Enphase Energy, Inc. (NASDAQ:ENPH) Q4 2023 Earnings Call Transcript

Enphase Energy, Inc. (NASDAQ:ENPH) Q4 2023 Earnings Call Transcript February 7, 2024

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 afternoon, and welcome to the Enphase Energy Fourth Quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Zach Freedman. Please go ahead.

Zachary Freedman: Good afternoon, and thank you for joining us on today’s conference call to discuss Enphase Energy’s fourth quarter 2023 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 fourth quarter ended December 31, 2023. 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 thanks for joining us today to discuss our fourth quarter 2023 financial results. We reported quarterly revenue of $302.6 million, shipped approximately 1.6 million microinverters and 80.7 megawatt hours of battery and generated free cash flow of $15.4 million. On our last earnings call, we said we would reduce channel inventory by approximately $150 million. We achieved a reduction of $147 million in Q4. For the fourth quarter, we delivered 50% gross margin, 29% operating expenses and 22% operating income, all as a percentage of revenue on a non-GAAP basis and 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 77% in Q4, the same as Q3. Our average call wait time was one minute compared to 1.3 minutes in Q3. We have made good progress on solving customer issues by focusing on both automation as well as expanding our field service teams globally. Let’s talk about operations. The overall supply environment for microinverters and batteries is quite stable. Let’s come to microinverters. We shipped approximately 913,000 microinverters to customers in Q4 from our contract manufacturing facilities in the U.S. We announced in December that we are seizing operations at our contract manufacturing locations in Romania and Wisconsin. We will manufacture microinverters in the U.S. with our two existing partners in South Carolina and Texas.

The equipment currently located in Romania and Wisconsin will be redeployed for use at other facilities. Once our restructuring actions are complete in the first half of the year, we expect to have a global capacity of approximately 7.25 million microinverters per quarter of which 5 million will be in the U.S. We expect to ship approximately 500,000 microinverters to customers from our U.S. manufacturing facilities in Q1. We expect that our shipments from U.S. facilities will be lower in the first half of the year as we reduce both factory as well as channel inventory. We anticipate 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.

In addition, we will have the capability to manufacture IQ batteries in the U.S. in the third quarter of 2024. Let’s now cover the regions. Our U.S. and international revenue mix for Q4 was 75% and 25%, respectively. For more visibility into our business, we are providing you regional breakdowns and sell-through dollar metrics by region until the channel is healthy. In the U.S., our revenue decreased 35% sequentially as we undershipped to the end customer demand. The overall sell-through of our micro inverters and batteries in the U.S. was down 9% in Q4 compared to Q3. Let’s discuss market trends we are seeing in the U.S. split by non-California states and California. For non-California states, our overall sell-through was only down 1% in Q4 compared to Q3.

The sell-through of our microinverters was flat and the sell-through of our batteries was down 8% in Q4. In California, our overall sell-through was down by 7% in Q4 compared to Q3. The sell-through of our microinverters was down 27% in Q4 primarily due to the NEM 3.0 transition. However, the sell-through of our batteries increased by 58% in Q4 due to the high attach rate of NEM 3.0 systems as expected. As we discussed on our last earnings call, it will take a few quarters for our installers to fully transition the NEM 3.0 and normalized sales. I’ll provide more statistics on NEM 3.0 later in the call. In Europe, our revenue decreased 70% sequentially as we under ship to the end customer demand. The overall sell-through of our microinverters and batteries in Europe was down 20% in Q4 compared to Q3.

The sell-through of our microinverters was down 23%, and sell-through of batteries was down 2% in Q4 compared to Q3. I’ll provide some color on our key markets in Europe, Netherlands, France and Germany. In Netherlands, our overall sell-through in Q4 was down 37% compared to Q3. Customers are fearing an export penalty for solar, and there is confusion about the ending of net metering. We kicked off the New Year with the Solar Next event in Netherlands, where we hosted 800-plus installers across the country, promoting a comprehensive solution with Solar Plus batteries and energy management software that will unlock the full potential of the Dutch energy market. We believe Solar Plus batteries are going to become the norm as dynamic tariffs and grid services become more prevalent.

We are already seeing a steady ramp in batteries in the region and expect the trend to accelerate in 2024. In France, our overall sell-through in Q4 was only down 1% compared to Q3. We see a lot of potential for this market to grow and evolve into a Solar Plus battery market as utility rates have moved higher and are expected to increase even more in 2024. In Germany, our overall sell-through in Q4 was down 32% compared to Q3. However, we saw sequential growth in activations for both solar and batteries as we continue to gain traction in the region. We are introducing our products into more countries in Europe. In the last few months, we have entered U.K., Sweden, Denmark, Greece, Switzerland, Austria, Italy and Belgium markets with our IQ8 microinverters and IQ batteries.

In Australia, we are seeing growth for our Enphase Energy systems powered by IQ8, microinverters and IQ Battery 5P, latest third-generation battery, which we introduced in June of 2023. In Brazil, our sell-through is stabilizing nicely as we focus on building the installer base. In India, we are starting to ship our IQ8HC and IQ8P microinverters to support high-power panels. In Mexico, we just recently started shipping IQ8P microinverters for residential applications. As a reminder, IQ8P is our highest power microinverter at 480 watts AC for both residential and commercial applications. Let me say a few words about our U.S. market share. We see stable share for our microinverters and batteries based on both internal as well as third-party data.

We have a large and diverse customer base. Our value proposition is to provide installers the easiest installation process with high quality and best-in-class service. We also have tools like Solargraf, design, proposal and permitting software and lead generation through solar lead factory at our disposal to help our installers. As a result, our partnerships go even deeper during the downturn. Let’s cover some NEM 3.0 statistics in California. Third-party data shows that the battery attach rate for NEM 3.0 systems is over 80%. Based on our system activations in January last month, approximately half of our solar installations in California were NEM 3.0. Of our NEM 3.0 solar installations, about half of them use Enphase batteries. Our revenue per NEM 3.0 system is approximately 1.5x our average NEM 2.0 system.

The transition to NEM 3.0 has been a little slower than what we anticipated. Installers are still installing NEM 2.0 systems, and this has caused a delay for some of them to sell NEM 3.0 systems. The ones who started are finding the sales process a little more difficult given the complexity of the tariff structure, the added cost of batteries upfront and high interest rates. One particular challenge we hear is their lack of confidence in the payback of the systems they are selling. This is where Solargraf software, our design and proposal software with NEM 3.0 support is critical because of its advanced modeling capability. In addition, installers are still coming up the learning curve on installing batteries. We are addressing this by making a lot of products improvement for ease of installation commissioning, serviceability and continue to offer in-person training and webinars on Solargraf software.

Let’s now come to our Q1 guidance. We are guiding revenue in the range of $260 million to $300 million. We expect the sell-through of our products to be seasonally down in Q1. We plan to undership to the end market demand for our products by approximately $130 million in Q1. We are forecasting to undership in Q2 as well, although at a much reduced level, and expect the channel to be normalized by the end of Q2. Let’s talk about new products, starting with IQ batteries. Our sell-through for batteries has been increasing steadily over the last few quarters. Our third-generation battery delivers the best power specs and commissioning times of any Enphase battery today at a 15-year industry-leading warranty. The battery adoption rates are on the rise globally and we are well positioned to grow our battery sales in 2024.

Also, we expect our margins on batteries to get better throughout 2024. There are three factors in play here. Cell pack costs, which are coming down, microinverter costs, which are coming down for us due to U.S. manufacturing and other cost — product costs coming down due to improved architecture on our fourth-generation batteries causing the lower bill of material. We are working on entering more countries in Europe and Asia with our third generation battery. We expect to introduce our new three-phase battery with backup for Germany during the year. We plan to pilot our fourth-generation battery later in the year. This battery will have a great cost structure and elegant form factor due to the integrated battery management and power conversion architectures.

As previously discussed, we have entered many new markets with IQ8 family of microinverters and are now in 21 countries. We plan to enter many more new countries in Europe and Asia throughout 2024 with our microinverters. And we plan to increase our served available market by introducing social housing and balcony solar solutions to European countries during the year. Let’s also talk about our latest microinverter for the Residential segment. I already mentioned IQ8P, which delivers 480 watts of AC power, supporting panels up to 650-watt DC. We are currently shipping that product into Brazil, India, South Africa, Mexico and Vietnam. We are on track to ship into France and Spain followed by emerging markets in 2024. The other variant of the IQ8P microinverter with the new three-phase cabling system is well suited for small commercial solar installations, ranging from 20 to 200 kilowatts.

We launched this product in North America in December and are seeing strong early adoption. We are very excited about this product and look forward to manufacturing all the flavors of IQ8P microinverters at our U.S. facilities shortly, further reducing our cost structure. Let’s discuss EV charging. We shipped over 3,700 chargers in Q4 compared to over 3,500 chargers in Q3. We launched our IQ smart EV chargers in U.S. and Canada in Q4. The Wi-Fi enabled charger is now integrated to the Enphase Energy system. This enables use cases such as self-consumption and green charging and allows homeowners complete visibility into the operation of their system through the app. We are developing IQ smart EV chargers for many countries in Europe as well and expect to introduce them during the year.

The team is also working on bidirectional EV charger, which will unlock use cases such as V2G and V2H as part of the Enphase Energy System. The charger will have GaN-based bidirectional inverters, which will interface with EVs, which have high voltage, high DC voltages. I’ve so far discussed our hardware products. Let’s cover our energy management software. The importance of this software to deliver a superior customer experience cannot be overstated. The Enphase Energy System is becoming more sophisticated with the addition of solar, batteries, EV chargers, heat pumps, et cetera. In addition, the utility tariffs, which were once fixed rates are now becoming increasingly complex with time of use rates, NEM 3.0, demand charges, dynamic tariffs and our software is evolving to manage this complexity by leveraging artificial intelligence and machine learning for forecasting and optimization.

We see this as an area of differentiation for us and are developing core IP towards that objective. We expect to release this software beginning in Q2, adding several features throughout the year. Let’s now discuss our installer platform. We released new features in Solargraf during Q4. We introduced electrical design and single-line diagram features while continuing to offer NEM 3.0 functionality for solar and battery systems in California. The software platform is now current — is now available to installers in U.S., 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 think Q1 could be the bottom quarter. Europe is already showing early signs of recovery, and we expect the non-California states to bounce back quickly.

California is the exception as NEM 3.0 is having some hiccups in the near-term. However, we remain very bullish about NEM 3.0 in the long-term. The payback is very attractive for solar plus storage. The utility rates are going up steeply on an annual basis, and the sales teams are learning fast. We see that the demand is going to eventually bounce back up in California as well. I’ll wrap up outlining our approach during these times. We are laser focused on ease of doing business on both high quality and great customer service. We are doubling down on operational excellence, correcting the channel and factory inventory concentrating on sell-through and installer count reducing our expenses and product costs and maintaining healthy gross margins.

We are getting many new products out and diversifying our portfolio rapidly. We are expanding worldwide with full systems comprising of IQ8 microinverters, IQ batteries, EV chargers and energy management software. We are introducing products with the small commercial solar markets worldwide and making continuous enhancements to our installer platform. In addition, we are innovating on GaN-based IQ9 and 10 microinverters, along with bidirectional EV chargers, our fourth and fifth generation IQ battery and AI-based energy management software to position us well for the long-term. With that, I will turn the call over to Mandy for her review of our financial results. Mandy?

Mandy Yang: Thanks, Badri, and good afternoon, everyone. I will provide more details related to our fourth quarter of 2023 financial results as well as our business outlook for the first 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 Q4 was $302.6 million. We shipped approximately 660.1-megawatts DC of microinverters and 80.7 megawatt hours of IQ batteries in the quarter. Non-GAAP gross margin for Q4 was 50.3%, compared to 48.4% in Q3. The increase was driven by increased net IRA benefit. Gross margin was 48.5% for Q4. Non-GAAP gross margin without IRA benefit for Q4 was 41.8% compared to 45.8% in Q3, a decrease of 400 basis points due to microinverter and storage mix while our average selling prices remained stable.

Given non-GAAP gross margin for Q4 included $25.8 million of net IRA benefit for our microinverters made in the U.S. and shipped to customers in the quarter. Non-GAAP operating expenses were $86.6 million for Q4 compared to $99 million for Q3. We implemented a restructuring plan in December 2023 to reduce our operating costs and align our workforce and cost structure with current market conditions. As part of the plan, we are reducing our global workforce by approximately 10% and expect to reduce our non-GAAP operating expenses to be in the range of $75 million to $80 million a quarter in 2024 when these restructuring actions are substantially complete within the first half of this year. GAAP operating expenses were $156.9 million for Q4 compared to $144 million for Q3.

GAAP operating expenses were — for Q4 included $51.6 million of stock-based compensation expenses, $14.8 million of restructuring and asset impairment charges and $3.9 million of amortization for acquired intangible assets. On a non-GAAP basis, income from operations for Q4 was $65.6 million compared to $167.6 million for Q3. On a GAAP basis, income from operations was a loss of $10.2 million for Q4 compared to income from operations of $118 million for Q3. On a non-GAAP basis, net income for Q4 was $73.5 million compared to $141.8 million for Q3. This resulted in non-GAAP diluted earnings per share of $0.54 for Q4, compared to $1.02 for Q3. GAAP net income for Q4 was $20.9 million compared to net income of $114 million for Q3. This resulted in GAAP diluted earnings per share of $0.15 for Q4 compared to $0.80 for Q3.

We exited Q4 with a total cash, cash equivalents and marketable securities earning of $1.7 billion compared to $1.78 billion at the end of Q3. As part of our $1 billion share repurchase program authorized by our Board of Directors in July 2023, we repurchased approximately 1,183,000 shares of Enphase common stock in Q4 at an average share price of $84.51 for approximately $100 million. In addition, we spent approximately $27.5 million by reporting shares to cover withholding taxes for employees start vesting and options in Q4, now reduced the diluted shares by approximately 260.7000 [ph] shares. We expect to continue this anti-dilution plan. In Q4, we generated $35.5 million in cash flow from operations and $15.4 million in free cash flow, which included approximately $46 million of income tax payments, an increase of $38 million compared to Q3.

Despite the macroeconomic challenges, we continued, we generate free cash flow. Capital expenditures were $20.1 million for Q4 compared to $23.8 million for Q3. Capital expenditure requirements decreased due to a reduction in our U.S. manufacturing spending. Now let’s discuss our outlook for the first quarter of 2024. We expect our revenue for Q1 to be within the range of $260 million to $300 million which includes shipments of 70 to 90-megawatt hours of IQ battery. 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 benefits and 40% to 43% 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 $12 million and $14 million on estimated shipments of 500,000 units of U.S. microinverters in Q1. We expect lower microinverter shipments to customers from U.S. manufacturing in the first half of 2024 as we continue to reduce inventory in the factory and the channel. We expect to increase the U.S. microinverter shipments to two-thirds of our overall microinverter shipments in the second half of 2024. We expect our GAAP operating expenses to be within a range of $144 million to $148 million, including approximately $64 million estimated for stock-based compensation expense, acquisition-related expenses, amortization and restructuring and asset impairment charges. We expect our non-GAAP operating expenses to be within a range of $80 million to $84 million.

We are reducing our non-GAAP operating expenses by 5% in Q1 as compared to Q4, we will not compromise on investing in customer service, product innovation and sales. Moving to tax. Since we have utilized most of our net operating loss and research tax credit carryforwards, we are now a U.S. cash taxpayer. We expect GAAP and non-GAAP annualized effective tax rate, excluding discrete items for 2024 to be a 20% plus or minus 1% with IRA benefit. In closing, we managed well with our financial discipline through a difficult global environment in 2023. While our total revenue decreased year-over-year by 1.7%. Our non-GAAP gross margin expanded to 45.3%, excluding the IRA benefit as compared to 42.6% in 2022. And our non-GAAP gross margin further increased to 47.1% with a net IRA benefit by manufacturing our microinverters in the U.S. In addition, we generated approximately $586 million of free cash flow in 2023 and exited the year with $1.7 billion in cash, cash equivalents and marketable securities up over $18 million year-over-year, while repurchasing 3.3 million shares of our common stock for approximately $410 million.

With that, I will open the line for questions.

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Q&A Session

Operator: We will now begin the question-and-answer session. [Operator Instructions]. And our first question will come from Brian Lee of Goldman Sachs. Please go ahead.

Brian Lee: Hello everyone. Good afternoon. Thanks for taking the questions. Badri, thank you. I appreciate all the additional color or granularity that you’re providing in this uncertain environment. I know you — it sounds like you’re pretty confident that Q1 could be the bottom here, you’re under shipping by less in Q1 than Q4. And then significantly of magnitude in Q2 based on the early read. So want to ask like given seasonality, the early read on revenue for 2Q, your view that 1Q is kind of the bottom here, like directionally, can you give us a sense of — are we back into the low mid-$300 million revenue range? Or is it even something higher than that? Just any directional feel you can provide as to kind of what the magnitude of that pickup will be off the 1Q bottom. And then I had a follow-up.

Badri Kothandaraman: Right. So just to tell the big picture. Basically, I told you that we have two problems. One is channel being full problem, channel inventory problem and the other is the native demand problem. And so with the demand reduction of about, let’s say, 30% to 35% from our overall highs, what we expect is an end customer demand roughly in the range of $450 million to $500 million. That’s what I told you the last time. And we were close our Q3 end customer demand, Q3 ’23 end customer demand was approximately $500 million. Our Q4 ’23 end customer demand was approximately $450 million. As you know, we — our numbers are much lower compared to those numbers. So we said we plan to ship $150 million, undership $150 million compared to the end customer demand.

So our end customer demand was $450 million in Q4. We undershipped approximately $147 million. We reported a number of $303 million, which is $450 million minus $147 million. We expect the sell-through demand is going to be seasonally down approximately by 10% in Q1. And that’s typical. And we expect an undershipment of $130 million. So with these two under shipments, we would have taken $277 million out of the channel. And we expect, going forward, Q2, we expect it to be, if nothing happens, it is seasonally better. And for us, since we have taken out a lot of inventory in the channel, we then start to approach a negative demand of $450 million, depending on how much residue undershipment that we have in Q2. So while I cannot tell you the exact numbers, you should generally expect our sell-in numbers to improve as we go into Q2.

You should expect the sell-through numbers to be seasonally better as you approach Q2. Now other things that are in our favor, we are seeing Europe — I mean, Europe drop to quite a low level. We are seeing Europe starting to pick back up. We have seen France is back to the level it was before. We are seeing Netherlands, although Netherlands is not back to the original level, far from the original levels, but we see incremental progress on a weekly basis. In addition, we have introduced in the last six months, several new products in Italy, U.K. Sweden, Denmark, and a bunch of other countries. We start to see all of those also kicking in. As far as California states are concerned, we already said Q4, was stable for non-California compared to Q3.

So we think the non-California states will also bounce in Q2. So while I’m not telling you any numbers, I gave you the directional indication that we expect selling numbers to go not. And my assumptions are that sell-through behaves according to the typical seasonality pattern that we have seen. California is, of course, the wild card, but we think that the — even taking that into account, we expect to do — we expect excellent numbers or our revenue numbers to go higher sequentially in June.

Brian Lee: Appreciate that. That’s all super helpful. The second question I had, and I’ll pass it on is on the battery storage segment, if I look, the mix is a bit more heavy on battery in 1Q versus 4Q, but your overall ex IRA margin still holding steady based on the guidance. So it almost seems like you’re already seeing better margins on the batteries here in near term. I know you alluded to expansion during the year. Can you kind of give us a sense of quantification? Another numbers question, I guess, is to kind of where you’re at today and what the cadence could look like battery seems like it’s going to move the needle a lot more. Just trying to get a sense for what that margin expansion opportunity could be as we move through the next several quarters? Thank you.

Badri Kothandaraman: The one thing that I did not say in the script, which I will say now is the sell-through our batteries in Q4 was the highest it has ever been. It was a 140-megawatt hours 140 sell-through in Q4. Our sell-in was only 80, you might ask why is your sell-in lagging behind. We’d like to get the channel as low as we possibly can. So therefore, we are getting more conservative. We only guided 70 to 90, but because we want the channel to get cleaned up. So what is driving that sell-through, if you ask? The answer should obvious to you based on what I said, California, I told you, the sell-through increased by 58%. Just in California due to the NEM 3.0 attached, California numbers, Q4 to Q3 — Q3 to Q4. Also, we are seeing a good momentum in Europe.

We have introduced batteries now to multiple regions. We introduced in June, we introduced to Australia, in September, we introduced to the U.K., then we introduced it to a bunch of other countries, too, along with it. I’m not breaking all of those out. In December, we launched individually and we’ll start shipping there very soon. So on battery demand, I’m happy to say, is very robust. And what we plan to do is to basically, of course, we plan to improve our gross margins. Gross margins, there are three things in gross margins that are obvious. The first two are applicable for our third-generation batteries, and the last one is applicable for the fourth-generation batteries. The cell pack costs are coming down rapidly. Our suppliers are offering as very competitive pricing on cell packs, which is definitely moving the needle.

That’s one. Number two, for us, specifically, we are transforming our supply chain so that we can make our microinverters for the batteries in the U.S., while we can have the assembly of the batteries in China. That gives us a best-in-class supply chain. And that, we get IRA benefit of $0.11 a watt, multiplied by 640-watt multiplied by 6. So for a 5-kilowatt hour battery, that’s approximately $75 per kilowatt hour benefit that we get just for making the microinverters in the U.S., and we plan to do that. The third one is an architectural benefit. When we go from the third-generation to the fourth-generation battery, we are — in the third-generation battery, we have six microinverters. We have a battery management board. We have a couple of other boards, the communication board and an interface board.

So we have nine boards. So those nine boards will go down to three boards because we are integrating battery management, and we are making the power conversion with a lot more power. So we are going to have a total of three boards. So nine is becoming three. Our power electronics, therefore, the cost bill of materials are dropping down significantly. And basically form factor-wise, we drop in the power electronics, the two inverters by the site on two sides of the cell pack, Therefore, the form factor certainly becomes very elegant. So not only the form factor becomes elegant and the fourth-generation, the cost also is lower along with taking advantage of the cell pack costs plus the PC — plus the microinverter assembly, I mean microinverter manufacturing in the U.S. So we are very encouraged that gross margins on batteries will continuously gone up for us.

And I think that will reflect positively on overall gross margins.

Operator: The next question comes from Colin Rusch of Oppenheimer. Please go ahead.

Colin Rusch: Thanks so much guys. Can you talk a little bit about the OpEx and the compensation plan going forward here? Obviously, with the lower non-GAAP numbers that you’ve talked about and the higher charge here. Is that something we should be thinking about on a go-forward basis? Or is there something else going on here that we should be attending to?

Badri Kothandaraman: Yes, let me give some color and then Mandy can add more there. In December, we basically announced the restructuring, where we — which affected about 10% of our workforce there. And at that time, we were running at an OpEx run rate approximately in the $95 million to $100 million per quarter. Our desire is to drop that non-GAAP OpEx from that level to a $75 million to $80 million number in the second half of 2024. So we did a few changes. We did a lot of — we eliminated a bunch of other spending before we came to people, but then we were forced to take the action on the people front as well. So all of that is largely behind us. And we have taken — Mandy will talk about the charges that we are taking on GAAP, et cetera.