Enphase Energy, Inc. (NASDAQ:ENPH) Q1 2024 Earnings Call Transcript

Enphase Energy, Inc. (NASDAQ:ENPH) Q1 2024 Earnings Call Transcript April 23, 2024

Enphase Energy, Inc. misses on earnings expectations. Reported EPS is $-0.11846 EPS, expectations were $0.43. Enphase Energy, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and welcome to the Enphase Energy First Quarter 2024 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please also note, today’s event is being recorded. I would now like to turn the conference over to Zach Freedman. Please go ahead.

Zach Freedman: Good afternoon, and thank you for joining us on today’s conference call to discuss Enphase Energy’s first quarter 2024 results. On today’s call are Badri Kothandaraman, our President and Chief Executive Officer; Mandy Yang, our Chief Financial Officer; and Raghu Belur, our Chief Products Officer. After the market closed today, Enphase issued a press release announcing the results for its first quarter ended March 31, 2024. During this conference call, Enphase management will make forward-looking statements, including, but not limited to, statements related to our expected future financial performance, market trends, the capabilities of our technology and products and the benefits to homeowners and installers, our operations, including manufacturing, customer service and supply and demand, anticipated growth in existing and new markets, the timing of new product introductions and regulatory and tax matters.

These forward-looking statements involve significant risks and uncertainties and our actual results and the timing of events could differ materially from these expectations. For a more complete discussion of the risks and uncertainties, please see our most recent Form 10-K and 10-Qs filed with the SEC. We caution you not to place any undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events or changes in expectations. Also, please note that financial measures used on this call are expressed on a non-GAAP basis unless otherwise noted and have been adjusted to exclude certain charges. We have provided a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release furnished with the SEC on Form 8-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: Good afternoon, and thank you for joining us today to discuss our first quarter 2024 financial results. We reported quarterly revenue of $263.3 million, shipped approximately 1.4 million microinverters and 75.5 megawatt hours of batteries, and generated free cash flow of $41.8 million. We reduced our channel inventory by approximately $113 million in Q1, slightly less than anticipated because of softer demand. For the first quarter, we delivered 46% gross margin, 31% operating expenses, and 15% operating income, all as a percentage of revenue on non-GAAP basis, including the IRA benefit. Mandy will go into our financials later in the call. Let’s now discuss how we are servicing customers. Our worldwide NPS was 78% in Q1 compared to 77% in Q4.

Our average call wait time was 1.9 minutes in Q1 compared to 1 minute in Q4. We are adding data scientists, enhancing our analytics to identify problems proactively, and fixing them automatically through software. Our field engineers and technicians are assisting installers on complex installations, while bringing back learning to our development teams, enabling continuous improvement. Let’s cover operations. We shipped approximately 506,000 microinverters in Q1 from our US contract manufacturing facilities that qualified for 45X production tax credits. Once fully ramped, we expect to have a global capacity of approximately 7.25 million microinverters per quarter, of which 5 million capacity will be in the US. We expect to ship approximately 0.5 million microinverters to customers from our US manufacturing facilities in Q2.

The number is a little less than what we would like, but our top priority is to reduce our factory inventory. We anticipate resuming a higher level of shipments in the second half of the year. For IQ Batteries, we have two cell pack suppliers, both in China, which have sufficient manufacturing capacity to support our ramp in 2024. As previously discussed, we expect to add battery manufacturing capability in the US during the third quarter of 2024. Let’s now cover the regions. Our US and international revenue mix for Q1 was 57% and 43%, respectively. For more visibility into our business, we are providing regional breakdowns and sell-through dollar metrics by region. In the US, our revenue decreased 34% sequentially as we under-shipped to end customer demand.

The overall sell-through of our microinverters and batteries in the US was down 23% in Q1 compared to Q4. Let’s discuss the market trends we are seeing in the US, split by non-California states and California. For non-California states, our overall sell-through was 21% down in Q1 compared to Q4. The sell-through was similarly down for both microinverters and batteries due to seasonality. In California, our overall sell-through was down 30% — down by 30% in Q1 compared to Q4. Sell-through of our microinverters was down 37% and sell-through of our batteries was down 18% in Q1 due to seasonality and the NEM 3 transition. I’ll provide more statistics and color on NEM 3 later in the call. In Europe, our revenue increased 70% sequentially as channel inventory improved and we introduced new products.

The overall sell-through of our microinverters and batteries was up 7% in Q1 compared to Q4. The sell-through of our microinverters was up 3%, while the sell-through of our batteries was up 28% in Q1. I’ll provide some color on key markets in Europe, particularly Netherlands, France and Germany. In the Netherlands, our overall sell-through in Q1 was down 4% compared to Q4. The market stabilized during Q1 and we are encouraged by the demand signals we see after seeing the government’s decision to support NEM for the foreseeable future. We expect to see the sell-through of microinverters pick up in Q2 as a result of this decision. We continue to believe solar plus batteries are going to become the norm as dynamic tariffs and grid services become more prevalent.

In France, our overall sell-through in Q1 was up 13% compared to Q4. We have been encouraged by the continued strength in this market, supported by higher utility rates. Solar penetration in France is still small and we see potential for the country to grow and evolve into a significant solar plus battery market for Enphase. In Germany, our overall sell-through in Q1 was up 28% compared to Q4. We are going from strength to strength in this market. We plan to launch our three-phase battery solution in the country later this year, along with additional software. We are leveraging AI and ML to enhance our home energy management software and expand grid services participation. We are continuing to launch our IQ8 Microinverters and IQ Batteries into many new countries across Europe.

Notably, we started shipping IQ Batteries into Italy in the first quarter. Our sell-through in the new countries is beginning to ramp and we anticipate steady growth throughout 2024. In Australia, our Enphase Energy systems are powered by IQ8 Microinverters and IQ Battery 5P, our third generation battery, which we introduced in June last year. We expect higher battery attachment rates in Australia during the second half of this year. In Brazil, we are making good progress in building our installer base. In Mexico and India, we are shipping our highest-powered microinverters, IQ8P, to support high-power panels. We just started shipping the same microinverters into Thailand and Philippines in Q1. As a reminder, IQ8P is the high-powered microinverter at 480 watts AC for both residential and commercial applications.

Let me say a few words about our market share. In the US, we see stable share for our microinverters and batteries based on both internal and third-party data. There have been several changes in the market over the last year, including a shift away from loans and towards lease and PPAs. Our continued strong market share is a testament towards our installer relationships and the differentiated value proposition we provide them with our products. We are fully focused on enhancing our product portfolio, solving installer pain points, and deepening our relationships. In Europe, we are using the same strategy to grow market share. Let me provide some color on NEM 3.0. In the last three to four weeks, I’ve been on the road. We have visited over 25 installers in California to really understand how their businesses are doing.

Many reported that their businesses are down by 50% or more from last year’s high, and they have all adjusted by becoming much leaner. They are getting better at selling NEM 3.0. They can clearly articulate what works and what doesn’t. They are hungry for high-quality leads. They are also becoming adept at selling batteries, either a grid-tied battery or a backup battery with every install. They are becoming flexible in the financing options they offer to the homeowners. If the loans don’t work, they aren’t afraid to switch over to leases or PPAs, which are becoming increasingly available to the [indiscernible]. Most of them reported stronger sales in March of this year compared to January and February. I came away feeling that we are beginning to climb out of the bottom and we should get back to growth shortly.

Let’s cover some NEM 3.0 statistics, which haven’t changed that much from our last call. In Q1, 50% of our California installs were NEM 3.0 systems. These systems have a very high battery attach rate, over 90%, compared to NEM 2 systems which have an attach rate of 15%. Our data also shows that half of our NEM 3 systems are using Enphase batteries. Taking this data into account, our average revenue per NEM 3.0 system is approximately 1.5 times our average NEM 2.0 system. We believe this will contribute to stabilizing and increasing our California revenue in the second half. Let’s come to our Q2 guidance. We are guiding revenue in the range of $290 million to $330 million. We expect to ship 100 megawatt hours to 120 megawatt hours of IQ Batteries.

We expect sell-through demand of our products to be approximately $400 million in Q2, up from $376 million in Q1, due to seasonal strength in Europe and non-California states, offset by some decline in California. We plan to under-ship to the end market demand for our products by approximately $90 million in Q2. We expect the channel to normalize by the end of Q2 on microinverters as we previously forecasted. Our channel is almost normal on batteries already. Let’s talk about products, starting with IQ Battery. Our third-generation battery called IQ Battery 5P has been very well received. It delivers the best power specs and commissioning times of any Enphase battery till date at an industry-leading 15-year warranty. Battery adoption rates are on the rise globally and we are well-positioned to grow our sales in 2024.

As we discussed last quarter, we expect our gross margins on batteries to continuously improve throughout the year. There are three factors: cell pack costs, which are coming down rapidly; battery microinverter costs, which are coming down due to IRA benefit from manufacturing in the US; and costs coming down due to improved architecture on our fourth-generation battery. We are already seeing the benefits of the first two factors, and we will benefit from the third factor early next year. We are working on entering more countries in Europe and Asia with our third-generation battery. We expect to also introduce our new three-phase battery with backup for Germany during this year. We expect to launch several balance-of-system improvement initiatives for the US that will improve the cost of installing batteries for backup.

We plan to pilot our fourth-generation battery later in the year. This battery will have a great cost structure and an elegant form factor due to the integrated battery management and power conversion architecture. As previously discussed, we have entered many new markets with the IQ8 family of microinverters and we are now in 24 countries. We plan to enter more new countries in Europe and Asia throughout 2024 with our microinverters. And we plan to increase our served available market further by introducing social housing and balcony solar solutions to European countries during the year. We recently launched the IQ Combiner Lite in Netherlands to simplify the installation of small solar systems on social housing units. The other variant of the IQ8P microinverter with the new three-phase cabling system is well suited for small commercial solar installs ranging from 20 kilowatts to 200 kilowatts.

We launched this product in North America in December and we are seeing good early adoption. We are excited about the product and look forward to manufacturing IQ8P microinverters at our US facilities starting this quarter, further reducing costs. Let’s cover EV charging. We launched our IQ Smart EV chargers in the US and Canada in Q4. We are developing smart EV chargers for European countries and we expect to introduce them this year. The team is also working on bidirectional EV charger, which will unlock use cases like V2G and V2H as part of the Enphase system. This charger will have a GaN-based bidirectional inverter. We expect to release the product in 2025. Let’s cover the latest upgrades to our energy management software. We recently did a press release where we launched Enphase Power Control or PCS software that can integrate with our systems in North America.

PCS dynamically controls the power produced by the Enphase system, giving installers a lot of flexibility in system design to build larger systems and avoid costly main panel upgrades while meeting utility and national electric code requirements. Our software is evolving to manage the increased complexity in energy markets by leveraging AI and ML for forecasting and optimization. Our next software offering will manage dynamic tariffs in countries like Netherlands and Germany. This new software is intended to help maximize ROI and reduce the payback period for solar homeowners throughout Europe, where electricity prices can change by the hour. Let me provide you with an update on IQ9 Microinverters with gallium nitride, also called GaN. We expect IQ9 Microinverters to deliver higher power at lower costs.

Multiple vendors have been providing us with GaN parts and we are increasingly confident in the reliability of our design. We expect to launch the product in the first half of 2025 to address the two markets; one is residential and the other is three-phase small commercial markets, both the 208 volts as well as the 480 volts. Let’s now discuss our Installer Platform. We announced some key features and improvements to Solargraf in Q1, including advanced 3D design with smart design capability, California NEM 3.0 support and enhancements, NREL and NYSERDA verification of shading, and support for small commercial projects. Solargraf is currently available to installers in the US, Canada, Brazil, Germany, and Austria, and we expect to release it to more countries in the coming quarters.

Let me conclude. We have been managing through a period of slowdown in demand. We believe Q1 was the bottom quarter. Europe has already begun to recover, and we expect the non-California states to bounce back in Q2. California is becoming less of a wild card, and we expect demand to stabilize and increase in the back half of 2024. We are bullish about NEM 3 in the long term. The payback is attractive for solar plus batteries. The utility rates are going up steeply and the sales teams are learning rapidly. I am pleased that we have executed well through the market downturn over the last year. We have maintained profitability and free cash flow throughout this period while correcting the channel. We have not sacrificed any new product development or geographic expansion plans and are now entering growth cycle with a good product portfolio and a growing TAM, and there is still a lot more to come.

We expect to begin field testing our microinverters, IQ9 microinverters, and fourth-generation batteries later in the year. We are making balance-of-system improvements to enable faster and easier battery installation. We plan to roll out significant software upgrades like PCS and dynamic tariffs in both the US and Europe. We remain laser-focused on operational excellence, concentrating on sell-through and installer count, reducing operating expenses and product costs, and maintaining healthy gross margin as our company returns to strong growth. With that, I will turn the call over to Mandy for a review of our financial results. Mandy?

Mandy Yang: Thanks, Badri, and good afternoon, everyone. I will provide more details related to our first quarter of 2024 financial results, as well as our business outlook for the second quarter of 2024. 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 revenue for Q1 was $263.3 million. We shipped approximately 603.6 megawatts DC of microinverters and 75.5 megawatt hours of IQ Batteries in the quarter. Non-GAAP gross margin for Q1 was 46.2% compared to 50.3% in Q4. The decrease was primarily driven by lower net IRA benefit. GAAP gross margin was 43.9% for Q1. Non-GAAP gross margin without net IRA benefit for Q1 was 41% compared to 41.8% in Q4, mainly driven by lower volume.

GAAP and non-GAAP gross margin for Q1 included $13.7 million of net IRA benefit. Non-GAAP operating expenses were $82.6 million for Q1 compared to $86.6 million for Q4. The decrease was the result of the restructuring plan we implemented in December 2023. GAAP operating expenses were $144.6 million for Q1 compared to $156.9 million for Q4. GAAP operating expenses for Q1 included $56.7 million of stock-based compensation expenses, $3.5 million of amortization for acquired intangible assets, and $1.9 million of restructuring and asset impairment charges. On a non-GAAP basis, income from operations for Q1 was $39 million compared to $65.6 million for Q4. On a GAAP basis, loss from operations was $29.1 million for Q1 compared to a loss of $10.2 million for Q4.

On a non-GAAP basis, net income for Q1 was $48 million compared to $73.5 million for Q4. This resulted in non-GAAP diluted earnings per share of $0.35 for Q4 — Q1 compared to $0.54 for Q4. GAAP net loss for Q1 was $16.1 million compared to GAAP net income of $20.9 million for Q4. This resulted in GAAP diluted loss per share of $0.12 for Q1 compared to GAAP diluted earnings per share of $0.15 for Q4. We exited Q1 with a total cash, cash equivalents, and marketable securities balance of $1.63 billion compared to $1.7 billion at the end of Q4. As part of our $1 billion share repurchase program authorized by our Board of Directors in July 2023, we repurchased 332,735 shares of our common stock at an average price of $126.21 per share for a total of approximately $42 million in Q1.

In addition, we spent approximately $60 million by withholding shares to cover taxes for employee stock vesting and options in Q1 that result — that reduced the diluted shares by 480,735 shares. We expect to continue this anti-dilution plan. In Q1, we generated $49.2 million in cash flow from operations and $41.8 million in free cash flow. Despite the macroeconomic challenges, we continued to generate free cash flow. Capital expenditure was $7.4 million for Q1 compared to $20.1 million for Q4. Capital expenditure requirements decreased due to a reduction in our US manufacturing spending. Now let’s discuss our outlook for the second quarter of 2024. We expect our revenue for Q2 to be within a range of $290 million to $330 million, which includes shipments of 100 megawatt hours to 120 megawatt hours of IQ Batteries.

We expect GAAP gross margin to be within a range of 42% to 45%. We expect non-GAAP gross margin to be within a range of 44% to 47% with net IRA benefit, and 39% to 42% before net IRA benefit. Non-GAAP gross margin excludes stock-based compensation expense and acquisition-related amortization. We expect the net IRA benefit to be between $14 million and $17 million on estimated shipments of 500,000 units of US-made microinverters in Q2. We expect to increase the US-made microinverter shipments to two-thirds of our overall microinverter shipments in the second half of this year. We expect our GAAP operating expenses to be within the range of $134 million to $138 million, including approximately $56 million estimated for stock-based compensation expense, acquisition-related amortization, and restructuring and asset impairment charges.

We expect our non-GAAP operating expenses to be within a range of $78 million to $82 million. We expect our GAAP and non-GAAP annualized effective tax rate, excluding discrete items, for 2024 to be at 18%, plus or minus 1% with IRA benefit. With that, I will open the line for questions.

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Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] And today’s first question comes from Colin Rusch with Oppenheimer. Please go ahead.

Colin Rusch: Thanks so much, guys. As you start entering some of these newer markets with energy storage, can you talk about how much of the volume you’re guiding to in 2Q could be considered sell-in into to build a little bit of inventory to support those customers?

Badri Kothandaraman: Yeah. Could you please repeat that question, Colin? I didn’t follow that properly.

Colin Rusch: Sure. So, as you start selling energy storage into new markets, and looking at the 2Q guide, how much of that energy storage sales dynamic is actually selling into the channel and channel [fill] (ph), just to get prepared in this one?

Badri Kothandaraman: Not much really, because the new markets are just ramping for us. For example, we introduced storage into Italy in Q1. So, really that’s the only one where we introduced into a new market. Prior to that, if you see, we introduced into a few European countries. Prior to that, we introduced in UK. In fact, our storage is — the channel is very healthy. We are actually normalized as we speak on storage. That’s what I said. We are there on storage. In fact, I’ll give you a data that I didn’t talk about in the call. Sell-through, our sell-through of batteries in Q4 overall worldwide was 140 megawatt hours. While the sell-through of batteries in Q1 was 128 megawatt hours, only 8% down. It’s a much better than the seasonality of 20% that we are seeing on the other products.

And so, batteries are doing well in general, yet despite the 128 megawatt hours of sell-through, we had the discipline to only ship 75.5 megawatt hours. That means we took 43 megawatt hours out of the channel. The channel is quite lean for storage. That’s why you see we are increasing the guidance. When I guided for Q1, I guided 70 megawatt hours to 90 megawatt hours. Now, I’m guiding for Q2, I’m guiding 100 megawatt hours to 120 megawatt hours on storage. So, storage is a good story. We expect it to continue. We expect over the long term, every market to transition to solar plus storage. We talked about the color on some of our markets. Netherlands, we talked about. France, we talked about. Germany is already there. California will get there soon.

So, in general, storage is a good story for us.

Colin Rusch: Thanks so much. And then, on the pricing dynamic, it looks like microinverter pricing was down maybe 4%-ish, 5% quarter-over-quarter on average. Can you talk a little bit about the dynamic around pricing and discounts as you get through the inventory flush? And what we can expect as you get into the mid of the year here?

Badri Kothandaraman: Right. And we measure something called ASP variance and we measure something called customer variance. A customer variance means how much pricing did you drop at a particular customer quarter-to-quarter. And ASP variance is simply a function of how your mix did. For example, if you have a lower pricing for a particular customer and his volume went up, it will show up as an overall reduction in ASP. Really the measure of effectiveness in pricing comes from customer ASP variance. Are you dropping pricing at a particular customer? And the answer is we are very disciplined there. So, what you are seeing is a result of mix, but we are extremely disciplined when it comes to — you talked about, in order to move inventory, do you need to lower pricing? No, we don’t do — we don’t play games like that. So, we are disciplined. We will be disciplined. We sell on value and what you’re seeing is purely a product mix issue.

Colin Rusch: Excellent. Super helpful. Thanks, guys.

Operator: Thank you. And our next question today comes from Brian Lee at Goldman Sachs. Please go ahead.

Brian Lee: Hey, guys, good afternoon. Thanks for taking the questions. Hey, Badri, can you talk a little bit about, you said at the onset of the call that you under-shipped demand in Q1 a little bit less than or destocked a little bit less than you would have expected just because demand was softer. So, the $90 million of destock, that should kind of clear the inventory for micros in 2Q. In your guide, you’re saying normalized, you’re seeing $400 million. So, are you inferring that normalized demand when you strip out the $90 million of destock is running at like $490 million? Because I know last call you were talking about $450 million to $500 million. So, maybe just high-level kind of walk us through your thought process of what demand you’re seeing out there? What the normalized level looks like once you get through all this inventory reset? And then maybe what timeframe do you think you kind of get back to those normalized run rates as well?

Badri Kothandaraman: Got it. So, Brian, in Q1, our sell-through demand, which is end customer demand was $376 million, in Q1, and we reported revenue of $263.3 million. Therefore, you can do the math, $376 minus $263 million is $113 million of under-shipment. Now in Q2, I guided $290 million to $330 million, midpoint of guidance is $310 million. And now, I said my estimated sell-through in Q2, which is reflective of end customer demand is $400 million. So, the difference between the two, $310 million minus $400 million or the other way, $400 million minus $310 million is the $90 million of under-shipment. Now, what could that $400 million be in the second half of the year? That’s where we are talking about the markets. We expect Europe, for example, to continuously improve.

Netherlands government has approved net metering for the foreseeable future. We are starting to see the lead generation much higher in the Netherlands. That should start to result in — resulting in increased sell-through and increased activations in Netherlands, which is a big deal. Next one is France. France, the utility rates are helping us. So, you can see despite this environment, we expect France to be strong. Third one is Germany. We reported sell-through of 28% higher in Q1 from Q4. And once again, there the cost of electricity is high and we expect solar and storage or solar and batteries to continuously grow. On top of it, I talked about our product introductions. In the last year, we have set ourselves up nice by introducing IQ8 and batteries everywhere.

We are now in 24 countries. Even in Q1, we introduced batteries into Italy. Prior to that, we introduced into UK, then we introduced Sweden, Denmark, et cetera prior to that. I’m not going to list everything. So, we are attacking new markets in both Asia as well as Europe. And now let’s come back to the US. In the US, the dynamics are non-California states and California states. I mean, yeah, in California. So, non-California states, there are multiple data points for us to tell you that things are improving. In the last few weeks, enough — in the last few weeks, let’s say, last four weeks, we are seeing better sell-through numbers compared to what we saw prior to that. That’s the first data point. The second one is we have our internal Solargraf software, which is now being used by over 1,000-plus installers, and therefore we can look at sales, proposals, contracts we can see those numbers are continuously going up in March.

The numbers are up in March versus February. Numbers are up in April versus March. So that’s a good sign. Then, of course, it is anecdotal. My interactions with customers in California in the last four weeks, all of them universally said March is a much better sales month than February. The last one is you do see third-party analytics reports like that talk about permitting and you can see the — in general, the permits for non-California as well as California are up in the month of March versus February. By the way, the trends that I told you are valid for both non-California as well as California in the last few weeks. So, we are cautiously optimistic that things are turning and that’s why I said Q1 is the bottom quarter. That’s why we are raising our guidance to $290 million to $330 million for Q2.

That’s why we said the sell-through is going up from $376 million to $400 million. And we expect with these growth trends, we expect a sell-through to continuously go up. And the last one, the point which I wanted to talk about was interest rates. We now hear that there are going to be likely two interest rates, two cuts instead of maybe three or four planned before. So anytime that there is a cut that is going to expand the non-California states even further, meaning the demand further. So, those all could come into play.

Brian Lee: Understood. Okay. No, that’s super helpful. I guess, if we think about just again kind of trying to dissect the normalized demand outlook you have here. If it’s — the channel is clean exiting 2Q and you’re looking at barring any meaningful mix changes, or pricing changes and demand staying basically where you think it is today, like $400 million. Is there any reason you would not be shipping that level in 3Q? I mean, is there any structural shifts to what the channel is willing to take or kind of lead times and things of that nature? I guess I’m just trying to understand how that $400 million — what are the puts and takes for that $400 million to stay $400 million versus, again, I think there was a view earlier in the year that it would be higher than $400 million, but right now it is at $400 million. So, what moves that higher? And then, what potentially moves that lower if it were to go in the opposite direction?

Badri Kothandaraman: Yeah, I think what you said is correct. Meaning, once the channel is normalized, sell-in and sell-out should be balanced. So, that’s right. So, for example, we do expect the sell-through in Q3 to be higher, but if you were to say it is — sell-through remains around, let’s say, $400 million level, our sell-in would remain similar because now we have taken all the inventory out. We don’t need to do any under-shipment any longer. So, our sell-in and sell-out are balanced at that time. But like what I said, there are several vectors for that sell-through to improve in Q3, which I highlighted, all of the things in Europe, all of the new products we are introducing, non-California states, which are improving, California installers learning to do NEM 3.0, more financing options being available to the installers in general than before in the US, and us starting to ramp on small commercial products.

So, all of that you know make me optimistic that sell-through would start to become higher in Q3 and beyond.

Brian Lee: All right. Appreciate it. Thanks, guys. I’ll pass it on.

Operator: Thank you. And our next question comes from Kashy Harrison with Piper Sandler. Please go ahead.

Kashy Harrison: Excuse me. Good evening, and thanks for taking the question. So, Badri, first one, you indicated last quarter sell-through expectation for Q1 of $390 million to $430 million, and sell-through to your point, came in at $376 million. And in the spirit of continuous improvement, I was wondering if you could just walk us through the specific input or approach to your forecasting methodology that was faulty, and then how you’ve adjusted for those errors heading into the second quarter? Essentially, what I’m just trying to get at is, are your forecasting approaches improving? And how — and I’m trying to get to a point where the Street can have confidence that sell-through will land about where you expect to in the second quarter.

Badri Kothandaraman: Right. In general, we are not perfect. We forecast based on the seasonality. We were right in most places. And as I reported, the California numbers were a little bit worse and you can see that. The sell-through in California was about 30% lower, 37% on microinverters, and about, I think, 18% or 19% on batteries. So, I think California was the wildcard, which I did mention in the prior quarter. And I think we are getting though increasing confidence on California. I outlined everything which we discussed with the California installers. So, we are confident in our forecast right now and the first few weeks of the quarter seem to be trending in that direction.

Kashy Harrison: Okay. Fair enough. I appreciate it. And my follow-up question is on IQ9. You indicated the first half 2025 commercial release date, and I think you said pilot is later this year. How long would it take for IQ9 to ramp to 100%? And then, just strategically, can you talk about how you’re thinking about using a lower-cost product both in the US and in international markets from a share perspective?