Badri Kothandaraman: No, I mean, we are cutting OpEx by 12% from Q3 to Q4. How are we doing that? We are on a hiring freeze, except for critical positions, for example, in sales and customer service, and to a little bit on the innovation side there. So basically, that has got a big effect on, bringing down costs. The other ones are there are a few professional expenses, like, for example, this is the time where we look at a lot of fat, cutting out a lot of fat in the company. For example, when the companies are doing well, we do hire a lot of contractors. And, we are looking at all of those, and we have taken all the necessary actions to cut that level as well. And of course, as we continue to grow, I cannot deny that there is some fat that we found we can easily cut in other areas.
We’re able to cut about 12%. We are always looking for further room to cut because we’d like to get back to our baseline of OpEx pretty quickly, which is 15% of sales. So, we’ll give the guidance accordingly. And of course, this is a dislocation in revenue, and that is temporary, but we’re very cognizant of that, and we are always going to be trying to operate close to our model, which is 15% of sales.
Colin Rusch: Excellent. And then on the component side, given the change in volumes that you guys are working through on the microinverter side, obviously you’re guiding to reasonably stable gross margins here, but I’m assuming that there’s going to be, some breakpoints on the components that you may run into with a negative impact. Can you just talk a little bit about how your suppliers are scaling down with you here over the next quarter or two or three, and what that might do to your COGS line?
Badri Kothandaraman: Yes, I mean, it is a tough situation for our contract manufacturers, no question. And but we have great partners here. We have Flex, an amazing partner who helped us when we were, especially 2017, 2018, when we had some tough times, they were there right with us. Salcomp, also a great partner. So we work well together. We do have this is the time where both of us can recognize saying okay is this a short-term problem? Is this a long-term problem? Can we do things structurally? We recognize that both of us need to be profitable not just one versus the other. And we do take some necessary actions and all of those are confidential in terms of our relationships. I mean we cannot disclose the actions we are taking but our P&L always incorporates all of these.
And so the message is over the next few quarters we will continue to work with them. We will give you the P&L transparently in the guidance for gross margin but we are very confident that you know we are finding the right solutions working together.
Colin Rusch: Okay thanks so much guys.
Badri Kothandaraman: Thank you.
Operator: And our next question will come from Philip Shen with ROTH Capital. Please go ahead.
Philip Shen: Hey guys thanks for taking my question. Badri you brought up SPA so I figured I’d jump in with a question on that. As you know our checks have come up with lower micro pricing under a bunch of SPA agreements on the order of 10%. Does that resonate with you at all or is that off base? I know you often will get something in return for some kind of price when you negotiate the SPA maybe a exclusivity or higher volume. Can you just talk through that a little bit? And then Mandy can you talk through how SPA accounting might work on your financial statements? For example do you net the SPA like the refunds against your sales? Do you have net sales or do you accrue a liability on your balance sheet? Thanks.
Badri Kothandaraman: So SPA first of all for the others in the call, SPA stands for special pricing adjustment. It is a business process that has been forever at Enphase and it is always happening. It’s business as usual. A large fraction of our business usually happens at what we call it ADLP which is the distributor list price. And you know if business happens at ADLP there is no SPA. But for a small fraction of our customers depending upon how their volumes may go up within the quarter, next quarter, depending on their forecast we do SPA. SPAs are you have a volume price curve and when the volume goes up the price comes down. And that’s how it is. And that process is very active. It’s always been active. It’s the one I instituted six years ago when I came and the accounting for that is unchanged.
Whatever it is exactly what we have done in the last six years. So you know you talk about a $10 reduction. All of those are anecdotal. They don’t matter. One customer doesn’t matter. It’s not a trend. It is a large fraction of our customers buy at the list price. So you know I’d like you to you know if there is a broad-based pricing adjustment we will tell you. And we are telling you right now that there is no broad-based pricing adjustment from us. Yes we will continue to do SPAs. That’s the way of life for us. And sometimes it is a way for us to lock market share for the next you know X amount of quarters. And we’ll do that. It’s business as usual. Nothing new.
Mandy Yang: So Phil to answer your accounting question. Yes we accrue for SPA rebates as our liability right. When we recognize revenue the associated future potential rebates for the current quarter should be we accrue a reduction in revenue and is the liability on our balance sheet. Same accounting process. No change.
Philip Shen: Great. Thanks guys. Okay and then shifting gears. Appreciate that color. Thank you. I know you don’t have any official guidance for 2024 but was wondering if you could talk through how you expect margin to trend by quarter in 2024. So you gave some perspective on Q1. There’s under shipment there. Close to Q4. So due to product mix. So should we expect Q1 margin to be similar to Q4 because that product mix is maybe more heavily skewed to batteries again. And then due to product mix returning back in this base case to micros more micros potentially in Q2, after the undershipment in Q4 and 1, would you expect margins to return back to the pre-undershipment levels in Q2 of 2024 and back out next year? Thanks.
Badri Kothandaraman: Yes, I mean, that’s logical. It is logical. If at Q1 what you said is right, we expect similar levels. Of course, I’m not giving guidance, but I’m just giving trends. And then Q2, we expect it to, because the mix is going to change. The microinverter mix is going to be a little bit higher than the prior quarter. So we expect that logically. That’s correct.
Philip Shen: Great, okay, thanks guys. I’ll pass it on.
Operator: Our next question will come from Mark Strouse with JPMorgan. Please go ahead.
Mark Strouse: Yes, thanks for taking our questions. I believe I asked this on the Q2 call as well, but just kind of given the precipitous decline in valuations across the space, I thought it’s worth revisiting. So you’re obviously sitting on a pile of cash. You continue to generate cash. Just curious, your latest thoughts on M&A, if that’s something that you’re planning on leaning into until the macro improves here?
