Q4 2023 Enphase Energy Inc Earnings Call

Good afternoon, and welcome to the Enphase Energy fourth quarter 2023 financial results conference call. All participants will be in listen-only mode.

Good afternoon, and welcome to the unsafe energy fourth quarter 2023 financial results conference call.

All participants will be in listen only mode.

Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad.

Did you need assistance. Please signal a conference specialist by pressing this darcie followed by zero.

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

You asked a question you May press Star then one on your telephone keypad.

To withdraw your question, please press star then two. We ask that you please limit yourself to one question and one follow-up. If you have further questions, you may re-enter the question queue. Please note this event is being recorded. I would now like to turn the conference over to Zach Friedman. Please go ahead.

To withdraw your question. Please press Star then two.

We ask that you please limit yourself to one question and one follow up.

You have further questions you may reenter the question queue.

Please note this event is being recorded.

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

Zach Friedman: Good afternoon and thank you for joining us on today's conference call to discuss Enphase Energy's fourth quarter 2023. On today's call are Badri Kothandaraman, our President and Chief Executive Officer, Mandy Yang, our Chief Financial Officer, and Raghu Belur, our Chief Products Officer. After the market closed today, Enphase issued a press release announcing the results for its fourth quarter ended December 31, 2023.

Dr. Friedman: Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's fourth quarter 2023 result.

Dr. Friedman: On today's call are battery, because under Robbins, President and Chief Executive Officer, Andy Yang, Our Chief Financial Officer, Greg <unk>, our chief products Officer.

Dr. Friedman: After the market closed today Enphase issued a press release announcing the results for its fourth quarter ended December 31 2023.

Zach Friedman: During this conference call, Enphase Management will make forward-looking statements, including but not limited to statements related to our expected future financial performance, market trends, the capabilities of our technology and products, and the benefits to homeowners and installers, as well as 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. These forward-looking statements involve significant risks and uncertainties, and our actual results and the timing of events could differ materially from these estimates. For a more complete discussion of the risks and uncertainties, please see our most recent Form 10-K and 10-Qs, followed by this essay.

Dr. Friedman: During this conference call Enphase management will make forward looking statements, including but not limited to statements related to our expected future financial performance market trends the capabilities of our technology and product benefits to homeowners and installers, our operations, including manufacturing customer service and supply and demand anticipated growth.

Dr. Friedman: In existing or new markets, the timing 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.

Dr. Friedman: 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.

Zach Friedman: We caution you not to place any undue reliance on forward-looking statements and undertake 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 8K, which can also be found in the Investor Relations section of our website. Now, I'd like to introduce Badrinarayanan Kothandaraman, our President and Chief Executive Officer.

Dr. Friedman: 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.

Dr. Friedman: 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.

Speaker Change: Now I'd like to introduce Badri put under Robbins, our president and Chief Executive Officer Audrey Wood.

Badrinarayanan Kothandaraman: Good afternoon, and thanks for joining us today to discuss our fourth quarter 2023 financial results. We reported quarterly revenue of $302.6 million, shipped approximately 1.6 million microinverters and 80.7 megawatt hours of battery, and generated free cash flow of $15.4 million. On our last earnings call, we said we would reduce channel inventory by approximately $150 million. We achieved a reduction of $147 million in Q4.

Speaker Change: Good afternoon, and thanks for joining us today to discuss our fourth quarter 2023 financial results.

Badrinarayanan Kothandaraman: We reported quarterly revenue of.

Badrinarayanan Kothandaraman: $2 6 million.

Badrinarayanan Kothandaraman: Shipped approximately $1 6 million micro Inverters and 87 megawatt hours of batteries and generated free cash flow of $15 4 million.

Badrinarayanan Kothandaraman: On our last earnings call. We said, we would reduce channel inventory by approximately $150 million, we achieved a reduction of $147 million in Q4.

Badrinarayanan Kothandaraman: For the fourth quarter, we delivered 50% gross margin, 29% operating expenses, and 22% operating income, all as a percentage of revenue on a non-GAAP basis and including the IRA benefit. Mandy will go into our financials later in the call. Now, let's discuss how we are servicing customers. Our worldwide NPS was 77% in Q4, the same as in Q3. Our average call wait time was one minute compared to 1.3 minutes

Badrinarayanan Kothandaraman: For the fourth quarter.

Badrinarayanan Kothandaraman: 50% gross margin, 29% operating expenses and 22% operating income all as a percentage of revenue on a non-GAAP basis, and including the Iot benefit Mandy will go into our financial later in the call.

Mandy: Let's now discuss how we are servicing customers worldwide NPS was 77% in Q4, the same as Q3.

Mandy: Average call wait time was one minute compared to $1 three minutes in Q3.

Badrinarayanan Kothandaraman: We have made good progress in solving customer issues by focusing on both automation as well as expanding our field service teams globally. Now, let's talk about operations. The overall supply environment for microinverters and batteries is quite stable.

Mandy: We have made good progress on solving customer issues by focusing on both automation as well as expanding our field service teams globally.

Mandy: Let's talk about operations, the overall supply environment for micro Inverters and batteries is quite stable.

Badrinarayanan Kothandaraman: Let's come to microinverters. We shipped approximately 913,000 microinverters to customers in Q4 from our contract manufacturing facilities in the U.S. We announced in December that we are taking over operations at our contract manufacturing locations in Romania and Wisconsin. We will manufacture microinverters in the U.S. with our two existing partners in South Carolina and Texas. The equipment currently located in Romania and Wisconsin will be redeployed for use at other facilities.

Mandy: Let's come to micro Inverters, we shipped approximately 913000 micro inverters to customers in Q4 from our contract manufacturing facilities in the U S.

Mandy: We announced in December that we are seizing operations at our contract manufacturing locations in Romania and Wisconsin.

Mandy: We will manufacture micro inverters in the U S with two existing partners in South Carolina, and Texas. The equipment currently located in Romania in Wisconsin will be redeployed for use at other facilities.

Badrinarayanan Kothandaraman: Once the restructuring actions are complete in the first half of the year, we expect to have a global capacity of approximately 7.25 million microinverters per quarter, of which 5 million will be in the U.S. We expect to ship approximately 500,000 microinverters to customers from our U.S. manufacturing facilities in Q1. We expect that our shipments from U.S. facilities will be lower in the first half of the year as we reduce both factory as well as channel inventory. We anticipate a higher level of shipments in the second half of the year. For IQ batteries, we have two cell pack suppliers, both in China, which have sufficient manufacturing capacity to support our ramp in 2024. In addition, we will have the capability to manufacture IQ batteries in the U.S. in the third quarter of 2025. Let's now cover the region.

Mandy: One is the restructuring actions are complete in the first half of the year, we expect to have a global capacity of approximately 725 million micro inverters for the quarter of which 5 million will be in the U S.

Mandy: We expect to ship approximately 500000 micro in orders to customers from our U S manufacturing facilities in Q1, we expect that our shipments from U S facilities will be lower in the first half of the year as we reduce both factory as well as channel inventory.

Mandy: Anticipate the higher level of shipments in the second half of the year.

Mandy: For IQ batteries, we have to sell pack suppliers, both in China, which have sufficient manufacturing capacity to support our ramp in 2024. In addition, we will have the capability to manufacture IQ batteries in the U S.

Mandy: In the third quarter of 2024.

Mandy: Let's now cover the regions.

Badrinarayanan Kothandaraman: Our U.S. and international revenue mix for Q4 was 75% and 25%, respectively. For more visibility into our business, we are providing you with regional breakdowns and sell-through dollar metrics by region until the channel is healthy. In the U.S., our revenue decreased 35% sequentially as we undershipped to end customer demand.

Mandy: The U S and international revenue mix for Q4 was 75% and 25% respectively.

Mandy: For more visibility into our business, we are providing you regional breakdowns and sell through dollar metrics by region until the channel is healthy.

Mandy: In the U S. Our revenue decreased 35% sequentially as we under shipped to the end customer demand.

Badrinarayanan Kothandaraman: The overall sell-through of our microinverters and batteries in the U.S. was down 9% in Q4, compared to Q4 and Q5. Let's discuss the market trends we are seeing in the U.S., split by non-California states and California. For non-California states, our overall sell-through was only down 1% in Q4 compared to Q3. The sell-through of our microinverters was flat, and the sell-through of our batteries was down 8% in Q4.

Mandy: But all sell through of our micro Inverters and batteries in the U S was down 9% in Q4 compared to Q3.

Mandy: Let's discuss market trends, we are seeing in the U S split by non California, as states and California for non California States. Our overall sell through was only down 1% in Q4 compared to Q3, the sell through of our micro Inverters was flat and the sell through of our batteries was down.

Mandy: <unk>, 8% in Q4.

Badrinarayanan Kothandaraman: In California, our overall sell-through was down by 7% in Q4 compared to the previous quarter. The sell-through of our microinverters was down 27% in Q4, primarily due to the NEM 3.0 transition. However, the sell-through of our batteries increased by 58% in Q4 due to the high attach rate of NEM 3.0 systems, as expected. As we discussed on our last earnings call, it will take a few quarters for our installers to fully transition to NEM 3.0 and normalize sales. I'll provide more statistics on NEM 3 later in the call. In Europe, our revenue decreased 70% sequentially as we under-shipped to meet end-customer demand.

In California, our overall sell through was down by 7% in Q4 compared to Q3.

Mandy: The sell through of our micro Inverters was down 27% in Q4, primarily due to the NIM three dart two transition however, the sell through of our batteries increased by 58% in Q4 due to the high attach rate of men read our dose systems as expected.

Mandy: As we discussed on our last earnings call. It will take a few quarters for our installers to fully transition the named three Dod Doe and normalized sales.

Mandy: Motor Statistics on NIM three later in the call in.

Mandy: In Europe, our revenue decreased 17% sequentially.

Mandy: As we under shipped to the end customer demand.

Badrinarayanan Kothandaraman: The overall sell-through of our microinverters and batteries in Europe was down 20% in Q4 compared to Q3. The sell-through of our microinverters was down 23%, and sell-through of batteries was down 2%. I'll provide some color on our key markets in Europe, the Netherlands, France, and Germany. In the Netherlands, our overall sell-through in Q4 was down 37% compared to Q3. Customers are fearing an export penalty for solar, and there is confusion about the ending of net metering.

Overall sell through of our micro Inverters and batteries in Europe was down 20% in Q4 compared to Q3.

Mandy: Two of our micro Inverters was down 23% and sell through of batteries was down 2% in Q4 compared to Q3.

Provide some color on our key markets in Europe, Netherlands, France, and Germany, and Netherlands overall sell through in Q4 was down 37% compared to Q3 customers that fearing an exposure default sooner and there is confusion about the ending of net metering, we kicked off the new year.

Mandy: The solar next event in Netherlands, That'd be hosted 800 plus installers.

Mandy: The country promoting our comprehensive solution with solar plus batteries and energy management software that will unlock the full potential of the Dutch NFC market. We believe solar plus batteries are going to become the norm as dynamic tariffs and grid services become more prevalent we are already seeing a steady ramp.

Badrinarayanan Kothandaraman: We kicked off this new year with the SolarNext event in the Netherlands, where we hosted 800-plus installers across the country, promoting a comprehensive solution with solar plus batteries and energy management software that will unlock the full potential of the Dutch energy market. We believe solar plus batteries are going to become the norm as dynamic tariffs and grid services become more prevalent. We are already seeing a steady ramp-up in batteries in the region and expect the trend to accelerate in 2024. For more UN videos, visit www.un.org. In France, our overall fall through in Q4 was only down 1% compared to Q3.

Mandy: And batteries in the region and I expect the trend to accelerate in 2024 in France. Our overall sell through in Q4 was only down 1% compared to Q3.

Mandy: See a lot of potential for this market to grow and evolve into a solar plus battery market as utility rates have moved higher and are expected to increase even more in 2024.

Mandy: In Germany, our overall sell through in Q4.

Mandy: Down 32% compared to Q3, however, we saw sequential growth in activation for both solar and batteries as we continued to gain traction in the region.

Badrinarayanan Kothandaraman: We see a lot of potential for this market to grow and evolve into a solar plus battery market as utility rates have moved higher and are expected to increase even more in 2024. In Germany, our overall sell-through in Q4 was down 32% compared to Q3. However, we saw sequential growth in activation for both solar and batteries as we continue to gain traction in the region. We are introducing our products into more countries in Europe. In the last few months, we have entered the UK, Sweden, Denmark, Greece, Switzerland, Austria, Italy, and Belgium markets with our IQ8 microinverters and IQ batteries. In Australia, we are seeing growth for our Enphase Energy systems powered by IQ-8 microinverters and IQ battery 5P, the latest third generation battery, which we introduced in June of 2020.

Mandy: We are introducing our products into more countries in Europe.

Mandy: In the last few months, we have entered UK, Sweden, Denmark, Greece, Switzerland, Austria, Italy, and Belgium markets with our IQ eight micro inverters in ICU beds.

Mandy: In Australia, we are seeing growth for Enphase <unk> systems powered by IQ eight micro inverters and batteries.

Latest third generation battery, which we introduced in June of 2023 in Brazil.

Mandy: Sell through is stabilizing nicely as we focus on building the installed base in India. We are starting to ship, our IQ eight HC and IQ a P micro inverters to support high powered panels in Mexico. We just recently started shipping IQ eight micro inverters for residential.

Mandy: Sheila applications as a reminder, IQ eight piece that highest power micro inverter at 480, <unk> for both residential and commercial applications.

Badrinarayanan Kothandaraman: In Brazil, our sell-through is stabilizing nicely as we focus on building the installer base. In India, we are starting to ship our IQ8HC and IQ8P microinverters to support high-power panels. In Mexico, we just recently started shipping IQ8P microinverters for residential applications. As a reminder, IQ8P is our highest-powered microinverter at 480 watt CC for both residential and commercial applications.

Mandy: Say, a few words about our U S market share.

Mandy: We see stable channel for micro Inverters and batteries based on both internal as well as third party data, we have a large and diverse customer base our value proposition is to provide installers. The easiest installation process with high quality and best in class service. We also.

Mandy: We have tools like solar graph design proposal and permitting software and lead generation through solar lead factory Act out of disposal to help out and as a result, our partnerships go even deeper during the downtime.

Speaker Change: Let me say a few words about our U.S. market share. We see stable market shares for our microinverters and batteries based on both internal as well as third-party data. We have a large and diverse customer base. Our value proposition is to provide installers with the easiest installation process, high-quality, and best-in-class. We also have tools like Solar Graph, design proposal and permitting software, and lead generation through Solar Lead Factory at our disposal to help our installers.

Mandy: Let's cover some NIM three daughters statistics in California.

Mandy: Third party data shows that the battery attach rate for <unk> systems is over 80%.

Mandy: <unk> done our system Activations in January last month.

Mandy: Similarly half of our solar installations in California, where the memory.

Mandy: Off our <unk> solar installations.

Speaker Change: As a result, our partnerships go even deeper during the downtime. Now, let's cover some NEM 3.0 statistics in California. Third-party data shows that the battery attach rate for NEM 3.0 systems is over 80%. Based on our system activations in January last month, approximately half of our solar installations in California were NEM 3.0. Of our NEM 3.0 solar installations, about half of them use Enphase batteries. Our revenue per NEM 3.0 system is approximately 1.5 times our average NEM 2.0 system. The transition to NEM 3.0 has been a little slower than we anticipated.

Mandy: Half of them use enphase batteries.

Mandy: Our revenue.

$3 two system is approximately one five times our.

Mandy: Average NIM toward our doses.

Mandy: The transition to nimbly and auto has been a little slower than what we anticipated installers are still installing them two daughters systems and this is constant DNA for some of them to sell <unk> III doses stems the ones who started out finding the sales process.

Mandy: A little more difficult given the complexity of the tariff structure.

Mandy: And the cost of batteries upfront and high interest rates.

Mandy: One particular challenge we here is there a lack of confidence in the payback of the systems and they are selling.

This is sort of adapt software our design and proposal software.

Speaker Change: Installers are still installing NEM 2.0 systems, and this has caused a delay for some of them to sell NEM 3.0 systems. The ones who have started are finding the sales process a little more difficult given the complexity of the tariff structure, the added cost of batteries up front, and high interest rates. One particular challenge we hear is their lack of confidence in the payback of the systems they are considering. This is where SolarGraph software, our design and proposal software with NEM 3.0 support, is critical because of its advanced modeling capabilities. In addition, installers are still coming up with a learning curve for installing batteries.

And then $3 does support is critical because of its advanced modeling capabilities. In addition, installers are still coming up the learning curve on installing batteries. We are addressing this by making a lot of product improvement on ease of installation commissioning so to visibility and continued.

The offer in person trainings and very NAS on solar graft software.

Let's now come to our Q1 guidance, we are guiding revenue in the range of $2 $60 million to $300 million, we expect the sell through of our products to be seasonally down in Q1.

Mandy: We plan to under ship to the end market demand for our products by approximately $130 million in Q1.

Mandy: We are forecasting to under ship in Q2 as well, although at a much reduced level and expect the channel to be normalized by the end of Q2.

Speaker Change: We are addressing this by making a lot of product improvements for ease of installation, commissioning, and serviceability. Now, let's now come to our Q1 guidance. We are guiding revenue in the range of 260 to 300 million dollars. We expect the sell-through of our products will be seasonally down in Q1. We plan to undership to the end market demand for our products by approximately $130 million in Q1.

Mandy: Let's talk about new products, starting with ICU bedrooms.

Mandy: Our sell through for batteries has been increasing steadily over the last few quarters, our third generation battery delivers the best power specs and commissioning times any enphase batteries to date, and a 15 year industry leading warrant.

The battery adoption rate.

Mandy: On the rise globally, and we are well positioned to grow our battery sales in 2024.

Mandy: Also we expect the margins on batteries to get better throughout 2024.

Mandy: Three factors in play here <unk> costs, which are coming down micro inverter costs, which are coming down for us due to U S manufacturing and other costs to product costs coming down due to improved architecture on our fourth generation battery is causing the lower <unk>.

Speaker Change: We are forecasting to undership in Q2 as well, although at a much reduced level, and expect the channel to be normalized by the end. Let's talk about new products, starting with IQ Battery. Our sell-through for batteries has been increasing steadily over the last few quarters. Our third-generation battery delivers the best power specifications and commissioning times of any Enphase battery till date at a 15-year industry-leading warranty.

Mandy: <unk> material.

Mandy: We are working on entering more countries in Europe, and Asia with our third generation battery, we expect to introduce our new three phase battery with backup for Germany. During the year, we plan to pilot our first generation battery later in the year.

Speaker Change: Battery adoption rates are on the rise globally, and we are well positioned to grow our battery sales in 2024. Additionally, we expect our margins on batteries to get better throughout 2024. There are three factors in play here.

Mandy: This battery of 11, great cost structure, and the ligand form factor due to the integrated battery management and power conversion architecture.

Mandy: As previously discussed we have entered many new markets. We think you eight family of micro Inverters and are now in 21 countries. We plan to enter many more new countries in Europe and Asia throughout 2020, food with our micro Inverters and we plan to increase our served available market.

Speaker Change: Cell pack costs, which are coming down, micro inverter costs, which are coming down for us due to U.S. manufacturing, and other product costs coming down due to improved architecture on our fourth generation batteries causing a lower bill of materials. We are working on entering more countries in Europe and Asia with our third-generation battery. We expect to introduce our new three-phase battery with backup for Germany during the year. We plan to pilot our fourth generation battery later in the year. This battery will have a great cost structure and elegant form factor due to the integrated battery management and power conversion architecture.

Mandy: By introducing social housing and bulk any solar solutions to European countries during the year.

Mandy: Let's also talk about our latest micro inverter for the residential segment I already mentioned <unk>, which delivers phone 80 watts of AC power supporting panels up to 650 Watts DC. We are currently shipping that product into Brazil, India.

Mandy: With Africa, Mexico, and Vietnam, we are on track to ship into France, and Spain, followed by emerging markets in 2024.

Speaker Change: As previously discussed, we have entered many new markets with the IQ8 family of microinverters and are now in 21 countries. We plan to enter many more new countries in Europe and Asia throughout 2024 with our microinverters. And we plan to increase our served available market by introducing social housing and balcony solar solutions to European countries during the year. Let's also talk about our latest microinverter for the residential segment. I already mentioned IQ8P, which delivers 480 watts of AC power and supports panels up to 650 watts DC. We are currently shipping that product to Brazil, India, South Africa, Mexico, and Vietnam. We are on track to ship the IQ8P microinverter with the new three-phase cabling system to France and Spain, followed by emerging markets in 2024.

Mandy: The other <unk> micro inverter with a new three phase cabling system is well suited for small commercial solar installation ranging from 20 to 200 kilowatts.

Mandy: Launched this product in North America in December and are seeing strong early adoption. We are very excited about this product and look forward to manufacturing all the flavors of IQ eight PV micro in motors and our U S facility as shortly further reducing our cost structure.

Mandy: Let's discuss EV charging.

Mandy: We shipped over 3700 Chargers in Q4 compared to over 3500 Chargers in Q3, we launched our IQ Smart EV Chargers in U S and Canada in Q4, the Wi Fi enabled charger is now integrated and the Enphase energy system. This enables use cases, such as self consumption and green.

Mandy: Charging and allows homeowners complete visibility into the operation of the system through the App.

Mandy: Developing IQ smart EV Chargers for many countries in Europe, as well and expect to introduce them. During the year. The team is also working on bi directional EV charger, which will unlock use cases, such as <unk> and <unk> as part of the Enphase energy system the charges will.

Speaker Change: We launched this product in North America in December and are seeing strong early adoption. We are very excited about this product and look forward to manufacturing all the flavors of IQ8P microinverters at our U.S. facilities shortly, further reducing our cost structure. Let's discuss EV charging. We shipped over 3,700 chargers in Q4, compared to over 3,500 chargers in Q3. We launched our IQ Smart EV chargers in the US and Canada in Q4. The Wi-Fi enabled charger is now integrated with the Enphase energy system.

Mandy: <unk> Gan based bi directional inverters, which will interface with evs, which have high voltage DC voltages.

I have so far discussed our hardware products, let's cover our energy management software.

Mandy: The importance of this software to deliver a superior customer experience cannot be overstated. The enphase energy system is becoming more sophisticated with the addition of solar batteries EV Chargers heat pumps et cetera.

Speaker Change: This enables use cases such as self-consumption and green charging and allows homeowners complete visibility into the operation of their system through the app. We are developing IQ smart EV chargers for many countries in Europe as well and expect to introduce them during the year. The team is also working on bi-directional EV chargers which will unlock use cases such as V2G and V2H as part of Enphase Energy. The charger will have GaN-based bi-directional inverters, which will interface with EVs which have high voltages and high DC voltages.

Asian utility tariffs, which were $1 fixed rates are now becoming increasingly complex with time of use rates NIM freed auto demand charges dynamic status.

Mandy: And our software is evolving to manage this complexity by leveraging artificial intelligence and machine learning for forecasting and optimization. We see this we see this as an area of differentiation for us and our developing code IP towards that objective, we expect to release this software.

Mandy: Beginning in Q2, adding several new features throughout the year.

Speaker Change: I've discussed our hardware products so far. Now, let's cover our energy management software. The importance of this software to deliver a superior customer experience cannot be overstated.

Mandy: Let's now discuss our installer platform.

Mandy: These new features in solar draft. During Q4, we introduced electrical design and single line diagram features while continuing to offer <unk> functionality for solar and battery systems in California. The software platform is now current is now available to installers in the U S. Brazil.

Speaker Change: The Enphase Energy system is becoming more sophisticated with the addition of solar, batteries, EV chargers, heat pumps, etc. In addition, utility tariffs, which were once fixed rates, are now becoming increasingly complex with time-of-use rates in M3.0, demand charges, and dynamic tariffs. And our software is evolving to manage this complexity by leveraging artificial intelligence and machine learning for forecasting and optimization. We see this as an area of differentiation for us and are developing core IP towards that objective. We expect to release this software beginning in Q2, adding several features throughout the year. Let's now discuss our installer platform.

Mandy: Germany, and Austria, and we expect it we expect to release it to more countries in the coming quarters.

Speaker Change: Let me conclude.

Speaker Change: Have been managing through a period of slowdown in demand.

Speaker Change: We think Q1 could be the bottom quarter Europe is already showing early signs of recovery.

Speaker Change: And we expect the non California states to bounce back quickly.

Speaker Change: California is the exception that <unk> is having some hiccups in the near term. However, we remain very bullish about <unk> and the long term.

Speaker Change: Feedback is very attractive for solar plus storage the utility rates are going up steeply on an annual basis and the sales teams that learning fast when we see that the demand is going to eventually bounce back up in California as well.

Speaker Change: We released new features in Solar Graph during Q4. We introduced electrical design and single line diagram features while continuing to offer NEM3.0 functionality for solar and battery systems in California. The software platform is now available to installers in the U.S., Brazil, Germany, and Austria, and we expect to release it to more countries in the coming quarter. Let me conclude.

Speaker Change: I'll wrap up outlining our approach during these times we.

Speaker Change: We are laser focused on ease of doing business.

Speaker Change: On both high quality and great customer service, we are doubling down on operational excellence correcting the channel and factory inventory concentrating on sell through and installer comp, reducing our expenses in product cost and maintaining healthy gross margins, we are getting many new products out and Dave.

Speaker Change: We have been managing through a period of slowdown in demand. We think Q1 could be the bottom quarter. Europe is already showing early signs of recovery, and we expect the non-California states to bounce back quickly. California is the exception as NEM 3.0 is having some hiccups in the near term.

Speaker Change: You can find that portfolio rapidly, we're expanding worldwide with photo systems comprising of IQ eight micro Inverters IQ batteries, EV Chargers and energy management software, we are introducing products for the small commercial solar markets worldwide, and making continuous enhancements to our installer platform.

Speaker Change: However, we remain very bullish about NEM 3.0 in the long term. The payback is very attractive for solar plus storage. Utility rates are going up steeply on an annual basis, and the sales teams are learning fast.

Speaker Change: In addition, we are innovating on Gan based <unk>, nine and 10 micro Inverters, along with bidirectional EV Chargers, our fourth and fifth generation ICU batteries, and AI based energy management software to position us well for the long term.

Speaker Change: We see that demand is going to eventually bounce back up in California as well. I'll wrap up by outlining our approach during these times. We are laser focused on the ease of doing business, on both high quality and great customer service.

Speaker Change: With that I will turn the call over to Mandy for a review of our financial results Mandy.

Mandy: Thanks, Andrea and good afternoon, everyone.

Mandy: We'll provide more details related to our fourth quarter of 2023 financial results.

Speaker Change: We are doubling down on operational excellence, correcting the channel and factory inventory, concentrating on sell-through and installer count, reducing our expenses and product costs, and maintaining healthy gross margins. We are getting many new products out and diversifying our portfolio rapidly. We are expanding worldwide with full systems comprising IQ8 microinverters, IQ batteries, EV chargers, and energy management software. We are introducing products for the small commercial solar markets worldwide and making continuous enhancements to our installer platform. In addition, we are innovating on GAN-based IQ9 and 10 microinverters along with bidirectional EV chargers, our fourth and fifth generation IQ batteries, and AI-based energy management software to position us well for the long term. With that, I will turn the call over to Mandy for her review of her financial results. Mandy?

Mandy: Our business outlook for the first quarter of 2025, we have provided reconciliations of these non-GAAP financial measures in our earnings release.

Mandy: <unk> posted today, which can also be found in thank.

Speaker Change: Thank you and all of our web site.

Speaker Change: Total revenue for Q4 was $302 $6 million, we shipped approximately 661 megawatts ECL mcelwee mothers and 80 points of Omega will also actually better.

Speaker Change: Okay.

Speaker Change: non-GAAP gross margin for Q4 was 53% compared to 48, 4%.

Speaker Change: Increase was driven by increased Mi.

Speaker Change: Yeah of course.

Speaker Change: Gross margin was 48, 5% for Q4.

Speaker Change: non-GAAP gross margin without benefit for Q4 was 41, 8% compared to 45, 8%.

Speaker Change: A decrease of 400 basis points due to Michael even where the historic mix.

Mandy Yang: Thanks, Badri, and good afternoon, everyone. I will provide more details related to our fourth quarter 2023 financial results, as well as our business outlook for the first quarter of 2024. We have provided reconciliations of these non-GAAP-to-GAAP financial measures in our earnings release posted today, which can also be found in the IR section of our website. Total revenue for Q4 was $302.6 million, and we will distribute approximately 660.1 megawatt DC of microinverters and 80.7 megawatt hours of IQ batteries in the product. Non-GAAP growth margin for Q4 was 50.3%, compared to 48.4% in Q3. The increase was driven by increased net III benefits.

Speaker Change: Our average selling prices remain stable.

non-GAAP gross margin for Q4 included $25 $8 million is all from me.

Speaker Change: Well I'm, not calling weather, mainly in the U S and shipped to customers in the quarter.

Speaker Change: non-GAAP operating expenses were $86 $6 million for Q4 compared to $99 million.

We implemented a restructuring plan in December of 2023 to reduce our operating costs and align our workforce and cost structure with current market conditions.

Speaker Change: As part of the plan, we are reducing our global workforce of approximately 10%.

Speaker Change: We expect to reduce our non-GAAP operating expenses to be in a range of $75 million to $80 million per quarter in 2019 for when these restructuring actions are substantially complete within the first half of this year.

Speaker Change: GAAP operating expenses were $156 $9 million for Q4 compared to $144 million from Q3.

Mandy Yang: Gap growth margin was 48.5% for Q4. Non-GAAP gross margin without IRA benefit for Q4 was 41.8%, compared to 45.8% in Q3, a decrease of 400 basis points due to the microinverter and storage mix, while our average selling prices remained stable. Gap and non-gap growth margin for Q4 included $25.8 million of net IRA benefit for our microinverters made in the US and shipped to customers in the quarter. Non-GAAP operating expenses were $86.6 million for Q4, compared to $99 million for Q2.

GAAP operating expenses for.

Speaker Change: For Q4 included a $51 $6 million all stock based compensation expenses.

Speaker Change: $14 $8 million I'll touch on that I think impairment charges and $3 9 million got us all amortization for acquired intangible assets.

Speaker Change: Our non-GAAP income.

Speaker Change: Income from operations for Q4, with $65 $6 million compared to $167 $6 million for Q3.

Speaker Change: Okay.

Speaker Change: Income from operations with a loss of $10 $2 million for Q4 compared to income from operations of $118 million for Q3.

I would note that the income for.

Speaker Change: For Q4 was $73 $5 million compared to 141 $8 million for Q3.

Mandy Yang: We implemented a restructuring plan in December 2023 to reduce our operating costs and align our workforce and cost structure with current market conditions. As part of the plan, we are reducing our global workforce by approximately 10%. I expect to reduce our non-GAAP operating expenses to be in the range of $75 to $80 million a quarter in 2024 when these restructuring actions are substantially complete within the first half of this year. Gap operating expenses were $156.9 million for Q4, compared to $144 million for Q3. Operating expenses for Q4 included $51.6 million in start-based compensation expenses.

Speaker Change: He used to be not a non-GAAP diluted earnings per share all 54 cents for Q4 compared to $1 into Pakistan.

Speaker Change: Net income for Q4 was $29 million compared to net income.

Speaker Change: $114 million.

Speaker Change: Regarding GAAP diluted earnings per share of <unk> 15 for Q4 compared to 18% for Q3.

Speaker Change: Actually the Q4 with total cash cash equivalence and marketable securities and I saw $1 $7 billion. Okay.

Speaker Change: Compared to $1.78 billion at the end of Q3.

Speaker Change: That's part of our $1 billion share repurchase program authorized by our board of directors in July 2023.

Speaker Change: We purchased approximately 1.183 million share yourself and Scott.

Speaker Change: Scott in Q4.

Speaker Change: <unk> share price of 84051.

Speaker Change: Approximately $100 million.

Speaker Change: In addition, we spent approximately $27 $5 million with holding shares to cover withholding taxes for employee stock vesting of options in Q4, not reduced the diluted shares possibly 267000 shares.

Mandy Yang: $14.8 million of restructuring and assay impairment charges and $3.9 million of amortization for acquired intangibles. On a non-gay basis, income from operations for Q4 was $65.6 million, compared to $167.6 million for... On a daily basis, income from operations was a loss of $10.2 million for Q4, compared to income from operations of $118 million for Q4. On a non-gay basis, net income $73.5 million compared to $141.8 million, resulting in non-gap diluted earnings per share of $0.54 for Q4, and appear to $1.02 for QE. His net income for Q4 was $20.9 million.

Speaker Change: We expect to continue this anti dilution point.

Speaker Change: In Q4, we generated $35 $5 million in cash flow from operations and $15 $4 million in free cash flow.

Speaker Change: Included approximately $46 million of income tax payments, an increase of $38 million compared to Q3.

Speaker Change: By the macroeconomic challenges, we continue to generate free cash flow.

Capital expenditure was $20 $1 million for Q4 compared to $23 $8 million for Q3.

Speaker Change: Capital expenditure requirements decreased due to a reduction in our U S manufacturing spending.

Speaker Change: Now, let's discuss our outlook for the first quarter of 2024.

Speaker Change: Revenue for Q1 to be within a range of $260 million to $300 million.

Speaker Change: It includes shipments of 17 to 19 megawatt hours.

Mandy Yang: $114 million for Q2. This resulted in debt diluted earnings per share of $0.15 for Q4, compared to $0.80 for. This is a Q4 with a total cash, cash equivalents, and marketable securities balance of $1.7 billion, compared to $1.78 billion at the end of June. As part of our $1 billion share repurchase program authorized by our Board of Directors in July 2020, we repurchased approximately 1,183,000 shares of Enphase common stock in Q4 at an average share price of $84.51, for approximately $100 million. In addition, we spent approximately $27.5 million withholding shares to cover withholding taxes for employee staff vesting and options in Q4. That reduced the diluted shares by approximately 260.7 thousand shares. We expect to continue this anti-dilution plan. In Q4, we generated $35.5 million in cash flow from operations.

Speaker Change: Right.

Speaker Change: GAAP gross margin within a range of 40% to 45%.

Speaker Change: We expect non-GAAP gross margin to be within a range of 44% to 47%.

Speaker Change: And 40% to 43% before that.

Speaker Change: Okay.

Speaker Change: non-GAAP gross margin is cool stock based compensation expense.

Speaker Change: He showed me that amortization.

Speaker Change: And then the benefits to be between 12 and $14 million estimate ashwin myself a hanger.

Speaker Change: U S net Michaels in Q1.

Speaker Change: We spend all our microwave modem shipments to customers from U S manufacturing in the first half of 2024 as we continue to reduce inventory in the factory and the channel.

Speaker Change: We expect to increase the U S named Mcelwain, rather sure Matt.

Speaker Change: First of all overall micro inverter shipments in the second half of 2025.

Speaker Change: We set our our GAAP operating expenses to be within a range of a $144 million to $148 million.

Speaker Change: Approximately $64 million for.

Speaker Change: Stock based compensation expense.

It shouldn't be that expensive.

Speaker Change: Amortization Irish Catarina I think impairment charges.

We expect our non-GAAP operating expenses to be within a range of $80 million to $85 million, we are reducing our non-GAAP operating expenses by 5% in Q1 as compared to Q4.

Speaker Change: Not compromise investing in customer service product innovation and SaaS.

Mandy Yang: $15.4 million in free cash, which included approximately $46 million of income tax, an increase of 38 million dollars compared to June. Despite the macroeconomic challenges, we continued to generate free cash. The capital expenditure was $20.1 million for Q4, compared to $23.8 million for Q3. Capital expenditure requirements decreased due to a reduction in our U.S. manufacturing expenditure. Now, let's discuss our outlook for the first quarter of 2024. We expect our revenue for Q1 to be within the range of $260 to $300 million, which includes shipments of 70 to 90 megawatt hours of IQ batteries. We expect GAP growth margin to be within a range of 42 to 45%. We expect non-gap gross margin to be within a range of 44 to 47% without net IRA benefit. 40 to 43% before net IRF benefit. Non-GAAP gross margin excludes start-based compensation expense and acquisition-related amortization.

Speaker Change: Moving to tax since we have utilized most of our net operating loss and research tax credit carry forwards. We are now at U S cash taxpayer.

Speaker Change: non-GAAP annualized effective tax rate, excluding discrete items or <unk> 24 for the <unk>.

Speaker Change: 20%, plus or minus 1% with II benefit.

Speaker Change: In closing, we manage well with all financial discipline through a difficult global environment in 2023 <unk>.

Total revenue decreased year over year by one 7%.

Speaker Change: No good gross margin expanded to 45, 3% excluding <unk>.

Speaker Change: As compared to 42, 6% in 2022.

Speaker Change: Our non-GAAP gross margin further increased to 47, 1% with a net benefit.

Speaker Change: Benefit and manufacturing of our macro and weather in the U S.

Speaker Change: We generated approximately $586 million of free cash flow in 2023, and as you said the year with $1 $7 billion in cash cash equivalents and marketable securities.

Speaker Change: Over $18 million year over year.

Speaker Change: Interesting three 3 million shares.

Speaker Change: Common stock for approximately $410 million.

Speaker Change: I will open the line for questions.

Speaker Change: We will now begin the question and answer session.

Mandy Yang: We expect the net RIA benefit to be between $12 and $14 million on estimated shipments of 500,000 units of U.S.-made microinverters in Q1. We expect lower micro-inverter shipments to customers from U.S. manufacturing in the first half of 2024 as we continue to reduce inventory in the factory and the channel. We expect to increase U.S.-made microinverter shipments to two-thirds of our overall microinverter shipments in the second half of 2024. We expect our GAAP operating expenses to be within a range of $144 to $148 million, including approximately $64 million estimated for start-based compensation issuance. Physician-related expenses, amortization, and restructuring of AC impairment charges.

Speaker Change: To ask a question you May press Star then one on your telephone keypad.

Speaker Change: If you are using a speakerphone please pick up your handset before pressing mckean.

Speaker Change: To withdraw your question. Please press Star then two.

Speaker Change: We ask that you please limit yourself to one question and one follow up.

Speaker Change: If you have further questions you may reenter the question queue.

Speaker Change: At this time, we will pause momentarily to assemble the roster.

Speaker Change: And our first question will come from Brian Lee of Goldman Sachs. Please go ahead.

Brian Lee: Hey, everyone. Good afternoon, thanks for taking the questions.

Brian Lee: Badri. Thank you I appreciate all the additional color and granularity that you're providing in this uncertain environment.

Brian Lee: I know you.

Brian Lee: It sounds like Youre pretty confident that Q1 could be the bottom here you're under shipping by less in Q1 than Q4, and then significantly lower magnitude in Q2.

Brian Lee: Based on the early read so just wanted to ask like given seasonality. The early read on revenue for two two year view that <unk> is kind of a bottom here like Directionally can you give us a sense of are we back into the low mid $300 million revenue range or is it even something higher than that just any directional feel you can provide as to kind of.

Mandy Yang: We expect our non-GAAP operating expenses to be within a range of $80 to $84 million. We are reducing our non-GAAP operating expenses by 5% in Q1 as compared to Q4. We will not compromise on investing in customer service. Product Innovation and Sales. Moving to tax, since we have utilized most of our net operating loss and research tax credit carry forward, we are now at the U.S. cash tax credit. We expect the GAAP and non-GAAP annualized effective tax rate excluding discrete items for 2024 to be at 20% plus or minus 1% with an IRA benefit.

Brian Lee: What the what the magnitude of that pickup will be off the <unk> and then I had a follow up.

Brian Lee: So just do.

Brian Lee: The Big Big picture basically.

Brian Lee: I told you that.

Brian Lee: We have two problems one is.

Brian Lee: Tandem.

Brian Lee: Being full problem channel inventory problem and the other is the native demand demand problem.

Brian Lee: And so.

Brian Lee: With the demand reduction.

Mandy Yang: In closing, we managed well with our financial discipline through a difficult global environment in 2020, while our total revenue decreased year over year by 1.7%. Our non-GAAP growth margin expanded to 45.3% excluding the IRA benefit, compared to 42.6% in 2020. Our non-GAAP growth margin further increased to 47.1% with the late May IRA benefit and manufacturing our microinverters in the U.S. In addition, we generated approximately $586 million of free cash flow in 2023 and exited the year with $1.7 billion in cash, cash equivalents, and marketable securities, up over $80 million year-over-year while repurchasing 3.3 million shares of our common stock for approximately $410 million.

About let's say, 30% to 35%.

Brian Lee: From an overall highs.

Brian Lee: What we expect as of end customer demand.

Brian Lee: Roughly in the range of $450 million to $500 million.

Brian Lee: That's what I told you the last time.

Brian Lee: And.

Brian Lee: We were close.

Brian Lee: Q3, and customer demand Q3 dollars 23, and customer demand was approximately $500 million.

Brian Lee: Our Q4 <unk>.

Brian Lee: <unk> thousand three end customer demand was approximately $450 million.

Brian Lee: As you know, we our numbers are much lower compared to those numbers. So we said we plan to ship $150 million under ship $150 million compared to the end customer demand.

Brian Lee: So our end customer demand was for $50 million in Q4.

Brian Lee: Under shipped approximately $147 million.

Speaker Change: With that, I will open the line for questions. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key.

Brian Lee: We had reported number of $303 million, which is 450 minus 147.

Brian Lee: We expect the sell through demand is going to be seasonally down approximately by 10% in Q1.

Brian Lee: And that's typical.

Brian Lee: And we expect another shipment of $130 million.

Speaker Change: To withdraw your question, please press star then 2. We ask that you please limit yourself to one question and one follow-up. If you have further questions, you may re-enter the question queue. At this time, we will pause momentarily to assemble the roster. And our first question will come from Brian Lee of Goldman Sachs. Please go ahead. Hey, everyone. Good afternoon.

Brian Lee: So with these two under shipments we would have taken $277 million out of the channel.

Brian Lee: And we expect you know going forward Q2, we expect it to be.

Brian Lee: If nothing happens it is seasonally better and for us since we have taken out a lot of inventory in the channel.

Brian Lee: Thanks for taking the questions. You know, Badri, thank you. Appreciate all the additional color of granularity that you're providing in this uncertain environment. I know you sound like, you know, you're pretty confident Q1 could be the bottom here. You're undershipping by less in Q1 than Q4. And then, you know, significantly over magnitude in Q2 based on the early read.

Brian Lee: We then start to approach a native demand up $450 million depending on.

Brian Lee: How much.

Brian Lee: But I said do under shipment that we had.

Brian Lee: In Q2, so while I cannot tell you the exact numbers you should generally expect our sell in numbers come through.

Brian Lee: As we go into Q2, you should expect the sell through numbers to be seasonally better as you approach you know other things that are in our favor we ought to seeing Europe Europe dropped.

Speaker Change: So I just want to ask, like, given seasonality, the early read on revenue for Q2, your view that 1Q is kind of the bottom here. Like, directionally, can you give us a sense of, you know, are we back into the low, mid $300 million revenue range? Or is it even something higher than that? Just any directional feel you can provide as to kind of what the magnitude of that pickup will be off the 1Q bottom.

Brian Lee: Quite a low level, we are seeing Europe, starting to pick back up we are seeing in France.

<unk>.

Brian Lee: Is back to the level. It was before we are seeing Netherlands, although Netherlands knocked back to the original level and far from the origin levels, but we see it.

Brian Lee: Elemental progress on a weekly basis. In addition, we are introducing in the last six months several new products in Italy U K.

Speaker Change: And then I had a follow-up. Right, so just to give you the big picture. Basically... I told you that, you know, we have two problems.

Brian Lee: Sweden, Denmark, and a bunch of other countries.

Brian Lee: Start to see all of those also kicking in.

Speaker Change: One is... channel being full problem, channel inventory problem, and the other is the native demand problem. And so Demand Reduction of about, let's say, 30... 35% from our overall height. What we expect is an end-customer demand, roughly in the range of $450 to $500 million. That's what I told you the last time, and we were close.

Brian Lee: California States that are concerned we already said Q4 was table for non California, compared and all compared to Q3. So we think they were non California, How states will also bounce back in Q2 so.

Brian Lee: While I'm not telling you any numbers I gave you the directional indication that we expect filling numbers to go not in.

Brian Lee: And my assumptions that sell through behaves according to the typical seasonality pattern that we have seen.

Speaker Change: Our Q3 end customer demand, Q3 23, end customer demand was approximately $500 million. Our Q4'23 end customer demand was approximately $450 million. As you know, our numbers are much lower compared to those.

Brian Lee: And as of course, the wildcard but.

Brian Lee: We think that.

Brian Lee: Yeah.

Brian Lee: Even taking that into account we expect to do.

Brian Lee: We expect solid numbers on our revenue numbers to go.

Speaker Change: So we said, we plan to ship $150 million and under ship $150 million compared to end customer demand. So our end customer demand was $450 million in Q4. We undershipped approximately $147 million.

Brian Lee: To go higher sequentially in June.

Speaker Change: I appreciate that that's all super helpful.

Speaker Change: Question I had I'll pass it on is.

Speaker Change: On the on the battery storage segment, if I look the mix is a bit more heavy on battery in <unk> versus <unk>, but your overall X ray margins still holding steady based on the guidance. So it almost seems like you are are you seeing better margins on the batteries here near term I know you alluded to expansion during the year.

Speaker Change: We reported a number of 303 million, which is 450 minus 147. We expect the sell-through demand is going to be seasonally down approximately by 10% in Q1. And that's typical, and we expect an undershipment of $130 million. So with these two undershipments, we would have taken $277 million out of the channel.

Speaker Change: <unk> can can you kind of give us a sense of quantification. Another numbers question I guess is to kind of where you're at today and what the cadence could look like because battery seems like it's going to move the needle a lot more just trying to get a sense for what that margin.

Speaker Change: One opportunity could be as we move through the next several quarters. Thank you.

Speaker Change: And we expect, you know, going forward, Q2, we expect it to be, you know, if nothing happens, it is seasonally better. And for us, since we have taken out a lot of inventory in the channel, we then start to approach, a native demand of $450 million, depending on. You know how much residue under shipment that we have in Q2. So while I cannot tell you the exact numbers, you should generally expect our sell-in numbers to improve. As we go into Q2, you should expect the sell-through numbers to be seasonally better as we approach Q2. Now, other things that are in our favor: we are seeing Europe, I mean Europe, drop to quite a low level. We are seeing Europe starting to pick back up, you know, we are seeing France. Thank you very much. UK, Sweden, Denmark, and a bunch of other countries; we start to see all of those also kicking in.

Speaker Change: The one thing that.

Speaker Change: I did not seem this group, which I will say now is the sell through.

Speaker Change: All photo batteries in Q4 was the highest it has ever be it was at 140 megawatts.

Speaker Change: 140 sell through in Q4, our sell in was only eight you might ask why is your sell them lagging behind.

Speaker Change: I'd like to get the channel as low as we possibly can.

Speaker Change: Therefore, we are getting.

Speaker Change: Getting more conservative we only guided 70% to 90.

Speaker Change: But because we want the channels to get cleaned up so.

Speaker Change: What is driving that felt that if you ask.

Speaker Change: The answer should be obvious to you based on what I said.

Speaker Change: California on a tour new sell through increased by 58%.

Speaker Change: Just on California, due to the $3 to $3 two attach California numbers Q4 into Q2 Q3 to two fold.

Speaker Change: Also.

Speaker Change: We are seeing good momentum.

In Europe.

Speaker Change: We have introduced batteries now into multiple regions. We introduced in June we introduced.

Speaker Change: As far as non-California states are concerned, we already said Q4 was stable for non-California compared to Q3, you know, compared to Q3. So we think non-California states will also bounce back in Q2. While I'm not telling you any numbers, I gave you the directional indication that we expect felon numbers to go north, and my assumptions are that sell-through behaves according to the typical seasonality pattern that we have seen. California is, of course, a wild card, but we think that.

Speaker Change: To Australia and.

Speaker Change: In September we introduced to the U K.

Speaker Change: Then we introduced into a bunch of other countries too along with it I'm not breaking all of those out in December we launched individually and we will start shipping there very soon.

Speaker Change:

Speaker Change: Battery demand and I am happy to say is.

Speaker Change: Very robust and what we plan to do is to.

Speaker Change: Basically of course, we plan to improve our gross margins.

Speaker Change: Gross margins there are three things and gross margins that are obvious. The first two are applicable photos, our third generation batteries and the last one is applicable for the fourth generation batteries.

Speaker Change: You know, the, you know, even taking that into account, we expect to do. We expect sell-in numbers, or our revenue numbers, to go higher sequentially. Appreciate that. No, that's all super helpful.

Speaker Change: <unk> costs are coming.

Speaker Change: Coming down rapidly.

Speaker Change: Our suppliers are offering is very competitive pricing and sell packs, which is definitely moving the needle that's one.

Speaker Change: The second question I had, and I'll pass it on to you, is, you know, on the battery storage segment, you know, if I look, the mix is a bit more heavy on batteries in 1Q versus 4Q, but, you know, your overall X IRA margin is still holding steady based on the guidance. So it almost seems like you're already seeing better margins on the batteries here in your term. I know you alluded to expansion during the year. Can you kind of give us a sense of, you know, quantification and other numbers? The question, I guess, is about kind of where you're at today and what the cadence could look like.

Speaker Change: Number two for US specifically we are.

Speaker Change: Transforming our supply chain, so that we can make our micro inverters further batteries.

Speaker Change: In the U S.

Speaker Change: While we can have the assembly of the batteries in China that gives us a best in class supply chain.

Speaker Change: And that week, we get a benefit of 11 centers or what.

Speaker Change: And our multi played by six 614 walks multiplied by saying so for a five kilowatt hour battery, that's approximately $75 per kilowatt hour benefit that we get just for making the micro inverters in the U S.

Speaker Change: Because, you know, battery seems like it's going to move the needle a lot more. I'm just trying to get a sense for what that margin expansion opportunity could be as we move into the next several quarters. Thank you.

Speaker Change: And we plan to do that.

Speaker Change: The third one is an architectural benefit when we go from the third generation to the fourth generation badly.

Speaker Change: We are.

Speaker Change: All right, the one thing that I did not say in the script, which I will say now is that the sell-through of our batteries in Q4 was the highest it has ever been. It was at 140 megawatt hours. 1-4-0.

Speaker Change: In the third generation battery, we have six micro Inverters battery management Board.

Speaker Change: A couple of other boards of communication board and an interface ports. So we have nine books. So those nine boards will go down to three boats, because we are integrating battery management and we are making the power conversion with a lot more power. So we are going to have a <unk>.

Speaker Change: Our sell-in was only 80. You might ask, why is your sell-in lagging behind? We'd like to get the channel as low as we possibly can. Therefore, we are getting more conservative. We only guided 70 to 90, but only because we want the channel to get cleaned up. So what is driving that fell through, if you ask?

Speaker Change: Total of three board. So nine is becoming III, our power electronics, therefore, the cost buildup materials that dropping down significantly.

Speaker Change: The answer should be obvious to you based on what I said. In California, I told you, sell-through increased by 58%. Just in California, due to the NEM 3.0 attachement, California numbers Q4 to Q3, Q3 to Q4. Also... You know, we are seeing good momentum in Europe. We have introduced batteries now to multiple regions. We introduced them in June; we introduced them to Australia. In September, we introduced it to the U.K., and then we introduced it to a bunch of other countries, too, along with it. I'm not breaking all of those out.

Speaker Change: And basically farm factored ways, we drop in the power electronics, the two inverters by the side on two sides of the setback.

Speaker Change: In Florida, the form factor suddenly becomes very elegant.

Speaker Change: So not only the form factor becomes elegant and the fourth generation cost also.

Speaker Change: Is low it's lowered along with <unk>.

Speaker Change: <unk> taken advantage of the <unk> cost plus the PC plus the micro inverter Assembly.

Speaker Change: Micro inverter manufacturing in the U S. Though.

Speaker Change: We are very encouraged that gross margins on batteries will continuously gone off for us.

Speaker Change: And I think that will reflect positively on overall gross margins.

Speaker Change: The next question comes from Colin Rusch of Oppenheimer. Please go ahead.

Colin Rusch: Thanks, So much guys can you talk a little bit about the opex and the compensation plan going forward here, obviously with the lower non-GAAP numbers that you've talked about in the higher charge here or is that something we should be thinking about on a go forward basis or.

Speaker Change: In December, we launched in Italy and will start shipping there very soon. I'm, So our battery demand, you know, I'm happy to say is very robust.

Speaker Change: And what we plan to do is to... Basically, you know, of course, we plan to improve our gross margins. Gross margins, there are three things in gross margins that are obvious. The first two are applicable to our third-generation batteries, and the last one is applicable to our fourth-generation batteries. Self-packed costs are coming down rapidly. Our suppliers are offering us very competitive pricing on Cellpacks, which is definitely moving the needle. That's one. Number two, for us specifically, we are transforming our supply chain so that we can make our microinverters for the batteries in the U.S. While we can have the assembly of the battery. China.

Colin Rusch: Is there something else going on here that we should should be attended to.

Colin Rusch: Yes.

Speaker Change: Maybe give some color and then Mandy can add more.

Speaker Change: In December we basically announced the restructuring wave.

Speaker Change: <unk>.

Speaker Change: Which are fixed at about 10% of our work workforce there.

And at that time, we were running at an Opex run rate approximately.

Speaker Change: In the $95 million to $100 million per quarter, our desire is to drop that non-GAAP opex.

Speaker Change: From that level to a $75 million to $80 million number.

Speaker Change: That gives us the best-in-class supply chain. And with that, we get an IRA benefit of 11 cents a watt. I'm, You know, multiplied by 640 watts, multiplied by 6, so for a 5 kilowatt hour battery, that's approximately $75 per kilowatt hour benefit that we get just for making the microinverters in the U.S., and we plan to do that. And the third one is an architectural benefit. When we go from the third generation to the fourth generation battery, we are, you know. In the third-generation battery, we have six microinverters. We have a battery management board. We also have a couple of other boards, a communication board and an interface board.

Speaker Change: In the second half of 2020, so we did a few few changes we did a lot of.

Speaker Change: We eliminated a bunch of other spending before we came to people, but then we were forced to take the action on the people front as well. So all of that is largely behind us and we have taken.

Speaker Change: Monday, we'll talk about the charges that we were taking on GAAP et cetera.

Speaker Change: But all of those are largely behind us and we assure the 8-K in December of 2023. In addition to what we did at that time.

Was we announced that we are shutting down Romania, as well as Wisconsin. It didn't make sense for us to have 10 million micro inverters, but quarter.

Speaker Change: And you mean capacity and therefore, we worked with our contract manufacturers and we had to be fair to them.

Speaker Change: So we have nine boards. Those nine boards will go down to three boards because we are integrating battery management and we are making the power conversion with a lot more power. So we are going to have a total of three boards, so nine is becoming three.

Speaker Change: And therefore, we.

Speaker Change: We essentially reduce dote capacity from 10 to approximately 7%.

Speaker Change: And so that's what we did and we announced that change as well some Andy why don't you elaborate on the <unk>.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change:

Andy Yang: Our opex, we reduced non-GAAP opex reduced from 19 9 million in Q3 right too.

Speaker Change: Our power electronics, therefore, the cost bill of materials is dropping down significantly. And basically, form factor-wise, we drop in the power electronics. The two inverters by the side, on two sides of the cell pack.

Andy Yang: 286 million in Q4 and that was.

Andy Yang: Before the restructuring effect that that will come.

Andy Yang: Into effect on Q1, and Q2 right that throughout.

Speaker Change: Therefore, the form factor certainly becomes very elegant on the fourth generation, but the cost is also lower, is lower, along with taking advantage of the cell pack cost plus the microinverter assembly, I mean microinverter manufacturing in the US. We are very encouraged that, you know, gross margins on batteries will continuously go north for us, and I think that will reflect positively on our overall growth model. The next question comes from Colin Rusch of Oppenheimer; please go ahead. Thanks so much, guys.

Andy Yang: Throughout 2023, we have been reducing discretionary spend Brian also hiring freeze Brian even.

Andy Yang: Attrition, we don't feel we only think feel cricket called what's right and Thats why we got our Opex. So reduced from 99 to 86 right, but in December we implemented a restructuring plan, we further reduced our worldwide head count.

Andy Yang: Full time employee and contract test ride by 10 per se so with that once those restructuring actions are completed.

Colin Rusch: Can you talk a little bit about the OPEX and the compensation plan going forward here, obviously, with the lower non-GAAP numbers that you've talked about and the higher charge here? Is that something we should be thinking about on a go-forward basis, or is there something else going on here that we should be attending to? Let me give some color and then Mandy can add more.

Andy Yang: Q2, we would be at 75 to 80 million roughly a quarter.

Andy Yang: Okay.

Andy Yang: And then just from a pricing perspective, you talked about kind of select discounts for folks in the past can you give us a sense of how that's trending here even if it.

Andy Yang: List prices are stable, what sort of discounts are you having to offer up to folks and if theres any sort of dynamics around evolution of the product driving some incremental price benefit for the company.

Colin Rusch: In December, we basically announced the restructuring where we affected about 10% of our workforce there. And at that time, we were running at an OPEX run rate of approximately 95 to 100 million dollars per quarter. Our desire is to drop that non-GAAP OPEC number from that level to a $75 to $80 million number in the second half of 2024. So we did a few changes. We did a lot of... You know, we eliminated a bunch of other spending before we came to people, but then we were forced to take action on the people front as well. So all of that is largely behind us, and we have taken, Mandy will talk about the charges that we.

Speaker Change: No that is the same as last quarter I would say the same now in there.

Speaker Change: It has been.

Speaker Change: Ever since I took over this we've always had this special pricing adjustment business process and.

Speaker Change: And we do manage that very tightly across the company and so there has been notably.

Speaker Change: Not much change in general in the pricing environment and that should be kind of obvious to see based on our gross margins as well.

Speaker Change: The next question comes from Julien Dumoulin Smith of Bank of America. Please go ahead.

Speaker Change: Hey, good afternoon, Thanks, Tim Nice inflection so just in terms of the half million shipments here in <unk> here can you talk a little bit about how you plan to scale up to the 5 billion capacity you have obviously you issued the 8-K here kind of bringing down overall manufacturing, but can you talk about how you anticipate that ramping here. If you will and then maybe intend.

Colin Rusch: We are taking on GAP, et cetera. But all of those are largely behind us, and we issued an 8K in December of 2023. In addition, what we did at that time was we announced that we were shutting down Romania, as well as Wisconsin. It didn't make sense for us to have 10 million microinverters per quarter and Meaning Capacity. Therefore, we worked with our contract manufacturers, and we had to be fair to them. Therefore, we essentially reduced our capacity from 10 to approximately 7.

Speaker Change: And with that implicit how do you see underlying underlying demand trending vis vis kind of returning to that 500 billion and then back up to say 700 or what have you.

Speaker Change: Right so.

Speaker Change: Just to set context, we shipped approximately 900000 units from our U S factories in Q4. So why are we going back to 500000 in Q1. That's the first question to answer that until that one it's basically we are focused our.

Colin Rusch: And so that's what we did. And we announced that change as well. So Mandy, why don't you elaborate on the... Sure.

Mandy Yang: Yes. Our non-gap opaques reduced from 99 million in Q3 to 86 million in Q4, and that was before the restructuring effect that would come into effect in Q1 and Q2, right? But throughout 2023, we have been reducing discretionary spend, right? And also hiring freezes, right? And even attrition; we don't backfill.

Speaker Change: Our inventory.

Speaker Change: In terms of dollars gross value of our inventory is about 200 $200 million $210 million roughly.

Speaker Change: And we.

Speaker Change: We think that inventory is high.

Speaker Change: That corresponds to 110 days of inventory I think.

Speaker Change: And we think that the number of days of inventory is higher. So we are going on are one path to reduce that to a best in class level I consider it a best in class level at 30 days.

Mandy Yang: We only backfill critical ones, right? And that's why we got our OPEX reduced from 99 to 86, right? But in December, we implemented a restructuring plan, right? We further reduced our worldwide headcount for that employee and contractors by 10%. So with that, once those restructuring actions are completed by Q2, we would be at 75 to 80 million run rate a quarter. Okay, that's super helpful.

Speaker Change: So.

Speaker Change: That's up not start going back to 30 days that means we are going to be ensuring that we don't do any man necessary manufacturing.

Speaker Change: So that.

Speaker Change: Based on that.

Speaker Change: At first first priority is to get that.

Speaker Change: That boat right.

Speaker Change: And so that's why we said okay in the first half of the year.

Speaker Change: Essentially do whatever it takes to clear the factory inventory and clear the channel.

Speaker Change: So you should expect lower shipments in the first half the second half, which is rare if the demand approaches to let's say for example, what you talked about the $500 million level that corresponds to approximately $3 million three three point.

Mandy Yang: And then just from a pricing perspective, you know, you talked about, you know, kind of select discounts for folks in the past. Can you give us a sense of how that's trending here, even if the list prices are stable, what sort of discounts you're having to offer up to folks, and if there's any sort of dynamics around the evolution of the product deriving some incremental price benefits for the company? Now, there is, I said the same last quarter, and I say the same now, and this has been...

Speaker Change: Three point something million micro Inverters, you should expect two thirds of those micro inverters to be made in the U S.

Speaker Change: For example, if we get back to that 700 million dollar run rate whenever it is may be in 2025.

Speaker Change: Ever since I took over... You know, we have always had this special pricing adjustment business process, and we do manage that very tightly across the company. And so there has not been notably much change. Thank you very much. The next question comes from Julian Dumoulin Smith of Bank of America. Please go ahead.

Speaker Change: We are talking about four and a half to 5 million micro inverter. Then you should again expect the same thing two thirds of that will be in the United States. So it is a strong function of demand we have to balance both.

Speaker Change: The factories inside and outside and our balancing as two thirds one third today.

Speaker Change: Right and maybe just a corresponding follow up there briefly.

Speaker Change: $130 million under ship when you think about that being split again between U S and Europe, you talked about two thirds one third how do you think about where that under shipping the dynamic of that inventory being.

Speaker Change: Thanks, team. Nice inflection. So just in terms of the half million shipments here in one queue here, can you talk a little bit about how you plan to scale up to the five billion capacity you have? Obviously, you issued the 8K here, kind of bringing down overall manufacturing, but can you talk about how you anticipate that ramping up, if you will? And then maybe, in tandem with that implicit, how do you see underlying demand trending vis-a-vis kind of returning to that 500 million and then back up to say 700 or whatever? Right, so.

Speaker Change: Today, and maybe perspective.

Speaker Change: Yes for Q4 that was I would say roughly roughly.

Speaker Change: Roughly it was.

Speaker Change: I would say 50 50 for Q4 between the U S and Europe I think for Q1, it will be more tilted towards 60, 40 U S. Europe.

Speaker Change: The next question comes from Philip Shen of Roth and Kim. Please go ahead.

Philip Shen: Hi, Brian Thanks for taking my questions.

Speaker Change: You know, just to set context, we shipped approximately 900,000 units from our U.S. factories in Q4, so why are we going back? 500,000 in Q1. That's the first question to answer. In that, to answer that one, it's basically, we are focused on our, you know, our inventory. In terms of dollars, the gross value of our inventory is about $200,000.

Philip Shen: You highlighted that you think the destocking in Q.

Philip Shen: Q2 now.

Philip Shen: Prior you had talked about destocking ending at the end of Q1, and then before that also by the end of 'twenty three what's the probability and confidence in your call now that the Destocking truly ends by the end of Q2 I don't know if the answer is different for the U S market versus Europe.

Philip Shen: And then how does the impact of some of these meaningful shutdowns and bankruptcies.

Philip Shen: Impact you guys and your confidence.

And your ability to say, it's Q2, you know you've been talking about this 450 to 500 million normalized run rate, but then.

Speaker Change: $200 million, $210 million, roughly, and we think that inventory is high. That corresponds to 110 days of inventory, I think. And we think that the number of days of inventory is high, so we are going on a war path to reduce that to a best-in-class level. I consider a best-in-class level to be 30 days.

Philip Shen: Soldiers shutdowns annuity.

Philip Shen: <unk> vision.

Philip Shen: So how does that all those dynamics.

Philip Shen: That number 400 5500.

Philip Shen: Back in Q4 of last year, when you have the Q3 call.

Philip Shen: These companies weren't talking about going away are shutting down so.

Philip Shen: Does that how has that impacted you guys.

Philip Shen: I assume.

Speaker Change: So that's our North Star. We are going back to 30 days. That means we are going to be ensuring that we don't do any unnecessary manufacturing. So that's, you know, based on that. You know, our first priority is to get that, set that boat right.

Philip Shen: That.

Philip Shen: Others will just pick up the volume and then we're also watching closely what happens with the Sunpower situations. So if that goes negative what are your thoughts on how that can impact you too. Thanks.

Speaker Change: Yeah as far as the channel is concerned in the October call. There was quite clear as I said, we do expect to under ship in both Q4 as well as Q1 <unk>.

Speaker Change: And so that's why we said, OK, in the first half of the year, we would essentially do whatever it takes to clear the factory inventory and clear the channels. So you should expect lower shipments in the first half. The second half, which is where if the demand approaches, let's say, for example, what you talked about, the $500 million level, that corresponds to approximately 3 million microinverters. You should expect two-thirds of those microinverters to be made in the U.S. And, for example, if we get back to that $700 million run rate, whenever that is, maybe in 2025. The, you know, we are talking about four and a half to five million microinverters. And you should, again, expect the same thing.

Speaker Change: And that's right and we did not.

Speaker Change: At that time, you are correct.

Speaker Change: I did say we could normalize in.

Speaker Change: In Q2 now we executed on what we said for Q4. The 150, what I said, we did 147, we expect to do a 130, we expect to do a much reduced level of under shipment in Q2, we don't expect to do 130 in Q2, we expect to do much more.

Speaker Change: Reduced level, so we think the problem.

Speaker Change: We'll go away for us in Q2, but I was conservative I did tell you by the end of Q2, and we are sticking with that.

Speaker Change: The next one bankruptcy sogou bankruptcies effect bankruptcies are definitely causing some friction.

Speaker Change: In the short term, but.

Speaker Change: What will happen. The industry is is resilient what happens is the end customer demand doesn't change.

Speaker Change: Two-thirds of that will be in the United States, so it is a strong function of demand. We have to balance both.

Speaker Change: So therefore, it is a matter of time and it is unfortunate that these happened over these can be readily picked up it might take a quarter as.

Speaker Change: The factory is inside and outside, and our balancing is two-thirds, one-third. Right, and maybe just a corresponding follow-up there briefly, just the $130 million undership. When you think about that being split, again, between the U.S. and Europe, you talked about it as two-thirds, one-third. How do you think about where that undership and the dynamic of that inventory are today and maybe prospectively?

Speaker Change: As long as the end customer demand.

Speaker Change: Stays the same we think.

Speaker Change: Other installers will pick it up we have a value Lotos group of installers, we have worked with.

Speaker Change: Almost 1500 installers in the U S.

Speaker Change: And so.

Speaker Change: There is a lot of redundancy there.

Speaker Change: And so when you are correct it is it.

Speaker Change: It will cause some short term friction, but I think.

Speaker Change: That will soon disappear.

Speaker Change: Yeah.

Speaker Change: Got it thanks, and then as you think about the difference between the U S.

Speaker Change: Roughly, it was, I would say, 50-50 for Q4 between the US and Europe. I think for Q1, it'll be more tilted towards, you know, 60-40 US-Europe. The next question comes from Philip Shen of Roth MKM. Please go ahead.

Speaker Change: European markets.

Speaker Change: You think can you talk about the destocking situation there.

Speaker Change: When do you think that is done on a blended basis across the countries.

Speaker Change: Which.

Which region feels do you feel like it's better for a faster recovery in U S or Europe. Thanks, Patrick.

Philip Shen: Hi everyone, thanks for taking my questions. You highlighted that you think the de-stocking ends in Q2 now, but prior, you had talked about de-stocking ending at the end of Q1, and then before that, also by the end of Q23. What's the probability and confidence in your call now that the de-stocking truly ends by the end of Q2? I don't know if the answer is different for the U.S. market versus Europe. And then how does the impact of some of these meaningful shutdowns and bankruptcies impact you guys and your confidence in your ability to say it's Q2? You've been talking about this 450 to 500 million normalized run rate, but then ADT Solr shut down, Centuity, Infinity, and Vision. So how has that, those dynamics, because that number 450 to 500 back in Q4 of last year when you had the Q3 call, these companies weren't talking about going away or shutting down? So how has that impacted you guys? Do you assume that others will just pick up the volume?

Speaker Change: At least out of our based on our forecasting calculations today show that Europe will be will recover a little bit earlier by the end of Q Q1, I think our.

I think we should see Europe doing a little better than the U S. But I think both of them should normalize in Q2.

Speaker Change: The next question will come from Mark Strouse of Jpmorgan. Please go ahead.

Mark W. Strouse: Yes. Good afternoon, thanks for taking my questions.

Mark W. Strouse: A follow up to Phil's question there.

Mark W. Strouse: Just wondering if you can dig a bit more into the Netherlands.

Mark W. Strouse: You mentioned that I think you said it.

Mark W. Strouse: It's still weak, but it's getting a little bit better every week.

Mark W. Strouse: When you when you're talking to your customers in the field.

Mark W. Strouse: What are their expectations as far as timing of certainty with the policy over there and I have a follow up thanks.

Mark W. Strouse: So basically Netherlands.

Mark W. Strouse: Tell your story in Netherlands.

Mark W. Strouse: Essentially.

Mark W. Strouse: What happened is about.

Mark W. Strouse: Three two fold actually six months ago is what I would say six months ago.

Mark W. Strouse: The end consumer demand sorry.

Mark W. Strouse: It started to go down.

Mark W. Strouse: And it was kicked off by one of the energy companies charging an export penalty for solar company's name as Randy Brown.

Philip Shen: And then we're also watching closely what happens with the sun power situation. So if that goes negative, you know, what are your thoughts on how that can impact you too? Thanks.

Mark W. Strouse: That caused a lot of fear and customers the customers are.

Philip Shen: Yeah, as far as the channel is concerned, on the October call, I was quite clear. I said we do expect to undership in both Q4 as well as Q1. And that's right. And we didn't, you know, at that time, you were correct.

Mark W. Strouse: Facing.

They are they are suddenly worried about an export penalty for solar and also in the Netherlands.

Mark W. Strouse: That is the.

Mark W. Strouse: Situation about net metering hasnt been very clear.

Mark W. Strouse: When is it going to and is it going to continue.

Mark W. Strouse: And that is.

Meetings are net metering are actually underway as we speak right now.

Philip Shen: I did say we could normalize, Q2. Now, we executed on what we said for Q4. The 150, as I said, we did 147.

Mark W. Strouse: With the new government so when.

Mark W. Strouse: All of US will hear about that film so what we did we kicked off the new year.

Mark W. Strouse: January 2nd week, we had a solar next event and Netherlands, where we hosted 800 installers. They all came from.

Philip Shen: We expect to do 130. We expect a much reduced level of undershipment in Q2. We don't expect to do 130 in Q2. So we expect a much reduced level of undershipment to go away for us in Q2, but I was conservative. I did tell you by the end of Q2, and we are sticking with it. The next one, bankruptcies, how do bankruptcies affect us?

Mark W. Strouse: From across the country. We also hosted a bunch of energy providers.

Mark W. Strouse: And we also.

Mark W. Strouse: Bolstered even the transmission.

Mark W. Strouse: <unk> line operators and we then basically had all of them tuck in.

Mark W. Strouse: <unk>.

Mark W. Strouse: We all agreed that.

Mark W. Strouse: Netherlands needs a comprehensive solution that consists of solar plus batteries grid energy management software.

Philip Shen: Bankruptcies are definitely causing some friction in the short term, but I think what will happen is the industry is resilient; what happens is the end customer demand doesn't change. So therefore, it is a matter of time, and it is unfortunate that these happen. However, these can be readily picked up.

And that will help unlock the full potential of the market Netherlands is got roughly about 8 million homes.

Mark W. Strouse: Today, $2 4 million homes have solar.

Mark W. Strouse: And the worry is those solar reducing homes will cause excessive export and that will be a managed but with intelligent and energy management with the addition of batteries and this can turn into a very quickly it can turn into very positive because every home.

Philip Shen: It might take a quarter, as long as the end customer demands stay the same. We think... other installers will pick it up. We have a diverse group of installers. We work with almost 1,500 installers in the U.S. So, you know, there is a lot of redundancy there. So, while you are correct, it will cause some short-term friction, but I think that will soon disappear.

Mark W. Strouse: <unk>.

Mark W. Strouse: We will have solar plus a 10 kilowatt hour battery based energy management software.

Mark W. Strouse: And the payback is to fund between six and eight years.

Mark W. Strouse: So we painted painting that picture and we had general alignment with.

Mark W. Strouse: With all of the stakeholders now.

Mark W. Strouse: We are following through on all of those with Webinars with actual execution without solar graph tuned for example, so that.

Speaker Change: Got it. Thanks. And then as you think about the difference between the U.S. and European markets, do you think, can you talk about the de-stocking situation there? When do you think that will be done on a blended basis across the countries? And you know, which region feels, do you feel like it's better for a faster recovery, U.S. or Europe? Thanks, Badri.

Mark W. Strouse: Homeowners.

Mark W. Strouse: And basically understanding the value proposition a lot better. In addition, the duration on net metering is starting to get.

Mark W. Strouse: We'll start to get clear in the next few weeks so why.

Speaker Change: What I would say Netherlands is that you know once again I think.

Speaker Change: We saw the bottom.

Speaker Change: The bottom.

Badrinarayanan Kothandaraman: I think at least our data, our forecasting calculations today show that Europe will recover a little bit earlier by the end of Q1, I think. I think we should see Europe doing a little better than the U.S., but I think, you know, both of them should be normalized in Cuba. The next question will come from Mark Strouse of J.P. Morgan. Please go ahead. It's a good afternoon.

Speaker Change: I think I think that was the bottom and then now with the.

Speaker Change: With what we talked about solar plus batteries. We are also seeing more attach rate of batteries in the Netherlands now.

Speaker Change: So we predict a pickup in both solar and batteries.

Speaker Change: Of course, we don't have a crystal ball, we could be wrong, we do think net metering.

Mark W. Strouse: Thanks for taking our questions. Kind of a follow-up to Phil's question there. Just wondering if you can dig a bit more into the Netherlands. You mentioned it, I think you said it's, it's still weak, but it's getting a little bit better every week.

<unk> will come.

Speaker Change: And.

Speaker Change: That that'll be a big deal, we do have general alignment with the energy providers that as long as it's dynamic Ted if there would be no explorer panel date.

Speaker Change: And but we don't need batteries to manage dynamic tenant so.

Mark W. Strouse: When you when you're talking to your customers in the field, what are their expectations as far as timing of certainty with the policy over there? And I have a follow-up. Thanks. Yeah, so basically, Netherlands. I have to tell you a story about the Netherlands. What happened was about three to four, actually six months ago, is what I would say, six months ago.

Speaker Change: I gave you a long answer.

Speaker Change: But in short I think that once again the bottom I think is.

Speaker Change: Is behind us.

Speaker Change: Now you should see a steady uptick there.

Speaker Change: Yeah.

Speaker Change: Okay. That's very helpful. Walter Thank you.

Speaker Change: Just a real quick follow up I know you don't break out exactly the country by country sooner.

Walter: Given the puts and takes between France, and Netherlands, and Germany. All of these new countries that you're entering into any generic guidelines that you can provide the street as far as kind of the.

Mark W. Strouse: I'm, end consumer demand started to go down, and it was kicked off by one of the energy companies charging an export penalty for solar. The company's name is Vanderbrande. So that caused a lot of fear in customers. The customers are facing, you know, they're certainly worried about an export penalty for solar. And also, in the Netherlands... The situation about net metering hasn't been very clear. When is it going to

Your your major countries, let's just say, Netherlands, France, Germany.

Walter: What they might represent of your business today.

Walter: They don't usually break that out but in the order of significance.

Walter: At least for 2023 overall revenue it has been in Atlanta, followed by France, followed by Germany.

Walter: That's how it has been.

Walter: You, obviously heard the situation on Netherlands.

Speaker Change: I think I think like what I said is it'll soon bounce back.

Mark W. Strouse: Is it going to continue? and that is. You know, meetings and net metering are actually underway as we speak right now, with the new government. So all of us will hear about that soon. So what we did, we kicked off the new year, January 2nd week. We had a Solar Next event in the Netherlands, where we hosted 800 installers. They all came from across the country.

Speaker Change: As far as France is concerned.

Speaker Change: We see steady demand in France utility rates.

Speaker Change: Adam.

Speaker Change: Increasing in France, so therefore.

Speaker Change: I mean already increased.

Speaker Change: Last year expected to increase again this year. So we think that's a general positive do France is actually growing.

Speaker Change: And our France is flat right now with all of this and we expect it to grow given the normal seasonality the Germany.

Mark W. Strouse: We also hosted a bunch of energy providers, and we even hosted the transmission line operators. And we then basically had all of them talk, and we all agreed that.

Speaker Change: Germany is strictly Germany for us has been hit.

Mark W. Strouse: The Netherlands needs a comprehensive solution that consists of solar panels plus batteries, with Energy Management Software. And that will help unlock the full potential of the market. The Netherlands has got roughly about 8 million homes.

Speaker Change: By a lot of the inventory problems Destocking there.

Speaker Change: We do have some strong partners.

Speaker Change: We do have a lot of other distributors buying in various regions in Europe in shipping product into Germany.

Speaker Change: One trend we are seeing is that our activations, which is every week.

Mark W. Strouse: Today, 2.4 million homes have solar panels, and the worry is that those solar-producing homes will cause excessive export, and that will be unmanaged. But with intelligent energy management, with the addition of batteries... This can turn into a very, you know, quickly, it can turn into very positive because every home will have solar plus a 10 kilowatt-hour battery with energy management software, and the payback is still fine between six and eight years. So we painted that picture.

Speaker Change: Monitor how many systems got connected to the cloud.

Speaker Change: And whether they have solar plus storage et cetera. So we're doing quite well that our activations are increasing quarter on quarter. So our theory. There is installers that are little more considered way too they are holding onto very less inventory, but they are doing.

Speaker Change: They are basically <unk>.

Speaker Change: Holding more than phase and so we'll see how that play out.

Speaker Change: How that plays out.

Speaker Change: The next two markets that we can about a lot.

Mark W. Strouse: And we had general alignment with all of the stakeholders. Now, we are following through on all of those with webinars, with actual execution, with our solar graph tool, for example, so that homeowners can basically understand the value proposition a lot better.

Speaker Change: Italy, and the UK, Italy is basically it's got about Russia.

Speaker Change: Roughly a gigawatt of solar.

Speaker Change: And.

Speaker Change: With about 70%, 80% attach.

Speaker Change: Of batteries.

Mark W. Strouse: In addition, the situation on net metering is starting to get clearer. You know, we'll start to get clearer in the next few weeks, so... What I'd say in the Netherlands is that, you know, once again, I think we saw the bottom. I think I think that was the bottom, and then now, with the... With what we talked about, solar plus batteries, we are also seeing more attach rates of batteries in the Netherlands now. We predict a pickup in both solar and batteries. Of course, we don't have a crystal ball; we could be wrong.

Speaker Change: Tight batteries single phase market.

Speaker Change: And we just introduced.

Speaker Change: IQ eight micro inverter debt and we launched our batteries as well in December we expect to start shipping batteries into Italy imminently this quarter.

Speaker Change: In the UK, one more big market 800 megawatts of solar attach rate.

Speaker Change: 80 per cent for storage.

Speaker Change: Once again there.

Speaker Change: We just entered the market in September and we expect to continuously grow that.

Speaker Change: So those are the.

Speaker Change: Five big markets for Us in Europe, and then the little ones.

Mark W. Strouse: We do think the net metering decision will come. And, you know, that will be a big deal. We do have general alignment with the energy providers that as long as there's a dynamic tariff, there will be no export penalty.

Speaker Change: Of course, Spain, Austria, Switzerland, we are working on rapid on improving.

Speaker Change: Micro inverters and batteries there.

Speaker Change: Greece Poland.

Speaker Change: And we'll enter into all of the other countries in Europe. These countries, we already have batteries, and our Sweden, and Denmark, I forgot them, Sweden, and Denmark, the battery attach in Sweden, and Denmark is particularly nice in the in the last few weeks and months. So we are there.

Mark W. Strouse: And but we don't need batteries to manage dynamic tariffs. So, I gave you a long answer, but in short, I think that, you know, once again, the bottom, I think, is behind us. Now you should see a steady rise. Okay, that's very helpful, Audrey.

Speaker Change: We're optimistic that Sweden, and Denmark represents a nice opportunity as well.

Audrey: And then just a real quick follow up. I know you don't break out exactly country by country.

Speaker Change: You want to add anything, but yeah, I think the trend if you look at.

Speaker Change: But we mentioned in addition, all of these market transitioning from some have already attended from solar to solar plus battery.

Speaker Change: Given the puts and takes between France and the Netherlands and Germany, all of these new countries that you're entering into, any generic guidelines that you can provide the street as far as the kind of your major countries, let's just say the Netherlands, France, Germany, what they might represent in your business today? We don't usually break that out, but in order of significance... At least for 2023 overall revenue, it has been the Netherlands followed by France followed by Germany. That's how it has been. You obviously heard the situation in the Netherlands. I think, like I said, it'll soon bounce back. As far as France is concerned,

Speaker Change: It means the energy management software becomes a very critical element to deliver whatever they use case homeowner desires, but dynamic paraffin, but you mentioned in Netherlands really can prove it.

Speaker Change: Can be.

Speaker Change: Our sophisticated software to manage a day ahead of tariffs and our new deer tariff, but it can bring tremendous amount of value to the homeowner for example, and a dynamic tariff environment you could have negative pricing and when you have negative pricing you get paid per charge charge, a battery and charger.

Speaker Change: We see steady demand in France. Utility rates are increasing in France, so therefore, already increased last year and expected to increase again this year. So we think that's a general positive. France is actually growing. You know, France is flat right now with all of this, and we expect it to grow given the normal seasonality. Germany is tricky.

Speaker Change: And turn on turn on your heat pump. In addition from a lot of these markets Youre seeing grid services programs also come in to come into effect that venue.

Speaker Change: A lot of money for example, again in the Netherlands market because of because of all the solar that's there to 19 gigawatt grid and Theres 19, Gigawatts of solar and then Theres. Another eight nine gigawatts of wind.

Speaker Change: Germany, for us, has been hit by a lot of inventory problems and destocking there. We do have some strong partners. We do have a lot of other distributors buying in various regions in Europe and shipping product into Germany.

Speaker Change: They are imbalance issues, but there is an imbalance market that you can participate in and get paid for the <unk>.

Speaker Change: Either charging your primary or discharging youre discharging your battery similarly in some of the other markets that is frequency regulation market that you can participate in and provide.

Speaker Change: One trend we are seeing is that our activations, which is every week we monitor how many systems got connected to the cloud and whether they have solar plus storage, et cetera. So we are doing quite well.

Speaker Change: Good value to the homeowner because their batteries now basically generating generating money for you same thing capacity markets in <unk>.

Speaker Change: There are activations that are increasing quarter on quarter. So our theory there is installers are a little more conservative. They are holding on to very less inventory, but they are doing it. They are basically installing more Enphase. And so we'll see how that plays out, you know, how that plays out.

Speaker Change: Okay are also good markets to participate in a good good services. So you are seeing this move from solar plus battery <unk> energy management services.

Speaker Change: A very compelling movement for value creation for the homeowner and this trend we are going to see happening more and more and happening worldwide.

Speaker Change: The next two markets that we care about a lot are, you know, Italy and the UK. Italy is basically, It's got about roughly a gigawatt of solar, and, you know, with about 70, 80% of the touch of battery, grid-tied batteries, single-phase market. And we just introduced our IQ8 microinverter there. And we launched our batteries as well in December. We expect to start shipping batteries in Italy imminently this quarter.

Speaker Change: The next question comes from Puneet <unk> of Wells Fargo. Please go ahead.

puneet: Thanks, Good evening. So the metric you gave for battery cell through 140 megawatt hours, it's quite high I guess as we as we look to the second half of this year. When you got NIM three kind of fully understood wing in the Netherlands bounces back do you expect battery shipments to increase sequentially each quarter and do you think it's Paul.

Speaker Change: In the UK, one more big market, 800 megawatts of solar, an attach rate of 80% for storage. And once again, they're... are, you know, we just entered the market in September, and we expect to continuously grow there. Those are the five big markets for us in Europe, and then the little ones are, Of course, Spain, Austria, Switzerland; we are working on improving both microinverters and batteries there, grease, Poland. And we'll enter all of the other countries in Europe. These countries already have batteries, and our Sweden and Denmark, I forgot them. The battery attached to Sweden and Denmark is particularly nice in the last few weeks and months.

puneet: But we get to 200 megawatt hours of battery shipments by the end of this year.

Speaker Change: I don't have a crystal ball, but generally yes.

Speaker Change: Okay Fair enough and then I guess second question here on the C&I market. Just wondering if you could give us an update on.

Speaker Change: The IQ AP introduction, how thats progressing.

Speaker Change: And whether we would see meaningful revenue this year or whether that's a 2025 of them.

Speaker Change: You'll see meaningful revenue this year.

Speaker Change: However, let me step back and tell you about a product and then who can talk a little more so we introduced the product.

Speaker Change: In the fourth quarter in December and this is a 40 watt.

Speaker Change: Three phase.

Speaker Change: Two way toward market.

Speaker Change: Primarily addressing the U S.

Speaker Change: We think that we estimate the market size of approximately a gigawatt.

Speaker Change: And.

Speaker Change: Basically this this helps us to service.

Speaker Change: 20% to 200 kilowatts of installations.

Speaker Change: So we are optimistic that, you know, Sweden and Denmark represent a nice opportunity as well. Yeah, I think the trend, if you look at what we mentioned, the addition of all of these markets transitioning from, some have already transitioned from solar to solar plus battery means the energy management software becomes a very critical element of it to deliver whatever the use case the homeowner desires. But dynamic tariffs, as we mentioned in the Netherlands, really can prove, can be, you know, require sophisticated software to manage a day ahead tariff, an hourly day ahead tariff, but they can bring tremendous amounts of value to the homeowner. For example, in a dynamic tariff environment, you could have negative pricing.

Speaker Change: And we are talking about examples could be schools.

Speaker Change: Could be hospitals.

Speaker Change: Could be gas stations could be mortality.

Speaker Change: Basically small businesses.

So that's the 20 to 200 kilowatts, we're talking about our product.

Speaker Change: Or like your AP that generates four <unk> AC it can service up to 650 Watt DC panels.

Speaker Change: It has got rapid shutdown, we have per panel monitoring and of course highest quality levels 25 years of water.

Speaker Change: And.

Speaker Change: Now our long tail of installers have been asking us for this product because they expect the same quality.

Speaker Change: As the residential product. So therefore, they have been asking US now we're able to service services. In addition, we also have the solar draft software, which is the design and proposal software for those commercial installations.

Speaker Change: And when you have negative pricing, you get paid to charge your battery and charge your EV and turn on your heat pump. In addition, in a lot of these markets, you're seeing grid services programs also come into effect that pay you, you know.

Speaker Change: So we did ship we did ship a non trivial amount of units already in Q4 'twenty three.

Speaker Change: However, you should understand this is a this is a business with.

Speaker Change: It's got a little bit longer longer time, and it's a project based business and therefore.

Speaker Change: We have a lot of money. In the Netherlands market, because of all the solar, there is a 19 gigawatt grid and another 8 gigawatts. There are imbalance issues, but there is an imbalanced market. There are currency regulation markets that you can participate in and provide good value to the homeowner.

Speaker Change: You have multiple parties here in play, which is which is the building owner.

Speaker Change: And then since it too.

Speaker Change: Two program manager, we're basically implies and toddler.

Speaker Change: The sale is a little little bit longer compared to the residential sale.

It would take us.

Speaker Change: More time to establish a pipeline but.

Speaker Change: Capacity markets in the UK are also good markets to participate in. You are seeing this move from solar and energy management. We are going to see this trend happening more and more worldwide. The next question comes from Praneeth Bhattacharya of Wells Fargo. Please go ahead. Thanks. Good evening.

Speaker Change: What a what a noise.

Speaker Change: And our product will be good product, that's very high quality like what I said that we expect to get.

Speaker Change: Our fab shares.

Speaker Change: Off the market and.

Speaker Change: We also expect our shipments into the channel.

Praneeth Bhattacharya: So the metric you gave for battery sales through 140 megawatt hours is quite high. I guess as we look to the second half of this year, when you get an M3, kind of fully under swing, and the Netherlands bounces back, do you expect battery shipments to increase sequentially each quarter? And do you think it's possible we could get to 200 megawatt hours of battery shipments by the end of this year? Ah, I don't have a crystal ball, but generally, yes.

Speaker Change: We continuously up quarter on quarter through the year.

Speaker Change: The next question comes from Eric Stine, Craig Hallum. Please go ahead.

Eric Stine: Hi, everyone.

Eric Stine: So pretty clear from your commentary and second half.

Eric Stine: Youre expecting there.

Eric Stine: Somewhat back to normal.

Eric Stine: Sell in.

Eric Stine: Under shipments.

Eric Stine: Starting to go away I'm, just curious as you think longer term.

Praneeth Bhattacharya: Okay, fair enough. And then, I guess, the second question here on the CNI market: just wondering if you could give us an update on the IQ8P introduction, how that's progressing, and whether we would see meaningful revenue this year or whether that's 2025. You'll see meaningful revenue this year. However, let me step back and tell you about our product, and then you know Raghu can tell you a little more. So we introduced the product in the fourth quarter of December. This is a 480 watt power supply.

You see a scenario where you can get back to I think you mentioned $700 million those types of levels potentially in 'twenty five I mean is this a market even if the inventory in the channel is cleared.

Eric Stine: Do you think that growth is possible in a higher interest rate environment.

Eric Stine: Do you think about things and I know you don't guide, but how do you think about things as we get into 2025.

Eric Stine: Of course now that could have.

Eric Stine: That's the whole point, where we are starting to diversify.

Eric Stine: Product portfolio rapidly we are planning to introduce we already introduced IQ eight micro and murders in 21 countries last year.

Praneeth Bhattacharya: Please stay in touch. 208 Volt Mark, primarily addressing the U.S. We estimate the market size at approximately a gigawatt, and basically this helps us to service 20 to 200 kilowatts that have been stolen. We are talking about examples, could be schools, gas stations, motels, and basically small businesses.

Eric Stine: All of us haven't seen those results yet because of.

Eric Stine: Because of the inventory.

Eric Stine: Once the channel is lean we should start to see results from all of those countries. So that's one.

Eric Stine: We plan to introduce even more number of countries in 2024, which has led us to a lot of markets in Europe.

Praneeth Bhattacharya: That's the 20 to 200 kilowatts we are talking about. Our product, called IQ8P, generates 480 watts of AC. We have taken surveys up to 650...

Eric Stine: Nordics.

Eric Stine: Untapped.

Eric Stine: We we are going to introduce micro inverters that in addition.

Praneeth Bhattacharya: It has got rapid shutdown. We have panel monitoring, and of course, the highest quality levels, 25 years of Waterloo. And till now, our long-tail installers have been asking us for this product because they expect the same quality. Until then, this was it for now. Thank you!!

Eric Stine: Also countries in Asia that we are going to introduce so youll see that.

Eric Stine: Next batteries, you've come to batteries batteries I already talked about.

Eric Stine: Sell through continuously increasing.

Eric Stine: I already talked about our product introduction into places like Australia.

Praneeth Bhattacharya: We also have the Solar Graph software, which is the design and proposal software for those commercial installations. So we have shipped a non-trivial amount of units already. Thank you 423.

Eric Stine: UK, Italy.

Eric Stine: This places we are not that big.

Eric Stine: And we are going to be introducing batteries into other places as well.

Eric Stine: India is a big untapped market for example.

Praneeth Bhattacharya: However, you should understand this is a business where... You know, it's got a little bit longer, a longer time, and it's a project-based business, so therefore, you have multiple parties here in play, which is the building owner. Then he assigns it to a program manager who basically employs an installer. So, the sale is a little bit longer compared to... So it'll take us more time to establish a pipeline, but what I know is, you know, our product will be good. Our product is of very high quality, like I said, so we expect to get our fair share of the market and, you know, we also expect our shipments...

Eric Stine: So <unk>.

Eric Stine: Many more places in Asia as.

Eric Stine: As well as.

Eric Stine: Even I would say Latin America for example.

Eric Stine: Got lots of countries, there, which need both solar and storage. So we are focused on.

Eric Stine: Multiple countries for both solar plus storage.

Eric Stine: In addition, we talked about for the Europe, we talked about social housing.

Eric Stine: And bulk of Minnesota.

Eric Stine: These two social housing for example.

Eric Stine: Yes.

Eric Stine: Apartment complexes as well as row houses in Netherlands.

Eric Stine: Big picture each house.

Eric Stine: Having a small system about three kilowatts.

Eric Stine: Six panel <unk>.

Praneeth Bhattacharya: , be continuously up quarter-on-quarter. The next question comes from Eric Stine of Craig Hallam. Please go ahead. Hi, everyone.

Eric Stine: Six battle system, and our micro Inverters shine when it comes to small systems.

Eric Stine: Balconies solar is another example countries like Germany.

Eric Stine: Italy, Austria allow you to export.

Eric Stine: So pretty clear from your commentary in the second half, you're expecting to get somewhat back to normal with the sell-in or the undershipments starting to go away. I'm just curious, as you think longer term, do you see a scenario where you can get back to, I think you mentioned $700 million, those types of levels potentially in 2025? I mean, is this a market even if the inventory in the channel is cleared? Do you think that growth is? Is it possible in a higher interest rate environment? How do you think about things?

Eric Stine: Energy into the grid and 800 basically 800 watts.

Eric Stine: Of export.

Eric Stine: Into into the <unk>.

Eric Stine: Into the grid.

Eric Stine: And we plan to basically leverage those markets as well and each of those is a 250 megawatt market. So that will help us address.

Eric Stine: 500 megawatts in addition.

Eric Stine: The other thing we talked about is.

Eric Stine: EV Chargers, we are planning to introduce EV Chargers in a lot of countries in Europe and as you know Europe is at the forefront of electric vehicles.

Eric Stine: So each of them for example, the UK, Netherlands, Germany, and France, we will have products in the third quarter.

Eric Stine: And I know you don't guide, but how do you think about things as you get into 2025, the first and second half? I mean, that's the whole point where we are starting to diversify our product portfolio. We are planning to introduce, you know, we already introduced IQ8 microinverters in 21 countries last year. All of us haven't seen those results yet because of... because of the inventory, but once the channel is lean, we should start to see results from all of those countries, so that's one. We plan to introduce even more number of countries in 2021.

Eric Stine: That are shipping.

Eric Stine: Additionally, by directional EV Chargers bidirectional EV Chargers, yes, you can argue that the price on an EV charger is under $1000, but when you have a bidirectional EV charging all of sudden value is a lot higher.

Eric Stine: We are already working on again based.

Eric Stine: Bidirectional charger, which will enter phase two of the car's battery around 800, 800 volt DC and that will convert DC to AC there Andy.

Eric Stine: And it will plug in.

Eric Stine: Right into our.

Eric Stine: There are still a lot of markets in Europe that are untapped. We are going to introduce microinverters there. In addition, there are also countries in Asia that we are going to introduce, so you'll see that.

Eric Stine: Unsolvable energy management system that consists of solar and a home battery.

Eric Stine: <unk>.

Eric Stine: So I talked about micro inverters, they talked about batteries the usual markets going into many countries talked about social housing balcony solar talked about EV Chargers, which is into Europe as well as by directional charges overall and then the last one is software.

Eric Stine: Next, batteries. You come to batteries. Batteries, I have already talked about the cell through continuous increased, and I have already talked about our product introduction into places like Australia, the UK, Italy, these places we are not that big.

Eric Stine: We are going to have energy management software. This is AI based software rich.

Eric Stine: We'll do production consumption forecasting and make the right decisions, particularly when it comes to serving markets with the dynamic tariff an imbalance and that is going to be worth quite a bit for our customers. So we do expect to have our fair share.

Eric Stine: And we are going to be introducing batteries into other places as well. India is a big untapped market, for example. So, many more places in Asia, as well as. You know, even I would say Latin America, for example.

Eric Stine: So.

Eric Stine: And of course, we are always looking at how to increase our revenue per home.

Eric Stine: We got a lot of countries there that need both solar and storage. So we are focused on multiple countries for both solar plus torrent. In addition, for Europe, we talked about social housing and Balkamis. These two, social housing, for example, is apartment complexes as well as row houses in Netherland. Picture each house having a small, about 3 kilowatts. The sixth panel, six-parallel system, and our microinverter shine when it comes to small things. Balcony solar is another example. Countries like Germany have them.

Eric Stine: And that pattern.

Eric Stine: Focus, but we have a lot more revenues in front of us.

Eric Stine: We need to execute on.

Speaker Change: Okay. Thanks for all the detail.

Speaker Change: The next question comes from Christine Cho of Barclays. Please go ahead.

Christine Cho: Good evening. Thank you for taking my question.

Christine Cho: I just wanted to get some more color on the Netherlands, and these dynamic rates and was curious with the way they are structuring fees.

Christine Cho: These rates is there any sort of risk that homeowners might elect to just take a battery and no solar system to play the arbitrage in rates.

Eric Stine: Italy, Austria, allow you to export to the grid and 800, basically 800 watts of export into the grid. And we plan to basically leverage those markets as well. And each of those is a 250 megawatt market, so that will help us address 500 megawatts in addition. The other thing we talked about is, you know, EV charging. We are planning to introduce EV chargers in a lot of countries in Europe, and as you know, Europe is at the forefront of electricity. So we are reaching out, for example, to the UK. Netherlands, Germany, and France.

Christine Cho: And could you give us an idea of how much better the payback is for solar plus storage versus just storage under the dynamic rate structure and then just with how things are progressing there is there any real reason why anyone would buy a solar system without a battery at this point.

Christine Cho: So you have to look at in the Dutch market is really.

Christine Cho: Very very focused on converting to renewables. So ABC the solar plus battery to be the predominant market of course, there may be some corner cases, where we may see people purely doing it for arbitrage purposes, but we primarily see the market to be.

Eric Stine: We will have products in the third quarter there that are shipping. Additionally, bi-directional EV charging. Bidirectional EV chargers: yes, you can argue that the price of an EV charger is under $1,000. But when you have a bidirectional EV charger, all of a sudden, your value is a lot higher. We are already working on a GAN-based bidirectional charger, which will interface with a car's battery at around 800 volts DC, and that will convert DC to AC there, and it'll plug in. It'll plug right into our

Christine Cho: Battery gets associated with solar it could be battery plus solar <unk> solar plus battery plus EV charger, plus heat pump and all of that managed by it but he mentioned in artificial intelligence and.

Christine Cho: And machine learning based energy management software.

Christine Cho: No.

Christine Cho: So we don't see in the future that there'll be any system that would be solar only it would be imagery.

Christine Cho: Storage only our solar only as well, we expect that they'll always be and it will always be an energy system and thats the transition that the Netherlands market, but also undergo very quickly and by managing dynamic Paris, which you need very sophisticated software to do because it's the day ahead market.

Eric Stine: Ensemble Energy Management System that consists of solar and a home battery. So I talked about microinverters, I talked about batteries, usual markets going into many countries, talked about social housing, balcony solar, talked about EV chargers, which are into Europe as well as bidirectional charges overall. And then the last one is software.

Christine Cho: Right there is going to change on an hourly basis you need very good forecasting are both production as well as consumption you need to be able to manage all of that you need to be able to steer.

Eric Stine: We are going to have energy management software. This is AI-based software, which will do production, consumption, forecasting, and make the right decisions, particularly when it comes to serving markets with dynamic tariffs and imbalances. That is going to be worth quite a bit for customers, so we do expect to have our fair share there. But, you know, of course, we are always looking at how to increase our revenue per home. And that's our, you know, that's our focus, but we have a lot more revenues in front of us that we need to exceed. Okay, thanks for all the detail. The next question comes from Christine Cho of Barclays; please go ahead. Good evening.

Christine Cho: And am I going to charge my battery whenever one to discharge my battery whenever would've charged Mike EV soon.

Christine Cho: Soon but I'm not going to be able to discharge my easy manager here.

Christine Cho: Our buy and sell energy from the grid all of that is done by that sophisticated software that we have and that.

Christine Cho: Layered on top of that grid services through participation in an imbalanced market.

Christine Cho: This is the direction in which the entire Dutch market will move towards which always solar will be a key element of it because that's been thing right and to add a little bit mode.

Christine Cho: As solar plus battery self consumption the payback.

Christine Cho: And let's say.

Christine Cho: Thank you for taking my question. I just wanted to get some more color on the Netherlands and these dynamic rates, and I was curious, with the way they're structuring these rates, is there any sort of risk that homeowners might elect to just take a battery and no solar system to play the arbitrage in rates? And could you give us an idea of how much better the payback is for solar plus storage versus just storage under the dynamic rate structure? And then, just with how things are progressing there, is there any real reason why anyone would buy a solar system without a battery at this point? Yeah, so you have to look at the intent.

Christine Cho: In a word.

Christine Cho: Net metering.

Christine Cho: That payback will be around.

Christine Cho: Eight to nine years.

Christine Cho: And then you.

Christine Cho: Add on the savings due to dynamic tenants, we added the batteries can can help.

Christine Cho: Batteries as well as solar can help managing manage the situations that will reduce the payback.

Christine Cho: Yes.

Christine Cho: So then you're imbalance.

Christine Cho: It also has the capability imbalanced management also has the capability to reduce that payback further down by a year or two so you will get to.

Christine Cho: The Dutch market is really very, very focused on converting to renewable energy sources, so we see solar plus battery to be the predominant market. Of course, there may be some corner cases where we may see people purely doing it for arbitrage purposes, but we primarily see the market as that battery gets associated with solar. It could be battery plus solar, sorry, solar plus battery plus. E-V charger plus heat pump, and all of that managed by, as Badrini mentioned, an artificial intelligence and machine learning-based energy management software.

Christine Cho: Very nice payback, which is six years six to seven years with solar plus batteries and software.

Christine Cho: Gives you good payback and and the good thing is if you have net metering those numbers will get even better.

Speaker Change: Okay and then.

Speaker Change: Part of the issue of the slowdown in the California recovery.

Speaker Change: Is it because you know, California, installers don't know how to install the batteries, California homes are bigger and I suppose there are more roles here around the batteries and placement, which also adds complexity the Netherlands homes are much smaller and from what I understand the rules. There are so lax around the permitting for solar so I can't imagine that theyre going to be that different for storage.

Christine Cho: So we don't see in the future that there'll be any system that would be solar only. It would be storage only or solar only as well. We expect that it'll always be an energy system, and that's the transition that the Netherlands market would also undergo very quickly. And by managing dynamic tariffs, which you need very sophisticated software to do, because it's a day ahead market, and the rate is going to change on an hourly basis, you need very good forecasting of both production as well as consumption. You need to be able to handle all of that.

Speaker Change: Should we think that the actual installation for batteries is easier there and less of an op skull as it has been in California.

And given I don't think they really have outages should we think that the batteries and installations will be primarily for load shifting.

Speaker Change: And it is exactly that meaning that isn't too many outages in Netherlands adult so right now if you look at many countries in Europe. They are a lot of talk about only grid type batteries. These batteries do not need.

Christine Cho: You need to be able to steer, when am I going to charge my battery, when am I going to discharge my battery, when am I going to charge my EV soon, when am I going to be able to discharge my EV, manage your heat pump, buy and sell energy from the grid. All of that is done by the sophisticated software that we have. And layered on top of that, grid services through participation in an imbalanced market. This is the direction in which the entire Dutch market will move, but solar will be a key element of it, because that's the intent: solar plus battery self-consumption, the payback. And let's say, you know... In a word, without net metering. That payback will be around eight to nine years, and Dan Yu adds on the savings due to the dynamic tariff, where the batteries can help; batteries as well as solar can help manage the situation. That will reduce the payback by a year.

Speaker Change: Backup.

Speaker Change: Of course.

Speaker Change: We offered a backup as well as what the customer wants.

Speaker Change: <unk>.

Speaker Change: Customers.

Speaker Change: Have been asking for a great date batteries batteries.

Speaker Change: Batteries ever.

Speaker Change: The simpler in a sense you don't need to worry about backup Pamela note that it is like installing solar.

Speaker Change: Dave batteries that not in the part of our <unk>.

Speaker Change: <unk> solar.

Speaker Change: If you want to go back up you have to insert a switch in between the utility and the at home.

Speaker Change: And so all of that is not required.

Speaker Change: It is simply an economically plays here and essentially stores energy and you can discharge it.

So to use later, so yeah, I mean and also the homes are small as you rightly pointed out.

Christine Cho: So then you're in balance, also has the capability, imbalance management also has the capability to reduce that payback further down by a year or two. So you get a very nice payback, which is six years, six to seven years with solar plus batteries and software gives you a good payback. And the good thing is, if you have net metering, those numbers will get even better. Okay, and then you know part of the issue of the slowdown in the California recovery is because California installers don't know how to install the batteries and California homes are bigger, and I suppose there are more rules here around the batteries and placement, which also adds complexity. The Netherlands homes are much smaller, and from what I understand, the rules there are so lax around the permitting for solar, so I can't imagine that they're going to be that different for storage, but should we think that the actual installation for batteries is easier there and less of an obstacle as it has been in California, and given I don't think they really have outages, should we think that the batteries and installations will be primarily for load shifting?

Speaker Change: The battery sizes may be between five and 10 kilowatt hour.

Speaker Change: The sweet spot could be something like a five kilowatt hour battery for all the installations and the attach rates in the Netherlands can be very high.

Speaker Change: To 90% at five kilowatt hour, which is not a big dent.

Speaker Change: In the pocket, but enough to enough to basically have the energy companies feel happy that okay. The customers have a way to manage and not export solar of the <unk>.

Speaker Change: I am in an unmanaged fashion.

Speaker Change: The next question comes from Jordan Levy of Truth. Please go ahead.

Jordan Levy: Afternoon, all and thanks for all the detail maybe.

Jordan Levy: Maybe just to start quickly.

Jordan Levy: On the U S battery manufacturing side, you may have touched on this but just to get a sense of how we should think about the trending for margins on the battery side Bruce Micros once you start to bring on.

Jordan Levy: U S manufacturing capacity later this year.

Bruce: Yeah today, I would I mean today out of supply chain.

Bruce: Is it predominantly in China.

Bruce: And we assemble our batteries there.

Bruce: Going forward our supply chain.

Christine Cho: Correct. It's exactly that, meaning there aren't too many outages in the Netherlands at all. So right now, if you look at many countries in Europe, they will all talk about only grid-tied batteries. Batteries do not need backup; of course, we offer backup as well.

Bruce: Two parts.

Bruce: One will still have one with the best in class cost structure.

Bruce: And that basically the assembly of the battery in China with micro Inverters made in the United States.

Bruce: So that will help us because the micro inverters that meet here the other is.

Bruce: The entire battery is assembled in the U S, including the micro Inverters obviously.

Christine Cho: It is what the customer wants, but the, the, you know, customers have been asking for grid-tied batteries. Grid-tied batteries are simpler in a sense, you don't need to worry about backup panels and all that. It is like installing solar. These batteries are not in the path of power.

Bruce: And the latter one we plan to have it.

Bruce: In the third quarter of 2024.

Bruce: And of course.

Bruce: Some customers, especially the <unk>.

Bruce: GPO customers.

Bruce: The benefit of getting an additional 10% in ITC as long as we meet the domestic content requirement, which we plan to meet so.

Christine Cho: ,,,,,,,,,,, If you want to do backup, you have to insert a switch between the utility and your home. So all of that is not required. It is simply an economical play here. Essentially, it stores energy, and you can discharge it for use later.

Bruce: We expect to get.

Bruce: We expect to have a slight premium there to compensate for the cost of assembly in the U S. So I think either way both paths will have similar gross margins in my mind, but they will all continue to improve as a cell packs get lower cost.

Christine Cho: So, yeah, I mean, and also because homes are small, as you rightly pointed out, the battery sizes may be between 5 and 10 kilowatt hours. The sweet spot could be something like a 5 kWh battery for all the installations, and the attach rates in the Netherlands could be very high, but enough to basically have the energy companies feel happy that, okay, the customers have a way to manage and not export solar all the time in an unmanaged fashion. The next question comes from Jordan Levy of Truist. Please go ahead.

Bruce: And micro Inverters that are manufactured in the U S.

Speaker Change: Appreciate it.

Speaker Change: A quick follow up.

Speaker Change: Along those same lines, you've got a big pioneer and increasing U S manufacturing capacity.

Speaker Change: That will come out probably a lot over the next 12 months.

Speaker Change: Yes.

Speaker Change: Election of November I, just wanted to get your thoughts as it relates to pretty existential threats.

Speaker Change: Or any of the components of the IRA as we approach the election.

Jordan Levy: Afternoon, all, and thanks for all the detail. Maybe just to start quickly on the US battery manufacturing side, you may have touched on this, but just to get a sense of how we should think about the trending for margins on the battery side versus micros, on that U.S. Yeah, today our supply chain is, is predominantly in China, and we assemble our batteries there. Going forward, our supply chain will have... Tupac.

Speaker Change: Yeah, obviously, we don't have a crystal ball to predict who's going to win the election, but to some extent, we don't think it will matter because at the end of the day.

Speaker Change: This is about creating jobs and.

Speaker Change: In investment and both of which are.

Speaker Change: We have done given our factories both here in the two factories here in the U S.

Speaker Change: South Carolina as well as in as.

Speaker Change: Well as in Texas.

Jordan Levy: One will still have the best in class cost structure. We will have basically the assembly of the battery in China with microinverters made in the United States. So that will help us because the microinverters are made here. The other is...

Speaker Change: The next question comes from Kashi Harrison of Piper Sandler. Please go ahead.

Kashy Harrison: Good afternoon, and thank you for taking the questions.

Kashy Harrison: So the first one just a quick follow up on a comment you made earlier I think you said half of your Activations of Jan January referred them to the balance of <unk> three.

Jordan Levy: The entire battery is assembled in the U.S., including the microinverters, and the latter one, we plan to have it, in the third quarter of 2024. And, of course. You know, some customers, especially the... Our CPO customers will have the benefit of getting an additional 10% in ITC as long as we meet the requirements. Domestic Content Requirements, So, and we expect to get, We expect to have a slight premium there to compensate for the cost of assembly in the U.S. I think either way, both paths will have similar gross margins, in my mind, but they will all continuously improve as their cell packs get lower cost and our microinverters are manufactured. I appreciate that, and just a quick follow-up, you know, along those same lines, you've been a big pioneer in increasing U.S. manufacturing capacity, probably a lot, for the X. Threats to the IRA. The IRA is. Yeah, obviously, we don't have a crystal ball to predict who is going to win the elections, but to some extent, we don't think it will matter.

Kashy Harrison: Can you just give us a sense of what the NIM to mix of sell through was in four Q and then when do you expect that NIM to backlog to run out completely.

Speaker Change: Yeah I mean.

Speaker Change: I leaned in a little bit and gave you the numbers in January those correspond those when I say system activation. This one is even further it is not.

Speaker Change: It is the sell through happens when distributors sell to installers activations means those installers finish installation and it goes up on drugs.

Speaker Change: I gave you was we see homes coming up on AR and less software platform.

Speaker Change: And we are able to clearly say how many of them most of them do how many of them are in inventory, so and January 15% of them were $93, 50% of them their food with them too.

Speaker Change: If you ask me what is that ratio in the prior.

Speaker Change: Quarter.

Speaker Change: No, but my guess is because.

Speaker Change: It was approximately 70 30, 72 and 33 in the prior quarter Q4.

And in Q1, I expect it to be more like 50 50.

Speaker Change: Got it helpful. And then just a quick follow up question.

Jordan Levy: Because at the end of the day, you know, this is about creating jobs and, you know, and investments. And both of which we have done, given our factories both here in the US, in South Carolina as well as in as well as in. The next question comes from Kashy Harrison of Piper Sandler. Please go ahead.

Speaker Change: In your discussions with your distributors.

Speaker Change: There have been any indication whatsoever that they may want to hold less inventory on hand, moving forward versus the eight to 10 weeks. They used to previously and really the root of the question just stems from the fact that before you were shipping a bunch of stuff in the U S from India. So you have a longer lead times, giving you were growing across the ocean <unk>.

Kashy Harrison: Good afternoon, and thank you for taking the questions. So, the first one is just a quick follow-up on a comment Badr you made earlier. I think you said half of your activations in January were for NEM2, the balance for NEM3. Can you just give us a sense of what the NEM2 mix of sell-through was in 4Q? And then, when do you expect that NEM2 backlog to run out completely? Yeah, I mean, I leaned in a little bit and gave you the numbers in January, those correspond with those, you know, when I say system activation, this one is even further, it is not, It is, you know, sell-through happens when distributors sell to installers. Activations means those installers finish installation, and it goes up on the roof. What I gave you was we see homes coming up on our software platform. And we are able to clearly say how many of them are NEM2, how many of them are NEM3. In January, 50% of them were NEMTRI; 50% of them, therefore, were NEMTRI.

Speaker Change: <unk>, Texas, and South Carolina ramp.

Speaker Change: And become two thirds of your shipments and so I'm wondering if.

Speaker Change: Simplistically shorter lead times means less.

Speaker Change: Inventory from a from a distributor perspective.

Speaker Change: Correct. It does mean and at the end of the day look I mean.

Speaker Change: We need end customer demand at the end of the day.

Speaker Change: Distributors.

Speaker Change: Definitely a critical part of the equation, but we need them customer demand so anything that shortens the cycle time is actually good for us.

Speaker Change: Anything that compresses, the overall cycle time, which give us manufacturing redo is good for us because then.

Speaker Change: There is inventory doesn't.

Speaker Change: Doesn't have a lot of miles on it.

Speaker Change: And so we think Thats, what you pointed out we will be a net positive for us once we come out of it.

Speaker Change: The next question will come from Andrew Cocoa of Morgan Stanley. Please go ahead.

Great. Thanks, so much for taking the question maybe just if you can maybe elaborate or give us an update on your.

Andrew Cocoa: Sunpower contracted exclusivity there I think of is set to end at the end of March here. So if you could just provide an update in terms of how those negotiations are going and maybe what's baked into your guidance in terms of run rate revenue for 2024 as it relates to that contract.

Kashy Harrison: If you ask me what that ratio is for the prior Quarter, I don't know, but my guess is... There's approximately 70, 30, 17 M2 and 13 M3, and the prior quarter Q4. Thank you. One. I expect it to be more like... Got it.

Speaker Change: Yes, I mean, we.

Speaker Change: We have enjoyed a contract with <unk> for the last.

Speaker Change: Five years old amongst it is going to come.

Speaker Change: To close in Q1.

Speaker Change: And of course, we are in discussion with them and.

Speaker Change: And I'll just leave it at that I don't want to comment on any.

Speaker Change: And the revenue we don't comment on revenue.

Speaker Change: Associated with one customer like that all of those discussions are confidential, but if there is something.

Speaker Change: Helpful. And then just a quick follow-up question. In your discussions with your distributors, has there been any indication whatsoever that they may want to hold less inventory on hand moving forward versus the 8 to 10 weeks they used to previously? And really, the root of the question just stems from the fact that, you know, before, you were shipping a lot of stuff to the U.S. from India, so you had longer lead times, you know, given you were going across the ocean.

Speaker Change: That gets finalized you will know.

Speaker Change: Okay Fair enough and then maybe just one housekeeping item.

Speaker Change: I think in your prepared remarks, you mentioned.

Speaker Change: 50% of your your customers under NIM, three or are using your battery, but I think you also said the industry data is showing battery attach rates of close to 80%.

Speaker Change: So can you maybe just comment on what's driving that Delta and maybe how you can get a higher attach rate for for your battery specifically on those three customers.

Speaker Change: That changes once Texas and South Carolina ramp up and become two-thirds of your shipments. And so I'm wondering if simplistically shorter lead times mean less inventory from a distributor perspective. That's correct. It does meme, and at the end of the day, look, I mean... We need end customer details.

Speaker Change: Right, So basically that's right.

Speaker Change: In general the attach rate of an inventory solar system is 80%, 80%. According to industry data so attachment to our solar system.

Speaker Change: In the past for Neptune.

Speaker Change: Distributors are definitely a critical part of the equation, but we need then customer demand. So anything that shortens the cycle time is actually good for us. Anything that compresses the overall cycle time, which year's manufacturing will do, is good for us because then... There is, you know, inventory doesn't... doesn't have a lot of money.

Speaker Change: For example for <unk> was about 10%.

Speaker Change: And that has increased now to.

Speaker Change: $250.

Speaker Change: With the because it just makes sense to add a battery that's why we set our sell through numbers.

Speaker Change: Became hyatt.

Speaker Change: Improved by 58% compared to the prior quarter. Now. Your question is why is enphase market chip not 100%, Hawaii Island, all Enphase solar installations, having enphase batteries because customers have a choice.

Speaker Change: So we think that what you pointed out will be a net positive for us once we go public. The next question will come from Andrew Percoco of Morgan Stanley. Please go ahead.

Speaker Change: Does anything Cooper system.

Therefore, we have batteries that can that can tie into that DC comfort system.

Andrew Percoco: Great, thanks so much for taking the question. Maybe you can maybe elaborate or give us an update on your SunPower contract, that exclusivity there. I think it was set to end at the end of March here.

Speaker Change: However, the situation is still a net positive for us because the 10% battery of that just now a 50% benefit.

Speaker Change: And we have you know we are constantly working on having this data and.

You know getting.

Speaker Change: Not the 50%.

Speaker Change: I think we're doing a lot of work in improving the product.

Andrew Percoco: So if you just provide an update in terms of how those negotiations are going and maybe what's baked into your guidance in terms of run rate revenue for 2024 as it relates to that contract. Yeah, I mean we. We have enjoyed a contract with SunPower for the last..., five years almost, but it is going to come to a close in Q1. Of course, we are in discussion with them, and I'll just leave it at that. I don't want to comment on any of them.

Speaker Change: If you look at it.

Speaker Change: Both in terms of ease of installation.

Speaker Change: Commissioning.

Speaker Change: Serviceability et cetera, and with our three gets better our four gets even better including you know it's a very simple.

Speaker Change: Product to install but we mentioned the form factor is such that.

Speaker Change: <unk>.

Speaker Change: Just makes it much easier and easier to install so we are when the rest of the business as we go as we continue to make not only hardware product improvement, but also all of the software improvements we are making both of those means that we will win more of our business.

Speaker Change: The next question comes from Joseph Osha of Guggenheim Partners. Please go ahead.

Joseph Osha: Alright, thanks, everyone two quick questions first.

Andrew Percoco: Any revenue; we don't comment on revenue. Associated with one customer like this, all of those discussions are confidential, but if there is something..., you know, that gets finalized, you will know. Fair enough. And then maybe this one housekeeping item: Badri, I think in your prepared remarks, you mentioned 50% of your customers under NEM3 are using your battery. But I think you also said the industry data is showing battery attach rates of close to 80%. So can you just comment on what's driving that delta and maybe how you can get a higher attach rate for your battery, specifically for those NEM3 customers? Right. So basically, that's right. In general, the attach rate of an M3 solar system is 80%, according to industry data.

Talking about storage.

Joseph Osha: Just to talk a lot about commissioning.

Joseph Osha: Challenges in the time that.

Joseph Osha: It seems like that's gotten better but.

Joseph Osha: And I'm just wondering if we look at we.

Joseph Osha: We look at developers and we think about cost installation difficulties explaining things to the consumer you know what do you think the real.

Joseph Osha: Biggest challenges are right now in terms of.

Joseph Osha: Selling storage, especially in California.

Joseph Osha: Yes.

Joseph Osha: Batteries at heart.

Joseph Osha: First of all the add cost to your system.

Joseph Osha: And in a high interest rate environment.

Joseph Osha: People.

Joseph Osha: Thanks.

Joseph Osha: I think twice about adding them then second is batteries are messy.

Joseph Osha: It is like for example, if you have to do.

Andrew Percoco: So attachment to our solar panels, you know, in the past for NEM2, for example, for NEM2, it was about 10%, and that has increased now to 50%, because it just makes sense to add a battery. That's why we set ourselves goals through numbers, and others.

Joseph Osha: Backup you do have to.

Joseph Osha: Plan planned for it properly.

Joseph Osha: And.

Joseph Osha: You cannot short change.

Joseph Osha: Design.

Joseph Osha: It should be a very high quality product.

Joseph Osha: Sure.

Joseph Osha: Because when power goes.

Joseph Osha: The batteries are.

Joseph Osha: The battery companies the utility company.

Joseph Osha: So batteries are tough to do properly also when there is a problem with the battery.

Andrew Percoco: Improved by 58% compared to the prior quarter. Now, your question is, why is Enphase's market share not 100%? Why aren't all Enphase solar installations having Enphase batteries?

Joseph Osha: Servicing is tough you have to get it off the wall you have to ship it to the installer installer has to contact the suppliers' suppliers to ship replacement install that has to come back.

Andrew Percoco: Because customers have a n AC company, we have batteries that can... that can tie into that AC. However, the situation is still a net positive for us because the 10% battery attached is now 50%. And we are, you know, constantly working on having this data and, you know, getting, not the, I think, you know, we are doing a lot of work in improving the product, if you look at both in terms of ease of installation, commissioning, serviceability, etc. And with R3 it gets better, R4 gets even better, including, you know, it's a very simple thing, product to install. As Badri mentioned, the font factor is such that it just makes it much easier to install.

Joseph Osha: So if it installers, it's very difficult.

Joseph Osha: And they they have a truck roll many truck rolls on batteries more than.

Joseph Osha: More than <unk> more than solar so what we have tried to do in a third generation battery that is why our battery sales are picking up.

Joseph Osha: As we have tried to take that into account first of all the commissioning experiences.

Joseph Osha: It's a lot simpler so under an hour you can commissioning second if you want to.

Joseph Osha: We'll use the battery in a tight environment, even even simpler but it can be used used for back up to the third one which is a very important one is 90% of the time.

Joseph Osha: The batteries can be serviced in situ Institute means.

Joseph Osha: On the what was the battery is still under work which means.

Joseph Osha: No.

Joseph Osha: And problems that we see very readily youll see a problem with this hand back.

Joseph Osha: Problems, commonly that we'd see our with battery management and power electronics for US all of them are serviceable bullets, which means a $40 a boe.

Andrew Percoco: So we'll win the rest of the business as we go, as we continue to make not only hardware product improvements but also all of the software improvements that we are making. Both of those mean that we will win more of our customers. The next question comes from Joseph Osha of Guggenheim Partners. Please go ahead.

Joseph Osha: Gets out and a new $40 bolt comes in and our field service people Enphase field service people are there and we have 100 of them and basically they are there and they take that off the installers, especially in the critical at times like this you don't want to install there too.

Joseph Osha: Hi, thanks everyone. Two quick questions. First, talking about storage, we used to talk a lot about commissioning challenges in the time that that was involved there. It seems like that's gotten better, but you know, I'm just wondering if we look at developers and we think about cost, installation difficulties, and explaining things to the consumer, what do you think the real biggest challenges are right now in terms of uh, you know, selling storage, especially in California. Yeah, I mean, Think, think, think twice about adding. And second, his batteries are many.

Joseph Osha: Do the service you want the company responsible which is M face here.

Joseph Osha: Any issues.

Joseph Osha: We take care of it which that installed with consensus.

Joseph Osha: Serviceability is becoming a big differentiator.

Joseph Osha: So.

Joseph Osha: With our third generation battery, which is the one that we are shipping today in volume all of those are best in class.

Joseph Osha: Commissioning.

Joseph Osha: Quality of the batteries the serviceability of the batteries.

Joseph Osha: Marty amenity, we have five kilowatt hours, it's enel S. P battery lithium iron phosphate with $95 48.

Joseph Osha: It's just a better battery on all fronts.

Joseph Osha: Okay.

Speaker Change: Just as a follow up.

Speaker Change: I'm sorry.

Speaker Change: Alright.

Speaker Change: How about designing proposal tool photograph.

Speaker Change: Upfront allows the installer to do a very.

Joseph Osha: It is like, for example, if you have to do... backup, you do have to, You know, plan for it properly, and you cannot shortchange it. Thank you. It should be a very high-quality product, because when the power goes out, the battery is... The battery company is the utility company. So, batteries are tough to do properly. Also, when there is a problem with the battery, services. You have to get it off the wall

Speaker Change: Very good designed for the whatever the homeowners.

Speaker Change: Expectations are in terms of payback period, and upfront cost et cetera, you can really fine tune the design of the solar plus.

Speaker Change: Solar plus battery system generates a proposal it takes it a step further we can do single reducing the line diagrams from Atlantic generation everything out of this tool. So it's an end to end solution that we are providing the homeowner everything from design to.

Speaker Change: Installation the ease of installation.

Speaker Change: This ability and really good customer service and that's what it's undertake.

Joseph Osha: You have to ship it to the installer. The installer has to contact the supplier. The supplier has to ship a replacement. The installer has to come back.

Speaker Change: For the.

Speaker Change: For broad wide scale adoption of batteries and youre seeing that happening I think it's being reflected in the numbers that we shared.

Joseph Osha: So for installers, it's very difficult, and they have truck rules on batteries, more than inverters, more than solar. So what we have tried to do in our third generation battery, and that is why our battery sales are picking up, is we have tried to take that into account. First of all, the commissioning experience. It's a lot simpler. So in under an hour, you can commission it. Second, if you want to... It can use the battery in a grid-tied environment, even simpler, but it can be used for Backup II. The third one, which is a very important one, is that 90% of the time, batteries can be serviced in-situ. In-situ means on the wall, while the battery is still on the wall, which means common problems that we see, and very rarely do you see a problem with the cell package.

Speaker Change: Okay, and then just as a follow on to that I guess my question stipulating that you all have fixed product issues, which quarter will you have.

Speaker Change: Does there need to be some kind of augment to the effort to educate dealers and maybe bring them back into before.

Speaker Change: Gotten their fingers burned trying to sell batteries and pass throughs, just saying Hey, we've got a good product now.

Speaker Change: Trust us is that enough.

Speaker Change: So yes, absolutely it is not enough we have to do a lot more.

Speaker Change: Have to do the events such as what we did in Midlands, it's got to be done.

Speaker Change: The higher frequency because the name three experience is telling us that we do need to.

Speaker Change: To help in whatever way we can.

Speaker Change: And we are going to do exactly that we have our sales our our team actually listening to.

Joseph Osha: Problems commonly that we see are with battery management and power electricity. For us, all of them are serviceable boards, which means a $40 boat gets out, and a new $40 board comes in. And our field service people, Enphase field service people, are there, and we have 100 of them. And basically, they are there and they take that off the installers, especially in a critical time like this; you don't want the installer to do the service. You want the company responsible, which is Enphase; any issues, we take care of them so that an installer can sell them. Serviceability is becoming a big differentiator. So, our third-generation battery is the one that we are shipping today in volume. All of those are best in class for missioning.

Speaker Change: Our our installers and their salespeople.

Speaker Change: Sure.

Speaker Change: We can do a lot more there in terms of simplifying OTA software. So that we can we can really make sure that the.

Speaker Change: The selling at the kitchen table becomes a lot easier and that's what we're going to do in the next few months.

Speaker Change: The next question comes from Gus Richard of Northland. Please go ahead.

Yes, thanks for taking the question I just had.

Gus Richard: First of all on gross margin you guided down about 500 basis points sequentially and I was just wondering is that a function of mix or is it a function of underutilization or is it something else.

Gus Richard: It's a function of mix and some under utilization deflected.

Speaker Change: Okay can you sort of allocate to those who are.

Speaker Change: No. We are not we are not breaking breaking down numbers you can see micro inverters.

Speaker Change: Basically down.

Speaker Change: Compared to the prior quarter so.

Joseph Osha: The quality of the batteries and the serviceability of the batteries. Modularity, we have five kilowatt hours; it's an LFP battery, lithium ion phosphate with UL 9540A. I'm just a better battery on all fronts. In addition, we also have a design proposal tool, Solar Graph, that allows the installer to do a very good design for whatever the homeowner's expectations are in terms of payback period and upfront cost, etc. You can really fine-tune the design of the Solar Plus battery system and generate a proposal. It takes it a step further. We do single-line diagrams, permit plans, set generation, everything out of this tool.

Speaker Change: Basically primarily attributed to that.

Speaker Change: That's fair enough and then.

Speaker Change: Moving forward.

Speaker Change: <unk> got a number of cost downs coming in 10 core battery.

Speaker Change: Moving to again Q nine et cetera, I was wondering if you just talk about you know.

Speaker Change: How those.

Speaker Change: New products and cost downs sort of roll into the to the model over the next couple of quarters and what.

If any impact it will have on gross margin and that's it for me.

Speaker Change: Yeah, I talked about the three things in batteries. Once again just to refresh setback costs costs are coming down of micro inverters are going to be made in America.

Speaker Change: And then go into batteries, so that supply chain is going to become best in class. The third is the <unk>.

Speaker Change: First one for all of our batteries and the third is specifically for the fourth generation, which is improved architecture integrating power conversion and battery management. These three initiatives should take the battery gross margins up not in a very nice fashion.

Joseph Osha: So it's an end-to-end solution that we are providing the homeowner everything from design to installation, the ease of installation, serviceability, and really good customer service. And that's what it's going to take for the... broad, wide-scale adoption of Pavleys, and you're seeing that happening. I think that's being reflected in the numbers that we share. Okay, and then just as a follow-on to that, I guess my question is stipulating that you all have fixed the product issues, which clearly you have. Does there need to be some kind of augmented effort to educate dealers and maybe bring them back into the fold if they've gotten their fingers burned, you know, trying to sell batteries in the past or are just saying, you know, hey, we've got a good product, you know, now trust us. Is that enough? So, absolutely, it's not enough.

Speaker Change: Then the the other one that you talked about Gan based.

Speaker Change: Gan based product for us.

Speaker Change: Again, we are we had essentially.

Speaker Change: Chile looking.

Speaker Change: Two release in a next generation and that's called IQ <unk> IQ nine at this point, we are thinking of two powered flavors and.

Speaker Change: And approximately 427 watts of VC and PE 40 Watts of V C.

Speaker Change: And the challenge for Us and that's the challenge to the team is.

Speaker Change: To basically get the cost structure of the 427 watts product.

Speaker Change: Actually be smaller than the product we are shipping today, which is IQ eight <unk>.

<unk> product.

Speaker Change: And we think it is possible because of one particular innovation there.

Joseph Osha: We have to do a lot more. We have to do the events such as what we did in the NEM3 experience is telling us that we do need to..., to help in whatever way we can. And we are going to do exactly that. We have our sales, I mean, our team, actually listening to it.

Is along with Gan.

Speaker Change: We have something called the Bbs, which is bidirectional again.

Speaker Change: So today, we use food silicon transistors at the output stage.

Speaker Change: And that can go into two.

Speaker Change: <unk> because they are bidirectional.

Speaker Change: So therefore.

Speaker Change: Again can actually even if again transistors themselves.

Joseph Osha: Our installers and their sales people. We can do a lot more there in terms of simplifying our software so that we can really make sure that selling at the kitchen table becomes a lot easier, and that's what we are going to do in the next. The next question comes from Gus Richard of Northland. Please go ahead.

Speaker Change: The overall.

Speaker Change: Cost of those game transistors may be the same as silicon.

Speaker Change: Even if that is the case again comes with a lot of other advantages like for example.

Speaker Change: Your your Transformers.

Speaker Change: Can now.

Speaker Change: Become a lot smaller if you run your fix at a higher frequency.

Gus Richard: Yes, thanks for taking the question. First of all, on gross margin, you got it down about 500 basis points sequentially. And I was just wondering, is that a function of mix? Or is it a function of underutilization? Or is it something else?

Speaker Change: So in general.

Speaker Change: The inverter can get smaller.

Speaker Change: And the challenge for US is how do you track that.

Speaker Change: Powered <unk> 27 per watt power into the same form factor as a QE.

Speaker Change: With our reduced cost structure compared to <unk>.

Speaker Change: That will allow us to make.

Speaker Change: A lot of money.

Speaker Change: Plus make those inverters in the U S.

Speaker Change: The next question comes from Moses Sutton of BNP per box. Please.

Gus Richard: It's a function of mix and some underutilization. Okay, can you sort of allocate to those two, or not? No, we are not breaking down the numbers. You can see our microinverters are basically down, you know, compared to the prior quarter. Fair enough. And then moving forward, you've got a number of cost downs coming in, you know, the Gen4 battery and, you know, moving to GAN, IQ9, etc. I was wondering if you'd just talk about, you know, how those new products and cost downs sort of roll into the model over the next couple of quarters and what, if any, impact they will have on gross margin. And that's it for me.

Moses Sutton: Please go ahead.

Thanks for fitting me in.

Moses Sutton: So badri I understand the sell through and channel correction points as well as your answer to Phil.

Moses Sutton: What are your thoughts on the still shifting demand. So it looks like if you look at the front end data there are still states, where demand is still dropping in real time like even into January and pricing for loans and leases haven't inflected, having at least change to inflect organic market growth.

Moses Sutton: How do you put that together when you're thinking through your comments specifically for <unk>.

Speaker Change: Yes, I mean look we.

Speaker Change: I'll note that there is a seasonality factor from non California states, but the fact of the matter is at least our data non California states have.

Speaker Change: Yeah, I talked about the three things and batteries. Once again, just to refresh, cell pack costs are coming down, microinverters are going to be made in America, and then they will go into batteries. So that supply chain is going to become best in class. The first two are for all our batteries. The third is specifically for the fourth generation, which is improved architecture. Grating Power Conversion and Battery Management.

Speaker Change: If you look at Q4 versus Q3 flat in terms of micro Inverters and we think we think they will bounce back coming off the seasonality.

Speaker Change: That's what we think and then I already talked about the <unk>.

Speaker Change: <unk> takes on Europe, and why we think Europe will also move continuously not because they are at the bottom right now.

Speaker Change: California.

Speaker Change: Is.

Speaker Change: And of course, the wildcard that you see.

Speaker Change: I think our downside will be.

Speaker Change: Because as I told you the revenue of <unk> three.

Speaker Change: These three initiatives should take the battery gross margins up north in a very nice fashion. Then the other one you talked about, CanBiz. Again, this product for us. Again, we are essentially looking to release in our next generation inverter that's called IQ9. At this point, we are thinking of two power flavors, approximately 427 watts of AC and 540 watts of DC.

Speaker Change: <unk> system is roughly one five times that of for them toward auto system for us.

Speaker Change: Considering the attach we have seen so.

Speaker Change: I think in general you know of course.

Speaker Change: If I.

Speaker Change: I could be wrong, if Q2 doesn't break out seasonally but that's not what we have seen in the past.

Speaker Change: Got it got it very helpful and I guess just squeezing one more.

Speaker Change: In the unlikely event that IRA a.

Speaker Change: Risk is on the table or at least some modification to 45 tax credits would you still be comfortable with 70% of manufacturing capacity in the U S or would you would you shift back to some other balance.

Speaker Change: And the challenge for us, and that's a challenge to the team, to basically get the cost structure of the 427-watt product to actually be smaller than the product we are shipping today is IQ 8. Truck. We think it is possible because of one particular innovation there: along with GAN, we have something called BDS, which is Bidirectional Gamma.

Speaker Change: I mean look we.

Speaker Change: At that time, we will analyze.

Speaker Change: And analyze the data in front of us, but that's way we breakout for you gross margin without Iot and gross margin with Iot because we never want to.

Speaker Change: We wanted to be straight with the gross margin the native gross margin of the business.

Speaker Change: That's why we break it out so if it doesn't make sense economically to do.

Speaker Change: So today we use four silicon transistors at the output stage. And that can go into two GAN FETs because they are bidirectional. Therefore, even if the GaN transistors themselves are relatively expensive, the overall cost of those gangue transistors may be the same as silicon. Even if that is the case, GAN comes with a lot of other advantages, like, for example, your transformers have now become a lot smaller. If you run your FETs at a higher temperature,

Speaker Change: Manufactured here that we have the same two contract manufacturers.

And our lines can be shipped anywhere in the world and.

Speaker Change: And of course it is it is tough and we will work with the contract manufacturer in terms of the labor et cetera, and it is tough and we'll do the right things there but.

Speaker Change: If the economics aren't there we will not be there.

Speaker Change: The next question comes from the Heathman Deloitte of Mizuho. Please go ahead.

Speaker Change: Hey.

Heathman Deloitte: Thanks for squeezing me in as well.

Heathman Deloitte: Just a question on the gross margin so it looks like the gross.

Speaker Change: So, General. The inverter can get smaller. The challenge for us is... How do you pack that power, 427 watts of power, into the same form factor as IQH? with a reduced cost structure compared to IKEA. That will allow us to make, and many more, plus make those inverters in the. The next question comes from Moses Sutton of BNP Paribas. Please go ahead.

Heathman Deloitte: Gross margins, excluding fortify VIX is more or less in line quarter over quarter, but it is the biggest delta is coming from the <unk>.

Heathman Deloitte: For the fire breaks tax credits in the quarter.

Heathman Deloitte: Just a reflection of lower U S shipments or.

Moses Sutton: Thanks for fitting me in. So, Badri, I understand the sell-through and channel correction points, as well as your answer to Phil. What are your thoughts on the still shifting demand? So, it looks like if you look at the front-end data, there are still states where demand is still dropping in real time, like even into January, and pricing for loans and leases hasn't inflected or hasn't at least changed to inflect organic market growth. How do you pull that together when you're thinking through your comments specifically for, you know, 2.8? Yeah, I mean, look, we all know that there is a seasonality factor for non, But the fact of the matter is...

Heathman Deloitte: Anything specific to kind of read into Q.

Heathman Deloitte: Q1 guidance.

Yeah.

Heathman Deloitte: Based on our Q1 guidance, our non-GAAP gross margin before benefit is more or less in line with Q4 actual but.

Heathman Deloitte: At <unk> II benefit non-GAAP gross margin dropped by five points.

Heathman Deloitte: 100% attributable to the Iia unit, we plan to ship only 500000 units in Q1 and that translates into about $13 million benefit reduction in Q1 versus Q4, and 13 million is about five points.

Moses Sutton: Thank you for joining us. Thank you. Non-Californian states have been affected by COVID-19; you can look at Q4 versus Q3, they're flat in terms of micro-efficiency. But I think they will bounce back coming off the seasonality.

Speaker Change: Got it.

Speaker Change: The on the IAA benefits I'm not sure. If this was asked but.

Speaker Change: Was it.

Speaker Change: Can you talk about like if we can get the benefit on the micro <unk> added in the.

Speaker Change: That's what we think. And then, as I already talked about, Europe will also move continuously north because it is at the bottom.

Speaker Change: The IQ batteries.

Speaker Change: Going forward.

Speaker Change: Yes, that's our expectation that micro inverters as long as they are manufactured here in the U S will also get the same benefits.

Speaker Change: California is, of course, a wild card. But there, you see, I think our downside will be. Thank you very much. It is roughly 1.5 times that of an M2.1, to Nutting the Attachment.

Speaker Change: The next question comes from Christian Tristan Richardson of Scotiabank. Please go ahead.

Speaker Change: Hi, Good evening guys. Just one from me, we'll keep it brief body and a quarter in and quarter out you I'll make it clear that theres always competition.

Speaker Change: I think in general, you know, of course, I could be wrong if Q2 doesn't recover seasonally, but that's not what we have seen. Got it, got it, very helpful. And I guess just squeezing one more.

Speaker Change: Earlier in your prepared comments, you see markets Theres been shaken have been stable.

Speaker Change: In the unlikely event that IRA risk is on the table, at least some modification to 45x credits, would you still be comfortable with 70% of manufacturing capacity in the US, or would you shift back to some other balance? I mean, look, we, we, uh... At that time, we will analyze. We want to be straight with the native gross margin of the business. That's why we break it out.

Speaker Change: Can you talk about this concept of component integration, if a competing battery that has an integrated central solar inverter.

Speaker Change: Do you see any sort of threat and some of these high attach geographies, where that where you could see a shift in preference over power architecture.

Speaker Change: Yeah, I'm going to happen.

Speaker Change: No.

Speaker Change: We have said this before as well competition is not new for us.

Speaker Change: And in a very competitive environment since the inception of the company.

Speaker Change: Specifically, we have been in a tough competitive environment when it comes to fighting against.

Speaker Change: So if it doesn't make sense economically to... manufacture here, we have the same two contract manufacturing, worldwide. And our lines can be shipped anywhere in the world. And, of course, it is tough, and we will work with the contract manufacturer in terms of labor, et cetera. And it is tough, and we'll do the right things there. You know, if the economy isn't there, we will not be there. The next question comes from Maheep Mandloi of Mizzouho. Please go ahead. Hey, thanks for squeezing me in as well.

String Inverters are centralized topologies. So these are the kind of competitions, we actually like.

Speaker Change: We have a very strong value proposition.

Vis vis centralize our string inverter topologies.

Speaker Change: The better performance much higher reliability, much simpler to design install and maintain.

As well as.

Safety around not having any high voltage DC in our system.

Speaker Change: Now the added sophistication of our system with solar integration of solar batteries, EV Chargers heat pumps and all the energy management software that we layer on top of that creates a bedroom up. So this is not just about.

Maheep Mandloi: Just a question on the gross margins. It looks like the gross margin excluding 45x is more or less in line quarter over quarter, but I guess the biggest delta is coming from the 45x tax credits in the quarter. Is that just a reflection of lower US shipments or anything specific to kind of read into that on Cuban guidance? Yeah, based on the Q1 guidance, our non-gap gross margin before IRA benefit is more or less in line with Q4, actually, with IRA benefit non-gap gross margin dropping by five points. 100% attributable to the IRA units. We plan to ship only 500,000 units in Q1, and that translates into about $13 million net IRA benefit reduction in Q1 versus Q4. And that $13 million is about 5 points.

Speaker Change: Wizard sale or a piece of hardware. This is now a complete solution sale.

Speaker Change: More the solution means you need to have upfront design tools, which can help them installer designer designing appropriate system for the homeowner.

Speaker Change: Of course make it very simple plug and play to install and then on the other end provide great.

Speaker Change: Customer service for for Serviceability homeowner.

Speaker Change: Homeowner is taken care off so competition is not new.

Speaker Change: Particularly competition against centralized topology is absolutely not.

Maheep Mandloi: Good. And on the IRA benefits, I'm not sure if this is us, but can you talk about whether we can get the benefit on the microinverters added to the IQ batteries going forward? Yes, that's our expectation that the microinverters, as long as they are manufactured here in the US, will also get the same. The next question comes from Tristan Richardson of Scotiabank. Please go ahead. Hi, good evening, guys. Just one for me.

Speaker Change: We have been we have honed our skills on that.

But we're also very aware and paranoid about competition. So we make sure that we're continuing and improving our product.

Speaker Change: Great I appreciate it Roger.

Speaker Change: The next question comes from Nick Battery of Citigroup. Please go ahead.

Nick Battery: Good evening everyone.

Nick Battery: Quick question I want to ask about pricing slightly differently.

Nick Battery: We're at a market share opportunity that you guys see with you holding stronger margin than your peers in whom to sacrifice margin to move.

Tristan Richardson: We'll keep it brief. Badri, I know quarter in and quarter out. You make it clear that there is always competition, and I know earlier in your prepared comments, you said market share has been stable. Can you talk about this concept of component integration? If a competing battery that has an integrated central solar inverter, do you see any sort of threat in some of these high-attached geographies where you could see a shift in preference over power architecture? Yeah, I'm going to have a Raghu.

Nick Battery: Importantly, discounts than SBA is especially when you talked about new markets, Italy, and launching batteries in India do you see that as an opportunity to gain more market share drop would be and then both broadly is there anything else on your radar that may make you rethink pricing is it just competition and more sort of like cost cuts.

Nick Battery: Component cost cuts that will drive pricing or if there's anything else I can read not that good.

Nick Battery: That could change your view on pricing.

Raghuveer R. Belur: Yeah, so look, we have said this before as well, competition is not new for us. We've been in a very competitive environment since the inception of the company. Specifically, we've been in a tough competitive environment when it comes to fighting against string inverters or centralized topologies. So these are the kind of competitions we actually like. We have a very strong value proposition vis-a-vis centralized or string inverter topologies. Better performance, much higher reliability, much simpler to design, install, and maintain, as well as safety around not having any high-voltage DC in our system.

Nick Battery: Yeah.

Speaker Change: Two question I keep getting asked the.

Speaker Change: We price products, we have done well.

Speaker Change: Ben do you mean, our pricing.

Speaker Change: Is the next best alternative plus the value we generate on top of it we.

Speaker Change: We don't generate value then, yes, I mean, we had a commodity product.

Speaker Change: No that's not what our intention is.

Speaker Change: We have a differentiating value proposition micro inverters its quality service reliability.

Speaker Change: It is superior part pellet production performance.

Speaker Change: And in batteries.

We are getting there so.

Speaker Change: High quality for me is these high price.

Speaker Change: Right.

Speaker Change: We have the capability to demand a premium in.

Speaker Change: And in micro Inverters as you can see even with those high prices.

Raghuveer R. Belur: Now, the added sophistication of our system with the integration of solar, batteries, EV chargers, heat pumps, and all the energy management software that we layer on top of that creates a better model. So this is not just about a widget cell or a piece of hardware. This is now a complete solution cell. Furthermore, the solution means you need to have upfront design tools which can help the installer design the appropriate system for the homeowner.

Speaker Change: We are.

Speaker Change: Our market share is very healthy.

Speaker Change: So I don't believe that we didn't need to.

Speaker Change: Drop pricing in order to gain market share you need to have the product that solves the customer problems at the end of the day, you need to take care of customers and.

Speaker Change: And they will reward you by paying you the premium that you deserve.

Speaker Change: So that's our philosophy and we intend to.

Speaker Change: To that.

Speaker Change: Thank you. The next question maybe for Randy I was wondering how are you thinking about use of cash of an intrinsic value here.

Raghuveer R. Belur: Of course, make it very simple, plug and play to install, and then, on the other end, provide great customer service for serviceability so that the homeowner is taken care of. So competition's not new, particularly competition against centralized topologies is absolutely not new.

Randy Brown: Many dollars of buybacks at prices significantly below $100.

Randy Brown: Given where the stock is trading should we expect buybacks to meaningfully slow down or would you still look to offset the share based compensation dilution through buybacks.

Randy Brown: Coming quarters. Thank you.

Raghuveer R. Belur: We have honed our skills on that, but we are also very aware and paranoid about competition. So we make sure that we are continually improving our product. Great. Appreciate it, Raghu. The next question comes from Vic Bagri of Citigroup. Please go ahead. Good evening, everyone.

Randy Brown: Sure.

Randy Brown: So Q4, we say we already are.

Randy Brown: Buyback.

Speaker Change: 100 million Thats right Ed.

Speaker Change: 85 per.

Sure of course that before we bought 110 million Oh, that's right at 130 honest play sure right Q1, we plan.

Vic Bagri: Give me two quick questions. I wanted to ask about pricing slightly differently. Is there a market share opportunity that you guys see with you holding stronger margins than your peers and room to sacrifice all of that margin to more permanent discounts than SBAs? Especially, Badri, you talked about new markets, Italy, and launching batteries in India. Do you see that as an opportunity to gain more market share rapidly? And then, more broadly, is there anything else on your radar that may make you rethink pricing? Is it just competition and more sort of like cost cuts, confident cost cuts that will drive pricing? Or is there anything else on your radar that?

Speaker Change: To do similar magnitude of share buyback.

Speaker Change #100: It's not much of a belief.

Speaker Change #100: Our share price is below the intrinsic value right. We are very disciplined doing share buyback.

Speaker Change #100: Quota, we do get a covenant.

Speaker Change #100: Share price.

Speaker Change #100: And then we propose for the bar to a pool family I think.

Speaker Change #100: The next question comes from Pavel <unk> of Raymond James. Please go ahead.

Pavel: Thanks for taking the question just one for me as well.

Pavel: Been about a year since you last made an acquisition as I recall it was one of the software developers.

Pavel: Can you talk about how you were thinking about M&A and specifically are there some.

Vic Bagri: That could change your view on pricing. Yeah. Next question I keep getting asked.

Quasi distressed opportunities in the current environment that.

Badrinarayanan Kothandaraman: We price products based on value. Value means our pricing, the next best alternative plus the value we generate on... If we don't generate value, then, yeah, I mean, we are a commodity product. So that's not what our intention is. We have a differentiating value problem, and where does it have quality? Service, Reliability, and in batteries. We are getting there. High quality for me.

Speaker Change #102: Perhaps are more interesting than before.

Speaker Change #103: Yes, you're.

Speaker Change #104: You're correct.

Speaker Change #105: We have made some reasonable.

Speaker Change #105: Acquisitions solar grabs as an example of one.

Speaker Change #105: Imaging services as one.

Speaker Change #105: Recharging is one.

Speaker Change #105: And we are working on all of them. So careful about choosing what we want.

Speaker Change #105: And then.

Speaker Change #105: We try to make them an integral part of the system. So.

Badrinarayanan Kothandaraman: High Price, right on. We have the capability to demand the... and in microinverters, even with those high prices. The market share is very high. I don't believe that we don't need to drop prices in order to gain more, to have the product that solves the customer problem.

Speaker Change #105: What are the opportunities like that and we constantly keep looking looking for those.

Speaker Change #105: The key places, where we would look for is.

Speaker Change #106: Okay first of all what we're not going to be looking photos.

Speaker Change #106: We are not an installer. So therefore, we don't buy.

Speaker Change #106: Installation company, we are a technology player.

Badrinarayanan Kothandaraman: At the end of the day, you need to take care of customers well. They will reward you by paying you the premium that you... So that's our philosophy, and we intend to... Thank you. And the next question may be for Mandy.

Speaker Change #106: And for example on micro Inverters, we have all the necessary IP.

Speaker Change #106: We arent going to do I'm going to look for anything else right.

Speaker Change #106: Places such as home energy management software, there's always opportunity for us.

Mandy Yang: I was wondering how you think about the use of cash and intrinsic value here? $100 million of buybacks at prices significantly below $100. Given where the stock is trading, should we expect buybacks to meaningfully slow down?

Speaker Change #106: Especially leveraging AI and ml talent to make accelerated progress there because I think energy management software will become the next frontier.

Speaker Change #106: That's that's one that we're always looking for opportunities.

Mandy Yang: Or would you still look to offset the share-based compensation dilution through buybacks in forthcoming quarters? Thank you. So in Q4, we say we've already got by that $100 million, right? Thank you very much for doing a similar magnitude of share buyback. As long as we believe our share price is below its intrinsic value, right? We are very disciplined in doing share buybacks. Every quarter, we look at the current share price, and then we propose a price for the board to approve, and we. The next question comes from Pavel Molchanov of Raymond James. Thanks for taking the question. Just one for me as well.

Speaker Change #106: The other.

Speaker Change #106: Is on batteries of course innovative technologies on batteries batteries getting better.

Speaker Change #106: A more reliable mode.

Energy density.

Speaker Change #106: In becoming a lot higher but that's of course the media.

Speaker Change #106: As we continuously look at.

Speaker Change #106: Those are the ones that are.

Speaker Change #106: On our radar.

Speaker Change #106: All right now but.

Speaker Change #106: We look at a lot of a lot of companies that would be.

Make some decisions on those you'll you'll know what.

Speaker Change #107: But we are very disciplined we don't do we.

Speaker Change #107: We don't.

Speaker Change #107: We don't just buy companies because we have cash those companies need to fit into our company will they need to be bolt on acquisitions, what we like.

Pavel Molchanov: It's been about a year since you last made an acquisition; as I recall, it was one of the software developers. Can you talk about how you're thinking about M&A and specifically, are there some, you know, quasi-distressed opportunities in the current environment that are perhaps more interesting than before? Yeah, we have. You're correct.

Speaker Change #107: And we can't aboard integration a lot.

It's important for us.

Speaker Change #107: If there's an opportunity in dementia.

Speaker Change #107: We'll move and you'll know.

Speaker Change #108: Thanks very much.

The next question comes from Austin Moeller of Canaccord. Please go ahead.

Austin Moeller: Hi, Good evening, just two question for me here.

Pavel Molchanov: We have made some reasonable, in Acquisition, Solar Graph is an example of, permitting services. We will be charging for this one. And we are working on all of them, so we're careful about choosing what we want, and many more, trying to make them an integral part of it. So, what are the opportunities like that?

Austin Moeller: You say in the U S market, if interest rates fall by 50 to 100 basis points. This year do you expect to see more demand all combined orders from micro inverters with batteries or do you expect the initial demand will primarily be for micro inverters. Thank you.

Pavel Molchanov: We constantly keep looking for those. The key places where we would look for them are... First of all, what we are not going to be looking for... We are not an installer, so therefore, we don't... I. And, you know, for example, on microinverters, we have all the necessary IP. We aren't going to look for anything else.

In the non California state lobbying.

Austin Moeller: Obviously be for micro inverters, because the battery attach a small but in California.

Austin Moeller: It will move the needle.

Austin Moeller: For both micro Inverters and batteries.

Great. Thanks for the color.

Austin Moeller: Okay.

Pavel Molchanov: At places such as home energy management software, there is always opportunity, especially leveraging AI and ML talent to accelerate progress there. Because I think energy management software will become the next... That's one that we are always looking for opportunities in. The other, it's batteries, of course.

Speaker Change #110: This concludes our question and answer session I would like to turn the conference back over to Badger Cool Wandell, Ron for any closing remarks.

Speaker Change #111: Yes. Thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter.

Right.

Speaker Change #112: The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

Pavel Molchanov: Innovative technologies on batteries. Batteries are getting better. More reliable, more energy-dense, becoming a lot higher, and many others.

Speaker Change #112: Okay.

Speaker Change #112: [music].

Speaker Change: Thank you for joining us. We look forward to seeing you again soon. Those are the ones that are on our radar, you know, right now. We look at a lot of companies, and when we make some decisions on those, you'll know. We are very disciplined. We don't do... We don't just buy companies because we have cash.

Speaker Change: Those companies need to fit into our company well. They need to be bolt-on acquisitions, what we like. And we care about integration a lot. More on that later. Thank you very much. The next question comes from Austin Moeller of Canaccord. Please go ahead. Hi, good evening. Just a question for me here.

Austin Moeller: If, say, in the US market, interest rates fall by 50 to 100 basis points this year, do you expect to see more demand for combined orders from microinverters with batteries? Or do you expect the initial demand will primarily be for microinverters? Thank you. I think, you know, in the non-California states... This will obviously be for microinverters because the battery attached is small. In California, you know, it will move the needle for both microinverters and batteries.

Austin Moeller: Great, thanks to the caller. This concludes our question and answer session. I would like to turn the conference back over to Badri Khoswandel-Rahman 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 time. Bye. The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.

Speaker Change #112: Yes.

Speaker Change #112: Yes.