Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following section generally discusses 2023 results compared to 2022 results. Discussion of 2022 results compared to 2021 results to the extent not included in this report can be found in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022. Business Overview and 2023 Highlights We are a global energy technology company. We deliver smart, easy-to-use solutions that manage solar generation, storage and communication on one platform. Our intelligent microinverters work with virtually every solar panel made, and when paired with our smart technology, results in one of the industry’s best-performing clean energy systems. As of December 31, 2023, we have shipped more than 73.0 million microinverters, and approximately 4.0 million Enphase residential and commercial systems have been deployed in more than 150 countries. We sell primarily to solar distributors who combine our products with others, including solar modules products and racking systems, and resell to installers in each target region. In addition to our solar distributors, we sell directly to select large installers, OEMs and strategic partners. Our OEM customers include solar module manufacturers who integrate our microinverters with their solar module products and resell to both distributors and installers. Strategic partners include providers of solar financing solutions. We also sell certain products and services to homeowners primarily in support of our warranty services and legacy product upgrade programs, via our online store. During the fiscal year 2023, we began shipments of microinverters from our contract manufacturers in the United States. Moving manufacturing to the United States allows us to take advantage of the benefits of the IRA as well as helps us better serve our customers by cutting down delivery times and diversifying our supply chain. Global Events Affecting our Business and Operations As we have a growing global footprint, we are subject to risk and exposure from the evolving macroeconomic environment, including the effects of increased global inflationary pressures and interest rates, fluctuations in foreign currency exchange rates, potential economic slowdowns or recessions, and geopolitical pressures, including the unknown impacts of current and future trade regulations and the armed conflicts in Ukraine, the Gaza Strip and nearby areas. We continuously monitor the direct and indirect impacts of these circumstances on our business and financial results. Demand for Products. The demand environment for our products experienced a broad-based slowdown beginning in the second quarter of 2023 in the United States and in the third quarter of 2023 in Europe that continued into the fourth quarter. This resulted in elevated inventory with distributors and installers, and as a result we sold fewer microinverters to distributors and installers during the second half of 2023 compared to the first half of 2023 as they responded to this slower demand environment. In the United States, this slowdown was primarily the result of higher interest rates and the transition from NEM 2.0 to NEM 3.0 in California, which has increased the payback period for our customers in California. In Europe, this slowdown was primarily the result of a decrease in purchases in the second half of 2023 after the initial surge of sales related to onset of the armed conflict in Ukraine in 2022, and overall channel inventory correction. In addition, there has been increased uncertainty in net energy metering policies and solar export penalties in a key European market, which resulted in lower sales in that region. We expect these trends to continue to have an adverse effect on our revenue in 2024. In light of the slowdown in demand, in the fourth quarter of 2023, we implemented the 2023 Restructuring Plan to reduce our operating costs, and better align our cost structure with current market conditions, strategic priorities and our ongoing commitment to profitable growth. As part of the 2023 Restructuring Plan, we are reducing our global workforce by approximately 10% and plan to cease operations at our contract manufacturing locations in Romania and Wisconsin, United States, and resize our other contract manufacturing sites, to be closer aligned to expected demand. Inflation Reduction Act of 2022. In August 2022, the IRA was enacted, which includes extension of the ITC as well as the AMPTC to incentivize clean energy component sourcing and production of microinverters. The IRA also included an additional 10% ITC for solar system components that are manufactured with a minimum threshold of domestic content. The IRA provides an AMPTC on microinverters of 11 cents per alternating current watt, which had a favorable impact to our results of operations in the year ended December 31, 2023. The AMPTC for microinverters decreases by 25% each year beginning in 2030 and ending after 2032. Under the IRA, the ITC was Enphase Energy, Inc. | 2023 Form 10-K | 49