Enphase Energy (NASDAQ:ENPH) saw its shares climb 1.5% in after-hours trading on Tuesday, reaching $36.85, after the company reported second-quarter earnings that aligned with analyst expectations and issued guidance suggesting a gradual recovery in core revenue. The stock had declined 4.5% during regular trading to close at $36.32, underperforming the broader market as the S&P 500 edged up 0.2%.
Q2 Results Meet Expectations
For the second quarter of 2026, Enphase reported total revenue of $291.9 million, a 3.2% increase from the prior quarter but a 19.6% decline year-over-year. Adjusted earnings came in at $0.46 per share, matching the consensus estimate. Revenue slightly exceeded the analyst forecast of $289.9 million by approximately $2 million.
Safe-harbor revenue, which refers to inventory that customers plan to deploy over more than one year, surged to $84.3 million from $34.5 million in the first quarter, representing 28.9% of total sales. Excluding safe-harbor shipments, revenue fell 16.4% sequentially to $207.6 million, highlighting ongoing softness in current demand.
Q3 Guidance Points to Partial Recovery
Management guided third-quarter total revenue to a midpoint of $305 million, with safe-harbor sales estimated at approximately $75 million. Excluding these, core revenue is expected to be around $230 million, a 10.8% increase from the second quarter but still 7.4% below the first-quarter level. While the sequential improvement is encouraging, the recovery remains incomplete.
Safe-harbor support is anticipated to decline further, with executives projecting roughly $61 million in the fourth quarter, down from $84.3 million in Q2. This places greater reliance on current demand to meet year-end objectives.
Market Conditions and Regional Performance
The U.S. market continues to face headwinds, with sell-through down 34% year-over-year and 7% quarter-over-quarter. In contrast, Europe provided a bright spot, with revenue increasing 35% and sell-through rising 30%. Management forecasts a 10% increase in global sell-through for the third quarter, with Europe expected to see no growth over the summer, positioning the United States as the primary driver of expansion.
Chief Executive Badri Kothandaraman noted that the company is being cautious about channel inventory, anticipating under-shipment of approximately $15 million. “We are just cautious, we’d like to make sure we have a healthy channel inventory,” he said.
Battery Shipments and Margins Improve
Battery shipments, considered a more stable indicator of demand, rose 10.4% sequentially to 113.8 megawatt-hours (MWh) in Q2. The midpoint forecast for the third quarter indicates a further 23% increase to 140 MWh.
Non-GAAP gross margin improved to 46.8% in Q2, up from 43.9% in the first quarter, despite a roughly two percentage point impact from tariffs. The midpoint of Q3 guidance is 45.5%. GAAP gross margin was significantly boosted by a $45.4 million customs refund, adding 15.6 percentage points and bringing reported gross margin to 60%.
Financial Position and Outlook
Enphase generated free cash flow of $25.9 million during the quarter and ended June with $937.7 million in cash and marketable securities. This liquidity provides the company with flexibility to continue investing in product development through the downturn.
Risks to the recovery include elevated interest rates, lapsed homeowner incentives, cautious distributor sentiment, and potential changes to tariff rules and safe-harbor deadlines. Investors will be watching Wednesday’s regular session for signs of a rebound in U.S. sell-through as safe-harbor support diminishes.
