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

They have less inventory. One other big thing that has changed is now they have a lot more financing options available to them. So, they have a lot of options available to them. They have, if loans do not work well, they have leases or PPAs. Many of them — I did meet at least a third, maybe 30% of the installers were still selling cash to the customers in Southern California as well as Northern California. Those are no problem. But the other folks were moving to lease in PPA rapidly now that there are multiple suppliers. So, all in all, I think what I’m trying to say is that they are nimble. They understand exactly what is happening. They are very savvy on the product. They gave us a number of ideas to improve and do even better than what we are doing.

And we are going to take their feedback. And I’m not worried whether they will be able to grow. They’ll be able to grow exactly like us in these times, in good times.

James West: Got it. That’s very helpful. Thanks, Badri.

Badri Kothandaraman: Thank you. We’re waiting for the next question.

Operator: And our next question today comes from Moses Sutton at BNP Paribas. Please go ahead.

Unidentified Analyst: Hi, this is Heidi on for Moses. Thanks for fitting me in. I just have a quick question. Coming back to the $113 million in under-shipments in 1Q, can you provide the rough breakout of what was US versus non-US? And then, same for the $90 million of expected under-shipment in 2Q, how much was US versus non-US? Thank you.

Badri Kothandaraman: I would basically expect that it is roughly in the ratio that we shipped, which is I would say two-thirds US and a third Europe.

Unidentified Analyst: Okay. Great. Thank you.

Operator: And our next question today comes from Jordan Levy with Truist Securities. Please go ahead.

Jordan Levy: Just wanted to see if there’s any — if you had any updates on the exclusivity arrangement with SunPower? I know that that was scheduled to come to an end I think back in March. So, I’m just curious if there’s anything to touch on there.

Badri Kothandaraman: The question is, is there any update on SunPower? SunPower has new management, as everybody knows, and we know Tom Werner well. I’ve been talking to Tom. Right now, it’s a business as usual for us. We have a very strong relationship. We are supporting SunPower well and vice versa. And when we sign such a contract, we will let you know.

Jordan Levy: Thanks so much for that. Maybe just a follow-up. I know with Dave getting ready to step down, I think at the end of June [indiscernible], I’m just curious if you could talk to any updates or if you have someone in mind for that role or any other details as you proceed in that process?

Badri Kothandaraman: Yeah, we’re having a hard time hearing you, but I think I got the question. This is, replacement for your Chief Commercial Officer I guess the question. Yes, we’ve already finalized that.

Jordan Levy: Yeah.

Badri Kothandaraman: Yeah, we’ve already finalized that. We have two very experienced executives that I have put in charge, because Europe is so important for us. I wanted a very experienced executive to live in Europe, somebody who understands the headquarters properly. And so, one of our executive staff, meaning the one that report to me, his name is Sabbas Daniel, he is going to be running all of Europe and South Africa sales. So, basically, he is actually relocating to Europe in order to manage that team. And then, the team in the rest of the world, I call it, Americas, Australia, India, Asia, both Americas, North as well as South, that’s — especially North American team is a very seasoned team. We have Ken Fong runs our North American team, while Mehran is the Senior Vice President who is going to manage Rest of the World sales, and Ken Fong will report to him.

And Mehran has got a lot of experience in batteries. He’s the one who actually created the battery business unit at Enphase and ramped it to high revenue. So, both the executive Sabbas as well as Mehran have lots of experience, and they’ll be able to pay a lot more attention to these regions, and we expect it to be incrementally positive for us.

Jordan Levy: That’s really great detail. Appreciate all the answers. Thanks so much.

Operator: And our next question today comes from Andrew Percoco with Morgan Stanley. Please go ahead.

Andrew Percoco: Yeah. Thanks so much for taking the question. Most of my questions at this point have been answered. It’s been a very comprehensive call. But if I can just maybe zoom out for a second, I’m just curious, how are you guys improving your visibility into the channel so this inventory issue doesn’t happen again. I’m assuming this isn’t going to be the last cycle that we all see. So, I guess, how are you investing in the platform, whether that be software or otherwise, to make sure you have more visibility the next go around, the next time there’s demand side shock and to avoid these channel inventory issues next time? Thank you.

Badri Kothandaraman: Right. So, I mean, the answer is somewhat simple. It is to basically get a hold on the metrics of the front end, which is, leads get converted into proposals, converted into contracts, converted into permits, and then the installs happen, then you have activations. So, we have to get into the front end. And getting into the front end, we have Solargraf. Solargraf is a platform for us which helps us because we provide the design and proposal software. And therefore, that gives us the entire visibility on — it doesn’t need to give us the customer — what every customer is doing, but the broad trends and broad strokes are what we are interested saying, this month what happened in this particular region? What is the statistics of leads versus contracts signed?

And then, we do have third-party reports for permits. And of course, we do have our own Enlighten software for activations. And of course, in between we have sell-through, which is when the distributors sell our products to installers from the channel. So, what we are doing is to essentially tighten up that entire chain by putting in metrics at every point there. And by having more and more and more revenue coverage for Solargraf design and proposal tools so that as many installers possible are on that particular tool. So, then we have a lot more statistics. We’ll continue to get aggregate reports from third parties as much as they are available. And putting all of these together to create a regression model, maybe even with the help of some sophisticated machine learning.

And then, the key is for us to then make decisions on sell-in into how much do we sell into the channel? What are the guard bands of selling into the channel at the end of the day? Like don’t get — don’t succumb to irrational exuberance. That is, you think everything is going to be great, therefore you ship a lot more into the channel than the sell-through, do not ever succumb to that. Go always by — my ex-boss used to call it as mass balance. Mass balance means, whatever you ship out of the channel, you ship into the channel. So, we are putting in all of those statistical process control in place. And we are already better for it. Our weekly ship review every Wednesday, we have exactly the graph, how much is our sell-through? How much is our sell-in?

Should we really do so much of sell-in? Are we going to stay within the guardrails, which is eight to 10 weeks? Anytime somebody goes above 10 weeks, we question saying, “Why do it?” And it helps us — it’s starting to help us in many ways. Because then we focus on the real growth, which is, you then start focusing on training installers to increase sell-through. You start understanding which of the installers aren’t doing enough volume with you. Sales guys are focused on the right things versus pushing in stuff into the channel. So, I think companies have gotten a lot better in this front during the last year.

Andrew Percoco: Understood. Thank you so much.

Badri Kothandaraman: Thank you.

Operator: Thank you. And our next question today comes from Maheep Mandloi with Mizuho. Please go ahead.

Q – David Benjamin: Hi, this is David Benjamin in from Maheep. I’ve got a question and then a follow-up. Can you please give us some insights on your thoughts on the Solargraf market share or penetration with installers within the US? Just trying to get some visibility with sales leads in the market.

Badri Kothandaraman: Yeah. We have over a thousand installers on Solargraf using our design and proposal tool. And we have over a few hundred using our permitting tool.

David Benjamin: Okay. Great. Thanks very much. And then a follow-up. Just on the gallium nitride, can you talk a little bit about, like, where you plan to source the materials? Is that going to be concentrated mostly from China or other markets? And lastly, any thoughts on impact from [indiscernible] AD/CVD on the US solar demand or thoughts on the NEM 3 challenge in the California courts?

Badri Kothandaraman: Gallium nitride, we do have a lot of sources for gallium nitride transistors. Some of the sources are people we already do business with for the silicon FETs. So, we aren’t worried. We have lots of opportunities. There is many people with good quality gallium nitride FETs. Raghu will take the question on NEM 3.

Raghu Belur: Yeah. NEM 3, we are aware of the challenge, where it was — there was an — it had gone into appeals court because they actually lost the case in the lower court. It remains to be seen. The fact is that I think it’s going to be difficult to overturn, but if they do, obviously, the market will react differently. But for now, for us, business as usual, we are going out there. We recognize that in the long term solar plus batteries is the way to go. And we are really working towards making sure that our battery solution — solar plus battery solution is best in class, and that’s what we are doing right now. But the courts will take their time, they’ll do their thing, but it’s not something that we are really focused on.