Q3 2024 Enphase Energy Inc Earnings Call

Good day and welcome to the Enphase Energy's third quarter 2024 financial results Conference call.

Speaker Change: 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.

Speaker Change: After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone.

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

Speaker Change: Also please limit yourself to one question and one follow up re queue to ask additional questions.

Speaker Change: Please note this event is being recorded.

Speaker Change: I would now like to turn the conference over to Zac Friedman. Please go ahead.

Zac Friedman: Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's third quarter 2024 results on todays call are Patrick comes under armour, as our President and Chief Executive Officer, Andy Yang, Our Chief Financial Officer, and Ron <unk>, Our Chief products Officer. After the market closed today Enphase issued a press release.

Zac Friedman: You've seen the results for its third quarter ended September 32024.

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

Zac Friedman: 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.

Zac Friedman: For a more complete discussion of the risks and uncertainties. Please see our most recent Form 10-K, and 10-Qs filed with the SEC.

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

Zac Friedman: Also please note that financial measures used on this call are expressed on a non-GAAP basis, unless otherwise noted and have been adjusted to exclude certain charges. We have provided a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release furnished with the SEC form 8-K, which can also be found in the Investor Relations section of our website.

Speaker Change: Now I would like to introduce Patrick the Thunder Raman, our president and Chief Executive Officer Audrey.

Speaker Change: Good afternoon, and thanks for joining us today to discuss our third quarter 2020 financial I'm sorry.

Speaker Change: Our quarterly revenue of $389 million shipped approximately one 7 million micro inverters and $172 nine megawatt hours of batteries and generated free cash flow of $161.6 million.

Speaker Change: Channel inventory remained normal as we exited Q3.

Speaker Change: For the third quarter, we delivered 48% gross margin, 21% operating expense and 27% operating income.

Speaker Change: As a percentage of revenue on a non-GAAP basis, including net Iot benefit Mandy will go into our financials later in the call.

Speaker Change: Let's discuss customer settlements our worldwide net promoter score was 78% in Q3 slightly down from 79% in Q2.

Speaker Change: Would you call wait times increased a full 0.4 minutes from two five minutes, partially due to higher call volumes from disruptions and things toddler landscapes. We are actively managing this while rolling out software fixes and automation to reduce wait times.

Speaker Change: Talk about operations, our global capacities around 725 million micro and mergers, but quarter with $5 million in the U S. In Q3, we shipped approximately one 2 million micro and murders somebody use contract manufacturing facilities booking 45 X production tax credits, we anticipate she.

Speaker Change: One 3 million units from our U S facilities in Q4, we also introduced higher domestic content SKU for IQ eight I'd see micro inverters to help lease PPA and commercial asset owners to qualify for the 10% domestic content ITC adder.

Speaker Change: This translates to about 40 cents per watt in savings for them.

Speaker Change: We are seeing strong traction in the lease and PPA market for this product.

Speaker Change: Next to begin shipping.

Speaker Change: Marcia like U H P that repeat micro inverters as well as our residential <unk> micro Inverters also from our U S contract manufacturing facilities, featuring higher domestic and then starting this quarter.

Speaker Change: Self pack suppliers in China have enough capacity to support our plans for batteries in joining joining food in 2025, we are on track and producing the battery.

Speaker Change: U S contract manufacturing facility in this quarter using domestically made Inverters battery management systems and packaging, while continuing to source settled back from China.

Speaker Change: Let's now cover the region, our U S and international revenue mix for Q3 was 75% and 25% respectively.

Speaker Change: What motivates ability and go out of business, we will be providing regional breakdowns for Q3.

Speaker Change: In the U S. Our revenue increased 43%.

Speaker Change: Compared to Q2.

The overall sell through of our products in the U S was up 6% across all channels in Q3 compared to Q2.

Speaker Change: This increase was despite a lot of U S customer declaring bankruptcy in Q3.

Speaker Change: Our distributor sell through in the U S was.

Speaker Change: 13, 4% compared to Q2, which reflects improving market fundamentals in the U S and California, our distributor sell through was also up 13% in Q3 compared to Q2 and Q3, we saw healthy growth for both micro inverters and batteries and calix.

Speaker Change: For NIM.

Speaker Change: <unk> now represent approximately 65% of California installed.

Speaker Change: And the attach rate of our own batteries continues to be close to 50%.

Speaker Change: In non California States, our distributor sell through was up 14% in Q3 compared to Q2 looking ahead, we see lower interest rates.

Speaker Change: D C adders and higher power prices as the key drivers for 2025 growth in <unk>.

Speaker Change: Europe, our revenue was down 15%.

Speaker Change: Back to Q2, the overall sell through of our products in Europe.

Speaker Change: Motor down 34% down in Q3 compared to Q2.

Speaker Change: While every country in Europe has its nuances the overall business environment in the region challenging.

Speaker Change: Power prices have declined from the early 2023 heights, the economic growth is slow and the consumer confidence is limited.

Speaker Change: We are focused on what we can control.

Speaker Change: We are focused on building and strengthening relationships with installers, we had a focus on launching many new products expanding into a lot of new markets. As we believe we are underpenetrated as well as collaborating closely with our distribution partners. We believe this will position us well for significant growth when the cycle.

Speaker Change: Your bonds.

Speaker Change: I'll provide some additional color on our key markets in Europe, the Netherlands, France and Germany.

Speaker Change: In the Netherlands, the solar market is transitioning away from solar only systems due to regulatory uncertainty around them, which is about to expire.

Speaker Change: In early 2027 and export penalties imposed by the energy providers.

Speaker Change: These issues have increased the adoption of batteries, which avoids export penalties and allows participation of residential solar plus battery systems and energy markets. While this transition is still in its early stages. We are strongly encouraged by our strong engagement with the country.

Speaker Change: <unk> and RTG providers, we are well positioned to lead the market recovery in Netherlands, with our micro inverters, along with batteries, along with our upcoming new EV Chargers as well as AI powered IQ and energy management software, which is crucial to maximize savings and improve homeowners.

Speaker Change: To what.

Speaker Change: In France, our Q3 was impacted by some seasonality, we expect a cooling off period for solar demand in the country driven by expected utility United cuts in early twenties 25, well, what all brands remains a key growth market for us given our market leadership as well as the country's low so a lot of panic.

Speaker Change: We plan to introduce many new products for France, mainly the new EV charger batteries with backup and energy management for hot water heaters.

Speaker Change: In Germany, we are excited about a few upcoming product launches that are imminent.

Speaker Change: This will expand our reach in Europe's largest solar market.

Speaker Change: Our three phase battery backup solution for Germany, Austria, and Switzerland, which was unveiled them into solar in Munich, and Joan as it received highly positive feedback our IQ balconies solar is nearing launch we are targeting a 400 megawatt market with this product and believe that enphase micro inverters that ideally.

Speaker Change: So we paid for these very small systems. Additionally, we plan to launch the new IQ EV charger into Germany in Q4, a bright spot in Europe has been the U K, where the sell through was up approximately 80% compared to cool them no comparator.

Speaker Change: Q2, However, we are still underpenetrated in this market and have a lot more room to grow there are similar trends.

Speaker Change: Trees in Europe, including Italy, Spain, Belgium, Luxembourg, and Austria, Switzerland, Sweden, Denmark.

Speaker Change: And while each country faces its own unique challenges and opportunities homeowners that increasingly prioritizing safety.

Speaker Change: Liability quality savings and a seamless all in one app experience Fortinet home energy systems, which perfectly aligns with our core strengths.

Speaker Change: We plan to introduce our entire product portfolio.

Speaker Change: H series of micro Inverters, both single and three phase batteries with backup the new IQ EV Chargers, which I talked about AI powered IQ energy management software, which I'll elaborate later as well as the sole little graph installer platform across many more European countries.

Speaker Change: Yes.

Speaker Change: We continue to make incremental progress in other regions in the world. Our IQ eight Pete <unk> C. Micro inverters are ramping well and India. We are now taking preorders for the battery in India when shipments of installers to begin in December in Brazil, we are right.

Speaker Change: <unk>.

Speaker Change: On the phone do you watch IQ eight P. Micro inverters introduced managing residential market in order to support new higher power panels.

Speaker Change: In Australia, we recently started shipping IQ eight X micro inverters, but higher in D. C input voltage panels and now offer a 25 year limited warranty as default for all IQ eight micro Inverters and this is currently the longest standard residential warranty in the Australian market.

Speaker Change: That's coming out of Q4 guidance, we are guiding revenue in the range of $360 million to $400 million, we anticipate incremental improvement in our U S business and a continued slowdown in Europe in Q4, we had approximately booked.

Speaker Change: 85% booked for the mid point of our overall revenue guidance very similar to last quarter.

Speaker Change: We expect to ship between 140 to 160 megawatt hours of IQ batteries in Q4.

Speaker Change: Our battery sell through is doing well it continues to increase and we expect Q4 to reflect a slight uptick in demand that abused battery shipments in Q4 compared to Q3 is primarily due to channel restocking in Q3 that will not repeat in Q4.

Speaker Change: Before we talk about new products, that's just because of the unusual in our industry away from single hardware components and towards total energy systems in many countries around the world. So not only is no longer enough. Our enphase systems are now composed off.

Speaker Change: IQ micro Inverters IQ batteries, EV Chargers and increasingly sophisticated IQ energy management software.

Speaker Change: Manage multiple use cases, including the rate arbitrage their resilience VP participation wholesale markets.

Speaker Change: Wholesale market participation and mode. All parts of the system must be best in class with software that ties. It all seamlessly together in order to win we believe our current and future products uniquely position us to win in this total systems in use.

<unk> focused markets.

Speaker Change: Let's talk about IQ batteries.

Speaker Change: Our third generation IQ battery five fees continuing to be very well received by the market. It offers an industry, leading 50 me out of warranty with differentiated quality serviceability modularity and power capability. We are on track to pilot our fourth generation.

Speaker Change: Fourth generation batteries in the U S. In the fourth quarter and begin production in early 2025, we believe this new battery will be a game changer for us the battery takes up 60% less at a wall space due to its integrated battery management and power conversion.

Speaker Change: Architecture. In addition, the fourth generation ICU battery will be paired with our new IQ metered collar and enhanced IQ combining the battery system will reduce installed costs by approximately $300 per kilowatt hour for a typical system went back up.

Speaker Change: Making us highly competitive for all use cases.

Speaker Change: We have expanded that micro inverter family entered into 51 countries and plan for mode by the end of the year, we are particularly excited about Japan, where we expect to launch our IQ eight H C. Micro inverters in early 2025 targeting a one three gigawatt market.

Speaker Change: That Tokyo Metropolitan Government has offered subsidies for MLB products, making it very attractive for consumers, Japan solar market, especially Tokyo with their small small system sizes of two to three kilowatts complex roofs and demand for a quality aligns.

Speaker Change: Well with us.

Speaker Change: Let's talk about our commercial micro inverted IQ eight beat the IQ eight PV with its new three phase cabling system is perfect for small commercial solar installations between 'twenty and 200 kilowatts, we have over 380 sites in the U S with an average size of <unk>.

Speaker Change: 50 kilowatts, and the feedback so far has been quite positive. These III phase micro inverters will someone ship from the U S factories with increased domestic content offering at 10% I D C at or for commercial asset owners, which should drive demand up even further.

Let me provide an update on our IQ19, micro inverters powered by gallium nitride technology.

Speaker Change: <unk> family is designed to handle higher D. C input current was up to 18 and peers and supports elevated voltages, including Fort worth for the small commercial market.

Speaker Change: <unk> nine is expected to come in to power of Indians voted 27 watts and $5 48 watts offering flexibility and performance. We are on track for a launch in the second half of 2025 positioning us to meet growing market demands.

Speaker Change: David the EV charging we are gearing up to launch a second generation ICU EV charger across several European countries in Q4 tapping into a $1.4 billion annual market with up to 22, three with up to 22 kilowatts and he faced charging the charging to integrate.

Speaker Change: Well with Enphase solar and battery systems, enabling homeowners to minimize electricity costs by using excess solar energy key features of this new IQ EV charger igloo dynamic face switching and one empty or current control, which will result in much more efficient green charging.

Speaker Change: So 15 118 support for AC bidirectional charging in the future and compatibility with the M E meter in Germany, as well as compatibility with <unk> 2.01 software for third party control, making it a very comprehensive and future ready.

Speaker Change: Solution.

Speaker Change: That's covered software.

Speaker Change: Yeah. Thank you and energy management software supports grid services programs.

Speaker Change: In regulated markets like the U S and energy market participation in deregulated markets like Europe, and Australia in the U S. We are active in their own 25 programs across key states.

Speaker Change: In California.

Speaker Change: Massachusetts, Texas, and North Carolina, with more than 10000 customers and 120 megawatt hours of battery capacity and broader these programs enable homeowners are discharged batteries during peak demand supporting the utilities in times of meat in the.

Speaker Change: Regulated markets, our software enables homeowners, who arent up to $1500 annually through NRG providers as electricity rates become more complex, our AI powered software differentiates us maximizing ROI and reducing payback period.

Let's discuss solar graph, our installer platform you've added new features for solar graph in Q3, including an updated battery design too as well as the do it yourself vitamin plant set for the U S customers. So what are the graph is now available to both residential and commercial installers in the U S.

Speaker Change: S, Canada, Brazil, Germany, Austria, Netherlands, with plans to expand to more countries in the coming quarters.

Speaker Change: Let me conclude we have worked diligently to manage and finished through an industry slowdown.

Speaker Change: Mid point of our revenue guidance for Q4 is flat with respect to Q3 and is up 44% increase from a revenue bottom of $263 million earlier in Q1 'twenty photos. We expect Q4 to also be impacted by the same large U S customer due to its bankruptcy but.

Speaker Change: We believe a substantial portion of this revenue will return through our distribution channels in future periods, we generated approximately $321 million and free cash flow for the first nine months of 2024 and have maintained strong gross margins throughout the downturn.

Speaker Change: Over the last year, we have expanded our global footprint and micro Inverters and batteries and are developing a strong pipeline of innovative products that are nearing launch our three phase battery IQ balconies solar and the new IQ EV Charger for Europe are set to expand our served available market.

Speaker Change: By $4 billion, our upcoming fourth generation battery system, featuring the IQ meter called out an enhanced combined is expected to significantly reduce installation costs for backup our Gan power like June nine micro Inverters will enable us to enter new three phase commercial markets.

Speaker Change: Which are incremental for us, while boosting power and lowering costs in the residential market. We are also excited to advance our AI powered energy management software in collaboration with retail energy providers in the Netherlands, as well as cater to complex energy markets around the world looking.

Speaker Change: Looking ahead to 2025, we see improving U S market fundamentals driven by lower interest rates ITC errors and higher power prices in key markets that are expected to drive nice growth.

Speaker Change: Our best in class micro Inverters calculated without a next generation battery system should allow us to defend and grow our market share in the U S. Internationally. We believe we are well positioned for growth when the solar market stabilize due to a broader geographic reach and product portfolio, we remain committed to that.

Speaker Change: Operating best in class solutions and are energized by the road ahead.

Speaker Change: That I will turn the call over to Mandy for her review of our financial results mandate.

Mandy: Thanks, Joe and good.

Mandy: Good afternoon, everyone.

Mandy: I will provide more details related to our third quarter of 'twenty 'twenty four financial results as well as our business outlook for the fourth quarter of 2024.

Mandy: We have provided.

Mandy: Issuance of these non-GAAP financial measures in our earnings release posted today, which can also be from the IR section of our website.

Mandy: Revenue for Q3 was $289 million, we should approximate 730 megawatts DC of Michael any letters and 170 to 90 Mega Watt ourself accurate battery in a quarter.

Mandy: non-GAAP gross margin for Q3 was 48, 1%.

Mandy: Compared to 47, 1% to two.

Mandy: Gross margin was 46, 8% for Q3.

Mandy: GAAP gross margin without me I benefit for Q3 was 38, 9% compared to 41% in Q2.

Mandy: Our GAAP and non-GAAP gross margin was negatively impacted by a one time 3.3 percentage point charge related to cost of goods.

Mandy: Battery.

Speaker Change: Yeah, and our non-GAAP gross margin for Q3 included 35 point to a million dollar yourself.

Mandy: Right.

Mandy: Note that operating expenses were 81 $6 million for Q3.

Mandy: Total $81 $7 million for Q2, we continue to invest in new products customer service and geographic expansion.

Speaker Change: Are there any banks as well $128 million okay.

Speaker Change: Compared to $135.4 million for Q2.

Speaker Change: Operating expenses for Q3, including $43 million of stock based compensation expenses $3 $1 million or so.

Speaker Change: Nation for acquired intangible assets.

Speaker Change: And $677000.

Okay.

Speaker Change: Okay.

Speaker Change: On a non-GAAP basis income from operations for Q3 was $101.4 million compared.

Speaker Change: Compared with $61.1 million from Q2.

Speaker Change: Oh, that's good basis income from operations was $49 $8 million for two or three compared to $1.8 million from Q2.

Speaker Change: Atlanta, that's just in time for Q3 was $88 $4 million compared to $58 $8 million for Q2, basically about a non-GAAP diluted earnings per share of 65, particularly compared to 43 things fall through too.

Speaker Change: So the main kind of for Q3 was $45 8 million, but I'm glad with pinpoint $8 million for Q2.

Speaker Change: This resulted in GAAP diluted earnings per share of 33 cents, particularly.

Speaker Change: Compared to <unk> 42.

Speaker Change: Both are noncash and get diluted earnings per share for Q3 were negatively impacted by nine cents per share net of tax related to impairment of an investment in a plastic company.

We exited Q3 with a total cash cash equivalents and marketable securities balance of $1.77 billion compared to $1 65 beta in Dallas at the end of Q2.

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

Speaker Change: We repurchased 434947 shares of common stock.

Speaker Change: And at an average price of $114 48 per share for a total of approximately $49 $8 million.

Speaker Change: We had $598 $3 million remaining for further share repurchases.

Speaker Change: In addition, we spent approximately $6 $3 million withholding shares to cover taxes for employee stock vesting and option to do it.

Speaker Change: And that really is that I know that she is 59607 shares.

Speaker Change: Expect to continue this anti dilution point.

Speaker Change: And so doing we generated $171 million in cash flow from operations.

Speaker Change: $161.6 million in free cash flow due to our strong working capital management.

Speaker Change: Capital expenditure was $8 $5 million.

Speaker Change: Compared to $9 $6 million for Q2.

Speaker Change: Now, let's discuss our outlook for the fourth quarter of 'twenty 'twenty four we say our revenue for Q4, it will be within a range of $360 million to $400 million, which includes the shipment of 140 to 150 megawatt hours of battery.

Speaker Change: We expect GAAP gross margin to be within a range of 47% to 50%.

Speaker Change: non-GAAP gross margin to be within a range of 49% to 52% with me.

Speaker Change: And 39% to 42% to four net benefit.

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

Speaker Change: Additionally related amortization.

Speaker Change: We spent a net benefit to be between 30 and $41 million.

Speaker Change: And Matt I shouldn't mess off one point the week me that units are you asking me Michael.

Speaker Change: Sure.

Speaker Change: We spell GAAP operating expenses to be within a range of $135 million to $139 million, including approximately $54 million.

Speaker Change: And for stock based compensation.

Speaker Change: Acquisition related expenses and amortization.

Speaker Change: We spent our non-GAAP operating expenses to be within a range of $81 million to $85 million.

Speaker Change: Let me spell GAAP and non-GAAP annualized effective tax rate, excluding discrete items for 2024 to be at 18% plus or minus 1% benefit.

Speaker Change: With that I will open the line for questions.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press star and then to also.

Speaker Change: Please limit yourself to one question and one follow up re queue to ask additional questions.

Speaker Change: Our first question comes from Christine Cho with Barclays. Please go ahead.

Christine Cho: Thank you good evening.

Christine Cho: I guess I just wanted to start on the batteries are you mentioned that you expect sell through to be up slightly for batteries and the last quarter over quarter, but shipments are down because you restock during the quarter can you give us a sense of what sell through it wasn't three Q is the for Q guide more in line with what sell through levels actually are.

Christine Cho: And if we could get a rough split of the shipments I'm, calling to the U S versus everywhere else.

Speaker Change: Yeah, I mean, it's still basically we actually told you 90 days ago that you know in the channel on batteries light and we are going to get the chairman.

Speaker Change: To our healthy living we have fixed that problem now so their food.

Speaker Change: Basically our <unk> you should think of our shipments into the channel and the shipments out of the channel on at equilibrium, which is the same. So that's why that number of 140 to 160 megawatt hours and you should think of our U S. You know roughly in line.

Speaker Change: With a revenue split up which is the 70 525, you should think about.

Speaker Change: A similar split up for batteries.

Speaker Change: Okay.

Speaker Change: And just as a follow up to that you know I'm, a revenue was up 43% quarter over quarter and the last thing he set and sell through was something in the single digits across all channels.

Speaker Change: So what's the disconnect here all the batteries as you kind of mentioned or is there any restocking here on my side and then on just as we think about Europe as well as well it sounds like yourself thrill, what's worse than what your sell in was there so maybe a weeks of inventory.

Speaker Change: Went up there you know Ah and I guess, how should we assume what you're assuming for <unk>.

Speaker Change: Alright, so basically the reason why our revenue increased by 43% is quite simple.

Speaker Change: Under shipping.

Speaker Change: In Q3, so therefore at a revenue increase to normal level. So basically we.

Speaker Change: We are now at a place where in the U S.

Speaker Change: We are at equilibrium sell in and sell through.

Speaker Change: Of matching and that's how we can maintain healthy weeks on hand for a healthy weeks on hand always means between eight to 10 weeks and not crossing.

Speaker Change: That number 10 weeks number which we have instituted the discipline.

Speaker Change: So that's why you can see that revenue increased 43%. That's the sell in driven you know the good news in the U S is.

Speaker Change: Our overall sell through across all of the channels, both distribution channel and direct channel.

Speaker Change: Was up 6% in Q3 compared to Q2 and I said this increase was despite a very large U S customer declaring bankruptcy in Q3.

If you just look at the other distribution channels, our sell through for both you know product for the U S was up 13%.

And sell through in California, as well as outside California was up at similar levels of 13, and 14% respectively and in general the sell through is healthy across both micro inverters and batteries.

Speaker Change: Coming to Europe, and Europe is a slightly different story, our revenue was down because once again, we have learned the discipline there.

Speaker Change: And our overall sell through product sort of down by 34%. We have to react we have to react we are shortening that cycle quite a bit compared to what happened last year. So we.

Speaker Change: We continue to under ship in Europe.

Speaker Change: Even with this reduced sell through.

Speaker Change: So our weeks on hand in Europe is a little bit tight, but we are extremely disciplined in.

Speaker Change: The moment when things turn around our weeks on hand will come down very quickly and we are not worried about that we are cautious for Q4. This is why our guidance incorporates and incorporates the slowdown in Europe in Q4.

Speaker Change: And we are not pushing more into the channel.

Speaker Change: Yeah.

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

Colin Rusch: Thanks, So much guys. It sounds like Youre getting a little bit of traction with each vehicle charges can you talk a little bit about your strategy around evolving in the sales of those in and how we should think about the trajectory on attach rates as we get into 2025.

Colin Rusch: Right on the in the EV Chargers basically.

Speaker Change: You know there are two two interesting markets.

Speaker Change: One of course is the U S market and the other is the Europe Europe market, we bought a company called at Cripple Creek towards the end of 2021 they've made high quality Chargers excellent and also excellent service.

Speaker Change: A reasonable market share in the U S. What we did was.

Speaker Change: We took that we essentially we moved manufacturing to our contract manufacturing facilities and what we then did some surgery on the product.

Speaker Change: Those Chargers read what you call it unconnected Chargers they did not have Wifi.

Speaker Change: And then so we took we took our time to make that product and last year, we introduced IQ Smart EV Chargers in the U S.

Speaker Change: In the meantime, we have been working furiously and in Europe, where the adoption is also quite nice and high.

Speaker Change: Europe market is a very interesting market at about 14 countries that we will introduce out IQ EV Chargers.

Speaker Change: Our Sam served available market is about one $4 billion.

Speaker Change: These charters are a little bit different from the U S at all.

Speaker Change: Smart Chargers and as I mentioned there are several several features there and the EV Chargers for Europe. For example, most of these EV Chargers of three phase EV Chargers and when you do for example, green charging with the EV Chargers many of the competitive products.

Speaker Change: They need a particular minimum Howard.

Speaker Change: In order to charge from solar our product has got an innovative feature where it can start with single face enabled green charging from solar at a lower power and then switch to three phase when the solar energy ramps up that's a big deal and it integrates of quarters very well with the <unk>.

Speaker Change: Solar and battery systems, enabling homeowners to view everything from the at the other big thing that we're interested in is that there is two ways you can talk about bi directionally recharge.

Speaker Change: That is AC bidirectional charging and that is D C bi directional.

Speaker Change: AC bidirectional charging means there is no external inverter outsight DC bidirectional charging means you take care of the inversion I wouldn't say so.

Speaker Change:

Speaker Change: Our our product the latest IQ EV Chargers is compatible with standard called ISO 15, one money that ISO 15, 118 is a standard way of the EV Chargers can talk to the court and it can get things like the state of charge offs the court, which is.

Speaker Change: Not possible today.

AC AC bidirectional, we could we could see AC bidirectional standard evolving. This EV charger is capable of doing that while we are planning we are embarking on M. <unk>.

Speaker Change: E C bidirectional charge address well.

Speaker Change: Part of the U S and for Europe as needed that AZ bidirectional charges as I said before.

Speaker Change: In.

Speaker Change: Yeah, sorry, DC bidirectional charge that I mean is basically takes the BC input from the card and you have inverters outside and then it connected to the grid. So that's.

Speaker Change: That design is all game design.

Speaker Change: Each inverters that we are building is about 3.8 kilowatts, it interfaces to thousand volt DC.

Speaker Change: On one site.

Speaker Change: Which is interfacing to the card and AC on the other side. So for example in order to have 11 kilowatt.

Speaker Change: Bi directional charges.

Speaker Change: You will have three of those 3.8 kilowatts and work.

Speaker Change: <unk> 3.8 kilowatt inverters that boost according to the same inverter micro inverter architecture that.

Speaker Change: That we have so.

Speaker Change: Zooming back down you know right now the most important thing for us is in <unk>.

Speaker Change: Produced and his IQ EV charging your second generation into 14 countries in Europe take advantage of the served available market of one $4 billion.

Speaker Change: And then work on both AC bidirectional challenging in Europe, and DC bidirectional charging in the U S.

Speaker Change: Okay. Thanks, and then just very quickly please.

Speaker Change: Can you give us an update on the initial traction in the commercial market and the size of systems that you are able to to address here as you get into 2025 are you able to get up into the hunter to kw systems.

Speaker Change: Are you still are generally on the smaller side on the commercial and commercial systems at this point.

Speaker Change: Yeah, our IQ eight fee is a is a commercial specific micro inverter, we benefited with the three phase cabling system, it's perfect for small commercial solar installed between 'twenty and 200 kilowatts.

Speaker Change: You know as you know the commercial projects they have a slightly longer cycle time. So we started shipping this product about nine months ago and the traction has been quite good we reported I think.

Speaker Change: A couple of hundred sites 90 days ago now.

Speaker Change: Things are starting to ramp we are over three.

Speaker Change: 380 sites in fact enough the Fremont breathing that I'm sitting right now I have 309% to six panels on the roof I can I can monitor it I can monitor it nicely I can immediately find out if an inverter is not working that's what the installers value the hydropower production the per panel.

Speaker Change: Monitoring the immediate focus on quality, it's a 214 kilowatt system.

Speaker Change: It uses 550 watt panels. So this micro inverters perfect photo if you watch. So so we are very excited by this we are.

Speaker Change: Doing a couple of things one is we arent yet to addressing the <unk> worth market, which we are going to address with <unk> nine that product is coming out in the second half of 2025, that's going to be a gallium nitrate design and all.

Speaker Change: Affordable for high power.

Speaker Change: With ultra low cost than the second important thing that you should note is that domestic content.

Speaker Change: These IQ eight PV three phase micro inverters are going to be.

Speaker Change: Shipping from the U S, where they have an increased domestic content that enable the commercial asset owners to two.

Speaker Change: To get the benefit of an additional 10% D. C. So we think that will also propels demand.

Speaker Change: So we are quite excited about that.

Speaker Change: Yes.

Speaker Change: Yeah. Thanks, guys.

Speaker Change: And the next question comes from Mark Strouse with JP Morgan. Please go ahead.

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

Mark Strouse: Going back to already plus we were hearing quite a bit of optimism looking into 2025, just kind of based on our view that interest rates would be would be lower.

Mark Strouse: Since then there's been a pretty big spike in rates in the wrong direction, just kind of curious to the extent that you've had kind of very recent conversations with some of your customers. If that's creating any any pause in the industry.

Speaker Change: Well I mean, our data as they told you or sell through.

Speaker Change: The sell through data for Q3.

Speaker Change: Things are headed in the right direction in the U S.

Speaker Change: California for example.

Speaker Change: We've talked about.

Speaker Change: NIM three being a drag that is no longer the case.

Speaker Change: Installers have gotten used to them.

Speaker Change: At least some of the installers have gotten used to them to be and they are finding both solar plus storage working out in terms of economics.

Speaker Change: <unk> the U S. I mean outside California also our sell through data.

Speaker Change: Looks fine we are up about 14% I've been monitoring since the six weeks of <unk> plus our sell through data.

Speaker Change: Things are looking better.

Speaker Change: Recon week.

Speaker Change: And we.

Speaker Change: We do have.

Speaker Change: We think things will be incrementally better in 2025 in the U S market the things that are going to contribute to it.

Speaker Change: You know.

Speaker Change: Of course further rate cuts.

Speaker Change: A 10% domestic ITC adder that is a big deal because it saves the.

Speaker Change: GPO provider.

Speaker Change: It helps them to make an additional 40 sense of what that 40 cents of what can be reinvested back.

You know into the installers.

Speaker Change: Into increasing demand.

Speaker Change: On the consumer front and of course, the utility prices utility prices are continuing to increase.

And so.

Speaker Change: We are seeing.

Speaker Change: I'm not disputing what you said, but the data still seems to be optimistic towards the growth in.

Speaker Change: In 2025 for the overall U S market.

Speaker Change: Okay, that's great to hear thanks, Badri and then real quick on Europe.

You mentioned some of the crosscurrents with some of the kind of the industry headwinds, but maybe maybe offset by.

Speaker Change: New products and market expansion that kind of thing.

Speaker Change: Adding all of that up.

Do you care to comment about kind of what 2025 Europe might look like for Enphase made fully appreciating that you you do not guide a year out, but just generally speaking any color would be great. Thank you.

Yeah, I mean look we think Europe.

Speaker Change: I mean Q4 might be might be a little stressed but we think we are.

Speaker Change: The bottom there.

Speaker Change: And you know the.

Speaker Change: The key about Europe is there are some really great markets, which are very nimble.

Speaker Change: Like Maryland.

Speaker Change: Which have been.

Speaker Change: Affected a lot due to NIM uncertain.

Speaker Change: And that is slowly getting solid we are confident that as we go into 2025, what's going to happen is that the Netherlands is going to shift slowly, but surely from a solar only played to our solar plus storage plus software play.

We are already working with nearly I would say 10 nano digi providers in that just in Netherlands alone.

Speaker Change: Some of them for example will meet PV curtailing, meaning solar curtailing you know.

Very smart times during the year, where.

Speaker Change: Otherwise they incurred a lot of penalties so that market will need to be transfer.

Speaker Change: Transform debate, but I think it is it is that takes low point and we have a tremendous opportunity there to reshape that market now.

Speaker Change: Now, France is the country, where we have historically done very well, we have over 50% share and France basically what we are hearing there could be some headwinds due to utility rates in the early part of next year, but the fundamental.

Speaker Change: There are strong and everybody expect things to come back up strongly as we approach the end of 2025.

Speaker Change: Germany that have been.

Speaker Change: Been general weakness there is a few installers, who have gone bankrupt very similar to what has happened in the U S and once again, we think.

Speaker Change: You know what we're doing there is stick to the basics stick to them.

Speaker Change: <unk>.

Speaker Change: We are introducing new products and adding our served available market, adding a third available market of $4 billion to our portfolio and those those new products out.

Speaker Change: <unk> phase battery with backup.

Speaker Change: That's for the dark regions, doctors, Germany, Austria, and Switzerland regions.

Speaker Change: When we are talking about IQ balconies solar which is brand new for us and we are we are.

Speaker Change: Ideal enphase is ideal to play in that very small system.

So by the way balconies solar is not restricted to only Germany.

Speaker Change: Many other places like for example.

Austria, Belgium, France, they all have their own versions of balconies solar and we will be following up and introducing all of those products as well, but the Bakken is solid in Germany is 400 megawatts, then I already talked about.

Speaker Change: Our IQ EV charger so.

Speaker Change: We are not stopping we are under penetrated in Europe, we have a lot more countries to covered we are focusing on the areas, where we can control, which is releasing new products managing the channel getting into new regions.

Working closely with a few with the with both the long tail installers plus.

Speaker Change: A few top tier installers. So we're doing all the right things and we expect the market to rebound sooner or later.

Speaker Change: Yeah.

Speaker Change: Yes.

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

Hey, everyone. Thanks for taking the questions I had two both related to guidance I guess first.

Speaker Change: At the midpoint of the revenue guidance you know your flat for four Q I think there's three drivers right battery storage Europe and Sunpower.

Speaker Change: You gave us the guidance for battery storage that seems like it's a $15 million headwind and then.

Speaker Change: Europe was up five to 10 million Dragon three Q is it similar in <unk>, because you're saying, it's going to be down and then you know sunpower might've been doing less than 50 megawatts a quarter at the end of.

Speaker Change: Their existence, but thats still $10 million to $15 million of revenue for you. So.

Speaker Change: Really questions can you help kind of quantify what seem to be three meaningful buckets of headwinds for at least the sequential growth into <unk> and then I had a follow up.

Speaker Change: Yes.

Speaker Change: In Q4, our overall sell through of micro Inverters.

Is doing a little better.

Speaker Change: It's doing a little better compared to Q3, and we can we can see we can see that and that's what we are guiding guiding.

Speaker Change: Waiting towards and as I told you on the battery side. It is it is we're talking about.

Speaker Change: $140 million to $160 million.

Speaker Change: 140 to 160 megawatt nodes versus the 170 megawatt hours.

Speaker Change: Youre right in the range that you said sunpower.

Speaker Change: Is a headwind of $10 million to $15 million you are correct about that and we don't we don't expect that to.

Speaker Change: Immediately come in Q4, but we are working with all of the installers and we should be able to get.

Speaker Change: All or most of that in the coming quarters. So to answer your question, we expect upside from increased micro inverters sell through.

Speaker Change: The battery sell throughs also also doing fine except for that one time channel Destocking.

Speaker Change: And you know Europe has got slightly continued weakness compared to Q.

Speaker Change: Yeah, that's super helpful. Badri, but second question on that same line of thought you strip out the battery storage micro inverters sales, you're saying are going to be up about.

5% or so in the <unk> guide at the midpoint, but I would've thought.

Stripping out all these other factors like Sunpower, Europe et cetera, you have U S seasonality U S domestic content and also it sounds like you had some price increases in the U S. So.

Speaker Change: Can you talk us through some of the tailwind that I don't know if they're actually showing up in <unk> or if theyre going to show up later, but I would have expected those to maybe help you a bit more into for Q outside of all these other headwinds we just talked about so domestic content U S price increases does any general thoughts around that thank you guys.

Yeah, but we are not increasing any prices in the U S. The domestic content.

Speaker Change: Our product is a new product and that for the increased domestic countries. Yes. There is oh, yes, an extra header.

And you know.

Speaker Change: We do have we do expect like what you said.

Speaker Change: We think those are the drivers increased domestic content as a driver.

Speaker Change: The.

Speaker Change: Sell through on micro Inverters is a driver.

Speaker Change: Batteries.

Speaker Change: It's going to be generally strong and I think we expect it to be even stronger.

Speaker Change: From Q1 25, when we have our fourth generation system.

Speaker Change: So that piece.

Speaker Change: Yeah, but but you're generally right the way I would characterize it as.

Speaker Change: If micro Inverters is a little bit healthy it covered.

Speaker Change: The other areas, which.

Speaker Change: With chart week.

Speaker Change: The next question comes from Phil Shen with Roth Capital Partners. Please go ahead.

Phil Shen: Hey, guys. Thanks for taking my questions. My first one is on Hum in the past you've talked about.

Phil Shen: Getting to a $4 $50 million to $500 million sell through demand run rate and I went back and where you thought it might be sometime in Q4, what's your thinking now in terms of when you can hit that on a quarterly basis as it sometimes through 25, maybe Q2 or.

Phil Shen: Or could it be more in the back half. Thanks.

Speaker Change: Yeah, I mean look the we.

Phil Shen: <unk>.

Phil Shen: We talked about that and we have had a few things there we've had a few.

Phil Shen: Installer bankruptcies I mentioned, a big one.

Phil Shen: And we've.

Phil Shen: We've had some headwinds while the U S east proceedings in the right direction.

Phil Shen:

Phil Shen: You know Europe.

Phil Shen: Is an entirely different story.

So basically if a few months back.

Phil Shen: We didn't we didn't anticipate.

Phil Shen: The installer bankruptcies, one in the U S. We didn't anticipate.

Phil Shen: The European business declining further and that's reality right now.

Phil Shen: And that is reality.

Phil Shen: The fact of the matter is.

Phil Shen: The distribution market in the U S. You know like BARDA towards with.

Phil Shen: With the distributor with their distribution sell through numbers for U S as well as <unk>.

And in California is very encouraging.

Phil Shen: Non California in the U S is also very encouraging of course customer large customer who went bankrupt. We lost some revenue we expect to get that revenue back.

Phil Shen: We don't guide.

Phil Shen: We don't guide our 'twenty to 'twenty five but those are our growth vectors, we are going to be introducing our fourth generation system. In Q1, we expect that fourth generation system to basically reduce the installed cost by $300 per kilowatt hour, making us make.

Phil Shen: King us competitive not only for grant date, which we are today, but for backup.

Phil Shen: So today for example on the batteries hour.

Phil Shen:

Phil Shen: Our shipments from Q2 to Q3 increased by more than 40% our sell through is claim being up continuously there.

Phil Shen: And we.

Phil Shen: No.

Phil Shen: For good tight systems.

Phil Shen: With NIM three Darko.

Phil Shen: What <unk> need to do is to treat the installation like a solar installation.

Phil Shen: It is no.

Phil Shen: There is no complicated wiring to take care of there is no loads to manage so therefore, they are the Hank to IQ battery five BS to five kilowatt hour batteries onto the bus.

Phil Shen: Okay to the combined.

Phil Shen: Along with solar the same combined and they have done so that is still quite strong for us now with this fourth generation.

Phil Shen: System, where we have the meter color.

Phil Shen: Have the battery we have enhanced combined we will be eliminating the system controller cost will be eliminating both the component cost as well as the labor.

Phil Shen: And we expect to save $300 in startup costs.

Phil Shen: So we think that will unleash a spurt of growth for us in terms of backup so bay.

Basically the vectors in the U S.

Phil Shen: Continued improvement in in the sell through.

It is the higher utility rates.

Phil Shen: Lower interest rates and domestic content.

In Europe.

Phil Shen: In Europe.

Phil Shen: It's a little bit of a wildcard right now.

Phil Shen: But I outlined our plans very clearly.

Phil Shen: We think we are scraping the bottom.

Phil Shen: In Q3, and Q4 for some of the markets.

Phil Shen: The fundamentals are there we are working with the right players in Netherlands, we are working.

Phil Shen: All four.

Phil Shen: For Germany, we have the served available market increase.

Phil Shen: For Europe, we haven't served available market increase of $4 billion with a lot of products specifically for Germany.

Phil Shen: The three phase backup is most relevant for Germany, Austria and Switzerland.

Phil Shen: And the bulk of these solar this is also relevant for Germany. So.

Phil Shen: All of those in line. So I can only give you a qualitative color that you know, we we arent waiting for the market to improve.

Phil Shen: We are introducing new products, we are working without installers, we are not stuffing the channel most importantly.

And we are doing all of that globally.

Speaker Change: Great. Okay. Thank you for all the color.

Speaker Change: Shifting to power wall three Tesla.

Our work suggests that the power wall three demand is substantial and widespread.

I know it is a string inverter and I know.

Speaker Change: And you just laid out how your technology is a meaningfully better.

Speaker Change: And more advanced that said.

Speaker Change: I know many of your customers are ramping up.

Speaker Change: Substantial apparel all three volumes.

Speaker Change: So when you talk to your customers about that.

Speaker Change: What are they telling you and then are you surprised by the volume of business that is shifting to power all three.

Speaker Change: Some of your largest larger customers are sharing with me that you.

Speaker Change: May be resigned to losing share to power all three especially until.

Speaker Change: Your new.

Speaker Change: Battery and meter color Tomorrow box comes out.

Speaker Change: How much do you think.

Speaker Change: How much are you planning to lose.

Speaker Change: I know, it's a tough question, but I think.

Speaker Change: It's important with them. So thank you for taking.

Speaker Change: So yeah. Thank you for the question.

Speaker Change: No.

Speaker Change: The key what I can react to data in front of me all of the data, which we which we have continuously we do have third party reports.

Speaker Change: And we.

Speaker Change: You know those all showed basically that.

Speaker Change: We are holding share.

That's that's.

Speaker Change: Data point number one.

Speaker Change: And the second point, which we highlighted is basically you.

Speaker Change: You know our sell through in California.

Speaker Change: Which is probably the area, where you're talking about our sell through in California is up 13% quarter on quarter.

Speaker Change: Our sell through is up on both batteries and micro inverters because they go hand in hand with each other.

Speaker Change: And on batteries.

Speaker Change: As I told you before you know.

Speaker Change: Our installed if you'd see over installations in California, and it makes sense is 70% of our installed are tight.

Speaker Change: Tight in stores in California.

Speaker Change: 70% are dictated in stores like what I said the cost that you are talking about.

Speaker Change: He is not.

Speaker Change: He is not higher.

Speaker Change: The cost in fact, it is cheaper.

Speaker Change: To install an enphase battery there we are talking about two.

Speaker Change: <unk> five b batteries, we are talking about hanging it off the bus we have the same combined box that is used with it it's not an extra box so that is why.

Speaker Change: You know.

Speaker Change: Probably our market is tight.

Speaker Change: Tight tight.

Speaker Change: Tight market.

Speaker Change: And now we have.

Speaker Change: We are in the process of fixing that problem.

Speaker Change: And we are going to release them.

Speaker Change: The first quarter.

Speaker Change: Hello.

The latest and greatest battery that we got a 10 kilowatt hour pack.

Speaker Change: At 10 kilowatt hour battery has got a wallet space of 60% less it.

Speaker Change: Compared to our own bank.

Speaker Change: Yeah.

Speaker Change: And.

Speaker Change: There is no system controller.

That used to be there before now that is the color we expect.

Karla.

<unk> development. It is in compliance we expect.

Speaker Change: We expect to work with utilities in the next few months and get utility approval in Q1 25.

Speaker Change: So.

Speaker Change: With that color.

Speaker Change: With our battery, which has got neutral farming by the way.

Speaker Change: And our enhanced combined which has got a lot of built in Brazil.

Speaker Change: Installers Love.

The cost of the cost of the installation is substantially.

Speaker Change: Going down to three by $300 per kilo Watt hour.

Speaker Change: Prototypical storage system with backup.

Speaker Change: So basically we have we have solved that problem, we need to get that solution to the market in Q1 25, and then what will happen is.

Speaker Change: We will grow in both grid tight markets as well as markets with backup.

Speaker Change: And that will be a key a key focus for us in 2025 and will contribute to growth.

Speaker Change: The other the other things, which you already know, but I will.

Speaker Change: <unk> for the benefit of the audience is.

Speaker Change: And face the advantages are numerous power production.

Speaker Change: Power production between power to production with the string inverter and power production with the micro and worked or you can get anywhere from.

Speaker Change: You know for 215% advantage.

Speaker Change: Especially with that of shading, which is that in many places.

Speaker Change: We then phase that is.

Speaker Change: Reliability, there is no single point of failure.

Speaker Change: When a micro inverters under roof fails.

Speaker Change: She'll have 95% of the system work.

Speaker Change: Assuming the system has got 20 microwave workers when a micro inverter inside the battery fails, we still have.

Speaker Change: 83% of the system working every Ecu battery has got six micro inverters.

Speaker Change: So.

Speaker Change: Reliability and no single point of failure our warranty.

Speaker Change: As.

Speaker Change: And a warranty on batteries is 15 years.

Speaker Change: Warranty and micro Inverters is 25 years versus common warranty of $10 million on spring and murders simplicity plug and play.

It's just really easy to do on the roof.

Speaker Change: Low voltage.

Speaker Change: BC on batteries, and obviously see them the roof loved by firefighters I've had many firefighters telling me in Fremont by the way.

Speaker Change: Which is which is basically the.

Speaker Change: The authority in the U S. They do recommend micro inverters because of that.

Speaker Change: So.

Speaker Change: Other things.

Speaker Change: 24 by seven support.

Speaker Change: If that is a problem and faithful and sort of the phone.

Speaker Change: We never take batteries off the wall.

Speaker Change: We repair them replace boards in situ.

In CTO means we do not customer is not down for more than a few days versus being down for weeks and having complex logistics between the supplier and installer.

Speaker Change: All of that doesn't happen serviceability is very crucial when you have a fleet of batteries and do you have service problems you keep spending your time on service.

Speaker Change: You've made a mistake.

Speaker Change: And picking and architecture.

Speaker Change: And by the way batteries are notorious for us.

Speaker Change: Inverter solar inverters the industry is getting mature, but batteries is still the.

Wild Wild West.

Speaker Change: AC architecture you know.

Speaker Change: We believe in a distributed distributed architecture, which as I already told you have no single point of failure all AC.

Speaker Change: No everything is AC copper we have.

Speaker Change: <unk>.

Speaker Change: Our solar.

Speaker Change: Storage.

Speaker Change: Our EV Chargers bidirectional Chargers.

Everything is easy covers so basically.

Speaker Change: The power that a homeowner to get for example is both solar plus storage.

Speaker Change: So.

Speaker Change: And I outlined all of the things that.

Speaker Change: Those are our strength plus with <unk>.

Fourth generation system.

We are going to be very comforted in wound back.

Speaker Change: And we expect.

Speaker Change: All of these two basically.

Speaker Change:

Speaker Change: Increase our market share metrics.

Speaker Change: Forward.

Speaker Change: Thank you for the color.

Speaker Change: That's correct.

Speaker Change: Yep. Thank you.

Speaker Change: The next question comes from Jordan Levy with Truest. Please go ahead.

Speaker Change: Good afternoon.

Speaker Change: Squeezing me in here.

Speaker Change: Quick one.

Speaker Change: Just on the pricing side I think you gave a lot of commentary, but if I heard correctly 15 months.

Speaker Change: Some pricing concessions in Europe with all the weakness we've been pretty consistent in how you approach pricing and the price to value basis, but I just wanted to see if there is how youre thinking about that for Q for Europe, especially and then any change in the pricing.

Speaker Change: Likewise.

Speaker Change: So on pricing I did not mention we did anything for Europe. So I think you must have heard it Oh, you must've misunderstood it, but we have not dropping pricing anywhere.

Speaker Change: Pricing is something that we manage on a daily basis, we instituted a pricing team in 2017.

Speaker Change: And there's a team of about six people that job is to make sure we always price on value. So.

Speaker Change: Therefore, they spend inordinate amount of time in understanding the full system bill of materials to make sure that you know that is.

Speaker Change: We clearly understand the areas, where we can save money for the consumer.

Speaker Change: In terms of the overall system. So we do that very diligently.

And I'm, not saying that we never dropped price, but it is a non event for us because.

Speaker Change: Sometimes if there is a loyal customer it needs a little bit of help we will help them.

Speaker Change: But that's not an event it is a business process and we expect that business process to continue.

Got it thanks, so much for all the detail.

Speaker Change: Okay.

Speaker Change: The next question comes from Pavel bulk channels with Raymond James. Please go ahead.

Speaker Change: Thanks for taking the question.

Speaker Change: Can I ask kind of a high level about Europe.

Speaker Change: Yes power prices, our R&D down by module pricing is down 30% versus a year ago as well as lithium ion batteries why is that not acting as a counterbalance against that cheaper electricity.

Speaker Change: I think the hydro struggled we believe we think that part of the reason for you again look at it by country by country in the case of the Netherlands, which was the solar only.

Market before it was very clear that the Netherlands certainty as well as homeowners being penalized for exporting solar into the grid was a big headwind.

Speaker Change: Headwind.

Speaker Change: And so obviously, Netherlands, we really think we're doing all the right things there for that market to completely turn around by the addition of a pattern.

Batteries solar plus batteries.

Speaker Change: Dynamic electricity market, where energy can be traded into the market is a very good way for homeowners to improve that auto hi.

Speaker Change: In general I think the urgency that was there before during the crisis during the Ukraine crisis and the steep increase in par was was that urgency.

Speaker Change: It is gone and then in general we also know that the economy is also.

Speaker Change: Is it not doing that well so the combination of those things.

Speaker Change: We believe are the reasons why Europe seems to be slow, but as Ben mentioned.

Speaker Change: Possible that you could be that Q3, Q4 could be kind of bottomed out and specifically for enphase.

Speaker Change: With the introduction of all the new products and expansion of our Sam by $4 billion can be.

Speaker Change: Capitalize or for us to do.

Speaker Change: Get Europe back where it needs to be.

Speaker Change: I'll follow up with a quick question about India, which no one has asked about yet.

Speaker Change: Recently announced a new product launch in <unk>.

Speaker Change: In the end market, which I typically think of as a very price sensitive market.

Speaker Change: Are you going to be cost competitive there.

Speaker Change: Yes.

Speaker Change: Let me tell you about India. They add this battery will will cater to the premium premium segment there are many.

Speaker Change: Single family homes apartments villas.

Speaker Change: Yes.

Speaker Change: Well.

Speaker Change: And in India, If you didn't know.

Speaker Change: You lose power.

Speaker Change: Five times a day.

Speaker Change: And the system today is a backup UBS.

Speaker Change: Lead acid.

You know our lead acid battery.

Speaker Change: Basically and you all know how old lead acid batteries are that's why we shifted to lithium ion.

Speaker Change: So we introduced this battery in India.

Five kilowatt hour battery.

Speaker Change: And our EBIT, our mainstream battery that we are shipping.

Speaker Change: And it is perfect for India because.

Speaker Change: Indian Indian families Indian homes, even high end may not use more than 10 kilowatt hours at sea.

Speaker Change: So basically.

Speaker Change: This battery comes with the backups, which.

Speaker Change: And that backups, which makes you won't even know.

Speaker Change: Youre running them backup.

Speaker Change: And so it's a beautiful solution for many of the luxury builders, where they can build it into the.

Speaker Change: Cool.

Speaker Change: Some of the homes, which is which can cost anywhere from $200000 too.

Speaker Change: A couple of million dollars.

Speaker Change: They can build it into the home and raise the value of the home and provide complete energy independence.

Speaker Change: So we are working with these builders and of course granted.

Speaker Change: The volumes we.

Speaker Change: We have to see and.

Speaker Change: It will ramp.

Speaker Change: Got it.

India is a beautiful market because there is a big problem.

Speaker Change: Which is power shutdowns and.

Speaker Change: We have a solution for the high end markets.

Speaker Change: And that also has a lot of gradient. So it's a very very good solar market now there's a new program for small system in a very big incentive programs for small systems, two three and four kilowatts and so it was not all perfect market perfect market footing, there, but we're very bullish about that market.

Speaker Change: We hit it.

Speaker Change: The next question comes from Dylan Maisano with Wolfe Research. Please go ahead.

Speaker Change: Hey, good afternoon, I just wanted to come at the market share question from a slightly different angle and ask just specifically on the tpa market.

Dylan Maisano: I think you had kind of identified that as an opportunity to take incremental share specifically in <unk> and just wanted to check in on how that is kind of playing out. Thank you.

Speaker Change: Yes, we work with all of the TPU providers, we have a great relationship with everybody.

Dylan Maisano: And.

Dylan Maisano: Our market shares.

Dylan Maisano: Our market share of the way we are a bit more.

Dylan Maisano: Market share to be <unk>.

Dylan Maisano: Even more than 50% in the U S is by working with everybody.

Dylan Maisano: We work with.

Dylan Maisano: Tier one installers tier two installers long tail installers and now all of those installers that are being served by a handful of deals.

And all of them are working with us on domestic content.

Dylan Maisano: And once again it was.

Dylan Maisano: What's not clear we are all we are already shipping domestic content.

Dylan Maisano: Mike Rowe Inverters with increased domestic content right now and that is on our mainstream product called incubated see soon we will start shipping batteries with domestic content.

Dylan Maisano: In November.

Dylan Maisano: So basically if they have a reliable supply of domestic content. They are looking for that right now because.

Dylan Maisano: Very few people with creative plans for domestic card.

Dylan Maisano: And we are working with each and every one of those deals.

Thank you if I can squeeze in just one more are you covered kind of managing the battery channel earlier in the call, but just looking past <unk> as you get ready to start shipping the fourth Gen battery.

Dylan Maisano: Should we think about you know your.

Dylan Maisano: What kind of strategy to prep the channel.

Speaker Change: Yes that is.

Speaker Change: Two three things you need to know one is as we introduce batteries into a lot more regions for example.

Speaker Change: I told you we are underpenetrated in a few regions in Europe, including Germany, even so the three phase battery is going to come into Germany, that's going to increase our battery volumes with going to introduce batteries into many more countries.

Speaker Change: In Europe, that's going to increase the volumes and that we are still talking about the third generation battery in the U S. We are going to switch to the fourth generation battery.

Speaker Change: And that is going to result in a drastic reduction in bill of materials and installation cost like what I've said, so why did I tell that to you because.

Therefore, the inventory transition is a little bit easier for us.

Speaker Change: Because we have detergent duration still shipping.

Speaker Change: For the rest of the world.

Speaker Change: We will ramp onto the fourth generation, but we don't need to.

Speaker Change: Have any hard transition and we expect that transition.

To be well managed.

Speaker Change: And not leaving any problems in the channel.

Next question comes from Dimple go side with Bank of America. Please go ahead.

Speaker Change: Thank you for the question.

Speaker Change: Great.

My understanding is that the increase in ESP and Iot benefits Hum to come to the domestic manufacturing cost and product mix impacts on gross margins.

Was this a lever you fooled or how do you think about the sustainability of these higher ESP going for it.

Speaker Change: Yeah, I mean, it's quite simple like the cost manufacturing in the U S means our cost increases.

Speaker Change: Lead times by 10% to 15%.

Therefore, all we're doing is to make sure that we.

Speaker Change: We take care of that in terms of pricing, but if you look at the big picture.

Speaker Change: Few sense of what that we might be adding is creating the value of 40 to 50 cents of Watford somewhere.

And that 40 to 50 cents of what can be it.

Speaker Change: Can be invested back can be taken as profits can be given to the installers. There are various ways that each GPO choose to cut it.

Speaker Change: But that's the math, we are generating that value.

Speaker Change: We are generating the domestic content, we're taking a few dollars to do that because in the U S. Manufacturing is a little more expensive we are covering for those costs and.

Speaker Change: There is still a lot of value being generated.

Speaker Change: Understood.

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

Speaker Change: Good afternoon, and thank you for taking my questions. So my first one and hopefully this isn't a dumb one but you highlighted that distribution growth in <unk> was much higher themselves from all channels because of the Sunpower bankruptcy.

Speaker Change: Do you know that the growth you're seeing in distribution isn't because the bankruptcy occurred on your distribution customers arent actually just gaining share from from Sunpower.

Speaker Change: We we don't but what we know is this the time period is to sharp.

Speaker Change: For installers to adjust their plans and it typically takes some time for installers to bleed off.

Their current inventory.

Speaker Change: So our.

Speaker Change: Projection is there will be some installers, who will come through in Q4 majority of the installers will come through from Q1 onwards.

Speaker Change: Through the channels and the good news is we are working with.

Speaker Change: Almost all of them.

Speaker Change: And the good news is they all know us very well we are meeting with them.

And there at all.

Speaker Change: Making plans for ramping with us.

Speaker Change: Thank you and just a quick follow up a.

Speaker Change: A big part of the unpaid story.

Speaker Change: Going back to your your initial or the start of your tenure.

Was just keep taking our costs year after year and just passing on some of those costs to your because your customers lately, whether it's the duopoly inflation domestic content and it just seems like there haven't really been a lot of cost cuts on the inverter side and I'm, just wondering with with IQ nine being released later this year and potentially driving your costs down meaning.

Speaker Change: How are you thinking about potentially returning to the old days.

Speaker Change: Costs out and then passing on some of that to your customers. Thank you.

Speaker Change: Yes.

Speaker Change: Basically.

Speaker Change: You know if you look at <unk> nine.

Speaker Change: Our aim our desired used to deliver.

Speaker Change: Increased watts at.

Speaker Change: At the same cost.

Installers.

Speaker Change: So the way we would price that product is appropriately like that which is utilizing advanced technology Lake game.

Speaker Change: Gallium nitride.

Speaker Change: We.

Speaker Change: You now are able to achieve high power.

With.

Speaker Change: With improved form factor.

Speaker Change: And cost and how is that possible is for example, I've just described to you.

Speaker Change: Simple change.

Speaker Change: In the micro inverter today, our bread and butter microphone correlate QE to see.

Speaker Change: You have full silicon.

Speaker Change: Effects.

Speaker Change: We charge 600 board.

Speaker Change: Transistors, six hundreds where it fits.

Speaker Change: We also have.

Speaker Change: A big transformer.

They have their own transformative that you've seen in our micro and workers now going to game for <unk> will be replaced by two bi directional sense.

Speaker Change: Bds bi directional switches.

Speaker Change: Ford will become too.

And then.

Speaker Change: If we run the gang transistors at an increased frequency by the way. We can we are getting ready to run them at a megahertz Nike Tim.

Speaker Change: If we run them at a higher frequency than what happens is all of us are that trends formerly <unk>.

Speaker Change: Cost and form factor can come down drastically in addition to many passes.

Speaker Change: Ponant that can.

Speaker Change: Come down drastically.

Speaker Change: So that's how we're thinking we're thinking in terms of overall component cost reduction.

Speaker Change: We'd like to give offer installers, 10% higher value that is actuated C has got about a 380 food watts.

Speaker Change: <unk> nine.

Speaker Change: Product, which will release in second half of next year, we will have full 27 watts approximately 10 12 percentile.

Speaker Change: And we'd like to make sure that is given to installers.

Speaker Change: Paul.

A similar price if they buy today.

Speaker Change: Thereby the cost per watt for them.

Speaker Change: Much more efficient.

Speaker Change: And that's that is our plan on the.

Speaker Change: The micro and quarters now.

Speaker Change: I already told you about our plans on BEC.

Speaker Change: The battery costs are continuously going down sell.

Speaker Change: Self pack costs continuously going down.

Speaker Change: According to a market study in a market study itself back costs will be.

Speaker Change: Be.

Speaker Change: Well below $100 per kilowatt hour.

Speaker Change: And.

Speaker Change: With designing the system property with neutral farming embedded in the batteries.

Speaker Change: We are able to drastically reduce installation costs.

Speaker Change: For.

Speaker Change: You know.

Speaker Change: Batteries, which is no longer a complicated back a box you only meet meet the Cola Cola is not a new concept it's been there.

Speaker Change: They need a color.

Speaker Change: Meet the battery.

Speaker Change: And we need a combined box that.

Speaker Change: What sort of works with both solar storage EV.

Speaker Change: It's got load control in it so we are trying to integrate.

Speaker Change: We are trying to make like seven or eight boxes go down to three.

Speaker Change: There's two or three years.

Speaker Change: So that's on the.

Speaker Change: On the storage system sight, I talked about micro Inverters I talked about storage. Then we are also constantly looking at balance of system.

Speaker Change: Balance of system is how can we convert for example, how can we eliminate our combining pumps.

Speaker Change: What can we do maybe we can eliminate our combined boxes, one day by going to solid state breakers in the main path.

Speaker Change: Yeah.

Speaker Change: You know we were looking at that and that will potentially take several thousands of dollars up because no longer that would need something to be start so in almost all of these cases technologies.

Speaker Change: And that's what we are focused on Gan technology.

Speaker Change: Its breakthrough technology battery technology.

Speaker Change: And we will continue to innovate.

Speaker Change: And and also software write software the quality of the software AI powered software can really ultimately improve the homeowners Ottawa just by being very intelligent about when to charge. The battery went to discharge the factory when to buy it from the great win T cells with a great youre, making real time decisions.

Speaker Change: And software will also improve the homeowners are why because that's what we care about you heard about it and we also have.

Speaker Change: Our control system software built into us.

Speaker Change: Combined our boxes that can avoid.

Speaker Change: Main panel upgrades again.

Speaker Change: <unk> technology hardware and software technology to improve the homeowners ROI so youre.

Looking at systems, we started with solar only but now we have moved to comprehensive energy systems now and so we have to look at all elements of the system and the system itself and how to continue driving our cost down and there are numerous examples that <unk> given you.

Speaker Change: And what Youre doing to drive these costs down.

Speaker Change: The next question comes from my Heap Mandola with Mizuho. Please go ahead.

Speaker Change: Hey, my malaria, thanks for taking the questions. Maybe just one quick one on the IQ nine timing I think I said second half of next year is that for the commercial or residential.

Speaker Change: Just the commercial then when do you expect the residential.

Speaker Change: Launch.

Speaker Change: So to start with.

Speaker Change: The commercial micro and murders.

Speaker Change: The commercial micro Inverters will address 427 watts.

Speaker Change: And $5 48 watts of AC powered.

Speaker Change: They will.

Speaker Change: Take care of three phase two we'll wait boards and 40 people.

Speaker Change: Note that <unk> words.

Speaker Change: We face as a brand new market for us.

Speaker Change: And what we have heard in the small commercial market, which we talk about which consists of.

Speaker Change: Cool.

Speaker Change: You know as a small businesses like.

Speaker Change: Like restaurants.

Speaker Change: Yes.

Speaker Change: Apartments.

Speaker Change: Any small scale that you can think of we have heard that 75% of them fully 80 boards and 25% or two week today, we are only addressing the tool.

Speaker Change: And we need them, we are going to expand that fan.

Speaker Change: In the second half of 'twenty five following that.

Speaker Change: We will introduce a resilient shield micro and book two flavors there.

Speaker Change: One is the full 2017, what presidential micro and worker.

Speaker Change: But we are talking about and the.

Speaker Change: The other is a by.

Speaker Change: By 48 watts for emerging markets.

Pretty high powered panels for example in India for example panels will be to.

Speaker Change: 700.

Speaker Change: What's similar in Brazil, similar in Mexico in many emerging markets.

Speaker Change: Residential markets, we need to.

Speaker Change: A high powered solution, while in the U S and Europe, we need to.

Speaker Change: 427 Watson.

Speaker Change: And.

Speaker Change: That will immediately follows so we expect to introduce all of it.

Speaker Change: In the second half of 2025.

Speaker Change: Got it.

Speaker Change: Just on the cash you have almost 1 billion now.

Speaker Change: And any thoughts on how to deploy that.

Speaker Change: Or buybacks or anything or any other use so going forward here.

Speaker Change: So we look at.

Speaker Change: As I said before we look at three things one is making sure we have enough capital for expansion.

Speaker Change: It's the factory, whether it's a contract manufacturing line, whether it's some of the few lines of business first priority.

Speaker Change: That can priorities, obviously looking at M&A.

Speaker Change: For example, we are quite interested in.

Speaker Change: And energy management software.

Speaker Change: We are also looking at.

Speaker Change: Basically.

Speaker Change: Interesting things on EV Chargers as they've become mainstream which is bidirectional charging will make EV chargers integral part of solar and batteries.

Speaker Change: So we're looking at that we're also looking at.

Speaker Change: Commercial.

Speaker Change: Commercial batteries.

Speaker Change: The scope and opportunities for us.

Speaker Change: So we are we are casting a wide net.

Speaker Change: And of course with this.

Speaker Change: With this macro there are many companies who we look at.

Speaker Change: And I've got standards are very high we will not.

Speaker Change: We will not buy.

Speaker Change: Company's debt that we have.

Speaker Change: They don't fit with us.

Speaker Change: So we are very selective.

Speaker Change: But we are looking at many of them. So so that's the second one and then the third is if that is.

Speaker Change: Enough cash left over we.

Speaker Change: We do a systematic buyback we have been doing a systematic buyback in the last few quarters.

And we expect to do so in consultation with the board.

Speaker Change: Actually.

Speaker Change: And whenever we can be opportunistic.

Speaker Change: And do when there is some pressure on the stock we will do.

Speaker Change: Got it.

Speaker Change: Thanks for taking the questions.

Speaker Change: Thank you.

Speaker Change #100: And the next question comes from Julien.

<unk> Smith with Jefferies. Please go ahead.

Speaker Change #101: Hey, guys I'll make it Super quick here. Thanks for the time, just whats the percent mix of domestic content Q3, Q4, Q and what you're expecting.

Speaker Change #101: For U S product.

Speaker Change #103: <unk> has not ramped so I should say close to zero.

Speaker Change #101: And.

Speaker Change #104: Go to our estimate is anywhere.

Speaker Change #104: Something around 10%.

Speaker Change #104: Would estimate 10% to 15% end.

Speaker Change #104: Doing the steady ramp from there at all.

Speaker Change #104: Okay linear off that baseline. Thank you very much I appreciate it.

Speaker Change #104: Okay.

Speaker Change #105: And the next question comes from Austin Moeller with Canaccord. Please go ahead.

Speaker Change #106: Hi, good evening, Thanks for taking my question.

Austin Moeller: Have you do you have any concerns about the 30% residential tax credit in the IRI being changed by a new Congress or a new presidency next year and how would that affect your expectations for U S growth in the out years.

Speaker Change #108: So obviously, an ITC is very important for the U S market. So I think if.

If that gets disrupted at this stage that would not be good for the for the overall market I think but it would also be powered for.

Speaker Change #108: The general we believe it will be back for the general economy. If you look at the fact of the matter is demand is going up substantially the purification is taking place in their homes people are buying evs heat pumps that demand has to be made we know all their data center demand is going up substantially as well and all of this demand is being met by <unk>.

Speaker Change #108: As majority of the demand is being met.

Speaker Change #108: <unk> by renewables.

Speaker Change #108: So any hit towards 30% ITC is going to be bad for everybody.

Speaker Change #108: And what the idea is done is created a lot of jobs here all of the manufacturing has come back here. So we pegged.

Speaker Change #108: The probability of ITC going away.

Speaker Change #108: And being very very low maybe zero.

Speaker Change #109: Great. Thank you for the time.

Speaker Change #110: This concludes our question and answer session I would like to turn the conference back over to Badri <unk> for any closing remarks.

Badri: Yes. 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 #112: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.