Eguana Techs Inc Ord

Thank you for standing by. This is the conference operator. Welcome to the Iguana Technologies, Inc. fifth quarter and fiscal 2022 financial results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. If you're participating through the webcast, you can submit a question in writing by using the form in the lower section of the webcast frame. I would now like to turn the conference over to Justin Holland, CEO of Iguana Technologies. Please go ahead.

Thank you and good afternoon. Thank you for joining Iguana's fifth quarter fiscal 2022 earnings call. Of note on the call today, we also have COO Brent Harris, as well as our controller, Madison Duncan. After market closed today, we issued a press release announcing our results for fiscal 2022, including the addition of the fifth quarter. Our board of directors previously approved changing the company's year-end from September 30th to December 31st to align with Iguana's year-end financial statements with the majority of our industry peers. Consequently, the financial statements for the 15 month period ended December 31st, 2022 are being presented with comparative information for the 12 month period ended September 30th, 2021. And the financial statements for the three months ended December 31st, 2022 are being presented with comparative information for the three months ended December 31st, 2021, which will account for seasonality trends within our industry. Before we begin, please note that certain remarks made on the conference call today will constitute forward-looking statements including, but not limited to, statements related to expectations on future financial performance, new products and new product introductions, certifications, and technology advancement and regulatory change. Although management believes these statements reflect our best judgment based on factors currently known to us, actual results may differ materially and adversely. Please refer to the company's filings on CDAR for more inclusive discussion of risk and other factors that may cause actual results to differ from projections made in any forward-looking statements. Please also note that these statements are being made as of today, and we disclaim any obligation to update forward-looking statements based on new events or changes in expectations. Additionally, all financial data disclosed today is represented in Canadian dollars unless otherwise noted. The December quarter was another record-setting quarter for Iguana with a reported revenue of $10.36 million, which represents an increase of 719% when compared to the same time period prior year. Q5 revenue also represents a 30% increase versus the company's previous full fiscal record which was set in 2020. Gross margins for the three months ended December 31st increased 13.4% from negative 9.6% in the fourth quarter to positive 3.9% for the three months ending December 31st. Margins in the quarter remain impacted by accelerated freight costs associated primarily with battery and microinverter shipments in the fourth quarter. Freight rates, which have begun stabilizing on a global basis, still remain two to three times pre-pandemic levels, driving additional costs within the supply chain. Increased raw material costs and component spot purchasing for key component risk management also increase short-term product costs. Our working capital position changed dramatically last year and remains strong. Madison will get into more specifics on that shortly. Through investments in key components, battery modules, and microinverters, our supply chain continues to be stable with no current component shortages. We are still experiencing elevated freight costs versus pre-pandemic levels. However, rates have come down from its peak of a five times multiple, or about 17,000 to 18,000 per container. Current Asia to North America rates are running between 7,000 to 10,000. Some relief has been seen. Production capacity growth is ahead of schedule with the addition of two new inverter functional test systems bringing our total to five. Each IFT can test 400 five-kilowatt equivalent systems per month across a two-shift operation, which brings our current nameplate capacity to 24,000 systems annually. The operations team had previously set internal targets of 20,000 systems annually by the end of 2023. so remain ahead of that schedule. An additional 12,000 systems could be added with a third shift or additional assembly facility. First pass yields of iguana products also remain steady, above 80%. A measurement of success of each system program and tested through one of the IFT stations. Moving on to customers and service. Our installers are the gatekeepers to the consumers and therefore it's critical to build loyalty within the dealer and installer community. Most installers outside of large national players typically purchase their products through these distribution channels. With manufacturing capacity and supply chain stability in place, we are accelerating building demand and increasing product sell-through with our installation partners. Currently, we have iguana products listed with five national distributors across the United States. We are, however, seeing elevated inventory levels in certain regions with respect to energy storage and microinverters. We believe this is a result of distributors' purchasing push going into the December quarter to reduce short-term product availability concerns during the busiest time of the renewable energy year. Compounding this are recent changes to the economic landscape, particularly with rising interest rates and installer access to capital heading into Q1, which seasonally is somewhat slower than Q4, given the investment tax credit push typically seen in our industry through November and December, specific to solar installations. The benefit iguana has in U.S. distribution markets is brand name and starting point. In order for distributors to commit their resources, they need to see a wide range of boxes checked, typically around production capacity to ensure product availability, regional sales, and technical sales coverage to support their branches and branch openings. Importantly, a defined plan on how to sell through will be created and supported within their installer base prior to lifting any new product solutions or manufacturers. In November, we created and later rolled out Iguana University, which is an online training and toolkit for distributors and installers. We continue optimizing and tweaking our training modules and tools to continue simplifying working with the company and creating a best-in-class user experience. Training modules are inclusive of selling, installing, commissioning, and product knowledge for both energy storage and microinverters, along with a number of other tools for installation partners. The company maintains the view that a simple, fast installation process, which allows installers to grow their business, is the best way to build loyalty within that segment. The system also needed to be traceable, as it provides definitive leading indicators of momentum in the marketplace relative to the number of installers actively selling our products across a region. Additionally, it allows our growing sales team additional touch points with distributors and installers as they work their way through the training modules. Much like our peers in the industry, we view upfront training through the value chain as a critical must-have to deliver a successful consumer experience. When comparing the metrics for users signed up and users who have completed the training, we saw a 286% increase in course enrollment as well as a 476% increase in number of successful module completions across the February to April time period versus November through January when we rolled out the system. While we would expect a bump relative to the two time periods given many installers are at peak installation season in the last two months of the year, this dramatic increase also represents the impact of our installer outreach efforts by our sales and technical sales teams. We will remain active in refining our training modules to ensure our partner has continued success selling our products at the kitchen table with homeowners. We believe this puts the company in a very good position as we do expect to see distributor inventories come down in the first half of the year, which will drive new and recurring orders through distribution. For California-specific markets, this is critical at a time when net metering 3.0 begins to roll out which is expected to drive increased energy storage system sales. Just quickly on NEM 3.0, it carries a significant reduction in export rates to the grid, which in turn is expected to drive homeowner energy storage purchases by giving them flexibility to store their own generation and decide when to put excess power onto the grid. Staying with our installer partners for a moment, many of them utilize design and proposal software to simplify their selling process to the homeowner. Our sales team, in addition to the tools held within Iguana University, now have our products listed with four leading software platform partners to simplify this process. Additionally, the team has also listed with multiple financing companies across the United States. To summarize, keys to U.S. residential growth are open up distribution channels, create training and support programs, partner with design software platforms and finance companies to support our installers, which in turn provide the sell-through functions for the distributors. Happy to say the sales team has executed each one of these stages. Switching gears to virtual power plant activities, this is an area of the residential market we have been actively watching for some time and believe will lead to mass adoption of energy storage systems. The Iguana energy storage platform was designed with virtual power plants in mind. We wanted to have a solution that could be used in simple solar self-consumption applications where individual homeowners could store and use self-generated power, as well as a platform that could be aggregated into fleets to provide power grid services to utilities and grid operators. Our thesis is larger residentially focused batteries will be required throughout a distributed grid to provide the infrastructure requirements for electrification and critically to have a power grid that can meet the requirements of the electric vehicle growth projections. The Iguana platform brings a number of competitive advantages to VPPs as the technology was originally developed as an advanced power control system for fuel cells for the German utility RWE. and to provide all VPP function requirements that we are seeing today. The Iguana platform is an industrial control system designed from the beginning with a cascading control architecture that provides very rapid and accurate and stable response to changes in a range of remotely controlled set points as opposed to simple switch mode controlled solar inverters that have been adapted for energy storage solutions and applications. Several years ago, we took part in a virtual power plant pilot in Australia, where roughly 10 different systems from 10 different manufacturers were put head to head in a VPP environment. At the end of the pilot, only two systems performed to their specifications, and we're happy to say that one of them was the Iguana Evolve. It is worth noting, as VPP activity appears to be gaining momentum, Iguana has taken part in many pilots with utilities over the past several years for a host of these VPP applications to be ready for this point in the power grid transition. From frequency regulation markets in the U.S. Northeast to net zero energy homes and demand response in California, the feeder voltage stabilization in Hawaii, and demand response and FCAS or frequency control ancillary services in Australia, to name a few. With the knowledge gained through these utility relationships and pilots, we saw an opportunity to vertically integrate our technology to include cloud-based software applications, which was the start of Iguana Cloud. Cloud development was accelerated through our relationship with the U.S. automaker and further with their distributed energy software partners. Today, we have developed the Iguana Cloud and are fully integrated with multiple aggregator platforms to provide VPP services for a fee. We expect recurring revenue streams from utilities and operators for access to the VPP services. Currently, we are engaged in VPP pilots in the US, Canada, and Australia. Although relatively small to start in the second half of 2023, VPP should quickly become one of the largest parts of residential solar plus storage markets as utilities provide a number of subsidies and credits to homeowners to purchase and install energy storage systems simply by allowing access from time to time. This is the beginning of the distributed grid transition. Throughout the balance of 2023, Iguana will continue building out software capabilities within Iguana Cloud with the intent of opening up recurring revenue and SaaS revenue models. We believe this vertically integrated full stack of solutions will continue to provide Iguana a competitive edge and set Iguana apart from our industry peers. Moving on to Australia, much like the U.S. markets, It is key to understand the steps between iguana and the end consumer. In order to close the gap, we vertically integrated residential and small commercial installations to our business model, which delivered an immediate jump in revenue in the December quarter. To further this opportunity and to attract additional home builders and utilities, we recently acquired Solar Lab, a South Australia-based design, sales, and installation company. The results so far has outperformed expectation with an additional 12 and a half million in newly quoted business since acquisition, acquisition approximately 60 days ago. We expect to see consistent revenue growth from Australia going forward, as well as a VPP launch and home builder pilots to all commence later this year. In Europe, We've concluded product testing with a French utility and expect pilot orders to begin through the summer. This will be followed by ESS development with the utility later this calendar year to provide a full Solar Plus storage package. On Enduro manufacturing, the development team has certified the Enduro with a new battery module. Our former battery partner was unable to supply modules on a go-forward basis, so we took the decision to immediately recertify it. A credit to the development team and the flexibility of our design and certification processes. Shipments are expected to commence to Europe in the next 60 days. Touching on new products for a moment, energy storage system sizes, both in power and capacity, are increasing in all markets. In response, we launched a 10-kilowatt by 28-kilowatt-hour whole home product, which will be followed later this year by a tower format product. We believe these larger format products will continue to give Iguana a competitive advantage. To see the speed of change in the marketplace, consider that only a few short years ago, when we launched a five kilowatt modular product, we were told it was far too big for these residential applications. Fast forward to today, and modular products are no longer permitted, and a five kilowatt product will soon be an entry-level size application. This also leads to our prior points on larger systems for grid infrastructure and virtual power plant applications where we expect to hold an advantage. We are also seeing cost reduction opportunities bear fruit with our tower product, which will begin in a two-tower format, followed by a single tower and further to a three-phase or triple. Each building block can also be added to perfectly size application-specific solutions. To speed iguana products to market, we've also certified with CSA and Intertech to complete self-certification processes. We believe many new products will come out over the next few years, and this also provides additional advantage from a design cycle perspective and new product time to market. In summary, we expect global markets to begin accelerating this year with the advancement of virtual power plant developments in addition to solar self-consumption consumers. Eguana has built out its production capacity and will now stay focused on demand generation and recurring revenue streams through Eguana Cloud and virtual power plants. With that, I'll turn the call over to our controller, Madison Duncan.

Thank you, Justin, and good afternoon all. Before I begin, and as Justin noted at the beginning of the call, AGUANA's Board of Directors approved changing the company's year end from September 30th to December 31st. This decision was taken to align AGUANA's year end financial statements with the majority of our industry peers. Consequently, the financial statements for the year ended December 31st are 15 months in length and are presented with comparable information for the 12 months ended September 30th, 2021. For the quarterly comparable, The financial statements for the three months ended December 31st, 2022 are being presented with comparable information for the three months ended December 31st, 2021, or Q5 versus Q1 2022, which accounts for industry seasonality. On an overall revenue basis, Q5 product sales increased 719% to $10.36 million. versus the prior December quarter product sales of $1.3 million, representing a $9.1 million gain. Not only is this the highest revenue quarter in the company's history, it's also a quarterly revenue rate higher than any 12-month fiscal period throughout the company's history. Fiscal 2022 revenue came in at $16.8 million. The revenue growth can be attributed to Iguana's sales team efforts relative to distribution channel management, increased training, and the launch of NFUs into the U.S. residential market, where we saw first sales occurring in the later half of the calendar year. Gross margins for the quarter increased to 3.9% in Q5 of 2022, from 0.8% in the comparable December quarter and a negative 9.6% in the quarter prior. The company saw margins continue to be impacted earlier in the fiscal year as a result of inventory rationalizations associated with winding down the Canadian manufacturing operations and the subsequent transition to U.S.-based contract manufacturing partner Omega EMS. Margins continue to be constrained with respect to remaining negative impacts of COVID-19 freight costs, which are incurred at the point of inventory purchase and shipment. but not recognized on the income statement until the inventory has been released or sold. We expect to see steady increases continue as global logistics shipping costs stabilize and the operations transition, including the related inventory consolidations, having been completed. Additionally, new product releases, advancements in battery technology, and advanced power electronics cost reduction plans should continue to drive gross margin gains. Operating expense increased by 1.2 million in the comparison to the same period of last year. These increases, similar to the previous quarter, are related to continued and accelerated team expansion, particularly for Iguana Cloud, U.S. Sales, and After Sales Service, which are aligned with Iguana's growth objectives and 2023 expectations. Iguana's internal goals and objectives for corporate culture include which is defined as environment of inclusion based on our three T's of teamwork, trust, and transparency, coupled with competitive compensation and flexibility, have shown our commitment to and importance of retention strategies throughout our organization. Additional increases in operating expenses are related to increased R&D compliance testing and product certifications, along with costs associated with with new product design, development, and prototyping, including a new ESS platform to be launched in the second half of 2023. The company also underwent a brand refresh to better align with our white label partner, Duracell Power Center. This involved a multi-channel campaign in which the company invested in brand and marketing collateral. Moving to our balance sheet, throughout fiscal 2022, we significantly strengthened our position, having closed a $33 million strategic investment with Adwana partner Itochu at the end of August. Additionally, lending partner Western Technology Investment waived second tranche draw conditions, which provided an additional $5 million USD. As of December 31, 2022, Iguana had a working capital balance of $33.7 million, continuing our position of being the most stable and liquid position in the company's history, henceforth being able to remove our going concern note within our financial reports and moving towards the nature of operations disclosure. Our financial position is strong with full supply chain and multi-year operating runway. Justin, back to you to discuss near-term outlook.

Thanks, Madison. From a near-term perspective, obviously we're quite comfortable with the working capital position. We do have a fully primed supply chain. Production capacity has been put in place, particularly at our manufacturing partner, Omega in San Jose. With the advancement of Iguana University, we can now track trained installers so we know the growth in the installer base. And it also allows us the multiple touch points to work with a greater number of installers. So demand generation is definitely going to be the key as we go forward. That, coupled with the VPP opportunities that we're seeing in all markets right now, where, as we've mentioned, we've built a vertically integrated full stack of solutions from the utility-based software through the iguana cloud right down to the device level software and the hardware itself so we think we've put the company at a competitive advantage for vpps we do believe that this will be the infrastructure requirements for a distributed grid and we feel very strong about our position going into that market growth. With that, I can open up for some of the questions that we see coming in through the web portal.

Thank you. We'll begin the question and answer session. Analysts who wish to join the question queue may press star then one on their telephone keypad. You'll hear a tone acknowledging your requests. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. If you're participating through the webcast, you can submit a question in writing using the form in the lower section of the webcast frame. While we wait for callers to join the queue, I'd like to hand it back over to Justin Holland to take us through a few questions from the webcast.

Thank you. We've got a number of questions coming in on margins. Margins obviously have been depressed through COVID-19, where I think most manufacturers saw a 70% to 80% increase on component-level pricing as IoT chips and other board-level components were in very short supply from a global perspective. The logistics costs coming in at 5x, you actually – record those incremental costs at the point of consuming the material and shipping it out, not when you book. So we will continue to see increased gross margin hits from logistics costs from late last year. And that's relative to the inventory investment that we made to make sure we had a stable supply chain. So that was one of the trade-offs. On pricing, again, a very good question coming in. Why don't we simply increase the price, which we have? However, we went through multiple price increases while at the same time saw consistently higher material costs. So as we increased our pricing, the supplier community and our supplier partners increased their pricing, which leaves you with the logistics overhang, which we still deal with. today. Pricing is also a very tricky situation relative to our peers, which at the start of the energy storage market particularly had very aggressive pricing. Certain competitors have also increased their prices multiple times since that time. So from a pricing perspective, we're comfortable with the increases we've made. We believe the gross margins will come in the line from a logistics standpoint. contribution perspective within the next couple of quarters longer term we're looking at cost reduction opportunity with the release of the tower product we know we'll see advantage there which will bump our gross margins as well as longer term development opportunities with power electronics somewhere in the 30 to 40 percent range and of course the battery module cost reductions with partner tochu and 24M when those cells become available to us later this year or early next year. So we see three parts to gross margin gain. One, logistics coming back in line relative to price increases that we put out into the market. Two, early stage gross margin increase with the next product release. And three, longer term through power electronics development. and new battery module development with 24M based cells through a . So we do have a multi-pronged approach to improve gross margins. However, the immediate focus was on revenue and building out the demand channels through distribution as noted. Another question from the board, how many employees do we have? That's actually a great question. If I answered this question on Friday, I would have been correct up until Monday as we've had a couple of new team members join. Right now, we sit roughly 70 people globally. We have accelerated hiring of certain sales team functions, after sales service, technical functions, as well as significant increases in Iguana Cloud development with software engineers and software programmers. So, The growth is happening very, very quickly. But as of right now, we are around 70 employees worldwide. Another question coming, what role do VPPs play in augmenting demand and increasing adoption? We think that's going to play a critical role as we think that mass adoption will happen through the VPP rollout. And the reason we think that is because you're getting utility engagement and you're getting a reallocation of utility capital. They will actually pay homeowners certain amounts of money to install systems and allow utilities and operators access to those systems. That simplifies the selling process for installers which will drive a significant jump in energy storage and microinverter sales. We thought that the VPP market would be the biggest market out of the gate. It has taken longer than we had anticipated to start. However, with the VPP pilots we're currently working on, we're very excited to see what's going to happen second half of 2023. and into 24, particularly because of the advancement of Iguana Cloud and the ability to get recurring revenue out of each one of those systems that go into those virtual power plants. Additionally, with feature-rich systems, which the market is starting to demand, you open up software as a service or SaaS revenue models with firmware updates and better feature additions to the homeowners themselves. So we think mass adoption will be driven through virtual power plants. We think that recurring revenue model growth will come through VPPs, and we had designed Iguana Cloud specifically for those two applications. Operator, I see we're starting to get some questions come in, so we can switch over. Thanks. Anything.

Thanks. The first question is from Michael Glenn with Raymond James. Please go ahead.

Hey, thanks for taking the question, Justin. Looking for an update with respect to the white label deal with your ESS product. How has that progressed? How many units did you ship in Q5? And any update on how many units you'd expect to ship in 23 under that deal?

In Q5, and we tend to look at it just as an ESS percentage of revenue, an ESS percentage of revenue came in at about 13% of the 10.3%. This is in line with our expectation with the introduction of the microinverter. What we'd previously seen was slow energy storage-specific sales, and we knew that we had to have a door-opening product. The microinverter serves as that door-opening product. It's also a much more mature market in the U.S. where microinverters and solar inverters have been maturing for 10 to 15 years. So we're seeing exactly what we thought. The percentage of ESS to microinverters going through the first half of 2023 should go from 13% north of 20% to 25%. Again, exactly on track for what we're looking for. And then as virtual power plants really start to take off in the second half, we expect energy storage revenues to actually surpass microinverter revenues going into 2024. Okay.

And when you talk about the nameplate capacity of the 24,000 units, you're referencing specifically the ESS systems, correct?

That's correct. So, what we wanted to do is we set an internal 2023 target of 20,000 five kilowatt equivalent systems of annualized production capacity. So that's how many systems can we test through each or the sum of our IFTs or the inverter functional test station. Each five kilowatt system takes roughly 45 minutes to go through those processes, which has software put in, all the regulatories are checked, and we make sure that the system functions exactly as we want it to. By the end of March, we wanted to have three. We accelerated that based on a number of growth factors we're seeing in the market. We now have five, three in San Jose, two in Calgary, and it's the five that total up to the 24,000. So that's an ESS-specific five-kilowatt equivalent. And the reason I say five-kilowatt equivalent is because you've got the 10-kilowatt whole home as well as the 15-kilowatt tower product coming down the pipeline later this year. So we'll measure our nameplate capacity in 5-kilowatt equivalents, which is based on the amount of time it takes to test one of the 5K systems.

Okay. Okay. Thanks for taking the question. Thanks, Michael.

The next question is from Ian Gillies with Stifel. Please go ahead.

Afternoon everyone. With respect to commentary on the conference call, there was a pretty material emphasis on both the cloud and international markets. And so would it be fair to assume, or is there a different way to frame it? But like, are you, are you de-emphasizing the, your white label partnership at this point? Cause it's not moving as quickly as you thought. or is this just additive to what you're doing there?

That's a great question, Ian. Thanks for that. It's actually in addition to what we're doing there. All of the metrics that we spoke to in the growth of trained installers was all specific to our white label partner. That's the product that goes through distribution. The distribution cycle, and I'll hit another web question here, The distribution cycle actually takes six to nine months and typically happens in the first half of the year. The second half of the year, the distributors have usually locked in on what they're going to carry. The installers have locked in on what they're going to be trained on, and they execute in the third and fourth quarter. So we were able to see $200. an 80 plus and 470 plus percent increases in people being trained on the system between kind of November and today. So all of that training, the brand refresh that Madison spoke about is all specific to our white label partner. The reason I believe it took a little bit longer was one, slowness in the market, and two, getting the messaging out to people the installer and the consumer. One of the things that drove the significant increase in training was the outcome of a trade show in February where we actually did have, our partner had a very large booth which drove a lot of traffic. We had a booth outside which drove a lot of traffic and the output of that are the increases of people going through the product training and installation and commissioning modules. Iguana University right now, although we will roll it out to the other regions, is specific to the North American market, and it has been designed to increase the movement of goods through our white label partnership. Over in Australia, again, the purchase of Solar Lab, that was intended for a couple of things. One, to drive... an early revenue addition with the installation process. But more importantly, it was to show the commitment of the organization to our utility partner, Simply Energy, to get the FCAS VPP going, which is in process right now, as well as to attract Australian home builders to see that we could be a one-stop shop for the roof and the wall, if you will, which is the microinverter and the energy storage system Because what we found is the home builders don't want to work with a host of renewable companies. They want to have one point of contact. So we wanted to build out the Iguana ecosystem, including installation there, to be that one point of contact. So benefits, again, early benefits, seeing a massive increase in quoted business. We have closed in the last 45 days over 600K of that newly quoted business.

um and and we expect to see the utility and home builder uh programs launch uh in due course okay the cash position actually in the fourth quarter was quite a bit lower than i would have anticipated if you look forward into 2023 and i mean you've obviously seen a lot of data so far can you maybe talk a little bit about incremental working capital investment that you anticipate to make this year, just to get a sense of how much more you think you need to chew into that cash position to hit your sales targets?

Yeah, I think we're in a comfortable position to hit the current sales targets. Additional working capital requirements will kind of gauge relative to the growth curve. If we see an opportunity to significantly increase The revenue growth beyond our target numbers will take it. But as it stands right now, I think with the multi-year runway, seeing what we saw in Q5 and watching the industry now, we're quite comfortable to execute current plans. But there is room for growth there. And if we see that opportunity, we'll certainly take it.

Okay. And last one for me, you just, you had a substantial second, substantial micro order come in. When do you expect to fulfill that? Will it be in the first quarter? Do you think it's in the second quarter? Like how should we be thinking about that from a, he doesn't know what perspective.

So it'll be, it'll be both. We we fulfilled, I believe the first order we, we fulfilled portions of the second order. Obviously, we're in constant communication with our partners. We do expect to see microinverters significantly ramp up going into the June quarter. Again, January, February, March, kind of post-tax credit push, particularly in the U.S. market, you tend to see a bit of a slowdown in installations January, February. March, that again is one of the reasons we saw such an increase in trained installers. And again, when you see that increase in trained installers, you can translate that as a leading indicator to someone sitting at a kitchen table selling the product to a homeowner, which is exactly what you want to see. We also have product now moving to additional distributors because it's the prime time to reload products. uh distribution for the first half or execution in in the uh in the second half okay that that's helpful thanks very much i'll turn it back over thank you once again if you have a question please press star then one and i'll hand it back over to justin thanks operator um We've got a question on the board here. What's the lag between distributor stocking and sell-through? The distributors go through different processes. One of the distributors that we work with is CED Green Tech. They work more on an individual branch level where you manage branch relationships. However, if you take a look at another Distributor Baywalk, for instance, they work more from a corporate perspective or even ABC Supply is a corporate perspective. So there is differences between how each national distributor works. We wanted to make sure that we were in all top five of five, which the credit to Vince Martin and the sales team, they were able to get that done. The sell-through... Timing is also different. It's related to how quickly we can get key installers from those distributors trained to start building products. Typically, you will see installers come in and order a product for a system and they will install that system and they will monitor that. Then they will come in and they'll order product for two or three systems and they'll install those. draws down the distributor inventories which goes through the same process of ordering a small amount as it draws down a larger amount and so on and so forth currently we have distributors who are taking full container loads of microinverters at a time and something we expect to increase in the in the coming quarters but the actual time between is different depending on the installer and the distributor or national distributor that they're purchasing from.

And we'll take one more here.

How do we expect to see the ramp in production to match the capacity work over the coming quarters? It's a very good question. And it's interesting. In order to chase demand, you have to have capability. And in order to work with some of the large national installers and some of the largest solar financing companies, you have to also show capacity. So typically in these situations, you build your capacity first. and then you go out and you fill that capacity. We're ahead of schedule, and again, that was based on procurement activities for the IFTs and making sure that we could standardize the IFTs relative to new products coming down the pipeline. What we didn't want to do was continue to buy IFTs one at a time and have to retrofit IFT 1, 2, and 3 relative to 4 and 5 because of the new products. So, We have accelerated the capacity, and we expect to see production kind of meet that as we go forward based on some of the factors we talked about being the VPP, mass adoption, the increased training, and so on and so forth. As we noted off the top of the call, demand generation is going to be a key focus for the field teams to start utilizing that capacity that we've built. So with that, I'd like to thank everybody for joining the call today, and we look forward to future updates to the market. And I'll turn it back over to the operator.

Thank you. This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.