Q4 2024 Enphase Energy Inc Earnings Call
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Speaker Change: Good afternoon everyone and welcome to the Enphase Energy's fourth 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 today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To withdraw your questions, you may press star and two.
Please also note, today's event is being recorded.
Speaker Change: At this time, I'd like to turn the floor over to Zach Freedman.
Please go ahead.
Speaker Change: Good afternoon and thank you for joining us in today's conference call to discuss Enphase Energy's fourth quarter 2024 results.
Speaker Change: On today's call are Badrinarayanan Kothandaraman, our President and Chief Executive Officer, Mandy Yang, our Chief Financial Officer, and Raghu Baloor, our Chief Products Officer.
Speaker Change: After the market closed today, Enphase issued a press release announcing the results for its fourth quarter ending December 31, 2024.
Speaker Change: 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.
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, followed with the SEC.
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 and 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 Badrinarayanan Kothandaraman, our President and Chief Executive Officer. Badrinarayanan.
Speaker Change: Good afternoon and thanks for joining us today to discuss our fourth quarter 2024 financial results.
Speaker Change: We reported quarterly revenue of $382.7 million, shipped approximately 2 million microinverters and 152 megawatt hours of batteries.
Speaker Change: generated free cash flow of 159 million dollars. Our overall channel inventory remained normal as we exited the fourth quarter.
Speaker Change: For Q4, we delivered 53% gross margin, 22% operating expenses, and 31% operating income.
Speaker Change: All as a percentage of revenue on a non-gap basis, including the net IRA benefit. Mandy will cover the financials later in the call.
Speaker Change: Let's cover customer service. Our worldwide Net Promoter score was 78% in Q4, the same compared to Q3.
Speaker Change: Our average call wait time decreased to 2.8 minutes from 4.4 minutes.
Speaker Change: We are working to further reduce wait times by leveraging AI and rolling out software fixes.
Speaker Change: Let's talk about operations. Our global capacity is around 7.25 million microinverters per quarter with 5 million in the U.S.
Speaker Change: In Q4, we shipped approximately 1.7 million microinverters from our U.S. contract manufacturing facilities, booking 45X production tax credits.
Speaker Change: We also introduced a higher domestic content SKU for two of our products, the IQ8X microinverter and the IQ8P commercial microinverters in Q4 to help.
The commercial asset owners qualify for a 10% domestic
Speaker Change: Content ITC Error. We now offer higher domestic content microinverters that cover both residential and commercial solar applications and continue to see good demand for these products from lease, PPA, and commercial markets.
We expect to ship 1.2 million units.
micro inverters from our US contract manufacturing facilities in Q1.
We also began shipping.
Speaker Change: The IQ Battery 5P, our third generation battery system from our U.S. contract manufacturing facilities during Q4, utilizing domestically made microinverters, battery management systems and enclosures.
while sourcing cell packs from China.
Speaker Change: We shipped 6.7 megawatt hours of batteries from our Texas contract manufacturing facility in Q4. We continue to evolve our sourcing strategy to maximize domestic content opportunities and diversify our geographic exposure.
Speaker Change: Let's cover the regions. Our U.S. and international revenue mix for Q4 was 79% and 21% respectively.
Speaker Change: In the U.S., our revenue increased 6% in Q4 compared to Q3, driven by 11% increase in microinverter sales.
Speaker Change: This increase was due to strong demand for our higher domestic content microinverters.
Speaker Change: Our battery sales were down 8% in Q4 compared to Q3 due to lesser channel restocking as we had previously anticipated.
Speaker Change: Our overall sell-through of products was flat in Q4 compared to Q3.
Speaker Change: We are generally seeing stable demand in the U.S., both in California as well as outside of California.
Speaker Change: NEM 3.0 currently represents 66% of our installs in California with a 45% attach rate for our own batteries.
Speaker Change: The adoption of batteries is steadily increasing across the U.S. due to new tariff structures like M3, VPP programs, and the need for resilience.
Speaker Change: In Europe, our revenue was down 25% in Q4 compared to Q3, while our overall sell-through declined by 13%.
Speaker Change: The overall business environment across the region is still challenging, but we are maintaining discipline on controlling the channel and expanding our served available market by introducing new products.
Speaker Change: I'll provide some additional color on key markets in Europe, the Netherlands, followed by France, Germany, and the UK.
In the Netherlands, demand remains weak but has stabilized.
Speaker Change: The market is transitioning away from solar-only systems to solar plus batteries, which avoids export penalties and allows participation of residential solar plus battery systems in energy markets.
Speaker Change: We announced new collaborations with two retail energy providers during Q4 that enabled homeowner access.
Speaker Change: to Dynamic Tariffs and Participation in the Imbalanced Markets, both of which can improve payback to better than six years, even without net metering.
Speaker Change: We expect to announce more partnerships with Dutch energy providers in the future and see gradual improvement in this market as we progress through 2025. We also started shipping our new IQEV chargers into Netherlands in the fourth quarter.
Speaker Change: In France, the market is slowing down due to the recent utility rate cuts.
Speaker Change: France remains a key long-term growth market for us, given our leadership and low solar penetration.
Speaker Change: We started shipping our IQ EV chargers into France in the fourth quarter. We plan to introduce hot water heater compatibility in Q2, enabling homeowners to do heating with excess solar called green heating.
Speaker Change: We also plan to introduce backup capability for our batteries, further enhancing resilience for homeowners.
Speaker Change: As the feed-in tariffs in France gradually reduce, the value of solar plus batteries along with home energy management continues to rise.
Speaker Change: In Germany, we are excited about a few new products that will expand our reach.
Speaker Change: In early January, we started shipping the IQ Battery 5P with FlexPhase, a new product, to customers in Germany, Austria, and Switzerland.
Speaker Change: The early feedback has been very positive and we see an opportunity to increase share in the region now that we have three-phase backup capability.
Speaker Change: We also recently started shipping our new IQ EV chargers into Germany. In addition, we expect to introduce our IQ balcony solar solution in Q2.
We believe N-phase microinverters are ideal for small systems.
Speaker Change: and this product is expected to increase our served available market in Germany by approximately 400 megawatts per year.
Speaker Change: A bright spot for us is the UK, where we are growing steadily.
We recently announced that our systems...
Speaker Change: are integrated into Octopus Energy's Smart Import and Export Tariffs such as the Intelligent Octopus Flux that is designed to optimize the charging and discharging of solar plus battery systems aiming to provide customers the best rates for buying and selling electricity.
Speaker Change: We expect to start shipping our new IQEV chargers into the UK shortly in Q1.
Speaker Change: We are still underpenetrated in many countries in Europe, including the UK, Italy, Spain, Belgium, Luxembourg, Switzerland, Austria, and Poland.
Speaker Change: While each country faces its own unique challenges and opportunities, homeowners are prioritizing safety, reliability, quality, savings, and an all-in-one app experience for their home energy system, which aligns well with our core strengths.
Speaker Change: We plan to introduce our entire suite of products, like you eight micro-inverters.
Speaker Change: both single and three-phase batteries with backup, new IQEV chargers, and the AI-powered home energy management software, along with the Solar Graph installer platform, across a lot more European countries throughout 2025.
Speaker Change: We continue to make incremental progress in other regions. In India, our IQ8P and IQ8HC, these are the high-powered microinverters, those sales continue to ramp, and we began shipping the IQ Battery 5P in December.
Speaker Change: We also recently started shipping the high-powered IQV-T microinverters into Vietnam and Malaysia, further expanding into Southeast Asia.
Speaker Change: Additionally, we are building momentum in Thailand and Philippines, steadily ramping up businesses in these growing markets as demand for high-quality, reliable energy solutions continues to rise.
Speaker Change: Let's cover Japan. We are especially excited about Japan's 1.3 gigawatt solar market, where we recently began piloting installations and plan to ship IQ8HC microinverters in Q2.
Speaker Change: The Tokyo Metropolitan Government subsidies for MLPE make the market even more attractive for consumers.
Speaker Change: Japan's solar landscape aligns well with small systems, 2 to 3 kilowatts, complex roofs, strong demand for quality, these are all well aligned with our strengths.
Speaker Change: We anticipate recognizing approximately $50 million in safe harbor revenue in Q1, partially offsetting seasonality.
Speaker Change: We define Safe Harbor Revenue as any sales made to customers who plan to install the inventory over more than one year. We are approximately 85% booked to the midpoint of our overall revenue guidance.
Speaker Change: We expect to ship between 150 and 170 megawatt hours of IQ batteries, slightly higher than Q4.
Speaker Change: Before we talk about new products, let's discuss the growing importance of energy market participation in many markets worldwide.
Speaker Change: REPs, or Regional Energy Providers, and VPP programs are offering homeowners attractive ROI by utilizing their solar plus battery systems to buy and sell energy.
Speaker Change: We believe Enphase Energy Systems offer best-in-class reliability, customer support, and API integration which are important for REPs and VPP programs.
Speaker Change: We look forward to sharing with you our progress in these markets as we go through 2025.
Speaker Change: Let's cover new products starting with IQ batteries. As I said before, our third generation battery continues to gain traction in the U.S. as well as worldwide. In the U.S., we introduced two key system enhancements to improve flexibility and reduce costs.
The first is Busbar Power Control Software.
which allows homeowners to install larger solar and battery systems.
without costly main panel upgrades.
Speaker Change: The second is power control software for NEM expansion, enabling homeowners in California to expand legacy NEM systems without any penalty.
Speaker Change: These advancements provide homeowners with increasing flexibility and cost savings and are being well received by installers.
Speaker Change: We are making excellent progress with our fourth generation IQ battery, which offers 60% less wall space, thanks to its integrated battery management and power conversion architecture.
Speaker Change: The battery pairs with our IQ meter collar and new enhanced combiner, reducing installed costs by approximately $300 per kilowatt hour for a typical backup system, making us highly competitive across all use cases.
Speaker Change: We have achieved UL compliance for the meter collar, and we are now working on getting approval from the California utilities. We expect to pilot our fourth generation battery in the U.S. in the first quarter.
Speaker Change: The IQ8P-3P commercial micro inverter with its new three-phase cabling system is ideal for 208 volt small commercial solar installs between 20 and 200 kilowatts.
Speaker Change: We have over 516 sites in the U.S. with an average size of 40 kilowatts and the feedback so far has been positive.
Speaker Change: These three-phase micro-inverters are now shipping from the U.S. with increased domestic content, offering a 10% ITC adder for commercial asset owners, which should drive up demand even further.
Speaker Change: One more positive thing to note is that our IQ-8 residential and commercial microinverters are now in compliance with the Build America, Buy America Act, B-A-B-A.
Speaker Change: Let me provide an update on IQ9, powered by Gallium Nitride technology. The IQ9 family is built for higher DC input currents, handling up to 18 amperes, versus IQ8 which handles up to 14 amperes.
Speaker Change: IQ9 also supports a wide range of AC grid voltages including 240V, 208V and 480V for both residential and commercial markets.
Speaker Change: leveraging GAN high voltage transistors. These microinverters deliver high AC output power of 427 watts and 548 watts at a lower cost.
Speaker Change: We remain on track to launch IQ9 in the second half of this year for both residential and commercial markets with a significant SAM expansion driven by compatibility with 480 volts AC commercial systems.
Let's dive into EV charging.
Speaker Change: We started shipping our new IQEV charger across several countries in Europe, tapping into a $1.4 billion annual market.
Speaker Change: The next generation smart charger is designed to work seamlessly as part of our Enphase energy system or as a powerful standalone charger.
Speaker Change: Key features of this new IQ EV charger include dynamic phase switching and fine-grained current control for efficient green charging, dynamic load balancing.
ISO 15118 support for AC bi-directional vehicle expansion
Speaker Change: and compatibility with MID meter for Germany as well as compatibility with OCPP cloud software 2.01 making it a very comprehensive and future ready solution.
Speaker Change: In Q4, we began shipping the IQ PowerPak 1500 product to customers in the U.S. and Canada.
Speaker Change: This 1.5 kilowatt hour smart portable energy system incorporates all of Enphase's core technologies of power conversion, battery management, and software. You should think about it as Enphase in a box.
Speaker Change: During the recent LA fires, Enphase donated a PowerPack 1500 along with an organization called Empowered by Light.
Speaker Change: to support relief efforts with some firefighters who were using them to power their communications gear. We are excited to enter this growing consumer market and plan to expand the power pack globally in 2025.
Let's talk briefly about Solar Graph, our installer platform.
Speaker Change: We added a lot of new features to Solar Graph in 2024 with ease of doing design as a goal.
Speaker Change: SolarGraph is now available to installers in the US, Canada, Brazil, Germany, Austria, Netherlands, France.
Speaker Change: with plans to expand into more countries in the coming quarters.
Speaker Change: Looking ahead, we are working on key enhancements to SolarGraph, including auto route detection, ultra-fast proposals, UI UX overhaul, and expanded CNI features, making SolarGraph even more powerful and intuitive.
Let me conclude.
Speaker Change: We successfully navigated a challenging 2024, generating strong free cash flow and profitability while bringing down channel inventory to normalized levels.
We entered 2025 with a continued focus on operational efficiency.
Speaker Change: Product reliability, customer service, product breadth, and geographic expansion. We have also doubled down on US manufacturing for microinverters and batteries, which we believe is good for our customers, economy, and for Enphase.
Speaker Change: There is some uncertainty around government policies for our industry both in the US and abroad, but one trend is very clear.
Speaker Change: Centralized grids need more support to keep up with the increased electricity demand.
Speaker Change: Unsubsidized free markets are increasingly turning to distributed energy systems to help balance the grids through RETs and VPP programs. We see this trend increasing and getting stronger as we look ahead and believe we are well positioned there.
Speaker Change: We believe our new products will help drive gradual revenue growth throughout 2025 with Safe Harbor ordering in the U.S. having the potential to accelerate growth as we progress into the second half of 2025.
Speaker Change: We remain committed to delivering best-in-class solutions and are energized by the road ahead. With that, I will turn the call over to Mandy for her review of our financials. Mandy?
Mandy Yang: as well as our business outlook for the first quarter of 2025. We have provided reconciliations of these NAMGAP2GAP financial measures in our earnings release posted today, which can also be found in the IRR section of our website.
Mandy Yang: Total revenue for Q4 was $382.7 million. We shipped approximately 878 megawatt DC or microinverters and 152.4 megawatt hours of IQ batteries in a quarter.
Mandy Yang: Non-GAAP growth margin for Q4 was 53.2% compared to 48.1% in Q3. GAAP growth margin was 51.8% for Q4 compared to 46.8% in Q3.
Mandy Yang: Non-gap gross margin without net IRA benefit for Q4 was 39.7% compared to 38.9% in Q3.
Mandy Yang: Gap and non-gap growth margin for Q4 included $51.9 million of net IRA benefit.
Mandy Yang: Non-GAAP operating expenses were $83.3 million for Q4, compared to $81.6 million for Q3.
Mandy Yang: The increase was driven by higher R&D expense related to the launch of multiple new products in the first half of 2025. We continue to invest in new products, customer service, and geographic expansion.
Mandy Yang: We implemented a restructuring plan in November 2024 to reduce our operating costs and align our workforce and cost structures with current market conditions.
Mandy Yang: We expect to reduce our non-GAAP operating expenses to be in the range of 75 to 80 million dollars a quarter by the second quarter of 2025.
Mandy Yang: The operating expenses were $143.5 million for Q4 compared to $128.4 million for Q3.
Mandy Yang: GIP operating expenses for Q4 included $47.9 million of start-based compensation expenses, $2.9 million of amortization for acquired intangible assets, and $9.4 million of restructuring and asset impairment charges.
Mandy Yang: On a non-gay basis, income from operations for Q4 was $125.9 million, compared to $101.4 million for Q3.
Mandy Yang: On a gauge basis, income from operations was $54.8 million for Q4, compared to $49.8 million for Q3.
Mandy Yang: This resulted in non-gap diluted earnings per share of $0.94 for Q4, compared to $0.65 for Q3.
Mandy Yang: The net income for Q4 was $62.2 million compared to $45.8 million for Q3.
Mandy Yang: This resulted in GAAP diluted earnings per share of $0.45 for Q4 compared to $0.33 for Q3.
Mandy Yang: We exited Q4 with a total cash, cash equivalent, retreated cash and marketable securities balance of $1.72 billion, compared to $1.77 billion at the end of Q3.
Mandy Yang: as part of our $1 billion dollar share repurchase program authorized by our Board of Directors in July 2023.
Mandy Yang: We repurchased 2,883,438 shares of our common stock in Q4 at an average price of $69.25 per share for a total of approximately $199.7 million.
Mandy Yang: We have a remaining $398 million authorized for further share repurchases.
Mandy Yang: In addition, we spent approximately $5 million by withholding shares to cover taxes for employee stock vesting and options in Q4, that reduced the diluted shares by 68,532 shares. We expect to continue this anti-dilution plan.
Mandy Yang: In Q4, we generated $167.3 million in cash flow from operations.
and $159.2 million in free cash flow.
including approximately 110 million dollars of customer prepayment.
Mandy Yang: Capital expenditure was $8.1 million for Q4, compared to $8.5 million for Q3.
Mandy Yang: respected our capital expenditure to stay within 50 million dollars in 2025.
Mandy Yang: Now let's discuss our outlook for the first quarter of 2025.
Mandy Yang: We expect our revenue for Q1 to be within a range of $340 to $380 million, which includes shipments of 150 to 170 megawatt hours of IQ batteries.
Mandy Yang: In December 2024, we signed a safe harbor sales agreement for a total amount of approximately 95 million dollars to ship in the first half of 2025.
Mandy Yang: As Badri mentioned, we define safe harbor revenue as any sales made to customers who plan to install the inventory over more than a year.
Mandy Yang: The first quarter of 2025 Revenue Outlook includes approximately $50 million from the Safe Harbor Sales Agreement.
Mandy Yang: Although we received a lump sum of $95 million due to safe harbor for expected shipments in the first half of 2025, under normal circumstances, this would have been recognized organically over eight quarters at an average of approximately $12 million per quarter.
Mandy Yang: Going forward, the $12 million should be considered as part of the base one each quarter to reflect the true run rate of our business.
Mandy Yang: Coming back to Q1 guidance, we expect GAP growth margin to be within a range of 46% to 49%.
Mandy Yang: We expect non-GAP gross margin to be within a range of 48% to 51% with NAICS IRA benefit and 38% to 41% before NAICS IRA benefit.
Non-GAAP growth margin excludes stock-based compensation expense and acquisition-related amortization.
Mandy Yang: We expect the net IRA benefit to be between $36 and $39 million dollars. An estimated shipment of 1.2 million units of US-made microinverters in Q1.
Mandy Yang: We expect our GAAP operating expenses to be within a range of 143 to 147 million dollars, including approximately 62 million dollars estimated for stock based compensation expense, acquisition related expenses and amortization, and restructuring and asset impairment charges.
Mandy Yang: We set our non-GAAP operating expenses to be within a range of $81 to $85 million.
Mandy Yang: We state our GAP and non-GAP annualized effective test rate is cooling discrete items for 2025 to be at 18% plus or minus 1% with IRA benefit.
Mandy Yang: In closing, we managed well with our financial discipline through a difficult global environment in 2024. We maintained profitability and strong growth margins.
in addition.
Mandy Yang: We generated approximately $480.1 million of free cash flow in 2024 and exited the year with $1.72 billion in cash, cash equivalents, retreated cash, and marketable securities.
Mandy Yang: while repurchasing 4.5 million shares of our common stock for approximately $391.4 million. With that, I will open the line for questions.
Mandy Yang: Ladies and gentlemen, at this time, we will begin the question and answer session. To ask a question, you may press star and then one on your touch-tone phones.
Mandy Yang: If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys.
Mandy Yang: We do ask that you please limit yourselves to one question and a single follow-up. If you have additional questions, you are welcome to rejoin the question queue.
To withdraw your questions, you may press star and two.
Speaker Change: Our first question today comes from Brian Lee from Goldman Sachs. Please go ahead with your question.
Zachary Freedman, Badrinarayanan Kothandaraman
Speaker Change: Hey everyone, good afternoon. Thanks for taking the question and good job on the quarter here. Yeah, maybe for for Mandy or Badri, I'm just trying to understand the guidance because there's a little bit of moving parts with the safe harbor. So if we take the the 50 million out, obviously that's implying like a baseline of 310 for Q1.
Speaker Change: And, you know, if we looked at the past three years or so, typical seasonality may be up like high single digits sequentially into 2Q.
Speaker Change: And then we add $45 million on top of that to be recognized as we think about kind of the framework for Q2 modeling. And then just is there a visibility for any more safe harbor revenue as you move through the year, kind of second half, what are your customer discussions around that?
Yeah, so let me just give a brief on that.
Speaker Change: The way you should think about the 95 million safe harbour, we think, is...
Speaker Change: This $95 million, if it had not been for Safe Harbor...
would have been recognized over
That's approximately $12 million a quarter of code revenue.
Speaker Change: So, when you talk about the 310, I would add another 12 million dollars to it. That makes it 322.
So take roughly the $380 million in Q4-382 and
Speaker Change: going down to 322. That is in line with about, you know, 15% seasonality that is typically expected from Q4 into Q1.
that will be done later this year, we don't know.
Speaker Change: but of course there is some drive towards safe harbor. One is we saw the domestic content guidance basically reducing for inverters as well as for racking so that's one incentive.
Speaker Change: The second incentive is obviously if there is anything, you know, anything on the step downs for ITC, for example.
Speaker Change: you know some customers may want to take that into consideration and do safe harbor. So we are having those discussions with the customers and you know we will inform you hopefully the next conference call if there is anything more.
Speaker Change: Okay, fair enough. And then maybe just a follow-up question, you know, you're starting off the year...
Speaker Change: with some good momentum on on the battery storage front just based on the volume guidance here for Q1, but you're also you know in the midst of like you said piloting the new 10C battery and
Speaker Change: I'm just wondering how much of this is sort of phasing out the older generation battery? What kind of visibility do you have on...
Speaker Change: picking up new volume, maybe market share, as you move through to Q and beyond on the 10C. And should we expect an air pocket or are you expecting kind of sequential growth on battery storage volumes?
Speaker Change: throughout the balance of the year, similar to kind of what you've seen in past years. Thank you. Yeah. Good question. We do expect to sequentially grow in batteries throughout 2025.
Speaker Change: If you see what happened in 2024, our sell-through gradually increased through 2024. Basically, you know...
Speaker Change: Let me cover two things, internationally we have introduced the third generation battery and it was by and large...
a battery that was for grid-tied applications in Europe because
the power, you know, is relatively stable there.
Speaker Change: Now what we did and you know I'm not sure whether you got it, it is we have introduced
variant of that battery called flex phase.
FlexPhase is a battery that is capable of
Speaker Change: operating in either three-phase or a single-phase configuration and it can do backup on all three phases.
Speaker Change: It is perhaps the smallest AC-coupled battery that can do backup on all three phases.
Speaker Change: and in some regions like Germany, Austria and Switzerland backup is more an emotional requirement.
Speaker Change: So, they are all worried about energy security and so we introduced this flex phase battery and we expect to convert entire Europe to the flex phase battery in 2025. So that's the dynamics.
Speaker Change: And by the way, every emerging market will need three-phase battery with backup. The U.S. is a little bit unique.
We have single phase here and so in the U.S.
Speaker Change: which we are very excited about. We are working on the fourth generation battery.
Speaker Change: That 4th generation battery has got a much smaller footprint, the wall space is 60% smaller.
Speaker Change: And we are able to do that because we are able to combine our power conversion, battery management into, you know, we're able to integrate and able to achieve a much smaller
form factor.
Speaker Change: So, basically we are very excited about that battery and then another important development there is this battery will work along with a meter collar.
for backup.
Speaker Change: in addition to a new combiner that will also release at the same time. So, originally we had another component called system controller. That's going away now.
Speaker Change: replaced by a combination of the meter collar and the combiner which is substantially cheaper
Speaker Change: basically all the labor in installing the system controller goes away.
Speaker Change: net net what happens like I talked about we reduce the installation cost by $300 per kilowatt hour making both grid tied as well as backup systems easy to install within phase
Speaker Change: And, following up on that, we have achieved UL compliance on the meter collar.
Speaker Change: We are now working to gain the approval of the California utilities.
We expect to pilot our energy systems in March.
Speaker Change: of this quarter, and then we do expect to get strong traction from installers. We have done.
Speaker Change: We have had multiple meetings with installers, we have introduced the battery, we have had excellent reception, and we look forward to ramping and growing the business continuously.
Speaker Change: Our next question comes from Phil Shen from Roth Capital Partners. Please go ahead with your question.
Phil Shen: Hey everyone, thanks for taking my questions. I had a few follow-ups on the safe harbor. Can you share with us if there was any safe harbor revenue in Q4 and then of
Phil Shen: The 50 million of Safe Harbor and Q1 and maybe 95 total. What's the split between micros and batteries?
And then also, can you share who...
Phil Shen: the $95 million Safe Harbor is with. If you can't share the name, just directionally what kind of player and so forth. Thank you.
Yeah, we are not going to share any customer names.
The safe harbor is mostly on microinverters.
and then the answer in Q4 is there is...
Phil Shen: over one year, you know, time frame. There are a few small deals that are run rate deals that will get, you know, that will get consumed in one to two quarters.
Phil Shen: That happened at a much smaller rate. We do not consider them safe harbor. They are usual run rate business. The $95 million is what we are considering safe harbor and you should think about that as $12 million of core revenue per quarter.
Thank you.
Phil Shen: Okay, got it, thank you. And then in terms of on a go forward basis,
Speaker Change: You know, I think Brian was talking about how sequentially Q2 could be up single digit high single digits
Speaker Change: in terms of growth, for revenue, in order to get to maybe $1.5 billion of revenue for the year, do you think you can hit $400 million?
Speaker Change: per quarter run rate, maybe in the back half of the year. I know you don't want to provide official guidance, but I wanted to just get a feel for what the cadence might be for the rest of the year. And then shifting to tariffs for just a moment, we've written a lot about this anode, ABCBD.
Speaker Change: You know, there could be 850% tariffs on the anode part of the battery. To what degree are you guys preparing for that?
Speaker Change: How can you deal with it overall, given that retroactive tariffs could become effective sometime this month? Thank you.
Speaker Change: Yeah, we don't provide guidance for the second quarter or the rest of the year, but I am extremely excited by both.
Speaker Change: Our progress on new products. We are introducing a whole array of new products.
Speaker Change: In Q4, we introduced the new EV charger into a $1.4 billion dollar served available market. We introduced our iQ Portable Energy System.
which we plan to extend in other places.
Speaker Change: in a smallest AC-coupled three-phase battery with backup. We are making excellent progress on our fourth-generation battery like what I just now answered.
Speaker Change: The Meter Collar has passed UL compliance. We are looking forward.
Speaker Change: to start piloting that product. And then I did mention about IQ9. You know, IQ9, we are also very excited. The, you know, IQ9 will provide
Speaker Change: more power, 10% more power for approximately similar cost and the early results are looking quite good. We expect to finalize our design in the first quarter and we expect to start doing verification.
Speaker Change: and release that product. So I do expect to grow throughout the year.
Speaker Change: Because we are introducing a lot of new products, we are diversifying. IQ9, for example, will allow us to participate in the 480 volt market, which we haven't participated till now. We are only participating in the 208 volt market.
Speaker Change: So GAN allows us to do all of those. We expect to introduce that product later in the second half of 2025.
Speaker Change: So let me stop there, Raghu will answer the question on anode ADCVD.
Raghu Baloor: Yeah, so with regards to the anode ADCVD, obviously it is something that's very new. We are tracking it closely.
Raghu Baloor: In general, our plan is, from a supply chain point of view, is to have geographic diversity which we have done on the
Raghu Baloor: on the microinverter side and as well as we are preparing to do that on the battery side. So all of these things, given the tariff issues, the ADCVD issues, etc., we are being very proactive, which we have already started in diversifying our supply chain.
and Zachary Freedman.
Speaker Change: Our next question comes from Julian Dumoulin Smith from Jeffries. Please go ahead with your question.
Thank you.
Speaker Change: Hey, good afternoon, team. Thank you guys very much. Appreciate the time. Maybe just following up on the last series of questions, I know it's a little bit early to guide, shall we say, but obviously you've got a number of tailwinds here when you think about the IQ 9 coming in the back half, also fourth gen introduction. In theory, you guys have alluded to potentially higher margins, maybe 60% on some of these new products, 45% on fourth gen maybe, or upwards of. I mean, as you think about those products bleeding into the back half of the year, can we expect a margin uptick? I notice obviously in 1Q here, there's a little bit of a downtick here
Speaker Change: has just put up. Is there a mixed dynamic in 1Q? And really, if you think about the back half of the year...
Speaker Change: as those new products roll in, are there any offsets that you would otherwise see? And then related, is there a pricing dynamic that we should be watching as it pertains to the updated IRS cost allocation tables for MLPEs, right? I know that that dropped here from 36 to 25 percent of late. Does that change anything in the pricing and up-pricing, because we might have seen earlier?
Speaker Change: And could that be a headwind itself, or conversely could, you know, maybe the dynamics around Powerwall 3 and the separation between the solar qualification versus the battery piece help drive, you know, incremental sales and stabilize the backdrop a little bit? Sorry, a lot in there, but I wanted to squeeze it all in.
Yes.
Speaker Change: We, you know, our pricing strategy is quite simple. We price on value added with respect to competition.
Speaker Change: are the same. We have a pricing team, we have a cost team, we make excellent progress.
Speaker Change: on both, and we basically, you know, if we need to drop price on batteries...
Speaker Change: Because we don't add that much value, we will, at the same time, we work on cost reduction opportunities. And the results prove that. Today we are at a...
Speaker Change: non-GAAP gross margin. Without the ERA benefit, we are reporting approximately 39.7 percent.
Speaker Change: The number for Q1, the guidance we gave, is between 38 and 41 percent. You should just interpret that as regular product mix that is fluctuating, so our numbers will fluctuate. Do I expect us to get better? I do expect us to get better.
Speaker Change: In general, I do expect us to improve. For example, IQ9 brings in a lot of tricks with gallium nitride. We are able to go from four silicon fats to two gallium nitride fats.
Speaker Change: and because we are using what is called as a bi-directional switch instead of four unidirectional switches we will now use two bi-directional switches therefore there is some intrinsic cost reduction
Speaker Change: We expect to be running those FETs at a frequency that is greater than 100 kHz in the future.
Speaker Change: and when you run those FETs at greater than 100 kilohertz in the future you no longer need a big transformer.
Speaker Change: For example, if you are able to run them at 10 times higher frequency,
Speaker Change: From 100 kilohertz, if you're able to run at 1 megahertz, you should be able to get a transformer reduction by 1 over root 3, which is a 66% reduction.
Speaker Change: in the transformer size. While we are not there, I mean, we call that as internally as moonshot.
Speaker Change: so that we can gain that benefit and give customers ultra-high-quality services.
Speaker Change: Small inverters, which are extremely cost-competent. So it'll help both customers as well as us.
Speaker Change: In terms of gross margin, on the fourth generation battery, we have excellent levels of integration.
Speaker Change: and that is about to come in imminently on the fifth generation battery which we are working on. We expect to release our fifth generation. I haven't talked about it too much.
Speaker Change: but we are always working on N and N plus 1. So, our fifth generation battery will come out in Q1-26.
Speaker Change: one year from today and that also has got a drastic cost reduction.
Speaker Change: associated with it. I'll give more more highlights on that in the next call on why. That will use prismatic cells. It's got an energy density that is 50% higher.
Speaker Change: will share more details. So, in general, we are making advances in our products that fundamentally improve the cost structure.
Speaker Change: So while we will, you know, while we will price attractively, you know, price based on value that we add to the end customer, we expect our cost to get continuously better.
Speaker Change: and the combination of which will result in a steady uptick in gross margins for us.
Speaker Change: Our next question comes from Colin Rush from Oppenheimer. Please go ahead with your question.
Colin Rush: Thanks so much guys, you know, just looking at some of the the activity and payments from the Treasury and some of the weather Can you just talk about how healthy the channel is right now? Are you seeing folks with any sort of liquidity issues? You know, what are you looking at in terms of?
Speaker Change: Payables, not payables, but receivables and any sort of issues around some of those kind of medium size installers that you guys work with.
Yeah, I mean, look, we work with distributors.
Speaker Change: So most of our business goes through distributors who are reasonably healthy.
Speaker Change: And to tell you the truth, our receivables, you know, the AR is in good shape.
Speaker Change: It is in good shape in Q4 as compared to Q3.
Speaker Change: is in the channel. You asked me a question, how is the health of the child?
Speaker Change: Enphase manages the channel inventory closely. I mean, installers do, you know, are having a difficult time. There is no question.
Speaker Change: There is no question that installers are having a difficult time, there is, you know, cash flow to installers is always a problem.
Speaker Change: Right, and now the business has moved for predominantly from loan to lease. There are a lot of new players coming. There are established players of course.
is always an issue.
It weeds out the weak players.
Speaker Change: and then the industry generally becomes stronger. But what the industry needs in order to improve steadily in 2025 is improved quality, improved service.
better and more stable financing options.
They're all required.
Speaker Change: So, I won't sugarcoat it that everything is okay. It is a stress time. Bright spots are in California. Things are stabilized.
Speaker Change: I'll talk about the L.A. fires briefly as well. You know, a lot of questions on whether the L.A. fires is causing a problem, causing a disruption. Of course, it is unfortunate, you know, tragic.
Speaker Change: However, the LA fires probably caused a disruption for a couple of weeks, but now we find that the activity is back in full flow in that region.
There were about 10 plus zip codes that were affected.
and Faith Holmes.
Speaker Change: In those regions, you know, about 500 homes with Enphase solar and storage were damaged.
Speaker Change: But overall, those zip codes only had a couple of thousand homes.
Speaker Change: So, limited exposure and those are in the process of rebuilding.
The installers had that problem, but in general, California has...
Speaker Change: has, I would say, bounced back from before. I don't find installers
Speaker Change: saying, I don't know how to sell an M3. On the contrary, they are getting more confident.
Speaker Change: They know how to sell neem tree. Outside California, it's still tough.
because the economics in many places aren't there due to
Speaker Change: low utility rates. The economics aren't, I mean are weak. The East Coast is doing relatively well again due to high utility rates.
Narayanan Kothandaraman
Speaker Change: Thanks so much. You know, and just as you transition to the IQ9 and change some of the componentry, can you talk a little bit about any sort of issues around tariffs and any sort of supply chain elements that you have to navigate here or at risk as you start looking at production of that new product?
Speaker Change: Yeah, look, I mean, the phenomenal thing our team has done, our operations team has done is...
We don't expect any impact on tariffs for microinverters.
Speaker Change: because over time we have diversified the supply chain so much.
We are manufacturing now in the U.S.
We are manufacturing in Chennai, India.
Speaker Change: So you could ask us saying, how about the raw materials that come in from China?
Speaker Change: into the U.S. I mean we have reduced that exposure to...
very limited
So basically...
Speaker Change: It is a non-issue and I expect it to be a non-issue for IQ 9 as well.
Speaker Change: If your question is about GAN, and GAN, you know, the gallium supply chain, that's also a non-issue. Our suppliers...
Thank you.
Speaker Change: Our suppliers, predominant supplier that we will use is based in Europe.
Speaker Change: and you know another supplier based in North America as well as Japan.
Speaker Change: So our exposure is limited and in fact I would say we are not worried about it.
for 8Q9.
Zachary Freedman, Badrinarayanan Kothandaraman Zachary Freedman, Badrinarayanan Kothandaraman
Speaker Change: Our next question comes from Andrew Poracco from Morgan Stanley. Please go ahead with your question.
Great. Thanks so much for taking the question.
Andrew Poracco: Maybe just switching gears a little bit, Dr. Yusuf, I'm pretty confident in terms of the outlook for the industry and your business overall. I'm just curious, given your balance sheet position, given where the stock is, is there an opportunity to maybe lean into buybacks more heavily or capital return more heavily, just given maybe a dislocation in what you view?
Andrew Poracco: that the intrinsic value of the stock and where the stock's trading and just given the balance sheet and the outlook for the business that you've kind of portrayed over the balance of this call.
Andrew Poracco: Right, I have articulated our strategy there before. Let me let me tell you that again, we first
Andrew Poracco: We take care of the needs of the business. Number one, we ensure that all of the capital needs
Andrew Poracco: for the business are taken care, whether if we want to buy something for manufacturing batteries in the US, manufacturing microinverters in the US, increasing capacity,
Um, you know.
Andrew Poracco: diversifying with one more contract manufacturer buying test capacity, all of those
That's our first choice for buying new pieces of software.
to make the company run better.
Andrew Poracco: So that's our first priority. If we have enough left over...
Andrew Poracco: you know left over from there we look for M&A, M&A opportunities, M&A opportunities that increase the total value
Andrew Poracco: of the company, what kind of opportunities are out there. New technology on batteries, new technology on home energy management, maybe looking more into the commercial, you know, commercial front, small commercial.
Andrew Poracco: where I think we could use some. So we look at that.
and many of them, I mean, we'll...
Over time, we've become allergic to
Andrew Poracco: Big acquisitions we'd like to do, small teams, bolt-on acquisitions is what we would like to do.
and then once these two
is below a conservatively estimated intrinsic value, then we buy.
Andrew Poracco: stock. So last quarter you'll be happy to note that we we bought close to 2.8 million shares. We thought it's a good use.
Andrew Poracco: So we spent about $200 million in cash buyback. In the past, we had done up to $100 million per quarter.
Andrew Poracco: and so we plan to do that with the guidance from our board. We plan to have the same strategy and if we believe the share prices are undervalued, which we think they are, and you can expect similar action from us going forward.
Zachary Freedman, Badrinarayanan Kothandaraman
Speaker Change: Our next question comes from Christine Cho from Barclays. Please go ahead with your question.
Good evening. Thank you for taking my question.
Christine Cho: You talk about piloting with the California utilities for the meter-caller. I think I had heard that the back-and-forth between Tesla and the utilities had taken some time for their meter-caller, and maybe it's just going to be longer because they were first. But how long are you expecting your pilot to take? And then I'm sure you need their approval, but can you just walk through what other steps are needed before you can start selling them and the expected timeline?
Christine Cho: Sure, there is a prescribed timeline that is proposed by the...
Public Utilities Commission.
Christine Cho: Of course, I will not comment about anything that happened before. Our experience thus far has been generally very positive. They've been very engaged with us. You have to get through all your certifications first. First and foremost, you have to get through the primary UL certification, which we completed. That in and of itself is a pretty big deal.
Christine Cho: Once you're through that, they have additional tests that they want to do, both at the meter-caller level, which is the unit level, as well as the system level.
Christine Cho: And that's the process that we are in. There's a lot of discussion that happens with their engineering teams in order for us to explain to them how the device works as well as how the entire system works. And then we go through systemic testing with them. Each utility is slightly different than the other. So we are working with all three of the IOUs simultaneously, and they're at different stages of testing.
Christine Cho: That's about what I can say thus far, but our experience has been thus far quite positive.
Okay
Speaker Change: And then just moving on to the safe harboring, the $95 million that you mentioned, was that mostly in response to the domestic content updates that came out last month? And the desire to safe harbor under the old DC table, since you only have like 90 days?
Speaker Change: to do that, or was it driven by, you know, section, by, you know, everything going from section 48 to 48E or something else, so just any color there would be helpful.
Speaker Change: Yeah, I think it was mostly a risk mitigation strategy overall.
It could include domestic, it could include ITC, etc.
Speaker Change: Our next question comes from Praneeth Satish from Wells Fargo. Please go ahead with your question.
Praneeth Satish: Thanks, good evening. Just on the fourth generation battery, I think you previously indicated that the pilot would start in Q4. Now it looks like it's starting.
Praneeth Satish: in Q1 or March. I guess what drove that that slight shift in timing and then how should we think about the timeline for ramping battery sales? I guess at what point do you think you could see the next-gen battery cross over 50% of your battery mix? Could that happen in in Q2 or Q3 of this year?
Yeah, I mean, we always told you...
Praneeth Satish: the first quarter. So we are we are exactly there. We did not talk about K4.
Praneeth Satish: So, now the next question is when do you think we will ramp and how much and when we will get to 50% we expect, you know, assuming the piloting goes well.
and we expect to start ramping in Q2.
Praneeth Satish: and typically in our experience it takes a couple of quarters.
Praneeth Satish: for us to ramp to the 50% level and maybe one quarter more to 80% level. That's been our experience. This is a new product, so there could be something more unique there, but this has been our experience.
Speaker Change: Okay, that's helpful. And then, you know, the timing between your battery generations, from what I can tell, kind of looking historically, it's been around
Praneeth Satish: three, four years. But now you're talking about a fifth generation battery just one year after the fourth generation launch.
Praneeth Satish: I guess what's driving this acceleration in your product development cycle? Are you seeing competitors iterate at the same speed?
Praneeth Satish: And if not, if you're releasing new generations of batteries faster than peers, then can we expect to see the gross margin just continue to climb, at least on the battery side, over the next two to three years?
Praneeth Satish: Yeah, I mean, just for reference, we released a third-generation battery in June of 2023.
Praneeth Satish: So we are talking about Q1 and that's approximately let's say 18 to 24 months.
2020
Praneeth Satish: That was, we started shipping in Q3 of 2020. Within about 18 months, we launched the second generation.
Praneeth Satish: and then, like what I said, the third generation in June of 2023.
we have become
Praneeth Satish: We have become better at you know doing these batteries. We have an expert team now which understands how to do this IP both hardware
software app
Praneeth Satish: and there is a lot of complications. Sometimes we fall flat.
Praneeth Satish: You know sometimes we miss our commitments, but we have generally gotten
more confident. So our fifth generation battery
Praneeth Satish: We, like the one I said, is coming out in Q126.
That one we started working on over a year ago.
It usually starts off in the CTO team.
Praneeth Satish: and then we do essentially technology feasibility, then a small team starts off and then we officially kick it off. So it's not new, there is always overlap like what I said, we work on both N and N plus 1.
at any point in time.
Praneeth Satish: So, that's why we think we will get on, we will lock ourselves on to that time frame, 12 to 18 months, you should expect from us, a steady cadence of batteries coming out.
Speaker Change: Our next question comes from Mark Strauss from JP Morgan. Please go ahead with your question.
and Zachary Freedman.
Speaker Change: Great. Thanks for taking our questions. Helpful call. I just have one quick question remaining.
Speaker Change: When you look at the Safe Harbor activity that's in the 1Q and 2Q guide this year,
and maybe even kind of your safe harbor activity pre-IRA.
Speaker Change: Is there anything to call out as far as both gross and operating margins, you know, should we assume that those kind of align with corporate average or anything that we should be adjusting for in our model?
Speaker Change: Now you should just be assuming they are at our usual gross margins.
Thank you.
Speaker Change: Our next question comes from Kashi Harrison from Piper Sandler. Please go ahead with your question.
Kashi Harrison: Good afternoon and thanks for taking the questions. I just want to go back to the original questions earlier in the call just to make sure we're all on 100% the same page.
Kashi Harrison: So, you mentioned $95 million of safe harbor that you booked that in 4Q, you know, you highlight $50 million in 1Q. So should we expect the rest of the 45 to roll over in 2Q, or are you saying that there's some other dynamic we need to be thinking about? No, you're right. It will roll over into Q2.
They are too cute, okay
Speaker Change: Thank you. And then just one follow-up on the domestic content front. Can you speak to what you think the net cost of your system is?
Speaker Change: Now that you could theoretically qualify for both the solar and the storage side and how that would compare to the net cost of
Speaker Change: We do qualify today. Our domestic content is well more than 40% on batteries.
Speaker Change: today. So we do qualify already. We are making those batteries in Texas. We shipped 6.7 megawatt hours of batteries in Q4. We expect to ship a lot more in Q1.
Speaker Change: Our next question comes from Joseph Asha from Guggenheim. Please go ahead with your question.
Joseph Asha: Thank you. Just one question for me as it relates to the return of capital. I'm curious if all of you have contemplated simply just making a commitment to repurchase a certain amount of stock per year regardless of the level, as opposed to some of the timing activity you've been engaged in. Wouldn't that make more sense?
Joseph Asha: No, I think I told you our strategy is very, very, very simple, very clear. First take care of the needs of the business, take care of M&A's and then, then you know, if
Joseph Asha: If money is left, we look at buying at a conservative amount, below the intrinsic value. Okay, perhaps I misspoke. Obviously, you need to take care of the business first. We did that exactly and you...
Joseph Asha: And if you saw, we did about 200 million dollars of buyback in Q4. We've been very steady.
Joseph Asha: In the past quarters in 2024, we did approximately up to 100 every quarter and we plan to execute a similar strategy with the approval of our board in 2025.
Okay, thank you.
Speaker Change: Our next question comes from Mahib Manboi from Mizuho. Please go ahead with your question.
Mahib Manboi: Hey, thanks for taking the question. Just on the Safe Harbor, it's hard to think about that, but do you know if the Safe Harbor is financed by third parties or directly to the company?
Mahib Manboi: Thank you for joining us on European vs. Margin. It looks like European vs. Margin is slightly lower than US, but it's still there.
Mahib Manboi: We could not hear that question well, but if you're asking about customer details, we aren't going to be talking about customer details.
Speaker Change: Got it. Now the second part was just on the European gross margins versus the U.S. gross margins.
Speaker Change: Yeah, you know, in the past I've clarified it, the European gross margins are at similar levels as the U.S. gross margin, our pricing strategy is the same, our prices are also approximately the same list prices of distributors.
Speaker Change: Our next question comes from Dylan Nisano from Wolf Research. Please go ahead with your question.
Dylan Nisano: Yeah, hi. Thanks for taking my question. Can you just talk a little bit about what kind of trends you might be seeing with market share across battery markets, solar only markets, and then specifically within the TPO players?
Speaker Change: We don't really comment about market share, but in general, what we can...
Speaker Change: say is that, you know, especially as you look at the Gen 4 product that's coming out, the Generation 4 product is not just the battery, to be very clear. It is the battery, it's the new combiner, which has a whole host of new capabilities.
Speaker Change: It's got a substantial amount of integration that, as we talked about, that system controller that we had previously that was doing the actual, what's called the microgrid interconnect device function, all of that has been significantly simplified.
reduction in cost to the installer.
Speaker Change: It's a combination of both savings in labor by going to the meter-caller as well as the savings in the product cost as well.
Speaker Change: So, just by moving to that new technology, you're seeing substantial amount of savings. So, what that allows us to do is be very competitive, not just in the grid-type case, which we were, which we have always been even with.
Speaker Change: the third generation system, now we are very, very competitive even with the backup scenario while retaining all the benefits of the end phase system, which is the reliability piece, the safety piece, the simplicity piece, and the performance piece.
Speaker Change: So, I think the next generation product is going to make a big difference in terms of how we are, how competitive we are even in the backup scenario.
Speaker Change: and there are a few third-party reports if you're interested at that if you're if you want to take a look at our share I would refer to those then there are multiple of them and each of them having their own way of looking at it so you should take a look at that
Great, thank you. I'll take the rest offline. Thank you.
Speaker Change: Once again, if you would like to ask a question, please press star and one. To withdraw your questions, you may press star and two. We do ask that you please limit yourselves to a single question and a follow-up.
Speaker Change: Our next question comes from Gordon Johnson from G.I.J. Research. Please go ahead with your question.
Gordon Johnson: Hey guys, thanks for taking my question. A lot of them have been answered, but I'm just looking at some of the specific data for the California solar initiative.
Gordon Johnson: And it shows Tesla's Powerwall gaining significant share in the storage space and them also taking share in the inverter space And I just wanted to know if you guys are still seeing those trends continue or you're taking share back from them And then I have another question
Gordon Johnson: yeah like like you know what I what I said we don't comment on competition we are focused on making best-in-class products
Gordon Johnson: We, you know, we had talked about our battery being very popular for grid-tied applications in California. With the fourth generation product, we will not only be best in class for grid-tied, we will also be best in class for backup.
and that has been one of our limitations till now.
Gordon Johnson: and we are going to unleash or unblock that limitation very very soon. So we are we are we are excited there. Our battery is a modular battery so you don't need to buy a you don't need to buy
Gordon Johnson: 13 or a 26 kilowatt hour. You can buy 15 kilowatt hours, you can buy 20. So how does a modular solution
Gordon Johnson: and it will be very cost effective. Now coming on the micro side, I talked about it extensively in prior calls, the value proposition of our microinverters are superior power production.
shading, you know, it will, it compensates, meaning
Gordon Johnson: Shading usually can cause a power production that is dramatically lesser. Microinverters optimized at the per panel level and therefore able to really maximize the energy production.
Gordon Johnson: and then single point of failure, a 25-year warranty versus a 10-year warranty.
Gordon Johnson: serviceability is a big deal when you have a monolithic structure in the battery
Gordon Johnson: and you have to replace your entire battery, it's tough to do that. It results in weeks and months of non-performance for the homeowner. Ours comes with serviceability. I'm proud to say 95%
Gordon Johnson: of the issues in our battery systems can be solved in situ.
Gordon Johnson: In-situ means our field service goes and he just replaces a $40 board instead of taking a $5,000 battery off the wall.
Gordon Johnson: And so we have numerous, numerous, you know, advantages in terms of modularity, simplicity, warranty, safety, and serviceability.
Gordon Johnson: and then the other two things which I talked about which are not to be discounted.
Gordon Johnson: the ones we introduced in Q4, we introduced something called as a Busbar PCS, Busbar Power Controlled Software.
eliminating main panel upgrades 95% of the time.
Gordon Johnson: And so our installers are very happy with that. They are starting to use that for every design, and it maximizes the ability, or it maximizes the size of the solar plus storage system.
Similarly, one more thing that we introduced
Gordon Johnson: Another big deal is as users, you know, they have higher consumption because they bought an EV or something, they want to expand their legacy systems, we basically provide them a very simple solution once again with power control software.
Gordon Johnson: in our Enphase Power Control software enables you to do NEM expansion without losing the benefits of your legacy system.
So we introduced Zach also in the fourth quarter.
Gordon Johnson: A lot of benefits working with Enphase. Most important, we will take care of our installers.
Gordon Johnson: and if there is any shortage, you know, supply shortage, they can count on us.
Take care of them.
Zachary Freedman.
Speaker Change: Our next question comes from Austin Moeller from Canaccord. Please go ahead with your question.
Austin Moeller: Hi, good afternoon. So just my first question here. In Europe, the data that we've collected on electricity rates shows that key markets like France and Germany are still relatively stable. Where do you see electricity rates in Europe needing to go to catalyze a demand recovery there?
Austin Moeller: Yeah, you know, maybe you should check your data. February 1st in France.
electricity rates came down by 15%.
Austin Moeller: on February 1st. So that is going to create a headwind for some time. However, you know, that market is a very attractive market, meaning only, you know, very limited solar penetration so far.
is becoming lesser and lesser. So it's an opportunity.
Austin Moeller: for where we excel, which is solar, plus batteries, plus our EV chargers, plus home energy management. In home energy management...
Austin Moeller: Hot water heaters are a big part of the equation. We are going to be introducing green heating option, which is when you have a small feed-in tariff, you don't want to export any solar back to the grid. You want to utilize every ounce of solar.
Austin Moeller: and therefore we divert, we steer the excess solar onto the hot water heater and increase the self-consumption.
Austin Moeller: So, we are, you know, we are working on introducing comprehensive home energy management solutions to every country.
Austin Moeller: across Europe because that's how we see the market evolution and net metering while everybody has enjoyed net metering for a while, the practical reality is it will go away sometime or the other.
Austin Moeller: And, you know, we can come to the rescue, still save money for homeowners with solar, with battery, with EV chargers, with home energy management.
Austin Moeller: and you know that's how I predict markets will evolve. It may not evolve immediate future but that's where the trends are going.
Speaker Change: Great. And just to follow up, in line with your discussion of a shortage of power in the near term,
Speaker Change: Do you think that there could be a demand for solar plus battery in states like Texas or Tennessee, where they have an electricity cost of 15, 14 cents per kilowatt hour, purely because there's a large number of data centers geolocated there?
Speaker Change: Of course, right, as we have talked about this, the demand for energy has not changed.
Speaker Change: There is substantial demand behind the meter as well as people are electrifying with the combination of EV charger and heat pumps.
Speaker Change: When you mention a state like Texas, as well as, for that matter, even in Europe,
You know, those are deregulated markets.
Speaker Change: One of the big advantages of a solar plus battery system or solar plus battery plus EV charger system is for these distributed energy resources to participate in markets.
Speaker Change: If you have a really smart, AI-based energy management system like what we do,
Speaker Change: when to charge the battery, when to discharge the battery, when to charge your EV, when to buy from the grid, when to sell to the grid, and we can generate substantial amount of savings as well as in some cases revenue for the homeowner.
Speaker Change: So, you're seeing that as a pretty significant play in a number of countries in Europe as well as in places like Texas.
Excellent. Thanks for all the details.
Zachary Freedman, Badrinarayanan Kothandaraman
Speaker Change: And our next question comes from Jeffrey Osborne from TD Cowan. Please go ahead with your question.
Jeffrey Osborne: Thank you. Just two quick ones, Badri. I was wondering, I think in Q4 there was 1.7 million microinverters that received a 45x credit, and then you got it to 1.2, but the safe harbor is ramping in Q1. So did you get paid on production, and then
Jeffrey Osborne: I'm just trying to understand what's going on with the manufacturing credit in particular and the seasonality between Q4 and Q1. Yeah, I mean look our folks are usually a little conservative when we give you this.
Jeffrey Osborne: The necessity to balance manufacturing across worldwide comes into play. When we say 1.2, we mean 1.2 is from the U.S. facility.
Jeffrey Osborne: That means the balance is covered by elsewhere, such as India. Of course, there is a desire to maximize profit dollars, but we have to be cautious because we need to be running balanced global manufacturing.
That's right.
Speaker Change: Is there any downtime in Q1 or anything, or I'd imagine that would ramp up through the year now?
No, I mean that number will fluctuate.
Speaker Change: depending on how we are able to load and how we are able to provide best-in-class service to customers. For example, sometimes we find that for short lead time orders, making it in our India factory and shipping it to Europe provides best results.
Speaker Change: and we just cannot idle factories and expect them to start back up later so best practice is that you should view Q4 as a little more upside and then you should you should view Q1 as conservative.
Speaker Change: Got it. And the last question I had is I think Mandy mentioned $110 million of prepayments in Q4, but the safe harboring was for $95. What are the other types of products that you receive prepayments for?
Speaker Change: Well, in general, we do have prepayments, you know, customer prepayments depending on their credit terms. But, however, in this case, you know, there were some customers who did want to place small amounts of orders so that they can secure.
Speaker Change: secure their capacity and those we view as run rate business to be consumed in the next one to two quarters so that makes up for the balance.
Speaker Change: Maybe the $15 million could be consumed in less than the eight quarters but maybe some of your peers might categorize that as safe harboring or at least under the letter of the law given the cash changed hands and prior to the end of the year is that the right way to think about it? It's possible and we expect not a I mean we expect less than two quarters.
Thank you, that's all I have.
Speaker Change: And ladies and gentlemen, at this time we'll be ending today's question and answer session. I'd like to turn the floor back over to Badrinarayanan Kothandaraman for any closing remarks.
Speaker Change: Thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter. Bye.
Speaker Change: And with that, ladies and gentlemen, we'll conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.