Q3 2021 Enphase Energy Inc Earnings Call
Good day and thank you for standing by welcome to the Enphase Energy's third quarter 2021 financial results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
<unk> please.
Please be advised that today's conference is being recorded I would now like turn the conference over to your speaker today, Karen <unk>. Please go ahead.
Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's third quarter 2021.
Today's call our battery coupon to Robyn.
<unk>.
As its president and Chief Executive Officer and Eric.
Eric.
Chief Financial Officer.
After the market closed today Enphase issued a press release announcing the results for its third quarter ended September 30th 2020 one.
During this conference call Enphase management will make forward looking statements, including but not limited to statements related to Enphase Energy's 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 the Mark.
That's in which we operate and target.
Central benefits to homeowners and installer partners. These.
These forward looking statements involve significant risks and uncertainties and 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 31, 2020, which is on file with the SEC and quarterly report on Form 10-Q for the quarter ended September 32021, which will be filed during the fourth quarter of 2021 and <unk>.
Energy cautions you not to place any undue reliance on forward looking statements and undertakes no duty or obligation to update any forward looking statements as a result of new information future events or changes in its expectations.
Also please note that financial measures used on this call are 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 press release posted today, which can also be found in the Investor Relations section of its website now I'd like to introduce battery Cavender, Amon President and Chief Executive Officer of Enphase Energy Patrick go ahead.
Afternoon, and thanks for joining us today to discuss our third quarter 2021 financial results. We had a good quarter. We reported record revenue of $3 51, 5 million shipped approximately $2 6 million microwave murders and 65 megawatt hours of Enphase storage systems achieved non-GAAP gross margin.
48% and generated strong free cash flow of $107 million.
Exhibited in the third quarter at approximately 41, 16 20 fold. This means 41% gross margin, 16% operating expenses and 24% operating income all as a percentage of revenue on a non-GAAP basis. As a reminder, our baseline financial model is 35 15 20.
CFO Eric.
Going into detail about our financials later in the call.
Let's now discuss how we are servicing customers Q3, net promoter scores worldwide was 67% and that's not the medical net promoter score was 71% both unchanged from Q2.
The average gold rate went up a little bit and was that five five minutes in Q3 compared to three minutes in Q2, primarily related to the growth in out of business, we're working on and using called wait times to under a minute through additional staffing and training. We have increased the number of field service teams in the U S and Europe to provide onsite helped to install.
Particularly for storage, we remain laser focused on customer experience.
Talk about manufacturing as we have discussed in the past earnings calls.
The global supply chain is under distress situation is getting primarily better due to our hardworking qualifying alternate suppliers for the AC front drivers, we now have five suppliers qualified.
Our supply of AC fed drivers is much better in Q4 than the prior quarters.
The <unk> deals are not micro inverters, we got a little bit tight on supply, but we expect to manage the situation well.
We are happy with the overall top line for Q4, the situation is quite dynamic worldwide for both supply chain as well as in logistics.
We remain vigilant in Kashi is given the growing demand.
So given our strong demand we are adding a fully automated line in Mexico in Q4, bringing our quarterly capacity in Mexico to approximately $2 2 million micro inverters.
We have already added a second fully automated line in Q2, and our contract manufacturing partner in India, bringing that quarterly capacity to about one 5 million micro inverters in India.
Along with our existing capacity in China, we expect to easily achieve our targeted global capacity of 5 million micro inverters water by the end of the year.
We have now jumped that'd be great.
Diversified two thirds of our contract manufacturing capacity outside of China.
That's what I'm talking about battery two sources for battery cell banks have increased their capacity to a total of approximately 180 megawatt hours for the quarter from $1 90 on existing suppliers are capable of adding more capacity required in the meantime, we are working on adding additional suppliers in 2020 two.
Achieved global diversification.
Our lead times for storage systems, along today at approximately 14 weeks due to the global logistics challenges. These lead times will come down once they are shipping constrained and port congestion and pool. Despite these headwinds we expect to increase shipments of Enphase storage systems by approximately 45.
5% sequentially in Q4.
Let's move on to the regions or the U S and international revenue mix for Q3 was 76% and 24% respectively.
Market demand was quite strong in Q3, and we reported record revenue.
<unk> fell through from our distribution partners to installers are both micro inverters named storage, while at micro and where the channel inventory was at a healthy level at the end of Q3, our storage and I'm sort of channel inventory remained tight.
Demand and logistics issues, we expect micro inverter channel inventory remain manageable in Q4, and expect student channel inventory to get better.
In Europe, we reported record revenue in Q3, we continue to have solid growth in Netherlands, France, Germany and Spain.
Our storage business in Germany is just getting started.
And we are continuing to train a lot of installers and.
In September we announced our entry into Italy.
Yeah.
Providing IQ seven family of microphone mortgage residential installers.
Earlier this month in October we began selling enphase <unk> systems to customers in Belgium photos and expanding the product availability in Europe.
Overall, I'm very pleased with our growth in Europe.
In the Asia Pacific region revenue declined a little bit in Q3, primarily due to ongoing COVID-19 lockdowns in Australia.
Despite the disruptions we are pleased with the growth of the Enphase Installer network.
The continued adoption of our high power iqs have any product and growing strength of our AC module partnerships.
In Latin America, we reported record revenue in Q3, largely due to the increased sales of solar installed it systems in Puerto Rico.
Quite optimistic about it I mentioned, Puerto Rico, and expect steady growth the next few quarters, especially in storage.
We also announced our entry into Brazil in September and started shipping IQ seven plus micro Inverters installers in early October.
Now that we've covered the regions lets discuss the overall bookings for Q4.
But overall customer demand for Q4, once again exceeded the higher end of our guidance.
The component availability is currently much better in Q4 compared to Q3, but not fully there yet we are optimistic that our supply will catch up to demand by early next year.
Let's now move to an update on Archstone it systems.
65 megawatt hours of NPA storage systems in Q3, which was a 51% increase from Q2.
That's just because the training photos enphase storage systems by the end of Q3, we have trained 3771 installer personnel.
Something approximately 1700 unique installation company.
Our hands on storage installation training through our mobile vans and.
Training centers also started ramping in Q3 with electricians and lead installers attempting training sessions and experiencing valuable lands on time with rail system.
We are working diligently on our enphase storage systems to improve commissioning times for installers.
With the rapid increase in the number of long tail installers or average commissioning time is approximately two and a half hours in Q3, we are working hard to bring this time down and made numerous updates in Q3.
<unk> remains a sub 60 minutes commissioning time.
Although installers to visit the site install and commission an enphase <unk> system in less than a few hours.
We've recently introduced two new features for Enphase solar systems in late May we introduced load control, which provides homeowners the ability to convert that energy consumption by shedding non essential loads during an outage and thereby extending the backup duration. We are fortunate at pittsboro control designed into our smart switch.
These loans will be on when the grid is present and shed automatically in the event of a great failure. This feature of Scone figure turbulent controllable by the homeowner.
Our enphase that law.
Last week, we announced that our home energy systems will soon integrate with most leading models of home standby AC generators.
Lighting enhanced performance and a glitch free transition for homeowners during power outages homeowners can monitor in real time, the power flow start and stop their generator remotely set quite know what's to prevent that are generated from operating until their batteries fall below a certain stand up charge and control at all with the Enphase that does.
New feature functions without the dedicated generator automatic transfer switch and eliminates the power of glitches that reset home appliances, when switching to generate power.
This new feature will be available to installers in the U S. In November.
With the addition of these new features plus our laser focus on customer experience. We continued to see continuing to see an acceleration in demand for our Enphase <unk> systems.
As a result, we expect to ship between 90, and 100 megawatt hours of Enphase storage systems in Q4.
Let's talk about new product.
Yesterday, we announced the all new all in one Enphase energy system with IQ eight solar micro inverters for customers in North America.
IQ eight is emphasis moralist micro inverter yet.
Unlike competing devices IQ eight can pharma micro grid during a power outage using sunlight.
Riding backup power, even without a battery.
Since the company's inception, we have invested in custom application specific integrated chips for our micro Inverters and today, we see a big pay off with our software defined micro inverters smart enough to form a micro grid.
Many homeowners often assume that their solar systems will function. If the sun is shining even during a power outage. This is unfortunately not been through until today.
With IQ eight homeowners can realize the true promise of solar.
And use their own power.
IQ eight solar micro inverters can provide sunlight backup during an outage even without the magic.
The Enphase <unk> system with IQ It comes in four different configuration.
The first is solar only which is the standard type system that everybody is used to today.
Second is sunlight backup, which I just talked about without a bedroom.
Third is very interesting its homeless ngl's backup with the small battery.
For cloud cover and nighttime backup.
For the full energy independence.
Solar system with IQ, eight and a large bathroom.
So while the first configuration as I mentioned is a standard type system. The remaining three configurations, a grid agnostic system.
Which need them in face system controller at a smart switch, which islands the whole building an outage.
For homeowners, who want a battery there are no sizing restrictions embedding an enphase battery with an IQ eight solar.
All of the configurations can be customized for homeowners.
Help off our valued Enphase installer partners.
We started piloting IQ eight select installers in Q3, and we will be ramping shipments in Q4 beginning of December.
We expect the IQ eight ramp to take four to six quarters much like the IQ seven Gram.
Let me also say a few words about IQ a D D.
Is the high power 640 Watt AC micro inverters capable of supporting two beefy panels.
I'm going to leave for the small commercial solar business, we expect to start piloting IQ a D with selected installers in Q4 and begin production shipments in Q1.
This product is very important to us not only for the small commercial solar business, but also for our next generation batteries as we increase the discharge pelham and improve our cost structure.
Let's turn to digital transformation.
Both of our recent acquisitions achieved record revenue in Q3.
Enphase, Montreal, which provides design and proposal software added a significant number of new installers.
We plan to release several new software features early next year to improve the installed on experience.
And faith, neither which provides proposal and permitting services for installers also experienced a significant increase in customer demand and it's focused on automating the creation of permit plan sets.
Further expand the installed base.
Both teams will significantly leverage the Enphase installer network to grow and expand that business.
Let me now give you an update on our Enphase installer network.
We have now on boarded approximately 1000 installers to our Enphase installer network worldwide through a highly selective process focused on quality and homeowner experience or.
And in the U S has grown 57% since its introduction last year.
Very pleased with the initiators progress under our bank photo to Installers, who act as a product manager listen provide an exceptional experience to homeowners.
Let's talk about grid services.
Last quarter, we discussed our participation in the connected solutions program.
There is an incentive program implemented by three utilities in the northeast U S to reduce electrical demand during high yield idiots.
Storage customers and connect because Massachusetts, and Rhode Island can sign up monitor track money owned and controlled participation in the program using the <unk> app.
We were pleased to announce in Q3, our participation in the Hawaiian electric battery bonus grid services program.
This program offers a new incentive for homeowners on the island of Oahu, who installed.
New home battery the first customers accepted by Hawaiian electric into the program will be eligible to receive $850 per kilowatt.
They commit to make available during a fixed to our PV at each day.
The program helps Hawaiian electric realize the goal of 100% renewable power by 2045 and more homeowners than I ever have before and now I have a solar plus storage system. We.
We expect to engage with more such utilities and Aggregators and our grid services program. During the months ahead. In summary, we are pleased with the overall progress. We have made this year. We now have solar storage load control, great set of business and generator compatibility as part of our.
Home Energy management system, we are making significant progress on the digital platform for installers in order to cut soft costs. We will remain laser focused on both the products and the digital platform to deliver a superior customer experience for both our installers and homeowners.
I'd like to make one more important announcement, we will be hosting an investor day on November 16 to provide a deeper update on our business more details will follow over the next few weeks with that I will hand, the call over to Eric for his review of our finances.
<unk>.
Thanks, Bob and good afternoon, everyone I will provide more details related to our third quarter of 2021 financial results as well as our business outlook for the fourth quarter of 2021.
We have provided a reconciliation of these non-GAAP to GAAP financial measures you know what our news release posted today, we cannot which can also be found in the Investor Relations section of our website.
Total revenue for Q3 was 351 $5 million, representing an increase of 11% sequentially and a quarterly record them. We shipped approximately 900 on 13 megawatts DC of micro Inverters and 65 megawatt hour soften faces storage systems in the quarter.
Non-GAAP gross margin for Q3 was 48% the same as compared to Q2 non-GAAP gross margin was impacted by higher logistics and expedite costs.
Partially offset by a price increase from microphone betters and continued cost punishment GAAP gross margin was 39, 9% for Q3.
Non-GAAP operating expenses were $57 3 million for Q3 compared to $51 7 million for Q2.
Sequential increase was primarily due to increased investments in R&D idea first friction.
Brian awareness marketing programs.
Operating expenses were $103 million for Q3 compared to $68 4 million for Q2 GAAP operating expenses for Q3 include $44 million of stock based compensation expenses and $1 6 million like we see shouldn't related expenses and amortization for acquired intangible assets.
On a non-GAAP basis income from operations for Q3 was $85 $9 million compared to $77 2 million for Q2 on a GAAP basis income from operations was $37 4 million for Q3 compared to $59 4 million for Q2.
On a non-GAAP basis net income for Q3 was $84 $2 million.
Home purchase of $84 $7 million for Q2. This resulted in diluted earnings per share of <unk> 50 cents for Q3 compared to 53 cents per share for Q2.
GAAP net income for Q3 was $21 $8 million compared to GAAP net income of $39 4 million for Q2.
GAAP diluted earnings per share was <unk> <unk> compared to diluted earnings per share of <unk> <unk> for future.
Now turning to the balance sheet and the working capital from inventory was $65 $4 million at the end of Q3 on purchased 37 $8 million at the end of Q2 the.
The sequential increase was due to the expected higher demand for our margins.
This solar and storage systems in Q4, as well as longer lead times with Youtube growing grow on logistics and supply chain challenges.
Days of inventory outstanding was 28 days at the end of Q3 compared to 18 days at the end of Q2 to support the growth in demand our target is 30 days.
Receivables were 273 points.
At the end of Q3 compared to $281 $2 million at the end of Q2.
DSO of 54 base in Q3 decreased 465 days in the prior quarter.
We exited Q3 with a total cash and cash equivalents and marketable securities balance of approximately $1 $4 billion compared to approximately $1 3 billion bonus at the end of Q2.
We did not make any share repurchases against our recently approved $500 million share repurchase authorization.
In Q3, we generated $113 $4 million in cash flow from operations.
And $107 million on free cash flow capital expenditures was $12 7 million for Q3 to expand both micro and better on a startup manufacturing capacity as well of course related to App development Web site.
Sure.
Now, let's discuss our outlook for the fourth quarter of 2021, we expect our revenue for the quarter to be within a range of $390 million to $410 million, which includes shipments of 90 to 100 megawatt hours of invasive storage systems, we expect GAAP gross margin to be within a range of 37.
240% and non-GAAP gross margin to be within a range of 38% to 41%, which excludes stock based compensation expenses. We've picked our GAAP operating expenses to be within a range of $119 million to $122 million, including a total of approximately $52 million estimated for stock based.
<unk> expenses and acquisition related expenses and amortization.
Our non-GAAP operating expenses to be within a range of $67 million to $70 million.
Let me provide some additional corridor on a few topics the revenue guidance assumes an increasing microphone burger shipments in <unk> as well as the storage system shipments, we expect to ship 90 to 100 megawatt hours often face towards systems in Q4, representing approximately 45 four.
Sequential growth at the midpoint of the guidance.
We expect improved component availability for microphone battery production in Q4 and continued momentum for being faces towards systems.
On the cost side, we are continuing to expedite components and finished goods in Q4 to ensure customers have an adequate supply of our products. We expect the quarterly expedited expenses to remain at similar levels as Q3.
Due to the steep increase in logistics costs and increased in component cost driven by inflation. We are implementing a modest price increase on all programs starting in the second half of Q4.
It's also prudent for us to maintain our baseline financial model as we continue to navigate the global component supply constraints and logistical challenges.
Finally, I would like to touch upon our Opex guidance, our guidance for non-GAAP operating expenses as a percentage of revenues expected to increase in Q4 as we mentioned on the last earnings call. Our Opex, maybe slightly above our 15% target, sometimes but we still expect to be comfortably above our baseline.
<unk> target of 20% operating income.
We continue to invest significantly in R&D to further our competitive advantage significantly we are more focused on semiconductor integration of our <unk> software advancements, including cloud software to increase our system performance reduce cost and increase reliability. We also ramp up.
Our marketing expense in the back half of the year with new product launches and brand awareness for Q4 accruals for post combination expenses from prior acquisitions are expected to be approximately $3 6 million.
With that I will now open the line for questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw.
All your question press the pound key.
Ask that you please limit yourself to one question and one follow up and then re queue.
Our first question comes from Brian Lee with Goldman Sachs. Your line is open.
Hey, guys. Good afternoon, thanks for taking the questions kudos on the strong results here.
Hum.
First one I had was just around the storage business Eric.
Eric budget, you guys talked about 50% growth or close to 50% growth sequentially here.
Again.
<unk> based on the guide so just wondering you know.
With all the supply chain headwinds and concerns that are out there I know you talked a little bit about the X, but expedite but is this product that's already in the channel or can you kind of talk about visibility into shipments and if there are any supply chain or logistical constraints.
That's your sort of embedding in that number or kind of how derisked. It is.
Yeah. So.
Just give us a general color on the on the storage business to that view.
And while the demand is picking up.
You know we introduced the storage system.
In July of 2020.
It's a beautiful product distributed architecture.
Marty look seek upward lithium iron phosphate safe chemistry.
Air cooled.
And of course, as we had an interesting features like forward start which helps us to optimize.
And that can be frenetic sector.
And of course.
And fifth customer service, which you know my expectations are that we will get.
Better and better and better with our NPS beyond 17, and the future.
A lot in the last year, especially when it comes to homeowner experience the kind of notifications they need to get and when it comes to installers ease of use ease of install ease of commissioning. So a lot of learning is gone and.
Gone into it we have made continuous hardware and software updates in the last year.
And I told you in the last earnings call that we introduced load control in May of 2021 load control helped quite a bit in terms of customer experience. We are finding that's quite successful there's a lot of uptake and simultaneously along with the introduction of load control. We also optimize our pricing you know industry.
Really we did start a little bit high and then we thought it was the right time to optimize pricing. So we did that.
And we improved with.
The improvement in commissioning with load control with a drop in pricing, we started seeing a lot of demand.
Q3 <unk>.
She unleashed a lot of demand.
And that's the number yourself, 50% growth from Q2.
And you know.
That demand has continued to stay healthy as we improve our product more and more in mode. So there is no demand limitation for Q4.
For Q4, we said, we would do anywhere between 90 and 100 megawatt hours.
And.
Yeah, you know primarily that's gated by logistics as you know.
The situation globally is quite dynamic.
<unk>.
<unk> defined the container costs have increased apex.
Ocean freight is in Canadian apex, a typical containers used to cost a couple of thousand dollars is now $16000. So there's a lot of stress and logistics lot of stress on supply chain situation.
That's kind of limiting our supply.
In Q4.
We are going to ship 90 to 100.
Megawatt hours, however, one thing, which I didn't talk about it.
We are really happy at the adoption of the product by our long tail long tail of installers.
It's really you know if you if you see the statistics.
Tony we have clean.
1700 installation companies through our Enphase University.
And TV over a thousand of them are certified.
35 means not only they have to compete.
Fleet the training they have to complete a real install within phase on the line and are guiding guiding them and there's over a thousand installers or 35.
Right now so we expect that number to continuously increase we expect the demand to be broad based we expect.
The demand to go up and up and up and of course, the logistics situation needs to improve globally. It's not situations specific to Enphase. We are covered from our contract manufacturers and our self back capacity et cetera, like what I said, we are covered from that it's purely a logistics issue and we expect therefore ship.
90 to 100 megawatt hours with regarding Q1, yeah.
I'm afraid I cannot talk much right now about Q1 because.
The situation is so dynamic that whatever I say will be wrong to model.
Yes fair enough absolutely.
Makes a ton of sense.
Maybe just with that as a bit of a segue.
Sort of zoom out question around the margins as well I mean, you guys have.
<unk> been navigating this environment as well as anyone out there you've been tracking at this sort of 40% to 41% non-GAAP gross margin level. Despite all of these elevated costs. Despite all of the supply chain issues.
And this year you have the two price increases you've got the IQ eight coming in.
And then presumably less or lessening supply chain and logistics cost as you head into 2022, I know you can't Crystal ball that but if you kind of take all of that into account it seems like.
There's a there's a setup here where you should be.
Earning significantly higher gross margins at some point next year, assuming some of these things normalize. So can you kind of speak to that a bit I mean, where you're at today and why you wouldn't be at a significantly higher gross margin.
At some point as you move through next year. Thanks, guys.
The.
That is the following puts and takes.
If you see our component suppliers, the folks who supply components to the micro inverters and batteries out in the same situation as us.
They are increasing a lot of costs on it.
And some of the component costs have gone up by over 100%.
And because the supply chain is still tight.
I have to add ship, many micro inverters, which cost a lot of money not only on top of that.
<unk> fleet I, just now totally ocean freight as apex motor expense.
So you cannot hide here right wherever I go the costs are going up tremendously what we did was we.
We have made a lot of cost reductions.
The last year. So we were able to absorb some of the cost increases and we try to absorb a lot of them, but we are in a situation where we have to pass some modest cost increase I mean, some modest price increases to customers. That's what we exactly that.
Now I don't have a crystal ball with me I do not know whether 2022 brings them better logistics anytime sooner.
And I'm not sure what's going to happen to the elevated component costs and the suppliers that are challenging but.
It's fair to say.
The next two or three quarters. The situation is probably not going to die down and sort of gross gross margin side and I cannot predict what's going to happen in Q1 Q4, we gave you our guidance.
We are sticking with that guidance.
Alright fair enough.
Take the rest offline thanks guys.
Thank you. Our next question comes from Eric Li with Bank of America. Your line is open.
Hey, good afternoon, thanks for the questions.
<unk> on the quarter.
First I wanted to touch on factors impacting the storage lead times I know you talked about an eight to 10 week target before.
Relative to 12 to 14 weeks of <unk> and you mentioned 14 weeks just now how much of that is driven by the worse in freight and logistics constraints.
How much of that have you been able to offset by your directly controllable efforts. If you could speak to progress onto later as well.
Yeah.
Situation is quite is quite a bit different in Q4.
We have no problems in our manufacturing.
The constraint is all coming from the global logistics it is transportation of dangerous goods.
Is even more scrutinized the costs that even more and so.
You know the satellite.
It's all about the global logistics and Unfortunately, we cannot add a ship batteries like micro inverters. It just doesn't make sense economically to edge battery.
So therefore, we.
We added a place where we are.
We are stuck where we transport these batteries.
It will be ocean.
And we are in the same game as everybody else when the situation gets better in terms of all the port congestion improving terms or the shipping constraints going away.
Then we.
We'll start to see the lead times.
Dropped to their natural number which is around eight weeks, but for now the lead times are over 14 weeks.
Got it so over 14 weeks as embedding you already accomplished or directly control board for its on the manufacturing.
And a clarification there.
And then on the <unk> update you also talked about getting towards the 120 megawatt hours in one queue. If the lead times were to drop towards eight to 10 weeks given the higher lead time outlook over 14 weeks can you just give us an update on how you're thinking about that volumetric ramp.
The offset of the higher <unk>.
<unk> cell capacity of 180 megawatt hours I appreciate it.
Like what I said, our two cell battery suppliers are capable of doing one megawatt hours a quarter.
And.
Right now it is it is purely logistics.
And logistics constraints it is not a demand limitation so.
It's too early for me to talk about Q1.
But if you look at our past if you look at our past history.
Especially in 2021.
We have had healthy growth in our health.
Reasonable growth every quarter and we expect.
To do the same going into 2022.
However, the exact guidance for Q1, and the exact growth et cetera, we would have to give it to you in Q1 guidance.
Thank you I'll take the rest offline.
Thank you. Our next question comes from Moses Sutton with Barclays. Your line is open.
Hi, Thanks for taking my question congrats on the quarter.
To confirm the modest inverter price increase that starts in <unk> mid <unk> or already in <unk> or was this another increase.
This is another one starts in Mexico.
Great Great and then how much of the two recent acquisitions the soft desk and then are contributing maybe on a percentage of run rate revenue today, if we were to annualize it.
But not going to break out that but let me give you some color.
There are two companies that we acquired earlier this year. The first one was guard soft desk.
And the design and proposals tool for installers that they have is scarred solar glass.
Our solar graph basically the installers game go in there they can drop.
The solar panels on the roof.
They can get a proposal calculation so that they can discuss at the kitchen table.
And.
What are we done the team has a very smart team.
Obviously, they were affected a little bit by Colgate, they add some hiring limitations, but all of those are resolved.
Right now the team is firing on all cylinders there.
They understand exactly the improvements that we have to do which is we are working on shaping we are working on three D. We are working on adding storage and we expect all of those to be to be added and released by early next year and so that will become a best in class.
<unk>.
For installers now.
Now the second one.
Is.
And is that a company called <unk> D.
<unk> does.
Proposal and permitting services. This is an installer phase yet is the address of the home I want a proposal in eight hours.
Oh here are the details about the contract details I wanted to permit plant SEC youll.
You want to create a permit plants I didn't give it to me in 24 hours.
So.
The enphase, neither the midnight city in northern India, and that team basically does proposal and permitting services.
Very healthy healthy growth in Q4 and.
Servicing right now big installers there the name of the game for US is how are we going to get the automation of the Permian plants set so that.
We can.
Kris the quality and the turnaround time and keep the turnaround time to near zero, we are working.
On automation of those permits plan sets.
And once that is done then.
I will introduce that capability to all over the long tail installers.
Great.
Just to summarize those stores are doing exceptionally well.
They hit their cards in Q2, they hit New records in Q3.
And I.
<unk> them to perform well going forward.
Yeah.
Great Great. Thank you just to squeeze one last one.
<unk>, how much of your storage sort of as a percentage of shipments are outside the U S.
And we just started shipping into Germany, it's really not material at this point as you know.
When you start shipping into our country needs to get installed trained aiming of installers is not easy.
The good thing about Europe is most of it most of the demand comes from long tail installers, we know how to service long tail installers. It means great great product, which is easy to install great training, great customer support and.
It's not going to come just like that.
It's a business, we need to block and tackle and steady so I would say it is not material at this stage the international business right now U S is doing extraordinarily extraordinarily well in storage.
Great. Thank you I'll take the rest offline.
Thank you. Our next question comes from Mark Strouse with JP Morgan Your line is open.
Yes, thanks, very much for taking my questions.
So just to the extent that supply chain or improving understand that like you said things are very fluid.
But assuming that some of those improvements are sustained just curious how youre thinking about potentially.
Potentially accelerating the rollout of some of these products like <unk> and the storage product.
More globally.
At accelerate your plans at all.
Great.
So there are some things in our control there are some things nocturnal controlled I already talked about the logistics situation, which is not in our control whatever it was in our control was.
The AC affect driver stuff like what we did was we basically pivoted we had two two suppliers.
Any last early this year.
Rich.
In Q2, it was three now it's five suppliers. So really we have solved the problem of.
The AC drive or simply by hard work and qualifying a lot more suppliers now let's come to IQ eight <unk>.
<unk> offers a lot of interesting possibility.
Why is the IQ eight why rethink by rethink IQ eight is going to make a huge difference is.
Till now homeowners are under the assumption that their solar system.
Will not produce power will produce power building the grid outage as long as the Sun is shining.
We.
Only a few of us know that that is not true.
Our standard solar system needs, the grid voltage and frequency as a reference.
Therefore during.
A great shut down you don't have that voltage and frequency as a reference therefore.
No power from our standard solar system, we are changing that paradigm.
IQ eight is the micro grid, forming micro inverter.
So.
We think this opens up.
Very interesting possibilities and one other thing about IQ eight is.
It does not require.
Any particular torridge sites to be paired with it in other words.
At the end.
Yeah in the extreme case, if that is no storage.
The ratio of solar plus storage is infinity.
That is solar on the roof that is no storage devices to infinity.
No.
Our IQ eight is blazing fast and can adjust itself to any kind of good conditions.
Having said that.
Use gains to which I talked about sunlight tobacco.
It's back up using the sunlight without storage that feel scale two in the event of a grid in the event of a grid outage.
Now, we think you know customers.
You know what.
Maybe by a small battery along with it because.
When a cloud cover to come.
You don't want to lose power.
So at that time, you want some immunity, they're so small battery will be perfect.
In order to make sure that you have enough resilience that you don't need to buy a large battery you can buy a small but some people might say no.
I'm, just happy with Toyota I only need I only lose power twice a year I'm happy with solar and sunlight backup.
Which is the use case two is perfectly fine.
So homeowners have their own way of choosing what they want according to their needs, but enphase will provide the entire range.
What date.
They meet with the help of our installers because the installers are extremely important to educate the homeowners that so that education process will take but it takes some time and as as normal with any new product that will be a ramp but.
This product is going to be a game changer.
When you have a great product and when you have a grid agnostic products side by side you have to question Who's got a bunch of old type product.
So I'll jump.
I didn't give you a specific numbers but.
We are excited about IQ eight and we think it's going to make a huge difference for our business going forward.
Got it okay ill take the rest offline. Thank you very much badri.
Thank you.
Thank you. Our next question comes from Colin Rusch with Oppenheimer. Your line is open.
Thanks, So much guys can you speak to the potential evacuate enabling you to enter into the commercial rooftop market and a little bit more aggressive way, even before you introduce the accuracy.
We are.
[laughter].
We are going to introduce <unk>.
And yes, we had a little bit late to death, but the beta installations, which I call. It called pilot installations that are happening this quarter and I QAD is really a product with fantastic cost structure.
600.
40 watts of AC and they are all packed into a form factor, that's only slightly bigger than <unk>.
And it is perfect for the small commercial business, maintaining very high quality still the enphase quality and.
Small commercial.
Business folks can accept two panel one micro solution.
So.
Now to answer your question.
We are going to be introducing IQ eight.
We are going to start ramping in the first quarter not only we are.
Let me step back we haven't actually thinking about IQ eight is a not a micro inverter only.
We are thinking about it as an entire system.
What do I mean by an entire system is.
And asset manager or an installer comes to our website and.
And wants to design a product.
Ford ability for a gas station photo Houghton photos kun Lee will enable all possible tool.
He will be able to go in and draw what he wants on the roof he'll be able to estimate and get a quick proposal he'll be able to go and do permitting services that he needs.
And.
In chart and one more important thing fleet fleet management.
He will be able to manage his fleet.
And have enormous flexibility.
On doing what he wants you'll be able to see on a given day, whether it was profitable or not on a given day if you made money.
And to be able to get incredible resolution on which micro inverters doesn't work and with the touch of a button it'll be able to Collins phase. So we are thinking about it end to end.
Firstly and this is with a view towards the asset managers with a view towards the installers.
It's an end to end system. So that's why we have taken a little bit of time.
Having said that like what I said.
We are going to pilot it in Q4.
And start ramping in Q1.
That's helpful and it's a nice segue into my second question, so with the additional functionality and all of the data that you collect on these systems can you talk about your strategy for monetizing that data, it's been something that's kind of lingered around the company for a number of years, but I'm curious how you guys are approaching the potential to monetize a lot of that data and also the performance of their systems on a granular level.
Well right now.
Ill tell you the truth Dahlia bluntly.
We haven't monetized enough.
But the places where it is helping us get better.
Is.
By having information at our fingertips, we are able to.
Predict problems better.
Then.
You know.
Then meaning in other words, we don't need the customers to Carlos we can call customers.
So that's in terms of customer service.
And in terms of you know.
Monetization.
<unk>.
Yep.
I mean, the people here I mean, the only thing that I will say is extreme value to us.
I'll try that monetization is incorporation of behavioral patterns of consumption and production to build algorithms.
Artificial intelligence for tertiary controls right and that is super important in terms of the home energy management experience on top of the cost of our service elements that battery six to resolve issues like immediate a roommate and so on and ultimately that information can be embedded into our energy trading platform to do micro grid training right.
There are.
Multiple linear swung back so if youre thinking about Viking that information and ultimately monetize fitting into selling into a third party is not in the works right now right.
So.
What we think is in the small commercial business what do people care about the most is it cannot even lose one day of savings.
Extremely important you cannot lose one day of savings. Therefore, if we are able to be we can proactively look at that and if we can hyper analyze that with our knock out of network operations Center and fix problems before they happen.
That's the Holy Grail.
For commercial for commercial approaches imagine unless its monetary or having all this information of the power of the fleet performance, how differentiated will be a platform so within the <unk>.
Solution right of a bundle solution for that asset monitoring he's going to be is at the panel level very transparent.
Very easy to fold over an easy to use update upgrade monitor all of the performance metrics so far Roy.
And so on and so forth I'm finally, one area of the battery developed his degree services platform.
He's done.
Our ability to keep.
Dispatch power and use what we call it the frequency regulation capabilities to allow the homeowner to monetize that asset sort of weird, meaning Calvin Darling formation available for forecasting.
So for dispatching and doing voltage regulation frequency regulation and ultimately.
Our reliability.
So that they'll go for it.
Right now, though we're having like yes, we will talk a little bit more at the analyst day.
I don't discuss.
Thank you. Our next question comes from Philip Shen with Roth Capital Partners. Your line is open.
Hi, everyone and thanks for taking my questions Congrats on the quarter.
Wanted to dig into the chip supply situation a bit more I know you gave a bunch of color already already.
But in terms of the component availability catching up to demand. It seems like we're going to get a meaningful improvement in Q1 is it fair to say that the bottleneck from chips might be unlimited by Q1.
Or is it maybe Q2 or perhaps the back half of 'twenty two.
Yes.
Q4 is.
Michigan improvement from Q3.
That's the first thing you should note.
The AC driver.
Shortage, we have effectively mitigated.
By qualifying fights suppliers.
I also mentioned the <unk>.
Trained on the Asics, the ASIC situations and I think we can reasonably navigate it.
For Q4.
And what's the what's the path going forward.
Once again.
It would be foolish for me to predict what's going to happen in Q1, because it is dynamic.
But knowing what I know.
In our situation in Q1 should get.
Better than Q4, I don't know how much but the situation in Q1 should get better.
And once the worldwide supply chain logistics situation get solved.
And then we should be able to meet.
<unk> should be able to meet demand, but you know right now we live.
In a dynamic situation that's why.
It's not good for us too.
What's going to happen in Q1 right. Now this is what we are giving to you in Q4, our Q4 plays meaningfully higher.
For the fed drivers.
So we have enough for BSC fed drivers in basics.
And that's what the guidance is based.
Great. Thanks for that color I was going to add one more thing I'd feel remember also that Q1 tends to be a cisco in a quarter right. So those are the kind of things as you model and you think about this.
The demand is.
There the supply will you just kind of a challenge here for body and then there is a typical seasonality.
Great. Thank you both.
As it relates to.
The next generation products you guys are just launching arcuate congratulations on that and.
And you have a four to six quarter ramp.
But if we can get any color on the next generation product that might be interesting, perhaps it's the Q nine and and.
What is perhaps talk through the feature set there and then perhaps the timing around when that could be released and then what are you looking for.
Thanks.
We'll talk a little bit more about a Q&A and in the Investor day.
On a Q&A in just a quick thing.
It is basically the Hollywood.
Paula is getting higher and higher and higher.
And if you want to dissipate the higher power through the same form factor you need innovation.
And when you start looking at innovation.
There is innovation that needs to happen in the <unk>.
In the transistor, which are what I call. It the output AC transistors as well as the DC transistors innovation needs to happen there.
The innovation needs to happen in the zinc that's relatively easy meets to run it.
Higher frequency innovation needs to happen at the plants farmer level.
Because now the brand's farmer can be a lot less certain if you run.
The AC transistors at the higher frequency so it needs all three of these to work in tandem we need.
A transistor that's capable of tolerating much higher current and.
And much smaller in much smaller form factor.
The second is an ASIC that is capable of driving that frequency.
Third is the client's farmer.
That can be miniaturized to gain advantage from the increase frequency.
All three of them are going to be work done in <unk> nine so that we can deliver even more higher power with smaller form factor.
But that.
Bottom line, it's innovation, you'll hear it and.
But in the meantime, we got IQ, Inc.
The IQ eight is.
If the innovation is gonna be IQ eight's async.
Enables the response time to greatly events to be significantly faster orders of magnitude faster than IQ seven that so we can get away with it.
Amy has taught each site.
So IQ eight is and I'm like.
Well like I said I've already said, it and we couldn't be more excited and.
And there is a lot of innovation in IQ eight that's still going to come as incremental products for example, Ikea.
IQ eight H.
<unk> is the highest followed a version that we have today.
He has brought version we have made and then phases 384 watts.
In <unk> seven we had a 19 7 million, which was 366, one so we continuously tweak the power.
S b to do incremental products, but.
And you know IQ eight is a great product.
Just a quick follow up if I Qunar and do you think it's two years away or do you think it's further out.
Well talk more on the analyst day I mean, we wanted to have we want to have a particular cadence our novel micro inverters going forward and what its up a little bit more about it in the analyst day.
Great. Thank you.
Thank you. Our next question comes from Conner Mcmahon with Wolfe Research. Your line is open.
Yeah.
Hey, guys good afternoon.
So just on competition I have two questions here. So first obviously one of your peers gave more on their new micro solution at Investor day, a month or so ago, just curious of any thoughts on how the NPA offering compares here or just more broadly how you expect the competitive environment to evolve over the next couple of years and then secondly.
Are you seeing any risk of losing share due to the price increases you've put through so far this year.
Yeah.
You're talking about the competitors.
That introduced.
Micro inverter.
We have seen a lot of competition in micro inverters.
I mean over the years.
We don't neglect any of them, we take all of them seriously in this case. The competitor is affirmative oil company that we have a lot of respect for them they have a big balance sheet.
We're not sure what theyre going to do but.
You know we are focused on what we can do.
We have made eight generations of micro inverters.
We have been.
Very strong IP.
300, plus patents.
All of these micro inverters.
As Don.
The sick.
Chip.
You know semiconductor architecture that has gotten a custom designed by in fees.
And that.
Custom designed by Enphase enables us to do a single stage architecture.
Because we do a single stage architecture versus the standard dual stage architecture. What happens is we use the reduced number of components.
Because we have reduced number of components, our heat dissipation is a lot lesser.
Because Saudi dissipation is a lot less that our quality is.
Hi al.
As I always have said my target <unk> is 500 500 parts.
Parts per million for.
Micro inverters that 0.05.
Thanks.
We are talking about and that kind of bulks tending quantity.
Due to our custom ASIC architecture and high level of semiconductor integration.
So that's what we have done over time and now.
The thing on the cake it is IQ eight.
Good fun.
It is it can you.
It can do sunlight backup.
In the absence of.
In the absence of a power grid without a battery.
So that's where we're going.
And when you asked me about next.
I did talk a little bit on <unk>, nine and <unk> 10.
Right now <unk> got single Phase III farming. Soon we will have three tier is great fun.
So that's the direction, we're going so it's all about innovation for us innovation will drive.
High quality.
High quality will drive great customer experience, that's what we're all about.
Great. Thanks, So first just on the second.
Yes, if I can.
Sure.
Just if you're seeing any risk of losing losing share due to the price increases you push there.
No we are not really seeing a risk and look the customer to understand.
It is a container last year was $2000 in.
In Ocean container now it is $16000.
It is component costs have risen rapidly.
For us sometimes more than 100% incoming component cost.
And.
Because of the constraint we had full support inverters on planes.
To add ship them and managing the container cost.
Make this overall situation tough and you are seeing inflation in the U S exactly plus pipeline vote per cent compared to the September its white barn vote percent compared to last night.
In the U S. So.
Both teams needed a single digit price increase low single digits by the way.
And we are incredibly sensitive.
To installers actually we are incredibly sensitive to distributors installers and homeowners, but therefore, we try to take as much as possible and when it comes to okay.
Let's make sure we are pragmatic we decided to pass.
You know single digit pushed.
Percentage price increase so we think we think no one likes price increases, but we think our customers will understand they will appreciate.
I'm not worried about it.
Great. Thank you.
Yeah.
Thank you. Our next question comes from James West with Evercore ISI. Your line is open.
Hey, good afternoon battery.
So.
On the margin guidance here I know you use in your typical baseline.
Guidance that you've.
Given you brought up create a number of times, we know inflation is going to the system.
Should we be concerned that as this kind of continues the logistics problems kind of continue that we would be closer to the lower end of your guidance or do you feel like that was already all baked in to what you had in <unk> and so that's.
Should be comfortable.
Yeah, well. Thank you for the question. This is Eric So James I.
One of the things that bother Eni, we always are very cautious is making sure that whatever we guide is a number that we can come behind it to the best of our knowledge as we.
Stand today.
Where are you guys.
So the range is a range and it still remains a range. If you look at our bus for a great quarter on the way we deliver every quarter.
We tend to be doing pretty well be firmed up right right. So you've got a truck or bus record on that front in terms of the moving parts.
We feel in many ways that our veto bottoms up forecasting process and the way, we manage our cost and the opportunities that we felt based on our technology that bothered Chuck described provided provide us unique visibility.
<unk>.
Perhaps a few quarters ahead of us, but right now based on the <unk>.
The logistics I mean, another example, just to give you the spot pricing on components right and in many cases, the availability of components, we need to pay additional price.
And so some of them can be short term some of them. They may stay with us in the meantime, we continue very disciplined on our cost reduction roadmaps and opinion those so within the visibility that we have within the guidance that we provided are hopefully is very consistent in the way we've been conducting ourselves in the past even under extreme.
Supply constrained challenges, we know how to manage fairly well within the quarter. So so I hope without I answer your question and give you comfort that when we put something in front of you guys.
The best that we can with a lot of analytics.
Yes, that's very helpful. Thank you and then maybe a battery on IQ eight.
You're excited we're excited I mean, there's obviously technology is really exciting and I look forward to seeing it.
It's Dave.
I'm curious if you could roll it out faster than that four to six quarters, maybe speed up the rollout of the technology.
Well when the event experiences with Rollouts.
<unk> six <unk>.
That took a similar thing we did with IQ seven this product.
Likewise.
A little bit of education, but it's obvious to most people.
And we think.
We think it could be faster.
Okay.
It's difficult for us to predict transitions are always hard.
Transition that complex.
Lots of puts and takes it as the installers.
We are educating the installers were educating distributor or actually we did that now we have to educate the installers and we need to make sure we help them to put the best foot forward with the homeowners.
And.
That process it does take a little bit of time, that's the way we thought.
Success for US is to think so obviously forward I would be thrilled.
Great I would look for a lot more improvements we can do in the future, but I think it's a reasonable number right now.
Okay got it thanks guys.
Thank you.
Thank you and we have a question from JB.
Sorry, we have a question from Amit Becker with peak BMO capital markets. Your line is open.
Hi, Thanks for squeezing me in guys and congratulations on the quarter.
It looked like your international revenues were up I think about 5% sequentially. I was just wondering if you could give us a little bit of color on.
What kind of regions or specific countries kind of driving that.
Yes, actually it's pretty simple Europe is growing and doing very well.
And in Europe.
The countries that we.
<unk> are doing well the Netherlands.
France.
Belgium, Spain, we're just starting to ramp in Germany.
We introduced IQ seven into Italy, So that's going to start ramping very soon.
We introduced it in phase III systems into both Germany, and Belgium are going to see those effects, but it's really all about Europe.
<unk>.
Latin America is a region that we are excited about especially Puerto Rico, Puerto Rico is very strong for us in terms of storage, we expect continued growth in Puerto Rico.
And storage in the next few quarters.
Brazil is another one you should be looking at.
You should be watching closely and in Brazil, It's too early to talk about numbers, but it is a big market.
Six gigawatts of solar.
Of course, it is a cutthroat market, but I think with some intelligence with some with some intelligent.
A way to sell the product and with products like the IQ a deep.
Along with our products like the IQ seven eight which is the highest vote products.
We should be able to make a serious dent coupled with innovative financing.
No.
We'll be working on that a lot, but we're excited about Brazil, it's a huge opportunity for us so.
That's the color on international mainly Europe and whatnot.
Great. Thank you guys.
Thank you.
Thank you. Our next question comes from J B Lowe with Citi. Your line is open.
Alright, Hey battery Eric carrying.
Dawn.
Question was on what kind of pricing and margins on the storage.
Our embedded in <unk>.
Guidance.
Yes, we do.
We have not broken out the margins individually by our product lines and.
But yes, no I get that question a lot is storage.
And what's the margin on storage what are you confident aboard et cetera, and I want to mention the following we just.
We just started shipping storage.
Last year.
We are.
Ah ramping.
Took us some time to ramp we've got in the early stages before our.
Uh huh.
On cost.
Is usually.
You know it.
It's common knowledge that the cost is high.
Literally.
Yeah at an earlier stage of ramp in that situation is changing.
Streamlining everything as far as the product is concerned the supply chain the manufacturing.
Cost structure et cetera.
We are also working on new products, which I will share with at the end of this day.
Very often installed at B two metrics to focus on.
Basically.
Kilowatt hours per liter.
And.
Actually what hours per liter and watt hours per kilogram.
Those are the two metrics to focus on.
And for Us.
The way, we can maximize watt hours per liter if you maximize that.
Obviously your cost.
It comes down and our manufacturing cost product cost comes down and how do you maximize that is by bringing best in class power electronics, because things that.
Cell pack is.
Pretty decent.
But if you take the setback on one hand, and if you take power electronics those are the two things.
That you that you need to work on cell pack is already pretty decent so we're working on power electronics too.
To do best in class integration.
And we will share more of our starts in the analyst day, but we are working on those furiously in those.
Well help us to achieve best in class cost structure on storage.
And remember we will not enter any business until we are confident unless we are confident that they will meet our <unk>.
Target baseline.
That's why we set a target basically and we wander into the businesses, where we cannot achieve that.
Okay.
Yes at a minimum.
Okay. That's helpful.
Question I had was just on the rollout of our IQ eight PV.
As youre talking to potentially kind of a new set of customers I mean, I know there is this long tail guys. They do.
Small scale commercial book.
Can you give us some sort of like what are some of the new partnerships or are there a lot of new partnerships that you guys are going to need to forge.
Torch to kind of really expanded that business and how is that process going.
Yeah. So.
To give you to give you some color it is.
Right now.
We think.
The long tail installers.
Neglected in this segment.
Which is you know it.
Specifically.
And I won't call it as a niche segment. It's a small commercial segment that means 20 kilowatts to 200 kilowatts.
And very often these installers are the same and toddlers who do residential.
And we are talking about.
Motels hospitals churches.
Gas stations.
Looking about.
Relatively small and stuff.
And so the name of the game for US is the same.
Provide great customer experience store in stores.
Provide highest quality two out installers installers do have a pinpoint.
A lot of the solutions. They have today are not high quality.
That's where enphase can add value.
And that's what we're going to do with <unk> deep product address that 20 to 200 kilowatt segment.
And try to win.
We know what that segment went over then toddlers who service that segment.
And one of the ways, we we think.
And one of the ways. We think we can we know what is by offering a complete solution not just micros.
You talk about you.
You talked about.
Design software and solar design software.
And then proposals than permits and fleet management.
Then operations and maintenance.
With best in class quality micro Edinburg.
Now of course, I mean, one of the other things, which again, we will share our thoughts on the in the analyst day is it.
You know.
Small commercial solar also begs the question of small commercial storage.
Yeah.
So we'll chat a little bit of a touch there.
But for now it is.
This translated into one line.
Very similar dynamics of installers, they all want high quality and great service, we are going to do exactly that.
Okay, great. Thanks.
Thank you we have a question from Mohit <unk> with credit Suisse. Your line is open.
Hey, Thanks for taking my questions and congratulations on the quarter.
You've been talking about strong demand, but at the same time, there's a lot of supply chain challenges.
Just wanted to understand that better the issue or the challenge across the whole supply chain from sourcing manufacturing to shipping or is there any specific pinpoint for pay in your value chain right now.
Follow up on that.
It simply put if you segment the business into micro Inverters and batteries micro Inverters, we have largely solved the supply constraints.
On the battery you have a logistics issue that's huge.
The micro Inverters also you do have logistics issues, but on the battery that's bigger because we have a flexibility of air shipping which.
Which we do not on batteries and that logistics issues have nothing specific to earn fees.
Got it thanks for clarification.
The follow up just one the third battery supplier and I were talking about.
Getting someone signing someone outside of Asia to resolve some of these challenges from the battery supply chain.
Just curious on that status or when we could hear more on that.
Right.
Right now we have to.
Two battery cell pack surplus both of them are in China.
Generally we said that together they will have a capacity they can give us a capacity of 120 megawatt hours a quarter.
No.
Cost of our relationships that capacity has increased to one eight megawatt hours a quarter.
We can probably get a little bit more.
From them, even more than one may be put to work if we want.
However, what the point, you're ready to do it right, which is global diversification.
Which is.
What are you doing in the event there is a disruption in the supply chain in China. So we have a lot of interesting opportunities that we are working on I'm not prepared to share about any specifics yet, but that's a focus area for us and we've been working on it and.
When we have something concrete to announce I shared with you.
Alright, thanks for answering my questions.
Our next question comes from Tristan Richardson with Swiss Securities. Your line is open.
Hey, good evening guys. Appreciate all the commentary on IQ eight very helpful.
Just going back to that four to six quarter ramp.
Notice that you hope to be successful by the end of that period. Just curious what success looks like can you frame that for us as it were IQ eight becomes prevalent amongst the iron ore that you're at.
Place a critical mass where you can start pursuing the long tail with this new product just curious kind of what success looks like at the end of that ramp phase.
Yes success.
Thought about this too.
Successes.
A few areas right one is.
Indicating homeowners about the innovation from in fees.
Im hoping that will happen here.
So that's that's one that's that's the second one is.
We are able to.
We had a brutally enabled I mean, we are able to have.
Realize.
Cost effective torrid system sizes.
For the market.
Other words.
Let's say I have six kilowatt solar system I don't need them.
16 kilowatt hour storage system.
But I only kick.
Six kilowatts.
<unk> system just for.
The essential backup I mean.
How about I have enormous flexibility in that choice.
I should be able to get three if I need two three kilowatt hour because all I can let's say my requirement as a homeowner let us see.
He has only to keep the lights on.
The <unk> zone, I should be able to do that with minimal cost zero constraints.
So it has gone up and neighbors all kinds of use cases with a range of batteries.
And hopefully it's going to make the overall system affordable.
For a lot more people.
And in the extreme case.
The case with no storage.
Which is sunlight backup.
And maybe some bumper lesion Hussein.
I am Okay, I lose power only like what I said earlier in the call.
Since a year would be five times a year.
And at that time I'm perfectly happy.
If.
I get you know if I have backup power only during the day.
Right. So a success for me is is the <unk>.
Batteries.
Become and a battery it's become a lot more common which is the use case III.
Which is.
IQ eight solar systems with small sized batteries.
Just talk sprouting at every home.
But that's that's me.
With all due respect the homeowners have their own way of choosing things.
And that installers that are going to help.
Then to make the correct choice for them and all I can do is to speculate nothing more.
That's helpful and then just going back on the pricing side.
The pricing dynamic include IQ eight or is pricing on this product.
<unk> unique it just reflects a differentiated this is versus.
The remainder of the product portfolio.
So.
We are not breaking out the exact specifics of IQ eight racing in this column, but IQ eight as a micro inverter adds a lot more value.
Then IQ seven so we did.
Based on that development.
Obviously, the IQ eight ramped.
That is.
Right now in Q3, there was no IQ eight shipments so.
None other financials until Q3 include IQ IQ eight, but we do plan to start shipping IQ right.
From Q4.
Expected in December.
And it will be higher price compare thank you Sir that is correct.
Appreciate it thanks Patrick.
Yes.
Thank you. Our next question comes from Joseph Osha with Guggenheim Partners. Your line is open.
Hi.
Alright.
Two questions for you one financial one technological.
It sounds to me like you're saying that IQ nine is probably going to be the first product steps away from <unk>.
<unk> uses some.
Some kind of wide bandgap MOSFET is is that fair to say.
Yeah, I mean, we've not been secretive about it at your name.
We will likely use gan devices.
Okay, Alright, so you have some fair enough.
And then the second question just kind of to stand Brian's question on the Cat earlier.
No you've done a great job of protecting margins even in.
And this kind of.
Cost environment.
Going forward.
Given what you've said about long term margin targets.
B the strategy more to recoup that margin or for maybe take lower input costs. When they do arrive and use that to you have to lower prices and take more share just curious how you think about that philosophically.
I mean, we we definitely always think about innovation and differentiation so.
The numbers that we normally profile, that's part of the guidance from the framework that we use as a baseline.
Vacated the worse no compromising growth.
So that's the way, we think about it and as we continue innovating and improving our quality and delivering products that are.
Superior or potentially even bronco.
Breaking like IQ eight right.
We seem to believe that those are not necessarily compromise at least in the short.
Short term right as you're thinking the long term new product introductions more acquisitions more activity.
A company that you're looking to these are very different company that the companies that you know I joined almost four years ago.
And we will continue to transform itself into.
The energy company the markets it serves.
And we will continue delighting customers continue.
Discipline on our pricing strategies cost reduction.
Again, using the best innovation available negotiating with our vendors on a fair pricing based on volume discounts.
We're waiting the homeowner full visibility over the experiences. So therefore, they understand what they're getting so.
I think that that's what he made us what it is today.
Okay. Thank you.
Thank you. Our next question comes from Eric Stine with Craig Hallum. Your line is open.
Hi, everyone. Just wanted to quick touch on the capacity I know that you're on track to get 5 million micro numbers.
<unk> by the end of the year, but as we think a little bit longer term.
Get out beyond some of the supply chain issues.
I don't know if youre willing to discuss when you think you might need to take that number higher again.
Well I mean Q.
Q3, we shipped two six mainly in micro inverters.
And we already gave you a plan.
On 5 million micro inverters capacity.
That of course is our supply capacity.
The manufacturing capacity of our contract manufacturers.
However, the components need to come into.
Into those plants.
That's the enormously stressed supply chain. So we don't know when that will get alleviated, but once that gets alleviated.
We should not be having any.
Any capacity issues or they need to play.
<unk> until the capacity that we indicated and beyond that.
All of these if I look at our large factory for example.
You know if we want more capacity, we need to put more auto lines.
If we look at the churn 90 factory in India.
Same same deal if we look at our China factory same deal and that is only manufacturing capacity, but on the other hand, we deal with many hundreds of suppliers each of them will need to up their game.
And we will need to qualify.
People suppliers.
For.
Example, for the PCB today, and a printed circuit board today, we have a couple of suppliers, we may need to take that up to full supply.
If we are going to service extraordinarily higher demand beyond 5 million. So there is some structural changes.
We'll do but it's something that we are used to doing.
It requires.
Due to a couple of quarters.
Notice.
In order to put an auto line, we can have it it requires a couple of qualifications to be done with the <unk>.
Adding two extra suppliers like what we did on the AC drive rig and habits.
Take a few quarters, but.
We are not afraid of.
The number five or 10 doesn't daunt us.
Okay. Thanks.
Okay.
Thank you and Thats all the time, we have for questions I'd like to turn it back to battery conductor Robin for any closing remarks.
Thank you for joining us today and for your continued support of Enphase, We look forward to speaking with you again.
During our Investor day on November 16.
Thank you.
Yeah.
This concludes today's conference call. Thank you for participating you may now disconnect.
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