Enphase Energy outlines $310M–$350M Q4 revenue guidance while advancing U.S. battery production and TPO strategy

Earnings Call Insights: Enphase Energy (ENPH) Q3 2025

MANAGEMENT VIEW

* CEO Badrinarayanan Kothandaraman reported, "We had a good quarter. We reported quarterly revenue of $410.4 million, our highest revenue level in 2 years. We shipped 1.77 million microinverters and a record 195 megawatt hours of batteries. We generated free cash flow of $5.9 million." He highlighted the normalization of microinverter channel inventory and the elevated battery channel inventory due to the launch of the fourth-generation battery.
* Kothandaraman discussed U.S. market strength: "Our U.S. and international revenue mix for Q3 was 85% and 15%, respectively. In the U.S., our revenue increased 29% in Q3 compared to Q2, primarily due to increased demand as well as higher safe harbor revenue of $70.9 million compared to $40.4 million in Q2."
* He described the company's strategic move away from China-based cell packs: "We remain on track to source non-China cell packs by the end of this year, scaling into battery builds in the first half of '26. Therefore, we expect limited exposure to the recent China-related tariffs as our supply chain transitions away from China."
* On product development, the CEO stated, "Our fourth-generation battery, the IQ Battery 10C is positioned to capture share through lower installation costs for backup... We are now entering the 480-volt commercial solar market with our IQ9 and GaN microinverter, which we expect to ship this December and ramp in 2026."
* Mandy Yang, EVP & CFO, stated, "Total revenue for Q3 was $410.4 million. We shipped approximately 784.6 megawatts DC of microinverters and a record 195 megawatt hours of IQ Batteries in the quarter. Q3 revenue included $70.9 million of safe harbor revenue. Non-GAAP gross margin for Q3 was 49.2% compared to 48.6% in Q2."

OUTLOOK

* Enphase Energy expects Q4 2025 revenue between $310 million and $350 million, with IQ Battery shipments of 140 to 160 megawatt hours.
* Management stated, "We expect GAAP gross margin to be within a range of 40% to 43%, including approximately 5 percentage points of reciprocal tariff impact. We expect non-GAAP gross margin to be within a range of 42% to 45%."
* The company anticipates Q1 2026 revenue of $250 million and described Q1 as "the cycle trough with conditions improving through the rest of the year."
* Kothandaraman noted, "We are seeing a further ramp in the U.S. demand in Q4, primarily due to homeowners moving to capture the expiring 25D tax credit before the end of this year."

FINANCIAL RESULTS

* Enphase reported Q3 revenue of $410.4 million and non-GAAP gross margin of 49.2%. GAAP gross margin was 47.8%. Non-GAAP income from operations was $123.4 million. Non-GAAP net income was $117.3 million, resulting in non-GAAP diluted EPS of $0.90. GAAP net income was $66.6 million, with GAAP diluted EPS of $0.50.
* Free cash flow for Q3 was $5.9 million. Cash, cash equivalents, and marketable securities totaled $1.48 billion at quarter-end. Capital expenditure was $8 million for Q3.
* Yang stated, "We expect our GAAP operating expenses to be within a range of $130 million to $134 million, including approximately $53 million estimated for stock-based compensation expenses, acquisition-related amortization and restructuring and asset impairment charges."

Q&A

* Colin Rusch, Oppenheimer: Can you talk about inventory levels for Q1 next year? Kothandaraman: "Our rule of thumb is 8 to 10 weeks... we'd like to basically be abundantly cautious and not overload the channel."
* Rusch: What about pricing for the new battery? Kothandaraman: "We are not raising any prices... our position is basically to capture share."
* Brian Lee, Goldman Sachs: The non-U.S. revenue is the lowest since 2021. Is there something company-specific? Kothandaraman: "Weak solar market due to net metering going away, but has got the potential to become a strong solar plus battery market."
* Lee: On margins, can you bridge the gap between Q3 and Q4 guidance? Kothandaraman: "Our margins basically are impacted, as we said, by a 5% reciprocal tariff... What we are saying in Q4, our gross margin is 43.5%, and that reflects more a normal mix."
* Philip Shen, ROTH Capital: Details on safe harbor approach using physical work test? Kothandaraman: "It is a custom product that needs to be done for them with higher performance than the standard product and with a custom component that is not in our normal inventory."
* Shen: On prepaid lease concept, will Enphase participate? Kothandaraman: "We are also working with a few partners closely... Our job is to support our TPO partners."
* Praneeth Satish, Wells Fargo: Q1 '26 outlook of $250 million—detail on U.S. decline post 25D? Kothandaraman: "That's not guidance, but that's a preliminary look... We usually understand the trend reasonably, and we can make some informed decisions."
* Christine Cho, Barclays: Is $250 million for Q1 '26 expected sell-through? Kothandaraman: "I would expect equilibrium there is what I would expect. I would expect maybe slightly higher, but it's too early for me to say."
* Dylan Nassano, Wolfe Research: Will you reduce OpEx heading into Q1 '26? Kothandaraman: "Our run rate today is $80 million a quarter, non-GAAP. It is safe to say we are going to be looking at our expenses to trim down spending in order to track revenue."

SENTIMENT ANALYSIS

* Analysts' tone was slightly negative, focusing on inventory levels, non-U.S. revenue weakness, margin compression, and clarity on post-25D demand.
* Management maintained a confident and disciplined tone in prepared remarks, but responses in Q&A occasionally displayed caution and acknowledged market challenges. Kothandaraman stated, "We want 2026 to have a very healthy setup in the channel," and provided detailed explanations regarding gross margin declines and strategies for cost reduction.
* Compared to the previous quarter, the tone has become more cautious, especially regarding Q1 2026 and non-U.S. markets, with analysts pressing harder on downside risks and timelines for recovery.

QUARTER-OVER-QUARTER COMPARISON

* Q3 revenue and gross margin improved over Q2, but guidance for Q4 is lower due to safe harbor pull-in and intentional channel destocking.
* U.S. revenue mix increased to 85% from 75% in Q2, while international revenue share declined.
* Non-GAAP gross margin rose to 49.2% in Q3 from 48.6% in Q2, while Q4 guidance indicates a drop due to product mix and tariffs.
* Management's tone shifted from steady optimism in Q2 to a more cautious outlook for Q4 and Q1 2026, with explicit focus on inventory management and cost control.
* Analyst questioning intensified on international performance and post-25D U.S. demand, compared to previous quarter's broader strategic focus.

RISKS AND CONCERNS

* Challenges include declining non-U.S. revenue, significant exposure to battery tariffs, and uncertainty around U.S. residential solar demand after the 25D tax credit expiration.
* Management is mitigating risks by reducing Q4 shipments to avoid channel oversupply, transitioning battery supply chains away from China, and developing lower-cost, higher-density fifth-generation batteries.
* Analysts expressed concern about inventory levels, margin pressure from tariffs, and the timing and magnitude of market recovery in 2026.

FINAL TAKEAWAY

Enphase Energy delivered strong Q3 results with record U.S. revenue and robust gross margins, but management is guiding for a conservative Q4 as it prioritizes healthy channel inventory and adjusts to shifting market dynamics. The company is advancing product innovation, notably with its fourth-generation battery and IQ9 microinverter, and is positioning itself for a rebound in the second half of 2026 through new financing models and expanded TPO partnerships. Management remains focused on operational discipline and innovation to mitigate near-term headwinds and drive long-term growth.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/enph/earnings/transcripts]

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