Q1 2024 Enphase Energy Inc Earnings Call
Good day.
Operator: Good day, and welcome to the Enphase Energy first quarter 2024 financial results conference call. All participants will be in listen-only mode.
Speaker Change: Welcome to the Enphase Energy's first quarter 2024 financial results Conference call.
Speaker Change: All participants will be in listen only mode.
Operator: 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.
Speaker Change: Should you need assistance please signal.
Speaker Change: From specialists by pressing the star key followed by zero.
Speaker Change: After todays presentation, there will be an opportunity to ask questions.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
To withdraw your question. Please press Star then two.
Operator: To withdraw your question, please press stars 1 and 2. We ask that you please limit yourself to one question and a single follow-up. You may then re-enter the queue if you have more questions. Please also note that today's event is being recorded. I would now like to turn the conference over to Zach Freedman. Please do so.
Speaker Change: We ask you please limit yourself to one question and a single follow up.
Speaker Change: You May then reenter the queue, if you have more questions.
Speaker Change: Please also note today's event is being recorded.
Speaker Change: I would now like to turn the conference over to Doug Friedman. Please go ahead.
Doug Friedman: Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's first quarter 2024 results on today's call are Badri co founder Robin, our President and Chief Executive Officer, Andy Yang, Our Chief Financial Officer, <unk>, our Chief products Officer.
Zachary Freedman: Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's first quarter of 2024 results. On today's call are Badri Kothandaraman, our President and Chief Executive Officer, Mandy Yang, our Chief Financial Officer, and Raghu Belur, our Chief Product Officer. After the market closed today, Enphase issued a press release announcing the results. The first quarter ended March 31st, 2024. 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, our operations, including manufacturing, customer service, and supply and demand, Participated growth in existing and new markets, the timing of new product introductions, and regulatory and tax matters
Doug Friedman: After the market closed today Enphase issued a press release announcing our results for its first quarter ended March 31 2024.
Doug Friedman: Yes.
Doug Friedman: During this conference call management will make forward looking statements, including but not limited to statements related to our expected future financial performance market trends capabilities of our technology and products and the benefits to homeowners and installers, our operations, including manufacturing customer service and supply and demand anticipated growth in existing and new markets.
Doug Friedman: Timing of new product introductions and regulatory 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.
Zachary Freedman: These forward-looking statements involve significant risks and uncertainties, and the timing of events could differ materially from these expectations. For a more complete discussion of the risks and uncertainties, please see our most recent Form 10-K and 10-Qs filed with the SEC. We caution you not to place any undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events, or changes in existing legislation.
Doug 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. 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.
Zachary Freedman: 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 filed 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 Badri Kothandaraman, our President and Chief Executive Officer. Badri?
Doug Friedman: So 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.
Doug Friedman: <unk> provided a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release furnished with the SEC form 8-K, which can also be found in the Investor Relations section of our website.
Doug Friedman: Now I would like to introduce Patrick because under Robyn, our president and Chief Executive Officer Audrey.
Badrinarayanan Kothandaraman: Good afternoon, and thank you for joining us today to discuss our first quarter 2024 financial results. We reported quarterly revenue of $263.3 million, shipped approximately 1.4 million microinverters and 75.5 megawatt hours of batteries, and generated free cash flow of $41.8 million. We reduced our channel inventory by approximately $113 million in Q1, slightly less than anticipated because of software demand.
Good afternoon, and thank you for joining us today to discuss our first quarter 2020 full financial results.
Patrick: Reported quarterly revenue of $263.3 million.
Patrick: Shipped approximately 1.4 million micro inverters and 75.5 megawatt hours of batteries and generated free cash flow of $41.8 million.
Patrick: Reduced our channel inventory by approximately $113 million in Q1 slightly less than anticipated because of softer demand.
Badrinarayanan Kothandaraman: For the first quarter, we delivered 46% gross margin, 31% operating expenses, and 15% operating income, all as a percentage of revenue on a non-GAAP basis, including the IRA benefits. Mandy will go into our financials later in the call. Let's now discuss how we are servicing customers. Our worldwide NPS was 78% in Q1 compared to 77% in Q4. Our average call wait time was 1.9 minutes in Q1 compared to 1 minute in Q4.
Patrick: For the first quarter, we delivered 46% gross margin.
Patrick: The 1% operating expenses and 15% operating income all as a percentage of revenue on a non-GAAP basis, including the Iot benefit Mandy will go into our financials later in the call.
Speaker Change: Let's now discuss how we are servicing customers.
Speaker Change: Worldwide M. P. S was 78% in Q1 compared to 77% in Q4, our average call wait time was 190 minutes in Q1 compared to one minute in Q4.
Badrinarayanan Kothandaraman: We are adding data scientists, enhancing our analytics to identify problems proactively and fix them automatically through software. Our field engineers and technicians are assisting installers on complex installations while bringing back learning to our development teams, enabling continuous improvement. Now, let's cover operations.
We are adding data scientists enhancing our analytics to identify problems proactively and fixing them automatically through software.
Speaker Change: Field engineers and technicians are assisting installers and complex installations, while bringing back learnings to our development teams, enabling continuous improvement.
Speaker Change: Let's cover operations, we shipped approximately 506000 micro inverters in Q1 from our U S contract manufacturing facilities are qualifying for 45 X production tax credits once fully ramped we expect to have a global capacity of approximately 7.25.
Badrinarayanan Kothandaraman: We shipped approximately 506,000 microinverters in Q1 from our U.S. contract manufacturing facilities that qualified for 45X production tax. Once fully ramped, 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 half a million microinverters to customers from our U.S. manufacturing facilities in Q2. The number is a little less than we would like, but our top priority is to reduce our factory inventory.
Speaker Change: Mainly in micro and we're just one quarter of which 5 million capacity will be in the U S. Mi.
Speaker Change: We expect to ship approximately half a million micro inverters to customers from our U S manufacturing facilities and the number is a little less than what we would like but our top priority is to reduce our factory inventory.
Badrinarayanan Kothandaraman: We anticipate resuming 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. As previously discussed, we expect to add battery manufacturing capability in the U.S. during the third quarter of 2024.
Speaker Change: Anticipate that assuming the higher level of shipments in the second half of the year.
Speaker Change: But IQ batteries, we have to sell back suppliers, both in China, which have sufficient manufacturing capacity to support our ramp in 'twenty 'twenty four as previously discussed we expect to add battery manufacturing capability in the U S. During the third quarter of 2024.
Speaker Change: Let's now cover the regions or the U S and international revenue mix for Q1 was 57% and 43% respectively.
Badrinarayanan Kothandaraman: Our US and international revenue mix for Q1 was 57% and 43%, respectively. For more visibility into our business, we are providing regional breakdowns and sell-through dollar metrics by region. In the U.S., our revenue decreased 34% sequentially as we under-shipped to end customer demand.
But more visibility into our business, we are providing regional breakdowns and sell through dollar metrics by region.
Speaker Change: In the U S. Our revenue decreased 34% sequentially as we under shipped to.
Speaker Change: And customer demand the overall sell through of our micro Inverters and batteries in the U S was down 23% in Q1 compared to Q4, let's discuss the market trends, we are seeing in the U S by non California, and California for non telephony reinstates, our overall sell through was strong.
Badrinarayanan Kothandaraman: The overall sell-through of our microinverters and batteries in the U.S. was down 23% in Q1 compared to Q4. 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 21% down in Q1 compared to Q4. The sell-through was similarly down for both microinverters and batteries due to seasonality.
Speaker Change: The 1% down in Q1 compared to Q4, the sell through was similarly down for both micro inverters and batteries due to seasonality.
Speaker Change: In California, our overall sell through was down 30% down.
Speaker Change: Down by 30% in Q1 compared to Q4.
Badrinarayanan Kothandaraman: In California, our overall sell-through was down 30%, down by 30% in Q1 compared to Q4. The sell-through of our microinverters was down 37%, and sell-through of our batteries was down 18% in Q1 due to seasonality in the NEM3 transition. I'll provide more statistics and color on NEM3 later in the call.
Speaker Change: And threw off our micro inverters was down 37% and sell through of our batteries was down 18% in Q1 due to seasonality and amendment three transition I'll provide most dentist make some comment on main three later in the call.
Speaker Change: In Europe, our revenue increased 17% sequentially as channel inventory in Peru, and we introduce new products. The overall sell through of our micro Inverters and batteries was up 7% in Q1 compared to Q4, the sell through of our micro Inverters was up.
Badrinarayanan Kothandaraman: In Europe, our revenue increased 70% sequentially as channel inventory improved and we introduced new products. The overall sell-through of our microinverters and batteries was up 7% in Q1 compared to Q4. The sell-through of our microinverters was up 3%, while the sell-through of our batteries was up 28% in Q1. I'll provide some color on key markets in Europe, particularly the Netherlands, France, and Germany. In the Netherlands, our overall sell-through in Q1 was down 4% compared to Q4.
3%, while the sell through of our batteries was up 28% in Q1.
Speaker Change: I'll provide some color on key markets in Europe.
Speaker Change: Particularly Netherlands, France, and Germany in the Netherlands, our overall sell through in Q1 was down 4% compared to Q4 the market stabilized during Q1, and we are encouraged by the demand signals, we see after seeing the government's decision to support NIM for the fourth.
Speaker Change: Payable future, we expect to see the sell through of micro Inverters pick up in Q2 as a result of this decision. We continue to believe so a lot of plus bad things are going to become the norm and the dynamic tariffs and grid services become more prevalent in France.
Badrinarayanan Kothandaraman: The market stabilized during Q1, and we are encouraged by the demand signals we see after seeing the government's decision to support NEM for the foreseeable future. We expect to see the sell-through of microinverters pick up in Q2 as a result of this decision. We continue to believe solar plus batteries is going to become the norm as dynamic tariffs and grid services become more prevalent. In France, our overall sell-through in Q1 was up 13% compared to Q4.
Speaker Change: But on the sell through in Q1 was up 13% compared to Q4, we have been encouraged by the continued strength in this market supported by higher utility rates. So a lot of penetration in France is still small and we see potential for the country to grow and evolve into a significant solar plus battery.
Market for Enphase in Germany, our overall sell through in Q1 was up 28% compared to Q4, we are going from strength to strength in this market. We plan to launch our three phase batteries for fusion.
Badrinarayanan Kothandaraman: We have been encouraged by the continued strength in this market, supported by higher utility rates. Solar penetration in France is still small, and we see potential for the country to grow and evolve into a significant solar plus battery market for Enphase.
Speaker Change: The country later this year along with additional software.
Speaker Change: We are leveraging AI and ml.
Speaker Change: So at home energy management software and expand grid services participation.
Badrinarayanan Kothandaraman: In Germany, our overall sell-through in Q1 was up 28% compared to Q4. We are going from strength to strength in this market. We plan to launch our three-phase battery solution in the country later this year along with additional software. We are leveraging AI and ML to enhance our home energy management software and expand our grid services participation.
Speaker Change: We are continuing to launch our <unk> micro inverters and they do batteries into many new countries across Europe.
Notably we started shipping IQ batteries into you tell me in the first quarter.
Speaker Change: Our sell through in the new countries is beginning to ramp and we anticipate steady growth throughout 2024.
In Australia, our Enphase <unk> systems are powered by IQ eight micro Inverters and <unk> battery five feet third generation battery, which we introduced in June last year, we expect high out of back of the attachment rates in Australia. During the second half of this year.
Badrinarayanan Kothandaraman: We are continuing to launch our IQ8 microinverters and IQ batteries into many new countries across Europe. Notably, we started shipping IQ batteries into Italy in the first quarter. Our sell-through in the new countries is beginning to ramp, and we anticipate steady growth throughout 2025. In Australia, our Enphase energy systems are powered by IQ8 microinverters and IQ Battery 5P, our third generation battery, which we introduced in June last year.
Speaker Change: In Brazil, we are making good progress in building our installed base.
Speaker Change: In Mexico, and India, we are shipping our <unk> powered micro inverters.
Speaker Change: <unk> B to support high power panels, we just started shipping the same micro inverters into Thailand, and Philippines in Q1, and then Yeah. The reminder, IQ H b.
Speaker Change: The high powered micro inverter at 40 do you, what's easy for both residential and commercial applications.
Badrinarayanan Kothandaraman: We expect higher battery attachment rates in Australia during the second half of this year. In Brazil, we are making good progress in building our installer base. In Mexico and India, we are shipping our highest-powered microinverters, IQ8P, to support high-power panels. We just started shipping the same microinverters into Thailand and the Philippines in Q1. As a reminder, IQ8P is a high-power microinverter at 480 watts AC for both residential and commercial applications.
Speaker Change: Let me say a few words about our marketshare in the U S. We see a stable channel for our micro Inverters and batteries based on both internal and third party data that have been central to the changes in the market over the last year, including a shift away from loans.
Speaker Change: And towards lease MVP is our continued strong market share is a testament towards our installer relationships in the differentiated value proposition, we provide them with our products. We are fully focused on enhancing our product portfolio.
Speaker Change: Clothing, installer pain points and deepening our relationships in Europe, we are using the same strategy to grow market share.
Speaker Change: Let me provide some color on memory.
Speaker Change: And the last three to four weeks I've been on the road, we Havent visited over 25 installers in California to really understand all of that it doesn't necessarily doing more.
Badrinarayanan Kothandaraman: Let me say a few words about our market share. In the U.S., we see stable market share for our microinverters and batteries based on both internal and third-party data. There have been several changes in the market over the last year, including a shift away from loans and towards leases and PPAs.
Speaker Change: Many of imported that their businesses are down by 50% or more from last year as tight and they have all adjusted by becoming much leaner.
Speaker Change: They are getting better at selling them $3.
Speaker Change: They can really articulate what works and what doesn't they are hungry for high quality leads.
Badrinarayanan Kothandaraman: Our continued strong market share is a testament to our installer relationships and the differentiated value proposition we provide them with our products. We are fully focused on enhancing our product portfolio, solving installer pain points, and deepening our relationships. In Europe, we are using the same strategy to grow market share. Let me provide some color on NEM 3.0. In the last three to four weeks I've been on the road, we visited over 25 installers in California to really understand how their businesses are doing.
Speaker Change: It also becoming adept at selling batteries either at a good pace battery on a backup battery with every installed.
Speaker Change: They ought to becoming flexible in the financing options they offer to the homeowners in the loans don't work they arent afraid to switch over to leases or ppas, which are becoming increasingly available to the long term.
Speaker Change: Most of them unimportant stronger sales in March of this year.
Speaker Change: Back to January and February I came away feeling that we are beginning to climb out of the bottom.
Speaker Change: And we should we should get back to growth shortly.
Speaker Change: Let's cover some lengthening out those statistics, which haven't changed that much from our last call in Q1, 50% of our California installed three doses.
Badrinarayanan Kothandaraman: Many reported that their businesses are down by 50% or more from last year's high, and they have all adjusted by becoming much leaner. They are getting better at selling NEM 3.0. They can clearly articulate what works and what doesn't. They are hungry for high-quality meat.
Speaker Change: These systems have a very high battery attach rate over 90% compared to two systems, which have an attach rate of 15%.
Speaker Change: Our data also shows that half of.
Speaker Change: Our NIM of three systems, using enphase batteries, taking those data into account, but I haven't either revenue, but and then played out those system is approximately one five times, our average NIM to dodo's system.
Badrinarayanan Kothandaraman: They're also becoming adept at selling batteries, either a grid-type battery or a backup battery with every install. They are becoming flexible in the financing options they offer to the homeowners. If the loans don't work, they are in a fray to switch over to leases or PTAs, which are becoming increasingly available to the long tail.
Speaker Change: We believe this will contribute to stabilizing and increasing our California revenue in the second half.
Speaker Change: Let's come to on our Q2 guidance.
Speaker Change: We are guiding revenue in the range of $2 $90 million to $330 million.
Speaker Change: We expect to ship hundreds to 120 megawatt hours of IQ bet.
We expect sell through demand of our products to be approximately $400 million in Q2 up from $376 million in Q1 due to seasonal strength in Europe, and non California states offset by some decline in California.
Badrinarayanan Kothandaraman: Most of them reported stronger sales in March of this year compared to January and February. I came away feeling that we are beginning to climb out of the bottom, and we should get back to growth shortly. Let's cover some NEM 3.0 statistics that haven't changed that much from our last call. In Q1, 50% of our California installs were NEM 3.0. These systems have a very high battery attach rate of over 90% compared to M2 systems, which have an attach rate of 15%.
Speaker Change: We plan to under ship to the end market demand for our products by approximately $90 million in Q2.
We expect the channel to normalize by the end of Q2 on micro Inverters as we previously forecasted.
Speaker Change: Our channel is almost not Milan batteries already.
Speaker Change: Let's talk about product starting with IQ battery.
Speaker Change: Our third generation battery called IQ battery has been very well received in Delaware as the best prospects and commissioning things of any enphase batteries, a day and an industry, leading 15 year warrant.
Speaker Change: Battery adoption rates are on the rise globally, and we are well positioned to grow our sales in 2024.
Badrinarayanan Kothandaraman: Our data also shows that half of our NEM3 systems are using Enphase batteries. Taking this data into account, our average revenue per NEM 3.0 system is approximately 1.5 times our average NEM 2.0 system. We believe this will contribute to stabilizing and increasing our California revenue in the second half. Now, let's come to our Q2 guidance. We are guiding revenue in the range of $290 to $330 million.
Speaker Change: As we discussed last quarter, we expect our gross margins on batteries to continuously improve throughout the year. There are three factors that impact cost, which are coming down rapidly battery micro inverter cost, which are coming down do they benefit from manufacturing in the U S.
Speaker Change: And costs coming down due to improved architecture, and a fourth generation battery.
Speaker Change: What are you seeing the benefits of the first two factors and we will benefit from the third factor in early next year.
Speaker Change: We are working on entering more countries in Europe, and Asia without generation battery.
Badrinarayanan Kothandaraman: We expect to ship 100 to 120 megawatt hours of IQ battery. We expect sell-through demand of our products to be approximately $400 million in Q2, up from $376 million in Q1 due to seasonal strength in Europe and non-California states, offset by some decline in California. We plan to undership to the end market demand for our products by approximately $90 million in Q2.
Speaker Change: We expect to also introduce new three phase battery with backup for the Germany. During this year, we expect to launch several balance of system improvement initiate it was for the U S that will improve the cost of installing batteries for backup.
Speaker Change: We plan to pilot our first generation battery later in the year. This battery of 11th based cost structure and an elegant form factors the only integrated battery management and power conversion architecture.
Speaker Change: As previously discussed we have entered many new markets with the IQ eight family of micro Inverters and we are now in 24 countries. We plan to enter new countries in Europe and Asia throughout 2020 forward with our micro Inverters and we plan to increase the served available market further by introducing social housing.
Badrinarayanan Kothandaraman: We expect the channel to normalize by the end of Q2 on microinverters, as we previously forecasted. However, our channel is almost normal on batteries already. Let's talk about products, starting with IQ Battery. Our third-generation battery, called the IQ Battery 5P, has been very well-received. It delivers the best power specifications and commissioning times of any Enphase battery till date, and an industry-leading 15-year warranty. Battery adoption rates are on the rise globally, and we are well-positioned to grow our sales in 2025. As we discussed last quarter, we expect our gross margins on batteries to continuously improve throughout the year. There are three factors.
Speaker Change: And balcony if someone else unusual.
Speaker Change: Opium countries during the year.
Speaker Change: We recently launched the IQ combined have like in Netherlands to simplify the installation of small solar systems on social housing units.
Speaker Change: The other medium term. Thank you H P micro inverter with a new three phase cabling system is well suited for small commercial solar installed ranging from 20 to 200 kilowatts. We launched this product in North America in December and we are seeing good early adoption we had.
Speaker Change: Cited about the product and look forward to manufacturing IQ eight P micro inverters as our U S facility, starting this quarter further reducing costs.
Badrinarayanan Kothandaraman: Cell pack costs, which are coming down rapidly. Battery microinverter costs, which are coming down due to IRA's benefit from manufacturing in the U.S., and costs coming down due to improved architecture on our fourth generation battery. We're already seeing the benefits of the first two factors, and we will benefit from the third factor early next week.
Let's cover the EV charging.
Speaker Change: We launched IQ smart EV charges in the U S and Canada in Q4, we had a devil of being smart maybe Chargers for European countries, and we expect to introduce them this year.
Speaker Change: The team is also working on bidirectional EV charger, which will unlock new use cases, like <unk> and Mitsui H as part of the Enphase system.
Badrinarayanan Kothandaraman: We are working on entering more countries in Europe and Asia with our third-generation battery. We expect to also introduce our new three-phase battery with backup for Germany during this year. We expect to launch several balance of system improvement initiatives for the U.S. that will improve the cost of installing batteries for backup. We plan to pilot our fourth generation battery later in the year. This battery will have a great cost structure and an elegant form factor due to the integrated battery management and power conversion architecture.
Speaker Change: This charge of 11 Gan base bidirectional inverter, we expect to release the product in 2025.
Speaker Change: Let's cover the latest upgrade stored energy management software.
Speaker Change: Recently.
Speaker Change: Did a press release, where we launched and faced our control our PCF software that can integrate with other systems in North America ECS dynamically controls the power produced by the Enphase system, giving installers, a lot of flexibility and system design very larger systems and avoid costly main panel upgrades, while meeting Utah.
Speaker Change: In National Electric code requirements.
Badrinarayanan Kothandaraman: As previously discussed, we have entered many new markets with the IQ-8 family of microinverters, and we are now in 24 countries. We plan to enter more new countries in Europe and Asia throughout 2024 with our microinverters. And we plan to increase our served available market further by introducing social housing and balcony solar solutions to European countries during the year. We recently launched the IQ Combiner Lite in the Netherlands to simplify the installation of small solar systems on social housing units. The other variant of the IQ8P microinverter with a new three-phase cabling system is well suited for small commercial solar installations ranging from 20 to 200 kilowatts.
Speaker Change: Our software is evolving to manage the increased complexity in the emerging markets by eliminating AI and ml for forecasting and optimization.
Speaker Change: Next software offering will manage dynamic tenants in countries like Netherlands, and Germany. This new software is intended to help maximize ROI and reduce the payback period for solar homeowners throughout Europe, where electricity prices can change by the hour.
Speaker Change: Let me provide you with an update on IQ nine micro inverters with gallium nitride.
Speaker Change: It also kind of game.
Speaker Change: We expect Q nine micro inverters to deliver higher power at lower costs multiple vendors have been providing us with Gan parts and we are increasingly confident in the reliability of 100 design.
Speaker Change: We expect to launch the product in the first half of 2020 five to address.
Speaker Change: The two markets one is the residential and the other is three phase small commercial markets, both the toy towards as well as the food 80 votes.
Speaker Change: Let's now discuss our installer platform, we announced some key features and improvements to solar graph in Q1, including advanced training designed with smart design capability.
Badrinarayanan Kothandaraman: We launched this product in North America in December, and we are seeing good early adoption. We are excited about the product and look forward to manufacturing IQ8P microinverters at our U.S. facilities starting this quarter, further reducing costs. Let's cover EV charging. We launched our IQ small TV chargers in the U.S. and Canada in Q4. We are developing small TV chargers for European countries, and we expect to introduce them this year. The team is also working on bi-directional EV chargers which will unlock use cases like V2G and V2H as part of the Enphase system. This charger will have a GaN-based bi-directional inverter.
Speaker Change: California named <unk> support and enhancements and rail and nice celadon verification of shading and support for small commercial projects solar graph is currently available to installers in the U S, Canada, Brazil, Germany, and Austria, and we expect to release it to more countries.
Speaker Change: In the coming quarters.
Speaker Change: Let me conclude we have been managing through a period of slowdown in demand. We believe Q1, what's the bottom quarter.
Speaker Change: Europe has already begun to recover and we expect the non California stage to bounce back in Q2.
Speaker Change: California is becoming less of a wildcard and we expect demand to stabilize and increase in the back half of 2024.
Badrinarayanan Kothandaraman: We expect to release the product in 2025. Now, let's cover the latest upgrades to our energy management software. We recently did a press release where we launched Enphase Power Control, or PCS, software that can integrate with our systems in North America. PCS dynamically controls the power produced by the Enphase system, giving installers a lot of flexibility in system design to build larger systems and avoid costly main panel upgrades while meeting utility and National Electric Code requirements. Our software is evolving to manage the increased complexity in energy markets by leveraging AI and ML for forecasting and optimization.
Speaker Change: Our bullish about memory in the long term.
Payback is attractive for solar plus battery the utility rates are going up steeply and the sales teams are learning rapidly.
Speaker Change: I am pleased that we have executed well through the market downturn over the last year, we have maintained profitability and free cash flow throughout this period why is correcting the channel we have not sacrificed any new product development at jumped <unk> expansion plans and are now entering growth cycle with a good product portfolio and are growing.
Speaker Change: And that is still a lot more to come we expect to begin field testing, our micro Inverters IQ 90, micro Inverters and fourth generation batteries later in the year, we are making balance of system improvements to enable faster and easier and battery installation, we plan to roll out significant software upgrades like BCS.
Badrinarayanan Kothandaraman: Our next software offering will manage dynamic tariffs in countries like the Netherlands and Germany. This new software is intended to help maximize ROI and reduce the payback period for solar homeowners throughout Europe, where electricity prices can change by the hour. Let me provide you with an update on IQ-9 microinverters with gallium nitride, also called GaN. We expect IQ9 microinverters to deliver higher power at lower cost.
Speaker Change: Dynamic that it was in both the U S and Europe.
Speaker Change: We remain laser focused on operational excellence concentrating on sell through or an installer.
Speaker Change: Using operating expenses in product costs, and maintaining healthy gross margin as a company and returned to strong growth with that I will turn the call over to Mandy for a review of our financial results Mandy.
Mandy: And so that's I don't everyone I will provide more details related to our first quarter of 'twenty 'twenty four financial results. That's why I thought this is outlook for the second quarter of 2024.
Badrinarayanan Kothandaraman: Multiple vendors have been providing us with GAN pots, and we are increasingly confident in the reliability of our design. We expect to launch the product in the first half of 2025 to address the two markets, one is residential, and the other is three-phase small commercial markets, both the 208 volts as well as the 480 volts. Let's now discuss our installer platform.
Mandy: We have pulled out of the country.
Mandy: So we've now got two cats.
Mandy: No Andy Smith.
Mandy: Today, which can also be found especially in all of our web site.
Mandy: Total revenue for Q1 was $263.3 million.
Mandy: We shipped approximately 603 points just to make I watched E T off mcelwee weathers.
Mandy: 75 megawatt hour battery in that plan.
Mandy: non-GAAP gross margin for Q1 was 46, 2% compared to 53% in Q4.
Badrinarayanan Kothandaraman: We announced some key features and improvements to Solar Graph in Q1, including advanced 3D design with smart design capability, California, NEM 3.0 support and enhancements, NREL, and NYSERDA verification of shading, and support for small commercial projects. Solar Graph is currently available to installers in the US, Canada, Brazil, Germany, and Austria, and we expect to release it to more countries in the coming quarters.
Mandy: The increase was primarily driven by lower than that.
Mandy: Okay.
Mandy: GAAP gross margin was 43, 9% for Q1.
Mandy: non-GAAP gross margin without me I benefit for Q1 was 41%.
Mandy: Compared to 41, 8% in Q4, mainly driven by lower volume.
Mandy: non-GAAP gross margin for Q1 included a $13 $7 million.
Badrinarayanan Kothandaraman: Let me conclude. We have been managing through a period of slowdown in demand. We believe Q1 was the bottom quarter. Europe has already begun to recover, and we expect the non-California states to bounce back in Q2. California is becoming less of a wild card, and we expect demand to stabilize and increase in the back half of 2025. We are bullish about M3 in the long term. The payback is attractive for solar plus batteries. Utility rates are going up steeply, and the sales teams are learning rapidly.
Mandy: Right.
Mandy: non-GAAP operating expenses were $82 $6 million for Q1 compared to $86 $6 million for Q4.
Mandy: The decrease was the result of the restructuring plan, we implemented in December 2023.
$6 million for Q1 compared to $156 $9 million for Q4.
Mandy: GAAP operating expenses for Q1 included $56 $7 million of stock based compensation.
Mandy: $3.5 million.
Mandy: For acquired intangible assets and $1 $9 million restructuring impairment charges.
Badrinarayanan Kothandaraman: I am pleased that we have executed well through the market downturn over the last year. We have maintained profitability and free cash flow throughout this period while correcting the channel. We have not sacrificed any new product development or geographic expansion plans and are now entering a growth cycle with a good product portfolio and a growing time. And there is still a lot more to come.
Speaker Change: I'm and I'm glad that it can.
Speaker Change: Income from operations for Q1 was $39 million compared with $65 $6 million for Q4.
Speaker Change: Okay.
Loss from operations was $29 $1 million for Q1 compared to a loss of $10.2 million for Q4.
Badrinarayanan Kothandaraman: We expect to begin field testing our microinverters, IQ9 microinverters, and fourth-generation batteries later in the year. We are also making balance of system improvements to enable faster and easier battery installation. We plan to roll out significant software upgrades like PCS and dynamic tariffs in both the US and Europe. We remain laser-focused on operational excellence, concentrating on sell-through and installer count, reducing operating expenses and product costs, and maintaining healthy gross margins as our company returns to strong growth. With that, I will turn the call over to Mandy for a review of her financial results.
Speaker Change: Oh no.
Speaker Change: Net income for Q1 was $48 million compared with $73 $5 million for Q4.
Speaker Change: The resulting non-GAAP diluted earnings per share of 35 cents for Q4, Q1, compared with 54 cents for Q4.
Speaker Change: Net loss for Q1 was $16 $1 million compared to net income of $29 million for Q4.
Speaker Change: As a result of inkjet diluted loss per share of <unk> 12 for Q1 compared to GAAP diluted earnings per share of 15 cents for Q4.
Speaker Change: We actually entered Q1 with total cash cash equivalents and marketable securities balance of $1 six $3 billion compared to $1 $7 billion at the end.
Mandy Yang: Thanks Audrey and good luck to everyone. I will provide more details related to our first quarter of 2024 financial results, as well as our business outlook for the second quarter of 2024. We have provided reconciliations of these non-gap-to-gap financial measures in our earnings release post-debate. This can also be found in the IR section of our website. Total revenue for Q1 was $263.3 million.
Speaker Change: Q4.
Speaker Change: That's part of our $1 billion share repurchase program authorized by our board of directors in July 2020.
Speaker Change: We repurchased 332735 ships of all common stock an average price of $126 21 per share.
Speaker Change: A total of approximately $42 million.
Mandy Yang: They ship approximately 603.6 MW DC of microinverters and 75.5 megawatt hours of IQ batteries in a Non-GAAP growth margin for Q1 was 46.2%, compared to 50.3% in Q4. The decrease was primarily driven by lower net IRA benefits.
Speaker Change: In addition, we spent approximately $16 million by withholding shifts to Congress, Texas for employee stock vesting of options in Q1 that.
Speaker Change: That result that reduced the diluted shares by 480735 sure.
Mandy Yang: Their growth margin was 43.9% for Q1. Non-GAAP gross margin without net IRA benefit for Q1 was 41%, compared to 41.8% in Q4, mainly driven by lower volume. Gap and non-gap gross margin for Q1 included $13.7 million of net IIS. NAMGAP operating expenses were $82.6 million for Q1 compared to $86.6 million for Q4.
We expect it to continue these anti dilution plane.
Speaker Change: In Q1, we generated $49 $2 million in cash flow from operations and $41.8 million in free cash flow.
Speaker Change: Despite the macroeconomic challenges, we continue to generate free cash flow.
Capital expenditure was $7 $4 million for Q1 compared to $21 million for Q4.
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 second quarter of 'twenty 'twenty four.
Mandy Yang: The decrease was the result of the restructuring plan we implemented in December 2020. The operating expenses were $144.6 million for Q1 compared to $156.9 million for Q4. Gap operating expenses for Q1 included $56.7 million of stock-based compensation expenses.
Speaker Change: Our revenue for Q2 to be within a range of $290 million to $330 million, which includes shipments of 100 to 120 megawatt hours two batteries.
Speaker Change: We expect gross margin to be within a range of 42% to 45%.
We expect non-GAAP gross margin to be within a range of 44% to 47% with net benefit.
Speaker Change: And 39% to 42% before now.
Mandy Yang: $3.5 million of amortization for acquired intangible assets, $1.9 million of restructuring, and ASIC impairment charges. On a non-gay basis, income from operations for Q1 was $39 million, compared to $65.6 million for Q4. I'm a good fish.
Speaker Change: non-GAAP gross margin is stock based compensation expense and acquisition related amortization.
We expect a net.
Benefits to be between 14 and $17 million.
As a matter of shipments of 500000 units you asked me Michael you might have seen true too.
Speaker Change: We expect to increase that you named micro inverter shipments towards first of all they're all micro inverter shipment.
Mandy Yang: Loss from operations was $29.1 million for Q1 compared to a loss of $10.2 million for Q4. I'm a Nangay Bay, net income for Q1 was $48 million compared to $73.5 million for Q4. Resulting in non-gap diluted earnings per share of $0.35 for Q1 compared to $0.54 for Q4. Gap net loss for Q1 was $16.1 million compared to Gap net income of $20.9 million for Q4.
Speaker Change: Second half of this year.
Speaker Change: We just felt that operating expenses to be within a range of $134 million to $138 million, including approximately $56 million estimated for stock based compensation expense.
Speaker Change: Acquisitions are another amortization and restructuring and impairment charges.
Speaker Change: Our non-GAAP operating expenses to be within a range of $78 million to $82 million.
Please note that annualized effective tax rate, excluding discrete items for 2024.
Mandy Yang: This resulted in a debt diluted loss per share of $0.12 for Q1 compared to debt diluted earnings per share of $0.15 for Q4. We entered Q1 with a total cash equivalence and marketable securities balance of $1.63 billion compared to $1.7 billion at the end of Q4. As part of our $1 billion share repurchase program authorized by our Board of Directors in July 2023, we repurchased 332,735 shares of our common stock at an average price of $126.21 per share for a total of approximately $42 million in Q1.
Speaker Change: 18%.
The 1% benefit.
Speaker Change: With that I'll open the line for questions.
Speaker Change: Thank you well now begin the question and answer session.
Speaker Change: Sure I'll ask a question you May press Star then one on your telephone keypad.
Speaker Change: If you are using a speaker phone we ask you. Please pickup your handset before pressing the keys.
Speaker Change: And so I think as far as your question has been addressed and he would like to withdraw your question. Please press Star then two.
Speaker Change: We ask you please limit yourself to one question and a single follow up.
Speaker Change: Then reenter the queue. If you have further questions.
Speaker Change: This time, we will pause momentarily to assemble our roster.
Speaker Change: And today's first question comes from Colin Rusch with Oppenheimer. Please go ahead.
Mandy Yang: In addition, we spent approximately $60 million by withholding shares to cover taxes for employees' stock vesting and options in Q1, which reduced the diluted shares by 480,735 shares. We expect to continue this anti-dilution plan. In Q1, we generated $49.2 million in cash flow from operations.
Colin Rusch: Thanks, so much guys.
You start entering some of these newer markets with the energy storage can you talk about how much of the volume we're guiding to in <unk>.
Colin Rusch: Could be considered sell in into to build a little bit of inventory to support those customers.
Speaker Change: Yeah could you. Please repeat the question Colin item I didn't follow the appropriate.
Mandy Yang: $41.8 million in free cash. Despite the macroeconomic challenges, we continued to generate free capital. Capital expenditure was $7.4 million for Q1 compared to $20.1 million for Q4.
Speaker Change: Sure. So as you start selling energy storage into new markets.
Speaker Change: And looking at the <unk> guide how much of that energy storage sales dynamic is actually selling into the channel and channel. So just to get prepared enough one.
Speaker Change: Not much really.
Mandy Yang: Our capital expenditure requirements decreased due to a reduction in our U.S. manufacturing. Now, let's discuss our outlook for the second quarter of 2024. We expect our revenue for Q2 to be within a range of $290-$330 million, which includes shipments of 100 to 120 megawatt hours of I-Q batteries. We expect GAAP's gross margin to be within a range of $42 to $45 billion.
Speaker Change: Because the new markets are just ramping for US for example, we introduced.
Speaker Change: Storage into Italy in Q1, so really that's that's the only one where we.
Speaker Change: We introduced into a new market prior to that if you see we introduced into a few European countries.
Speaker Change: Did that we introduced in the U K.
Speaker Change: Right.
Speaker Change: Stoneridge is.
And on the channel is very healthy.
Speaker Change: We had actually normalized as we speak on storage Thats, what I said.
Mandy Yang: Benangke growth margin to be within a range of 44 to 47% with net IRA benefit, and 39% to 42% before NET-II. Non-Gas Gross Margin Excludes Stock-Based Compensation Expense and Acquisition-Related Amortization.
Speaker Change: We are dead on storage in fact, I'll give you a data that I didn't talk about in the call.
Speaker Change: Sell through.
Speaker Change: Our sell through of batteries.
Speaker Change: In Q4.
Speaker Change: Overall worldwide was 140 megawatt hours.
Speaker Change: While the sell through of <unk>.
Speaker Change: Batteries in Q1.
It was 128 megawatt hours.
Speaker Change: Only 8% done.
Speaker Change:
Speaker Change: Much better than the seasonality of 20% that we are seeing on the other products and so.
Mandy Yang: We expect the net IRA benefit to be between $14 and $17 million dollars on estimated shipments of 500,000 units of U.S.-made microinverters. We expect to increase the U.S.-made microinverter shipments to two-thirds of our overall microinverter shipments in the second half of this year. We expect our GAP operating expenses to be within the range of $134 to $138 million, including approximately $56 million estimated for stock-based compensation, position-related amortization, and restructuring an assay impairment chart.
Speaker Change: Equities are doing well in general yet despite the 128 megawatt outs.
Speaker Change: Sell through we had the discipline to.
Speaker Change: Only ship 75.
Speaker Change: Five megawatt note that means we took 43 megawatt out okay.
Speaker Change: Of the channel.
Speaker Change: Channel is quite mean for storage Thats why youll see we are.
Speaker Change: Increasing the guidance.
Speaker Change: When I guided for Q1, I guided 70 to 90 megawatt hours now I'm guiding for Q2, I'm guiding 100 to 120 megawatt hours on storage so.
Speaker Change: <unk> is a good story, we expect it to continue we expect.
Mandy Yang: We expect our non-GAAP operating expenses to be within a range of $78 to $82 million. We expect our GAP and non-GAAP annualized effective test rate with cooling discrete items for 2024 to be at 18% plus or minus 1% with IRA benefit. With that, I will open the line for questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad.
Speaker Change: Over the long term every market transition to solar plus storage, we talked about the color on some of our markets Netherlands, We've talked about France, we talked about Germany is already there, California will get there soon.
Speaker Change: So in general storage is a good story for us.
Speaker Change: Thanks, So much and then the person dynamic it looks like.
Speaker Change: Micron Burger pricing was down maybe four ish, 5% quarter over quarter on average can you talk a little bit about the dynamic around pricing and discounts as you get through the inventory Flushing and what we can expect as you get into the middle of the year here.
Operator: If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to adjourn your question, please press star then 2. We ask that you please limit yourself to one question and a single follow-up. You may then reenter the queue if you have further questions. At this time, we will pause momentarily to assemble our roster, and today's first question comes from Colin Rusch with Oppenheimer. Please go ahead.
Speaker Change: Right and.
Speaker Change: <unk>.
Speaker Change: You know, we measure something guard the ESP variance and we measure something called customer.
Speaker Change: Our customer variance means how much pricing did you drop.
Speaker Change: Pick a lot of customer quadrant of water and.
Speaker Change: And ASB millions is simply a function of how your mix did for example, if you have a lower pricing for a particular customer and his volume went up it will show up as well.
Speaker Change: But all of the reduction in ESP.
Speaker Change: Really the measure of effectiveness and pricing comes from customer ASB variants earlier dropping pricing at a particular customer and the answer is we have a very disciplined.
Colin Rusch: Thanks so much, guys. You know, as you start entering some of these newer markets with energy storage, can you talk about how much of the volume would go? Yeah, could you please repeat that question, Colin?
So what youre seeing as a result of mix.
Speaker Change: We are extremely disciplined when it comes to.
Operator: I didn't follow that properly. Sure. So as you start selling energy storage into new markets, and, you know, looking at the 2Q guide, how much of that energy storage sales dynamic is actually selling? Not much, really, because the new markets are just ramping up for us. For example, we introduced storage into Italy in Q1. Really, that's the only one where we... We introduced it into a new market. Prior to that, if you see, we introduced it into a few European countries.
Speaker Change: You talked about in order to move inventory do you need to lower pricing not we don't do we don't play games like that.
Speaker Change: So we are we.
Speaker Change: We are disciplined we will be disciplined with selling on value and what youre seeing is purely a product mix issue.
Excellent Super helpful. Thanks, guys.
Speaker Change: Thank you and our next one.
Speaker Change: It comes from Brian Lee of Goldman Sachs. Please go ahead.
Brian Lee: Hey, guys. Good afternoon, thanks for taking the questions.
Hey, Patrick can you talk a little bit about <unk>.
You said at the onset of the call that you know you under shipped demand in Q1, a little bit.
Badrinarayanan Kothandaraman: Prior to that, we introduced in the UK, in fact, our Storage is, you know, the channel is very healthy. We are actually normalized as we speak on storage, that's what I said. We are there on storage. In fact, I'll give you some data that I didn't talk about in the call, sales through our sell-through of batteries. Q4, overall worldwide, was 140 megawatt hours.
Brian Lee: Lesson or destock, a little bit less than you would've expected just because demand was softer so the $90 million of destock that should kind of clear the inventory from micros into Q in your guide, you're saying normalized youre seeing 400 or so.
Brian Lee: Are you inferring that normalized demand when you strip out the $90 million of destock as Rodney and yet like for 90, because I know last call you were talking about $4 50 to 500, so maybe just high level, what kind of walk us through your thought process of what.
Badrinarayanan Kothandaraman: While the sell-through of batteries in Q1 was 128 megawatts, only 8% down, much better than the seasonality of 20% that we are seeing on the other products. And so, batteries are doing well in general, yet despite the 128 megawatt hours sent through, we had the discipline to only ship 75, 0.5 megawatt hours. That means we took 43 megawatt hours out of the channel. The channel is quite lean for storage.
Brian Lee: Demand you see out there what the normalized level looks like once you get through all this inventory reset and then maybe what time frame you think you kind of get back to those normalized run rates as well.
Speaker Change: Got it.
Speaker Change: So Brian in Q1, our sell through demand, which is end customer demand was $376 million.
Badrinarayanan Kothandaraman: That's why you see we are... increasing the guidance. You know, when I guided for Q1, I guided 70 to 90 megawatt hours. Now I'm guiding for Q2, I'm guiding 100 to 120 megawatt hours on stock. Storage is a good story.
Speaker Change: In Q1 and.
Speaker Change: And we reported revenue of $263 $3 million.
Speaker Change: Therefore, you can do the math 376 minus 263 is $113 million up on the shipment.
Speaker Change: Now in Q2, I guided to 90 to $3 30 midpoint of guidance is $310 million.
Badrinarayanan Kothandaraman: We expect it to continue. We expect... Over the long term, every market transition to solar plus storage. We talked about the color in some of our markets, Netherlands, France, Germany, California will get there soon. So, in general, storage is a good story for us. Thanks so much.
Speaker Change: And now I said.
Speaker Change: My estimated sell through.
Speaker Change: In Q2.
Speaker Change: Which is reflective of end customer demand is $400 million.
Speaker Change: So the difference between the two 310.
Speaker Change: Minus 400 order.
Speaker Change: The other way 400 minus three and the intent is.
Speaker Change: The $90 million or under.
Speaker Change: No.
Speaker Change: What could that $400 million beat in the second half of this.
Badrinarayanan Kothandaraman: And then on the pricing dynamic, it looks like microinverter pricing was down by 4-ish, 5%, quarter over quarter on average. You can talk a little bit about the dynamics around price, the inventory for us, and what we can expect. Right, and you know, we measure something called ASP variance, and we measure something called customer. Customer variance means how much pricing did you drop at a particular customer quarter to quarter, and ASP variance is simply a function of how you mix it.
Speaker Change: That's bad.
Speaker Change: We are talking about the markets.
Speaker Change: We expect Europe for example to continuously improve.
Speaker Change: Netherlands government has approved net metering for the foreseeable future.
Speaker Change: <unk> future, we are starting to see the lead generation much higher in Netherlands that should start to zoltan.
Resulting in increased to sell through and increased Activations in Netherlands, which is a big deal.
Speaker Change: Next one is France, France, the utility rates are helping us. So you can see despite this environment, we expect France to be strong.
Badrinarayanan Kothandaraman: For example, if you have a lower price for a particular customer and his volume goes up, it will show up as a overall reduction in ASP. Really, the measure of effectiveness in pricing comes from customer ASP variance. Are you dropping prices at a particular customer? And the answer is that we are very disciplined there. So what you are seeing is a result of mixed... But we are extremely disciplined when it comes to, you know, you talked about, in order to move inventory, do you need to lower prices? No, we don't do that. We don't play games like that.
Speaker Change: Third one is Germany reported fell through a 28% higher than Q1 from Q4.
Speaker Change: And once again there.
Speaker Change: The cost of electricity is high and we expect solar and storage solar and batteries to continuously grow on top of it I talked about our product introductions in the last year, we have set ourselves up nice by introducing IQ eight and batteries.
Badrinarayanan Kothandaraman: So we are disciplined, we will be disciplined, we sell on value, and what you're seeing is purely a product mix issue. Super helpful. Thanks, guys. Thank you. And our next question today comes from Brian Lee at Golden Saks. Please go ahead.
Speaker Change: Every minute.
Speaker Change: We are now in 24 countries event in Q1, we introduced batteries into Tony.
Speaker Change: After that we introduced in the UK, and we introduced Sweden, Denmark et cetera prior to that I'm not going to list everything so.
Speaker Change: We are attacking new markets in both.
Speaker Change: Asia as well as Europe, and now let's come back to the U S.
Brian Lee: Hey guys, good afternoon. Thanks for taking the questions. Hey, Badri, can you talk a little bit about, you know, you said at the onset of the call that, you know, you undershipped demand in Q1 a little bit less than or destocked a little bit less than you would have expected just because demand was softer. So the $90 million of destock should kind of, you know, clear the inventory for micros in 2Q in your guide. You're saying normalized, and you're seeing 400.
Speaker Change:
Speaker Change: In the U S. The dynamics, the non California States and California, Essex.
Speaker Change: Yeah in California.
Speaker Change: Non California students there are multiple data points for us to tell you that things are improving.
Speaker Change: In the last few weeks.
Speaker Change:
Speaker Change: In the last few weeks lets say last four weeks, we are seeing better sell through numbers compared to what we saw prior to that that's the first data point.
Speaker Change: The second one is we have our internal.
Speaker Change: So a lot of graph software, which is now being used by over one.
Badrinarayanan Kothandaraman: So are you inferring that, you know, normalized demand when you strip out the $90 million of destock is running at like 490? Because I know on last call you were talking about 450 to 500. So maybe just briefly kind of walk us through your thought process of what demand you're seeing out there, what the normalized level looks like once you get through all this inventory reset, and then maybe what time frame you think you can kind of get back to those normalized run rates as well.
Speaker Change: 1000, plus installers and therefore, we can look at sales proposal its contracts, we can see those numbers up.
Speaker Change: Continuously going up in March.
Speaker Change: Is that up in March versus February numbers that up in April versus March.
Speaker Change: So that's a good sign.
Speaker Change: Then.
Speaker Change: Of course, it is anecdotal my interactions with customers in California in the last four weeks all of them universally said March is much better sales month than February.
Badrinarayanan Kothandaraman: Got it. Brian, in Q1, our sell-through demand, which is end-customer demand, was $376 million in Cuba, and we reported revenue of $263.3 million. Therefore, you can do the math: $376 minus $263 is $113 million of undershield.
Speaker Change: And the last one is you do see third party analytic reports like like you know that talk about permitting and you can see the aim.
Speaker Change: In general the permits for non California, as well as California.
Badrinarayanan Kothandaraman: Now, in Q2, I guided from 290 to 330. The midpoint of guidance is 310 million. And now I said...
Speaker Change: Are up in the month of March versus February.
Speaker Change: By the way the trends that I told you.
Speaker Change: Valid for both non California, as well as California.
Badrinarayanan Kothandaraman: I have my estimated sell-through in Q2, which is reflective of when customer demand is $400 million. So the difference between the two, 310, minus 400 or, the other way around, 400 minus 310 is the 90 million dollars of undershipment. What could that 400 million dollars be in the second half of the year?
Speaker Change: In the last in the last few weeks.
Speaker Change: So we are cautiously optimistic that.
Speaker Change: That things are returning and that's why I said Q1 is the bottom quarter. That's why we are raising our guidance.
Speaker Change: In our two to $2 90 to 330 for Q2, that's why we said the sell through is going up from $3 76.
Speaker Change: 400, and we expect these growth trends we expect.
Badrinarayanan Kothandaraman: That's where... You know, we are talking about the market. We expect Europe, for example, to continuously grow. The Netherlands government has approved net metering for the foreseeable future. We are starting to see lead generation much higher in the Netherlands. That should start to result in... Resulting in increased sell-through and increased activations in the Netherlands, which is a big deal. Next one is France.
Speaker Change: Sell through to continuously.
Speaker Change: Go up.
Speaker Change: And.
Speaker Change: The last one the point, which I wanted to talk about with interest rates.
Speaker Change: We now hear that there are going to be likely to interest rates two cuts instead of.
Speaker Change: Maybe three or four planned before so.
Speaker Change: Anytime that there is a cut that is going to.
Speaker Change: Expand the non California, Agitates, even further meeting the demand further.
Speaker Change: So those all come into play.
Badrinarayanan Kothandaraman: France, the utility rates are helping us. So, despite this environment, we expect France to be strong. The third one is Germany.
Speaker Change: Understood Okay, no that's super helpful.
Speaker Change: I guess, if if we.
Badrinarayanan Kothandaraman: We reported sell-through of 28% higher in Q1 from Q4. And once again, there the cost of electricity is high, and we expect solar and storage, or solar and batteries, to continuously grow. On top of that, I talked about our product introductions. In the last year, we have set ourselves up nicely by introducing IQ-8s and batteries everywhere. We are now in 24 countries. In Q1, we introduced batteries into Italy. Prior to that, we introduced them into the UK. Then we introduced Sweden, Denmark, etc.
Speaker Change: If we think about just again kind of trying.
Speaker Change: Trying to do.
Speaker Change: Dissects the normalized demand outlook you have here if it's.
Speaker Change: The channel is clean exiting <unk> and you're looking at.
Speaker Change: Barring any meaningful mix changes or pricing changes.
Speaker Change: And demand staying basically where you think it is today like 400 million.
Speaker Change: Is there any reason you would not be shipping that level in in <unk> Q. I mean is there any structural shifts to what the channel is willing to take or kind of lead times and things of that nature, I guess I'm just trying to understand how that 400.
Badrinarayanan Kothandaraman: Prior to that, I'm not going to list everything. So we are attacking new markets in both Asia as well as Europe. And now, let's come back to the U.S.
What are the puts and takes for that 400 to stay 400 versus you know again I think there was a few earlier in the year that it would be higher than 400, but right now it is at 400, so what what moves that higher and then potentially move that lower if it were to go in the opposite direction.
Badrinarayanan Kothandaraman: In the U.S., the dynamics are non-California states and California states. I mean, yeah, and California. So non-California states, there are multiple data points for us to tell you that things are improving. In the last few weeks, In the last few weeks, let's say the last four weeks, we are seeing better sell-through numbers compared to what we saw prior to that. That's the first data point. The second one is we have our internal... Solar Graph software which is now being used by over a thousand plus installers.
Speaker Change: I think I think what you said is correct, meaning once the channel is normalized their limb and sellouts should be balanced.
So that's right so.
Speaker Change: For example.
Speaker Change: We do expect that fell through in Q3 to be higher but if you were to say it is sell through it.
Speaker Change: It remains at around lets say for $400 million level our sell in.
Speaker Change: Ward.
Speaker Change: Similar because now we have taken all of the inventory out we don't need to do any under shipment any longer so our sell in and sell out are balanced.
Badrinarayanan Kothandaraman: And therefore, we can look at sales, proposals, and contracts. We can see that those numbers are continuously going up in March. You know, the numbers are up in March versus February.
Speaker Change: At that time, but like what I said.
There are several vectors for that fell through to improve.
In Q3, which I highlighted.
Badrinarayanan Kothandaraman: Numbers are up in April versus March, so that's a good sign. Then, um... And, of course, this is anecdotal.
Speaker Change: All of the things in Europe, all of the new products, we are introducing.
Speaker Change: Non California States, which are improving California, installers learning to do name three Darko Moor.
Badrinarayanan Kothandaraman: In my interactions with customers in California in the last four weeks, all of them universally said March is a much better sales month than February. And the last one is you do see third-party analytic reports that talk about permits, and you can see that, in general, the permits for non-California as well as California are up in the month of March versus February. You know, by the way, the trends that I told you are valid for both non-California as well as California in the last few weeks. So we are cautiously optimistic about that. That things are turning. And that's why I said Q1 was the bottom quarter.
Speaker Change: More financing options being available to them.
Speaker Change: Installers in general than before in the U S.
Speaker Change: And us starting to ramp on small commercial products.
Speaker Change: So all of that.
Speaker Change: You know make me optimistic that fell through.
Speaker Change: Good start to become higher in Q3 and beyond.
Alright, I appreciate it thanks, guys I'll pass it on.
Thank you and our next question comes from Kashi Harrison with Piper Sandler. Please go ahead.
Yes.
Kasope Oladipo Harrison: Excuse me good evening and thanks for taking the question.
Badrinarayanan Kothandaraman: That's why we are raising our guidance from 290 to 330 for Q2. And that's why we said the sell-through is going up from 376 to 400. And we expect, with these growth trends, we expect... sell through to continuously go up. And the last point I wanted to talk about was interest rates. We now hear that there are likely going to be two interest rates, two cuts instead of three.
Kasope Oladipo Harrison: So badri.
Kasope Oladipo Harrison: First one you indicated.
Kasope Oladipo Harrison: Last quarter sell through expectation for Q1 of 390 to $4 30 and sell through to your point came in at $376 million.
Speaker Change: And in the spirit of continuous improvement I was wondering if you could just walk us through the specific input or approach to your forecasting methodology that was faulty and then how you've adjusted for those errors heading into the second quarter.
Badrinarayanan Kothandaraman: There may be three or four planned before, so anytime that there is a cut, that's going to... We could expand the non-California states even further, meaning the demand is going to be higher, so those all could come into play. Understandable. Okay. No, that's super helpful.
Speaker Change: Essentially what I'm just trying to get out as you know are you forecasting approaches improving and how.
Speaker Change: Trying to get to a point, where the street can have confidence that that sell through will land about where you expect it to in the second quarter.
Speaker Change: Right.
Speaker Change: You know in general.
Speaker Change: We.
Speaker Change: We are not perfect we forecast based on the seasonality. We we were right in most places.
Badrinarayanan Kothandaraman: I guess if we, you know, if we think about just, you know, again, kind of trying to dissect the normalized demand outlook you have here, if it's, you know, the channel is clean exiting 2Q, and you're looking at barring any meaningful mix changes or pricing changes and demand staying basically where you think it is today, like 400 million, is there any reason you would not be shipping that level in in 3Q
Speaker Change: And as they as they reported the California numbers were a little bit little bit worse, and you can see that the sell through in California was.
Speaker Change: Well, it's about 30% lower.
Speaker Change: 37% on micro Inverters.
And about I think 18 or 19% on battery, So I think California, what's the wildcard, which I did mention in the prior quarter and I think we are getting though.
Badrinarayanan Kothandaraman: I mean, are there any structural shifts to what the channel is willing to take or any kind of lead times and things of that nature? I guess I'm just trying to understand how that 400, you know, what are the puts and takes for that 400 to stay at 400 versus, you know, again, I think there was a view earlier in the year that it would be higher than 400, but right now it is at 400. So what moves that higher, and then what potentially moves that lower if it were to go in the opposite direction?
Creasing confidence in California, I outlined everything, which we which which we.
Speaker Change: Yes.
Speaker Change: We discussed with the California installers, So we're confident in our forecast right now.
Speaker Change: The first few weeks of the quarter seem to be trending in that direction.
Speaker Change: Fair enough I appreciate it and as my follow up question is on is on IQ nine Ah you indicated a first half 2025 commercial release date and I think you said pilots later this year.
Speaker Change: How long would it take for IQ nine to ramp.
Badrinarayanan Kothandaraman: I think what you said is correct, meaning once the channel is normalized, sell-in and sell-out should be balanced. So that's right. So, for example, you know, we do expect the sell-through in Q3 to be higher, but if you were to say it is, you know, sell-through remains around, let's say, four four hundred million dollar level, our sell-in would remain similar because now we have taken all the... Inventory out. We don't need to do any undershipment any longer. So our sell-in and sell-out are balanced. You know, at that time, but like what I said.
2% to 100% and then just strategically can you talk about.
Speaker Change: How youre thinking about using a lower cost product both in the U S and in international markets from a from a share perspective.
Speaker Change: <unk> nine first of all we were going to.
Speaker Change: We are working on two flavors one is a 427 watt.
unknown: Microphone murder and the other is a 548 watt micro inverter.
Speaker Change: The 427 Watt micro inverter would be what I would consider the bread and butter.
Speaker Change: For the U S and probably a year from today, which is right in the timeframe that we are introducing.
Speaker Change: And you.
Speaker Change: You know I would say that typically an introduction and the ramp for a new product like that could be four to six quarters based upon our experience with <unk>. So two flavors.
Badrinarayanan Kothandaraman: There are several vectors through which to improve in Q3, which I highlighted. All of the things in Europe, all of the new products we are introducing. Non-California states which are improving, California installers learning to do NEM 3.0, more financing options being available, too, installers in general, more than before in the U.S., and us starting to ramp up on small commercial products. So all of that, you know, makes me optimistic that the falling through would start to become higher in Q3 and beyond. Alright, I appreciate it. Thanks guys, I'll pass it on.
Speaker Change: 427, and $5 48 in the 548 things get a lot more interesting.
Speaker Change: We are now going to.
Speaker Change: Half the 548 for the three phase 208 votes as well as 40 divorced small commercial installers, so that'll be good.
Speaker Change: The principal thing about IQ name is.
Speaker Change: It uses.
Speaker Change: Gallium nitrate.
Speaker Change: <unk> nitrate EMEA birds.
Speaker Change: Hi, much higher power with similar form factor it's gone.
Kashy Harrison: Thank you. And our next question comes from Kashy Harrison with Piper Sandler. Please go ahead.
Speaker Change: Good efficiency.
Speaker Change: And it doesn't dissipate as much heat so when we are using it in both Bac as well.
Badrinarayanan Kothandaraman: Good evening and thanks for taking the question. So, Badri, you know, first one, you indicated last quarter a sell-through expectation for Q1 of 390 to 430 and, you know, sell-through came in at $376 million. And, you know, in the spirit of continuous improvement, I was wondering if you'd just walk us through the specific input or approach to your forecasting methodology that was faulty and then how you've adjusted for those errors heading into the second quarter.
These effects, we are able to get.
Speaker Change: We don't need to blow up the micro inverter form factor.
And the other advantage with gallium nitrate as it allows us to operate.
Speaker Change: At a higher frequency.
Speaker Change: You know earlier that we used to operate that.
Today, an IQ eight we are operating at 100 coolers with gallium nitride. We can go up to a megahertz and we need to we are working on ASIC.
Speaker Change: In order to get to that capability of a megahertz, but once you get to a megahertz then what happens is.
Badrinarayanan Kothandaraman: Essentially, what I'm just trying to get at is, you know, are your forecasting approaches improving, and how, and I'm trying to get to a point where, you know, the street can have confidence that that sell-through will land about where you expect it to. Right. You know, in general, we are not perfect.
Speaker Change: You can basically get rid of your big Transformers.
Speaker Change: And the transformer sizes can all go down.
Speaker Change: And anyone who knows about Inverters know that there is a lot of dollars going in there so.
Speaker Change: In terms of form factor things will get a lot more titles.
Speaker Change: So that you know now.
Now since they get tighter youre not talking about blowing up.
Speaker Change: The area due to higher powered because one of the concerns always is.
Badrinarayanan Kothandaraman: We forecasted based on seasonality. We were right in most places, and, as I reported, the California numbers were a little bit worse.
Speaker Change: <unk>.
Speaker Change: When you have higher powered if you operate the.
Same efficiency, you're anticipating a lot of heat like for example at 548 Watts you have let's say, 97% efficiency that means 548 Watts times, 3%, that's 16 watch about.
Badrinarayanan Kothandaraman: And you can see that. The sell-through in California was about 30% lower, at 37% on microinverters and about, I think, 18 or 19% on batteries. I think California was the wild card, which I did mention in the prior quarter, and I think we are getting through increasing confidence in California. I outlined everything which we discussed with the California installers, so we are confident in our forecast right now, and the first few weeks of the quarter seem to be trending in that direction. Fair enough.
Speaker Change: And 16 watts of heat.
Speaker Change: But with.
Speaker Change: The gallium nitride effects, we are able to operate them with good efficiency.
Speaker Change: And so we don't need to blow up.
Speaker Change: The inverter.
And we can keep it with an elegant form factor for installers.
Speaker Change: We can look at bringing the dollars per watt continue.
Badrinarayanan Kothandaraman: I appreciate it. And as my follow-up question is on IQ9, you indicated a first half 2025 commercial release date, and I think you said pilots later this year. How long would it take for IQ9 to ramp to, you know, 100%? And then, you know, just strategically, can you talk about how you're thinking about using a lower-cost product both in the US and in international markets from a share perspective? Yeah, IQ9. First of all, we're going to, we're working on two flavors. One is a 427 watt microinverter, and the other is a 548 watt microinverter.
Speaker Change: Continuously done.
Speaker Change: Because for us the most compact we make the micro inverted the more integration we achieved.
Speaker Change: The better it is and just as you know.
Speaker Change: FY <unk>, where there are full silicon fits before on the AC side, we will only need to silicon effect transistors, because we got something called the <unk>.
Bidirectional switch for again it can operate both ways.
Speaker Change: So.
Speaker Change: Just zoom zooming back to to a higher level Gan will allow us to operate at higher power.
Speaker Change: Lower efficiency.
Speaker Change: With the same form factor.
Speaker Change: Database dropping the dollar or what because you are increasing your power a lot.
Speaker Change: Helpful color. Thank you.
Speaker Change: Okay.
Thank you and our next question today comes from Mark Strouse at JP Morgan. Please go ahead.
Speaker Change: Yeah.
Mark W. Strouse: Questions Scott two questions on gross margins.
Badrinarayanan Kothandaraman: The 427 watt micro inverter would be what I would consider the bread and butter for the U.S. in probably a year from today, which is right in the time frame that we are in. And I would say that, typically, an introduction and ramp for a new product like that would be four to six quarters based upon our experience with IT. So, two flavors. 427 and 548.
Mark W. Strouse: The for the <unk>.
Mark W. Strouse: <unk> guide the 39% to 42%.
Mark W. Strouse: That's down a bit from what you'd been guiding the last couple of quarters.
Mark W. Strouse: In response to Collyns question earlier, you mentioned mix is a part of that I just want to confirm are you kind of talking about kind of the mix mix of just kind of random installers that youre selling to in a given period.
Badrinarayanan Kothandaraman: In the 548, things get a lot more interesting. We are now going to have the 548 for three-phase 208 volts as well as 480 volts small commercial, and so that would be good. The principal thing about IQ9 is it uses... Gallium Nitride, gallium nitrate enabled a much higher power with a similar form factor; it's got Gold Efficiency, And it doesn't dissipate as much heat. So when we are using it in both the AC as well as. B.C.
Or is there anything to signal as far as kind of international mix or storage mix any any other color there would help.
Mark W. Strouse: Yeah.
Speaker Change: What I was talking on the question from Colin which was micro inverter, it's one installer mix that's correct.
Badrinarayanan Kothandaraman: Facts. We are able to get, you know, we don't need to blow up the microinverter form factor. And the other advantage with gallium nitride is it allows us to operate at higher frequencies. Earlier we used to operate at, or today in IQVIII, we are operating at 100 kilovolts. Gallium nitrate. We can go up to a megahertz, and we need to, you know; we are working on our ASIC. In order to get to that capability of a megahertz, but once you get to a megahertz, then what happens is... You can basically get rid of your big transformer, and the transformer sizes can all go down, and anyone who knows about inverters knows that there are a lot of dollars going in there.
Mark W. Strouse: This question that Youre, asking but 39, meaning.
Mark W. Strouse: We guided.
Mark W. Strouse: 39% to 42%.
Mark W. Strouse: For non-GAAP gross margin without Iot in Q2.
Mark W. Strouse: Question is why and yet we increased our.
Mark W. Strouse:
Mark W. Strouse: Battery guidance by 30 megawatt hours.
Mark W. Strouse: You can see Q1 guidance was 70 to 90, we increase 100 to 120.
Mark W. Strouse:
Mark W. Strouse: That means we have.
Mark W. Strouse: The battery to micro inverter ratio is increasing from before.
Mark W. Strouse: We are getting we are getting better and better and better.
Mark W. Strouse: On the gross margin of batteries and Youll see those numbers continuously improve.
Badrinarayanan Kothandaraman: In terms of form factor, things will get a lot tighter. So now that they get tighter, you're not talking about blowing up the area due to higher power, because one of the concerns is always efficiency. You know, when you have higher power, if you operate at the same efficiency, you're dissipating a lot of heat. Like, for example, at 548 watts.
Mark W. Strouse: On battery and specifically called out three factors I said the sell back costs.
Mark W. Strouse: Continuing to come down rapidly.
Beginning to manufacture them now our micro inverters, which are used in the battery. We are beginning to manufacture them in the U S. Those will provide us with the production tax credit.
Badrinarayanan Kothandaraman: You have, let's say, 97% efficiency. That means 548 watts times 3%. That's 16 watts of power, and 16 Watts of heat. But, with the...
Mark W. Strouse: Which is exactly the intention that we need to produce.
Mark W. Strouse: You know that product in the U S. The investments made in the battery and then the last one which is exciting one is where we are moving.
Badrinarayanan Kothandaraman: The gallium nitride fats, we are able to operate them with good efficiency, and so we don't need to blow them up. The inverter, and we can keep it in an elegant form factor for installers. We can look at bringing the dollars per watt continuously down because, for us, the more compact we make the microinverter, the more integration we achieve. The better it is, and just as FYI, where there are four silicon fets... Before, on the AC side, we will only need two silicon FETs or transistors because we got something called a bidirectional switch for GaN. It can operate both ways, just zoom zooming back to a higher level.
Mark W. Strouse: Two.
Mark W. Strouse: The more integrated architecture for power conversion and battery management, and basically what's going draft and is.
Mark W. Strouse: Our third generation battery the wide direction is going to almost get cut by 40%.
Mark W. Strouse: And instead of six micro Inverters that we had in the third generation battery. We will now have two micro inverters one on each site.
The fourth generation batteries significantly cutting down.
Mark W. Strouse: The farm factor, so we expect that to bring in.
Mark W. Strouse: And there's a big level of improvement in gross margin.
Badrinarayanan Kothandaraman: GAN will allow us to operate at higher power, but lower efficiency, with the same form factor, thereby dropping the dollar per watt because you're increasing your power a lot. Helpful caller, thank you. Thank you. And our next question today comes from Mark Strouse and J.P. Morgan. Please go ahead, questions.
Mark W. Strouse: So those are the gross margin puts and takes on our batteries.
Okay very helpful. And then my quick follow up question on the 45 X within gross margin.
Mark W. Strouse: Last quarter, you talked about 500000 units being about 12% to $14 million benefit.
Mark W. Strouse: For Q2, you're talking about a similar number of units, but with a $14 million to $17 million benefit.
Mark W. Strouse: He's got two questions on gross margin. For the 2Q guide, the 39 to 42 percent, that's down a bit from what you've been guiding the last couple of quarters. In response to Colin's question earlier, you mentioned mix as part of that. I just want to confirm, are you kind of talking about a mix of just kind of random installers that you're selling to in a given period? Or is there anything to signal as far as a kind of international mix or storage mix? Any other color there would help.
Mark W. Strouse: I'm not sure if I'm just splitting hairs, there, but just wanted to see if you're kind of signaling that you're maybe.
Mark W. Strouse: Keeping more of that fortify that screening.
Mark W. Strouse: No.
Mark W. Strouse: What happens is that is there is a few things that happened there.
Mark W. Strouse: It depends upon the power of the micro Inverters that we are building sometimes remained solid at 384.
What micro inverter Youll do the 11.
Mark W. Strouse: But what Matt there are we may build a 640 watt micro inverters that is used inside the battery. So it's a function of that and purely a function of that so.
Badrinarayanan Kothandaraman: Yeah, there, what I was talking about in the question from Colin, which was microinverters, was installer mix. That's correct. But this question that you are asking, the 39 meaning... we guided 39 to 42 percent for non-gap gross margin without IRA in Q2.
It just follows the higher powered we make the more advantage, we have which is why we are beginning to.
Badrinarayanan Kothandaraman: Your question is why? And yes, we increased our, um, battery guidance by 30 megawatt hours. As you can see, Q1 guidance was 70 to 90, and we increased it to 100 to 120.
Mark W. Strouse: I told you that we are beginning to make our small commercial IQ eight P micro inverters.
Mark W. Strouse: Starting in Q2 as well.
Mark W. Strouse: From the U S. So those are 480 watts. So 11 cents per watt is $53 gross benefit gross production tax credit.
Badrinarayanan Kothandaraman: That means the battery-to-microinverter ratio is increasing from before. We are getting better and better and better on the gross margin of batteries, and you'll see those numbers continuously improve. On batteries specifically, I called out three factors. I said cell pack costs are continuing to come down rapidly. We are beginning to manufacture our microinverters, which are used in the battery. We are beginning to manufacture them in the U.S., which will provide us with the production tax credit.
Mark W. Strouse: Yeah.
Speaker Change: Yeah, Okay that makes sense. Thank you very much.
Speaker Change: Thank you.
Peninsula: Our next question comes from Peninsula as well.
Well Fargo: Well Fargo. Please go ahead.
Speaker Change: Thanks, maybe just staying on the battery so looking out to the fourth Gen battery. It seems like there is a very large cost reduction coming I guess, how do you think about keeping this cost savings versus passing it on to customers.
Peninsula: Specifically I'm thinking about this in the context of Tesla power wall III today.
Peninsula: Today, you can buy a Tesla power wall three with its integrated inverter and thats going to be cheaper than an enphase battery and inverter solution.
Badrinarayanan Kothandaraman: This is exactly the intention that we need to produce. The last one, which is exciting, is where we are moving, to a more integrated architecture for power conversion and battery management. And basically, what's going to happen is our third generation battery, the Y direction, is going to almost get cut by 40%. And instead of six microinverters that we have in the third generation battery, we will now have two microinverters, one on each side of the fourth generation battery, significantly cutting down.
Peninsula: And I know, it's apples to oranges, because they were using a string inverter, but I guess with the fourth generation battery you have the ability to close that gap.
Peninsula: While still earning more margin so I guess I'm just trying to.
Let's see how you think about that opportunity next year with that new battery.
Speaker Change: Yes, I mean, yes.
Speaker Change: Before that let me give you a color on.
You know you talked about many things there you talked about battery you talked about competition, you talked about string inverter integrated into the battery I just wanted to remind you.
Badrinarayanan Kothandaraman: The Farm Factor. So we expect that to bring in another big level of improvement in gross margin. So those are the gross margin puts and takes on our battle. Okay, very helpful. And then my quick follow-up question on the 45X within Gross-Morford.
Speaker Change: Of.
Our benefits.
Now why we offer tremendous value so.
Speaker Change: In my in my in my trip in the last four weeks.
Speaker Change: Many of our customers.
Speaker Change: Sure.
Speaker Change: You know there.
They're very experienced.
Speaker Change: They have used.
Speaker Change: String Inverters and you have no idea of.
Badrinarayanan Kothandaraman: Last quarter, you talked about 500,000 units being about a $12 to $14 million benefit. For 2Q, you're talking about a similar number of units, but with a $14 to $17 million benefit. I'm not sure if I'm just splitting hairs here, but just wanted to see if you're kind of signaling that you're maybe keeping more of that 45X credit. Now, what happens is there are a few things that happen there, depending upon the power of the microinverters that we are building.
Of all of the problems.
They have gone through and they you know for them some of the customers mentioned safe AC on the roof is religion for us.
Speaker Change: So safe AC on the roof don't want high voltage DC about that's the first point on Enphase.
Speaker Change: Production.
Speaker Change: We have micro inverters for every firm.
Speaker Change: M P P P at the <unk>.
Speaker Change: Panel level.
Speaker Change: A reduction can be enhanced almost by 5% to 15% when you compare to.
Speaker Change: Normal string Inverters.
Speaker Change: But a panel monitoring many of our installers loved that.
Badrinarayanan Kothandaraman: Sometimes we may build a 384 watt microinverter, which is the 11 cents per watt mat there, or we may build a 640 watt microinverter that is used inside the battery, so it's a function of that and purely a function of that, so it just falls out that the higher power we make, the more advantage we have. This is why we are beginning to... You know, I told you that we are beginning to make our small commercial IQ8P microinverters, starting in Q2 as well, in the U.S. So those are 480 watts, so 11 cents a watt is $53 gross benefit, or gross production tax. Okay, that makes sense. Thank you very much.
Speaker Change: First panel monitoring and that homeowners love it because they are able to say okay. This particular thing is working and they are able to get serviced from Memphis Ultra fast we have opened 24 by seven.
Speaker Change: Reliability, you can count on and that's why we provide 25 year warranty most tough competition.
Speaker Change: It would be 10 or 12 years.
Speaker Change: No single point of failure.
Speaker Change: Unlike.
Speaker Change: String inverters that causes much higher uptime for your system and that's.
Speaker Change: That's you're all familiar with simple plug and play install our installers love the simplicity.
Speaker Change: No additional orders the rapid shutdown devices needed any orientation.
Speaker Change: You have roofs, and any roofs and different orientations, it's gotta be enphase nothing else.
Badrinarayanan Kothandaraman: Thank you. And our next question comes from Praneeth Satish with Wells Fargo. Please go ahead.
Speaker Change: Greg farming IQ eight micro inverters, enabling sunlight jumpstart for depleted batteries everybody knows this but if I were to emphasize.
Praneeth Satish: Thanks. Maybe just stay on the battery. So looking out to the fourth-gen battery, it seems like there's a very large cost reduction coming. I guess, how do you think about keeping this cost savings versus passing it on to customers? I guess, specifically, I'm thinking about this in the context of the Tesla Powerwall 3. Today, you can buy a Tesla Powerwall 3 with its integrated inverter, and that's going to be cheaper than an Enphase battery and inverter solution.
Speaker Change: You are running off grid, you have a power shutdown, you're running off grid battery.
Speaker Change: Let's say you've turned on Bac on by accident battery runs down.
Speaker Change: He runs down all the way to a particular percentage than the battery has got a capability to do what is called Black start. It opened it wakes up every few minutes the mix today in good faith I'm ready.
Speaker Change: You know it solo drive unit and that can happen for one or two days, but after one or two days that even that energy in the battery goes away and the batteries that that is the state of charge dropped 2% or below now with Enphase IQ micro Inverters you could do some late jumpstart.
Badrinarayanan Kothandaraman: And I know it's apples to oranges because they're using a string inverter, but I guess with the fourth-generation battery, you have the ability to close that gap while still earning more margin. So I guess I'm just trying to see how you think about that opportunity next year with that new battery. Yeah, I mean... Before that, let me give you a color.
Speaker Change: You have even without the grid sunlight comes in farm. The grade you jumpstart the battery at that time and the battery state of charge comes up so Thats. An example, some late jumpstart that we do and I've called out micro Inverters are now being made.
Badrinarayanan Kothandaraman: You know, you talked about many things there. You talked about batteries, you talked about competition, you talked about string inverters integrated into the battery. I just want to remind you of our benefits and, you know, why we offer tremendous value. So, in my, in my, on my trip in the last four weeks.
Speaker Change: In America.
That's a big deal many other installers loved that.
Speaker Change: When it comes to storage.
Speaker Change: Safe chemistry, lithium iron phosphate big deal UL 90, 548 fire certification very big deal.
Badrinarayanan Kothandaraman: Many of our customers are. You know, they are... They are very experienced string inverters, and you have no idea of all of the troubles they have gone through. For them, some of the customers mentioned that safe AC on the roof is religion.
Speaker Change: And we have worked with the.
Speaker Change: With the fire departments and made sure that we optimize the placement of batteries there.
Speaker Change: So we have done it for a lot of the adjacent California.
Speaker Change: Best warranty in the industry you see competition at EMEA approximately.
Badrinarayanan Kothandaraman: You don't want high voltage DC above you. That's the first point on Enphase. Production, you know; we have microinverters for every panel. MPPT at the panel level.
Speaker Change: Our warranty is 15 years, no moving parts of fan Liu.
Low voltage DC operation of the batteries.
Speaker Change: If you see a concept of a hybrid inverter.
Speaker Change: One in Volta <unk>.
Speaker Change: Scarab solar and storage obviously, there is a lot more stress on that but we have a distributed architecture, which means you got inverters under roof that they'd get up solar you've got inverters in the battery that take care of storage and even if one inverter and the battery goes down the other inverters out there to help the CIS.
Badrinarayanan Kothandaraman: Production can be enhanced almost by 5 to 15% when you compare it to a Normal String Inverter for panel monitoring. Many of our installers love panel monitoring, and their homeowners love it because they are able to say, "Okay, this particular thing isn't working, and they are able to get service from Enphase ultra fast. We are open 24 by 7.
Speaker Change: <unk> remember Don.
Speaker Change: <unk> sort of visible in situ without taking the battery of the while minimizing downtime I talked about gross margin at this time I didn't say this but it is a big deal.
Badrinarayanan Kothandaraman: Reliability you can count on. That's why we provide a 25-year warranty. Most of the competition, maybe 10 or 12 years.
Speaker Change: Our.
Speaker Change: Overhead costs in running a battery business are dropping quite a bit because we have figured out how to not do expensive Artemis and expensive armies. What you have a big system hanging off here a while.
Badrinarayanan Kothandaraman: No single point of failure, and string inverters that cause a much higher uptime for your.., and that's what you're all familiar with. Simple plug-and-play install.
Speaker Change: The worst thing you do is it doesn't work you take it off the wall. The homeowners off commission for many days in a row than you have to take it back to the installers warehouse.
Badrinarayanan Kothandaraman: Our installers love the simplicity. No additional RSD, or rapid shutdown devices needed, in any orientation. If you have roofs in any orientation, it's got to be Enphase, nothing else, grid-forming IQ-8 microinverters enabling sunlight jump-start for depleted batteries. Everybody knows this, but if I were to emphasize it, you are running off-grid, you have a power shutdown, you're running off-grid, your battery, you know, let's say you've turned on the AC by accident, your battery runs down, your battery runs down all the way to a particular percentage.
Speaker Change: The OEM or the component manufacturer of battery manufacturer has to ship product to him and the installer has to spend his valuable time.
Speaker Change: On the field once again installing the new battery the homeowners down he is losing.
Speaker Change: Lawrence storage, he is losing Ah self consumption dollars and especially in a place like California that can add up a lot. It can it can be a major source of annoyance with Dod field serviceability in CPU.
Speaker Change: Instead of taking a $5000 battery, we can take a 50 dollar board PCB board off.
Badrinarayanan Kothandaraman: Then the battery has got a capability to do what is called a black start. It opens, it wakes up every few minutes the next day, and it says, I am ready, and it, you know, it asks the sun or unit, and that can happen for one or two days, but after one or two days, even that energy in the battery goes away, and the battery is dead.
Speaker Change: That out for the new burdens in a matter of an hour you're up and running.
Speaker Change: And so enhance serviceability.
Speaker Change: Next one.
Speaker Change: 48, <unk> or every five kilowatt hour battery 144, Npls for a 15 kilowatt hours enough to startup for Tun.
Badrinarayanan Kothandaraman: That is, the state of charge drops to percent or below. Now, with Enphase IQ microinverters, you could do sunlight jumpstart. You have it even without the grid. Sunlight comes, you form the grid, you jumpstart the battery at that time, and the battery state of charge comes up.
Uh huh.
Speaker Change: In our tube.
Speaker Change: Two of batteries to offer five kilowatt hour batteries are enough to start.
Speaker Change: <unk>.
Speaker Change: Air Conditioner, and our power is doubled both the pekin continuous power.
Speaker Change: Double that of the previous generation and installers loved that.
Badrinarayanan Kothandaraman: So that's an example of sunlight jumpstart that we do. And of course, our microinverters are now being made in America. That's a big deal. Many of our installers love that. When it comes to storage... Safe Chemistry, Lithium-Ion Phosphate, big deal.
Speaker Change: Simple to install and commission for example, the <unk> III.
Speaker Change:
Speaker Change: The name <unk>.
Speaker Change: And then entry scenario much like Germany our.
Speaker Change: Our installed many of our installed most of our installed.
Speaker Change: Carl it's a great tight installed.
Badrinarayanan Kothandaraman: UL 9540A fire certification, a very big deal. And we have worked with the fire departments and made sure that we have optimized the placement of batteries there. So we have done it for a lot of AHAs in California. Best warranty in the industry. You see competition at 10 years, you know; approximately our warranty is 15 years, no moving parts or, Low-voltage DC operation of the batteries.
Speaker Change: Great paid installed at a rate similar installed at our time of use installed or savings badly they're all identical that is the batteries simply.
Speaker Change: Provides.
Economic advantage.
Speaker Change: And.
Speaker Change: Installing such a battery is premier you finish your solar.
Speaker Change: Youre done with AC on the roof.
Speaker Change: You then all you'll need to do is to take two of our five kilowatt hour batteries you hang it off the AAC bus that has nothing to size. There is no main panel upgrades you don't need to worry about where to place that you simply hand get off the bus.
Badrinarayanan Kothandaraman: If you see the concept of a hybrid inverter, where one inverter takes care of solar and storage, obviously, there is a lot more stress on that. We have a distributed architecture, which means you've got inverters on the roof that take care of the solar power, and you've got inverters in the battery that take care of the storage. And even if one inverter in the battery goes down, the other inverters are there to help. The system is never down.
Speaker Change: And the installation can be done in less than two hours you connect it to the same combined box that you used for solar no extra component and Europe up and running.
Speaker Change: So.
Speaker Change: That's becoming very popular right say look battery on a good day.
Badrinarayanan Kothandaraman: Field serviceable, in-situ, without taking the battery off the wall, minimizing downtime. I didn't say this, but it is a big deal.
Speaker Change: Battery, becoming extremely popular.
Speaker Change: Yeah.
Speaker Change: So that's that so I told you the benefits of Enphase solar and storage system. If you look at all in one mobile app.
Badrinarayanan Kothandaraman: Overhead costs in running a battery business are dropping quite a bit because we have figured out how to not do expensive RMAs. An expensive RMA is when you have a big system hanging off your wall. The worst thing you do is it doesn't work.
Now the problem with having multiple solar and storage manufacturers as the homeowner has got a mess of apps.
Speaker Change: And it's possible, but it's difficult to keep track of all of that so all information and control at your fingertips the.
Badrinarayanan Kothandaraman: You take it off the wall. The homeowner is off commission for many days in a row. Then you have to take it back to the installer's warehouse. The OEM or the component manufacturer, and the battery manufacturer has to ship the product to him, and the installer has to spend his valuable time on the field once again installing the new battery. The homeowner is down; he is losing Solar and Storage. Self-consumption dollars, and especially in a place like California, that can add up a lot. It can be a major source of annoyance.
Speaker Change: The ability to take the home off the grid through an enphase that we provide that as well we provide 24 hour 24 by seven customer service with 100 field service technicians, who will take care of the batteries.
Speaker Change: Installer doesn't meet the spend is valuable time, he can focus on a new install.
And as you know the big advantage is with an AC coupled system is.
Speaker Change: You have both the power from your solar system as well as from your batteries. So the combination means even more about your own have one inverter constraining.
Badrinarayanan Kothandaraman: With our Field Service Ability Institute, instead of taking a $5,000 battery, we can take a $50 board, the PCB board. Take that out, put the new board in, and in a matter of an hour, you're up and running, so enhanced serviceability. The next one, LRA, 48 ampere LRA for every 5 kilowatt hour battery, 144 amperes for 15 kilowatt hours, enough to start a fort on, uh, uh, uh, you know, two. Two batteries. Two of our five kilowatt hour batteries are enough to start. Thank you for watching.
Speaker Change: And of course, the last one is our <unk>.
Speaker Change: <unk> software power control system software that one is invaluable going to be invaluable to installers.
Speaker Change: To not do main panel upgrades and.
Speaker Change: And by the way <unk> we.
Speaker Change: We can do BCS simply even for NIM to expansion systems that is if you wanted to and expand the R&M do system.
As long as you do not export.
Speaker Change: Anything.
Beyond <unk> system, you can still do you remember those system to support your current consumption, while exporting energy maximum energy from the old system. So named two expansion is now a lot easier.
Badrinarayanan Kothandaraman: Simple to install and commission. For example, the NEM 3. The NEM3 scenario, much like Germany, our installs, many of our installs, most of our installs are what's called a grid-tied installation. The grid tide installation, or a rate saver installation, or a time of use installation, or a savings battery, they are all identical. That is, the battery simply... provides, um.., you know, an economic advantage, and installing such a battery is trivial. You finish your solar panel. You're done with AC on the roof. Now, all you need to do is to take two of our five kilowatt hour batteries. You hang it off the AC bus. There is nothing to size.
Speaker Change: No.
Speaker Change: So hopefully I gave you some color on.
Speaker Change: The value that we add and we are not stopping we are going to be focused on cost.
Speaker Change: Batteries are.
Speaker Change: Our customers are a cost sensitive.
And.
Speaker Change: With every opportunity we are going to meet or moving boxes off the wall.
Speaker Change: And I go talk to them.
Speaker Change: Yes in order to go well.
Speaker Change: With me with the.
Speaker Change: With all of.
Speaker Change: The installers and we have clear plans on what we are going to do to eliminate more boxes.
Speaker Change: On the wall.
Speaker Change: So we are we are ultra sensitive as you know.
Speaker Change: In response to your question and if we meet to.
Badrinarayanan Kothandaraman: There is no main panel upgrade. You don't need to worry about where to place it. You simply hang it off the AC bus.
Speaker Change: Drop pricing, because we arent, providing as much value compared to competition, we will do so.
Speaker Change: Got it. Thank you for that very expense events or maybe just one more quick one on again on batteries. So.
Badrinarayanan Kothandaraman: And the installation can be done in less than two hours. You connect it to the same combiner box that you use for solar, no extra components, and you're up and running. So, um... That's becoming very popular. The Rate Saver battery, a grid-type battery, is becoming extremely popular. So that's that. I told you the benefits of Enphase Solar and Enphase Storage. System, if you look at all in one mobile app. The problem with having multiple solar and storage manufacturers is the homeowner has got a mess of apps. And it's possible, but it's difficult to keep track of all of that.
Speaker Change: You said that the channel is normal for batteries you are at battery sell through of.
Speaker Change: 102028 megawatt hours in Q1 for a seasonally weak quarter the guidance for Q2 as battery shipments at 100 to 120 megawatt hours.
I am assuming there that sell in equal sell through in Q2. So maybe if you could just talk about what's driving that slight decrease from 128 megawatt hours to the the guidance of 110.
Speaker Change: Is that conservatism or are there other factors because it seems like theres a lot of a lot of tailwind in the battery business.
Badrinarayanan Kothandaraman: So all information and control at your fingertips, the ability to take the home off the grid through an Enphase app. We provide that as well. We provide 24-hour, 24-by-7 customer service with 100 field service technicians who will take care of the battery.
Speaker Change: That is that as conservatism and.
Speaker Change: Yes, I knew that.
Speaker Change: You guys were to ask me the questions because you are intelligent.
Speaker Change: The.
Speaker Change: I said I said carefully worded that.
Speaker Change: It is almost there.
Speaker Change: That's what I said so.
Speaker Change: But youre right in general.
Badrinarayanan Kothandaraman: The installer doesn't need to spend his valuable time; he can focus on a new installation. And as you know, the big advantage with an AC coupled system is that you have both the power from your solar system as well as from your battery. So the combination means even more power. You don't have one inverter constraining your output.
Speaker Change: The battery and we expect we expect to run quite mean on batteries.
And so yes, we had comes innovative it does seem that there is some opportunity for upside.
Speaker Change: Got it thank you.
Speaker Change: Thank you and our next question today comes from Philip Shen with Roth.
Philip Shen: Please go ahead.
Philip Shen: Everyone. Thanks for taking my questions back to Brian's question earlier on the timing of normalized revenue boundary I think you've said on the last call the $475 million would come in the back half of this year are we still on track for that so the $475 million could be in either Q3 or four.
Badrinarayanan Kothandaraman: And of course, the last one is our PCS software, power control system software. That one is invaluable and will be invaluable to installers, to not do the main panel. And by the way, PCS. We can do PCS simply even for NEM 2 expansion systems, that is, if you want to expand your NEM 2 system. As long as you do not export... anything, you know, beyond your old system, you can still use your NEM2 system to support your current consumption while exporting energy, maximum energy from the old system.
Philip Shen: And can you walk us through you know is it more likely Q4 Q3, or if there's a chance that that gets pushed out to Q1.
You'll note that we don't give guidance for Q3, not Q4, but I described all of the tailwind and we.
Philip Shen: We are growing by from from a sell through demand of $3 76 to 400.
Badrinarayanan Kothandaraman: So NEM2 expansion is now a lot easier. So hopefully, I gave you some color on... The value that we add, and we're not stopping, we are going to be focused on cost. Batteries are, you know, our customers are cost sensitive. With every opportunity, we are going to be removing boxes off the wall. Raghu was with me and the installers, and we have clear plans on what we are going to do to eliminate more boxes on the What? So we are, we are ultra sensitive, as you know, in response to your question.
Philip Shen: And we described the growth vectors, we are optimistic about all of the growth vectors.
Philip Shen: And we talked about.
The purchasing takes in Europe, we talked about Netherlands, we talked about France, we've talked about Germany. We are we're extremely bullish that we.
Philip Shen: We are introducing a lot of new products in those regions. We expect we have done that in the last year, we expect them to take off.
Philip Shen: And then we talked about the non California States, where we are seeing where we are seeing them seasonally bounce back up so.
Badrinarayanan Kothandaraman: And if we need to drop prices because we aren't providing as much value compared to the competition, we will do so. Got it, now thank you for that very expensive answer. Maybe just one more quick one, again on batteries. So you said that the channel is normal for batteries. You were at a battery sell-through of 128 megawatt hours in Q1 for a seasonally weak quarter. The guidance for Q2 has battery shipments at 100 to 120 megawatt hours.
Philip Shen: And California, I would say, California installers.
Philip Shen: Like what I said I was extremely optimistic after my trip the last three.
Philip Shen: Four weeks off.
Philip Shen: Data also shows.
Philip Shen: Good plants, so while we are talking about a sell through.
Philip Shen: Demand and customer demand of $400 million in Q2, I expect the numbers to go continuously up in Q3 and Q4.
Speaker Change: Great. Okay. So very much still on path, but there might be a little bit of risk, but you definitely see a path it sounds like.
Badrinarayanan Kothandaraman: I'm assuming there that sell-in equals sell-through in Q2. So maybe if you could just talk about what's driving that slight decrease from 128 megawatt hours. That is, that is conservatism. And yes, I knew that. You guys would ask me the questions because you're intelligent.
Speaker Change: Yes, I do.
Speaker Change: Great. Okay. Thank you shifting gears to maybe data that might be even ahead of sell through.
Speaker Change: You know our channel work suggests in this challenging U S resi time.
Badrinarayanan Kothandaraman: You know, I said carefully worded that it is almost there. That's what I said. So. But you're right, in general, the battery we expect, we expect to run quite lean on the battery. And so, yes, we are conservative.
Speaker Change: You guys are gaining.
Speaker Change: A healthy amount of share and whether it's 5% from one source versus a reasonable that we did you know you might be gaining 11% share with 5% of the market.
Speaker Change:
Speaker Change: That's pretty healthy.
Speaker Change: And then.
Badrinarayanan Kothandaraman: It does seem that there is some opportunity for upside there. Got it. Thank you. And our next question today comes from Philip Shen with Roth MKM. Please go ahead.
Speaker Change: Potentially it can make a big difference and so wanted to see if you can help us understand what is the activation implied revenue.
Speaker Change: Might be seeing versus sell through.
Philip Shen: Hi everyone, thanks for taking my questions. Back to Brian's question earlier on the timing of normalized. Badri, I think you said on the last call that the 475... in the back half of this year. Are we still on track for that? In either Q3 or 4, walk us through more likely Q4, or if there's a chance that... Well, Phil, you know that we don't give guidance for Q3 or Q4, but I described all of the tailwinds and we... You know, we are growing by, you know, from a sell-through demand of 376 to 400, and we described the growth vectors. We are optimistic about all of the growth vectors, and we The puts and takes in Europe; we talked about the Netherlands, we talked about France, and we talked about Germany.
Speaker Change: And obviously compared to the sell in so.
Speaker Change: Do you track that in any way that you can articulate what was the activation of implied revenue for maybe Q1, maybe what you see for Q2 and beyond thanks.
Speaker Change: Yes, I mean.
Speaker Change: We do see we do see the reports we do see sell side reports, reducing third party reports we are focused on.
Speaker Change: Highlighting our value in working with installers in these times. These are difficult times. So we're trying to help them with all of the services, we have whether its proposal whether it is permitting whether it as well.
Speaker Change: And that it is properly modeling.
Speaker Change: You know whether it leads.
Speaker Change: Or whether it simply to understand that.
Speaker Change: That automates, how can we help them understand their service understand the labor understand how to improve their efficiency doing pays them with installers. So we believe that our relationships with installers in these times.
Badrinarayanan Kothandaraman: We are extremely bullish there. We are introducing a lot of new products in those regions. We expect, as we have done in the last year, we expect them to take off. Then we talked about the non-California states where we are seeing them seasonalally bounce back up. And California.
Speaker Change: Is the single most reason.
Any market share gain that you're highlighting.
Speaker Change: Normally from.
Speaker Change: Sell through Activations for us it will take us.
Speaker Change: It'll take us about four to eight weeks.
Badrinarayanan Kothandaraman: I would say California installers are... Like I said I was extremely optimistic after my trip, the last three, four weeks of data also shows. Go Trend. So, while we are talking about a sell-through..., demand, and customer demand of $400 million in Q2, I expect the numbers to go continuously up in Q3 and Q4. Great, okay, so very much still on the path, but there might be a little bit of risk, but you definitely. Yes, I do.
Speaker Change: And.
Speaker Change: But any market share gains, we wound talked potentially seeing.
Speaker Change: Going forward because as you know an installer switched was no ones, which is 100% like that there is a ramp associated with ramping down what they're using and ramping up the new product.
Speaker Change: And I would say that will show up definitely is sell through increases.
Speaker Change: And we will report that in Q2, I mean real reported Q2 results in the Q3 call.
Badrinarayanan Kothandaraman: Great, okay. Shifting gears to... data that might be. You know, our channel work suggests challenging U.S. Res-E time. You guys, a healthy amount of share. That's 5% from one source.
Speaker Change: What I mean.
Speaker Change: Okay. Thanks, very much about here I'll pass it on.
Speaker Change: Yes.
Speaker Change: And our next question comes from Christine Cho with Barclays. Please go ahead.
Badrinarayanan Kothandaraman: All that we did, you might be gaining 11% share or 5% of the market. That's a lot of information that we have to share with you, and we have to do it together. So I'm going to give you a little bit of background on, Be healthy.
Christine Cho: Good evening. Thank you for taking my question, so I'm going to ask this sell through question a different way.
Christine Cho: It's $400 million into Q and expect it to get to somewhere between 450 to 500 by year end.
Badrinarayanan Kothandaraman: We can make a big difference, and so I wanted to see if you could help us understand. What is the implied revenue that you might..., and obviously compared to the sell-in. So do you track that in a way that you can articulate, you know, what was the activation implied revenue for maybe Q1? Yeah, I mean, we do see reports, we do see sell-side reports, we do see third-party reports. We are focused on... Highlighting our value and working with installers. In these times, these are difficult times, so we are trying to help them with all the services we have.
Christine Cho: So, let's just take the midpoint $75 million can you just give us an idea of combining all of the comments that you you gave us.
Speaker Change: Individually, but you know that 75 million how much of it is driven by Europe versus U S is it like half half or is it more Europe is it more U S. And then how much of it is driven by micro inverters versus batteries.
And then when you guys say that Destocking will be done by end of Q2 are you assuming back to the eight to 10 weeks at that what you are considering considering you know normalized levels of inventory.
Badrinarayanan Kothandaraman: Whether it's a proposal, whether it's a permit, whether it's..., whether it's proper modeling, whether it's leadership, or whether it's simply to, you know, understand their maze. You know, how can we help them understand their service, understand their labor, understand how to improve their efficiency by doing Kaizen with the installers? So we believe that our relationships with the installers in these times are the single most reason for any market share gain that you're highlighting. Normally, from cell through to activations, for us, it will take us about four to eight weeks.
Speaker Change: Yes, So let me answer all of them.
Speaker Change: We expect.
Speaker Change: I mean, Europe as well as the U S have healthy growth vectors for US we do expect 50 50 from.
Speaker Change: North America.
Speaker Change: And Europe.
Speaker Change: <unk>.
Speaker Change: Your other question was.
Speaker Change: And Mitra.
Speaker Change: Micro versus century battery.
Speaker Change: Micro versus battery.
Speaker Change: I would say considering that you know non California on states battery attach isn't.
Badrinarayanan Kothandaraman: And, but any market share gains we will start potentially seeing going forward, because as you know, when installers switch to us, no one switches 100% like that. There is a ramp associated with ramping down what they are using and ramping up the new product. And I would say that will definitely show up as sell-through increases, and we will report that in Q2. I mean, we'll report our Q2 results on the Q3 call. That's what I... Thanks very much.
His entire so micro versus battery I would still say 60 40 on micros.
Speaker Change: Micros versus battery.
Speaker Change: Here's what I would say.
Speaker Change: And the last one in you asked is that.
Speaker Change: Eight to 10 weeks.
Speaker Change: The way we measure our weeks on hand is.
Speaker Change: Typically.
Speaker Change: Backward looking.
Speaker Change: It's what we say is over the quarter.
Speaker Change: This was the sell through rate.
Christine Cho: And our next question comes from Christine Cho with Barclays. Please go ahead. Good evening.
Speaker Change: This is the inventory you have on hand today.
Right the inventory by the sell through rates you get the weeks on that.
Speaker Change: One of the interesting ways that I would expect distributors will mention it.
Speaker Change: We will be forward looking weeks of inventory.
Badrinarayanan Kothandaraman: Thank you for taking my question. So I'm going to ask this sell-through question a different way. You know, it was $400 million in 2Q and expected to get to somewhere between $450 to $500 by year-end.
Speaker Change: Which is if the demand for example in the last two or three weeks shows a significant uptick.
Speaker Change: That weeks on hand would be.
Speaker Change: Existing amount they have in front of them divided by that increased rate in the last two to four weeks.
Badrinarayanan Kothandaraman: So let's just take the midpoint of $75 million. Can you just give us an idea, combining all of the comments that you gave us individually, but you know that $75 million, how much of it is driven by Europe versus the U.S.? Is it like half-half?
Speaker Change: And so those numbers are in.
Speaker Change: Good times.
The forward looking inventory weeks on hand will be lower.
Speaker Change: Dan the backward looking weak sometimes.
Speaker Change: And.
Badrinarayanan Kothandaraman: Is it more Europe? Is it more U.S.? And then how much of it is driven by microinverters versus batteries? And then when you guys say that destocking will be done by the end of QQ, are you assuming back to the 8 to 10 weeks? Is that what you're considering, you know, normalized levels of inventory? Yeah, so let me answer all of them.
Speaker Change: So for US we are consistent in the way we measure it we always look at whenever it early weeks on hand, I will tell you that okay. This is the sell through for the quarter.
Speaker Change: That what happened in for example, Q1. This is what happened in Q1. This was the inventory at the end of Q1.
That inventory channel inventory divided by the sell through the reconnect.
Our number of rule of thumb or our general number has been always eight to 10 weeks.
Badrinarayanan Kothandaraman: We expect, I mean, Europe as well as the US have healthy growth vectors for us. We do expect 50-50 from North America and Europe. Your other question was... M.I.C.E. vs. Mallory. Tell me again, micro versus battery? Yeah, micro versus battery. I would say, considering that, you know, non-California states, the battery attached isn't... is in Thai, so micro versus battery, I would still say 60-40 on micro.
Speaker Change: If you if you are on the upswing.
Speaker Change: Forward looking weeks on hand could be smaller than that.
Speaker Change: Okay right.
Speaker Change: Okay. That's that's an interesting nuance I did not realize that you were looking backwards.
Speaker Change: My second question. The 50, you said in your prepared remarks that 70% of your NIM III Plano assistance are attaching our battery you also mentioned Youre meeting with a whole bunch of installed yellow you met with a whole bunch of installers in California, do you have a sense of whether you're the installers using our product are leaning more towards.
Badrinarayanan Kothandaraman: [inaudible] This is what I would say. And the last one you asked is eight to 10 weeks. The way we measure our weeks on hand is... (inaudible) What we say is, over the quarter, this was the sell-through rate. This is the inventory you have on hand today. Divide the inventory by the sell-through rate, and you get the... One of the interesting ways that I would expect distributors will measure it, forward-looking weeks, of which is, if the demand, for example, in the last..., two or three weeks shows a significant uptick, that week's fun hand would be the existing amount they have in front of them divided by that increased rate in the last two to four. And so those numbers, in good times.
Speaker Change: Load shifting or back up and I'm not sure. If you answered this with <unk> question and I just missed it but.
Speaker Change: Can you also give us a sense of where you are in the development of your meter color and when we should expect it to what went out.
Speaker Change: That's right Lord shifting is a significant fraction of our installers.
Speaker Change: That's right and then the second is.
Speaker Change: When is the meter colored coming out so just for the benefit of the audience.
Badrinarayanan Kothandaraman: The forward-looking inventory weeks on hand will be lower. Then, the backward-looking weeks on... For us, we are consistent in the way we measure it. We always look at, whenever I tell you weeks on hand, I will tell you that, okay, this is the sell-through for the quarter, that what happened in, for example, Q1, this is what happened in Q1, this was the inventory at the end of Q1, that channel inventory, divided by the sell-through if the week's on end. And our number, rule of thumb, our general number has always been 8 to 10 weeks. If you're on the upswing, forward-looking weeks on hand could be smaller than that.
Speaker Change: Basically, California has something called.
Speaker Change: Meter main combos.
Speaker Change: These meter main combos have both the meters and the main panel.
Speaker Change: Integrate.
Speaker Change: Into one structure.
Speaker Change: And when you have to insert backup.
Speaker Change: Everybody knows.
Speaker Change: You have to do ugly things like roofing.
Speaker Change: Lord's Apart you have to put a backup switch in between.
Speaker Change: Therefore, there is a lot of labor.
Speaker Change: <unk>.
Speaker Change:
Speaker Change: That is actually spent and doing that typically.
Speaker Change: A day or two is spent and relocating all of those loads and then putting our system controller and between the meter and the main load center with the meter color.
Badrinarayanan Kothandaraman: Right. Okay. That's an interesting nuance. I did not realize that you were looking backwards.
Badrinarayanan Kothandaraman: My second question: you said in your prepared remarks that 50% of your NEM 3.0 systems are attached to your battery. You also mentioned you met with a whole bunch of installers in California. Do you have a sense whether the installers using your product are leaning more towards load shifting or backup? And I'm not sure if you answered this with Praneeth's question, and I just missed it, but can you also give us a sense of where you are in the development of your meter collar and when we should expect you to roll one out? That's right, load shifting is a significant fraction of our... And then the second question is, when is the meter collar coming out? So, just for the benefit of the audience,
Speaker Change: It's a very elegant way, where you have that switch.
Speaker Change: At the meter itself.
Speaker Change: That comes around the meter.
Speaker Change: It's got the <unk>, which is the micro grid interconnect switch really.
Speaker Change: Right there at the meter.
Speaker Change: At the color and that.
Speaker Change: Basically means you don't spend Amy labor.
Speaker Change: Relocating those rules.
Speaker Change: Our version of the meter call it its coming out shortly.
Speaker Change:
Speaker Change: It will be piloting.
Speaker Change: By the end of the end of the year.
Speaker Change: Thank you.
Speaker Change: And our next question today comes from James West of Evercore ISI. Please go ahead.
Badrinarayanan Kothandaraman: Basically, California has something called the Meter Mame Combo. These meter main combos have both the meter and the main panel in one structure, and when you have to insert a backup, everybody knows you have to do ugly things like ripping your loads apart; you have to put a backup switch in between. Therefore, there's a lot of labor that is actually spent on doing that. Typically, a day or two is spent relocating all of those loads and then putting a system controller in between the meter and the main load switch, with the meter collar. In a very elegant way, where you have that switch at the meter. It's a device that goes around the meter. It's got the MID, which is the microgrid interconnect switch relay, right there at the meter.
James Carlyle West: Hey, budgetary real real quick one for me based on your conversations in California over the last three or four weeks she met what's your.
James Carlyle West: Installer base and you talked about how big you talked earlier about how they've cut costs pretty significantly is there.
James Carlyle West: Are you concerned at all about if growth does come back as you see it that their ability to respond to that growth.
Speaker Change: Oh, I think that all much more savvy than what we think.
Speaker Change: Especially the long tail.
Speaker Change: The people I've met are.
Speaker Change: At the present day two of the segments we service.
Speaker Change: Typically.
They do between one and five megawatts a year.
Speaker Change: That means you can you can probably see they generate revenues between two five.
Badrinarayanan Kothandaraman: I'm at the collar, and that basically means you don't spend any money on labor. Our version of the Meter Collar is coming out shortly. It will be in pilot by the end of the year.
Speaker Change: <unk> 15.
<unk> hundred $20 million a year annual revenue.
Speaker Change: They have teams.
Usually.
Speaker Change: Two to three crews even one to two crews very lean team.
Badrinarayanan Kothandaraman: Thank you. And our next question today comes from James West at Evercore ISI. Please go ahead.
Speaker Change: The company is less than 50 50 people.
Speaker Change: In core employees.
James Carlyle West: Hey, Badr, real, real quick one for me, based on your conversations in California over the last three or four weeks, as you met with your installer base, and you talked about how they, you talked earlier about how they cut costs pretty significantly. Is there any concern at all about if growth does come back as you see it, that their ability to respond to that? I think they're all much more savvy than we think, especially the long tail. The people I met are representative of the segments we service, and they typically, you know, they do between one and five megawatts a year. That means you can probably see they generate revenues between 5 and 15 or 5 and 20 million dollars a year, annual revenues. They usually have teams. 2-3 crews or even 1-2 crews; a very lean team.
Speaker Change: Relatedly less the use of contractors if they have to.
Speaker Change: And they have become very smart and managing managing money as well they know that they shouldnt be there should be mean in these times they don't waste money they have less inventory.
Speaker Change: One of the Big thing that has changed as now they have.
Speaker Change: A lot more financing options available to them.
Speaker Change: Okay. So there are a lot of options available to them and.
Speaker Change: They have if loans do not work well they have leases or ppas many of them and I didn't meet at least the third.
Speaker Change: Maybe 30% of the installers World, we're still selling cash too.
The customers in southern California, as well as northern California, those are no problem.
Speaker Change: The other other.
Speaker Change: Folks who are moving to lease and PPA rapidly now that there are multiple suppliers.
Badrinarayanan Kothandaraman: The company is less than 50 people. The core employees are relatively few. They use contractors if they have to. They have become very smart at managing money as well. They know that they shouldn't be; they should be lean in these times.
Speaker Change: So all in all I think you know.
Speaker Change: What I'm trying to say is that they are nimble.
Speaker Change: They understand exactly what is happening they are very savvy on the product they gave us a number of ideas too.
Speaker Change: Improve and do even better than what we are doing.
Badrinarayanan Kothandaraman: They don't waste money. They have fewer inventory. One other big thing that has changed is that now they have a lot more financing options available to them. So they have a lot of options. If loans do not work well, they have leases or PPAs. Many of them, you know; I did meet at least a third. Maybe 30% of the installers were still selling cash to customers in Southern California as well as Northern California, so those are no problem.
And we are going to take that feedback and I'm not worried whether they will they will be able to grow there'll be able to grow exactly like us in these times and good times.
Speaker Change: Got it got it that's very helpful. Thanks Walter.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: We are waiting for the next question.
Speaker Change: Okay.
Speaker Change: And our next question today comes from Moses Sutton.
Moses Nathaniel Sutton: Please go ahead.
Moses Nathaniel Sutton: Hi, This is Heidi I'm familiar Geoff Thanks for fitting me in I just have a quick question coming back to the $113 million at Milliman under shipments in <unk> can you provide the breakout of what was U S versus non U S. And then same for the $19 million of expected under shipment in Q, how much with you guys versus not.
Badrinarayanan Kothandaraman: The other folks were moving to lease in PPA rapidly now that there are multiple suppliers. So all in all, I think, you know, what I'm trying to say is that they are nimble. They understand exactly what is happening.
Badrinarayanan Kothandaraman: They are very savvy about the products. They gave us a number of ideas to improve and do even better than what we are doing. And we are going to take their feedback, and I'm not worried whether they will be able to grow. They'll be able to grow exactly like us in these times, in good times.
Speaker Change: Thank you.
Speaker Change: And I would basically expect that.
Speaker Change: It is it is it is roughly in the ratio that we.
Speaker Change: We shipped.
Speaker Change: Which is I would say two thirds of the U S. In the third Bureau.
Badrinarayanan Kothandaraman: Got it. Got it. That's very helpful. Thanks, Byron.
Speaker Change: Okay, great. Thank you.
Operator: We are waiting for the next question, and our next question today comes from Moses Sutton at BNP Paribas. Please go ahead. Hi, this is Heidi. I'm from BNP Paribas.
Speaker Change: And our next question today.
Jordan: Oh from Jordan.
Jordan: Two securities. Please go ahead.
Jordan: Yes.
Jordan: Just wanted to see if there's any if.
Jordan: If you had any updates on exclusivity arrangement with Sunpower.
Moses Nathaniel Sutton: Thanks for fitting me in. I just have a quick question. Coming back to the $113 million in undershipments in 1Q, can you provide the rough breakout of what was U.S. versus non-U.S.? And then same for the $90 million of expected undershipment in 2Q, how much was U.S. versus non-U.S.? And I would basically expect that... It is roughly in the ratio that we ship.
Jordan: That was scheduled to come to an end I think back in March. So I'm, just curious if theres anything to touch on that.
Jordan: The question is.
Jordan: Is there any update on Sunpower and <unk>.
Jordan: As a as new management as everybody knows.
Jordan: And we know Tom when well have been talking to Tom.
Jordan: Right now.
Jordan: It's it's business as usual.
Jordan: For us we have a very strong relationship we are supporting conferred wealth and vice versa.
Jordan: And.
Badrinarayanan Kothandaraman: Great, thank you. And our next question today comes from Jordan Levy with True Securities. Please go ahead. The question is, is there any update on SunPower? SunPower has new management, as everybody knows, and we know Tom Warner well. I've been talking to Tom. You know, right now... It's business as usual for us. We have a very strong relationship.
Jordan: When we find such a contract we will let you know.
Speaker Change: Thanks, so much for that and maybe just a follow up I know it was getting.
Speaker Change: Getting ready to step down as it could be.
Speaker Change: Sure.
Speaker Change: Sure.
Speaker Change: So I'm just curious if you could talk to.
Speaker Change: Any update or if you have someone in March.
The other details.
Speaker Change: I would emphasize.
Oh, yes, we are having a hard time hearing you, but I think I got the question. This is.
Replacement for your Chief commercial officer.
Speaker Change: Is I guess the question yes.
Speaker Change: Let me finalize that ability.
Jordan Levy: We are supporting SunPower well, and vice versa. And when we sign such a contract, we will let you know. Oh, yeah. We're having a hard time hearing you.
Speaker Change: They finalize that we have.
Speaker Change: You know we have two very experienced executives.
Speaker Change: That I have put in charge because Europe is so important for us.
Badrinarayanan Kothandaraman: I think I've got the question, replacement for your chief commercial officer. I guess the question is, Yes, we've already finalized that. Yeah, we've already finalized that. We have... You know, we have two very experienced executors that I have put in charge because Europe is so important for us. I wanted a very experienced executive to live in Europe, somebody who understands the headquarters properly. And so one of our executive staff, meaning one that reports to me, his name is Sabas Damiam, is going to be running all of Europe. South Africa Sealed. So basically, he's actually relocating to Europe in order to manage that, and then the team in the rest of the world, I call it, you know, America, Australia, India, Asia.
Speaker Change: Wanted a very experienced executive to live in Europe.
Speaker Change: Somebody who understands that.
Speaker Change: Headquarters properly.
Speaker Change: And so one of our executive staff.
Speaker Change: Meaning.
Speaker Change: The one that reported to me his name is <unk>.
Speaker Change: He.
Speaker Change: Is going to be running all of Europe, and South Africa sales so.
Speaker Change: So basically he's actually relocating.
Speaker Change: To Europe.
Speaker Change: In order to manage manage that that team and then the team and.
The rest of the World I call. It you know Americas, Australia, India Asia.
Speaker Change: Both Americas, not as well as south.
Speaker Change: And I, especially North American team is a very seasoned team we have.
Speaker Change: Kenneth Fong runs our north American team well.
Speaker Change: Madame.
Badrinarayanan Kothandaraman: [inaudible] Mehran is the senior vice president who is going to manage the rest of the world's sales, and Fong will report back. So, and you know Mehran has got a lot of experience in, in Batteries. He is the one who actually created the battery business unit at Enphase, ramped it up to high revenue. So both the executives, Sabas as well as Mehran, have... Lots of experience, and they'll be able to pay a lot more attention to these regions, and we expect it to be..., you know, incrementally positive. That's really great detail.
Speaker Change: Is the senior Vice President Who's going to manage the rest of the world sales and confirmed will report to him.
Speaker Change: And you know met honest got.
Speaker Change: A lot of experience in.
Speaker Change: In.
Speaker Change: Batteries. He is that he is the one who actually created the battery business unit at Enphase and ramp that.
<unk>.
Speaker Change: Our high revenue.
Speaker Change: So both the executive and <unk> as well as my don't have.
Speaker Change: Lots of experience and.
They'll be able to pay a lot more attention to these regions.
And we expect it to be.
Speaker Change: Incrementally positive for us.
Speaker Change: That's really great detail I appreciate all the answers thanks, so much.
Badrinarayanan Kothandaraman: I appreciate it. And our next question today comes from Andrew Percoco with Morgan Stanley. Please go ahead. It's a very comprehensive call. But if I could just maybe zoom out for a second.
Speaker Change: And our next question today comes from Andrew <unk> from Morgan Stanley. Please go ahead.
Andrew: Yes, thanks, so much for taking my question.
Andrew: My question is what is going to finance its a very comprehensive call, but if I could just maybe zoom out for a second.
Andrew Salvatore Percoco: I'm just curious, how are you guys improving your visibility into the channel so this inventory issue doesn't happen again? I'm assuming this isn't going to be the last cycle that we all see. So I guess, how are you investing in the platform, whether that be software or otherwise, to make sure you have more visibility the next go around the next time there's, you know, a demand side shock and, you know, to avoid these channel inventory issues next time. Right, so, um... I mean, the answer is somewhat simple.
Andrew: I'm just curious.
Andrew: How are you guys improving your visibility into the channel.
Andrew: Inventory she doesn't happen again I'm, assuming this isn't going to be the last cycle that we all see so I guess, how are you investing in a platform whether that new software or otherwise to make sure you have more visibility. The next go around the next time, there's a demand shock and to avoid these.
Andrew: These challenges or issues next month. Thank you.
Speaker Change: Right so.
Speaker Change: I mean, the answer is somewhat simple it is to basically get a hold on the metrics the front end, which is <unk>.
Badrinarayanan Kothandaraman: It is to basically get hold on the metric...
Badrinarayanan Kothandaraman: Leads get converted into proposals, voted into contracts, converted into permits, and then the installations happen, you know, then you have activations. We have to get into the front end. We have Solar Graph. Solar Graph is a platform for us, which helps us because we provide the design and proposal software.
Speaker Change: Leads get converted into proposals.
Speaker Change: Turned into contracts.
Speaker Change: Converted into permits.
Speaker Change: And then the installs happen.
Speaker Change: Yeah.
Speaker Change: Then you have activations so.
Speaker Change: We have to get into the front end.
Getting into the front end.
Speaker Change: We have solar graph, so without a graph as a platform for us.
Which helps us because we provide the design and proposal software.
Badrinarayanan Kothandaraman: And therefore, that gives us the entire visibility on it doesn't need to give us, and then the customer, you know, what every customer is doing, but the broad trends and broad strokes are what we are interested in, saying this month what happened in this particular region. What are the statistics on leads versus contracts signed, and then we do have third-party reports for permits. And, of course, we do have our own enlightened software for activations.
Speaker Change: And therefore that gives us the entire visibility on it doesn't meet that give us that.
Speaker Change: Customer.
Speaker Change: What every customer is doing but the broad trends in broad strokes of what we are interested saying this month what happened in this particular region what is the statistics of.
Speaker Change: Leads versus contract signed and then we do have third party reports for permits.
Speaker Change: And of course, we do have our own enlighten software for Activations and of course in between we have sell through which is when the distributor sell our products to installers from the channel. So what we are doing is to essentially tighten up that entire chain by putting in metrics at every <unk>.
Badrinarayanan Kothandaraman: And of course, in between, we have sell-through, which is when the distributors sell our products to installers from the channel. So what we are doing is to essentially tighten up that entire chain by putting in metrics at every point there and by having more and more and more revenue coverage for solar graph design and proposal tools so that as many installers possible are on that particular. Then we have a lot more statistics. We'll continue to get aggregate reports from third parties as long as they are available. Putting all of these together to create a regression model, maybe even with the help of
Speaker Change: There.
Speaker Change: And by having more and more and more revenue coverage for solar graph design and proposal tool so that as.
Speaker Change: As many installers possible around that particular tools. So then we have a lot more statistics will continue to get aggregate report from third parties.
Speaker Change: As you know as much as they are available and putting all of these together to create a regression model.
Speaker Change: Maybe even with the help of.
Badrinarayanan Kothandaraman: Some sophisticated machine learning. And then the key is for us to then make decisions on. How much do we sell into the channel? What are the guard bands for selling into the channel at the end of the day? Like, you know, don't succumb to irrational exuberance. That is, you think everything is going to be great, and therefore, you ship a lot more into the channel than you sell-through. Do not ever succumb to that.
Speaker Change: Some sophisticated machine learning.
And then the key is for us too.
Speaker Change: And then make decisions on.
Speaker Change: Sell in.
Speaker Change: And then how much do we sell into the channel what are the guard bands of selling into the channel at the end of the day.
Speaker Change: Like Don.
Speaker Change: Don't get don't succumb to irrational exuberance.
Speaker Change: That is you think everything is going to be great. Therefore, you ship a lot more into the channel than the sell through not able to come to that go always buy.
Badrinarayanan Kothandaraman: Go always by... You know, my ex-boss used to call it a mass ballot. Mass balance means, whatever you ship out of the channel, you ship into the channel. So we are putting all of those statistical process control in place, and we are already better for it. Our weekly ship review. Every Wednesday, we have exactly the graph, you know, how much is our... sell through? How much is our sell in? Should we really do so much selling in? Are we going to stay within the guardrails, which is 8 to 10 weeks? Anytime somebody goes above 10 weeks, we question them, saying, "Why do they do it?"
Speaker Change: My ex boss used to call it as must balance.
Speaker Change: <unk> balanced means whatever you ship out of the channel you ship into the channel.
So we are putting all of those statistical process control in place.
Speaker Change: And we are already better for it.
Weekly ship review.
Speaker Change: Every Wednesday, we have exactly the graph you know how much is that.
Speaker Change: Sell through how much is our sell in should we really do so much of sell in.
Speaker Change: Are we going to stay within the Guardrails, which is eight to 10 weeks anytime somebody goes about 10 weeks requesting thing why do it.
Badrinarayanan Kothandaraman: And, you know, it helps us, it's starting to help us in many ways, because then we focus on... The real growth, which is... You then start focusing on training installers to increase sell-through. You start understanding which of the installers aren't doing enough volume with you.
Speaker Change: And.
Speaker Change: It helps us it's starting to help us in many ways.
Speaker Change: Because then we focus on.
Speaker Change: The real growth, which is.
Speaker Change: You then start focusing on training installers to increase sell through you start understanding which of the installers aren't doing enough volume with you.
Badrinarayanan Kothandaraman: Sales guys are focused on the right things versus pushing stuff into the channel. So I think the company has gotten a lot better in this front during the last couple of years. Thank you so much.
Speaker Change: And our sales guys are focused on the right things versus pushing and stuffing the channel.
Speaker Change: The company has gotten a lot better.
Speaker Change: In this front during the last year.
Speaker Change: Understood. Thank you so much.
Badrinarayanan Kothandaraman: Thank you. And our next question today comes from Maheep Mandloi with Mojito. Please go ahead. Hi, this is David Benjamin on behalf of Maheep.
Speaker Change: Thank you.
Speaker Change: Thank you and our next question today comes from here.
Speaker Change: Please go ahead.
Speaker Change: Hi, This is David Benjamin and for me here.
Maheep Mandloi: I've got a question and then a follow-up. Can you please give us some insights on your thoughts on the SolarGraph market share or penetration with installers within the U.S.? Just trying to get some visibility with sales leads in the market. Yeah, we have over 1000 installers on Solar Graph using our design and proposal. Okay, great. Thanks very much.
David Benjamin: I've got a question then a follow up could you. Please.
David Benjamin: Give us some insights on your thoughts on this autograph market share or penetration with our stores within the U S. Just trying to get some visibility with sales leads in the market.
David Benjamin: Yeah.
David Benjamin: We have over 1000.
David Benjamin: Installers on solar graph, using our design and proposal.
David Benjamin: And we have over.
David Benjamin: A few hundred using our permitting.
Speaker Change: Okay, great. Thanks.
Badrinarayanan Kothandaraman: And then as a follow-up, just on the gallium nitrate, can you talk a little bit about where you plan to source the materials? Is that going to be concentrated mostly in China or other markets? And lastly, any thoughts on impact from a new 80s CVD on U.S. solar demand or thoughts on the NEM3 challenge in California. Um, gallium nitride. We do have a lot of sources for gallium nitride. Some of the sources are people we already do business with for silicon. So we aren't worried. We have lots of opportunities. There are many people with good quality gallium nitride, and Raghu will take the question on M3. On M3. Yeah, on M3.
Speaker Change: Thanks, very much and then follow up just on the.
Speaker Change: Gallium nitride.
Speaker Change: Can you talk a little bit about like where you plan to source materials is that gonna be concentrated mostly from China or other markets and lastly, any thoughts on.
The impact from annuities CVD on the U S or demand or.
Thoughts on the NIM three challenge in the California courts.
Speaker Change: Gallium nitride, we do have a lot of sources for gallium nitride transistors.
Speaker Change: Some of the sources are people, we already do business with for the Semicon fits so we arent we.
Speaker Change: We have lots of lots of opportunities that as many people with good quality gallium nitride effects.
And then <unk> will take the question on the NIM three inventory yeah. We are aware of the challenge.
Speaker Change: Where it was.
Raghuveer R. Belur: We are aware of the challenge where it has gone into the appeals court because they actually lost the case in the lower court. It remains to be seen. The fact is that I think it's going to be difficult to overturn, but if they do, obviously, the market will react differently. For now, for us, it's business as usual. We are going out there. We recognize that in the long term, solar plus batteries is the way to go, and we are really working towards making sure that our battery solution, the solar plus battery solution, is best in class, and that's what we are doing right now. But the courts will take their time.
Where it was there was that had gone into appealed score because they actually lost the case in the and the lower court.
Speaker Change: It remains to be seen.
Speaker Change: The factors that I think it's going to be difficult to overturn but if they do obviously the market.
Speaker Change: We will react differently, but for now.
It's business as usual, we're going out there we recognize that in the long term solar plus battery is the way to go so.
Speaker Change: And we are.
Speaker Change: Really working towards making sure that.
Speaker Change: Battery solution.
Speaker Change: Battery solution is best in class and that's what we're doing right now, but the courts will take their time they will do their thing, but it's not something that we are really focused on.
Raghuveer R. Belur: They'll do their thing, but it's not something that we are really focused on. That's great. Thanks very much.
Speaker Change: Great. Thanks very much.
Austin Nathan Moeller: Thank you. And our next question comes from Austin Moeller with Panacord. Please go ahead. Hi, good afternoon.
Speaker Change: Thank you and our next question comes from Austin Moeller with Canaccord. Please go ahead.
Austin Nathan Moeller: Hi, good afternoon.
Badrinarayanan Kothandaraman: Just my first question here: What does the market or growth opportunity look like for home battery sales on new installations versus upgrades of existing solar arrays that are already installed? or Google.
My first question here, what is the market or growth opportunity look like for home battery sales on new installations versus upgrades of existing solar arrays that are already installed on homes.
Austin Nathan Moeller: Yeah.
Austin Nathan Moeller: Google David.
Raghuveer R. Belur: Sure, I think both opportunities are equally valuable. Again, it depends on the geography. So if you're in California, for example, all new homes must have solar, and you're going to be part of an M3 install. So you obviously need to have batteries because if you did a solar-only install in M3, your bill offset is going to be about 55%. If you add 10 kilowatt hours of entry, you know, grid-type battery, your bill offset could be as high as 80-85%.
Sure I think the both opportunities.
Equally valuable again, it depends on the geography or if you're in California. For example, all new homes must have solar.
David Benjamin: And you are going to be part of an M. Three installed. So you obviously need to have batteries, because if you're doing a solar only install an empty or been lost it's going to be at about 55% do you add.
David Benjamin: A 10 kilowatt hours of entries.
David Benjamin: Grid tied battery.
David Benjamin: <unk> said could be as high.
David Benjamin: As high as 80, 85%. So I think it makes complete sense to go ahead and add a battery in that case.
Raghuveer R. Belur: So I think it makes complete sense to go ahead and add a battery in that case. In the retrofit case in California, if you're in an M2 environment, there isn't a lot of incentive to go ahead and add a battery, at least for bill offset, because you already get that with M2, where, in that case, basically, the grid acts like your battery. The only other use case for the battery in that case would be if you want to do it for resiliency or backup.
David Benjamin: In the retrofit case in California, if you're in a NIM two environment.
David Benjamin: A lot of incentive to go ahead and add battery at least for the lawsuit because you already get back, but with named do well in that case.
David Benjamin: Basically the great acts like your Patrick the only other use case for battery in that case would be if you want to.
David Benjamin: Do it for resiliency on a backup purposes.
Raghuveer R. Belur: In other geographies, outside of California, the case for batteries would be, again, you're seeing more and more of these what are called VPP programs or grid services programs, and so people may come in and retrofit a battery on their system and avail themselves of whatever the utility provides in terms of incentives, whether that is an upfront dollar per kilowatt-hour incentive for adding a battery or an ongoing incentive for participation in the VPP program. Very similar situation in Europe as well.
David Benjamin: In other geographies outside of California.
The case for batteries would be again, youre seeing more and more of these water called PPP programs of grid services programs and so people may come in and retrofit a battery on their system and avail themselves of whatever their utility provides in terms of incentives whether that is an upfront dollar per kilowatt hour incentive.
David Benjamin: For adding a battery or at an ongoing incentive for participation in the PPP program.
David Benjamin: Very similar.
Situation in in Europe, as well if you for example look at the Netherlands, Obviously, theres, a net metering market, but there is a push for retrofitting batteries third because.
Raghuveer R. Belur: If you, for example, look at the Netherlands, obviously that's a net metering market, but there is a push for retrofitting batteries there because just given the penetration level of solar there, which is about 28 percent, you do get penalized for uncontrolled export of solar. So it makes sense to move toward what's called self-consumption, and the way you do that is by adding a battery and then managing that solar plus battery system through software, especially by participating in what's called a dynamic tariff program.
David Benjamin: Just given the penetration level of solar this which is about 28%.
David Benjamin: You do get penalized for force for uncontrolled export of solar so it makes sense to go to.
David Benjamin: To move towards vertical self consumption and the way you do that is by adding a battery and then managing that solar plus battery system.
David Benjamin: Through software, especially by participating in what is called a dynamic tariff program. You also have obviously PPP that same thing applies to Germany and other countries in Europe as well.
Raghuveer R. Belur: You also have, obviously, VPP there. The same thing applies to, What do you see as the key growth driver in demand for Europe and Germany in particular? Is it primarily current utility rates? And do you see changes to tax credits in countries like Italy as a potential impediment?
Speaker Change: Great and just a follow up what do you see as the.
Speaker Change: Key growth driver in demand for Europe, and Germany in particular is it primarily.
Speaker Change: Current utility rates and do you see changes to tax credits in countries like Italy as a potential.
Raghuveer R. Belur: Yeah, so usually you see more and more, particularly in Europe. I refer to it as feeding tariff inversion, wherein the buy rate is significantly higher than the sell rate. So the amount of what you get paid for feeding energy into the grid is significantly lower than the retail cost of energy. So it makes no economic sense to export even a single electron into the grid. So that's the driver.
Speaker Change: Impediment to that.
Speaker Change: Yes, so usually you're seeing more and more in particularly in Europe I had referred to it as feed in tariff in version where in the buy rate is significantly higher than sell right. So the amount of what you get paid for feeding energy into the grid is significantly lower than the retail cost of energy. So it makes.
Speaker Change: No economic sense to export even a single electron into the grid.
Raghuveer R. Belur: It is self-consumption. Layered on top of that, if you participate in supporting the grid through a BPP program, you get paid additional monies. So it's all a driver towards a better ROI. But it goes beyond that. It goes beyond solar plus batteries, because now you're seeing in Europe that you're adding EV chargers and heat pumps, and those are additional steerable assets that are sitting behind the meter. If you have a very sophisticated home energy management system, which we do with all the AI and ML work that we are doing, you can really do some very, very fine optimization and deliver the best economics for the homeowner, a combination of solar, battery, EV charger, and heat pump.
Speaker Change: So that's the driver of it is self consumption layered on top of that if you participate and supported the grid through PPP program you get paid additional monies.
Speaker Change: It's all it's all the driver towards better ROI, but it goes beyond that it goes beyond solar plus battery because now you are saying in Europe, you're adding EV Chargers and heat pumps and those are additional still honorable assets that are sitting behind the meter and if you have a very sophisticated home energy management system.
Speaker Change: But just like we do with with all the AI and ml work that we're doing you can really do some very very fine optimization and deliver the best economics for.
For the homeowner or a combination of solar battery EV charger and heat pumps and for that matter any combination any combination thereof, so you're going to see Italy included all of these markets in Europe moving towards in home energy management system with our with all of these assets now imagine.
Raghuveer R. Belur: And for that matter, any combination, any combination thereof. So you're going to see Italy included, all of these markets in Europe moving towards a whole energy management system with all of these assets. Now imagine what happens a year or two from now when EVs become fully bi-directional. You get yet another powerful asset that's sitting behind the meter that you can use to optimize your consumption and optimize.
Speaker Change: What happens at year or two from now when Evs become.
Speaker Change: Fully bidirectional you get yet another.
Speaker Change: A powerful asset that's sitting behind behind the meter that you can use to optimize your consumption and optimize your bill.
Dylan Masano: Thank you. And our next question today comes from Dylan Masano with Wolf Research. Please go ahead.
Thank you and our next question today comes from Bill on Massawa.
Bill: Somehow with Wolfe Research. Please go ahead.
Badrinarayanan Kothandaraman: Yeah, hi, thanks for running a little late to fit me in here. Just a quick one for me on buybacks. So it looks like share repurchases in the quarter more or less matched up with your free cash flow generation, whereas in 4Q, I think you bought back a little more than you actually generated.
Bill: Yeah, Hi, thanks for running a little long.
Bill: Here.
Bill: Quick one for me on buybacks, so it looks like share repurchases in the quarter more or less matched up with your free cash flow generation, whereas in <unk> I think you bought back a little more than you actually generated so I'm just curious how you're thinking about the attractiveness of repurchases at these levels and how should we think about your cash allocation as demand hopefully ramps back.
Dylan Masano: So just curious, how are you thinking about the attractiveness of repurchases at these levels? And how should we think about your cash allocation as demand hopefully ramps back up from here? Yeah, I'll add some color and then you know, Mandy can add more. We did approximately, a similar amount in both quarters, but I'll explain the nuance. In Q4, we did, we bought back shares for $100,000,000. While in Q1, what we did was we did a combination, which is we bought back shares for about $40-odd million, and we, you know, some of our stock options, which basically were Those stock options, essentially Mandy didn't allow them to dilute the market.
Bill: A couple of them here.
Speaker Change: Yes, I'll add some color and then.
Speaker Change: Amanda can add more the we did.
Speaker Change: Approximately.
Amanda: Miller amount in four quarters, and I'll explain the new ones.
Amanda: Is in Q4, we did we bought back shares.
Amanda:
Amanda: About $100 million.
Amanda: While in Q1, what we did was we did a combination which is we bought back shares for about 40 odd million.
Amanda: And we some of our stock options.
Amanda: Which.
Amanda: Which which basically but equity vesting.
Those stock options.
Mandy: Mandy <unk>.
Hello them too.
Mandy: Dilute the market. So we basically spent about $60 million.
Badrinarayanan Kothandaraman: So we basically spent about $60 million as anti-dilution. So, in a sense, we spent the same money, $100 million. 40 for buying back shares out of the market, 60 for preventing shares from entering the market. We did that, and we continue to, I mean, you should expect us to continue to do a similar amount as long as the stock is attractive, which it is right now.
Mandy: As anti dilution there.
Mandy: So in a sense, we spent the same money under $1 million.
Mandy: 44 buying back shares out of the market 60 for preventing shares into the market.
Mandy: We did that and we continue to.
Mandy: I mean, you should expect us to continue to do a similar amount as long as.
Mandy: The stock is attractive which it is right now.
Speaker Change #100: Okay fair enough. Thank you for clarifying.
Dylan Masano: Okay, fair enough. Thank you for clarifying. Thank you. And our next question comes from Dushyant Irani with Jefferies. Please go ahead. Hi, thank you for taking the time. Just one on... Mem 2.0 Backlog. Yeah, I mean, that is an interesting question. In all our conversations with installers, there was one installer who had a backlog of nine months, and there are installers with a backlog of three months
Speaker Change #101: Thank you.
Speaker Change #101: Our next question comes from Vishal <unk> with Jefferies. Please go ahead.
Vishal: Hi, Thank you for taking my question just one on how much them to open their backlog is remaining with your installers I think you've talked about 50% being named to your point, though so going into Q how.
Vishal: What can we expect.
Vishal: The backlog cadence to dwindle down for them to a point, though.
Speaker Change #103: Yes, I mean that is an interesting question on our conversations with installers.
Speaker Change #103: There was one installer, who added backlog of.
Speaker Change #104: Of nine months.
Speaker Change #104: And there was that outage and installers with the backlog of three months so.
Dushyant Irani: We don't really know what the answer is. Like you, we were surprised that the number is still 50%. [inaudible] I'm not sure. I can't forecast the numbers. But I'm sure that within... You know, six months, it'll be...
We don't really know what the answer is like.
Speaker Change #104: Like you we would.
Speaker Change #104: The number is 250%.
Speaker Change #104: Too, but you know installers are learning and memory rapidly there.
Speaker Change #104: The bleeding through their name to backlog.
Badrinarayanan Kothandaraman: Thank you. And, ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Badrinarayanan Kothandaraman for any closing remarks. Yeah, thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter. Bye. Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day. The Ultimate Parody Site!
Speaker Change #104: I'm not sure that I can't forecast the number.
Speaker Change #104: But I am sure that within.
Speaker Change #104: Six months ago.
Until now.
Speaker Change #105: Okay. Thank you.
Speaker Change #105: Thank you.
Speaker Change #106: This concludes our question and answer session.
Speaker Change #106: Ill turn the conference back over to Roger Chua from government for any closing remarks.
Roger Chua: Yes. Thank you for joining us today and for your continued support of emphasis we look forward to speaking with you again next quarter.
Thank you. This concludes today's conference call. We thank you all for attending today's presentation.
Speaker Change #108: You may now disconnect your lines and have a wonderful day.
Speaker Change #108: [music].
Speaker Change #108: Yeah.
Speaker Change #108: Yes.
Speaker Change #108: [music].