Enphase Energy, Inc.

Good day and thank you for standing by. Welcome to the Enphase Energy's third quarter 2021 financial results conference call. At this time, all participants are listed on the mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Karen Saget. Please go ahead.

Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's third quarter 2021 results. On today's call are Badri Kathandaraman, Enphase's president and chief executive officer, and Eric Branderez, chief financial officer. After the market closed today, Enphase issued a press release announcing the results for its third quarter ended September 30th, 2021. During this conference call, Enphase management will make forward-looking statements including two, 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, the potential benefits to homeowners and installer partners. These forward-looking statements involve significant risk and uncertainties. and Enphase Energy's actual results and the timing of events could defer material 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 31, 2020, which is on file with the SEC, and quarterly report on Form 10-Q for the quarter ended September 30, 2021, which will be filed during the fourth quarter of 2021. and Face 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 press release posted today, which can also be found in the investor relations section of its website. Now, I'd like to introduce Badri Kathandaraman, President and Chief Executive Officer of Enphase Energy. Badri?

Good afternoon, and thanks for joining us today to discuss our third quarter 2021 financial results. We had a good quarter. We reported record revenue of $351.5 million, shipped approximately 2.6 million microinverters and 65 megawatt hours of Enphase storage systems achieved non-GAAP gross margin of 40.8%, and generated strong free cash flow of $100.7 million. We exited the third 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. Your CFO, Eric, We'll go into detail about our financials later in the call. Let's now discuss how we are servicing customers. Our Q3 net promoter score worldwide was 67%, and our North American net promoter score was 71%, both unchanged from Q2. Our average call wait time went up a little bit and was at 5.5 minutes in Q3 compared to three minutes in Q2, primarily related to the growth in our business. We are working on reducing call wait times to under a minute through additional staffing and training. We have increased the number of field service teams in the U.S. and Europe to provide on-site help to our installers, particularly for storage. We remain laser-focused on customer experience. Let's talk about manufacturing. As we have discussed in the past earnings call, the global supply chain is under stress. Our situation is getting primarily better due to our hard work in qualifying alternate suppliers. For the AC fed drivers, we now have five suppliers qualified. Our supply of AC fed drivers is much better in Q4 than the prior quarters. For the ASICs used in our microinverters, we are a little bit tight on supply, but we expect to manage the situation. While we are happy with the overall supply for Q4, the situation is quite dynamic worldwide for both supply chain as well as logistics. We remain vigilant and cautious given the growing demand. So given our strong demand, we are adding a fully automated line in Mexico in Q4, bringing our quarterly capacity in Mexico to approximately 2.2 million microinverters. We have already added a second fully automated line in Q2 at our contract manufacturing partner in India, bringing that quarterly capacity to over 1.5 million microinverters in India. Along with our existing capacity in China, we expect to easily achieve our target global capacity of 5 million microinverters per quarter by the end of the year. We have now geographically diversified two-thirds of our contract manufacturing capacity outside of China. Let's now talk about batteries. Our two sources for battery cell packs have increased their capacity to a total of approximately 180 megawatt hours per quarter from 120. Our existing capacity suppliers are capable of adding more capacity required. In the meantime, we are working on adding additional suppliers in 2022 to achieve global diversification. Our lead times for storage systems are long today at approximately 14 weeks due to the global logistics challenges. These lead times will come down once the shipping constraint and port congestion improve. Despite these headwinds, we expect to increase shipments of our end-phase storage systems by approximately 45% sequentially in Q4. Let's move on to the regions. Our U.S. and international revenue mix for Q3 was 76% and 24% respectively. The U.S. market demand was quite strong in Q3, and we reported record revenue. We had record sell-through from our distribution partners to installers for both microinverters and storage. While our microinverter channels Inventory was at a healthy level at the end of Q3. Our storage channel inventory remained tight due to strong demand and logistics issues. We expect microinverter channel inventory to remain manageable in Q4 and expect storage channel inventory to get better. In Europe, we reported record revenue in Q3. We continue to have solid growth in Netherlands, France, Germany, and Spain. Our storage business in Germany is just getting started and we are continuing to train a lot of installers. In September, we announced our entry into Italy, where we are providing IQ7 family of microinverters to residential installers. Earlier this month, in October, we began selling Enphase storage systems to customers in Belgium, further expanding the products availability in Europe. Overall, I'm very pleased with our growth in Europe. In Asia-Pacific region, revenue declined a little bit in Q3, primarily due to ongoing COVID lockdowns in Australia. Despite the disruptions, we are pleased with the growth of the Enphase installer network, the continued adoption of our high-power IQ7A product, and growing strength of our AC module partnerships. In Latin America, we reported record revenue in Q3, largely due to the increased sales of solar and storage systems in Puerto Rico. We are quite optimistic about our business in Puerto Rico and expect steady growth the next few quarters, especially in storage. We also announced our entry into Brazil in September and started shipping IQ7 Plus microinverters to installers in early October. Now that we have covered the regions, let's discuss the overall bookings for Q4. Our overall customer demand for Q4 once again exceeds the higher end of our guidance. The component availability is currently much better in Q4 compared to Q3, but not fully there yet. We are optimistic that our supply will catch up to demand by early next year. Let's now move to an update on our storage systems. We shipped 65 megawatt hours of Enphase storage systems in Q3, which was a 51% increase from Q2. Let's discuss the training for our Enphase storage systems. By the end of Q3, we had trained 3,771 installer personnel representing approximately 1,700 unique installation companies. Our hands-on storage installation training through our mobile vans and training centers also started ramping in Q3 with electricians and lead installers attending training sessions and experiencing valuable hands-on time with Railsys. We are working diligently on our Enphase storage systems to improve commissioning times for installers. With the rapid increase in the number of long-tail installers, our average commissioning time is approximately two and a half hours in Q3. We are working hard to bring this time down and made numerous updates in Q3. Our goal remains a sub-60-minute commissioning time, which will allow installers to visit the site, install, and commission an Enphase storage system in less than a few hours. We've recently introduced two new features for our Enphase storage system. In late May, we introduced Load Control, which provides homeowners the ability to conserve their energy consumption by shedding non-essential loads during an outage and thereby extending the backup duration. We have four circuits for Load Control designed into our smart switch. These loads will be on when the grid is present and shed automatically in the event of a grid failure. This feature is configurable and controllable by the homeowner via our Enphase app. Last week, we announced that our home energy systems will soon integrate with most leading models of home standby AC generators, providing enhanced performance and a glitch-free transition for homeowners during power outages. Homeowners can monitor real-time the power flow, start and stop their generator remotely, set quiet hours to prevent their generator from operating until their batteries fall below a certain state of charge, and control it all with the Enphase app. This new feature functions without a dedicated generator automatic transfer switch and eliminates the power glitches that reset home appliances when switching to generator power. This new feature will be available to installers in the U.S. in November. With the addition of these new features plus our laser focus on customer experience, we continue to see an acceleration in demand for our in-phase storage system. As a result, we expect to ship between 90 and 100 megawatt hours of Enphase storage systems in Q4. Let's talk about new products. Yesterday, we announced the all-new, all-in-one Enphase energy system with IQ8 solar microinverters for customers in North America. IQ8 is Enphase's smartest microinverter yet. Unlike competing devices, IQ8 can form a microgrid during a power outage using sunlight and providing backup power even without a battery. Since the company's inception, we have invested in custom applications, specific integrated chips for our microinverters, and today we see a big payoff with a software-defined microinverter smart enough to form a microgrid. Many homeowners often assume that their solar systems will function if the sun is shining, even during a power outage. This has unfortunately not been true until today. Now with IQ8, homeowners can realize the true promise of solar to make and use their own power. IQ8 solar microinverters can provide sunlight backup during an outage, even without a battery. The Enphase energy system with IQ8 comes in four different configurations. The first is solar only. which is a standard grid-type system that everybody is used to today. The second is sunlight backup, which I just talked about, without a battery. The third is very interesting. It's home essentials backup with a small battery for cloud cover and nighttime backup. The fourth is full energy independent, a solar system with IQ8 and a large battery. So while the first configuration, as I mentioned, is a standard grid-type system, the remaining three configurations are grid-agnostic systems, which need an end-phase system controller or a smart switch which islands the home during an outage. For homeowners who want a battery, there are no sizing restrictions on pairing an end-phase battery with an IQ8 solar system. All the configurations can be customized for homeowners. with the help of our valued Enphase installer partners. We started piloting IQ8 to select installers in Q3, and we will be ramping shipments in Q4 beginning December. We expect the IQ8 ramp to take four to six quarters, much like the IQ7 ramp. Let me also say a few words about IQ8D. So IQ8D is a high power 640 watt AC microinverter capable of supporting two DC panels primarily for the small commercial solar business. We expect to start piloting IQ8D with select installers in Q4 and begin production shipments in Q1. This product is very important to us, not only for the small commercial solar business, but also for our next generation batteries as we increase the discharge power and improve our cost structure. Let's turn to digital transformations. Both of our recent acquisitions achieved record revenue in Q3. Enphase Montreal, which provides design and proposal software, added a significant number of new installers. We plan to release several new software features early next year to improve the installer experience. Enphase Noida, which provides Proposal and permitting services for installers also experienced a significant increase in customer demand and is focused on automating the creation of permit plan sets to further expand the installer base. Both teams will significantly leverage the Enphase installer network to grow and expand their business. Let me now give you an update on our Enphase installer network, or EIM. We have now onboarded approximately 1,000 installers to our Enphase installer network worldwide through a highly selective process focused on quality and homeowner experience. Our EIN in the U.S. has grown 57% since its introduction last year. We are very pleased with this initiative's progress and are thankful to our installers who act as our product evangelists and provide an exceptional experience to homeowners. Let's talk about grid services. Last quarter, we discussed our participation in the Connected Solutions Program, which is an incentive program implemented by three utilities in the Northeast U.S. to reduce electrical demand during high-use periods. Our storage customers in Connecticut, Massachusetts, and Rhode Island can sign up, monitor, track money earned, and control participation in the program using the Enphase app. We were pleased to announce in Q3 our participation in the Hawaiian Electric's Battery Bonus Grid Services Program. This program offers a new incentive for homeowners on the island of Wahoo who install a new home battery. The first customers accepted by Hawaiian Electric into the program will be eligible to receive $850 per kilowatt that they commit to make available during a fixed two-hour period each day. The program helps Hawaiian Electric realize the goal of 100% renewable power by 2045, and more homeowners than ever before can now have a solar plus storage system. We expect to engage with more such utilities and aggregators in our grid services program during the months ahead. In summary, we are pleased with the overall progress we have made this year. We now have solar, storage, load control, grid services, and generator compatibility as part of our home energy management system. We are making significant progress on the digital platform for installers in order to cut soft costs. We will remain laser focused on both the product and the digital platform to deliver a superior customer experience for both our installers and homeowners. I'd like to make one more important announcement. We will be hosting an investor day on November 16th. to provide a deeper update on our business. More details will follow over the next few weeks. With that, I will hand the call over to Eric for his review of our finances.