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Enphase(ENPH) - 2024 Q3 - Earnings Call Transcript
ENPHEnphase(ENPH)2024-10-23 00:42
Financials

Financial Data and Key Metrics - Q3 2024 revenue was 3809millionwith17millionmicroinvertersand1729megawatthoursofbatteriesshippedFreecashflowwas380 9 million with 1 7 million microinverters and 172 9 megawatt hours of batteries shipped Free cash flow was 161 6 million [5] - Non-GAAP gross margin was 48% operating expenses were 21% of revenue and operating income was 27% of revenue including net IRA benefit [6] - Q3 non-GAAP gross margin was 48 1% compared to 47 1% in Q2 GAAP gross margin was 46 8% for Q3 [27] - Non-GAAP operating expenses were 816millionforQ3comparedto81 6 million for Q3 compared to 81 7 million for Q2 [27] - Non-GAAP net income for Q3 was 884millioncomparedto88 4 million compared to 58 8 million for Q2 resulting in non-GAAP diluted earnings per share of 065[28]−Q4revenueguidanceisbetween0 65 [28] - Q4 revenue guidance is between 360 million to 400millionwithshipmentsof140to160megawatthoursofIQbatteries[15][30]BusinessLineDataandKeyMetrics−Globalcapacityisaround725millionmicroinvertersperquarterwith5millionintheUS[7]−Thecompanyshipped12millionmicroinvertersfromUScontractmanufacturingfacilitiesinQ3andexpectstoship13millionunitsinQ4[7]−ThethirdgenerationIQBattery5Psiswellreceivedwitha15−yearwarrantyandthefourthgenerationbatteryisexpectedtoreduceinstalledcostsby400 million with shipments of 140 to 160 megawatt hours of IQ batteries [15][30] Business Line Data and Key Metrics - Global capacity is around 7 25 million microinverters per quarter with 5 million in the US [7] - The company shipped 1 2 million microinverters from US contract manufacturing facilities in Q3 and expects to ship 1 3 million units in Q4 [7] - The third generation IQ Battery 5Ps is well received with a 15-year warranty and the fourth generation battery is expected to reduce installed costs by 300 per kilowatt hour [17][18] - The company plans to launch the IQ9 microinverters in the second half of 2025 which will support higher DC input currents and elevated AC grid voltages [19] - The second generation IQ EV charger is set to launch in Q4 across several European countries targeting a 14billionannualmarket[20]MarketDataandKeyMetrics−USrevenueincreased431 4 billion annual market [20] Market Data and Key Metrics - US revenue increased 43% compared to Q2 with distributor sell through up 13% in Q3 compared to Q2 [9] - In California NEM 3 0 represents approximately 65% of installs with a battery attach rate close to 50% [10] - Europe revenue was down 15% compared to Q2 with overall sell through down 34% in Q3 compared to Q2 [10] - In the UK sell through was up approximately 80% compared to Q2 [13] - The company is ramping up IQ8P and IQ8HC microinverters in India and Brazil and recently started shipping IQ8X microinverters in Australia [14] Strategy and Industry Competition - The company is transitioning from single hardware components to total energy systems including IQ microinverters IQ batteries EV chargers and IQ energy management software [16] - The fourth generation battery system is expected to significantly reduce installation costs for backup and the GaN powered IQ9 microinverters will enable entry into new three phase commercial markets [24] - The company is focused on expanding its product portfolio and geographic reach to position itself for growth when the solar market stabilizes [25] Management Commentary on Operating Environment and Future Outlook - The company expects improving US market fundamentals in 2025 driven by lower interest rates ITC adders and higher power prices [25] - In Europe the company is focused on launching new products and expanding into new markets to position itself for growth when the cycle rebounds [11] - The company is cautious about Q4 due to a slowdown in Europe but expects to see growth in the US and other regions [15][25] Other Important Information - The company generated 321 million in free cash flow for the first nine months of 2024 and maintained strong gross margins throughout the downturn [23] - The company repurchased 434 947 shares of common stock in Q3 at an average price of 11448pershareforatotalofapproximately114 48 per share for a total of approximately 49 8 million [29] - The company expects the net IRA benefit to be between 38millionand38 million and 41 million in Q4 [30] Q&A Session Summary Question: Battery sell through and shipments [32] - The company expects battery sell through to be up slightly in Q4 with shipments down due to channel restocking in Q3 The US and international split for batteries is similar to the revenue split of 75 25 Question: US revenue increase and Europe sell through [33][34][35] - The US revenue increase was due to stopping under shipping in Q3 with sell in and sell through now matching In Europe the company is under shipping due to reduced sell through and expects a slowdown in Q4 Question: EV charger strategy and attach rates [37][38][39][40][41] - The company is launching the second generation IQ EV charger in Europe targeting a 14billionmarketThechargerintegrateswithEnphasesolarandbatterysystemsandsupportsdynamicphaseswitchingandISO15118forACbidirectionalchargingQuestion:Commercialmarkettractionandsystemsizes[42][43]−TheIQ8Pmicroinverteriswellsuitedforsmallcommercialinstallationsbetween20and200kilowattswithover380sitesintheUSThecompanyplanstoaddressthe480voltmarketwiththeIQ9microinverterinthesecondhalfof2025Question:Interestrateimpactonindustryoptimism[46][47]−Thecompanyremainsoptimisticabout2025growthintheUSdrivenbylowerinterestratesITCaddersandhigherpowerpricesdespiterecentrateincreasesQuestion:Europeoutlookfor2025[48][49][50][51]−ThecompanyexpectsEuropetobeatthebottominQ4withgrowthopportunitiesintheNetherlandsFranceandGermanythroughnewproductsandmarketexpansionQuestion:Revenueguidanceheadwinds[53][54]−TheQ4revenueguidanceisimpactedbylowerbatteryshipmentsSunPowerbankruptcyandcontinuedweaknessinEuropeQuestion:DomesticcontentandUSpriceincreases[55]−ThecompanyisnotincreasingpricesintheUSbutexpectsthedomesticcontentproducttodrivedemandQuestion:1 4 billion market The charger integrates with Enphase solar and battery systems and supports dynamic phase switching and ISO 15118 for AC bidirectional charging Question: Commercial market traction and system sizes [42][43] - The IQ8P microinverter is well suited for small commercial installations between 20 and 200 kilowatts with over 380 sites in the US The company plans to address the 480 volt market with the IQ9 microinverter in the second half of 2025 Question: Interest rate impact on industry optimism [46][47] - The company remains optimistic about 2025 growth in the US driven by lower interest rates ITC adders and higher power prices despite recent rate increases Question: Europe outlook for 2025 [48][49][50][51] - The company expects Europe to be at the bottom in Q4 with growth opportunities in the Netherlands France and Germany through new products and market expansion Question: Revenue guidance headwinds [53][54] - The Q4 revenue guidance is impacted by lower battery shipments SunPower bankruptcy and continued weakness in Europe Question: Domestic content and US price increases [55] - The company is not increasing prices in the US but expects the domestic content product to drive demand Question: 450 million to 500millionsellthroughdemandrunrate[57][58][59][60][61][62]−Thecompanyexpectstoreachthe500 million sell through demand run rate [57][58][59][60][61][62] - The company expects to reach the 450 million to $500 million sell through demand run rate in 2025 driven by new products and market expansion Question: Powerwall 3 and Tesla competition [63][64][65][66][67][68][69] - The company believes its technology is superior to Powerwall 3 and expects to grow market share with the fourth generation battery system in 2025 Question: Pricing strategy in Europe [71] - The company is not dropping prices in Europe and continues to manage pricing on a value basis Question: Europe power prices and module pricing [73][74][75] - The company believes the slowdown in Europe is due to reduced urgency from the Ukraine crisis and economic challenges but expects to see growth with new products Question: India market and product launch [76][77][78] - The company is targeting the premium segment in India with its 5 kilowatt hour battery which is well suited for the Indian market Question: TPO market share [80][81] - The company is working with all TPO providers and expects to gain share through domestic content products Question: Fourth generation battery channel strategy [82][83] - The company plans to manage the transition to the fourth generation battery by shipping the third generation battery to other regions while ramping up the fourth generation in the US Question: ASPs and IRA benefits [85] - The company is covering increased domestic manufacturing costs through pricing and expects to continue generating value for customers Question: Distribution growth and SunPower bankruptcy [88] - The company expects some installers to come through in Q4 with the majority ramping up in Q1 2025 Question: Cost cuts and IQ9 release [89][90][91][92][93][94] - The company plans to deliver increased watts at the same cost with the IQ9 microinverter and continue driving down costs through technology and system integration Question: IQ9 timing and cash deployment [96][97][98][99] - The company plans to launch the IQ9 microinverter in the second half of 2025 starting with the commercial version and will focus on capital expansion M&A and share buybacks for cash deployment Question: Domestic content SKU mix [101] - The company expects the domestic content SKU mix to be around 10% to 15% in Q4 with a steady ramp up in Q1 2025 Question: IRA residential tax credit [103] - The company believes the probability of the IRA residential tax credit being changed is very low and expects it to remain important for the US market