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ENPHASE ENERGY, INC.

(ENPH)
  Report
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ENPHASE ENERGY, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

07/26/2022 | 04:25pm EDT

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 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; risks related to the ongoing
COVID-19 pandemic; geo-political events, such as the conflict in Ukraine; and
the anticipated benefits and risks relating to our recent acquisitions. You
should be aware that the forward-looking statements contained in this report are
based on our current views and assumptions, and are subject to known and unknown
risks, uncertainties and other factors that may cause actual events or results
to differ materially. For a discussion identifying some of the important factors
that could cause actual results to vary materially from those anticipated in the
forward-looking statements, see below, those discussed in the section entitled
"Risk Factors" herein and those included in our Annual Report on Form 10-K for
the year ended December 31, 2021 filed on February 11, 2022 (the "Form 10-K").
Unless the context requires otherwise, references in this report to "Enphase,"
"we," "us" and "our" refer to Enphase Energy, Inc. and its consolidated
subsidiaries.

Business Overview


We are a global energy technology company. We deliver smart, easy-to-use
solutions that manage solar generation, storage and communication on one
platform. We revolutionized the solar industry with our microinverter technology
and we produce a fully integrated solar-plus-storage solution. As of June 30,
2022, we have shipped more than 48 million microinverters, and approximately 2.5
million Enphase residential and commercial systems have been deployed in more
than 140 countries.

The Enphase® Energy System™, powered by IQ® Microinverters and IQ™ Batteries,
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 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 Energy System 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 solutions maximizes a home's energy potential
while providing advanced monitoring and remote maintenance capabilities. The
Enphase Energy System with IQ uses a single technology platform for seamless
management of the whole solution, enabling rapid commissioning with the Enphase®
Installer App; consumption monitoring with IQ™ Gateway with IQ Combiner+™,
Enphase® App, a cloud-based energy management platform, and our IQ™ Battery.
System owners can use the Enphase App 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 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.

In March 2022, we completed the acquisition of SolarLeadFactory, LLC.
("SolarLeadFactory"), a privately-held company. SolarLeadFactory provides high
quality leads to solar installers. As part of the purchase price, we paid
approximately $26.1 million in cash on March 14, 2022. In addition to the
purchase price paid, we are obligated to pay up to approximately $10.0 million
in shares of our common stock in the second quarter of 2023 subject to
achievement of certain operational and employment targets.

Further details on the above 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. | 2022 Form 10-Q | 37
--------------------------------------------------------------------------------

Impact of the COVID-19 Pandemic


We continue to monitor, evaluate and respond to developments relating to the
COVID-19 pandemic, which has resulted in, and is expected to continue to result
in manufacturing or supply chain problems, disruptions in local and global
economies, volatility in the global financial markets, overall reductions in
demand, delays in payment, restrictions on the shipment of our products, or
other ramifications. We have reopened some of our offices, but a majority of our
employees continue to work remotely. We continue to take meaningful precautions
in accordance with relevant guidelines to protect the health and safety of our
employees. The extent of the continuing impact of COVID-19 on our operational
and financial performance will depend on various developments, including the
duration and spread of the virus and its variants, impact on our end-customers'
spending, volume of sales, impact on our partners, suppliers and employees, and
actions that may be taken by governmental authorities, including the effects of
recent government-mandated lockdowns in several cities in China. If the COVID-19
pandemic or its adverse effects become more severe or prevalent or are prolonged
in the locations where we, our customers, suppliers or manufacturers conduct
business, or we experience more pronounced disruptions in our business or
operations, or in economic activity and demand for our products and services
generally, our business and results of operations in future periods could be
materially adversely affected. Further information relating to the risks and
uncertainties related to the ongoing COVID-19 pandemic may be found in Part I,
Item 1A "Risk Factors" of the Form 10-K.

Supply Chain Constraints


Due to increased demand across a range of industries, the global supply chain
and the semiconductor industry have experienced significant disruptions in
recent periods. We have seen supply chain challenges and logistics constraints
increase, including component shortages, which have, in certain cases, caused
delays in critical components and inventory, longer lead times, and have
resulted in increased costs. We believe these supply chain challenges will
persist for the foreseeable future. In addition, the impact of inflation on the
price of components, raw materials and labor has increased.

We continue to work to mitigate the effects from supply chain constraints. Given
the dynamic nature of these circumstances on our ongoing business, results of
operations and overall financial performance, the full impact of COVID-19 and
other macroeconomic factors, including the conflict in Ukraine, cannot be
reasonably estimated at this time. In the event we are unable to mitigate the
impact of delays and/or price increases in raw materials, electronic components
and freight, it could delay the manufacturing and installation of our products,
which would adversely impact our cash flows and results of operations, including
revenue and gross margin.

Products

Our Enphase IQ Battery storage systems, with usable and scalable capacity of
10.1 kWh and 3.4 kWh, based on Ensemble OS™ energy management technology, which
powers the world's first grid-independent microinverter-based storage system to
customers in North America, have been shipping since the second quarter of 2020.
The Enphase IQ Battery storage systems feature our 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™, IQ6™ and IQ7™ microinverters. In January 2021, we
announced expanded compatibility of the Enphase® Energy System™ with our
M-series microinverters and 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 continued
commitment to reliability, service, and long-term customer relationships. We
currently ship our Enphase IQ Battery storage systems to customers in North
America, Germany and Belgium. Enphase IQ Batteries in Germany and Belgium can be
installed with both single-phase and three-phase third-party solar energy
inverters, enabling homeowners to upgrade their existing home solar systems with
a residential battery storage solution that reduces costs while providing
increased self-reliance. We plan to introduce Enphase IQ Batteries in other
European countries throughout 2022.

During the second quarter of 2021, we introduced IQ™ Load Controller for our
Enphase IQ 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. These loads will be on when the grid is present and
shed automatically in the event of a grid failure. We began shipping our IQ Load
Controller, which includes updated features, in December 2021.

                   Enphase Energy, Inc. | 2022 Form 10-Q | 38
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Our Enphase Energy System integrates with most leading models of home standby AC
generators, providing enhanced performance and a glitch-free transition for
homeowners during power outages. Homeowners can also monitor real-time power
flow, start and stop their generator remotely, set quiet hours to prevent their
generator from operating until their batteries fall below a designated
threshold, and control it all with the Enphase® App. The new feature functions
without a generator automatic transfer switch and is designed to eliminate the
power glitches that reset home electronic appliances when switching to generator
power.

We began shipping our Enphase Energy System with IQ8™ microinverters in the
fourth quarter of 2021 to customers in North America. Our investment in custom
application specific integrated circuit chips has resulted in a software-defined
microinverter smart enough to form a microgrid. Many homeowners often assume
that their solar systems will function if the sun is shining, even during a
power outage. This has unfortunately not been true until the introduction of
IQ8. Now, with IQ8 homeowners can realize the true promise of solar - to make
and use their own power. IQ8 solar microinverters can provide Sunlight Backup™
during an outage, even without a battery.

In the second quarter of 2022 the Enphase IQ8 Microinverter-based system was
certified by UL, a global safety science leader, for the new North American
safety and grid interconnection standards for connecting solar inverters, energy
storage systems, and distributed energy resources to the grid.

We participate in the ConnectedSolutions program, which is an incentive program
implemented by two utilities in the Northeast region of the United States to
reduce electrical demand during high-use periods. Enphase Storage customers in
Connecticut, Massachusetts and Rhode Island can sign-up, monitor, track money
earned, and control participation in the program using the Enphase App. We
announced during the third quarter of 2021 our participation in Hawaiian
Electric's Battery Bonus grid services program. This program offers a new
incentive for homeowners on the island of Oahu to install a new home battery.
During the fourth quarter of 2021, we announced our participation in the Arizona
Public Service ("APS") residential battery services program. The APS program
offers homeowners who install Enphase IQ Batteries in its service territory the
chance to participate and earn money through one-time, upfront incentives. In
addition, we announced during the first quarter of 2022 that the Vermont-based
utility Green Mountain Power ("GMP") will offer Enphase Energy Systems to its
customers in a cutting-edge battery lease grid services pilot program.
Homeowners can also enroll in GMP's "Bring Your Own Device" grid services
program, which enables customers with their own Enphase Energy Systems to
participate and earn an up-front incentive. These grid services programs enable
utilities to leverage the IQ Battery instead of turning on polluting peaker
plants, while generating an income stream for the IQ Battery owner. Facilitating
grid services participation for our customers intended to reduce the lifetime
cost of IQ Batteries and help drive increased demand.

Results of Operations

Net Revenues


                   Three Months Ended                                        Six Months Ended
                        June 30,                    Change in                    June 30,                    Change in
                  2022           2021             $            %           2022           2021             $            %

                                                     (In thousands, except percentages)
Net revenues   $ 530,196      $ 316,057      $ 214,139        68   %    $ 971,488      $ 617,811      $ 353,677        57   %

Three months ended June 30, 2022 and 2021


Net revenues increased by 68%, or $214.1 million, in the three months ended
June 30, 2022, as compared to the same period in 2021, driven primarily by a 42%
increase in microinverter units volume shipped and a 205% increase in Enphase IQ
Battery Megawatt-hour ("MWh") shipped. In the three months ended June 30, 2022,
consumer demand increased and component supply improved as we sold approximately
3.3 million microinverter units, as compared to approximately 2.4 million units
in the three months ended June 30, 2021. In the three months ended June 30,
2022, we also increased shipments of our Enphase IQ Batteries to customers in
the United States and Europe to 132.4 MWh as compared to 43.4 MWh shipped in the
same period in 2021. The average selling price of our microinverter products
increased by 18% in the three months ended June 30, 2022, as compared to the
same period in 2021, primarily driven by a favorable product mix as we sold more
IQ8 and IQ7+™ microinverters relative to IQ7 microinverters in the three months
ended June 30, 2022 and increased prices for our product offerings in the second
half of 2021 to partially offset the impact of higher logistics costs and
component costs from global supply chain pricing pressures.

                   Enphase Energy, Inc. | 2022 Form 10-Q | 39
--------------------------------------------------------------------------------

Six months ended June 30, 2022 and 2021


Net revenues increased by 57%, or $353.7 million, in the six months ended June
30, 2022, as compared to the same period in 2021, driven primarily by a 28%
increase in microinverter units volume shipped and a 196% increase in Enphase IQ
Battery MWh shipped. In the six months ended June 30, 2022, consumer demand
increased and component supply improved, as we sold approximately 6.2 million
microinverter units, as compared to approximately 4.8 million units in the six
months ended June 30, 2021. In the six months ended June 30, 2022, we also
increased shipments of our Enphase IQ Batteries to customers in the United
States and Europe to 252.8 MWh, as compared to 85.4 MWh shipped in the same
period in 2021. The average selling price of our microinverter products
increased by 16% in the six months ended June 30, 2022, as compared to the same
period in 2021, primarily driven by a favorable product mix, as we sold more IQ8
and IQ7+ microinverters relative to IQ7 microinverters in the six months ended
June 30, 2022 and increased prices for our product offerings in the second half
of 2021 to partially offset the impact of higher logistics costs and component
costs from global supply chain pricing pressures.

Cost of Revenues and Gross Margin

                              Three Months Ended                                                        Six Months Ended
                                   June 30,                            Change in                            June 30,                            Change in
                            2022               2021                $                 %               2022               2021                $                 %

                                                                            (In thousands, except percentages)
Cost of revenues        $ 311,191          $ 188,256          $ 122,935              65  %       $ 575,510          $ 367,061          $ 208,449              57  %
Gross profit            $ 219,005          $ 127,801          $  91,204              71  %       $ 395,978          $ 250,750          $ 145,228              58  %
Gross margin                 41.3  %            40.4  %                             0.9  %            40.8  %            40.6  %                             0.2  %

Three months ended June 30, 2022 and 2021


Cost of revenues increased by 65%, or $122.9 million, in the three months ended
June 30, 2022, as compared to the same period in 2021, primarily due to higher
volume of microinverter units sold, higher Enphase IQ Battery MWh shipped,
higher shipping costs of our products due to supply chain disruptions and
constraints globally. The increase was also due to $1.4 million higher
amortization of developed technology and $2.1 million higher stock-based
compensation.

Gross margin increased by 0.9 percentage points in the three months ended
June 30, 2022, as compared to the same period in 2021. The increase was
primarily due to product mix as we sold more IQ8 and IQ7+™ microinverters
relative to IQ7 microinverters in the three months ended June 30, 2022, an
increase in average selling prices driven by favorable product mix and price
increases to our products, as well as cost management effort. This increase was
partially offset by higher shipping costs of our products due to supply chain
disruptions globally in combination with semiconductor supply constraints, $1.4
million higher amortization of developed technology and $2.1 million higher
stock-based compensation.

Six months ended June 30, 2022 and 2021


Cost of revenues increased by 57%, or $208.4 million, in the six months ended
June 30, 2022, as compared to the same period in 2021, primarily due to higher
volume of microinverter units sold, higher Enphase IQ Battery MWh shipped and
higher shipping costs of our products due to supply chain disruptions and
constraints globally. The increase was also due to $2.7 million higher
amortization of developed technology and $3.6 million higher stock-based
compensation.

Gross margin increased by 0.2 percentage points in the six months ended June 30,
2022, as compared to the same period in 2021. The increase was primarily due to
product mix, as we sold more IQ8 and IQ7+ microinverters relative to IQ7
microinverters in the six months ended June 30, 2022, an increase in average
selling prices driven by favorable product mix and price increases to our
products, as well as cost management effort. The increase was partially offset
by higher shipping costs of our products due to supply chain disruptions
globally in combination with semiconductor supply constraints, $2.7 million
higher amortization of developed technology and $3.6 million higher stock-based
compensation.

                   Enphase Energy, Inc. | 2022 Form 10-Q | 40
--------------------------------------------------------------------------------
Research and Development

                                  Three Months Ended                                                     Six Months Ended
                                       June 30,                           Change in                          June 30,                           Change in
                                2022              2021                $                %              2022              2021                $                %

                                                                              (In thousands, except percentages)
Research and development     $ 39,256          $ 22,708          $ 16,548              73  %       $ 74,975          $ 44,526          $ 30,449              68  %
Percentage of net revenues          7  %              7  %                                                8  %              7  %

Three months ended June 30, 2022 and 2021


Research and development expense increased by 73%, or $16.5 million, in the
three months ended June 30, 2022, as compared to the same period in 2021.
The increase was primarily due to $16.3 million of higher personnel-related
expenses and $0.2 million of outside consulting services and equipment expense
associated with our investment in the development, introduction and
qualification of new product innovation. The increase in personnel-related
expenses was primarily due to hiring and retention programs for employees in New
Zealand, India and the United States, which increased total compensation 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.

Six months ended June 30, 2022 and 2021


Research and development expense increased by 68%, or $30.4 million, in the six
months ended June 30, 2022, as compared to the same period in 2021.
The increase was primarily due to $28.4 million of higher personnel-related
expenses and $1.6 million of outside consulting services and equipment expense
associated with our investment in the development, introduction and
qualification of new product innovation. The increase in personnel-related
expenses was primarily due to hiring and retention programs for employees in New
Zealand, India and the United States, which increased total compensation 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.

Sales and Marketing

                             Three Months Ended                                                     Six Months Ended
                                  June 30,                           Change in                          June 30,                           Change in
                           2022              2021                $                %              2022              2021                $                %

                                                                         (In thousands, except percentages)
Sales and marketing     $ 53,588          $ 25,586          $ 28,002             109  %       $ 94,932          $ 45,208          $ 49,724            
110  %
Percentage of net
revenues                      10  %              8  %                                               10  %              7  %

Three months ended June 30, 2022 and 2021


Sales and marketing expense increased by 109%, or $28.0 million, in the three
months ended June 30, 2022, as compared to the same period in 2021. The increase
was primarily due to $25.4 million of higher personnel-related expenses from
increased headcount as a result of our efforts to improve customer experience,
to provide 24/7 support along with a field service desk for installers and
Enphase system owners globally, and to support our business growth in the United
States and international expansion in Europe. In addition, annual retention
programs for employees also resulted in the increase in total compensation
costs, including stock-based compensation. The increase in sales and marketing
expense in the three months ended June 30, 2022, as compared to the same period
in 2021, was also attributable to $2.0 million higher amortization of intangible
assets acquired through business combinations and $0.6 million of higher
professional services and facility costs to enable business growth.

Six months ended June 30, 2022 and 2021


Sales and marketing expense increased by 110%, or $49.7 million, in the six
months ended June 30, 2022, as compared to the same period in 2021. The increase
was primarily due to $42.9 million of higher personnel-related expenses from
increased headcount as a result of our efforts to improve customer experience,
to provide 24/7 support along with a field service desk for installers and
Enphase system owners globally, and to support our business growth in the United
States and international expansion in Europe. In addition, annual retention
programs

                   Enphase Energy, Inc. | 2022 Form 10-Q | 41
--------------------------------------------------------------------------------

for employees also resulted in the increase in total compensation costs,
including stock-based compensation. The increase in sales and marketing expense
in the six months ended June 30, 2022, as compared to the same period in 2021,
was also attributable to $4.4 million higher amortization of intangible assets
acquired through business combinations and $2.3 million of higher professional
services and facility costs to enable business growth

General and Administrative

                                   Three Months Ended                                                     Six Months Ended
                                        June 30,                           Change in                          June 30,                           Change in
                                 2022              2021                $                %              2022              2021                $                %

                                                                               (In thousands, except percentages)
General and administrative    $ 32,125          $ 20,107          $ 12,018              60  %       $ 70,211          $ 40,230          $ 29,981              75  %
Percentage of net revenues           6  %              6  %                                                7  %              7  %

Three months ended June 30, 2022 and 2021


General and administrative expense increased by 60%, or $12.0 million, in the
three months ended June 30, 2022, as compared to the same period in 2021. The
increase was primarily due to $7.1 million of higher personnel-related expenses
from increased headcount increasing total compensation costs, including
stock-based compensation and post business combination employment-related
expense, $2.6 million of investments in technological infrastructure and other
operational and facilities costs to support scalability of our business growth,
$1.5 million of higher legal and professional services and $1.2 million of asset
impairment, partially offset by a $0.5 million decrease in acquisition-related
costs.

Six months ended June 30, 2022 and 2021


General and administrative expense increased by 75%, or $30.0 million, in the
six months ended June 30, 2022, as compared to the same period in 2021. The
increase was primarily due to $25.0 million of higher personnel-related expenses
as a result of an increase in headcount increasing total compensation costs,
including stock-based compensation and post business combination
employment-related expense, $4.6 million of investments in technological
infrastructure and other operational and facilities costs to support scalability
of our business growth, $2.1 million of higher legal and professional services
and $1.2 million of asset impairment, partially offset by a decrease of $3.1
million of acquisition-related costs.

Other Income (Expense), Net

                         Three Months Ended                                                        Six Months Ended
                              June 30,                            Change in                            June 30,                           Change in
                       2022               2021                $                %               2022               2021                $                %

                                                                       (In thousands, except percentages)
Interest income    $     796          $      98          $    698              712  %       $  1,256          $     171          $  1,085              635  %
Interest expense      (2,168)           (12,506)           10,338              (83) %         (4,904)           (19,835)           14,931              (75) %
Other expense, net      (456)              (633)              177              (28) %         (2,597)               (60)           (2,537)           4,228  %
Loss on partial
settlement of
convertible notes          -                (13)               13             (100) %              -            (56,382)           56,382             (100) %

Total other
expense, net       $  (1,828)         $ (13,054)         $ 11,226              (86) %       $ (6,245)         $ (76,106)         $ 69,861              (92) %


Three months ended June 30, 2022 and 2021


Interest income of $0.8 million in the three months ended June 30, 2022
increased, as compared to $0.1 million for the three months ended June 30, 2021,
was primarily due to an increase in interest rates earned on cash, cash
equivalents and marketable securities in the three months ended June 30, 2022,
as compared to the same period in 2021.

Cash interest expense


Cash interest expense in each of the three months ended June 30, 2022 and 2021
totaled $0.1 million. Cash interest expense in the three months ended June 30,
2022 primarily includes $0.1 million interest incurred with the Notes due 2025
and Notes due 2023. Cash interest expense in the three months ended June 30,
2021 primarily

                   Enphase Energy, Inc. | 2022 Form 10-Q | 42
--------------------------------------------------------------------------------

includes approximately $0.1 million coupon interest incurred with our Notes due
2025, Notes due 2024 and Notes due 2023 and less than approximately $0.1 million
accretion of interest expense on contingent consideration.

Non-cash interest expense


Non-cash interest expense of $2.1 million in the three months ended June 30,
2022 primarily related to $2.1 million for the debt discount amortization with
our Notes due 2025 and amortization of debt issuance costs with our Notes due
2023, Notes due 2025, Notes due 2026 and Notes due 2028. Non-cash interest
expense of $12.3 million in the three months ended June 30, 2021 primarily
relates to $12.3 million for the debt discount and amortization of debt issuance
costs with our Notes due 2024, Notes due 2025, Notes due 2026 and Notes due 2028
and less than approximately $0.1 million relates to the amortization of debt
issuance costs associated with Notes due 2023.

Other expense, net of $0.5 million expense in the three months ended June 30,
2022 relates to a $1.5 million net loss related to foreign currency denominated
monetary assets and liabilities, partially offset by $1.0 million non-cash net
gain related to change in the fair value of debt securities. Other (expense)
income, net of $0.6 million expense in the three months ended June 30, 2021,
relates to a $1.5 million net loss related to foreign currency exchange and
remeasurement, partially offset by $0.9 million non-cash gain related to the
change in the fair value of debt securities.

Six months ended June 30, 2022 and 2021


Interest income of $1.3 million in the six months ended June 30, 2022 increased,
as compared to $0.2 million for the six months ended June 30, 2021, primarily
due to an increase in interest rates earned on cash, cash equivalents and
marketable securities in the six months ended June 30, 2022, as compared to the
same period in 2021.

Cash interest expense

Cash interest expense in the six months ended June 30, 2022 and 2021 totaled
$0.9 million and $0.4 million, respectively. Cash interest expense in the six
months ended June 30, 2022 primarily includes $0.8 million interest incurred
with the Notes due 2025 and Notes due 2023, and $0.1 million accretion of
interest expense on contingent consideration for an acquisition. Cash interest
expense in the six months ended June 30, 2021 primarily includes $0.3 million
coupon interest incurred with our Notes due 2025, Notes due 2024 and Notes due
2023 and $0.1 million accretion of interest expense on contingent consideration.

Non-cash interest expense


Non-cash interest expense of $4.0 million in the six months ended June 30, 2022
primarily related to $4.0 million for the debt discount amortization with our
Notes due 2025 and amortization of debt issuance costs with our Notes due 2023,
Notes due 2025, Notes due 2026 and Notes due 2028. Non-cash interest expense of
$19.5 million in the six months ended June 30, 2021 primarily relates to $19.4
million for the debt discount and amortization of debt issuance costs with our
Notes due 2024, Notes due 2025, Notes due 2026 and Notes due 2028 and less than
$0.1 million relates to the amortization of debt issuance costs associated with
Notes due 2023.

Other expense, net of $2.6 million expense in the six months ended June 30, 2022
relates to $2.2 million net loss related to foreign currency denominated
monetary assets and liabilities, $0.3 million impairment of note receivable and
$0.1 million non-cash net loss related to change in the fair value of debt
securities. Other (expense) income, net of less than $0.1 million expense in the
six months ended June 30, 2021, related to a $2.4 million net loss related to
foreign currency exchange and remeasurement, partially offset by $2.3 million
non-cash gain related to change in the fair value of debt securities.

Loss on partial settlement of convertible notes recorded in the six months ended
June 30, 2021 primarily related to the $9.5 million non-cash loss on partial
settlement of $87.1 million aggregate principal amount of the Notes due 2024,
$9.5 million non-cash loss on partial settlement of $217.8 million aggregate
principal amount of the Notes due 2025 and $37.5 million non-cash inducement
loss incurred on repurchase of Notes due 2025. We did not have any such loss in
the six months ended June 30, 2022.

                   Enphase Energy, Inc. | 2022 Form 10-Q | 43
--------------------------------------------------------------------------------

Income Tax (Provision) Benefit

                           Three Months Ended                                                       Six Months Ended
                                June 30,                            Change in                           June 30,                            Change in
                         2022               2021                $                %               2022              2021                $                 %

                                                                         (In thousands, except percentages)
Income tax
(provision) benefit  $  (15,232)         $ (6,995)         $ (8,237)            118  %       $ (20,818)         $ 26,369          $ (47,187)           

(179) %

Three months ended June 30, 2022 and 2021


The income tax provision of $15.2 million in the three months ended June 30,
2022 increased, as compared to the income tax provision of $7.0 million in the
same period in 2021, both calculated using the annualized effective tax rate
method, primarily due to higher projected tax expense in U.S. and foreign
jurisdictions that are more profitable in 2022 compared to 2021, partially
offset by tax deduction from employee stock-based compensation.

Six months ended June 30, 2022 and 2021


The income tax provision of $20.8 million in the six months ended June 30, 2022
was calculated using the annualized effective tax rate method, primarily relates
to higher projected tax expense in U.S. and foreign jurisdictions that are more
profitable in 2022, partially offset by tax deduction from employee stock-based
compensation.

The income tax benefit of $26.4 million for the six months ended June 30, 2021
was calculated using the annualized effective tax rate method, primarily relates
to higher tax deduction from employee stock-based compensation, partially offset
by higher projected tax expense in foreign jurisdictions that are profitable in
2021.

Liquidity and Capital Resources

Sources of Liquidity


As of June 30, 2022, we had $1.3 billion in net working capital, including cash,
cash equivalents and marketable securities of $1.2 billion, of which
approximately $1.2 billion were held in the United States. Our cash, cash
equivalents and marketable securities primarily consist of U.S. treasuries,
money market mutual funds, corporate notes and bonds and both interest-bearing
and non-interest-bearing deposits, with the remainder held in various foreign
subsidiaries. We consider amounts held outside the United States to be
accessible and have provided for the estimated U.S. income tax liability
associated with our foreign earnings.

                                                         Six Months Ended
                                                             June 30,                          Change in
                                                                                       2022                  2021                 $                  %

                                                                                                     (In thousands, except percentages)
Cash, cash equivalents and marketable
securities                                                                       $   1,247,801          $ 1,312,261          $ (64,460)                (5) %
Total Debt                                                                           1,286,215            1,014,140            272,075                 27  %


Our cash, cash equivalents and marketable securities decreased by $64.5 million
in the six months ended June 30, 2022, compared to the same period in 2021,
primarily due to use of cash to fund acquisitions, repurchase shares of our
common stock, make investments in private companies, and make payments of
withholding taxes related to net share settlement of equity awards, partially
offset by cash generated from operations.

Total carrying amount of debt increased by $272.1 million in the six months
ended June 30, 2022, as compared to the same period in 2021, primarily due to
adoption of ASU 2020-06 as of January 1, 2022, partially offset by repayment of
the Notes due 2024 and partial repayment of the Notes due 2025. Refer to Note 1,
"Description of Business and Basis of Presentation - Recently Adopted Accounting
Pronouncements" in this Quarterly Report on Form 10-Q for further information on
adoption of ASU 2020-06.

We had net operating loss carryforwards for federal and California income tax
purposes of approximately $153.9 million and $92.8 million, respectively, as
well as federal and state research credit carryforwards of approximately $17.3
million and $9.8 million, respectively, as of December 31, 2021. When we utilize
all of our net operating loss and research credit carryforwards, which we expect
to occur within the next twelve months from June 30, 2022, our cash paid for
taxes in the U.S. will substantially increase.

                   Enphase Energy, Inc. | 2022 Form 10-Q | 44
--------------------------------------------------------------------------------

We plan to fund any cash requirements from our existing cash, cash equivalents
and marketable securities on hand, and cash generated from operations. We
anticipate that the debt market will be more limited compared to prior years as
interest rates are expected to rise. Our ability to obtain debt or any other
additional financing that we may choose to, or need to, obtain will depend on,
among other things, our development efforts, business plans, operating
performance and the condition of the capital markets at the time we seek
financing.

Cash from operations could be affected by various risks and uncertainties,
including, but not limited to, the continued effects of COVID-19, the ongoing
conflict in Ukraine and other risk factors discussed in the section entitled
"Risk Factors" herein and those included in the Form 10-K. We believe that our
cash flow from operations with existing cash, cash equivalents and marketable
securities will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months and thereafter
for the foreseeable future, including our ability to make payment on our
outstanding debt.

Our future capital requirements will depend on many factors including our growth
rate, the timing and extent of spending to support development efforts, the
expansion of sales and marketing activities, the introduction of new and
enhanced products, the costs to acquire or invest in complementary businesses
and technologies, the costs to ensure access to adequate manufacturing capacity,
the continuing market acceptance of our products and macroeconomic events, such
as the impacts from the COVID-19 pandemic, inflation, and the ongoing conflict
in Ukraine. We may also choose to seek additional equity or debt financing. In
the event that additional financing is required from outside sources, we may not
be able to raise it on terms acceptable to us or at all. If we are unable to
raise additional capital when desired, our business, operating results and
financial condition may be adversely affected.

Repurchase of Common Stock. In May 2021, our board of directors authorized a
share repurchase program (the "2021 Repurchase Program") pursuant to which we
may repurchase up to an additional $500.0 million of our common stock. The
repurchases may be executed from time to time, subject to general business and
market conditions and other investment opportunities, through open market
purchases or privately negotiated transactions, including through Rule 10b5-1
plans. Such purchases are expected to continue through May 2024 unless otherwise
extended or shortened by our board of directors. As of June 30, 2022, we have
approximately $200.0 million remaining for repurchase of shares under the 2021
Repurchase Program.

Cash Flows. The following table summarizes our cash flows for the periods
presented:

                                                           Six Months Ended
                                                               June 30,
                                                         2022           2021

                                                            (In thousands)
Net cash provided by operating activities             $ 303,093      $ 

141,501

Net cash provided by (used in) investing activities      84,226       (126,607)
Net cash provided by (used in) financing activities     (10,220)       618,914
Effect of exchange rate changes on cash                    (942)          

(926)

Net increase in cash and cash equivalents             $ 376,157      $ 

632,882

Cash Flows from Operating Activities


Cash flows from operating activities consist of our net income adjusted for
certain non-cash reconciling items, such as stock-based compensation expense,
change in the fair value of investments, deferred income taxes, depreciation and
amortization and changes in our operating assets and liabilities. Net cash
provided by operating activities increased by $161.6 million in the six months
ended June 30, 2022, as compared to the same period in 2021, primarily due to an
increase in our gross profit as a result of increased revenue, partially offset
by higher operating expenses as we continue to invest in the long-term growth of
our business.

Cash Flows from Investing Activities


For the six months ended June 30, 2022, net cash provided from investing
activities of $84.2 million was primarily from $193.0 million maturities of
marketable securities, partially offset by $60.1 million purchase of marketable
securities, $27.7 million net cash used to acquire SolarLeadFactory and Clipper
Creek, Inc., and $21.1 million used in purchases of test and assembly equipment
to expand our supply capacity, related facility improvements and information
technology enhancements including capitalized costs related to internal-use
software.

                   Enphase Energy, Inc. | 2022 Form 10-Q | 45
--------------------------------------------------------------------------------

For the six months ended June 30, 2021, net cash used in investing activities of
$126.6 million was primarily from $55.3 million net cash used to acquire Sofdesk
Inc. and DIN Engineer Service LLP's solar design services business,
$45.0 million from the investment in a debt security, and $26.4 million used in
purchases of test and assembly equipment to expand our supply capacity, related
facility improvements and information technology enhancements including
capitalized costs related to internal-use software.

Cash Flows from Financing Activities


For the six months ended June 30, 2022, net cash used by financing activities of
approximately $10.2 million was primarily due to $14.8 million payment of
employee withholding taxes related to net share settlement of equity awards,
partially offset by $4.6 million net proceeds from employee stock option
exercises and purchases under our employee stock purchase plan.

For the six months ended June 30, 2021, net cash provided by financing
activities of approximately $618.9 million was primarily from $1,188.4 million
net proceeds from the issuance of our Notes due 2028 and Notes due 2026, $220.8
million from sale of warrants related to our Notes due 2028 and Notes due 2026
and $3.6 million net proceeds from employee stock option exercises, partially
offset by $286.2 million purchase of convertible note hedge related to our Notes
due 2028 and Notes due 2026, $289.3 million cash paid to settle both $87.1
million in aggregate principal amount of the Notes due 2024 and $217.8 million
in aggregate principal amount of the Notes due 2025, $200.0 million paid to
repurchase shares of our common stock, $17.0 million payment of employee
withholding taxes related to net share settlement of equity awards, and $1.4
million of repayment on sale of long-term financing receivables.

Contractual Obligations


Our contractual obligations primarily consist of our Notes due 2028, Notes due
2026, Notes due 2025, Notes due 2023, obligations under operating leases and
inventory component purchase. As of June 30, 2022, there have been no material
changes from our disclosure in the Form 10-K. For more information on our future
minimum operating leases and inventory component purchase obligations as of
June 30, 2022, see   Note 10  , "Commitments and Contingencies - Purchase
Obligations" and for more information on our notes and other related debt, see

Note 9 , "Debt" of the notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Critical Accounting Policies


Our condensed consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the U.S. ("GAAP"). In connection
with the preparation of our condensed consolidated financial statements, we are
required to make assumptions and estimates about future events and apply
judgments that affect the reported amounts of assets, liabilities, revenue,
expenses and related disclosures. We base our assumptions, estimates and
judgments on historical experience, current trends and other factors that
management believes to be relevant at the time our condensed consolidated
financial statements are prepared. On a regular basis, we review the accounting
policies, assumptions, estimates and judgments to ensure that our condensed
consolidated financial statements are presented fairly and in accordance with
GAAP. However, because future events and their effects cannot be determined with
certainty, actual results could differ from our assumptions and estimates. To
the extent that there are material differences between these estimates and
actual results, our future financial statement presentation, financial
condition, results of operations and cash flows will be affected.

We consider an accounting policy to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, and if different estimates that reasonably
could have been used, or changes in the accounting estimates that are reasonably
likely to occur periodically, could materially impact the condensed consolidated
financial statements.

Adoption of New and Recently Issued Accounting Pronouncements

Refer to Note 1 , "Description of Business and Basis of Presentation - Summary of Significant Accounting Policies" of the notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of adoption of new and recently issued accounting pronouncements.

                   Enphase Energy, Inc. | 2022 Form 10-Q | 46

--------------------------------------------------------------------------------

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