Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's third quarter 2026 results. On today's call are Badri Kothandaraman, our President and Chief Executive Officer; Mandy Yang, our Chief Financial Officer; and Raghu Belur, our Chief Products Officer. After the market closed today, Enphase issued a press release announcing the results for its third quarter ended September 30, 2026.

During this conference call, Enphase management will make forward-looking statements, including, but not limited to, statements related to our expected future financial performance, market trends, the capabilities of our technology and products and the benefits to homeowners and installers or operations, including manufacturing, customer service and supply demand, anticipated growth in existing and new markets, including the TPO market, the timing of new product introductions and enhancements to existing products and regulatory tax tariff and supply chain matters. These forward-looking statements involve significant risks and uncertainties and our actual results and the timing of events could differ materially from those -- these expectations. For a more complete discussion of the risks and uncertainties, please see our most recent Form 10-K and 10-Qs filed with the SEC.

We caution you not to place any undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events or changes in expectations. Also, please note that financial measures used on this call are expressed on a non-GAAP basis unless otherwise noted and have been adjusted to exclude certain charges. We have provided a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release furnished with the SEC on Form 8-K which can also be found in the Investor Relations section of our website. Now I'd like to introduce Badri Kothandaraman, our President and Chief Executive Officer. Badri?

Good afternoon, and thank you for joining us today to discuss our third quarter 2026 financial results. We reported quarterly revenue of $293.3 million and shipped 1.42 million microinverters and 129.9 megawatt hours of batteries. Our Q3 revenue included $85 million of safe harbor revenue. We exited the quarter with channel inventory a little above normal for batteries and micro inverters. On a GAAP basis, we delivered gross margin of 43.3%, operating expenses of 41.1% and operating income of 2.2%, all as a percentage of revenue.

On a non-GAAP basis, we delivered gross margin of 45%, operating expenses of 26.7% and operating income of 18.3%, all as a percentage of revenue. Mandy will cover the financials later in the call. Our customer service NPS was 79% in the third quarter compared to 80% in the second quarter, while the average call wait time was approximately 1.9 minutes. Our AI assistant has been rolled out to all our homeowners worldwide and we are now rolling it to Enphase installers in this quarter to help them manage their fleet.

Let's cover operations. In the third quarter, we shipped approximately 1.4 million U.S.-made microinverters and battery inverters from our U.S. manufacturing facilities and booked the associated 45X production tax credits. We also shipped 63.8 megawatt hours of IQ batteries from our Texas manufacturing facility in the third quarter. We offer IQ batteries that meet domestic content and FEOC regulations, helping lease and PPA customers qualify for ITC bonuses.

Let's now cover revenue and regional performance. Our global Q3 revenue increased approximately 1% compared to Q2. Our global sell-through also increased by 1% compared to Q2. This fell short of our original expectation for sell-through growth of approximately 10%, which contributed to us delivering revenue towards the lower end of our guidance. Our revenue mix was 80% from the U.S. and 20% from international markets.

In the U.S., revenue increased approximately 3% sequentially. Safe harbor revenue was $85 million in Q3 compared to $84.3 million in Q2. Our U.S. sell-through in Q3 increased by 5% compared to Q2, a more modest increase than expected, primarily due to the impact of interest rates on the residential solar market. On a year-over-year basis, our Q3 '26 sell-through declined 35% compared to Q3 '25 reflecting pressure from higher interest rates and the transition following the expiry of the 25D tax credit.

Third-party market report suggests overall U.S. residential solar permits were also down approximately 35% year-on-year for Q3 '26. With our results in line with these reports, we believe we continue to hold our market share reflecting balanced exposure across channels, including TPOs. Our U.S. commercial sell-through grew approximately 50% in Q3 compared to Q2 as sales of IQ9 Commercial Microinverters ramped. Our current commercial volumes are mostly channel-based with larger direct opportunities emerging for 2027.

In Europe, revenue decreased approximately 11% sequentially in the third quarter, while sell-through also declined approximately 12%, in part due to summer seasonality and a modestly weaker demand environment, particularly in France. Europe is evolving into a battery led market with approximately 50% of our revenue in the region coming from storage systems in Q3. In Netherlands, our battery activations increased 23% in Q3 compared to Q2, a counter-seasonal increase building on the 102% growth in Q2 versus Q1.

Homeowner events have become a successful selling tool for us. In France, however, battery activations went down by 12% compared to Q2, while microinverter activations fell 24%, reflecting summer seasonality and macroeconomic uncertainty that may continue in the short term. In Germany, overall activations were down 5% as compared to Q2. Let's now cover the outlook for the fourth quarter. We expect revenue for the fourth quarter between $225 million and $255 million, including approximately $51.2 million of safe harbor revenue.

For batteries, we expect shipments of 100 to 120 megawatt hours. We are currently about 70% booked to the midpoint of our revenue guidance. Our global sell-through has remained relatively flat over the first 3 quarters of 2026. We are not seeing any meaningful recovery in the U.S. demand. We do expect the global sell-through to decline approximately 10% sequentially in Q4, which is approximately $20 million. With Q1 '27 expected to be seasonally slow, we anticipate distributors will remain cautious about building inventory heading into the new year.

Accordingly, we plan to ship approximately $20 million below sell-through in Q4 to further reduce channel inventory. While the near-term market environment remains challenging, I am very excited about the growth drivers we have established and would like to spend the rest of my remarks on how we see Enphase growing in 2027 and beyond. I will walk through five growth drivers. First, residential batteries; second, recovering our U.S. residential solar business driven by Propel; third, our commercial solar and battery business; fourth, bidirectional EV charging; and fifth, AI data centers with our IQ Solid-State Transformer.

Let me start first with where we are today. In 2026, we expect that approximately 72% of our revenue would have come from residential solar, 21% from residential batteries and 7% from commercial solar, EV charging and other. Now let me walk through each of our growth drivers. Our first growth driver is residential batteries. Global adoption continues to accelerate driven by demand for energy resilience, self-consumption and VPP.

In the U.S., third-party reports estimate Enphase's residential battery market share at approximately 15% to 20%. With approximately 50% share of the U.S. solar inverter market, we see a significant opportunity to achieve a similar market share in residential batteries over time. A key catalyst will be our next-generation IQ Battery G5, our fifth-generation product. This is because the installers have been asking us for a compact stackable AC-coupled battery that scales up to 30-kilowatt hours in a single stack with higher energy density, faster installation and an improved cost structure.

Beyond new solar installations, we also have a substantial retrofit opportunity across approximately 3 million Enphase solar households in the U.S. many of whom could benefit from backup power, energy independence and VPP income. We expect the IQ Battery G5 pilots in the fourth quarter and volume shipments next quarter, Q1 '27. We are also seeing VPPs move from small pilots towards large-scale commercial opportunities.

Major utilities and hyperscalers are engaging with us on programs that compensate homeowners for making their batteries available to support the grid. This is particularly compelling in communities near data centers where distributed batteries can help grow -- help manage growing electricity demand while providing financial benefits to homeowners. We expect utility programs to contribute to growth in 2027 with larger utility and data center-driven VPP opportunities developing in 2028 and beyond.

In Europe, our largest near-term opportunity is the Netherlands, where approximately 0.5 million existing Enphase solar-only customers represent nearly a $2 billion battery retrofit opportunity. With net metering ending at the end of this year, 2026, the economics of adding storage have become increasingly attractive. We are reaching these customers directly through homeowner events, e-mails and webinars. Beyond our installed base, approximately 2.5 million Dutch homes with non-Enphase solar systems also represent another substantial opportunity.

Our universal AC-coupled battery architecture allows us to serve this huge market, which we are targeting through social media campaign. We expect a strong growth in battery activations, which was seen throughout 2026, to accelerate further in 2027. We are also excited about Australia, where the median residential battery installation is about 30 to 40-kilowatt hour. Until now, we have not been well positioned to compete in this high-capacity market with our third-generation battery.

Our Gen 5, or the fifth-generation battery G5, changes that. With up to 30-kilowatt hour per stack, combined with improved cost structure, G5 gives a tremendous opportunity to penetrate Australia's 12 gigawatt hour per year market. Putting it all together, we expect residential battery shipments of approximately 450-megawatt hours in 2026, and we believe we can grow this business approximately by 50% in 2027. With a highly competitive product, millions of existing solar customers, expanding VPP opportunities and access to new international markets we see a substantial multiyear growth opportunity ahead on residential batteries.

Our second growth driver is the recovery of the U.S. residential solar market. Propel is central to how we see that happening for Enphase. The expiry of the 25D tax credit removed a meaningful portion of the cash and loan market, which has historically been the core of our long-tail installer business. In today's high rate -- high interest rate environment, a third-party ownership offering with 48E tax credit is a practical path for many of these homeowners.

Propel, a prepaid lease offering from SolSource Solutions that combines Enphase equipment loan financing by TriBeam Financial and national distribution through Greentech Renewables, is purpose-built for long-tail installers. Propel is now available in 13 states and installer participation has grown to approximately 350 as compared to 290 in Q2. Weekly originations of Propel have increased to over 300 compared to approximately 200 in Q2 with a battery attachment at roughly 71%.

SolSource recently announced $300 million in capital raised to support its growth, an important milestone in today's environment. SolSource is actively working to secure additional capital to support the next phase of expansion into new markets. We expect the growth in propel originations to translate into higher Enphase equipment sales as these systems get installed in the first half of '27. With growing installer participation, strong battery attach and opportunities to expand into additional states Propel can become a meaningful driver of our U.S. residential solar and battery business in 2027.

Our third growth driver is our commercial business. U.S. commercial solar has been one of the most resilient segments of the market in 2026, with permit activity up approximately 13% year-to-date. We expect strong fundamentals to continue into 2027, supported by rising electricity rates and investment tax credits. The recently announced FEOC restrictions on new foreign-produced inverters create a significant competitive advantage for Enphase as a U.S.-based manufacturer with domestic manufacturing capabilities.

Our 3-phase microinverter portfolio spans 208-volt to 480-volt applications, including the IQ9S-3P, our highest power 548-watt GaN-based microinverter. Beyond expanding our distribution channel business, we are pursuing several large national accounts that could meaningfully accelerate growth in 2027. We are also excited about our entry into the U.S. small commercial storage market with the IQ Battery C80, a fully integrated 480-volt AC-coupled system delivering 80-kilowatt hours of energy and 40 kilowatts of continuous power.

The key application here is demand charge reduction, where the battery discharges during peak demand periods to lower electricity bills. It also supports time of use, solar self-consumption and grid services. Customers can scale up to 2-megawatt hours of capacity by combining 25 battery units, each with 80-kilowatt hours of storage. The battery will be manufactured in the U.S. and designed to meet FEOC regulations and qualify for domestic content incentives.

We opened preorders in August and have seen encouraging initial demand. We expect to sell approximately 100-megawatt hours of commercial batteries in 2027. We expect it to do pilots in Q1 '27 and volume shipments in Q2 '27. Putting it all together, we anticipate our commercial revenue in 2026 will be approximately $30 million. We believe it could grow to over $100 million in 2027. Over time, we expect to target 40% market share of the U.S. small commercial market, which across solar and batteries could represent an approximately $250 million annual revenue business for Enphase.

Our fourth growth driver is bidirectional EV charging, which brings Enphase directly into the automotive market. EVs carry batteries 5 to 10x the size of a typical home battery. With bidirectional charging, the vehicle becomes part of the home energy system, providing backup power, time of use optimization and VPP participation. Our IQ bidirectionally EV charging solution is built on our GaN power platform and will support both AC and DC bidirectional charging architectures.

Our DC solution integrates the bidirectional inverter directly into the charger, while our AC solution combines our standard unidirectional AC charger with an additional V2X kit to enable bidirectional functionality. The DC solution will support both 400-volt as well as 800-volt vehicle architectures with up to 11.5 kilowatts of bidirectional power. We expect pilots in this quarter and volume shipments in Q1 '27. We are collaborating with three top global auto OEMs in the U.S. to bring these solutions directly to their battery EV and plug-in hybrid EV customers.

We believe our bidirectional charging solutions offer some of the simplest, lowest cost installations in the market backed by our best-in-class quality and customer service. We believe this expansion into the automotive market also creates a compelling cross-selling opportunity as every EV customer could also become potential customer for Enphase solar and battery systems. For bidirectional EV charging, we anticipate a $15 million to $20 million revenue opportunity in 2027.

We have a substantially larger growth opportunity in 2028 and beyond with the potential to generate over $100 million in annual revenue as they ramp. Combined with our cross-selling opportunities, we see multiple avenues for additional growth from this business. Our fifth and final growth driver is IQ SST, which brings Enphase's power conversion expertise into the rapidly expanding AI data center market. IQ SST is designed to convert 13.8 kV or 34.5 kV medium-voltage AC directly into regulated 800 VDC through our modular single-stage architecture.

We are targeting approximately 98.5% efficiency, five nines reliability and sub-millisecond response times. By eliminating multiple power conversion stages, we believe IQ SST can fundamentally improve the efficiency, reliability, cost and simplicity of AI data center power infrastructure. We recently achieved a major technical milestone successfully demonstrating 13.8 kV AC to 800 VDC conversion in our Austin laboratory.

We expect to demonstrate 34.5 kV capability very soon in the fourth quarter. We are also preparing megawatt scale full system demonstrations this quarter, both at our Austin facility as well as at a national lab with customer participation in both locations. These are important steps towards validating our technology at scale and operating conditions required by AI data centers. Our customer engagement is accelerating.

Since our last update in July, our pipeline has expanded significantly to more than 50 potential customers. Of note, we are developing specific IQ SST solutions for the AI data center needs of two global technology leaders, a hyperscaler and a global AI computing leader. These collaborations are helping shape our product road map and system architecture. We remain on track for customer pilots in 2027, followed by initial commercial shipments in 2028.

By 2030, we believe IQ SST has the potential to become a $1 billion annual revenue business for Enphase in the data center market alone. Three things stand out from our customer discussions. First, reliability is paramount. Our distributed architecture built on more than two decades of microinverter experience offers inherent redundancy and fault isolation, providing a powerful foundation for the reliability requirements of AI data centers; second, our successful 13.8 kV demonstration and upcoming 34.5 kV validation gives us increasing confidence in our ability to meet customer development timelines.

Third, our U.S. manufacturing capabilities and supply chain readiness are important competitive advantages as customers prepare for large-scale deployments. We recognize the substantial engineering qualification and execution work ahead but we also recognize the magnitude of this opportunity, and we are executing with urgency to make this vision a reality. Let me conclude. We do not believe today's financial results reflect the full potential of where Enphase is headed in 2027 and beyond.

We are working with determination to build a stronger, more diversified company with five powerful growth drivers, residential batteries, driving residential solar with prepaid leases, commercial solar and batteries, bidirectional EV charging, and solid-state transformers for AI data centers. What makes these opportunities especially compelling is that they are all built on the same foundation. Our world-class power electronics technology.

Our unique single-stage power conversion architecture, our custom-designed ASICs, state-of-the-art magnetics, proprietary predictive control software, and industry-leading GaN technology. All of these give us the ability to deliver smaller, more efficient, more reliable, and lower-cost power conversion solutions across multiple markets. We remain confident in the long-term recovery of residential solar, while prepaid leases can help drive adoption in the near term via Propel, while -- and rising utility rates will help.

So will expanding virtual power plants. And finally, the homeowners' growing desire for energy independence will support the market over time. But we are not waiting for that recovery. We are building new businesses entering new markets and positioning Enphase for a much larger future. We believe these opportunities have the potential to more than double the size of our company over time. With that call -- with that, I will turn the call over to Mandy for her review of our financial results. Mandy?

Thanks, Badri, and good afternoon, everyone. I will provide more details related to our third quarter of 2026 financial results as well as our business outlook for the fourth 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 Q3 was $293.3 million. We shipped approximately 655.2 megawatts DC of microinverters and 129.9 megawatt hours of IQ batteries.

Q3 revenue included $85 million of safe harbor revenue. As a reminder, we define safe harbor revenue as any sales made to customers who plan to install the inventory over more than a year. Non-GAAP gross margin was 45% in Q3 compared to 46.8% in Q2. The decrease was primarily due to product mix. GAAP gross margin was 43.3% in Q3 compared to 60% in Q2. Q2 GAAP gross margin was positively impacted by 15.6 percentage points for the IEEPA tariff refunds received.

Reciprocal tariffs negatively impact our gross margin by 1.3 percentage points in Q3. Non-GAAP operating expenses were $78.4 million for Q3 compared to $79.8 million for Q2. GAAP operating expenses were $120.7 million for Q3 compared to $123.5 million for Q2. GAAP operating expenses for Q3 included $39.4 million of base compensation expenses and $2.9 million of acquisition-related expenses and amortization. On a non-GAAP basis, income from operations for Q3 was $53.6 million compared to $56.7 million for Q2.

Our GAAP basis income from operations was $6.5 million for Q3 compared to $51.5 million for Q2. On a non-GAAP basis, net income for Q3 was $54 million, compared to $61.5 million for Q2. This resulted in non-GAAP diluted earnings per share of $0.41 for Q3 compared to $0.46 for Q2. GAAP net income for Q3 was $23.4 million compared to $36.1 million for Q2. This resulted in GAAP diluted earnings per share of $0.17 for Q3 compared to $0.27 for Q2.

We incurred $26.5 million of impairment in investments, which reduced third quarter non-GAAP and GAAP diluted earnings per share by $0.14 and $0.15, respectively, net of tax. We exited Q3 with a total cash, cash equivalents and marketable securities balance of $931.8 million compared to $937.7 million at the end of Q2. In Q3, cash provided by operations was approximately $90,000, while capital expenditures were $11.5 million, resulting in negative free cash flow of $11.4 million.

The negative free cash flow primarily reflected negative working capital changes, including the timing of safe harbor revenue prepayment and PTC monetization. As of September 30, 2026, we had approximately $228.5 million of PTCs on our balance sheet. This consisted of $108.3 million related to U.S. made micro inverters shipped in 2024 and $120.2 million related to shipments during the first 9 months of 2026. We expect to receive the refund from the IRS for the $108.3 million of 2024 PTCs by the end of the year.

As a reminder, in April, we announced a tax credit transfer agreement to sell $150 million of 2026 PTCs to a leading financial institution with 4 quarterly payments from April 2026 through January 2027. As of September 30, we had monetized $75 million under the agreement. Subsequent to the quarter end, we monetized an additional $37.5 million, bringing year-to-date 2026 PTC monetization to $112.5 million. Now let's discuss our outlook for the fourth quarter of 2026.

We expect Q4 revenue to be in the range of $225 million to $255 million, including shipments of 100 to 120 megawatt hours of IQ batteries. We anticipate recognizing approximately $51.2 million of safe harbor revenue in Q4. We expect GAAP gross margin to be within the range of 38% to 41%, and non-GAAP gross margin to be within the range of 40% to 43%. Both ranges include approximately 2 percentage points of reciprocal tariff impact.

The lower sequential margin outlook is primarily due to product mix, battery price adjustments and increased freight costs associated with our new product production. Non-GAAP gross margin excludes stock-based compensation expenses and acquisition-related amortization. We expect our GAAP operating expenses to be within the range of $119 million to $123 million, including approximately $43 million estimated for stock-based compensation expenses and acquisition-related amortization.

We expect our non-GAAP operating expenses to be within the range of $76 million to $80 million. We remain focused on cost discipline, aligning our spending with the revenue environment and prioritizing resources toward our highest impact opportunities. Throughout this process, we will protect the customer experience and continue investing in innovation, including IQ SST and other strategic growth priorities. With that, I will open the line for questions.

Yes. Brian, thank you. So let me just give you the full color. Basically, what we have -- what we said is that our global sell-through in the first 3 quarters of this year has been kind of flat at roughly $230 million a quarter. That's the global sell-through. What we are seeing right now for Q4, what we said is we are seeing -- or we anticipate a 10% reduction in that sell-through. So you can do the math, that's about $210 million of sell-through -- global sell-through expected in Q4.

Now we all know that Q1, there is seasonality. So therefore, distributors are going to not stock a lot of inventory in Q1 because of seasonality. And we want to get ahead of that by basically under shipping $20 million from that $210 million number. So basically $190 million into the channel. So that's what we are talking about. And big picture for 2027, the way you should think about it is excluding safe harbor, our core revenue has been approximately $200 million per quarter in the last 2 to 3 quarters, approximately $200 million.

So you take $200 million multiplied by 4 for 2027. And then you add the $200 million of growth drivers that we gave you, which comprises of -- we said that the battery number goes from 450-megawatt hours to 675-megawatt hours. We talked about commercial going from $30 million to $100 million. We did not quantify Propel, but that would be -- that could be some upside. We then talked about bidirectional EV charger, adding a modest $15 million to $20 million because we have the top 3 OEM partnerships.

So -- while we are not guiding for 2027, that's a framework that we are thinking about, like $200 million core plus these growth opportunities. Now with regarding your specific question coming into Q1, Q1 is, of course, going to be seasonally down. We have all seen that. However, what is good in the growth vectors that I outlined. We have 5 growth vectors. Many of them are actually going to start in late Q4, early Q1.

Like for example, our fifth generation battery is going to do pilots in Q4 and introduced very early Q1. Our commercial battery is going to do a significant number of pilots in Q1 our bidirectional charger is going to do pilots in Q4 and volume production in Q1, Propel is an ongoing business. So we have some growth drivers there for Q1. So while I'm not going to give you guidance, that's the way you can think about Q1 is there is some seasonal offset in the core business plus Enphase specific growth vectors where we are not depending on the market to come back, but these are additional revenue drivers.

Yes, I mean, the product, we expect this to be a transformational product. First of all, just so you have the background Europe, Australia, international regions will be going from the third-generation battery to the fifth generation battery. While the U.S. will be going from the fourth generation battery to the fifth generation battery. The single biggest driver. The single biggest driver for our fifth generation battery is one box on the wall, one box on the wall.

So for example, with our third-generation battery if you need 3 boxes on the wall for a 15-kilowatt hour, it will be 1 here. And the other big thing is because the energy density is so much better we are able to reduce the cost structure. If we are able to reduce the cost structure, we can compete at a good price, maintaining gross margin. So therefore, we are extremely excited about Australia. Australia, for example, the median kilowatt hours is approximately 30 to 40-kilowatt hours, and we can address it with 1 or 2 stacks.

So therefore, the form factor becomes amazing. And similarly, we can address Germany, for example, with just one stack. In places like Netherlands, we are going to go into turbocharge, which is, come 2027, batteries are going to become the norm because Dutch are going to see their bills start to increase. There, we have 0.5 million homes where we can really drive adoption of the battery, and we are driving the adoption of the third-generation battery today, and that will become even better with the fifth generation battery.

So similarly, in France, we have 0.5 million or 400,000 homes in France, where we apply the same concept. So while for us, we are going to start ramping in Q1, meaning pilots in Q4, volume shipments in Q1, as you know, there will obviously be a transition there with -- it will take usually a couple of quarters for the batteries to transition from the old generation to the new generation may even take three. So therefore, you would expect naturally in the back half to be a nice growth compared to the first half.

In general, I'm commenting on today's market, you're correct. Today's market is weak due to the higher interest rates and due to a FEOC compliance issue or FEOC guidance not being very clear and so there is reduced visibility. So you're correct about that. It's difficult for us to -- difficult for us to see how 2027 is, which is why I focused on our growth drivers, which are independent of the market. And for us, I will go back to the same growth drivers.

I mean, those growth drivers, for example, the battery will help us get additional market share in all regions. Starting with the U.S., Europe, new market share, for example, in Australia as well as Europe increasing market share in the U.S., that's what we are targeting. The next one is Propel. Propel is going from strength to strength. Last time we talked about 200 originations. Now Propel is in 13 states, 300 originations -- over 300 originations a week.

And of course, Propel has raised its first round of funding. And every time they go to additional states they will need new rounds of funding. That's always -- that's something they have to execute on. But if they execute on that, Propel is clearly demonstrating growth. And the -- from originations to it showing up in PTO usually takes 3 to 4 months for us. And so all of those, we expect to start seeing the results of all of those in 2027.

And the next one is commercial. So commercial, again, is independent of what we are talking about, the residential weakness. In commercial, we have -- this year, we have introduced two good products. They are the 3-phase 480 volts and 3-phase 208 volts IQ9 427 watts and 548 watts, all gallium nitride. Why are we going to do well in commercial? Same principles. We are FEOC -- we do U.S. manufacturing, we comply to FEOC regulations.

We have domestic content. Per-panel monitoring is a very big deal for the commercial asset owners most of the time. That's the differentiator and, of course, our high quality. Now what we are doing there is to have a full-fledged commercial energy management system, which means what commercial solar and commercial storage. Commercial storage is -- I would almost say it's a niche market in the U.S. There aren't clear -- enough clear players like residential solar or utility scale solar.

It's a good opportunity for us. And there, once again, an 80-kilowatt hour battery extendable to 2-megawatt hours solving real problems of demand charge. Demand charge is the single biggest application. There, in addition to the usual VPP, self-consumption, time of use. For example, one of our opportunities is a utility company in Texas who wants to put these commercial batteries in a distributed way front of the meter.

So we are entering -- of course, the business here will -- the growth here will be measured, commercial tech is a design-in product. It will take time. But that's completely different vector we are talking about, commercial solar plus commercial batteries. And the fourth one is bidirectional EV charge. Bidirectional EV charger. Again, I'm very excited to highlight that we have three big automotive OEMs who have recognized that our product, the Enphase product, both AC bidi product as well as DC bidi product, is one of the easiest, easiest to use, easiest to install.

Easy in terms of installation cost, et cetera, and just works. So we have been -- in the last year, we have been doing lot of pilots with those EV OEMs. So we are very excited about that. And that product is coming imminently with pilots in the current quarter and going on. And then the last one I talked about at length is SST. SST for us is we got to do a few things in SST. In SST -- we showed the 13.8 kV demonstration, although it is not full megawatt-scale, but that was a proof of concept.

Very soon, we are going to show proof of concept of 34.5 kV. And then towards the end of the year, we are going to show megawatt scale demonstration of the SST. The moment we do that, we are then going to go into compliance. So once we go into compliance, and finish compliance successfully, we will do DVTs or pilots with end customers. So that's the path there. So I know it's a long answer I gave you, but many of our vectors are about diversification and reducing the reliance on the residential market.

Right. We -- this change was done a couple of months ago where we basically reduced the list price of our batteries in the U.S. by approximately, I would say, by approximately 8% to 9% to distributors. That's what we did. And to answer your question on, do we see more price reductions. The whole point why we have been working on our fifth generation is we understand the battery business is a tough business. We understand that consumers expect better pricing over time.

Hence, we embarked on the fifth generation product, the fifth generation product uses 100 ampere-hour cells, uses an energy density that is -- I won't say exactly double, but almost double of what we have with respect to the fourth generation product. You should look at the form factor of our fifth generation. It is very compact, enabling one box on the wall, which means most installations can fit into one stack. So the whole point is to make our cost a lot more competitive, so that we can participate in segments where we couldn't participate before, for example, in Australia, for example, in certain parts of Europe.

So we are looking forward to do that. You asked what does that mean for gross margin? The way I always think about there may be hiccups in the short term on gross margin, but the company's model the company's target is always 40%. That's the way to think about it. So any business that we get into, we make sure we have a clear line of sight to achieving 40%. It might take 1 to 2 quarters sometimes or a little more, but our target is 40%.

Yes. I think in general, in the short term, we are seeing weaknesses in the U.S. primarily due to interest rates in the short term. And that's my comment on the U.S. weakness and hence, our guidance is appropriately this time between 100 and 120. But like what I said, our -- what we are looking at is to introduce our fifth generation product, which will make us competitive everywhere. We are looking to take market share in the U.S.

Right now in the U.S., we have 15% to 20% depending on the third-party reports. If you look at them, we have 15% to 20% market share. It's a two-horse race in the U.S., and we would like to basically increase market share there like how we have on the solar inverter side in the U.S. But we do see tremendous opportunity in Netherlands from 2027. Our optimism there has not changed. In terms of France, we do see, again, a huge opportunity for us to market to our own homeowner base of 400,000, and I already talked about Australia. So there is some short-term hiccups here in the U.S., but with our fifth-generation battery, we should start to grow again.

All 3 are in the U.S. right now. And there is one in Europe, which is ongoing.

Yes. since we did the action only a couple of months ago, it is too soon for us to comment on the elasticity. Let me leave it at that, Colin.

Yes, customers aren't going to react until they see their electricity bill. And they're going to start seeing their electricity bill go up quite a bit in 2027. Just a note for you is our activations, our activation for batteries have grown about 102% from Q1 to Q2. and grown by 23% from Q2 to Q3. We just held a roundtable last week with a lot of Netherlands installers. And everyone is extremely excited and going into 2027.

All of them expect the volumes to go up. What are we doing about it? The multiple angles. We are conducting 6 homeowner events a week, 6 homeowner events a week, which means we invite homeowners, about 150 come. We give them a presentation for an hour. We talk about the value of a battery post -- in 2027 post-NEM. And then we see a nice conversion there. We also have our inside sales people in the room. They are taking the orders.

And sometimes, we do these events with installers. Sometimes, we just do it. So 6 homeowner events a week, times 13, 78 homeowner events. Each homeowner event is about 150 people. Obviously, there is some yield there. So that's one avenue of growth. Then we take the leads from that, and we essentially funnel it to our installers. We funnel it to our installers, and that increases the loyalty a lot because they not only get free leads from us.

They also are running a business, and therefore, they tend to use Enphase for their business as well as for the leads that we give them. Then the second one is actually webinars. Webinars have been again a huge source of leads for us. That, again, we are doing a live webinar. That's also done frequently every week. The other opportunity is -- I mean, the other opportunity, which is -- which we plan to take advantage of going into 2027 is because our battery is an AC coupled battery.

We have a huge opportunity to take the 2.5 million non-Enphase solar homes. So there is 8 million homes in Holland or the Netherlands, 8 million homes. Of that, there is 3 million homes with solar, of that, there is 0.5 million Enphase homes with solar. So you have a balance of 2.5 million homes with non-Enphase solar. And we are basically actively targeting that, and we expect the demand from that also to add up soon.

So the vectors for us in Netherlands are continue the homeowner events, establish a direct relationship because they all know Enphase well. And therefore, if they know that a huge company is behind it, they -- and they understand it is a premium Enphase is a premium player. They do want the premium support experience. So we plan to do that. We plan to do webinars. We plan to go after the non-Enphase homes because our technology is AC-coupled.

And then Gen 5 is now coming. Gen 5 will take the number of boxes on the wall to one. And so that will make the cost structure better, will be easier to install. Installer doesn't need to have multiple points on the wall. It will be stackable, easy to install. Yes. So we are incredibly excited about Netherlands.

Right. Enphase has always been disciplined. When it comes to gross margin, the same thing when it comes to OpEx, the same thing. So we are going to be looking at our annual operating plan as we go into 2027. And and we are not going to be afraid to make all of the necessary changes in order to be profitable. And no matter what you can count on Enphase to innovate, spend the correct dollars on innovation, like a system, like commercial battery, like fifth generation battery going to a sixth-generation battery and so on. We are all seeing AI help us in productivity as well. So the answer is we will continue to be disciplined and we will continue to be profitable.

I'll have Raghu elaborate on how SST is going conversation with customers and then answer your question as well.

Yes. So we are making a lot of progress on SSTs. You saw the announcement that we made this morning. about 13.8 kV product working and generating 800 volts DC. The core of our SST, just to remind everybody is that power module. It's basically a large microinverter that uses our -- use the technology that we have worked on for the last 20 years and 9 generations of products, 5 generations of ASIC. And it's basically a large microinverter.

That's what we do, and it's our core competency and core expertise, we are actually on our third revision of that product. So we already have 3 cycles of learning underneath our belt. And what we have done, just to the technology itself, it's a very high frequency, single-stage power conversion, custom ASIC, predictive control and GaN, including BDS GaN or bidirectional GaN. We have been -- we have shown it working at 13.8, for us to go from 13.8 to 34.5 We go from -- we just stack additional number of power modules or microinverters.

One another key element of the device that's really interesting in there that we have spent a lot of time on and we have a lot of IP is that high-frequency transformer. Because a high frequency transformer needs to be what's called partial discharge PD-free or partial discharge free to operate at 34.5. So a lot of work has gone on there. We have demonstrated 13.8, we'll show 34.5 shortly as well as demonstrate 34.5 at scale.

And then we'll do that both at our Austin lab as well as at another national lab. And all of this is in discussions with hyperscalers and other big players in the ecosystem. So they're very familiar with what we are doing. They like our approach. They see the benefits of the modularity in terms of the reliability that we do. We have undersubscribed all our modules by 6%. We have a very fast response time, which means we could potentially eliminate that low-voltage battery that's in the system. 85% of the supply chain for our power module is the same as our microinverters that we have today.

So from an FEOC compliance standpoint, which is a huge deal because SST will get classified as -- it's an inverter-based resource and will get classified as critical infrastructure. So we are FEOC compliant or meet FEOC regulations. And U.S. manufacturing, it leverages the same manufacturing line that we have for our microinverters today. So we already have an established manufacturing line to build these power modules, which go into our IQ SST.

So we are having very good conversations, 50-plus engagements with customers, including hyperscalers and large ecosystem players there. And they are, in fact, guiding us towards what exactly they would like to see in the product. Of course, OCP is coming out with their specifications as well in terms of the SST requirements. As far as the total addressable market is concerned, you do see a lot of variability there in terms of the size of the market.

We had said 11 gigawatts by 2030. Obviously, we think that's a very conservative number. When we talk to some of our hyperscaler customers, one hyperscaler as an example, itself is talking about in the tens of gigawatts. So it can vary anywhere between 11 to 30 gigawatts or even higher than 30 gigawatts. So we looked at those numbers. We took what we assume would be a reasonable market share and at a price that we think is the right price and came up with that $1 billion number by 2030.

Yes. The Europe usually in Europe, summer seasonality is quite high. And that's what we saw. That's what we are reporting. We saw our sell-through basically was approximately, I mean, a little over 10%, I think, 12% down. And I think that was in line with the past seasonality. Europe, there was a small time during Q1 and Q2 where the war basically accelerated energy, the need for energy independence. So we saw a spike.

That acceleration seems to have worn off. Now it's back to regular demand. And for us, the big opportunities in Europe are with batteries. And with our -- what we sell today is our third-generation battery. We sell today, our focus countries are Netherlands, France, Germany and U.K. These are our focus countries. We believe all of them can be changed dramatically with our fifth generation battery. And our opinion is that once we get the battery, then solar will automatically come attached.

We also have a beautiful home energy management system in Europe, which is ability to work with third-party EV chargers, including ours as well as third-party heat pumps. So really for us is with IQ9 microinverters with the fifth generation battery with a full-fledged home energy management system and now soon to be added bidirectional charging, we have a complete best-in-class ecosystem.

Yes. I mean that's what we are talking about. There is 2 types of bidirectional EV chargers, DC based bidirectional EV charger and an AC based bidirectional EV charger. We will have solutions for both, and they will be shipping in volume in Q1 '27. Our engagements with the top 3 OEMs in the U.S. are basically for both -- some engagement, meaning one engagement is on DC. And the other 2 engagements are on both AC and DC.

So for us, it is a huge opportunity there. Our product works very well already with most EVs even unofficially it works, but we will not claim any compatibility unless that EV OEM, agrees and certifies the same. So what we do in America is that's why it may be a little slow the top 3 OEMs. For example, OEM 1 is introducing a car with bidirectional capability. We start testing that like 9 months ago. And in that way, we can certify that our bidirectional chargers are compatible, and they will have to certify that, not us.

And we are well underway with these 3 OEMs. And the installation is going to be very simple and sleek. We have the meter collar which we have now -- we have over -- if I remember right, over 65 utilities. Yes, I may be getting that wrong. We have the meter collar qualified by these utilities. And all we need is a meter collar and the DC bidirectional charger, two components. And in fact, you won't even see the meter collar because it is hidden behind the meter.

So you have our inverter and it can do V2H, which means it can function like a generator, which is in the case of a blackout, the relay in the meter collar opens and the car is powering the home. You can also obviously make it do vehicle to grid, subject to the utility approval where the car can feed the grid in times of need. That DC bidirectional charger in the U.S. has got 11.5 kilowatts of power, plenty, plenty enough, so we anticipate interesting combinations.

We anticipate people to buy this DC bidirectional charger and then add solar, for example. So there is -- like what I stated in my prepared remarks, we see a very good cross-sell opportunity. But first things first is essentially release and work with the OEM, with the approval of the OEM launch the bidirectional chargers one by one of each of their models and you will see press releases that will come.

Yes. This is Raghu. Without commenting on getting into the details of the politics of it. But yes, there is discussion. Actually, some of the discussion is bipartisan in terms of extension of some of the investment tax credits for sure as well as some of the production tax credits as well. So I think there is a broad view that the election results may help renewables in general, but be specific, these -- particularly these 2 tax credits, it seems like has bipartisan support. So I think we'll wait to see what the outcomes are, but it seems like we are going to see good support for extensions and because it makes sense.

Yes. I mean we have all of the capacity we need. And when, for example, the SST starts ramping, we can easily scale that, we can easily scale that. Our capacity here is quite good. So we won't hesitate we won't hesitate to scale U.S. manufacturing. And there's no obstacles to that right now.

Yes. We won't go into any details there. That's the extent of what we are saying. But in general, they are working closely with us. We have shown them the power modules. They have seen -- they have even visited our Austin lab and seen how we are progressing, and we are keeping, obviously, everybody up-to-date on how the development is progressing. So the 13.8 kV announcement this morning was a pretty exciting announcement.

And for us, when we think about going from 13.8 to 34.5, we use the same power module. It's not like we are changing our power module. And of course, the fact that we are using GaN is very interesting to them because of the reliability of -- particularly because of the reliability of GaN. But more importantly, it's also about the reliability of the entire system. So it's the reliability at the component level, within the power module.

But the way our SST is constructed itself gives us some intrinsic, the modularity of the power module gives us big advantages as well. So when you think about -- we hear this discussion a lot around GaN versus silicon carbide. For us, GaN was a natural organic fit for us. We are fans of wide band gap technologies in general. But for us, because of the reliability that GaN has particularly in terms of AC surge robustness, the withstand capability the BDS support that GaN has, which also gives us additional withstand.

GaN is commodity product, very large, very high volume. It's very -- from a manufacturing point of view, GaN, is very easy to manufacture because it is GaN on top of silicon. So it's a small IP layer on top of mostly silicon. And what GaN also allows us to do is to run the controller at higher and higher frequency and because we run it at higher frequency, we get the response time that we need we get benefit in terms of the magnetics being much smaller.

So it is a really good choice for us to go to -- with GaN in particular. So to summarize, really working closely with the hyperscalers have been really informative for us because we are working very closely. And they, in fact, inform us a lot on our product development and exactly how they would like to see the evolution of the product in terms of both the technology, the performance, et cetera. And the nice thing about the power module that we have, the GaN-based power module is it gives us a lot of flexibility in terms of meeting their specific requirements, whether that is in size or dimensions or support for a low-voltage battery, the C-rate of the battery to match the C-rate of the battery, et cetera. So it's been -- it was -- it's been very, very good for us to be working with demanding customers like these because they just make you better.

Yes. I think the compliance will start with the demonstrations this year, exactly like you said. We expect that in the second half, we should start -- we should be through our compliance by the first half of year and then heading to pilots in the second half. We should be realistic about that because some of the U.S. standards are still an outline of investigation. So we need to work closely with UL get through that.

If you look at something like UL 2877 or 3347A. So we've got some work to do there. But again, we expect that the first half of the year will be focused around getting through compliance and then depending on how that goes, depending on how some of the early testing with the hyperscaler goes, we will enter the pilots in the second half of the year and then close to the end of the year and early 2028, we go into commercial production.

I think it will all be gated by those 2 elements. Now I think we will be -- from a manufacturing point of view, I expect that we'll be ready to meet that time line. In fact, in discussing with all these larger customers, it seems like it aligns well with their time line. So I think we are in a good place from that point of view.

This is our own development. But we do talk to them about testing, test plans, et cetera. talk to them about what their specific requirements are. But all of the development is ours, the IP is ours, everything is Enphase driven. And it is -- at this stage, while, yes, there are discussions on the business aspects of it, of course. We do, at this stage, given where we are the 13.8 announcement this morning and 34.5 shortly, we are actually keeping it a little bit more technology focused but there is definitely discussions on the business aspect of things as well.

Mandy will answer the question on free cash flow and working capital. Go ahead.

Sure. So Q4, as we expect to get the 2024 tax refund, as I said, in remarks, right, $108 million related to our 2024 PTC. We expect to get a sizable free cash flow in Q4.

Good. And France, the weakness in France is because France had a feed-in tariffs before and that feed-in tariff is going to 0. But that's an opportunity as well because now the entire system sale is a solar plus battery sale. So France is evolving from -- was pure solar, but now solar plus battery sale. And we have a lot of plans for France. We used to dominate the French market in terms of solar before. Now that market is slowly eroding and becoming a solar plus battery market.

So there are 2 things we are doing. End of this year, we are introducing a product called like IQ9S, that's a 548-watt microinverter, the highest power product that is available in residential solar period, and that will go to France first at a very attractive price point. The second, of course, is the Gen 5. So basically, we are catering to exactly creating a best-in-class solar plus battery system, and that will have a good ROI.

Adding, we are very well known in France. Our brand is very well known. So we also plan to ramp up social media in order to take advantage of this and focus on IQ9 and Gen 5-based energy management systems.

Yes. I mean those are short term, we don't -- no, negligible.

Yes, I answered that, that also, basically, the way you think about it is $200 million a quarter of core plus $200 million total of growth drivers, which I actually outlined. Many of those growth drivers are going to take into effect by Q1. Like for example, the fifth-gen battery is going to pilot in Q4, take into effect Q1 similarly the bidirectional product. Commercial battery is going to pilot in Q1, take into effect in Q2. So we expect a few of those growth drivers to affect us in Q1. And that will counter the typical seasonality that we have.

Thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter. Bye.