Q4 2019 Earnings Call
Welcome to the Enphase energy fourth quarter 2019 financial results Conference call at this part at this time all participants are in listen only mode. After the speaker presentation. There will be a question answer session asking question during the session you'll need to press star one on your telephone. Please be advised to today's conference is being recorded you require any further assistance. Please press star.
Zero.
I like to hand, the conference over to your Speaker today, Adam Hinckley. Please go ahead Sir.
Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energys fourth quarter 2019 results I'm, the head of Investor Relations for Enphase energy and I'm pleased to be hosting my first earnings call for the company on today's call or boundary coupon, Robyn and phases, President and Chief Executive Officer.
Eric brand or as Chief Financial Officer, and Ragu, Bill or Chief product Officer.
After the market close today Enphase issued a press release announcing the results for its fourth quarter ended December 31st 2019.
During this conference call Enphase management will make forward looking statements, including but not limited to statements related to Enphase Energys expected financial performance technology, new products operations and sales and marketing. These forward looking statements involve significant risks and uncertainties and enphase energys actual results.
And the timing of events could differ materially from these expectations.
For a more complete discussion of the risks and uncertainties. Please see the Companys annual report on form 10-K for the year ended December 31st 2018, which is on file with the FCC and the annual report on form 10-K for the year ended December 31st 2019, which will be filed with the FCC in the first.
Quarter of 2020.
Enphase energy cautions you not to please any undue reliance on forward looking statements in undertakes no duty or obligation to update any forward looking statements as a result of new information future events or changes in it in its expectations.
Also please note that financial measures used on this call or expressed on a non-GAAP basis, unless otherwise noted and have been adjusted to exclude certain charges. The company has provided a reconciliation of these non-GAAP financial measures to GAAP financial measures in its earnings release posted today, which can also be found to be investor Relations section.
Its website now I'd like to introduce boundaries with underwriting President and Chief Executive Officer of Enphase Energy foundry.
Good afternoon, and thanks for joining us today to discuss fourth quarter Preneed 19 financial results.
Third quarter.
Reported revenue of $210 million and shipped approximately 2.1 million microinverters.
Demand was strong for micro inverter products and.
We are pleased with the preorders for it in charge battery utilizing owed ensemble energy management technology and have started.
Training installments to support the upcoming product launch.
We exited the full quarter at approximately 37, probably 25.
This means 37% gross margin.
What's the operating expenses and 25% operating income all as a percentage of revenue on a non-GAAP basis.
As a reminder to be introduced though to new baseline financial model of 30 515 20.
Don't analysts day in December.
They played a part of that person the minimum financial performance, we expect to achieve over the next 18 to 24 month, well demonstrating meaning for top line.
Eric will go into great detail in the book and finances sleep and end the call.
Let's now talk about ease of doing business, how customers perceive us.
Q4, net promoters code was 56% did not the medical compared to 54% in Q3.
I would average called wait time, it's slightly over a minute and being working on seven self said was initiated to reduce called volumes. We recently opened though it online in phase two with the objective of providing even better customer experience.
Target is to exit twentytwenty within NBS cool greater than 65, a number that's considered very good did not industry.
Let's talk about the impact of the Corona light.
Thoughts embryos Dodd with the people of China is the fight the Vitesse.
Our priority is to end choose among being up our teams as well as our partners in China.
On contract manufacturing facility a partner facility in China is tend to be ramping back up following the Chinese new year.
Component supply chain is onto ramping.
We are seeing some indications that'd be a bone logistics from China is constrained.
Now coming to the first quarter, we didn't fully booked for the first quarter two the midpoint of guidance.
In addition, with nearly seven weeks into the quarter, Oh shipments have been hundred percent lenient toward revenue guidance.
Why do we remain cautious and and watching the impact on the Vitesse carefully we did not see a big impact to the first quarter revenue guidance at this point.
Depending on the situation video bone logistics, we may have to expedite some product.
Through and shipped from China.
And we are getting prepared for that we've already factored that do not revenue has been a gross margin guidance to the extent we know.
I was trying to talk about Mexico is doing very happy that Mexico is running well and provides us a good backup to sort of its global demand in the event of supply disruptions elsewhere.
The manufacture in more than half a million I Q seven microinverters in Mexico during Q4.
I would have gotten done but aid in Mexico, the literally over 15000 units the week.
And we previously stated our target is to double the capacity to amend me and Microinverters put quantum by Q4 of 2020, and we got to making very good progress towards that goal.
I would like to acknowledge the hard work of numerous people both on out team like the flex team in order to make this happen.
Next let's talk about safe Harbor.
Revenue.
And they tend to see partnership men's was $36.4 million in Q4.
And increased from $8 million in Q3.
For Q1, we plan to recognize the revenue of $44.5 million, but I'd see safe Harbor shipments.
I would like to highlight that only a very small number up on customers engage and safe up but activity.
And that each of these customers as an ongoing relationship and then phase beyond safe Harbor scene.
These shipments are not merely one time put it to this and growing share in that portfolio beyond safe hardware is an area of opportunity putting fees.
Let's talk a little bit more about Q1.
We all know Q1 is a you know seasonally soft wanting to put into solar industry with double digit percentage declines in revenue entered as what one product to look at how we are doing you know what a base business is doing with respect to the industry.
For example, if mean form.
<unk> revenue from our midpoint of Q1 20 guidance of $205 million out of base revenue only drops by 8%, which is a pretty good and it's not considering the typical seasonality.
Although we will provide formal guidance one of the second quarter plenty print do you not eat <unk> earnings call.
I'd like to provide some color today.
That will obviously be no safe harbor seems in Q2.
Our bookings for Q2 looked pretty healthy right now.
You don't considering that we are we expect a nice uptick in the base business for acute do commensurate with the.
That's three seasonality.
We also expect you to to benefit from a full quarter them in charge battery scene.
As I said before the pre ordered as far in charge of remained very healthy and I would and told her training is already underway.
Obviously, whatever we have thing with respect to do you do is.
Based on current understanding of the current nobody to situation.
Let's move onto the region.
The U.S.N. international and mix for the Q4 was 92, and 8% and respectively, excluding safe automotive revenue.
There is an obvious indication of strength of our North American business.
Oh, the U.S. makes as a percentage is probably going to remain high for a few more partners with the introduction of ensemble in North America. Nevertheless, we are putting a lot of effort to grow at international business.
You heard some updates on the analysts day, and I'm going to expand a little bit more on that now.
In Europe, we're making excellent progress we're doing a few things that are different from before.
There are pulling out all stops in order to bolster our salesforce through both internal transfer than new hires you know some of those are already in place right now.
We have made several offers and expect to have an increased headcount getting plays in Netherlands, Belgium, France, Germany, and Spain My early March.
Why we you know why did the relationships the distributors had many important to us we're placing extraordinary emphasis on winning the lump thailands daughters by focusing on quality and customer experience. We are doing this by increasing our installed or training significantly in Europe, and tracking and started to visit metrics village.
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Plenty plenty going after double.
The 2019 European fields, which was approximately $68 million.
Aside from my focus on the long tail installers, Oh ski initiate isn't the region not social housing.
You see in partnerships and providing differentiated solution for Chad integrated improve sorta with Korea, Taiwan, which we announced last week.
Let's now talk about Asia Pacific then Latin America.
Both Asia Pacific and Latin America small things business.
You know some of those businesses I'm quite small.
Our business in the name pack is mainly in Australia, just to remind you we hired agenda manager for that region in early 2019.
We have the right team in place along with a focus in the right metrics. There we are seeing very encouraging selling through to the installers and that he shouldn't you recently talked precedent is when we partnered with installers to support the Australian BV industry to introduce rapid shutdown as requirement.
On top of doesn't fit neatly on conviction I mean, there's no high voltage DC on the roof.
Data by providing increased five safety.
With these initiatives, we expect this region to grow nicely and 2020.
That's because products next.
We had volume shipments of IPO 70, I would highest followed product at 349, what do you see.
For Sunpower as well as other customers in the fourth quarter.
Thank you 70 like what I said is that I, yes, Paul it microinverter for the residential space and pad very relevant the high efficiency margins up to 450, what do you see in both 60 and 72 sell configuration.
There's going to talk of or do you see more new partners next.
Yeah, we continued to make steady progress without AC module partners, including Sunpower Panasonic. So maybe you have to mention a few.
We're working to bring in a few more modern partners both in U.S. as well as in Europe.
And fees I know J.D.C.M. from <unk> Morgan partners have now been adopted by more than 740 installers in the U.S. as of the seat.
By the way it's somebody they have T. M are also available for both installers and homeowners to put it is directly from the Enphase online store.
Next topic is on in charge battery that uses ensemble energy management technology.
Shipments funny uncharted battery are expected to begin in March of 20 printing.
We have already started painting installers, we expect we're expecting to them trainings a lot over the next few months.
The feedback has been really positive at very high N.B. I suppose.
Installers, clearly see uncharted, just the safe reliable and powerful option for the homeowners.
However, they feel the biggest value for the homeowners is that sort of the first time ever they can easily generate antigen.
Total energy.
And control energy in a single system.
All completely designed by interface that is the power of on some.
In the coming months, we wouldn't be expanding the training program beyond those Fremont headquarters to internal many off what partner sites.
In order to increase our training throughput significant.
In summary, we had a very happy with the performance in 2019 across all the parts.
We talked about three pillars of differentiation at the analyst day semiconductor software and ensemble.
This combined with operational excellence and our scalable business model is helping us win new customers.
Let me highlight during the analyst day, our immediate growth driver is the uncharted battery.
Followed by the Yankee weight, so a lot of Microinverters under <unk>.
Then my eye Q H D for the small commercial space and finally ensemble into Bob what are the India off the market.
With that I will turn the call it over to any for his review of our financial desserts, Eric Thanks, Bobby.
I will provide more details related to a were fourth quarter of 2018 financial result, as well if I were business held for the first quarter of 2020.
We have provided a reconciliation of non-GAAP to GAAP financial measures you know what our earnings release posted to the which can also be found in the Investor Relations section of our website.
Total revenue for the fourth quarter of 2019 was $210 million, including approximately $36.4 million off same horrible revenue.
Full revenue for the fourth quarter of 2019 increased 17% sequentially and increased 100 on 28% year over year.
We shipped approximately 677 megawatts DC in the poor quarter of 2018, and increasing megawatts DC of 64 cents equation.
To make up what she represented approximately 2.1 million might Greenberg.
Non-GAAP gross margin for the fourth quarter of 2019 was 37.3% compared to 36.24 cents for the third quarter of 29 team.
Expedite fees are now normalize we do not want to speak to the range and therefore do not have gone up normal impacting gross margin.
Our component supply is stable and as a result, we will no longer quantifying. This expense you see this within the normal course opus.
Non-GAAP operating expenses were 26.1 million bonus for the poor quarter of 2019 compared to 25 million born as part of the third quarter of 2019.
GAAP operating expenses were $33.4 million for the fourth quarter of 2019 compared to $31 million part of the third quarter of 2019.
GAAP operating expenses for the fourth quarter of 2019, including $5.6 million stock based compensation expenses find handed I'm 45000 dollar so far more pay six on expenses for acquired intangible assets.
And 1.1 million going off of restructuring expenses.
Our restructuring program was completed at the end between 18 and at this time, we do not anticipate any part of our future expenses related to restructuring.
On a non-GAAP basis income from operations was $52.3 million for the fourth quarter of 29, Dean compared to 40.2 million bonus for the third quarter of 2019.
On a GAAP basis income from operations was 44.4 million Bucks for the fourth quarter of 2090.
This increase you know, bringing income is reflective of the strong demand for our products and our focus on cost reduction on expense management.
On a non-GAAP basis net income for the fourth quarter of 2019 was 52 million boehner compared to $39.5 million for the third quarter of 2019. This resulted in diluted earnings per share of 39 cents for the fourth quarter of 2019 compared to 30 cents for the third quarter of 29.
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GAAP net income for the fourth quarter of 2019 was 100 up $16.7 million compared to 31.1 million bonus for the third quarter of 29 Pete.
This resulted in diluted earnings per share of 80 any sense for the fourth quarter of 2019 compared to 23 cents for the third quarter of 29 thing.
GAAP earnings per share for the fourth quarter of 2019 include sub 54 cents non cash benefits from the release of our valuation allowance against deferred tax assets that we highlighted on the Q3 2019 earnings call.
I will address taxes shortly.
There's some financial results for the fourth quarter of 2019 represents the fifth consecutive quarterly cash generation and got profitability.
Oh, well also like to highlight the significant milestone of achieving their first full year old GAAP profitability in the company Houston.
Now turning to the balance sheet inventory was 32.1 million bonus at the end of Q4 2019 compared to 30.2 million Bucks at the end of Q3 2019.
We actually that the fourth quarter operating they came with a full cash balance of 296.1 million dollar, including restricted cash compared to $203 million for third quarter of training, they deem and $106.2 million for the fourth quarter of 28 the.
Restricted cash balance really to first quarter 2020 Safe Harbor deliveries, we just big never Threeq shouldn't you be lifted at the end of April 2020.
For all got to be unrestricted by then.
The cash balance benefited from prepayments or 49.9 million dollar for safe Harbor deliveries in Q1, 2020 of which 5.4 million going up really two problems, we deferred revenue component such an invoice and enlighten revenue from these problems is deferred and recognized revenue over the respect.
Useful life.
If I were sold our safe Harbor revenue guidance of $44.5 million for the fourth quarter of 2020 differs from the prepayments we have received.
We generated $102.3 million in cash flow from operations and $94.9 million seen adjusted free cash flow for the fourth quarter of 29 point.
For calendar year 2019, we generated 124.3 million bonus of adjusted free cash flow.
Capital expenditures will sit in point Fourmillion bonus for Q4, 2019, mainly to wrap up our micron better supply capacity, Mexico and in charge battery capacity in China.
Now, let's discuss our outlook for the first quarter of 2020.
We have picked our revenue for the first quarter of 2020 to be within a range of 202, 200 on $10 million, including $44.5 million for revenue for a DC saved hardware shipments.
Turning to margins, we expect GAAP and non-GAAP gross margin to be within a range of 36% to 39%.
We expect our GAAP operating expenses to be within a range of 35 million to $37 million, including a total of approximately $7 million estimated 40 stock based compensation expenses and acquisition related amortization.
We expect non-GAAP operating expenses to be within a range of 20 million to $30 million.
Sequentially increase is primarily related to green any spending on R&D to support new products as well increasing self compelling new world in general our operating expenses are expected to be in line or lower than our baseline financial model, a 15% of Robby.
Before wrapping up let me address taxes.
During the fourth quarter, we released our valuation allowance against the perfect tough it based on our recent history of profitability that is forecast to persist.
This will result on a GAAP tax benefit.
We will now be subject to a 26 to 20 porcine GAAP tax rate in 2020 inclusion of federal state and international boxes.
Cash taxes are expected to deviate materially from GAAP taxes, as we have federal net operating loss carry forwards. So what kind of $47.4 million physical research credits of 12.4 million dollar state net operating loss carry force of $97.6 million under state research.
It's credits of $11.3 million.
And do we fully utilized this in oil Sands research printed most of the cast Texas will only relate to income from international operations, which represents in the minority of our business.
With that I will now open the line for portions.
As a reminder to ask a question during.
You will need to press star one of your telephone to withdraw your question press the pound Keith Please stand by how well, we could probably kuni roster.
First question comes from Brian Lee with Goldman Sachs. You May proceed with your question.
Hey, guys. Thanks for the for the questions and congrats on the strong quarter I guess, maybe first question on the Q1 guidance the safe Harbor revenue I. Appreciate all the a the granularity are providing around the dollar figures can you also give us a sense of you know what the customer mix looks like I know in Q4 you had.
Called out the one customer Sunrun is it the same customer in Q1 is it a totally different customer in Q1, and if it's a different customer their multiple customers that'd be a first question I have.
Into the different customer in fact that at a multiple customers.
Yeah for the Safe Harbor, you know amount of $44.5 billion.
Okay and by their safe to assume that all tier one installers as you mentioned during your prepared remarks, I recently and for.
Do they say fiber okay.
Fair enough that's helpful and then I guess if I.
I want you to Ah I don't want to coronary into giving more guidance and you're willing to provide but you did.
Try to provide us a little bit of a sense around Q2, so when I look back at the Q2 revenue trends historically, there's been.
About an average of 30% give or take sequential revenue growth and also a similar range for volumes if I look back to the model dating all the way back to the 2010 I.
I know a lot has changed over the period, but is that the type of seasonality. We should expect in Q2 this year as well based on your.
Comments around healthy bookings in seasonality on core revenues again, assuming no safe Harbor, and then no incremental croda virus impact being the base cases, just wondering if that's sort of the read we should be ticking away from your comments. Thanks.
I mean, that's a good question as you correctly that you do a this you know is quite seasonally strong.
The number is.
You know, 20% or 30%, it's hard for us to say at this point in time, but.
You know in general we expect all performed industry seasonality.
All right and then maybe last one if I could squeeze it and just around the yen charge. It's encouraging to hear you guys are on schedule for the for the shipments in Q1.
One of your peers, who also has a new product in the market just last week generac announce that they're raising their target for.
Shipments by 50% versus their original view any thoughts around kind of the market makeup as you're seeing a early traction on preorders and ownership to March and just you know in the context of your 5% attach rate.
There's potentially some upside as you move through the air given how the markets developing thanks guys.
Yeah, I mean look we're extremely excited by our product in fact.
And charges, the running well and all three of our houses you know my house.
Eric So sort of goes owes me at all and running in fact I went off grid. This morning for operate waterborne eight hours. So we're really happy with the performance of enjoyed too far and you know because it's time for us to bring to the market.
Our if you really stepped back and think about and why installed it like a solution a lot and this is what installers told us.
Really the if the you know all in one solar and storage system.
Seamless experience for the homeowner one number to call it very high quality very high customer experience safe AC architecture, all controlled by ensemble Energy management technology, that's our value proposition and sticking to our value proposition that is obviously a lot of competition lot of noise in the market.
But I think you know.
Value proposition is.
It's quite difficult to compete against.
So we will you know many people are coming we will see them in the marketplace.
You know that that's all I can say like now.
Okay. Thanks, guys.
Thank you. Your next question comes from Mark Strouse with JP Morgan You May proceed with your question.
Yeah. Thank you very much for for taking my questions are boundary I just wanted to go back to the the comment that you made about the the impact from Corona virus and what's included and whatnot.
I believe you said the it's possible there could be some expedited shipping fees is that included or excluded from the 36% to 39% guidance that you.
Given.
We have already included that in the guidance we gave you.
Great. Thank you and then you've been talking about expedited shipping fees for several quarters now excluding.
The wildcard from Corona virus can you just give an update there or are you tracking expectations.
Yeah, having your capacity.
Above expected demand.
Yeah, I mean look.
He used to having expedite charges of more than 200 basis points before that situation has changed we had no a normalized with respect to expedite it's really a in the noise. Yeah of course, if you'd better numbers that you know, we have we plan to little bit more than usual, but.
No that's already factored in the guide and then and now going forward. If the situation normalizes with respect to current avoidance. We will expedite is going to become nice it's not going to be significant for us.
Okay. Thank you then just one quick follow up for Eric.
Starting next quarter I'm here with the young charge starting to ship and in March.
How should we think about the you know any metrics that you're gonna give around.
Those shipments are those revenue.
Beginning and once you yeah. So we.
Our considering the possibility that started in Q3, we may start providing breakout.
On revenue, yes, we haven't made the final decision you. There is there any external reporting considerations, but we understand that when these becomes meaningful part of our ramp it will create a little bit off Oh problem for you folks should we never tomorrow and so we are very sensitive to that and we will address it.
You know when we have more visibility into coal that will work out for external reporting.
Okay very helpful. Thank you.
Thank you and your next thank you.
Thank you. Our next question comes from a heat map Mandloi from Credit Suisse. You May proceed with your question.
Hi, good evening, thanks for taking the questions on Ah so congrats or some of the strong caught Oh, maybe just on.
The other product launches just mentioned on the out enlisted the eye to eight or nine <unk> D. Do probably just talk about.
How you're thinking about the so lot of those projects are specifically given the supply chain disturbances and China if any.
Yeah, I mean, those basically we are thinking I'm going to thick enough of the year. The rough order would be the like you eat microinverters on the roof would be would be the first followed by.
The commercial Microinverters, followed by the on somebody in a box.
Got it thanks and.
It does just probably a going back to the on church could stackable like how much do a should we expect from on charge in Q1, specifically or the most their Q2 number.
We left small shipments of and charging you do I mean in Q1, but nothing significant in terms of revenue.
Q2 will have wonderful quarter of and charge.
And we expect that to be nice.
Got it and.
Just lastly on taxes, there just wondering to make sure understood that correctly, so from a tax perspective, it's a.
Minimal cash taxes and.
Because sounded a GAAP tax rate in line with the U.S. corporate tax rates.
Precedent.
You got it so think about about is $59 million, so cash savings for the monetization of the in oil and tax credits like that's where my caution from you know we give you all the data to be able to model on a non-GAAP basis. When those have exhausted we flip kept by multiple will be this thing.
Got it alright, thanks for taking my questions.
Thank you.
Thank you. Your next question comes from Colin Rusch with Oppenheimer. You May proceed with your question.
Thanks, So much can you guys talk a little bit about the growth in Europe, you know, how effective event and being able to go that's the same and how much of the once your guide is expected to come out of non North American sales.
Yeah I mean.
We don't really breakout breakout the exact numbers for Europe, but they didn't give you some color this time.
On the total revenue for 2019 was $68 million our plan is to double it in drainage ready to go to $136 million.
And like what I told you know, we've not been happy with progress in Europe, but that it changed.
No we are actually doing very well.
Have hired a already a bunch of sales gains in place we have internal transfers from the U.S. already in place they have already started.
And a you know.
So Dave in terms of headcount.
Approximately five salespeople was the number we had.
In 2019 and that number were tripled.
As we get towards much in April so we had tripling our sales head count and in Europe, we are focusing on the right regions Oh sales gain Germany already started he's driving the collaboration with Korea, Taiwan.
You know we've already hired the guys from Spain.
And we'll doubling down on the Netherlands that most important area. There are also going to double down on France, where we have a very high market share already.
Yeah, I mean, it's a good story right now we're very confident that we're going to make progress. We're very confident of start seeing an uptick in revenue as early as Q1.
Great and then if you think about the the better supply chain and your cost structure. There you know how should we think about the cadence of cost reduction I'm I'm, assuming that you're gonna go through.
A series of cost us as you get to higher volumes, but just trying to get a sense of where the order of magnitude is on that and how quickly we might get to some of those costs breaks.
Yeah like what I told you guys, Indiana lives. They cost reduction is is is embedded in the and then that's what I call is operational excellence, we look at all kinds of cost.
I look at Microinverter costs I look at.
Transformer caused the fact caused the connector cost for example, the connect and yeah I can talk about that but hours. So we have a D.C. connector not microinverter today, we haven't or that kind of cable that converts the the the connection from the Panama.
Into Oh.
Prior to the connect the on the micro inverter, we're going to eliminate that are not going to cable by building. The what is called than at the M.C. for like connector.
On the Microinverter that alone will save US you know roughly.
Notably dollars, so, but that's going to take some time, it's going to take some time, it's going to be done over multiple quarters that just an example of one in focusing on Transformers, we are focusing on.
On the you know always on a soda thing the right is the effects.
Always working on combinations, where we can integrate more components into it I think.
Thats on the micro nor on the on the accessories.
Gateways and then.
And that except say, though it envoy it. It's a you know we're spending a lot of our trying to take cost out of the ongoing same effort on the cable.
And we'll apply the same diligence been charge going forward, so that's where you'll see or gross margin.
Kind of up sequentially.
Going up if you see the Q4 number our Q2 Penumbra started 6% you for 19, we didn't own 37% you're guiding 30 639.
For Q1, so we are getting more and more a you know executing well.
On the cost reduction.
All right I'll take the rest of it offline. Thanks, guys Yep. Thank you.
Thank you are next question comes from Jeff Osborne with Cowen and company. You May proceed with your question.
Good afternoon, not just a couple of questions on my end I was wondering if I know that she's us in the past boundary, but if you just could you confirm that with the on charge. The the launch of that that the margin profile would be consistent with the corporate average or how do we I think on was trying to ask about that as well.
The initial phases of the launch pressuring margins in Q2 Q3 and then.
As you take costs out we'll come back to the the targeted range no it's not going to come but at the mountains, it's going to be right in line with automotive.
Great that's great great to hear.
And then can you just talked about you know I Kuwait's introduction for so we're only.
Deployments is that still targeted for for Q2 Q3.
So I know it's in the on charge solution, but how do we think about if somebody doesn't want storage when will that be available.
And they said, it's it's in the second half of Grundy training and yes, it's almost ready and basically you rightly pointed out it's already it's already available inside the in charge, but of course, we have to do a lot more work with a lot of flavors I think you eight which is which is.
Great. Thank you eight plus two eightx the acuity and then real effort is to make sure that the gateway.
Don't talk.
Who you know talks that seemed language as like you wait and yeah, you know ensuring that we do all the due diligence on quality and the babies flavor. So.
You know we might do it.
I know earlier, if things go better, but you know thought now I'm, just I'm, not giving a quarter, but I'm, saying genetically second half of 2020.
Got it and the last one I had a other for yourself and your Eric had just how do we think about the second half as your Mexico capacity ramps up to the million a quarter target and what the implications are for pricing.
As you sort of reverse the a the higher prices that you had experience and 29 team because of the tariff fully recognizing it doesn't impact to gross margins, but just a it would be important for modeling.
As we think about Asps for what.
Like what I said you know our if you think about gross margin gross margin is a combination of pricing and cost we had a continuously improving our cost in terms of pricing.
You know right now the pricing environment is very stable.
And a you know but of course, we always model.
1% to 2% price reductions every corner.
That's what we do.
Got it thank you.
Thank you. Thank you.
Thank you. Your next question comes from Philip Shen with Roth Capital Partners.
Please proceed with your question.
Hey, guys. Thanks for the questions first one is on the current of ours situation was just wonder if you could give us a little more color on what's happening on the ground. There in your facility. So specifically you know what kind of capacity utilization have you been running through this tough time and then how do you expect that the trend in the coming.
Weeks, and then what kind of potential impact do you think you could see in Q2.
Finally, you source any critical components from who way province, specifically.
Right. So just just to give you a quick thing you know, we make all or Microinverters and flexible young.
That's about the.
12 hour drive some move on.
We have done not who work in terms of the raw material the supply of that all many deals et cetera, most of our raw material suppliers on in.
You know to show and hangs over time, but also a little bit away from home.
Martin religions are checks raw materials and you know.
They are infected and so if I were to think about N type situation in terms of priority I would think the following number one.
Labor is labor it back in full force or not.
The labor in out like factory is roughly about you know.
Say because of that a new labor.
Or throughput is roughly 50% of the full capacity.
Which has been just still pretty good for us.
And then the second priority or the second the constraint that we think about logistics, we hear that the alone logistic from China.
It is getting difficult and we're always watching over to you know we are paying attention to that that third is that all material that you pointed out which we've done the own what we think we think we had good then.
The floor is obviously you know we're doing this conference call. So late seven weeks ended the quarter.
If the revenue guidance for the quarter that.
We have already shipped seven over 13 times expedite now that's what I mean by I'm, 100% linear.
We have already shipped that revenue seven or 13 multiplied by EQT.
He is what we have ship the last one is what you know God is doing over 50000 units are weak.
And of course block depends on the raw material from China.
And so that is there's always risk that but you know we feel pretty good about that guidance right. Now we have factored all of this situation in both revenue.
As well of gross margin guide and then you know considering that we.
You know one of the data point it.
We are fully booked to the guidance that we gave you we're fully booked.
They are underperforming linear.
Dundee home work in terms of raw materials.
We are paying extraordinary I can turn to logistics.
And so.
The thing we feel pretty good if that situation materially changes because of something that we don't know you will come back to you.
But that's what we know.
Okay. Thanks boundary, but as it relates to Q2 I know you haven't provided official guidance you talked to Brian about seasonality kind of being in line, so slightly better than historical or something like that.
What is the risk to Q2, you know obviously you've already shipped for Q1. So the question is what's your view on how you know the let's say the current situation remains at this level, 50% at full capacity.
How does that impact what you can deliver on on Q2.
The reason I mean, if the situation remains the same will be.
I don't think we'll be in.
And I don't think 11 problems. When you do fit remains the same. The reason is you know quotas out there, making good progress in Mexico.
That's starting to take the burden more and more.
We are keeping a close eye on that on many of them. So you know all things being equal if it but exactly the same in a few days from now when do you do is beginning.
I'm I'm still pretty optimistic about Q2, but you know realize that things can change by the day. So.
So you know that's all I can tell you right now.
Okay, Great no. That's very helpful. Thanks, shifting gears to pricing I know you've talked about that briefly but historically you guys have talked about as you shift away from China in from Mexico or that you touched long.
The pricing to customers.
Earlier call a few months ago, you're talking about maybe your price cuts starting April 1st to pass it onto those customers.
It seems like it or recent checks with Oh customers that you're not actually getting you haven't been actively talking about that what's your view on.
A potential for price reduction.
And at what point in time would you expect that to possibly happen.
Right so the.
Yes so.
No.
Soviet clear when the supply chain you know right now is into the Bunions due to the casino win as other than other suppliers you know I'm thinking about raising the prices we have not we basically value.
Customers. This time, we think that they've already taken a lot of burden on the Ted if so we've not planning to raise prices.
And it is not prudent for us to also dropped prices without understanding the you know situation on the supply chain due to the right. So if things stabilize we would do exactly what I said.
Which is basically depending upon the percentage of manufacturing in ward.
Worse is China for North American shipments, we will we will basically a they use prices to that level.
Okay.
And that like going in you know sometime in Q3 if.
If the situation gets gets table.
In terms of the current away if not.
No we got to wait and watch.
Thank you. Our next question comes from Brad Michael with Williams trading you May proceed with your question.
Hi, guys. Thanks for question [noise].
So your U.S. business grew.
Hundreds that are so signed year to year.
And.
2019, so can you give us a retail in terms of level we're.
You know inventories in the channel today versus a year ago through your sort of how its murder search engines that is because other checks were sitting there.
Solar as inventories are you know a lot higher the channel.
They were a year ago you know.
No you get your real Pos data.
On your inventory looks out so yeah, the color and that for sure.
Yeah, we we think a reasonable level of inventory to have is usually eight to 10 weeks and me we tried to.
Maintain our channel inventory between eight to 10 weeks like what I pointed over the last earnings call.
But you know what you said is right we have grown a lot in the last year, mainly the growth is because about I Q seven product fantastic product, it's near the quality unit customer experience. We have made a lot of you know announcement with tier one.
Made a lot of announcements in the long tail installers.
We recently signed up.
Peterson, Dean and Sunrun as well.
You know things things look good then that's longer we don't think Oh. They have the bought in terms of customer experience I believe we will continue to take share.
Can you quantify at all what that Mercer is today and U.S. residential versus year ago.
I'm glad I mean, we don't really track, we don't really think think market share we controlled imports, but we don't really.
And on track they'll put Phil I could be.
No.
No the number.
And I'm not gonna grow to know that I'm not a you know standing by <unk>.
Thank you I mean, there's obviously a big number given that the Mars growing at 25%.
You grow one thirtys I'm, so without much inventory growth so what about 'em swords, you had anymore color on the.
The beta installs.
However, many.
500, 800 that isn't done what your feedback has been from the customers have you on follow on orders.
It sounds like April is one production volumes really start up and you give a sense for.
Well I know the there was a day and a half training required for solar can give us some level of understanding what the ramp up.
Might be just kinda, how I know, it's a new business, but what does it seem like at this point.
Yes, just together terminology and trade you know right now we are doing what are the current as alpha.
I will further basically near and Dear to people.
It is what you're doing in like what I said you know.
So anyway. So my hope is that goes out but all running.
Full ensemble.
And that that's what we've done so we are getting feedback to the team that are in any major issues that are always minor yeah, you know teething issues that up there and then.
Now coming to the second thing. It is the is the training the training of installers, we obtained all our beat a you know installers they add hour.
What what we call it the and the ambassadors that be plane in the first in the first round. So we obtained about 70 installer personnel.
22 installation companies these farm hour.
Our beat our network and that yeah, and essentially in the first week of much they will start installing and the second week of month. They will start installing beat us systems, and we're going to get for that feedback from that by that time, our compliance will also be done.
And so we'll be in a very good position in order to ship Unum <unk>, but in terms of the performance of the product you know, we actually put anything you'd like in my house like Yeah, I like what I said. This morning, I was upgraded thought about six hours and everything was finally, they didn't even you know someone had flipped a.
You know from Miami to go from underdog. Good. So we can entering through there and you know they were doing a best on my house.
And I didn't even know that I was up.
That's a big deal.
If I can make that that somebody expedient seamless, it's all going to be that.
We can make that customer experience seamless.
I think.
You know and so there's a lot of upside here.
Thank you. Our next question comes from Jeffrey Campbell with Tuohy Brothers You May proceed with your question.
Good afternoon, and congratulations on the strong quarter.
Boundary.
At the analyst day, It was said that.
Other than possibly D. The price that does she can't compete with Enphase and that's sort of me thinking about the acuity.
And the small commercial solar, saying, even with a higher year today, a speed the I Q a day reduction in components should see system cost come down relative to the I Q seven.
So is it fair to think of it that way and could the accuray de.
Maybe the first enphase macro that will benefit from quality service and cost competitiveness.
Well, yes, but it's not because of the reason you said our that Architected as a scalable architecture for me resident architecture. So we are able to do you know we're able to do you know what what we'd already in the analyst day is that the power density for our product, it's 50% hi.
Thank you a D that make you weight, which means we are able to back a lot more power.
You know not falling in the same form factor.
And of course that translate into cost.
Of course, we're gonna be competitive, but but we did not price on cost.
We present value what if the differentiation.
With respect to our next best automated.
We'll have to look at what isn't the competition and what value or we wanted we specifically providing is it higher quality is it better customer experience you did.
You know better installation less labor.
All of those factors need to need to be looked that and then be repricer products.
Okay, well, that's very helpful. And then I also want to ask about the Korea, Taiwan.
Partnership to you sort of press release on a recently it looks like it's a large operations, there's a factories, but I have no sense of how large the clay tall rooftop market is or create tons place in that market. So some color there would be helpful.
And also wondered if they're smaller relationships and phase will build through Korea, Taiwan can't go beyond clay tile installation.
Yeah, I'm you know.
The idea is very need right. If you basically have you know in roof solar.
And you do it for new homes, you would think that it can.
Good.
Yes, basically can can catch on like wildfire like <unk>.
But you know there's an entirely brand new market, we've not seen it take off.
I expect it will be a slow and steady growth.
So because you know where we are introducing it didn't michoud Mitchell countries like Germany, and you know, Germany. It is very strict on.
And I'm quality is very strict on customer experience they wouldn't.
Ramp something as fast it's going to be in a measured way, but the advantages are very very clear.
It's an easy you basically candidates is everything.
And Uh huh.
We'll reduce the cost of an installation it by definition is you know the models.
But in the factory and during the migraine so while it is going to be very high.
And it it taught another good experience for the installer. So the installers obviously they wanted.
But I mean, you know you at this point, it's too early for us to talk about that.
Thank you. Your next question comes from Eric Stine with Craig Hallum. You May proceed with your question.
However on a few quick questions here the end.
Maybe just on tier one customers I know a couple of years back you know you you took a the action just kind of step away there.
In late last year picked up Sunrun you know the these new safe Harbor customers that you referenced.
Just curious what kind of contribution you expect from those customers as they come back in 2020.
You know as a meaningful in 2020 in more of a 2021 event or do you expect that it could impact.
2020 nicely.
Ah yes.
Yes, we did the same far.
Sunrun and useful and you know we are doing safe Harbor in Q1 with the couple of customers would not do you have caught on yeah, you know existing customers.
You know the answer to your question is.
And we expect them to use a lot of the safe harbor material, but that doesn't mean that they were in place additional orders.
In the corners, Yeah of course, the orders will be in the gain on the news magnitude, but I think bill.
Still besides.
That's what I'm, saying.
Okay.
Got it and maybe last one for me just done I know, it's early I'm here in the new year, but the new home mandate in California, you know.
Whether you're starting to see an impact or how you know maybe your view is.
You know changed or I'm, starting to become more clear and then just curious in do you have in mind kind of a share of that market. Since your partnered with Sunpower and the Peterson and Dean relationship.
I mean, it into one bad here I have to rely on our partner like San Paulo like be does indeed like like you know and then our homes.
These out on partners they ought own frontend to the homeowners I mean to the can be homebuilders and so we expect do really well because of our partnership with Sunpower.
And.
And in partnership with Peterson, Dean and like I would tell you can imagine a house being fitted with the you know like for example indicates a peterson im getting imagine I was being treated with an all in one you know a solar and storage system with the beautiful in charge.
And the infant solar system.
It's going to be an amazing customer experience.
Got it. So this is I mean, so things I mean, it hasn't changed either way you still think it's a a big opportunity and maybe still too early to tell the magnitude absolutely I mean, it it's a nice opportunity, but as we had ideally placed because many of these will be small system.
And in these multiple stems and the whole point of Microinverters. This they can those mount systems very easily allpoint of in charges I can do modularity flexibility very easy I can do they bring drinking Florida was 6.69 0.9 or 10 kilowatt hour.
Ah, Yes, and I can add chunks, you know later, depending upon the the customer need for example, Raghu has got a 10 kilowatt hour system. He wants to he wants to add.
Our two more frequently.
You know I have a I have a 16 point.
Yeah, 16.8 kilowatt hour systematic has got a problem.
Many kilowatt hour system. So each of those are different.
And the Marty let it really helps us to find doing exactly what we want.
Got it thanks.
Thank you.
Thank you and as a reminder to ask a question you'll need to press star one on your telephone or next question comes from Sameer Joshi with H.C. Wainwright you May proceed with your question.
Yeah. Good afternoon, thanks for taking my questions.
What other products that are being pushed in Europe, a up the Q seven plus based or are you pushing for like two eight as well there.
Most of Europe, right now today, a seven day to sell.
Yeah.
Yes, 70 to sell more news I believe in so that basically I do seven plus and like you seven out of the predominant.
Okay.
Coming to the Safe Harbor see those are the gross margins similar Oh, the gross margin profile similar for safe Harbor versus non safe Harbor proceeds.
But.
Since we had we are actually shipping to tier one.
The gross margins them turns out a little bit lower.
But as you can see we have made extraordinary improvement in gross margin. So you can you can see despite our huge shipments.
Our safe Harbor and you followed our gross margin in please.
From Q3 Q4.
Same with the midpoint of the guidance for Q1, right you're going to referencing point there either low end go high end of that range or you know cases.
Yep in all cases is pretty healthy.
Understood.
And the operating expenses or the GE and they cost so the or other overall opex calls that have been guided for one Q.
Isn't that they have the rest of the or or do they have the first quarter I know some extra stock based comp.
Yeah. So im most of the infrastructure investment that we need to make for a big quarter ski many of the 80 improvement that we need to do actually will key topics. So what I will say that we provided the guidelines you or 15% of revenue and.
HM our our you said, we you guys who mall it is by.
Thinking that went out youre kind of baseline and then it could be a little bit better than that but you know for the most part you should consider about to be a an investment in line through R&D increases a little bit off the shelves in Europe and some of the 18 for structural security things that we need to.
The company that into used in the all these those used to be up a topics.
Most of the subscription base for license space I'd investment that we need to make a are now BNL heating up you know so that's the way we're gonna be subsidizing through the BNL independent investment and our infrastructure on growth and supporting the growth.
Understood.
Just maybe one last one clarification on those so yes be four units so.
If I do a backup and <unk>.
Calculation based on your revenues and total number of units or.
It seems that DSP is actually.
The last several quarters.
I know it does not have accurate way of looking at it but.
Is this trend is expected to continue.
No I mean, not anchored way of looking at it basically depend.
The way you look at it your your calculation take revenue overall revenue divided by the number of Microinverters is not the real story because for example, if we you know we knew ship.
What do you see batteries, which are the first generation battery each of them as garden is be up $1000.
So we're not breaking those but your calculation into those if we ship a lot of cables. For example, if we ship a disproportionate amount of cable.
Or the overall the overall revenue will actually come down.
If you ship I mean, do you would only as people actually come down so it's a heavily dependent on mix, but what I can tell you that we pay very close attention on what we call. It somewhat a median.
They've made a news price.
And the customer.
And I had its best to be customer and calculate that.
And with all that up and those numbers that actually many many less.
So then there's really no pricing is very healthy pricing is flat.
And you know except for what I talked about in terms of the got transition.
We don't see many changes to pricing you still is good for them to mobile some price erosion. You are malls right. We always recommend that I mean, we always we always more than one or 2% you know for out of money. So.
Thats the right way to think about.
And there's kind of hearing will get a little bit more complicated we didn't assembled coming on board right. So we will provide some help hopefully for you guys tomorrow and the meaningful revenue, hoping sabal starts to become more of a clear.
Yeah.
Thank you. Our next question comes from Pablo Malkin off with Raymond James You May proceed with your question.
Thanks for taking the question on you mean mid term review the International Trade Commission talked about potentially adjusting or or even setting aside the sex until one tariff.
As it relates to the AC module relationships you have Oh. He is there any read through depending on what the decision will be.
No I think there was a lot of discussion about it but we've not heard any more discussion on the on the below them Oh Terence.
Going away and we also know that does exclusions bad So I don't believe that type of thing play right now we most of our volume business with Sunpower already so screwed. It so you know.
Understood and he already asked about a one or the new entrance Jana rock I, if I may let me ask about another one algae.
I guess can you confirm whether LG is currently a customer.
For or Youre, microinverter as a component to allergies integrated module product.
No they're not a customer.
Okay.
Thank you very much.
[noise] [noise]. Thank you in that concludes our QNX session I would now like to turn the call back over to BACE Cosenza Rahman for any further remarks.
So thank you everyone joining us today and for your continued support of Enphase. We look forward to speaking with you again during a in a Q1 2020 earnings call in April.
Thank you.
Thank you ladies and gentlemen, this concludes today's conference call. Thanks for participating you may now disconnect.
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