Q1 2023 Enphase Energy Inc Earnings Call
Good day, everyone and welcome to the Enphase Energy's first quarter 'twenty to 'twenty three financial results Conference call.
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At this time I'd like to turn the floor over to you Karen I get ma'am. Please go ahead.
Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's first quarter 2023 results on todays call are Patrick Thunder Aman, our President and Chief Executive Officer, Mandy Yang, our Chief Financial Officer, and recoup Miller, our chief products Officer.
After the market close today and issued a press release announcing the results for its first quarter ended March 31 2023.
During this conference call and Chase 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 of homeowners and installers, our operations, including manufacturing and customer service and supply and demand anticipated growth in existing and new markets.
Timing of new product and niche introduction and regulatory matters. These.
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-Qs filed with the SEC.
Can 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 a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release furnished with the SEC on form 8-K, and which can also be found in the Investor Relations section of our website now I'd like to introduce Patrick Carpenter, Amon, President and Chief Executive Officer of Enphase Energy Badri.
Good afternoon, and thank you for joining us today to discuss our Q1 2023 financial results.
We had a decent quarter.
Revenue of $726 million.
Approximately 4.8 million micro Inverters and 102 megawatt hour.
Batteries and generated free cash flow of $223 $8 million approximately 65% of.
Q1, micro inverter shipments with IQ eight.
We exited Q1.
46% gross margin.
14% operating expense and 32% operating income all as a percentage of revenue on a non-GAAP basis.
Andy will go into our financials later in the call.
Let's now discuss how we are servicing customers.
Our net promoter score worldwide was 75% in Q1 compared to 71.
In Q4.
Our North American M. P S was 77%.
Baird to 74 in Q4.
Our average call wait time was 1.2 minutes compared to 1.6 minutes in Q4.
We are focusing on their own cause fixes of customer issues and improving our business processes rapidly to enhance customer experience.
Let's talk about micro inverter manufacturing.
Oh in order to play environment is quite stable and no major shortages right now.
We began manufacturing at flex, Romania in the first quarter.
Bringing our quarterly capacity to approximately 6 million micro inverters.
Our European business is growing rapidly.
Many customers have all just for local manufacturing and we will be able to do that going forward.
That's come to the U S manufacturing.
As we discussed last quarter.
The reduction act will help bring back high tech manufacturing to the U S and stimulate economy through creation of new jobs.
Opening manufacturing lines with three different.
Manufacturing partners, adding a capacity a foot point.
5 million micro inverters per quarter.
Bringing on it well.
All global capacity to 10, mainly in micro Inverters water as we exit 2023.
We expect to begin U S manufacturing with one partner.
In Q2.
And with the remaining two in Q3.
Let's now cover the regions or the.
U S and international revenue mix for Q1 was 65% and 35% respectively.
In the U S revenue decreased 9% sequentially due to seasonality and macroeconomic condition.
And then could you just 28% year on year.
The sell through of our micro Inverters in Q1.
Decreased 21% sequentially compared to Q4 worse than the typical seasonality of 15%.
Our micro involved with channel inventory at the end of Q1 was relatively normal.
The storage channel inventory was literally on the beach.
I'll go into detail later on the call.
In Europe , our revenue increased 25% sequentially.
And more than tripled year on year.
Our Europe non-GAAP gross margin is quite healthy all but 45%.
Another point to note is that the sell through of our micro Inverters in Europe reached an all time high in Q1.
We are now shipping IQ micro inverters into France.
Spain and Portugal.
In addition to Germany, and Belgium, we just recently started shipping IQ batteries to Netherlands, France, Austria and Switzerland.
Let me provide some brief comments on Latin America, Australia and Brazil.
In Latin America revenue decreased 2% quarter on quarter and increased more than 70% year on year.
Revenue in Australia increased 6% quarter on quarter, while our revenue in Brazil more than doubled.
We are growing very rapidly in Brazil, and given the big market size, we are expanding the team and prioritizing new products.
Let me provide some additional color on the U S followed by Europe .
We usually they take names revenue when we ship product to distributors and large installers.
Most of our installers and buy our products.
From distributors.
It is absolutely relevant for us to talk about the sell through of our products from distributors.
In stores.
Since we have a healthy market share in the U S. Our statistics setup meaningful representation.
The business trends.
As I said earlier on this call our sell through of micro Inverters in the U S was 21% less in.
In Q1 compared to Q4.
Our sell through in California, It was only 9% lesser than Q4.
There was some impact due to the random in early Q1, but the NIM to lot of rush in Q1 more than compensated for it.
California Installer took advantage of the NIM toward auto rush.
And have moved up.
Backlog for the next three to four months.
We believe installers I didnt expanding their crews to accelerate installation.
They are laser focused on the cash flow due to the high interest rate environment.
And Theyre looking clarity Ford.
Yeah clarity on the memory demand.
That is true of our batteries in California was 23% less than in Q1.
Compared to Q4 as installers focused mainly on solar.
We expect this trend to continue for the next three to four months.
After that we see men thrilled at all as a net positive for California, and expect strong demand to resume for solar plus storage.
Let's call it the rest of the U S.
The sell through of micro Inverters and non California States.
Was 25% less.
In Q1 compared to Q4.
We observed that the sell through was evenly lower in states with low utility rates, such as Texas, Florida and Arizona.
In these states the economics of loan financing.
As well there.
Due to rising interest rates.
The sell through performance in the northeast U S was a little better.
Coming <unk> batteries, the sell through in non California out of state.
Was 28% lesser in Q1 compared to Q4.
Let's briefly discuss the health of the U S customer base and some trends in financing.
Q1 data.
It shows higher sell through rates for the long tail installers compares to tier one and two installers.
Installers in general are navigating three key challenges.
First the rapid increase in interest rates over the last year.
Second is switch from selling low APR with high dealer fees.
The selling market rate loans with low dealer fees.
And third the delayed payment from the loan originators or does the industry caused that.
Introduction of <unk> payments.
That's just because it's about the second and third challenge.
We see the move to high EAP yard in low deal a few loans that are positive for the industry.
The demand for market rate loans remained strong new capital providers, who were not able to buy below market rate loans are now offering solar financing installers on adjusting their sales practices, but a higher interest rate environment.
We're also seeing new lease providers entering the market with focus on.
On servicing the long term.
We think capital will be available for both long term.
We have a long tail of installers, regardless of the mix of loan and lease.
On the reduced one payments.
Loan originators are providing less cashed installers at the time of contract signing.
And a greater percentage after installation.
This creates a working capital challenge for the installers and forcing them to become motor piece.
And they installed the adjust to this new reality.
We expect the sell through of micro Inverters and batteries to incrementally improve in Q2 compared to Q1.
You would do with seasonally stronger and should help the situation even more.
Let's come to Europe , our European business is doing very well.
We expect healthy revenue growth in Q2 compared to Q1.
Business is growing much faster than the market.
We plan to introduce IQ eight micro inverters and batteries into many more countries in Europe throughout the year.
Our value proposition our value proposition is a differentiator in home energy management systems.
Combined with high quality and great customer experience.
We are integrating the products from our latest acquisition income networks into our Enphase home energy system, starting in Germany This quarter.
This will help network third party EV Chargers and heat pumps with Enphase solar plus storage system the.
The benefit to homeowners the reduced electricity balances due to increased self consumption. In addition to having control via the MTA is that.
Let's talk about new products.
I say internally in the company that 2023 is the year of new products and it's coming in good time.
Yeah.
We are we are getting ready to launch our third generation IQ battery.
In North America, and Australia this quarter.
In Australia, we will also launch the IQ eight micro inverters.
As I previously discussed.
The IQ battery as of modularity of five kilowatt hours.
And delivers double the continuous and triple the peak power compared to our prior generation of batteries.
The higher the charging and discharging rate of a third generation battery will be uniquely beneficial for NIM three daughters system in California through its ability to generate revenue by exporting into the grid at the appropriate time.
In addition, our third generation battery is very easy to install and commission.
We are currently piloting these third generation batteries in Australia, and the U S with selected installers and very excited about the experience, we had about or deliver to our customers.
Next let's talk about our latest new product for the residential segment in emerging markets.
This product the IQ eight P micro in volatile weather and delivered 40 watts of AC powered supporting panels to 650 Watts DC for Brazil, Mexico, Spain, India and emerging markets.
We are on track to release IQ eight b into production in the second half of the year.
Yes.
The other would be the end device to a P. Micro inverter with the new three phase cabling system is well suited for small commercial solar installation.
Ranging from 20 to 200 kilowatt such as gas station schools hospitals judges and small businesses. These.
These micro inverter systems offer the same grid compatibility high quality and rapid shutdown capability as a standard residential products <unk>.
We expect to release this product into the U S small commercial solar market in the second half of 2023.
Let's discuss EV Chargers.
We shipped over 8600 charters in Q1 compared to 7600 Chargers in Q4.
We are now shipping and face Brendan EV Chargers from Flex Mexico.
LP has increased capacity and reduce cost.
We are on track to introduce IQ Smart EV Chargers in Q2.
These charges will have Wi Fi connectivity, enabling use cases, like green charging and allowing homeowners visibility into operation of the Enphase solar plus storage plus EV charging system through that App.
Let's now discuss the installer platform.
We released several updates to our solar graphic design and proposal software, including basic <unk> functionality battery design document management another improvement as requested by installers.
More than 1000 installers using the software.
And then treat auto incentivize homeowners to use solar and battery systems for avoiding energy imports one compensating homeowners for exporting energy.
When the grid needs it.
The updated solar glass platform offers a simplified experience for designing and then three doses them by optimizing panel placements configuring batteries same thing leveraging its modularity.
And enhancing system operations for self consumption and energy exposure.
The best possible payback.
See that solar plus storage under amendment three dose can achieve a payback period between six and eight years, depending on the utility as.
As we said before the higher power of third generation battery helps us to export more energy to the grid.
And maximize savings.
Let me conclude.
With the residential solar and storage market is growing rapidly in Europe , we are in a great position to significantly accelerate our business.
The situation in the U S is a little different with named three two in California, and the macroeconomic challenges in rest of the U S. Our strategy doesn't change we are focused on working closely with our installers to address that issues, making new products and entering new markets and countries.
The fundamentals are intact for our industry, the 30% ITC for the next decade, the rising utility rates the focus on climate change and the desire for resilience are all going to push the need for solar plus storage more than ever before.
With our differentiated products high quality and exceptional customer experience, we are in a strong position to capitalize on this trend.
With that I will turn the call over to Mandy for her review of our finances mandate.
Thanks, Sanjay and good afternoon, everyone.
I will provide more details related to our first quarter of 'twenty to 'twenty three financial results as well as our business.
For the second quarter of 'twenty to 'twenty three.
We have provided reconciliations on these non-GAAP financial measures no earnings release posted today, which can also be found.
Hi.
Total revenue for Q1 was $726 million.
Oh from the fourth quarter of 2022.
We shipped approximately 1957 megawatts DC of Michael Your brothers and 102 megawatt hours.
Nice quarter.
non-GAAP gross margin for Q1 was 45, 7% compared to 43, 8% in Q4.
The increase was driven by increased product mix and impulse nature.
Gross margin was 45% for Q1.
GAAP operating expenses were $98 $4 million for Q1.
$10 million to $87.7 million for Q4.
Increase was driven by international growth and R&D.
Yeah.
$158 $7 million up to one compared to $153.7 million for Q4.
<unk> expenses for Q1, including $56 million I'll stop based compensation.
And $3 $7 million of acquisition related expenses and amortization of acquired intangible assets.
Southern Dallas, all restructuring and asset impairment charges.
Income from operations for Q1 was $233 $6 million.
Compared to $229 $4 million for Q4.
Okay.
Income from operations was $167.7 million for Q1.
Compared to $157 million for Q4.
Oh, okay.
Net income for Q1 was $192 million compared to $212.4 million for Q4.
There's nothing non-GAAP earnings per share of $1 37 for Q1.
<unk> to $1.51 for Q4.
GAAP net income for Q1 was $146 $9 million compared with GAAP net income of $153 8 million for Q4.
This would be something that I know that earnings per share of $1.02 for Q.
Q1, compared to $1 64 to five less decline for both mindset.
Earnings per share driven by our higher effective tax rate.
And is that the U S.
Per.
Yeah, actually I think Q1 with a total cash cash equivalence and marketable securities balance of $1.78 billion compared to $161 billion at the end of Q4.
We did not make any open market share repurchases against our $200 million share repurchase authorization.
But it's been approximately $72 million to cover withholding taxes on employee stock vesting in Q1 that we do.
The diluted shares by 338000 shares.
We expect to continue these anti dilution program throughout the year.
In Q1, we generated $246 $2 million in cash flow from operations and $223 $8 million in free cash flow.
Capital expenditure was $22 $5 million for Q1 compared to $16 $4 million for Q4. The increase was primarily due to investment in R&D equipment and U S manufacturing.
Now, let's discuss our outlook for the second quarter of 2020.
Revenue for the second quarter of 'twenty to 'twenty three to be within a range of $700 million to $715 million, which includes shipments of 80 to 100 megawatt hours off actually.
We expect GAAP gross margin to be within a range of 41% to 44%.
non-GAAP gross margin to be within a range of 42% to 45%, which includes which exclude stock based compensation.
And acquisition related amortization.
Guidance numbers do not include any I don't know.
We.
Operating expenses to be within a range of $155 million to $159 million.
Approximately $57 million estimated for stock based compensation expenses.
Acquisition related expenses.
Amortization.
Our restructuring charges for site consolidation.
We stay on a non-GAAP operating expenses to be within a range of $98 million to $102 million.
We intend to keep the non-GAAP operating expenses flat in Q2, we will continue to invest in product innovation and international growth, while making other areas of the company more efficient.
Moving to the tax season, we have utilized most of our net operating loss and research tax credit carry forwards. We are noticing as I pay U S. Cash taxpayer, we expect GAAP and non-GAAP annualized effective tax rate for 2023 could be at 22% plus or minus 1%.
Before any II impact.
Now I'd like to discuss how the advent manufacturing production credit.
It would be reported in our earnings while waiting on the implementation guidelines from the U S. Treasury is.
Based on the current guidelines that production credit can be claimed erect pain or in a form of tax credits.
And that direct pay the production credit would be accounted for as a reduction also push yourself.
And tax credits.
It would be reported in the taxi space.
He doesn't need that would provide us the same dollar impact to our earnings per share.
Production credit is nontaxable.
We expect the production credit net of any incremental costs for domestic manufacturing to be in the range of 20 to $30 per microliter, rather sold to customers.
We expect to ship 50000, making U S eight Michael Lehman brothers to customers this quarter.
We plan to have our U S contract manufacturing facility for be fully operational by the end of 'twenty to 'twenty three.
We estimate shipments to reach our U S capacity of <unk> 5 million of Michael your mother's per quarter by the end of 'twenty 'twenty four for me robust debate.
With that I'll open the line for questions.
Yeah.
Ladies and gentlemen at this time, we'll begin the question and answer session.
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At this time, we will pause momentarily to assemble the roster.
Our first question today comes from Colin Rusch from Oppenheimer. Please go ahead with your question.
Thanks, So much guys can you talk a little bit about.
Channel levels outside the U S and how much of the <unk> guidance is really about.
Selling into the channels I get the channel for the to serve the markets and and both Latin America and in Europe .
Actually in Europe channel is rather late we've been tight on product.
In the last few quarters and so the channel is light by late I mean.
We continue to channel to be normal between eight and 10 weeks of inventory and light means less than eight weeks. So.
Basically that's that's the situation there.
Okay, and then what the battery volumes.
It declined sequentially and continuing into Q can you talk a little bit about how much of that is related to the product cycle. You guys are going through and how much of that is just related to overall underlying demand.
Yeah.
On batteries as an executive team we have a.
Hyper focused on batteries as much.
Arizona micro and murders.
Of learning curve.
On batteries has been tremendous.
As we speak.
Our second generation batteries.
Uh huh.
We're getting better and better every day in both their installation and performance.
Our third generation battery like what I said is coming soon.
And to the U S and Australia in Q2.
That will be even better.
With wired communication and with double the.
The continuous power and triple the peek forward.
And with enhanced modularity as well as serviceability that helps us.
And dropping costs compared.
Compared to the prior generation and of course, it fell a fee. So it's a it's the safest battery.
The demand in the U S.
That demand being down is temporary.
Describe the dynamics due to the magnitude or to pull in California, as well as increased interest rates outside of California. We believe that's a temporary problem installers, we'll figure out what to do outside and California are incredibly bullish on them $3.
We think our battery is going to be perfect for them because the increased power of the battery.
We'll give them the ability to export more energy during the time when the grid needs. It in August and September and people can get paid handsomely for it.
And because of that you'll see the payback for a solar plus storage system under <unk>.
Ultimately six to eight years, depending on which utility you're in so we think you know.
$3 2 million.
Accelerated the attach rate of batteries and.
You know it might take a little bit of time for the and for the industry and for the.
Consumers you realize it but.
I have no hesitation that memory will be better for California, now, let me come outside the U S.
So far we have been shipping to.
Germany, and Belgium in Europe this quarter.
I would say in end of March as well as in the beginning of April we introduced batteries to photo.
Two to four more countries.
Basically France, Netherlands.
And.
In Switzerland.
Yeah, I'm actually Australia to correct myself that was.
Month or two of them. So we just introduced batteries.
Four countries.
We are going to introduce.
Our third generation battery in Australia in Q2 in addition to the U S.
In both Q3 and Q4, we are going to target several more countries in Europe .
We'll be in Italy, and UK by by Q4.
So on the batteries.
We are just getting started in Europe , and I think the volumes.
We'll start ramping that and in the U S.
It is a matter of time the rest of the U S recovers the installer start selling batteries again and in California. It would be a no brainer with named <unk> don't know.
So the numbers are only going to get better from here on.
So long answer I, just wanted to give you a full picture.
Alright, thanks, so much badri I'll hop back in the queue. Thanks, guys.
Yeah.
Our next question comes from Mohit <unk> from Credit Suisse. Please go ahead with your question.
Hey, good evening, Thanks for taking my questions here, maybe just on the battery question just to elaborate on that do you see any opportunity for you.
Lower.
Kilowatt battery, which is mostly used to.
The <unk> device with us.
Our full home backup solution, just any thoughts on that kind of a device switch.
Where you could use your gen two producing vessel.
Yeah, I think both Gen two and Gen. Three the if you look at Gen three but he mentioned isidora, who by the way the power is double the Max continuous power of the Gen two and three times the peak power.
The peak power as a reminder, is what gets us to.
To manage.
Loads during startup time.
But do you answer your question.
The power is can be modified we can set the limits to what the power needs to be in software. So what that does is it just makes the whole process very efficient for the installer. They have got one SKU to purchase to convince Tobias installed that one SKU, which would be the five kilowatt hour SKU and then they can vary the power depending on what the.
Homeowners needs or whether that is going to be a net three system, which could be just one battery with a PV system and it happens to be grid tied for example, or.
10 kilowatt hours of battery that could be providing partial on backup or you could be doing 20 kilowatt hours and doing whole home backup. So all of that the beauty of the system is that it's all can be configured in software and gives you a tremendous amount of flexibility and simplicity for the installer.
Got it got it.
Just second question from me on Asp's, if you could just talk about how to think about.
ASP trends here, you talked about inventory being slightly light in Europe , but.
As we kind of come out through the rest of this year and then some of these component shortages and logistic issues.
Slowed down do you expect any.
The reduction in Asps in Europe , or the U S markets.
We don't see any drop in pricing in fact, you see our gross margins sequentially up a couple of.
Per cent from.
Q4 to Q1 and also broke out the gross margins in Europe , because some of you.
Had been asking me the gross margins in Europe are incredibly healthy.
35% gross margin in the U S is incredibly healthy.
And our pricing is.
Stable for us gross margin means both price as well as cost.
And so we do value based pricing, which is basically priced products.
Based upon the value they bring compared it to the next best alternative like <unk>.
Batteries. It may be increased increased power increased safety and micro inverters. It may be increased quality increased service.
So that's on the pricing side on the cost side.
We have you know.
As far as the trends all of the time guard.
World Class costs. So we are constantly discovering ways to save.
Ascent and the micro inverter for example, based on last year's shipments last year that we shipped 15 million micro inverters in 'twenty to 'twenty two so one cent reduction for us means $154000.
So it's very important for us and even one cent reduction even half a cent production is important for us. So we take it extremely seriously on batteries.
With a third generation battery, which has got higher modularity of increased serviceability now I think we can reduce the overhead contribution and cost to a sale to a minimum.
And on batteries.
Gross margin of every generation will get better than the prior generation.
Long answer again, but you know asps, we do not.
See much change.
And our cost programs are going well.
Got it I appreciate it thanks for taking my questions here. Thanks.
Okay.
Our next question comes from Corrine blocker from Deutsche Bank. Please go ahead with your question.
Hey, Thank you for taking my question could you comment a little bit on competition.
Versus China based company and maybe at.
The risk of mountain and how long do you think that market.
Yeah. This is Rob again.
Competition is strong everywhere.
It's been it's not nothing new.
Both here in the U S as well as in Europe .
And so for US we are always striving to make sure that we are providing a.
Brining value and providing a highly differentiated solution. So if you look at the solution that we provide them both.
Both here as well as the U S from a product point of view and talk about other stuff as well from a product point of view.
Truly a distributed architecture that gives us much better performance much better reliability and because it is a low voltage DC system, both solar and batteries et cetera.
It's arguably let's say for as well.
Addition to being very simple to install and maintain and manage.
The second thing. We also look at very closely is that providing very high quality high reliability products and that's again a big differentiator.
Largely the architecture as well as all of the work that we do and delivering a very high quality product and finally, its customer service, making sure that.
But he mentioned if you look at what our NPS is look at what our call wait times on if somebody calls us.
We answer the phone immediately it's one phone call to make because typically they are buying the entire enphase system and so.
Delivering the best customer experience both for our installer part for a distributor partners installer partners as well as.
For the moment for the homeowner they've just one app to two or to look at making sure. They have the control of the entire system and the partner often so to summarize it's highly differentiated product high reliability products and great customer experience and that's how we manage what we deal with the competition.
Factored in.
In pricing and gross margin as Badri mentioned.
Alright, thank you.
Now I'll turn it over to her.
They'll pay but are.
Coming back to California.
MS. Sharon there's about a three to four months backlog from the past that was done Q1I know you do not provide nice.
So, though the next quantitative guidance, but do you do you expect I think sequent shot improvements wildly Yeah me neither.
First on the iPhone the yeah based on the first Eiffel.
Trying to get those deal with it.
It's hard for me to say right now, but I know that men $3. Two it's got great fundamentals in California.
And contrary.
To what.
What I.
From the reports.
You know it is it doesn't change the selling from them to lot of telemetry data requires the installers toward act.
And now the storage attach is going to be.
A lot more it is a change in selling.
It is a change.
They are not used to yet so the next three to four months, we'll be probably well spent in training the installers on how to sell <unk> because of its name three the auto now.
The consumption of the homeowner is important.
<unk> got tenants for 24 hours do you think the day times 365 days a year, so 8000 plus points 8000, plus data points.
So it's a very important year consumption profile is important.
So your.
Savings, obviously depends on the country on the consumption profile. So we need to make a few things clear too.
The homeowner and we need to.
Clearly tell them that basically.
Yeah, Hey, my vote that self consumption.
You are going to do self consumption most of the time, which means what your assumption is going to be matched by either solar.
And our storage.
But during the months of August and September .
We have all seen blackouts in California during the months of August and September why because the demand on the grid is higher than supply.
They are in August and September .
Undocumented auto you'll get paid for actually helping the grid.
You get paid handsomely.
And at that time battery is going to be your best friend.
You are going to be making a lot of money on batteries.
So.
I think my personal opinion is named three auto.
Of course, it requires a lot of evangelizing a lot of selling but many prelaunch, though.
Will it be a catalyst for the solar plus storage.
Like Germany, if you go look at Germany.
Germany.
The solar market is over here.
Gigawatts, maybe three Gigawatts right now, yes actually it is over 80%.
And it's a pure self consumption market.
And the tariff structure is similar.
It's I think the important ranges 41 euro cents per kilowatt hour.
And the export is something like 11 euro cents per kilowatt hour. So very similar construct I think the result will be the same of course, its not going to be overnight, it's going to take time.
But great for the long term.
Thank you.
Okay.
And our next question comes from Brian Lee from Goldman Sachs. Please go ahead with your question.
Hey, Roger and team thanks for taking the questions maybe just to follow up on that one just if if we.
Drill down on.
Storage specifically.
That hasn't really been growing here for for a number of quarters and youre guiding sequentially down their own shipments.
<unk> three point out it sounds like Youre going to take a little bit of time to showcase to the market, but do you anticipate that your.
Storage volumes will grow sequentially at any point.
Moving through the rest of this year that'd be my first question.
Follow up.
Yeah, I think so.
What are your volumes are going to go.
You know Q2 is probably the low.
They are going to grow.
From here on and simply because of one reason, we are going to be introducing batteries to a lot more countries. We just introduced four countries.
And.
We are going to be introducing the third generation battery.
In Q2 this quarter.
Then we are going to be introducing the third generation battery in multiple countries in Europe . So.
<unk>.
<unk> is a part of the equation, but not the only thing in the equation.
And eventually the installers are going to figure out how to sell batteries and rest of the U S.
The high interest rates.
So like what I said I think we were turning the corner on batteries.
We have understood how to enhance the customer experience, even our second generation batteries are best in class right now.
The third generation batteries will obviously make things even better with double the power than a double.
Double continuous triple peak.
Yep.
Okay understood. So Q2 of a point that's helpful. And then just as my follow up would be.
No I appreciate the additional commentary about sell in versus sell through and providing that context.
But I was a little bit confused as to what it means for.
Channel inventory situation and kind of what you're expecting because it almost sounds like you know with zelle.
South Korea being down much more than sell in that maybe inventory levels in the U S or are elevated I know what you said it was on battery storage, but not like throws but when do you expect maybe sell in and sell through that kind of match up more.
Aligned and then I.
I guess, what is sort of there.
Viewpoint on you know whether there is some inventory drawdown, that's impacting your near term sort of volume opportunity.
Thanks have you if youll see if you see a mathematic trade if youll see one week, one week of channel inventory.
Equals roughly 7.5%.
Right.
Off after quarter right. If you split the quadrant 13 weeks so.
One week is basically seven 5%, so if something let's say.
If and.
In one quarter, if the sell through is let's say, 15% down that equates to two weeks of inventory.
And so it is it is it is not.
Over the top it is if you if.
If your normal channel inventory is somewhere around 10 weeks or eight to 10 weeks.
This would result in them.
Late in sort of eight weeks you would be at 10 weeks.
That's what you were talking about so now having said that.
Is <unk>.
We expect sequentially better sell through.
Q1 is usually.
For sell through due to a combination of.
Oh Windows plus now there is a macroeconomic effect on topic.
So Q2 is seasonally better plus with installers getting.
Little bit more adjusted to the situation.
Things that are going to be incrementally better.
In terms of sell through.
In Q2 onwards.
Okay I appreciate that thank you.
Yeah.
And our next question comes from Philip Shen from Roth MK and please go ahead with your question.
Hey, guys. Thanks for taking my questions. The first one is on pricing as a follow up.
To a prior question you know our check suggest pricing through the U S. Rosie ecosystem is coming down rapidly. So U S. Resi solar module pricing is down 15% to 30 plus percent.
Power wall pricing is down meaningfully.
Some of your inverter peers have lowered inverter pricing. We've heard that you guys have met you may have lowered pricing.
As well for specific larger customers on a one off basis.
I think by June you just mentioned that you don't see any drop in pricing.
But can you talk can you give us some more color on how you expect to maintain price, especially in this more difficult environment.
And and can you talk about price specifically in Q3 and four if you expect it to hold how does it hold and if if there is some risk maybe talk about that risk. Thanks.
You can see our numbers.
Gross margin is two percentage two percentage points better.
In Q1.
In Q4.
And it basically comes because of our disciplined.
You know pricing pricing management.
Plus the conversion for us do IQ eight <unk> comes with an outstanding cost structure.
And right now we added 65% converted to IQ, Inc.
We expect to be at.
Nearly 90% converted to IQ eight by Q3.
So.
And we have a we have an active cost reduction.
You know I felt going on so even if we do.
You know one off deals for example in order to.
Accelerated our market share in.
These are not going to cause a dent.
I know for us so we expect pricing to be generally stable.
To be the same thing is true on batteries.
On batteries, we're learning rapidly we are learning a lot on on costs, especially the overhead costs.
The battery of returns the serviceability of batteries.
Tough if you ask anybody in the industry.
Thank you.
We are getting better and better and better at those basically improving the battery quality by root cause corrective action by understanding.
The effects by eliminating the defects by putting in permanent corrective actions in place then.
Also you know.
But are you seeing in serviceability into our new products, So why take down.
$3000 product from the World why not take.
Why not take down at $40 a board from the Wall Street.
Why not been embedded institute why not serviced.
They are in 30 minutes. So there's a lot of money to be taken out of batteries from a cost perspective, that's what we're doing.
Great really appreciate that color as a follow up their budgets.
To what degree do you think you might be giving up on some volume so.
No I.
I think touchless string inverter.
I know, they're ramping up and I think they are selling.
Inverters only and yes, I know your technology is.
Simply better does many things that they can't do.
But in this tough economic environment.
Installers, maybe prioritizing cost so with a high gross margin where you are now you may be able to maintain some share without giving much on price, but still you know keeping some of that volume so how.
How do you make that trade off between price and volume is as we can.
Get through the next few quarters.
Yeah I don't for me it is high quality.
Hi, Bryce.
And why because it's.
The entire comfortable ownership installers have become smart.
Smarter.
Basically they understand it is not about.
Just the price of the merger.
The time the money it cost them to go and address the failure is.
So huge compared to.
A few dollars more on the.
The inverter for high quality.
So high quality.
Is what we focus on.
And installers I realize that.
And they are continuing to work with us and you can see the leaders in energy usage reports.
For the data.
<unk>.
And the data is there.
So we don't plan on changing that strategy.
Great. Thank you so much for the color.
Our next question comes from Andrew <unk> from Morgan Stanley . Please go ahead with your question.
Great. Thanks, so much for the time.
Just wanted to follow up aggregate some of your prepared remarks around the health of the debt.
The customer base, specifically the long tail can you just maybe talk about what youre seeing from some of those customers talk a little bit about working capital needs.
But just when it comes to the financing environment the confidence level on their ability to get financing.
And then maybe on the other side of that to the extent the core long tail. It doesn't perform as expected with the optionality to sell to but some of the larger players in the market and what might that mean for pricing and margins.
Yeah, and just to recap what I said.
And it's good for us.
Everyone together to gain.
Is our overall sell through.
Off of micro Inverters in the U S was.
81% lesser in Q1 compared to Q4.
California was only 9% out of that because we understand the situation with NIM to Lotto.
So the.
The NIM toward our two rush basically.
Compensated.
Ford.
Any weakness.
Weakness due to macro.
And the rest in the rest of the U S.
The sell through dropped.
By 25%.
Compared to Q4.
And the most notable drops were seen in the states with.
The lowest.
Utility rates.
Texas.
Florida, Arizona.
Then we then did an analysis on.
No.
How did the long tail installers.
Yeah.
In comparison with the tier one and two installers.
We found an odd installed in Odyssey, yeah, not analysis the sell through rate.
Of long tail installers.
Quite better compared to the peer wanting to installers.
No I am not exactly sure of that.
The reasons I can only speculate.
Maybe their local.
They do a better job of servicing the client.
Maybe they deal with high value clients, but.
We thought you know.
We thought from the questions we had.
The long tail was going to be a little more stressed but we found the opposite.
Not data.
But having said that I mean, all installers are affected.
By three things like what we said.
<unk>.
Interest rates are high.
That's the first thing so so basically.
It's getting.
More difficult too and our solar with loans is getting a little more difficult to sell.
Basically earlier they used to do.
Low APR loans.
With tight dealer fees and that was common whether it's lung Taylor.
She had wanted.
Pier, one and two installers.
Now they are switching to.
Higher APR with lesser dealer fee, sometimes no dealer fees.
The cash flow issue.
That is the milestone one payment is a lot reduced now.
That's causing stress.
Some of the you know our expectation was some of the tier one.
102, installers may be able to handle that situation better than long tail, but we didn't know the data would indicate that.
For us the data set.
The long tail is okay is holding up.
And we think it is a matter of time, we think the industry as a whole is going to adjust of course there are.
A few installers, who Maine.
It may actually.
And I'll find it difficult, but in general the IND.
<unk> is going to adjust to the new loan structures.
Probably it's a big opportunity for more people to come in.
So the market to offer.
Loans and leases the long tail installers, and our leases the long tail installers hasn't been rampant.
But that's an opportunity that we see already.
A few players come in.
So I think it's going to be interesting to watch the situation and the next.
In the next few quarters, but I think this is a resilient industry.
And I believe things are only going to get better.
From here Q1, as I indicated is usually.
The worst quarter of the year due to seasonality.
And so that you know Q2 is usually a good quarter in terms of seasonality and with the adjustment.
Installers are making.
Running their business.
We expect things to be incrementally better.
Got it that's helpful.
And maybe just last one for me on net metering them officially.
Officially took effect I guess, a week or so ago.
Any kind of first indications from the installers in terms of what they're seeing in terms of to your point some of the friction points around quoting in installation.
Are they any indications of how much.
Growth might slow in California, now that especially taken effect I know, it's only a weekend, but any color there would be helpful.
It's only a week as you said.
We have talked to a number of installers all of them are optimistic.
That dash solar plus storage business can boom. They had all in all we shared at solar graph with them, we shattered the designs.
We showed them.
Three three examples, but a utility we showed them how.
So a lot of case looks we showed them that so let him know invest facing groups is not bad.
We showed them solar plus storage is actually.
Better than them towards auto.
Equivalent so.
No actually its total has gone up.
Meaningful savings right now.
Earlier with them toward auto storage.
Didn't have.
<unk> value in terms of savings, but it had a lot of value on.
On resilience now.
Storage provides economic advantage of medicine.
So the installers are getting it as I said, they do have a little time on their hands.
In order to start accelerating the originations.
But I think our you know the.
The data that supports it.
And we do expect we do expect like in Germany, We do expect good tight batteries to become popular.
Because I imagine you have eight kilowatt solar system.
And the crew is already there that installing the solar system and all I need to do is to install one of in phases five kilowatt hour battery and battery is not it is small it can be done very quickly on the wall that has no partial home homegrown nothing to worry about there's no work on them.
Panel, it's a simplified kilowatt hour battery and the broad savings right of it.
So.
Selling needs to means to pick that up I am sure they can sell it.
Understood. Thanks, so much for the time.
Thank you.
Our next question comes from Jordan Levy from <unk> Securities. Please go ahead with your question.
Thanks, all and thanks for all the commentary.
Quick one for me to follow up on.
Sure I'm just curious with the.
Use.
We feel industrial plan.
The shift in the competitive environment over there.
Okay.
So we can work it or anything like that.
Yeah.
No we haven't seen I think the competitive environment is what.
What has been there and it's consistent and so and as I mentioned earlier on the call, but given our differentiated solution our reliability customer service et cetera, we compete very effectively so I.
I don't think that environment has changed if I understood your question correctly.
And would you say thats true both on the battery and Microsoft.
Yeah, It's a solution play it right. That's the most important short answer yes, it's a solution play.
When people.
By solar that if you look at countries like Germany as an example.
When they see them installing a solar system, what they really mean is they are installing solar and batteries and chargers and heat pumps. So I think we have to provide the complete solution. If you want to be an effective player in particularly in Europe .
Great. Thanks, so much for that.
Our next question comes from Mark Strouse from JP Morgan. Please go ahead with your question.
Yes, good afternoon, thanks for taking our questions.
It's getting late in the day here, so I'll just stick to wanting to take the rest offline I wanted to come back to the Opex the guidance for <unk>. It was kind of flattish quarter over quarter, but just from a high level not necessarily looking for specific guidance, but from a high level I mean to the extent that the macro continues to deteriorate.
California transition might take longer than expected.
How should we think about opex going forward and kind of balancing near term profitability with.
A lot of the investments that you're making in geographic and product expansion and everything else.
You should always think about opex at 15% of sales.
That's the general Martin All I said in in Q2 that.
That we're not going to be compromising on innovation with not gonna be compromising on international growth.
To make <unk>.
Generally the company better in other areas.
But the baseline is 15%.
Revenue and we don't plan on exiting that.
Okay fair enough. Thank you.
Our next question comes from Christine Cho from Barclays. Please go ahead with your question.
Thank you for taking my question for the U S. Manufacturing I think you guys. Just said in your prepared remarks shipments should be four and a half million per quarter by the end of 'twenty four assuming Rome robust demand in the U S.
In the event that your U S demand is less than that would you still want to utilize that capacity and export the product and back out some of your production elsewhere.
Should we think about that.
Yeah, we will most likely do that but we.
We don't do things just for profitability, we do have contract manufacturing plants that are worldwide. We have worked hard to establish balanced manufacturing strategy.
So we.
We just need to be careful in looking through and making sure that we make the best decision for both profitability and balancing manufacturing.
Okay, and then you know on the IQ eight rollout that's been slower than expected could you just go into some more detail into what's driving that is it on the supply side with any of the components or is it on the demand side as customers sound like they've had to work through inventory.
You know over the last quarter or two.
And I think on the last quarter call. You you said you expected it to jump to 80% in Q2. So is that still the expectation and then just with the gross margin you know it is very high this quarter and you know the IQ eight drove that but your Q2 guidance is lower and batteries are lower so that's going to be less of a drag. So is this just conserve.
But to them or is there anything one off that we should be aware about Q1O Q.
There is nothing one off.
Youre right.
You know we had.
Well generally I towards 90%.
Q2 <unk>.
Last earnings call I told you a 90% by Q3, that's the number 90% by Q3.
80% by Q2, we'll be okay.
We are.
For example, in Europe , 15% of our volumes on IQ eight right.
Right now.
We are introducing IQ eight to many more countries as we speak yesterday.
Thank you H to Spain and Portugal.
As soon we will introduce to Poland, Germany et cetera.
We plan on doing the bulk of those introductions.
And this quarter most of them there will be some spillover in Q3 for a few more.
We very much wanted to achieve 90%.
In Q3.
So our target.
Yeah.
Yeah.
Our next question comes from Kashi Harrison from Piper Sandler. Please go ahead with your question.
Hi, Good afternoon, just one quick one for me. So youre currently sitting on call it $600 million of net cash generated around $225 million of free cash flow during the quarter.
So just wondering.
What your thoughts are on using the free cash generated this year to perhaps more aggressively repurchase stock. Thank you.
Yeah I mean.
We have stated our strategy. It is it is it is unchanged.
Basically first to make sure that we have plenty of cash for the needs of the business.
The capital that we need but.
You know our portion of U S manufacturing et cetera will do exactly that.
The next one we look at as we look at are there any.
You know M&A is that.
We shouldn't be taken advantage of no. We look at a number of companies on a weekly basis.
In the areas of batteries even in power.
And software in home Energy management, EV charging we look at many many areas and Hum.
That's the second priority.
The third one is if we basically you know if we have cash left over from number one and number two.
Be.
We'll buy back stock assuming the share price.
You know is below.
Conservatively estimated intrinsic value so.
We will do that board looks at it very carefully.
And you.
You know that's our strategy.
<unk>.
Thank you.
Yeah.
Our next question comes from Eric Stine from Craig Hallum. Please go ahead with your question.
Everyone. One here for me so I know a lot of moving parts, you've got a big revenue range on one hand less seasonality on the other channel inventory that you've detailed I'm just curious if you'd be willing to kind of go through a scenario that gets you to the high end of that revenue range.
Scenario that gets you to the low end of that range and maybe how that breaks down between the U S and internationally.
Yeah, I mean, we have.
We are pretty conservative when it comes to our guidance you should see our track record in general.
And are we do we do have like what I said, we do have.
A lot of.
Yeah, you know dry powder in <unk>.
Terms of new products. This year is the year of new products.
And we are going to be releasing new products constantly and so we think.
Other than the base business, which we guided on in Q2.
There is a lot more to come there.
Yeah.
So our guidance is a is a little bit wider this time plus.
Plus or minus $25 million it has to reflect a slightly more uncertainty.
Compared to the last time, but have you had an odd our Europe business is doing incredibly well.
We grew.
We grew 25% than one in one quarter from Q4 to Q1, we have doubled.
We doubled from 'twenty to 'twenty two.
So 2021.
But I'm 21 to 'twenty two we grew 132% I just released my annual letter yesterday, you can see that 132% growth from 'twenty one 'twenty two.
And so Europe is doing incredibly well for US we are focused on entering a lot more countries that we are focused on IQ eight micro inverters were focusing on IQ batteries.
I know lots of regions big market over 10 Gigawatts.
The U S which is.
Five gigawatts right now so.
And our bottom line, we are pretty conservative.
Got it and then I mean, you do have the wide range, but it did seem in your commentary that you do expect.
<unk> versus the first quarter I mean, so is it fair to say that.
Your expectation would be that the top half of that range.
I mean, we gave guidance.
We gave guidance 700 <unk> you.
No there's nothing else that we cannot say that in the top half of the rich.
Okay got it thank you.
Yeah.
Our next question comes from Joseph Osha from Guggenheim Partners. Please go ahead with your question.
Yeah, Hey, there I just wanted to return to some of the mechanics around the ramp of onshore manufacturing Mandy said 50000 units this quarter.
And then two lines by the end of the year or so so my first question is does that 50000 mean manufactured or shipped for revenue.
And then secondly, looking at the end of the year. Just wondering if you can tie those comments back to maybe a unit number or a run rate at the end of 'twenty three 'twenty four it thanks guys.
15000, micro inverters shipped to customers that's working capital.
Alright.
Therefore, you should take that number you should take for them to have.
And the unit number by end of 2020 40, you can do.
Some kind of an interpellation you can work with us and in a linear interpolation, maybe if I can do.
Okay, alright, probably even even as sell side analysts can handle that math, but so youre not youre not giving me.
You are not giving me a specific number for end of 'twenty three at the moment right.
Yes, and like what you said there now you can really calculated okay alright. Thank you.
Okay.
Our next question comes from Julien Dumoulin Smith from Bank of America. Please go ahead with your question.
Excellent. Thank you guys. Good afternoon I'll make it quick here just with respect to the commentary on temporary impacts I just want to clarify that super quickly.
Obviously, you've got this NIM dynamics for the next couple of quarters or so as you deal with the origination on an empty pointed out how do you think about that squaring up against this temporary impact on installations. I know you commented earlier does it transition period on sale how much of a non California improvement are you guys thinking.
About especially in the back half of the year as NIM three kind of rolls in more meaningfully.
Okay.
We cannot predict what is going to be in the back of all I know is Q1 is supposed to be.
Seasonally.
Tough quarter and on top of it in Q1 installers had to face all of these uncertainties for the for the first time Q1, as well as probably Q4 a little bit.
So I think we.
He said and we hope. This is true is installers are going to adjust everybody's going to adjust.
And you know of course as long as interest rates are so high we cannot.
We're not saying that the numbers are going to return back to where it went and that is one of the stress on those numbers because interest rates are high but they are going to be some innovation in financing innovation and launched innovation and leases that are going to come it's going to provide.
<unk> access to all the long tail installers.
The demand will unleash only when the interest rates.
And are back to normal, but until then and then you get incrementally better compared to Q1.
And the things that we control when Florida, we can control right for example, helping our installer partners training them on how to sell our NIM three three systems that this vessel allograft plays a very key role in helping them to show exactly what and how easy it would be.
To build an entry system.
Our three battery and showed the payback theater and Bill offsets.
Et cetera, and how to sell that to the homeowners and that we are doing right now as we speak. So I think there are things that we control and then there are the macroeconomic trends in.
There'll be people, who will be but he mentioned innovating on our financing.
But when you said temporary here and demand being down just to clarify that Super quickly I know you only guide one quarter forward I'm, just trying to understand how temporary.
Yes.
What we what we said is in California.
The point of sales, which is sell through data to ensure as much decline because in California. The installers have their hands full with NIM tool auto installations for the next three to four months and not in this this time, which is randall originations that happening for NIM to it at all this is.
The time, where we.
We are working with those installers and helping them understand and pitch the value of named three to homeowners. So that's in California.
California the situation is.
Purely dominated by high interest rate environment.
We are talking about.
Installers first of all getting used to working with the reduced cash flow number one innovation on loans, which is they need to start start selling high APR loans with less or the dealer fee lease.
People offering leases the long tail installers those innovations.
We expect those innovations too.
Sorry to come back, but like what I told you.
Yeah.
The demand.
When you get unleashed do we devoted to new levels.
When the interest rates come back come back to normal but until then.
We expect the sell through and non California stage to incrementally improve as installers get used to the situation.
That's what visit.
Excellent. Thank you guys.
Our next question comes from Pavel <unk>.
<unk> from Raymond James. Please go ahead with your question.
Thanks for taking the question just one from me in the 10-Q, you broke out revenue between product and services and this may have been the first nine youre doing that should we look at that $24 million.
Our service line as essentially the software slice up the revenue mix or does that signify something else.
We will give you a motor a more color on those.
Basically maybe maybe in that because we wanted to break down.
Yes, some of the software acquisitions, we have done a few acquisitions on the installer platform we.
We've done a few on the EV charging charging side as well.
Yes, just to remind you.
We have.
Starting with the front end.
Lead generation, we acquired a company.
Carl Solar lead factory.
That basically helps in providing leads to installers.
And with.
With that company really.
Are you able to at least understand a little bit.
The origination side of things and the name of the game for US there is.
To lead quality is a very big pain point for the industry.
You know the <unk> sticks or leaves a pretty bet, which is of every 100 leads that absurd.
Only two leads of three leads go and become a contract.
So we would like to change that bye bye.
By software by making sure that.
That experience on lead management is done done right to take back towards the 3% number 10% number so that's the first acquisition.
<unk> acquisition is solar graphs order graph is.
Design and proposal design and proposal means you have a home energy management system that consists of solar storage EV charger.
And especially as the tariffs get complex it becomes difficult for anybody to estimate savings. So it is vital that.
That is software that basically estimates.
You know what.
What a homeowner can save and provide him most accurate payback calculation depending on its consumption. So that's.
That's solar graph and that is now helping us a lot.
<unk> thousand installers that are using it with <unk>, although it is helping us to sell the NIM emptied out more clearly to our installers and show them the value of our solar plus storage system.
So that's that's the second one that we bought that's solid web design and proposal software. The third one is permitting services installers have too.
After so I made a lot of paperwork.
In order to submit to the locally.
I'll start with making that process entirely seamless through software.
And it should not take more than an hour after the sept made us meaning it should take a maximum of <unk>.
And there should be no.
That should be manual checks, but nothing manual about it.
So we are taking that acquisition and we are driving yet fully automated permit plan said creation.
So that's number two.
On the platform side, we we already do.
<unk>.
Monitoring we already have a commissioning app et cetera. So that's that's homegrown I'm not going to talk about that.
The last bit is.
It's basically O&M O&M as operations and maintenance here and then the term is kind of a misnomer, but.
This company, we bought 365 pronto.
They basically have a marketplace once again software company.
One end of the market place, our customers, who want to do on O&M, who want an O&M job to be done.
The other one the other side of the marketplace.
Service technicians, our installers, who are capable of doing their job.
So that is.
Maybe 300, plus installers logging in on the other side and that his papers submitting O&M jobs and we try to match.
Match, the two and once again it is a software play and can be effective for a lot of jobs like for example, replacing our main pound like installing your EV charger.
You know there was a drive to.
Cellular modems.
<unk> going away and Kirk.
You know <unk> coming in jobs like that which they installers.
Really don't have an extended through 365 pronto is that extended group as they come in they basically pay us in service charge and they get their jobs done so.
A lot of companies that.
<unk> digital platform.
All of them are catered towards servicing installers, so make installments life easier.
So we'll work with you to explain it a little better.
Very very useful context I appreciate that.
Thank you.
Our next question comes from Jeff Osborne from Cowen. Please go ahead with your question.
Hey, Thanks for squeezing me in just two quick ones on the given the channel inventories somewhat normalized and I imagine your lead times are down I was just curious what level of visibility you folks are getting from the distributors.
And if that's it.
Yeah as you can imagine when in good times, we will add nine month visibility in bad times, we will add approximately three months of visibility.
Those are the ranges.
Got it and I think in a prior several earnings calls you had talked about being booked above the high end of guidance in response to I think Joe's question I forget who is with us but is that not the case anymore.
I mean, I am not saying that but you know we have to be sensitive to installers.
We are you know even though it <unk>.
No.
Noncancelable for that quarter.
You know the installers the duration considering they have cash situation is important so.
We might we might accommodate pushout pushout requests et cetera.
So that's why even if we are fully booked.
I don't you know.
I didn't I didn't.
You know I answered his question that way.
Got it. Thank you that's all I am.
Our next question comes from Sophie Karp from Keybanc. Please go ahead with your question.
Oh, hi, Thank you for.
Taking my question as well.
So I wanted to ask you about kind of California versus the rest of the country, where the challenges are distinctly different and these it seems like in California.
Transition to them and the rest of the countries more about interest rates and the person deteriorate.
Equation, if you were to kind of speculate about where you're going to see the most meaningful improvement as it relates to your business in the second half of the year would that kind of a driver be the rest of the country.
Or a california kind of adjusting to a new the new membership that is going to pull it forward, it's a little bit.
Thank you.
Hard question for me to answer that I expect the rest of the country to get incrementally better.
S. S V go I do expect and I do see NIM three Darko I do see that there is a simple and clear value proposition I do see California, having very high utility rates I do see a clear payback of six to eight years with solar plus storage so but.
So don't see a time.
Will take us some time, maybe not much to train installers.
In order to sell them three daughters. So.
I'm optimistic on both fronts.
Okay, and then if I may on the battery like the third generation battery.
Would you is it fair to say that this is going to be the main products for California market at this point or you still training installers to use the current generation of the boundary I just kind of curious how you think about this like double transitioning if you will right. The new membership and then your batteries, it's like worth just.
Start training them on the new generation of battery, because it's a high value proposition product or how should we think about the timing of this right. Both batteries are equally good in terms of quality in terms of commissioning now in terms of in terms of performance. The nice thing about the generation three is the double.
Continuous continuous power what happens because of that.
It allows you to export the same amount of energy in hospital.
And therefore when you have for example, when you have one particular hour and in California, where your rates are going to be higher you maximize it without a bedroom.
So yes to answer the question no what are the long term I would expect this battery with a high charging rates to uniquely help California.
Okay. Thank you.
Thank you.
Our next question comes from <unk>.
Are you pairing Cheryl from Susquehanna. Please go ahead with your question.
Thanks, Thanks for taking my question.
Do you have some internal.
Sort of top of the funnel indicators from the.
The software platform that you just went through and can you sort of talk about the trends that youre seeing from there.
As far as in solar demand is concerned.
Yeah, I mean, we.
We usually talk about them if they are meaningful enough right.
Right now our solar graph platform. It is over 1000 installers.
We will break out a lot more trends as as we go through the year, but it's safe to say.
That.
That platform short I'm not sure how statistically to present data that is but that platform did show the originations in California for Q1.
It also showed that the originations outside California.
In Q1 was a little better than Q4.
Yeah.
Yeah.
And ladies and gentlemen, with that we'll be concluding today's question and answer session.
I would like to turn the conference call back over to Audrey Cassandra Robin for any closing remarks.
So thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter.
Mike.
And ladies and gentlemen, with that we'll conclude today's conference call and presentation.
Thank you for joining today's conference call you may now disconnect your lines.
Okay.