Enphase Energy Inc (ENPH) — Q4 2025 Earnings Call Transcript

Good afternoon, and thanks for joining us today to discuss our fourth quarter 2025 financial results. We had a good quarter. We reported quarterly revenue of $343.3 million, shipped 1.55 million microinverters and 150 megawatt hours of batteries and generated free cash flow of $37.8 million. Our Q4 revenue included $2.3 million of safe harbor revenue. U.S. consumers pulled forward purchases ahead of the Section 25D tax credit deadline, helping us exit 2025 with a lean channel. For Q4, we delivered 46% gross margin, above the high end of our guidance range, 23% operating expenses and 23% operating income, all as a percentage of revenue on a non-GAAP basis. Mandy will go into our financials later in the call. Our global customer service NPS was 79% in Q4 compared to 77% in Q3. Average call wait time was 1.6 minutes. We piloted an AI assistant in the Enphase app in Q4 and plan to roll it out in Q1 to help customers manage their systems intuitively. We also plan to pilot an AI assistant for installers in Q1 to help them manage their fleet and identify upgrade opportunities. Let's talk about operations. In Q4, we shipped approximately 1.31 million microinverters from our Texas and South Carolina manufacturing facilities and booked associated Section 45X production tax credits. These domestically made microinverters help residential lease and PPA providers as well as commercial asset owners qualify for the 10% domestic content ITC adder. In Q4, we shipped 51.1 megawatt hours of IQ batteries from our Texas manufacturing facility, meeting applicable domestic content requirements and helping lease PPA customers qualify for ITC bonuses. We continue to differentiate through our ability to deliver domestic content and meet PUC requirements as regulatory standards tighten. Also, we expect to receive our first non-China battery cells in Q1 and remain on track to scale non-China cell supply into battery production in the first half of 2026. Let's now cover the regions. Our U.S. and international revenue mix for Q4 was 89% and 11%, respectively. In the U.S., our revenue decreased 13% in Q4 compared to Q3, primarily due to safe harbor revenue of $20.3 million compared to $70.9 million in Q3. The overall sell-through of our products increased 21% in Q4 compared to Q3 to the highest level in more than 2 years. The strong demand trends that we saw at the beginning of Q4 continued till the end of the year, driven by increased solar and battery installations ahead of the expiring Section 25D tax credit. In Europe, our revenue decreased by 29% in Q4 compared to Q3, while our sell-through decreased by 23%. The overall business environment across the region is still challenging. We are staying disciplined in managing the channel and focusing on targeted growth areas for 2026. I will provide some additional color on the key markets in Europe. In the Netherlands, solar demand remained soft in Q4, but we are making steady progress towards a large battery retrofit opportunity driven by structural changes in the market. Rising solar export penalties and the planned phaseout of net metering by the end of 2026 are shifting economics decisively towards self-consumption, strengthening the case for batteries. With an installed base of approximately 475,000 Enphase residential solar systems, we estimate a total opportunity of roughly $2 billion for batteries. We are seeing early traction from targeted homeowner outreach, including homeowner events and direct marketing, and are expanding partnerships with retail energy providers that offer compelling VPP economics. With continued rollout of software capabilities like Power Match and the launch of our fifth generation battery later this year, we believe we are very well positioned to lead the battery transition in the Netherlands. In France, reductions in feed-in tariffs are shifting residential solar economics towards self-consumption, increasing the interest in batteries, particularly for new installations. With approximately 375,000 Enphase residential solar systems installed in France, the retrofit opportunity is more modest than in the Netherlands due to fixed energy contracts, but overall battery adoption is still gaining traction. New business models, including battery leasing, are emerging, and we expect battery demand in France to build steadily through the year, supported by anticipated increases in utility rates and evolving dynamic tariffs. Across Europe, competition remains intense and pricing pressure is high as installers adapt to a tougher demand environment. We are responding by controlling costs within our current products and aligning pricing to market realities, including our microinverter price reductions, which we implemented across Europe in November. At the same time, we are investing in next-generation products very strongly, both IQ9 microinverters and our fifth-generation battery platform. We expect to deliver structural cost improvements in these products, which enable attractive pricing and sustain healthy gross margins. Our focus remains on supporting our installers and competing effectively as the market evolves. In Australia, we see a meaningful battery growth opportunity supported by a mature rooftop solar base and accelerating customer interest in self-consumption, resilience, and VPP. The market is installing larger, more capable storage systems to take advantage of current incentives, and installers are increasingly asking for solutions that are simple to size, expand, and commission. With our fifth-generation system expected later this year, we believe our stackable, scalable AC-coupled architecture is well aligned with what installers want and what homeowners increasingly value: flexible capacity today with the ability to add more over time. Let's now discuss Q1 outlook. During last quarter's call, we shared a view of Q1 revenue to be around $250 million. Today, we are providing Q1 revenue guidance of $270 million to $300 million. We are approximately 90% booked to the midpoint of our revenue guidance. We continue to believe Q1 marks the low point for underlying demand with improvement expected through 2026, particularly in the second half. Installer sentiment is also improving as higher utility rates strengthen the customer value proposition, including in several Northeast and Midwest markets that have seen double-digit residential electricity price increases over the last year. The feedback on prepaid lease offerings is also encouraging, giving installers yet another effective tool to drive solar and battery adoption this year. Let's talk about financing. Enphase is well positioned to support all major TPOs today. In Q4, we announced two TPO orders totaling $123 million, including $55 million under the 5% safe harbor method and $68 million under the physical work test method. We collaborate with TPOs on tax equity support, domestic content, and FEOC compliant offerings, O&M services through Enphase Care and an integrated workflow through Solar Graph for design, proposal, and permitting, while also partnering on innovative financing structures. We continue to see prepaid leases as an attractive option, which give homeowners a lower upfront cost today and the option to own the system after 5 years. In this structure, the TPO owns the system initially and claims the 4080 tax credit, then share that value with the homeowner through a prepaid lease or low monthly payments when paired with the loan. The result is a lower effective cost for the homeowner and economics that look much closer to what customers were used to when the 30% Section 25D tax credit was available. We are supporting a TPO-led prepaid lease program that is being field tested with the loan partner as well as a distribution partner. The program, which uses Enphase equipment is currently in pilot across four states with approximately 40 installers. We expect a broader rollout to happen upon completing the pilot successfully and validating the customer experience, installer execution, and financing performance at scale. We expect to share more as the program matures in the coming months. Let's cover products, starting with IQ batteries. Our fourth generation IQ battery T10 continues to ramp in the U.S., delivering a smaller footprint, higher energy density, and a simpler installation process enabled by the IQ meter collar. The collar is now approved by 52 U.S. utilities and growing, serving approximately 30 million customer accounts. We believe this represents the broadest utility approval footprint of any major battery provider today. In California, the meter collar is approved by all three major investor-owned utilities. We also launched Power Match in Q4, a software-enabled technology that dynamically matches the IQ battery output to real-time home demand, increasing usable energy, extending battery life, and improving performance by up to 40%. Unlike hybrid systems that push all power through a single large inverter, PowerMatch activates only the microinverters that are needed, reducing losses at low power consumption, so customers get more usable energy from the same battery capacity. Let's now cover our fifth-generation battery. We are making significant progress on this battery. It is built from stackable 5-kilowatt-hour modular blocks and will scale up to 20-kilowatt-hours in the U.S. and up to 30 kilowatt-hours in other regions. The design targets roughly 50% higher energy density than the fourth generation battery at about 40% lower cost. When paired with PowerMatch, we believe this platform will offer a compelling combination of performance, flexibility, and value for installers and homeowners. We expect to start pilots in the third quarter of 2026 and start shipping in the fourth quarter. We are making strong progress in partnering with retail energy providers and VPP operators across the globe that are seeking flexible distributed capacity. Through these programs, homeowners can earn attractive incentives from their energy provider for installing and enrolling Enphase batteries. In Q4, we added several programs, the notable being a home battery leasing program with GMP in Vermont and eligibility under San Diego Community Power Solar Battery Savings program. These partnerships can drive meaningful battery volumes, and we are targeting many more additional VPP partnerships this year. Let's come to microinverters. In December, we began shipping the IQ9 3P commercial microinverter built on our GaN-based power conversion architecture. IQ9 is a major step forward for Enphase, expanding us into 480-volt 3-phase commercial systems in the U.S. for the first time and represents an approximately $400 million total addressable market. The demand is encouraging with more than 50,000 microinverters ordered for Q1 and early feedback confirms the market need for reliability, FEOC compliance, and domestic content that IQ9 delivers. We expect to introduce IQ9 for the global residential markets in the first quarter of 2026 and the higher-powered 548-watt version for both residential and commercial markets in the third quarter. More broadly, our IQ, our GaN-based microinverter platform gives us a step change in speed, efficiency, and controllability, capabilities that matter as the grid and large electrified loads increasingly demand fast response times and load shaping. We are increasing our R&D investments in these areas to extend our core capabilities to address these demanding use cases. More to come here as we make progress. Let's cover EV charging. In December, we began shipping our new IQ EV charger 2 to customers across the U.S. This charger supports fast Level 2 charging up to 19.2 kilowatts on 240-volt service and up to 22.1 kilowatts where 277 volts is available. It also works as a standalone charger or fully integrated with Enphase solar and battery systems. The charger is also available in Europe, Australia, New Zealand, and Canada with additional availability planned for 2026. Let me share an update on our IQ bidirectional EV charger built on our GaN power platform, engineered to work seamlessly with modern 800-volt DC EV architectures. It is a concrete example of our ability to move power efficiently between grid-facing AC and 800-volt DC backbone and to do so bidirectionally with tight control and protection. We continue to target initial availability in the fourth quarter of 2026, starting with limited deployments as we complete required certifications, utility coordination, and vehicle compatibility validation. The product is compelling because it pairs simply with the IQ meter collar in the U.S. and a backup switch in Europe to enable a streamlined configuration for seamless home backup, which is V2H and VPP participation, which is V2G. We are also in active discussions with multiple auto OEMs on partnerships, and we'll share more as those discussions mature. Let's cover Solar Graph, our all-in-one design and proposal platform built for installers. We continue to deliver meaningful upgrades, including fully customizable proposals with in-line editing, battery-only proposals, and racking integration to generate a complete bill of materials. We are also expanding AI capabilities, including One Touch design and automation and light integration to help installers reduce operational overhead. Looking ahead, we are adding support for commercial system designs to align with our expanding commercial products. Solar Graph remains a core installer enablement tool, especially as TPO integration accelerates. Let me conclude. We are executing well through a challenging period, and our focus on innovation, quality, and customer service continues to support healthy margins and good market share in U.S. residential solar. We are now extending these strengths into commercial solar, where we believe we can build a meaningful business. We expect the underlying demand to stabilize from current levels with improvements developing as several tailwinds build. Rising electricity costs are making energy affordability a priority for households. New financing options are expanding how consumers can buy solar and easing interest rates can further improve affordability. In 2026, we are continuing to evolve from a single product and end-market company into a broader technology platform that can apply our power electronics and energy management strength to significantly larger markets. The transition began 5 years ago with our entry into residential batteries and is now accelerating with our expansion into commercial solar and our planned entry into commercial batteries, bidirectional EV charging, and additional adjacencies in the year ahead. As the world's power needs grow larger and more complex, we believe Enphase brings a differentiated best-in-class power management foundation to meet them. We remain laser-focused on the near-term revenue levers that we can control: number one, accelerating IQ battery density growth; number two, scaling IQ9 GaN microinverters to expand our 480-volt 3-phase commercial footprint; number three, unlocking battery retrofits across the Netherlands and France; number four, ramping IQ EV charger 2 while preparing for bidirectional EV charging later in 2026; number five, launching our fifth-generation residential battery along with IQ9 microinverters to materially lower system costs and strengthen solar economics. With that, I will turn the call over to Mandy for her review of our financials. Mandy?

Thanks, Badri, and good afternoon, everyone. I will provide more details related to our fourth quarter of 2025 financial results as well as our business outlook for the first quarter of 2026. We have provided reconciliations of these non-GAAP to GAAP financial measures in our earnings release posted today, which can also be found in the IR section of our website. Total revenue for Q4 was $343.3 million. We shipped approximately 682.6 megawatts DCO microinverters and 150.1 megawatt hours of IQ batteries in the quarter. Q4 revenue included $20.3 million of safe harbor revenue. As a reminder, we define safe harbor revenue as any sales net to customers who plan to install their inventory over more than a year. Non-GAAP gross margin for Q4 was 46.1% compared to 49.2% in Q3. GAAP gross margin was 44.3% for Q4 compared to 47.8% in Q3. Reciprocal tariffs impacted our gross margins by 5.1% in Q4. Non-GAAP operating expenses were $78.8 million for Q4 compared to $78.5 million for Q3. GAAP operating expenses were $129.6 million for Q4 compared to $130.1 million for Q3. GAAP operating expenses for Q4 included $48.6 million of stock-based compensation expenses and $2.9 million of acquisition-related amortization, offset by $600,000 of restructuring and asset impairment benefit. On a non-GAAP basis, income from operations for Q4 was $79.4 million compared to $123.4 million for Q3. On a GAAP basis, income from operations was $22.4 million for Q4 compared to $66.2 million for Q3. On a non-GAAP basis, net income for Q4 was $93.4 million compared to $117.3 million for Q3. This resulted in non-GAAP diluted earnings per share of $0.71 for Q4 compared to $0.90 for Q3. GAAP net income for Q4 was $38.7 million compared to $66.6 million for Q3. This resulted in GAAP diluted earnings per share of $0.29 for Q4 compared to $0.50 for Q3. We exited Q4 with a total cash, cash equivalents and marketable securities balance of $1.51 billion compared to $1.48 billion at the end of Q3. The 5-year convertible notes we raised in 2021 are coming due on March 1, 2026, and we expect to settle the principal amount of $632.5 million at maturity with our cash on hand. As of December 31, 2025, we have approximately $337 million of production tax credit or PTC receivable on our balance sheet, net of income taxes payable. $109 million is related to U.S. NAND microinverters shipped to customers in 2024 and $228 million is for shipments made in 2025. As we elected direct pay for 2024, the net PTC will be refunded by the IRS through our completed 2024 tax return. We have limited visibility to when we will receive 2024's $109 million refund from the IRS due to its extended processing timelines. We are evaluating our options to get paid sooner for our 2025 PTC. As part of our anti-dilution plan, we spent approximately $1.4 million by withholding shares to cover taxes for employee stock vesting in Q4 that reduced the diluted shares by 41,767 shares. We did not repurchase our common stock in the quarter because we are prioritizing the most disciplined use of our cash, including preparing for the $632.5 million of debt maturing next month and preserving flexibility for strategic investments and potential acquisition opportunities. We have approximately $269 million remaining under our share repurchase authorization, and we remain confident in our long-term business outlook. In Q4, we generated $47.6 million in cash flow from operations and $37.8 million in free cash flow. Capital expenditures were $9.7 million for Q4 compared to $8 million for Q3. This increase was primarily due to continued investment in our U.S. manufacturing and R&D equipment. Now let's discuss our outlook for the first quarter of 2026. We expect our revenue for Q1 to be within a range of $270 million to $300 million, which includes shipments of 120 megawatt-hours of IQ batteries. The revenue guidance includes approximately $35 million of safe harbor revenue. 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 the range of 42% to 45%, including the reciprocal tariff impact. Non-GAAP gross margin excludes stock-based compensation expense and acquisition-related amortization. We expect our GAAP operating expenses to be within a range of $137 million to $141 million, including approximately $60 million estimated for stock-based compensation expense, acquisition-related expenses, and amortization and restructuring and asset impairment charges. We expect our non-GAAP operating expenses to be within a range of $77 million to $81 million. As part of our efforts to better align our workforce and cost structure with Enphase's business needs, strategic priorities, and ongoing commitment to profitable growth, we recently reduced headcount by around 6%. We expect to reduce our non-GAAP operating expenses to be in the range of $70 million to $75 million a quarter starting from the third quarter of 2026. In closing, we managed well with our financial discipline through a difficult global environment in 2025. We maintained profitability and strong gross margins. In addition, in 2025, we generated approximately $95.9 million of free cash flow and approximately $228 million of net PTC receivable. We exited the year with $1.51 billion in cash, cash equivalents, and marketable securities while repurchasing 2.3 million shares of our common stock for approximately $130 million. With that, I'll open the line for questions.

First one is on the cadence for the year. I know you don't guide for other quarters, but I was wondering if you could give us a little bit of color on what Q2 might look like. You talked about Q1 being the low point. And so should we expect Q2 to be flat or up or slightly down? And then from a margin standpoint, would you expect a little bit of expansion in Q2 or kind of similar levels to Q1?

We anticipate that Q2 will show an increase, but it's premature to provide specifics. As I mentioned in my prepared remarks, we see several positive factors working in our favor. One significant factor is the rising utility rates across the U.S., particularly notable increases in the Northeast and Midwest, which we believe will support our growth. Additionally, new financing options, like prepaid leases, are emerging, which could replace the loan demand before the tax credit expiration. Although recent announcements didn't signal a decrease in interest rates, we expect some easing throughout the year, which should enhance affordability. These three strong tailwinds are likely to improve as the year unfolds. We are actively taking steps rather than just observing the market. For example, we are accelerating the deployment of the IQ battery 10C, and we’ve gained approval from all major investor-owned utilities in California, with 52 utilities currently onboard and plans to add 50 more in 2026. Currently, 70% of our U.S. battery shipments consist of the IQ battery 10C, and we expect the prepaid leases to further boost our battery volumes. Additionally, we believe that the FEOC and domestic content will strengthen our value proposition and help incrementally increase volume throughout the year. Regarding our product offerings, we are excited about the IQ9 product, which addresses the 480 volts commercial market; a space we have not previously entered. We began shipping this product in December and already have a backlog of over 50,000 microinverters for Q1. As this is a new market for us, we expect to learn and grow, capitalizing on our unique qualities like reliability and quality. Another major development is the expansion of battery retrofits in the Netherlands and France. We are hosting regular homeowner events in the Netherlands, with expectations to conduct around 100 events this year, all aimed at generating preorders and significantly enhancing our battery demand. While the situation in France is different due to varying energy contract structures, there is still considerable interest in battery ownership for resilience and self-consumption. We have also launched a state-of-the-art IQ EV charger in the U.S., which has been successful in Europe. The highlight of this charger is its bidirectional capability, demonstrating the strength of our inverter architecture that allows for functionality like vehicle-to-home and vehicle-to-grid operations. Lastly, we are preparing to launch the IQ9 residential microinverters shortly, along with our fifth-generation battery, which will feature best-in-class energy density and a significant cost reduction compared to the previous generation. This reduction allows us to lower consumer prices while maintaining our margin goals. In sum, we have multiple initiatives under our control and are poised to leverage them alongside the identified tailwinds.

Great, Badri. I had a quick follow-up on the you said Q2, I think you meant revenue would be up, but you don't know or can't quantify how much. Just want to understand if that's versus the $285 million from Q1 with safe harbor? Or is it versus the $250 million without safe harbor?

We typically make remarks about core revenue. However, we also anticipate healthy safe harbor in the second quarter, even though we cannot predict it with certainty. The reason is that TPO partners are planning for 2028, 2029, and 2030. Therefore, we expect some safe harbor activity in both Q2, and I believe we will have the opportunity to address it in Q3 as well. We are very aware of the industry's trend going towards 800-volt DC for the data center. Where that actually intersects our expertise is in front end power conversion, specifically how medium voltage AC, and we are talking about 13.8 kV and 34.5 kV AC can be efficiently converted, controlled, and managed into 800-volt DC before the power reaches the AI rack. So having said that, we are evaluating multiple next-generation power conversion architectures as part of our long-term R&D. But we are not in a position to discuss any specific products or timelines today.

First one I had was just on margins, maybe for Mandy, maybe for Badri. I think the 5% reciprocal tariff impact seems to be stabilizing and peaking here. I think last year, you talked about fully offsetting it by 2Q of 2026. So any updates there on the ability to offset the tariff impact? Is that still a 2Q target? Maybe if you can kind of quantify magnitude and cadence for us off this 5% level that you're still guiding to for Q1? And then I have a follow-up.

Right. So Brian, if you recall, a few quarters ago, we discussed the tariffs specifically related to China. At that time, we committed to transitioning our manufacturing out of China, which we are currently executing and expect to avoid significant tariffs as a result. However, the situation has evolved, and now every country is imposing tariffs, including what is termed a reciprocal tariff. For instance, there are tariffs in Malaysia and Vietnam. The 5% tariff we face impacts us as follows: 2% on microinverters, 2% on batteries, and 1% on accessories. The reason for this is that we have to import raw materials into the U.S. to manufacture our microinverters, which incurs tariffs. Unfortunately, there is no location that is tariff-free. To address your question about offsetting the 5% reciprocal tariff, we believe the solution lies in innovation. Our IQ9 product and the upcoming fifth-generation battery are key to this strategy. For example, the IQ9, despite increasing power by 10%, maintains a smaller form factor, allowing us to achieve higher gross margins. Higher power products also qualify for a production tax credit of $0.11 per watt, which we expect to enhance our margins further. Regarding the batteries, we are nearing the release of our fifth-generation battery, which utilizes compact prismatic cells, significantly reducing the battery size and enabling a unique stackable design. This battery will have 50% higher energy density than our fourth-generation model and a cost structure that is 40% lower, allowing us to achieve good gross margins and effectively counter the 5% reciprocal tariff.

And the follow-up would be on one of the specific products here. You talked a lot about the IQ9 commercial inverter, the $400 million TAM. If my math is right, it seems like the bookings activity, Badri, you mentioned maybe you're tracking the $5 million to $10 million right out of the gate for that new product. One, is that right? And then two, kind of how do you see yourself scaling up this year against that $400 million TAM? Is this tens of millions of dollars of revenue by the second half of the year?

Yes, you're approximately correct. It is between $5 million and $10 million for the first quarter. You should consider it this way: this product presents a strong value proposition in terms of quality, reliability, compliance, and domestic content. Customers haven't had such options previously, so we are gaining significant traction. What we've demonstrated in the residential market is that over time, high quality and high serviceability prevail. Therefore, we anticipate achieving similar success in the small commercial market and expect to capture a comparable market share within three years as we have in residential.

Can you provide more details on the timeline for expanding the prepaid lease product into additional states, assuming the pilot goes well? Will this expansion be gradual, or will there be a larger push? Is it possible to achieve nationwide coverage by the end of 2026? Additionally, how do you view your market share for other prepaid lease offerings compared to your traditional cash and loan channels?

Yes. I think those are good questions, but we are in very early stages right now. We are in pilots right now. We are, as I said, operational in four states, and we have over 40 installers. We are starting to get reasonable originations. But what we want to do is to test out the entire cycle. That's why it's called a pilot. And when we test out the entire cycle, then the kinks will be obvious to us, and then we can either expand rapidly or take a measured step going forward. Our desire is to do it sooner rather than later. And let me actually leave it at that right now.

That's fine. Can you provide an update on IQ 10C battery sales and how they're performing in Q1? The market share data suggested a slight increase in December. Has that positive trend continued into Q1? Also, what feedback have you received from installers in California since the meter collar approval with the utilities? Do you believe you can raise your market share, which is currently around 15%, to over 20% with the fourth-generation battery? Or is it more likely that the fifth-generation battery will lead to significant market share recovery?

Yes. The fourth-generation battery has a great form factor. The meter collar is now approved by 52 utilities, including all California IOUs, with the last approval coming in late Q4. We have effectively removed all barriers. Regarding installer feedback, we hold roundtable discussions with them nearly every week. They appreciate the product, the installation process, and the commissioning times, which are under an hour. While there are some issues, we are addressing them promptly. We are also releasing third-party solar compatibility for the IQ Battery 10C, which is in high demand from installers and should increase our market share. Furthermore, we anticipate seeing the benefits from FEOC and domestic content. The December increase was likely tied to 25D, so I wouldn't place too much significance on it, although we would like to take some credit. We expect progress with the fourth generation and anticipate capturing more market share with the fifth generation due to its improved economics. Despite existing tariffs, we can still achieve good gross margins and provide attractive pricing for consumers.

Can you talk about where battery inventories are right now in the channel, particularly in Europe as you look at some of the demand that's growing in both the Netherlands and France and even in Australia, I just want to get a sense of how lean the channel is and if there's some product that needs to move through before you start growing in the second quarter?

In general, we are very pleased with where we ended the channel both in the U.S. and internationally. Previously, I mentioned that what we consider normal is 8 to 10 weeks. In the U.S., the channel is actually much leaner, which is an improvement over that normal range. Looking ahead, when we consider the expected demand reduction in 2026 compared to 2025, I would say that the forward-looking weeks on hand falls within the normal range. There is nothing excessive in the channel. We are managing it well, and channel management is deeply embedded in our operations. We do not foresee this being an issue.

Yes, this is Raghu. We view the situation quite broadly and do not consider the battery to be the only flexible resource available. For example, the EV charger can be seen as a flexible resource, and bidirectional EV charging is another. Solar energy itself can also be categorized as a flexible resource. Our perspective encompasses more than just one aspect. Each product we launch is considered in the context of its role in the Virtual Power Plant (VPP). We ensure that we have top-tier APIs available so that people can utilize these resources, as they are capable of generating value and improving homeowners' returns on investment. The grid services you've mentioned, such as reactive power support, voltage assistance, and resource adequacy, are all integrated into the products we develop because we anticipate that they will be utilized as the VPP market continues to grow. While our primary focus has been on batteries, our participation in VPP has been quite robust with various partners, including the San Diego Community Power and Green Mountain Power, which are just two examples of our broader efforts. We are enthusiastic about our achievements in the VPP space and are closely monitoring the performance of our VPP APIs and our server capabilities to meet demand. In addition to our activities in the U.S., we are also engaged in VPP projects in Europe, particularly in the Netherlands, where we are addressing capacity imbalances and dynamic tariffs, trading our batteries frequently in the market. This evolution is crucial for our business as data center demand increasingly strains the grid, and we believe that behind-the-meter resources will significantly help alleviate that pressure. Aggregating these resources and participating in the market is essential, and we have observed this trend while actively refining our products to ensure top-tier participation in the market.

I was wondering if we could discuss safe harbor for a moment. To confirm, you've stated that there is $63 million in the order, some of which is expected in Q1 and included in your guidance, and I'll assume a similar amount for Q2. You also mentioned the possibility of recognizing some revenue in Q3 for future years. I'm curious if you have any insights from your partners regarding what those orders might look like as we approach 2028 and 2029 for safe harbor.

No, it's too early for us to forecast any safe harbor orders. We don't really know right now, and TPO partners typically have until around July 1st to finalize their plans based on the deadline we see. Therefore, we do anticipate a lot of activity in Q2. We announced two transactions, one in the 50s and another in the 60s. One was a physical work test, and the other was a 5% safe harbor. We even expect some of those customers to place repeat safe harbor orders, but right now, it's too early for us to say.

One question as it relates to the prepaid leases. What is the attach rate for batteries in your opinion? And how does that kind of compare to the cash and loan channels? And just as a follow-up, what kind of changes the attach rate most? Do you think it's more about like payment structure or the system sizing or maybe even the utility tariff design? Any views on that?

Sorry, it's just too early for us to answer. But I mean, the obvious answer in California, we expect it to be 100% attached in California. We don't have enough for a presentation or enough statistics from other states to tell you meaningfully. So hopefully, in another three months, we'll be able to share a lot more. Thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter. Bye.