Earnings call transcript: Enphase Energy beats Q4 2024 earnings estimates

Enphase Energy Inc . (NASDAQ:ENPH) reported stronger-than-expected earnings for the fourth quarter of 2024, with earnings per share (EPS) of $0.94, surpassing the forecast of $0.75. The company also exceeded revenue expectations, reporting $382.7 million against a forecast of $378.37 million. Following the announcement, Enphase’s stock rose 6.11% in after-hours trading, closing at $70.30. According to InvestingPro analysis, the company currently trades at a P/E ratio of 146, reflecting high market expectations despite recent stock price volatility.

Key Takeaways

• Enphase Energy’s Q4 2024 EPS of $0.94 beat expectations by 25.3%.
• Revenue for the quarter reached $382.7 million, exceeding forecasts.
• The company saw a significant stock price increase of 6.11% in after-hours trading.
• Enphase introduced several new products, including the IQ Battery 5e and IQ EV chargers.
• The company plans to focus on U.S. manufacturing and expand its product range.

Company Performance

Enphase Energy demonstrated robust performance in Q4 2024, driven by strong product innovation and strategic market expansion. The company shipped approximately 2 million microinverters and 152 megawatt-hours of batteries, maintaining a competitive edge in the renewable energy sector. Enphase’s focus on expanding its manufacturing capabilities and product offerings has positioned it well for future growth, despite challenges in international markets.

Financial Highlights

• Revenue: $382.7 million, slightly above the forecast of $378.37 million.
• Earnings per share: $0.94, compared to the forecast of $0.75.
• Gross margin: 53% (non-GAAP).
• Operating income: 31% (non-GAAP).
• Free cash flow: $159 million.
• Cash and equivalents: $1.72 billion at quarter’s end.

Earnings vs. Forecast

Enphase Energy’s EPS exceeded expectations by 25.3%, marking a significant positive surprise for investors. The revenue also surpassed forecasts by $4.33 million, reflecting the company’s strong market position and effective cost management. This performance is consistent with Enphase’s trend of beating estimates in recent quarters, underscoring its operational efficiency and strategic foresight.

Market Reaction

Following the earnings announcement, Enphase’s stock rose 6.11% in after-hours trading, reaching $70.30. This surge reflects investor confidence in the company’s ability to outperform expectations and sustain growth. The stock’s movement is notable given its 52-week range, which saw a high of $141.63 and a low of $58.33, indicating potential recovery momentum.

Outlook & Guidance

Enphase Energy provided guidance for Q1 2025, projecting revenue between $340 million and $380 million. The company expects to ship 150 megawatt-hours of batteries during this period and anticipates gradual revenue growth through new product introductions. Enphase is also focusing on enhancing its U.S. manufacturing capabilities to capitalize on domestic content opportunities.

Executive Commentary

CEO Badri Kothandaraman emphasized the company’s commitment to innovation and market expansion, stating, "We believe our new products will help drive gradual revenue growth throughout 2025." He also highlighted the need for more robust centralized grids, saying, "Centralized grids need more support to keep up with increased electricity demand."

Risks and Challenges

• Potential tariff challenges could impact cost structures and pricing.
• European markets, while promising, remain challenging.
• The company must navigate supply chain constraints to maintain its competitive edge.
• Macro-economic pressures could affect demand for renewable energy solutions.
• Enphase faces competition from other renewable energy technology providers.

Q&A

During the earnings call, analysts inquired about Enphase’s Safe Harbor revenue strategy and the development cycle of its battery generations. The company addressed potential tariff challenges and highlighted market opportunities in Europe and emerging markets. These discussions underscored Enphase’s strategic focus on innovation and market adaptability.

Full transcript - Enphase Energy Inc (ENPH) Q4 2024:

Conference Operator: afternoon, everyone, and welcome to the Enphase Energy’s Fourth Quarter twenty twenty four Financial Results Conference Call. All participants will be in a listen only mode. Please also note, today’s event is being recorded. At this time, I’d like to turn the floor over to Zack Friedman. Please go ahead.

Zack Friedman, Investor Relations, Enphase Energy: Good afternoon, and thank you for joining us on today’s conference call to discuss Enphase Energy’s fourth quarter twenty twenty four results. On today’s call are Badri Kothandaraman, our President and Chief Executive Officer Manny 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 fourth quarter ended 12/31/2024. During this conference call, Enphase’s 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 supplydemand 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 eight K, which can also be found in the Investor Relations section of our website. Now I’d like to introduce Badri Kothandaraman, our President and Chief Executive Officer.

Badri?

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: Good afternoon, and thanks for joining us today to discuss our fourth quarter twenty twenty four financial results. We reported quarterly revenue of $382,700,000 shipped approximately 2,000,000 microinverters and 152 megawatt hours of batteries and generated free cash flow of $159,000,000 Our overall channel inventory remained normal as we exited the fourth quarter. For Q4, we delivered 53% gross margin, 22% operating expenses and 31% operating income, all as a percentage of revenue on a non GAAP basis, including the net IRA benefit. Mandeep will cover the financials later in the call. Let’s cover customer service.

Our worldwide Net Promoter Score was 78% in Q4, the same compared to Q3. Our average call wait time decreased to two point eight minutes from four point four minutes. We are working to further reduce wait times by leveraging AI and rolling out software fixes. Let’s talk about operations. Our global capacity is around 7,250,000 microinverters per quarter with 5,000,000 in The U.

S. In Q4, we shipped approximately 1,700,000 microinverters from our U. S. Contract manufacturing facilities booking 45x production tax credits. We also introduced a higher domestic content SKU for two of our products, the IQ8X microinverter and the IQ8P commercial microinverters in Q4 to help the commercial asset owners qualify for a 10% domestic content ITC (NSE:ITC) error.

We now offer higher domestic content microinverters that cover both residential and commercial solar applications and continue to see good demand for these products from lease, PPA and commercial markets. We expect to ship 1,200,000 units microinverters from our U. S. Contract manufacturing facilities in Q1. We also began shipping the IQ Battery 5e, our third generation battery system from our U.

S. Contract manufacturing facilities during Q4, utilizing domestically made microinverters, battery management systems and enclosures, while sourcing cell packs from China. We shipped 6.7 megawatt hours of batteries from our Texas contract manufacturing facility in Q4. We continue to evolve our sourcing strategy to maximize domestic content opportunities and diversify our geographic exposure. Let’s cover the regions.

Our U. S. And international revenue mix for Q4 was 7921% respectively. In The U. S, our revenue increased 6% in Q4 compared to Q3, driven by 11% increase in microinverter sales.

This increase was due to strong demand for our higher domestic content microinverters. Our battery sales were down 8% in Q4 compared to Q3 due to lesser channel restocking as we had previously anticipated. Our overall sell through of products was flat in Q4 compared to Q3. We are generally seeing stable demand in The U. S, both in California as well as outside of California.

NEM three point zero currently represents 66% of our installs in California with a 45% attach rate for our own batteries. The adoption of batteries is steadily increasing across The U. S. Due to new tariff structures like MEM3, BPP programs and the need for resilience. In Europe, our revenue was down 25% in Q4 compared to Q3, while our overall sell through declined by 13%.

The overall business environment across the region is still challenging, but we are maintaining discipline on controlling the channel and expanding our served available market by introducing new products. I’ll provide some additional color on key markets in Europe, The Netherlands, followed by France, Germany and The UK. In The Netherlands, demand remains weak, but has stabilized. The market is transitioning away from solar only systems to solar plus batteries, which avoids export penalties and allows participation of residential solar plus battery systems in energy markets. We announced new collaborations with two retail energy providers during Q4 that enable homeowner access to dynamic tariffs and participation in the imbalance markets, both of which can improve payback to better than six years even without net metering.

We expect to announce more partnerships with Dutch energy providers in the future and see gradual improvement in this market as we progress through 2025. We also started shipping our new IQEV chargers into Netherlands in the fourth quarter. In France, the market is slowing down due to the recent utility rate cuts. France remains a key long term growth market for us given our leadership and low solar penetration. We started shipping our IQEV chargers into France in the fourth quarter.

We plan to introduce hot water heater compatibility in Q2, enabling homeowners to do heating with excess solar, car green heating. We also plan to introduce backup capability for our batteries, further enhancing resilience for homeowners. As the feed in tariffs in France gradually reduce, the value of solar plus batteries along with home energy management continues to rise. In Germany, we are excited about a few new products that will expand our reach. In early January, we started shipping the IQ Battery 5P with FlexPhase, a new product, to customers in Germany, Austria and Switzerland.

The early feedback has been very positive and we see an opportunity to increase share in the region now that we have three phase backup capability. We also recently started shipping our new IQEV chargers into Germany. In addition, we expect to introduce our IQ Balcony solar solution in Q2. We believe Enphase microinverters are ideal for small systems and this product is expected to increase our served available market in Germany by approximately 400 megawatts per year. A bright spot for us is The UK, where we are growing steadily.

We recently announced that our systems are integrated into Octopus Energy’s smart import and export tariffs such as the Intelligent Octopus Flux that is designed to optimize the charging and discharging of solar plus battery systems, aiming to provide customers the best rates for buying and selling electricity. We expect to start shipping our new IQEV chargers into The UK shortly in Q1. We are still under penetrated in many countries in Europe, including The UK, Italy, Spain, Belgium, Luxembourg, Switzerland, Austria and Poland. While each country faces its own unique challenges and opportunities, homeowners are prioritizing safety, reliability, quality, savings and an all in one app experience for their home energy system, which aligns well with our core strengths. We plan to introduce our entire suite of products, the IQ8 microinverters, both single and three phase batteries with backup, the new IQEV chargers and the AI powered home energy management software along with the SolarCraft installer platform across a lot more European countries throughout 2025.

We continue to make incremental progress in other regions. In India, our IQ8P and IQ8HC, these are the high powered microinverters, those sales continue to ramp and we began shipping the IQ Battery five t in December. We also recently started shipping the high powered IQ8P microinverters into Vietnam and Malaysia, further expanding into Southeast Asia. Additionally, we are building momentum in Thailand and Philippines, steadily ramping up businesses in these growing markets as demand for high quality reliable energy solutions continues to rise. Let’s cover Japan.

We are especially excited about Japan’s One Point Three gigawatt solar market, where we recently began piloting installations and plan to ship IQ8HC microinverters in Q2. The Tokyo Metropolitan government subsidies for MLTE make the market even more attractive for consumers. Japan’s solar landscape aligns well with small systems two to three kilowatts, complex roofs, strong demand for quality, these are all well aligned with our strengths. Let’s come to Q1 guidance. We are guiding revenue in the range of $340,000,000 to $380,000,000 We anticipate recognizing approximately $50,000,000 in Safe Harbor revenue in Q1, partially offsetting seasonality.

We define Safe Harbor revenue as any sales made to customers who plan to install the inventory over more than one year. We are approximately 85% booked to the midpoint of our overall revenue guidance. We expect to ship between 150 megawatt hours of IQ batteries, slightly higher than Q4. Before we talk about new products, let’s discuss the growing importance of energy market participation. In many markets worldwide, REPs are Regional Energy Providers and VPP programs are offering homeowners attractive ROI by utilizing their solar plus battery systems to buy and sell energy.

We believe Enphase our EPs and VPP programs. We look forward to sharing with you our progress in these markets as we go through 2025. Let’s cover new products starting with IQ batteries. As I said before, our third generation battery continues to gain traction in The U. S.

As well as worldwide. In The U. S, we introduced two key system enhancements to improve flexibility and reduce costs. The first is Busbar Power Control software, which allows homeowners to install larger solar and battery systems without costly main panel upgrades. The second is Power Control software for NEM expansion, enabling homeowners in California to expand legacy NEM systems without any penalty.

These advancements provide homeowners with increasing flexibility and cost savings and are being well received by installers. We are making excellent progress with our fourth generation IQ battery, which offers 60% less wall space, thanks to its integrated battery management and power conversion architecture. The battery pairs with our IQ meter collar and new enhanced combiner, reducing installed costs by approximately $300 per kilowatt hour for a typical backup system making us highly competitive across all use cases. We have achieved UL compliance for the meter collar and we are now working on getting approval from the California utilities. We expect to pilot our fourth generation battery in The U.

S. In the first quarter. The IQ8P-3P commercial microinverter with its new three phase cabling system is ideal for two zero eight volt small commercial solar installs between 2,200 kilowatts. We have over five sixteen sites in The U. S.

With an average size of 40 kilowatts and the feedback so far has been positive. These three phase microinverters are now shipping from The U. S. With increased domestic content offering a 10% ITC adder for commercial asset owners, which should drive up demand even further. One more positive thing to note is that our IQ8 residential and commercial microinverters are now in compliance with the Build America Buy America Act, BABA.

Let me provide an update on IQ9 powered by gallium nitride technology. The IQ9 family is built for higher DC input currents handling up to 18 amperes versus IQ8, which handles up to 14 amperes. IQ9 also supports a wide range of AC grid voltages, including two forty volts, two zero eight volts and four eighty volts for both residential and commercial markets. Leveraging GaN high voltage transistors, these microinverters deliver AC high AC output power of four twenty seven watts and five forty eight watts at a lower cost. We remain on track to launch IQ9 in the second half of this year for both residential and commercial markets with a significant SAM expansion driven by compatibility with four eighty volts AC commercial systems.

Let’s dive into EV charging. We started shipping our new IQ EV charger across several countries in Europe, tapping into a $1,400,000,000 annual market. The next generation smart charger is designed to work seamlessly as part of our in phase energy system or as a powerful stand alone charger. Key features of this new IQEV charger include dynamic phase switching and fine grain current control for efficient green charging, dynamic load balancing, ISO 15,118 support for AC bi directional vehicle expansion, and compatibility with MID meter for Germany, as well as compatibility with OCPP Cloud Software (ETR:SOWGn) 2.01, making it a very comprehensive and future ready solution. In Q4, we began shipping the IQ PowerPack 1,500 product to customers in The U.

S. And Canada. This 1.5 kilowatt hour smart portable energy system incorporates all of Enphase’s core technologies of power conversion, battery management and software, you should think about it as Enphase in a box. During the recent LA fires, Enphase donated PowerPack 1500s along with an organization called Empowered by Light to support relief efforts with some firefighters who were using them to power their communications gear. We are excited to enter this growing consumer market and plan to expand the PowerPack globally in 2025.

Let’s talk briefly about Solar Graph, our installer platform. We added a lot of new features to Solar Graph in 2024 with ease of doing design as the goal. Solar Graph is now available to installers in The U. S, Canada, Brazil, Germany, Austria, Netherlands, France with plans to expand into more countries in the coming quarters. Looking ahead, we are working on key enhancements to Solar Graph, including auto roof detection, ultrafast proposals, UIUX overhaul and expanded C and I features making SolarCraft even more powerful and intuitive.

Let me conclude. We successfully navigated a challenging 2024, generating strong free cash flow and profitability, while bringing down channel inventory to normalized levels. We entered 2025 with a continued focus on operational efficiency, product reliability, customer service, product breadth and geographic expansion. We have also doubled down on U. S.

Manufacturing for microinverters and batteries, which we believe is good for our customers’ economy and for Enphase. There is some uncertainty around government policies for our industry, both in The U. S. And abroad. But one trend is very clear.

Centralized grids need more support to keep up with the increased electricity demand. Unsubsidized free markets are increasingly turning to distributed energy systems to help balance the grids through REPs and VPP programs. We see this trend increasing and getting stronger as we look ahead and believe we are well positioned there. We believe our new products will help drive gradual revenue growth throughout 2025 with Safe Harbor ordering in The U. S.

Having the potential to accelerate growth as we progress into the second half of twenty twenty five. 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 financials. Mandy?

Manny Yang, Chief Financial Officer, Enphase Energy: Thanks, Badri, and good afternoon, everyone. I will provide more details related to our fourth quarter of twenty twenty four financial results as well as our business outlook for the first quarter of twenty twenty five. We have provided reconciliations of these non GAAP to GAAP financial measures in our earnings release posted today, which can also be found in the IR section of our website. Total (EPA:TTEF) revenue for Q4 was $382,700,000 We shipped approximately eight seventy eight megawatt DCO microinverters and 152.4 megawatt hours of IQ batteries in the quarter. Non GAAP gross margin for Q4 was 53.2% compared to 48.1% in Q3.

GAAP gross margin was 51.8% for Q4 compared to 46.8% in Q3. Non GAAP gross margin with our net IRF benefit for Q4 was 39.7% compared to 38.9% in Q3. GAAP and non GAAP gross margin for Q4 included $51,900,000 of net IRAs benefit. Non GAAP operating expenses were $83,300,000 for Q4 compared to $81,600,000 for Q3. The increase was driven by higher R and D expense related to the launch of multiple new products in the first half of twenty twenty five.

We continue to invest in new products, customer service and geographic expansion. We implemented a restructuring plan in November 2024 to reduce our operating costs and align our workforce and cost structure with current market conditions. We expect to reduce our non GAAP operating expenses to be in the range of $75,000,000 to $80,000,000 a quarter by the second quarter of twenty twenty five. GAAP operating expenses were $143,500,000 for Q4 compared to $128,400,000 for Q3. GAAP operating expenses for Q4 included $47,900,000 of stock based compensation expenses, $2,900,000 of amortization for acquired intangible assets and $9,400,000 of restructuring and asset impairment charges.

On a non GAAP basis, income from operations for Q4 was $125,900,000 compared to $101,400,000 for Q3. On a GAAP basis, income from operations was $54,800,000 for Q4 compared to $49,800,000 for Q3. On a non GAAP basis, net income for Q4 was $125,900,000 compared to $88,400,000 for Q3. This resulted in non GAAP diluted earnings per share of $0.94 for Q4 compared to $0.65 for Q3. Net income for Q4 was $62,200,000 compared to $45,800,000 for Q3.

This resulted in GAAP diluted earnings per share of $0.45 for Q4 compared to $0.33 for Q3. We exited Q4 with a total cash, cash equivalents, restricted cash and marketable securities balance of $1,720,000,000 compared to $1,770,000,000 at the end of Q3. As our 2025 convert is coming due in March, we plan to use our existing cash to pay off the entire principal balance of approximately $102,000,000 As part of our $1,000,000,000 share repurchase program authorized by our Board of Directors in July 2023, we repurchased 2,883,438 shares of our common stock in Q4 at an average price of $69.25 per share for a total of approximately $199,700,000 We have a remaining $398,000,000 authorized for further share repurchases. In addition, we spent approximately $5,000,000 by withholding shares to cover taxes for employees divesting and options in Q4, that reduced the diluted shares by 68,532 shares. We expect to continue this anti dilution plan.

In Q4, we generated $167,300,000 in cash flow from operations and $159,200,000 in free cash flow, including approximately $110,000,000 of customer prepayments. Capital expenditure was $8,100,000 for Q4 compared to $8,500,000 for Q3. We expected our capital expenditure to stay within $50,000,000 in 2025. Now let’s discuss our outlook for the first quarter of twenty twenty five. We expect our revenue for Q1 to be within a range of $340,000,000 to $380,000,000 which includes shipments of 150 to 170 megawatt hours of IQ batteries.

In December 2024, we signed a safe harbor sales agreement for a total amount of approximately $95,000,000 to ship in the first half of twenty twenty five. As Badri mentioned, we define safe harbor revenue as any sales made to customers who plan to install the inventory over more than a year. The first quarter of twenty twenty five revenue outlook includes approximately $50,000,000 from this safe harbor sales agreement. Although we received a lump sum of $95,000,000 due to safe harbor for expected shipments in the first half of twenty twenty five, under normal circumstances, this would have been recognized organically over eight quarters at an average of approximately $12,000,000 per quarter. Going forward, the $12,000,000 should be considered as part of the Phase one each quarter to reflect the true run rate of our business.

Coming back to Q1 guidance, we expect GAAP gross margin to be within a range of 46% to 49%. We expect non GAAP gross margin to be within a range of 48% to 51% with net IIA benefits and 38% to 41% before net IIA benefits. Non GAAP gross margin excludes stock based compensation expense and acquisition related amortization. We expect the net IRAs benefit to be between $36,000,000 and $39,000,000 on estimated shipments of 1,200,000 units of U. S.

Inmeg micro inverters in Q1. We expect our GAAP operating expenses to be within a range of $143,000,000 to $147,000,000 including approximately $62,000,000 estimated for stock based compensation expense, acquisition related expenses and amortization, and restructuring and asset impairment charges. We expect our non GAAP operating expenses to be within a range of $81,000,000 to $85,000,000 We expect our GAAP and non GAAP annualized effective test rate excluding discrete items for 2025 to be at 18% plus or minus 1% with IRA benefit. In closing, we managed well with our financial discipline through a difficult global environment in 2024. We maintained profitability and strong gross margins.

In addition, we generated approximately $480,100,000 of free cash flow in 2024 and exited the year with $1,720,000,000 in cash, cash equivalents, restricted cash and marketable securities, while repurchasing 4,500,000.0 shares of our common stock for approximately $391,400,000 With that, I will open the line for questions.

Conference Operator: Our first question today comes from Brian Lee from Goldman Sachs. Please go ahead with your question.

Brian Lee, Analyst, Goldman Sachs: Hey, everyone. Good afternoon. Thanks for taking the question and good job on the quarter here. Maybe for Mandy or Badri, just trying to understand the guidance because there’s a little bit of moving parts with the safe harbor. So if we take the $50,000,000 out, obviously that’s implying like a baseline of $310,000,000 for Q1.

And if we looked at the past three years or so, typical seasonality maybe up like high single digits sequentially into 2Q. And then we add $45,000,000 on top of that to be recognized as we think about kind of the framework for Q2 modeling. And then just is there a visibility for any more safe harbor revenue as you move through the year kind of second half? What are your customer discussions around that?

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: Yes. So let me just give a brief on that. The way you should think about the $95,000,000 Safe Harbor, we think is this $95,000,000 if it had not been for Safe Harbor would have been recognized over eight quarters. That’s approximately $12,000,000 a quarter of core revenue. So when you talk about the $310,000,000 I would add another $12,000,000 to it.

That makes it $322,000,000 So take roughly the $380,000,000 in Q4 ’3 ’80 ’2 million dollars and going down to $322 that is in line with about 15% seasonality that is typically expected from Q4 into Q1. To answer your question, is there any more safe harbor deals that will be done later this year? We don’t know. But of course, there is some drive towards safe harbor. One is we saw the domestic content guidance basically reducing for inverters as well as for racking.

So that’s one incentive. The second incentive is obviously, if there is anything on the step downs for ITC, for example, some customers may want to take that into consideration and do safe harbor. So we are having those discussions with the customers and we will inform you hopefully in the next conference call if there is anything more.

Brian Lee, Analyst, Goldman Sachs: Okay, fair enough. And then maybe just a follow-up question. You’re starting off the year with some good momentum on the battery storage front just based on the volume guidance here for Q1. But you’re also in the midst of, like you said, piloting the new 10C battery and wondering how much of this is sort of phasing out the older generation battery? What kind of visibility do you have on picking up new volume, maybe market share as you move through 2Q and beyond on the 10C?

And should we expect in your pocket? Or are you expecting kind of sequential growth on battery storage volumes throughout the balance of the year similar to kind of what you’ve seen in past years? Thank you.

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: Yes. Good question. We do expect to sequentially grow in batteries throughout 2025. If you see what happened in 2024, our sell through gradually increased through 2024. Basically, let me cover two things.

Internationally, we have introduced the third generation battery, And it was by and large a battery that was for grid tied applications in Europe because the power is relatively stable there. Now what we did, and I’m not sure whether you got it, it is we have introduced variant of that battery called FlexPhase. FlexPhase is a battery that is capable of operating in either three phase or a single phase configuration and it can do backup on all three phases. It is perhaps the smallest AC coupled battery that can do backup on all three phases. And in some regions like Germany, Austria and Switzerland, backup is more an emotional requirement than a need.

So they are all worried about energy security. And so we introduced this flex phase battery and we expect to convert entire Europe to the flex phase battery in 2025. So that’s the dynamics in Europe. And by the way, every emerging market will need three phase battery with backup. The U.

S. Is a little bit unique. We have single phase here. And so in The U. S, which we are very excited about, we are working on the fourth generation battery.

That fourth generation battery has got a much smaller footprint. The wall space is 60% smaller. And we are able to do that because we are able to combine our power conversion battery management into we’re able to integrate and able to achieve a much smaller form factor. So basically, we are very excited about that battery. And then another important development there is this battery will work along with a meter collar for backup in addition to a new combiner that will also release at the same time.

So originally, we had another component called system controller that’s going away now, replaced by a combination of the meter collar and the combiner, which is substantially cheaper. Basically, all the labor in installing the system controller goes away. Net net, what happens, like I talked about, we reduced the installation cost by $300 per kilowatt hour, making both grid tied as well as backup systems easy to install within phase. And following up on that, we have achieved UL compliance on the meter column. We are now working to gain the approval of the California utilities.

We expect to pilot our energy systems in March of this quarter. And then we do expect to get strong traction from installers. We have done we have had multiple meetings with installers. We have introduced the battery. We have had excellent reception and we look forward to ramping and growing the business continuously.

Conference Operator: Our next question comes from Phil Shen from Roth Capital Partners (WA:CPAP). Please go ahead with your question.

Phil Shen, Analyst, Roth Capital Partners: Hi, everyone. Thanks for taking my questions. Had a few follow ups on the Safe Harbor. Can you share with us if there was any Safe Harbor revenue in Q4? And then of the $50,000,000 of Safe Harbor in Q1 and maybe $95,000,000 total, how much what’s the split between micros and batteries?

And then also can you share who the $95,000,000 safe harbor is with? If you can’t share the name, just directionally what kind of player and so forth? Thank you.

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: Yes, we are not going to share any customer names. The Safe Harbor is mostly on microinverters. And then the answer in Q4 is there is we define deliberately this time Safe Harbor as essentially what we expect will be installed over one year time frame. There are a few small deals that are run rate deals that will get consumed in one to two quarters. That happened at a much smaller rate.

We do not consider them safe harbor. They are usual run rate business. The $95,000,000 is what we are considering safe harbor, and you should think about that as $12,000,000 of core revenue per quarter.

Phil Shen, Analyst, Roth Capital Partners: Okay, got it. Thank you. And then in terms of on a go forward basis, I think Brian was talking about sequentially Q2 could be up single digit high single digits quarter over quarter in terms of growth for revenue. Can you in order to get to maybe $1,500,000,000 of revenue for the year, do you think you can hit $400,000,000 per quarter run rate maybe in the back half of the year? I know you don’t want to provide official guidance, but wanted to just get a feel for what the cadence might be for the rest of the year.

And then shifting to tariffs for just a moment, we’ve written a lot about this anode ADCVD. There could be 850% type tariffs on the anode part of the battery. To what degree are you guys preparing for that? And how can you deal with it overall given that retroactive tariffs could become effective sometime this month? Thank you.

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: Yes. We don’t provide guidance for the second quarter or the rest of the year, but I’m extremely excited by both our progress on new products. We are introducing a whole array of new products. You saw in Q4, we introduced the new EV charger into a $1,400,000,000 served available market. We introduced our IQ portable energy system, which we plan to extend in other places.

January, we introduced the Flex (NASDAQ:FLEX) Phase battery that is the three phase battery with backup, smallest AC coupled three phase battery with backup. We are making excellent progress on our fourth generation battery like what I just now answered. The meter collar has passed dual compliance. We are looking forward and to start piloting that product. And then I did mention about IQ9.

IQ9, we are also very excited. The IQ9 will provide more power, 10% more power for approximately similar cost. And the early results are looking quite good. We expect to finalize our design in the first quarter and we expect to start doing verification and release that product. So I do expect to grow throughout the year because we are introducing a lot of new products.

We are diversifying. IQ9, for example, will allow us to participate in the four eighty volt market, which we haven’t participated till now. We are only participating in the two zero eight volt market. So GaN allows us to do all of those. We expect to introduce that product later in the second half of twenty twenty five.

So let me stop there. Raghu will answer the question on anode ADCVD. Yes. So with regards to

Raghu Balor, Chief Products Officer, Enphase Energy: the anode ADCVD, obviously, it is something that’s very new. We are tracking it closely. It’s still an investigation. And there are still a lot of unknowns with regards to whether it is the anode material being imported in that gets the tariff or will the entire sell or sell back at the tariff. In general, our plan is from a supply chain point of view is to have geographic diversity, which we have done on the microinverter side and as well as we are preparing to do that on the battery side.

So all of these things given the tariff issues, the ADCD issues, etcetera, we are being very proactive, which we have already started in diversifying our supply chain.

Conference Operator: Our next question comes from Julien Dumoulin Smith from Jefferies. Please go ahead with your question.

Julien Dumoulin Smith, Analyst, Jefferies: Hey, good afternoon, team. Thank you guys very much. Appreciate the time. Maybe just following up

Conference Operator: on the last year’s questions.

Julien Dumoulin Smith, Analyst, Jefferies: I know it’s a little bit early to guide, shall we say, but obviously you’ve got a number of tailwinds here when you think about the IQ9 coming in the back half, also fourth gen introduction. In theory, you guys have alluded to potentially higher margins, maybe 60% on these new products, 45 on fourth gen maybe or upwards of. I mean, as you think about those products bleeding into the back half of the year, can we expect a margin uptake? I noticed obviously in 1Q here, there’s a little bit of a downtick here versus what you guys just put up. Is there a mix dynamic in 1Q?

And really as you think about the back half of the year, as those new products roll in, are there any offsets that you would otherwise see? And then related, is there a pricing dynamic that we should be watching as it pertains to the updated IRS cost allocation tables for MLPEs, right? I know that that dropped here from 36% to 25% of late. Does that change anything in the pricing and up pricing, but as we might have seen earlier? And could that be a headwind itself?

Or conversely, could maybe the dynamics around Powerwall three and the separation between the solar qualification versus the battery piece helped drive incremental sales and stabilize backdrop a little bit? Sorry, a lot in there, but I wanted to squeeze it all in.

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: Yes. We our pricing strategy is quite simple. We price on value added with respect to competition. We also have a very robust world class cost program. So I keep getting this question all the time.

In the last six years, my answers are the same. We have a pricing team. We have a cost team. We make excellent progress on both. And we basically if we need to drop price on batteries because we don’t add that much value, we will.

At the same time, we work on cost reduction opportunities. And the results prove that. Today, we are at a a non GAAP gross margin. Without the ERA benefit, we are reporting approximately 39.7%. The number for Q1, the guidance we gave is between 3841%.

You should just interpret that as regular product mix that is fluctuating. So our numbers will fluctuate. Do I expect us to get better? I do expect us to get better in general. I do expect us to improve.

For example, IQ9 brings in a lot of tricks with gallium nitride. We are able to go from four silicon FETs to four to two gallium nitride FETs. And because we are using what is called as a bidirectional switch, instead of four unidirectional switches, we will now use two bidirectional switches. Therefore, there is some intrinsic cost reduction. We expect to be running those FETs at a frequency that is greater than 100 kilohertz in the future.

And when you run those FETs at greater than 100 kilohertz in the future, you no longer need a big transformer. For example, if you are able to run them at 10 times higher frequency from 100 kilohertz, if you are able to run at one megahertz, you should be able to get a transformer reduction by one over root three, which is a 66% reduction in the transformer size. While we are not there, our I mean, we call that as internally as moonshot, so that we can gain that benefit and give customers ultra small inverters, we are extreme which are extremely cost competitive. So it will help both customers as well as us in terms of gross margin. On the fourth generation battery, we have excellent levels of integration and that is about to come in imminently.

On the fifth generation battery, which we are working on, we expect to release our fifth generation. I haven’t talked about it too much, but we are always working on n and n plus one. So our fifth generation battery will come out in Q1 twenty twenty six, ’1 year from today. And that also has got a drastic cost reduction associated with it. I’ll give more highlights on that in the next call on why.

That will use prismatic cells. It’s got an energy density that is 50% higher. We’ll share more details. So in general, we are making advances in our products that fundamentally improve the cost structure. So while we will price attractively price based on value that we add to the end customer, we expect our cost to get continuously better.

And the combination of which will result in a steady uptick in gross margins for us.

Conference Operator: Our next question comes from Colin Rusch from Oppenheimer. Please go ahead with your question.

Colin Rusch, Analyst, Oppenheimer: Thanks so much guys. Just looking at some of the activity and payments from the Treasury and some of the weather, can you just talk about how healthy the channel is right now? Are you seeing folks with any sort of liquidity issues? What are you looking at in terms of payables and some not payables, but receivables and any sort of issues around some of those kind of medium size installers that you guys work with?

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: Yes, I mean, look, we work with distributors. So most of our business goes through distributors who are reasonably healthy. And to tell you the truth, our receivables, the AR is in good shape. It is in good shape in Q4 as compared to Q3. But if you ask me, in the channel, you ask me a question, how is

Raghu Balor, Chief Products Officer, Enphase Energy: the health of the channel?

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: While Enphase manages the channel inventory closely, I mean, installers do are having a difficult time. There is no question. There is no question that installers are having a difficult time. That is cash flow to installers is always a problem, right? And now the business has moved predominantly from loan to lease.

There are a lot of new players coming. There are established players, of course. So installers’ robustness, cash flow is always an issue. And what is going to change that? And some of that is probably welcome for the industry because then it weeds it weeds out the weak players and then the industry generally becomes stronger.

But what the industry needs in order to improve steadily in 2025 is improved quality, improved service, better and more stable financing options. They’re all required. So I won’t sugarcoat it that everything is okay. It is a stress time. Bright spots are in California, things have stabilized.

I’ll talk about the L. A. Fires briefly as well. A lot of questions on whether the L. A.

Fires is causing a problem, causing a disruption. Of course, it is unfortunate, tragic. However, the L. A. Fires probably caused a disruption for a couple of weeks, but now we find that activity is back in full flow in that region.

There were about 10 plus ZIP codes that were affected. Enphase homes in those regions, about 500 homes with Enphase solar and storage were damaged. But overall, those zip codes only had a couple of thousand homes. So limited exposure and those are in the process of rebuilding. The installers had that problem, but in general, California has, I would say, bounced back from before.

I don’t find installers saying I don’t know how to sell NIM3. On the contrary, they are getting more confident. They know how to sell NIM3. Outside California, it’s still tough because the economics in many places aren’t there due to low utility rates. The economics aren’t I mean, are weak.

The East Coast is doing relatively well, again, due to high utility rates. So, let me stop at that.

Colin Rusch, Analyst, Oppenheimer: All right. Thanks so much. And just as you transition to the IQ9 and change some of the componentry, can you talk a little bit about any sort of issues around tariffs and any sort of supply chain elements that you have to navigate here or at risk as you start looking at production of that new product?

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: Yes. Look, I mean, the phenomenal thing our team has done, our operations team has done is we don’t expect any impact on tariffs for microinverters, because over time we have diversified the supply chain so much. We are manufacturing now in The U. S. We are manufacturing in China, India.

So you could ask us saying how about the raw materials that come in from China into The U. S? I mean, we have reduced that exposure to very limited. So basically, there, we have diversified the entire supplier base that it is a nonissue and I expect it to be a nonissue for IQ nine as well. If your question is about GaN and GaN the gallium supply chain, that’s also a nonissue.

Our suppliers, the predominant supplier that we will use is based in Europe and another supplier based in North America as well as Japan. So our exposure is limited and in fact, I would say we are not worried about it for Q9.

Conference Operator: Our next question comes from Andrew Perrocco from Morgan Stanley (NYSE:MS). Please go ahead with your question.

Andrew Perrocco, Analyst, Morgan Stanley: Great. Thanks so much for taking the question. Maybe just switching gears a little bit. Doctor, you sound pretty confident in terms of the outlook for the industry and your business overall. I’m just curious, just given your balance sheet position, given where the stock is, is there an opportunity to maybe lean into buybacks more heavily or capital return more heavily, just given maybe a dislocation in what you view the intrinsic value of the stock and where the stock is trading and just given the balance sheet and the outlook for the business that you’ve kind of portrayed over the balance of this call?

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: Right. I have articulated our strategy there before. Let me tell you that again, we first, we take care of the needs of the business, number one. We ensure that all of the capital needs for the business are taken care whether if we want to buy something for manufacturing batteries in The U. S, manufacturing microinverters in The U.

S, increasing capacity, diversifying with one more contract manufacturers, buying test capacity, all of those that’s our first choice or buying new pieces of software to make the company run better. So that’s our first priority. If we have enough leftover from there, we look for M and A opportunities. M and A opportunities that increase the total value of the company. What kind of opportunities are out there?

New technology on batteries, new technology on home energy management, maybe looking more into the commercial front, small commercial, where I think we could use some. So we look at that. And many of them, I mean, we’ll over time, we have become allergic to big acquisitions. We’d like to do small teams bolt on acquisitions is what we would like to do. And then once these two are taken care of, as long as the share price is below a conservatively estimated intrinsic value, then we buy stock.

So last quarter, you’ll be happy to note that we bought close to 2,800,000.0 shares. We thought it’s a good use. So we spent about $200,000,000 in cash buyback. In the past, we had done up to $100,000,000 per quarter. And so we plan to do that with the guidance from our Board.

We plan to have the same strategy. And if we believe the share prices are undervalued, which we think they are, and you can expect similar action from us going forward.

Conference Operator: Our next question comes from Christine Cho from Barclays (LON:BARC). Please go ahead with your question.

Zack Friedman, Investor Relations, Enphase Energy0: Good evening. Thank you for taking my question. You talk about piloting with the California utilities for the meter collar. I think I had heard that the back and forth between Tesla (NASDAQ:TSLA) and the utilities had taken some time for their meter collar and maybe it’s just going to be longer because they were first. But how long are you expecting your pilot take?

And then I’m sure you need their approval, but can you just walk through what other steps are needed before you can start selling them and the expected timeline?

Raghu Balor, Chief Products Officer, Enphase Energy: Sure. There is a prescribed timeline that is proposed by the Public Utilities Commission. Of course, I mean, I will not comment about anything that happened before. Our experience thus far has been generally very positive. We have they’ve been very engaged with us.

They’ve been

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: you have to get through all

Raghu Balor, Chief Products Officer, Enphase Energy: your certifications first. So first and foremost, you could get through the primary UL certification, which we completed. And that in and of itself is a pretty big deal. Once you’re through that, they have additional tests that they want to do, both at the meter collar level, which is the unit level as well as the system level. And that’s the process that we are in.

There’s a lot of discussion that happens with their engineering teams in order for us to explain to them how the whole how the device works as well as how the entire system works. And then we go through systemic testing with them. Each utility is slightly different than the other. So we are working with all three of the IOUs simultaneously and they’re at different stages of testing. That’s about what I can say thus far.

But our experience has been thus far quite positive.

Zack Friedman, Investor Relations, Enphase Energy0: Okay, great. And then just moving on to the safe harboring, the $95,000,000 that you mentioned, was that mostly in response to the domestic content updates that came out last month and the desire to safe harbor under the old DC table since you only have like ninety days to do that? Or was it driven by section by everything going from Section 48 to 48E or something else? So just any color there would be helpful.

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: Yes. I think it was mostly a risk mitigation strategy overall. It could include domestic, it could include ITC, etcetera.

Conference Operator: Our next question comes from Puneet Satish from Wells Fargo (NYSE:WFC). Please go ahead with your question.

Zack Friedman, Investor Relations, Enphase Energy1: Thanks. Good evening. Just on the fourth generation battery, I think you previously indicated that the pilot would start in Q4. Now it looks like it’s starting in Q1 or March. I guess what drove that slight shift in timing?

And then how should we think about the timeline for ramping battery sales? I guess at what point do you think you could see the next gen battery crossover 50% of your battery mix? Could that happen in Q2 or Q3 of this year?

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: Yes. I mean, we always told you the first quarter. So we are exactly there. We did not talk about Q4. So now the next question is when do you think we will ramp and how much when we will get to 50%.

We expect assuming the piloting goes well and we expect to start ramping in Q2. And typically, in our experience, it takes a couple of quarters for us to ramp to the 50% level and maybe one quarter more to 80% level. That’s been our experience. This is a new product, so there could be something more unique there, but this has been our experience.

Zack Friedman, Investor Relations, Enphase Energy1: Okay, that’s helpful. And then the timing between your battery generations from what I can tell kind of looking historically it’s been around three, four years, but now you’re talking about a fifth generation battery just one year after the fourth generation launch. I guess what’s driving this acceleration in your product development cycle? Are you seeing competitors iterate at the same speed? And if not, if you’re releasing new generations of batteries faster than peers, then can we expect to see the gross margin just continue to climb at least on the battery side over the next two to three years?

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: Yes. I mean, just for reference, we released our third generation battery in June of twenty twenty three. So we are talking about Q1, and that’s approximately, let’s say, eighteen to twenty four months. Now and just for users to recollect, we launched our first generation battery number one in 2020. That was we started shipping in Q3 of twenty twenty.

Within about eighteen months, we launched the second generation. And then, like what I said, the third generation in June of twenty twenty three. We have become better at doing these batteries. We have an expert team now, which understands how to do this IP, both hardware, software, app. And there is a lot of complications.

Sometimes we fall flat. Sometimes we miss our commitments. But we have generally gotten more confidence. So our fifth generation battery, we like the one I said is coming out in Q1 twenty twenty six. That one we started working on over a year ago.

It usually starts off in the CTO team and then we do essentially technology feasibility, then a small team starts off and then we officially kick it off. So it’s not new. There is always overlap like what I said. We work on both N and N plus one at any point in time. So that’s why we think we will get on we will lock ourselves on to that timeframe, twelve to eighteen months.

You should expect from us a steady cadence of batteries coming up.

Conference Operator: Our next question comes from Mark Strouse from JPMorgan. Please go ahead with your question.

Colin Rusch, Analyst, Oppenheimer: Great. Thanks for taking our questions. Helpful, Paul. I just have one quick question remaining. When you look at the safe harbor activity that’s in the 1Q and 2Q guide this year, and maybe even kind of your safe harbor activity pre IRA, is there anything to call out as far as both gross and operating margins?

Should we assume that those kind of align with corporate average or anything that we should be adjusting for in our model? Thank you.

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: No. You should just be assuming they are at our usual gross margins.

Brian Lee, Analyst, Goldman Sachs: Thank you.

Conference Operator: Our next question comes from Kashy Harrison from Piper Sandler. Please go ahead with your question.

Zack Friedman, Investor Relations, Enphase Energy2: Good afternoon and thanks for taking the questions. So I just want to go back to the original questions early in the call just to make sure we’re all on the 100% on the same page. So you mentioned $95,000,000 of safe harbor that you booked that in 4Q. You highlight $50,000,000 in 1Q. So should we expect the rest

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: of the $45,000,000

Zack Friedman, Investor Relations, Enphase Energy2: to roll over in 2Q? Or are you saying that there’s some other dynamic we need to be thinking about?

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: No, you’re right. It will roll over into Q2, yes, 2Q.

Zack Friedman, Investor Relations, Enphase Energy2: Okay. Thank you. And then just one follow-up on the domestic content front. Can you speak to the net what you think the net cost of your system is now that you could theoretically qualify for both the solar and storage side and how that would compare to the net cost of say a Powerwall three theoretically that might qualify on the storage side, but not the solar side. I’m trying to see if today on a net basis for backup you would be cheaper or

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: because

Zack Friedman, Investor Relations, Enphase Energy2: of the domestic content benefit or you would still need the fourth gen to get to that point where you’re cheaper? Thank you.

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: No, we do qualify today. Our domestic content is well more than 40% on batteries today. So we do qualify already. We are making those batteries in Texas. We shipped 6.7 megawatt hours of batteries in Q4.

We expect to ship a lot more in Q1.

Conference Operator: Our next question comes from Joseph Asha from Guggenheim. Please go ahead with your question.

Zack Friedman, Investor Relations, Enphase Energy3: Thank you. Just one question for me as it relates to the return of capital. I’m curious if all you have contemplated simply just making a commitment to repurchase a certain amount of stock per year regardless of the level as opposed to some of the timing activity you’ve been engaged in. Wouldn’t that make more sense?

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: No. I think I told you our strategy is very simple, very clear. First, take care of the needs of the business, take care of M and As. And then if money is left, we look at buying at a conservative amount below the intrinsic value. And so

Zack Friedman, Investor Relations, Enphase Energy3: Okay. Perhaps I misspoke, obviously, you need to take care of the business first.

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: Yes, I mean, we did that exactly, and if you saw, we did about $200,000,000 of buyback in Q4. We’ve been very steady. In the past quarters in 2024. We did approximately up to 100 every quarter. And we plan to execute a similar strategy with the approval of our Board in 2025.

Zack Friedman, Investor Relations, Enphase Energy3: Okay. Thank you.

Conference Operator: Our next question comes from Maheep Mandloi from Mizuho (NYSE:MFG). Please go ahead with your question.

Zack Friedman, Investor Relations, Enphase Energy4: Hey, thanks for taking the question. Just on the Safe Harbor, I’m sorry to take about that, but do you know if the Safe Harbor is financed to third parties or directly to the company? Or do you know that? And secondly, just wondering the European gross margin, it looks like European gross margin is slightly lower than Europe, but there is a difference in that.

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: We could not hear that question well, but if you’re asking about customer details, we aren’t going to be talking about customer details there.

Zack Friedman, Investor Relations, Enphase Energy4: Got it. Now the second part was just on the European gross margins versus The U. S. Gross margins?

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: Yes. In the past, I have clarified it. The European gross margins are at similar levels as The U. S. Gross margin.

Pricing strategy is the same. Prices are also approximately the same list prices of distributors. So we we don’t see

Conference Operator: any difference. Our next question comes from Dylan Nissano from Wolfe Research. Please go ahead with your question.

Colin Rusch, Analyst, Oppenheimer: Yes. Hi. Thanks for taking my question. Can you just talk a

Zack Friedman, Investor Relations, Enphase Energy: little bit about what kind of trends you might be seeing with market share across battery markets, solar only markets and then specifically within the TPO players?

Raghu Balor, Chief Products Officer, Enphase Energy: We don’t really comment about market share, but in general, what we can say is that, especially as you look at the Gen four product that’s coming out, it’s a Generation four product, it’s not just the battery to be very clear. It is the battery, it’s the new combiner, which has a whole host of new capabilities. It’s got substantial amount of integration that as we talked about that system controller that we had previously that was doing the actual, what’s called the micro grid interconnect device function, all of that has been significantly simplified. That is resulting in as much as $300 per kilowatt hour reduction in cost to the installer. It’s a combination of both savings in labor by going to the meter collar as well as the savings in the product costs as well.

So just by moving to that new technology, you’re seeing substantial amount of savings. So what that allows us to do is be very competitive, not just in the grid type case, which we were which we have always been even with the third generation system. Now we are very, very competitive even with the backup scenario, while retaining all the benefits of the end phase system, which is the reliability piece, the safety piece, the simplicity piece and the performance piece. So I think the next generation product is going to make a big difference in terms of how we are how competitive we are even in the backup scenario.

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: And there are a few third party reports if you’re interested at that if you want to take a look at our share, I would refer to those. And there are multiple of them and each of them having their own way of looking at it. So you should take a look at that. Great. Thank you.

I’ll take the rest offline. Thank you.

Conference Operator: Our next question comes from Gordon Johnson from GIJ Research. Please go ahead with your question.

Zack Friedman, Investor Relations, Enphase Energy2: Hey guys, thanks for taking my question. A lot of them have been answered. But I’m just looking at some of the specific data from the California Solar Initiative and it shows Tesla’s Powerwall gaining significant share in the storage space and then also taking share in the inverter space. And I just wanted to know if you guys are still seeing those trends continue or you’re taking share back from them? And then I have another question.

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: Yes. Like what I said was we don’t comment on competition. We are focused on making best in class products. We had talked about our battery being very popular for grid tied applications in California. With the fourth generation product, we will not only be best in class for grid tied, we will also be best in class for backup.

And that has been one of our limitations till now. And we are going to unleash or unblock that limitation very, very soon. So we are excited there. Our battery is modular batteries, so you don’t need to buy 13 or a 26 kilowatt hour. You can buy 15 kilowatt hours.

You can buy 20. So ours is a modular solution. And it will be very cost effective. Now coming on the micro side, I talked about it extensively in prior calls. The value proposition of our microinverters are superior power production shading.

It compents meaning shading usually can cause a power production that is dramatically lesser. Microinverters optimize at the per panel level and therefore able to really maximize the energy production. And then single point of failure, a twenty five year warranty versus a ten year warranty from competition. By the way, on batteries, we do fifteen year warranty versus a ten year warranty from competition. Serviceability is a big deal.

When you have a monolithic structure in the battery and you have to replace your entire battery, it’s tough to do that. It is it results in weeks and months of nonperformance for the homeowner. Ours comes with serviceability. I’m proud to say 95% of the issues in our battery systems can be solved in situ. In situ means our field service goes and he just replaces a $40 board instead of taking a $5,000 battery off the wall.

And so we have numerous advantages in terms of modularity, simplicity, warranty, safety and serviceability. And then the other two things which I talked about, which are not to be discounted, the ones we introduced in Q4, we introduced something called as a busbar PCS, busbar power controlled software. Busbar power controlled software helps in eliminating main panel upgrades 95% of the time. And so our installers are very happy with that. They are starting to use that for every design and it maximizes the ability or it maximizes the size of the solar plus storage system.

Similarly, one more thing that we introduced, another big deal is as users they have higher consumption because they bought an EV or something, they want to expand their legacy systems. We basically provide them a very simple solution once again with PowerControl software. Our Enphase PowerControl software enables you to do NEM expansion without losing the benefits of your legacy system. So we introduced that also in the fourth quarter. So a lot of benefits working with Enphase.

Most important, we will take care of our installers. And if there is any shortage, supply shortage, they can counter to take care of them.

Conference Operator: Our next question comes from Austin Moeller from Canaccord. Please go ahead with your question.

Zack Friedman, Investor Relations, Enphase Energy5: Hi, good afternoon. So just my first question here. In Europe, the data that we’ve collected on electricity rate shows the key markets like France and Germany are still relatively stable. Where do you see electricity rates in Europe needing to go to catalyze a demand recovery there?

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: Yes. Maybe you should check your data. February 1 in France, electricity rates came down by 15% on February 1. So that is going to create a headwind for some time. However, that market is a very attractive market, meaning only very limited solar penetration so far.

Lots of EV penetration beginning to happen. Feed in tariffs in France is becoming lesser and lesser. So it’s an opportunity for where we excel, which is solar plus batteries plus our EV chargers plus Home Energy Management. In Home Energy Management, hot water heaters are a big part of the equation. We are going to be introducing green heating option, which is when you have a small feed in tariff, you don’t want to export any solar back to the grid.

You want to utilize every ounce of solar. And therefore, we divert, we steer the excess solar onto the hot water heater and increase the self consumption. So we are working on introducing energy management solutions to every country across Europe because that’s how we see the market evolution. Net metering, while everybody has enjoyed net metering for a while, the practical reality is it will go away sometime or the other. And we can come to the rescue, still save money for homeowners with solar, with battery, with EV chargers, with homeowners, with homeowners, your management.

And that’s how I predict markets will evolve. It may not evolve immediate future, but that’s where the trends are going.

Zack Friedman, Investor Relations, Enphase Energy5: Great. And just a follow-up, in line with your discussion of a shortage of power in the near term, do you think that there could be a demand for solar plus battery in states like Texas or Tennessee where they have an electricity cost of $0.15 0 point 1 4 dollars per kilowatt hour purely because there’s a large number of data centers geolocated there?

Raghu Balor, Chief Products Officer, Enphase Energy: Of course, right. As we have talked about this, the demand environment has not changed demand for energy has not changed. There is both front of the meter demand due to data centers, but there is substantial demand behind the meter as well as people are electrifying with the combination of recharger and heat pumps. When you mentioned a state like Texas, as well as for that matter even in Europe, those are deregulated markets. One of the big advantages of a solar plus battery system or solar plus battery plus EV charger system is for these distributed energy resources to participate in markets.

So if you think about a day ahead market, for example, if you have a really smart AI based energy management system like what we do, we can be very intelligent about when to charge the battery, when to discharge the battery, when to charge your EV, when to buy from the grid, when to sell to the grid and we can generate substantial amount of savings as well as in some cases revenue for the homeowner. So you’re seeing that as a pretty significant play in a number of countries in Europe as well as in places like Texas.

Zack Friedman, Investor Relations, Enphase Energy5: Excellent. Thanks for all the details.

Conference Operator: And our next question comes from Jeffrey Osborne from TD Cowen. Please go ahead with your question.

Colin Rusch, Analyst, Oppenheimer: Thank you. Just two quick ones, Padre. I was wondering, I think in Q4, there was 1,700,000 microinverters that received a 45X credit and then you guided to 1,200,000, but the safe harbor is ramping in Q1. So did you get paid on production and then not on sell through? I’m just trying to understand what’s going on with the manufacturing credit in particular and the seasonality between Q4 and Q1.

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: Yes. I mean, look, our folks are usually a little conservative when we give you this. Also, the necessity to balance manufacturing across worldwide comes into play. When we say $1,200,000 we mean $1,200,000 is from The U. S.

Facility. That means the balance is covered by elsewhere, such as India. Of course, there is desire to maximize profit dollars, but we have to be cautious because we need to be running balanced global manufacturing.

Brian Lee, Analyst, Goldman Sachs: That’s why.

Colin Rusch, Analyst, Oppenheimer: Is there any downtime in Q1 or anything? Or I’d imagine that would ramp up through the year now?

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: No, I mean, that number will fluctuate depending on how we are able to load and how we are able to provide best in class service to customers. For example, sometimes we find that for short lead time orders, making it in our India factory and shipping it to Europe provides best results. And we just cannot idle factories and expect them to start back up later. So best practice is that you should view Q4 as a little more upside and then you should view Q1 as conservative.

Colin Rusch, Analyst, Oppenheimer: Got it. And the last question I had is, I think Mandy mentioned $110,000,000 of prepayments in Q4, but the safe harboring was for $95,000,000 What are the other types of products that you receive prepayments for?

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: Well, in general, we do have prepayment customer prepayments depending on their credit terms. But however, in this case, there were some customers who did want to place small amounts of orders so that they can secure their capacity. And those we view as run rate business to be consumed in the next one to two quarters. So that makes up for the balance.

Colin Rusch, Analyst, Oppenheimer: Maybe the $15,000,000 could be consumed in less than the eight quarters, but maybe some of your peers might categorize that as safe harboring or at least under the letter of the law given the cash changed hands prior to the end of the year, is that the right way to think about it?

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: It’s possible and we expect not I mean, we expect less than two quarters. Got it. Thank you. That’s all I have.

Conference Operator: Ladies and gentlemen, at this time, we’ll be ending today’s question and answer session. I’d like to turn the floor back over to Audrey Kasandaraman for any closing remarks.

Badri Kothandaraman, President and Chief Executive Officer, Enphase Energy: Thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter. Bye.

Conference Operator: And with that, ladies and gentlemen, we’ll conclude today’s conference call. We do thank you for attending today’s presentation. You may now disconnect your

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