Q2 2023 Enphase Energy Inc Earnings Call

Good day and welcome to Enphase Energy's second quarter 2023 financial results Conference call.

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I'd now like to turn the conference over to Zack Friedman. Please go ahead.

Good afternoon, and thank you for joining us on today's conference call to discuss Enphase energy second quarter 2023 results.

On today's call are Badri co founder Robin, our President and Chief Executive Officer, Mandy Yang, our Chief Financial Officer, and Greg <unk>, Our Chief products Officer.

After the market closed today and phase issued a press release announcing the results for its second quarter ended June 32023.

During this conference call and base 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.

Anticipated growth in existing and new markets.

<unk> of new product introductions, and regulatory and tax 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-Qs filed with the SEC.

We caution you not to place any undue reliance on forward looking statements and undertakes no duty or obligation to update any forward looking statements as a result of new information future events or changes in expectations.

Also please note that financial measures used on this call are expressed on a non-GAAP basis, unless otherwise noted and have been adjusted to exclude certain charges.

We have provided a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release furnished with the SEC on form 8-K, which can also be found in the Investor Relations section of our website.

Now I'd like to introduce Badri, Cassandra, Robyn, our president and Chief Executive Officer Audrey.

Good afternoon, and thank you for joining us today to discuss <unk>.

Second quarter 2023 financial results.

We reported quarterly revenue of $711 1 million.

Shipped approximately $5 2 million micro Inverters and 82, three megawatt hour battery and generated free cash flow of $225 2 million.

Approximately 78% of Q2 micro inverter shipments that IQ, Inc.

We exited the second quarter at 46% gross margin, 14% operating expense and 32% operating income all as a <unk>.

Percentage of revenue on a non-GAAP basis, Mandy will go into the financials later on the call.

Let's now discuss how we are servicing customers on worldwide NPS was 74% in Q2 compared to 75% in Q1, our North American NPS was 77% the same as Q1, our average call wait time was 1.1 minutes compared to 1.2 minutes in Q1.

To focus on root causes of customer issues and expanded our customer service and field service teams globally.

Let's talk about micro inverter manufacturing.

But overall supply environment remains quite stable and there are no major shortages right now let's come to yesterday.

We expect.

To increase the overall solar demand in the U S and accelerated domestic production. We are pleased to be part of creating new jobs in the U S and advancing the country's clean energy economy.

We shipped 50000 micro inverters to customers in Q2 from two of our contract manufacturer Flex in South Carolina, and Fox Con in Wisconsin. We are on track to begin with the third contract manufacturer in Q3, we expect to ship approximately 600000.

Micro inverters to customers in Q3 from out of U S manufacturing facilities.

Let's now cover the regions, our U S and international revenue mix for Q2 was 59% and 41% respectively Q2 was a record quarter for our international revenue, primarily due to the growth in Europe and Australia.

In the U S. Our revenue decreased 12% sequentially and decreased 1% year on year.

Overall sell through of our micro Inverters in the U S was up 2% in Q2 compared to Q1.

In Europe , our revenue increased 25% sequentially.

And more than tripled yet.

Yes, Ian.

At healthy gross margin.

Our sell through of micro Inverters in Europe .

13% higher in Q2 compared to Q1, we are now shipping IQ <unk> IQ eight micro inverters into Germany.

Netherlands, Spain, Portugal, and Poland. In addition, we are shipping <unk> batteries into Germany, Belgium, France, Netherlands.

Pain, Portugal, Austria and Switzerland.

I'll now provide some brief commentary, Australia, Latin America, and Brazil, our revenue in Australia more than doubled year on year, we started shipping out of new IQ battery five feet to Australia during the second quarter.

In Latin America, we introduced the new battery in Q2, while in Brazil, We introduced our solar grafts software platform, which will help installers with design and proposal for that residential customers. Let me provide some ambition on color on the U S followed by Europe .

We recognize revenue when we ship product to distributors and large installers. It is therefore relevant to talk about the sell through trends of our products from our distributors to installers.

Since we have a healthy share in the U S. Our second thinks that a meaningful representation of business trends.

The overall U S market is experiencing a broad based slowdown due to high interest rates.

As I said earlier, our Q2 sell through of micro Inverters in the U S was only up 2% compared to Q1 and only up 2% year on year. The second quarter is typically stronger than the first quarter, but that did not happen this year.

Due to the market environment.

Let's now discuss the market trends, we are seeing in the U S split by California, and the rest of the U S.

Non California out of state.

The Q2 sell through of micro Inverters was 6% less.

As compared to Q1, and 11% less year on year.

The sell through was disproportionately worse in Texas, Florida, and Arizona in these states. The economics of loan financing has worsened due to the combination of rising interest rates and lower utility rates and.

In California, the Q2 sell through of micro Inverters was 20% higher.

Compared to Q1, and 34% higher year on year, the higher sell through was driven by higher backlog of NIM to installation.

It is expected to last through this summer.

Expect NIM $3 over Levered greater impact on results beyond Q3, and I will speak more on what we are seeing there later.

Like to provide some more context about our revenue guidance for Q3.

Our micro inverters sell through in the U S peak in the fourth quarter of 2022.

The sell through in the first half of 2023.

In both Q1, and Q2 was approximately 20% below the fourth quarter due to the high interest rate environment in the U S.

Our sell in to the channel was only 10% down in the first half of 2023 relative to the fourth quarter.

We're expecting a seasonally up Q2, 'twenty three but that didn't materialize.

This has increased the inventory in the channel.

Plus we are assuming the same level.

Certainly continue going forward.

Therefore, we are taking aggressive.

And prudent.

The actions in the U S.

Manage down the channel inventory and this is reflected in our <unk>.

Light third quarter guidance.

Let me say a few words about market shares.

We see stable high market shares today for micro Inverters beta has done both internal and third party data.

Competition is not new for us and we have always relied on our differentiated technology with distributor architecture product quality and customer service to win share and we expect to continue doing so.

We have many tools at our disposal for installers and our partnerships go even deeper during the downturn.

For storage.

We have shipped approximately.

One gigawatt hour of battery systems cumulatively by the end of the second quarter.

We continued to manage our total channel inventory in Q2 and expect further improvement in Q3.

As we introduced our third generation <unk> battery five to the U S market in Q2, we reduced pricing for a second generation battery.

We also expanded the warranty for both batteries to 15 years, we received a new price point and warranty for both batteries as well as strong early customer adoption of the new battery driving increased selling and sell through during Q3, we believe that will be a bigger inflect.

<unk>.

For Q4, and beyond as California battery attach rates increase with memory.

Before moving to Europe , I would like to speak a little bit about <unk>.

Early anecdotes on NIM $3 two activity from our installers are encouraging.

Since the crossover data in April .

We have seen an increasing rate of <unk>, three dato, California proposal activity with healthy storage attach rates, we offer a comprehensive <unk> solution, which includes our smart battery power control system to avoid main panel upgrades and energy management system that maximizes auto.

Roy for homeowners.

The smart battery can do both backup as well as utility rate arbitrage.

Tied batteries require less labor and fewer to balance of system components, making them significantly easier and faster to install our solar graphic design and proposal tool can model the complex interactions between solar batteries consumption and tariff and <unk>.

A simple proposal.

Financial analysis showed that for a cash system homeowners can expect a bill offset between 70 and 90%.

Payback between five and seven years, we think installers can effectively sell these economics to consumers.

Let's now cover to Europe , our European business remains strong Q3 is typically down due to summer vacation, but our year on year growth trend is very robust we plan to introduce IQ eight micro inverters and batteries into more countries in Europe , such as Sweden then.

Greece, UK and Italy later this year.

We saw strong broad based growth across Europe in Q2.

Netherlands in France continue to be very strong for us.

We are starting to gain real traction in Germany in both the residential solar and batteries.

Residential solar market in Germany. The biggest in Europe is roughly three gigawatts and the attach rates for batteries is approximately 80%. We saw strong quarterly sequential growth and installer com sell through and Activations of both solar and batteries and <unk>.

Germany during Q2.

During Q2, we also launched our IQ router family of devices, which is part of our home energy management system in Germany, and Austria to enable the integration of select third party EV Chargers and heat pumps into Enphase solar and battery systems.

That is a great push towards whole home electrification in Europe and countries like Germany are leading the way in adopting renewable technologies to support heat pumps, Evs and other home loads self consumption as the norm.

Consumers want the energy independence.

As we think about our competitive positioning in Europe , we see increasingly complex power markets and home energy management needs playing right into our strengths our complete home energy management system solution delivers use cases like self consumption and green charging along with <unk>.

New software features which we plan to release. This year are key Differentiators. In addition to our quality and service that will help strengthen our market position.

Let's cover more new products, we launched our third generation ICU battery.

In Australia, the U S and Puerto Rico in Q2 with plans to launch in Europe by the end of the year as I've previously discussed the battery has the modularity of five kilowatt out and deliver double the continuous power and triple the peak power for the same kilowatt hour compared to.

Our prior generation of batteries, the higher charging and discharging rate of third generation battery will be uniquely beneficial for <unk> systems in California through its ability to generate revenue by exporting into the grid at appropriate time. In addition, our third generation batteries.

Easy to install and commission with the targeted sub 30 minutes commissioning times. We are excited about the positive feedback we have received from our Australian and U S. Customers. We are now certified over 3500 installers worldwide.

<unk> lower IQ batteries.

Let's now talk about our latest new product for the residential segment in emerging markets. This product. The IQ eight P. Micro inverter, we delivered 480 watts of AC powered supporting panels up to 650 Watt DC for Brazil, Mexico, India, Spain and other.

Emerging markets. We are on track to release does IQ eight <unk> micro inverter variant into production later this year.

The other variant of the IQ eight PV micro inverter with a new three phase cabling system is well suited for small commercial solar installation ranging from 20 to 200 kilowatts. These micro inverter systems offer the same kind of compatibility high quality rapid shutdown.

Capability as a standard residential products, we expect to release this product into the U S. Small commercial solar market later this year.

In general we see the global commercial opportunity.

As greater than 11, Gigawatts, we are extremely bullish about this small commercial solar market, where we believe we can add tremendous value to business owners and installers in Europe and U S with our high quality rapid shutdown capability and micro grid forming capability.

Of our micro inverter systems.

Let's discuss our USB Chargers.

Shipped over 600 to 600 EV Chargers in Q2 compared to 8600 in Q1, we expect to introduce IQ Smart EV Chargers in Q3. These smart charges will have Wi Fi connectivity, enabling use cases, like green charging and allowing homeowners full visibility.

In the operation of that Enphase solar plus battery plus EV charger system through the App.

Let's now discuss the installer platform, we released updates to our solar glass design and proposal software platform in Q2, including <unk> functionality. The updated solar graft platform offers a simplified experience for designing and then three daughters systems by optimizing panel placements.

For both grid tied as well as grid agnostic systems com.

Configuring battery sizing by leveraging modularity and enhancing system operations for time of use management and energy export to deliver the best possible electricity, Bill offset and payback.

Let me conclude we are managing through a correction in the U S solar market. After three years of phenomenal growth a period in which the residential solar market doubled in enphase sales tripled even so residential solar has only achieved 4% to 5% penetration in the U S. We believe there are.

Several positive long term drivers, which will accelerate adoption such as the 30% ITC tax credit the rising utility rates increased grid instability.

Climate change and increasing EV adoption that is no doubt that these will drive meaningful solar plus battery growth over the long term.

Our strategy is clear and unchanged we manage for the long term, we will make best in class home energy systems with a laser focus on innovation quality and customer experience, we are doubling down on our relationships with customers. We are driving down installation times and investing in our survey.

<unk> teams, we are investing even more on new product innovation, we are expanding our <unk> micro inverters and battery reach globally accelerating our business in Europe in producing IQ a micro inverters further small commercial solar and emerging residential markets worldwide.

And making continuous enhancements jordans total platform.

Before I turn the call over to Mandy I'm happy to announce that our board of directors has authorized a new share repurchase program given our confidence in <unk> future growth free cash flow generation and the value we see in our stock our board has authorized an additional $1 billion for share repurchases with.

That I will turn the call over to Mandy for a review of our finances.

Nick.

Thanks Sanjay.

Hello, everyone.

More details related to our second quarter of 2803 financial results.

As our business outlook for the third quarter of 2023, we have provided reconciliations of these non-GAAP to GAAP.

Initial measures in our earnings.

Release posted today, which can also be found.

With.

Total revenue for Q2 was $711 $1 million, we shipped approximately 2121 three megawatts DC, all macro environments and 82.3 megawatt hours.

In a quarter.

GAAP gross margin for Q2 was 46, 2% compared to 45, 7% in Q1.

The increase was driven by increased eight product mix and improve logistics.

Gross margin was 45, 5% for Q2.

non-GAAP gross margin for Q2 included one $6 million of AI.

Well, our micro inverter is mainly in the U S and shipped to customers in the quarter.

non-GAAP operating expenses were 90.

$98 2 million compared to $98 4 million for Q1.

GAAP operating expenses were $153 million for Q2 compared to $158 7 million for Q1.

GAAP operating expenses for Q2 included $51 million of stock based compensation expenses and $3 9 million of acquisition related expenses and amortization for acquired intangible assets and $208000 of restructuring and asset impairment charges.

Our non-GAAP basis.

Income from operations for Q2 was $235 million compared to $233 $6 million option one.

Okay.

Income from operations was $173 million for Q2 compared to $167 7 million for Q1.

non-GAAP.

Net income for Q2 was $205 $6 million.

<unk> to $192.3 million for Q1. This resulted in non-GAAP diluted earnings per share of $1 47 for Q2 compared to $1 37 for Q1.

Net income for Q2 was 157 $2 million compared to GAAP net income of $146 $9 million for Q1.

GAAP diluted earnings per share of $1 99 for Q2 compared to $1.02 for Q1.

Q2, with a total cash cash equivalents and marketable securities balance of $1 8 billion compared to one point, so that $8 billion at the end of Q1, we repurchased approximately one 5 million shares of Enphase common stock in Q2 at an average price of 100000.

$9 43.

For a total of approximately $200 million.

This completed our $500 million share repurchase authorization from our board of directors.

As Patrick mentioned, our board of directors has authorized a new $1 billion share repurchase program.

In addition, we spent approximately $12 $7 million with holding shares to cover withholding taxes for employee stock vesting in Q2 that reduced the diluted share by approximately 72000 shares.

To continue this anti dilution point throughout the year.

In Q2, we generated $269 $2 million in cash flow from operations and $225 2 million in free cash flow.

Capital expenditure was $44 million for Q2.

There to $22 $5 million for Q1.

The increase was primarily due to investment in U S manufacturing and R&D equipment.

Now, let's discuss our outlook for the third quarter of 2020.

Our revenue for the third quarter of 2022, it will be within a range of $550 million to $600 million.

With increased shipment of 80 to 100 megawatt hours of IQ battery.

Gross margin to be within a range of what do you want to 44% and non-GAAP gross margin to be within a range of 42% to 45%, which excludes stock based compensation.

And acquisition related amortization.

Our gross margin guidance numbers do not include any benefit.

Alright benefits to be between $14 five.

$16 $5 million estimate as shipments of 600000 units of U S manufacturers Michael.

With that I'll get operating expenses to be within a range of $159 million to $163 million, including approximately $58 million estimated.

For stock based compensation expenses and acquisition related expenses and amortization.

Our non-GAAP operating expenses to be within a range of $101 million to $105 million.

We will continue to invest in product innovation customer service and international growth.

Turning to tax since we have utilized most of our net operating loss and research tax credit carryforward.

We are now a significant U S cash taxpayer.

GAAP and non-GAAP annualized effective tax rate for 2023 to be at 21% plus or minus 1% with Iia benefit.

Now I'd like to discuss how the advanced manufacturing production credit from the IRI reporting our earnings we.

We had originally thought that the production credit will be reflected in income tax expenses base.

Based on the latest guidelines from the U S Treasury.

To claim the potash and credit direct pay and therefore income for that production.

Reduction cost of goods.

We expect a production credit net of any incremental cost, but domestic manufacturing will be in a range of 24 to $28 micro inverter for two customers in Q3.

Two shifts 600000 micro inverters to customers this quarter.

We plan to have our U S contract manufacturing facilities fully operational by the end of 'twenty three we estimate shipments to reach our U S capacity of $4 5 million Michael in murders per quarter by the end of 2024 semi robust demand.

With that I will open the line for questions.

We will now begin the question and answer session.

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If you have additional questions. Please rejoin the queue.

At this time, we will pause momentarily to assemble our roster.

Okay.

The first question today comes from Brian Lee with Goldman Sachs. Please go ahead.

Brian Lee Your line is open you may ask your question.

The next question comes from Phil Shen with Roth.

Please go ahead.

So perhaps your line is muted.

Okay.

Yeah.

Hi, everyone. Thanks for taking my questions.

Hi, Phil.

Hey, sorry, I'm bouncing between calls.

So.

Wanted to check in on or Youre dealing with pricing on micros in the U S.

Our checks this week suggests.

Recent spot discounts may be aggressive.

Couldnt quote with big customers in exchange for semi exclusivity.

Our contacts suggest maybe in response to some of the volume that maybe go into Tesla.

Can you quantify what the magnitude of the discounts might be.

If anything or what it might mean, if anything on a blended ASP basis ahead.

I know historically, you always have some kind of small discount, but incrementally is it greater now to try to maintain that business. Thanks.

Right.

We are not planning any micro inverter pricing reductions in general overall.

Yes.

As regarding pricing pressures.

It is normal for us.

<unk> inception.

We are always used to pricing pressure.

We have always used to competing with string Inverters from day one.

Company was founded based on the.

A distributed architecture wins.

In our distributed architecture basically means no single point of failure.

So distributed architecture means that it's a semiconductor based architecture, which basically has got less number of components in very high quality, which means 0.05% failure rates. It also means running five years of warranty versus other string inverters that.

May be half.

That many number of years.

In addition.

We service customers very well 24 by seven customer service, 74% NPS.

Also we strongly believe in AC coupled architecture, which means that the combination of.

It's an enphase system for solar it's an enphase system for storage. It is a full home energy management system with an enphase EV charger as well and that is starting to become more and more important as men three type tariffs come and those that.

We're already there in Europe .

For example, so.

Pause standing for special pricing adjustments are a fact of life.

Do that always there we're very disciplined we have a pricing team.

And.

It always depends upon the volumes.

And of course, redo reform deeper partnership with customers in times like this.

And we have a lot of tools at our disposal.

We have done.

Our recent M&A is on digital transformation that Riddick solar graph software platform is invaluable for us at this time, because we are able to give customers. The option of designing for example, showing <unk> III design and making sure that they can sell that effectively to homeowners.

The solar graph.

Even leads lead generation company regard that is coming.

Our fuse in times like this so.

Basically to answer your question and our pricing is.

As normal we aren't planning on any pricing reduction on micro inverters and batteries. It's a different story on batteries I was very clear.

Back in the public cloud.

Saying that yes, we introduced our third generation battery and we cut the price of our second generation battery.

And both of them coexist.

The we believe that the second generation battery will be very good for tight NIM trade auto as well as grid type batteries in Europe .

The third generation battery that comes with the 30 minute commissioning time, which we're very happy about that is priced appropriately for backup so.

These pricing decisions arent done on the flight.

They are done with extensive planning.

And we do have offer pricing protection to our channel partners and so we believe in doing things in a structured way.

This is no exception.

Great. Thanks, Badri, you just talked about price protection.

And that was for storage and we had written about that as well for the channel inventory.

From an accounting standpoint, which quarter does that price protection hits, because we already see it in Q2 results or should we expect in Q3, what was the magnitude and then hypothetically hypothetically if you pursue a price cut for Micros would you provide price protection for the existing micro.

Channel inventory as well since the channel is a little bit.

Phil So the price protection for storage has been accounted for in our earnings there will be no other impact.

In Q3 or going forward.

And pipe rotation, we offered to Ctrip it acts as a <unk>.

Policy so in our case, if we lower our DLP for Micron will provide.

Protection by at this point, we are not planning to do things like that.

Great. Thanks, Mandy, Okay I'll pass it on.

Thank you.

The next question comes from Colin Rusch with Oppenheimer. Please go ahead.

Thanks, So much guys can you talk a little bit about your opportunities for driving costs out of the supply chain. It sounds like there is plenty of supply available in Europe .

To continue to walk that cadence down here over the next several quarters.

Yes, I mean, we work on.

World class cost initiatives for micro Inverters and batteries.

So.

On micro Inverters that has a lot of tactical negotiations that we do let me put that on the site, but that's not insignificant.

A nice number, especially in times like this our procurement organization.

Is extremely active.

Other one.

Which is.

No.

We'll take over three to six months is opportunities, where we design in multi source. For example, when we have three sources of Transformers, having a fourth and fifth source, especially in times like this and when you have for example, three <unk>.

Versions of integrated circuits for our AC gate drivers, having a fourth one.

Those are also extremely active with our micro inverter group group running extensive qualification because we are very careful on that 500 BPM quality.

The last thing we need is a quality excursion. So that's the first and foremost priority for us making sure. The quality is preserved through all of that and the third one is a little bit more long term, which is over nine to 12 months, we'll look at putting material we look at.

A sick.

Is that an opportunity for us to redesign the ASIC and another platform to save cost is that an opportunity for us to integrate in our Pam for a competitor into the ASIC. So that we can save 20 cents. So for example.

The one dollar of savings.

In our micro inverter, assuming we shipped 20 million units.

Worldwide, a year, that's $20 million.

So you are looking at at one <unk> is $200000.

It's a big amount.

And so we have we have a massive program called World class Scott. That's why you see even in Q2, our gross margin.

Continues to increase.

In on on batteries it is like.

Many people keep asking the same question can you make money on batteries.

My answer is always the same we never enter a business until and unless we are convinced that the business will make at least my baseline gross margin.

And so on batteries, we are getting better generation one was higher cost generation two is a little bit lower now that we have in generation three where we have figured out a lot of ways to take cost out and then on top of it in terms of warranty we are getting a lot better and better.

We are introducing sort of visibility on batteries were in startup.

Are you having to replace the entire battery, which is so cumbersome for the installer in homeowners you replace a board insight because we have figured out that the cell pack. The battery pack never fails. It is the power electronics, which consists of power conversion battery management and even mechanically from.

<unk> those are the ones that fail and we are making them bulletproof, but coming back to that we don't need to replace a $3000 battery. We can replace a $40 a barrel we don't need to take the battery of the wall. We can replace it in situ. Therefore, the customer downtime is very large standard as we wanted.

Customer downtime to be no more than 24 hours and we are driving our teams to achieve that and when we achieve that youll find your warranty and the replacement costs are minimized a lot. So thats on the the.

Third generation now what's happening on the first generation <unk>.

Fourth generation of batteries is scheduled to come approximately within a year, maybe with the nine months, if I'm a little bit more aggressive and that has got a fundamentally.

Transfer made the cost structure, what we are doing there is we are combining power conversion and the battery management into one boat so.

Seven boards in June in the third generation will now become two boats in the fourth embracing this is accompanied by significant component count reduction significant cost reduction and that will get us even better on the gross margin curve. So so I gave you a bunch of puts and takes.

On micro Inverters batteries and then we're also cdos on our accessories, we shipped combined boxes.

We have cellular modems, we have the gateways for example in Europe in Q3, we are going to be introducing a combine a box.

That is going to be very cost effective for installers and it is going to help them. Both on dollars as well as time savings. So a lot of actions in the company and we started six years ago, we have not stopped since then.

Excellent. Thanks, so much guys.

Simple follow up here, you've historically talked about wanting to have eight to 10 weeks of channel inventory.

Hey, guys that youre, indicating here for <unk> get you to those levels.

From what Youre seeing at this point.

Alright, So let me provide some more context in general because it may not have been clear to everybody and they may not have been present too so.

Our sell through of micro Inverters in the U S peaked in the fourth quarter of 2022.

The sell through in Q1, 'twenty three was about 20% below that.

And the sell through in Q2 23, plus at the same level, which is 20% below Q4.

Now what we did was our sell in.

We only reduced 10% in Q1.

Thinking that.

Q2 will be a seasonally good quarter.

That's what we thought but that was not the case.

Q2 sell through.

Same as Q1 with respect to Q4.

So we find ourselves.

With excess inventory in.

In the channel and the responsible thing to do for from my My point is to take is to <unk>.

Correct that.

Through a one time correction.

Of that to reduce inventory in the channel the only way we reduce inventory in the channel is by not shipping as much and taking.

Our collection there.

No.

We are doing that.

We are aggressively reducing the inventory in the channel and we expect the.

The channel inventory weeks on hand to come back more to normalized levels at the end of Q3.

Okay. Thanks, so much guys.

The next question comes from Mark Strouse with Jpmorgan. Please go ahead.

Great. Thank you very much for taking my questions.

Thinking about with valuations coming down across the space.

How you're weighing.

Potential M&A versus prioritizing this new $1 billion buyback.

Right I mean first of all the way, we think about capital allocation is first.

Do we have enough capital to work on the things we need to internally.

How about domestic manufacturing how about building a new R&D lab, how about investing in.

Domestic.

On a.

The battery supply chain.

We take care of the needs of the business first at number one.

Number two when we look at opportunities in M&A.

We look at to see whether we can increase the value.

The company is significantly.

Maybe in the small commercial space.

Maybe in the software space in the home energy management space.

<unk>.

Those are the areas.

We normally look for as well as in the battery space, which is always exciting.

So but.

We are not going to be making ESP decision.

We usually like bolt on acquisitions, which are easy to integrate because we are aware that integration most integrations faith.

Big companies. So we are always very cautious.

And we have we have a clarity for example, we will not.

By our company to do anything specifically on Inverters, because we think we have enough homegrown talent that we can organically grow.

So.

So that's the second piece, we look for.

Active M&A opportunities and we have cash in.

We will look for those the third one is <unk>.

After we have taken care of the needs of the business. After we have looked at M&A is can be buybacks talk.

<unk>.

Conservatively estimated and either value below.

The intrinsic value of the stock which is conservatively estimated.

So we look at that and Mandy talked about some of the actions. We did we bought 200.

Million.

Of stock last quarter 125 million shares at approximately $159.

And.

But we are disciplined about it.

The board has authorized another $1 billion.

For share buyback, considering regenerate close to $200 million of free cash flow every quarter.

But you can expect us to be disciplined do things when it makes sense.

And not be overly aggressive.

Okay, Alright, Thanks, Badri and then just a follow up.

I think you touched on this a bit on California, maybe just repeat what you said about the.

Ed.

<unk> guidance assumes as far as NIM <unk> systems.

When do you expect that backlog to.

To be removed and start selling <unk>.

We think we think NIM toward auto will continue through Q3.

What we are hearing from our installers.

Through the summer till September we believe Q4.

<unk> will start.

And.

The anecdotes we are hearing from some of our installers some of our big installers, who say that.

They are battery attach rates are.

It remains higher than 50%.

B I mean, most installers.

They need to get educated on <unk>, but the fact of the matter is.

Even for pure solar.

<unk> III to payback is between seven and eight years.

<unk> fulfilled solar.

When you add a battery.

And let US say when you add a 10 kilowatt hour battery, which seems to be kind of standardizing <unk>.

Standardizing in that direction.

You then.

Cheap even better payback.

So payback comes down.

The 7% to eight years, two five to six years with <unk>.

High enough battery system.

So once they're installed is realize that economics than they are a lot more confident.

<unk> selling them three data our solar graph two tells them. These things exactly also another phenomenon is California.

Yes.

My view on it is California is going to move to a majority of grid tied systems that so Germany evolved.

And in Germany, right now it is.

Very very similar it is most of the solar plus storage grid tied today.

And California may evolve in that direction, that's my view.

And a great data system suddenly.

It is easier to install.

You don't need to worry about main panel upgrades, you don't need to worry about partial home backup and full home backup and all of that.

And yet the battery provides a lot of savings.

And in fact, the battery is a money maker for a couple of months in summer, where the grid needs help and the battery can export energy back to the grid. So.

But having said that memory auto is Neil therefore installers.

We'll take we'll have that ramp, but I think eventually it will be very easy to sell.

And I think we will start seeing solar and storage normalize.

In 2020.

Okay. Thank you very much.

The next question comes from Andrew <unk> with Morgan Stanley . Please go ahead.

Great. Thanks, so much for the question I sort of.

Follow up question to Phil's question earlier on.

Pricing appears to be relatively stable and in that context appears like the <unk> guide is really volume driven.

Can you maybe just discuss between regions. What your expectation is on volume in the third quarter, specifically and if you could start to provide more context around how you expect that to rebound or change in the fourth quarter that would also be helpful. Thank you.

Yes, I mean the.

Just for context in Q2, we grew about 25%.

In Europe compared to Q1.

And in Q3, we expect Europe to be slightly down compared to Q2 due to summer.

Typical summer seasonality.

And Europe for Us is underpenetrated.

In general we are very strong in Netherlands, and France, we have upcoming in Germany, but for us the other other countries or almost a blue ocean.

Like Italy, UK, Sweden.

Denmark.

Greece.

Australia, Switzerland, Poland.

We are entering all of those regions.

And so we are extremely bullish.

On Europe .

In the U S as I said.

We said that the revenue decreased 12% sequentially.

In Q2 compared to Q1, but we are taking a heavier hit.

Because of.

In Q3 because of the following phenomenon.

Which I elaborated just now it is.

Our sell throughs.

Which is indicated of real customer demand is 20% down.

In overall U S.

Compared to Q4, we charter our pic.

And the 20% down is for both Q1 as well as Q2.

We sold into the channel, we only dropped the shipments into the channel by 10%.

And the rationale of dropping 10% only was we expected Q2 to be a strong seasonal recovery.

That didn't happen.

And so now we have to correct for these two quarters.

And.

On top of it we are assuming the depressed sell through going forward.

So that's why we are taking a one time correction.

In the U S.

But I think in general the revenue for us will will exactly mimic.

The percentage demand drop.

On a quarterly basis.

Got it that's super helpful and can I, just ask one more on what Youre seeing on Europe chat.

Channel inventory levels, and I understand that <unk>, maybe historically seasonally.

Light quarter, but can you just maybe elaborate on what youre seeing across Europe on inventory levels.

Channel inventory is a little bit high on the 10 week site in Europe It is and.

That's why we are cautious now but for US I mean, we are.

Really not worried about it because we are introducing products in your newer countries. So.

And we think we can maintain it in the eight to 10 week range.

Got it thanks, so much.

The next question comes from Julien Dumoulin Smith with Bank of America. Please go ahead.

Excellent. Thank you good afternoon I appreciate it.

Can you talk a little bit more about the inventory levels in any write down risk here can you talk a little bit about just the backdrop on that front and then more importantly, just the normalizing functions do you think about these different recovery levels across geographies, especially thinking to continued European growth.

What might be implied by inventory levels et cetera.

Right.

Yes, I just know answered the question for Europe , the inventory level in Europe is a little bit normal although it's on the higher side at about approximately 10 weeks and that is why we said in Q.

Q3 is a seasonally down quarter in Europe , and we expect to be slightly down in revenue as compared to Q2, but then I talked about we are introducing several new products all of our growth in Europe is coming from new products and we are going to be.

Using several new products for example, in Italy in the U K, and Sweden, and Denmark in Greece, and Poland, where we are non existent today. So all of those are going to be incremental and.

Not.

And I am not worried about revenue I mean, not worried about inventory that the U S. On the other hand U S is we were in great shape.

At the end of Q4.

22, which was our highest sell through quarter sell through means we are selling.

Meaning the installer.

Buying from the distributors call sell through our sell through rate was the highest and our channel inventory was very healthy.

At the end of Q4, what happened is the sell through rates decline overall in the U S. 20% with respect to Q4 for Q1.

And for Q2.

And therefore.

And and in response to that we did throttle our shipments into the channel, but we didn't translate enough because we zoomed Q2 will be a seasonally good quarter, which turned out to not be the case. So therefore, we are now.

Now left with two quarters off.

Inventory that is added on and.

Meaning two quarters of extra inventory and we're also assuming going forward, we are not making any aggressive assumptions. We are seeing the demand will be at the same level as it is today.

And therefore, we are taking a one time correction for shipments into the channel and that is why our guide.

Is light for Q3.

Alright, effectively equal to that excess inventory here.

Great and then just a related here if you can comment on gross margins, but obviously you guys provide.

Been providing consistently improving gross margin guidance over time.

And implicit within that is the confidence to sustain that for these sometimes several quarters.

Far as I read it.

Still feel confident in supporting these are higher gross margin levels here. Despite this backdrop through this period of time for.

For several quarters.

Yes.

Look we're careful on the gross margin guidance, we have non-GAAP guidance that we gave is 40 to 45.

And like what I said, we like for example, I didn't even I didn't even say this to the gentleman who asked me. The question before for example in logistics last quarter, we saved $8 million.

Last quarter like we have a lot of.

Initiated from our World class cost on saving on.

On saving the.

The cost of a capacitor transistor parting semiconductors.

ASX not not only by a second source qualification or multi source qualification, but simply purely by negotiation.

So we know that and we do that on micro inverters redo that in batteries, we do that.

And combined out of boxes and accessories. So our world class cost effort is invaluable and has saved us a lot of dollars and we are now moving to a higher and higher mix of IQ eight which has got a little bit more gross margin.

<unk> IQ seven now.

On the batteries, we are also getting better.

In terms of gross margin I gave a big commentary on batteries on how we have improved the learning from one generation to the other in terms of warranty for example, and not in sort of taking a 3000 dollar hit on a return we don't do that we basically service.

Boards within that product and.

The board replacements, which are $40 are done.

Much faster than full unit replacement so.

Innovative ways in order to reduce our overhead costs on batteries.

We're also helping and like what I said.

Our fourth generation batteries upcoming fourth generation batteries provide a huge.

The reduction in terms of power electronics, which is the battery management is now integrated into power conversion.

So seven boats in our Gen. II system will now be two booths and in that process, we take significant cost out.

So in.

In general we are quite confident of our trajectory.

Gross margin on both micro Inverters and batteries.

Alright, it sounds it for several quarters to come thank you very much.

Thank you question. The next question comes from Kashi Harrison with Piper Sandler. Please go ahead.

Good afternoon, and thanks for taking the questions.

So based on the feedback that you're receiving from your distribution network or are you getting the impression that sell through and non California.

We'll have bottomed by <unk> or do you do you still believe non California is in the process of Recalibrating and then.

You said that the early NIM three data is encouraging from your larger installers can you maybe just speak to.

Attachment is north of 50% can you just maybe speak to where we are on year over year trends just based on the leading edge data.

Yes, I think to answer your question on sell through for non California, I mean, it has not changed much in Q1 and Q2 in fact, I've said Q2 was a little bit.

Worse.

Compared to Q1 of about 6% worse I think it is expected to probably be at this level until the interest rates take a meaningful return for the better.

That is non California on <unk> I mean, we only have anecdotal evidence right now the channel is still.

Mmhmm too.

NIM two installations are happening many.

Some of our distribution partners said that a few installers may event through NIM to until October or November .

We are hearing that for most of Q3.

It will be in them too and we will start getting data on <unk> III sell through data only in Q4, but we see a lot of design and proposal activity.

One of the benefits of.

Buying the solar glass software platform is we are able to see the early signs of memory and there are a lot of designs on entry I cant quantify it yet because.

We don't have a meaningful market share in the solar graph software space, but.

I like the trends I see like the battery attach rate very nice I see it over 70% in most cases.

And like what I said, we have we have three year. The fact that the payback is awesome for.

<unk> batteries and solar the payback is.

Fine even for a pure solar so we think it is a matter of training a lot of.

A lot of installers.

<unk>, who is sitting with me he has visited himself.

<unk> thousand.

<unk> thousand installers came to his sessions throughout last quarter and our only job there was two <unk>.

Evangelize memory data.

We showed them with solar graft software platform on how to design for <unk>, what is the payback how to sell to the homeowners and so that installers have very high confidence.

Set to the end consumer but.

Having said that we don't have statistics, yet we will start getting statistics in the fourth quarter.

Yes.

Thank you. Thank you for that color and then maybe just for my follow up question also clearly demand is tracking beneath expectations as you're adding a significant amount of capacity to the U S.

Do you have the ability to ramp U S. Two peak capacity.

By throttling back in Mexico, India, and Romania or are there minimum activity levels that you would need to maintain.

Per your agreements with your contract manufacturers. Thank you.

Good question we.

We have a total of.

Three contract manufacturers right now.

Two of them have been with Us forever.

And.

That is one of the reasons, we even chose those two because we have deep relationships with them.

And we want to be highly sensitive on how we load their factories outside the U S versus factories inside inside the U S.

That is one new partner Fox Com.

That that is manufacturing our micro inverters in Wisconsin now our assumption is we are going to be ramping steadily.

Q2, 50000 units to.

Our Q4 number four in the half Q4, 'twenty four number four and 5 million units pending robust demand.

And of course I mean, this is a long term decision that.

That we take and we do expect we do expect us to have.

Come with healthy demand by then if not we will work with our contract manufacturing partners and we will make the right decision.

On how to appropriately load the factories.

And we will provide that guidance to you on a quarterly basis.

Thank you.

The next question comes from Jordan Levy with Cowen. Please go ahead.

Thanks for taking my questions just a quick one for me just curious if you could give us a little more detail on the chartering side of things what it takes to breakeven.

For that business to a bigger size.

The eventual.

Regression toward bidirectional chartering period.

Alright, so EV Chargers, we bought.

A company called Clifford Creek.

And that was.

Towards the end of 2021.

And basically now what we have done is we have basically moved the.

The manufacturing of those EV Chargers, so that we can start to scale.

A lot to flextronics in Mexico.

We have done that that's phase one now what we are doing and we will release in Q3 is an IQ smart TV charters. The original Clipper Creek Chargers, which are very popular by the way simply because of their very high quality very high durability and great service.

So we're taking that we're taking that architecture and we are adding connectivity.

The Clipper Creek EV charging and we are rebranding it as an IQ smart EV charger and once you have the connectivity and then the integration into Enphase solar plus storage you can do a lot of interesting things like for example, you can configure in Europe .

Saying never charge.

<unk> from the grid only charge EV from solar Green.

Green charging only.

We can do interesting things like that so thats, what I call phase II.

That will happen in Q3 in the current quarter we are in.

Now the.

The next phase will be to introduce these EV Chargers.

In all countries in Europe , and that will happen in Q1, and Q2 of 'twenty four we're already working on that.

And the same thing that our existing partner channel partners are all selling enphase solar plus storage it would be a material expansion for them to be selling enphase solar plus storage plus EV Chargers with a full home energy management system capable of managing heat pumps, so that phase III.

We have already demonstrated by Directionally recharge it is on our website.

And it is very closely aligned with our ensemble architecture, So essentially we.

We tap into the BC part of the car and that interface there is card.

Digital interpret that as a digital interface that is a power interface. The digital interfaces 15 118.

That basically you can exchange things like the <unk> of the caused the sale of charge of the car and other control signals and then we will have power conversion, which is our inverters. The same inverters that we use.

A higher wattage, Inverters basically will take that BC and plug it into our home energy management system, which is an ASIC of resistance.

So.

Once we do that we can easily do video edge as well as lead to video X, which is video edge and BTG. So we.

We expect that product to come into the market by Q4.

Up next year that is.

We are still in early days there.

We are working on.

Bidirectional inverter right now.

So.

That's those are the four phases and then Doug looking at yes. So in terms of the importance of the connected.

You recharge or that we are going to release from this quarter again played an important role in but you mentioned in your home energy management system, specifically when you think about it in the context of named three as well.

Want to avoid charging are colored in certain times of the day, which is which is part of the time of use construct as well as allowing a battery or preserve your battery to discharge power into the grid at certain times.

Certain times of the day, particularly in the summer so getting a significant load like an EV under control of your own home energy management system becomes extremely vitamins, we can deliver.

Great savings for the homeowner both in terms of bill offset as well as our payback period.

As you think about.

You think about NIM three year in the U S as well as as you think about home energy management broadly in Europe .

Thanks, so much for that.

Thank you.

The next question comes from Brian Lee with Goldman Sachs. Please go ahead.

Hey, guys. Thanks for taking the questions apologies about earlier.

I had a question about the.

The destock and how Youre reading the channel I appreciate badri.

Kind of detailed disclosure about the quarterly cadence as you've experienced so if I do the math.

You kind of ship, 10% more than sell through two quarters in a row based on your commentary in the U S. So roughly let's call it $100 million if my math is correct.

And your guidance is effectively down that much sequentially, if not a little bit more so does this imply you're entirely resetting.

Kind of the channel all at once in <unk> and then as you get into <unk>, we're going to start to.

Looking at a normalized environment, you're starting to fill the channel again like what's what's sort of the implications if that math is correct to begin with.

So in addition to that math Bryan B the other way one more way to look at it is the.

You always look at you ending on hand inventory.

Assuming our projected demand going going forward. So we are not assuming any optimistic demand for Q3, we assume the same level of uncertainty continues for Q3 and so that's another portion of the map that needs to be.

Done two to calculate how much.

We should clearly ship into the channel in Q3, and we took that into account.

As I also said in Europe .

We expect.

To be slightly down as compared to last last quarter due to typical seasonality so that and to answer. Your question. That's the idea we'd like to bring the channel.

Back to a healthy place at the end of Q3.

Okay fair enough, but embedded in your guide for <unk> sell through it sounds like you're assuming continued weakness do you anticipate.

That to just kind of be flat line assumption all the way through the rest of this year.

For the year and Thats, how you are approaching the channel.

Reset even beyond retail.

That's right I mean, we are assuming also a little bit on the <unk> III.

But I mean look.

We are confident that this is this is a one time correction. The reason is we have a lot more new products that are coming up for us.

And so we all feel good that there's one time correction will.

Clearly normalize the channel and on top of it we have so many initiatives to diversify our revenue.

<unk>, the new countries in Europe , and the small commercial in the U S.

That we talked about so.

We are cautiously optimistic we are correct.

Okay, Great and then I guess, that's a good segue into my second question and I'll pass it on.

Youre sort of the newer player in Europe , you're coming out with new products new markets.

And obviously you have the highest margins out there in the industry and I know you want to protect those but as you enter new markets. In this environment is there a kind of a different mindset around pricing strategy can you maybe speak.

At a high level about kind of what youre thinking in regards to pricing when youre out in Europe , and you're trying to gain share there.

Maybe you add some margin wherewithal to work with thanks guys.

Yes, I think I think that's also a good question in Europe on micro Inverters.

The folks in Netherlands, and France understand is perfectly for small systems.

Like in Netherlands, and France, They love our quality the level of service.

And we are we are extremely.

Close to these partners, we provide them an outstanding service. The your question on new areas I mean, thats something we were always thinking as we enter the emerging markets for example, like Brazil.

For example, like even the small commercial market.

We are able to manufacture of those micro inverters, which are high power micro Inverters 480, what do you see those we are able to manufacture in the U S.

And we get incentives production tax credits to the tune of 11 cents per watt.

For those dosing motors. So I think there is some opportunity there for us to become a little more aggressive in terms of market share.

And we'll be pursuing those.

Okay I appreciate that thank you.

Thank you.

The next question comes from Eric Stine with Craig Hallum. Please go ahead.

Hi, everyone. Thanks for sneaking me in here at the end.

So if I understand correctly it sounds like you feel pretty good about.

Battery.

Inventory in the channel and again I do appreciate everything you gave on the micro inverter side.

But just curious with that in mind with Gen three the launch and getting into the market.

And the NIM three expected to start in <unk>. I mean are you willing to call a bottom I think last quarter. You said that you thought Q2 might be the bomb at bottom for battery volumes is that I mean.

Is that still a fair expectation.

Yes.

That is still a fair expectation we are exactly on track for that we feel really good on batteries. We have started shipping our third generation batteries the third generation at lease solve.

Some unique problems with the second generation, although on the second generation, we have kind of cleaned it up.

The third generation has done outstanding commissioning banks B the beautiful thing in Australia is that we have.

The one product that combines.

The gateway plus.

The Isolator and fluids. It is it is a nice and compact and its very easy to install the entire commissioning time in our stores yesterday somebody did it in under 10 minutes. So.

<unk>.

We feel really good that.

In terms of power.

Power I mean.

This battery five kilowatt hour battery has got 384 kilowatts of continuous power.

And 768 kilowatts of peak volt justified kilowatt hour battery, which has doubled compared to our prior generation and factored as double on continuous and triple on peak power.

And that peak forward is very critical because that is what helps you start air conditioners.

And we can do a lot of great things in software if somebody thinks that has too much power, we have the ability to throttle continuous power, but still maintain big bulk.

So.

I mean, we are.

We are very happy with our third generation of course, we can.

No product is.

Is perfect at the time of introduction, but this is a step function competitive agenda.

In terms of power.

And.

We think our battery business I mean recall Q2 is the BARDA.

I believe it is the bottom.

We are we are guiding Q3 to be the same range 80 to 100, and we think with the <unk> starting to come up in Q4, you should start seeing.

A lot more activity there along with our introduction into UK, Italy, Poland.

Greece.

All of those should.

Start to account for more megawatt hours as well also.

Europe , Germany.

But then you mentioned earlier on.

It's an 80% battery attach in our business in Germany is definitely starting to pick up it gives me a lot of confidence as well, Germany is one of the more mature.

A tough market to go as a new entrant to go in and win and we are definitely.

Doing well in Germany as well.

Not just for solar, but solar and batteries so.

Definitely feel.

Optimistic and bullish on the battery.

Okay. Thanks for the color.

The next question comes from Jeff Osborne with Cowen. Please go ahead.

Okay, Hey, Badri <unk> two quick ones I was wondering if you could provide us maybe dumb it down a bit as people access it multiple ways.

The work of guidance, you're down about $135 million sequentially at the midpoint is it safe to say that sort of two thirds of that might be from the U S.

Due to the channel inventory and a third seasonality in Europe .

Monetizing.

I would say more like 85% and 15.

Got it that's helpful and then it.

It seems the strategy is to expand into as many geographies as humanly possible quickly.

In your experience with past geography expansion and how quickly does it take a country to be productive in terms of training more come into distributor marketing is that a six month lag or youre talking about Greece, UK et cetera.

What's your expectation internally is that more mid next year with sort of kicking in or spring any thoughts would be helpful. Yes.

Yes, that's a good question the.

Yes.

I'll just answer it because.

This is what I tell my sales guys.

It is it is to say we.

We need a complete cross functional team when we enter a new geography for it is a cross functional team you need a sales leader in the country.

You need a couple of.

Account managers in that country, assuming the savings is meaningful in terms of the total available market.

Then you need field application engineers, because the moment you <unk> the first thing.

They are going to be asking us help.

How do you designing the products or field application engineers need to be hired at the same time.

Then you need training, we need to conduct.

Beautiful courses.

We need to conduct training workshops everyday of the week.

And every city.

So.

The training folks are required and then customer service is vital.

We will never enter a region without customer service staffed in the local language then for batteries field service technicians.

<unk>.

Well because these field service technicians are the ones, who will take any battery issue of the installers play they are experts one or two per region. So across good cross functional team for entering a region is about 5% to six folks the people that I mentioned.

And.

We are in the process of staffing that up I've got Dave ran half back my Chief commercial officer. He talked he retired.

Three months ago, but I've gotten them back he is going to be with us for.

For a couple of more years.

And so he basically is championing.

All of our go to market activity.

In Europe , as well as new segments in the U S.

I appreciate it thank you.

The next question comes from Steve Fleishman with Wolfe Research. Please go ahead.

Yes. Thanks.

Just wanted to clarify.

Sorry to ask a similar question to some others, but the the.

The impact of the inventory reset from.

The first half of the year that youre going to do in Q3 can you just identify what that catch up is as opposed to kind of ongoing.

Inventory changes.

John just impact.

Yes, maybe you missed my detailed answers on this let me try to say once again basically I guess I heard actually just like in hundreds of millions like all of that on revenue.

Do you have a number for that.

Tens of millions.

Yes, I mean, what we said is we are taking note of guidance from.

From.

<unk>.

Are we are taking our revenue numbers from an actual Q2 actual of 711.

Our guidance for Q3, $5 50 to 600 midpoint.

575.

And.

A portion of it.

Most of it 85% is what I said is because we are doing a onetime correction.

And the rest of it is Europe .

Is seasonally down in Q3.

Okay.

Great and then on the.

On the Europe aspect.

Could you just clarify how you know it's seasonal.

Issue as opposed to.

The beginning of some of the same issues, we've seen in the U S in terms of.

Gas prices down higher rates.

How do you know with some seasonality.

Well, that's what we are hearing we are very close to our customers. This is what we are hearing from all of them the fundamental drivers aren't changing.

And for Us.

Really.

Like what I said.

That much worried.

About talks of inventory because we have we are underpenetrated in Europe .

We are strong in France, and Netherlands, but every other region in Europe is a blue ocean for us.

Like for example in Italy.

Solar plus storage.

<unk>.

In the UK the same thing.

In.

Poland.

Similar in Sweden, and Denmark similar grades similar so we are underpenetrated in.

Most of the regions, except France, and Netherlands, which have been fantastic for us.

And okay.

So I think we are extremely bullish about Europe .

Growth rate like what we said is more than triple growth in Q2 more than tripled year on year.

We are very bullish there.

Yes.

Understood. Thank you very much.

The next question comes from Corrine Blanchard with Deutsche Bank. Please go ahead.

Hey, Tim.

Most of my questions have been answered at this time.

Maybe if you can add.

Kristin.

The impact of the <unk> benefit into next year.

But as you know in the kitchen that got tax credits does that pool.

Right.

We'll be paying on just if you can give some color.

Yes, so the net benefit from my array, we are breaking it out so you can see it properly. So in the second quarter that ended just now the net benefit was one $6 million.

And that came because of 50000 units shipped.

You can do the math roughly 30 30 odd dollars. So that's about $1 6 million now four.

Q3, we have given you a guidance of.

600000 units and an estimated <unk> <unk> benefit.

Of <unk>.

14 five to.

To $16 5 million.

So you can calculate how much is on a per unit basis in the past I have told you that the net benefit is between 20 and $30 per unit and we will continue to give that.

That number every quarter because the mix is changing every quarter, sometimes we make high power products, depending on customer demand and sometimes it is it is slightly lower power products. So the mix changes. We also gave you a number which is.

And our pending robust demand we will do.

<unk> 5 million units per quarter.

We will reach up to that number in Q4 of 'twenty four.

So that number if you do the math. It is four 5 million units times, let's say an average benefit of $25. That's that's.

Thats like a.

$112 5 million.

Of net benefit in Q4 2004.

So that's the math and that is that will be accounted in the cost of goods sold.

And so we will break out the gross margin with DRA and without Iot. So you can see this.

And it'll be very clear.

Yeah.

Alright, Thank you Andrew.

Just one quick follow up.

As Ed mentioned.

Sure wish that Qualcomm.

Median quarterly capacity by the end of 2020 as of today.

Visibility can change and change but as of today that is something that Sean you bet Bye Bye next year towards.

Well it all depends that is why we quantified it with chain pending robust demand.

And if that demand is for example, let US say re go through another recession next year then.

I mentioned earlier that we would look at how to balance this out.

Between U S and international and we will give you the appropriate guidance at that time.

Okay. Thank you.

The next question comes from Sophie Karp with Keybanc. Please go ahead.

Oh hi.

Thank you for squeezing me in.

I wanted to ask.

Question on kind of go to market strategy.

Central Europe , where competition is higher.

That line.

Does that make sense for you to I guess launch and plan on brand awareness campaign aimed at the end consumer.

So that people could be lower than say the brand by name or do you think that you should continue.

Reaching customers by primarily targets.

Yes.

Yeah.

If you take a book out of what we've done here in the U S. We really have focused on are not installers right that installers are really the the front for the for the homeowner and obviously that has been very effective having said that we do use of social media.

Tools that we have at our disposal to the region and consumers. So we do provide.

Cover to afford our installer partners, but really our focus remains.

Letting our installers be the ones that are actually selling the product to the end consumer the end consumer does see the enphase.

<unk> product very clearly because they have that all in one app that they see and with TVN phase brand. So.

So they do get get to get to see it in.

In general, we let our installer partners be the front FERC.

Company's product.

Yes.

Got it. Thank you and then maybe a quick one on the GPO versus.

Cash savings and loans.

Do you have any visibility with your inflows when you come commentary you can share.

How they navigate an environment, where it appears that maybe.

Maybe taking the market share the common market.

It's competitive.

Interest rate benefit.

Benefits.

And what does that mean for the volume of business that they can do.

Going forward.

We do see a number of installers trying to shift their business.

From cash.

From loans, two ppas usually visa.

A slightly bigger installers less on the long tail.

And we worked with them.

We work with many of the leasing leasing partners they buy yield micro inverters.

So for us so far it is it doesn't nominally changed anything for us.

But we do see some shifts happening.

That is correct.

Thank you.

This concludes our question and answer session I would like to turn the conference back over to Badri <unk> for any closing remarks.

Thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter.

Thank you.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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Good day and welcome to Enphase Energy's second quarter 2023 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 star key followed by zero.

After todays presentation, there will be an opportunity to ask questions too.

To ask a question you May press Star then one on a touchtone phone to withdraw your question. Please press Star then two please.

Please note this event is being recorded.

I'd now like to turn the conference over to Zack Friedman. Please go ahead.

Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's second quarter 2023 results.

On today's call are Badri co founder Robin, our President and Chief Executive Officer, Mandy Yang, our Chief Financial Officer, and Ron <unk>, Our Chief products Officer.

After the market closed today and face issued a press release announcing the results for its second quarter ended June 32023.

During this conference call and base 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.

Anticipated growth in existing and new markets, the timing of new product introductions and regulatory and tax matters.

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. We caution you not to place any undue reliance on forward looking statements and undertakes no duty or obligation to update any forward looking statements as a result of new information future events or changes in expectations.

Also please note that financial measures used on this call are expressed on a non-GAAP basis, unless otherwise noted and have been adjusted to exclude certain charges.

We have provided a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release furnished with the SEC on form 8-K, which can also be found in the Investor Relations section of our website.

Now I'd like to introduce Badri, Cassandra, Robyn, our president and Chief Executive Officer Audrey.

Good afternoon, and thank you for joining us today to discuss our second quarter 2023 financial results.

We reported quarterly revenue of $711 1 million.

Approximately $5 2 million micro Inverters and 82, three megawatt hours of batteries and generated free cash flow of $225 million.

Approximately 78% of Q2 micro inverter shipments that IQ, Inc.

We exited the second quarter at 46% gross margin, 14% operating expense and 32% operating income all as a <unk>.

Percentage of revenue on a non-GAAP basis, Mandy will go into the financials later in the call.

Let's now discuss how we are servicing customers.

NPS was 74% in Q2 compared to 75% in Q1, our North American NPS was 77% the same as Q1, our average call wait time was $1 one minutes compared to one two minutes in Q1, we continued to focus on root cause fixes of customer issues.

And expanded our customer service and field service teams globally.

Let's talk about micro inverter manufacturing.

But overall supply environment remains quite stable and there are no major shortages right now let's come to you on it.

We expect.

To increase the overall solar demand in the U S and accelerated domestic production. We are pleased to be part of creating new jobs in the U S and advancing the country's clean energy economy.

We shipped 50000 micro inverters to customers in Q2 from two of our contract manufacturer Flex in South Carolina, and Fox Con in Wisconsin. We are on track to begin with the third contract manufacturer in Q3, we expect to ship approximately 600000.

Micro inverters to customers in Q3 from our U S manufacturing facilities.

Let's now cover the regions, our U S and international revenue mix for Q2 was 59% and 41% respectively Q2 was a record quarter for our international revenue, primarily due to the growth in Europe and Australia.

In the U S. Our revenue decreased 12% sequentially and decreased 1% year on year.

Overall sell through of our micro Inverters in the U S was up 2% in Q2 compared to Q1.

In Europe , our revenue increased 25% sequentially.

And more than tripled yet.

Yes, Ian.

At healthy gross margin.

Our sell through of micro Inverters in Europe was 13% higher in Q2 compared to Q1, we are now shipping IQ <unk> IQ eight micro inverters into Germany.

Netherlands, Spain, Portugal, and Poland. In addition, we are shipping IQ batteries in Germany, Belgium, France, Netherlands.

Portugal, Austria and Switzerland.

I will now provide some brief commentary, Australia, Latin America, and Brazil, our revenue in Australia more than doubled year on year, we started shipping out of new IQ battery five beat to Australia during the second quarter.

In Latin America, we introduced the new battery in Q2, while in Brazil, We introduced our solar graph software platform, which will help installers with design and proposal for dividends at NGL customers. Let me provide some additional color on the U S followed by Europe .

We recognize revenue when we ship product to distributors and large installers. It is therefore relevant to talk about the sell through trends of our products from our distributors to installers.

Since we have a healthy share in the U S. Our second thinks that a meaningful representation of business trends.

The overall U S market is experiencing a broad based slowdown due to high interest rates.

As I said earlier, our Q2 sell through of micro Inverters in the U S was only up 2% compared to Q1 and only up 2% year on year.

<unk> quarter is typically stronger than the first quarter, but that did not happen this year due to the market environment.

Let's now discuss the market trends, we are seeing in the U S split by California, and the rest of the U S.

Non California out of state.

The Q2 sell through of micro Inverters was 6% less.

As compared to Q1, and 11% less year on year.

Sell through was disproportionately worse in Texas, Florida, and Arizona in these states. The economics of loan financing has worsened due to the combination of rising interest rates and lower utility rates.

In California, the Q2 sell through of micro Inverters was 20% higher.

Back to Q1, and 34% higher year on year, the higher sell through was driven by higher backlog of NIM to installation, which is expected to last through this summer.

Expect NIM <unk> will have a greater impact on results beyond Q3, and I will speak more on what we are seeing them later.

Like to provide some more context about our revenue guidance for Q3.

Our micro inverters sell through in the U S peak in the fourth quarter of 2022.

The sell through in the first half of 2023.

In both Q1, and Q2 was approximately 20% below the fourth quarter due to the high interest rate environment in the U S.

Our sell in to the channel was only 10% down in the first half of 2023 relative to the fourth quarter.

We're expecting a seasonally up Q2, 'twenty three but that didn't materialize.

This has increased the inventory in the channel.

Plus we are assuming the same level.

Certainly continue going forward.

Therefore, we are taking aggressive and prudent.

The actions in the U S.

Manage down the channel inventory and this is reflected in our.

Light third quarter guidance.

Yes.

Let me say a few words about market shares.

We see stable high market shares to date for micro Inverters beta has done both internal and third party data.

Competition is not new for us and we have always relied on our differentiated technology with distributor architecture product quality and customer service to win share and we expect to continue doing so.

We have many tools at our disposal for installers and our partnerships go even deeper during the downturn.

For storage.

We have shipped approximately.

One gigawatt hour of battery systems cumulatively by the end of the second quarter.

We continue to manage our total channel inventory in Q2 and expect further improvement in Q3.

As we introduced our third generation <unk> batteries to the U S market in Q2, we reduced pricing for a second generation battery.

We also expanded the warranty for both batteries to 15 years, we received a new price point and warranty for both batteries as well as strong early customer adoption of the new battery driving increase to sell in and sell through during Q3, we believe that will be a bigger inflect.

<unk>.

For Q4, and beyond as California battery attach rates increase with memory.

Before moving to Europe , I would like to speak a little bit about <unk> III.

Early anecdotes on NIM $3 two activity from our installers are encouraging.

Since the crossover data in April .

We have seen an increasing rate of <unk> three the auto, California proposal activity with healthy storage attach rates, we offer a comprehensive <unk> solution, which includes our smart battery power control system to avoid main panel upgrades and energy management system that maximizes auto.

Roy for homeowners.

The smart battery can do both backup as well as utility rate arbitrage.

Tied batteries require less labor and fewer to balance of system components, making them significantly easier and faster to install our solar graphic design and proposal tool can model the complex interactions between solar batteries consumption and tariff and <unk>.

A simple proposal.

Financial analysis showed that for a cash system homeowners can expect a bill offset between 70, and 90% and payback between five and seven years, we think installers can effectively sell these economics to consumers.

Let's now cover Europe , our European business remains strong Q3 is typically down due to summer vacation, but on a year on year growth trend is very robust we plan to introduce IQ eight micro inverters and batteries into more countries in Europe , such as Sweden, Denmark.

Greece, UK and Italy later this year.

We saw strong broad based growth across Europe in Q2.

The Netherlands, and France continued to be very strong for us.

We are starting to gain real traction in Germany in both the residential solar and batteries.

Residential solar market in Germany. The biggest in Europe is roughly three gigawatts and the attach rates for batteries is approximately 80%. We saw strong quarterly sequential growth and installer com sell through and Activations of both solar and batteries and <unk>.

Germany during Q2.

During Q2, we also launched our <unk> router family of devices, which is part of our home energy management system in Germany, and Austria to enable the integration of select third party EV Chargers and heat pumps into Enphase solar and battery systems.

That is a great push towards whole home electrification in Europe .

In countries like Germany are leading the way in adopting renewable technologies to support heat pumps, Evs and other home loads self.

Self consumption as the norm as consumers want energy independence.

As we think about our competitive positioning in Europe , we see increasingly complex power markets and home energy management needs playing right into our strengths.

Our complete home energy management system solution delivers use cases like self consumption and green charging along with newer software features which we plan to release. This year are key Differentiators. In addition to our quality and service that will help strengthen our market position.

Let's cover more new products, we launched our third generation ICU battery.

In Australia, the U S and Puerto Rico in Q2 with plans to launch in Europe by the end of the year.

As I have previously discussed the battery has a modularity of five kilowatt hour and deliver double the continuous power and triple the peak power for the same kilowatt hour compared to our prior generation of batteries, the higher charging and discharging rate of third generation battery will be uniquely benefit.

<unk> four <unk> systems in California through its ability to generate revenue by exporting into the grid.

Appropriate time. In addition, our third generation battery is easy to install and commission with the targeted sub 30 minutes commissioning times. We are excited about the positive feedback we have received from our Australian and U S. Customers. We are now certified over.

3500, installers worldwide to install lower IQ batteries.

Let's now talk about our latest new product for the residential segment in emerging markets. This product. The IQ eight P. Micro inverter will deliver 480 watts of AC powered supporting panels up to 650 Watt DC for Brazil, Mexico, India, Spain and other.

Emerging markets, we are on track to release, the IQ eight <unk> micro inverters millions into production later this year.

The other variant of the IQ eight PV micro inverter with a new three phase cabling system is well suited for.

<unk> commercial solar installation ranging from 20 to 200 kilowatts. These micro inverter systems offer the same kind of compatibility high quality rapid shutdown capability as a standard residential products, we expect to release this product into the U S small commercial.

Solar market later this year.

In general received the global commercial opportunity.

Greater than 11, Gigawatts, we are extremely bullish about this small commercial solar market, where we believe we can add tremendous value to business owners and installers in Europe and U S with our high quality rapid shutdown capability and micro grid firming capability.

Offered micro inverter systems.

Let's discuss our use EV Chargers, we shipped over 600 to 600 EV Chargers in Q2 compared to 8600 in Q1, we expect to introduce IQ Smart EV Chargers in Q3. These smart charges will have Wi Fi connectivity, enabling use cases like <unk>.

<unk> charging and allowing homeowners full visibility into operation of that Enphase solar plus battery plus EV charger system through the App.

Let's now discuss the installer platform, we released updates to our solar glass design and proposal software platform in Q2, including <unk> functionality. The updated solar graft platform offers a simplified experience for designing and then three daughters systems by optimizing panel placements.

For both grid tied as well as grid agnostic systems.

Configuring battery sizing by leveraging modularity and enhancing system operations for time of use management and energy export to deliver the best possible electricity Bill upset and payback.

Let me conclude we are managing through a correction in the U S. Solar market. After three year is a phenomenal growth a period in which the residential solar market doubled in enphase sales tripling, even so as an NGL solar has only achieved 4% to 5% penetration in the U S. We believe there are.

Several positive long term drivers, which will accelerate adoption such as the 30% ITC tax credit the rising utility rates increased grid instability.

Climate change and increasing EV adoption that is no doubt that these will drive meaningful solar plus battery growth over the long term.

Our strategy is clear and unchanged we manage for the long term, we will make best in class <unk> systems with a laser focus on innovation quality and customer experience, we are doubling down on our relationships with customers. We are driving down installation times and investing in our survey.

<unk> teams, we are investing even more on new product innovation, we are expanding our <unk> micro inverters and battery reach globally accelerating our business in Europe in producing IQ a micro inverters further small commercial solar and emerging residential markets worldwide.

And making continuous enhancements jordans total platform.

Before I turn the call over to Mandy I am happy to announce that our board of directors has authorized a new share repurchase program given our confidence in enphase in future growth free cash flow generation and the value we see in our stock our board has authorized an additional $1 billion for share repurchases with.

That I will turn the call over to Mandy for a review of our finances.

Nick.

Thanks, Sanjay and good afternoon.

Hello, everyone.

I'll provide more details related to our second quarter of 2023 financial results.

As our business outlook for the third quarter of 2023, we have provided reconciliations of these non-GAAP to GAAP financial measures in our earnings.

Release posted today, which can also be found with.

Total revenue for Q2 was $711 $1 million, we shipped approximately 2121 three megawatts DC, all macro environments and 82.3 megawatt hours.

In a quarter.

GAAP gross margin for Q2 was 46, 2% compared to 45, 7% in Q1.

The increase was driven by increased eight product mix and improve logistics.

GAAP gross margin was 45, 5% for Q2.

non-GAAP gross margin for Q2 included one $6 million of AI.

While our micro inverter may in the U S and shipped to customers in the quarter.

non-GAAP operating expenses were $98 2 million for Q2 compared to $98 4 million for Q1.

GAAP operating expenses were $153 million for Q2 compared to $158 7 million for Q1, yes.

GAAP operating expenses for Q2 included $51 million of stock based compensation expenses and $3 9 million of acquisition related expenses and amortization for acquired intangible assets and $208000 of restructuring and asset impairment charges.

Our non-GAAP income.

Income from operations for Q2 was $235 million compared to $233 $6 million for Q1.

Thank you.

From operations was $173 million for Q2 compared to $167 7 million for Q1.

non-GAAP basis net income for Q2 was $205 6 million.

Compared to $192.3 million for Q1. This resulted in non-GAAP diluted earnings per share of $1 47 for Q2 compared to $1 37 for Q1.

Yes.

I will turn to US 157, $2 million compared to GAAP net income of $146 $9 million for Q1. This resulted in GAAP diluted earnings per share of $1 99 for Q2 compared to $1.02 for Q1.

Q2, with a total cash cash equivalents and marketable securities balance of $1 $8 billion.

Payer to one point, so that $8 billion at the end of Q1, we repurchased approximately one 5 million shares of Enphase common stock in Q2 at an average price of $159 43.

For a total of approximately $200 million.

This completed our $500 million share repurchase authorization from our board of directors.

As Badri mentioned, our board of directors has authorized a new $1 billion share repurchase program.

In addition, we spent approximately $12 $7 million with holding shares to cover withholding taxes for employee stock vesting in Q2 that reduced the diluted shares.

<unk> 72000 shares we expect to continue this anti dilution point throughout the year.

In Q2, we generated $269 2 million in cash flow from operation.

$225 $2 million in free cash flow.

Capital expenditure was $44 million for Q2 compared to $22 5 million for Q1.

The increase was primarily due to investment in U S manufacturing and R&D equipment.

Now, let's discuss our outlook for the third quarter of 2020.

We say our revenue for the third quarter of 2022, it will be within a range of $550 million to $600 million.

<unk> increased shipment of 80 to 100 megawatt hours of IQ batteries, we expect gross margin to be within a range of what do you want to 44%.

non-GAAP gross margin to be within a range of 42% to 45%.

Stock based compensation.

And acquisition related amortization.

Our gross margin guidance numbers do not include any benefit.

Alright benefits to be between 14 five and.

$16 $5 million.

Este managed shipments of 600000 units of use many franchise Michael go ahead.

We stay out of debt.

Operating expenses to be within a range of $159 million to $163 million, including approximately $58 million estimated for stock based compensation expenses and acquisition related expenses and amortization.

Our non-GAAP operating expenses to be within a range of $101 million to $105 million.

We will continue to invest in product innovation customer service and international growth.

Moving to tax.

We have utilized most of our net operating loss and research tax credit carryforward.

We are now a significant U S cash taxpayer.

GAAP and non-GAAP annualized effective tax rate for 2023 to be at 21% plus or minus 1% with Iia benefit.

Now I'd like to discuss how the advanced manufacturing production credits from the IRI reporting our earnings.

Had originally thought that the production credit will be reflected in income tax expenses.

Based on the latest guidelines from the U S Treasury.

We expect to claim the potash and credit direct pay and therefore, our council the production credit as a reduction in cost of goods.

We expect the production credit net of any incremental cost, but domestic manufacturing will be in a range of 24 to $28, Michael and where they are sold to customers in Q3.

Two shifts 600000 micro inverters to customers this quarter.

We plan to have our U S contract manufacturing facilities fully operational by the end of 293, we estimate shipments to reach our U S capacity of four five meter Michael in murders per quarter by the end of 2024, assuming robust demand.

With that I will open the line for questions.

We will now begin the question and answer session.

Ask a question you May press Star then one on your Touchtone phone.

If you are using a speakerphone please pick up your handset before pressing the keys.

If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

In the interest of time, please limit yourself to one question and one follow up.

If you have additional questions. Please rejoin the queue.

At this time, we will pause momentarily to assemble our roster.

Okay.

The first question today comes from Brian Lee with Goldman Sachs. Please go ahead.

Brian Lee Your line is open you may ask your question.

The next question comes from Phil Shen with Roth.

Please go ahead.

So perhaps your line is muted.

Okay.

Yeah.

Hi, everyone. Thanks for taking my questions.

Hi, Phil.

Hey, sorry, I'm bouncing between calls.

So.

Wanted to check in on or Youre dealing with pricing on micros in the U S.

Our checks this week suggests.

Recent spot discounts may be aggressive.

Couldnt quote with big customers in exchange for semi exclusivity.

Our contacts suggest maybe in response to some of the volume that may be go into Tesla.

Can you quantify what the magnitude of the discounts might be.

If anything or what it might mean, if anything on a blended ASP basis ahead.

I know historically, you always have some kind of small discount, but incrementally is it greater now to try to maintain that business. Thanks.

Right.

We are not planning any micro inverter pricing reductions in general overall.

As regarding pricing pressures.

It is normal for us since inception.

We are always used to pricing pressure.

We have always used to competing with string Inverters from day one.

Company was founded based on this.

A distributed architecture wins.

In our distributed architecture basically means no single point of failure.

So distributed architecture means that it's a semiconductor based architecture, which basically has got less number of components in very high quality, which means 0.05% failure rates. It also means running five years of warranty versus other string inverters that.

<unk> half.

That many number of years.

In addition.

We service customers very well 24 by seven customer service, 74% NPS.

Also we strongly believe in AC coupled architecture, which means that the combination of.

It's an enphase system for solar it's an enphase system for storage. It is a full home energy management system with an enphase EV charger as well and that is starting to become more and more important as men three type data come and those that.

We're already there in Europe .

For example, so.

Pause standing for special pricing adjustments are a fact of life.

Do that always that we are very disciplined we have a pricing team.

And.

It always depends upon the volumes.

And of course, redo reform deeper partnership with customers in times like this.

And we have a lot of tools at our disposal.

We have done.

Our recent M&A is on digital transformation that predict solar graft software platform is invaluable for us at this time, because we are able to give customers. The option of designing for example, showing an entry of design and making sure that they can sell that effectively to homeowners.

Solar graph.

Even leads lead generation company regard that is coming.

Our fuse in times like this so.

Basically to answer your question and our pricing is.

As normal we are planning on any pricing reduction on micro inverters and batteries. It's a different story on batteries I was very clear.

Back in the public cloud.

Saying that yes, we introduced our third generation battery and we cut the price of our second generation battery.

And both of them coexist.

The we believe that the second generation battery will be very good for tight NIM three data as well as great state batteries in Europe .

The third generation battery that comes with the 30 minute commissioning time, which we're very happy about that is priced appropriately for backup so.

And these pricing decisions arent done on the flight.

They have done with extensive planning.

And we do have offer pricing protection to our channel partners and so we believe in doing things in a structured way.

This is no exception.

Great. Thanks Badri.

Talked about price protection.

And that was for storage and we had written about that as well for the channel inventory.

From an accounting standpoint, which quarter does that price protection hits, because we already see it in Q2 results or should we expect in Q3, what was the magnitude and then hypothetically hypothetically if you pursue a price cut for Micros would you provide price protection for the existing micro channel.

Terry as well since the channel is a little bit Paul Thanks.

Yes, Phil so the price protection for storage has been accounted for in our earnings there will be no other impact.

In Q3 or going forward.

And pipe rotation will offer to Ctrip and <unk>.

Policy so in our case, if we lower our DLP for my cost will provide.

Pipe protection by this point, we are not planning to do things like that.

Great. Thanks, Mandy, Okay I'll pass it on.

Thank you.

The next question comes from Colin Rusch with Oppenheimer. Please go ahead.

Thanks, So much guys can you talk a little bit about your opportunities for driving costs out of the supply chain. It sounds like there is plenty of supply available and your ability to continue to walk that cadence down here over the next several quarters.

Yes, I mean, we work on.

World class cost initiatives for micro Inverters and batteries.

So.

On micro Inverters that has a lot of tactical negotiations that we do let me put that on the site, that's but that's not insignificant.

Nice number, especially in times like this our procurement organization.

Is extremely active.

The other one.

Which as you know.

We'll take over three to six months is opportunities, where we design in multi source. For example, when we have three sources of Transformers, having a fourth and fifth source, especially in times like this and when you have for example, three.

<unk> or integrated circuits for our AC gate drivers, having a fourth one those are also extremely active with our micro inverter group group running extensive qualification because we are very careful on that 500 BPM quality.

The last thing we need is a quality excursion. So that's the first and foremost priority for us making sure. The quality is preserved through all of that then the third one is a little bit more long term, which is over nine to 12 months, we'll look at putting material we look at.

A sick.

Is that an opportunity for us to redesign the ASIC and another platform to save cost is that an opportunity for us to integrate on our Pam for a competitor into the ASIC. So that we can save 20 cents. So for example.

The one dollar of savings.

In our micro inverter, assuming we shipped 20 million units.

Worldwide, a year, that's $20 million.

So you are looking at at one.

Is $200000.

It's a big amount.

And so we have we have a massive program called World class Scott. That's why you see even in Q2, our gross margin.

Continues to increase.

In on on batteries it is like.

Many people keep asking the same question can you make money on batteries.

And my answer is always the same we never enter a business until and unless we are convinced that the business will make at least my baseline gross margin.

And so on batteries, we are getting better generation one was higher cost generation two is a little bit lower now that we have in generation three where we have figured out a lot of ways to take cost out.

Then on top of it in terms of warranty we are getting a lot better on batteries, we are introducing sort of visibility on batteries, where instead of you having to replace the entire battery, which is so cumbersome for the installer and homeowner you'll replace a board insight because we have figured out that the <unk>.

Cell pack the battery pack never fails.

It is the power electronics, which consists of power conversion battery management and even mechanical components. Those are the ones that fail and we are making them bulletproof, but coming back to that we don't need to replace a 3000 dollar battery, we can replace a $40 a barrel, we don't need to take them back.

Three of the wall, we can replace it in situ therefore, the customer downtime is very large standard as we want the customer downtime to be no more than 24 hours and we are driving our teams to achieve that.

And when we achieve that Youll find your warranty and the replacement costs are minimized a lot. So that's on the.

Third generation now what's happening on the first generation <unk>.

Fourth generation of batteries is scheduled to come approximately within a year, maybe with the nine months, if I'm a little bit more aggressive and that has got a fundamentally.

Transformation cost structure, what we are doing there is we are combining power conversion and the battery management into one boom Soc.

Seven boards in June in the third generation will now become two boats in the fourth embracing this is accompanied by significant component count reduction significant cost reduction and that will get us even better on the gross margin.

So I gave you a bunch of puts and takes on micro Inverters batteries and then we're also cdos on our accessories, we shipped combined boxes.

We have cellular modems, we have the gateways for example in Europe in Q3, we are going to be introducing a combine a box.

That is going to be very cost effective for installers and it is going to help them. Both on dollars as well as time savings. So a lot of actions in the company and we started six years ago, we have not stopped since then.

Excellent. Thanks, so much guys.

Simple follow up here, you've historically talked about wanting to have eight to 10 weeks of channel inventory.

Hey, guys that youre, indicating here for <unk> get you to those levels.

From what Youre seeing at this point.

Alright, So let me provide some more context in general because it may not have been clear to everybody and they may not have been present too so.

Our sell through of micro Inverters in the U S peaked in the fourth quarter of 2022.

The sell through in Q1, 'twenty three was about 20% below that.

And the sell through in Q2 23, plus at the same level, which is 20% below Q4.

Now what we did was our sell in.

We only reduced 10% in Q1.

Thinking that.

Q2 will be a seasonally good quarter.

That's what we thought but that was not the case.

Q2 sell through.

Same as Q1 with respect to Q4.

So we find ourselves.

With excess inventory in.

In the channel and the responsible thing to do for.

From my my point is to take is to is to correct that.

Through a one time correction.

After that to reduce inventory in the channel the only way we reduce inventory in the channel is by not shipping as much and taking.

Our collection there.

So.

We are doing that.

We are aggressively reducing the inventory in the channel and we expect the.

The channel inventory weeks on hand to come back more to normalized levels at the end of Q3.

Okay. Thanks, so much guys.

The next question comes from Mark Strouse with Jpmorgan. Please go ahead.

Great. Thank you very much for taking my questions.

Just thinking about with valuations coming down across the space.

How you're weighing.

Potential M&A versus prioritizing this new $1 billion buyback.

Right.

First of all the way, we think about capital allocation is first.

Do we have enough capital to work on the things we need to internally.

How about domestic manufacturing how about building a new R&D lab, how about investing in.

Domestic.

The battery supply chain.

We take care of the needs of the business first at number one number.

Number two when we look at opportunities in M&A.

We look at to see whether we can increase the value.

The company is significantly maybe in the small commercial space.

Maybe in the software space in the home energy management space.

Those are the areas.

We normally look for as well as in the battery space, which is always exciting so but.

We are not going to be making ESP decision.

We usually like bolt on acquisitions, which are easy to integrate because we are aware that integration most integrations faith.

Companies. So we are always very cautious.

And we have we.

We have a clarity for example, we will not.

Via company to do anything specifically on Inverters, because we think we have enough homegrown talent that we can organically grow.

So.

So that's the second piece, we look for.

Active M&A opportunities and we have cash in.

Sure.

We will look for those the third one is <unk>.

After we have taken care of the needs of the business. After we have looked at M&A is can be buybacks talk.

<unk>.

Conservatively estimated and either value below.

The intrinsic value of the stock which is conservatively estimated.

So we look at that and Mandy talked about some of the actions. We did we bought 200.

Million.

<unk> talked last quarter 125 million shares at approximately $159.

And.

But we are disciplined about it.

The board has authorized another $1 billion.

For share buyback, considering regenerate close to $200 million of free cash flow every quarter.

But you can expect us to be disciplined do things when it makes sense and.

And not be overly aggressive.

Okay, Alright, Thanks, Badri and then just a follow up.

Thank you you touched on this a bit on California, maybe just repeat what you said about the.

What <unk> guidance assumes as far as NIM <unk> systems.

And when you expect that backlog to.

To be removed and start selling <unk>.

We think we think NIM toward auto will continue through Q3.

That's what we are hearing from our installers.

Continued through the summer till September we believe Q4.

<unk> will start.

And.

The anecdotes we are hearing from some of our installers some of our big installers, who say that they.

They are battery attach rates are.

<unk> hired a them 50%.

I mean, most installers.

They need to get educated on <unk> III auto, but the fact of the matter is even.

Even for pure solar.

Mmhmm III to payback is between seven and eight years.

Even for build solar.

When you add a battery.

And let US say when you add a 10 kilowatt hour battery, which seems to be kind of standardizing.

<unk> in that direction.

You then.

Achieve even better payback.

So payback comes down.

From the 7% to eight years, two five to six years with.

A high enough battery system.

Once the installers realize that economics than they are a lot more confident.

Off selling them three data our solar graph two tells them these things exactly.

So another phenomenon is California.

Yes.

My view on it is California is going to move to a majority of grid tied systems that so Germany evolved.

And in Germany, right now it is very very similar it is most of the solar plus storage grid tied today.

And California may evolve in that direction, that's my view.

And a great data system suddenly.

It's easier to install.

You don't need to worry about main panel upgrades, you don't need to worry about partial home backup and full home backup and all of that.

And yet the battery provides a lot of savings.

And in fact, the battery is a money maker for a couple of months in summer, where the grid needs help and the battery can export energy back to the grid. So.

But having said that memory auto is Neil therefore installers.

We'll take we'll have that ramp, but I think eventually it will be very easy to sell.

And I think we will start seeing solar and storage normalize.

In 2024.

Okay. Thank you very much.

The next question comes from Andrew <unk> with Morgan Stanley . Please go ahead.

Great. Thanks, so much for the question I'd say the follow up question to Phil's question earlier on.

Pricing appears to be relatively stable in that context. It seems like <unk> got is really volume driven.

Can you maybe just discuss between regions. What your expectation is on volume in the third quarter, specifically and if you could just start to provide more context around how you expect that to rebound or change in the fourth quarter that would also be helpful. Thank you.

I mean, Jeff.

For context in Q2, we grew about 25%.

In Europe compared to Q1.

And in Q3, we expect Europe to be slightly down compared to Q2 due to somewhat.

Typical summer seasonality.

And Europe for Us is underpenetrated in.

In general we are very strong in Netherlands, and France, we have upcoming in Germany, but for us the other other countries or almost a blue ocean.

Like Italy, UK, Sweden.

Denmark.

Chris.

Australia, Switzerland, Poland.

We are entering all of those regions.

And so we are extremely bullish.

On Europe .

In the U S as I said.

We said that the revenue decreased 12% sequentially.

In Q2 compared to Q1, but we are taking a heavier hit.

<unk>.

In Q3 because of the following phenomenon.

Which I elaborated just now it is.

Our sell throughs.

Which is indicated of real customer demand is 20% down.

In overall U S.

Compared to Q4, which are sort of our peak and.

And the 20% down is for both Q1 as well as Q2.

We sold into the channel, we only dropped the shipments into the channel by 10%.

And the rationale of dropping 10% only what we expect that Q2 to be a strong seasonal recovery.

That didn't happen.

And so now we have to correct for these two quarters.

And.

On top of it we are assuming the depressed sell through going forward.

So that's why we are taking a one time correction.

In the U S.

But I think in general the revenue photos will will exactly mimic the.

The percentage demand drop.

On a quarterly basis.

Got it that's super helpful and can I just ask one more on.

What youre seeing on Europe .

Channel inventory levels, and I understand that <unk>, maybe historically seasonally a lot.

<unk> quarter, but can you just maybe elaborate on what youre seeing across Europe on inventory levels.

Channel inventory is a little bit high on the 10 week site in Europe . It is.

And.

That's why we are cautious now but for US I mean, we are we are.

Really not worried about it because we are introducing products and you would mirror what countries. So.

And we think we can maintain it in the eight to 10 week range.

Got it thanks, so much.

The next question comes from Julien Dumoulin Smith with Bank of America. Please go ahead.

Excellent. Thank you good afternoon I appreciate it.

Can you talk a little bit more about the inventory levels in any write down risk here can you talk a little bit about just the backdrop on that front and then more importantly, just the normalizing functions do you think about these different recovery levels across geographies, especially thinking to continued European growth.

What might be implied by inventory levels et cetera.

Right.

Yes, I just know answered the question for Europe , the inventory level in Europe is a little bit normal lowered from the IR side at about approximately 10 weeks and that is why we said.

Q3 is a seasonally down quarter in Europe , and we expect to be slightly down in revenue as compared to Q2.

But then I talked about we are introducing several new products all of our growth in Europe is coming from new products and we are going to be introducing several new products for example, in Italy, and UK in Sweden, and Denmark in Greece, and Poland, where we are not exist.

<unk> today, so all of those are going to be incremental and <unk>.

<unk> not.

And I am not worried about revenue I mean, not worried about inventory that the U S. On the other hand U S is we were in great shape in at the end of Q4 two.

<unk>, two which was our highest sell through quarter sell through means we are selling.

Meaning the installer.

Buying from the distributors call sell through our sell through rate was the highest and our channel inventory was very healthy.

At the end of Q4, what happened is the sell through rates decline overall in the U S. 20% with respect to Q4 for Q1 and for Q2.

And therefore.

And in response to that we did throttle our shipments into the channel, but we then translate enough because we zoomed Q2 will be a seasonally good quarter, which turned out to not be the case. So therefore, we are.

Now left with two quarters off.

Inventory that is added on.

And.

Meaning two quarters of extra inventory and we're also assuming going forward, we are not making any aggressive assumptions. We are seeing the demand will be at the same level as it is today and.

And therefore, we are taking a one time correction for shipments into the channel and that is why our guide.

He is light for Q3.

Alright, effectively equal to that excess inventory here.

Great and then just a related here if you can comment on gross margins I mean, obviously you guys provide.

Been providing consistently improving gross margin guidance over time.

And implicit within that is the confidence to sustain that for these sometimes several quarters.

As I read it.

Still feel confident in supporting these are higher gross margin levels here. Despite this backdrop through this period of time for.

For several quarters.

Yes.

Look we're careful on the gross margin guidance, we have non-GAAP guidance that we gave is 40 to 45.

And like what I said, we like for example, I didn't even I didn't even say this to the gentleman who asked me. The question before for example in logistics last quarter, we saved $8 million.

Last quarter like we have a lot of.

Initiated from our World class cost on saving on saving the.

The cost of a capacitor transistor partnering semiconductors.

<unk> not not only by a second source qualification are multi sourced qualification, but simply purely by negotiation.

So we do that and we know that on micro inverters redo that on batteries, we do that.

And combined out of boxes and accessories. So our world class cost effort is invaluable and has saved us a lot of dollars and we are now moving to a higher and higher mix of IQ eight which has got a little bit more gross margin.

Dan IQ seven now.

On the batteries, we are also getting better.

In terms of gross margin I gave a big commentary on batteries on how we have improved the learning from one generation to the other in terms of warranty for example, and not in sort of taking a 3000 dollar hit on a return we don't do that we basically service.

Boards within that product and <unk>.

The board replacements, which are $40 are done.

Much faster than full unit replacement, so innovative ways in order to reduce our overhead costs on batteries, but also helping and like what I said.

Our fourth generation batteries are coming the fourth generation batteries provide a huge.

The reduction in terms of power electronics, which is the battery management is now integrated into power conversion.

And so seven boats in the Gen. Three system will now be two booths and in that process, we take significant cost out.

So.

In general we are quite confident of our trajectory.

On gross margin on both micro Inverters and batteries.

Alright, it sounds it for several quarters to come thank you very much.

Thank you question. The next question comes from Kashi Harrison with Piper Sandler. Please go ahead.

Good afternoon, thanks for taking the questions.

So based on the feedback that you're receiving from your distribution network or are you getting the impression that sell through and non California.

We'll have bottom Dubai <unk> do you still believe non California is in the process of Recalibrating and then.

You said that the early NIM three data is encouraging from your larger installers can you maybe just speak to.

Without saturate its north of 50% can you just maybe speak to where we are on year over year trends is based on the leading edge data.

Yes, I think to answer your question on sell through for non California, I mean it.

It has not changed much in Q1 and Q2 in fact, I said Q2 was a little bit worse.

Compared to Q1 of about 6% worse I think it is expected to probably be at this level until the interest rates take a meaningful turn for the better.

That is non California on <unk> I mean, we only have anecdotal evidence right now the channel is still.

Mmhmm too.

And then two installations are happening many.

Some of our distribution partners said that a few installers may even do them too.

October November .

We are hearing that for most of Q3.

It will be in them too and we will start getting data on <unk> III sell through data only in Q4, but we see a lot of design and proposal activity.

From one of the benefits of.

US buying the solar draft software platform is we are able to see the early signs of mandatory and there are a lot of designs on entry I cant quantify it yet because.

We don't have a meaningful market share in the solar graph software space, but.

I like the trends I see like the battery of database very nice I see it over 70% in most cases.

And like what I said, we have.

Three of the fact that the payback is awesome.

Grid tied batteries and solar the payback is.

Fine even for a pure solar so we think it is a matter of training a lot of.

A lot of installers.

<unk>, who is sitting with me he has visited himself.

Thousand thousand installers came to his sessions throughout last quarter and our only job there was to evangelize.

<unk>.

We showed them with solar graph software platform on how to design for <unk>, what is the payback how to sell.

The homeowners and so that installers have very high confidence.

To the end consumer but.

Having said that we don't have statistics, yet we will start getting statistics in the fourth quarter.

Yes.

Thank you. Thank you for that color and then maybe just for my follow up question also clearly demand is tracking beneath expectations as you're adding a significant amount of capacity to the U S.

Do you have the ability to ramp U S. Two peak capacity.

By throttling back in Mexico, India, and Romania or are there minimum activity levels that you would need to maintain.

Per your agreements with your contract manufacturers. Thank you.

Good question.

We have a total of three.

Three contract manufacturers right now.

Two of them have been with Us forever.

And.

No.

That is one of the reasons, we even chose those two because we have deep relationships with them.

And we want to be highly sensitive on how we load their factories outside the U S versus factories inside inside the U S.

That is one new partner Fox Com.

That that is manufacturing our micro inverters in Wisconsin now our assumption is we are going to be ramping steadily from Q2 of 50000 units too.

Our Q4 number four in the half Q4, 'twenty for number of $4 5 million units pending robust demand.

And of course I mean, this is a long term decision that.

That we take.

And we do expect.

We do expect us to have.

Come with healthy demand by then if not we will work with our contract manufacturing partners and we will make the right decision.

On how to appropriately load the factories.

And we will provide that guidance to you on a quarterly basis.

Thank you.

The next question comes from Jordan Levy with Cowen. Please go ahead.

Good afternoon, Thanks for taking my question.

Quick one for me just curious if you could give us a little more detail on the chartering side of things what it takes to productivity.

For that business to a bigger segment.

You control.

Progression toward bidirectional charge any color your view.

Alright, so EV Chargers, we bought.

A company called Clifford Creek.

And that was.

Towards the end of 2021.

And basically now what we have done is we have basically moved the manufacturing of those EV Chargers. So that we can start to scale.

To flextronics in Mexico.

We have done that Thats phase one now what we are doing and we will release in Q3 is an IQ smart TV charters. The original Flipper Creek Chargers, which are very popular by the way simply because of their very high quality very high durability and great service. So we are taking them.

But taking that architecture, and we are adding connectivity.

The Clipper Creek EV charging and we are rebranding it as an IQ smart EV charger and once you have the connectivity and then the integration into Enphase solar plus storage you can do a lot of interesting things like for example, you can configure and euro.

Im saying never charge.

<unk> from the grid only charge EV from solar.

Green charging only.

We can do interesting things like that so thats, what I call phase two.

That will happen in Q3 in the current quarter, we are in now.

Now.

The next phase will be to introduce these EV Chargers.

In all countries in Europe .

That will happen in Q1, and Q2 of 'twenty four we're already working on that.

And the same thing that our existing partner channel partners are all selling enphase solar plus storage it would be a material expansion for them to be selling enphase solar plus storage plus EV Chargers with a full home energy management system capable of managing heat pumps as rep. So that phase III.

<unk>.

We have already demonstrated by Directionally recharge it is on our website.

And it is very closely.

Lined with our ensemble architecture, so essentially we tap into the BC part of the car and that interface that is card.

Digital interface that is a digital interface that is power interface. The digital interfaces 15, one eight that basically you can exchange things like the <unk> of the caused the sale of charge of the car and other control signals and then we will have power conversion, which is our inverters. The same inverters that we use.

A higher wattage, Inverters basically will take that BC and plug it into our home energy management system, which is an ASIC of resistance.

So.

Once we do that we can easily do video edge as well as meet to video X, which is <unk>. So we.

We expect that product to come into the market by Q4.

Up next year that is.

We are still in early days there.

We are working on.

Bidirectional inverter right now.

So.

That's those are the four phases and then Doug looking at yes. So in terms of the importance of the connected.

You recharge or that we are going.

Relief from this quarter again played an important role and Bob you mentioned in your home Energy management system, specifically when you think about it in the context of named three as well.

Want to avoid charging are colored in certain times of the day, which is which is part of the time of use construct as well as allowing a battery or preserve your priority to discharge power into the grid at certain times.

Third in terms of the particularly in the summer so getting a significant load like an EV under control of your own home energy management system becomes extremely vital as we can deliver.

Great savings for the homeowner both in terms of bill offset as well as pay back period.

As you think about as you think about NIM three year in the U S as well.

As you think about home energy management broadly in Europe .

Thanks, so much for that.

Thank you.

The next question comes from Brian Lee with Goldman Sachs. Please go ahead.

Hey, guys. Thanks for taking the questions apologies about earlier.

I had a call.

<unk> about the.

I guess, the destock and how Youre reading the channel I appreciate Badri Aldi.

Kind of detailed disclosure about the quarterly cadence as you've experienced so if I do the math.

You kind of shift 10% more than sell through two quarters in a row based on your commentary in the U S. So roughly let's call it $100 million if my math is correct.

And your guidance is effectively down that much sequentially, if not a little bit more so does this imply you're entirely resetting.

Kind of the channel all at once in <unk>, and then as you get into <unk>, we're going to start.

Looking at a normalized environment, you're starting to fill the channel again like what's what's sort of the implication here.

That is correct to begin with.

So in addition to that math Bryan the other way one more way to look at it as the.

You always look at you ending on hand inventory.

Assuming our projected demand.

And going forward. So we are not assuming any optimistic demand.

For Q3, we assumed the same level of uncertainty continues for Q3 and so that's another portion of the map that needs to be.

<unk> done two to calculate how much.

We should clearly ship into the channel in Q3, and we took that into account.

As I also said in Europe .

We expect.

To be slightly down as compared to last last quarter due to typical seasonality.

And to answer your question, that's the idea we'd like to bring the channel back to a healthy place at the end of Q3.

Okay fair enough, but embedded in your guide for <unk> the sell through it sounds like you're assuming continued weakness do you anticipate.

That to just kind of be a flatline assumption all the way through the rest of this year.

End of the year and Thats, how you are approaching the channel.

Reset even beyond retail.

That's right I mean, we are assuming also a little bit on the <unk> III.

But I mean look we.

We're confident that this is this is a one time correction. The reason is we have a lot more new products that are coming up for us.

And so we all feel good that this this one time correction will.

Clearly normalize the channel and on top of it.

So many initiatives to diversify our revenue, including the new countries in Europe , and the small commercial in the U S.

We talked about so.

We are cautiously optimistic we are correct.

Okay, Great and then I guess.

That's a good segue into my second question and I'll pass it on.

Youre sort of the newer player in Europe , you're coming out with new products new markets.

And obviously you have the highest margins out there in the industry and I know you want to protect those but as you enter new markets. In this environment is there a kind of a different mindset around pricing strategy can you maybe speak.

At a high level about kind of what youre thinking in regards to pricing when youre out in Europe , and you're trying to gain share there.

Maybe you add some margin wherewithal to.

To work with thanks, guys.

Yes, I think I think that's also a good question in Europe on micro Inverters.

The folks in Netherlands, and France understand is perfectly for small systems.

Like in Netherlands, and France, They love our quality they love our service.

And we are we are extremely.

Close to these partners we provide them.

And outstanding service.

Your question on new areas, I mean, thats something we were always thinking as we enter the emerging markets for example, like Brazil.

For example, like even the small commercial market.

We are able to manufacture of those micro inverters, which are high power micro Inverters 400 Navy what do you see those we are able to manufacture in the U S.

And we get incentives production tax credits to the tune of 11 cents per watt for the.

Those dosing motors. So I think there is some opportunity there for us to become a little more aggressive in terms of market share.

And we will be pursuing those.

Okay I appreciate that thank you.

Thank you.

The next question comes from Eric Stine with Craig Hallum. Please go ahead.

Hi, everyone. Thanks for sneaking me in here at the end.

So if I understand correctly it sounds like you feel pretty good about.

Battery.

Inventory in the channel and again I do appreciate everything you gave on the micro Inverters side.

But just curious with that in mind with Gen. Three.

Launch and getting into the market.

And then NIM three expected to start in <unk>. I mean are you willing to call a bottom I think last quarter. You said that you thought Q2 might be the bottom for battery volumes is that I mean.

Is that still a fair expectation.

Yes, I mean, that's right that is still a fair expectation we are exactly on track for that we feel really good on batteries. We have started shipping our third generation batteries, the third generation batteries salt.

Sure.

Some unique problems with the second generation Aldo on the second generation, we have kind of cleaned it up.

The third generation has done outstanding commissioning banks B the beautiful thing in Australia is that we have.

The one product that combines the.

The gateway plus.

The Isolator and third it is it is a nice and compact and its very easy to install the entire commissioning time in our stores yesterday somebody did it in under 10 minutes. So.

We feel really good that.

In terms of power.

Sure.

This battery five kilowatt hour battery as Scott 384 kilowatts of continuous power.

And 768 kilowatts of peak vote, just a five kilowatt hour battery, which is double compared to our prior generation and factored as double on continuous and triple on peak power.

And that peak forward is very critical because that is what else you start air conditioners.

So.

We can do a lot of great things in software if somebody thinks that has too much power, we have the ability to throttle continuous power, but still maintain big bulk.

So.

I mean, we are.

We are very happy with our third generation of course, we can.

No product is.

Is perfect at the time of introduction, but this is a step function compared to genco.

In terms of power.

And.

We think our battery business I mean recall Q2 is the BARDA.

I believe it is the bottom.

We are we are guiding Q3 to be the same range 80 to 100, and we think with the memory data starting to come up in Q4, you should start seeing.

Lot more activity, there along with our introduction into UK, Italy, Poland.

Greece.

All of those should.

To account for more megawatt hours as well and also in Europe , Germany.

You mentioned earlier on it's.

It's an 80% battery attach in our business in Germany is definitely starting to pick up and it gives me a lot of confidence as well, Germany is one of the more mature and tough market to go as a new entrant to go in and win and we are definitely.

Doing well in Germany as well.

Just for solar but solar.

Our batteries so.

Definitely feel.

Optimistic and bullish on the battery.

Okay. Thanks for the color.

The next question comes from Jeff Osborne with Cowen. Please go ahead.

Okay, Hey, foundry and <unk> two quick ones I was wondering if you could provide us maybe dumb it down a bit people access it multiple ways.

The work of guidance, you're down about $135 million sequentially at the midpoint is it safe to say that sort of two thirds of that might be from the U S. Just due to the channel inventory and a third seasonality in Europe .

Monetizing.

I would say more like 85% and 15.

Got it.

It's helpful and then.

It seems the strategy is to expand into as many geographies as humanly possible quickly.

In your experience with past geography expansion and how quickly does it take a country to be productive in terms of training more come into distributor marketing.

On a six month lag or youre talking about Greece, UK et cetera.

What's your expectation internally is that more mid next year windows with started kicking in or spring.

That would be helpful.

Yes, that's a good question.

And.

I'll just answer it because.

This is what I tell my sales guys.

It is to say we.

We need a complete cross functional team when we enter a new geography for it is a cross functional team mean, you need a sales leader.

In the country.

You need a couple of.

Account managers in that country, assuming the savings is meaningful in terms of the total available market.

Then you need field.