Table of Contents Results of Operations Net Revenues Years Ended December 31, Change in 2023 2022 $ % (In thousands, except percentages) Net revenues $ 2,290,786 $ 2,330,853 $ (40,067) (2) % Net revenues decreased by 2%, or $40.1 million, in the year ended December 31, 2023, as compared to the same period in 2022, driven primarily by a decrease in shipments of IQ Batteries to 351.6 Megawatt-hour (“MWh”) in the year ended December 31, 2023, from 508.5 MWh shipped in the year ended December 31, 2022. The decrease in total net revenues was partially offset by an increase in ASP for microinverters, primarily the result of a favorable product mix as we sold more IQ8 microinverters relative to IQ7™ microinverters as well as a slight increase in the volume of microinverter units shipped. We sold approximately 15.5 million microinverter units in the year ended December 31, 2023, as compared to approximately 15.4 million units in the year ended December 31, 2022. The overall decrease in net revenues is due to a broad-based slowdown beginning in the second quarter of 2023 in the United States and the third quarter of 2023 in Europe that 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 distributors and installers 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 increasing the payback period for our customers. In Europe, this slowdown was primarily the result of a decrease in purchases after the initial surge of sales related to the 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. Cost of Revenues and Gross Margin Years Ended December 31, Change in 2023 2022 $ % (In thousands, except percentages) Cost of revenues $ 1,232,398 $ 1,356,258 $ (123,860) (9) % Gross profit 1,058,388 974,595 83,793 9 % Gross margin 46.2 % 41.8 % Cost of revenues decreased by 9%, or $123.9 million, in the year ended December 31, 2023, as compared to the same period in 2022, primarily due to lower volume of shipments of IQ Batteries as well as the recognition of credits of $53.5 million under the AMPTC for U.S. manufactured microinverters shipped to customers during the year ended December 31, 2023. Gross margin increased by 4.4 percentage points in the year ended December 31, 2023, as compared to the same period in 2022. The increase was primarily due to the benefit recognized from tax credits under the AMPTC of approximately 2.3 percentage points, an increase in ASP driven by a favorable product mix as we sold more IQ8 microinverters relative to IQ7 microinverters in the year ended December 31, 2023, and also due to cost management improvements, which included lower shipping costs. Research and Development Years Ended December 31, Change in 2023 2022 $ % (In thousands, except percentages) Research and development $ 227,336 $ 168,846 $ 58,490 35 % Percentage of net revenues 10 % 7 % Enphase Energy, Inc. | 2023 Form 10-K | 53