Enphase Energy, Inc.

Good day and thank you for standing by. Welcome to the Enphase Energy second quarter 2021 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to our speaker today, Adam Hinckley. Please go ahead.

Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's second quarter 2021 results. On today's call are Badri Kothandaraman, Enphase's President and Chief Executive Officer, Eric Branderes, Chief Financial Officer, and Raghu Ballor, Chief Products Officer. After the market closed today, Enphase issued a press release announcing the results for its second quarter ended June 30, 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, Enphase Energy's actual results and the timing of events could differ materially from these expectations. For a more complete discussion of these risks and uncertainties, please see the company's annual report on Form 10-K for the year ended December 31, 2020, which is on file with the SEC, and quarterly report on Form 10-Q for the quarter ended June 30, 2021, which will be filed during the third 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 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. 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 2021 financial results. We had a good quarter. We reported revenue of $316.1 million, shipped approximately 2.36 million microinverters and 43 megawatt hours of Enphase storage systems, achieved non-GAAP gross margin of 40.8% and generated strong free cash flow of $49.2 million. We exited the second quarter at approximately 41-16-24. This means 41% gross margin, 16% operating expenses, and 24% 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 finances later in the call. Let's now discuss how we are servicing customers. Our Q2 net promoter score worldwide was 67% compared to 63% in Q1, and our North American net promoter score was 71% compared to 69% in Q1. Our average call wait time decreased to approximately three minutes in Q2 from more than five minutes in Q1. Our 24 by 7 global customer support helps to reduce the wait times. In addition, we are building field service teams in the US and Europe to provide onsite help to our installers. We also expect to add a team in Australia during Q4. We remain laser focused on customer service and making sure that we are the easiest company to do business with. Let's now talk about manufacturing. As we have discussed in the past earnings calls, demand for our microinverter systems continues to be well ahead of supply. In Q2, we experienced component constraints on the supply of AC fed drivers, which resulted in our microinverter shipment volume slightly lower as compared to Q1. We had three AC fed driver suppliers qualified by the end of the second quarter compared to two in the first quarter. For the third quarter, we continue to remain constrained on microinverters. But the supply situation is better than what it was in the second quarter. We expect to have four suppliers qualified by the end of the third quarter. Regarding the fourth quarter, we are cautiously optimistic that the situation will be significantly better compared to the third quarter. On the ASIC used in our microinverters, we have sufficient supply, so that has not been a big constraint so far. As previously discussed, we are expanding our microinverter manufacturing capacity in Mexico and India. At our facility in India, we installed a second fully automated line in Q2 with production beginning at the end of the quarter. This brings our quarterly capacity to 1.5 million microinverters from India. In Mexico, we expect to add a fully automated manufacturing line in Q4. This will bring quarterly capacity to approximately 2.2 million microinverters in Mexico. With our existing capacity in China, we expect to easily achieve our target capacity of 5 million microinverters per quarter by the end of 2021. Let's talk about batteries. We have two sources for battery cell packs with a total capacity of 120 megawatt hours per quarter. I previously mentioned we are going to add a third source in 2022 increase our overall capacity. Talking about our lead times, our lead times for storage systems are a little high today, between 12 and 14 weeks. And we are working on streamlining our engineering and manufacturing to bring them down below 10 weeks by the end of 2021. Let's move on to the regions. Our US and international revenue mix for Q2 was 81 and 19% respectively. The U.S. market demand was very strong in Q2, but we were supply constrained. Therefore, revenue was only up 3% sequentially. Our teams worked hard to ensure customers had continuous supply of product. The sell-through from our distribution partners to installers remained very strong, keeping channel inventory tight but at manageable levels. Our teams ensured that all customers had product that they needed to complete jobs and were not forced to seek alternatives, although the constrained supply prevented customers from building buffer inventory. In Europe, we reported record revenue in Q2. The revenue increased 16% sequentially. The channel inventory was much tighter in Europe than the U.S., but we expected to improve in Q3 and Q4. We had solid growth in Netherlands, France, and Germany. and continued strong microinverter sales to Maxeon for its ACM product during the second quarter. We also began selling our Enphase storage systems in Germany during late Q2, representing the product's first international expansion outside U.S. We launched our solar plus storage system estimator sizing tool in Germany that showcases panel placement on the roof, along with storage sizing and a comprehensive financial analysis. Germany represents the largest residential storage market in Europe with high attach rates. The market response to the introduction of the N-phase storage system in Germany has been positive, and we expect this to also drive the microinverter business in the country. Overall, I'm very pleased with our growth in Europe. In the Asia-Pacific region, the revenue declined 3% sequentially in Q2, primarily due to COVID disruptions in Australia, along with normal seasonality. Despite these headwinds, we are quite happy with microinverter sales during the second quarter from the continued adoption of our highest power IQ7A product and our AC module partnerships. We expect to pilot Enphase storage systems in Australia in the fourth quarter. In Latin America, Q2 revenue was up 38% sequentially, largely due to increased sales of both Enphase solar and storage systems in Puerto Rico. As I discussed last quarter, we are expanding into Brazil. We have hired a team there to enter the Brazilian market, and we expect first revenue from this region in Q3. Now that we have covered the regions, let's discuss the overall bookings for Q3. Our overall customer demand for Q3 once again significantly exceeds the higher end of our guidance range. We continue to remain supply constrained in Q3. Our component availability is improving in Q3 compared to Q2, but not at the rate of growth in demand. Let's now move to our storage systems rollout. We shipped 43 megawatt hours of Enphase storage systems in the second quarter. During the quarter, we released Load Control, a new feature that provides Enphase storage systems with the capability to automatically shed non-essential loads during an outage. With load control, homeowners have the option to conserve their energy consumption and extend their backup duration simply via a one-time setting of the Enlighten app. Let's now turn to training for our end-phase storage systems. By the end of Q2, we trained 2,592 installers cumulatively, representing more than 1,500 unique installation companies. This represents a significant jump compared to Q1 as we were able to resume some in-person training in Q2. We also continued to make steady progress on the commissioning of our in-phase storage systems and made numerous updates to our software app. Our goal remains a sub-60-minute commissioning time which will allow installers to visit the site, install, and commission an in-phase storage system in less than a few hours. I'm very pleased with the progress we have made on that front. The introduction of load control in late May, along with some pricing adjustments we did for our installers, plus the improvements in the commissioning process, has resulted in an acceleration of demand for Enphase storage since June. As a result, we expect to ship between 60 and 70 megawatt hours of Enphase storage systems in the third quarter. We are already fully booked for Q3 on storage, and our current lead times, as I said before, are 12 to 14 weeks. We are working hard to bring the lead times down to under 10 weeks. Let's talk about our new products, specifically the IQ8 microinverter and the IQ8B microinverter product launches. IQ8 is the world's first grid-independent microinverter for residential solar. And IQ8 is a high-power 640-watt AC microinverter capable of supporting two panels for small commercial solar. We are making good progress in the compliance, reliability, and system testing of these products. We expect first shipments of the IQ8 PV microinverters in Q3 and first shipments of the IQ8D product in Q4. Given our component supply challenges, we are going to ramp these products quite cautiously. On the last earnings call, we discussed the generator compatibility feature for our Enphase storage systems last quarter. We are a little bit behind here as we took more time to complete the system testing. We are currently piloting generator compatibility with a handful of real homes and are seeing great results. We expect to introduce this feature introduction by the end of the third quarter. Homeowners will then... will then have the ability to add generators to their Enphase storage systems and will be able to configure the generator behavior from the Enphase app. The Enphase home energy management system provides a seamless transition from on-grid to off-grid, ensuring a superior installer and homeowner experience. This generator functionality, as I said, will be integrated into our mobile app so the homeowners have full visibility and control from one app. Let's now turn to digital transformation. Both our recent acquisitions, SoftDesk and the solar business of DIN Engineering, are fully integrated and exceeded our expectations with record revenue and installer counts in Q2. The 850-plus installers using the SolarGraph software tool will soon have access to new features such as shading and storage system sizing. Our permitting services are also undergoing significant improvements towards automation to drive mass adoption amongst the long tail of installers. Our digital transformation initiatives focus on reducing soft costs while improving profitability and efficiency for our installers, resulting in clean and affordable energy for all. Let me now give you an update on our Enphase Installer Network, or EIN. We have now onboarded 500 installers in North America, 146 installers in Australia, and 169 installers in Europe to our Enphase installer network through a highly selective process focused on quality and homeowner experience. We also introduced EIN networks in India and Mexico during the second quarter. This has been a highly successful initiative as we are adding trusted installers who will act as product evangelists on our behalf and are expected to provide an exceptional experience to homeowners. Let's talk about our entry into grid services for the first time. We have started participating in the Connected Solutions Program, which is an incentive program implemented by two utilities in the northeast region of the United States to reduce electrical demand during the high-use periods. Enphase storage customers in Connecticut, Massachusetts, and Rhode Island can sign up, monitor, track money earned, and control participation in the program using our enlightened mobile app. These grid services programs enable utilities to leverage Enphase storage systems instead of turning on polluting beaker plants while generating an income stream for the battery owner. Enphase customers participating in the Connected Solutions program can receive up to $1,500 a year for our 10-kilowatt-hour battery once they share the battery when called upon by the utilities. Facilitating grid services participation for our customers will reduce the lifetime cost of Enphase storage systems and help drive increased demand. We plan to participate in more such programs in the future. Enphase is laser focused on building best-in-class home energy management systems and delivering them to homeowners through our digital platform along with our Enphase installer network and distribution partners. We now have solar, storage, load control, grid services, and generator compatibility as part of our home energy management system. We plan on adding other distributed energy resources down the line. Our digital platform captures both installer and homeowner journeys, providing tools and services such as design, proposal, and permitting services. with the goal of reducing soft costs and accelerating the adoption of clean energy. In summary, we are very happy with the performance in the first half of 2021 and the ongoing strong demand for our solar and storage products. We look forward to the ramping of our storage systems, introducing new products, accelerating digital transformation, and enhancing customer experience. We plan to host an analysis day in the fourth quarter and will provide more details on our next quarter's earnings call. With that, I will hand the call over to Eric for his review of our finances. Eric?