Enphase Energy, Inc.

the first quarter 2024 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. We ask that you please limit yourself to one question and a single follow-up. You may then re-enter the queue if you have more questions. Please also note, today's event is being recorded. I would now like to turn the conference over to Zach Friedman. Please go ahead.

Good afternoon, and thank you for joining us on today's conference call to discuss Today's call are Badri Kothandaraman, our President and Chief Executive Officer, Mandy Yang, our Chief Financial Officer, and Raghu Valur, our Chief Products Officer. After the market closed today, Enphase issued a press release announcing the results for its first quarter ended March 31, 2024. During this conference call, Enphase management will make forward-looking statements, including but not limited to statements related to our expected future financial performance, market trends, the capabilities of our technology and products, and the benefits to homeowners and installers, our operations, including manufacturing, customer service, and supply and demand, anticipated growth and existing and new markets, the timing of new product introductions, and regulatory and tax matters. These forward-looking statements involve significant risks and uncertainties, and our 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 our most recent Form 10-K and 10-Qs filed with the SEC. We caution you not to place any undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events, or changes in 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. We have provided a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release furnished with the SEC on Form 8K, I'd like to introduce Badri Kusandaraman, our president and chief executive officer. Badri?

Good afternoon, and thank you for joining us today to discuss our first quarter 2024 financial results. We reported quarterly revenue of $263.3 million, shipped approximately 1.4 million microinverters and 75.5 megawatt hours of batteries, and generated free cash flow of $41.8 million. We reduced our channel inventory by approximately $113 million in Q1, slightly less than anticipated because of software demand. For the first quarter, we delivered 46% gross margin, 31% operating expenses, and 15% operating income, all as a percentage of revenue on non-GAAP basis, including the IRA benefit. Mandy will go into our financials later in the call. Let's now discuss how we are servicing customers. Our worldwide NPS was 78% in Q1 compared to 77% in Q4. Our average call wait time was 1.9 minutes in Q1 compared to one minute in Q4. We are adding data scientists, enhancing our analytics to identify problems proactively, and fixing them automatically through software. Our field engineers and technicians are assisting installers on complex installations while bringing back learning to our development teams, enabling continuous improvement. Let's cover operations. We shipped approximately 506,000 microinverters in Q1 from our U.S. contract manufacturing facilities that qualified for 45x production tax credits. One fully ramped, we expect to have a global capacity of approximately 7.25 million microinverters per quarter, of which 5 million capacity will be in the U.S. We expect to ship approximately half a million microinverters to customers from our U.S. manufacturing facilities in Q2. The number is a little less than what we would like, but our top priority is to reduce our factory inventory We anticipate resuming a higher level of shipments in the second half of the year. For IQ batteries, we have two cell pack suppliers, both in China, which have sufficient manufacturing capacity to support our ramp in 2024. As previously discussed, we expect to add battery manufacturing capability in the US during the third quarter of 2024. Let's now cover the regions. Our US and international revenue mix for Q1 was 57% and 43% respectively. For more visibility into our business, we are providing regional breakdowns and sell-through dollar metrics by region. In the U.S., our revenue decreased 34% sequentially as we undershipped to end customer demand. The overall sell-through of our microinverters and batteries in the U.S. was down 23% in Q1, compared to Q4. Let's discuss the market trends we are seeing in the U.S. split by non-California states and California. For non-California states, our overall sell-through was 21% down in Q1, compared to Q4. The sell-through was similarly down for both microinverters and batteries due to seasonality. In California, our overall sell-through was down 30%, down by 30% in Q1, compared to Q4. Sell-through of our microinverters was down 37% and sell-through of our batteries was down 18% in Q1 due to seasonality in the NEM3 transition. I'll provide more statistics and color on NEM3 later in the call. In Europe, our revenue increased 70% sequentially as channel inventory improved and we introduced new products. The overall sell-through of our microinverters and batteries was up 7% in Q1 compared to Q4. The sell-through of our microinverters was up 3%, while the sell-through of our batteries was up 28% in Q1. I'll provide some color on key markets in Europe, particularly Netherlands, France, and Germany. In the Netherlands, our overall sell-through in Q1 was down 4% compared to Q4. The market stabilized during Q1, and we are encouraged by the demand signals we see after seeing the government's decision to support NEM for the foreseeable future. We expect to see the sell-through of microinverters pick up in Q2 as a result of this decision. We continue to believe solar plus batteries are going to become the norm as dynamic tariffs and grid services become more prevalent. In France, our overall sell-through in Q1 was up 13% compared to Q4. We have been encouraged by the continued strength in this market supported by higher utility rates. Solar penetration in France is still small and we see potential for the country to grow and evolve into a significant solar plus battery market for Enphase. In Germany, our overall sell-through in Q1 was up 28% compared to Q4 We are going from strength to strength in this market. We plan to launch our three-phase battery solution in the country later this year along with additional software. We are leveraging AI and ML to enhance our home energy management software and expand grid services participation. We are continuing to launch our IQ8 microinverters and IQ batteries into many new countries across Europe. Notably, we started shipping IQ batteries into Italy in the first quarter. Our sell-through in the new countries is beginning to ramp, and we anticipate steady growth throughout 2024. In Australia, our Enphase energy systems are powered by IQ8 microinverters and IQ battery 5P, our third-generation battery, which we introduced in June last year. We expect higher battery attachment rates in Australia during the second half of this year. In Brazil, we are making good progress in building our installer base. In Mexico and India, we are shipping our highest powered microinverters, IQ8P, to support high power panels. We just started shipping the same microinverters into Thailand and Philippines in Q1. As a reminder, IQ8P is the high-power microinverter at 480 watts AC for both residential and commercial applications. Let me say a few words about our market share. In the U.S., we see stable share for our microinverters and batteries based on both internal and third-party data. There have been several changes in the market over the last year, including a shift away from loans and towards lease and PPAs. Our continued strong market share is a testament towards our installer relationships and the differentiated value proposition we provide them with our products. We are fully focused on enhancing our product portfolio, solving installer pain points, and deepening our relationships. In Europe, we are using the same strategy to grow market share. Let me provide some color on M3.0. In the last three to four weeks, I've been on the road We have visited over 25 installers in California to really understand how their businesses are doing. Many reported that their businesses are down by 50% or more from last year's high, and they have all adjusted by becoming much leaner. They are getting better at selling NEM 3.0. They can clearly articulate what works and what doesn't. They are hungry for high-quality leads. They're also becoming adept at selling batteries, either a grid-type battery or a backup battery with every install. They are becoming flexible in the financing options they offer to the homeowners. If the loans don't work, they aren't afraid to switch over to leases or PPAs, which are becoming increasingly available to the long-tail. Most of them reported stronger sales in March of this year compared to January and February. I came away feeling that we are beginning to climb out of the bottom and we should get back to growth shortly. Let's cover some NEM 3.0 statistics which haven't changed that much from our last call. In Q1, 50% of our California installs were NEM 3.0 systems. These systems have a very high battery attach rate, over 90%, compared to NEM 2.0 systems which have an attach rate of 15%. Our data also shows that half of our NEM3 systems are using N-phase batteries. Taking this data into account, our average revenue per NEM3.0 system is approximately 1.5 times our average NEM2.0 system. We believe this will contribute to stabilizing and increasing our California revenue in the second half. Let's come to our Q2 guidance. We are guiding revenue in the range of $290 to $330 million. We expect to ship 100 to 120 megawatt hours of IQ batteries. We expect sell-through demand of our products to be approximately $400 million in Q2, up from $376 million in Q1 due to seasonal strength in Europe and non-California states, offset by some decline in Californians. We plan to undership to the end market demand for our products by approximately $90 million in Q2. We expect the channel to normalize by the end of Q2 on microinverters as we previously forecasted. Our channel is almost normal on batteries already. Let's talk about products, starting with IQ batteries. Our third generation battery called IQ battery 5P has been very well received. It delivers the best power specs and commissioning times of any Enphase battery till date as an industry-leading 15-year warranty. Battery adoption rates are on the rise globally, and we are well-positioned to grow our sales in 2024. As we discussed last quarter, we expect our gross margins on batteries to continuously improve throughout the year. There are three factors. Cell pack costs, which are coming down rapidly. Battery microinverter costs, which are coming down due to IRA benefit from manufacturing in the US, and costs coming down due to improved architecture on our fourth generation battery. We're already seeing the benefits of the first two factors, and we will benefit from the third factor early next year. We are working on entering more countries in Europe and Asia with our third generation battery. We expect to also introduce our new three-phase battery with backup for Germany during this year. We expect to launch several balance of system improvement initiatives for the U.S. that will improve the cost of installing batteries for backup. We plan to pilot our fourth generation battery later in the year. This battery will have a great cost structure and an elegant form factor due to the integrated battery management and power conversion architecture. As previously discussed, We have entered many new markets with the IQ8 family of microinverters, and we are now in 24 countries. We plan to enter more new countries in Europe and Asia throughout 2024 with our microinverters. And we plan to increase our served available market further by introducing social housing and balcony solar solutions to European countries during the year. We recently launched the IQ combiner light in Netherlands to simplify the installation of small solar systems on social housing units. The other variant of the IQ8P microinverter with the new three-phase cabling system is well-suited for small commercial solar installs ranging from 20 to 200 kilowatts. We launched this product in North America in December, and we are seeing good early adoption. We are excited about the product and look forward to manufacturing IQ8P microinverters at our U.S. facilities starting this quarter, further reducing costs. Let's cover EV charging. We launched our IQ smart EV chargers in the U.S. and Canada in Q4. We are developing smart EV chargers for European countries, and we expect to introduce them this year. The team is also working on bidirectional EV charger, which will unlock use cases like V2G and V2H as part of the Enphase system. This charger will have a GaN-based bidirectional inverter. We expect to release the product in 2025. Let's cover the latest upgrades to our energy management software. We recently did a press release where we launched Enphase Power Control, or PCS, software that can integrate with our systems in North America. PCS dynamically controls the power produced by the Enphase system, giving installers a lot of flexibility in system design to build larger systems and avoid costly main panel upgrades while meeting utility and national electric code requirements. Our software is evolving to manage the increased complexity in energy markets by leveraging AI and ML for forecasting and optimization. Our next software offering will manage dynamic tariffs in countries like Netherlands and Germany. This new software is intended to help maximize ROI and reduce the payback period for solar homeowners throughout Europe, where electricity prices can change by the hour. Let me provide you with an update on IQ9 microinverters with gallium nitride, also called GAN. We expect IQ9 microinverters to deliver higher power at lower costs. Multiple vendors have been providing us with GAN parts, and we are increasingly confident in the reliability of our design. We expect to launch the product in the first half of 2025 to address The two markets, one is residential and the other is three-phase small commercial markets, both the 208 volts as well as the 480 volts. Let's now discuss our installer platform. We announced some key features and improvements to Solar Graph in Q1, including advanced 3D design with smart design capability, California NEM 3.0 support and enhancements, NREL and NYSERDA verification of shading, and support for small commercial projects. SolarGraph is currently available to installers in the US, Canada, Brazil, Germany, and Austria, and we expect to release it to more countries in the coming quarters. Let me conclude. We have been managing through a period of slowdown in demand. We believe Q1 was the bottom quarter. Europe has already begun to recover, and we expect the non-California states to bounce back in Q2. California is becoming less of a wild card, and we expect demand to stabilize and increase in the back half of 2024. We are bullish about M3 in the long term. The payback is attractive for solar plus batteries. The utility rates are going up steeply, and the sales teams are learning rapidly. I am pleased that we have executed well through the market downturn over the last year. We have maintained profitability and free cash flow throughout this period while correcting the channels. We have not sacrificed any new product development or geographic expansion plans and are now entering a growth cycle with a good product portfolio and a growing tank. And there is still a lot more to come. We expect to begin field testing our microinverters, IQ9 microinverters, and fourth generation batteries later in the year. We are making balance of system improvements to enable faster and easier battery installations. We plan to roll out significant software upgrades like PCS and dynamic tariffs in both the U.S. and Europe. We remain laser-focused on operational excellence, concentrating on sell-through and installer count, reducing operating expenses and product costs, and maintaining healthy gross margin as our company returns to strong growth. With that, I will turn the call over to Mandy for a review of our financial results. Mandy.