The operator welcomes listeners to the Enphase Energy's Second Quarter 2024 Financial Results Conference Call and introduces the speakers. The company's forward-looking statements and risks are discussed, and the use of non-GAAP financial measures is noted.

In the second quarter of 2024, the company reported revenue of $303.5 million, shipped 1.4 million microinverters and 120 megawatt hours of batteries, and generated $117.4 million in free cash flow. The company's gross margin was 47%, operating expenses were 27%, and operating income was 20%. The worldwide NPS was 79% and the average call wait time was 2.5 minutes. The company has a global capacity of 7.25 million microinverters per quarter, with 5 million units in the US. In Q2, they shipped 574,000 microinverters from US facilities and expect to ship 1.1 million in Q3. The US-made IQ8 Microinverters can help customers qualify for the 10% domestic content ITC error.

The company has sufficient capacity in China to support their battery production in 2024 and plans to start manufacturing batteries in the US. They will no longer provide detailed sell-through statistics, but have provided regional breakdown for Q2. In the US, revenue increased by 32% and overall sell-through was up by 8%. Non-California states saw a 7% increase in sell-through, while California's business has stabilized with a 7% increase in sell-through. In Europe, revenue was flat but sell-through increased by 3%. The Netherlands has seen a decrease in sell-through due to regulatory uncertainty, but there is a growing demand for batteries.

Enphase has seen success in the Netherlands with their IQ energy management software, which allows for a healthy payback even without NEM. They have also launched their third generation battery in France and plan to introduce IQ EV chargers and energy management software later in the year. In Germany, they saw a 7% increase in sell-through in Q2 and have unveiled new products at Intersolar Munich, including a three-phase battery backup solution and a balcony solar kit. Enphase is still underpenetrated in markets like the UK, Italy, Spain, Belgium, Luxembourg, Switzerland, Austria, and Sweden, but believes their microinverters are ideal for small systems and plan to expand throughout Europe in the coming quarters. Homeowners are increasingly looking for safety, high quality savings, and an all-in-one app experience, which aligns with Enphase's strengths.

Enphase plans to expand their product portfolio across Europe and Asia, with a focus on emerging residential markets. In California, the demand for their products has stabilized and they are seeing a high battery attach rate in NEM 3.0 systems, resulting in higher average revenue compared to NEM 2.0 systems. Enphase believes this will contribute to stabilizing their revenue in California.

Enphase's microinverters and batteries have a stable market share in the US, driven by their unique AC coupled architecture. They are making improvements to their balancer system and plan to release new products such as the IQ meter collar, fourth generation battery, and enhanced IQ combiner in early 2025. They believe their AI-based software is essential for helping homeowners maximize savings with complex tariff structures. For Q3, they are expecting revenue between $370 million to $410 million and anticipate incremental improvement in the US business and a seasonal slowdown in Europe. Their third generation IQ batteries have been well received and they plan to pilot their fourth generation battery in the US later this year.

Enphase Energy is introducing a new battery with a better cost structure and smaller form factor, as well as new products such as the meter collar and enhanced IQ combiner. They have expanded into many new markets and plan to enter more by the end of the year. The IQ8P microinverter is well-suited for small commercial solar installations and has received positive feedback. Enphase is now producing both residential and commercial microinverters in their US manufacturing facility, which can qualify for a domestic content bonus credit. They also provide an update on their IQ9 microinverters with gallium nitride.

The IQ9 family of microinverters will support higher DC input currents and AC grid voltages, and will use gallium nitride high-voltage transistors for higher output power at a lower cost. Enphase also showcased an upcoming EV charger for Europe that integrates with solar and batteries for optimized charging. They also recently launched a powerful EV charger for commercial fleet vehicles in the US and are developing a bi-directional charger for V2H and V2G capabilities. Their IQ Energy Management software is evolving with the use of AI and ML and has been trained with data from over 4 million systems.

In Q2, the company launched new software in Netherlands and Belgium to manage dynamic electricity rates, using AI technology. They also introduced a design and proposal software called Solargraf, which is available in multiple countries. The company remains focused on innovation and quality, and has expanded globally with new products set to launch in the coming year. Their customer demand and battery business are both growing, and they expect to benefit from lower interest rates and increased market share in Europe. The company is confident in their revenue recovery and long-term growth prospects.

In the second quarter of 2024, our company had a total revenue of $303.5 million and shipped over 600 megawatts of DC microinverters and 120 megawatt hours of IQ batteries. Our non-GAAP gross margin was 47.1%, and our non-GAAP operating expenses were $81.7 million. On a non-GAAP basis, our income from operations was $61.1 million and our net income was $58.8 million. On a GAAP basis, our income from operations was $1.8 million and our net income was $10.8 million. We ended the quarter with a cash balance of $1.65 billion.

In the second quarter of 2023, the company repurchased 891,896 shares of common stock for $100 million and has $648.1 million remaining for future repurchases. They also withheld shares to cover taxes for employee stock vesting and generated $127 million in cash flow from operations. For the third quarter of 2024, they expect revenue to be between $370 million to $410 million with a gross margin of 45% to 48%. They also expect a net IRA benefit of $30 million to $33 million and to ship 1.1 million units of US microinverters. GAAP operating expenses are estimated to be $138 million to $142 million, with non-GAAP operating expenses at $79 million to $83 million. The GAAP and non-GAAP annualized effective tax rate is expected to be 18%, excluding discrete items, with a net IRA benefit.

The speaker is opening the line for questions and the first question comes from Philip Shen with ROTH Capital Partners. Shen asks about the company's sell-through and if there is any destocking in Q3. The speaker confirms that there is no destocking and that the channel is balanced. They are optimistic about achieving $450 million in revenue and have successfully normalized their channel inventory. The battery business is healthy and demand has increased by 5% in Q2. The speaker is being conservative in their guidance and has given a range of $370 million to $410 million for Q3 revenue. They also mention that Q3 bookings are the healthiest they have been in a year.

The speaker discusses the company's strong bookings and its focus on mitigating risks. They also mention the positive impact of their commitment to US manufacturing and the potential for lower interest rates. They express optimism about growth in Europe and take a question about gross margins and the potential impact of the 45X tax credit and domestic content ITC adder on their business. The speaker emphasizes their continuous efforts to reduce costs and improve gross margins in both their microinverter and battery business. They also mention the decreasing prices of cell packs in the battery business.

Enphase Energy is making changes to their microinverter architecture and starting to manufacture them in the US. They have a high serviceability rate of 90% for batteries and system controllers, making maintenance easier and less costly. The company is optimistic about gross margins, with or without the Investment Tax Credit (IRA). Most of the IRA benefit comes from microinverters, and they are currently ramping up production of batteries. They are also working on meeting domestic content requirements and are in talks with various parties. Enphase intends to pass on the benefits of the incentive to consumers, but it may involve setting up more factories and charging for value.

In response to a question about the competitive landscape, Badri Kothandaraman discusses the increasing battery attach in California, with 60% of installations happening under NEM 3 and a high battery attach rate of over 90%. He also mentions that overall worldwide shipments have been steadily increasing, with 75.5 megawatt hours in Q1, 120 megawatt hours in Q2, and a projected 160-180 megawatt hours in Q3. Raghu will add more details.

The speaker discusses the success of their NEM 3 solar system, with over half of them being attached to Enphase batteries. They also mention the strong value proposition for grid type batteries, which are easy to install and do not require extra balance of system or main panel upgrades. The company offers 24x7 support, easy serviceability, and a 15-year warranty due to their architecture. They are also streamlining their balance of systems for backup solutions. The speaker also highlights the advantages of their PV system over string inverters, such as higher power production and a safer AC architecture without high voltage DC on the roof.

The speaker discusses the importance of per panel monitoring and domestic content readiness in the competitive solar energy market. They also mention the potential growth in the fourth quarter and the strong value proposition of their company compared to centralized solutions. The speaker's colleague adds that their value proposition becomes even more important with new tariff structures and the inclusion of batteries in their offerings.

The company is optimistic about their growth in the fourth quarter and beyond. They have successfully normalized their channel inventory and seen a 5% increase in customer demand in the second quarter. Their battery business is doing well, with 75.5 megawatt hours in Q1 and 120 megawatt hours in Q2. They expect to reach 170 megawatt hours in Q3 and have seen healthy bookings in the quarter.

The company's commitment to US manufacturing is leading to opportunities with commercial asset owners and the expectation of offering high-value solutions. The potential for lower interest rates and the introduction of new products, such as the Solargraf software platform and the latest battery, in the Netherlands is expected to drive demand. The company is also seeing success in France and plans to introduce new products there, including IQ energy management and EV chargers. In Germany, the company's sell-through in Q2 was up compared to Q1 and they have unveiled a new three-phase battery backup solution at a recent event.

The company is introducing a new battery with high round-trip efficiency and plans to launch it in Germany, Austria, and Switzerland. They are also launching a balcony solar product that was well-received at a recent trade show. This product allows for exporting solar energy into the wall socket and has a backup feature in case of power outages. The company expects to sell 400 megawatts of this product in Germany and plans to expand it to other European countries. They are also introducing an EV charger in all of these countries.

The speaker discussed the company's strong presence in France, Netherlands, and Germany, and their plans to expand in other European countries. They also mentioned upcoming products such as microinverters, batteries, EV chargers, energy management software, balcony solar, and Solargraf. Homeowners want safety, high quality systems, savings, and an all-in-one experience. Some of these products will be available in Q3 and Q4. The guidance for batteries includes growth from new geographies and channel fill, with the majority of growth coming from the US and California. The speaker did not provide specific details on the product market fit for the IQ9 and potential headwinds for bringing it to market.

In this paragraph, Colin Rusch asks Badri Kothandaraman about any potential challenges Enphase may face in bringing their new product, IQ9, to market. Badri explains that IQ9 will be GaN-based and will offer higher power at a lower cost. The first product will be for the commercial market, with a focus on the 480 volt small commercial market. Enphase plans to make the cost of IQ9 comparable to IQ8, with a goal of releasing it in 2025. Raghu Belur adds that this is a great product-market fit.

Enphase's module power is increasing and they have a platform in place to handle future increases. This gives them a unique advantage over competitors. They plan to increase penetration in under-served European markets by introducing new products such as IQ8 microinverters, three-phase and single-phase batteries, and IQ EV chargers. They are also releasing the Solargraf platform in these regions to enhance their value proposition to installers and homeowners.

The paragraph discusses the company's IQ energy management software and its potential for growth in regions with dynamic electricity rates. The company's strategy includes increasing sales, expanding FAE coverage, providing good customer service, and training installers. The company expects steady growth as they introduce new products over the years. The discussion then shifts to the company's expectations for SunPower in the third quarter, which have been adjusted for potential changes. The company also addresses the impact of the flipped value proposition and how it may contribute to a step function recovery in the residential market and overall volume growth for the year.

The speaker discusses SunPower and the domestic content policy. They believe the policy will benefit the industry and are excited about the potential for it to propel the market in Q4. They mention that 60% of their installs are under NEM 3 and speculate on how long it will take to get through NEM 2. They also mention high attach rates and the potential volume for energy storage in the future.

The speaker discusses the current state of the company's US manufacturing and its outlook, mentioning details about the impact of geopolitical factors such as the upcoming US and European elections. They also mention their optimism about the growth of their battery business in California.

Badri Kothandaraman discusses the risks from an IRA perspective and in Europe, stating that their business is sound and their value proposition is excellent. They have brought high technology manufacturing back to the US and are creating jobs and making investments. He also mentions the growth in the number of certified battery installers, attributing it to their active training department and the success of their IQ battery 5P product.

The company's products are being well received globally, not just in the US, and they are now focusing on a three-phase battery to address the market. They are working with a variety of installers and providing guidance and solutions to any problems that arise. The company is also adapting to the trend of transitioning from solar to energy, and their products align with this transformation. They are constantly improving their products, including introducing a new battery and EV chargers, and providing software training to help sell their systems. This is beneficial for the company as they have expertise in building hardware and software systems.

The speaker is discussing the use of batteries in the US, specifically in California. They mention that outside of California, batteries are primarily used for backup, but in California, they are used for rate arbitrage due to different incentives and rates. The speaker is unsure about market share for batteries in California versus other states but believes it is similar. When asked about sell-through numbers for storage in megawatt hours, the speaker mentions that the channel is clear but they are tight on batteries.

The speaker discusses the current inventory levels in the US, stating that they are less than eight weeks. They aim to maintain a guardrail of eight to 10 weeks and mention that the batteries are currently tight in the channel. The next question is about domestic content, to which the speaker responds that their guidance does not include any domestic content in Q3, but it could be possible that some competitors may use what is already available. They plan to increase domestic content in Q4 with the release of their own enclosures.

In response to a question from Kashy Harrison of Piper Sandler, Badri Kothandaraman, the operator of the conference call, discusses the health of the global channel and the variability of inventory levels by country. He mentions that the company is focused on maintaining a range of eight to ten weeks of inventory and has implemented statistical process controls to ensure this. He also notes that the company will no longer be reporting on cell inventory. In response to a question from Dylan Nassano of Wolfe Research, Kothandaraman mentions that Q2 bookings were the healthiest they have been in over a year, but does not provide specific numbers. He also notes that the company's visibility into forward demand has improved as the channel has cleared.

In response to a question about the company's balance sheet, Badri Kothandaraman states that their first priority is to invest in the business, followed by potential M&A opportunities. If there are no opportunities, the company will continue to repurchase shares as long as the share price is below a certain level, which they have been doing systematically in the last few quarters.

The speaker, Badri, is optimistic about the company's prospects, citing strong markets in France, Germany, and the Netherlands as well as underpenetrated countries. However, some peers in Europe have reported a reduction in demand, particularly in residential and commercial sectors, and have made staff cuts. The questioner is trying to understand how the company's outlook aligns with these data points.

Badri Kothandaraman explains that the key to their success in Europe is understanding the dynamics of each country and identifying opportunities for growth. They are underpenetrated in Europe and have a strong presence in Netherlands, France, and Germany. They are introducing new products in other countries and have a lot of market left to explore. They have recently introduced balcony solar for Germany, three-phase battery, and IQ EV charger, which have been well received by installers. They have a strong focus on residential markets and are working closely with installers to manage inventory and support distribution partners. They are also looking to expand into small commercial markets.

The company's sell-through in Europe increased by 3% from Q1 to Q2, with some countries showing growth while others declined. The company is optimistic about its plans to introduce new solutions in these countries. The launch of IQ9 is expected in the second half of the year. The company does not have any plans to change pricing in response to competition. The company's pricing strategy in Europe will not differ from its strategy in the US.

Enphase is focused on providing value compared to other alternatives and believes the pricing situation is stable in both the US and Europe. The US battery facility is expected to begin operations in Q4 instead of Q3 due to changes in manufacturing approach. The Q3 net IRA benefit guide includes IQ8P and microinverters for batteries. In the Netherlands, sell-through was down 15% quarter-over-quarter, while Europe overall was up 3%.

The slowdown in the Netherlands has had a negative impact on overall EU revenue, with flat numbers in Q1 and Q2. However, there is an opportunity to increase battery attach rates in the Netherlands through the use of Solargraf software and working with installers. Consumers are currently hesitant due to regulatory uncertainty, but Enphase can help by using IQ energy management to avoid penalties and potentially receive payments for consuming excess energy. This presents a unique opportunity for Enphase to assist utilities and increase battery sales in the Netherlands market.

The speaker discusses the company's plans to introduce new products in Europe, including the IQ EV charger, Balcony Solar, three-phase battery, and Solargraf everywhere. They also mention their goal of reaching a battery gross margin of 35% and their strategy for capturing a higher portion of the NEM 3.0 market in California. The speaker highlights factors contributing to the company's healthy battery margins, such as decreasing cell pack pricing and increased serviceability. They also mention their fourth generation battery, which will further improve gross margin through integration and reducing the number of goods needed.

In the paragraph, the speaker discusses the 50% attachment rate for Enphase to NEM 3.0 solar systems, which has remained steady for the past few quarters. The speaker cannot confirm the names of the other companies involved, but mentions their plans to introduce a new battery, meter collar, and enhanced system controller. This new battery will have a 10-kilowatt hour modularity and will include a neutral, eliminating the need for a separate system controller. The company expects to introduce this new system in the first quarter of 2025 and believes it will do well. The conference then concludes with the speaker thanking the audience and looking forward to the next quarter.

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