30,
	2021			2021
	(In thousands)
Balance at beginning of period	$	3,540		$	0
Addition	0			3,500
Fair value adjustments included in other income (expense), net	56			96
Balance at end of period	$	3,596		$	3,596

June 30,
2020 December 31, 2019
(In thousands)
Level 3 Level 3
Liabilities:
Warranty obligations
Current $ 6,917
$ 6,794
Non-current 14,215
13,012
Total warranty obligations measured at fair value 21,132
19,806
Total liabilities measured at fair value $ 21,132
$ 19,806

Warranty obligations.

Fair Value Option for Warranty Obligations Related to Microinverters and Other 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 failure rates, claim rates and replacement costs, the Company used certain Level 3 inputs which are unobservable and significant to the overall fair value measurement. Such additional assumptions included a discount rate based on the Company’s credit-adjusted risk-free rate and compensation comprised of a profit element and risk premium required of a market participant to assume the obligation.

The following table provides information regarding changes in nonfinancial liabilities related to the Company’s warranty obligations measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods indicated.

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
(In thousands)
Balance at beginning of period $ 20,425
$ 12,065
$ 19,806
$ 11,757
Accruals for warranties issued during period 766
1,312
2,290
2,170
Changes in estimates 983
519
1,598
860
Settlements (1,511 ) (1,188 ) (3,504 ) (2,460 )
Increase due to accretion expense 804
550
1,578
1,101
Other (335 ) 1,598
(636 ) 1,428
Balance at end of period $ 21,132
$ 14,856
$ 21,132
$ 14,856

~~Enphase Energy, Inc. | 2020 Form 10-Q | 13~~

~~Table of Contents~~

~~ENPHASE ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In thousands)
Balance at beginning of period	$	33,319	$	20,425	$	28,736	$	19,806
Accruals for warranties issued during period	3,319		766		7,213		2,290
Changes in estimates	2,755		983		5,338		1,598
Settlements	(1,910)		(1,511)		(3,825)		(3,504)
Increase due to accretion expense	1,104		804		2,047		1,578
Other	(550)		(335)		(1,472)		(636)
Balance at end of period	$	38,037	$	21,132	$	38,037	$	21,132

Quantitative and Qualitative Information about Level 3 Fair Value Measurements

As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the significant unobservable inputs used in the fair value measurement of the Company’s liabilities designated as Level 3 are as follows:

Percent Used

(Weighted Average)

Item Measured at Fair Value

Valuation Technique

Description of Significant Unobservable Input

June 30,
2021

December 31,
2020

Warranty obligations for microinverters sold since January 1, 2014

Discounted cash flows

Profit element and risk premium

15%

Credit-adjusted risk-free rate

13%

Enphase Energy, Inc. | 2021 Form 10-Q | 18

Percent Used
(Weighted Average)
Item Measured at Fair Value Valuation Technique Description of Significant Unobservable Input June 30,
2020 December 31,
2019
Warranty obligations for microinverters sold since January 1, 2014 Discounted cash flows Profit element and risk premium 15% 14%
Credit-adjusted risk-free rate 16% 16%

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Sensitivity of Level 3 Inputs - Warranty Obligations

Each of the significant unobservable inputs is independent of the other. The profit element and risk premium are estimated based on requirements of a third-party participant willing to assume the Company’s warranty obligations. The credit‑adjusted risk‑free rate (“discount rate”) is determined by reference to the Company’s own credit standing at the fair value measurement date. Increasing the profit element and risk premium input by 100 basis points would result in a ~~$0.2~~$0.3 million increase to the liability. Decreasing the profit element and risk premium by 100 basis points would result in a ~~$0.2~~$0.3 million reduction of the liability. Increasing the discount rate by 100 basis points would result in a ~~$0.9~~$1.8 million reduction of the liability. Decreasing the discount rate by 100 basis points would result in a ~~$1.0~~$2.0 million increase to the liability.


7.	~~RESTRUCTURING~~

~~Restructuring expense consist of~~8. DEBT

The following table provides information regarding the ~~following:~~Company’s debt.

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
(In thousands)
Redundancy and employee severance and benefit arrangements $ —
$ 631
$ —
$ 1,099
Lease loss reserves —
—
—
(100 )
Total restructuring charges $ —
$ 631
$ —
$ 999


	June 30, 2021		December 31, 2020
	(In thousands)
Convertible notes
Notes due 2028	$	575,000	$	0
Less: unamortized discount and issuance costs	(159,801)		0
Carrying amount of Notes due 2028	415,199		0

Notes due 2026	632,500		0
Less: unamortized discount and issuance costs	(123,602)		0
Carrying amount of Notes due 2026	508,898		0

Notes due 2025	102,175		320,000
Less: unamortized discount and issuance costs	(18,475)		(64,979)
Carrying amount of Notes due 2025	83,700		255,021

Notes due 2024	1,068		88,140
Less: unamortized discount and issuance costs	(201)		(19,119)
Carrying amount of Notes due 2024	867		69,021

Notes due 2023	5,000		5,000
Less: unamortized issuance costs	(82)		(102)
Carrying amount of Notes due 2023	4,918		4,898

Sale of long-term financing receivable recorded as debt	558		1,925


Total carrying amount of debt	1,014,140		330,865

Less: current portion of convertible notes and long-term financing receivable recorded as debt	(85,125)		(325,967)
Long-term debt	$	929,015	$	4,898

~~2018 Plan~~

In the third quarter of 2018, the Company began implementing restructuring actions (the “2018 Plan”) to lower its operating expenses. The restructuring actions include reorganization of the Company’s global workforce, elimination of certain non-core projects and consolidation of facilities. The Company completed its restructuring activities under the 2018 Plan in 2019.

Enphase Energy, Inc. | ~~2020~~2021 Form 10-Q | 1419

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Convertible Senior Notes due 2028

On March 1, 2021, the Company issued $575 million aggregate principal amount of 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 adjustment 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 respect to the Notes due 2028 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 2028 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 the Notes due 2028 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 2028 prior to September 6, 2024. The Company may redeem for cash all or any portion of the 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 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 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 business 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 including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the Notes due 2028 (i.e., $370.33 which is 130% of the current conversion price for the Notes due 2028) on each applicable trading day; (2) during the five business day period after any 5 consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the relevant indenture) per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for the Notes due 2028 on each such trading day; (3) if the Company calls 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 relevant indenture), holders may require the Company to repurchase all or a portion of their Notes due 2028 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.

Enphase Energy, Inc. | 2021 Form 10-Q | 20

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 date of the issuance of the Notes due 2028 for a similar debt instrument without the conversion feature. The carrying amount of the equity component of approximately $160.0 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the Notes due 2028. The equity component of the Notes due 2028 is included in additional paid-in capital in the condensed consolidated balance sheet and is not remeasured as long as it continues to meet the conditions for equity classification. The difference between the principal amount of the Notes due 2028 and the liability component (the “debt discount”) is amortized to interest expense using the effective interest method over the term of the Notes due 2028.

~~DEBT~~

The Company separated the Notes due 2028 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 $40.1 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 2028 were approximately $9.1 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 2028. Transaction costs attributable to the liability component were approximately $6.6 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 2028. The transaction costs attributable to the equity component were approximately $2.5 million and were netted with the equity component in stockholders’ equity. As of June 30, 2021, the unamortized deferred issuance cost for the Notes due 2028 was $6.2 million on the condensed consolidated balance sheet.

The following table ~~provides information regarding~~presents the total amount of interest cost recognized in the statement of operations relating to the Notes due 2028:


	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
	(In thousands)

Amortization of debt discount	$	4,872		$	6,483
Amortization of debt issuance costs	236			315
Total interest cost recognized	$	5,108		$	6,798

The effective interest rate on the liability component on the Notes due 2028 was 4.77% for the three and six months ended June 30, 2021, which remains unchanged from the date of issuance. The remaining unamortized debt discount was $153.6 million as of June 30, 2021, and will be amortized over approximately 6.7 years from June 30, 2021.

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 ~~long-term debt.~~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.

June 30,
2020 December 31,
2019
(In thousands)
Convertible notes
Notes due 2025 $ 320,000
$ —
Less: unamortized discount and issuance costs (72,000 ) —
Carrying amount of Notes due 2025 248,000
—

Notes due 2024 132,000
132,000
Less: unamortized discount and issuance costs (32,301 ) (35,815 )
Carrying amount of Notes due 2024 99,699
96,185

Notes due 2023 5,000
5,000
Less: unamortized issuance costs (122 ) (143 )
Carrying amount of Notes due 2023 4,878
4,857

Sale of long-term financing receivable recorded as debt 2,868
4,501
Total carrying amount of debt 355,445
105,543
Less: current portion of convertible notes and long-term financing receivable recorded as debt (102,271 ) (2,884 )
Long-term debt $ 253,174
$ 102,659

Enphase Energy, Inc. | 2021 Form 10-Q | 21

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 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 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.

Enphase Energy, Inc. | 2021 Form 10-Q | 22

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 earlier repurchased by the Company or converted at the option of the holders. The Company received approximately $623.0 million in net proceeds, after deducting the initial purchasers’ discount, from the issuance of the Notes due 2026.

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 5 consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the relevant indenture) per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for Notes due 2026 on each such trading day; (3) if the Company calls any or all of the Notes due 2026 for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On and after June 30, 2021 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.

Enphase Energy, Inc. | 2021 Form 10-Q | 23

Table of Contents

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 is included in additional paid-in capital in the condensed consolidated balance sheet and is not remeasured as long as it continues to meet the conditions for equity classification. The difference between the principal amount of the Notes due 2026 and the liability component (the “debt discount”) is amortized to interest expense using the effective interest method over the term of the Notes due 2026.

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 $40.0 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. As of June 30, 2021, the unamortized deferred issuance cost for the Notes due 2026 was $7.5 million on the condensed consolidated balance sheet.

The following table presents the total amount of interest cost recognized in the statement of operations relating to the Notes due 2026:


	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
	(In thousands)

Amortization of debt discount	$	5,587		$	7,373
Amortization of debt issuance costs	404			539
Total interest cost recognized	$	5,991		$	7,912

The effective interest rate on the liability component of Notes due 2026 was 4.44%,for the three and six months ended June 30, 2021, which remains unchanged from the date of issuance. The remaining unamortized debt discount was $116.1 million as of June 30, 2021, and will be amortized over approximately 4.7 years from June 30, 2021.

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.

Enphase Energy, Inc. | 2021 Form 10-Q | 24

Table of Contents

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 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 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 the Notes due ~~2025.~~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.

~~Enphase Energy, Inc. | 2020 Form 10-Q | 15~~

~~Table of Contents~~

~~ENPHASE ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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 5 consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the relevant indenture) per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On and after September 1, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date of March 1, 2025, holders may convert their notes at any time, regardless of the foregoing circumstances. Upon the occurrence of a fundamental change (as defined in the relevant indenture), holders may require the Company to repurchase all or a portion of their Notes due 2025 for cash at a price equal to 100% of the principal amount of the notes to be repurchased plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Enphase Energy, Inc. | 2021 Form 10-Q | 25

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of June 30, 2021, the sale price of the Company’s common stock was greater than or equal to $106.00 (130% of the notes conversion price) for at least 20 trading days (whether consecutive or not) during a period of 30 consecutive trading days preceding the quarter-ended June 30, 2021. As a result, as of July 1, 2021, the Notes due 2025 are convertible at the holders’ option through September 30, 2021. Accordingly, the Company classified the net carrying amount of the Notes due 2025 of $102.2 million as Debt, current on the condensed consolidated balance sheet as of June 30, 2021. From July 1, 2021 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 (“share reservation condition”), the Company would behave 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 (“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 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 three and six months ended June 30, 2020.

~~Enphase Energy, Inc. | 2020 Form 10-Q | 16~~

~~Table~~The Company separated the Notes due 2025 into liability and equity components, this resulted in a tax basis difference associated with the liability component that represents a temporary difference. The Company recognized the deferred taxes of ~~Contents~~

~~ENPHASE ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~The following table presents the fair value and the change in fair value~~$0.2 million for the ~~convertible note embedded derivative (in thousands):~~

Convertible note embedded derivative
(In thousands)
Fair value as of March 9, 2020 $ 68,700
Change in the fair value (23,600 )
Fair value as of March 31, 2020 45,100
Change in the fair value 71,200
Fair value as of May 20, 2020 $ 116,300

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.

Enphase Energy, Inc. | 2021 Form 10-Q | 26

Table of Contents

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 notes repurchase and allocating that portion of the conversion price to the liability component in the amount of $184.5 million. The residual of the conversion price of $4.3 million of the repurchased Notes due 2025, net of inducement loss of $37.5 million for additional shares issued, was allocated to the equity component of the repurchased Notes due 2025 as an increase of additional paid-in capital. The fair value of the notes settlement for such repurchases was calculated using a discount rate of 4.35%, representing an estimate of the Company's borrowing rate at the date of repurchase with a remaining expected life of approximately 4.1 years. As part of the settlement of the repurchase of the Notes due 2025, the Company wrote-off the $38.5 million unamortized debt discount and $4.1 million debt issuance cost apportioned to the principal amount of Notes due 2025 repurchased. The Company recorded a loss on partial settlement of the repurchased Notes due 2025 of $9.4 million in Other income (expense), net in the six months ended June 30, 2021, representing the difference between the consideration attributed to the liability component and the sum of the net carrying amount of the liability component and unamortized debt issuance costs. Further, the Company also recorded loss on inducement of $37.5 million in Other income (expense), net in the six months ended June 30, 2021, representing the difference between the fair value of the shares that would have been issued under the original conversion terms with respect to the repurchased Notes due 2025.

During the second quarter of 2021, $0.1 million in aggregate principal amount of the Notes due 2025 were converted, and the principal amount of the converted Notes due 2025 was repaid in cash. In connection with such conversions during the second quarter of 2021, the Company also issued 485 shares of its common stock to the holders of the converted Notes due 2025, with an aggregate fair value of $0.1 million, representing the conversion value in excess of the principal amount of the Notes due 2025, which were fully offset by shares received from the settlements of the associated note hedging arrangements. Following the repurchase transactions summarized above, as of June 30, 2021, $102.2 million aggregate principal amount of the Notes due 2025 remained outstanding.

The following table presents the total amount of interest cost recognized relating to the Notes due 2025:

Three Months Ended
June 30, 2020 Six Months Ended
June 30, 2020
(In thousands)
Contractual interest expense $ 200
$ 249
Amortization of debt discount 3,069
3,812
Amortization of debt issuance costs 381
468
Total interest cost recognized $ 3,650
$ 4,529



	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In thousands)
Contractual interest expense	$	64	$	200	$	214	$	249
Amortization of debt discount	1,033		3,069		3,422		3,812
Amortization of debt issuance costs	122		381		416		468
Total interest cost recognized	$	1,219	$	3,650	$	4,052	$	4,529

The derived effective interest rate on the Notes due 2025 host contract was determined to be 5.18%, which ~~remain~~remains unchanged from the date of issuance. The remaining unamortized debt discount was ~~$64.9~~$16.7 million and $58.6 million as of June 30, 2021 and December 31, 2020, respectively, and will be amortized over approximately ~~4.7 years.~~3.7 years from June 30, 2021.

Enphase Energy, Inc. | 2021 Form 10-Q | 27

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Notes due 2025 Hedge and Warrant Transactions

In connection with the offering of the Notes due 2025, the Company entered into privately-negotiated convertible note hedge transactions (the “Notes due 2025 Hedge”) pursuant to which the Company has the option to purchase a total of approximately 3.9 million shares of its common stock (subject to anti-dilution adjustments), which is the same number of shares initially issuable upon conversion of the notes, at a price of $81.54 per share, which is the initial conversion price of the Notes due 2025. The total cost of the convertible note hedge transactions was approximately $89.1 million. The convertible note hedge transactions are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of the Notes due 2025 and/or offset any cash payments the Company is required to make in excess of the principal amount of converted notes, as the case may be. ~~As of June 30, 2020, the Company had not purchased any shares under the convertible note hedge transactions.~~

Additionally, the Company separately entered into privately-negotiated warrant transactions in connection with the offering of the Notes due 2025 (the ~~“Warrants”~~“2025 Warrants”) whereby the Company sold 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, ~~2020,~~2021, options to purchase approximately 1.3 million shares of common stock remained outstanding under the Notes due 2025 Hedge, and 2025 Warrants ~~had not been exercised and~~exercisable to purchase approximately 1.3 million shares remained outstanding.

~~Enphase Energy, Inc. | 2020 Form 10-Q | 17~~

~~Table of Contents~~

~~ENPHASE ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

For the period from March 9, 2020, the issuance date of the ~~convertible notes hedge~~Notes due 2025 Hedge and ~~warrant transactions,~~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 ~~convertibles note hedge~~Notes due 2025 Hedge and ~~the warrant transactions~~2025 Warrants could only be settled on net cash settlement basis. As a result, the ~~convertible note hedge~~Notes due 2025 Hedge and ~~the warrants transaction~~2025 Warrants were classified as a Convertible notes hedge asset and 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 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 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.

~~The following table presents the fair value and the change in fair value for the Convertible notes hedge asset and Warrants liability:~~

Enphase Energy, Inc. | 2021 Form 10-Q | 28

Convertible notes hedge Warrants liability
(In thousands)
Fair value as of March 9, 2020 $ 89,056
$ 71,552
Change in the fair value (41,171 ) (32,915 )
Fair value as of March 31, 2020 47,885
38,637
Change in the fair value 69,223
57,715
Fair value as of May 20, 2020 $ 117,108
$ 96,352

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Convertible Senior Notes due 2024

On June 5, 2019, the Company issued $132.0 million aggregate principal amount of 1.0% convertible senior notes due 2024 (the “Notes due 2024”). The Notes due 2024 are general unsecured obligations and bear interest at an annual rate of 1.0% per year, payable semi-annually on June 1 and December 1 of each year, beginning December 1, 2019. The Notes due 2024 are governed by an indenture between the Company and U.S. Bank National Association, as trustee. The Notes due 2024 will mature on June 1, 2024, 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 2024 may be converted, under certain circumstances as described below, based on an initial conversion rate of 48.7781 shares of common stock per $1,000 principal amount (which represents an initial conversion price of ~~$20.5010~~$20.50 per share). The conversion rate for the Notes due 2024 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 $128.0 million in net proceeds, after deducting the initial purchasers’ discount, from the issuance of the Notes due 2024.

~~Enphase Energy, Inc. | 2020 Form 10-Q | 18~~

~~Table of Contents~~

~~ENPHASE ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The Notes due 2024 may be converted on any day prior to the close of business on the business day immediately preceding December 1, 2023, 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 September 30, 2019 (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 ~~$26.6513~~$26.65 (130% of the conversion price) on each applicable trading day; (2) during the five business day period after any 5 consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the relevant indenture) per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On and after December 1, 2023 until the close of business on the second scheduled trading day immediately preceding the maturity date of June 1, 2024, 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 2024 for cash at a price equal to 100% of the principal amount of the notes to be repurchased plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

As of June 30, ~~2020,~~2021, the sale price of the Company’s common stock was greater than or equal to ~~$26.6513~~$26.65 (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, ~~2020.~~2021. As a result, as of June 30, ~~2020,~~2021, the Notes due 2024 are convertible at the holders’ option through September 30, ~~2020.~~2021. Accordingly, the Company classified the net carrying amount of the Notes due 2024 of ~~$99.7~~$0.9 million as Debt, current on the condensed consolidated balance sheet as of June 30, ~~2020.~~2021. From July 1, 2021 through the date Form 10-Q is available to be issued, the Company has not received any requests for conversion of the Notes due 2024.

In accounting for the issuance of the Notes due 2024, on June 5, 2019, the Company separated the Notes due 2024 into liability and equity components. The carrying amount of the liability component of approximately $95.6 million was calculated by using a discount rate of 7.75%, which was the Company’s borrowing rate on the date of the issuance of the ~~notes~~Notes due 2024 for a similar debt instrument without the conversion feature. The carrying amount of the equity component of approximately $36.4 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the Notes due 2024. The equity component of the Notes due 2024 is included in additional paid-in capital in the condensed consolidated balance sheet and is not remeasured as long as it continues to meet the conditions for equity classification. The difference between the principal amount of the Notes due 2024 and the liability component (the “debt discount”) is amortized to interest expense using the effective interest method over the term of the Notes due 2024.

Enphase Energy, Inc. | 2021 Form 10-Q | 29

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company separated the Notes due 2024 into liability and equity components, this resulted in a tax basis difference associated with the liability component that represents a temporary difference. The Company recognized the deferred taxes of $0.3 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 2024 were approximately $4.6 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 liability and equity components using the same proportions as the proceeds from the Notes due 2024. Transaction costs attributable to the liability component were approximately $3.3 million, 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 2024. The transaction costs attributable to the equity component were approximately $1.3 million and were netted with the equity component in stockholders’ equity. As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the unamortized deferred issuance cost for the Notes due 2024 was ~~$2.6~~less than $0.1 million and ~~$2.9~~$1.5 million, respectively, on the condensed consolidated balance sheets.

~~Enphase Energy, Inc. | 2020 Form 10-Q | 19~~

~~Table~~During the first quarter of ~~Contents~~

~~ENPHASE ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

2021, $87.1 million in aggregate principal amount of the Notes due 2024 were converted or repurchased by the Company, and the principal amount of the converted and repurchased Notes due 2024 was repaid in cash. Of the $87.1 million in aggregate principal amount, $25.5 million in aggregate principal amount of Notes due 2024 were repurchased by the Company pursuant to separately- and privately-negotiated exchange agreements entered into in March 2021 concurrently with the issuance of Notes due 2026 and Notes due 2028. In connection with such conversions and repurchases, during the first quarter of 2021, the Company also issued 3.8 million shares of its common stock to the holders of the converted and repurchased Notes due 2024, with an aggregate fair value of $659.4 million, representing the conversion value in excess of the principal amount of the Notes due 2024. The total amount of $87.1 million paid to settle the conversions and repurchases of the Notes due 2024 during the first quarter of 2021 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 notes settlement and allocating that portion of the conversion price to the liability component in the amount of $78.4 million. The residual of the conversion price of $8.6 million was allocated to the equity component of the Notes due 2024 as a reduction of additional paid-in capital. The fair value of the notes conversions and repurchases during the first quarter of 2021 was calculated using a discount rate of 4.25%, representing an estimate of the Company's borrowing rate at the date of repurchase with a remaining expected life of approximately 3.3 years. As part of the settlement of the conversions and repurchases, the Company wrote-off the $16.7 million unamortized debt discount and $1.4 million debt issuance cost apportioned to the principal amount of Notes due 2024 were converted and repurchased. The Company also recorded a loss on partial settlement of the converted and repurchased Notes due 2024 of $9.5 million in Other income (expense), net in the six months ended June 30, 2021, representing the difference between the consideration attributed to the liability component and the sum of the net carrying amount of the liability component and unamortized debt issuance costs. Following the conversions and repurchases summarized above, as of June 30, 2021, $1.1 million aggregate principal amount of the Notes due 2024 remained outstanding.

The following table presents the total amount of interest cost recognized in the statement of operations relating to the Notes due 2024:

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
(In thousands)
Contractual interest expense $ 330
$ 92
$ 660
$ 92
Amortization of debt discount 1,621
416
3,183
416
Amortization of debt issuance costs 166
45
332
45
Total interest cost recognized $ 2,117
$ 553
$ 4,175
$ 553


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In thousands)
Contractual interest expense	$	3	$	330	$	6	$	660
Amortization of debt discount	15		1,621		748		3,183
Amortization of debt issuance costs	1		166		72		332
Total interest cost recognized	$	19	$	2,117	$	826	$	4,175

The effective interest rate on the liability component of Notes due 2024 was 7.75% for the three and six months ended June 30, ~~2020,~~2021, which remains unchanged from the date of issuance. The remaining unamortized debt discount was ~~$29.7~~$0.2 million and ~~$32.9~~$17.6 million as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, and will be amortized over approximately ~~3.9~~2.9 years from June 30, ~~2020.~~2021.

Enphase Energy, Inc. | 2021 Form 10-Q | 30

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Notes due 2024 Hedge and Warrant Transactions

In connection with the offering of the Notes due 2024, the Company entered into privately-negotiated convertible note hedge transactions (the “Notes due 2024 Hedge”) pursuant to which the Company has the option to purchase a total of approximately 6.4 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 ~~$20.5010~~$20.50 per share, which is the initial conversion price of the Notes due 2024. The total cost of the convertible note hedge transactions was approximately $36.3 million. The ~~convertible note hedge~~Notes due 2024 Hedge transactions are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of the Notes due 2024 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. ~~As of June 30, 2020, and through the date of this quarterly report, the Company had not purchased any shares under the convertible note hedge transactions.~~

Additionally, the Company separately entered into privately-negotiated warrant transactions in connection with the offering of the Notes due 2024 (the ~~“Warrants”~~“2024 Warrants”) whereby the Company sold warrants to acquire approximately 6.4 million shares of the Company’s common stock (subject to anti-dilution adjustments) at an initial strike price of ~~$25.2320~~$25.23 per share. The Company received aggregate proceeds of approximately $29.8 million from the sale of the 2024 Warrants. If the market value per share of the Company’s common stock, as measured under the 2024 Warrants, exceeds the strike price of the 2024 Warrants, the 2024 Warrants will have a dilutive effect on the Company’s earnings per share, unless the Company elects, subject to certain conditions, to settle the 2024 Warrants in cash. Taken together, the purchase of the ~~convertible note hedges~~Notes due 2024 Hedge transactions and the sale of the 2024 Warrants are intended to reduce potential dilution from the conversion of the Notes due 2024 and to effectively increase the overall conversion price from ~~$20.5010~~$20.50 to ~~$25.2320~~$25.23 per share. The 2024 Warrants are only exercisable on the applicable expiration dates in accordance with the 2024 Warrants. Subject to the other terms of the Warrants, the first expiration date applicable to the 2024 Warrants is September 1, 2024, and the final expiration date applicable to the 2024 Warrants is April 22, 2025. As

During the first quarter of 2021, in connection with the repurchase of $25.5 million aggregate principal amount of the Notes due 2024 summarized above, the Company entered into partial unwind agreements with respect to certain of the Notes due 2024 Hedge and received 1.1 million shares of its common stock as a termination payment for the portion of the Notes due 2024 Hedge that were unwound. In addition to the unwind transactions discussed above, the Company also received 2.7 million shares of the Company’s common stock from the Notes due 2024 Hedge settlements as a result of the conversion of $61.5 million in aggregate principal amount of the Notes due 2024 in the first quarter of 2021. In addition, the Company entered into partial unwind agreements with respect to certain of the 2024 Warrants in connection with the repurchase and conversion of $87.1 million in aggregate principal amount of the Notes due 2024 during the first quarter of 2021 and issued 3.8 million shares of its common stock as a termination payment for the portion of the 2024 Warrants that were unwound. Following the transactions summarized above, as of June 30, ~~2020,~~2021, options to purchase a total of approximately 0.1 million shares remained outstanding under the Notes due 2024 Hedge and ~~through~~2024 Warrants exercisable to purchase a total of approximately 0.1 million shares remained outstanding under the ~~report date, the Warrants had not been exercised and remained outstanding.~~2024 Warrants.

Given that the transactions meet certain accounting criteria, the Notes due 2024 hedge and the 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 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~~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, ~~2020~~2021 and December 31, ~~2019,~~2020, $5.0 million aggregate principal amount of the Notes due 2023 ~~remain~~remained outstanding.

Enphase Energy, Inc. | ~~2020~~2021 Form 10-Q | 2031

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The remaining outstanding Notes due 2023 are general unsecured obligations and bear interest at a rate of 4.0% per year, payable semi-annually on February 1 and August 1 of each year. The Notes due 2023 are governed by an indenture between the Company and U.S. Bank National Association, as trustee. The remaining outstanding Notes due 2023 will mature on August 1, 2023, unless earlier repurchased by the Company or converted at the option of the holders. The Company may not redeem the remaining Notes due 2023 prior to the maturity date, and no sinking fund is provided for such notes. The remaining Notes due 2023 are convertible, at a holder’s election, in multiples of $1,000 principal amount, into shares of the Company’s common stock based on the applicable conversion rate. The initial conversion rate for such notes is ~~180.0180~~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.

The following table presents the amount of interest cost recognized relating to the contractual interest coupon and the amortization of debt issuance costs of the Notes due 2023.

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
(In thousands)
Contractual interest expense $ 50
$ 483
$ 100
$ 1,133
Amortization of debt issuance costs 10
96
20
225
Total interest costs recognized $ 60
$ 579
$ 120
$ 1,358



	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In thousands)
Contractual interest expense	$	50	$	50	$	100	$	100

Amortization of debt issuance costs	10		10		20		20
Total interest costs recognized	$	60	$	60	$	120	$	120

Sale of Long-Term Financing Receivables

The Company entered into an agreement with a third party in the fourth quarter of 2017 to sell certain current and future receivables at a discount. In December 2017, the third party made an initial purchase of receivables that resulted in net proceeds to the Company of $2.8 million. This transaction was recorded as debt on the accompanying consolidated balance sheets, and the debt balance was relieved in January 2019 as the underlying receivables were settled. During the year ended December 31, 2018, the third party made three additional purchases of receivables that resulted in total net proceeds to the Company of $5.6 million. These transactions were recorded as debt on the accompanying condensed consolidated balance sheets, and the total associated debt balance will be relieved by September 2021 as the underlying receivables are settled. As of June 30, 2021, the total sale of long-term financing receivable recorded as debt of $0.6 million remained outstanding.

Enphase Energy, Inc. | 2021 Form 10-Q | 32

Table of Contents


9.	~~COMMITMENTS AND CONTINGENCIES~~

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases office facilities under noncancelable operating leases that expire on various dates through ~~2028,~~2031, 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,
2020 2019 2020 2019
(In thousands)
Operating lease costs $ 1,280
$ 564
$ 2,502
$ 1,063

~~Enphase Energy, Inc. | 2020 Form 10-Q | 21~~

~~Table of Contents~~

~~ENPHASE ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In thousands)
Operating lease costs	$	1,815	$	1,280	$	3,446	$	2,502

The components of lease liabilities are presented as follows:

June 30,
2020 December 31,
2019
(In thousands)
Operating lease liabilities, current (Accrued liabilities) $ 3,570
$ 3,170
Operating lease liabilities, noncurrent (Other liabilities) 10,202
9,542
Total operating lease liabilities $ 13,772
$ 12,712

Supplemental lease information:
Weighted average remaining lease term 5.4 years 5.5 years
Weighted average discount rate 8.3% 8.6%


	June 30, 2021		December 31, 2020
	(In thousands)
Operating lease liabilities, current (Accrued liabilities)	$	4,603	$	4,542
Operating lease liabilities, noncurrent (Other liabilities)	12,915		15,209
Total operating lease liabilities	$	17,518	$	19,751

Supplemental lease information:
Weighted average remaining lease term	6.2 years		6.4 years
Weighted average discount rate	7.6%		7.7%

Supplemental cash flow and other information related to operating leases, are as follows:

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 1,145
$ 857
$ 2,159
$ 1,594

Non-cash investing activities:
Lease liabilities arising from obtaining right-of-use assets $ —
$ 4,834
$ 2,941
$ 4,834


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,425	$	1,145	$	2,786	$	2,159

Non-cash investing activities:
Lease liabilities arising from obtaining right-of-use assets	$	0	$	0	$	0	$	2,941

Undiscounted cash flows of operating lease liabilities as of June 30, ~~2020~~2021 are as follows:


	Lease Amounts
	(In thousands)
Year:
2021 (remaining six months)	$	3,023
2022	4,634
2023	4,012
2024	3,043
2025	2,262
2026 and thereafter	3,959
Total lease payments	20,933
Less: imputed lease interest	(3,415)
Total lease liabilities	$	17,518

Lease Amounts
(In thousands)
Year:
2020 (remaining six months) $ 2,307
2021 4,679
2022 3,365
2023 2,648
2024 1,445
2025 and thereafter 1,949
Total lease payments 16,393
Less: imputed lease interest (2,621 )
Total lease liabilities $ 13,772

Enphase Energy, Inc. | 2021 Form 10-Q | 33

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Purchase Obligations

The Company has contractual obligations related to component inventory that its ~~primary~~ contract ~~manufacturer procures~~manufacturers procure on its behalf in accordance with its production forecast as well as other inventory related purchase commitments. As of June 30, ~~2020,~~2021, these purchase obligations totaled approximately ~~$75.2~~$197.1 million.

~~Letter of Credits~~

The Company had a standby letter of credit in the aggregate amount of $44.7 million, primarily in connection with one of its customer contracts. The letter of credit served as a performance security for product delivered to the

~~Enphase Energy, Inc. | 2020 Form 10-Q | 22~~

~~Table of Contents~~

~~ENPHASE ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~customer in the first quarter of 2020 and expired on April 30, 2020. NaN amounts were drawn against this letter of credit. As of June 30, 2020, the Company has no letter of credit outstanding.~~

Litigation

The Company is subject to various legal proceedings relating to claims arising out of its operations that have not been fully resolved. The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts above management’s expectations, the Company’s business, results of operations, financial position and cash flows for that reporting period could be materially adversely affected. As of ~~August 4, 2020,~~July 27, 2021, the Company is not currently a party to any matters that ~~the~~ management expects will have an adverse material effect on the Company’s condensed consolidated financial position, results of operations or cash flows.

Contingencies

~~Since late September 2018, the Company has paid tariffs imposed on its microinverters by the China Section 301 Tariff Actions (“Section 301 Tariffs”) taken by~~On March 26, 2020, the Office of the United States Trade Representative (the “USTR”)~~. The Company has sought refunds~~ announced certain exclusion requests related to tariffs on ~~tariffs previously paid on certain~~Chinese imported microinverter products that fit the dimensions and weight limits within a Section 301 Tariff exclusion under U.S. note 20(ss)(40) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States (the “Tariff Exclusion”). ~~There is no material impact~~The Tariff Exclusion applies to covered products under the China Section 301 Tariff Actions (“Section 301 Tariffs”) taken by the USTR exported from China to the United States from September 24, 2018 until August 7, 2020. Accordingly, the Company sought refunds totaling approximately $38.9 million plus approximately $0.6 million accrued interest on tariffs previously paid from September 24, 2018 to March 31, 2020 for certain microinverters that qualify for the Tariff Exclusion. The refund request was subject to review and approval by the U.S. Customs and Border Protection; therefore, the Company assessed the probable loss recovery in the year ended December 31, 2020 was equal to the approved refund requests available to the Company.

As of December 31, 2020, the Company had received $24.8 million of tariff refunds and accrued for the remaining $14.7 million tariff refunds that were approved, however, not yet received on or before December 31, 2020. As of March 31, 2021, the Company received the remaining $14.7 million tariff refunds. For the year ended December 31, 2020, the Company recorded $38.9 million as a reduction to cost of revenues in the Company’s condensed consolidated statement of operations as the approved refunds relate to paid tariffs previously recorded to cost of revenues, therefore, the Company recorded the corresponding approved tariff refunds as credits to cost of revenues in the fourth quarter of 2020. For the year ended December 31, 2020, the Company recorded the $0.6 million accrued interest as interest income in the condensed consolidated statement of operations. The tariff refund receivable of 0 and $14.7 million was recorded as a reduction of accounts payable to Flex Ltd. and affiliates (“Flex”), the Company’s manufacturing partner and the importer of record who will first receive the tariff refunds, on the Company’s condensed consolidated ~~statements~~balance sheet as of ~~operations for the three and six months ended~~ June 30, 2020. The Company expects there will be a material positive impact on the Company’s financial statements if all of the requested refunds are approved in the future, totaling approximately $39 million plus accrued interest. 2021 and December 31, 2020, respectively.

The Tariff Exclusion ~~expires~~expired on August 7, 2020 and ~~the Company has filed a comment with the USTR supporting an extension of the Tariff Exclusion.~~those microinverter products now are subject to tariffs. The Company continues to pay Section 301 Tariffs on its storage and communication products and other accessories imported from China which are not subject to the Tariff Exclusion.

10. STOCKHOLDERS' EQUITY

On May 19, 2021, 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 200,000,000 shares to 300,000,000 shares (the “Amendment”). The Amendment became effective upon filing with the Secretary of State of Delaware on May 19, 2021.

In April 2020, the Company’s board of directors authorized the repurchase of up to $200.0 million of the Company’s common stock, exclusive of brokerage commissions (the “2020 Repurchase Program”). During the three and six months ended June 30, 2021, the Company repurchased and subsequently retired approximately 1.7 million shares of common stock from the open market at an average cost of $117.47 per share for a total of

Enphase Energy, Inc. | 2021 Form 10-Q | 34

Table of Contents


~~10.~~	~~STOCK-BASED COMPENSATION~~

$200.0 million. The transaction is recorded as “Repurchase of common stock” in the accompanying consolidated statements of changes in stockholders’ equity.

In May 2021, the board of directors authorized a new share repurchase program (the “2021 Repurchase Program”) pursuant to which the Company may repurchase up to an additional $500.0 million of the Company’s common stock. Purchases may be completed from time to time in the open market or through structured repurchase agreements with third parties. The program may be discontinued or amended at any time and expires on May 13, 2024. As of June 30, 2021, the Company has not repurchased any shares under the 2021 Repurchase Program.

11. STOCK-BASED COMPENSATION

Stock-based Compensation Expense

Stock-based compensation expense for all stock-based awards expected to vest is measured at fair value on the date of grant and recognized ratably over the requisite service period. The following table summarizes the components of total stock-based compensation expense included in the condensed consolidated statements of operations for the periods presented.

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
(In thousands)
Cost of revenues $ 1,337
$ 386
$ 1,943
$ 617
Research and development 3,263
1,128
5,182
1,844
Sales and marketing 3,610
1,360
5,552
2,359
General and administrative 4,090
1,729
7,138
3,017
Restructuring —
332
—
387
Total $ 12,300
$ 4,935
$ 19,815
$ 8,224


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In thousands)
Cost of revenues	$	1,060	$	1,337	$	2,042	$	1,943
Research and development	5,467		3,263		11,216		5,182
Sales and marketing	5,335		3,610		8,872		5,552
General and administrative	3,450		4,090		8,026		7,138

Total	$	15,312	$	12,300	$	30,156	$	19,815

The following table summarizes the various types of stock-based compensation expense for the periods presented.

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
(In thousands)
Stock options, RSUs, and PSUs $ 11,557
$ 4,760
$ 18,634
$ 7,982
Employee stock purchase plan 743
175
1,181
242
Total $ 12,300
$ 4,935
$ 19,815
$ 8,224

~~Enphase Energy, Inc. | 2020 Form 10-Q | 23~~

~~Table of Contents~~

~~ENPHASE ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In thousands)
Stock options, RSUs, and PSUs	$	14,361	$	11,557	$	28,201	$	18,634
Employee stock purchase plan	951		743		1,955		1,181

Total	$	15,312	$	12,300	$	30,156	$	19,815

As of June 30, ~~2020,~~2021, there was approximately ~~$76.9~~$158.0 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 ~~2.1~~2.9 years.

Enphase Energy, Inc. | 2021 Form 10-Q | 35

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Description of Equity Incentive Plans

2021 Plan

On May 19, 2021, at the 2021 annual meeting of stockholders of the Company, the stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”), as the successor to the 2011 Equity Incentive Plan (the “2011 Plan”). The 2021 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance stock awards and other stock awards. Eligible participants under the 2021 Plan include Company’s employees, directors and consultants. The 2021 Plan provides, among other things, that the number of shares of the Company’s common stock, $0.00001 par value per share (“Common Stock”), reserved for issuance under the 2021 Plan (subject to adjustment for certain changes in the Company’s capitalization) is equal to: (A) the sum of (i) 9,100,456 newly reserved shares of Common Stock and (ii) 5,256,517 Returning Shares (as defined below) as such shares become available from time to time as set forth in the 2021 Plan. “Returning Shares” means shares subject to any outstanding award granted under the 2011 Plan (“Prior Plan Award”) that are (i) not issued because such Prior Plan Award or any portion thereof expires or otherwise terminates without all of the shares covered by such Prior Plan Award having been issued, or is settled in cash; (ii) forfeited back to or repurchased by the Company because of a failure to vest; or (iii) reacquired or withheld (or not issued) by the Company to satisfy the purchase price of, or a tax withholding obligation in connection with, a Prior Plan Award that is a Full Value Award (as defined in the 2021 Plan). As a result of the approval of the 2021 Plan, no additional awards may be granted from the 2011 Plan.

Valuation of Equity Awards

Stock Options

The fair value of each option granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

•

~~Expected term—~~The expected term of the option awards represents the period of time between the grant date of the option awards and the date the option awards are either exercised, converted or canceled, including an estimate for those option awards still outstanding. The Company used the simplified method, as permitted by the SEC for companies with a limited history of stock option exercise activity, to determine the expected term for its option grants.


•	~~Expected volatility—~~The expected volatility was calculated based on the Company’s historical stock prices, supplemented as necessary with historical volatility of the common stock of several peer companies with characteristics similar to those of the Company.


•	~~Risk-free interest rate—The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant and with a maturity that approximated the Company’s expected term.~~

•

~~Dividend yield—~~

•Expected term - The expected term of the option awards represents the period of time between the grant date of the option awards and the date the option awards are either exercised, converted or canceled, including an estimate for those option awards still outstanding. The Company used the simplified method, as permitted by the SEC for companies with a limited history of stock option exercise activity, to determine the expected term for its option grants.

•Expected volatility - The expected volatility was calculated based on the Company’s historical stock prices, supplemented as necessary with historical volatility of the common stock of several peer companies with characteristics similar to those of the Company.

•Risk-free interest rate - The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant and with a maturity that approximated the Company’s expected term.

•Dividend yield - The dividend yield was based on the Company’s dividend history and the anticipated dividend payout over its expected term.

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 June 30,						Six Months Ended June 30,							Three Months Ended June 30,			Six Months Ended June 30,
	2020			2019			2020			2019				2021	2020		2021	2020
Weighted average grant date fair value	$	38.45		$	9.16		$	38.45		$	9.16		Weighted average grant date fair value	**	$	38.45	**	$	38.45
Expected term (in years)	3.8			3.8			3.8			3.8			Expected term (in years)	**	3.8		**	3.8
Expected volatility	86.4		%	89.1		%	86.4		%	89.1		%	Expected volatility	**	86.4%		**	86.4%
Annual risk-free rate of return	0.1		%	2.1		%	0.1		%	2.1		%	Annual risk-free rate of return	**	0.1%		**	0.1%
Dividend yield	—		%	—		%	—		%	—		%	Dividend yield	**	0%		**	0%

~~Restricted Stock Units~~

~~The fair value of the Company’s restricted stock units (“RSU”) awards granted is based upon the closing price of the Company’s stock price on the date of grant.~~

~~Performance Stock Units~~

The fair value of the Company’s non-market performance stock units (“PSU”) awards granted was based upon the closing price of the Company’s stock price on the date of grant. The fair value of awards of the Company’s PSU awards containing market conditions was determined using a Monte Carlo simulation model based upon the terms of the conditions, the expected volatility of the underlying security, and other relevant factors.

** NaN stock options were granted during the three and six months ended June 30, 2021.

Enphase Energy, Inc. | ~~2020~~2021 Form 10-Q | 2436

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Equity Awards Activity

Stock Options

The following is a summary of 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, 2019 4,097
$ 2.18

Granted 11
64.17

Exercised (968 ) 2.08
$ 50,611
Canceled (75 ) 7.34

Outstanding at June 30, 2020 3,065
$ 2.30
4.0 $ 138,877
Vested and expected to vest at June 30, 2020 3,065
$ 2.30
3.0 $ 138,877
Exercisable at June 30, 2020 2,270
$ 2.37
3.9 $ 102,649


	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, 2020	2,532	$	1.96
Granted	0	0
Exercised	(199)	2.01			$	27,668
Canceled	(1)	0.83
Outstanding at June 30, 2021	2,332	$	1.96	3.3	$	423,555
Vested and expected to vest at June 30, 2021	2,332	$	1.96	3.3	$	423,555
Exercisable at June 30, 2021	2,231	$	1.97	3.3	$	405,325

(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, 2021 is based on the closing price of the last trading day during the period ended June 30, 2021. The Company’s stock fair value used in this computation was $183.63 per share.

~~(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, 2020 is based on the closing price of the Company’s stock fair value on June 30, 2020 or the earlier of the last trading day prior to June 30, 2020, if June 30, 2020 is a non-trading day. The Company’s stock fair value used in this computation was $47.57 per share.

The following table summarizes information about stock options outstanding at June 30, ~~2020.~~2021.


	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Shares	Weighted- Average Remaining Life	Weighted- Average Exercise Price		Number of Shares	Weighted- Average Exercise Price
	(In thousands)	(Years)			(In thousands)
$0.70 —– $1.11	512	3.8	$	0.85	501	$	0.85
$1.29 —– $1.29	1,000	3.2	1.29		937	1.29
$1.31 —– $1.31	556	2.8	1.31		556	1.31
$1.39 —– $14.58	253	3.4	5.64		226	5.90
$64.17 —– $64.17	11	5.9	64.17		11	64.17
Total	2,332	3.3	$	1.96	2,231	$	1.97

Options Outstanding Options Exercisable
Range of Exercise Prices Number of
Shares Weighted-
Average
Remaining
Life Weighted-
Average
Exercise
Price Number of
Shares Weighted-
Average
Exercise
Price
(In thousands) (Years) (In thousands)
$0.70 —– $1.11 706
4.6 $ 0.82
546
$ 0.80
$1.29 —– $1.29 1,000
4.2 1.29
687
1.29
$1.31 —– $1.31 709
3.8 1.31
500
1.31
$1.37 —– $14.58 639
3.2 5.60
536
6.22
$64.17 —– $64.17 11
6.9 64.17
1
64.17
Total 3,065
4.0 $ 2.30
2,270
$ 2.37

Enphase Energy, Inc. | ~~2020~~2021 Form 10-Q | 2537

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Restricted Stock Units

The following is a summary of 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, 2019 4,263
$ 7.19

Granted 1,077
36.62

Vested (1,380 ) 6.60
$ 55,925
Canceled (66 ) 16.15

Outstanding at June 30, 2020 3,894
$ 15.39
1.24 $ 185,236
Expected to vest at June 30, 2020 3,894
$ 15.39
1.24 $ 185,236


	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, 2020	3,588	$	27.61
Granted	571	149.01
Vested	(1,254)	15.65			$	216,814
Canceled	(33)	69.71
Outstanding at June 30, 2021	2,872	$	56.66	1.2	$	527,435
Expected to vest at June 30, 2021	2,872	$	56.66	1.2	$	527,435

~~(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, 2020 is based on the closing price of the Company’s stock on June 30, 2020 or the earlier of the last trading day prior to June 30, 2020, if June 30, 2020 is a non-trading day. The Company’s stock fair value used in this computation was $47.57 per share.

(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, 2021 is based on the closing price of the last trading day during the period ended June 30, 2021. The Company’s stock fair value used in this computation was $183.63 per share.

Performance Stock Units

The following is a summary of 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, 2019 955
$ 9.83

Granted 974
30.45

Vested (1,450 ) 10.20
$ 52,144
Canceled —
—

Outstanding at June 30, 2020 479
$ 50.37
0.7 $ 22,777


	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, 2020	494	$	51.10
Granted	367	82.93
Vested	(494)	59.19			$	91,803
Canceled	(247)	42.00
Outstanding at June 30, 2021	120	$	131.81	0.6	$	22,025

~~(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, 2020 is based on the closing price of the Company’s stock on June 30, 2020 or the earlier of the last trading day prior to June 30, 2020, if June 30, 2020 is a non-trading day. The Company’s stock fair value used in this computation was $47.57 per share.

(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, 2021 is based on the closing price of the last trading day during the period ended June 30, 2021. The Company’s stock fair value used in this computation was $183.63 per share.

~~11.~~

~~INCOME TAXES~~

12. INCOME TAXES

For the three months ended June 30, 2021, the Company’s income tax provision of $7.0 million, on a net income before income taxes of $46.3 million, calculated using the annualized effective tax rate method, was primarily due to projected tax expense in the U.S. and foreign jurisdictions that are profitable, partially offset by tax deduction from employee stock compensation as a discrete event.

For the six months ended June 30, 2021, the Company’s income tax benefit of $26.4 million, on a net income before income taxes of $44.7 million, calculated using the annualized effective tax rate method, was primarily due to tax deduction in the first quarter of 2021 from employee stock compensation as a discrete event, partially offset by projected tax expense in the U.S. and foreign jurisdictions that are profitable.

For the three and six months ended June 30, 2020, the Company’s income tax benefit of $6.6 million and $18.4 million, respectively, on a net loss before income taxes of $53.9 million and on a net income before income taxes of $3.2 million, respectively, calculated using the annualized effective tax rate method, was primarily due to

Enphase Energy, Inc. | 2021 Form 10-Q | 38

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

tax deduction from employee stock compensation as a discrete event, partially offset by projected tax expense in the U.S. and foreign jurisdictions that are profitable.

For the three and six months ended June 30, ~~2019, the Company’s income tax provision of $0.6 million~~2021 and $0.9 million, respectively, on income before income taxes of $11.2 million and $14.3 million, respectively, calculated using the discrete tax approach, was primarily related to income taxes attributable to its foreign operations.

~~For the three and six months ended~~ June 30, 2020, in accordance with FASB guidance for interim reporting of income tax, the Company has computed its ~~provision~~benefit for income taxes based on a projected annual effective tax rate while excluding loss jurisdictions which cannot be benefited.

13. NET INCOME (LOSS) PER SHARE

~~Enphase Energy, Inc. | 2020 Form 10-Q | 26~~

~~Table of Contents~~

~~ENPHASE ENERGY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The Company used the discrete tax approach in calculating the tax expense for the three and six months ended June 30, 2019 due to the fact that a relatively small change in the Company’s projected pre-tax net income (loss) could result in a volatile effective tax rate. Under the discrete method, the Company determines its tax (expense) benefit based upon actual results as if the interim period was an annual period. The tax provision recorded was primarily related to income taxes attributable to its foreign operations.


~~12.~~	~~NET INCOME (LOSS) PER SHARE~~

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) 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 Stock Options, RSUs, PSUs, shares to be purchased under the Company’s ESPP, the Notes due 2023, ~~the~~ Notes due 2024, ~~Warrants issued in conjunction with the Notes due 2024, and from May 20, 2020 to the end of the reporting period, the~~ Notes due 2025, ~~and Warrants issued in conjunction with the~~ Notes due ~~2025.~~2026, Notes due 2028, 2024 Warrants, 2025 Warrants, 2026 Warrants, and the 2028 Warrants. See Note 8. “Debt” of the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

The dilutive effect of potentially dilutive common shares is reflected in diluted earnings per share by application of the treasury stock method for stock options, RSUs, PSUs, ~~Notes due 2024, warrants issued in conjunction with~~ the Notes due 2024, ~~Notes due 2025, warrants issued in conjunction with~~ the Notes due 2025, ~~and shares to be purchased under the ESPP, and by application of the if-converted method for~~ the Notes due ~~2023.~~2026, the Notes due 2028, the 2024 Warrants, the 2025 Warrants, the 2026 Warrants and the 2028 Warrants. To the extent these potential common shares are antidilutive, they are excluded from the calculation of diluted net income (loss) per share.

Enphase Energy, Inc. | 2021 Form 10-Q | 39

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the computation of basic and diluted net income (loss) per share for the periods presented.

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
(In thousands, except per share data)
Numerator:
Net income (loss) $ (47,294 ) $ 10,618
$ 21,642
$ 13,383
Notes due 2023 interest and financing costs, net —
430
89
1,006
Adjusted net income (loss) $ (47,294 ) $ 11,048
$ 21,731
$ 14,389

Denominator:
Shares used in basic per share amounts:
Weighted average common shares outstanding 125,603
113,677
124,567
110,951

Shares used in diluted per share amounts:
Weighted average common shares outstanding 125,603
113,677
124,567
110,951
Effect of dilutive securities:
Employee stock-based awards —
8,326
7,449
8,240
Warrants (issued in conjunction with Notes due 2024) —
—
2,641
—
Notes due 2024 —
—
3,353
—
Notes due 2023 —
8,734
900
10,209
Weighted average common shares outstanding for diluted calculation 125,603
130,737
138,910
129,400

Basic and diluted net income (loss) per share
Net income (loss) per share, basic $ (0.38 ) $ 0.09
$ 0.17
$ 0.12
Net income per share, diluted $ (0.38 ) $ 0.08
$ 0.16
$ 0.11


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In thousands, except per share data)
Numerator:
Net income (loss)	$	39,351	$	(47,294)	$	71,049	$	21,642
Notes due 2023 interest and financing costs, net	45		0		89		89
Adjusted net income (loss)	$	39,396	$	(47,294)	$	71,138	$	21,731

Denominator:
Shares used in basic per share amounts:
Weighted average common shares outstanding	135,094		125,603		133,209		124,567

Shares used in diluted per share amounts:
Weighted average common shares outstanding	135,094		125,603		133,209		124,567
Effect of dilutive securities:
Employee stock-based awards	4,554		0		5,177		7,449
Notes due 2023	900		0		900		900
Notes due 2024	45		0		1,506		3,353
2024 Warrants	43		0		1,268		2,641
Notes due 2025	557		0		1,137		0
2025 Warrants	340		0		825		0




Weighted average common shares outstanding for diluted calculation	141,533		125,603		144,022		138,910

Basic and diluted net income (loss) per share
Net income (loss) per share, basic	$	0.29	$	(0.38)	$	0.53	$	0.17
Net income (loss) per share, diluted	$	0.28	$	(0.38)	$	0.49	$	0.16

Enphase Energy, Inc. | ~~2020~~2021 Form 10-Q | 2740

Table of Contents

ENPHASE ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following outstanding shares of common stock equivalents were excluded from the calculation of the diluted net income (loss) per share attributable to common stockholders because their effect would have been antidilutive.


	Three Months Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
	(In thousands)



Employee stock-based awards	178	6,459	88	294
Notes due 2026	2,255	0	1,468	0
2026 Warrants	3,457	0	2,264	0
Notes due 2028	1,902	0	1,234	0
2028 Warrants	3,457	0	2,264	0

2024 Warrants	0	3,039	0	0

Notes due 2024	0	3,677	0	0
2025 Warrants	0	3,924	0	3,430
Notes due 2025	0	2,771	0	2,031
Notes due 2023	0	900	0	0
Total	11,249	20,770	7,318	5,755

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
(In thousands)
Employee stock-based awards 6,459
66
294
77
Warrants (issued in conjunction with Notes due 2024) 3,039
—
—
—
Notes due 2024 3,677
—
—
—
Warrants (issued in conjunction with Notes due 2025) 3,924
—
3,430
—
Notes due 2025 2,771
—
2,031
—
Notes due 2023 900
—
—
—
Total 20,770
66
5,755
77

Diluted earnings per share for the three and six months ended June 30, 2021 includes the dilutive effect of stock options, RSUs, PSUs, shares to be purchased under the ESPP, the Notes due 2023, the Notes due 2024, the 2024 Warrants, the Notes due 2025 and the 2025 Warrants. Certain common stock issuable under stock options, RSUs, PSUs, the Notes due 2026, the 2026 Warrants, the Notes due 2028 and the 2028 Warrants have been omitted from the diluted net income per share calculation because including such shares would have been antidilutive.

The Company had a net loss for the three months ended June 30, 2020, hence all common stock issuable under stock options, RSUs, PSUs, and shares to be purchased under the ESPP, the Notes due 2023, the Notes due 2024, ~~and, warrants issued in conjunction with~~ the ~~Notes due~~ 2024 Warrants, the Notes due 2025 and ~~warrants issued in conjunction with~~ the ~~Notes due~~ 2025 Warrants were excluded because including such shares would have been antidilutive. Diluted earnings per share for the six months ended June 30, 2020 includes the dilutive effect of stock options, RSUs, PSUs, and shares to be purchased under the ESPP, the Notes due 2023, the Notes due 2024 and ~~warrants issued in conjunction with~~ the ~~Notes due 2024.~~2024 Warrants. Certain common stock issuable under stock options, RSUs, PSUs, the Notes due 2025 and ~~warrants issued in conjunction with~~ the ~~Notes due~~ 2025 ~~have been omitted from the diluted net income per share calculation because including such shares would have been antidilutive.~~

Diluted earnings per share for the three and six months ended June 30, 2019 includes the dilutive effect of stock options, RSUs, PSUs, and shares to be purchased under the ESPP and the Notes due 2023. Certain common stock issuable under stock options, RSUs and PSUsWarrants have been omitted from the diluted net income per share calculation because including such shares would have been antidilutive.

Since the Company has the intent and ability to settle the aggregate principal amount of the Notes due 2024, Notes due 2025, Notes due 2026 and Notes due ~~2025~~2028 in cash and any excess in shares of the Company’s common stock, the Company uses the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable. In order to compute the dilutive effect, the number of shares included in the denominator of diluted net income per share is determined by dividing the conversion spread value of the “in-the-money” Notes due 2024, Notes due 2025, Notes due 2026 and Notes due ~~2025~~2028 by the Company’s average share price during the period and including the resulting share amount in the diluted net income per share denominator. The conversion spread will have a dilutive impact on net income per share of common stock when the average market price of the Company’s common stock for a given period exceeds the conversion price of $20.50, ~~per share~~$81.54, $307.47 and ~~$81.54~~$284.87 per share for the Notes due 2024, Notes due 2025, Notes due 2026 and Notes due ~~2025,~~2028, respectively.


~~13.~~	~~RELATED PARTY~~

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, ~~2020~~2021 and December 31, ~~2019,~~2020, $5.0 million aggregate principal amount of the Notes due 2023 were outstanding. ~~See Note 8. “Debt” for~~For additional information related to this ~~purchase.~~

purchase, see Note 8, “Debt,” of the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Enphase Energy, Inc. | ~~2020~~2021 Form 10-Q | 2841

Table of Contents

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. Such statements, include but are not limited to statements regarding our expectations as to ~~the impact of the COVID-19 pandemic,~~ future financial performance, expense levels, liquidity sources, the capabilities and performance of our technology and products and planned changes, timing of new product releases, our business strategies, including anticipated trends, growth and developments in markets in which we target, the anticipated market adoption of our current and future products, performance in operations, including component supply management, product quality and customer service, ~~impact of current litigation on our business, results of operation, financial position or cash flows,~~risks related to the ongoing COVID-19 pandemic and the anticipated benefits and risks relating to the transaction with SunPower Corporation. Our actual results and the timing of events may differ materially from those discussed in our forward-looking statements as a result of various factors, including those discussed below and those discussed in the section entitled “Risk Factors” included in Part II, Item 1A in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019.~~2020.

Business Overview and First Half 2021 Highlights

We are a global energy technology company. We deliver smart, easy-to-use solutions that manage solar generation, storage and communication on one ~~intelligent~~ platform. We revolutionized the solar industry with our microinverter technology and we produce a fully integrated solar-plus-storage solution. WeTo date, we have shipped more than 2836 million microinverters, and over ~~1.2~~1.5 million Enphase residential and commercial systems have been deployed in more than 130 countries.

We sell our solutions primarily to distributors who resell them to solar installers. We also sell directly to large installers, OEMs, strategic partners and homeowners. Our revenue in the first quarter of 2020 was positively impacted by the scheduled phase-down of the investment tax credit for solar projects under Section 48(a) (the “ITC”) of the Internal Revenue Code of 1986, as amended (the “Code”).

Safe Harbor Prepayments

The ~~historical ITC percentage has decreased from~~Renewable Energy and Job Creation Act of 2008 provided a 30% federal tax credit for residential and commercial solar installations through December 31, 2019, which was reduced to a tax credit of 26% ~~of the basis of a~~for any solar energy system that began construction during 2020 through December 31, 2022, and 22% ~~for 2021, and zero for residential and~~thereafter to December 31, 2023 before being reduced to 10% for commercial ~~if construction begins after 2021 or if the solar energy system is placed into service after 2023.~~installations and 0% for residential installations beginning on January 1, 2024. As a result, several of our customers explored opportunities to purchase products in 2019 to take advantage of safe harbor guidance from the IRS published in June 2018, allowing them to preserve the historical 30% investment tax credit for solar equipment purchased in 2019 for solar projects that are completed after December 31, 2019. Safe harbor prepayments from customers in the fourth quarter of 2019 resulted in $44.5 million of revenue recognized in the first quarter of 2020 when we delivered the product. There was no safe harbor revenue recognized in the three and six months ended June 30, 2021 in comparison.

Acquisitions

On January 25, 2021, we completed the acquisition of 100% of the shares of Sofdesk Inc. (“Sofdesk”), a privately-held company. Sofdesk provides design tools and services software for residential solar installers and roofing companies and will enhance our digital transformation efforts. As part of the purchase price, we (i) paid approximately $32.0 million in cash on January 25, 2021 and (ii) are liable for up to approximately $3.7 million of contingent consideration payable during the first quarter of 2022, of which we recorded a liability of approximately $3.5 million representing the fair value of the contingent consideration. In addition to the purchase price, we will be obligated to pay up to approximately $3.7 million during the first quarter of 2022, subject to continued employment of key employees of Sofdesk. Further details on the Sofdesk acquisition may be found in Note 4, “Business Combinations”, in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Enphase Energy, Inc. | 2021 Form 10-Q | 42

Table of Contents

On March ~~9, 2020,~~31, 2021, we completed the acquisition of DIN’s solar design services business. DIN’s solar design services business provides outsourced proposal drawings and permit plan sets for residential solar installers in North America and will enhance our digital transformation effort. As part of the purchase price, we paid approximately $24.8 million in cash. In addition to the purchase price paid, we are obligated to pay up to i) approximately $5.0 million in equal monthly installments over the course of one year following the acquisition date; and ii) approximately $5.0 million payable in one year following the acquisition date subject to achievement of certain revenue and operational targets. Both additional payments require continuous employment of certain key employees of DIN. Further details on the DIN’s solar design services business acquisition may be found in Note 4, “Business Combinations”, in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Convertible Notes

On March 1, 2021, we issued ~~$320.0~~an aggregate principal amount of $1.15 billion of convertible senior notes comprised of $575.0 million of 0.0% Notes due 2026 and $575.0 million of 0.0% Notes due 2028. In addition, on March 12, 2021, we issued $57.5 million aggregate principal amount of ~~our Convertible Senior~~the Notes due ~~2025 (the “Notes~~2026 in connection with the initial purchasers’ full exercise of the over-allotment option to purchase additional Notes due ~~2025”) in a private placement.~~2026. The Notes due ~~2025~~2026 and Notes due 2028 will not bear regular interest, and the principal amount of the Notes due 2026 and Notes due 2028 will not accrete. The Notes due 2026 and the Notes due 2028 are general unsecured obligations and ~~bear interest at a rate of 0.25% per year, payable semi-annually on March 1~~the Notes due 2026 and ~~September 1 of each year, beginning on September 1, 2020.~~Notes due 2028 are governed by relevant indentures entered by and between us and U.S. Bank National Association, as trustee. The Notes due ~~2025~~2026 will mature on March 1, ~~2025,~~2026 and Notes due 2028 will mature on March 1, 2028, unless earlier repurchased by us or converted at the option of the holders. Further information relating to the Notes due ~~2025~~2026 and Notes due 2028 may be found in Note 8 ~~“Debt,” of~~, “Debt”, of the notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form ~~10-Q~~10-Q.

During the first quarter of 2021, $87.1 million in aggregate principal amount of the Notes due 2024 were converted or repurchased by us, and ~~below~~the principal amount of the converted and repurchased Notes due 2024 was repaid in cash. Of the $87.1 million in aggregate principal amount, $25.5 million in aggregate principal amount was repurchased pursuant to separately- and privately-negotiated exchange agreements entered into in March 2020 with certain holders of Notes due 2024 concurrently with the offering of the Notes due 2026 and the Notes due 2028. In connection with such conversions or repurchases, during the first quarter of 2021, we also issued 3.8 million shares of our common stock to the holders of the converted and repurchased Notes due 2024 with an aggregate fair value of $659.4 million, representing the conversion value in excess of the principal amount of the Notes due 2024, which were fully offset by shares received from the settlements of the associated note hedging arrangements.

During the first quarter of 2021, concurrently with the offering of the Notes due 2026 and the Notes due 2028, we entered into separately- and privately-negotiated transactions to repurchase approximately $217.7 million in aggregate principal amount of the Notes due 2025. The principal amount (and for certain holders the conversion value in excess of the principal amount) of the repurchased Notes due 2025 was repaid in cash. We also issued approximately 1.7 million shares of our 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 settlements of the associated note hedging arrangements.

Repurchases of Common Stock

In April 2020, our board of directors authorized the repurchase of up to $200.0 million of our common stock, exclusive of brokerage commissions under ~~“Liquidity~~the 2020 Repurchase Program. During the three and ~~Capital Resources.”~~six months ended June 30, 2021, we repurchased and subsequently retired approximately 1.7 million shares of common stock from the open market at an average cost of $117.47 per share for a total of $ 200.0 million. In May 2021, our board of directors authorized a new share repurchase program (the “2021 Repurchase Program”) pursuant to which we may repurchase up to an aggregate of $500.0 million of our common stock. Purchases may be completed from time to time in the open market or through structured repurchase agreements with third parties. The program may be discontinued or amended at any time and expires on May 13, 2024. Such purchases are expected to continue through May 2024 unless otherwise extended or shortened by our board of directors.

~~Since late September 2018, we have paid tariffs imposed on the microinverters by the China Section 301~~ Tariff ~~Actions (“Section 301 Tariffs”) taken by~~Refunds

On March 26, 2020, the Office of the United States Trade Representative (the “USTR”)~~. We have sought refunds~~ announced certain exclusion requests related to tariffs on ~~tariffs previously paid on certain~~Chinese imported microinverter products that fit the dimensions and weight limits within a Section 301 Tariff exclusion under U.S. note 20(ss)(40) to subchapter III of chapter 99 of the

Enphase Energy, Inc. | 2021 Form 10-Q | 43

Table of Contents

Harmonized Tariff Schedule of the United States (the “Tariff Exclusion”). ~~There is no material impact~~The Tariff Exclusion applies to covered products under the China Section 301 Tariff Actions (“Section 301 Tariffs”) taken by the USTR exported from China to the United States from September 24, 2018 until August 7, 2020. Accordingly, we sought refunds totaling approximately $38.9 million plus approximately $0.6 million accrued interest on tariffs previously paid from September 24, 2018 to March 31, 2020 for certain microinverters that qualify for the Tariff Exclusion. The refund request was subject to review and approval by the U.S. Customs and Border Protection.

As of December 31, 2020, we had received $24.8 million of tariff refunds and accrued for the remaining $14.7 million tariff refunds that were approved, however, not yet received on or before December 31, 2020. During the three months ended March 31, 2021, we received the remaining $14.7 million tariff refunds. For the year ended December 31, 2020, we recorded $38.9 million as a reduction to cost of revenues in our condensed consolidated statement of operations as the approved refunds relate to paid tariffs previously recorded to cost of revenues, therefore, we recorded the corresponding approved tariff refunds as credits to cost of revenues in the current period. For the year ended December 31, 2020, we recorded the $0.6 million accrued interest as interest income in the condensed consolidated statement of operations. The tariff refund receivable of zero and $14.7 million was recorded as a reduction of accounts payable to Flex Ltd. and affiliates (“Flex”), our manufacturing partner and the importer of record who will first receive the tariff refunds, on our condensed consolidated ~~statements~~balance sheet as of ~~operations for the three and six months ended~~ June 30, 2020. We expect there will be a positive material impact on our financial statements if all of the requested refunds are approved in the future, totaling approximately $39 million plus accrued interest. 2021 and December 31, 2020, respectively.

The Tariff Exclusion ~~expires~~expired on August 7, 2020 and ~~we have filed a comment with the USTR supporting an extension of the Tariff Exclusion.~~those microinverter products now are subject to tariffs. We continue to pay Section 301 Tariffs on our storage and communication products and other accessories imported from China which are not subject to the Tariff Exclusion.

COVID-19 Update

~~Enphase Energy, Inc. | 2020 Form 10-Q | 29~~

~~Table of Contents~~

~~Impact of COVID-19~~

~~The ongoing worldwide COVID-19 pandemic (“COVID-19”) continues to spread globally and cause disruptions and uncertainties, including in the core markets in which we operate.~~ The COVID-19 pandemic has ~~significantly curtailed the movement of people, goods~~caused and ~~services and had a notable impact on general economic conditions, including but not limited~~continues to cause disruption to the ~~temporary closures of many businesses, “shelter in place” orders~~U.S. and other governmental regulations, and reduced consumer spending. The most significant near-term impacts of COVID-19 on our financial performance are a decline in sales orders as future residential and commercial system owners are canceling sales meetings with system installation professionals or postponing system installations. As the purchase of new solar energy management solutions declines as part ofglobal economies, including the impact of government and company actions to reduce the spread of the virus and consumer behavior in response to the same; and, although the United States and other countries have continued to roll out vaccinations, it is uncertain how quickly and effectively such vaccinations will be distributed or help to control the spread of COVID-19 ~~on consumer spending, many businesses through which~~and its variants. We continue to actively monitor the impacts and potential impacts of the COVID-19 pandemic in all aspects of our business. Although we ~~distribute our products~~ are ~~working at limited operational capacity. The extent of~~unable to predict the impact of the COVID-19 on our future operational and financial performance will depend on various future developments, including the duration and spread of the outbreak, impact on our employees, impact on our customers, effect on our sales cycles or costs, and effect on our supply chain and vendors, all of which are uncertain and cannot be predicted, but which could have a material adverse effectpandemic on our business, results of operations, liquidity or capital resources at this time, we expect we may be negatively affected if the pandemic and related public health measures result in substantial manufacturing or supply chain problems, disruptions in local and global economies, volatility in the global financial ~~condition.~~markets, overall reductions in demand, delays in payment, restrictions on the shipment of our products, or other ramifications. Further information relating to the risks and uncertainties related to the ongoing COVID-19 pandemic may be found in the “Risk Factors” section included in Part II, Item 1A ~~“Risk Factors” of this Form 10-Q, as well as in the “Risk Factors” section~~ in our ~~2019~~2020 Annual Report on Form 10-K ~~that could be heightened due to duration and spread, among other impacts of~~for the ~~pandemic.~~fiscal year ended December 31, 2020.

Products

We design, develop, manufacture and sell home energy solutions that manage energy generation, energy storage and control and communications on one intelligent platform. We have revolutionized the solar industry by bringing a systems approach to solar technology and by pioneering a semiconductor-based microinverter that converts energy at the individual solar module level and, combined with our proprietary networking and software technologies, provides advanced energy monitoring and control. This is vastly different than a central inverter system using string modules, with or without an optimizer, approach that only converts energy of the entire array of solar modules from a single high voltage electrical unit and lacks intelligence about the energy producing capacity of the solar array.

The Enphase Home Energy Solution with IQ™ platform, which is our current 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 uptime and reliability. The ~~IQ™~~IQ family of microinverters, like all of our previous microinverters, is fully compliant with NEC 2014 and 2017 rapid shutdown requirements. Unlike string inverters, this capability is built-in, with no additional equipment necessary.

The Enphase Home Energy Solution with IQ™ brings a high technology, networked approach to solar generation plus energy storage, by leveraging our design expertise across power electronics, semiconductors and cloud-based software technologies. Our integrated approach to energy ~~management helps to facilitate ease of installation and optimizing~~solutions maximizes a home’s energy ~~usage. Enphase’s Always-On connected system also provides~~potential while providing advanced monitoring and remote maintenance capabilities. The Enphase Home Energy Solution with IQ uses a single technology platform for seamless management of the whole solution, enabling rapid commissioning with the Installer Toolkit™; consumption monitoring with our ~~Enphase Combiner 3C™ that includes the~~ Envoy™ Communications Gateway with

Enphase ~~Enlighten™~~Energy, Inc. | 2021 Form 10-Q | 44

Table of Contents

IQ Combiner+, Enphase Enlighten, a cloud-based energy management platform, ~~Enphase IQ Combiner 3C™, designed to provide an uninterrupted connectivity to Enphase Enlighten,~~ and our Enphase AC Battery™. System owners can use Enphase Enlighten 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 (“PV”) 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.

The Enphase IQ 7™ microinverter and Enphase IQ 7+™ microinverter, part of our seventh-generation ~~IQ™~~IQ product family, support high-powered 60-cell and 72-cell solar modules and integrate with alternating current (“AC”) modules. Our IQ 7X™ ~~product~~microinverter addresses 96-cell PV modules up to 400W direct current (“DC”) and with its ~~97.5 percent~~97.5% California Energy Commission (“CEC”) efficiency rating, is ideal for integration into high power modules.

During 2020, we started shipping our IQ 7A™ for high-power monofacial and bifacial solar modules to customers in Australia and Europe. Our IQ ~~7A™~~7A microinverters, ~~are for solar modules~~which began shipping to customers in North America in November 2019, support up to ~~450 W,~~450W high-power modules, targeting high-power residential and commercial applications. Our customers ~~should~~will be able to pair the IQ 7A microinverter with monofacial or bifacial solar modules, up to 450 W, from solar module manufacturers who are expected to introduce high-power variants of their products in the next three years.

AC Module ~~(ACM)~~(“ACM”) products are integrated systems which allow installers to be more competitive through improved logistics, reduced installation times, faster inspection and training. We ~~continued~~continue to make steady progress ~~during the second quarter of 2020~~ with our ACM partners, including SunPower Corporation, Panasonic Corporation of North America,

~~Enphase Energy, Inc. | 2020 Form 10-Q | 30~~

~~Table of Contents~~

LONGi Solar, ~~and~~ Solaria ~~Corporation. We announced a strategic partnership with~~Corporation, Hanwha Q CELLS, inand Maxeon Solar Technologies, Sonnenstromfabrik (CS Wismar GmBH), and DMEGC Solar.

During the second quarter of 2020, to develop Enphase Energized™ Q CELLS ACM products based on seventh-generation Enphase IQ microinverters. The first Enphase Energized Q CELLS ACM products are now available from major distributors in the U.S. We announced in July 2020 a strategic partnership with SunPower to produce the new Enphase Energized™ Maxeon ACM, based onwe introduced our seventh-generation Enphase IQ microinverters. The ACM will be commercialized by Maxeon Solar Technologies, the planned spin-off from SunPower, and will be available to residential customers in key international markets through authorized installer networks and distributors starting in the fourth quarter of 2020.

~~Our next-generation battery in North America is~~ Enphase Encharge 10™ and Encharge 3™ ~~or Encharge 10™~~battery storage systems, with usable and scalable capacity of 10.1 kWh and 3.4 kWh, ~~and 10.1 kWh, respectively.~~respectively, based on Ensemble™ energy management technology, which powers the world’s first grid-independent microinverter-based storage system to customers in North America. Enphase Encharge™ battery storage systems feature Enphase embedded grid-forming microinverters that enable the Always-On capability that keeps homes powered when the grid goes down, and the ability to save money when the grid is up. These systems are now compatible with both new and existing Enphase IQ solar systems with M-series™, IQ 6™ orand IQ 7™ microinverters. In January 2021, we announced expanded compatibility of the Enphase Storage system with our M-series microinverters and ~~provide a simple upgrade path for~~string inverters. The expanded compatibility provides approximately 300,000 additional Enphase system owners with the possibility of achieving grid-agnostic energy resilience through the Enphase Upgrade Program. The program provides solar installers the opportunity to renew engagements with the installed base of Enphase system owners through microinverter, solar, and energy storage upgrades, and reflects our ~~existing solar customers.~~ continued commitment to reliability, service, and long-term customer relationships.

We started ~~shipping~~production shipments of Enphase ~~Encharge products~~Encharge™ battery storage systems to customers in North America during the second quarter of ~~2020.~~2020, and to customers in Germany during the second quarter of 2021. We expect to launch the product to other markets in Europe and Australia in the second half of 2021.

During the second quarter of 2021, we introduced load control for our Enphase Encharge™ battery storage systems. Load control allows homeowners to decide what gets power in their home in the event of a grid outage, with the ability to choose up to four loads.

We expect further revisions of our storage products with Ensemble technology to be released in 2021, with a focus on the grid-agnostic IQ 8™ PV microinverter for residential installations. Our next-generation IQ 8™ system is based upon our Always On Enphase Ensemble™ energy management technology. This system has five components: 1) energy generation, which is accomplished with the grid-agnostic microinverter IQ 8; 2) energy storage, which is achieved by the Enphase Encharge™ battery with capacities of ~~3.4~~10.1 kWh and ~~10.1~~3.4 kWh; 3) Enpower™ smart switch, which includes a microgrid interconnect device ~~(MID)~~(“MID”); 4) communication and control via the combiner box with the Envoy gateway; and 5) Enlighten, which is the internet of things ~~or IoT,~~(“IoT”), cloud software.

The advantage of IQ 8s on the roof will be that these grid-forming microinverters produce power from panels even during blackouts, as long as the sun is still shining. It addresses a major drawback of traditional solar installations without the need for storage and is differentiated in that respect.

Enphase Energy, Inc. | 2021 Form 10-Q | 45

Table of Contents

We expect to introduce our small commercial solution in the second half of 2021. The core element of this solution is our IQ 8D™ microinverter which allows an installer to connect two solar panels to a single microinverter. We also expect to introduce Enphase IQ 8D™ for commercial solar purposes. We are making progress on our portable power station, formerly known as Ensemble-in-a Box™, an off-grid solar and storage system. The product will provide energy security indoors as well as energy-on-the-go outdoors. We also view this as a starter product for those homeowners who are not yet ready to invest in a full solar or storage system.

Enphase Energy, Inc. | 2021 Form 10-Q | 46

Table of Contents

Results of Operations

Net Revenues

Three Months Ended
June 30, Change in Six Months Ended
June 30, Change in
2020 2019 $ % 2020 2019 $ %
(In thousands, except percentages)
Net revenues $ 125,538
$ 134,094
$ (8,556 ) (6 )% $ 331,083
$ 234,244
$ 96,839
41 %


	Three Months Ended June 30,				Change in				Six Months Ended June 30,				Change in
	2021		2020		$		%		2021		2020		$		%
	(In thousands, except percentages)
Net revenues	$	316,057	$	125,538	$	190,519	152	%	$	617,811	$	331,083	$	286,728	87	%

Three months ended June 30, 2021 and 2020 ~~and 2019~~

Net revenues ~~decreased~~increased by 6%152% or ~~$8.6~~$190.5 million ~~for the~~in three months ended June 30, ~~2020,~~2021, as compared to the same period in ~~2019,~~2020, primarily due to the ~~15% decrease in microinverter unit volume shipped as a result of a decline in sales orders during the COVID-19 pandemic. We sold approximately 1,088 thousand microinverter units~~117% increase in the ~~three months ended June 30, 2020, as compared to approximately 1,284 thousand~~microinverter units ~~in the same period in 2019.~~

~~Six months ended June 30, 2020 and 2019~~

~~Net revenues increased by 41% or $96.8 million for the six months ended June 30, 2020, as compared to the same period in 2019, primarily due to the 37% increase in microinverter unit~~ volume shipped primarily as a result of business growth in the U.S. In the three months ended June 30, 2020, the COVID-19 pandemic resulted in a decline in sales orders. In the three months ended June 30, 2021, consumer demand improved from the rebound in economic growth as compared to the same period in 2020 when we had an economic downturn from the COVID-19 pandemic. We sold 2.4 million microinverter units in three months ended June 30, 2021, as compared to 1.1 million units in three months ended June 30, 2020. The increase in net revenues is also due to favorable product mix as we sold more IQ 7+ microinverters relative to IQ 7 microinverters, increases in the average selling price due to customer mix, as well as increase in shipments of our Enphase Encharge™ storage systems to customers in North America and Europe.

Six months ended June 30, 2021 and 2020

Net revenues increased by 87% or $286.7 million for the six months ended June 30, 2021, as compared to the same period in 2020, primarily due to the 55% increase in the microinverter units volume shipped primarily as a result of business growth in the U.S. In the six months ended June 30, 2020, the COVID-19 pandemic resulted in a decline in sales orders, partially offset by higher units shipped in the first quarter of 2020 as our customers took advantage of safe harbor guidance from the IRS. In the six months ended June 30, 2021, consumer demand improved from the rebound in economic growth as compared to the same period in 2020 when we had an economic downturn from the COVID-19 pandemic. We sold approximately ~~3,100 thousand~~4.8 million microinverter units in the six months ended June 30, ~~2020,~~2021, as compared to approximately ~~2,260 thousand~~3.1 million units in the same period in ~~2019.~~

2020. The increase in net revenues is also due to favorable product mix as we sold more IQ 7+ microinverters relative to IQ 7 microinverters, increases in the average selling price due to customer mix, as well as increase in shipments of our Enphase ~~Energy, Inc. | 2020 Form 10-Q | 31~~

~~Table of Contents~~

Encharge™ storage systems to customers in North America and Europe.

Cost of Revenues and Gross ~~Profit~~Margin


	Three Months Ended June 30,						Change in					Six Months Ended June 30,						Change in					Three Months Ended June 30,						Change in				Six Months Ended June 30,						Change in
	2020			2019			$			%		2020			2019			$		%			2021			2020			$		%		2021			2020			$		%
	(In thousands, except percentages)																						(In thousands, except percentages)
Cost of revenues	$	77,151		$	88,775		$	(11,624	)	(13	)%	$	202,021		$	155,586		$	46,435	30	%	Cost of revenues	$	188,256		$	77,151		$	111,105	144	%	$	367,061		$	202,021		$	165,040	82	%
Gross profit	48,387			45,319			3,068			7	%	129,062			78,658			50,404		64	%	Gross profit	127,801			48,387			79,414		164	%	250,750			129,062			121,688		94	%
Gross margin	38.5		%	33.8		%						39.0		%	33.6		%					Gross margin	40.4		%	38.5		%			1.9	%	40.6		%	39.0		%			1.6	%

Three months ended June 30, ~~2020~~2021 and ~~2019~~2020

Cost of revenues ~~decreased~~increased by ~~13%~~144% or ~~$11.6~~$111.1 million ~~for~~in the three months ended June 30, ~~2020,~~2021, as compared to the same period in 2019, primarily due to lower volume of microinverter units sold as a result of a decline in sales orders during the COVID-19 pandemic, as well as a decrease in the unit cost of our products as a result of our cost reduction efforts. Gross margin increased by 4.7 percentage points for the three months ended June 30, 2020, as compared to the same period in 2019. The increase in gross margin was primarily attributable to our overall pricing and cost management efforts, including the transition of our contract manufacturing to Mexico to mitigate tariffs, partially offset by a higher fixed costs per unit due to lower volume. IQ 7 sales represented almost 100% of our total microinverter sales for the three months ended June 30, 2020, as compared to 98% of our total microinverter sales in in the same period in 2019.

~~Six months ended June 30, 2020 and 2019~~

~~Cost of revenues increased by 30% or $46.4 million for the six months ended June 30, 2020, as compared to the same period in 2019,~~ primarily due to higher volume of microinverter units sold, ~~primarily~~higher shipments of our Enphase Encharge™ storage systems, higher expedited freight costs as a result of business growth in the U.S.~~, as well as~~ in combination with semiconductor supply constraints, and higher ~~units shipped in the first quarter~~costs of ~~2020 as our customers took advantage of safe harbor guidance from the IRS,~~certain components experiencing supply constraints, partially offset by a decrease in the unit cost of our products as a result of ~~our~~ramping microinverter production at Salcomp in India since the fourth quarter of 2020 as well as other cost reduction efforts.

Gross margin increased by ~~5.4~~1.9 percentage points for the ~~six~~three months ended June 30, ~~2020,~~2021, as compared to the same period in ~~2019.~~2020. The increase in gross margin was primarily attributable to ~~our overall pricing~~the increase in average selling price due to change in product and customer mix as well as cost management efforts, including the transition of our contract manufacturing from China to Mexico and India to mitigate tariffs. ~~IQ 7 sales represented almost 100%~~

Enphase Energy, Inc. | 2021 Form 10-Q | 47

Table of Contents

Six months ended June 30, 2021 and 2020

Cost of revenues increased by 82% or $165.0 million in the six months ended June 30, 2021, as compared to the same period in 2020, primarily due to higher volume of microinverter units sold, higher shipments of our ~~total~~Enphase Encharge™ storage systems, higher expedited freight costs as a result of business growth in the U.S. in combination with semiconductor supply constraints, higher costs of certain components experiencing supply constraints, and higher warranty expense based on continuing analysis of field performance data and diagnostic root-cause failure analysis primarily relating to our prior generation products, partially offset by a decrease in the unit cost of our products as a result of ramping microinverter ~~sales~~production at Salcomp in India since the fourth quarter of 2020 as well as other cost reduction efforts.

Gross margin increased by 1.6 percentage points for the six months ended June 30, ~~2020,~~2021, as compared to ~~96% of our total microinverter sales in in~~ the same period in ~~2019.~~2020. The increase in gross margin was primarily attributable to the increase in average selling price due to change in product and customer mix as well as cost management efforts, including the transition of our contract manufacturing from China to Mexico and India to mitigate tariffs.

Research and Development


	Three Months Ended June 30,						Change in				Six Months Ended June 30,						Change in					Three Months Ended June 30,						Change in				Six Months Ended June 30,						Change in
	2020			2019			$		%		2020			2019			$		%			2021			2020			$		%		2021			2020			$		%
	(In thousands, except percentages)																					(In thousands, except percentages)
Research and development	$	13,192		$	9,604		$	3,588	37	%	$	25,068		$	18,128		$	6,940	38	%	Research and development	$	22,708		$	13,192		$	9,516	72	%	$	44,526		$	25,068		$	19,458	78	%
Percentage of net revenues	11		%	7		%					8		%	8		%					Percentage of net revenues	7		%	11		%					7		%	8		%

Three months ended June 30, ~~2020~~2021 and ~~2019~~2020

Research and development expense increased by ~~37%~~72% or ~~$3.6~~$9.5 million ~~for the~~in three months ended June 30, ~~2020,~~2021, as compared to the same period in ~~2019.~~2020. The increase was ~~primarily~~ due to ~~$2.6~~$6.6 million of higher personnel-related expenses and ~~$0.9~~$2.9 million of outside consulting ~~and engineering~~ services associated with our investment in the ~~innovation and~~ development, introduction and qualification of new ~~products.~~products innovation. The increase in personnel-related expenses was primarily due to hiring employees in New Zealand, India and the U.S., as well as onboarded employees through the acquisition of Sofdesk, increasing total compensation ~~costs.~~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.

~~Enphase Energy, Inc. | 2020 Form 10-Q | 32~~

~~Table of Contents~~

Six months ended June 30, ~~2020~~2021 and ~~2019~~2020

Research and development expense increased by ~~38%~~78% or ~~$6.9~~$19.5 million ~~for the~~in six months ended June 30, ~~2020,~~2021, as compared to the same period in ~~2019.~~2020. The increase was ~~primarily~~ due to ~~$5.5~~$15.0 million of higher personnel-related expenses and ~~$1.5~~$4.5 million of outside consulting ~~and engineering~~ services associated with our investment in the ~~innovation and~~ development, introduction and qualification of new ~~products.~~product innovation. The increase in personnel-related expenses was primarily due to hiring employees in New Zealand, India and ~~US,~~the U.S. as well as onboarded employees through the acquisition of Sofdesk, increasing total compensation ~~costs.~~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.

Enphase Energy, Inc. | 2021 Form 10-Q | 48

Table of Contents

Sales and Marketing


	Three Months Ended June 30,						Change in				Six Months Ended June 30,						Change in					Three Months Ended June 30,						Change in				Six Months Ended June 30,						Change in
	2020			2019			$		%		2020			2019			$		%			2021			2020			$		%		2021			2020			$		%
	(In thousands, except percentages)																					(In thousands, except percentages)
Sales and marketing	$	12,371		$	9,054		$	3,317	37	%	$	24,143		$	16,487		$	7,656	46	%	Sales and marketing	$	25,586		$	12,371		$	13,215	107	%	$	45,208		$	24,143		$	21,065	87	%
Percentage of net revenues	10		%	7		%					7		%	7		%					Percentage of net revenues	8		%	10		%					7		%	7		%

Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we ~~might~~may be ~~subject to various legal proceedings~~involved in litigation relating to claims arising out of our operations. The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against us in a reporting period for amounts above management’s expectations, our business, results of operations, financial position and cash flows for that reporting period could be materially adversely affected. Except as described in this Item 1, weWe are not currently involved in any material legal proceedings, and our management believes there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our operations, financial condition, or cash flows. We may, however, 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 adverse effect on our business, results of operations, financial position or cash flows.

Class Action Suit

On or about June 17, 2020, Gregory A. Hurst (“Plaintiff”) filed a securities class action lawsuit against our company, our chief executive officer and our chief financial officer (collectively, the "Defendants") in the United States District Court for the Northern District of California on behalf of a class consisting of those individuals who purchased or otherwise acquired our common stock between February 26, 2019 and June 17, ~~2020.~~2020 (the “Hurst Action”). The complaint alleges that ~~defendants~~the Defendants made false and/or misleading statements in violation of Sections 10(b) and 20(a) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Plaintiff does not quantify any alleged damages in his complaint but, in addition to attorneys' fees and costs, he seeks to recover damages on behalf of himself and other persons who purchased or otherwise acquired our stock during the putative class period at allegedly inflated prices and purportedly suffered financial harm as a result. The court appointed Plaintiff as the Lead Plaintiff on November 30, 2020. On December 7, 2020, the court granted the parties’ stipulation setting the schedule for the filing of an amended complaint and Defendants’ anticipated motion to dismiss. On January 22, 2021, Plaintiff filed an amended complaint against Defendants asserting substantially the same allegations as the original complaint purportedly on behalf of individuals who purchased or otherwise acquired Enphase common stock between February 26, 2019 and June 16, 2020. On February 19, 2021, we filed a motion to dismiss Plaintiff’s amended complaint for failure to state a claim. A hearing on that motion is scheduled for July 29, 2021. We dispute all allegations, intend to defend the matter vigorously and believe the claims are without merit.

Derivative Action Suit

On or about July 10, 2020, Yan Shen filed a verified shareholder derivative ~~action~~ lawsuit captioned Shen v. Kothandaraman, et al., in the United States District Court for the Northern District of California against Badrinarayanan Kothandaraman, Eric Branderiz, Mandy Yang, Steven J. Gomo, Benjamin Kortlang, Richard Mora, Thurman J. Rodgers, and Enphase Energy, Inc. (nominal defendant) alleging breaches of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, waste, and violations of Section 14(a) under the Exchange Act of ~~1934. Plaintiff~~1934 (the “Shen Action”). The plaintiff does not quantify any alleged damages in the complaint, but in addition to attorneys’ fees and costs, seeks a proposal to strengthen the Board’s supervision of operations and shareholder input into the policies and guidelines of the Board; to permit our shareholders to nominate at least three candidates for election to the Board; and to ensure the establishment of effective oversight of compliance with applicable laws, rules, and regulations; and restitution from the individual defendants. On September 24, 2020, the court entered an order staying the derivative action until all motions to dismiss the securities class action are decided.

On October 28, 2020, Benjamin Weber filed a verified shareholder derivative lawsuit captioned Weber v. Kothandaraman, et al., in the United States District Court for the Northern District of California against Badrinarayanan Kothandaraman, Eric Branderiz, Mandy Yang, Steven J. Gomo, Benjamin Kortlang, Richard Mora, Thurman J. Rodgers, and Enphase Energy, Inc. (nominal defendant) containing substantially the same allegations as those in the Shen Action (the “Weber Action”). On November 20, 2020, the court consolidated the Shen and Weber Actions, ordered them related to the Hurst Action, and ordered the terms of the stay previously entered in the Shen Action to apply to the newly consolidated action under Lead Case No. 3:20-cv-04623-BLF (the “Consolidated Derivative Action”) and all subsequently filed derivative lawsuits arising out of substantially the same allegations as the Consolidated Derivative Action.

On November 18, 2020, Anthony R. Buch filed a verified shareholder derivative lawsuit captioned Buch v. Kothandaraman, et al., in the United States District Court for the Northern District of California against Badrinarayanan Kothandaraman, Eric Branderiz, Mandy Yang, Steven J. Gomo, Benjamin Kortlang, Richard Mora, Thurman J. Rodgers, and Enphase Energy, Inc. (nominal defendant) containing substantially the same allegations

Enphase Energy, Inc. | 2021 Form 10-Q | 59

Table of Contents

as those in the Consolidated Derivative Action (the “Buch Action”). On December 2, 2020, the court granted the parties’ stipulation to consolidate the Buch Action with the Consolidated Derivative Action.

On December 9, 2020, Frank Caggiano filed a verified shareholder derivative lawsuit captioned Caggiano v. Kothandaraman, et al., in the United States District Court for the Northern District of California against Badrinarayanan Kothandaraman, Eric Branderiz, Mandy Yang, Steven J. Gomo, Benjamin Kortlang, Richard Mora, Thurman J. Rodgers, and Enphase Energy, Inc. (nominal defendant) containing substantially the same allegations as those in the Consolidated Derivative Action (the “Caggiano Action”). On December 24, 2020, the court granted the parties’ stipulation to consolidate the Caggiano Action with the Consolidated Derivative Action.

We dispute ~~all~~the allegations in each of the above-reference derivative lawsuits, and we intend to defend the matter vigorously and believe the claims are without merit.

Books and Records Suit

On September 15, 2020, Stanley Olochwoszcz filed a lawsuit against our company in the Court of Chancery of the State of Delaware pursuant to Section 220 of the Delaware General Corporation Law, 8 Del. C. § 220, to compel the company to permit Mr. Olochwoszcz to inspect certain of our books and records (the “Section 220 Litigation”). The complaint alleges that our company has wrongfully refused to produce documents in response to Mr. Olochwoszcz’s demand and seeks a court order compelling us to permit inspection and copying of certain of our books and records, as well as costs and expenses, including attorneys’ fees, related to the lawsuit. We have also received similar demands for inspection of our books and records from four other company stockholders.

On February 4, 2021, Mr. Olochwoszcz and three other demanding stockholders—Teamsters Local 677 Health Services & Insurance Plan, Saratoga Advantage Trust Small Capitalization Portfolio and Leo Schumacher—filed in the Section 220 Litigation a stipulation to intervene on a limited basis, a confidentiality agreement, and a proposed order to stay the Section 220 Litigation in connection with a document production agreement between the Company and four of the five demanding stockholders. On February 5, 2021, the Court of Chancery granted the parties’ stipulation and proposed order for limited intervention and stay of further proceedings. Pursuant to the stay agreement, the Section 220 Litigation will be stayed to allow the parties to explore the resolution of the demands. On February 8, 2021, the Court of Chancery approved the parties’ confidentiality order.

On May 18, 2021, Oklahoma Firefighters Pension and Retirement System, joining Mr. Olochwoszcz and three other demanding stockholders—Teamsters Local 677 Health Services & Insurance Plan, Saratoga Advantage Trust Small Capitalization Portfolio and Leo Schumacher—filed in the Section 220 Litigation a stipulation to intervene on a limited basis and a proposed order to stay the Section 220 Litigation in connection with a document production agreement between the Company and the five demanding stockholders. On May 19, 2021, the Court of Chancery granted the parties’ stipulation and proposed order for limited intervention and stay of further proceedings. Pursuant to the stay agreement, the Section 220 Litigation will be stayed to allow the parties to explore the resolution of the demands. On May 20, 2021, the Company and the five demanding stockholders filed a confidentiality stipulation. On June 11, 2021, the Court of Chancery approved the parties’ confidentiality order.

The pending lawsuits and any other related lawsuits are subject to inherent uncertainties, and the actual defense and disposition costs will depend upon many unknown factors. The outcome of the pending lawsuits and any other related lawsuits is necessarily uncertain. We could be forced to expend significant resources in the defense of the pending lawsuits and any additional lawsuits, and we may not prevail. In addition, we may incur substantial legal fees and costs in connection with such lawsuits.

Enphase Energy, Inc. | 2021 Form 10-Q | 60

Table of Contents

Item 1A. Risk Factors

~~Other than risk factors described below, there~~There has been no material changes in our risk factors from those disclosed in Part I, Item 1A, in our Annual Report on Form 10‑K for the fiscal year ended December 31, ~~2019.~~2020.

~~The current COVID-19 pandemic, as well as other actual or threatened epidemics, pandemics, outbreaks, or public health crises, may adversely affect our customers’ financial condition and our business.~~

The worldwide spread of the COVID-19 pandemic has resulted in a global slowdown of economic activity which has decreased demand for a broad variety of goods and services, including from our customers, while also disrupting sales channels and marketing activities for an unknown period of time until the disease is contained. This has had a negative impact on our sales and our results of operations. We are currently unable to predict the size and duration of the pandemic’s impact on our future performance.

~~Enphase Energy, Inc. | 2020 Form 10-Q | 43~~

~~Table of Contents~~

Among other impacts, the COVID-19 pandemic and associated governmental orders have slowed, and could continue to slow the rate of solar installations, reduce demand for our products and cause temporary or long-term disruptions in our supply chains and/or delays in the delivery of our inventory. Further, such risks could also adversely affect our customers' financial condition, resulting in reduced spending for the solar products we sell. Moreover, COVID-19 and associated governmental orders could require or cause employees to avoid our properties, which could adversely affect our ability to adequately staff and manage our businesses. “Shelter-in-place” or other such orders by governmental entities could also disrupt our operations, if employees who cannot perform their responsibilities from home, are not able to report to work. Risks related to COVID-19 has also led to the complete or partial closure of one or more of our facilities or operations of our customers, suppliers, vendors or other partners.

The ultimate extent of the impact of COVID-19 on our business, financial condition and results of operations will depend on future developments, including those that are highly uncertain and cannot be predicted with confidence at this time, including ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the U.S. and other countries, and the effectiveness of actions taken globally to contain and treat the disease. These and other potential impacts of COVID-19 could therefore materially and adversely affect our business, financial condition and results of operations.

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this ‘‘Risk Factors’’ section as well as our risk factors disclosed in our Annual Report on Form 10‑K for the fiscal year ended December 31, 2019, such as reduced spending for solar energy systems, fluctuations in customer demand, and manufacturing and supply constraints.

~~The foregoing risks will also likely apply to any other future epidemic, pandemic, outbreak or other public health crisis.~~

Our business is affected by worldwide economic and market conditions; an unstable economy, a decline in consumer-spending levels and other adverse developments, including inflation, could lead to reduced revenues and gross margins and adversely affect our business, results of operations and liquidity.

Many economic and other factors are outside of our control, including general economic and market conditions, consumer and commercial credit availability, inflation, unemployment, consumer debt levels and other challenges affecting the global economy including the COVID-19 pandemic. Increases in the rates of unemployment, decreases in home values, decrease in new home construction, reduced access to credit and issues related to the domestic and international political situations may adversely affect consumer confidence and disposable income levels. Societal responses to the COVID-19 pandemic have involved business closures and limited social interaction as well as work reductions. Low consumer confidence and disposable incomes could lead to reduced consumer spending and lower demand for our products, which are discretionary items, the purchase of which can be reduced before customers adjust their budgets for necessities. These factors could have a negative impact on our sales and cause us to increase inventory markdowns and promotional expenses, thereby reducing our gross margins and operating results.

~~If demand for solar energy solutions decreases as a result of the consequences of the COVID-19 pandemic, our business will suffer.~~

Our success depends on continued demand for solar energy solutions and the ability of solar equipment vendors to meet this demand. As a consequence of the COVID-19 pandemic, the demand for solar energy solutions decreased in the second quarter of 2020 and may continue to decrease, or at least not continue its growth from recent years, as a result of government orders associated with COVID-19, due to adverse worldwide economic and market conditions, or other factors. If demand for solar energy solutions decreases or 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.

~~Natural disasters, public health events,~~ ~~significant disruptions of information technology systems, data security breaches, or other catastrophic events could~~ ~~adversely affect~~ ~~our operations.~~

Our worldwide operations could be subject to natural disasters, public health events 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 Fremont, California is located near major earthquake fault lines and our Petaluma, California facility is near fault lines and the sites of recent catastrophic wild fires. We rely on third-party manufacturing facilities including for all product assembly and final testing of our products, which are performed at third-party manufacturing facilities, in China and Mexico. There may be conflict or uncertainty in the countries in which

~~Enphase Energy, Inc. | 2020 Form 10-Q | 44~~

~~Table of Contents~~

we operate, including public health issues (for example, the ongoing COVID-19 pandemic or an outbreak of other contagious diseases or health epidemics), safety issues, natural disasters, fire, disruptions of service from utilities, nuclear power plant accidents or general economic or political factors. Such risks could result in an increase in the cost of components, production delays, general business interruptions, delays from difficulties in obtaining export licenses for certain technology, tariffs and other barriers and restrictions, longer payment cycles, increased taxes, restrictions on the repatriation of funds and the burdens of complying with a variety of foreign laws, any of which could ultimately have a material adverse effect on our business.

Further, any terrorist attacks, material disruption to our information technology systems or any data security breaches, including due to cyber-attacks, especially any 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 or otherwise adverse affect us. Such significant disruptions of our, our third party vendors’ and/or business partners’ information technology systems or data security breaches, including in our remote work environment as a result of COVID-19, could adversely affect our business operations and/or result in the loss, misappropriation, and/or unauthorized access, use or disclosure of, or the prevention of access to, confidential information (including trade secrets or other intellectual property, proprietary business information and personal information), and could result in financial, legal, business and reputational harm to us. Any such event that leads to unauthorized access, use or disclosure of personal information, including personal information regarding our customers, could harm our reputation, compel us to comply with federal and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective action, require us to verify the correctness of database contents and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information, which could disrupt our business, result in increased costs or loss of revenue, and/or result in legal and financial exposure. In addition, security breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may further harm us. Moreover, the prevalent use of mobile devices to access confidential information increases the risk of security breaches. While we have implemented security measures to protect our information technology systems and infrastructure, there can be no assurance that such measures will prevent service interruptions or security breaches that could adversely affect our business. In addition, failure to maintain effective internal accounting controls related to security breaches and cybersecurity in general could impact our ability to produce timely and accurate financial statements and subject us to regulatory scrutiny.

In the event that natural disasters, public health epidemics or technical catastrophes were to damage or 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.

~~Conversion of our~~ ~~Convertible Notes~~ ~~may dilute the ownership interest of existing stockholders or may otherwise depress the price of our common stock.~~

~~In March 2020, we issued and sold a total of $320.0 million aggregate principal amount of our Notes due 2025.~~

~~In June 2019, we issued and sold a total of $132.0 million aggregate principal amount of our Notes due 2024.~~

~~As of June 30, 2020,~~

~~$5.0 million aggregate principal amount of the Notes due 2023 were outstanding;~~

~~$132.0 million aggregate principal amount of the Notes due 2024 were outstanding; and~~

~~$320.0 million aggregate principal amount of the Notes due 2025 were outstanding (the foregoing, collectively, the “Convertible Notes”)~~

The conversion of some or all of the Convertible Notes may dilute the ownership interests of existing stockholders. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the Convertible Notes may encourage short selling by market participants because the conversion of the Convertible Notes could be used to satisfy short positions. In addition, the anticipated conversion of the Convertible Notes into shares of our common stock could depress the price of our common stock.

~~Enphase Energy, Inc. | 2020 Form 10-Q | 45~~

~~Table of Contents~~

~~Servicing our debts requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our debts.~~

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the Convertible Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debts, including the Convertible Notes, and make necessary capital expenditures. If we are unable to generate cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness, including the Convertible Notes, will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of those activities or engage in these activities on desirable terms, which could result in a default on our debt obligations, including our obligations under the Convertible Notes.

~~We may not have the ability to raise the funds necessary to repurchase the~~ ~~Convertible Notes~~ ~~upon a fundamental change or to repay the~~ ~~Notes due 2025~~, ~~Notes due 2024~~ ~~and the~~ ~~Notes due 2023~~ ~~at maturity.~~

Holders of our Convertible Notes will have the right to require us to repurchase all or a portion of their convertible notes upon the occurrence of a fundamental change at 100% of the principal amount of the Notes due 2025, Notes due 2024 and Notes due 2023, plus accrued and unpaid interest. Fundamental change is defined in each of the Convertible Notes Indenture entered into in connection with the financing and consists of events such as an acquisition of a majority of our outstanding common stock, an acquisition of our company or substantially all of our assets, the approval by our stockholders of a plan of liquidation or dissolution, or our common stock no longer being listed on the Nasdaq Global Select Market or the Nasdaq Global Market. We may not have enough available cash or be able to obtain financing at the time we are required to make such repurchase of the Convertible Notes.

Our ability to raise additional capital may also be adversely impacted by potential worsening global economic conditions and potential future disruptions to, and volatility in, the credit and financial markets in the U.S. and worldwide resulting from the ongoing COVID-19 pandemic. If we do not have enough available cash at the time we are required to make the required repurchases of the Convertible Notes, we may be required to undertake one or more actions, such as selling assets, attempting to restructure the Convertible Notes or other debt, or obtaining additional capital on terms that may be onerous or highly dilutive. Any such actions could have a material adverse effect on our business, financial condition or results of operations.

~~The convertible note hedge and warrant transactions and/or their early termination may affect the value of our common stock.~~

In connection with the offering of the Notes due 2025 and Notes due 2024, we entered into privately negotiated convertible note hedge transactions pursuant to which we have the option to purchase approximately the same number of shares of our common stock initially issuable upon conversion of the Notes due 2025 and Notes due 2024, at a price approximately the same as the initial conversion price of the Notes due 2025 and Notes due 2024. These transactions are expected to reduce the potential dilution with respect to our common stock upon conversion of the Notes due 2025 and Notes due 2024. Separately, we also entered into privately negotiated warrant transactions to acquire the same number of shares of our common stock initially issuable upon conversion of the Notes due 2025 and Notes due 2024 (subject to customary anti-dilution adjustments) at an initial strike price of approximately $106.94 per share and $25.23 per share for Notes due 2025 and Notes due 2024, respectively. If the market value per share of our common stock, as measured under the warrants, exceeds the strike price of the warrants, the warrants will have a dilutive effect on the ownership interests of existing stockholders and on our earnings per share, unless we elect, subject to certain conditions, to settle the warrants in cash. However, we may not have enough available cash or be able to obtain financing at the time of settlement.

In addition, the existence of the convertible note hedge and warrant transactions may encourage purchasing and selling share of our common stock, or other of our securities and instruments, in open market and/or privately negotiated transactions in order to modify hedge positions. Any of these activities could adversely affect the value of our common stock and the value of the Notes due 2025 and Notes due 2024.

~~Enphase Energy, Inc. | 2020 Form 10-Q | 46~~

~~Table of Contents~~

~~Changes in current accounting methods, standards, or regulations applicable to the Convertible Notes due 2024 and Notes due 2025 could have a material impact onour reported financial results, future financial results, future cash flows, and/or our stock price~~.

Under Accounting Standards Codification (“ASC”) 470-20, “Debt with Conversion and Other Options,” an entity must separately account for the host contract and conversion option associated with convertible debt instruments, such as the Notes due 2025 and Notes due 2024, that may be settled entirely or partially in cash upon conversion, in a manner that reflects the issuer’s economic interest cost. For Notes due 2024, conversion option meets the classification of an equity component, hence we have included the equity component in the additional paid-in capital section of stockholders’ equity on our condensed consolidated balance sheet at the issuance date. For Notes due 2025, conversion option met the classification of an embedded derivative liability, from March 9, 2020 to May 19, 2020, and hence we had included embedded derivative liability in the Debt, non-current on our condensed consolidated balance sheet at the issuance date. Effective upon the filing of an amendment to our certificate of incorporation on May 20, 2020, the conversion option of the Notes due 2025 met the classification of an equity component, hence we reclassified the embedded derivative liability in the Debt, non-current to additional paid-in capital section of stockholders’ equity on our condensed consolidated balance sheet on May 20, 2020. This change in fair value of derivatives has resulted in a charge recognized of $59.7 million and $44.3 million for the three and six months ended June 30, 2020. We have treated the value of the equity component and embedded derivative liability as debt discount for the host contract at the issuance date. We are required to amortize the debt discount as non-cash interest expense over the term of the Notes due 2025 and Notes due 2024, which could adversely affect our reported or future financial results or the trading price of our common stock.

In addition, we use the treasury stock method for convertible debt instruments (such as the Notes due 2024 since the date of issuance and Notes due 2025 since May 20, 2020) that may be settled entirely or partly in cash, and the effect of which is that any shares issuable upon conversion of the notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of such notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess conversion value, if we elected to settle such excess in shares, are issued. We cannot be sure that the accounting standards in the future will continue to permit use of the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of the Notes due 2024 and Notes due 2025, then our diluted earnings per share will be adversely affected.

Accounting Standards Update (“ASU”) 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” clarifies how certain cash receipts and payments should be classified in the statement of cash flows, including the cash settlement for our Notes due 2024 and Notes due 2025. Upon cash settlement, repayment of the principal amount will be bifurcated between cash outflows for operating activities for the portion related to accreted interest attributable to debt discounts arising from the difference between the coupon interest rate and the effective interest rate, and financing activities for the remainder. This will require us to classify the $36.4 million for Notes due 2024 and $68.7 million for Notes due 2025 of accreted interest as cash used in operating activities in our consolidated statement of cash flows upon cash settlement, which could adversely affect our future cash flow from operations.

From time to time we are involved in a number of legal proceedings and, while we cannot predict the outcomes of such proceedings and other contingencies with certainty, some of these outcomes could adversely affect our business and financial condition.

We are, or may become, involved in legal proceedings, government and agency investigations, and consumer, employment, tort and other litigation (see discussion of Legal Proceedings in Item 1 Part II of this Quarterly Report on Form 10-Q). We cannot predict with certainty the outcomes of these legal proceedings. The outcome of some of these legal proceeding could require us to take, or refrain from taking, actions which could negatively affect our operations or could require us to pay substantial amounts of money adversely affecting our financial condition and results of operations. Additionally, defending against lawsuits and legal proceedings may involve significant expense and diversion of management's attention and resources. Negative publicity surrounding such legal proceedings may also harm our reputation and adversely impact our business and financial condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~None.~~In April 2020, our board of directors authorized the repurchase of up to $200.0 million of our common stock (the “2020 Repurchase Program”) which was completed in May 2021. In May 2021, our board of directors authorized a new share repurchase program (the “2021 Repurchase Program”) pursuant to which we may repurchase up to an aggregate of $500.0 million of our common stock. Purchases may be completed from time to time in the open market or through structured repurchase agreements with third parties. The program may be discontinued or amended at any time and expires on May 13, 2024. Such purchases are expected to continue through May 2024 unless otherwise extended or shortened by our board of directors. The timing and amount of repurchases will depend on a variety of factors, including the price of our common stock compared to the intrinsic value, alternative investment opportunities, corporate and regulatory requirements and market conditions. As of June 30, 2021, we have not repurchased any shares under the 2021 Repurchase Program.

Stock Repurchase Program

The following table provides information about our purchases of our common stock during the three and six months ended June 30, 2021 (in thousands, except per share amounts):


Period Ended	Total 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 2021	—	$	—	—	$	200,000
May 2021	1,702,578	$	117.47	1,702,578	$	500,000
June 2021	—	$	—	—	$	500,000







Total	1,702,578			1,702,578

(1)Average price paid per share includes brokerage commissions.

~~Enphase Energy, Inc. |~~(2)In April 2020, ~~Form 10-Q | 47~~



	As of
	June 30, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	607,254		$	251,409
Restricted cash	—			44,700
Accounts receivable, net of allowances of $296 and $564 at June 30, 2020 and December 31, 2019, respectively	89,504			145,413
Inventory	31,186			32,056
Prepaid expenses and other assets	29,257			26,079
Total current assets	757,201			499,657
Property and equipment, net	32,972			28,936
Operating lease, right of use asset	11,462			10,117
Intangible assets, net	28,086			30,579
Goodwill	24,783			24,783
Other assets	49,551			44,620
Deferred tax assets, net	93,872			74,531
Total assets	$	997,927		$	713,223
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	24,135		$	57,474
Accrued liabilities	46,691			47,092
Deferred revenues, current	40,256			81,783
Warranty obligations, current (includes $6,917 and $6,794 measured at fair value at June 30, 2020 and December 31, 2019, respectively)	10,170			10,078
Debt, current	102,271			2,884
Total current liabilities	223,523			199,311
Long-term liabilities:
Deferred revenues, noncurrent	110,977			100,204
Warranty obligations, noncurrent (includes $14,215 and $13,012 measured at fair value at June 30, 2020 and December 31, 2019, respectively)	27,737			27,020
Other liabilities	12,340			11,817
Debt, noncurrent	253,174			102,659
Total liabilities	627,751			441,011
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock, $0.00001 par value, 200,000 shares and 150,000 shares authorized; and 125,979 shares and 123,109 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	1			1
Additional paid-in capital	534,867			458,315
Accumulated deficit	(163,539		)	(185,181		)
Accumulated other comprehensive loss	(1,153		)	(923		)
Total stockholders’ equity	370,176			272,212
Total liabilities and stockholders’ equity	$	997,927		$	713,223



Contract Assets
Balance on December 31, 2019	$	57,142
Amount recognized	(8,439		)
Increase	14,673
Balance as of June 30, 2020	$	63,376



Contract Liabilities
Balance on December 31, 2019	$	181,987
Revenue recognized	(66,841		)
Increase due to billings	36,087
Balance as of June 30, 2020	$	151,233



	June 30, 2020							December 31, 2019
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
	(In thousands)
Goodwill	$	24,783	$	—		$	24,783	$	24,783	$	—		$	24,783

Intangible assets:
Other indefinite-lived intangibles	$	286	$	—		$	286	$	286	$	—		$	286
Intangible assets with finite lives:
Developed technology	13,100		(4,185		)	8,915		13,100		(3,093		)	10,007
Customer relationships	23,100		(4,215		)	18,885		23,100		(2,814		)	20,286
Total purchased intangible assets	$	36,486	$	(8,400	)	$	28,086	$	36,486	$	(5,907	)	$	30,579



			Percent Used (Weighted Average)
Item Measured at Fair Value	Valuation Technique	Description of Significant Unobservable Input	June 30, 2020	December 31, 2019
Warranty obligations for microinverters sold since January 1, 2014	Discounted cash flows	Profit element and risk premium	15%	14%
	Discounted cash flows	Credit-adjusted risk-free rate	16%	16%



Convertible note embedded derivative
(In thousands)
Fair value as of March 9, 2020	$	68,700
Change in the fair value	(23,600		)
Fair value as of March 31, 2020	45,100
Change in the fair value	71,200
Fair value as of May 20, 2020	$	116,300



	Three Months Ended June 30, 2020		Six Months Ended June 30, 2020
	(In thousands)
Contractual interest expense	$	200	$	249
Amortization of debt discount	3,069		3,812
Amortization of debt issuance costs	381		468
Total interest cost recognized	$	3,650	$	4,529



	Convertible notes hedge			Warrants liability
	(In thousands)
Fair value as of March 9, 2020	$	89,056		$	71,552
Change in the fair value	(41,171		)	(32,915		)
Fair value as of March 31, 2020	47,885			38,637
Change in the fair value	69,223			57,715
Fair value as of May 20, 2020	$	117,108		$	96,352


	Payments Due by Period
	Total		2021 (remaining six months)		2022-2023		2024-2025		Beyond 2025

	(In thousands)




Notes due 2024 principal and interest	$	1,100	$	5	$	22	$	1,073	$	—
Notes due 2025 principal and interest	103,199		128		512		102,559		—
Notes due 2026 principal and interest	632,500		—		—		—		632,500
Notes due 2028 principal and interest	575,000		—		—		—		575,000

Total	$	1,311,799	$	133	$	534	$	103,632	$	1,207,500



	Payments Due by Period
	Total		2020 (remaining six months)		2021-2022		2023-2024		Beyond 2024
	(In thousands)
Operating leases	$	16,393	$	2,307	$	8,044	$	4,093	$	1,949
Notes due 2023 principal and interest	5,800		200		400		5,200		—
Notes due 2024 principal and interest	137,298		660		2,640		133,998		—
Notes due 2025 principal and interest	323,984		382		1,600		1,600		320,402
Purchase obligations ⁽¹⁾	75,230		75,230		—		—		—
Total	$	558,705	$	78,779	$	12,684	$	144,891	$	322,351


			Incorporation by Reference
Exhibit Number	Exhibit Description	Form	SEC File No.	Exhibit	Filing Date	Filed Herewith
3.1	Amended and Restated Certificate of Incorporation of Enphase Energy, Inc.	8-K	001-35480	3.1	4/6/2012
3.2	Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Enphase Energy, Inc.	10-Q	001-35480	3.1	8/9/2017
3.3	Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Enphase Energy, Inc.	10-Q	001-35480	2.1	8/6/2018
3.4	Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Enphase Energy, Inc.	8-K	001-35480	3.1	5/27/2020
3.5	Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Enphase Energy, Inc.	S-8	333-256290	4.5	5/19/2021
3.6	Amended and Restated Bylaws of Enphase Energy, Inc.	S-1/A	333-174925	3.5	3/12/2012
4.1	Specimen Common Stock Certificate of Enphase Energy, Inc.	S-1/A	333-174925	4.1	3/12/2012
4.2	Indenture, dated August 17, 2018, between Enphase Energy, Inc. and U.S. Bank National Association.	8-K	001-35480	4.1	8/17/2018
4.3	Form of 4.00% Convertible Senior Note due 2023 (included in Exhibit 4.2).	8-K	001-35480	4.1	8/17/2018
4.4	Indenture, dated June 5, 2019, between Enphase Energy, Inc. and U.S. Bank National Association.	8-K	001-35480	4.1	6/5/2019
4.5	Form of 1.00% Convertible Senior Note due 2024 (included in Exhibit 4.4).	8-K	001-35480	4.1	6/5/2019
4.6	Indenture, dated March 9, 2020, between Enphase Energy, Inc. and U.S. Bank National Association.	8-K	001-35480	4.1	3/9/2020
4.7	Form of 0.25% Convertible Senior Note due 2025 (included in Exhibit 4.6).	8-K	001-35480	4.1	3/9/2020
4.8	Indenture, dated March 1, 2021, between Enphase Energy, Inc. and U.S. Bank National Association.	8-K	001-35480	4.1	3/1/2021
4.9	Indenture, dated March 1, 2021, between Enphase Energy, Inc. and U.S. Bank National Association.	8-K	001-35480	4.2	3/1/2021
4.10	Form of 0% Convertible Senior Note due 2026 (included in Exhibit 4.8).	8-K	001-35480	4.1	3/1/2021
4.11	Form of 0% Convertible Senior Note due 2028 (included in Exhibit 4.9).	8-K	001-35480	4.4	3/1/2021












10.1	2021 Equity Incentive Plan and forms of agreement thereunder	S-8	333-256290	99.1	5/19/2021
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).					X
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).					X
32.1*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	XBRL Taxonomy Extension Schema Document.					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.					X


*	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.