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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-35480
https://cdn.kscope.io/efcffb2151af9a631fb7cd509b4fa2f5-enph-20210630_g1.jpg
Enphase Energy, Inc.
(Exact name of registrant as specified in its charter)
Delaware
20-4645388
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
47281 Bayside Parkway
Fremont, CA 94538
(Address of principal executive offices, including zip code)
(877) 774-7000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.00001 par value per shareENPHNasdaq Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an “emerging growth company.” See the definitions of “large accelerated filer,” “accelerated filer, ” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No  
As of July 23, 2021, there were 134,621,196 shares of the registrant’s common stock outstanding, $0.00001 par value per share.

Enphase Energy, Inc. | 2021 Form 10-Q | 1


ENPHASE ENERGY, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021
TABLE OF CONTENTS
 
  Page
    

Enphase Energy, Inc. | 2021 Form 10-Q | 2

Table of Contents
PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements (Unaudited)
ENPHASE ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
As of
June 30,
2021
December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents$1,312,261 $679,379 
Accounts receivable, net of allowances of $1,311 and $462 at June 30, 2021 and December 31, 2020, respectively
281,154 182,165 
Inventory37,756 41,764 
Prepaid expenses and other assets34,748 29,756 
Total current assets1,665,919 933,064 
Property and equipment, net63,211 42,985 
Operating lease, right of use asset, net15,693 17,683 
Intangible assets, net45,409 28,808 
Goodwill61,321 24,783 
Other assets118,532 59,875 
Deferred tax assets, net130,571 92,904 
Total assets$2,100,656 $1,200,102 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$82,141 $72,609 
Accrued liabilities119,234 76,542 
Deferred revenues, current55,084 47,665 
Warranty obligations, current (includes $10,759 and $8,267 measured at fair value at June 30, 2021 and December 31, 2020, respectively)
15,009 11,260 
Debt, current85,125 325,967 
Total current liabilities356,593 534,043 
Long-term liabilities:
Deferred revenues, noncurrent165,645 125,473 
Warranty obligations, noncurrent (includes $27,278 and $20,469 measured at fair value at June 30, 2021 and December 31, 2020, respectively)
44,929 34,653 
Other liabilities20,075 17,042 
Debt, noncurrent929,015 4,898 
Total liabilities1,516,257 716,109 
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock, $0.00001 par value, 300,000 shares and 200,000 shares authorized; and 134,571 shares and 128,962 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively
1 1 
Additional paid-in capital762,611 534,744 
Accumulated deficit(180,137)(51,186)
Accumulated other comprehensive income1,924 434 
Total stockholders’ equity584,399 483,993 
Total liabilities and stockholders’ equity$2,100,656 $1,200,102 

See Notes to Condensed Consolidated Financial Statements.
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ENPHASE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Net revenues$316,057 $125,538 $617,811 $331,083 
Cost of revenues188,256 77,151 367,061 202,021 
Gross profit127,801 48,387 250,750 129,062 
Operating expenses:
Research and development22,708 13,192 44,526 25,068 
Sales and marketing25,586 12,371 45,208 24,143 
General and administrative20,107 11,970 40,230 24,285 
Total operating expenses68,401 37,533 129,964 73,496 
Income from operations59,400 10,854 120,786 55,566 
Other income (expense), net
Interest income98 282 171 1,373 
Interest expense(12,506)(5,952)(19,835)(9,107)
Other (expense) income, net(633)653 (60)(271)
Loss on partial settlement of convertible notes(13) (56,382) 
Change in fair value of derivatives (59,692) (44,348)
Total other expense, net(13,054)(64,709)(76,106)(52,353)
Income (loss) before income taxes46,346 (53,855)44,680 3,213 
Income tax benefit (provision)(6,995)6,561 26,369 18,429 
Net income (loss)$39,351 $(47,294)$71,049 $21,642 
Net income (loss) per share:
Basic$0.29 $(0.38)$0.53 $0.17 
Diluted$0.28 $(0.38)$0.49 $0.16 
Shares used in per share calculation:
Basic135,094 125,603 133,209 124,567 
Diluted141,533 125,603 144,022 138,910 

See Notes to Condensed Consolidated Financial Statements.
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ENPHASE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Net income (loss)$39,351 $(47,294)$71,049 $21,642 
Other comprehensive income (loss):
Foreign currency translation adjustments1,284 (62)1,490 (230)
Comprehensive income (loss)$40,635 $(47,356)$72,539 $21,412 

See Notes to Condensed Consolidated Financial Statements.
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ENPHASE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Common stock and paid-in capital
Balance, beginning of period$751,689 $433,543 $534,745 $458,316 
Issuance of common stock from exercise of equity awards3,428 2,867 3,642 4,846 
Payment of withholding taxes related to net share settlement of equity awards(7,813)(9,385)(16,998)(43,652)
Equity component of convertible notes issued, net of tax8 116,300 207,970 116,300 
Cost of convertible notes hedge related to the convertible notes issued, net of tax (117,108)(213,322)(117,108)
Sale of warrants related to the convertible notes issued 96,351 220,800 96,351 
Equity component of partial settlement of convertible notes(74) (966,557) 
Cost of reacquired equity component on partial settlement of convertible notes62  962,176  
Stock-based compensation expense15,312 12,300 30,156 19,815 
Balance, end of period$762,612 $534,868 $762,612 $534,868 
Accumulated deficit
Balance, beginning of period$(19,488)$(116,245)$(51,186)$(185,181)
Net income (loss)39,351 (47,294)71,049 21,642 
Repurchase of common stock(200,000) (200,000) 
Balance, end of period$(180,137)$(163,539)$(180,137)$(163,539)
Accumulated other comprehensive income (loss)
Balance, beginning of period$640 $(1,091)$434 $(923)
Foreign currency translation adjustments1,284 (62)1,490 (230)
Balance, end of period$1,924 $(1,153)$1,924 $(1,153)
Total stockholders' equity, ending balance
$584,399 $370,176 $584,399 $370,176 

See Notes to Condensed Consolidated Financial Statements.
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ENPHASE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
20212020
Cash flows from operating activities:
Net income$71,049 $21,642 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization13,154 7,985 
Provision for doubtful accounts271 185 
Non-cash interest expense19,463 8,094 
Loss on partial settlement of convertibles notes56,382  
Deemed repayment of convertible notes attributable to accreted debt discount(15,585) 
Change in fair value of debt securities(2,369) 
Stock-based compensation30,156 19,815 
Change in fair value of derivatives 44,348 
Deferred income taxes(30,127)(19,567)
Changes in operating assets and liabilities:
Accounts receivable(98,531)56,166 
Inventory4,008 870 
Prepaid expenses and other assets(15,194)(9,534)
Accounts payable, accrued and other liabilities46,890 (35,389)
Warranty obligations14,025 809 
Deferred revenues47,909 (30,771)
Net cash provided by operating activities141,501 64,653 
Cash flows from investing activities:
Purchases of property and equipment(26,368)(7,804)
Investments in private companies(45,000) 
Business acquisitions, net of cash acquired(55,239) 
Net cash used in investing activities(126,607)(7,804)
Cash flows from financing activities:
Issuance of convertible notes, net of issuance costs1,188,439 312,420 
Purchase of convertible note hedges(286,235)(89,056)
Sale of warrants220,800 71,552 
Principal payments and financing fees on debt(1,422)(1,633)
Partial repurchase of convertible notes(289,312) 
Proceeds from exercise of equity awards and employee stock purchase plan3,642 4,846 
Repurchase of common stock(200,000) 
Payment of withholding taxes related to net share settlement of equity awards(16,998)(43,652)
Net cash provided by financing activities618,914 254,477 
Effect of exchange rate changes on cash and cash equivalents(926)(181)
Net increase in cash, cash equivalents and restricted cash632,882 311,145 
Cash, cash equivalents and restricted cash—Beginning of period679,379 296,109 
Cash, cash equivalents and restricted cash—End of period$1,312,261 $607,254 
Supplemental cash flow disclosure:
Supplemental disclosures of non-cash investing and financing activities:
Purchases of fixed assets included in accounts payable$4,175 $1,636 
Contingent consideration in connection with the acquisition$3,596 $ 

See Notes to Condensed Consolidated Financial Statements.
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1.    DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Enphase Energy, Inc. (the “Company”) is a global energy technology company. The Company delivers smart, easy-to-use solutions that manage solar generation, storage and communication on one platform. The Company revolutionized the solar industry with its microinverter technology and produces a fully integrated solar-plus-storage solution.
Basis of Presentation and Consolidation
The accompanying condensed consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States (“U.S.”), or GAAP. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Unaudited Interim Financial Information
These accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC for interim financial reporting. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring items, considered necessary to present fairly the Company’s financial condition, results of operations, comprehensive income (loss), stockholders’ equity and cash flows for the interim periods indicated. The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the operating results for the full year.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Significant estimates and assumptions reflected in the financial statements include revenue recognition, allowance for doubtful accounts, stock-based compensation, deferred compensation arrangements, inventory valuation, accrued warranty obligations, fair value of investments, debt derivatives, convertible notes and contingent consideration, fair value of acquired intangible assets and goodwill, useful lives of acquired intangible assets and property and equipment, incremental borrowing rate for right-of-use assets and lease liability, legal contingencies, and tax valuation allowance. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ materially from management’s estimates using different assumptions or under different conditions.
In light of ongoing semiconductor supply constraints and the evolving COVID-19 pandemic, management has considered their impact on the Company’s critical and significant accounting estimates on the date of issuance of these financial statements. These estimates may change, as new events occur and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s condensed financial statements.
The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the U.S. The Company filed audited consolidated financial statements, which included all information and notes necessary for such a complete presentation in conjunction with its Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 16, 2021 (“Form 10‑K”).
Summary of Significant Accounting Policies
Except for the accounting policy for repurchase of common stock, added as a result of the common stock repurchased by the Company during the quarter ended June 30, 2021, there have been no significant changes to the Company’s significant accounting policies in Note 2, “Summary of Significant Accounting Policies,” of the notes
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
to consolidated financial statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Common Stock Repurchase
The Company accounts for repurchase of common stock under ASC 505 and charged the entire cost of repurchase to the accumulated deficit in the condensed consolidated balance sheet as of June 30, 2021.
Recently Issued Accounting Pronouncements
Not Yet Effective
In August 2020, the FASB issued Account Standard Update (“ASU”) 2020-06, “Debt - Debt with Conversion and Other Options (subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (subtopic 815-40),” which reduces the number of accounting models in ASC 470-20 that require separate accounting for embedded conversion features. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the effective interest rate of convertible debt instruments will be closer to the coupon interest rate. Further, the diluted net income per share calculation for convertible instruments will require the Company to use the if-converted method. The treasury stock method should no longer be used to calculate diluted net income per share for convertible instruments. The amendment will be effective for the Company with annual period beginning January 1, 2022. The Company is currently evaluating the accounting, transition and disclosure requirements of the standard, however, the Company expects its interest expense will be reduced as a result of accounting for its convertible debt instruments as a single liability measured at its amortized cost.
2.    REVENUE RECOGNITION
Disaggregated Revenue
The Company has one business activity, which is the design, manufacture and sale of solutions for the solar photovoltaic (“PV”) industry. Disaggregated revenue by primary geographical market and timing of revenue recognition for the Company’s single product line are as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
(In thousands)
Primary geographical markets:
U.S.$254,576 $100,791 $502,358 $280,391 
International61,481 24,747 115,453 50,692 
Total$316,057 $125,538 $617,811 $331,083 
Timing of revenue recognition:
Products delivered at a point in time$302,100 $114,299 $590,971 $308,978 
Products and services delivered over time13,957 11,239 26,840 22,105 
Total$316,057 $125,538 $617,811 $331,083 
Contract Balances
Receivables, and contract assets and contract liabilities from contracts with customers are as follows:
June 30,
2021
December 31,
2020
(In thousands)
Receivables$281,154 $182,165 
Short-term contract assets (Prepaid expenses and other assets)21,135 17,879 
Long-term contract assets (Other assets)63,752 51,986 
Short-term contract liabilities (Deferred revenues)55,084 47,665 
Long-term contract liabilities (Deferred revenues)165,645 125,473 
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company receives payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Contract assets include deferred product costs and commissions associated with the deferred revenue and will be amortized along with the associated revenue. The Company had no asset impairment charges related to contract assets in the three and six months ended June 30, 2021.
Significant changes in the balances of contract assets (prepaid expenses and other assets) during the period are as follows (in thousands):
Contract Assets
Contract Assets, beginning of period$69,865 
Amount recognized(10,255)
Increase25,277 
Contract Assets, end of period$84,887 
Contract liabilities are recorded as deferred revenue on the accompanying condensed consolidated balance sheets and include payments received in advance of performance obligations under the contract and are realized when the associated revenue is recognized under the contract.
Significant changes in the balances of contract liabilities (deferred revenues) during the period are as follows (in thousands):
Contract Liabilities
Contract Liabilities, beginning of period$173,138 
Revenue recognized(33,544)
Increase due to billings81,135 
Contract Liabilities, end of period$220,729 
Remaining Performance Obligations
Estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period are as follows:
June 30,
2021
(In thousands)
Fiscal year:
2021 (remaining six months)$29,069 
202251,375 
202345,388 
202440,157 
202533,174 
Thereafter21,566 
Total$220,729 

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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3.    OTHER FINANCIAL INFORMATION
Inventory
Inventory consist of the following:
June 30,
2021
December 31,
2020
(In thousands)
Raw materials$11,870 $10,140 
Finished goods25,886 31,624 
Total inventory$37,756 $41,764 
Accrued Liabilities
Accrued liabilities consist of the following:
June 30,
2021
December 31,
2020
(In thousands)
Salaries, commissions, incentive compensation and benefits$9,919 $6,634 
Customer rebates and sales incentives57,151 36,622 
Freight14,818 10,300 
Operating lease liabilities, current4,603 4,542 
Liability due to supply agreements14,418 5,500 
Contingent consideration3,596  
Post combination expense accrual2,842  
Other11,887 12,944 
Total accrued liabilities$119,234 $76,542 
4.    BUSINESS COMBINATION
Acquisition of Sofdesk Inc. (“Sofdesk”)
On January 25, 2021, the Company completed the acquisition of 100% of the shares of Sofdesk, a privately-held company. Sofdesk provides design tools and services software for residential solar installers and roofing companies and will enhance the Company’s digital transformation efforts.
As part of the purchase price, the Company (i) paid approximately $32.0 million in cash on January 25, 2021 and (ii) is liable for up to approximately $3.7 million of contingent consideration payable during the first quarter of 2022, of which the Company recorded a liability of approximately $3.5 million representing the fair value of the contingent consideration.
The contingent consideration is subject to remeasurement at each reporting period until paid. The acquisition date fair value of the purchase price was approximately $35.5 million, which consisted of the following (in thousands):
Cash consideration$31,988 
Fair value of contingent consideration3,500 
Total$35,488 
In addition to the purchase price discussed above, the Company will be obligated to pay up to approximately $3.7 million, during the first quarter of 2022, subject to continued employment of key employees of Sofdesk. As this payment is contingent upon the continuous service of the employees, it is being accounted for as a post-combination expense and will be recognized ratably over the one year period.
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The acquisition has been accounted for as a business combination under the acquisition method, and accordingly, the total purchase price is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values on the acquisition date. The results of operations of Sofdesk have been included in the Company’s condensed consolidated statement of operations from the acquisition date.
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date, which are subject to change within the measurement period as the fair value assessments are finalized (in thousands):
Net tangible assets acquired$1,441 
Intangible assets9,200 
Deferred tax asset457 
Goodwill24,390 
Net assets acquired$35,488 
The excess of the consideration paid over the fair values assigned to the assets acquired and liabilities assumed represents the goodwill resulting from the acquisition. Goodwill is primarily attributable to expected synergies in the Company’s solar offerings and cross-selling opportunities.
Intangible assets consist primarily of developed technology, customer relationship intangibles and trade name intangibles. Intangible assets attributable to developed technology include a combination of unpatented technology, trade secrets, computer software and research processes that represent the foundation for the existing and planned new products to facilitate the generation of new content. Customer relationship intangibles relate to Sofdesk’s software ability to sell current and future offerings, as well as products built around the current offering, to its existing customers. Trade name intangibles are attributable to marketing goods and services under the SolargrafTM and RoofgrafTM brands.
The following table shows the fair value of the separately identifiable intangible assets at the time of acquisition and the period over which each intangible asset will be amortized:
Preliminary Fair ValueUseful Life
(In thousands)(Years)
Developed technology$6,900 5
Customer relationship1,800 5
Trade Name500 5
Total identifiable intangible assets$9,200 
The Company incurred costs related to this acquisition of $0.3 million and $2.0 million that were recorded in general and administrative expenses in the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2021, respectively.

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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Acquisition of DIN’s Solar Design Services Business (“DIN”)
On March 31, 2021, the Company completed its acquisition of DIN’s solar design services business. DIN's solar design services business provides outsourced proposal drawings and permit plan sets for residential solar installers in North America and will enhance the Company’s digital transformation effort. As part of the purchase price, the Company paid approximately $24.8 million in cash at closing on March 31, 2021.
The acquisition has been accounted for as a business combination under the acquisition method; accordingly, the total purchase price is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values on the acquisition date. The results of operations of DIN have been included in the Company’s condensed consolidated statement of operations from the acquisition date.
In addition to the purchase price summarized above, the Company will be obligated to pay up to i) approximately $5.0 million in equal monthly installments over the course of one year following the acquisition date and ii) approximately $5.0 million payable on the one year anniversary following the acquisition date subject to achievement of certain revenue and operational targets. As both additional payments require continuous employment of certain key employees of DIN and are subject to other conditions, these payments are being accounted for as post-combination expense and will be recognized ratably over the one year period.
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date, which are subject to change within the measurement period as the fair value assessments are finalized (in thousands):
Net tangible assets acquired$1,541 
Intangible assets11,700 
Goodwill11,544 
Net assets acquired$24,785 
The excess of the consideration paid over the fair values assigned to the assets acquired and liabilities assumed represents the goodwill resulting from the acquisition. Goodwill is primarily attributable to expected synergies in the Company’s solar offerings and cross-selling opportunities.
Intangible assets consist primarily of customer relationship intangibles. Customer relationship intangibles relate to the ability of the acquired DIN solar design services business to sell current and future offering, as well as products built around the current offering, to its existing customers.
The following table shows the fair value of the separately identifiable intangible assets at the time of acquisition and the period over which each intangible asset will be amortized:
Preliminary Fair ValueUseful Life
(In thousands)(Years)
Customer relationship$11,700 5
The Company incurred costs related to this acquisition of $0.5 million and $1.9 million that were recorded in general and administrative expenses in the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2021, respectively.
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5.    GOODWILL AND INTANGIBLE ASSETS
The Company’s goodwill as of June 30, 2021 and December 31, 2020 are as follows:
GoodwillJune 30,
2021
December 31, 2020
(In thousands)
Goodwill, beginning of period$24,783 $24,783 
Goodwill acquired35,934  
Currency translation adjustment604  
Goodwill, end of period$61,321 $24,783 
The Company’s purchased intangible assets as of June 30, 2021 and December 31, 2020 are as follows:
June 30, 2021December 31, 2020
GrossAdditionsAccumulated AmortizationNetGrossAdditionsAccumulated AmortizationNet
(In thousands)
Intangible assets:
Other indefinite-lived intangibles$286 $— $— $286 $286 $— $— $286 
Intangible assets with finite lives:
Developed technology13,100 6,900 (6,966)13,034 13,100  (5,276)7,824 
Customer relationships26,421 13,500 (8,185)31,736 23,100 3,321 (5,723)20,698 
Trade names 500 (147)353     
Total purchased intangible assets$39,807 $20,900 $(15,298)$45,409 $36,486 $3,321 $(10,999)$28,808 
Amortization expense related to finite-lived intangible assets are as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
(In thousands)
Developed technology$891 $546 $1,690 $1,092 
Customer relationships
1,532 700 2,462 1,401 
Trade names85  147  
Total amortization expense
$2,508 $1,246 $4,299 $2,493 
Amortization of developed technology, customer relationships and trade names is recorded to sales and marketing expense.
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6.    WARRANTY OBLIGATIONS
The Company’s warranty activities were as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
(In thousands)
Warranty obligations, beginning of period$54,553 $37,501 $45,913 $37,098 
Accruals for warranties issued during period3,319 766 7,213 2,290 
Changes in estimates4,269 1,748 11,924 3,425 
Settlements(2,757)(2,578)(5,687)(5,848)
Increase due to accretion expense1,104 804 2,047 1,578 
Other(550)(334)(1,472)(636)
Warranty obligations, end of period59,938 37,907 59,938 37,907 
Less: current portion(15,009)(10,170)(15,009)(10,170)
Noncurrent$44,929 $27,737 $44,929 $27,737 
Changes in Estimates
In the three months ended June 30, 2021, the Company recorded $4.3 million in warranty expense from change in estimates, of which $2.9 million relates to the timing of cost reduction assumptions for replacement products and $1.4 million for continuing analysis of field performance data and diagnostic root-cause failure analysis primarily relating to its prior generation products. In the three months ended June 30, 2020, the Company recorded $1.7 million in warranty expense primarily related to continuing analysis of field performance data and diagnostic root-cause failure analysis primarily relating to its prior generation products.
In the six months ended June 30, 2021, the Company recorded $11.9 million in warranty expense from change in estimates, of which $7.7 million relates to continuing analysis of field performance data and diagnostic root-cause failure analysis primarily relating to its prior generation products, $2.9 million relates to the timing of cost reduction assumptions for replacement products and $1.3 million relates to the other cost assumption changes. In the six months ended June 30, 2020, the Company recorded $3.4 million in warranty expense primarily related to continuing analysis of field performance data and diagnostic root-cause failure analysis primarily relating to its prior generation products.
7.    FAIR VALUE MEASUREMENTS
The accounting guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of such assets or liabilities do not entail a significant degree of judgment.
Level 2 - Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
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ENPHASE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
June 30, 2021December 31, 2020
(In thousands)
Level 1Level 2Level 3Level 1Level 2Level 3
Assets:
Cash and cash equivalents:
Money market funds$1,277,860 $ $ $654,699 $ $ 
Other assets
Investments in debt securities  47,369    
Total assets measured at fair value$1,277,860 $ $47,369 $654,699 $ $ 
Liabilities:
Accrued liabilities
Contingent consideration$ $ $3,596