The operator welcomes participants to the Enphase Energy First Quarter 2024 Financial Results Conference Call. The call will discuss Enphase's first quarter results and feature statements from the company's President, CFO, and Chief Products Officer. Forward-looking statements will be made, but there are risks and uncertainties involved. Non-GAAP financial measures will be used on the call.

The company has provided a reconciliation of non-GAAP financial measures to GAAP financial measures in their earnings release and on their website. The President and CEO discusses the company's first quarter financial results, including revenue, shipments, and free cash flow. They also mention their efforts to improve customer service and operations, including adding data scientists and enhancing analytics. In Q1, they shipped a significant number of microinverters from their US manufacturing facilities and expect to have a global capacity of 7.25 million per quarter. In Q2, they anticipate shipping 0.5 million microinverters from their US facilities.

The company's top priority is to reduce factory inventory and they expect to resume higher shipments in the second half of the year. They have two cell pack suppliers in China and plan to add battery manufacturing capability in the US in 2024. In the US, revenue decreased 34% due to under-shipping to end customer demand. In non-California states, overall sell-through was down 21% and in California, it was down 30% due to seasonality and the NEM 3 transition. In Europe, revenue increased 70% and overall sell-through was up 7% due to improved channel inventory and new product introductions. The Netherlands saw a 4% decrease in overall sell-through in Q1.

Enphase saw stable market conditions in Q1 and expects increased demand for microinverters in Q2 due to government support for NEM. They believe solar plus batteries will become more prevalent as dynamic tariffs and grid services grow. In France, sell-through was up 13% and they see potential for the country to become a significant market. In Germany, sell-through was up 28% and they plan to launch a three-phase battery solution later this year. They are also expanding into new countries in Europe and anticipate steady growth. In Australia, they expect higher battery attachment rates in the second half of the year. In Brazil, they are building their installer base, and in Mexico and India, they are shipping their highest-powered microinverters. They also started shipping to Thailand and the Philippines in Q1.

The paragraph discusses the market share and strategy of IQ8P microinverters in both the US and Europe. It also provides insight into the current market conditions in California, specifically regarding NEM 3.0 and how installers are adapting to the changes. The statistics for NEM 3.0 systems in California in Q1 are also mentioned.

Enphase's NEM 3.0 systems have a high battery attach rate of over 90%, with half of those using Enphase batteries. This has contributed to an average revenue per NEM 3.0 system that is 1.5 times higher than NEM 2.0 systems. In Q2, Enphase expects to ship 100-120 megawatt hours of IQ Batteries and predicts a sell-through demand of $400 million. The company plans to under-ship to meet end market demand and expects its channel to normalize by the end of Q2. The third-generation IQ Battery 5P has been well-received and Enphase anticipates continued growth in battery sales in 2024. Gross margins on batteries are expected to improve throughout the year due to decreasing costs in cell pack and microinverter production, as well as improved architecture in the fourth-generation battery.

Enphase is expanding its presence in Europe and Asia with its third-generation battery and plans to launch a fourth-generation battery later this year. The company is also entering new markets with its IQ8 microinverters and plans to introduce social housing and balcony solar solutions in European countries. In addition, Enphase has launched its IQ Combiner Lite in the Netherlands and is seeing early adoption of its IQ8P microinverter in North America. The company has also launched its IQ Smart EV chargers in the US and Canada and is developing smart EV chargers for European countries. Enphase is also working on a bidirectional EV charger with a GaN-based inverter, set to release in 2025. The company is also making upgrades to its energy management software.

Enphase recently launched Enphase Power Control software in North America, which allows for more flexibility in system design and helps manage complex energy markets. They are also working on a new software to manage dynamic tariffs in Europe. The IQ9 Microinverters with gallium nitride are expected to launch in the first half of 2025 for residential and small commercial markets. The Installer Platform, Solargraf, has added new features and is available in multiple countries. Enphase expects demand to bounce back in Q2 after a slowdown in Q1.

The article discusses the financial results of a company in the solar energy industry for the first quarter of 2024. The company is optimistic about future growth, particularly in California, and plans to introduce new products and software upgrades. The company has maintained profitability and free cash flow during a market downturn and is focused on operational excellence. The non-GAAP gross margin decreased due to lower net IRA benefit.

In the first quarter, GAAP gross margin was 43.9%, while non-GAAP gross margin without net IRA benefit was 41%. This was due to lower volume. Non-GAAP operating expenses decreased to $82.6 million, while GAAP operating expenses were $144.6 million. On a non-GAAP basis, income from operations was $39 million, while on a GAAP basis, there was a loss of $29.1 million. Non-GAAP net income was $48 million, resulting in diluted earnings per share of $0.35. GAAP net loss was $16.1 million, resulting in diluted loss per share of $0.12. The company repurchased shares and spent money on employee stock vesting and options. The company plans to continue this anti-dilution plan.

In the first quarter of 2024, the company generated $49.2 million in cash flow from operations and $41.8 million in free cash flow. Capital expenditures decreased due to reduced US manufacturing spending. For the second quarter, the company expects revenue to be between $290 million to $330 million, with GAAP gross margin between 42% to 45% and non-GAAP gross margin between 44% to 47%. The company also expects a net IRA benefit of $14 million to $17 million and plans to increase US-made microinverter shipments in the second half of the year. GAAP operating expenses are expected to be between $134 million to $138 million, with non-GAAP operating expenses between $78 million to $82 million. The company anticipates an annualized effective tax rate of 18%, plus or minus 1%, with IRA benefit for 2024.

Badri Kothandaraman is discussing the company's entry into new markets with energy storage and the volume they are guiding for in the second quarter. He explains that the company is not building much inventory to support these customers as the new markets are just ramping up. The company's sell-through of batteries in Q4 was 140 megawatt hours and in Q1 was 128 megawatt hours, only 8% down despite the seasonality of 20% on other products. The company has shown discipline by taking 43 megawatt hours out of the channel, making it lean for storage. As a result, the guidance for Q2 has been increased to 100 megawatt hours to 120 megawatt hours. Kothandaraman expects every market to transition to solar plus storage in the long term.

Badri explains that demand for their products was softer than expected in the first quarter, resulting in them under-shipping and destocking less than anticipated. He also mentions that they are disciplined in their pricing strategy and do not lower prices to move inventory. The company is seeing a reduction in average selling price due to product mix, but they remain focused on selling on value.

The speaker, Badri Kothandaraman, explains that the $90 million of destocking in the second quarter will clear the inventory for micros. He clarifies that their estimated sell-through demand in the first quarter was $376 million, while their reported revenue was $263.3 million, resulting in an under-shipment of $113 million. In the second quarter, they expect a sell-through demand of $400 million, with a difference of $90 million from their guided revenue of $290 million to $330 million. Kothandaraman also mentions the expected improvements in the European market, particularly in the Netherlands, France, and Germany, which will contribute to their sell-through demand in the second half of the year.

The cost of electricity remains high and the company expects growth in the solar and storage industry. They have introduced new products and expanded into new markets in Europe and Asia. In the US, there are positive signs of improvement in non-California states and California. Sales numbers are increasing and permits for solar installations are up in March compared to February. The company is cautiously optimistic that things are turning around and believes that the first quarter was the lowest point.

The company is raising its guidance for Q2 and expects a continuous increase in sell-through. The CEO also mentions that interest rates may impact demand in non-California states. The analyst asks about the normalized demand outlook and the CEO explains that if the channel is clean and demand stays at current levels, sell-in and sell-out should be balanced. However, the company expects sell-through to be higher in Q3 and if it remains at $400 million, sell-in will also remain the same due to inventory being taken out.

Badri Kothandaraman discusses the company's sell-through expectations for the first quarter and how they were affected by various factors, such as seasonality and the performance in California. He acknowledges that their forecasting is not perfect, but they are continuously improving and remain optimistic for future sell-through numbers.

The company is confident in its forecast for California and the first few weeks of the quarter are trending in the right direction. They are working on two versions of IQ9, a 427 watt and a 548 watt microinverter, which will be released in the first half of 2025. The ramp for the product is expected to take four to six quarters and it will use gallium nitride technology, allowing for higher power and efficiency. The 548 watt version will be suitable for small commercial installs and will operate at a higher frequency.

The speaker discusses the potential benefits of using gallium nitride in their products, including the ability to operate at higher power and lower efficiency, resulting in a more compact microinverter and a decrease in cost per watt. They also mention the possibility of reducing the number of silicon FETs needed for their inverters. In response to a question about gross margins, the speaker explains that their 2Q guidance is lower than previous quarters.

In response to a question about mix, Badri Kothandaraman clarified that he was referring to installer mix. He then explained that the company's non-GAAP gross margin without IRA in Q2 was guided to be between 39% and 42%, which is an increase from the previous quarter due to an increase in battery guidance. The company is seeing improvements in battery gross margins due to decreasing cell pack costs, manufacturing microinverters in the US, and moving towards a more integrated architecture for power conversion and battery management. The fourth-generation battery will have a significantly smaller form factor with only two microinverters, compared to the previous six.

The speaker is asking about the cost savings for the fourth-generation battery and how Enphase plans to balance keeping those savings versus passing them on to customers. They specifically mention the competition with Tesla's Powerwall 3, which currently offers a cheaper solution with an integrated inverter.

The speaker is discussing the advantages of Enphase's microinverters over string inverters, including benefits such as safe AC on the roof, increased production, per panel monitoring, reliability, no single point of failure, simple installation, and compatibility with any roof orientation. They also mention the upcoming release of the fourth-generation battery, which will further enhance these benefits.

The paragraph discusses the advantages of Enphase IQ microinverters for off-grid systems, including the ability to perform a "black start" and a "sunlight jumpstart" to recharge the battery. It also highlights the benefits of the microinverters being made in America, using safe chemistry and having a UL9540A Fire certification. The warranty is also mentioned, as well as the distributed architecture of the system which ensures that even if one inverter goes down, the system will still function.

The article discusses the benefits of the company's battery product, including its field serviceability, which allows for easy and quick repairs without taking the battery off the wall. This reduces downtime and overhead costs. The battery also has a high LRA, making it suitable for starting large appliances. Additionally, it is simple to install and can provide economic advantages for homeowners.

The Enphase Solar and Storage System offers many benefits, including easy installation, a single mobile app for monitoring and control, the ability to take the home off the grid, 24/7 customer service, and the use of both solar and battery power for increased energy output. The Power Control System software also allows for NEM 2 expansion without the need for a main panel upgrade.

The speaker discusses the value and cost of their product, mentioning their focus on cost and plans to eliminate unnecessary components. They also mention being sensitive to competition and willing to adjust pricing accordingly. When asked about battery shipments, they say they are being conservative in their estimates and there may be potential for upside.

Badri Kothandaraman responds to a question about the timing of normalized revenue, stating that they do not give guidance for specific quarters but are optimistic about growth in the second half of the year. He mentions various growth vectors and discusses the strong performance in European and non-California states. The company is also gaining market share, which could have a positive impact on revenue.

The speaker is asked to explain the difference between activation implied revenue and sell-through revenue and how they track it. They mention that they see reports and work with installers to improve efficiency and gain market share. They also mention that it takes 4-8 weeks for sell-through to increase after a switch to their product and they will report on Q2 results in the Q3 call. Another question is asked about sell-through and the speaker is asked to clarify.

In the second quarter, the company expects to make $400 million and estimates it will reach $450 to $500 million by the end of the year. The growth is split evenly between Europe and the US, with microinverters accounting for 60% and batteries for 40%. The company measures inventory in both a backward and forward-looking manner, with the latter being a more accurate reflection of current demand.

The speaker explains that the company consistently measures inventory levels and aims for eight to 10 weeks on hand. They mention that 50% of their NEM 3.0 systems are used for load shifting and that they are meeting with installers in California. They also mention that they are working on a meter collar to make backup installation easier.

The speaker discusses the meter collar device and its benefits, and mentions that their version will be released soon. They then answer a question about the installer base in California and their ability to handle potential growth, stating that they are savvy and have become more efficient in managing money. They also mention that these installers have access to various financing options.

The speaker, Badri Kothandaraman, met with a third of the installers in California who were still selling cash to customers, while others were quickly transitioning to lease and PPA options. Kothandaraman believes the installers are nimble and knowledgeable about the product, and he plans to take their feedback to improve their business. When asked about the under-shipment in the first quarter and expected under-shipment in the second quarter, Kothandaraman estimates that two-thirds were in the US and one-third in Europe. There is no update on the exclusivity arrangement with SunPower, but Kothandaraman has been in communication with their new management.

Badri Kothandaraman, CEO of Enphase Energy, discusses the company's strong relationship with SunPower and their plans for signing a new contract. He also mentions the replacement for their Chief Commercial Officer, Sabbas Daniel, who will be relocating to Europe to manage the team there. Additionally, Mehran, who has experience in the battery business, will be managing the rest of the world sales team. This change is expected to have a positive impact on the company.

The speaker thanks the operator for answering all their questions and then asks about the company's plans to improve visibility into the channel to prevent inventory issues in the future. The speaker mentions using Solargraf, a platform for design and proposals, as well as third-party reports and their own software to track metrics at each step of the process. This will help them better understand trends and identify potential issues in the future.

The company aims to increase revenue coverage for its Solargraf design and proposal tools by getting more installers to use it. They will use third-party reports and a regression model to make decisions on how much to sell into the channel. They will also use statistical process control to ensure they do not oversell and focus on real growth. The company has improved in this area and is now able to focus on training installers and identifying underperforming ones.

David Benjamin, an analyst from Maheep, asked about Solargraf's market share and penetration with installers in the US. Badri Kothandaraman, CEO of Solargraf, revealed that they have over a thousand installers using their design and proposal tool and a few hundred using their permitting tool. Benjamin also asked about the sourcing of materials for gallium nitride, to which Kothandaraman stated they have multiple sources and are not worried. Raghu Belur, CCO of Solargraf, addressed the potential impact of NEM 3 challenge in California courts, stating that they are focused on making their solar plus battery solution best in class and not concerned about the court decision.

The speaker from Canaccord asks about the market and growth opportunities for home battery sales in both new installations and upgrades of existing solar arrays. The response states that both opportunities are valuable, but it depends on the geography. In California, new homes must have solar and batteries are necessary for maximum bill offset. In other states, the case for batteries is mainly for resiliency or participation in VPP programs. Similar situations exist in Europe.

The Netherlands and other European countries are experiencing a push for retrofitting batteries in solar systems due to high penetration levels of solar energy. This is driven by the need to avoid penalties for uncontrolled export of solar energy and to participate in dynamic tariff programs. The main growth driver for this demand is the economic benefits of self-consumption, as the buy rate for energy is significantly higher than the sell rate. Additionally, there is potential for additional assets such as EV chargers and heat pumps to be added to the system.

In the paragraph, the speaker discusses the potential benefits of a sophisticated home energy management system, which can optimize energy consumption and costs for homeowners. They also mention the potential for electric vehicles (EVs) to become fully bidirectional, adding another powerful asset for energy optimization. In response to a question about share repurchases, the speaker explains that they bought back a similar amount in both Q4 and Q1, but in Q1 they also used some of their stock options to prevent dilution.

The speaker explains that the company spent $100 million, with $40 million going towards buying back shares and $60 million for preventing shares from entering the market. They plan to continue this strategy as long as the stock remains attractive. In response to a question about NEM 2.0 backlog, the speaker says it is difficult to predict but expects it to dwindle down in the next six months as installers are learning about NEM 3. The call concludes with a thank you and a reminder to join the next quarter's call.

This summary was generated with AI and may contain some inaccuracies.