Enphase Energy, Inc.

Good day and welcome to the Enphase Energy's third 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 a touch tone phone. To withdraw your question, please press star then two. Also, please limit yourself to one question and one follow-up. Requeue to ask additional questions. Please note this 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 Enphase Energy's third quarter 2024 results. On today's call are Badri Kothandaraman, our President and Chief Executive Officer, Mandy Yang, our Chief Financial Officer, and Raghu Balor, our Chief Products Officer. After the market closed today, Enphase issued a press release announcing the results for its third quarter ended September 30, 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 in 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, which can also be found in the investor relations section of our website. Now I'd like to introduce Padri Kothandaraman, our President and Chief Executive Officer.

Padri? Good afternoon, and thanks for joining us today to discuss our third quarter 2024 financial results. We reported a quarterly revenue of $380.9 million, shipped approximately 1.7 million microinverters and 172.9 megawatt hours of batteries, and generated free cash flow of $161.6 million. Our overall channel of entry remained normal as we exited Q3. For the third quarter, we delivered 48% gross margin, 21% operating expense, and 27% operating income, all as a percentage of revenue on a non-GAAP basis and including net IRA benefit. Mandy will go into our financials later in the call. Let's discuss customer service. Our worldwide net promoter score was 78% in Q3, slightly down from 79% in Q2. Our average call wait times increased to 4.4 minutes from 2.5 minutes, partially due to higher call volumes from disruptions in the installer landscape. We are actively managing this while rolling out software fixes and automation to reduce wait times. Let's talk about operations. Our global capacity is around 7.25 million microinverters per quarter, with 5 million in the U.S. In Q3, we shipped approximately 1.2 million microinverters from our U.S. contract manufacturing facilities, booking 45X production tax credit. We anticipate shipping 1.3 million units from our U.S. facilities in Q4. We also introduced a higher domestic content SKU for IQ8HC microinverters to help lease, PPA, and commercial asset owners to qualify for a 10% domestic content ITC error. This translates to about 40 cents per watt in savings for them. We are seeing strong traction in the lease and PPA markets for this product. We expect to begin shipping our commercial IQ8P-3P microinverters as well as our residential IQ8X microinverters also. from our US contract manufacturing facilities featuring higher domestic content starting this quarter. Our cell pack suppliers in China have enough capacity to support our plans for batteries in 2024 and 2025. We are on track to producing the battery at our US contract manufacturing facility in this quarter using domestically made inverters, battery management systems, and packaging while continuing to source cell packs from China. Let's now cover the regions. Our US and international revenue mix for Q3 was 75% and 25% respectively. For more visibility into our business, we will be providing regional breakdowns for Q3. In the US, our revenue increased 43% compared to Q2. The overall sell-through of our products in the US was up 6% across all channels in Q3 compared to Q2. This increase was despite a large US customer declaring bankruptcy in Q3. Our distributor sell-through in the US was up 13% compared to Q2, which reflects improving market fundamentals in the US. In California, Our distributor sell-through was also up 13% in Q3 compared to Q2. In Q3, we saw healthy growth for both microinverters and batteries in California. NEM 3.0 now represents approximately 65% of California installs, and the attach rate of our own batteries continues to be close to 50%. In non-California states, our distributor sell-through was up 14% in Q3 compared to Q2. Looking ahead, we see lower interest rates, ITC errors, and higher power prices as the key drivers for 2025 growth. In Europe, our revenue was down 15% compared to Q2. The overall sell-through of our products in Europe was a little more down, 34% down in Q3 compared While every country in Europe has its nuances, the overall business environment in the region is challenging. Power prices have declined from the early 2023 highs. The economic growth is slow and the consumer confidence is limited. We are focused on what we can control. We are focused on building and strengthening relationships with installers. We are focused on launching many new products. expanding into a lot of new markets as we believe we are under-penetrated, as well as collaborating closely with our distribution partners. We believe this will position us well for significant growth when the cycle rebounds. I'll provide some additional color on our key markets in Europe, the Netherlands, France, and Germany. In the Netherlands, the solar market is transitioning away from solar-only systems due to regulatory uncertainty around NEM, which is about to expire in early 2027, and export penalties imposed by the energy providers. These issues have increased the adoption of batteries, which avoids export penalties and allows participation of residential solar plus battery systems in energy markets. While this transition is still in its early stages, we are strongly we are encouraged by our strong engagement with the country's energy providers. We are well-positioned to lead the market recovery in Netherlands with our microinverters, along with batteries, along with our upcoming new EV chargers, as well as AI-powered IQ energy management software, which is crucial to maximize savings and improve homeowner ROI. In France, our Q3 was impacted by summer seasonality. We expect a cooling-off period for solar demand in the country, driven by expected utility rate cuts in early 2025. Overall, France remains a key growth market for us, given our market leadership there, as well as the country's low solar penetration. We plan to introduce many new products for France, mainly the new EV charger, batteries with backup, and energy management for hot water heaters. In Germany, we are excited about a few upcoming product launches that are imminent. These will expand our reach in Europe's largest solar market. Our three-phase battery backup solution for Germany, Austria, and Switzerland, which was unveiled in Intrasolar Munich in June, has received highly positive feedback. Our IQ Balcony Solar is nearing launch. We are targeting a 400-megawatt market with this product. and believe that N-phase microinverters are ideally suited for these very small systems. Additionally, we plan to launch the new IQEV charger into Germany in Q4. A bright spot in Europe has been UK, where the sell-through was up approximately 80% compared to Q2. However, we are still under-peritrated in this market and have a lot more room to grow. There are similar countries in Europe, including Italy, Spain, Belgium, Luxembourg, Austria, Switzerland, Sweden, Denmark, and more. While each country faces its own unique challenges and opportunities, homeowners are increasingly prioritizing safety, reliability, savings, and a seamless all-in-one app experience for their home energy systems, which perfectly aligns with our core strengths. We plan to introduce our entire product portfolio, the IQ8 series of microinverters, both single and three-phase batteries with backup, the new IQ EV chargers, which I talked about, AI-powered IQ energy management software, which I'll elaborate later, as well as the solar graph installer platform across many more European countries. We continue to make incremental progress in other regions in the world. Our IQ8P and IQ8HC microinverters are ramping well in India. We are now taking pre-orders for the battery in India with shipments to installers to begin in December. In Brazil, we are ramping... on the 480 watts IQ8T microinverters into this emerging residential market in order to support newer, higher power panels. In Australia, we recently started shipping IQ8X microinverters for higher DC input voltage panels and now offer 25-year limited warranty as default for all IQ8 microinverters, and this is currently the longest standard residential warranty in the Australian market. Let's come to our Q4 guidance. We are guiding revenue in the range of $360 to $400 million. We anticipate incremental improvement in our U.S. business and a continued slowdown in Europe in Q4. We are approximately 85% booked to the midpoint of our overall revenue guidance, very similar to last quarter. We expect to ship between 140 to 160 megawatt hours of IQ batteries in Q4. Our battery sell-through is doing well. It continues to increase, and we expect Q4 to reflect a slight uptick in demand. The reduced battery shipments in Q4 compared to Q3 is primarily due to channel restocking in Q3 that will not repeat in Q4. Before we talk about new products, let's discuss the evolution in our industry away from single hardware components and towards total energy systems. In many countries around the world, solar only is no longer enough. Our Enphase systems are now composed of IQ microinverters, IQ batteries, EV chargers, and increasingly sophisticated IQ energy management software to manage multiple use cases, including rate arbitrage, grid resilience, VPP participation, wholesale market participation, and more. All parts of the system must be best in class with software that ties it all seamlessly together in order to win. We believe our current and future products uniquely position us to win in this total system solution focused markets. Let's talk about IQ batteries. Our third generation IQ battery, 5P, is continuing to be very well received by the market. It offers an industry-leading 15-year warranty with differentiated quality, serviceability, modularity, and power capability. We are on track to pilot our fourth generation batteries in the U.S. in the fourth quarter and begin production in early 2025. We believe this new battery will be a game changer for us. The battery takes up 60% lesser wall space due to its integrated battery management and power conversion architecture. In addition, the fourth generation IQ battery will be paired with our new IQ meter collar and enhanced IQ combiner. The battery system will reduce installed cost by approximately $300 per kWh for a typical system with backup, making us highly competitive for all use cases. We have expanded the iCUE microinverter family into 51 countries and plan for more by the end of the year. We are particularly excited about Japan. where we expect to launch our IQ8HC microinverters in early 2025, targeting a 1.3 gigawatt market. The Tokyo Metropolitan Government has offered subsidies for MLPE products, making it very attractive for consumers. Japan's solar market, especially Tokyo, with its small system sizes of 2 to 3 kilowatts, complex roofs, and demand for quality aligns well with our strengths. Let's talk about our commercial micro-inverter, IQ8P. The IQ8P, with its new three-phase cabling system, is perfect for small commercial solar installations between 20 and 200 kilowatts. We have over 380 sites in the U.S. with an average size of 50 kilowatts, and the feedback so far has been quite positive. These three-phase microinverters will soon ship from the U.S. factories with increased domestic content, offering a 10% ITC error for commercial asset owners, which should drive demand up even further. Let me provide an update on our IQ9 microinverters powered by Gallium Nitride technology. The IQ9 family is designed to handle higher DC input currents up to 18 amperes and supports elevated AC grid voltages, including 480 volts for the small commercial market. IQ9 is expected to come in two power variants, 427 watts and 548 watts, offering flexibility and performance. We are on track for a launch in the second half of 2025, positioning us to meet growing market demands. Let's dive into EV charging. We are gearing up to launch our second-generation IQEV charger across several European countries in Q4, tapping into a $1.4 billion annual market. With up to 22 kilowatts three-phase charging, the charger integrates well with N-phase solar and battery systems, enabling homeowners to minimize electricity costs by using excess solar energy. Key features of this new IQEV charger include dynamic phase switching and 1 ampere current control, which results in much more efficient green charging, ISO 15118 support for AC bidirectional charging in the future, and compatibility with MID meter in Germany, as well as compatibility with OCPP 2.01 software for third-party control, making it a very comprehensive and future-ready solution. Let's cover software. Our IQ energy management software supports grid services programs, VPPs, in regulated markets like the U.S. and energy market participation in deregulated markets like Europe and Australia. In the U.S., we are active in around 25 programs across key states in California, Massachusetts, Texas, and North Carolina. with more than 10,000 customers and 120 megawatt hours of battery capacity enrolled. These programs enable homeowners to discharge batteries during peak demand, supporting the utilities in times of need. In deregulated markets, our software enables homeowners to earn up to $1,500 annually through energy providers. As electricity rates become more complex, Our AI-powered software differentiates us, maximizing ROI and reducing payback period. Let's discuss SolarGraph, our installer platform. We've added new features to SolarGraph in Q3, including an updated battery design tool, as well as a do-it-yourself permit plan set for US customers. SolarGraph is now available to both residential and commercial installers in the US, Canada, Brazil, Germany, Austria, and Netherlands with plans to expand to more countries in the coming quarters. Let me conclude. We have worked diligently to manage and face through an industry slowdown. The midpoint of our revenue guidance for Q4 is flat with respect to Q3 and is a 44% increase from our revenue bottom of $263 million earlier in Q1-24. We expect Q4 to also be impacted by the same large US customer due to its bankruptcy, but we believe a substantial portion of this revenue will return through our distribution channels in future periods. We generated approximately $321 million in free cash flow for the first nine months of 2024 and have maintained strong gross margins throughout the downturn. Over the last year, We have expanded our global footprint in microinverters and batteries and are developing a strong pipeline of innovative products that are nearing launch. Our three-phase battery, IQ Balcony Solar, and the new IQ EV Charger for Europe are set to expand our served available market by $4 billion. Our upcoming fourth-generation battery system featuring the IQ Meter Caller and Enhanced Combiner is expected to significantly reduce installation costs for backup. Our GaN-powered IQ9 microinverters will enable us to enter new three-phase commercial markets which are incremental for us while boosting power and lowering costs in the residential markets. We are also excited to advance our AI-powered energy management software in collaboration with retail energy providers in the Netherlands as well as cater to complex energy markets around the world. Looking ahead to 2025, we see improving U.S. market fundamentals driven by lower interest rates, ITC adders, and higher power prices in key markets that are expected to drive nice growth. Our best-in-class microinverters coupled with our next-generation battery system should allow us to defend and grow our market share in the U.S. Internationally, we believe we are well positioned for growth when the solar market stabilizes due to our broadened geographic reach and product portfolio. We remain committed to delivering best-in-class solutions and are energized by the road ahead. With that, I will turn the call over to Mandy for her review of our financial results. Mandy?