Good day, welcome to Enphase Energy's Q2 2023 Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Zach Freedman. Please go ahead. Good afternoon, thank you for joining us on today's conference call to discuss Enphase Energy's Q2 2023 results. On today's call are Badri Kothandaraman, our President and Chief Executive Officer, Mandy Yang, our Chief Financial Officer, and Raghu Belur, our Chief Products Officer. After the market closed today, Enphase issued a press release announcing the results for its second quarter ended 3 June 2023. During this conference call, Enphase management will make forward-looking statements, including, but not limited to, statements related to our expected future financial performance, the capabilities of our technology and products, and the benefits to homeowners and installers, our operations, including manufacturing, customer service, and supply and demand, anticipated growth in existing and new markets, the timing of new product introductions, and regulatory and tax matters. These forward-looking statements involve significant risks and uncertainties, and our actual results and the timing of events could differ materially from these expectations. For a more complete discussion of the risks and uncertainties, please see our most recent Form 10-K and 10-Qs filed with the SEC. We caution you not to place any undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events, or changes in expectations. 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 thank you for joining us today to discuss our Q2 of 2023 financial results. We reported quarterly revenue of $711.1 million, shipped approximately 5.2 million microinverters and 82.3 MWh of battery, and generated free cash flow of $225.2 million. Approximately 78% of our Q2 microinverter shipments were IQ8. We exited the Q2 at 46% gross margin, 14% operating expense, and 32% operating income, all as a percentage of revenue on a non-GAAP basis. Mandy will go into the financials later in the call. Let's now discuss how we are servicing customers. Our worldwide NPS was 74% in Q2, compared to 75% in Q1. Our North American NPS was 77%, the same as Q1. Our average call wait time was 1.1 minutes, compared to 1.2 minutes in Q1. We continued to focus on root cause fixes of customer issues and expanded our customer service and field service teams globally. Let's talk about microinverter manufacturing. Our overall supply environment remains quite stable, and there are no major shortages right now. Let's come to IRA. We expect the IRA to increase the overall solar demand in the U.S. and accelerate domestic production. We are pleased to be part of creating new jobs in the U.S. and advancing the country's clean energy economy. We shipped 50,000 microinverters to customers in Q2 from two of our contract manufacturers, Flex in South Carolina and Foxconn in Wisconsin. We are on track to begin with a third contract manufacturer in Q3. We expect to ship approximately 600,000 microinverters to customers in Q3 from our U.S. manufacturing facilities. Let's now cover the regions. Our U.S. and international revenue mix for Q2 was 59% and 41%, respectively. Q2 was a record quarter for our international revenue, primarily due to the growth in Europe and Australia. In the U.S., our revenue decreased 12% sequentially and decreased 1% year-on-year. The overall sell-through of our microinverters in the U.S. was up 2% in Q2 compared to Q1. In Europe, our revenue increased 25% sequentially and more than tripled year-on-year at healthy gross margin. Our sell-through of microinverters in Europe was 13% higher in Q2 compared to Q1. We are now shipping IQ, IQ8 microinverters into Germany, France, Netherlands, Spain, Portugal, and Poland. In addition, we are shipping IQ Batteries into Germany, Belgium, France, Netherlands, Spain, Portugal, Austria, and Switzerland. I'll now provide some brief commentary on Australia, Latin America, and Brazil. Our revenue in Australia more than doubled year-over-year. We started shipping our new IQ Battery 5P to Australia during the Q2. In Latin America, we introduced the new battery in Q2, while in Brazil, we introduced our Solargraf software platform, which will help installers with design and proposal for their residential customers. Let me provide some additional color on the U.S., followed by Europe. We recognize revenue when we ship product to distributors and large installers. It is therefore relevant to talk about the sell-through trends of our products from our distributors to installers. Since we have a healthy share in the U.S., our statistics are a meaningful representation of business trends. The overall U.S. market is experiencing a broad-based slowdown due to high interest rates. As I said earlier, our Q2 sell-through of microinverters in the U.S. was only up 2% compared to Q1, and only up 2% year-on-year. The Q2 is typically stronger than the Q1, but that did not happen this year due to the market environment. Let's now discuss the market trends we are seeing in the U.S. split by California and rest of the U.S. For non-California states, the Q2 sell-through of microinverters was 6% lesser as compared to Q1, and 11% lesser year-on-year. The sell-through was disproportionately worse in Texas, Florida, and Arizona. In these states, the economics of loan financing has worsened due to the combination of rising interest rates and lower utility rates. In California, the Q2 sell-through of microinverters was 20% higher compared to Q1, and 34% higher year-on-year. The higher sell-through was driven by high backlog of NEM 2.0 installation, which is expected to last through this summer. We expect NEM 3.0 will have a greater impact on results beyond Q3, and I will speak more on what we are seeing there later. I'd like to provide some more context about our revenue guidance for Q3. Our microinverter sell-through in the U.S. peaked in the Q4 of 2022. The sell-through in the H1 of 2023, in both Q1 and Q2, was approximately 20% below the Q4 due to the high interest rate environment in the U.S. Our sell-in to the channel was only 10% down in the H1 of 2023 relative to the Q4. We were expecting a seasonally up Q2 2023, that didn't materialize. This has increased the inventory in the channel. We are assuming the same level of uncertainty continues going forward. Therefore, we are taking aggressive and prudent actions in the U.S. to manage down the channel inventory, and this is reflected in our light Q3 guidance. Let me say a few words about market share. We see stable, high market share today for microinverters based on both internal and third-party data. Competition is not new for us, and we have always relied on our differentiated technology with distributed architecture, product quality, and customer service to win share, and we expect to continue doing so. We have many tools at our disposal for installers, and our partnerships go even deeper during the downturn. For storage, we have shipped approximately 1 GWh of battery systems cumulatively by the end of the Q2. We continued to manage our storage channel inventory in Q2 and expect further improvement in Q3. As we introduced our 3rd-gen IQ Battery 5P to the U.S. market in Q2, we reduced pricing for our 2nd-gen battery. We also expanded the warranty for both batteries to 15 years. We see the new price point and warranty for both batteries, as well as strong early customer adoption of the new battery, driving increased sell-in and sell-through during Q3. We believe there will be a bigger inflection for Q4 and beyond as California battery attach rates increase with NEM 3.0. Before moving to Europe, I'd like to speak a little bit about NEM 3.0. Early anecdotes on NEM 3.0 activity from our installers are encouraging. Since the crossover date in April, we have seen an increasing rate of NEM 3.0 California proposal activity with healthy storage attach rates. We offer a comprehensive NEM 3.0 solution, which includes a smart battery, power control system to avoid main panel upgrades, and energy management system that maximizes ROI for homeowners. The smart battery can do both backup as well as utility rate arbitrage. Grid-tied batteries require less labor, and fewer balance of system components, making them significantly easier and faster to install. Our Solargraf design and proposal tool can model the complex interactions between solar, batteries, consumption, and tariff, and provide a simple proposal. Our financial analysis show that for a cash system, homeowners can expect a bill offset between 70% and 90%, and payback between five and seven years. We think installers can effectively sell these economics to consumers. Let's now cover Europe. Our European business remains strong. Q3 is typically down due to summer vacation, but our year-on-year growth trend is very robust. We plan to introduce IQ8 microinverters and batteries into more countries in Europe, such as Sweden, Denmark, Greece, U.K., and Italy, later this year. We saw strong, broad-based growth across Europe in Q2. Netherlands and France continued to be very strong for us. We are starting to gain real traction in Germany, in both residential, solar, and batteries. The residential solar market in Germany, the biggest in Europe, is roughly 3 GW, and the attach rates for batteries is approximately 80%. We saw strong quarterly sequential growth in installer count, sell-through, and activations of both solar and batteries in Germany during Q2. During Q2, we also launched our IQ Router family of devices, which is part of our home energy management system, in Germany and Austria, to enable the integration of select third-party EV chargers and heat pumps into Enphase solar and battery systems. There is a great push towards whole-home electrification in Europe, countries like Germany are leading the way in adopting renewable technologies to support heat pumps, EVs, and other home loads. Self-consumption is the norm, as consumers want energy independence. As we think about our competitive positioning in Europe, we see increasingly complex power markets and home energy management needs playing right into our strengths. Our complete home energy management system solution delivers use cases like self-consumption and green charging, along with newer software features, which we plan to release this year, are key differentiators in addition to our quality and service that will help strengthen our market position. Let's cover more new products. We launched our 3rd-gen IQ Battery 5P in Australia, U.S. and Puerto Rico in Q2, with plans to launch in Europe by the end of the year. As I previously discussed, the battery has a modularity of 5 kWh and delivers double the continuous power and triple the peak power for the same kWh compared to our prior generation of batteries. The higher charging and discharging rate of our 3rd-gen battery will be uniquely beneficial for NEM 3.0 systems in California through its ability to generate revenue by exporting into the grid at appropriate times. Our 3rd-gen battery is easy to install and commission, with the targeted sub-30 minutes commissioning times. We are excited about the positive feedback we have received from our Australian and U.S. customers. We have now certified over 3,500 installers worldwide to install our IQ Batteries. Let's now talk about our latest new product for the residential segment in emerging markets. This product, the IQ8P microinverter, will deliver 480 W of AC power, supporting panels up to 650 W DC for Brazil, Mexico, India, Spain, and other emerging markets. We are on track to release this IQ8P microinverter variant into production later this year. The other variant of the IQ8P microinverter, with a new three-phase cabling system, is well suited for small commercial solar installation, ranging from 20 kW- 200 kW. These microinverter systems offer the same grid compatibility, high quality, rapid shutdown capability as our standard residential products. We expect to release this product into the U.S. small commercial solar market later this year. In general, we see the global commercial opportunity as greater than 11 GW. We are extremely bullish about this small commercial solar market, where we believe we can add tremendous value to business owners and installers in Europe and U.S. with our high-quality, rapid shutdown capability and microgrid forming capability of our microinverter systems. Let's discuss our U.S. EV chargers. We shipped over 6,600 EV chargers in Q2, compared to 8,600 in Q1. We expect to introduce IQ Smart EV chargers in Q3. These smart chargers will have Wi-Fi connectivity, enabling use cases like green charging and allowing homeowners full visibility into operation of their Enphase solar, plus battery, plus EV charger system through the app. Let's now discuss the installer platform. We released updates to our Solargraf design and proposal software platform in Q2, including NEM 3.0 functionality. The updated Solargraf platform offers a simplified experience for designing a NEM 3.0 systems by optimizing panel placements for both grid-tied as well as grid-agnostic systems, configuring battery sizing by leveraging modularity, and enhancing system operations for time of use management and energy export to deliver the best possible electricity bill offset and payback. Let me conclude. We are managing through a correction in the US solar market after three years of phenomenal growth, a period in which the residential solar market doubled and Enphase sales tripled. Even so, residential solar has only achieved 4%-5% penetration in the U.S. We believe there are several positive long-term drivers, which will accelerate adoption, such as the 30% ITC tax credit, the rising utility rates, increased grid instability, climate change, and increasing EV adoption. There is no doubt that these will drive meaningful solar plus battery growth over the long term. Our strategy is clear and unchanged. We manage for the long term. We will make best-in-class home energy systems with a laser focus on innovation, quality, and customer experience. We are doubling down on our relationships with customers. We are driving down installation times and investing in our service teams. We are investing even more on new product innovation. We are expanding our IQ8 microinverters and battery reach globally, accelerating our business in Europe, introducing IQ8P microinverters for the small commercial, solar, and emerging residential markets worldwide, and making continuous enhancements to our installer platform. Before I turn the call over to Mandy, I'm happy to announce that our board of directors has authorized a new share repurchase program. Given our confidence in Enphase's future growth, free cash flow generation, and the value we see in our stock, our board has authorized an additional $1 billion for share repurchases. With that, I will turn the call over to Mandy for her review of our finances. Mandy? Thanks, Badri. Good afternoon, everyone. I will provide more details related to our Q2 of 2023 financial results, as well as our business outlook for the Q3 of 2023. 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 Q2 was $711.1 million. We shipped approximately 2,121.3 MW DC of microinverters, and 82.3 MWh of IQ Batteries in the quarter. Non-GAAP gross margin for Q2 was 46.2%, compared to 45.7% in Q1. The increase was driven by increased IQ8 product mix and improved logistics. GAAP gross margin was 45.5% for Q2. GAAP and non-GAAP gross margin for Q2 included $1.6 million of a net IRA benefit for our microinverters made in the U.S. and shipped to customers in the quarter. non-GAAP operating expenses were $98.2 million for Q2, compared to $98.4 million for Q1. GAAP operating expenses were $153 million for Q2, compared to $158.7 million for Q1. GAAP operating expenses for Q2 included $51 million of stock-based compensation expenses and $3.9 million of acquisition-related expenses, and amortization for acquiring tangible assets, and $208,000 of restructuring and asset impairment charges. On a non-GAAP basis, income from operations for Q2 was $230.5 million, compared to $233.6 million for Q1. On a GAAP basis, income from operations was $170.3 million for Q2, compared to $167.7 million for Q1. On a non-GAAP basis, net income for Q2 was $205.6 million, compared to $192.3 million for Q1. This resulted in non-GAAP diluted earnings per share of $1.47 for Q2, compared to $1.37 for Q1. GAAP net income for Q2 was $157.2 million, compared to GAAP net income of $146.9 million for Q1. This resulted in GAAP diluted earnings per share of $1.09 for Q2, compared to $1.02 for Q1. We exited Q2 with a total cash, cash equivalent, and marketable securities balance of $1.8 billion, compared to $1.78 billion at the end of Q1. We repurchased approximately 1.25 million shares of Enphase common stock in Q2, at an average price of $159.43, for a total of approximately $200 million. This completed our $500 million share repurchase authorization from our board of directors. As Badri mentioned, our board of directors has authorized a new $1 billion share repurchase program. In addition, we spent approximately $12.7 million by withholding shares to cover withholding taxes for employee stock vesting in Q2. That reduced the dilutive shares by approximately 72,000 shares. We expect to continue this anti-dilution plan throughout the year. In Q2, we generated $269.2 million in cash flow from operations and $225.2 million in free cash flow. Capital expenditure was $44 million for Q2, compared to $22.5 million for Q1. The increase was primarily due to investment in U.S. manufacturing and R&D equipment. Let's discuss our outlook for the Q3 of 2023. We expect our revenue for the Q3 of 2023 to be within a range of $550 million-$600 million, which includes shipment of 80 MWh-100 MWh of IQ Batteries. We expect GAAP gross margin to be within a range of 41%-44% and non-GAAP gross margin to be within a range of 42%-45%, which excludes stock-based compensation expenses and acquisition-related amortization. Our gross margin guidance numbers do not include any IRA benefits. We expect net IRA benefit to be between $14.5 million and $16.5 million on estimated shipments of 600,000 units of U.S.-manufactured microinverters. We expect our GAAP operating expenses to be within a range of $159 million-$163 million, including approximately $58 million estimated for stock-based compensation expenses and acquisition-related expenses and amortization. We expect our non-GAAP operating expenses to be within a range of $101 million-$105 million, as we will continue to invest in product innovation, customer service, and international growth. Moving to tax. Since we have utilized most of our net operating loss and research tax credit carryforward, we are now a significant U.S. cash taxpayer. We expect GAAP and non-GAAP annualized effective tax rate for 2023 to be at 21%, ±1% with IRA benefits. I'd like to discuss how the advanced manufacturing production credit from the IRA is reported in our earnings. We had originally thought that the production credit would be reflected in income tax expenses, based on the latest guidelines from the U.S. Treasury, we expect to claim the production credit by direct pay, and therefore, account for the production credit as a reduction in cost of goods sold. We expect the production credit, net of any incremental cost for domestic manufacturing, to be in the range of $24-$28 per microinverter sold to customers in Q3. We expect to ship 600,000 microinverters to customers this quarter. We plan to have our U.S. contract manufacturing facilities fully operational by the end of 2023. We estimate shipments to reach our U.S. capacity of 4.5 million microinverters per quarter by the end of 2024, assuming robust demand. With that, I will open the line for questions. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. In the interest of time, please limit yourself to one question and one follow-up. If you have additional questions, please rejoin the queue. At this time, we will pause momentarily to assemble our roster. The first question today comes from Brian Lee with Goldman Sachs. Please go ahead. Brian Lee, your line is open. You may ask your question. The next question comes from Phil Shen with Roth MKM. Please go ahead. Phil, perhaps your line is muted. Hi, everyone. Thanks for taking my questions. Hi, Phil- Hey, sorry, I'm bouncing between calls. Wanted to check in on what you're doing with pricing on micros in the US. Our checks this week suggest your recent spot discounts may be aggressive, quote, unquote, with big customers in exchange for semi-exclusivity. Our contacts suggest it may be in response to some of the volume that may be going to Tesla. Can you quantify what the magnitude of the discounts might be, if anything, or what it might mean, if anything, on a blended ASP basis ahead? You know, I know historically, you always have some kind of spot discount, but incrementally, is it greater now to try to maintain that business? Thanks. ... Right. We are not planning any microinverter pricing, you know, reductions in general, overall. You know, as regarding pricing pressure, it is normal for us. Since inception, we are always used to pricing pressure. We are always used to competing with string inverters from day one. This company was founded based on distributed architecture wins. You know, distributed architecture basically means no single point of failure. Distributed architecture means that, you know, it's a semiconductor-based architecture, which basically has got less number of components and very high quality, which means 0.05% failure rates. It also means 25 years of warranty versus other string inverters that may be half that many number of years. In addition, we service customers very well, 24 by 7 customer service, 74% NPS. Also, we strongly believe in AC-coupled architecture, which means that the combination of, you know, it's an Enphase system for solar, it's an Enphase system for storage, it is a full home energy management system with an Enphase EV charger as well. That is starting to become more and more important as NEM 3.0-type tariffs come, and those tariffs are already there in Europe, for example. SPAs, standing for Special Pricing Adjustments, are a fact of life. We do that always. We are very disciplined. We have a pricing team, and it always depends upon the volumes. Of course, we do, we form deeper partnership with customers in times like this. We have a lot of tools at our disposal. We have done our recent M&As on digital transformation that we did. Solargraf software platform is invaluable for us at this time because we are able to give customers the option of designing, for example, showing an NEM 3.0 design and making sure they can sell that effectively to homeowners. Solargraf, even leads, lead generation company we got, that is coming, of use, you know, in times like this. Basically, to answer your question, you know, pricing is normal. We aren't planning on any pricing reduction on microinverters. On batteries, it's a different story. On batteries, I was very clear, a month back in the public call, saying that, yes, we introduced our 3rd-gen battery, and we cut the price of our 2nd-gen battery, and both of them coexist. We believe that the 2nd-gen battery will be very good for grid-tied NEM 3.0, as well as grid-tied batteries in Europe. The 3rd-gen battery that comes with a 30-minute commissioning time, which we are very happy about, that is priced, you know, appropriately for backup. These pricing decisions aren't done on the fly. They are done with extensive planning, and we do have offer pricing protection to our channel partners, and so we, we believe in doing things in a structured way. This is no exception. Great. Thanks, Badri. You just talked about price protection, and that was for storage, and we had read about that as well for the channel inventory. From an accounting standpoint, which quarter does that price protection hit? Did we already see it in Q2 results, or should we expect in Q3? What was the magnitude? Then hypothetically, hypothetically, if you pursue a price cut for micros, would you provide price protection for the existing micro channel inventory as well, since the channel is a little bit full? Thanks. Yeah. Phil, the price protection for storage has been accounted for in our earnings. There will be no other impact in Q3 or going forward. Price protection we offer to distributors as a policy. In a case, if we lower our ADLP for micros, we will provide price protection, but at this point, we are not planning to do things like that. Great. Thanks, Mandy. Okay, I'll pass it on. Thank you. The next question comes from Colin Rusch with Oppenheimer. Please go ahead. Thanks so much, guys. Can you talk a little bit about your opportunities for driving costs out of the supply chain? It sounds like there's plenty of supply available and your ability to continue to walk that cadence down here over the next several quarters. Yeah. I mean, we work on world-clas cost initiatives for microinverters and batteries. On microinverters, there is a lot of tactical negotiations that we do. Let me put that on the side. That's not insignificant. That's a nice number, especially in times like this. Our procurement organization is extremely active. The other one, which is, you know, will take over three to six months, is opportunities where we design in multi-source. For example, when we have three sources of transformers, having a fourth and fifth source, especially in times like this. When you have, for example, three versions of integrated circuits for our AC gate drivers, having a fourth one. Those are also extremely active with our microinverter group, running extensive qualification, because we are very careful on that 500 DPPM quality. The last thing we need is a quality excursion. That's the first and foremost priority for us, making sure that quality is preserved through all of that. The third one is a little bit more long-term, which is over nine to 12 months. We look at, you know, potting material, we look at ASIC. Is there an opportunity for us to redesign the ASIC in another platform to save cost? Is there an opportunity for us to integrate an op-amp or a comparator into the ASIC so that we can save $0.20? For example, you know, a $1 savings in our microinverter, assuming we ship 20 million units worldwide a year, that's $20 million. You're looking at, at $0.01 is $200,000. It's a big amount. We have a massive program called World Class Cost. That's why you see, even in Q2, our gross margin continues to increase. On batteries, it is like, you know, many people keep asking the same question: Can you make money on batteries? My answer is always the same. We never enter a business until, you know, unless we are convinced that the business will make at least my baseline gross margin. On batteries, we are getting better. 1st generation was higher cost, 2nd generation is a little bit lower. Now we are in 3rd generation where we have figured out a lot of ways to take cost out. On top of it, in terms of warranty, we are getting a lot better on batteries. We are introducing serviceability on batteries, where instead of you having to replace the entire battery, which is so cumbersome for the installer and homeowner, you replace a board inside. We have figured out that the cell pack, the battery pack, never fails. It is the power electronics, which consists of power conversion, battery management, and even mechanical components, those are the ones that fail, and we are making them bulletproof. Coming back to that, we don't need to replace a $3,000 battery. We can replace a $40 board. We don't need to take the battery off the wall. We can replace it in situ. The customer downtime is very. Our standard is we want the customer downtime to be no more than 24 hours, and we are driving our teams to achieve that. When we achieve that, you'll find your warranty and your replacement costs are minimized a lot. That's on the, the 3rd generation. What's happening on the 4th generation? 4th generation of batteries is scheduled to come approximately within a year, maybe within nine months, if I'm a little bit more aggressive, and that has got a fundamentally transformative cost structure. What we are doing there is we are combining power conversion and battery management into one board. You know, seven boards in the 3rd generation, will now become two boards in the 4th generation. This is accompanied by significant component count reduction, significant cost reduction, and that will get us even better on the gross margin curve. I gave you a bunch of puts and takes on microinverters, batteries, and then we are also serious on our accessories. We ship combiner boxes, we have cellular modems, we have the gateways. For example, in Europe, in Q3, we are going to be introducing a combiner box. You know, that is going to be very cost-effective for installers, and it is going to help them both on dollars as well as time savings. A lot of actions in the company, and we started this six years ago. We have not stopped since then. Excellent. Thanks so much, guys. You know, just a simple follow-up here. You know, you've historically talked about wanting to have eight to 10 weeks of channel inventory. Will the guidance that you're indicating here for Q3 get you to those levels in the U.S., from what you're seeing at this point? Right. Let me provide some more context in general, because it may not have been clear to everybody, and they may not have been present, too. Our sell-through of microinverters in the U.S. peaked in the Q4 of 2022. The sell-through in Q1 2023 was about 20% below that. The sell-through in Q2 2023 was at the same level, which is 20% below Q4. Now, what we did was our sell-in, we only reduced it 10% in Q1, thinking that Q2 will be a seasonally good quarter. That's what we thought, but that was not the case. Q2 sell-through was same as Q1 with respect to Q4. We find ourselves with excess inventory in the channel, and the responsible thing to do for, from my, my point, is to correct that, to do a one-time correction of that, to reduce inventory in the channel. The only way we reduce inventory in the channel is by not shipping as much and taking a correction there. We are doing that. We are aggressively reducing the inventory in the channel, and we expect the, the channel inventory, the weeks on hand, to come back more to normalized levels at the end of Q3. Okay, thanks so much, guys. The next question comes from Mark Strouse with JP Morgan. Please go ahead. Great. Thank you very much for taking our questions. Just thinking about with, with valuations coming down across the space, you know, how, how you're weighing potential M&A versus prioritizing this new billion dollar buyback? Right. I mean, first of all, the way we think about capital allocation is, first, do we have enough capital to work on the things we need to internally? How about domestic manufacturing? How about building a new R&D lab? How about investing in, domestic, you know, battery supply chain? We take care of the needs of the business first. That's number one. Number two, we look at opportunities in M&A. We look at to see whether we can increase the value of the company significantly, maybe in the small commercial space, maybe in the software space, in the home energy management space. Those are the areas we normally look for, as well as in the battery space, which is always exciting. But, you know, we are not going to be making hasty decisions. We usually like bolt-on acquisitions, which are easy to integrate, because we are aware that integration, most integrations fail of big companies. We are always very cautious, and, you know, we have clarity. For example, we will not buy a company to do anything specifically on inverters, because we think we have enough homegrown talent that we can organically grow. That's the second piece. We look for active M&A opportunities, and we have cash, and we will look for those. The third one is, after we have taken care of the needs of the business, after we have looked at M&As, is, can we buy back stock at a conservatively estimated, you know, at a value below the intrinsic value of the stock, which is conservatively estimated? We look at that, and Mandy talked about some of the actions we did. We bought $200 million of stock last quarter, 1.25 million shares at approximately $159. You know, but we are disciplined about it. The board has authorized another $1 billion for share buyback, considering we generate close to $200 million of free cash flow every quarter. But you can expect us to be disciplined, do things when it makes sense, and not be overly aggressive. Okay. All right. Thanks, Badri. Just a follow-up. I think you touched on this a bit on California, but maybe just repeat what you said about the, you know, what Q3 guidance assumes as far as NEM 2.0 systems, and when you expect that backlog to be removed and start selling 3.0? We think, we think NEM 2.0 will continue through Q3. That's what we are hearing from our installers. It'll continue through the summer, till September. We believe Q4, NEM 3.0 will start. You know, the anecdotes we are hearing from some of our installers, some of our big installers, who say that their battery attach rates are pretty nice, higher than 50%. I mean, most installers, you know, they need to get educated on NEM 3.0, but the fact of the matter is, even for pure solar, NEM 3.0 payback is between seven and eight years, even for pure solar. When you add a battery, and let us say, when you add a 10 kWh battery, which seems to be kind of standardizing, standardizing in that direction, you then achieve even better payback. Payback comes down from the seven to eight years to five to six years with a high enough battery system. Once the installers realize that economics, then they are a lot more confident of selling them NEM 3.0. Our Solargraf tool tells them these things exactly. Also, another phenomenon is, California is, my view on it, is California is going to move to a majority of grid-tied systems. That's how Germany evolved, and in Germany right now, it is, is very, very similar. It is most of the solar plus storage are grid-tied today. California may evolve in that direction, that's my view. A grid-tied system suddenly is easier to install. You don't need to worry about main panel upgrades. You don't need to worry about partial home backup and full home backup and all of that. Yet the battery provides a lot of savings. In fact, the battery is a money maker for a couple of months in summer, where the grid needs help, and the battery can export energy back to the grid. Having said that, NEM 3.0 is new, therefore, installers will take, will have their ramp, but I think eventually it will be very easy to sell, and I think we will start seeing solar and storage normalize, you know, in 2024. Okay, thank you very much. The next question comes from Andrew Percoco with Morgan Stanley. Please go ahead. Great, thanks so much for the question. I just had a follow-up question to Phil's question earlier on, pricing appears to be relatively stable. In that context, appears like the Q3 guide is really volume-driven. Can you maybe just discuss between regions what your expectation is on volume in, in the Q3 specifically? If you could just start to provide more context around how you expect that to rebound or, or change in the Q4, that'd also be helpful. Thank you. Yeah, I mean, the just for context, in Q2, we grew about 25% in Europe compared to Q1. In Q3, we expect Europe to be slightly down compared to Q2, due to summer, typical summer seasonality. Europe, for us, is under-penetrated in general. We are very strong in Netherlands and France. We are upcoming in Germany, but for us, the other, other countries are almost a blue ocean. Like, you know, Italy, U.K., Sweden, Denmark, Greece, Austria, Switzerland, Poland, we are entering all of those regions. We are extremely bullish on Europe. In the U.S., as I said, we said that the revenue decreased 12% sequentially in Q2 compared to Q1, but we are taking a heavier hit because of, you know, in Q3, because of the following phenomenon, which I elaborated just now. It is, our sell-throughs, which is indicative of real customer demand, is 20% down in overall U.S. compared to Q4, which was our, our peak. The 20% down is for both Q1 as well as Q2. We sold into the channel. We only dropped the shipments into the channel by 10%. The rationale of dropping 10% only, was we expected Q2 to be a strong seasonal recovery quarter. That didn't happen. Now we have to correct for these two quarters, on top of it, we are assuming the depressed sell-through going forward. That's why we are taking a one-time correction in the U.S. I think, you know, in general, the revenue for us will, will exactly mimic the, the percentage demand drop on a quarterly basis. Got it. That's, that's super helpful. Can I just ask one more on what you're seeing on Europe, channel inventory levels? I understand that Q3 is maybe historically and seasonally, a light quarter, but can you just maybe elaborate on what you're seeing across Europe on, on inventory levels? Right. Channel inventory is a little bit high on the 10-week side in Europe. It is. you know, that's why we are cautious now. for us, I mean, we're really not worried about it because we are introducing products in newer, newer countries. you know, we think we can maintain it in the eight to 10-week range there. Got it. Thanks so much. The next question comes from Julien Dumoulin-Smith, with Bank of America. Please go ahead. Excellent. Thank you. Good afternoon, [P] Appreciate it. Hey, can you talk a little bit more about the inventory levels and any write-down risk here? Can you talk a little bit about the, just the backdrop on that front, and then more importantly, just the normalizing functions as you think about these different inventory levels across geographies, especially thinking to, you know, continued European growth, what, what might be implied by inventory levels, et cetera, looking forward? ... Yeah, I, I just now answered the question for Europe. The inventory level in Europe is, is a little bit normal, although it's on the higher side at about approximately 10 weeks. That is why we, we said, you know, Q3 is a seasonally down quarter in Europe, and we expect to be slightly down in revenue as compared to Q2. Then I talked about we are introducing several new products. All our growth in Europe is coming from new products, and we are going to be introducing several new products, for example, in Italy, in U.K., in Sweden, in Denmark, in Greece, in Poland, where we are non-existent today. All of those are going to be incremental and, not, you know, not worried about revenue. I mean, not worried about inventory there. U.S., on the other hand, U.S., we were in great shape at the end of Q4 2022, which was our highest sell-through quarter. Sell-through means we are selling the yeah, meaning the installer buying from the distributor is called sell-through. Our sell-through rate was the highest, and our channel inventory was very healthy at the end of Q4. What happened is the sell-through rates declined overall in the U.S., 20% with respect to Q4 for Q1 and for Q2. Therefore, in response to that, we did throttle our shipments into the channel, but we didn't throttle it enough because we assumed Q2 will be a seasonally good quarter, which turned out to not be the case. Therefore, we are now left with two quarters of, you know, inventory that is added on and meaning two quarters of extra inventory. We are also assuming, going forward, we are not making any aggressive assumptions. We are saying the demand will be at the same level as it is today, and therefore, we are taking a one-time correction for shipments into the channel. that is why our guide is light for Q3. Right. Effectively equal to that excess inventory here. Great. Then just, related here, if, if you can comment on gross margins. I mean, obviously, you guys provide, you know, been providing consistently improving gross margin guidance over time, and implicit within that is the confidence to sustain that for at least some time, several quarters, as, as far as I read it. You still feel confident in supporting these higher gross margin levels here, despite this backdrop through this period of time, for several quarters? Yeah, I mean, we are careful on the gross margin guidance. We have non-GAAP guidance that we gave is 42%-45%. Like what I said, for example, I didn't even, I didn't even say this to the gentleman who asked me the question before. For example, in logistics, last quarter, we saved $8 million. Last quarter. Like, we have a lot of initiatives from our world-class cost on saving, on saving the, you know, the cost of a capacitor, a resistor, parting, semiconductors, you know, ASIC. Not only by second source qualification or multi-source qualification, but simply purely by negotiation. We do that, and we do that on microinverters, we do that on batteries, we do that on combiner boxes and accessories. Our world-class cost, you know, effort is invaluable and has saved us a lot of dollars. We are now moving to a higher and higher mix of IQ8, which is got a little bit more gross margin than IQ7. Now, on the batteries, we are also getting better in terms of gross margin. I gave a big commentary on batteries, on how we have improved the learning from one generation to the other in terms of warranty, for example. Instead of taking a $3,000 hit on a return, we don't do that. We basically, you know, service boards within that product, and the board replacements, which are $40, are done much faster than full unit replacement. Innovative ways in order to reduce our overhead costs on batteries are also helping. Like what I said, you know, our 4th-gen batteries are coming. The 4th-gen batteries provide a huge reduction in terms of power electronics, which is the battery management is now integrated into power conversion. So seven boards in a 3rd generation system will now be two boards, and in that process, we take significant cost out. In general, we are quite confident of our trajectories on gross margin on both microinverters and batteries. Right. Sounds it for several quarters to come. Thank you very much. Thank you. Our next question, the next question comes from Kashy Harrison with Piper Sandler. Please go ahead. Good afternoon, and thanks for taking the questions. You know, based on the feedback that you're receiving from your distribution network, are you getting the impression that sell-through in non-California will have bottomed by Q3? Or do you, do you still believe non-California is in the process of recalibrating? Then, you know, you said that the early NEM 3.0 data is encouraging from your larger installers. Can you maybe just speak to, with, with, with attachment it's down to 50%, can you just maybe speak to where we are on year-over-year trends, just based on the leading-edge data? Yeah, I think, to answer your question on sell-through for non-California, I mean, it has not changed much in Q1 and Q2. In fact, I said Q2 was a little bit worse compared to Q1, about 6% worse. I think it is expected to probably be at this level interest, until the interest rates take a meaningful turn for the better, that in non-California. On NEM 3.0, I mean, we only have anecdotal evidence right now. The channel is, is still, NEM 2.0, and NEM 2.0 installations are happening. Many, you know, some of our distribution partners said that a few installers may even do NEM 2.0 till October or November. We are hearing that, for most of Q3, and, you know, it will be NEM 2.0, and we will start getting data on NEM 3.0, sell-through data, only in Q4. We see a lot of design and proposal activity from, you know, one of the benefits of us, of us buying the Solargraf software platform, is we are able to see the early signs of NEM 3.0. There are a lot of designs on NEM 3.0. I can't quantify it yet because we don't have a meaningful market share in the Solargraf software space. You know, I like the trends I see. I like the battery attach rate, very nice. I see it over 70% in most cases. Like what I said, we have, we have clear facts that, you know, the payback is awesome for grid-tied batteries and solar. The payback is fine, even for pure solar. We think it is a matter of training a lot of, you know, a lot of installers. Actually, Raghu, who's sitting with me, he has visited himself, you know, 1,000, 1,000 installers came to his sessions throughout last quarter. Our only job there was to evangelize NEM 3.0. We showed them with Solargraf software platform on how to design for NEM 3.0, what is the payback, how to sell to the homeowners, and so that installers have very high confidence to sell to the end consumer. Still, you know, having said that, we don't have statistics yet. We will start getting statistics in the Q4. Thank you, thank you for that color. Then maybe just for my follow-up question. You know, clearly, demand is, is tracking beneath expectations as you're adding a significant amount of capacity to the U.S. Do you have the ability to, you know, ramp U.S. to peak capacity as by throttling back in Mexico, India, and Romania, or are there, you know, minimum activity levels that you would need to maintain, you know, per your agreements with your contract manufacturers? Thank you. Good question. We, we, you know, we have a total of three contract manufacturers right now. Two of them have been with us forever, and, you know, that is one of the reasons we even chose those two, because we have deep relationships with them. We want to be highly sensitive on how we load their factories outside the U.S. versus factories inside, inside the U.S. There is one new partner, Foxconn, that, that, is manufacturing our microinverters in Wisconsin. Now, our assumption is we are going to be ramping steadily from Q2 of 50,000 units to a Q4 number of 4.5-- Q4 2024 number, of 4.5 million units, pending robust demand. Of course, I mean, this is a long-term decision that we take, and we do expect, you know, we do expect us to have come with healthy demand by then. If not, we will work with our contract manufacturing partners, and we will make the right decision on how to appropriately load the factories. We will provide that guidance to you on a quarterly basis. Thank you. The next question comes from Jordan Levy with Truist. Please go ahead. Afternoon, all, and thanks for taking my question. Just a quick one for me. Just curious, if you could give us a little more detail on the EV charging side of things, what it takes to break into, and grow that business to a bigger segment, and then the eventual progression toward bidirectional charging and how you're viewing that. Right. EV chargers, we bought a company called ClipperCreek, and that was, towards the end of 2021. Basically, now what we have done is we have basically moved the manufacturing of those EV chargers so that we can start to scale a lot to Flex in Mexico. We have done that. That's phase I. Now, what we are doing, and we will release in Q3, is an IQ smart EV chargers. The original ClipperCreek chargers, which are very popular, by the way, simply because of their very high quality and very high durability and great service. We're taking that architecture, and we are adding connectivity to the ClipperCreek EV charger, and we are rebranding it as an IQ Smart EV charger. Once you have the connectivity and then the integration into Enphase Solar plus storage, you can do a lot of interesting things. Like, for example, you can configure in your app saying, "Never charge my EV from the grid. Only charge EV from solar, green charging only." We can do interesting things like that. That's what I call phase II. That will happen in Q3, in the current quarter we are in. The next phase will be to introduce these EV chargers into all countries in Europe, and that will happen in Q1 and Q2 of 2024. We are already working on that. The same thing there, our existing partner, channel partners, are all selling Enphase Solar plus storage. It would be a natural extension for them to be, you know, selling Enphase Solar plus storage, plus EV chargers with a full home energy management system capable of managing heat pumps as well. That's phase III. We have already demonstrated bidirectional EV charger. It is on our website, and it is very closely aligned with our Ensemble architecture. Essentially, we tap into the DC port of the car, and that interface there is called digital interface. There is a digital interface, there is a power interface. The digital interface is 15118, that basically you can exchange things like the SOC of the car, the state of charge of the car and other control signals. Then we will have power conversion, which is our inverters, the same inverters that we use. A higher wattage inverters, basically will take that DC and plug it into our home energy management system, which is an AC coupler system. Once we do that, we can easily do V2H as well as V2, V2X, which is V2H and V2G. We expect that product to come into the market by Q4 of next year. That is, we are still in the early days there, and we are working on our bidirectional inverter right now. Those are the four phases, and then Raghu can add. Yeah. In, in terms of the importance of the connected EV charger that we are going to release in this quarter, again, plays an important role, as Badri mentioned, in, you know, your home energy management system. Specifically, you know, when you think about it in the context of NEM 3.0 as well, right? You want to avoid charging your car at certain times of the day, which is, which is part of the time of use construct, as well as allowing your battery or preserve your battery to discharge power into the grid at certain times of the, or certain times of the day, particularly in the summer. getting a significant load, like an EV, under control of your home energy management system, becomes extremely vital so you can deliver, you know, great savings for the homeowner, both in terms of bill offset as well as payback period, as you think about NEM 3.0 here in the US, as well as as you think about home energy management broadly in Europe as well. Thanks so much for that. Thank you. The next question comes from Brian Lee with Goldman Sachs. Please go ahead. Hey, guys. Thanks for taking the questions. Apologies, about earlier. I had a question about the, I guess, the, the, the destock and how you're reading the channel. I appreciate, Badri, all the, you know, kind of detailed disclosure about the quarterly cadences you've experienced. If I do the math, you know, you kinda ship 10% more than sell through two quarters in a row based on your commentary in the US. Roughly, let's call it $100 million, if, if my math is correct. Your guidance is, you know, effectively down that much sequentially, if not a little bit more. Does this imply you're entirely resetting, kind of the channel all at once in Q3? Then, you know, as you get into Q4, we're gonna start to be looking at a normalized environment, you're starting to fill the channel again. Like, what, what's, what's sort of the, the implication here if, if that math is correct, to begin with? Right. In addition to that math, Brian, the other way, one more way to look at it is, you know, you always look at your ending on-hand inventory, assuming a projected demand going forward. We are not assuming any optimistic demand for Q3. We assume the same level of uncertainty continues for Q3. That's another portion of the math that needs to be done to calculate how much we should really ship into the channel in Q3, and we took that into account. As I also said in Europe, you know, we expect to be slightly down as compared to last quarter due to typical seasonality. To answer your question, that's the idea. We'd like to bring the channel back to a healthy place at the end of Q3. Okay, fair enough. But embedded in your guide for Q3, the sell-through sounds like you're assuming, you know, continued weakness. Do you anticipate that to just kind of be a flatline assumption all the way through the rest of this year, end of the year, and that's how you're approaching the channel, reset even beyond Q3? That's right. That, that's right. Okay. We, we are assuming also a little bit on, on the NEM 3.0. I mean, look, we are confident that this is, this is a one-time correction. The reason is, we, we have a lot more new products that are coming out for us. We all feel good that this, this one-time correction will, you know, clearly normalize the channel. On top of it, we have so many initiatives to diversify our revenue, including the new countries in Europe and the small commercial in the U.S., that we talked about. We are cautiously optimistic we are correct. Okay, great. Then I guess that's a good segue into my second question, and then I'll pass it on. You know, you're, you're sort of the newer player in Europe. You're coming out with new product, new markets, and obviously you have the highest margins out there in the industry, and I know you wanna protect those. As you enter new markets in this environment, is there a kind of different mindset around pricing strategy? Can you maybe speak at a high level about kind of what you're thinking in regards to pricing when, you know, you're out in Europe and you're trying to gain share there, and, you know, maybe you have some margin wherewithal to, to work with? Thanks, guys. Yeah, I think that's also a good question. In, in Europe, on microinverters, I mean, the folks in Netherlands and France understand us perfectly. For small systems, like in Netherlands and, yeah, France, they love our quality, they love our service, and, we are extremely, you know, close to these partners. We provide them, you know, outstanding service. Your question on new areas, I mean, that's something we, we are always thinking as we enter the emerging markets, for example, like Brazil, for example, like even the small commercial market. We are able to manufacture those microinverters, which are high-power microinverters, 480 W AC. Those we are able to manufacture in the US, and we get incentives, production tax credit, to the tune of $0.11 a watt for those inverters. I think there is some opportunity there for us to become a little more aggressive in terms of market share, and we'll be pursuing those. Okay, I appreciate that. Thank you. Thank you. The next question comes from Eric Stine with Craig-Hallum. Please go ahead. Hi, everyone. Thanks for sneaking me in here at the end. If I understand correctly, it sounds like you feel pretty good about battery inventory in the channel, and, and again, I do appreciate everything you gave on the microinverter side. Just curious, you know, with that in mind, with Gen 3 the launch and getting into the market, and then NEM 3.0 expected to start in Q4. I mean, are you willing to call a bottom? I think last quarter you said that you thought Q2 might be the bottom, bottom for battery volumes. I mean, is that still a fair expectation? Yeah, I mean, that's right. That is still a fair expectation. We are exactly on track for that. We feel really good on batteries. We have started shipping our 3rd gen batteries. The 3rd-gen batteries solve some unique problems with the 2nd generation, although on the 2nd generation, we have kind of cleaned it up. The 3rd generation has got outstanding commissioning times. The beautiful thing in Australia is that we have the one product that combines the gateway plus the isolator, and so it is, it is, it is nice and compact, and it's very easy to install. The entire commissioning time, and I was told yesterday, somebody did it in under 10 minutes. We feel really good there. In terms of power, power, I mean, this battery, 5 kWh battery, has got 3.84 kW of continuous power and 7.68 kW of peak power. Just a 5 kWh battery, which is double compared to our prior generation. In fact, it is double on continuous and triple on peak power. That peak power is very critical because that is what helps you start air conditioners. We can do a lot of great things in software. If somebody thinks it is too much power, we have the ability to throttle continuous power, but still maintain peak power. I mean, we are, we are very happy with our third generation. Of course, we can... You know, no product is, is perfect at the time of introduction, but this is a step function compared to 2nd generation in terms of power. You know, we think our battery business, I mean, we called Q2 as the bottom. I believe it is the bottom. We are guiding Q3 to be the same range, 80%-100%, and we think with the NEM 3.0 starting to come up in Q4, we should start seeing. A lot more activity there, along with our introduction into U.K., Italy, Poland, Greece, you know, all of those should start to account for more megawatt hours as well. Also, in Europe, Germany, as Badri mentioned earlier on, it's an 80% battery attach, and our business in Germany is definitely starting to pick up. It gives me a lot of confidence as well. Germany is one of the more mature, and a tough market to go as a new entrant, to go in and win. We are definitely doing well in Germany as well, both not just for solar, but solar and our batteries. Definitely feel optimistic, bullish on the battery. Okay, thanks for the call. The next question comes from Jeff Osborne with Cowen. Please go ahead. Hey, hey, Badri and Raghu. Two quick ones. I was wondering if you could provide us, maybe dumb it down a bit. People have asked us multiple ways, but the, the walk of guidance, you're down about $135 million sequentially at the midpoint. Is it safe to say that sort of two-thirds of that might be from the US, just due to the channel inventory and a third seasonality in, in Europe? Is, is there a way of, of, you know, bucketizing the Q-? I would say more like 85/15. Got it. That's helpful. Then, you know, it seems the strategy is to expand into as many geographies as humanly possible quickly. In your experience with past geography expansion, how quickly does it take a country to be productive in terms of training, working with the distributor, marketing? Is that a six-month lag or, you know, you're talking about Greece, U.K., et cetera? Like, what's your expectation internally? Is that more mid-next year when those would start kicking in, or spring? Any, any thoughts would be helpful. Yeah, that's a good question. The, you know, I'll, I'll just answer it because this is what I tell my sales guys. It is, it is to say, we need a complete cross-functional team when we enter a new geography. What does a cross-functional team mean? You need a sales leader in the country. You need a couple of account managers in that country, assuming the sales is meaningful in terms of the total available market. You need field application engineers, because the moment you have sales, the first thing they are going to be asking is, "Help," on how do you design in the product. So field application engineers need to be hired at the same time. You need training. We need to conduct. We have beautiful courses. We need to conduct training workshops every day of the week in every city. Training folks are required. Customer service is vital. We will never enter a region without customer service staffed in the local language. For batteries, field service technicians are critical. Because these field service technicians are the ones who will take any battery issue off the installer's plate, they are experts, one or two per region. A good cross-functional team for entering a region is about five to six folks, the people that I mentioned. We are in the process of staffing that up. I've got Dave Ranhoff back, my Chief Commercial Officer. He thought he retired three months ago, but I've gotten him back. He's going to be with us for a couple of more years, so he basically is championing all of our go-to-market activity in Europe as well as new segments in the U.S. Appreciate it. Thank you. The next question comes from Steve Fleishman with Wolfe Research. Please go ahead. Yeah, thanks. Just wanted to, to clarify, sorry to ask some more questions to some others, but the, the impact of the inventory reset from the first half of the year that you're gonna do in Q3, can you just identify what that catch-up is, as opposed to kind of ongoing inventory changes? Yeah. Just the impact of... Yeah. Maybe you missed my detailed answers on this. Let me try to say, once again. I, I guess I, I heard actually just like in hundreds of million dollars, like on that, on revenue. Do you have a number for that? Or you know, tens of million dollars. Yeah. The, I mean, what we said is we, we are taking our guidance from, from, you know, or we are taking our revenue numbers from an actual Q2 actual of $711 million to a guidance for Q3, $550 million-$600 million, midpoint is $575 million. A portion of it, most of it, 85% is what I said, is because we are doing a one-time correction, and the rest of it is Europe is seasonally down in Q3. Okay. Great. Then on the, on the Europe aspect, could you just clarify how you know it's this seasonal issue as opposed to?... the beginning of some of the same issues we've seen in the U.S. in terms of, you know, gas prices down, higher rates? How, how do you know it's the seasonality? Well, that's what, you know, we are hearing. We are very close to our customers. This is what we are hearing from all of them. The fundamental drivers aren't changing. For us, you know, really, like what I said, we aren't that much worried about talks of inventory because we are under-penetrated in Europe. You know, we are strong in France and Netherlands, but every other region in Europe is a blue ocean for us. Like, for example, in Italy, solar plus storage. In U.K., the same thing. In Poland, similar. In Sweden and Denmark, similar. In Greece, similar. We are under-penetrated in most of the regions, except France and Netherlands, which have been fantastic for us. I think we are extremely bullish about Europe. Our growth rate, like what we said, is more than tripled growth in Q2, more than tripled year-on-year. We are very bullish there. Yeah. Understood. Thank you very much. The next question comes from Corinne Blanchard with Deutsche Bank. Please go ahead. Hey, good evening, team. Look, most of my question has been answered at this point, but maybe if you can help me or help us understand the impact of the IRA benefit into next year. I believe you now elected to get, like, a tax credit. Does that fully erase what you will be paying, or just if you can give some color here? Yeah. The net benefit from IRA, we are breaking it out so you can see it properly. In the second quarter that ended just now, the net benefit was $1.6 million. That came because of 50,000 units shipped at, you know, you can do the math, roughly $30 odd dollars, so that's about $1.6 million. For Q3, we have given you a guidance of 600,000 units and an estimated IRA benefit of $14.5 million-$16.5 million. You can calculate how much is on a per unit basis. In the past, I have told you that the net benefit is between $20 and $30 per unit, and we will continue to give that number every quarter because the mix is changing every quarter. Sometimes we make high-power products, depending on customer demand, and sometimes it is, it is, slightly lower power products, so the mix changes. We also gave you a number which is, you know, pending robust demand, we will do 4.5 million units per quarter, and we will reach up to that number in Q4 of 2024. That number, if you do the math, it is 4.5 million units, times, let us say, an average benefit of $25. That's, that's like $112.5 million of net benefit in Q4 2024. That's, that's the math, that will be accounted in the cost of goods sold. We will break out the gross margin with IRA and without IRA, so you can see this, and it'll be very clear. Okay, thank you. Just one quick follow-up, previously you had mentioned you expected to reach that 4.5 million quarterly capacity by the end of 2024. As of today, look, I understand, you know, visibility can change and demand can change, but as of today, that's still something that you anticipate by, by next year to reach? Well, it all depends. That is why we qualified it with saying pending robust demand. If that demand is, for example, let us say we go through another recession next year, then I mentioned earlier that we would look at how to balance this out between U.S. and international, and we will give you the appropriate guidance at that time. Okay, thank you. The next question comes from Sophie Karp with KeyBank. Please go ahead. Hi, good afternoon. Thank you for squeezing me in. I wanted to ask you a question on kind of go-to-market strategy, particularly as you expand to Europe, where competition is higher across different product lines. Does it make sense for you to, I guess, launch some kind of brand awareness campaign aimed at the end consumer, you know, you know, so that people could maybe learn and say the brand by name? Or do you think that you should continue just reaching customers by primarily targeting dealers and installers? You know, if you take a book out of what we have done here in the U.S., we really have focused on, on our installers, right? Our installers are really the, the, the, the front for the, for the homeowner, and obviously that has been very effective. Having said that, you know, we do use all of the social media, you know, tools that we have at our disposal to, to reach end-end consumers. We do provide, you know, cover for our installer partners. Really our focus remains, letting our installers be the ones that are actually selling the product to the, to the end consumer. The end consumer does see the Enphase product very clearly because they have that all-in-one app that they see, and they see the Enphase brand. They do get, get to, get to see it, but in general, we let our installer partners be the front for our, for our company and product. Mm-hmm. Got it. Thank you. Maybe a quick one on TPO versus I guess cash sales and loans. Do you have any visibility with your installers, any commentary you can share on, how they're navigating the environment where TPOs are maybe taking the market share, becoming more price competitive, given the interest rates and the IRA benefits, and, what, what does that mean for the volume of business that they can be doing going forward? We do see a number of installers trying to shift their business from cash, I mean, from loans to PPAs. Usually, these are, slightly bigger installers, less on the long tail. We work with them. We work with many of the leasing, yeah, leasing partners. They buy our microinverters. For us, so far it is, it hasn't nominally changed anything for us. Mm-hmm. We do see some shift happening. That is correct. All right. This is all for me. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Badri Kothandaraman for any closing remarks. Thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter. Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.