Enphase Energy, Inc.

Thank you very much. Mr. Adam Hinckley. Please go ahead, sir.

Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's second quarter 2020 results. On today's call are Badri Kothandaraman, Enphase's president and chief executive officer, Eric Branders, chief financial officer, and Raghu Balur, chief products officer. After the market closed today, Enphase issued a press release announcing the results for its second quarter ended June 30, 2020. During this conference call, Enphase Management will make forward-looking statements, including, but not limited to, statements related to Enphase Energy's expected future financial performance, the capabilities, availability, and market adoption of our current and future technology and products, our performance and the performance of our installation partners and sales and operations, and our expectations as to the impact of the COVID-19 pandemic. These forward-looking statements involve significant risks and uncertainties, and Enphase Energy's actual results and the timing events could differ materially from these expectations. For a more complete discussion of the risks and uncertainties, please see the company's annual report on Form 10-K for the year ended December 31st, 2019, which is on file with the SEC, and quarterly report on Form 10-Q for the second quarter ended June 30th, 2020, which will be filed during the third quarter of 2020. Enphase Energy cautions you not to place any undue reliance on forward-looking statements and undertakes no duty or obligation to update any forward-looking statements as a result of new information, future events, or changes in its 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. The company has provided a reconciliation of these non-GAAP financial measures to GAAP financial measures in its earnings release posted today. which can also be found in the investor relations section of its website. Now, I'd like to introduce Badri Kothandaraman, President and Chief Executive Officer of Enphase Energy. Badri?

Good afternoon, and thanks for joining us today to discuss our second quarter 2020 financial results. I hope all of you are staying safe and healthy. Our team did a good job of navigating a difficult macro environment caused by COVID-19. We reported revenue of $125.5 million, shipped approximately 1.1 million microinverters while driving channel inventory back to healthy levels, achieved record non-gap gross margin of 39.6%, and generated strong free cash flow of $21 million. In addition, we began shipping our in-charge storage system featuring Ensemble energy management technology. This is an important product release for Enphase. More on this shortly. We exited the second quarter at approximately 40-21-19. This means 40% gross margin, 21% operating expenses, and 19% operating income, all as a percentage of revenue on a non-GAF basis. As a reminder, our baseline financial model is 35-15-20. COVID-19 created a significant downward pressure on demand during the second quarter of 2020. With many countries implementing shelter in place restrictions, all aspects of daily life were impacted. Although solar installers were considered essential service providers in some locations, their business processes had to be reinvented. For an industry that relied largely on in-person sales meetings with homeowners a few months ago, The speed with which installers have migrated to virtual selling has been impressive. Our employees have been remarkably resilient, too, not skipping a beat during the pandemic. Releasing Ensemble to the market with most of the engineers working from home was an amazing accomplishment. Our sales, operations, and finance teams did an incredible job navigating a tough quarter by working closely with customers, focusing on linearity and inventory management, and ensuring tight cash management. I am very proud of them. Let's now talk about how we are servicing customers. Our customer experience personnel in all four worldwide locations, U.S., Europe, India, and Australia, are fully supporting installers and homeowners while working from home. Our worldwide Q2 Netra Motor score was 66%, and our North America Netra Motor score was 73%. The ability to show consistent results with employees working from home during the quarter was no easy feat and is a testament to the business processes we implemented. Our average call wait time decreased slightly in Q2 to approximately a minute. We continue to enhance self-service and chat capabilities to reduce call volumes and lower our wait time. Specifically, we launched the online Enphase community during Q2, which gives installers and homeowners the ability to communicate directly about Enphase products. In addition to the Enphase online store we launched in the US during Q4-19, we also added online stores in Europe and Australia during Q2 to better service our installers and homeowners with quick cycle times. Let's quickly cover manufacturing. Given the reduced demand situation in Q2, we worked very closely with our contract manufacturing partners to optimize Overall inventory builds in both China and Mexico. Maintaining a tight lead on inventory is critical for us, especially during these tough times. We were pretty successful as we reduced inventory levels by nearly $3.4 million compared to Q1. Our factory in Mexico is very important for us, and we feel confident we will be able to produce a million microinverters by Q420 if justified by product demand. We currently manufacture in both China and Mexico with our existing contract manufacturing partners, and we have an excellent relationship with them. On our previous earnings call, I've discussed qualifying a second contract manufacturing partner for microinverters. We are doing this to create further flexibility as we grow our business. The contract manufacturer is Salcom, and that factory is in Chennai, India. We are setting up a fully automated line with them. The qualification is going well. We're very happy with the progress, and we expect to start producing microinverters from the Salcom Chennai factory in the fourth quarter of 2020. In terms of battery storage, we have one qualified supplier for our cell pack, and we are in the final stages of qualifying an additional supplier. This will bring up our capacity to a total of 480 megawatt hours a year. Once the two supplier factories are fully ramped, in the first half of 2021. We also expect to qualify a third source next year so that we have fully flexible supply chain for batteries going forward, much like our microinverter supply chain. We are still using lithium ion phosphate batteries as they provide differentiation in terms of fire safety and thermal stability, which is very critical to homeowners. Let's now move to the regions. Our U.S. and international mix for Q2 was 80, and 20% respectively. Europe stood out during the quarter, demonstrating sequential revenue growth from Q1, despite COVID-19. The US market was the hardest hit region due to COVID-19. With solar installations shut down in the areas of California and several northeastern states, April witnessed a dramatic slowdown. As installers became more proficient in closing online sales, And as building departments accelerated online permits, we started to see activity picking up towards June. Our average weekly sell-through from distribution to installers was 26% higher in June versus April. We worked very closely with our distributors and installers throughout Q2 to optimize channel inventory. Weeks on hand at the end of Q2 was above our typical level but still within a healthy range. In addition, our installer count increased sequentially in Q2 despite the low overall sell-through. This highlights our success at continuing to win new installers. We also announced a strategic partnership in Q2 with QCell to develop AC modules based on our seventh generation IQ7 Plus microinverters. For the third quarter, We are seeing a nice pickup in sell-through during July. Our weekly sell-through in July was 14% better than in June. We expect to be at our target inventory range of 8 to 10 weeks at the end of Q3. In addition, we started shipping the uncharged storage systems in the U.S. We are ramping the battery supply chain and have more demand than what we can support in Q3. As I have said, we are rapidly bringing on additional capacity with our second battery supplier for Q4. Another important subject is the in-charge training for installers. In early July, we pivoted to online training for installers through the Enphase University. Nearly 134 installers have completed the online courses to achieve provisional certification, and another 531 installers are in the process of completing the training. In summary, we are confident of resolving supply and training challenges and are targeting an 8 to 10 percent average storage attach rate for the U.S. in Q4, which is higher than what we said at our analyst today in December of 2019. As a reminder, the storage attach rates vary depending on geography, and we expect attach rates to be significantly higher in California and Florida. In Europe, We are expanding our sales force in all key regions even more than what we originally planned before. Our Q2 revenue in Europe increased sequentially by 8% from Q1. Installer attendance at sales webinars during Q2 more than doubled relative to in-person attendance in Q1. As a result, our installer count increased by more than 20% sequentially. Distributor gains were made both in new markets, such as Germany, Poland, and Spain, as well as existing market of Netherlands and Belgium. We expect to grow significantly in Europe during Q3, although our target of doubling revenue on an annual basis is unlikely due to COVID. We anticipate adding several new installers and distributors during Q3. We recently announced a strategic partnership with SunPower, produced the new Enphase energized Maxion AC module based on seven generation IQ microinverters. Overall, I'm very happy with our team's performance in Europe. Revenue from both Asia Pacific and Latin America decreased sequentially at a rate consistent with the U.S. when excluding safe harbor revenue from Q1. In Latin America, Puerto Rico witnessed a strong rebound activity during the second half of Q2, in anticipation of the hurricane season after being shut down in the first half of the quarter. Storage attach rates in Puerto Rico are high, so this could be an interesting market as we ramp shipments of our in-charge storage system. In Australia, we have been focused on winning new distributor and installer partners, and our installer count in Q2 reached a multi-year high. The Australian market suffers from an abundance of low-quality products, but our differentiation on safe AC Reliability and customer service are allowing us to gain share. During Q3, we plan to introduce in Australia our highest power product, the IQ7A, which can pair with high-power DC modules up to 450 watts. This will help installers optimize their overall system cost and performance. In addition, we expect to ship microinverters for Maxion AC modules starting in Q420. We expect sequential revenue growth from these initiatives through 2020 and beyond. Now that we covered the regions, let's now talk about the overall bookings worldwide for the third quarter. At this point, we are 100% booked to the midpoint of Q3 revenue guidance. We cannot predict how COVID-19 is going to play out in August or September, so that's always a risk. However, we feel very good about the progress we are making and the demand that we are seeing. Let's now turn to new products. The feedback that we have received on our in-charge storage systems has been quite good. Installers like the modularity, ease of installation, and the all-in-one energy system in addition to our trademark quality and service. Homeowners like the product functionality, you know, safe chemistry, one company to call, transparency of its inner workings, and the ability to go off-grid through the mobile app. Just to recap, I'd like to go through the features and benefits of the nCharge storage systems in detail. First, an all-in-one AC-coupled system for distributed solar and storage. Second, intelligent brownout built with Enphase PowerStart technology, which uses a software-based approach to mitigate initial demand spike from motor-driven appliances such as air conditioners and pumps. is modular architecture along with UL9540A fire certification based upon very safe lithium iron phosphate chemistry along with air cooling. And fourth is no single point of failures due to redundant microinverters in every in-charge 3.3 kilowatt hour battery. Fifth one is the standard easy to install you know, performance of Enphase that all our long-tail installers are used to and come to expect now. The next one is unprecedented insight into solar and storage performance with the ability to go off-grid simply through the mobile app. The last one is plug-and-play compatibility with existing and new Enphase solar systems with IQ microinverters. And one thing that is new is we are going to make the in-charge compatible with M-series TV systems, microinverter systems, and we are going to introduce that in the fourth quarter of 2020. This is a big deal as it is going to enable easier upgrades for 300,000 homeowners who have the M-series-based solar system on their roofs. Let me quickly elaborate a little bit about the PowerStart technology, which helps to start motor-driven appliances like ACs and pumps. We all know that there is an initial surge in power demand when you start an AC or a pump, and that can collapse a home's microgrid. Our PowerStart technology uses a software-based approach to flatten that demand spike without impacting the user experience. I would like to provide a quick story to highlight this advantage. Our chief operating officer recently installed EnCharge on his home, and his home runs a whole home pressure pump to supply well water. By the way, 13 million American homes rely on well water. Prior to joining Enphase, he was told by competition that he would need 40 kilowatt hours to start this pump. Enphase solved the challenge with only 23.3 kilowatt hours of EnCharge batteries. Let me caution that this system size reduction is dependent on the load profile of each home, but it does demonstrate the power of Ensembl. Enphase can create a better user experience despite a smaller battery size, and that's one of our key advantages. Not every kilowatt hour is the same, as we like to say. Beyond Encharge, we have an exciting lineup of new products. We are making good progress on launching our IQ8PV the grid-agnostic micro-inverter on the roof. With IQ8, solar can power the home even when the grid is down without a battery. We are also moving quickly on our small commercial offering IQ8D, as well as the portable ensemble in a box solution. Preliminary information on the IQ8D is already on our website. Now that we have the base ensemble platform in good shape, getting these products out will become more predictable. Let me briefly touch upon digital transformation. I talked about it in the prior earnings call. Our approach here is pretty simple. Provide a great experience for both installers and homeowners through a comprehensive digital platform. Once installers and homeowners get on the platform, they should never, ever leave it. In early July, we launched our Enphase installer network in the US, a network of trusted installers who deliver exceptional homeowner experiences using Enphase products. The Enphase Installer Network, or EIN as we'd like to call it, is the backbone of our digital platform. We have onboarded more than 300 installers who will benefit from access to a digital platform that delivers homeowner leads, an array of tools for design, proposal, financing, scheduling, and services such as permitting labor and incentive processing in order to improve their business efficiency. We plan to deliver these tools and services to the installers over the next few quarters. By providing our installers with best-in-class tools and services, and by continuously being connected to them and homeowners digitally, we hope to take customer experience to a new level worldwide. In summary, we are pleased with the results for the second quarter considering the COVID-19 pandemic. The health and safety of our employees, customers, and partners remain our topmost priority. We are optimistic about the resurgence in market demand for the third quarter and excited about the ramp of our in-charge battery storage systems. We look forward to accelerating both our new products and digital transformation efforts over the next 18 months. Before I turn the call over to Eric to discuss our financials, I would like to briefly address a baseless short report that came out in June. Like the report issued by the same entity in 2018, This report is blatantly false and misleading. We operate with the highest standards of ethics and integrity. We run the company based upon our core values and will not compromise them come what may. We take great pride in the products that we create and operational excellence we have achieved till date. We will continue to focus on delivering the best customer experience, building great products with the highest quality standards, and driving exceptional shareholder value. With that, I will hand the call over to Eric for his review of our finances. Eric.