Enphase Energy, Inc.

Thank you for standing by, and welcome to the Enphase Energy First Quarter 2021 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. We ask that you please limit yourself to one question or one follow-up. You may get back in the queue as time allows. As a reminder, today's conference call is being recorded. And now I'd like to hand the conference call over to Adam Hinckley. Please go ahead, sir.

Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's first quarter 2021 results. On today's call are Badri Kothandaraman, Enphase's president and chief executive officer, Eric Branders, chief financial officer, and Raghu Ballor, chief products officer. After the market closed today, Enphase issued a press release announcing the results for its first quarter ended March 31st, 2021. 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 capability of our technology and products, including availability and features, our operations, including in manufacturing and customer service, the anticipated growth in our sales and in the markets in which we operate and target, and the capabilities of our installation partners. These forward-looking statements involve significant risks and uncertainties, and Enphase Energy's 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 the company's annual report on Form 10-K for the year ended December 31st, 2020, which is on file with the SEC, and quarterly report on Form 10-Q for the quarter ended March 31st, 2021, which will be filed during the second quarter of 2021. 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 statement as a result of new information, future events, or changes in its expectations. Also, please note that the financial measures used on this call are expressed on the 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 first quarter 2021 financial results. We had a good quarter. We reported revenue of $301.8 million, shipped approximately 0.45 million microinverters, achieved non-GAAP gross margin of 41.1%, and generated strong free cash flow of $81.5 million. We exited the first quarter at approximately 41, 14, 27. This means 41% gross margin, 14% operating expenses, and 27% operating income, all as a percentage of revenue on a non-GAAP basis. As a reminder, our baseline financial model is 35-15-20. Eric will go into details about our financials later in the call. Let's discuss how we are servicing customers. Our Q1 Net Promoter Score worldwide was 63% compared to 62% in Q4, and our North America Net Promoter Score was 69% compared to 68% in Q4. Our average call wait time in Q1 was more than five minutes as we onboarded new installers and fielded calls related to our storage systems. We are working diligently to bring wait times down under a minute. We also expect our 24 by 7 global customer support to help reduce wait times. This round-the-clock support is another step forward towards delivering an outstanding customer experience and will supplement the Enphase community and training platform. Let's talk about manufacturing. As we discussed in the last call, the semiconductor supply chain is under stress. In Q1, we experienced constraints on the supply of A6 and AC fed drivers, which limited shipments. Our contract manufacturing facility in Mexico shipped more than 900,000 microinverters. Our contract manufacturing facility at Salcomp, India, shipped nearly 500,000 microinverters. We are very pleased with the production ramp, product quality, and manufacturing costs, of this fully automated facility in India. Given our strong demand, we are expanding manufacturing capacity in Mexico and India further. In Mexico, we are improving operational efficiency and expect to reach quarterly capacity of 1.5 million microinverters. At our facility in Chennai, India, production is around the clock, bringing quarterly capacity to 700,000 microinverters from one manufacturing line. We have already purchased equipment for the second manufacturing line, and expect to begin ramping in Q3. Looking to Q2, our shipment volumes will be constrained by semiconductor component availability. We have qualified new suppliers for our ASIC and AC fed drivers, which will result in increased shipments for Q2 compared to Q1, but the ramp from these new suppliers is slower than what we had anticipated before. We expect these component constraints to remain for the rest of the year. In terms of our in-phase storage systems, we shipped 42 megawatt hours in Q1, representing a sequential increase of 30% and in line with our expectations. Let's now move to the regions. The U.S. and international revenue mix for Q1 was 82% and 18% respectively. The U.S. market was quite strong in Q1 despite typical seasonality. U.S. revenue was up 14% sequentially. We achieved very good microinverter sell-through from our distribution partners. I am proud of our operations team for navigating the supply constraints and ensuring customers had continuous supply of product. With higher microinverter shipments in Q1, our channel inventory is better but still tight. With Q2 through Q4 being seasonally robust quarters, we expect the channel tightness for microinverters to continue. In Europe, we reported record Q1 revenue. Revenue increased 17% sequentially. We saw strength in Netherlands and France while building on new markets such as Germany, Poland, and Austria. Our AC module strategy is also gaining momentum in Europe. We expect to introduce NFA storage systems for the European market in the second half of 2021, first in Germany and then in Italy, adding yet another growth driver. I'm very pleased with our performance in Europe. In Australia, we had record revenue and record installer count. Q1 revenue was up 58% sequentially. The strong growth of the Enphase Installer Network, or EIN, and rapid market penetration of our IQ7A product contributed to our success. In addition, we are focusing both on installer and homeowner experience, launching 24-7 customer support, conducting technical training and collaborating on branding initiatives with installers in Australia. We expect to introduce entry storage systems to Australia also in the second half of 2021. In Latin America, Q1 revenue was down a little, 33%, from the prior quarter, which had benefited from large storage orders. Puerto Rico continues to be a solid market in terms of both microinverters and storage. We are also making plans to enter the Brazilian residential solar market, which is expected to be over a gigawatt this year. We have already hired Marco Crepels, an experienced sales leader, to accelerate our entry into Brazil. Now that we have covered the regions, let's discuss the overall bookings for Q2. Once again, our customer demand for Q2 significantly exceeds the higher end of our guidance range. We are We remain supply constrained for Q2, as I said before. The component availability is improving, but not at the rate of growth in demand. While it is very early to talk about Q3, our customer bookings are quite higher than what they would normally be at this time of the quarter. We are planning for much higher capacity in Q3 for both microinverters and storage. We are obviously pleased with the overall demand, but we are cautious about the supply situation, which is not very predictable today. Let's now move to our storage system rollout. We shipped 42 megawatt hours of storage systems in Q1, representing sequential growth of approximately 30%. Cumulatively, 623 unique installers commissioned at least one Enphase storage system by the end of Q1. We're also making good progress with the Tier 1 and 2 installers. We previously announced solar plus storage partnerships with Sunova, Momentum Solar, Solar Optimum, and Power. We expect to announce more partnerships soon. Let's now turn to training for our Enphase storage systems. By the end of Q1, we trained 1,776 installers cumulatively online, representing 1,035 unique companies. We plan to resume in-person training soon, beginning with our mobile van training in Texas. Other states will follow suit shortly. In addition, we are resuming the build-out of training centers at various distributor locations. As you're aware, we are laser-focused on customer service and making sure we are the easiest company to do business with. With these principles in mind, we started weekly installer roundtables in Q1 to understand how we can improve the Enphase storage product. The findings are clear, improving the commissioning experience for installers and making life easier for homeowners. By leveraging this feedback, we have made a number of updates to our software and commissioning process. Our engineering teams have been working hard to reduce commissioning time on our storage systems from many hours to approximately two hours through software improvements and training initiatives. Our goal is a 60-minute commissioning time, which will allow our installers to visit the site, install, and commission an Enphase storage system in a few hours. We expect to release a couple of new features for our Enphase storage system, as discussed in our last earnings call, and these include load control and generator support. Load control is the ability to turn loads on and off. We envision that most homeowners will opt for a full backup of their entire home rather than a partial backup with the capability to shed loads when needed. We have four circuits for load control designed into our NPower smart switch. Homeowners can choose up to four loads they want to control. For example, an air conditioner can be controlled through one circuit, and a pool pump can be controlled through another circuit. These loads will be on during the grid-type mode and can be shed instantaneously during the off-grid mode, simply via the app. In addition, excess solar can also be configured to be shed through one of these four circuits. This enables the homeowners to save money by not oversizing their battery storage systems. The next feature is generator compatibility. Unlike some of the others, there is no need to install a generator ATS when used with Enphase storage systems. The generator can plug into our smart switch called Enpower, which has built-in safeguards that ensure generator is only connected to the home when the home is off-grid. When the home is disconnected from the utility, Enphase microinverters in the battery seamlessly form a microgrid to ensure there is no disruption. The lights will not flicker. The clocks will not reset. Next, our smart switch starts the standby generator. Once the generator is stable, the system synchronizes the microgrid to the generator's voltage and frequency. Our smart switch then seamlessly connects the home to the generator. The Enphase solution provides increased resilience in the off-grid mode by enabling solar, storage, and the generator to run together. The generator control will also be integrated into our mobile app so that homeowners have full visibility and control from one app. There are two modes of operation. One is the basic mode where the generator simply turns on during an outage, and the other is when the generator can be configured to turn on depending on the state of charge of the battery during an outage. For example, when the battery charge goes below 20% in an outage, the generator turns on, charges the battery, supports the home loads, and once the battery reaches 90%, the generator turns off. These are two powerful features, and we expect to release them this quarter after beta testing with customers, which is underway. We are seeing a good amount of interest from customers, and these features can be enabled simply by over-the-air software upgrades for existing storage systems, along with some additional minimal work to be done by the installers. In summary, we are happy with our Q1 storage shipments reaching 42 megawatt hours. And as I said, we expect to introduce a couple of differentiated new features to improve the homeowner experience. We expect to reduce the commissioning times to improve the installer experience. And we expect to make significant go-to-market changes to improve the brand experience. We expect our storage shipment volumes between 40 and 50 megawatt hours in Q2. Let's talk more on upcoming new products. First, I'd like to cover more details on what else is new for storage. In addition to the new features we talked about, we are partnering with aggregators and utilities to enable grid services. This will enable utilities to leverage home battery storage systems instead of turning on peaker plants. And in doing so, the homeowners can get paid for providing that service. We have formed a 20% grid services team at Enphase now, consisting of software, product management, business development, and policy experts. This team has already made tremendous progress on technical and business fronts, and we plan to expand the team significantly to engage with more utilities and aggregators. Final point on storage. We are working hard to introduce the Enphase storage systems internationally, as I said before. We want to ensure that all learning from North America is captured, and that we are fully staffed to support customers. We expect to introduce Enphase storage systems first into Europe and then into Australia in the second half of 2021. Let's cover our upcoming IQ8 and IQ8D product launches. IQ8 is the world's first grid agnostic microinverter for residential solar, and IQ8D is a high-power microinverter capable of supporting two panels for small commercial solar. We are making good progress on the compliance, reliability, and system testing of these products. However, with the microinverter supply chain constraints due to semiconductor component shortages, we expect a slower ramp beginning in Q3. We also plan to introduce the Enphase portable power station consumer product in Q4, assuming component shortages are under control. Let's now turn to digital transformation. I'm excited about our two completed acquisitions, SoftDesk and the solar business of DIN Engineering. The former Swapdesk team, now known as Enphase Montreal, provide design and proposal software for solar and roofing companies. The team acquired from DIN Engineering, now known as Enphase Noida, provides proposal and permitting services to the installers. By providing these services to installers, we aim to simplify the sales process while reducing soft costs and providing an enhanced buying experience for homeowners. The obvious opportunity for Enphase is to expand both these offerings to our network of long-tail installers. This is an important initiative for us, and we will be integrating these two company operations into our digital platform. We have now onboarded 476 installers in North America and 138 installers in Australia to our Enphase installer network, EIN, through a highly selective process focused on quality and homeowner experience. We recently launched our EIN in Europe and India. Our EIN installers enjoy a variety of benefits, including branding, promotion, and tools and services on the digital platform to help make sales and installation process faster and easier. In summary, we are happy with our performance and we are pleased with the increased demand for our products. We look forward to introducing our new products, ramping our storage systems, supporting our customers better, and accelerating our digital transformation. As always, the health and safety of our employees, the customers, and partners remain our top priority as the world continues to be impacted by COVID-19. With that, I will hand the call over to Eric for his review of our finances. Eric?