Q1 2022 Enphase Energy Inc Earnings Call
So we're standing by and welcome to the Enphase Energy's first quarter 2022 financial results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session you'll need to press star one on your telephone as a reminder, today's program.
Ram is being recorded I would now like to introduce your host for today's program Karen <unk>. Please go ahead.
Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's first quarter 2022 results on today's call are badri coupon to Robyn and phases, President and Chief Executive Officer, Mandy Yang Chief Financial Officer, and recoup of Laurent Chief products Officer. After the market closed today and these issued a press release announcing the results.
For its first quarter ended March 31 2022.
During this conference call <unk> management will make forward looking statements, including but not limited to statements related to our expected future financial performance and capabilities of our current and future technology and products and the benefits to homeowners and installers, our operations, including manufacturing customer service and supply and demand the anticipated growth in our marketing and our sales and.
Our regulatory matters. These forward looking statements involve significant risks and uncertainties and our 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 our annual report on Form 10-K for the year ended December 31, 2021 on file with the SEC and a quarterly report Form 10-Q for the quarter ended March 31, 2022, which will be filed with the SEC in the second quarter of 2022.
We caution 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 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. We have provided.
Conciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release posted today, which can also be found in the Investor Relations section of our website now I'd like to introduce Patrick with under Amon, President and Chief Executive Officer of Enphase Energy Andre.
Good afternoon, and thank you for joining us today to discuss our first quarter 2022 financial results, we had a good quarter.
Record quarterly revenue of $41 3 million.
Achieved non-GAAP gross margin of 41% and generated free cash flow of $91 million, we ramped IQ eight micro inverters in the first quarter and started piloting IQ a D micro inverters to small commercial customers.
The exiting the first quarter at approximately $41 $15 26.
41% gross margin, 15% operating expenses and 26% operating income all as a percentage of revenue on a non-GAAP basis. As a reminder, our baseline financial model is 35 15 20, we will go into our financials later in the call.
Let's now discuss how we are servicing customers our Q1 net promoter score.
<unk> was 68% compared to 69% in Q4, and our North American net promoter score was 74%.
<unk>, 273% in Q4.
Average call wait time decreased to three two minutes in Q1 compared to eight nine minutes in Q4, we reduced call wait times through staffing and training.
During Q1, we added field service technicians in the U S. In Europe to provide onsite helped our installers, particularly for batteries.
Let's talk about micro inverter manufacturing.
As we have discussed in the past calls.
Global supply chains that duration is still under stress, but dollar situation is tables due to supplier management and qualification of alternate suppliers with the growing demand for our micro Inverters, we remain vigilant regarding the global supply chain and logistics challenges due to COVID-19 disruption I'm very proud of our team.
<unk> worked hard to manage through the difficult situations.
Currently our quarterly capacity across all contract manufacturing facilities, and then literally more than 5 million micro inverters.
Mexico is a quarterly capacity up to two 5 million micro inverters.
India with Cellcom pads $1.5 million.
And the rest is in China.
The increase demand and to improve delivery times to customers in Europe , we are adding an automated line and flex. This factory in Romania. This line the lab quarterly capacity of approximately 750000 micro inverters starting in Q1 of 2023 and will enable our global capacity.
We have nearly 6 million micro inverters water.
Let's now talk about batteries.
Our two sources for battery cell <unk> currently have a total capacity of 180 megawatt hours for the quarter.
Our existing cell pack suppliers can add more capacity as needed.
We are also on track to add a third to sell back suppliers in the second half of <unk>.
This year.
Our lead times for batteries are still along at about 14 to 16 weeks, primarily due to global logistics challenges the lead times should come down once shipping in poor condition conditions improve let's move on to the regions U S and international revenue mix for Q1 was 84% 16% risk.
<unk>.
In the U S revenue increased 9% sequentially and 49% year on year.
We are pleased to report record sell through for micro Inverters and record revenue for batteries in Q1.
The channel inventory for both micro Inverters and batteries when at a healthy level at the end of Q1.
In Europe revenue decreased 6% sequentially, while increasing 39% year on year. The sequential decrease was due to unforeseen shipment delays towards the end of Q1 homeowners in Europe have a strong desire for energy independence.
Recently teamed up with one come up by a gentleman installer growth to deliver micro inverters and batteries to customers in Europe .
Currently shipping IQ batteries to Germany, and Belgium, and plan to introduce them in other European countries. Throughout 2022 on batteries are now compatible with most brands of third party PV Inverters.
We continue to see strong growth in our existing markets in Europe , including Netherlands, France, and Belgium and are also pleased with our growth in newer markets, including Italy, Spain, and Portugal, we expect our momentum in Europe to continue.
More than 40% sequential revenue growth expected in Q2 versus Q1.
We are continuing to expand the team and are very excited about our growth in the region.
In Latin America revenue increased 13% sequentially and more than doubled year on year.
We had steady growth in our solar plus storage business in Puerto Rico during the first quarter.
Now I'll provide some color on Australia, Brazil, and India, and Australia, we expect to introduce IQ batteries in the second half of 2022.
We think regulatory changes designed to improve solar installation practices will favor our same P&C approach as grid utilities required more intelligent and safer solutions as for Brazil. We have started shipping IQ seven plus micro inverters for installers in Q1 and expect to ramp.
We also expect to introduce an IQ eight PV version into Brazil to optimize cost.
In India, we are making steady progress in adding more installers in total network.
Ramping digital sales and planning to introduce IQ batteries in early 2023.
Let's now discuss the overall bookings for Q2.
Our overall customer demand for Q2 is quite robust for both micro inverters and batteries and exceeds the high end of our guidance range. The component availability is better than what we have experienced in the last 18 months, but there are still global challenges, which are not specific to any face we remain optimistic that the <unk>.
Lead times will come down by the end of this year lets talk about batteries, we shipped 124 megawatt hours.
IQ batteries in the first quarter, a 20% increase from Q4 of 2021.
Working diligently on improving commissioning times for installers.
While we have done various fixed system prove quality and homeowner experience on the batteries, we are still not where we would like to be on commissioning and installation experience. We are doubling down on this in this quarter and I expect to make good progress our goal remains to get the commissioning time down to an hour and insurance.
They have a seamless experience.
We expect to ship between $1 30, and 140 megawatt hours of batteries in Q2.
The increase in logistics and component costs, driven by inflation, we implemented a modest price increase on our batteries in March of 2022.
Let's now discuss the installer training and certification on batteries.
By the end of the first quarter, we have certified more than 1300 installers in the U S on accumulative basis.
Our hands on Stoneridge training in the U S users mobile vans located in the east and West Coast, along with regional training centers, we started with an Enphase Youtube channel in Q1 for training, but installers can can access media has to learn installation tips and tricks.
Talk about new products.
In Q1, we had I am shipments on IQ eight micro Inverters in North America, and receiving positive feedback about the product and gender and the reminder, IQ eight solar micro inverters can pharma micro grid during a power outage using only sunlight, providing backup power even without a battery.
<unk> connect firming technology eliminates traditional ratio requirements between solar system size and battery size and without sunlight jumpstart feature.
Micro Inverters can start to home energy system using sunlight only after prolonged grid outages that may result in a fully depleted.
We also expect to introduce IQ eight micro inverters internationally into Europe , and Australia during the second half of this year.
Let's talk about IQ a D micro inverters for small commercial applications. We started piloting IQ eight <unk> 640 Watt AC micro inverters to selected installers in North America during the first quarter and we expect production shipments in late Q2, the value proposition of.
<unk>, the ease of installation high quality and rapid shutdown capability.
On batteries, we plan to introduce our next new product IQ battery five.
Pete.
Later this year this battery will deliver twice the power of our current badly at lower manufacturing costs, enabling homeowners to start heavier loads also going forward, we will enhance the communication using controller area network, which is a robust required protocols for our connector.
<unk> between the battery the gateway and the system controller, we expect this to further streamline installations and simplify commissioning.
Let's now discuss Clipper Creek and acquisition, which we completed in Q4 of 2021.
The acquisition is performing in line with our expectations with reasonable gross margins and profitability in Q1, we're doing a few things to ramp the business. We are introducing EV chargers to our so a lot of distributors and installers this quarter.
We are also on track to begin manufacturing EV Chargers that flex facility in Mexico in the fourth quarter of this year. We believe this will help us scale better and drive down costs as for the new products, we expect to introduce a smart EV charging to customers in the U S and Europe in early 2020.
This will provide connectivity to the cloud through Wi Fi as well as local connectivity into the Enphase home energy system.
The increasing penetration of electric vehicles that significant implications for home energy management.
The energy consumed by the AUM will significantly increase with an EV.
This increase will drive adoption of more solar and storage, which will enable homeowners to save money and charges is that a vehicle in a green manner. The large EV battery could also be used for home backup called vehicle to home as well as helping the grid and the future of current vehicle to grid.
The acquisition plays extremely well into our strength and energy management ultimately, helping the homeowner managed solar storage EV and other home loans. We are in discussions with a few EV makers to enable proof of concept for our lead to rich and <unk> features.
Let me cover grid settlement.
During the first quarter, we announced that Vermont based utility Green mountain poverty allow for Enphase energy systems to its customers and our cutting edge battery lease services pilot program. We have previously announced our participation in connected solutions covering three utilities in the northeast U S.
Hawaiian Electric's badly bonus grid services programs and Arizona Public service is residential battery grid services programs.
Also recently announced a partnership with <unk> energy and participated in BBB programs in California, and New York and Hawaii, We all.
So have many new grid services engagements in the pipeline and look forward to working with utilities and Aggregators.
Let's discuss the install the platform we.
We are working on solar graph probe design and proposal tool with trading analysis, our ability to do that.
Obstructions under roof, and three D modeling of homes, approximately 900 installers use the solar graft tool today.
Expect along the solar grass grow.
High end version advanced version of the product in Q2 and already have a few installers piloting the software. In addition, we plan to expand the availability of solar glass growth internationally, starting with Germany.
In March of.
2022, we acquired solar lead factory, which provides high quality leads to solar installers in the U S. Our objective is to substantially increase lead volumes and conversion rates.
Drive down customer acquisition cost foot installers, we plan to expand the team optimize lead management and offered a disservice broadly to our installer network.
We've made four acquisitions in the last 15 months to strengthen our installer platform in the areas of lead generation solar design software, but imaging services and O&M suffering.
In addition, we have a robust and homegrown mobile apps for commissioning and monitoring of solar and storage systems. We plan to integrate all of these seamlessly onto one platform and offer them to our install nation network simplifying their lives and reducing soft costs let.
Let me now give you a quick update on our Enphase installer network.
We have now on boarded approximately 1200 installers to our EAN worldwide.
Selective process focus on installation quality and an exceptional experience to homeowners across the globe.
Next I'd like to comment on some recent policy issues that are impacting the U S solar industry.
The U S Department of Commerce is investigating the convention of anti dumping and countervailing duties on some PV modules.
This is a time of great change in the MSG market utility costs are rising climate changes happening geopolitical issues are driving energy security and Evs are taking off at a time like this when that needs to be full support for renewables and <unk>.
Investigation creates massive uncertainty in the marketplace, which we believe will impact U S jobs raise electricity prices for homeowners and increased import from China, all of which are counter to the goals of the current administration. We are hoping that the current administration takes this problem seriously.
And resolves that rapidly well before the proposed August timeframe.
As it relates to interface our products aren't directly impacted by ADC BD as we don't make modules, but based on conversations with some of our partners. It is our opinion that the module supply for the residential segment it will be less impacted than other segments. Many of our partners are currently working on <unk>.
<unk> module supply for the latter part of this year.
Deal pricing is expected to be higher in the interim and we think that is an NGL segment, maybe able to absorb higher prices.
All of this further underscores the importance of supporting domestic manufacturing through a production based tax credit or PTC. So we can proactively increased domestic manufacturing rather than reacting to such a market disruption.
In support of domestic manufacturing is well aligned with the administration's goals to promote renewables increase U S jobs and use electricity pricing for homeowners and lessen the dependency on imports from China, we would like to see a rapid resolution of both ADC BD as well as the implementation of <unk>.
As soon as possible.
I would also like to comment on the California named three proposed decision or PD, which was announced in the December of 2021, we expect a modification to the current BD and an opportunity for stakeholders to participate and provide their feedback to the California PUC will be enacted.
Participating in the process and we'll continue to work diligently with various stakeholders to try and influence the best outcome.
Let me wrap up.
Full home electrification is slowly but surely coming.
Evs are ramping up.
Incidentally for obvious reasons.
So a heat pumps.
Climate change coupled with situations like the Ukraine is forcing European countries and others to think hard about the reliance on oil coal and natural gas countries.
Countries like Germany are leading the way and adopting renewable technologies, such as solar and batteries to support heat pumps.
These and other home loops self consumption is becoming the norm and consumers want energy independence that is no doubt that other countries will follow suit. It is just a matter of time.
Our strategy is pretty simple, we created best in class solar plus storage home energy systems.
Tell them to homeowners through our installation and distribution partners.
Buyout installed on platform our top most core values of customer first and we are focused on providing a great experience for installers and homeowners. We are well placed to capitalize on the trend towards electrification and look forward to ramping our presence in Europe in a significant manner over the coming months and years.
I will hand, the call over to Mandy for her review of our financial results mainly.
Thanks, Staci and good afternoon, everyone I will provide more details related to our first quarter of 2022 financial results.
Our business outlook for the second quarter of 2022.
<unk> provided reconciliations of these non-GAAP financial results.
Our earnings release posted today, which can also be found in the IR section of our web.
Total revenue for Q1 was 41 $3 million.
<unk>, an increase of 7% sequentially.
Quarterly return.
We shipped approximately 1000 and 2009 megawatts DC of micro <unk> lasers, and 124 megawatt hour so I'll keep that.
In the quarter.
non-GAAP gross margin for Q1 was 41% compared to 42% in Q4.
The increase was driven by favorable product mix and not expedite costs.
Gross margin was 41% for Q1.
non-GAAP operating expenses were $66 3 million for Q1 compared to $68 2 million for Q4.
Decrease was driven by lower marketing expenses offset by continued investment in R&D and customer service.
Operating expenses were $115 $1 million for Q1 compared to $105 $6 million for Q4.
GAAP operating expenses for Q1.
$45 $3 million of stock based compensation.
And $3 6 million of.
Acquisition related expenses.
For acquired intangible assets.
non-GAAP income.
Income from operations for Q1 was $114 $5 million.
Compared to $97 7 million for Q4.
Income from operations was $61 8 million for Q1 compared to $57 $7 million for Q4.
Thank you.
Net income for Q1 was $109 $7 million.
102.8 million.
For Q4.
Or is that not that I know that earnings per share of 79% for Q1, compared with 73 cents for Q4.
Net income for Q1 was $51 8 million compared to GAAP net income of $52 6 million for Q4.
GAAP diluted earnings per share of 37, six for both Q1 and Q4.
We exited Q1 with total cash cash equivalents and marketable securities.
Approximately $1 $1 billion.
Peer to approximately $1 billion.
The end of Q4.
In Q1, we generated $102.4 million in cash flow from operations and $91 million in free cash flow.
Kevin I'll expenditure with $12 4 million for Q1 increase.
Manufacturing capacity as well as costs related to infrastructure R&D equipment and international for Fedex.
Now, let's discuss our outlook.
For the second quarter of 2022.
Our revenue for the second quarter of 2020 to be within a range of 492 $520 million, which includes shipments of 130 to 140 megawatt hours IQ batteries.
We expect GAAP gross margin to be within a range of 37% to 40%.
GAAP gross margin to be within a range of 38% to 41%, which excludes stock based compensation expenses.
Acquisition related amortization.
We expect GAAP operating expenses to be within a range of 127 five to 130.
$5 million, including a total of.
Approximately $57 million.
For stock based compensation expenses and acquisition related expenses.
Sure.
The estimated stock based compensation expenses.
Of course, many for $8 million accrual for the earn outs are tied.
To a certain performance targets will be paying company stock for the acquisition.
non-GAAP operating expenses to be within a range of 75 to $73 $5 million.
With that I will now open the LIFO question.
Certainly ladies and gentlemen, if you have any questions. At this time. Please press Star then one on your Touchstone telephone. If your question has been answered I'd like to remove yourself from the queue. Please press the pound key.
First question comes from the line of Julien Dumoulin Smith from Bank of America. Your question. Please.
Hey, good afternoon. Thank you so much.
Congratulations on the continued results and performance here.
If I can just kicking it off here can you talk a little bit more about the European expansion that you guys. Just emphasize to you a moment ago in the prepared remarks can you talk about what exactly youre doing to to infiltrate those markets. If you will you obviously talked a lot about training.
How should we expect that to filter through in terms of operating expenses and especially against your model on Opex and then related to that how should we expect that to filter through on top line. As you think about your revenue mix here in Europe as well as gross margin it back.
Right so.
<unk>.
Just quick on the background for Europe .
In general.
We had quite strong in Netherlands, France.
Belgium.
And those businesses are those regions continue to grow.
On the solar site.
The new regions, if we talk about.
Yes, I actually out of Germany, Italy, Spain, and Portugal, So let me talk about Germany.
Germany extremely interesting market.
The residential solar is well north of a gigawatt a year, maybe even up to two gigawatts a year right now.
At MGM.
Badly attach 80%.
Most of it installed upstate.
For a given home when they mean told us they mean solar battery.
<unk> charter and the heat pump.
So they are.
More advanced probably the most advanced I would say in terms of full home electrification.
So that is an incredible opportunity there for us.
And the companies that will do that will be successful our companies that can manage all of these resources solar star.
H E BS and heat pumps.
That's what we do when we make best in class home energy systems.
Now with Clipper Creek, we have.
And EV charger.
Quite strong in solar and storage.
So.
We are working on expanding our sales force in Germany, we are working on.
Business development, we are working with a lot of installers.
We are ramping things that at a pretty nice clip.
And our natural advantages that we do things with very high quality.
The Germans category, we retail a lot about customer experience customer settlements.
That's an on site. So we are very optimistic about Germany.
I.
Was that late February to early March.
With with our team and has really really clear that the opportunity is big and not.
When you compare to that the next biggest just Netherlands, Netherlands.
It's primarily a solar market today.
Or are they just coming according to all of the installers and installers at all.
They're like in phase a lot primarily due to the attributes a quality customer experience. If you go to Italy, Italy has been promoting the heck out of batteries.
Bonus and Super bonus program.
So put a bonus almost say is that the batteries are virtually free.
And then we are going to participate with some of our partners and these programs out.
We'll extend the multiple years may not be the super bonus, but it leaves eco bonus will be there.
So Spain for example, we have a natural advantage because of small systems in Spain.
Each country.
Is a diverse each country needs to be understood well because you go from Germany.
Have a 12 kilowatt 13 Gigawatts of PV, you go to Spain, which is <unk>.
Probably four kilowatt three outvote kilowatts of PV.
So.
Each market is different requests in depth understanding we are going to be there. We are going to have salesforce in each region. We are tripling down on on Europe in terms of spending so that is.
Nobody has that.
And we're doing well in fact in fact this quarter.
The second quarter, we expect our revenue to be 40% higher.
Dan the first quarter.
And with regarding that Opex you should.
And you were to think about Opex is that right at the baseline.
We are very disciplined as a company I would opex is.
Baseline numbers financial numbers.
Opex equal 15% of sales.
That's the number that you need to be thinking about.
Excellent. Thank you just super quick if I can I'll ask you to elaborate here as well just the 15 megawatt hour increase quarter over quarter on the battery side. Just what are you seeing on margins today do you feel comfortable with just given the macro that you elaborated on in the prepared remarks.
Especially relative to raw material inflation.
Do you think about price inflation again, just to pass that along or how you think about the battery part of the mix both in terms of the trajectory and acceleration as well as the price points that youre entering that.
So it makes it hard to break out we don't break out the individual products, we don't break out the gross margin on micro Inverters and what's the gross margin on batteries, but auto would've been doing what we do is our baseline gross margin is 35% we never launched a product that does not have the capability to hit 35.
And we are we have many actual about costs youll see.
Last quarter, we guided 38 to 41, we landed at 41% so with regard to your specific question on <unk>.
Raw materials, yes.
Self pack costs I've been a little bit up because our suppliers are.
Odd facing issues in their supply chain too and we already said we are doing a modest price increase effective March on batteries. So that we keep the gross margins in check so.
Yeah, we have we are quite healthy and overall gross margin of the company.
Excellent I'll leave it there. Thank you guys best of luck Congrats again thank.
Thank you.
Thank you. Our next question comes from the line of Mark Strouse from Jpmorgan. Your question. Please.
Yes, good afternoon, and thank you very much for taking our questions in the past you have talked about how your order visibility into the coming quarter has.
He'd been in line or even exceeded at times, what your guidance has been.
I understand what you're saying about your supply chain being stable at the moment, but just given <unk> 80, CVD lockdowns in China that are happening maybe in other areas of the value chain can you just talk about where your visibility into your <unk> guidance stands as of today.
Yeah.
A lot of visibility into the second quarter, and we got visibility into the third quarter in terms of backlog. So we only guide.
This quarter, meaning the second quarter end.
We are very comfortable with these numbers like what I said in the prepared remarks.
Our demand is quite not off the higher end of the guidance range with regarding Covid shutdowns in general.
We're also seeing some shutdowns in China, but other factories remained open.
The shipping lines remain open.
Hiccups in raw materials getting into manufacturing in China from time to time, but we are managing it.
The situation with regarding component availability is obviously much better than what it was.
Last year for US we have made all of the necessary adjustments data, we have a number of suppliers for each each part. So we have learned to help to mitigate our risks a lot.
So I cannot predict what's going to happen tomorrow, but.
I can say right now our situation is quite stable.
Okay. Thank you and then just.
Quick follow up to Julians question on Europe .
So you mentioned the new markets, you're entering into your obviously signing up new new dealer partners.
I mean, the 40% growth that you're talking about in <unk>, how should we think about that as far as.
Kind of.
Share gains versus just market expansion.
I think it's both I mean in in places like another lens.
In Germany, I would say the market is growing so much it's part of market expansion and of course, we do take we do take market share because.
Our quality and customer experience I can't quantify how much is each but yes, I would say that.
It will be a healthy mix of both.
Regarding new regions like likes paying et cetera, they come to us because of our quality.
Even in Netherlands.
We continue to gain market share because of our service and quality in Germany.
We do gain market share from some string inverters because of <unk>.
One is we do supply all of the components, we can do both solar plus storage.
And we can manage the complete home energy system in the future. We can add any EV chargers in the future we are able to work with heat pumps as well.
So they like that capability as energy management home energy management supplier and sometimes we get.
Not because of that so it's.
It's a multitude of.
Both.
Got it okay. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Philip Shen from Roth Capital Partners. Your question. Please.
Hi, everyone. Thanks for taking my questions Congrats on the strong quarter.
As it relates to the lockdown in Shanghai.
I was wondering if you could drill in a little.
Deeper on the potential impact if any on the cell supply.
And then as another follow up on batteries with.
Rising battery chemistry costs.
Can you talk through how much you can reduce your battery Cogs ahead as you reduce the board count from seven to one with the new chip can you keep margins flat for example, without raising prices.
Yep.
So as far as the Seltzer play is concerned.
Now we have two sources of setbacks.
Both of them are situated in China.
And we are adding.
Third settled back suppliers.
In.
In the second half of the year.
You talked about the Lockdowns I explained it.
In terms of.
In terms of the Lockdowns, our factories are still operating in China, our shipping is still active.
The batteries are generally on the boat with a lot of lot of weeks in advance now we are planning for a long cycle time 14 to 16 weeks.
Ability to absorb any minor disruptions, we don't see a big deal on the batteries site on.
The micro inverter side I was mentioning about some of the connectors. Some raw materials, we see some hiccups from time to time due to Covid disruptions.
<unk>.
But so far so good like I said I cannot predict to modal.
But so far it seems to be okay on.
On the battery cost.
There are a couple of ways that we are working on battery costs first is obviously.
The cell pack costs for that.
Multiple services upsell pack and therefore, we do all of the standard price negotiation, but we're also sensitive to this increasing cost and so there is limited things we can do in the in the in the timeframe, but there's a lot of things we can do partnering with them over the long term in terms of optimizing the battery pack.
In terms of what we can do.
Is.
What I call as the overhead meaning you have to sell back and then you wanted to convert that fell back from DC to AC. This involves battery management power conversion and associated electronics, and that's where I think we can add a lot of value, which which we are.
So first thing we're doing is the the battery thats coming out in the second half it goes to a slightly higher modularity, meaning instead of three three kilowatt hours, we are going to five kilowatt hour. So we can amortize the overhead or the five kilowatt hours, making the overhead less.
So.
In addition that battery is got double the continuous and peak boat. So that's got the natural cost advantage due to the amortization the modularity and that isn't it provides customers with a superior customer experience compared to our current generation batteries.
Then.
On top of that we are going next year into our mix and what I call. It the next generation battery, where we're taking.
Individual micro inverters the same micro inverters that we use on the rooftop plus extra battery management circuitry, plus a bunch of connect.
Connector boards, we are taking overall seven boards and collapsing them into one which is integrating the battery management plus power conversion into a big micro inverter as well as <unk>.
Utilizing some advanced technologies.
Our unique architecture with regard as a full bridge architecture.
No.
That one will help us do a very high powered micro inverter.
And we basically we will be able to cut the volume of the battery almost by 40%.
Because everything is consolidated into a single board versus seven books. So the energy density of the batteries is going to be up almost by 50%.
The volume is going to be cut by 40% and it's going to be much easier to install and along with his integrity and deep integration comes cost reduction so quite significant we are not ready to quantify yet, but definite reduction in manufacturing cost for us.
So all of them.
All of these initiators.
Basically blocking and tackling for the present going to the next generation battery for the second half sorry.
Sorry going to the high powered or battery for the second half and the next generation battery for 2023.
Continuously improve our gross margins and also enable us to.
Do the appropriate thing for customers in terms of price.
Great. Thanks Badri.
Next question here is on IQ eight versus seven.
Work a couple of months ago suggests that you were and are forcing top customers to arcuate from IQ seven starting with this quarter in Q2.
Due in parts I believe to some chip issues for the IQ seven.
Can you talk through that a bit.
Also the mix of our QAD and seven by quarter. This year and then what exactly caused the IQ seven shortage. When do you expect it to get resolved if at all and does this possibly mean that there could be pent up demand later thanks.
Yeah, just for the record we never force customers.
Customers have their own choices. They can they can make all the decisions. We are incredibly respectful of them, sometimes you know.
If the problem is entirely hours, we we will be able to give them the appropriate adjustments for the given timeframe.
Some customers the movement to IQ eight.
They want it to be on the latest and greatest product and.
They they are negotiated for a good deal to transition faster.
And each each customer that has this tory each customer we.
Is unique and we don't force anything wholesale customers.
That's one and then number two.
What caused the issue.
IQ seven uses an ASIC and.
And that ASIC is made in our foundry in Taiwan.
<unk>.
And basically.
In general the foundries that are on allocation and so we basically were short of that ASIC.
But the beautiful thing is IQ eight users.
And at the end of the foundry.
Raman.
Another manufacturer and there is plenty of stuff like that so basically we were able to mix and match.
IQ seven and IQ eight and we're able to support customers and we were happy that we supported customers for some customers.
We gave them some concessions for that quarter.
In your language it seems like we forced them, but in reality we didn't.
Then in terms of the customer conversion.
I've always said.
<unk> four to six quarters to convert.
From seven to eight.
In the first quarter.
Of our total shipment of overall.
Overall micro inverters.
20% of them was accurate.
This could mean in Q1 I'm talking about.
And it's just math as I said.
When you take 100% divided by five that's 20% a quarter.
And so next quarter, we roughly expect that sometimes it may take five sometimes it may take six sometimes it might take foot.
Defense.
So North America, we expect that transition to Europe , we're going to introduce IQ eight.
In the second half of 2020.
And so that will come with its own transition there.
So bottom line IQ eight is going quite healthy.
Great. Thanks.
Very quick follow up on EU, you already talked a lot about it but wanted to see if there's potential for.
A new line beyond the one you've already talked about which is 750000 units per quarter by year end. When do you think you might make a decision on yet another line in Europe .
Well I mean, it's easy versus now we once we have flextronics great partner by the way we have a great relationship. We started we are starting with an auto with an auto line that 750000 units.
And if we think we need more it only takes US three months, we have now very experienced.
We know all the puts and takes it takes.
To all of US an extra tool line, so if we need it real well pull the plug.
On auditing it so we are not worried about that.
What's interesting is and whats exciting is our demand in Europe , I mean, the quarter like what I said.
I think we'll we'll ship more than 40% compared to last quarter.
And we're very excited about Germany, Netherlands, like what I talked about.
Great. Thank you so much.
Thank you.
Thank you. Our next question comes from the line of Brian Lee from Goldman Sachs. We would also like to remind our audience to please limit yourself to one question and one follow up.
Hey, guys. Thanks for taking the questions.
Let me just hit new battery.
Curious.
It sounds like it's going to be higher gross margin than the current battery product you're shipping into the market.
But it also sounds like lower costs. So are you going to be in a position in 2023, when you're shipping the new battery.
To be more aggressive on price, so you're driving both volume upside as well as margin on the new battery and then also.
Similar to how you.
Give us the progression of new generation like rate versus that G. Seven any sense of how much of your mix.
<unk> target for the new battery in 23 versus the current generation.
Yes.
Good question on the Nextgen battery that that's a little bit though so.
It's probably too early to give give some numbers out but the idea is generally that meaning.
Today, we have.
Extraordinarily.
Meaning.
The situation is extraordinary in terms of inflation and supply chain et cetera, it's not going to last forever.
Eventually batteries need to come down the cost reduction curve and this provides us we are held to be placed there because we are reducing the fundamental cost structure of <unk>.
Product and whenever you reduce cost structure, you're basically integrate.
Instead of seven boards you have one board that's all goodness. So it depends upon the situation at that time, but youre right. We may use it for.
Market share gains, while still retaining a healthy gross margin.
And it will once we come to that will make a decision.
And with regarding the next Gen battery I mean, there is no reason why.
That cannot follow.
A similar process like the micro Inverters in fact, it can it can be accelerated.
It provides a lot of benefits for our customers like farm fact that is quite less.
And other.
Are there other things.
We may be able to do the transition in two or three quarters instead of four to five so we got to.
We got to get that first we got to make sure that product is a new product is released.
And then I think our plans, we'll get more firm.
Okay. That's super helpful. And then just as my follow up on Europe , I know, there's a lot of questions on Europe , but.
The 40% growth sequential here for Pete is quite robust.
If some of that a function of I know that's a var.
Reseller market are you are you kind of filling in the channels that you're newer to some of these markets and that's the big growth. So how does that translate to kind of.
What do you think sequentially. It is sustainable through the back half like can you keep growing in Europe at those rates or is this kind of a big first quarter affiliate and then things start to moderate thank you.
Yes, I mean, that's a good question as well is it is it youre filling the channel for the first time with your question that's relevant for new markets.
Usually we are very disciplined in filling the channel or not and we always look at point of sales.
Find tough sales means regardless of what we ship.
And phase two are distributed.
Are they installers, but chasing from the distributors, we have a very medical us.
Meeting, meaning review every week, where we look at point of sale.
In Europe by country by.
By distributor, we look at that.
So.
There may be a little bit of creating a channel in some really.
It reads in regions, where we have never shipped before but that's not the primary reason the primary reason is.
Especially for.
Countries like Netherlands in general.
Booming solar.
Countries like Germany is especially considering the Ukraine situation everybody wants.
To go towards self consumption.
And so.
So basically solar plus storage there. So these two are the biggest markets by large in and of course closely followed by utility with the government is making it very easy.
All of these three regions actually Italy, you can argue that some of the channel thing as that but at least in Netherlands, and Germany. We are we have been present for some time.
So I would say mode.
The robust growth of course, we cannot say, whether we are going to grow every quarter like that but we'll give you. We'll do the same thing next quarter, we'll talk about.
We will talk about the third quarter, we'll take it one quarter at a nine.
Alright, Thanks, a lot I'll pass it on.
Thank you. Our next question comes from the line of Colin Rusch from Oppenheimer. Your question. Please.
Thanks, So much guys could you just give us a sense of where channel inventories are right now and I'm curious to understand a little bit there both in the U S and Europe , how much of the guidance is really a channel fill at this point.
Historically, I've always said that a reasonable channel inventory is eight to 10 weeks and we don't usually.
Quantify it every quarter, but that's a healthy healthy inventory U S. I would say, it's quite healthy Europe I would say.
Is a little bit less.
In terms of channel inventory and they need product and that should be obvious because of that.
The demand increase.
Great and then the change in the battery volume I guess I'm curious what what's driving that change is there some cost reduction driving that is there.
An issue at the installer level in terms of placement of that but just the logic in kind of the purpose of that change and how quickly we can see that shifting all the product that's out in the field.
I mean, the logic as we release, new products and new products get better and better over time so.
Simple as that.
Today or battery basically does 3.8 kilowatts of continuous followed for 10 kilowatt hour battery and $5 76 kilowatts of peak followed.
10 kilowatt hour battery and then very often when you have air conditioners, and Minneapolis pumps et cetera.
What do the tendency is to buy a lot more kilowatt hours to solve the kilowatt problem.
Now.
With this we don't need need homeowners to buy a car.
Hello, what our just for the heck of it for solving a power problem.
If they need it for the energy they need it for energy, but at least what we take is.
Right now with the with the Hypo to battery, which is going to be released in the second half of this year.
We will be able to support that.
7.68 kilowatts for a 10 kilowatt hour battery continuous.
And something like.
11 point something kilowatts.
Peak power.
So we'll be able to start some really nice loads with a 10 kilowatt hour battery for example.
And so that is the customer experience.
And of course, when we did that design, what what we said is okay, our previous modularity RF.
Batteries that we are shipping today have a modularity of three three kilowatt hour.
These new batteries, if we ever modularity of five kilowatt hour then you can amortize out of overhead what I call is anything other than the setback.
Our highest kilowatt hour so that gets better.
So cost.
Get a little better.
Manufacturing cost and then you go to the next generation, which is in next year 2023.
As we talk about transforming the overhead.
So something that is you know.
Was a lot its something thats very less seven boats going to one book, which is integrate it.
Great power conversion integrate battery management all into <unk>.
One vote.
And mimicking our micro Inverters a high power micro inverter.
And that micro inverter will be like a approximately 2000 watt microwave.
A single board and that single board can be on the side of the cell pack. So you can see a drastic volume reduction of 40%.
So that's incredibly yes.
Yes.
That's super helpful and sorry to cut you off sorry, but I appreciate it.
Yep.
Thank you. Our next question comes from the line of Cashew Harrison from Piper Sandler Your question. Please.
Hi, good afternoon. Thank you for taking the questions.
So first one for me there's been just broader concern in the market about a economic deceleration.
Entering Q2 and beyond.
Just globally, you've already highlighted a meaningful 40%, 40% sequential revenue growth in Europe . So we know demand is rocking and rolling over there. However, I was wondering if you could just give us a sense of what youre hearing from your customers in the U S. Specifically in April .
Trying to get a sense, if youre seeing any signs of deceleration in U S. Resi demand in April or it seems like demand is still strong within the U S.
Based on your most recent discussions.
Okay, Yes demand is very strong in the U S.
As simple as that.
And we that's why we told you that at <unk>.
<unk> is well north of our higher end of guidance.
And it is broad based we work with a number of.
We work with a number of installers of all shapes and sizes.
We work with long tail installers, we work with big Installers and everywhere the demand is up.
And we are continuing to take market share in the U S.
So.
So that's good.
And then you talked about Europe , so those two yes.
The biggest for us.
Yes.
That's good to hear and then maybe just switching gears to the battery side, you said, you're adding a third battery supplier in the second half of the year can.
Can you talk about how much capacity you are adding and then are you, adding the third supplier because you anticipate demand.
And beyond what your suppliers are capable currently capable of delivering or is this more so an attempt to get down to that.
Eight to 10 week.
We targeted of lead times as opposed to where you are right now at 14 to 16 weeks and that's it. Thank you.
I mean, we are adding we are adding a third supplier and.
When we actually added I'll provide more details on the capacity.
And I have no doubt it will be comparable to the others.
Then in terms of the motivation to add its all of them, but we have noticed I mean, we have realized that based upon the last couple of years on on supply chain for the micro inverter. There are some products that we need five subtypes.
And they are a critical component so like that the batteries are ready the sell back if we don't get setbacks we are today.
So.
Most number of suppliers. It helps us in terms of yes. It does just unable to take price negotiation. It helps us on Sept Les it helps us on delivery.
Just on volume.
<unk>.
It helps us on upside.
So this is this is a long term strategy, it's got nothing to do with the short term.
We'll continue to add you know this this supplier is also based in China.
And we will continue to look for diversification opportunities elsewhere outside China that is a top priority for me.
But right now all of our three self axa players out in China.
Thank you. Our next question comes from the line of James West from Evercore ISI. Your question. Please.
Hey, good afternoon Badri.
Hi.
So you've made.
The acquisitions that are going to strengthen your installer platform, including the solar lead factor I guess was the most recent one.
Or is the acquisition phase here done and then could you talk about the integration of these businesses and how quickly you can get the integrated product definitely installer base.
Yeah.
The installer platform.
I've got a few elements to it.
Lead generation and management number one.
Design and proposal number two.
With the connectivity to the Fintech patents.
Number two.
Number three is permitting.
Number of food is.
Installation and commissioning.
Right.
Five is monitoring.
Six and his operations and maintenance so we.
We have made acquisitions.
Lead management.
Through solar lead factory.
They vary LD business profitable business.
They work with.
<unk>.
10 installers, mostly.
90% of the revenue comes from 10 installers.
They are very compete and lead management those installers loved them. It's the name of the game for US is to take that business.
Generate lot more leads.
Increase the quality of leads.
Make sure those leads have a very high conversion rate into actual installed.
And kind of make sure we we proliferate the long tail.
That's the name of the game on the first one lead lead generation and management number two right.
Design and proposal.
We bought a company called solar graph.
In January of 2021.
That business is doing quite healthy.
I would say this quarter that business, we'll do 50% higher than one year ago.
And Sn.
Essentially.
The business services 900, plus installers.
Right now.
But but that designed to lax.
Shading capability.
Lex <unk>.
Lacks storage modeling.
We had all fixed we have <unk>.
Asking right now.
We are piloting that we are going to introduce it to many more of our installers and all of them are waiting for it.
It's an opportunity for them to.
Utilize that.
That platform there.
Also another important thing is solar graph or soft desk.
That that software has got connectivity to various Fintech partners.
Okay. So that's important.
Ease of access Fintech partners is very important for us in stores.
So that business doing well, we have lots of plans for it we are going to introduce.
These new features we are going to become the best in class there.
We are patient we don't expect medicals.
Steady steady progress now number three.
Permitting services, we have a team in noida.
Approximately 80 installers.
80 installers.
We the volume that we do is a lot that we almost do.
<unk> proposal and permitting services.
Meaning an installer safe just generated this proposal for me I don't want to use the software just generate this proposal for me on here is the details of the proposal I wanted to put a mid plan set from you in 24 hours. So we have a large team there.
80 installers.
Doing very well again that revenue is ramping quite nicely very profitable.
They are the name of the game for Us is automate.
The permit plan set.
So that we can reduce the cycle time from hours to minutes.
And we can service the long tails, well with highest quality.
That's permitting services.
Now.
Installation and commissioning is what we do for living.
Monitoring is what we do for a living we have over hundreds of many years invested into the installed app.
And the.
Monitoring app for homeowners. So we are continuing to make that better and better and better.
We're still not happy with the commissioning on batteries like what I indicated.
Right and Thats a major goal for me.
Got a lot of points for me.
And we're going to make that better so, but we don't need to buy a company for that we already have homegrown efforts for the last several years.
The last one is a new one that we bought end of December .
And that one is probably the most main center of them.
Is the concept being.
It's like an Uber.
Blue Bird.
And installer Aruba foreign asset managers.
Basically.
If I have a problem with the particular asset.
And I am already charged.
Customer for an O&M contract.
And I am short of labor, which happens all the time.
We can you know the platform can basically find.
The platform is the labor market place for you that are that are about 300 installation companies, which are loved into the platform and win.
You as an asset owner.
You had a service provider want to service a particular asset.
But you don't have the manpower to do so because the order crews busy on new installs.
Then logging into the platform submit to work hard at it automatically gets routed to the next labor service provider, who is free and that is a match that happens enphase.
It's paid for at both ends of the platform itself.
Software.
<unk>.
And that is the newest of the mall, which we need to basically.
We need to.
Introduce that company too.
Our installers, but we will not do that unless they have a.
You know.
The software is high quality the platform with high quality, we have enough number of service providers on the platform. So.
Those are the aspects we are working on in terms of war and so I gave you a very long answer but the way we think about it is.
All of these are coming together.
Switching them all into a seamless flow.
Some.
Some are basically less mature than the other but all of them are geared only one thing, making installers life simple.
Right.
Thanks Ravi.
That's great I appreciate it thanks for the answer I'll.
I'll turn it back.
Thank you. Our next question comes from the line of Matt <unk> from Credit Suisse. Your question. Please.
Hey, good evening and thanks for taking our questions.
Or whether you have a very large installed a network right.
U S and Abaxis to most developers and installers right.
Is that something you could do to help install knows what.
Securing this.
So there are more deals in the short term.
Some of these issues in the supply chain, we're seeing in the short term.
No we are not in that business.
No.
Got you.
Sure.
Just two other questions for me.
Out of Europe .
Fastest international business growing in Q2.
And how should we think about the.
One $1 billion of cash use.
In terms of M&A or buybacks. Thanks.
I mean.
We made five acquisitions in the last <unk>.
115 months all of them are small ones.
But they add up.
The next so so what are our priorities for cash we have $1 $1 billion as you noted.
Our first priority is to obviously take care of the needs of the business.
Make sure we have plenty of cash.
For working capital make sure that we make the necessary capital investments on the software site make sure we invest in anything in batteries that we need.
So take care of the current needs of the business that's number one number two.
We do have a lot of interesting ideas interesting.
Pipeline in terms of mergers and acquisitions.
And obviously, we are rounding out the digital platform.
We are looking at energy management.
Like what I talked about in Germany is.
He is leading the way in every home having solar.
So rich EV heat pump and other home loads.
And.
Effectively managing that requires a lot of software talent.
A lot of software, including buying companies.
And because the market in Germany is reasonably mature like for example.
Not all systems.
And face.
And faith.
Actually solar some may only use enphase storage might have third party solar might have some of someone else's EV charger and somebody else's heat pump.
But.
In phases come to the park.
<unk> needs to come to the party by having a comprehensive energy management software that aggregates all of these together and present a single interface to the homeowner.
That's extremely important thats why they called interoperability.
So we are going to do that so that requires.
Heavy investments in home energy management, which we are prepared to do so including considering acquisitions of course, we got into EV EV charging we think most of charging is going to be done at home, 80% of charging is going to be done at home. So.
We're always looking forward networking opportunities on EV Chargers that enable.
You know that basically enables dynamic xs, which is both inside and outside the home. So we're looking.
We're always interested in software companies there.
And new technologies.
A lot of interested batteries are something that we're always.
Also looking for how can we reduce how can we reduce costs increase performance.
Those are the areas, where we will double double down so.
So once we look at that.
Make sure we have enough cash for the M&A pipeline.
And then we look at Okay. If we still have cash left over.
How was that.
You know what the current share price.
How is the current share price and the share price.
Hello.
Basically calculated intrinsic value.
And it's nothing more than.
Yes, taking a page from Warren Buffett book.
We do exactly exactly what he recommends.
It just makes sense for us so.
So we did for example last year, we bought back.
Maybe we bought back three 2 million shares we bought back three 2 million shares last year bought back at $155 a share.
And if the share price goes down we will consider opportunistic scenarios like that to do more buyback provided number one and number two are taken care of.
Thanks for the question.
Quickly on the other part on the international business.
Growth in Q2.
Yeah.
Internationally the biggest is Europe .
The other area that we are working on as I said, you know, Brazil is something that we're very excited about I haven't talked about it too much but we have an outstanding guy running Brazil, we have a very strong team.
And I think it's a matter of time before we start seeing meaningful revenues from Brazil.
And they are going to get.
The IQ eight the very end of the product, which will help them on the cost structure that's pretty soon.
Other than that.
We are ramping.
Ramping ramping up on Australia.
We have not introduced us to read yet in Australia, which we are working on.
They should have their storage in the second half of this year.
So that will provide them.
Some growth and demand issue, we are focusing on other southeast Asian countries as well.
All of them are smaller efforts and when they become meaningful in talk mode.
Awesome. Thanks Ravi.
Thank you. Our next question comes from the line of Joseph Osha from Guggenheim Partners. Your question. Please.
Hello, and good afternoon, two questions for you.
First just looking at your installer network.
From.
Different sources that just simple labor availability for the install process has been a bit of a challenge. So I'm. Just wondering if you can comment on feedback that youre getting from your <unk>.
At work.
Yeah, Youre right I mean, the demand is quite high the demand is very robust like what I pointed out so installers that are always looking for skilled.
Labor and when I say its killer does electricians are very hot demand.
Then that is a technetium which is.
Slightly below electrician.
So.
Labor is in hot demand.
Are you is that gating the ability of your dealers to get stuff done at this point do you think.
I mean from a market you saw our guidance you saw the demand.
Yes, I'm sure they can do even more.
But right now they are limited.
That's right, Okay fair enough and then the other question we've talked a lot about M&A, but in particular as regards grid services right aggregating and bidding assets into.
Frequency regulation market or what have you. That's that's pretty challenging I'm. Just wondering if you feel like the current skill set you have inside enphase is sufficient or if that is perhaps one area that you are you wouldn't quantify two additional shopping and that's it for me. Thank you.
Grid services really is focused on providing capacity not necessarily frequency regulation. At this time that really is for front of the meter type application. So we are focused on on.
The residential market and if you look at all of the grid services programs that we participate in are really focused around that between which means that during periods of distress typically around where the grid is stressed between four pm at nine pm.
Batteries get get a signal to discharge the batteries for the duration of that period. So we really are focused on that market. We have a very strong team. They are doing some very interesting work and how to enable utilities to provide this service very easily.
Also have a very easy way for the homeowner.
Homeowner to sign up for these programs.
Through the App.
So we have a very strong team both on the on the battery side to enable the battery to discharge the homeowner side for the homeowner to sign up simply as well as a platform or a grid services manager as we call it where the utilities are very clean very simple acts as one view access into all of them.
The assets.
Available to them we of course work in some cases the utilities, but we also work with Aggregators and in that case, we can we provide them with API and API access for the entire fleet to allow them to discharge the batteries so very.
A very strong team as.
As you can see we have made a significant amount of progress with this team and they are developing.
Very strong tools and products for.
To meet the requirement.
Okay. Thank you very much.
Thank you. Thank you. Our next question comes from the line of Eric Stine from Craig Hallum. Your question. Please.
Hi, everyone.
Maybe just on the <unk>.
You talked about it a little bit, but maybe if you could spend on expand on expectations for the ramp here throughout 2022, and then just curious I mean, what percentage do you think C&I can be if your business. If you look out three to five years.
Yeah, I mean, so remember.
QAD only addresses the small commercial market.
The small commercial market in the U S is we are talking about.
Tim maybe a little more than a gigawatt.
And we are talking about small schools churches.
Spittle smaller gas stations.
And when I say small commercial it means 20 kilowatts to 200 kilowatts.
So.
We think that micro inverters can be extended that with the use with.
With the use of IQ eight PV having.
Having said that we're just getting started we are piloting with about.
Say 10 plus installers.
And.
If the pilots go well, which we will find out in the next few weeks.
You know, we always make some changes we always find issues invariably.
We basically will do some tweaks modifications and then we will release the product to production, we expect that to happen.
In this quarter.
And then onwards. It is it is it is a business that will take some time to develop.
But you.
You know.
We are confident that with the principles of quality customer service.
Rapid shutdown capability.
Our easy to use product.
This really get.
Good adoption.
And first we'll start off with North America.
The market size I mentioned was primarily North America, and then we will extend it to other regions as well.
And if if if we are successful and success means that.
We are like residential where we can we can capture a significant share and then we will look at.
The next follow on which is the real commercial.
Market for that we need to.
480 product basically.
Yes.
Okay. Thank you for that.
Thank you art.
<unk> question comes from the line of Sophie Karp from Keybanc. Your question. Please.
Yeah.
Hi, Good afternoon. Thank you for your time.
Couple of questions I have.
You mentioned, a whole home electrification and obviously, you've been making acquisitions along the lines of you know.
I haven't converted product in storage and where the.
The clipper grid.
EV charges as well and you mentioned heath problems a bunch of times.
Wondering if that is something that could make sense for you to add.
Progressive technology package.
Should we think about that.
Yeah.
Hi, This is <unk>. So the way we think about it is we have this technology energy management technology platform and its role is to.
To manage a whole family of disparate set of distributed energy resources. So we obviously do solar today storage.
The grid, we integrate generators.
And now we are integrating EV chargers as well.
By making the recharge of very smart too, we can do a green charging.
There are other elements also that we need to integrate and that's.
Those are the heat pumps, obviously, we will not be selling heat pumps.
Our goal is to develop either develop or buy companies that can do it.
Our debt to software integrate all of these other than other heat pumps, etcetera, and other loads as well and effectively bring them onto the platform and when we bring them onboard energy management platform. We can then manage how did loads get services, what's the most economical whats the most reliable.
And most of the most green way of servicing the loan in the case of BBB. For example, with the homeowner may choose our only water charge my car from charged my card Green electronics, which is.
Obviously, the first choice would be your own solar system or if you get a signal from the grid that says the grid is green at this time, then you can charge from the grid as well.
In general its about managing all of these different type of resources.
No.
We'll do that with software primarily.
And Youre seeing is a lot of standardization that starting to take place where all of these different kinds of.
Loads.
Types of heat pumps and different types of PV charges et cetera are starting to adopt certain standards and those standards will make it easier for us to integrate them onto our platform.
Great. Thank you so much very helpful.
The other question was maybe.
Taking another stab at the supply chain situation right and do you have memories.
Our supply chain.
March better than your peers and competitors right now just your competitors, but other companies in other sectors right the large ones at that.
What sets you apart and like what makes you more or less.
Even to these trends at this point I guess is that the fact that most of the components. We use a more specialized and there's less competition for them for maybe bigger industries is that just the location of where the manufacturing facilities are like what should we think about here.
I mean to tell you you are giving us a lot of grid at the last year, we didn't we didn't.
No.
We had a supply problem last year into 2020 one.
And what we learned from that the learning is.
What can we do for critical components, we need to have multiple sources.
How can we plan better.
Critical component and how can we make sure that.
That short term disruptions. We know there are always going to be short term disruption how can we how can we smooth then.
All of those into.
You know what what's right for the customer.
So we.
We've just learned.
To plan, better and I think planning better and executing on on multiple factories.
Multiple sources and it also helps that we don't have a lot of skus.
Lee.
Way, we design it is one single piece of hardware with.
We try.
Try all of micro Inverters have one single piece of hardware and then so that every region, we can load the appropriate grid profile in software.
So that.
That can get functioning in that way, we don't need to make.
One SKU.
One country.
We tried it.
Hard to do it's hard to reduce the number of <unk>.
Art gun, you know many companies bloat up on part count, but again I think with the software defined architecture that we have.
It helps us a lot.
So to answer the other thing that is upfront product architecture diligent supplier management.
The vacation of multiple sources.
Planning better.
And some luck too.
Yes, hopefully we ever had.
Hopefully look as an upside.
Yes.
Still.
We don't know what's going to come tomorrow.
In terms of Covid disruptions, but I think it's safe to say that we we anticipate.
We are prepared for it.
Thank you so much that's all from me.
Thank you. Our next question comes from the line of Cameron Lochridge from Stephens. Your question. Please.
Hey, Thanks for squeezing me in here guys. Good afternoon.
Hi.
Well I was hoping we could start.
Just very quickly on the department of Commerce investigation I understand this is a module and this is not where you guys play but.
You mentioned.
Residential was likely a little bit more insulated from any effects of this it sounds like your customers you're working on module procurement for the second half. If you could just offer any any kind of framework for how you're thinking about the potential impact if any to your business in the second half.
Or even even if you want to take a stab at it. This way if you think about your outlook for 2022.
How has it changed.
Now versus what it may have been three months ago.
Really we are not.
As we sit here today based on all of the.
Discussions that we are we have had with our customers based on what we see.
Out in the marketplace.
We don't see any impact on our business. Obviously, we are expecting and we have heard that module prices are going up so that in our opinion.
Again, those module prices increase in module prices be absorbed by.
But the residential customer and we believe that.
The magnitude of module price increase that we're seeing can easily be absorbed by the customers. So our opinion is that we won't see any impact on our business and also bear in mind that.
Most residential systems.
Our financial systems. So what the homeowner actually sees is a small increase in their monthly payments and we believe that.
Those monthly payments are not going to be larger than what the utility rate increases that have been experiencing so all of those things point to the residential segment that is.
Going to be much more.
Our resilient segment than any other segment.
Sure.
That's great. That's very helpful. Thank you Badri and then just switching gears to your European strategy.
So hoping you could talk a little bit about your installer strategy. There I mean, you've had tremendous success in the U S. Obviously with the long tail installers.
Maybe just talk about does the same dynamic exists in Europe is it different.
Just do you think you can replicate.
Your installer strategy, you've had success with in the U S can you replicate that in Europe .
Yes, the same principles Howard.
If if you say yes.
U S has got a lot of long tail installers Europe is even more lumpy.
So.
Germany for example has got 5000 installers and I think.
Yes, im not sure about it but I was towards that.
A top installers and install them.
Approximately 10 to 20 megawatts a year.
So basically it's the same definition or is it the same principles for us.
We think those installers will obviously care about quality.
We care about customer experience, so as long as we do a good job there.
Good things will happen for us.
Great. Thanks, very much I'll turn it back.
Okay. Thank you. Thank you. Our next question comes from the line of Pavel <unk> from Raymond James Your question. Please.
We're taking the question two quick ones also about Europe .
Obviously in the current geopolitical situation all of the frontline states in the eastern portion of Europe are in the headlines.
Do you see signs that rooftop solar in places like Poland, Czech Republic Hungary.
Is starting to develop and if so will you be playing in that geography.
Yes, obviously, we do pay attention to the regions and pay attention to.
The opportunities that lie.
And we'll continue to do that at this time.
We are very focused on the countryside.
We talked about where the market is really expanding very strongly in the countries that we're already in which is now.
Further lends France, Belgium.
Germany, and the new markets.
Glued, Spain, Italy, and Portugal, and we need to bring all of our products, we need to bring I can make sure we need to we need to make sure we are batteries and all of those and all of those.
Countries as well and so.
Now we are focused on these but we keep an eye out right, we pay attention to what's happening in the countries that you referred to.
Okay.
Last year <unk> market share in Europe was four times higher than the United States, 19%.
Or is there room for Clipper Creek.
To get get a slice of that infrastructure buildout.
That is always a room, where clipper Creek and the angle is what I said, which has been an installer basically goes to a homeowner and who is even thinking about an EV.
The the debt of so many incentives that and install directionally towards the same even if the homeowner doesn't have in EMEA still installing EV charger.
So what.
What.
What that means is there's been an install it is theyre selling the homeowner solar storage.
EV Chargers and heat pump.
No.
In that sale, if enphase can make.
Life better.
By having a comprehensive home energy management system.
Typically it definitely has its place and so we.
We are planning to introduce an EV charger.
Basically into Europe .
In Q1 of 'twenty three but in the interim we are working hard to make out system and put up interoperable with other EV Chargers, so that'd be homeowner still gets the right experience.
Got it. Thank you very much thank you.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Badri <unk> for any further remarks.
Yes. Thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter.
Thank you.
Thank you, ladies and gentlemen participation in today's conference. This does conclude the program you may now disconnect good day.
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