Q1 2021 Enphase Energy Inc Earnings Call
Thank you for standing by and welcome to the Enphase Energy first quarter 2021 financial results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be the question and answer session. The ask a question during the session you'll need the press star one on your telephone we ask that you. Please limit yourself to one question of one.
Paul you may get back into queue as time allows as a reminder, today's conference call is being recorded and now I'd like to hand, the the conference call over to Adam Hinckley. Please go ahead Sir.
Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's first quarter 2021 results on today's call are Badri cofounder Aman Enphase is president and Chief Executive Officer, Eric <unk>, Chief Financial Officer, and Ragu, Bill our Chief products Officer.
After the market closed today Enphase issued a press release announcing the results for its first quarter ended March 31 2021.
During this conference call Enphase management will make forward looking statements, including but not limited to statements related to Enphase energy is expected future financial performance the capability of our technology and products, including availability and features our operations, including in manufacturing and customer service the anticipated growth in our sales and in the markets in which we are.
Operating target and the capabilities of our installation partners. These forward looking statements involve significant risks and uncertainties and the Enphase Energy's 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 company's annual report on form 10-K for the year ended December.
<unk> 31, 2020, which is on file with the SEC and quarterly report on form 10-Q for the quarter ended March 31, 2021, which was the which will be filed during the second quarter of 2021, Enphase energy cautions you not to place any undue reliance on forward looking statements and undertakes no duty or obligation to update any forward looking.
<unk> as a result of new information future events or changes in its expectations. Also please note that the financial measures used on this call are expressed on the 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 to the.
Posted today, which can also be found in the Investor Relations section of its website now I'd like to introduce Badri cofounder, Amon President and Chief Executive Officer of Enphase Energy Badri.
Good afternoon, and thanks for joining us today to discuss our first quarter 2020 one financial for the time.
We had a good quarter, we reported revenue of $301.8 million shipped approximately two <unk>.
Four of 5 million micro Inverters achieved non-GAAP gross margin of 41, 1% and generated strong free cash flow of $81 5 million.
The exited the first quarter at approximately 41 of 14 27. This means 41% gross margin of 14% operating expenses and 27% operating income all as a percentage of revenue on a non-GAAP basis as a reminder, our baseline financial model is 35.
15 20, Eric.
We'll go into details about the financials later in the call, let's discuss how are we on servicing customers. Our Q1 net promoter score worldwide with 63 per cent compared to 62% in Q4.
North America net promoter score was 69% compared to 68% in Q4.
The average call wait time in Q1 was more than five minutes as the onboarding of new installers and fielded calls related to our storage systems. We are working diligently to bring wait times down under the minute the.
Also we expect over 24 of them by the seven global customer support help reduce wait times as the round the clock support and other.
For the work towards delivering an outstanding customer experience.
We'll supplement the Enphase community and training platform.
Let's talk about manufacturing as well.
We discussed in the last call on the semiconductor supply chain is under stress.
Q1, we experienced constrains on the supply of basics in the fed drivers, which limited shipments on contract manufacturing facility in Mexico shipped most of them 900000 micro inverters on contract manufacturing facility in South India shipped nearly 500000 micro inverters.
Are you pleased with the production ramp product quality and manufacturing cost of this fully automated facility in India.
Given our strong demand, we are expanding manufacturing capacity in Mexico.
India further in Mexico will be on improving operational efficiency and expect the reach quarterly capacity of $1 5 million micro in bunkers and on our facility in Chennai, India.
And as round the clock shrinking quarterly capacity of the 700000 micro inverters from one manufacturing lines.
Underneath the truth.
For the second manufacturing line and the expected to begin ramping in Q3.
The Q2, our shipment volumes will be constrained by semiconductor component availability, we have qualified new suppliers photoresist thickness of the fed drivers, which will result in increased shipments for Q2 compared to Q1, but the ramp from these new supply out of the slower than what we had anticipated before we expect these kind of.
The constrained to remain for the rest of the year.
In terms of what Enphase storage systems, we shipped 42 megawatt hours in Q1, representing a sequential increase of 30%.
And in line with our expectations, let's now move to the regions the.
The U S and international revenue mix for Q1 was 82 and 18% respectively. The.
The us market was quite strong in Q1, despite typical seasonality U S revenue was up 14% sequentially. We achieved very good micro inverter sales from our distribution partners I am proud of our operations team for navigating the supply constraints and ensuring customers had continuous supply of product.
On the tired of migraine motors and without going into the shipments in Q1 or the channel inventory is better but still tight.
With Q2 through Q4 being seasonally robust waters, we expect the channel tightness for micro Inverters to continue.
In Europe, we reported record Q1 revenue.
Revenue increased 17% sequentially, we saw strength in Netherlands, and France, well on building on new markets, such as Germany, Poland and Austria.
Our AC module strategy is also gaining momentum in Europe, we expect to introduce Enphase storage systems for the European market in the second half of 2021 first in Germany, and then in Italy, adding yet another growth driver on.
I'm very pleased with the performance in Europe and.
In Australia, we had record revenue and record installer accounts Q1 revenue was up 58% sequentially. The strong growth of the enphase in sort of mid <unk>.
And the rapid market penetration of other IQ seven day product.
Contributing to our success. In addition, we are focusing both on installed on in home on an experience launching $24 seven customer support conducting technical training and collaborating on branding initiators with installers in Australia.
Expect to introduce the Enphase storage systems to Australia, I'm, sorry on the second half of 2021.
In Latin America, Q1 revenue was down 11, 33% from the prior quarter, which had benefited from large Tony charters, Puerto Rico continues to be of solid market in terms of book micro Inverters in storage we are on.
So making plans to enter the Brazilian residential solar.
So one of our market, which is expected to be orbit of Gigawatts. This year, we have already hired mark bouquet of boats and experienced sales leader to accelerate our entry into Brazil.
Now that we have covered the regions lets just because the overall of the bookings for Q2.
Once again on customer demand for the Q2 significantly exceed the higher end of our guidance range. The.
We remain supply constrained for Q2 as I said before the component availability is improving but not at the rate of growth in demand.
While it is the very early to talk about the Q3, our customer bookings are quite high other than what they would normally be at this time of the quarter. We are planning for much higher the capacity in Q3 for both the micro inverters on storage.
Obviously pleased with the overall demand, but we are cautious about of the sublease of duration, which is not very predictable the generic.
Lets now move toward of started system rollout.
The shift of 42 megawatt out of the storage systems in Q1.
The same thing sequential growth of approximately 30%.
Cumulatively 623 unique installers commissioned at least one enphase storage system by the end of Q1.
Also on making good progress on the tier one and two installers, we previously announced solar plus storage partnerships of Nova momentum solar the solar optimum in power, we expect to announce more partnerships.
Let's now turn to training funnel of Enphase <unk> systems by the end of Q1, we trained 1776 installers cumulatively on line representing 1035 unique companies.
We plan to resume in person training some of them beginning with the mobile van training in Texas other.
States will follow suit. Shortly in addition, we of resuming the build out of training centers the various distributor locations.
And the other way and we are laser focused on customer service and making sure we of the easiest company to do business with the.
With these principles in mind, we started weekly installed around the table do you want to understand how we can improve the enphase storage product the findings on tier improving.
Improving the commissioning of experience for installers, and making life easier for the homeowners by line.
Average and the feedback we have made a number of updates to our software and commissioning process.
Engineering teams have been working at the reduced commissioning times on our student systems for many hours of approximately two hours through the software improvements and training initiative.
Our goal of the 60 minutes commissioning time, which will allow other installers to visit the site installed and commissioned and Enphase storage system in a few hours.
We expect the release a couple of new features a photo of the Enphase storage system as discussed last earnings call and these into low control and generator of support.
Load control is the ability to turn the loads on enough.
Envision that most homeowners will opt for a full of backup of the entire home rather than a patch and then a partial of the backup with the cash.
Capability to share launch when needed.
For some kids for the load control designed into all of them and power of smart switch all of them.
One of the skin chews up the food loads they wanted to control.
For example in <unk>.
On condition that can be controlled through one side of it.
Paul pumps can be controlled through another subject.
These loans will be on during the grid type mode and can be shared instantaneous need during the off grid Mod simply my lbs.
In addition, excess sort of it can also be configured to be share through one of these four circuits.
Does the enables the homeowners to save money by non over sizing the battery storage systems.
The next feature is generated of compatibility.
Unlike some of the other there is no need to install the generally to the Ats when used with Enphase storage systems.
Generally the again plugging dawn of smart switch and Paul.
But it didn't safeguards that ensure generators the only connected to the home when the homeless off of it.
And the home of disconnected from the utility Enphase micro inverters in the battery seamlessly farm of micro grid to ensure that is known disruption of the lights will not flicker. The clarksville not reset next our smart Street starts the standby generator.
Once the generator is stable the system synchronizes, the micro grid to the generators voltage and frequency.
One of which then seamlessly connect the home to the generator.
The Enphase solution provides increased resilience in the off grid mode by enabling solar storage and the generators to run together.
The generator the controlled lots of being integrated into our mobile app. So that homeowners have full visibility and control from one of them.
There are two modes of operation one of the basic more word of the generator Assembly turns on during an outage and the other is on the generator can be configured to turn on depending on the state of the.
The strain of charging the battery during an outage for example, when the battery charge goes below the 30% and on outage the generate returns on charges. The battery supports the home loans and one of the badgley reaches 90% of the generator turns off.
So you had two parts on features and we expect the release them.
This quarter after the beta testing with customers, which is underway.
We are seeing that we are seeing a good amount of interest from customers and these features of those can be of knee, where it's simply by order of the <unk> software upgrades for existing storage systems, along with some additional minimum on the work to be done by the installers.
In summary, we are happy with the Q1 storage shipments, reaching 42 megawatt hours and as I said, we expect to introduce the couple of differentiated new features to improve the homeowner experience.
We expect to reduce the commissioning times to improve the installed on experience.
And we expect to make significant go to market changes to improve the brand experience.
We expect the started shipment volumes between 40 and 50 megawatt hour in Q2.
Let's talk more on.
On upcoming new products first I'd like to cover.
More detail.
On what else is new for the storage. In addition to the new features we've talked about we had of partnering with Aggregators and utilities to enable great service.
This will enable the ability to leverage on battery storage systems, instead of turning on pigment plants and in doing so on the homeowners can get paid for providing that service.
We have formed the 20% of grid services team of Enphase, now and testing of software product management and business development and policy experts. This team has already made tremendous progress on technical and business fronts, and we plan to expand the team significantly to engage with more of utilities and aggregators.
Final point on the storage, we are working hard to introduce the Enphase storage systems internationally as I said before we want to ensure that non learning from North America is capture.
And that we are fully staffed to support customer.
We expect to introduce Enphase storage systems first into Europe.
And then in the Australia in the second half of 2021.
Let's cover at our upcoming IQ eight and ICU a day product lunches I do eight is the world's first of all of diagnostic migraine model for residential solar and.
And I do a D is the high power microwave and vertically capable of supporting two panels for small commercial solar we are making good progress on the compliance reliability and system testing on these products.
However, with the micro inverter supply chain constraints due to the semiconductor component shortages, we expect a slower ramp beginning in Q3.
We also plan to introduce the Enphase portable power stations consumer product in Q4, assuming component shortages are under control.
Let's now turn to the digital transformation I'm excited about the two completed acquisition debt.
In the solar business of D, a N and genetics the fee.
Most of the theme now known as the Enphase Montreal provide design and proposal of software for solar in roofing companies. The team acquired from the engineering now known as the Enphase. Neither the whites proposal on permitting services to the installers.
By providing the services to installers, we aimed to simplify the sales process, while reducing soft costs and providing an enhanced buying experience for homeowners the yahoo.
The opportunity for Enphase district span both of these offerings drove the net of long tail of installers. There is an important initiative for us and we will be integrating these two company operations into our digital platform.
We have now on bolt on 476 installers in North America, and 138 of installers in Australia to our Enphase Installer network.
Through our highly selective process focused on quality and homeowner experience.
The recently launched of the yen in Europe and India.
On the installers enjoy of an idea of benefits including branding.
The motion and tools incentive is on the digital platform to help make sales and installation process faster and easier in summary, we are happy with our performance and we are pleased with the increased demand for our products. We look forward to introducing other new products ramping understood it systems supporting our customers.
And accelerating the digital transformation as always the health and safety of our employees the.
The customers and partners remain our top priority of the world continues to be impacted by COVID-19, with that I will hand, the call over to Eric for his review of our finances Eric.
Thanks, <unk> and good afternoon, everyone.
I will provide more details related to of her first quarter of 2021 financial results as well as our business outlook for the second quarter of 2021.
We have provided a reconciliation of these non-GAAP to GAAP financial measures in our earnings release posted today, which can also be following the IR section of our website.
Total revenue for Q1 was 300 on $1.8 million represented an increase of 14% sequentially.
We shipped approximately 830 megawatts DC of micro inverter and 42 megawatt hours of storage systems in the first quarter equivalent to $16 one megawatt of power.
Non-GAAP gross margin for Q1 was 41, one per cent compared to 42 per cent for Q4 of the increase was driven by disciplined pricing and cost management.
The GAAP gross margin was 47% for Q1.
Non-GAAP operating expenses were $43 $7 million of those for Q1 compared to $34 $2 million for Q4 of the sequential.
The increase was primarily due to R&D investments increased hiring payroll taxes associated with employee stock vesting and the first time consolidation of soft physical operations in late January.
GAAP operating expenses were $61 six millions of dollars for Q1 compared to $42 $8 million on us for Q4.
GAAP operating expenses for Q1, including $13 $9 million of of stock based compensation expenses of $4 million of acquisition expenses on amortization for acquired intangible assets.
On a non-GAAP basis income from operations was $80 $2 million on us for Q1 compared to $72 $4 million on a for Q4 on.
The GAAP basis income from operations was $61 $4 million on a for Q1 compared to $79 $1 million.
On a non-GAAP basis net income for Q1 was $78 $7 million compared to $71 three millions of dollars for Q4. This.
This resulted in diluted earnings per share of 56 cents for Q1 compared to 51 cents per share for Q4.
GAAP net income for Q1 was $31 7 million compared to GAAP net income of.
$73 million volume for Q4 of them.
GAAP diluted earnings per share was 22 cents for Q1 compared to diluted earnings per share of 50 for Q4 the.
GAAP results in the first quarter included a non cash loss of $56 4 million on the partial settlement of convertible notes due 2024 of 2025 or approximately 40 cents on a per share basis.
Now turning to the balance sheet and the working capital front inventory were $34 nine millions of dollars at the end of Q1 compared to $41.8 million on us at the end of Q4.
The sequential decrease in inventory was driven by an increase in customer demand coupled with supply constraints.
So of inventories outstanding decreased to 18 day compared to 27 days in Q4, the sequential decrease was driven by the lower average inventory balance and higher shipment volumes. Our target is 30 days, but we were hampered by supply constraints.
Accounts receivable were true Henry on $36 1 million at the end of Q1 compared to one kind of on a $2 2 million at the end of Q4.
Sequential increase was the Youtube the higher revenue in Q1 and shipments of being weighted to the second half of the.
Of the quarter.
DSO of 56 days increased from 50 days in the prior quarter of Youtube the timing of shipments.
We exited Q1 with the full cash balance of approximately $1 $5 billion compared to 600 of $79 4 million of us for Q4.
The cash balance includes the net proceeds of approximately $1 $2 billion for the convertible notes issuance in may of 'twenty, 'twenty, one, which are partially offset by $304 $8 million in principal amounts for the partial repurchase and conversions of the convertible notes due 2024 on trailing 25.
And $65 $4 million paid for the call spread on the new convertible notes issuance.
Did not make any share repurchases against our $200 million share repurchase authorization.
In March we issue issue Green convertible notes in two tranches for total gross proceeds of approximately $1 $2 billion.
Both tranches have zero coupon.
The five year tranche due 2026 raised gross proceeds of $632 5 million.
With the 70% conversion premium. This note are in the money at the share price of approximately 300 out of $7.
The seven year tranche due in 2028 raised gross proceeds of our Henry of $75 million with of 57, 5% conversion premium. This tranche is in the mining of the share price of $285.
Concurrent with the notes offerings, we entered into of course spread overlay, which effectively increased the overall comp.
Conversion price to about $398 per share.
In terms of these capital raise we're on some of the most favorable to an issuer in the history.
We had a very strong cash position on a business that generates healthy free cash flow, we will invest in the business the organic and inorganic activities.
Have a capex light business model, which provides for continued investment in new product development, the new market entry and market.
Marketing to build our brand awareness with come on us.
On the acquisition front, we have an active pipeline and we are careful to only pursue deals with the right strategic of cultural fit while meeting our return hurdles.
In Q1, we generally the $75 $8 million in cash flow from operations and $81 $5 million on free cash flow capital expenditures was $9 9 million for Q1 to increase manufacturing capacity for both micro embarrassed on the storage and cost related to in license software of development.
From the website development and office space expansion.
Now, let's discuss our outlook for the second quarter of 2021, we expect our revenue for the quarter to be within a range of 302 of $320 million, we expect GAAP GAAP gross margin to be within a range of 37% to 40% of non-GAAP gross margin to be within a range of 38 to one.
41%, which excludes stock based compensation expense.
We expect our GAAP operating expenses to be within the range of $70 million to $73 million, including a total of approximately $70 million worth of estimated for stock based compensation expenses and acquisition related expenses on amortization.
We expect non-GAAP operating expenses to be within a range of $53 million to $56 million.
All guidance estimates include the contribution from both the softest Kathy I am for the entire quarter.
Let me provide some initial on quarter on a few topics firstly given the component supply constraints. We are expediting components on finished goods in Q2 to ensure customers come on adequate supply of our products.
And as a component of our liquidity start to improve this quarter, we must rush to get those components into final approaching 12 of our customer funds.
As a result, our GAAP and non-GAAP gross margin guidance incorporates a material sequential increase in expedite expense.
While we expect Q2 to be the peak logistics costs will likely remain elevated for the rest of 2021 due to semiconductor semiconductor supply change constraints.
Next I would like to touch upon our Opex guidance. Our non-GAAP operating expenses are increasing from Q1 should be true due to hiring to support our growth plus the consolidation of acquisitions and necessary investments and so forth branding on the development of IQ line and IQ the microphone butters.
It is possible that our opex, maybe slightly above our 15% target at times, but we will still expect to comfortably exceed our baseline financial.
The model target of 20% operating Inc.
Regarding the chalk we see shows neurology.
To have the operating expenses of those businesses, but we also include accruals for the payment of the FERC cash consideration.
These are cash expenses, which is why we included them in non-GAAP guidance, but there are non recurring in nature beyond the specific earn out period for each acquisition.
The Q2 accrual for the FERC consideration are expected to be approximately $3 5 million.
With that I will now open the line for questions.
Certainly ladies and gentlemen, if you have the question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound key we ask once again that you. Please limit yourself to one question. The one follow up you may get back into queue. As time allows our first question comes on the line of Lee from.
Bank of America. Your question please.
Hey, good afternoon, thanks for taking the time.
The question first and foremost of around <unk>.
On it.
Okay.
So you talked about improving the channel inventory and <unk> book.
And for me it seems like.
Weighing on shipments.
For both solar and storage can you talk about you know when you expect those new suppliers to really help ease.
The component constraints would that be more into the back half or would that not really be until 2022.
Just how much lower is that going to drive channel inventory relative to date with target.
Right.
So let me let me first make a couple of things the first of all of the constraints.
Only on the solar of site, which is solar micro inverters.
And.
Although we are increasing the capacity of.
Solar micro Inverters every quarter and the demand is increasing every quarter.
The supply is unable to keep up with demand because of semiconductor constraints component constraints, the semiconductor component constraints on because of <unk>.
Mainly because of two specific components.
One is the ASIC chip that we have.
The other is an AC fed driver that drives the gate of the 600 volt transistors.
And what we have done is on both of them.
We have bought on multiple suppliers for the.
Example, on the ASE fed drivers, we had two suppliers before now.
Now we are going to have three suppliers.
On the ASIC, we were producing it in one foundry before.
Now we are going to qualify on additional phone.
However, the demand is so high for Q2.
And we expect a similar demand situation for Q3.
Even though our available supply is higher than the prior quarters.
Still not sufficient to meet R&D, Matt This is on the sort of site.
On the storage side.
It's pretty simple.
We.
Shipped 32 megawatt hours in Q4.
We shipped 42 megawatt hours in Q1 that is.
You know 30, 30% higher.
And we're making tremendous progress debt.
Our strength in storage is.
Taking care of meaning introduce storage to our long tail of installers.
And we have trained 1776 installers, representing 1035 unique installation companies, that's our bread and butter.
These are the folks who are engaged with us on the solar site.
And they have started buying storage.
We are also engaged with the tier one and two customers on storage.
And we expect more progress here.
In addition line.
What I said the.
Of started round tables every week with the long tail of installers to understand all of their pain points.
And if I look at it what are the top of the pain points.
The storage is still immature.
As a business for the installers they have to make multiple trips.
For the home because it is so new.
The system sizing.
Total other ended up the speed, yet, which is something we are going to be working on with the soft desk acquisition.
Every job is the custom job, we are trying to standardize that wind.
Lord control.
Having the.
Whole home backup and sort of partial whom backups.
The homeowners that are demanding because all of US hard on you are now in the part of power.
And so the sales meaning the the customers thought of is that the installers have to do is much higher.
Then the storage I mean, then the solar site on top of it we have permitting delays from the counties because again, it's a new product line.
Not everybody is used to it and enphase can help.
And all of the of AUM.
We are going to provide exceptional customer service.
We are going to feel sort of his teams to help the installers the.
We bought the company to do solar and storage design software.
We bought the company to enable permitting services.
And so.
Now.
We have all of the tools to help the installers of Ammar.
This is going to take time.
And Thats, why Youll see where the growth of the steady growth.
That we are talking about we grew.
We grew 35% from Q3 to Q4.
We grew 30% from Q4 to Q1.
We are growing modestly from tier one did you do.
But we have no doubt that we are doing that I think.
And in Madison.
The.
The other thing that was part of the demand is.
International locations kind of be similar we are going to take care of long day of installers internationally, we are going to introduce product imminently second half of the year early into Europe.
And then in the Australia in the length of part of 2020 one.
And the Madison.
I talked about of the things we are doing.
Doing on the on the homeowner side is.
We introduced load control.
Which is the ability to turn on and turn off loans. The turning of loads is critical when you're on and off grid. The duration so that the homeowner experience.
Christine.
So we are focused on the dose.
And we are also low.
Moving to up out of game on the marketing side recently, yes last last quarter I announced.
Our CMO.
And we are going to.
We are going to go all out on on <unk>.
That front in terms of promotions branding looking at multiple channels looking.
Looking at the way we go to market.
The partnering with loan providers.
And the 20 fold by seven simple.
See the service.
We believe all of the installers that are necessary and it will help us make steady progress on storage every quarter.
I appreciate the long answer on it but I hope I answered the question.
Yes, definitely professor of follow up questions specifically on storage.
Believe you provided the guidance of 40 to 50 megawatt hours until Q is that right relative price of 42 megawatt hours in <unk>.
Kind of can you just talk about expectations into the back half seemingly.
I wasn't sure if there was some sort of a.
Chip constraint for the microphone burgers that would be using the storage to give them the same.
Sir.
But could you just talk about expectations at the back half on.
Perhaps.
Bring additional suppliers on what that means for capacity into 2022.
Like what I said, we expect the make steady progress on storage every quarter. We gave you guidance for Q2 Q3 will be steady progress on top of that in terms of constrained on the on the storage systems.
Yes micro inverter that also included yet in the sort of system. Every 10 kilowatt hour battery is not part of the micro inverters, but in the big scheme of things.
It's just it's a small number relative to overall the demand. So we don't expect that to play.
Play a big deal debt and we are comfortable with the capacity that we have on the <unk> site and like what I always said, we will bring in additional suppliers in 2023, and we have two suppliers today.
Thank you. Our next question comes from the line of Brian Lee from Goldman Sachs. Your question. Please.
Hey, guys. Good afternoon, thanks for taking the questions.
And maybe just big picture.
The last quarter on a battery Eric you guys said that the.
You sort of had visibility that the supply chain constraints, which everybody has been experiencing through the year for you you felt like April you called out the month of April as being a potential.
Having line of sight that things would start to ease around then now you're saying you're expecting the supply constraints.
On the solar side to persist through the year. So just the simple question kind of what what's changed between then and now did you misread the market or whats kind of change between the April view and now seeing this impact through the year and then I had a follow up.
It's pretty simple on the top place the supply is not very predictable.
The demand is.
Is going higher and higher net we are increasing our supply of every quarter.
Sort of putting in more.
Much higher capacity.
<unk> for the Q3 and Q4, but if you asked me today.
How confident are you on the supply.
And it's tough because of the situation is unpredictable.
And the Decommit side of it.
You know that it often decommissioned debt we have to dance around I am working with the Ceos of all three companies directly.
And for example on the AC fed drivers.
But in the <unk>.
The duration is stressed.
Globally and I don't think it is unique to us our architecture of the use of semiconductors.
Right. So the sort of play is.
Yes. It is what it is the good news is the.
Yes, the demand has increased a lot for Q2 and Q3 in our dressing.
Stressing that separately.
And even more.
And that's what changed from the previous Paul.
Yes, that's the true.
Okay that makes that makes sense and so I mean, it sounds like what youre, saying as supply continues to be unpredictable, which makes sense and then demand is actually probably gotten better. So you'll follow up I had is just maybe a little bit of numbers or quantification of the second quarter in a row, where youre, saying that.
You have bookings in excess of your guidance, you're basically under shipping demand. So maybe just.
Two part question here on the on the quantification can you give us some sense how much you are under shipping demand with guidance of about 10 million $20 million.
10% higher just any sense on that and then.
Eric also made some mention around margins Q2, youre going to have some peak price.
The pressure from a freight cost perspective.
But it doesn't get worse, what sort of margin impact is that in the quarter of 100 bps 200 bps. It doesn't sound like it eases right away, but just trying to get a sense of what that is and then just lastly, if youre seeing some of these cost increases. The tightness are you raising prices or are you having those negotiations are.
The discussions with customers and if not.
Given your market share position and how critical you are to your customers why why not potentially.
Potentially start to raise prices, thanks, guys right although.
Okay. You asked me what is the number of im not going to the exact numbers, but I'm kind of say one thing.
The demand is higher than all of the numbers that you quoted.
Okay, So which is which is which is the good news.
And the second question what does the second Vista.
The third question pricing I'm not changing pricing.
The second question on Mt.
Yes, yes. The second question on gross margin is gross margin on <unk>.
Margin guidance non-GAAP is 38 to 41, we are not going to exactly breakout what we did for expedite, but it's a big number and you expect that because.
When you have separately Jane problems.
The factories on running hand the month.
On the factories are running ahead of demand that is no time to put product on the book.
The only way, we can get product to customers of that ships and ships.
Per unit pricing.
To put the micro inverter on the plane is enormous.
It's usually 10 times.
15 times.
The price that it takes.
So the ship on the Ocean as expected and these are all not.
They are standard so.
Hopefully I gave those numbers on the margins, Brian I think that the the comment of operational meaning we need to leave we of Expedites for awhile.
We are pretty predictable on the way, we manage our margins on the upfront on the cost reduction.
Schedules in the way we negotiated prices short term long term I don't see a problem with the right and I think using the midpoint of the guidance that he has been pretty consistent and we just need a little bit of time to get the.
Supply challenges in the industry figured it out and from the comment about April two two day, adding to what part of the Sip.
Things change change quite a bit I mean, the predictability on the level of inventories of the contract manufacturing level and even at the supplier level completed because of the V shaped recovery price so that created a little bit more of variations on the predictability now relying on purely what is on the line right. So that.
You too difficult for them to forecast the commitments right.
So thats kind of water, where we are on that but I think that the.
I feel okay with the margins I think we got a profitable business and we don't we keep on the iron on the ball here.
Alright, Thanks, guys I appreciate all of the color.
Thank you next question comes on the line of Philip Shen from Roth Capital Partners. Your question. Please.
Hi, everyone. Thanks for taking the questions.
Just as a follow up on the trip shortage.
This was partially asked earlier, but just to put a finer point on it.
The three companies that you talk working with the boundary.
Are they giving you a sense for you know hey, we think we can resolve this by Q1 of 'twenty. Two for example, or is the situations even for them.
Very unclear. So is this potentially of problem that could persist for example through.
A bunch of 2022.
Yeah, I mean like what I said.
I don't have that much visibility right now, but I do expect the <unk>.
Price situation to get better every quarter, especially because we have bought on a third supplier and that's the third supplier will eventually start ramping.
So I do expect Q3 to get better I expect to flow to get.
Even even even more better but will that match our demand.
I cannot predict.
Mhm, Okay. Good alright, so I'm shifting gears.
Back to storage.
You share the megawatt hours for Q1 and in the guide for Q2.
Can you share revenue by chance and also what do you think the margin profile of the sales in Q1 and what you expect in Q2 is are you close the corporate average.
Or is it meaningfully different thanks.
We are not going to break out revenue.
Now with regarding gross margin, we will not enter of any business unless we have a view to achieving our corporate gross margin.
Great. Okay I'll leave it there thanks very much I'll pass it on.
Thank you.
You. Our next question comes from the line of Colin Rusch from Oppenheimer. Your question. Please.
Yes. Thanks, so much can we just talk about the pricing on the energy storage.
Movement around that so as you layer on additional functionalities are you able to charge higher prices or is that really just about maintaining.
Of your current price levels and does it ultimately expand the market short term on so it's really a longer term player on functionality that you think it's important on the market.
It is a longer tail on it.
It's the longer term play you know of load control generated of functionality grid services. These at all.
Functions that we progressively want to introduce the existing homes at this point at least vote load control and generator functionality, we are not charging for grid services.
<unk> is a separate story because there is clear the financial component debt. So once we get ramped up data, we'll figure out how to how to properly do value based pricing there, but in terms of storage overall on pricing strategies all of us being value based.
Yeah.
Pricing will be next best of hard for me to plus the value we add on top of that for example, if we and micro Inverters for example.
Is.
We compared to the competition Thats. The next best sort of maintenance and then we say what do we do better we do quantity.
Our ppm defects.
The effective parts per million that much that's much lower.
And our customer service.
It's much better.
Similar things of play to the storage as well of course, it's a maturing market and so we need to be compensated.
But you know we will always follow the value based pricing story and if we don't if we don't add value.
Then its pretty clear we are going to be competing against the competition is going to be price competition, and we never want to.
We'd never wanted to be like that so that's the way we are adding these features and these features of the differentiated features which is low.
The control.
Jim Briggs of functionality.
Grid services.
And a lot more of them.
That's super helpful. And then just shifting gears on the commercial solar business that you can turn the that was accurate.
Can you talk a little bit about the maturity of the science partners that youre working on with qualified to do it.
Our ready to work with the solution that comfortable with you.
How wide the geographic footprint opening as you start to rollout that product line this year.
Yes, I mean, they have the story is we're making a lot of prominent NAV.
Both in terms of the business as well as the product features on compliance. The problem. There is mainly with the sublease of duration of uncertain I don't want.
To.
Ramp yet another new product with the same components, while I'm not sort of using my current customers properly. So that's the way it made the decision on.
Let's make sure that we cautiously ramp that product, but it is a fantastic product.
We are working with design tool partners.
And our design and proposal partners, we are working with.
We are beginning to work with financially as we haven't made too many too much progress that we're going to beginning to work there.
And most of the business right now is focused on North America.
That's that's the first product and then six months, we will introduce it in Europe as well as the Australia, where debt is.
Even bigger the time for small commercial.
Okay. That's super helpful. Thanks, so much.
Thank you. Our next question comes from the line of Mark strength from Jpmorgan. Your question. Please.
Yes. Good afternoon. Thank you very much for taking the questions.
I wanted to go back to your comments about the expanding capacity in Mexico and India.
I believe on the on the last call.
You mentioned, having between four and 5 million unit production capability per quarter by year end or the comments today incremental to that number.
Now on the comments are consistent with debt number if.
You can you can breakdown on the 5 million the.
The following day.
Mexico.
The coke capacity, the roughly we'll get to one 5 million units per quarter.
The <unk>, India capacity will get to one 5 million units per quarter at least minimum quantities. China is already a couple of million units per quarter. So on 45, plus 1.5, plus two 5 million units per quarter all of them by the end of 2021 that is completely consistent with what I've said now that capacity that's the capacity of the factory.
That's got nothing to do with top line.
The supply of the semiconductor components needs to improve needs to become consistent need to become predictable fund me to cater to such a big demand.
And that.
I don't know that visibility of those numbers.
Mhm.
Okay, Yes that makes sense. Thank you and then just a quick follow up on.
On the plans to enter the Brazilian market.
Will that require any kind of new manufacturing capacity of local manufacturing capacity.
And then can you just remind us what you've said as far as what the product roadmap within Brazil will be as far as solar and solar plus storage and the potentially the the commercial sales.
Yeah.
We're not going to manufacture of something locally yet in Brazil, and lift the demand builds up to a significant number so for now we would still manufactured remote meaning not in Brazil.
And first we will start off.
With solar.
Yeah.
Marco Cripples, whom we hired.
And the order trends.
The Brazil leaves the GM of that business. He believes that that is the substantial differentiation with IQ Inc. Entering.
Into Brazil of course in the short term, we are going to be supply constrained, but we are talking about long term here. So first I would start with solar.
And then I would add on storage.
To that market.
Basically whatever you wanted to say yes.
A couple of things is the right.
On the product point of view.
Again, the again, it's leveraging the platform. So we don't have to build of new sales.
Hardware.
Street to service the Brazilian market.
The.
With the software change for us, it's the former change for us who enter the to meet the.
The grid grid requirements and factor day IQ seven is already certified or has the unique specific certification of environmental in Metro and we are already certified for the Brazilian Brazilian market. So we're going to the average.
Our platform, which is what we've been doing forever, the new geography, and playing very well.
Yes, it makes sense of very helpful. Thank you.
Thank you. Our next question comes in the line of Jeff Osborne from Cowen <unk> Company. Your question. Please.
Hey, Good afternoon, guys I was wondering if you could rank order between the AC fits in the Essex, which of the two is more acute in terms of the problem.
The AC by volume.
And then.
The ASIC I always view of sort of the brain of.
Of your product your of Fabless company that.
Uses of the third party today as you've flagged one to do that typically it's multiple quarters to qualify a new ASIC.
Producer do you anticipate that to take multiple quarters or have you been working on this for some time.
Working on the list for some time, we have been working on this for some time.
The current foundry.
I mean, we have talked about this before this is not new current foundries TSMC and we are qualifying and additional funding.
Got it okay.
That's all I had thank you thank.
Thank you.
Thank you. Our next question comes from the line of Kashi of Harrison from Simmons Energy. Your question. Please.
Thanks for taking my questions and good afternoon.
So my first question surrounds just the role of the rollout of <unk>.
Was just wondering.
How long do you think you think it would take or it could take the completely transition from selling majority of IQ seven years of selling majority of IQ wait a year or two years, just some rough numbers would be great. Yes.
Seven took four quarters.
So IQ eight.
Would it take a similar.
On a similar time and with the supply constraints, maybe you can add one of two quarters of more.
For the six quarters.
That's helpful. Thanks, and then.
My second question.
I mean I was reading of your letter to the shareholders and you talked about gallium nitride as you think about our Q nine of the Nike 10, I know, that's a long ways away probably still early in development, but when you think about the opportunity there.
No.
As you think about your product over the next several years should we be anticipating step shift reductions in costs from the transition to.
Gallium or do you think maybe we're getting close to the limit on your ability to take cost out of the system out of the manufacturing system.
I mean, it's a good question the.
The reason why we're doing it is to reduce the footprint.
The increased power.
The increase the efficiency.
And of course.
And I'll give you a quick example today.
We have food AC.
High voltage facts.
On the 600 Lord fits.
For the 600 volt fence and then we have.
Two AC fed gate drivers, which has had all of the shortages those two as the fed game drivers that are driving.
The full of 600 board of effects. So we so we have.
Paul plus two six components of that.
With gallium nitride.
What we could do.
He is to collapse two of those 600 more deferred into one.
And we can integrate that AC gate driver.
Also under the same package so.
Discrete components will go to two discrete components.
I've got the custom gallium nitrate will be little bit higher but the integration capability is very powerful.
And what does that mean I can run of mine My AC effect now at the higher frequency today run them at 100 kilowatts.
I can run them at a much higher frequency.
On those.
If I run those events that the higher frequency than all of the sudden I can drop by transformer sites.
The big trend farmer.
Which is there in the microenvironment can drop in face drastically.
Dropping the footprint.
So we are working concurrently on plan on Transformers, and addition to gallium nitrate fits.
That's the name of again.
We're able to optimize that properly.
Huge wins for us.
And.
It will help us to increase the power of the microenvironment.
Why are we keeping.
The costs down while keeping the footprint down why are you keeping the economics intact.
So that's what we're working with multiple companies and it is R&D.
It's going to take us.
Funny 22 of 2023 to get on IQ10 product.
But <unk> will be a little bit before that.
But as the R&D.
Yeah.
That's helpful. Thank you.
Thank you. Our next question comes from the line of Tristan Richardson from tourists. Your question. Please.
Hi, Good evening guys. Thank you for all of the commentary on the supply chain constraint really appreciate it just one from me.
We heard from a market participant yesterday on moving to an almost exclusively bundled model for solar and storage.
On the dynamics there some somewhat company specific but just wanted to ask Eric.
<unk> seen any signs of that in your installer network.
Do you guys see it as an opportunity for Enphase on.
The market share side for either of Standalone storage products or otherwise.
Absolutely I mean, that's the name of the game storage by itself.
Some people say it makes sense, but in order to have of regenerate system that can function of grid.
You want solar as well so solar plus storage is the big deal.
In.
That is precisely why we are focused on our long tail of installers.
Because we already.
Now they already sell Enphase micro inverters for the Navy.
And now the start filling Enphase <unk> systems.
And more of actually home energy management systems, which of solar plus storage systems that could be a big win.
So all of other efforts are taking our enphase installed on the network.
And even bigger than that taking out the long tail of installers, which is much more than the enphase installers net work really closely with them.
Them properly.
The move that installed the the pain points.
GAAP.
Help them with 24 by 7% of poor helped them with field service.
So that they can ramp solar plus storage with us.
That's the opportunity.
Makes sense, but youre not necessarily seen in the installers kind of go for a mandatory bundled hurdle are you.
Mandatory bundles or not yet.
But I'm sure it's coming.
Okay very helpful. Thank you guys very much.
Thank you. Our next question comes from the line of Jim Ricchiuti from Needham <unk> Company. Your question. Please.
Hi, just a question on the the expediting costs that you're incurring and Eric I may have misheard, but you've seen since the.
Jeff that's going to improve in the back half and I guess I know you are bringing on production, but by the same token it looks.
Like Youre going to continue to be facing these.
Okay.
Supply constraints so.
How confident are you that youre going to see those costs come down on the back half.
Yes, I mean, the expedite the split up be around with us as long as we get these challenges associated with supply constrained.
So we should kind of.
You used to the concept the dose we're going to be able to what I'm, saying is that that is not to kind of get the margin worse.
What I'm, saying is we got a very credible predictable cost reduction roadmap in the near term that gives me confidence that we can continue honoring our financial operating model and my comments associated with operating income.
Which all of us driven when youre thinking about.
Opex may go up a little.
Right, because we need to make the investments that's what I said on my script and then the question is okay. So when you have the six besides what's going to happen with your operating income well, we feel confident that the cost roadmap will be there to deliver the goods as we continue ramping complicated appropriate products like storage and the new the new products of the pilot.
The filing for Q3 on Q4 right.
On the roof.
So that is one area that we should feel comfortable is the margins continue to be fairly predictable in the short term.
On the long term you can always use the financial operating model that we probably publicized already right.
So that's the context within my colleagues.
And I Wonder if you would just comment.
With respect to.
Is there Paul.
Which you might begin to calibrate.
Your operating expense the investments youre, making in the business over the next couple of quarters depending on.
Whether the supply constraint issue.
Potentially of it doesn't improve in the back half.
I mean.
I'm not quite sure of kind of follow your question, but if I understand correctly, saying, Eric Youre planning to continue spending money on.
Doing acquisitions and potentially your Opex is going to go up and then.
Sure.
Right.
I am suggesting is if.
It looks like we're in for a period of a couple of quarters of of.
Pretty acute component shortage issues is there a point at which you say, we may dial back certain investments that were making until the situation improves more markedly.
And you may not because you feel like it's worth investing just as you think about the outlook for 2022, and presumably just kind of be behind us.
Okay. So let me let me clarify we are in growth mode.
My message hopefully it comes across very clear, but we are going on we are not going to stop making the right investments on the right time either by.
Processing on our pipeline of deals that we have as.
We continue evaluating M&A or made the right opex investments of high describe on the script on the prepared remarks, which are specific to go to market with products, including social marketing activities globally, and so on we didn't really well internationally, because we never compromise on making the writing business the.
The good news on that is despite of these and despite of the expedite.
My margins there to deliver the goods. So I can continue generating cash according to my model as I try to cash.
Chuck with my revenue profile to fulfill the demand right.
Right now it is being hampered by the.
Component supply constraint challenge that we have.
Hope that answers your question.
Thank you. Our next question comes from the line of James West from Evercore ISI. Your question. Please.
Hey, good afternoon guys.
So if.
If I hear you correctly.
The installer experience the customer experience of getting better you've got this product cycle that is underway youre not meeting demand.
Of your customers in the rapidly expanding into them.
So when we get past the period of the equipment.
Shortage of Youre going to have wallboard capacity that you mentioned earlier youre going to keep investing.
Will you at that point, let's segue into 2022.
Are you at that point.
Finally managed to catch up with demand do you think demand is still up year on year.
But it's the same answer.
I hope I hope by the end of 2021 of these problems go away, but right now I'm living from day to day.
Supplies unpredictable the.
Semiconductor it's not situation the only for me, it's the duration, where every company you use the semiconductors.
Yes.
I don't have the crystal ball to predict the future.
Okay.
Understood and then I guess one other question on follow up for me with the situation.
India right now with the with the pandemic is that having any impact I know you're pretty automated in that facility.
The impact on your operations this quarter.
Yes, it does.
The.
Many of the folks.
Many of the folks in all of the teams.
On.
Affected by it.
You know either of their families that affected the unaffected the.
And all of the working from home.
Following on safety.
Protocols.
The.
If you know it is not in such a great shape today as the.
In general as the country.
We are heartbroken by it.
In the three 300000, plus new cases of day.
So, yes, I mean.
Some employees unaffected, but there also.
The last for about 15.
<unk> 15 days.
And during that time, they have full freedom to take care of themselves and we will do all of it takes to support them.
But usually they are back after two weeks.
Eric.
Right.
They are in the process of getting vaccinated and I'm, hoping within the quarter.
Situation will come back to normalcy, but.
We have taken get them out of it.
All of our employees is absolutely.
Of course, thanks Patrick.
Thank you. Our next question comes the line of George O'leary from <unk> <unk> Company. Your question. Please.
And then guys.
Okay.
Just curious you guys have built up an impressive cash war chest in the free cash flow generation continues.
You don't have much need from an organic capex spend clearly theres the big R&D budget.
Knowing the just curious if there are some larger bites of the at both from an inorganic standpoint that you might be contemplating you've done some M&A here recently, but smaller stuff. So.
Just curious what youre thinking about on the M&A front, and if theres anything on that medium or larger sized front that the peaks your interest at this point.
Yes, I mean.
I'm not going to comment on details but.
Telling you right rule right now on items both are in the call.
We have a very.
Ambitious plans and they have.
Great ideas and they bring all sorts of the interesting stuff in front of bothering on myself that we are evaluating carefully the beauty about the.
The having I think about it right out of one $5 billion of cash of which I need probably to run the company all of the 300 million floating cash price, that's what maybe a little bit more non wherever you are getting bigger, but so the rest is available for us to take advantage of the best opportunities.
All of either way in the market like this when you see things like what's happening right now with the Sparks kind of constructing a little bit.
Reopens the conversations very quickly.
And thirdly, the pricing on those conversations become much more reasonable true Digest I guess.
And so we're aggressively looking at every opportunity.
On software.
Maybe selectively some hardware R&D houses on <unk>.
<unk> business is completely that we can buy and we demonstrated that we can.
Sort of thing.
Integrate them culturally fit and then you run them fairly well and is going well for example, with the true.
The speed in Q1, probably the smaller but so.
I think that everything is on the table right.
Very helpful. And then just one more on an unrelated low, but you mentioned improving the installer and the customer experience of the goal, which makes a lot of sense of just wondering if there were any analogs from a.
The geographic standpoint outside of your core markets today, where the customer and installer of experience is better where he can take lessons learned from those installers and translate them to the U S or other.
The other geographies I know, Germany has much lower soft cost in the U S. For example, Im just curious if theres any.
Partly that's already laid out from any geographic analogs out there on the market.
Well not really.
And 82% of our revenue comes from here, yes, we need to diversify but most of our product experience comes from yet, but having said that.
It is true that.
For example places like Europe.
Trillium, even India the.
We do have.
And outstanding cost structure in general.
And we need to.
We need to really take costs out of all aspects not just products.
But the.
Things like permitting things like design and proposal look at all inefficiencies in the chain.
That's something that.
We've just started doing with the acquisition, we'll do a lot more.
And the name of the game once again is to collapse and consolidate all of those services for the installers onto the digital platform.
So we can help them reduce the soft costs.
Great. Thanks for the color guys.
Thank you thank.
Thank you. Our next question comes from the line of heat man to.
From credit Suisse.
Hey, Thanks for taking our question.
Just a quick on the battery supplier of Bruce has talked about the third supplier in the second of can you talk about the status of it and just had the photo on the grid services.
Yes.
Have two suppliers today the.
The second supplier to the ramping just now.
The first suppliers, what we are using right now.
In supply of just ramping.
The player.
We do we do have.
Good plans.
However, I think it will turn on on me in 2022.
Yes.
Got it thanks.
Just wanted grid services.
I know you said, it's early in early stages, and you're ramping up the software and hardware capabilities for it but.
When do you expect it to contribute any material revenues.
And.
Would that kind of of grid service Optionality of work with third party batteries of would it be.
The predominantly for the Enphase storage product.
We predominantly the other person for Enphase storage.
And we had already.
And already tightly engaged with a few aggregators.
In the East coast.
We are going to any number of selling meaning we are already enabling selling of storage systems, there and we will turn on grid services within the next three months.
All of them.
Additionally, the.
We are working with our cash.
April of utilities, as well directly approached us.
And we are working with them.
Both on the east coast and elsewhere.
Here in the U S.
It does require a lot of software effort and the name of the game for us.
We have a long tail installer network that can help sell of grid services properly to the homeowner.
We can.
The great Great services to the ensemble energy management system, So that we take care of customer experience of property.
And.
At the end of the day, if we enable homeowners the same.
Certain dollars.
$500 of yield.
While giving them the peace of mind.
That would be a big deal so.
When we have.
And Enphase.
Storage.
The population that that becomes a few tens of thousands.
The MVP, meaning virtual power plant will be.
Very meaningful of that time.
We are true.
Probably a year or two away from that but we're making a lot of progress in the interim with aggregators with utilities.
And we expect a lot more engagements.
With that.
The queue as a reminder, ladies and gentlemen, if you have a question at this time. Please press Star then one.
And we ask that you. Please limit yourself to one question on one follow up on our next question comes from the line of Eric Stine from Craig Hallum. Your question. Please.
Hi, everyone. Just a quick question most of have been taken but.
I know, it's a little bit longer play, but on the grid services side is that something that you potentially can get a portion of those revenues is the enabler of that.
Or is that something that you as you said your price based on the value that you would potentially just try to capture on the front end.
Yes, I mean the.
Yes, we can get a portion of it the price money.
The primary thing here is the.
No.
In the model, where we work with the few Aggregators, who work with the utility there.
The homeowner.
The leap the benefit and we provide the service for a fee.
And where are we.
You know directly work with the utilities.
Financially there may be more opportunities for us.
Yes.
And like what I said, we are right now scratching the surface. We are working with the Aggregators, who are working with the utilities.
And some deep engagement so the first understand the.
The business properly and develop.
Our home energy management, Apis and micro services for the same.
But it's not going to be debt that far off in a few months we would be.
<unk> two one of directly with the utilities.
Okay. Thanks, a lot.
Thank you. Our next question comes on the line of Sean Milligan from Williams trading your question. Please.
Thanks for thanks for the time I wanted to talk a little bit about more about storage I guess before you mentioned that stores that were financing problems of storage and so I wanted to just get your thoughts on where.
Where that market was in terms of being able to finance storage, which might drive additional growth for you.
Yes, I mean look.
The solar is very Metro Inc.
Industry has got 25 years of warranty.
So extended loans really help the homeowner.
And I think the rough breakdown in the industry between <unk>.
Cash.
Loans and lease is about 10%, 60% and 30%, respectively, which means the loans roughly about 30% of about 60% of the business.
Now.
We need to enable tonnage.
To also have attractive loans.
In order for them to have attractive loans.
A lot of bundling with storage is one option.
Having the right what are the <unk> structure on storage is another option.
And we need the new book.
And Enphase can help a lot here because this is what we are good at power electronics.
Quantity.
And customer experience.
So we're thinking hard on working with partners, we have a lot of partners that we're working with.
And.
We can change the.
We can basically we have to work on the product quality to increase the warranty.
From 10 years to whatever we can.
And once we do that we will unleash.
On the leash loans, the become more economical for the homeowners.
The increase the demand.
That is required for the long tail of installers.
Right. So it's the long range.
Eventually this has to be done.
We are taking.
Proactive steps to.
To ensure product quality.
Great and then just the competitive landscape in storage like.
Theres been new entrants and people are getting performance guarantees and I would expect storage.
To become even more competitive as additional.
Battery cell manufacturing comes on line over the next kind of three years or three or four years. So just to get your sense on how.
On the competitive landscape within storage and how you are competing against people that are getting performance guarantees or competing on price.
Yes, I mean look we we believe we must add value.
On the.
We are not seeing a major problem on the cell packs I think we will be competitive in the.
We have the right procurement organization to drive those costs down.
The name of the game in storage is how can we provide outstanding quality and customer experience. It's the same thing, which I told you the long tail installers need.
Not looks towards the drag on their margins.
The storage needs to be highly profitable business for them.
Sort of going to the home multiple trips multiple times sort of on installation it should be one and done.
The sizing needs to be cleared installations need to be a cookie cutter model the permitting needs to be streamlined.
The expectations for the homeowners needs to be met.
So things like not control.
On extremely critical.
Right. So we're going to be working on all of those things and we believe.
That quality and customer experience relative to make even.
And that's what we do for the living at the.
The model that has worked well the micro and murders.
With our long tail of installers.
And now we are doing the ramp storage with the lumpy line stores.
And yes. It is it is tough it takes time.
It is low and steady progress.
And those are the kinds of businesses. So we like the healthy profitable limits.
Thank you our final question for today comes from the line the Pebble mouse enough from Raymond James Your question. Please.
Thanks for taking the question when you expanded the installer network into Europe, which is one of the other.
Questions asked about has much lower soft costs.
The main selling point of joining that network for an installer in for example, the Netherlands or Belgium.
Yeah first of all of the install of the networks and.
In Europe, there are going to be multiple of them because of Europe, you cannot generalize Europe.
I think like what you said in on Netherlands, Our installer of network that they need something else what's the.
The total network.
In Germany.
First of all the installer network in the UK.
First of the network in Spain vs. The network in Poland.
It's the first thing the recognized.
The second thing to recognize is.
What do they want what is the need for them.
As the need for them.
The important thing is if they can have one platform on which they can get all kinds of settlements.
Is extremely important for them.
New product availability extremely important for them they want to differentiate themselves.
From other than the stores, so they want nothing but the best.
Right like that I could go on the multiple services.
That they need.
So.
Depending upon the tier of the installer, we have three tiers platinum installers gold and silver and the way we can't think of any of those three deals it's pretty simple based upon the air quality.
And based upon how day.
The rate on customer experience, that's measured not by us by the homeowners.
So we are weighted like that and then we.
Make it attractive of platinum installers to be with us.
In terms of pricing in terms of services.
And so and we make sure there is healthy competition day.
Yeah.
It's a much broader strategy.
And we are very cautious.
And introducing an installer of networks to every region.
The liquidity planning.
So last year, we spent the entire last year of introducing installer network for the U S and Australia this year.
We just started.
In the.
Europe and.
And we will introduce in India as well.
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But a lot more to come in Europe.
That's helpful. My second question is about one more about component sourcing historically, there has never been in need.
For you to sign truly long term supply contract, let's say five to seven year type of supply contract.
With.
The key component players.
Do you envision going out to that long term timeframe.
Given what we're experiencing right now.
No I mean, I'm wary of such deals.
Really not do such deals.
I don't envision doing those.
Sure.
I hope I hope and pray this is the.
You know this will be with us for a couple of more quarters and will be gone and will be a better company because we have three suppliers instead of two or we might even add one month.
And so we can we can always have supply of diversification will learn best practices from it.
We will institute of business processes within the company and will become better.
Very clear thank you very much.
Thank you. This does conclude the question and answer session of today's conference call I'd now like to hand, the program back to buttery comes on the Robyn.
Yeah.
Alright, Thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter.
Right.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
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