Enphase Energy Inc. (NASDAQ:ENPH) stock took a beating Wednesday after the company reported third-quarter earnings and revenue that fell short of Wall Street expectations and issued fourth-quarter sales guidance that was notably weaker than analysts had hoped.

The results painted a picture of a residential solar market still struggling with high interest rates and the expiration of key tax credits, margin pressure, and negative free cash flow. Management expects demand to remain soft and plans to reduce channel inventory ahead of what is typically a seasonally weak period.

Adjusted earnings came in at 41 cents per share, missing the consensus estimate of 51 cents. Revenue totaled $293.329 million, below the expected $304.042 million.

A $26.5 million investment impairment reduced adjusted earnings by 14 cents per share. Free cash flow was negative $11.4 million, while cash and marketable securities totaled $931.8 million at the end of the quarter.

Revenue, Shipments, and Market Trends

Revenue rose 1% from the previous quarter to $293.3 million, including $85 million in safe harbor revenue, compared with $84.3 million in the second quarter.

Enphase shipped 1.42 million microinverters and 129.9 megawatt-hours (MWh) of batteries. Microinverter shipments represented approximately 655.2 megawatts of direct current capacity.

U.S. residential solar sell-through fell 35% from a year earlier amid higher interest rates and the expiration of the Section 25D tax credit.

Global sell-through increased 1% from the previous quarter, while European revenue declined 11%. U.S. commercial solar sell-through rose 50%.

Regional Business Performance

U.S. revenue increased 3% from the previous quarter, while sell-through rose 5%. However, residential solar sell-through declined 35% from a year earlier as higher interest rates and the expiration of the Section 25D tax credit weighed on demand.

European revenue fell 11% from the previous quarter, while sell-through declined 12%, reflecting seasonal trends and weaker demand, particularly in France.

In the Netherlands, battery activations rose 23% from the second quarter, following a 102% increase in the second quarter compared with the first.

Production Tax Credits

As of Sept. 30, Enphase held $228.5 million in production tax credits, including $108.3 million from U.S.-made microinverters shipped in 2024 and $120.2 million from shipments during the first nine months of 2026.

By the end of the third quarter, the company had monetized $75 million under an agreement to sell $150 million in 2026 production tax credits.

Enphase monetized another $37.5 million after the quarter ended, bringing the total monetized in 2026 to $112.5 million.

The company expects the Internal Revenue Service to refund the $108.3 million in 2024 production tax credits by the end of the year.

Fourth-Quarter Outlook

Enphase forecast fourth-quarter revenue of $225 million to $255 million, below the consensus estimate of $298.389 million. The company expects an adjusted gross margin of 40% to 43%.

Management expects global sell-through to decline approximately 10% from the third quarter, or about $20 million from the quarterly level of roughly $230 million recorded during the first three quarters.

With sell-through expected to reach $210 million, Enphase plans to ship approximately $190 million into the channel, or $20 million less than anticipated demand, to reduce inventory ahead of weaker first-quarter demand.

Management does not expect a meaningful recovery in U.S. residential solar demand and anticipates that distributors will remain cautious heading into 2027.

Residential Battery Growth Opportunities

Enphase expects residential battery shipments to increase 50% to 675 MWh in 2027 from 450 MWh in 2026.

Volume shipments of the IQ Battery G5 are scheduled to begin in the first quarter of 2027. The product supports up to 30 kilowatt-hours of storage capacity per stack.

The company sees growth opportunities among approximately 3 million U.S. households with solar installations.

In the Netherlands, Enphase has about 500,000 solar-only customers, representing nearly $2 billion in potential battery retrofit sales. An additional 2.5 million Dutch homes have solar systems from other providers.

Enphase holds an estimated 15% to 20% share of the U.S. residential battery market, compared with approximately 50% of the residential solar inverter market.

The company also identified Australia as a market representing 12 gigawatt-hours of annual battery demand, while virtual power plant opportunities could expand beginning in 2027.

Commercial Solar and Battery Expansion

U.S. commercial solar permits increased 13% in the first nine months of 2026.

Enphase’s IQ9 S3P is a 548-watt microinverter, while its IQ Battery C80 provides 80 kWh of energy storage and 40 kilowatts of continuous power. The battery system can scale to 2 MWh using 25 units.

Preorders opened in August 2026, with pilot projects expected in the first quarter of 2027 and volume shipments scheduled for the second quarter.

Enphase targets 100 MWh in commercial battery sales in 2027 and expects commercial revenue to exceed $100 million, compared with approximately $30 million in 2026.

Its longer-term goal is to capture 40% of the U.S. small commercial solar market, potentially generating $250 million in annual revenue.

Data Center and Other Growth Initiatives

Enphase’s IQ SST data center pipeline includes more than 50 potential customers, including a hyperscaler and a global artificial intelligence computing company.

Pilot projects are planned for 2027, with commercial shipments expected in 2028. Management sees the potential for $1 billion in annual revenue from the business by 2030.

For 2027, management outlined approximately $800 million in annualized core revenue and another $200 million from growth initiatives, although it did not issue formal revenue guidance.

Potential growth drivers include 675 MWh in residential battery shipments, more than $100 million in commercial revenue and $15 million to $20 million from bidirectional electric vehicle charging.

The company’s Propel initiative could provide additional upside, although management has not quantified its potential revenue contribution.

Management believes these initiatives could more than double Enphase’s business over time, depending on execution and customer adoption.

However, seasonal weakness in the first quarter remains a headwind, and the company’s near-term outlook continues to reflect subdued residential solar demand.

ENPH Price Action: Enphase Energy shares were down 17.17% at $24.65 during premarket trading on Wednesday. The stock is trading at a new 52-week low, according to market data.