Q2 2024 Enphase Energy Inc Earnings Call
Good day and welcome to the Enphase Energy's second quarter 2024 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Operator: All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press the star key, then one on your touchtone phone.
After today's remarks, there will be an opportunity to ask questions.
Zachary Freedman: To withdraw your question, please press star, then two. Please note that this event is being recorded. I would now like to turn the conference over to Zach Freedman. Please go ahead.
To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note that this event is being recorded. I would now like to turn the conference over to Zach Freedman. Please go ahead.
Zachary Freedman: Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's second quarter of 2024. On today's call are Badri Kothandaraman, our President and Chief Executive Officer, Mandy Yang, our Chief Financial Officer, and Raghu Belur, our Chief Products Officer. After the market closed today, Enphase issued a press release announcing the results for its second quarter ended June 3rd,
Speaker Change: Good afternoon and thank you for joining us on today's conference call to discuss Enphase Energy's second quarter 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 Products Officer.
Speaker Change: After the market closed today, Enphase issued a press release announcing the results for its second quarter ended June 3rd, 2024.
Zachary Freedman: 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, anticipated growth and existing and new markets, the timing of new product introductions, and regulatory and tax matters. These forward-looking statements involve significant risks and uncertainties, and our actual results and the timing of events could differ materially from these expectations. For a more complete discussion of the risks and uncertainties, please see our most recent Form 10-K and 10-Qs, followed by the S.E.A.
During this conference call, Enphase Management will make forward-looking statements, including but not limited to
statements related to our expected future financial performance.
Speaker Change: Market Trends
Speaker Change: the capabilities of our technology and products, and the benefits to homeowners and installers.
Speaker Change: Our operations, including manufacturing, customer service, and supply and demand, anticipated growth in existing and new markets, the timing of new product introductions, and regulatory and tax matters.
Speaker Change: These forward-looking statements involve significant risks and uncertainties, and our actual results and the timing of events could differ materially from these expectations.
Speaker Change: 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.
Zachary Freedman: We caution you not to place any undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events, or changes in expectations. Also, please note that financial measures used on this call are expressed on a non-GAAP basis unless otherwise noted and have been adjusted to exclude certain charges. We have provided a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release 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.
Speaker Change: We caution you not to place any undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events, or changes in expectations.
Speaker Change: 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.
Speaker Change: We have provided a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release furnished with the SEC on Form 8K, which can also be found in the investor relations section of our website.
Speaker Change: Now I'd like to introduce Badri Kothandaraman, our President and Chief Executive Officer. Badri.
Badrinarayanan Kothandaraman: Good afternoon, and thanks for joining us today to discuss our second quarter 2024 results. We reported quarterly revenue of $303.5 million, shipped approximately 1.4 million microinverters and 120 megawatt hours of batteries, and generated free cash flow of $117.4 million. The end market demand for our products was approximately $396 million. Thank you, too.
Badrinarayanan Kothandaraman: Good afternoon and thanks for joining us today to discuss our second quarter.
Speaker Change: 20-24 results
Badrinarayanan Kothandaraman: We reported quarterly revenue of $303.5 million, shipped approximately 1.4 million microinverters and 120 megawatt hours of batteries, and generated free cash flow of $117.4 million.
Badrinarayanan Kothandaraman: The end market demand for our products was approximately $396 million.
Badrinarayanan Kothandaraman: And we reduced our channel inventory by approximately $92 million. Our overall channel inventory returned to normal levels as we exited Q2. For the second quarter, we delivered 47% gross margin, 27% operating expenses, and 20% operating income, all as a percentage of revenue on a non-gap basis and including the net IRA benefit. Mandy will go into our financials later in the talk.
Badrinarayanan Kothandaraman: in Q2, and we reduced our channel inventory by approximately $92 million.
Badrinarayanan Kothandaraman: Our overall channel inventory returned to normal levels as we exited Q2.
Badrinarayanan Kothandaraman: For the second quarter, we delivered 47% gross margin, 27% operating expenses, and 20% operating income, all as a percentage of revenue on a non-gap basis and including the Net IRA benefit.
Badrinarayanan Kothandaraman: Let's discuss how we are servicing customers. Our worldwide NPS was 79% in Q2, up from 78% in Q1. Our average call wait time was 2.5 minutes in Q2, compared to 1.9 minutes in Q1. We have several AI and machine learning initiatives to drive automation and further reduce wait time.
Badrinarayanan Kothandaraman: Mandy will go into our financials later in the call.
Mandy: Let's discuss how we are servicing customers. Our worldwide NPS was 79% in Q2.
Mandy: Up from 78% in Q1. Our average call wait time was 2.5 minutes in Q2, compared to 1.9 minutes in Q1. We have several AI and machine learning initiatives.
Mandy: to drive automation and further reduce wait times.
Badrinarayanan Kothandaraman: Let's talk about operations. Our global capacity is around 7.25 million microinverters per quarter. Five million units of those are in the U.S. In Q2, we shipped approximately 574,000 microinverters from our U.S. contract manufacturing facilities that we booked for 45x production tax credits. We expect to ship approximately 1.1 million microinverters from our U.S. facilities in Q3. Our U.S.-made IQV microinverters can help lease, PPA, and commercial asset owners qualify for the 10% domestic content ITC exemption. I'll discuss more on this later in the call.
Speaker Change: Let's talk about operations. Our global capacity is around 7.25 million microinverters per quarter. Five million units of those are in the U.S.
Speaker Change: In Q2, we shipped approximately 574,000 microinverters from our U.S. contract manufacturing facilities that we booked for 45x production tax credits.
Speaker Change: We expect to ship approximately 1.1 million microinverters.
Speaker Change: from our US facilities in Q3.
Speaker Change: Our US-made IQV microinverters can help.
Speaker Change: Lease, PPA, and Commercial Asset Owners qualify for the 10% Domestic Content ITC Error. I'll discuss more on this later in the call.
Badrinarayanan Kothandaraman: For batteries, our cell pack suppliers in China have sufficient capacity to support our ramp-up in 2024. We also plan to manufacture batteries in the U.S. starting in Q4, with power conversion, battery management, and enclosures made domestically while using cell packs from China. Let's cover the region.
Speaker Change: For batteries, our cell pack suppliers in China have sufficient capacity to support our ramp-up in 2024.
Speaker Change: We also plan to manufacture batteries in the U.S. starting in Q4 with power conversion, battery management, and enclosures made domestically while using cell packs from China.
Badrinarayanan Kothandaraman: Our U.S. and international revenue mix for Q2 was 65% and 35%, respectively. For more visibility into our business, we are providing regional breakdowns and sell-through dollar metrics for Q2. With our channel normalized, we will not be providing detailed sell-through statistics going forward. In the U.S., our revenue increased 32% compared to Q1. The overall sell-through of our products in the US was up 8% in Q2 compared to Q1. Let's discuss the market trends in the U.S. split by non-California states and California.
Speaker Change: Let's cover the regions. Our U.S. and international revenue mix for Q2 was 65% and 35% respectively.
Speaker Change: For more visibility into our business, we are providing regional breakdowns and sell-through dollar metrics for Q2.
Speaker Change: With our channel normalized, we will not be providing detailed sell-through statistics going forward.
Speaker Change: In the U.S.
Speaker Change: Our revenue increased 32% compared to Q1. The overall sell-through of our products in the US was up 8% in Q2 compared to Q1.
Speaker Change: Let's discuss the market trends in the U.S. split by non-California states and California. For non-California states, our overall sell-through was up 7% in Q2 compared to Q1.
Badrinarayanan Kothandaraman: For non-California states, our overall sell-through was up 7% in Q2 compared to Q1. The sell-through for microinverters was up 6%, and the sell-through for batteries was up 10%. In California, our overall sell-through was up 7% in Q2 compared to Q1, indicating that our California business has stabilized.
Speaker Change: The sell-through for microinverters was up 6% and the sell-through for batteries was up 10%.
Speaker Change: In California, our overall sell-through was up 7% in Q2 compared to Q1, indicating that our California business has stabilized.
Badrinarayanan Kothandaraman: The sell-through of our microinverters was flat, and the sell-through of our batteries was up 14% in Q2 due to the high NEM 3.0 battery attach rates. I'll provide more statistics on NEM 3.0 later in the call. In Europe, our revenue was flat in Q2 compared to Q1.
Speaker Change: The sell-through of our microinverters was flat and the sell-through of our batteries was up 14% in Q2 due to the high NEM 3.0 battery attach rates. I'll provide more statistics on NEM 3.0 later in the call.
Speaker Change: In Europe , our revenue was flat in Q2 compared to Q1. The overall sell-through of our products in Europe was up 3% in Q2 compared to Q1. The sell-through of our microinverters was flat.
Badrinarayanan Kothandaraman: The overall sell-through of our product in Europe was up 3% in Q2 compared to Q1, cell throughput for upper microinverters was flat, and the sell-through of our batteries was up 18% in Q2. I'll provide color on some key European markets, the Netherlands, France, and Germany. In the Netherlands, our overall sell-through was down 15% in Q2 compared to Q1.
Speaker Change: and the fell through of our batteries was up 18% in Q2.
Speaker Change: I'll provide color on some key markets in Europe .
Speaker Change: France and Germany. In the Netherlands, our overall sell-through was down 15% in Q2 compared to Q1. The country's solar demand continues to be challenged by regulatory uncertainty. However, we are beginning to see battery demand pick up.
Badrinarayanan Kothandaraman: The country's solar demand continues to be challenged by regulatory uncertainty. However, we are beginning to see battery demand pick up. This is a trend we expect to continue, especially as dynamic electricity rates become more prevalent in the Netherlands. We launched our iQ Energy Management software in the Netherlands during Q2. That will allow our installer to offer an Enphase system that can deliver healthy payback even without NEM. The modularity of our batteries allows homeowners to start either with a 3.5 or a 5 kilowatt-hour battery, along with their solar systems, making the economics work well. In France, the overall sell-through in Q2 was flat compared to Q1.
Speaker Change: This is a trend we expect to continue, especially as dynamic electricity rates become more prevalent in Netherlands.
Speaker Change: We launched our IQ energy management software in Netherlands during Q2. That will allow our installer to offer an Enphase system that can deliver healthy payback even without NEM.
Speaker Change: The modularity of our batteries allows homeowners to start either with a 3.5 or a 5 kilowatt hour battery, along with their solar systems, making the economics work well.
Speaker Change: In France...
Speaker Change: The overall fell through in Q2.
Badrinarayanan Kothandaraman: We recently launched a third-generation battery in France and expect that solar plus storage systems will become increasingly important for this market as the spread between retail electricity rates and feed-in tariffs widens. We expect to introduce IQ EV chargers and IQ energy management software in France later in the year. In Germany, our overall sell-through in Q2 was up 7% compared to Q1, building on the growth we reported in the previous earnings call. In June, at InterSolar Munich, we unveiled...
Speaker Change: was flat compared to Q1. We recently launched a third generation battery.
Speaker Change: in France and expect that solar plus storage system will become increasingly important for this market as the spread between retail electricity rates and feed-in tariff widens.
Speaker Change: We expect to introduce IQ EV chargers and IQ energy management software in France later in the year. In Germany, our overall sell-through in Q2 was up 7% compared to Q1, building on the growth we reported in the previous earnings call.
Badrinarayanan Kothandaraman: Some exciting products: our three-phase battery backup solution for Germany, Austria, and Switzerland. That will increase our served available market. In addition, we showcased our IQ Balcony Solar Kit, which will also increase our served available market in Germany by approximately 400 megawatts a year. We believe Enphase microinverters are ideal for these small systems, and we plan to roll out the balcony solutions throughout Europe in the coming quarters. A general comment about Europe We are still under-penetrated in markets like the UK, Italy, Spain, Belgium, Luxembourg, Switzerland, Austria, Sweden, and more.
Speaker Change: In June , at InterSolar Munich, we unveiled...
Speaker Change: Some exciting products. Our three-phase battery backup solution for Germany, Austria, and Switzerland. That will increase our served available market. In addition, we showcased our iCube balcony solar kit.
Speaker Change: which will also increase our reserved available market in Germany by approximately 400 megawatts a year.
Speaker Change: We believe Enphase microinverters are ideal for these small systems and we plan to roll out the balcony solutions throughout Europe in the coming quarters.
Speaker Change: A general comment about Europe . We are still under-penetrated in markets like the UK, Italy,
Speaker Change: Spain, Belgium, Luxembourg, Switzerland, Austria, Sweden, and more. Each country has its own challenges and opportunities.
Badrinarayanan Kothandaraman: Each country has its own challenges and opportunities, but homeowners increasingly seek safety, high quality, savings, and an all-in-one F-experience from their home energy system, which aligns well with our strengths. We plan to introduce our entire product portfolio, IQ microinverters, batteries, IQ EV chargers, IQ energy management software, and the Solar Graph installer platform across more European countries and scale our sales and support accordingly. Now, let's go
Speaker Change: But homeowners increasingly seek safety, high quality, savings, and an all-in-one app experience from their home energy system, which aligns well with our strengths.
Speaker Change: We plan to introduce our entire product portfolio, IQ microinverters, batteries, IQ EV chargers,
Speaker Change: IQ Energy Management Software and the Solar Graph installer platform across more European countries and scale our sales and support accordingly.
Badrinarayanan Kothandaraman: We are making incremental progress in Asia. Our revenue in India, although small, has doubled from a year ago with the introduction of the IQ-8 family of microinverters. We are gaining solid traction in Thailand and the Philippines, where quality and safety are highly valued. In Brazil, we have a good team in place.
Speaker Change: Let's come to Asia. We are making incremental progress in Asia. Our revenue in India, although small, has doubled from a year ago with introduction of IQ-8 family of microinverters.
Speaker Change: We are gaining solid traction in Thailand and Philippines where quality and safety are highly valued.
Badrinarayanan Kothandaraman: We work with approximately 600 long-tail installers through the help of some good distribution partners. We are currently shipping our 480W IQ8P microinverters into these emerging residential markets to support newer high-power panels. In Australia, there is interest in our Enphase energy system powered by IQ microinverters and the third generation battery. We introduced this product approximately a year ago.
Speaker Change: In Brazil, we have a good team in place.
Speaker Change: We work with approximately 600 long tail installers through the help of some good distribution partners.
Speaker Change: We are currently shipping our 480W IQ8P microinverters into these emerging residential markets to support newer high power panels.
Speaker Change: In Australia, there is interest in our Enphase Energy system powered by IQ microinverters and the third generation battery. We introduced this product approximately a year ago.
Badrinarayanan Kothandaraman: Later this year, we will be introducing more products into Australia, including the IQV8X microinverters for higher DC input voltage panels and Gritt-Tite Batch. Let me come to NAMM-3 and provide some statistics there. As I said before, the end customer demand, in California for us, has stabilized in the second quarter. As of last week, 60% of our California installations were NEM 3.0. These systems have a high battery attach rate of over 90% compared to M2.0 systems, which have an attached rate of 15%.
Speaker Change: Later this year, we will be introducing more products into Australia, including the IQ8X microinverters for higher DC input voltage panels and grid-type batteries.
Speaker Change: Let me come to NAMM-3 and provide some statistics there.
Speaker Change: As I said before, the end customer demand...
Speaker Change: in California for us.
Speaker Change: has stabilized in the second quarter.
Speaker Change: As of last week...
Speaker Change: 60% of our California installations were NEM 3.0
Speaker Change: These systems have a high battery attach rate, over 90%. Compared to NEM 2.0 systems,
Badrinarayanan Kothandaraman: Our data also shows that half of our M3 systems are using Enphase batteries, consistent with what I have reported in the last few earnings calls. Taking this data into account, our average revenue per NEM 3.0 system is approximately 1.5 times the average NEM 2.0 system. We believe this will contribute to stabilizing our California revenue in the back half of the year. Now, let me say a few words about market share. In the US, our microinverters and batteries have a stable market share according to both internal and third-party data.
Speaker Change: which have an attached rate of 15%.
Speaker Change: Our data also shows that half of our M3 systems are using Enphase batteries, consistent with what I have reported in the last few earnings calls.
Speaker Change: Taking this data into account, our average revenue per NEM 3.0 system is approximately 1.5 times the average NEM 2.0 system. We believe this will contribute to stabilizing our California revenue in the back half of the year.
Badrinarayanan Kothandaraman: As batteries become more common in California, there is some interest in centralized inverter solutions. Our success continues to be driven by our unique KC coupled architecture, which offers significant advantages over legacy string inverter systems in terms of performance, reliability, and safety. We strongly believe in this value proposition. Our system will become even easier and faster to install for backup applications with further improvements we are making to our balance of services.
Speaker Change: Let me say a few words about market share.
Speaker Change: In the U.S., are microinverters and batteries a stable market share, according to both?
Speaker Change: internal and third-party data.
Speaker Change: As batteries become more common in California, there is some interest.
Speaker Change: Centralized Inverter Solutions. Our success
Speaker Change: continues to be driven by our unique KC coupled architecture which offers significant advantages over legacy string inverter systems in terms of performance, reliability, and safety. We strongly believe in this value proposition.
Speaker Change: Our system will become even easier and faster to install for backup applications with further improvements we are making to our balancer system.
Badrinarayanan Kothandaraman: They include our IQ meter collar, our fourth-generation 10 kilowatt-hour battery, and the enhanced IQ combiner, which are all expected to be available in early 2025. Additionally, we believe our AI-based... Let's come to our Q3 guidance. We are guiding revenue in the range of $370 to $410 million. We expect to ship between 160 and 180 megawatt hours of IQ battery.
Speaker Change: They include our IQ meter collar, our 4th generation 10 kWh battery, and the enhanced IQ combiner, which are all expected to be available in early 2025. Additionally, we believe our AI-based...
Speaker Change: Software is essential for helping homeowners maximize savings with a complex tariff structure like M3.
Speaker Change: Let's come to our Q3 guidance.
Speaker Change: We are guiding revenue in the range of $370 to $410 million.
Speaker Change: We expect to ship between 160 and 180 megawatt hours of IQ batteries.
Badrinarayanan Kothandaraman: We anticipate incremental improvement in our U.S. business and a seasonal slowdown in Europe. We are over 85% booked to the midpoint of our overall revenue guidance. This is the healthiest backlog position we have had in the last year. Let's talk about new products, starting with IQ batteries. Our third-generation IQ batteries have been well-received, and we have almost converted to the third generation battery right now. It offers an industry-leading 15-year warranty, differentiated quality, serviceability, modularity, and power capability. We have expanded the IQ Battery 5T, our third generation battery, into more countries in North America and Europe. We recently started shipping to customers in Canada, Mexico, France, the Netherlands, and Luxembourg.
Speaker Change: We anticipate incremental improvement in our U.S. business and a seasonal slowdown in Europe .
Speaker Change: We are over 85% booked to the midpoint of our overall revenue guidance.
Speaker Change: This is the healthiest backlog position we have had.
Speaker Change: In the lab here.
Speaker Change: Let's talk about new products, starting with iCUE batteries. Our third generation iCUE batteries have been well received.
Speaker Change: And we have almost converted to the third generation battery right now.
Speaker Change: It offers an industry-leading 15-year warranty, differentiated quality, serviceability, modularity, and power capability.
Speaker Change: We have expanded the IQ Battery 5G, our third generation battery, into more countries in North America and Europe . We recently started shipping to customers in Canada, Mexico, France, Netherlands, and Luxembourg.
Badrinarayanan Kothandaraman: We plan to pilot our fourth-generation battery in the U.S. later in the year and begin production in early 2025. This new battery will feature a better cost structure and a smaller form factor thanks to its integrated battery management and power conversion architecture. Additionally, the meter collar and the enhanced IQ combiner will be introduced along with the fourth generation battery to reduce our balance of system costs. As previously mentioned, we have expanded into many new markets with the IQV family of microinverters and are now present in 43 countries.
Speaker Change: We plan to pilot our fourth generation battery in the U.S. later in the year and begin production in early 2025.
Speaker Change: This new battery will feature a better cost structure and a smaller form factor thanks to its integrated battery management and power conversion architecture.
Speaker Change: Additionally, the Meter Collar and the Enhanced IQ Combiner will be introduced along with the 4th generation battery to reduce our balance of system cost.
Speaker Change: As previously mentioned, we have expanded into many new markets with the IQAE family of microinverters and are now present in 43 countries.
Badrinarayanan Kothandaraman: We plan to enter many more new countries by the end of the year. We aim to further increase our served available market by simplifying installations of small solar systems and social housing and ruling out balcony solar solutions in more European countries, starting with Germany. The other variant of 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: We plan to enter many more new countries by the end of the year.
Speaker Change: We aim to further increase our served available market by simplifying installations of small solar systems and social housing and ruling out balcony solar solutions to more European countries, starting with Germany.
Speaker Change: The other variant of IQA3 microinverter with a new three-phase cabling system is well suited for small commercial solar installation ranging from 20 to 200 kilowatts.
Badrinarayanan Kothandaraman: We launched this product in North America in December last year and have installed over 200 sites with an average of 45 kilowatts of solar per site. The feedback for this product has been quite positive, and we expect the growth to accelerate in the coming quarters. We recently began shipping IQ8P commercial microinverters from our contract manufacturing facility in Texas.
Speaker Change: We launched this product in North America in December last year and have installed over 200 sites with an average of 45 kilowatts of solar per site.
Speaker Change: The feedback of this product has been quite positive, and we expect the growth to accelerate in the coming quarters. We recently began shipping IQ8P commercial microinverters from our contract manufacturing facility in Texas.
Badrinarayanan Kothandaraman: We are now producing both residential and commercial microinverters from our U.S. manufacturing facility. Some of our U.S.-made microinverter SKUs, which, when paired with select U.S.-made solar racking equipment, can allow lease PPA and commercial asset owners to qualify for the domestic content bonus credit. This credit is valuable for customers at 10% of the overall project cost.
Speaker Change: We are now producing both residential and commercial microinverters from our U.S. manufacturing facility.
Speaker Change: Some of our U.S.-made microinverter SKUs, which, when paired with select U.S.-made solar racking equipment, can allow lease PPA and commercial asset owners
Speaker Change: to qualify for the Domestic Content Bonus Credit. This credit is valuable for customers at 10% of the overall project cost.
Badrinarayanan Kothandaraman: We think this will be a good opportunity for us on both microinverters and batteries. Let me provide an update on the IQ9 microinverters with gallium nitride. The IQ9 family will support higher DC input currents up to 18 amperes and higher AC grid voltages, including 480 volts, for the small commercial market, which is a brand new market for us. Using gallium nitride high-voltage transistors, these microinverters will deliver higher output power at lower cost.
Speaker Change: We think this will be a good opportunity for us on both microinverters and batteries.
Speaker Change: Let me provide an update on IQ9 microinverters with gallium nitride. The IQ9 family will support higher DC input currents up to 18 amperes.
Speaker Change: And higher AC grid voltages, including 480 volts for the small commercial market, which is a brand new market for us.
Speaker Change: Using gallium nitride high voltage transistors, these microinverters will deliver higher output power at lower cost. We are on track to launch this product in 2025.
Badrinarayanan Kothandaraman: We are on track to launch this product in 2025. Now, let's discuss EV charging. We showcased our upcoming EV charger for Europe at InterSolar Munich in June. The charger offers a 22 kilowatt three-phase option and 11 kilowatt single-phase option.
Speaker Change: Let's discuss EV charging. We showcased our upcoming EV charger for Europe at InterSolar Munich in June .
Speaker Change: The charger offers a 22 kW three-phase option and 11 kW single-phase option. It integrates seamlessly with Enphase solar and batteries, allowing homeowners to optimize cost by using excess solar energy.
Badrinarayanan Kothandaraman: It integrates seamlessly with Enphase solar and batteries, allowing homeowners to optimize cost by using excess solar energy. Green charging or charging from solar is what it's called. Other key features include dynamic phase switching from single phase to three phase and vice versa, and a mighty meter for a few countries. ISO 15118 support to talk to the card, OCPP cloud software support, and 1 ampere fine-grained current control to maximize green charging. We plan to introduce this charger in many European countries later in the year.
Speaker Change: Green charging or charging from solar is what it's called.
Speaker Change: Other key features include dynamic phase switching from single phase to three phase and vice versa, and a mighty meter for a few countries.
Speaker Change: ISO 15118 support to talk to the card, OCPP cloud software support, and 1 ampere fine-grained current control to maximize green charging.
Speaker Change: We plan to introduce this charger in many European countries later in the year. Additionally, we recently launched our most powerful CS100 EV charger for commercial fleet electric vehicles in the U.S.
Badrinarayanan Kothandaraman: Additionally, we recently launched our most powerful CS100 EV charger for commercial fleet electric vehicles in the U.S. Additionally, our team is developing a bi-directional EV charger that will enable V2H and V2G capabilities as part of the Enphase system. The charger will feature modular GAN based bidirectional inverters providing up to 11 kilowatts for single phase applications and 22 kilowatts for three phase applications. The charger will be compatible with both 400 volts and 800 volt electric vehicles.
Speaker Change: Our team is developing a bi-directional EV charger that will enable V2H and V2G capabilities as part of the Enphase system.
Speaker Change: The charger will feature modular GaN-based bidirectional inverters providing up to 11 kilowatts for single-phase applications and 22 kilowatts for three-phase applications.
Speaker Change: The charger will be compatible with both 400V and 800V electric vehicles. We are targeting to release this product in late 2025.
Badrinarayanan Kothandaraman: We are targeting to release this product in late 2025. Let's now cover our IQ energy management software. Our software is rapidly evolving to handle the growing complexity of the energy market by using AI and ML for forecasting and optimization. We train our AI models with data from over 4 million systems.
Speaker Change: Let's now cover our IQ energy management software.
Speaker Change: Our software is rapidly evolving to handle the growing complexity of energy markets.
Speaker Change: by using AI and ML for forecasting and optimization.
Badrinarayanan Kothandaraman: In Q2, we launched our latest software in the Netherlands and Belgium to manage dynamic electricity rates, helping homeowners maximize ROI and reduce payback periods as electricity prices fluctuate hourly. We see AI as a crucial technology to scale and enhance our products and services. Let's discuss our installer platform. We recently introduced SolarGraph, our design, proposal, and permitting software platform, to the Netherlands. With built-in support for dynamic electricity rates, SolarGraph software delivers the financial calculations that address the complexities of energy markets in the Netherlands. SolarGraph is also available to residential and commercial installers in the U.S., Canada, Brazil, Germany, and Austria, and we expect to release it to many countries in the coming quarter. Let me conclude.
Speaker Change: We train our AI models with data from over 4 million systems.
Speaker Change: In Q2, we launched our latest software in Netherlands and Belgium.
Speaker Change: to manage dynamic electricity rates helping homeowners.
Speaker Change: Maximize ROI and reduce payback period as electricity prices...
Speaker Change: fluctuate down.
Speaker Change: We see AI as a crucial technology to scale and enhance our products and services.
Speaker Change: Let's discuss our installer platform.
Speaker Change: We recently introduced SolarGraph, our design, proposal, and permitting software platform to the Netherlands.
Speaker Change: With built-in support for dynamic electricity rates, SolarGraph software delivers the financial calculations that address the complexities of energy markets in the Netherlands.
Speaker Change: Solar Graph is also available to residential and commercial installers in the U.S., Canada, Brazil, Germany, and Austria, and we expect to release it to many countries in the coming quarters.
Badrinarayanan Kothandaraman: We remain dedicated to delivering best-in-class home energy systems with a strong focus on innovation, quality, and customer experience. Over the last year, we have significantly expanded our global reach and have an exciting pipeline of new products set to launch worldwide in the coming years. We have successfully normalized our channel inventory by the end of Q2.
Speaker Change: Let me conclude.
Speaker Change: We remain dedicated to delivering best-in-class home energy systems with a strong focus on innovation, quality, and customer experience.
Speaker Change: Over the last year, we have significantly expanded our global reach and have an exciting pipeline of new products set to launch worldwide in the coming year.
Speaker Change: We have successfully normalized our channel inventory by the end of Q2. Our customer demand has increased by 5% in Q2 as compared to Q1. Our battery business is also doing very well with growth from quarter to quarter.
Badrinarayanan Kothandaraman: Our customer demand increased by 5% in Q2 as compared to Q1. Our battery business is also doing very well, with growth from quarter to quarter. Our bookings in Q3 are the healthiest that we have been in a year. Our early commitment to U.S. manufacturing is positioning us well with leased BPA and commercial asset ownership. We also expect the Fed to lower interest rates later this year, improving solar economics for U.S. consumers.
Speaker Change: Our bookings in Q3 are the healthiest that we have been in a year.
Speaker Change: Our early commitment to U.S. manufacturing is positioning us well with leased BPA and commercial asset owners.
Speaker Change: We also expect the Fed to lower interest rates later this year, improving solar economics for the U.S. consumers.
Badrinarayanan Kothandaraman: Our efforts to capture market share in Europe and other international regions are also promising. Despite continued macroeconomic challenges, we are confident in our revenue recovery and remain bullish about our long-term growth prospects. With that, I will turn the call over to Mandy for her review of our finances.
Speaker Change: Our efforts to capture market share in Europe and other international regions are also, you know, promising.
Speaker Change: Despite continued macroeconomic challenges, we are confident in our revenue recovery and remain bullish about our long-term growth prospects.
Speaker Change: With that, I will turn the call over to Mandy for her review of our finances. Mandy?
Mandy Yang: Thanks, Badri, and good afternoon, everyone. I will provide more details related to our second quarter of 2024 financial results and our business outlook for the third quarter of 2024. We have provided reconciliations of these non-GAAP to GAAP financial measures in our earnings release posted today, which can also be found in the IR section of our website. Total revenue for Q2 was $303.5 million.
Mandy Yang: We shipped approximately 608.3 megawatt DC of microinverters and 120.2 megawatt hours of IQ batteries in a quarter. The non-GAAP growth margin for Q2 was 47.1%, compared to 46.2% in Q1. The growth margin was 45.2% for Q2. Nangke's gross margin without net IRA benefit for Q2 was 41%, flat from Q1. GAAP and non-GAAP growth margin for Q2 included $18.4 million. Non-GAAP operating expenses were $81.7 million for Q2.
Mandy: Thanks, Badri, and good afternoon, everyone.
Mandy: I will provide more details related to our second quarter of 2024 financial results.
Mandy: As well as our business outlook for the third quarter of 2024. We have provided reconciliations of these non-GAAP to GAAP financial measures in our earnings release posted today, which can also be found in the IR section of our website.
Mandy: Total revenue for Q2 was $303.5 million dollars. We shipped approximately 608.3 megawatt DCO microinverters and 120.2 megawatt hours of IQ batteries in a quarter.
Mandy: Non-gap growth margin for Q2 was 47.1%, compared to 46.2% in Q1.
Mandy: GAAP growth margin was 45.2% for Q2. non-GAAP growth margin without NAICS IRA benefits for Q2 was 41%, flat from Q1. GAAP and non-GAAP growth margin for Q2 included $18.4 million of NAICS IRA benefits.
Mandy: non-GAAP operating expenses were $81.7 million for Q2. Compared to $82.6 million for Q1, we continue to invest in new products, customer service, and sales.
Mandy Yang: Compared to $82.6 million for Q1, we continue to invest in new products, customer service, and sales. Evaporating expenses were $135.4 million for Q2, compared to $144.6 million for Q1. GAAP operating expenses for Q2 included $49 million of startup-based compensation expenses.
Speaker Change: Their operating expenses were $135.4 million for Q2, compared to $144.6 million for Q1.
Speaker Change: GAAP operating expenses for Q2 included $49 million of staff-based compensation expenses, $3.5 million of amortization for acquiring tangible assets, and $1.2 million of restructuring and asset impairment charges.
Mandy Yang: $3.5 million of amortization for acquired intangible assets and $1.2 million of restructuring and asset impairment charges. On a non-GATE basis, income from operations for Q2 was $61.1 million, compared to $39 million for Q1. On a GATE basis, income from operations was $1.8 million for Q2, compared to a loss of $29.1 million for Q1. On a non-gay basis, net income for Q2 was $58.8 million, compared to $48 million for Q1. This resulted in non-gap diluted earnings per share of $0.43 for Q2, compared to $0.35 for Q1. GAAP net income for Q2 was $10.8 million, compared to GAAP net loss of $16.1 million for Q1. This resulted in GAAP diluted earnings per share of $0.08 for Q2.
Speaker Change: on a non-care basis.
Speaker Change: Income from operations for Q2 was...
Speaker Change: $61.1 million.
Speaker Change: compared to $39 million for Q1.
Speaker Change: on a daily basis.
Speaker Change: Income from operations was $1.8 million for Q2, compared to a loss of $29.1 million for Q1.
Speaker Change: On a non-GAAP basis, net income for Q2 was $58.8 million, compared to $48 million for Q1.
Speaker Change: This resulted in non-gap diluted earnings per share of $0.43 for Q2, compared to $0.35 for Q1.
Speaker Change: Gap net income for Q2 was $10.8 million compared to Gap net loss of $16.1 million for Q1. This resulted in Gap diluted earnings per share of $0.08 for Q2.
Mandy Yang: Compared to a GAAP diluted loss per share of $0.12 for Q1, we exited Q2 with a total cash equivalence and marketable securities balance of $1.65 billion, compared to $1.63 billion at the end of Q1. This is part of our $1 billion share repurchase program authorized by our Board of Directors in July 2021. We repurchased 891,896 shares of our common stock in Q2 at an average price of $112.02 per share for a total of approximately $100 million.
Speaker Change: Compare to SCEP diluted loss per share of $0.12 for Q1. We exited Q2 with a total cash equivalence and marketable securities balance of $1.65 billion, compared to $1.63 billion at the end of Q1.
Speaker Change: As part of our $1 billion share repurchase program authorized by our Board of Directors in July 2023.
Speaker Change: We repurchased 891,896 shares of our common stock in Q2 at an average price of $112.02 per share for a total of approximately $100 million.
Mandy Yang: We have $648.1 million remaining for further share repurchase. In addition, we spent approximately $7.5 million withholding shares to cover taxes for employees' stock vesting and options in Q2 that reduced the diluted shares by 66,126 shares. We expect to continue this anti-dilution. In Q2, we generated $127 million in cash flow from operations and $117.4 million in free cash flow due to our strong working capital managers. Capital expenditure was $9.6 million for Q3, compared to $7.4 million for Q1.
Speaker Change: We have $648.1 million remaining for further share repurchases.
Speaker Change: In addition, we spent approximately $7.5 million by withholding shares to cover taxes for employee stockvesting and options in Q2, that reduced the diluted shares by $6.5 million.
Speaker Change: 66,126 shares. We expect to continue this anti-dilution plan.
Speaker Change: In Q2, we generated $127 million in cash flow from operations.
Speaker Change: and $117.4 million in free cash flow due to our strong working capital management.
Speaker Change: Capital expenditure was $9.6 million for Q2, compared to $7.4 million for Q1.
Speaker Change: Capital expenditure increased due to an increase in our U.S. manufacturing spending.
Mandy Yang: Capital expenditure increased due to an increase in our U.S. manufacturing spending. Now, let's discuss our outlook for the third quarter of 2024. We say our revenue for Q3 will be within a range of $370 to $410 million, which includes shipments of 160 to 180 megawatt hours of I2B. We expect GAAP's gross margin to be within a range of 45 to 48 percent.
Speaker Change: Now let's discuss our outlook for the third quarter of 2024.
Speaker Change: We expect our revenue for Q3 to be within a range of $370 to $410 million.
Speaker Change: which includes shipments of 160 to 180 megawatt hours of I2 batteries.
Speaker Change: We expect GAAP gross margin to be within a range of 45-48%. We expect non-GAAP gross margin to be within a range of 47-50% with net RIA benefit, and 39-42% before net RIA benefit.
Mandy Yang: We set non-GAAP growth margin to be within a range of 47% to 50% with a net RIA balance, or 39 to 42% before net RIA benefit. Non-GAAP gross margin includes stock-based compensation expense and acquisition-related amortization.
Speaker Change: non-GAAP gross margin includes stock-based compensation expense and acquisition-related amortization.
Mandy Yang: We expect the net RRI benefit to be between $30 and $33 million, based on an estimated shipment of 1.1 million units of U.S.-made microinverters in China. We expect our GAAP operating expenses to be within a range of $138 to $142 million, including approximately $59 million estimated for stock-based compensation expense, acquisition-related amortization, and restructuring.
Speaker Change: We expect the net IRI benefit to be between $30 and $33 million dollars on estimated shipments of 1.1 million units of U.S. net microinverters in Q3.
Speaker Change: We expect our GAAP operating expenses to be within a range of $138 to $142 million.
Speaker Change: including approximately 59 million dollars estimated for stock-based compensation expense, acquisition related amortization and restructuring.
Speaker Change: We expect our non-GAAP operating expenses to be within the range of $79 to $83 million.
Speaker Change: We state our GAAP and non-GAAP annualized effective tax rate excluding discrete items for 2024 to be at 18% plus or minus 1% with no IRA benefit.
Mandy Yang: We expect our non-GAAP operating expenses to be within the range of $79 to $83 million. We state our GAAP and non-GAAP annualized effective tax rate excluding discrete items for 2024 to be 18% plus or minus 1% with no IRA benefits. With that, I will open the line for questions. Thank you, and we will now begin the question and answer session. To ask a question, you may press star, then one, and your touch-tone display appears. If you are using a speakerphone, please pick up your handset before pressing the key.
Speaker Change: With that, I will open the line for questions.
Speaker Change: Thank you, and we will now begin the question and answer session.
Speaker Change: To ask a question, you may press star then 1 on your touch-tone phone.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question, please press star then 2.
Speaker Change: We ask that you please limit yourself to one question and one follow-up question, and you may recue for additional questions.
Operator: To withdraw your question, please press star then 2. We ask that you please limit yourself to one question and one follow-up question, and you may return for additional questions. At this time, we'll pause momentarily for the first question. And our first question today will come from Philip Shen with Ross Capital Partner. Please go ahead.
Speaker Change: At this time, we'll pause momentarily for the first question.
Speaker Change: And our first question today will come from Philip Shen with Ross Capital Partner. Please go ahead.
Philip Shen: Hi everyone, thanks for taking my questions. First one here on sell-through. Q2 was $396 million, the midpoint of your Q3 guide is $390 million, but batteries are up meaningfully, so I was wondering if you could share what you expect the sell-through to be? Can you confirm there's no de-stocking?
Philip Shen: Hi everyone, thanks for taking my questions. First one here on sell-through, Q2 was $396 million. The midpoint of your Q3 guide is $390 million.
Philip Shen: But batteries are up meaningfully. So I was wondering if you could share what you expect the sell-through to be in Q3. Can you confirm there's no de-stocking in Q3? And then when do you expect to return to the $450 to $500 million?
Badrinarayanan Kothandaraman: And then when do you expect to return to the $450 to $500 million? Q&A: Yeah, there is no de-stalking for Q3. And then on the, you know, you should always think about us as achieving a balance between saline and saline. In other words, um... We only need to report under-shipment or over-shipment if we do not have a backup. Now, going forward. [inaudible] and we are in good shape. So answering your question on the $450 million, we are very optimistic. As you can see, our sell-in revenue in Q2 was 303.5, which is selling revenue at the midpoint of guidance. Q3 is 390 million dollars. That's a good growth rate, and we are extremely optimistic. As I talked about, we have successfully normalized our channel inventory.
Speaker Change: of Normalized Revenue. Is it still on the table for back half or is it potentially more in 2025? Thanks.
Speaker Change: Yeah, there is no de-stalking for Q3.
Speaker Change: And then on the, you know, you should always now think about us.
Speaker Change: as achieving balance between sell-in and sell-through.
Speaker Change: You know, in other words...
Speaker Change: We only need to report under-shipment or over-shipment if we do not have a balance.
Speaker Change: So now going forward, the channel is balanced.
Speaker Change: And we are in good shape.
Speaker Change: So, answering your question on the $450 million, we are very optimistic, as you can see, our
Speaker Change: in Q2 was 303.5.
Speaker Change: are selling revenue at the point of guidance.
Speaker Change: for Q3 is $390 million.
Speaker Change: That's a good growth rate and we are extremely optimistic.
Speaker Change: Like what I talked about, we have successfully normalized our channel inventory.
Badrinarayanan Kothandaraman: The battery business is very healthy. We went from 75.5 million, or 75.5 megawatt hours, in Q1, to 120 in Q2. Now we are guiding 160 to 180 in Q3, and California is contributing to it, in addition to the other regions. As I said, our customer demands in Q2 increased by 5% as compared to Q1. So we are building in a little bit of conservatism there and building in some potential risks into our guidance. That's why we gave you 370 to 410.
Speaker Change: Our battery business is very healthy.
Speaker Change: We went from 75.5 megawatt hours in Q1.
Speaker Change: to 120 in Q2.
Speaker Change: Now we are guiding 160 to 180 in Q3, and California is contributing to it, in addition to the other regions.
Speaker Change: Like what I said, our customer demands in Q2.
Speaker Change: increased by 5% as compared to Q1 so we are
Speaker Change: You know, building in a little bit of conservatism there, and building in some, you know, potential risks into our guidance. That's why we gave you 370 to 410. Our Q3 bookings are the healthiest they have been in a year.
Badrinarayanan Kothandaraman: Our Q3 bookings are the healthiest they have been in a year. I told you about over 85% bookings and that too after removing... removing a bunch of risks that we evaluate continuously on a worldwide basis. Our early commitment to U.S. manufacturing is positioning us well with the least PPA and commercial asset owners. This is the definite bluebird for Q4.
Speaker Change: I told you about over 85% bookings, and that too after removing...
Speaker Change: removing a bunch of risks that we evaluate continuously on a worldwide basis.
Speaker Change: Our early commitment to U.S. manufacturing is positioning us well with the least EPA and commercial asset owners. This is the definite bluebird for Q4.
Badrinarayanan Kothandaraman: We expect the Fed to lower interest rates later in the year, so that, you know, will also be a tailwind, improving solar economics for U.S. consumers. Our efforts to capture market share in Europe, like I said, Europe, Q3, there is seasonality, but like I said, we are underpenetrated in Europe. There are so many countries where we are making good progress.
Speaker Change: We expect the Fed to lower interest rates later in the year.
Speaker Change: will also be a tailwind improving solar economics for U.S. consumers. Our efforts to capture market share in Europe , like what I said, Europe , Q3, there is seasonality, but like what I said, we are under penetrated in Europe . There are so many countries where we are making good progress.
Badrinarayanan Kothandaraman: So... We feel very optimistic about growth. And our next question will come from Mark Strouse with J.P. Morgan. Go ahead. Yes, good afternoon.
Speaker Change: [inaudible]
Speaker Change: And our next question will come from Mark Strouse with J.P. Morgan. Go ahead.
Mark Wesley Strouse: Thanks very much for taking our questions. So your gross margins continue to be very resilient. I remember leading up to the micromanufacturing, you know, getting ready to scale. You gave guidance as far as kind of the split of the 45x tax credit that you thought you could keep. I'm curious about two things.
Mark Wesley Strouse: Yes, good afternoon. Thanks very much for taking our questions. So, your gross margins continue to be very resilient. I remember leading up to the micromanufacturing, you know, getting ready to scale.
Mark Wesley Strouse: Thank you for joining us. You gave guidance as far as kind of the split of the 45x tax credit that you thought you could keep. I'm curious on two things. On the battery side, as that gets ready to ramp in the U.S., if you can give us a split of what that credit might look like for you.
Badrinarayanan Kothandaraman: On the battery side, if that gets ready to ramp up in the U.S., could you give us a split of what that credit might look like for you? And then also, excuse me, with the domestic content and ITC Adder language being out there, if a customer is going to get an incremental 30 to 40 cents per watt, how much of that do you think that Enphase could potentially keep versus passing on to the customer to stimulate demand? Just any pricing strategy comments would be helpful. Thank you.
Speaker Change: And then also, excuse me.
Speaker Change: With the domestic content, ITC Adder language being out there, you know, if a customer is going to get...
Speaker Change: an incremental 30 to 40 cents per watt. How much of that do you think that Enphase could potentially keep versus passing on to the customer to simulate demand? Just any pricing strategy comments would be helpful. Thank you.
Badrinarayanan Kothandaraman: Right. So basically, the first question: we work on gross margins a lot. We have a cost reduction program that is going on continuously for microinverters and batteries. We are making a lot of progress with it. I expect our non-gap gross margins without IRA to continuously increase.
Speaker Change: Right, so basically the first question, we work on gross margins a lot. We have a cost reduction program.
Speaker Change: That is going on continuously for microinverters and batteries. We are making a lot of progress in it. I expect our non-gap gross margins without IRA to continuously improve.
Badrinarayanan Kothandaraman: I'll tell you the dynamics in the battery business or the cell pack prices are going down. We are making our microinverters, you know, starting to make our microinverters for batteries in the U.S. And we are also making some fundamental changes in the architecture and going from the third generation to the fourth generation. Additionally, even in the third generation, the serviceability of the batteries and the system controllers for backup is approximately 90%. 90% serviceability means that you do not need to take batteries off the wall and basically service them in situ, which means very often.
Speaker Change: I'll tell you, the dynamics in the battery business or the cell pack prices are going down.
Speaker Change: We are starting to make our microinverters for batteries in the U.S.
Speaker Change: And we are also, you know, making some fundamental changes in the architecture and going from the third generation to the fourth generation.
Speaker Change: Additionally, even in the third generation, the serviceability of the batteries and the system controllers for backup is approximately 90%.
Speaker Change: 90% serviceability means that you do not need to take batteries off the wall.
Speaker Change: You basically service them in situ, which means very often.
Badrinarayanan Kothandaraman: The problem becomes simply replacing a board that may be worth only $50 and not taking out a $5,000 battery. That's the advantage of our architecture. It is easily serviceable, and we have made it modular. Gross margins. Actually, we are very bullish on gross margins, both with and without a Eureka! As far as your question on IRE, most of the IRE...
Speaker Change: The problem becomes simply replacing a board that may be worth only $50 and not taking out a $5,000 battery. That's the advantage of our architecture. It is easily serviceable and we have made it modular.
Speaker Change: Gross margins, actually we are very bullish on gross margins.
Speaker Change: both with and without IRA.
Badrinarayanan Kothandaraman: The benefit for us comes from microinverters. We are only now starting to ramp up. On our batteries, the microinverters inside the batteries are increasingly made in the U.S. Last question: the benefits, you know, it is too early to talk about it. The good news is we are, you know, we have our act together on the domestic content. We are talking to everybody that matters, and we are working out the details with them.
Speaker Change: As far as your question on IRA, most of the IRA...
Speaker Change: Benefit for us comes from microinverters. We are only now starting to ramp on our batteries. The microinverters inside the batteries are increasingly made in the U.S.
Speaker Change: Last question.
Speaker Change: is the benefits, you know, it is too early to talk about it.
Speaker Change: The good news is we are, you know, we have our act together on the domestic content.
Speaker Change: We are talking to everybody that matters and we are working out the details with them.
Badrinarayanan Kothandaraman: Our intention is that, you know, this entire incentive may be a good thing, ultimately, for the end consumer. And, you know, I'm not sure what the plans of several lease and PPA providers are. Whether they are going to keep it for themselves, or are they going to pass it down? I'm sure it is a microcosm.
Speaker Change: Our intention is that, you know, this entire incentive may be a good thing ultimately for the end consumer.
Speaker Change: And, you know, I'm not sure what the plans of several lease and PPA providers are, whether are they going to keep it for themselves or are they going to pass it on. I'm sure it is a mix.
Badrinarayanan Kothandaraman: As far as we are concerned, I mean, we will be, for us, it involves... We are setting up even more factories. For example, previously, we weren't manufacturing the enclosure for the microinverters in the U.S. Now we are going to be manufacturing that enclosure in the U.S. We are setting up factories, and we basically will be looking to charge for value. It's a good thing for the end consumer, especially with the incentives we are talking about in the range of 40 cents a watt, which is 10% of the project cost. The next question will come from Brian Lee of Goldman Sachs. Please go ahead.
Speaker Change: As far as we are concerned, I mean, we will be, for us, it involves...
Speaker Change: Setting up even more factories, for example, you know, previously we weren't manufacturing
Speaker Change: The enclosure for the microinverters in the U.S., now we are going to be manufacturing that enclosure in the U.S. We are setting up factories and we basically will be looking to charge for value.
Speaker Change: This is a good thing for the end consumer, especially with incentives we are talking about in the range of 40 cents a watt, which is 10% of project cost.
Speaker Change: The next question will come from Brian Lee with Goldman Sachs. Please go ahead.
Brian K. Lee: Hey guys, good afternoon. Thanks for taking the questions. Maybe this is for either Badri or Raghu, can you talk about the competitive landscape at all? Just thoughts around, you know, some reports on Tesla Powerwall 3 gaining traction, and then maybe, on the flip side, your most direct MLPE peer having some struggles, just kind of what's the market share landscape looking like for you? Are you gaining any traction?
Brian K. Lee: Hey guys, good afternoon. Thanks for taking the questions. Maybe this is for either Badri or Raghu. Can you talk about the competitive landscape at all? Just thoughts around, you know, some reports, Tesla Powerwall 3 gaining traction, and then maybe on the flip side, your most direct MLPE peer having some struggles. Just kind of what's the market share landscape looking like for you? Are you gaining some traction? And then secondarily, as we think about...
Badrinarayanan Kothandaraman: And then secondarily, as we think about 4Q, just some of the moving pieces, is it fair to assume battery shipments continue to grow sequentially into 4Q? Badri, you mentioned Europe is seasonal in 3Q, but do we take that to mean that it bounces back in 4Q? And then can you talk at all about the kind of domestic content demand you are seeing, if you can quantify at all what uplift you might see in 4Q? Thanks guys. I got it.
Speaker Change: 4Q, just some of the moving pieces. Is it fair to assume battery shipments continue to grow sequentially into 4Q?
Speaker Change: Badr, you mentioned Europe is seasonal in 3Q, but do we take that to mean that it bounces back in 4Q, and then can you talk at all about kind of the domestic content demand you are seeing, if you can quantify at all what uplift you might see in 4Q? Thanks, guys.
Badrinarayanan Kothandaraman: I'm going to give some detailed color on the competitive situation, and then Raghu will add more. You know, for the people who did not listen to my prepared remarks, our installers are steadily ramping up on M3. And we're talking primarily about California. The number of batteries attached to cars in California is increasing. Our numbers, like what I said. Overall, worldwide shipments were 75.5 megawatt hours in Q1, growing to 120 in Q2, and guiding between 160 and 180 in Q3. So battery attached, and a lot of it is coming from California, indeed. California as of last week.
Speaker Change: I'm going to give some detailed color on the competitive situation and then Raghu will add.
Speaker Change: More.
Speaker Change: You know, for the people who did not listen to my prepared remarks, our installers are steadily ramping on M3.
Speaker Change: And we're talking primarily about California here.
Speaker Change: The battery attached in California is increasing.
Raghu: Our numbers, like what I said, overall, worldwide shipments,
Raghu: was 75.5 megawatt hours in Q1, growing to 120 in Q2.
Raghu: and guiding 160 to 180 in Q3. So battery attached and a lot of it is coming from California indeed.
Badrinarayanan Kothandaraman: 60% of our installations are happening. So this is brand new data, fresh data, and we do a lot of installations per week, so this is important. 60% is NEM3, 40% is NEM2. Battery attach we are noticing is obviously very high for an M3, greater than 90% compared to an M2.
Raghu: California, as of last week, 60% of our installations happening.
Raghu: So this is brand new data, fresh data, and we do a lot of installations per week, so this is important, 60% is NEM 3, 40% is NEM 2.
Raghu: Battery attach we are noticing is obviously very high for an M3, greater than 90% compared to an M2.
Badrinarayanan Kothandaraman: The good news is that half of our NEM3 solar is still attached to Enphase batteries. This data has been consistent for the last two or three quarters. One more point for you to note is that we provide a strong value proposition for Grid Tide Batch. And this data, I did not say in the prepared remarks, but our NEM3 batteries, over 70%. They have a great time, and our grid-type batteries are very easy to install. Many customers just prefer a 2-5 kWh battery. No extra balance of, No complex. The existing combiner box can be used.
Raghu: The good news is half of our Nemtri solar is...
Raghu: still attached to Enphase batteries. This data has been consistent.
Raghu: for the last two or three quarters.
Raghu: One more point for you to note is we provide a strong value proposition.
Raghu: for grid-type batteries.
Raghu: And this data, I did not say in the prepared remarks, but our NEM 3 batteries...
Raghu: over 70%
Speaker Change: for a great time.
Raghu: And our grid-type batteries are very easy to install.
Raghu: Many customers just prefer two 5 kWh batteries.
Raghu: No extra balance of system. No complexity.
Badrinarayanan Kothandaraman: We have something called Enphase Power Control Software. That will make sure that we can do a lot of things in software and do not need to add any more hardware than what is necessary, and no main panel upgrade is required because of Enphase Power Control software. And I talked to you about 24 by 7 support, easy serviceability, the highest warranty in the industry, a 15 year warranty. We are able to do that because of our architecture. We don't use fans.
Raghu: The existing combiner box can be used.
Speaker Change: We have something called Enphase Power Control Software.
Speaker Change: That will make sure that we can do a lot of things in software and do not need to add any more hardware than what is necessary and no main panel upgrades.
Speaker Change: are required because of Enphase Power Control software.
Speaker Change: And I talked to you about 24x7 support, easy serviceability, highest warranty in the industry, 15-year warranty.
Speaker Change: We are able to do that because of our architecture. We don't use fans. We have...
Badrinarayanan Kothandaraman: We have air cooling. There is no single point of failure. For backup. You know, backup is a little more complex, that is... There's going to be more dollars the user has to shell out because... A Useful Backup, Probably it's about 20 kilowatt hours of battery life. And for backup, we are streamlining our balance of systems. We are going to have a new 10 kilowatt-hour battery, and we are basically embedding the neutrals, so we are eliminating the system controller, and we are enhancing our combiner.
Speaker Change: Air cooling, no single point of failure. For backup...
Speaker Change: You know backup is a little more complex. There is going to be more dollars the user has to shell out because a useful backup probably is about 20 kilowatt hour battery.
Speaker Change: And for backup, we are streamlining our balance of systems.
Speaker Change: We are going to have a new 10 kilowatt hour battery.
Speaker Change: And we are basically embedding the neutral, so we are eliminating the system controller.
Badrinarayanan Kothandaraman: There, we are reducing the number of things they have to buy. And basically, we'll have a best-in-class solution there, on the PV side. You know, I didn't explicitly say. The advantages over a string inverter are numerous, first of all.
Speaker Change: and we are enhancing our combiner.
Speaker Change: There, we are reducing the number of things they have to buy.
Speaker Change: And basically, we'll have a best-in-class solution there.
Speaker Change: On the PV side.
Speaker Change: You know, I didn't explicitly say...
Speaker Change: The advantage is over a string inverter.
Badrinarayanan Kothandaraman: Obviously, high power production, and enhanced power production could range, you know, anywhere from a couple of percent to 15%. Safe AC architecture, no high-voltage DC on your roof. That's the single most important factor, for example, that some people in Europe select our product simply because it doesn't have high voltage DC in it. For panel monitoring, I was in Austria and Switzerland recently. For panel monitoring, they say, we, we want to see everything that is happening. Panel monitoring is very important. Twenty-five-year warranty versus... Inverters, we may be talking about a 10 year warranty.
Speaker Change: are numerous, first of all.
Speaker Change: Obviously, high power production, enhanced power production could range, you know, anywhere from
Speaker Change: and a couple of percent to 15% more.
Speaker Change: Safe AC architecture. No high voltage DC on your roof. That's the single most important factor, for example, that some people in Europe select our product. It's simply because no high voltage DC on the roof.
Speaker Change: Per-panel monitoring. I was in Austria and Switzerland recently. Per-panel monitoring was, they say, we want to see everything that is happening.
Speaker Change: for panel monitoring is very important for them.
Badrinarayanan Kothandaraman: I mean, the 25-year warranty matters, and obviously, domestic content readiness. So domestic content readiness, of course, our competition will also be ready. And we believe that we have a good solution there, and we are going to make it even better for both microinverters and batteries.
Speaker Change: 25-year warranty versus inverters we may be talking about a 10-year warranty. I mean 25-year warranty matters.
Speaker Change: and obviously the domestic content readiness.
Speaker Change: So domestic content readiness, of course, our competition will also be ready.
Speaker Change: And we believe that we have a good solution there and we are going to make it even better for both microinverters and batteries.
Badrinarayanan Kothandaraman: We'll be able to capture some value. And so those are all of the puts and takes on the competitive situation. You know, I'll have Raghu define the competitive situation more, but I'll answer the other question.
Speaker Change: So, we will...
Speaker Change: We'll be able to capture some value there. So those are all of the puts and takes on the competitive situation. You know, I'll have Raghu qualify the competitive situation more, but I'll answer the other question.
Raghuveer R. Belur: Battery, do we expect Q4 growth? At this point, it's early for me to guide anything, but we do expect you four groups and domestic content. How much of the Q3 number includes domestic content? Little to zero. Domestic content is a conversation that we are having, and we expect it to pan out in the fourth quarter. So Raghu, talk about anything more.
Speaker Change: Battery, do we expect you for growth?
Raghu: At this point, it's early for me to guide anything, but we do expect you for growth.
Speaker Change: and Domestic Content. How much of the Q3 number includes domestic content?
Raghu: Little to zero. Domestic content is a conversation that we are having and we expect it to pan out in the fourth quarter.
Raghuveer R. Belur: Yeah, I think as Bhadre mentioned, we have a very strong value proposition, and this has been the value proposition from the very onset of the company, that compared to centralized big box solutions, we just have much better performance, better reliability as reflected in the 25 year warranty, and, you know, no high voltage DC anywhere, so much greater safety. The value proposition becomes even more important when you think about new types of structures like NEM3, which is all about arbitrage and wired batteries.
Raghu: Raghu, talk about anything more. Yeah, I think as Badri mentioned, you know, we have a very strong value proposition and really this has been the value proposition from the very onset of the company.
Badrinarayanan Kothandaraman: is that compared to centralized big box solutions, we just have much better performance, better reliability as reflected in the 25-year warranty, and no high voltage DC anywhere, so much greater safety.
Speaker Change: But the value proposition, you know, becomes even more important when you think about the new type of structures like NEM3, which is all about arbitrage and require batteries. And this is where, as we said, for a homeowner, if they can get just a 10 kilowatt-hour battery.
Raghuveer R. Belur: And this is where, as we said, for a homeowner, if they can get just a 10-kilowatt-hour battery, right, grid-tied, which means you connect it to the existing combiner box, the value proposition for NEM3 significantly improves. So our battery, the modularity of our battery, the high power, and the fact that it can be done in 10 kilowatt hours with two other 5P batteries makes it a very, very good fit.
Speaker Change: Great Tide, which means...
Speaker Change: [inaudible]
Andrew Salvatore Percoco: But he also mentioned that for backup, yeah, there's a lot of work that we're doing to make it as easy to install as the grid-tied solution as well. So, you know, we've always said decentralization is the key. Distributed architectures just always win in the long run for cost, performance, and reliability. Our next question will come from Andrew Percoco of Morgan Stanley. Please go ahead.
Speaker Change: with two other incubators in 5P makes it a very, very good fit.
Speaker Change: But he also mentioned that for backup, yeah, there's a lot of work that we're doing to make it as easy to install as the grid-type solution as well.
Speaker Change: So, you know, we've always said decentralization is the key. Distributed architectures just always win in the long run for cost, performance, and reliability.
Speaker Change: Our next question will come from Andrew Percoco of Morgan Stanley . Please go ahead.
Badrinarayanan Kothandaraman: Great, thanks so much for taking the question. I did just want to come back to the $450 million to $500 million run rate that you guys were talking about earlier this year. You know, you guys have obviously done a good job at clearing out the channel inventory. But it just feels like, over that time period, demand has stayed relatively stable at about $400 million or so on a quarterly basis. So I'm just kind of curious where you think the growth is going to come from here if we look at the 4Q and then into 2025.
Andrew Salvatore Percoco: Great, thanks so much for taking the question. I did just want to come back to the $450 million to $500 million run rate that you guys were talking about.
Andrew Salvatore Percoco: talking about earlier this year, you know, you guys have obviously done a good job.
Speaker Change: Clearing out the channel inventory, but it just feels like over that time period, demand has stayed relatively stable at about 400 million or so on a per quarter basis.
Speaker Change: So I'm just kind of curious where you think the growth is going to come from, from here, if we look at the 4Q and then into 2025. I know you guys don't officially guide that far out, but what markets are you expecting the growth to come from in Europe or in the US? And I guess how much of that will be battery-driven versus micro-driven?
Badrinarayanan Kothandaraman: I know you guys don't officially guide that far out, but what markets are you expecting the growth to come from in Europe or in the U.S.? And, I guess, how much of that will be battery-driven versus micro-driven? Thank you.
Badrinarayanan Kothandaraman: Right, so I think maybe you were not there in the prior, you know, when I answered a question a couple of times. I have a couple of questions to go, so let me go through those points. [inaudible] As you rightly said, we do not guide... We are very optimistic based on the fact that we have successfully normalized our channel inventory by the end of. Customer demand increased by 5% in Q2 as compared to
Speaker Change: Thank you.
Speaker Change: Right, so I think maybe you were not there when I answered a couple of questions ago, so let me go through those points.
Speaker Change: and Babuji Mishra. We hope that you have a wonderful day. I hope you enjoyed the webinar. I hope you'll be here again soon. See you later. Bye-bye. Bye-bye. Bye-bye. Bye-bye. Bye-bye. Bye-bye. Bye-bye. Bye-bye. Bye-bye. Bye-bye. Bye-bye. Bye-bye. Bye-bye.
Speaker Change: As you rightly said, we do not guide Q4.
Speaker Change: But we are very optimistic based upon what we are seeing.
Speaker Change: We have successfully normalized our channel inventory.
Speaker Change: by the end of Q2.
Speaker Change: Our customer demand increased by 5% in Q2 as compared to Q1.
Badrinarayanan Kothandaraman: Our battery business is doing phenomenally. 75.5 in Q1, 120 in Q2, midpoint of guidance 170 in Q3, and we naturally expect it to do well. Q3 bookings, or DLDA. These are the leading indicators for you.
Speaker Change: Our battery business is doing phenomenally well.
Speaker Change: 75.5 in Q1, 120 in Q2
Speaker Change: midpoint of guidance 170 in Q3
Speaker Change: And we naturally expect it to do.
Speaker Change: do well.
Speaker Change: A few pre-bookings.
Speaker Change: are the healthiest.
Speaker Change: that they have been in a year. These are the leading indicators for you.
Badrinarayanan Kothandaraman: Our early commitment to U.S. manufacturing, and positioning as well with respect to the commercial asset owner, PPA, and commercial customers. That one is a huge opportunity for the commercial asset owners, and we expect to offer solutions to them. And we expect them to be highly value-added solutions, which can drive demand. Additionally, we are hearing that the Fed will lower interest rates this year at least. Improving Solar Economics for the U.S., on the international side, talked at length about the Netherlands. Talked at length about France, and talked about Germany.
Speaker Change: Our early commitment to U.S. manufacturing.
Speaker Change: is positioning us well with respect to the commercial asset owners, PPA and commercial asset owners.
Speaker Change: So that one is a huge opportunity.
Speaker Change: for the commercial asset owners, and we expect to.
Speaker Change: offer solutions to them.
Speaker Change: There, and we expect them to be highly value-added solutions, which can drive demand.
Speaker Change: Additionally, we are hearing
Speaker Change: The Fed will lower interest rates this year at least once, improving solar economics for U.S. consumers.
Speaker Change: on the international side.
Speaker Change: I talked at length about Netherlands. I talked at length about France.
Badrinarayanan Kothandaraman: And there, I think, in the Netherlands, we are going to... Now, we have just introduced this software platform that enables the installers to sell effectively at the kitchen table, incorporating things like the dynamic tariffs and absence of NIMT. I mean, their absence.
Speaker Change: I talked about Germany.
Speaker Change: And there, I think, in Netherlands, we are going to...
Speaker Change: Now, we just introduced...
Speaker Change: [inaudible]
Speaker Change: This is a software platform that enables the installers to sell effectively at the kitchen table, incorporating things like the dynamic tariffs and absence of NEM 3.
Badrinarayanan Kothandaraman: So, we just introduced our five kilowatt-hour battery, the latest and greatest battery, in the Netherlands. We plan to introduce our EV chargers there, towards the end of Q3 and early Q4, coming to France. I mean, France is doing phenomenally well for. And despite all of this, France has stayed very, very healthy.
Speaker Change: I mean, absence of name.
Speaker Change: So, we just introduced our 5 kilowatt hour battery, the latest and greatest battery into Netherlands.
Speaker Change: We plan to introduce our EV chargers there towards the end of Q3 and early Q4.
Speaker Change: Coming to France, I mean, France is doing phenomenally well for us.
Badrinarayanan Kothandaraman: We just introduced our third generation battery in France. We are going to introduce solutions for IQ, you know, energy management, meaning software is what we said, for effectively managing and steering a hot water heater in France. We also expect to introduce the same IQEV chargers there as well in Germany. We... We're doing well.
Speaker Change: Despite all of this, France has stayed very, very healthy. We just introduced our third generation battery in France.
Speaker Change: We are going to introduce solutions for IQ, you know, energy management, meaning software is what we said, for effectively managing.
Speaker Change: Steering a hot water heater in France.
Speaker Change: We also expect to introduce the same IQEV chargers there as well. In Germany...
Badrinarayanan Kothandaraman: Our overall sell-through in Q2 was up, and Brad in Q1. At June's Intersolar Munich, we unveiled our three-phase battery back. This is a three-phase solution with backup, and it's a highly differentiated solution. It's the smallest, size battery with three-phase capacity.
Speaker Change: We were doing well. Our overall sell-through in Q2 was up compared to Q1. At the June Intersolar Munich, we unveiled our three-phase battery backup.
Speaker Change: This is a three-phase solution with backup, and it's a highly differentiated solution.
Badrinarayanan Kothandaraman: In addition, that battery is going to have phenomenal round-trip efficiency because we are innovating on turning off the unused microinverters when the consumption of the user is pretty low. That enhances efficiency and avoids waste. So round-trip efficiency is going to be better than competition. That battery is going to open up a nice market in Germany, Austria, and Switzerland, where there are large homes and three-phase backups. In A backup, by the way, is simply an emotional requirement. They really do not have outages.
Speaker Change: Size battery with three-phase capability.
Speaker Change: In addition, that battery is going to have phenomenal round-trip efficiency.
Speaker Change: because we are innovating on, you know, turning off
Speaker Change: The unused microinverters, when the consumption of the user is pretty low, that enhances the efficiency and avoids waste. So round-trip efficiency is going to be better than competition.
Speaker Change: So that battery is going to open up a nice stamp in Germany, Austria, and Switzerland where there are large homes and three-phase backup.
Speaker Change: You know, backup, by the way, is simply an emotional requirement. They really do not have outages. But it is a requirement. It is a requirement because people are worried because of incidents like Ukraine.
Badrinarayanan Kothandaraman: But it is a requirement. It is a requirement because people are worried because of incidents like Ukraine. So. Additionally, we are launching Balcony Solar into Germany in Q3, and the IQ Balcony Solar product that we introduced at InterSolar in June; that was the hit of our show.
Speaker Change: So...
Speaker Change: Additionally, we are launching Balcony Solar into Germany in Q3.
Speaker Change: and the IQ Balcony Solar product that we introduced.
Badrinarayanan Kothandaraman: That's what we consider the hit of our show because that one is a beautiful product. It produces You know, there are two panels, and this balcony gateway basically connects to those two panels, and then you're allowed to export up to 800 watts into the wall socket in Germany. And people can even add more panels; they can go from two to four panels, until only exporting 800 watts, but there is an auxiliary socket on the Balcony Gateway where you can plug in additional loads and make use of the extra source.
Speaker Change: and Intersolar. In June , that was the hit of our show. That's what we consider the hit of our show, because that one is a beautiful product. It produces...
Speaker Change: You know, there are two panels.
Speaker Change: And this balcony gateway basically connects...
Speaker Change: Thank you to those two panels.
Speaker Change: And then you're allowed to export up to 800 watts.
Speaker Change: into the wall socket.
Speaker Change: in Germany.
Speaker Change: And people can even add, they can go from two to four panels.
Speaker Change: Still only exporting 800 watts, but there is an auxiliary socket.
Speaker Change: on the balcony gateway where you can plug in additional loads and make use of the extra solar.
Speaker Change: Furthermore, if there is a power outage,
Badrinarayanan Kothandaraman: Furthermore, if there is a backup, meaning if there is a power outage, then there is a relay in the gateway that will automatically open and disconnect the connection to the wall socket but still maintains powering the appliance connected to the auxiliary socket.
Speaker Change: There is a relay in the gateway that will automatically open and disconnect the connection to the wall socket, but still maintains powering the appliance connected into the auxiliary socket. So, Sunlight Backup is available for ultra-low cost there.
Badrinarayanan Kothandaraman: So, Sunlight Backup is available for an ultra-low cost. So we expect balcony solar, that's a TAM of 400 megawatts. We expect 400 megawatts just in Germany. We expect to replicate that solution everywhere in Europe. So that's what we introduced at InterSolar, of course, our EV charger. I talked about it, and we are going to introduce our EV charger in all the countries there. [inaudible] And then I made a statement in my prepared remarks that we are strong in France, we are strong in the Netherlands, we are strong in Germany, but we are still under-penetrated in the UK, Italy, Spain, Belgium, Luxembourg, Switzerland
Speaker Change: So, we expect balcony solar, that's a TAM of 400 megawatts. We expect 400 megawatts just in Germany. We expect to replicate that solution everywhere in Europe .
Speaker Change: That's what we introduced at InterSolar. Of course, our EV charger, I talked about it. We are going to introduce our EV charger in all the countries there.
Speaker Change: Have a great day. Bye.
Speaker Change: And then I made a statement in my prepared remarks that...
Speaker Change: We are strong in France. We are strong in Netherlands. We are strong in Germany. We are still under-penetrated in...
Speaker Change: UK, Italy, Spain, Belgium, Luxembourg, Switzerland, Austria, Sweden and more, and we plan to introduce our entire product portfolio, the same things I talked about, microinverters, batteries, EV chargers,
Badrinarayanan Kothandaraman: And we plan to introduce our entire product portfolio, the same things I talked about, microinverters, batteries, EV chargers, energy management software, Balcony Solar, and Solar Graphics. And, you know, what do homeowners want? They want the same thing. They want safety.
Speaker Change: Energy Management Software, Balcony Solar, and Solar Graph.
Badrinarayanan Kothandaraman: No high voltage DC. They want a high quality system to work. They want savings because they have these dynamic rates. And they want an all-in-one experience, all-in-one app. They don't want one thing from one supplier, one thing from another supplier, and it doesn't work. They don't want to go to two apps, three apps.
Speaker Change: And, you know, what do homeowners want?
Speaker Change: They want the same things. They want safety, no high voltage DC. They want high quality system to work. They want savings because they have these dynamic rates. And they want an all-in-one experience, all-in-one app. They don't want one thing from one supplier, one thing from another supplier, and it doesn't work for them.
Badrinarayanan Kothandaraman: No, they want to do an all-in-one app. You know, a lot of new products are coming, many of them are, some of them will be available in Q3, some of them will be available in Q4, but, like I said, they are all going to propel us in the right direction. And our next question will come from Colin Rusch with Oppenheimer. Go ahead. Thanks so much.
Speaker Change: They don't want to go to two apps, three apps. No. They want to do an all-in-one app.
Speaker Change: You know, a lot of new products are coming, many of them are, you know, some of them will be available in Q3, some of them will be available in Q4, but like what I said,
Speaker Change: They are all going to propel us in the right direction.
Speaker Change: And our next question will come from Colin Rusch with Oppenheimer. Go ahead.
Colin William Rusch: Guys, can you talk about the guidance for the batteries, how much of that is really growth from new geographies and channel fill, and how much is coming from existing markets? And then, as you think about introducing the IQ9 and the evolution of module sizes and efficiency, can you speak to the product market fit and any potential headwinds you have for bringing that product to market? Yeah, I mean, we usually don't break out the regions, but I will tell you, you know, Europe is a little bit seasonal.
Colin William Rusch: Thanks so much. Can you talk about the guidance for the batteries, how much of that is for the growth from new geographies and channel fill and how much is coming from
Colin William Rusch: And then as you think about introducing the IQ9 and the evolution of module sizes and efficiency, can you speak to the product market fit and any potential headwinds you have for bringing that product to market?
Speaker Change: Yeah, I mean, we usually don't break out the regions, but I will tell you, you know, we expect Europe is a little bit seasonal. So I think
Colin William Rusch: So I think it may be a little down to flat in Europe, but the growth, a lot of the growth is coming from the U.S. and a lot of growth in California on the battery. And Colin, your second question... The product market fit, given the evolution of model efficiency, form factor, etc. Any headwinds you're expecting as you bring that to market? Right, IQ9. Actually, I can talk about IQ9.
Speaker Change: Maybe a little down to flat in Europe , but the growth, a lot of the growth is coming from U.S. and a lot of growth in California.
Speaker Change: and Batteries.
Speaker Change: The product market fit given the evolution of model efficiency, form factor, etc. Any headings you're expecting as you bring that to market?
Badrinarayanan Kothandaraman: Yeah, Q9. We are working very hard on IQ9. Q9 is going to be GAN-based, and GAN is a very interesting technology.
Speaker Change: Right, IQ 9, actually I can talk about IQ 9 now.
Speaker Change: Yeah, Q9.
Speaker Change: We are working very hard on IQ 9.
Speaker Change: IQ 9 is going to be GAN based.
Badrinarayanan Kothandaraman: It allows us to offer higher power for the same cost structure. So what will we offer? What will Enphase offer? for iQ9.
Speaker Change: And GAN is a very interesting technology. It allows us to...
Speaker Change: us to offer higher power for the same cost structure.
Speaker Change: So, what will we offer? What will Enphase offer?
Badrinarayanan Kothandaraman: We are going to Our first product will be focused on the commercial market where today we do not play, which is the 480 volt small commercial market. So we will introduce a 427 watt product for the small commercial market three phase, will have an outstanding cost structure. We are, you know, the key innovation in GAN is that instead of the four silicon FETs that we have, we will have two bi-directional GAN switches. So that is how you save money.
Speaker Change: for IQ9.
Speaker Change: We are going to our first product will be focused on the commercial market where today we do not play which is the 480 volt small commercial market.
Speaker Change: So, we will introduce a 427 watt product.
Speaker Change: for the small commercial market three phase.
Speaker Change: It will have an outstanding cost structure.
Speaker Change: We are, you know, the key innovation in GAN is instead of four silicon FETs that we have,
Speaker Change: We will have two bi-directional GaN switches.
Badrinarayanan Kothandaraman: Another way you save cost is if you run those switches at high frequencies, even double the frequency 100 kilohertz becomes 200 kilohertz or 300 kilohertz, there is an opportunity to drop the main transformer size and, therefore, the cost structure big.
Speaker Change: So that is how you save cost. Another way you save cost is if you...
Speaker Change: Run those switches at high frequency, even double the frequency. 100 kHz becomes 200 kHz or 300 kHz. There is opportunity to drop the main transformer size big, and therefore the cost structure big.
Badrinarayanan Kothandaraman: So our internal goals are to make the cost on an absolute pace. For this product, the same as IQ-8, which means the cost per watt would be automatically much lower, and on the heels of the 427, what? And we will also offer a 548 watt... That will be for emerging markets, some places in Europe, and that will be available for both residential as well as commercial use. And you know, yeah, commercial. So, a lot of plans. We expect to have the first IQ9 in the market in 2025. Great product market fit, right? I mean, you asked that question.
Speaker Change: So our internal goals are to make the cost on an absolute basis.
Speaker Change: For this product, the same as IQ-8, which means cost per watt will be automatically much lower.
Speaker Change: And on the heels of the 427 watts.
Speaker Change: We will also offer a 548 watts
Speaker Change: That will be for emerging markets as well as for...
Speaker Change: Some places in Europe , and that will be available for both the residential
Speaker Change: as well as commercial.
Speaker Change: and other commercial customers.
Speaker Change: So, a lot of plans.
Speaker Change: We expect, we expect...
Speaker Change: to have the first IQ-9.
Speaker Change: into market in 2025.
Speaker Change: Great product market fit, right? I mean, you asked that question. You're seeing that the module power is continuing to go up.
Badrinarayanan Kothandaraman: We're seeing that module power is continuing to go up, and so our plans, in fact, we have the platform already developed that can address, for the foreseeable future, any increase in power and uniquely benefits Enphase because as the power continues to go up, you can build that same system with fewer number of modules. You don't need it, if you did it with 20 modules before, now you can do it with 18 modules, right? As opposed to a big box inverter, it doesn't matter, you know; a seven kilowatt inverter is a seven kilowatt inverter.
Speaker Change: And so, our plans, in fact, we have the platform already developed that can...
Speaker Change: address
Speaker Change: You know, for the foreseeable future, any increase in power and uniquely benefits Enphase.
Speaker Change: Because as the power continues to go up, you can build that same system with fewer number of modules. You don't need, if you were doing it with 20 modules before, now you can do it with 18 modules.
Speaker Change: As opposed to a big box inverter, it doesn't matter, you know, a 7 kilowatt inverter is a 7 kilowatt inverter.
Badrinarayanan Kothandaraman: So we have some unique benefits when it comes to the direction in which the modules are going, and we have the platform now, both with, in fact, IQ 8 and getting better with IQ 9, to address any increase in module power. And our next question will come from James West with Evercore ISI. Please go ahead. Hey, good afternoon, Badri.
Speaker Change: So we have some unique benefits when it comes to the direction in which the modules are going. And we have the platform now, in fact, with IQ8 and getting better with IQ9 to address any increase in module power.
Speaker Change: And our next question will come from James West with Evercore ISI.
James Carlyle West: A quick question about the countries that you've highlighted where we're under penetrated in Europe. You know, what is the strategy to increase penetration? Is that new products?
Speaker Change: Please go ahead.
James Carlyle West: Hey, good afternoon, Badri.
James Carlyle West: A quick question about the countries that you've highlighted where you're under-penetrating in Europe . What is the strategy to increase penetration? Is that the new products? Is it adding more sales and installers? That's the first question. The second question is around the commercial products business and kind of what you see as the output there.
Badrinarayanan Kothandaraman: Is it adding more sales and installers? That's the first question. The second question is around the commercial products business and kind of what you see is the output there. Yeah, it's quite simple.
Badrinarayanan Kothandaraman: It is to introduce new products systematically into all of those regions, which we are. We are following it up, like, for example, every region. Almost every region has IQ8 microinverters. Some of the regions will need three-phase batteries, and even single-phase batteries with backup that will be available by the end of the year. Demi-IQEV chargers.
Speaker Change: Yeah, it's quite simple. It is to introduce new products systematically into all of those regions which we are.
Speaker Change: We are following it up, like, for example, every region.
Speaker Change: Almost every region has IQ8 microinverters today. Some of the regions will need three-phase batteries, and even single-phase batteries with backup. That will be available.
Badrinarayanan Kothandaraman: You know what I told you will be available again in Q4. We are steadily releasing the solar graph platform. In all of these... to make sure we have a lot of revenue coverage there in those countries, and the SolarGraph platform helps us to... [inaudible] And the last bit is the IQ energy management software. You know, places where there are dynamic electricity rates. There aren't that many now, you know, Germany, Sweden, Norway, and the Netherlands. Those are the four, but I'm sure that that's a phenomenon that will come, and every region will have its own thing, its time of use, or an M3 type tariff, or a dynamic tariff.
Speaker Change: by the end of the year. And then IQEV chargers, you know, what I told you similarly, will be available again in Q4. We are steadily releasing the Solar Graph platform.
Speaker Change: in all of the, you know, to make sure we have a lot of revenue coverage there in those countries. And SolarGraph, you know, platform helps us to enhance the value proposition that the installer can provide the homeowner at the kitchen table.
Speaker Change: The last bit is the IQ energy management software.
Speaker Change: You know places where there are dynamic electricity rates. There aren't that many now, you know Germany
Speaker Change: Sweden, Norway, Netherlands
Speaker Change: Those are the four, but I'm sure that that's a phenomenon that will come, and every region will have its own thing, their time of use, or an M3 type tariff, or a dynamic tariff.
Badrinarayanan Kothandaraman: And even, you know, imbalance in some countries and how we can help in imbalance, which is much more. A few, many things. So we are getting ready for all of that, but the short answer is... more sales. More FAA coverage. Great customer service 24 by 7, and making sure all our products are available there, and, you know, hand-holding the installers, training them well, is something that we do.
Speaker Change: and even, you know, imbalance in some countries and how we can help in imbalance, which are much more...
Speaker Change: You know, instead of a day, instead of us getting day ahead, tariff, we may be getting, you know, information a few minutes ahead.
Badrinarayanan Kothandaraman: We need to continue to do that for all of them. So I don't expect a step function, but I expect steady growth as we introduce products. And our next question will come from Julien Dumoulin Smith with Jeffrey. Go ahead. Yeah, can you guys hear me?
Speaker Change: So we are getting ready for all of that, but the short answer is more sales.
Speaker Change: More FAE coverage?
Speaker Change: Great customer service, 24 by 7.
Speaker Change: and making sure all our products are available there.
Speaker Change: And, you know, hand-holding the installers, training them well, is something that we do.
Speaker Change: We need to continue to do that for all of these regions. So, I don't expect a step function, but I expect steady growth as we introduce products.
Speaker Change: over the years.
Julien Patrick Dumoulin: And our next question will come from Julien Dumoulin-Smith with Jeffrey, go ahead.
Julien Patrick Dumoulin: New guys, thank you very much, appreciate the time.
Julien Patrick Dumoulin: Hopefully. Just wanted to kick off here first, just expectations for SunPower in the third quarter here. Just wanted to make sure and confirm that it's been adjusted for kind of expectations on whatever happens there. And then maybe just more holistically, as you think about that fourth quarter, I know you're providing third-quarter guidance here, but how do you think about the domestic content? You talked about the value proposition being split, but how do you think about that impacting, sort of, more of a step function recovery in the resi market here?
Julien Patrick Dumoulin: Yeah, can you guys hear me? Hopefully.
Speaker Change: Thank you very much.
Julien Patrick Dumoulin: I just wanted to kick off here first, just expectations on SunBower in third quarter here. Just wanted to make sure and confirm that it's been adjusted for kind of expectations on whatever happens there.
Speaker Change #101: Maybe just more holistically, if you think about that fourth quarter, I know you're providing a third quarter guide here, but how do you think about the domestic content? You talk about the value proposition being split, but how do you think about that impacting sort of more of a step function recovery in the resi market here? I mean, clearly we've seen a little bit of a drag out in backlog ads in California, for instance. How do you think about that adding to overall volumetric health as we close out the year with that additional 10%?
Julien Patrick Dumoulin: I mean, clearly, we've seen a little bit of a drag out in backlog ads in California, for instance. But, how do you think about that adding to overall volumetric health as we close out the year with that additional 10%? Thank you.
Badrinarayanan Kothandaraman: First of all, with respect to SunPower, we are not going to comment on customer specifics here. But, as usual, when we give you guidance, we always take risks everywhere in the world, globally, and we have exactly done that in the guidance that we gave. That's one.
Phil: Yeah, thank you.
Speaker Change: First one, with respect to SunPower, we are not going to comment on customer specifics here.
Speaker Change #102: But as usual, what we do is when we give you guidance, we always take risks everywhere in the world.
Speaker Change #102: globally and we have exactly done that in the guidance that we gave you.
Badrinarayanan Kothandaraman: On the domestic content, again, it is... It's early to tell, but we like what we are seeing. We believe it's a..., and we will start to see some output of the domestic content in Q4 that will be positive, hopefully for the industry. And that incentive can be used to... [inaudible] Make sure installers also have a robust situation. So I think it will benefit everybody in some way or the other, and we are happy to provide those solutions. And we are, you know. Our products right now; we basically said certain select products that we have today. Combined with Racking, Qualify.
Speaker Change #103: That's one. And the domestic content, again, it is...
Speaker Change #104: It's early to tell, but we like what we are seeing.
Speaker Change #104: We will start to see...
Speaker Change #104: Some output of the domestic content in Q4 that will be positive hopefully for the industry.
Speaker Change #104: because it is a large...
Speaker Change #104: and that incentive can be used to
Speaker Change #104: Propel Demand to Improve Economics for the PPA Providers, Improve Economics for the Industry.
Speaker Change #104: Making sure installers also, their situation get robust.
Speaker Change #104: So I think it will benefit everybody in some way or the other. We are happy to provide those solutions.
Speaker Change #104: and we are, you know...
Speaker Change #104: Our products right now, we basically said certain select products that we have today.
Badrinarayanan Kothandaraman: Even today, for domestic content, we are making that better by increasing our domestic content, which is manufacturing enclosures for microinverters, and getting that ready in the fourth quarter. Once that is in place, then we will be able to increase the percentage. And we'll be able to service customers better, but, you know, I'm very excited by it. I think this, this, along with potentially the Fed rate, has the potential to propel.
Speaker Change #104: combined with Racking Qualify even today for domestic content. We are making that better.
Speaker Change #104: by increasing our domestic content, which is manufacturing enclosures for microinverters.
Speaker Change #104: and getting that ready in the fourth quarter.
Speaker Change #104: So once that is in play, then we will be able to increase the percentage of domestic content available there.
Speaker Change #104: And we'll be able to service customers better. But, you know, I'm very excited by it.
Speaker Change #104: I think this along with potentially the Fed rates has got the potential to propel the market significantly in Q4.
Badrinarayanan Kothandaraman: Marked Significantly, And our next question will come from Eric Stine with Craig Hallam. Hey, thanks for sneaking me in here at the end. Just curious, you mentioned that 60% of your installs were NEM 3. I'm just curious how long you think it takes.
Eric Andrew Stine: I know it's dragged on for some time. How long until you think you're through NEM 2? And then, you know, just thinking about the high attach rates, what do you think any way to ballpark where your energy storage volumes may be when that time comes? Yeah, I mean, just if history were to tell you something.
Speaker Change #104: And our next question will come from Eric Stine with Craig Hallam.
Speaker Change #105: Please go ahead.
Eric Andrew Stine: Hey thanks for sneaking me in here at the end. Just curious, you mentioned that 60% of your installs were
Eric Andrew Stine: We're NEM 3. I'm just curious how long you think it takes. I know it's dragged on for some time. How long until you think you're through NEM 2? And then, you know, just thinking about the high attach rates, what do you think any way to ballpark where your energy storage volumes may be when that time comes?
Speaker Change #107: Yeah, I mean, just if history were to tell you something.
Badrinarayanan Kothandaraman: I think last time I told you about 50% three months ago. Right now, it is 60%. So, I don't know the answer, maybe another two, three quarters, and Chaliko. And yes, I mean, I think the... You know, Raghu talked about grid-tied batteries, which provide the right economic The bill offset if you have one 5 kilowatt hour battery improves from something like 55 to 70. If you have two 5 kilowatt-hour batteries, it can go from It can go from 85 to 90.
Speaker Change #108: I think last time I told you approximately 50% three months ago.
Speaker Change #109: So, right now it is 60%, 6-0.
Speaker Change #110: So, I don't know the answer. Maybe another two, three quarters is when NEM2 will...
Speaker Change #110: eventually go.
Speaker Change #110: And yes, I mean, I think, I think the...
Speaker Change #110: You know, Raghu talked about grid-type batteries. They provide the right economics.
Speaker Change #111: The bill offset, if you have one 5 kilowatt hour battery, improves from...
Speaker Change #111: Something like 55 to 70.
Speaker Change #111: If you have two 5 kilowatt hour batteries, it can go from, it can go to 85 to 90 percent.
Badrinarayanan Kothandaraman: The sweet spot is 2, 5 kilowatt-hour battery. And, you know, that's for people who choose the crit type. Now, there are people who choose back, as we talked about. We do expect full conversion to NEM 3 to drive the battery attack. But there is still, you know, mathematically, if you see, only 60% is converted.
Speaker Change #111: So the sweet spot is 2 5 kilowatt hour batteries.
Speaker Change #111: And, you know, that's for people who choose grid type. Now there are people who choose backup too.
Speaker Change #111: That's what we talked about earlier. So we do expect.
Speaker Change #111: [inaudible]
Badrinarayanan Kothandaraman: Now, of course, many things play into this, like the health of the installers, etc. So I cannot give you a number, but I think we are... We are quite positive because, first of all, our revenue through revenue in California has stabilized compared to Q1 to Q2, and I gave you the split up, which means... Microinverters were flashed, and battery was up by, I think I said 14%.
Speaker Change #112: Now, of course, many things play into this, like the health of the installers, etc. So, I cannot guide a number, but I think we are...
Speaker Change #112: We are quite positive because, you know, first of all, our revenue...
Speaker Change #112: Well, true revenue in California has stabilized compared to Q1. In fact, it was up, I said, by...
Speaker Change #112: Q1 to Q2 and I gave you the split up which means...
Speaker Change #113: Microinverters were flashed.
Speaker Change #113: And battery was up by, I think I said 14%.
Badrinarayanan Kothandaraman: So, generally good news, but it is... One quarter, we have to be cautious. We remain optimistic that this is going to drive our battery growth and battery business. And our next question will come from Jordan Levy with Truth Security. Please go ahead. Afternoon, I appreciate y'all squeezing me in here.
Speaker Change #113: Hello.
Speaker Change #114: It is generally good news, but it is one quarter. We have to be cautious.
Speaker Change #114: We remain optimistic that this is going to drive our battery growth, battery business significantly.
Speaker Change #114: And our next question will come from Jordan Levy with Truth Security. Please go ahead.
Jordan Alexander Levy: Maybe just a quick one from me. I appreciate all the details y'all have continued to provide. Just wanted to get your thoughts, you know, obviously a lot going on, the upcoming election. I just wanted to see how you're there from maybe an IRA perspective. You know, we think that, of course, we don't control what happens there, right?
Jordan Alexander Levy: Afternoon, appreciate y'all squeezing me in here. Maybe just a quick one from me, appreciate all the details y'all have continued to provide on U.S. manufacturing and your outlook there. Just wanted to get your thoughts, obviously a lot going on on the geopolitics.
Speaker Change #116: Thank you all for joining us today for the upcoming election, both here in the U.S. and in Europe . I just wanted to see how you're thinking about the risks there from maybe an IRA perspective and then over in Europe .
Badrinarayanan Kothandaraman: So, but we feel like, you know, we have a very sound business. Our value proposition for the product is excellent, and the business stands alone independent of these incentives.
Speaker Change #117: You know, we think that, of course, we don't control what happens there, right? So, but we feel like, you know, we have a very sound business. Our value proposition of a product is excellent.
Speaker Change #117: And the business stands alone, independent of these incentives.
Badrinarayanan Kothandaraman: So, now specifically talking about the IRA, you know, obviously, we have brought high technology manufacturing back to the US, and we are doing more of that now. We're creating jobs. We are making investments, and this, we believe, is something that is expected to be supported regardless of who is in the government. So we think we are doing all the right things; we share with you things like gross margin with and without the IRA, so we're giving you a lot of details about our business. But I think whatever happens, the outcome remains to be seen. It's not in our control, but I think we have done all the right things.
Speaker Change #117: So what...
Speaker Change #117: Now, specifically talking about the IRA, you know, obviously we have brought high technology manufacturing back to the U.S. and we are doing more of that now. We are creating jobs, we are making investments, and this, we believe, is something that is expected to be supported regardless of who is in the government.
Speaker Change #117: So we think we are doing all the right things. We share with you things like gross margin with and without the IRA, so we're giving you a lot of details about our business.
Speaker Change #117: So, I think what happens, the outcome remains to be seen, it's not in our control, but I think we have done all the right things.
Jordan Alexander Levy: Yeah, absolutely, and then just a quick follow-up. I noticed you got the number of certified battery installers and saw some really nice growth there this quarter. I'm just wondering what initiatives are driving those installers. Yeah, I mean, those are reflective of the number of countries we are entering into the training that we are providing. We have a very active training department worldwide. We have an Enphase University.
Speaker Change #118: yeah absolutely and then just just a quick follow-up I noticed you you get the number of certified battery installers and saw some really nice growth there this quarter I'm just wondering what initiatives are kind of driving those installer certification numbers
Speaker Change #118: Kothandaraman, Badrinarayanan Kothandaraman, Badrinarayanan Kothandaraman, Badrinarayanan
Speaker Change #119: where we should expect that number to kind of trend toward.
Speaker Change #120: Yeah, I mean, those are reflective of the number of countries we are entering in the training that we are providing. We have a very active training department worldwide.
Badrinarayanan Kothandaraman: Of course, we, you know, battery installations aren't, aren't simple, although the grid-tied installations are, are getting there, so it does need some training. And we have a lot of installers getting trained both in Europe and in the US. The IQ Battery 5P is a good product.
Speaker Change #120: and we have an Enphase University.
Speaker Change #120: are getting there. So it does need some training. And we have a lot of installers getting trained both in Europe and in the U.S. The IQ Battery 5P is a good product. It solved some of the
Badrinarayanan Kothandaraman: It solves some of the earlier deficiencies that we had in terms of low power and wireless connectivity, etc. All of those are fixed. So it's being well received globally, not just in the US. And now we are following it up with, to address the market, so... That's what you're seeing, you're seeing that sort of strength, you know, training, not just... Big installers, focusing on installers. All the installers, like, for example, when I was in Austria and Switzerland.
Speaker Change #120: earlier deficiencies that we had.
Speaker Change #121: In terms of low power and wireless connectivity,
Speaker Change #121: etc. All of those are fixed so it's being well received globally, not just the U.S.
Speaker Change #121: And now we are following it up with a three-phase battery.
Speaker Change #121: To address the market, so...
Speaker Change #121: That's what you're seeing. You're seeing that sort of strength, you know, training, not just...
Speaker Change #121: Big installers focusing on...
Speaker Change #121: on, you know, all the installers. Like, for example, when I was in Austria and Switzerland,
Badrinarayanan Kothandaraman: About a month ago... for seven installers, in a couple of days, and these are anywhere from one to five megawatts. Those are our installers, we celebrate them, we make sure that we... We provide them with the correct guidance. We're not perfect. Many times there are problems, but once we know about them, we solve the problems quickly.
Speaker Change #121: About a month ago, in Switzerland, I met...
Speaker Change #121: About 7 installers.
Speaker Change #121: in a couple of days.
Speaker Change #121: and these are anywhere from 1 to 5 megawatts.
Speaker Change #121: Those are our installers. We celebrate them. We make sure that we...
Speaker Change #121: Provide them the correct guidance. We're not perfect. Many times there are problems, but once we know...
Speaker Change #121: We solved the problems quickly.
Badrinarayanan Kothandaraman: I think what you're seeing is this transformation from solar energy to energy. And I think you should expect this trend to continue. We have talked about it, but now it's really turning into a reality where if you look at the number of markets that have made this transition from solar to solar, plus battery, plus EV charger, plus heat pump. And so you can see how our products are aligning with that transformation. We are doing everything from, you know, continuing on our inverter side, going from IQ8 to IQ9 to match module power increases.
Speaker Change #122: I think what you're seeing is this transformation from solar to energy.
Speaker Change #122: And I think you should expect this trend to continue, you have talked about it, but now it's really turning into a reality where if you look at
Speaker Change #122: A number of markets have made this transition from
Speaker Change #122: from solar to solar, plus battery, plus EV charger, plus heat pump.
Speaker Change #122: And so you can see how our products are aligning.
Speaker Change #122: with that transformation.
Speaker Change #122: We are doing everything from...
Speaker Change #122: Continuing on our inverter side, going IQ8 to IQ9 to match module.
Badrinarayanan Kothandaraman: You're looking at what we are doing with our battery with the 5P battery and then the next generation 10 kilowatt-hour battery, introducing the three-phase battery for backup, introducing EV chargers, introducing all of the software. So you're seeing the training that we now need to do to get people more comfortable with selling systems. And all of this is good for us because this is what our DNA is, building hardware-software systems, building software systems that are software defined, and this is a unique advantage for us.
Speaker Change #122: [inaudible]
Speaker Change #122: Selling systems is also on the increase, and all of this is good for us, because this is what our DNA is, building hardware-software systems, building software systems that are software-defined, and this is a unique advantage for us.
Badrinarayanan Kothandaraman: And our next question will come from Christine Cho with Barclays. Please go ahead. Thank you for taking, for squeezing me in. In California, I think you said your customers who are getting your inverters are attaching your battery 50% of the time. Is this that different in California versus the rest of the US?
Speaker Change #123: And our next question will come from Christine Cho with Barclays. Please go ahead.
Christine Cho: I think you said 70% of your batteries are grid-tied and are great for NEM 3.0, the rate arbitrage. Outside California, I would think batteries are primarily used for backup and not for rate arbitrage. I'm curious if you find that your market share for batteries is higher in California versus the rest of the US. You're correct that outside the U.S., batteries are used. Thank you for your time. Where you do have a lot of incentives simply for using the grid and helping the grid out, especially during summer, as an example, the Duke. Our PAIR program is an example.
Christine Cho: Thank you for taking, for squeezing me in. In California, I think you said your customers who are getting your inverters are attaching your battery 50% of the time.
Christine Cho: Is this stat different in California versus the rest of the U.S.? I think you said 70% of your batteries are grid-tied and is great for NEM 3.0.
Speaker Change #125: and we are going to be talking about the rate arbitrage. But outside California, I would think batteries are primarily used for backup and not for rate arbitrage. So, I'm curious if you find that your market share for batteries is higher in California versus the rest of the U.S.
Speaker Change #126: You're correct that outside the U.S. batteries are used for backup, but there are some places in the U.S. where there are a lot of grid services.
Speaker Change #127: where you do have a lot of incentives simply for...
Speaker Change #127: Simply for using the battery and helping the grid out, especially during summer.
Speaker Change #127: And Massachusetts is an example. The Duke Power Pair Program is an example.
Badrinarayanan Kothandaraman: So, you're generally right though, in the NEM world. The battery, the grid is the battery, therefore... When people add a battery, they really need it for some kind of security. Emotional security, that's why, backup, most places in the U.S., in California. It is a function of rate.
Speaker Change #127: So, you're generally right though, in the NEM world,
Speaker Change #127: A battery, the grid is the battery, therefore...
Speaker Change #128: When people add a battery, they really need it for some kind of security, emotional security. That's why it is with backup for most places in the US.
Christine Cho: It's not NEM any longer; it's NEM 3. And therefore, there it makes sense.... The grid-type batteries make a lot of noise, market share. Coming to the market share, I don't know the answer to that, but I would say the market share between California and Puyallup in California is probably Puyallup.
Speaker Change #129: It is a function of rates.
Speaker Change #129: It's not NEM any longer, it's NEM 3.
Speaker Change #129: And therefore, there it makes sense. It's a pure economics game.
Speaker Change #129: dead in California.
Speaker Change #129: So grid-type batteries make a lot of sense there.
Speaker Change #129: market share, coming to the market share.
Speaker Change #130: I don't know the answer to that, but I would say the market share between...
Speaker Change #130: Outside California
Speaker Change #130: as well as in California, probably equivalent.
Badrinarayanan Kothandaraman: Okay. And then, I know you gave your sell-through numbers quarter over quarter, but would we be able to get your sell-through for storage in megawatt hours for 2Q? And I know that you said the channel is clear in general, but would you say that the weeks of inventory for batteries are also currently your standard 8 to 10 weeks? Well, the batteries have the opposite problem. I'm very tight on batteries.
Speaker Change #131: Okay. And then, I know you gave your sell-through numbers quarter over quarter, but would we be able to get your sell-through for storage in megawatt hours for 2Q? And I know that you said the channel is clear in general, but would you say that the weeks of inventory for batteries is also currently your standard 8 to 10 weeks?
Speaker Change #132: Well, the batteries have the opposite problem. I'm very tight on batteries.
Badrinarayanan Kothandaraman: And I can tell you that the number of weeks on hand in the U.S. is less than 80. And that's a good problem for us to have. We do need to make sure the installers have enough inventory. We're always going to stay in the guardrail of 8 to 10 weeks. In general, that's where we'd like to get to. The batteries are very tight right now in the channel, meaning the channel is... This is a shot of Badrinarayanan Kothandaraman.
Speaker Change #133: And I can tell you that the number of weeks on hand in the U.S. is less than eight weeks.
Speaker Change #134: And that's a good problem for us to have. We do need to make sure the installers have enough inventory.
Speaker Change #135: We're always going to stay in the guardrail of eight to ten weeks.
Speaker Change #135: In general, that's where we'd like to get to, but the batteries are very tight right now in the channel, meaning the channel is...
Speaker Change #136: I would say short of batteries.
Praneeth Satish: And our next question will come from Praneeth Satish with Wells Fargo. Please go ahead. Thanks. Just two quick questions on domestic content here. First, you mentioned that the domestic content uplift with lease PPA providers will mostly come in Q4. There's no benefit included in the Q3 guidance.
Speaker Change #136: And our next question will come from Praneeth Satish with Wells Fargo. Please go ahead.
Badrinarayanan Kothandaraman: But your inverters qualify today, assuming you use domestic racking. So I guess the first question is, could we see any benefit in Q3, or maybe the tail end of Q3? And then secondly, you know, SolarEdge's inverter is also on track to be qualifying in Q4. So to the extent you do pick up any market share gains in Q3 or Q4, tied to domestic content with some of the larger lease PPA providers, do you think those gains will sustain into 2025? Yeah, number one question. The first question is, right now, our guidance doesn't comprehend any domestic content for Q3. To your right. You know, some of them may use what is already available, but I don't know.
Praneeth Satish: Thanks. Just two quick questions on domestic content here.
Praneeth Satish: You know, first you mentioned that the domestic content uplift with leased PPA providers will mostly come in Q4. There's no benefit included in the Q3 guidance.
Praneeth Satish: But your inverters qualify today, assuming you use domestic racking. So I guess the first question is could we see any benefit in Q3 or maybe the tail end of Q3?
Speaker Change #138: Secondly, SolarEdge's inverter is also on track to be qualifying in Q4.
Speaker Change #139: So, to the extent you do pick up any market share gains in Q3 or Q4 tied to domestic content with some of the larger leased PPA providers, do you think those gains will sustain into 2025?
Speaker Change #140: Yeah, number one question, first question is right now our guidance
Speaker Change #141: doesn't comprehend any domestic content for Q3.
Speaker Change #142: But you're right.
Speaker Change #143: It could be that some of them may use what is already available. I don't know.
Badrinarayanan Kothandaraman: Your guidance doesn't comprehend that, for Q4. Um, yeah. All of our competitors will probably come. [inaudible] And for us, the way we see it is MLPE, we have the opportunity to climb up in domestic content quite a bit by making sure our enclosures are also made in, So that can take us.
Speaker Change #143: but our your guidance doesn't comprehend that yet. For Q4
Speaker Change #143: Yeah, all of our competitors will probably...
Speaker Change #143: Come.
Speaker Change #143: with their own domestic content, so we need to continue to offer the right value to our customers.
Speaker Change #144: And for us, the way we see it is MLPE, we have the opportunity to...
Speaker Change #144: Climb up in domestic content quite a bit by making sure our enclosures are also made in the U.S.
Kasope Oladipo Harrison: This is a good number where you only need to be focused on getting that out at the end of Q3 and early Q4. And then we expect the demand to go up. And our next question will come from Kashi Harrison with Piper Sandler. Please go ahead.
Speaker Change #144: And so that can take us to a good number where you only need...
Speaker Change #144: Less percentage from Racking or elsewhere.
Speaker Change #144: So we're focused on getting that out by the end of Q3 and early Q4.
Speaker Change #144: And then we expect, you know, the demand.
Speaker Change #144: And our next question will come from Tashi Harrison with Piper Sandler.
Badrinarayanan Kothandaraman: Good evening, everybody, and thanks for taking the questions. You know, Badri, maybe following up on your commentary that the global channel is normal and in 2Q, you flagged in a prior question that batteries are less than eight weeks old. And so I was just wondering if you could help us think through, are there any other notable geographic differences between, you know, the U.S. and micros for, sorry, the U.S. and Europe for micros and storage that we should be thinking through, just trying to understand the health. Yeah, I mean, look, I gave you a global number.
Speaker Change #145: Please go ahead.
Kasope Oladipo Harrison: Good evening, everybody, and thanks for taking the questions. You know, Badri, just maybe following up on your commentary that the global channel is normal.
Kasope Oladipo Harrison: Um, you flagged at a prior question that batteries are less than eight weeks. And so I was just wondering if you could help us think through- uh- are there any other notable geographical differences between U.S. and micros for?
Speaker Change #147: Sorry, U.S. and Europe for micros and storage that we should be thinking through, just trying to understand the health of the channel by product, by geography.
Speaker Change #148: Yeah, I mean, look, I gave you a global number.
Speaker Change #149: Our global number is healthy. That's what I gave you. Of course, there is...
Badrinarayanan Kothandaraman: If I start giving you, you know, country by country, there will be some variability. You know, the battery is a good problem that we are trying to solve which means, I mean, it's not a good problem. It is, we've got to fix it to make sure.
Speaker Change #149: If I start giving you country by country, there will be some variability. I also mentioned that...
Speaker Change #149: You know, the batteries is a good problem that we are trying to fix.
Speaker Change #149: which means, I mean, it's not a good problem for customers, it is, we've got to fix it to make sure.
Badrinarayanan Kothandaraman: Enough inventory. But, you know, we are focused on studying. Some regions might have, might not have. Some regions might have close to 8 weeks; some regions might have close to 10 weeks.
Speaker Change #149: that the channel has enough.
Speaker Change #149: You know, enough inventory. But, you know, we are focused on that eight to ten weeks.
Speaker Change #150: Some regions might have.
Speaker Change #150: might have close to 8 weeks, some regions might have close to 10 weeks.
Speaker Change #150: We are focused on that range. We will never allow that.
Badrinarayanan Kothandaraman: We have statistical process controls to talk about it. We actually will not ship more into the channel. Like I said, you know, we've normalized the channel. We plan to keep it that way, and our next question will come from Dylan Asano with Wolf Research. Please go ahead. Hey, good afternoon.
Speaker Change #150: To exceed that range, we have...
Speaker Change #150: We have statistical process controls in place where we talk about it and we actually will not ship more into the channel.
Speaker Change #150: [inaudible]
Speaker Change #150: Like what I said, you know, we've normalized the channel on a global basis, and we plan to keep it that way, which is why we, going forward, we will not be talking about cell phone.
Speaker Change #150: And our next question will come from Dylan Asano with Wolf Research.
Dylan Thomas Nassano: Just on the Q2 bookings being the healthiest they've been in over a year, can you say how much higher that 85% is compared to last quarter or last year? And do you feel like your visibility into forward demand has improved at all as channels? We don't really give numbers there, but we are talking about Q3 moves. Q3 bookings are over $85,000. It's a healthy number, and that too after.
Speaker Change #151: Please go ahead.
Dylan Asano: Hey, good afternoon. Just on the Q2 bookings, being the healthiest they've been in over a year, can you say how much higher that 85% is compared to last quarter or last year? And do you feel like your visibility into forward demand has improved at all as the channels cleared?
Speaker Change #153: We don't really give numbers there, but we are talking about Q3 bookings, not Q2.
Speaker Change #154: Q3 bookings are over 85 percent.
Badrinarayanan Kothandaraman: Considering some puts and takes, for more information, this number is a good number. We do not have visibility for Q4, because our lead time, the order of... by Definition Distributor. And our next question will come from Amit Thakur with BMO Capital Markets. Go ahead. Hi, good afternoon.
Speaker Change #154: and that's a healthy number and that too after
Speaker Change #154: Considering some puts and takes.
Speaker Change #154: and considering the risks.
Speaker Change #154: The number is a good number. We do not have the visibility for Q4 right now.
Speaker Change #154: because our lead time is of the order of eight weeks.
Speaker Change #155: So by definition, distributors.
Speaker Change #155: We'll only book within that lead time.
Speaker Change #155: And our next question will come from Amit Thakkar with BMO Capital Markets. Go ahead.
Ameet Ishwar Thakkar: I just had one quick question. I'm kind of just thinking about the balance sheet in the long term. You guys have like, I think, $730 million of convertible debt that will come to you, kind of call it, over the next 20 months. You obviously have a very advantageous liquidity position. Can you just talk to us a little bit about how you think about the balance sheet in the longer term? You're buying back shares now. I mean, in terms of kind of, would you just plan on kind of de-levering the business? Or are you thinking about maybe accessing the traditional corporate bond market or some bank debt things?
Amit Thakkar: Hi, good afternoon. I just had one quick question. I'm kind of just thinking about the balance sheet longer term. You guys have like, I think, $730 million of
Amit Thakkar: of Convertible Depth that will come to you, and I will call it over the next 20 months.
Speaker Change #157: You obviously have a very advantageous liquidity position. Can you just talk to us a little bit about how you think about the balance sheet longer term?
Speaker Change #158: You're buying back shares now, I mean, in terms of kind of, would you just plan on kind of levering the business or are you thinking about maybe accessing the traditional corporate bond market or some bank debt things?
Badrinarayanan Kothandaraman: Yeah, I mean, look, obviously, our first priority is to take into account the needs of the business investors and invest in the right things. If we need anything like the domestic content factory investment, we will do that, and the second one, which we are actively looking at, new verticals and M&A areas that we can get, inorganically, and Power Conversion, even in bed. We're always looking at that, so The third is if we find one, and the other two are... Radic, meaning we don't have too many opportunities or we have done what we can, and Denvee. We purchase shares as long as the share price is below a conservatively estimated price. And we have done that exactly in the last few quarters.
Speaker Change #159: Yeah, I mean, look, obviously, our first priority is to take into account the needs of the business and invest.
Speaker Change #159: Invest in the right things. If we need anything like the domestic content factory investment, we will do that.
Speaker Change #159: The second one which we are actively looking is, are there any...
Speaker Change #159: new verticals and M&A areas that
Speaker Change #159: that we can get inorganically.
Speaker Change #159: and Power Conversion.
Speaker Change #159: Even in batteries.
Speaker Change #159: We're always looking at that, so...
Speaker Change #159: And the third is if we find one and two are...
Speaker Change #159: Radic, meaning we don't have too many opportunities or we have done what we can.
Speaker Change #159: And then we...
Speaker Change #160: We purchase shares as long as the share price is below a conservatively estimated interest rate.
Speaker Change #160: And we have done that exactly. We, in the last few quarters, we have...
Mandy Yang: Systematically, we've taken out and brought back a share, and like Mandy said, her team. [inaudible] The microeconomic situation, our free cash flow is $117 million. And we manage cash well. It's important. We'll continue to look at these three things. We will make decisions along with our board on a quarterly basis. Mandi, do you want to add?
Speaker Change #160: We have done systematically, we have taken out, you know, we have bought back our shares.
Speaker Change #160: $100 million per quarter.
Speaker Change #160: and like what you know Mandy said she
Mandy: The team.
Mandy: It's excellent that...
Mandy: Free cash flow, even in a tight economy.
Mandy: The macroeconomic situation, our free cash flow is $117 million.
Mandy: And we manage cash well. It's important for us. We'll continue to look at these three things I've said.
Mandy: And we'll make decisions along with our board.
Jonathan Allan Kees: In terms of debt maturities, right, we only have about $102 million of principal amount due in March next year, and that we could easily pay off out of our own cash, right? The 2026 convert, that is 632 million, still 20 months away. So we have a lot of optionalities there a year from now, right, whether we pay it off or partially refinanced, right? In the current rate environment, we are not going to do anything earlier than that. And our next question will come from Jonathan Keith with Daiwa Capital Markets. Please go ahead. Oh, great. Thanks for working it out again.
Mandy: on a quarterly basis.
Mandy: Mandy, do you want to add something? Yeah, in terms of debt maturities, right, we only have about $102 million of principal amount due March next year, and that we could easily pay off out of our own cash, right?
Mandy: The 2026 convert, that is 632 million, is still 20 months away.
Mandy: So we have a lot of optionalities there, a year from now, right, whether we pay off or partially refinance, right, the current rate environment, we are not going to do anything earlier than that.
Speaker Change #161: And our next question will come from Jonathan Keith with Daiwa Capital Markets. Please go ahead.
Badrinarayanan Kothandaraman: Great to get you guys to ask questions. I wanted to ask you two things. One is a higher level, and the second is more housekeeping.
Jonathan Keith: Oh great, thanks for working me in. Great to get you guys to ask questions. I wanted to ask two things. One is the hard level and the second is more housekeeping.
Jonathan Allan Kees: Audrey, if you can help me understand, you're bullish in terms of your prospects, you're quite encouraged in terms of the remarks that you've talked about, you know, France, Germany, the Netherlands, and the under-penetrated countries, and that there are very, I guess I'll try to tie that in with, you have a peer in Europe who brought down their numbers for the year and cited a reduction in demand, specifically And This was back in June.
Jonathan Keith: Audrey, if you can help me understand, you have your hand up.
Speaker Change #163: You're bullish in terms of your prospects. You're quite encouraged in terms of your markets, but you talk about, you know, France, Germany, Netherlands, and there's like under-punctuated countries that are very vulnerable.
Speaker Change #164: I guess I'm trying to tie it all in with, you have a peer in Europe who, uh...
Speaker Change #165: I brought down the numbers for the year.
Speaker Change #166: and started a reduction in demand specifically for residential and for commercial and...
Jonathan Allan Kees: And then your MLPE peer, a couple months back, had said things are still looking kind of gloomy, you know, in Europe. And yeah, they announced another forced reduction that's important for their staff, their employees. So I know these are peers, but I guess I'll try to tie in your outlook there, your bullish outlook on what's happening with these data points. Did the market just take off? And in terms of the last couple months, did it really improve? Was this like a hockey stick that just took off in the city?
Speaker Change #167: and Industrial Utilities was fine, and this was back in June .
Speaker Change #168: Your MLPE peer, a couple months back, had said things are still looking kind of gloomy, you know, in Europe .
Speaker Change #169: And yeah, they just announced another...
Speaker Change #170: force reduction that's important for for their their staff their employees there so
Speaker Change #171: I know these are peers, but I guess I'm trying to tie in your outlook there, your bullish outlook with what's happening with these data points.
Speaker Change #172: Did the market just take off in terms of the last couple of months and then really improve? Was this like a hockey thing? Did it just take off there?
Badrinarayanan Kothandaraman: Or are you just doing something different from everybody else? Now, I think, you know, the key is that in Europe every... And for us, like I said, probably. I have said it five times already in the past, we are under penetrated in Europe. We are very strong in the Netherlands, strong in France. I gave detailed color to those people.
Speaker Change #173: Or are you just doing something different from everybody else?
Speaker Change #174: Now, I think, you know, the key is you need to understand in Europe , every country, the dynamics.
Speaker Change #175: And for us, like what I said, that probably...
Speaker Change #175: I've said it five times already in the cup, we are under-penetrated in Europe , we are very strong in Netherlands.
Speaker Change #175: Strong in France.
Badrinarayanan Kothandaraman: Managing inventory. Well, with our distributors in it. We have a lot of opportunities in other countries where we are not, where we are under-penetrated, and we are introducing new products there. So for us, it's a. It's, you know, we are still learning about Europe and penetrating into Europe. So we have a lot more market left, like, for example, we just introduced our Germany. And installers love that because... I didn't have access to high-quality solutions.
Speaker Change #175: They're strong in Germany. I gave detailed color on those markets.
Speaker Change #175: We're managing inventory.
Speaker Change #175: Well, with our distributors and installers.
Speaker Change #175: We have a lot of opportunities in other countries where we are not.
Speaker Change #175: where we are under-penetrated and we are introducing new products there.
Speaker Change #175: It's a, you know, we are still...
Speaker Change #175: And now into learning about Europe and penetrating into Europe . So we have a lot more.
Speaker Change #175: market left like for example we just introduced our balcony solar
Speaker Change #175: Go to Germany. And installers love that because...
Badrinarayanan Kothandaraman: Now they have access, and we can take that to the country. The three-phase battery, for example. Same deal, the IQEV charger. See, I was, like what I said, you know, I... When I went to Switzerland and Austria, actually, Switzerland, it was very interesting.
Speaker Change #175: They didn't have access to a high quality solution like that.
Speaker Change #175: Now they have access and we can take that too.
Speaker Change #175: country.
Speaker Change #175: The three-phase battery, for example.
Speaker Change #175: Same deal.
Speaker Change #175: and the IQEV charger.
Speaker Change #176: You see, I was, like what I said, you know, when I went to Switzerland and Austria, actually Switzerland, very interesting.
Badrinarayanan Kothandaraman: They are willing to pay a very high price. [inaudible] And they just want deep integration, a small TV charger, integrate that with solar plus storage, and Maxi Vichon, with software, and Manage Heat Pump. You need to get better at all of that, but... That's the opportunity for us, and every market is unique. We have to be, our strength is to work with Long Tail Installer.
Speaker Change #176: They are willing to pay a very high price.
Speaker Change #176: for their EV charger.
Speaker Change #176: And they just want deep integration, small TV charger, integrate that with solar plus storage.
Speaker Change #176: Plus EV charger
Speaker Change #176: with software, and Manage Heat Pumps.
Speaker Change #176: We need to get better at all of that, but that's the opportunity for us, and every market is unique.
Speaker Change #176: We have to be, our strength is to work with.
Speaker Change #176: Long Tail Installer. We are not in the utility scale.
Speaker Change #176: And like some of the news that you heard, we have not yet...
Speaker Change #176: in large-scale commercial.
Speaker Change #176: We are scratching the surface on small commercial, but we are firmly implanted on the residential side.
Badrinarayanan Kothandaraman: We are not in the utilities, and like some of the news that you see... We have not yet entered large-scale commercials. We are scratching the surface on small commercial, but we are firmly planted on the residential side. On the residential side, our strengths are supporting all of the installers, managing inventory tightly, helping our distribution partners, and growing steadily.
Speaker Change #176: On the residential side, our strengths are supporting all of the installers, managing inventory tightly, helping our distribution partners, and growing steadily.
Badrinarayanan Kothandaraman: In Europe, we talked about falling through with all those up, three percent. From Q1 to Q2, the Netherlands was down, France was flat, Germany was up 7%, and you had a bunch of growing countries which were present before us.
Speaker Change #176: That's why our sell-through in Europe we talked about, sell-through was up 3%.
Speaker Change #176: From Q1 to Q2, Netherlands was down 15%.
Speaker Change #176: But France was flat, Germany was up 7%, and you had a bunch of growing countries.
Badrinarayanan Kothandaraman: Long answer, but we are. All of these countries and our plans to introduce robust solutions. And our next question will come from Mahit Manboi with Mizuho. Mahit, go ahead.
Speaker Change #177: which were in present before so
Speaker Change #177: [inaudible]
Speaker Change #177: But we are, you know, very optimistic there about...
Speaker Change #177: And our next question will come from Mahith Manboi with Mizuho. Go ahead.
David Joseph Benjamin: Hi, this is David Benjamin from Maheap. I've got a quick question. Thanks for squeezing me in. I was wondering if you could clarify the timing of IQ9. Is that a first half or second half launch?
David Benjamin: Hi, this is David Benjamin from AHEAP. I've got a quick question. Thanks for squeezing me in. I was wondering if you could clarify the timing on IQ9. Is that a first half or a second half?
Badrinarayanan Kothandaraman: And then on Europe, we were hearing about a 5 to 10 percent decline in pricing in Europe. Do you have any comments on the pricing competition there in Europe? Yeah, I mean, on IQ 9. I think it will be in the second half.
Speaker Change #179: and then on Europe we were hearing about 5 to 10% decline in pricing in Europe . I was wondering if you had any comments on the pricing competition there in Europe .
Speaker Change #178: yeah I mean on IQ 9 we think it will be in the second half
David Joseph Benjamin: Q2 of the year, and not too much beyond Q2 though, that's what we think. On the other one pricing comment, no, we are not planning. We don't have any plans to date to change that.
Speaker Change #178: of the year, not too much beyond Q2 though, that's what we think.
Speaker Change #180: On the other one pricing comment, no, we are not planning to do.
Speaker Change #180: We don't have any plans today to change our pricing.
Badrinarayanan Kothandaraman: And our next question will come from Dimple Gosai with Bank of America. Thank you. I appreciate you taking the time.
Dimple Gosai: Can we just elaborate on that, please? I think on the last call, Badri, I think you guys spoke about being open to price concessions if needed. And I think the market, from what we're hearing from our peers, is becoming increasingly promotional. So how your strategy might differ between two markets, U.S. and Europe, on ASP strategy. Yeah, I mean, look, we have done the same thing for six years, for seven years.
Speaker Change #180: And our next question will come from Dimple Gosai with Bank of America.
Speaker Change #181: Go ahead.
Dimple Gosai: Thank you. I appreciate you taking the time. Can we just elaborate on that, please? I think on the last call, Badri, I think you guys spoke about being open to price concessions if needed. And I think the market, from what we're hearing from our peers, is becoming increasingly promotional.
Speaker Change #186: So just how your strategy might differ between two markets, U.S. and Europe on ASB strategy.
Badrinarayanan Kothandaraman: Yeah, I mean, look, we have done the same thing for six years.
Badrinarayanan Kothandaraman: Our strategy is no different. We have something called, we do have special pricing adjustments based upon. There isn't anything extraordinary we are planning to do at the end of the day. Enphase products need to add value compared to the next, focused on that the moment we feel we don't add value. The Appropriate Act. At this point in time, there is nothing... It's very different going on.
Speaker Change #182: for seven years. Our strategy is no different.
Speaker Change #184: We do have special pricing adjustments based upon the installers, their volume, the value that we provide.
Speaker Change #184: So there isn't anything extraordinary we are planning to do. At the end of the day, Enphase products need to add value compared to the next best alternative.
Speaker Change #184: We are focused on that. The moment we feel we don't add value, we will...
Speaker Change #184: Take the appropriate action.
Speaker Change #184: But at this point in time, there is nothing...
Dimple Gosai: The Pricing Situation between the US and Europe, and our next question will come from Austin Moeller with Canaccord Genuity. Go ahead. Hi, it's Andrew Steinhardt on for Austin.
Speaker Change #184: Very different going on between the U.S. and Europe . The pricing situation is...
Speaker Change #187: Zachary Freedman, Badrinarayanan Kothandaraman
Speaker Change #187: And our next question will come from Austin Mueller with Canaccord Genuity. Go ahead.
Andrew Steinhardt: Thanks for squeezing me in. A two part question. I'm sorry if I missed this on the first part. Is the U.S. battery facility on target to be up and running in Q3 in line with previous guidance? And then second, This is the Q3 Net IRA Benefit Guide of $30 to $33 million. It includes the forecasted sales for the IQAP commercial inverters in the U.S. and the new U.S. battery manufacturing facilities operation. To answer you, we are a little late on the battery manufacturing.
Speaker Change #187: Hi, it's Andrew Steinhardt on for Austin. Thanks for squeezing me in. Two-part question. I'm sorry if I missed this on the first part. Is the U.S. battery facility on target to be up and running in Q3 in line with previous guidance? And then second,
Speaker Change #188: This is the Q3 Net IRA Benefit Guide of $30 to $33 million. It includes the forecasted sales for the IQ8P commercial inverters in the U.S. and the new U.S. battery manufacturing facilities operations. Thank you.
Speaker Change #189: To answer, we are a little late on the battery manufacturing. We only expected to begin in Q4 and that is because
Badrinarayanan Kothandaraman: We only expected to begin in Q4, and that is because We are doing... changing our approach on Due to the domestic content guidance from the Treasury, there are a few more things we have... We're already going to do power conversion, and battery management in the U.S. We need to pull in... Closure in the chat. We are working on, so that's going to take us to the... And regarding your question on the 30 to 33 million, yes, it includes IQA, that is true, and it does not include. It does include microinverters for the batteries.
Speaker Change #189: We are doing...
Speaker Change #189: We are changing our approach on...
Speaker Change #190: Due to the domestic content guidance from the Treasury, there are a few more things we have to manufacture in the U.S.
Speaker Change #190: We're already going to do power conversion, battery management in the U.S. We need to pull in the enclosure in the chassis also, which we are working on, so that's going to take us...
Speaker Change #191: The fourth quarter. And with regarding your question on the 30 to 33 million, yes, it includes IQ8P, true, and it does not include
Speaker Change #191: It does include the microinverters.
Badrinarayanan Kothandaraman: And our next question will come from Graham Price with Raymond James. Please go ahead. Hi, good afternoon. Just one quick one for me on the Netherlands.
Speaker Change #192: And our next question will come from Graham Price with Raymond James. Please go ahead.
Graham Price: Sell-through was down 15% quarter over quarter. You mentioned Europe overall was up 3%. So just wondering what impact does the slowdown in the Netherlands have on your normalized overall EU revenue? I mean, you're seeing it already. This is the impact it is having. Our European numbers were flat from Q1 to Q2, and sell-through was only up.
Graham Price: Hi, good afternoon. Just one quick one from me on the Netherlands.
Graham Price: sell-through was down 15% quarter over quarter you mentioned Europe overall was up 3% so just wondering what impact does the slowdown in the Netherlands have on your normalized overall EU revenue
Speaker Change #194: and you're seeing it already.
Speaker Change #195: This is the impact it is having. Our Europe numbers were flat.
Badrinarayanan Kothandaraman: 3%, but there is an opportunity, while Q3 will still be seasonally weak. There is an opportunity to turn the Netherlands into having a very high battery. That is what we are working on. We do have several hundred thousand homes in the Netherlands as an install base. We just introduced the SolarGraph software platform.
Speaker Change #196: from Q1 to Q2 and sell through was only up
Speaker Change #197: by 3%, but there is an opportunity here. While Q3 will still be seasonally weak, there is an opportunity to turn Netherlands into having a very high battery attach.
Speaker Change #197: And that is what we are working on.
Speaker Change #197: We do have several hundred thousand homes in Netherlands as an install base.
Badrinarayanan Kothandaraman: We're going to be working with installers, and it is built on the exact premise of regulatory uncertainty. They don't know when NEM is going to go into effect.
Speaker Change #197: And we just introduced Solar Graph software platform. We're going to be working with installers.
Speaker Change #197: To help them sell this to consumers better at the kitchen table because right now consumers are
Speaker Change #197: Let us vote on the exact...
Speaker Change #198: Regulatory uncertainty. They don't know when NEM is going to go. They're worried about penalties from the energy providers.
Badrinarayanan Kothandaraman: We can take care of penalties by doing intelligent things like [inaudible] You will find this in our investor deck. Now, but when you say, for example, when... I mean, more solar energy. It can provide an intelligent signal or a day ahead. It's called a negative term.
Speaker Change #199: We can take care of penalties.
Speaker Change #199: by doing intelligent things like...
Speaker Change #199: With the IQ software, you know, IQ energy management, for example,
Speaker Change #199: You will find this in our investor deck.
Speaker Change #199: You know, now, but when you, let's say, for example, when...
Speaker Change #199: There is excess...
Speaker Change #199: You know, excess energy.
Speaker Change #199: that the grid has, and it doesn't need.
Speaker Change #199: and more solar.
Speaker Change #199: It can provide...
Speaker Change #199: And that's an intelligent signal or a day ahead tariff.
Badrinarayanan Kothandaraman: A negative tariff means that you don't produce PV. You are actually paid to consume. Chowdhury, [inaudible] you don't export BV, you curtail BV, and business models like that are going to come. Many of the utilities would want some of that capability because, many times, they are losing several millions of dollars. We do have a unique opportunity to. We have a nice installed base. We can add a 5 kilowatt-hour battery, and we can have...
Speaker Change #200: That's called as negative turf.
Speaker Change #201: Negative tariff means that you don't produce PV.
Speaker Change #202: who actually are paid to consume.
Speaker Change #202: Charge your battery. You're paid to consume power.
Speaker Change #203: You don't export PV, you curtail PV.
Speaker Change #203: And business models like that are going to come, many of the utilities would want.
Speaker Change #203: Some of that capability...
Speaker Change #203: because...
Speaker Change #203: Many times they are losing several millions of dollars dealing with this imbalance.
Speaker Change #203: We do have a unique opportunity to assist there because we have a nice install base.
Speaker Change #203: We can add a 5 kilowatt hour battery.
Speaker Change #203: And we can assist there. So I think, you know, Netherlands will...
Badrinarayanan Kothandaraman: It might remain weak for some time, but I clearly see... good potential, actually enormous potential for batteries. And I talked about other regions as well, and we have several new products for the QEB Chargers, Balcony Solar, and Three-Phase Battery. So we're going to be introducing a lot of products. And our next question will come from Tom Curran with Seaport Partners. Go ahead.
Speaker Change #203: You know, it might remain weak for some time, but I clearly see...
Speaker Change #203: Good potential, actually enormous potential for batteries in that market.
Speaker Change #203: and I talked about other regions as well.
Speaker Change #203: And we have several new products for the region. The IQVB charger, balcony solar, three-phase battery.
Speaker Change #203: So we're going to be introducing a lot of products into Europe .
Speaker Change #204: And our next question will come from Tom Curran with Seaport Partners. Go ahead.
Thomas Patrick Curran: Thank you. Bajir or Raghu, are you still expecting to hit the battery gross margin target of 35% at some point in the second half here? So let's say, you know, before calendar 2024.
Tom Curran: Thank you.
Tom Curran: Bhavir, Raghu, are you still expecting to hit the battery gross margin target of 35% at some point in the second half here, so let's say, you know, before calendar 2024 end? And then my second question, you know, sticking with batteries, in California under NEM3,
Badrinarayanan Kothandaraman: And then my second question, you know, sticking with batteries in California under NEM 3. When it comes to the 50% of your NEM3 systems that are attaching a rival's battery, I think we've been assuming that's mainly been Tesla Powerwall 3 with maybe a smattering of SolarEdge's home battery and Franklin's Franklin home power systems in there, but have there been any interesting changes in that 50%, and We talked about it, but let me clarify.
Speaker Change #206: When it comes to the 50%...
Speaker Change #206: of your NEM3 systems.
Speaker Change #207: SolarEdge's home battery and Franklin's Franklin home power systems in there, but has there been any interesting changes in that 50% and how is your strategy evolving for trying to capture a higher portion of that?
Badrinarayanan Kothandaraman: The gross margin on batteries is... We don't really break the gross margin between batteries and inverters, but battery margins are doing, Delpac pricing is coming down rapidly. Serviceability is increasing, that means service costs, and warranty costs are going down, then we will. We have some benefit from the IRA, where we make microinverters. So those three contribute towards... Very good GM. Improving GM, and battery, sequentially. Quarter to
Speaker Change #208: Yeah, we talked about it, but let me clarify. The gross margin on batteries is...
Speaker Change #209: We don't really break the gross margin between batteries and inverters.
Speaker Change #210: But, but, um...
Speaker Change #211: Our battery margins are doing healthy.
Speaker Change #211: Delpack Pricing
Speaker Change #211: It's coming down.
Speaker Change #211: rapidly
Speaker Change #211: Our serviceability is increasing, that means service costs, warranty costs are increasing.
Speaker Change #211: are going down.
Speaker Change #212: And then we will, you know, we have some benefit from the IRA where we make microinverters.
Speaker Change #212: for the batteries in the U.S.
Speaker Change #212: So those three contribute to work.
Speaker Change #213: Very good GM.
Speaker Change #213: improving GM on the batteries sequentially
Badrinarayanan Kothandaraman: [inaudible] We do have an architecture where we are cutting down the form factor, and we will be doing some deep integration. We are cutting the number of booths on that. So that one also helped. That will... [inaudible] to answer the other question. We cannot name it. Who is the other 50%?
Speaker Change #213: quarter over quarter
Speaker Change #213: And then...
Speaker Change #213: We do have architecturally...
Speaker Change #212: The fourth generation battery, where we are cutting down the form factor.
Speaker Change #212: by doing some deep integration.
Speaker Change #212: of Battery Management and Power Compression.
Speaker Change #212: And we are cutting the number of boards on that, you know, from the third generation to the fourth generation significantly.
Speaker Change #212: So that one also helps us architecturally.
Speaker Change #212: So that will...
Speaker Change #212: You know, continuously improve our gross margin.
Speaker Change #212: And then, to answer the other question on, we cannot name...
Badrinarayanan Kothandaraman: But that 50% attached to Enphase to NEMSRI solar systems has remained steady. We'll get into that in 2 or 3 parts. Meanwhile, I cannot confirm the rival names.
Speaker Change #212: Who is the other 50%? But that 50% attached for Enphase to NEMSRI solar systems has remained steady.
Speaker Change #212: Like what I reported.
Speaker Change #212: I cannot confirm the rival names. I can say one thing, our plan is to, we talked about our plans today.
Badrinarayanan Kothandaraman: I can say one thing, our plan is to, we talked about our plans today. 70% over 30 years of those installations or grid types. And we are going to be introducing a brand new battery. The battery will be 10 kilowatt hours. That means the modularity will be 10 kilowatt hours and not 5. The battery will have a neutral in it, which means that... We are eliminating the system controller, that means fewer... And we are enhancing the combiner to have a lot of bells and whistles so the installer, dollar feedback is taken, can connect even EV chargers. There's enhanced functionality available there.
Speaker Change #214: 70%, over 70%.
Speaker Change #214: of those installations are grid-type.
Speaker Change #214: And we are going to be introducing...
Speaker Change #214: A brand new battery.
Speaker Change #214: meter collar and an enhanced system controller. The battery will be 10 kilowatt hours.
Speaker Change #214: So that means the modularity will be 10 kilowatt hours and not 5.
Speaker Change #214: Also, the battery will have a neutral in it, which means that we are eliminating the system controller in fewer boxes.
Speaker Change #214: And we are enhancing the combiner to have a lot of bells and whistles so the installers...
Speaker Change #214: Installer feedback is taken and they can connect even EV chargers.
Speaker Change #215: You know it's just
Speaker Change #215: enhanced functionality there.
Badrinarayanan Kothandaraman: I think we are well on our way there; we expect to introduce our fourth generation battery, the Kohler Enhanced Combiner, in the first quarter of 2020, and we expect that to do. And this will conclude our question and answer session. I'd like to turn the conference back over to Badrinarayanan Kothandaraman for any closing remarks. Thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time. BF-WATCH TV 2021
Speaker Change #215: I think we are well on our way there. We expect to introduce our fourth generation system.
Speaker Change #215: which is the battery, the collar, the enhanced combiner.
Speaker Change #215: in the first quarter of 2025, and we expect that to do well.
Speaker Change #215: And this will conclude our question and answer session. I'd like to turn the conference back over to Badrinarayanan Kothandaraman for any closing remarks.
Badrinarayanan Kothandaraman: Thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter.
Speaker Change #216: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
Speaker Change #216: [inaudible]