Q1 2025 Enphase Energy Inc Earnings Call
Good day and welcome to the Enphase Energy's first quarter 2025 financial results call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note that this event is being recorded.
Zach Friedman: I'd now like to turn the conference over to Zach Friedman. Please go ahead.
Badri: Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's first quarter 2025 results on today's call are Badri, Cassandra Robbins, President and Chief Executive Officer, Andy Yang, Our Chief Financial Officer, Craig <unk>, our Chief products Officer.
Badri: After the market closed today Enphase issued a press release announcing the results of its first quarter ended March 31, 2025. 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 and capabilities of our technology and products and the benefits to homeowners and installers our operations.
Badri: Including manufacturing customer service and supply and demand anticipated growth in existing and new markets and timing of new product introductions, and regulatory tax tariffs and supply chain matters.
Badri: These forward looking statements involve significant risks and uncertainties and our actual results and the timing of events could differ materially from these expectations for a more complete discussion of the risks and uncertainties. Please see our most recent Form 10-K, and 10-Qs filed with the SEC.
Badri: We caution you not to place any undue reliance on forward looking statements and undertake no duty or obligation to update any forward looking statements as a result of new information future events or changes in expectations. Also please note that financial measures used on this call are expressed on a non-GAAP basis, unless otherwise noted and have been adjusted to exclude certain charges. We have provided a reconciliation.
Badri: Filiation of these non-GAAP financial measures to GAAP.
Badri: Measures in our earnings release furnished with the SEC on form 8-K, which can also be found in the Investor Relations section of our website.
Patrick: Now I would like to introduce Patrick cofounder, Robyn, our president and Chief Executive Officer Audrey.
Patrick: Good afternoon, and thanks for joining us today to discuss our first quarter 2025 financial results.
Patrick: We reported quarterly revenue of $356 1 million shipped approximately 153 million micro inverters and honored 71 megawatt hours of batteries.
Patrick: And generated free cash flow of $33 8 million.
Patrick: Our Q1 revenue included approximately $54 million of Safe Harbor.
Patrick: As we exited Q1.
Patrick: Battery channel inventory was normal Y level micro inverted channel inventory was a little elevated.
Speaker Change: For the first quarter, we delivered 49% gross margin, 22% operating expenses and 27% operating income all as a percentage of revenue on a non-GAAP basis, and including the metal you're already benefit Mandy will go into our financials later in the call.
Speaker Change: Our customer service NPS kind of steady at 77% in Q1 as compared to 78 in Q4. The average call wait time increased slightly to three minutes largely due to the winter storms in the U S. We are continuing to invest in AI and machine learning to make our support experience faster.
Speaker Change: Smarter and more helpful.
Speaker Change: Let's comment on operations, our global capacity is around 725 million migraines per quarter $5 million of those out in the U S.
Speaker Change: Q1.
Speaker Change: We shipped approximately one point to 1 million micro Inverters from U S contract manufacturers booking 45 X production tax credit.
Our domestically produced micro inverters residential lease slash PPA providers and commercial asset owners to qualify for the 10% domestic content ITC adder we.
Speaker Change: We expect to ship approximately 1 million micro inverters from the U S in Q2.
Speaker Change: Q1 was our second quarter.
Speaker Change: The IQ batteries in the U S. Using domestically manufactured micro Inverters battery management systems and packaging, while sourcing sell backs from China, We shipped 44 megawatt hour batteries from our Texas facility a strong step forward as we continue.
Speaker Change: Scaling U S production.
Speaker Change: Let's call it are tenants.
Speaker Change: The newly announced 145% tariffs on products from China, along with the 10% Brazil.
Speaker Change: On imported from other countries is expected to have minimal impact on our micro inverters and accessories. Thanks to the excellent work our team has done to diversify that supply chain. However, our batteries will be more impacted as we currently source battery.
<unk> from China.
Speaker Change: These tariffs are expected to reduce our gross margin by approximately 2% in Q2 of 2005 the.
Speaker Change: The effect of the tentative is limited in Q2 due to us having pre tariff inventory.
Speaker Change: Starting in Q3, we anticipate a six to eight total gross margin impact after accounting for pricing adjustments, we expect the gross margin impact gradually lessen.
Speaker Change: Over the subsequent quarters as our mitigation efforts.
Speaker Change: We are moving with urgency.
Speaker Change: We have already identified 10 different sourcing options outside China, and we are fast tracking the qualification.
Speaker Change: These efforts are progressing quickly and we expect to fully offset the impact starting in Q2 2006.
Speaker Change: As always status policy remains fluid and may evolve with future government decisions.
Speaker Change: Let's come to the reagents.
Speaker Change: U S and international revenue mix for Q1 was 74% and 26% respectively in the U S. Our revenue decreased 13% in Q1 compared to Q4, primarily due to seasonality and softening in customer demand, partially offset by the safe Harbor revenue off of $4 million.
Speaker Change: The overall sell through of our products was down 18% compared to Q4. In addition to seasonality and installation activity was negatively impacted by one of the larger national lease providers facing financial challenges.
Speaker Change: The U S solar market remains under pressure from my interest rates and many installers lease providers and distributors are navigating through a tough environment that said there are some encouraging signs in California installers are growing more confident selling them $3 those systems.
Speaker Change: Followed by strong battery attach rates at the same time power prices continue to rise across several key regions. We are staying focused on product innovation quality and customer experience our <unk>.
Speaker Change: Upcoming fourth generation battery is a design to lower total system costs for the backup our complementary offerings like bus bar PCF and NIM expansion software to help customers unlock even more value.
Speaker Change: In Europe, our revenue increased 7% in Q1 due to shipping the flex phase battery in Germany as compared to the prior quarter.
Speaker Change: One our overall sell through declined a living by about 9%.
Speaker Change: The overall business environment across the region.
Speaker Change: Challenging, but we are maintaining our discipline in controlling the channel as well as expanding our served available market by introducing a number of new products.
Speaker Change: And additional color on our key markets in Europe, the Netherlands, France, Germany, and UK and Netherlands, the demand softened slightly in Q1 in line with typical winter seasonality. The market continues to shift from solar only the solar plus battery solutions, which help avoid export penalties and enable participation.
Speaker Change: And retail energy markets, we started shipping our new IQ EV charger into the region and recently introduced backup capability for our batteries further strengthening the value proposition.
Speaker Change: In France, the market has slowed down following the recent utility rate caps and we expect the demand to be muted over the next two quarters. However are significantly lower VAT is set to begin in October Richard helped spark a rebound in solar brand remains a key long term.
Speaker Change: Growth market for us given our leadership position and the countries low solar penetration.
Speaker Change: We started shipping out of new IQ EV charger into France, and we also plan to introduce hot water heater compatibility in the second quarter, allowing homeowners to increase their self consumption.
Speaker Change: We also added backup capability for our batteries further strengthening resilience offering.
Speaker Change: In Germany, we are ramping sales of <unk>.
Speaker Change: New IQ battery <unk> with flex space and the new IQ EV charger.
Speaker Change: Typical installations.
Speaker Change: Three phase in Germany, and we are seeing at 30% backup backup attach for our batteries are strong indicator of the growing demand for resilience.
Speaker Change: We are also preparing to launch our balconies solar product eminently in Germany in Q2, which expands our addressable market by approximately 400 megawatts annually. We believe these product introductions position us well for meaningful growth in both sell in and sell through or what are the key.
Speaker Change: <unk> quarters the.
Speaker Change: The UK market continues to perform well for us as we strengthen our relationships with the retail energy providers in the region. We already started shipping out of the USA to EV Charger and we plan to introduce backup capability in Q3 of this year further expanding our energy resilience offering.
Speaker Change: We remain underpenetrated in several European countries, including Italy, Spain, Belgium, Luxembourg, Switzerland, Austria, Sweden, Poland, and others, and we see them as important pillars of our long term growth strategy over the coming months, we plan to introduce a full product.
Speaker Change: Portfolio across more of Europe, including IQ Micro Inverters IQ battery flex space with backup our latest and the greatest EV charges.
Speaker Change: <unk> power and energy management software and the solar installer platforms.
Speaker Change: We continued to make steady progress in other regions in Puerto Rico, we are seeing a very sharp rise in demand for our higher domestic content battery driven by an increased need for resilience and India sales of our IQ eight micro Inverters continue to grow and we are also shipping out in batteries into the region. We are in.
Speaker Change: Courage by the early signs of strong product market fit in both the urban and rural areas in Brazil, New fire safety recommendations, such as rapid shutdown should support continuous growth of our IQ eight PV micro inverters.
Speaker Change: Now, let's turn to our Q2 guidance.
Speaker Change: We expect Q2 revenue to be in the range of $340 million to $380 million. This includes approximately $40 million in.
Speaker Change: In Safe Harbor revenue, which we define as sales made to customers who plan to install the inventory over more than a year. We are currently about 80% booked to the midpoint of our revenue guidance.
Speaker Change: Ikea in batteries, we expect to ship between 160 and 180 megawatt hours during the quarter.
Speaker Change: Let's talk about new products as starting with thank you batteries.
Speaker Change: Generation <unk> battery is all set to ramp up production in this quarter.
Speaker Change: This system includes the ICU beds in Tennessee, the ICU combined out of <unk> and the major color.
Speaker Change: The ICU battery tenancy delivered the same 10 kilowatt hour capacity.
Speaker Change: While using 60% less in wild space. Thanks to its fully integrated battery management and power conversion when paired with IQ combined around the color that system significantly simplifies backup eliminating the need to relocate load instead.
Speaker Change: Installed current Transformers are run high current Whiting for both homeowners and installers the improvement in substantia, what once took full boxes on the wall can now be done with just two we have successfully completed the required meter Carla testing with <unk> and Ford.
Speaker Change: Eternity companies, we expect to begin pilots in May.
Speaker Change: We have now expanded data micro inverters family into 58 countries and plan to grow that number further by the yen in Japan, we expect to begin production shipments. This week through our distribution agreement with Itochu Corporation, one of the country's largest trading companies recently.
Speaker Change: Lead Tokyo became the first Japanese city, the mandate rooftop solar on new Homebase, given the typically small roof areas in Tokyo system design can be complex, which is exactly ran our enphase IQ eight micro inverters schein offering the flexibility and scalability needed to maximize production and reliability.
Speaker Change: For memory rooftop.
Speaker Change: In Q2, we plan to launch our IQ balcony solar product in Germany, and Belgium.
Speaker Change: With additional countries in Europe, and Asia to follow in 2025.
Speaker Change: The product offers a simple efficient way for apartment dwellers to harness solar energy from their balcony.
Speaker Change: Built on our proven AC coupled architecture. The system allows the users to plug in one to vote panels directly into our standard one outlook. We plan to offer a pre wired kits that include IQ micro inverters and the balcony gateway, enabling fast setup and seamless monitoring through the <unk>.
Speaker Change: Phase that in the event of a grid outage. The system also supports sunlight backup via an auxiliary socket located on the EQM balcony gateway product.
Speaker Change: Let's come to our IQ AP three P commercial micro inverter a product that is steadily gaining traction we have over 650 commercial sites live across the U S.
Speaker Change: Averaging about 35 kilowatts per system with consistent positive feedback from the field.
Speaker Change: These three finished micro inverters now shipped from the U S with increased domestic content that qualify for the 10% ITC added a meaningful advantage for commercial asset owners.
And we expect the momentum to grow with the upcoming ICD nine micro inverter, which is purpose built for <unk> three phase systems unlocking even more of the commercial market.
Speaker Change: Let's talk about ICD nine.
Speaker Change: So <unk> nine micro inverters that are powered by cutting edge gallium nitride technology. These micro inverters are engineered for the future with support for <unk> period of DC input color higher AC voltages and three phase configurations.
Speaker Change: Designed specifically for small commercial systems IQ nine will support 48 rewards AC the most common commercial mortgage in the U S. The first models will deliver peak output power, a 427 watts and 548, what's making them ideal for bearing with today's most powerful residential and commercial.
Speaker Change: <unk> solar panels.
Speaker Change: IQ nine use this gan based bi directional switches that allow us to reduce conduction losses and increased power density. While we are currently operating at similar switching frequencies to maintain compatibility with our existing transform designed gallium nitrate again.
Speaker Change: <unk> gives us the foundation to enable much higher frequencies, and even greater efficiency and future products like ICD 10.
Speaker Change: Thanks again.
Speaker Change: <unk> already delivered efficiencies that meet or exceed prior generations with a fleet compact footprint, we expect to begin internal installations at enphase facilities.
Speaker Change: Ahead of our full production launch in Q4.
Speaker Change: On the portable power front, we began shipping the IQ powder back 1500 to customers in the U S and Canada.
Speaker Change: This compact one five kilowatt hour solution brings together, our core strength and faith in our bumps, which is advanced power electronics battery management and intelligent software into a smart portable product designed for home backup travel and emergencies.
<unk> marks our entry into the portable consumer energy market, we see this as a meaningful growth vector and plan to expand the product family in 2025 to address many more use cases and reach many more countries.
Speaker Change: Let's dive into EV charging in late 2024, we began shipping our next generation IQ EV charger.
Speaker Change: In Europe, we have now active in 14 countries across the region.
Speaker Change: This is one of our most advanced residential Chargers till date designed to work seamlessly with the Enphase energy system or as a hybrid <unk> standalone system.
Speaker Change: Features like Green charging helps homeowners maximize solar usage, while intelligence scheduling reduces energy cost during peak hours delivering both sustainability and savings. We are excited to expand the availability of the IQ EV charger throughout this year into more European countries.
Speaker Change: As well as into Australia, Brazil, India, and the U S, where we will position it as a premium feature rich offering with strong early momentum, we expect continuous growth this year and beyond.
Our IQ energy management software supports grid services programs.
Speaker Change: In regulated markets like the U S and the energy market participation in deregulated markets like Europe, and Australia, and the U S. We are active in 'twenty six programs across key states, such as California, Colorado, Massachusetts, North Carolina, and Texas. These programs discharge batteries during peak demand.
Speaker Change: Supporting the utilities as electricity rates become more complex.
Speaker Change: We believe our AI powered software differentiates us maximizing ROI and reducing the payback period.
Let's cover solar graph, our all in one installment platform, we are investing in major enhancements, including a one click X presented to offer customized proposal, Jim AI powered in Napa system integration with racking and expanded C&I capabilities, all aimed at making solar glass, even more due to the black.
Speaker Change: <unk> is now available to residential and commercial installers in the U S, Canada, Brazil, Germany, Austria, Netherlands, and France with plans to expand into additional countries in the coming quarters solar graph continues to evolve as a strategic part of our software ecosystem, helping installer sell faster does.
Speaker Change: <unk> market as well as scale efficiently, let me conclude wild.
Speaker Change: While the global policy environment remains fluid with tariffs with interest rates and subsidy is constantly evolving we are moving quickly to realign our supply chain to minimize downside across a range of.
Speaker Change: Scenarios, while we cannot control the macroeconomic conditions, we can absolutely control. Our response this means doubling down on what we are what has always made <unk> successful relentless product innovation world class reliability and exceptional customer service looking ahead, our strategy is clear.
Speaker Change: We are driving revenue growth through a wave of new products, starting with our fourth generation system.
Speaker Change: Which delivers the lowest installation cost of any enphase solar plus battery solution to date in Europe, Our Sam is expanding rapidly with the launch of our flex phase battery with backup the IQ EV charger and the upcoming IQ balcony solar.
Speaker Change: We are empowering installers with tools like NIM expansion software they expand legacy systems bus bar Pcs software to avoid main panel upgrades and dynamic tenant optimization software and European markets to help save money and felt the homeowner and with our upcoming ICD nine micro Inverters, we expect to unlock it.
Speaker Change: 10 gigawatt opportunity in commercial solar while driving cost per watt improvement across our residential business as the world faces.
Speaker Change: Rising power prices and increasing grid instability and face is becoming leaner faster and more innovative.
Speaker Change: Energized by the future and firmly focused on delivering value for our customers partners and shareholders with that I will turn the call over to Mandy for a review of our financials mandate.
Mandy: Thanks, Patrick and good afternoon, everyone I will provide more details related to our first quarter of 2025 financial results as well as our business outlook for the second quarter of 2025.
I'll provide a reconciliation of these non-GAAP financial measures in our earnings release posted today, which can also be filed in the IR section of our website.
Mandy: Total revenue for Q1 was $351 million.
Mandy: Approximately 688 megawatts PCL, Michaeline weathers and $117 one megawatt hours of items in the quarter Q1 revenue included approximately $54 million of Safe Harbor revenue.
Mandy: At December 2024, we find our safe Harbor sales agreement.
Mandy: Approximately $95 million to ship in the first half of 2025 as Patti mentioned, we define safe Harbor revenue any sales to customers, who claimed to install that inventory over more than a year.
Mandy: non-GAAP gross margin for Q1 was 48, 9% compared to 53, 2% in Q4, primarily due to lower bookings of 45.
Mandy: <unk> credit on product mix.
Mandy: Gross margin was 47 point will pencil in for Q1 compared to 51, 8% in Q4.
Mandy: <unk> gross margin without me II NSF, all Q1 was 38, 3%.
Mandy: It was 39, 7% in Q4, primarily due to product mix.
Mandy: And non-GAAP gross margin for Q1 included $37 $9 million of me II.
Mandy: non-GAAP operating expenses were $79 4 million for Q1 compared to $83.3 million for Q4.
Mandy: The decrease was a result of restructuring actions in the fourth quarter of 2025.
Mandy: Operating expenses were $136 3 million for Q1 compared to $143 5 million for Q4.
Mandy: GAAP operating expenses for Q1 included $59 million of stock based compensation.
Mandy: The $1 9 million of amortization.
Mandy: Amortization for acquired intangible assets and $3 2 million of restructuring impairment charges.
Mandy: On a non-GAAP basis.
Mandy: Income from operations for Q1 was $94 6 million compared to $124 million for Q4.
Mandy: GAAP income from.
Mandy: Operations was $31 9 million for Q1 compared to $54 8 million for Q4.
Mandy: non-GAAP.
Mandy: Net income for Q1 was $89 $2 million compared to $125 9 million for Q4.
Mandy: On a non-GAAP diluted earnings per share of <unk> 68 for Q1.
Mandy: <unk> 219, forcing function.
Mandy: GAAP net income.
Mandy: For Q1 was $29 $7 million.
Mandy: Compared with $62 2 million for Q4. This resulted in GAAP diluted earnings per share of 22% for Q1 compared to 45 for Q4.
Mandy: We exited Q1 with total cash cash equivalents with trading cash and marketable securities balance of $1 $5 billion compared to $172 billion at the end of Q4.
Mandy: We paid off the entire principal amount.
Mandy: $112 2 million tiny quantified that can do a much first.
Mandy: As part of our $1 billion share repurchase program authorized by our board of directors in July 2023.
Mandy: We repurchased 1 million 594105 shares of our common stock in Q1.
Mandy: The average price of 60 to.
Mandy: 71 per share in.
Mandy: Total gross profit of <unk> $100 million.
Mandy: The remaining $298 7 million authorized for further share repurchases.
Mandy: In addition, we spent approximately $12 $1 million and we've already shared will cover cases for employee stock vesting and option in Q1.
Mandy: Is that diluted shares by 203358 shares we expect to continue these anti dilution right.
Mandy: In Q1, we generated $48 $4 million in cash flow from operation and $33 8 million in free cash flow.
Mandy: <unk> $17 million of revenue in Q1, and less prepay last quarter.
Mandy: Capital expenditure was $14 6 million for Q1 compared to $8 $1 million for Q4.
Mandy: Now, let's discuss our outlook for the second quarter of 2025.
Mandy: Our revenue for Q2 to be within a range of 343.
Mandy: $380 million, which is.
Mandy: Increased shipments of 160 to 180 megawatt hours I'll buy two bedrooms.
Mandy: Q2 revenue outlook includes approximately $14 million on the Safe Harbor sales agreement signed in December 2024.
Speaker Change: Thanks Gabe.
Speaker Change: Gross margin to be within a range of 40% to 45%, including four percentage points of new parents. Okay.
Speaker Change: non-GAAP gross margin to be within a range of 44% to 47%.
Speaker Change: Okay.
Speaker Change: And 35% to 38% before me.
Speaker Change: Including two percentage points of new talent.
Speaker Change: non-GAAP gross margin excludes stock based compensation.
Speaker Change: Additionally related amortization.
Speaker Change: Please bear with me.
Speaker Change: <unk> to be between 30 and $33 million.
Speaker Change: And that is shipments of 1 million units in Q.
Speaker Change: Q2.
Speaker Change: We expect our debt operating expenses to be within a range of $136 million to $140 million, including approximately $58 million estimated for stock based compensation.
Speaker Change: Acquisition related expenses and <unk>.
Speaker Change: And the.
Speaker Change: I think impairment charges.
Speaker Change: Please.
Speaker Change: Our non-GAAP operating expenses to be within a range of $78 million to $82 million.
Speaker Change: For the year of 2025.
Speaker Change: Our GAAP tax rate of 21% to 23% and our non-GAAP tax rate of 15% to 17%, including Venezuela.
Speaker Change: That I will open the line for questions.
Well begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time.
Speaker Change: Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: We ask that you please limit yourself to one question and one follow up for any additional questions. We ask that you. Please rejoin the queue. We will now pause for just a moment to assemble our roster.
Speaker Change: Okay.
Speaker Change: And your first question today will come from <unk> Satish with Wells Fargo. Please go ahead.
Thanks, Good evening, maybe just starting with the Q2 guidance. So it includes two percentage points gross margin headwind from the tariffs it sounds like that could go to 6% to 8% in Q3. So it would seem as if youre not fully passing through the entire incremental tariff costs to customers and I guess.
Speaker Change: Maybe if you could just talk about what's driving your decision to absorb some of these costs versus passing them through because I would imagine that many of your competitors are also sourcing battery cells from China, maybe if you could talk through that.
Speaker Change: Yes, Youre right.
Speaker Change: Let me give a big big picture first of all.
Speaker Change: Due to these tenants.
Speaker Change: And that is the 145%.
Speaker Change: On imports from China.
Speaker Change: And 10% tariff on imports from other countries so due to that we.
Speaker Change: Glad that our micro inverters and accessories.
Speaker Change: Arent affected much and thats because of supply chain is.
Speaker Change: Has done a fantastic job of diversification global diversification. So that's the first good news.
Speaker Change: On batteries.
Speaker Change: More than 90, and I would venture to say 95% of sales.
Speaker Change: Made in the world.
Speaker Change: Come from China.
Speaker Change: We are no exception.
Speaker Change: We use Chinese sources for the sales tax.
Speaker Change: We have two ways that we produce batteries.
Speaker Change: One is we make batteries overseas the full system.
Speaker Change: And the second is we do.
Speaker Change: Get sell packs into the U S.
Speaker Change: And then we make.
Speaker Change: The entire system the rest of the system.
Speaker Change: Inside the U S.
Speaker Change: As you can see when we bring it into the U S. You have high U S cost of manufacturing.
But you have only on the cell effect that it's coming in plus any associated raw materials that are coming in from China or the other places.
Speaker Change: So.
Speaker Change: Therefore turns out for us that whether we.
Speaker Change: Make it domestically.
Speaker Change: Or whether we make it outside the.
Speaker Change: In the U S our costs.
Speaker Change: Becoming approximately the same.
Speaker Change: And the cost impact is significant.
Speaker Change: Why did we chose yes, we are going to pass.
Speaker Change: A portion of it but we are going to absorb the majority of the impact.
Speaker Change: And why is because first of all we think we can recover this effect.
Speaker Change: A couple of quarters and two to three quarters, that's what we mentioned.
Speaker Change: And what are we doing doing about our job number one.
Speaker Change: These two.
Speaker Change: Yet.
Speaker Change: Cell sources.
Speaker Change: Upside China quantified that's the job number one which we have already identified the sources.
Speaker Change: We are working in aggressive task force mode.
Speaker Change: And we expect to qualify these sources.
Speaker Change: Early next year.
Speaker Change: Therefore, considering that the impact is going to be only for a couple of quarters and our two to three quarters and a couple of quarters two to three quarters.
Speaker Change: We decided we would pass on.
Speaker Change: A portion to the installers.
Speaker Change: And we would absorb the majority ourselves now I've said, 6% to 8% is the total impact.
Speaker Change: In Q3 first of all we arent going to be that much impacted beyond 2% in Q2, because we have three.
Speaker Change: Pre tariff inventory.
Speaker Change: And then from Q3 onwards.
Speaker Change: That basically goes away.
Speaker Change: And we.
Speaker Change: We essentially are going to have an impact of about 6% to 8% as a result of all of these actions.
Speaker Change: We expect that impact the gross margin impact to continuously improve.
Speaker Change: As we go from Q3 to Q4 to Q1 and the impact to become zero in Q.
Speaker Change: Got it.
Speaker Change: Helpful.
Speaker Change: And then just right or wrong, there seems to be a.
Speaker Change: A bit of paralysis on the customer side as we wait for clarity around IRR for the Q2 guide are you accounting for any worsening of demand trends in Q2.
Speaker Change: Wait for clarity or making any adjustments for novo exposure in the guide and then maybe on the flip side do you think that sell through could accelerate in the second half once we get clarity I guess what are you hearing from your dealers on any pent up demand. Thank you.
Speaker Change: Yes.
Speaker Change: I've said, a few things I've said my bookings right now is about 80%.
Speaker Change: So the guidance that we gave.
Speaker Change: We have accommodated.
Speaker Change: That bookings in place, which is actually healthy.
Speaker Change: So that's the first thing yes the.
Speaker Change: Lack of certainty is definitely.
Speaker Change: Definitely a factor.
Speaker Change: One of the large national lease providers as you mentioned in financial trouble is another factor.
Speaker Change: But that financial trouble causes.
Speaker Change: Basically our installers.
Speaker Change: Have difficulty in managing their cash flow.
Speaker Change: When our installers.
Speaker Change: Our difficulty in managing the cash flow the originations suffered.
Speaker Change: In.
Speaker Change: Q1.
Because the originations effort.
Speaker Change: We do not see enough pull through from the distributors to their stores.
Speaker Change: You must imagine lifestyle to be pretty tough for them in terms of cash flow and but but the good news is.
Speaker Change: There are a lot of.
Speaker Change: Lease financing now today compared to what.
Speaker Change: There were two years ago.
Speaker Change: So it is a matter of time.
Speaker Change: Where those installers pick up the alternate finance years.
Speaker Change: And.
Speaker Change: Hopefully lease chart.
Speaker Change: The business again however.
Speaker Change: However, that basically created a gap in Q1 and Thats, what we talked about our sell through was a little lower.
Speaker Change: That normal.
Speaker Change: Having said that we are entering the best best seasonal part of the year.
Speaker Change: Q2 normally is.
Speaker Change: Is the best in terms of seasonality Q1 to Q2 is what I am talking about and for Enphase specifically what.
Speaker Change: We have going for us.
Speaker Change: We expect to ramp up.
Speaker Change: Generation batteries.
Speaker Change: In Q2.
Speaker Change: We expect to ship meaningful volumes in production this quarter.
Speaker Change: And we basically we expect that.
Speaker Change: Costs for our backup installations will be.
Speaker Change: Equally voluntarily as good as.
Speaker Change: Good good almost as good as going to date.
Speaker Change: We have done a great job in gaining market share till now.
Speaker Change: On our batteries supporting growth tight installations with total generation. This.
Speaker Change: Presents a huge opportunity for us to capture.
Speaker Change: The backup market as well with a solution.
Speaker Change: That is low cost earlier.
Earlier, we used to have a lot more components in our third generation system for backup now those will get significantly less because of two things. One is we have the color.
Speaker Change: As we have a 10 kilowatt hour battery now instead of a five kilowatt hour battery, so specifically to enphase.
Speaker Change: We are.
Speaker Change: We are well positioned to capitalize on the battery market.
Speaker Change: We also.
Speaker Change: The clarity.
Speaker Change: In terms of the policy.
Speaker Change: We're definitely.
Speaker Change: Give us a boost.
Speaker Change: In the latter half.
Speaker Change: Thank you.
Speaker Change: And your next question today will come from Phil Shen with Roth Capital Partners. Please go ahead.
Phil Shen: Well, thanks for taking my questions.
Phil Shen: You talked earlier about very about the margin trajectory as we get through the first part of next year can we talk about what the revenue cadence might look like so for Q3.
Phil Shen: It is $375 million on the table, what do you expect Q4 to be up quarter over quarter are down.
Phil Shen: And.
Phil Shen: Thank you.
Phil Shen: Like you can share even Q1 of next year that would be fantastic.
Phil Shen: Right. Phil you know that we normally don't guide for Q3 Q4, but we have a few vectors going for us I just talked about the fourth generation system and.
Phil Shen: And we believe that that's a huge factor for Enphase.
Phil Shen: Then.
Phil Shen: We specifically.
Phil Shen: Guarding the U S.
Phil Shen: The IQ mine that is going to be turning on in Q4.
Phil Shen: Then coming to Europe.
Phil Shen: All of the new product, we have introduced a large array of new products, which we are already seeing some good traction, namely.
Phil Shen: The flex phase battery, which provides three phase backup for many countries in Europe.
Phil Shen: The balcony solar.
Phil Shen: Which basically we had about introducing this quarter. So it's no longer something out there it's going to ramp in this quarter balcony and solar is going to address for.
Phil Shen: For example, the time in Germany alone is 400 megawatts and absolute Germany, we are going to go to Belgium, and many other European countries. After that we will go to Japan, and India as well so we expect.
Phil Shen: That new product to also be introduced.
Phil Shen: In Q2.
Phil Shen: And the next one is our IQ EV charger the latest EV charger.
Phil Shen: We did a good job ramping up so that we can service all 14 countries in Q1.
Phil Shen: And now we got to grow from strength to strength that in terms of <unk>.
Phil Shen: Installer partnerships and.
Phil Shen: EV EV charger partnerships in general through.
Phil Shen: Through other companies there so.
Phil Shen: While I E.
Phil Shen: <unk>.
Phil Shen: The policy.
Phil Shen: Situation et cetera is uncertain and face.
Phil Shen: Is trying to control our destiny by introducing new products by having discipline and these are the new product vectors that we are relying on for growth.
Phil Shen: Okay. Thanks, guys.
Phil Shen: So margins for a bit here.
Phil Shen: You talked about I think the six down six 8%.
Phil Shen: Or six 8% impact on Q3 margins.
Phil Shen: Thank you mentioned that was the growth sorry, the net impact.
Phil Shen: Can you share what the gross impact.
Phil Shen: On tariffs on Q3.
Phil Shen: Well.
Phil Shen: No and I don't have that have the gross impact all we're saying is we are passing a small amount of percentage increase to their customers. We are taking in a number of other actions too.
Phil Shen: Like.
Phil Shen: Like for example, we do have some work that we can do on the raw materials for the batteries moving them out of.
Phil Shen: China.
So all of that.
Phil Shen: He is going to happen those are what I call as improvement.
Phil Shen: A lot of vectors that are 1000 living things, we are going to do in order to continuously improve our gross margin impact.
Speaker Change: Your next question today will come from Brian Lee of Goldman Sachs. Please go ahead.
Brian Lee: Hey, guys. Good afternoon, thanks for taking the questions.
Brian Lee: I guess first question would just be.
Speaker Change: It sounds like Youre, passing through a little bit of a price on the tariffs impact on batteries in the back half of the year, So you've been doing pretty well 170.
Speaker Change: Megawatt hours of shipments quarter here to start the year you'd never had that kind of strength in the first half second half usually better but given.
Speaker Change: Tariffs impact uncertainty.
Speaker Change: And maybe a little bit of price shopping pass through like whats the view on shipment volumes for battery storage and <unk> can you continue to grow into the second half I guess, that's also in the context of a.
Speaker Change: A new battery ramping so just wondering kind of what's the volume view on top of what's happening with respect to cost and margins.
Speaker Change: Yes, I mean this is.
Speaker Change: Great battery.
Speaker Change: First of all.
Speaker Change: Our third generation system was five kilowatt hours.
Speaker Change: For the generation system is 10 kilowatt hours.
Speaker Change: We had separate battery management separate power conversion in the third generation system, we have combined it and it's got deep level of integration.
Speaker Change: Combination of power conversion as well as battery mandates, resulting in.
Speaker Change: Cost decline.
Speaker Change: And then we.
Speaker Change: We are talking about the balance of system in.
Speaker Change: In the balance of system.
Speaker Change: We have eliminated what was part of the system controller in the third generation and now we have eliminated that box replay.
Speaker Change: Replacing it with a smaller meter color, which is trivial to install.
Speaker Change: So.
Brian Lee: Bottom line, what I'm trying to tell you Brian.
Speaker Change: Is that the.
Speaker Change: The system cost for the <unk> installed with backup is going to be significantly reduced.
Speaker Change: And yes, the battery itself might go up a little bit in pricing, but the overall system cost reduction.
Speaker Change: Quite good and quite tremendous.
Speaker Change: No.
Speaker Change: We expect to continuously grow on back.
Speaker Change: We also expect to kind of grow on batteries in Europe.
Speaker Change: For the first time, we have had.
Three phase backup.
Speaker Change: A full three phase backup.
Speaker Change: And that was not available and so far I told you about the Germany, Germany, the battery attaches, 80%, 90% of that battery attach.
Speaker Change: Many have backup 30% and backup we're able to serve those 30% now.
Speaker Change: And we are extending that.
Speaker Change: Everywhere in Europe.
Speaker Change: We expect batteries too.
Significantly improved that is why we are taking very swift efforts to realign the supply chain.
Speaker Change: To have non China sales.
Speaker Change: And our source of supply.
Speaker Change: That's super helpful. Maybe just a follow up on that that free battery. So.
Speaker Change: I think pre tariff you guys were talking about doing something in the.
Speaker Change: Close to 35% gross margin on battery storage.
Speaker Change: If you kind of back out the 6% to a percentage point tariff impact in the back half here it implies.
Speaker Change: Battery storage margins that that would be zero or negative definitely negative in the U S. So.
Speaker Change: To get to back to kind of that 35% level, which I think youre inferring by Q2 of 2026 like how gradual is that or is that all just going to happen in a quarter or two as you basically.
Speaker Change: Switch to non China suppliers. It sounds like over Q1 Q2 or is it all going to just happen in Q2.
Speaker Change: Maybe a little bit more around.
Speaker Change: That's great. Thanks.
Speaker Change: So basically I told you about the impact in Q2 being small.
Speaker Change: Is clear so the remaining quarters left.
Speaker Change: I also towards the sorry, Q2, 'twenty six I told you the impact is zero. So we're talking about three quarters basically and in these three quarters. The efforts, we are going to be engaging us to two things we.
Speaker Change: We are one is we are going to move.
The cells.
Speaker Change: <unk> sells too.
Speaker Change: Outside China.
Speaker Change: And multiple sources, that's what we are already working on.
Speaker Change: Then the second is any raw materials used in.
Speaker Change: In the batteries, which we use a lot of raw materials that are sourced from China.
Speaker Change: Those also we need to move away to <unk>.
Speaker Change: Low tariff countries.
Speaker Change: And and ASIC as you imagine that the that the latter activity as a continuous activity.
Speaker Change: And the cell activity can turn on quickly.
Speaker Change: What that might mean about three months to ramp so.
Speaker Change: So basically my guidance to you is these numbers are rough numbers.
Speaker Change: There are 6% to 8% impact in Q3, but every quarter Q4, 'twenty face should be better than Q3.
Speaker Change: Q1, 'twenty six will be better than.
Speaker Change: Q4, 25% in Q2 2006 should disappear to zero.
Speaker Change: And your next question today will come from Mark Strouse with Jpmorgan. Please go ahead.
Speaker Change: Great. Thanks, very much so badri I just wanted to confirm on that last point with the battery.
Speaker Change: Adjusting the supply chain.
Speaker Change: The the raw materials the pack, it's still the same LSP chemistries right or is there any.
Speaker Change: Any redesign or Rita certainly certification that would be needed of your products.
Speaker Change: Would that be.
Speaker Change: Added on top of this timeline that youre talking about through <unk> 2000 <unk>.
Speaker Change: Okay.
Speaker Change: Yes. Good question. It is the whole point is to keep our LSP.
Speaker Change: And then we are not moving away from <unk>.
So and also the trick is how do we do this without redesigning it.
Speaker Change: And so.
Speaker Change: Right now our plans is mainly associated with the sale.
Speaker Change: However, the normal quantification will be required.
Speaker Change: Because <unk> is the most basic entity of the batteries and we need to make sure we knew the appropriate qualifications.
Speaker Change: Okay. That's great and then just kind of near term.
Speaker Change: Wanted to go back to the <unk> Guide you.
Speaker Change: You said, you're 80% booked into the midpoint of the guide.
Speaker Change: I think you mentioned this in the past it's been closer to 85% at least the last couple of quarters, just kind of your thoughts on ongoing with that 80% number instead of 85, just kind of what gives you the confidence to go with that.
Speaker Change: Yes.
Speaker Change: Last quarter, we reported two weeks late February full at.
Speaker Change: At this time. This is this is April 20 seconds. So.
Speaker Change: We are finding that 80% is good we expect to be 100% booked.
Speaker Change: Thank you.
Speaker Change: And your next question today will come from Colin Rusch with Oppenheimer. Please go ahead.
Speaker Change: Thanks, So much guys given the DPP functionality that you guys can enable.
Speaker Change: As well as some of the analytics.
Speaker Change: Can you talk a little bit about market share gains, how youre seeing that sales process evolve and whether you're using price as a lever to pick up market share a little bit here as you go forward.
Speaker Change: Yes.
Speaker Change: When you think about battery sales.
Speaker Change: Realized actually <unk> as well.
Speaker Change: It is now more than just batteries being used for providing resiliency.
Speaker Change: Our resiliency our time of use.
Speaker Change: Peak shifting what Youre seeing is this new value proposition that adds on to it which is using your batteries to provide to either.
Speaker Change: Participating in energy markets in deregulated markets audio GPP construct where the utility can use your battery and discharge it and pay you for it and so at the end of the day what that means is just improves.
Speaker Change: Roy for the homeowner and reduces the payback period. So the better that you can do it is actually a value proposition you can be better than the competition.
What I mean by that is providing very high quality API for your partners.
Speaker Change: And then.
Speaker Change: Drive the battery and discharge a battery is needed charge. The battery is needed and participate in energy energy market and all of that value proposition, which is good for the homeowner is the value proposition also that drives the adoption of your batteries. So if we do it better than our competition then clearly.
Speaker Change: We gained market share and that's what we're driving towards we see that number of our partner IR batteries because of our DPP.
Speaker Change: End markets during capabilities.
Speaker Change: That's super helpful. And then just from a logistics perspective, it looks like there's going to be some disruption and around container ships can you talk a little bit about how you guys are mitigating that that risk and what youre seeing and early returns on it.
Speaker Change: It does.
Speaker Change: And that so far.
Speaker Change: Colin can you kindly repeat repeat that.
Speaker Change: If you're sure I mean, just from a from a logistics perspective and shipping like if youre still importing from Asia on key components, what youre seeing from a logistics perspective in terms of.
Speaker Change: Disruption on available ships space getting through customs.
Speaker Change: Any sort of incremental expenses that we could be thinking about just make sure we're paying attention to all of those software costs.
Speaker Change: We do already see we we make.
Speaker Change: Maybe out of all of the folks who are not known let's call it 85% of our micro inverters.
Speaker Change: Our made in the U S.
Speaker Change: 85% of our global micro inverter shipments out from the U S.
Speaker Change: Already that is a healthy logistic stream.
Speaker Change: Raw materials et cetera, coming into the U S. So that we can make our micro inverter. So we don't expect any changes to that because we have diversified that well and we have not had any problems with logistics. So far on batteries also.
Speaker Change: 80%.
Speaker Change: I would say.
Speaker Change: Let me say, we shipped 170 megawatt hours in Q1.
Speaker Change: 44 megawatt hours were made in Texas.
Speaker Change: Approximately 25%.
Speaker Change: So how that works is we ship sell packs.
Speaker Change: In Texas.
Speaker Change: We make micro Inverters in Texas.
Speaker Change: We make battery management in Texas.
Speaker Change: We make the enclosures at another state in the U S.
Speaker Change: We make that Chad.
Speaker Change: Cassie.
Also in.
Speaker Change: In a neighboring state so.
Speaker Change: Therefore, what is once again important there is raw materials for making all of those.
Speaker Change: And our supply chain.
Speaker Change: We established this over three to four quarters ago.
Speaker Change: So for us.
Speaker Change: This is al.
Speaker Change: Though it is a disruption.
Speaker Change: For us it is not.
Speaker Change: It's not that we have to learn everything from scratch, we have already ramped up on a few areas.
Speaker Change: And we expect that 44 megawatt hours, which I said up U S U S making batteries.
Speaker Change: We expect that to.
Speaker Change: Keep going up.
Speaker Change: As we proceed into the yield.
Speaker Change: Okay.
Speaker Change: And your next question today will come from Christine Cho with Barclays. Please go ahead.
Christine Cho: Good evening and thank you for taking my question.
Christine Cho: I was wondering could you remind us what the manufacturing plans or for Tennessee, I thought the initial rollout was going to have the U S. Inverters shipped to China, and then assembled there and ship back to the U S. So far.
Christine Cho: This cask news and then the domestic content version of what's going to come out later. So first of all is this correct and if it is are you changing these plans so that youre not importing the full battery into the U S, which will be subject to a higher nominal tariffs and.
Christine Cho: If that's the case does this impact the rollout of <unk> at all.
Christine Cho: To change plans.
Speaker Change: No it does not roll out the impact of tenancy.
Speaker Change: Starting with the non domestic version and that is correct. They are.
Speaker Change: The micro Inverters further non domestic version will be made in the U S and the rest of the battery is made outside the U S, but being shipped in but we're quickly in about two to three months time, we will quickly realigned the supply chain to have the domestic content product also available for the <unk>.
Speaker Change: <unk>.
Speaker Change: So right now whatever we plan to ship.
Speaker Change: In the second quarter will be the non domestic version.
Speaker Change: And a couple of months from then the domestic version will be available.
Speaker Change: Okay.
Speaker Change: Then your guide for the Q2 quarter on top line of battery shipments are about the same as <unk> and even if I am to add back the two percentage points of the tariff impact it would imply your gross margins are still down about 150 bps at the midpoint, what exactly is driving that and even though you.
Speaker Change: You talk about being diversified on the supply chain for <unk>.
Speaker Change: <unk>, having a lot of domestic suppliers. So maybe you might not directly be BC and cast but arent your supplier still seeing price increases on the raw materials in this inflationary environment.
Speaker Change: Well I mean, we said that the 2% increase was attributed to.
Speaker Change: Two the.
Speaker Change: Two the tariffs for the current quarter, however on batteries.
Speaker Change: What you said is right we.
Speaker Change: Not.
Speaker Change: We plan to ship.
Speaker Change: A smaller quantity than the usual full quarter quantity on batteries.
Speaker Change: While the.
Speaker Change: The fourth generation batteries, new and let us say I ship, let us say a ship.
Speaker Change: Yes, I'm not getting to the numbers, let's say Asia 30 megawatt hours off the fourth generation battery.
That would come with the with the little more tentative compared to the inventory that we will have on the third generation that offense, we guided to the 2%.
Speaker Change: That's helpful.
Andrew: And your next question today will come from Andrew <unk> with Morgan Stanley. Please go ahead.
Andrew: Great. Thanks, so much for taking our questions.
Andrew: I do just want to again come back to this battery storage concept for a second I'm. Just curious you mentioned at the beginning of Q&A and 95% of LSP sales come from China. So.
Andrew: Presumably a lot of your competitors and peers are also trying to get their hands on the supply you guys are working on so just curious how you see the cost environment for that.
Andrew: On China supply evolving over time.
Andrew: In the conversations you've had with some of the suppliers.
Andrew: And then second to that.
Andrew: Just trying to figure out when you talk about getting to zero zero percent gross margin impact by the second quarter of 2026, because how much of that is dependent on just completely exiting China from an LP perspective versus taking action on price just trying to get a sense for breakdown there. Thank you.
Andrew: Yes.
Speaker Change: 90% of the lift sales in China, yes.
Right.
Speaker Change: Don't forget that there is.
Speaker Change: There are some Korean suppliers, who make MMC.
Speaker Change: And we have never used NMC.
Speaker Change: We've never liked NMC that's all.
Auto premium.
Speaker Change: <unk> B is is what we like in terms of safety. So.
Speaker Change: That's the first one.
Speaker Change: Then the question that you asked.
Speaker Change: It is.
Speaker Change: The guest.
Speaker Change: The biggest.
Speaker Change: A factor that affects the battery.
Speaker Change: Yes.
Speaker Change: You cannot get away from them.
Speaker Change: So if.
Speaker Change: We cannot meaning if our plans do not materialize.
Speaker Change: For transferring the cells that's the problem.
Speaker Change: And then we would have to look at.
Speaker Change: Passing mode.
Speaker Change: Of.
Speaker Change: The cost impact to our customers, but right now.
Speaker Change: Is the right thing to do.
Speaker Change: As we get.
Speaker Change: We get.
Speaker Change: These batteries.
Speaker Change: Get the battery sales diversified out of China.
Speaker Change: And we are working we are not talking about.
Speaker Change: We are not talking about a named suppliers, we are working with two.
Speaker Change: Great suppliers.
Speaker Change: And.
Speaker Change: We have very tangible plans, we have tangible schedules.
Speaker Change: And since the impact since the timeframe. We are talking about is two to three quarters, we thought the right thing to do.
Speaker Change: Use to basically absorb.
Speaker Change: A fraction significant fraction of it ourselves and return back to normalcy very quickly.
Speaker Change: Understood. Thanks, Thank you for that.
And maybe just to ask a higher level question here I know you guys don't guide beyond one quarter, but I guess, how do you envision that.
Speaker Change: Market evolving over the balance of the year.
Speaker Change: We see if IRI uncertainty, which might not be resolved until <unk> at some point, obviously tariffs have had an impact on recession concerns and consumer sentiment. So how do you expect the demand environment to evolve over the balance of the year, just given the level of uncertainty and the impact that.
Speaker Change: That has had on broader consumer sentiment, which obviously it could lead into.
Speaker Change: And have an impact on end market demand for residential solar so I'm just curious how youre thinking about that at a higher level. Thank you.
Speaker Change: Yes, I mean look.
Speaker Change: Q1 is usually.
Speaker Change: The seasonally worst quarter, we are past Q1.
Speaker Change: Q2, Q3, and even Q4 to an extent.
Speaker Change: Normally.
Speaker Change: The good seasonal quarters, so we're expecting that.
Speaker Change: In addition.
Speaker Change: Our.
Speaker Change: Our value proposition the value proposition of solar and batteries relies a lot on utility rates.
Speaker Change: And it is not exactly that the utility rates are going down everything that they are in fact going up.
Speaker Change: And so.
Speaker Change: As long as that happens the ROI.
Speaker Change: Tom.
Speaker Change: Tomorrow will be better than today.
Speaker Change: And so.
Speaker Change: Utility rates is an important factor.
Speaker Change: You saw what is happening to name three.
Speaker Change: <unk> just to remind you.
Speaker Change: Did away with net metering.
Speaker Change: And that is a small feat in only small export compensation.
Speaker Change: That caused the battery.
Speaker Change: Battery attach in California to go to 90%.
Speaker Change: So.
Speaker Change: It was a very difficult transition.
Speaker Change: We don't like over the hour graphically the transition was done but.
Speaker Change: At the end of the day.
Speaker Change: Things are looking most tabled in California in terms of solar and storage with a very healthy value proposition and that healthy value proposition came from the fact that the utility rates are high.
Speaker Change: So.
Speaker Change: That's a factor that will always be going for us than you have.
Speaker Change: Then you have the extra.
Speaker Change: <unk> in AI.
Speaker Change: The explosion in AI, what is going to cost is electricity.
Speaker Change: Is electricity supply is going to get stressed.
Speaker Change: Both front of the meter as well as behind the meter.
Speaker Change: And we are not here to argue which one is better but.
You know it is that.
Speaker Change: What we do is behind the meter.
A lot of capacity is put in place front of the meter.
Speaker Change: That's got a long cycle of approvals the front of the meter so we think.
To be balanced.
Speaker Change: But in order to have.
Speaker Change: Proper energy security for America.
Speaker Change: We need to have thriving.
Speaker Change: Behind the meter business in addition to front of the meter.
Speaker Change: And behind the meter we are talking about every home is a power plant many power plant.
Speaker Change: So a lot of blood storage.
Speaker Change: And so I think it is only a matter of time when people start seeing this and there is clarity on your rate.
Speaker Change: The ITC and PTC.
And I think demand will will be unlocked after that.
Speaker Change: Your next question today will come from Rohit <unk> with Mizuho. Please go ahead.
Speaker Change: Hi, This is David Benjamin on for Mohit, Thanks for taking my questions.
Speaker Change: Your Q2 guide assume any negative impacts from higher tariffs are in southeast Asia modules.
Speaker Change: On your assortment.
Speaker Change: No we don't deal with modules from Southeast Asia.
Speaker Change: Okay. So you don't.
Speaker Change: See any impact on overall solar demand.
Speaker Change: And then another question.
Speaker Change: Alright.
Speaker Change: A lot of demand maybe utility scale.
Speaker Change: May be impacted to an extent, we don't expect any demand any impact on residential.
Speaker Change: Okay. Thank you.
Speaker Change: And then and then you did mentioned that channel inventory was slightly up is that.
Speaker Change: Europe or the U S.
Speaker Change: That imply like any potential destocking.
Speaker Change: No. The channel inventory is okay is up because when you sell through.
Speaker Change: Sell through goes down the channel inventory can can go slightly up.
Speaker Change: Out of our usual targets our targets are between eight and 10 weeks.
Speaker Change: So, but when you sell through is down more than what you anticipated.
Speaker Change: Sure.
Speaker Change: That can go slightly up.
Speaker Change: The raise to recover it backup are quite simple not ship much into the channel.
And then improve the sell through.
Speaker Change: In a seasonal quarter like Q2, which is bound to have more sell through in Q2 than Q1.
Speaker Change: So we believe it's a normal normal cycle and we have a discipline to control the amount of material in the channel with that discipline.
Speaker Change: It should come back quickly inbound.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Your next question today will come from Julien Dumoulin Smith with Jefferies. Please go ahead.
Speaker Change: Hey, good afternoon to you. Thank you guys very much I appreciate it maybe just follow up on the last question a little bit further can you talk about what youre seeing in terms of end market demand or are you talking about the restocking and destocking guarantee seemingly in the second quarter. What are you seeing in terms of year over year volumetric trends I know you provided obviously second quarter, but can you talk about volumetric trends right.
Speaker Change: Large a and then b.
Speaker Change: Can you talk a little bit more about safe harbor as well it seems like youre, implying that the substantive amount of the $95 million is contemplated in the first half and with fairly little safe Harbor contemplated in the back half, but maybe you could talk about maybe early indications on that front.
Speaker Change: Yes.
Speaker Change: I'll answer the second question first.
Speaker Change: Safe Harbor Youre right, we have 54 million was in Q1.
Speaker Change: We said $40 million approximately in Q2.
And.
Speaker Change: Right now we do.
Do not yet have safe harbor plants.
Speaker Change: Our customers haven't yet us asked for them, but I am sure of that.
Speaker Change: Yes.
Speaker Change: If they want to stock.
Speaker Change: Due to something else.
Speaker Change: We will.
Speaker Change: We will advice in the third quarter in the second quarter call.
Speaker Change:
Speaker Change: Volumetric trends, so volumetric trends.
Speaker Change: No.
Speaker Change: We talked about it so far the Q1.
Speaker Change: Q1 is the weakest in terms of demand.
Speaker Change: And now we had we talked about the large nation.
Speaker Change: Leasing provider basically having some financial difficulties.
Speaker Change: Because of that our installers have have stumbling blocks.
Speaker Change: And.
Speaker Change: They need to recover.
Speaker Change: They will recover by going to new finance years.
Speaker Change: In that time the installations.
Speaker Change: And so that's why we saw a little bit worse sell through.
Speaker Change: From our distributors to installers in Q1, we.
Speaker Change: We believe that.
Speaker Change: We believe that.
Speaker Change: There are a lot of finance here at <unk>.
Speaker Change: Finance years, now who can really pick up the business.
Speaker Change: So we believe that that trend will.
Speaker Change: We'll stop and normal sell through will take over.
Speaker Change: So we expect the normal seasonality to show up from Q1 to Q2. In addition, these onetime effects will take some time to clear.
Speaker Change: As for Q3 and Q4.
Speaker Change: <unk> talked about it at length that is some policy clarity that has to come.
Speaker Change: But for US we are not stopping like what I said.
Speaker Change: Our fourth generation system as we had.
Speaker Change: We expect to ship.
Speaker Change: Our first generation system product in the current quarter.
Speaker Change: And that makes backups extremely easy.
Speaker Change: And extremely cost effective so.
Speaker Change: So we expect to do that we expect to introduce a two nine.
Speaker Change: In the fourth quarter diversifying our results seem to be 483 phase small commercial business.
Speaker Change: Two nine by the way will also I talked at length about the innovation with Gan.
Speaker Change: We began we are able to get our cost structure.
Speaker Change: Very similar.
Speaker Change: Two the prior generation.
Speaker Change: But provide 10% more power so that means the cost per watt.
Speaker Change: B.
Speaker Change: 10% down compared to our prior generation. So we have all of these vectors.
Speaker Change: And.
Speaker Change: Then I talked about the utility rates going up.
Speaker Change: So we expect general growth.
Speaker Change: Some of the year.
Speaker Change: Finally, the rollout of new products and policy clarity will also help a little bit.
Speaker Change: Your next question today will come from Kashi Harrison with Piper Sandler. Please go ahead.
Speaker Change: Good afternoon. Thank you for taking the questions just two quick ones for me My first question.
Speaker Change: On the topic of again are there alternative sources for gallium outside of China, just trying to think through risk mitigation in the event that the trade war potentially gets worse before it gets better.
Speaker Change: Yes, we have adopted this at length with our sources, we have more than one source all of them are comfortable that habit cover.
We are not worried about it.
Speaker Change: Okay, and then my follow up.
Speaker Change: <unk> indicated that youre.
Speaker Change: You indicated that Europe is still challenging.
Speaker Change: But your sell through was down 9%.
Speaker Change: It doesn't sound that bad from a seasonality perspective, and so I'm just curious what are you seeing that makes you kind of.
Speaker Change: Characterize the entirety of the region as challenging as it just is it just France or is there. Some other dynamic that we need to be we need to be thinking about thank you.
Speaker Change: Now I think we talked about that that is the piece that sell through was a little down at 9%, but what I've said is we.
Speaker Change: Produced.
Speaker Change: New products into the region, that's why our numbers were up.
Speaker Change: And we talked at length about all of the initiators and Netherlands in.
Speaker Change: In Netherlands, net metering will disappear in 2027.
Speaker Change: That means.
Speaker Change: All of the customers are going to be looking forward to a battery solution.
Speaker Change: In order to conserve in order to lower their electricity Bill So it is.
Speaker Change: It is a huge opportunity as well, but that will become a solar plus storage market.
Speaker Change: Our working.
Speaker Change: With our installers and the retail energy providers too.
Speaker Change: Transitions at multiple appropriately.
Speaker Change: And the second one is France, we talked about.
Speaker Change: Utility rates.
Speaker Change: Slowing down.
Speaker Change: But there again I think it is a short term blip for a couple of quarters, we expect.
Speaker Change: The vaccine to be reduced.
Speaker Change: There.
Speaker Change: And we also expect the utility rates to go backup. According according to what we do.
Speaker Change: Public news available.
Speaker Change: So I think that that one.
Speaker Change: What what we're doing we're constantly introducing new products.
Speaker Change: Our three phase battery was backup we will introduce there shortly.
Speaker Change: We have introduced.
<unk> IQ EV Chargers.
Speaker Change: We are introducing hot water heater capability there that is today today in France. The feed in tariff is only 40 euro cents per kilowatt hour.
Speaker Change: And when you when you have four euro cents per kilowatt hour.
Speaker Change: Does not make sense to export.
Speaker Change: And.
Speaker Change: You would rather save minutes.
Speaker Change: And if I take that solar energy and have diverted steering towards the hot water heater.
Speaker Change: That's a much better use of the energy so that solution will be available in this quarter current quarter.
Speaker Change: So I talked about that Germany is really where we had a nice uptick in Q1 and that is because of the flex phase battery.
Speaker Change: We introduced three phase with backup so.
Speaker Change: What we are doing in Europe, although the market is.
And our terribly strong yet.
Speaker Change: We our Sam as increase from strength.
Speaker Change: Strength through these new products and that's why we are more positive on Europe. That's why you saw our revenue went up the year.
Speaker Change: Okay.
Speaker Change: Your next question today will come from Austin Moeller with Canaccord Genuity. Please go ahead.
Speaker Change: Hi, Good afternoon, just my first question given the administration's announcement of new tariffs on panels, and South East Asia I assume that your supply chain team is not expecting that a trade deal with China or be it Vietnam, we'll benefit inverter or battery manufacturing and you're you're just going to accelerate.
Speaker Change: The diversification of your supply chain out of China.
Yeah, I mean, that's the general plan, we are accelerating.
Speaker Change: The move specifically for batteries, we have already completed four micro and mergers like micro inverters and accessories.
Speaker Change: We're almost done.
Speaker Change: <unk>.
Speaker Change: That's right.
Speaker Change: And does the <unk>.
Speaker Change: So.
Speaker Change: I mean the.
Speaker Change: The general assumption here is U S. Installers are advanced procuring inverters and batteries and waiting to sell product probably once interest rates go down so do you think.
Speaker Change: The persistent high interest rate level right now is limiting some of the demand from customers to install ahead of potentially the 30% investment tax credit being repealed in 2026.
Speaker Change: Yes.
Speaker Change: High interest rates is absolutely an important factor.
Speaker Change: In the residential solar business, 60% of the business used to be loans.
Speaker Change: And now it.
Speaker Change: It does change to leases and.
Speaker Change: And probably 30% is still with loans.
Speaker Change: And.
Speaker Change: Anything youre doing on the interest rates that will help.
Speaker Change: We'll help for demand.
Speaker Change: That's right.
Speaker Change: Yes.
Speaker Change: Great. Thanks for your insights.
Speaker Change: Again, if you would like to ask a question. Please press star and then one.
Speaker Change: And your next question today will come from Joseph Osha with Guggenheim Partners. Please go ahead.
Joseph Osha: Hi, everybody Hi, Bob Thanks for taking my question sorry to belabor the question.
Joseph Osha: Question themselves required, but are you, saying hey year from now.
Speaker Change: Thank you will be able to source from outside of China.
Speaker Change: Same price you can get it from inside China or are you, saying that youre going to pay what we have to pay and pass that on to possible I'm trying to understand what your view of this.
Speaker Change: B.
Speaker Change: But meaning the second option that you've said, but the prices of those cells.
Speaker Change: R&D at that time.
Speaker Change: I'm, sorry, I don't follow you.
Speaker Change: You're saying that you think sales will be more expensive relative to your current now.
Speaker Change: Let me tell you what.
Speaker Change: The cell pricing.
Speaker Change: The cell pricing is.
Speaker Change: Is affordable.
Speaker Change: Benefits, let's say goes up by 20% it is affordable, but when you take a cell in China.
And you put it into a into a product for example, you assemble it in any place even outside China, even outside the U S.
Speaker Change: Yes.
Speaker Change: You have to pay the 100, <unk> hundred 45% extra tariff because the seller is.
<unk> in China.
Speaker Change: Now what you could do.
Speaker Change: Is is the game to diversify your supply chain.
Speaker Change: Make yourselves.
Speaker Change: And let's say eastern Europe.
Speaker Change: <unk> sales in Eastern Europe, I left pieces, you could bring it in.
Speaker Change: So the U S.
Speaker Change: You could have a packing facility in the U S.
Speaker Change: And you could get in other raw materials into the U S.
Speaker Change: It will be significantly cheaper to do because you will no longer pay the 150, 145%.
Speaker Change: So even if those basic sales were 20% higher it doesn't matter.
Speaker Change: Okay great.
Speaker Change: Clearly, we're going to be more expensive than the status quo was prior to the tariffs when you were able to source out of China without 145% right.
Speaker Change: Yes, if you wanted to be legally right. It is going to be expensive, but does it matter it doesn't matter.
Speaker Change: Okay. Thank you for clarifying.
Speaker Change: That's right.
Badri: Concludes our question and answer session I would like to turn the conference back over to Badri <unk> for any closing remarks.
Badri: Alright, 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: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.