Enphase Energy, Inc. Q3 FY2024 earnings call

Customer Service

• Worldwide Net Promoter Score was 78% in Q3, slightly down from 79% in Q2. Average call wait times increased to 4.4 minutes from 2.5 minutes due to higher call volumes from installer landscape disruptions, with efforts to manage and reduce wait times via software fixes and automation.

Operations

• Global capacity is around 7.25 million microinverters per quarter, with 5 million in the US. Shipped ~1.2 million microinverters from US contract manufacturing facilities in Q3, booking 45X production tax credits. Anticipates shipping 1.3 million units from US facilities in Q4. Introduced higher domestic content SKU for IQ8HC microinverters for lease/PPA and commercial asset owners to qualify for 10% domestic content ITC adder. Expect to begin shipping commercial IQ8P-3P and residential IQ8X microinverters with higher domestic content from US facilities this quarter. Cell pack suppliers in China have capacity to support battery plans for 2024-2025. On track to produce battery at US contract manufacturing facility using domestically made components while sourcing cell packs from China.

Region

• US and international revenue mix for Q3 was 75% and 25% respectively. US revenue increased 43% QoQ, sell-through of products up 6% across all channels in US despite large US customer bankruptcy. Distributor sell-through in US up 13% QoQ, California distributor sell-through up 13% QoQ, healthy growth in microinverters and batteries in California with NEM 3.0 representing ~65% of installs and battery attach rate close to 50%. Non-California US distributor sell-through up 14% QoQ. Europe revenue down 15% QoQ, sell-through down 34% QoQ. Key markets in Europe discussed with strategies for each: Netherlands transitioning to solar-plus-storage, France impacted by summer seasonality but remains key growth market, Germany with upcoming product launches including three-phase battery backup, UK with sell-through up ~80% QoQ but still under-penetrated. Other regions: India ramping IQ8P and IQ8HC microinverters, Brazil ramping 480 watts IQ8P microinverters, Australia started shipping IQ8X microinverters with 25-year warranty.

New Products

• IQ9 microinverters powered by Gallium Nitride Technology, expected to launch in second half of 2025. Second-generation IQ EV charger to launch in several European countries in Q4, with features like dynamic phase switching and ISO 15118 support. IQ Energy Management Software supports grid services and energy market participation, with active programs in US and earnings in deregulated markets. Solargraf installer platform added new features in Q3 and available in multiple countries with plans to expand.

Enphase Energy reported a quarterly revenue of $380.9 million for the third quarter of 2024. They shipped approximately 1.7 million microinverters and 172.9 megawatt hours of batteries. The US and international revenue mix was 75% and 25% respectively. Non-GAAP gross margin for Q3 was 48.1%, operating income was 27% of revenue on a non-GAAP basis including net IRA benefit.

Enphase is guiding revenue for Q4 in the range of $360 million to $400 million. Anticipates incremental improvement in US business and continued slowdown in Europe in Q4. Expect to ship between 140 to 160 megawatt hours of IQ batteries in Q4. GAAP gross margin expected to be within 47%-50%, non-GAAP gross margin within 49%-52% including net IRA benefit. GAAP operating expenses expected to be within $135M-$139M, non-GAAP operating expenses within $81M-$85M. Annualized effective tax rate excluding discrete items for 2024 expected at 18% plus or minus 1% with IRA benefit.

• Market slowdown in Europe affecting revenue and sell-through. - Installer bankruptcies in certain regions impacting business. - Potential changes in tax credits or regulations that could affect growth. - Supply chain issues, especially with cell pack suppliers. - Competition from other energy solution providers.

Q: Christine Cho asked about batteries sell-through, revenue increase in US, and Europe sell-through and inventory.

A: Badri Kothandaraman explained channel equilibrium for batteries, revenue increase in US due to stopping under shipping, and Europe being disciplined with sell-through and inventory.

Q: Colin Rusch asked about EV charger strategy and commercial market traction.

A: Badri Kothandaraman discussed EV charger strategy in US and Europe, and commercial market traction with IQ8P microinverters.

Q: Mark Strouse asked about RE+ and Europe outlook.

A: Badri Kothandaraman discussed US market trends, Europe market outlook including Netherlands, France, Germany.

Q: Brian Lee asked about Q4 guidance and tailwinds.

A: Badri Kothandaraman explained Q4 guidance components and tailwinds like domestic content and sell-through.

Q: Philip Shen asked about hitting sell-through demand run rate and Powerwall 3.

A: Badri Kothandaraman discussed sell-through run rate expectations and Enphase's battery and microinverter advantages over Powerwall 3.

Q: Jordan Levy asked about pricing in Europe and micros.

A: Badri Kothandaraman stated no pricing concessions in Europe and emphasis on pricing on value.

Q: Pavel Molchanov asked about Europe power prices and India.

A: Raghu Belur discussed Europe power price impact and Badri Kothandaraman discussed India market.

Q: Dylan Nassano asked about TPO market and fourth gen battery channel prep.

A: Badri Kothandaraman discussed TPO market and fourth gen battery channel transition.

Q: Dimple Gosal asked about ASPs and gross margins.

A: Raghu Belur explained ASPs and gross margin considerations.

Q: Kashy Harrison asked about distribution growth and cost cuts.

A: Badri Kothandaraman discussed distribution growth and cost cut strategies with technology innovation.

Q: Maheep Mandloi asked about IQ9 timing and cash deployment.

A: Badri Kothandaraman discussed IQ9 timing and cash deployment plans.

Q: Julien Dumoulin-Smith asked about domestic content SKU mix.

A: Badri Kothandaraman discussed domestic content SKU mix in Q3, Q4, and 1Q.

Q: Austin Moeller asked about IRA tax credit concerns.

A: Raghu Belur discussed concerns about IRA tax credit changes and their impact on US growth.