Good day, ladies and gentlemen, and welcome to the Enphase Energy First Quarter 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

[Operator Instructions] And as a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference Ms. Christina Carrabino. You may begin, ma'am..

Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's First Quarter of 2019 Results. On today's call are Badri Kothandaraman, Enphase's President and Chief Executive Officer; Eric Branderiz, Chief Financial Officer; and Raghu Belur, Chief Products Officer.

After the market closed today, Enphase issued a press release announcing the results for its fourth quarter and year ended December 31, 2018.

During this conference call, Enphase management will make forward-looking statements, including but not limited to, statements related to Enphase Energy's technology, products and financial performance, operations including supplier lead times and current and future market and customer demands and trends.

These forward-looking statements involve significant risks and uncertainties, and Enphase Energy's 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 the Company's annual report on Form 10-K for the year ended December 31, 2018, which is on file with the SEC, and the quarterly report on Form 10-Q for the quarter ended March 31, 2018, which will be filed with the SEC in the second quarter of 2019.

Enphase Energy cautions you not to place any undue reliance on forward-looking statements, and undertakes no duty or obligation to update any forward-looking statements as a result of new information, future events, or changes in its 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.

The company has provided a reconciliation of these non-GAAP financial measures to GAAP financial measures in its earnings release posted today, which can also be found in the Investor Relations section of its website. Now, I'd like to introduce Badri Kothandaraman, President and Chief Executive Officer of Enphase Energy.

Badri?.

energy generation which is accompanied with the grid agnostic microinverter IQ 8; energy storage which is achieved by the Encharge battery with capacities of 3.3 kilowatt hour, 10 kilowatt hour and 13.2 kilowatt hour; communication and control which consists of the Automatic Transfer Switch and the combiner box with the Envoy gateway; and the fourth and final component is Enlighten, which is the IoT Cloud software.

As discussed last quarter, we plan to introduce Ensemble in a phased manner. We expect to release the Ensemble 1.0 solution in the fourth quarter of 2019, exclusively focused on the residential energy storage in North America. Residential energy storage is enabled by the Encharge battery which is designed to be a modular 3.3 kilowatt hour solution.

Encharge consists of LFP, which is lithium ion phosphate cells, the Enphase battery management system, communications, software and most importantly, our IQ 8 grid agnostic microinverter; all packaged together in a single enclosure.

The 3.3 kilowatt hour modularity is a differentiating feature that allows for use of installations, flexibility and scalability while helping to streamline our supply chain as well. The Ensemble 1.0 solution is designed to be compatible with IQ 6 and IQ 7 PV systems, both for existing and new installs.

And as our key part of the Ensemble 1.0 solution is the Automatic Transfer Switch called Enpower, which allows a home to be isolated from the grid in the event of a grid failure, enabling the grid agnostic function. We expect to release new generations of Enpower over time with enhanced software and hardware capabilities.

Ensemble 2.0 is expected to follow 1.0 shortly after and will enable new IQ 8 PV installations. The next generation of Enpower which will be part of Ensemble 2.0 will have the software and hardware capability of managing consumption in a fine-grained manner.

Our goal is to continue providing additional value to our partners and customers in every new Ensemble release. We will continue to update you on a quarterly basis. We are very close to delivering our final requirements on the pure off-grid IQ 8 microinverter solution to our partner and expect to ramp production in the second quarter.

There has been a one quarter of delay here, mainly involving software changes to get the customer experience right. We now expect to receive the final milestone payment of approximately $675,000 from our partner in the second quarter. In summary, our top priority is to increase profitability quarter-on-quarter creating further shareholder value.

In the near-term, our focus is to expand and optimize the supply chain to meet the additional demand, while providing a superior customer experience.

In the longer-term, we are focused on product innovation to increase our revenue potential from approximately $2,000 per home to over $10,000 per home by leveraging Ensemble-based home energy management systems. With that, I will turn the call over to Eric for his review of our financial and the ducts. Eric..

Thanks, Badri. I will provide more details related to our first quarter of 2019 financial results as well as our business outlook for the second quarter. As a reminder, the financial measures that I'm going to provide are on non-GAAP basis unless otherwise noted.

We have provided reconciliations of these non-GAAP to GAAP financial measures in our earnings released posted today, which can also be found in the Investor Relations section of our website. Total revenue for the first quarter of 2019 was $100.2 million, an increase of 9% sequentially and an increase of 43% year-over-year.

We shipped approximately 306 megawatts DC in the first quarter of 2019, an increase of megawatts of 19% sequentially and an increase of 71% from the year ago quarter. The megawatts shipped represented approximately 976,000 microinverters, approximately 94% of which was IQ 7. Both IQ 6 and IQ 7 represented 99% of Q1 microinverters shipments.

I am pleased to report that since the inception, we have now shipped more than 20 million microinverters globally. Non-GAAP gross margin for the first quarter of 2019 was 33.5% compared to 30.7% for the fourth quarter.

Even though we shared some of the expedite fees with our partners, component shortages continued to negatively impact our Q1 non-GAAP gross margin by approximately 280-basis points. Non-GAAP of operating expenses were $22.3 million for the first quarter of 2019 compared to $19.7 million in Q4 and $17.7 million in the first quarter of 2018.

As I mentioned last quarter, 2018 was our first year of SOX auditor attestation and as a result, we incurred higher than expected expenses in internal audit plus additional consulting and advisory fees. These higher than normal expenses continued into Q1 2019.

GAAP operating expenses were $26.2 million for the first quarter of 2019, compared to $23.2 million in Q4 and $20.8 million in the first quarter of 2018. The GAAP operating expenses for the first quarter included $3 million of stock-based compensation, $546,000 of amortization for acquired intangible assets and $368,000 of restructuring expense.

On a non-GAAP basis, income from operations was $11.3 million in the first quarter of 2019 compared to $8.6 million in Q4 and $861,000 in the year ago quarter. This improvement in operating income is reflective of our continued improve operational excellence and continued product leadership.

On a GAAP basis, income from operations was $7.1 million in the first quarter of 2019. On a non-GAAP basis, the net income for the first quarter of 2019 was $9.5 million compared to $5.1 million in Q4 and a loss of $1.3 million in the year ago quarter.

This resulted in basic earnings per share of $0.09 and diluted earnings per share of $0.08 in the first quarter of 2019, compared to basic earnings per share of 0.05 and diluted earnings per share or $0.04 in the fourth quarter of 2018.

GAAP net income for the first quarter of 2019 was $2.8 million compared to $709,000 in Q4 and a loss of $5.2 million in the first quarter of 2018.

This resulted in basic earnings per share of $0.03 and the diluted earnings per share of $0.02 in the first quarter of 2019 compared to basic and diluted earnings per share of $0.01 in the fourth quarter of 2018. We are happy to report that this was the second quarter in the company's history that we achieved GAAP net profitability.

Now turning to the balance sheet, inventory was $13 million in the first quarter of 2019 compared to $16.3 million in Q4 and $18.5 million in the year ago quarter.

We ended at 18 days of inventory on hand as of March 31, 2019, significantly below our target of 30 days and down from 23 days in the fourth quarter and also down 32 days in the year ago quarter.

Although most of the inventory reduction was due to high demand constrained by component shortages, inventory management continues to remain one of our key cash management initiatives. We exited the first quarter of 2019 with a total cash balance of $78.1 million compared with $106.2 million in Q4.

As previously discussed, we paid in full hour high-interest bearing senior secured term loan with Tennenbaum Capital Partners. The repayment included a principal amount of approximately $39.5 million plus accrued interest and fees.

We generated $17.1 million in cash flow from operations and $16.4 million in adjusted free cash flow for the first quarter of 2019. Now, let's discuss our outlook for the second quarter of 2018. We expect our revenue for the second quarter of 2019 it will be within a range of $115 to $125 million.

Turning to margins, we expect GAAP and non-GAAP gross margin to be within a range of 32% to 35%. Note that our Q2 gross margin guidance includes a negative impact of approximately 250 to 350-basis points due to expedite fees, resulting from components shortages.

We expect our GAAP operating expenses to be within a range of $25 million to $27 million, including a total of approximately $4 million estimated for stock-based compensation expenses, additional restructuring and acquisition related expenses and amortization. We expect non-GAAP operating expenses to be within a range of $21 to $23 million.

With that, I will now open the line for questions..

[Operator Instructions] Our first question comes from Philip Shen with ROTH Capital Partners. All right, we'll move onto the next question. Our next question comes from Colin Rusch of Oppenheimer..

Thanks so much guys.

Can you talk a little bit about the operating leverage that you're seeing here? Are you expecting to hold your operating expenses flat here and see some additional leverage as you grow sales and revisit that 30-20-10 model or what can we expect going forward?.

So, the framework that we are using, which is the 30-20-10 framework that we lounge a year and a half ago, almost two years ago, remains in place of our baseline for operating in our business. Right? So, the operating leverage will be manifested overtime.

You can see that in the Q2 guidance, on the midpoint, we basically are already achieving some of that by looking at the midpoint it's about 80% of the OpEx of our revenue drive.

I'll say that we continue making investment on critical areas such as sales and marketing and the investments associated with R&D for future development of products and which is part of what we do, which you see in leverage..

Okay. And then just on the battery a product, can you talk a little bit about your expectations around pricing? How much that's moving around, how much visibility you have into that at this point? And then as well as the movement on LFP supply, we're certainly seeing some interesting movements in terms of cost structure there.

And what are you expecting in terms of costs for acquiring those sales as you go forward and move into a little bit higher volume?.

Colin, it's a little bit early, but I'll share some of our current Nordic stats.

In general, if I take a look at the market pricing, the market pricing, not our pricing, market pricing for a battery system is usually ranging from $600 per kilowatt hour for the big guys, the tier 1 guys to anywhere more than $1,000 per kilowatt hours for the long day guys.

We will obviously price it appropriately taking the market dynamics into account.

With regarding the cost structure of the sales, you asked, again, we have not going to break out the cost of a battery cells, but we have partnered already with one supplier who we are buying the ACB meaning the 1.5 to 1.2 kilowatt hour battery from and has given us extremely competitive pricing along with very high quality.

We are in the process of signing an MSA with another very high-quality supplier with a great supply chain. So, those two will put us in a good position as far as both capacity and costs are concerned and we expect to be very competitive..

Our next question comes from Eric Stine with Craig-Hallum..

Just related to SunPower and I know -- I don't if you're willing to break this out specifically, but I'm just curious maybe how that is trending versus your expectations.

I guess what I'm getting at, obviously a very strong top line quarter and wondering if that was a major component of the strength or if this is your underlying business and then as we get into the back half of the year, we're going to layer SunPower the impact of the volumes of SunPower on top of that..

The SunPower transition is going extremely well for us. They're very important customer. We will do whatever it takes to serve them well. Of course, when SunPower is ramping with the Enphase product, I mean, we had to basically work with them to ensure that the inventories position is right.

And therefore, the numbers are little bit lower in this quarter. But yes, we had an extraordinary strength from all of the customers as well. And therefore, so even if their demand or if we ship less material to SunPower because of the inventory reasons, we made it up with the other customers.

But going forward, we should start seeing that business ramping in Q2 of '19 and as we said before, so there's no change to what we we're thinking better..

Okay, got it. And obviously, you're making quite a bit of progress with other AC module customers. Just curious what that's driving from the rest of -- I mean because you've got a number of AC module partners, whether it's current partners or new partners in response to the trends you're seeing today..

So we started with AC module in the late 2017 and LG was the first AC module partner. We are thankful to them for that. And then since then we've learned a lot on AC modules. We have now started shipping in AC modules only or the microinverters for AC modules to SunPower.

We are shipping microinverters for AC modules to Panasonic, we are shipping to Solaria [ph]; I mean, AC modules, that is a cornerstone of our innovation where we basically absorb a certain activity in the field in the factory.

And because of that we are able to reduce the installation time, we are able to improve on logistics, we improve on quality, we improve on training. So it offers extraordinary value. The installers, whoever have converted AC modules find it obviously difficult to go back to this screen. So, AC module is very important, we are continuing to work on it.

It's becoming -- it's not that it's going to ramp heavily in one quarter but it is slow and steady growth. For example, in Europe we are working with a couple of very key modules vendors in order to introduce AC modules, we will announce when we are ready and we are also working with a few partners in APAC as well..

Maybe last one for me, and I don't know if I missed this.

Did you mention or did you give the number 1Q was constrained by on the components and what that number looks like and Q2?.

No, we have no breaking out the number we were constrained by. No..

Our next question comes from Amit Dayal with HC Wainwright..

Congratulations, guys on the strong quarter and the guidance. Just the year, your strength you're seeing, I mean, is this tied to any one partner or customer? I know you're doing well in the U.S.

and Latin America from a geography perspective, but what's driving some of this strength? Are you taking market share from other players? Could you just maybe give some color on the....

Actually, 18 months back in page was in a very different place. The balance sheet was not in a great shape. P&L was hurting I think in the last 18 months with the hard work of a lot of people, we basically have done the corner. Our balance sheet is very strong now. We're starting to make money.

So, our customers, a lot of the customers who were kind of nervous at that time to do business with us are now coming back. And most importantly our product innovation hasn't stopped even during the most difficult of times we introduced IQ 6 and IQ 7. And you know IQ 7 is a fantastic product.

IQ 7 is best in class in terms of the number of components that has, the kind of power, the weight and in addition, the cable is a lot simpler cable. So product innovation has really been the root cause on why we are here.

So, that combined with a great quality, great customer service coupled with a strong balance sheet, is the low cost probably of a lot of customers coming back. And having said that, where is this demand coming from? The demand is broad-based. It's coming from a lot of long-tail customers.

In addition, we are seeing a bunch of tier 2 that's well cropping up. Of course, the AC modules are ramping, you know about that and Ensemble relationship is also important for us. Those are some of the vectors, I thought, of revenue growth..

Understood. Are you potentially seeing this strength going to play it out in the following -- in the second half of the year as well? I'm just trying to look further down the line a little bit.

But I don't know if you can share that or you have that level of visibility, but sequentially it looks like you probably are in a position with Ensemble etcetera coming down in maybe the fourth quarter to continue sequentially..

Yes. It's too early, Amit to talk about the guidance or the second half, but we feel good. We have a lot of positive things happening. Ensemble is going to get released in the fourth quarter with the focus on the residential storage market. We are very excited about that. But we are going to take it one quarter at a time now..

Just maybe one last one the expedite fees now with the Infineon coming online, is this now going away for us or should we expect this to continue playing out a little bit more?.

In the long-term, you should always expect a little bit of expedite, which is 1% to 2%, but anything in the 3% to 4% etc., is egregious that needs to go away. And it's probably going to go away only early next year or maybe the latter part of this year, which we will see.

And again, Infineon is instrumental for us because we signed the contract with Infineon that a neighbor is a steady stream of supply in the second half with, in fact, some of it starting Q2. So, we expect some levels of expedite always..

Our next question comes from Philip Shen with ROTH Capital..

Let's try this again. Can you guys hear me okay? Oh, sincere apologies for the technical difficulties with my cell phone. But first question is on pricing, apologies if you've already talked about some of this, but we've heard that you may have raised prices by 5% on April 1. I just want to confirm that that's just for the U.S.

business, what percentage of the business does that apply to? And then looking forward, what's the outlook for pricing in general with the lack of entrance from a competitor and the strength that you have now. What do you -- how do you expect pricing to trend independent of tariffs as we go through the year? Thanks..

Yes, it is true. We did raise the pricing by 5% on April 1, correct in North America. With regarding the pricing trends, I mean we see pricing to be sealed right now. And like what I said, we are going to take it one quarter at a time, but right now we see pricing flat..

And I know you're not providing guidance for the back half, but I was wondering if you could provide some broad-brush strokes. So, specifically, you talked about being fully booked for Q2.

Can you provide some indication about how much Q3 might be booked perhaps, talk about what the cadence of Q3 and Q4 might be?.

Phil, unfortunately, I cannot break up numbers for Q3 and Q4, but I'll say the same thing as told Amit. I mean we had had a very good spot in terms of the business. A lot of the business strength is due to the long-day tier 2 AC modules and our relationship with the SunPower is typically.

Historically, you know that for the solar business in our Q3 and Q4 are usually good. But you know, having said that, you know the kind of business, the kind of government in our conditions we are at so anything can change. So, we are going to take it one quarter at a time, but we feel good..

As for Q3 supply, how much of your U.S.

demand do you think could be addressed by your Mexico facility? Are we looking at maybe 50%? I know you were started in the quarter of Q2 ramping up there but are we looking at a vast majority?.

It's a little bit early, but let me tell you my line of thinking. We take all of the product qualification seriously. The Mexico product will be treated like a new product. We will not release it until we are absolutely confident that it is as reliable and as high-quality as the China version.

So, basically, we are going to -- we are not going to get ahead of ourselves. We are confident of getting the qualification done in this quarter. We will do a soft, what we call it, the soft ramp. We will do it. We'll do a focus group, we'll start with a few customers then we will introduce year on a broad scale.

That's the color that I can provide right now..

And one last housekeeping set of questions. Eric, this might be more for you as it relates to one timers.

You seem like a very clean quarter, but I wanted to just confirm, besides the air shipments, were there any one timers in cogs? Were there any one timers in revenue or you going in G&A?.

Both exists, the only one had come to mind for the a little bit legacy of the SOX artificial work that we started last year and finished with the Q1 thinking, right? So other than that on the OpEx front it's pretty clean, rather it is pretty straightforward..

Okay, great. Thank you, both. Congrats on the great quarter and the guide, and just development and progress in general. And I'll pass it on..

Our next question comes from Maheep Mandloi with Credit Suisse..

Thanks for taking my question.

Just on the gross margin, can you talk about how much of the guidance includes the impact of component charges in the Q2?.

Yes. As we said in the script, the 32% to 35% gross margin guidance includes a 250 to 350-basis points spending per component charges..

Sorry for missing that earlier.

And just on Safe Harbor, and you said it will be -- we can probably expect more details in Q3, but based on your talk so far what our customers are looking for in the Safe Harbor? Is it generally, the microinverter or -- I've been looking for AC modules; and have they talked about using your warehousing capacity or anything else which we can learn on the next call, on the stream in this regard?.

I mean it's too early for us to be talking about the nature of the human race now. We know that our customers have a need and right now it looks like it's going to be more of the microinverters, but we don't have the right details to share with you and that will be available in the next three months and we'll share it with you eventually..

Our next question comes from Brad Meikle with Williams Trading..

Thanks for taking the question. So, it's the end of April, so essentially saying by Q4 you'll have 2-million-unit capacity. So, you shift about $970,000, I guess. And so, you'll have more than twice as much capacity five months from now based on the way you're laying it out.

So, can you fill that in with a little bit of color on where that incremental demand is coming from? Like, how you got to that number and how much of that may be -- even if it's not bookings, there may be some visibility on demand for even though you're not guiding on that period. Thank you..

So Brad, you're right. I mean we are planning for a 2-million-unit capacity in Q4 of '19. We are putting in place measures that's how you saw the Infineon press release, etc., that's going to help us in terms of component shortages. And having said that, I will go back to our profitable top line growth vectors.

I mean the root cause of our profitable top line growth vectors is a clean balance sheet. Now it's a great P&L and most importantly, our IQ 7 product. And that product with the highest quality in terms of great PPM long-term target is 500 DPPM. That is the one that is driving a lot of strength and the strength is obviously across the board.

And as you know, it's no secret, Enphase is primarily focused on long tail customers because we think long-day customers are -- we have a great value proposition for long tail customers.

Very often, they have crews of four to eight people in total and they do a limited number of jobs and all they want is to make sure their product is very high-quality and that customer service, when they come with a problem it is solved immediately. So, first call resolution is super important for the long day.

And our job is really where we excel is to make that easy. So, smooth for the long tail, it's so easy to use our product that they just -- when they buy an Enphase product they hopefully will not switch to anyone else. So, that is our fundamental value proposition of the long tail. So, we are seeing a lot of strength across long tail.

In addition, we are seeing some of the tier 2 customers, they are also growing in strength. As we talked about AC modules, we talked about Panasonic, which we did a press release. We talked about our great partners, SunPower, we talked about Solaria, we have a few more in the works.

So, that is yet another AC module that makes long tail a lot more easier because it's just again, so easy to use. It absorbs a lot of field activity into the factory and it comes to very high quality because it's already preassembled. So, these all are actually together driving a lot of strength for us.

It's too early for us to be talking about the second half. But like what I told you in the call historically, Q3 and Q4 are strong for the solar industry. And I hope it is true now too. And the Safe Harbor is another piece as well which we need to get visibility on. So, what we are doing this to prepare the company for the long-term.

Irrespective of whatever happens in the short-term, we want to make sure we have the right capacity for the long-term. And for now, we have decided it is that number, 2 million units, getting to a 2 million unit capacity number in Q4 '19 and we'll keep you informed as we know better..

Do you have a sense for what your market share would be? Let's say you were to ship all of that 2 million capacity, there's some variation in the market share numbers that you see out there.

But if you got to that point, at some point in time, do you have a sense of what the market share would be?.

Brad, I'm not going to speculate about market share because that involves that means I know the total available market and I don't really know what will the total available market before for the latter half. But what I can tell you at this time, I consider that, yes market share is important.

But for me, the way I think about market share it is an output of a lot of things.

And what is an input? Is can I solve customer's problems? Can solution be so easy for the customer to use and how can I innovate to solve customer problems better than the competition? And how can I differentiate better and therefore how can I maintain the value on my product? That is the most, most important thing and that's why you see a product like Ensemble; Ensemble addresses a problem that you still -- solar still works when the grid is off; so that is a problem that we took as we addressed that problem.

AC modules; we wanted to absorb the field activities into the factory so that installers will reduce the installation time, making it easier for the installation partner while the Ensemble makes it easier for the homeowner. We believe in order to generate a lot of value, we need to focus on both our homeowner as well as our installer partner.

And that's really how we drive the company to focus on innovation and differentiation and creating value..

The question is really thinking about if he got back to the dominant market share that Enphase had three or four years ago, is that more than 2 million units or 3 million units, kind of trying to frame the market. So, any help you can get on that offline, that would be much appreciated. And that's it. Thank you very much..

Our next question comes from Pavel Molchanov with Raymond James..

Thanks for taking the question. I want to go back to the gross margin guidance for Q2.

If the supply chain loosening is indeed getting better in Q2, as you've said, and you're also going to benefit from the final partnership payment, which I suppose carries 100% margin, why wouldn't the overall margin actually improve in Q2 versus Q1? Because you're guiding could basically flat at the midpoint..

So Pavel, the embedded range 32% to 35%; number one. The second one is we are talking about an increased revenue number and like what I said, some of the extra supply from supply agreements is going to trickle down into of '19, but most of it in the second half of '19.

Having said that, it is a delicate balance between exactly the dates the customer needs product because they're going to go lines down, and the date we can supply. So, therefore, Q2 will still have expedite fees to the tune of 250 to 350-basis points, there is already enough gross margin guide..

Let me also ask about warranty obligations. Given that revenue obviously is increasing your reference that was up kind of seasonally Q1. Work obligations actually edge down in the quarter.

Can you explain how that was?.

Look, I mean we are running the company with anonymous focus on quality and this started not only -- right from when we started the company, after the first year or two, we learned that the cornerstones of the company are customer service and product innovation. That's what we learned.

So, basically if you look at our microinverter, if you look at our competition, the way other people do is a traditional microinverter has got two stages.

We do it in one stage and we do it in one stage because we have an AC and that AC provides -- the AC has got a calculator on it that basically is predictive and it is able to reduce the number of stages from two stages to one stage. Because of that, there's reduced number of components.

Because there's reduced number of components, the quality is inherently better and that gets better and better and better with every microinverter generation. The second aspect is because we use lesser number of components and lesser number of stages, we generate lesser heat, which means that our efficiency is higher.

Because we generate lesser heat, we do not need metal casing. A plastic casing would do.

So, it is architecturally, we have designed the product that is correct by construction for quality and our quality principals, the way we beat on quality in the last two years it is a business process that is ingrained in us, which is we go into a room, we understand the failures that came in during that week, we are relentlessly until we dig deep and understand the reasons on why exactly the failure happened.

And many of the failures like, for example, 70% of all the failures are usually related to our suppliers. Then we are dogmatic about going back to them and saying, "You need to change your design or we are going to remove you from the bill of materials." So, that's the process that we are getting better at.

We are not perfect today, but our long-term target is 500 DPPM 500. DPPM is 0.05%. We are not there today, but our quality principles are something that we very strongly believe in and that's how we run the company..

Just one quick one; as the battery becomes a more needle-moving revenue driver, do you plan to eventually break that out away from the microinverter megawatts?.

I think it's a good question. I need to debate it with my CFO, but I think it looks like that may not be a bad idea..

Our next question comes from Amit Dayal with HC Wainwright..

Badri, just on the long tail/tier 2 customers, is this sort of a reliable channel for growth? Is this most sustainable or is this something that has emerged now that could grow with you guys?.

I mean, we you have two customers that are actually definite an emerging customers because they actually emerge from tier 3 or tier 4 to tier 2 and on the rate to tier 1. So yes, they're sustainable. Yes, they've had a long-term relationship with us. Yes, they helped us when we were down in the dumps. They actually helped us. So, the end of yes..

I'm not showing any further questions at this time. I'd like to turn the call back to Badri Kothandaraman for a quick closing..

So, thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again on our call next quarter..

Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day..