Q2 2022 Enphase Energy Inc Earnings Call
Good day and welcome to the Enphase Energy's second quarter 2022 financial results Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the Darcie followed by Europe .
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one. Please note. This event is being recorded I would now.
Like to turn the conference over to Karen <unk>. Please go ahead.
Good afternoon, and thank you for joining us on today's conference call to discuss the state's energy second quarter 2022 result on todays call are Patrick coupon to Raman, our President and Chief Executive Officer, Nancy Yang, Our Chief Financial Officer, and Michael <unk>, Our Chief product officer. After the market close today and issued a press release announcing the rest.
For the second quarter ended June 30th 2022.
During this conference call management will make forward looking statements, including but not limited to statements related to our expected future financial performance and capabilities of our technology and products and the benefits to homeowners and installers, our operations, including manufacturing customer service and supply and demand and anticipated growth in sales and the market knew.
Product introductions and 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 most recent Form 10-K, and 10-Q filed with the SEC. We caution you not to play any undue reliance on forward looking statements.
No duty or obligation to update any forward looking statements as a result of new information future events or changes in expectation.
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 a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release posted today furnished with the SEC and which can also be found in the investor really.
<unk> section of our website now I'd like to introduce Patrick Cassandra Raman.
<unk> Executive officer of Enphase energy Badri.
Good afternoon, and thank you for joining us today to discuss <unk> second quarter 2022 financial results, we had a good quarter.
Record revenue of $532 million achieved non-GAAP gross margin of 42, 2% and generated free cash flow of $192 million.
And 37% of our Q2 micro inverter shipments that IQ eight.
We exited Q2 at approximately 42 13.
This means 42% gross margin, 13% operating expenses and 29% operating income.
As a percentage of revenue on a non-GAAP basis as a reminder, the baseline financial model 70, 515, 20, Mandy will go into our financials later in the call.
Let's now discuss how we are servicing customers in.
Q2, net promoter score or NPS wanted to wind was 68% the same as in Q1 and they were not American MBS was 71% compared to 74% in Q1.
Well the average call wait time increased to 4.7 minutes in Q2 compared to 3.2 minutes in Q1, primarily due to an increase in call volume related to the growth in the business. During Q2, we added customer service agents and field service technicians in U S Europe and Australia.
Our main focus on customer service and ensuring that we are easy to do business with.
Let's talk about our micro inverter manufacturing.
Our supply chain situation is quite stable due to a diligent supplier management as well as qualification of alternate suppliers.
With the growing demand for our products.
Remain vigilant regarding the global supply chain and logistics challenges.
Our quarterly capacity across all contract manufacturing facilities is around 5 million micro inverters today we.
We're on track to begin manufacturing and flex as factory in Romania, starting in Q1 and 23.
This will enable the capacity of 6 million micro inverters quadrant photos globally.
We're also working on reducing manufacturing costs by adding more fully automated lines and sort of semi automated lines.
Let's talk about IQ batteries.
We are on track to add an additional sell backs up early next year and for the third generation back.
Our lead times sort of batteries are still around 14 to 16 weeks.
Due to global logistics challenge.
Let's move on to the regions of the U S and international revenue mix for Q2 was a D and 20% respectively.
We experienced strong growth in the U S and even stronger growth in Europe .
In the U S revenue increased 15% sequentially and.
And 66% year on year.
We are pleased to report record quarterly revenue in the U S and record sell through for our micro Inverters in Q2.
We continue to win both large and small solar and storage installers.
Micro inverter to channel inventory was at a healthy level at the end of Q2, while our store channel inventory was a little elevated due to longer install times.
In Europe revenue increased 69% sequentially.
And 89% year on year.
And by strong demand for our micro and motors and Netherlands, France.
Germany, Belgium, Spain and Portugal.
We are starting to see good demand for our IQ batteries in Germany.
Homeowners, one Phil can self consumption as the region not only pieces energy.
Prices are rising.
But also a growing demand for home electrification driven both by electric vehicles proliferation, as well as natural gas shortages.
We plan to introduce IQ batteries into a few more European countries later in the year.
We also expect to ship.
<unk> family of micro Inverters into Netherlands, and France later this year.
Sector coupling the latest buzzword in Germany.
And then on the integration of three sectors.
The heating and cooling sector, the transport and mobility sector, along with the power of producing renewable sector.
All three of them are required to achieve full home electrification.
We are working towards sector coupling by making our solar plus battery systems seamlessly work with third party EV Chargers and heat pump.
And providing a single interface for homeowners to monitor and control that energy through the <unk> phase at.
Bottom line, we are quite happy with our progress in Europe .
Certainly expanding the team we have.
This momentum to continue.
So I placed tight the channel inventory continues to be below normal levels, we are working hard to get supply into the region.
In Q3, we expect to grow revenue more than 40% compared to Q2.
In Latin America revenue increased 22% sequentially.
And 61% year on year.
Steady growth in our solar plus storage business in Puerto Rico during Q2.
Now I'll provide some color on Australia, Brazil, and India and.
In Australia, we are starting to see the market.
Beginning to recover from Covid interruptions as well as federal election.
We remain optimistic about our growth in the country and expect to introduce IQ batteries in early 2023.
As for Brazil, and India, we continue to ramp IQ seven a micro inverters in Q2 and are starting to see a steady increase in demand quarter on quarter.
And that's just because of the overall bookings for Q3.
Our customer demand for Q3 is very robust and exceed the higher end of our guidance range.
The component availability is certainly better than what we have experienced in the last 18 months.
This has enabled us.
To meet the growing demand, but there are still global logistics challenges that are not unique to increase.
Let's discuss batteries.
Do you like your batteries into North America, two years ago in the third quarter of 2020.
Since that introduction, we have grown battery shipments by an average of 28% for the quarter.
Over the last two years.
We have certified more than 1600 installers worldwide.
To date.
And we are continuing to win around 15, new installers a week in the U S.
In the second quarter of 2022 we shipped 132.4 megawatt hours.
You batteries, the 10% increase from the first quarter of 2022.
In addition to North America, we're also ramping up batteries in Germany and Belgium.
We've learned a lot in the last two years.
We have made several improvements to both the installer and the homeowner experience.
Currently our installers in North America are experiencing two plus or does it.
The commissioning time, which we would like to cut down by half.
We are also updating the device firmware at both our distribution centers as well as in the channel avoid update.
By installers on site.
We expect the commissioning time of 90 minutes as we exit Q3, and 60 minutes as we exit Q4.
We also plan to release several software improvements for homeowners during Q3.
For enhanced outage performance.
Yeah.
For Q3, we expect to ship between 130, and 145 megawatt hour stuff like you bet.
I recently visited the top installers in Puerto Rico in Maine.
And in Puerto Rico, the storage attach it's 100%.
I came away extremely excited about how our IQ batteries as well as IQ eight micro inverters can provide a very highly differentiated fusion compared to the competition.
Both the sunlight jumpstart feature.
And the unlimited solar into battery ratio.
Really valuable to our installers, particularly in Puerto Rico, we had outages are quite frequent.
Focus is to meet the installer and homeowner experience seamless throughout these outages.
Yeah.
While we are focused on providing a great experience with our current thank you batteries, we expect to introduce our third generation. Thank you battery starting in North America.
In early 2023.
We expect this battery to deliver a double the power, enabling homeowners to start heavy loads.
The product will also use the robust wired can protocols for seamless connectivity.
We expect.
The third generation battery to have simple installation.
Meaning to to an improved customer experience.
Let's now talk about our small commercial product.
As previously discussed we piloted IQ a b with a few installers in the second quarter in order to receive feedback.
The product has been working well and the feedback that we got was quite useful.
The installers have told us that the module power for the small commercial business.
Difficultly higher as manufacturers are moving rapidly to the larger format.
Given this.
We are going to increase the AC power off the micro inverter in order to avoid potential slippage.
We think it is prudent to do this now and introduce the product in early 'twenty. Two 'twenty three we understand this is a few more months of delay, but we are confident it's the right long term decision. We're extremely bullish about the small commercial market, where we can add tremendous value benjamin's owners and installers with our.
High quality rapid shutdown capable and micro grid firming capability of our micro inverter system.
Let's discuss EV Chargers.
We acquired Clipper Creek in December of 'twenty, 'twenty, one and the team is now fully integrated.
We shipped more than 8250 charter Jersey in Q2.
With a healthy gross margin and the business is quite profitable as well.
We introduce EV Chargers to our solar distributors and installers in Q2.
And we also strengthened our digital marketing efforts to consumers.
We are on track to manufacture Enphase branded EV Chargers at our contract manufacturing facility in Mexico This quarter.
This will help us scale capacity and drop costs.
As for new products, we expect to introduce smart EV Chargers to customers in the U S and Europe in the first half of 'twenty three.
This will provide connectivity to the cloud through Wi Fi as well as.
Local connectivity to the home energy management system.
Allowing homeowners full visibility into.
Monitoring and control of their Enphase solar plus storage plus EV system.
As I've stated before our strategy is to build a best in class home energy systems and delivered them to homeowners through our network of distributors and installers and able to buy our install platform.
So far we talked about the key products on this call micro Inverters IQ batteries EV Chargers, let's now talk about the installer platform.
Before that some background.
We acquired a total of five companies in the last six quarters.
Four of those companies that are geared to help installers.
Some efficient.
Companies, we acquired provide lead generation services.
So a lot of design software.
Proposal and permitting services.
And in O&M software platform for out in stores.
Our latest acquisition we did in March is solar lead factory, which provides lead generation services for installers.
We want to provide higher quality leads to our network of installers in a cost effective manner.
Currently the quality of the lead.
And gender and the solar industry is not very good.
We therefore think we have a tremendous opportunity to improve the situation.
It is a big pain point for the U S installers.
We acquired.
Company cards soft desk in January of 'twenty, and 'twenty 118 months ago.
Which provided us with solar and design software capability.
Our software business now has the record customer count in Q2 with approximately 950 installers using the so a lot of graft software.
We are making improvements to the software based on installer feedback and implementing new features including.
Shading and three D modeling for a better accuracy, adding batteries in EV chargers into proposals and integrating electronic signature capabilities for contracts.
We acquired a business and neither in April of last year.
This gave us the capability to provide proposal and permitting services to installers.
Are they being serviced large installers and most of the work here is highly manual.
We'd like to change that and are working on automation to scale their business.
And provide these services to our entire network of installers.
The next one in December 2021 we acquired a company in Arizona called 365 Pronto.
The company's software platform enables a two sided marketplace.
The buyers are customers consisting of installers etcetera were noted as original equipment manufacturers.
The seller service providers consisting of <unk>.
Technicians, and third party installers, providing services for residential and commercial solar storage and Evs.
Our vision is to simplify maintenance for our installer network.
By using the software platform and getting them access to a labor market place.
With these acquisitions now in house, we have the right tools that we are combining into one platform to offer our installer network.
We recognize the problems that the installers face such as soft costs disparate tools and manual processes and are committed to building the platform.
To help minimize those.
Let me now give you a quick update on our infant toddler met.
Network or the yen, we have on boarded approximately 1200 installers throughout the year in worldwide through a highly selective process focused on install quality and an exceptional experience to homeowners across the globe.
Next let's talk about policy.
I'd like to comment on our recent policy issue that is impacting the solar industry.
As it pertains to name three the auto in California, we submitted our comments to the proceeding in late June .
Hope the CPUC will review the feedback from all stakeholders and eliminate the great participation charge, while providing the glide path for the solar only market and been incentivising, the solar plus storage market.
With regarding the federal reconciliation package. Despite the recent setbacks, we will be actively engaged over the next couple of months.
Tim you pushing for a claim made deal that includes the solar ITC extension.
The new storage ITC.
In summary, we are happy with our performance for the first half of 2020, two and the strong demand for our micro inverters and batteries.
Our markets in North America, and Europe are growing at a tremendous rate as reflected in our numbers.
We remain focused on our products and platform to deliver a superior customer experience for our.
Installer of distributors in homeowners.
With that I will turn the call over to Mandy for her review of our finances.
Randy.
Thanks, Andrew and.
Good afternoon, everyone.
We'll provide more details related to our second quarter of 2022 financial results as well as all this is a look at the third quarter of 2022, we have provided reconciliations of these non-GAAP financial measure.
Okay Chris.
Can also be found now I asked that.
Hi.
Total revenue for Q2 was $532 million, representing an increase of 20% sequentially.
What how do you like that.
We shipped approximately 1230 megawatts DC of Macaroni brothers, and 132 point for a minute.
Maybe I'll have hours of actual pay downs in the quarter non-GAAP gross margin for Q2 was 42.2% compared to 41% in Q1.
Increase was driven by favorable product mix.
Gross margin was 41 point to 8% for Q2.
non-GAAP operating expenses were $71.2 million filter to compare to $66 $3 million for Q1.
The increase was driven by increased net.
Net R&D customer survey.
And I can't infrastructure.
GAAP operating expenses were $125 million for Q2.
10 to $115 $1 million for Q1.
Yeah.
This is Walter.
At $49 $9 million of stock based compensation expenses.
$3 $9 million of acquisition related expenses amortization for acquired intangible assets.
On a non-GAAP basis.
Come from operations for Q2 was $152.4 million.
Compared to $114 $5 million for Q1.
Income from operations.
$94 million 42, compared to $61.8 million for Q1.
Oh God.
Net income for Q2 was $149 $9 million.
Pay up to $109 $7 million for Q1.
The resulting non-GAAP diluted earnings per share of $1.07 for Q2, compared with 17, 9% from Q1.
Net income for Q2 was $77 million compared to net income of $51.8 million for Q1. This resulted in diluted earnings per share of 54 cents for Q2 compared to 37 for Q1.
Actually Q2, with total cash cash equivalents and marketable securities balance of approximately one point to $5 billion compared to approximately one point of view, our $6 billion at the end of Q1.
In Q2, we generated $200.7 million in cash flow from operations.
$192 million and free cash flow, which is more than double from two one as a result of our recurring revenue and improved cash conversion cycle in Q2.
Capital expenditure was $8 $7 million for Q2.
Third through trough point for median got asphalt you want.
Now, let's discuss our outlook for the third quarter of 2022, we expect our revenue for the third quarter of 2022 to be within a range of 492 $630 million.
Jim.
Shipments of 130 to 145 megawatt hours of battery.
Gross margin in a range of 38% to 41% and non-GAAP gross margin to be within a range of 39% to 42%, which excludes stock based compensation expense and acquisition related amortization.
Our GAAP operating expenses to be within a range of $137 million to $141 million, including a total of approximately $16 million Internet for stock based compensation expenses and acquisition related expenses and amortization.
The estimated stock based compensation expenses, and approximately $4 $9 million a quarter for the earn outs are tied to certain performance targets will be pay in the company's stock for the acquisition.
Our non-GAAP operating expenses to be within a range of $77 million to $81 million.
Was that year to date potash reported we expect to utilize all of our net operating loss and research tax credit carry forwards.
<unk> hundred 92, and he kind of U S cash taxpayer. That's all now that Ted is that reflects cash tax expense and reserve release.
Our non-GAAP tax expense for the third quarter of 120 to be approximately 10% off on Mt. Todd.
I said before tax.
<unk> 15 per sale for Q4 of 22.
We expect GAAP tax expense to be approximately 24% of profit before tax.
For both third and fourth quarters all 2022.
I will now open the line for questions.
Thank you everyone I will begin the question and answer session.
Ask a question you May press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two we kindly ask that you. Please limit yourself to one question and one follow up it may re queue for additional questions and at this time, we'll pause momentarily to assemble the roster.
And our first question today will come from Brian Lee with Goldman Sachs. Please go ahead.
Hey, guys good afternoon.
Thanks for taking the questions kudos on the the great execution here.
First question I had was just on the gross margin guidance you know, it's the first time since 2020.
That you've raised the non-GAAP gross margin range upwards to now 39% to 42%. So just wondering how much of that is simply IQ eight mix and better margins on that product or are you also seeing better I guess battery storage margins versus expectations and then and then maybe finally as Europe also.
Helping on the margins.
In terms of expansion just maybe some of the puts and takes there on the gross margin guide and what's driving it and then I had a follow up.
Yeah, I mean, mainly it is IQ eight.
It's as simple as that.
And Europe margins in the U S margins are equivalent for us.
Okay Fair enough and then you you you're clearly doing well in Europe . It seems like you're gaining share can you speak a little bit badri is to kind of where you're seeing the share gains two years, who you're gaining share from and then.
And then can you kind of talk about it it sounds like the 69% sequential growth was was micro inverters as opposed to battery and so.
Is this the number we're at batteries start to become a bigger and bigger part of the mix and given the higher Asp's you could actually see.
Another kind of tailwind and in the region I know, you're talking about 40% sequential here and re queue, but as we look beyond.
I guess the the next couple of quarters could you even see an acceleration once batteries become a bigger part of the mix in that region.
Yeah.
A few answers here the growth mainly came.
You know comes from Netherlands, and Germany.
And basically Youre right that Q2 growth is more growth comes from solar.
But storage also.
<unk> grew quite well for Q3, it's actually quite quite balanced we expect growth to be equally good on solar and storage.
And are.
You know what's happening in Netherlands, right, So Netherlands.
We had a we had a quite strong there.
We service the long tail of installers.
They like us because of our quality.
And many of them.
The the other suppliers have been unable to ship.
Product in these times.
And in addition, the utility rates are also rising so there is a natural momentum.
In Netherlands, and considering the geopolitical situation is even more accelerated.
So I'm extremely happy about Netherlands, and the name of the game for US is to get a lot more supply into the region.
That's why we embarked on building the flex.
Flex flex plant in Romania, where we can.
Have micro inverters coming out in Europe versus getting shipped for the middle of the switch.
On Germany.
It's fascinating.
We are quite small in Germany, let me say that first but the German market is a big market.
The last I heard is it's roughly two gigawatts residential time I'm talking solar.
And I'm getting 80% attach so two two Gigawatts times, 80% is 1.6 gigawatt hours of batteries that's the market.
So very very healthy market and then it's.
About 5000 lung team installers.
In Germany.
And what they need is they need high quality.
They need reduced installation time, because they always have labor issues.
And every installation is accompanied every every solar installation is accompanied by a badly by EV charger, which is virtually free.
The rebates and then.
Normally heat pumps as well so they require us to do.
Basically you know work with third party EV Chargers third party heat pumps, which we are.
And are working very hard to have that capability and we expect to have that shortly.
So.
It's very similar to what we have told you for the U S.
We'd like to provide.
That single interface.
For the homeowner.
Red.
Everything shows up and is that.
Solar storage home loads EV heat pumps, you have the capability to monitor and control the things he wants.
And with the utility rates.
Being so high and the feed in tariff in Germany.
The only option is self consumption.
Self consumption means you utilize all soda.
Figure out ways to utilize all food, which has started in a battery use it later.
Right do green charging for electric vehicles.
So green charging for heat pumps.
So lots of interesting interesting opportunities.
Some work for us to do on home energy management.
But I think you know this is our strength.
And so this is where we have tremendous opportunity.
And that's why you know b, we expect to grow disproportionately in that region and in fact, Germany is going to go grow although the numbers are small Germany.
The numbers are quite big in terms of growth from Q2 to Q3 percentage growth is quite big.
So that's the story right.
Germany Yep.
That's great.
The color I'll pass it on here.
Yeah.
And our next question will come from Phil Shen with Roth Capital Partners. Please go ahead.
Hey, everyone. Congrats on the strong results.
Wanted to dig in deeper into Europe , specifically, if you could talk through the FX headwind there.
In spite of that you guys delivered an.
An amazing God I just wanted to understand you know to what degree FX impacted Q2, and even the Q3 guide can you quantify that at all that at all and then can you talk through how you expect to manage that going forward is Europe grows over time. Thanks.
Sure. So all this bullshit currently is fairly limited.
We generate 80% of our revenue in the U S and 20% from International and also if you look at I think that's.
Right certainly international expenses actually are in foreign currencies. So we have that they thought that natural hedge there for revenue.
That said, we are actually evaluating FX hedging programs for our European rather than you know given where we are going very fast there.
In terms of our Q3 guidance, we have factored in in our Q3 revenue and gross margin guidance using very conservative.
All right.
Right. So we are good there.
Oh, no our our exposure is very limited.
Yeah.
Okay.
Yeah.
And our next question comes from Julien Dumoulin.
Please go ahead.
Ooh, Hey, congratulations team very nicely done again, if I can just following up on some of the Q3 commentary here.
Just looking at the storage numbers are 130 to 145, how are you thinking about the exit run rate at markdown earlier 180 was kind of the earlier contemplated right. How are you thinking about that ramp here can you talk about some of the nuances that you alluded to in the script here earlier.
Yeah I mean.
We are incredibly excited about batteries, let me, let me say that we have grown at an average average rate of 28% per quarter.
Over the last two years and.
And we are proud of certifying more than 1600 installers worldwide.
Long tail installers auto would focus.
And we continue to win 15 installers a week in the U S.
In the second quarter, we were 10% higher.
In the first quarter, we did about 132 megawatt out.
No.
And we are shipping into three countries in North America, Germany, as well as Belgium, we've learned a lot.
We've made a lot of improvement.
Phase two large commissioning times need to improve.
We still have two plus hours of commissioning time and because of that what happens is we do have a little bit more inventory in the channel than what I'd like.
So we are going to get to the bottom of it we are confident of getting getting that under control and we are going to unleash.
The demand back up again.
And so you know we're extremely confident I talked about.
Our trip to Puerto Rico.
And that has huge opportunities for us and we expect to get our fair share of that.
So you know bottom.
Bottom line is.
We are we expect to grow in batteries.
We expect to get the commissioning times fully under control in Q3.
Hum.
Yeah, Although we don't we don't guide to the 180 number that you talked about.
We expect to continuously grow.
Yeah.
Got it at a similar trajectory of about 28%.
Yeah.
Not going to guide you know I've been when yoga.
Alright, okay.
Yeah, Let's say for example, when you go from you know 10 megawatt hours to 20 megawatt hours, that's a 50% increase but then the next quarter. You go from 20 to 30 that suddenly you know that.
That's that's a lesser increase basically like though.
You need to you need to understand that even a 10% growth quarter on quarter is very healthy that 40% for the year.
And I'm, not saying, we will grow at 10% every quarter it maybe more maybe less but.
We love the business, we think we are well positioned.
We our market is the long tail of installers.
The moment, we make it a lot easier for them in terms of commissioning time, the floodgates will open.
And are we expect to continuously grow.
Hey, just a quick clarification on the earlier question here just related to the gross margins I mean, obviously, it's very impressive here, but.
As it pertains to IQ eight and where you are I mean, I think you were not even at 40% on IQ eight deployment and you're already hitting this increasing gross margin trajectory.
And the art of the possible where can we go on gross margins here also considering obviously, you're ramping geographies that could that could weigh your et cetera, but can you elaborate a bit.
Yeah, I mean, we are the IQ eight provides.
A lot of value.
Three things.
Is sunlight backup.
Basically when the grid is out.
It continues to.
Work and provides power one number two it removes any.
The limit on solar storage ratio, which is which is a limited today in other words, you can have a lot of solar with very tiny storage.
And the extreme end of being zero storage. That's number two number three is sunlight jumpstart, which means that.
In in either the batteries when you completely drained the battery because you use it overnight and you accidentally drained it.
<unk>.
Ah you're accidently framed it in the morning.
<unk> can come and independently jumpstart their batteries.
Because it can it can provide it can generate its own micro grid and kick start the battery so.
That is three big differentiator and we do you know, we do value based pricing which is.
Since we had a different since we added value.
We expect to get the right price for it.
Now.
So at the IQ eight percentage increases.
America, we expect the margins to kind of.
Track that it was going up.
The second thing is in Europe for example in Europe the grids.
Quite quite stable.
Like for example in Germany.
Installers I didn't even I didn't even know what didn't even interested in backup they only wanted self consumption.
So the value that they associate with some lake backup a little bit less.
Compared to the U S. So that we may not get as much value, but really get a little bit. So so to answer your question.
The percentage of evacuate to become more and more our.
Gross margins will go up and we will guide you now guide them appropriately. That's why we increased up the gross margin by a point right now.
Okay, we shall see thank you guys.
Okay.
And our next question will come from Colin Rusch with Oppenheimer. Please go ahead.
Thanks, So much guys could you talk a little bit about the competitive landscape from a technology perspective around grid formation in the batteries. You know obviously that's been a point where you guys will have led the market, but are you seeing folks start to catch up with you will find workarounds for some of that functionality.
So hi, this is Ryan the way again.
What we provide is important we are training we have with the home energy management solution that we have we are providing a very comprehensive solution.
This is not just about the solar part not just about the battery part of just about the EV part or managing the heat pump et cetera. Our goal is to provide a one stop shop, a completely comprehensive solution and everything is managed from software with our home energy management system. This is true in Europe and actually in its true here as well so for us.
Value add when we think about relative to competition is not look at any one single piece, although we have to be better than them. In every individual component that we are building, but it is about looking at the overall solution to the homeowner has a great experience, where they have one app and then.
See they get unprecedented visibility into the performance of their entire system same thing true for an installer partners as well as they get trained by one company to deliver all of the different component on how to install them harder commission them, etc, and if there is any problem, there's one phone call to make.
Is there any warranty issue that they could go to one company search that entire end to end solution is where how we differentiate ourselves from everybody else and we feel like we have done a good job with it.
Would there be the competition.
All right I'll take it offline I don't want to just getting a little bit more specific on that so.
So my follow up is it really about new geographies in the U S. Can you talk about the number of installers that are your training and new geographies and how some of those.
Emerging markets within the U S are developing and potentially driving growth on your core business here.
Yeah, I mean, like what I said we.
We certify a lot of installers I think the last earnings call I said 1300.
I don't remember and nowhere to 1600.
So we certify them a few hundreds of installers a quarter.
We work with the long tail of installers in all Geos.
All regions in the U S.
Like what I said, Puerto Rico.
Great market very interesting market only when I went and saw there.
It was quite eye opening for me on the number of times they had a power shut down.
Everyday.
And there are requirements for example are a little bit different from California, where the grid is by and large stable.
Right. So there's basically gave us.
Completely.
A completely new perspective on hey, we really need to make sure that the homeowner experience.
Through outages.
The outage performance of all of that needs to be flawless.
And the installer experience and the homeowner experience has to be good. So those are the kinds of things we learn.
And we do it across.
All the states we have salespeople, we have Fas, we have field sales technicians.
They are the ones, who will help these 300 installers that we certified.
You know by certification, we mean they have to do the training course, plus they have to complete the first installed.
And we do have some challenges on the commissioning so.
We do initial hand, holding with the help of our field service technicians.
And then we unleash the installers.
And we got to get better like what I've said and.
I would yeah I would call it in intermodal when.
I do a half an hour of commissioning and I don't even need to train installers, that's where we are trying to get to.
Because we recognize that.
All of the installers will install batteries, if they make money on batteries.
And in order for them to make money.
We N phase needs to take the lead and.
Help them with standardizing the workflow.
With.
Streamlining the way the product works.
And take care of any problems.
They had immediately.
So we are we are we are doing.
Doing youre doing all of them with upfront training and round tables and field service technicians and if he's in.
And our salespeople.
Okay. Thanks, so much Roger I appreciate it.
Yeah.
And our next question will come from Kashi Harrison with Piper Sandler. Please go ahead.
Hi, good afternoon, thanks for taking the questions and congrats on another strong uptake.
Badri you mentioned in Germany that sector coupling across heating cooling transport power has become the topic to your obviously core businesses power and you're not participating in expanding into the transport mobility side.
EV charging but I was wondering if you could share any commentary on the heating cooling and heating and cooling space do you see any opportunities for enphase to add value within that sector or is that somewhere where it.
It may not be as enticing to us at this point.
No in this at this point you know sector coupling it is.
It's quite complex, we are scratching the surface here.
By basically providing the capability for the solar plus storage system to connect to them heat pumps.
And in electric vehicles.
And for electric vehicles that is of a fairly brief.
He has a number of standard gardezi with CPP.
Which.
You know we need to be compliant with and then we can connect to all third party electric vehicles on heat pumps. It is still a rudimentary standard car. It is S. G readied standard that afford mode of operation, which are relatively trivial.
We implement them.
It all all of them the visa heat pump solar storage room Lodge when you integrate all of them. Then you provide the complete control to the homeowner.
At their fingertips and.
We at least know yeah at least for now we don't plan to go.
And do anything as far as the heating and cooling sector is concerned we just wanted to make sure that we enabled the sector coupling them by achieving interoperability with <unk>.
E V Chargers and heat pumps.
That's what we're looking at now.
Oh got it that makes that makes perfect sense and then as my follow up you know, it's quite evident that youre showing excellent operating leverage in both <unk> resolvable 10 through to guidance based on.
non-GAAP Opex as a percentage of sales I was just wondering if you know your views on the appropriate levels of non-GAAP Opex investments are evolving as the company gains increasing scale and then maybe maybe part and parcel with that Oh, we've obviously it sounds like the labor market and Silicon Valley's cooling just wonder.
And if you're seeing any opportunities there.
To optimize that on the corporate G&A side. Thank you.
Hum.
Our baseline 35 15 in 'twenty that 15 stands for operating expenses as a function of revenue non-GAAP .
We don't plan to deviate from that we are well under that you know one of the advantages that we have is.
We are able to get talent that you know we are able to have the right people at the right places, which means we were able to get a lot of good talent.
And in places like India, and places like New Zealand.
In in Austin.
In China, we are able.
To get the talent that we need and because we are growing fast.
We're able to keep our operating expenses under control. So we don't plan to deviate from the in person, we don't plan to compromise on any new products.
We will get everything that isn't necessary with regarding what you said on.
Interesting opportunities created by the recent layoffs in Silicon Valley and other places I mean, we're always looking for talent at the same time.
We are we are always cautious we.
We don't like to go overboard.
If we see if we see people who are outstanding we wanted to take to pick it up.
But it's easy to get fat here.
And we are very disciplined you can expect us to always meet the 15% with margins.
And still not compromising R&D, because we are growing so fast.
Yeah.
And our next question will come from Mark Strouse with JP Morgan. Please go ahead.
Yeah. Good afternoon. Thank you very much for taking my questions most of them have been asked.
First one though just given Europe is accelerating beyond what you were calling for just even a few months ago. Just curious you can go back to kind of the the manufacturing expansion. There. So Romania is still on track for for <unk> 'twenty. Three I believe you said that's about 750000 micros.
When do you think you need to make a decision to potentially increase that or move elsewhere in Europe and kind of can you talk about the opportunities to do.
Two room to expand your manufacturing in Europe , but do it profitably, perhaps outside of Romania or eastern Europe .
Yeah, I think the decision is adding your daughter phase I mean, it's kind of obvious we.
Should get a lot more than 750000 micro inverters, we are going to make that happen.
But first.
Let's let's get our manufacturing and production done by Q1, 'twenty three and I think we can immediately add.
Another another full lot of lane and we can take it up to a couple of million units very quickly.
But I'm gonna made okay.
From Romania, Okay, and then just a quick follow up Badri I'm, sorry, if I missed this but the previously you've been talking about adding a third battery supplier in the second half of this year.
[noise] tie in a similar magnitude.
Today, we have two suppliers. They wanted two three and APL and we are on track to add a third supplier.
And fought out third generation battery and that will start to ship hopefully in the first quarter of 'twenty three in that time, we will have a third supplier to qualify.
Okay fair enough. Thank you.
Yes.
And our next question will come from Eric Stine with Craig Hallum. Please go ahead.
Hi, everyone. Thanks for taking the questions.
So you mentioned the supply chain starting to show some improvement, but I know that.
It's been the case in past quarters. The <unk> guide is still well below demand just wondering if youre able to quantify that how much below the demand level or at least how that's trended quarter over quarter.
Yeah, we usually don't don't quantify.
That it's a matter of lead times basically you know hour battery lead times are 14 to 16 weeks that means if an order comes today.
It's going to take US 16 weeks to service our micro inverter lead times that are almost.
I would say eight to 10 weeks, so that so that's a little bit better yeah. I mean, the balance for US is to make sure that that we always look at channel inventory all the time for micro Inverters and storage and.
And do not get ahead of ourselves.
And the one place where do I wish I could ship motive Europe because of the channel inventory that is quite bright.
And but you know it.
It takes.
It takes a cycle time for us to do that we have to get product that without compromising our schedules.
Two other customers that's always a challenge and we are very determined to not.
You know to not upset other customers who have already placed orders. So we are very strict and all of that.
Yeah.
That's how we work.
Okay. That's helpful and then maybe just on the.
On the manufacturing footprint.
I know that when Romania comes on you'll have the ability or targeting 6 million micro and burgers a quarter. I think you did what 3.4 in this quarter I mean, I know it's dependent on geography.
But I.
I mean do you have kind of a time frame or maybe big picture. When you think you'll be pushing up against that 6 million and then potential.
Potentially obviously need to add more.
Well I mean, if you look at it.
If you look at our guidance midpoint of guidance for Q3, that's a <unk>.
610.
And if you look at what is the percentage growth.
Q2 530.
Two 610, that's that's basically you know what.
Roughly around 15%. So you see you can that's a proxy for micro unburden them growth from Q2 to Q3, so you've correctly pointed out $3 3 million micros in Q2.
Do you apply 15% that becomes something like three point.
H, maybe $3 9 million micros in Q3 and of course, I mean, I'm not going to break out the future quarters growth rate, but you can do the math.
Within a few quarters, we will.
But run up against the six like what I said, it's a no brainer for us too.
Basically.
Make the decision on the.
The flex Romania plan to add one more line.
And of course weak.
We are going to do that we'd like to get.
Some data from the plans on the current micro Inverters first and then we'll make those decisions, but I mean, it's easy for us to.
We have sufficient time to make these decisions because we evaluate these every quarter and we have options to add we can add in Chennai telecom, we can add in guar.
You know Mexico for servicing U S customers, we can add and flex Romania for servicing Europe customers and we can also add in for young China.
For servicing Australia customers differently. So.
Everything is flexible everything can be expanded expandable and.
You know all we need to do is to make the decisions at the right times.
Okay. Thanks.
Thank you.
And our next question will come from James West with Evercore ISI. Please go ahead.
Hey, good afternoon buttery.
Hi.
So a question on your EV charging business the Cooper Creek Evs.
You talked about two things one is moving to the contract manufacturer in Mexico, and I'm curious how much scale you might be able to add to the production by doing that and then secondarily, you're making you know the Chargers smarter integrated them into your home energy management system curious on the timeline to achieve that.
Yeah.
Basically we should be able to do several multiples of the number I gave you.
Okay.
So that's the way we're doing it to achieve a lot of scale.
And then with regarding the making the charger smart, we expect that to be done.
By the first half of 2020 three for both.
Chargers shipping into the U S and Europe .
Okay. That's helpful. And then a follow up for me on the cash balances here I mean, great free cash flow during the quarter, you've got a billion two or so.
What do you expect to do with that capital going forward is there more M&A on the horizon or other return of capital to shareholders things like that you're contemplating.
Yeah I mean.
Again, the answer to that.
At a very you know very similar to what I've given in the past. The first thing for US is take care of the needs of the business is.
If we meet a different if we need an auto line, if we need something special on the batteries, if we need to buy buy software.
Take care of the needs of the business that comes first have plenty of cash to do that if we need to expand the facility for example in the U S.
Burnt out a new reliability lab.
So I can go on and on so that's number one priority number two priority is.
Evaluate a continuous pipeline of acquisitions.
The areas that we have we are interested.
For example, EV charging.
As it pertains you may area, we're interested mainly on the software on the software side to get more software capability and number two.
The second thing we are interested in as potential acquisition targets.
Anything interesting in.
And in and batteries.
Right everything interest not manufacturing of batteries, but you know get battery systems innovation that we had interest or debt.
That's true and then third is home energy management system, the ability to not only network totally but two things outside the home such as EV Chargers or heat pumps yeah.
Ability to know what are the things inside the home.
To provide that comprehensive experience to the homeowner so.
These three are the things we will be continuously looking at we might still do some more.
Acquisitions on the.
On the platform side of things in order to round it up.
Hmm.
Okay. That's my <unk> priority to basically look at look at our you know the.
Acquisitions in those areas and then the last one is if we take care of number one and number two which is they have plenty of cash required for the business have plenty of cash for M&A in the in certain key specific areas. If those two are taken care off then we look at.
You know buying back shares.
There we look at is our share price.
Do we believe our share price is.
Below are conservatively estimated intrinsic value.
And it's not my idea. This is this is Warren Buffett has taught.
Right.
So it's quite logical.
And and you know the key question is always how do you how do you estimate your intrinsic value already reconsidered wait until we have our own formula for that.
And then if we feel that's the right time, we'll buy shares if not known.
Okay Fair.
Very helpful. Thanks, a lot.
Yep.
And our next question will come from Amit Zucker with BMO capital markets. Please go ahead.
Hi, good afternoon, Thanks for squeezing me in and congratulations on the quarter.
Just one quick one for me I think on the third quarter earnings call last year, you guys talked a little bit about ocean freight being eight eight times more looks like you know some of the data suggests that ocean freight rates have actually come in a little bit I was just wondering have you guys seen any benefit in that and was any of that reflected in the quarter certainly your lead times haven't really shrunk yet but.
Just on the on the Ocean freight rates.
Yeah. The the lead times have been shrunk, but you are correct. The ocean freight rates have gotten a little better not a lot better we are expecting them to continue to come down.
Alright, thanks, guys.
And our next question will come from but he.
<unk> with credit Suisse. Please go ahead.
Hey, good evening and thanks for taking our questions.
I think most of the questions have been asked maybe one on the policy side on the section 301 are you hearing anything around that as we come to put inkjet hearings against a generic that later this year.
Any expectations on what would happen at that time.
No. There was no we are not hearing anything specific that's just some general news that we are hearing about would there be some relief from tariff given given the situation given.
Uh huh.
Given the economic situation right now, but there is no specific action that.
We have come across that says that there'll be an any specific relief Andrea one.
Thanks, and just a last.
Last question from me on.
The revenue growth here could you talk about how much you're seeing from Europe , Latam other regions versus U S. In Q3, looking anything to help us understand.
The top line beat Ya. Thanks.
But we.
So my body Youre, asking about Q3 or are you asking about Q2.
Our Q3.
In Q3, we already said, we already gave you specifically in Europe that we do expect to.
Grow revenue in Europe by 40% compared to Q2.
So so.
So basically in the U S. We will grow at very healthy levels out of U S. U S contribution obviously is very high proportion of revenue. So we will grow at very healthy levels in the U S.
In Europe .
Due to the geopolitical issues utility prices that are rising.
And many of our competitors unable to supply we have an incredible opportunity in Europe , and we grew 50 960.
69% from.
Q1 to Q2 in Europe , and we are forecasting to grow by at least another 40%.
From Q2 to Q3.
Gotcha.
The clarification, thanks a lot.
Thank you.
Yeah.
And our next question will come from Joseph Osha with Guggenheim Partners. Please go ahead.
Oh, hi, everybody, yeah coming back to the storage business I know this might be a hard question.
To answer if you werent supply constrained looking at the remainder of this year just maybe the current quarter how much do you think you could ship.
I'm just trying to understand what you think under a wide demand bureaus, and then I have a follow up.
Well I mean like what I said.
We are incredibly bullish about the demand and our installers are incredibly bullish about using in phase.
What we need to get under control is what I talked about our channel inventory is a little bit tight.
Our commissioning times out a little bit tight.
We are going to work on them and this will unleash the demand so.
We are not worried about demand.
We are growing quarter on quarter, we expect to grow.
We continue to expect that the growth will be healthy in the coming quarters.
So to be clear, it's really more about commissioning time in channel inventories than necessarily.
So constraints per se is that a correct way of putting it.
I mean, we do have longer lead times.
14 to 16 weeks, but we have made.
We don't think semi will be constrained and we have lined up the right capacity that we need for the for the future. Once once we solve these issues.
Okay. Thank you and then unrelated question Kathy I think it was kind of touching on this a little earlier to what extent do you think youll be the age or maybe even further down the road <unk> functionality.
It could become a part of your are your EV you'd be charging our offering in that.
That's it for me thank you.
Oh, absolutely it has to be a core part of our offering.
Because we see that it brings a significant amount of value.
To the homeowner by doing that so for example in the case of B to H where are.
You're in a situation, where you may have a grid outage now not only will you have say 10 or 20 kilowatt hours of stationary storage to help you through that outage.
IQ eight on the roof that will also support you through their outage you'll have an additional eight.
80 to 100 kilowatt hours of storage available to do significantly expand out.
The outage period that can be supported so absolutely be to ages are.
Is going to be it is a key part of our strategy, we werent really to bring that vehicle onto our ensemble platform. So that we can effectively manage it with regards to vehicle to grid.
We are the guys, who really understand very well how to connect our systems to grids.
You know things such as grid profiles things such as dynamic requirement or on how grid profile is that going to change all of those things were extremely good at and so with vehicle to grid. If we can again.
It is.
If the right structure, a business model and business structure is available where the homeowner can be compensated for allowing the car to be discharged onto the grid in order to provide things like grid services and grid support absolutely. That's a good business model and we will support it with all the technology and like I said, we are absolutely there.
Right guys to do it now in order to get that eventually to make that call or completely by directional there has to be some standards development work not necessarily technology development, we feel we feel like the technologies available whether that is done.
Through a DC to AC conversion done outdoors externally or a onboard through by making the bidirectional chart by making the charger the level two charter with touch within the car by directional we feel like we're very well positioned to do all of those then and with regard to the standards we are actually actively.
Participating in the standard body to drive a dry start George to allow for bi directionality.
I think it's going to take some time, but we are actively involved we are also engaging very closely with a number of <unk>.
You'd be manufacturers, we are working on some.
Developing from pilots with them.
So we are very actively involved that's part of our E V Road map, what he mentioned the connectivity part in the control arm is just that's smart you'd be charged it attached only the very first step on a much broader.
Roadmap that we have for EV Chargers.
Okay. Thank you very much.
Thank you.
And our next question will come from Gus Richard with Northland. Please go ahead.
Yeah. Thanks for taking the question.
I think the guide for battery this quarter was 130 megawatt hours to 145.
Wondering if you could talk a little bit about what would cause you to fall on the low end of that range at one end or the high end of that range.
Is it for me.
Yeah I mean.
Typically conservative in our guidance.
We'd like to make sure that Oh, one of the things. We look at is really good channel. We look at we look at inventory, we had hawks and monitoring that.
Streaming discipline. So we gave ourselves a slightly wider range at this time, but like what I said, we're incredibly bullish about our business we.
<unk> loved using a product we meet with 10 to 15 installers every week.
We take down all of the issues that they have and all of the things that enphase needs to do in order to make sure their life becomes easier we take we take those actions we go execute them. So.
Yeah I mean.
We have we are quite happy with where we are we have grown at a 28% rate.
Whenever a debate in the last two years, that's not too shabby.
And we are forecasting a.
Continuous increase.
Yeah.
Got it thanks, so much.
Thank you.
And our next question will come from pennies to teach with Wells Fargo. Please go ahead.
Obviously very strong growth in Europe , I want to touch briefly on the Netherlands, I think theres. Some new net metering rules that are going to go into place. There next year can you talk about how that'll impact enphase that good and bad good or bad and when you see an acceleration due to more battery deployment.
Where it can attach rates go just curious for your thoughts on that.
Yeah, so the strike.
It means a clarification. It was net metering was supposed to two there was a glide path out of net metering starting at the end of next year, but right. Now there are discussions that that net metering could be pushed out by an additional couple of years.
So the good into bad debt of course, we would.
Of course solar continues to expand it and it's a net metering is a fantastic incentive program and so that is going to continue to expand at the rate you know.
That's happening as we speak and for the reasons that we alluded to which is a whole long electrification and and and the need for need for self consumption.
So the flip side to that of course is that we were expecting battery deployment in Netherlands to increase starting.
Starting in 2023 in preparation for.
The sunsetting of net metering and I think that's going to get pushed.
Pushed out probably by another 12 to 24 months.
But all in all in Netherlands.
<unk> is growing at a.
We have a very strong another end and Netherlands is growing at a very very good rate for us it's solar thing centered around solar and Netherlands, If you look at it.
One the subset of sector coupling indicted the E V.
Adoption is extremely high and Netherlands, and so it's a combination of solar and EDI and now that as we pump adoption also increasing there as the government is pushing to sunset the use of natural gas and of course natural gas is obviously in shortage as well so all in all in Netherlands.
Excellent market for us with solar and then eventually.
Storage as well.
Got it and then just staying on Europe , I mean, it sounds like you're gaining share partly because competitors don't have supply so.
So I guess, what happens where competitors their rebuild supply do you think that will impact your growth or do you think once an installer tries an enphase product. They they don't go back to competitors I guess, just how durable is the growth.
Thanks.
You cannot we cannot be arrogant we.
We need to create.
Create meaning we need to provide value to the installers, which is high quality, which we think we.
We are.
Quite good debt when compared to competition.
So we have a good day it in terms of customer experience.
You know.
We pride ourselves on net promoter score.
In answering the calls.
Hmm.
We need to continue to do that that's a big differentiator for them and face the last one is.
Is what.
Yeah, that's what I said in the sector coupling, making sure that we take care of the homeowner to not have disparate.
Things in his home, which are all connected.
Is one experience manage your energy.
And shoot that things like EV Chargers and heat pumps.
It seamlessly to the home energy management system.
Do that flawlessly take care of customers.
Need to earn that business. So I I have no no qualms that this business is here to stay.
But.
We will focus on quality and customer experience and usually we get that right.
The customers will stick.
Thank you.
And our next question will come from Jeff Osborne with Cowen and company. Please go ahead.
Okay.
Hello, Jeff Your line is open.
Oh, sorry, sorry.
Sorry about that thanks for squeezing me in I appreciate it.
The the commentary so far I was wondering if you can comment on the IQ eight mix over time, where do you think that can go I know theres some customers like sunpower, they're still using IQ seven is there a possibility that that can go to 80% or a 100% overtime or what's the ultimate destination in terms of mix.
Yeah, I mean, we.
We're not going to comment on specific customers, but our target is to get to 90% by the second quarter.
2023.
Got it and then quick one for Roger is there any progress that you can share on the gallium nitride development for IQ night.
Yeah.
Don't have any specific details to share but in terms of technology are absolutely we are continuing to.
Developed a b the gallium nitride based microphone Burger so yeah.
Probably at the next.
Analyst day, we may have more and more things to share, but I'm just kind of give you I'll give you some color.
I think we understand at home to work with.
Yeah Yeah.
You know the the devices come in in a similar form factor that we have to use two photos.
High voltage fits today's silicon fits which is great.
We need to do work on the Transformers, which we understand and it's well underway.
We need to work on the gate drivers, which we understand that's well under way.
So I think it is it is a matter of 12 to 18 months and I think we have.
We're going to have the first gallium nitride product.
So it's gallium nitrate the Daytona.
Yep.
And our next question will come from these your parents Zhou with Susquehanna. Please go ahead.
Alright. Thanks for thanks for taking my question I had a question on the U S micros.
And.
So based on some of the checks that we've done it looks like the long tail installers are maybe able to control their costs, a little better than some of the larger installers. So.
Are you seeing any indications that the installers on and are they gaining market share. When you look at them as you know collectively just wondering.
If that's a tailwind for the domestic business.
We don't we don't see.
Exactly what you said.
We do see that the demand is very strong.
We do see both installers doing well, thus the big installers as well as the small install this.
The small installers, usually they understand you know.
They are local they understand what the homeowners they understand about the area.
They can give them more personalized service and.
You know that that that kind of business the long term.
The long tail of installers is is is where we add the most value because.
They don't want to.
B on calls.
The reference to quality issues or the service issues, we had the most of them do that.
But we arent seeing.
One category versus the other category.
And changing much.
You know right now.
Okay got it and I had a follow up on battery shipments I think in the past.
You had some.
And so I just maybe waiting on features like a load control and and things like that so is there sort of a similar dynamic now with Ah Ah.
It seemed that the five P product.
I think it's still coming out second half of the year end.
Then you mentioned the next generation battery coming out in.
Our next year.
Yeah, the yes, just to say that.
We already have load controllers that are available don't installers.
Generation door controllers, we have generates a compatibility available installers.
So all of those are fully available today.
The IQ battery five P is our third generation battery, that's gonna be available M D.
Early 2023 is what they've said.
And that's you know the first quarter of 2023 is what I said.
And that the focus for that battery is hype out.
Doubled about both continuous and peak boat.
And is to basically you know.
Do some more improvements in overall commissioning.
Go to a wired farm of connectivity, which is wireless.
Just you don't focus on removing.
Any pain points for the installer and home more.
And our next question will come from therapy Karp with Keybanc. Please go ahead.
Hi, Good afternoon. Thank you for taking my question.
Just wanted to follow up on the mix of like you get seven right.
How what do you.
Can you elaborate on the strategy of how you are.
A shift in that mix in the U S and in Europe .
In other words is there more penetration up actually in the U S versus Europe .
First of all the regions.
Sure.
Other regions will move to IQ eight eventually that's what I said, we will move to I can wait.
90% of her micro Inverters will it be a QE by the second quarter of 2023.
Have gotten started with the U S.
37% off of it overall micro inverter shipment this quarter.
With IQ eight and primarily into U S. North America, but we are soon going to start introducing IQ eight micro inverters into Europe .
Nathan later this year, we are going to start with and we're going to start with Netherlands.
France, and then move on to Germany, and the other countries. So.
Our plan is to get to 90%.
By Q2 'twenty three.
Got it so in the U S as you're rolling this out.
Many I dunno pricing push back on them from dealers. There maybe is there is there any risk at all that.
We are maybe losing share if you.
Two IQ eight's based on pricing to some cheaper okay, and if so how much of it.
Absolutely not no share loss.
It is it is that when we explained the value up IQ eight people, they do understand and like what I said that sounded like backup unlimited solar.
To reiterate issue and the concept of sand Lake Jumpstart when the battery's dead.
The concept of assembly, jumpstart, which vitor.
Hi, Lee.
Differentiated features from competition. So they do understand that now when you know if they have a short term problem in terms of conversion that we arent able to ship IQ seven to them for example in the next in the next few.
Days weeks, we do understand the situation and we work with them so that you.
You know and the pricing is palatable for them for a short term rental. They then start paying the full price for IQ eight.
Yeah.
Yep.
And our next question will come from Cameron Lochridge with Stephens. Please go ahead.
Hey, good afternoon I appreciate your taking my questions I guess I wanted to start really just Don European price cost dynamics Bugger, I think I heard you say earlier Europe gross margins are at parity with with the U S. And so I was just kind of wanted to unpack that a little bit is that are you able to do.
To comment on the pricing dynamics in Europe .
Versus the U S that potentially allows you to maintain that gross margin parity.
Something on the cost side that maybe comes out in Europe Ah that detonator was that gross margin parity.
There's nothing on the cost side.
Basically we work with long tail installers in the in Europe . They.
They care about a lot of things they do care about price, but they care about quality and service even more and you know we are able to get.
You know, we're able to price them appropriately.
We provide.
Yeah.
Got it.
Thanks for that.
Switching real quick to batteries I think last quarter, you mentioned that.
Your battery device is able to be paired with pretty much any embroider on the market.
Correct me, if I'm wrong, there, but I guess, if you could comment on what percentage of your battery sales right now go to a third party or paired with third party and Burger solutions versus your own and how you see that developing over time.
That goes back to Vic to Europe , where we what we did was we released you know we've made out IQ batteries compatible to third party string Inverters.
And we are just getting started there we don't have we don't have much statistics right now to give you what the name of the game was quite simple you know.
Many of many of the homes in Germany, and Belgium already had solar from string Inverters they would in stores quite sometime.
Got some time ago, and they need batteries and they were not getting batteries. So it was a very popular.
It was a popular demand.
From the installer, saying why don't you make your batteries interoperable with other string Inverters and we did that.
Yeah.
And this will conclude our question and answer session I'd like to turn the corporate Secretary to Badri Coke Coke Rod hooked onto Rob the Robin for any closing remark.
Yeah. Thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter.
Goodbye.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
Okay.
[music].