Good day, and welcome to the Enphase Energy’s Third Quarter 2024 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..

Good afternoon and thank you for joining us on today's conference call to discuss Enphase Energy's third 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 third quarter ended September 30, 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 in 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?.

Good afternoon and thanks for joining us today to discuss our third quarter 2024 financial results. We reported a quarterly revenue of $380.9 million, shipped approximately 1.7 million microinverters and 172.9 megawatt hours of batteries. And generated free cash flow of $161.6 million. Our overall channel inventory remained normal as we exited Q3.

For the third quarter, we delivered 48% gross margin, 21% operating expense, and 27% operating income, all as a percentage of revenue on a non-GAAP basis and including net IRA benefit. Mandy will go into our financials later in the call. Let's discuss customer service. Our worldwide Net Promoter Score was 78% in Q3, slightly down from 79% in Q2.

Our average call wait times increased to 4.4 minutes from 2.5 minutes, partially due to higher call volumes from disruptions in the installer landscape. We are actively managing this while rolling out software fixes and automation to reduce weak times. Let's talk about operations.

Our global capacity is around 7.25 million microinverters per quarter, with 5 million in the US. In Q3, we shipped approximately 1.2 million microinverters from our US Contract manufacturing facilities, booking 45X production tax credits. We anticipate shipping 1.3 million units from our US facilities in Q4.

We also introduced a higher domestic content SKU for IQ8HC microinverters to help lease/PPA, and commercial asset owners to qualify for a 10% domestic content ITC adder. This translates to about $0.40 per watt in savings for them. We are seeing strong traction in the lease and PPA markets for this product.

We expect to begin shipping, our commercial IQ8P-3P microinverters, as well as our residential IQ8X microinverters, also from our US contract manufacturing facilities, featuring higher domestic content, starting this quarter. Our cell pack suppliers in China have enough capacity to support our plans for batteries in 2024 and 2025.

We are on track to producing the battery at our US contract manufacturing facility in this quarter using domestically made inverters, battery management systems, and packaging while continuing to source cell packs from China. Let's now cover the region. Our US and international revenue mix for Q3 was 75% and 25% respectively.

For more visibility into our business, we will be providing regional breakdowns for Q3. In the US, our revenue increased 43% compared to Q2. The overall sell-through of our products in the US was up 6% across all channels in Q3 compared to Q2. This increase was despite a large US customer declaring bankruptcy in Q3.

Our distributor sell through in the US was up 13% compared to Q2, which reflects improving market fundamentals in the US. In California, our distributor sell-through was also up 13% in Q3 compared to Q2. In Q3, we saw healthy growth for both microinverters and batteries in California.

NEM 3.0 now represents approximately 65% of California installs, and the attach rate of our own batteries continues to be close to 50%. In non-California states, our distributor sell-through was up 14% in Q3 compared to Q2. Looking ahead, we see lower interest rates, ITC adders, and higher power prices as the key drivers for 2025 growth.

In Europe, our revenue was down 15% compared to Q2. The overall sell-through of our products in Europe was a little more down, 34% down in Q3 compared to Q2. While every country in Europe has its nuances, the overall business environment in the region is challenging. Power prices have declined from the early 2023-highs.

The economic growth is slow and the consumer confidence is limited. We are focused on what we can control. We are focused on building and strengthening relationships with installers.

We are focused on launching many new products, expanding into a lot of new markets as we believe we are under-penetrated, as well as collaborating closely with our distribution partners. We believe this will position us well for significant growth when the cycle rebounds.

I'll provide some additional color on our key markets in Europe, the Netherlands, France, and Germany. In the Netherlands, the solar market is transitioning away from solar-only systems due to regulatory uncertainty around NEM, which is about to expire in early 2027, and export penalties imposed by the energy providers.

These issues have increased the adoption of batteries which avoids export penalties and allows participation of residential solar plus battery systems in energy markets. While this transition is still in its early stages, we are strongly -- we are encouraged by a strong engagement with the country's energy providers.

We are well-positioned to lead the market recovery in Netherlands with our microinverters, along with batteries, along with our upcoming new EV chargers, as well as AI-powered IQ energy management software, which is crucial to maximize savings and improve homeowner ROI. In France, our Q3 was impacted by summer seasonality.

We expect a cooling-off period for solar demand in the country, driven by expected utility rate cuts in early 2025. Overall, France remains a key growth market for us given our market leadership there, as well as the country's low solar penetration.

We plan to introduce many new products for France, mainly the new EV charger, batteries with backup, and energy management for hot water heaters. In Germany, we are excited about a few upcoming product launches that are imminent. These will expand our reach in Europe's largest solar market.

Our three-phase battery backup solution for Germany, Austria, and Switzerland, which was unveiled in Intersolar Munich in June, has received highly positive feedback. Our IQ Balcony Solar is nearing launch. We are targeting a 400 megawatt market with this product and believe that Enphase microinverters are ideally suited for these very small systems.

Additionally, we plan to launch the new IQ EV charger into Germany in Q4. A bright spot in Europe has been UK, where the sell-through was up approximately 80% compared to Q2. However, we are still under-penetrated in this market and have a lot more room to grow.

There are similar countries in Europe, including Italy, Spain, Belgium, Luxembourg, Austria, Switzerland, Sweden, Denmark, and more.

While each country faces its own unique challenges and opportunities, homeowners are increasingly prioritizing safety, reliability, quality, savings, and a seamless all-in-one app experience for their home energy systems which perfectly aligns with our core strength.

We plan to introduce our entire product portfolio, the IQ8 series of microinverters, both single and three-phase batteries with backup, the new IQ EV chargers which I talked about, AI-powered IQ energy management software which I'll elaborate later, as well as the Solargraf installer platform across many more European countries.

We continue to make incremental progress in other regions in the world. Our IQ8P and IQ8HC microinverters are ramping well in India. We are now taking pre-orders for the battery in India, with shipments to installers to begin in December.

In Brazil, we are ramping on the 480 watts IQ8P microinverters into this emerging residential market in order to support newer, higher power panels.

In Australia, we recently started shipping IQ8X microinverters for higher DC input voltage panels and now offer 25 year limited warranty as default for all IQ8 microinverters and this is currently the longest standard residential warranty in the Australian market. Let's come to our Q4 guidance.

We are guiding revenue in the range of $360 million to $400 million. We anticipate incremental improvement in our US business and a continued slowdown in Europe in Q4. We are approximately 85% booked to the midpoint of our overall revenue guidance very similar to last quarter. We expect to ship between 140 to 160 megawatt hours of IQ batteries in Q4.

Our battery sell-through is doing well. It continues to increase and we expect Q4 to reflect a slight uptick in demand. The reduced battery shipments in Q4 compared to Q3 is primarily due to channel restocking in Q3 that will not repeat in Q4.

Before we talk about new products, let's discuss the evolution in our industry away from single hardware components and towards total energy systems. In many countries around the world, solar-only is no longer enough.

Our Enphase systems are now composed of IQ microinverters, IQ batteries, EV chargers, and increasingly sophisticated IQ energy management software to manage multiple use cases including rate arbitrage, grid resilience, VPP participation, wholesale market participation and more.

All parts of the system must be best-in-class with software that ties it all seamlessly together in order to win. We believe our current and future products uniquely position us to win in this total system solution focused markets. Let's talk about IQ Batteries. Our third generation IQ Battery 5Ps, continuing to be very well received by the market.

It offers an industry leading 15 year warranty, with differentiated quality, serviceability, modularity and power capability. We are on track to pilot our fourth-generation battery in the US, in the fourth quarter and begin production in early 2025. We believe this new battery will be a game changer for us.

The battery takes up 60% lesser wall space, due to its integrated battery management and power conversion architecture. In addition, the fourth generation IQ Battery, will be paired with our new IQ meter collar, and enhanced IQ combiner.

The battery system will reduce installed cost by approximately $300 per kilowatt hour, for a typical system with backup, making us highly competitive for all use cases. We have expanded the IQ microinverter family into 51 countries and plan for more by the end of the year.

We are particularly excited about Japan where we expect to launch our IQ8HC microinverters in early 2025, targeting a 1.3 gigawatt market. The Tokyo Metropolitan Government has offered subsidies for MLPE products, making it very attractive for consumers.

Japan solar market especially Tokyo, with its small system sizes of 2 kilowatts to 3 kilowatts, complex roofs and demand for quality, aligns well with our strengths. Let's talk about our commercial microinverter, IQ8P.

The IQ8P with its new three-phase cabling system is perfect for small commercial solar installations between 20 kilowatts and 200 kilowatts. We have over 380 sites in the US, with an average size of 50 kilowatts and the feedback so far has been quite positive.

These three-phase microinverters will soon ship from the US Factories with increased domestic content offering a 10% ITC adder, for commercial asset owners which should drive demand up even further. Let me provide an update on our IQ9 microinverters powered by Gallium Nitride Technology.

The IQ9 family is designed to handle higher DC input currents up to 18 amperes and supports elevated AC grid voltages, including 480 volts for the small commercial market. IQ9 is expected to come in two power variants, 427 watts and 548 watts, offering flexibility and performance.

We are on track for a launch in the second half of 2025, positioning us to meet growing market demands. Let's dive into EV charging. We are gearing up to launch our second-generation IQ EV charger across several European countries in Q4, tapping into a $1.4 billion annual market. With up to 22 kilowatts, three-phase charging.

The charger integrates well with Enphase solar and battery systems, enabling homeowners to minimize electricity costs by using excess solar energy.

Key features of this new IQ EV charger include dynamic phase switching and 1 ampere current control, which results in much more efficient green charging, ISO 15118 support for AC bidirectional charging in the future, and compatibility with MID meter in Germany, as well as compatibility with OCPP 2.0.1 software for third-party control, making it a very comprehensive and future ready solution.

Let's cover software. Our IQ Energy Management Software supports grid services programs, VPPs, in regulated markets like the US, and energy market participation in deregulated markets like Europe and Australia.

In the US, we are active in around 25 programs across key states in California, Massachusetts, Texas, and North Carolina, with more than 10,000 customers and 120 megawatt hours of battery capacity enrolled. These programs enable homeowners to discharge batteries during peak demand, supporting the utilities in times of need.

In deregulated markets our software enables homeowners to earn up to $1,500 annually through energy providers. As electricity rates become more complex, our AI-powered software differentiates us, maximizing ROI and reducing payback period. Let's discuss Solargraf, our installer platform.

We've added new features to Solargraf in Q3, including an updated battery design tool, as well as a do-it-yourself permit plan set for US customers. Solargraf is now available to both residential and commercial installers in the US, Canada, Brazil, Germany, Austria, and Netherlands with plans to expand to more countries in the coming quarters.

Let me conclude. We have worked diligently to manage and [phase through] (ph) an industry slowdown. The midpoint of our revenue guidance for Q4 is flat with respect to Q3, and is a 44% increase from our revenue bottom of $263 million earlier in Q1 2024.

We expect Q4 to also be impacted by the same large US customer due to its bankruptcy, but we believe a substantial portion of this revenue will return through our distribution channels in future periods.

We generated approximately $321 million in free cash flow for the first nine months of 2024, and have maintained strong gross margins throughout the downturn. Over the last year, we have expanded our global footprint in microinverters and batteries, and are developing a strong pipeline of innovative products that are nearing launch.

Our three-phase battery, IQ Balcony Solar, and the new IQ EV charger for Europe, are set to expand our served available market by $4 billion. Our upcoming fourth generation battery system featuring the IQ meter collar and enhanced combiner is expected to significantly reduce installation costs for backup.

Our GaN-powered IQ9 microinverters will enable us to enter new three-phase commercial markets which are incremental for us while boosting power and lowering costs in the residential markets.

We are also excited to advance our AI-powered energy management software in collaboration with retail energy providers in the Netherlands, as well as cater to complex energy markets around the world.

Looking ahead to 2025, we see improving US market fundamentals driven by lower interest rates, ITC adders, and higher power prices in key markets that are expected to drive nice growth. Our best-in-class microinverters coupled with our next generation battery system should allow us to defend and grow our market share in the US.

Internationally we believe we are well positioned for growth when the solar market stabilizes due to our broadened geographic reach and product portfolio. We remain committed to delivering best-in-class solutions and are energized by the road ahead. With that, I will turn the call over to Mandy for her review of our financial results.

Mandy?.

Thanks, Badri, and good afternoon, everyone. I will provide more details related to our third quarter of 2024 financial results, as well as our business outlook for the fourth quarter of 2024.

We have provided reconciliations of this 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 Q3 was $380.9 million. We shipped approximately 730 megawatts DC of microinverters and 172.9 megawatt hours of IQ Batteries in the quarter.

Non-GAAP gross margin for Q3 was 48.1% compared to 47.1% in Q2. GAAP gross margin was 46.8% for Q3. Non-GAAP growth margin without net IRA benefit for Q3 was 38.9% compared to 41% in Q2. Our GAAP and non-GAAP gross margin was negatively impacted by a one-time 3.3 percentage point charge related to cost of goods sold on batteries.

Non-GAAP gross margin for Q3 included $35.2 million of net IRA benefits. Non-GAAP operating expenses were $81.6 million for Q3, compared to $81.7 million for Q2. We continue to invest in new products, customer service, and geographic expansion.

GAAP operating expenses were $128.4 million for Q3, compared to $135.4 million for Q2, GAAP operating expenses for Q3 included $43 million of stock-based compensation expenses, $3.1 million of amortization for acquired intangible assets and $677,000 of restructuring-related expenses.

On a non-GAAP basis, income from operations for Q3 was $101.4 million, compared to $61.1 million for Q2. On a GAAP basis, income from operations was $49.8 million for Q3 compared to $1.8 million for Q2. On a non-GAAP basis, net income for Q3 was $88.4 million compared to $58.8 million for Q2.

This resulted in non-GAAP diluted earnings per share of $0.65 for Q3 compared to $0.43 for Q2. GAAP net income for Q3 was $45.8 million compared to $10.8 million for Q2. This resulted in GAAP diluted earnings per share of $0.33 for Q3 compared to $0.08 for Q2.

Both our non-GAAP and GAAP diluted earnings per share for Q3 were negatively impacted by $0.09 per share net of tax, related to impairment of an investment in a private company. We exited Q3 with a total cash, cash equivalents and marketable securities balance of $1.77 billion compared to $1.65 billion at the end of Q2.

As part of our $1 billion share repurchase program authorized by our Board of Directors in July 2023, we repurchased 434,947 shares of our common stock in Q3 at an average price of $114.48 a share for a total of approximately $49.8 million. We had [$598.3 million] (ph) remaining for further share repurchases.

In addition, we spent approximately $6.3 million by withholding shares to cover taxes for employee stock vesting and options in Q3, that reduced the diluted shares by 59,607 shares. We expect to continue this anti-dilution plan.

In Q3, we generated $170.1 million in cash flow from operations and $161.6 million in free cash flow, due to our strong working capital management. Capital expenditure was $8.5 million for Q3 compared to $9.6 million for Q2. Now let's discuss our outlook for the fourth quarter of 2024.

We expect our revenue for Q4 to be within a range of $360 million to $400 million, which includes shipments of 140-megawatt to 160-megawatt hours of IQ Batteries. We expect GAAP gross margin to be within the range of 47% to 50%.

We expect non-GAAP gross margin to be within a range of 49% to 52% 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 $38 million and $41 million of estimated shipments of 1.3 million units of our US microinverters in Q4.

We expect our GAAP operating expenses to be within the range of $135 million to $139 million, including approximately $54 million estimated for stock-based compensation expense, acquisition related expenses and amortization. We expect our non-GAAP operating expenses to be within a range of $81 million to $85 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..

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Christine Cho with Barclays. Please go ahead..

Thank you. Good evening. I guess I just wanted to start on the batteries. You mentioned that you expect sell-through to be up slightly for batteries in the US quarter-over-quarter. But shipments are down because you restock during the quarter.

Can you give us a sense of what sell-through was in 3Q? Is the 4Q guide more in-line with what sell-through levels actually are? And if we could get a rough split of the shipments, going to the US versus everywhere else?.

Yes. I mean -- so basically, we actually told you 90 days ago that the channel on batteries is light, and we are going to get the channel to a healthy level. We have fixed that problem now. So therefore, basically, our -- you should think of our shipments into the channel and the shipments out of the channel are at equilibrium, which is there the same.

So that's why that number of 140-megawatt to 160-megawatt hours. And you should think of our US roughly in-line with a revenue split up, which is the [75-25] (ph), you should think about a similar split up for batteries..

Okay. And just as a follow-up to that, revenue was up 43% quarter-over-quarter in the US, I think you said and sell-through is something in the single digits across all channels.

So was the disconnect here all the batteries as we just kind of mentioned? Or is there any restocking here on the MI side? And then just as we think about Europe as well, it sounds like your sell-through was worse than what your sell-in was there.

So maybe weeks of inventory went up there? And I guess, how should we assume what you are assuming for 4Q?.

Right. So maybe the reason why our revenue increased by 43% is quite simple. We stopped under shipping in Q3. So therefore, our revenue increased to normal level. So basically, we are now at a place where in the US, we are at equilibrium, sell-in and sell-through are matching. And that's how we can maintain a healthy weeks on hand.

For us, a healthy weeks on hand always means between 8 weeks to 10 weeks and not crossing that number -- 10 weeks number, which we have instituted the discipline. So that's why you can see that the revenue increased 43%. That's the sell-in revenue.

Now the good news in the US is our overall sell-through across all the channels, both distribution channel and direct channel was up 6% in Q3 compared to Q2. And I said, this increase was despite a very large US customer declaring bankruptcy in Q3.

If you just look at our distribution channels, our sell-through for both -- for the US was up 13% and our sell-through in California, as well as outside California was up at similar levels at 13% and 14%, respectively. And in general, the sell-through is healthy across both microinverters and batteries. Coming to Europe.

In Europe, it is a slightly different story. Our revenue was down because once again, we have learned the discipline when our overall sell-through products are down by 34%, we have to react. We have to react. We have shortened that cycle quite a bit compared to what happened last year.

So we continue to under ship in Europe even with this reduced sell-through. And so our weeks on hand in Europe is a little bit high, but we are extremely disciplined and the moment when things turn around, our weeks on hand will come down very quickly. And we are not worried about that.

We are cautious for Q4, this is why our guidance incorporates a slowdown in Europe in Q4, and we are not pushing more into the channel..

Okay. The next question comes from Colin Rusch with Oppenheimer. Please go ahead..

Thanks so much guys. It sounds like you're getting a little bit of traction with these vehicle charges.

Can you talk a little bit about your strategy around evolving the sales of those? And how we should think about the trajectory on attach rates as we get into 2025?.

Right. On the EV chargers, basically, there are two interesting markets. One of course, is the US market and the other is the Europe market. We bought a company called as ClipperCreek towards the end of 2021. They made high-quality chargers, excellent -- and also excellent service. They had a reasonable market share in the US.

What we did was we took that, we essentially -- we moved manufacturing to our contract manufacturing facilities in Guad. We then did some surgery on the product. Those charges where what you call as unconnected charges. They did not have Wi-Fi in them. So we took our time to make that product. And last year, we introduced IQ Smart EV chargers in the US.

In the meantime, we've been working furiously in Europe, where the adoption is also quite nice and high. Europe market is a very interesting market. There are about 14 countries that we will introduce our IQ EV chargers too. Our SAM, Served Available Market, is about $1.4 billion And these charges are a little bit different from the US.

They are all smart charges. And as I mentioned, there are several features there in the EV chargers for Europe. For example, most of these EV chargers are three phase EV chargers. And when you do for example, green charging with the EV chargers, many of the competitive products, they need a particular minimum power in order to charge from solar.

Our product has got an innovative feature where it can start with single phase, enabled green charging from solar, at a lower power and then switch to three phase when the solar energy ramps up. That's a big deal. And it integrates, of course very well with the Enphase solar and battery systems enabling homeowners to view everything from the app.

The other big thing we are interested in is that there is two ways you can talk about bidirectional EV charging. That is AC bidirectional charging and there is DC bidirectional charging. AC bidirectional charging means there is no external inverter outside. DC bidirectional charging means you take care of the inversion outside.

So our product, the latest IQ EV chargers is compatible to a standard called ISO 15118. That ISO 15118 is a standard, where the EV charger can talk to the car, and it can get things like the state of charge of the car, which is not possible today. So AC bidirectional -- we could see AC bidirectional standard evolving.

This EV charger is capable of doing that. While we are planning, we are embarking on a AC bidirectional charger as well for the US and for Europe as needed.

That AC bidirectional chargers, as I said before, in -- yes sorry, DC bidirectional charger, I mean it basically takes the DC input from the car and you have inverters outside, and then it connects to the grid. So that's -- that design is all [GaN design] (ph). Each inverter that we are building is about 3.8 kilowatts.

It interfaces to 1,000 volt DC on one side, which is interfacing to the car and AC on the other side. So for example, in order to have 11-kilowatt bidirectional charger, you will have 3 of those 3.8 kilowatts inverter. And these 3.8 kilowatt inverters are built according to the same inverter -- microinverter architecture that we have.

So zooming back down, right now the most important thing for us is to introduce the IQ EV charger second generation into 14 countries in Europe, take advantage of the big served available market of $1.4 billion. And then work on both AC bidirectional charging in Europe and DC bidirectional charging in the US..

Okay. Thanks. And then just very quickly, please.

Can you give us an update on the initial traction in the commercial market and the size of systems that you're able to address, as you get into 2025? Are you able to get into the 100 to 200 kw systems? Or are you still generally in the smaller side on the commercial systems at this point?.

Yes. Our IQ8P is a commercial-specific microinverter. We benefit with the three-phase cabling system. It's perfect for small commercial solar installs between 20 and 200 kilowatts. As you know, the commercial projects, they have a slightly longer cycle time. So we start shipping this product about nine months ago, and the traction has been quite good.

We reported, I think, a couple of hundred sites 90 days ago. Now things are starting to ramp. We are over 380 sites. In fact, in the Fremont building that I'm sitting right now, I have 396 panels on the roof. I can monitor it. I can monitor it nicely. I can immediately find out if an inverter is not working. That's what the installers value.

The higher power production, the per panel monitoring, the immediate focus on quality. It's a 214-kilowatt system. It uses 550 watt panels. So this microinverter is perfect 480 watts. So we're very excited by this. We are doing a couple of things. One is we aren't yet addressing the 480 volt market, which we are going to address with IQ9.

That product is coming out in the second half of 2025. That's going to be a gallium nitride design, suitable for high power with ultra-low cost. And the second important thing that you should note is that domestic contract.

These IQ8P three-phase micro inverters are going to be shipping from the US, where they have an increased domestic content that enable the commercial asset owners to get the benefit of an additional 10% ITC. So we think that will also propeller demand. So we are quite excited about that..

Yeah. Thanks guys..

And the next question comes from Mark Strouse with JPMorgan. Please go ahead..

Yes. Good afternoon. Thanks for taking our questions. Going back to RE+, we were hearing quite a bit of optimism looking into 2025, just kind of based on a view that interest rates would be lower. Since then, there's been a pretty big spike in rates in the wrong direction.

Just kind of curious, to the extent that you've had kind of very recent conversations with some of your customers, if that's creating any pause in the industry?.

Well, I mean, our data -- as I told you, our sell-through data for Q3 things are headed in the right direction in the US California, for example, we talked about NEM 3.0 being a drag that is no longer the case.

Installers have gotten used to NEM 3.0 -- at least some of installers have gotten used to NEM 3.0, and they are finding both solar plus storage working out in terms of economics. Outside the U.S -- I mean, outside California also our sell-through data looks fine. We are up about 14%.

I've been monitoring since the six weeks of RE+, our sell-through data is things are looking better, week on week. And we do have -- we think things will be incrementally better in 2025 in the U.S. market. The things that are going to contribute to it are, of course, further rate cuts, the 10% domestic ITC adders.

That is a big deal because it saves the TPO provider or it helps them to make an additional $0.40 -- that $0.40 a watt can be reinvested back into the installers or into increasing demand on the consumer front. And of course, the utility prices are continuing to increase.

And so we are seeing -- of course, I'm not disputing what you said, but the data still seems to be optimistic towards the growth in 2025 for the overall US market..

Okay. That's great to hear. Thanks Badri. And then real quick on Europe. You mentioned some of the cross currents with some of the kind of the industry headwinds, but maybe offset by new products and market expansion, that kind of thing.

Adding all of that up, do you care to comment about kind of what 2025 Europe might look like for Enphase? Fully appreciating that you do not guide a year out. But just generally speaking, any color would be great. Thank you..

Yes. I mean, look, we think Europe -- I mean, Q4 might be a little stressed, but we think we are at the bottom there. And the key about Europe is there are some really great markets, which are very nimble like Netherlands, which have been affected a lot due to NEM uncertainty. And that is slowly getting solved.

We are confident as we go into 2025, what's going to happen is that Netherlands is going to shift slowly but surely from a solar-only play to a solar plus storage plus software play. We are already working with nearly, I would say, 10 energy providers just in Netherlands alone.

Some of them, for example, will need PV curtailing, meaning solar curtailing for very small times during the year where otherwise, they incur a lot of penalties. So that market will need to be transformed a bit, but I think it is at its low point, and we have a tremendous opportunity there to reshape that market.

Now France is the country where we have historically done very well. We have over 50% share. And France basically, what we are hearing, there could be some headwind due to utility rates in the early part of next year. But the fundamentals there are strong, and everybody expects things to come back up strongly, as we approach the end of 2025.

Germany that have been -- there has been general weakness. There is a few installers who have gone bankrupt, very similar to what has happened in the US. And once again, what we are doing there is stick to the basics -- stick to the basics is we are introducing new products and adding a served-available market of $4 billion to our portfolio.

And those new products are three-phase battery with backup. That's for the DAC regions. DAC is Germany, Austria and Switzerland regions. Then we are talking about IQ Balcony Solar, which is brand new for us. And we are ideal, Enphase is ideal to play in that very small system.

So by the way, Balcony Solar is not restricted to only Germany, many other places like, for example, Austria, Belgium, France, they all have their own versions of Balcony Solar, and we will be following up, and introducing all of those products as well. But Balcony Solar in Germany is 400 megawatts. Then I already talked about our IQ EV charger.

So we are not stopping. We are underpenetrated in Europe. We have a lot more countries to cover. We are focusing on the areas where we can control, which is releasing new products, managing the channel, getting into new regions, working closely with the -- with both the long tail installers plus a few top-tier installers.

So we are doing all of the right things, and we expect the market to rebound sooner or later..

The next question comes from Brian Lee with Goldman Sachs. Please go ahead..

Hi, everyone. Thanks for taking the questions. I had two, both related to guidance. I guess first -- at the midpoint of the revenue guidance, you're flat for 4Q. I think there's three drivers, right, Battery Storage, Europe and SunPower. You gave us the guidance for battery storage. That seems like it's a $15 million headwind.

And then Europe was a $5 million to $10 million drag in 3Q. Is it similar in 4Q? Because you're saying it's going to be down. And then SunPower might have been doing less than 50 megawatts a quarter at the end of their existence, but that's still $10 million to $15 million of revenue for you.

So really, the question is, can you help kind of quantify what seemed to be three meaningful buckets of headwinds for at least the sequential growth into 4Q? And then I had a follow-up..

Yes. In Q4, our overall sell-through of microinverters is doing a little better -- is doing a little better compared to Q3. And we can see that, and that's what we are guiding towards. And as I told you on the battery side, it is -- we are talking about 140-megawatt to 160-megawatt hours versus the 170-megawatt hours.

That's -- you're right in the range that you said. SunPower is a headwind of $10 million to $15 million. You are correct about that. And we don't expect that to immediately come in Q4, but we are working with all of the installers, and we should be able to get all or most of that in the coming quarters.

So to answer your question, we expect upside from increased microinverter sell-through. The battery sell-through is also doing fine, except for that one-time channel destocking. And Europe has got a slightly continued weakness compared to Q3..

Yes, that's super helpful, Badri. Second question on that same line of thought, you strip up the battery storage, microinverter sales, you're saying are going to be up about 5% or so in the 4Q guide at the midpoint.

But I would have thought stripping out all these other factors like SunPower, Europe, et cetera, you have US seasonality, US domestic content. And also, it sounds like you had some price increases in the US. So can you talk us through some of the tailwinds that I don't know, if they're actually showing up in 4Q or if they are going to show up later.

But I would have expected those to maybe help you a bit more into 4Q outside of all these other headwinds we just talked about. So domestic content, US price increases. Just any general thoughts around that? Thank you guys..

Yes, we are not increasing any prices in the US. The domestic content product is a new product and that for increased domestic content, yes, there is an extra adder. And we do have -- we do expect, like what you said, we think those are the drivers. The increased domestic content is a driver. The sell-through on microinverters, is a driver.

Batteries, it's going to be generally strong, and I think we expect to be even stronger from Q1 '25 when we have our fourth generation system. So that piece. Yes, but you're generally right. The way I would characterize it as -- if microinverter is a little bit healthy, it covers the other areas which are weak..

The next question comes from Phil Shen with ROTH Capital Partners. Please go ahead..

Yeah. Thanks for taking my questions. First one is on -- in the past, you've talked about getting to a $450 million to $500 million sell-through demand run rate. And back in May, you thought it might be sometime in Q4.

What's your thinking now in terms of when you can hit that on a quarterly basis? Is it sometime through '25, maybe Q2? Or could it be more in the back half? Thanks..

Yes. I mean, look we talked about that, and we have had a few things there. We have had a few installer bankruptcies. I mentioned a big one. And we've had some headwinds. While the US is proceeding in the right direction, Europe is an entirely different story.

So basically, a few months back, we didn't anticipate the installer bankruptcies, one in the US, we didn't anticipate the European business declining further. And that's reality right now. And that's reality.

But the fact of the matter is the distribution market in the US, like what I told you, with the distributors -- with the distribution sell-through numbers for US, as well as meaning California is very encouraging. Non-California in the US is also very encouraging.

Of course, customer -- a large customer who went bankrupt, we lost some revenue, we expect to get that revenue back. We don't guide our 2025, but those are our growth vectors. We are going to be introducing our fourth generation system in Q1.

We expect that fourth generation system to basically reduced the installed cost by $300 per kilowatt hour, making us competitive not only for grid type which we are today, but for backup. So today, for example, on the batteries, our shipments from Q2 to Q3 increased by more than 40%. Our sell-through is climbing up continuously there.

And we -- for grid tight systems with NEM 3.0, what installers need to do is to treat the installation like a solar installation. There is no complicated wiring to take care of. There is no loads to manage.

So therefore, they hang two IQ battery 5Ps, two 5-kilowatt hour batteries on to the AC bus, they routed to the combiner along with solar, the same combiner and they're done. So that is still quite strong for us. Now with this fourth-generation system, where we have the meter collar, we have the battery, we have the enhanced combiner.

We will be eliminating the system controller cost. We'll be eliminating both the component cost, as well as the labor, and we expect to save $300 in installed costs. So we think that will unleash a spurt of growth for us in terms of backup. So basically, the vectors in the US are continued improvement in the sell-through.

It is the higher utility rates, lower interest rates and domestic content. In Europe, it's a little bit of a wildcard right now, but I outlined our plans very clearly. We think we are scraping the bottom in Q3 and Q4 for some of the markets. The fundamentals are there. We are working with the right players in Netherlands.

We are working for Germany, we have served available market increases for Europe. We have a served available market increase of $4 billion with a lot of products, specifically for Germany, the three-phase backup is most relevant for Germany, Austria and Switzerland, and the Balcony Solar is also relevant for Germany. So we have all of those in-line.

So I can only give you a qualitative color that we aren't waiting for the market to grow. We are introducing new products, we are working with our installers. We are not stuffing the channel most importantly. And we are doing all of that globally..

Great. Okay. Thank you for all the color Badri. Shifting to Powerwall 3 and Tesla. Our work suggests that the Powerwall 3 demand is substantial and widespread. I know it is a string inverter, and I know and you just laid out how your technology is meaningfully better and more advanced.

That said, I know many of your customers are ramping up substantial Powerwall 3 volumes.

So when you talk to your customers about that, what are they telling you? And then are you surprised by the volume of business that is shifting to Powerwall 3? Some of your larger customers are sharing with me that you may be resigned to losing share to Powerwall 3, especially until your new battery and meter collar and combiner box comes out.

How much do you think -- how much are you planning to lose? I know it's a tough question, but I think it's important. So thank you for taking..

Yes. So thank you for the question. The key -- I can react to data in front of me, all of the data which we have continuously, we do have third-party reports. And we -- those all show basically that we are holding share. That's the data point number one.

And the second point, which we highlighted is basically our sell-through in California, which is probably the area where you're talking about. Our sell-through in California is up 13% quarter-on-quarter. And our sell-through is up on both batteries and microinverters because they go hand-in-hand with each other.

And on batteries, as I told you before, our installs, if you see our installations in California, and it makes sense, is 70% of our installs are grid-tied installs in California. The 70% are grid-tied installs like what I said, the cost that you are talking about is not -- is not higher.

The cost, in fact, it is cheaper to install an Enphase battery there. We are talking about two 5P batteries. We are talking about hanging it off the AC bus. We have the same combiner box that is used, so it's not an extra box. So that is why probably our market is grid-tied market. And now we are in the process of fixing that problem.

And we are going to release in the first quarter, the latest and greatest battery that we got. That's a 10-kilowatt hour battery. That 10 kilowatt-hour battery has got a wall space of 60% lesser compared to our own battery. And there is no system controller that used to be there before. Now there is the color. We expect -- the color is done development.

It is in compliance. We expect to work with utilities in the next few months and get utility approval in Q1 '25. So with the color -- with our battery, which has got neutral farming, by the way, and our enhanced combiner, which has got a lot of bells and whistles that are installers love.

The cost of the installation is substantially going down by $300 per kilowatt hour for a typical storage system with backup. So basically, we have solved that problem. We need to get that solution to the market in Q1 '25. And then what will happen is we will grow in both grid-tied markets, as well as markets with back up.

And that will be a key focus for us in 2025 and will contribute to growth. The other things, which you already know, but I will tell for the benefit of the audience is Enphase, the advantages are numerous, power production.

Power production -- between power production with the string inverter and power production with the microinverter, you can get anywhere from 4% to 15% advantage, especially where there is shading, which is there in many places. With Enphase that is reliability. There is no single point of failure.

When a microinverter on the roof fails, we still have 95% of the system working, assuming the system has got 20 microinverters. When a microinverter inside the battery fails, we still have 83% of the system working. Every IQ battery has got six microinverters. So reliability and no single point of failure.

Our warranty is -- warranty on batteries is 15 years. Warranty on microinverter is 25 years versus common warranty of 10 years on string inverters. Simplicity, plug-and-play, is just very easy to do on the roof. Low-voltage DC on batteries. And obviously AC in the roof loved by firefighters.

I've had many firefighters telling me and FEMA by the way, which is basically the authority in the US. They do recommend microinverters because of that. So other things, 24x7 support. If there is a problem, Enphase will answer the phone. We never take batteries off the wall. We repair them, replace boards in situ.

In situ means we do not -- customer is not down for more than a few days versus being down for weeks and having complex logistics between the supplier and install. All of that doesn't happen. Serviceability is very crucial. When you have a fleet of batteries and you have service problems, you keep spending your time on service.

You know, you made a mistake in taking an architecture. And by the way, batteries are notorious for this. Inverters, solar inverters, the industry is getting matured, but batteries is still Wild Wild West. AC architecture. We believe in a distributed architecture, which as I already told you, no single point of failure, all AC. Everything is AC coupled.

We have our solar, our storage, our EV chargers, our bidirectional chargers, anything is AC coupled. So basically, the power that a homeowner gets, for example, is both solar plus storage. So I outlined all of the things that those are our strengths, plus with the fourth generation system, we are going to be very competitive on backup.

And we expect all of these to basically increase our market share on batteries going forward..

Thank you for the color Badri. I will pass it on..

Thank you..

The next question comes from Jordan Levy with Truist. Please go ahead..

Good afternoon. Appreciate you all squeezing me in here. I'll stick to one. Just on the pricing side, I think you gave a lot of commentary, but if I heard correctly, I think you mentioned some pricing concessions in Europe with all the weakness you've been pretty consistent in how you approach pricing in a price-to-value basis.

But just wanted to see if there's -- how you're thinking about that as the 4Q for Europe, especially? And then any change in the pricing strategy overall, particularly around micros?.

Pricing, I did not mention we did anything for Europe. So I think you must have heard it or you must have misunderstood it. So we are not dropping pricing anywhere. But pricing is something that we manage on a daily basis. We instituted a pricing team in 2017, and there is a team of about six people. Their job is to make sure we always price on value.

So therefore, they spend an ordinate amount of time in understanding the full system, bill of materials to make sure that there is -- we clearly understand the areas where we can save money for the consumer in terms of the overall system. So we do that very diligently.

And I'm not saying that we never dropped price, but it is a non-event for us because sometimes if there is a loyal customer, he needs a little bit of help, we will help them. But that's not an event, it is a business process. And we expect that business process to continue..

Got it. Thanks so much for all the detail..

The next question comes from Pavel Molchanov with Raymond James. Please go ahead..

Thanks for taking the question. Can I ask kind of high level about Europe. Yes, power prices are R&D down by module pricing is down 30% versus a year ago as well as lithium-ion batteries.

Why is that not acting as a counterbalance against cheaper electricity?.

I think – hi this is Raghu. We believe we think that part of the reason, if you again look at it by country by country. In the case of the Netherlands, which was a solar-only market before, it was very clear that the NEM uncertainty, as well as homeowners being penalized for exporting solar into the grid was a big headwind.

And so obviously, Netherlands, we really think we are doing all the right things there for that market to completely turn around by the addition of batteries. So solar plus batteries in a dynamic electricity market where energy can be traded into the market is a very good way for homeowners to improve their ROI.

In general, I think the urgency that was there before during the crisis, during the Ukraine crisis and the steep increase in power was that urgency is gone. And then in general, we also know that the economy is also is not doing that well. So the combination of those things, we believe, are the reasons why Europe seems to be slow.

But as Badri mentioned, it is possible that you could be -- that 3Q could be kind of the bottom there. And specifically for Enphase with the introduction of all the new products and expansion of our SAM by $4 billion can be a catalyzer for us to get Europe back where it needs to be..

I'll follow up with a quick question about India, which no one has asked about yet. You recently announced a new product launch in the Indian market, which I typically think of as a very price-sensitive market.

Are you going to be cost competitive there?.

Yes. Let me tell you about India, there this battery will cater to the premium segment. There are many single-family homes, apartments, villas, where -- and in India, if you didn't know, you lose power five times a day. And the system today is a backup UPS, a lead acid battery, basically. And you all know how lead acid batteries are.

That's why we shifted to lithium-ion. So we introduced this battery in India. It's a 5-kilowatt hour battery. And it is our mainstream battery that we are shipping, and it is perfect for India because Indian families, Indian homes, even high-end may not use more than 10-kilowatt hours a day. So basically, this battery comes with a backup switch.

And that backup switch makes -- you won't even know you're running on backup. And so it's a beautiful solution for many of the luxury builders, where they can build it into the -- some of the homes which can cost anywhere from $200,000 to a couple of million dollars.

They can build it into the home and raise the value of the home and provide complete energy independence. So we are working with these builders. And of course, granted the volumes we have to see, and it will ramp. But India is a beautiful market because there is a big problem, which is power shutdowns, and we have a solution for the high-end markets..

India also has a lot of [radiance] (ph) So it’s a very, very good solar market. Now there’s a new program for small systems in a very big incentive programs for small systems, 2, 3 and 4 kilowatts. And so those are all perfect market, a perfect market for India. We are very bullish about that market..

The next question comes from Dylan Nassano with Wolfe Research. Please go ahead..

Hi, good afternoon. I just wanted to comment the market share question from a slightly different angle and ask just specifically on the TPO market. I think you had kind of identified that as an opportunity to take incremental share specifically in 4Q. And I just want to check in on how that's kind of playing out. Thank you..

Yes. We work with all of the TPO providers. We have a great relationship with everybody. And our market share, the way we have built market share to be even more than 50% in the U.S. is by working with everybody. So we work with Tier 1 installers, Tier 2 installers, long tail installers.

And now all of those installers are being served by a handful of TPOs. And all of them are working with us on domestic content. And once again, it was not clear. We are already shipping domestic content microinverters with increased domestic content right now. And that is on our mainstream product called IQ8HC.

Soon, we will start shipping batteries with domestic content in November. So basically, if they have a reliable supply of domestic content, [as] (ph) they are looking for that right now because there are very few people with clear plans for domestic content. And we are working with each and every one of those TPOs..

Thank you. If I can squeeze in just one more. You covered kind of managing the battery channel earlier in the call. But just looking past 4Q, as you get ready to start shipping the fourth gen battery. I mean, how should we think about your kind of strategy to prep the channel ahead of that? Thanks..

Yes. There is two, three things you need to note. One is as we introduce batteries into a lot more regions. For example, as I told you, we are underpenetrated in a few regions in Europe, including Germany even. So the three-phase battery is going to come into Germany, that's going to increase our battery volumes.

It's going to introduce batteries into many more countries in Europe that's going to increase the volumes. And that, we are still talking about the third-generation battery. In the US, we are going to switch to the fourth-generation battery.

And that is going to result in a drastic reduction and bill of materials and installation costs like what I said. So why did I tell that to you because, therefore, the inventory transition is a little bit easier for us because we have the third generation still shipping for rest of the world, and we will ramp on to the fourth generation.

So we don't need to have any hard transition. And we expect that transition to be well managed and not leaving any problems in the channel..

Next question comes from Dimple Gosai with Bank of America. Please go ahead..

Thank you for the question Badri. So my understanding is that the increase in ASPs and IRA benefits helped to counter the domestic manufacturing costs and product mix impacts on gross margins.

Was this a lever you pulled? Or how do you think about the sustainability of these higher ASPs going forward?.

Yes. I mean it's quite simple, right? The cost manufacturing in the US. means our cost increases many times by 10% to 15%. So therefore, all we are doing is to make sure that we take care of that in terms of pricing. But if you look at the big picture, the few cents of what that we might be adding is creating value of $0.40 to $0.50 a watt for somebody.

And that $0.40 to $0.50 of watt can be invested back, can be taken as products and be given to the installers. There are various ways that each TPO will choose to cut it. But that's the math. We are generating that value. We are generating the domestic content.

We are taking a few dollars to do that because in the US manufacturing, is a little more expensive. We are covering for those costs. And there is still a lot of value being generated..

Understood..

The next question comes from Kashy Harrison with Piper Sandler. Please go ahead..

Good afternoon and thank you for taking my questions. So my first one, and hopefully, this is in a dumb one. But -- you highlighted that distribution growth in 3Q was much higher than sales from more channels because of the SunPower bankruptcy.

How do you know that the growth you're seeing in distribution isn't because the bankruptcy occurred and your distribution customers aren't actually just gaining share from SunPower?.

We don't. But what we know is this, that the time period is too short for installers to adjust their plans, and it typically takes some time for installers to bleed off their current inventory. So our projection is there will be some installers who will come through in Q4.

Majority of the installers will come through from Q1, onwards through the channel. The good news is we are working with almost all of them. And the good news is they all know us very well. We are meeting with them, and they are all making plan for ramping with us..

Thank you. And just a quick follow-up. A big part of the Enphase story, going back to your initial -- or the start of your tenure, was just taking out costs year-after-year and just passing on some of those to your customers. Lately, whether it's the duopoly, inflation, domestic content.

It just seems like there haven't really been a lot of cost cuts on the inverter side. And I'm just wondering, with IQ9 being released later this year and potentially, driving your cost down meaningfully. How are you thinking about potentially returning to the old days of costs out and then passing on some of that to your customers? Thank you..

Yes. Basically, if you look at IQ9, our aim, our desire is to deliver increased watts at the same cost installers. So the way we would price that product is appropriate like that, which is utilizing advanced technology like GaN, gallium nitride. We are able to achieve high power with improved form factor and cost.

And how is that possible? Is -- for example, I'll just describe to you a simple change in the microinverter today, our bread and butter microinverter called IQ8HC. We have four silicon AC FETs, which are 600 volt transistors, 600 volt FETs. We also have a big transformer there, the round transformer that you've seen in our microinverters.

Now going to GaN. 4 FETs will be replaced by 2 bidirectional FETs. That's called BDS, bidirectional GaN switches, 4 will become 2. And then -- if we run the GaN transistors at an increased frequency, by the way, we can -- we are getting ready to run them at a megahertz in IQ10.

If we run them at a high frequency, then what happens is all of sudden, the transformer cost and form factor can come down drastically in addition to many passive components that can come down drastically. So that's how we are thinking. We are thinking in terms of overall component cost reduction.

We'd like to give offer installers 10% higher value that is IQ8HC got a power of 384 watts. IQ9 product, which will release in second half of next year, will have 27 watts, approximately 10%, 12% higher.

And we'd like to make sure that is given to installers for a similar price, they buy today, thereby the cost per watt for them is much more efficient. And that's our plan on the microinverters. Now I already told you about our plans on batteries. Battery costs are continuously going down. Cell pack costs are continuously going down.

According to a market study, cell back cost will soon be well below $100 per kilowatt hour. And with designing the system properly, with neutral farming embedded in the batteries, we are able to drastically reduce the installation costs for batteries, which is you no longer need a complicated backup box. You only meet the collar.

Collar is not a new concept. It's been there some time. We need the collar, we need the battery. Then we need a combiner box that works with both solar, storage, EV. It's got load control. And so we are trying to integrate. We are trying to make like 7 or 8 boxes go down to 3 -- 4 or 3 at the end of the day. So that's on the storage systems side.

I talked about microinverters. I talked about storage. Then we are also constantly looking at balance of systems. Balance of system is how can we convert, for example, how can we eliminate our combined mark. What can we do? Maybe we can eliminate our combiner boxes one day by going to solid-state breakers in the main path.

We are looking at that, and that will potentially take several thousands of dollars out because no longer there would need something to be at start. So in almost all of these cases, technology is the end, and that's what we are focused on, GaN technology. it's breaker technology, battery technology, and we will continue to innovate..

And also software, right? Software, the quality of the software, AI-powered software can really also improve the homeowner's ROI just by being very intelligent about when to charge the battery, went to discharge the battery, when to buy from the grid, when to sell to the grade.

You're making real-time decisions in software to also improve the homeowners ROI. That's what we care about at the end. We also have power control system software built into our combiner boxes that can avoid main panel upgrades, again applying technology, hardware and software technology to improve the homeowners ROI. So we are looking at systems.

We started with solar only, but now we have moved to comprehensive energy systems now. And so we have to look at all elements of the system and the system itself, and how to continue to driving the cost down. And there are numerous examples that give you on what we're doing to drive these costs down..

The next question comes from Maheep Mandloi with Mizuho. Please go ahead..

Hi, Mandloi. Thanks for taking the questions. Maybe just one quick one on the IQ9 timing. I think you said second half of next year.

Is that for the commercial or the residential? and if just the commercial then, when do you expect the residential launch?.

We'll start with the commercial microinverters. Commercial microinverters will address 427 watts and 548 watts of AC power. They will take care of three-phase 208 volts and 480 volts. Note that 480 volts, we face is a brand-new market for us.

And what we have heard in the small commercial market, which we talk about, which consists of schools as small businesses like restaurants, churches, apartments, any small-scale building that you can think of, we've heard that 75% of them are 480 volts, and 25% are 208. Today, we are only addressing the 208.

And we need -- we are going to expand that fan in the second half of '25. Following that, we will introduce our residential microinverter. There are 2 flavors there. One is the 427-watt residential microinverter that we are talking about.

And the other is 548 watts for emerging markets, very high power panels, for example in India, for example panels will be 650 to 700 watts. Similar in Brazil. Similar in Mexico. In many emerging markets -- residential markets, we need a high-power solution, while in the US and Europe, we need for 427-watt solution. And that will immediately follow.

So we expect to introduce all of it in the second half of 2025..

Got it. And just on the cash, you have almost $1.8 billion now.

And any thoughts on how to deploy that or buybacks or anything any other use going forward here?.

Yes. We look at -- as I said before, we look at three things. One is making sure we have enough capital for expansion whether it's a factory, whether it's a contract manufacturing line, whether it's some of the new line of business, first priority. Second priority is obviously looking at M&As.

For example, we are quite interested in energy management software. We are also looking at basically interesting things on EV chargers as they become mainstream, which is bidirectional charging will make EV charger integral part of solar and batteries. So we are looking at that.

We are also looking at commercial batteries, there is scope and opportunities for us. So we are casting a wide net. And of course, with this macro there are many companies who look at. But of our standards are very high. We will not buy companies that we think don't fit with us. So we are very selective, but we are looking at many of them.

So that's the second one. And then the third is if there is enough cash left over, we do a systematic buyback. We've been doing a systematic buyback in the last few quarters, and we expect to do so in consultation with the Board, especially whenever we can be opportunistic and do when there is some pressure on the stock, we will do..

Got it. Thanks for taking the questions..

And the next question comes from Julien Dumoulin-Smith with Jefferies. Please go ahead..

Hi guys. [Technical Difficulty] I'll make it super quick here.

Just what's the percent mix of domestic content SKU, 3Q, 4Q and what you expect in the 1Q for US product?.

3Q has not ramped. So I should say, close to 0. And 4Q, our estimate is anywhere something around 10% is our estimate, 10% to 15% and doing a steady ramp from there on..

Okay. Linear offset baseline. Thank you very much. I appreciate it..

And the next question comes from Austin Moeller with Canaccord. Please go ahead..

Hi, good evening. Thanks for taking my questions.

Have you -- do you have any concerns about -- the 30% residential tax credit in the IRA being changed by a new Congress or a new Presidency next year? And how would that affect your expectations for US growth in the out years?.

So obviously, an ITC is very important for the US market. So I think if that gets disrupted at this stage, that would not be good for the overall market, I think -- but it would also be bad for the general -- we believe it will be bad for the general economy. If you look at the fact of the matter is demand is going up substantially.

The electrification is taking place in the homes. People are buying EVs, heat pumps. That demand has to be met. We know all the data center demand is going up substantially as well. And all of this demand is being met by a vast majority of the demand is being met immediately by renewals. And so any hit to a 30% ITC is going to be bad for everybody.

And what the IRA is created a lot of jobs here. All the manufacturing has come back here. So we expect the probability of ITC going away at being very, very low, maybe zero..

Great. Thank you for the time..

This concludes our question-and-answer session. I would like to turn the conference back over to Badri Kothandaraman for any closing remarks..

Yes. Thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..